Overview of Sales, Earnings and Financial Position

Earnings Performance of the Bayer Group3

Second quarter of 2018

Group sales

Group sales in the second quarter of 2018 rose by 8.5% (Fx & portfolio adj.) to €9,481 million (reported: +8.8%). Germany accounted for €959 million of this figure.

Pharmaceuticals posted a sales gain of 3.1% (Fx & portfolio adj.) to €4,217 million. Sales at Consumer Health came in slightly below the prior-year quarter at €1,413 million (Fx & portfolio adj. −1.4%). At Crop Science, sales climbed by 21.4% (Fx & portfolio adj.) to €3,011 million, which was largely attributable to the recognition of significantly higher provisions for product returns in the prior-year quarter due to high inventory levels in Brazil. On a reported basis, sales increased by 39.2%, thanks mainly to a portfolio effect of 25.0% (€543 million) from the acquisition of Monsanto. Animal Health sales grew by 7.6% (Fx & portfolio adj.) to €453 million.

3 For definition of alternative performance measures, see Annual Report 2017, Chapter “Alternative Performance Measures Used by the Bayer Group.”

EBITDA before special items

Group EBITDA before special items rose by 3.9% to €2,335 million. Negative currency effects held back earnings by around €130 million. EBITDA before special items at Pharmaceuticals declined by 8.0% to €1,363 million. At Consumer Health, EBITDA before special items fell by 18.5% to €256 million. Crop Science posted a 99.1% increase in EBITDA before special items to €631 million, which was attributable to the recognition of significantly higher provisions for product returns in Brazil in the prior-year quarter. The newly acquired business contributed €70 million to earnings. EBITDA before special items of Animal Health advanced by 10.3% to €128 million.

Depreciation and amortization

Depreciation, amortization and impairment losses declined by 0.9% in the second quarter of 2018 to €666 million (Q2 2017: €672 million). This figure comprised €416 million (Q2 2017: €416 million) in amortization and impairments on intangible assets and €251 million (Q2 2017: €255 million) in depreciation and impairments on property, plant and equipment. Depreciation and amortization of €55 million was attributable to assets that either resulted from remeasurements or were recognized for the first time in connection with the Monsanto purchase price allocation.

Impairment losses totaled €54 million (Q2 2017: €126 million), including €2 million (Q2 2017: €23 million) on property, plant and equipment. A total of €45 million (Q2 2017: €122 million) in impairment losses and impairment loss reversals constituted special items.

EBIT and special items

EBIT of the Bayer Group fell by 7.7% to €1,351 million (Q2 2017: €1,463 million), after special charges of €363 million (Q2 2017: €244 million). The special charges resulted mainly from expenses of €287 million in connection with the acquisition of Monsanto, including €126 million associated with the sale of acquired inventories remeasured at fair value in connection with the purchase price allocation. There were further special charges of €43 million for impairment losses on intangible assets and of €32 million for efficiency improvement measures. EBIT before special items was up by 0.4% at €1,714 million (Q2 2017: €1,707 million), and thus came in at the level of the prior-year quarter.

The following special effects were taken into account in calculating EBIT and EBITDA:

Special Items Reconciliation by Segment1

 

 

EBIT Q2 2017

EBIT Q2 2018

 

EBIT H1 2017

EBIT H1 2018

 

EBITDA Q2 2017

EBITDA Q2 2018

 

EBITDA H1 2017

EBITDA H1 2018

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

2017 figures restated

1

For definition see Annual Report 2017, Chapter “Alternative Performance Measures Used by the Bayer Group.”

Before special items

 

1,707

1,714

 

4,236

4,102

 

2,247

2,335

 

5,301

5,231

Pharmaceuticals

 

(120)

(56)

 

(156)

(57)

 

(7)

(13)

 

(10)

(14)

Consumer Health

 

(15)

1

 

(24)

(4)

 

(7)

1

 

(15)

(4)

Crop Science

 

(95)

(280)

 

(132)

(341)

 

(84)

(278)

 

(108)

(339)

Animal Health

 

(3)

 

(3)

 

(3)

 

(3)

Reconciliation

 

(14)

(25)

 

(34)

(36)

 

(14)

(25)

 

(34)

(36)

Restructuring

 

(14)

(13)

 

(29)

(18)

 

(14)

(13)

 

(29)

(18)

Litigations / legal risks

 

 

(5)

(3)

 

 

(5)

(3)

Acquisition costs

 

(12)

 

(15)

 

(12)

 

(15)

Total special items

 

(244)

(363)

 

(346)

(441)

 

(112)

(318)

 

(167)

(396)

