Bayer lifts sales and earnings again

Interim report for the third quarter of 2010: Bayer lifts sales and earnings again Sales grow by 16.1 percent to EUR 8,581 million / EBITDA before special items up 10.5 percent to EUR 1,656 million / Core earnings per share increase by 21.8 percent to EUR 0.95 / Provisions of EUR 436 million established for litigations / Net financial debt reduced by EUR 1.6 billion to EUR 9.1 billion / Group outlook for 2010 confirmed

Leverkusen, October 28, 2010 - The Bayer Group significantly raised sales and underlying earnings in the third quarter of 2010. "We are pleased that our third-quarter results showed an improvement on last year, and we remain confident for the full year 2010," Management Board Chairman Dr. Marijn Dekkers said on Thursday following the publication of the interim financial report. MaterialScience contributed particularly to the positive business trend in the period from July to September. CropScience also grew sales and improved its operating performance. HealthCare sales held steady, with earnings slightly below the prior-year period. Exchange rates had a positive effect on earnings, especially at HealthCare and CropScience.

Sales of the Bayer Group rose by 16.1 percent in the third quarter, to EUR 8,581 million (Q3 2009: EUR 7,392 million). Adjusted for currency and portfolio effects, business expanded by 8.4 percent. Earnings before interest, taxes, depreciation and amortization (EBITDA) - before special items - improved by 10.5 percent to EUR 1,656 million (Q3 2009: EUR 1,499 million). The increase was due especially to the sharp rise in earnings at MaterialScience and also to positive currency effects. The operating result (EBIT) before special items advanced by 18.5 percent to EUR 992 million (Q3 2009: EUR 837 million).

Consumer Health posts growth in all regions

Sales of the HealthCare subgroup rose by 8.5 percent in the third quarter, to EUR 4,271 million (Q3: 2009: EUR 3,936 million). Adjusted for currency and portfolio effects (Fx & portfolio adj.), business expanded by 0.9 percent.

The Pharmaceuticals segment raised sales by 7.2 percent (Fx & portfolio adj. 0.0 percent) to EUR 2,732 million. Business expanded strongly in the emerging markets. However, the health care reforms in various countries had negative consequences, and business was sharply down in North America. This was mainly due to significantly lower sales of the oral contraceptive YAZ® in the face of generic competition in the United States. If YAZ® sales in the United States are factored out, revenues in the Pharmaceuticals segment improved by 4.4 percent (Fx & portfolio adj.) year on year. Among the segment’s top products, the hormone-releasing intrauterine device Mirena® performed particularly well, with sales up 20.7 percent on a currency-adjusted (Fx adj.) basis. Strong growth was also registered by the hemophilia medication Kogenate® at plus 6.9 percent (Fx adj.), Aspirin® Cardio for prophylaxis of myocardial infarction at plus 12.8 percent (Fx adj.) and the erectile dysfunction drug Levitra® at plus 9.4 percent (Fx adj.). Sales of the multiple sclerosis drug Betaferon®/Betaseron® edged 1.2 percent higher (Fx adj.).

Sales of the Consumer Health segment advanced by 10.9 percent (Fx & portfolio adj. 2.6 percent) in the third quarter, to EUR 1,539 million, with all regions contributing to this growth. The non-prescription medicines business (Consumer Care) turned in a very pleasing performance, especially in North America. Among the top products, the One-A-Day® line of dietary supplements achieved the largest sales gain, at plus 20.3 percent (Fx adj.). The analgesics Aleve® and Aspirin® expanded by a currency-adjusted 18.2 and 3.4 percent, respectively. The skincare products Bepanthen®/Bepanthol® improved by 14.3 percent (Fx adj.). The Medical Care Division was affected by the negative development of the U.S. diabetes care market, which also held back sales of Contour® blood glucose measurement systems. Sales of this product line fell by 6.5 percent (Fx adj.) overall. The Animal Health Division benefited from a number of factors, including the success of the Advantage® line of flea, tick and worm control products, sales of which rose by 7.5 percent (Fx adj.).

