Interim / Quarterly Report • Jul 30, 2008
Interim / Quarterly Report
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Half-Year Financial Report as of June 30, 2008
| R Bayer Group Key Data …………………………………………………………………………………………… 2 | |
|---|---|
| Interim Group Management Report as of June 30, 2008 | |
| R Overview of Sales, Earnings and Financial Position…………………………………………… 4 | |
| R Future Perspectives ……………………………………………………………………………………………… 7 | |
| R Performance by Subgroup and Segment …………………………………………………………… 8 | |
| R Bayer HealthCare …………………………………………………………………………………………… 10 | |
| R Bayer CropScience ………………………………………………………………………………………… 16 | |
| R Bayer MaterialScience …………………………………………………………………………………… 20 | |
| R Calculation of ebit(da) Before Special Items …………………………………………………… 24 | |
| R Liquidity and Capital Resources ………………………………………………………………………… 24 | |
| R Employees …………………………………………………………………………………………………………… 27 | |
| R Opportunities and Risks ……………………………………………………………………………………… 27 | |
| R Subsequent Events ……………………………………………………………………………………………… 27 | |
| R Investor Information ………………………………………………………………………………………… 28 | |
| Condensed Consolidated Interim Financial Statements as of June 30, 2008 | |
| R Bayer Group Statements of Income…………………………………………………………………… 30 | |
| R Bayer Group Balance Sheets ……………………………………………………………………………… 31 | |
| R Bayer Group Statements of Cash Flows …………………………………………………………… 32 | |
| R Bayer Group Statements of Recognized Income and Expense ……………………… 33 | |
| R Notes to the Condensed Consolidated Interim Financial Statements | |
| as of June 30, 2008 …………………………………………………………………………………………… 34 | |
| R Key Data by Segment …………………………………………………………………………………… 34 | |
| R Key Data by Region ……………………………………………………………………………………… 36 | |
| R Explanatory Notes …………………………………………………………………………………………… 38 | |
| R Responsibility Statement ………………………………………………………………………………… 46 | |
| R Review Report …………………………………………………………………………………………………… 47 | |
| R Focus …………………………………………………………………………………………………………………… 48 | |
| R News …………………………………………………………………………………………………………………… 50 | |
| R Financial Calendar …………………………………………………………………………………………… 56 |
R Masthead …………………………………………………………………………………………………………… 56
Cover picture
Today, new vegetable varieties are created by combining traditional plant breeding with modern analysis methods based on genetic engineering. Using these innovative precision breeding methods, often referred to as smart breeding, Bayer CropScience and its subsidiary Nunhems develop improved vegetable varieties that meet the constantly increasing quality requirements of professional vegetable producers and of consumers. The vegetables have a more distinctive fl avor and contribute to a healthier diet. Nunhems is a global vegetable seed specialist and supplier of innovative products, concepts and know-how for commercial fruit and vegetable production. Our cover photo shows Jeanine Derks from the Nunhems research laboratories extracting plant samples for analysis.
| 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | 1st Half 2007 |
1st Half 2008 |
Change | Full Year 2007 |
|
|---|---|---|---|---|---|---|---|
| € million | € million | % | € million | € million | % | € million | |
| Sales | 8,217 | 8,511 | + 3.6 | 16,552 | 17,047 | + 3.0 | 32,385 |
| Change in sales | |||||||
| Volume | + 4.7% | + 8.1% | + 6.2 % | + 7.0% | + 5.6 % | ||
| Price | + 0.7% | + 1.4% | + 0.3 % | + 1.2% | + 0.5 % | ||
| Currency | – 2.9% | – 6.4% | – 3.7 % | – 5.6% | – 3.6 % | ||
| Portfolio | + 19.5% | + 0.5% | + 19.6 % | + 0.4% | + 9.3 % | ||
| EBITDA1 | 1,572 | 1,774 | + 12.8 | 3,346 | 3,829 | + 14.4 | 5,866 |
| Special items | (234) | (122) | (450) | (252) | (911) | ||
| EBITDA before special items | 1,806 | 1,896 | + 5.0 | 3,796 | 4,081 | + 7.5 | 6,777 |
| EBITDA margin before special items | 22.0 % | 22.3 % | 22.9 % | 23.9 % | 20.9 % | ||
| EBIT 2 | 917 | 1,105 | + 20.5 | 2,092 | 2,448 | + 17.0 | 3,154 |
| Special items | (268) | (143) | (468) | (297) | (1,133) | ||
| EBIT before special items | 1,185 | 1,248 | + 5.3 | 2,560 | 2,745 | + 7.2 | 4,287 |
| EBIT margin before special items | 14.4 % | 14.7 % | 15.5 % | 16.1% | 13.2 % | ||
| Non-operating result | (257) | (262) | – 1.9 | (475) | (537) | – 13.1 | (920) |
| Net income | 660 | 574 | – 13.0 | 3,469 | 1,336 | – 61.5 | 4,711 |
| Earnings per share (€) 3 | 0.83 | 0.73 | 4.27 | 1.69 | 5.84 | ||
| Core earnings per share (€) 4 | 1.03 | 1.18 | 2.28 | 2.62 | 3.80 | ||
| Gross cash flow 5 | 1,187 | 1,322 | + 11.4 | 2,598 | 2,973 | + 14.4 | 4,784 |
| Net cash flow 6 | 816 | 889 | + 8.9 | 1,191 | 1,417 | + 19.0 | 4,281 |
| Cash outflows for capital expenditures | 440 | 347 | – 21.1 | 641 | 635 | – 0.9 | 1,860 |
| Research and development expenses | 650 | 648 | – 0.3 | 1,275 | 1,281 | + 0.5 | 2,578 |
| Depreciation and amortization | 655 | 669 | + 2.1 | 1,254 | 1,381 | + 10.1 | 2,712 |
| Number of employees at end of period 7 | 104,600 | 107,100 | + 2.4 | 104,600 | 107,100 | + 2.4 | 106,200 |
| Personnel expenses | 1,894 | 1,864 | – 1.6 | 3,792 | 3,852 | + 1.6 | 7,571 |
1 EBITDA: EBIT plus amortization of intangible assets and depreciation of property, plant and equipment. EBITDA, EBITDA before special items and EBITDA margin are not defined in the International Financial Reporting Standards and should therefore be regarded only as supplementary information. The company considers underlying EBITDA to be more a suitable indicator of operating performance since it is not affected by depreciation, amortization, write-downs/write-backs or special items. The company also believes that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of data over time. The underlying EBITDA margin is calculated by dividing underlying EBITDA by sales. See also page 24. EBIT as shown in the income statement
Earnings per share as defined in IAS 33 = net income divided by the average number of shares. For details see page 41.
Core earnings per share is not defined in the International Financial Reporting Standards and should therefore be regarded only as supplementary information. The company believes that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of data over time. The calculation of core earnings per share is explained on page 29. Gross cash flow = income from continuing operations after taxes, plus income taxes, plus/minus non-operating result, minus income taxes paid, plus depreciation, amortization and write-downs, minus write-backs, plus/minus changes in pension provisions, minus gains/plus losses on retirements of noncurrent assets, plus non-cash effects of the remeasurement of acquired assets. The change in pension provisions includes the elimination of non-cash components of the operating result. It also contains benefit payments during the year. For details see page 24ff. 6 Net cash flow = cash flow from operating activities according to IAS 7
Number of employees in full-time equivalents
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
With a successful second quarter, the Bayer Group continued the positive performance of the preceding quarters. Sales rose by 3.6 percent to €8,511 million (q2 2007: €8,217 million). Adjusted for currency and portfolio effects, business expanded by 9.5 percent. This growth came mainly from higher volumes. Sales of CropScience jumped by 23.0 percent, while those of HealthCare and MaterialScience advanced by 6.6 and 5.3 percent, respectively.
| Sales by Market | EBITDA Before Special Items | |||
|---|---|---|---|---|
| € million | Total | € million | ||
| Q1 | Q1 | |||
| 2007 | 1,301 7,034 |
8,335 | 2007 | 1,990 |
| 2008 | 1,325 7,211 |
8,536 | 2008 | 2,185 |
| Q2 | Q2 | |||
| 2007 | 1,199 7,018 |
8,217 | 2007 | 1,806 |
| 2008 | 1,202 7,309 | 8,511 | 2008 | 1,896 |
| Q3 | Q3 | |||
| 2007 | 1,190 6,603 |
7,793 | 2007 | 1,559 |
| 2008 | 2008 | |||
| Q4 | Q4 | |||
| 2007 | 1,125 6,915 |
8,040 | 2007 | 1,422 |
| 2008 | 2008 | |||
| Domestic Foreign |
Second-quarter ebitda before special items improved by 5.0 percent to €1,896 million 5 (q2 2007: €1,806 million), despite continuing unfavorable currency parities. Earnings of HealthCare increased by 2.6 percent to €994 million (q2 2007: €969 million). CropScience improved underlying ebitda by 26.5 percent to €501 million (q2 2007: €396 million) thanks to the very strong sales performance. However, ebitda before special items of MaterialScience fell by 9.0 percent to €372 million (q2 2007: €409 million). Bayer Group ebitda rose by 12.8 percent in the second quarter, to €1,774 million.
ebit before special items grew by 5.3 percent in the second quarter of 2008 to €1,248 million (q2 2007: €1,185 million). There were net special charges of €143 million (q2 2007: €268 million), of which HealthCare accounted for €126 million (q2 2007: €209 million), CropScience for €8 million (q2 2007: €51 million) and MaterialScience for €9 million (q2 2007: €24 million). ebit increased by 20.5 percent to €1,105 million (q2 2007: €917 million).
After a non-operating result of minus €262 million (q2 2007: minus €257 million), income before income taxes for the second quarter came in at €843 million (q2 2007: €660 million). The non-operating result included net interest expense of €187 million (q2 2007: €205 million). After tax expense of €262 million (q2 2007: €247 million), income from continuing operations amounted to €581 million (q2 2007: €413 million). Net income came in at €574 million. The prior-year net income of €660 million contained income of €244 million from discontinued operations, largely comprising the proceeds of the divestiture of Wolff Walsrode. Earnings per share were €0.73 (q2 2007: €0.83). Core earnings per share improved to €1.18 (q2 2007: €1.03). The calculation of core earnings per share is explained on page 29.
Gross cash fl ow moved back by 11.4 percent year on year in the second quarter of 2008, to €1,322 million (q2 2007: €1,187). Despite a seasonal increase in cash tied up in working capital, net cash fl ow grew by 8.9 percent to €889 million. Net debt as of June 30, 2008 was €13.3 billion, up €1.2 billion from the end of March. The increase was attributable largely to €1.0 billion in dividend payments, a further factor being the annual payments of variable compensation to our employees and the higher interest payments that are regularly made in the second quarter. The net pension liability declined by €0.2 billion compared with March 31, 2008, to €3.9 billion. The decrease was mainly due to higher long-term rates on the capital market.
6
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
The Bayer Group also considerably improved its operating performance in the fi rst half of 2008. Sales from continuing operations grew by 3.0 percent to €17,047 million (h1 2007: €16,552 million). The currency- and portfolio-adjusted increase was 8.2 percent. Health-Care sales rose by 7.6 percent, CropScience by 18.6 percent and MaterialScience by 2.9 percent.
ebitda before special items grew by 7.5 percent to €4,081 million (h1 2007: €3,796 million). First-half ebit before special items increased by 7.2 percent to €2,745 million (h1 2007: €2,560 million). There were net special charges of €297 million (h1 2007: €468 million), of which HealthCare accounted for €226 million, CropScience for €62 million and MaterialScience for €9 million. ebit of the Bayer Group rose by 17.0 percent to €2,448 million (h1 2007: €2,092 million).
After a non-operating result of minus €537 million (h1 2007: minus €475 million), income before income taxes in the fi rst half amounted to €1,911 million (h1 2007: €1,617 million). The non-operating result contained net interest expense of €376 million (h1 2007: €361 million). After tax expense of €568 million (h1 2007: €548 million), income from continuing operations came in at €1,343 million (h1 2007: €1,069 million).
The €2.4 billion after-tax income from discontinued operations in the fi rst half of 2007 largely comprised the proceeds of the divestitures of the Diagnostics business, H.C. Starck and Wolff Walsrode.
After minority stockholders' interest, net income for the fi rst half of 2008 totaled €1,336 million, against €3,469 million in the prior-year period. Earnings per share amounted to €1.69 (h1 2007: €4.27). Core earnings per share rose to €2.62 (h1 2007: €2.28). The calculation of core earnings per share is explained on page 29.
Gross cash fl ow rose by 14.4 percent year on year in the fi rst half of 2008, to €2,973 million (h1 2007: €2,598 million), due to the strong business performance. Net cash fl ow advanced to €1,417 million (h1 2007: €1,191 million).
We expect global economic growth to slow in the second half of 2008 compared to the previous year. Uncertainties remain in view of the ongoing crisis on the fi nancial markets, the weakness of the u.s. real-estate sector, increased oil and energy costs and signifi cantly greater infl ation risks. We anticipate that economic growth in the industrialized countries will slow during the second half, mainly due to a decline in consumer spending. For the emerging economies we expect continued growth, albeit at a slower pace, driven by robust domestic demand.
We predict steady overall growth in the markets relevant to our HealthCare business. The market environment for crop protection and seed products should continue to develop favorably in the second half of the year. We expect prices for agricultural commodities to remain high in light of continuing strong demand for food, energy and feed plants and low inventories worldwide, resulting in more intensive crop production and expanded acreages. We see increasing economic risks in the markets of importance for our MaterialScience business.
Our successful performance in the fi rst half strengthens our confi dence for the full year. We are now targeting over 5 percent currency- and portfolio-adjusted growth in Bayer Group sales (previously: approximately 5 percent) and plan to further improve ebitda before special items and the underlying ebitda margin.
We remain confi dent about the performance of our HealthCare business and expect all divisions to grow with or above the market after adjusting for currency changes. We aim to improve our ebitda margin before special items toward 27 percent.
Our CropScience business performed very well in the fi rst half of 2008. Against the background of the positive market environment, which we expect to continue, we are again raising the full-year guidance for this business. We now believe that we can increase sales by well over 10 percent on a currency- and portfolio adjusted basis (previously: more than 5 percent) and improve the ebitda margin before special items to about 25 percent (previously: about 24 percent). This would mean that our goal of an approximately 25 percent ebitda margin before special items, originally targeted for 2009, would be achieved a year earlier than planned.
Our MaterialScience business turned in a pleasingly robust performance in the fi rst half of the year. However, we anticipate a slackening pace of growth in the third quarter, accompanied by further increases in raw material and energy costs. We therefore expect to report lower ebitda before special items in the third quarter of 2008 than in the second quarter. For the year as a whole, we continue to expect that we can achieve a good, valuecreating earnings level, though without matching the 2007 fi gure.
For the Bayer Group we continue to predict special charges in the region of €650 million for the full year, of which €400–450 million will be cash items.
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
Our business activities are grouped into the HealthCare, CropScience and Material-Science subgroups. There was no change to the corporate structure of the Bayer Group in the second quarter of 2008. The commentaries in this report relate exclusively to continuing operations, except where specifi c reference is made to discontinued operations or to a total value (total).
| Sales | EBIT before special items* |
EBITDA before special items* |
EBITDA margin before special items* |
|||||
|---|---|---|---|---|---|---|---|---|
| € million | 2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
| HealthCare | 3,717 | 3,734 | 640 | 639 | 969 | 994 | 26.1 % | 26.6 % |
| Pharmaceuticals | 2,583 | 2,584 | 416 | 425 | 711 | 744 | 27.5 % | 28.8 % |
| Consumer Health | 1,134 | 1,150 | 224 | 214 | 258 | 250 | 22.8 % | 21.7 % |
| CropScience | 1,562 | 1,804 | 262 | 375 | 396 | 501 | 25.4 % | 27.8 % |
| Crop Protection | 1,262 | 1,526 | 196 | 329 | 310 | 435 | 24.6 % | 28.5 % |
| Environmental Science, BioScience | 300 | 278 | 66 | 46 | 86 | 66 | 28.7 % | 23.7 % |
| MaterialScience | 2,623 | 2,622 | 290 | 253 | 409 | 372 | 15.6 % | 14.2 % |
| Systems | 1,866 | 1,935 | 261 | 258 | 338 | 337 | 18.1 % | 17.4 % |
| Materials | 757 | 687 | 29 | (5) | 71 | 35 | 9.4 % | 5.1 % |
| Reconciliation | 315 | 351 | (7) | (19) | 32 | 29 | 10.2 % | 8.3 % |
| Continuing operations | 8,217 | 8,511 | 1,185 | 1,248 | 1,806 | 1,896 | 22.0 % | 22.3 % |
* for definition see Bayer Group Key Data on page 2, also page 24
| Sales | EBIT before special items* |
EBITDA before special items* |
EBITDA margin before special items* |
|||||
|---|---|---|---|---|---|---|---|---|
| € million | 1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
| HealthCare | 7,327 | 7,465 | 1,264 | 1,302 | 1,917 | 2,044 | 26.2 % | 27.4 % |
| Pharmaceuticals | 5,078 | 5,198 | 836 | 866 | 1,422 | 1,538 | 28.0 % | 29.6 % |
| Consumer Health | 2,249 | 2,267 | 428 | 436 | 495 | 506 | 22.0 % | 22.3 % |
| CropScience | 3,348 | 3,782 | 709 | 953 | 980 | 1,214 | 29.3 % | 32.1 % |
| Crop Protection | 2,696 | 3,148 | 539 | 822 | 771 | 1,042 | 28.6 % | 33.1 % |
| Environmental Science, BioScience | 652 | 634 | 170 | 131 | 209 | 172 | 32.1 % | 27.1 % |
| MaterialScience | 5,231 | 5,134 | 581 | 534 | 818 | 779 | 15.6 % | 15.2 % |
| Systems | 3,735 | 3,774 | 514 | 539 | 667 | 705 | 17.9 % | 18.7 % |
| Materials | 1,496 | 1,360 | 67 | (5) | 151 | 74 | 10.1 % | 5.4 % |
| Reconciliation | 646 | 666 | 6 | (44) | 81 | 44 | 12.5 % | 6.6 % |
| Continuing operations | 16,552 | 17,047 | 2,560 | 2,745 | 3,796 | 4,081 | 22.9 % | 23.9 % |
* for definition see Bayer Group Key Data on page 2, also page 24
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
Sales of the Bayer HealthCare subgroup in the second quarter of 2008 came in at €3,734 million (+0.5 percent). On a currency- and portfolio-adjusted basis, sales rose by 6.6 percent, thanks to the positive performance of both segments' businesses.
