 Bayer AktiengesellschaftLeverkusenHalf-Year Financial Report 2019Half-Year Financial Report2019Bayer on track in operational business
Bayer Group Key Datascroll
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2018 figures restated 1
For definition see Annual Report 2018, A 2.4 "Alternative Performance Measures Used
by the Bayer Group." Interim Group Management Report as of June 30, 2019Key EventsIn May, we announced the conclusion of an agreement to divest the Coppertone™ business
to Beiersdorf AG for a purchase price of US$0.6 billion. The transaction includes
the global product rights to Coppertone™, the transfer of the approximately 450 employees
in the United States, Canada and China, and the production facility in Cleveland,
Ohio, United States. The transaction is expected to close in the third quarter of
2019 subject to the customary closing conditions, including approval by the antitrust
authorities. In June, Bayer announced it would set itself higher standards for transparency, sustainability and communication with all stakeholder groups. We also intend to considerably cut the ecological footprint of our agricultural products and are targeting a 30% reduction in environmental impact by 2030.1 We will invest some €5 billion in additional weed control methods over the next 10 years. Also in June, the Supervisory Board of Bayer AG decided on measures in connection
with the glyphosate litigations. Among them are the establishment of a new Supervisory
Board committee to monitor the current litigations including trial and mediation activities,
consult with the Board of Management and make recommendations on the litigation strategy.
In addition, U.S. lawyer and product liability litigation expert John H. Beisner has
been retained to advise the Supervisory Board on matters related to the glyphosate
litigations on an ongoing basis. On July 1, 2019, the sale of the global prescription dermatology business of Consumer
Health to LEO Pharma A/S, Ballerup, Denmark, was completed following the transfer
of the U.S. business in September 2018. The divested portfolio comprises prescription
brands such as Advantan™, Skinoren™ and Travocort™. A production site in Segrate,
Italy, and 347 employees were also transferred. The base purchase price for the remaining
global business was €0.6 billion and is subject to customary purchase price adjustments.
The divestment gain is provisionally estimated at €0.3 billion. The base purchase
price for the divested business as a whole was therefore approximately €0.6 billion,
with the divestment gain estimated at around €0.4 billion. On July 19, 2019, Bayer entered into an agreement with Yellow Wood Partners, Boston,
United States, regarding the sale of the Dr. Scholl's™ business of Consumer Health
for a purchase price of US$0.6 billion. The transaction is expected to close in the
fourth quarter of 2019 subject to the satisfaction of customary closing conditions,
including approval by antitrust authorities. 1. Overview of Sales, Earnings and Financial Position1.1 Earnings Performance of the Bayer Group2The purchase price allocation for the Monsanto acquisition was finalized in the second
quarter of 2019. The financial information for prior periods has been adjusted accordingly.
Details on the adjustments are given in this report under "Acquisitions in 2018" in
B Notes to the Condensed Consolidated Interim Financial Statements. Second quarter of 2019Group salesGroup sales in the second quarter of 2019 rose by 0.9% (Fx & portfolio adj.) to €11,485
million (reported: + 21.1%). Germany accounted for €933 million of this figure. Crop Science registered a 3.1% (Fx & portfolio adj.) decline in sales to €4,788 million
that resulted primarily from the extreme weather conditions in North America. On a
reported basis, sales of Crop Science climbed by 59.0%, thanks mainly to portfolio
effects of 61.0% (€1,835 million). Pharmaceuticals posted sales growth of 3.9% (Fx
& portfolio adj.) to €4,422 million, with business in China developing especially
positively. Sales of Consumer Health increased by 2.1% (Fx & portfolio adj.) to €1,442
million, due largely to growth in the Latin America and Europe / Middle East / Africa
regions. At Animal Health, sales declined by 2.7% (Fx & portfolio adj.) to €454 million. EBITDA before special itemsGroup EBITDA before special items rose by 24.7% to €2,927 million. Negative currency
effects arising primarily from hedging diminished earnings by €59 million compared
with the previous year. There was a positive effect of approximately €100 million
from IFRS 16, which has been applied since January 1, 2019. Under the new standard,
lease expenses are no longer recognized in operating income. Crop Science posted a
66.9% increase in EBITDA before special items to €1,075 million, mainly due to the
acquired business. EBITDA before special items at Pharmaceuticals rose by 10.1% to
€1,500 million, largely as a result of higher demand. At Consumer Health, EBITDA before
special items increased by 5.5% to €270 million. EBITDA before special items of Animal
Health declined by 3.1% to €124 million. Depreciation and amortizationDepreciation, amortization and impairment losses amounted to €1,560 million in the
second quarter of 2019 (Q2 2018: €685 million). The increase was primarily due to
the acquisition of Monsanto and the related depreciation and amortization of acquired
assets, and to the depreciation of right-of-use assets recognized for the first time
within property, plant and equipment under IFRS 16. Amortization and impairments on
intangible assets were €1,075 million (Q2 2018: €409 million), while depreciation
and impairments on property, plant and equipment amounted to €485 million (Q2 2018:
€275 million). Impairment losses totaled €430 million (Q2 2018: €54 million), including €424 million
(Q2 2018: €52 million) on intangible assets. Of this figure, €421 million pertained
to the agreed divestment of our Dr. Scholl's™ foot care portfolio and partly resulted
from the impairment of the proportionate goodwill to be transferred. EBIT and special itemsEBIT of the Bayer Group fell by 31.2% to €926 million (Q2 2018: €1,346 million) after
net special charges of €859 million (Q2 2018: €362 million). The special charges mainly
comprised the above-mentioned impairment losses in connection with the agreed divestment
of our Dr. Scholl's™ foot care portfolio and €249 million related to the announced
restructuring measures. EBIT before special items increased by 4.5% to €1,785 million
(Q2 2018: €1,708 million). The following special effects were taken into account in calculating EBIT and EBITDA: A 1Special Items by Category1scroll
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2018 figures restated A 2Special Items by Functional Cost1scroll
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2018 figures restated Income after income taxes from discontinued operationsIncome after income taxes from discontinued operations was €0 million (Q2 2018: minus
€8 million). Net incomeIncluding a financial result of minus €477 million (Q2 2018: minus €323 million),
income before income taxes was €449 million (Q2 2018: €1,023 million). The financial
result mainly comprised a net loss of €32 million from investments in affiliated companies
(Q2 2018: net income of €56 million), net interest expense of €372 million (Q2 2018:
€270 million) and interest cost of €87 million (Q2 2018: €42 million) for pension
and other provisions. Reflected in the financial result are net special charges of
€56 million (Q2 2018: €106 million) that resulted mainly from a change in the fair
value of the interest in Covestro. After income tax expense of €44 million (Q2 2018:
€215 million) and adjusted for income attributable to noncontrolling interest, net
income for the second quarter of 2019 amounted to €404 million (Q2 2018: €794 million). Core earnings per shareEarnings per share (total) declined in the second quarter of 2019 to €0.41 (Q2 2018:
€0.87), largely because of the acquisition and integration costs and restructuring
expenses recognized as special items, as well as the acquisition-related increase
in amortization of intangible assets. Core earnings per share from continuing operations
rose by 5.9% to €1.62 (Q2 2018: €1.53). A 3Core Earnings per Share1scroll
2018 figures restated 1
For definition see Annual Report 2018, A 2.4 "Alternative Performance Measures Used
by the Bayer Group." Personnel expenses and employee numbersThe number of employees in the Bayer Group as of the closing date declined year on
year by 6.9% to 115,498 (June 30, 2018: 124,055). The prior-year total included the
employees of the businesses since divested to BASF. Personnel expenses rose by 18.0%
to €3,029 million (Q2 2018: €2,566 million). This was mainly due to the higher average
number of employees as a result of the Monsanto acquisition closing in June of the
previous year. Furthermore, additions to provisions were made in connection with the
announced restructuring measures. First half of 2019Group salesGroup sales in the first half of 2019 rose by 2.4% (Fx & portfolio adj.) to €24,500
million (reported: + 31.6%). Germany accounted for €1,995 million of this figure. Sales of Crop Science advanced by 1.1% (Fx & portfolio adj.) to €11,232 million. On
a reported basis, sales increased by 91.3%, thanks mainly to the portfolio effects
of 89.5% (€5,256 million). Sales of Pharmaceuticals rose by 4.6% (Fx & portfolio adj.)
