Management Report
Second quarter of 2011:
Bayer continues positive momentum
- Sales €9.3 billion (Fx & portfolio adj. +5.4%)
- Operating result (EBIT) €1.3 billion (+25.9%)
- EBITDA before special items €2.0 billion (+5.8%)
- Net income rises substantially to €0.7 billion (+40.9%)
- Group outlook confirmed for 2011
- Gratifying progress with innovation projects
- Implementation of efficiency measures
The Bayer Group continued its successful performance in the second quarter of 2011. On a currency- and portfolio-adjusted basis (Fx & portfolio adj.), sales rose by 5.4% to €9.3 billion (reported: +0.8%; Q2 2010: €9.2 billion). The expansion of business in the emerging markets made an above-average contribution to this development. The operating result (EBIT) increased by a substantial 25.9% to €1.3 billion (Q2 2010: €1.0 billion) after special items of €0.1 billion (Q2 2010: €0.3 billion). EBITDA before special items improved by 5.8% to €2.0 billion (Q2 2010: €1.9 billion). These improvements were attributable especially to a good season in the northern hemisphere for CropScience and a slight expansion of business at HealthCare. Business in the MaterialScience subgroup was level year on year. Net income rose by a marked 40.9% to €0.7 billion (Q2 2010: €0.5 billion). Earnings per share were €0.90 (Q2 2010: €0.64). Core earnings per share climbed by 11.2% to €1.29 (Q2 2010: €1.16).
In the second quarter of 2011, we made significant progress with products from our R&D pipeline, especially our anticoagulant Xarelto™, VEGF Trap-Eye for the treatment of wet age-related macular degeneration and our cancer drug Alpharadin™.
The efficiency-enhancing measures announced at the end of 2010 are being implemented as planned.
1. Overview of Sales, Earnings and Financial Position
Second quarter of 2011
Sales of the Bayer Group grew by 5.4% (Fx & portfolio adj.) to €9,252 million (reported: +0.8%; Q2 2010: €9,179 million). Sales of HealthCare came in at €4,208 million (Q2 2010: €4,305 million). This corresponds to a currency- and portfolio-adjusted increase of 1.8% (reported: -2.3%). CropScience significantly raised sales by 9.2% (Fx & portfolio adj.) compared to the prior-year quarter to €1,943 million (reported: +3.1%; Q2 2010: €1,884 million). MaterialScience improved sales by 8.3% on a currency- and portfolio-adjusted basis (reported: +3.5%) to €2,782 million (Q2 2010: €2,689 million).
EBIT of the Bayer Group improved by a substantial 25.9% to €1,273 million (Q2 2010: €1,011 million). Special items totaled minus €144 million (Q2 2010: minus €255 million) overall. Restructuring, particularly at CropScience und HealthCare, accounted for €179 million of this figure. By contrast, valuation adjustments for our pension provisions in the United Kingdom resulted in income of €35 million. EBIT before special items of the Bayer Group came to €1,417 million (Q2 2010: €1,266 million). EBITDA before special items increased by 5.8% to €2,035 million (Q2 2010: €1,923 million). HealthCare improved EBITDA before special items by 3.0% to €1,156 million (Q2 2010: €1,122 million), thanks mainly to lower costs at Pharmaceuticals. EBITDA before special items of CropScience grew by 23.9% to €471 million (Q2 2010: €380 million), chiefly as a result of significantly higher volumes. At MaterialScience, EBITDA before special items came in level year on year at €372 million (Q2 2010: €373 million). Higher raw material and energy costs were more than offset by selling price increases. Earnings were diminished by higher operating costs and negative currency effects.
After a non-operating result of minus €171 million (Q2 2010: minus €261 million), income before income taxes amounted to €1,102 million (Q2 2010: €750 million). The main components of the non-operating result were €83 million (Q2 2010: €89 million) in interest cost for pension and other provisions and net interest expense of €64 million (Q2 2010: €138 million). This improvement was due particularly to an interest effect associated with a tax settlement agreement in Brazil, which also led to higher tax expenditures and thus also a higher tax ratio. After tax expense of €356 million (Q2 2010: €221 million) and non-controlling interest, net income in the second quarter of 2011 came to €747 million (Q2 2010: €530 million).
Gross cash flow in the second quarter moved forward by 18.6% to €1,532 million (Q2 2010: €1,292 million) as a result of the improved operating performance. Cash tied up in working capital was nearly unchanged in the second quarter of 2011. By contrast, liquid assets were freed up from working capital in the prior-year quarter. Net cash flow was level year on year at €1,530 million (Q2 2010: €1,545 million).
Net financial debt climbed only slightly despite the high outflows for the dividend, variable compensation and interest payments that are typical for the second quarter, increasing from €7.1 billion on March 31, 2011 to €7.4 billion on June 30, 2011. The net pension liability edged forward from €6.6 billion to €6.7 billion, mainly because of lower long-term interest rates on the capital market.
First half of 2011
The Bayer Group achieved a gratifying improvement in sales and earnings in the first half of 2011, with all subgroups contributing to this performance.
Sales climbed by 7.8% on a currency- and portfolio-adjusted basis to €18,667 million (reported: +6.7%; H1 2010: €17,495 million). HealthCare sales grew by a currency- and portfolio-adjusted 2.9% (reported: +2.4%). Thanks to a good season in the northern hemisphere and high prices for agricultural raw materials, CropScience achieved a gratifying 11.4% increase in sales after adjusting for currency and portfolio effects (reported: +9.5%). MaterialScience contributed to the positive trend in Group sales with a currency- and portfolio-adjusted increase of 13.0% (reported: +11.5%), which was attributable to a significantly better price level and an expansion in volumes.
EBIT improved by 14.5% to €2,421 million (H1 2010: €2,115 million). Special items totaled minus €586 million (H1 2010: minus €332 million), while EBIT before special items came in at €3,007 million (H1 2010: €2,447 million). EBITDA before special items advanced by 13.8% to €4,267 million (H1 2010: €3,748 million).
After a non-operating result of minus €384 million (H1 2010: minus €505 million), income before income taxes rose substantially to €2,037 million (H1 2010: €1,610 million). The non-operating result contained net interest expense of €175 million (H1 2010: €255 million). After tax expense of €608 million (H1 2010: €449 million), after-tax income was €1,429 million (H1 2010: €1,161 million).
After non-controlling interest,
net income of the Bayer Group came in at €1,431 million (H1 2010: €1,161 million). Earnings per share improved to €1.73 (H1 2010: €1.40). Core earnings per share advanced by 19.7% to €2.74 (H1 2010: €2.29). The calculation of core earnings per share is explained in
Chapter 7.
Gross cash flow rose by 15.0% to €2,841 million (H1 2010: €2,470 million). Net cash flow was up slightly year on year at €2,331 million (H1 2010: €2,277 million). Net financial debt fell to €7.4 billion as of June 30, 2011, compared to €7.9 billion on December 31, 2010. The net pension liability – the aggregate of pension obligations and plan assets – declined by €0.5 billion compared with December 31, 2010, to €6.7 billion, mainly because of higher long-term interest rates on the capital market.