Bayer HealthCare increased second-quarter ebitda before special items by 2.6 percent to €994 million (q2 2007: €969 million). The gratifying performance of the business and the synergies from the integration of Schering AG, Germany, more than offset adverse shifts in currency parities and a substantial increase in marketing expenses related to the expansion of our activities in emerging countries and new product introductions. ebit before special items, at €639 million, was level with the prior-year period. The special items totaling minus €126 million resulted from charges in connection with the acquisition and integration of Schering, the suspension of marketing for Trasylol® and litigations. ebit advanced by a signifi cant 19.0 percent to €513 million.
The names "Bayer Schering Pharma" or "Schering" as used in this report always refer to Bayer Schering Pharma AG, Berlin, Germany, or its predecessor, Schering AG, Berlin, Germany, respectively. The reference to Bayer Schering Pharma AG or Schering AG also includes business conducted by affi liated entities in countries outside Germany. Bayer Schering Pharma AG and Schering-Plough Corporation, New Jersey, u.s., are unaffi liated companies that have been totally independent of each other for many years.
Sales in our Pharmaceuticals segment in the second quarter of 2008, at €2,584 million, matched those of the prior-year period. Adjusted for currency and portfolio effects, business expanded by 5.8 percent.
Sales of the Primary Care business unit receded by 3.9 percent in the second quarter, to €736 million (q2 2007: €766 million). On a currency-adjusted (Fx adj.) basis, however, business expanded by 1.2 percent. Particularly strong sales gains were registered by Aspirin Cardio® (Fx adj. +22.2 percent) and Levitra® (Fx adj. +11.9 percent). Sales of Cipro® / Ciprobay® continued to decline due to generic competition (Fx adj. –13.8 percent).
The positive trend in the Women's Healthcare business unit – particularly in the United States – continued in the second quarter of 2008, with sales up 10.9 percent to €723 million (q2 2007: €652 million). Adjusted for shifts in exchange rates, business expanded by 18.5 percent. The strongest growth was recorded by the intra-uterine system Mirena®, sales of which climbed by 47.2 percent (Fx adj.). Business with the oral contraceptives of the Yasmin® / yaz® / Yasminelle® product group once again climbed signifi cantly year on year (Fx adj. +32.1 percent). The Mutual Recognition Procedure to gain marketing approval for yaz® for the oral contraception indication in the European Union was successfully concluded in April 2008. yaz® is to be launched on several major European markets in the fall of this year. In June 2008, Bayer and Barr Laboratories Inc. signed a supply and license agreement for Yasmin® and yaz® for the United States. As of the end of June 2008, Bayer is supplying u.s. generics manufacturer Barr with a generic version of its oral contraceptive Yasmin®, which Barr will market solely in the United States. Irrespective of this, Bayer continues to pursue its appeal of a decision issued by a u.s. court in March 2008 invalidating the u.s. patent '531 for Yasmin®.
| Bayer HealthCare | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | 1st Half 2007 |
1st Half 2008 |
Change |
|---|---|---|---|---|---|---|
| € million | € million | % | € million | € million | % | |
| Sales | 3,717 | 3,734 | + 0.5 | 7,327 | 7,465 | + 1.9 |
| Pharmaceuticals | 2,583 | 2,584 | 0.0 | 5,078 | 5,198 | + 2.4 |
| Consumer Health | 1,134 | 1,150 | + 1.4 | 2,249 | 2,267 | + 0.8 |
| Sales by Region | ||||||
| Europe | 1,566 | 1,538 | – 1.8 | 3,061 | 3,164 | + 3.4 |
| North America | 1,093 | 1,085 | – 0.7 | 2,238 | 2,130 | – 4.8 |
| Asia / Pacifi c | 523 | 545 | + 4.2 | 989 | 1,071 | + 8.3 |
| Latin America /Africa / Middle East | 535 | 566 | + 5.8 | 1,039 | 1,100 | + 5.9 |
| EBITDA1 | 788 | 887 | + 12.6 | 1,571 | 1,857 | + 18.2 |
| Special items | (181) | (107) | (346) | (187) | ||
| EBITDA before special items 2 | 969 | 994 | + 2.6 | 1,917 | 2,044 | + 6.6 |
| EBITDA margin before special items | 26.1 % | 26.6 % | 26.2 % | 27.4 % | ||
| EBIT 1 | 431 | 513 | + 19.0 | 916 | 1,076 | + 17.5 |
| Special items | (209) | (126) | (348) | (226) | ||
| EBIT before special items 2 | 640 | 639 | – 0.2 | 1,264 | 1,302 | + 3.0 |
| Gross cash flow 1 | 545 | 606 | + 11.2 | 1,102 | 1,343 | + 21.9 |
| Net cash flow 1 | 284 | 154 | – 45.8 | 667 | 731 | + 9.6 |
for definition see Bayer Group Key Data on page 2
for definition see also page 24
| Pharmaceuticals | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | 1st Half 2007 |
1st Half 2008 |
Change |
|---|---|---|---|---|---|---|
| € million | € million | % | € million | € million | % | |
| Sales | 2,583 | 2,584 | 0.0 | 5,078 | 5,198 | + 2.4 |
| Primary Care | 766 | 736 | – 3.9 | 1,539 | 1,512 | – 1.8 |
| Women's Healthcare | 652 | 723 | + 10.9 | 1,279 | 1,419 | + 10.9 |
| Diagnostic Imaging (including Medrad) | 330 | 321 | – 2.7 | 637 | 619 | – 2.8 |
| Specialized Therapeutics | 310 | 329 | + 6.1 | 613 | 656 | + 7.0 |
| Hematology / Cardiology | 271 | 188 | – 30.6 | 539 | 443 | – 17.8 |
| Oncology | 188 | 222 | + 18.1 | 347 | 424 | + 22.2 |
| Dermatology (Intendis) | 66 | 65 | – 1.5 | 124 | 125 | + 0.8 |
| Sales by Region | ||||||
| Europe | 1,114 | 1,061 | – 4.8 | 2,153 | 2,201 | + 2.2 |
| North America | 696 | 705 | + 1.3 | 1,450 | 1,412 | – 2.6 |
| Asia / Pacifi c | 438 | 449 | + 2.5 | 817 | 878 | + 7.5 |
| Latin America /Africa / Middle East | 335 | 369 | + 10.1 | 658 | 707 | + 7.4 |
| EBITDA1 | 530 | 672 | + 26.8 | 1,076 | 1,386 | + 28.8 |
| Special items | (181) | (72) | (346) | (152) | ||
| EBITDA before special items 2 | 711 | 744 | + 4.6 | 1,422 | 1,538 | + 8.2 |
| EBITDA margin before special items | 27.5% | 28.8% | 28.0% | 29.6% | ||
| EBIT 1 | 207 | 334 | + 61.4 | 488 | 675 | + 38.3 |
| Special items | (209) | (91) | (348) | (191) | ||
| EBIT before special items 2 | 416 | 425 | + 2.2 | 836 | 866 | + 3.6 |
| Gross cash flow 1 | 381 | 447 | + 17.3 | 771 | 991 | + 28.5 |
| Net cash flow 1 | 202 | 78 | – 61.4 | 481 | 493 | + 2.5 |
for definition see Bayer Group Key Data on page 2
for definition see also page 24
11
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
Sales of the Diagnostic Imaging business unit fell by 2.7 percent in the second quarter of 2008, to €321 million (q2 2007: €330 million). Adjusted for currency and portfolio changes, business remained at the previous year's level. Sales of Ultravist® rose by 8.9 percent after adjusting for shifts in exchange rates. On the other hand, business with our contrast agent Magnevist® shrank by a currency-adjusted 13.1 percent. This resulted primarily from the shift toward our other contrast agent Gadovist®. Sales of Iopamiron® fell by 15.5 percent (Fx adj.), due mainly to price declines in Japan. Sales of our subsidiary Medrad increased by 14.8 percent on a currency- and portfolio-adjusted basis. In April 2008 we completed the acquisition of u.s.-based Possis Medical, Inc., a supplier of thrombectomy systems to treat constricted or blocked arteries and veins.
The Specialized Therapeutics business unit saw sales expand by 6.1 percent to €329 million (q2 2007: €310 million). Adjusted for changes in currency parities, business expanded by 12.5 percent. Sales of Betaferon® / Betaseron® moved forward by a currencyadjusted 13.6 percent. The fi ndings of a Phase iib clinical study investigating the effi cacy of Spheramine® in Parkinson's patients did not meet the primary or secondary endpoints following the 12-month observation period. As a result, a €20 million write-down was made in respect of intangible assets capitalized for this research project upon the acquisition of Schering, Germany.
In the Hematology/Cardiology business unit, sales declined by 30.6 percent to €188 million (q2 2007: €271 million). On a currency- and portfolio-adjusted basis, sales dropped by 24.6 percent. The reason for this was the worldwide suspension of marketing in November 2007 for Trasylol®, the product to control loss of blood during coronary bypass operations. Furthermore, business with Kogenate® receded by a currency-adjusted 6.7 percent, mainly due to our marketing partner's order pattern. In July 2008, Bayer HealthCare acquired the hematology portfolio of the u.s. company Maxygen Inc. for us\$ 90 million plus milestone payments of up to us\$ 30 million, thus enhancing its future perspectives in the hemophilia market. Included in the scope of the transaction is the innovative recombinant Factor viia protein maxy-vii, for which a Phase i development program is expected to begin in the third quarter of 2008.
| Best-Selling Pharmaceutical Products | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | Currency adjusted change |
1st Half 2007 |
1st Half 2008 |
Change | Currency adjusted change |
|---|---|---|---|---|---|---|---|---|
| € million | € million | % | % | € million | € million | % | % | |
| Yasmin® / YAZ® / Yasminelle® (Women's Healthcare) | 250 | 305 | + 22.0 | + 32.1 | 490 | 602 | + 22.9 | + 32.7 |
| Betaferon®/Betaseron® (Specialized Therapeutics) | 256 | 274 | + 7.0 | + 13.6 | 500 | 548 | + 9.6 | + 15.9 |
| Kogenate® (Hematology / Cardiology) | 210 | 182 | – 13.3 | – 6.7 | 411 | 415 | + 1.0 | + 7.1 |
| Adalat® (Primary Care) | 162 | 158 | – 2.5 | + 2.8 | 307 | 308 | + 0.3 | + 4.3 |
| Avalox® / Avelox® (Primary Care) | 90 | 90 | 0.0 | + 7.8 | 218 | 233 | + 6.9 | + 13.9 |
| Mirena® (Women's Healthcare) | 88 | 118 | + 34.1 | + 47.2 | 169 | 230 | + 36.1 | + 48.9 |
| Nexavar® (Oncology) | 60 | 108 | + 80.0 | + 90.4 | 107 | 209 | + 95.3 | + 107.7 |
| Levitra® (Primary Care) | 81 | 84 | + 3.7 | + 11.9 | 165 | 166 | + 0.6 | + 7.9 |
| Cipro® / Ciprobay® (Primary Care) | 93 | 77 | – 17.2 | – 13.8 | 201 | 158 | – 21.4 | – 18.0 |
| Glucobay® (Primary Care) | 79 | 74 | -6.3 | – 2.1 | 151 | 154 | + 2.0 | + 5.9 |
| Ultravist® (Diagnostic Imaging) | 64 | 65 | + 1.6 | + 8.9 | 119 | 133 | + 11.8 | + 18.0 |
| Aspirin Cardio® (Primary Care) | 57 | 67 | + 17.5 | + 22.2 | 111 | 131 | + 18.0 | + 22.3 |
| Magnevist® (Diagnostic Imaging) | 74 | 59 | – 20.3 | – 13.1 | 154 | 119 | – 22.7 | – 16.8 |
| Iopamiron® (Diagnostic Imaging) | 57 | 48 | – 15.8 | – 15.5 | 104 | 91 | – 12.5 | – 12.0 |
| Diane® (Women's Healthcare) | 43 | 41 | – 4.7 | – 2.0 | 88 | 82 | – 6.8 | – 4.8 |
| Total | 1,664 | 1,750 | + 5.2 | + 12.2 | 3,295 | 3,579 | + 8.6 | + 15.1 |
| Proportion of Pharmaceuticals sales | 64 % | 68 % | 65 % | 69 % |
The Oncology business unit saw sales expand by 18.1 percent to €222 million 13 (q2 2007: €188 million). On a currency-adjusted basis the increase came to 25.0 percent. This gratifying expansion was driven by our cancer drug Nexavar®, which posted a 90.4 percent increase in sales after adjusting for shifts in exchange rates. During 2007 and the fi rst half of 2008, we received marketing authorization for Nexavar® in various countries, most recently China, to treat renal cell carcinoma and/or hepatocellular carcinoma.
Our dermatology business (Intendis) posted sales of €65 million (-1.5 percent). On a currency-adjusted basis, sales rose by 2.4 percent.
ebitda before special items in the Pharmaceuticals segment improved by 4.6 percent in the second quarter of 2008 to €744 million (q2 2007: €711 million). Contributing to the increase were the growth in business and, in particular, the synergies already realized from the integration of Schering AG, Germany. Earnings were hampered by negative currency effects and by higher marketing costs, mainly in connection with product introductions and the expansion of our activities in emerging markets such as China, Russia and Brazil. ebit before special items came in at €425 million, up 2.2 percent from the prior-year period. The net special charges of €91 million comprised €54 million in expenses concerning the suspension of marketing for Trasylol® and a €37 million net charge related to the acquisition and integration of Schering AG, Germany, after income of €69 million from the sale of buildings. ebit climbed by 61.4 percent to €334 million (q2 2007: €207 million).
Sales of the Pharmaceuticals segment in the fi rst half of 2008 climbed by 2.4 percent to €5,198 million (h1 2007: €5,078 million). Adjusted for currency and portfolio changes, business was up by 7.9 percent. This was attributable especially to the pleasing growth recorded for Yasmin® / yaz® / Yasminelle® (Fx adj. +32.7 percent), Mirena® (Fx adj. +48.9 percent) and Nexavar® (Fx adj. +107.7 percent). However, we experienced the anticipated negative effects from Trasylol® and Cipro® / Ciprobay® (Fx adj. -18.0 percent). In the Pharmaceuticals segment, fi rst-half ebitda before special items improved by 8.2 percent to €1,538 million (h1 2007: €1,422 million). ebit before special items rose by 3.6 percent to €866 million (h1 2007: €836 million). The net special charges of €191 million resulted from the suspension of marketing for Trasylol® and a net charge related to the acquisition and integration of Schering AG, Germany. ebit advanced by 38.3 percent to €675 million (h1 2007: €488 million).
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
Sales in the Consumer Health segment amounted to €1,150 million in the second quarter of 2008 (q2 2007: €1,134 million). Adjusted for currency and portfolio effects, business expanded by 8.3 percent. All divisions contributed to this increase.
In the Consumer Care Division, sales rose by 2.7 percent to €641 million (q2 2007: €624 million). Adjusted for currency and portfolio effects, business was up by 8.6 percent. Particularly good growth was achieved by Canesten® (Fx adj. +23.4 percent), Aleve®/ naproxen (Fx adj. +19.4 percent) and the products from the Bepanthen®/Bepanthol® line (Fx adj. +13.9 percent). In June 2008 we completed the acquisition of the eastern European over-the-counter (otc) medicines business of Sagmel, Inc. In July 2008, after receiving the necessary regulatory approvals, we acquired the over-the-counter cough and cold portfolio of Chinese-based Topsun Science and Technology Qidong Gaitianli Pharmaceutical Co., Ltd. These acquisitions strengthen Bayer HealthCare's presence in eastern Europe and China, which are among the world's fastest growing otc markets.
Our Diabetes Care Division posted second-quarter sales of €249 million (+2.0 percent). Adjusted for shifts in exchange rates, business expanded by 10.0 percent. This performance was attributable largely to the successful marketing of our Contour® blood glucose monitoring systems (Fx adj. +22.3 percent), which are replacing the older Elite® systems (Fx adj. -25.4 percent).
