Management Report
After a good third quarter:
Bayer confirms Group outlook
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Sales €8.7 billion (Fx & portfolio adj. +4.8%)
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Continuing momentum in the emerging markets (Fx adj. +9.5%)
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Operating result (EBIT) €1.1 billion (+94.9%)
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EBITDA before special items €1.8 billion (+8.5%)
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HealthCare and CropScience margins distinctly improved; MaterialScience weaker
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Net income increased to €0.6 billion (+125.3%)
The Bayer Group continued its successful development in the third quarter of 2011. On a currency- and portfolio-adjusted basis (Fx & portfolio adj.), sales rose by 4.8% to €8.7 billion (reported: +1.0%; Q3 2010: €8.6 billion), with the emerging markets accounting for a disproportionately large share of growth. The operating result (EBIT) advanced by a substantial 94.9% to €1.1 billion (Q3 2010: €0.6 billion) after special items of minus €0.1 billion (Q3 2010: minus €0.4 billion). EBITDA before special items improved by 8.5% to €1.8 billion (Q3 2010: €1.7 billion), contributory factors being lower costs at HealthCare and higher volumes at CropScience. Earnings of MaterialScience declined because of higher raw material costs. Net income more than doubled to €0.6 billion. Earnings per share rose to €0.78 (Q3 2010: €0.35) while core earnings per share moved ahead by 17.9% to €1.12 (Q3 2010: €0.95).
1. Overview of Sales, Earnings and Financial Position
Third quarter of 2011
Sales of the Bayer Group grew by 4.8% (Fx & portfolio adj.) to €8,670 million (reported: +1.0%; Q3 2010: €8,581 million). Sales of HealthCare came in at €4,200 million (Q3 2010: €4,271 million), up 1.6% after adjusting for currency and portfolio changes (reported: -1.7%). CropScience raised sales by 9.4% (Fx & portfolio adj.) compared with the prior-year quarter to €1,379 million (reported: +2.8%; Q3 2010: €1,341 million). MaterialScience improved sales by 7.4% on a currency- and portfolio-adjusted basis (reported: +3.9%) to €2,768 million (Q3 2010: €2,665 million).
EBIT of the Bayer Group posted a clear 94.9% improvement to €1,099 million (Q3 2010: €564 million). Special items totaled minus €75 million (Q3 2010: minus €436 million) including restructuring charges of €69 million. Earnings in the prior-year quarter were diminished by provisions established in connection with litigations concerning genetically modified rice (LL RICE). EBIT before special items for the Bayer Group amounted to €1,174 million (Q3 2010: €1,000 million). EBITDA before special items increased by 8.5% to €1,805 million (Q3 2010: €1,664 million). HealthCare improved EBITDA before special items by 9.3% to €1,226 million (Q3 2010: €1,122 million), due in part to cost reductions in Pharmaceuticals. EBITDA before special items at CropScience grew by 47.3% to €165 million (Q3 2010: €112 million), mainly due to higher volumes. At MaterialScience, EBITDA before special items declined to €348 million (Q3 2010: €408 million), with selling price increases failing to offset higher raw material and energy costs.
After a non-operating result of minus €224 million (Q3 2010: minus €267 million), income before income taxes rose substantially to €875 million (Q3 2010: €297 million). The main components of the non-operating result were €85 million (Q3 2010: €89 million) in interest cost for pension and other provisions and net interest expense of €109 million (Q3 2010: €141 million). After tax expense of €229 million (Q3 2010: €7 million) and non-controlling interest, net income in the third quarter of 2011 came to €642 million (Q3 2010: €285 million).
Gross cash flow in the third quarter climbed by 49.6% to €1,327 million (Q3 2010: €887 million) as a result of the improved operating performance and lower special charges. A largely seasonal improvement in trade working capital freed up cash of €222 million (Q3 2010: €225 million). In the prior-year quarter there were also some initially non-cash special charges (mainly related to the LL RICE litigation) that reduced the cash tied up in working capital. Net cash flow was level year on year at €1,577 million (Q3 2010: €1,555 million).
Net financial debt fell from €7.4 billion on June 30, 2011 to €7.0 billion due to operating cash flows. Negative currency effects of €0.3 billion were fully offset. The net pension liability rose from €6.7 billion on June 30, 2011 to €7.4 billion, mainly because of lower long-term interest rates on the capital market.
First nine months of 2011
Sales and earnings of the Bayer Group posted very encouraging increases in the first nine months of 2011, with all subgroups contributing to this performance.
Sales climbed by 6.8% after adjusting for currency and portfolio changes, to €27,337 million (reported: +4.8%; 9M 2010: €26,076 million). Sales of HealthCare rose by 2.4% on a currency- and portfolio-adjusted basis (reported: +1.0%). CropScience raised sales by a gratifying 10.9% on a currency- and portfolio-adjusted basis (reported: +7.8%) thanks to positive business development in Crop Protection/BioScience. MaterialScience contributed to the sales gain with a currency- and portfolio-adjusted increase of 11.0% (reported: +8.8%) that was attributable to higher selling prices and growth in volumes.
EBIT improved by 31.4% to €3,520 million (9M 2010: €2,679 million). Special items totaled minus €661 million (9M 2010: minus €768 million), while EBIT before special items came in at €4,181 million (9M 2010: €3,447 million). EBITDA before special items increased by 12.2% to €6,072 million (9M 2010: €5,412 million).
After a non-operating result of minus €608 million (9M 2010: minus €772 million), income before income taxes moved ahead substantially to €2,912 million (9M 2010: €1,907 million). The main components of the non-operating result were €284 million (9M 2010: €396 million) in net interest expense and €251 million (9M 2010: €268 million) in interest cost for pension and other provisions. After tax expense of €837 million (9M 2010: €456 million), after-tax income was €2,075 million (9M 2010: €1,451 million).
After non-controlling interest,
net income of the Bayer Group came in at €2,073 million (9M 2010: €1,446 million). Earnings per share improved to €2.51 (9M 2010: €1.75). Core earnings per share advanced by 19.1% to €3.86 (9M 2010: €3.24). The calculation of core earnings per share is explained in Chapter 7
“Core Earnings Per Share”.
Gross cash flow rose by 24.2% to €4,168 million (9M 2010: €3,357 million). Net cash flow was up slightly year on year at €3,908 million (9M 2010: €3,832 million). Net financial debt fell to €7.0 billion as of September 30, 2011, compared to €7.9 billion on December 31, 2010. The net pension liability – the aggregate of pension obligations and plan assets – edged up by €0.2 billion compared with December 31, 2010, to €7.4 billion, mainly because of lower long-term interest rates on the capital market.