February 26, 2010

2009: operationally one of the strongest years - optimism for the future

Bayer successful in a difficult environment

Group sales EUR 31,168 million (minus 5.3 percent) / EBITDA before special items EUR 6,472 million (minus 6.6 percent) / Net income EUR 1,359 million (minus 20.9 percent) / Net cash flow significantly improved to EUR 5,375 million (plus 49 percent) / Net financial debt reduced by EUR 4.5 billion to EUR 9.7 billion / Core earnings per share expected to improve by about 10 percent in 2010
Leverkusen, February 26, 2010 - 2009 was operationally one of the strongest years for the Bayer Group. "We were successful in a difficult environment, and we are optimistic for the future," said Werner Wenning, Chairman of the Board of Management, on Friday at the Financial News Conference in Leverkusen. Earnings before interest, taxes, depreciation and amortization (EBITDA) before special items came in at EUR 6,472 million, the third-highest level in Bayer's history. Net cash flow climbed by 49 percent to a record EUR 5,375 million, enabling net financial debt to be reduced by EUR 4.5 billion - a greater amount than planned - to EUR 9.7 billion. Group sales moved back by 5.3 percent to EUR 31,168 million (2008: EUR 32,918 million). The currency- and portfolio-adjusted (Fx & portfolio adj.) decrease was 5.7 percent. Sales of HealthCare and CropScience rose by 3.8 and 2.5 percent (Fx & portfolio adj.), respectively, to record levels. Business at MaterialScience, however, shrank by 24.7 percent (Fx & portfolio adj.) due to the economic situation. Wenning expects sales and earnings to rise in 2010.

"We came close to reaching our ambitious goal of limiting the decline in earnings against the record 2008 level to approximately 5 percent," Wenning explained. EBITDA before special items was down 6.6 percent to EUR 6,472 million (2008: EUR 6,931 million). Currency effects diminished earnings by about 2 percentage points, or some EUR 140 million, of which the fourth quarter alone accounted for EUR 80 million. The EBITDA margin before special items receded slightly in 2009 to 20.8 percent (2008: 21.1 percent). The operating result (EBIT) before special items moved back by 13.1 percent to EUR 3,772 million (2008: EUR 4,342 million).

HealthCare reaches target margin

"2009 was another strong year for HealthCare," Wenning explained. Sales of this subgroup advanced by 3.8 percent (both nominally and when adjusted for currency and portfolio effects) and came in at EUR 15,988 million (2008: EUR 15,407 million). This growth was driven by positive business trends in both the Pharmaceuticals and the Consumer Health segments, particularly in the emerging markets.

The Pharmaceuticals segment raised sales by 4.4 percent (Fx & portfolio adj. 4.8 percent) to EUR 10,467 million. Business showed an encouraging improvement in the Asia/Pacific and Latin America/Africa/Middle East regions, and this more than offset a slight decline in North America. Sales of the cancer drug Nexavar® developed particularly well, increasing by 27.9 percent on a currency-adjusted (Fx adj.) basis. The highest growth rates among HealthCare's other top products were registered by Aspirin® Cardio to protect against myocardial infarction (Fx adj. 14.9 percent) and the antihypertensive Kinzal®/Pritor® (Fx adj. 14.5 percent). Sales of the subgroup's best-selling products - the oral contraceptives of the YAZ® family and the multiple sclerosis drug Betaferon®/ Betaseron® - also increased by 4.7 and 5.7 percent (Fx adj.), respectively.

Sales in the Consumer Health segment advanced by 2.7 percent (Fx & portfolio adj. 2.1 percent) to EUR 5,521 million, with all divisions contributing to growth. The increase was largely attributable to significant sales gains in Russia and China, which offset a weaker business trend in the United States. In the non-prescription medicines business (Consumer Care), the Bepanthen®/Bepanthol® line of skincare products performed particularly well, with sales up 10.3 percent (Fx adj.). Business with Contour® blood glucose meters - the top product of the Medical Care Division - moved forward by 7.3 percent (Fx adj.). In the Animal Health business, the antiparasitic agent Baycox® turned in a particularly strong performance, with sales up by 15.6 percent (Fx adj.).