Sales of the Animal Health Division slipped by 2.3 percent to €260 million (q2 2007: €266 million). On a currency-adjusted basis, business expanded by 6.0 percent. Growth rates were particularly high in the Asia-Pacifi c region. Business with the Advantage® product line rose by a currency-adjusted 6.2 percent.
ebitda before special items of the Consumer Health segment in the second quarter came to €250 million (q2 2007: €258 million). Negative currency effects and integration costs for the otc business acquired from Sagmel were nearly offset by the growth in business. ebit before special items fell by 4.5 percent to €214 million. Special charges of €35 million were recorded in connection with litigations. ebit dropped by €45 million to €179 million (q2 2007: €224 million).
In the fi rst half of 2008, sales of the Consumer Health segment increased by €18 million to €2,267 million. The currency-adjusted increase came to 6.9 percent. ebitda before special items improved by 2.2 percent to €506 million (h1 2007: €495 million). ebit before special items grew by €8 million to €436 million (h1 2007: €428 million). After special items, ebit came in at €401 million (h1 2007: €428 million).
| Consumer Health | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | 1st Half 2007 |
1st Half 2008 |
Change |
|---|---|---|---|---|---|---|
| € million | € million | % | € million | € million | % | |
| Sales | 1,134 | 1,150 | + 1.4 | 2,249 | 2,267 | + 0.8 |
| Consumer Care | 624 | 641 | + 2.7 | 1,283 | 1,296 | + 1.0 |
| Diabetes Care | 244 | 249 | + 2.0 | 470 | 476 | + 1.3 |
| Animal Health | 266 | 260 | – 2.3 | 496 | 495 | – 0.2 |
| Sales by Region | ||||||
| Europe | 452 | 477 | + 5.5 | 908 | 963 | + 6.1 |
| North America | 397 | 380 | – 4.3 | 788 | 718 | – 8.9 |
| Asia / Pacifi c | 85 | 96 | + 12.9 | 172 | 193 | + 12.2 |
| Latin America /Africa / Middle East | 200 | 197 | – 1.5 | 381 | 393 | + 3.1 |
| EBITDA1 | 258 | 215 | – 16.7 | 495 | 471 | – 4.8 |
| Special items | 0 | (35) | 0 | (35) | ||
| EBITDA before special items 2 | 258 | 250 | – 3.1 | 495 | 506 | + 2.2 |
| EBITDA margin before special items | 22.8 % | 21.7 % | 22.0 % | 22.3 % | ||
| EBIT 1 | 224 | 179 | – 20.1 | 428 | 401 | – 6.3 |
| Special items | 0 | (35) | 0 | (35) | ||
| EBIT before special items 2 | 224 | 214 | – 4.5 | 428 | 436 | + 1.9 |
| Gross cash flow 1 | 164 | 159 | – 3.0 | 331 | 352 | + 6.3 |
| Net cash flow 1 | 82 | 76 | – 7.3 | 186 | 238 | + 28.0 |
1 for definition see Bayer Group Key Data on page 2
2 for definition see also page 24
| Best-Selling Consumer Health Products | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | Currency adjusted change |
1st Half 2007 |
1st Half 2008 |
Change | Currency adjusted change |
|---|---|---|---|---|---|---|---|---|
| € million | € million | % | % | € million | € million | % | % | |
| Contour® 1 (Diabetes Care) | 129 | 145 | + 12.4 | + 22.3 | 235 | 273 | + 16.2 | + 24.8 |
| Aspirin® 2 (Consumer Care) | 107 | 105 | – 1.9 | + 4.6 | 220 | 219 | – 0.5 | + 5.9 |
| Advantage® product line (Animal Health) | 105 | 100 | – 4.8 | + 6.2 | 180 | 177 | – 1.7 | + 7.9 |
| Aleve® / naproxen (Consumer Care) | 55 | 57 | + 3.6 | + 19.4 | 124 | 105 | – 15.3 | – 3.5 |
| Canesten® (Consumer Care) | 47 | 54 | + 14.9 | + 23.4 | 90 | 101 | + 12.2 | + 19.4 |
| Bepanthen® / Bepanthol® (Consumer Care) | 40 | 45 | + 12.5 | + 13.9 | 76 | 91 | + 19.7 | + 20.5 |
| Baytril® (Animal Health) | 33 | 31 | – 6.1 | – 0.4 | 73 | 69 | – 5.5 | + 0.9 |
| Supradyn® (Consumer Care) | 32 | 33 | + 3.1 | + 4.1 | 65 | 68 | + 4.6 | + 7.4 |
| Breeze® 1 (Diabetes Care) | 38 | 34 | – 10.5 | – 0.7 | 81 | 68 | – 16.0 | – 9.4 |
| Elite® 1 (Diabetes Care) | 44 | 31 | – 29.5 | – 25.4 | 88 | 63 | – 28.4 | – 25.8 |
| Total | 630 | 635 | + 0.8 | + 9.1 | 1,232 | 1,234 | + 0.2 | + 7.2 |
| Proportion of Consumer Health sales | 56 % | 55 % | 55 % | 54 % |
previously included with the Ascensia® product family
2 total Aspirin® second-quarter sales = €172 million (Q2 2007: €164 million), first-half sales = €350 million (H1 2007: €331 million) including Aspirin Cardio®,
which is reflected in sales of the Pharmaceuticals segment
15
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
The Bayer CropScience subgroup once again considerably expanded its business in the second quarter of 2008. Sales climbed by a gratifying 15.5 percent to €1,804 million (q2 2007: €1,562 million), with the currency- and portfolio-adjusted increase amounting to 23.0 percent. Our business benefi ted from the positive development of global agricultural markets and largely favorable weather patterns in the most important European and Latin American markets.
ebitda before special items grew by 26.5 percent to €501 million (q2 2007: €396 million). This outstanding earnings improvement was due especially to volume and selling price increases in our crop protection business. Earnings were diminished by negative currency effects, higher research and development expenditures at BioScience and a drop in sales at Environmental Science. ebit before special items climbed by 43.1 percent to €375 million (q2 2007: €262 million). Special charges of €8 million were recorded for our cost structure program. ebit jumped by 73.9 percent to €367 million.
Sales of the Crop Protection segment expanded by 20.9 percent in the second quarter of 2008, to €1,526 million (q2 2007: €1,262 million). Adjusted for currency effects, sales advanced by 29.1 percent. Sales of all business units rose in a positive market environment, with our fungicides portfolio developing especially well. Above-average growth was achieved especially by our young products based on active ingredients introduced in core markets since 2000. Sales of these products advanced by 50 percent year on year, to more than €500 million.
In the Europe region, sales moved ahead by 22.8 percent to €695 million (q2 2007: €566 million), or by 25.0 percent on a currency-adjusted basis. Thanks to the higher acreages in the European Union - particularly for cereals – and favorable weather patterns, we increased sales of the cereal herbicides Puma® and Hussar® and, in particular, the cereal fungicides Proline®, Input® and Fandango®. Our fungicides for grapes and potatoes also contributed to sales growth.
Our crop protection business in North America expanded considerably by 13.8 percent to €363 million, against €319 million in the previous year. Adjusted for currency effects, the increase came to 26.0 percent. Demand increased, particularly for our fungicides, such as Flint®, Proline® and Folicur®, and for our insecticidal seed treatment products. In our herbicides portfolio, the new products Huskie® and Infi nityTM, introduced in the fi rst quarter of this year, performed very well. Despite pressure on prices from generic products, the insecticides business held steady at the prior-year level.
Sales in the Asia-Pacifi c region rose by 9.8 percent to €202 million (q2 2007: €184 million). The currency-adjusted increase was 20.6 percent. The main factor contributing to this growth was the higher sales of insecticides and fungicides in India and Southeast Asia. More favorable weather patterns in parts of Australia led to a recovery in our business, particularly with herbicides.
Sales in Latin America /Africa / Middle East rose by 37.8 percent to €266 million (q2 2007: €193 million). Adjusted for currency effects, the increase was 53.8 percent. While sales in Africa and the Middle East were largely in line with the second quarter of 2007, business in Latin America registered a very pleasing increase, as in the fi rst quarter. In Brazil, particularly, we successfully expanded sales across our entire portfolio in a positive market environment. Fungicides posted especially strong growth.
| Bayer CropScience | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | 1st Half 2007 |
1st Half 2008 |
Change |
|---|---|---|---|---|---|---|
| € million | € million | % | € million | € million | % | |
| Sales | 1,562 | 1,804 | + 15.5 | 3,348 | 3,782 | + 13.0 |
| Crop Protection | 1,262 | 1,526 | + 20.9 | 2,696 | 3,148 | + 16.8 |
| Environmental Science, BioScience | 300 | 278 | – 7.3 | 652 | 634 | – 2.8 |
| Sales by Region | ||||||
| Europe | 675 | 798 | + 18.2 | 1,537 | 1,820 | + 18.4 |
| North America | 431 | 453 | + 5.1 | 878 | 909 | + 3.5 |
| Asia / Pacifi c | 237 | 260 | + 9.7 | 456 | 471 | + 3.3 |
| Latin America /Africa / Middle East | 219 | 293 | + 33.8 | 477 | 582 | + 22.0 |
| EBITDA1 | 348 | 493 | + 41.7 | 896 | 1,156 | + 29.0 |
| Special items | (48) | (8) | (84) | (58) | ||
| EBITDA before special items 2 | 396 | 501 | + 26.5 | 980 | 1,214 | + 23.9 |
| EBITDA margin before special items | 25.4 % | 27.8 % | 29.3 % | 32.1% | ||
| EBIT 1 | 211 | 367 | + 73.9 | 619 | 891 | + 43.9 |
| Special items | (51) | (8) | (90) | (62) | ||
| EBIT before special items 2 | 262 | 375 | + 43.1 | 709 | 953 | + 34.4 |
| Gross cash flow 1 | 259 | 377 | + 45.6 | 628 | 866 | + 37.9 |
| Net cash flow 1 | 494 | 731 | + 48.0 | 256 | 419 | + 63.7 |
1 for definition see Bayer Group Key Data on page 2
for definition see also page 24
| Best-Selling Bayer CropScience Products* | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | Currency adjusted change |
1st Half 2007 |
1st Half 2008 |
Change | Currency adjusted change |
|---|---|---|---|---|---|---|---|---|
| € million | € million | % | % | € million | € million | % | % | |
| Confi dor® / Gaucho® / Admire® / Merit® | ||||||||
| (Insecticides / Seed Treatment / Environmental Science) | 132 | 133 | + 0.8 | + 12.7 | 295 | 290 | – 1.7 | + 7.0 |
| Proline® (Fungicides) | 75 | 125 | + 66.7 | + 80.3 | 147 | 206 | + 40.1 | + 47.5 |
| Flint® / Stratego® / Sphere® (Fungicides) | 53 | 91 | + 71.7 | + 89.9 | 113 | 182 | + 61.1 | + 75.6 |
| Basta® / Liberty® (Herbicides) | 89 | 90 | + 1.1 | + 8.9 | 161 | 171 | + 6.2 | + 11.6 |
| ® / Raxil® (Fungicides / Seed Treatment) Folicurr |
61 | 83 | + 36.1 | + 44.6 | 138 | 158 | + 14.5 | + 19.6 |
| Puma® (Herbicides) | 69 | 84 | + 21.7 | + 30.1 | 138 | 150 | + 8.7 | + 14.3 |
| Atlantis® (Herbicides) | 15 | 12 | – 20.0 | – 11.5 | 91 | 136 | + 49.5 | + 55.3 |
| Poncho® (Seed Treatment) | 31 | 35 | + 12.9 | + 27.1 | 90 | 107 | + 18.9 | + 31.0 |
| Decis® / K-Othrine® (Insecticides / Environmental Science) | 52 | 53 | + 1.9 | + 9.3 | 97 | 99 | + 2.1 | + 8.4 |
| Fandango® (Fungicides) | 15 | 50 | • | • | 42 | 95 | + 126.2 | + 131.4 |
| Total | 592 | 756 | + 27.7 | + 38.5 | 1,312 | 1,594 | + 21.5 | + 29.2 |
| Proportion of Bayer CropScience sales | 38 % | 42 % | 39 % | 42 % |
* Figures are based on active ingredient class. For the sake of clarity, only the principal brands and business units are listed.
17
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
ebitda before special items in the Crop Protection segment advanced by 40.3 percent to €435 million (q2 2007: €310 million). This strong earnings growth was mainly the result of considerably higher volumes and selling price increases. Earnings were held back by negative currency effects. ebit before special items climbed by 67.9 percent to €329 million (q2 2007: €196 million). Special charges of €8 million were taken in connection with the cost structure program we initiated in 2006. ebit came in at €321 million (q2 2007: €180 million).
Sales of the Crop Protection segment in the fi rst half grew by 16.8 percent to €3,148 million (h1 2007: €2,696 million). The currency-adjusted increase was 23.1 percent. ebitda before special items rose by 35.1 percent to €1,042 million. ebit before special items improved by 52.5 percent to €822 million (h1 2007: €539 million). Our cost structure program resulted in special charges of €55 million. ebit came in at €767 million, up 58.5 percent year on year (h1 2007: €484 million).
In the Environmental Science, Bioscience segment, sales fell by 7.3 percent in the second quarter of 2008 to €278 million (q2 2007: €300 million). On a currency- and portfolioadjusted basis, sales decreased by 2.6 percent.
Sales of Environmental Science receded by 17.5 percent in the second quarter to €165 million (q2 2007: €200 million). The currency-adjusted decrease came to 10.9 percent. In North America, this was mainly attributable to a further drop in sales of products for professional users in the green industry, while in Europe, sales were down particularly in the area of home and garden products for consumers. We also registered lower sales of specialty active ingredients to downstream customers.
Sales of BioScience grew by 13.0 percent in the second quarter, to €113 million. Adjusted for currency and portfolio effects – the latter resulting from acquisitions in the cotton and vegetable seed businesses – sales expanded by 13.9 percent. This increase was mainly attributable to the good performance of our cotton seed business in North America, Mexico and India, and the successful expansion of our hybrid rice business under the Arize® brand in Asia.
ebitda before special items in the Environmental Science, BioScience segment came in at €66 million, down 23.3 percent from €86 million in the same period of 2007. Earnings were held back by lower sales of Environmental Science and adverse shifts in exchange rates. In addition, we increased research and development spending at BioScience to strengthen our future competitiveness. ebit before special items fell by 30.3 percent to €46 million. While the prior-period fi gure contained special charges for litigations, there were no special items in the second quarter of 2008. ebit climbed by 48.4 percent to €46 million (q2 2007: €31 million).
Sales in the Environmental Science, BioScience segment in the fi rst half decreased by 2.8 percent to €634 million (h1 2007: €652 million). Adjusted for currency and portfolio effects, sales were level with the prior-year period. ebitda before special items dropped by 17.7 percent to €172 million. ebit before special items amounted to €131 million (h1 2007: €170 million). After special charges of €7 million, fi rst-half ebit came in at €124 million (h1 2007: €135 million).
| Crop Protection | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | 1st Half 2007 |
1st Half 2008 |
Change |
|---|---|---|---|---|---|---|
| € million | € million | % | € million | € million | % | |
| Sales | 1,262 | 1,526 | + 20.9 | 2,696 | 3,148 | + 16.8 |
| Herbicides | 479 | 521 | + 8.8 | 1,047 | 1,185 | + 13.2 |
| Fungicides | 385 | 576 | + 49.6 | 769 | 1,024 | + 33.2 |
| Insecticides | 313 | 321 | + 2.6 | 624 | 643 | + 3.0 |
| Seed Treatment | 85 | 108 | + 27.1 | 256 | 296 | + 15.6 |
| Sales by Region | ||||||
| Europe | 566 | 695 | + 22.8 | 1,289 | 1,575 | + 22.2 |
| North America | 319 | 363 | + 13.8 | 611 | 659 | + 7.9 |
| Asia / Pacifi c | 184 | 202 | + 9.8 | 373 | 387 | + 3.8 |
| Latin America /Africa / Middle East | 193 | 266 | + 37.8 | 423 | 527 | + 24.6 |
| EBITDA1 | 297 | 427 | + 43.8 | 722 | 991 | + 37.3 |
| Special items | (13) | (8) | (49) | (51) | ||
| EBITDA before special items2 | 310 | 435 | + 40.3 | 771 | 1,042 | + 35.1 |
| EBITDA margin before special items | 24.6 % | 28.5 % | 28.6 % | 33.1% | ||
| EBIT 1 | 180 | 321 | + 78.3 | 484 | 767 | + 58.5 |
| Special items | (16) | (8) | (55) | (55) | ||
| EBIT before special items2 | 196 | 329 | + 67.9 | 539 | 822 | + 52.5 |
| Gross cash flow 1 | 219 | 325 | + 48.4 | 501 | 741 | + 47.9 |
| Net cash flow 1 | 313 | 630 | + 101.3 | 200 | 364 | + 82.0 |
for definition see Bayer Group Key Data on page 2
for definition see also page 24
| Environmental Science, BioScience | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | 1st Half 2007 |
1st Half 2008 |
Change |
|---|---|---|---|---|---|---|
| € million | € million | % | € million | € million | % | |
| Sales | 300 | 278 | – 7.3 | 652 | 634 | – 2.8 |
| Environmental Science | 200 | 165 | – 17.5 | 388 | 330 | – 14.9 |
| BioScience | 100 | 113 | + 13.0 | 264 | 304 | + 15.2 |
| Sales by Region | ||||||
| Europe | 109 | 103 | – 5.5 | 248 | 245 | – 1.2 |
| North America | 112 | 90 | – 19.6 | 267 | 250 | – 6.4 |
| Asia / Pacifi c | 53 | 58 | + 9.4 | 83 | 84 | + 1.2 |
| Latin America /Africa / Middle East | 26 | 27 | + 3.8 | 54 | 55 | + 1.9 |
| EBITDA1 | 51 | 66 | + 29.4 | 174 | 165 | – 5.2 |
| Special items | (35) | 0 | (35) | (7) | ||
| EBITDA before special items 2 | 86 | 66 | – 23.3 | 209 | 172 | – 17.7 |
| EBITDA margin before special items | 28.7 % | 23.7 % | 32.1% | 27.1% | ||
| EBIT 1 | 31 | 46 | + 48.4 | 135 | 124 | – 8.1 |
| Special items | (35) | 0 | (35) | (7) | ||
| EBIT before special items 2 | 66 | 46 | – 30.3 | 170 | 131 | – 22.9 |
| Gross cash flow 1 | 40 | 52 | + 30.0 | 127 | 125 | – 1.6 |
| Net cash flow 1 | 181 | 101 | – 44.2 | 56 | 55 | – 1.8 |
for definition see Bayer Group Key Data on page 2
19
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
Sales of MaterialScience in the second quarter of 2008 came in at €2,622 million, which was level with the prior-year fi gure. When adjusted for portfolio and currency effects, sales improved by 5.3 percent, thanks to price and volume increases.
