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Bayer Off to an Excellent Start in 2008

Interim report for the first quarter of 2008 Bayer off to an excellent start in 2008 Sales up 2.4 percent to EUR 8,536 million / EBITDA before special items up 9.8 percent to EUR 2,185 million / EBIT before special items up 8.9 percent to EUR 1,497 million / Full-year guidance for CropScience raised / Positive Group forecast confirmed

LEVERKUSEN, Germany, April 24, 2008 - The Bayer Group posted excellent results in the first quarter of 2008. "We carried over the previous year’s positive trend in both sales and earnings, and this strengthens our confidence for the year as a whole," Bayer AG Management Board Chairman Werner Wenning explained on Thursday when the interim financial report was published. Net sales increased by 2.4 percent to EUR 8,536 million (Q1 2007: EUR 8,335 million). This corresponds to a 6.9 percent improvement after adjusting for currency and portfolio effects. The main contributions to this improvement came from CropScience with a 14.8 percent increase and HealthCare with 8.6 percent. Sales of MaterialScience were at the previous year’s level (+0.6 percent).

Earnings before interest, taxes, depreciation and amortization (EBITDA) and before special items rose by 9.8 percent in the first quarter to EUR 2,185 million (Q1 2007: EUR 1,990 million) despite adverse shifts in currency parities. "Our first-quarter performance was ahead of our expectations," said Wenning. The operating result (EBIT) before special items climbed by 8.9 percent to EUR 1,497 million (Q1 2007: EUR 1,375 million).

Pharmaceuticals provides further growth stimulus for Bayer HealthCare

Sales and earnings of the HealthCare subgroup rose considerably. "Bayer HealthCare posted outstanding figures for the first quarter, thanks especially to the success of the Pharmaceuticals segment," Wenning explained. Sales of the subgroup increased by 3.4 percent to EUR 3,731 million (Q1 2007: EUR 3,610 million). Adjusted for currency and portfolio effects, however, business expanded by a substantial 8.6 percent.

In the Pharmaceuticals segment, sales increased by 4.8 percent (currency- and portfolio-adjusted: + 9.9 percent) to EUR 2,614 million. The principal growth drivers were the Yasmin®/YAZ®/Yasminelle® family of oral contraceptive products and the cancer drug Nexavar®, sales of which rose by 33.3 percent and 129.9 percent, respectively, on a currency-adjusted basis. The multiple sclerosis treatment Betaferon®/Betaseron® (currency-adjusted: + 18.3 percent) and the hormonal intra-uterine system Mirena® (currency-adjusted: + 50.8 percent) also registered very pleasing growth.

Sales in the Consumer Health segment edged up 0.2 percent to EUR 1,117 million. After adjusting for currency and portfolio changes, the increase came to 5.4 percent, the prior-year quarter having benefited from two market launches - a new formulation of the analgesic Aleve® in the United States and the blood glucose monitoring system "Breeze® 2" in North America. In the Consumer Care Division - which markets Bayer’s over-the-counter medicines - the strongest growth was achieved by the Bepanthen®/Bepanthol® product group (currency-adjusted: + 27.8 percent), while Canesten improved by a currency-adjusted 14.9 percent, Supradyn® by 10.7 percent . The Diabetes Care Division grew particularly as a result of the successful launch of the Contour® blood glucose monitoring systems (currency-adjusted: plus 27.7 percent), which are replacing the Elite® systems. The Animal Health Division improved even more substantially, thanks especially to the 10.3 percent currency-adjusted growth of the Advantage® product line.

Bayer HealthCare increased first-quarter EBITDA before special items by 10.8 percent to EUR 1,050 million (Q1 2007: EUR 948 million). Earnings growth was bolstered by the strong business performance and synergies from the integration of Schering AG, Germany. Negative currency effects were more than offset.

Markedly improved performance by Bayer CropScience

Bayer CropScience was particularly successful in the first quarter of 2008. "We shared in the positive performance of the world’s agricultural markets," said the Bayer CEO. The subgroup raised sales by a significant 10.8 percent in the first quarter of 2008 to EUR 1,978 million (Q1 2007: EUR 1,786 million). Adjusted for currency and portfolio changes, sales advanced by 14.8 percent.

Sales of the Crop Protection segment (conventional agrochemicals) rose by 13.1 percent to EUR 1,622 million. The currency-adjusted increase was an even more substantial 17.8 percent, with the herbicides and fungicides businesses performing particularly well. Growth was driven mainly by the segment’s young products. Sales of the products based on active ingredients that have been introduced to key markets since 2000 climbed by some 40 percent to more than EUR 600 million.

