Annual Report
2017
Augmented Version
Bayer Annual Report 2017
The integrated Bayer Annual
Report 2017 is available in
a print version and in an aug-
mented online version (Annual
Report 2017 – Augmented
Version). The online version
contains the notes to the
consolidated financial state-
ments of the Bayer Group,
along with additional
information on the
management report.
The Annual Report 2017 – Augmented Version
can be found at www.bayer.com/AR17.
Cover photo: Farmer Aaron
Gingerich with his daughter
Kylie on one of his cornfields
in Illinois, United States.
You can read more in the
Magazine section, which
starts on page 8.
At a Glance
Sales
EBITDA
Before Special Items
Net Income
1.5%
+
1
2016
2017
-
0.3 % +
61.9%
2
Core Earnings per Share
Supplier Management
2
1.0 %
+
99.5 %
of all strategically important suppliers
evaluated since 2012
Investment in Research
and Development
€4.5 billion
Specific Greenhouse Gas Emissions3
Energy Efficiency3
Proportion of Women
in Senior Management
-
4.5%
2
up by
2
3.8%
32%
1 Currency- and portfolio-adjusted
2 Changes from 2016; 2016 figures restated
3 Bayer excluding Currenta
Fiscal 2017
Bayer: business at prior-year
level – on track with strategy
Fiscal 2017
Bayer: business at prior-year
Group sales €35.0 billion (Fx & portfolio adj. + 1.5%)
level – on track with strategy
Another record year for Pharmaceuticals
Weak business development at Consumer Health
Group sales €35.0 billion (Fx & portfolio adj. + 1.5%)
Crop Science business down against prior year due to
situation in Brazil – measures taking effect
Another record year for Pharmaceuticals
EBITDA before special items €9.3 billion (– 0.3%)
Weak business development at Consumer Health
Net income €7.3 billion (+ 61.9%)
Crop Science business down against prior year due to
situation in Brazil – measures taking effect
Core earnings per share €6.74 (+ 1.0%)
EBITDA before special items €9.3 billion (– 0.3%)
Covestro deconsolidated – additional cash
inflows of €4.7 billion
Net income €7.3 billion (+ 61.9%)
Monsanto acquisition expected to close in
Core earnings per share €6.74 (+ 1.0%)
second quarter of 2018
Covestro deconsolidated – additional cash
Further progress in implementing sustainability targets
inflows of €4.7 billion
Group outlook for 2018: increase in sales (Fx & portfolio
Monsanto acquisition expected to close in
adj.), EBITDA before special items and core earnings per
second quarter of 2018
share at prior-year level due to currency effects
Further progress in implementing sustainability targets
Group outlook for 2018: increase in sales (Fx & portfolio
adj.), EBITDA before special items and core earnings per
share at prior-year level due to currency effects
Key Data
€ million
Bayer Group
Sales
EBITDA
1
EBITDA before special items
1
EBITDA margin before special items
1
EBIT1
EBIT before special items
1
Income before income taxes
Net income (from continuing and discontinued operations)
Earnings per share (from continuing and discontinued operations) (€)
1
Core earnings per share (from continuing operations) (€)
1
Net cash provided by operating activities
(from continuing and discontinued operations)
Net financial debt
Capital expenditures as per segment table 2
Bayer AG
Total dividend payment
Dividend per share (€)
Innovation
Research and development expenses
Ratio of R&D expenses to sales – Pharmaceuticals (%)
Ratio of R&D expenses to sales – Crop Science (%)
2016
2017
Change
from
2016 (%)
34,943
35,015
+ 0.2%
8,801
9,318
8,563
9,288
– 2.7%
– 0.3%
26.7%
26.5%
5,738
6,826
4,773
4,531
5.44
6.67
9,089
11,778
2,627
5,903
7,130
4,577
+ 2.9%
+ 4.5%
– 4.1%
7,336
+ 61.9%
8.41
6.74
+ 54.6%
+ 1.0%
8,134
– 10.5%
3,595
– 69.5%
2,418
– 8.0%
2,233
2.70
2,315
2.80
+ 3.7%
+ 3.7%
4,405
4,504
+ 2.2%
16.7
11.7
16.2
11.7
Employees in research and development
14,213
14,041
– 1.2%
Employees
Number of employees
3 (Dec. 31)
Personnel expenses (including pension expenses) (€ million)
Proportion of women in senior management (%)
Proportion of employees with health insurance (%)
Fluctuation (voluntary / total) (%)
99,592
99,820
9,459
9,528
+ 0.2%
+ 0.7%
31
98
32
98
4.8 / 13.2 4.8 / 10.4
Hours of vocational and ongoing training per employee
23.0
23.4
+ 1.7%
Safety & Environmental Protection
Recordable Incident Rate (RIR) for Bayer employees
Loss of Primary Containment Incident Rate (LoPC-IR)
4
Total energy consumption (terajoules)
Energy efficiency (kWh / €1,000 external sales)
5
Total greenhouse gas emissions (CO2 equivalents in million t)
6
Specific greenhouse gas emissions (kg CO2 equivalents / €1,000 external sales)
7
according to the market-based method
Water use (million m³)
0.40
0.17
0.45
0.13
+ 12.5%
– 21.4%
26,243
25,832
– 1.6%
– 3.8%
125
3.63
– 21.8%
130
4.64
48.45
46.26
– 4.5%
93
98
+ 6.0%
2016 figures restated
1 For definitions of the indicators see A 2.4
2 Group total 2016 including Covestro
3 Employees calculated as full-time equivalents (FTEs)
4 Number of incidents in which chemicals leak from their primary container, such as pipelines, pumps, tanks or drums, per 200,000
working hours
5 Quotient of total energy consumption and manufactured sales volume; Bayer excluding Currenta
6 Direct emissions from power plants, waste incinerators and production plants and indirect emissions from external supplies
of electricity, steam and cooling (according to the market-based method); portfolio-adjusted in accordance with the GHG Protocol
7 Bayer excluding Currenta
Chairman’s Letter
People should know
what Bayer stands for
I am pleased to present to you Bayer’s new annual report. It reflects an
eventful year in which our employees around the world once again showed
great commitment to drive the success of our company. On behalf of the
Board of Management – and on your behalf as well I’m sure – I would like
to sincerely thank all our employees for their dedication.
The trust you have in our employees, in the members of the Supervisory
Board and Board of Management, and in me personally strengthens us in
our daily work. I would like to sincerely thank you and I am pleased that
we are once again able to let you participate in Bayer’s success. We are
therefore proposing to the Annual Stockholders’ Meeting an increase in
the dividend to €2.80 per share.
2017 was a year of ups and downs. We saw many advances, but also
experienced setbacks. We received new approvals, formed new collabo-
rations and celebrated encouraging successes. But we also had to deal
with unexpectedly high inventories in our Crop Science Division in Brazil
and with the weak business development of our Consumer Health Divi-
sion, which meant we had to adjust our guidance during the year. Overall,
sales and earnings in 2017 remained only on a par with 2016.
2
Our share price reflected this development. Over the course of 2017, Bayer
stock delivered just over seven percent, which was less than the DAX and the
Euro STOXX 50. The ongoing regulatory process for the planned Monsanto
acquisition certainly played a role here. We are very confident that we will
receive final antitrust approval in the second quarter of 2018.
In 2017, we also benefited from the long-term realignment of our company
across the rest of the portfolio. Since the IPO of Covestro in October 2015,
we have been aiming to sell our shares step by step and to achieve full sepa-
ration from Covestro in the medium term. Last year, Bayer AG reduced its
direct interest in Covestro from 64.2 percent to 24.6 percent, generating cash
inflows of around €4.7 billion thanks to Covestro’s good share price perfor-
mance. Bayer’s strategic foresight has proved successful and we also have
had a lucky hand.
It is with the same long-term perspective that we are pursuing the Monsanto
acquisition. We are deeply convinced that both companies together can
create significant additional value for our customers and shareholders, as well
as for the society in which we live and whose acceptance we need. Providing
food in high quality, sufficient quantity and at affordable prices is crucial to
human coexistence. And we want to contribute to that.
In 2017, we made important progress in obtaining antitrust approval for the
planned acquisition. Of particular importance was the agreement with BASF
in October regarding large parts of our seeds business and the Liberty™ /
LibertyLink™ herbicide platform. These are excellent businesses that have
been built up by our employees over the years. We regret having to divest
these businesses, but we are convinced that in BASF we have found a long-
term strategic purchaser and an employer with a first-class reputation.
Bayer reached another long-term decision in November by in-licensing
two development candidates from biotechnology company Loxo Oncology.
Both these candidates complement our existing oncology portfolio. Moreover,
it shows that we are keeping our word because we have always emphasized
that we will continue to invest in our other businesses regardless of the
acquisition of Monsanto.
Bayer Annual Report 2017Chairman’s LetterAugmented Version 3
Covestro, Monsanto and Loxo are prime examples of how Bayer has demon-
strated its strategic foresight in 2017. Clear focus and long-term perspective
– that’s the way we run our company. We have aligned our business activities
to the main societal challenges in the fields of health and nutrition, and we are
convinced that we are able to provide substantial and sustainable solutions,
based on the highest standards and our responsibility to humankind and
the environment. This aspiration is conveyed by Bayer’s corporate purpose:
“Science for a better life.”
It is an aspiration that brings us together across borders and business activi-
ties. But what are the main societal challenges? And what could the solutions
to these look like?
For example, we are aware that human life expectancy is increasing with
every generation. But the older we get, the more susceptible we become to
illness. It is of enormous social importance that we address this development
with better preventive medicine and treatments. Shaping demographic
change through research and innovation in order to enable people to have
longer, healthier lives is one of the greatest challenges of our time.
Our Pharmaceuticals Division has dedicated itself to this task and also made
progress in 2017. In February, a Phase III clinical trial involving rivaroxaban,
the active ingredient in Xarelto™, in combination with Aspirin™ was ended
ahead of schedule due to its outstanding efficacy. This combination can sub-
stantially reduce the risk of serious diseases such as heart attack or stroke.
Operationally, sales of Pharmaceuticals increased by a currency- and port-
folio-adjusted 4.3 percent in 2017. Clean EBITDA rose by 8.8 percent.
This performance was driven by another significant increase in sales of our
key growth products Xarelto™, Eylea™, Xofigo™, Stivarga™ and Adempas™,
which advanced by over 16 percent to more than €6 billion. This is a very
encouraging development.
We are also addressing long-term developments with our Consumer Health
Division for nonprescription medicines. There is a trend toward self-care,
which is being further strengthened by individualization and digitalization.
Bayer Annual Report 2017Chairman’s LetterAugmented Version 4
People are becoming more aware of the importance of exercise and preven-
tive medicine, and are realizing that they need to do something for their own
health. After all, no-one knows us as well as we know ourselves. That’s why
we need a customized plan to protect our health – for example, against expo-
sure to the sun or allergies.
Our business is well positioned to address this trend. However, 2017 was
still a difficult year operationally. Competition in the United States in particu-
lar has had an impact on our business, as has a regulatory decision taken in
China. Overall, Consumer Health figures in 2017 were below the prior-year
level and also below our expectations. Sales declined by a currency- and
portfolio-adjusted 1.7 percent, while clean EBITDA decreased significantly
by 12.8 percent.
In agriculture, global challenges are raising particularly pressing questions.
How will we feed a continuously growing global population? How will we
ensure food security in light of climate change? And how will we facilitate farm-
ing practices that use finite resources in a sustainable and efficient way? All of
these questions are part of a challenge for humankind that farmers around the
world will have to tackle in the years ahead. As a partner to farmers – both
large companies as well as smallholders – Bayer wants to contribute to the
solution for this challenge.
Business development in our Crop Science Division in 2017 was shaped
by the difficult situation in Brazil, where several factors led to unexpectedly
high inventories of crop protection products. This meant that we had to
establish provisions and adjust our full-year business guidance in the second
quarter. We immediately initiated a number of measures to normalize the
situation and can already see these measures taking effect. Overall, Crop
Science sales in 2017 declined by a currency- and portfolio-adjusted
2.2 percent. Excluding figures for Brazil, however, business was above the
prior-year level. Clean EBITDA at Crop Science declined by 15.6 percent in
2017. Our Animal Health business delivered a positive performance, with
growth of 2.0 percent in currency- and portfolio-adjusted sales and 9.2 per-
cent in clean EBITDA.
Bayer Annual Report 2017Chairman’s LetterAugmented Version 5
Clear focus and
long-term perspective –
that’s the way we
run our company.
Bayer CEO Werner Baumann
Bayer Annual Report 2017Chairman’s LetterAugmented Version 6
Having a long-term perspective also means continuously investing in the
future. Our company has kept investment at a high level, spending €4.5 bil-
lion on research and development in 2017. We are also investing in our sites.
Capital expenditures for property, plant and equipment amounted to €2.1 bil-
lion in 2017 and a similar level of investment is also planned for this year.
Moreover, with “Leaps by Bayer,” we are working on promising, pioneering
technologies. For example, in 2017, we set up a joint venture to improve
microbes so that they can provide crop plants with nitrogen via their roots,
potentially making nitrogen fertilizer no longer necessary one day. This would
reduce both soil pollution in fields and greenhouse gas emissions and would
be a milestone for greater sustainability in agriculture.
We are investing in our future. This also applies to us as an employer. Last
year, we went some way to ensure that Bayer remains a company where
people all over the world enjoy working. We promote a culture of trust and
mutual respect and offer our employees a variety of development opportu-
nities. In 2017, Bayer once again received numerous awards as a top
employer around the world, including in Germany, China and Brazil. In Ger-
many, we had a record number of applicants for our vocational training
places and, according to a survey of German school students, we are by far
the most popular company in the chemical and pharmaceutical industry.
We are proud of that.
We want people to know what Bayer stands for. This is especially important
now, given the particular focus on the Monsanto acquisition. In our view, the
current debate is often based on an emotional appeal to people’s fears rather
than on communicating facts. This is an approach we reject, especially when
it is applied as a business model and thus used to gain an advantage.
Our business model is different. We invent and create new and better prod-
ucts that meet people’s needs. These products must undergo meticulous
testing and can only be approved if they have a positive benefit-risk assess-
ment. To achieve this, we work to the highest standards in research, develop-
ment and production, for the benefit of customers and patients and to ensure
the sustainability of our activities.
Bayer Annual Report 2017Chairman’s LetterAugmented Version 7
Our endeavor to find new solutions leads to innovations and social progress.
But the road we travel to get there often looks more like a steep path with
lots of bends and obstacles than a wide street that allows unhindered pas-
sage. Research and progress go hand in hand with uncertainty and depend
on effort and perseverance. Yet this steep path is the only way to achieve
progress as a society. This is something that I strongly believe. And following
this path is Bayer’s core competency.
As a global company, we have a responsibility that we accept and that we
are living up to through our commitment to the U.N. Global Compact and
our pursuit of clearly defined values. These include safety as our top priority.
We minimize health and environmental risks along the entire value chain.
We communicate to our customers how to use our products safely. We
stand for a culture of fair treatment and fair competition. We strictly comply
with the law and operate in accordance with the highest ethical standards.
We want to be measured against these values by others, including you, dear
stockholders. I would like to thank you for the trust you have placed in Bayer.
We will do everything we can to live up to this trust in 2018 as well.
Sincerely,
Werner Baumann
Chairman of the Board of Management of Bayer AG
Bayer Annual Report 2017Chairman’s LetterAugmented Version 8
Magazine
Bayer Annual Report 2017MagazineAugmented Version 9
e
n
i
z
a
g
a
M
The market in Varanasi, in
the Indian state of Uttar
Pradesh. This is where the
chili peppers grown by
local farmers are sold.
Bayer Annual Report 2017MagazineAugmented Version Gaining time
A cancer diagnosis often comes
from out of nowhere. And it’s a
life-altering experience. Research-
ers around the world are working
on finding more targeted ways
to fight different types of cancer.
Prostate cancer, the second most
common form of cancer among
men, is just one of them.
10
Page
Extra protection
Our skin is exposed to heat and
cold. It can also be harmed by
microorganisms. That’s why our
largest organ needs special care.
14
Page
18
Page
Two worlds
Two farmers, two worlds. Pappu Singh grows chili
peppers in India for the local market. He’s happy to be
able to feed his family. Aaron Gingerich produces corn in
the Midwestern United States. He faces global competi-
tion and has to run his farm as efficiently as possible.
10
P H A R M A C E U T I C A L S
Gaining
time
A cancer diagnosis often comes from out of nowhere. And it is a
life-altering experience. Researchers around the world are work-
ing on ways to fight cancer in a more targeted way. As part of
these efforts, Bayer’s scientists have developed a substance
that works through alpha radiation to treat patients with prostate
cancer, the second most common form of this disease in men
worldwide. Siegfried Stark has benefited from this approach.
Many things become more valuable as time
goes by. Siegfried Stark’s green racing bike is
one of those things. It’s a real collector’s item.
The retired bricklayer used to ride 3,000 kilo-
meters a year on it, over hill and dale. It’s just
one of ten bicycles stored in the cellar of his
home in Gieboldehausen near Göttingen, Ger-
many. But the most precious thing – at least for
him – is that he associates many memories
with his bicycle.
Today the 77-year-old is very happy that he can
ride his bike again. That’s because three-and-a-
half years ago, he was diagnosed with prostate
cancer. The majority of newly diagnosed cases
of prostate cancer are diagnosed in men aged
above 70. In the case of Stark, the cancer had
already spread, or metastasized, to his pelvic
bones. “I was shocked when I got the diagno-
sis. I couldn’t believe it. I’ve always tried to lead
a healthy life,” says Stark. He underwent a rou-
tine cancer checkup every year after he turned
50. “When the diagnosis came, I had so many
thoughts going through my head. All of a sud-
den death was a possibility. That wasn’t easy
for me and my family.” Especially considering it
wasn’t the first time that Stark had had to deal
with the issue of cancer: His daughter Manuela
was diagnosed with lymphoma back when she
was at school – and then with breast cancer
in her mid-30s. She underwent chemotherapy
and an operation. Today, the 48-year-old ad-
ministrative specialist lives with her husband
and two children not far from her parents. “My
daughter survived cancer twice. That gave me
hope,” says Stark.
A father of three and a grandfather of two, Stark
initially received hormone suppression therapy in
order to suppress the growth of the cancer. After
that, the retiree underwent six cycles of chemo-
therapy, but tolerated it poorly. “I suffered from
side effects and severe pain,” he recalls. His PSA
level, which plays a role in cancer diagnosis
and monitoring, initially declined before climbing
again after his final round of chemotherapy. For
the active family man, who had worked physical-
ly hard all his life, the illness resulted in constant
Bayer Annual Report 2017MagazineAugmented Version 11
Bayer Annual Report 2017MagazineAugmented Version 12
Staying active despite having cancer: Our
video at www.bayer.com/ar-prostatecancer
shows how Siegfried Stark lives a fulfilling life
despite his illness.
The retired bricklayer does what
he can to keep his house in good
condition, such as painting the
window frames. The garden provides
all the fruit and vegetables that
Siegfried Stark and his wife need.
ups and downs – until he was treated at Göttingen
University Hospital with a therapy that uses alpha
radiation to fight bone metastases while minimizing
damage to the surrounding tissue.
The alpha radiation emitted by radium-223 leads to
double-stranded DNA breaks which the cancer cells
cannot repair, eventually leading to cell death. In
Stark’s case, additional nuclear medicine imaging
techniques known as bone scans revealed that
the known bone metastases had regressed and no
new metastases had formed.
“The chemical structure of radium is similar to that
of calcium, so it accumulates in the body wher ever
bone metabolism is particularly active – for example
in bone areas where there is uncontrolled growth of
cancer cells, as is the case with bone metastases,”
explains Scott Fields, head of Oncology Development
at the Pharmaceuticals Division. This approach has
been proven to be effective in advanced prostate
cancer, which often metastasizes to the bones. On
the basis of the clinical results from a major Phase III
trial with more than 900 patients, the compound has
been approved in more than 50 countries worldwide.
Bayer scientists are now working on utilizing this
technology to treat other types of cancer. For this they
are investigating thorium-227 in initial clinical studies.
Thorium-227 also works by emitting alpha particles
that damage the DNA of cancer cells and which the
cells cannot repair. In order to selectively reach differ-
ent types of tumors, the thorium is attached to a car-
rier molecule, for example a cancer-specific antibody,
which in turn binds to cancer cells. “This could enable
us to fight other types of cancer as well, so we are
going to study this approach in several different tumor
types,” says Fields.
Siegfried Stark from Gieboldehausen was able to fight
back against his cancer, which stopped progressing
after being treated with the targeted alpha therapy
– and now he can still enjoy growing fruit and vege-
tables in the garden with his wife Marlies and keeping
their house in good condition. He also continues to
spend as much time as possible with his children and
grandchildren, and of course with his green racing
bike. “It would be nice if I could stay active for another
few years,” Stark says.
Bayer Annual Report 2017MagazineAugmented Version 13
It would be nice
if I could stay active
for another few years.
Siegfried Stark
Siegfried Stark spends as
much time as he can with his
family. Here he is pictured
with his granddaughter
Vanessa (photo left) and his
wife Marlies (photo below)
in the garden.
Cancer patient Stark
cycling with his grandson
Adrian (photo right)
and having lunch with
his daughter Manuela
(photo above).
Bayer Annual Report 2017MagazineAugmented Version 14
MagazineAugmented Version 15
C O N S U M E R H E A L T H
Extra
protection
Our skin is exposed to heat and cold. It can also be
harmed by microorganisms. That’s why our largest
organ needs special care. We help protect and heal the
skin of all members of the family. Giorgia Pucci from
Italy knows how important that is.
Giorgia Pucci sees her skin as an asset. She is a
dancer, model and actress – and she also be-
came a mother two years ago. She is often in the
limelight, both in front of the camera and on stage.
Few people can say they have fulfilled their
childhood dream. Giorgia is one of them. She
always wanted to be a ballet dancer and was
allowed to take ballet lessons in her home town
of Umbertide in Italy from the age of four. Later,
she studied economics and then sports science
before setting up a gym with two friends. She
entered show business more or less by chance:
She was given a small part in an Italian television
production when she accompanied her sister
Carla to a TV casting session in Rome.
Discipline and rigorous training have been key
features throughout Giorgia’s life, from childhood
to motherhood. “I’ve never canceled a perfor-
mance,” she says. “Reliability is essential in our
profession.” Three years ago, she was doing
her normal 40-minute workout on a treadmill in
Germany, which is her second home. However,
after a relaxing sauna she suddenly felt dizzy
and lightheaded. She then fell and was left with
a nasty-looking wound above her eyebrow.
As a model, that was a big problem for her. She
was booked to make a video for a luxury hotel
in Düsseldorf five days later. “The team had
come over from London specially to make the
video so I had to turn up.” She therefore turned
to a product her family had had good experi-
ence with in the past: Bepanthen™. “I applied
the ointment several times a day and after a
few days it was much better. Shortly afterwards
I was able to wear normal make-up so I was
able to keep the appointment to make the video
as if nothing had happened.”
Bayer Annual Report 2017MagazineAugmented Version 16
That was partly thanks to dexpanthenol, the
active ingredient in Bepanthen™ ointment. It
stimulates regeneration of the skin and sup-
ports healing of superficial wounds. “It also
forms a breathable protective film over the
wound. That prevents it from drying out and
keeps it moist, which helps the healing pro-
cess,” explains Mandie Smart, Global Brand
Director for the Bepanthen™ product family.
Giorgia knew how effective dexpanthenol is
because her aunt Claudia had used Bepan-
thenol™ skincare products to protect the sen-
sitive bottom of her baby daughter Anna Giulia.
When Giorgia’s daughter Guendalina was born
in Perugia two-and-a-half years ago, she was
able to draw on her aunt’s experience. “Like all
babies, Guendalina wore diapers constantly
in her first year, and that can easily cause red-
ness. I was able to prevent that,” she says.
The continuous development of Bepanthen™
plays a big part in this. First developed 70
years ago, it immediately won over physicians,
especially in Germany and Switzerland. Since
then, the product family has undergone con-
stant development around the world. Smart
says: “We always focus on consumers’ needs.
We help their skin regenerate – just as nature
intended.” Giorgia and her entire family have
relied on that for many years: “It’s reassuring
to know there’s always a remedy that helps.”
For the Puccis, good food plays a key role
in family life. Our photo shows Giorgia with
her sister Carla.
Giorgia Pucci is a dancer, model
and actress – but first and foremost
a mother. Watch our video at
www.bayer.com/ar-skin to see how
she protects her skin.
Bepanthen™ was launched in Switzerland in
1944 and subsequently rolled out to other
European countries and around the world.
Scientists and physicians alike were con-
vinced by how effective the active ingredient
dexpanthenol – a more stable version of the
pro-vitamin B5 – is at healing wounds. Today,
the Bepanthen™ family is one of Bayer’s
most successful Consumer Health brands.
Consumers’ needs have always been the
central focus in the ongoing development of
this wound healing ointment. Milestones
include:
/// the development of an antiseptic cream
and spray, a nose spray and a foam to treat
sunburn
/// products to treat and protect the skin of
babies and pregnant women
/// a scar treatment providing a unique formula-
tion and massage device
/// Bepanthol™ care products for the whole
family, ranging from face cream and lip balm
to washing lotion
Bayer Annual Report 2017MagazineAugmented Version Augmented Version
17
Giorgia started
learning ballet at
the “Centro Studi
Danza” dance
studio in Umbertide
when she was just
four years old.
Our photo on the
right shows the
model taking part
in a photo shoot.
Giorgia at home with her daughter Guendalina
(photo above) and at the gym (photo left).
She works out whenever she can.
A nutrient for the skin
1.5 to 2 square meters of skin protect us
from heat, cold and microorganisms.
Wounds interfere with the skin’s protec-
tive mechanism.
1 Dexpanthenol helps wounds heal
faster. The active ingredient in Bepanthen™
wound healing ointment is converted into
pantothenic acid (vitamin B5) in the skin.
2 Pantothenic acid supports the regener-
ation of the cells in the epidermis and
connective tissue and their migration to the
damaged tissue.
3 The regenerated protective barrier
protects the surface of the skin from drying
out and the inner layers from damage,
pathogens, UV radiation and allergens.
3
1
Epidermis
Dermis
Hypodermis
2
Bayer Annual Report 2017Magazine 18
C R O P S C I E N C E
Two
worlds
Two farmers, two worlds. Pappu Singh grows chili peppers
in India for the local market. He’s happy to be able to feed
his family and give his two daughters an education. Aaron
Gingerich produces corn in the Midwestern United States. He
faces global competition and has to run his farm as efficiently
as possible. Bayer helps both farmers achieve their goals.
Aaron Gingerich gets really enthusiastic when
he talks about digital farming. “We can’t control
the weather – but we can control how we re-
spond to it.” He’s sitting in the office of his farm
in Lovington, Illinois, in the United States and
runs his finger over the screen. The colors show
various strips of a corn field where he’s growing
different varieties. “Even before the harvest, we
know which variety grows best where and on
what soil,” says the 33-year-old, who is also a
father. He can then apply the findings to the
around 2,000 hectares of land he farms. “We
experiment with different seed, pesticides and
fertilizers,” he says. The data is available digital-
ly – on the computer in the office, in mobile
form on the tablet PC or smartphone, and in the
control units of the huge agricultural machines.
“Our field sprayers can then apply pesticide
precisely and in the right dosage. That cuts
costs and benefits the environment.”
Aaron Gingerich, who runs the farm with his
father Dannie and his father’s cousin Darrel,
has long been exploring the ideal combination
of seeds, pesticides and fertilizers on different
soils. He works with the passion and meticu-
lousness of a researcher and also cooperates
with scientists from the University of Illinois.
After all, his goal is for the farm to produce
corn as efficiently and sustainably as possible.
“Whereas the farm’s founders thought mainly
in local terms, we now face global competition,”
says Aaron’s father Dannie. It’s no longer
enough to keep an eye on cultivation methods
Bayer Annual Report 2017MagazineAugmented Version
19
Bayer Annual Report 2017MagazineAugmented Version 20
Aaron Gingerich plays on the farm with
his children Kylie, Tyler and Spencer
(photo top left). During the harvest, the
family eat their food while out on the
field. Charity Gingerich serves the dinner
(photo left).
Aaron Gingerich is a passion-
ate farmer. He analyzes his
farm data and manages pro-
duction from his office (photo
right). His goal is to make his
farm as efficient as possible.
Bayer Annual Report 2017MagazineAugmented Version 21
We can’t control the
weather – but we
can control how we
respond to it.
Aaron Gingerich
Indian farmer Pappu Singh (right) talking to
Harmanpreet Singh from Bayer in India.
in the United States alone, he adds. “Farms
in Brazil or Europe, for example, likewise pro-
duce large quantities of high-quality cereals.
That impacts world market prices and thus our
profit. That’s why we have to keep on improv-
ing,” says Aaron.
Around 12,000 kilometers away as the crow
flies, Pappu Singh lives in a completely differ-
ent world. Global trade? It exists in India too,
of course, but it has no influence on how the
farmer in Uttar Pradesh works. Pappu Singh
grows green chili peppers, an ingredient
everyone in the region uses in cooking, on his
almost two-hectare farm. He sells them to a
middleman for the market in neighboring Vara-
nasi. The family experienced economic hard-
ship two years ago. “We had little money for
food and clothing,” says the 53-year-old farmer
from Mediya. He is angry at the system under
which small-scale chili growers in the region
suffer. “We can’t understand how prices are
arrived at, and unfortunately we don’t always
get the new and modern crop protection prod-
ucts that do a good job,” he adds.
Smallholder farmers like Pappu Singh – unlike
Aaron Gingerich in Illinois – lack knowledge
of efficient seeds, innovative pesticides and
Corn growers in the United
States face global competition.
Watch our video to find out
more: www.bayer.com/ar-corn
Bayer Annual Report 2017MagazineAugmented Version 22
Middleman Rakesh Patel
(on the left in the photo)
sells Pappu Singh’s
harvest on the market
in Varanasi. After the
harvest, picker Surekha
Devi gets the sack full of
chili peppers ready for
transport (photo below).
Maio con parum
etur remquid quia
nonsequ iatempo-
re ex cepudit, veli-
bus et plabo.
I’m very grateful to
Bayer for the support.
Now I know how to
treat my plants properly,
and I write everything
down.
Pappu Singh
fertilizers, sustainable cultivation methods, and
access to the market and microloans. That
can have very serious consequences. It is not
uncommon for the livelihoods of farmers and
their families to be left hanging by a thread if
their harvest is poor or is completely destroyed
by bad weather. Bayer has stepped up its sup-
port for these very people, teaming up with
partners in smallholder farming initiatives.
There are around 500 million smallholder farm-
ers worldwide – and they play a key role in
guaranteeing food security for a growing global
population. They produce around 80 percent of
food in developing countries.
Pappu Singh is sitting in front of his house, with
his dairy cows in sight, and is going through a
small blue book together with Anand Pratap
Shahi, the local representative from Bayer’s
Crop Science Division. He’s noted in it when he
planted which seed, which diseases and pests
he has encountered, and how he treated the
chili plants. Before, he had no idea about keep-
ing accounts of income and expenses – or
planning from cultivation to harvesting. “I’m
very grateful to Bayer for the support,” he says.
“Our plants often used to suffer from fungal and
viral diseases and only produced a small har-
vest or none at all. Now I know how to protect
Bayer Annual Report 2017MagazineAugmented Version 23
and treat my plants properly, and I write every-
thing down.”
Through Bayer and its partners, he learned
about the latest technology in crop protection
and seeds, nutrient management and drip irri-
gation, and became familiar with good agricul-
tural practices. As a result, he’s been able to
more than double his yield compared with the
previous year and obtain fair prices for his pro-
duce after Bayer introduced him to new food
retailers. That success gives Pappu Singh
cause to look to the future with optimism. He
can pay for an education for his two daughters,
Ritika and Anshika. His eldest daughter would
like to study medicine. He also has big plans
for his modest farm. “I’d like to buy two
hectares of extra land to give more people
from my village work.”
Back to Illinois, where Aaron Gingerich has
since brought in a good harvest. Like Pappu
Singh, he’s pleased to make use of Bayer’s
advice. “Our support is in demand, in particular
when it comes to containing weeds,” says Terry
Sorgenfrey from the Crop Science Division.
Bayer’s experts are part of the network that
Aaron Gingerich has built over the years. “We
always have questions,” says Aaron. “Bayer
supplies answers we can rely on.”
What are the challenges that chili
growers face in India? Our video at
www.bayer.com/ar-chili shows how
Bayer supports smallholder farmers.
Aaron Gingerich works on his farm in the
Midwestern United States with the metic-
ulousness of a scientist. He continuously
tries out new, innovative technologies and
trusts the advice of Bayer expert Terry
Sorgenfrey.
Sunita and
Manharan Singh,
Pappu Singh’s
aunt and uncle,
look after a dairy
cow on the farm.
