Management Report

Bayer CropScience

Key Data – CropScience	1st Quarter 2008	1st Quarter 2009	Change
	€ million	€ million	%
Sales	1,978	2,120	+7.2
Crop Protection	1,622	1,734	+6.9
Environmental Science, BioScience	356	386	+8.4
Sales by Region
Europe	1,022	1,041	+1.9
North America	456	576	+26.3
Asia/Pacific	211	239	+13.3
Latin America/Africa/Middle East	289	264	-8.7
EBITDA*	663	733	+10.6
Special items	(50)	(4)
EBITDA before special items*	713	737	+3.4
EBITDA margin before special items*	36.0%	34.8%
EBIT*	524	609	+16.2
Special items	(54)	(8)
EBIT before special items*	578	617	+6.7
Gross cash flow**	489	550	+12.5
Net cash flow**	(312)	(421)	-34.9
* for definition see “Calculation of EBIT(DA) Before Special Items” ** for definition see “Liquidity and Capital Resources”

First-quarter sales of CropScience rose by 7.2% in a favorable market environment to €2,120 million (Q1 2008: €1,978 million). On a currency-adjusted basis, business expanded by 7.4%. This growth was due to selling price increases and higher volumes.

Best-Selling CropScience Products*	1st Quarter 2008	1st Quarter 2009	Change	Currency-adjusted change
	€ million	€ million	%	%
Confidor®/Gaucho®/Admire®/Merit® (Insecticides/Seed Treatment/Environmental Science)	157	163	+3.8	+0.1
Atlantis® (Herbicides)	124	131	+5.6	+10.2
Basta®/Liberty®/Rely®/Ignite® (Herbicides)	81	109	+34.6	+33.7
Proline®/Input®/Prosaro® (Fungicides)	81	107	+32.1	+34.4
Flint®/Stratego®/Sphere®/Nativo® (Fungicides)	91	105	+15.4	+7.1
Folicur®/Raxil® (Fungicides/Seed Treatment)	75	75	+0.0	+1.3
Poncho® (Seed Treatment)	72	68	-5.6	-7.7
Puma® (Herbicides)	66	58	-12.1	-7.3
Hussar® (Herbicides)	60	56	-6.7	+0.5
Fandango® (Fungicides)	44	44	+0.0	+4.0
Total	851	916	+7.6	+7.9
Proportion of CropScience sales	43%	43%
* Figures are based on active ingredient class. For the sake of clarity, only the principal brands and business units are listed.

EBITDA before special items advanced by 3.4% to €737 million (Q1 2008: €713 million). Whereas earnings were lifted by the expansion of the business, expenses for marketing and production activities increased. As a result, the EBITDA margin before special items declined by 1.2 percentage points. EBIT before special items amounted to €617 million (+6.7%). Special charges of €8 million (Q1 2008: €54 million) were taken in connection with our cost structure program. EBIT rose by 16.2% to €609 million (Q1 2008: €524 million).

Net cash flow decreased by 34.9% to minus €421 million (Q1 2008: minus €312 million), mainly because of higher inventory build-up than in the previous year in light of our positive sales expectations.

Crop Protection

Key Data – Crop Protection	1st Quarter 2008	1st Quarter 2009	Change
	€ million	€ million	%
Sales	1,622	1,734	+6.9
Herbicides	664	739	+11.3
Fungicides	448	509	+13.6
Insecticides	322	290	-9.9
Seed Treatment	188	196	+4.3
Sales by Region
Europe	880	911	+3.5
North America	296	378	+27.7
Asia/Pacific	185	207	+11.9
Latin America/Africa/Middle East	261	238	-8.8
EBITDA*	564	607	+7.6
Special items	(43)	(4)
EBITDA before special items*	607	611	+0.7
EBITDA margin before special items*	37.4%	35.2%
EBIT*	446	500	+12.1
Special items	(47)	(6)
EBIT before special items*	493	506	+2.6
Gross cash flow**	416	458	+10.1
Net cash flow**	(266)	(359)	-35.0
* for definition see “Calculation of EBIT(DA) Before Special Items” ** for definition see “Liquidity and Capital Resources”

Sales in the Crop Protection segment improved by 6.9% in the first quarter to €1,734 million (Q1 2008: €1,622 million). On a currency-adjusted basis the increase amounted to 7.0%. Sales of herbicides and fungicides registered particularly strong growth.

