Second quarter of 2015: Bayer significantly improves earnings

The Bayer Group continued to grow sales in the second quarter of 2015 and significantly increased earnings. "All three subgroups contributed to the gratifying improvement in earnings," said Bayer CEO Dr. Marijn Dekkers when the interim report was published on Wednesday. HealthCare posted considerable sales and earnings gains that were attributable to the further gratifying expansion of business with the recently launched pharmaceutical products and to the positive sales development at Consumer Health. At CropScience, sales matched the strong level of the prior-year quarter, while earnings improved. At MaterialScience, sales were level with the prior-year quarter. Earnings of this subgroup, however, posted a sharp improvement of almost 90 percent, mainly as a result of the improved demand situation and lower raw material costs. The preparations for the planned stock market flotation of MaterialScience are on schedule. Dekkers expressed his continued optimism for the year as a whole: "We are confirming our Group forecast for the operational performance of continuing operations." The Group forecast has been adjusted to take account of the changes in exchange rates as of June 30, 2015.

Following the signing of the divestiture agreement with Panasonic Healthcare Holdings Co., Ltd. in June 2015, the Diabetes Care business is no longer included in continuing operations. The prior-year figures are restated. Sales of the Bayer Group moved ahead in the second quarter of 2015 by 18.2 percent to EUR 12,090 million (Q2 2014: EUR 10,228 million). After adjusting for currency and portfolio effects (Fx & portfolio adj.), the increase was 3.7 percent. EBITDA before special items rose by 33.2 percent to EUR 2,899 million (Q2 2014: EUR 2,176 million). This good sales development was accompanied by higher R&D and selling expenses. Positive currency effects buoyed earnings by about EUR 260 million. EBIT of the Bayer Group climbed by a substantial 27.7 percent to EUR 1,833 million (Q2 2014: EUR 1,435 million) after net special charges of EUR 255 million (Q2 2014: EUR 48 million). The special charges mainly resulted from the revaluation of other receivables, the integration of acquired businesses, the planned stock market flotation of MaterialScience, efficiency improvement measures and the consolidation of production facilities. Net income advanced by 20.9 percent to EUR 1,152 million (Q2 2014: EUR 953 million) and core earnings per share from continuing operations by 33.8 percent to EUR 1.98 (Q2 2014: EUR 1.48).

Gross cash flow from continuing operations advanced by 30.5 percent to EUR 2,173 million (Q2 2014: EUR 1,665 million) due to the improvement in EBITDA. Net cash flow (total) rose by 22.4 percent to EUR 1,959 million (Q2 2014: EUR 1,601 million) despite an increase in cash tied up in working capital. Net financial debt declined slightly, from EUR 21.3 billion on March 31, 2015, to EUR 21.1 billion on June 30, 2015, following the EUR 1.86 billion dividend payment made in May.

Improved demand and lower raw material prices at MaterialScience
Sales of the high-tech polymers business (MaterialScience) rose by 11.2 percent in the second quarter to EUR 3,185 million (Q2 2014: EUR 2,864 million). After adjusting for currency and portfolio effects, sales were flat with the prior-year quarter (plus 0.6 percent). "Volumes at MaterialScience expanded in all regions. On the other hand, there were negative price effects, particularly for Polyurethanes," Dekkers explained. Raw material prices were down steeply overall against the prior-year period.

Sales of the Polyurethanes unit (foam raw materials) fell by 2.9 percent (Fx & portfolio adj.). Volume increases did not fully offset the sharp decline in selling prices. The Polycarbonates unit (high-tech plastics) raised sales by 5.3 percent (Fx & portfolio adj.) thanks to considerably higher volumes in all regions, which mainly resulted from improved demand in the automotive industry. Selling prices fell overall compared with the prior-year period. Sales in the Coatings, Adhesives, Specialties business unit moved forward by 6.0 percent (Fx & portfolio adj.) as a result of higher volumes. Selling prices as a whole were somewhat below the level of the prior-year period. Sales in the Industrial Operations area receded by 2.6 percent (Fx & portfolio adj.) due to slightly lower selling prices and volumes.

EBITDA before special items of MaterialScience improved significantly by 87.4 percent to EUR 506 million (Q2 2014: EUR 270 million). Appreciable falls in raw material prices more than offset the drop in selling prices. Earnings were additionally buoyed by higher volumes and positive currency effects of around EUR 80 million.

All subgroups post first-half earnings growth
Sales of the Bayer Group increased by 16.5 percent (Fx & portfolio adj. 3.2 percent) to EUR 23,969 million (H1 2014: EUR 20,580 million). HealthCare was the driver of this growth, while CropScience and MaterialScience matched the prior-year levels. EBITDA before special items increased by a significant 19.7 percent to EUR 5,840 million (H1 2014: EUR 4,879 million), with all subgroups, particularly HealthCare and MaterialScience, contributing to this improvement. EBIT climbed by 7.9 percent to EUR 3,777 million (H1 2014: EUR 3,500 million) and net income by 3.3 percent to EUR 2,455 million (H1 2014: EUR 2,376 million). Core earnings per share rose by 18.2 percent to EUR 4.02 (H1 2014: EUR 3.40).

EBITDA before special items targeted to rise by a high-teens percentage in 2015
With respect to the second half of 2015, Bayer is now basing its forecast on the exchange rates prevailing on June 30, 2015. The Diabetes Care business is no longer included in continuing operations and therefore is also not included in the updated forecast. The prior-year figures are restated. Bayer is now planning sales in the region of EUR 47 billion (previously: in the region of EUR 48 billion to EUR 49 billion, of which discontinued operations accounted for approximately EUR 0.9 billion). This still corresponds to a low-single-digit percentage increase on a currency- and portfolio-adjusted basis. The Bayer Group expects currency effects to boost sales by approximately 7 percent (previously: approximately 9 percent) compared with the prior year. It remains the aim to raise EBITDA before special items by a high-teens percentage, allowing for expected positive currency effects of about 5 percent (previously: around 8 percent). Bayer continues to target a high-teens percentage increase in core earnings per share, allowing for expected positive currency effects of around 5 percent (previously: around 7 percent).

Bayer now expects to take special charges in the region of EUR 900 million, with the integration of the acquired consumer care businesses, the planned stock market listing of MaterialScience and the optimization of production structures accounting for most of this amount. As before, Bayer expects net financial debt at year end to be below EUR 20 billion.

MaterialScience continues to plan further volume growth in 2015 accompanied by declining selling prices. This will lead to lower sales on a currency- and portfolio-adjusted basis. However, the subgroup continues to expect to see a significant increase in EBITDA before special items and aims to return to earning the full cost of capital in 2015. After adjusting for currency and portfolio effects, MaterialScience expects sales in the third quarter of 2015 to come in below the level of the prior-year quarter and expects EBITDA before special items to be above the level of the prior-year quarter but below the preceding quarter.

Source: Bayer