Management Report

New products create optimism for the future

Bayer: continuing growth momentum

  • Group targets achieved in 2012 – sales and earnings before special items increase in all subgroups
  • Sales €39.8 billion (Fx & portfolio adj. +5.3%)
  • EBIT €4.0 billion (-4.6%) – net income €2.4 billion (-1.0%)
  • Further accounting measures for legal claims
  • EBITDA before special items €8.3 billion (+8.8%)
  • Core earnings per share €5.35 (+10.8%)
  • Encouraging growth in the emerging markets
  • Steady progress with innovation pipeline strengthens life-science businesses
  • Forecast for anniversary year 2013: continuing record development

5. Overview of Sales, Earnings and Financial Position

Target Attainment in 2012

Full year 2012

2012 was a very successful year for Bayer. We achieved our targets for the Group. Operationally, all of our subgroups posted growth in sales and earnings before special items, with particularly strong momentum in the life-science businesses. We also made good progress strategically, continuing to develop our innovation pipeline and bringing new products to market. We systematically strengthened our life-science businesses through acquisitions and considerably expanded our business in the emerging markets. This makes us optimistic for 2013, in which we plan to grow sales and earnings once again.

Changes in Sales[Table 3.4]
  2011 2012
   % %
Volume +3.4 +4.7
Price +2.1 +0.6
Currency -1.5 +4.0
Portfolio +0.1 -0.5
Total +4.1 +8.8

Adjusted for currency and portfolio effects (Fx & portfolio adj.), sales rose by 5.3% (reported: +8.8%) to a record €39,760 million (2011: €36,528 million). Sales of HealthCare advanced by 4.2% (Fx & portfolio adj.). Sales at CropScience moved ahead by 12.4% (Fx & portfolio adj.) in a favorable market environment. Sales of MaterialScience rose by 3.0% (Fx & portfolio adj.).

Bayer Group Quarterly Sales

EBIT of the Bayer Group declined by 4.6% to €3,960 million (2011: €4,149 million) after special items of minus €1,711 million (2011: minus €876 million). The special items included €1,186 million in charges related to legal claims concerning the oral contraceptives Yasmin™/ YAZ™. Of these charges, €455 million were taken in the fourth quarter of 2012 and mainly related to further accounting measures for venous clot injury cases of which we are currently aware and anticipated future cases. Other special charges were restructuring expenses of €396 million and impairment losses of €289 million on intangible assets. Special gains from divestitures came to €158 million, while adjustments of benefit entitlements resulted in gains of €114 million. EBIT before special items amounted to €5,671 million (2011: €5,025 million). EBITDA before special items increased by 8.8% to €8,284 million (2011: €7,613 million), driven by good business development and savings from the restructuring program successfully completed in 2012. Earnings of all the subgroups were also boosted by positive currency effects totaling about €400 million. HealthCare raised EBITDA before special items by 7.8% to €5,068 million (2011: €4,702 million) due to positive business development in both segments. EBITDA before special items of CropScience rose by a substantial 21.4% to €2,008 million (2011: €1,654 million), largely as a result of higher volumes. EBITDA before special items of MaterialScience improved by 6.8% to €1,251 million (2011: €1,171 million), mainly because of higher volumes.

Bayer Group Quarterly EBIT and EBITDA Before Special Items

The financial result was minus €712 million (2011: minus €786 million), including net interest expense of €252 million (2011: €335 million), and income before income taxes thus amounted to €3,248 million (2011: €3,363 million). After tax expense of €752 million (2011: €891 million) and non-controlling interest, net income for 2012 came in at €2,446 million (2011: €2,470 million). Earnings per share were €2.96 (2011: €2.99). Core earnings per share advanced by 10.8% to €5.35 (2011: €4.83), calculated as explained in Chapter 7.3 “Core Earnings Per Share.”

