Bayer achieves strong gains in sales and earnings

Sales of the Bayer Group rose by 5.3 percent in the first quarter to EUR 8,316 million (Q1 2009: EUR 7,895 million). Adjusted for currency and portfolio effects, business grew by 6.2 percent. Earnings before interest, taxes, depreciation and amortization (EBITDA) – before special items – expanded by 13.2 percent to EUR 1,918 million (Q1 2009: EUR 1,695 million). The EBITDA margin before special items climbed to 23.1 percent (Q1 2009: 21.5 percent). The operating result (EBIT) before special items improved by 25.3 percent to EUR 1,274 million (Q1 2009: EUR 1,017 million).

Solid quarter for HealthCare

Sales of the HealthCare subgroup rose by 0.7 percent in the first quarter, to EUR 3,869 million (Q1 2009: EUR 3,843 million). The currency- and portfolio-adjusted (Fx & portfolio adj.) increase was 2.6 percent. “This growth was due primarily to the pleasing business trend in the Consumer Health segment,” Wenning explained.

Sales of the Pharmaceuticals segment receded by 2.2 percent to EUR 2,531 million, but moved forward by 0.6 percent on a currency- and portfolio-adjusted basis. Business expanded in the North America and Asia/Pacific regions, but declined in Europe. The highest growth rates among our top products were posted by the hormone-releasing intrauterine device Mirena® with a currency-adjusted (Fx adj.) 16.5 percent increase and the cancer drug Nexavar® with 16.0 percent (Fx adj.). Positive performances were also registered by the antihypertensive drug Kinzal®/Pritor® with plus 12.6 percent (Fx adj.) and the antibiotic Avalox®/Avelox® with plus 8.0 percent (Fx adj.). Business with the YAZ® family of oral contraceptives declined by 10.2 percent (Fx adj.). Demand for this product in the United States suffered particularly from the discussion surrounding the thrombosis risk of contraceptives containing drospirenone. However, Bayer continues to believe that the risk profile is comparable to that of other combination oral contraceptives. This view is supported primarily by the results of two prospective observational studies in the U.S. and Europe with more than 120,000 users. Sales of the multiple sclerosis drug Betaferon®/Betaseron® fell by 5.0 percent (Fx adj.), mainly because of a decline in Europe.

Sales in the Consumer Health segment advanced by 6.5 percent (Fx & portfolio adj. 6.8 percent) to EUR 1,338 million, with all divisions contributing to this growth. Business developed particularly well in the United States, where demand was boosted by the gradual recovery in the economy. In the non-prescription medicines business (Consumer Care), particularly strong growth was registered by the analgesic Aleve®/naproxen with plus 40.9 percent (Fx adj.) and the multivitamin product One-A-Day® with plus 22.4 percent (Fx adj.). Business with the Contour® line of blood glucose meters – the top product of the Medical Care Division – improved by 4.6 percent (Fx adj.).

First-quarter EBITDA before special items of HealthCare climbed by 1.7 percent to EUR 1,079 million (Q1 2009: EUR 1,061 million). This increase was attributable to a substantial rise in earnings in the Consumer Health segment, whereas earnings of Pharmaceuticals declined due to a portfolio change and higher expenditures for research and development.

Delayed start to the season at CropScience

Sales of CropScience fell by 7.9 percent (Fx & portfolio adj. 10.0 percent) year on year in the first quarter to EUR 1,952 million (Q1 2009: EUR 2,120 million). “This was mainly due to adverse weather conditions in several important growing regions,” said Wenning. Other contributory factors were high product inventories in the distribution channels and lower prices for major agricultural commodities such as wheat and corn. By contrast, the market environment for high-quality seed was relatively favorable. Overall, business got off to a weak start but picked up again significantly toward the end of the quarter.

Crop Protection sales declined by 14.9 percent (Fx adj. 16.4 percent) to EUR 1,476 million. While sales in each of the business units Herbicides, Fungicides and Seed Treatment were down by more than 18 percent due largely to the long winter in the northern hemisphere, Insecticides posted a 2.1 percent increase. The steepest declines occurred in North America, where sales dropped by 29.4 percent overall. Here the market was heavily impacted by the cold weather, which delayed sowing, and by the drought in Canada. In addition, CropScience considerably reduced prices for the canola herbicide Liberty® in Canada and the herbicide Ignite® in the United States. Prices for canola seed were increased, however. The start to the spring season was also delayed in Europe, where Crop Protection sales receded by 14.5 percent. Business shrank by 1.9 in the Asia/Pacific region and 4.6 percent in Latin America/Africa/Middle East.

