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Management Report

Second Quarter of 2015

Bayer significantly improves earnings

  • Very good business development at HealthCare
  • CropScience performance steady in a weaker market environment
  • MaterialScience posts robust earnings growth
  • Group sales €12.1 billion (+18.2%; Fx & portfolio adj. +3.7%)
  • EBITDA before special items €2.9 billion (+33.2%)
  • EBIT €1.8 billion (+27.7%)
  • Net income €1.2 billion (+20.9%)
  • Core earnings per share €1.98 (+33.8%)
  • Group forecast 2015 for operational performance of continuing operations confirmed and adjusted for currency effects

The Bayer Group continued to grow sales in the second quarter of 2015 and significantly improved earnings. HealthCare posted considerable sales and earnings gains that were attributable to the further gratifying expansion of business with our recently launched pharmaceutical products and to the positive sales development in all Consumer Health divisions. Sales at CropScience matched the strong level of the prior-year quarter, while earnings improved. At MaterialScience, sales were level with the prior-year quarter. Earnings of the subgroup rose markedly, by almost 90%, particularly as a result of the improved demand situation and lower raw material costs. The preparations for the planned stock market flotation of MaterialScience are on schedule. We are confirming our Group forecast for the operational performance of continuing operations and adjusting our guidance to take account of the change in exchange rates as of June 30, 2015.

1. Overview of Sales, Earnings and Financial Position

Second quarter of 2015

Bayer Group Quarterly Sales

Following the signing of the divestiture agreement with Panasonic Healthcare Holdings Co., Ltd. in June 2015, the Diabetes Care business is no longer included in continuing operations. Figures for previous periods are restated accordingly.

Sales of the Bayer Group moved ahead in the second quarter of 2015 by 3.7% after adjusting for currency and portfolio effects (Fx & portfolio adj.) to €12,090 million (reported: +18.2%; q2 2014: €10,228 million). HealthCare sales improved by 8.3% (Fx & portfolio adj.) to €5,908 million (reported: +28.0%; q2 2014: €4,615 million). Sales at CropScience came in at the strong prior-year level, down by just 0.6% (Fx & portfolio adj.) to €2,723 million (reported: +10.2%; q2 2014: €2,470 million). MaterialScience sales rose by 0.6% (Fx & portfolio adj.) to €3,185 million, also matching the level of the prior-year quarter (reported: +11.2%; q2 2014: €2,864 million).

Bayer Group Quarterly EBIT and EBITDA Before Special Items

ebit of the Bayer Group climbed by a substantial 27.7% to €1,833 million (q2 2014: €1,435 million) after net special charges of €255 million (q2 2014: €48 million). These mainly comprised €74 million from the revaluation of other receivables and €55 million in costs for the integration of acquired businesses. Also included under special items are expenses of €41 million for the planned stock market flotation of MaterialScience, €32 million for efficiency improvement measures and €28 million for the consolidation of production sites. ebit before special items rose by 40.8% to €2,088 million (q2 2014: €1,483 million).

ebitda before special items came in 33.2% ahead of the prior-year period at €2,899 million (q2 2014: €2,176 million). The good sales development was accompanied by higher r&d and selling expenses. Positive currency effects buoyed earnings by about €260 million. At HealthCare, ebitda before special items rose by a considerable 27.5% to €1,675 million (q2 2014: €1,314 million). This was chiefly attributable to the continuing very good development of business at Pharmaceuticals and Consumer Health, the contribution from the acquired consumer care businesses, and currency effects of around €110 million. ebitda before special items of CropScience advanced by 19.2% to €733 million (q2 2014: €615 million), driven by a positive currency effect of around €70 million. Material­Science registered a significant 87.4% increase in ebitda before special items to €506 million (q2 2014: €270 million). This was the result of considerably lower raw material costs – which more than compensated the decline in selling prices – higher volumes, and positive currency effects of €80 million. Earnings of the reconciliation improved year on year largely on account of lower expenses for long-term stock-based compensation.