EBITDA before special items of HealthCare climbed by 7.5 percent in 2009, to EUR 4,468 million (2008: EUR 4,157 million). "The EBITDA margin before special items came in at 27.9 percent (2008: 27.0 percent), meeting the target set for the year despite significant negative currency effects," Wenning said. The growth in earnings was largely attributable to the positive business trend and to lower selling and administration expenses. These savings resulted from the integration of Schering, Berlin, Germany, and further cost containment measures.

Bayer is also making progress with the new antithrombotic drug Xarelto®. The large study programs for the drug with the active ingredient rivaroxaban, which Bayer is developing together with its partner Johnson & Johnson, are running according to plan. Wenning said that new and important study data are expected during the course of this year. First filings for stroke prevention in patients with atrial fibrillation and for the treatment of deep vein thrombosis are currently targeted for the second half of 2010. Also in the second half of 2010, it is planned to submit a response to the "complete response letter" issued by the FDA relating to the U.S. application for the prophylaxis of venous thromboembolism in patients undergoing hip or knee replacement surgery.

CropScience gains further market share

CropScience gained further market share in 2009, improving sales by 2.0 percent to EUR 6,510 million (2008: EUR 6,382 million). After adjusting for currency and portfolio effects, sales rose by 2.5 percent. "Higher selling prices and increased volumes contributed to the increase," Wenning explained.

Sales in the Crop Protection segment rose by 1.6 percent (Fx adj. 2.3 percent) to EUR 5,424 million. Despite a shrinking market overall, with lower producer prices and unfavorable weather conditions in major agricultural markets, CropScience significantly expanded its herbicides business in particular. "Our young products once again achieved above-average growth: We generated sales of EUR 2 billion with products based on active ingredients introduced to the market since 2000, thus achieving an important target," the Bayer CEO stressed.

In the Environmental Science, BioScience segment, sales advanced by 4.1 percent (Fx & portfolio adj. 4.0 percent) to EUR 1,086 million. BioScience saw sales move ahead by a gratifying 12.3 percent (Fx & portfolio adj.) to exceed half a billion euros for the first time. The canola seed business in North America was a key growth driver here, and Bayer also further increased sales of its hybrid rice seed and vegetable seed in Europe, Asia and the Middle East. By contrast, sales were down by 2.4 percent (Fx adj.) at Environmental Science. This was due particularly to lower sales of green industry products for professional users in the United States, while sales to private consumers increased.

EBITDA before special items of CropScience receded by 5.9 percent to EUR 1,508 million (2008: EUR 1,603 million). The EBITDA margin before special items declined, as recently predicted, to 23.2 percent (2008: 25.1 percent). This drop in earnings was due primarily to higher raw material costs and negative currency effects, which were only partly offset by earnings contributions from the expansion of business.

Marked recovery at MaterialScience in the course of the year

As expected, the high-tech materials business in 2009 was dominated by the effects of the global financial and economic crisis. Sales of MaterialScience receded by 22.8 percent (Fx & portfolio adj. 24.7 percent) to EUR 7,520 million (2008: EUR 9,738 million). This decline was due almost equally to lower selling prices and a drop in volumes. "Whereas sales throughout the world fell sharply at the beginning of 2009, business recovered markedly as the year progressed," Wenning pointed out.

Business with raw materials for foams (Polyurethanes) shrank by 27.4 percent (Fx & portfolio adj.) year on year. Sales of high-performance plastics (Polycarbonates) fell by 22.8 percent (Fx adj.). The Coatings, Adhesives, Specialties unit registered a decline of 19.5 percent (Fx & portfolio adj.).

After a very weak first quarter, the earnings situation at MaterialScience also improved considerably. Contributory factors here were lower raw material and energy costs and the savings resulting from the restructuring program initiated in 2007. In addition, the company initiated further cost-saving measures in response to the weak market conditions caused by the economic situation. However, EBITDA before special items for the full year was down substantially, dropping to EUR 446 million from EUR 1,088 million in the previous year.

