 Bayer AktiengesellschaftLeverkusenInterim Report as of June 30, 2018Second Quarter of 2018Bayer completes biggest acquisition in its history
Interim Group Management
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| Previous reporting structure | Reporting structure from Q2 2018 |
| Herbicides | Herbicides |
| Corn Seed & Traits | |
| Soybean Seed & Traits | |
| Fungicides | Fungicides |
| Insecticides | Insecticides |
| SeedGrowth | |
| Environmental Science | Environmental Science |
| Vegetable Seeds | Vegetable Seeds |
| Other | Other |
| Crop Science | Crop Science |
Due to the relative sizes of Monsanto's "Corn seed and traits" and "Soybean seed and
traits" businesses, we will report our corresponding strategic business entities Corn
Seed & Traits and Soybean Seed & Traits separately from now on. Monsanto's "Agricultural
Productivity" business will be allocated among Herbicides, Environmental Science and
Other, while "Cotton seed and traits" and "All other crops seeds and traits" will
be reported under Other and the "Vegetable seeds" business will be allocated to our
corresponding Vegetable Seeds business entity. Due to its relative size, we will no
longer report our SeedGrowth business separately, but under Other. Regional reporting
will not be impacted by these changes.
1. Overview of Sales, Earnings and Financial Position
1.1 Earnings Performance of the Bayer Group3
Second quarter of 2018
Group sales
Group sales in the second quarter of 2018 rose by 8.5% (Fx & portfolio adj.) to €9,481
million (reported: + 8.8%). Germany accounted for €959 million of this figure.
Pharmaceuticals posted a sales gain of 3.1% (Fx & portfolio adj.) to €4,217 million.
Sales at Consumer Health came in slightly below the prior-year quarter at €1,413 million
(Fx & portfolio adj. - 1.4%). At Crop Science, sales climbed by 21.4% (Fx & portfolio
adj.) to €3,011 million, which was largely attributable to the recognition of significantly
higher provisions for product returns in the prior-year quarter due to high inventory
levels in Brazil. On a reported basis, sales increased by 39.2%, thanks mainly to
a portfolio effect of 25.0% (€543 million) from the acquisition of Monsanto. Animal
Health sales grew by 7.6% (Fx & portfolio adj.) to €453 million.
EBITDA before special items
Group EBITDA before special items rose by 3.9% to €2,335 million. Negative currency
effects held back earnings by around €130 million. EBITDA before special items at
Pharmaceuticals declined by 8.0% to €1,363 million. At Consumer Health, EBITDA before
special items fell by 18.5% to €256 million. Crop Science posted a 99.1% increase
in EBITDA before special items to €631 million, which was attributable to the recognition
of significantly higher provisions for product returns in Brazil in the prior-year
quarter. The newly acquired business contributed €70 million to earnings. EBITDA before
special items of Animal Health advanced by 10.3% to €128 million.
Depreciation and amortization
Depreciation, amortization and impairment losses declined by 0.9% in the second quarter
of 2018 to €666 million (Q2 2017: €672 million). This figure comprised €416 million
(Q2 2017: €416 million) in amortization and impairments on intangible assets and €251
million (Q2 2017: €255 million) in depreciation and impairments on property, plant
and equipment. Depreciation and amortization of €55 million was attributable to assets
that either resulted from remeasurements or were recognized for the first time in
connection with the Monsanto purchase price allocation.
Impairment losses totaled €54 million (Q2 2017: €126 million), including €2 million
(Q2 2017: €23 million) on property, plant and equipment. A total of €45 million (Q2
2017: €122 million) in impairment losses and impairment loss reversals constituted
special items.
EBIT and special items
EBIT of the Bayer Group fell by 7.7% to €1,351 million (Q2 2017: €1,463 million),
after special charges of €363 million (Q2 2017: €244 million). The special charges
resulted mainly from expenses of €287 million in connection with the acquisition of
Monsanto, including €126 million associated with the sale of acquired inventories
remeasured at fair value in connection with the purchase price allocation. There were
further special charges of €43 million for impairment losses on intangible assets
and of €32 million for efficiency improvement measures. EBIT before special items
was up by 0.4% at €1,714 million (Q2 2017: €1,707 million), and thus came in at the
level of the prior-year quarter.
The following special effects were taken into account in calculating EBIT and EBITDA:
A 2
Special Items Reconciliation by Segment1
| EBIT |
EBIT |
EBIT |
EBIT |
EBITDA |
EBITDA |
|
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 | Q2 2017 | Q2 2018 |
| Before special items | 1,707 | 1,714 | 4,236 | 4,102 | 2,247 | 2,335 |
| Pharmaceuticals | (120) | (56) | (156) | (57) | (7) | (13) |
| Consumer Health | (15) | 1 | (24) | (4) | (7) | 1 |
| Crop Science | (95) | (280) | (132) | (341) | (84) | (278) |
| Animal Health | - | (3) | - | (3) | - | (3) |
| Reconciliation | (14) | (25) | (34) | (36) | (14) | (25) |
| Restructuring | (14) | (13) | (29) | (18) | (14) | (13) |
| Litigations/ legal risks | - | - | (5) | (3) | - | - |
| Acquisition costs | - | (12) | - | (15) | - | (12) |
| Total special items | (244) | (363) | (346) | (441) | (112) | (318) |
| Impairment losses/ reversals | (118) | (43) | (151) | (43) | (6) | - |
| Litigations/ legal risks | (2) | (2) | (7) | (6) | (2) | (2) |
| Acquisition costs | (47) | (287) | (68) | (348) | (47) | (285) |
| Restructuring | (37) | (32) | (80) | (45) | (27) | (32) |
| Divestitures | (40) | 1 | (40) | 1 | (30) | 1 |
| After special items | 1,463 | 1,351 | 3,890 | 3,661 | 2,135 | 2,017 |
| EBITDA |
EBITDA |
|
| € million | H1 2017 | H1 2018 |
| Before special items | 5,301 | 5,231 |
| Pharmaceuticals | (10) | (14) |
| Consumer Health | (15) | (4) |
| Crop Science | (108) | (339) |
| Animal Health | - | (3) |
| Reconciliation | (34) | (36) |
| Restructuring | (29) | (18) |
| Litigations/ legal risks | (5) | (3) |
| Acquisition costs | - | (15) |
| Total special items | (167) | (396) |
| Impairment losses/ reversals | (6) | - |
| Litigations/ legal risks | (7) | (6) |
| Acquisition costs | (68) | (346) |
| Restructuring | (56) | (45) |
| Divestitures | (30) | 1 |
| After special items | 5,134 | 4,835 |
2017 figures restated
A 3
Special Items Reconciliation by Functional Costs1
| EBIT | EBIT | EBIT | EBIT | EBITDA | EBITDA | |
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 | Q2 2017 | Q2 2018 |
| Total special items | (244) | (363) | (346) | (441) | (112) | (318) |
| of which cost of goods sold | (66) | (148) | (91) | (158) | (42) | (145) |
| of which selling expenses | (40) | (16) | (41) | (18) | (8) | (16) |
| of which research and development expenses | (77) | (50) | (113) | (53) | (3) | (7) |
| of which general administration expenses | (58) | (149) | (93) | (207) | (58) | (149) |
| of which other operating income/ expenses | (3) | - | (8) | (5) | (1) | (1) |
| EBITDA | EBITDA | |
| € million | H1 2017 | H1 2018 |
| Total special items | (167) | (396) |
| of which cost of goods sold | (53) | (155) |
| of which selling expenses | (9) | (18) |
| of which research and development expenses | (6) | (10) |
| of which general administration expenses | (93) | (207) |
| of which other operating income/ expenses | (6) | (6) |
2017 figures restated
Income after income taxes from discontinued operations
Income after income taxes from discontinued operations was minus €8 million (Q2 2017:
€641 million). Covestro was still included in the prior-year period.
Net income
After a financial result of minus €322 million (Q2 2017: minus €369 million), income
before income taxes was €1,029 million (Q2 2017: €1,094 million). The financial result
primarily consisted of net interest expense of €270 million (Q2 2017: €133 million),
as well as special charges of €106 million (Q2 2017: €164 million), mainly in connection
with the bridge financing for the Monsanto acquisition. After income tax expense of
€216 million (Q2 2017: €258 million) and adjusting for income from discontinued operations
after income taxes and noncontrolling interest, net income for the second quarter
of 2018 amounted to €799 million (Q2 2017: €1,224 million).
Core earnings per share
Earnings per share (total) were €0.87 in the second quarter of 2018 (Q2 2017: €1.38),
while core earnings per share from continuing operations increased by 1.3% to €1.54
(Q2 2017: €1.52).
A 4
Core Earnings per Share1
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 |
| EBIT (as per income statements) | 1,463 | 1,351 | 3,890 | 3,661 |
| Amortization and impairment losses / loss reversals on intangible assets | 416 | 416 | 758 | 713 |
| Impairment losses/ loss reversals on property, plant and equipment, and accelerated depreciation included in special items | 33 | 2 | 46 | 9 |
| Special items (other than accelerated depreciation, amortization and impairment losses/ loss reversals) | 112 | 318 | 167 | 396 |
| Core EBIT | 2,024 | 2,087 | 4,861 | 4,779 |
| Financial result (as per income statements) | (369) | (322) | (665) | (192) |
| Special items in the financial result | 164 | 106 | 199 | (130) |
| Income taxes (as per income statements) | (258) | (216) | (682) | (710) |
| Special items in income taxes | - | - | - | - |
| Tax effects related to amortization, impairment losses/ loss reversals and special items | (214) | (240) | (352) | (347) |
| Income after income taxes attributable to noncontrolling interest (as per income statements) | (2) | (6) | - |
(6) |
| Above-mentioned adjustments attributable to noncontrolling interest | - |
- |
- |
- |
| Core net income from continuing operations | 1,345 | 1,409 | 3,361 | 3,394 |
| Shares | ||||
| Weighted average number of shares2 | 885,186,889 | 915,694,644 | 884,826,889 | 900,704,047 |
| € | ||||
| Core earnings per share from continuing operations | 1.52 | 1.54 | 3.80 | 3.77 |
2017 figures restated
1
For definition see Annual Report 2017, A 2.4 "Alternative Performance Measures Used
by the Bayer Group."
2
The weighted average number of shares (basic and diluted) was restated for all periods
prior to June 2018 to reflect the effect of the bonus component of the subscription
rights issued as part of the June 2018 capital increase
In April 2018, the Singapore-based investment firm Temasek subscribed to 31 million
new Bayer shares, for total gross proceeds of €3 billion. The subscription rights
of existing stockholders were excluded from this capital increase.
In June 2018, a capital increase with subscription rights for existing stockholders
was implemented, raising around €6.0 billion in net proceeds. Approximately 74.6 million
new shares were issued. As the subscription price of the new shares was below the
market price of the existing shares, this capital increase contains a bonus component
pursuant to IAS 33. The weighted average number of shares was adjusted to reflect
the effect of this bonus component for all periods prior to June 2018.
Personnel expenses and employee numbers
Personnel expenses increased by 9.4%, in part due to currency effects and to the Monsanto
acquisition, and totaled €2,566 million (Q2 2017: €2,345 million). As of the closing
date, the number of employees in the Bayer Group was 124,055 (June 30, 2017: 99,720),
up by 24.4%, due largely to the Monsanto acquisition.
First half of 2018
Group sales
Group sales in the first half of 2018 rose by 5.1% (Fx & portfolio adj.) to €18,619
million (reported: + 1.2%). Germany accounted for €1,999 million of this figure.
Sales of Pharmaceuticals advanced by 3.0% (Fx & portfolio adj.) to €8,292 million.
Sales at Consumer Health were down slightly against the first half of 2017, declining
by 1.8% (Fx & portfolio adj.) to €2,822 million. Sales at Crop Science climbed by
8.1% (Fx & portfolio adj.) to €5,872 million, primarily due to the previously described
effect in Brazil. On a reported basis, sales increased by 11.1%, thanks mainly to
a portfolio effect of 10.3% (€543 million) from the acquisition of Monsanto. Animal
Health posted a 5.4% increase (Fx & portfolio adj.) in sales to €867 million.
EBITDA before special items
EBITDA before special items of the Bayer Group declined slightly year on year, falling
by 1.3% to €5,231 million (H1 2017: €5,301 million). EBITDA before special items at
Pharmaceuticals decreased by 6.9% to €2,778 million. EBITDA before special items of
Consumer Health fell by 19.4% to €569 million. Crop Science posted a considerable
increase in EBITDA before special items, which rose by 16.8% to €1,673 million. This
was mainly attributable to the aforementioned effects in Brazil and to the earnings
contribution of the newly acquired business. Earnings of Animal Health also increased,
rising by 6.4% to €267 million.
Depreciation and amortization
Depreciation, amortization and impairment losses amounted to €1,174 million in the
first half of 2018 (H1 2017: €1,244 million), comprising €712 million (H1 2017: €758
million) in amortization and impairments on intangible assets and €462 million (H1
2017: €486 million) in depreciation and impairments on property, plant and equipment.
An amount of €55 million was related to remeasurements or to assets recognized for
the first time in connection with the purchase price allocation of Monsanto.
Impairment losses totaled €75 million (H1 2017: €173 million), including €9 million
(H1 2017: €37 million) on property, plant and equipment. A total of €45 million (H1
2017: €168 million) in impairment losses and impairment loss reversals constituted
special items.
EBIT
EBIT of the Bayer Group fell by 5.9% to €3,661 million (H1 2017: €3,890 million),
after net special charges of €441 million (H1 2017: €346 million). The special charges
resulted mainly from expenses of €348 million in connection with the acquisition of
Monsanto, including €126 million associated with the sale of acquired inventories
remeasured at fair value in connection with the purchase price allocation. Further
special charges of €45 million were related to efficiency improvement programs, while
charges of €43 million were connected with impairments on intangible assets. EBIT
before special items declined by 3.2% to €4,102 million (H1 2017: €4,236 million).
Income after income taxes from discontinued operations
Income after income taxes from discontinued operations was €0 million (H1 2017: €1,205
million).
Covestro was still included in the prior-year period.
Net income
After a financial result of minus €192 million (H1 2017: minus €665 million), income
before income taxes was €3,469 million (H1 2017: €3,225 million). The financial result
comprised income of €341 from the sale of Covestro shares, net interest expense of
€362 million (H1 2017: €251 million), an exchange loss of €78 million (H1 2017: €190
million), and interest cost of €86 million (H1 2017: €99 million) for pension and
other provisions. The financial result included special gains of €130 million (H1
2017: special charges of €199 million). After tax expense of €710 million (H1 2017:
€682 million), income after income taxes was €2,759 million (H1 2017: €2,543 million).
After adjusting for income from discontinued operations after income taxes and noncontrolling
interest, net income came to €2,753 million (H1 2017: €3,307 million).
Core earnings per share
Earnings per share (total) declined to €3.06 (H1 2017: €3.74), while core earnings
per share from continuing operations of the Bayer Group were level with the prior-year
period at €3.77 (H1 2017: €3.80; -0.8%).
1.2 Business Development by Segment
Pharmaceuticals
A 5
Key Data - Pharmaceuticals
| Change %1 | Change %1 | |||||
| € million | Q2 2017 | Q2 2018 | Reported | Fx & p adj. | H1 2017 | H1 2018 |
| Sales | 4,304 | 4,217 | - 2.0 | + 3.1 | 8,567 | 8,292 |
| Change in sales1 | ||||||
| Volume | + 4.7% | + 5.8% | + 6.2% | + 5.7% | ||
| Price | - 0.3% | - 2.7% | - 0.4% | - 2.7% | ||
| Currency | + 0.5% | - 4.9% | + 1.4% | - 6.0% | ||
| Portfolio | 0.0% | - 0.2% | 0.0% | - 0.2% | ||
| Sales by region | ||||||
| Europe / Middle East/Africa | 1,647 | 1,653 | + 0.4 | + 3.2 | 3,253 | 3,264 |
| North America | 1,101 | 992 | - 9.9 | - 3.3 | 2,174 | 1,915 |
| Asia/ Pacific | 1,290 | 1,323 | + 2.6 | + 6.8 | 2,602 | 2,626 |
| Latin America | 266 | 249 | - 6.4 | + 10.5 | 538 | 487 |
| EBITDA1 | 1,474 | 1,350 | - 8.4 | 2,973 | 2,764 | |
| Special items1 | (7) | (13) | (10) | (14) | ||
| EBITDA before special items1 | 1,481 | 1,363 | - 8.0 | 2,983 | 2,778 | |
| EBITDA margin before special items1 | 34.4% | 32.3% | 34.8% | 33.5% | ||
| EBIT1 | 1,102 | 1,053 | - 4.4 | 2,321 | 2,216 | |
| Special items1 | (120) | (56) | (156) | (57) | ||
| EBIT before special items1 | 1,222 | 1,109 | - 9.2 | 2,477 | 2,273 | |
| Net cash provided by operating activities | 528 | 629 | + 19.1 | 1,501 | 1,861 |
| Change %1 | Change %1 | |
| € million | Reported | Fx & p adj. |
| Sales | - 3.2 | + 3.0 |
| Change in sales1 | ||
| Volume | ||
| Price | ||
| Currency | ||
| Portfolio | ||
| Sales by region | ||
| Europe / Middle East/Africa | + 0.3 | + 2.9 |
| North America | - 11.9 | - 2.8 |
| Asia/ Pacific | + 0.9 | + 7.3 |
| Latin America | - 9.5 | + 6.5 |
| EBITDA1 | - 7.0 | |
| Special items1 | ||
| EBITDA before special items1 | - 6.9 | |
| EBITDA margin before special items1 | ||
| EBIT1 | - 4.5 | |
| Special items1 | ||
| EBIT before special items1 | - 8.2 | |
| Net cash provided by operating activities | + 24.0 |
Fx & p adj. = currency- and portfolio-adjusted
Second quarter of 2018
Sales
Sales of Pharmaceuticals rose by 3.1% (Fx & portfolio adj.) to €4,217 million in the
second quarter of 2018. Our key growth products Xarelto™, Eylea™, Xofigo™, Stivarga™
and Adempas™ maintained their strong performance overall, with their combined sales
rising by 13.2% (Fx and portfolio adj.) to €1,691 million (Q2 2017: €1,555 million).
Combined sales of the 15 best-selling Pharmaceuticals products advanced by 4.8% (Fx
& portfolio adj.). Sales of Kogenate™ again declined significantly, impacted by the
termination of an agreement with a distribution partner at the end of 2017. After
adjusting for this effect, sales of Pharmaceuticals rose by 4.2% (Fx & portfolio adj.).
As expected, sales were also held back by temporary supply disruptions for some of
our established products, such as Adalat™ and Aspirin™, as was the case in the first
quarter.
A 6
Best-Selling Pharmaceuticals Products
| Change %1 | Change %1 | |||||
| € million | Q2 2017 | Q2 2018 | Reported | Fx & p adj. | H1 2017 | H1 2018 |
| Xarelto™ | 834 | 891 | + 6.8 | + 10.6 | 1,585 | 1,705 |
| of which U.S.A.2 | 117 | 126 | + 7.7 | + 7.2 | 203 | 209 |
| Eylea™ | 458 | 540 | + 17.9 | + 22.5 | 904 | 1,044 |
| of which U.S.A.3 | 0 | 0 | . |
. |
0 | 0 |
| Xofigo™ | 105 | 89 | - 15.2 | - 9.2 | 205 | 181 |
| of which U.S.A. | 62 | 52 | - 16.1 | - 10.3 | 124 | 103 |
| Adempas™ | 75 | 89 | + 18.7 | + 23.4 | 148 | 170 |
| of which U.S.A. | 38 | 41 | + 7.9 | + 16.2 | 76 | 78 |
| Stivarga™ | 83 | 82 | - 1.2 | + 7.5 | 158 | 152 |
| of which U.S.A. | 46 | 41 | - 10.9 | - 4.8 | 85 | 70 |
| Subtotal key growth products | 1,555 | 1,691 | + 8.7 | + 13.2 | 3,000 | 3,252 |
| Mirena™ product family | 276 | 276 | 0.0 | + 7.4 | 591 | 593 |
| of which U.S.A. | 176 | 177 | + 0.6 | + 8.2 | 395 | 401 |
| Kogenate™/ Kovaltry™ | 260 | 213 | - 18.1 | - 13.7 | 535 | 427 |
| of which U.S.A. | 91 | 74 | - 18.7 | - 11.8 | 185 | 154 |
| Nexavar™ | 229 | 193 | - 15.7 | - 10.5 | 436 | 355 |
| of which U.S.A. | 86 | 59 | - 31.4 | - 24.8 | 161 | 102 |
| Adalat™ | 171 | 165 | - 3.5 | - 1.2 | 345 | 341 |
| of which U.S.A. | 0 | 0 | . |
. |
0 | 0 |
| Glucobay™ | 139 | 151 | + 8.6 | + 10.3 | 297 | 319 |
| of which U.S.A. | 0 | 1 | . |
. |
1 | 1 |
| YAZ™ / Yasmin™/ Yasminelle™ | 158 | 159 | + 0.6 | + 8.2 | 328 | 311 |
| of which U.S.A. | 25 | 22 | - 12.0 | - 7.6 | 45 | 37 |
| Aspirin™ Cardio | 148 | 139 | - 6.1 | - 3.1 | 305 | 287 |
| of which U.S.A. | 0 | 0 | . |
. |
0 | 0 |
| Betaferon™ / Betaseron™ | 185 | 142 | - 23.2 | - 18.6 | 356 | 272 |
| of which U.S.A. | 108 | 77 | - 28.7 | - 22.3 | 202 | 135 |
| Gadavist™/ Gadovist™ | 97 | 103 | + 6.2 | + 13.0 | 186 | 190 |
| of which U.S.A. | 34 | 38 | + 11.8 | + 21.8 | 61 | 63 |
| Avalox™/ Avelox™ | 87 | 77 | - 11.5 | - 6.6 | 187 | 174 |
| of which U.S.A. | 2 | 0 | . |
. |
5 | 3 |
| Total best-selling products | 3,305 | 3,309 | + 0.1 | + 4.8 | 6,566 | 6,521 |
| Proportion of Pharmaceuticals sales | 77% | 78% | 77% | 79% | ||
| Total best-selling products in U.S.A. | 785 | 708 | - 9.8 | - 4.0 | 1,543 | 1,356 |
| Change %1 | Change %1 | |
| € million | Reported | Fx & p adj. |
| Xarelto™ | + 7.6 | + 11.7 |
| of which U.S.A.2 | + 3.0 | + 3.0 |
| Eylea™ | + 15.5 | + 20.9 |
| of which U.S.A.3 | . |
. |
| Xofigo™ | - 11.7 | - 3.7 |
| of which U.S.A. | - 16.9 | - 7.1 |
| Adempas™ | + 14.9 | + 22.3 |
| of which U.S.A. | + 2.6 | + 15.5 |
| Stivarga™ | - 3.8 | + 5.5 |
| of which U.S.A. | - 17.6 | - 8.2 |
| Subtotal key growth products | + 8.4 | + 13.6 |
| Mirena™ product family | + 0.3 | + 10.7 |
| of which U.S.A. | + 1.5 | + 13.7 |
| Kogenate™/ Kovaltry™ | - 20.2 | - 14.9 |
| of which U.S.A. | - 16.8 | - 6.5 |
| Nexavar™ | - 18.6 | - 12.3 |
| of which U.S.A. | - 36.6 | - 29.1 |
| Adalat™ | - 1.2 | + 3.9 |
| of which U.S.A. | . |
. |
| Glucobay™ | + 7.4 | + 12.2 |
| of which U.S.A. | . |
. |
| YAZ™ / Yasmin™/ Yasminelle™ | - 5.2 | + 3.0 |
| of which U.S.A. | - 17.8 | - 10.1 |
| Aspirin™ Cardio | - 5.9 | - 0.9 |
| of which U.S.A. | . |
. |
| Betaferon™ / Betaseron™ | - 23.6 | - 17.6 |
| of which U.S.A. | - 33.2 | - 25.4 |
| Gadavist™/ Gadovist™ | + 2.2 | + 9.0 |
| of which U.S.A. | + 3.3 | + 15.2 |
| Avalox™/ Avelox™ | - 7.0 | - 1.2 |
| of which U.S.A. | . |
. |
| Total best-selling products | - 0.7 | + 5.3 |
| Proportion of Pharmaceuticals sales | ||
| Total best-selling products in U.S.A. | - 12.1 | - 3.2 |
Fx & p adj. = currency- and portfolio-adjusted
1
For definition see Annual Report 2017, A 2.4 "Alternative Performance Measures Used
by the Bayer Group."
