Overview
Overview of Sales, Earnings and Financial Position
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Group strategy holds up well in a difficult environment
Bayer achieves 2008 earnings targets
- Sales advance by 1.6% to €32.9 billion
- EBITDA before special items up 2.3% to €6.9 billion
- EBIT before special items up 1.3% to €4.3 billion
- Net income of €1.7 billion
- Dividend to be raised to €1.40
- Outlook for 2009:
Earnings growth at HealthCare and CropScience;
substantial decline at MaterialScience
Significant reduction in financial debt
Overview of Sales, Earnings and Financial Position
Full year 2008
In 2008 Bayer had a successful year overall in an increasingly difficult economic environment. The Group’s key operational performance data showed a slight further improvement from the previous year, and earnings targets were achieved. We benefited from the Group’s focus on the HealthCare and CropScience businesses, which are less dependent on global economic development.
Change in Sales | 2007 | 2008 |
|---|---|---|
% | % | |
Volume | +5.6 | +2.8 |
Price | +0.5 | +1.6 |
Currency | -3.6 | -3.4 |
Portfolio | +9.3 | +0.6 |
Sales of the Bayer Group came in at €32,918 million, up 1.6% from the prior-year figure of €32,385 million. Adjusted for currency and portfolio effects, business expanded by 4.4%, slightly less than we had forecasted. HealthCare posted a 6.9% increase on a currency- and portfolio-adjusted basis. CropScience sales climbed by 13.9%. MaterialScience experienced a considerable drop in business in the fourth quarter as a result of the financial and economic crisis, causing full-year sales to drop by 4.6%.
Group EBITDA before special items rose by 2.3% to a record €6,931 million (2007: €6,777 million). With an improvement in the EBITDA margin before special items to 21.1%, we met our profitability target for fiscal 2008.
EBITDA before special items of the HealthCare subgroup advanced by 9.6% to €4,157 million (2007: €3,792 million), yielding an EBITDA margin before special items of 27.0%. Contributing to this increase were the gratifying business performance and the synergies realized from the integration of the former business of Schering AG, Berlin, Germany. Earnings of CropScience rose by 21.1% to €1,603 million (2007: €1,324 million), and the EBITDA margin before special items came in at 25.1%. This increase resulted from significantly larger volumes, selling price increases and cost savings. MaterialScience reported EBITDA before special items of €1,088 million, down by a substantial 32.3% from the prior-year figure of €1,606 million. The decline was due to lower volumes, mainly because of the overall slump in the economy in the fourth quarter. Earnings were also hampered by a high average level of petrochemical raw material and energy costs for the year.
EBIT before special items of the Bayer Group amounted to €4,342 million, up 1.3% from the prior-year figure of €4,287 million. EBIT in 2008 was diminished by net special charges of €798 million, against €1,133 million in the previous year. Of the 2008 figure, HealthCare accounted for €583 million, CropScience for €166 million and MaterialScience for €49 million. Special charges of €365 million (2007: €683 million) related to the acquisition and integration of Schering AG, €215 million (2007: €172 million) to restructuring at CropScience and MaterialScience, €106 million (2007: €139 million) to litigation and €98 million (2007: €166 million) to impairments. EBIT of the Bayer Group rose by 12.4% to €3,544 million (2007: €3,154 million).
After a non-operating result of minus €1,188 million (2007: minus €920 million), income before income taxes came in at €2,356 million (2007: €2,234 million). The main components of the non-operating result were €702 million (2007: €701 million) in net interest expense, €300 million (2007: €246 million) in interest cost for pension and other provisions and a €79 million exchange loss (2007: €88 million exchange gain). The shift in the balance of exchange gains and losses was partly due to the increased cost of exchange hedging in emerging countries arising from the expansion of our business there, while in the previous year we had benefited from exchange gains on financial transactions.
In 2008 we recorded tax expense of €636 million, compared to net tax income of €72 million in the prior year. The latter amount included a one-time, non-cash positive tax effect of €912 million arising in connection with the 2007 corporate tax reform in Germany.
Income from continuing operations after taxes receded to €1,720 million (2007: €2,306 million). After-tax income in the previous year also included €2,410 million from discontinued operations, chiefly consisting of gains from the divestitures of the diagnostics business, H.C. Starck and Wolff Walsrode.
After non-controlling interest, net income of the Bayer Group came in at €1,719 million (2007: €4,711 million). Earnings per share amounted to €2.22 (2007: €5.84). Core earnings per share improved to €4.17 (2007: €3.80). The calculation of core earnings per share is explained under “Investor Information.”
