Earnings Performance of Bayer AG (XLS:) Download Bayer AG Summary Income Statements according to the German Commercial Code 2016 2017 € million € million Net sales 390 14,730 Cost of goods sold (353) (7,914) Gross profit 37 6,816 Selling expenses (39) (3,898) Research and development expenses (46) (2,186) General administration expenses (666) (908) Other operating income 48 85 Other operating expenses (227) (102) Operating income (893) (193) Income from investments in affiliated companies – net 4,647 5,794 Interest income / expense – net 54 (369) Other financial income / expense – net 163 (354) Nonoperating income 4,864 5,071 Income taxes (371) (335) Income after taxes / net income 3,600 4,543 Allocation to other retained earnings (1,367) (1,643) Distributable profit 2,233 2,900 Rise in earnings due to higher income from investments in affiliated companies The assumption of the operational business of Bayer Pharma AG and Bayer CropScience AG resulted in a significant increase in sales of Bayer AG, from €0.4 billion to €14.7 billion. Of this increase, Pharmaceuticals accounted for €8.5 billion and Crop Science for €6.1 billion. Sales of Pharmaceuticals declined by €0.3 billion compared with the figure of €8.8 billion posted in the previous year by the predecessor company. Sales of our anticoagulant Xarelto™ increased by €234 million, compared with declines of €194 million for Aspirin™ Cardio, €190 million for our multiple sclerosis treatment Betaferon™ / Betaseron™, €53 million for Levitra™ and €48 million for the MRI contrast agent Gadavist™ / Gadovist™. Of the total sales of Pharmaceuticals, business with Group companies accounted for 90% and business with third parties for 10%. Sales of Crop Science declined by €0.4 billion compared with the figure of €6.5 billion posted in the previous year by Bayer CropScience AG. The declines pertained to nearly all units. Sales moved back by €245 million at Insecticides, by €209 million at Fungicides and by €150 million at Herbicides. Latin America was responsible for the decline in sales, with business in that region shrinking by €0.6 billion as the high inventories in Brazil had a negative effect. The ratio of sales between Group companies and those to third parties at Crop Science was 96% to 4%. After deducting the cost of goods sold of €7.9 billion from sales, gross profit was €6.8 billion, or 46% of sales. The gross margin was 58% at Pharmaceuticals and 34% at Crop Science. Selling expenses of €3.9 billion mainly comprised €3.3 billion in royalties, €2.7 billion of which was paid to Bayer Intellectual Property GmbH for the use of patents, trademarks and other intellectual property. Research and development expenses increased from €46 million in the previous year to €2.2 billion in 2017 due to the expansion of business, with €1.5 billion attributable to Pharmaceuticals and €0.5 billion to Crop Science. The €0.2 billion increase in administration expenses to €0.9 billion also resulted from the transfer of business. Other operating expenses, net of other operating income, decreased by €162 million to €17 million. In the previous year, expenses of €198 million were incurred for the first-time recognition by Bayer AG of provisions for impending losses from sales and licensing agreements transferred to Bayer AG effective January 1, 2017, with the businesses leased from Bayer Pharma AG and Bayer CropScience AG. The operating loss at Bayer AG declined by €700 million, from €893 million in the previous year to €193 million in 2017. Income from investments in affiliated companies increased by €1,147 million to €5,794 million. The significant improvement was due particularly to proceeds of €2,720 million (2016: €79 million) from the sale of shares in Covestro AG. The dividends and similar income from subsidiaries also increased year on year, moving forward by €490 million to €819 million (2016: €329 million). The profit distribution of Bayer Hispania, S.L., Spain, (€591 million; 2016: €62 million) and Covestro AG (€146 million; 2016: €91 million) played a particularly important role here. Profit transfers declined from €4,188 million in the previous year to €2,245 million in 2017. This decline was mainly attributable to the removal of Bayer CropScience AG from the fiscal unity; that company had transferred profits of €1,017 million in the previous year. Earnings of Bayer Pharma AG were also down significantly at €2,248 million (2016: €3,011 million) and now result mainly from income from subsidiaries and the business lease. Significant effects of profit-and-loss transfer agreements were the transfer of income of €130 million (2016: loss of €19 million) from Bayer Real Estate GmbH due to income from subsidiaries and income of €94 million (2016: €204 million) from Siebte Bayer VV GmbH, which receives regular dividend income from a U.S. subsidiary that handles export business in the United States for Bayer Health Care LLC. Due partly to project costs, Bayer Business Services GmbH reported a much higher loss of €201 million (2016: €50 million), which was offset by Bayer AG. Net interest expense was €369 million, after net interest income of €54 million in the previous year. The interest portion of the allocation to provisions for pensions and other post-employment benefits and the valuation of the fund assets resulted in a net gain of €174 million, which was €129 million below the prior-year figure (2016: €303 million). This decline resulted mainly from interest-related actuarial losses, after gains in the previous year due to the change in the method for determining the discount rate. Of the remaining €543 million (2016: €249 million) balance of interest expenses and income, €297 million (2016: €196 million) was attributable to third parties, with the creditors of the bonds and commercial paper programs accounting for €186 million (2016: €189 million), €109 million (2016: 25 million) to interest-rate swaps and options, and €246 million (2016: €53 million) to Group companies. The higher expense in the Group resulted chiefly from a corresponding increase in intra-Group debt. Other financial income and expenses yielded a negative balance of €354 million in 2017 after a positive balance of €163 million in the previous year. This decline of €517 million was mainly attributable to a difference of €391 million in income / losses from currency translation (minus €212 million; 2016: plus €179 million), and to an increase of €164 million in expenses for credit facilities. The latter accounted for expenses of €221 million (2016: €57 million), of which €210 million was related to the financing of the planned acquisition of Monsanto. The absence in 2017 of the pre-payment penalty of €31 million incurred in the previous year for early repayment of an intra-Group loan had a positive impact on earnings. Income from other subsidiaries to cover pension expenses for retirees remaining with Bayer AG following the hive-down of the operating business in 2002 and 2003 amounted to €115 million (2016: €4 million). This increase corresponds to a rise in pension expenses, the interest portion of which was reflected in interest expense, while the remainder of €41 million was reflected in other financial income and expenses (2016: income of €56 million). Distributable profit of € 2,900 million Income before income taxes greatly exceeded the prior-year level at €4,878 million (2016: €3,971 million). Tax expense nonetheless declined from €371 million to €335 million due to higher tax-free income from investments in affiliated companies and divestiture proceeds. After deduction of taxes, net income was €4,543 million (2016: €3,600 million). An allocation of €1,643 million was made to other retained earnings, giving a distributable profit of €2,900 million. The Board of Management and Supervisory Board will propose to the Annual Stockholders’ Meeting on May 25, 2018, that the distributable profit be used to pay a dividend of €2.80 per share on the capital stock entitled to the dividend for 2017 and that the remaining portion be carried forward.