Bayer continues positive business development

The Bayer Group was again successful in the second quarter of 2014. "Our Life Science businesses, in particular, saw unabated growth momentum, with very encouraging sales gains for our recently launched pharmaceutical products and our North and Latin American CropScience business," said Management Board Chairman Dr. Marijn Dekkers when the interim report was published on Wednesday. Although earnings growth was again held back by substantial negative currency effects, these were offset by the good business development. EBITDA before special items and core earnings per share were at the previous year's level. The Chairman confirmed the Bayer Group's forecast for the current year. Dekkers said Bayer made progress in the second quarter from a strategic point of view as well with the planned acquisition of the consumer care activities of U.S. company Merck & Co., Inc. "This acquisition will greatly strengthen our Consumer Health business," he explained.

Sales of the Bayer Group rose by 0.9 percent in the second quarter of 2014 to EUR 10,458 million (Q2 2013: EUR 10,360 million). Adjusted for currency and portfolio effects (Fx & portfolio adj.), sales advanced by 6.3 percent. EBIT rose by 14.5 percent to EUR 1,473 million (Q2 2013: EUR 1,287 million). The Group took special charges of EUR 48 million (Q2 2013: EUR 256 million). EBIT before special items was down by just 1.4 percent to EUR 1,521 million (Q2 2013: EUR 1,543 million). Despite negative currency effects of about EUR 160 million or approximately 7 percent, EBITDA before special items improved by 1.0 percent to EUR 2,217 million (Q2 2013: EUR 2,195 million) after additional research and development expenses of roughly EUR 70 million. Net income climbed by 13.3 percent to EUR 953 million (Q2 2013: EUR 841 million). Core earnings per share were flat with the prior-year quarter at EUR 1.53 (Q2 2013: EUR 1.54).

Gross cash flow in the second quarter of 2014 advanced by 1.5 percent to EUR 1,705 million (Q2 2013: EUR 1,680 million) due to the improvement in EBITDA, while net cash flow moved ahead by 4.2 percent to EUR 1,601 million (Q2 2013: EUR 1,536 million). Net financial debt increased from EUR 9.1 billion on March 31, 2014, to EUR 9.9 billion on June 30, 2014.

MaterialScience raises volumes
Second-quarter sales in the high-tech polymers business (MaterialScience), at EUR 2,864 million, were at the level of the prior-year period (Q2 2013: EUR 2,875 million). Adjusted for currency and portfolio effects, sales rose by 3.6 percent. "This growth was due to significantly higher volumes for Polycarbonates; Polyurethanes; and Coatings, Adhesives, Specialties," Dekkers explained. Higher volumes in North America, Europe and Asia/Pacific more than offset volume declines in Latin America/Africa/Middle East. Selling prices were below the prior-year period in all regions.

Sales of foam raw materials (Polyurethanes) grew by 3.0 percent (Fx & portfolio adj.), thanks to improved demand in all the main customer industries. Sales of the high-tech plastics business (Polycarbonates) rose by a substantial 8.3 percent (Fx & portfolio adj.), mainly in light of increased demand from customers in the automotive and electrical/electronics industries. Sales in the Coatings, Adhesives, Specialties unit advanced by 3.7 percent (Fx & portfolio adj.), thanks to higher volumes in nearly all regions.

EBITDA before special items of MaterialScience came in just 1.5 percent below the prior-year quarter at EUR 270 million (Q2 2013: EUR 274 million). Earnings were helped by higher volumes, lower raw material prices and efficiency improvements. Negative factors were a drop in selling prices and costs for scheduled maintenance shutdowns in Asia and North America. Earnings were also held back by negative currency effects of around EUR 10 million or 3 percent.

First-half earnings considerably improved
The Bayer Group grew both sales and EBITA before special items in the first half of 2014. All subgroups contributed to the increases. Sales advanced by 1.9 percent (Fx & portfolio adj. 7.3 percent) to EUR 21,013 million (H1 2013: EUR 20,626 million). EBIT improved by 16.7 percent to EUR 3,569 million (H1 2013: EUR 3,058 million). EBITDA before special items rose by 6.6 percent to EUR 4,955 million (H1 2013: EUR 4,648 million), reflecting negative currency effects of about EUR 360 million and additional R&D expenses of roughly EUR 170 million. Net income improved by a substantial 18.7 percent to EUR 2,376 million (H1 2013: EUR 2,001 million). Core earnings per share advanced by 7.4 percent to EUR 3.48 (H1 2013: EUR 3.24).

Exchange rate assumptions for 2014 adjusted
"We are upholding the previous guidance for the Group in light of our good operational performance," said Dekkers. The exchange rate assumptions have been adjusted to reflect current developments. With respect to the second half of 2014, Bayer is now using the exchange rates prevailing on June 30, 2014 (previously: average exchange rates for the fourth quarter of 2013). The negative currency impact on sales and earnings therefore increases. This forecast does not take into account the planned acquisitions of Merck & Co., Inc.’s OTC business and Dihon Pharmaceutical Group Co., Ltd. or the divestiture of the Interventional devices business. Bayer expects these transactions to close in the second half of 2014.

The Group now plans to grow sales (Fx & portfolio adj.) by about 6 percent (previously: about 5 percent). Allowing for negative currency effects of about 4 percent (previously: about 2 percent) compared to the prior year, Bayer currently predicts Group sales of approximately EUR 41 billion (previously: approximately EUR 41 billion to EUR 42 billion). As before, it is planned to raise EBITDA before special items by a low- to mid-single-digit percentage, allowing for expected negative currency effects of about EUR 550 million or roughly 6 percent (previously: about EUR 450 million or roughly 5 percent). Bayer continues to aim to increase core earnings per share by a mid-single-digit percentage, allowing for expected negative currency effects of around 9 percent (previously: around 6 percent). As before, the Group's net financial debt at year end is predicted to be less than EUR 9 billion. Taking into account the planned acquisitions, net financial debt at year end would be around EUR 19 billion.

MaterialScience continues to expect sales to increase in 2014 by a mid-single-digit percentage (Fx & portfolio adj.), allowing for negative currency effects of about 2 percent compared to 2013. This subgroup also continues to anticipate an increase in EBITDA before special items, allowing for negative currency effects of roughly EUR 30 million (previously: roughly EUR 50 million). In the third quarter of 2014, MaterialScience expects to raise sales and EBITDA before special items compared to the second quarter.

Source: Bayer