to €8,776 million. Sales at Consumer Health came in level with the prior-year period
at €2,837 million (Fx & portfolio adj. + 0.4%). Animal Health posted a 1.8% decrease
(Fx & portfolio adj.) in sales to €875 million. EBITDA before special itemsEBITDA before special items of the Bayer Group advanced by 35.7% to €7,115 million
(H1 2018: €5,244 million). Negative currency effects arising primarily from hedging
diminished earnings by €169 million. There was a positive effect of approximately
€190 million from IFRS 16, which has been applied since January 1, 2019. Under the
new standard, lease expenses are no longer recognized in operating income. At Crop
Science, EBITDA before special items increased by 101.5% to €3,397 million. This was
mainly attributable to the earnings contribution from the acquired business. EBITDA
before special items at Pharmaceuticals advanced by 8.4% to €3,012 million. Consumer
Health saw EBITDA before special items decrease by 3.5% to €549 million. At Animal
Health, earnings declined by 1.1% to €264 million. Depreciation and amortizationDepreciation, amortization and impairment losses amounted to €2,748 million in the
first half of 2019 (H1 2018: €1,193 million). The increase was primarily due to the
acquisition of Monsanto and the related depreciation and amortization of acquired
assets and to the depreciation of right-of-use assets that were recognized for the
first time within property, plant and equipment in the first quarter of 2019 under
IFRS 16. This figure comprised €1,781 million (H1 2018: €706 million) in amortization
and impairments on intangible assets and €967 million (H1 2018: €487 million) in depreciation
and impairments on property, plant and equipment. Net impairment losses totaled €429 million (H1 2018: €75 million), including €425
million (H1 2018: €66 million) in impairment losses on intangible assets. Of this
figure, €421 million pertained to the agreed divestment of our Dr. Scholl's™ foot
care portfolio and partly resulted from the impairment of the proportionate goodwill
to be transferred. A total of €418 million (H1 2018: €45 million) in impairment losses
and impairment loss reversals constituted special items. EBIT and special itemsEBIT of the Bayer Group fell by 21.3% to €2,876 million (H1 2018: €3,656 million)
after net special charges of €1,909 million (H1 2018: €440 million). The special charges
mainly comprised €662 million in connection with the acquisition and integration of
Monsanto, including €483 million from the remeasurement of inventories, as well as
€642 million associated with the announced restructuring, and impairments related
to the agreed divestment of our Dr. Scholl's™ foot care portfolio. EBIT before special
items increased by 16.8% to €4,785 million (H1 2018: €4,096 million). Net incomeAfter a financial result of minus €793 million (H1 2018: minus €193 million), income
before income taxes was €2,083 million (H1 2018: €3,463 million). The financial result
comprised income from investments in affiliated companies of €30 million (H1 2018:
€402 million), mainly from the interest in Covestro, along with net interest expense
of €717 million (H1 2018: €362 million), an exchange loss of €8 million (H1 2018:
€78 million) and interest cost of €153 million (H1 2018: €87 million) for pension
and other provisions. The financial result included net special charges of €2 million
(H1 2018: net special gains of €130 million). After tax expense of €442 million (H1
2018: €709 million), income after income taxes was €1,641 million (H1 2018: €2,754
million). After adjusting for income from discontinued operations after income taxes
and income attributable to noncontrolling interest, net income came to €1,645 million
(H1 2018: €2,748 million). Core earnings per shareEarnings per share (total) declined by 44.9% to €1.68 (H1 2018: €3.05), while core
earnings per share from continuing operations advanced by 10.9% to €4.17 (H1 2018:
€3.76). 1.2 Business Development by SegmentCrop ScienceA 4Key Data - Crop Sciencescroll
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2018 figures restated; fx & p adj. = currency- and portfolio-adjusted Second quarter of 2019SalesCrop Science posted sales of €4,788 million in the second quarter of 2019. Sales rose
by 59.0% on a reported basis, thanks mainly to a positive portfolio effect of 61.0%
due to the acquisition of Monsanto (€2,320 million) less the prorated contribution
from the divested businesses in the prior-year period (€484 million). Overall, business
at Crop Science in the second quarter was significantly impacted by extreme weather
conditions. In particular, flooding and heavy rains in the Midwestern United States
and drought in large parts of Europe and in Canada had a negative effect. The ongoing
trade disputes involving the United States also weighed on business. Sales were down
by 3.1% after adjusting for currency and portfolio effects, with the acquired business
only taken into account for the period June 7 to June 30. This decline was mainly
the result of a considerable drop in sales in North America. Significant gains in
Latin America did not offset this effect.
