Overview of Sales, Earnings and Financial Position

Third quarter of 2016

Sales of the Bayer Group increased by 3.5% to €11,262 million in the third quarter of 2016 after adjusting for currency and portfolio changes (Fx & portfolio adj.1; reported2: +2.3%). Germany accounted for €1,170 million of this figure.

Pharmaceuticals posted encouraging sales growth of 7.6% (Fx & portfolio adj.) to €4,152 million. The strong business development of our recently launched products continued. Consumer Health sales grew by 3.6% (Fx & portfolio adj.) to €1,425 million. Sales of Crop Science were level year on year (Fx & portfolio adj.: 0.0%) despite the persistently weak market environment, at €2,057 million. Animal Health posted a 2.5% (Fx & portfolio adj.) sales increase to €360 million. Sales of the Life Science businesses amounted to €8,258 million overall (Fx & portfolio adj.: +4.5%). Sales of Covestro rose slightly, increasing by 1.0% (Fx & portfolio adj.) to €3,004 million.

Group EBITDA before special items improved by 6.0% to €2,682 million. EBITDA before special items at Pharmaceuticals improved by a substantial 13.4% to €1,421 million. This growth in earnings was largely due to the very good development of business, particularly for our recently launched products. We again increased our research and development spending disproportionately. EBITDA before special items of Consumer Health receded by 3.5% to €328 million. The earnings contributions from the positive business performance were not sufficient to offset the higher cost of goods sold and currency effects. EBITDA before special items of Crop Science edged forward 0.6% to €318 million, which was level with the prior-year quarter. Animal Health improved EBITDA before special items by 6.0% to €89 million. The Life Science businesses recorded EBITDA before special items of €2,118 million overall (+2.9%). Covestro raised EBITDA before special items by a considerable 19.5% to €564 million.

EBIT of the Bayer Group advanced by 14.2% to €1,795 million (Q3 2015: €1,572 million) after special charges of €125 million (Q3 2015: €204 million). These mainly comprised €52 million in connection with the agreed acquisition of Monsanto, €49 million for efficiency improvement measures and €23 million for the integration of acquired businesses. EBIT before special items moved forward by 8.1% to €1,920 million (Q3 2015: €1,776 million).

After a financial result of minus €274 million (Q3 2015: minus €280 million), income before income taxes was €1,521 million (Q3 2015: €1,292 million). After income tax expense of €305 million (Q3 2015: €298 million) and income from discontinued operations after income taxes and noncontrolling interest, net income in the third quarter of 2016 came to €1,187 million (Q3 2015: €999 million). Earnings per share (overall) were €1.43 (Q3 2015: €1.21). Core earnings per share from continuing operations advanced to €1.73 (Q3 2015: €1.69).

Gross cash flow from continuing operations in the third quarter of 2016 climbed by a robust 36.1% to €1,951 million (Q3 2015: €1,434 million), due among other things to the increase in EBIT. Owing to a decrease in cash tied up in working capital, net cash flow (total) rose by a substantial 31.0% to €3,053 million (Q3 2015: €2,330 million). We paid income taxes of €370 million in the third quarter of 2016 (Q3 2015: €421 million).

Net financial debt declined by €2.0 billion, from €17.8 billion on June 30, 2016, to €15.8 billion on September 30, 2016, due mainly to cash inflows from operating activities. The net defined benefit liability for post-employment benefits – the difference between benefit obligations and plan assets – increased from €13.8 billion to €14.5 billion over the same period, due especially to a decline in long-term capital market interest rates for high-quality corporate bonds in Germany and the United Kingdom.

The number of people employed by the Bayer Group declined by 2.1% from 117,639 on September 30, 2015, to 115,176 on September 30, 2016. Personnel expenses rose by 2.7% in the same period, from €2,733 million to €2,806 million.

First nine months of 2016

Group sales in the first nine months of 2016 rose by 3.0% (Fx & portfolio adj.) to €34,949 million (reported: +0.4%). Our Life Science businesses contributed to this performance, growing sales by 5.0% (Fx & portfolio adj.) to €26,120 million.

