Chairman’s Letter
Future Perspectives
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Management Report
Future Perspectives
 Economic outlook/market opportunities in 2007 |
Bayer Group sales and earnings forecast |
| Business strategy |
Subgroups’ sales and earnings forecasts |
For 2007 we expect the global economy to grow at a rate that is considerably faster than the long-term average, although the pace of growth will most likely slow down somewhat at a high level. In our opinion, however, the economic slowdown in the United States will only have a moderate effect on the global economy, as robust growth in other regions such as Europe and the emerging economies of Asia and Latin America is expected to compensate for the weakness in the United States. Although we anticipate that the global economy will maintain its current momentum, risks could result from continuing imbalances in the world economy. It is also very difficult to predict the development of oil prices.
The economic indicators in the United States point to a decline in the pace of growth. We expect the economy there to expand only at a rate comparable to that of the European Union, as growth is likely to be increasingly checked by a more restrictive monetary policy. We anticipate that the U.S. economy will regain momentum in the second half of the year following a temporary period of weakness at the beginning of 2007. Nonetheless, we do see a risk that a progressing cooldown in real estate price trends could have a stronger impact on domestic demand than expected.
In our opinion, the economic upswing in Europe will continue. The business climate indicators point to ongoing robust growth in the euro zone, due particularly to the fact that the economy is now being buoyed more strongly by domestic demand. Private consumption will most likely continue to grow briskly if the labor market situation improves further. Investment activity should remain strong thanks to stable corporate earnings and improvements in efficiency. We expect that the robust economic growth worldwide will continue to sustain European exports. Despite these positive signals, however, we are not overlooking the latent risk that the upswing in the euro zone could lose momentum due to a more restrictive fiscal policy in some countries and growing appreciation in the value of the euro. Furthermore, the stimulating effect of monetary policy is likely to gradually abate. Last but not least, an unexpectedly strong downswing in the U.S. economy could pose an increasing risk to growth in Europe.
We expect growth in Japan to be slightly lower compared to the previous year due to a less expansive fiscal and monetary policy. Export growth is expected to weaken somewhat in view of the anticipated economic downswing in Asia and the United States. Provided capacity utilization remains high, capital spending should remain the driving force for economic expansion, with the result that domestic demand will most likely gain in significance. Consumer demand should increase palpably as a result of rising real wage levels. On balance, economic growth is expected to fall just short of the pace seen in the past two years.
Many of the emerging economies in Asia are expected to be impacted to some extent by the slowdown in U.S. imports. In view of the considerable pace of growth in these countries in recent years, however, it is not believed that the temporary slowdown in exports will have a major effect on economic expansion. We continue to regard the growth outlook as very positive, especially considering that the economy will most likely be buoyed by a sustained expansion of domestic demand. The Chinese economy, on the other hand, will probably grow at a pace similar to that of the previous year. We anticipate that robust consumer demand and strong gains in investment activity will more or less offset the expected decline in foreign demand. However, surplus capacities in some economic sectors could pose risks to the Chinese economy.
We expect economic development in Latin America to remain positive, although the pace of expansion could decline slightly should raw material prices fall and export demand from the United States decrease. Once again, there appear to be varying development trends in this region. Whereas the Brazilian economy is expected to recover slightly, the upswing in Mexico is believed to have peaked in 2006. However, there is concern about political events in some countries – particularly Venezuela and Bolivia – which could jeopardize the region’s development over the long term.
For 2007 we do not expect a major change in the performance of the pharmaceuticals market compared to the prior year. In North America and Europe, specialties such as cancer drugs will spur further growth. However, this will probably not be sufficient to ensure a sustained improvement in the pace of growth in Europe due to planned governmental cost-containment measures. By contrast, continued double-digit sales growth is anticipated in emerging markets such as South Korea, Brazil, Turkey and Russia.
The global crop protection market is expected to expand slightly in 2007. We are optimistic about the trend in this market because demand for plant-based raw materials such as corn, canola, soybeans and cereals has increased sharply due to the drought-related poor harvest yields in 2006 and to strongly growing raw material requirements for biodiesel and bioethanol production. As a result, the agriculture industry is expected to need larger amounts of fertilizers and crop protection products. In the future we anticipate growing demand for plants that can be used to produce energy.
We again expect a positive trend across the MaterialScience market sectors in 2007, although the extent of this trend will vary from region to region.
