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Bayer continues its success
Leverkusen, July 30, 2008 - The Bayer Group continued its successful development in the second quarter of 2008. "We are particularly pleased at the strong performance of Bayer CropScience and are again raising our full-year guidance for this subgroup," Management Board Chairman Werner Wenning explained on Wednesday when the interim report was published. Group sales climbed by 3.6 percent to EUR 8,511 million (Q2 2007: EUR 8,217 million), due especially to good volume growth. Adjusted for currency and portfolio effects, business expanded by 9.5 percent. CropScience sales rose 23.0 percent, HealthCare 6.6 percent and MaterialScience 5.3 percent.
Earnings before interest, taxes, depreciation and amortization (EBITDA), before special items, rose by 5.0 percent in the second quarter, to EUR 1,896 million (Q2 2007: EUR 1,806 million). Here, too, CropScience posted the largest increase. "We are very satisfied with our performance overall. We succeeded in significantly improving our operating result although exchange rates remained unfavorable and energy and raw material costs continued to rise," Wenning said. In the second quarter alone, currency effects diminished EBITDA by approximately EUR 190 million. The operating result (EBIT) before special items grew by 5.3 percent to EUR 1,248 million (Q2 2007: EUR 1,185 million). Positive trend at HealthCare continues
Sales of Bayer HealthCare improved by 0.5 percent in the second quarter to EUR 3,734 million (Q2 2007: EUR 3,717 million). The currency- and portfolio-adjusted increase was 6.6 percent.
Sales in the Pharmaceuticals segment held steady year on year, at EUR 2,584 million. On a currency- and portfolio-adjusted basis, business expanded by 5.8 percent. The strongest growth among the leading products was achieved by the cancer drug Nexavar®, sales of which advanced by 90.4 percent on a currency-adjusted basis (Fx adj.). Also posting strong gains were the hormonal intra-uterine system Mirena® and the Yasmin®/YAZ®/Yasminelle® family of oral contraceptives, where sales grew by 47.2 and 32.1 percent (Fx adj.), respectively. Sales of the multiple sclerosis treatment Betaferon®/Betaseron® gained 13.6 percent and Aspirin Cardio® 22.2 percent (both Fx adj.). Sales of the hemophilia drug Kogenate® declined by 6.7 percent (Fx adj.), largely due to fluctuations in the order pattern of a marketing partner.
In the Consumer Health segment, business expanded by 1.4 percent (currency- and portfolio-adjusted: 8.3 percent) in the second quarter, to EUR 1,150 million. All divisions contributed to this increase. In the over-the-counter medicines (Consumer Care) business, the antifungal Canesten® showed the biggest increase among the leading products, with business up by 23.4 percent (Fx adj.), followed by the analgesic Aleve®/ naproxen (Fx adj. 19.4 percent). The Diabetes Care Division continued to benefit from the successful marketing of the Contour® blood glucose monitoring systems (Fx adj. +22.3 percent), which are replacing the older Elite® systems. In the Animal Health Division, our important product Advantage® - used for flea control - experienced sales growth of 6.2 percent (Fx adj.).
EBITDA before special items of the subgroup climbed by 2.6 percent to EUR 994 million (Q2 2007: EUR 969 million). The pleasing growth in business and synergies from the integration of Schering, Berlin, Germany, more than offset unfavorable currency effects and the considerably higher marketing costs associated with business expansion in emerging countries and new product launches.
Outstanding performance by Bayer CropScience
The Bayer CropScience subgroup was particularly successful, with sales rising by 15.5 percent to EUR 1,804 million (Q2 2007: EUR 1,562 million). On a currency- and portfolio-adjusted basis, the increase was 23.0 percent. Growth was attributable chiefly to a very gratifying volume increase and a rise of nearly 3 percent in selling prices. "Our business benefited from the trend on the world agricultural markets and generally favorable weather patterns in Europe and Latin America," Wenning remarked.
Sales of the Crop Protection business climbed by 20.9 percent (Fx adj. 29.1 percent) to EUR 1,526 million. Sales rose in all business units thanks to the positive market environment, but were particularly strong for fungicides. Our young products based on active substances introduced to core markets since 2000 achieved above-average growth, with sales advancing by roughly 50 percent to over EUR 500 million. "We are confident of generating annual sales of EUR 2 billion with these products by 2009 - two years earlier than our original goal of 2011," Wenning said.
Business in the Environmental Science, BioScience segment declined by 7.3 percent (currency- and portfolio-adjusted: 2.6 percent) year on year, to EUR 278 million. Sales of the BioScience business group gained 13.0 percent to EUR 113 million. Adjusted for currency effects and for acquisitions in the cotton and vegetable seed businesses, sales of BioScience rose by 13.9 percent. By contrast, sales of Environmental Science declined by 17.5 percent (Fx adj. 10.9 percent) to EUR 165 million. In North America, there was a further drop in sales of products for professional users in the green industry segment, while in Europe, business was down particularly in the area of home and garden products for consumers.
EBITDA before special items of Bayer CropScience increased by 26.5 percent to EUR 501 million (Q2 2007: EUR 396 million), due to higher earnings from the crop protection business. Against the background of a positive market environment and steadily rising raw material and energy costs, the subgroup succeeded in implementing price increases for a number of product groups in the first six months of the year. Bayer CropScience is planning further price adjustments in the second half of 2008.
