February 28, 2011
Bayer: operating performance on track
Group targets achieved / Strong year at MaterialScience - HealthCare and CropScience below expectations / Net income diminished by high special charges / Strong operating cash flow - net financial debt below EUR 8 billion / Confidence for 2011: core earnings per share expected to improve by about 10 percent / About EUR 15 billion investment for the future planned through 2013 / Proportion of female managers to grow toward 30 percent by 2015Leverkusen, February 28, 2011 - Bayer achieved its targets for the Group in
2010. "2010 was a good year for us overall," said Management Board Chairman Dr.
Marijn Dekkers on Monday at the Financial News Conference in Leverkusen. "We
posted sales of EUR 35.1 billion, the highest figure in the company's history."
According to Dekkers, 2010 was marked by factors the company could not have
predicted. In particular, the MaterialScience subgroup returned nearly to
pre-crisis levels more quickly than expected. Currency changes also had a
positive impact. On the other hand, the business performance of the CropScience
and HealthCare subgroups was below expectations. Dekkers expressed optimism for
the company's continuing development: "We are confident for this year, which
has gotten off to a successful start." He said Bayer plans to invest
substantial sums in its future during the next three years. The company aims to
spend some EUR 15 billion for research and development and for property, plant
and equipment through 2013.
Sales of the Bayer Group climbed by 12.6 percent in 2010 to EUR 35,088 million
(2009: EUR 31,168 million). Adjusted for currency and portfolio effects (Fx&p
adj.), sales were up by 8.0 percent. Earnings before interest, taxes,
depreciation and amortization (EBITDA) - before special items - rose by 9.7
percent to EUR 7,101 million (2009: EUR 6,472 million), with currency effects
having a positive impact of some EUR 0.4 billion. The operating result (EBIT)
before special items advanced by 18.0 percent to EUR 4,452 million (2009: EUR
Core earnings per share up 15 percent to EUR 4.19
Net income of the Bayer Group for 2010 was held back considerably by special
charges of EUR 1,722 million (2009: EUR 766 million). Of this figure,
impairments accounted for EUR 957 million - including EUR 405 million in
non-cash impairment losses recognized on the "Schering" name in light of the
new brand strategy. Litigations accounted for a total of EUR 703 million, of
which EUR 526 million related to an intended settlement program and legal and
defense costs in connection with litigations concerning genetically modified
rice in the United States. Special charges of EUR 62 million were taken for
restructuring. After special items, EBIT declined by 9.2 percent to EUR 2,730
million (2009: EUR 3,006 million). Net income came in at EUR 1,301 million
(2009: EUR 1,359 million), down 4.3 percent year on year. By contrast, core
earnings per share advanced by a substantial 15.1 percent to EUR 4.19 (2009:
Gross cash flow rose by 2.4 percent to EUR 4,771 million (2009: EUR 4,658
million), with net cash flow advancing by 7.4 percent to EUR 5,773 million
(2009: EUR 5,375 million). "This gratifying improvement was due mainly to our
Group-wide working capital optimization project, as well as to the dynamic
uptrend in earnings," said Chief Financial Officer Werner Baumann. Strict
capital discipline enabled net financial debt to be reduced by 18.3 percent to
EUR 7,917 million (2009: EUR 9,691 million).
Fourth quarter operationally very successful
"In operational terms the fourth quarter of 2010 was just as good for Bayer as
the first three quarters," he added. Sales climbed by 14.5 percent (Fx&p adj.
8.1 percent) to EUR 9,012 million (Q4 2009: EUR 7,872 million), while EBITDA
before special items rose by 11.6 percent to EUR 1,689 million (Q4 2009: EUR
1,513 million). "This was mainly due to the strong growth in earnings at
MaterialScience and positive currency effects," Baumann explained. However,
much higher special charges than in the prior-year period caused EBIT to fall
to EUR 51 million (Q4 2009: EUR 366 million). There was a net loss for the
quarter of EUR 145 million (Q4 2009: net income of EUR 153 million), although
core earnings per share improved by 5.6 percent to EUR 0.95 (Q4 2009: EUR 0.90).