In the automotive sector, we are optimistic about a recovery in the United States in 2007, while the downswing in western Europe and Japan will continue. As a considerable production increase is expected in the other major countries and regions, however, this industry sector will most likely perform robustly once again, albeit below the long-term trend.
In the construction industry, a downswing appears to be materializing for 2007 in the United States. We anticipate a further decline in residential construction over the course of the year, while non-residential construction should continue to increase. In our estimation, the remaining regions of the world will post moderate to very positive growth rates as in the previous year.
A slight downswing is anticipated for the electrical and electronics sector in 2007, triggered by stagnation in the United States. In connection with a continuing positive situation in the other regions, satisfactory growth at a rate of double the expansion in the gross domestic product is expected.
The economic indicators in the United States point to a decline in the pace of growth. We expect the economy there to expand only at a rate comparable to that of the European Union, as growth is likely to be increasingly checked by a more restrictive monetary policy. We anticipate that the U.S. economy will regain momentum in the second half of the year following a temporary period of weakness at the beginning of 2007. Nonetheless, we do see a risk that a progressing cooldown in real estate price trends could have a stronger impact on domestic demand than expected.
In our opinion, the economic upswing in Europe will continue. The business climate indicators point to ongoing robust growth in the euro zone, due particularly to the fact that the economy is now being buoyed more strongly by domestic demand. Private consumption will most likely continue to grow briskly if the labor market situation improves further. Investment activity should remain strong thanks to stable corporate earnings and improvements in efficiency. We expect that the robust economic growth worldwide will continue to sustain European exports. Despite these positive signals, however, we are not overlooking the latent risk that the upswing in the euro zone could lose momentum due to a more restrictive fiscal policy in some countries and growing appreciation in the value of the euro. Furthermore, the stimulating effect of monetary policy is likely to gradually abate. Last but not least, an unexpectedly strong downswing in the U.S. economy could pose an increasing risk to growth in Europe.
We expect growth in Japan to be slightly lower compared to the previous year due to a less expansive fiscal and monetary policy. Export growth is expected to weaken somewhat in view of the anticipated economic downswing in Asia and the United States. Provided capacity utilization remains high, capital spending should remain the driving force for economic expansion, with the result that domestic demand will most likely gain in significance. Consumer demand should increase palpably as a result of rising real wage levels. On balance, economic growth is expected to fall just short of the pace seen in the past two years.
Many of the emerging economies in Asia are expected to be impacted to some extent by the slowdown in U.S. imports. In view of the considerable pace of growth in these countries in recent years, however, it is not believed that the temporary slowdown in exports will have a major effect on economic expansion. We continue to regard the growth outlook as very positive, especially considering that the economy will most likely be buoyed by a sustained expansion of domestic demand. The Chinese economy, on the other hand, will probably grow at a pace similar to that of the previous year. We anticipate that robust consumer demand and strong gains in investment activity will more or less offset the expected decline in foreign demand. However, surplus capacities in some economic sectors could pose risks to the Chinese economy.
We expect economic development in Latin America to remain positive, although the pace of expansion could decline slightly should raw material prices fall and export demand from the United States decrease. Once again, there appear to be varying development trends in this region. Whereas the Brazilian economy is expected to recover slightly, the upswing in Mexico is believed to have peaked in 2006. However, there is concern about political events in some countries – particularly Venezuela and Bolivia – which could jeopardize the region’s development over the long term.
For 2007 we do not expect a major change in the performance of the pharmaceuticals market compared to the prior year. In North America and Europe, specialties such as cancer drugs will spur further growth. However, this will probably not be sufficient to ensure a sustained improvement in the pace of growth in Europe due to planned governmental cost-containment measures. By contrast, continued double-digit sales growth is anticipated in emerging markets such as South Korea, Brazil, Turkey and Russia.
The global crop protection market is expected to expand slightly in 2007. We are optimistic about the trend in this market because demand for plant-based raw materials such as corn, canola, soybeans and cereals has increased sharply due to the drought-related poor harvest yields in 2006 and to strongly growing raw material requirements for biodiesel and bioethanol production. As a result, the agriculture industry is expected to need larger amounts of fertilizers and crop protection products. In the future we anticipate growing demand for plants that can be used to produce energy.
We again expect a positive trend across the MaterialScience market sectors in 2007, although the extent of this trend will vary from region to region.
