Earnings Performance of the Bayer Group

Group sales increased by 1.5% (Fx & portfolio adj.)

Sales of the Bayer Group rose by 1.5% (Fx & portfolio adj.) to €35,015 million (reported: +0.2%) in 2017, including €3,392 million in Germany.

Sales of Pharmaceuticals advanced by 4.3% (Fx & portfolio adj.) to €16,847 million. Our key growth products once again posted strong gains. Consumer Health registered a slight decline in sales of 1.7% (Fx & portfolio adj.) to €5,862 million. Sales of Crop Science also declined slightly, moving back by 2.2% (Fx & portfolio adj.) to €9,577 million, while sales at Animal Health increased by 2.0% (Fx & portfolio adj.) to €1,571 million.

The cost of goods sold declined by 3.2% to €11,382 million in 2017. The ratio of the cost of goods sold to total sales therefore declined year on year to 32.5% (2016: 33.6%). The selling expenses of €11,116 million (−0.3%) amounted to 31.7% of sales (2016: 31.9%). Research and development (R&D) expenses rose by 2.2% to €4,504 million. The ratio of R&D expenses to sales was 12.9% (2016: 12.6%). General administration expenses climbed by 12.3% to €2,026 million, due especially to additional expenditures for the Monsanto acquisition. The ratio of general administration expenses to total sales therefore increased to 5.8% (2016: 5.2%). The balance of other operating expenses and other operating income of minus €84 million (2016: minus €92 million) was at the prior-year level.

EBITDA before special items at prior-year level

EBITDA before special items of the Bayer Group was at the prior-year level (−0.3%), coming in at €9,288 million (2016: €9,318 million; Fx adj. +1.8%). At Pharmaceuticals, EBITDA before special items climbed by an encouraging 8.8% to €5,711 million (2016: €5,251 million). This growth was chiefly due to the good business development of our key growth products coupled with a lower cost of goods sold. At Consumer Health, EBITDA before special items declined substantially, falling by 12.8% to €1,231 million, due particularly to lower volumes and a higher cost of goods sold. EBITDA before special items also declined markedly at Crop Science, falling by 15.6% to €2,043 million. This was largely attributable to the effects of an adjustment in inventories in the distribution channel in Brazil. At Animal Health, EBITDA before special items improved substantially, rising by 9.2% to €381 million.

Depreciation and amortization

Depreciation, amortization and impairment losses declined by 13.2% in 2017 to €2,660 million (2016: €3,063 million). They comprised €1,679 million (2016: €2,193 million) in amortization and impairments on intangible assets and €981 million (2016: €870 million) in depreciation and impairments on property, plant and equipment. Impairment losses in the amount of €474 million (2016: €566 million) as well as accelerated depreciation in the amount of €28 million (2016: €5 million) were included in special items. EBITDA for the reporting year amounted to €8,563 million.

EBIT and special items

EBIT increased by 2.9% in 2017 to €5,903 million after special charges of €1,227 million (2016: €1,088 million). These mainly comprised €450 million in impairment losses on intangible assets and €304 million in expenses in connection with the planned acquisition of Monsanto. Further special charges included €227 million for efficiency improvement programs and €188 million in provisions for litigations and legal risks. EBIT before special items rose by 4.5% to €7,130 million (2016: €6,826 million).

In 2017, the following special effects were taken into account in calculating EBIT and EBITDA before special items.

Income after income taxes from discontinued operations

Income after income taxes from discontinued operations rose to €4,846 million (2016: €1,070 million). Of this amount, €4,468 million (2016: €802 million) was attributable to Covestro. This figure primarily comprises a gain from deconsolidation and on remeasurement of the remaining interest at the end of the third quarter, as well as operating income in the first nine months of 2017. 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% in the first nine months to €2,517 million (9M 2016: €1,611 million). Substantially higher selling prices more than offset increased raw material prices.

Increase in net income

Including a financial result of minus €1,326 million (2016: minus €965 million), income before income taxes was €4,577 million (2016: €4,773 million). Among other items, the financial result comprised net interest expense of €413 million (2016: €504 million), currency hedging costs in the amount of €326 million (2016: €121 million), and interest cost of €189 million (2016: €251 million) for pension and other provisions, as well as net other financial expenses of €428 million (2016: €87 million). The financial result included special charges of €611 million (2016: positive special items of €105 million), mainly in conjunction with the planned acquisition of Monsanto and the exchangeable bond issued in June 2017.

Income taxes amounted to €1,329 million (2016: €1,017 million). This includes a negative one-time effect of €455 million that relates exclusively to the tax reform in the United States and results from the revaluation of deferred tax items and the recognition of an additional tax on unrepatriated profits. After income tax expense, income from discontinued operations after taxes and noncontrolling interest, net income in 2017 came to €7,336 million (2016: €4,531 million).

Core earnings per share increased by 1.0%

Earnings per share (total) in 2017 improved to €8.41 (2016: €5.44). This takes into account the remeasurement of the shares in Covestro AG in the third quarter of 2017, which is reflected in income from discontinued operations. Core earnings per share from continuing operations schließen Continuing operations Sales 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. improved by 1.0% to €6.74 (2016: €6.67). This includes the effect of 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 from continuing operations would have improved by 5.8% to €7.06.