Earnings; Asset and Financial Position of the Bayer Group

Earnings Performance of the Bayer Group

Bayer Group Key Data

 

 

Q4 2017

Q4 2018

 

Change1

 

2017

2018

 

Change1

 

 

€ million

€ million

 

Reported %

Fx & p adj. %

 

€ million

€ million

 

Reported %

Fx & p adj. %

2017 figures restated

Fx & p adj. = currency- and portfolio-adjusted

1

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

Sales

 

8,596

11,062

 

+28.7

+5.8

 

35,015

39,586

 

+13.1

+4.5

Change in sales1

 

 

 

 

 

 

 

 

 

 

 

 

Volume

 

+5.1%

+5.5%

 

 

 

 

+2.3%

+5.3%

 

 

 

Price

 

–2.4%

+0.3%

 

 

 

 

–0.8%

–0.8%

 

 

 

Currency

 

–5.3%

–0.2%

 

 

 

 

–1.4%

–4.1%

 

 

 

Portfolio

 

0.0%

+23.1%

 

 

 

 

+0.1%

+12.7%

 

 

 

Sales by region

 

 

 

 

 

 

 

 

 

 

 

 

Europe / Middle East / Africa

 

3,115

3,288

 

+5.6

+2.4

 

13,388

14,143

 

+5.6

+3.9

North America

 

2,219

3,394

 

+53.0

+4.3

 

10,143

11,569

 

+14.1

+0.8

Asia / Pacific

 

1,774

2,084

 

+17.5

+12.6

 

7,637

8,115

 

+6.3

+7.3

Latin America

 

1,488

2,296

 

+54.3

+7.0

 

3,847

5,759

 

+49.7

+11.0

EBITDA1

 

1,460

46

 

–96.8

 

 

8,563

10,266

 

+19.9

 

Special items1

 

(323)

(2,019)

 

 

 

 

(725)

719

 

 

 

EBITDA before special items1

 

1,783

2,065

 

+15.8

 

 

9,288

9,547

 

+2.8

 

EBITDA margin before special items1

 

20.7%

18.7%

 

 

 

 

26.5%

24.1%

 

 

 

EBIT1

 

625

(4,142)

 

.

 

 

5,903

3,914

 

–33.7

 

Special items1

 

(632)

(5,251)

 

 

 

 

(1,227)

(2,566)

 

 

 

EBIT before special items1

 

1,257

1,109

 

–11.8

 

 

7,130

6,480

 

–9.1

 

Earnings per share (total) (€)

 

0.17

(4.00)

 

.

 

 

8.29

1.80

 

–78.3

 

Core earnings per share1 (€)

 

1.39

1.10

 

–20.9

 

 

6.64

5.94

 

–10.5

 

Group sales increased by 4.5% (Fx & portfolio adj.)

Sales of the Bayer Group rose by 4.5% (Fx & portfolio adj.) to €39,586 million (reported: +13.1%) in 2018, including €3,819 million in Germany.

Sales of Pharmaceuticals advanced by 3.4% (Fx & portfolio adj.) to €16,746 million, with our key growth products once again delivering strong performance overall. At Consumer Health, sales were level with the prior year, at €5,450 million (Fx & portfolio adj. −0.7%). Sales of Crop Science increased by 6.1% (Fx & portfolio adj.) to €14,266 million, mainly due to the normalization of inventories in the Brazilian crop protection market and the service agreements with BASF – especially product supply and distribution agreements – in connection with the divested businesses. On a reported basis, sales climbed by 49.0%, mainly as a result of portfolio effects of 47.2% (€4,521 million). Sales of Animal Health were level with the previous year, at €1,501 million (Fx & portfolio adj. +0.5%). In the Reconciliation, we increased sales by 40.4% to €1,623 million, primarily through our business with Covestro, which in the prior year was only included here from the third quarter of 2017, the date the company was deconsolidated.