Bayer Annual Report 2017MagazineAugmented Version 24
Contents
Augmented Version
Contents
To our Stockholders
Chairman’s
Letter
Magazine
1
8
Board of
Management
28
Report of the
Supervisory
Board
30
Investor
Information
About this
Report
36
40
A Combined
1. Fundamental Information
Management
Report
About the Group
Corporate Profile and Structure
1.1
1.1.1 Corporate Profile
1.1.2 Corporate Structure
1.1.3 Value Creation
Strategy and Management
1.2
1.2.1 Group Strategy and Targets
1.2.2 Management Systems
1.2.3 Sustainability Management
Focus on Innovation
1.3
Sustainable Conduct
1.4
1.4.1
Commitment to Employees and Society
1.4.1.1 Employees
1.4.1.2 Global Respect for Human Rights
1.4.1.3 Societal Engagement
1.4.2 Responsibility in Value Creation
1.4.2.1 Procurement and Supplier Management
1.4.2.2 Production and Logistics
1.4.2.3 Marketing and Distribution
1.4.3 Safety for People and the Environment
1.4.3.1 Product Stewardship
1.4.3.2 Safety
1.4.3.3 Environmental Protection
1.4.4
Nonfinancial and Other Disclosures
by Bayer AG
43
43
43
46
49
50
50
56
56
62
79
79
79
89
90
93
93
99
102
104
106
116
120
128
Bayer Annual Report 2017
25
182
4. Corporate Governance Report
4.1
Declaration by Corporate Management
pursuant to Section 289f and Section 315d
of the German Commercial Code
Compliance
Disclosures pursuant to Sections 289b
through e and 315b and c of the German
Commercial Code (HGB)
Compensation Report
182
187
190
191
4.2
4.3
4.4
4.4.1 Compensation of the
4.4.2
Board of Management
Disclosures Pursuant to the
Recommendations of the German
Corporate Governance Code
4.4.3 Compensation of the
Supervisory Board
4.4.4 Further Information
4.5
4.6
Takeover-Relevant Information
CSR Directive Implementation Act:
Index to Nonfinancial Statement
191
199
202
204
204
207
130
130
130
130
131
131
Overview of Business Performance
2. Report on Economic Position
2.1
2.1.1 Target Attainment 2017
2.1.2 Economic Position of the Bayer Group
2.1.3 Key Events
2.1.4
2.2
Economic Environment
Earnings; Asset and Financial Position
of the Bayer Group
132
2.2.1 Earnings Performance of the Bayer Group 132
138
2.2.2 Business Development by Segment
150
2.2.3 Value-Based Performance
2.2.4 Asset and Financial Position
2.3
of the Bayer Group
Earnings; Asset and Financial Position
of Bayer AG
2.3.1 Earnings Performance of Bayer AG
2.3.2 Asset and Financial Position
2.4
of Bayer AG
Alternative Performance Measures
Used by the Bayer Group
3. Report on Future Perspectives
and on Opportunities and Risks
Future Perspectives
3.1
3.1.1 Economic Outlook
3.1.2 Corporate Outlook
Opportunity and Risk Report
3.2
3.2.1 Group-wide Opportunity and
Risk Management System
3.2.2 Opportunity and Risk Status
3.2.3 Opportunities and Risks Related to the
Planned Acquisition of Monsanto
Overall Assessment of
Opportunities and Risks by the
Board of Management
3.2.4
151
155
156
158
160
164
164
164
165
167
167
172
179
181
Bayer Annual Report 2017ContentsAugmented Version
26
Contents
Augmented Version
Contents
B Consolidated
Financial
Statements
Bayer Group Consolidated Income Statements 208
Bayer Group Consolidated Statements
of Comprehensive Income
Bayer Group Consolidated Statements
of Financial Position
Bayer Group Consolidated Statements
of Changes in Equity
Bayer Group Consolidated Statements
of Cash Flows
209
210
212
211
1.
4.
3.
2.
Notes to the Consolidated Financial
Statements of the Bayer Group
Key data by segment
General information
Effects of new financial reporting
standards
Basic principles, methods and
critical accounting estimates
Segment reporting
Scope of consolidation;
subsidiaries and affiliates
Changes in the scope of consolidation
Business combinations and
other acquisitions
6.1
6.2
5.
6.
6.3 Divestments, material sale transactions
and discontinued operations
213
213
215
215
220
234
237
237
238
240
Notes to the Income Statements
7.
8.
9.
10.
11.
12.
Net sales
Selling expenses
Research and development expenses
Other operating income
Other operating expenses
Personnel expenses and
employee numbers
Financial result
Income (loss) from investments
in affiliated companies
13.
13.1
13.2 Net interest expense
13.3 Other financial income and expenses
14.
15.
Taxes
Income / losses attributable
to noncontrolling interest
Earnings per share
16.
Notes to the Statements
of Financial Position
17.
18.
19.
Goodwill and other intangible assets
Property, plant and equipment
Investments accounted for using
the equity method
Other financial assets
Inventories
Trade accounts receivable
20.
21.
22.
23. Other receivables
24.
25.
Equity
Provisions for pensions and
other post-employment benefits
Other provisions
Financial liabilities
26.
27.
244
244
244
244
245
246
247
247
248
248
249
249
252
252
254
254
257
259
262
263
263
265
265
269
278
281
Bayer Annual Report 2017
27
C
Further
Information
Governance Bodies
Organization Chart
G4 Content Index of the Global Reporting
Initiative (GRI) with the 10 Principles of the
U.N. Global Compact
Glossary
Five-Year Summary
319
322
324
338
340
Financial Calendar and Masthead
Trade accounts payable
Other liabilities
Financial instruments
28.
29.
30.
30.1 Financial instruments by category
30.2 Maturity analysis
30.3
31.
Information on derivatives
Contingent liabilities and
other financial commitments
Legal risks
32.
Notes to the Statements
of Cash Flows
33.
Net cash provided by (used in)
operating activities
Net cash provided by (used in)
investing activities
Net cash provided by (used in)
financing activities
34.
35.
Other Information
36.
37.
38.
Audit fees
Related parties
Total compensation of the Board of
Management and the Supervisory Board,
advances and loans
Events after the end of the
reporting period
39.
284
284
285
285
291
292
295
296
301
301
301
302
303
303
303
305
306
Responsibility Statement
Independent Auditor’s Report
Independent Auditor’s Report on
a Limited Assurance Engagement
on Sustainability Information
307
308
316
Bayer Annual Report 2017ContentsAugmented Version
28
Augmented Version
Board of
Management
Erica Mann ¹
Consumer Health
Dieter Weinand
Pharmaceuticals
Erica Mann holds a degree in analyti
cal chemistry and a marketing diplo
ma from her studies in Johannesburg,
South Africa. She began her career
with Eli Lilly & Company and held po
sitions at Johnson & Johnson, Lederle
Laboratories and Wyeth before
moving into senior management at
Pfizer in the United States. She be
came head of Consumer Care at
Bayer HealthCare in 2011. She was
appointed to the Bayer Board of Man
agement and head of the Consumer
Health Division in January 2016.
Dieter Weinand studied pharma
cology, toxicology and biology in
New York. After holding positions at
various companies in the pharmaceu
tical industry, including Pfizer and
BristolMyers Squibb, he was Presi
dent Global Commercialization &
Portfolio Management at Otsuka
Pharmaceutical Development & Com
mercialization, Inc. in Princeton. In
2014, Weinand became head of the
Pharmaceuticals Division at Bayer.
He was appointed to the Bayer Board
of Management in January 2016.
Werner Baumann
Chairman
Werner Baumann studied econom
ics in Aachen and Cologne, joining
Bayer AG in 1988. After holding po
sitions of increasing responsibility
in Spain and the United States, he
became a member of the Board of
Management of Bayer HealthCare.
He was appointed to the Bayer
Board of Management in 2010, first
as Chief Financial Officer and then
as Chief Strategy and Portfolio Offi
cer. Baumann has been Chairman
of the Bayer Board of Management
since May 2016.
Johannes Dietsch ²
Finance
Johannes Dietsch completed his
training with Bayer as a commer
cial assistant and business ad
ministrator in 1984. He subse
quently held various managerial
positions within the company,
including one in Japan. In 2002,
Dietsch took over as head of the
Finance Department in the Corpo
rate Center. He became Senior
Bayer Representative and CFO of
Bayer in China in 2011. He was
appointed to the Bayer Board of
Management in September 2014.
¹ Erica Mann will be leaving the company effective March 31, 2018, after which Heiko Schipper will become head of the Consumer Health Division.
² Johannes Dietsch will be leaving the company effective May 31, 2018. Wolfgang Nickl will become the new Chief Financial Officer from June 1, 2018.
Bayer Annual Report 2017To our StockholdersBoard of Management 29
Augmented Version
Liam Condon
Crop Science
Liam Condon studied international
marketing in Dublin and Berlin.
He held various positions of increas
ing responsibility with the former
Schering AG, Berlin, Germany, and
with Bayer HealthCare in Europe and
Asia, including Managing Director of
Bayer HealthCare China and head of
Bayer HealthCare in Germany. Con
don became Chief Executive Officer
of Bayer CropScience in 2012. He
was appointed to the Bayer Board of
Management and head of the Crop
Science Division in January 2016.
Kemal Malik
Innovation
Kemal Malik studied medicine
and worked in a London hos
pital. After holding different
positions of increasing re
sponsibility at BristolMyers
Squibb, he joined Bayer in
1995. In 2007, Malik became
a member of the Executive
Committee, head of Global
Development and Chief Medi
cal Officer of Bayer Health
Care. He was appointed to the
Bayer Board of Management
in February 2014.
Dr. Hartmut Klusik ³
Human Resources · Technology
Sustainability
Hartmut Klusik studied chemistry in
Marburg. After gaining a Ph.D., he began
his professional career at Wolff Walsrode
in 1984. He transferred to crop protection
production at Bayer in Brazil in 1990. Fol
lowing assignments in the United States
and Australia and after holding posi
tions of in creasing responsibility at Bayer
CropScience, he was appointed to the
Board of Management of Bayer Health
Care, with responsibility for Product Sup
ply. He was appointed to the Bayer Board
of Management in January 2016.
³ Labor Director
Bayer Annual Report 2017To our StockholdersBoard of Management 30
To our Stockholders
Report of the Supervisory Board
Augmented Version
Bayer Annual Report 2017
Report of the Supervisory Board
During 2017, the Supervisory Board monitored the conduct of the company’s business by the
Board of Management on a regular basis with the aid of detailed written and oral reports received
from the Board of Management, and also acted in an advisory capacity. In addition, the Chairman
of the Supervisory Board maintained a constant exchange of information with the Chairman of the
Board of Management and with the other Management Board members. In this way the Super-
visory Board was kept continuously informed about the company’s intended business strategy,
corporate planning (including financial, investment and human resources planning), earnings per-
formance, the state of the business and the situation in the company and the Group.
Where Board of Management decisions or actions required the approval of the Supervisory Board,
whether by law or under the Articles of Incorporation or the rules of procedure, the draft resolu-
tions were inspected by the members at the meetings of the full Supervisory Board, sometimes
after preparatory work by the committees, or approved on the basis of documents circulated to
the members. The Supervisory Board was involved in decisions of material importance to the
company. We discussed at length the business trends described in the reports from the Board of
Management and the prospects for the development of the Bayer Group as a whole, the divisions
and the principal affiliated companies in Germany and abroad.
Changes on the Supervisory Board
The terms of office of the Supervisory Board members Werner Wenning, Dr. Paul Achleitner,
Dr. Clemens Börsig, Thomas Ebeling, Sue H. Rataj and Dr. Klaus Sturany ended at the end of the
Annual Stockholders’ Meeting on April 28, 2017. The Stockholders’ Meeting re-elected Werner
Wenning, Dr. Paul Achleitner, Thomas Ebeling and Dr. Klaus Sturany as members of the Super-
visory Board, in all cases until the end of the Annual Stockholders’ Meeting in 2022 except for
Dr. Klaus Sturany, whose term will run until the end of the Annual Stockholders’ Meeting in 2018.
As successors to Dr. Clemens Börsig and Sue H. Rataj, the Stockholders’ Meeting elected
Dr. Norbert W. Bischofberger and Colleen A. Goggins, likewise until the end of the Annual Stock-
holders’ Meeting in 2022.
Yüksel Karaaslan passed away on June 4, 2017. His seat on the Supervisory Board was taken
by the elected substitute member Detlef Rennings. Petra Kronen left the Supervisory Board
effective midnight on September 30, 2017, and was replaced by the elected substitute member
Sabine Schaab.
Work of the Supervisory Board
The full Supervisory Board met nine times during 2017 and resolved in writing on a special election
to the Human Resources Committee. No member of the Supervisory Board attended only half or
fewer than half of its meetings or those of the committees on which he / she served. The average
attendance rate by Supervisory Board members at the meetings of the full Supervisory Board and
of its committees held in 2017 was approximately 95 percent. A detailed overview of the attend-
ance of the individual members of the Supervisory Board at the meetings of the Supervisory Board
and its committees is shown in the “Further Information” section under “Governance Bodies.”
The members of the Board of Management regularly attended the meetings of the Supervisory
Board. Where necessary, the Supervisory Board met without the Board of Management or with
only the Chairman of the Board of Management present.
Bayer Annual Report 2017
To our Stockholders
31
Report of the Supervisory Board
Augmented Version
Werner Wenning, Chairman of the Supervisory Board of Bayer AG
The deliberations of the Supervisory Board focused on questions relating to Bayer’s strategy,
portfolio, business activities and personnel issues. A particular focus of the Supervisory Board’s
work was the Monsanto transaction, including the progress of the merger control proceedings,
which were reported on extensively at several meetings. Between the meetings of the Super-
visory Board, this issue was also the subject of an extensive exchange of information between
the Chairman of the Supervisory Board and the Chairman of the Board of Management. The
discussions at the respective meetings in 2017 centered on various topics.
At its February meeting, the Supervisory Board discussed the Annual Report 2016, the agenda
for the Annual Stockholders’ Meeting 2017 and the Bayer Group’s risk management system, and
adopted resolutions on reducing the interest in Covestro and on questions relating to the com-
pensation of the Board of Management.
At an extraordinary meeting in April, the Supervisory Board passed a resolution to extend the
appointment of the Chief Financial Officer, Johannes Dietsch, until May 31, 2018. At a further
meeting in April, the Supervisory Board examined business performance to date in 2017, the
targets for the proportion of women on the Board of Management, and the upcoming Annual
Stockholders’ Meeting. At its constitutive meeting following the Annual Stockholders’ Meeting,
32
To our Stockholders
Report of the Supervisory Board
Augmented Version
Bayer Annual Report 2017
the Supervisory Board held the necessary elections of the Chairman and Vice Chairman of the
Supervisory Board, and the Chairmen and members of the Supervisory Board committees.
At an extraordinary meeting in June, the Supervisory Board examined a further reduction of the
stake in Covestro and adopted a resolution on this.
At its September meeting, the Supervisory Board appointed Wolfgang Nickl to the Board of
Management effective April 26, 2018. Wolfgang Nickl will become Chief Financial Officer when
Johannes Dietsch leaves the Board of Management. Further, the Supervisory Board discussed
the development of the Brazilian Crop Science business, which had led to an ad-hoc statement
in June on an expected negative earnings impact. The Supervisory Board agreed to undertake a
further review of these occurrences, including the Board of Management’s handling of the matter.
At this meeting, the Supervisory Board also agreed to the conclusion of a control termination
agreement with Covestro to ensure its deconsolidation effective September 30, 2017, and also
decided to increase the size of the Innovation Committee to eight members.
At an extraordinary meeting in October, the Supervisory Board looked in detail at the planned
divestment of part of the Crop Science business in connection with the ongoing merger control
proceedings for the acquisition of Monsanto.
At another extraordinary meeting in November, the Supervisory Board appointed Heiko Schipper
to the Board of Management effective March 1, 2018. He will head the Consumer Health Division
when Erica Mann leaves the Board of Management. At this meeting, the Supervisory Board also
discussed the in-licensing of two development candidates from the U.S. biotech company Loxo
Oncology and the development of female managers in the Bayer Group.
At its meeting in December 2017, the Supervisory Board undertook the routine review of the
fixed compensation of the members of the Board of Management and the pension amounts of
the former members of the Board of Management. At this meeting, the Supervisory Board agreed
that Erica Mann could leave the Board of Management effective March 31, 2018. The Board of
Management furthermore presented its planning for business operations in the period 2018
through 2020 at this meeting, and reported on the financing concept for the Monsanto transac-
tion, Monsanto’s valuation and the impact of the transaction on the company’s credit rating. The
Supervisory Board approved the proposed financing framework for 2018. In addition, on the
basis of two detailed reports to the Audit Committee and the associated discussions, the Super-
visory Board held a further, final discussion on the developments at Crop Science in Brazil and
the action taken by the Board of Management. Finally, the Supervisory Board elected two further
members to the enlarged Innovation Committee and issued a new declaration on the German
Corporate Governance Code.
Committees of the Supervisory Board
The Supervisory Board has a Presidial Committee, an Audit Committee, a Human Resources
Committee, a Nominations Committee and an Innovation Committee. The current membership of
the committees is shown in the “Further Information” section under “Governance Bodies.”
The meetings and decisions of the committees, and especially the meetings of the Audit
Committee, were prepared on the basis of reports and other information provided by the Board
of Management. Reports on the committee meetings were presented at the meetings of the
full Supervisory Board.
Presidial Committee: This comprises the Chairman and Vice Chairman of the Supervisory Board
along with a further stockholder representative and a further employee representative. The Presid-
ial Committee serves primarily as the mediation committee pursuant to the German Codetermina-
tion Act. It has the task of submitting proposals to the Supervisory Board on the appointment of
members of the Board of Management if the necessary two-thirds majority is not achieved in the
first vote at a plenary meeting. Certain decision-making powers in connection with capital
Bayer Annual Report 2017
To our Stockholders
33
Report of the Supervisory Board
Augmented Version
measures, including the power to amend the Articles of Incorporation accordingly, have also been
delegated to this committee. On a case-by-case basis, furthermore, the Supervisory Board can
delegate certain responsibilities to the Presidial Committee. Finally, the Presidial Committee may
also undertake preparatory work for full meetings of the Supervisory Board.
No meeting of the Presidial Committee had to be convened in 2017.
Audit Committee: The Audit Committee comprises three stockholder representatives and three
employee representatives. The Chairman of the Audit Committee in 2017, Dr. Klaus Sturany,
meets the statutory requirements concerning the expertise in the field of accounting or auditing
that a member of the Supervisory Board and the Audit Committee is required to possess. The
Audit Committee meets regularly four times a year.
Its tasks include in particular oversight of the accounting, the financial reporting process, the
effectiveness and ongoing development of the internal control system, the risk management
system, the internal audit system, the compliance system and the audit of the financial state-
ments. The Audit Committee prepares the resolutions of the Supervisory Board concerning the
financial statements and management report of Bayer AG and the proposal for the use of the
distributable profit, the consolidated financial statements and management report of the Bayer
Group and the agreements with the auditor (particularly the awarding of the audit contract, the
determination of the main areas of focus for the audit and the audit fee agreement). The commit-
tee submits a reasoned proposal to the full Supervisory Board concerning the auditor’s appoint-
ment, and takes appropriate measures to determine and monitor the auditor’s independence.
The audit focuses particularly on whether the financial statements have been prepared in compli-
ance with the statutory requirements and whether the financial reporting provides a true and fair
view of the financial position and results of operations of the company and the Group.
The Audit Committee discusses developments in the area of corporate compliance at each of its
meetings where necessary.
The Chairman of the Board of Management and the Chief Financial Officer regularly attended the
meetings of the Audit Committee. Representatives of the auditor were also present at all the meet-
ings and reported in detail on the audit work and the audit reviews of the interim financial reports.
The meetings focused on a number of topics. At the February meeting, the Audit Committee
discussed the financial statements of Bayer AG and the consolidated financial statements of the
Bayer Group. It also carefully considered the risk report, which covers the risk early warning
system, the report on the internal control system (ICS) and ongoing developments, especially the
integrated risk management system. Further, the Audit Committee examined the development of
legal and compliance cases. Finally, the Audit Committee made a recommendation to the full
Supervisory Board concerning the resolution to be submitted to the Annual Stockholders’ Meet-
ing on the appointment of the auditor of the financial statements. The April meeting mainly dealt
with the yearly report of the Group Compliance Officer, a report on a compliance project in China,
the yearly report of the Internal Audit department and the determination of the main areas of
focus for the audit of the 2017 financial statements.
The July meeting looked at the interim financial report and, in particular, the development of
business at Crop Science in Brazil. Other topics discussed by the Audit Committee were infor-
mation security, CSR reporting and the status of the ongoing random sampling of the consolidat-
ed financial statements as of December 31, 2016, and the combined management report for the
2016 fiscal year by the German Financial Reporting Enforcement Panel, which was ultimately
completed without identifying any faulty reporting. Moreover, as at all meetings, legal and com-
pliance issues were discussed. At its meeting in October, the Audit Committee once more dis-
cussed the development of the Brazilian Crop Science business in addition to the regular items
on the agenda. Supplementary to its report at the July meeting, the Board of Management out-
lined the further development and responded to a number of questions that the Audit Committee
34
To our Stockholders
Report of the Supervisory Board
Augmented Version
Bayer Annual Report 2017
had submitted following the report at the previous meeting. Furthermore, the Audit Committee
discussed the yearly report of the Tax department, the audit conducted pursuant to
Section 20 of the German Securities Trading Act (WpHG) (EMIR), the audit budget for 2018 and
the framework for non-audit services.
Human Resources Committee: On this committee, too, there is parity of representation between
stockholders and employees. It consists of the Chairman of the Supervisory Board and three other
Supervisory Board members. The Human Resources Committee prepares the personnel decisions
of the full Supervisory Board, which resolves on appointments or dismissals of members of the
Board of Management. The Human Resources Committee resolves on behalf of the Supervisory
Board on the service contracts of the members of the Board of Management. However, it is the
task of the full Supervisory Board to resolve on the total compensation of the individual members
of the Board of Management and the respective compensation components, as well as to regular-
ly review the compensation system on the basis of recommendations submitted by the Human
Resources Committee. The Human Resources Committee also discusses the long-term succes-
sion planning for the Board of Management.
The Chairman of the Board of Management regularly attended the meetings of the Human
Resources Committee where the issues discussed did not relate to him personally.
The Human Resources Committee convened on five occasions in 2017. The matters discussed
were the compensation and contracts of the members of the Board of Management, the exten-
sion of the appointment of Johannes Dietsch, the upcoming departure of Erica Mann and the
appointment of Wolfgang Nickl and Heiko Schipper to the Board of Management.
Nominations Committee: This committee carries out preparatory work when an election of stock-
holder representatives to the Supervisory Board is to be held. It suggests suitable candidates for
the Supervisory Board to propose to the Annual Stockholders’ Meeting for election. The Nomina-
tions Committee comprises the Chairman of the Supervisory Board and the other stockholder
representative on the Presidial Committee.
The Nominations Committee did not meet in 2017. The members of the committee had dis-
cussed the recommended nominations to the Annual Stockholders’ Meeting in December 2016.
Innovation Committee: The Innovation Committee is primarily concerned with the innovation
strategy and innovation management, the strategy for the protection of intellectual property, and
major research and development programs at Bayer. Within its area of responsibility, the commit-
tee advises and oversees the management and prepares any Supervisory Board decisions. The
Committee comprises the Chairman of the Supervisory Board and five other members of the Su-
pervisory Board, with parity of representation between stockholder and employee representatives.
The Chairman of the Board of Management and the member of the Board of Management re-
sponsible for Innovation regularly attend the meetings of the Innovation Committee.
The Innovation Committee convened twice in 2017. At its February meeting, it dealt with the re-
search and development process in the Pharmaceuticals Division, especially the organization and
strategy in the area of drug discovery. At its meeting in September, it examined the Consumer
Health Division’s innovation concept and open innovation at Pharmaceuticals and Crop Science.
Corporate governance
The Supervisory Board dealt with the principles of corporate governance at Bayer. In particular, at
its December meeting it discussed the implementation of the new recommendations of the Ger-
man Corporate Governance Code and adopted corresponding changes to its rules of procedure.
In December, the Board of Management and the Supervisory Board again issued an unreserved
declaration on the German Corporate Governance Code. Further, at the meetings of the Super-
visory Board the Chairman of the Supervisory Board gave a summary of his dialog with investors.
Bayer Annual Report 2017
To our Stockholders
35
Report of the Supervisory Board
Augmented Version
Financial statements and audits
The financial statements of Bayer AG were prepared according to the requirements of the German
Commercial Code and Stock Corporation Act. The consolidated financial statements of the Bayer
Group were prepared according to the German Commercial Code and the International Financial
Reporting Standards (IFRS). The combined management report was prepared according to the
German Commercial Code. The auditor, Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Munich,
has audited the financial statements of Bayer AG, the consolidated financial statements of the
Bayer Group and the combined management report. The auditor responsible for the audit was Prof.
Frank Beine. The conduct of the audit is explained in the auditor’s reports. The auditor finds that
Bayer has complied, as appropriate, with the German Commercial Code, the German Stock Corpo-
ration Act and / or the International Financial Reporting Standards endorsed by the European Union,
and issues an unqualified opinion on the financial statements of Bayer AG, the consolidated finan-
cial statements of the Bayer Group and the combined management report. The financial state-
ments of Bayer AG, the consolidated financial statements of the Bayer Group, the combined man-
agement report and the audit reports were submitted to all members of the Supervisory Board.
They were discussed in detail by the Audit Committee and at a meeting of the full Supervisory
Board. The auditor submitted a report on both occasions and was present during the discussions.
We examined the financial statements of Bayer AG, the proposal for the use of the distributable
profit, the consolidated financial statements of the Bayer Group and the combined management
report. While examining the combined management report, we also examined in particular the non-
financial statement that is fully integrated in the management report. This statement was also ex-
amined by the auditor. We have no objections, thus we concur with the result of the audit.
We have approved the financial statements of Bayer AG and the consolidated financial statements
of the Bayer Group prepared by the Board of Management. The financial statements of Bayer AG
are thus confirmed. We are in agreement with the combined management report and, in particular,
with the assessment of the future development of the enterprise. We also concur with the dividend
policy and the decisions concerning earnings retention by the company. We assent to the proposal
for the use of the distributable profit, which provides for payment of a dividend of €2.80 per share
and for the distributable profit remaining after this payment to be carried forward.
The Supervisory Board would like to thank the Board of Management and all employees for their
dedication and hard work in 2017.
Leverkusen, February 27, 2018
For the Supervisory Board
Werner Wenning
Chairman
36
To our Stockholders
Investor Information
Augmented Version
Bayer Annual Report 2017
Investor Information
Bayer stock delivers returns of 7.4% in 2017
Positive financing environment for bonds
Dividend increase to €2.80 per share proposed
Performance of Bayer Stock in 2017
Indexed; 100 = Xetra closing price on December 31, 2016, source: Bloomberg
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
1
130
120
110
100
90
Bayer +7.4%
DAX +12.5%
DJ EURO STOXX 50 + 9.2%
The Stock Market in 2017
Stock markets achieve positive performance
2017 was a year of strong gains on stock markets. Buoyed by a growing global economy, perfor-
mance was yet again driven by expansionary monetary policy, with the European Central Bank
(ECB) in particular playing a key role here. As a result, interest rates in Europe remained at a low
level. In contrast, the U.S. Federal Reserve hiked interest rates three times, in a move that signals
a sustained departure from low interest rates in the United States. The impact of global uncertain-
ties, such as elections in Europe, Brexit risks and geopolitical factors, on the performance of the
stock markets began to fade over the course of the year. The German stock index DAX, for in-
stance, grew for the sixth year in a row. Share prices rose strongly through June, with the DAX up
by around 12 percent at almost 13,000 points, before it fell below 12,000 points in August. How-
ever, stocks started to rise again in September, with the index hitting a record high of around
13,500 points in November. The DAX stood at 12,918 points at the end of the last trading day of
the year, representing growth of around 13 percent over the course of the year.
Following a similar path, the European equities index EURO STOXX 50 (performance index) rose
around 9 percent, ending the year at roughly 7,049 points. Meanwhile, the S&P 500 and Nikkei
225 indices were up by around 19 percent, indicating that stock markets in the United States and
Japan also performed very strongly.
Bayer Annual Report 2017
To our Stockholders
Investor Information
Augmented Version
37
Performance of Bayer stock
Bayer shares posted moderate gains through early April, when they hit the €108 mark, after which
they continued to rise until they reached their high for the year of €123.30 on July 19. The com-
pany’s share price then declined until early August, before rising again to around €120 in mid-
October. Bayer stock closed the year at €104. Including the dividend of €2.70 per share paid at
the end of April, Bayer stock delivered a return of 7.4 percent.
Bayer Stock Data
Earnings per share from continuing and discontinued operations
Core earnings per share from continuing operations
1
Cash flow from operating activities in continuing operations per share
Equity per share
Dividend per share
Year-end price ²
High for the year ²
Low for the year ²
€
€
€
€
€
€
€
€
Total dividend payment
3
Number of shares entitled to the dividend (Dec. 31)
Market capitalization (Dec. 31)
Average daily share turnover on German stock exchanges
€ million
million shares
€ billion
million shares
Price / EPS ²
Price / core EPS ²
Price / cash flow ²
Dividend yield
%
2
2017
8.41
6.74
7.99
44.57
2.80
104.00
123.30
100.00
2,315
826.95
86.0
2.0
12.4
15.4
13.0
2.7
2016
5.44
6.67
7.78
45.05
2.70
99.13
111.25
84.42
2,233
826.95
82.0
2.7
18.2
14.9
12.7
2.7
2016 figures restated
1 For details on the calculation of core earnings per share see Combined Management Report, Chapter A 2.4
2 Xetra closing prices (source: Bloomberg)
3 If the planned capital increase or other capital measures are completed by the 2018 Annual Stockholders’ Meeting, with the issue
of new shares carrying dividend rights for fiscal 2017, the total dividend payment will be increased by the total dividends to be paid
to the newly issued shares, with the dividend per share remaining unchanged.
Financing environment remains positive
2017 was a year that saw record demand for euro-denominated investment-grade bonds. Buoyed
by the ECB’s bond-buying program, risk premiums hit historic lows while premiums on new issues
were in single digits or even negative territory. As before, yields remain in negative territory for a
high range of maturities.
Bayer redeemed all bonds maturing in 2017 without direct refinancing, while also early redeeming
a €750 million bond that was originally due to mature in January 2018. JPY 20 billion in bonds
were issued in May as part of a private placement.
In addition, bonds that may alternatively be redeemed in Covestro shares were issued in June.
Maturing in 2020, they amounted to €1 billion. This exchangeable bond helps Bayer to implement
its goal of achieving full separation from Covestro in the medium term and to obtain financing at
highly advantageous conditions.
Further details of all outstanding bonds are given in the consolidated financial statements.
38
To our Stockholders
Investor Information
Augmented Version
Bayer Annual Report 2017
Four percent dividend increase to €2.80 per share
The Board of Management and the Supervisory Board will propose to the Annual Stockholders’
Meeting that the dividend be increased by €0.10 to €2.80 per share. Through the move, we aim to
enable our stockholders to appropriately participate in the positive business performance of the
past fiscal year, despite the revised forecast following the second quarter and the planned capital
increase. The resulting payout ratio of around 42 percent1 calculated on core earnings per share
exceeds our target corridor of 30 to 40 percent.
The dividend yield calculated on the share price at year end 2017 amounts to 2.7 percent.
Dividends Per Share and Total Dividend Payments
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
3
3.0
2.5
2.0
1.5
1.0
0.5
0.0
€1.40
€1.40
€1.50
€2.10
€2.25
€1.90
€1.65
€2.70
€2.80
€2.50
€1,070 million €1,158 million €1,240 million €1,364 million €1,571 million €1,737 million €1,861 million €2,067 million €2,233 million €2,315 million1
Dividend per share (€)
Total dividend payment (€ million)
1
If the planned capital increase or other capital measures are completed by the 2018 Annual Stockholders’ Meeting, with the issue of new shares carrying dividend rights for
fiscal 2017, the total dividend payment will be increased by the total dividends to be paid to the newly issued shares, with the dividend per share remaining unchanged.
GRI G4-26, G4-27
Intensive investor relations activities
Last year, our investor relations (IR) activities once again centered around providing capital
market participants with a continuous flow of information. Main areas of focus of our communica-
tions included the positive results from the COMPASS study on Xarelto™, the negative results for
anetumab ravtansine and Xofigo™, and explaining the development in Brazil at our Crop Science
Division, which, together with the challenging situation at Consumer Health, prompted us to
revise our forecast halfway through the year. Other topics included Bayer reducing its interest in
Covestro, while the planned acquisition of Monsanto continued to be addressed. Against this
backdrop, we received a great many questions from capital market participants, mainly concern-
ing the financing of the Monsanto acquisition. Here, questions on the capital increase scheduled
for 2018 and the progress made in reviews being conducted by antitrust authorities were particu-
larly prevalent.
At the Meet Management conference in London in March, institutional investors and analysts had
the chance to engage in direct dialogue with Bayer’s top management, as they have done in pre-
vious years. We took part in 19 conferences in total last year, as well as seven roadshows and one
field trip. New York, Boston, San Francisco, London, Paris, Zurich, Frankfurt, Stockholm, Copen-
hagen and Singapore were just some of the cities we went to.
Private investors also had an opportunity to find out about our company at various stockholder
forums at which the Investor Relations team was present.