2
Marketing rights owned by an affiliate of Johnson & Johnson, U.S.A.; transactional
effects had a negative impact of €10 million.
3
Marketing rights owned by Regeneron Pharmaceuticals Inc., U.S.A.
Sales by product
| ― |
Sales of our oral anticoagulant Xarelto™ once again rose significantly, driven by higher volumes in Europe, Japan and China. Our license revenues - recognized as sales - in the United States, where Xarelto™ is marketed by a subsidiary of Johnson & Johnson, also developed positively. |
| ― |
We recorded substantial sales gains for our eye medicine Eylea™, due primarily to expanded volumes in Europe, Japan and Canada. Among other things, the differentiated clinical profile of Eylea™ had a positive impact. |
| ― |
Sales of our cancer drug Xofigo™ declined markedly as a result of lower volumes in the United States, Japan and other countries. This was also partly due to the Phase III trial of radium Ra 223 dichloride in combination with abiraterone acetate and prednisone / prednisolone being halted prematurely in November 2017. |
| ― |
Sales of our pulmonary hypertension treatment Adempas™ increased significantly due to positive business development in the United States and Europe. As in the past, sales reflected the proportionate recognition of the upfront and milestone payments resulting from the sGC collaboration with Merck & Co., United States. |
| ― |
We posted encouraging growth in sales of our cancer drug Stivarga™ on a currency- and portfolio-adjusted basis. The increase resulted primarily from expanded volumes in Japan and China, where we benefited from the market launches in previous years. By contrast, sales in the United States came in below the level of the prior-year quarter due to intensified competitive pressure. |
| ― |
Sales of the hormone-releasing intrauterine devices of the Mirena™ product family (Mirena™, Kyleena™ and Jaydess™ / Skyla™) increased, especially in the United States, with the successful launch of Kyleena™ continuing to have a positive impact on sales. |
| ― |
We again registered significant sales declines for our Kogenate™ /Kovaltry™ blood-clotting medicines that resulted from the termination of an agreement with a distribution partner at the end of 2017. Adjusted for this effect, sales rose by 3.2% (Fx & portfolio adj.). |
| ― |
Sales of our cancer drug Nexavar™ fell considerably, with intensified competitive pressure in the United States and Japan weighing on performance. |
| ― |
We registered a decline in sales of Adalat™, our product for the treatment of hypertension and coronary heart disease, and of Aspirin™ Cardio, which is used for the secondary prevention of heart attacks. The continued strong expansion of volumes in China was not sufficient to offset declines in Europe. |
| ― |
We once again recorded encouraging sales gains for our diabetes treatment Glucobay™, with performance driven by expanded volumes in China. |
| ― |
Sales of our YAZ™ / Yasmin™ / Yasminelle™ line of oral contraceptives developed very positively, due primarily to good business performance in Russia, China and Japan. |
| ― |
Sales of our multiple sclerosis treatment Betaferon™ / Betaseron™ declined significantly. This was mainly due to the competitive market environment in the United States. |
| ― |
We posted robust growth in sales of our MRI contrast agent Gadavist™/ Gadovist™ that resulted especially from the good business performance in the United States. |
| ― |
We registered a decline in sales of our antibiotic Avalox™ / Avelox™, primarily due to generic competition in the United States. |
Earnings
EBITDA before special items of Pharmaceuticals declined by 8.0% to €1,363 million
in the second quarter of 2018 (Q2 2017: €1,481 million). Adjusted for negative currency
effects in the amount of €54 million, earnings were down by 4.3%. The decline was
mainly attributable to higher R&D and selling expenses, as well as to effects relating
to temporary supply disruptions. An increase in the cost of goods sold also weighed
on earnings. These effects were partly offset by a substantial expansion in volumes
for our key growth products.
EBIT declined by 4.4% to €1,053 million, after special charges of €56 million (Q2
2017: €120 million). These comprised €43 million in impairment losses on intangible
assets and €13 million in expenses for efficiency improvement measures.
A 7
Special Items1 Pharmaceuticals
| EBIT | EBIT | EBIT | EBIT | EBITDA | EBITDA | |
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 | Q2 2017 | Q2 2018 |
| Restructuring | (2) | (13) | (5) | (14) | (1) | (13) |
| Impairment losses/ reversals | (118) | (43) | (151) | (43) | (6) | - |
| Total special items | (120) | (56) | (156) | (57) | (7) | (13) |
| EBITDA | EBITDA |
|
| € million | H1 2017 | H1 2018 |
| Restructuring | (4) | (14) |
| Impairment losses/ reversals | (6) | - |
| Total special items | (10) | (14) |
First half of 2018
Sales
Sales of Pharmaceuticals rose by 3.0% (Fx & portfolio adj.) in the first six months
of 2018, to €8,292 million. Our key growth products Xarelto™, Eylea™, Stivarga™, Xofigo™
and Adempas™ delivered strong performance, with their combined sales rising by 13.6%
(Fx & portfolio adj.) to €3,252 million (H1 2017: €3,000 million). We registered a
significant decline in sales of Kogenate™ due to the absence of orders from a distribution
partner. After adjusting for this effect, sales of Pharmaceuticals rose by 4.4% (Fx
& portfolio adj.).
Earnings
EBITDA before special items decreased by 6.9% in the first half of 2018, to €2,778
million (H1 2017: €2,983 million). Adjusted for negative currency effects in the amount
of €123 million, earnings were down by 2.7%. Higher R&D and selling expenses, and
a higher cost of goods sold were the primary factors that diminished earnings. Positive
contributions primarily came from a substantial increase in volumes, especially for
our key growth products.
EBIT declined by 4.5% to €2,216 million. Special charges amounted to €57 million (H1
2017: €156 million) and comprised €43 million in impairment losses on intangible assets
and €14 million in expenses for efficiency improvement measures.
Consumer Health
A 8
Key Data - Consumer Health
| Change %1 | Change %1 | |||||
| € million | Q2 2017 | Q2 2018 | Reported | Fx & p adj. | H1 2017 | H1 2018 |
| Sales | 1,542 | 1,413 | - 8.4 | - 1.4 | 3,143 | 2,822 |
| Changes in sales1 | ||||||
| Volume | - 4.6% | - 2.2% | - 2.2% | - 2.8% | ||
| Price | + 2.4% | + 0.8% | + 2.4% | + 1.0% | ||
| Currency | + 1.5% | - 7.0% | + 2.1% | - 8.4% | ||
| Portfolio | 0.0% | 0.0% | 0.0% | 0.0% | ||
| Sales by region | ||||||
| Europe / Middle East/Africa | 503 | 466 | - 7.4 | - 3.4 | 1,041 | 962 |
| North America | 661 | 595 | - 10.0 | - 2.7 | 1,362 | 1,191 |
| Asia/ Pacific | 195 | 202 | + 3.6 | + 8.2 | 415 | 379 |
| Latin America | 183 | 150 | - 18.0 | - 1.1 | 325 | 290 |
| EBITDA1 | 307 | 257 | - 16.3 | 691 | 565 | |
| Special items1 | (7) | 1 | (15) | (4) | ||
| EBITDA before special items1 | 314 | 256 | - 18.5 | 706 | 569 | |
| EBITDA margin before special items1 | 20.4% | 18.1% | 22.5% | 20.2% | ||
| EBIT1 | 195 | 157 | - 19.5 | 473 | 368 | |
| Special items1 | (15) | 1 | (24) | (4) | ||
| EBIT before special items1 | 210 | 156 | - 25.7 | 497 | 372 | |
| Net cash provided by operating activities | 297 | 148 | - 50.2 | 562 | 321 |
| Change %1 | Change %1 | |
| € million | Reported | Fx & p adj. |
| Sales | - 10.2 | - 1.8 |
| Changes in sales1 | ||
| Volume | ||
| Price | ||
| Currency | ||
| Portfolio | ||
| Sales by region | ||
| Europe / Middle East/Africa | - 7.6 | - 3.5 |
| North America | - 12.6 | - 2.4 |
| Asia/ Pacific | - 8.7 | - 2.7 |
| Latin America | - 10.8 | + 6.8 |
| EBITDA1 | - 18.2 | |
| Special items1 | ||
| EBITDA before special items1 | - 19.4 | |
| EBITDA margin before special items1 | ||
| EBIT1 | - 22.2 | |
| Special items1 | ||
| EBIT before special items1 | - 25.2 | |
| Net cash provided by operating activities | - 42.9 |
Fx & p adj. = currency- and portfolio-adjusted
Second quarter of 2018
Sales
Sales of Consumer Health declined slightly in the second quarter of 2018, falling
by 1.4% (Fx & portfolio adj.) to €1,413 million. This was primarily due to a decline
in business in Europe / Middle East / Africa and weaker business performance in North
America. Business picked up in Asia / Pacific, returning to growth in the second quarter.
A 9
Best-Selling Consumer Health Products
| Change %1 | Change %1 | |||||
| € million | Q2 2017 | Q2 2018 | Reported | Fx & p adj. | H1 2017 | H1 2018 |
| Claritin™ | 159 | 140 | - 11.9 | - 5.7 | 349 | 307 |
| Aspirin™ | 104 | 93 | - 10.6 | - 2.2 | 221 | 202 |
| Bepanthen™/ Bepanthol™ | 100 | 97 | - 3.0 | + 2.7 | 195 | 197 |
| Aleve™ | 101 | 97 | - 4.0 | + 3.3 | 183 | 169 |
| Coppertone™ | 80 | 71 | - 11.3 | - 5.1 | 182 | 157 |
| Canesten™ | 74 | 69 | - 6.8 | - 3.4 | 144 | 121 |
| Elevit™ | 44 | 54 | + 22.7 | + 31.3 | 96 | 104 |
| Dr Scholl's™2 | 66 | 54 | - 18.2 | - 9.8 | 107 | 103 |
| One A Day™ | 55 | 50 | - 9.1 | - 1.8 | 110 | 96 |
| Alka-Seltzer™ product family | 44 | 41 | - 6.8 | + 0.5 | 114 | 93 |
| Total | 827 | 766 | - 7.4 | - 0.6 | 1,701 | 1,549 |
| Proportion of Consumer Health sales | 54% | 54% | 54% | 55% |
| Change %1 | Change %1 | |
| € million | Reported | Fx & p adj. |
| Claritin™ | - 12.0 | - 2.7 |
| Aspirin™ | - 8.6 | + 0.7 |
| Bepanthen™/ Bepanthol™ | + 1.0 | + 6.6 |
| Aleve™ | - 7.7 | + 2.3 |
| Coppertone™ | - 13.7 | - 4.2 |
| Canesten™ | - 16.0 | - 12.0 |
| Elevit™ | + 8.3 | + 17.7 |
| Dr Scholl's™2 | - 3.7 | + 7.6 |
| One A Day™ | - 12.7 | - 2.4 |
| Alka-Seltzer™ product family | - 18.4 | - 8.7 |
| Total | - 8.9 | - 0.2 |
| Proportion of Consumer Health sales |
Fx & p adj. = currency- and portfolio-adjusted
1
For definition see Annual Report 2017, A 2.4 "Alternative Performance Measures Used
by the Bayer Group."
2
Trademark rights and distribution only in certain countries outside the European Union
Sales by product
| ― |
The decline in sales of our antihistamine Claritin™ was driven by a change in ordering behavior in China and a significantly late start to the season in the United States. |
| ― |
Sales of our analgesic Aspirin™ were down slightly year on year, due primarily to anticipated temporary supply disruptions. Including business with Aspirin™ Cardio, which is reported under Pharmaceuticals, sales amounted to €232 million (Q2 2017: €252 million), representing a currency- and portfolio-adjusted decline of 2.7%. |
| ― |
We posted a slight increase in sales of our Bepanthen™ / Bepanthol™ wound and skin care products, thanks mainly to growth in Europe. |
| ― |
Business with our analgesic Aleve™ expanded, benefiting especially from a product line extension in the United States. |
| ― |
Sales of our Coppertone™ sunscreen were down, with the chief factors here being the late start to the suncare season and the persistently intensive competitive pressure in the United States. |
| ― |
We registered a decline in sales of our Canesten™ skin and intimate health products that was primarily attributable to anticipated temporary supply disruptions. |
| ― |
We once again significantly expanded business with our prenatal vitamin Elevit™ thanks to continuing strong demand in Asia / Pacific. |
| ― |
Our Dr. Scholl's™ foot care products registered a substantial decline in sales, especially in the United States, where we had benefited in the prior-year quarter from inventory building by retailers. Overall, the repositioning of this brand in the United States is progressing positively. |
| ― |
Sales of our One A Day™ vitamin product decreased slightly. |
| ― |
Sales of the Alka-Seltzer™ family of products to treat gastric complaints and cold symptoms came in at the prior-year level. |
Earnings
EBITDA before special items of Consumer Health declined by a substantial 18.5% to
€256 million in the second quarter of 2018 (Q2 2017: €314 million). Adjusted for negative
currency effects in the amount of €12 million, earnings were down by 14.6%. This decline
is predominantly attributable to lower volumes and a higher cost of goods sold, in
part due to a shift in the product mix. Earnings included one-time gains from the
sale of a noncore brand in the amount of €14 million (Q2 2017: €0 million).
EBIT decreased by 19.5% to €157 million, after special gains of €1 million (Q2 2017:
special charges of €15 million).
A 10
Special Items1 Consumer Health
| EBIT | EBIT | EBIT | EBIT | EBITDA | EBITDA | |
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 | Q2 2017 | Q2 2018 |
| Restructuring | (15) | 1 | (24) | (4) | (7) | 1 |
| Total special items | (15) | 1 | (24) | (4) | (7) | 1 |
| EBITDA | EBITDA | |
| € million | H1 2017 | H1 2018 |
| Restructuring | (15) | (4) |
| Total special items | (15) | (4) |
First half of 2018
Sales
Sales of Consumer Health fell slightly in the first six months of 2018, decreasing
by 1.8% (Fx & portfolio adj.) to €2,822 million. The declines in Europe / Middle East
/ Africa, Asia / Pacific and North America were not offset by the positive business
performance in Latin America.
Earnings
EBITDA before special items receded by 19.4% in the first half of 2018, to €569 million
(H1 2017: €706 million). Adjusted for negative currency effects in the amount of €47
million, earnings were down by 12.7%. The decline is primarily due to lower volumes.
In addition, one-time gains from the sale of noncore brands were significantly lower
than in the prior-year period.
EBIT decreased by 22.2% to €368 million (H1 2017: €473 million). Special charges amounted
to €4 million (H1 2017: €24 million) and pertained to efficiency improvement measures.
Crop Science
A 11
Key Data - Crop Science
| Change %1 | Change %1 | |||||
| € million | Q2 2017 | Q2 2018 | Reported | Fx & p adj. | H1 2017 | H1 2018 |
| Sales | 2,163 | 3,011 | + 39.2 | + 21.4 | 5,283 | 5,872 |
| Change in sales1 | ||||||
| Volume | - 13.7% | + 22.0% | - 4.3% | + 8.6% | ||
| Price | - 2.1% | - 0.6% | - 1.1% | - 0.5% | ||
| Currency | + 1.7% | - 7.2% | + 2.3% | - 7.3% | ||
| Portfolio | 0.0% | + 25.0% | 0.0% | + 10.3% | ||
| Sales by region | ||||||
| Europe / Middle East/Africa | 908 | 986 | + 8.6 | + 5.5 | 2,370 | 2,280 |
| North America | 865 | 1,076 | + 24.4 | - 1.9 | 1,907 | 2,045 |
| Asia/ Pacific | 459 | 508 | + 10.7 | + 10.2 | 825 | 876 |
| Latin America | (69) | 441 | . |
. |
181 | 671 |
| EBITDA1 | 233 | 353 | + 51.5 | 1,324 | 1,334 | |
| Special items1 | (84) | (278) | (108) | (339) | ||
| EBITDA before special items1 | 317 | 631 | + 99.1 | 1,432 | 1,673 | |
| EBITDA margin before special items1 | 14.7% | 21.0% | 27.1% | 28.5% | ||
| EBIT1 | 117 | 154 | + 31.6 | 1,087 | 1,046 | |
| Special items1 | (95) | (280) | (132) | (341) | ||
| EBIT before special items1 | 212 | 434 | + 104.7 | 1,219 | 1,387 | |
| Net cash provided by operating activities | 1,170 | 1,653 | + 41.3 | 491 | 950 |
| Change %1 | Change %1 | |
| € million | Reported | Fx & p adj. |
| Sales | + 11.1 | + 8.1 |
| Change in sales1 | ||
| Volume | ||
| Price | ||
| Currency | ||
| Portfolio | ||
| Sales by region | ||
| Europe / Middle East/Africa | - 3.8 | - 3.3 |
| North America | + 7.2 | + 1.6 |
| Asia/ Pacific | + 6.2 | + 10.4 |
| Latin America | . |
. |
| EBITDA1 | + 0.8 | |
| Special items1 | ||
| EBITDA before special items1 | + 16.8 | |
| EBITDA margin before special items1 | ||
| EBIT1 | - 3.8 | |
| Special items1 | ||
| EBIT before special items1 | + 13.8 | |
| Net cash provided by operating activities | + 93.5 |
Fx & p adj. = currency- and portfolio-adjusted
Second quarter of 2018
Sales
In the second quarter of 2018, Crop Science posted sales of €3,011 million. The businesses
being divested accounted for €468 million of this figure. Sales increased by 39.2%
on a reported basis, thanks mainly to a positive portfolio effect of 25.0% (€543 million)
from the acquisition of Monsanto. There was also a negative currency effect of 7.2%.
On a currency- and portfolio-adjusted basis, sales increased by 21.4%. This development
was largely attributable to significantly higher provisions for crop protection product
returns recognized in the prior-year quarter due to high inventory levels in Brazil.
Inventories in the distribution channel there have normalized as a result of the measures
undertaken.
We considerably expanded our seed business through the acquisition of Monsanto as
of June 7, 2018, particularly for corn and soybeans. In addition, our existing herbicides
business was significantly enlarged. Against this backdrop, we have adjusted the reporting
structure of the Crop Science segment as explained in the section "Changes in corporate
structure" at the beginning of this interim report. In terms of regions, the transaction
primarily expands our business in North America and Latin America.
A 12
Sales by Business Unit
| Change %1 | Change %1 | |||||
| € million | Q2 2017 | Q2 2018 | Reported | Fx & p adj. | H1 2017 | H1 2018 |
| Crop Science | 2,163 | 3,011 | + 39.2 | + 21.4 | 5,283 | 5,872 |
| Herbicides | 741 | 1,028 | + 38.7 | + 12.7 | 1,653 | 1,828 |
| Corn Seed & Traits | 19 | 134 | . |
0.0 | 70 | 172 |
| Soybean Seed & Traits | 37 | 147 | . |
+ 37.8 | 105 | 206 |
| Fungicides | 502 | 709 | + 41.2 | + 47.8 | 1,289 | 1,437 |
| Insecticides | 256 | 329 | + 28.5 | + 37.1 | 557 | 628 |
| Environmental Science | 192 | 183 | - 4.7 | - 14.1 | 339 | 297 |
| Vegetable Seeds | 85 | 128 | + 50.6 | + 5.9 | 247 | 272 |
| Other | 331 | 353 | + 6.6 | + 12.7 | 1,023 | 1,032 |
| Change %1 | Change %1 | |
| € million | Reported | Fx & p adj. |
| Crop Science | + 11.1 | + 8.1 |
| Herbicides | + 10.6 | + 2.1 |
| Corn Seed & Traits | + 145.7 | - 11.4 |
| Soybean Seed & Traits | + 96.2 | + 13.3 |
| Fungicides | + 11.5 | + 17.4 |
| Insecticides | + 12.7 | + 21.4 |
| Environmental Science | - 12.4 | - 14.2 |
| Vegetable Seeds | + 10.1 | - 2.0 |
| Other | + 0.9 | + 9.9 |
Fx & p adj. = currency- and portfolio-adjusted
Sales by region
| ― |
Sales in the Europe / Middle East / Africa region climbed by 12.7% (Fx adj.) to €986 million. The acquired Monsanto business contributed €65 million to this figure. Sales increased by 5.5% on a currency- and portfolio-adjusted basis. Fungicides performed particularly well, benefiting from catch-up effects from the delayed start to the season in France and a successful product launch in Germany. Sales also increased at Herbicides. By contrast, there was a decline at Environmental Science. |
| ― |
Sales in North America advanced by 31.0% (Fx adj.) to €1,076 million. The contribution of the acquired Monsanto business was €284 million. Sales fell by 1.9% on a currency- and portfolio-adjusted basis, due chiefly to intensified competitive pressure at Herbicides in the United States and to a significant decline at Environmental Science as a result of planned lower product deliveries to the company that acquired our consumer business in 2016. These effects were partly offset by higher license revenues for soybean seed in the United States. |
| ― |
In the Asia / Pacific region, sales increased by 18.7% (Fx adj.) to €508 million. The contribution by the acquired Monsanto business was €38 million. We posted an encouraging 10.2% sales increase on a currency- and portfolio-adjusted basis. We registered double-digit-percentage increases in sales at Insecticides, due particularly to the weak prior-year quarter in India, and at Fungicides, due to a product launch in China. We also considerably expanded business at Herbicides, especially in Australia. |
| ― |
Sales in the Latin America region increased to €441 million (Q2 2017: minus €69 million). The contribution by the acquired Monsanto business was €155 million. After a negative currency effect of €25 million, the currency- and portfolio-adjusted sales increase was largely attributable to the significantly higher provisions for crop protection product returns recognized in Brazil in the prior-year period due to high inventory levels. The related measures undertaken to normalize inventories of crop protection products were successfully completed at the end of the season during the second quarter. Excluding Brazil, the other countries in the region registered a slight increase overall. |
Earnings
EBITDA before special items of Crop Science increased by 99.1% to €631 million in
the second quarter of 2018 (Q2 2017: €317 million). The substantial increase is largely
down to the aforementioned situation in Brazil in the prior-year quarter, when earnings
were impacted by the recognition of provisions for product returns, impairment losses
on receivables and inventory write-offs. The newly acquired business also provided
a positive contribution of €70 million to earnings. By contrast, earnings were diminished
by a negative currency effect of €52 million (excluding the acquired business).
EBIT climbed by 31.6% to €154 million. Included in this figure is additional depreciation
and amortization in the amount of €55 million resulting from remeasurements or the
first-time recognition of assets in the course of the purchase price allocation. Earnings
were also held back by special charges of €280 million (Q2 2017: €95 million), primarily
in connection with the acquisition of Monsanto. Of this figure, €126 million pertained
to the sale of acquired inventories that were remeasured at fair value in the course
of the purchase price allocation.
