MaterialScience leaves the crisis behind
Bayer increases sales and earnings in the second quarter
- Q2 sales €9.2 billion (+14.6%)
- EBITDA before special items €1.9 billion (+8.6%)
- Core earnings per share €1.15 (+9.5%)
- Increased investment for the future: R&D spending up 12.7%
- Group outlook confirmed for 2010
1. Overview of Sales, Earnings and Financial Position
Second quarter of 2010
The Bayer Group once again achieved gains in sales and earnings in the second quarter of 2010. Business at MaterialScience expanded strongly, with volumes returning to the pre-crisis level. Sales at HealthCare improved slightly, while earnings of that subgroup matched the prior-year level. Business at CropScience was down year on year; volumes and prices declined in a market environment made difficult by the competitive situation and unfavorable weather conditions.
Group sales rose by 14.6% to €9,179 million (Q2 2009: €8,009 million). Adjusted for currency and portfolio effects (Fx & portfolio adj.), business grew by 9.2%. Sales of HealthCare increased by 6.4% (Fx & portfolio adj. +2.0%). Sales at CropScience rose by 1.7% for currency-related reasons (Fx & portfolio adj. -5.5%), while business at MaterialScience expanded by a substantial 46.9% (Fx adj. +40.5%).
EBITDA before special items of the Bayer Group improved by 8.6% to €1,917 million (Q2 2009: €1,765 million). This was attributable primarily to the gratifying business trends at MaterialScience and Consumer Health, as well as to positive currency effects. The EBITDA margin before special items was 20.9% (Q2 2009: 22.0%).
HealthCare generated EBITDA before special items of €1,102 million (Q2 2009: €1,112 million). This figure contained significantly higher research and development costs in support of our research and development pipeline, which continues to perform positively. EBITDA before special items of CropScience, at €396 million, was 20.3% below the earnings level of the preceding year (€497 million). MaterialScience posted EBITDA before special items of €371 million, significantly exceeding the weak prior-year figure of €121 million attributable to the slump in the economy.
Taking into account special charges of €123 million that impacted EBITDA, the Bayer Group posted EBITDA of €1,794 million in the second quarter (Q2 2009: €1,709 million).
EBIT before special items improved by 14.4% to €1,260 million (Q2 2009: €1,101 million). The figure for the second quarter of 2010 was diminished by special charges of €255 million (Q2 2009: net special charges of €80 million). The special charges resulted from litigations (€123 million) and the partial write-down for our cancer drug Zevalin® (€132 million). Of the special charges, HealthCare accounted for €189 million and CropScience for €66 million. EBIT of the Bayer Group fell by 1.6% to €1,005 million (Q2 2009: €1,021 million).
After a non-operating result of minus €261 million (Q2 2009: minus €292 million), income before income taxes came in at €744 million (Q2 2009: €729 million). The main components of the non-operating result were €138 million (Q2 2009: €154 million) in net interest expense, €89 million (Q2 2009: €107 million) in interest cost for pension and other provisions and a €19 million exchange loss (Q2 2009: €13 million). Tax expense totaled €220 million (Q2 2009: €199 million). Income after taxes decreased to €524 million (Q2 2009: €530 million), of which minus €1 million (Q2 2009: minus €2 million) was attributable to non-controlling interest.
The Bayer Group therefore posted net income of €525 million in the second quarter (Q2 2009: €532 million). Earnings per share were €0.63 (Q2 2009: €0.67). Core earnings per share rose to €1.15 (Q2 2009: €1.05). For calculation details see
“Core Earnings Per Share.”Gross cash flow of the Bayer Group improved by 3.0% year on year to €1,286 million (Q2 2009: €1,248 million) due especially to the upward business trend at MaterialScience. Thanks in part to our measures to further optimize working capital management, we increased net cash flow by 10.4% to €1,545 million (Q2 2009: €1,399 million).
Net financial debt of the Bayer Group increased from €9.7 billion on March 31 to €10.7 billion on June 30. This increase, which is typical for the second quarter, was mainly due to the dividend payment of €1.2 billion, to annual payments of variable compensation to our employees and to expectedly high disbursements resulting from the fact that the interest payment dates for our bonds occur mainly in the second quarter. Negative currency effects of €0.6 billion were an additional factor.
The net pension liability increased from €6.9 billion to €7.7 billion in the second quarter of 2010, due especially to lower long-term capital market interest rates.
First half of 2010
Sales and earnings of the Bayer Group increased significantly in the first half of 2010, as we benefited especially from the significant recovery of the MaterialScience business.
Sales climbed by 10.0% to €17,495 million (H1 2009: €15,904 million). Business expanded by 7.7% on a currency- and portfolio-adjusted basis. HealthCare sales edged forward by 2.3% (Fx & portfolio adj.). Sales of CropScience fell by 7.9% (Fx & portfolio adj.), due particularly to unfavorable weather and market conditions. MaterialScience registered significant growth of 39.3% (Fx adj.) as a result of the economic recovery.
EBITDA before special items rose by 10.8% to €3,835 million (H1 2009: €3,460 million). First-half EBIT before special items improved by 19.6% to €2,534 million (H1 2009: €2,118 million). Special items totaled minus €332 million (H1 2009: minus €124 million) overall. EBIT of the Bayer Group grew by 10.4% to €2,202 million (H1 2009: €1,994 million).
After a non-operating result of minus €505 million (H1 2009: minus €626 million), income before income taxes for the first half came in at €1,697 million (H1 2009: €1,368 million). The non-operating result contained net interest expense of €255 million (H1 2009: €333 million). After tax expense of €479 million (H1 2009: €414 million), after-tax income was €1,218 million (H1 2009: €954 million).
After non-controlling interest, net income for the first half of 2010 amounted to €1,218 million (H1 2009: €957 million). Earnings per share were €1.47 (H1 2009: €1.22). Core earnings per share advanced 19.9% to €2.35 (H1 2009: €1.96). The calculation of core earnings per share is explained in
Chapter 7.
Gross cash flow improved by 4.1% compared with the first half of 2009, to €2,557 million (H1 2009: €2,457 million), mainly because of the expansion of business at MaterialScience. Net cash flow advanced by 8.8% to €2,277 million (H1 2009: €2,092 million). Net financial debt rose to €10.7 billion as of June 30, 2010, compared to €9.7 billion on December 31, 2009. The net pension liability – the aggregate of pension obligations and plan assets – rose by €1.3 billion compared with December 31, 2009, to €7.7 billion, mainly because of lower long-term interest rates on the capital market.