Overview of Sales, Earnings and Financial Position

Earnings Performance of the Bayer Group1

Second quarter of 2017

Group sales

Sales of the Bayer Group increased by 1.9% (Fx & portfolio adj.) to €12,193 million in the second quarter of 2017 (reported: +3.0%). Germany accounted for €1,216 million of this figure. Sales of the Life Science businesses declined by 2.8% (Fx & portfolio adj.) to €8,714 million.

Pharmaceuticals posted sales growth of 4.4% (Fx & portfolio adj.) to €4,304 million, mainly due to our key growth products continuing to deliver strong performance. Sales at Consumer Health declined year on year, falling by 2.2% (Fx. & portfolio adj.) to €1,542 million. Sales at Crop Science fell by a significant 15.8% (Fx & portfolio adj.) to €2,163 million, primarily due to its Brazil business. Excluding Brazil, sales matched the prior-year level. Animal Health achieved growth of 2.1% (Fx & portfolio adj.), with sales rising to €450 million. Sales at Covestro improved considerably, increasing by 15.8% (Fx & portfolio adj.) to €3,479 million.

EBITDA before special items

At €3,056 million, EBITDA before special items of the Bayer Group matched the prior-year level (+0.1%). EBITDA before special items at Pharmaceuticals improved by a very encouraging 9.5% to €1,481 million. At Consumer Health, EBITDA before special items declined by 4.3% to €314 million. EBITDA before special items at Crop Science decreased by a significant 52.2% to €317 million, mainly due to provisions for product returns in Brazil. EBITDA before special items of Animal Health climbed by 16.0% to €116 million. Overall, EBITDA before special items of our Life Science businesses declined by 10.5% to €2,247 million. Covestro raised EBITDA before special items by a considerable 49.0% to €809 million.

Depreciation, amortization and special items

Depreciation, amortization and impairment losses were 2.2% higher in the second quarter of 2017, at €832 million (Q2 2016: €814 million), comprising €422 million (Q2 2016: €447 million) in amortization and impairments on intangible assets and €410 million (Q2 2016: €367 million) in depreciation and impairments on property, plant and equipment. Impairment losses and impairment loss reversals amounted to €126 million, of which €122 million (Q2 2016: €0 million) constituted special items. In addition, an amount of €10 million was included in special items as accelerated depreciation.

EBIT

EBIT of the Bayer Group came to €2,151 million, matching the prior-year period (Q2 2016: €2,138 million; +0.6%). This figure reflected net special charges of €205 million (Q2 2016: €104 million). These mainly comprised €118 million in value adjustments in the Pharmaceuticals segment, €47 million in charges in conjunction with the agreed acquisition of Monsanto, and €37 million in charges related to efficiency improvement programs. EBIT before special items moved forward by 5.1% to €2,356 million (Q2 2016: €2,242 million).

In the second quarter of 2017, the following special effects were taken into account in calculating EBIT and EBITDA:

Special Items Reconciliation1

 

 

EBIT Q2 2016

EBIT Q2 2017

 

EBIT H1 2016

EBIT H1 2017

 

EBITDA Q2 2016

EBITDA Q2 2017

 

EBITDA H1 2016

EBITDA H1 2017

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

1

For definition see Annual Report 2016, Chapter “Alternative Performance Measures Used by the Bayer Group.”

Before special items

 

2,242

2,356

 

4,834

5,557

 

3,054

3,056

 

6,441

6,949

Pharmaceuticals

 

(11)

(120)

 

(242)

(156)

 

(10)

(7)

 

(10)

(10)

Consumer Health

 

(32)

(15)

 

(64)

(24)

 

(31)

(7)

 

(50)

(15)

Crop Science

 

(30)

(95)

 

(33)

(132)

 

(30)

(84)

 

(33)

(108)

Animal Health

 

 

(1)

 

 

(1)

Reconciliation

 

(31)

(14)

 

(36)

(34)

 

(31)

(14)

 

(36)