A 5Sales by Strategic Business Entityscroll
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Fx & p adj. = currency- and portfolio-adjusted EarningsEBITDA before special items of Crop Science rose in the second quarter of 2019 by
66.9% to €1,075 million (Q2 2018: €644 million). The increase was largely attributable
to the earnings contribution from the newly acquired business. Earnings were diminished
by the decline in sales, the absence of the earnings contribution from the businesses
divested to BASF, inventory write-downs and a negative currency effect of €26 million. EBIT doubled to €304 million (Q2 2018: €149 million) after net special charges of
€101 million (Q2 2018: €279 million), mainly including a total of €61 million in connection
with the acquisition and integration of Monsanto and the divestments to BASF - of
which €55 million comprised prorated reversals of inventory step-ups - as well as
legal fees in connection with the glyphosate litigations. First half of 2019SalesCrop Science posted sales of €11,232 million in the first half of 2019. Sales climbed
by 91.3% on a reported basis, thanks mainly to a positive portfolio effect of 89.5%
from the acquisition of Monsanto (€6,649 million) less the prorated contribution from
the divested businesses in the prior-year period (€1,393 million). Adjusted for currency
and portfolio effects, business expanded by 1.1%. Sales rose markedly in Latin America
due to demand shifts from the fourth quarter of 2018 and lower sales in the prior-year
period in connection with the normalization of inventories for crop protection products
in Brazil. By contrast, business in North America was down due to the weather conditions. EarningsEBITDA before special items of Crop Science doubled to €3,397 million in the first
half of 2019 (H1 2018: €1,686 million). The increase was largely attributable to the
earnings contribution from the newly acquired business. Earnings were diminished by
the decline in sales, the absence of the earnings contribution from the businesses
divested to BASF, inventory write-downs and a negative currency effect of €93 million. EBIT increased by 24.9% to €1,300 million (H1 2018: €1,041 million) after net special
charges of €719 million (H1 2018: €340 million), mainly including a total of €648
million in connection with the acquisition and integration of Monsanto and the divestments
to BASF - of which €483 million comprised prorated reversals of inventory step-ups
- as well as legal fees in connection with the glyphosate litigations. A 6Special Items1 Crop Sciencescroll
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Pro-forma sales by strategic business entityDue to the scope of the acquired activities and the seasonality of the business, we
are presenting sales by strategic business entity on a pro-forma basis in order to
more transparently reflect the underlying 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 already taken place as of January 1, 2018. Sales from the aforementioned service
agreements with BASF after the divestments closed are not included. A 7Pro-Forma Sales by Strategic Business Entity1scroll
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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, 2018. 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. Second quarter of 2019Sales in the second quarter of 2019 on a pro-forma basis fell by a currency-adjusted
9.9%.
First half of 2019Sales in the first half of 2019 on a pro-forma basis decreased by 4.6% (Fx adj.).
This was mainly due to the extreme weather conditions in the United States, which
led to lower sales of Soybean Seed & Traits, Corn Seed & Traits and Herbicides. PharmaceuticalsA 8Key Data - Pharmaceuticalsscroll
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Fx & p adj. = currency- and portfolio-adjusted Second quarter of 2019SalesSales of Pharmaceuticals rose by 3.9% (Fx & portfolio adj.) to €4,422 million in the
second quarter of 2019 (Q2 2018: €4,217 million). Business in China remained strong,
and our products Xarelto™ and Eylea™ also continued to achieve robust growth.
A 9Best-Selling Pharmaceuticals Productsscroll
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Fx & p adj. = currency- and portfolio-adjusted EarningsEBITDA before special items of Pharmaceuticals rose in the second quarter of 2019
by 10.1% to €1,500 million (Q2 2018: €1,363 million). Negative currency effects diminished
earnings by €30 million. The robust increase in earnings was primarily attributable
to higher demand and a decrease in the cost of goods sold. In addition, research and
development expenses were down compared with the high level of the prior-year period
and because the recognition of study costs is being phased differently across the
year. EBIT increased by 17.6% to €1,238 million after net special gains of €14 million (Q2
2018: net special charges of €56 million). The special gains mainly comprised €30
million in connection with restructuring measures, primarily from the adjustment of
provisions. Earnings were diminished by €15 million in litigation-related expenses. A 10Special Items1 Pharmaceuticalsscroll
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First half of 2019SalesSales of Pharmaceuticals rose by 4.6% (Fx & portfolio adj.) in the first six months
of 2019, to €8,776 million (H1 2018: €8,292 million). As in the second quarter, growth
in the first six months was primarily driven by the positive development in China
and the expansion of business with Xarelto™ and Eylea™. EarningsEBITDA before special items of Pharmaceuticals rose in the first half of 2019 by 8.4%
to €3,012 million (H1 2018: €2,778 million). Negative currency effects diminished
earnings by €74 million. The earnings growth resulted primarily from the very good
development of business and a decrease in the cost of goods sold. In addition, research
and development expenses were down compared with the high level of the prior-year
period and because the recognition of study costs is being phased differently across
the year. EBIT climbed by 10.0% to €2,437 million. Consumer HealthA 11Key Data - Consumer Healthscroll
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Fx & p adj. = currency- and portfolio-adjusted Second quarter of 2019SalesSales of Consumer Health increased by 2.1% (Fx & portfolio adj.) in the second quarter
of 2019 to €1,442 million.
A 12Sales by Category1scroll
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Fx & p adj. = currency- and portfolio-adjusted 1
In line with the internal financial management system implemented on January 1, 2019,
the sales commentary for Consumer Health is now based primarily on regions and categories
rather than products. These categories comprise Nutritionals (e.g. Elevit™, One A
Day™), Allergy & Cold (e.g. Claritin™, Alka-Seltzer™ Plus, Aspirin™ Cold), Dermatology
(e.g. Bepanthen™, Canesten™), Pain & Cardio (e.g. Aleve™, Aspirin™) and Digestive
Health (e.g. MiraLAX™, Alka-Seltzer™). EarningsEBITDA before special items of Consumer Health increased by 5.5% to €270 million in
the second quarter of 2019 (Q2 2018: €256 million). Positive contributions to earnings
came primarily from the efficiency program initiated at the end of 2018, which led
to a significant decrease in selling expenses, as well as from sales growth. Earnings
were diminished by the absence of the contribution from the divested U.S. prescription
dermatology business. EBIT came in at minus €293 million (Q2 2018: plus €157 million) after net special
charges of €468 million (Q2 2018: net special gains of €1 million). These mainly comprised
€421 million in impairment losses in connection with the agreed divestment of our
Dr. Scholl's™ foot care portfolio, as well as charges related to the aforementioned
efficiency program and expenses in connection with the divestment of the remaining
global prescription dermatology business. A 13Special Items1 Consumer Healthscroll
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First half of 2019SalesSales of Consumer Health were level year on year in the first six months of 2019 at
€2,837 million (Fx & portfolio adj. + 0.4%). We again achieved encouraging growth
in Asia / Pacific and in Latin America but posted declines in North America. Sales
came in below the prior-year level in Europe / Middle East / Africa, primarily due
to supply disruptions in the first quarter of 2019. EarningsEBITDA before special items of Consumer Health declined by 3.5% in the first half
of 2019 to €549 million (H1 2018: €569 million). Positive contributions to earnings
came primarily from the efficiency program initiated at the end of 2018, which led
to a significant decrease in selling expenses, as well as from sales growth. Earnings
were held back by a higher cost of goods sold and the absence of the contribution
from the divested U.S. prescription dermatology business. EBIT amounted to minus €132 million (H1 2018: plus €368 million) after net special
charges of €496 million (H1 2018: €4 million). As was the case in the second quarter,
these were mainly attributable to the aforementioned divestment-related impairments
and the efficiency program. Animal HealthA 14Key Data - Animal Healthscroll
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Fx & p adj. = currency- and portfolio-adjusted Second quarter of 2019SalesSales of Animal Health fell by 2.7% (Fx & portfolio adj.) to €454 million in the second
quarter of 2019, due especially to substantial volume declines in the United States
following a strong prior-year quarter. The positive developments in Asia / Pacific
and Latin America were insufficient to fully offset this effect.
