Management Report & Annexes | Report on Economic Position
Bayer: strong business momentum continues and portfolio transformation underway
- Group portfolio to focus on Life Sciences
- All subgroups contribute to record sales and earnings
- Continued growth momentum for recently launched products
- Group sales €42.2 billion (Fx & portfolio adj. +7.2%)
- EBIT €5.5 billion (+11.6%)
- EBITDA before special items €8.8 billion (+4.9%)
- Net income €3.4 billion (+7.4%)
- Core earnings per share €6.02 (+7.3%)
- Forecast for 2015: further sales growth and clear improvement in earnings
14. Overview of Sales, Earnings and Financial Position
Full year 2014
Bayer had a very successful year in 2014, both operationally and strategically. We set new records for sales and for ebitda before special items. The growth momentum in our Life Science businesses – HealthCare and CropScience – persisted, driven by sales of our recently launched products. MaterialScience also registered encouraging sales gains. Group ebitda before special items advanced significantly. Tangible volume growth and a modest rise in selling prices more than offset higher selling and r&d expenses and negative currency effects.
In 2014 we set the course for the Bayer Group to focus on the Life Science businesses – HealthCare and CropScience. MaterialScience is to be floated on the stock market as a separate company by mid-2016 at the latest. We considerably strengthened our Consumer Health segment by acquiring the consumer care businesses of Merck & Co., Inc., United States, and Dihon Pharmaceutical Group Co. Ltd., China. Our Pharmaceuticals business benefited from the acquisition of Algeta asa, Norway, with which Bayer was already collaborating to develop and commercialize the cancer drug XofigoTM.
|Changes in Sales[Table 3.14.1]|
Group sales advanced by 7.2% on a currency- and portfolio-adjusted basis (Fx & portfolio adj.) to €42,239 million (reported: +5.2%; 2013: €40,157 million). All subgroups contributed to this increase. Sales of HealthCare improved by 7.5% (Fx & portfolio adj.; reported: +5.6%). CropScience sales gained 11.2% (Fx & portfolio adj.; reported: +7.7%) against the prior year. Sales at MaterialScience grew by 4.8% (Fx & portfolio adj.; reported: +3.7%).
ebit of the Bayer Group rose by 11.6% to €5,506 million (2013: €4,934 million) after net special charges of €438 million (2013: €839 million). The special charges mainly included €173 million for the derecognition of goodwill as a result of the sGC collaboration agreement with Merck & Co., Inc, United States, €153 million in integration costs for acquired businesses, and €89 million in accounting measures for litigations. These amounts were partly offset by a one-time net gain of €77 million from the sale of our Interventional device business to Boston Scientific, United States. ebit before special items rose by 3.0% to €5,944 million (2013: €5,773 million).
ebitda before special items increased by 4.9% to €8,812 million (2013: €8,401 million) despite negative currency effects of approximately €410 million or 4%. The good sales development was accompanied by higher selling and r&d expenses. At HealthCare, ebitda before special items improved by 2.8% to €5,484 million (2013: €5,334 million; currency effect approx. minus 6%). While earnings of the Pharmaceuticals segment improved, those of Consumer Health declined. ebitda before special items of CropScience rose by 5.0% to €2,360 million (2013: €2,248 million; currency effect approx. minus 2%) as a result of volume gains and higher selling prices. ebitda before special items of MaterialScience advanced by 10.7% to €1,187 million (2013: €1,072 million; currency effect 0%), mainly thanks to higher volumes and lower raw material and energy costs.
After a financial result of minus €981 million (2013: minus €727 million), income before income taxes was €4,525 million (2013: €4,207 million). After tax expense of €1,082 million (2013: €1,021 million) and non-controlling interest, net income for 2014 came in at €3,426 million (2013: €3,189 million). Earnings per share were €4.14 (2013: €3.86). Core earnings per share advanced by 7.3% to €6.02 (2013: €5.61), calculated as explained in Chapter 16.3 “Core Earnings Per Share.”
Gross cash flow climbed by 16.9% in 2014 to €6,820 million (2013: €5,832 million), mainly because of the improvement in ebit. Net cash flow moved ahead by 12.4% to €5,810 million (2013: €5,171 million) after a business-related increase in cash tied up in working capital and €778 million in deferred income from the one-time payment received in connection with the sGC collaboration with Merck & Co., Inc., United States. In 2014 we paid income taxes amounting to €1,835 million (2013: €1,281 million). Net financial debt rose by €12.9 billion against December 31, 2013, to €19.6 billion as a result of acquisitions. The net defined benefit liability for post-employment benefits – the difference between benefit obligations and plan assets – increased from €7.3 billion to €12.2 billion over the same period, mainly due to a decline in long-term capital market interest rates for high-quality corporate bonds.
