Earnings Performance of Bayer AG

Bayer AG Summary Income Statements according to the German Commercial Code

 

 

2015

 

2016

 

 

€ million

 

€ million

Net sales

 

86

 

390

Cost of goods sold

 

(88)

 

(353)

Gross profit

 

(2)

 

37

Selling expenses

 

(3)

 

(39)

Research and development expenses

 

 

(46)

General administration expenses

 

(324)

 

(666)

Other operating income

 

13

 

48

Other operating expenses

 

(86)

 

(227)

Operating income

 

(402)

 

(893)

Income from investments in affiliated companies – net

 

2,444

 

4,647

Interest expense / income – net

 

(484)

 

54

Other financial income – net

 

409

 

163

Non-operating income

 

2,369

 

4,864

Income taxes

 

(606)

 

(371)

Income after taxes / net income

 

1,361

 

3,600

Withdrawal from other retained earnings / allocation to other retained earnings

 

706

 

(1,367)

Distributable profit

 

2,067

 

2,233

Significant improvement in net income

The former subsidiaries Bayer HealthCare AG and Bayer Technology Services GmbH were merged into Bayer AG with effect from January 1, 2016. For this reason the operating result, in particular, has only limited comparability with the prior year with respect to both its total amount and the individual components. It came in well below the 2015 level, at minus €893 million. Taking into account the 2015 operating results of the two merged companies totaling minus €199 million, the reference figure for 2015 was minus €601 million. On this basis the operating result therefore declined by €292 million in 2016. Of the latter amount, €198 million was attributable to the first-time recognition by Bayer AG of provisions for impending losses from sales and licensing agreements transferred to Bayer AG effective January 1, 2017, with the businesses leased from Bayer Pharma AG and Bayer CropScience AG. The provisions for the same purpose established by the two subsidiaries were correspondingly reversed and recognized in profit or loss. Other components of the decline in earnings were expenses for various projects, also in connection with the planned acquisition of Monsanto Company, which increased by €74 million.

Income from investments in affiliated companies increased by €2,203 million to €4,647 million. Bayer Pharma AG made the largest contribution to the operating result with significantly improved income of €3,011 million (2015: €1,793 million). The growth in earnings was due to substantial sales increases for the high-margin products Xarelto™ and Adempas™ along with higher income from investments in affiliated companies, lower net interest expense and an improvement in the currency position. Income of Bayer CropScience AG came in slightly ahead of 2015 at €1,017 million (2015: €964 million) despite the absence of the prior year’s one-time gains from a patent litigation. Earnings growth was due to an improvement in the gross operating result and a substantial net exchange gain. Significant effects of profit-and-loss transfer agreements were the transfer of a €50 million (€2015: €118 million) loss from Bayer Business Services GmbH and income of €204 million (2015: €149 million) from Siebte Bayer VV GmbH, which receives regular dividend income from a U.S. subsidiary that handles export business in the United States for Bayer Health Care LLC. Apart from profit and loss transfers there was also income of €329 million in 2016 from investments in affiliated companies, including €91 million from Covestro AG, and gains of €130 million from retirements of such investments.

Bayer AG had net interest income of €54 million in 2016, a significant improvement from the net interest expense of €484 million in the previous year. This was almost entirely due to a gain from the measurement of pension provisions and other noncurrent provisions for personnel commitments. Interest-related actuarial gains and fund asset growth overcompensated the expenses for the unwinding of discount on these provisions by €303 million. The net expenses in 2015 amounted to €276 million. Of the remaining €249 million (2015: €208 million) balance of interest expenses and income, €53 million (2015: minus €29 million) was attributable to Group companies and €196 million (2015: €179 million) to third parties, with the creditors of the bonds and commercial paper programs accounting for €189 million (2015: €228 million).

Other financial income and expenses yielded a positive balance of €163 million (2015: €409 million). The decrease was mainly due to the absence of the one-time gain of €217 million incurred in the prior year from the settlement by Covestro Deutschland AG of compensation claims with respect to pension entitlements of former employees. Gains from charging on to other subsidiaries the pension expenses for retirees who remained with Bayer AG following the hive-downs of operating businesses in 2002 and 2003 were substantially lower at only €4 million (2015: €178 million). The decrease was due to the decline in pension expenses, the interest portion of which was reflected in interest expense while the remainder was reflected in other financial income and expenses. Fees for granted credit facilities, which in 2016 pertained mainly to the financing of the planned acquisition of Monsanto, amounted to €57 million (2015: €22 million). Set against this was the result of the translation of foreign currency receivables and payables and the measurement of the relevant derivatives. This amounted to €179 million (2015: €6 million).

Income before income taxes greatly exceeded the prior-year level at €3,971 million (2015: €1,967 million). Tax expense nonetheless declined from €606 million to €371 million due to the absence of the previous year’s tax effects resulting from the formation of the Covestro Group and a higher proportion of tax-free income from investments in affiliated companies. After deduction of taxes, net income was €3,600 million (2015: €1,361 million). An allocation of €1,367 million was made to other retained earnings, giving a distributable profit of €2,233 million.

2,233 million

Distributable profit

The Board of Management and Supervisory Board will propose to the Annual Stockholders’ Meeting on April 28, 2017, that the distributable profit be used to pay a dividend of €2.70 per share (826,947,808 shares) on the capital stock of €2,117 million entitled to the dividend.