Despite the growth in business, ebitda before special items decreased by 9.0 percent in the second quarter, to €372 million. The Systems segment matched its prior-year earnings, while our Materials segment saw earnings decline signifi cantly as diffi cult market conditions continued. Earnings as a whole were greatly hampered by raw material and energy price increases exceeding €100 million year on year, and by negative currency effects. These were not fully offset by price and volume increases and savings from the cost structure programs. ebit before special items fell by 12.8 percent to €253 million. Special charges of €9 million were taken in connection with the restructuring program launched in 2007. The prior-year fi gure contained special charges of €24 million. ebit fell by 8.3 percent to €244 million.
Sales in the Systems segment grew by 3.7 percent to €1,935 million (q2 2007: €1,866 million). Adjusted for currency and portfolio changes, sales rose by 8.1 percent, thanks to higher volumes and selling prices. On a currency-adjusted basis, sales expanded in all regions. In Europe, sales edged up despite the declines for polymer raw materials, such as styrene. In North America, sales rose by a currency-adjusted 6.2 percent, with higher selling prices for certain products compensating for the overall volume decline due to the economic situation. We experienced good growth in the Asia-Pacifi c and Latin America / Africa / Middle East regions, primarily on account of higher volumes.
All units of the Systems segment succeeded in improving sales from the prior-year period. The Polyurethanes business unit saw sales rise by 2.9 percent to €1,351 million. On a currency- and portfolio-adjusted basis, business expanded by 8.7 percent. Sales of toluene diisocyanate (tdi), in particular, developed well in all regions.
Sales of our Coatings, Adhesives, Specialties business unit grew by 5.4 percent to €432 million. Adjusted for currency and portfolio changes, the increase was 5.2 percent. Sales growth took place primarily in the Asia-Pacifi c market.
Inorganic Basic Chemicals raised sales by 8.7 percent to €113 million. On a currencyadjusted basis, the increase was 12.6 percent. Growth in this business unit was due largely to higher selling prices for sodium hydroxide solution in the United States.
ebitda before special items in the Systems segment held steady from the prior-year period, at €337 million (q2 2007: €338 million). Here we succeeded in offsetting negative currency effects and price increases for raw materials and energies, which were substantial in some cases, through higher selling prices and volumes. ebit before special items dipped by 1.1 percent to €258 million. Special charges in the second quarter came to €6 million. The fi gure for the prior-year period contained special charges of €24 million for the closure of our mdi plant in New Martinsville, West Virginia, United States. ebit improved by 6.3 percent to €252 million.
| Bayer MaterialScience | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | 1st Half 2007 |
1st Half 2008 |
Change |
|---|---|---|---|---|---|---|
| € million | € million | % | € million | € million | % | |
| Sales | 2,623 | 2,622 | 0.0 | 5,231 | 5,134 | – 1.9 |
| Systems | 1,866 | 1,935 | + 3.7 | 3,735 | 3,774 | + 1.0 |
| Materials | 757 | 687 | – 9.2 | 1,496 | 1,360 | – 9.1 |
| Sales by Region | ||||||
| Europe | 1,169 | 1,169 | 0.0 | 2,354 | 2,304 | – 2.1 |
| North America | 613 | 548 | – 10.6 | 1,244 | 1,069 | – 14.1 |
| Asia / Pacifi c | 537 | 577 | + 7.4 | 1,043 | 1,106 | + 6.0 |
| Latin America /Africa / Middle East | 304 | 328 | + 7.9 | 590 | 655 | + 11.0 |
| EBITDA1 | 389 | 365 | – 6.2 | 798 | 772 | – 3.3 |
| Special items | (20) | (7) | (20) | (7) | ||
| EBITDA before special items 2 | 409 | 372 | – 9.0 | 818 | 779 | – 4.8 |
| EBITDA margin before special items | 15.6 % | 14.2 % | 15.6 % | 15.2 % | ||
| EBIT 1 | 266 | 244 | – 8.3 | 551 | 525 | – 4.7 |
| Special items | (24) | (9) | (30) | (9) | ||
| EBIT before special items2 | 290 | 253 | – 12.8 | 581 | 534 | – 8.1 |
| Gross cash flow 1 | 293 | 278 | – 5.1 | 597 | 588 | – 1.5 |
| Net cash flow 1 | 278 | 276 | – 0.7 | 315 | 422 | + 34.0 |
for definition see Bayer Group Key Data on page 2
2 for definition see also page 24
| Systems | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | 1st Half 2007 |
1st Half 2008 |
Change |
|---|---|---|---|---|---|---|
| € million | € million | % | € million | € million | % | |
| Sales | 1,866 | 1,935 | + 3.7 | 3,735 | 3,774 | + 1.0 |
| Polyurethanes | 1,313 | 1,351 | + 2.9 | 2,645 | 2,610 | – 1.3 |
| Coatings, Adhesives, Specialties | 410 | 432 | + 5.4 | 803 | 855 | + 6.5 |
| Inorganic Basic Chemicals | 104 | 113 | + 8.7 | 210 | 230 | + 9.5 |
| Other Systems | 39 | 39 | 0.0 | 77 | 79 | + 2.6 |
| Sales by Region | ||||||
| Europe | 880 | 893 | + 1.5 | 1,782 | 1,756 | – 1.5 |
| North America | 464 | 428 | – 7.8 | 946 | 829 | – 12.4 |
| Asia / Pacifi c | 293 | 356 | + 21.5 | 559 | 672 | + 20.2 |
| Latin America /Africa / Middle East | 229 | 258 | + 12.7 | 448 | 517 | + 15.4 |
| EBITDA1 | 318 | 333 | + 4.7 | 647 | 701 | + 8.3 |
| Special items | (20) | (4) | (20) | (4) | ||
| EBITDA before special items 2 | 338 | 337 | – 0.3 | 667 | 705 | + 5.7 |
| EBITDA margin before special items | 18.1% | 17.4% | 17.9% | 18.7% | ||
| EBIT 1 | 237 | 252 | + 6.3 | 484 | 533 | + 10.1 |
| Special items | (24) | (6) | (30) | (6) | ||
| EBIT before special items2 | 261 | 258 | – 1.1 | 514 | 539 | + 4.9 |
| Gross cash flow 1 | 238 | 247 | + 3.8 | 473 | 520 | + 9.9 |
| Net cash flow 1 | 253 | 239 | – 5.5 | 315 | 302 | – 4.1 |
for definition see Bayer Group Key Data on page 2
2 for definition see also page 24 21
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
Sales in our Systems segment in the fi rst half of 2008, at €3,774 million, were up slightly year on year (+1.0 percent). Adjusted for shifts in exchange rates and portfolio changes, business expanded by 4.8 percent, thanks to higher volumes and selling prices. ebitda before special items advanced by 5.7 percent to €705 million. ebit before special items came in at €539 million (h1 2007: €514 million). ebit advanced by 10.1 percent to €533 million.
In May 2008, Bayer acquired the polyurethane systems house Resina Chemie b.v., Netherlands, a supplier of rigid polyurethane foam systems for the refrigeration and construction industries. In addition, the cast elastomers businesses of Bayer MaterialScience AG and Michel Baulé sa were merged in July into a joint venture named Baulé sas, in which each company holds a 50 percent interest.
Sales of the Materials segment fell by 9.2 percent in the second quarter of 2008, to €687 million (q2 2007: €757 million). After adjusting for currency and portfolio effects, sales declined by 1.8 percent as a result of lower selling prices, with volumes remaining steady. Sales in Europe were at the prior-year level despite lower selling prices. Sales in Asia/Pacifi c came in below the previous year's level due to a drop in business with raw materials. Volumes in the North American market shrank due to the economic situation, causing sales to move back by a currency-adjusted 7.5 percent. Sales in the Latin America /Africa / Middle East region did not match the prior-year period despite higher volumes.
Sales in our Polycarbonates business unit fell by 11.1 percent to €625 million in a diffi cult market environment. Adjusted for currency and portfolio effects, business was down by 2.3 percent, due largely to lower selling prices.
Our Thermoplastic Polyurethanes business unit saw sales expand by 14.8 percent to €62 million, with sales of the acquired Uretech business making a key contribution to growth. The currency- and portfolio-adjusted increase was 4.3 percent.
ebitda before special items of the Materials segment fell by 50.7 percent to €35 million. The drop in earnings was largely attributable to lower selling prices and to higher raw material and energy costs. ebit before special items declined to minus €5 million (q2 2007: €29 million). ebit came in at minus €8 million.
Sales of the Materials segment moved back by 9.1 percent in the fi rst half of 2008, to €1,360 million. Adjusted for currency and portfolio effects, business shrank by 2.0 percent. ebitda before special items fell by 51.0 percent in the fi rst six months, to €74 million. ebit before special items came in at minus €5 million (q2 2007: plus €67 million). ebit amounted to minus €8 million.
| Materials | 2nd Quarter 2007 |
2nd Quarter 2008 |
Change | 1st Half 2007 |
1st Half 2008 |
Change |
|---|---|---|---|---|---|---|
| € million | € million | % | € million | € million | % | |
| Sales | 757 | 687 | – 9.2 | 1,496 | 1,360 | – 9.1 |
| Polycarbonates | 703 | 625 | – 11.1 | 1,386 | 1,235 | – 10.9 |
| Thermoplastic Polyurethanes | 54 | 62 | + 14.8 | 110 | 125 | + 13.6 |
| Sales by Region | ||||||
| Europe | 289 | 276 | – 4.5 | 572 | 548 | – 4.2 |
| North America | 149 | 120 | – 19.5 | 298 | 240 | – 19.5 |
| Asia / Pacifi c | 244 | 221 | – 9.4 | 484 | 434 | – 10.3 |
| Latin America /Africa / Middle East | 75 | 70 | – 6.7 | 142 | 138 | – 2.8 |
| EBITDA1 | 71 | 32 | – 54.9 | 151 | 71 | – 53.0 |
| Special items | 0 | (3) | 0 | (3) | ||
| EBITDA before special items 2 | 71 | 35 | – 50.7 | 151 | 74 | – 51.0 |
| EBITDA margin before special items | 9.4 % | 5.1% | 10.1% | 5.4 % | ||
| EBIT 1 | 29 | (8) | – 127.6 | 67 | (8) | – 111.9 |
| Special items | 0 | (3) | 0 | (3) | ||
| EBIT before special items2 | 29 | (5) | – 117.2 | 67 | (5) | – 107.5 |
| Gross cash flow 1 | 55 | 31 | – 43.6 | 124 | 68 | – 45.2 |
| Net cash flow 1 | 25 | 37 | + 48.0 | 0 | 120 | • |
1 for definition see Bayer Group Key Data on page 2
for definition see also page 24
23
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
To permit a more accurate assessment of business operations, ebit and ebitda are also stated "before special items." The special items concerned are detailed in the table below. "ebitda," "ebitda before special items" and "ebit before special items" are not defi ned in the International Financial Reporting Standards and should therefore be regarded only as supplementary information.
| Special Items Reconciliation | EBIT 2nd Quarter 2007 |
EBIT 2nd Quarter 2008 |
EBIT 1st Half 2007 |
EBIT 1st Half 2008 |
EBITDA 2nd Quarter 2007 |
EBITDA 2nd Quarter 2008 |
EBITDA 1st Half 2007 |
EBITDA 1st Half 2008 |
|---|---|---|---|---|---|---|---|---|
| € million | ||||||||
| After special items | 917 | 1,105 | 2,092 | 2,448 | 1,572 | 1,774 | 3,346 | 3,829 |
| HealthCare | 209 | 126 | 348 | 226 | 181 | 107 | 346 | 187 |
| Schering PPA effects* | 33 | 55 | 53 | 106 | 50 | 55 | 114 | 106 |
| Schering Integration | 176 | (18) | 295 | 31 | 131 | (27) | 232 | 2 |
| Write-downs | 0 | 21 | 0 | 21 | 0 | 11 | 0 | 11 |
| Litigations | 0 | 68 | 0 | 68 | 0 | 68 | 0 | 68 |
| CropScience | 51 | 8 | 90 | 62 | 48 | 8 | 84 | 58 |
| Restructuring | 18 | 8 | 57 | 62 | 15 | 8 | 51 | 58 |
| Litigations | 33 | 0 | 33 | 0 | 33 | 0 | 33 | 0 |
| MaterialScience | 24 | 9 | 30 | 9 | 20 | 7 | 20 | 7 |
| Restructuring | 24 | 9 | 30 | 9 | 20 | 7 | 20 | 7 |
| Reconciliation | (16) | 0 | 0 | 0 | (15) | 0 | 0 | 0 |
| Restructuring | (16) | 0 | 0 | 0 | (15) | 0 | 0 | 0 |
| Total special items | 268 | 143 | 468 | 297 | 234 | 122 | 450 | 252 |
| Before special items | 1,185 | 1,248 | 2,560 | 2,745 | 1,806 | 1,896 | 3,796 | 4,081 |
* The purchase price paid for Schering AG, Germany, was allocated among the acquired assets and assumed liabilities in accordance with the International Financial Reporting Standards (IFRS). To ensure comparability with future earnings data, the expected long-term effects of the step-up are reflected in EBIT and EBITDA before special items, whereas temporary, non-cash effects of the purchase price allocation are eliminated. In this connection we recognized a €55 million special charge when calculating EBIT before special items for the second quarter of 2008.
| Bayer Group Summary Cash Flow Statements | 2nd Quarter 2007 |
2nd Quarter 2008 |
1st Half 2007 |
1st Half 2008 |
|---|---|---|---|---|
| € million | ||||
| Gross cash flow* | 1,187 | 1,322 | 2,598 | 2,973 |
| Changes in working capital/other non-cash items | (371) | (433) | (1,407) | (1,556) |
| Net cash provided by (used in) operating activities (net cash flow), continuing operations |
816 | 889 | 1,191 | 1,417 |
| Net cash provided by (used in) operating activities (net cash fl ow), discontinued operations |
(36) | 0 | 2 | 0 |
| Net cash provided by (used in) operating activities (net cash flow) (total) |
780 | 889 | 1,193 | 1,417 |
| Net cash provided by (used in) investing activities (total) |
(53) | (321) | 4,536 | (785) |
| Net cash provided by (used in) financing activities (total) |
(3,889) | (1,227) | (5,653) | (1,096) |
| Change in cash and cash equivalents due to business activities (total) |
(3,162) | (659) | 76 | (464) |
| Cash and cash equivalents at beginning of period | 6,143 | 2,717 | 2,915 | 2,531 |
| Change due to exchange rate movements and to changes in scope of consolidation |
(1) | 0 | (11) | (9) |
| Cash and cash equivalents at end of period | 2,980 | 2,058 | 2,980 | 2,058 |
* for definition see Bayer Group Key Data on page 2
Gross cash fl ow in the second quarter of 2008 rose by 11.4 percent, from €1,187 million in the prior-year period to €1,322 million, as a result of the strong business performance. Net cash fl ow improved by €73 million to €889 million (q2 2007: €816 million) despite a seasonal increase in cash tied up in working capital.
Gross cash fl ow in the fi rst half of 2008 advanced to €2,973 (h1 2007: €2,598 million). Net cash fl ow rose by 19.0 percent to €1,417 million (h1 2007: €1,191 million).
In the second quarter of 2008, there was a net cash outfl ow of €321 million for investing activities (q2 2007: €53 million). This amount mainly comprised €265 million in disbursements relating to the purchase of the eastern European otc business of Sagmel, Inc. Cash outfl ows for property, plant and equipment in the second quarter totaled €347 million (q2 2007: €440 million). This fi gure included the expenditures for the expansion of our polymers production facilities in Caojing, near Shanghai, China. Infl ows consisted primarily of €224 million in interest and dividend payments, as well as €91 million in proceeds from the divestiture of property, plant, equipment and other assets.