A 13
Special Items1 Crop Science
| EBIT |
EBIT |
EBIT |
EBIT |
EBITDA |
EBITDA |
|
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 | Q2 2017 | Q2 2018 |
| Restructuring | (6) | (4) | (22) | (6) | (5) | (4) |
| Litigations | (2) | (2) | (2) | (3) | (2) | (2) |
| Acquisition costs | (47) | (275) | (68) | (333) | (47) | (273) |
| Divestments | (40) | 1 | (40) | 1 | (30) | 1 |
| Total special items | (95) | (280) | (132) | (341) | (84) | (278) |
| EBITDA | EBITDA | |
| € million | H1 2017 | H1 2018 |
| Restructuring | (8) | (6) |
| Litigations | (2) | (3) |
| Acquisition costs | (68) | (331) |
| Divestments | (30) | 1 |
| Total special items | (108) | (339) |
First half of 2018
Sales
In the first half of 2018, Crop Science posted sales of €5,872 million. The businesses
being divested accounted for €1,359 million of this figure. Sales increased by 11.1%
on a reported basis, thanks mainly to a positive portfolio effect of 10.3% (€543 million)
from the acquisition of Monsanto. There was also a negative currency effect of 7.3%.
On a currency- and portfolio-adjusted basis, sales increased by 8.1%, in a development
that was mainly attributable to the Latin America region because of the aforementioned
effect in Brazil, and to positive performance in the Asia /Pacific region. This was
partly offset by a decline in the Europe / Middle East / Africa region that was mainly
the result of unfavorable weather conditions in Western Europe and regulatory changes
in France.
Earnings
EBITDA before special items of Crop Science increased by 16.8% to €1,673 million in
the first half of 2018 (H1 2017: €1,432 million). The substantial increase is primarily
due to the aforementioned effects in Brazil and the earnings contribution provided
by the newly acquired business as detailed above. By contrast, earnings were diminished
by slightly lower selling prices in the United States, a minor decline in volumes
in Europe, and a negative currency effect of €96 million (excluding the acquired business).
EBIT declined by 3.8% to €1,046 million. This figure included the above-mentioned
depreciation and amortization as well as special charges in the amount of €341 million
(H1 2017: €132 million), primarily in connection with the acquisition of Monsanto.
Pro forma sales by strategic business entity (unaudited)
Due to the scope of the acquired activities and the seasonality of the business, we
are presenting sales by strategic business entity on an unaudited, pro forma basis,
to better show the operational business development for the combined business of Crop
Science and Monsanto, among other reasons. In this context, sales are presented as
if both the acquisition of Monsanto and the associated divestments had taken place
as of January 1, 2017.
A 14
Pro Forma Sales by Business Unit1
| Change %2 | Change %2 | |||||
| € million | Q2 2017 | Q2 2018 | Reported | Fx adj. | H1 2017 | H1 2018 |
| Crop Science | 5,013 | 5,095 | + 1.6 | + 10.0 | 11,980 | 11,243 |
| Herbicides | 1,402 | 1,454 | + 3.7 | + 11.4 | 2,954 | 2,757 |
| Corn Seed & Traits | 989 | 961 | - 2.8 | + 7.7 | 3,518 | 3,235 |
| Soybean Seed & Traits | 805 | 686 | - 14.8 | - 6.6 | 1,652 | 1,352 |
| Fungicides | 502 | 710 | + 41.4 | + 47.7 | 1,290 | 1,437 |
| Insecticides | 256 | 329 | + 28.5 | + 37.2 | 559 | 627 |
| Environmental Science | 320 | 283 | - 11.6 | - 4.6 | 617 | 521 |
| Vegetable Seeds | 185 | 175 | - 5.4 | + 0.3 | 382 | 351 |
| Other | 553 | 497 | - 10.1 | - 0.3 | 1,008 | 961 |
| Change %2 | Change %2 | |
| € million | Reported | Fx adj. |
| Crop Science | - 6.2 | + 3.2 |
| Herbicides | - 6.7 | + 0.9 |
| Corn Seed & Traits | - 8.0 | + 3.7 |
| Soybean Seed & Traits | - 18.2 | - 7.8 |
| Fungicides | + 11.4 | + 17.3 |
| Insecticides | + 12.2 | + 20.8 |
| Environmental Science | - 15.6 | - 6.7 |
| Vegetable Seeds | - 8.1 | - 1.1 |
| Other | - 4.7 | + 6.4 |
Fx adj. = currency-adjusted
1
The unaudited pro forma data are presented as if both the acquisition of Monsanto
and the associated divestments had taken place as of January 1, 2017. Sales of Monsanto
are presented in periods as per the Bayer fiscal year. One-time effects of business
operations, the accounting for discontinued operations and the recognition and measurement
of sales from certain business transactions have been adjusted in line with our accounting.
Due to this simplified procedure, they explicitly do not reflect sales according to
IFRS or IDW RH HFA 1.004.
2
For definition see Annual Report 2017, A 2.4 "Alternative Performance Measures Used
by the Bayer Group."
Second quarter of 2018
Sales in the second quarter of 2018 increased by 10.0% (Fx adj.) on a pro forma basis.
| ― |
The increase in sales at Corn Seed & Traits was predominantly attributable to a one-time effect and associated higher license revenues in Brazil, as well as expanded volumes due to a late start to the season in North America and eastern Europe. |
| ― |
Sales at Soybean Seed & Traits were down, primarily as a result of a challenging market environment in the United States. This was partly offset by the higher level of market penetration achieved by Roundup Ready 2 Xtend™ in North America and by Intacta RR2 PRO™ in Latin America. |
| ― |
Sales growth at Herbicides, Fungicides and Insecticides was largely attributable to the significantly higher provisions for crop protection product returns in Brazil recognized in the prior year, as previously outlined. Higher prices at Herbicides also had a positive impact. |
| ― |
We registered a decline in sales at Environmental Science as a result of planned lower product deliveries to the acquirer of our consumer business. |
First half of 2018
Sales in the first half of 2018 increased by 3.2% (Fx adj.) on a pro forma basis.
Growth was driven by Fungicides and Insecticides due to the afformentioned effect
in Brazil. Corn Seed & Traits also delivered encouraging performance, benefiting in
particular from the positive development in the second quarter as well as catch-up
effects from the prior year in the United States. This was partly offset by the decline
at Soybean Seed & Traits and Environmental Science.
Animal Health
A 15
Key Data - Animal Health
| Change %1 | Change %1 | |||||
| € million | Q2 2017 | Q2 2018 | Reported | Fx & p adj. | H1 2017 | H1 2018 |
| Sales | 450 | 453 | + 0.7 | + 7.6 | 890 | 867 |
| Change in sales1 | ||||||
| Volume | - 0.7% | + 9.6% | - 0.5% | + 6.2% | ||
| Price | + 2.8% | - 2.0% | + 3.0% | - 0.8% | ||
| Currency | + 1.6% | - 6.9% | + 2.3% | - 8.0% | ||
| Portfolio | + 1.9% | 0.0% | + 1.9% | 0.0% | ||
| Sales by region | ||||||
| Europe / Middle East/Africa | 122 | 116 | - 4.9 | - 3.3 | 266 | 252 |
| North America | 208 | 220 | + 5.8 | + 14.9 | 385 | 380 |
| Asia/ Pacific | 80 | 81 | + 1.3 | + 7.5 | 156 | 158 |
| Latin America | 40 | 36 | - 10.0 | + 5.0 | 83 | 77 |
| EBITDA1 | 116 | 125 | + 7.8 | 251 | 264 | |
| Special items1 | - | (3) | - | (3) | ||
| EBITDA before special items1 | 116 | 128 | + 10.3 | 251 | 267 | |
| EBITDA margin before special items1 | 25.8% | 28.3% | 28.2% | 30.8% | ||
| EBIT1 | 107 | 116 | + 8.4 | 233 | 245 | |
| Special items1 | - | (3) | - | (3) | ||
| EBIT before special items1 | 107 | 119 | + 11.2 | 233 | 248 | |
| Net cash provided by operating activities | 97 | 88 | . |
66 | 101 |
| Change %1 | Change %1 | |
| € million | Reported | Fx & p adj. |
| Sales | - 2.6 | + 5.4 |
| Change in sales1 | ||
| Volume | ||
| Price | ||
| Currency | ||
| Portfolio | ||
| Sales by region | ||
| Europe / Middle East/Africa | - 5.3 | - 3.8 |
| North America | - 1.3 | + 9.9 |
| Asia/ Pacific | + 1.3 | + 9.0 |
| Latin America | - 7.2 | + 6.0 |
| EBITDA1 | + 5.2 | |
| Special items1 | ||
| EBITDA before special items1 | + 6.4 | |
| EBITDA margin before special items1 | ||
| EBIT1 | + 5.2 | |
| Special items1 | ||
| EBIT before special items1 | + 6.4 | |
| Net cash provided by operating activities | + 53.0 |
Fx & p adj. = currency- and portfolio-adjusted
Second quarter of 2018
Sales
Sales of Animal Health in the second quarter of 2018 increased by 7.6% (Fx & portfolio
adj.) to €453 million, despite the negative impact of amended financial reporting
standards (IFRS 15). We posted considerable currency- and portfolio-adjusted sales
increases in the North America region that resulted mainly from shifts in demand at
the expense of subsequent quarters. We achieved encouraging sales gains (Fx & portfolio
adj.) in the Asia / Pacific and Latin America regions. By contrast, sales declined
in the Europe / Middle East / Africa region.
A 16
Best-Selling Animal Health Products
| Change %1 | Change %1 | |||||
| € million | Q2 2017 | Q2 2018 | Reported | Fx & p adj. | H1 2017 | H1 2018 |
| Advantage™ product family | 146 | 156 | + 6.8 | + 13.8 | 282 | 270 |
| Seresto™ | 81 | 99 | + 22.2 | + 29.2 | 157 | 187 |
| Drontal™ product family | 33 | 30 | - 9.1 | - 3.2 | 68 | 61 |
| Baytril™ | 31 | 24 | - 22.6 | - 17.1 | 58 | 49 |
| Total | 291 | 309 | + 6.2 | + 12.8 | 565 | 567 |
| Proportion of Animal Health sales | 65% | 68% | 63% | 65% |
| Change %1 | Change %1 | |
| € million | Reported | Fx & p adj. |
| Advantage™ product family | - 4.3 | + 3.2 |
| Seresto™ | + 19.1 | + 27.1 |
| Drontal™ product family | - 10.3 | - 3.8 |
| Baytril™ | - 15.5 | - 7.8 |
| Total | + 0.4 | + 7.8 |
| Proportion of Animal Health sales |
Fx & p adj. = currency- and portfolio-adjusted
Sales by product
| ― |
Sales of our Advantage™ line of flea, tick and worm control products increased significantly, particularly in North America, due to substantial shifts in demand, primarily from the third quarter into the second quarter. In the Europe / Middle East / Africa region, business declined due to persistently high competitive pressure. |
| ― |
Business with our Seresto™ flea and tick collar once again expanded significantly, with sales increasing in all regions. Growth was chiefly attributable to increased demand in the United States and in the Europe / Middle East / Africa region. |
| ― |
We registered a decline in sales of our Drontal™ line of dewormers in the Europe / Middle East / Africa region. Price and volume increases in the other regions were not sufficient to offset this effect. |
| ― |
Sales of our Baytril™ antibiotic fell primarily in North America, following the positive effect of a change in the distribution model in the prior-year quarter, as well as in the Europe / Middle East / Africa region. |
Earnings
EBITDA before special items of Animal Health increased by 10.3% to €128 million in
the second quarter of 2018 (Q2 2017: €116 million). Adjusted for negative currency
effects in the amount of €10 million, earnings were up by 19.0%. This development
was attributable to significantly higher volumes, in part due to the aforementioned
shifts in demand. By contrast, earnings were diminished by the application of IFRS
15, negative price effects, higher selling expenses and an increase in the cost of
goods sold.
EBIT improved by 8.4% to €116 million, after special charges of €3 million (Q2 2017:
€0 million).
A 17
Special Items1 Animal Health
| EBIT | EBIT |
EBIT |
EBIT |
EBITDa |
EBITDA |
|
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 | Q2 2017 | Q2 2018 |
| Restructuring | - | (3) | - | (3) | - | (3) |
| Total special items | - | (3) | - | (3) | - | (3) |
| EBITDA | EBITDA |
|
| € million | H1 2017 | H1 2018 |
| Restructuring | - | (3) |
| Total special items | - | (3) |
First half of 2018
Sales
Sales of Animal Health rose by 5.4% (Fx & portfolio adj.) in the first half of 2018,
to €867 million. Growth was negatively impacted by the first-time application of IFRS
15, among other factors. We posted sales gains (Fx & portfolio adj.) in the North
America region that were mainly driven by shifts in demand from the second half of
the year into the first half. Business also developed positively in the Latin America
and Asia / Pacific regions on a currency- and portfolio-adjusted basis, but declined
in Europe / Middle East / Africa.
Earnings
EBITDA before special items of Animal Health increased by 6.4% to €267 million in
the first half of 2018 (H1 2017: €251 million). Adjusted for negative currency effects
in the amount of €20 million, earnings were up by 14.3%. Significantly higher volumes
more than offset the diminishing effects of the application of IFRS 15, a higher cost
of goods sold and negative price effects.
EBIT increased by 5.2% to €245 million, after special charges of €3 million (H1 2017:
€0 million).
1.3 Asset and Financial Position of the Bayer Group
Statement of Cash Flows
A 18
Bayer Group Summary Statements of Cash Flows
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 |
| Net cash provided by (used in) operating activities, continuing operations | 1,901 | 2,240 | 2,452 | 2,898 |
| Net cash provided by (used in) operating activities, discontinued operations | 412 | - | 702 | - |
| Net cash provided by (used in) operating activities (total) | 2,313 | 2,240 | 3,154 | 2,898 |
| Net cash provided by (used in) investing activities (total) | (1,178) | (37,925) | (2,314) | (39,983) |
| Net cash provided by (used in) financing activities (total) | (549) | 35,746 | 62 | 35,165 |
| Change in cash and cash equivalents due to business activities | 586 | 61 | 902 | (1,920) |
| Cash and cash equivalents at beginning of period | 2,224 | 5,338 | 1,899 | 7,436 |
| Change due to exchange rate movements and to changes in scope of consolidation | (37) | (388) | (28) | (505) |
| Cash and cash equivalents at end of period | 2,773 | 5,011 | 2,773 | 5,011 |
2017 figures restated
Net cash provided by operating activities
| ― |
In the second quarter of 2018, the net cash provided by operating activities (total) declined by 3.2% to €2,240 million. Covestro was still included in the prior-year quarter. The net cash provided by operating activities in continuing operations rose by 17.8% to €2,240 million due mainly to a decline in cash tied up in working capital. |
| ― |
Operating cash flow (total) declined by 8.1% in the first half of 2018, to €2,898 million. Covestro was still included in the prior-year period. The net cash provided by operating activities in continuing operations rose by 18.2% to €2,898 million due mainly to lower additions to cash tied up in working capital. |
Net cash used in investing activities
| ― |
Cash outflows for property, plant and equipment and intangible assets were 3.6% lower in the second quarter of 2018 at €459 million (Q2 2017: €476 million) and included €121 million (Q2 2017: €142 million) at Pharmaceuticals, €45 million (Q2 2017: €31 million) at Consumer Health, €174 million (Q2 2017: €135 million) at Crop Science and €9 million (Q2 2017: €5 million) at Animal Health. The prior-year figures included €92 million at Covestro. |
| ― |
There was an outflow of €45,290 million for the acquisition of Monsanto, net of €2,657 million in cash acquired from Monsanto. |
| ― |
There was a net cash inflow of €1,107 million from the acquisition and sale of Covestro shares. There was a net inflow of €2,162 million from the sale of Covestro shares, while the acquisition of shares held by the Bayer Pension Trust - to be used to repay the convertible bond maturing in 2020 - resulted in an outflow of €1,055 million. |
| ― |
The net cash inflow from current financial assets amounted to €6,424 million (Q2 2017: outflow of €776 million). |
| ― |
Cash outflows for property, plant and equipment and intangible assets were 9.3% lower in the first half of 2018 at €808 million (H1 2017: €891 million) and included €340 million (H1 2017: €294 million) at Pharmaceuticals, €73 million (H1 2017: €55 million) at Consumer Health, €237 million (H1 2017: €234 million) at Crop Science and €14 million (H1 2017: €11 million) at Animal Health. The prior-year figures included €166 million at Covestro. |
| ― |
There was a total net cash inflow of €2,909 million from the acquisition and sale of Covestro shares. |
| ― |
The net cash inflow from current financial assets amounted to €2,712 million (H1 2017: net cash outflow of €1,359 million). |
Net cash used in financing activities
| ― |
In the second quarter of 2018, there was a net cash inflow of €35,746 million for financing activities, mainly from the issuance of bonds and from further net borrowings totaling €29,151 million (Q2 2017: €1,014 million). |
| ― |
Capital increases resulted in an inflow of €8,986 million. |
| ― |
There was an outflow of €2,403 million for dividend payments. |
| ― |
The figure for the prior-year quarter included a net inflow of €1,045 million from the sale of Covestro shares while that company remained fully consolidated. |
| ― |
In the first half of 2018, there was a net cash inflow of €35,165 million for financing activities, mainly from the issuance of bonds and from further net borrowings totaling €28,644 million (H1 2017: €270 million). |
| ― |
The figure for the prior-year period included a net inflow of €2,505 million from the sale of Covestro shares while that company remained fully consolidated. |
Liquid assets and net financial debt
A 19
Net Financial Debt1
| € million | Dec. 31, 2017 | March 31, 2018 | June 30, 2018 | Change vs. March 31, 2018 (%) |
| Bonds and notes / promissory notes | 12,436 | 12,290 | 35,495 | + 188.8 |
| of which hybrid bonds2 | 4,533 | 4,534 | 4,535 | . |
| Liabilities to banks | 534 | 611 | 14,441 | . |
| Liabilities under finance leases | 238 | 248 | 389 | + 56.9 |
| Liabilities from derivatives3 | 240 | 199 | 201 | + 1.0 |
| Other financial liabilities | 970 | 686 | 1,603 | + 133.7 |
| Receivables from derivatives3 | (244) | (223) | (355) | + 59.2 |
| Financial debt | 14,174 | 13,811 | 51,774 | . |
| Cash and cash equivalents | (7,581) | (5,332) | (4,981) | - 6.6 |
| Current financial assets4 | (2,998) | (6,829) | (1,042) | - 84.7 |
| Noncurrent financial assets5 | - | - | (1,054) | . |
| Net financial debt | 3,595 | 1,650 | 44,697 | . |
1
For definition see Annual Report 2017, A 2.4 "Alternative Performance Measures Used
by the Bayer Group."
2
Classified as debt according to IFRS
3
These include the market values of interest-rate and currency hedges of recorded transactions.
4
These include short-term loans and receivables with maturities between 3 and 12 months
outstanding from banks and other companies as well as financial investments in debt
and equity instruments that were recorded as current on first-time recognition.
5
These solely comprise the remaining interest in Covestro that is to be used to repay
the convertible bond issued in 2017 that will maturein 2020.
| ― |
Net financial debt of the Bayer Group increased to €44.7 billion in the second quarter of 2018 due to the acquisition of Monsanto. |
| ― |
Measures undertaken to finance the acquisition included the issuance in June 2018 of US$15 billion and €5 billion in bonds via our subsidiaries Bayer U.S. Finance II LLC, Pittsburgh, United States, and Bayer Capital Corporation B.V., Mijdrecht, Netherlands, respectively. |
| ― |
Bonds with a nominal value of US$6.9 billion were acquired from Monsanto in connection with the acquisition. |
| ― |
The increase in liabilities to banks mainly resulted from the use of the bridge financing for the acquisition of Monsanto. |
| ― |
The other financial liabilities as of June 30, 2018, contained €530 million related to the mandatory convertible notes issued in November 2016 and €730 million in commercial paper. |
| ― |
Net financial debt includes three subordinated hybrid bonds with a total volume of €4.5 billion, 50% of which is treated as equity by the rating agencies. As such, the hybrid bonds have a positive impact on the Group's rating-specific debt indicators. |
| ― |
The table below illustrates how the rating agencies assess our creditworthiness following the acquisition of Monsanto, with the investment grade ratings from all three agencies demonstrating good creditworthiness: |
A 20
Rating
| Rating agency | Long-term rating | Short-term rating | Outlook |
| S&P Global Ratings | BBB | A-2 | stable |
| Moody's | Baa1 | P-2 | negative |
| Fitch Ratings | A- | F2 | stable |
Asset and capital structure
A 21
Bayer Group Summary Statements of Financial Position
| € million | Dec. 31, 2017 | March 31, 2018 | June 30, 2018 | Change % |
| Noncurrent assets | 45,014 | 42,225 | 98,713 | + 133.8 |
| Assets held for sale | 2,081 | 3,132 | 3,720 | + 18.8 |
| Other current assets | 27,992 | 30,037 | 34,097 | + 13.5 |
| Current assets | 30,073 | 33,169 | 37,817 | + 14.0 |
| Total assets | 75,087 | 75,394 | 136,530 | + 81.1 |
| Equity | 36,861 | 38,384 | 47,219 | + 23.0 |
| Noncurrent liabilities | 24,633 | 23,912 | 62,549 | + 161.6 |
| Liabilities directly related to assets held for sale | 111 | 520 | 669 | + 28.7 |
| Other current liabilities | 13,482 | 12,578 | 26,093 | + 107.4 |
| Current liabilities | 13,593 | 13,098 | 26,762 | + 104.3 |
| Liabilities | 38,226 | 37,010 | 89,311 | + 141.3 |
| Total equity and liabilities | 75,087 | 75,394 | 136,530 | + 81.1 |
| ― |
Between March 31, 2018, and June 30, 2018, total assets increased by €61.1 billion to €136.5 billion, mainly due to the acquisition of Monsanto. |
| ― |
Noncurrent assets increased by €56.5 billion to €98.7 billion. Intangible assets of €27.1 billion - mainly comprising patents and technologies (€17.4 billion), research projects (€4.3 billion) and trademarks (€4.2 billion) - and property, plant and equipment of €6.3 billion were acquired in connection with the acquisition. Goodwill of €23 billion was additionally recognized. Investments accounted for using the equity method declined by €2.1 billion, largely through the sale of further Covestro shares. |
| ― |
Total current assets increased by €4.6 billion to €37.8 billion. Among the items acquired from Monsanto were receivables of €7.2 billion and inventories of €4.9 billion. Other financial assets declined by €5.8 billion to €1.6 billion, mainly due to their utilization in financing the acquisition. Assets held for sale, which were related to the acquisition of Monsanto and the planned divestment of the prescription dermatology business of Consumer Health, increased by €0.6 billion. |
| ― |
Equity rose by €8.8 billion compared with March 31, 2018, to €47.2 billion. In April 2018, the investment firm Temasek subscribed to 31 million new Bayer shares, for total gross proceeds of €3 billion. In June 2018, we raised €6.0 billion in net proceeds from a capital increase out of authorized capital against cash contributions and with subscription rights for existing Bayer stockholders. Equity was increased by €0.8 billion through income after income taxes, by €1.0 billion through currency effects recognized outside profit or loss, by €0.3 billion through the change in the fair value of equity instruments recognized at fair value, and by €0.1 billion through the decline in pension provisions recognized outside profit or loss. By contrast, the dividend payment of €2.4 billion reduced equity. The equity ratio decreased to 34.6% as of June 30, 2018 (March 31, 2018: 50.9%). |
| ― |
Liabilities rose by €52.3 billion as of June 30, 2018, to €89.3 billion. Financial liabilities of €8.7 billion, reimbursement obligations of €3.3 billion and other liabilities of €2.9 billion were assumed in connection with the acquisition. Furthermore, deferred tax liabilities of €8.0 billion were recognized in connection with the acquisition due to the measurement of the acquired assets and liabilities at fair value. Noncurrent liabilities rose by €38.6 billion overall to €62.5 billion. In particular, the newly issued bonds and the loans obtained to finance the acquisition led to increases of €23.2 billion and €13.8 billion in the respective line items in the statement of financial position. Current liabilities increased by €13.7 billion to €26.8 billion. |
2. Research, Development, Innovation
Bayer Group expenses for research and development increased by 8.9% (Fx adj.) to €1,261
million in the second quarter of 2018.
