The Bayer Group boosted earnings again in the third quarter, doubling its operating result: EBIT before special items moved ahead by 101.5 per cent to EUR 691 million (2004: EUR 343 million). All three subgroups registered pleasing gains in sales and earnings, significantly improving their cash flow performance.
"One thing I can say straight away is that 2005 has been a very good year for Bayer," said management board chairman Werner Wenning at the Fall Financial News Conference in Leverkusen, again raising the guidance for the full year. Bayer now expects full-year underlying EBIT to increase by about 50 per cent. In August, the company had predicted that 2005 earnings would be 40 per cent above the prior-year figure of EUR 2,117 million. Bayer confirmed its target of generating more than EUR 26 billion in sales in 2005.
Group sales in the third quarter rose 19.1 per cent to EUR 6,531 million (2004: EUR 5,485 million). The main reasons for the increase were the acquisition of the Roche OTC activities, business with Lanxess, which now counts as external sales in particular, a 7 per cent rise in selling prices. Adjusted for currency and portfolio effects, sales advanced by 8.1 per cent. Underlying EBIT more than doubled due to substantial improvements in all subgroups, the largest earnings contributions coming from HealthCare and MaterialScience. Bayer Group earnings before interest, taxes, depreciation and amortisation (EBITDA) before special items climbed by 41.3 per cent to EUR 1,164 million (2004: EUR 824 million).
Third-quarter earnings were boosted by net special gains of EUR 179 million, compared to net special charges of EUR 77 million for the same period in 2004. The previously announced changes to Bayer's pension plans in the United States and Germany resulted in a non-cash one-time gain of EUR 280 million in the third quarter. The principal special charges for the period were EUR 33 million for the reorganisation of the polyurethanes business, EUR 27 million in write-downs on buildings, EUR 25 million in litigation-related expenses and EUR 13 million in integration costs for the consumer health business acquired from Roche.
EBIT after special items advanced to EUR 870 million (2004: EUR 266 million) in the third quarter, while EBITDA rose by 83.4 per cent to EUR 1,370 million (2004: EUR 747 million). Group net income rose even more significantly, improving from EUR 52 million to EUR 493 million.
"The third quarter was exceptionally strong, bringing us very close to meeting our profitability targets," said Wenning. Gross cash flow advanced by 46.7 percent to EUR 920 million (2004: EUR 627 million), mainly due to the strong growth in EBIT. Net cash flow climbed by EUR 913 million to EUR 1,438 million.
The strongest growth driver was Bayer HealthCare, which lifted sales by 21.0 per cent to EUR 2,373 million (2004: EUR 1,961million), mainly because of the acquisition of the Roche consumer health business.
Adjusted for currency and portfolio changes, sales advanced by 6.5 per cent.
The pharmaceuticals division registered considerable organic growth once again, which more than offset the decline in sales resulting from the patent expiration for Bayer's Cipro antibiotic in the United States. Levitra and Trasylol performed particularly well, while sales of the genetically engineered hemophilia drug Kogenate improved by 31.7 per cent, making it Bayer's best-selling health care product in the third quarter. The HealthCare subgroup's EBIT before special items rose by 12.3 per cent to EUR 355 million (2004: EUR 316 million), due in part to the earnings contributions from the alliance with Schering-Plough in the United States.
Sales advanced in all regions in the third quarter, particularly in Europe, where business expanded by 22.1 per cent due to the Roche OTC acquisition and a strong performance by MaterialScience. Disregarding the portfolio effects, sales in Germany were up by about 11 per cent. Bayer also achieved a very good performance in North America, where all three subgroups contributed to an overall sales increase of about 20 per cent. Significantly higher sales were also recorded in Asia/Pacific and Latin America/Africa/Middle East, where sales moved ahead by 14.9 and 14.1 per cent, respectively.
Sales for the first nine months of 2005 grew by 18.2 per cent to Euro 20,288 million (2004: EUR 17,167 million), while underlying EBIT rose by 56.2 per cent to EUR 2,685 million (2004: EUR 1,719 million). After special items, EBIT climbed by 71.2 per cent to EUR 2,620 million (2004: EUR 1,530 million). Net income for the first nine months rose by 151.4 per cent to EUR 1,551 million (2004: EUR 617 million).
"The third-quarter figures show that the strategic realignment of the Bayer Group has sustainably improved our earning power," Wenning said in conclusion. "Our extensive cost-containment and efficiency-improvement measures have paid off." He said that in the third quarter the company had made good progress not only operationally, but also strategically.
With respect to innovation, Wenning reported on encouraging progress with the company's pharmaceutical pipeline. He expects the first half of 2006 to see the US launch of Nexavar to treat advanced kidney cancer. Phase II and III clinical studies are also currently under way in several other forms of cancer. Together with Johnson & Johnson, Bayer is driving the development of its oral antithrombosis drug, the Factor Xa inhibitor, for which it plans to launch phase III clinical trials in the coming weeks. The pharmaceuticals division also has 11 other projects in phase I and 16 more in pre-clinical development.
Wenning emphasised that Bayer will spend nearly EUR 2 billion for research and development in 2005. "This is by far the highest budget of all German companies in the chemical and pharmaceutical sector," he said.