In the automotive sector, we are optimistic about a recovery in the United States in 2007, while the downswing in western Europe and Japan will continue. As a considerable production increase is expected in the other major countries and regions, however, this industry sector will most likely perform robustly once again, albeit below the long-term trend.
In the construction industry, a downswing appears to be materializing for 2007 in the United States. We anticipate a further decline in residential construction over the course of the year, while non-residential construction should continue to increase. In our estimation, the remaining regions of the world will post moderate to very positive growth rates as in the previous year.
A slight downswing is anticipated for the electrical and electronics sector in 2007, triggered by stagnation in the United States. In connection with a continuing positive situation in the other regions, satisfactory growth at a rate of double the expansion in the gross domestic product is expected.
The Bayer Group is focusing on the fast-growing, innovation-driven health care, nutrition and high-tech materials businesses in line with its mission statement: “Bayer: Science For A Better Life.” By strategically aligning ourselves to these attractive markets and concentrating on our core competencies, we are able to invest more intensively in growth areas and innovative technologies. We aim to achieve leadership roles and expand our already strong market positions. We will also press ahead with cost-containment and efficiency-improvement efforts in order to further increase the company’s value over the long term. For a detailed description of our financial strategy, please consult the Liquidity and Capital Resources.
Bayer HealthCare
Bayer HealthCare’s goal is to match or exceed market growth in all divisions. Our biggest HealthCare segment, Pharmaceuticals, comprises both
Specialty Care and Primary Care activities. We aim to position our Pharmaceuticals segment as a strong supplier of products for medical specialists, while at the same time taking advantage of opportunities in the primary care business. We also want to focus more closely on indications in which there is major potential for improving diagnosis and therapy.
The takeover of Schering AG, Berlin, Germany, in 2006 and the establishment of Bayer Schering Pharma AG, Germany* were key steps in this direction. Our promising Specialty Care portfolio includingKogenate® for hemophilia treatment and Nexavar® for therapy of renal cell carcinoma was considerably expanded and strengthened by the addition of leading products in the fields of gynecology (Yasmin®), diagnostic imaging (Magnevist®) and the treatment of multiple sclerosis (Betaferon®).
Our Primary Care business offers products for general practitioners. We are well represented in the primary care market with our established brands Avalox®/Avelox®, Levitra®, Adalat®, Glucobay® and Ciprobay®/Cipro®. In the United States, our products are marketed through the existing alliance with Schering-Plough. (Please note that Schering-Plough Corporation, New Jersey, and the company acquired by Bayer in June 2006, i. e. Bayer Schering Pharma AG, Germany* (formerly named Schering AG), Berlin, Germany, are unaffiliated companies that have been totally independent of each other for many years.) The purchase from GlaxoSmithKline of marketing rights for the blood pressure medications Pritor® and PritorPlus® in certain European countries further strengthens our Primary Care business.
Research and development is an important growth driver for our Pharmaceuticals business, which is why this segment accounts for the biggest proportion of R&D spending within the HealthCare subgroup.Life cycle management, inlicensing and cooperation agreements remain important elements of our strategy, as such business development activities supplement our own research efforts and are designed to strengthen our portfolio.
Our Consumer Health segment is comprised of the Consumer Care, Diabetes Care and Animal Health divisions.
The goal of our Consumer Care Division is to expand our leading position in the global over-the-counter (OTC) medicines market. Our strategy is primarily aimed at fully exhausting the growth potential of our proven brands such as Alka-Seltzer®, Aspirin®, Aleve®, Rennie®, One-A-Day®, Canesten® and Bepanthen®. We are pursuing a clear course of expansion in fast-growing regions such as eastern Europe and Asia/Pacific, and we aim to further develop our business in new growth segments. We also intend to exploit external growth opportunities through acquisitions and inlicensing. One example of this is the planned acquisition of the OTC cough and cold portfolio of the Chinese TopSun group, a transaction we expect to be closed in 2007.
Our Diabetes Care Division aims to enhance its competitive position in the area of blood glucose measurement and diabetes management. To this end, we are expanding our product range by developing new measurement systems and test strips to facilitate even more user-friendly blood sugar monitoring for diabetics. We also aim to expand our portfolio by investing in additional areas of business. We intend to enhance our competitiveness by continuously improving our products, as well as through cost-containment measures and the more efficient use of our resources. Our strategy also includes supplementing our own strengths through strategic partnerships in specific fields of expertise.
