a n n u a l r e p o r t 2010 cover picture » Key Data dialoGue with partners » Mission Statement » Chairman’s Letter ........................................................................... 4 Bayer’s researchers maintain a constant dialogue with scientists at leading univer­­ » Board of Management ...................................................................... 8 sities, as well as with customers and co- » Report of the Supervisory Board ...................................................... 10 operation partners. The focus of this communication is on jointly addressing investor information questions related to tomorrow’s challenges » Bayer Stock and Bonds ................................................................... 14 – fully in line with our mission “Bayer: Science For A Better Life.” BaYER MAGaZINe » For Better Health .......................................................................... 20 In the cover picture of our Annual Report, » For Healthier Nutrition ................................................................... 26 chemist Dr. Christoph Gürtler – project » For Sustainable Products ................................................................ 32 manager at Bayer MaterialScience – and scientist Daniela d’Elia from RWTH Aachen » Highlights 2010 ............................................................................ 38 University discuss how to use climate- damaging carbon dioxide as a valuable raw » com Bined manaGement report material for sustainable industrial produc- of the BaYer Group and BaYer aG .............................. 44 tion. This is the objective of the “Dream Production” project launched by Bayer and » c onsolidated financial statements its partners in science and industry. The of the BaYer Group ...................................................... 141 idea is to chemically bind CO2 and use it to partially replace conventional fossil raw further information materials in the manufacture of polymers. » Governance Bodies ..................................................................... 256 The picture shows the two researchers » Organization Chart ....................................................................... 259 viewing a scanning electron micrograph » Glossary ................................................................................... 260 of a polyurethane foam. » Index ....................................................................................... 264 » Global Commitment to Sustainability .............................................. 266 » The Bayer Group » At Home Throughout The World For direct access to a chapter, » Five-Year Financial Summary simply click on its name. » Financial Calendar, Masthead, Disclaimer TABLE OF CONTENTS Key Data [Table 1.1] 2009 2010 Change € million € million % Bayer Group Sales 31,168 35,088 + 12.6 EBIT 1 3,006 2,730 – 9.2 EBIT before special items 2 3,772 4,452 + 18.0 EBITDA 3 5,815 6,286 + 8.1 EBITDA before special items 2 6,472 7,101 + 9.7 EBITDA margin before special items 4 20.8% 20.2% Income before income taxes 1,870 1,721 – 8.0 Net income 1,359 1,301 – 4.3 Earnings per share (€) 5 1.70 1.57 – 7.6 Core earnings per share (€) 6 3.64 4.19 + 15.1 Gross cash Ġ ow 7 4,658 4,771 + 2.4 Net cash Ġ ow 8 5,375 5,773 + 7.4 Net ğ nancial debt 9,691 7,917 – 18.3 Capital expenditures as per segment table 1,669 1,621 – 2.9 Research and development expenses 2,746 3,053 + 11.2 Dividend per Bayer AG share (€) 1.40 1.50 + 7.1 HealthCare Sales 15,988 16,913 + 5.8 EBIT 2,640 1,861 – 29.5 EBIT before special items 2 3,012 3,030 + 0.6 EBITDA 3 4,148 4,116 – 0.8 EBITDA before special items 2 4,468 4,405 – 1.4 EBITDA margin before special items 4 27.9% 26.0% Gross cash Ġ ow 7 3,153 2,948 – 6.5 Net cash Ġ ow 8 3,431 3,320 – 3.2 CropScience Sales 6,510 6,830 + 4.9 EBIT 798 261 – 67.3 EBIT before special items 2 1,017 787 – 22.6 EBITDA 3 1,311 767 – 41.5 EBITDA before special items 2 1,508 1,293 – 14.3 EBITDA margin before special items 4 23.2% 19.0% Gross cash Ġ ow 7 1,043 546 – 47.7 Net cash Ġ ow 8 745 1,399 + 87.8 MaterialScience Sales 7,520 10,154 + 35.0 EBIT (266) 780 • EBIT before special items 2 (126) 780 • EBITDA 3 341 1,356 • EBITDA before special items 2 446 1,356 • EBITDA margin before special items 4 5.9% 13.4% Gross cash Ġ ow 7 319 1,058 • Net cash Ġ ow 8 849 763 – 10.1 In some cases, the sum of the ğ gures given in this report may not precisely equal the stated totals and percentages may not be exact due to rounding. 