Sales in the Environmental Science, BioScience segment rose by 1.1 percent (currency-adjusted: + 2.3 percent) to EUR 356 million. Adjusted for currency and portfolio effects, sales of BioScience improved by 14.4 percent. By contrast, there was a currency-adjusted decrease of 8.3 percent at Environmental Science. Business shrank in North America, chiefly as a result of adverse weather patterns and heightened generic competition. Sales growth in Europe only partially offset this decline.

EBITDA before special items of Bayer CropScience came in at EUR 713 million, up 22.1 percent (Q1 2007: EUR 584 million). This significant earnings improvement was due particularly to the growth in business, selling price increases and cost savings, which more than offset the negative currency effects.

Earnings of Bayer MaterialScience at prior-year level

The high-tech materials business turned in a pleasingly robust performance in the first three months. Although sales were down 3.7 percent to EUR 2,512 million (Q1 2007: EUR 2,608 million), business edged up by 0.6 percent when adjusted for portfolio and currency effects. Higher selling prices were only partly offset by a slight decline in volumes.

Sales in the Systems segment slipped 1.6 percent to EUR 1,839 million. Adjusted for currency and portfolio changes, sales grew by 1.6 percent, thanks to selling price increases. While the polyurethanes business showed a slight currency- and portfolio-adjusted 1.2 percent decline due to significantly lower raw material sales, the raw materials for coatings, adhesives and specialties recorded 7.3 percent growth.

In the Materials segment, sales fell by 8.9 percent to EUR 673 million, posting a currency- and portfolio-adjusted drop of 2.1 percent. The main reason for the lower sales was a decline in volumes, while selling prices were steady. The sales trend in polycarbonates reflected the difficult market conditions, while sales of thermoplastic polyurethanes increased.

Earnings were down considerably in the Materials segment, while those of the Systems segment showed a pleasing improvement. For the subgroup as a whole, EBITDA before special items came to EUR 407 million, virtually equaling the previous year’s level of EUR 409 million.

Cash flow and operating profit rise sharply

The operating result was diminished in the first quarter by special charges of EUR 154 million (Q1 2007: EUR 200 million), including EUR 100 million related to the acquisition of Schering AG, Germany, and EUR 54 million arising from the cost structure program at CropScience. After special items, EBIT climbed by 14.3 percent to EUR 1,343 million (Q1 2007: EUR 1,175 million).

Income from continuing operations after taxes rose to EUR 762 million (Q1 2007: EUR 656 million). Net income for the first quarter of 2008 also came in at EUR 762 million (Q1 2007: EUR 2,809 million), the prior-year figure having included the divestiture proceeds from the diagnostics business.

First-quarter gross cash flow moved ahead by 17.0 percent to EUR 1,651 million, while net cash flow rose by 40.8 percent to EUR 528 million. Net debt was EUR 12.1 billion as of March 31, 2008, compared with EUR 12.2 billion on December 31, 2007.

Confidence strengthened for 2008 as a whole

"The very good first quarter also strengthens our confidence for the year as a whole," Wenning remarked, explaining that Bayer continues to target about 5 percent currency-adjusted growth in Group sales, an increase in EBITDA before special items and a further improvement in the underlying EBITDA margin. He also confirmed the company’s target margin for 2009: Bayer aims for an improvement in the Group’s underlying EBITDA margin to over 22 percent.

The company remains confident about the performance of its HealthCare business, and is targeting a market or above-market rate of currency-adjusted sales growth in all divisions in 2008. As announced at the beginning of March following the negative ruling in the United States regarding the Yasmin® patent, Bayer HealthCare now aims to improve its EBITDA margin before special items toward 27 percent (previously: approximately 27 percent). There is no change to the target margin of approximately 28 percent for 2009.

The company now believes that Bayer CropScience will exceed its forecast of 5 percent currency-adjusted sales growth. At the same time, its goal is to improve the EBITDA margin before special items for the full year to about 24 percent (previously: more than 23 percent). Bayer CropScience also plans to further increase its profitability by 2009 and continues to target an EBITDA margin before special items of around 25 percent in a normal market environment.

The development of the MaterialScience business over the remainder of the year is difficult to forecast due to the uncertainty regarding the business environment and the movement of raw material prices. The company expects second-quarter EBITDA before special items at MaterialScience to be close to the level of the first quarter. For the year as a whole, Bayer MaterialScience continues to expect that it can achieve a good, value-creating earnings level, though without matching the 2007 figure.

Name: Günter Forneck 
  Head of Media Relations
 
Address: Bayer AG
Building: W 11
Germany-51368 Leverkusen
 
Telephone: + 49 (0) 214-30-50446
Telefax: + 49 (0) 214-30-55156
E-Mail: guenter.forneck.gf@bayer-ag.de

Posted: April 2008


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