• Second-quarter sales up 6 percent to EUR 7.1 billion
• EBITDA before special items moves ahead 11 percent to EUR 1.3 billion
• EBIT before special items climbs 14 percent to EUR 928 million
• HealthCare strategically strengthened by Schering acquisition
• Diagnostics divestiture sharpens HealthCare profile
• Restructuring program launched at CropScience

Overview of Sales, Earnings and Financial Position

Bayer is building its future on innovation and growth. In light of these objectives, the successful acquisition of Schering AG strengthens our HealthCare business for the long term. The agreed divestiture of the Diagnostics Division is fully in line with our strategy to sharpen the focus of the HealthCare business and concentrate on human and animal medicines and consumer health products. We have included Schering in the consolidated financial statements with effect from June 23, 2006. The Diagnostics Division is reported under discontinued operations. The previous year’s figures have been restated accordingly.

To ensure comparability between reporting periods, the following table provides a reconciliation of Bayer’s sales and earnings data in the previous corporate structure to those in the new structure. Thus the last column includes the Schering data for the period June 23 through June 30, 2006, while the figures for the Diagnostics Division, which is reported as a discontinued operation, have been eliminated.
 

Bayer Key Data for the Previous and Current Corporate Structures
EUR million	Bayer excl. Schering, incl. Diagnostics		Schering		Diagnostics		Continuing operations incl. Schering, excl. Diagnostics
2nd Quarter	2005	2006	2005	2006	2005	2006	2005	2006
Sales	7,053	7,305	–	144	367	377	6,686	7,072
EBITDA*	1,179	1,334	–	20	78	46	1,101	1,308
EBITDA before special items	1,285	1,383	–	30	78	71	1,207	1,342
EBITDA margin before special items	18.2%	18.9%	–	20.8%	21.3%	18.8%	18.1%	19.0%
EBIT*	746	893	–	(6)	39	9	707	878
EBIT before special items	852	958	–	4	39	34	813	928
1st Half	2005	2006	2005	2006	2005	2006	2005	2006
Sales	13,757	14,799	–	144	685	755	13,072	14,188
EBITDA*	2,616	2,886	–	20	133	116	2,483	2,790
EBITDA before special items	2,860	3,063	–	30	133	141	2,727	2,952
EBITDA margin before special items	20.8%	20.7%	–	20.8%	19.4%	18.7%	20.9%	20.8%
EBIT*	1,750	2,001	–	(6)	57	40	1,693	1,955
EBIT before special items	1,994	2,194	–	4	57	65	1,937	2,133

In the previous corporate structure (excluding Schering, including Diagnostics), we achieved EBITDA before special items of EUR 1,383 million (+7.6 percent) in the second quarter. The corresponding EBIT before special items rose by 12.4 percent in the second quarter, to EUR 958 million (Q2 2005: EUR 852 million).

The following commentary refers to continuing operations in the new Bayer Group structure.

The positive business trend at Bayer continued in the second quarter of 2006. Sales from continuing operations advanced by 5.8 percent to EUR 7,072 million (Q2 2005: EUR 6,686 million) due to higher sales of the HealthCare (+12.7 percent) and MaterialScience (+5.4 percent) subgroups. Sales of CropScience were slightly below the prior-year quarter (-1.6 percent). Group sales included EUR 144 million in revenues from the Schering business for the period June 23 through June 30, 2006. Adjusted for currency and portfolio effects, sales of the Bayer Group rose by 3.6 percent.

The pleasing trend in sales enabled us to further improve our operating performance. EBITDA before special items rose by 11.2 percent to EUR 1,342 million (Q2 2005: EUR 1,207 million). Underlying EBITDA of the Bayer HealthCare subgroup advanced substantially to EUR 470 million (+27.4 percent) thanks to strong performances by both Pharmaceuticals and Consumer Health. This figure contains EUR 30 million from the Schering business in the period from June 23 through June 30, 2006. EBITDA of the Bayer CropScience subgroup before special items grew by 11.2 percent, due mainly to pleasing growth in sales in the Environmental Science, BioScience segment. The 3.2 percent rise in underlying EBITDA at Bayer MaterialScience was chiefly attributable to the Polyurethanes business.

Net Sales by Market		EBIT
Gross Cash Flow		Net Cash Flow

EBIT before special items climbed by 14.1 percent in the second quarter, to EUR 928 million (Q2 2005: EUR 813 million).

Special items in continuing operations totaled EUR 50 million, including a further EUR 20 million in expenses related to antitrust litigation and EUR 16 million in connection with a write-down on the battery business of H.C. Starck. After special items, EBIT for the second quarter of 2006 climbed by 24.2 percent to EUR 878 million (Q2 2005: EUR 707 million), while EBITDA advanced by 18.8 percent to EUR 1,308 million.

After a non-operating result of minus EUR 232 million, pre-tax income improved by 11.8 percent to EUR 646 million. The non-operating result included net interest expense of EUR 129 million (Q2 2005: EUR 80 million).

After tax expense of EUR 197 million, income after taxes from continuing operations came in at EUR 449 million (Q2 2005: EUR 410 million). Group net income after minority interests amounted to EUR 452 million (Q2 2005: EUR 406 million).

Benefiting from the positive business trend, gross cash flow improved by 11.2 percent to EUR 964 million (Q2 2005: EUR 867 million), while net cash flow from continuing operations came in EUR 85 million below the prior-year quarter, at EUR 895 million, due to an increase in working capital.

Net debt grew from EUR 5.7 billion on March 31, 2006 to EUR 19.9 billion on June 30, 2006, the EUR 14.2 billion increase being mainly due to the Schering acquisition.

Provisions for pensions and other post-employment benefits in continuing operations remained level compared to March 31, 2006, at EUR 6.2 billion. Provisions of EUR 0.4 billion taken over from Schering were offset by a decline of the same magnitude due to a further increase in capital market interest.

The Bayer Group’s operating performance in the first half of 2006 also improved compared to the corresponding period of the previous year. Sales from continuing operations grew by 8.5 percent to EUR 14,188 million. EBITDA before special items for the first six months of the year increased by 8.3 percent to EUR 2,952 million, compared to EUR 2,727 million for the first half of 2005. EBIT before special items advanced by 10.1 percent in the same period, to EUR 2,133 million (H1 2005: EUR 1,937 million). After special items, EBIT showed an even bigger improvement, rising by 15.5 percent to EUR 1,955 million.