Bayer Annual Report 2017
To our Stockholders
Investor Information
Augmented Version
39
A sustainable investment
We continued our open communication with sustainability-oriented investors, analysts and rating
agencies in 2017. Against the backdrop of the planned acquisition of Monsanto, the focus of
capital market participants turned to business ethics, reputation and the future sustainability strat-
egy. Other important subjects included product stewardship and safety, access to medicines and
our responsibility toward the environment.
GRI G4-26, G4-27
Bayer’s inclusion in the Dow Jones Sustainability World Index and FTSE4Good (Europe, Global
and Environmental Leaders Europe 40), two important sustainability indices, was confirmed. Bayer
also continues to be listed on the MSCI World Low Carbon Target Index, the STOXX® Europe
Sustainability Index and the STOXX® Global ESG Impact index. In addition, in 2017 Bayer was
again evaluated by the CDP (Carbon Disclosure Project) as one of the leading international phar-
maceutical companies in the areas of climate protection and sustainable water management.
www.bayer.com/en/
awards.aspx
Ratio switch in ADR Program
Bayer shares are traded in the United States under an OTC Level l ADR (American Depositary
Receipts) Program. The ratio of Bayer shares to Bayer ADRs was changed in September 2017.
Four Bayer ADRs now correspond to one Bayer share. The move improved tradeability, and by a
greater extent than we had anticipated.
International ownership structure
Our ownership structure continues to show the international distribution of our capital stock. The
highest proportion of our outstanding shares, almost 31 percent, is held by investors in the United
States and Canada, followed by Germany, with about 22 percent. Bayer has a 100-percent free
float as defined by Deutsche Börse, the operator of the Frankfurt Stock Exchange. The number of
Bayer stockholders declined marginally in 2017. At the end of 2017, approximately 343,000
stockholders were listed in our share register – a decline of around 4 percent compared with the
previous year.
Shareholder Composition – Regional Allocation
4.7% Denmark, Finland,
Norway, Sweden
2.4% Benelux
4
3.8% Not covered by survey
4.1% Austria, Switzerland, Liechtenstein
30.8% U.S.A. & Canada
4.1% Other countries
9.0% France, Spain, Italy,
Portugal
19.2% U.K. & Ireland
Source: IPREO
21.9% Germany
40
40
About this Report
About this Report
Augmented Version
Bayer Annual Report 2017
Bayer Annual Report 2017
About this Report
About this Report
This integrated Annual Report combines our financial and
our sustainability reporting. Our aim is to elucidate the
interactions between financial, ecological and societal
factors and underline their influence on our company’s
long-term development, thus providing our stakeholders
with comprehensive and transparent information on our
performance.
Legal principles and reporting standards
The consolidated financial statements of the Bayer Group
as of December 31, 2017, comply with the International
Financial Reporting Standards (IFRS), as adopted by the
E.U., valid at the closing date and with the provisions of
the German Commercial Code in conjunction with Ger-
man financial reporting standards (DRS). With due regard
to these provisions, the combined management report
provides an accurate overview of the financial position
and results of operations of the Bayer Group. The Com-
pensation Report for the Board of Management and the
Supervisory Board complies with the recommendations
of the German Corporate Governance Code. The consol-
idated financial statements and the combined manage-
ment report are published in the Federal Gazette in line
with the statutory disclosure requirement.
The Bayer Group’s sustainability reporting has been
aligned to the guidelines of the Global Reporting Initiative
(GRI) and the 10 principles of the U.N. Global Compact
(UNGC) since 2000. The Annual Report 2017 was pre-
pared in accordance with the “comprehensive” option of
the GRI-G4 Guidelines. The detailed GRI content index
with the corresponding UNGC principles can be found in
the augmented online version of the Annual Report under
“C Further Information.” This index assigns Bayer’s areas
of activity derived from the materiality analysis to key GRI
aspects. This report also serves as a Communication on
Progress (COP) in line with the U.N. Global Compact.
Our reporting is also aligned to international guidelines
and recommendations, including those on the definition
and selection of nonfinancial indicators and on reporting
such as those of the OECD and the ISO 26000 standards.
In selecting and measuring our key data we also take into
account the recommendations of the European Federa-
tion of Financial Analysts Societies (EFFAS) in the case of
nonfinancial indicators, and those of the Greenhouse Gas
Protocol regarding greenhouse gas emissions. We also
consider the recommendations of the World Business
Council for Sustainable Development (WBCSD) and the
European Chemical Industry Council (CEFIC).
CSR Directive Implementation Act
Pursuant to the CSR Directive 2014 / 95 / EU published
in the Official Journal of the European Union, certain
publicly traded companies are required for the first time
to publish a nonfinancial statement for the fiscal year
beginning on or after January 1, 2017. The aim of this is
to achieve a better understanding of business develop-
ment and context as well as future developments of the
company. German lawmakers approved the implementa-
tion of the Directive as the CSR Directive Implementation
Act (CSR-RUG) and transposed it into German law
(Section 289 et seqq. of the German Commercial Code
for individual companies and Section 315b et seqq. of
Augmented Version
Bayer Annual Report 2017
Bayer Annual Report 2017
About this Repor
About this Report
41
41
Augmented Version
the German Commercial Code for consolidated financial
statements).
nonfinancial statement has been verified by the Supervi-
sory Board.
In addition to a brief description of the business model,
the Act requires the preparation of a nonfinancial state-
ment containing information relating to at least environ-
mental, employee-related and social aspects, as well as
respect for human rights, anticorruption and bribery
matters (Section 289c of the German Commercial Code).
We have also prepared the nonfinancial statement in line
with GRI-G4 Guidelines (Section 289d of the German
Commercial Code).
On account of our reporting already being integrated, we
have included the nonfinancial statement in the combined
management report of our Annual Report, which covers
data for the Bayer Group and Bayer AG as the parent
company. The legality, accuracy and expediency of the
An index to the nonfinancial statement pursuant to the
CSR Directive Implementation Act in A 4.6 provides an
overview of where you can find the disclosures required
by law (business model / concept and risks pertaining to
the aspects / diversity concept) in the combined man-
agement report. The index also provides an overview of
the corresponding areas of activity at Bayer in relation to
the aspects set forth in the Act.
Owing to the increased importance of Bayer AG within
the Group, the disclosure of significant nonfinancial infor-
mation is also mandatory for the parent company Bayer
AG. The relevant nonfinancial data and other key figures
for Bayer AG are contained in A 1.4.4.
Versions of the report
We provide the integrated Bayer Annual Report 2017 in
two audited versions:
in a print version (“Annual Report 2017”)
>
> and an augmented online version (“Annual Report 2017
– Augmented Version”).
The augmented version also includes additional
information in the management report as well as
Bayer’s consolidated financial statements.
online annexes
The print version contains numbered
which refer the reader to additional information in the
Augmented Version. You can enter these numbers in a
search mask on www.bayer.com / AR2017 to access the
desired information.
Both versions of the Annual Report are available in PDF
format for download from the Bayer website.
Kommt neu
The “Annual Report 2017 – Augmented Version” can
be found at www.bayer.com/AR17
The app of the
“Annual Report 2017 –
Augmented Version”
is available on the
iTunes and Google
Play stores. Please
search for “Bayer
Integrated Reports.”
Augmented Version
42
42
About this Report
Augmented Version
Bayer Annual Report 2017
Data collection and reporting thresholds
We collected the data of all relevant organizational units
and companies worldwide that fell within the scope of the
Bayer Group’s consolidated financial statements between
January 1, 2017, and December 31, 2017.
Bayer ceded de facto control over Covestro AG at the end
of the third quarter of 2017. Covestro is no longer a re-
portable segment of the Bayer Group and is now present-
ed as a discontinued operation until the date of its decon-
solidation.
In accordance with IFRS 5 (Non-current Assets Held for
Sale and Discontinued Operations), financial indicators are
given for continuing operations unless otherwise explicitly
indicated. The same applies to HR and HSE (health, safe-
ty and environment) indicators and our social data. Prior
years’ figures were restated as necessary.
We mainly use SAP systems to collect financial data
worldwide. We use the global SAP HR information system
External verification
The auditing company Deloitte GmbH Wirtschafts-
prüfungsgesellschaft (Deloitte), Munich, Germany, has
audited the consolidated financial statements (including
the notes thereto) of Bayer AG, Leverkusen, and the
combined management report for the fiscal year from
January 1, 2017, to December 31, 2017, and has issued
an unqualified opinion (reasonable assurance). The audit
also includes the disclosures pertaining to the nonfinan-
cial statement pursuant to Section 315c of the German
Commercial Code in conjunction with Section 289c of the
German Commercial Code.
and the associated reporting application – the Sustain-
ability Management Annual Reporting Tool (SMART) – to
collect HR indicators and social data.
GRI
G4-17
All HSE performance indicators for the Group are collated
in our Group-wide site information system (BaySIS). The
HSE data cover all fully consolidated companies in which
Bayer owns at least 50% of the shares. Data on occupa-
tional injuries, transport accidents and environmental
incidents are collected at all sites worldwide. Environmen-
tally relevant indicators are measured at all production
sites and at relevant research and development sites.
GRI
G4-22
Several nonfinancial indicators (particularly related to
employees and procurement) are reported only for our
significant locations of operation in line with the require-
ments of the corresponding GRI indicators. In 2017,
this covered 18 countries that accounted for more than
80% of total Bayer Group sales.
All the online annexes that supplement the management
report in the augmented online version of the Bayer
Annual Report 2017 (“Annual Report 2017 – Augmented
Version”) for the fiscal year from January 1, 2017, to
December 31, 2017, have been reviewed by Deloitte on a
limited assurance basis. The corresponding text passages
are marked in the augmented online version of the Annual
Report with “limited assurance.”
Additional information
> As the indicators in this report are stated in
accordance with commercial rounding principles,
totals and percentages may not always be exact.
> For further guidance, the Annual Report contains
references to:
Cross-references within the
References to websites
Group target
GRI references
Annual Report
Bayer Annual Report 2017About this ReportAugmented Version
Bayer Annual Report 2017
1.1 Corporate Profile and Structure ///// Draft Status: 01/22/2018
A Combined Management Report
41
Augmented Version
Combined
Management Report
of the Bayer Group and Bayer AG
as of December 31, 2017
Bayer Annual Report 2017
1.1 Corporate Profile and Structure ///// 1.1.1 Corporate Profile
A Combined Management Report
43
Augmented Version
1. Fundamental Information
About the Group
1.1 Corporate Profile and Structure
The foundation for our success: innovation strength
Bayer actively supports efforts to achieve U.N. Sustainable
Development Goals
Covestro no longer a part of operating business
1.1.1 Corporate Profile
Bayer is a life science company with a more than 150-year history and core competencies in
the areas of health care and agriculture. With our innovative products, we are helping find solu-
tions to some of the major challenges of our time. With life expectancy continuing to rise, we
improve quality of life for a growing population by focusing our research and development activi-
ties on preventing, alleviating and treating diseases. We are also making an important contribu-
tion to providing a reliable supply of high-quality food, feed and plant-based raw materials.
Our goal is to create value for our customers, stockholders and employees, while also strength-
ening the company’s earning power. We are committed to operating sustainably and addressing
our social and ethical responsibilities. Employees with a passion for innovation enjoy excellent
development opportunities at Bayer. All this goes to make up our corporate purpose: “Science
for a better life.”
Our corporate values guide us in our daily activities. Represented by the acronym LIFE (Leader-
ship, Integrity, Flexibility and Efficiency), these values apply to everyone at Bayer and are firmly
integrated into our global performance management system. Our value culture ensures a common
identity throughout the enterprise across national boundaries, management hierarchies and cul-
tural differences.
44
A Combined Management Report
1.1 Corporate Profile and Structure ///// 1.1.1 Corporate Profile
Augmented Version
Bayer Annual Report 2017
Bayer Worldwide 2017
North America
Sales
Employees
R&D 1
€10,143 (2016: 10,066) million
13,001 (2016: 13,212)
€1,015 (2016: 1,009) million
Latin America
Sales
Employees
R&D 1
€3,847 (2016: 4,402) million
11,587 (2016: 12,120)
€63 (2016: 70) million
Germany
Headquarters
Bayer Group
Leverkusen
Pharmaceuticals
Berlin
Crop Science
Monheim am Rhein
Animal Health
Monheim am Rhein
Pharmaceuticals
Crop Science
Cologne
Berlin
Wuppertal-Aprath
Wuppertal-Elberfeld
Bergkamen
Leverkusen
Weimar
Monheim am Rhein
Frankfurt am Main
Dormagen
Hürth-Knapsack
Animal Health
Monheim am Rhein
Kiel
Consumer Health
Darmstadt
Bitterfeld-Wolfen
Grenzach
France
Consumer Health
Gaillard
Crop Science
Lyon
Sophia Antipolis
Villefranche
U.S.A.
Pharmaceuticals
San Francisco
Whippany
Berkeley
Saxonburg
Consumer Health
Morristown
Whippany
Cleveland
Myerstown
Crop Science
Morrisville
Raleigh
Muskegon
Kansas City
Animal Health
Shawnee
Mexico
Consumer Health
Lerma
Brazil
Crop Science
Belford Roxo
São Paulo
Animal Health
São Paulo
2016 figures restated
1 Research and development expenses
2 Transition to Kunming in 2018
Significant research and development location (selection)
Significant production location (selection)
Bayer Annual Report 2017
1.1 Corporate Profile and Structure ///// 1.1.1 Corporate Profile
A Combined Management Report
45
Augmented Version
Europe / Middle East /Africa
Asia / Pacific
A 1.1.1/1
€13,388 (2016: 13,062) million
Sales
Employees 52,380 (2016: 50,970)
R&D 1
€3,295 (2016: 3,182) million
Sales
Employees
R&D 1
€7,637 (2016: 7,413) million
22,852 (2016: 23,290)
€131 (2016: 144) million
Finland
Netherlands
Pharmaceuticals
Turku
Crop Science
Nunhem
Norway
Belgium
Pharmaceuticals
Oslo
Crop Science
Ghent
Switzerland
Headquarters
Consumer Health
Basel
Pharmaceuticals
Basel
Crop Science
Muttenz
Italy
Pharmaceuticals
Garbagnate
China
Pharmaceuticals
Beijing
Consumer Health
Chengdu 2
Japan
Pharmaceuticals
Tokyo
Osaka
Koka
Indonesia
Consumer Health
Cimanggis
India
New Zealand
Crop Science
Vapi
Animal Health
Auckland
46
A Combined Management Report
1.1 Corporate Profile and Structure ///// 1.1.2 Corporate Structure
Augmented Version
Bayer Annual Report 2017
1.1.2 Corporate Structure
Corporate structure as of December 31, 2017
The Bayer Group is managed as a life science company with three divisions – Pharmaceuticals,
Consumer Health and Crop Science – and the Animal Health business unit, which are also our
reporting segments. The corporate functions, Business Services and the service company Currenta
support the operational business. In 2017, the Bayer Group comprised 237 consolidated compa-
nies in 79 countries throughout the world. As described in further detail below, Bayer’s interest in
Covestro AG stood at 24.6% as at the end of the reporting period. Covestro is no longer a report-
able segment and has been accounted for using the equity method as of the beginning of the
fourth quarter of 2017.
A 1.1.2/1
Bayer Group Structure in 2017
Board of Management
Pharmaceuticals
Consumer Health
Crop Science
Corporate Functions & Business Services
Animal Health
Currenta (60%)
The Pharmaceuticals segment focuses on prescription products, especially for cardiology and
women’s health care, and on specialty therapeutics in the areas of oncology, hematology and
ophthalmology. The division also comprises the radiology business, which markets diagnostic
imaging equipment together with the necessary contrast agents.
The Consumer Health segment markets nonprescription (OTC = over-the-counter) medicines,
medical products and cosmetics in the dermatology, nutritional supplement, analgesic, digestive
health, allergy, cold, foot care and sun protection categories.
Vector control:
see Glossary
Crop Science is a world-leading agriculture enterprise with businesses in crop protection, seeds
and nonagricultural pest control. The Crop Protection / Seeds unit markets a broad portfolio of
high-value seeds and innovative pest management solutions, while at the same time providing
extensive customer service for sustainable agriculture. The Environmental Science unit provides
products and services for professional nonagricultural applications, such as vector and pest con-
trol and forestry.
Animal Health ranks among the leading international innovators in its field. It develops and mar-
kets products and solutions for the prevention and treatment of diseases in companion and farm
animals.
The corporate functions and Business Services operate as Group-wide competence centers
in which business support services are bundled. Currenta is the service company responsible for
managing and operating the Chempark sites in Leverkusen, Dormagen and Krefeld-Uerdingen.
Bayer Annual Report 2017
Online Annex: A 1.1.2-1
1.1 Corporate Profile and Structure ///// 1.1.2 Corporate Structure
A Combined Management Report
47
Augmented Version
Products and Activities of the Segments
Indication / Application / Business
Core activities and markets
Main products and brands
1
A 1.1.2-1/1
Pharmaceuticals
Cardiology
Oncology
Ophthalmology
Hematology
Women’s health
Hypertension, pulmonary hypertension, heart
attack and stroke, thrombosis
Liver cancer, renal cell carcinoma, thyroid
carcinoma, prostate cancer, colorectal cancer,
gastrointestinal stromal tumors (GIST), follicular
lymphoma
XareltoTM, AdalatTM, AspirinTM Cardio, AdempasTM
NexavarTM, XofigoTM, StivargaTM, AliqopaTM
Age-related macular degeneration (AMD),
diabetic macular edema (DME)
EyleaTM
Hemophilia A
KogenateTM
/ KovaltryTM
Contraception, gynecological therapy
MirenaTM product family, YazTM
YasminelleTM
/ YasminTM
/
AvaloxTM
/ AveloxTM, CiproTM, CiprobayTM
Infectious diseases
Bacterial infections
Radiology
Other indications
Consumer Health
Dermatology
Nutrition
Analgesics
Digestive health
Allergy
Cough and cold
Foot care
Sun care
Crop Science
Fungicides
Insecticides
Herbicides
SeedGrowth
Seeds
Contrast agents; diagnostic imaging equipment
for use with contrast agents
GadovistTM, UltravistTM, Medrad Spectris SolarisTM,
Medrad StellantTM
Multiple sclerosis
BetaferonTM / BetaseronTM
Wound care, skin care, skin and intimate health
BepanthenTM, CanestenTM
Multivitamin products, dietary supplements
One A DayTM, ElevitTM, BeroccaTM, SupradynTM,
RedoxonTM
General pain relief
Gastric complaints
Allergies
Cough and cold
Foot care
Sun protection
AspirinTM, AleveTM
MiraLaxTM, RennieTM, IberogastTM
ClaritinTM
AspirinTM, Alka-SeltzerTM, AfrinTM
Dr. Scholl’sTM
CoppertoneTM
Biological and chemical products to protect
crop plants from fungal diseases
FlintTM, FoxTM, LunaTM, NativoTM, ProsaroTM,
SerenadeTM, XproTM
Biological and chemical products to protect
crop plants from harmful insects and their larvae
BioActTM, ConfidorTM, MoventoTM, SivantoTM
Chemical crop protection products to control
weeds
AdengoTM, AlionTM, BastaTM, CorvusTM, LibertyTM,
AtlantisTM
Biological and chemical seed treatments to
protect against fungal infection and pests
CropStarTM, GauchoTM, PonchoTM, SonidoTM
Seeds and traits for cotton, canola, rice,
soybeans, wheat and vegetables
ArizeTM, CredenzTM, FiberMaxTM, InVigorTM,
NunhemsTM, StonevilleTM
Environmental Science
Animal Health
Companion animals business
Farm animals business
Products for professional pest control, vector
control, forestry, golf courses and parks, railway
tracks
Veterinary medicines and solutions to protect and
maintain the health and wellbeing of companion
animals, focusing on antiparisitics and anti-
infectives
Veterinary medicines and solutions to treat and
prevent parasitic diseases, anti-infectives,
immunostimulants, pharmacological treatments
and farm hygiene products
1 The order of the products listed is no indication of their significance.
FicamTM, MaxforceTM, EsplanadeTM, K-OthrineTM
AdvantageTM product family, SerestoTM, DrontalTM
product family, BaytrilTM
BaytrilTM, CydectinTM
48
A Combined Management Report
1.1 Corporate Profile and Structure ///// 1.1.2 Corporate Structure
Augmented Version
Bayer Annual Report 2017
Management functions of Bayer AG
As the parent company of the Bayer Group, Bayer AG – represented by its Board of Management
– performs the principal management functions for the entire company. This mainly comprises the
Group’s strategic alignment, resource allocation, and the management of financial affairs and
managerial staff, along with the management of the Group-wide operational business of the seg-
ments. Business lease agreements between Bayer AG on the one hand, and Bayer Pharma AG
and Bayer CropScience AG – the former parent companies of the respective divisions – on the
other, have been in place since the start of 2017 and govern the transfer of their operational busi-
ness to Bayer AG. This means that, alongside the holding company function it has performed to
date, Bayer AG also performs the corresponding parent company functions in relation to Pharma-
ceuticals and Crop Science.
Changes to the corporate structure in connection with Covestro
In fiscal 2017 we reduced our interest in Covestro AG from 64.2% to 24.6%. Over the course
of the year, we sold 35.6% of the shares in this company in four tranches, raising approximately
€4.7 billion in total. In addition, we deposited a further 4% of the shares in Bayer Pension Trust
e.V., which now holds an interest of 8.9%.
Furthermore, we sold an additional 10.4% of Covestro shares in January 2018, in a move that
reduced our direct interest to 14.2%. This transaction generated overall proceeds of €1.8 billion.
As a result of the reduction undertaken through September 30, 2017, and the conclusion of a
control termination agreement, Bayer ceded de facto control over Covestro AG at the end of the
third quarter. Accordingly, Covestro was deconsolidated and presented as an associate for the
first time. Covestro is no longer a reportable segment and is presented as a discontinued opera-
tion until the date of its deconsolidation. The financial information for the periods preceding the
deconsolidation, including the comparative prior-year figures, has been restated accordingly.
Changes to the corporate structure in connection with the planned acquisition
of Monsanto
On September 14, 2016, we signed a binding agreement to acquire the Monsanto Company.
Monsanto’s shareholders approved the merger on December 13, 2016, during an extraordinary
stockholders’ meeting. In 2017, Bayer received half of the regulatory approvals that it applied for,
obtaining clearance in Colombia, Ecuador, Israel, Paraguay, the Philippines and South Africa, for
instance. We are collaborating with the authorities and continue to work toward closing the trans-
action in the second quarter of 2018.
In October 2017, Bayer signed an agreement to sell selected Crop Science businesses to BASF
for €5.9 billion in light of the planned acquisition of Monsanto. The assets to be sold include
Bayer’s global glufosinate-ammonium business and the related LibertyLink™ technology for herbi-
cide tolerance, a substantial part of the field crop seed businesses, as well as respective research
and development capabilities. The transaction is subject to regulatory approval as well as the
successful closing of Bayer’s acquisition of Monsanto. Bayer will continue to own, operate and
maintain these businesses until the closing of this divestiture. The assets and liabilities are classi-
fied as held for sale. Aside from this, the company’s situation is presented in this report with the
respective Crop Science businesses included. The potential impact of the divestments will not be
outlined in further detail.
In connection with the planned acquisition of Monsanto and in preparation for the future combined
business, the structure of the Crop Science segment was adjusted as of January 1, 2018. In the
new structure, all the strategic business entities – including the Herbicides, Fungicides, Insecti-
cides and SeedGrowth businesses – are organizationally located directly below the Crop Science
segment. Crop Protection / Seeds will cease to exist, as will the intermediate Crop Protection level
below it. Moreover, the business entities within Seeds (including Traits) will from now on be re-
garded individually and not jointly. In line with this, Vegetable Seeds will be reported separately.
Given their current size, the other Seeds businesses – comprising Corn Seed & Traits, Soybean
GRI G4-22
Field crops:
see Glossary
Bayer Annual Report 2017
1.1 Corporate Profile and Structure ///// 1.1.3 Value Creation
A Combined Management Report
49
Augmented Version
Seed & Traits, Cotton Seed & Traits, Oilseeds & Traits and Other Seeds & Traits – will be grouped
together under Other (Seeds & Traits). Environmental Science will be presented separately on the
same level as the other strategic business entities. The new reporting structure will be reviewed
again upon conclusion of the acquisition of Monsanto and will be modified in line with the frame-
work conditions prevailing at that point in time.
A comparison of the previous and new reporting structures of Crop Science is shown in
graphic A 1.1.2/2.
Comparison of Previous and New Crop Science Structure
A 1.1.2/2
Structure until Dec. 31, 2017
Crop Protection / Seeds
Crop Protection
Herbicides
Fungicides
Insecticides
SeedGrowth
Seeds
–
Environmental Science
–
Crop Science total
Structure from Jan. 1, 2018
–
–
Herbicides
Fungicides
Insecticides
SeedGrowth
–
Vegetable Seeds
Environmental Science
Other (Seeds & Traits)
Crop Science total
Reporting for fiscal 2017 applies the structure in place until December 31, 2017.
1.1.3 Value Creation
By delivering innovative products and solutions, Bayer creates value for its stakeholders at all
stages of the value chain. We operate production sites worldwide, invest in research and devel-
opment, work with international and local suppliers and contribute to the economic development
of our target markets. As an employer, we provide jobs in industrialized, emerging and developing
economies and create purchasing power through the salaries we pay. We contribute to public
finances and thus support public infrastructure through the payment of taxes and other levies.
See also A 1.4.2
A 1.1.3/1
Value Chain Stages
Research,
development
and innovation
Supply chain
Production
Logistics
Distribution
and marketing
Use
The value added statement shows the direct financial value our business activities create for our
stakeholders. We define value added as the company’s total operating performance in the previ-
ous fiscal year less the costs of procured and consumed goods and services, depreciation, amor-
tization, impairment losses and impairment loss reversals.
50
A Combined Management Report
1.2 Strategy and Management ///// 1.2.1 Group Strategy and Targets
Augmented Version
Bayer Group Value Added 2017
€2.7 billion Depreciation and amortization
Total operating
performance 1
Value added
€18.5 billion Material costs /
other expenses
€ 36.2
billion
€ 15.0
billion
1 Total operating performance = sales + other operating income + financial income / equity-method income (loss)
2 Bayer AG dividend proposal for 2017)
Bayer Annual Report 2017
A 1.1.3/2
€9.5 billion Employees (63%)
€0.9 billion Reserves / other (6%)
€2.3 billion Stockholders 2 (15%)
€0.7 billion Lenders (5%)
€1.6 billion Tax authorities (11%)
1.2 Strategy and Management
Corporate strategy targets long-term profitable growth
Group targets reflect our integrated business approach
Sustainability management underpins all business activities
1.2.1 Group Strategy and Targets
The steadily growing and aging global population presents fundamental challenges in health care
and nutrition. How will we feed up to ten billion people by 2050 while contending with the impact of
climate change? How will we ensure quality of life for an ever-increasing number of elderly people?
These are the challenges that we are looking to address. In line with our corporate purpose “Sci-
ence for a better life,” we are driving the development of better medicines and the production of
high-quality food through innovative solutions. Alongside our goal of achieving economic success,
we also seek to make a responsible contribution to the United Nations Sustainable Development
Goals of “Good Health and Well-Being” and “Zero Hunger” within the scope of our entrepreneurial
possibilities.
We strive to meet our responsibility to the environment and society, and to continuously develop
our businesses such that they assume leadership positions in their respective industries and seg-
ments to achieve long-term success for our company. We invest in a diversified portfolio of strong
businesses that create value. Our efforts are sustained by our employees and by our core compe-
tencies of innovation, customer focus, quality, process excellence and portfolio management.
Bayer Annual Report 2017
1.2 Strategy and Management ///// 1.2.1 Group Strategy and Targets
A Combined Management Report
51
Augmented Version
Strategies of the Segments
Pharmaceuticals
Demographic change is impacting health care systems through the growing number of chronic
diseases and the increasing occurrence of multiple conditions.
See also A 1.3
We are seeking to contribute to medical progress through our focus on researching, developing
and marketing innovative medicines that provide significant clinical benefit and value primarily in
the therapeutic areas of cardiology, oncology, women’s health, hematology and ophthalmology.
Our medium-term growth is being primarily driven by our successfully launched products Xarel-
to™, Eylea™, Stivarga™, Xofigo™ and Adempas™. To safeguard long-term growth, we are con-
tinuing to invest in research and development (R&D). Here our efforts are focused on the areas in
which we see a substantial need for innovation and can make a major impact through the exper-
tise amassed by our researchers. This is true especially for cardiovascular diseases, cancer and
certain uses in women’s health. To supplement our R&D activities, we will continue to expand our
portfolio through acquisitions, licensing agreements and external collaborations while maintaining
a targeted approach.
To improve access to our products in developing and emerging countries (Access to Medicine –
ATM), we are implementing economically feasible concepts and further developing our com-
pounds for the treatment of neglected tropical diseases alongside our philanthropic activities.
ATM: see Glossary
Online Annex: A 1.2.1-1
As an innovative company, we improve people’s quality of life by developing products and solu-
tions for preventing and treating disease. We also work on programs and initiatives with various
partners so that people worldwide, regardless of their origin and income, have access to our
products (Access to Medicine, ATM).
For more than ten years, we have donated to the World Health Organization (WHO) two of our
active ingredients and financial resources for the treatment of African sleeping sickness and
Chagas disease, which is widespread in Latin America. As a 2012 cosignatory to the London
Declaration on Neglected Tropical Diseases, we committed to providing these medications to
the WHO until these diseases are either contained or eradicated.
Moreover, we are developing a new formulation of the drug Nifurtimox (for Chagas disease) that
is suitable for children and are researching whether weight-based dosing could reduce treat-
ment time. In a product development partnership with DNDi (Drugs for Neglected Diseases Ini-
tiative), we are examining whether the ingredient emodepside deployed by Bayer Animal Health
could also be used to develop an innovative treatment for river blindness. As a member of the
TB Drug Accelerator program, we are providing access to parts of our substance library in
support of the search for new compounds to combat tuberculosis.
We are additionally developing economically feasible family planning programs. For instance,
we provide women in developing countries with better access to hormonal birth control. These
programs make our products available to international development partners at preferential
prices. To this end, we reduced the price of JadelleTM, a reversible, long-term contraceptive im-
plant, by half. Before the program was originally scheduled to end, Bayer announced that it
would be extended to 2023. Bayer’s family planning activities directly support “Good Health
and Well-Being,” the third of the U.N. Sustainable Development Goals, since these activities
address maternal and infant mortality as well as reproductive health.
52
A Combined Management Report
1.2 Strategy and Management ///// 1.2.1 Group Strategy and Targets
Augmented Version
Bayer Annual Report 2017
In some countries where sections of the population have no access to innovative medicines
via health care systems, we establish patient assistance programs for selected products. These
aim particularly to provide access to oncology and cardiovascular products and products to
treat chronic diseases such as multiple sclerosis and hemophilia. Such programs exist in the
United States, China, South Africa, a number of countries in Southeast Asia, and other regions.
Consumer Health
Increasing cost pressure on public health care systems and greater personal responsibility by con-
sumers are increasingly putting the spotlight on the benefits of self-care. In addition, advancing
digitization in the health care market necessitates a stronger focus on digital products and services.
We are tackling these changes by investing in innovation to reinforce our core brands Claritin™,
Aspirin™, Aleve™, Bepanthen™, Canesten™, Alka-Seltzer™, Dr. Scholl’s™, One A Day™,
Coppertone™, Elevit™ and Berocca™. We are also expanding our digital range, as well as our
e-commerce activities.
Furthermore, we are focusing on increasing our presence in key markets such as the United
States, Germany, Brazil, Russia and China, as well as additional countries. We are also promot-
ing the transfer of prescription medicines and active ingredients to nonprescription status
(Rx-to-OTC switch), enabling them to be used in self-care. In so doing, we want to guarantee
consumers better access to medicines and give them the opportunity to take more responsibility
for their health, thereby improving their quality of life.
Crop Science
The need for food, animal feed and renewable raw materials is growing worldwide. At the same
time, however, the available arable land is limited and is increasingly endangered by the impact of
climate change. In addition, there is growing demand for sustainable farming practices. This re-
quires innovative solutions that can be leveraged to boost agricultural productivity and guarantee
food security.
See also A 1.3
www.bayer.com/
foodchain
As part of our strategy to develop holistic solutions, we aim to build on our expertise in the inte-
gration of seed technology with chemical and biological crop protection. We are also driving digiti-
zation. In the field of digital farming, we plan to develop a proprietary range of services with spe-
cific data models that simulate risk factors for crop disease outbreaks, among other things. Our
goal is to provide farmers with tailored recommendations on the targeted and correct use of our
products, thus helping them to improve their yields.
In line with our commitment to sustainable agriculture, we promote cost-effective and socially
viable farming practices that use resources efficiently and protect the environment. By providing
tailored solutions, we aim to help smallholder farmers in developing and emerging countries to
optimize agricultural production and improve their living standards. Moreover, as part of our Bayer
ForwardFarming initiative, we develop and promote innovative solutions for sustainable agricultural
practices in collaboration with farmers. As part of these efforts, we are continuously expanding
our network of ForwardFarms.
