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Leverkusen, Germany
April 29, 2009
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CropScience and Pharmaceuticals continue on a path of growth
- Slump in business at MaterialScience leaves a distinct mark
- Group sales: EUR 7,895 million (minus 7.5 percent)
- EBITDA before special items: EUR 1,695 million (minus 22.4
percent)
- EBIT before special items: EUR 1,017 million (minus 32.1
percent)
- Net cash flow: EUR 693 million (plus 31.3 percent)
The performance of the Bayer Group’s businesses in the first
quarter of 2009 varied widely as expected. “While CropScience
and Pharmaceuticals continued on a path of growth, the slump in
business at MaterialScience also left a distinct mark on sales
and earnings of the Bayer Group,” Management Board Chairman
Werner Wenning explained on Wednesday when the interim report
was published. Wenning described the goal of limiting the
decline in the Group’s earnings before interest, taxes,
depreciation and amortization (EBITDA), before special items,
for the full year 2009 to 5 percent as increasingly demanding.
However, he believes it could still be achieved if there is a
tangible recovery in the MaterialScience business. He said the
downturn seems to be bottoming out. “The first signs of a modest
recovery in demand are appearing,” said Wenning.
Group sales for the period January through March came in at EUR
7,895 million, down 7.5 percent against the record figure of EUR
8,536 million reported for the same quarter last year. After
adjusting for currency and portfolio effects (Fx & portfolio
adj.), sales declined by 9.7 percent. EBITDA before special
items decreased by 22.4 percent to EUR 1,695 million (Q1 2008:
EUR 2,185 million). Here, too, the improvement posted for the
life-science activities was not sufficient to offset the
declines for the industrial business. The operating result
(EBIT) before special items also moved lower, dropping by 32.1
percent to EUR 1,017 million (Q1 2008: EUR 1,497 million).
HealthCare benefits from the pleasing performance of the
pharmaceuticals business
Sales of the HealthCare subgroup rose by 3.0 percent compared
with the strong prior-year quarter, to EUR 3,843 million (Q1
2008: EUR 3,731 million). Adjusted for currency and portfolio
effects, business remained at the previous year’s level (plus
0.3 percent). “While our pharmaceuticals business saw pleasing
growth overall, sales of Consumer Health were down because of
inventory reductions and lower consumer spending,” Wenning
explained.
In the Pharmaceuticals segment, first-quarter sales rose by 4.8
percent (Fx & portfolio adj. 2.5 percent) to EUR 2,587 million.
All four business units – General Medicine, Specialty Medicine,
Women’s Healthcare and Diagnostic Imaging – contributed to this
increase. The cancer drug Nexavar® saw the strongest growth,
with sales up 28.6 percent on a currency-adjusted (Fx adj.)
basis. Sales of the multiple sclerosis treatment
Betaferon®/Betaseron® (Fx adj. plus 7.4 percent) also developed
well, as did those of the YAZ® family of oral contraceptives (Fx
adj. plus 4.6 percent). Business with the hemophilia drug
Kogenate® also improved (Fx adj. plus 3.2 percent). However,
sales of the antiinfective Avalox®/Avelox® fell due to a weak
flu season in the United States (Fx adj. minus 14.0 percent).
Sales of the contrast agent Magnevist® were also down (Fx adj.
minus 14.9 percent), although this decline was offset by an
increase for Gadovist® (Fx adj. plus 44.9 percent). Sales of
Aspirin Cardio® improved by 9.8 percent after adjusting for
currency effects.
Sales in the Consumer Health segment were nearly level year on
year at EUR 1,256 million (minus 0.5 percent). After adjusting
for currency and portfolio effects, however, they shrank by 4.1
percent. The non-prescription medicines business (Consumer Care)
was hampered by the difficult economic environment, which
particularly impacted sales of the analgesics Aleve®/naproxen
(Fx adj. minus 17.9 percent) and Aspirin® (Fx adj. minus 16.2
percent). On the other hand, sales of the Bepanthen®/Bepanthol®
product line moved ahead (Fx adj. 8.3 percent). The newly formed
Medical Care Division includes products and services for people
with diabetes, along with the Medrad medical equipment business
comprising systems and services for diagnostic imaging and
therapy. Here, revenues were also held back by the weak economy.
For example, sales of blood glucose monitoring systems such as
Contour® (Fx adj. minus 4.6 percent) were hampered by the fall
in consumer demand in the United States. The reduction of
inventories by U.S. distributors had a negative effect in the
Animal Health Division. This affected sales of products such as
the Advantage® flea and tick control line (Fx adj. minus 3.1
percent).
EBITDA before special items of the Bayer HealthCare subgroup
improved by 1.0 percent to EUR 1,061 million (Q1 2008: EUR 1,050
million). There was a gratifying increase in earnings of the
Pharmaceuticals segment, while those of Consumer Health
declined.
CropScience
increases selling prices and volumes
“Bayer CropScience had a very pleasing first quarter,” said
Wenning. This subgroup increased sales by 7.2 percent (Fx adj.
7.4 percent) to EUR 2,120 million (Q1 2008: EUR 1,978 million)
thanks to higher selling prices coupled with an increase in
volumes.
In the Crop Protection business, sales climbed by 6.9 percent
(Fx adj. 7.0 percent) to EUR 1,734 million, with stong increases
particularly for herbicides (Fx adj. plus 13.1 percent) and
fungicides (Fx adj. plus 13.6 percent). Sales of seed treatment
products improved (Fx adj. plus 2.2 percent), while business
with insecticides was down year on year (Fx adj. minus 12.0
percent), mainly because of a prolonged drought and low levels
of pest infestation in southern Brazil and Argentina. The Crop
Protection business in North America, western Europe and
Asia/Pacific expanded significantly overall, while adverse
weather patterns caused sales to decline in Latin America.