Total assets increased in 2014 by 36.9% to €70.2 billion. Noncurrent assets rose by 48.7% to €48.0 billion, mainly as a result of acquisitions. Goodwill rose by €6.3 billion to €16.2 billion and other intangible assets by €6.7 billion to €15.6 billion. The carrying amount of current assets increased by 16.8% to €22.2 billion. Equity decreased by €0.6 billion to €20.2 billion. Liabilities increased by €19.5 billion against December 31, 2013 to €50.0 billion, mainly due to a €12.8 billion acquisition-related increase in financial liabilities and a €4.9 billion increase in pension provisions.
Fourth quarter of 2014
Group sales in the fourth quarter of 2014 rose by 6.9% (Fx & portfolio adj.) to €11,039 million (reported: +11.6%). Sales of HealthCare gained 7.8% (Fx & portfolio adj.) to €5,598 million (reported: +13.3%). Business in the Pharmaceuticals segment expanded by 10.1% (Fx & portfolio adj.) to €3,271 million (reported: +9.9%), driven by the encouraging development of our recently launched products. Sales at Consumer Health came in 4.2% ahead of the prior-year quarter at €2,327 million (reported: +18.5%). CropScience sales climbed by 8.3% (Fx & portfolio adj.) in the fourth quarter to €2,195 million (reported: +12.5%) as a result of higher volumes. Sales of MaterialScience rose by 5.5% (Fx & portfolio adj.) against the prior-year period, to €2,948 million (reported: +9.6%), thanks primarily to volume increases.
ebit of the Bayer Group declined by 14.4% in the fourth quarter of 2014, to €561 million (q4 2013: €655 million). Earnings were diminished by net special charges of €442 million (q4 2013: €439 million). The special charges mainly included €173 million for the derecognition of goodwill as a result of the sGC collaboration agreement with Merck & Co., Inc, United States, €89 million in accounting measures for litigations and €86 million in integration costs for acquired businesses. ebit before special items fell by 8.3% to €1,003 million (q4 2013: €1,094 million).
ebitda before special items rose in the fourth quarter of 2014 by 4.4% to €1,846 million (q4 2013: €1,769 million), mainly as a result of higher volumes in all subgroups. Earnings were held back by higher selling and r&d expenses. HealthCare registered a 6.7% increase in ebitda before special items to €1,426 million (q4 2013: €1,337 million), while CropScience posted a 15.7% gain to €369 million (q4 2013: €319 million). ebitda before special items of MaterialScience came in at €217 million (q4 2013: €248 million), down 12.5% against the prior-year quarter.
After a financial result of minus €347 million (q4 2013: minus €84 million), income before income taxes fell to €214 million (q4 2013: €571 million). The financial result mainly comprised net interest expense of €148 million (q4 2013: €61 million), interest cost of €111 million (q4 2013: €62 million) for pension and other provisions, and exchange losses of €66 million (q4 2013: €29 million). After taxes and non-controlling interest, net income amounted to €224 million (q4 2013: €455 million). Earnings per share declined to €0.27 (q4 2013: €0.55). However, core earnings per share rose to €1.19 (q4 2013: €1.10), calculated as explained in Chapter 16.3 “Core Earnings Per Share.”
Gross cash flow of the Group advanced by 61.0% to €1,575 million (q4 2013: €978 million) and net cash flow by 41.1% to €2,230 million (q4 2013: €1,580 million). The sharp rise in net cash flow was largely attributable to the €778 million in deferred income from the one-time payment received in connection with the sGC collaboration with Merck & Co., Inc., United States. Net financial debt rose by €11.1 billion in the fourth quarter of 2014 to €19.6 billion (September 30, 2014: €8.5 billion), mainly due to higher borrowings for acquisitions. The net defined benefit liability for post-employment benefits increased by €0.9 billion against September 30, 2014, to €12.2 billion, mainly due to a decline in long-term capital market interest rates for high-quality corporate bonds.
|Key Data by Subgroup and Segment [Table 3.14.2]|
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|1 For definition see Chapter 16.2 “Calculation of EBIT(DA) Before Special Items.”|