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EU Industrial R&D Scoreboard: oil & gas R&D grows.

According to the European Commission's latest release of its annual EU Industrial R&D Investment Scoreboard, R&D spending growth accelerated in 2005. The Scoreboard compiles R&D spending and financial performance information for the 1,000 EU companies and the 1,000 non-EU companies that spend the most on R&D. In effect, the Scoreboard provides a broad assessment of R&D expenditures by company, country and industry for R&D-oriented companies, with an emphasis on EU firms. (Please note that companies included in the list of EU companies had to have a R&D investment of at least 2.67 million [euro] [$3.3 million = 0.80 [euro] = $1]. However, non-EU companies had a R&D threshold of 24.91 million euro [$31.1 million]. There are 338 EU companies with 2005 R&D investments of more than 24.91 million [euro], which account for 94% the 1,000 EU companies' R&D investments).

The survey finds that R&D spending by the 2,000 companies rose an average of 7% in 2005 to 371 billion [euro] ($463 billion). R&D spending by EU companies rose 5.3% to 112.9 billion [euro] ($141.1 billion) on average in 2006, a healthy increase after 2005's stagnant spending. R&D investments for companies in other regions, the majority of which are located in the US and Japan, grew 7.7% on average, up from 6.7% growth the year before, to 257.7 billion [euro] ($322.1 billion). R&D intensity, or the ratio of R&D to sales, grew 3.9% for non-EU companies and increased 2.5% for EU firms.

Interestingly, the industrial sector with the fastest growth rate for R&D investments in 2005 was not pharmaceuticals or biotechnology, but rather oil and gas. R&D spending for the 20 oil and gas companies in the survey rose 11.4% last year to 4.2 billion [euro] ($5.3 billion). Even though the pharmaceutical and biotechnology industries did not have the fastest R&D growth, their combined R&D investments represented the second largest share of R&D spending among the 15 industrial sectors in the survey at 18%, topped only by "Technology hardware and equipment" companies. In total, R&D spending by the 244 drug companies in the survey rose 8.4% to 68 billion [euro] ($85 billion) last year.

The table on page 8 gives selected R&D and capital investment information for the top 5 companies for seven industries that are major analytical instrument customers. The companies are listed in order by fiscal 2005 sales in euros. The graph on page 11 shows the total R&D spending of the survey companies according to the seven selected industry segments.

The European Commission will release an in-depth analysis later this year of the survey results.

However, as presented in the table on page 4, the released data shows some notable trends. In addition to the rapid growth for oil and gas R&D, another interesting result is the overall decline in R&D spending by the chemicals industry, especially among EU companies. However, some of the decrease can be attributed to restructuring among chemical companies. Among the survey companies reporting the largest declines in R&D spending last year were Bayer, Rhodia and Clariant. In fact, as shown in the table below, the three-year compound annual growth rates (CAGR) for R&D investments by Bayer and BASF each declined.

Pharmaceutical R&D spending also appears to have softened last year. R&D investments for the 133 pharmaceutical companies in the survey rose 7.9% in 2005, which was a far slower growth rate than the three-year CAGR for both EU and non-EU companies. It is also notable that R&D spending by the semiconductor industry topped 6% last year.

Due to the sustained increase in commodity prices, capital spending by companies in the chemicals, industrial metals, and oil and gas industries has risen. In fact, as the table shows, capital expenditures measured as the percentage of net sales for chemicals, industrial metals, and oil and gas each rose last year. Financial pressures on pharmaceutical and semiconductor companies appear to have negatively affected capital expenditures as capital spending as a percentage of sales fell for survey companies in these industries. Capital expenditure as a percentage of sales also rose for food producers, but at a much faster rate for EU companies.

[GRAPHIC OMITTED]
 R&D/Net
Industry 2005 R&D Chg. CAGR Sales Ratio

Location (# of Cos.) ([euro]M) 2004-05 3 yrs. 2005 2004
Biotech
EU (57) 1,207.62 10.5% 7.1% 21.5% 22.3%
Non-EU (54) 8,123.83 10.9% 15.4% 24.3% 25.3%
 9,331.45 10.8% 24.4% 24.9%
Chemicals
EU (49) 6,462.68 -8.0% -3.2% 3.3% 3.9%
Non-EU (74) 10,467.67 4.0% 2.4% 3.0% 3.3%
 16,930.35 -0.9% 3.1% 3.5%
Food Producers
EU (38) 1,896.63 -0.8% -0.6% 1.4% 1.4%
Non-EU (11) 1,870.54 5.9% 6.6% 1.7% 1.6%
 3,767.17 2.4% 1.5% 1.5%
Industrial Metals
EU (16) 874.39 2.2% 4.3% 0.6% 0.6%
Non-EU (16) 1,511.22 4.6% 4.3% 1.0% 1.1%
 2,385.61 3.7% 0.8% 0.8%
Oil & Gas Producers
EU (7) 1,887.42 3.8% 3.1% 0.3% 0.3%
Non-EU (13) 2,330.06 18.5% 10.2% 0.3% 0.3%
 4,217.48 11.4% 0.3% 0.3%
Pharmaceuticals
EU (64) 18,324.49 6.5% 9.9% 12.0% 12.1%
Non-EU (69) 40,608.51 8.6% 12.1% 13.8% 13.4%
 58,933.00 7.9% 13.2% 13.0%
Semiconductors
EU (26) 3,427.13 9.0% 11.6% 17.1% 15.9%
Non-EU (105) 20,536.48 5.8% 4.3% 13.3% 13.5%
 23,963.61 6.2% 13.8% 13.8%