Bayer Annual Report 2017
1.2 Strategy and Management ///// 1.2.1 Group Strategy and Targets
A Combined Management Report
53
Augmented Version
As previously communicated, we are seeking to acquire the Monsanto Company. Together we see
ourselves being in a position to offer a broader portfolio of innovative products customized to
better meet farmers’ many challenges and individual needs. In the medium to long term, the com-
bined enterprise would be able to bring innovative solutions to the market faster and provide its
customers with better solutions and an optimized product offering on the basis of agricultural
analysis and supporting digital farming applications.
See A 1.1.2. for the
status of the Monsanto
acquisition
Animal Health
The development of the animal health market is primarily driven by a growing global population
and higher average incomes. In the companion animals segment, this leads to rising pet owner-
ship levels. In the farm animals segment, moreover, a growing aspiration to adopt Western lifestyle
habits is leading to higher meat consumption. Effective and safe animal medicines are therefore
increasingly in demand in both areas.
In the companion animals business, Animal Health holds a leading position in the global parasiti-
cide segment. We are focusing on maintaining the strong performance of the innovative Seresto™
collar, opening up new distribution channels and leveraging the brand equity of the Advantage™
product family.
In the farm animals business, we are focusing on antiparasitics and anti-infectives for the treat-
ment of infectious diseases. In addition to the products developed in-house, we also explore
opportunities to strengthen our business through acquisitions. For example, we expanded our
antiparasitics business in the United States through the successful integration of the Cydectin™
portfolio in January 2017.
Targets and key performance indicators
Our strategy is aimed at achieving economic growth balanced with our responsibility for the
environment and society. To advance the consistent implementation of our strategy, we have set
ambitious Group targets along the value chain. These targets are in the areas of growth and
profitability, innovation, sustainability and employees.
The current status of our progress in these areas is documented in the following table and the
respective chapters.
54
A Combined Management Report
1.2 Strategy and Management ///// 1.2.1 Group Strategy and Targets
Augmented Version
Bayer Annual Report 2017
A 1.2.1/1
Bayer Group Targets
Target
Target attainment (as of 2017)
New or adjusted target
Growth and Profitability
Group sales (Fx & portfolio adj. change);
revised forecast in October 2017:
low-single-digit-percentage increase to €35 billion to €36 billion
1.5 % increase to €35.0 billion
Increase by a low- to mid-single-digit
percentage to around €35 billion
EBITDA before special items;
revised forecast in October 2017:
slightly above the level of the previous year
Core earnings per share;
revised forecast in October 2017:
low-single-digit percentage decrease
Innovation
At the prior-year level (– 0.3%)
At the prior-year level
1.0% increase
At the prior-year level
Group: Increase in R&D investment to €4.8 billion (2017)
€4.5 billion
Pharmaceuticals: transition of 10 new molecular entities (NMEs)
into development (2017)
10 new molecular entities (NMEs)
transferred
R&D investment of
around €4.1 billion (2018)
Transition of nine new molecular enti-
ties (NMEs) and one new indication or
one new formulation project into devel-
opment (2018)
Consumer Health: transition of 25 consumer-validated concepts
into early development (2017)
47 new concepts transferred
Transition of 25 consumer-validated
concepts into early development (2018)
Crop Science: transfer of three new molecular entities (NMEs),
plant traits or biologics into confirmatory technical proof-of-
concept field studies (2017)
Start of field studies on two new
molecular entities (NMEs)
Transfer of three to four new molecular
entities (NMEs), plant traits or biologics
into confirmatory technical proof-of-
concept field studies
See A 1.3 for further information
Sustainability
Supplier management
Evaluation of all strategically important suppliers (2017)
99.5%
Target achieved
Evaluation of all potentially high-risk suppliers with significant
Bayer spend (2020)
93%
Bayer will conduct a new stakeholder
survey and materiality analysis in 2018.
This will be used to define new Group
targets.
Target unchanged
Development and establishment of a new sustainability standard
for our supply base (2020)
In implementation
Target unchanged
See A 1.4.2.1 for further information
Bayer Annual Report 2017
Bayer Group Targets
1.2 Strategy and Management ///// 1.2.1 Group Strategy and Targets
A Combined Management Report
55
Augmented Version
A 1.2.1/1 continued
Target
Target attainment (as of 2017)
New or adjusted target
Resource efficiency
Improvement of 10% in energy efficiency (2020);
reference value 2015: 143 kWh/€1,000 external sales
125 kWh / €1,000 external sales
(12.6% improvement)
Target unchanged
Reduction of 20% in specific greenhouse gas emissions (2020);
new reference value 2015: 55.7 kg CO2e / €1,000 external sales
46.3 kg CO2e /€1,000 external
sales (– 16.9%)
Target unchanged
Establishment of water management at all sites in water-scarce
areas (2017)
100%
Target achieved
Bayer will conduct a new stakeholder
survey and materiality analysis in 2018.
This will be used to define new Group
targets.
See A 1.4.3.3 for further information
Safety
Reduction of 35% in occupational safety incident rate (Recordable
Incident Rate – RIR) (2020); reference value 2012: 0.50
RIR 0.45 (– 10%)
Target unchanged
Reduction of 30% in process and plant safety incidents
(Loss of Primary Containment Incident Rate – LoPC-IR) (2020);
reference value 2012: 0.21
LoPC-IR 0.13 (– 38%)
Target unchanged
See A 1.4.3.2 for further information
Product stewardship
Conclusion of assessment of hazard potential of all substances
(>99%) used in quantities exceeding one metric ton per annum
(2020)
76%
Target unchanged
See A 1.4.3.1 for further information
Compliance
Annual compliance training for virtually 100% of Bayer managers
97%
Target unchanged
See A 4.2 for further information
Employees
Continuous improvement in employee engagement; reference
value 2012: 85%
79%1
Increase in the proportion of women in senior management
to 35%; (2020); reference value 2010: 21%
Increase in the proportion of senior managers from outside the
European Union, the United States or Canada to 25% (2020);
reference value in 2013: 18%
32%
21%
See A 1.4.1.1 for further information
1 The figures are not comparable due to a change in the methodology used in the employee survey.
Continuous improvement in employee
satisfaction; new reference value 2017:
79%
Target unchanged
Target unchanged
56
A Combined Management Report
1.2 Strategy and Management ///// 1.2.2 Management Systems
Augmented Version
Bayer Annual Report 2017
1.2.2 Management Systems
One of the prime objectives of the Bayer Group is to achieve profitable growth in order to steadily
increase the enterprise value and sustain the company as a going concern. Economic planning
and management for the company takes place within a framework for the segments determined
by the Board of Management in the course of the strategic management process and translated
into specific targets during operational planning. Continuous monitoring of business developments
complements the planning and management process, and key management and performance
indicators are regularly updated. This process also involves implementing strategic objectives and
adopting countermeasures in the event of deviations from the budget. Moreover, the Board of
Management uses targets and performance indicators to steer the company’s sustainable align-
ment.
We use the following indicators to plan, manage and monitor the development of our business:
See also A 2.4
Operational management indicators
The main parameters in economic management within the Bayer Group at the operational level are
figures for sales, earnings and tied-up capital, which therefore also significantly affect short-term
variable compensation.
Growth is measured primarily in terms of the change in sales after adjusting for currency and port-
folio effects (Fx & portfolio adj.) in order to reflect the operational business development of the
Group and the segments. A key measure of profitability at the Group and segment levels is EBITDA
before special items. The EBITDA margin before special items, which is the ratio of EBITDA before
special items to sales, serves as a relative indicator for the internal and external comparison of
operational earning power. Another important profitability indicator for the Bayer Group is core
earnings per share, which is the core net income divided by the weighted average number of
shares.
Strategic value-based indicator: return on capital employed (ROCE)
Return on capital employed (ROCE), which measures the company’s economic success in relation
to the capital employed, supplements the operational management indicators. As a strategic indi-
cator, ROCE measures the periodic capital return. This can then be compared with the weighted
average cost of capital. If ROCE is greater than the cost of capital, this indicates that a contribution
is being made to increasing the enterprise value, as the expectations of the capital market have
been exceeded. Monitoring ROCE over time supports the analysis of long-term business develop-
ment, while comparing ROCE between business areas is a process that aids portfolio analysis.
See also A 2.2.3
and A 2.4
U.N. Global Compact:
see Glossary
GRI: see Glossary
1.2.3 Sustainability Management
To us, sustainability means safeguarding our future social and economic viability. Understood in
this context and as a part of our corporate strategy, sustainability is integrated into our day-to-day
procedures. We underline our mission as a company that acts sustainably through our commit-
ment to the U.N. Global Compact (UNGC) and the Responsible Care™ initiative, as well as
through our involvement in the World Business Council for Sustainable Development (WBCSD). In
our sustainability reporting we have followed the guidelines of the Global Reporting Initiative (GRI)
for many years.
www.bayer.com/unsdg
See also A 1.2.1
Bayer is committed to the U.N. Sustainable Development Goals (SDGs) and has published a
company position detailing this. Our innovations, products and services contribute to overcoming
some of the biggest global challenges, including the goals of “Zero Hunger” (SDG 2) and “Good
Health and Well-Being” (SDG 3) in particular.
Bayer Annual Report 2017
1.2 Strategy and Management ///// 1.2.3 Sustainability Management
A Combined Management Report
57
Augmented Version
GRI G4-18
www.bayer.com/policies
Clear responsibilities and structures defined
As part of Bayer’s corporate strategy, sustainability is firmly established at Board level. Respon-
sibility for the Group’s sustainable orientation lies with the Board of Management member
responsible for Human Resources, Technology and Sustainability in his role as Chief Sustainability
Officer, and with the Sustainable Development Committee (SDC) under the auspices of the Health,
Safety & Sustainability function. The SDC sets targets and draws up initiatives, management
systems and corporate policies, and is responsible for their implementation. Operational imple-
mentation is effected with the help of nonfinancial targets and performance indicators throughout
the value chain, based on a clear definition of responsibilities in the corporate structure and the
identification of major areas of activity using a materiality analysis. Corporate policies ensure our
sustainability principles are firmly established in business operations and are implemented through
corresponding management systems, committees and processes. The review and revision of
these regulations and internal audits ensure that our management systems are continuously im-
proved and aligned to the respective requirements.
A 1.2.3/1
Structure of Sustainability Management
Sustainability management
Organization
Major areas of activity
Member of the Board of
Management responsible for
Human Resources, Technology
and Sustainability
Corporate Health, Safety &
Sustainability function
Sustainable Development
Committee
Product and process innovation
Access to medicine
Sustainable food supply
Employee relations & development
Business ethics
Product stewardship
Safety
Environmental protection /
resource efficiency
Supplier management
Stakeholder engagement / partnering
Societal engagement
Steering, measurement
and documentation
Corporate policies on, for example,
– human rights
– compliance
– sustainable development
– responsible marketing
Targets / indicators
HSEQ management systems
and audits
Opportunity and risk management
Integrated Annual Report with
independent auditing
Legal requirements such as the CSR Implementation Directive and initiatives
such as WBCSD, GRI, UNGC and Responsible Care
Materiality analysis and areas of activity
We regularly analyze the expectations and requirements of our major stakeholders and compare
these with our own assessment of their relevance for Bayer. This enables us to identify at an early
stage the latest developments along with sustainability-related opportunities and risks, which we
can then incorporate into our strategy. We document the identified topics in a materiality matrix
that we use to derive the main areas of activity for Bayer. In view of the separation of Covestro
and the planned acquisition of Monsanto, we will reexamine our areas of activity in 2018 using a
comprehensive materiality analysis.
GRI G4-18, G4-23,
G4-26, G4-27
www.bayer.com/
materiality
An online graphic shows our current areas of activity and their assignment to the stages of the
value chain.
58
A Combined Management Report
1.2 Strategy and Management ///// 1.2.3 Sustainability Management
Augmented Version
Bayer Annual Report 2017
Online Annex: A 1.2.3-1
Areas of Activity Across the Different Stages of the Value Chain
A 1.2.3-1/1
Research,
development,
innovation
Procurement
and supply
chain
Production
Logistics
Distribution
and
marketing
Use
Value chain stages
Areas of activity
Product and
process innovation
Access to medicines
Sustainable food supply
Employee relations &
development
Business ethics
Product stewardship
Safety
Environmental protection /
resource efficiency
Supplier management
Stakeholder engagement /
partnering
Societal engagement
www.bayer.com/
areas-of-activity
www.bayer.com/gri
GRI G4-25, G4-26
On our sustainability website we include a table giving an overview of our areas of activity with
definitions and the corresponding Group targets and GRI aspects. A detailed GRI content index
with the corresponding UNGC principles can be found under “C Further Information.”
Stakeholder dialogue promotes acceptance and business success
As a company, Bayer is a part of society and of public life. Through open dialogue with our stake-
holders we aim to build trust in our actions, our products and the social value of our services,
because the expectations and viewpoints of our stakeholders affect public acceptance of Bayer
and thus our commercial success. Stakeholder dialogue helps us to recognize important trends
and developments in society and our markets at an early stage and take this information into ac-
count when designing our business. The integration of various stakeholder groups is planned
within the scope of our stakeholder engagement process. This process also includes monitoring
the results of individual dialogue measures. In strategic decision-making processes such as in-
vestment projects and launches of new products, Bayer approaches key social and political play-
ers right from the start of a new project to canvass their support. The open dialogue makes it
possible to identify opportunities and risks early on. This process is in line with our Stakeholder
Engagement Directive and is supplemented by an internal information platform.
GRI G4-24
We fundamentally distinguish four stakeholder groups with which we engage in various dialogue
formats.
Bayer Annual Report 2017
1.2 Strategy and Management ///// 1.2.3 Sustainability Management
A Combined Management Report
59
Augmented Version
A 1.2.3/2
GRI G4-24
Our Most Important Stakeholder Groups
Bayer
Partners
Financial market participants
Social interest groups
Regulators
Customers
Suppliers
Employees
Associations
Universities / schools
Investors
Banks
Rating agencies
Online Annex: A 1.2.3-2
General public
NGOs
Local communities
Competitors
Lawmakers
Politicians
Authorities
Diverse stakeholders in focus
Our stakeholder engagement process describes how the expectations of our stakeholders can
be taken into account in a specific project, for example, and dialogue with them steered. The
engagement process is regularly reviewed based on social trends.
GRI G4-25, G4-26
Stakeholder Engagement Process
A 1.2.3-2/1
Preparation
Analysis /
adjustment
Identifi-
cation
Interaction
Charac-
terization
Strategy
development
Prioritization
Clustering
Collaboration formats aimed at specific target groups
Our regular stakeholder activities range from dialogue at local, national and international level
and active involvement in committees and specialist workshops all the way through to compre-
hensive information programs, issue-related multi-stakeholder events and participation in inter-
national initiatives and collaborations.
GRI G4-26
Below and in the relevant chapters, we use examples to provide an insight into our engage-
ment in 2017 with respect to our four most important stakeholder groups.
60
A Combined Management Report
1.2 Strategy and Management ///// 1.2.3 Sustainability Management
Augmented Version
Bayer Annual Report 2017
GRI G4-26
Our partners
Customers and suppliers
More on this topic can be found in A 1.4.2.1 and A 1.4.2.3.
Employees
More information about internal communications can be found in A 1.4.1.1.
Universities and schools
Bayer’s research and development activities are enhanced supported by the international ex-
change with leading universities, public-sector research institutes and partner companies. More
about this can be found in A 1.3.
You can find more information on our comprehensive activities in dialogue with school and uni-
versity students in Online Annex A 1.4.1.3-1 of this Annual Report.
Associations
Bayer is an active member of, or holds leadership positions in, numerous associations and their
committees. Examples include the Federation of German Industries (BDI; Presidential Board),
the German Chemical Industry Association (VCI; Vice-Presidency), the German Equities Institute
(DAI; Executive Committee and Board) and the European Chemical Industry Council (CEFIC;
Executive Director Change Management). Bayer also currently provides the Chairman of the
Executive Board of econsense, the Forum for Sustainable Development of German Business.
Our segments are active members of their respective industry associations and committees.
For example, Pharmaceuticals is on the boards of both the European (EFPIA) and the U.S.
(PhRMA) pharmaceutical industry associations. Consumer Health has leadership functions in
relevant industrial and trade associations. The member of the Bayer Board of Management re-
sponsible for Consumer Health is on the Board of Directors of the WSMI (World Self-Medication
Industry). Representatives of the segment are also on the boards of regional self-medication
associations.
Crop Science is represented, for example, on the board of the international crop protection as-
sociation CropLife International, the European Crop Protection Association (ECPA) and the pre-
sidium of the German agricultural industry association Industrieverband Agrar. Crop Science is
represented on the Board of Administration and the Scientific Committee of the European Cen-
tre for Ecotoxicology and Toxicology of Chemicals (ECETOC).
Crop Science is also a supporter of the International Food Information Council (IFIC) and a
member of the Biotech Innovation Organization (BIO), the world’s largest biotech trade associa-
tion. Furthermore, Crop Science holds memberships in the North American Council for Bio-
technology Information (CBI), the European Seed Association (ESA), the biotech lobbying or-
ganization EuropaBio and the International Seed Federation (ISF), which represents the
interests of the seed industry on a global level.
Animal Health is represented on numerous boards of directors of national and international as-
sociations for animal health such as Health for Animals.
Financial market players
Investors, banks and rating agencies
More information on our dialogue with the capital market – stockholders, capital investment
companies, institutional investors, banks and rating agencies – can be found in the “Investor In-
formation” chapter of this Annual Report.
Bayer Annual Report 2017
1.2 Strategy and Management ///// 1.2.3 Sustainability Management
A Combined Management Report
61
Augmented Version
Regulators
Legislators, authorities and politicians
The framework for the company’s operations is essentially determined by authorities, legislators
and politicians. The worldwide dialogue includes discussions with political decision-makers and
active involvement in specialist committees and cooperation projects. Our active participation in
political decision-making processes is explicitly sought by the key players involved. See the
chapter on compliance for more on our rules for political engagement.
GRI G4-26
Lobbying
The Group’s Public and Governmental Affairs Committee develops the principles for the align-
ment of Bayer’s political lobbying. This body establishes the company’s position with regard to
relevant political and legislative decision-making processes, as well as advising the Board of
Management on its position on important political issues. In 2017, Bayer’s global lobbying work
focused on the issues of “innovation,” “access,” “reputation” and “freedom to operate.” In the
area of “innovation,” Bayer advocates social discourse about good framework conditions for
the development of innovative technologies, as well as strong protection of intellectual property.
The issue of “access” deals with safe, fast and simple access by patients and consumers to
our products. In the area of “reputation” we want to position Bayer as a leading life science
company. In this context, we actively seek dialogue with various societal players, particularly
nongovernmental organizations and politicians. The term “freedom to operate” summarizes all
activities with which Bayer advocates strictly science-based regulation and an intensive and
results-oriented debate about new technologies. The Communications & Public Affairs Func-
tion, in cooperation with the country companies, is responsible for the specific local implemen-
tation of lobbying work, compliance with ethical and legal criteria and the creation of trans-
parency.
www.bayer.com/
pol-involvement
GRI G4-27
Social interest groups
Nongovernmental organizations (NGOs), the public, the local community
and competitors
Bayer is involved in a variety of projects, stakeholder dialogues, thematic initiatives and special-
ist conferences at a national and international level in order to play an active role in the com-
mon task of shaping sustainable development. This includes discourse and cooperation with a
broad range of NGOs and supranational organizations on various topics, as well as in particular
dialogue with the public.
GRI G4-26
NGOs play a role in forming the opinions of the public. For this reason, we have internally sys-
temized collaboration with this stakeholder group. To this end, we look to understand the inter-
ests of these groups, take their perspectives on board and enter into dialogue with the relevant
experts. Exchange with the different NGOs is communicated to the Board of Management and
its content is thereby incorporated into our considerations.
Bayer is also actively engaged in the U.N. Global Compact and its initiatives, the CEO Water
Mandate and Caring for Climate, as well as the Global Compact LEAD network and local net-
works. We have also acted as a Gold Community member of the Global Reporting Initiative
since 2004.
All Bayer segments maintain open dialogue with the societal stakeholders of relevance to them
and develop individual dialogue formats for this purpose.
Dialogue with the local community builds trust
An important part of our stakeholder dialogue takes place in the direct vicinity of our sites. We
are working on being recognized everywhere as a reliable partner and attractive employer that
is aware of its social responsibility. In the case of investment projects for example, the involve-
ment of the local community plays a decisive role in ensuring their success.
GRI G4-26
62
A Combined Management Report
1.3 Focus on Innovation
Augmented Version
Bayer Annual Report 2017
GRI G4-26
In the communities near our production sites in particular, we maintain open dialogue between
community members and local management, which is supported by the respective country or-
ganization. This dialogue includes personal discussions with citizens’ initiatives, representatives
of church communities and the regional press. This community dialogue is anchored in a glob-
ally valid corporate policy on site management.
1.3 Focus on Innovation
Bayer and Ginkgo Bioworks form a new company to develop beneficial
microbes for plants
LifeHub in Boston, United States, reinforces our open innovation
network
Pharmaceuticals successful with further approvals; cooperation with
Loxo Oncology contributes to further expansion of oncology area
Crop Science cooperation network with many strategic partners
expanded
Innovation is one of our core competencies and therefore a cornerstone of our Group strategy.
We define innovations as new solutions that generate added value for our customers and society.
Our activities focus on innovative products based on our strong research and development (R&D)
competencies supplemented with targeted process, service and business model innovations.
Group target 2017:
increase in R&D invest-
ments to €4.8 billion;
see also A 1.2.1
Our innovations help us contribute to solving global challenges in medical care and food security.
In addition to the strong innovative capabilities of our employees throughout the company, our
efforts concentrate on excellence in research and development, the use of new, groundbreaking
technologies and a broad open innovation network.
To further develop the innovation expertise of the entire organization, we set ourselves the goal in
2017 of training our employees in new methods, creating a central platform for innovation topics
and establishing an agile organizational structure to support employees in developing new ideas
and innovation projects. We have successfully implemented this and given around 950 employees
an introduction to new methods such as Design Thinking and Systematic Inventive Thinking. In
addition, we have established an innovation platform where employees can find information about
new trends and current projects and interconnect and exchange with each other on innovation
topics globally. An agile, global, cross-divisional network with innovation coaches supports our
employees in developing new ideas and pursuing projects. Our activities were honored with
the Learning 100! Excellence Award 2017 for innovation, where we achieved 16th place among
the top 100 companies worldwide and were the best life science company.
Excellence in research and development
Bayer’s success has always been based on excellence in research and development. Our re-
searchers develop new molecules and technologies in research-intensive fields to improve human,
animal and plant health. The R&D activities we pursue are aligned with the innovation strategies of
our segments. At Pharmaceuticals, Crop Science and Animal Health, these activities focus on the
research and development of safe and sustainable active ingredients to meet the need for new
pharmaceutical and crop protection products as well as of new seed products. Meanwhile, Con-
sumer Health concentrates first on the development of new, nonprescription products and solu-
tions, such as improved product formulations, packaging, technical applications and medical
devices. Second, the transition of prescription drugs to OTC status is a key tool for meeting the
growing desire of customers for self-care products.
Bayer Annual Report 2017
A Combined Management Report
63
1.3 Focus on Innovation
Augmented Version
Bayer maintains a global network of R&D locations, which employ more than 14,000
researchers. In 2017, we increased our research and development investment by 3.1% (Fx adj.) to
€4,504 million. We plan to invest around €4.1 billion in R&D in 2018.
Bayer AG key data:
see also A 1.4.4
Information on Research and Development in 2017
A 1.3/1
R&D expenses
€ million
R&D expenses
before special items
€ million
Share of
R&D expenses
%
R&D expenses
before special items
% of sales
R&D employees
FTE
2016
2,787
259
1,164
140
55
2017
2,888
240
1,166
155
55
2016
2,736
234
1,156
140
55
2017
2,724
228
1,120
145
55
4,405
4,504
4,321
4,272
2016
63.3
5.9
26.4
3.2
1.2
100
2017
64.1
5.3
25.9
3.4
1.2
100
2016
16.7
3.9
11.7
9.2
5.2
12.4
2017
16.2
3.9
11.7
9.2
4.7
2016
7,934
331
5,631
308
9
2017
8,138
368
5,174
333
28
12.2
14,213
14,041
Pharmaceuticals
Consumer Health
Crop Science
Animal Health
Reconciliation
Total
2016 figures restated
Global open innovation network
Partnerships are integral to our innovation strategy. We enter into strategic alliances with various
partners such as universities, governmental agencies, start-ups, suppliers and industry. This gives
us access to complementary technologies and expertise that expand our framework conditions for
innovation.
Our open innovation network spans all parts of the company along the entire value chain. Our
open innovation portal offers a platform for interdisciplinary collaborations between different or-
ganizational units. We also invest in venture capital funds that finance life science start-up compa-
nies, among other projects. Our newly established, cross-segment LifeHub in Boston, Massachu-
setts, United States, reinforces our opportunities to work with leading partners to develop new
health care and nutrition solutions.
https://innovate.bayer.com/
https://innovate.bayer.com/
what-we-offer/lifescience-
ihub/
Online Annex: A 1.3-1
In addition to our cross-segment LifeHub in Boston, Massachusetts, United States, the seg-
ments maintain their own innovation hubs in leading innovation centers throughout the world
where global research partnerships are coordinated.
In the United States and Germany, we operate an incubator model for young life science
companies under the CoLaborator™ name. The objective of the global CoLaborator™ concept
is to offer these companies suitable laboratory and office infrastructure in the direct vicinity of
Bayer’s own research facilities and the opportunity to exchange experiences with our experts.
In 2017, we continued the Grants4Indications™, Grants4Apps™, Grants4Targets™ and
PartnerYourAntibodies™ crowdsourcing programs at Pharmaceuticals, as well as
Grants4Targets™ and Grants4Traits™ at Crop Science. Moreover, we launched a new
Grants4Tech™ program with which we are seeking new technical production solutions.
64
A Combined Management Report
1.3 Focus on Innovation
Augmented Version
Bayer Annual Report 2017
Also in 2017, SRI-BAYER Discovery and Innovation Grants was launched in conjunction with
the Society for Reproductive Investigation (SRI). The objective of these grants is to develop new
treatment options for women’s health issues where there is a high medical need. Running for
the duration of 2017, Bayer and the American Heart Association launched the AHA-Bayer Dis-
covery Target Grants Program to advance scientific understanding and address unmet medical
needs in cardiovascular disease.
By investing in venture capital funds, we support up-and-coming companies in pharmaceutical
and agricultural technologies. We have already set up various venture capital funds with part-
ners such as Versant Ventures, HTGF, Flagship Ventures, Trendlines and Finistere Ventures,
LLC. The Bayer Trendlines AG Innovation Fund has established IBI-AG, a company involved in
the crop protection arena. The company’s goal is to discover and develop a novel, environmen-
tally friendly pest management platform.
GRI G4-26
Scientists from Bayer are engaged in constant dialogue with renowned research institutes and
support partnership projects in the public and private sectors. In 2017, public funding worth
more than €47.5 million was spent worldwide on Bayer R&D projects. This is equivalent to
roughly 1.1% of our annual R&D expenses.
Use of groundbreaking technologies
Another key tool for achieving our strategic goals is the use of new, groundbreaking technologies.
We pursue such technologies through the activities of Leaps by Bayer (formerly Lifescience Cen-
ter) and our Life Science Collaboration program.
Leaps by Bayer has the strategic goal of establishing access to state-of-the-art technologies
through a new innovation and collaboration model. After making investments in defined research
applications for the CRISPR-Cas9 technology (Casebia) and in the development of highly efficient
induced pluripotent stem cell therapies (BlueRock Therapeutics) in the past two years, we entered
into our first agreement in the agricultural sector in September 2017. In conjunction with U.S.-
based Ginkgo Bioworks, Inc., Bayer founded a new company focused on the plant microbiome.
The primary focus of this research is the mechanism of nitrogen fixation for minimizing agricul-
ture’s environmental impact. This entry into microbiome research is part of Bayer’s innovation
strategy. The company will be located in Boston, Massachusetts, and Sacramento, California, in
the United States.
In addition, with the help of our Life Science Collaboration Program, we are conducting cross-
divisional evaluations of groundbreaking biological and technological innovations in the fields of
optogenetics and artificial intelligence, for example.
Patents protect Bayer’s intellectual property
Globally reliable protection of intellectual property rights is particularly relevant for an innovation
company like Bayer. Depending on the legal framework, we therefore endeavor to obtain patent
protection for our products and technologies in major markets. When we successfully market
patent-protected products, this enables us to reinvest the profits in sustainable research and de-
velopment. Several years can pass between the time we submit a product approval application
and market launch of a product, so only a few years are left for generating a return on the invest-
ment in this intellectual property. At the end of 2017, we owned approximately 48,100 valid patent
applications and patents worldwide relating to more than 4,700 protected inventions. The follow-
ing table shows the expiration dates for the Bayer Group’s significant patents.
Bayer Annual Report 2017
Pharmaceuticals Patent Expiration Dates
A Combined Management Report
65
1.3 Focus on Innovation
Augmented Version
A 1.3/2
Market
Germany
France
Italy
Switzer-
land
Spain
U.K.
China
Japan
Brazil Canada
U.S.A.
Products
Adempas™
Active ingredient
2028
2028
2028
2028
2028
2023a
2023
2027-
2028d
2023b
2023
2023a
Production process /
intermediate
Eylea™
2030
2030
2030
2030
2030
2030
2030
2030
2030b
2030
2030
Active ingredient
2025
2025
2025
2025
2025
2020a
2020
Formulation
Kogenate™
2027
2027
2027
2027
2027
2027
2027b
2021-
2023d
2028-
2029d
2020b
2020
2027b
2027
Active ingredient
–
–
–
–
–
–
–
–
–
Formulation
Kovaltry™
Active ingredient
Formulation
Production process
Production process
(cell line / chaperone)
Mirena™
Inserter
Nexavar™
2017
2017
2017
2017
2017
2017
2017
2020
2020
–
2017
2018
–
2017
2018
–
2017
2018
–
2017
2018
–
2017
2018
–
2017
2018
–
2017
2018
–
2023e
2023e
–
2020
2023
2029e
2024a
2029e
–
2024a
2024a
–
2028e
–
2024
2024
2029
2029
2029
2029
2029
2029
2029
2029
2029b
2029
2031c
–
–
–
–
–
–
2018a
2021
2017
2021
2017
2018
Active ingredient
Salt form
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2020
–
Polymorph
2025
2025
2025
2025
2025
2025
2025
Formulation
Stivarga™
Active ingredient
Formulation
Production process
Xarelto™
2026
2026
2026
2026
2026
2026
2026
2028
2025
2031
2028
2025
2031
2028
2025
2031
2028
2025
2031
2028
2025
2031
2024a
2025
2031
2024
2025
2031
Active ingredient
2023
2023
2023
2023
2023
2023
2020
Formulation
2024
2024
2024
2024
2024
2024
2024
2021-
2025d
–
2025-
2026d
2026-
2027d
2026d
2026d
2031
2022-
2025d
2025-
2028d
2025
2020
2020
–
–
–
2025b
2025
2027
2026b
2026
2028c
2024b
2025b
2031b
2024
2025
2031
2031
2031
2031
2022
2020
2024
2024b
2024
2024
Xofigo™
Use
Production process
2024
2031
2024
2031
2024
2031
2024
2031
2024
2031
2024
2031
2019
2031
2019a
2031
–
2019
2031b
2031b
2022e
2031
a Current expiration date; patent term extension applied for
b Patent application pending
c Patent term revised
d Application-specific term extension(s)
e Patent term extension granted
66
A Combined Management Report
1.3 Focus on Innovation
Augmented Version
Bayer Annual Report 2017
See also
www.bayer.com/
political-position-ip
Group target 2017:
transition of 10 new
molecular entities
(NMEs) into develop-
ment; see also A 1.2.1
Bayer worldwide;
see also A 1.1.1/1
Online Annex: A 1.3-2
Patent protection is essential
Patent terms vary according to the laws of the country granting the patent. In view of the high
investment required for product research and development, the European Union (E.U.) member
states, the United States, Japan and some other countries extend patent terms or issue sup-
plementary protection certificates to compensate for the shortening of the effective patent pro-
tection period due to regulatory approval processes for new drugs.
The term of a patent is normally 20 years. Since it takes an average of 12 years to develop a
new medicine, only eight years of patent protection generally remain following the product’s
approval. In most cases it would be impossible to cover the high costs incurred in the research
and development of innovative medicines or of new indications or dosage forms for existing
drugs without this protection. We are therefore committed worldwide to protecting both the in-
ternational patent system and our own intellectual property.
Pharmaceuticals
Pharmaceuticals focuses on indications with high medical need in the areas of cardiovascular
disease, oncology, women’s health care, hematology and ophthalmology. We conduct research
and development activities at several locations, mainly in Germany, the United States, Japan,
China, Finland and Norway.
In 2017, we achieved our target for the year and were able to transfer ten new molecular entities
from our research pipeline into preclinical development. We define a new molecular entity (NME)
as a new chemical or biological substance that has not been in development to date. In preclinical
trials these substances are examined further in various models with respect to their suitability for
clinical trials and the associated “first-in-man” studies. In 2017, we conducted clinical trials with
several drug candidates from our research and development pipeline. We strengthened products
that were already on the market through additional development activities to further improve their
application and / or expand their spectrum of indications.