In the Animal Health Division we aim to achieve global leadership positions in the livestock and companion animals markets and become a preferred supplier and partner. Our strategy is directed at achieving organic growth by focusing on attractive countries and markets, as well as through the successful life cycle management of existing core brands. Animal Health regularly evaluates options for acquisitions or strategic alliances to supplement our existing product range.
Bayer CropScience
Our CropScience subgroup is active in a very dynamic and challenging market environment. As a research-based company, we see good long-term perspectives for the agriculture sector. Over the next ten years, we expect further market stimulation driven particularly by the introduction of modern, innovative crop protection products and the growing trend toward the use of commercial seed products. We believe that both the seed and crop protection markets can benefit from stronger demand for agricultural products for use in biofuels.
As a leading innovation-driven supplier of products and integrated solutions, CropScience aims to contribute to the production of high-quality food, feed and natural fiber products with its Crop Protection, Environmental Science and BioScience business groups. We seek to develop mutually beneficial, long-lasting and dependable partnerships with our customers and all other interest groups. We manage our business responsibly in keeping with our commitment to sustainable development and in order to achieve profitable long-term growth.
Innovation is the foundation for the further development of our enterprise. The introduction of new active substances replaces older crop protection products and thus gives us the opportunity to place innovative products with an improved performance spectrum and higher value-added on the market. This is an important condition for achieving our profitability goals. Our strict cost management makes a further significant contribution. Through our new cost structure initiative – which should be largely implemented by 2009 – and our ongoing performance enhancement programs, we aim to make Bayer CropScience even more efficient in all areas.
In the Crop Protection segment, Bayer CropScience aims to defend its leading market position through a broad regional presence and a balanced portfolio of innovative and highly effective insecticides, fungicides, herbicides and seed treatment products.
We endeavor to achieve this strategic goal by steadily improving our product mix. This includes the continuous market launch of new products from our research and development pipeline, successful life cycle management and the initiation of research in new growth fields.
The Environmental Science, BioScience segment completes the offering of Bayer CropScience with products and solutions tailored to specific market needs. Environmental Science makes use of the development and production capacities and the new active substance innovations of Crop Protection. In terms of sales, Environmental Science is one of the world’s leading suppliers of non-agricultural products based on crop protection active ingredients. Our strategy is to further expand this position by developing and marketing high-quality products for private and professional users and by offering tailor-made, customer-oriented innovations. BioScience benefits from the customer base and biological expertise of Crop Protection, bringing to market new seeds and products based on plant biotechnology and modern breeding methods. Through the combination of seed, plant traits and crop protection products, we strive to offer farmers integrated solutions.
BioScience is internationally active in research, development and marketing. Its activities cover three main areas. In the agricultural seed business we focus on our three core crops of cotton, canola and rice. We help to improve the performance and quality of these crops using modern plant breeding and innovative plant biotechnology-based solutions. Our New Business Ventures unit develops novel uses for plants as the basis for producing materials for industrial and consumer applications. In the vegetable seed business, our subsidiary Nunhems is a leading developer and supplier of high-quality seeds. We are pursuing additional growth opportunities in all three areas of BioScience.
Bayer MaterialScience
The Bayer MaterialScience subgroup aims to further expand its global market position. Here we are relying in particular on our technological know-how, new applications for our products in the Materials and Systems segments and the targeted expansion of our presence in the growth markets of Asia.
We intend to further strengthen the world market position of our Materials segment by exploiting the growth potential of our portfolio. Recently completed new capital expenditure projects in Asia underscore our determination to expand our business activities in what is the world’s fastest growing region. We continue to seek opportunities to strengthen our position in the Materials segment, and we intend to enhance this segment’s performance by continuously improving our cost structures and by increasing the efficiency of our research and development operations.
The commissioning of the first phase of our world-scale production facility in Asia will help improve the cost efficiency of our Polycarbonates business unit (PCS) and facilitate the use of leading-edge technologies in this growth region. We aim to further expand our capacities in order to meet the growing demand for polycarbonates. Furthermore, we intend to make available sufficient resources for product and applications development in growth areas. In addition to our current expansion course in China, we aim to constantly evaluate business potential in other regions with a view to expanding our market coverage. We plan to strengthen our compounding business through geographic expansion. In the case of semi-finished products such as polycarbonate sheet and film, we are aiming to achieve a higher earnings margin and are therefore placing products with good growth perspectives at the center of our strategy.
