Earnings Performance of Bayer AG

Bayer AG Summary Income Statements according to the German Commercial Code

 

 

2017

 

2018

 

 

€ million

 

€ million

Net sales

 

14,730

 

14,647

Cost of goods sold

 

(7,914)

 

(8,219)

Gross profit

 

6,816

 

6,428

Selling expenses

 

(3,898)

 

(4,509)

Research and development expenses

 

(2,186)

 

(2,331)

General administration expenses

 

(908)

 

(1,056)

Other operating income

 

85

 

268

Other operating expenses

 

(102)

 

(115)

Operating income

 

(193)

 

(1,315)

Income from investments in affiliated companies – net

 

5,794

 

4,739

Interest income / expense – net

 

(369)

 

(562)

Other financial income / expense – net

 

(354)

 

(511)

Nonoperating income

 

5,071

 

3,666

Income taxes

 

(335)

 

(234)

Income after taxes / net income

 

4,543

 

2,117

Profit carried forward from the previous year

 

 

498

Allocation to other retained earnings

 

(1,643)

 

(4)

Distributable profit

 

2,900

 

2,611

Earnings decline, impacted by restructuring measures

Sales of Bayer AG were level with the previous year at €14.6 billion (2017: €14.7 billion). Sales of Pharmaceuticals were slightly higher but remained at around €8.5 billion, while Crop Science registered a decline to €6.0 billion (2017: €6.1 billion). Nondivisional sales were unchanged at €0.1 billion.

At Pharmaceuticals, Xarelto™ remained the division’s best-selling product by far, registering sales of €2.5 billion. We recorded sales gains for Adempas™ (+€159 million), Glucobay™ (+€114 million) and Aspirin™ Cardio (+€103 million), among others, but declines for Adalat™ (– €144 million), Levitra™ (– €37 million) and Ciprobay™ (– €36 million). Of the total sales, business with Bayer Group companies accounted for 91% and business with third parties for 9%.

The slight decline in sales at Crop Science was largely attributable to the divestments to BASF. Declines of €95 million at Herbicides and €21 million at SeedGrowth stood against positive development at Insecticides (+ €79 million) and Fungicides (+36 million). Cost reimbursements from other Bayer Group companies fell by €70 million. From a regional perspective, North America was responsible for the decline in sales, with sales in that region down by €0.3 billion. Latin America, in particular, showed a year-on-year recovery, with sales there advancing by €0.1 billion. The lion’s share of sales, at 96%, was attributable to intra-Group business with Bayer companies.

The cost of goods sold increased to €8.2 billion, mainly due to expenses of €320 million for the restructuring measures initiated in 2018. After deducting the cost of goods sold from sales, gross profit was €6.4 billion (2017: €6.8 billion), or 44% of sales (2017: 46%). The gross margin was 57% (2017: 58%) at Pharmaceuticals and 31% (2017: 34%) at Crop Science. Selling expenses rose by €611 million to €4.5 billion, largely due to a €402 million increase in lease payments arising from Bayer AG’s business lease agreements with Bayer Pharma AG and Bayer CropScience AG. In addition to lease payments, selling expenses mainly comprised €3.3 billion in royalties, €2.3 billion of which was paid to Bayer Intellectual Property GmbH for the use of patents, trademarks and other intellectual property. Research and development expenses included €287 million for restructuring measures, and therefore climbed by €145 million to €2.3 billion, of which Pharmaceuticals accounted for €1.6 billion (+€90 million) and Crop Science for €0.5 billion (+€56 million). General administration expenses were up by €148 million year on year at €1.1 billion, due primarily to salary increases. The balance of other operating expenses and other operating income was positive at €153 million (2017: negative balance of €17 million), mainly due to the intra-Group compensation payments received for restructuring expenses incurred in connection with the impairment losses recognized for the newly constructed Factor VIII plant in Wuppertal.

The operating loss widened by a substantial €1,122 million to €1,315 million in 2018 (2017: €193 million), mainly as a result of special charges relating to the initiated restructuring measures and higher expenses for the business lease.