EBITDA before special items of HealthCare receded by 3.7 percent to EUR 1,099 million (Q3 2009: EUR 1,141 million) due to higher selling expenses in both segments. Research and development spending also increased. However, these factors were partially offset by positive currency effects.

Solid quarter for CropScience

CropScience raised third-quarter sales by 17.6 percent (Fx & portfolio adj. 8.3 percent) to EUR 1,341 million (Q3 2009: EUR 1,140 million) in a much improved market environment. The increased demand resulted from significantly lower inventories in the distribution channels and higher prices for agricultural raw materials. Selling prices were at approximately the level of the prior-year quarter.

Sales in the Crop Protection segment moved ahead by 16.1 percent (Fx adj. 7.4 percent) to EUR 1,130 million. Fungicides, insecticides and herbicides posted good growth rates, but sales of seed treatment products receded, particularly in France and Germany. Thanks to a good performance by all business units, Crop Protection sales in North America rose by 49.1 percent (Fx adj.) compared to the unusually weak prior-year quarter. Business also expanded by 5.2 percent (Fx adj.) and 6.8 percent (Fx adj.), respectively, in the Asia/Pacific and Latin America/Africa/Middle East regions. In Europe, however, sales fell by 3.1 percent (Fx adj.).

In the Environmental Science, BioScience segment, sales climbed by 26.3 percent (Fx & portfolio adj. 13.5 percent) to EUR 211 million. Those of the Environmental Science business unit moved back by 3.5 percent (Fx adj.), due largely to a decline in sales of products for private consumers in the United States attributable to unfavorable weather conditions. The BioScience business unit raised sales by 52.7 percent (Fx & portfolio adj.) thanks mainly to strong increases for vegetable seeds. Significantly higher sales in cotton and sales gains for canola and rice contributed substantially to the growth in business.

EBITDA before special items of CropScience advanced by 16.7 percent to EUR 126 million (Q3 2009: EUR 108 million), due especially to the growth in business at Crop Protection and also to positive currency effects. The increase in research and development expenses at BioScience was more than offset.

Substantial increases in sales and earnings at MaterialScience

Business with high-tech materials improved markedly against the prior-year quarter, which was weak due to the economic situation. Sales of MaterialScience were up by 30.8 percent (Fx adj. 23.0 percent), to EUR 2,665 million (Q3 2009: EUR 2,038 million), the growth in business being mainly due to significantly higher demand in the main customer industries. The company also achieved a distinct increase in selling prices overall.

Business with foam raw materials (Polyurethanes) expanded by 22.7 percent (Fx adj.) thanks to marked volume increases in all products and regions. The largest volume gains were achieved in Asia/Pacific. The trend was similar in the Europe region, which last year was still weighed down by the economic crisis. The high-tech plastics (Polycarbonates) business also developed very well, with sales advancing by 28.7 percent (Fx adj.). Sales of raw materials for coatings, adhesives and specialties grew by 17.6 percent (Fx adj.). This was largely due to significant volume increases in all product groups and regions, with demand picking up noticeably in Asia/Pacific and Europe in particular.

EBITDA before special items of MaterialScience rose significantly to EUR 409 million (Q3 2009: EUR 238 million) due to substantial volume gains, higher selling prices and efficiency improvements. On the other hand, earnings were hampered by the increase in raw material costs.

Provisions established for litigations in the United States

Earnings in the third quarter were diminished by special charges totaling EUR 436 million (Q3 2009: EUR 191 million). These were related to litigations in the United States. Of this amount, EUR 386 million was attributable to CropScience and arose mainly for an intended settlement program in connection with litigations concerning genetically modified rice (LL RICE). Special charges of EUR 50 million were taken at HealthCare for further anticipated defense costs in connection with YAZ®/Yasmin®. EBIT of the Bayer Group fell by 13.9 percent to EUR 556 million (Q3 2009: EUR 646 million).

The non-operating result of minus EUR 267 million was at the level of the prior-year period (Q3 2009: minus EUR 262 million). Tax expense in the third quarter came to only EUR 4 million (Q3 2009: EUR 135 million) due to the regional earnings distribution. Net income improved by 12.4 percent to EUR 280 million (Q3 2009: EUR 249 million). Core earnings per share rose by 21.8 percent to EUR 0.95 (Q3 2009: EUR 0.78).

