Earnings, Asset and Financial Position of the Bayer Group

Earnings Performance of the Bayer Group

Bayer Group Summary Income Statements

 

 

Q4 2015

Q4 2016

Change

 

2015

2016

Change

 

 

€ million

€ million

%

 

€ million

€ million

%

2015 figures restated

1

For definition see Chapter “Alternative Performance Measures Used by the Bayer Group.”

Net sales

 

11,285

11,820

+4.7

 

46,085

46,769

+1.5

Cost of goods sold

 

(5,397)

(5,395)

0.0

 

(21,040)

(20,295)

−3.5

Selling expenses

 

(3,320)

(3,537)

+6.5

 

(12,272)

(12,474)

+1.6

Research and development expenses

 

(1,256)

(1,313)

+4.5

 

(4,274)

(4,666)

+9.2

General administration expenses

 

(566)

(685)

+21.0

 

(2,092)

(2,256)

+7.8

Other operating income (+) and expenses (−)

 

175

(101)

 

 

(166)

(36)

−78.3

EBIT1

 

921

789

−14.3

 

6,241

7,042

+12.8

Financial result

 

(164)

(252)

+53.7

 

(1,005)

(1,155)

+14.9

Income before income taxes

 

757

537

−29.1

 

5,236

5,887

+12.4

Income taxes

 

(166)

(119)

−28.3

 

(1,223)

(1,329)

+8.7

Income after income taxes (total)

 

583

507

−13.0

 

4,098

4,826

+17.8

of which attributable to non-controlling interest

 

(30)

54

 

 

(12)

295

 

of which attributable to Bayer AG stockholders (net income)

 

613

453

−26.1

 

4,110

4,531

+10.2

Group sales up 3.5% (Fx & portfolio adj.)

Sales of the Bayer Group rose by 3.5% (Fx & portfolio adj.) to €46,769 million (reported: +1.5%) in 2016, including €4,809 million in Germany. Our Life Sciences This term describes Bayer’s activities in health care and agriculture and comprises the Bayer Group excluding its legally independent subsidiary Covestro. It refers to the businesses of the Pharmaceuticals, Consumer Health and Crop Science divisions and the Animal Health business unit. businesses contributed to this performance, growing sales by 4.7% (Fx & portfolio adj.) to €34,943 million.

Sales of Pharmaceuticals advanced by an encouraging 8.7% (Fx & portfolio adj.) to €16,420 million. This development continued to be driven primarily by our key growth products. Consumer Health also raised sales by 3.5% (Fx & portfolio adj.) to €6,037 million. Despite a weak market environment, Crop Science posted sales of €9,915 million to match the prior-year level (Fx & portfolio adj.: +0.1%). Sales of Animal Health rose by 4.8% (Fx & portfolio adj.) to €1,523 million. Covestro sales were level year on year at €11,826 million (Fx & portfolio adj.: 0.0%).

Changes in Sales

 

 

Life Sciences

 

Group

 

 

2015

2016

 

2015

2016

 

 

%

%

 

%

%

2015 figures restated

Volume

 

+5.1

+3.9

 

+4.4

+4.2

Price

 

+0.6

+0.8

 

−1.7

−0.7

Currency

 

+5.0

−2.2

 

+5.8

−2.0

Portfolio

 

+5.0

0.0

 

+3.6

0.0

Total

 

+15.7

+2.5

 

+12.1

+1.5

The cost of goods sold fell by 3.5% to €20,295 million in 2016, mainly due to lower raw material costs at Covestro. The ratio of the cost of goods sold to total sales therefore declined year on year to 43.4% (2015: 45.7%). The selling expenses of €12,474 million (+1.6%) amounted to 26.7% of sales (2015: 26.6%). Research and development (R&D) expenses rose by 9.2% to €4,666 million, mainly due to higher R&D investment at Pharmaceuticals. The ratio of R&D expenses to sales was 10.0% (2015: 9.3%). General administration expenses climbed by 7.8% to €2,256 million, due especially to the establishment of administrative functions at Covestro. The ratio of general administration expenses to total sales therefore increased to 4.8% (2015: 4.5%). The substantially lower balance of other operating expenses and other operating income of minus €36 million (2015: minus €166 million) resulted mainly from positive effects from derivatives to hedge planned sales.

