5. 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 Note [4].

As of December 31, 2015, the Bayer Group comprised three subgroups, with operations subdivided into strategic business entities known as divisions (HealthCare), business groups (CropScience) or business units (Covestro; formerly MaterialScience). Their activities were aggregated into four reportable segments according to economic characteristics, products, production processes, customer relationships, methods of distribution and regulatory environment.

The segments’ activities were as follows:

Activities of the Segments

Activities

Development, production and marketing of prescription pharmaceuticals, such as anticoagulants, treatments for hemophilia, multiple sclerosis, cancer, eye diseases, pulmonary hypertension, high blood pressure and infectious diseases; and contraceptives

Development, production and marketing of over-the-counter medications, dermatology products, nutritional supplements, veterinary medicines and animal grooming products; medical products such as injection systems and contrast agents for diagnostic procedures

Development, production and marketing of a comprehensive product portfolio in the areas of seeds and plant traits, crop protection, home and garden, the green industry and nonagricultural pest control

Development, production and marketing of raw materials for polyurethanes; polycarbonate resins and sheets; raw materials for coatings, adhesives and sealants; and selected chemical intermediates

1 The Diabetes Care business unit (diagnostic systems, such as blood glucose meters) was no longer reported under continuing operations in 2015 following the signing of the agreement to sell it to Panasonic Healthcare Holdings, Ltd., Tokyo, Japan.

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 Center and Consolidation” comprise the activities of the Bayer holding companies, 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 (2015: €2.4 billion; 2014: €2.5 billion).

The reconciliation in the table “Key Data by Region” eliminates interregional items and transactions and reflects income, expenses, assets and liabilities not allocable to geographical areas, particularly those relating to the Corporate Center.

The segment data are calculated as follows:

  • The intersegment sales reflect intra-Group transactions effected at transfer prices fixed on an arm’s-length basis.
  • EBIT Income after income taxes, plus income taxes, plus financial result; EBIT is not defined in the International Financial Reporting Standards. – income after income taxes, plus income taxes, plus financial result – which is not defined in the International Financial Reporting Standards, is influenced by one-time special effects and by the amortization of intangible assets and depreciation of property, plant and equipment, along with impairment losses and impairment loss reversals. To elucidate the effects of these parameters on the operational business and facilitate the comparability of operational earning power over time, we determine additional indicators: EBITDA 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; this indicator is not defined in the International Financial Reporting Standards. , EBIT before special items EBIT plus special charges, minus special gains; this indicator is not defined in the International Financial Reporting Standards. , EBITDA before special items EBITDA plus special charges, minus special gains; this indicator is not defined in the International Financial Reporting Standards. and the EBITDA margin before special items The EBITDA margin before special items is calculated by dividing EBITDA before special items by sales. This indicator is not defined in the International Financial Reporting Standards. . These indicators also are not defined in the International Financial Reporting Standards. EBITDA (EBIT plus the amortization of intangible assets and the depreciation of property, plant and equipment, plus impairment losses, minus impairment loss reversals, recognized in profit or loss in the reporting period) serves to characterize the operational business irrespective of the effects of amortization, depreciation or impairment losses / impairment loss reversals. EBIT before special items and EBITDA before special items show the development of the operational business irrespective of the effects of special items – those that are nonrecurring or do not regularly recur or attain similar magnitudes. EBIT before special items and EBITDA before special items are determined by adding special charges and subtracting special gains. They constitute relevant key data for Bayer. The EBITDA margin before special items, which is calculated by dividing EBITDA before special items EBITDA plus special charges, minus special gains; this indicator is not defined in the International Financial Reporting Standards. by sales, serves as an indicator of relative operational earning power for purposes of internal and external comparison.
  • The gross Cash flow Key indicator for assessing a company’s financial strength; in addition to gross cash flow, the statement of cash flows also reports the cash flow from operating activities (net cash flow), which shows the amount of funds available from operating activities for financing investments, repaying debts or distributing dividends. The cash flows from investing and financing activities are also reported. comprises income after income taxes, plus income taxes, plus financial result, minus income taxes paid or accrued, plus depreciation, amortization and impairment losses, minus impairment loss reversals, plus / minus changes in pension provisions, minus gains / plus losses on retirements of noncurrent assets, minus gains from the remeasurement of already held assets in step acquisitions. The change in pension provisions includes the elimination of noncash components of EBIT. It also contains benefit payments during the year. Gross cash flow Income after income taxes, plus income taxes, plus financial result, minus income taxes paid or accrued, plus depreciation, amortization and impairment losses, minus impairment loss reversals, plus / minus changes in pension provisions, minus gains / plus losses on retirements of noncurrent assets, minus gains from the remeasurement of already held assets in step acquisitions; the change in pension provisions includes the elimination of noncash components of ebit. It also contains benefit payments during the year. This indicator is not defined in the International Financial Reporting Standards. is not defined in the International Financial Reporting Standards.
  • The net cash flow is the Cash flow Key indicator for assessing a company’s financial strength; in addition to gross cash flow, the statement of cash flows also reports the cash flow from operating activities (net cash flow), which shows the amount of funds available from operating activities for financing investments, repaying debts or distributing dividends. The cash flows from investing and financing activities are also reported. from operating activities as defined in IAS 7 (Statement of Cash Flows).
  • The Capital invested (CI) Capital invested comprises the assets on which the company must obtain a return by generating an appropriate cash inflow; in some cases, the cost of ultimately reproducing the assets must be earned in addition. and the segment assets include all assets serving the respective segment that are required to yield a return on their cost of acquisition. Segment assets include, in addition, assets held for sale where the return is covered by the sale proceeds. Similarly, the segment liabilities include the liabilities directly related to assets held for sale. Also included in the capital invested and in segment assets are material participating interests of direct relevance to business operations. Intangible assets and property, plant and equipment are included in the capital invested at cost of acquisition, generation or construction throughout their useful lives. Interest-free liabilities are deducted from the Capital invested (CI) Capital invested comprises the assets on which the company must obtain a return by generating an appropriate cash inflow; in some cases, the cost of ultimately reproducing the assets must be earned in addition. , which is stated as of December 31.
  • The CFROI – a measure of the return on the capital employed – is the difference between the gross cash flow and the cost of reproducing depletable assets, divided by the average capital invested for the year.
  • The equity items reflect the earnings and carrying amounts of companies 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 EBIT plus special charges, minus special gains; this indicator is not defined in the International Financial Reporting Standards. 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