HealthCare held back by generic competition and health system reforms
Sales of the HealthCare subgroup for the full year 2010 increased by 5.8
percent to EUR 16,913 million (2009: EUR 15,988 million). The currency- and
portfolio-adjusted increase came to 1.7 percent.
The Pharmaceuticals segment raised sales by 4.2 percent (Fx&p adj. 0.9 percent)
to EUR 10,908 million. Business expanded significantly in the Asia/Pacific and
Latin America/Africa/Middle East regions. In North America, by contrast, sales
were down, particularly because of generic competition for the YAZ® line of
oral contraceptives in the United States. The health system reforms in various
countries also had a negative impact. Among Bayer's best-selling pharmaceutical
products, the hemophilia medicine Kogenate® performed especially well,
exceeding the EUR 1 billion threshold for the first time after a
currency-adjusted (Fx adj.) 10.3 percent increase in sales. Strong gains were
also registered by the cancer drug Nexavar®, sales of which were up by 11.7
percent (Fx adj.). By contrast, revenues from the YAZ® product family moved
back by 15.8 percent (Fx adj.), while sales of the multiple sclerosis drug
Betaferon®/Betaseron® were down by 5.0 percent (Fx adj.) year on year.
Sales in the Consumer Health segment climbed by 8.8 percent (Fx&p adj. 3.4
percent) to EUR 6,005 million, with all regions - especially North America -
contributing to this growth. In the non-prescription medicines business
(Consumer Care), the pain reliever Aleve® saw the highest sales growth, at 18.7
percent (Fx adj.). The Bepanthen®/ Bepanthol® line of skincare products also
performed very successfully, with sales up by 12.0 percent (Fx adj.). Business
in the Medical Care Division was hampered by the negative trend in the U.S.
diabetes care market, where sales of the division were down by 20.3 percent (Fx
adj.) for both price and volume reasons. By contrast, the Animal Health
Division posted a very satisfactory trend, benefiting from a 14.6 percent (Fx
adj.) increase in sales of the Advantage® line of flea, tick and worm control
products that was driven by gains in the United States.
EBITDA before special items of Bayer HealthCare receded by 1.4 percent to EUR
4,405 million (2009: EUR 4,468 million), with various countries' health system
reforms alone diminishing sales and earnings by some EUR 160 million. "Overall
we expect these reforms to have a significant negative impact in 2011 as well,"
CropScience: shrinking market for conventional crop protection products
Business in the CropScience subgroup was restrained in 2010. While reported
sales rose by 4.9 percent year on year to EUR 6,830 million (2009: EUR 6,510
million), they receded by 1.3 percent on a currency- and portfolio-adjusted
basis. This was due to weaker business in Crop Protection, whereas
Environmental Science, BioScience registered positive development.
Crop Protection had sales of EUR 5,493 million, down 4.7 percent on a
currency-adjusted basis. "Heavy generic competition led to a significant
decline in prices, especially in our herbicides business. We also faced
unfavorable weather conditions in nearly all parts of the world," explained
Dekkers. CropScience also saw its seed treatment and fungicides businesses
decline in a shrinking market, while the insecticides business expanded. Sales
in the Europe and North America regions as a whole were considerably weaker,
while encouraging gains were posted in Asia/Pacific and Latin
The Environmental Science, BioScience segment raised sales by a substantial
23.1 percent (Fx&p adj. 15.6 percent) to EUR 1,337 million. The Environmental
Science business unit saw a marked increase in business with products for
consumers. Products for professional users also trended positively. The
BioScience business unit, which specializes in seed and plant traits, continued
to achieve dynamic expansion, especially for its major crops: cotton, canola,
rice and vegetables. BioScience thus continued successfully along a path of
EBITDA before special items for the CropScience subgroup receded by 14.3
percent to EUR 1,293 million (2009: EUR 1,508 million), chiefly on account of
lower volumes and selling prices at Crop Protection and higher research and
development expenses at BioScience. "As a result, the underlying EBITDA margin
at CropScience fell substantially by just over 4 percentage points. This is
indeed disappointing," said Dekkers.
