Opportunity and Risk Status

We classify the risks identified by the risk early warning system as high, medium or low – depending on the potential loss or damage and the probability of occurrence – according to the following matrix.

Risk Rating Matrix According to Financial Criteria



Likelihood of occurrence








H = high risk, M = medium risk, L = low risk

Cumulative impact (€ million)







> 1,250







500 – 1,250







< 500







Here we report the risks classified as “medium” or “high” along with the material opportunities identified by our opportunity management. In addition, we report significant risks that from a financial point of view may not be directly or reliably quantifiable, if at all. Comparable risks existing in different parts of the company are aggregated in some cases. The order in which the risks are listed does not imply any order of importance. The opportunities and risks described may apply to all segments unless otherwise indicated. The impact on the Bayer Group of risks attaching to Covestro is affected by the size of Bayer’s shareholding. Comprehensive information on Covestro’s opportunity and risk status is provided in the current opportunity and risk report forming part of the management report of Covestro AG.

Corporate environment

Ethical conduct is a matter of essential importance for society. The Bayer Group is dedicated to sustainable development in all areas of its commercial activity. This voluntary commitment is reflected in our responsible Corporate governance comprises the long-term management and oversight of the company in accordance with the principles of responsibility and transparency. The German Corporate Governance Code sets out basic principles for the management and oversight of publicly listed companies. .

Opportunities arising from macrotrends

The increase in quality of life and life expectancy is leading to a heightened focus on the medical care needs of elderly patients. Our concentration on certain partly age-related diseases such as cancer or chronic cardiovascular disorders harbors opportunities for us. In response to the growing demand for innovative health care products to treat age-related diseases, Bayer’s Pharmaceuticals segment is concentrating its research and development activities on relevant therapeutic areas such as oncology and cardiology.

The opportunities for our agricultural businesses arise from global population growth and the increasing demand for food. In addition, consumer behavior in some regions is shifting toward higher demand for food products of animal origin. Agricultural productivity therefore needs to increase in view of declining per-capita acreages, the challenges presented by climate change, and increasing pesticide resistance. We expect the demand for high-value seed and crop protection products to rise in light of the need to produce sufficient food and animal feed to meet the growing demand in spite of limited acreages. In response, Crop Science is developing processes to more effectively protect plants against climatic and environmental stress and raise crop yields, for example.

Economic environment

There is a risk that our growth could be impeded by increasing global cost pressure on health care systems. The prices of pharmaceutical products are subject to regulatory monitoring and control in many markets, and government reimbursement systems often favor less expensive generic medicines over branded products. In addition, in some markets, major health care providers can exert substantial pressure on prices. Price controls and pricing pressure reduce earnings from our pharmaceutical products and may occasionally make the market launch of a new product unprofitable. As a result, it may be necessary to choose indirect marketing options in order to provide access to pharmaceuticals. We expect the current extent of regulatory controls and pricing pressure to persist or increase. A further factor is that our 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 operate in highly competitive markets. Corporate mergers, along with business practices such as aggressive pricing strategies – not only in the field of generic competition – may adversely affect our earnings.

However, the pressure on health care also presents us with opportunities in the area of nonprescription medicines. Patients are sometimes directed toward non-reimbursable, non-prescription medicines, some of which are manufactured in Bayer’s Consumer Health segment. Moreover, the consumption of health products is increasing due to the aging population.

Modern agricultural methods, the application of certain classes of crop protection products and the use of genetic engineering are repeatedly the subject of intense public debate. This political opinion-forming may yield legislative and regulatory decisions that significantly limit the use of our products or even result in voluntary or mandated product withdrawals. In addition, decisions by the European Union, for example, also affect agricultural imports from other parts of the world and therefore our business in those regions. For these reasons we are engaged in a constant dialogue with interest groups and regulators to promote a scientifically founded, rational and responsible discussion and decision-making process.

In the Crop Science segment, risks may arise from seasonal fluctuations in the weather, market volatility for agricultural products and our customers’ financial situations, for example. These may adversely affect both our crop protection and our seeds businesses.

The current global consolidation process in the seeds and crop protection industry could greatly alter our future competitive environment. We are responding to this trend with acquisitions, collaborations and the expansion of in-house research and development capacities.

Negative economic developments generally have an adverse effect on the sales markets for Covestro’s products, usually leading to lower sales volumes and a drop in the company’s operational earnings. The extent of these effects on volumes and the operating result also depend on capacity utilization in the industry, which in turn varies according to the supply-demand ratio for industry-specific products. A decline in demand leads to lower sales volumes and ultimately to lower capacity utilization, which adversely impacts margins.

Further opportunities and risks may arise if the future economic development of our markets varies from our estimates. If macroeconomic development is out of line with forecasts, this may positively or negatively impact our sales and earnings expectations.