Clinical trials are an essential tool for determining the efficacy and safety of new drugs before they
can be used to diagnose or treat diseases. The benefits and risks of new medicinal products must
always be scientifically proven and well documented. All clinical trials at Bayer satisfy strict inter-
national guidelines and quality standards, as well as the respective applicable national laws and
standards.
Pharmaceuticals publishes information on its own clinical trials both in the publicly accessible
register www.ClinicalTrials.gov and in its own “Trial Finder” database.
Bayer Annual Report 2017
A Combined Management Report
67
1.3 Focus on Innovation
Augmented Version
Online Annex: A 1.3-3
Transparency through publication of clinical trials
Bayer publishes information about clinical trials in line with the respective applicable national
laws and according to the principles of the European (EFPIA) and U.S. (PhRMA) pharmaceutical
industry associations, these principles being defined in a joint position paper.
In the case of approved products, summarized results of Phase II, III and IV clinical trials are
accessible online through the “Trial Finder.” Upon request, scientists can receive access to
anonymized data at the patient level via the portal www.clinicalstudydatarequest.com.
Further information on our globally uniform standards, the monitoring of studies and the role of
the ethics committees can be found on the internet.
www.bayer.com/ethics-
in-rnd
Progress in Phase II clinical projects
The following table shows our most important drug candidates currently in Phase II clinical testing
projects.
A 1.3/3
Research and Development Projects (Phase II)
1
Projects
Indication
Anetumab ravtansine (mesothelin ADC)
Malignant pleural mesothelioma
BAY 1128688 (AKR1C3 inhibitor)
BAY 1142524 (chymase inhibitor)
Endometriosis
Heart failure
BAY 1193397 (AR alpha 2c rec ant.)
Peripheral artery disease (PAD)
BAY 1213790 (anti-FXIa antibody)
BAY 2306001 (IONIS-FXIRx)
Copanlisib (PI3K inhibitor)
Larotrectinib (LOXO-101, TRK inhibitor)
Neladenoson bialanate
Prevention of thrombosis
Prevention of thrombosis
2
Relapsed / refractory diffuse large B-cell lymphoma
Solid tumors
3
Chronic heart failure
Nesvacumab (previously: Ang2 antibody) + aflibercept
Serious eye diseases
4
Radium-223 dichloride
Radium-223 dichloride
Riociguat
Vilaprisan (S-PRM)
Breast cancer with bone metastases
Multiple myeloma
Systemic sclerosis
Endometriosis
1 As of January 26, 2018
2 Sponsored by Ionis Pharmaceuticals, Inc.
3 Sponsored by Loxo Oncology, Inc.
4 Sponsored by Regeneron Pharmaceuticals, Inc.
The nature of drug discovery and development is such that not all compounds can be expected to meet the predefined project
goals. It is possible that any or all of the projects listed above may have to be discontinued due to scientific and / or commercial
reasons and will not result in commercialized products. It is also possible that the requisite U.S. Food and Drug Administration (FDA),
European Medicines Agency (EMA) or other regulatory approvals will not be granted for these compounds. Moreover, we regularly
review our research and development pipeline so that we can give priority to advancing the most promising pharmaceuticals
projects.
68
A Combined Management Report
1.3 Focus on Innovation
Augmented Version
Bayer Annual Report 2017
Below are the most significant changes that occurred in 2017 compared with the previous year:
Phase II studies with regorafenib, which are primarily sponsored by investigators, have been taken
out of the overview of the most important Phase II projects. However, these studies are continu-
ing.
In February 2017, our partner Regeneron Pharmaceuticals, Inc., United States, decided to halt
development of rinucumab, a PDGFR antibody, in combination with aflibercept (tradename:
Eylea™) for the treatment of wet age-related macular degeneration, based on the results of the
CAPELLA Phase II clinical trial after 28 weeks. The trial missed its clinical endpoint, which had
been for a statistically significant improvement in visual acuity after 12 or 28 weeks.
In the second quarter of 2017, based on the results of the GEMINI trial conducted by Janssen
Research & Development, LLC, which had tested rivaroxaban (tradename: Xarelto™) in connec-
tion with a single antiplatelet therapy (SAPT) for the secondary prophylaxis of acute coronary syn-
drome (ACS), the decision was made to stop pursuing the development of rivaroxaban in this
indication.
Bayer reported in July 2017 that a Phase II clinical trial evaluating Bayer’s oncological develop-
ment candidate anetumab ravtansine, also known as BAY 949343, as a monotherapy in previously
treated patients with advanced malignant pleural mesothelioma (MPM) did not meet its primary
endpoint of progression-free survival. The safety and tolerability of anetumab ravtansine corre-
sponded with observations from previous trials. Anetumab ravtansine is currently being reviewed
in other Phase I clinical trials as both a monotherapy and in combination with other drugs, includ-
ing in a Phase Ib multi-indication study of six different types of advanced solid tumors and a
Phase Ib combination study with patients with recurrent platinum-resistant ovarian cancer.
Bayer began a Phase II clinical trial in 2014 on the safety, tolerability and efficacy of riociguat in
adult cystic fibrosis patients with the delta F508 gene mutation. The preliminary analysis of select-
ed data from the first part of the trial indicated that there was no evidence of a positive trend in
the efficacy of riociguat. A continuation of the trial was not considered meaningful at that time. In
August 2017, Bayer decided to terminate the trial ahead of schedule. No concerns were raised
about the safety of riociguat.
In November 2017, our partner Regeneron Pharmaceuticals, Inc., United States, published data
from two Phase II studies in which the angiopoietin2 (Ang2) antibody nesvacumab had been test-
ed in combination with aflibercept (tradename: Eylea™) against aflibercept monotherapy. One of
these studies investigated patients with diabetic macular edema, while the other focused on pa-
tients with wet age-related macular degeneration. Regeneron reported that the differences in the
improvement in visual acuity between the treatment groups did not justify Phase III development
with the goal of obtaining marketing approval in the United States. At the same time, the efficacy
of aflibercept monotherapy was confirmed for both indications. The results of the studies will be
analyzed further and submitted for presentation at a future medical congress.
Bayer Annual Report 2017
A Combined Management Report
69
1.3 Focus on Innovation
Augmented Version
Progress in Phase III clinical projects
The following table shows our most important drug candidates currently in Phase III clinical testing
projects.
Research and Development Projects (Phase III)
1
Projects
Indication
Copanlisib (PI3K inhibitor)
Various forms of non-Hodgkin lymphoma (NHL)
Darolutamide (previously: ODM-201, AR antagonist)
Castration-resistant nonmetastatic prostate cancer
Darolutamide (previously: ODM-201, AR antagonist)
Hormone-sensitive metastatic prostate cancer
A 1.3/4
Finerenone (MR antagonist)
Molidustat (HIF-PH inhibitor)
Radium-223 dichloride
Regorafenib
Rivaroxaban
Rivaroxaban
Rivaroxaban
Rivaroxaban
Tedizolid
Vericiguat (sGC stimulator)
Vilaprisan (S-PRM)
Diabetic kidney disease
Renal anemia
Combination treatment of castration-resistant
prostate cancer
Colon cancer, adjuvant therapy
Anticoagulation in patients with chronic heart failure
2
Prevention of venous thromboembolism in high-risk
patients after discharge from hospital
2
Peripheral artery disease (PAD)
VTE treatment in children
Pneumonia
Chronic heart failure
3
Symptomatic uterine fibroids
1 As of January 26, 2018
2 Sponsored by Janssen Research & Development, LLC
3 Sponsored by Merck & Co., Inc.
The nature of drug discovery and development is such that not all compounds can be expected to meet the predefined project
goals. It is possible that any or all of the projects listed above may have to be discontinued due to scientific and / or commercial
reasons and will not result in commercialized products. It is also possible that the requisite U.S. Food and Drug Administration (FDA),
European Medicines Agency (EMA) or other regulatory approvals will not be granted for these compounds. Moreover, we regularly
review our research and development pipeline so that we can give priority to advancing the most promising pharmaceuticals
projects.
Below are the most significant changes that occurred in 2017 compared with the previous year:
In July 2017, Bayer began the ASTEROID Phase III clinical trial program to investigate the devel-
opment candidate vilaprisan in women with symptomatic uterine fibroids. Vilaprisan is a novel
orally dosed, selective progesterone receptor modulator developed by Bayer for enabling long-
term treatment of uterine fibroids.
In October 2017, Bayer and its development partner Janssen Research & Development, LLC,
announced that the Phase III NAVIGATE ESUS trial had been terminated ahead of schedule. The
trial investigated the efficacy and safety of rivaroxaban (tradename: Xarelto™) for the secondary
prevention of strokes and systemic embolisms in patients who had recently suffered an embolic
stroke of unknown origin. Following a planned interim analysis conducted by the independent
Data Monitoring Committee (DMC), the DMC recommended that the trial be terminated early since
the efficacy of rivaroxaban compared with acetylsalicylic acid (ASA) was similar in the treatment
groups and offered only limited potential for clinical benefit to patients if the trial continued.
In November 2017, the results of the global Phase III clinical study program INHALE, which inves-
tigated Amikacin Inhale in intubated and mechanically ventilated patients with Gram-negative
pneumonia in addition to standard treatment, were announced. Amikacin did not demonstrate any
clinical superiority versus the standard treatment in combination with an aerosolized placebo.
Neither the primary endpoint nor the secondary endpoints were achieved. Amikacin Inhale is the
development name for a drug-device combination comprising a specially formulated Amikacin
inhalation solution and a patented synchronized inhalation system with a vibrating mesh nebulizer.
70
A Combined Management Report
1.3 Focus on Innovation
Augmented Version
Bayer Annual Report 2017
Bayer terminated its research into Amikacin Inhale and the associated cooperation with Nektar
Therapeutics, Inc.
Following the recommendation of an independent data monitoring committee, Bayer in November
2017 unblinded ahead of schedule a Phase III trial of radium-223 dichloride in combination with
abiraterone acetate and prednisone / prednisolone in patients with metastatic castration-resistant
prostate cancer. The reason for this recommendation was the observance of an imbalance in
terms of more fractures and deaths in the treatment arm investigating radium-223 in combination
with abiraterone acetate and prednisone / prednisolone.
In December 2017, on the basis of positive Phase II data, Bayer launched a Phase III clinical
study program in Japan that investigates the development candidate molidustat in patients with
renal anemia. Molidustat is an inhibitor of the enzyme hypoxia-inducible factor-prolyl hydroxylase
(HIF-PH) that stimulates the production of erythropoietin and the formation of red blood cells.
There is currently a study program investigating the efficacy and safety of rivaroxaban for the
treatment and secondary prevention of venous thromboembolism in children. Timely and success-
ful completion of this program would extend patent protection for Xarelto™ in Europe and the
United States by a further six months.
Filings and approvals
We regularly evaluate our research and development pipeline in order to prioritize the most prom-
ising pharmaceutical projects. Following the completion of the required studies with a number of
these drug candidates, we submitted applications to one or more regulatory agencies for approv-
als or approval expansions. The most important drug candidates in the approval process are
shown below.
A 1.3/5
Main Products Submitted for Approval
1
Projects
Indication
Damoctocog alpha pegol
(long-acting rFVIII)
Rivaroxaban
Rivaroxaban
2
Europe, U.S.A., Japan: hemophilia A
Europe, U.S.A.: prevention of major adverse cardiac events (MACE), COMPASS
study
U.S.A.: secondary prophylaxis of acute coronary syndrome (ACS), rivaroxaban
in combination with dual antiplatelet therapy (DAPT); ATLAS trial
1 As of January 26, 2018
2 Submitted by Janssen Research & Development, LLC
In August 2017, Bayer received approval from the European Commission to modify the prescrib-
ing information for the oral Factor Xa inhibitor Xarelto™ (active ingredient: rivaroxaban) based on
data from the PIONEER Phase III study. The information contains a dosage recommendation for
patients with nonvalvular atrial fibrillation who undergo percutaneous coronary intervention with
stent placement and require oral anticoagulation.
Bayer Annual Report 2017
A Combined Management Report
71
1.3 Focus on Innovation
Augmented Version
Also in August 2017, the European Commission approved the oral multikinase inhibitor Stivarga™
(active ingredient: regorafenib) for an additional indication. The approval relates to the treatment of
adult patients with hepatocellular carcinoma (HCC) who had previously been treated with
Nexavar™ (active ingredient: sorafenib). Stivarga™ is the first medicine to show a significant im-
provement in overall survival in second-line treatment of patients with HCC for whom there was
previously no further treatment option. The product had been approved for second-line treatment
of HCC in the United States in April 2017 and in Japan in June 2017.
In early September 2017, Bayer applied for marketing authorization to the European Medicines
Agency (EMA) for the long-acting site-specifically PEGylated recombinant human Factor VIII
(damoctocog alfa pegol) for the treatment of patients with hemophilia A. The regulatory submis-
sion is based on the data from the PROTECT VIII trial. In that trial, damoctocog alfa pegol offered
patients protection from bleeds when used prophylactically once every seven days, once every
five days, or twice per week. Bayer had already submitted an application for an authorization to
manufacture biopharmaceutical products (Biologics License Application, BLA) for damoctocog alfa
pegol to the U.S. Food and Drug Administration (FDA) in August 2017. In October 2017, Bayer
submitted an application for the authorization of damoctocog alfa pegol in Japan as well.
In September 2017, the U.S. Food and Drug Administration (FDA) likewise granted Bayer approval
for copanlisib, which will be sold under the tradename Aliqopa™ in the future, for the treatment of
previously treated patients with relapsed follicular B-cell non-Hodgkin lymphoma. The accelerated
approval was granted based on the results of the CHRONOS-1 Phase II trial including 142 pa-
tients with indolent non-Hodgkin lymphoma (iNHL) whose disease had relapsed after two previous
treatments, of which 104 patients had follicular B-cell non-Hodgkin lymphoma. The approval
was issued on the basis of the overall response rate and must still be confirmed in a further trial.
Copanlisib is an intravenous pan-class I phosphatidylinositol-3-kinase (PI3K) inhibitor with pre-
dominant inhibitory activity against PI3K-α and PI3K-δ isoforms.
Based on data from the EINSTEIN CHOICE Phase III study, in October 2017 Bayer and its devel-
opment partner Janssen Research & Development, LLC, received additional marketing approval
from the U.S. Food and Drug Administration (FDA) for the oral Factor Xa inhibitor Xarelto™ (active
ingredient: rivaroxaban) in the United States for a once-daily 10 mg dose of rivaroxaban for long-
term prevention of recurrent venous thromboembolism. The authorization is for patients at contin-
ued risk of deep vein thrombosis and / or pulmonary embolism who have already received at least
six months of standard anticoagulation therapy. The European Commission granted correspond-
ing approval for Xarelto™ in October 2017.
In November 2017, Bayer submitted a further application for Xarelto™ to the European Medicines
Agency (EMA) for a vascular dose of rivaroxaban in combination with acetylsalicylic acid (ASA) for
the treatment of chronic coronary artery disease (CAD) or peripheral artery disease (PAD). This
application is based on the results of the COMPASS Phase III clinical study. This demonstrated
that a twice-daily dose of 2.5 mg rivaroxaban in combination with 100 mg ASA once a day
reduced the combined risk of stroke, cardiovascular death and heart attack by an unprecedented
24% (relative risk reduction) in patients with CAD or PAD, compared with a once-daily dose of
100 mg ASA. In the United States, the application for marketing approval was submitted to the
FDA in December 2017.
In December 2017, our cooperation partner Loxo Oncology, Inc., United States, initiated the
submission of a rolling New Drug Application (NDA) for larotrectinib in the United States. The NDA
relates to the treatment of unresectable or metastatic solid tumors with NTRK-fusion proteins
in adults and children who require systemic therapy, where the disease has progressed following
prior treatment and there is no acceptable alternative treatment. Bayer and Loxo Oncology are
jointly developing larotrectinib. The active ingredient is in clinical development for cancers where
the tropomyosin receptor kinase (TRK) gene becomes connected to other, unrelated genes (gene
fusion). The rolling NDA submission is expected to be completed in early 2018.
72
A Combined Management Report
1.3 Focus on Innovation
Augmented Version
Bayer Annual Report 2017
Also in December 2017, Bayer obtained marketing approval in China for Stivarga™ (active ingre-
dient: regorafenib) for the treatment of adult patients with hepatocellular carcinoma (HCC) who
have previously been treated with Nexavar™ (active ingredient: sorafenib). In the Phase III
RESORCE study (REgorafenib after SORafenib in patients with hepatoCEllular carcinoma),
regorafenib demonstrated a significant and clinically relevant improvement in overall survival in
second-line treatment of patients with HCC compared with a placebo. Regorafenib is the first
product to be approved in China for second-line treatment of HCC.
In December 2017, Bayer received a Complete Response Letter from the U.S. Food and Drug
Administration notifying it that its application for approval of the investigational drug product
ciprofloxacin DPI (Dry Powder for Inhalation) for the treatment of adults with non-cystic fibrosis
bronchiectasis (NCFB) cannot be approved in the present form. Bayer decided to discontinue
development of Cipro DPI in NCFB for the time being and will evaluate possible further options
for this asset.
See also A 1.3
“Global open innovation
network”
Cooperations
We augment our own research capacities through collaborations and strategic alliances with ex-
ternal industrial and academic research partners. In this way we gain access to complementary
technologies and external innovation potential.
In August 2017, Bayer and Vanderbilt University Medical Center in Nashville, Tennessee, United
States, signed a five-year strategic research alliance to fight kidney disease. Both partners will
work together on identifying and developing new potential compounds for treating kidney
diseases. The goal is to rapidly transfer innovative approaches from the laboratory to preclinical
development.
In November 2017, Bayer and PeptiDream Inc., a publicly listed Japanese biopharmaceutical
company, concluded a drug discovery cooperation agreement. Their collaboration covers various
therapeutic areas such as oncology and cardiology, as well as classes of drug targets. Using
PeptiDream’s Peptide Discovery Platform System technology, the partners will be working together
to identify novel drug discovery candidates for target structures that are difficult to address.
Also in November 2017, Bayer signed a global exclusive cooperation agreement with the bio-
pharmaceutical company Loxo Oncology, Inc., Stamford, Connecticut, United States, for the de-
velopment and commercialization of larotrectinib (LOXO-101) and LOXO-195. Both compounds
are being investigated in global studies for the treatment of patients with cancers harboring tro-
pomyosin receptor kinase (TRK) gene fusions, which are genetic alterations across a wide range
of tumors resulting in uncontrolled TRK signaling and tumor growth.
Bayer Annual Report 2017
A Combined Management Report
73
1.3 Focus on Innovation
Augmented Version
The following table shows examples of the main cooperations.
Main Cooperations in 2017
Partner
Broad Institute
A 1.3/6
Cooperation objective
Strategic partnership in the field of genome and drug research in
cardiology aimed at using findings from human genetics to develop new
cardiovascular therapies and in the field of oncology to identify and
develop active ingredients that target tumor-specific gene alterations
German Cancer Research Center (DKFZ) Strategic partnership for the investigation and development of new
Evotec AG
ImmunoGen, Inc.
Janssen Research & Development,
LLC of Johnson & Johnson
Loxo Oncology, Inc.
Merck & Co., Inc.
MorphoSys AG
Orion Corporation
PeptiDream Inc.
therapeutic options in oncology, especially in immunotherapy
Collaboration to identify development candidates for the treatment of
endometriosis and kidney diseases
Development of antibody-drug conjugates (ADCs) for novel tumor
therapies
Development of Xarelto™ (rivaroxaban)
Development and marketing of larotrectinib (LOXO-101) and LOXO-195
for the treatment of cancer patients with a mutation of the TRK gene
Development and marketing collaboration in the field of soluble guanylate
cyclase (sGC) modulation
Development of antibody-drug conjugates using MorphoSys’s HuCAL
technology
Development of darolutamide (previously ODM-201) for the treatment of
patients with prostate cancer
Active ingredient research in various therapeutic areas and target classes
with the help of PeptiDream's Peptide Discovery Platform System
technology
Regeneron Pharmaceuticals, Inc.
Development of Eylea™ (aflibercept) to treat various eye diseases
Vanderbilt University Medical Center
Development of a combination therapy of the angiopoietin2 (Ang2)
antibody nesvacumab and aflibercept for the treatment of serious eye
diseases
Strategic research alliance to identify and develop new potential active
ingredients for the treatment of kidney diseases
In April 2017, Bayer decided not to exercise its option for further development and marketing of
biopharmaceutical Wnt pathway inhibitors vantictumab (OMP-18R5) and ipafricept (OMP-54F28)
as part of the partnership between Bayer and OncoMed Pharmaceuticals, Inc., United States. The
small molecule program under the companies’ collaboration continues without change.
74
A Combined Management Report
1.3 Focus on Innovation
Augmented Version
Online Annex: A 1.3-4
Bayer Annual Report 2017
A 1.3-4/1
Other Cooperations in 2017
Partner
Cooperation objective
BioInvent International AB
Access to antibody library with in-licensing of antibodies
Compugen Ltd.
Collaboration for the research and development of new immunotherapy
approaches in oncology
Dimension Therapeutics, Inc.
Development of a novel gene therapy for hemophilia A
Ionis Pharmaceuticals, Inc.
Clinical development of the antisense molecule IONIS-FXIRx for the
prevention
of thrombosis and development of IONIS-FXI-LRx in the preclinical phase
Leica Biosystems Ltd.
Development of diagnostic tests in personalized oncology treatment
Ludwig Boltzmann Institute
Research into lung vascular disease, especially pulmonary hypertension
Merck & Co., Inc.
Nektar Therapeutics
1
Codevelopment of tedizolid to treat various infections
Codevelopment of a targeted antibiotic inhalation therapy for lung
infections
(Amikacin Inhale)
Novartis AG
Development of a targeted antibiotic inhalation therapy for lung infections
(ciprofloxacin DPI)
OncoMed Pharmaceuticals, Inc.
Discovery and development of novel anticancer stem cell therapeutics
Onyx Pharmaceuticals, Inc.
of Amgen, Inc.
Peking University
Seattle Genetics, Inc.
Tsinghua University
University of Oxford
Codevelopment of Nexavar™ (sorafenib) for various types of cancer
Research cooperation and establishment of a research center for joint
projects
Access to technologies for antibody-drug conjugates (ADCs) for novel
tumor therapies
Research cooperation and establishment of a research center for joint
projects
Strategic research alliance for the development of novel gynecological
therapies
Ventana Medical Systems, Inc.
Development of diagnostic tests in personalized oncology treatment
Wilmer Eye Institute
of Johns Hopkins University
Research and development of innovative drug products to treat serious
back-of-the-eye diseases
1 Terminated in December 2017
Bayer worldwide;
see also A 1.1.1/1
See also A 1.1.2
Group target 2017:
transition of 25
consumer-validated
concepts into early
development
See also A 1.2.1 for
information on the term
sustainability
Consumer Health
At Consumer Health, we concentrate on developing new nonprescription (OTC) products and
solutions that improve the health and well-being of consumers in the areas of pain relief, derma-
tology, dietary supplements, digestive health, allergy relief and cold symptoms, as well as foot
care and sun care. The focus lies on product developments that are aligned to the desires and
needs of consumers. Our innovations range from new product formulations and packaging to
technical applications and medical devices. In 2017, we developed around 50 new consumer-
validated concepts, significantly exceeding our plans for the year. Consumer Health maintains a
global network of research and development facilities, with sites in the United States, France,
Germany and China. Another important part of our strategy is transferring current prescription
medicines that are suitable for self-care to OTC status (Rx-to-OTC switches).
Crop Science
At Crop Protection, we pursue the goal of identifying and developing innovative, safe and sustain-
able active ingredients for use as insecticides, fungicides, herbicides and crop efficiency products
for foliar and soil application as well as seed treatment. These substances also undergo further
development for professional applications outside of farming (Environmental Science), such as in
pest control and vector control to combat diseases transmitted by mosquitoes. They are also
used to control weeds and maintain sport facilities and public parks. At Seeds, meanwhile, we are
conducting research and development for optimized plant traits and are developing new varieties
in cotton, oilseed rape / canola, soybeans, rice, wheat and vegetables. Our scientists are working
on increasing the yield potential of crops, enhancing their quality and developing new herbicide
Bayer Annual Report 2017
A Combined Management Report
75
1.3 Focus on Innovation
Augmented Version
tolerance and insect resistance traits based on novel modes of action, and improving tolerance
against disease and extreme weather conditions.
Crop Science maintains a global network of research and development facilities. While research is
carried out centrally at a number of dedicated sites, development of crop protection products as
well as plant breeding and trait development activities take place both at these sites and at nu-
merous field testing and breeding stations in all regions. Our scientists working across the areas of
seed traits, seed technology, seed breeding, agricultural chemistry and biologics closely collabo-
rate as part of our integrated research approach. This optimally combines our complementary
expertise in chemistry and biology.
Bayer worldwide; see
also A 1.1.1/1
To provide farmers with sustainable agronomic recommendations, we develop digital products
and services that support them through the use of specific data models, among other things, in
evaluating conditions in the field. Our long-term goal is to help farmers to improve their yields by
providing them with tailored recommendations.
Research and development pipeline
Our product pipeline contains numerous new crop protection products, seed varieties and
enhanced products (life cycle management). We estimate the combined peak sales potential of
products with launch dates between 2015 and 2020 to be more than €5 billion. In 2017, we
launched confirmatory technical proof-of-concept field studies for two new active ingredients.
For 2018, we are setting ourselves the target of launching confirmatory technical proof-of-
concept field studies for three to four chemical / biological active ingredients or plant traits
following table shows selected new products that are expected to be launched by 2020.
1. The
Group target 2017:
transfer of three new
molecular entities
(NMEs), plant traits or
biologics into confirma-
tory technical proof-of-
concept field studies;
See also A 1.2.1
A 1.3/7
Product Innovation Pipeline
1
Market launch
Product group
Indication / crop
Product / plant trait
2018
2019
2019
2019
2019
2019
2019
2019
2020
2020
Chemical and biological
crop protection
Insecticide / SeedGrowth
Poncho / VOTiVO 2.0
Seeds
Rice
Salt and flood tolerance (native trait)
Chemical crop protection
Insecticide
Chemical crop protection
Fungicide
Tetraniliprole
TiviantTM
Seeds
Seeds
Seeds
Seeds
Seeds
Seeds
Oilseed rape / canola
Herbicide tolerance
Oilseed rape / canola
New oil profile (native trait)
Rice
Soybeans
Dual disease tolerance (native trait)
Triple herbicide tolerance
Oilseed rape / canola
Dual herbicide tolerance (1)
Oilseed rape / canola
Dual herbicide tolerance (2)
1 Planned market launch of selected new products
As of September 11, 2017
1 We define a new plant trait as a specific characteristic that has not previously been available at Bayer for the crop plant in question.
76
A Combined Management Report
1.3 Focus on Innovation
Augmented Version
Bayer Annual Report 2017
New products and registrations
In 2017, Crop Science received marketing authorization in numerous countries for new mixtures
and formulations, as well as for expanded indications for existing products.
In January 2017, the Ministry of Agriculture in China approved for import Balance™ GT soybeans
with the new herbicide tolerance trait. Crop Science and MS Technologies LLC, which owns the
rights to Balance™ GT, are codeveloping it as part of a cooperation agreement. The launch of
the full Balance™ GT / Balance™ Bean system, including the corresponding herbicide, is planned
for 2018 in the United States, the world’s top soybean producer, pending the U.S. Environmental
Protection Agency (EPA) commercial label registration of Balance™ Bean anticipated in 2018.
Furthermore, the new TwinLink™ Plus cotton technology was launched on the U.S. market in
2017. With three modes of action against insect pests added to the double herbicide tolerance,
it provides season-long protection and further improves resistance management. In April 2017,
Bayer received regulatory approval for the biological nematicide BioAct™ Prime DC in Greece.
The new substance is intended for use in a variety of fruit and vegetables and directly targets
eggs and larvae from nematode pests. Further approvals are planned in other European countries.
In May 2017, we launched a new rice seed in India that offers pest resistance and disease toler-
ance. The market launch in the Philippines is planned for 2018. In June 2017, we launched a rice
seed in Bangladesh that offers flood tolerance.
Major success can be achieved with vegetables and many broad-acre crops using conventional
and molecular plant breeding methods. As vegetables are intended especially to be marketed and
eaten fresh, merchants and consumers have particularly strict requirements and expectations
regarding their taste, appearance, nutrient content and shelf life. We continuously launch new
vegetable seed varieties with these quality traits, such as the Sweet Spark cantaloupe variety
developed in conjunction with U.S. retailer Walmart, Inc. In addition, we launch numerous new
broad-acre crop varieties every year.
Environmental Science also launched new products in 2017. These included the Exteris™ fungi-
cide for the maintenance of golf courses, as well as Altus™, which is designed to protect orna-
mental plants against insect pests. We also expanded our Maxforce™ product range by adding
insecticides for pest control. Bayer BEYOND, a new digital service platform, automates the work
performed by pest controllers and enhances rodent monitoring through predictive analysis.
Cooperations
Crop Science is part of a global network of partners from diverse segments of the agricultural
industry and academic research. In 2017, we entered into new research partnerships and extend-
ed existing collaborations. A selection of these is detailed below.
In June 2017, Bayer signed an agreement with Sumitomo Chemical Company Ltd., Tokyo, Japan,
for fungicide mixes used to control soybean diseases in Brazil. The goal of combining a new
Sumitomo Chemical fungicide with established Bayer fungicides is to develop an effective solution
for controlling widespread plant diseases such as soybean rust. The product registration applica-
tions were submitted in 2017 as expected.
See also A 1.3
“Global open innovation
network”
Bayer Annual Report 2017
A Combined Management Report
77
1.3 Focus on Innovation
Augmented Version
In June 2017, Bayer also signed a two-year research agreement with the Shanghai Institutes for
Biological Sciences (SIBS) of the Chinese Academy of Sciences to increase wheat yields using
new mathematical models and computer simulations for more efficient photosynthesis.
As part of their research cooperation, Bayer and KWS SAAT SE, Germany, granted a long-term
license to Belgian company SESVanderHave N.V. for their new CONVISO™SMART sugar beet
cultivation system in June 2017. The technology is based on conventionally bred sugar beet varie-
ties with tolerance toward certain herbicides and helps to ease weed management.
In July 2017, Bayer and the Israeli company Netafim Ltd., which is based in Tel Aviv, joined forces
to enhance the application of crop protection products. The new approach, called DripByDrip,
will enable farmers to water their fields and apply crop protection products in a more targeted way
using Netafim's drip irrigation technology. We expect the solution to be launched in Mexico in
mid-2018.
In August 2017, Bayer and the Citrus Research and Development Foundation (CRDF), a nonprofit
organization supporting citrus growers in Florida, United States, signed a research collaboration
agreement to find solutions to citrus greening plant disease currently threatening the global citrus
production and juice industry.
In addition, Bayer and Rothamsted Research, Harpenden, United Kingdom, formed a strategic
alliance in August 2017 to develop digital solutions aimed at detecting and sustainably managing
pests, pathogens and weeds.
Bayer and the nonprofit organization Quantified Planet, Vaxholm, Sweden, signed a licensing and
cooperation agreement in August 2017. Under the agreement, Bayer is providing proprietary,
crowd-sourced data from more than 70 countries on certain plant varieties and their location,
prevalence and distribution. Quantified Planet makes these data available worldwide for use in
scientific research in the field of biodiversity.
Bayer and Robert Bosch GmbH, Germany, signed a three-year cooperation agreement in Sep-
tember 2017, with the objective of developing a smart spraying technology to make the applica-
tion of crop protection products more efficient and facilitate a more targeted use of herbicides.
Bayer and the Greek Institute of Molecular Biology and Biotechnology, which forms part of the
Foundation of Research and Technology Hellas (IMBB-FORTH), announced a five-year research
collaboration in September 2017. This collaboration will seek to investigate insect gut physiology
for the development of new insecticides.
78
A Combined Management Report
1.3 Focus on Innovation
Augmented Version
Bayer Annual Report 2017
The following table provides an overview of strategically important long-term cooperations that are
currently ongoing.
Crop Science: Important Cooperations
Partner
Cooperation objective
Citrus Research Development
Foundation
Search for solutions to citrus greening disease, which currently threatens the
global citrus production and juice industry
Commonwealth Scientific and
Industrial Research Organisation
(CSIRO)
Increase in wheat yields by means of native plant traits – discovery, validation
and integration
Elemental Enzymes AG
Use of microbes to improve soil health and thereby increase crop productivity
A 1.3/8
Embrapa
Jülich Research Center
Grains Research and
Development Corporation
(GRDC)
Innovative Vector Control
Consortium (IVCC)
Quantified Planet
Robert Bosch GmbH
Rothamsted Research
Targenomix GmbH
Cooperation on several R&D objectives in various areas of relevance for
agriculture in Brazil, e.g. Asian soybean rust
Research collaboration focused on phenotyping for plant breeding, research into
plant traits and the development of biologicals
Herbicide Innovation Partnership for the discovery and development of
innovative weed management solutions
Joint development of new substances to control mosquitoes that transmit
diseases such as malaria and dengue fever
Licensing and cooperation agreement under which Bayer will make freely
available proprietary, crowd-sourced data from more than 70 countries on
certain plant varieties and their location, prevalence and distribution
Research collaboration focused on developing a smart spraying technology to
make the application of crop protection products more targeted and thus more
efficient
Strategic framework agreement to support a digital revolution for detecting and
sustainably managing biotic threats such as pests, pathogens and weeds
Development and application of systems biology approaches to achieve a better
understanding of metabolic processes in plants and facilitate the development of
new herbicides and safeners
You can find details of our open innovation initiatives Grants4Targets™ and Grants4Traits™ in
A 1.3 “Global Open Innovation Network.”