Sales of Pharmaceuticals advanced by a gratifying 9.3% (Fx & portfolio adj.) to €12,145 million. Sales of Consumer Health improved by 3.3% (Fx & portfolio adj.) to €4,498 million. Sales of Crop Science were flat year on year (Fx & portfolio adj.: +0.6%) at €7,511 million. Animal Health sales rose by 5.2% (Fx & portfolio adj.) to €1,194 million. Covestro saw sales fall by 2.6% (Fx & portfolio adj.) to €8,829 million.

EBITDA before special items of the Bayer Group advanced by an encouraging 9.4% to €9,123 million (9M 2015: €8,340 million). This was due to the substantial increase in sales volumes and the lower cost of goods sold. We achieved this good business development despite dissynergies resulting from the legal independence of Covestro and the sale of Diabetes Care along with higher research and development spending. Earnings were held back by negative currency effects of around €100 million. Pharmaceuticals increased EBITDA before special items by a substantial 14.2% to €4,034 million. EBITDA before special items of Consumer Health receded by 3.0% to €1,039 million. The earnings contributions from the good business performance were not sufficient to offset the higher cost of goods sold and currency effects of around minus €60 million. EBITDA before special items was level year on year at Crop Science (+0.5%; €2,070 million), while Animal Health registered a slight earnings increase of 1.6% to €311 million. The Life Science businesses increased EBITDA before special items by 8.3% overall to €7,512 million. EBITDA before special items of Covestro grew by a substantial 14.9% to €1,611 million.

EBIT of the Bayer Group advanced strongly, gaining 17.5% to €6,253 million (9M 2015: €5,320 million) after net special charges of €501 million (9M 2015: €703 million). EBIT before special items moved forward by a clear 12.1% to €6,754 million (9M 2015: €6,023 million).

After a financial result of minus €903 million (9M 2015: minus €841 million), income before income taxes was €5,350 million (9M 2015: €4,479 million). The financial result mainly comprised net interest expense of €401 million (9M 2015: €409 million), currency hedging costs of €232 million (9M 2015: €187 million) and interest cost of €209 million (9M 2015: €220 million) for pension and other provisions. After tax expense of €1,210 million (9M 2015: €1,057 million), income after income taxes was €4,140 million (9M 2015: €3,422 million). After income from discontinued operations after income taxes and noncontrolling interest, net income in the first nine months of 2016 came to €4,078 million (9M 2015: €3,497 million). Earnings per share (overall) improved to €4.93 (9M 2015: €4.23), and core earnings per share for continuing operations to €6.15 (9M 2015: €5.74).

Gross cash flow from continuing operations climbed sharply, rising by 23.0% to €6,881 million (9M 2015: €5,596 million). Despite an increase in cash tied up in working capital, net cash flow (total) rose by 26.8% to €6,357 million (9M 2015: €5,013 million) due mainly to the inflow from the divestiture of the Diabetes Care business. This figure reflected income tax payments of €1,578 million (9M 2015: €1,217 million). Net financial debt decreased by €1.6 billion compared with December 31, 2015 (€17.4 billion), to €15.8 billion as of September 30, 2016. The net defined benefit liability for post-employment benefits rose from €10.8 billion on December 31, 2015, to €14.5 billion, mainly due to a decrease in long-term capital market interest rates for high-quality corporate bonds.

1 The currency- and portfolio-adjusted sales growth shows the percentage change in sales excluding the impact of exchange rate effects and the acquisitions and divestitures material to each business entity. Exchange rate effects are generally calculated on the basis of the functional currency valid in the respective country. Exceptions exist in Brazil and Argentina, primarily at Crop Protection, where the respective functional currencies are restated in U.S. dollars for business-related reasons.

2 The (reported) sales growth is a relative indicator showing the percentage change in sales compared with the prior-year period.