A 22
Research and Development Expenses
| R&D expenses | R&D expenses | R&D expenses | R&D expenses | R&D expenses | R&D expenses | |
| Change % |
Change % |
|||||
| € million | Q2 2017 |
Q2 2018 |
Fx adj. | H1 2017 |
H1 2018 |
Fx. adj. |
| Pharmaceuticals | 707 | 765 | + 11.5 | 1,419 | 1,458 | + 6.6 |
| Consumer Health | 65 | 55 | - 9.7 | 124 | 110 | - 4.1 |
| Crop Science | 275 | 390 | + 7.5 | 558 | 647 | + 1.8 |
| Animal Health | 38 | 37 | - 0.3 | 71 | 67 | - 1.8 |
| Reconciliation | 12 | 14 | + 21.7 | 19 | 19 | - 1.6 |
| Total Group | 1,097 | 1,261 | + 8.9 | 2,191 | 2,301 | + 4.4 |
| R&D expenses before special items | R&D expenses before special items | R&D expenses before special items | R&D expenses before special items | R&D expenses before special items | R&D expenses before special items | |
| Change % |
Change % |
|||||
| € million | Q2 2017 |
Q2 2018 |
Fx adj. | H1 2017 |
H1 2018 |
Fx. adj. |
| Pharmaceuticals | 638 | 722 | + 16.5 | 1,317 | 1,415 | + 11.5 |
| Consumer Health | 59 | 57 | + 2.9 | 116 | 112 | + 4.1 |
| Crop Science | 273 | 383 | + 5.5 | 555 | 637 | + 0.5 |
| Animal Health | 38 | 35 | - 5.0 | 71 | 65 | - 4.8 |
| Reconciliation | 12 | 14 | + 21.7 | 19 | 19 | - 1.6 |
| Total Group | 1,020 | 1,211 | + 12.0 | 2,078 | 2,248 | + 7.5 |
Pharmaceuticals
We are conducting clinical trials with several drug candidates from our research and
development pipeline.
Progress in Phase II clinical projects
The following table shows our most important drug candidates currently in Phase II
of clinical testing:
A 23
Research and Development Projects (Phase II)1
| Projects | Indication |
| Anetumab ravtansine (mesothelin ADC)2 | Malignant pleural mesothelioma |
| BAY 1093884 (anti-TFPI antibody) | Hemophilia |
| BAY 1128688 (AKR1C3 inhibitor) | Endometriosis |
| Fulacimstat (BAY 1142524, chymase inhibitor) | Heart failure |
| Fulacimstat (BAY 1142524, chymase inhibitor) | Chronic kidney disease |
| BAY 1193397 (AR alpha 2c rec ant.) | Peripheral artery disease (PAD) |
| BAY 1213790 (anti-FXIa antibody) | Prevention of thrombosis |
| BAY 1902607 (P2X3 antagonist) | Chronic cough |
| BAY 2253651 (TASK channel blocker) | Obstructive sleep apnea |
| BAY 2306001 (IONIS-FXIRx)3 | Prevention of thrombosis |
| Levonorgestrel + indomethacin combi IUS | Contraception |
| Neladenoson bialanate (BAY 1067197) | Chronic heart failure with reduced (HFrEF) and preserved (HFpEF) ejection fraction |
| Radium-223 dichloride | Breast cancer with bone metastases |
| Radium-223 dichloride | Multiple myeloma |
| Riociguat | Systemic sclerosis |
| Rogaratinib (pan-FGFR inhibitor) | Urothelial cancer |
| Vilaprisan (S-PRM) | Endometriosis |
1
As of August 27, 2018
2
This trial did not meet its primary endpoint. However, it has not yet been terminated.
Additional studies investigating anetumab ravtansine as a treatment for different
forms of solid tumors are ongoing. See the Bayer Annual Report 2017 for more information.
3
Sponsored by Ionis Pharmaceuticals, Inc.
The nature of drug discovery and development is such that not all compounds can be
expected to meet the predefined project goals. It is possible that any or all of the
projects listed above may have to be discontinued due to scientific and/ or commercial
reasons and will not result in commercialized products. It is also possible that the
requisite U.S. Food and Drug Administration (FDA), European Medicines Agency (EMA)
or other regulatory approvals will not be granted for these compounds. Moreover, we
regularly review our research and development pipeline so that we can give priority
to advancing the most promising pharmaceuticals projects.
The Phase II trials with nesvacumab plus aflibercept (tradename: Eylea™) in the indications
diabetic macular edema and wet age-related macular degeneration have been concluded.
In August 2018, the first data from the Phase II PANTHEON trial with neladenoson bialanate
(BAY 1067197) in patients with heart failure with reduced ejection fraction (HFrEF)
were presented at the European Society of Cardiology (ESC). Neladenoson bialanate
is an oral selective partial adenosine A1 receptor agonist. The aim of the study was
to investigate the safety, pharmacological profile and optimal dose of neladenoson
bialanate in once-daily administration. The study did not achieve the defined primary
endpoint for efficacy. No safety concerns were identified. The study data are being
further analyzed and the next steps considered.
Progress in Phase III clinical projects
The following table shows our most important drug candidates currently in Phase III
of clinical testing:
A 24
Research and Development Projects (Phase III)1
| Projects | Indication |
| Copanlisib (PI3K inhibitor) | Various forms of non-Hodgkin lymphoma (NHL) |
| Darolutamide (ODM-201, AR antagonist) | Castration-resistant nonmetastatic prostate cancer |
| Darolutamide (ODM-201, AR antagonist) | Hormone-sensitive metastatic prostate cancer |
| Finerenone (MR antagonist) | Diabetic kidney disease |
| Molidustat (HIF-PH inhibitor) | Renal anemia |
| Radium-223 dichloride2 | Combination treatment of castration-resistant prostate cancer |
| Rivaroxaban3 | Anticoagulation in patients with chronic heart failure |
| Rivaroxaban3 | Prevention of venous thromboembolism in high-risk patients after discharge from hospital |
| Rivaroxaban | Peripheral artery disease (PAD) |
| Rivaroxaban | VTE treatment in children |
| Vericiguat (sGC stimulator)4 | Chronic heart failure |
| Vilaprisan (S-PRM) | Symptomatic uterine fibroids |
1
As of August 27, 2018
2
This trial was unblinded ahead of schedule and there are no patients who are still
receiving the combination therapy. Otherwise, however, the trial is continuing, especially
with regard to per protocol patient monitoring. The final assessment has not yet been
completed. For more information, see the Bayer Annual Report 2017.
3
Sponsored by Janssen Research & Development, LLC
4
Sponsored by Merck & Co., Inc., U.S.A.
The nature of drug discovery and development is such that not all compounds can be
expected to meet the predefined project goals. It is possible that any or all of the
projects listed above may have to be discontinued due to scientific and/ or commercial
reasons and will not result in commercialized products. It is also possible that the
requisite U.S. Food and Drug Administration (FDA), European Medicines Agency (EMA)
or other regulatory approvals will not be granted for these compounds. Moreover, we
regularly review our research and development pipeline so that we can give priority
to advancing the most promising pharmaceuticals projects.
At the ESC congress in Munich in August 2018, Bayer and development partner Janssen
Research & Development, LLC, United States, presented the results of the clinical
Phase III COMMANDER HF and MARINER trials investigating the oral Factor Xa inhibitor
rivaroxaban (tradename: Xarelto™). The COMMANDER HF trial investigated whether, when
administered additionally to the standard therapy, rivaroxaban reduces the risk of
cardiovascular events in coronary heart disease patients following an episode of worsening
of heart failure. The data showed a reduction in thrombotic events in patients treated
with rivaroxaban, but this was outweighed by the high rate of nonthrombotic events
in both study arms, resulting in failure to achieve the primary endpoint of the study.
The MARINER trial investigated whether rivaroxaban is superior to placebo in the prevention
of venous thromboembolism (VTE) after hospital discharge for medical patients at high
risk of VTE. The evaluation showed that the VTE event rate after discharge in patients
who had received adequate antithrombotic treatment in hospital was so low that there
was no discernible difference.
Filings and approvals
The most important drug candidates in the approval process are shown below.
A 25
Main Products Submitted for Approval1
| Projects | Indication |
| Damoctocog alpha pegol (long-acting rFVIII) | Europe, U.S.A., Japan: Hemophilia A |
| Rivaroxaban | U.S.A.: Prevention of major adverse cardiac events (MACE), COMPASS trial |
| Rivaroxaban2 | U.S.A.: secondary prophylaxis of acute coronary syndrome (ACS), Rivaroxaban in combination with dual antiplatelet therapy (DAPT), ATLAS trial |
| Larotrectinib (LOXO-101, TRK fusion inhibitor)3 | U.S.A.: Solid tumors with NTRK gene fusions |
1
As of August 27, 2018
2
Submitted by Janssen Research & Development, LLC
3
Submitted by Loxo Oncology, Inc.
In May 2018, Eylea™ (active ingredient: aflibercept solution for injection into the
eye) was approved by the Chinese regulatory authorities for the treatment of visual
impairment due to neovascular (wet) age-related macular degeneration (nAMD).
Also in May 2018, the United States Food and Drug Administration (FDA) granted priority
review status for the development candidate larotrectinib. The registration application
refers to the treatment of adult and pediatric cancer patients with locally advanced
or metastatic solid tumors in which neurotrophic tyrosine receptor kinase (NTRK) genes
that code for the tropomyosin receptor kinase (TRK) receptors have fused with other
DNA segments. In August 2018, Bayer filed an application seeking approval of larotrectinib
in the European Union as well.
In July 2018, Kovaltry™ (active ingredient: octocog alfa) was approved by the Chinese
regulatory authorities for use in adults and children with hemophilia A for routine
prophylaxis, on-demand treatment and perioperative management of bleeding. Kovaltry™
is a full-length recombinant Factor VIII product.
In August 2018, the European Commission approved a new treatment approach for Eylea™
that enables early extension of the injection interval for patients with neovascular
age-related macular degeneration (nAMD) already in the first year of treatment. The
new regimen allows clinicians to extend patients' individual injection intervals based
on visual and/or anatomic outcomes.
Also in August 2018, the European Commission approved a combination of Xarelto™ (rivaroxaban)
2.5 mg twice daily plus acetylsalicylic acid (ASA) 75 to 100 mg once daily for the
prevention of atherothrombotic events in adults with coronary artery disease (CAD)
or symptomatic peripheral artery disease (PAD) at high risk for ischemic events. The
E.U. approval is based on the findings from the clinical Phase III COMPASS trial,
which demonstrated that rivaroxaban in the specified dose reduced the risk of the
composite of stroke, cardiovascular (CV) death and heart attack by a significant 24%
(relative risk reduction) compared with ASA 100mg once daily alone in patients with
CAD or PAD.
Cooperations
In May 2018, Bayer and the MD Anderson Cancer Center at the University of Texas in
Houston, United States, signed a five-year collaboration agreement to accelerate the
development of novel targeted treatments based on patient or tumor characteristics
for which current therapies have not shown satisfactory clinical efficacy.
In June 2018, Bayer and the Broad Institute of the U.S. universities MIT and Harvard
expanded their strategic research collaboration for the development of new therapies
for patients with cardiovascular diseases such as heart failure. Researchers from
the Broad Institute and the Bayer Group are working together in a joint Precision
Cardiology Laboratory at the Broad Institute in Boston. The collaboration is focused
on better understanding cardiovascular diseases on a molecular level and developing
new therapies for patients.
In August 2018, Bayer and Haplogen GmbH, Austria, entered into a multi-year research
collaboration agreement to identify and develop new drug candidates for the treatment
of pulmonary diseases such as chronic obstructive pulmonary disease (COPD).
Crop Science
Research and development pipeline
The existing innovation activities of Crop Science are now complemented by the product
innovation pipeline of Monsanto. The acquired pipeline includes multiple next generations
of insect and weed control biotech plant traits, several new seed treatments to be
launched through 2020, and more than 35 projects in the Climate FieldView pipeline.
The table below shows Bayer's current product innovation pipeline:
A 26
Product Innovation Pipeline1
| Market launch | Product group | Indication/ crop | Product/trait |
| 2019 | Seeds | Rice | Salt and flood tolerance (native trait) |
| 2019 | Chemical crop protection | Insecticide | Tetraniliprole |
| 2019 | Chemical crop protection | Fungicide | Tiviant™ |
| 2019 | Seeds | Rice | Dual disease tolerance (native trait) |
1
The product innovation pipeline comprises planned market launches of selected new
products.
As of August 1, 2018
An updated, integrated pipeline overview will be available in the next Annual Report.
Cooperations, new products and registrations
We signed the following cooperation agreements in the second quarter; activities related
to the newly acquired business have been included since the transaction closed on
June 7, 2018.
In April we joined with International Finance Corporation (Washington D.C., United
States), Netafim Ltd. (Tel Aviv, Israel) and Swiss Re Corporate Solutions Ltd. (Zürich,
Switzerland) in launching a global alliance named "Better Life Farming." The aim is
to provide holistic and innovative solutions for smallholder farmers in the developing
world with less than two hectares of land to enable them to grow their farms into
sustainable businesses.
In June, Bayer - through Monsanto Company (St. Louis, Missouri, United States) - and
Corteva Agriscience™ (Indianapolis, Indiana, United States), the agriculture division
of DowDuPont Inc., reached an agreement on an expanded license for Roundup Ready 2
Xtend™ technology in soybeans. Through this license, Corteva Agriscience™ will offer
U.S. and Canadian growers additional weed control flexibility through broader access
to Roundup Ready 2 Xtend™ technology across its North America seed brand portfolio.
Animal Health
In July, Bayer Animal Health and Mitsui Chemicals Agro, Inc. (MCAG), Tokyo, Japan,
signed a global license agreement to develop and commercialize novel parasiticides
for companion animals based on intellectual property from MCAG.
3. Report on Future Perspectives and on Opportunities and Risks
3.1 Future Perspectives
3.1.1 Economic Outlook
A 27
Economic Outlook1
| Growth 2017 |
Growth forecast 2018 |
|
| World | + 3.3% | + 3.3% |
| European Union | + 2.6% | + 2.1% |
| of which Germany | + 2.5% | + 2.2% |
| United States | + 2.3% | + 3.0% |
| Emerging Markets2 | + 4.8% | + 4.8% |
2017 figures restated
1
Real growth of gross domestic product, source: IHS Markit
2
Including about 50 countries defined by IHS Markit as Emerging Markets in line with
the World Bank
As of July 2018
We continue to expect the global economy to achieve strong growth. However, the risks
for the world economy have increased, especially due to the current conflicts over
trade policy. We expect greater growth dynamics in the United States, while growth
in Europe will likely be lower than in the prior year. As for the Emerging Markets,
we anticipate a strong increase in economic output to match the pace of the prior
year, while for China we continue to anticipate strong growth at a slightly slower
rate than in the prior year.
A 28
Economic Outlook for the Segments1
| Growth 2017 |
Growth forecast 2018 |
|
| Pharmaceuticals market | + 3% | + 4% |
| Consumer health market | + 3- 4% | + 3- 4% |
| Seed and crop protection market | + 1% | + 2- 3% |
| Animal health market | + 2% | + 4% |
2017 figures restated
As of July 2018
3.1.2 Corporate Outlook
Following the closing of the Monsanto acquisition on June 7, 2018, and taking into
account the business development described in this report and the potential risks
and opportunities, we have revised our expectations for fiscal 2018.
Our outlook now includes the sales and earnings contributions from Monsanto since
the date of acquisition. As the transaction closed later than we had anticipated,
2018 earnings will be lower than we had projected in our February forecast including
Monsanto due to the seasonality of the agricultural business. Our outlook takes into
account the financing costs for the acquisition of Monsanto shares as well as the
higher number of shares of Bayer AG following the capital increases on a pro rata
temporis basis. The businesses divested to BASF are excluded as of their respective
divestment dates.
The forecasts are based on the exchange rates as of June 30, 2018, and adjusted for currency effects4 to enhance the comparability of operating performance.
We now expect Bayer Group sales of more than €39 billion (previously: below €35 billion),
with more than €5 billion attributable to the acquired business. The divestment of
selected businesses to BASF will reduce anticipated sales by approximately €1 billion.
This forecast now corresponds to a mid-single-digit percentage increase (previously:
low- to mid-single-digit percentage increase) on a currency- and portfolio-adjusted
basis.
We now expect EBITDA before special items to increase by a low- to mid-single-digit
percentage (previously: decline by a low-single-digit percentage). On a currency-adjusted
basis, this corresponds to an increase by a high-single-digit percentage (previously:
increase by a mid-single-digit percentage).
We now expect core earnings per share to come in at between €5.70 and €5.90 (previously:
at the prior-year level). On a currency-adjusted basis, this corresponds to a decrease
by a high-single-digit percentage (previously: increase by a mid-single-digit percentage).
Prior-year core earnings per share were restated to €6.64 to reflect the bonus component
of the capital increase with subscription rights, and this is taken into account here.
A 29
Forecast for Key Financial Data of the Group for 2018
| Closing rates on June 30, 2018 | Currency-adjusted | |
| Sales | More than €39 billion | Increase by a mid-single-digit percentage1 |
| Development of EBITDA before special items | Increase by a low- to mid-single-digit percentage | Increase by a high-single-digit percentage |
| Development of core earnings per share | €5.70 - €5.90 | Decrease by a high-single-digit percentage |
1
Adjusted for currency and portfolio effects
We aim to pay out a dividend for 2018 that is at least at the same level as in the
prior year, which would represent an upward deviation from our existing dividend policy
(30-40% of core earnings per share as a mathematical basis for calculating the dividend
payout). Due to the late closing of the Monsanto acquisition, anticipated core earnings
per share for the full year will only include a small contribution from the acquired
business. However, we will be able to utilize substantial operating cash flows from
the acquired business due to seasonal trends. Bayer is also able to benefit from earnings
contributions in the form of expected proceeds from the divestments to BASF and income
from the sale of Covestro shares that has already been recognized. Overall, net financial
debt at the end of the year will therefore be significantly lower than originally
anticipated. Taking into account the cash flows and in view of the successful performance
the combined business is expected to deliver, we want to enable our shareholders to
share in our company's success by paying out an attractive dividend.
For Pharmaceuticals, we confirm our previous sales and earnings guidance.
For Consumer Health, we confirm our expectations for sales and currency-adjusted EBITDA
before special items. As for EBITDA before special items, we now anticipate a decline
by a mid-single-digit percentage (previously: decline by a low-single-digit percentage)
as a result of currency effects.
For Crop Science, we now forecast sales of slightly more than €14 billion (previously:
more than €9.5 billion). As previously outlined, this includes a positive sales effect
of more than €5 billion from the acquired business as well as a negative effect of
approximately €1 billion from the divestment of selected businesses to BASF. We continue
to expect a mid-single-digit percentage increase on a currency- and portfolio-adjusted
basis. As for EBITDA before special items, we anticipate an increase by a mid-twenties
percentage (previously: mid- to high-single-digit percentage). On a currency-adjusted
basis, we now anticipate an increase of around 30% (previously: mid-teens percentage
increase).
4
Using the average monthly exchange rates from 2017 (see B 4/1)
For the Animal Health segment, the Reconciliation and Bayer AG, we confirm our sales
and earnings guidance.
A 30
Forecast for Other Key Data of the Group for 2018
| Updated forecast | Forecast as of Feb. 28, 2018 | |
| Special charges | Special gain1 of around €1.9 billion | Special charges of around €0.4 billion |
| Research and development expenses | Around €4.9 billion | Around €4.1 billion |
| Capital expenditures | Around €2.8 billion | Around €2.2 billion |
| of which for intangible assets | Around €0.6 billion | Around €0.6 billion |
| Depreciation and amortization | Around €3.0 billion | Around €2.2 billion |
| of which on intangible assets | Around €2.0 billion | Around €1.2 billion |
| Financial result | Around minus €1.2 billion | Around minus €1 billion |
| Effective tax rate | 21.0% | 20.0% |
| Net financial debt | around €37 billion | Net liquidity position2 |
1
Mainly comprising income from disposals of certain Crop Science activities as required
by antitrust authorities
2
Excluding capital and portfolio measures
3.2 Opportunities and Risks
As a global enterprise with a diversified portfolio, the Bayer Group is exposed to
a wide range of internal or external developments or events that could significantly
impact the achievement of our financial and nonfi-nancial objectives.
Bayer regards opportunity and risk management as an integral part of corporate governance.
Our risk management process and the opportunity and risk status are outlined in detail
in the Annual Report 2017, A 3.2 "Opportunity and Risk Report." There have not been
any material changes to Bayer's risk profile compared with our description in the
Annual Report 2017, without taking the Monsanto acquisition into account.
Change in the risk portfolio due to the Monsanto acquisition
Monsanto retained responsibility for managing Monsanto-related risks during the reporting
period. These risks will be accounted for in our ERM process in the course of the
coming integration measures. The following risk overview therefore pertains to the
risks identified and recently published by Monsanto. The risks were not evaluated
with regard to their probability or damage potential. Risks that ceased to exist due
to the closing of the transaction are not listed here.
The following table shows an allocation of risks reported externally by Monsanto to
Bayer's main risk categories. Each of these risks was allocated solely to what we
regard as the primary risk category. The occurrence of such risks could impact the
entire Group and its reputation in the same way as risks pertaining to the original
Bayer segments.
A 31
Material Risk Areas of Bayer and Risks Reported by Monsanto
| Bayer risk areas | Extracts from Monsanto's external risk report |
| Strategic risks | |
| Business transactions | |
| Operational performance risks | |
| Intellectual property | |
| Development and commercialization of pipeline products | |
| Fluctuations in commodity prices | |
| Production | |
| Seasonal working capital needs and indebtedness | |
| Safety, quality and compliance risks | |
| Regulation of seed biotechnology, agricultural products, and research and manufacturing processes | |
| Public understanding and public acceptance of biotechnology and other agricultural products | |
| Compliance with quality controls and regulations | |
| Legal proceedings1 | |
| External risks | |
| Competition | |
| Business operations outside the United States | |
| Weather, natural disasters, accidents and security breaches (incl. cybersecurity incidents) |
The sections of Monsanto's risk report that we currently do not believe were reported
on in comparable form in the Bayer Annual Report 2017, A 3.2 "Opportunity and Risk
Report," are described below:
Fluctuations in commodity prices
Production is contracted with multiple growers at fair value, and the seed is retained
in inventory until it is sold. These purchases constitute a significant portion of
seed manufacturing costs. Additionally, chemical manufacturing operations use chemical
intermediates and energy, which are subject to increases in price as the costs of
oil and natural gas increase. Accordingly, increases in commodity prices may negatively
affect the cost of goods sold or lead to seed or chemical price increases, which could
adversely affect sales. Hedging strategies and raw material supply agreements are
applied that contain terms designed to mitigate the risk of short-term changes in
commodity prices. However, this is not possible with regard to medium- and long-term
increases. Farmers' incomes are also affected by commodity prices, fluctuations in
which could impact the demand for seed and chemical products.
