Chairman’s Letter
Performance by Subgroup and Segment
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Management Report
Bayer CropScience
 Crop Protection |
| Environmental Science/BioScience |
| Bayer CropScience | 2005 | 2006 | Change |
| € million | € million | % | |
| Sales | 5,896 | 5,700 | -3.3 |
| EBITDA* | 1,284 | 1,166 | -9.2 |
| Special items | 11 | (38) | |
| EBITDA before special items | 1,273 | 1,204 | -5.4 |
| EBITDA margin before special items | 21.6% | 21.1% | |
| EBIT* | 690 | 584 | -15.4 |
| Special items | 5 | (57) | |
| EBIT before special items | 685 | 641 | -6.4 |
| Gross cash flow* | 964 | 900 | -6.6 |
| Net cash flow* | 904 | 898 | -0.7 |
* for definition see Bayer Group Key Data
| Best-Selling Bayer CropScience Products* | 2005 | 2006 | Change |
| € million | € million | % | |
| Confidor®/Gaucho®/Admire®/Merit® (Insecticides/Seed Treatment/ Environmental Science) | 587 | 564 | -3.9 |
| Folicur®/Raxil® (Fungicides/Seed Treatment) | 339 | 276 | -18.6 |
| Basta®/Liberty® (Herbicides) | 219 | 229 | +4.6 |
| Puma® (Herbicides) | 205 | 196 | -4.4 |
| Decis®/K-Othrine® (Insecticides/Environmental Science) | 159 | 183 | +15.1 |
| Flint®/Stratego®/Sphere® (Fungicides) | 193 | 181 | -6.2 |
| Atlantis® (Herbicides) | 142 | 169 | +19.0 |
| Proline® (Fungicides) | 91 | 144 | +58.2 |
| Poncho® (Seed Treatment) | 110 | 127 | +15.5 |
| Betanal® (Herbicides) | 128 | 120 | -6.3 |
| Total | 2,173 | 2,189 | +0.7 |
| Proportion of Bayer CropScience sales | 37% | 38% |
* figures based on active ingredient class. For the sake of clarity, only the principal brands and business units are listed.
Sales of Bayer CropScience in 2006 came in at €5,700 million, down just 3.3 percent in a declining crop protection market. With selling prices in Brazil pegged to the U.S. dollar, the sharp appreciation of the local currency led to a decline in sales. Adjusted for this effect and for currency and portfolio changes, business at CropScience shrank by 2.3 percent.
EBITDA before special items was down by €69 million, or 5.4 percent, in 2006 to €1,204 million. The savings achieved through cost structure and efficiency improvement programs partly compensated for the squeeze on margins brought about by price erosion, lower volumes and adverse currency effects. EBIT before special items was down €44 million, or 6.4 percent, from the previous year to €641 million in 2006, hampered by special charges connected with the restructuring program initiated in summer 2006. These charges were only partially offset by non-recurring income from the divestment of a family of mature herbicide products. After special items, EBIT for 2006 amounted to €584 million (2005: €690 million).
EBITDA before special items was down by €69 million, or 5.4 percent, in 2006 to €1,204 million. The savings achieved through cost structure and efficiency improvement programs partly compensated for the squeeze on margins brought about by price erosion, lower volumes and adverse currency effects. EBIT before special items was down €44 million, or 6.4 percent, from the previous year to €641 million in 2006, hampered by special charges connected with the restructuring program initiated in summer 2006. These charges were only partially offset by non-recurring income from the divestment of a family of mature herbicide products. After special items, EBIT for 2006 amounted to €584 million (2005: €690 million).
Sales in the Crop Protection segment declined by 4.7 percent to €4,644 million, from €4,874 million in 2005. With selling prices in Brazil pegged to the U.S. dollar, the sharp appreciation of the local currency led to a decline in sales. Adjusted for this effect and for currency and portfolio changes, business in this segment shrank by 3.5 percent.
