Management Report

Future Perspectives

Economic outlook

The global economy appears to have passed the bottom of the cycle. We expect the positive trend to continue through the end of the year. However, the overall economy is still being bolstered primarily by government stimulus programs. For 2009 as a whole, the global economy will show considerable shrinkage from the previous year.

We anticipate moderate growth in the pharmaceutical market for the full year 2009. Contrary to earlier forecasts, we expect the U.S. pharmaceutical industry to expand by a mid-single-digit percentage in light of the more positive market trend in the first months of the year. We believe that growth in the major European countries and in Japan will be restrained, while the industry should continue growing strongly in the emerging markets. We take a positive view of the consumer health markets as a whole, although they will expand rather more slowly due to the deterioration in the global economy compared with the previous year.

Following its favorable development in the first half of 2009, the global seed and crop protection market trended weaker in the third quarter because of adverse weather patterns, declining producer prices and higher trade inventories of crop protection products. We therefore predict slight overall market shrinkage in 2009 compared with the record year 2008.

Business activities in the main customer industries of MaterialScience (automotive, construction, furniture, electronics) are trending very differently from one region to another. While the Asian market is recovering more quickly from the sharp drop in sales at the beginning of the year thanks to massive stimulus programs and will likely regain its former pace of growth, demand in North America and western Europe remains well below the overall level of 2008.

Sales and Earnings Forecast

Our forecast for HealthCare has been confirmed so far this year. The increases achieved in sales and EBITDA before special items support this view. In addition, we expect to report slight growth in the fourth quarter compared with the very strong last quarter of 2008. Therefore we still expect to improve the underlying EBITDA margin toward 28%.

The market environment for CropScience deteriorated in the third quarter. However, this subgroup still plans to increase full-year sales compared with 2008. In light of the weak third quarter, we anticipate that EBITDA before special items will come in below the high prior-year level. Accordingly we now expect to achieve an EBITDA margin before special items of between 23% and 24% (previously: about 25%).

At MaterialScience, third-quarter sales and earnings were significantly above the low levels of the second quarter. We anticipate that the economic environment will continue to stabilize in the fourth quarter. Due to the usual seasonal weakening of business activity toward the end of the year, we expect underlying EBITDA in the fourth quarter to be below the third quarter but well ahead of the prior-year period.

Against this background we still expect to post full-year Group sales of between €31 billion and €32 billion and are adhering to our ambitious target of limiting the decline in Group EBITDA before special items to about 5%.

We intend to bring our current restructuring programs to a conclusion this year. Special charges of about €350 million (previously: €250 million) are expected to be incurred in this connection. In addition, we already took special charges of some €200 million in the first nine months for litigations and the additional pro rata funding required for the German corporate pension assurance association.

We still plan to make capital expenditures of €1.4 billion. We estimate depreciation and amortization at about €2.7 billion, including €1.2 billion in depreciation of property, plant and equipment. Our research and development budget amounts to €2.9 billion.

We expect to further reduce net financial debt toward €10 billion during the fourth quarter.