United States, improved demand in Italy and a successful product launch in China. A 15Best-Selling Animal Health Productsscroll
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Fx & p adj. = currency- and portfolio-adjusted EarningsEBITDA before special items of Animal Health declined by 3.1% to €124 million in the
second quarter of 2019 (Q2 2018: €128 million). Lower demand had a negative effect
that was partly offset by price increases and reduced spending, including selling
expenses. EBIT declined by 16.4% to €97 million after net special charges of €17 million (Q2
2018: €3 million) that were related to the intended separation of the segment from
Bayer. A 16Special Items1 Animal Healthscroll
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First half of 2019SalesSales of Animal Health fell by 1.8% (Fx & portfolio adj.) in the first six months
of 2019 to €875 million. Lower demand in North America was not offset by sales gains
in the other regions. EarningsEBITDA before special items of Animal Health decreased by 1.1% to €264 million in
the first half of 2019 (H1 2018: €267 million). Lower volumes were nearly offset,
in particular by price increases and a reduced cost of goods sold. EBIT declined by 9.0% to €223 million after net special charges of €21 million (H1
2018: €3 million) in connection with the intended separation of the segment from Bayer. 1.3 Asset and Financial Position of the Bayer GroupStatement of Cash FlowsA 17Bayer Group Summary Statements of Cash Flowsscroll
Previous periods restated Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Free cash flow
Liquid assets and net financial debtA 18Net Financial Debt1scroll
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For definition see Annual Report 2018, A 2.4 "Alternative Performance Measures Used
by the Bayer Group."
A 19Ratingscroll
Asset and capital structureA 20Bayer Group Summary Statements of Financial Positionscroll
Previous periods restated
2. Research, Development, InnovationLeaps by BayerWe acquired a 28% interest in Century Therapeutics LLC., Philadelphia, United States
in June through Leaps by Bayer, our innovation and collaboration model. Founded in
2018 by U.S. companies Versant Ventures, San Francisco, and Fujifilm Cellular Dynamics,
Inc., Madison, Century Therapeutics develops allogeneic immune cell therapies for
cancer. The foundational technology is built on induced pluripotent stem cells that
have unlimited self-renewing capacity. The company secured an investment of US$250
million, with Bayer committing US$215 million as an integral partner. The proceeds
will enable Century Therapeutics to advance multiple programs into the clinic for
hematologic and solid malignancies. Crop SciencePlanned investment in research and developmentAs announced in June, we plan to invest some €5 billion in additional weed control
methods over the next 10 years as part of our research and development expenses. This
includes research into resistance mechanisms, the discovery and development of new
modes of action, and more precise application recommendations with the aid of digital
technologies. CollaborationsIn February 2019, we announced a three-year research collaboration with Netafim Ltd.,
Tel Aviv, and BGN Technologies, the technology company of Ben-Gurion University of
the Negev, Israel. The purpose of this project is to combine soil research, digital
prediction tools and drip irrigation technologies - which are also the focus of an
existing collaboration with Netafim - to develop best practices for the use of drip
irrigation as a delivery system for the nematicide Velum™ Prime under typical conditions
in arid regions. Also in February, Bayer and KWS SAAT SE, Germany, granted a long-term license for
their joint cultivation system Conviso™ Smart to MariboHilleshög ApS, Holeby, Denmark,
a business unit of Danish seed company DLF. With this agreement, another top global
sugarbeet breeder can provide farmers worldwide with the innovative Conviso™ Smart
technology, which is based on conventionally bred sugarbeet varieties that are tolerant
to certain herbicides. In addition to the system's broad spectrum weed control, the
amount of herbicide used can be significantly reduced compared with current standards. In June, we announced a collaboration with Arvinas, Inc., a U.S. biopharmaceutical
company based in New Haven, Connecticut. Concluded in July, the agreement involves
both our Crop Science and our Pharmaceuticals businesses. The collaboration aims to
utilize Arvinas' novel PROTAC™ technology, which harnesses the naturally occurring
protein degradation system of the cell to selectively remove target proteins by proteolysis,
the breakdown of proteins into amino acids. In the Crop Science segment, we will form
a joint venture with Arvinas as the first company to explore the technology's potential
for agriculture and crop protection. At Pharmaceuticals, meanwhile, it will be used
to develop new drug products. Also in June, Bayer and AlphaBio Control, Cambridge, United Kingdom, signed a distribution
agreement to market Flipper™, an innovative biological pest control product developed
by AlphaBio. Under the terms of this agreement, AlphaBio grants Bayer a worldwide
exclusive right (except France) to commercialize Flipper™ for agricultural and nonagricultural
uses. PharmaceuticalsWe are conducting clinical trials with multiple drug candidates from our research
and development pipeline. Phase II clinical projectsThe following table shows our most important drug candidates currently in Phase II
of clinical testing: A 21Research and Development Projects (Phase II)1scroll
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As of June 26, 2019 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 in commercialized products. It is also possible that the requisite
U.S. Food and Drug Administration (FDA), European Medicines Agency (E other regulatory
approvals will not be granted for these compounds. Moreover, we regularly review our
research and development pipelin that we can give priority to advancing the most promising
pharmaceuticals projects. Phase III clinical projectsThe following table shows our most important drug candidates currently in Phase III
of clinical testing: A 22Research and Development Projects (Phase III)1scroll
1
As of June 26, 2019 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. In May, the U.S. Food and Drug Administration (FDA) granted Bayer Breakthrough Therapy
designation for copanlisib (Aliqopa™) for the treatment of adult patients with relapsed
marginal zone lymphoma (MZL) who have received at least two prior therapies. MZL is
a form of indolent non-Hodgkin lymphoma (iNHL). Also in May, Bayer presented further data from the Phase III ARAMIS trial at the ASCO
Annual Meeting in Chicago showing that darolutamide, a nonsteroidal androgen receptor
antagonist, in combination with androgen deprivation therapy (ADT) delays worsening
of disease-related symptoms in men with nonmetastatic castration-resistant prostate
cancer (nmCRPC) compared with placebo plus ADT. At the ASCO Annual Meeting, Bayer also presented new data confirming the efficacy
of the precision oncology development candidate larotrectinib (Vitrakvi™) in both
adults and children with TRK fusion cancer and brain metastases or primary tumors
of the central nervous system. Also in June, Bayer initiated a Phase III trial of its anti-VEGF treatment aflibercept
(Eylea™) for intravitreal injection in retinopathy of prematurity, an eye condition
in premature infants. The enrollment of patients in the GBM AGILE trial, an international platform trial
sponsored by the Global Coalition for Adaptive Research (GCAR), also began in the
U.S. in June. In a multi-arm cooperation trial in brain cancer patients, Bayer is
providing the active substance regorafenib, which will be evaluated first. The trial
will investigate several therapies for patients with newly diagnosed or recurrent
glioblastoma. In early July, Bayer presented the findings of its Phase III EINSTEIN-Jr. trial with
rivaroxaban at the International Society on Thrombosis and Haemostasis (ISTH) Congress
in Melbourne, Australia. The results showed the efficacy and safety profile of rivaroxaban
in children with venous thromboembolism, and were similar to those seen in previous
studies in adults. A timely filing and review for the use of Xarelto™ in children
in the E.U. or the United States as agreed with the European Medicines Agency (EMA)
and the U.S. Food and Drug Administration (FDA), respectively, would allow for an
application of the extension of the compound patent protection by six months in each
case. Filings and approvalsThe most important drug candidates in the approval process are shown below. A 23Main Products Submitted for Approval1scroll
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As of June 26, 2019 In February, Bayer completed the submission of a rolling New Drug Application for
the active substance darolutamide to the U.S. Food and Drug Administration (FDA).