Thermoplastic Polyurethanes (TPU) will continue to focus on high-margin, fast-growing products in the future. Through this new alignment, TPU aims to achieve and maintain a higher level of profitability. With the acquisition of the Taiwan-based Ure-Tech Group, which is scheduled for closing in the second quarter of 2007, TPU hopes to capture additional market share in Asia.
We intend to further strengthen the world market position of our Systems segment by exploiting the growth potential of our portfolio. Recently completed new capital expenditure projects in Asia underscore our determination to expand our business activities in what is the world’s fastest growing region. We continue to seek opportunities to strengthen our market position in the Systems segment, and we intend to enhance this segment’s performance by continuously improving our cost structures and by increasing the efficiency of our research and development operations.
The commissioning of the first phase of our world-scale production facility in Asia will help improve the cost efficiency of our Polyurethanes business unit (PUR) and facilitate the use of leading-edge technologies in this growth region. We are focusing primarily on quality, as well as on product and process innovation, in order to capture further market share in the fast-growing Asian markets. We intend to cover increasing demand forMDI products through a further expansion of our capacities. In some segments, portfolio management activities are planned to achieve a shift toward higher value products and thus improved profitability.
The Coatings, Adhesives, Sealants business unit is seeking to defend its market position for Basic and Modified Isocyanates (BMI). We intend to meet increasing demand in the growth regions through the expansion of our production capacities. By concentrating more closely on high-margin products, optimizing our portfolio and increasing the use of modern technologies, we aim to achieve higher profitability in our resins activities.
Inorganic Basic Chemicals utilizes state-of-the-art technologies to produce raw materials such as chlorine and sodium hydroxide for the Polyurethanes, Coatings, Adhesives, Sealants, and Polycarbonates business units, as well as for external customers. In order to achieve the highest possible level of cost efficiency and safeguard continuous supply, we are pursuing various strategic options for the in-house production or external procurement of such raw materials, depending on the specific circumstances at our production sites.
The New Business section identifies and evaluates market and technology trends for all MaterialScience business units and converts business ideas into specific projects for the development of new products and applications outside of the company’s existing core business.
Bayer HealthCare
Bayer HealthCare’s goal is to match or exceed market growth in all divisions. Our biggest HealthCare segment, Pharmaceuticals, comprises both
Specialty Care and Primary Care activities. We aim to position our Pharmaceuticals segment as a strong supplier of products for medical specialists, while at the same time taking advantage of opportunities in the primary care business. We also want to focus more closely on indications in which there is major potential for improving diagnosis and therapy. The takeover of Schering AG, Berlin, Germany, in 2006 and the establishment of Bayer Schering Pharma AG, Germany* were key steps in this direction. Our promising Specialty Care portfolio including
Kogenate® for hemophilia treatment and Nexavar® for therapy of renal cell carcinoma was considerably expanded and strengthened by the addition of leading products in the fields of gynecology (Yasmin®), diagnostic imaging (Magnevist®) and the treatment of multiple sclerosis (Betaferon®). Our Primary Care business offers products for general practitioners. We are well represented in the primary care market with our established brands Avalox®/
Avelox®, Levitra®, Adalat®, Glucobay® and Ciprobay®/Cipro®. In the United States, our products are marketed through the existing alliance with Schering-Plough. (Please note that Schering-Plough Corporation, New Jersey, and the company acquired by Bayer in June 2006, i. e. Bayer Schering Pharma AG, Germany* (formerly named Schering AG), Berlin, Germany, are unaffiliated companies that have been totally independent of each other for many years.) The purchase from GlaxoSmithKline of marketing rights for the blood pressure medications Pritor® and PritorPlus® in certain European countries further strengthens our Primary Care business. Research and development is an important growth driver for our Pharmaceuticals business, which is why this segment accounts for the biggest proportion of R&D spending within the HealthCare subgroup.
Life cycle management, inlicensing and cooperation agreements remain important elements of our strategy, as such business development activities supplement our own research efforts and are designed to strengthen our portfolio. Our Consumer Health segment is comprised of the Consumer Care, Diabetes Care and Animal Health divisions.
