12. Overview of Sales, Earnings and Financial Position

Another record year for Bayer

  • Focus on the Life Sciences following the successful stock market flotation of Covestro
  • Substantial sales and earnings increases at HealthCare
  • Good business development at CropScience despite a weaker market environment
  • Covestro posts strong earnings improvement
  • Group sales €46.3 billion (Fx & portfolio adj. +2.7 %)
  • EBIT €6.3 billion (+15.8 %)
  • EBITDA before special items €10.3 billion (+18.2 %)
  • Net income €4.1 billion (+20.0 %)
  • Core earnings per share €6.83 (+16.0 %)
  • Forecast for 2016: further growth in sales and earnings

Target Attainment 2015

Target attainment 2015 (graph)Target attainment 2015 (graph)

Full year 2015

Group targets 2015:

Profitable growth

Bayer had a very successful year in 2015, both strategically and operationally. We achieved important milestones on the path to becoming a Life Science company: In October 2015, we floated our subsidiary Covestro (formerly MaterialScience) – in which we currently hold around 69% – on the stock exchange. With the new organizational structure and the realignment of the Board of Management, which took effect on January 1, 2016, we set the course for the company’s further development. We also successfully continued integrating the recently acquired consumer care businesses in our Consumer Health segment and continued to invest heavily in our research and development pipeline.

Our operating performance marked another new record in 2015. We registered higher sales and substantial earnings growth of around 18%, supported also by positive currency effects. HealthCare showed a convincing performance, with strong sales and earnings growth. This was chiefly attributable to the very good development of our recently launched pharmaceutical products and to expanded business in all Consumer Health divisions. In particular, the products added through the recent acquisitions contributed additionally to growth at Consumer Care. Despite a weaker market environment, sales at CropScience were up against the prior year. Earnings also rose. Covestro significantly raised earnings, due mainly to lower raw material costs, while sales receded as expected. Core earnings per share Earnings per share, plus / minus amortization and impairment losses / impairment loss reversals of intangible assets and impairment losses / impairment loss reversals on property, plant and equipment, plus special charges, minus special gains (other than amortization and impairment losses / impairment loss reversals), plus / minus the related tax effects and the share of the adjustments attributable to noncontrolling interest; this indicator facilitates the comparability of performance over time. It is not defined in the International Financial Reporting Standards. of the Bayer Group advanced by 16%.

Changes in Sales

 

 

2014

 

2015

 

 

%

 

%

Volume

 

+6.8

 

+4.4

Price

 

+0.4

 

−1.7

Currency

 

−2.8

 

+5.9

Portfolio

 

+0.8

 

+3.5

Total

 

+5.2

 

+12.1

Group sales advanced by 2.7% on a currency- and portfolio-adjusted basis (Fx & portfolio adj.) in 2015, to €46,324 million (reported: +12.1%; 2014: €41,339 million). Sales of HealthCare improved by 8.1% (Fx & portfolio adj.; reported: +19.9%). CropScience sales gained 1.7% (Fx & portfolio adj.; reported: +9.2%) against the prior year. Sales at Covestro declined by 5.1% (Fx & portfolio adj.; reported: +2.8%).

Bayer Group Quarterly Sales

Bayer Group Quarterly Sales (bar chart)Bayer Group Quarterly Sales (bar chart)

EBIT Income after income taxes, plus income taxes, plus financial result; EBIT is not defined in the International Financial Reporting Standards. of the Bayer Group increased by 15.8% to €6,250 million (2014: €5,395 million) after net special charges of €819 million (2014: €438 million). The special charges mainly included €280 million in expenses for the consolidation of production sites, €227 million in integration costs for acquired businesses and €212 million in expenses connected with the carve-out and stock market flotation of Covestro. Further charges included €202 million in costs for efficiency improvements, €91 million for the revaluation of other receivables, and impairment losses of approximately €40 million in connection with a development project. These amounts were partly offset in EBIT by a special gain of around €300 million from a litigation in connection with a breach of contract and patent infringement by Dow AgroSciences (DAS). EBIT before special items EBIT plus special charges, minus special gains; this indicator is not defined in the International Financial Reporting Standards. rose by 21.2% to €7,069 million (2014: €5,833 million).

EBITDA EBIT plus the amortization of intangible assets and the depreciation of property, plant and equipment, plus impairment losses and minus impairment loss reversals, recognized in profit or loss during the reporting period; this indicator is not defined in the International Financial Reporting Standards. before special items increased by 18.2% to €10,266 million (2014: €8,685 million). The good sales development was accompanied by higher R&D expenses (up by around €740 million on the prior year). Positive currency effects buoyed earnings by about €680 million. EBITDA before special items EBITDA plus special charges, minus special gains; this indicator is not defined in the International Financial Reporting Standards. at HealthCare improved by 19.8% to €6,419 million (2014: €5,357 million). This increase was chiefly attributable to the very good development of business at Pharmaceuticals and Consumer Health – including particularly the contribution from the acquired businesses at Consumer Care – and currency effects of around €250 million. EBITDA before special items of CropScience rose by 2.4% to €2,416 million (2014: €2,360 million), mainly because of higher volumes and a positive currency effect of about €220 million. EBITDA before special items of Covestro rose by a substantial 39.8% to €1,659 million (2014: €1,187 million), primarily due to lower raw material and energy costs and positive currency effects of €240 million.