Sales of the Environmental Science, BioScience segment rose by a gratifying 23.3 percent (Fx & portfolio adj. 18.6 percent) to EUR 476 million. In the BioScience business unit, sales were up by 37.8 percent (Fx & portfolio adj. 29.4 percent). This growth was due primarily to markedly higher sales in cotton, canola and vegetables. Sales of the Environmental Science business unit rose by 3.7 percent (Fx adj. 3.9 percent). Business with products for private consumers improved particularly in the United States, but also in Europe. However, sales of products for professional users fell slightly year on year.

EBITDA before special items of CropScience receded by 24.2 percent to EUR 559 million (Q1 2009: EUR 737 million). This was mainly due to the weak business development in Crop Protection, higher production and idle capacity costs, and increased research expenses, particularly at BioScience.

MaterialScience much stronger

The high-tech materials business got off to a successful start in 2010. Sales of MaterialScience were up by 35.5 percent (Fx adj. 37.9 percent), to EUR 2,216 million (Q1 2009: EUR 1,636 million) from the very weak prior-year quarter, which was weighed down by the economic and financial crisis. Business in this subgroup also gained 9.9 percent over the fourth quarter of 2009. “All business units contributed to this significant improvement with higher volumes and selling price increases,” Wenning reported.

Business with raw materials for foams (Polyurethanes) expanded by 33.4 percent (Fx adj.) in the first quarter, with double-digit growth rates for all product groups. There were even greater increases in sales of Polycarbonates (Fx adj. plus 56.9 percent) and raw materials for Coatings, Adhesives and Specialties (Fx adj. plus 52.6 percent).

EBITDA before special items of MaterialScience improved markedly to EUR 287 million, against a loss of EUR 116 million in the prior-year quarter. This positive performance was mainly the result of considerably higher volumes and the related increase in capacity utilization at our production facilities.

Net financial debt remains level – net income rises significantly

Earnings in the first quarter were diminished by special charges of EUR 77 million (Q1 2009: EUR 44 million), relating entirely to litigations at HealthCare and CropScience. After special items, EBIT in the first three months advanced by 23.0 percent to EUR 1,197 million (Q1 2009: EUR 973 million). Net income climbed by 63.1 percent to EUR 693 million (Q1 2009: EUR 425 million), while core earnings per share improved by 31.9 percent to EUR 1.20 (Q1 2009: EUR 0.91).

Gross cash flow increased by 5.1 percent to EUR 1,271 million (Q1 2009: EUR 1,209 million), due especially to the upward business trend at MaterialScience, while net cash flow rose by 5.6 percent to EUR 732 million (Q1 2009: EUR 693 million). Despite the seasonal expansion of business in the first quarter and negative currency effects, net financial debt as of March 31 remained level with the end of 2009 at EUR 9.7 billion.

Over 15 percent growth in core earnings per share planned for 2010

“The global economic recovery is likely to continue this year,” Wenning predicted. However, he said the prospects remain uncertain, which means 2010 will not be an easy year either. “Yet we are optimistic about the future and intend to build on the positive developments prior to 2009,” the Bayer Chairman stressed. The decline in business momentum at HealthCare and CropScience is being offset by the recovery at MaterialScience, which is progressing faster than expected.

For the current year, Bayer is targeting currency- and portfolio-adjusted sales growth of more than 5 percent. Since, in addition, currency parities have so far trended more favorably than anticipated, the Bayer Group is raising its earnings forecast. The company now aims to increase EBITDA before special items to more than EUR 7 billion (previously: toward EUR 7 billion). Core earnings per share are expected to improve by more than 15 percent (previously: about 10 percent). Bayer’s estimates are based on the exchange rates prevailing at the end of the first quarter – for example, US$1.35 (previously: US$1.40) to the euro.

The 2010 sales forecast for HealthCare has been adjusted in light of the business trend in the first quarter: the subgroup anticipates below-market growth for Pharmaceuticals, but expects to expand faster than the market in Consumer Health. This corresponds to currency- and portfolio-adjusted growth for HealthCare of about 3 percent (previously: about 5 percent). The subgroup is targeting a further increase in EBITDA before special items.

Following the delayed start to the season due to weather conditions, business at CropScience has now gained momentum. Despite this, the subgroup now anticipates lower sales growth in view of the weak market development in the first quarter. CropScience is adhering to its goal of achieving slightly above-market growth in 2010, and now expects to post a currency- and portfolio-adjusted sales increase of between 2 and 3 percent (previously: approximately 4 percent) and EBITDA before special items level with the prior year (previously: a small increase).

MaterialScience anticipates a continuing recovery in the markets relevant to its business. In light of this, the subgroup is targeting a sales increase in the region of 20 percent (previously: more than 10 percent) on a currency- and portfolio-adjusted basis in 2010. MaterialScience plans to more than double (previously: considerably increase) EBITDA before special items. In the second quarter of 2010, the subgroup anticipates further growth in sales and an improvement in EBITDA before special items compared with the first quarter of the year.