Bayer Successful in a Difficult Environment

The Bayer Group2009 was operationally one of the strongest years for the Bayer Group. "We were successful in a difficult environment, and we are optimistic for the future," said Werner Wenning, Chairman of the Board of Management, on Friday at the Financial News Conference in Leverkusen. Earnings before interest, taxes, depreciation and amortization (EBITDA) before special items came in at EUR 6,472 million, the third-highest level in Bayer's history. Net cash flow climbed by 49 percent to a record EUR 5,375 million, enabling net financial debt to be reduced by EUR 4.5 billion - a greater amount than planned - to EUR 9.7 billion. Group sales moved back by 5.3 percent to EUR 31,168 million (2008: EUR 32,918 million). The currency- and portfolio-adjusted (Fx & portfolio adj.) decrease was 5.7 percent. Sales of HealthCare and CropScience rose by 3.8 and 2.5 percent (Fx & portfolio adj.), respectively, to record levels. Business at MaterialScience, however, shrank by 24.7 percent (Fx & portfolio adj.) due to the economic situation. Wenning expects sales and earnings to rise in 2010.

"We came close to reaching our ambitious goal of limiting the decline in earnings against the record 2008 level to approximately 5 percent," Wenning explained. EBITDA before special items was down 6.6 percent to EUR 6,472 million (2008: EUR 6,931 million). Currency effects diminished earnings by about 2 percentage points, or some EUR 140 million, of which the fourth quarter alone accounted for EUR 80 million. The EBITDA margin before special items receded slightly in 2009 to 20.8 percent (2008: 21.1 percent). The operating result (EBIT) before special items moved back by 13.1 percent to EUR 3,772 million (2008: EUR 4,342 million).

HealthCare reaches target margin
"2009 was another strong year for HealthCare," Wenning explained. Sales of this subgroup advanced by 3.8 percent (both nominally and when adjusted for currency and portfolio effects) and came in at EUR 15,988 million (2008: EUR 15,407 million). This growth was driven by positive business trends in both the Pharmaceuticals and the Consumer Health segments, particularly in the emerging markets.

The Pharmaceuticals segment raised sales by 4.4 percent (Fx & portfolio adj. 4.8 percent) to EUR 10,467 million. Business showed an encouraging improvement in the Asia/Pacific and Latin America/Africa/Middle East regions, and this more than offset a slight decline in North America. Sales of the cancer drug Nexavar® developed particularly well, increasing by 27.9 percent on a currency-adjusted (Fx adj.) basis. The highest growth rates among HealthCare’s other top products were registered by Aspirin® Cardio to protect against myocardial infarction (Fx adj. 14.9 percent) and the antihypertensive Kinzal®/Pritor® (Fx adj. 14.5 percent). Sales of the subgroup's best-selling products - the oral contraceptives of the YAZ® family and the multiple sclerosis drug Betaferon®/ Betaseron® - also increased by 4.7 and 5.7 percent (Fx adj.), respectively.

Sales in the Consumer Health segment advanced by 2.7 percent (Fx & portfolio adj. 2.1 percent) to EUR 5,521 million, with all divisions contributing to growth. The increase was largely attributable to significant sales gains in Russia and China, which offset a weaker business trend in the United States. In the non-prescription medicines business (Consumer Care), the Bepanthen®/Bepanthol® line of skincare products performed particularly well, with sales up 10.3 percent (Fx adj.). Business with Contour® blood glucose meters - the top product of the Medical Care Division - moved forward by 7.3 percent (Fx adj.). In the Animal Health business, the antiparasitic agent Baycox® turned in a particularly strong performance, with sales up by 15.6 percent (Fx adj.).

EBITDA before special items of HealthCare climbed by 7.5 percent in 2009, to EUR 4,468 million (2008: EUR 4,157 million). "The EBITDA margin before special items came in at 27.9 percent (2008: 27.0 percent), meeting the target set for the year despite significant negative currency effects," Wenning said. The growth in earnings was largely attributable to the positive business trend and to lower selling and administration expenses. These savings resulted from the integration of Schering, Berlin, Germany, and further cost containment measures.

Bayer is also making progress with the new antithrombotic drug Xarelto®. The large study programs for the drug with the active ingredient rivaroxaban, which Bayer is developing together with its partner Johnson & Johnson, are running according to plan. Wenning said that new and important study data are expected during the course of this year. First filings for stroke prevention in patients with atrial fibrillation and for the treatment of deep vein thrombosis are currently targeted for the second half of 2010. Also in the second half of 2010, it is planned to submit a response to the "complete response letter" issued by the FDA relating to the U.S. application for the prophylaxis of venous thromboembolism in patients undergoing hip or knee replacement surgery.

CropScience gains further market share
CropScience gained further market share in 2009, improving sales by 2.0 percent to EUR 6,510 million (2008: EUR 6,382 million). After adjusting for currency and portfolio effects, sales rose by 2.5 percent. "Higher selling prices and increased volumes contributed to the increase," Wenning explained.

