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4.1 Earnings Performance of the Bayer Group

Bayer Group Summary Income Statements			[Table 3.15]
	2008	2009	Change
	€ million	€ million	%
Sales	32,918	31,168	-5.3
Cost of goods sold	16,456	15,135	-8.0
Selling expenses	8,105	7,923	-2.2
Research and development expenses	2,653	2,746	+3.5
General administration expenses	1,649	1,623	-1.6
Other operating income and expenses – net	(511)	(735)	-43.8
EBIT (operating result)	3,544	3,006	-15.2
Non-operating result	(1,188)	(1,136)	+4.4
Income before income taxes	2,356	1,870	-20.6
Income taxes	(636)	(511)	-19.7
Income after taxes from discontinued operations	4	0	•
Income after taxes	1,724	1,359	-21.2
of which attributable to non-controlling interest	5	0	•
of which attributable to Bayer AG stockholders (net income)	1,719	1,359	-20.9

Sales of the Bayer Group in 2009 fell by 5.3% or €1,750 million year on year to €31,168 million. The decline was mainly due to the drop in business at MaterialScience in the first three quarters. Adjusted for currency and portfolio effects, sales fell by 5.7%.

The cost of goods sold decreased by 8.0% to €15,135 million. This was mainly attributable to a considerably lower cost of goods sold at MaterialScience, which resulted mainly from the drop in volumes and lower average raw material and energy prices for the year. The ratio of the cost of goods sold to total sales was 48.6% (2008: 50.0%). Selling expenses declined by 2.2% to €7,923 million, and were thus equivalent to 25.4% (2008: 24.6%) of sales. We increased our expenditures for research and development again in 2009 by 3.5% to €2,746 million. The ratio of R&D expenses to sales was 8.8% (2008: 8.1%). However, we reduced general administration expenses by 1.6% to €1,623 million (2008: €1,649 million). This was partly due to synergies from the integration of Schering, Berlin, Germany, and measures related to our restructuring program at MaterialScience. The negative balance of other operating income and expenses, at €735 million, resulted mainly from costs related to the integration of Schering, restructuring, litigations, additional funding for the German corporate pension assurance association, and valuation write-downs.

EBIT for 2009 came in at €3,006 million (2008: €3,544 million). Before net special charges of €766 million (2008: €798 million), EBIT decreased by 13.1% to €3,772 million (2008: €4,342 million).

The non-operating result improved by €52 million to minus €1,136 million. It included substantially lower net interest expense of €548 million (2008: €702 million), €436 million (2008: €300 million) in interest cost for pension and other provisions, a €59 million (2008: €70 million) net loss from investments in affiliated companies and a €92 million (2008: €79 million) net exchange loss. The change in net interest expense was partly due to the reduction of financial debt and to lower interest rates. The increase in interest expense for pension and other provisions resulted mainly from a decline in the return on pension plan assets, which is offset against the interest on pension provisions.

Tax expense in 2009 amounted to €511 million (2008: €636 million). Income after taxes, which in 2009 was equivalent to net income, came in at €1,359 million. Net income in 2008 was €1,719 million, including €4 million in income from discontinued operations and after deduction of €5 million in income attributable to non-controlling interest.