(34)

Restructuring

 

(26)

(14)

 

(31)

(29)

 

(26)

(14)

 

(31)

(29)

Litigations

 

(5)

 

(5)

(5)

 

(5)

 

(5)

(5)

Total special items Life Sciences

 

(104)

(244)

 

(376)

(346)

 

(102)

(112)

 

(130)

(167)

Covestro

 

39

 

56

 

39

 

47

Total special items

 

(104)

(205)

 

(376)

(290)

 

(102)

(73)

 

(130)

(120)

of which cost of goods sold

 

(16)

(66)

 

(199)

(74)

 

(14)

(42)

 

(22)

(44)

of which selling expenses

 

(30)

(40)

 

(71)

(41)

 

(30)

(8)

 

(35)

(9)

of which research and development expenses

 

(18)

(77)

 

(53)

(113)

 

(18)

(3)

 

(20)

(6)

of which general administration expenses

 

(31)

(58)

 

(44)

(93)

 

(31)

(58)

 

(44)

(93)

of which other operating income / expenses

 

(9)

36

 

(9)

31

 

(9)

38

 

(9)

32

After special items

 

2,138

2,151

 

4,458

5,267

 

2,952

2,983

 

6,311

6,829

Net income

Including a financial result of minus €405 million (Q2 2016: minus €314 million), income before income taxes was €1,746 million (Q2 2016: €1,824 million). After income tax expense of €417 million (Q2 2016: €431 million) and adjusting for income from discontinued operations after income taxes and noncontrolling interest, net income for the second quarter of 2017 amounted to €1,224 million (Q2 2016: €1,380 million).

Core earnings per share

Earnings per share (total) declined by 16.2% in the second quarter of 2017, to €1.40 (Q2 2016: €1.67), while core earnings per share from continuing operations fell by 12.6% to €1.81 (Q2 2016: €2.07). Material effects included the reduction of our interest in Covestro and the increased number of shares following the issuance of the mandatory convertible notes.

Core Earnings per Share1

 

 

Q2 2016

Q2 2017

 

H1 2016

H1 2017

 

 

€ million

€ million

 

€ million

€ million

1

For definition see Annual Report 2016, Chapter “Alternative Performance Measures Used by the Bayer Group.”

EBIT (as per income statements)

 

2,138

2,151

 

4,458

5,267

Amortization and impairment losses / loss reversals on intangible assets

 

447

422

 

1,114

771

Impairment losses / loss reversals on property, plant and equipment, and accelerated depreciation included in special items

 

(1)

33

 

17

39

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

 

102

73

 

130

120

Core EBIT

 

2,686

2,679

 

5,719

6,197

Financial result (as per income statements)

 

(314)

(405)

 

(629)

(754)

Special items in the financial result

 

164

 

(10)

199

Income taxes (as per income statements)

 

(431)

(417)

 

(905)

(1,012)

Special items in income taxes

 

 

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

 

(156)

(195)

 

(374)

(332)

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

 

(68)

(253)

 

(138)

(441)

Above-mentioned adjustments attributable to noncontrolling interest

 

(5)

9

 

(7)

12

Core net income from continuing operations

 

1,712

1,582

 

3,656

3,869

 

 

 

 

 

 

 

 

 

Shares

Shares

 

Shares

Shares

Weighted average number of shares

 

826,947,808

872,107,808

 

826,947,808

871,747,808

 

 

 

 

 

 

 

 

 

 

Core earnings per share from continuing operations

 

2.07

1.81

 

4.42

4.44

Core earnings per share from discontinued operations

 

0.13

0.17

 

0.20

0.28

Core earnings per share from continuing and discontinued operations

 

2.20

1.98

 

4.62

4.72

In calculating net income and core earnings per share, the sale of a further 17.25 million shares in Covestro AG to institutional investors in the second quarter, at a price of €62.25 per share, was taken into consideration. In addition, 8 million shares of Covestro AG were deposited in Bayer Pension Trust e.V. at a price of €63.04 per share. Bayer thus reduced its interest from 53.3% to 40.9% of the issued stock.