Bayer Group
Quarterly EBIT

Bayer Group – Quarterly EBIT (bar chart)Bayer Group – Quarterly EBIT (bar chart)

Bayer Group
Quarterly EBITDA Before Special Items

Bayer Group – Quarterly EBITDA Before Special Items (bar chart)Bayer Group – Quarterly EBITDA Before Special Items (bar chart)

After a financial result of minus €1,005 million (2014: minus €981 million), income before income taxes was €5,245 million (2014: €4,414 million). After tax expense of €1,227 million (2014: €1,071 million), income from Discontinued operations Business operations already divested or earmarked for divestiture in the near future; opposite of continuing operations after taxes and noncontrolling interest, net income for 2015 came in at €4,110 million (2014: €3,426 million). Earnings per share were €4.97 (2014: €4.14). Core earnings per share from Continuing operations Revenue and earnings reporting for continuing operations pertains only to business operations that are expected to remain in the company’s portfolio for the foreseeable future; opposite of discontinued operations. advanced by 16.0% to €6.83 (2014: €5.89), calculated as explained in Chapter 14.3 “Core Earnings Per Share.”

Gross Cash Flow by Quarter

Gross Cash Flow by Quarter (bar chart)Gross Cash Flow by Quarter (bar chart)

Net Cash Flow by Quarter

Net Cash Flow by Quarter (bar chart)Net Cash Flow by Quarter (bar chart)

Gross cash flow Income after income taxes, plus income taxes, plus financial result, minus income taxes paid or accrued, plus depreciation, amortization and impairment losses, minus impairment loss reversals, plus / minus changes in pension provisions, minus gains / plus losses on retirements of noncurrent assets, minus gains from the remeasurement of already held assets in step acquisitions; the change in pension provisions includes the elimination of noncash components of ebit. It also contains benefit payments during the year. This indicator is not defined in the International Financial Reporting Standards. from continuing operations climbed by 4.4% in 2015 to €6,999 million (2014: €6,707 million), mainly because of the improvement in EBITDA EBIT plus the amortization of intangible assets and the depreciation of property, plant and equipment, plus impairment losses and minus impairment loss reversals, recognized in profit or loss during the reporting period; this indicator is not defined in the International Financial Reporting Standards. . Net Cash flow Key indicator for assessing a company’s financial strength; in addition to gross cash flow, the statement of cash flows also reports the cash flow from operating activities (net cash flow), which shows the amount of funds available from operating activities for financing investments, repaying debts or distributing dividends. The cash flows from investing and financing activities are also reported. (total) rose by 18.6% to €6,890 million (2014: €5,810 million) due to a substantial decrease in additional cash tied up in Working capital is the difference between short-term current assets and short-term liabilities; it is calculated by deducting short-term liabilities from current assets (excluding cash and cash equivalents). In financial accounting, the change in working capital is one of the variables used to assess a company’s financial health. The objective of working capital management is to reduce working capital by minimizing the “financing gap” caused by the time lapse between the disbursement of funds (= payment for necessary raw materials) and the receipt of funds for the finished product. . In 2015, we paid income taxes amounting to €1,699 million (2014: €1,835 million). We reduced net financial debt by €2.2 billion against December 31, 2014, to €17.4 billion. The net defined benefit liability for post-employment benefits – the difference between benefit obligations and plan assets – decreased from €12.2 billion to €10.8 billion over the same period, mainly due to a rise in long-term capital market interest rates for high-quality corporate bonds.

Total assets as of December 31, 2015, increased by 5.2% to €73.9 billion. Noncurrent assets rose by 4.4% to €50.1 billion due mainly to currency effects. The carrying amount of current assets climbed to €23.8 billion, mainly driven by higher trade accounts receivable. Equity increased by €5.2 billion to €25.4 billion. This was primarily attributable to the net income of €4.1 billion, the €1.5 billion capital increase at Covestro due to the stock market flotation, the €0.8 billion decline – recognized outside profit or loss – in post-employment benefit obligations and the exchange differences of €0.7 billion. The dividend payment of €1.9 billion had an opposing effect. Liabilities decreased by €1.5 billion compared with December 31, 2014, to €48.5 billion.

Key Data by Subgroup and Segment

 

 

Sales

 

EBIT

 

EBITDA before special items1

 

 

2014

2015

 

2014

2015

 

2014

2015

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

2014 figures restated

1

For definition see Chapter 14.2 “Calculation of EBIT(DA) Before Special Items.”