The goal of our Consumer Care Division is to expand our leading position in the global over-the-counter (
OTC) medicines market. Our strategy is primarily aimed at fully exhausting the growth potential of our proven brands such as Alka-Seltzer®, Aspirin®, Aleve®, Rennie®, One-A-Day®, Canesten® and Bepanthen®. We are pursuing a clear course of expansion in fast-growing regions such as eastern Europe and Asia/Pacific, and we aim to further develop our business in new growth segments. We also intend to exploit external growth opportunities through acquisitions and inlicensing. One example of this is the planned acquisition of the OTC cough and cold portfolio of the Chinese TopSun group, a transaction we expect to be closed in 2007. Our Diabetes Care Division aims to enhance its competitive position in the area of blood glucose measurement and diabetes management. To this end, we are expanding our product range by developing new measurement systems and test strips to facilitate even more user-friendly blood sugar monitoring for diabetics. We also aim to expand our portfolio by investing in additional areas of business. We intend to enhance our competitiveness by continuously improving our products, as well as through cost-containment measures and the more efficient use of our resources. Our strategy also includes supplementing our own strengths through strategic partnerships in specific fields of expertise.
In the Animal Health Division we aim to achieve global leadership positions in the livestock and companion animals markets and become a preferred supplier and partner. Our strategy is directed at achieving organic growth by focusing on attractive countries and markets, as well as through the successful life cycle management of existing core brands. Animal Health regularly evaluates options for acquisitions or strategic alliances to supplement our existing product range.
Bayer CropScience
Our CropScience subgroup is active in a very dynamic and challenging market environment. As a research-based company, we see good long-term perspectives for the agriculture sector. Over the next ten years, we expect further market stimulation driven particularly by the introduction of modern, innovative crop protection products and the growing trend toward the use of commercial seed products. We believe that both the seed and crop protection markets can benefit from stronger demand for agricultural products for use in biofuels.
As a leading innovation-driven supplier of products and integrated solutions, CropScience aims to contribute to the production of high-quality food, feed and natural fiber products with its Crop Protection, Environmental Science and BioScience business groups. We seek to develop mutually beneficial, long-lasting and dependable partnerships with our customers and all other interest groups. We manage our business responsibly in keeping with our commitment to sustainable development and in order to achieve profitable long-term growth.
Innovation is the foundation for the further development of our enterprise. The introduction of new active substances replaces older crop protection products and thus gives us the opportunity to place innovative products with an improved performance spectrum and higher value-added on the market. This is an important condition for achieving our profitability goals. Our strict cost management makes a further significant contribution. Through our new cost structure initiative – which should be largely implemented by 2009 – and our ongoing performance enhancement programs, we aim to make Bayer CropScience even more efficient in all areas.
In the Crop Protection segment, Bayer CropScience aims to defend its leading market position through a broad regional presence and a balanced portfolio of innovative and highly effective insecticides, fungicides, herbicides and seed treatment products.
We endeavor to achieve this strategic goal by steadily improving our product mix. This includes the continuous market launch of new products from our research and development pipeline, successful life cycle management and the initiation of research in new growth fields.
The Environmental Science, BioScience segment completes the offering of Bayer CropScience with products and solutions tailored to specific market needs. Environmental Science makes use of the development and production capacities and the new active substance innovations of Crop Protection. In terms of sales, Environmental Science is one of the world’s leading suppliers of non-agricultural products based on crop protection active ingredients. Our strategy is to further expand this position by developing and marketing high-quality products for private and professional users and by offering tailor-made, customer-oriented innovations. BioScience benefits from the customer base and biological expertise of Crop Protection, bringing to market new seeds and products based on plant biotechnology and modern breeding methods. Through the combination of seed, plant traits and crop protection products, we strive to offer farmers integrated solutions.
BioScience is internationally active in research, development and marketing. Its activities cover three main areas. In the agricultural seed business we focus on our three core crops of cotton, canola and rice. We help to improve the performance and quality of these crops using modern plant breeding and innovative plant biotechnology-based solutions. Our New Business Ventures unit develops novel uses for plants as the basis for producing materials for industrial and consumer applications. In the vegetable seed business, our subsidiary Nunhems is a leading developer and supplier of high-quality seeds. We are pursuing additional growth opportunities in all three areas of BioScience.
Bayer MaterialScience
The Bayer MaterialScience subgroup aims to further expand its global market position. Here we are relying in particular on our technological know-how, new applications for our products in the Materials and Systems segments and the targeted expansion of our presence in the growth markets of Asia.
