Alternative Performance Measures Used by the Bayer Group

The Combined Management Report and the consolidated financial statements of the Bayer Group are prepared according to the applicable financial reporting standards. In addition to the disclosures and metrics required by these standards, Bayer publishes alternative performance measures (APMs) that are not defined or specified in these standards and for which there are no generally accepted reporting formats. Bayer determines APMs to enable the comparison of performance indicators over time and against those of other companies in its industry sector. These APMs are calculated by making certain adjustments to items in the statement of financial position or the income statement prepared according to the applicable financial reporting standards. Such adjustments may result from differences in calculation or measurement methods, nonuniform business activities or special factors affecting the information value of these items. The APMs determined in this way apply to all periods and are used both internally for business management purposes and externally by analysts, investors and rating agencies to assess the company’s performance. Bayer determines the following APMs:

  • Change in sales (reported, currency-adjusted, currency- and portfolio-adjusted)
  • EBIT
  • EBITDA
  • EBIT before special items
  • EBITDA before special items
  • EBITDA margin before special items
  • Core earnings per share
  • Net financial debt
  • Return on capital employed (ROCE)
  • Net operating profit after tax (NOPAT)
  • Capital employed
  • Total operating performance
  • Value creation
  • Cost of materials/other expenses
  • Other balance sheet and financial indicators

Online Annex A 2.4-1

limited assurance

In addition to the alternative performance measures listed, it is possible to determine balance sheet and financial indicators which help to analyze the Bayer Group’s sales, earnings and financial position. Some customary indicators and the associated calculation methods are shown in the Online-Annex A 2.2.4-1.

The (reported) change in sales is a relative indicator. It shows the percentage by which sales varied from the previous year.

The currency-adjusted or currency- and portfolio-adjusted change in sales shows the percentage change in sales excluding the impact of exchange rate effects and disregarding the acquisitions and divestments 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 reasons.

EBIT (earnings before interest and taxes) serves to present a company’s operating result while eliminating the effects of differences among local taxation systems and different financing activities. EBIT is calculated as follows:

Income before income taxes

+ / – Financial result (net income / loss from investments accounted for using the equity method, financial income and expenses)

= EBIT

EBITDA stands for earnings before interest, taxes, depreciation and amortization. This performance indicator neutralizes the effects of the financial result along with distortions of operational performance that result from divergent depreciation and amortization methods and the exercise of measurement discretion. EBITDA is EBIT plus the amortization of intangible assets and the depreciation of property, plant and equipment, plus impairment losses and minus impairment loss reversals, recognized in profit or loss during the reporting period.

EBIT

+ / – Depreciation and amortization / impairment losses / impairment loss reversals on property, plant, equipment and intangible assets (as per Statements of Cash Flows)

= EBITDA

EBIT before special items and EBITDA before special items show the development of the operational business irrespective of the effects of special items, i.e. special effects for the company with regard to their nature and magnitude. These may include litigations, restructuring, integration costs, impairment losses and impairment loss reversals. EBIT before special items and EBITDA before special items are each determined by adding special charges and subtracting special gains.

The EBITDA margin before special items is a relative indicator used by Bayer for internal and external comparisons of operational performance. It is the ratio of EBITDA before special items to net sales.

Core earnings per share (core EPS) is an APM is the abbreviation for alternative performance measure; see chapter “Alternative Performance Measures Used by the Bayer Group” for more information. based on the earnings per share (EPS) for the Group as defined in IAS 33. Core earnings per share are determined by neutralizing effects of the purchase price allocations for acquisitions and other special factors to enable a comparison of performance over time. In an intermediate step, further APMs – core EBIT and core net income – are calculated. Core earnings per share are then calculated by dividing core net income per share by the weighted average number of shares in circulation during the year.