EBITDA before special items considerably improved

+10.2%

growth in EBITDA before special items

EBITDA before special items of the Bayer Group moved forward by 10.2% to €11,302 million (2015: €10,256 million). Pharmaceuticals improved EBITDA before special items by 13.8% to €5,251 million (2015: €4,616 million). This substantial increase in earnings was largely due to the good development of business, particularly for our key growth products. Consumer Health saw a decline in EBITDA before special items by 3.1% to €1,411 million. Favorable business development and cost synergies only partly offset the higher cost of goods sold and negative currency effects of about €65 million. EBITDA before special items of Crop Science came in at the prior-year level, up 0.6% to €2,421 million. A positive currency effect of about €140 million and higher selling prices stood against lower volumes, higher research and development expenses and higher impairment losses on trade accounts receivable in particular. EBITDA before special items of Animal Health was also level with the previous year with a change of 0.6%, while Covestro registered a substantial 19.6% increase in EBITDA before special items to €1,984 million.

Depreciation, amortization and special items

Depreciation, amortization and impairment losses were 12.3% higher in 2016 at €3,743 million (2015: €3,332 million), comprising €2,235 million (2015: €1,802 million) in amortization and impairments on intangible assets and €1,508 million (2015: €1,530 million) in depreciation and impairments on property, plant and equipment. A total of €566 million (2015: €136 million) in impairments constituted special items. EBITDA for the reporting year amounted to €10,785 million. In 2016, the following special effects were taken into account in calculating EBIT and EBITDA before special items:

Special Items Reconciliation The reconciliation records, on the one hand, those business activities not assigned to any other segment (“All Other Segments”), including particularly the services provided by Business Services, Technology Services and Currenta. It also includes “Corporate Functions and Consolidation,” which largely comprises Bayer holding companies and the Bayer Lifescience Center. 1

 

 

EBIT Q4 2015

EBIT Q4 2016

 

EBIT
2015

EBIT
2016

 

EBITDA Q4 2015

EBITDA Q4 2016

 

EBITDA 2015

EBITDA 2016

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

2015 figures restated

1

For definition see Chapter “Alternative Performance Measures Used by the Bayer Group.”

Before special items

 

1,037

1,376

 

7,060

8,130

 

1,916

2,179

 

10,256

11,302

Pharmaceuticals

 

(190)

(310)

 

(299)

(558)

 

(136)

(152)

 

(241)

(167)

Consumer Health

 

(55)

(199)

 

(237)

(292)

 

(52)

(38)

 

(234)

(115)

Crop Science

 

301

(39)

 

222

(143)

 

295

(37)

 

222

(141)

Animal Health

 

(19)

(5)

 

(64)

(7)

 

(8)

(4)

 

(30)

(6)

Reconciliation

 

(9)

(34)

 

(109)

(88)

 

(9)

(34)

 

(109)

(88)

Restructuring

 

(9)

(34)

 

(76)

(83)

 

(9)

(34)

 

(76)

(83)

Litigations

 

 

(32)

(5)

 

 

(32)

(5)

Revaluation of other receivables

 

 

(1)

 

 

(1)

Total special items Life Sciences

 

28

(587)

 

(487)

(1,088)

 

90

(265)

 

(392)

(517)

Covestro

 

(144)

 

(332)

 

(128)

 

(291)

Total special items

 

(116)

(587)

 

(819)

(1,088)

 

(38)

(265)

 

(683)

(517)

of which cost of goods sold

 

(169)

(193)

 

(440)

(412)

 

(144)

(53)

 

(363)

(93)

of which selling expenses

 

(118)

(221)

 

(198)

(317)

 

(107)

(39)

 

(183)

(99)

of which research and development expenses

 

(51)

(18)

 

(67)

(84)

 

(9)

(17)

 

(23)

(50)

of which general administration expenses

 

(43)

(69)

 

(203)

(185)

 

(43)

(69)

 

(203)

(185)

of which other operating income / expenses

 

265

(86)

 

89

(90)

 

265

(87)

 

89

(90)

After special items

 

921

789

 

6,241

7,042

 

1,878

1,914

 

9,573

10,785

EBIT

EBIT increased by 12.8% in 2016 to €7,042 million, including special charges of €1,088 million (2015: €819 million). These mainly comprised €561 million for impairment losses on intangible assets, charges of €242 million in connection with efficiency improvement programs and €100 million in costs for the integration of acquired businesses. Further special charges of €94 million were related to provisions for litigations, while €86 million were connected with the agreed acquisition of Monsanto. EBIT before special items rose by 15.2% to €8,130 million (2015: €7,060 million).

