Overview of Sales, Earnings and Financial Position

With Bayer’s de facto loss of control over Covestro, Covestro ceased to be a reportable segment in the third quarter and is now presented as a discontinued operation. The financial information for the quarters preceding the deconsolidation, including the comparative prior-year figures, has been restated accordingly. The continuing operations of the Bayer Group now consist solely of the Life Science businesses, and the corresponding subtotal will no longer be reported separately. Covestro is classified as an associate owing to the remaining material influence, and, going forward, will be accounted for using the equity method.

Earnings Performance of the Bayer Group1

Third quarter of 2017

Group sales

Group sales in the third quarter of 2017 rose by 1.2% (Fx & portfolio adj.) to €8,025 million (reported: −2.8%). Germany accounted for €743 million of this figure.

Sales of Pharmaceuticals advanced by 2.3% (Fx & portfolio adj.) to €4,065 million. This was largely attributable to the continued strong development of our key growth products. At Consumer Health, sales declined by 2.9% (Fx & portfolio adj.) to €1,320 million, as expected. Crop Science sales rose by 2.7% (Fx & portfolio adj.) to €2,031 million. Animal Health posted a 1.4% (Fx & portfolio adj.) increase in sales to €359 million.

EBITDA before special items

Group EBITDA before special items increased by 4.1% to €2,204 million. Negative currency effects diminished earnings by around €100 million. EBITDA before special items at Pharmaceuticals improved by 5.1% to €1,493 million. At Consumer Health, EBITDA before special items declined substantially, falling by 16.5% to €274 million. EBITDA before special items at Crop Science declined by 3.5% to €307 million, while EBITDA before special items of Animal Health fell by €8 million, or 9.0%, to €81 million.

Depreciation, amortization and special items

Depreciation, amortization and impairment losses declined by 3.0% to €581 million in the third quarter of 2017 (Q3 2016: €599 million). They comprised €319 million (Q3 2016: €389 million) in amortization and impairments on intangible assets and €262 million (Q3 2016: €210 million) in depreciation and impairments on property, plant and equipment. Impairment losses amounted to €8 million. In addition, an amount of €16 million was included in special items as accelerated depreciation.

EBIT

EBIT of the Bayer Group came to €1,388 million, matching the prior-year period (Q3 2016: €1,397 million; −0.6%). This figure reflected net special charges of €249 million (Q3 2016: €125 million), consisting primarily of expenses of €102 million in connection with the agreed acquisition of Monsanto, provisions for legal risks in the amount of €93 million, and efficiency improvement programs totaling €44 million. EBIT before special items advanced by 7.6% to €1,637 million (Q3 2016: €1,522 million).

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

Special Items Reconciliation1

 

 

EBIT Q3 2016

EBIT Q3 2017

 

EBIT 9M 2016

EBIT 9M 2017

 

EBITDA Q3 2016

EBITDA Q3 2017

 

EBITDA 9M 2016

EBITDA 9M 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

 

1,522

1,637

 

5,653

5,873

 

2,118

2,204

 

7,512

7,505

Pharmaceuticals

 

(6)

3

 

(248)

(153)

 

(5)

3

 

(15)

(7)

Consumer Health

 

(29)

(18)

 

(93)

(42)

 

(27)

(17)

 

(77)

(32)

Crop Science

 

(71)

(121)

 

(104)

(253)

 

(71)

(108)

 

(104)

(216)

Animal Health

 

(1)

(8)

 

(2)

(8)

 

(1)

(8)

 

(2)

(8)

Reconciliation

 

(18)

(105)

 

(54)

(139)

 

(18)

(105)

 

(54)

(139)

Restructuring

 

(18)

(13)

 

(49)

(42)

 

(18)

(13)

 

(49)

(42)

Litigations / Legal Risks

 

(92)

 

(5)

(97)

 

(92)

 

(5)

(97)

Total special items

 

(125)

(249)

 

(501)

(595)

 