As of June 30, 2017, personnel expenses rose by 1.3% compared with June 30, 2016, to €2,826 million (Q2 2016: €2,789 million). As of the closing date, the number of employees in the Bayer Group was largely unchanged year on year, at 115,680 (June 30, 2016: 115,576; +0.1%).

First half of 2017

Group sales

Sales of the Bayer Group in the first half of 2017 increased by 5.7% (Fx & portfolio adj.) to €25,437 million (reported: +7.4%), with Germany accounting for €2,610 million of this figure. Our Life Science businesses grew sales by 1.1% (Fx & portfolio adj.) to €18,394 million.

Sales of Pharmaceuticals advanced by 5.8% (Fx & portfolio adj.) to €8,567 million. At Consumer Health, sales were flat year on year at €3,143 million (Fx & portfolio adj.: +0.2%). Crop Science sales declined by 5.4% (Fx & portfolio adj.) to €5,283 million. Animal Health posted a 2.5% increase (Fx & portfolio adj.) in sales to €890 million. At Covestro, sales improved by a substantial 19.6% (Fx & portfolio adj.) to €7,043 million.

EBITDA before special items

EBITDA before special items of the Bayer Group advanced by 7.9% to €6,949 million (H1 2016: €6,441 million). Pharmaceuticals increased EBITDA before special items by a substantial 14.2% to €2,983 million. EBITDA before special items of Consumer Health came to €706 million, matching the prior-year period (−0.7%). EBITDA before special items at Crop Science declined by a substantial 18.3% to €1,432 million, while Animal Health registered a significant earnings increase of 13.1% to €251 million. Overall, EBITDA before special items of the Life Science businesses declined slightly by 1.7% compared with the prior-year period, to €5,301 million. Covestro raised EBITDA before special items by a considerable 57.4% to €1,648 million.

Depreciation, amortization and special items

In the first half of 2017, depreciation, amortization and impairments amounted to €1,562 million (H1 2016: €1,853 million), comprising €771 million (H1 2016: €1,114 million) in amortization and impairments on intangible assets and €791 million (H1 2016: €739 million) in depreciation and impairments on property, plant and equipment. Impairment losses and impairment loss reversals amounted to €166 million (H1 2016: €298 million). Impairment losses and impairment loss reversals in the amount of €160 million (H1 2016: €244 million) as well as accelerated depreciation in the amount of €10 million constituted special items.

EBIT

EBIT of the Bayer Group rose by a substantial 18.1% to €5,267 million (H1 2016: €4,458 million), after net special charges of €290 million (H1 2016: €376 million). These mainly comprised €151 million in value adjustments, €68 million in charges in conjunction with the agreed acquisition of Monsanto, and €63 million in charges related to efficiency improvement programs. EBIT before special items moved forward by a significant 15.0% to €5,557 million (H1 2016: €4,834 million).

Net income

Including a financial result of minus €754 million (H1 2016: minus €629 million), income before income taxes amounted to €4,513 million (H1 2016: €3,829 million). The financial result comprised in particular a net interest expense of €268 million (H1 2016: €260 million), currency hedging costs in the amount of €233 million (H1 2016: €177 million), and interest cost of €115 million (H1 2016: €143 million) for pension and other provisions. After tax expense of €1,012 million (H1 2016: €905 million), income after income taxes was €3,501 million (H1 2016: €2,924 million). Adjusted for income from discontinued operations after income taxes and noncontrolling interest, net income came to €3,307 million (H1 2016: €2,891 million).

Core earnings per share

Earnings per share (total) increased to €3.79 (H1 2016: €3.50), while core earnings per share from continuing operations amounted to €4.44, in line with the prior-year period (H1 2016: €4.42).

[1] For a definition of alternative performance measures, see the Annual Report 2016, Chapter “Alternative Performance Measures Used by the Bayer Group.”