Seasonal working capital needs and current levels of indebtedness
Current levels of indebtedness and seasonal working capital needs may reduce financial
and operational flexibility. For example, credit is regularly extended to customers
in certain areas of the world to enable them to acquire crop production products and
seeds at the beginning of their growing seasons. Due to these credit practices as
well as the seasonality of sales and costs, short-term debt may need to be issued
at certain times of the year to fund cash flow requirements. Levels of short-term
debt may be greater to the extent that customer receivables are unable to be collected
when due.
Overall assessment by the Board of Management
Compared with our commentary in the Annual Report 2017, we see no material changes
in our risk situation, as we had anticipated an intensification of our risk situation
as a result of the acquisition of Monsanto, which had been imminent at the time. Now
that the transaction has closed, Monsanto's risks have been transferred to Bayer.
We currently are not aware of any individual risks, risk combinations or risk interdependencies
that could endanger the Bayer Group's continued existence.
Significant developments that have occurred in respect of the legal risks since publication
of the Bayer Annual Report 2017 (Note [32] to the Consolidated Financial Statements)
are described in the Notes to the Condensed Consolidated Interim Financial Statements
under "Legal Risks." That section also contains Monsanto risks that appear material
from the viewpoint of the Bayer Group.
Condensed Consolidated
Interim Financial Statements
as of June 30, 2018
Bayer Group Consolidated Income Statements
B 1
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 | |
| Net sales | 8,714 | 9,481 | 18,394 | 18,619 | |
| Cost of goods sold | (2,783) | (3,512) | (5,770) | (6,421) | |
| Gross profit | 5,931 | 5,969 | 12,624 | 12,198 | |
| Selling expenses | (2,831) | (2,940) | (5,498) | (5,449) | |
| Research and development expenses | (1,097) | (1,261) | (2,191) | (2,301) | |
| General administration expenses | (493) | (573) | (953) | (1,000) | |
| Other operating income | 185 | 185 | 344 | 337 | |
| Other operating expenses | (232) | (29) | (436) | (124) | |
| EBIT1 | 1,463 | 1,351 | 3,890 | 3,661 | |
| Equity-method income (loss) | (5) | 27 | (12) | 98 | |
| Financial income | 100 | 160 | 132 | 530 | |
| Financial expenses | (464) | (509) | (785) | (820) | |
| Financial result | (369) | (322) | (665) | (192) | |
| Income before income taxes | 1,094 | 1,029 | 3,225 | 3,469 | |
| Income taxes | (258) | (216) | (682) | (710) | |
| Income from continuing operations after income taxes | 836 | 813 | 2,543 | 2,759 | |
| of which attributable to noncontrolling interest | 2 | 6 | - | 6 | |
| of which attributable to Bayer AG stockholders (net income) | 834 | 807 | 2,543 | 2,753 | |
| Income from discontinued operations after income taxes | 641 | (8) | 1,205 | - | |
| of which attributable to noncontrolling interest | 251 | - | 441 | - | |
| of which attributable to Bayer AG stockholders (net income) | 390 | (8) | 764 | - | |
| Income after income taxes | 1,477 | 805 | 3,748 | 2,759 | |
| of which attributable to noncontrolling interest | 253 | 6 | 441 | 6 | |
| of which attributable to Bayer AG stockholders (net income) | 1,224 | 799 | 3,307 | 2,753 | |
| Shares | |||||
| Weighted average number of shares2 | 885,186,889 | 915,694,644 | 884,826,889 | 900,704,047 | |
| € | |||||
| Earnings per share | |||||
| From continuing operations | |||||
| Basic | 0.94 | 0.88 | 2.87 | 3.06 | |
| Diluted | 0.94 | 0.88 | 2.87 | 3.06 | |
| From discontinued operations | |||||
| Basic | 0.44 | (0.01) | 0.87 | 0.00 | |
| Diluted | 0.44 | (0.01) | 0.87 | 0.00 | |
| From continuing and discontinued operations | |||||
| Basic | 1.38 | 0.87 | 3.74 | 3.06 | |
| Diluted | 1.38 | 0.87 | 3.74 | 3.06 | |
2017 figures restated
1
For definition see Annual Report 2017, A 2.4 "Alternative Performance Measures Used
by the Bayer Group."
2
Weighted average number of shares (basic and diluted) restated for all periods prior
to June 2018 to reflect the effect of the bonus component of the subscription rights
issued as part of the June 2018 capital increase
Bayer Group Consolidated Statements
of Comprehensive Income
B 2
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 | |
| Income after income taxes | 1,477 | 805 | 3,748 | 2,759 | |
| of which attributable to noncontrolling interest | 253 | 6 | 441 | 6 | |
| of which attributable to Bayer AG stockholders | 1,224 | 799 | 3,307 | 2,753 | |
| Remeasurements of the net defined benefit liability for post-employment benefit plans | 300 | 82 | 905 | (94) | |
| Income taxes | (132) | 59 | (327) | 58 | |
| Other comprehensive income from remeasurements of the net defined benefit liability for post-employment benefit plans | 168 | 141 | 578 | (36) | |
| Changes in fair values of equity instruments measured at fair value | - | 90 | - | 185 | |
| Income taxes | - | (2) | - | (2) | |
| Other comprehensive income from equity instruments measured at fair value | - | 88 | - | 183 | |
| Other comprehensive income relating to associates accounted for using the equity method | - | 17 | - | 4 | |
| Other comprehensive income that will not be reclassified subsequently to profit or loss | 168 | 246 | 578 | 151 | |
| Changes in fair values of cash flow hedges | 10 | 292 | (78) | 352 | |
| Reclassified to profit or loss | (27) | (26) | 27 | (57) | |
| Reclassified to goodwill | - | (37) | - | (37) | |
| Income taxes | 8 | (75) | 23 | (83) | |
| Other comprehensive income from cash flow hedges | (9) | 154 | (28) | 175 | |
| Changes in fair values of available-for-sale financial assets | (27) | - | (34) | - | |
| Reclassified to profit or loss | - | - | - | - | |
| Income taxes | (1) | - | 8 | - | |
| Other comprehensive income from available-for-sale financial assets | (28) | - | (26) | - | |
| Changes in exchange differences recognized on translation of operations outside the eurozone | (1,213) | 1,021 | (1,384) | 639 | |
| Reclassified to profit or loss | - | - | - | - | |
| Other comprehensive income from exchange differences | (1,213) | 1,021 | (1,384) | 639 | |
| Other comprehensive income relating to associates accounted for using the equity method | 40 | 3 | 47 | 2 | |
| Other comprehensive income that may be reclassified subsequently to profit or loss | (1,210) | 1,178 | (1,391) | 816 | |
| Total other comprehensive income1 | (1,042) | 1,425 | (813) | 968 | |
| of which attributable to noncontrolling interest | (86) | (1) | (63) | (5) | |
| of which attributable to Bayer AG stockholders | (956) | 1,426 | (750) | 973 | |
| Total comprehensive income | 435 | 2,230 | 2,935 | 3,727 | |
| of which attributable to noncontrolling interest | 167 | 5 | 378 | 1 | |
| of which attributable to Bayer AG stockholders | 268 | 2,225 | 2,557 | 3,726 | |
Bayer Group Consolidated Statements
of Financial Position
B 3
| € million | June 30, 2017 | June 30, 2018 | Dec. 31, 2017 |
| Noncurrent assets | |||
| Goodwill | 15,823 | 37,770 | 14,751 |
| Other intangible assets | 12,685 | 38,312 | 11,674 |
| Property, plant and equipment | 12,672 | 13,762 | 7,633 |
| Investments accounted for using the equity method | 548 | 501 | 4,007 |
| Other financial assets | 1,402 | 2,815 | 1,634 |
| Other receivables | 526 | 783 | 400 |
| Deferred taxes | 6,332 | 4,770 | 4,915 |
| 49,988 | 98,713 | 45,014 | |
| Current assets | |||
| Inventories | 8,459 | 11,089 | 6,550 |
| Trade accounts receivable | 12,077 | 14,254 | 8,582 |
| Other financial assets | 7,233 | 1,556 | 3,529 |
| Other receivables | 1,652 | 1,600 | 1,276 |
| Claims for income tax refunds | 455 | 617 | 474 |
| Cash and cash equivalents | 2,773 | 4,981 | 7,581 |
| Assets held for sale | 3 | 3,720 | 2,081 |
| 32,652 | 37,817 | 30,073 | |
| Total assets | 82,640 | 136,530 | 75,087 |
| Equity | |||
| Capital stock | 2,117 | 2,387 | 2,117 |
| Capital reserves | 9,658 | 18,388 | 9,658 |
| Other reserves | 20,875 | 26,371 | 25,026 |
| Equity attributable to Bayer AG stockholders | 32,650 | 47,146 | 36,801 |
| Equity attributable to noncontrolling interest | 2,833 | 73 | 60 |
| 35,483 | 47,219 | 36,861 | |
| Noncurrent liabilities | |||
| Provisions for pensions and other post-employment benefits | 9,618 | 8,352 | 8,020 |
| Other provisions | 1,631 | 1,929 | 1,366 |
| Refund liabilities | - | 233 | - |
| Contract liabilities | - | 889 | - |
| Financial liabilities | 14,168 | 42,593 | 12,483 |
| Income tax liabilities | 505 | 810 | 495 |
| Other liabilities | 985 | 291 | 1,116 |
| Deferred taxes | 1,490 | 7,452 | 1,153 |
| 28,397 | 62,549 | 24,633 | |
| Current liabilities | |||
| Other provisions | 5,631 | 2,424 | 4,344 |
| Refund liabilities | - | 5,920 | - |
| Contract liabilities | - | 529 | - |
| Financial liabilities | 5,037 | 9,536 | 1,935 |
| Trade accounts payable | 5,211 | 4,861 | 5,129 |
| Income tax liabilities | 935 | 504 | 422 |
| Other liabilities | 1,946 | 2,319 | 1,652 |
| Liabilities directly related to assets held for sale | - | 669 | 111 |
| 18,760 | 26,762 | 13,593 | |
| Total equity and liabilities | 82,640 | 136,530 | 75,087 |
Bayer Group Consolidated Statements of Cash Flows
B 4
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 |
| Income from continuing operations after income taxes | 836 | 813 | 2,543 | 2,759 |
| Income taxes | 258 | 216 | 682 | 710 |
| Financial result | 369 | 322 | 665 | 192 |
| Income taxes paid | (491) | (540) | (984) | (928) |
| Depreciation, amortization and impairments | 672 | 666 | 1,244 | 1,174 |
| Change in pension provisions | (82) | (73) | (145) | (171) |
| (Gains) losses on retirements of noncurrent assets | 14 | (40) | (36) | (60) |
| Decrease (increase) in inventories | 31 | 267 | (69) | 183 |
| Decrease (increase) in trade accounts receivable | 334 | 1,458 | (1,311) | 109 |
| (Decrease) increase in trade accounts payable | (117) | (106) | (845) | (542) |
| Changes in other working capital, other noncash items | 77 | (743) | 708 | (528) |
| Net cash provided by (used in) operating activities from continuing operations | 1,901 | 2,240 | 2,452 | 2,898 |
| Net cash provided by (used in) operating activities from discontinued operations | 412 | - | 702 | - |
| Net cash provided by (used in) operating activities (total) | 2,313 | 2,240 | 3,154 | 2,898 |
| Cash outflows for additions to property, plant, equipment and intangible assets | (476) | (459) | (891) | (808) |
| Cash inflows from the sale of property, plant, equipment and other assets | 19 | 23 | 73 | 82 |
| Cash inflows from divestments | 54 | 69 | 54 | 214 |
| Cash inflows from (outflows for) noncurrent financial assets | (42) | 1,211 | (96) | 2,988 |
| Cash outflows for acquisitions less acquired cash | - | (45,316) | (158) | (45,316) |
| Interest and dividends received | 43 | 123 | 63 | 145 |
| Cash inflows from (outflows for) current financial assets | (776) | 6,424 | (1,359) | 2,712 |
| Net cash provided by (used in) investing activities (total) | (1,178) | (37,925) | (2,314) | (39,983) |
| Capital contributions | - | 8,986 | - | 8,986 |
| Proceeds from shares of Covestro AG | 1,045 | - | 2,505 | - |
| Dividend payments | (2,361) | (2,403) | (2,361) | (2,403) |
| Issuances of debt | 1,424 | 56,307 | 1,716 | 57,328 |
| Retirements of debt | (410) | (27,156) | (1,446) | (28,684) |
| Interest paid including interest-rate swaps | (275) | (361) | (389) | (444) |
| Interest received from interest-rate swaps | 28 | 373 | 37 | 382 |
| Cash outflows for the purchase of additional interests in subsidiaries | - | - | - | - |
| Net cash provided by (used in) financing activities (total) | (549) | 35,746 | 62 | 35,165 |
| Change in cash and cash equivalents due to business activities (total) | 586 | 61 | 902 | (1,920) |
| Cash and cash equivalents at beginning of year | 2,224 | 5,338 | 1,899 | 7,436 |
| Change in cash and cash equivalents due to changes in scope of consolidation | - | - | - | 1 |
| Change in cash and cash equivalents due to exchange rate movements | (37) | (388) | (28) | (506) |
| Cash and cash equivalents at end of year | 2,773 | 5,011 | 2,773 | 5,011 |
2017 figures restated
Bayer Group Consolidated Statements
of Changes in Equity
B 5
| € million | Capital stock | Capital reserves |
Other reserves |
Equity attributable to Bayer AG stockholders | Equity attributable to noncontrolling interest | Equity |
| Dec. 31, 2016 | 2,117 | 9,658 | 18,558 | 30,333 | 1,564 | 31,897 |
| Equity transactions with owners | ||||||
| Capital increase / decrease | ||||||
| Dividend payments | (2,233) | (2,233) | (129) | (2,362) | ||
| Other changes | 1,993 | 1,993 | 1,020 | 3,013 | ||
| Total comprehensive income | 2,557 | 2,557 | 378 | 2,935 | ||
| June 30, 2017 | 2,117 | 9,658 | 20,875 | 32,650 | 2,833 | 35,483 |
| Dec. 31, 2017 | 2,117 | 9,658 | 25,026 | 36,801 | 60 | 36,861 |
| Adjustment of retained earnings on adoption of IFRS 9 (net of tax) | (60) | (60) | (60) | |||
| Adjustment of retained earnings on adoption of IFRS 15 (net of tax) | 86 | 86 | 86 | |||
| Equity transactions with owners | ||||||
| Capital increase / decrease | 270 | 8,730 | 9,000 | 9,000 | ||
| Dividend payments | (2,402) | (2,402) | (2,402) | |||
| Other changes | (5) | (5) | 12 | 7 | ||
| Total comprehensive income | 3,726 | 3,726 | 1 | 3,727 | ||
| June 30, 2018 | 2,387 | 18,388 | 26,371 | 47,146 | 73 | 47,219 |
Notes to the Condensed Consolidated Interim Financial Statements of the Bayer Group
Key Data by Segment
Key Data by Segment
B 6
| Pharmaceuticals | Pharmaceuticals | Consumer Health | Consumer Health | Crop Science | Crop Science | |
| € million | Q2 2017 | Q2 2018 | Q2 2017 | Q2 2018 | Q2 2017 | Q2 2018 |
| Net sales (external) | 4,304 | 4,217 | 1,542 | 1,413 | 2,163 | 3,011 |
| Change1 | + 4.9% | - 2.0% | - 0.7% | - 8.4% | - 14.1% | + 39.2% |
| Currency-adjusted change1 | + 4.4% | + 2.9% | - 2.2% | - 1.4% | - 15.8% | + 46.4% |
| Intersegment sales | 11 | 10 | 4 | 1 | 8 | 12 |
| Net sales (total) | 4,315 | 4,227 | 1,546 | 1,414 | 2,171 | 3,023 |
| EBIT1 | 1,102 | 1,053 | 195 | 157 | 117 | 154 |
| EBIT before special items1 | 1,222 | 1,109 | 210 | 156 | 212 | 434 |
| EBITDA before special items1 | 1,481 | 1,363 | 314 | 256 | 317 | 631 |
| Net cash provided by operating activities | 528 | 629 | 297 | 148 | 1,170 | 1,653 |
| Depreciation, amortization, impairment losses/ loss reversals | 372 | 297 | 112 | 100 | 116 | 199 |
| Animal Health | Animal Health | |
| € million | Q2 2017 | Q2 2018 |
| Net sales (external) | 450 | 453 |
| Change1 | + 5.6% | + 0.7% |
| Currency-adjusted change1 | + 4.0% | + 7.6% |
| Intersegment sales | 1 | 3 |
| Net sales (total) | 451 | 456 |
| EBIT1 | 107 | 116 |
| EBIT before special items1 | 107 | 119 |
| EBITDA before special items1 | 116 | 128 |
| Net cash provided by operating activities | 97 | 88 |
| Depreciation, amortization, impairment losses/ loss reversals | 9 | 9 |
Key Data by Segment
B 6 continued
| Reconciliation | Reconciliation | Reconciliation | Reconciliation | |||
All Other Segments |
All Other Segments | Corporate Functions and Consolidation |
Corporate Functions and Consolidation | Group |
Group | |
| € million | Q2 2017 | Q2 2018 | Q2 2017 | Q2 2018 | Q2 2017 | Q2 2018 |
| Net sales (external) | 252 | 378 | 3 | 9 | 8,714 | 9,481 |
| Change1 | - 1.6% | + 50.0% | - | - | - 1.6% | + 8.8% |
| Currency-adjusted change1 | - 0.8% | + 52.5% | - | - | - 2.7% | + 14.6% |
| Intersegment sales | 508 | 624 | (532) | (650) | - | - |
| Net sales (total) | 760 | 1,002 | (529) | (641) | 8,714 | 9,481 |
| EBIT1 | 45 | 24 | (103) | (153) | 1,463 | 1,351 |
| EBIT before special items1 | 58 | 36 | (102) | (140) | 1,707 | 1,714 |
| EBITDA before special items1 | 118 | 93 | (99) | (136) | 2,247 | 2,335 |
| Net cash provided by operating activities | (74) | 24 | (117) | (302) | 1,901 | 2,240 |
| Depreciation, amortization, impairment losses/ loss reversals | 60 | 57 | 3 | 4 | 672 | 666 |
2017 figures restated
B 7
Key Data by Segment
Pharmaceuticals |
Pharmaceuticals | Pharmaceuticals |
Pharmaceuticals | Crop Science |
Crop Science | |
| € million | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 |
| Net sales (external) | 8,567 | 8,292 | 3,143 | 2,822 | 5,283 | 5,872 |
| Change1 | + 7.2% | - 3.2% | + 2.3% | - 10.2% | - 3.1% | + 11.1% |
| Currency-adjusted change1 | + 5.8% | + 2.8% | + 0.2% | - 1.8% | - 5.4% | + 18.4% |
| Intersegment sales | 21 | 19 | 9 | 2 | 16 | 20 |
| Net sales (total) | 8,588 | 8,311 | 3,152 | 2,824 | 5,299 | 5,892 |
| EBIT1 | 2,321 | 2,216 | 473 | 368 | 1,087 | 1,046 |
| EBIT before special items1 | 2,477 | 2,273 | 497 | 372 | 1,219 | 1,387 |
| EBITDA before special items1 | 2,983 | 2,778 | 706 | 569 | 1,432 | 1,673 |
| Net cash provided by operating activities | 1,501 | 1,861 | 562 | 321 | 491 | 950 |
| Depreciation, amortization, impairment losses/ loss reversals | 652 | 548 | 218 | 197 | 237 | 288 |
| Animal Health | Animal Health | |
| € million | H1 2017 | H1 2018 |
| Net sales (external) | 890 | 867 |
| Change1 | + 6.7% | - 2.6% |
| Currency-adjusted change1 | + 4.4% | + 5.4% |
| Intersegment sales | 2 | 5 |
| Net sales (total) | 892 | 872 |
| EBIT1 | 233 | 245 |
| EBIT before special items1 | 233 | 248 |
| EBITDA before special items1 | 251 | 267 |
| Net cash provided by operating activities | 66 | 101 |
| Depreciation, amortization, impairment losses/ loss reversals | 18 | 19 |
B 7 continued
Key Data by Segment
| Reconciliation | Reconciliation | Reconciliation | Reconciliation | |||
| All Other Segments | All Other Segments | Corporate Functions and Consolidation | Corporate Functions and Consolidation | Group | Group | |
| € million | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 |
| Net sales (external) | 504 | 756 | 7 | 10 | 18,394 | 18,619 |
| Change1 | - 0.4% | + 50.0% | - | - | + 3.0% | + 1.2% |
| Currency-adjusted change1 | + 0.6% | + 50.3% | - | - | + 1.2% | + 7.9% |
| Intersegment sales | 1,218 | 1,219 | (1,266) | (1,265) | - | - |
| Net sales (total) | 1,722 | 1,975 | (1,259) | (1,255) | 18,394 | 18,619 |
| EBIT1 | 19 | 46 | (243) | (260) | 3,890 | 3,661 |
| EBIT before special items1 | 50 | 66 | (240) | (244) | 4,236 | 4,102 |
| EBITDA before special items1 | 163 | 180 | (234) | (236) | 5,301 | 5,231 |
| Net cash provided by operating activities | (241) | (219) | 73 | (116) | 2,452 | 2,898 |
| Depreciation, amortization, impairment losses/ loss reversals | 113 | 114 | 6 | 8 | 1,244 | 1,174 |
2017 figures restated.
Explanatory Notes
Accounting policies
The consolidated interim financial statements as of June 30, 2018, were prepared in
condensed form in compliance with IAS 34 according to the International Financial
Reporting Standards (IFRS) of the International Accounting Standards Board (IASB),
London, which are endorsed by the European Union, and the Interpretations of the IFRS
Interpretations Committee in effect at the closing date.
Reference should be made as appropriate to the Notes to the Consolidated Financial
Statements for the 2017 fiscal year, particularly with regard to the main recognition
and measurement principles, except where financial reporting standards have been applied
for the first time in 2018 or an accounting policy has changed.
Financial reporting standards applied for the first time in 2018
IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from Contracts with Customers)
were applied for the first time as of January 1, 2018. The effects resulting from
their first-time application are detailed in this section.
IFRS 9 is the new standard for accounting for financial instruments that Bayer applied
in modified form retrospectively for the first time as of January 1, 2018, without
restating the prior-year figures, accounting for the aggregate amount of any transition
effects by way of an adjustment to equity and presenting the comparative period in
line with previous rules.
