15.1 Earnings Performance of Bayer AG

Bayer AG Summary Income Statements according to the German Commercial Code

 

 

2014

 

2015

 

 

€ million

 

€ million

Income from investments in affiliated companies – net

 

3,213

 

2,444

Interest expense – net

 

(341)

 

(484)

Other financial income – net

 

129

 

409

Other operating income

 

128

 

99

General administration expenses

 

(272)

 

(324)

Other operating expenses

 

(147)

 

(177)

Income before income taxes

 

2,710

 

1,967

Income taxes

 

(256)

 

(606)

Net income

 

2,454

 

1,361

Allocation to /–Withdrawal from other retained earnings

 

(593)

 

706

Distributable profit

 

1,861

 

2,067

In fiscal 2015, the net income of Bayer AG was €1,361 million, down by €1,093 million against the previous year (2014: €2,454 million). Earnings were held back above all by lower income from investments in affiliated companies and higher tax expense.

The income from investments in affiliated companies declined year on year by €769 million to €2,444 million (2014: €3,213 million). Bayer Pharma AG posted income of €1,793 million (2014: €2,158 million), which, as in the previous years, was by far the largest contribution. Despite a substantial increase in business, however, earnings of that company fell by €365 million, due partly to higher R&D and selling expenses. Bayer CropScience AG contributed €964 million (2014: €787 million) to Bayer AG’s income, an increase of €177 million. This was attributable to a slightly improved earnings contribution from business operations and to one-time gains from a litigation, among other factors. Bayer AG assumed a loss of €150 million from Covestro Deutschland AG, the former Bayer MaterialScience AG (BMS), from its abbreviated fiscal year ending in August 2015. That company had made a positive earnings contribution of €154 million in the previous year. The decline in earnings was mainly due to a payment of €217 million to clear compensation claims from Bayer AG for the pension expenses of former BMS employees. Other significant earnings contributions comprised €149 million (2014: €146 million) from a subsidiary that receives foreign dividend income. The service companies Bayer Business Services GmbH and Bayer Technology Services GmbH assumed losses of €118 million (2014: €75 million) and €12 million (2014: €18 million), respectively. The reported loss at Bayer HealthCare AG, the holding company for the global health care business, was €231 million (2014: €207 million).

Net interest expense was €484 million, an increase of €143 million compared with the previous year. After offsetting against gains from the fund assets, just the interest portion of the allocation to pension provisions led to additional expense of €142 million, and thus to total expense of €276 million (2014: €134 million). Of the remaining €208 million (2014: €207 million) balance of interest expenses and income, €179 million was attributable to transactions with third parties and €29 million to intra-Group transactions.

Other financial income and expenses yielded a positive balance of €409 million (2014: €129 million). This marked increase was due particularly to a payment of €217 million received from Covestro Deutschland AG to clear compensation claims from Bayer AG for the pension expenses of former BMS employees. Income from the subgroups and service companies to cover pension expenses for retirees remaining with Bayer AG following the hive-down of the operating business in 2002 and 2003 amounted to €178 million (2014: €180 million). If due to interest rates, pension expenses as such are recognized under interest income / expense; otherwise they are recognized under other financial income and expenses. There was income of €15 million in 2015 and expense of €19 million in the previous year. Further income of €6 million (2014: charges of €20 million) resulted from the translation of foreign currency receivables and payables and from currency derivatives.

General administration expenses relating to Bayer AG’s performance of its functions as the parent company of the Bayer Group amounted to €324 million (2014: €272 million). Miscellaneous operating expenses relating to these functions, net of the respective miscellaneous operating income, came to €78 million (2014: €19 million). Of the higher expenses totaling €111 million, €83 million was in connection with the carve-out and stock market flotation of Covestro.

Pre-tax income decreased to €1,967 million (2014: €2,710 million). Tax expense nonetheless increased from €256 million to €606 million on account of effects associated with the formation of the Covestro Group and lower tax-free income from investments in affiliated companies. After deduction of taxes, net income was €1,361 million (2014: €2,454 million). A withdrawal of €706 million was made from other retained earnings, leaving a distributable profit of €2,067 million.

The Board of Management and Supervisory Board will propose to the Annual Stockholders’ Meeting on April 29, 2016 that the distributable profit be used to pay a dividend of €2.50 per share (826,947,808 shares) on the capital stock of €2,117 million entitled to the dividend for 2015.