The net cash outfl ow for investing activities in the fi rst six months of 2008 amounted to €785 million. This amount mainly comprised €227 million in payments concerning the acquisition of u.s.-based Possis Medical, Inc. and €265 million relating to the purchase of the otc business of Sagmel, Inc. In the prior-year period, there was a cash infl ow of €4,536 million, comprising mainly the net proceeds from the divestitures of the diagnostics business, H.C. Starck and Wolff Walsrode. Cash outfl ows for property, plant and equipment and intangible assets in the fi rst half came to €635 million (h1 2007: €641 million). The principal cash infl ows were €298 million in interest and dividend payments and €107 million in proceeds from the divestiture of property, plant, equipment and other assets.
The net cash outfl ow for fi nancing activities in the fi rst half of 2008 amounted to €1,096 million. The outfl ow in the prior-year period came to €5,653 million. This included €3.9 billion for net loan repayments, the greater part of this amount (€2.1 billion) being for the scheduled redemption of our 2002/2007 Eurobond in April 2007. The Bayer AG dividend and dividend payments to minority stockholders of consolidated companies amounted to €1,040 million in the fi rst half of 2008 (h1 2007: €775 million).
As of June 30, 2008 the Bayer Group held cash and cash equivalents of €2,058 million, including €747 million deposited in escrow accounts. This amount is earmarked for payments to be made in connection with the squeeze-out of the remaining minority stockholders of Bayer Schering Pharma AG and civil law settlements of antitrust proceedings. Pursuant to a resolution of the Extraordinary Stockholders' Meeting of Bayer Schering Pharma AG on January 17, 2007, the shares of that company that are still held by minority stockholders will be transferred to the main stockholder, Bayer Schering GmbH, a wholly owned subsidiary of Bayer AG, in return for cash compensation of €98.98 per share. Dissenting stockholders are seeking to have the stockholder resolution set aside or to have it declared null and void. As of June 30, 2008, we held a 96.3 percent interest in Bayer Schering Pharma AG. In view of the restriction on its use, the liquidity held in escrow accounts was not deducted when calculating net debt.
Half-Year Financial Report 2008
Bayer Stockholders' Newsletter 2008
Group Management Report as of June 30, 2008
| Dec. 31, 2007 |
March 31, 2008 |
June 30, 2008 |
|---|---|---|
| 12,911 | 12,648 | 8,925 |
| 1,237 | 1,237 | 1,221 |
| 1,287 | 1,757 | 6,010 |
| (230) | (301) | (314) |
| 13,968 | 14,104 | 14,621 |
| (1,776) | (1,967) | (1,311) |
| (8) | (35) | (6) |
| 12,184 | 12,102 | 13,304 |
| - | - | - |
| 12,184 | 12,102 | 13,304 |
* In view of the restriction on its use, the €747 million liquidity in escrow accounts in the second quarter of 2008 (March 31, 2008: €750 million; Dec. 31, 2007: €755 million) was not deducted when calculating net debt. June 30, 2008: €1,311 million = €2,058 million - €747 million.
In the second quarter net debt (total) rose by €1.2 billion to €13.3 billion. This was mainly due to our dividend payout of €1.0 billion and to payments of €0.5 billion for annual payments of variable compensation to our employees. In addition, the interest payment dates for our bonds occur mainly in the second quarter, resulting in expectedly high disbursements. As of June 30, 2008 we had fi nancial liabilities of €14.6 billion, including the €1.2 billion subordinated hybrid bond issued in July 2005 and the €2.3 billion mandatory convertible bond issued in April 2006. Net debt should be viewed against the fact that Moody's and Standard & Poor's treat 75 percent and 50 percent, respectively, of the hybrid bond as equity. Both rating agencies consider the mandatory convertible bond wholly as equity. Unlike conventional borrowings, the hybrid bond thus only has a limited effect on the Group's rating-specifi c indicators, while the mandatory convertible bond has no effect. In light of their maturity dates, the mandatory convertible bond issued in 2006 and the fl oating rate note of Bayer AG, also issued in 2006, were reclassifi ed from noncurrent to current fi nancial liabilities. Our noncurrent fi nancial liabilities amounted to €8.9 billion as of June 30, 2008.
In the second quarter of 2008, Standard & Poor's raised Bayer's long-term issuer rating to a– with stable outlook. Moody's has changed the outlook for our long-term issuer rating of a3 from "negative" to "stable." The short-term ratings are a-2 (Standard & Poor's) and p-2 (Moody's). These investment-grade ratings document good creditworthiness.
Capital market interest rates continued to rise in the second quarter of 2008. The net pension liability fell once again, to €3.9 billion. Provisions for pensions and other postemployment benefi ts declined from €5.0 billion to €4.7 billion. At the same time prepaid benefi t assets, refl ected in the balance sheet under "Other receivables," declined by €0.1 billion to €0.8 billion.
| Net pension liability | Dec. 31, 2007 |
March 31, 2008 |
June 30, 2008 |
|---|---|---|---|
| € million | |||
| Provisions for pensions and other post-employment benefi ts | 5,501 | 4,970 | 4,696 |
| Prepaid benefi t assets | ( 533) | (882) | (760) |
| Net pension liability | 4,968 | 4,088 | 3,936 |
The number of employees has been converted to full-time equivalents, which means parttime employees are included in proportion to their contractual working hours.
On June 30, 2008, the Bayer Group had 107,100 employees, 900 more than on December 31, 2007. We employed 17,000 people in North America, including the 300 employees of the recently acquired u.s. company Possis Medical, Inc. Bayer had 19,800 employees in the Asia-Pacifi c region and 14,900 in Latin America /Africa / Middle East. The number of employees in Europe was 55,400, including for the fi rst time the 600 employees of Sagmel. In Germany we had 37,500 employees, accounting for 35.0 percent of the Group workforce. Personnel expenses in the fi rst half of 2008 amounted to €3,852 million (h1 2007: €3,792 million).
As a global enterprise with a diverse business portfolio, the Bayer Group enjoys a variety of opportunities and is also exposed to numerous risks. The anticipated development opportunities are materially unchanged from those outlined in the Bayer Annual Report 2007.
A risk management system is in place. Apart from fi nancial risks there are also businessspecifi c selling market, procurement market, product development, patent, production, environmental and regulatory risks. Legal risks exist particularly in the areas of product liability, competition and antitrust law, patent disputes, tax assessments and environmental matters. Signifi cant changes that have occurred in respect of the legal risks since publication of the Bayer Annual Report 2007 are described in the Notes to the Condensed Consolidated Interim Financial Statements on page 42 ff. under "Legal Risks." Information on the Bayer Group's risk situation is provided in the Bayer Annual Report 2007 on pages 80 – 88 and 188 –193. The Bayer Annual Report 2007 can be downloaded free of charge at www.bayer.com.
At present, no potential risks have been identifi ed that either individually or in combination could endanger the continued existence of the Bayer Group.
Since June 30, 2008, no events of special signifi cance have occurred that we expect to have a material impact on the fi nancial position or results of operations of the Bayer Group.
Bayer Stockholders' Newsletter 2008
Investor Information
Bayer stock recovered somewhat in the second quarter following the drop in the share price in the fi rst three months of the year. Including the dividend of €1.35 per share paid in April, the second-quarter performance of our shares came to 7.9 percent.
However, with a closing price of €53.46 on June 30, 2008, the stock was down 14.5 percent from the end of 2007 (performance: –12.4 percent). The dax lost 20.4 percent over the same period, closing at 6,418 points. The European reference index euro stoxx 50 fell even more sharply, closing the second quarter down 21.8 percent from the start of the year, at 5,076 points.
The index provider msci Barra reclassifi ed Bayer stock from the "Diversifi ed Chemicals" category of the "Materials" sector to the "Pharmaceuticals" category of the "HealthCare" sector with effect from July 1, 2008 refl ecting the strategic emphasis of our activities on the HealthCare business.
At the Annual Stockholders' Meeting on April 25, 2008 in Cologne, 62 percent of the voting capital was represented – an increase of 5 percentage points from the previous year's meeting.
| Bayer Stock Key Data | 2nd Quarter 2007 |
2nd Quarter 2008 |
1st Half 2007 |
1st Half 2008 |
|
|---|---|---|---|---|---|
| High for the period | € | 56.68 | 57.00 | 56.68 | 65.68 |
| Low for the period | € | 47.58 | 50.61 | 40.20 | 45.90 |
| Average daily share turnover on | |||||
| German stock exchanges | million | 6.2 | 4.3 | 5.9 | 5.8 |
| Change | |||||
| June 30, 2008/ | |||||
| June 30, | June 30, | Dec. 31, | Dec. 31, 2007 | ||
| 2007 | 2008 | 2007 | % | ||
| Share price | € | 56.10 | 53.46 | 62.53 | – 14.5 |
| Market capitalization | € million | 42,879 | 40,862 | 47,794 | – 14.5 |
| Stockholders' equity as per balance sheets | € million | 16,249 | 17,412 | 16,821 | + 3.5 |
| Number of shares entitled to the dividend | million | 764.34 | 764.34 | 764.34 | 0.0 |
DAX 8,007 6,418 8,067 – 20.4
Xetra-closing price; source: Bloomberg
(indexed; 100 = Xetra closing price on June 30, 2007)
Earnings per share according to ifrs are affected by the purchase price allocation for Schering, Berlin, Germany, and other special factors. To enhance comparability, we also determine core net income from continuing operations after elimination of the amortization of intangible assets, asset write-downs (including any impairment losses), special items in ebitda including the related tax effects, and one-time tax income or expense.
The calculation of earnings per share in accordance with ifrs is explained in the notes to the consolidated fi nancial statements on page 41. Adjusted core net income, core earnings per share and core ebit are not defi ned in the International Financial Reporting Standards. Therefore they should be regarded as supplementary information rather than stand-alone indicators.
| Calculation of Core EBIT and Core Earnings per Share | 2nd Quarter 2007 |
2nd Quarter 2008 |
1st Half 2007 |
1st Half 2008 |
|---|---|---|---|---|
| € million | ||||
| EBIT as per income statement | 917 | 1,105 | 2,092 | 2,448 |
| Amortization and write-downs of intangible assets | 325 | 378 | 618 | 785 |
| Write-downs of property, plant and equipment | 53 | 29 | 77 | 60 |
| Special items (other than write-downs) | 234 | 122 | 450 | 252 |
| Core EBIT | 1,529 | 1,634 | 3,237 | 3,545 |
| Non-operating result (as per income statement) | (257) | (262) | (475) | (537) |
| Income taxes (as per income statement) | (247) | (262) | (548) | (568) |
| Tax adjustment | (205) | (160) | (382) | (333) |
| Income after taxes attributable to minority interest (as per income statement) | 3 | (7) | 2 | (7) |
| Core net income from continuing operations | 823 | 943 | 1,834 | 2,100 |
| Financing expenses for the mandatory convertible bond, net of tax effects | 24 | 28 | 48 | 56 |
| Adjusted core net income | 847 | 971 | 1,882 | 2,156 |
| Shares | ||||
| Weighted average number of issued ordinary shares | 764,341,920 | 764,341,920 | 764,341,920 | 764,341,920 |
| Potential shares to be issued upon conversion of the mandatory convertible bond | 59,565,835 | 59,904,897 | 59,544,939 | 59,743,798 |
| Adjusted weighted average total number of issued and potential ordinary shares | 823,907,755 | 824,246,817 | 823,886,859 | 824,085,718 |
| Core earnings per share from continuing operations (€) | 1.03 | 1.18 | 2.28 | 2.62 |
Bayer Stockholders' Newsletter 2008
Consolidated Financial Statements as of June 30, 2008
| 2nd Quarter 2007 |
2nd Quarter 2008 |
1st Half 2007 |
1st Half 2008 |
|
|---|---|---|---|---|
| € million | ||||
| Net sales | 8,217 | 8,511 | 16,552 | 17,047 |
| Cost of goods sold | (4,072) | (4,256) | (8,206) | (8,359) |
| Gross profit | 4,145 | 4,255 | 8,346 | 8,688 |
| Selling expenses | (1,919) | (2,034) | (3,726) | (3,936) |
| Research and development expenses | (650) | (648) | (1,275) | (1,281) |
| General administration expenses | (425) | (439) | (861) | (858) |
| Other operating income | 228 | 563 | 371 | 850 |
| Other operating expenses | (462) | (592) | (763) | (1,015) |
| Operating result [EBIT] | 917 | 1,105 | 2,092 | 2,448 |
| Equity-method loss | (13) | (13) | (27) | (23) |
| Non-operating income | 190 | 161 | 432 | 289 |
| Non-operating expenses | (434) | (410) | (880) | (803) |
| Non-operating result | (257) | (262) | (475) | (537) |
| Income before income taxes | 660 | 843 | 1,617 | 1,911 |
| Income taxes | (247) | (262) | (548) | (568) |
| Income from continuing operations after taxes | 413 | 581 | 1,069 | 1,343 |
| Income from discontinued operations after taxes | 244 | - | 2,398 | - |
| Income after taxes | 657 | 581 | 3,467 | 1,343 |
| of which attributable to minority interest | (3) | 7 | (2) | 7 |
| of which attributable to Bayer AG stockholders (net income) | 660 | 574 | 3,469 | 1,336 |
| Earnings per share (€) | ||||
| From continuing operations | ||||
| Basic* | 0.53 | 0.73 | 1.36 | 1.69 |
| Diluted* | 0.53 | 0.73 | 1.36 | 1.69 |
| From discontinued operations | ||||
| Basic* | 0.30 | - | 2.91 | - |
| Diluted* | 0.30 | - | 2.91 | - |
| From continuing and discontinued operations | ||||
| Basic* | 0.83 | 0.73 | 4.27 | 1.69 |
| Diluted* | 0.83 | 0.73 | 4.27 | 1.69 |
The ordinary shares to be issued upon conversion of the mandatory convertible bond are treated as already issued shares.
