Overview of Sales, Earnings and Financial Position

Second quarter of 2016

Sales of the Bayer Group increased by 2.3% to €11,833 million in the second quarter of 2016 after adjusting for currency and portfolio changes (Fx & portfolio adj.[1]; reported[2]: −1.4%). Germany accounted for €1,177 million of this figure.

Pharmaceuticals posted encouraging sales growth of 8.4% (Fx & portfolio adj.) to €4,104 million. Our recently launched products once again showed strong business development. Consumer Health also raised sales by 4.0% (Fx & portfolio adj.) to €1,553 million. Sales of Crop Science were level year on year (Fx & portfolio adj. +0.4%) despite the weak market environment, at €2,518 million. Animal Health sales rose by 4.2% (Fx & portfolio adj.) to €426 million. Sales of the Life Science businesses amounted to €8,858 million overall (Fx & portfolio adj. +4.6%). Sales of Covestro fell by 3.9% (Fx & portfolio adj.) to €2,975 million.

Despite negative currency effects of €90 million, dissynergies from the Covestro IPO and the divestiture of Diabetes Care, Group EBITDA before special items improved by 5.7% to €3,054 million.

Pharmaceuticals improved EBITDA before special items by 13.3% to €1,352 million, due mainly to the continued very good development of business. EBITDA before special items of Consumer Health receded by 9.4% to €328 million. The earnings contributions from the good business performance and cost synergies were not sufficient to offset the higher selling expenses as well as allocation and currency effects. As a result of the continuingly weak market environment, EBITDA before special items of Crop Science fell by 8.2% to €663 million. Animal Health posted a 16.7% decline in EBITDA before special items, to €100 million, that was attributable to factors including higher selling expenses. The Life Science businesses recorded EBITDA before special items of €2,511 million overall (+5.4%). Covestro raised EBITDA before special items by 7.3% to €543 million. Earnings of the reconciliation climbed sharply against the prior-year quarter, largely on account of the change to provisions for long-term stock-based compensation.

EBIT of the Bayer Group advanced by 17.3% to €2,138 million (Q2 2015: €1,823 million) after special charges of €104 million (Q2 2015: €255 million). These mainly comprised €46 million for efficiency improvement measures, €29 million for the integration of acquired businesses and €21 million in connection with the realignment of the Bayer Group. EBIT before special items increased by 7.9% to €2,242 million (Q2 2015: €2,078 million).

After a financial result of minus €314 million (Q2 2015: minus €287 million), income before income taxes was €1,824 million (Q2 2015: €1,536 million). After income tax expense of €431 million (Q2 2015: €390 million), income from discontinued operations after income taxes and noncontrolling interest, net income in the second quarter of 2016 came to €1,380 million (Q2 2015: €1,164 million). Earnings per share (overall) were €1.67 (Q2 2015: €1.40). Core earnings per share from continuing operations advanced to €2.07 (Q2 2015: €1.99).

Gross cash flow from continuing operations in the second quarter of 2016 climbed by a substantial 9.3% to €2,366 million (Q2 2015: €2,165 million). Despite an increase in cash tied up in working capital, net cash flow (total) edged forward by 1.2% to €1,982 million (Q2 2015: €1,959 million). We paid income taxes of €659 million in the second quarter of 2016 (Q2 2015: €352 million).

Net financial debt increased by €1.5 billion, from €16.3 billion on March 31, 2016, to €17.8 billion on June 30, 2016. The net defined benefit liability for post-employment benefits – the difference between benefit obligations and plan assets – increased from €13.3 billion to €13.8 billion over the same period, due especially to a decline in long-term capital market interest rates for high-quality corporate bonds in Germany, the United Kingdom and the United States.

The number of people employed by the Bayer Group declined by 1.7% from 117,534 on June 30, 2015, to 115,576 on June 30, 2016. Personnel expenses rose by 1.7% in the same period, from €2,743 million to €2,789 million.