The submission was initiated in December 2018 and is based on data from the Phase
III ARAMIS trial in men with nonmetastatic castration-resistant prostate cancer (nmCRPC).
In April, the U.S. FDA accepted the new drug application and granted priority review
status. In March, Bayer submitted a marketing authorization application to the European Medicines
Agency (EMA) for darolutamide for the treatment of patients with nmCRPC. Also in March,
Bayer submitted an application for marketing authorization to the Ministry of Health,
Labor and Welfare (MHLW) in Japan for darolutamide for the treatment of patients with
castration-resistant prostate cancer (CRPC). In July, Bayer received approval from the U.S. FDA for Gadavist™ as the first and
only contrast agent for use in cardiac magnetic resonance (MR) imaging to assess myocardial
perfusion and late gadolinium enhancement in adult patients with known or suspected
coronary artery disease (CAD). CollaborationsIn May 2019, Bayer and Foundation Medicine Inc., Cambridge, Massachusetts, United
States, signed a global collaboration agreement for the development and commercialization
of therapy-accompanying diagnostic tests, also known as companion diagnostics (CDx),
based on next-generation sequencing for new cancer drugs developed by Bayer. The agreement
allows for collaboration across multiple treatment programs and covers Foundation
Medicine's full portfolio of tests, including FoundationOne™ CDx. The first project
will be to develop a CDx test in the United States for larotrectinib (Vitrakvi™),
a precision-oncological active substance from Bayer that is already approved in the
United States and has been submitted for marketing authorization in Europe. At Pharmaceuticals, Bayer's focus as part of the aforementioned collaboration with
Arvinas, Inc., is on developing next-generation drug candidates for the treatment
of cardiovascular, oncological and gynecological diseases. Under the terms of the
agreement, Arvinas will receive an upfront payment and pharmaceutical R&D support
over the next four years, as well as a direct equity investment by Bayer. Consumer HealthIn April, we launched our product Menevit™ on the Chinese market. Menevit™ is a product
line extension of our prenatal vitamin Elevit™ that was developed for men and features
an improved formulation fortified with plant-based ingredients. Animal HealthIn April, we signed a global collaboration agreement with adivo GmbH, Germany, to
develop therapeutic antibodies for veterinary medicine. 3. Report on Future Perspectives and on Opportunities and Risks3.1 Future Perspectives3.1.1 Economic OutlookA 24Economic Outlook1scroll
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Real growth of gross domestic product, source: IHS Markit As of July 2019 We continue to expect global economic growth to slow over the course of 2019 compared
with the previous year. Economic growth is being restrained by the intensifying trade
disputes, particularly in the United States and China. Growth in Europe is also being
held back by political uncertainties such as those related to Brexit. The economic
outlook has weakened, primarily in Germany. In the Emerging Markets, too, economic
expansion is likely to be slower than in the previous year. In addition to the trade
disputes, political uncertainties are also having an impact, especially in a number
of Latin American countries. A 25Economic Outlook for the Segments1scroll
2018 figures restated As of July 2019 We no longer anticipate any growth in the seed and crop protection market in 2019
(previously: + 3%). This is mainly due to the weather conditions in the Midwestern
United States, where flooding and heavy rains led to delayed sowing and an overall
reduction in acreages, as well as to the trade dispute between the United States and
China, which is particularly impacting planting decisions for corn and soybeans. In
addition, the outbreak of African swine fever in China is reducing demand for animal
feed, particularly soybeans. 3.1.2 Corporate OutlookBased on the business development described in this report and our internal planning,
we confirm the outlook published in February in our Annual Report 2018 for the Bayer
Group and its segments for fiscal 2019 with regard to currency- and portfolio-adjusted
sales growth and the further key data. However, this outlook is becoming increasingly
ambitious in view of the challenging environment for our Crop Science business. 3.2 Opportunities and RisksAs 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 nonfinancial objectives. Opportunity and risk management at Bayer forms an integral part of the Group-wide
corporate governance system. Our opportunity and risk management process and the fundamental
opportunity and risk status are outlined in detail in the Annual Report 2018, A 3.2
"Opportunity and Risk Report." Overall assessment by the Board of ManagementWe currently have not identified any material changes in the risk situation compared
with the assessment given in the Annual Report 2018. 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 2018 (Note [29] to the Consolidated Financial Statements)
are described in the Notes to the Condensed Consolidated Interim Financial Statements
under "Legal Risks." Condensed Consolidated Interim Financial Statements as of June 30, 2019Bayer Group Consolidated Income StatementsB 1scroll
2018 figures restated 1
For definition see Annual Report 2018, A 2.4 "Alternative Performance Measures Used
by the Bayer Group." Bayer Group Consolidated Statements of Comprehensive IncomeB 2scroll
2018 figures restated Bayer Group Consolidated Statements of Financial PositionB 3scroll
Previous periods restated Bayer Group Consolidated Statements of Cash FlowsB 4scroll
Previous periods restated Bayer Group Consolidated Statements of Changes in EquityB 5scroll
Previous periods restated Notes to the Condensed Consolidated Interim Financial Statements of the Bayer GroupExplanatory NotesAccounting policiesThe consolidated interim financial statements as of June 30, 2019, 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 2018 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 2019 or an accounting policy has changed. Financial reporting standards applied for the first time in 2019Details of the new standards whose first-time application has a material impact on
the Group's financial position and results of operations are given below. In January 2016, the IASB published the new standard for lease accounting, IFRS 16
(Leases), which replaces the rules contained in IAS 17 (Leases) along with the associated
interpretations. 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 right-of-use assets for granted rights of use and corresponding
lease liabilities. It eliminates the requirement for lessees to differentiate between
operating leases - without recognizing the respective assets or liabilities - and
finance leases. However, IFRS 16 contains the option of exercising exemptions for
the recognition of short-term leases and those pertaining to low-value assets. As
under the previous standard, IAS 17, lessors still have to differentiate between operating
and finance leases. According to IFRS 16, subleases are classified with reference
to the right-of-use asset arising from the sublease in relation to the head lease. Bayer applied IFRS 16 for the first time as of January 1, 2019, retrospectively without
restating the prioryear figures. In this connection, various options and practical
expedients were exercised as of the transition date for lease agreements in which
a Bayer company is the lessee. No additional assessment was undertaken upon the first-time
application of the new standard with regard to whether a contract represents or contains
a leasing relationship. For contracts previously classified as operating leases, Bayer
measured the lease liabilities as of the date of first-time application of IFRS 16
at the present value of the outstanding lease payments, using as the discount rate