| June 30, 2007 |
June 30, 2008 |
Dec. 31, 2007 |
|
|---|---|---|---|
| € million | |||
| Noncurrent assets | |||
| Goodwill | 8,439 | 8,287 | 8,215 |
| Other intangible assets | 15,112 | 14,042 | 14,555 |
| Property, plant and equipment | 8,662 | 8,637 | 8,819 |
| Investments in associates | 501 | 456 | 484 |
| Other fi nancial assets | 1,190 | 1,364 | 1,127 |
| Other receivables | 413 | 870 | 667 |
| Deferred taxes | 773 | 458 | 845 |
| 35,090 | 34,114 | 34,712 | |
| Current assets | |||
| Inventories | 6,277 | 6,232 | 6,217 |
| Trade accounts receivable | 6,880 | 6,805 | 5,830 |
| Other fi nancial assets | 252 | 484 | 335 |
| Other receivables | 1,600 | 1,361 | 1,461 |
| Claims for income tax refunds | 243 | 301 | 208 |
| Cash and cash equivalents | 2,980 | 2,058 | 2,531 |
| Assets held for sale and discontinued operations | 82 | 82 | 84 |
| 18,314 | 17,323 | 16,666 | |
| Total assets | 53,404 | 51,437 | 51,378 |
| Stockholders' equity | |||
| Capital stock of Bayer AG | 1,957 | 1,957 | 1,957 |
| Capital reserves of Bayer AG | 4,028 | 4,028 | 4,028 |
| Other reserves | 10,183 | 11,347 | 10,749 |
| 16,168 | 17,332 | 16,734 | |
| Equity attributable to minority interest | 81 | 80 | 87 |
| 16,249 | 17,412 | 16,821 | |
| Noncurrent liabilities | |||
| Provisions for pensions and other post-employment benefi ts | 5,550 | 4,696 | 5,501 |
| Other provisions | 1,671 | 1,379 | 1,166 |
| Financial liabilities | 13,644 | 8,925 | 12,911 |
| Other liabilities | 504 | 649 | 501 |
| Deferred taxes | 4,347 25,716 |
3,698 19,347 |
3,866 23,945 |
| Current liabilities | |||
| Other provisions | 4,087 | 3,599 | 3,754 |
| Financial liabilities | 2,309 | 6,010 | 1,287 |
| Trade accounts payable | 2,249 | 2,284 | 2,466 |
| Income tax liabilities | 127 | 129 | 56 |
| Other liabilities | 2,667 | 2,527 | 2,873 |
| Liabilities directly related to assets held for sale and discontinued operations | - | 129 | 176 |
| 11,439 | 14,678 | 10,612 | |
| Total stockholders' equity and liabilities | 53,404 | 51,437 | 51,378 |
2007 figures reclassified
Half-Year Financial Report 2008
Bayer Stockholders' Newsletter 2008
Consolidated Financial Statements as of June 30, 2008
| 2nd Quarter 2007 |
2nd Quarter 2008 |
1st Half 2007 |
1st Half 2008 |
|
|---|---|---|---|---|
| € million | ||||
| Income from continuing operations after taxes | 413 | 581 | 1,069 | 1,343 |
| Income taxes | 247 | 262 | 548 | 568 |
| Non-operating result | 257 | 262 | 475 | 537 |
| Income taxes paid | (342) | (352) | (685) | (716) |
| Depreciation and amortization | 655 | 669 | 1,254 | 1,381 |
| Change in pension provisions | (86) | (86) | (182) | (180) |
| (Gains) losses on retirements of noncurrent assets | (6) | (69) | 6 | (66) |
| Non-cash effects of the remeasurement | ||||
| of acquired assets (inventory work-down) | 49 | 55 | 113 | 106 |
| Gross cash flow | 1,187 | 1,322 | 2,598 | 2,973 |
| Decrease (increase) in inventories | 38 | (13) | (175) | (264) |
| Decrease (increase) in trade accounts receivable | (52) | (36) | (1,063) | (1,074) |
| (Decrease) increase in trade accounts payable | 16 | 131 | (98) | (65) |
| Changes in other working capital, other non-cash items | (373) | (515) | (71) | (153) |
| Net cash provided by (used in) operating activities (net cash flow), continuing operations |
816 | 889 | 1,191 | 1,417 |
| Net cash provided by (used in) operating activities | ||||
| (net cash fl ow), discontinued operations | (36) | 0 | 2 | 0 |
| Net cash provided by (used in) operating activities (net cash flow) (total) |
780 | 889 | 1,193 | 1,417 |
| Cash outfl ows for additions to property, plant, equipment and intangible assets |
(440) | (347) | (641) | (635) |
| Cash infl ows from sales of property, plant, equipment and other assets |
13 | 91 | 31 | 107 |
| Cash infl ows (outfl ows) from divestitures less divested cash | 230 | (9) | 4,903 | (49) |
| Cash infl ows (outfl ows) for acquisitions less acquired cash | (235) | (306) | (257) | (552) |
| Cash infl ows (outfl ows) from noncurrent fi nancial assets | 3 | 21 | 8 | 48 |
| Interest and dividends received | 376 | 224 | 469 | 298 |
| Cash (infl ows) outfl ows from current fi nancial assets | 0 | 5 | 23 | (2) |
| Net cash provided by (used in) investing activities (total) | (53) | (321) | 4,536 | (785) |
| Capital contributions | 0 | 0 | 0 | 0 |
| Bayer AG dividend and dividend payments to minority stockholders | (766) | (1,031) | (775) | (1,040) |
| Issuances of debt | 1,159 | 602 | 1,603 | 999 |
| Retirements of debt | (3,542) | (179) | (5,496) | (299) |
| Interest paid | (740) | (619) | (985) | (756) |
| Net cash provided by (used in) financing activities (total) | (3,889) | (1,227) | (5,653) | (1,096) |
| Change in cash and cash equivalents due to business activities (total) |
(3,162) | (659) | 76 | (464) |
| Cash and cash equivalents at beginning of period | 6,143 | 2,717 | 2,915 | 2,531 |
| Change in cash and cash equivalents due to changes in scope of consolidation |
(3) | 2 | (4) | 2 |
| Change in cash and cash equivalents due to exchange rate movements |
2 | (2) | (7) | (11) |
| Cash and cash equivalents at end of period | 2,980 | 2,058 | 2,980 | 2,058 |
| 2nd Quarter 2007 |
2nd Quarter 2008 |
1st Half 2007 |
1st Half 2008 |
|
|---|---|---|---|---|
| € million | ||||
| Changes in fair values of derivatives designated as hedges and available-for-sale fi nancial assets, recognized in stockholders' equity |
(3) | 78 | (2) | 120 |
| Changes in actuarial gains / losses on defi ned benefi t obligations for pensions and other post-employment benefi ts and effects of the limitation on pension plan assets, recognized in stockholders' equity |
774 | 128 | 1,105 | 945 |
| Exchange differences on translation of operations outside the euro zone, recognized in stockholders' equity |
(36) | 121 | 7 | (431) |
| Deferred taxes on valuation adjustments offset directly against stockholders' equity |
(297) | (62) | (431) | (323) |
| Changes due to changes in scope of consolidation | 5 | (1) | 36 | 0 |
| Revaluation surplus (IFRS 3) | - | 2 | - | 6 |
| Minority interest in partnerships, recognized in liabilities | (12) | (9) | (19) | (29) |
| Valuation adjustments recognized directly in stockholders' equity |
431 | 257 | 696 | 288 |
| Income after taxes | 657 | 581 | 3,467 | 1,343 |
| Total income and expense recognized in the financial statements | 1,088 | 838 | 4,163 | 1,631 |
| of which attributable to minority interest | (4) | 2 | (2) | 1 |
| of which attributable to Bayer AG stockholders | 1,092 | 836 | 4,165 | 1,630 |
Bayer Stockholders' Newsletter 2008
Consolidated Financial Statements as of June 30, 2008
Notes to the Condensed Consolidated Interim Financial Statements of the Bayer Group as of June 30, 2008
Key Data by Segment
| HealthCare | |||||
|---|---|---|---|---|---|
| Segment | Pharmaceuticals | Consumer Health | |||
| € million | 2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
|
| Sales (external) | 2,583 | 2,584 | 1,134 | 1,150 | |
| Change | +117.4% | 0.0% | + 6.1% | + 1.4% | |
| Currency-adjusted change | +120.6% | + 6.2% | + 9.7% | + 9.2% | |
| Intersegment sales | 10 | 17 | 1 | 2 | |
| Operating result (EBIT) | 207 | 334 | 224 | 179 | |
| Gross cash fl ow 1 | 381 | 447 | 164 | 159 | |
| Net cash fl ow 1 | 202 | 78 | 82 | 76 | |
| Depreciation, amortization and write-downs / write-backs | 323 | 338 | 34 | 36 | |
for definition see Bayer Group Key Data on page 2
| Consumer Health | ||||
|---|---|---|---|---|
| 1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
|
| 5,078 | 5,198 | 2,249 | 2,267 | |
| +117.4% | + 2.4% | + 5.9% | + 0.8% | |
| +121.4% | + 8.0% | + 10.6% | + 7.7% | |
| 22 | 36 | 4 | 2 | |
| 488 | 675 | 428 | 401 | |
| 771 | 991 | 331 | 352 | |
| 481 | 493 | 186 | 238 | |
| 588 | 711 | 67 | 70 | |
| 39,200 | 39,400 | 11,100 | 13,100 | |
| Pharmaceuticals |
for definition see Bayer Group Key Data on page 2 number of employees in full-time equivalents
| CropScience | MaterialScience | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Crop Protection | Environmental Science, BioScience |
Systems | Materials | Reconciliation | Continuing Operations |
||||||||
| 2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
||
| 1,262 | 1,526 | 300 | 278 | 1,866 | 1,935 | 757 | 687 | 315 | 351 | 8,217 | 8,511 | ||
| – 0.6% | + 20.9% | – 2.9% | – 7.3% | + 2.3% | + 3.7% | + 4.7% | – 9.2% | + 22.0% | + 3.6% | ||||
| + 1.4% | + 29.1% | – 0.2% | + 0.8% | + 5.4% | + 9.4% | + 8.5% | – 3.1% | + 24.9% | + 10.0% | ||||
| 16 | 17 | 2 | 2 | 37 | 36 | 4 | 4 | (70) | (78) | ||||
| 180 | 321 | 31 | 46 | 237 | 252 | 29 | (8) | 9 | (19) | 917 | 1,105 | ||
| 219 | 325 | 40 | 52 | 238 | 247 | 55 | 31 | 90 | 61 | 1,187 | 1,322 | ||
| 313 | 630 | 181 | 101 | 253 | 239 | 25 | 37 | (240) | (272) | 816 | 889 | ||
| 117 | 106 | 20 | 20 | 81 | 81 | 42 | 40 | 38 | 48 | 655 | 669 | ||
| Crop Protection | Environmental Science, | BioScience | Systems | Materials | Reconciliation | Continuing Operations |
|||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
| 2,696 | 3,148 | 652 | 634 | 3,735 | 3,774 | 1,496 | 1,360 | 646 | 666 | 16,552 | 17,047 |
| + 0.5% | + 16.8% | – 2.2% | – 2.8% | + 3.8% | + 1.0% | + 4.4% | – 9.1% | + 22.4% | + 3.0% | ||
| + 3.5% | + 23.1% | + 1.9% | + 2.6% | + 7.5% | + 6.1% | + 8.7% | – 3.3% | + 26.1% | + 8.6% | ||
| 34 | 31 | 4 | 7 | 75 | 70 | 8 | 9 | (147) | (155) | ||
| 484 | 767 | 135 | 124 | 484 | 533 | 67 | (8) | 6 | (44) | 2,092 | 2,448 |
| 501 | 741 | 127 | 125 | 473 | 520 | 124 | 68 | 271 | 176 | 2,598 | 2,973 |
| 200 | 364 | 56 | 55 | 315 | 302 | 0 | 120 | (47) | (155) | 1,191 | 1,417 |
| 238 | 224 | 39 | 41 | 163 | 168 | 84 | 79 | 75 | 88 | 1,254 | 1,381 |
| 14,800 | 14,700 | 3,000 | 3,300 | 10,200 | 10,300 | 5,000 | 4,800 | 21,300 | 21,500 | 104,600 | 107,100 |
Bayer Stockholders' Newsletter 2008
Notes
| Region | Europe | North America | |||
|---|---|---|---|---|---|
| € million | 2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
|
| Sales (external) – by market | 3,697 | 3,833 | 2,140 | 2,087 | |
| Change | + 22.8% | + 3.7% | + 17.4% | – 2.5% | |
| Currency-adjusted change | + 22.6% | + 4.5% | + 25.5% | + 11.5% | |
| Net sales (external) – by point of origin | 3,970 | 4,130 | 2,160 | 2,099 | |
| Change | + 21.8% | + 4.0% | + 18.3% | – 2.8% | |
| Currency-adjusted change | + 21.7% | + 4.8% | + 26.5% | + 11.1% | |
| Interregional sales | 1,271 | 1,054 | 530 | 359 | |
| Operating result (EBIT) | 629 | 696 | 192 | 270 | |
| Region | Europe | North America | |||
|---|---|---|---|---|---|
| € million | 1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
|
| Sales (external) – by market | 7,545 | 7,905 | 4,366 | 4,113 | |
| Change | + 25.1% | + 4.8% | + 16.1% | – 5.8% | |
| Currency-adjusted change | + 25.0% | + 5.5% | + 25.4% | + 6.4% | |
| Net sales (external) – by point of origin | 8,123 | 8,523 | 4,380 | 4,132 | |
| Change | + 25.2% | + 4.9% | + 15.9% | – 5.7% | |
| Currency-adjusted change | + 25.1% | + 5.6% | + 25.3% | + 6.6% | |
| Interregional sales | 2,645 | 2,655 | 1,046 | 863 | |
| Operating result (EBIT) | 1,353 | 1,576 | 549 | 611 | |
| Number of employees at end of period* | 56,200 | 55,400 | 16,600 | 17,000 |
* number of employees in full-time equivalents
| Africa / Middle East | Reconciliation | Continuing Operations |
|||||
|---|---|---|---|---|---|---|---|
| 2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
| 1,308 | 1,390 | 1,072 | 1,201 | 8,217 | 8,511 | ||
| + 23.3% | + 6.3% | + 27.5% | + 12.0% | + 22.0% | + 3.6% | ||
| + 30.6% | + 14.9% | + 30.2% | + 21.0% | + 24.9% | + 10.0% | ||
| 1,266 | 1,410 | 821 | 872 | 8,217 | 8,511 | ||
| + 24.0% | + 11.4% | + 30.5% | + 6.2% | + 22.0% | + 3.6% | ||
| + 31.6% | + 16.1% | + 33.8% | + 23.5% | + 24.9% | + 10.0% | ||
| 62 | 42 | 59 | 24 | (1,922) | (1,479) | ||
| 67 | 86 | 75 | 101 | (46) | (48) | 917 | 1,105 |
| Asia / Pacific | Latin America / |
| Asia / Pacific | Latin America / Africa / Middle East |
Reconciliation | Continuing Operations |
||||
|---|---|---|---|---|---|---|---|
| 1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
| 2,508 | 2,666 | 2,133 | 2,363 | 16,552 | 17,047 | ||
| + 21.3% | + 6.3% | + 27.6% | + 10.8% | + 22.4% | + 3.0% | ||
| + 29.3% | + 14.0% | + 34.4% | + 18.4% | + 26.1% | + 8.6% | ||
| 2,403 | 2,617 | 1,646 | 1,775 | 16,552 | 17,047 | ||
| + 21.1% | + 8.9% | + 28.8% | + 7.8% | + 22.4% | + 3.0% | ||
| + 29.3% | + 14.6% | + 37.3% | + 20.2% | + 26.1% | + 8.6% | ||
| 115 | 95 | 116 | 56 | (3,922) | (3,669) | ||
| 140 | 171 | 138 | 193 | (88) | (103) | 2,092 | 2,448 |
| 18,000 | 19,800 | 13,800 | 14,900 | 104,600 | 107,100 |
Bayer Stockholders' Newsletter 2008
Consolidated Financial Statements as of June 30, 2008 Notes
Pursuant to Section 315a of the German Commercial Code, the consolidated interim fi nancial statements as of June 30, 2008 have been prepared in condensed form according to the International Financial Reporting Standards (ifrs) – including ias 34 – of the International Accounting Standards Board (iasb), London, which are endorsed by the European Union, and the Interpretations of the International Financial Reporting Interpretations Committee (ifric), in effect at the closing date.
Reference should be made as appropriate to the notes to the consolidated fi nancial statements for the 2007 fi scal year, particularly with regard to the main recognition and valuation principles. Changes in the underlying parameters relate primarily to currency exchange rates and the interest rates used to calculate pension obligations.
The exchange rates for major currencies against the euro varied as follows:
| Closing rate | Average rate | |||||
|---|---|---|---|---|---|---|
| 1 € | June 30, 2007 |
June 30, 2008 |
Dec. 31, 2007 |
1st Half 2007 |
1st Half 2008 |
|
| Argentina | ARS | 4.17 | 4.77 | 4.64 | 4.11 | 4.80 |
| Brazil | BRL | 2.63 | 2.53 | 2.61 | 2.72 | 2.60 |
| China | CNY | 10.28 | 10.81 | 10.75 | 10.26 | 10.80 |
| U.K. | GBP | 0.67 | 0.79 | 0.73 | 0.67 | 0.77 |
| Japan | JPY | 166.63 | 166.44 | 164.93 | 159.58 | 160.54 |
| Canada | CAD | 1.42 | 1.59 | 1.44 | 1.51 | 1.54 |
| Mexico | MXN | 14.56 | 16.23 | 16.08 | 14.55 | 16.24 |
| Switzerland | CHF | 1.66 | 1.61 | 1.65 | 1.63 | 1.61 |
| United States | USD | 1.35 | 1.58 | 1.47 | 1.33 | 1.53 |
The most important interest rates applied in the calculation of actuarial gains and losses from pension obligations are given below:
| Dec. 31, 2007 |
March 31, 2008 |
June 30, 2008 |
|
|---|---|---|---|
| % | |||
| Germany | 5.5 | 6.1 | 6.4 |
| U.K. | 5.8 | 6.8 | 6.7 |
| United States | 6.6 | 7.0 | 7.0 |
As of June 30, 2008, the Bayer Group comprised 323 fully consolidated companies, compared with 326 companies as of December 31, 2007. Three joint ventures were included by proportionate consolidation according to ias 31 (Interests in Joint Ventures). In addition, fi ve associated companies were included in the consolidated fi nancial statements by the equity method according to ias 28 (Investments in Associates).
The Bayer Group spent a total of €552 million on acquisitions in the fi rst half of 2008, resulting chiefl y from the following transactions: Bayer subsidiary Medrad, Inc. acquired the remaining shares of Possis Medical through its subsidiary Phoenix Acquisition Corp. By virtue of the merger of Phoenix Acquisition Corp. with Possis Medical, the latter became a wholly owned subsidiary of Medrad. At the beginning of June 2008, we successfully completed the acquisition of the over-the-counter (otc) business of u.s.-based Sagmel, Inc., including the related goodwill. This business is now integrated into the operations of Bayer HealthCare in Russia, Ukraine, Belarus, Kazakhstan, the Baltic states and several countries of the Caucasus and Central Asia regions.
The effects of these and other, smaller acquisitions on the Group's assets and liabilities as of the respective acquisition dates are shown in the table. Including acquired cash and cash equivalents, they resulted in the following net cash outfl ow:
| Net carrying amounts at the dates of first-time consolidation |
Fair-value adjustments |
Net carrying amounts after the acquisitions |
|
|---|---|---|---|
| € million | |||
| Acquired assets and assumed liabilities | |||
| Goodwill | 0 | 205 | 205 |
| Other intangible assets | 0 | 303 | 303 |
| Property, plant and equipment | 15 | 0 | 15 |
| Other noncurrent assets | 22 | 0 | 22 |
| Inventories | 27 | 7 | 34 |
| Other current assets | 43 | 0 | 43 |
| Cash and cash equivalents | 5 | 0 | 5 |
| Provisions for pensions and other post-employment benefi ts |
(1) | 0 | (1) |
| Other provisions | (2) | (1) | (3) |
| Financial liabilities | (10) | 0 | (10) |
| Other liabilities | (26) | 0 | (26) |
| Deferred taxes | 10 | (40) | (30) |
| Net assets | 83 | 474 | 557 |
| Minority interests | 0 | ||
| Purchase prices | 557 | ||
| of which ancillary acqusition costs | 5 | ||
| Acquired cash and cash equivalents | 5 | ||
| Liabilities to minority stockholders | 0 | ||
| Net cash outflow for the acquisitions | 552 |
Bayer Stockholders' Newsletter 2008
Consolidated Financial Statements as of June 30, 2008 Notes
After the closing date, the over-the-counter cough and cold medicines business of the Chinese company Topsun Science and Technology Qidong Gaitianli Pharmaceutical Co., Ltd. was acquired for €99 million. The provisional allocation of the difference between the value of the acquired assets and the purchase price relates primarily to trademark rights (€48 million) and goodwill (€40 million).