 Cap. Ex. %
Industry R&D per Employee Net Sales

 2005 (000 2004 (000
Location (# of Cos.) [euro]) [euro]) Chg. 2005 2004

Biotech
EU (57) 47.7 43.3 24.3% 6.7% 5.9%
Non-EU (54) 87.0 81.7 3.0% 7.1% 9.8%
 81.9 76.7 6.8% 7.0% 9.2%
Chemicals
EU (49) 10.4 10.6 13.9% 5.1% 5.2%
Non-EU (74) 12.5 12.1 7.8% 5.7% 4.7%
 11.7 11.5 1.6% 5.5% 4.9%
Food Producers
EU (38) 2.9 2.9 5.8% 4.2% 3.8%
Non-EU (11) 4.3 4.1 12.9% 3.7% 3.6%
 3.6 3.5 3.7% 4.0% 3.7%
Industrial Metals
EU (16) 1.8 1.7 73.6% 4.3% 4.0%
Non-EU (16) 3.5 3.3 20.1% 7.9% 6.2%
 2.9 2.7 7.7% 6.1% 5.1%
Oil & Gas Producers
EU (7) 3.8 4.1 -2.9% 6.1% 5.6%
Non-EU (13) 2.0 1.7 18.4% 7.8% 7.5%
 2.8 2.8 -0.8% 7.0% 6.6%
Pharmaceuticals
EU (64) 34.8 33.4 14.5% 4.1% 4.3%
Non-EU (69) 47.2 44.1 8.7% 5.2% 5.6%
 43.3 40.7 6.4% 4.8% 5.2%
Semiconductors
EU (26) 31.1 30.0 7.5% 14.6% 16.1%
Non-EU (105) 36.5 35.1 -6.8% 13.8% 14.2%
 35.7 34.4 3.8% 13.9% 14.4%

 R&D R&D/ Cap. Ex.
 CAGR Net Sales Ratio % Net Sales
 3 yrs. 2005 2004 2005 2004

Biotech
Amgen 27.5% 18.6% 19.2% 7.0% 12.7%
Biogen Idec 101.9% 30.9% 30.6% 13.1% 16.3%
Serono 19.3% 23.5% 24.9% 5.9% 6.1%
Genzyme 18.1% 17.6% 17.2% 7.0% 8.5%
Kyowa Hakko 2.1% 9.3% 8.0% 2.6% 2.0%
Chemicals
Bayer -9.4% 6.9% 8.1% 4.7% 4.0%
du Pont 1.9% 5.0% 4.9% 5.0% 4.5%
BASF -1.5% 2.5% 3.1% 5.1% 5.1%
Dow 0.2% 2.3% 2.5% 3.4% 3.3%
Lyondell 44.8% 0.5% 0.7% 1.3% 1.4%
Food Producers
Nestle 7.5% 1.6% 1.6% 3.7% 3.8%
Unilever -6.5% 2.4% 2.6% 2.4% 2.5%
General Mills 5.1% 1.5% 1.5% 3.1% 3.7%
Danone -2.0% 0.9% 1.0% 4.6% 3.7%
Cadbury 21.9% 0.8% 0.9% 4.1% 4.3%
Indus. Metals
JFE n/a 1.3% 1.5% 6.1% 5.2%
Alcan 25.4% 1.1% 1.0% 9.0% 5.2%
POSCO 3.7% 0.9% 1.2% 12.8% 9.5%
ThyssenKrupp -0.9% 0.4% 0.5% 3.6% 3.4%
Arcelor -4.2% 0.4% 0.4% 6.3% 4.5%
Oil
TOTAL 0.7% 0.6% 0.5% 6.7% 5.6%
Exxon Mobil 4.1% 0.2% 0.2% 4.4% 4.5%
Shell 7.6% 0.2% 0.2% 5.1% 4.7%
BP 10.4% 0.2% 0.2% 5.1% 4.6%
Chevron 12.7% 0.2% 0.2% 5.0% 4.8%
Pharmaceuticals
Pfizer 12.9% 14.5% 14.6% 4.1% 5.0%
J&J 16.8% 12.5% 11.0% 5.2% 4.6%
GSK 2.2% 14.5% 13.9% 4.6% 4.9%
Novartis 13.7% 15.0% 14.9% 3.7% 4.5%
Sanofi-Aventis 49.2% 14.8% 15.6% 0.0% 0.0%
Semiconductors
Intel 8.0% 13.3% 14.0% 15.0% 11.2%
Texas Instr. 7.6% 15.0% 15.7% 9.9% 10.3%
STMicroelec. 18.0% 17.5% 16.5% 16.2% 23.4%
Infineon Tech. 8.8% 18.4% 15.9% 20.7% 16.2%
Applied Mat. -3.7% 13.5% 12.4% 2.9% 2.4%
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Comment:EU Industrial R&D Scoreboard: oil & gas R&D grows.
Publication:Instrument Business Outlook
Geographic Code:4E
Date:Oct 15, 2006
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