The effects that the first-time application of IFRS 9 and IFRS 15 had on retained
earnings and other comprehensive income in the statement of comprehensive income are
detailed in the following tables:
B 8
Retained Earnings Reconciliation: IFRS 9 and IFRS 15
| € million | ||
| Retained earnings incl. net income as at December 31, 2017 |
26,851 | |
| Effects of IFRS 9 | (43) | |
| of which reclassification from other comprehensive income (fair-value measurement of financial instruments) | 37 | |
| of which loss allowances established for trade accounts receivable | (93) | |
| of which loss allowances established for other receivables | (4) | |
| of which loss allowances established for cash and cash equivalents | (1) | |
| of which deferred taxes | 18 | |
| Effects of IFRS 15 | 86 | |
| Retained earnings incl. net income as at January 1, 2018 | 26,894 | |
B 9
Other Comprehensive Income Reconciliation (Fair-Value Measurement of Financial Instruments)
| € million | |
| Fair-value measurement of financial instruments as at December 31, 2017 | 98 |
| Reclassifications to retained earnings | (37) |
| Remeasurement due to change in measurement category | 11 |
| Deferred taxes | 9 |
| Fair-value measurement of financial instruments as at January 1, 2018 | 81 |
IFRS 9 introduces new provisions for the classification and measurement of financial
assets and replaces the current rules on the impairment of financial assets. The new
standard requires a change in accounting methods for the effects resulting from a
change in the company's own credit risk for financial liabilities classified at fair
value and modifies the requirements for hedge accounting. The classification and measurement
of financial liabilities are otherwise largely unchanged from the existing regulations.
Under IFRS 9, the classification and measurement of financial assets is determined
by the company's business model and the characteristics of the cash flows of each
financial asset. In the case of equity instruments held as of January 1, 2018, that
are not held for trading, Bayer has uniformly opted to recognize future changes in
their fair value through other comprehensive income in the statement of comprehensive
income and to continue to classify these as equity upon the derecognition of the financial
instrument. As for new instruments, Bayer can opt to make use of this option on an
instrument-by-instrument basis upon recognition, but it must continue to do so thereafter.
The 6.8% interest in Covestro acquired from Bayer Pension Trust at the beginning of
May 2018 to service the exchangeable bond maturing in 2020 is recognized at fair value
through profit or loss.
As at the date of first-time application, reclassifications primarily resulted from
the characteristics of the cash flows from fund shares, investments in limited partnerships,
and the loan capital and jouissance right capital (Genussrechtkapital) provided to
Bayer Pensionskasse VVaG. These financial instruments were previously reported in
the category "available for sale," with changes in their fair value recognized in
other comprehensive income in the statement of comprehensive income. They are now
classified as debt instruments, and changes in their fair values are recognized through
profit or loss.
Changes in the classification and measurement of financial assets led to the following
effects as at the date of first-time application:
B 10
Financial Assets Reconciliation from IAS 39 to IFRS 9
| € million | ||||||
| Measurement category in accordance with IAS 39 | Carrying amount (IAS 39) as of Dec. 31, 2017 | Reclassification | Remeasurement due to change in measurement category | Remeasurement due to implementation of the expected loss model | Carrying amount (IFRS 9) as of Jan. 1, 2018 | Measurement category in accordance with IFRS 9 |
| Trade accounts receivable | Trade accounts receivable | |||||
| Loans and receivables | 8,582 | (93) | 8,489 | Measured at amortized cost | ||
| Other financial assets | Other financial assets | |||||
| Loans and receivables | 1,731 | 1,731 | Measured at amortized cost | |||
| Available-for-sale financial assets - debt instruments | 34 | 34 | Measured at amortized cost | |||
| Held-to-maturity financial assets | 57 | 57 | Measured at amortized cost | |||
| Available-for-sale financial assets - equity instruments measured at amortized cost | 35 | 11 | 46 | Equity instruments measured at fair value through OCI (no recycling) | ||
| Available-for-sale financial assets - equity instruments measured at fair value | 191 | 191 | Equity instruments measured at fair value through OCI (no recycling) | |||
| Available-for-sale financial assets - equity instruments measured at fair value | 39 | 39 | Debt instruments measured at fair value through profit or loss | |||
| Available-for-sale financial assets - debt instruments | 2,429 | 145 | 2,574 | Debt instruments measured at fair value through profit or loss | ||
| Derivatives that qualify for hedge accounting | 296 | 296 | Derivatives that qualify for hedge accounting | |||
| Derivatives that do not qualify for hedge accounting | 351 | 351 | Derivatives that do not qualify for hedge accounting | |||
| Other receivables | Other receivables | |||||
| Loans and receivables | 380 | (4) | 376 | Measured at amortized cost | ||
| Available-for-sale financial assets - debt instruments | 46 | 46 | Debt instruments measured at fair value through profit or loss | |||
| Cash and cash equivalents | Cash and cash equivalents | |||||
| Loans and receivables | 7,581 | (145) | (1) | 7,435 | Measured at amortized cost | |
| Total financial assets | 21,752 | 0 | 11 | (98) | 21,665 |
There were no effects on financial liabilities.
The following table shows the effects of the first-time application of IFRS 9 on retained
earnings and other comprehensive income in the statement of other comprehensive income,
broken down by measurement category:
B 11
Effects of First-Time Application of IFRS 9 on Retained Earnings and Other Comprehensive Income
| € million | |||
| Measurement category in accordance with IAS 39 | Measurement category in accordance with IFRS 9 | Retained earnings effect as of Jan. 1, 2018 |
OCI effect as of Jan 1, 2018 |
| Trade accounts receivable | Trade accounts receivable | ||
| Loans and receivables | Measured at amortized cost | (93) | |
| Other financial assets | Other financial assets | ||
| Available-for-sale financial assets -equity instruments measured at amortized cost | Equity instruments measured at fair value through OCI (no recycling) | 11 | |
| Available-for-sale financial assets -equity instruments measured at fair value | Debt instruments measured at fair value through profit or loss | 10 | (10) |
| Available-for-sale financial assets -debt instruments | Debt instruments measured at fair value through profit or loss | 36 | (36) |
| Other receivables | Other receivables | ||
| Loans and receivables | Measured at amortized cost | (4) | |
| Available-for-sale financial assets -debt instruments | Debt instruments measured at fair value through profit or loss | (9) | 9 |
| Cash and cash equivalents | Cash and cash equivalents | ||
| Loans and receivables | Measured at amortized cost | (1) | |
| Total financial assets | (61) | (26) |
The following table shows the effects of the first-time application of IFRS 9 on financial
assets and liabilities that are based on unobservable inputs and are measured at fair
value (Level 3). The development of these assets and liabilities in the first half
of 2018 is presented in Table B 27.
B 12
Reconciliation of Financial Assets and Liabilities Measured at Fair Value (Level 3) from IAS 39 to IFRS 9
| € million | |||||
| Measurement category in accordance with IAS 39 | Carrying amount (IAS 39) as of Dec. 31, 2017 | Reclassification due to change in fair value hierarchy | Remeasurement due to change in measurement category | Carrying amount (IFRS 9) as of Jan. 1, 2018 | Measurement category in accordance with IFRS 9 |
| Other financial assets | Other financial assets | ||||
| Available-for-sale financial assets - equity instruments measured at amortized cost | 35 | 11 | 46 | Equity instruments measured at fair value through OCI (no recycling) | |
| Available-for-sale financial assets - equity instruments measured at fair value | 18 | 4 | 22 | Equity instruments measured at fair value through OCI (no recycling) | |
| Available-for-sale financial assets - equity instruments measured at fair value | 18 | 18 | Debt instruments measured at fair value through profit or loss | ||
| Available-for-sale financial assets - debt instruments | 757 | 757 | Debt instruments measured at fair value through profit or loss | ||
| Derivatives | 10 | 10 | Derivatives | ||
| Other receivables | Other receivables | ||||
| Available-for-sale financial assets - debt instruments | 46 | 46 | Debt instruments measured at fair value through profit or loss | ||
| Total financial assets (Level 3) | 849 | 39 | 11 | 899 | Total financial assets (Level 3) |
| Other liabilities | Other liabilities | ||||
| Measured at fair value through profit or loss (non-derivative) | (7) | (7) | Measured at fair value through profit or loss (non-derivative) | ||
| Total financial liabilities (Level 3) | (7) | (7) | Total financial liabilities (Level 3) |
Loss allowances for expected credit losses are recognized for financial assets measured
at amortized cost. Expected lifetime credit losses for trade accounts receivable are
recognized using the simplified approach. This is based on loss rates calculated from
historical and forward-looking data, taking into account the business model, the respective
customer and the economic environment of the geographical region. Receivables that
are overdue by a significant amount of time - in some cases exceeding 90 days due
to the customer structure - and receivables from debtors against which insolvency
or similar proceedings have been initiated are tested individually for impairment.
Expected credit losses for other financial assets are determined upon their first-time
recognition primarily on the basis of credit default swaps, with expected losses from
defaults within the next 12 months calculated using the Monte Carlo simulation method.
In the event of a significant increase in default risk, expected lifetime credit losses
are taken into account.
The effects from the increase in loss allowances from the first-time application of
the new impairment model are presented in the following table:
B 13
Reconciliation of Loss Allowances
| € million | ||||
| Measurement category in accordance with IAS 39 | Closing loss allowances under IAS 39 as at Dec. 31, 2017 | Remeasurement due to implementation of the expected loss model under IFRS 9 | Opening loss allowances under IFRS 9 as at Jan 1, 2018 | Measurement category in accordance with IFRS 9 |
| Trade accounts receivable | Trade accounts receivable | |||
| Loans and receivables | (425) | (93) | (518) | Measured at amortized cost |
| Other receivables | Other receivables | |||
| Loans and receivables | (3) | (4) | (7) | Measured at amortized cost |
| Cash and cash equivalents | Cash and cash equivalents | |||
| Loans and receivables | (1) | (1) | Measured at amortized cost | |
| Total | (428) | (98) | (526) |
Changes in the fair values of financial liabilities measured at fair value through
profit or loss resulting from Bayer's own credit risk are now recognized through other
comprehensive income in the statement of comprehensive income rather than in the income
statement. At Bayer, this change principally affects the debt instruments (exchangeable
bond) issued in June 2017 which also can be exchanged into Covestro shares. As at
the transition date, this accounting change did not have any material effects.
For hedge accounting, Bayer has opted to prospectively apply IFRS 9 from January 1,
2018. If only the intrinsic value of an option is designated as a hedging instrument
in a hedging relationship, IFRS 9 requires that changes in the fair value of the time
value of the options during the hedging period initially be recognized as other comprehensive
income in the statement of comprehensive income. The release of the accumulated amounts,
either in the form of a basis adjustment or directly through profit or loss, depends
on the type of hedged transaction. In contrast to the other rules on hedge accounting,
the revised accounting method is to be applied retrospectively. As at the transition
date, these changes did not have any material impact on the presentation of the Group's
financial position and results of operations.
In October 2017, the IASB published an amendment to IFRS 9 (Financial Instruments)
under the title "Prepayment Features with Negative Compensation." It also published
a clarification regarding the accounting for a modification of a financial liability
that does not result in its derecognition. For these nonsubstantial modifications,
modification gains or losses - including the costs of the modification - must be immediately
recognized in profit or loss. This amendment to IFRS 9 is to be applied for annual
periods beginning on or after January 1, 2018. As there were no past nonsubstantial
modifications of liabilities, this amendment did not have any impact on the presentation
of the Group's financial position and results of operations. A bond exchange program
constituting a nonsubstantial modification was initiated in June 2018 for the Monsanto
bonds acquired as part of the Monsanto acquisition. In this connection, expenses of
€13 million were recognized in profit or loss in the second quarter of 2018.
The IASB issued IFRS 15 (Revenues from Contracts with Customers) in May 2014 and provided
clarifications to the standard in April 2016. Both the standard and the clarifications
have been endorsed by the European Union. IFRS 15 replaces the current IAS 18 (Revenue)
and IAS 11 (Construction Contracts) revenue recognition standards and the related
interpretations, and is applicable for annual reporting periods beginning on or after
January 1, 2018. The new standard establishes a five-step model related to revenue
recognition from contracts with customers. Under IFRS 15, revenue is recognized at
amounts that reflect the consideration that an entity expects to be entitled to in
exchange for transferring goods or services to a customer. Revenue is recognized when
(or as) the entity transfers control of goods or services to a customer either over
time or at a point in time. In addition, IFRS 15 clarifies the allocation of individual
topics to (new) line items in the statement of financial position and to functional
cost items in the income statement, and whether gross or net amounts are to be presented.
As of January 1, 2018, Bayer transitioned to IFRS 15 on the basis of the modified
retrospective method, accounting for the aggregate amount of the transition effects
by way of an adjustment to retained earnings as of January 1, 2018, and presenting
the comparative period in line with previous rules. Bayer has elected to retrospectively
apply the standard only to contracts that are not completed contracts at the date
of firsttime application, and has opted to reflect the aggregate effect of all contract
modifications that occurred prior to the date of first-time application in accordance
with IFRS 15.C7A(b).
The adoption of IFRS 15 has led to the following effects:
Changes in the timing of recognition
| ― |
IFRS 15 requires catch-up adjustments to revenue when milestone payments for right-to-access licenses become unconstrained, leading to earlier revenue recognition. This change resulted in an increase in retained earnings by €64 million after deferred taxes and a decrease in contract liabilities (under IAS 18, amounts were presented as deferred income in other liabilities) by €86 million. For the Pharmaceuticals segment, the introduction of IFRS 15 translates into a €5 million decrease in first-half net sales and a €3 million decrease in second-quarter net sales, as well as a €2 million decrease in firsthalf deferred tax expense and a €1 million decrease in second-quarter deferred tax expense compared with IAS 18. |
| ― |
IFRS 15 in conjunction with IAS 38 (Intangible Assets) generally requires the recognition of the purchase price related to a brand divestment net of associated carrying amounts in other operating income or expenses upon transfer of control. Some cases were identified where the purchase price was deferred under former policy in line with IAS 18, but would have been recognized in income earlier under IFRS 15, leading to a €21 million increase in retained earnings after deferred taxes and a €27 million decrease in contract liabilities (under IAS 18, amounts were presented as deferred income in other liabilities) on the date of transition. For the Pharmaceuticals and Animal Health segments, the introduction of IFRS 15 translates into a combined €23 million decrease in first-half net sales and a combined €8 million decrease in second-quarter net sales, as well as a €5 million decrease in first-half deferred tax expense and a €2 million decrease in second-quarter deferred tax expense as compared with IAS 18. |
| ― |
Including the effects described individually, the change in the timing of revenue recognition led to a €9 million decrease in first-half earnings and an €8 million decrease in second-quarter earnings as compared to revenue recognition under IAS 18. These earnings effects pertain to the Bayer Group prior to the first-time consolidation of the former Monsanto Group, whose financial information for the reference periods was prepared according to U.S. accounting standards and therefore does not permit an appropriate comparison with net sales as determined according to IAS 18. |
Presentational changes
Bayer also changed the presentation of certain items in the statement of financial
position and income statements to reflect the methodology of IFRS 15.
| ― |
IFRS 15 changes the presentation of expected product returns within the statement of financial position from net to gross in cases where returns are expected to be resalable and Bayer will refund the purchase price. The right-of-return asset is reflected in inventories at the former carrying amount less expected costs to recover and potential impairment. The refund liabilities include amounts expected to be refunded upon product return. Prior to the adoption of IFRS 15, Bayer presented the margin of expected returns on a net basis in "other provisions." In the statement of cash flows, the increase in inventories to be recorded under IFRS 15 is set against a decline in "other working capital, other noncash items." |
| ― |
Amounts already received (or receivable), but expected to be refunded to the customer are presented as "refund liabilities" under IFRS 15. These amounts typically relate to expected volume rebates and expected product returns and were previously presented as "other provisions." |
| ― |
Advance payments received (or receivable) in connection with product deliveries were previously recognized in trade accounts payable. Advance payments received (or receivable) relating to right-to-access licenses and service contracts recognized over time were previously presented under "deferred income" in "other liabilities." With the introduction of IFRS 15, both are presented as contract liabilities. Within the statement of cash flows, the decline in trade accounts payable resulting from the presentational change is set against a corresponding change in "other working capital, other noncash items." |
The effects of applying the modified retrospective method on the opening statement
of financial position as of January 1, 2018, are shown in table B 14. The impact of
the transition from IAS 18 to IFRS 15 on the consolidated statement of financial position
as at June 30, 2018, which includes the former Monsanto Group, is presented in table
B 15.
B 14
IFRS 15 Accounting Changes: Consolidated Statements of Financial Position as of January 1, 2018
| Dec. 31, 2017 | Jan. 1, 2018 | |||
| Before accounting changes |
Presentational changes |
Changes in timing of recognition | After accounting changes |
|
| € million | ||||
| Noncurrent assets | ||||
| Deferred taxes | 4,915 | (5) | 4,910 | |
| Other noncurrent assets | 40,099 | 40,099 | ||
| 45,014 | (5) | 45,009 | ||
| Current assets | ||||
| Inventories | 6,550 | 76 | 6,626 | |
| Other current assets | 23,523 | 23,523 | ||
| 30,073 | 76 | 30,149 | ||
| Total assets | 75,087 | 76 | (5) | 75,158 |
| Equity | ||||
| Other reserves | 25,026 | 86 | 25,112 | |
| Other equity | 11,835 | 11,835 | ||
| 36,861 | 86 | 36,947 | ||
| Noncurrent liabilities | ||||
| Other provisions | 1,366 | (152) | 1,214 | |
| Refund liabilities | - | 152 | 152 | |
| Contract liabilities | - | 905 | (78) | 827 |
| Other liabilities | 1,116 | (905) | 211 | |
| Deferred taxes | 1,153 | 24 | 1,177 | |
| Other noncurrent liabilities | 20,998 | 20,998 | ||
| 24,633 | 0 | (54) | 24,579 | |
| Current liabilities | ||||
| Other provisions | 4,344 | (2,197) | 2,147 | |
| Refund liabilities | - | 2,275 | 2,275 | |
| Contract liabilities | - | 740 | (37) | 703 |
| Trade accounts payable | 5,129 | (561) | 4,568 | |
| Other liabilities | 1,652 | (181) | 1,471 | |
| Other Current liabilities | 2,468 | 2,468 | ||
| 13,593 | 76 | (37) | 13,632 | |
| Total equity and liabilities | 75,087 | 76 | (5) | 75,158 |
B 15
Reconciliation IFRS 15 to IAS 18 for Presentational Changes:
Consolidated Statements of Financial Position as of June 30, 2018
| IFRS 15 June 30, 2018 |
Presentational changes |
IAS 18 June 30, 2018 |
|
| € million | |||
| Noncurrent assets | |||
| Deferred taxes | 4,770 | 4,770 | |
| Other noncurrent assets | 93,943 | 93,943 | |
| 98,713 | 98,713 | ||
| Current assets | |||
| Inventories | 11,089 | (146) | 10,943 |
| Other current assets | 26,728 | 26,728 | |
| 37,817 | (146) | 37,671 | |
| Total assets | 136,530 | (146) | 136,384 |
| Equity | |||
| Other reserves | 26,371 | 26,371 | |
| Other equity | 20,848 | 20,848 | |
| 47,219 | 47,219 | ||
| Noncurrent liabilities | |||
| Other provisions | 1,929 | 233 | 2,162 |
| Refund liabilities | 233 | (233) | - |
| Contract liabilities | 889 | (889) | - |
| Other liabilities | 291 | 750 | 1,041 |
| Deferred taxes | 7,452 | 7,452 | |
| Other noncurrent liabilities | 51,755 | 51,755 | |
| 62,549 | (139) | 62,410 | |
| Current liabilities | |||
| Other provisions | 2,424 | 5,774 | 8,198 |
| Refund liabilities | 5,920 | (5,920) | - |
| Contract liabilities | 529 | (529) | - |
| Trade accounts payable | 4,861 | 524 | 5,385 |
| Other liabilities | 2,319 | 144 | 2,463 |
| Other current liabilities | 10,709 | 10,709 | |
| 26,762 | (7) | 26,755 | |
| Total equity and liabilities | 136,530 | (146) | 136,384 |
Published financial reporting standards that have not yet been applied
In January 2016, the IASB published the new standard for lease accounting, IFRS 16
(Leases), which replaces the existing rules contained in IAS 17 (Leases), IFRIC 4
(Determining Whether an Arrangement Contains a Lease), SIC-15 (Operating Leases -
Incentives) and SIC-27 (Evaluating the Substance of Transactions Involving the Legal
Form of a Lease). It was endorsed by the European Union in October 2017. The new standard
is to be applied for annual periods beginning on or after January 1, 2019. The standard
introduces a single lessee accounting model, requiring lessees to recognize assets
for granted rights of use and corresponding lease liabilities. It will eliminate the
current requirement for lessees to classify lease contracts as either operating leases
- without recognizing the respective assets or liabilities - or as finance leases.
However, IFRS 16 contains optional recognition exemptions. As in the previous standard,
IAS 17, lessors still have to differentiate between finance and operating leases.
Bayer will apply IFRS 16 for the first time as of January 1, 2019, retrospectively
and without restating the prior-year figures, accounting for the aggregate amount
of any transition effects by way of an adjustment to equity and presenting the comparative
period in line with previous rules. In this connection, various practical expedients
can be applied as of the transition date for lease agreements in which a Bayer company
is the lessee. Bayer will exercise the option of exempting intangible assets from
the scope of application of IFRS 16.
A Group-wide project is steering the implementation of this new standard. The analysis
of the quantitative impact of IFRS 16 on the Group's financial position and results
of operations has not yet been completed. The following effects are anticipated: Instead
of the minimum lease payments arising from operating leases being presented under
other financial commitments as at present, application of IFRS 16 will increase noncurrent
assets by requiring the recognition of rights of use assets. Similarly, financial
liabilities will be increased by recognition of the corresponding lease liabilities.
In the statement of comprehensive income, the amortization of rights of use assets
and the interest expense for the liabilities will be recognized in place of the expenses
for operating leases. In the statement of cash flows, IFRS 16 will probably lead to
an improvement in the operating cash flow by reducing cash outflows for operating
activities, while the repayment component of lease payments and the interest expense
will be recognized in the financing cash flow.
The specific quantitative effects of the first-time application depend partly on the
development of the incremental borrowing rate as of January 1, 2019, the composition
of the lease portfolio as of that date, and the assessment then to be made as regards
the exercise of extension or termination options, for instance. An assessment also
has not yet been completed as to whether and how options and exemption rules will
be applied.
In June 2017, the IASB published IFRIC Interpretation 23 (Uncertainty over Income
Tax Treatments) to clarify uncertainty relating to the accounting treatment of income
taxes. IFRIC 23 is to be applied for annual periods beginning on or after January
1, 2019. It has not yet been endorsed by the European Union. Bayer is currently evaluating
the impact the amendments will have on the presentation of its financial position
and results of operations.
Changes in underlying parameters
Changes in the underlying parameters relate primarily to currency exchange rates and
the interest rates used to calculate pension obligations.
The exchange rates for major currencies against the euro varied as follows:
B 16
Exchange Rates for Major Currencies
Closing rate |
Closing rate | Closing rate | Average rate |
Average rate |
||
| €1 | Dec. 31, 2017 |
June 30, 2017 |
June 30, 2018 |
H1 2017 |
H1 2018 |
|
| BRL | Brazil | 3.98 |
3.76 |
4.48 |
3.43 |
4.13 |
| CAD | Canada | 1.51 | 1.48 | 1.54 | 1.44 | 1.55 |
| CHF | Switzerland | 1.17 | 1.09 | 1.16 | 1.08 | 1.17 |
| CNY | China | 7.81 | 7.73 | 7.72 | 7.42 | 7.70 |
| GBP | United Kingdom | 0.89 | 0.88 | 0.89 | 0.86 | 0.88 |
| JPY | Japan | 135.01 | 127.72 | 128.93 | 121.60 | 131.61 |
| MXN | Mexico | 23.66 | 20.57 | 22.86 | 20.99 | 23.07 |
| RUB | Russia | 69.41 | 67.47 | 73.10 | 62.69 | 71.84 |
| USD | United States | 1.20 | 1.14 | 1.17 | 1.08 | 1.21 |
Due to the economic situation in Argentina, we are in the process of assessing whether
to apply IAS 29 for Argentina.
