HealthCare again strong – weak quarter at CropScience – MaterialScience
substantially improved

Bayer back on the uptrend: underlying EBITDA above the prior-year period

Group sales €7.4 billion (-7.0%)

EBITDA before special items €1.5 billion (+0.4%)

Net income €249 million (-10.1%)

Net cash flow €1.5 billion (+22.9%)

Full-year Group forecast confirmed

Overview of Sales, Earnings and Financial Position

Third quarter of 2009

EBITDA before special items of the Bayer Group in the third quarter of 2009 slightly exceeded the prior-year level for the first time this year. HealthCare and MaterialScience contributed to this positive development. Sales and earnings of HealthCare increased. MaterialScience showed a tangible recovery, almost doubled earnings compared with the preceding quarter and thus reached approximately the level of the prior-year period. CropScience, in a weaker market, saw sales and earnings recede markedly compared with the strong prior-year period.

Group sales fell by 7.0% to €7,392 million (Q3 2008: €7,948 million). Adjusted for currency and portfolio effects (Fx & portfolio adj.), business declined by 7.2%. Sales of HealthCare grew by 3.5% (Fx & portfolio adj. +4.2%). In the CropScience business sales were down by 8.7% (Fx adj. -8.2%). At MaterialScience, the economic situation led to a 20.0% year-on-year drop in sales (Fx & portfolio adj. -21.8%). Compared with the second quarter of 2009, however, sales of this subgroup rose by 14.4% (Fx adj.) due particularly to an increase in volumes.

EBITDA before special items in the third quarter of 2009, at €1,499 million (+0.4%), slightly exceeded the level of the prior-year period. HealthCare improved underlying earnings by 12.1% to €1,141 million (Q3 2008: €1,018 million). At CropScience, EBITDA before special items shrank to €108 million (Q3 2008: €207 million). MaterialScience generated EBITDA before special items of €238 million (Q3 2008: €255 million), well in excess of the €121 million reported for the preceding quarter. Third-quarter EBITDA of the Bayer Group came in level with the prior-year quarter at €1,326 million (-0.6%) against the €1,334 million reported for the same period of 2008.

EBIT before special items in the third quarter of 2009 moved back 6.1% to €837 million (Q3 2008: €891 million). Special items totaled minus €191 million (Q3 2008: minus €207 million). Of this amount, additional funding for the German corporate pension assurance association, necessitated by record bankruptcy losses, accounted for minus €36 million, restructuring at CropScience and MaterialScience for minus €65 million, the integration of Schering, Berlin, Germany, for minus €35 million and litigations for minus €55 million. EBIT declined by 5.6% to €646 million (Q3 2008: €684 million).

After a non-operating result of minus €262 million (Q3 2008: minus €276 million), income before income taxes came in at €384 million (Q3 2008: €408 million). The main components of the non-operating result were €121 million (Q3 2008: €159 million) in net interest expense, €104 million (Q3 2008: €71 million) in interest cost for pension and other provisions, and a €28 million (Q3 2008: €34 million) net exchange loss. After tax expense of €135 million (Q3 2008: €133 million), net income came in at €249 million (Q3 2008: €277 million). Earnings per share were €0.30 (Q3 2008: €0.37). Core earnings per share moved back to €0.78 (Q3 2008: €0.85). The calculation of core earnings per share is explained on Bayer Stock.

Gross Cash Flow and Net Cash Flow by Quarter

Gross cash flow in the third quarter of 2009, at €1,172 million (+0.1%), was level with the prior-year period. Net cash flow climbed by 22.9% to €1,517 million (Q3 2008: €1,234 million) because of improvements in working capital at HealthCare and CropScience. We reduced net financial debt to €10.7 billion as of the end of the third quarter (June 30, 2009: €11.7 billion). The net pension liability – the aggregate of pension obligations and plan assets – rose by €0.6 billion compared with June 30, 2009, to €7.0 billion, mainly because of lower long-term interest rates on the capital market.

First three quarters of 2009

The Bayer Group was hampered in the first three quarters of 2009 by the effects of the financial and economic crisis. Sales from continuing operations receded by 6.8% to €23,296 million (9M 2008: €24,995 million). Adjusted for currency and portfolio effects (Fx & portfolio adj.), business was down by 8.6%. HealthCare posted 3.1% (Fx & portfolio adj.) and CropScience 1.6% (Fx adj.) growth in sales. Business at MaterialScience shrank by a substantial 31.5% (Fx & portfolio adj.).

EBITDA before special items declined by 11.0% to €4,959 million (9M 2008: €5,574 million). EBIT before special items in the first three quarters receded by 18.7% to €2,955 million (9M 2008: €3,636 million). Special items totaled minus €315 million (9M 2008: minus €504 million), including a €106 million charge for additional funding for the German corporate pension assurance association. EBIT of the Bayer Group fell by 15.7% to €2,640 million (9M 2008: €3,132 million).

After a non-operating result of minus €888 million (9M 2008: minus €813 million), income before income taxes in the first nine months of 2009 came in at €1,752 million (9M 2008: €2,319 million). The non-operating result included €454 million (9M 2008: €535 million) in net interest expense, €313 million (9M 2008: €210 million) in interest cost for pension and other provisions and a €67 million (9M 2008: €41 million) exchange loss. After tax expense of €549 million (9M 2008: €701 million), after-tax income was €1,203 million (9M 2008: €1,618 million).

After non-controlling interest, net income for the first three quarters amounted to €1,206 million (9M 2008: €1,613 million). Earnings per share were €1.52 (9M 2008: €2.06). Core earnings per share moved back to €2.74 (9M 2008: €3.46). The calculation of core earnings per share is explained on Bayer Stock.

Gross cash flow fell by 12.4% compared with the first three quarters of 2008, to €3,629 million (9M 2008: €4,144 million), mainly because of the weak business performance at MaterialScience. Net cash flow, however, rose by 36.1% to €3,609 million (9M 2008: €2,651 million). This was due particularly to improved working capital management and lower income tax payments. Net financial debt declined to €10.7 billion as of September 30, 2009 (December 31, 2008: €14.2 billion), with the conversion of the mandatory convertible bond accounting for a reduction of €2.3 billion. The net pension liability – the aggregate of pension obligations and plan assets – rose by €1.0 billion compared with December 31, 2008, to €7.0 billion, mainly because of lower long-term interest rates on the capital market.