Animal Health
At Animal Health we focus our research and development activities on antiparasitics, antibiotics,
medicines to treat noninfectious disorders and nonantibiotic alternatives for infectious diseases.
We improve the health and well-being of companion and farm animals through innovations. Animal
Health pursues the “one health” concept: We offer animal health products that reduce the risk of
transmission of disease pathogens to humans, such as endoparasiticides for cats and dogs or
ectoparasiticides to protect especially against fleas and ticks. Through our initiative focusing on
companion vector-borne diseases (CVBDTM) and with the leading global scientists who participate
in this initiative, we are setting trends in basic research and the fight against vector-borne diseas-
es. In our central research activities, we cooperate closely with the research departments at
Pharmaceuticals and Crop Science.
New products and registrations
In January 2017, the European regulatory authorities approved PolyVarTM yellow, a new product to
protect honey bees against the Varroa mite. This decision was implemented in national law in
more than 20 countries during the year.
Cooperations
Animal Health also reinforces its business by continually identifying further product development
candidates through new and existing collaborations. We work closely together with our partners in
areas such as the development of innovative technologies, application innovations and lead struc-
ture optimizations.
www.cvbd.org/
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
A Combined Management Report
79
Augmented Version
1.4 Sustainable Conduct
1.4.1 Commitment to Employees and Society
Attracting, developing and retaining the best employees
Defining our corporate culture through dialogue, diversity
and innovation
Advancing knowledge and leadership skills
Unreserved commitment to supporting human rights
Wide-ranging societal engagement
1.4.1.1 Employees
Bayer’s business success is based to a large extent on the knowledge, skills, commitment and
satisfaction of our employees. As an employer we offer our employees attractive conditions and
wide-ranging individual development opportunities such as a highly effective system of vocational
and ongoing training. Alongside professional training, we focus on conveying our corporate values
(LIFE) and establishing a dialogue-oriented corporate culture based on trust, respect for diversity
and equality of opportunity. Our responsible approach to structuring working conditions includes
fair treatment at work, a transparent and equitable compensation system, company pension
plans, the ability to combine working with family commitments, flexible worktime arrangements
and a working environment that fosters health.
These are the cornerstones of our global human resources strategy, which is designed to safeguard
and expand our business activities. They strengthen our competitiveness, and also reflect our so-
cial responsibility to provide secure employment and stable incomes, and to foster social cohesion.
In this way, we want to recruit and retain the best employees for Bayer. Responsibility for the hu-
man resources strategy falls within the remit of the primary decision-making body of Bayer’s HR
function, which sets binding policies and defines priorities for all regions and organizational units.
We measure employees’ satisfaction with Bayer as an employer with the help of institutionalized
feedback discussions and the Group-wide Employee Survey, which is usually conducted about
every two years. This enables us to monitor the effectiveness of our activities and make any nec-
essary improvements. Together with IBM as our new service provider, we have revised the con-
cept for as well as the structure and the content of our 2017 Employee Survey. For this reason,
the results cannot be compared with those of previous years. The survey was completed by 80%
of employees worldwide. Bayer’s score of 79% on the Employee Engagement Index – collated
from responses to questions about satisfaction, loyalty, advocacy and pride – was eight percent-
age points above the global benchmark of provider IBM.
Group target:
continuous improvement
in employee satisfaction;
see also A 1.2.1
GRI G4-26
Employee data
Slight increase in Group employee numbers
On December 31, 2017, Bayer employed 99,820 (2016: 99,592) people worldwide. In Germany
we had 31,620 (2016: 30,603) employees, which was 31.7% of the total Group workforce (2016:
30.7%).
Bayer AG key data:
see also A 1.4.4
There was a reduction in the number of employees in the Latin America, Asia / Pacific and North
America regions, but an increase in the Europe / Middle East / Africa region. While the number of
employees in the segments decreased, there was an increase in the number included in the Recon-
1. This change was mainly due to the reorganization of the Group initiated in 2016. Employ-
ciliation
ees in service functions, which were previously part of a segment, were assigned to the respective
units in the corporate functions and country platforms in 2017. The breakdown by function
1 Reconciliation encompasses all business activities – especially cross-segment service functions – that are not allocated to any of
our reporting segments
80
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
Augmented Version
Bayer Annual Report 2017
Employee Data
Total
2016
2017
99,592
99,820
A 1.4.1.1/1
Change
in %
0.2
by Region
11.6% Latin America
22.9% Asia / Pacific
13.0% North America
by Segment
52.5% Europe /
Middle East /
Africa
2017
Europe / Middle
East / Africa
North America
Asia / Pacific
Latin America
2016
2017
50,970
13,212
23,290
12,120
52,380
13,001
22,852
11,587
25.5% Reconciliation
38.4% Pharmaceuticals
3.5% Animal Health
2017
20.8% Crop Science
11.8% Consumer Health
Pharmaceuticals
Consumer Health
Crop Science
Animal Health
Reconciliation
1
2016
40,093
12,821
22,399
3,957
20,322
2017
38,295
11,760
20,736
3,527
25,502
by Function
9.5% General administration
14.1% R&D
36.7% Marketing and
distribution
by Gender
2017
39.7% Production
Production
Marketing &
distribution
R&D
General
administration
2016
2017
40,288
39,669
36,783
14,213
36,622
14,041
8,308
9,488
Women
2016
2017
2016
Change
in %
2.8
– 1.6
– 1.9
– 4.4
Change
in %
– 4.5
– 8.3
– 7.4
– 10.9
25.5
Change
in %
– 1.5
– 0.4
– 1.2
14.2
Men
2017
40.2% Women
2017
59.8% Men
Europe / Middle
East / Africa
North America
Asia / Pacific
Latin America
20,577
21,366
30,393
31,014
5,645
8,804
4,477
5,620
8,758
4,354
7,567
7,381
14,486
14,094
7,643
7,233
Total
39,503
40,098
60,089
59,722
by Age Group in %
Fluctuation in %
30
30
27
27
23
23
30
25
20
15
10
5
15
14
0.1
0.1
4
5
in %
Women
Men
Total
Voluntary
2016
2017
5.2
4.5
4.8
5.2
4.5
4.8
Total
2017
10.1
10.7
10.4
2016
13.3
13.1
13.2
< 20
20 – 29
30 – 39
40 – 49
50 – 59
> 60
2016
2017
2016 figures restated; number of employees in full-time equivalents (FTE)
1 Reconciliation encompasses all business activities – especially cross-segment service functions – that are not allocated to any of our reporting segments
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
A Combined Management Report
81
Augmented Version
shows more employees working in administration and a slight decrease in the number employees
working in production and research and development. The proportion of women in the workforce
increased by 0.5 percentage points to 40.2%. In 2017, there was no significant change in the age
structure compared with the previous year.
On the reporting date, our employees had worked for the Bayer Group for an average of ten years.
The rate of employee-driven terminations (voluntary fluctuation) in 2017, at 4.8%, was level with the
previous year’s figure. The overall fluctuation rate was 10.4%, a decrease of 2.8 percentage points
compared with the previous year. This figure includes all employer- and employee-driven termina-
tions, retirements and deaths. This shows that we were again successful in retaining staff in the
company for long periods. Our workforce includes only a small number of employees on temporary
contracts (4.4%) and hardly any temporary employees from staffing agencies. Bayer uses tempo-
rary personnel from staffing agencies primarily in response to short-term personnel requirements,
fluctuations in order levels, temporary projects or long-term illness.
Online Annex: A 1.4.1.1-1
Employees
1 by Employment Status, Region and Gender 2017
Permanent employees
Temporary employees
A 1.4.1.1-1/1
Europe / Middle East / Africa
North America
Asia / Pacific
Latin America
Total
Women
20,209
5,532
8,488
4,197
38,426
Men
29,449
7,238
13,577
6,731
56,995
Total
Women
49,658
12,770
22,065
10,928
95,421
1,156
88
270
158
Men
1,566
143
517
501
Total
2,722
231
787
659
1,672
2,727
4,399
1 The number of employees on either permanent or temporary contracts is stated in full-time equivalents (FTE).
Part-time employees are included on a prorated basis in line with their contractual working hours.
The next table contains further information on the breakdown of employee fluctuation by region,
gender and age.
A 1.4.1.1-1/2
Employee Fluctuation
1 by Region, Gender and Age
in %
Women
< 30
2
30 – 49
>= 50
3
Men
< 30
2
30 – 49
>= 50
3
Total
Europe / Middle
East / Africa
North America
Asia / Pacific
Latin America
2016
2017
2016
2017
2016
2017
2016
2017
2016
9.8
18.4
9.6
6.4
7.9
7.9
17.9
7.0
5.2
7.0
19.7
16.3
7.0
5.9
8.6
6.1
5.7
7.4
16.0
18.3
14.4
17.7
16.2
23.9
12.5
19.5
16.1
10.7
16.9
10.0
10.4
11.3
20.0
10.2
11.1
11.0
18.3
21.2
16.9
19.7
20.1
29.5
18.1
13.4
19.4
14.2
18.0
12.3
17.6
15.0
22.9
13.3
10.5
14.7
16.3
23.0
14.9
14.3
17.7
28.9
14.0
21.3
17.2
12.3
16.1
12.0
8.6
17.2
39.5
13.3
12.3
15.4
13.3
20.1
12.6
10.2
13.1
25.3
11.7
10.0
13.2
Total
2017
10.1
17.7
9.3
7.2
10.7
22.3
9.6
7.5
10.4
2016 figures restated
1 The data include all employer- and employee-driven terminations, retirements and deaths.
2 The comparatively high proportion of employees in the <30 age group is due to the inclusion of employees on temporary
contracts (working for 2 – 6 months of the year) and other short-term employees. It does not include apprentices.
3 The fluctuation rates for the >= 50 age group are mainly due to retirements.
In Germany, temporary staff make up 2.4% of the total workforce. At our significant locations of
operation, the average is 4.5%.
Significant locations of
operation: see Glossary
82
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
Augmented Version
Bayer Annual Report 2017
Attracting, developing and retaining the best managers and employees
Employer branding targets both current and prospective employees
Innovations, changing customer requirements and a strong competitive environment are just
some of the reasons we welcome open-minded employees who question the status quo. Our
globally established employer brand “Passion to Innovate | Power to Change” describes our work
culture and makes clear what we expect of our employees and, at the same time, what we as a
company offer them.
We use our employer brand internally to enhance employee committment and externally to posi-
tion the company on the employment market. Our excellent reputation as an employer is shown
by numerous external surveys and awards, including being named best employer in Germany,
Brazil and China in 2017.
In total, the Bayer Group hired 11,731 new employees in 2017.
Online Annex: A 1.4.1.1-2
New Hires
1 by Region, Gender and Age
Europe / Middle
East / Africa
2016
2,148
1,057
986
105
2,621
1,374
1,102
145
2017
2,595
1,162
1,273
160
3,162
1,562
1,415
185
North America
Asia / Pacific
Latin America
2016
2017
2016
2017
2016
2017
681
171
348
162
863
230
426
207
510
121
283
106
592
159
323
110
1,176
1,224
652
500
24
1,889
1,044
824
21
669
535
20
1,780
1,015
726
39
593
315
275
3
968
518
426
24
573
303
259
11
1,295
646
610
39
A 1.4.1.1-2/1
Total
2017
4,902
2,255
2,350
297
6,829
3,382
3,074
373
2016
4,598
2,195
2,109
294
6,341
3,166
2,778
397
Women
< 30
30 – 49
>= 50
Men
< 30
30 – 49
>= 50
Total
4,769
5,757
1,544
1,102
3,065
3,004
1,561
1,868
10,939
11,731
2016 figures restated
1 Converted into full-time equivalents (FTE)
www.bayer.com/career
High level of vocational and ongoing training
To meet the need for skilled employees, Bayer provides sound training in more than 20 different
occupations and offers more vocational training places than required to meet its needs. In 2017,
746 young people started a vocational training course at Bayer in Germany alone. In addition,
Bayer offers trainee programs in various areas for those embarking on a career and internships for
students around the world.
www.bayer.com/training
Furthermore, employees in all fields are able to take part in extensive ongoing training opportuni-
ties. We bundle our Group-wide continuing education offerings in the Bayer Academy, which of-
fers both continuous professional training and systematic development of managerial employees
and has received numerous international awards.
Significant locations of
operation: see Glossary
On average, employees at our significant locations of operation received 23.4 hours of vocational
and ongoing training in 2017. In 2017, the average cost of training per employee was €418.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
A Combined Management Report
83
Augmented Version
Online Annex: A 1.4.1.1-3
Training Activities in Hours in 2017 by Employee Group and Gender
1
Employee group
Senior management
Junior management
Specialists
Overall average
A 1.4.1.1-3/1
Women
Men
Total
28.0
32.1
22.4
25.8
24.4
27.5
15.7
19.5
25.5
29.5
18.4
22.1
1 Selected training activities in the countries covered by the global training system, in which we generated approximately 80%
of our sales in 2017; the gender-specific averages assume 50% women and 50% men for the United States and Japan as
statutory regulations preclude differentiation by gender in these countries.
Feedback on employee performance
Specific and differentiated feedback forms the basis for positive personal development. Bayer
encourages a culture of candid feedback to help employees achieve their individual goals. This is
supported by a Group-wide performance management system.
In feedback discussions, employees have the opportunity to receive feedback from their supervi-
sors on fulfillment of their professional and behavioral objectives. This assessment also determines
one-third of their variable compensation. In 2017, about 70.6% of our total workforce participated
in these feedback discussions. Of the participants, 45% were female and 55% male.
Wide-ranging career opportunities
Thanks to our wide-ranging business activities, we offer employees throughout the Group good
opportunities for development. Regular Development Dialogues between employees and supervi-
sors provide an opportunity to discuss the employees’ further career development perspectives.
Some 36,112 Development Dialogues were held and documented in 2017. A total of 34% of
employees participated in Development Dialogues. Vacancies throughout the Bayer Group, from
nonmanagerial right up to management level, are advertised via a globally accessible platform.
International assignments are also an important element in employee development. Around 940
employees around the world participated in international assignments in 2017.
Corporate culture: dialogue, diversity, innovation
Ethical standards
Fairness and respect are central elements of our corporate culture. That includes observing
Group-wide standards of conduct and protecting employees from discrimination, harassment and
retaliation. These standards are set forth in our Corporate Policy “Fairness and Respect at Work.”
With the help of training, videos and our internal websites, Bayer employees around the world are
provided with guidance on how to comply with this corporate policy.
Child and forced labor are strictly prohibited at Bayer in accordance with the core labor criteria of
the International Labour Organization (ILO). This prohibition is set out in our binding Human Rights
Policy and applies Group-wide.
See also A 1.4.1.2
Communication at all levels
Employees can use the internal crowdsourcing platform WeSolve to pose questions relating to
internal matters at Bayer. These are then answered together with other employees with whom the
person asking the question does not normally have any contact.
We involve our employees in business processes through active dialogue. Informing staff promptly
and extensively about upcoming changes, in compliance with the applicable national and interna-
tional regulations, is very important to us. We engage in open and trustful dialogue with employee
representatives.
GRI G4-26
84
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
Augmented Version
Bayer Annual Report 2017
GRI G4-26
Online Annex: A 1.4.1.1-4
The main dialogue formats are regular employee assemblies, information events for managers
and the European Forum, at which employee representatives from all European sites engage in
discussion with the Board of Management on issues of central relevance to the company. Our
employees have the opportunity to discuss company-specific issues and scope for optimization
via various communication channels.
To promote a culture of innovation at the workplace, two platforms for making work-related
suggestions are available to employees in Germany: the Bayer Ideas Pool and the Ideas Forum.
The suggestions made by employees on improving processes, occupational safety and health
protection are rewarded and utilized. More than 3,200 ideas were submitted in 2017. Around
47% of the suggestions for improvement evaluated in 2017 were implemented. In the first year
of implementation alone, those improvements that led to quantifiable benefits generated sav-
ings of more than €1.5 million. In 2017, Bayer distributed bonuses of around €790 thousand for
the implemented proposals.
Diversity, Group Leader-
ship Circle, senior man-
agement: see Glossary
Group targets 2020:
increase in the propor-
tion of senior managers
from outside the E.U.,
the U.S.A. and Canada
to 25%;
increase in the propor-
tion of women in senior
management to 35%
See also A 4.1
See also A 1.2.1
Diversity and internationality are hallmarks of Bayer
We promote a diverse employee structure, through which we gain a better understanding of
changing markets and consumer groups, get access to a broader pool of talented people and
benefit from enhanced innovative and creative abilities.
That is why mutual understanding and a gender and cultural balance are important success fac-
tors at Bayer. Overall, the Group employs people from around 150 different nations. Around 21%
of our senior managers come from outside Western Europe, the United States and Canada. We
aim to increase this to 25% by 2020 in accordance with our Group target. At our significant loca-
tions of operation we hired 330 employees for senior management in 2017, 70% of whom are
employed in their country of origin. The Group Leadership Circle currently comprises 29 nationali-
ties, with around 66% of its members coming from the country in which they are employed.
Bayer for many years has endeavored to achieve a better gender balance in management.
By the end of 2017, Bayer had raised the proportion of women at senior management level to
more than 32% (2016: 31%). In line with our Group target, we aim to raise this to 35% by 2020.
Information on diversity in our Board of Management and our Supervisory Board can be found in
our Corporate Governance Report.
Online Annex: A 1.4.1.1-5
The next table shows the proportion of men and women in various employee categories.
A 1.4.1.1-5/2
Bayer Group Workforce Structure
1
Proportion of Women
in the Workforce 2017
in %
60
40
68
32
Total
(99,820 FTEs)
Senior
management
(10,195 FTEs)
Women
Men
Senior management
Junior management
Skilled employees
Total
Apprentices
2016
2,974
10,498
26,031
39,503
703
Women
2017
3,297
11,139
25,662
40,098
649
2016
6,605
14,295
39,189
60,089
1,416
Men
2017
6,898
14,536
38,288
59,722
1,386
A 1.4.1.1-5/1
2016
9,579
24,793
65,220
99,592
2,119
Total
2017
10,195
25,675
63,950
99,820
2,035
2016 figures restated
1 Number of employees converted into full-time equivalents (FTE)
The proportion of women also increased in the Group Leadership Circle. By year end 2017, it
was made up of 18% women (2010: 7%) and 82% men (2010: 93%).
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
A Combined Management Report
85
Augmented Version
As a signatory to the United Nations Women’s Empowerment Principles and the Diversity Charter
corporate initiative, we pursue an inclusive approach. Diversity is integrated into all relevant human
resources processes and driven forward by the management.
Online Annex: A 1.4.1.1-6
The seven Women’s Empowerment Principles sum up how women can be strengthened in the
workplace, on the employment market and in the community. Furthermore, our company is also
a founding member of the German “Chefsache” network sponsored by German Chancellor
Angela Merkel. Its members are committed to working together to develop practically oriented
strategies to drive diversity and gender balance in their organizations.
As a socially responsible company, we are also committed to supporting the needs of people with
disabilities. We employ some 2,300 people with disabilities in 29 countries, representing around
2% of our total workforce. 40% are female and 60% male. Most employees with disabilities work
for our companies in Germany, where they made up 5.1% of the workforce in 2017.
Creating attractive working conditions
Competitive compensation and variable pay
Our compensation system combines a basic salary reflecting performance and responsibility with
elements based on the company’s success, plus extensive additional benefits. Adjustments based
on continuous benchmarking make our compensation internationally competitive. This includes,
among other things, the uniform evaluation of all managerial positions throughout the Group.
We attach great importance to equal pay for men and women, providing fair compensation and
informing our employees transparently about the overall structure of their compensation. Bayer
voluntarily pays employees on both permanent and temporary employment contracts in excess of
the statutory minimum wage in many of the countries in which we operate.
Online Annex: A 1.4.1.1-7
Binding and transparent compensation structures
At Bayer, individual salaries are based on each employee’s personal and professional abilities
and the level of responsibility assigned to them. At the managerial level, this is based on uni-
form evaluation of all positions throughout the Group using the internationally recognized Hay
method. In areas of the Group and jobs that fall within the scope of a binding collective bar-
gaining agreement, there are no differences in pay based on gender either. This also applies for
the compensation of apprentices. In the Emerging Markets and developing countries, compen-
sation levels are aligned to local market conditions. In the majority of cases, full- and part-time
employees at our significant locations of operation receive the same rates of pay. The situation
differs with regard to employees on temporary contracts as they are not entitled to long-term
compensation components such as pension plans in some countries.
Significant locations of
operation: see Glossary
Our compensation concept also includes variable one-time payments. Approximately €640 million
is earmarked for bonus awards to employees for 2017 under the Group-wide short-term incentive
(STI) program (2016: approximately €1,070 million for employees in continuing operations). In
many countries, employee stock programs enable our staff to purchase Bayer shares at a dis-
count. We also offer senior managers throughout the Group “Aspire,” a uniform long-term com-
pensation program based on the development of the share price.
Short-term incentive
program: see Glossary
Bayer AG key data:
see also A 1.4.4
86
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
Augmented Version
Bayer Annual Report 2017
See also Note 12 to
B Consolidated Financial
Statements
See also Note 25 to
B Consolidated Financial
Statements
Bayer AG key data:
see also A 1.4.4
Our personnel expenses for continuing operations amounted to €9,528 million in 2017 (2016:
€9,459 million). The change was mainly due to expenses related to compensation adjustments,
while bonus payments were considerably lower.
Alongside attractive compensation for their work, Bayer contributes to the financial security of its
present and former employees after their retirement. Personnel expenses in 2017 included pen-
sion expenses of €933 million. Payments of €1,051 million were made in 2017 to current retirees.
The value of total pension obligations at the end of 2017 was €24,492 million.
Personnel Expenses and Pension Obligations
€ million
Personnel expenses
of which pension expenses
Pension obligations
1
Pension benefits paid
2
A 1.4.1.1/2
2016
9,459
880
28,995
1,041
2017
9,528
933
24,492
1,051
2016 figures restated
1 Present value of defined benefit obligations for pensions and other post-employment benefits as at December 31; including
Covestro until December 31, 2016
2 Including Covestro until deconsolidation
Work-life balance
We offer our employees flexible working hours and support in child care and caring for close rela-
tives. In many countries our commitment in this area goes beyond the statutory requirements.
In 2017, the Bayer Group had some 9,100 part-time employees, primarily in Europe.
This figure represents 9% of the total number of employees.
Online Annex: A 1.4.1.1-8
Percentage of Part-Time Employees by Region and Gender
%
Europe / Middle East / Africa
North America
Asia / Pacific
Latin America
Total
2016 figures restated
Women
2017
23.2
1.0
3.4
0.1
13.5
2016
22.9
1.1
3.0
0.1
13.1
2016
10.1
0.1
0.2
0.0
5.2
Men
2017
10.8
0.1
0.3
0.0
5.7
A 1.4.1.1-8/1
2016
15.4
0.5
1.3
0.1
8.4
Total
2017
16.0
0.5
1.5
0.1
8.9
Significant locations of
operation: see Glossary
Bayer enables both men and women to take parental leave. Since national parental leave regula-
tions vary widely from country to country, we only compile data for our significant locations of
operation. 1,639 women and 950 men at these locations took parental leave in 2017. By the end
of the year, 1,977 employees on parental leave had returned to work.
Online Annex: A 1.4.1.1-9
The next table shows the number of employees who have returned after selecting either the
standard statutory parental leave program of up to three years per child or Bayer’s more far-
reaching “Family & Career” model (up to six years), using Germany as an example. By the end
of 2017, 60.9% had returned to work. 43.0% of women and 83.0% of men who have taken pa-
rental leave since 2015 have returned to work.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
A Combined Management Report
87
Augmented Version
Employees Returning from Parental Leave using Germany as an Example
A 1.4.1.1-9/1
Employees who have taken parental leave
since 2015
Still on parental leave / with a dormant
employment contract
Returned by 2017
Terminated
1
Women
Men
Total
% Absolute
% Absolute
% Absolute
55.2
1,021
44.8
830
100.0
1,851
51.6
43.0
5.4
527
439
55
16.4
83.0
0.6
136
689
5
35.8
60.9
3.2
663
1,128
60
1 Includes employees who have left the company due to employer- and employee-driven terminations, severance agreements
and expiration of contracts
Bayer has introduced uniform conditions for mobile working (home office) in Germany through a
General Works Agreement with the Works Council. Through the “BayZeit” long-term account in
Germany, employees can convert part of their salary into free time, which they can later take off to
care for children or close family members, or to take part in an advanced training course, for ex-
ample. In 2017, this program was expanded to include offerings for trainees and family leave.
The General Works Agreement on caring for close relatives helps Bayer employees in Germany to
combine working with their role as carers through adapted worktime models and temporary paid
leave.
Initiatives to promote health and ensure safe working conditions
In 2017, Bayer adopted a new global framework concept to promote employee health and quality
of life (BeWell@Bayer). It expands the core aspect of health into a comprehensive approach, tar-
gets further improvements in the daily work environment and is intended particularly to help bal-
ance employees’ professional and private lives. We aim to provide employees in all countries with
access to affordable and targeted health offerings such as regular medical check-ups, sports
programs, rehabilitation and on-site medical care.
Our occupational health management activities include many regular preventive programs, ranging
from ergonomic workplaces and stress management to incentive systems to promote healthy
behavior. Established offerings such as the program to reduce the workload of older employees
have been extended until 2020. Our employee representatives are included in operational health
management and are actively involved in its development. We ensure safe working conditions and
thus an environment where our employees can work without fear and undertake international
business travel without risk.
Online Annex: A 1.4.1.1-10
Binding agreements at Group level
The Bayer European Forum – which brings together management and employee representa-
tives – has signed the Luxembourg Declaration on Workplace Health Promotion in the E.U. This
involves a network of around 200 companies which aims to identify and share best practices
and encourages joint measures by employers, employees and society to improve health and
well-being at the workplace.
Group-wide initiatives in Germany include the updated General Works Agreements on lifetime
working and demographic change and on addressing demographic change at the nonmanage-
rial level at Bayer. These agreements contain a reduction in employee workloads that was ex-
tended to further age groups, as well as measures to ease the return to work of nonmanagerial
employees after long-term illness, and an extensive health screening program for all employees.
More than 98% of those who were eligible took part in the program to reduce the workload of
older employees in 2017.
88
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
Augmented Version
Bayer Annual Report 2017
A company pension plan
is available to
75%
of Bayer employees.
Social responsibility for employees worldwide
A company pension plan is available to 75% of Bayer employees worldwide. The benefits provided
depend on the legal, fiscal and economic conditions in each country, employee compensation and
years of service. Almost 98% of our employees worldwide either have statutory health insurance
or can obtain health insurance through the company.
Online Annex: A 1.4.1.1-11
Health Insurance and Pension Coverage
%
Europe / Middle East / Africa
North America
Asia / Pacific
Latin America
Total
2016 figures restated
1 Employer-assisted
2 Programs to supplement statutory pension plans
A 1.4.1.1-11/1
Health insurance
1
Pension plans ²
2016
2017
98
100
95
100
98
98
100
95
100
98
2016
84
100
45
56
74
2017
85
100
46
57
75
Our social responsibility is also reflected in our approach to restructuring, which includes efforts to
take account of our employees’ interests. In Germany, which remains Bayer’s largest operational
base with 31,620 employees, business-related dismissals are excluded through the end of 2020
for a large proportion of employees under an agreement with the employee representatives.
Employees at all Bayer sites around the world have the right to elect their own representatives. In
2017, the working conditions for around 63% of our employees worldwide were governed by
collective or company agreements. At various country companies, the interests of the workforce
are represented by elected employee representatives who have a right to be consulted on certain
personnel-related decisions. The contractually agreed working hours of our employees do not
exceed 48 hours a week in any country.
Online Annex: A 1.4.1.1-12
Percentage of Collective Agreements by Region
1
%
Europe / Middle East / Africa
North America
Asia / Pacific
Latin America
Total
A 1.4.1.1-12/1
2016
2017
82
5
53
52
62
84
4
52
52
63
2016 figures restated
1 Percentage of employees covered by collective agreements, especially on compensation and working conditions
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
A Combined Management Report
89
Augmented Version
1.4.1.2 Global Respect for Human Rights
Bayer fully supports human rights and has set out its stance in a binding corporate policy, Bayer’s
Position on Human Rights. We are committed to respecting and fostering human rights within our
sphere of influence and to reporting transparently on the results of our activities in this area. We
also expect our business partners, and particularly our suppliers, to fully observe human rights.
Our LIFE values and Corporate Compliance Policy also obligate all employees worldwide to con-
duct themselves fairly and in a compliant manner in dealings with colleagues, business partners
and members of the community.
www.bayer.com/
humanrights
Responsibility and management
The observance of human rights is an integral part of our sustainability management and our hu-
man resources strategy. Responsibility for this topic lies with the Board of Management member
responsible for Human Resources, Technology and Sustainability, who is assisted by the Sustain-
able Development Committee (SDC) and, as of 2018, the Group-wide Human Rights Panel, which
forms part of the SDC. Directives, processes, and management and monitoring systems control
the implementation of human rights standards in business operations.
Last year, we took a current inventory of our due diligence activities with respect to human rights
in our most important business processes and developed recommendations for action, particularly
in terms of our reporting on these activities. Observing human rights is a cross-cutting issue at
Bayer that impacts wide-ranging areas of influence and processes, such as:
> Employees:
> Diversity, compensation, fairness and respect at the workplace
> Prohibition of child and forced labor, and the right to freedom of association
See also A.1.4.1.1
> Safety:
> Health and safety at the workplace
> Plant safety to protect employees and the people who live near our production sites
See also A.1.4.3.2
> Product stewardship, also in relation to clinical studies and biodiversity
> Procurement:
> Sustainable supplier management, especially in terms of tackling child labor in the seed
supply chain and in conflict minerals
See also A 1.3 Pharma-
ceuticals, including
A 1.4.3.1
See also A 1.4.2.1
We report in more detail on the various facets of our due diligence with respect to human rights
in the relevant chapters.
Training and grievance mechanisms
We offer ongoing training programs to enhance employees’ awareness of the importance of hu-
man rights in their day-to-day activities. In 2017, more than 47% of our employees received train-
ing in aspects of our Human Rights Position in training sessions totaling around 190,000 hours.
Aspects of human rights are also covered in the training offerings for our suppliers.
The compliance organizations at the Group and country levels monitor compliance with our corpo-
rate policies. If there are signs of violations of our Human Rights Position, employees and mem-
bers of the general public can contact the Bayer Compliance Officers at any time, even anony-
mously if desired. Alternatively, they can contact the worldwide compliance hotline.
See also A 4.2
90
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
Augmented Version
Bayer Annual Report 2017
Commitment
We engage in dialogue with other stakeholders on the topic of human rights and actively partici-
pate in committees and initiatives established to ensure their observance, such as the corre-
sponding working groups of econsense, by contributing to discussions on implementing the Na-
tional Action Plan (NAP) – Business and Human Rights and, in the supply chain, via our Together
for Sustainability (TfS) industry initiative and the Pharmaceutical Supply Chain Initiative (PSCI).
Furthermore, we are a founding member of the U.N. Global Compact and respect the Universal
Declaration of Human Rights and a range of globally recognized declarations applicable for multi-
national corporations. These include the OECD Guidelines for Multinational Enterprises, the Tripar-
tite Declaration of Principles concerning Multinational Enterprises and Social Policy, and the core
labor standards of the International Labour Organization (ILO).
We also support the U.N. Guiding Principles on Business and Human Rights, which establish
global standards for preventing and combating possible human rights violations in connection with
business activities. Bayer has also signed the WASH at the Workplace Pledge of the WBCSD
(World Business Council For Sustainable Development) and thus undertakes to guarantee all our
employees worldwide access to clean water, sanitary facilities and hygiene.
ILO core labor
standards:
see Glossary
Social innovation:
see Glossary
1.4.1.3 Societal Engagement
Bayer’s societal engagement focuses on people working in the areas of education and science
and health and social innovation who are committed to achieving a lasting improvement in living
conditions. This is also true of an additional funding priority: sports and culture. In 2017, we in-
vested a total of around €49 million (2016: €43 million) in charitable activities worldwide. Our in-
volvement in professional soccer does not form part of our social sponsorship activities.
Bayer conducts its foundation work through two foundations linked to the company: the Bayer
Science & Education Foundation for leading-edge research and talent promotion in the life scienc-
es and medicine, and the Bayer Cares Foundation for social innovation and sustainable develop-
ment.