The diagnostics activities, along with H.C. Starck and Wolff Walsrode, were recognized as discontinued operations in 2007. The information on discontinued operations, which is provided from the standpoint of the Bayer Group, is to be regarded as part of the reporting for the entire Bayer Group by analogy with our segment reporting and is not intended to portray either the discontinued operations or the remaining operations of Bayer as separate entities. This presentation is thus in line with the principles for reporting discontinued operations.
| Discontinued Operations | Diagnostics H.C. Starck |
Wolff Walsrode | Total | |||||
|---|---|---|---|---|---|---|---|---|
| € million | 2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
2nd Quarter 2007 |
2nd Quarter 2008 |
| Sales | - | - | - | - | 87 | - | 87 | - |
| Operating result (EBIT)* | - | - | - | - | 254 | - | 254 | - |
| Income after taxes | - | - | - | - | 244 | - | 244 | - |
| Gross cash fl ow* | - | - | - | - | 5 | - | 5 | - |
| Net cash fl ow* | (39) | - | - | - | 3 | - | (36) | - |
| Net investing cash fl ow | (209) | (9) | - | - | 432 | - | 223 | (9) |
| Net fi nancing cash fl ow | 248 | 9 | - | - | (435) | - | (187) | 9 |
* for definition see Bayer Group Key Data on page 2
| € million | 1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
1st Half 2007 |
1st Half 2008 |
|---|---|---|---|---|---|---|---|---|
| Sales | - | - | 74 | - | 172 | - | 246 | - |
| Operating result (EBIT)* | 2,778 | - | 109 | - | 267 | - | 3,154 | - |
| Income after taxes | 2,044 | - | 103 | - | 251 | - | 2,398 | - |
| Gross cash fl ow* | (10) | - | 14 | - | 15 | - | 19 | - |
| Net cash fl ow* | (32) | - | 26 | - | 8 | - | 2 | - |
| Net investing cash fl ow | 3,539 | (49) | 922 | - | 430 | - | 4,891 | (49) |
| Net fi nancing cash fl ow | (3,507) | 49 | (948) | - | (438) | - | (4,893) | 49 |
* for definition see Bayer Group Key Data on page 2
The ordinary shares to be issued upon conversion of the mandatory convertible bond are treated as already issued shares. Diluted earnings per share are therefore equal to basic earnings per share.
| Calculation of Earnings per Share | 2nd Quarter 2007 |
2nd Quarter 2008 |
1st Half 2007 |
1st Half 2008 |
|---|---|---|---|---|
| € million | ||||
| Income after taxes | 657 | 581 | 3,467 | 1,343 |
| Income attributable to minority interest | (3) | 7 | (2) | 7 |
| Income attributable to Bayer AG stockholders | 660 | 574 | 3,469 | 1,336 |
| Income from discontinued operations | 244 | - | 2,398 | - |
| Financing expenses for the mandatory convertible bond, net of tax effects |
24 | 28 | 48 | 56 |
| Adjusted income from continuing operations after taxes |
440 | 602 | 1,119 | 1,392 |
| Adjusted net income | 684 | 602 | 3,517 | 1,392 |
| Weighted average number of issued ordinary shares | 764,341,920 | 764,341,920 | 764,341,920 | 764,341,920 |
| Potential shares to be issued upon conversion of the mandatory convertible bond |
59,565,835 | 59,904,897 | 59,544,939 | 59,743,798 |
| Adjusted weighted average total number of issued and potential ordinary shares |
823,907,755 | 824,246,817 | 823,886,859 | 824,085,718 |
| Basic earnings per share (€) | ||||
| from continuing operations | 0.53 | 0.73 | 1.36 | 1.69 |
| from discontinued operations | 0.30 | - | 2.91 | - |
| from continuing and discontinued operations | 0.83 | 0.73 | 4.27 | 1.69 |
| Diluted earnings per share (€) | ||||
| from continuing operations | 0.53 | 0.73 | 1.36 | 1.69 |
| from discontinued operations | 0.30 | - | 2.91 | - |
| from continuing and discontinued operations | 0.83 | 0.73 | 4.27 | 1.69 |
Bayer Stockholders' Newsletter 2008
Consolidated Financial Statements as of June 30, 2008 Notes
Information on the Bayer Group's legal risks is provided in the Bayer Annual Report 2007 on pages 188–193. The following signifi cant changes have occurred in respect of the legal risks since publication of the Bayer Annual Report 2007:
Magnevist®: On pages 188–189 of the Bayer Annual Report 2007 we reported a total of 29 lawsuits in the United States based on allegations of physical harm suffered as a result of the use of Bayer's contrast agent Magnevist®. As of July 16, 2008, Bayer has been served in a total of 134 lawsuits and the pending motion to create a multi-district litigation (mdl) has been granted.
Trasylol®: The number of lawsuits fi led in the United States against Bayer on behalf of plaintiffs alleging personal injuries from the use of Trasylol® as reported on page 189 of the Bayer Annual Report 2007 has increased from 46 as of February 1, 2008 to 103 as of July 15, 2008.
As reported on page 190 of the Bayer Annual Report 2007, Bayer expects that civil antitrust lawsuits for damages concerning the products rubber chemicals, butadiene rubber, styrene butadiene rubber, polychloroprene rubber and nitrile butadiene rubber will be fi led against Bayer in Europe. At the end of February 2008, a group of plaintiffs who are primarily producers of tires brought an action for damages before the High Court of Justice in the United Kingdom against Bayer and other producers of butadiene rubber and styrene butadiene rubber based on alleged violations of antitrust law. In June 2008, Bayer fi led its defense with the High Court. Due to a parallel proceeding initiated before a court in Milan, to which Bayer joined as intervenient, the question arises as to which jurisdiction is competent to judge the case.
The inquiry by the German Federal Cartel Offi ce (Bundeskartellamt) against Bayer Vital GmbH concerning certain discounts Bayer had granted to pharmacies, as reported on page 190 of the Bayer Annual Report 2007, resulted in a €10.34 million fi ne imposed in May 2008. The fi ne has been accepted by Bayer Vital.
Yasmin®: On page 191 of the Bayer Annual Report 2007, we reported that, in April 2005, Bayer Schering Pharma fi led suit against Barr Pharmaceuticals Inc. and Barr Laboratories Inc. in u.s. federal court alleging patent infringement by Barr for the intended generic version of Bayer Schering Pharma's Yasmin® oral contraceptive product in the United States. In June 2005 Barr fi led its counterclaim seeking to invalidate Bayer Schering Pharma's patent. In March 2008, the u.s. federal court invalidated Bayer Schering Pharma's '531 patent for Yasmin®. Bayer Schering Pharma has appealed this ruling.
In June 2008, Bayer Schering Pharma and Barr Laboratories Inc. signed a supply and 43 licensing agreement for Yasmin® covering the United States. Bayer Schering Pharma already has begun to supply Barr with a generic version of Yasmin® which Barr will market solely in the United States. Barr will pay Bayer Schering Pharma a fi xed percentage of the revenues from the product sold by Barr. Bayer Schering Pharma will continue to pursue its appeal of the court decision that invalidated Bayer Schering Pharma's u.s. patent '531 for Yasmin®. If Bayer Schering Pharma prevails in its appeal, Bayer Schering Pharma will receive a larger share of Barr's revenues from sales of its generic version of Yasmin® in the United States.
In March 2008 Bayer Schering Pharma received two notices of an Abbreviated New Drug Application with a Paragraph iv certifi cation (an "anda iv") pursuant to which Watson Laboratories Inc. and Sandoz Inc. each seek approval to market a generic version of Bayer Schering Pharma's oral contraceptive Yasmin® in the United States. Bayer Schering Pharma has fi led suit against Watson and Sandoz in u.s. federal court alleging patent infringement by Watson and Sandoz for the intended generic version of Yasmin®. In reply, Sandoz has fi led its answer and counterclaim alleging, among other things, the invalidity of various Bayer patents and that the agreement reached with Barr is anticompetitive and violates the Sherman Act antitrust law.
yaz®: On page 191 of the Bayer Annual Report 2007, we reported that, in January 2007, Barr Laboratories Inc. fi led an anda iv with the u.s. fda seeking approval of a generic version of Bayer Schering Pharma's yaz® oral contraceptive. In October 2007 Bayer Schering Pharma also received notice from Watson Laboratories Inc. that it has fi led an anda iv with the u.s. fda seeking approval of a generic version of yaz®. In June / July 2008 Bayer Schering Pharma further received notice from Sandoz Inc. that it has fi led an anda iv with the u.s. fda seeking approval of a generic version of yaz®; Bayer Schering Pharma is currently evaluating the information in Sandoz's notice letter. All three applications claim that Bayer Schering Pharma's patents are invalid and / or that the respective generic product does not infringe them. Bayer Schering Pharma has fi led a patent infringement suit against Watson claiming that certain of Bayer Schering Pharma's patents have been infringed. Originally, Bayer Schering Pharma included the '531 patent in this suit. After the court decision in the suit against Barr regarding Yasmin®, Bayer Schering Pharma had to exclude the '531 patent from the suit against Watson. If Bayer Schering Pharma prevails in its appeal against the court decision regarding Yasmin®, Bayer Schering Pharma will evaluate its options to use the '531 patent. However, regardless of these patent disputes, Bayer Schering Pharma retains data exclusivity for yaz® as an oral contraceptive in the u.s. until March 16, 2009. No generic manufacturer can lawfully market a generic version of yaz® for an oral contraceptive indication in the United States until after March 16, 2009.
Half-Year Financial Report 2008
Bayer Stockholders' Newsletter 2008
Consolidated Financial Statements as of June 30, 2008 Notes
In June 2008, Bayer Schering Pharma and Barr agreed that Bayer Schering Pharma will grant Barr a license to market a generic version of yaz® in the United States starting July 2011. Bayer Schering Pharma will supply Barr with the product for this purpose. Should Bayer Schering Pharma lose patent lawsuits in the United States against other companies concerning yaz®, at that time Bayer Schering Pharma will begin supplying the product to Barr and Barr will begin marketing generic yaz® in the United States. Barr will pay Bayer Schering Pharma a fi xed percentage of the revenues from the product sold by Barr.
On page 192 of the Bayer Annual Report 2007, we reported that Abbott Laboratories commenced a lawsuit in the United States against Bayer and another party alleging infringement of two of Abbott's patents relating to blood glucose monitoring devices. The devices concerned are sold by Bayer as part of its Ascensia® Contour® system and its dex® and Autodisc® system. In April 2008 the court granted summary judgment in favor of Bayer with regard to one of the two patents on the basis that the patent's claims that were asserted by Abbott against Bayer are invalid. In June, after a trial on the issue of invalidity, the court held the second patent invalid. Abbott has the right to appeal this decision.
As reported on page 192 of the Bayer Annual Report 2007, Limagrain had fi led suit against Bayer for indemnity against liabilities to third parties arising from an alleged breach of a 1986 contract to which Rhône-Poulenc – one of the predecessor companies of Bayer CropScience – was a party. At the end of March 2008 the Commercial Court in Paris as the court of fi rst instance dismissed all claims of Limagrain.
On page 192 of the Bayer Annual Report 2007, we reported that Bayer has fi led suit against several companies in the u.s. alleging patent infringement in connection with moxifl oxacin (Avelox®). In the two proceedings still pending Bayer has reached agreement with Teva Pharmaceuticals usa, Inc., the adverse party, to settle their patent litigation with regard to the two Bayer patents. Under the settlement terms agreed upon, Teva will obtain a license to sell its generic moxifl oxacin tablet product in the u.s. shortly before the second of the two Bayer patents expires in March 2014. The impact on the Avelox® business in the u.s. is expected to be immaterial. Teva acknowledges the validity and enforceability of the two Bayer patents.
On page 193 of the Bayer Annual Report 2007 we reported on numerous lawsuits seeking to set aside, or to have declared null and void, the Bayer Schering Pharma AG shareholders resolution of September 2006 approving the domination and profi t and loss transfer agreement between Bayer Schering GmbH and Bayer Schering Pharma AG. These lawsuits are still pending before the High Court of Berlin (Kammergericht Berlin). However, in the special proceedings initiated by Bayer Schering Pharma AG (Freigabeverfahren), the Kammergericht Berlin ruled in June 2008 that defects of the shareholders resolution, if any, do not affect the validity of the registration of the domination and profi t and loss transfer agreement in the commercial register. This decision cannot be appealed. Therefore, the domination and profi t and loss transfer agreement will remain effective even if the court should rule against Bayer Schering Pharma AG in the main proceedings at a later point in time.
In the litigation described on page 193 of the Bayer Annual Report 2007 concerning the rupture of a tank in Baytown, Texas, 35 out of a total of 60 cases have since been settled.
Our business partners include companies in which an interest is held, and companies with which members of the Supervisory Board of Bayer AG are associated. Transactions with these companies are carried out on an arm's-length basis. Business with such companies was not material from the viewpoint of the Bayer Group. The Bayer Group was not a party to any transaction of an unusual nature or structure that was material to it or to companies or persons closely associated with it. Business transactions with companies included in the consolidated fi nancial statements at equity, or at cost less impairment charges, mainly comprised trade in goods and services. The value of these transactions was, however, immaterial from the point of view of the Bayer Group. The same applies to fi nancial receivables and payables vis-à-vis related parties.
Leverkusen, July 28, 2008 Bayer Aktiengesellschaft
Board of Management
Werner Wenning Klaus Kühn Dr. Wolfgang Plischke Dr. Richard Pott
Bayer Stockholders' Newsletter 2008
Consolidated Financial Statements as of June 30, 2008
Responsibility Statement
To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim management report of the group includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group for the remaining months of the financial year.
Leverkusen, July 28, 2008 Bayer Aktiengesellschaft
The Board of Management
Werner Wenning Klaus Kühn Dr. Wolfgang Plischke Dr. Richard Pott
We have reviewed the condensed consolidated interim fi nancial statements – comprising the statement of income, balance sheet, cash fl ow statement, statement of recognized income and expense and selected explanatory notes – and the interim group management report of Bayer AG for the period from January 1, 2008 to June 30, 2008 which are part of the half-year fi nancial report pursuant to § (Article) 37w WpHG ("Wertpapierhandelsgesetz": German Securities Trading Act.) The preparation of the condensed consolidated interim fi nancial statements in accordance with the ifrs applicable to interim fi nancial reporting as adopted by the e.u. and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent company's Board of Management. Our responsibility is to issue a review report on the condensed consolidated interim fi nancial statements and on the interim group management report based on our review.
We conducted our review of the condensed consolidated interim fi nancial statements and the interim group management report in accordance with German generally accepted standards for the review of fi nancial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (idw) and additionally observed the International Standard on Review Engagements "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" (isre 2410). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed consolidated interim fi nancial statements have not been prepared, in all material respects, in accordance with the ifrs applicable to interim fi nancial reporting as adopted by the e.u. and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a fi nancial statement audit. Since, in accordance with our engagement, we have not performed a fi nancial statement audit, we cannot express an audit opinion.
Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim fi nancial statements have not been prepared, in all material respects, in accordance with the ifrs applicable to interim fi nancial reporting as adopted by the e.u. nor that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports.
Essen, July 29, 2008
PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
A. Slotta V. Linke (German Public Auditor) (German Public Auditor)
Focus
Bayer Stockholders' Newsletter 2008
Zero-emissions building: As part of its Climate Program, Bayer has launched various lighthouse projects – including the EcoCommercial Building. The picture shows a 3D animation of the building in New Delhi, for which ground was broken this spring.
Leverkusen – Bayer is reaffi rming its commitment to sustainable development. "Our goal is to continue growing without placing an additional burden on the global climate," said Bayer AG Management Board member Dr. Wolfgang Plischke at a news conference held in Berlin to present Bayer's new Sustainable Development Report. He said great advances had already been made with the fi rst projects of the Bayer Climate Program.
Informative: The new Sustainable Development Report details the Bayer Group's activities in this area.
Bayer intends to live up to its reputation as an inventor company in the fi eld of climate protection as well, said Plischke. Current estimates suggest that absolute greenhouse gas emissions of the Bayer Group will remain at the present level through 2020 despite increasing production volumes, which means there will also be a reduction in specifi c co2 emissions per metric ton of product. This will be achieved partly by taking steps to make production processes more energyeffi cient.
As part of its Climate Program, Bayer has launched a number of so-called lighthouse projects. One of these is the Bayer Climate Check, devised to analyze and reduce co2 emissions in industrial production. Bayer plans to assess all its production facilities around the world by the end of 2009 using this new measurement tool, which also includes raw materials, logistics and energy consumption in its co2 emissions analysis. A co2 reduction potential of roughly 10 percent has already been identifi ed in a pilot phase in Germany involving
fi ve plants. Other companies, too, have shown interest in the Bayer Climate Check system. The production units are currently investigating and deciding on ways to implement the system. The reductions will be ensured in the medium term through sustainability programs.