Income from investments in affiliated companies fell by €1,055 million to €4,739 million. This was primarily due to a decline of €667 million in dividends and similar income from subsidiaries to €152 million (2017: €819 million) and a €908 million decline in income from profit and loss transfer agreements to €1,337 million (2017: €2,245 million). The decline in dividends and similar income from subsidiaries largely pertained to Bayer Hispania, S.L., Spain, which did not pay a dividend in 2018 after a dividend of €591 million in the previous year. Furthermore, a dividend payment of only €63 million (2017: €146 million) was received from Covestro AG due to the lower number of shares. The decline in income from profit and loss transfer agreements was primarily attributable to a lower profit transfer from Bayer Pharma AG (€1,438 million in 2018, compared with €2,248 million in 2017). Following the assumption of operational activities by Bayer AG, earnings of that company mainly result from dividends and similar income as well as income from the business lease and intra-Group financing measures. There was also a year-on-year decline in income transferred from Bayer Real Estate GmbH (€30 million in 2018, compared with €130 million in 2017) and from Siebte Bayer VV GmbH, which receives regular dividends from a U.S. subsidiary that handles export business in the United States for Bayer Health Care LLC (€6 million in 2018, compared with €94 million in 2017). The €127 million loss recorded by Bayer Business Services GmbH, which was offset by Bayer AG, was well below the 2017 figure of €201 million that arose due to project costs. The divestment of shares in Covestro AG resulted in proceeds of €3,314 million in 2018 (2017: €2,720 million).

Net interest expense increased from €369 million to €562 million. This was primarily the result of an €847 million increase in net expense from the interest portion of the allocation to noncurrent provisions, particularly for pensions and other post-employment benefits, and from the valuation of the fund assets, to €677 million (2017: net gain of €170 million). The increased expense was due to higher interest-related actuarial losses on obligations and the negative development of assets. There was also higher net interest expense of €291 million (2017: €4 million) from bank loans that mainly related to the Monsanto financing. The balance of interest expense and income attributable to intra-Group transactions improved significantly for the same reason: after net interest expense of €246 million in the previous year, net interest income of €204 million was recognized in 2018. An improvement in the balance of interest expense and income also resulted from hedging transactions in connection with the financing of the Monsanto acquisition, which led to income of €368 million upon their respective maturities in May and June 2018. The remaining net interest expense of €166 million (2017: €290 million) comprised the balance of €169 million (2017: €186 million) in interest paid on bonds, €28 million (2017: €109 million) for interest-rate swaps and options, and €31 million (2017: €5 million) in miscellaneous income items.

The negative balance of other financial income and expenses widened in 2018, to €511 million (2017: €354 million), mainly due to impairment losses of €459 million recognized on the interest in Covestro AG that is now reflected as securities under noncurrent assets. Earnings were also diminished by charges of €97 million in connection with the public capital increase in June 2018 and charges of €50 million resulting from the derecognition of Monsanto shares held by Bayer AG following their acquisition-related retirement. However, the substantial €289 million improvement in income from currency translation to €77 million (2017: loss of €212 million) had an opposing effect. Bank charges for credit facilities were also €83 million lower at €138 million, including €126 million (2017: €210 million) in connection with the financing of the Monsanto acquisition. Earnings were also buoyed by a €76 million decrease in pension expenses (excluding the interest portion recognized in the balance of interest expense and income) for retirees remaining with Bayer AG following the hive-down of the operating business in 2002 and 2003.

Income before income taxes amounted to €2,351 million overall in 2018, down €2,527 million from the prior-year figure of €4,878 million. After deduction of €234 million (2017: €335 million) in taxes, net income was €2,117 million (2017: €4,543 million). Including €498 million in profit carried forward from the previous year and after an allocation of €4 million to other retained earnings, the distributable profit was €2,611 million.

The Board of Management and Supervisory Board will propose to the Annual Stockholders’ Meeting on April 26, 2019, that the distributable profit be used to pay a dividend of €2.80 per share on the capital stock entitled to the dividend.

Compare to Last Year