Continuous analysis of the economic and regulatory environment and of economic forecasts enables us to pursue the opportunities we identify and address risks. We also closely monitor political developments in key markets.


We believe that our innovation strength holds opportunities both for the continued development of our brands and for the expansion of the research pipeline in all of our businesses. In the Pharmaceuticals segment, opportunities are inherent in the digitization taking place along the entire value chain – from new, time-saving and efficiency-enhancing research and development methods to new technologies that give us access to innovative business models. In Consumer Health, digital platforms for products and services are opening up new potential for us alongside the conventional business with nonprescription medicines. In the Crop Science segment, the digitization of agriculture presents a major opportunity for achieving greater efficiency and sustainability. We also rely on networking, both within the company and with external partners, to boost our innovation strength. This stimulates the development of new products in the long term. Despite all our efforts, we cannot assure that all of the products we are currently developing or will develop in the future will achieve planned approval/registration or commercial success. For example, a drug candidate may fail to meet trial endpoints. The Bayer Group seeks to counter this risk by way of holistic portfolio management in order to estimate the probability of success and prioritize its development projects.

There is steady growth in public and regulatory expectations with regard to the safety and efficacy of chemical, biological and pharmaceutical products so we continue to anticipate increasing regulatory requirements for clinical or (eco)toxicological studies, for example. This leads to higher product development costs and longer timeframes. Projects are set up to coordinate the proper implementation of new regulatory requirements.


Where it appears strategically advantageous, we supplement our organic growth by acquiring companies or parts of companies. The integration of new businesses has contributed to our success in the past and will result in opportunities in the future as well. However, failure to successfully integrate a newly acquired business or unexpectedly high integration costs, for example, could jeopardize the achievement of qualitative or quantitative targets and adversely impact earnings. In the course of due diligence and throughout the subsequent integration process, we seek to identify and classify the potential risks of an acquisition target such as compliance with applicable environmental regulations and occupational health and safety standards at production sites.

In connection with the acquisition of Monsanto, the merger agreement provides for payment by Bayer of a US$ 2 billion reverse break fee including, in particular, in the event that the necessary antitrust approvals are not granted by June 14, 2018, and Bayer or Monsanto therefore terminates the merger agreement. Further risks that may arise in connection with the agreed acquisition of Monsanto are described in Chapter “Planned Acquisition of Monsanto”.


We have collaborations in place along the value chain of our products. Suboptimum performance by collaboration partners may affect the development, manufacture or marketing of our products and services and adversely impact our business. In some countries, for example, the marketing rights for certain pharmaceutical products are held by third parties. Inadequate performance by these marketing partners could adversely affect the development of our sales and costs. Therefore, we have established an Alliance Management unit to monitor the most important collaborations and provide relevant support to the operational functions.

Patent protection

Patents protect our intellectual property. The Bayer Group, now as in the past, has a portfolio that largely consists of patent-protected products. When our products are successfully commercialized, some of the profits can be used to continue investing in research and development. Due to the long period of time between the patent application and the market launch of a product, Bayer generally only has a few years in which to earn an adequate return on its investment in research and development. This makes effective and reliable patent protection all the more important. Generic manufacturers, in particular, attempt to contest patents prior to their expiration. Sometimes a generic version of a product may even be launched “at risk” prior to the issuance of a final patent decision. We are currently involved in legal proceedings to enforce patent protection for our products. When a patent defense is unsuccessful, or if one of our patents expires, our prices are likely to come under pressure because of increased competition from generic products entering the market. Legal action by third parties for alleged infringement of patent or proprietary rights by Bayer may impede or even halt the development or manufacturing of certain products or require us to pay monetary damages or royalties to third parties. Our patents department regularly reviews the patent situation in collaboration with the respective operating units and monitors for potential patent infringements so that legal action can be taken if necessary.

Products and product stewardship

Bayer evaluates the potential health and environmental risks of a product along the entire value chain. Despite extensive studies prior to approval or registration, it is possible that products could be partially or completely withdrawn from the market due to the occurrence of unexpected side effects or other factors. Such a withdrawal may be voluntary or result from legal or regulatory measures. Furthermore, the presence of traces of unwanted genetically modified organisms in agricultural products and/or foodstuffs cannot be entirely excluded. Potential payments of damages in connection with the above risks may have a substantial negative impact on our earnings. Our businesses counter these risks through their organizational and operational structure in the areas of pharmaceutical and crop protection product safety and testing. In addition, Crop Science has a comprehensive stewardship program in place. Stewardship refers to the responsible and ethical management of products over their entire life cycles.