After a financial result of minus €287 million (q2 2014: minus €173 million), income before income taxes was €1,546 million (q2 2014: €1,262 million). After income tax expense of €405 million (q2 2014: €343 million) and non-controlling interest, net income in the second quarter of 2015 came to €1,152 million (q2 2014: €953 million). Earnings per share were €1.39 (q2 2014: €1.15). Core earnings per share advanced by 33.8% to €1.98 (q2 2014: €1.48), calculated as explained in Chapter 7 “Core Earnings Per Share.”

Quarterly Gross and Net Cash Flow From Continuing Operations

Gross cash flow from continuing operations in the second quarter of 2015 advanced by 30.5% to €2,173 million (q2 2014: €1,665 million) due to the improvement in ebitda. Net cash flow (total) rose by 22.4% to €1,959 million (q2 2014: €1,601 million) despite an increase in cash tied up in working capital. We paid income taxes of €352 million in the second quarter of 2015 (q2 2014: €360 million).

Net financial debt declined slightly, from €21.3 billion on March 31, 2015, to €21.1 billion on June 30, 2015. Cash inflows from operating activities and positive currency effects offset the outflow for the dividend payment. The net defined benefit liability for post-employment benefits – the difference between benefit obligations and plan assets – decreased from €13.6 billion to €11.1 billion over the same period due to a rise in long-term capital market interest rates for high-quality corporate bonds.

First half of 2015

Sales of the Bayer Group rose in the first half of 2015. Our HealthCare business was the main driver of this growth, while CropScience and MaterialScience matched the prior-year level. Group ebitda before special items improved significantly, with all subgroups, particularly HealthCare and MaterialScience, contributing to this improvement.

Sales increased by 3.2% (Fx & portfolio adj.) to €23,969 million (reported: +16.5%; h1 2014: €20,580 million). HealthCare sales grew by 7.7% on a currency- and portfolio-adjusted basis (reported: +27.0%). Despite the difficult market environment, sales of CropScience were flat year on year (Fx & portfolio adj.: +0.2%; reported: +8.3%). Sales of MaterialScience also matched the prior-year level (Fx & portfolio adj.: minus 0.7%; reported: +9.4%).

ebit climbed by 7.9% to €3,777 million (h1 2014: €3,500 million). There were net special charges of €499 million (h1 2014: €41 million). ebit before special items rose by 20.8% to €4,276 million (h1 2014: €3,541 million). ebitda before special items increased by 19.7% to €5,840 million (h1 2014: €4,879 million), reflecting positive currency effects of about €300 million and additional r&d expenses of roughly €320 million.

After a financial result of minus €561 million (h1 2014: minus €332 million), income before income taxes was €3,216 million (h1 2014: €3,168 million). The financial result mainly comprised net interest expense of €288 million (h1 2014: €86 million), interest cost of €148 million (h1 2014: €139 million) for pension and other provisions, and exchange losses of €122 million (h1 2014: €85 million). After tax expense of €811 million (h1 2014: €851 million), income after income taxes was €2,467 million (h1 2014: €2,380 million).

After non-controlling interest, net income amounted to €2,455 million (h1 2014: €2,376 million). Earnings per share rose to €2.97 (h1 2014: €2.87), and core earnings per share (calculated as explained in Chapter 7) to €4.02 (h1 2014: €3.40).

Gross cash flow from continuing operations climbed by 13.6% to €4,184 million (h1 2014: €3,683 million). Net cash flow (total) rose sharply by 52.1% to €2,683 million (h1 2014: €1,764 million) due to a reduction in cash tied up in working capital. This figure reflected income tax payments of €796 million (h1 2014: €735 million). Net financial debt rose to €21.1 billion as of June 30, 2015, compared with €19.6 billion on December 31, 2014. The net defined benefit liability for post-employment benefits declined from €12.2 billion on December 31, 2014, to €11.1 billion, mainly due to a rise in long-term capital market interest rates for high-quality corporate bonds.

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