Earnings of MaterialScience tripled
The trend in Bayer's high-tech materials business was marked by the recovery
following the economic and financial crisis. Sales climbed by 35.0 percent
(Fx&p adj. 30.1 percent) to EUR 10,154 million (2009: EUR 7,520 million). "Here
we see the growth in demand from key customer industries as a major positive
factor. This applies particularly to the automotive and electrical/electronics
sectors, and in some regions to the construction industry as well," said
Dekkers. He explained that while volumes at MaterialScience were already back
to pre-crisis levels overall in 2010, this did not yet apply to prices as a
Business with raw materials for foams (polyurethanes) expanded by 27.8 percent
(Fx&p adj.), thanks largely to much higher volumes in all product groups and
regions. The largest increases in absolute terms were registered in Europe and
Asia/Pacific. Sales of high-performance plastics (polycarbonate) advanced by
42.9 percent (Fx adj.). This growth was mainly the result of considerable
volume and price increases for granules. Business with raw materials for
coatings, adhesives and specialties improved by 27.2 percent (Fx adj.) year on
year thanks to significant growth in volumes.
EBITDA before special items of MaterialScience tripled to EUR 1,356 million
(2009: EUR 446 million), mainly due to much higher volumes. The subgroup also
benefited from higher selling prices for its products, which more than offset
the negative effect of increased raw material prices. Efficiency improvements
also had a positive impact.
Stockholders and employees to benefit from the company's performance
Bayer intends both stockholders and employees to share in the company's success
last year. The Board of Management and the Supervisory Board are proposing that
the dividend for 2010 be increased to EUR 1.50 (2009: EUR 1.40) per share.
"This enables our stockholders to appropriately benefit from the Group's
improved operational performance in 2010. And it's a sign of our optimism for
the future," Dekkers commented. He said that more than half a billion euros is
earmarked for the short-term incentive program for employees throughout the
Aiming for greater employee diversity
Bayer is sharpening its focus on employee development in another respect, too.
Commenting on the current debate about the number of women in management
positions, Dekkers said: "We do not believe that the statutory quota under
discussion would be appropriate. However, we are convinced that greater human
resources diversity is good for the company." He said the Board of Management
has therefore set a target: Bayer aims to raise the proportion of female
managers in the Bayer Group as a whole toward 30 percent by 2015 - the global
figure currently being just over 20 percent. "We are optimistic that we can
achieve our target within five years," he said, pointing out at the same time
that diversity is not limited to gender distribution. It is equally important
to support skilled international employees and managers worldwide, he said.
This is something the company is working on intensively at the moment.
"Innovations we can successfully commercialize are our lifeblood"
Strengthening Bayer's innovative capability is a special area of focus.
"Innovations that we can successfully commercialize are our lifeblood," Dekkers
said. In 2010, the company increased its expenditures for research and
development by more than 11 percent to the record level of nearly EUR 3.1
billion. "The reason for this is that we are investing in a highly promising
product pipeline," he said, citing the innovative anticoagulant Xarelto®, which
is already on the market in 75 countries for prevention of venous
thromboembolism following elective hip or knee replacement surgery. In January
2011, applications were submitted in the European Union and the United States
for marketing authorization for stroke prevention in non-valvular atrial
fibrillation and in the E.U. for the treatment and secondary prevention of deep
vein thrombosis. "These chronic indications are where the market potential of
Xarelto® lies," Dekkers pointed out. "We believe Xarelto® has a peak annual
sales potential of more than EUR 2 billion."
There are also promising development candidates at CropScience. Here Bayer
believes that six new substances to be introduced to the market between 2010
and 2012 have total peak annual sales potential of more than EUR 1 billion.
"We scored many achievements in 2010, but we also faced challenges," said
Dekkers. He stressed how important it is for Bayer's future development that
the company invest more heavily and more rigorously in its potential for growth
and innovation, this being the reason why the package of measures announced in
November 2010 was developed. The aim is to free up the necessary funds by
carefully re-allocating resources. This will be supported by efficiency and
cost-containment measures. "The principle here is: more innovation and less
administration," Dekkers stressed.