HealthCare

 

19,075

22,874

 

3,470

4,050

 

5,357

6,419

Pharmaceuticals

 

12,052

13,745

 

2,371

2,807

 

3,699

4,195

Consumer Health

 

7,023

9,129

 

1,099

1,243

 

1,658

2,224

CropScience

 

9,494

10,367

 

1,806

2,103

 

2,360

2,416

Covestro

 

11,651

11,982

 

555

635

 

1,187

1,659

Reconciliation

 

1,119

1,101

 

(436)

(538)

 

(219)

(228)

Group

 

41,339

46,324

 

5,395

6,250

 

8,685

10,266

Fourth quarter of 2015

Group sales in the fourth quarter of 2015 rose by 2.4% (Fx & portfolio adj.) to €11,319 million (reported: +4.9%). Sales of HealthCare gained 8.5% (Fx & portfolio adj.) to €5,811 million (reported: +8.6%). Business in the Pharmaceuticals segment expanded by 9.6% (Fx & portfolio adj.) to €3,571 million (reported: +9.2%), driven by the encouraging development of our recently launched products. Sales at Consumer Health came in 6.9% ahead of the prior-year quarter at €2,240 million (reported: +7.7%). CropScience sales rose by 5.3% (Fx & portfolio adj.) to €2,439 million (reported: +11.1%) due mainly to increases at Crop Protection / Seeds. Sales of Covestro fell by 10.6% (Fx & portfolio adj.) to €2,774 million (reported: −5.9%), primarily because of much lower selling prices. On the other hand, volumes increased slightly.

EBIT of the Bayer Group improved by a significant 65.4% in the fourth quarter of 2015 to €908 million (Q4 2014: €549 million), reflecting special charges of €116 million (Q4 2014: €442 million). The special charges mainly included €138 million in expenses for the consolidation of production sites, €114 million for efficiency improvement measures, €50 million in integration costs for acquired businesses and €49 million in expenses in connection with the carve-out and stock market flotation of Covestro. Further charges of approximately €40 million related to the impairment of a research project. These amounts were partly offset by a gain of around €300 million from a litigation. EBIT before special items increased by 3.3% to €1,024 million (Q4 2014: €991 million).

EBITDA before special items improved in the fourth quarter of 2015 by 4.0% to €1,903 million (Q4 2014: €1,829 million). This good business development, especially at HealthCare, was accompanied by higher R&D and selling expenses. Positive currency effects contributed €200 million to earnings. HealthCare registered a 7.2% improvement in EBITDA before special items to €1,511 million (Q4 2014: €1,409 million). At CropScience, EBITDA before special items fell by 9.5% to €334 million (Q4 2014: €369 million). Earnings of Covestro climbed by a substantial 18.4% to €257 million (Q4 2014: €217 million).

After a financial result of minus €164 million (Q4 2014: minus €347 million), income before income taxes was €744 million (Q4 2014: €202 million). The financial result mainly comprised interest cost of €67 million (Q4 2014: €111 million) for pension and other provisions, exchange losses of €67 million (Q4 2014: €66 million) and net interest expense of €46 million (Q4 2014: €148 million). The decline in net interest expense resulted primarily from interest income of €109 million related to a legal claim. After income tax expense of €163 million, income from discontinued operations after taxes and noncontrolling interest, net income in the fourth quarter of 2015 came to €613 million (Q4 2014: €224 million). Earnings per share improved to €0.74 (Q4 2014: €0.27). Core earnings per share from continuing operations fell to €1.07 (Q4 2014: €1.17). Tax income was recorded in the previous year.

Gross cash flow from Continuing operations Revenue and earnings reporting for continuing operations pertains only to business operations that are expected to remain in the company’s portfolio for the foreseeable future; opposite of discontinued operations. of the Bayer Group receded by 10.9% to €1,388 million (Q4 2014: €1,558 million). Net cash flow (total) moved back by 15.8% to €1,877 million (Q4 2014: €2,230 million). The decline was mainly due to the deferred one-time payment of €793 million in the previous year in connection with the sGC collaboration with Merck & Co., Inc., United States. In the fourth quarter of 2015 we paid income taxes amounting to €482 million (Q4 2014: €415 million). Net financial debt fell by €1.9 billion in the fourth quarter of 2015 to €17.4 billion (September 30, 2015: €19.3 billion), largely as a result of cash inflows from operating activities and the stock market flotation of Covestro. The net defined benefit liability for post-employment benefits decreased by €0.8 billion against September 30, 2015, to €10.8 billion, mainly due to a rise in long-term capital market interest rates for high-quality corporate bonds.

Key Data by Subgroup and Segment

 

 

Sales

 

EBIT

 

EBITDA before special items1

 

 

4th Quarter 2014

4th Quarter 2015

 

4th Quarter 2014

4th Quarter 2015

 

4th Quarter 2014

4th Quarter 2015

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

2014 figures restated

1

For definition see Chapter 14.2 “Calculation of EBIT(DA) Before Special Items.”

HealthCare

 

5,351

5,811

 

550

777

 

1,409

1,511

Pharmaceuticals

 

3,271

3,571

 

375

551

 

939

991

Consumer Health

 

2,080

2,240

 

175

226

 

470

520

CropScience

 

2,195

2,439

 

191

478

 

369

334

Covestro

 

2,948

2,774

 

43

(79)

 

217

257

Reconciliation

 

298

295

 

(235)

(268)

 

(166)

(199)

Group

 

10,792

11,319

 

549

908

 

1,829

1,903