Larger drop in net financial debt than expected

In 2009 earnings were again diminished by a number of special items that led to a net charge of EUR 766 million (2008: EUR 798 million). These factors related particularly to the successful integration of Schering, to restructuring measures and to litigations. "Last year we completed our restructuring programs. We do not expect to take special charges for restructuring programs in 2010," Wenning stated. However, steadily improving efficiency and the cost base remains part of the company's daily work, the Bayer CEO explained.

After special items, EBIT for the full year 2009 came in at EUR 3,006 million (2008: EUR 3,544 million). Net income declined to EUR 1,359 million (2008: EUR 1,719 million), and core earnings per share were EUR 3.64 (2008: EUR 4.17).

Gross cash flow of the Bayer Group fell by 12.0 percent to EUR 4,658 million (2008: EUR 5,295 million) due to the weak business performance at MaterialScience. However, net cash flow climbed by 49.0 percent to EUR 5,375 million (2008: EUR 3,608 million). "This gratifying increase was largely due to the success of our Group-wide working capital initiative," explained CFO Klaus Kühn. Bayer's strict capital discipline also contributed to a significant reduction in financial debt, Kühn said. Net financial debt dropped more sharply than planned, amounting to EUR 9.7 billion on December 31, 2009 (2008: EUR 14.2 billion). This decline included EUR 2.3 billion resulting from the conversion of the mandatory convertible bond.

Fourth-quarter earnings significantly above the previous year

Bayer's performance in the fourth quarter of 2009 showed a marked recovery from the prior-year period. "Operationally the fourth quarter was exceptionally successful for Bayer in a year that was otherwise dominated by the crisis," Kühn said. Although sales dipped by 0.6 percent to EUR 7,872 million (Q4 2008: EUR 7,923 million), business expanded by 3.4 percent on a currency- and portfolio-adjusted basis. All three subgroups contributed to this expansion. HealthCare grew by 5.9 percent (Fx & portfolio adj.), while sales at CropScience increased by 6.2 percent (Fx & portfolio adj.). MaterialScience improved by 1.0 percent (Fx adj.). Although negative currency effects diminished earnings by approximately EUR 80 million, EBITDA before special items of the Bayer Group advanced by 11.5 percent to EUR 1,513 million (Q4 2008: EUR 1,357 million), while EBIT before special items rose by 15.7 percent to EUR 817 million (Q4 2008: EUR 706 million). Net income climbed by 44.3 percent to EUR 153 million (Q4 2008: EUR 106 million), while core earnings per share amounted to EUR 0.90 (Q4 2008: EUR 0.71).

Stockholders and employees to benefit from robust business performance

Both stockholders and employees are to benefit from last year's robust business performance. The Board of Management and the Supervisory Board will propose to the Annual Stockholders' Meeting that a dividend of EUR 1.40 per share be paid for 2009, the same as for the previous year. This gives a payout ratio of 38.5 percent of core earnings per share, which is at the upper end of the target range of 30 to 40 percent.

More than EUR 460 million is earmarked just for the variable one-time payments for 2009 that are to be paid out to Bayer's 108,400 employees worldwide under the Group-wide short-term incentive program - a figure that is comparable to the payments made in recent years. "We also continue to place great importance on safeguarding employment," Wenning added. In this connection, the company agreed with the employee representatives in December 2009 on a comprehensive pact for safeguarding employment through 2012. Despite the uncertain economic environment, the agreements contain a further three-year extension of the company's promise to refrain from dismissals for operational reasons, part of an arrangement first agreed upon in 1997. This applies to some 23,000 employees of the subgroups and service companies in Germany. "As you can see, we take our responsibility toward our employees very seriously, even in difficult times," remarked Wenning.

Strategic realignment and efficiency improvements paying off

The Management Board Chairman stressed that Bayer's strong performance in 2009 would not have been possible without the efforts made in recent years to align the company toward innovation and growth and safeguard its competitiveness. These efforts began in 2002 with the biggest reorganization in Bayer's history. The strategic management of the Group was separated from the day-to-day running of the business, clear lines of responsibility established and the businesses focused more closely on their respective markets. "This organizational structure proved to be a solid foundation for the action we took in subsequent years," Wenning said.