Gross Cash Flow and Net Cash Flow by Quarter

Gross cash flow receded by 11.1% in 2012 to €4,599 million (2011: €5,172 million). Net cash flow fell by 10.4% to €4,532 million (2011: €5,060 million). The increase in cash flows resulting from the improved operating performance was more than offset by a business-related increase in cash tied up in working capital and higher income tax payments. Net financial debt was level with December 31, 2011, at €7.0 billion, including a €1.0 billion contribution to the pension fund in the fourth quarter of 2012. The net amount recognized for post-employment benefits after deducting plan assets from the defined benefit obligation rose by €1.5 billion to €9.3 billion, mainly because of lower long-term interest rates on the capital market.

Fourth quarter of 2012

Group sales in the fourth quarter of 2012 rose by 5.5% (Fx & portfolio adj.) to €9,862 million (reported: +7.3%). Sales of HealthCare advanced by 5.1% (Fx & portfolio adj.) to €4,923 million (reported: +7.1%). Those of the Pharmaceuticals segment increased by 4.8% (Fx & portfolio adj.) to €2,867 million (reported: +7.0%), mainly due to encouraging sales growth in North America and the emerging economies, especially China. Business in the Consumer Health segment moved ahead by 5.4% (Fx & portfolio adj.) to €2,056 million (reported: +7.4%), driven by higher sales of the Consumer Care Division in all regions. CropScience sales increased by 9.1% (Fx & portfolio adj.) in the fourth quarter to €1,856 million (reported: +10.7%) as a result of higher volumes. Sales of MaterialScience rose by 4.8% (Fx & portfolio adj.) against the prior-year quarter, to €2,761 million (reported: +6.4%), thanks to volume and price increases.

EBIT of the Bayer Group climbed by 16.9% in the fourth quarter of 2012 to €735 million (Q4 2011: €629 million). Earnings were diminished by special items of minus €424 million (Q4 2011: minus €215 million), mainly comprising €543 million in accounting measures based on legal claims, €114 million in restructuring expenses, €158 million in divestiture gains and €59 million in gains from adjustments of benefit entitlements. EBIT before special items climbed by 37.3% to €1,159 million (Q4 2011: €844 million).

EBITDA before special items of the Bayer Group increased in the fourth quarter of 2012 by 18.4% to €1,825 million (Q4 2011: €1,541 million). HealthCare raised EBITDA before special items by 13.7% to €1,342 million (Q4 2011: €1,180 million). EBITDA before special items of CropScience came in at €289 million (Q4 2011: €273 million), up 5.9%. EBITDA before special items at MaterialScience climbed by 140.6% compared with a weak prior-year quarter to €255 million (Q4 2011: €106 million).

After a financial result of minus €161 million (Q4 2011: minus €178 million), income before income taxes was €574 million (Q4 2011: €451 million). After taxes and non-controlling interest, net income came in at €374 million (Q4 2011: €397 million). Earnings per share were €0.45 (Q4 2011: €0.48). Core earnings per share rose to €1.00 (Q4 2011: €0.97), calculated as explained in Chapter 7.3 “Core Earnings Per Share.”

Gross cash flow of the Bayer Group came in 24.8% below the prior-year quarter at €755 million (Q4 2011: €1,004 million). Net cash flow fell by 21.6% to €903 million (Q4 2011: €1,152 million). This cash flow development was mainly the result of higher tax payments and less working capital release. Net financial debt rose by €0.2 billion in the fourth quarter of 2012 to €7.0 billion (September 30, 2012: €6.8 billion), including a €1.0 billion contribution to the pension fund.

Key Data by Subgroup and Segment[Table 3.5]
  Sales EBIT EBITDA before special items*
 

4th Quarter

2011

4th Quarter
2012
4th Quarter
2011
4th Quarter
2012
4th Quarter
2011
4th Quarter
2012
  € million € million € million € million € million € million
HealthCare 4,595 4,923 770 541 1,180 1,342
Pharmaceuticals 2,680 2,867 471 157 758 827
Consumer Health 1,915 2,056 299 384 422 515
CropScience 1,676 1,856 47 241 273 289
MaterialScience 2,596 2,761 (4) 92 106 255
Reconciliation 324 322 (184) (139) (18) (61)
Group 9,191 9,862 629 735 1,541 1,825
* For definition see Chapter 7.2 “Calculation of EBIT(DA) Before Special Items.”
Last updated: February 28, 2013  Copyright © Bayer AG
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