(122)

(235)

 

(252)

(402)

of which cost of goods sold

 

(20)

(24)

 

(219)

(115)

 

(18)

(8)

 

(40)

(61)

of which selling expenses

 

(25)

(15)

 

(96)

(56)

 

(25)

(15)

 

(60)

(24)

of which research and development expenses

 

(13)

(3)

 

(66)

(116)

 

(13)

(3)

 

(33)

(9)

of which general administration expenses

 

(72)

(115)

 

(116)

(208)

 

(72)

(115)

 

(116)

(208)

of which other operating income / expenses

 

5

(92)

 

(4)

(100)

 

6

(94)

 

(3)

(100)

After special items

 

1,397

1,388

 

5,152

5,278

 

1,996

1,969

 

7,260

7,103

Income after income taxes from discontinued operations

Income after income taxes from discontinued operations rose to €3,423 million (Q3 2016: €333 million). A substantial part of this figure – €3,317 million (Q3 2016: €259 million) – is attributable to Covestro. This figure comprises a gain from deconsolidation, the gain on remeasurement of the remaining interest, and operating income. Covestro increased sales over the prior-year quarter by 20.4% (Fx & portfolio adj.) to €3,513 million (Q3 2016: €3,004 million), owing in particular to significantly higher selling prices with slightly higher volumes. EBITDA before special items of Covestro improved by 54.1% to €869 million (Q3 2016: €564 million). Substantially higher selling prices more than offset increased raw material prices.

Net income

Including a financial result of minus €403 million (Q3 2016: minus €233 million), income before income taxes was €985 million (Q3 2016: €1,164 million). After income tax expense of €212 million (Q3 2016: €207 million), income from discontinued operations after income taxes and noncontrolling interest, net income in the third quarter of 2017 came to €3,881 million (Q3 2016: €1,187 million).

Core earnings per share

Earnings per share (total) increased from €1.43 to €4.45 in the third quarter of 2017. A significant effect in this development was the remeasurement of the interest in the Covestro Group, which is mirrored in earnings from discontinued operations. Core earnings per share from continuing operations fell by 3.9% to €1.47 (Q3 2016: €1.53). This is due primarily to the difference in the number of shares, which grew significantly in 2017 as a result of the mandatory convertible notes issued in November 2016. If the number of shares had remained the same, core earnings per share would have improved by 1.4%.

Core Earnings per Share1

 

 

Q3 2016

Q3 2017

 

9M 2016

9M 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)

 

1,397

1,388

 

5,152

5,278

Amortization and impairment losses / loss reversals on intangible assets

 

387

319

 

1,476

1,077

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

 

1

22

 

17

68

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

 

123

235

 

252

402

Core EBIT

 

1,908

1,964

 

6,897

6,825

Financial result (as per income statements)

 

(233)

(403)

 

(741)

(1,068)

Special items in the financial result

 

(34)

162

 

(44)

361

Income taxes (as per income statements)

 

(207)

(212)

 

(954)

(894)

Special items in income taxes

 

 

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

 

(167)

(228)

 

(533)

(580)

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

 

(4)

3

 

(9)

3

Above-mentioned adjustments attributable to noncontrolling interest

 

(1)

 

(1)

Core net income from continuing operations

 

1,262

1,286

 

4,615

4,647

 

 

 

 

 

 

 

 

 

Shares

Shares

 

Shares

Shares

Weighted average number of shares

 

826,947,808

872,467,808

 

826,947,808

871,987,808

 

 

 

 

 

 

 

 

 

 

Core earnings per share from continuing operations

 

1.53

1.47

 

5.58

5.33

Personnel expenses and employees

Personnel expenses decreased by 1.4% to €2,300 million (Q3 2016: €2,333 million). As of the closing date, the number of employees in the Bayer Group was largely unchanged year on year, at 99,845 (September 30, 2016: 99,517; +0.3%).