the respective incremental borrowing rate as of that date. On the date of first-time
application, right-of-use assets were generally measured at the amount of the lease
liability, adjusted by the amounts of any prepaid or accrued lease payments and /
or provisions for onerous leases recognized in the statement of financial position
as of December 31, 2018. Initial direct costs were not taken into account in the measurement
of right-of-use assets as of the date of first-time application. The current state
of knowledge as of the date of first-time application was taken into account in making
discretionary decisions. Bayer exercised the option of exempting intangible assets from the scope of application
of IFRS 16 and applying the exemptions for short-term leases to certain leases ending
in 2019. It is also applying these exemptions for short-term leases beginning after
December 31, 2018. The first-time application of IFRS 16 as of January 1, 2019, resulted in the recognition
of additional lease liabilities of €1.0 billion and a corresponding increase in net
financial debt. Right-of-use assets, including those recognized as finance leases
according to IAS 17 until December 31, 2018, rose in line with the lease liabilities
by €1.0 billion as of January 1, 2019, after the adjustments resulting from the first-time
application of IFRS 16. The significant effects on the individual items in the statement of financial position
that were recognized as of December 31, 2018, in line with previous requirements were
as follows: B 6IFRS 16 Accounting Changes: Consolidated Statements of Financial Position as of January 1, 2019scroll
The following right-of-use assets, including those recognized as finance leases according
to IAS 17 until December 31, 2018, were recognized in property, plant and equipment
as of the date of first-time application of IFRS 16: B 7Right-of-use assetsscroll
In the statement of comprehensive income, Bayer ceased recognizing expenses for operating
leases in operating income and instead recognized the depreciation of the right-of-use
assets and the interest expense for the lease liabilities under IFRS 16. An analogous
effect occurred in the statement of cash flows, where IFRS 16 had a positive effect
on the operating cash flow by reducing cash outflows for operating activities, while
the repayment component of lease payments and the interest expense were recognized
in the financing cash flow. Material items in connection with the reconciliation of operating lease commitments
as of December 31, 2018, to the lease liabilities recognized as of January 1, 2019,
comprised €399 million in finance leases already recognized as liabilities, the €187
million discount on the lease liabilities initially recognized under IFRS 16 and €35
million in lease commitments not recognized under IFRS 16 that pertained to intangible
assets. The weighted average incremental borrowing rate for leases initially recognized upon
the first-time application of IFRS 16 was 5.0%. Changes in underlying parametersChanges 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 8Exchange Rates for Major Currenciesscroll
Argentina's economy has been considered hyperinflationary since July 1, 2018, and
we therefore applied IAS 29 (Financial Reporting in Hyperinflationary Economies) for
Bayer S.A., Argentina. The resulting effects in ongoing accounting have so far been
immaterial for the Group. The most important interest rates used to calculate the present value of pension obligations
are given below: B 9Discount Rate for Pension Obligationsscroll
Segment reportingAs of June 30, 2019, the Bayer Group comprises the four reportable segments Crop Science,
Pharmaceuticals, Consumer Health and Animal Health. B 10Key Data by Segmentscroll
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2018 figures restated B 11Key Data by Segmentscroll
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2018 figures restated To simplify the consolidation process, leases between fully consolidated companies
continue to be recognized as operating leases under IAS 17 within the segment data
in the consolidated financial statements of the Bayer Group even after the first-time
application of IFRS 16 as of January 1, 2019. This does not have any relevant impact
on the respective key data used in the steering of the company and internal reporting
to the Board of Management as the chief operating decision-maker. 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 12Reconciliation of Segments' EBITDA Before Special Items to Group Income Before Income Taxesscroll
2018 figures restated Prior to April 1, 2019, special items pertaining to the integration of Monsanto's
corporate functions were reported in the category "acquisition and integration costs"
at Crop Science. Since April 1, 2019, we have reported these special items in the
category "restructuring" as part of the Bayer 2022 platform program (Reconciliation). Scope of consolidationChanges in the scope of consolidationThe consolidated financial statements as of June 30, 2019, included 412 companies
(December 31, 2018: 420 companies). Ten joint ventures (December 31, 2018: ten) and
seven associates (December 31, 2018: five) 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 reported its interest in Covestro as an equity
instrument. Acquisitions, divestments and discontinued operationsAcquisitions in 2019On June 21, 2019, Bayer acquired 28% of the shares of Century Therapeutics LLC, Philadelphia,
Pennsylvania, United States. The purchase price was US$145 million, comprising an
initial payment of US$75 million and an assumed liability of US$70 million. A further
payment of US$70 million will be made upon the achievement of certain milestones,
bringing Bayer's interest in Century Therapeutics LLC to 36%. In view of Bayer's significant
influence, the investment is accounted for in the consolidated financial statements
as an associate using the equity method. Century Therapeutics LLC, founded in 2018
by U.S. companies Versant Ventures, San Francisco, and Fujifilm Cellular Dynamics,
Inc., Madison, develops allogeneic immune cell therapies for cancer. The foundational
technology is built on induced pluripotent stem cells that have unlimited self-renewing
capacity. Acquisitions in 2018On June 7, 2018, Bayer acquired 100% of the outstanding shares of Monsanto Company,
St. Louis, Missouri, United States. 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. Among the production sites maintained by Monsanto are facilities in 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™, among others. 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 and 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 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. The following bonds with total nominal volumes of US$15 billion and €5 billion were
issued in June 2018 to finance the acquisition: B 13Newly issued bondsscroll
As part of the acquisition, bonds with a nominal volume of US$6.9 billion were taken
over from Monsanto. The purchase price allocation for Monsanto was completed on June 6, 2019. The effects
of adjustments to the purchase price allocation in 2018 and through June 6, 2019,
on the Group's assets, liabilities and cash outflows - net of acquired cash and cash
equivalents - were as follows: B14Acquired Assets, Assumed Liabilities and Adjustments (Fair Values at the Respective Acquisition Dates) (Monsanto)scroll
The effects of the adjustments to the purchase price allocation for Monsanto in the
second quarter of 2018 on the income statement were immaterial. On May 2, 2018, 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, which in turn is largely based 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. Assets held for saleOn July 27, 2018, Bayer signed the agreements to sell the prescription dermatology
business to LEO Pharma A/S, Ballerup, Denmark. The global prescription dermatology
business outside the United States was transferred to the acquirer on July 1, 2019.