Earnings

EBITDA before special items of the Bayer Group advanced by 2.8% to €9,547 million (2017: €9,288 million). Negative currency effects diminished earnings by €457 million (excluding the acquired business). EBITDA before special items of Pharmaceuticals rose by 2.5% (Fx adj.) to €5,598 million (2017: €5,711 million; reported −2.0%), primarily due to substantially higher volumes and income of approximately €190 million from a development collaboration with Janssen Research & Development, LLC, a subsidiary of Johnson & Johnson. EBITDA before special items of Consumer Health declined by 5.5% (Fx adj.) to €1,096 million (2017: €1,231 million; reported: −11.0%), mainly as a result of lower volumes and a decrease in one-time gains from the divestment of noncore brands. At Crop Science, EBITDA before special items advanced by 29.8% on a reported basis, to €2,651 million (2017: €2,043 million). This increase is primarily attributable to the earnings contribution from the newly acquired business (€705 million) and the recognition in the prior year of significantly higher provisions for product returns in Brazil. EBITDA before special items of Animal Health increased by 0.8% (Fx adj.) to €358 million (2017: €381 million; reported: −6.0%).

EBITDA in 2018 came in at €10,266 million (2017: €8,563 million). Depreciation, amortization and impairment losses amounted to €6,352 million (2017: €2,660 million), with intangible assets accounting for €4,455 million (2017: €1,679 million) and property, plant and equipment for €1,897 million (2017: €981 million). Impairment losses amounted to €3,353 million (2017: €512 million). These included €2,673 million (2017: €455 million) in impairments on intangible assets, primarily at Consumer Health, where we recorded impairment losses on goodwill and on other intangible assets in the amounts of €1.5 billion and €1.1 billion, respectively. Impairment losses on property, plant and equipment amounted to €680 million (2017: €57 million). An impairment loss of €0.5 billion was recognized at Pharmaceuticals following the decision not to use a newly constructed production facility. Impairment losses of €3,282 million (2017: €474 million), net of impairment loss reversals, and accelerated depreciation of €3 million (2017: €28 million) were included in special items.

EBIT decreased by 33.7% in 2018 to €3,914 million (2017: €5,903 million) after special charges of €2,566 million (2017: €1,227 million). These mainly resulted from the aforementioned impairment losses included for the most part in special items, from special charges in connection with the acquired business (€1,980 million, including €1,256 million in prorated reversals of inventory step-ups), from restructuring (€1,289 million) and from litigations and legal risks (€613 million). These charges were offset by a one-time special gain from divestments (€4,124 million). EBIT before special items declined by 9.1% to €6,480 million (2017: €7,130 million).

In 2018, the following special effects were taken into account in calculating EBIT and EBITDA before special items.

Special Items by Segment and Category1

 

 

EBIT Q4 2017

EBIT Q4 2018

 

EBIT 2017

EBIT 2018

 

EBITDA Q4 2017

EBITDA Q4 2018

 

EBITDA 2017

EBITDA 2018

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

1

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

Special Items by segment

 

 

 

 

 

 

 

 

 

 

 

 

Pharmaceuticals

 

(187)

(1,289)

 

(340)

(1,362)

 

(128)

(771)

 

(135)

(801)

Consumer Health

 

(258)

(2,781)

 

(300)

(2,776)

 

(54)

(68)

 

(86)

(61)

Crop Science

 

(155)

(984)

 

(408)

1,841

 

(111)

(984)

 

(327)

1,849

Animal Health

 

(23)

(1)

 

(31)

(7)

 

(21)

(1)

 

(29)

(7)

Reconciliation

 

(9)

(196)

 

(148)

(262)

 

(9)

(195)

 

(148)

(261)

Restructuring

 

(15)

(139)

 

(57)

(171)

 

(15)

(138)

 

(57)

(170)

Litigations / legal risks

 

37

(38)

 

(60)

(41)

 

37

(38)

 

(60)

(41)

Acquisition costs / divestments

 

(31)

(19)

 

(31)

(51)

 

(31)

(19)

 

(31)

(51)

Other

 

 

1

 

 

1

Special Items by category

 

 

 

 

 

 

 

 

 

 

 

 

Impairment losses / reversals

 

(304)

(2,745)

 

(450)

(2,788)

 

(2)

(32)

 

(3)