Gross cash flow was down by 25.0 percent year on year at EUR 879 million (Q3 2009: EUR 1,172 million). However, this was mainly due to litigation-related provisions not yet reflected in net cash flow. There was a 2.5 percent improvement in net cash flow, to EUR 1,555 million (Q3 2009: EUR 1,517 million). Net financial debt was considerably reduced in the third quarter of 2010 - from EUR 10.7 billion to EUR 9.1 billion.

Strong growth in the first three quarters

Sales and earnings of the Bayer Group increased significantly in the first three quarters of 2010, benefiting especially from the tangible recovery at MaterialScience and positive currency effects. Sales advanced by 11.9 percent (Fx and portfolio adj. 7.9 percent) to EUR 26,076 million (9M 2009: EUR 23,296 million). EBITDA before special items grew by 10.7 percent to EUR 5,491 million (9M 2009: EUR 4,959 million), while EBIT before special items improved by 19.3 percent to EUR 3,526 million (9M 2009: EUR 2,955 million). EBIT rose by 4.5 percent to EUR 2,758 million (9M 2009: EUR 2,640 million); net income was up by 24.2 percent to EUR 1,498 million (9M 2009: EUR 1,206 million). Core earnings per share rose by 20.4 percent to EUR 3.30 (9M 2009: EUR 2.74).

Continued optimism for the full year 2010

Bayer remains optimistic for 2010 and confirms its full-year forecast for the Group. The company continues to target currency- and portfolio-adjusted sales growth of over 5 percent, aiming to increase EBITDA before special items to more than EUR 7 billion. Core earnings per share are still expected to improve by more than 15 percent. The company’s expectations are based on the exchange rates prevailing at the end of the third quarter of 2010.

HealthCare forecasts a slight increase in sales after adjusting for currency and portfolio effects. The subgroup expects sales in the Pharmaceuticals segment to remain level year on year on a currency- and portfolio-adjusted basis and plans to expand the Consumer Health business faster than the market. HealthCare is still aiming for EBITDA before special items to at least match the prior year. However, in view of the business performance so far and the appreciation of the euro, this is considered an ambitious target.

In the currently positive market environment, CropScience plans to grow fourth-quarter sales compared to the prior-year period on a currency- and portfolio-adjusted basis. Against the background of the weak first half, the subgroup continues to anticipate that sales for the full year 2010 will come in slightly below the prior-year level. CropScience expects a substantial year-on-year decline in EBITDA before special items.

MaterialScience remains optimistic about its business for the rest of the year, too. For the seasonally weaker fourth quarter, the subgroup expects that sales and EBITDA before special items will be well below the strong third quarter of 2010 but significantly above the fourth quarter of last year. For the full year 2010, the subgroup anticipates sales in the region of EUR 10 billion and EBITDA before special items in excess of EUR 1.3 billion, which would be about three times the prior-year earnings level. Overall, the MaterialScience business has recovered impressively and more quickly than expected. This means MaterialScience will meet its original target of returning to the pre-crisis sales level by 2012 much earlier than planned.

"We will have to thoroughly address the current challenges, particularly at HealthCare and CropScience," said Dekkers. However, Bayer’s confidence does not only apply to this year. Summing up, the Bayer CEO said: "We also see very good perspectives for our business in the long term."

Also available on the Internet at http://www.press.bayer.com are: - the complete Financial Report as of September 30, 2010 - the transcript and slides of Dr. Marijn Dekkers’ address (from approximately 10:00 a.m. CEST)

Supplementary features at http://www.live.bayer.com: - live webcast of the news conference call (from approximately 10:00 a.m. CEST) - recording of the news conference call (from approximately 2:00 p.m. CEST)

TV editors can download or order up-to-date film footage about Bayer free of charge at http://www.bayer-tv.com.

Forward-Looking Statements This news release may contain forward-looking statements based on current assumptions and forecasts made by Bayer Group or subgroup management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in Bayer’s public reports which are available on the Bayer website at http://www.bayer.com. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.

 

Posted: October 2010


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