The divested portfolio, comprising prescription brands including Advantan™, Skinoren™
and Travocort™, was recognized as held for sale as of June 30, 2019. The base purchase
price amounts to €0.6 billion and is subject to customary purchase price adjustments.
The divestment gain is provisionally estimated at €0.3 billion. On May 13, 2019, Bayer and Beiersdorf signed an agreement for Beiersdorf to acquire
Bayer's Coppertone™ business for a purchase price of US$550 million. The business
is expected to be transferred to the acquirer in the second half of 2019 subject to
the fulfillment of the closing conditions. On July 19, 2019, Bayer entered into an
agreement with Yellow Wood Partners, Boston, United States, regarding the sale of
the Dr. Scholl's™ business of Consumer Health for a purchase price of US$585 million.
The transaction is expected to close in the fourth quarter of 2019 subject to the
satisfaction of customary closing conditions, including approval by antitrust authorities.
Impairment losses of €421 million, including €208 million on goodwill, were recognized
through profit or loss upon the reclassification of the disposal groups. The assets and liabilities held for sale were as follows: B 15Assets and Liabilities Held for Salescroll
Divestments and discontinued operations in 2018Bayer 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 a
total of €8 million in losses through the second quarter of 2018. The discontinued operation had no impact on the Bayer Group statement of cash flows
in 2018. In connection with the acquisition of Monsanto, Bayer had signed an agreement with
BASF on October 13, 2017, concerning the sale of selected Crop Science businesses.
All of the respective transactions closed on August 1, 2018, except for the sale of
the vegetable seed business, which closed on August 16, 2018. Final agreement on the
purchase price was reached in the first half of 2019. 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 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. In this connection, a
contract liability of €0.2 billion was determined based on customary sales prices
and recognized in the statement of financial position. It will be dissolved as the
obligations are fulfilled. The final purchase price amounts to approximately €7.3
billion, and income before taxes to €4.0 billion. The divested net assets amounted
to €2.8 billion and pertained mainly to property, plant and equipment, goodwill and
other assets and provisions. On September 4, 2018, the prescription dermatology business of the Consumer Health
segment in the United States was transferred to the acquirer LEO Pharma A/S, Ballerup,
Denmark. The base purchase price amounted to €58 million. On June 30, 2018, the Pharmaceuticals segment sold its MK Generics business in Central
America and the Caribbean to Tecnoquímicas S.A., Cali, Colombia. The divested business
includes the Bonima production plant in El Salvador. The base purchase price was €44
million. Financial instrumentsThe following tables show 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," "Financial liabilities"
and "Other liabilities" contain both financial instruments and nonfinancial assets
or liabilities (such as other tax receivables or advance payments for services receivable
in the future), the reconciliation is shown in the column headed "Nonfinancial assets
/ liabilities." B 16Carrying Amounts and Fair Values of Financial Instrumentsscroll
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AC: at amortized costFVTOCI: at fair value through other comprehensive income FVTPL:
at fair value through profit or loss B 17Carrying Amounts and Fair Values of Financial Instrumentsscroll
2018 figures restated 1
AC: at amortized costFVTOCI: at fair value through other comprehensive income FVTPL:
at fair value through profit or loss The category "AC - measured at amortized cost" within other financial assets and in
financial liabilities also includes finance lease receivables and lease liabilities
in which Bayer is the lessor or lessee and which were therefore measured according
to IFRS 16 (in 2019) or IAS 17 (in 2018). 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 "FVTPL -
at fair value through profit or loss" 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 amounts of financial assets and liabilities recognized at fair
value based on unobservable inputs (Level 3) for each financial instrument category
(see table B 17 for definitions) were as follows: B 18Development of Financial Assets and Liabilities (Level 3)scroll
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See table B 17 for definition of measurement category. B 19Development of Financial Assets and Liabilities (Level 3)scroll
2018 figures restated 1
See table B 17 for definition of measurement category..
The changes recognized in profit or loss were included in other operating income /
expenses, as well as in the financial result in interest income, exchange gains or
losses and in other financial income and expenses. Contingent liabilities as of June 30, 2019, amounted to approximately €1.1 billion
(June 30, 2018: €0.8 billion) and primarily related to tax and labor law as well as
other matters in countries such as the United States, Brazil, India, Greece and Italy. Legal RisksTo find out more about the Bayer Group's legal risks, please see Note [29] to the
consolidated financial statements in the Bayer Annual Report 2018, which can be downloaded
free of charge at www.bayer.com. Since the Bayer Annual Report 2018, the following
significant changes have occurred in respect of the legal risks: Mirena™:As of July 11, 2019, lawsuits from approximately 2,700 users of Mirena™, a levonorgestrelreleasing
intrauterine system providing long-term contraception, had been served upon Bayer
in the United States (excluding lawsuits no longer pending). 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. In June 2019, the multidistrict litigation ("MDL") court overseeing the federal
court cases in which plaintiffs allege idiopathic intracranial hypertension granted
summary judgment dismissing all approximately 730 cases pending before that court.