 

 

2014

 

2015

 

 

€ million

 

€ million

2014 figures restated

EBITDA before special items of segments

 

9,104

 

10,732

EBITDA before special items of Corporate Center and Consolidation

 

(419)

 

(466)

EBITDA before special items

 

8,685

 

10,266

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

 

(2,846)

 

(3,191)

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

 

(6)

 

(6)

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

 

(2,852)

 

(3,197)

EBIT before special items of segments

 

6,258

 

7,541

EBIT before special items of Corporate Center and Consolidation

 

(425)

 

(472)

EBIT before special items

 

5,833

 

7,069

Special items of segments

 

(438)

 

(792)

Special items of Corporate Center and Consolidation

 

 

(27)

Special items

 

(438)

 

(819)

EBIT of segments

 

5,820

 

6,749

EBIT of Corporate Center and Consolidation

 

(425)

 

(499)

EBIT

 

5,395

 

6,250

Financial result

 

(981)

 

(1,005)

Income before income taxes

 

4,414

 

5,245

Reconciliation of Segments’ Assets to Group Assets

 

 

2014

 

2015

 

 

€ million

 

€ million

2014 figures restated

Assets of the operating segments

 

63,040

 

65,654

Corporate Center and Consolidation assets

 

195

 

181

Nonallocated assets

 

6,999

 

7,899

Assets of discontinued operations

 

 

183

Group assets

 

70,234

 

73,917

Reconciliation of Segments’ Liabilities to Group Liabilities

 

 

2014

 

2015

 

 

€ million

 

€ million

Liabilities of the operating segments

 

23,570

 

24,557

Corporate Center and Consolidation liabilities

 

3,409

 

2,645

Nonallocated liabilities

 

23,037

 

21,158

Liabilities directly related to discontinued operations

 

 

112

Group liabilities

 

50,016

 

48,472

The reconciliation of segment sales to Group sales is apparent from the table of key data by segment in Note [1].

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

 

 

2014

2015

 

2014

2015

 

 

€ million

€ million

 

€ million

€ million

2014 figures restated

Germany

 

4,804

4,946

 

12,403

12,385

United States

 

8,715

11,286

 

17,486

14,420

China

 

3,597

4,213

 

3,102

3,260

Switzerland

 

625

691

 

905

5,298

Other

 

23,598

25,188

 

8,532

8,286

Total

 

41,339

46,324

 

42,428

43,649

Information on major customers

Revenues from transactions with a single customer in no case exceeded 10% of Bayer Group sales in 2015 or 2014.