Impairment losses / reversals

 

(118)

(43)

 

(151)

(43)

 

(6)

 

(6)

Litigations / legal risks

 

(2)

(2)

 

(7)

(6)

 

(2)

(2)

 

(7)

(6)

Acquisition costs

 

(47)

(287)

 

(68)

(348)

 

(47)

(285)

 

(68)

(346)

Restructuring

 

(37)

(32)

 

(80)

(45)

 

(27)

(32)

 

(56)

(45)

Divestitures

 

(40)

1

 

(40)

1

 

(30)

1

 

(30)

1

After special items

 

1,463

1,351

 

3,890

3,661

 

2,135

2,017

 

5,134

4,835

Special Items Reconciliation by Functional Costs1

 

 

EBIT Q2 2017

EBIT Q2 2018

 

EBIT H1 2017

EBIT H1 2018

 

EBITDA Q2 2017

EBITDA Q2 2018

 

EBITDA H1 2017

EBITDA H1 2018

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

2017 figures restated

1

For definition see Annual Report 2017, Chapter “Alternative Performance Measures Used by the Bayer Group.”

Total special items

 

(244)

(363)

 

(346)

(441)

 

(112)

(318)

 

(167)

(396)

of which cost of goods sold

 

(66)

(148)

 

(91)

(158)

 

(42)

(145)

 

(53)

(155)

of which selling expenses

 

(40)

(16)

 

(41)

(18)

 

(8)

(16)

 

(9)

(18)

of which research and development expenses

 

(77)

(50)

 

(113)

(53)

 

(3)

(7)

 

(6)

(10)

of which general administration expenses

 

(58)

(149)

 

(93)

(207)

 

(58)

(149)

 

(93)

(207)

of which other operating income / expenses

 

(3)

 

(8)

(5)

 

(1)

(1)

 

(6)

(6)

Income after income taxes from discontinued operations

Income after income taxes from discontinued operations was minus €8 million (Q2 2017: €641 million). Covestro was still included in the prior-year period.

Net income

After a financial result of minus €322 million (Q2 2017: minus €369 million), income before income taxes was €1,029 million (Q2 2017: €1,094 million). The financial result primarily consisted of net interest expense of €270 million (Q2 2017: €133 million), as well as special charges of €106 million (Q2 2017: €164 million), mainly in connection with the bridge financing for the Monsanto acquisition. After income tax expense of €216 million (Q2 2017: €258 million) and adjusting for income from discontinued operations after income taxes and noncontrolling interest, net income for the second quarter of 2018 amounted to €799 million (Q2 2017: €1,224 million).

Core earnings per share

Earnings per share (total) were €0.87 in the second quarter of 2018 (Q2 2017: €1.38), while core earnings per share from continuing operations increased by 1.3% to €1.54 (Q2 2017: €1.52).

Core Earnings per Share1

 

 

Q2 2017

 

Q2 2018

 

H1 2017

 

H1 2018

 

 

€ million

 

€ million

 

€ million

 

€ million

2017 figures restated

1

For definition see Annual Report 2017, Chapter “Alternative Performance Measures Used by the Bayer Group.”

2

The weighted average number of shares (basic and diluted) was restated for all periods prior to June 2018 to reflect the effect of the bonus component of the subscription rights issued as part of the June 2018 capital increase

EBIT (as per income statements)

 

1,463

 

1,351

 

3,890

 

3,661

Amortization and impairment losses / loss reversals on intangible assets

 

416

 

416

 

758

 

713

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

 

33

 

2

 

46

 

9

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

 

112

 

318

 

167

 

396

Core EBIT

 

2,024

 

2,087

 

4,861

 

4,779

Financial result (as per income statements)

 

(369)

 

(322)

 

(665)

 

(192)

Special items in the financial result

 

164

 

106

 

199

 

(130)

Income taxes (as per income statements)

 

(258)

 

(216)

 

(682)

 

(710)

Special items in income taxes

 

 

 

 

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

 

(214)

 

(240)

 

(352)

 

(347)

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

 

(2)

 

(6)

 

 

(6)

Above-mentioned adjustments attributable to noncontrolling interest

 

 

 

 

Core net income from continuing operations

 

1,345

 

1,409

 

3,361

 

3,394

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Shares

 

Shares

 

Shares

Weighted average number of shares2

 

885,186,889

 

915,694,644

 

884,826,889

 

900,704,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core earnings per share from continuing operations

 

1.52

 

1.54

 

3.80

 

3.77

In April 2018, the Singapore-based investment firm Temasek subscribed to 31 million new Bayer shares, for total gross proceeds of €3 billion. The subscription rights of existing stockholders were excluded from this capital increase.