An interdisciplinary functional unit is responsible for the strategic orientation and coordination of
our societal engagement. Group-wide donation allocation and management policies form the
basis for the foundation and donation activities. The Board of Management and internationally
leading experts as independent judges are involved in major funding decisions. We work together
with leading nongovernmental organizations, patient groups, foundations, scientific institutions,
education partners and networks of experts around the world to implement our initiatives.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
A Combined Management Report
91
Augmented Version
Online Annex: A 1.4.1.3-1
Societal Engagement in 2017
€17 million Sports and culture
A 1.4.1.3-1/1
€19 million Health and social
innovation
€13 million Science and education
€ 49
million
total
Health and social innovation
Aspirin Social Innovation Award
The Bayer Cares Foundation again presented the Aspirin Social Innovation Award in 2017. This
award with total prize money of €100,000 per year is conferred around the world for ground-
breaking solutions in the areas of health and nutrition. The supported initiatives are working on
new solutions in the areas of preventive medical treatment of malaria and breast and cervical
cancer, efficient nutrition, and communication options for blind people and families with autistic
children.
Strengthening volunteering worldwide
Under the auspices of its International Volunteering Program, the Bayer Cares Foundation sup-
ported 113 volunteering projects by employees in 44 countries in 2017. The total funding
amounted to more than €400,000. The selected projects help improve living conditions in the
immediate vicinity of the company’s sites.
Rapid assistance in the event of natural disasters
In 2017, Bayer again supported people experiencing acute hardship as a result of natural dis-
asters with immediate aid and prevention projects. The total value of the donations of money,
medicines and goods made by the company exceeded €1.5 million.
Access to Medicine
We have implemented various Access to Medicine activities to meet our global responsibility to
society and enable people in developing countries and emerging markets to access our medi-
cal products.
Science and education
Groundbreaking achievements
The Bayer Science & Education Foundation honors pioneering achievements in basic medical
research with the Hansen Family Award. In 2017, the foundation presented the €75,000 award
to two scientists. Professor Jens Brüning of the Max Planck Institute for Metabolic Research in
Cologne and Professor Matthias H. Tschöp from the Helmholtz Diabetes Center in Munich were
honored for their groundbreaking research contributions in the areas of obesity and diabetes.
See Online Annex
A 1.2.1-1 in “Strategies
of the Segments –
Pharmaceuticals”
92
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.1 Commitment to Employees and Society
Augmented Version
Bayer Annual Report 2017
Dr. David Seiffge from the Stroke Research Group in the Neurology Department at Basel Uni-
versity Hospital was honored with the Bayer Thrombosis Research Award. The physician was
presented with the award, which includes a monetary prize of €30,000, for his clinical work
pertaining to the management of non-vitamin-K-dependent oral anticoagulants (NOAK) in acute
stroke patients.
Getting young people excited about science
In the context of Bayer’s international talent promotion efforts, the Bayer Science & Education
Foundation awarded 65 scholarships to students and apprentices with a total volume of some
€417,000 in 2017. The funding mainly benefits international research projects. Overall, Bayer
implemented individually tailored school support programs in more than 20 countries, working
closely with universities, science museums and other educational organizations.
Under the auspices of its school support program, the Bayer Science & Education Foundation
provided total funding of around €419,000 to 41 projects in the areas surrounding the compa-
ny’s sites. In this way, the company facilitated innovative teaching concepts at schools and
other educational facilities in 25 German cities, as well as education programs to facilitate the
integration of refugee children in Berlin and at the E.U.’s central refugee admission camp on the
Greek island of Samos.
At the four German Baylab student laboratories, more than 8,500 children and young people
took advantage of the company’s scientific offerings in 2017 to supplement their school in-
struction or as a vacation program. The company has additional Baylabs in Mexico, Poland, the
Netherlands, Romania, Bulgaria and, since 2017, the United Kingdom. The education program
is supplemented by advanced training for teachers and mobile Baylab programs such as those
in Argentina and South Africa.
Sports and culture
In 2017, Bayer extensively supported activities in the areas of recreational, disabled and com-
petitive sports again. The Bayer sports clubs made a key contribution to the broad range of
sporting activities around the German sites in North Rhine-Westphalia. The 23 clubs have a to-
tal of nearly 43,000 members. The larger clubs were also intensely involved as professional ser-
vice providers for the company’s occupational health management program.
In 2017, Bayer Arts & Culture again promoted artistic diversity through more than 120 music,
dance, theater and art events. Bayer continued to expand the stARTacademy, which offers
highly talented young artists comprehensive support – for example by bringing solo artists to-
gether with orchestras and providing financial assistance.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.2 Responsibility in Value Creation
A Combined Management Report
93
Augmented Version
1.4.2 Responsibility in Value Creation
Sustainability criteria consistently anchored in the supply chain
Efficiency and flexibility in production and logistics strengthened
Ethical action shapes dialogue and partnership with our customers
We aim to offer our customers innovative products and high-quality solutions. This requires us to
efficiently and responsibly steer processes at all value creation stages: in procurement, in produc-
tion, in logistics and in distribution.
1.4.2.1 Procurement and Supplier Management
The procurement organization supplies the company with raw materials, goods and services
all around the world. We exert influence on society and the environment through our procurement
activities and supplier relationships. Not only economic, but also ethical, ecological and social
principles are therefore anchored in our Procurement Policy, which is binding for all employees
worldwide.
Procurement is a corporate function, the head of which reports directly to the Chief Financial
Officer. Bayer has a diverse procurement portfolio due to the varying nature of its segments. Pro-
curement acts centrally on behalf of all segments and leverages synergies by pooling know-how
and procurement spend.
The following table provides key data on our procurement activities.
Procurement Activities
Procurement spend in € billion
Spend in OECD countries (mainly Germany and U.S.A.) in € billion
Spend in non-OECD countries (mainly Brazil, India and China) in € billion
Number of suppliers
Number of countries
2016 figures restated
A 1.4.2.1/1
2016
14.8
12.2
2.6
2017
14.9
12.2
2.7
Bayer AG key data:
see also A 1.4.4
€14.9 billion
97,270
93,330
151
148
Bayer’s procurement
spend in 2017
In our supply chain we take account of all types of suppliers and supplier diversity.
Procurement operates according to uniformly established procurement and supplier management
processes. Long-term contracts and active supplier management for strategically important goods
and services are important elements here. Thus, we not only minimize procurement-specific risks
such as supply bottlenecks or significant price fluctuations, but also safeguard the Group’s com-
petitiveness and ensure smooth production processes. Close cooperation with and systematic
integration of selected suppliers in innovation processes gives Bayer access to innovative solu-
tions.
Bayer purchases locally wherever possible in order to respond promptly to the requirements of
our sites, thereby simultaneously strengthening local economies. In 2017, this applied to 71%
(2016: 71%) of our procurement spend at our main business locations, and to 71% (2016: 71%)
of procurement spend in all countries worldwide. An overview of the main direct and production-
related procurement materials in 2017 can be found online.
Local procurement:
see Glossary
94
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.2 Responsibility in Value Creation
Augmented Version
Online Annex: A 1.4.2.1-1
Main Direct Procurement Materials
Bayer Annual Report 2017
A 1.4.2.1-1/1
RSPO and
RTRS credits:
see Glossary
Pharmaceuticals
Active ingredients (e.g. small molecules, biologics), radioactive ingredients (e.g. actinium,
radium), intermediates (e.g epoxy phthalimide), raw materials (e.g. iodine, cell culture media,
solvents), pharmaceutical excipients (e.g. celluloses, starches), packaging materials, medical
devices, finished products (e.g. Zetia)
Consumer Health
Active ingredients (e.g. naproxen sodium, loratadine, paracetamol), vitamins (e.g. vitamin C
and B), excipients and operation materials, finished products (e.g. CanestenTM,
Dr.Scholl’sTM, BeroccaTM), packaging materials
Crop Science
Animal Health
Active ingredients (e.g. mancozeb), excipients and solvents (e.g. rapeseed oil, toluene,
ammonia), complex intermediates (e.g. pyridine polyfluoride), packaging materials
Finished products, active ingredients (e.g. moxidectin, praziquantel, Baycox-isocyanate),
packaging materials (e.g. SerestoTM tins, spot-on tubes), raw materials, excipients
Renewable raw materials play only a subordinated role at Bayer due to the company’s portfolio.
They are primarily used when it makes technical, economic and ecological sense to do so.
Online Annex: A 1.4.2.1-2
Bayer uses small amounts of palm (kernel) oil and soy derivatives in the formulation of active
ingredients or in active ingredient precursors. As part of our activities to promote sustainable
agriculture, we are a member of the Roundtables on Sustainable Palm Oil (RSPO) and Respon-
sible Soy (RTRS). To support the production of certified sustainable palm (kernel) oil and soy,
we purchased RSPO and RTRS credits in 2017 according to the volumes we used.
Crop Science also cooperates intensively with the RTRS to provide mutual support in the certi-
fication of Brazilian soybean producers according to the high ecological, social and economic
criteria of the RTRS.
At Pharmaceuticals, a number of hormones are synthesized based on sterols that result during
the production of plant oils from soybeans, for example, as well as during wood processing.
We additionally purchase various steroids that are manufactured from diosgenin or its interme-
diate stages. This substance is usually obtained from yam grown in countries such as China.
We also use raw materials such as water, glucose, yeast, soybean starch, castor oil and corn
steep water in our fermentation processes.
Consumer Health uses extracts of plants to manufacture plant-based pharmaceuticals. We
take great care in the cultivation and extraction of raw materials, which are performed accord-
ing to international standards, e.g. the GACP (Good Agricultural and Collection Practice) guide-
lines.
Bayer sustainability requirements defined in its Supplier Code of Conduct
Our supply chain is designed at both a global and regional level according to clear, sustainability-
oriented criteria and standards. Bayer regards adherence to these standards as a crucial value-
adding factor and an important lever for minimizing risks. A four-step process is thus established
throughout the Group to improve sustainability practices in the supply chain, comprising the ele-
ments awareness-raising and supplier selection, evaluation and development. It is defined in a
special instruction and centrally steered by the Sustainability team in Procurement. The process is
implemented through cross-functional cooperation between the Procurement and the Health,
Safety & Sustainability corporate functions.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.2 Responsibility in Value Creation
A Combined Management Report
95
Augmented Version
Our sustainability requirements are established in the Bayer Supplier Code of Conduct, which is
based on the principles of the U.N. Global Compact and our Human Rights Policy. It is available in
14 languages and covers the areas of ethics, labor, health, safety, environment and quality, and
management systems. The code lays out the general basis of cooperation with our suppliers and
is applied in their selection and evaluation.
The Supplier Code of Conduct is integrated into electronic ordering systems and contracts
throughout the Bayer Group. Furthermore, our standard supply contracts contain clauses that
authorize Bayer to verify suppliers’ compliance with our sustainability requirements.
Evaluating the sustainability performance of our suppliers
Bayer verifies the observance of the code requirements by our suppliers through online assess-
ments and on-site audits by external auditors. Suppliers are selected for these evaluations based
on a combination of country and category risks as well as according to their strategic importance
in line with our Group targets.
Bayer’s goal was to have evaluated all strategically important suppliers by the end of 2017. This
group includes suppliers with a major influence on business in terms of, for example, procurement
spend and long-term collaboration prospects (three to five years). All in all, 99.5% (2016: 98%) of
these suppliers were evaluated, the missing coverage being due to fluctuations inherent in the
business. The remaining evaluations are scheduled to take place in the first quarter of 2018. By
2020, furthermore, we aim to evaluate all those suppliers with a significant procurement spend
(> €1 million p.a.) that are regarded as potentially high-risk suppliers due to their combined coun-
try and category risk. Our target attainment as of 2017 was 93% (2016: 83%). In the case of new
suppliers of this type, Bayer reserves the right to review their sustainability performance through
an online assessment or an on-site audit.
Group target 2017:
evaluation of all strategi-
cally important suppliers
Group target 2020:
evaluation of all poten-
tially high-risk suppliers
with significant Bayer
spend; see also A 1.2.1
The online assessments are carried out on Bayer’s behalf by the service provider EcoVadis. The
assessment criteria correspond to the requirements of our code and also take into account coun-
try- and industry-specific conditions and supplier size. EcoVadis evaluated 622 (2016: 649) sup-
pliers on our behalf in 2017.
In addition, 57 (2016: 52) of our suppliers were audited on-site by external, independent auditors
in 2017. The audit criteria include both the specifications of our code and industry-specific re-
quirements that we have jointly laid out in the industry initiatives Together for Sustainability (TfS)
and the Pharmaceutical Supply Chain Initiative (PSCI). The initiatives are intended to help stand-
ardize the sustainability requirements of suppliers in the chemical and pharmaceutical industries.
Synergies are also created through the exchange of assessment and audit results within the re-
spective initiatives. This will help us achieve our target of developing and introducing a new sus-
tainability standard for our suppliers by 2020.
Within the TfS initiative, a total of 1,794 (2016: 1,773) sustainability assessments were performed,
also through EcoVadis, in 2017, along with 441 (2016: 241) audits, including in China, Japan,
India and Brazil. Within the scope of PSCI the corresponding number of audits was 67 (2016: 51),
including in India, China and Russia.
In addition, Bayer auditors evaluate selected new and existing suppliers particularly with regard to
health, safety and environmental protection. Among others, these audits are performed on con-
tract and toll manufacturing suppliers with an increased risk potential. A total of 115 (2016: 168)
suppliers were evaluated by Bayer auditors in 2017.
www.tfs-initiative.com
www.pscinitiative.org
Group target 2020:
development and
establishment of a new
sustainability standard
for our supply base;
see also A 1.2.1
96
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.2 Responsibility in Value Creation
Augmented Version
Bayer Annual Report 2017
Bayer reserves the right to terminate a supplier relationship if especially critical sustainability
weaknesses have been identified during an online assessment or on-site audit and no improve-
ment is observed during a re-evaluation. In 2017, Bayer was not prompted to end any supplier
relationship due solely to sustainability performance.
Online Annex: A 1.4.2.1-3
Assessments and Audits of Bayer Suppliers
Sustainability assessments
1 via the EcoVadis platform
Sustainability audits
2 by external auditors
Sustainability / HSE
3 audits by Bayer auditors
A 1.4.2.1-3/1
2016
2017
649
52
168
622
57
115
2016 figures restated
1 Initial and re-assessments of suppliers working for Bayer; initiated by Bayer and shared via EcoVadis as part of the TfS initiative
2 Initial and follow-up audits of suppliers working for Bayer; initiated by Bayer and shared as part of the TfS and PSCI initiatives
3 Health, safety, environment
The online assessments and on-site audits are analyzed and documented in order to define spe-
cific improvement measures in the case of unsatisfactory results. In 2017, this applied above all to
the categories of sustainable procurement and health and safety. In the event of critical results,
Bayer requests the suppliers to rectify the identified weaknesses within an appropriate period of
time based on specific action plans. Our regular monitoring shows that in 2017 348 of our 679
suppliers evaluated have improved their sustainability performance.
Online Annex: A 1.4.2.1-4
The online assessments undertaken by EcoVadis in 2017 identified a need for suppliers to im-
prove particularly in the areas of sustainable procurement, environment and fair business prac-
tices. Suppliers who achieve less than 25 of 100 possible points are regarded as critical in
terms of their sustainability performance.
A 1.4.2.1-4/1
20%
3%
15%
10%
Results of Online Supplier Assessments by Category
Environment
5%
30%
42%
55%
2%
29%
Labor practices and
human rights
Fair business practices
Sustainable procurement
Total
5%
7%
2%
32%
53%
47%
35%
10%
1%
31%
53%
14%
0
10
20
30
40
50
60
70
80
90
100
Valuation according to EcoVadis (in points): 0 – 24 25 – 44 45 – 64 65 – 84 85 – 100
Number of suppliers assessed: 622 (as of December 31, 2017)
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.2 Responsibility in Value Creation
A Combined Management Report
97
Augmented Version
Audited suppliers demonstrated the greatest need for improvement in 2017 in the areas of
health & safety and management systems. This concerned both audits initiated by Bayer and
those shared within the TfS and PSCI initiatives. A supplier receives a critical result if a serious
violation or several major findings in sustainability performance are identified. In 2017, 20 sup-
pliers (3% of all assessed and audited suppliers) showed a critical result with regard to their
sustainability performance.
Improvement measures in the supply chain taking effect
Through re-assessments or follow-up audits, we monitor the implementation of the improve-
ments requested by us. In 2017, 550 suppliers underwent a re-assessment through the EcoVa-
dis platform, of whom more than 60% improved their sustainability performance. Numerous
suppliers voluntarily undergo a re-assessment after successfully implementing corrective
measures. Ten follow-up audits verified sufficient rectification of previously identified deficien-
cies.
Additional verification processes were established for the fulfillment of further international regula-
tions such as those requesting companies to disclose the origin of certain raw materials. This
concerns, for example, so-called conflict minerals from regions such as the Democratic Republic
of the Congo or neighboring countries. All 101 of our first-tier suppliers (2016: 117) who could
potentially be impacted by this issue have been checked. “Conflict-free” status was confirmed for
60% (2016: 53%) of them. It was agreed with the remaining suppliers that they must ensure com-
pliance with the requirements.
Conflict minerals:
see Glossary
Training measures and dialogue on the issue of sustainability
We support our procurement employees in the implementation of sustainability requirements with
targeted Group-wide training measures. We also offer our suppliers a wide range of development
and dialogue opportunities on this subject.
GRI G4-26
Online Annex: A 1.4.2.1-5
Within the scope of our supplier sustainability evaluations, we have identified a country risk par-
ticularly for China and India. In this connection, we carried out intensive workshops and training
courses in India both for our local procurement personnel and for external auditors of the PSCI
Initiative. In China, Bayer used its Supplier Day 2017 to communicate its sustainability require-
ments. In 2017, we also conducted supplier training and workshops in China and India in co-
operation with PSCI and TfS. Our two industry initiatives offer additional advanced training
modules for our suppliers through the TfS Supplier Academy and the PSCI Sustainability Webi-
nars.
Tackling child labor in the seed supply chain
A key challenge is tackling child labor in the seed supply chain of the Crop Science segment. Our
position on child labor is unequivocal: Child labor is strictly prohibited at Bayer in accordance with
the core labor standards of the International Labour Organization (ILO). We therefore also obligate
our suppliers to strictly refrain from employing children.
www.bayer.com/
child-care
Bayer has taken systematic action for years to prevent child labor in the cotton, rice and vegeta-
ble seed supply chain in India, Bangladesh, China, Thailand and the Philippines through its Child
Care Program and conducts inspections locally. This program is being established in those coun-
tries in which there could be cases of child labor in seed production based on our risk assess-
ment. We raise awareness of the issue among our suppliers and clearly communicate our re-
quirements. Risk assessments were undertaken in 2017 for countries such as Paraguay, Uruguay,
Argentina, Peru and Chile. The risk of child labor in our seed supply chain in those countries was
found to be low due to government-based monitoring and the extensive use of mechanized pro-
cesses in seed production. However, Bayer also audits suppliers in these countries and sensitizes
our employees to this issue.
98
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.2 Responsibility in Value Creation
Augmented Version
Bayer Annual Report 2017
We recorded the majority of cases of child labor in India, which is why it is there that we imple-
ment most of our measures and inspections. The corporate auditor EY (formerly Ernst & Young),
India, additionally carries out unannounced visits to cotton seed producers in four Indian districts.
The absolute number of child labor cases was in decline until 2016. However in 2017, we detect-
ed an increase in cases of child labor among cotton hybrid seed suppliers in India. These cases
were identified predominantly among new suppliers in regions where Bayer had not previously
been active. Bayer expanded the activities of the Child Care Program in the areas around the
affected sites and carried out follow-up audits. We expect a reduction again in cases of child labor
in the coming year as a result of our commitment.
Online Annex: A 1.4.2.1-6
Bonuses and sanctions for suppliers
Crop Science’s comprehensive activities in its Child Care Program include the monitoring of the
seed produced through wage-based labor. In this connection, specialized Bayer employees vis-
it the fields of cotton, rice and vegetable seed producers, particularly during the planting sea-
son. Suppliers who can verify that they strictly observe our ban on child labor receive a bonus
along with training in raising agricultural efficiency. Graduated sanctions are applied for non-
compliance. These range from written warnings to termination of the contract in the case of re-
peated noncompliance.
Supporting school education as a key element
Bayer regards school attendance not only as essential for children’s development but also as
an effective tool for preventing child labor. We therefore also visit the parents of children we find
working in the fields to convince them of the importance of school education. We promote this
in India, for example, with the Learning for Life initiative within our Child Care Program, which
focuses both on fostering scientific knowledge and on general vocational training. This covers
everything from reintegrating children into the regular school system to vocational training
measures. Between 2005 and the end of 2017, Learning for Life reached more than 6,400 chil-
dren and young people.
Thanks to a stringent monitoring system, which is supported by local information and educational
initiatives, there are only very few instances of child labor among our contractors. We immediately
put a stop to any cases we detect and closely track further developments in this context through
our Child Care Program.
The Child Care Program Advisory Council, comprised of international experts and recognized
professionals, supports Bayer in the protection of children’s rights and the objective of seed pro-
duction without child labor. We measure the success of our comprehensive program using the
indicator “Child Labor Incidence in Relation to the Total Number of Laborers Monitored in the
Production of Cotton and Vegetable Seed for Bayer.”
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.2 Responsibility in Value Creation
A Combined Management Report
99
Augmented Version
Online Annex: A 1.4.2.1-7
The graph informs about the development of this indicator.
Child Labor Incidence in Relation to the Total Number of Laborers Monitored in the Production
of Cotton and Vegetable Seed for Bayer 1
2010/ 2011
2011 / 2012
2012 / 2013
2013 / 2014
2014 / 2015
2015 / 2016
2016/ 2017 2
A 1.4.2.1-7/1
0
0
0
,
9
0
1
0
0
0
,
1
0
1
0
0
0
,
0
2
1
0
0
0
,
6
9
0
0
0
,
1
9
0
0
0
,
6
8
0
0
0
,
5
8
0
0
0
,
0
8
0
0
0
,
7
6
0
0
0
,
4
6
0
0
0
,
4
1
1
0
0
0
,
0
5
0
0
0
,
4
0
1
0
0
0
,
5
6
%
n
i
e
c
n
e
d
c
n
i
i
r
o
b
a
l
d
l
i
h
C
0.30
0.25
0.20
0.15
0.10
0.05
0
Number of laborers monitored (cotton)
Number of laborers monitored (vegetables)
Child labor incidence in relation to number of laborers monitored (cotton)
Child labor incidence in relation to number of laborers monitored (vegetables)
1 The figures cover several growing cycles per cultivation year. In India the cultivation year runs from the middle of one year to the middle of the next, depending on
climatic conditions and the various seed types. Cumulated depiction on the basis of control inspections performed (at least 3 per cultivation season for
vegetables and up to 6 per season for cotton)
2 Child labor incidence cases in 2016 / 2017 were mainly identified among new suppliers in regions of India where Bayer had not previously been active. Through
our commitment we are expecting a further reduction in child labor incidence for the coming year. The first figures for the current season 2017 / 2018 confirm this.
1.4.2.2 Production and Logistics
Production
Bayer operates production facilities at more than 130 sites in 34 countries. The safety of our em-
ployees, the environment and the areas near our sites is a top priority for us when operating our
facilities. We steer these processes through our management systems for the areas of health,
safety, environmental protection and quality (HSEQ). Our commitment extends beyond the scope
of legal requirements. For capital expenditure projects exceeding €10 million we perform a volun-
tary ecological assessment. In the case of acquisitions, we examine whether the applicable envi-
ronmental and occupational safety regulations and fundamental employee rights are complied with
at the production sites in question. New production sites may not be set up in areas that are stat-
utorily protected with regard to natural characteristics, biodiversity or other factors.
Bayer worldwide:
see also A 1.1.1/1
See also A 1.4.3.2 and
A 1.4.3.3
Online Annex: A 1.4.2.2-1
Few production sites close to protected areas
In a comparison of the geographical coordinates of our production sites against those of inter-
nationally recognized protected areas (ASEAN Heritage, Barcelona Convention, UNESCO-MAB
Biosphere Reserve, Wetlands and World Heritage Convention and Ramsar Convention), we
identified three sites that are within a radius of three kilometers from such areas. These are the
Blesbokspruit protected areas in South Africa, Moreton Bay in Australia and Reserva Costa
Atlantica de Tierra del Fuego (Atlantic Coast of the “Land of Fire”) in Argentina. None of the
sites examined was directly located in any of the named protected areas.
100
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.2 Responsibility in Value Creation
Augmented Version
Bayer Annual Report 2017
As part of its Group-wide crisis management, Bayer operates a global early warning system – the
Bayer Emergency Response System.
Online Annex: A 1.4.2.2-2
A corporate policy provides a globally applicable standard procedure for recording and report-
ing unusual incidents such as hazards to the safety of our employees, plants or facilities, and
regulates the Bayer Group’s crisis management. The handling of such incidents is the respon-
sibility of the local crisis organization / emergency response team. For this purpose, organiza-
tional precautions with defined responsibilities and procedures have been implemented at the
sites / in the countries. Depending on the situation, these involve business partners and the lo-
cal community around the sites.
We continuously work at our production sites to react more rapidly to market developments
through increased flexibility and the expansion of capacities. To achieve this, we invest in our
global production network.
Pharmaceuticals and Consumer Health
Both segments operate their own production sites around the world in which active ingredients
are manufactured and in which formulation and packaging services are performed for the product
portfolio.
Both Pharmaceuticals and Consumer Health continuously invest in their global production net-
works. Production capacities for the manufacture of hemophilia A products are being established
at the Wuppertal and Leverkusen sites in Germany through the currently biggest capital expendi-
ture program of Pharmaceuticals with a total volume of around €800 million. Consumer Health’s
largest investment project, with a volume of around €50 million in 2017, comprises the multiyear
modification and expansion of the production site in Majinpu, China.
Strategic Investments in Property, Plant and Equipment at Pharmaceuticals and Consumer Health
A 1.4.2.2/1
2017
Pharmaceuticals
Production capacities for rFactor VIII therapies in Wuppertal (Elberfeld) and Leverkusen,
Germany
Expansion of research and development laboratory capacities in Wuppertal, Germany
Modernization of research facilities in Berlin, Germany
Modernization of site infrastructure in Wuppertal, Germany
Modernization of production in Leverkusen, Germany
Construction of new research building in Wuppertal (Aprath), Germany
Expansion of production capacities for Eylea™ in Berlin, Germany
Consumer Health
Reconstruction and expansion of production site in Majinpu, China
2016
Pharmaceuticals
Production capacities for new rFactor VIII therapies in Wuppertal (Elberfeld) and
Leverkusen, Germany
Expansion of research and development laboratory capacities in Wuppertal, Germany
Modernization of research facilities in Berlin, Germany
Modernization of site infrastructure in Wuppertal and Leverkusen, Germany
Expansion of production capacities in Beijing, China
Expansion of Quality Control Biologics in Berkeley, California, U.S.A.
Consumer Health
Reconstruction and expansion of production site in Majinpu, China
Crop Science
The crop protection products of Crop Science are mainly produced at the segment’s own produc-
tion sites. Numerous decentralized formulation and filling sites enable the company to quickly
react to the needs of local markets. At these sites the active ingredients are processed and pack-
aged according to local requirements and application areas. Production of seeds takes place at
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.2 Responsibility in Value Creation
A Combined Management Report
101
Augmented Version
locations close to our customers in Europe, Asia and North and South America at our own farms
or under contract.
We invested some €2.5 billion overall in property, plant and equipment between 2014 and 2017 to
satisfy increased demand for crop protection products and seed. This included investment in the
replacement and expansion of production capacities and in research and development facilities.
Here the focus was on the United States, Germany and India, and on expanding our network of
breeding stations for various crops, particularly to the Netherlands and Brazil.
Strategic Investments in Property, Plant and Equipment at Crop Science
2017
Capacity expansions for herbicides in Muskegon, Michigan, and Mobile, Alabama, U.S.A., and Frankfurt and
Knapsack, Germany
A 1.4.2.2/2
Construction of a production facility for insecticides in Dormagen, Germany
Expansion of production capacities for fungicides in Dormagen, Germany
Expansion of research and development facilities in Monheim, Germany
Establishment of breeding stations for various plant species worldwide
Expansion of research and development facilities in Raleigh, North Carolina, U.S.A.
Expansion of production and research greenhouses in Nunhem, Netherlands
Construction of a production facility for fungicides in Kansas City, Missouri, U.S.A.
Expansion of production capacities for insecticides in Vapi, India
2016
Capacity expansions for herbicides in Muskegon, Michigan, and Mobile, Alabama, U.S.A., and Frankfurt and
Knapsack, Germany
Construction of a production facility for insecticides in Dormagen, Germany
Expansion of production capacities for fungicides in Dormagen, Germany
Expansion of research and development facilities in Monheim, Germany
Establishment of breeding stations for various plant species worldwide
Expansion of research and development facilities in Raleigh, North Carolina, U.S.A.
Animal Health
We procure the active ingredients for our Animal Health products both from internal sources within
Bayer and external suppliers worldwide. Our globally marketed animal health products are mainly
manufactured at the sites in Kiel, Germany, and Shawnee, Kansas, United States.
In 2017, we undertook initial capital expenditures totaling some €90 million through 2021 at
the Kiel site in connection with a site expansion that will take several years. We manufacture some
60 percent of the Animal Health products we market worldwide in Kiel.
Efficient logistics concept implemented
Logistics at Bayer comprises not just the transport and warehousing of goods, but in fact the
entire steering and monitoring of all flows of goods and logistics data for the Bayer Group. We
work continuously to develop logistics concepts that account for safety, environmental and cost
aspects. Areas of focus in the ecological field include the reduction of CO2 emissions, for example
by minimizing air transport or using logistic concepts that include rail- and waterways.
Our logistics organization operates according to management systems and directives with global
validity. We use both internal capacities and external logistics partners for storage and transport
services. Bayer selects these according to strict safety, environmental and quality criteria. Along-
side the Corporate Supply Chain function, each segment maintains its own logistics activities that
are aligned toward the unique circumstances of the respective business model and products.
See also A 1.4.3
A 1.4.2.2/3
Transport Routes
2% rail
7% sea
1% air
90%
road
102
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.2 Responsibility in Value Creation
Augmented Version
Bayer Annual Report 2017
1.4.2.3 Marketing and Distribution
Our marketing and distribution activities are geared toward acquiring new clients and retaining
existing customers over the long term.
Depending on market conditions, we supply our customers in the health care sector, in agricul-
ture, in industry and in the private sector through wholesalers, specialist retailers or direct sales
organizations. Bayer has established market- and customer-specific distribution channels in ac-
cordance with the respective demand.
We systematically analyze our customers’ satisfaction with our performance in the individual seg-
ments, register their complaints and safeguard our long-term business success by deriving opti-
mization measures from this analysis.
Online Annex: A 1.4.2.3-1
Pharmaceuticals and Consumer Health
Our customer environment in the health care business includes in equal measure patients, con-
sumers, physicians, pharmacists, caretakers, patient organizations, health policy decision-
makers and opinion leaders, partners from research and development, and health authorities
and health care payers. The distribution channels and the measures we employ to enter into
dialogue with these groups are as diverse as these groups are themselves.
The prescription products of Pharmaceuticals are primarily distributed through wholesalers,
pharmacies and hospitals. The nonprescription products of Consumer Health are generally sold
in pharmacies, with supermarket chains, online specialists and other large retailers also playing
a significant role in certain markets such as the United States.
Direct contact between Bayer and the customer environment, and especially patients, is regu-
lated very differently for the Pharmaceuticals and Consumer Health segments. For example, dif-
ferent legal requirements apply for prescription medicines from Pharmaceuticals than for Con-
sumer Health’s nonprescription medicines, dietary supplements, medical devices and
cosmetics with regard to the collection of customer satisfaction data. The primary market re-
search and data research that must be conducted, including systematic internet analysis,
strictly adheres to the legal requirements, which can vary significantly depending on the market.
Crop Science
We offer our crop protection products in more than 120 countries and market them primarily via
wholesalers, directly to retailers or, in limited cases, directly to farmers. Our seeds are sold to
growers, seedling companies, specialist retailers and the processing industry. We improve plant
traits with the help of modern breeding methods and then either license them to other seed
companies or incorporate them into proprietary seed varieties.
We market our Environmental Science range of pest and weed control products through
wholesalers and specialist retailers to professional users in the green industry, forestry, industri-
al vegetation management and pest control. We also market our products in the area of public
health, mainly through tendering by government agencies and NGOs as with efforts to control
malaria and dengue fever, for example.
The requirements of our customers vary according to product, region and culture, and range
from rising demands in terms of food safety and quality to trends such as digital farming. Our
marketing activities (field marketing) are therefore aligned particularly to the local needs of our
customers, whose satisfaction is individually determined by the country organizations using
standardized questionnaires.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.2 Responsibility in Value Creation
A Combined Management Report
103
Augmented Version
www.forward
farming.com
To strengthen customer centricity along the entire value chain, Crop Science is intensifying its
direct cooperation with farmers through initiatives such as Bayer ForwardFarms. On Bayer
ForwardFarms, the company cooperates with farmers to demonstrate innovative crop solutions
and services for sustainable agriculture to interested stakeholders. Bayer expanded the net-
work of ForwardFarms in 2017 to include Brazil and Argentina. The food chain partnership
model successfully developed by Crop Science is also being steadily expanded. Crop Science
has initiated over 500 food chain partnership initiatives for 76 crops in more than 40 countries,
mainly in Asia, Latin America and Europe. The goal is, together with participants in the food
chain such as farmers, the processing industry, exporters and dealers, to develop integrated
solutions for sustainable agriculture so as to safeguard and increase yields and to improve the
quality of harvested produce. The central element of the initiative is the BayGap program via
which Bayer trains producers so that they meet the Global G.A.P. certification standard. Farm-
ers need this in order to be able to access professional markets.