Another risk we face is that of illegal trading in counterfeit medicines and crop protection products by criminal third parties. In most cases, the composition and the quality of counterfeit products do not correspond to those of the original products. In addition, the fact that no local regulatory authority is involved in assuring the quality of the manufacturing or distribution process precludes any official product recall. Products originating from illegal third-party manufacturing not only endanger patients, users, animals and the environment, but also jeopardize the good reputation of our company and products and undermine our competitive position. Bayer actively assists authorities’ efforts to combat product counterfeiting by adopting preventive measures and prosecuting offenders.

Procurement and production

Our Supplier Code of Conduct includes legal and ethical standards to which Bayer attaches the utmost importance. Violations of the Code may also harm our company’s reputation. On the basis of supplier assessments and audits, we verify whether our partners along the supply chain actually comply with our Code of Conduct.

We attach great importance not only to product safety but also to protecting our employees and the environment. Risks associated with the manufacturing, filling, storage or shipping of products are mitigated by means of integrated HSEQ stands for health, safety, environment, quality. management. The materialization of such risks may result in personal injury, property and environmental damage, loss of production, business interruptions and/or liability for compensation payments.

Despite all precautions, operations at our sites may be disrupted by natural disasters, fires or explosions, sabotage or supply shortages for our principal raw materials or intermediates. This also applies to external partners along the value chain. Disruption may also result from possible regulatory or legislative changes in the respective countries. If we are unable to meet demand for our products, sales may undergo a structural decline. We counter this risk by distributing production for certain products among multiple sites or by building up safety stocks. Furthermore, an emergency response system based on the respective Corporate Policy has been implemented at all our production sites as a mandatory component of our HSEQ management.


Skilled and dedicated employees are essential for the company’s success. There is keen competition among companies for highly qualified personnel, particularly in countries with full employment and in the emerging economies of Asia and Latin America. If we are unable to recruit a sufficient number of employees in these countries and retain them within Bayer, this could have significant adverse consequences for the company’s future development. Based on our analysis of future requirements, we design appropriate employee recruitment and development measures. In addition, our employee Diversity designates the variation within the workforce in terms of gender, origin, nationality, age, religion, sexual orientation and physical capability. policy enables us to tap the full potential of the employment market. In times of considerable strategic and organizational change at Bayer, deliberate and transparent change management forms an integral part of our human resources management, enabling us to constantly motivate our employees.

Information technology

Business and production processes and the internal and external communications of the Bayer Group are increasingly dependent on global IT systems. A significant technical disruption or failure of IT systems could severely impair our business and production processes. Technical precautions such as data recovery and continuity plans are defined and continuously evolved in close cooperation with our internal IT organization. The confidentiality of internal and external data is of fundamental importance to Bayer. A loss of data confidentiality, integrity or authenticity could lead to manipulation and/or the uncontrolled outflow of data and know-how. We have measures in place to counter this risk, including an authorization system. Furthermore, a committee has been established to determine the fundamental strategy, architecture and safety measures for the Bayer Group. Through these measures, we aim to provide optimum protection based on state-of-the-art technology.

Law and compliance

The Bayer Group is exposed to risks from legal disputes or proceedings to which we are currently a party or which could arise in the future, particularly in the areas of product liability, competition and antitrust law, anticorruption law, patent law, tax law and environmental protection. Investigations of possible legal or regulatory violations, such as potential infringements of antitrust law or certain marketing and/or distribution methods, may result in the imposition of civil or criminal penalties – including substantial monetary fines – and/or other adverse financial consequences, harm Bayer’s reputation and ultimately hamper our commercial success. Bayer has established a global compliance management system to ensure the observance of laws and regulations.

Tax risks

Bayer AG and its subsidiaries operate worldwide and are thus subject to many different local tax laws and regulations. Bayer Group companies are regularly audited by the tax authorities in various countries. Amendments to tax laws and regulations, legal judgments and their interpretation by the tax authorities, and the findings of tax audits in these countries may result in higher tax expense and payments, thus also influencing the level of tax receivables, tax liabilities and deferred tax assets and liabilities.

Financial opportunities and risks

The Bayer Group sees financial opportunities in the market prices it can command, and is exposed to financial risks in the form of liquidity, credit and market price risks, as well as risks resulting from pension obligations.

Liquidity risk

Liquidity risks result from the possible inability of the Bayer Group to meet current or future payment obligations due to a lack of cash or cash equivalents. The liquidity risk is determined and managed by the Finance department as part of our same-day and medium-term liquidity planning. The Bayer Group holds sufficient liquidity to ensure the fulfillment of all planned payment obligations at maturity. In addition, a reserve is maintained for unbudgeted shortfalls in cash receipts or unexpected disbursements. The amount of this liquidity reserve is regularly reviewed and adjusted as necessary according to circumstances. Liquidity is mainly ensured through overnight and term deposits. Credit facilities also exist with banks. These include, in particular, an undrawn €3.5 billion Syndicated credit facility Credit line agreed with a group of banks; generally used for extensive financing requirements, such as when making an acquisition, to increase available liquidity or as security for the issuance of debt instruments. The credit facility can be utilized and repaid flexibly, either in full or in portions, during its term. . Additionally, credit facilities totaling €1.5 billion are available to the Covestro Group.

