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The following forecasts for 2010 are based on the business performance described in this report, taking into account the potential risks and opportunities. We are adhering to our sales and earnings forecast for the period through 2012 (as given in chapter 11.4 of the Bayer Annual Report 2009).
Bayer Group
We remain optimistic for 2010. The strong recovery at MaterialScience is compensating for the below-forecast business performance at HealthCare and CropScience. Currency parities have also continued to trend positively.
We continue to target currency- and portfolio-adjusted sales growth of more than 5%. Research and development spending is now expected to total some €3.1 billion (previously: some €2.9 billion). It remains our aim to increase EBITDA before special items to more than €7 billion. Core earnings per share (calculated as explained in chapter 7 of the Financial Report as of June 30, 2010) are expected to improve by more than 15%. Our estimates are based on the exchange rates prevailing at the end of the second quarter of 2010.
HealthCare
We are adjusting our sales forecast for HealthCare in 2010 overall following the unexpected market entry of a generic competitor to YAZ® in the United States. We now expect sales in the Pharmaceuticals segment to remain level year on year on a currency- and portfolio-adjusted basis. In Consumer Health, however, we still expect to expand faster than the market. After adjusting for currency and portfolio effects, we anticipate a slight increase in sales at HealthCare (previously: about 3%). In part because of the situation pertaining to YAZ®, we now believe that EBITDA before special items will at least reach the prior-year level (previously: further year-onyear increase).
CropScience
Against the background of the unfavorable weather and market conditions in the first half of the year, we are lowering our sales and earnings forecast for 2010 at CropScience. Provided market conditions return to normal in the second half of the year, we anticipate that sales in 2010 overall will be slightly lower than the prior-year level on a currency- and portfolio-adjusted basis (previously: increase of between 2% and 3%). We expect EBITDA before special items to decline significantly in 2010 (previously: level with the previous year).
MaterialScience
We remain optimistic concerning our MaterialScience subgroup in the second half of 2010 and expect business to continue trending positively. In light of what we know today, we now view as conservative our previous targets of achieving a sales increase in the region of 20% and more than doubling EBITDA before special items. We expect to exceed these forecasts. In the third quarter, we anticipate that sales and EBITDA before special items will be in line with those of the previous quarter.
The following forecasts for 2010 are based on the business performance described in this report, taking into account the potential risks and opportunities. The sales and earnings forecast for the period through 2012 is given in chapter 11.4 of the Bayer Annual Report 2009.
Bayer Group
We remain optimistic for 2010. The decline in business momentum at HealthCare and CropScience is being offset by the recovery at MaterialScience, which is progressing faster than expected. Since, in addition, currency parities have so far trended more favorably than anticipated, we are raising our earnings forecast for the Bayer Group.
We continue to target currency- and portfolio-adjusted sales growth of more than 5%. We now aim to increase EBITDA before special items to more than €7 billion (previously: toward €7 billion). Core earnings per share are expected to improve by more than 15% (previously: about 10%). Our estimates are based on the exchange rates prevailing at the end of the first quarter (for example, 1.35 (previously: 1.40) U.S. dollars to the euro).
HealthCare
In light of the business trend in the first quarter, we are adjusting our 2010 sales forecast for HealthCare as follows: For Pharmaceuticals we anticipate below-market growth. In Consumer Health, however, we expect to expand faster than the market. This corresponds to currency- and portfolio-adjusted growth for HealthCare of about 3% (previously: about 5%). We are targeting a further increase in EBITDA before special items.
CropScience
Following the delayed start to the season due to weather conditions, business at CropScience has now gained momentum. Despite this, we now anticipate lower sales growth in view of the weak market development in the first quarter. We confirm our goal of achieving slightly above-market growth in 2010. We now expect to post a currency- and portfolio-adjusted sales increase of between 2% and 3% (previously: approximately 4%) and EBITDA before special items level with the previous year (previously: a small increase).
MaterialScience
We anticipate a continuing recovery in the markets relevant to our MaterialScience business. In light of this we are targeting a sales increase in the region of 20% (previously: more than 10%) on a currency- and portfolio-adjusted basis in 2010. We plan to more than double (previously: considerably increase) EBITDA before special items. In the second quarter of 2010 we anticipate further growth in sales and an improvement in EBITDA before special items compared with the first quarter of the year.
Bayer Group
The Bayer Group is confident for 2010. We are targeting currency- and portfolio-adjusted sales growth of more than 5% and aim to increase EBITDA before special items toward €7 billion. Core earnings per share (calculated as explained in Annual Report 2009, “Core Earnings Per Share”) are expected to improve by about 10%. Our estimates are based on an exchange rate of US$1.40 (2009 average: US$1.39) to the euro.
We do not expect to incur special charges for restructuring programs in 2010.
Our capital expenditure budget is €1.4 billion. Depreciation and amortization are expected to total about €2.6 billion, including €1.3 billion in amortization of intangible assets. We plan to spend some €2.9 billion on research and development.
Having largely achieved our current target margins, our main focus for the future is on creating value through profitable growth. To do this we plan to continue investing primarily in our research and development pipeline, in BioScience and in the emerging markets. We expect to achieve steady currency- and portfolio-adjusted sales growth of approximately 5% annually through 2012 and plan to raise EBITDA before special items to around €8 billion within this period. We are targeting an average 10% annual improvement in core earnings per share, which would mean an increase to around €5 per share.
HealthCare
HealthCare plans to grow at least with the market in 2010. This corresponds to a currency- and portfolio-adjusted expansion of about 5%. We also intend to increase EBITDA before special items.
We aim to continue growing at least with the market through 2012 and to steadily improve EBITDA before special items.
CropScience
For CropScience we anticipate slightly above-market growth in 2010, equivalent to a currency- and portfolio-adjusted increase of approximately 4%. We are targeting a small increase in EBITDA before special items. However, the business environment is currently more difficult than expected.
We aim to grow at least with the market through 2012 and to further improve EBITDA before special items.
MaterialScience
We anticipate a continuing recovery in the markets relevant to our MaterialScience business. In light of this we aim to increase sales by more than 10% on a currency- and portfolio-adjusted basis in 2010. We are targeting a substantial increase in EBITDA before special items.
We expect to report somewhat higher sales in the first quarter of 2010 than in the fourth quarter of 2009. In light of further increases in raw material costs, we expect first-quarter EBITDA before special items to be roughly level with the preceding quarter.
Provided the economic recovery continues, we expect MaterialScience to return to its pre-crisis sales level of more than €10 billion by 2012. We plan to considerably increase EBITDA before special items.
Bayer AG
As the holding company for the Bayer Group, Bayer AG derives most of its income from its subsidiaries. Under profit and loss transfer agreements with the major operating subsidiaries in Germany, their earnings are transferred directly to Bayer AG. The positive expectations for the Group’s business development outlined above are also likely to be reflected in the earnings of Bayer AG. In addition, the net interest position should continue to improve in light of the reduction in financial debt. We therefore expect to maintain a level of after-tax income that allows the payment of an appropriate dividend.