An important feature of the Bayer Climate Check is the "climate footprint" – a new performance indicator that serves as a basis for decisions on climate-relevant aspects of capital expenditure and technology projects and was recently certifi ed by tüv süd, one of the world's leading certifi cation organizations in the fi eld of climate protection. The certifi cation will help Bayer to market its innovative control tool for energy-effi cient and climate-friendly production outside of the Bayer Group as well.
A lighthouse project arousing great interest in the construction industry is Bayer's EcoCommercial Building under construction in India (see photo on page 48). This building, scheduled for completion by the end of 2009, will require 70 percent less electricity than comparable structures. A key feature is the building's insulation based on raw materials from Bayer. The building will meet its remaining energy needs itself through the emission-free generation of solar energy. Importantly, the concept can be adapted to conditions in different climate zones.
A major focus of the Climate Program is on the sustainable use of plant-based energy resources. For example, the Jatropha plant can be cultivated on barren land that is not suitable for growing food crops. While it is inedible, its seeds contain 30 percent oil, which can be used to produce biodiesel. Bayer is joining forces with farmers in a research collaboration to explore
Certifi ed sustainability: Rudolf X. Ruter (left) of Ernst & Young and Bayer Management Board member Dr. Wolfgang Plischke with the Sustainable Development Report.
the possible use of crop protection products in the sustainable growing of Jatropha.
The new Sustainable Development Report outlines what Bayer has already accomplished in the areas of ecology, economy and social needs. Despite a global 5 percent increase in the Group's production volume, Bayer kept co2 emissions in 2007 at about the same level as in the previous year. Specifi c co2 emissions per metric ton of product fell by 2.7 percent. Emissions into water held practically steady despite the increased production volume. Bayer has also achieved positive results in occupational and environmental safety. The number of industrial injuries resulting in absence from work declined, as did the number of reportable environmental incidents.
To ensure that its reporting on sustainability activities is complete, systematic and transparent, Bayer follows the internationally recognized guidelines of the "Global Reporting Initiative" (gri). The gri examined Bayer's new Sustainable Development Report, awarding it an "a+" rating, the highest attainable. Bayer has also had the report certifi ed by the auditing fi rm of Ernst & Young.
This year's topic for the painting competition that Bayer regularly organizes together with the United Nations Environment Programme (unep) was "What we can do about climate change." More than 15,400 children from nearly 100 countries took part – a new record. The pictures will be on show at exhibitions around the world, including one at the United Nations headquarters in New York. Bayer will present the paintings at exhibitions to be held at its sites.
50
Bayer Stockholders' Newsletter 2008
Tracking down the fungus: In the research laboratory, Bayer CropScience employees Anne Suty-Heinze (left) and Karin Wieczorek test wheat plants for infection with black stem rust.
Monheim – A new, aggressive strain of the black stem rust fungus, designated Ug99, is threatening global wheat stocks. Discovered in Uganda in 1999, the fungus attacks the stalks and leaves of wheat plants and consumes their metabolic products – which then are no longer available to the plants for growth. As a result, the grain withers and the harvest fails. Field trials conducted in Kenya have demonstrated that black stem rust can be effectively controlled with the cereal fungicide Folicur® from Bayer CropScience.
The fungus is invading wheat fi elds around the world and spreading faster than agricultural scientists expected. As a result, it threatens to cause devastating harvest losses in major wheat-growing countries in the future. If the fungal spores were to reach India, the world's largest producer of wheat after Europe and China, this would lead to increasing shortages of this important staple crop. Experts put the potential annual losses at more than €2.2 billion.
Folicur® is already available to farmers in Kenya and Iran to combat stem rust. Bayer CropScience plans to register further fungicides based on Folicur® in these two countries to control the disease.
At present, no wheat varieties are resistant to infection with Ug99. The mediumterm goal is therefore to breed varieties that are resistant to the aggressive fungus.
Berlin – The new low-dose oral contraceptive yaz® will soon be available on the European market, too. Bayer Schering Pharma recently received the necessary marketing authorization. The product is scheduled for launch in all major European markets in the fall of 2008.
yaz® will be the fi rst oral contraceptive on the European market containing the unique progestin drospirenone combined with a low dose of ethinyl estradiol in a new dosing regimen of 24 days of active hormone tablets and four days of placebo.
yaz® has been available since April 2006 in the United States (see page 10 for further information), where it is the only oral contraceptive ever approved for three distinct indications: contraception, treatment of moderate acne as well as treatment of the emotional and physical
Werner Wenning receives McCloy Award
New York / Leverkusen – The Chairman of the Board of Management of Bayer AG, Werner Wenning, has been presented with the coveted John J. McCloy Award of the American Council on Germany (acg) at a ceremony in New York City. Wenning was honored for his "efforts to promote transatlantic synergies in general and innovative approaches to addressing global health issues in particular." The award was bestowed by former German Foreign Minister Hans-Dietrich Genscher at a gala dinner attended by more than 500 leaders from German and American politics and industry.
Award ceremony: Former German Foreign Minister Hans-Dietrich Genscher (left) presents Bayer CEO Werner Wenning with the McCloy Award.
Visual inspection: The new contraceptive YAZ® is soon to be launched in Europe.
symptoms associated with pmdd (premenstrual dysphoric disorder), such as mood swings, irritability, anxiety, food cravings, breast tenderness, bloating and headache. Bayer Schering Pharma also plans to submit yaz® for registration in Europe in the acne and pmdd indications.
Monheim – The new insecticidal active ingredient spirotetramat from Bayer CropScience has been granted regulatory approval in the strategically important markets of the United States and Canada. Spirotetramat will be marketed worldwide under the brand name Movento®.
Bayer CropScience is the world number one in insecticides and is confi dent of expanding its global leadership position. The company expects this product to have annual sales potential of around €200 million. It is planned to launch the new insecticide in Brazil, Mexico, Colombia, Australia, New Zealand, Turkey, Africa, the Netherlands and Austria during 2008 and 2009. Movento® is ultimately intended for use in over 70 countries.
Not only does the active ingredient display a comprehensive spectrum of activity against sucking pests, it also spares important benefi cial insects.
Bayer Stockholders' Newsletter 2008
Berlin – The active substance rivaroxaban has once again demonstrated superior effi cacy to enoxaparin in a Phase iii study. The anticoagulant, which is undergoing clinical development, was investigated in the record4 study in patients who had undergone total knee replacement surgery. It was found that rivaroxaban (future brand name: Xarelto®) more effectively prevents venous thromboembolism (vte) than the u.s.-approved treatment regimen with enoxaparin. The once-daily oral administration of rivaroxaban was compared to a twice-daily injection of enoxaparin.
The results of the record 1, 2 and 3 studies, which were recently published in the New England Journal of Medicine and The Lancet, were correspondingly positive. Those studies included patients who had had total hip replacement surgery and others who had undergone hip and knee replacement surgery. In all studies, rivaroxaban was shown to be
Leverkusen / Belford Roxo – Bayer plans to invest roughly €100 million at its Brazilian sites through the end of 2009. Said Bayer ceo Werner Wenning at a ceremony marking the 50th anniversary of the Belford Roxo site's founding: "Brazil is our biggest market in Latin America, and we want to further expand our position in this growth region." In 2007 Bayer achieved sales of €3.2 billion in Latin America. Of this fi gure, Brazil accounted for about €1.2 billion, placing it among Bayer's top ten markets worldwide in terms of sales.
The announced investment program will focus on Belford Roxo, where €40 million will be spent on modernization and technical upgrading of the production facilities for plastics precursors and crop protection products, as well as on infrastructure projects.
highly effective in preventing thrombosis.
The European Committee for Medicinal Products for Human Use (chmp) recently recommended approval of rivaroxaban for the prevention of venous thromboembolism after planned hip or knee replacement surgery. The European Commission is expected to issue its fi nal decision within the next few months, allowing rivaroxaban to be marketed in all e.u. member states.
A successful team: Dr. Alexander Straub, Dr. Elisabeth Perzborn and Dr. Susanne Röhrig (from left) of Bayer HealthCare developed rivaroxaban.
Berlin – Bayer has been presented with the 2008 Environmental Award in the category "Environmentally Friendly Technologies" by the Federation of German Industries (bdi) for a new chlorine production process that reduces power consumption and co2 emissions by 30 percent.
The environmentally friendly technology impressed the jury as an example of German industry's innovative capability. Chlorine is a basic raw material for the manufacture of high-tech materials such as polyurethane. Bayer worked with partners to develop the oxygen depolarized cathode technology, which enables chlorine to be recycled in a closed system.
Increasing energy effi ciency in chlorine production is one of the goals of climate protection activities that Bayer has combined under its Climate Program since the end of 2007 (see also page 48).
Promoting health: Professor Yuri Gleba (right) and Thomas Prochaska with a tobacco plant.
Leverkusen / Halle – In conjunction with its subsidiary Icon Genetics, Bayer has developed a new process by which biotech drugs can be produced in tobacco plants. A new facility that employs this process was recently inaugurated at Halle in the German state of Saxony-Anhalt.
In the future, the active substances produced in the tobacco plants could be used to develop new approaches to the therapy and prevention of diseases where current medical options are not satisfactory.
The project is of particular signifi cance in terms of personalized medicine, since tobacco plants produce proteins rapidly at high yields, opening up the prospect of
therapies that so far have not been viable for economic reasons.
The fi rst plant-made protein from the pilot facility in Halle that will be a candidate for clinical development is a patientspecifi c antibody vaccine for the treatment of non-Hodgkin's lymphoma (nhl), a malignant disorder of the lymphatic system. Phase i testing is scheduled to begin in 2009.
Leverkusen – Bayer MaterialScience is pooling its expertise in automotive glazing under the new BayVision brand, which combines glazing raw materials and plastics processing expertise with extensive development and engineering resources.
For many automakers, the hightech material Makrolon® from Bayer MaterialScience is increasingly the glazing material of choice because it saves weight and at the same time allows for modern 3d styling. The Mercedes gl and the smart fortwo are already being series-produced with transparent roof modules of Makrolon®. A topical example of how the BayVision package works is the i-mode concept car, developed in
collaboration with Hyundai and unveiled at the 2008 Geneva Auto Show. It is equipped with a total of eleven glazing components made of Makrolon®.
Exciting perspectives: The glazing components on the i-mode concept vehicle, from the windshield to the roof module to the rear window, are made of Makrolon®.
Bayer Stockholders' Newsletter 2008
Hope for cancer patients: Bayer HealthCare employee David Milczanowski performs the fi lling process for the cancer drug Nexavar® at Bayer's facility in Wuppertal.
Berlin / Chicago – New data show increased application potential for the cancer drug Nexavar®. Findings from the drug's Phase ii development program were presented at the 44th Annual Meeting of the American Society of Clinical Oncology (asco). Tablets containing the active substance sorafenib are currently being tested in multiple tumor types including lung, thyroid, gastric and ovarian cancers.
Nexavar® is currently approved in more than 40 countries – now including China – for the treatment of patients with inoperable liver cancer and in more than 70 countries for the treatment of advanced kidney cancer.
Following the approval by the u.s. Food and Drug Administration of the contrast agent Primovist®, the company now supplies two products that complement each other in the diagnosis and therapy of liver cancer. Primovist® is now available in more than 40 countries for the diagnosis of liver diseases.
Monheim – Bayer CropScience has opened a rice research laboratory in Singapore to drive the development of new high-yielding rice varieties in Asia, where 90 percent of global rice production takes place. Representing an investment of about €5 million, the research unit will work with cutting-edge technologies like dna marker analysis to support molecular assisted breeding.
The scientists at the new facility will work to integrate innovative agronomic traits, like disease or pest resistance, into hybrid rice.
At a later stage, the laboratory will also work on rice grain quality and on combating diseases that affect the crop. Bayer
New research laboratory: Dr. Joachim Schneider, Head of BioScience (far left), and Julian Ho of the Singapore Economic Development Board (second from right) with colleagues.
CropScience, already one of the world's leading developers of hybrid rice, expects the new facility to signifi cantly increase its breeding capacity.
54
Leverkusen – With treatment options for one of the leading causes of blindness in adults currently under close investigation, Bayer HealthCare and u.s.-based Regeneron are driving forward their joint global development program for the active substance vegf Trap-Eye.
The recently launched, second Phase iii clinical study view 2 will evaluate the effectiveness of vegf Trap-Eye in the treatment of wet amd, the neovascular form of age-related macular
degeneration. Wet amd accounts for about 90 percent of all severe amd-related vision loss. It occurs when abnormal blood vessels in the eye leak fl uid and blood into the macula. This can lead to a rapid loss of central vision with continued progression, and ultimately to blindness.
The recently launched study will enroll approximately 1,200 patients in up to 200 centers in Europe, Asia Pacifi c, Japan and
Insight: A doctor examines a patient's visual accuity. This can enable macular degeneration to be diagnosed in older patients.
Latin America. The fi rst Phase iii trial, view 1, began enrolling patients in August 2007 in the United States and Canada. The development program, expected to be completed in 2011, compares vegf Trap-Eye with Lucentis®, which is already available in several countries to treat wet amd. Vascular endothelial growth factor (vegf) is a naturally occurring protein in the body whose normal role is to trigger the formation of new blood vessels.
Leverkusen – The new British driver's licenses in credit card format are being produced from the Bayer material Makrofol® id. This fi lm, which is based on the polycarbonate Makrolon®, helps the new driver's licenses set global standards in terms of counterfeit protection.
The well-known international security card manufacturer Trüb AG, based in Aarau, Switzerland, is to produce at least 40 million driver's licenses for the United Kingdom.
Makrofol® id was the material of choice thanks in no small part to the excellent mechanical properties of the polycarbonate fi lm, which make the driving licenses extremely strong and durable in day-to-
Credit card format: The new U.K. driver's license is made of the polycarbonate Makrofol® ID.
day-use. For example, the cards do not become damaged or warped when subjected to high temperatures. Furthermore, counterfeiters cannot tamper with the license without damaging it and making it unusable.
| Q3 2008 Interim Report | October 29, 2008 |
|---|---|
| 2008 Annual Report | March 3, 2009 |
| Q1 2009 Interim Report | April 29, 2009 |
| Annual Stockholders' Meeting 2009 | May 12, 2009 |
| Payment of Dividend | May 13, 2009 |
| Q2 2009 Interim Report | July 29, 2009 |
| Q3 2009 Interim Report | October 27, 2009 |
Bayer AG, 51368 Leverkusen, Germany
Editor
Dr. Katrin Schneider, phone +49 214 30 48825, email: [email protected]
English edition CURRENTA GmbH & Co. OHG, Language Service
Investor Relations
Peter Dahlhoff, phone +49 214 30 33022, email: [email protected]
Michael Heinrich, phone +49 214 30 57546, email: [email protected]
Date of publication July 30, 2008
Many business and financial terms are explained on the Bayer Investor Relations website at www.investor.bayer.com>Stock>Glossary
If you would like to receive the Bayer Stockholders' Newsletter in electronic rather than print form in future, please email the editor.
This Stockholders' Newsletter contains forward-looking statements based on current assumptions and forecasts made by Bayer Group or subgroup management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual assets, financial position, earnings, development or performance of the company and the estimates given here. These factors include those discussed in Bayer's public reports, which are available on the Bayer website at www.bayer.com. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.
This is neither an offer to purchase nor a solicitation of an offer to sell shares or American depositary shares of Bayer Schering Pharma AG (formerly Schering AG). Bayer Schering GmbH (formerly Dritte BV GmbH) filed a tender offer statement with the U.S. Securities and Exchange Commission (SEC) with respect to the mandatory compensation offer on November 30, 2006, the time of commencement of the mandatory compensation offer. Simultaneously Bayer Schering Pharma AG (formerly Schering AG) filed a solicitation/recommendation statement on Schedule 14D-9 with the SEC with respect to the mandatory compensation offer. Investors and holders of shares and American depositary shares of Bayer Schering Pharma AG (formerly Schering AG) are strongly advised to read the tender offer statement and other relevant documents regarding the mandatory compensation offer that have been filed or will be filed with the SEC because they contain important information. Investors and holders of shares and American depositary shares of Bayer Schering Pharma AG (formerly Schering AG) will be able to receive these documents free of charge at the SEC's website (www.sec.gov), or at the website www.bayer. com
These documents and information contain forward-looking statements based on assumptions and forecasts made by Bayer Group management as of the respective dates of such documents. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual assets, financial position, earnings, development or performance of the Bayer Group and/or Bayer Schering Pharma AG (formerly Schering AG) and the estimates contained in these documents and to differences between actions taken by the Bayer Group with respect to its investment in Bayer Schering Pharma AG (formerly Schering AG) and the intentions described in these documents. These factors include those discussed in Bayer's public reports, which are available on the Bayer website at www.bayer.com. Except as otherwise required by law, the company assumes no obligation to update or revise any forward-looking statement to reflect new information, events or circumstances after the applicable dates thereof.
The names "Bayer Schering Pharma" or "Schering" as used in this publication always refer to Bayer Schering Pharma AG, Berlin, Germany, or its predecessor, Schering AG, Berlin, Germany, respectively.
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