Credit risks

Credit risks arise from the possibility that the value of receivables or other financial assets of the Bayer Group may be impaired because counterparties cannot meet their payment or other performance obligations. The maximum default risk is reduced by existing collateral, especially our global credit insurance programs.

Positive and negative fair values of derivative financial instruments may be netted when certain conditions are fulfilled. To manage credit risks from trade receivables, the respective invoicing companies appoint credit managers who regularly analyze customers’ creditworthiness. Some of these receivables are collateralized, and the collateral is used according to local conditions. It includes credit insurance, advance payments, letters of credit and guarantees. We generally agree reservation of title with our customers. Credit limits are set for all customers. All credit limits for debtors where total exposure is €10 million or more are evaluated by local credit management and submitted to the Group-wide risk committee of the Finance function. Credit risks from financial transactions are managed centrally in the Finance department. To minimize risks, financial transactions are only conducted within predefined exposure limits and with banks and other partners that preferably have investment-grade ratings. All risk limits are based on methodical models, and adherence to them is continuously monitored.

Opportunities and risks resulting from market price changes

Opportunities and risks resulting from fluctuating exchange and interest rates in the market are managed by the Finance function. Risks are avoided or mitigated through the use of derivative financial instruments. The type and level of currency and interest-rate risks are explained using sensitivity analyses based on hypothetical changes in risk variables (such as interest curves) to determine the potential effects of market price fluctuations on equity and earnings. The assumptions used in the sensitivity analyses reflect our view of the changes in currency exchange and interest rates that are reasonably possible over a one-year period. These assumptions are regularly reviewed.

Foreign currencies

Foreign currency opportunities and risks for the Bayer Group result from changes in exchange rates and the related changes in the value of financial instruments (including receivables and payables) and of anticipated payment receipts and disbursements in the functional currency. Receivables and payables in liquid currencies from operating activities and financial items are generally fully exchange-hedged through forward exchange contracts and cross-currency interest-rate swaps. Anticipated exposure from planned payment receipts and disbursements in the future is hedged according to the rules agreed between the Board of Management, the Finance function and the operating units. Hedging takes place through forward exchange contracts and currency options.

Sensitivities were determined on the basis of a hypothetical adverse scenario in which the euro depreciates by 10% against all other currencies compared with the year-end exchange rates. In this scenario, the estimated hypothetical loss of cash flows from derivative and nonderivative financial instruments would have diminished earnings and equity (other comprehensive income) as of December 31, 2016, by €380 million (December 31, 2015: €303 million). Of this amount, €174 million is related to the U.S. dollar, €58 million to the Chinese renminbi, €57 million to the Japanese yen and €33 million to the Canadian dollar. Currency effects on anticipated exposure are not taken into account. Derivatives used to hedge anticipated currency exposure that are designated for hedge accounting would have diminished other comprehensive income by €365 million.

Interest rates

Interest-rate opportunities and risks result for the Bayer Group through changes in capital market interest rates, which in turn could lead to changes in the fair value of fixed-rate financial instruments and changes in interest payments in the case of floating-rate instruments. Interest-rate opportunities and risks are managed over a target duration established by management for Bayer Group debt. This target duration is subject to regular review. Interest-rate swaps are concluded to achieve the target structure for Bayer Group debt. A sensitivity analysis based on our net floating-rate receivables and payables position at year end 2016, taking into account the interest rates relevant for our receivables and payables in all principal currencies, produced the following result: a hypothetical increase of one percentage point in these interest rates (assuming constant currency exchange rates) as of January 1, 2016, would have raised our interest expense for the year ended December 31, 2016, by €31 million (December 31, 2015: €29 million).

Financial risks associated with pension obligations

The Bayer Group has obligations to current and former employees related to pensions and other post-employment benefits. Changes in relevant measurement parameters such as interest rates, mortality and salary increase rates may raise the present value of our pension obligations. This may lead to increased costs for pension plans or diminish equity due to actuarial losses being recognized as other comprehensive income in the statement of comprehensive income. A large proportion of our pension and other post-employment benefit obligations is covered by plan assets including fixed-income securities, shares, real estate and other investments. Declining or even negative returns on these investments may adversely affect the future fair value of plan assets. Both these effects may negatively impact the development of equity and/or earnings and/or may necessitate additional payments by our company. We address the risk of market-related fluctuations in the fair value of our plan assets through balanced strategic investment, and we constantly monitor investment risks in regard to our global pension obligations.