We intend to further strengthen the world market position of our Materials segment by exploiting the growth potential of our portfolio. Recently completed new capital expenditure projects in Asia underscore our determination to expand our business activities in what is the world’s fastest growing region. We continue to seek opportunities to strengthen our position in the Materials segment, and we intend to enhance this segment’s performance by continuously improving our cost structures and by increasing the efficiency of our research and development operations.
The commissioning of the first phase of our world-scale production facility in Asia will help improve the cost efficiency of our Polycarbonates business unit (PCS) and facilitate the use of leading-edge technologies in this growth region. We aim to further expand our capacities in order to meet the growing demand for polycarbonates. Furthermore, we intend to make available sufficient resources for product and applications development in growth areas. In addition to our current expansion course in China, we aim to constantly evaluate business potential in other regions with a view to expanding our market coverage. We plan to strengthen our compounding business through geographic expansion. In the case of semi-finished products such as polycarbonate sheet and film, we are aiming to achieve a higher earnings margin and are therefore placing products with good growth perspectives at the center of our strategy.
Thermoplastic Polyurethanes (
TPU) will continue to focus on high-margin, fast-growing products in the future. Through this new alignment, TPU aims to achieve and maintain a higher level of profitability. With the acquisition of the Taiwan-based Ure-Tech Group, which is scheduled for closing in the second quarter of 2007, TPU hopes to capture additional market share in Asia. We intend to further strengthen the world market position of our Systems segment by exploiting the growth potential of our portfolio. Recently completed new capital expenditure projects in Asia underscore our determination to expand our business activities in what is the world’s fastest growing region. We continue to seek opportunities to strengthen our market position in the Systems segment, and we intend to enhance this segment’s performance by continuously improving our cost structures and by increasing the efficiency of our research and development operations.
The commissioning of the first phase of our world-scale production facility in Asia will help improve the cost efficiency of our Polyurethanes business unit (PUR) and facilitate the use of leading-edge technologies in this growth region. We are focusing primarily on quality, as well as on product and process innovation, in order to capture further market share in the fast-growing Asian markets. We intend to cover increasing demand for
MDI products through a further expansion of our capacities. In some segments, portfolio management activities are planned to achieve a shift toward higher value products and thus improved profitability. The Coatings, Adhesives, Sealants business unit is seeking to defend its market position for Basic and Modified Isocyanates (BMI). We intend to meet increasing demand in the growth regions through the expansion of our production capacities. By concentrating more closely on high-margin products, optimizing our portfolio and increasing the use of modern technologies, we aim to achieve higher profitability in our resins activities.
Inorganic Basic Chemicals utilizes state-of-the-art technologies to produce raw materials such as chlorine and sodium hydroxide for the Polyurethanes, Coatings, Adhesives, Sealants, and Polycarbonates business units, as well as for external customers. In order to achieve the highest possible level of cost efficiency and safeguard continuous supply, we are pursuing various strategic options for the in-house production or external procurement of such raw materials, depending on the specific circumstances at our production sites.
The New Business section identifies and evaluates market and technology trends for all MaterialScience business units and converts business ideas into specific projects for the development of new products and applications outside of the company’s existing core business.
We further improved the Bayer Group’s earning power in 2006. With record highs for underlying EBIT and EBITDA, an underlying EBITDA margin of 19.3 percent (calculated on Group sales) and currency- and portfolio-adjusted sales growth of 5.2 percent, we achieved our operational targets for 2006. We are confident that by building on this foundation we can continue to enhance our operating performance.
In 2007, we aim to boost Group sales by more than 10 percent. Adjusted for portfolio and currency effects, business should expand by about 5 percent. We plan to increase underlying EBITDA by more than 10 percent as well, and also slightly improve our underlying EBITDA margin.
We expect to incur special charges in the region of €650 million to €700 million for the integration of Schering AG, and between €150 million and €200 million for the restructuring project initiated at CropScience in summer 2006. Special charges for the Group as a whole are likely to come in at between €900 million and €950 million, including some €200 million in write-downs.
To safeguard growth, we are planning capital expenditures of €1.7 billion, including €1.6 billion for property, plant and equipment. We anticipate that depreciation and amortization will total roughly €2.5 billion, with depreciation of property, plant and equipment accounting for €1.2 billion. We plan to spend €2.8 billion on research and development.