The Environmental Science, BioScience segment increased sales by
8.4 percent (Fx adj. 9.0 percent) to EUR 386 million. The
BioScience business unit achieved sales growth of 16.2 percent
(Fx adj. 19.7 percent), due primarily to the successful
performance of InVigor® hybrid canola seed in North America.
Sales of Environmental Science, however, receded by 0.6 percent
(Fx adj. down by 3.3 percent). Business with consumer products
fell markedly in Europe, due in part to the long winter season.
EBITDA before special items at Bayer CropScience grew by 3.4
percent in the first quarter to EUR 737 million (Q1 2008: EUR
713 million). Whereas earnings were lifted by the growth in
business, expenses for marketing and production activities had
the opposite effect.
Demand at MaterialScience drops sharply
Sales of our high-tech materials business posted a severe drop
of 34.9 percent (Fx & portfolio adj. 38.4 percent) to EUR 1,636
million (Q1 2008: EUR 2,512 million). The global economic crisis
led to considerably weaker demand in the relevant customer
industries. “The MaterialScience subgroup experienced a steep
fall in volumes, with pressure on prices increasing at the same
time. Nearly all product groups at MaterialScience were impacted
by this trend in all regional markets,” said Wenning. “This is
an unprecedented development for Bayer.”
Business with foam raw materials (Polyurethanes) in the first
quarter was down by 39.3 percent on a currency- and
portfolio-adjusted basis. Sales of the Polycarbonates unit also
fell sharply (Fx adj. minus 41.7 percent), as did those of raw
materials for coatings, adhesives and specialties (Fx &
portfolio adj. minus 40.8 percent).
The drop in volume sales and selling prices was accompanied by
significantly lower capacity utilization at the production
facilities of MaterialScience. This caused EBITDA before special
items to slump to minus EUR 116 million (Q1 2008: plus EUR 407
million). No significant benefit was yet felt from the fall in
raw material costs compared with the first quarter of last year.
Wenning pointed out that steps such as temporarily shutting down
certain plants and cutting back production at others, bringing
forward planned maintenance work and making greater use of
flextime arrangements were introduced at all sites of
MaterialScience worldwide at an early stage. Furthermore,
management and the employee representatives at MaterialScience
agreed to a reduction in the working hours of payscale employees
at the German sites for a limited period, accompanied by a
corresponding reduction in collectively agreed rates of pay.
Comparable measures have been instituted for the subgroup’s
managerial employees. These measures have been in effect since
February 2009. “We will continue to observe and continually
analyze the trend in the market environment for MaterialScience.
Possible further steps and adjustments will be designed in such
a way that they do not impair the sustainability of our
business,” the Bayer Chairman announced.
Net income falls significantly, net cash flow substantially
higher
The Bayer Group’s operating result was diminished in the first
quarter by special charges of EUR 44 million (Q1 2008: EUR 154
million). Of this figure, the integration of Schering AG,
Berlin, Germany, accounted for EUR 18 million and restructuring
programs at CropScience and MaterialScience for EUR 8 and EUR 18
million, respectively. After special items, the Bayer Group
recorded EBIT of EUR 973 million, against EUR 1,343 million in
the prior-year quarter (minus 27.6 percent). Group net income
fell by 44.2 percent to EUR 425 million (Q1 2008: EUR 762
million), while core earnings per share were down by 36.8
percent to EUR 0.91 (Q1 2008: EUR 1.44).
Gross cash flow dropped by 26.8 percent to EUR 1,209 million,
while net cash flow rose by 31.3 percent to EUR 693 million as
less cash was tied up in working capital. Despite unfavorable
currency effects, net financial debt therefore fell to EUR 14.0
billion as of March 31, 2009, from EUR 14.2 billion at the end
of 2008.
Mixed outlook for the full year 2009
Bayer still predicts a wide variation among the subgroups in
terms of performance for the full year 2009. “For HealthCare and
CropScience we continue to expect a positive trend in the
current year, with growth in sales and EBITDA before special
items,” Wenning confirmed. He said HealthCare plans to achieve
currency-adjusted growth rates ahead of the market average in
all divisions and to improve the EBITDA margin before special
items toward 28 percent. CropScience expects further sales
growth in a generally favorable market environment. This
subgroup aims to maintain its EBITDA margin before special items
at the high level of about 25 percent.
The drop in sales and earnings at MaterialScience in the first
quarter of 2009 turned out to be even steeper than expected.
However, sales stabilized at a low level in the first three
months. “The downturn thus seems to be bottoming out. The first
signs of a modest recovery in demand are appearing,” said the
Bayer CEO. Bayer anticipates an improvement in sales and
earnings at Material¬Science in the second quarter compared with
the first, and this subgroup is targeting positive EBITDA before
special items for the full year.
“Against this background, we consider our goal of limiting the
decline in Group EBITDA before special items to 5 percent to be
increasingly demanding,” Wenning explained. However, he believes
it could still be achieved if there is a tangible recovery in
the MaterialScience business. Wenning said it would no longer be
possible to match the prior-year earnings figure, still less to
improve upon it. Group sales for the full year will likely come
in at approximately EUR 32 billion.
The company now expects to make capital expenditures of EUR 1.4
billion in 2009, while research and development expenses are
planned to rise to roughly EUR 2.9 billion. “We still expect to
bring down net financial debt toward EUR 10 billion by the end
of the year,” Wenning stressed, adding that the conversion of
the mandatory convertible bond into equity when it matures in
June 2009 and the improvement of net cash flow will help to
achieve this. This forecast does not take into account any
possible portfolio changes.
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