EBIT (as per Income Statements)

+ / – Amortization / impairment losses / impairment loss reversals on intangible assets

+ / – Impairment losses / impairment loss reversals on property, plant and equipment

+ / – Special items (excluding depreciation and amortization / impairment losses / impairment loss reversals)

= Core EBIT

+ / – Financial result (as per Income Statements)

+ / – Special items in the financial result

+ / – Income taxes (as per Income Statements)

+ / – Special items in income taxes

+ / – Tax effects relating to depreciation and amortization / impairment losses / impairment loss reversals and special items

+ / – Income after income taxes attributable to noncontrolling interest (as per Income Statements)

+ / – Portion of the above-mentioned adjustments attributable to noncontrolling interest

= Core earnings from continuing operations

/ Weighted average number of shares

= Core earnings per share from continuing operations (core EPS)

As core earnings per share are calculated for each interim reporting period, core earnings per share for the fiscal year or for each interim reporting period up to the respective closing date may deviate from the cumulated core earnings per share for the individual interim reporting periods.

Core earnings per share from continuing or discontinued operations are similarly determined. Core earnings per share form the basis of the Bayer Group’s dividend policy.

Net financial debt is an important financial management indicator for the Bayer Group and is used both internally and externally in assessing its liquidity, capital structure and financial flexibility. This metric is calculated as follows:

Bonds and notes / promissory notes

1

These include the market values of interest-rate and currency hedges of recorded transactions

2

These include short-term loans and receivables with maturities between 3 and 12 months outstanding from banks and other companies as well as available-for-sale financial assets that were recorded as current on initial recognition.

+ Liabilities to banks

+ Liabilities under finance leases

+ Liabilities from derivatives1

+ Other financial liabilities

– Receivables from derivatives1

= Financial liabilities

– Cash and cash equivalents

– Current financial assets2

= Net financial debt

The return on capital employed (ROCE) is the ratio of net operating profit after tax (NOPAT) to the average capital employed. NOPAT represents the operating result after taxes and is calculated by subtracting income taxes from EBIT. Income taxes are calculated by multiplying EBIT by a uniform tax rate of 24%, which is based on a historical average of tax rates. The capital employed by Bayer is the total carrying amount of operational noncurrent and current assets, minus liabilities that are largely non-interest-bearing in character or would distort the capital base. An average value, calculated from the values at the end of the prior year and of the reporting year, is used to depict the change in capital employed during the year. The components of the capital employed are as follows:

Components of capital employed

 

 

Dec. 31, 2015

 

Dec. 31, 2016

 

 

€ million

 

€ million

2015 figures restated

1

Selected items of the component: nonoperative or non-interest-bearing items eliminated within capital employed

Goodwill

 

16,054

 

16,312

Other intangible assets

 

15,171

 

13,567

Property, plant and equipment

 

12,369

 

13,114

Other financial assets1

 

67

 

58

Inventories

 

8,493

 

8,408

Trade accounts receivable

 

9,888

 

10,969

Other receivables1

 

2,042

 

1,701

Deferred tax assets1

 

1,295

 

2,596

Claims for income tax refunds

 

509

 

676

Gross capital employed

 

65,888

 

67,401

Other provisions1

 

(6,713)

 

(7,039)

Trade accounts payable

 

(5,909)

 

(6,410)

Other liabilities1

 

(2,272)

 

(2,695)

Financial liabilities1

 

(13)

 

Deferred tax liabilities1

 

(804)

 

(1,252)

Income tax liabilities

 

(1,320)

 

(1,307)

Capital employed

 

48,857

 

48,698

Average capital employed 2016

 

 

 

48,777

The total operating performance is the sum of net sales, other operating income, financial income and the net income/loss from investments accounted for using the equity method. It is divided between depreciation, amortization, impairment losses and impairment loss reversals, the cost of materials/other expenses and value added. Value added is defined as the sum of EBIT plus personnel expenses and tax expenses not related to income taxes, and the financial result plus interest expense. The cost of materials / other expenses includes all expenses except depreciation, amortization, impairment losses and impairment loss reversals as well as those incorporated in the value added.