+12.8%

growth in EBIT

Net income increased by 10.2%

Including a financial result of minus €1,155 million (2015: minus €1,005 million), income before income taxes was €5,887 million (2015: €5,236 million). The financial result comprised items including net interest expense of €548 million (2015: €455 million), interest cost of €294 million (2015: €287 million) for pension and other provisions, and currency hedging costs of €193 million (2015: €254 million). After tax expense of €1,329 million (2015: €1,223 million), income after income taxes was €4,826 million (2015: €4,098 million). Including income after income taxes from discontinued operations and income attributable to noncontrolling interest, net income for 2016 amounted to to €4,531 million (2015: €4,110 million; +10.2%).

Core earnings per share increased by 7.3%

Earnings per share (total) rose by 9.5% to €5.44, while core earnings per share from Continuing operations Sales and earnings reporting for continuing operations pertains only to business operations that are expected to remain in the company’s portfolio for the foreseeable future; opposite of discontinued operations. increased by 7.3% to €7.32. In November 2016, Bayer placed €4 billion in mandatory convertible notes without granting subscription rights to existing stockholders of the company. According to IAS 33.23, the weighted average number of shares increases as soon as the notes contract is signed, and this increase must be taken into account in calculating undiluted and diluted earnings per share. The new weighted average number of shares is based on the minimum conversion price of €90, which determines the maximum conversion ratio.

Core Earnings per Share1

 

 

Q4 2015

Q4 2016

 

2015

2016

 

 

€ million

€ million

 

€ million

€ million

2015 figures restated

1

For definition see Chapter “Alternative Performance Measures Used by the Bayer Group.”

EBIT (as per income statements)

 

921

789

 

6,241

7,042

Amortization and impairment losses / loss reversals on intangible assets

 

529

724

 

1,802

2,235

Impairment losses / loss reversals on property, plant and equipment

 

55

14

 

115

35

Special items (other than amortization and impairment losses / loss reversals)

 

38

265

 

683

517

Core EBIT

 

1,543

1,792

 

8,841

9,829

Financial result (as per income statements)

 

(164)

(252)

 

(1,005)

(1,155)

Special items in the financial result

 

(120)

(61)

 

(150)

(105)

Income taxes (as per income statements)

 

(166)

(119)

 

(1,223)

(1,329)

Special items in income taxes

 

(39)

 

(39)

Tax effects related to amortization, impairment losses / loss reversals and special items

 

(149)

(294)

 

(755)

(838)

Income after income taxes attributable to noncontrolling interest (as per income statements)

 

30

(54)

 

12

(295)

Above-mentioned adjustments attributable to noncontrolling interest

 

(39)

(3)

 

(39)

(13)

Core net income from continuing operations

 

896

1,009

 

5,642

6,094

 

 

Shares

Shares

 

Shares

Shares

Weighted average number of shares

 

826,947,808

849,167,808

 

826,947,808

832,502,808

 

 

 

Core earnings per share from continuing operations

 

1.08

1.19

 

6.82

7.32

Core earnings per share from discontinued operations

 

0.10

 

0.13

0.41

Core earnings per share from continuing and discontinued operations

 

1.08

1.29

 

6.95

7.73

Online Annex: A 2.2.1-1

limited assurance

Development in the fourth quarter of 2016

Group sales in the fourth quarter of 2016 rose by 4.8% (Fx & portfolio adj.) to €11,820 million (reported: +4.7%). Germany accounted for €1,103 million of this figure.