Fiscal 2006 was marked by adverse weather conditions in major agricultural markets, a difficult business environment in Brazil, heightening pressure on prices from generic products and an increasing trend toward genetically modified crops. The resulting decline in sales was partially offset by the successful marketing of innovative active ingredients introduced over the past few years. Sales of products containing these new ingredients, which have been introduced in core markets since 2000, achieved the 2006 target of €1 billion. Contributing to this performance were our cereal herbicide
Atlantis®, the seed treatment Poncho® and the cereal fungicide Proline®. Including our Flint® fungicide, four of our recent market introductions were among our ten best-selling products.
Sales of our Insecticides business unit fell by 7.0 percent overall, to €1,219 million (2005: €1,311 million). The decline was attributable to the adverse market environment in Brazil, unfavorable regional weather conditions, increasing competition from generics and the absence of business in certain mature insecticide products that have been divested. Business with insecticides in China, however, developed well. Global sales of our new ketoenolsOberon® and Envidor® posted significant increases.
Sales of the Fungicides business unit receded 3.8 percent to €1,200 million. One reason for the decrease was the prolonged drought in Australia, the United States and parts of Europe, which led to a decrease in fungal infestation. Another was the weakness of the farm economy in Brazil, which led to declining acreages, particularly for soybeans. These effects primarily impacted sales of ourFolicur® and Flint® product lines.
Fiscal 2006 was marked by adverse weather conditions in major agricultural markets, a difficult business environment in Brazil, heightening pressure on prices from generic products and an increasing trend toward genetically modified crops. The resulting decline in sales was partially offset by the successful marketing of innovative active ingredients introduced over the past few years. Sales of products containing these new ingredients, which have been introduced in core markets since 2000, achieved the 2006 target of €1 billion. Contributing to this performance were our cereal herbicide
Atlantis®, the seed treatment Poncho® and the cereal fungicide Proline®. Including our Flint® fungicide, four of our recent market introductions were among our ten best-selling products. Sales of our Insecticides business unit fell by 7.0 percent overall, to €1,219 million (2005: €1,311 million). The decline was attributable to the adverse market environment in Brazil, unfavorable regional weather conditions, increasing competition from generics and the absence of business in certain mature insecticide products that have been divested. Business with insecticides in China, however, developed well. Global sales of our new ketoenols
Oberon® and Envidor® posted significant increases. Sales of the Fungicides business unit receded 3.8 percent to €1,200 million. One reason for the decrease was the prolonged drought in Australia, the United States and parts of Europe, which led to a decrease in fungal infestation. Another was the weakness of the farm economy in Brazil, which led to declining acreages, particularly for soybeans. These effects primarily impacted sales of our
Folicur® and Flint® product lines. | Crop Protection | 2005 | 2006 | Change |
| € million | € million | % | |
| Sales | 4,874 | 4,644 | -4.7 |
| Insecticides | 1,311 | 1,219 | -7.0 |
| Fungicides | 1,248 | 1,200 | -3.8 |
| Herbicides | 1,840 | 1,758 | -4.5 |
| Seed Treatment | 475 | 467 | -1.7 |
| EBITDA* | 1,026 | 889 | -13.4 |
| Special items | 12 | (38) | |
| EBITDA before special items | 1,014 | 927 | -8.6 |
| EBITDA margin before special items | 20.8% | 20.0% | |
| EBIT* | 532 | 384 | -27.8 |
| Special items | 7 | (57) | |
| EBIT before special items | 525 | 441 | -16.0 |
| Gross cash flow* | 762 | 691 | -9.3 |
| Net cash flow* | 699 | 748 | +7.0 |
* for definition see Bayer Group Key Data
In the Herbicides business unit, sales dropped by 4.5 percent to €1,758 million, from €1,840 million in 2005. Herbicide sales, too, were hampered by the drought conditions in many regions and the increasing cultivation of genetically modified corn and soybeans in the United States and Latin America. Atlantis® and Olympus® performed very strongly in the market, further strengthening our position as one of the leading suppliers of cereal herbicides. Business with our herbicides Basta® and Liberty® moved ahead.