By 2009 we aim to achieve an underlying EBITDA margin of approximately 22 percent, provided the market environment for our businesses remains positive and there is no major deviation from our central planning assumptions, such as budgeted exchange rates. This would move Bayer’s profitability into a new order of magnitude.
In 2007, we aim to boost Group sales by more than 10 percent. Adjusted for portfolio and currency effects, business should expand by about 5 percent. We plan to increase underlying EBITDA by more than 10 percent as well, and also slightly improve our underlying EBITDA margin.
We expect to incur special charges in the region of €650 million to €700 million for the integration of Schering AG, and between €150 million and €200 million for the restructuring project initiated at CropScience in summer 2006. Special charges for the Group as a whole are likely to come in at between €900 million and €950 million, including some €200 million in write-downs.
To safeguard growth, we are planning capital expenditures of €1.7 billion, including €1.6 billion for property, plant and equipment. We anticipate that depreciation and amortization will total roughly €2.5 billion, with depreciation of property, plant and equipment accounting for €1.2 billion. We plan to spend €2.8 billion on research and development.
By 2009 we aim to achieve an underlying EBITDA margin of approximately 22 percent, provided the market environment for our businesses remains positive and there is no major deviation from our central planning assumptions, such as budgeted exchange rates. This would move Bayer’s profitability into a new order of magnitude.
Bayer HealthCare
In 2007 we intend to grow with or faster than the market in all divisions and improve the underlying EBITDA margin toward 24 percent. We are also very confident about the performance of our HealthCare business beyond 2007. We believe we can steadily improve the underlying EBITDA margin and have set a target of about 27 percent for 2009. Contributing to this will be business expansion along with the synergies from the Schering AG integration.
Bayer CropScience
We currently predict a broadly favorable market environment for our CropScience business in 2007, although it remains to be seen how market conditions will develop in the various regions.
We aim to strengthen our role as a leading innovator in chemical crop protection and thus to grow slightly faster than the market. We aim to further improve our underlying EBITDA margin from 21.1 percent in 2006 toward 22 percent, mainly with the help of cost-saving measures and with increased contributions from our new products.
We plan to further improve the underlying EBITDA margin through 2009 and believe we can achieve in the region of 25 percent in a normal market environment.
Bayer MaterialScience
MaterialScience plans further volume increases in 2007. We predict a strong start to the new year, with a first-quarter underlying EBITDA margin significantly above the fourth quarter of 2006. For 2007 we expect to sustain a good, value-creating earnings level. Reliable longer-term forecasts currently are not possible due to the high volatility of raw material prices.
With its enhanced business portfolio and competitive production structures, we believe MaterialScience can create value even in a difficult market environment by earning an attractive premium over its capital and asset reproduction costs. Under favorable economic conditions, we plan to generate an underlying EBITDA margin in excess of 18 percent.
In 2007 we intend to grow with or faster than the market in all divisions and improve the underlying EBITDA margin toward 24 percent. We are also very confident about the performance of our HealthCare business beyond 2007. We believe we can steadily improve the underlying EBITDA margin and have set a target of about 27 percent for 2009. Contributing to this will be business expansion along with the synergies from the Schering AG integration.
Bayer CropScience
We currently predict a broadly favorable market environment for our CropScience business in 2007, although it remains to be seen how market conditions will develop in the various regions.
We aim to strengthen our role as a leading innovator in chemical crop protection and thus to grow slightly faster than the market. We aim to further improve our underlying EBITDA margin from 21.1 percent in 2006 toward 22 percent, mainly with the help of cost-saving measures and with increased contributions from our new products.
We plan to further improve the underlying EBITDA margin through 2009 and believe we can achieve in the region of 25 percent in a normal market environment.
Bayer MaterialScience
MaterialScience plans further volume increases in 2007. We predict a strong start to the new year, with a first-quarter underlying EBITDA margin significantly above the fourth quarter of 2006. For 2007 we expect to sustain a good, value-creating earnings level. Reliable longer-term forecasts currently are not possible due to the high volatility of raw material prices.
With its enhanced business portfolio and competitive production structures, we believe MaterialScience can create value even in a difficult market environment by earning an attractive premium over its capital and asset reproduction costs. Under favorable economic conditions, we plan to generate an underlying EBITDA margin in excess of 18 percent.
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The names "Bayer Schering Pharma" or "Schering" as used in this publication always refer to Bayer Schering Pharma AG, Berlin, Germany, or its predecessor, Schering AG, Berlin, Germany, respectively.
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