Bayer focused its portfolio on the core areas of health care, nutrition and high-tech materials. The company crucially strengthened its HealthCare business with the acquisitions of Schering AG, Berlin, Germany, and the non-prescription medicines business of Roche. Since 2002 Bayer has acquired or divested businesses worth a total of over EUR 43 billion in order to restructure the Group.

Furthermore, since the reorganization - in other words between 2002 and 2009 - Bayer implemented efficiency-improvement and cost-containment measures with a total volume of some EUR 4 billion. "There can be no doubt that we would not have mastered the crisis so well if we had not transformed our portfolio and increased our efficiency," emphasized the Bayer CEO.

Steady growth in sales and earnings planned through 2012

"We brought 2009 to a successful close and now intend to build on the progress we made in previous years," said Wenning. The Bayer CEO expects the worldwide economic recovery to continue in 2010. However, the impact of the global business downturn in 2009 will continue to be felt for some time to come, he said. Nonetheless, Bayer is optimistic about 2010, Wenning stressed. The company plans to increase sales by more than 5 percent on a currency- and portfolio-adjusted basis. EBITDA before special items is planned to increase toward EUR 7 billion. The company's estimates are based on an exchange rate of US$1.40 to the euro. In the future Bayer plans to use core earnings per share not just as the basis for its dividend policy, but also as a relevant and more comprehensive indicator for its earnings forecasts. The company expects core earnings per share to rise by about 10 percent this year.

"To safeguard our long-term growth, we are planning capital expenditures of EUR 1.4 billion. A budget of EUR 2.9 billion has again been set aside for research and development," Wenning said, before also commenting on the company's perspectives for the coming years. The company expects to achieve steady currency- and portfolio-adjusted growth of approximately 5 percent annually through 2012. Wenning said Bayer's future earnings prospects are also positive. Underlying EBITDA is expected to rise to around EUR 8 billion in the same period. Bayer is targeting an average 10 percent annual improvement in core earnings per share, which would mean an increase to around EUR 5 per share.

HealthCare plans to grow at least with the market in 2010. This corresponds to a currency- and portfolio-adjusted expansion of about 5 percent. In addition, the subgroup is targeting an increase in EBITDA before special items. "We also aim to continue growing at least with the market through 2012 and to steadily improve EBITDA before special items," the Management Board Chairman remarked.

CropScience expects slightly above-market growth in 2010. This would correspond to a currency- and portfolio-adjusted increase of approximately 4 percent. The subgroup is targeting a small increase in EBITDA before special items. At the moment, however, the business environment is proving more difficult than expected. CropScience aims to grow at least with the market through 2012 and to further improve EBITDA before special items.

Bayer anticipates a continuing economic recovery in the markets relevant to the MaterialScience business. Against this background, the subgroup aims to increase sales by more than 10 percent on a currency- and portfolio-adjusted basis in 2010 and is also targeting a substantial increase in EBITDA before special items. MaterialScience predicts that sales will increase slightly in the first quarter of 2010 compared to the preceding three-month period. In light of further rising raw material costs, the subgroup expects first-quarter EBITDA before special items to be roughly level with the preceding quarter. Provided the economic recovery continues, MaterialScience expects to return to its pre-crisis sales level of more than EUR 10 billion by 2012. It also plans to considerably increase EBITDA before special items.

"We believe the Bayer Group is well positioned strategically and on course for success because of the potential our portfolio offers for innovation and growth," Wenning concluded. He said Bayer therefore looks to the future with confidence.


Note:

Below you will find tables containing the key data of the Bayer Group and its
subgroups for the full year and the fourth quarter of 2009.

The complete Annual Report 2009 is available on the Internet at
www.investor.bayer.com.

Supplementary material at www.investor.bayer.com includes:
- Live webcast of the Spring Financial News Conference
starting at approx. 10:00 a.m. CET
- Notice of the Annual Stockholders' Meeting 2010 at approx. 10:00 a.m. CET
- Presentation charts for the Investor Conference Call at 12:00 noon CET
- Live webcast of the Investor Conference Call starting at approx. 4:00 p.m. CET


Forward-looking statements

This 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 www.bayer.com. The company assumes no liability whatsoever to
update these forward-looking statements or to conform them to future events or
developments.