The most important interest rates used to calculate the present value of pension obligations
are given below:
B 17
Discount Rate for Pension Obligations
| % | Dec. 31, 2017 | March 31, 2018 | June 30, 2018 |
| Germany | 1.90 | 1.90 | 1.90 |
| United Kingdom | 2.50 | 2.60 | 2.80 |
| United States | 3.40 | 3.80 | 4.10 |
Bayer uses the Heubeck mortality tables to calculate pension obligations in Germany.
The RT 2005 G tables were used in recent years. However, we have now switched to the
RT 2018 G tables, as we believe that basing calculations on these new tables provides
a more appropriate presentation of the actual economic impact on the respective closing
date. If we had not switched to the Heubeck RT 2018 G tables, provisions would have
been €364 million lower.
When determining the discount rate for measuring pension obligations, we previously
applied the Macauley Duration method as part of our calculations. However, Bayer decided
to switch to the uniform discount rate method, which is used more frequently in the
market and is mathematically superior. If we had not switched, the discount rate as
of June 30, 2018, would have been 10 basis points lower, which would have led to provisions
being €361 million higher.
Segment reporting
As of June 30, 2018, the Bayer Group comprises the four reportable segments Pharmaceuticals,
Consumer Health, Crop Science and Animal Health.
The following table shows the reconciliation of EBITDA before special items of the
above-mentioned segments and the reconciliation to income before income taxes of the
Group from continuing operations:
B 18
Reconciliation of Segments' EBITDA Before Special Items to Group Income Before Income Taxes
| € million | Q2 2017 | Q2 2018 | H1 2017 | H1 2018 |
| EBITDA before special items of segments | 2,346 | 2,471 | 5,535 | 5,467 |
| EBITDA before special items of Corporate Functions and Consolidation | (99) | (136) | (234) | (236) |
| EBITDA before special items1 | 2,247 | 2,335 | 5,301 | 5,231 |
| Depreciation, amortization and impairment losses before special items of segments | (537) | (617) | (1,059) | (1,121) |
| Depreciation, amortization and impairment losses before special items of Corporate Functions and Consolidation | (3) | (4) | (6) | (8) |
| Depreciation, amortization and impairment losses before special items | (540) | (621) | (1,065) | (1,129) |
| EBIT before special items of segments | 1,809 | 1,854 | 4,476 | 4,346 |
| EBIT before special items of Corporate Functions and Consolidation | (102) | (140) | (240) | (244) |
| EBIT before special items1 | 1,707 | 1,714 | 4,236 | 4,102 |
| Special items of segments | (243) | (350) | (343) | (425) |
| Special items of Corporate Functions and Consolidation | (1) | (13) | (3) | (16) |
| Special items1 | (244) | (363) | (346) | (441) |
| EBIT of segments | 1,566 | 1,504 | 4,133 | 3,921 |
| EBIT of Corporate Functions and Consolidation | (103) | (153) | (243) | (260) |
| EBIT1 | 1,463 | 1,351 | 3,890 | 3,661 |
| Financial result | (369) | (322) | (665) | (192) |
| Income before income taxes | 1,094 | 1,029 | 3,225 | 3,469 |
2017 figures restated
Scope of consolidation
Changes in the scope of consolidation
The consolidated financial statements as of June 30, 2018, included 421 companies
(December 31, 2017: 237 companies). Nine (December 31, 2017: eight) joint ventures
and four (December 31, 2017: four) associates were accounted for in the consolidated
financial statements using the equity method according to IAS 28 (Investments in Associates
and Joint Ventures). As the parent company of the Covestro Group, Covestro AG was
accounted for in the consolidated financial statements using the equity method until
May 2018. Since May 2018, Bayer has been presenting its interest in Covestro as an
equity instrument.
Capital increase
On April 16, 2018, the investment company Temasek subscribed to 31 million new shares
of Bayer at an issue price that was close to market prices (total gross proceeds of
around €3 billion). This corresponded to around 3.6% of the capital stock as of the
acquisition date. The transaction increased Temasek's interest in Bayer AG to approximately
4%.
On June 3, 2018, with the consent of the Supervisory Board, the Board of Management
of Bayer AG resolved to execute a capital increase out of authorized capital against
cash contributions and with subscription rights for existing Bayer stockholders. For
this purpose, Bayer issued 74,604,156 new registered (no-par value) shares with an
entitlement to dividends as of January 1, 2018.
For every 23 Bayer shares they held, stockholders were able to acquire two new shares
at a subscription price of €81.00 per new share by way of indirect subscription rights.
This option was exercised for 73,343,177 shares. The 1,261,039 shares not subscribed
to were purchased by institutional investors at an average placement price of €96.6437
per share as part of a private placement. After deducting transaction costs, net proceeds
totaled around €6 billion.
Together with the mandatory convertible notes issued in November 2016, the two capital
increases conclude the equity component, announced in September 2016, to finance the
acquisition of Monsanto.
Acquisitions, divestments and discontinued operations
Acquisitions
Bayer acquired 100% of the outstanding shares of Monsanto Company, St. Louis, Missouri,
United States (Monsanto) on June 7, 2018. The acquisition of Monsanto brings together
two strong and highly complementary businesses: Bayer's innovative chemical and biological
crop protection portfolio and Monsanto's exceptional expertise in the field of seeds
and traits. Bayer is now a leader in the agricultural industry with a clear commitment
to innovation and sustainability - for the benefit of its customers and society. In
addition to leveraging its employees' extensive expertise in agriculture, Bayer also
has the strongest portfolio of seed and crop protection products for a wide range
of crops and indications, the best research and development platform and the leading
digital farming business.
Among the production sites maintained by Monsanto are facilities in St. Louis, Luling,
Muscatine and Soda Springs (all United States), Antwerp (Belgium), Zarate (Argentina)
and Camacari (Brazil). Monsanto's portfolio of established brands includes DEKALB™,
Asgrow™ and Roundup™. The purchase price of €48,029 million pertained mainly to intangible
assets for technologies in the areas of seeds and traits (useful lives of between
9 and 30 years), herbicides (useful lives of 20 years) and digital platforms (useful
lives of 15 years), as well as for R&D projects, brands (useful lives of between 10
and 30 years), property, plant and equipment, inventories and goodwill. No value was
assigned to the company name "Monsanto."
The goodwill included expected synergies in administration processes and infrastructure,
including cost savings in the cost of goods, selling, R&D and general administration
functions, as well as expected sales synergies resulting from the combined offering
of products. The goodwill is non-tax-deductible.
Monsanto contributed €543 million to sales of the Bayer Group in the second quarter.
An after-tax loss of €165 million was recorded for the acquired businesses since the
date of first-time consolidation.
The purchase price allocation for Monsanto currently remains incomplete pending compilation
and review of the relevant financial information. It is therefore possible that changes
will be made in the allocation of the purchase price to the individual assets and
liabilities.
In connection with its acquisition of Monsanto, Bayer had to submit a takeover offer
for the noncontrolling interest in the company Monsanto India Limited. This offer
was published in June. As of June 30, 2018, the noncontrolling interest is presented
as a liability due to the offer made.
The following bonds with total nominal volumes of US$15 billion and €5 billion in
total were issued in June 2018 to finance the acquisition:
B 19
Bonds and Notes
| Issuer | Coupon (%) | Nominal volume | Issue date | Maturity date |
| Bayer U.S. Finance II LLC, U.S.A. | ||||
| 3.5 | US$1,250 million | Jun 25, 2018 | Jun 25, 2021 | |
| 3 month USD LIBOR + 0.63 | US$1,250 million | Jun 25, 2018 | Jun 25, 2021 | |
| 3.875 | US$2,250 million | Jun 25, 2018 | Dec 15, 2023 | |
| 3 month USD LIBOR + 1.01 | US$1,250 million | Jun 25, 2018 | Dec 15, 2023 | |
| 4.25 | US$2,500 million | Jun 25, 2018 | Dec 15, 2025 | |
| 4.375 | US$3,500 million | Jun 25, 2018 | Dec 15, 2028 | |
| 4.625 | US$1,000 million | Jun 25, 2018 | Jun 25, 2038 | |
| 4.875 | US$2,000 million | Jun 25, 2018 | Jun 25, 2048 | |
| Bayer Capital Corporation B.V., Netherlands | ||||
| 3 month EURIBOR + 0.55 | €750 million | Jun 26, 2018 | Jun 26, 2022 | |
| 0.625 | €1,000 million | Jun 26, 2018 | Dec 15, 2022 | |
| 1.5 | €1,750 million | Jun 26, 2018 | Jun 26, 2026 | |
| 2.125 | €1,500 million | Jun 26, 2018 | Dec 15, 2029 | |
As part of the acquisition, bonds with a nominal volume of US$6.9 billion were taken
over from Monsanto.
On May 2, Bayer increased its interest in the joint venture Bayer Zydus Pharma Private
Limited, Thane, India, from 50% to 75% plus one share. A purchase price of €28 million
was agreed. Bayer is obligated to purchase the remaining 25% minus one share of Bayer
Zydus Pharma by 2021 and has recognized a liability of €9 million in connection with
this obligation. As a result, the accounting method used for this business changed
from the equity method to full consolidation, with 100% of the shares of Bayer Zydus
Pharma being consolidated. Remeasurement of the shares previously accounted for using
the equity method resulted in an amount of €18 million. The gain of €15 million resulting
from the derecognition of the shares previously accounted for using the equity method
was recognized in the financial result. The purchase price pertained mainly to goodwill
that in turn was based primarily on a control premium. Bayer Zydus Pharma is active
in core segments of the Indian pharmaceutical market and focuses on women's health,
diagnostic imaging, cardiovascular disease, diabetes treatment and oncology. This
acquisition increases Bayer's presence in the Indian pharmaceutical market.
The effects of these transactions on the Group's assets and liabilities are shown
in the table. Net of acquired cash and cash equivalents, they resulted in the following
cash outflow:
B 20
Acquired Assets, Assumed Liabilities and Adjustments
(Fair Values at the Respective Acquisition Dates)
| € million | H1 2018 | of which Monsanto | of which Zydus |
| Goodwill | 23,046 | 22,998 | 48 |
| Patents and technologies | 17,350 | 17,350 | - |
| Trademarks | 4,195 | 4,195 | - |
| Marketing and distribution rights | 821 | 821 | - |
| R&D projects | 4,300 | 4,300 | - |
| Other rights | 394 | 394 | - |
| Property, plant and equipment | 6,293 | 6,293 | - |
| Investments accounted for using the equity method | 52 | 52 | - |
| Other financial assets | 253 | 250 | 3 |
| Inventories | 4,885 | 4,882 | 3 |
| Receivables | 7,203 | 7,201 | 2 |
| Other assets | 27 | 27 | - |
| Cash and cash equivalents | 2,659 | 2,657 | 2 |
| Deferred tax assets | 1,550 | 1,548 | 2 |
| Provisions for pensions and other post-employment benefits | (367) | (367) | - |
| Other provisions | (1,530) | (1,529) | (1) |
| Refund liabilities | (3,322) | (3,321) | (1) |
| Financial liabilities | (8,657) | (8,656) | (1) |
| Other liabilities | (2,872) | (2,870) | (2) |
| Deferred tax liabilities | (8,019) | (8,019) | - |
| Net assets | 48,261 | 48,206 | 55 |
| Changes in noncontrolling interest | (177) | (177) | - |
| Remeasurement of previously held equity interest and net assets | (18) | - | (18) |
| Consideration transferred | 48,066 | 48,029 | 37 |
| Acquired cash and cash equivalents | (2,659) | (2,657) | (2) |
| Noncash components | (91) | (82) | (9) |
| Net cash outflow for acquisitions | 45,316 | 45,290 | 26 |
The fair value of the acquired receivables in the amount of €7.2 billion primarily
comprises trade accounts receivable. As of the date of the acquisition, the gross
amount of the contractual receivables amounted to €7.7 billion, with €0.4 billion
of this figure assessed as irrecoverable.
If the aforementioned acquisitions had already been made as of January 1, 2018, the
Bayer Group would have had total sales of €25,321 million. Income after income taxes
would have been €2,712 million, and earnings per share €2.85. This takes into account
significant effects relating to financing costs and purchase price allocations for
the half year. In particular, the remeasurement of inventories at fair value and their
subsequent utilization as well as planned amortization had a negative impact. In addition,
no adjustment for special items is included.
Divestments and discontinued operations
Bayer ceded de facto control of Covestro and deconsolidated the company at the end
of September 2017. As of the loss of control, Covestro fulfills the conditions for
presentation as a discontinued operation. In connection with the sale of Covestro
AG shares in 2017, Bayer AG entered into derivative contracts. These resulted in Bayer
AG retaining economic exposure to the price of Covestro AG shares until the second
quarter of 2018. In the second quarter of 2018, Bayer recognized an after-tax loss
of €8 million from these contracts:
B 21
Income Statements for Discontinued Operations
| Covestro | Covestro | Diabetes Care | Diabetes Care | Total | Total | |
| € million | Q2 2017 | Q2 2018 | Q2 2017 | Q2 2018 | Q2 2017 | Q2 2018 |
| Net sales | 3,479 | - | 184 | - | 3,663 | - |
| Cost of goods sold | (2,336) | - | (7) | - | (2,343) | - |
| Gross profit | 1,143 | - | 177 | - | 1,320 | - |
| Selling expenses | (344) | - | (1) | - | (345) | - |
| Research and development expenses | (68) | - | - | - | (68) | - |
| General administration expenses | (115) | - | (3) | - | (118) | - |
| Other operating income / expenses | 72 | (2) | - | - | 72 | (2) |
| EBIT1 | 688 | (2) | 173 | - | 861 | (2) |
| Financial result | (36) | - | - | - | (36) | - |
| Income before income taxes | 652 | (2) | 173 | - | 825 | (2) |
| Income taxes | (159) | (6) | (25) | - | (184) | (6) |
| Income after income taxes | 493 | (8) | 148 | - | 641 | (8) |
| of which attributable to noncontrolling interest | 251 | - |
- |
- |
251 | - |
| of which attributable to Bayer AG stockholders (net income) | 242 | (8) | 148 | - | 390 | (8) |
Income from discontinued operations in the first half of 2018 was as follows:
B 22
Income Statements for Discontinued Operations
| Covestro | Covestro | Diabetes Care | Diabetes Care | Total | Total | |
| € million | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 |
| Net sales | 7,043 | - | 312 | - | 7,355 | - |
| Cost of goods sold | (4,694) | - | (14) | - | (4,708) | - |
| Gross profit | 2,349 | - | 298 | - | 2,647 | - |
| Selling expenses | (690) | - | (2) | - | (692) | - |
| Research and development expenses | (132) | - | - | - | (132) | - |
| General administration expenses | (227) | - | (5) | - | (232) | - |
| Other operating income / expenses | 77 | 8 | 5 | - | 82 | 8 |
| EBIT1 | 1,377 | 8 | 296 | - | 1,673 | 8 |
| Financial result | (89) | - | - | - | (89) | - |
| Income before income taxes | 1,288 | 8 | 296 | - | 1,584 | 8 |
| Income taxes | (330) | (8) | (49) | - | (379) | (8) |
| Income after income taxes | 958 | 0 | 247 | - | 1,205 | 0 |
| of which attributable to noncontrolling interest | 441 | 0 | - | - | 441 | 0 |
| of which attributable to Bayer AG stockholders (net income) | 517 | 0 | 247 | - | 764 | 0 |
In the second quarter of 2018, the discontinued operations affected the Bayer Group
statement of cash flows as follows:
B 23
Statements of Cash Flows for Discontinued Operations
| Covestro | Covestro | Diabetes Care | Diabetes Care | Total | Total | |
| € million | Q2 2017 | Q2 2018 | Q2 2017 | Q2 2018 | Q2 2017 | Q2 2018 |
| Net cash provided by (used in) operating activities | 415 | - |
(3) | 412 | - | |
| Net cash provided by (used in) investing activities | (275) | - |
- | - | (275) | - |
| Net cash provided by (used in) financing activities | (116) | - |
3 | - | (113) | - |
| Change in cash and cash equivalents | 24 | - |
- | - | 24 | - |
The effect of discontinued operations on the statements of cash flows in the first
half of 2018 was as follows:
B 24
Statements of Cash Flows for Discontinued Operations
| Covestro |
Covestro | Diabetes Care | Diabetes Care | Total | Total | |
| € million | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 |
| Net cash provided by (used in) operating activities | 690 | - | 12 | - | 702 | - |
| Net cash provided by (used in) investing activities | (387) | - | - | - | (387) | - |
| Net cash provided by (used in) financing activities | (117) | - | (12) | - | (129) | - |
| Change in cash and cash equivalents | 186 | - | - | - | 186 | - |
As no cash was assigned to the discontinued operation Diabetes Care, the balance of
the cash provided is deducted again in financing activities.
Assets held for sale
In connection with the acquisition of Monsanto, Bayer signed an agreement with BASF
on October 13, 2017, concerning the sale of selected Crop Science businesses. The
businesses to be sold comprised Bayer's global glufosinate ammonium business and the
related LibertyLink™ technology for herbicide tolerance and a substantial part of
the field crop seed business, including the related research and development capabilities.
The seeds business to be divested included the global cotton seed business (excluding
India and South Africa), the North American and European canola seed business, and
the soybean seed business.
In this connection, Bayer signed a further agreement with BASF on April 23, 2018,
comprising its entire vegetable seeds business, its R&D platform for hybrid wheat,
its remaining canola seed business, three research projects in the area of nonselective
herbicides, its global digital farming business and business activities in the field
of seed treatments.
All of the transactions closed on August 1, 2018, apart from the divestment of the
vegetable seed business, which closed on August 16, 2018. The total base purchase
price of €7.6 billion before tax is subject to purchase price adjustments typical
for such transactions.
In accordance with the conditions imposed by antitrust authorities, the divestment
of Crop Science businesses to BASF also comprises further significant obligations
by Bayer that will be fulfilled over a number of years subsequent to the date of divestment.
Another one of these conditions is for deliveries under the supply agreement (finished
products and active ingredients) to be made at prices based on the respective variable
costs. The difference between these and customary sales prices will be recognized
as deferred income in the statement of financial position, and this will be dissolved
as the obligations are fulfilled.
On July 27, 2018, Bayer signed an agreement to divest its prescription dermatology
business to LEO Pharma A/S, Ballerup, Denmark. Subject to the satisfaction of customary
closing conditions, the business will be transferred on September 4, 2018, for the
United States and during the second half of 2019 for all other markets. The portfolio
being divested comprises prescription brands including Advantan™, Skinoren™ and Travocort™.
The base purchase price amounts to €58 million for the U.S. business and €555 million
for the rest of the global business and is subject to customary purchase price adjustments.
The assets and liabilities held for sale are presented below:
B 25
Assets and Liabilities Held for Sale
| € million | June 30, 2018 |
| Goodwill | 800 |
| Other intangible assets | 440 |
| Property, plant and equipment | 1,384 |
| Other assets | 456 |
| Deferred taxes | 163 |
| Inventories | 447 |
| Cash and cash equivalents | 30 |
| Assets held for sale | 3,720 |
| Provisions for pensions and other post-employment benefits | 40 |
| Other provisions | 467 |
| Other liabilities | 107 |
| Deferred taxes | 55 |
| Liabilities directly related to assets held for sale | 669 |
On June 30, 2018, the Pharmaceuticals segment sold its MK Generics business in Central
America and the Caribbean to Tecnoquímicas S.A. The divested business includes the
Bonima production plant in El Salvador. The base purchase price was €44 million.
Financial instruments
The following table shows the carrying amounts and fair values of financial assets
and liabilities by category of financial instrument under IFRS 9 and a reconciliation
to the corresponding line items in the statements of financial position. Since the
line items "Trade accounts receivable," "Other receivables" and "Other liabilities"
contain both financial instruments and nonfinancial assets or liabilities (such as
other tax receivables or advance payments for services to be received in the future),
the reconciliation is shown in the column headed "Nonfinancial assets / liabilities."
The transition effects from the reclassification and remeasurement of financial assets
upon the first-time application of IFRS 9 are detailed in the section "Financial reporting
standards applied for the first time in 2018."
B 26
Carrying Amounts and Fair Values of Financial Instruments
| June 30, 2018 | ||||||
| Carried at amortized cost | Carried at fair value [Fair value for information1 ] | Nonfinancial assets / liabilities | ||||
| Based on quoted prices in active markets (Level 1) | Based on observable market data (Level 2) | Based on unobservable inputs (Level 3) | ||||
| € million | Carrying amount |
Carrying amount |
Carrying amount |
Carrying amount |
Carrying amount |
Carrying amount in the statement of financial position |
| Trade accounts receivable | 14,048 | 206 | 14,254 | |||
| Carried at amortized cost | 14,048 | 14,048 | ||||
| Nonfinancial assets | 206 | 206 | ||||
| Other financial assets | 153 | 2,458 | 696 | 1,064 | 4,371 | |
| Carried at amortized cost | 153 | [153] | 153 | |||
| Carried at fair value through profit or loss | 2,165 | 137 | 857 | 3,159 | ||
| Carried at fair value through OCI (no recycling) | 292 | 186 | 478 | |||
| Derivatives | 1 | 559 | 21 | 581 | ||
| Other receivables | 429 | 53 | 1,901 | 2,383 | ||
| Carried at amortized cost | 429 | [429] | 429 | |||
| Carried at fair value through profit or loss | 53 | 53 | ||||
| Nonfinancial assets | 1,901 | 1,901 | ||||
| Cash and cash equivalents | 4,981 | 4,981 | ||||
| Carried at amortized cost | 4,981 | [4,981] | 4,981 | |||
| Total financial assets | 19,611 | 2,458 | 696 | 1,117 | 23,882 | |
| of which carried at amortized cost | 19,611 | 19,611 | ||||
| of which carried at fair value through profit or loss | 2,165 | 137 | 910 | 3,212 | ||
| Financial liabilities | 50,791 | 1,137 | 201 | 52,129 | ||
| Carried at amortized cost | 50,791 | [31,141] | [22,857] | 50,791 | ||
| Carried at fair value through profit or loss (nonderivative) | 1,137 | 1,137 | ||||
| Derivatives | 201 | 201 | ||||
| Trade accounts payable | 4,861 | 4,861 | ||||
| Carried at amortized cost | 4,861 | 4,861 | ||||
| Other liabilities | 1,384 | 3 | 234 | 15 | 974 | 2,610 |
| Carried at amortized cost | 1,384 | [1,384] | 1,384 | |||
| Carried at fair value through profit or loss (nonderivative) | 15 | 15 | ||||
| Derivatives | 3 | 234 | 237 | |||
| Nonfinancial liabilities | 974 | 974 | ||||
| Total financial liabilities | 57,036 | 1,140 | 435 | 15 | 58,626 | |
| of which carried at amortized cost | 57,036 | 57,036 | ||||
| of which carried at fair value through profit or loss (nonderivative) | 1,137 | 15 | 1,152 | |||
| of which derivatives | 3 | 435 | 438 | |||
The category "measured at amortized cost" within other financial assets and in financial
liabilities also includes receivables and liabilities under finance leases in which
Bayer is the lessor or lessee and which are therefore measured in accordance with
IAS 17.
Due to the short maturities of most trade accounts receivable and payable, other receivables
and liabilities, and cash and cash equivalents, their carrying amounts at the closing
date do not significantly differ from the fair values.