Sales in the Europe region moved ahead by 3.5% to €911 million (Q1 2008: €880 million). On a currency-adjusted basis, business was up by 7.8%. While business improved significantly in western Europe, demand was more restrained in many countries of central and eastern Europe due to the weak economic environment and the associated credit restrictions. Sales of our seed treatment products and fungicides in particular rose again compared to the prior-year quarter, offsetting a decline in our insecticides business. Our young products such as the cereal herbicide Atlantis®, the cereal fungicide Input® and the seed treatment Poncho® were mainly responsible for the sales growth in Europe.

Sales of our crop protection business in North America expanded by 27.7% to €378 million (Q1 2008: €296 million). On a currency-adjusted basis, business expanded by 19.1%. Our young corn herbicides in particular, such as Laudis® and CorvusTM – the latter having been launched this year – turned in an outstanding performance. We also recorded strong growth in sales of our young cereal herbicides Huskie® and Infinity® and of the weed control product Ignite® for use in herbicide-tolerant crops. Sales of our fungicides also continued to expand robustly as a result of heightened demand for Stratego® and Prosaro®, while business with seed treatment products was down because of intense competition.

Sales in the Asia/Pacific region advanced by 11.9% to €207 million (Q1 2008: €185 million). The currency-adjusted increase was 9.4%. Our business in India, South Korea, Japan and southeast Asia developed very well. By contrast, unfavorable weather patterns in China and Australia adversely impacted demand in those countries. Sales increases in the region as a whole were achieved primarily for herbicides and fungicides.

Sales in the Latin America/Africa/Middle East region amounted to €238 million, down 8.8% against the prior-year level of €261 million. Adjusted for currency effects, business shrank by 11.0%. This was chiefly attributable to lower sales of insecticides in Latin America. Extreme drought conditions hampered agriculture in Argentina, Paraguay and southern Brazil in particular and led to lower levels of infestation by insect pests. Sales of our fungicides also fell slightly, while business with herbicides and seed treatment products increased. Business in the Middle East receded due to lower sales in Turkey, whereas sales in Africa were at about the prior-year level.

EBITDA before special items in the Crop Protection segment rose by 0.7% to €611 million (Q1 2008: €607 million). Whereas earnings were lifted by selling price increases and higher volumes, expenses for marketing and production activities increased. EBIT before special items grew by 2.6% to €506 million (Q1 2008: €493 million). Special charges of €6 million (Q1 2008: €47 million) were taken in connection with our cost structure program. EBIT for the first quarter of 2009 climbed by 12.1% to €500 million (Q1 2008: €446 million).

Environmental Science, BioScience

Key Data – Environmental Science, BioScience	1st Quarter 2008	1st Quarter 2009	Change
	€ million	€ million	%
Sales	356	386	+8.4
Environmental Science	165	164	-0.6
BioScience	191	222	+16.2
Sales by Region
Europe	142	130	-8.5
North America	160	198	+23.8
Asia/Pacific	26	32	+23.1
Latin America/Africa/Middle East	28	26	-7.1
EBITDA*	99	126	+27.3
Special items	(7)	0
EBITDA before special items*	106	126	+18.9
EBITDA margin before special items *	29.8%	32.6%
EBIT*	78	109	+39.7
Special items	(7)	(2)
EBIT before special items*	85	111	+30.6
Gross cash flow**	73	92	+26.0
Net cash flow**	(46)	(62)	-34.8
* for definition see “Calculation of EBIT(DA) Before Special Items” ** for definition see “Liquidity and Capital Resources”

In the Environmental Science, BioScience segment, sales climbed by 8.4% to €386 million (Q1 2008: €356 million). The currency-adjusted increase was 9.0%.

Sales of Environmental Science dipped by 0.6% to €164 million, the currency-adjusted decrease amounting to 3.3%. In Europe we recorded a sharp decline in sales of products for consumers, due in part to the long winter season. In North America we saw a slight improvement in business with products for both consumers and professional users compared with the low level of the prior-year period.

Sales of the BioScience business unit moved ahead by an encouraging 16.2% to €222 million. Adjusted for currency effects, the increase came to 19.7%. This significant expansion resulted primarily from the successful sales performance in North America of our hybrid canola seed marketed under the InVigor® brand. We also registered increases in our cotton seed business in the United States and India and in our vegetable seed business in Asia and Latin America.

EBITDA before special items of the Environmental Science, BioScience segment improved by €20 million in the first quarter of 2009, to €126 million (+18.9%). The main reason for this higher profitability, apart from the expansion of business at BioScience, was an increase in selling prices in both units. EBIT before special items advanced by 30.6% to €111 million (Q1 2008: €85 million). After special charges of €2 million (Q1 2008: €7 million) for restructuring, EBIT came in at €109 million (+39.7%).