Positive perspectives for 2011 and 2012
The Management Board Chairman sees positive future perspectives for the
company's business performance. "It remains to be seen how the global economy
will develop once the stimulus programs expire in numerous countries. In any
case, we are confident for this year," Dekkers remarked. Provided that the
economy steadily improves, he expects to see growth in sales and EBITDA before
special items in all subgroups in 2011. For the full year 2011, Bayer expects
to see currency- and portfolio adjusted sales growth of between 4 and 6 percent
for the Group as a whole. Based on the currency assumptions - including a rate
of US$ 1.40 to the euro - Group sales are therefore expected to come in at
between EUR 35 billion and EUR 36 billion. Bayer aims to increase EBITDA before
special items toward EUR 7.5 billion and raise core earnings per share by about
The Group is planning capital expenditures of EUR 1.5 billion for property,
plant and equipment and EUR 0.3 billion for intangible assets. Bayer expects
its research and development expenditures to match the record level of 2010
(EUR 3.1 billion). "This investment will enable us to seize the opportunities
we have for the future," Dekkers said. "This is also evident from our planning
for the next three years. Through 2013 we aim to invest some EUR 15 billion in
our future." Research and development will account for about two thirds of this
amount, he explained, and capital expenditures for property, plant and
equipment for one third. "These are substantial sums," he pointed out.
"We can confirm our targets for 2012," Dekkers added. If the economic
environment remains positive, Bayer continues to expect Group sales to grow by
approximately 5 percent - after adjusting for currency and portfolio changes.
In 2012 the Group plans to achieve EBITDA before special items of approximately
EUR 8 billion and core earnings per share of around EUR 5.
In 2011 HealthCare plans to increase sales by a low- to mid-single-digit
percentage after adjusting for currency and portfolio effects and to achieve a
small improvement in EBITDA before special items. In the Pharmaceuticals
segment, Bayer does not yet expect sales to resume growing with the market in
2011. It is planned to increase sales by a low- to mid-single-digit percentage
after adjusting for currency and portfolio effects and to raise the EBITDA
margin before special items. In the Consumer Health segment, Bayer anticipates
above-market growth in sales after adjusting for currency and portfolio
effects. Sales and EBITDA before special items are expected to increase by
mid-single-digit percentages. In 2012 HealthCare aims to accelerate the pace of
growth, especially in Pharmaceuticals, thanks to its new products, and to
improve EBITDA before special items in both segments.
CropScience expects to improve sales in both segments on a currency- and
portfolio-adjusted basis in 2011 and to grow by at least a mid-single-digit
percentage overall. The company intends to further reinforce its market
positions in Environmental Science, BioScience, and expects to at least
maintain its existing position in Crop Protection. The subgroup plans to expand
EBITDA before special items at a higher rate than sales. In 2012 CropScience
again aims to grow sales at least with the market and to further improve EBITDA
before special items.
MaterialScience expects that the business environment will continue to recover.
The subgroup plans to raise sales in 2011 by a mid-single-digit percentage on a
currency- and portfolio-adjusted basis, and to increase EBITDA before special
items at a higher rate than sales. MaterialScience expects sales in the first
quarter of 2011 to be roughly in line with the fourth quarter of 2010 on a
currency- and portfolio-adjusted basis. Despite higher raw material prices,
MaterialScience expects EBITDA before special items in the first quarter of
2011 to exceed the level of the fourth quarter of 2010. Provided that the
market environment remains favorable, the subgroup plans to further increase
sales and EBITDA before special items in 2012.
Bayer stayed on track operationally in 2010 and is anticipating a further
improvement in its key data this year, Dekkers concluded. "Thanks to our strong
product pipeline, we also remain optimistic for the years to come."
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 2010.
The complete Annual Report 2010 is available on the Internet at
Supplementary material at www.investor.bayer.com includes:
- Live webcast of the News Conference from approx. 10:00 a.m. CET
- Notice of the Annual Stockholders' Meeting 2011 from 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 from approx. 3:00 p.m. CET
- Recording of the Investor Conference Call from approx. 7:00 p.m. CET