Gross cash flow increased by 10.7% from the previous year to €5,295 million (2007: €4,784 million), due to the gratifying business trend at HealthCare and CropScience. Net cash flow declined by 15.7% to €3,608 million (2007: €4,281 million), mainly due to a significant increase in cash tied up in working capital. Contributing to this increase was a higher level of receivables and inventories at HealthCare and CropScience, which was partly the result of business growth.Net debt of the Bayer Group as of December 31, 2008 amounted to €14.2 billion (2007: €12.2 billion). Components of this increase included the increase in cash tied up in working capital, €0.9 billion in acquisition-related disbursements and a €0.6 billion effect from fluctuations in major currencies against the euro. The €0.7 billion for payments to minority stockholders of Bayer Schering Pharma AG, Berlin, Germany, did not affect net debt, as the amount held in escrow accounts for this purpose was not deducted when net debt was calculated in the past.
The net pension liability rose by €1.0 billion compared with December 31, 2007, to €6.0 billion, due to sharp falls in share prices that diminished the value of stocks held by pension funds, particularly in the United States. The return on plan assets was a negative 6.5% overall.
Fourth quarter of 2008
Sales of the Bayer Group in the fourth quarter of 2008 declined by 1.5% to €7,923 million (Q4 2007: €8,040 million) due to a substantial decline in business at MaterialScience. Adjusted for currency and portfolio effects, business was down by 4.0%. While HealthCare and CropScience grew sales by 6.2% and 1.7%, respectively, on a currency- and portfolio-adjusted basis, MaterialScience saw sales decline by an adjusted 24.2%.
Key Data by Subgroup and Segment, 4th Quarter | ||||||||
|---|---|---|---|---|---|---|---|---|
| EBIT | EBITDA | EBITDA margin | |||||
4th | 4th | 4th | 4th | 4th | 4th | 4th | 4th | |
€ million | € million | € million | € million | € million | € million | % | % | |
HealthCare | 3,800 | 4,140 | 584 | 759 | 922 | 1,095 | 24.3 | 26.4 |
Pharmaceuticals | 2,619 | 2,868 | 367 | 508 | 670 | 804 | 25.6 | 28.0 |
Consumer Health | 1,181 | 1,272 | 217 | 251 | 252 | 291 | 21.3 | 22.9 |
CropScience | 1,321 | 1,352 | 43 | 53 | 177 | 182 | 13.4 | 13.5 |
Crop Protection | 1,100 | 1,124 | 33 | 52 | 147 | 158 | 13.4 | 14.1 |
Environmental |
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MaterialScience | 2,579 | 2,055 | 241 | (86) | 367 | 54 | 14.2 | 2.6 |
Systems | 1,801 | 1,506 | 240 | (17) | 325 | 82 | 18.0 | 5.4 |
Materials | 778 | 549 | 1 | (69) | 42 | (28) | 5.4 | (5.1) |
Reconciliation | 340 | 376 | (94) | 20 | (44) | 26 | (12.9) | 6.9 |
Continuing |
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* for definition see chapter “Calculation of EBIT(DA) Before Special Items” | ||||||||
Fourth-quarter EBITDA before special items came in at €1,357 million, down 4.6% from the prior-year figure of €1,422 million. HealthCare saw earnings advance by 18.8% to €1,095 million (Q4 2007: €922 million), while underlying EBITDA of CropScience improved by 2.8% to €182 million (Q4 2007: €177 million). EBITDA before special items of MaterialScience amounted to only €54 million (Q4 2007: €367 million), due mainly to the steep decline in volumes. Underlying EBIT of the Bayer Group fell by 8.8% in the fourth quarter, to €706 million. There were special charges of €294 million (Q4 2007: €389 million). Of this figure, HealthCare accounted for €197 million (Q4 2007: €311 million), CropScience for €62 million (Q4 2007: €36 million) and MaterialScience for €35 million (Q4 2007: €42 million). EBIT for the fourth quarter thus came in at €412 million (Q4 2007: €385 million).
After a non-operating result of minus €375 million (Q4 2007: minus €179 million), income before income taxes for the fourth quarter came in at €37 million (Q4 2007: €206 million). The non-operating result contained net interest expense of €167 million (Q4 2007: €160 million). After one-time tax effects, we had tax income of €65 million (Q4 2007: €149 million tax expense). Income from continuing operations after taxes came to €102 million (Q4 2007: €57 million).
After non-controlling interest, Group net income in the fourth quarter came to €106 million (Q4 2007: €67 million). Earnings per share amounted to €0.16 (Q4 2007: €0.11). Core earnings per share were €0.71 (Q4 2007: €0.71).
Gross cash flow moved ahead by 12.7% year on year in the fourth quarter of 2008, to €1,151 million. Net cash flow declined by 34.8% to €957 million (Q4 2007: €1,467 million) due to a significant increase in cash tied up in working capital.
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