(32)

Litigations / legal risks

 

(88)

(604)

 

(188)

(613)

 

(88)

(604)

 

(188)

(613)

Acquisition costs

 

(134)

(855)

 

(304)

(1,980)

 

(134)

(855)

 

(304)

(1,972)

Restructuring

 

(103)

(1,197)

 

(227)

(1,289)

 

(97)

(678)

 

(197)

(768)

Divestments

 

(3)

155

 

(58)

4,124

 

(2)

155

 

(33)

4,124

Other

 

(5)

 

(20)

 

(5)

 

(20)

Total special items

 

(632)

(5,251)

 

(1,227)

(2,566)

 

(323)

(2,019)

 

(725)

719

Core earnings per share of €5.94

Earnings per share (total) amounted to €1.80 in 2018 (2017: €8.29). The decline was mainly attributable to the aforementioned special items in connection with impairments, along with acquisition and integration costs, restructuring costs and litigations. There was a one-time gain from divestments in 2018, while an important factor in the prior year was positive income after income taxes from discontinued operations in connection with Covestro. Core earnings per share from continuing operations were below the prior year as expected, at €5.94 (2017: €6.64; −10.5%). The financing costs for the Monsanto acquisition stood against the earnings contribution from the acquired business, which was lower for seasonal reasons. In addition, the aforementioned equity measures implemented in the second quarter of 2018 had a dilutive effect.

Core Earnings per Share1

 

 

Q4 2017

Q4 2018

 

2017

2018

 

 

€ million

€ million

 

€ million

€ million

2017 figures restated

1

For definition see 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)

 

625

(4,142)

 

5,903

3,914

Amortization and impairment losses / loss reversals on goodwill and other intangible assets

 

602

3,193

 

1,679

4,455

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

 

16

664

 

84

683

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

 

323

2,019

 

725

(719)

Core EBIT

 

1,566

1,734

 

8,391

8,333

Financial result (as per income statements)

 

(258)

(726)

 

(1,326)

(1,596)

Special items in the financial result

 

250

287

 

611

323

Income taxes (as per income statements)

 

(435)

946

 

(1,329)

(607)

Special items in income taxes

 

455

91

 

455

175

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

 

(342)

(1,255)

 

(922)

(1,022)

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

 

(2)

(2)

 

1

(16)

Above-mentioned adjustments attributable to noncontrolling interest

 

(1)

 

(1)

Core net income from continuing operations

 

1,234

1,074

 

5,881

5,589

 

 

 

 

 

 

 

 

 

Shares (million)

Shares (million)

 

Shares (million)

Shares (million)

Weighted average number of shares2

 

885.55

980.15

 

885.19

940.75

 

 

 

 

 

 

 

 

 

 

Core earnings per share from continuing operations

 

1.39

1.10

 

6.64

5.94

Bayer Group Other Parameters

Bayer Group Summary Income Statements

 

 

Q4 2017

Q4 2018

Change

 

2017

2018

Change

 

 

€ million

€ million

%

 

€ million

€ million

%

1

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

Net sales

 

8,596

11,062

+28.7

 

35,015

39,586

+13.1

Cost of goods sold

 

(3,047)

(6,102)

–100.3

 

(11,382)

(17,010)

–49.4

Selling expenses

 

(3,074)

(4,317)

–40.4

 

(11,116)

(12,751)

–14.7

Research and development expenses

 

(1,234)

(1,738)

–40.8

 

(4,504)

(5,246)

–16.5

General administration expenses

 

(588)

(864)

–46.9

 

(2,026)

(2,728)

–34.6

Other operating income (+) and expenses (–)

 

(28)

(2,183)

.

 

(84)

2,063

.

EBIT1

 

625

(4,142)

.

 

5,903

3,914

–33.7

Financial result

 

(258)

(726)

–181.4

 

(1,326)

(1,596)

–20.4

Income before income taxes

 

367

(4,868)

.

 

4,577

2,318

–49.4

Income taxes

 

(435)

946

.

 

(1,329)

(607)

+54.3

Income from continuing operations after taxes

 

(68)

(3,922)

.