Sales of our Seed Treatment business unit dipped by 1.7 percent to €467 million. Adjusted for portfolio effects, however, sales were slightly above the prior year. Business with our recently introduced seed treatment products Poncho®,EfA®, Bariton® and Scenic® compensated for the decline in sales due to the drought in Australia and the E.U. sugar market reform.
EBITDA before special items for the Crop Protection business decreased to €927 million. The price-related decline in margins was partly offset by savings achieved through our cost structure and efficiency improvement programs.
EBIT before special items fell by 16.0 percent to €441 million. After net special charges of €57 million, EBIT for 2006 came in at €384 million, down from €532 million in the previous year.
Herbicide sales, too, were hampered by the drought conditions in many regions and the increasing cultivation of genetically modified corn and soybeans in the United States and Latin America. Atlantis® and Olympus® performed very strongly in the market, further strengthening our position as one of the leading suppliers of cereal herbicides. Business with our herbicides Basta® and Liberty® moved ahead. Sales of our Seed Treatment business unit dipped by 1.7 percent to €467 million. Adjusted for portfolio effects, however, sales were slightly above the prior year. Business with our recently introduced seed treatment products Poncho®,
EfA®, Bariton® and Scenic® compensated for the decline in sales due to the drought in Australia and the E.U. sugar market reform. EBITDA before special items for the Crop Protection business decreased to €927 million. The price-related decline in margins was partly offset by savings achieved through our cost structure and efficiency improvement programs.
EBIT before special items fell by 16.0 percent to €441 million. After net special charges of €57 million, EBIT for 2006 came in at €384 million, down from €532 million in the previous year.
Environmental Science/BioScience
| Environmental Science/BioScience | 2005 | 2006 | Change |
| € million | € million | % | |
| Sales | 1,022 | 1,056 | +3.3 |
| Environmental Science | 694 | 714 | +2.9 |
| BioScience | 328 | 342 | +4.3 |
| EBITDA* | 258 | 277 | +7.4 |
| Special items | (1) | 0 | |
| EBITDA before special items | 259 | 277 | +6.9 |
| EBITDA margin before special items | 25.3% | 26.2% | |
| EBIT* | 158 | 200 | +26.6 |
| Special items | (2) | 0 | |
| EBIT before special items | 160 | 200 | +25.0 |
| Gross cash flow* | 202 | 209 | +3.5 |
| Net cash flow* | 205 | 150 | -26.8 |
* for definition see Bayer Group Key Data
Sales of the Environmental Science, BioScience segment rose by 3.3 percent in 2006 to €1,056 million, or by 3.7 percent when adjusted for currency and portfolio changes.
The Environmental Science unit saw business expand by 2.9 percent to €714 million, from €694 million in 2005, in light of strong sales gains by our products for professional users.
BioScience increased sales by 4.3 percent to €342 million, thanks mainly to buoyant sales of vegetable and canola seed products.
EBITDA for Environmental Science, BioScience before special items rose by 6.9 percent to €277 million, thanks to the growth in business. Costs savings in Environmental Science also had a positive effect. EBIT before special items advanced by 25.0 percent from the prior year to €200 million. EBIT after special items rose by 26.6 percent.
Due to an increase in working capital, net cash flow dropped to €150 million, from €205 million in the previous year.
The Environmental Science unit saw business expand by 2.9 percent to €714 million, from €694 million in 2005, in light of strong sales gains by our products for professional users.
BioScience increased sales by 4.3 percent to €342 million, thanks mainly to buoyant sales of vegetable and canola seed products.
EBITDA for Environmental Science, BioScience before special items rose by 6.9 percent to €277 million, thanks to the growth in business. Costs savings in Environmental Science also had a positive effect. EBIT before special items advanced by 25.0 percent from the prior year to €200 million. EBIT after special items rose by 26.6 percent.
Due to an increase in working capital, net cash flow dropped to €150 million, from €205 million in the previous year.
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