Plaintiffs are appealing the decision. Xarelto™:As of July 11, 2019, U.S. lawsuits from approximately 28,600 recipients of Xarelto™,
an oral anticoagulant for the treatment and prevention of blood clots, had been served
upon Bayer and Janssen Pharmaceuticals, Inc., the company distributing Xarelto™ in
the United States. 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. In March 2019, Bayer and Janssen reached
an agreement in principle with plaintiffs to resolve the Xarelto™ litigation in the
United States, without admission of liability, for an amount of US$775 million. The
settlement amount will be shared equally between the two companies. It is expected
that Bayer's share will be partially offset by product liability insurance. Bayer
and Janssen may withdraw from the agreement if certain participation rates are not
satisfied. If the settlement proceeds, it will resolve virtually all of the currently
pending Xarelto™ claims. Bayer does not expect the net financial burden to have a
material adverse impact on the consolidated financial statements of the Bayer Group. Essure™:As of July 11, 2019, U.S. lawsuits from approximately 31,600 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. As of July 11,
2019, two Canadian lawsuits relating to Essure™ seeking class action certification
had been served upon Bayer. In March 2019, one of the proposed class actions was certified. Roundup™ (Glyphosate):As of July 11, 2019, lawsuits from approximately 18,400 plaintiffs claiming to have
been exposed to glyphosate-based products manufactured by Bayer's subsidiary Monsanto
had been served upon Monsanto in the United States. Glyphosate is the active ingredient
contained in a number 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. Cases pending in U.S. federal courts have been consolidated in a multi district
litigation ("MDL") in the Northern District of California for common pre-trial management. In March 2019, in the first trial conducted in the MDL, a jury awarded around US$5
million in compensatory and US$75 million in punitive damages to a plaintiff who claimed
that a Monsanto product caused his NHL. We disagree with the verdict and sought trial
court review in May 2019. In July 2019, the trial judge decided to reduce the punitive
damages from US$ 75 million to US$ 20 million. The roughly US$ 5 million compensatory
damages were not reduced. The decision to reduce the punitive damage award by US$
55 million is a step in the right direction, but we plan to file an appeal with the
United States Court of Appeals for the Ninth Circuit. In May 2019, in the third trial
in this litigation, a California state court jury in Alameda County (Oakland) awarded
the two plaintiffs a total of US$55 million in compensatory and US$2 billion in punitive
damages. Again, we disagree with the jury's verdict and have filed post-trial motions
seeking to reverse the jury verdict and enter judgment for Monsanto, or in the alternative,
order a new trial. We continue to believe that we have meritorious defenses and we
intend to defend ourselves vigorously in all of these lawsuits. Another three trials
are currently scheduled in Missouri state court for the remainder of 2019. However,
trial dates in all venues remain subject to change depending on court schedules and
rulings. In parallel to the continued litigation, Bayer will constructively engage
in the mediation process ordered by the judge presiding over the MDL. As of July 11, 2019, five Canadian lawsuits relating to Roundup™ seeking class action
certification had been served upon Bayer. Bayer believes it has meritorious defenses
and intends to defend itself vigorously. One A Day™ vitamins:Bayer has been named in a class action lawsuit in the United States alleging Bayer's
claims on its One A Day™ vitamins regarding the support of heart health, immunity
and physical energy are false and misleading. In February 2019, the jury returned
a verdict for Bayer and found that Bayer's claims on its vitamins are not false or
misleading. The plaintiffs did not appeal the verdict, and therefore, the verdict
is final. Notes to the Statements of Cash FlowsDividend payments amounted to €2,611 million and net interest payments to €649 million.
Net borrowings came to €357 million. Related PartiesRelated 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. Liabilities to joint ventures declined by €0.1 billion compared with December 31,
2018, 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. Liabilities for postemployment benefit plans increased by
€0.2 billion. Services rendered to associates declined by €0.2 billion to €0.0 billion as Covestro
ceased being an associate in May 2018. Other informationOn April 26, 2019, the Annual Stockholders' Meeting approved the proposal by the Board
of Management and the Supervisory Board that a dividend of €2.80 per share entitled
to the dividend be paid for the 2018 fiscal year. The actions of the members of the Board of Management serving in 2018 were not ratified.
The actions of the members of the Supervisory Board serving in 2018 were ratified
in accordance with the proposal 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 Board of Management and the Supervisory Board,
the Annual Stockholders' Meeting once again authorized the Board of Management to
acquire and use own shares, and in the course of such acquisition to employ derivatives
and to disapply subscription and other tender rights. In accordance with the proposal by the Supervisory Board, Deloitte GmbH Wirtschaftsprüfungsgesellschaft,
Munich, Germany, was elected auditor of the annual and consolidated financial statements
for 2019, and also to review, if applicable, the condensed financial statements and
interim management report as of June 30, 2019, and if applicable, the condensed financial
statements and interim management reports as of September 30, 2019, and March 31,
2020, if these are prepared. Leverkusen, July 25, 2019 Bayer Aktiengesellschaft The Board of Management scroll
Responsibility StatementTo the best of our knowledge, and in accordance with the applicable reporting principles
for financial reporting, the 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 combined management report includes a fair review of the development
and performance of the business and the position of the Bayer Group and Bayer AG,
together with a description of the principal opportunities and risks associated with
the expected development of the Bayer Group and Bayer AG. Leverkusen, July 25, 2019 Bayer Aktiengesellschaft The Board of Management scroll
Review ReportTo 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 2019 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 certain 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, 26 July 2019 Deloitte GmbH Wirtschaftsprüfungsgesellschaft scroll
Financial Calendarscroll
Reporting PrinciplesThis Bayer AG Interim Report is a half-year financial report that satisfies the requirements
of Section 115, Paragraph 2, No. 1 and No. 2, Paragraph 3 and Paragraph 4 of the German
Securities Trading Act (WpHG). Bayer has prepared the condensed consolidated interim
financial statements according to the International Financial Reporting Standards
(IFRS) published by the International Accounting Standards Board (IASB) and endorsed
by the European Union (E.U.). This report should be read in conjunction with the Annual
Report for the 2018 fiscal year and the additional information about the company provided
therein. The Annual Report 2018 is available on our website at www.bayer.com. MastheadPublished byBayer AG, 51368 Leverkusen, Germany EditorMeike Kneip, phone +49 214 30 20015 Email: meike.kneip@bayer.com Investor RelationsPeter Dahlhoff, phone +49 214 30 33022 Email: peter.dahlhoff@bayer.com Date of publicationTuesday, July 30, 2019 English editionBayer Business Services GmbH Translation ServicesBayer on the internet www.bayer.com Half-year financial report produced in-house with firesys. Forward-Looking StatementsThis half-year financial report may contain forward-looking statements based on current
assumptions and forecasts made by Bayer management. Various known and unknown risks,
uncertainties and other factors could lead to material differences between the actual
future results, financial situation, development or performance of the company and
the estimates given here. These factors include those discussed in Bayer's public
reports which are available on the Bayer website at www.bayer.com. The company assumes
no liability whatsoever to update these forward-looking statements or to conform them
to future events or developments. Legal NoticeThe product names designated with ™ are brands of the Bayer Group or our distribution
partners and are registered trademarks in many countries. |
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