Management Report
Bayer lifts sales and earnings again
- Q3 sales €8.6 billion (+16.1%)
- EBITDA before special items €1.7 billion (+10.5%)
- Core earnings per share €0.95 (+21.8%)
- Provisions of €0.4 billion for litigations
- Net financial debt reduced to €9.1 billion
- Group outlook for 2010 confirmed
1. Overview of Sales, Earnings and Financial Position
Third Quarter of 2010
The Bayer Group achieved significant gains in sales and earnings in the third quarter of 2010, as in the two preceding quarters. The continued recovery in the MaterialScience business was a key factor in this improvement. CropScience grew sales and improved its operating performance. HealthCare sales held steady, with earnings slightly down fom the prior-year period. Exchange rates had a positive effect on earnings, especially at HealthCare and CropScience.
Group sales rose by 16.1% to €8,581 million (Q3 2009: €7,392 million). Adjusted for currency and portfolio effects (Fx & portfolio adj.), business expanded by 8.4%. Sales of HealthCare increased by 8.5% (Fx & portfolio adj. +0.9%). While the Pharmaceuticals business stagnated due to lower sales in North America, Consumer Health posted growth. The second half got off to a successful start at CropScience, where sales climbed by 17.6% (Fx & portfolio adj. +8.3%) in a positive market environment. Sales of MaterialScience were up by a substantial 30.8% (Fx adj. +23.0%) compared to the prior-year quarter, which was weak due to the economic situation.
EBITDA before special items of the Bayer Group improved by 10.5% to €1,656 million (Q3 2009: €1,499 million). The increase was due especially to the sharp rise in earnings at MaterialScience and also to positive currency effects. The EBITDA margin before special items came in at 19.3% (Q3 2009: 20.3%).
HealthCare generated EBITDA before special items of €1,099 million (Q3 2009: €1,141 million). EBITDA before special items of CropScience advanced by 16.7% to €126 million (Q3 2009: €108 million). At MaterialScience, EBITDA before special items came to €409 million (Q3 2009: €238 million). Third-quarter EBITDA of the Bayer Group came in at €1,220 million (Q3 2009: €1,326 million).
EBIT before special items improved by 18.5% to €992 million (Q3 2009: €837 million). Here the third quarter of 2010 was hampered by special charges totaling €436 million (Q3 2009: €191 million). These were related to litigations in the United States. Of this amount, €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 €50 million were taken at HealthCare in connection with litigations concerning YAZ®/Yasmin®. EBIT of the Bayer Group fell by 13.9% to €556 million (Q3 2009: €646 million).
After a non-operating result of minus €267 million (Q3 2009: minus €262 million), income before income taxes in the third quarter of 2010 came in at €289 million (Q3 2009: €384 million). The main components of the non-operating result were €141 million (Q3 2009: €121 million) in net interest expense, €89 million (Q3 2009: €104 million) in interest cost for pension and other provisions and a €25 million (Q3 2009: €28 million) exchange loss. Tax expense in the third quarter amounted to only €4 million (Q3 2009: €135 million) due to the regional earnings distribution. Income after taxes increased to €285 million (Q3 2009: €249 million), of which €5 million (Q3 2009: €0 million) was attributable to non-controlling interest.
Net income therefore came in at €280 million (Q3 2009: €249 million). Earnings per share were €0.34 (Q3 2009: €0.30). Core earnings per share rose to €0.95 (Q3 2009: €0.78). For calculation details see
"Core Earnings Per Share." Gross cash flow of the Bayer Group was down by 25.0% year on year at €879 million (Q3 2009: €1,172 million). The decrease was mainly due to litigation-related provisions not yet reflected in net cash flow. Net cash flow rose by 2.5% to €1,555 million (Q3 2009: €1,517 million), partly as a result of more effective working capital management.
We considerably reduced the net financial debt of the Bayer Group in the third quarter of 2010, from €10.7 billion to €9.1 billion (-14.6%). Contributing to this improvement were cash inflows from operating activities and €0.4 billion in positive currency effects. The net pension liability increased from €7.7 billion to €8.2 billion in the third quarter of 2010, due especially to lower long-term capital market interest rates.
First three quarters of 2010
Sales and earnings of the Bayer Group increased significantly in the first three quarters of 2010, benefiting especially from the tangible recovery in the MaterialScience business and from positive currency effects.
Sales rose by 11.9% to €26,076 million (9M 2009: €23,296 million). Business expanded by 7.9% on a currency- and portfolio-adjusted basis. HealthCare sales edged forward by 1.8% (Fx & portfolio adj.). Sales of CropScience dropped by 4.3% (Fx & portfolio adj.) due to the weak first half. MaterialScience registered significant growth of 33.2% (Fx adj.) in the wake of the economic recovery.
EBITDA before special items increased by 10.7% to €5,491 million (9M 2009: €4,959 million). EBIT before special items in the first three quarters improved by 19.3% to €3,526 million (9M 2009: €2,955 million). Special items totaled minus €768 million (9M 2009: minus €315 million). EBIT of the Bayer Group grew by 4.5% to €2,758 million (9M 2009: €2,640 million).
After a non-operating result of minus €772 million (9M 2009: minus €888 million), income before income taxes in the first nine months of 2009 came in at €1,986 million (9M 2009: €1,752 million). The non-operating result contained net interest expense of €396 million (9M 2009: €454 million). After tax expense of €483 million (9M 2009: €549 million), after-tax income was €1,503 million (9M 2009: €1,203 million).
After non-controlling interest, net income for the first three quarters amounted to €1,498 million (9M 2009: €1,206 million). Earnings per share were €1.81 (9M 2009: €1.52). Core earnings per share advanced by 20.4% to €3.30 (9M 2009: €2.74). For calculation details see
"Core Earnings Per Share."Gross cash flow declined by 5.3% compared to the first three quarters of 2009, to €3,436 million (9M 2009: €3,629 million). Net cash flow, however, rose by 6.2% to €3,832 million (9M 2009: €3,609 million), due to a decrease in cash tied up in working capital. Net financial debt dropped to €9.1 billion as of September 30, 2010, compared to €9.7 billion on December 31, 2009. The net pension liability – the aggregate of pension obligations and plan assets – rose by €1.8 billion compared with December 31, 2009, to €8.2 billion, mainly because of lower long-term interest rates on the capital market.