First nine months 2017

Group sales

Group sales in the first nine months of 2017 rose by 1.1% (Fx & portfolio adj.) to €26,419 million (reported: +1.1%). Germany accounted for €2,509 million of this figure.

Sales of Pharmaceuticals advanced by 4.6% (Fx & portfolio adj.) to €12,632 million. At Consumer Health, sales were flat year on year at €4,463 million (Fx & portfolio adj.: −0.8%). Crop Science sales declined by 3.2% (Fx & portfolio adj.) to €7,314 million. Animal Health posted a 2.1% increase (Fx & portfolio adj.) in sales to €1,249 million.

EBITDA before special items

EBITDA before special items of the Bayer Group came in at €7,505 million (−0.1%), matching the prior-year level (9M 2016: €7,512 million). Pharmaceuticals increased EBITDA before special items by a substantial 11.0% to €4,476 million. At Consumer Health, EBITDA before special items declined by 5.7% to €980 million. EBITDA before special items at Crop Science declined by a substantial 16.0% to €1,739 million due to the development in Brazil reported on in the second quarter, while Animal Health registered an earnings increase of 6.8% to €332 million.

Depreciation, amortization and special items

Depreciation, amortization and impairment losses amounted to €1,825 million in the first nine months of 2017 (9M 2016: €2,108 million), comprising €1,077 million (9M 2016: €1,477 million) in amortization and impairments on intangible assets and €748 million (9M 2016: €631 million) in depreciation and impairments on property, plant and equipment. Impairment losses and impairment loss reversals amounted to €181 million (9M 2016: €321 million). Impairment losses and impairment loss reversals in the amount of €168 million (9M 2016: €244 million) as well as accelerated depreciation in the amount of €26 million constituted special items.

EBIT

EBIT of the Bayer Group rose by 2.4% to €5,278 million (9M 2016: €5,152 million), after net special charges of €595 million (9M 2016: €501 million). These mainly comprised €170 million in expenses in conjunction with the agreed acquisition of Monsanto, €146 million in value adjustments, €124 million in charges related to efficiency improvement programs, and €100 million in provisions for legal risks. EBIT before special items moved forward by 3.9% to €5,873 million (9M 2016: €5,653 million).

Income after income taxes from discontinued operations

Income after income taxes from discontinued operations rose to €4,628 million (9M 2016: €862 million). Of this amount, €4,276 million (9M 2016: €683 million) was attributable to Covestro. This figure primarily comprises a gain from deconsolidation, the gain on remeasurement of the remaining interest, and operating income. In comparison with the prior-year reporting period, Covestro increased sales during the first nine months of 2017 by 19.9% (Fx & portfolio adj.) to €10,556 million (9M 2016: €8,829 million), in particular owing to significantly higher selling prices and higher volumes. EBITDA before special items of Covestro improved by 56.2% to €2,517 million (9M 2016: €1,611 million). Substantially higher selling prices more than offset increased raw material prices.

Net income

Including a financial result of minus €1,068 million (9M 2016: minus €741 million), income before income taxes amounted to €4,210 million (9M 2016: €4,411 million). The financial result comprised in particular a net interest expense of €354 million (9M 2016: €369 million), currency hedging costs in the amount of €321 million (9M 2016: €157 million), and interest cost of €143 million (9M 2016: €178 million) for pension and other provisions. After tax expense of €894 million (9M 2016: €954 million), income after income taxes was €3,316 million (9M 2016: €3,457 million). Adjusted for income from discontinued operations after income taxes and noncontrolling interest, net income came to €7,188 million (9M 2016: €4,078 million).

Core earnings per share

Earnings per share (total) improved to €8.24 (9M 2016: €4.93), while core earnings per share from continuing operations were down year on year at €5.33 (9M 2016: €5.58). This is due primarily to the difference in the number of shares, which grew significantly in 2017 as a result of the mandatory convertible notes issued in November 2016. If the number of shares had remained the same, core earnings per share would have improved by 0.7%.

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