Segment Reporting

At Bayer, the Board of Management – as the chief operating decision-maker – allocates resources to the operating segments and assesses their performance. The reportable segments and regions are identified, and the disclosures selected, in line with the internal financial reporting system (management approach) and based on the Group accounting policies outlined in the Note “Basic Principles, Methods and Critical Accounting Estimates”.

In 2015, the Bayer Group comprised three subgroups, with operations subdivided into strategic business entities known as divisions (HealthCare), business groups (CropScience) and business units (Covestro; formerly MaterialScience). On December 31, 2015, there were four reportable segments. In September 2015, it was decided to introduce a new organizational structure effective January 1, 2016, in line with Bayer’s focus on the Life Sciences This term describes Bayer’s activities in health care and agriculture and comprises the Bayer Group excluding its legally independent subsidiary Covestro. It refers to the businesses of the Pharmaceuticals, Consumer Health and Crop Science divisions and the Animal Health business unit. businesses. The former Bayer HealthCare subgroup was dissolved, and the Radiology business is now assigned to the Pharmaceuticals segment. The Consumer Health segment consists entirely of the consumer care business. Animal Health is a reportable segment. The Bayer CropScience subgroup became the Crop Science segment. Covestro remains a reportable segment.

In the Crop Science segment, the Crop Protection / Seeds and Environmental Science operating segments were combined, mainly in light of the comparable nature of their products for the agricultural industry, such as in the area of crop protection and the related comparable production processes and comparable distribution methods, including via wholesalers in particular.

The segments’ activities are as follows:

Activities of the Segments

Activities

Development, production and marketing of prescription products, especially for cardiology and women’s health care; specialty therapeutics in the areas of oncology, hematology and ophthalmology; diagnostic imaging equipment and the necessary contrast agents

Development, production and marketing of mainly nonprescription (OTC = over-the-counter) products in the dermatology, dietary supplement, analgesic, gastrointestinal, cold, allergy, sinus and flu, foot care and sun protection categories

Development, production and marketing of a broad portfolio of products in seeds and plant traits, crop protection and nonagricultural pest control

Development, production and marketing of prescription and nonprescription veterinary products

Development, production and marketing of raw materials for polyurethanes; polycarbonate granules and sheets; raw materials for coatings, adhesives and sealants; and by-products of polyether production and of chlorine production and use

1 Following the signature of a sales agreement with SBM Développement SAS, Lyon, France, the Consumer business of the Environmental Science unit was no longer reported under continuing operations in 2016.

Business activities that cannot be allocated to any other segment are reported under “All other segments.” These primarily include the services provided by the service areas: Business Services, Technology Services and Currenta.

The items in “Corporate Functions and Consolidation” mainly comprise the Bayer holding companies and the Bayer Lifescience Center, which focuses on the development of crucial, cross-species innovations. They also include the increase or decrease in expenses for Group-wide long-term stock-based compensation arising from fluctuations in the performance of Bayer stock, and the consolidation of intersegment sales (2016: €2.3 billion; 2015: €2.4 billion).

In Table B 1/2 “Key Data by Region” as of December 31, 2016, the Europe region is combined with the Middle East and Africa. Latin America is a separate region. The regional breakdown is in line with the internal regional responsibilities of the individual members of the Bayer AG Board of Management. The prior-year figures are restated accordingly. The Reconciliation The reconciliation records, on the one hand, those business activities not assigned to any other segment (“All Other Segments”), including particularly the services provided by Business Services, Technology Services and Currenta. It also includes “Corporate Functions and Consolidation,” which largely comprises Bayer holding companies and the Bayer Lifescience Center. in the table “Key Data by Region” eliminates interregional items and transactions and reflects income, expenses, assets and liabilities not allocable to geographical areas.

The segment data are calculated as follows:

  • Tables “Key Data by Segment” and “Key Data by Region” and the present chapter contain supplementary performance indicators that are not subject to requirements of the financial reporting standards governing the preparation of the Combined Management Report and the consolidated financial statements. The most important of these indicators are EBIT, EBITDA, EBIT before special items, EBITDA before special items, and the return on capital employed. These supplementary indicators are defined, and their calculation explained, in Chapter “Alternative Performance Measures Used by the Bayer Group” of the Combined Management Report in the Bayer Annual Report 2016.
  • The intersegment sales reflect intra-Group transactions effected at transfer prices fixed on an arm’s-length basis.
  • The net cash provided by operating activities is the cash flow from operating activities as defined in IAS 7 (Statement of Cash Flows).
  • The segment assets comprise all assets serving the respective segment, stated as of December 31, including material participating interests of direct relevance to business operations.
  • Starting in 2016, the cash flow return on investment (CFROI) was replaced by the return on capital employed (ROCE) as a value-based indicator. Both CFROI and ROCE constitute alternative performance measures.
  • The equity items reflect the earnings and carrying amounts of investments accounted for using the equity method.
  • Since the financial management of Group companies is carried out centrally by Bayer AG, financial liabilities are not directly allocated among the segments. Consequently, the liabilities shown for the individual segments do not include financial liabilities. These are included in the reconciliation.
  • The number of employees on either permanent or temporary contracts is stated in full-time equivalents (FTE), with part-time employees included on a pro-rated basis in line with their contractual working hours. The figures do not include apprentices.

Reconciliations

The reconciliations of EBITDA before special items, EBIT before special items and EBIT to Group income before income taxes and of the assets and liabilities of the segments to the assets and liabilities, respectively, of the Group are given in the following tables.

Reconciliation of Segments’ EBITDA Before Special Items to Group Income Before Income Taxes

 

 

2015

 

2016

 

 

€ million

 

€ million

2015 figures restated

1

For definition see Combined Management Report, Chapter “Alternative Performance Measures Used by the Bayer Group.”

EBITDA before special items of segments

 

10,722

 

11,640

EBITDA before special items of Corporate Functions and Consolidation

 

(466)

 

(338)

EBITDA before special items1

 

10,256

 

11,302

Depreciation, amortization and impairment losses / loss reversals before special items of segments

 

(3,190)

 

(3,166)

Depreciation, amortization and impairment losses / loss reversals before special items of Corporate Functions and Consolidation

 

(6)

 

(6)

Depreciation, amortization and impairment losses / loss reversals before special items

 

(3,196)

 

(3,172)

EBIT before special items of segments

 

7,532

 

8,474

EBIT before special items of Corporate Functions and Consolidation

 

(472)

 

(344)

EBIT before special items1

 

7,060

 

8,130

Special items of segments

 

(792)

 

(1,068)

Special items of Corporate Functions and Consolidation

 

(27)

 

(20)

Special items1

 

(819)

 

(1,088)

EBIT of segments

 

6,740

 

7,406

EBIT of Corporate Functions and Consolidation

 

(499)

 

(364)

EBIT1

 

6,241

 

7,042

Financial result

 

(1,005)

 

(1,155)

Income before income taxes

 

5,236

 

5,887

Reconciliation The reconciliation records, on the one hand, those business activities not assigned to any other segment (“All Other Segments”), including particularly the services provided by Business Services, Technology Services and Currenta. It also includes “Corporate Functions and Consolidation,” which largely comprises Bayer holding companies and the Bayer Lifescience Center. of Segments’ Assets to Group Assets

 

 

2015

 

2016

 

 

€ million

 

€ million

Assets of the operating segments

 

65,654

 

66,252

Corporate Functions and Consolidation assets

 

181

 

507

Nonallocated assets

 

7,899

 

15,479

Assets of discontinued operations

 

183

 

Group assets

 

73,917

 

82,238

Reconciliation of Segments’ Liabilities to Group Liabilities

 

 

2015

 

2016

 

 

€ million

 

€ million

Liabilities of the operating segments

 

24,557

 

26,617

Corporate Functions and Consolidation liabilities

 

2,645

 

1,996

Nonallocated liabilities

 

21,158

 

21,728

Liabilities directly related to discontinued operations

 

112

 

Group liabilities

 

48,472

 

50,341

The reconciliation of segment sales to Group sales is apparent from the table of key data by segment in the Note “Key Data by Segment and Region”.

Information on geographical areas

The following table provides a regional breakdown of external sales by market and of intangible assets, property, plant and equipment:

Information on Geographical Areas

 

 

Net sales (external) – by market

 

Intangible assets and property, plant and equipment

 

 

2015

2016

 

2015

2016

 

 

€ million

€ million

 

€ million

€ million

2015 figures restated

Germany

 

4,925

4,809

 

12,385

12,468

United States

 

11,168

11,310

 

14,420

14,297

China

 

4,212

4,603

 

3,260

2,938

Switzerland

 

691

662

 

5,298

5,047

Other

 

25,089

25,385

 

8,286

8,243

Total

 

46,085

46,769

 

43,649

42,993

Information on major customers

Revenues from transactions with a single customer in no case exceeded 10% of Bayer Group sales in 2016 or 2015.