 

3,248

1,711

–47.3

Income from discontinued operations after taxes

 

218

0

–100

 

4,846

0

–100

Income after income taxes (total)

 

150

(3,922)

.

 

8,094

1,711

–78.9

of which attributable to noncontrolling interest

 

2

2

 

758

16

–97.9

of which attributable to Bayer AG stockholders (net income)

 

148

(3,924)

.

 

7,336

1,695

–76.9

Functional costs

The cost of goods sold increased by 49.4% to €17,010 million in 2018, partly as a result of the aforementioned prorated reversals of inventory step-ups and additional amortization in connection with the newly acquired business. The ratio of the cost of goods sold to total sales therefore rose to 43.0% (2017: 32.5%). The selling expenses of €12,751 million (+14.7%) amounted to 32.2% of sales (2017: 31.7%). Research and development (R&D) expenses rose by 16.5% to €5,246 million. The ratio of R&D expenses to sales was 13.3% (2017: 12.9%). General administration expenses climbed by 34.6% to €2,728 million. The ratio of general administration expenses to total sales therefore increased to 6.9% (2017: 5.8%). The balance of other operating expenses and other operating income amounted to €2,063 million (2017: minus €84 million). This included the aforementioned gain from divestments and the impairment losses recognized on the goodwill of Consumer Health.

The special effects accounted for in EBIT and EBITDA before special items were attributable to the functional costs as shown in the following table.

Special Items Reconciliation by Functional Cost1

 

 

EBIT Q4 2017

EBIT Q4 2018

 

EBIT
2017

EBIT
2018

 

EBITDA Q4 2017

EBITDA Q4 2018

 

EBITDA 2017

EBITDA 2018

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

1

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

Special items by functional cost

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

(48)

(1,610)

 

(163)

(2,312)

 

(44)

(959)

 

(105)

(1,651)

Selling expenses

 

(249)

(1,090)

 

(305)

(1,160)

 

(47)

(56)

 

(71)

(126)

Research and development expenses

 

(116)

(331)

 

(232)

(406)

 

(13)

(330)

 

(22)

(362)

General administration expenses

 

(131)

(223)

 

(339)

(633)

 

(131)

(223)

 

(339)

(633)

Other operating income / expenses

 

(88)

(1,997)

 

(188)

1,945

 

(88)

(451)

 

(188)

3,491

Total special items

 

(632)

(5,251)

 

(1,227)

(2,566)

 

(323)

(2,019)

 

(725)

719

Financial result and income before income taxes

Including a financial result of minus €1,596 million (2017: minus €1,326 million), income before income taxes was €2,318 million (2017: €4,577 million). Among other items, the financial result comprised a loss from investments in affiliated companies of €87 million (2017: income of €30 million), net interest expense of €1,065 million (2017: €413 million), an exchange loss of €271 million (2017: €326 million), interest cost of €202 million (2017: €189 million) for pension and other provisions, and net other financial income of €29 million (2017: expenses of €428 million). The financial result included net special charges of €323 million (2017: €611 million), including special charges of €228 million (2017: €210 million) in connection with the financing of the Monsanto acquisition, special gains of €230 million (2017: special charges of €172 million) relating to the exchangeable bond issued in June 2017, special gains of €341 million from the sale of Covestro shares and special charges of €459 million reflecting changes in the fair value of the remaining interest in Covestro.

Income tax expense

Income tax expense amounted to €607 million (2017: €1,329 million) after special charges of €175 million (2017: €455 million) in connection with the integration of Monsanto into the corporate structures of Bayer (2017: U.S. tax reform).

Income after income taxes from discontinued operations

There was no income after income taxes from discontinued operations in 2018 (2017: €4,846 million). The prior-year figure was mainly attributable to Covestro, which accounted for €4,468 million. The latter amount mainly comprised the gain from deconsolidation, the remeasurement of the remaining interest, and operating income in the first nine months of 2017.

Net income

After income tax expense, income from discontinued operations after taxes and noncontrolling interest, net income in 2018 came to €1,695 million (2017: €7,336 million).

Compare to Last Year