Difficult market environment for Bayer MaterialScience
Sales of our high-tech materials business were level with the prior-year quarter, at EUR 2,622 million (Q2 2007: EUR 2,623 million). Bayer MaterialScience exceeded the figure for the same quarter of 2007 by 5.3 percent on a currency- and portfolio-adjusted basis. This expansion was attributable to selling price and volume increases.
In the Systems segment, sales advanced by 3.7 percent (currency- and portfolio-adjusted: 8.1 percent) to EUR 1,935 million. All business units contributed to this increase. Our foam raw materials (polyurethanes) business - particularly TDI (toluene diisocyanate) - posted a gratifying performance. The Polyurethanes business unit saw sales rise by a currency- and portfolio-adjusted 8.7 percent overall. Our coatings, adhesives and specialties businesses grew by a currency- and portfolio-adjusted 5.2 percent.
The Materials segment generated sales of EUR 687 million, down 9.2 percent from the prior-year period. Adjusted for currency and portfolio effects, sales declined by 1.8 percent. The main reason for this was price erosion for polycarbonates, while volumes of these products held steady. Sales of the Polycarbonates business unit dropped by 2.3 percent on a currency- and portfolio-adjusted basis. By contrast, the Thermoplastic Polyurethanes business unit grew sales by a currency- and portfolio-adjusted 4.3 percent.
Despite this expansion in business, EBITDA before special items of Bayer MaterialScience fell by 9.0 percent to EUR 372 million. Overall earnings were weighed down by a year-on-year increase of more than EUR 100 million in raw material and energy costs and by negative currency shifts. These effects were not completely offset by selling price and volume increases and savings from the cost structure programs.
Operating result and cash flow advance significantly
For the Bayer Group as a whole, net special charges were lower than for the prior-year period, at EUR 143 million (Q2 2007: EUR 268 million). After special items, Group EBIT improved by 20.5 percent to EUR 1,105 million (Q2 2007: EUR 917 million). After-tax income from continuing operations climbed by 40.7 percent to EUR 581 million (Q2 2007: EUR 413 million). Group net income was EUR 574 million (Q2 2007: EUR 660 million). The prior-year figure contained earnings of EUR 244 million from discontinued operations that primarily consisted of proceeds from the divestiture of Wolff Walsrode.
Gross cash flow rose by 11.4 percent in the period April through June, to EUR 1,322 million (Q2 2007: EUR 1,187 million). Despite a seasonal increase in cash tied up in working capital, net cash flow also increased by 8.9 percent to EUR 889 million (Q2 2007: EUR 816 million). Net debt amounted to EUR 13.3 billion on June 30, 2008, which was EUR 1.2 billion higher than at the end of March. This increase resulted primarily from dividend payments totaling EUR 1.0 billion, further factors being the variable compensation components paid to employees and the higher interest payments that regularly occur in the second quarter.
First-half performance improves
Bayer also considerably improved its operating performance in the first half of the year. Sales moved forward by 3.0 percent to EUR 17,047 million (H1 2007: EUR 16,552 million). On a currency- and portfolio-adjusted basis, the increase came to 8.2 percent. EBITDA before special items increased by 7.5 percent to EUR 4,081 million (H1 2007: EUR 3,796 million), while EBIT before special items rose by 7.2 percent to EUR 2,745 million (H1 2007: EUR 2,560 million). After-tax income from continuing operations improved to EUR 1,343 million (H1 2007: EUR 1,069 million). Group net income came in at EUR 1,336 million (H1 2007: EUR 3,469 million). The prior-year figure contained after-tax income from discontinued operations of EUR 2.4 billion, consisting mainly of the proceeds from the divestitures of the Diagnostics business, H.C. Starck and Wolff Walsrode.
Sales forecast for 2008 raised
"The successful first half of 2008 has strengthened our confidence for the full year," explained Wenning. "We now plan to increase Group sales by more than 5 percent on a currency- and portfolio-adjusted basis." Bayer had previously anticipated an improvement of about 5 percent. The company aims to further improve EBITDA before special items and the underlying EBITDA margin from EUR 6,777 million and 20.9 percent, respectively, in 2007.
"We remain optimistic about the development of our HealthCare business," the Chairman went on, "and continue to expect that we will grow with or above the market in all divisions." The subgroup plans to improve its underlying EBITDA margin toward 27 percent in 2008.
For the CropScience business, Bayer expects the positive environment to continue, and accordingly has again raised its guidance for the full year. On a currency- and portfolio-adjusted basis, BCS now aims to increase sales by well over 10 percent, compared to previous guidance of more than 5 percent. The subgroup intends to improve the underlying EBITDA margin to about 25 percent (previously: about 24 percent). "This means the margin we originally targeted for 2009 would be reached a year earlier than planned," said Wenning.
Against the background of a slowdown in economic growth and further increases in raw material and energy costs, Bayer expects third-quarter EBITDA before special items at MaterialScience to be below the level of the second quarter. For the year as a whole, the subgroup still expects to achieve a good, value-generating earnings level, though without matching the 2007 figure.
The Half-Year Financial Report as of June 30, 2008 is available on the Internet at www.investor.bayer.com.
On the Internet we are also offering alive webcast of today's Investor Conference Call beginning at 10:00 p.m. CEST.