Bayer released its third quarter sales and earnings figures Thursday.
Here’s some highlights:
- Group sales in the third quarter of 2017 declined by 2.8% to EUR 8,025 million. Adjusted for currency and portfolio effects, sales advanced 1.2%.
- EBITDA before special items up by 4.1% to EUR 2,204 million. Negative currency effects diminished earnings by around EUR 100 million. EBIT came to EUR 1,388 million, matching the prior-year period (Q3 2016: EUR 1,397 million). This figure reflected net special charges of EUR 249 million (Q3 2016: EUR 125 million), consisting primarily of expenses in connection with the agreed acquisition of Monsanto, provisions for legal risks, and efficiency improvement programs. EBIT before special items advanced by 7.6 percent to EUR 1,637 million (Q3 2016: EUR 1,522 million).
- Net income of EUR 3,881 million including Covestro book profit. Bayer has made very good progress toward its goal of achieving full separation from Covestro in the medium term, said Werner Baumann, Chairman of the Board of Management, when he presented the interim report for the third quarter.
- Earnings per share (total) increased to EUR 4.45 (Q3 2016: EUR 1.43). Core earnings per share from continuing operations fell by 3.9% to EUR 1.47 (Q3 2016: EUR 1.53). This is due primarily to the difference in the number of shares, which grew significantly in 2017 as a result of the mandatory convertible notes issued in November 2016. Had the number of shares remained the same, core earnings per share would have improved by 1.4%.
- Net cash provided by operating activities (total) declined by 11.2% in the third quarter of 2017, to EUR 2,711 million (Q3 2016: EUR 3,053 million). Net financial debt declined by half to EUR 4.7 billion compared with June 30, 2017, due mainly to cash inflows from operating activities, inflows of EUR 2.2 billion from the sale of Covestro shares, and a reduction of EUR 0.5 billion from the deconsolidation of the Covestro Group.
The agreement to sell select Crop Science businesses to BASF marked another important step regarding the planned acquisition of Monsanto. The agreed sale of selected Crop Science businesses to BASF for EUR 5.9 billion is subject to the approval of the antitrust authorities. The transaction is also dependent on the successful closing of Bayer’s acquisition of Monsanto. "With this agreement, we are actively addressing the authorities’ possible concerns regarding the planned acquisition of Monsanto. However, it is not an attempt to preempt any decisions by the regulatory authorities," Baumann stressed. Bayer continues to work closely with the authorities with the aim of facilitating a successful closing of the transaction by early 2018.
Bayer has reduced its direct interest in Covestro to 24.6%, and is declining to exercise certain voting rights at the Covestro Annual General Meeting.
"We have thus ceded de facto control over Covestro and deconsolidated it," Baumann explained. The remaining shares of Covestro are now recognized in the statement of financial position using the equity method. The continuing operations of the Bayer Group are now comprised exclusively of the Life Science businesses. The financial information for the preceding quarters and the prior-year figures have been restated accordingly.
Sales of prescription medicines (Pharmaceuticals) increased by 2.3% to EUR 4,065 million.
EBITDA before special items of Pharmaceuticals increased by 5.1% to EUR 1,493 million. This development was largely the result of higher volumes and a lower cost of goods sold. In contrast, negative currency effects diminished earnings by about EUR 60 million.
Sales of Consumer Health in the third quarter fell by 2.9% to €1,320 million.
The decline in sales in North America was largely due to the market environment remaining challenging in the United States. The negative development in Europe is primarily the result of weaker business in Russia after a strong previous quarter. On a currency-adjusted basis, the division increased sales in Latin America and attained the prior-year level in Asia/Pacific.
Third-quarter sales of the agricultural business (Crop Science) moved ahead by 2.7% to EUR 2,031 million. Crop Science achieved gratifying business development in North America and Asia/Pacific, where sales rose by 9.8% and 7.4%, respectively. Sales in Europe/Middle East/Africa and Latin America matched the prior-year level.
"On the positive side, we were able to reduce provisions for product returns in Brazil, which shows that the measures we have implemented to normalize the situation in Brazil are taking hold," Baumann said. In that country, Bayer had to establish provisions in the second quarter due to unexpectedly high inventories of crop protection products.
At Crop Protection, the Insecticides business delivered positive performance, with sales rising by 13.2%. Sales declined at Fungicides, Herbicides and SeedGrowth. In contrast, Seeds (which also includes the traits business) reported strong gains, with sales rising by 29.6%.
EBITDA before special items of Crop Science decreased by 3.5% to EUR 307 million in the third quarter of 2017. Lower selling prices and a negative currency effect of around EUR 20 million stood against an increase in other operating income, a decline in the cost of goods sold and a decrease in selling expenses. Positive effects in the mid-double-digit millions were recorded in conjunction with the accounting measures taken in the previous quarter in Brazil.
Sales of the Animal Health business rose by 1.4% to EUR 359 million in a weak market environment overall.
Group outlook for 2017
For the Bayer Group, the company is still planning sales of EUR 35 billion to EUR 36 billion for full year 2017. As before, this corresponds to a low-single-digit percentage increase on a currency- and portfolio-adjusted basis. Bayer continues to expect EBITDA before special items to come in slightly above the level of the previous year. As regards core earnings per share from continuing operations, the company now expects a low-single-digit percentage decrease on the basis of the values that were adjusted for Covestro effects for the current year and previous year.