1 EBIT = operating result as shown in the income statement 2 EBIT(DA) before special items is not değ ned in the International Financial Reporting Standards and should therefore be regarded only as supplementary information. The company considers EBITDA before special items to be a more suitable indicator of operating performance since it is not affected by depreciation, amortization, impairments or special items. By reporting this indicator, the company aims to give readers a clearer picture of the results of operations and ensure greater comparability of data over time. See also Combined Management Report, Chapter 4.2 “Calculation of EBIT(DA) Before Special Items.” 3 EBITDA = EBIT plus amortization and impairment losses on intangible assets and depreciation and impairment losses on property, plant and equipment, minus impairment loss reversals. 4 The EBITDA margin before special items is calculated by dividing EBITDA before special items by sales. 5 Earnings per share as değ ned in IAS 33 = adjusted net income divided by the average number of shares. For details see Note [16] to the consolidated ğ nancial statements. 6 Core earnings per share are not değ ned in the International Financial Reporting Standards and should therefore be regarded only as supplementary information. The company considers that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of data over time. Thebcalculation of core earnings per share is explained in the Combined Management Report, Chapter 4.3. 7 Gross cash Ġ ow = income after taxes, plus income taxes, plus non-operating result, minus income taxes paid or accrued, plus depreciation, amortization and im- pairment losses, minus impairment loss reversals, plus / minus changes in pension provisions, minus gains / plus losses on retirements of noncurrent assets, minus gains from the remeasurement of already held assets in step acquisitions. The change in pension provisions includes the elimination of non-cash components of the operating result (EBIT). It also contains beneğ t payments during the year. For details see Combined Management Report, Chapter 4.5 “Liquidity and Capital Expenditures of the Bayer Group.“ 8 Net cash Ġ ow = cash Ġ ow from operating activities according to IAS 7 000_E_17_Umschlag_innen.indd 1 26.02.11 18:46 TABLE OF CONTENTS Bayer: Science For A Better Life Bayer is a global enterprise with core competencies in the fi elds of health care, nutrition and high-tech materials. As an inventor company, we set trends in research-intensive areas. Our products andbservices are designed to benefi t people and improve their quality of life. At the samebtime we aim to create value through innovation, growth and high earning power. We are committed to the principles of sustainable development and to our social and ethical responsibilities as a corporate citizen. TABLE OF CONTENTS Our Values. Bayer’s corporate culture is an important factor in the company’s success. Central to this culture are our values: Leadership, Integrity, Flexibility and Effi ciency – orblife for short. They provide us with guidance for our daily work as we seek solutions to the major challenges of our time, in line with our mission “Bayer: Science For A Better Life.” TABLE OF CONTENTS LIFE our valuesour L leadership • Be passionate for people and performance • Show personal drive, inspire and motivate others • Be accountable for actions and results, successes and failures • Treat others fairly and with respect • Give clear, candid and timely feedback • Manage confl icts constructively • Create value for all our stakeholders I integrity • Be a role model • Comply with laws, regulations and good business practices • Trust others and build trustful relationships • Be honest and reliable • Listen attentively and communicate appropriately • Ensure sustainability: balance short-term results with long-term requirements • Care about people, safety and the environment F flexibility • Drive change actively • Be ready to adapt to future trends and needs • Challenge the status quo • Think and act with customers in mind • Seek out opportunities and take calculated risks • Be open-minded • Embrace lifelong learning E efficiency • Manage resources smartly • Focus on activities that create value • Do things simply and effectively • Deliver with appropriate costs, speed and quality • Speed up good decision-making • Be accountable for consistent execution • Collaborate for better solutions TABLE OF CONTENTS Our Brand. The Bayer brand has a special charisma and is among the most famous worldwide. Around the globe, the name “Bayer” stands for innovative, high-quality products. At the same time, our brand symbolizes trust and reliability and therefore makes the company more competitive. That is why webare further raising our brand profi le by using our umbrella brand even more systematically and effectively. TABLE OF CONTENTS The Bayer Cross enjoys a very good reputation under the “Bayer HealthCare Pharma ceuticals” internationally. We fi rmly believe that