Group targets 2016

growth and profitability

Sales of Pharmaceuticals improved by 7.1% (Fx & portfolio adj.) to €4,275 million (reported: +7.3%), due especially to the strong business development of our key growth products. Consumer Health increased sales by 4.4% (Fx & portfolio adj.) to €1,539 million (reported: +2.2%). Sales of Crop Science were down slightly year on year, falling by 1.6% (Fx & portfolio adj.) to €2,404 million (reported: +0.0%). Animal Health posted a 3.1% gain in sales to €329 million. Sales of the Life Science businesses amounted to €8,832 million overall (Fx & portfolio adj.: +3.6%). Business at Covestro expanded by 8.6% (Fx & portfolio adj.) to €2,997 million (reported: +8.0%).

EBITDA before special items of the Bayer Group improved by 13.7% to €2,179 million in the fourth quarter of 2016 (Q4 2015: €1,916 million). At Pharmaceuticals, EBITDA before special items climbed by 12.2% to €1,217 million (Q4 2015: €1,085 million). This increase in earnings was due to the very good development of business, particularly for our key growth products. EBITDA before special items of Consumer Health receded by 3.4% to €372 million. At Crop Science, EBITDA before special items edged ahead by 1.2% to €351 million (Q4 2015: €347 million). EBITDA before special items of Covestro moved forward by a substantial 45.1% to €373 million (Q4 2015: €257 million).

EBIT of the Bayer Group declined by 14.3% to €789 million in the fourth quarter of 2016 (Q4 2015: €921 million) after special charges of €587 million (Q4 2015: €116 million). These mainly comprised €330 million for impairment losses on intangible assets as well as charges of €104 million in connection with efficiency improvement programs and charges of €85 million related to litigations. Also included were costs of €34 million in connection with the agreed acquisition of Monsanto and €30 million for the integration of acquired businesses. EBIT before special items advanced by 32.7% to €1,376 million (Q4 2015: €1,037 million).

Bayer Group Quarterly Sales, EBIT and EBITDA before Special Items

 

 

Q1

 

Q2

 

Q3

 

Q4

 

Total

 

 

2015

2016

 

2015

2016

 

2015

2016

 

2015

2016

 

2015

2016

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

Sales

 

11,793

11,854

 

12,003

11,833

 

11,004

11,262

 

11,285

11,820

 

46,085

46,769

EBIT

 

1,925

2,320

 

1,823

2,138

 

1,572

1,795

 

921

789

 

6,241

7,042

EBITDA before special items

 

2,922

3,387

 

2,888

3,054

 

2,530

2,682

 

1,916

2,179

 

10,256

11,302

After a financial result of minus €252 million (Q4 2015: minus €164 million), income before income taxes was €537 million (Q4 2015: €757 million). The financial result mainly comprised net interest expense of €147 million (Q4 2015: €46 million), interest cost of €85 million (Q4 2015: €67 million) for pension and other provisions, and currency hedging gains of €39 million (Q4 2015: currency hedging losses of €67 million). Net interest expense in the prior year included interest income of €109 million in connection with a litigation (DOW). After income tax expense of €119 million, income from discontinued operations after taxes and noncontrolling interest, net income in the fourth quarter of 2016 came to €453 million (Q4 2015: €613 million). Earnings per share decreased to €0.53 (Q4 2015: €0.74). Core earnings per share from continuing operations rose to €1.19 (Q4 2015: €1.08).

Cash inflows from operating activities (total) climbed by a substantial 45.6% to €2,732 million (Q4 2015: €1,877 million) and resulted mainly from the significant increase in EBIT and a tangible decrease in additional cash tied up in Working capital is the difference between short-term current assets and short-term liabilities; it is calculated by deducting short-term liabilities from current assets (excluding cash and cash equivalents). In the statement of cash flows, the change in working capital is one of the variables used to assess a company’s financial health. The objective of working capital management is to reduce working capital by minimizing the “financing gap” caused by the time lapse between the disbursement of funds (= payment for necessary raw materials) and the receipt of funds for the finished product. . In the fourth quarter of 2016, we paid income taxes amounting to €119 million (Q4 2015: €166 million). Net financial debt fell by €4 billion in the fourth quarter of 2016 to €11.8 billion (September 30, 2016: €15.8 billion), largely as a result of cash inflows from operating activities and the issuance of mandatory convertible notes. The net defined benefit liability for post-employment benefits decreased by €3.4 billion against September 30, 2016, to €11.1 billion, due primarily to a rise in long-term capital market interest rates for high-quality corporate bonds.