In June 2018, a capital increase with subscription rights for existing stockholders was implemented, raising around €6.0 billion in net proceeds. Approximately 74.6 million new shares were issued. As the subscription price of the new shares was below the market price of the existing shares, this capital increase contains a bonus component pursuant to IAS 33. The weighted average number of shares was adjusted to reflect the effect of this bonus component for all periods prior to June 2018.

Personnel expenses and employee numbers

Personnel expenses increased by 9.4%, in part due to currency effects and to the Monsanto acquisition, and totaled €2,566 million (Q2 2017: €2,345 million). As of the closing date, the number of employees in the Bayer Group was 124,055 (June 30, 2017: 99,720), up by 24.4%, due largely to the Monsanto acquisition.

First half of 2018

Group sales

Group sales in the first half of 2018 rose by 5.1% (Fx & portfolio adj.) to €18,619 million (reported: +1.2%). Germany accounted for €1,999 million of this figure.

Sales of Pharmaceuticals advanced by 3.0% (Fx & portfolio adj.) to €8,292 million. Sales at Consumer Health were down slightly against the first half of 2017, declining by 1.8% (Fx & portfolio adj.) to €2,822 million. Sales at Crop Science climbed by 8.1% (Fx & portfolio adj.) to €5,872 million, primarily due to the previously described effect in Brazil. On a reported basis, sales increased by 11.1%, thanks mainly to a portfolio effect of 10.3% (€543 million) from the acquisition of Monsanto. Animal Health posted a 5.4% increase (Fx & portfolio adj.) in sales to €867 million.

EBITDA before special items

EBITDA before special items of the Bayer Group declined slightly year on year, falling by 1.3% to €5,231 million (H1 2017: €5,301 million). EBITDA before special items at Pharmaceuticals decreased by 6.9% to €2,778 million. EBITDA before special items of Consumer Health fell by 19.4% to €569 million. Crop Science posted a considerable increase in EBITDA before special items, which rose by 16.8% to €1,673 million. This was mainly attributable to the aforementioned effects in Brazil and to the earnings contribution of the newly acquired business. Earnings of Animal Health also increased, rising by 6.4% to €267 million.

Depreciation and amortization

Depreciation, amortization and impairment losses amounted to €1,174 million in the first half of 2018 (H1 2017: €1,244 million), comprising €712 million (H1 2017: €758 million) in amortization and impairments on intangible assets and €462 million (H1 2017: €486 million) in depreciation and impairments on property, plant and equipment. An amount of €55 million was related to remeasurements or to assets recognized for the first time in connection with the purchase price allocation of Monsanto.

Impairment losses totaled €75 million (H1 2017: €173 million), including €9 million (H1 2017: €37 million) on property, plant and equipment. A total of €45 million (H1 2017: €168 million) in impairment losses and impairment loss reversals constituted special items.

EBIT

EBIT of the Bayer Group fell by 5.9% to €3,661 million (H1 2017: €3,890 million), after net special charges of €441 million (H1 2017: €346 million). The special charges resulted mainly from expenses of €348 million in connection with the acquisition of Monsanto, including €126 million associated with the sale of acquired inventories remeasured at fair value in connection with the purchase price allocation. Further special charges of €45 million were related to efficiency improvement programs, while charges of €43 million were connected with impairments on intangible assets. EBIT before special items declined by 3.2% to €4,102 million (H1 2017: €4,236 million).

Income after income taxes from discontinued operations

Income after income taxes from discontinued operations was €0 million (H1 2017: €1,205 million). Covestro was still included in the prior-year period.

Net income

After a financial result of minus €192 million (H1 2017: minus €665 million), income before income taxes was €3,469 million (H1 2017: €3,225 million). The financial result comprised income of €341 from the sale of Covestro shares, net interest expense of €362 million (H1 2017: €251 million), an exchange loss of €78 million (H1 2017: €190 million), and interest cost of €86 million (H1 2017: €99 million) for pension and other provisions. The financial result included special gains of €130 million (H1 2017: special charges of €199 million). After tax expense of €710 million (H1 2017: €682 million), income after income taxes was €2,759 million (H1 2017: €2,543 million). After adjusting for income from discontinued operations after income taxes and noncontrolling interest, net income came to €2,753 million (H1 2017: €3,307 million).

Core earnings per share

Earnings per share (total) declined to €3.06 (H1 2017: €3.74), while core earnings per share from continuing operations of the Bayer Group were level with the prior-year period at €3.77 (H1 2017: €3.80; −0.8%).

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