Chairman’s Letter
Performance by Subgroup and Segment
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Management Report
Bayer MaterialScience
 Materials |
| Systems |
| Bayer MaterialScience | 2005 | 2006 | Change |
| € million | € million | % | |
| Sales | 9,446 | 10,161 | +7.6 |
| EBITDA* | 1,721 | 1,499 | -12.9 |
| Special items | (43) | (178) | |
| EBITDA before special items | 1,764 | 1,677 | -4.9 |
| EBITDA margin before special items | 18.7% | 16.5% | |
| EBIT* | 1,250 | 992 | -20.6 |
| Special items | (43) | (218) | |
| EBIT before special items | 1,293 | 1,210 | -6.4 |
| Gross cash flow* | 1,254 | 1,166 | -7.0 |
| Net cash flow* | 1,337 | 1,281 | -4.2 |
2005 figures restated
* for definition see Bayer Group Key Data
* for definition see Bayer Group Key Data
The upward business trend at Bayer MaterialScience continued in 2006, with sales advancing a further 7.6 percent from the previous year’s high level to €10,161 million, or by 7.2 percent when adjusted for currency and portfolio effects. This encouraging growth in business was due primarily to higher volumes in all business units, while selling prices rose slightly on average.
EBITDA before special items almost matched the previous year’s level, dipping just 4.9 percent to €1,677 million. Substantial price hikes for petrochemical feedstocks, especially in the second half, were offset by volume growth and price increases, but fourth-quarter earnings were held back by a temporary loss of production in Krefeld-Uerdingen, Germany. In addition, the expansion of our sales organization in the growth market of Asia and expenses for the start-up of our production facilities in China led to an increase in costs.
EBIT before special items dropped by €83 million, or 6.4 percent, to €1,210 million. Special charges amounted to €218 million, including €153 million in litigation-related expenses. The prior-year figure contained net special charges of €43 million. EBIT after special items was down by €258 million, or 20.6 percent, to €992 million.
EBITDA before special items almost matched the previous year’s level, dipping just 4.9 percent to €1,677 million. Substantial price hikes for petrochemical feedstocks, especially in the second half, were offset by volume growth and price increases, but fourth-quarter earnings were held back by a temporary loss of production in Krefeld-Uerdingen, Germany. In addition, the expansion of our sales organization in the growth market of Asia and expenses for the start-up of our production facilities in China led to an increase in costs.
EBIT before special items dropped by €83 million, or 6.4 percent, to €1,210 million. Special charges amounted to €218 million, including €153 million in litigation-related expenses. The prior-year figure contained net special charges of €43 million. EBIT after special items was down by €258 million, or 20.6 percent, to €992 million.
Our Materials segment saw sales rise by 3.1 percent in 2006, to €2,925 million. Adjusted for currency and portfolio changes, the increase was 3.3 percent. Volumes in the Polycarbonates business unit moved higher, particularly in Europe and Asia/Pacific, with sales up 2.8 percent over 2005 despite heavy pressure on prices. The Thermoplastic Polyurethanes business unit grew sales by 6.8 percent, mainly as a result of higher volumes.
EBITDA before special items fell by a substantial 30.7 percent in 2006, to €448 million, as a result of a squeeze on margins caused by lower selling prices and rising raw material costs, which were not outweighed by the higher volumes. EBIT before special items fell by 41.6 percent to €289 million, while EBIT after special items dropped by €225 million to €289 million.
EBITDA before special items fell by a substantial 30.7 percent in 2006, to €448 million, as a result of a squeeze on margins caused by lower selling prices and rising raw material costs, which were not outweighed by the higher volumes. EBIT before special items fell by 41.6 percent to €289 million, while EBIT after special items dropped by €225 million to €289 million.
Sales of the Systems segment climbed by 9.5 percent year on year to €7,236 million, or by 8.9 percent when adjusted for currency and portfolio effects. This expansion was attributable to both selling price and volume increases in all business units.
EBITDA before special items in 2006 advanced by 9.9 percent to €1,229 million, with selling price increases and higher volumes more than compensating for the rise in raw material costs. EBIT before special items climbed by €123 million, or 15.4 percent, to €921 million. EBIT of the Systems segment was hampered by special charges of €218 million, resulting primarily from an arbitration proceeding in the United States relating to the production of propylene oxide. Other special charges were incurred in connection with pending antitrust proceedings and the restructuring of our U.S. sites in New Martinsville, West Virginia, and Baytown, Texas. After special items, EBIT declined by €33 million, or 4.5 percent, to €703 million.
EBITDA before special items in 2006 advanced by 9.9 percent to €1,229 million, with selling price increases and higher volumes more than compensating for the rise in raw material costs. EBIT before special items climbed by €123 million, or 15.4 percent, to €921 million. EBIT of the Systems segment was hampered by special charges of €218 million, resulting primarily from an arbitration proceeding in the United States relating to the production of propylene oxide. Other special charges were incurred in connection with pending antitrust proceedings and the restructuring of our U.S. sites in New Martinsville, West Virginia, and Baytown, Texas. After special items, EBIT declined by €33 million, or 4.5 percent, to €703 million.
| Materials | 2005 | 2006 | Change |
| € million | € million | % | |
| Sales | 2,837 | 2,925 | +3.1 |
| Polycarbonates | 2,645 | 2,720 | +2.8 |
| Thermoplastic Polyurethanes | 192 | 205 | +6.8 |
| EBITDA* | 665 | 448 | -32.6 |
| Special items | 19 | 0 | |
| EBITDA before special items | 646 | 448 | -30.7 |
| EBITDA margin before special items | 22.8% | 15.3% | |
| EBIT* | 514 | 289 | -43.8 |
| Special items | 19 | 0 | |
| EBIT before special items | 495 | 289 | -41.6 |
| Gross cash flow* | 473 | 364 | -23.0 |
| Net cash flow* | 466 | 324 | -30.5 |
2005 figures restated
* for definition see Bayer Group Key Data
* for definition see Bayer Group Key Data
| Systems | 2005 | 2006 | Change |
| € million | € million | % | |
| Sales | 6,609 | 7,236 | +9.5 |
| Polyurethanes | 4,792 | 5,182 | +8.1 |
| Coatings, Adhesives, Sealants | 1,330 | 1,488 | +11.9 |
| Inorganic Basic Chemicals | 380 | 403 | +6.1 |
| Other | 107 | 163 | +52.3 |
| EBITDA* | 1,056 | 1,051 | -0.5 |
| Special items | (62) | (178) | |
| EBITDA before special items | 1,118 | 1,229 | +9.9 |
| EBITDA margin before special items | 16.9% | 17.0% | |
| EBIT* | 736 | 703 | -4.5 |
| Special items | (62) | (218) | |
| EBIT before special items | 798 | 921 | +15.4 |
| Gross cash flow* | 781 | 802 | +2.7 |
| Net cash flow* | 871 | 957 | +9.9 |
* for definition see Bayer Group Key Data
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