First half of 2016

Group sales in the first half of 2016 rose by 2.8% (Fx & portfolio adj.) to €23,687 million (reported: −0.5%). The Life Science businesses contributed to this performance, growing sales by 5.3% (Fx & portfolio adj.) to €17,862 million.

Pharmaceuticals posted significant sales gains of 10.2% (Fx & portfolio adj.) to €7,993 million. Sales of Consumer Health improved by 3.1% (Fx & portfolio adj.) to €3,073 million. Despite the difficult market environment, sales of Crop Science were flat year on year (Fx & portfolio adj.: +0.8%) at €5,454 million. Sales of Animal Health moved forward by 6.4% (Fx & portfolio adj.) to €834 million. Covestro saw sales fall by 4.3% (Fx & portfolio adj.) to €5,825 million.

EBITDA before special items of the Bayer Group advanced by 10.9% to €6,441 million (H1 2015: €5,810 million). The good sales development particularly in the Life Science businesses was accompanied by high R&D and selling expenses. Earnings were held back by negative currency effects of around €150 million. Pharmaceuticals increased EBITDA before special items by a substantial 14.7% to €2,613 million. EBITDA before special items of Consumer Health receded by 2.7% to €711 million. The earnings contributions from the good business performance and cost synergies were not sufficient to offset selling expenses as well as allocation and currency effects. EBITDA before special items was level year on year at Crop Science (+0.5%; €1,752 million) and Animal Health (0.0%; €222 million). The Life Science businesses increased EBITDA before special items by 10.5% to €5,394 million overall. EBITDA before special items of Covestro climbed by a substantial 12.6% to €1,047 million.

EBIT of the Bayer Group advanced robustly, gaining 18.9% to €4,458 million (H1 2015: €3,748 million) after net special charges of €376 million (H1 2015: €499 million). EBIT before special items moved forward by a clear 13.8% to €4,834 million (H1 2015: €4,247 million).

After a financial result of minus €629 million (H1 2015: minus €561 million), income before income taxes was €3,829 million (H1 2015: €3,187 million). The financial result mainly comprised net interest expense of €260 million (H1 2015: €288 million), interest cost of €143 million (H1 2015: €148 million) for pension and other provisions, and currency hedging costs of €177 million (H1 2015: €122 million). After tax expense of €905 million (H1 2015: €759 million), income after income taxes was €2,924 million (H1 2015: €2,428 million).

After income from discontinued operations after income taxes and noncontrolling interest, net income in the first half of 2016 came to €2,891 million (H1 2015: €2,498 million). Earnings per share improved to €3.50 (H1 2015: €3.02), and core earnings per share to €4.42 (H1 2015: €4.05).

Gross cash flow from continuing operations climbed by 18.5% to €4,930 million (H1 2015: €4,162 million). Despite an increase in cash tied up in working capital, net cash flow (total) rose by 23.1% to €3,304 million (H1 2015: €2,683 million) due mainly to the inflow from the divestiture of the Diabetes Care business. This figure reflected income tax payments of €1,208 million (H1 2015: €796 million). Net financial debt increased by €0.4 billion compared with December 31, 2015 (€17.4 billion), to €17.8 billion as of June 30, 2016. The net defined benefit liability for post-employment benefits rose from €10.8 billion on December 31, 2015, to €13.8 billion, mainly due to a decrease in long-term capital market interest rates for high-quality corporate bonds.

[1] The currency- and portfolio-adjusted sales growth shows the percentage change in sales excluding the impact of exchange rate effects and the acquisitions and divestitures material to each business entity. Exchange rate effects are generally calculated on the basis of the functional currency valid in the respective country. Exceptions exist in Brazil and Argentina, primarily at Crop Protection, where the respective functional currencies are restated in U.S. dollars for business-related reasons.

[2] The (reported) sales growth is a relative indicator showing the percentage change in sales compared with the prior-year period.