The fair values of financial assets and liabilities measured at amortized cost that
are given for information are the present values of the respective future cash flows.
The present values are determined by discounting the cash flows at a closing-date
interest rate, taking into account the term of the assets or liabilities and the creditworthiness
of the counterparty. Where a market price is available, however, this is deemed to
be the fair value.
The fair values of financial assets measured at fair value correspond to quoted prices
in active markets (Level 1), or are determined using valuation techniques based on
observable market data as of the end of the reporting period (Level 2) or are the
present values of the respective future cash flows, determined on the basis of unobservable
inputs (Level 3).
The fair values of derivatives for which no publicly quoted prices exist in active
markets (Level 1) are determined using valuation techniques based on observable market
data as of the end of the reporting period (Level 2). In applying valuation techniques,
credit value adjustments are determined to allow for the contracting party's credit
risk.
Currency and commodity forward contracts are measured individually at their forward
rates or forward prices on the closing date. These depend on spot rates or prices,
including time spreads. The fair values of interest-rate hedging instruments and cross-currency
interest-rate swaps were determined by discounting future cash flows over the remaining
terms of the instruments at market rates of interest, taking into account any foreign
currency translation as of the closing date.
Fair values measured using unobservable inputs are categorized within Level 3 of the
fair value hierarchy. This applies to certain debt or equity instruments, in some
cases to the fair values of embedded derivatives, and to obligations for contingent
consideration in business combinations. Credit risk is frequently the principal unobservable
input used to determine the fair values of debt instruments classified as measured
at fair value by the discounted cash flow method. Here the credit spreads of comparable
issuers are applied. A significant increase in credit risk could result in a lower
fair value, whereas a significant decrease could result in a higher fair value. However,
a relative change of 10% in the credit spread does not materially affect the fair
value.
Embedded derivatives are separated from their respective host contracts, provided
these are not financial instruments. Such host contracts are generally sale or purchase
agreements relating to the operational business. The embedded derivatives cause the
cash flows from the contracts to vary with exchange-rate or price fluctuations. The
internal measurement of embedded derivatives is mainly performed using the discounted
cash flow method, which is based on unobservable inputs. These include planned sales
and purchase volumes, and prices derived from market data. Regular monitoring is carried
out based on these fair values as part of quarterly reporting.
The financial liabilities arising from the debt instruments (exchangeable bond) issued
in June 2017 that can be converted into Covestro shares are measured at fair value
through profit or loss. This exchangeable bond is a hybrid financial instrument containing
a debt instrument as a nonderivative host contract and multiple embedded derivatives.
The changes in the amount of financial assets and liabilities recognized at fair value
based on unobservable inputs (Level 3) for each financial instrument category were
as follows:
B 27
Development of Financial Assets and Liabilities (Level 3)
| 2018 | 2018 | 2018 | 2018 | 2018 | |
| € million | Financial assets at fair value through profit or loss | Financial assets at fair value through OCI (no recycling) | Derivatives (net) |
Liabilities carried at fair value (nonderivative) | Total |
| Carrying amounts of net assets (net liabilities), January 1 | 821 | 68 | 10 | (7) | 892 |
| Gains (losses) recognized in profit or loss | 8 | - |
(6) | - |
2 |
| of which related to assets/ liabilities recognized in the statements of financial position | 8 | - |
(6) | - |
2 |
| Gains (losses) recognized outside profit or loss | - | (1) | - | - | (1) |
| Additions of assets (liabilities) | 81 | 130 | 17 | (10) | 218 |
| Settlements of (assets) liabilities | - | (1) | - | 1 | - |
| Transfers (IFRS 5) | (6) | 1 | (5) | ||
| Disposals from divestments/ changes in scope of consolidation | - | (4) | - | - | (4) |
| Carrying amounts of net assets (net liabilities), June 30 | 910 | 186 | 21 | (15) | 1,102 |
The changes recognized in profit or loss were included in other operating income /
expenses, as well as in the financial result in interest income and in other financial
income and expenses.
The following table shows the carrying amounts and fair values of financial assets
and liabilities by category of financial instrument as of December 31, 2017, under
IAS 39.
B 28
Carrying Amounts and Fair Values of Financial Instruments
| Carried at amortized cost | Carried at fair value [Fair value for information1 ] | Nonfinancial assets / liabilities | Dec. 31, 2017 | |||
| Based on quoted prices in active markets (Level 1) | Based on observable market data (Level 2) | Based on unobservable inputs (Level 3) | ||||
| € million | Carrying amount |
Carrying amount |
Carrying amount |
Carrying amount |
Carrying amount |
Carrying amount in the statement of financial position |
| Trade accounts receivable | 8,582 | 8,582 | ||||
| Loans and receivables | 8,582 | 8,582 | ||||
| Other financial assets | 1,823 | 452 | 2,085 | 803 | 5,163 | |
| Loans and receivables | 1,731 | [1.731] | 1,731 | |||
| Available-for-sale financial assets | 35 | 448 | 1,452 | 793 | 2,728 | |
| Held-to-maturity financial assets | 57 | [58] | 57 | |||
| Derivatives | 4 | 633 | 10 | 647 | ||
| Other receivables | 380 | 46 | 1,250 | 1,676 | ||
| Loans and receivables | 380 | [380] | 380 | |||
| Available-for-sale financial assets | 46 | 46 | ||||
| Nonfinancial assets | 1,250 | 1,250 | ||||
| Cash and cash equivalents | 7,581 | 7,581 | ||||
| Loans and receivables | 7,581 | [7.581] | 7,581 | |||
| Total financial assets | 18,366 | 452 | 2,085 | 849 | 21,752 | |
| of which loans and receivables | 18,274 | 18,274 | ||||
| of which available-for-sale financial assets | 35 | 448 | 1,452 | 839 | 2,774 | |
| Financial liabilities | 12,958 | 1,220 | 240 | 14,418 | ||
| Carried at amortized cost | 12,958 | [11.327] | [2.183] | 12,958 | ||
| Carried at fair value (nonderivative) | 1,220 | 1,220 | ||||
| Derivatives | 240 | 240 | ||||
| Trade accounts payable | 4,568 | 561 | 5,129 | |||
| Carried at amortized cost | 4,568 | 4,568 | ||||
| Nonfinancial liabilities | 561 | 561 | ||||
| Other liabilities | 681 | 2 | 319 | 7 | 1,759 | 2,768 |
| Carried at amortized cost | 681 | [681] | 681 | |||
| Carried at fair value (nonderivative) | 7 | 7 | ||||
| Derivatives | 2 | 319 | 321 | |||
| Nonfinancial liabilities | 1,759 | 1,759 | ||||
| Total financial liabilities | 18,207 | 1,222 | 559 | 7 | 19,995 | |
| of which carried at amortized cost | 18,207 | 18,207 | ||||
| of which derivatives | 2 | 559 | 561 | |||
The following table shows the changes in the amounts of financial assets and liabilities
recognized at fair value based on unobservable inputs (Level 3) for each financial
instrument category for the comparative period under IAS 39:
B 29
Development of Financial Assets and Liabilities (Level 3)
| 2017 | 2017 | 2017 | 2017 | |
| € million | Available-for-sale financial assets | Derivatives (net) |
Liabilities carried at fair value (nonderivative) | Total |
| Carrying amounts of net assets (net liabilities), January 1 | 851 | (8) | (8) | 835 |
| Gains (losses) recognized in profit or loss | 8 | 14 | - | 22 |
| of which related to assets/ liabilities recognized in the statements of financial position | 8 | 14 | - | 22 |
| Gains (losses) recognized outside profit or loss | (20) | - | - | (20) |
| Additions of assets (liabilities) | 4 | - | - | 4 |
| Settlements of (assets) liabilities | - | - | - | - |
| Carrying amounts of net assets (net liabilities), June 30 | 843 | 6 | (8) | 841 |
Interest held in Covestro reduced to 6.8%
In the first quarter, Bayer sold 21.0 million shares of Covestro AG to institutional
investors at a price of €86.25 per share. A further 28.81 million shares of Covestro
AG were sold to institutional investors in the second quarter at a price of €75.50
per share. In addition, 13.79 million shares of Covestro AG were acquired from Bayer
Pension Trust e.V., which no longer holds any Covestro shares. Bayer AG thus now holds
only a 6.8% interest in Covestro to service the exchangeable bond issued in 2017 that
matures in 2020.
Until May 2018, the interest in Covestro was accounted for in the Bayer Group consolidated
financial statements as an associate using the equity method. The aforementioned share
disposals led to the loss of significant influence on the financial and business policy
decisions of Covestro. This in turn resulted in a change in the accounting method.
Since May 2018, Bayer has reported the Covestro interest as an equity instrument.
In this connection, Bayer exercised the option of recognizing future changes in its
fair value through profit or loss.
Contingent liabilities and other financial commitments
The Group's contingent liabilities amounted to €907 million as of June 30, 2018, and
mainly comprised pending legal cases in a number of countries. There were also other
financial commitments of €9,487 million. Compared with December 31, 2017, the decline
in other financial commitments was predominantly attributable to the successful closing
of the acquisition of the Monsanto Company, St. Louis, Missouri, United States.
Legal Risks
To find out more about the Bayer Group's legal risks, please see Note 32 to the consolidated
financial statements in the Bayer Annual Report 2017, which can be downloaded free
of charge at www.bayer.com. Since the Bayer Annual Report 2017, the following significant
changes have occurred in respect of the legal risks:
Product-related litigation
Mirena™: As of August 17, 2018, lawsuits from approximately 2,700 users of Mirena™,
an intrauterine system providing long-term contraception, had been served upon Bayer
in the United States. Plaintiffs allege personal injuries resulting from the use of
Mirena™, including perforation of the uterus, ectopic pregnancy or idiopathic intracranial
hypertension, and seek compensatory and punitive damages. Additional lawsuits are
anticipated. As of August 17, 2018, lawsuits from approximately 600 users of Mirena™
alleging idiopathic intracranial hypertension had been served upon Bayer in the United
States.
In April 2018, the Master Settlement Agreement regarding the global settlement of
the perforation cases for a total amount of US$12.2 million was executed. Bayer may
withdraw from the agreement if fewer than 98% of those who are eligible choose to
participate. As of August 17, 2018, a total of approximately 4,600 cases would be
included in the settlement.
Xarelto™: As of August 17, 2018, U.S. lawsuits from approximately 24,300 recipients
of Xarelto™, an oral anticoagulant for the treatment and prevention of blood clots,
had been served upon Bayer. Plaintiffs allege that users have suffered personal injuries
from the use of Xarelto™, including cerebral, gastrointestinal or other bleeding and
death, and seek compensatory and punitive damages. Additional lawsuits are anticipated.
Essure™: As of August 17, 2018, U.S. lawsuits from approximately 17,000 users of Essure™,
a medical device offering permanent birth control with a nonsurgical procedure, had
been served upon Bayer. Plaintiffs allege personal injuries from the use of Essure™,
including hysterectomy, perforation, pain, bleeding, weight gain, nickel sensitivity,
depression and unwanted pregnancy, and seek compensatory and punitive damages. Additional
lawsuits are anticipated.
Class actions over neonicotinoids in Canada: In February 2018, a court in Quebec certified
a class proposed by plaintiffs. Plaintiffs are honey producers in Quebec claiming
damages and punitive damages and alleging Bayer and another crop protection company
were negligent in the design, development, marketing and sale of neonicotinoid pesticides.
Patent disputes
Betaferon™ / Betaseron™: Since 2010, Bayer and Biogen Idec MA Inc. have been engaged
in a dispute in the United States about the validity of a patent issued to Biogen
and whether Bayer's production and distribution of Betaseron™ would infringe such
patent. Betaseron™ is Bayer's drug product for the treatment of multiple sclerosis.
In February 2018, a jury decided that Biogen's patent is invalid at the end of a trial
regarding Biogen's claims against EMD Serono, Inc. and Pfizer Inc. for infringement
of the same patent. Biogen has challenged the jury's verdict. Unless the jury's verdict
is overturned, Biogen cannot assert its claims against Bayer.
Xarelto™: In 2015, Bayer and Janssen Pharmaceuticals filed a patent infringement lawsuit
in a U.S. federal court against Mylan Pharmaceuticals Inc. ("Mylan"), Prinston Pharmaceutical
Inc. ("Prinston"), Sigmapharm Laboratories, LLC ("Sigmapharm") and further defendants.
Bayer had received notices of an ANDA IV application by Mylan, Sigmapharm and the
other defendants, each seeking approval to market a generic version of Xarelto™, an
oral anticoagulant for the treatment and prevention of blood clots, in the United
States. In July 2018, the court ordered that Bayer's compound patent protection for
Xarelto™ until 2024 is valid and that the patent is infringed. Prinston appealed.
Mylan and Sigmapharm did not appeal. The other defendants may still appeal.
Further Legal Proceedings
Newark Bay Environmental Matters: In the United States, Bayer is one of numerous parties
involved in a series of claims brought by federal and state environmental protection
agencies. In the Lower Passaic River matter, a group of more than sixty companies
including Bayer is investigating contaminated sediments in the riverbed under the
supervision of the United States Environmental Protection Agency (EPA) and other governmental
authorities. Future remediation will involve some form of dredging, the nature and
scope of which are not yet defined, and potentially other tasks. The cost of the investigation
and the remediation work may be substantial if the final remedy involves extensive
dredging and disposal of impacted sediments. In July 2018, Occidental Chemical Company,
one of parties potentially liable for cleanup costs in the Lower Passaic River, filed
a lawsuit in New Jersey federal court seeking contribution and cost recovery from
dozens of other potentially responsible parties, including a Bayer subsidiary, for
past and future cleanup costs. Bayer is currently unable to determine the extent of
its liability in this matter.
Monsanto Legal Risks
In June 2018, Bayer became the sole shareholder of Monsanto Company, St. Louis, USA
("Monsanto"). However, the US Department of Justice ordered Bayer to hold Monsanto
separately until certain divestitures required for antitrust clearance were completed.
Therefore, the exchange of information on Monsanto's legal risks prior to the approval
of this semi-annual report by the Bayer Board of Management was limited until August
16, 2018. Based on the information available to Bayer on August 30, 2018, Bayer considers
the following legal proceedings of Monsanto to involve risks that are material for
the Bayer Group. The legal proceedings referred to do not represent an exhaustive
list.
PCB: Monsanto has been named in lawsuits brought by various governmental entities
in the United States claiming that Monsanto, Pharmacia and Solutia, collectively as
a manufacturer of PCBs, should be responsible for a variety of damages due to PCBs
in bodies of water, regardless of how PCBs came to be located there. PCBs are man-made
chemicals that were widely used for various purposes until prohibited by the Environmental
Protection Agency (EPA) in the United States in 1979. We believe that we have meritorious
defenses and intend to defend ourselves vigorously.
Roundup™ (Glyphosate): As of August 27, 2018, lawsuits from approximately 8,700 plaintiffs
claiming to have been exposed to glyphosate-based products manufactured by Monsanto
had been served upon Monsanto in the United States. Glyphosate is the active ingredient
contained in certain of Monsanto's herbicides, including Roundup™-branded products.
Plaintiffs allege personal injuries resulting from exposure to those products, including
non-Hodgkin lymphoma (NHL) and multiple myeloma, and seek compensatory and punitive
damages. Plaintiffs claim, inter alia, that Monsanto's glyphosate-based herbicide
products are defective and that Monsanto knew, or should have known, of the risks
associated with such products and failed to adequately warn its users. Additional
lawsuits are anticipated. The majority of plaintiffs have brought actions in state
courts in Missouri, Delaware and California, while the remainder of plaintiffs' cases
were filed in many different federal courts. In 2016, the Judicial Panel on Multi-District
Litigation transferred to the Northern District of California all of the federal cases
for pretrial purposes. In August 2018, a state court jury in San Francisco, California,
awarded USD 39 million in compensatory and USD 250 million in punitive damages to
a plaintiff who claimed that a Monsanto product caused his NHL. We disagree with the
verdict and intend to seek trial court review and appeal, if necessary. In view of
more than 800 scientific studies - including an independent study which followed more
than 50,000 licensed pesticide applicators and farm workers and their spouses for
more than 20 years - and regulatory authorities all over the world confirming that
glyphosate does not cause cancer and is safe for use when used according to label
instructions, we continue to believe that we have meritorious defenses and intend
to defend ourselves vigorously in all of these lawsuits.
In connection with the above-mentioned Monsanto proceedings, Monsanto is insured against
statutory product liability claims against Monsanto to the extent customary in the
respective industries and has, based on the information currently available, taken
appropriate accounting measures for anticipated defense costs.
Notes to the Statements of Cash Flows
Operating cash flows were reduced by the payout of the Monsanto stock options in the
amount of €352 million. There was an outflow of €45,290 million for the acquisition
of Monsanto, net of €2,657 million in cash from Monsanto. The sale of further Covestro
shares resulted in a net cash inflow of €1,107 million. The issue of bonds and further
net borrowings resulted in an inflow of €29,151 million, and capital increases in
a net inflow of €8,986 million. In addition, there was an outflow of €2,403 million
for dividend payments.
Related parties
Related parties as defined in IAS 24 (Related Party Disclosures) are those legal entities
and natural persons that are able to exert influence on Bayer AG and its subsidiaries
or over which Bayer AG or its subsidiaries exercise control or joint control or have
a significant influence. They include, in particular, nonconsolidated subsidiaries,
joint ventures and associates included in the consolidated financial statements at
cost of acquisition or using the equity method, post-employment benefit plans and
the corporate officers of Bayer AG.
Sales to related parties were not material from the viewpoint of the Bayer Group.
As was the case on December 31, 2017, liabilities to joint ventures amounted to €0.2
billion, and primarily pertained to the joint venture Casebia Therapeutics Limited
Liability Partnership, Ascot, United Kingdom, which was established together with
CRISPR Therapeutics AG, Basel, Switzerland.
In May 2018, Bayer AG acquired a 6.8% interest in Covestro from Bayer Pension Trust
at market value for a total amount of €1.1 billion to repay the exchangeable bond
that matures in 2020.
Covestro ceased to be recognized as an associate in May 2018. In this connection,
receivables from associates declined by €0.1 billion to €0.0 billion
Other information
On May 25, 2018, the Annual Stockholders' Meeting approved the proposal by the Board
of Management and the Supervisory Board that a dividend of €2.80 per share be paid
for the 2017 fiscal year.
The actions of the members of the Board of Management and the Supervisory Board in
office in 2017 were ratified in accordance with the proposals by the Board of Management
and the Supervisory Board.
One stockholder representative was elected to the Supervisory Board in accordance
with the nomination submitted by the Supervisory Board.
In accordance with the proposal by the Supervisory Board, Deloitte GmbH Wirtschaftsprüfungsgesellschaft,
Munich, was elected auditor of the financial statements of Bayer AG and the consolidated
financial statements of the Bayer Group for the fiscal year 2018 and to review the
condensed consolidated interim financial statements and interim management reports
as of June 30, 2018, September 30, 2018, and March 31, 2019.
Events After the End of the Reporting Period
Bayer signed an agreement on July 27, 2018, to divest the Consumer Health prescription
dermatology business to LEO Pharma A/S, Ballerup, Denmark. The business will be transferred
in two steps: on September 4, 2018, for the United States, and during the second half
of 2019 for all other markets, subject to the satisfaction of customary closing conditions.
The portfolio being divested comprises prescription brands including Advantan™, Skinoren™
and Travocort™. The purchase price amounts to €58 million for the U.S. business and
€555 million for the rest of the global business, and is subject to customary purchase
price adjustments.
In connection with the acquisition of Monsanto, Bayer had concluded an agreement with
BASF concerning the divestment of selected Crop Science businesses. All of the transactions
closed on August 1, 2018, apart from the divestment of the vegetable seed business,
which closed on August 16, 2018. The total purchase price of €7.6 billion is subject
to customary purchase price adjustments.
Repayment of financial liabilities
The syndicated credit facility drawn in June 2018 as bridge financing for the acquisition
of Monsanto was reduced by a further US$7.9 billion in July and August 2018, mainly
with the proceeds from the divestment of Crop Science businesses to BASF.
Leverkusen, August 30, 2018
Bayer Aktiengesellschaft
The Board of Management
| Werner Baumann | ||
| Liam Condon | Dr. Hartmut Klusik | Kemal Malik |
| Wolfgang Nickl | Heiko Schipper | Dieter Weinand |
Responsibility Statement
To the best of our knowledge, and in accordance with the applicable reporting principles
for interim financial reporting, the interim consolidated financial statements give
a true and fair view of the assets, liabilities, financial position and profit or
loss of the Bayer Group, and the interim management report includes a fair review
of the development and performance of the business and the position of the Bayer Group,
together with a description of the principal opportunities and risks associated with
the expected development of the Bayer Group for the remaining months of the financial
year.
Leverkusen, August 30, 2018
Bayer Aktiengesellschaft
The Board of Management
| Werner Baumann | ||
| Liam Condon | Dr. Hartmut Klusik | Kemal Malik |
| Wolfgang Nickl | Heiko Schipper | Dieter Weinand |
Review Report
To Bayer Aktiengesellschaft, Leverkusen / Germany
We have reviewed the condensed interim consolidated financial statements - comprising
the income statement and the statement of comprehensive income, the statement of financial
position, the statement of cash flows, the condensed statement of changes in equity
as well as selected explanatory notes to the financial statements - and the interim
group management report for the period from 1 January until 30 June 2018 of Bayer
Aktiengesellschaft, Leverkusen, that are part of the half-year financial report under
§ 115 WpHG (Wertpapierhandelsgesetz: German Securities Trading Act). The preparation
of the condensed interim consolidated financial statements in accordance with the
International Financial Reporting Standards (IFRS) applicable to interim financial
reporting as adopted by the EU and of the interim group management report in accordance
with the requirements of the WpHG applicable to interim group management reports is
the responsibility of the entity's Management Board. Our responsibility is to issue
a report on the condensed interim consolidated financial statements and on the interim
group management report based on our review.
We conducted our review of the interim consolidated financial statements and of the
interim group management report in accordance with the German generally accepted standards
for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer
(Institute of Public Auditors in Germany) as well as in supplementary compliance with
the International Standard on Review Engagements "Review of Interim Financial Information
performed by the Independent Auditor of the Entity" (ISRE 2410). Those standards require
that we plan and perform the review such that we can preclude through critical evaluation,
with a limited level of assurance, that the condensed interim consolidated financial
statements have not been prepared, in all material respects, in accordance with the
IFRS applicable to interim financial reporting as adopted by the EU, or that the interim
group management report has not been prepared, in material respects, in accordance
with the requirements of the WpHG applicable to interim group management reports.
A review is limited primarily to inquiries of personnel of the entity and analytical
assessments and therefore does not provide the assurance attainable in a financial
statement audit. Since, in accordance with our engagement, we have not performed a
financial statement audit, we cannot issue an auditor's report.
Based on our review, no matters have come to our attention that cause us to presume
that the condensed interim consolidated financial statements of Bayer Aktiengesellschaft,
Leverkusen, have not been prepared, in all material respects, in accordance with the
IFRS applicable to interim financial reporting as adopted by the EU, or that the group
management report has not been prepared, in material respects, in accordance with
the requirements of the WpHG applicable to interim group management reports.
Munich, Germany, 31 August 2018
Deloitte GmbH
Wirtschaftsprüfungsgesellschaft
| Heiner Kompenhans | Prof. Dr. Frank Beine |
| Wirtschaftsprüfer | Wirtschaftsprüfer |
| (German Public Auditor) | (German Public Auditor) |