Management Report

Bayer MaterialScience

Key Data – MaterialScience	1st Quarter 2008	1st Quarter 2009	Change
	€ million	€ million	%
Sales	2,512	1,636	-34.9
Polyurethanes	1,305	844	-35.3
Polycarbonates	610	374	-38.7
Coatings, Adhesives, Specialties	440	276	-37.3
Industrial Operations	157	142	-9.6
Sales by Region
Europe	1,135	681	-40.0
North America	521	374	-28.2
Asia/Pacific	529	372	-29.7
Latin America/Africa/Middle East	327	209	-36.1
EBITDA*	407	(128)	.
Special items	0	(12)
EBITDA before special items*	407	(116)	.
EBITDA margin before special items*	16.2%	(7.1)%
EBIT*	281	(281)	.
Special items	0	(18)
EBIT before special items*	281	(263)	.
Gross cash flow**	310	(60)	.
Net cash flow**	146	207	+41.8
2008 figures restated * for details see “Calculation of EBIT(DA) Before Special Items” ** for definition see “Liquidity and Capital Resources”

Sales of the MaterialScience subgroup in the first quarter of 2009 slumped to €1,636 million (-34.9%). After adjusting for currency and portfolio effects, business was down by 38.4%. The global economic crisis resulted in significantly lower demand from the customer industries relevant to MaterialScience. We experienced a sharp overall drop in volumes, accompanied by increasing pressure on prices. This applied to nearly all product groups of our business units in all regional markets.

The Polyurethanes business unit posted sales of €844 million (-35.3%). After adjusting for currency and portfolio effects, sales fell by 39.3%. This was attributable mainly to considerably lower volumes in all polyurethane product groups – diphenylmethane diisocyanate (MDI), toluene diisocyanate (TDI) and polyether (PET) – coupled with price erosion.

Sales of the Polycarbonates business unit dropped by 38.7% (Fx adj. -41.7%) to €374 million (Q1 2008: €610 million). Volumes for both polycarbonate granules and polycarbonate sheet moved back significantly in all regions. We also experienced declining prices for polycarbonate granules but succeeded in slightly raising selling prices for polycarbonate sheet.

Sales of our Coatings, Adhesives, Specialties business unit fell by 37.3% to €276 million. On a currency- and portfolio-adjusted basis, sales were down by 40.8%. Prices remained constant overall, and volumes fell steeply in all regions.

Industrial Operations saw sales shrink by 9.6% year on year to €142 million. The currency-adjusted decline was 12.1%, with volume declines for basic chemicals being almost offset by price increases.

EBITDA before special items of MaterialScience slumped to minus €116 million (Q1 2008: plus €407 million). This was due primarily to lower volumes and selling prices, accompanied by substantially lower capacity utilization at our production facilities. The drop in earnings was tempered by savings from the restructuring program initiated in 2007. The relative easing of the situation on the raw material markets important to MaterialScience had only a slight beneficial effect on earnings compared with the prior-year quarter, since the bulk of our sales in the first quarter of 2009 was of products manufactured with higher-priced raw materials. In the first quarter of 2009, the segment recorded EBIT before special items of minus €263 million (Q1 2008: plus €281 million). Special charges for restructuring came to €18 million. EBIT came in at minus €281 million (Q1 2008: plus €281 million).