Segment reporting effective 2016

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 Science businesses. The former Bayer HealthCare subgroup has now been dissolved and the Radiology business assigned to the Pharmaceuticals Division. The Consumer Health Division now consists entirely of the Consumer Care business. Animal Health has become a reportable segment. The Bayer CropScience subgroup is now the Crop Science Division.

The segments’ activities are as follows:

Activities of the Segments

Activities

Development, production and marketing of prescription pharmaceuticals, such as anticoagulants, treatments for hemophilia, multiple sclerosis, cancer, eye diseases, pulmonary hypertension, high blood pressure and infectious diseases; contraceptives; and medical products such as injection systems and contrast agents for diagnostic procedures

Development, production and marketing of over-the-counter medications, dermatology products and nutritional supplements

Development, production and marketing of a comprehensive product portfolio in the areas of seeds and plant traits, crop protection, home and garden, the green industry and nonagricultural pest control

Development, production and marketing of veterinary medicines and animal grooming products

Development, production and marketing of raw materials for polyurethanes; polycarbonate resins and sheets; raw materials for coatings, adhesives and sealants; and selected chemical intermediates

If the new organizational structure had already been in place as of December 31, 2015, selected segment reporting items would appear as follows:

Selected Key Data by Segment

 

 

 

 

 

 

 

 

 

 

Reconciliation

 

 

 

 

 

 

 

 

Pharmaceuticals

 

Consumer Health

 

Crop Science

 

Animal Health

 

All Other Segments

 

Corporate Center and Consolidation

 

Life Sciences*

 

Covestro

 

Group

 

 

2014

2015

 

2014

2015

 

2014

2015

 

2014

2015

 

2014

2015

 

2014

2015

 

2014

2015

 

2014

2015

 

2014

2015

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

*

Including Currenta

Net sales (external)

 

13,512

15,308

 

4,245

6,076

 

9,494

10,367

 

1,318

1,490

 

1,112

1,097

 

7

4

 

29,688

34,342

 

11,651

11,982

 

41,339

46,324

Change

 

+6.3%

+13.3%

 

+8.7%

+43.1%

 

+7.7%

+9.2%

 

+0.9%

+13.1%

 

−4.9%

−1.3%

 

−42.9%

 

+6.4%

+15.7%

 

+3.7%

+2.8%

 

+5.6%

+12.1%

Currency-adjusted change

 

+10.0%

+8.7%

 

+13.6%

+40.4%

 

+11.4%

+2.3%

 

+4.0%

+4.5%

 

−4.4%

−0.8%

 

−42.9%

 

+10.1%

+10.6%

 

+4.5%

−5.1%

 

+8.5%

+6.2%

Intersegment sales

 

102

38

 

2

2

 

49

34

 

22

20

 

2,243

2,249

 

(2,477)

(2,407)

 

 

59

64

 

Net sales (total)

 

13,614

15,345

 

4,247

6,079

 

9,543

10,401

 

1,340

1,510

 

3,355

3,346

 

(2,470)

(2,403)

 

29,688

34,342

 

11,710

12,046

 

41,339

46,324

EBIT

 

2,627

3,027

 

609

769

 

1,806

2,103

 

234

254

 

(11)

(39)

 

(425)

(499)

 

4,840

5,615

 

555

635

 

5,395

6,250

EBIT before special items

 

2,836

3,327

 

731

1,005

 

1,838

1,881

 

234

318

 

21

43

 

(425)

(472)

 

5,235

6,102

 

598

967

 

5,833

7,069

EBITDA before special items

 

4,081

4,615

 

991

1,456

 

2,360

2,416

 

285

348

 

200

238

 

(419)

(466)

 

7,498

8,607

 

1,187

1,659

 

8,685

10,266

Gross cash flow

 

2,996

3,009

 

685

886

 

1,835

1,941

 

217

226

 

331

147

 

(318)

(323)

 

5,746

5,886

 

961

1,113

 

6,707

6,999

Net cash flow

 

3,533

3,157

 

564

816

 

950

761

 

234

348

 

360

26

 

(824)

287

 

4,817

5,395

 

880

1,452

 

5,697

6,847