Sales in the Crop Protection segment rose by 1.6 percent (Fx adj. 2.3 percent) to EUR 5,424 million. Despite a shrinking market overall, with lower producer prices and unfavorable weather conditions in major agricultural markets, CropScience significantly expanded its herbicides business in particular. "Our young products once again achieved above-average growth: We generated sales of EUR 2 billion with products based on active ingredients introduced to the market since 2000, thus achieving an important target," the Bayer CEO stressed.

In the Environmental Science, BioScience segment, sales advanced by 4.1 percent (Fx & portfolio adj. 4.0 percent) to EUR 1,086 million. BioScience saw sales move ahead by a gratifying 12.3 percent (Fx & portfolio adj.) to exceed half a billion euros for the first time. The canola seed business in North America was a key growth driver here, and Bayer also further increased sales of its hybrid rice seed and vegetable seed in Europe, Asia and the Middle East. By contrast, sales were down by 2.4 percent (Fx adj.) at Environmental Science. This was due particularly to lower sales of green industry products for professional users in the United States, while sales to private consumers increased.

EBITDA before special items of CropScience receded by 5.9 percent to EUR 1,508 million (2008: EUR 1,603 million). The EBITDA margin before special items declined, as recently predicted, to 23.2 percent (2008: 25.1 percent). This drop in earnings was due primarily to higher raw material costs and negative currency effects, which were only partly offset by earnings contributions from the expansion of business.

Marked recovery at MaterialScience in the course of the year
As expected, the high-tech materials business in 2009 was dominated by the effects of the global financial and economic crisis. Sales of MaterialScience receded by 22.8 percent (Fx & portfolio adj. 24.7 percent) to EUR 7,520 million (2008: EUR 9,738 million). This decline was due almost equally to lower selling prices and a drop in volumes. "Whereas sales throughout the world fell sharply at the beginning of 2009, business recovered markedly as the year progressed," Wenning pointed out.

Business with raw materials for foams (Polyurethanes) shrank by 27.4 percent (Fx & portfolio adj.) year on year. Sales of high-performance plastics (Polycarbonates) fell by 22.8 percent (Fx adj.). The Coatings, Adhesives, Specialties unit registered a decline of 19.5 percent (Fx & portfolio adj.).

After a very weak first quarter, the earnings situation at MaterialScience also improved considerably. Contributory factors here were lower raw material and energy costs and the savings resulting from the restructuring program initiated in 2007. In addition, the company initiated further cost-saving measures in response to the weak market conditions caused by the economic situation. However, EBITDA before special items for the full year was down substantially, dropping to EUR 446 million from EUR 1,088 million in the previous year.

Larger drop in net financial debt than expected
In 2009 earnings were again diminished by a number of special items that led to a net charge of EUR 766 million (2008: EUR 798 million). These factors related particularly to the successful integration of Schering, to restructuring measures and to litigations. "Last year we completed our restructuring programs. We do not expect to take special charges for restructuring programs in 2010," Wenning stated. However, steadily improving efficiency and the cost base remains part of the company’s daily work, the Bayer CEO explained.

After special items, EBIT for the full year 2009 came in at EUR 3,006 million (2008: EUR 3,544 million). Net income declined to EUR 1,359 million (2008: EUR 1,719 million), and core earnings per share were EUR 3.64 (2008: EUR 4.17).

Gross cash flow of the Bayer Group fell by 12.0 percent to EUR 4,658 million (2008: EUR 5,295 million) due to the weak business performance at MaterialScience. However, net cash flow climbed by 49.0 percent to EUR 5,375 million (2008: EUR 3,608 million). "This gratifying increase was largely due to the success of our Group-wide working capital initiative," explained CFO Klaus Kühn. Bayer’s strict capital discipline also contributed to a significant reduction in financial debt, Kühn said. Net financial debt dropped more sharply than planned, amounting to EUR 9.7 billion on December 31, 2009 (2008: EUR 14.2 billion). This decline included EUR 2.3 billion resulting from the conversion of the mandatory convertible bond.

Fourth-quarter earnings significantly above the previous year
Bayer's performance in the fourth quarter of 2009 showed a marked recovery from the prior-year period. "Operationally the fourth quarter was exceptionally successful for Bayer in a year that was otherwise dominated by the crisis," Kühn said. Although sales dipped by 0.6 percent to EUR 7,872 million (Q4 2008: EUR 7,923 million), business expanded by 3.4 percent on a currency- and portfolio-adjusted basis. All three subgroups contributed to this expansion. HealthCare grew by 5.9 percent (Fx & portfolio adj.), while sales at CropScience increased by 6.2 percent (Fx & portfolio adj.). MaterialScience improved by 1.0 percent (Fx adj.). Although negative currency effects diminished earnings by approximately EUR 80 million, EBITDA before special items of the Bayer Group advanced by 11.5 percent to EUR 1,513 million (Q4 2008: EUR 1,357 million), while EBIT before special items rose by 15.7 percent to EUR 817 million (Q4 2008: EUR 706 million). Net income climbed by 44.3 percent to EUR 153 million (Q4 2008: EUR 106 million), while core earnings per share amounted to EUR 0.90 (Q4 2008: EUR 0.71).

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