Animal Health
Depending on national regulatory frameworks, we market our animal health products through
veterinarians and other distribution channels such as pharmacies or retail stores. Depending on
the respective market segment, Animal Health conducts studies on customer satisfaction and
customer retention.
Commitment to ethical conduct
In the development, sale and marketing of our products, we do not tolerate bribery or any other
form of improper exertion of influence on our business partners. Our minimum standards are de-
rived from laws and other statutory regulations, industry codes and internal rules. Our rules of
conduct are established in our Corporate Policy “Responsible Marketing & Sales.” Furthermore,
we are committed to ethical advertising and communication for all our products and services.
Compliance:
see Glossary
See also A 3.2.1
and A 4.2
As part of our compliance management system, we register and investigate any suspected viola-
tion of our responsible marketing principles, irrespective of whether the complaints come from
within the company or are notified to us from outside.
Our corporate policy and the respective training programs are implemented decentrally in the
segments.
Online Annex: A 1.4.2.3-2
Pharmaceuticals and Consumer Health
The marketing and distribution of pharmaceuticals, medical devices and nonprescription (over-
the-counter = OTC) medications are strictly regulated and subject to relevant laws that we are
committed to observing. Also applicable at Bayer at the global or regional levels are industry
codes adopted by relevant associations of the pharmaceuticals and medical devices industries.
In many countries, these standards are further solidified by local codes – all of which apply to
prescription pharmaceuticals and many of which also apply to nonprescription medicines, die-
tary supplements, medical devices and cosmetics.
All codes of the International Federation of Pharmaceutical Manufacturers & Associations
(IFPMA) serve as a binding minimum global standard for all prescription human pharmaceutical
products marketed by Bayer. In addition, Bayer observes the codes of the European Federation
of Pharmaceutical Industries and Associations (EFPIA) for dealings with health care profession-
als and patient organizations. The WHO’s Ethical Criteria for Medicinal Drug Promotion,
together with national ethical standards that are usually also enshrined in industry codes at the
local level, represent the minimum global standard for the advertising of human pharmaceutical
products at Bayer.
www.bayer.com/efpia
104
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
All the aforementioned codes contain provisions governing, among other issues, advertising
material standards, the distribution of samples, cooperation with medical and pharmaceutical
specialist groups in connection with speaker and consultancy contracts, and scientific studies.
Based on the new EFPIA transparency code and the corresponding local interpretations,
Pharmaceuticals discloses any grants to health care professionals and organizations annually
for the preceding calendar year.
Bayer compliance rules supplement codes
The most important internal Bayer corporate policy in this context is our Anti-Corruption Proce-
dure. The key requirements and the minimum global standard for compliant and ethical con-
duct are summarized in the Anti-Corruption Compliance Manual, which applies worldwide at
Pharmaceuticals and Consumer Health. Principles for ethically and legally acceptable advertis-
ing for pharmaceuticals and medical devices are set out in a further Bayer corporate policy.
Bayer has also put in place directives and corporate policies to prevent price fixing and ensure
data protection. Should several regulations be relevant, Bayer principally applies the more
stringent standards.
Training measures on product-related communication, antitrust law, data protection and anti-
corruption are fundamental elements of the compliance management system at Bayer. Princi-
ples communicated in these training courses provide an overview of globally applicable mini-
mum requirements for cooperation with key stakeholders in the health care industry, such as
physicians, hospitals or patient organizations. The anti-corruption courses explain general
compliance principles and also give specific instructions in relation to nonreciprocal benefits
and the exchange of services with health care professionals.
Crop Science
Crop Science follows the guidelines of its Product Stewardship Policy with regard to the distri-
bution and use of its crop protection products. This policy, which also satisfies the require-
ments of the Corporate Policy “Responsible Marketing & Sales,” is based on the International
Code of Conduct issued by the Food and Agriculture Organization of the United Nations (FAO).
We carry out training courses on this topic worldwide.
Animal Health
In the marketing and use of its products, Animal Health not only observes statutory regulations,
but also further-reaching Group-wide policies and voluntary industry-wide commitments. Where
several regulations are applicable, Animal Health principally observes the more stringent re-
quirements. Most of our companion and farm animal products are subject to the provisions of
drug advertising law.
1.4.3 Safety for People and the Environment
Product stewardship goes beyond legal requirements
Occupational health and safety have top priority
Energy efficiency further improved
The quality and safety of our products, the safe and responsible operation of our facilities and the
comprehensive protection of our employees and the people who live near our sites are of the
utmost importance to us. Bayer also considers environmental protection and the responsible use
of natural resources to be extremely important.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
105
Augmented Version
Responsibility for health, safety, environmental protection and quality (HSEQ) lies with the member
of the Board of Management responsible for Human Resources, Technology and Sustainability.
Group-wide HSEQ management systems are in place and incorporated into the business pro-
cesses. Responsibility for steering and control lies with two corporate functions, “Health, Safety &
Sustainability” and “Quality,” which stipulate responsibilities and framework conditions, among
other means through corporate policies, targets and key performance indicators (KPIs).
Operational responsibility lies with the individual segments, which steer HSEQ with management
systems, committees and working groups. All relevant HSEQ performance indicators from our
production sites are compiled in a Group-wide Bayer site information system (BaySIS). The con-
tinuous review and revision of policies by the corporate functions, regular mandatory internal au-
dits and external certification processes ensure that the systems at all production sites effectively
meet the specific requirements in each case.
The excellent performance of our HSEQ management systems also reduces running costs by
avoiding damage and disruptions to work and production.
Standards and certifications
Bayer’s HSEQ management systems are based on recognized international standards. With re-
gard to coverage based on energy consumption, more than 99% of all our production sites had an
HSE management system audited by Bayer in 2017. Our Group-wide certification plan aimed to
achieve virtually complete coverage in accordance with external standards in both environmental
and occupational safety management by 2017. One hundred percent coverage is not feasible
owing to the frequent changes in our site portfolio. 93% of our business activities in 2017 were
certified externally to at least one internationally recognized standard for environmental and occu-
pational safety management. Compliance with the statutory requirements and relevant standards
is regularly audited by internal experts, regulatory authorities and external consultants.
Standards and Certifications
% of business activities based on energy consumption
2013
2014
2015
2016
2017
A 1.4.3/1
Certification to external standards
ISO 14001 certification / EMAS validation
OHSAS 18001 certification
ISO 50001
1 certification
Degree of coverage with certification to at least one of the
above standards
HSE management systems internally audited by Bayer
Prior years’ figures restated
1 Group values determined from 2014 onward
67
54
–
78
100
86
72
53
90
100
88
72
58
89
99
92
78
70
93
96
92
91
74
93
99
Our segments have quality management systems based on sector-specific international stand-
ards. Group-wide, coverage with this kind of certification is 75% based on energy consumption.
Online Annex: A 1.4.3-1
The Quality corporate function ensures uniform quality standards across all segments and func-
tions along with the continuous improvement of all quality-related processes. The quality re-
quirements derived from regulatory requirements, permits and authorizations, relevant stand-
ards of nongovernmental organizations and industry associations, and customer expectations
are regularly reviewed and integrated into an internal quality management system. Compliance
with the statutory requirements, relevant standards in production and registered product speci-
fications is regularly audited by internal experts, regulatory authorities and external assessors.
These audits also cover institutes sub-contracted by us, service providers and our suppliers.
106
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
GxP: see Glossary
https://echa.europa.eu/
regulations/reach
The quality management system of the Pharmaceuticals and Consumer Health segments forms
the basis for the highest possible safety standards in the manufacturing of pharmaceuticals and
medical devices, which are subject to strict quality requirements. It is based on internationally
recognized standards such as ISO (e.g. ISO 9001, 17025 and 13485) and ICH (International
Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals
for Human Use), as well as on rules for good working practice (GxP) in the development and
manufacture of pharmaceuticals e.g. Good Manufacturing Practices (GMP), Good Distribution
Practices (GDP) and Good Clinical Practices (GCP).
Our veterinary medicine products also comply with stringent GxP quality standards stipulated in
relevant statutory requirements applying to development, approval, manufacture, marketing and
safety monitoring. According to this, safety is to be ensured for the animals to be treated, peo-
ple and the environment alike.
Product manufacture at Crop Science is performed according to ISO 9001. All our products are
authorized by the relevant national authorities and thus fulfill the respective requirements with
regard to quality and user safety.
1.4.3.1 Product Stewardship
Product stewardship means for us that our products satisfy the highest quality standards and are
safe for people, animals and the environment when properly used. All substances and finished
products undergo extensive evaluation and testing in the interest of product safety. We assess
possible health and environmental risks along the entire value chain and use this to derive appro-
priate measures to mitigate risks.
We strictly observe the legal requirements, and our voluntary commitment and internal standards
go beyond these in many areas.
Implementing statutory requirements
Extensive legal regulations apply to all Bayer products. Chemical substances are subject to the
European chemicals regulation REACH (Registration, Evaluation, Authorisation and Restriction of
Chemicals) and the CLP (Classification, Labelling and Packaging of Substances and Mixtures)
regulation. The registration obligation under REACH applies irrespective of marketing activities for
all substances that we produce or import in quantities of more than one metric ton. The classifica-
tion and labeling of chemicals enables users in the European Union to become informed about the
risks associated with chemicals. Bayer assesses all its marketed products and implements the
Globally Harmonized System (GHS) of the CLP for the classification and labeling of chemicals
worldwide.
The authorities enforce the implementation of REACH through regular inspections. So far, none of
the inspections at Bayer has resulted in complaints. We require our suppliers to confirm conformi-
ty with REACH for all substances they supply to us.
Online Annex: A 1.4.3.1-1
Alongside the standard registration obligation under REACH there is also an authorization pro-
cedure that can lead to the replacement of, or a ban on the use of, particularly hazardous sub-
stances. To fulfill the requirements of REACH, we have approved Group-wide and segment-
specific policies.
Already registered substances are also regularly evaluated by the authorities. For Bayer sub-
stances this can result in additional testing requirements, new risk management measures or
inclusion in the REACH authorization procedure. To date, two Bayer substances have been af-
fected, with authorization already being granted for one of these.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
107
Augmented Version
Before any of our products is introduced to the market, we first assess the product itself to de-
termine whether it is safe. Furthermore, the end products such as pharmaceuticals, crop protec-
tion products and biocides are subject to specific and detailed approval procedures.
Biocides: see Glossary
Voluntary commitment by Bayer
Since 1994, Bayer has supported the voluntary Responsible Care™ initiative of the chemical in-
dustry and the associated Responsible Care™ Global Charter. We cover all main elements of the
charter at all Group sites with our HSEQ management systems. We are actively involved in the
further development of scientific risk assessment through our work in associations and initiatives.
www.icca-chem.org/
responsible-care/
Online Annex: A 1.4.3.1-2
Comprehensive support for association activities
International associations such as the European and international chemical industry associa-
tions (CEFIC, ICCA) and the OECD, as well as initiatives such as ECETOC (European Centre for
Ecotoxicology and Toxicology of Chemicals), work to enhance the scientific assessment of
chemicals, develop new test methods and oversee the implementation of statutory regulations.
Bayer actively supports these efforts through its activities in the associations. In addition, we
are involved, for example, in the ICCA Long-Range Research Initiative and in the WHO and E.U.
action plans for improving health and environmental protection. We also support the Strategic
Approach to International Chemicals Management (SAICM), which combines chemicals safety
activities at the global level under the umbrella of the United Nations Environment Programme
with the goal of minimizing negative effects of chemicals on the environment and human health
by the year 2020. The approach aims to create the necessary structures, especially in develop-
ing countries.
We evaluate our substances’ properties already at the research and development stage. We dis-
continue the development of products with undesirable properties in application of the precau-
tionary principle as defined in Principle 15 of the Rio Declaration of the United Nations and Com-
munication COM (2000) 1 of the European Commission. In our view, the focus here should not be
unilaterally on hazard potential, but rather on a balanced benefit-risk assessment.
In Europe, Bayer operates under strict legal requirements. We voluntarily apply comparable stand-
ards around the world, independent of the respective national legislation. In this way we are en-
suring that substance assessments comparable to those established under REACH will also be
applied at all non-European Bayer sites. We support this through our Group target for product
stewardship: By 2020, we will have assessed the hazard potential of all substances (> 99%) used
in quantities exceeding one metric ton per annum. By the end of 2017, we had assessed 76% of
these substances.
Group target 2020:
assessment of
hazard potential
of all substances
used in quantities
> 1 metric ton p.a.;
see also A 1.2.1
We carry out risk assessments for chemicals according to recognized scientific methods such as
those described in the Guidance on Information Requirements and Chemical Safety Assessment
of the ECHA (European Chemicals Agency). Should the analysis reveal that it is not safe to use a
certain chemical, we take steps to mitigate risks. The applicable assessment steps and measures
are established in a corporate policy. As part of our trusting working relationship with them, we
support our customers in the safe handling and use of our products. Bayer compiles safety data
sheets for all products regardless of whether or not these are legally required. Appropriate pack-
aging information is provided for all end consumer products, an example being package inserts
for pharmaceuticals.
108
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
Online Annex: A 1.4.3.1-3
Continuous examination and communication
Risk mitigation measures can range from revised application recommendations to the substitu-
tion of a substance. In this case, the use of the substitute must be economically and technically
feasible. The substitution of chemicals is basically a continuous task for the chemical and
pharmaceutical industry in order to generate new or substantially improved products and pro-
cesses. This is integral to our commitment to Responsible CareTM.
Safety data sheets are the central tools of communication for safety-relevant information about
substances and mixtures in the supply chain. Targeting professional users, they contain infor-
mation on the substance’s properties and on its safe use. In addition, technical information is
provided for professional use.
In accordance with the respective product safety and information obligations, we compile product
information both for raw materials and for intermediates or end products and make these available
within the company all over the world, e.g. for product labeling.
Risk assessment of products on the market
Our stewardship also involves the monitoring of all products that are already available on the mar-
ket. We have established processes throughout the company aimed at addressing inquiries on
product safety or problems with our products. This feedback is consistently accounted for in our
risk assessment, which also covers substances that are regarded as potentially high-risk by regu-
latory authorities and independent institutions.
We also assume responsibility for the active ingredients in our products. We conduct environmen-
tal risk assessments or implement risk management measures even subsequent to their registra-
tion. We also help to tackle questions about active ingredients in the environment and ensure that
concerns are addressed through sound risk assessments and analyses. To this end, we have
established a balanced risk-benefit assessment process for active ingredients that adequately
accounts for customer needs relative to potential or known environmental risks.
Responsible use of biotechnology
Bayer applies biotechnology both in pharmaceutical product development and production, for
example of Kogenate™ and KovaltryTM, and in the area of crop protection. Further biotechnologi-
cally manufactured active ingredients are undergoing clinical development. In plant biotechnology
we use genetic engineering as well as conventional breeding methods to improve crop yields,
yield security and the stress tolerance of plants without increasing the input of resources.
For Bayer, safety for people and the environment is a priority in the use of biotechnology. In addi-
tion to meeting legal and regulatory requirements, Bayer has specified the responsible use of
genetic engineering and strict safety measures in handling biological substances in corresponding
corporate policies. We provide our stakeholders with information about our products and services
in accordance with our Responsible Marketing & Sales Policy.
Online Annex: A 1.4.3.1-4
Specific procedural instructions regulate the handling of genetic engineering and biological
substances in our segments. Crop Science has established the necessary requirements for
the responsible use of biotechnology in both the Product Stewardship Policy and the Seeds
Stewardship directives. Furthermore, Crop Science maintained its membership in 2017 of the
Excellence Through Stewardship (ETS) organization. Audits by ETS-certified auditors are re-
quired to maintain ETS membership, and in 2017 Crop Science completed audits in Japan,
Australia and India.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
109
Augmented Version
Our commitment to preserving biodiversity
In the course of our business activities we aim to use natural resources responsibly and respect
biodiversity and the diversity of ecosystems. We have integrated our principles on biodiversity in
the Bayer Human Rights Policy and established our own position on this issue. In this, we express
our commitment to the United Nations Convention on Biological Diversity and the associated
Nagoya Protocol, which regulates the balanced and fair sharing of the benefits arising from the
use of genetic resources. Segment-specific measures are applied to implement this.
Online Annex: A 1.4.3.1-5
Crop Science commits itself through an internal policy to ensure that it only acquires and uses
genetic resources in harmony with international and national legislation. Biodiversity strength-
ens the resilience of ecosystems, and thus plays a key role in maintaining and promoting sus-
tainable agriculture. We therefore support agricultural ecosystems by promoting various ecolog-
ical enhancement measures such as planting flowering strips as a habitat for animals and the
more extensive cultivation of slopes to protect against erosion. These measures can help farm-
ers to improve soil fertility and water regulation in their fields or boost the pollination activities of
insects and thus increase their yields or biodiversity. We work together with farmers and other
experts on solutions and demonstrate at the Bayer ForwardFarms how sustainable agriculture
can be implemented in practice.
As a member of the Association of Research-Based Pharmaceutical Companies, Bayer sup-
ports the association’s position on the U.N. Convention on Biological Diversity. An internal posi-
tion on plant-based medications documents how natural substances can be used with respect
to compliance with the Convention on Biological Diversity.
Commitment to animal welfare
Animal studies are legally required and essential from a scientific viewpoint to assess the safety
and efficacy of our products. We aim to minimize the use of study animals and to employ alterna-
tive methods whenever possible. This includes the phototoxicity test developed by Bayer and
others that replaces some animal studies in the investigation of the possible phototoxic effects of
drug candidates. We respect all legal requirements pertaining to animal welfare, compliance with
which is verified through both regulatory authorities and internal audits. In addition, Bayer’s princi-
ples on animal welfare and animal studies apply. Bayer’s Global Animal Welfare Committee moni-
tors compliance with these guidelines within the Bayer Group and in external studies. Our princi-
ples also apply to both the research institutes we commission and our suppliers, whose
compliance with our animal welfare requirements we regularly monitor.
www.forwardfarming.
com
www.animalstudies.
bayer.com
Online Annex: A 1.4.3.1-6
Commitment to reducing animal studies
Based on the performance indicators of our Animal Welfare Committee, we each year analyze
the development of animal numbers, the distribution according to species and the burden
placed on our test animals, as well as evaluate studies and discuss possible steps in accord-
ance with the 3Rs principle (replace, reduce, refine). The number of study animals used (includ-
ing animals in Bayer studies performed by contract research organizations) could be reduced
from 96 animals per €1 million research budget in 2005 to around 30 animals in 2017.
3Rs principle:
see Glossary
Bayer participates in several internationally renowned consortia and projects that aim to reduce
the number of animals used in studies or improve the studies’ validity.
110
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
Protection against product counterfeiting
Counterfeit medicines and crop protection products harbor substantial risks for patients and con-
sumers. Product counterfeiting can only be addressed internationally through a joint approach by
industry, associations, governmental agencies and nongovernmental organizations. Bayer consist-
ently advocates the resolute application and, where necessary, the strengthening and expansion
of existing laws and provisions aimed at the identification and confiscation of illegal products. We
want to additionally protect customers and products through extensive measures of our own.
www.bayer.com/
counterfeits
Online Annex: A 1.4.3.1-7
Combating counterfeit medications
Through the “Beware of Counterfeits” campaign, Bayer informs patients on the internet about
the risks of counterfeit pharmaceuticals and provides patients with tips on how they can pro-
tect themselves. Through the use of various technological means in production, we constantly
strive to ensure that patients, too, can distinguish between original and counterfeit products.
Close cooperation between all stakeholders is necessary to achieve practical success in
fighting counterfeiting and prevent the sale of counterfeit pharmaceuticals particularly on the in-
ternet. We therefore support the establishment of a Europe-wide system for the identification of
original pharmaceuticals that satisfies the requirements of the E.U. Falsified Medicine Directive.
In addition, Bayer participates in the Pharmaceutical Industry Initiative to Combat Crime of In-
terpol to counteract pharmaceutical counterfeiting, in the “Innovation Power for Safety in Indus-
try” initiative and, since 2017, in the LiDaKrA (Integration of Networked Data and Early Detec-
tion of Organized Crime Phenomena) research program of the German Federal Ministry of
Education and Research, which deals with the automated evaluation of data related to internet
crime.
Combating counterfeit and illegal crop science products
To protect against the import of counterfeit and illegal products (crop protection products and
seeds) into the E.U., Crop Science intensively advocates the uniform interpretation and imple-
mentation of existing E.U. regulations in all member states. We support regulatory authorities
worldwide through chemical analysis to identify counterfeit products. In addition, we conduct
our own inspections in the market in all countries and actively support initiatives by associa-
tions. In 2017, we rolled out our global strategy for combating the production, trade and use of
counterfeit or otherwise illegal crop science products. The goal of this strategy is to reduce the
risk for people and the environment and to limit the financial damage resulting for Bayer.
As part of our product stewardship programs, we provide information material about the risks
of counterfeit and illegal crop science products and train customers, dealers, farmers and regu-
latory authorities. We document all indications of suspicious and potentially counterfeit or illegal
products. We work constantly to counterfeit-proof our products through the use of security fea-
tures. In 2017, we identified patent and trademark violations in China and Brazil, and success-
fully asserted our legal rights.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
111
Augmented Version
Pharmaceuticals and Consumer Health
Benefit-risk management for pharmaceuticals and medicinal products
The Pharmaceuticals and Consumer Health segments continuously assess the medical benefit-
risk profile of their pharmaceuticals, medicinal products, dietary supplements and cosmetics
throughout their entire product life cycle. The efficacy, safety and tolerability of pharmaceuticals
are investigated in preclinical and Phase I to III clinical development studies. The documentation
submitted to the regulatory authorities contains the results of these studies and a comprehensive
benefit-risk assessment of the pharmaceutical. It is essential for the market authorization of a new
pharmaceutical that it complies with regulatory safety requirements. The same applies to medici-
nal products, dietary supplements and cosmetics.
According to these regulations, the segments continue to compile safety-relevant information in a
dedicated database following market launch of the product. This information is continuously as-
sessed and the benefit-risk balance of pharmaceuticals, medicinal products, dietary supplements
and cosmetics regularly evaluated by medical experts of various disciplines in the global Pharma-
covigilance Department. In this process, Bayer works closely with the regulatory and supervisory
authorities at the international and national levels. Further safety-relevant information is compiled
using Post-Authorization Safety Studies (PASS) conducted after approval. The results are entered
into the PASS registry in compliance with E.U. pharmacovigilance legislation.
The most important
regulatory authorities for
Bayer are:
– the U.S. Food and
Drug Administration
(FDA)
– the European Medi-
cines Agency (EMA)
– the Pharmaceuticals
and Medical Devices
Agency (PMDA) in
Japan
– the China Food and
Drug Administration
(CFDA)
Pharmacovigilance:
see Glossary
Online Annex: A 1.4.3.1-8
Global pharmaceutical monitoring system
The Pharmaceuticals and Consumer Health segments have a global pharmaceutical monitoring
system in which experts from various disciplines work together in safety management teams
(SMTs). These teams evaluate internal benefit and safety data, clinical trials, post-marketing
studies, external databases and scientific publications to identify potential safety concerns at
an early stage and detect possible changes in the benefit-risk profile. All data evaluated are en-
tered in our pharmacovigilance database. In particular, the evaluation includes potential side-
effects reported to us as a producer and to the health authorities via various communication
channels by a range of different sources such as physicians, pharmacists and patients them-
selves. Producers evaluate the steps resulting from these reports in close cooperation with the
relevant health authorities.
Should risks be identified, Bayer immediately takes steps to safeguard the health of patients
and consumers in coordination with the authorities. These range from updating product infor-
mation for patients, users, pharmacists and physicians through patient education brochures
and further training measures for medical specialists to direct communication with medical ex-
perts (Direct Healthcare Professional Communication, DHPC) and even product withdrawals. All
of these processes are documented, regularly updated and integrated into the quality man-
agement system.
Implementation of risk mitigation activities is coordinated by our local SMTs in the country or-
ganizations. The information on the side-effects of medicines compiled by Bayer is reported to
the national health authorities in the relevant countries, where it is processed. The European
Union centralized this process in 2017. European marketing authorization holders such as
Bayer are now required to enter all suspected cases of undesired side-effects directly in Eudra-
Vigilance, the European Medicines Agency’s electronic information system. That means that
Bayer no longer has to report them separately to the 27 national agencies in the European
Union. The EudraVigilance database supplements Bayer’s established safety monitoring, further
optimizing the safe use of our products.
112
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
www.i-pie.org
Analysis of residues of pharmaceuticals in the environment
Active pharmaceutical ingredients can enter the environment through human or animal excreta,
through improper disposal or during production. Surface waters are particularly relevant here. For
their own active ingredients, Pharmaceuticals and Consumer Health carry out ecotoxicological
investigations of pharmaceutical residues and degradation products to assess the potential envi-
ronmental impact of these products. In connection with the approval process for human and vet-
erinary pharmaceuticals in Europe and the United States, an environmental risk assessment takes
place for all new active ingredients. Furthermore, to our knowledge, the existing concentrations of
individual active pharmaceutical ingredients in drinking water do not have any relevant adverse
effects on human health. On the basis of its report on mixtures of active pharmaceutical ingredi-
ents in drinking water published in 2017, the WHO currently does not identify any immediate
health risks and consequently sees no need to act in the short term. To further guarantee the
safety of drinking water resources partly against the background of a potential increase in the use
of pharmaceuticals, the WHO recommends that this issue be observed comprehensively over a
longer period of time. Bayer is actively participating in the stakeholder dialogue.
Different requirements regarding wastewater thresholds apply at our production sites. Compliance
with these is reviewed by supervisory authorities and external assessors and also at regular inter-
vals through on-site audits by internal experts. To reduce or exclude the release of active ingredi-
ents into the environment, we take further action in our production facilities. We are also partici-
pating actively in various research projects to develop further reduction measures such as acting
as a coordinator in the “Intelligence-led Assessment of Pharmaceuticals in the Environment” pro-
ject in Europe, which seeks new ways to improve environmental risk assessment.
Online Annex: A 1.4.3.1-9
Bayer is involved in the German government’s stakeholder dialogue on the issue of a trace sub-
stance strategy. This dialogue process is aimed at developing a strategy to prevent the water-
polluting effects of certain chemicals, including active pharmaceutical ingredients. The first re-
sults and recommended measures were summarized in a position paper drafted as a ministerial
submission in 2017.
Crop Science
Focusing on product safety
Product safety and environmental compatibility play a key role in the development of crop protec-
tion products and technologies to ensure that their use is safe for people and wildlife and does
not cause unjustifiable damage to the environment. They therefore require official approval, which
is governed by numerous international and national laws and regulations. Crop Science satisfies
all the regulatory requirements of the countries in which our products are sold.
In tests required by law, Crop Science already examines the products during the early develop-
ment phase with regard to their mode of action, their (eco)toxicological properties and the extent
of potential residues in plants and the environment. Every new crop protection active ingredient
and every new technology must undergo these studies and tests. Furthermore, Bayer has made a
voluntary commitment to market only those crop protection products whose active ingredients are
registered in at least one OECD country or, in the case of new active ingredients, for which an
OECD data package has been compiled.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
113
Augmented Version
Since 2017, we have made safety-related data on our crop protection products transparent. More
than 200 freely accessible summaries of scientific studies submitted in connection with the regis-
tration procedures for our active ingredients in the European Union are already available on an
online platform. These documents include information on toxicological and ecotoxicological stud-
ies and investigations into degradability. From the start of 2018, noncommercial users will be giv-
en access to the full reports on request.
www.cropscience-
transparency.bayer.com
In its sale and application of crop protection products and technologies, Crop Science observes
the International Code of Conduct on Pesticide Management of the United Nations Food and
Agriculture Organization (FAO). The principles of our responsible product handling are established
in our Product Stewardship Policy and implemented in the Product Stewardship Program.
The targeted use of crop protection products is crucial to minimize discharge outside of the treat-
ed crops. To support the safe use of its products in agricultural practice, Crop Science is particu-
larly committed to protecting users, bee health and surface waters.
Training customers and partners
We support our customers and partners worldwide in the proper and safe handling of our seed
and crop protection products. Targeted training measures particularly for farmers and dealers are
designed to improve safety for users, the environment and thus consumers as well. Our objective
is to increase the outreach of our training activities worldwide.
Users of our products can contact Crop Science through a range of communication channels if
they have complaints or feedback or wish to report any incidents. These include direct contact
with our sales staff; our standard hotline, which is printed on all our product packaging; and, in
Germany for example, the “Agrar Telefon” expert hotline.
Online Annex: A 1.4.3.1-10
Training for farmers and Bayer employees
Our training activities teach farmers how to use crop protection products effectively and safely,
and thus increase the yield and quality of their harvested goods. Subsequently, new marketing
possibilities can arise that offer smallholder farmers in particular the chance to generate higher
profits.
In 2017, more than a million farmers worldwide received safety training from Bayer. The majority
of these training activities took place as part of customer events because safety training is an
integral part of our business activity. Additional training courses were conducted in cooperation
with partners such as local, regional and international associations.
Bayer focuses on training activities in countries where there are no statutory requirements or
certification for users regarding the safe handling of crop protection products. With our regional
organizations, we therefore establish plans of action for the respective prioritized countries that
are then implemented locally.
Our Product Stewardship Policy provides information on the principles for the responsible han-
dling of our products, combined with specific instructions for use for our employees and those
who work with our products. Our product stewardship measures also particularly include train-
ing activities for our sales representatives.
114
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
www.beecare.bayer.com
Bayer Bee Care: strengthening bee health
Healthy bees and other pollinators are important for sustainable food production. Promoting the
health of pollinators and sustainable agriculture is therefore of tremendous importance for our
business. Within our Bee Care Program, we aim to strike a balance between contributing to the
health and biodiversity of pollinators and helping farmers to optimize their agricultural production.
We operate two Bee Care Centers in Germany and the United States for this purpose and have
established a global Bee Care network. Bayer participates in numerous projects and partnerships
with local scientists and research institutions worldwide to strengthen bee health and safety.
Online Annex: A 1.4.3.1-11
Objectives of the Bee Care Program
The health of bees and other pollinators can be impacted and impaired by a number of com-
plex factors that can differ from one region to another. Relevant factors include pests and dis-
eases, the availability of food sources in sufficient quantity and quality, agricultural practices
and, in the case of honey bees, the quality of beekeeping practices.
Through our Bee Care Program we reach out and connect with a broad range of stakeholder
groups and actively support constructive and open dialogue. Our goal is to jointly seek oppor-
tunities for cooperating on health issues concerning bees and other pollinators.
With the Feed a Bee Program in North America we address organizations and individuals to
help extend food sources for bees and other pollinators by sowing plant seeds and creating
additional flowered areas. Between 2015 and the end of 2017, more than a million individuals
and over 120 partner organizations helped to grow in excess of three billion flowering plants by
spreading individual Bayer seeds packs.
In Germany, Bayer is conducting a major multiyear study in agricultural landscapes to investi-
gate how ecology-enhancing measures to promote insect biodiversity in agriculture are having
an effect. In South America, we support projects studying the attractiveness of various crops to
bees so as to better understand the relationship between pollinators and local crops and to op-
timize the use of crop protection products with regard to their bee safety.
With its Healthy Hives 2020 Program, Bayer conducts important research projects in the
United States whose results will benefit beekeeping. Through the equivalent program in Latin
America, which is currently being initiated, we want to contribute to improved local honey bee
health through research activities such as the monitoring of factors that influence honey
bee health and through beekeeper training activities.
In our efforts to find new ways of effectively controlling the Varroa mite, a dangerous parasite for
honey bees, the Animal Health segment has developed a new product consisting of a plastic strip
treated with an active ingredient that protects beehives from mite infestation. Since 2017, the
product has been available to beekeepers in many E.U. countries. The authorization procedure is
ongoing for additional countries.
To minimize risks to bees, we perform extensive safety testing, risk assessments, product stew-
ardship measures and the development of bee-friendly crop protection products and processes.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
115
Augmented Version
Neonicotinoids:
see Glossary
www.bayer.com/phytobac
Ongoing re-evaluation of neonicotinoids
Bayer is convinced that neonicotinoids are user-safe insecticides with a favorable environmental
safety profile, and are not dangerous to bees when used according to label instructions. This has
been confirmed by risk evaluations performed during marketing authorization reviews by the re-
sponsible authorities of countries outside Europe. In Europe, however, Bayer products that con-
tain two of our neonicotinoid compounds have been prohibited since 2013 from use in crops that
are attractive to bees. The European Commission has instructed the European Food Safety Au-
thority (EFSA) to examine all newly available data and reports from the past four years. The results
are expected in spring 2018. Bayer brought the restriction on neonicotinoid use in the E.U. before
the Court of Justice of the European Union in August 2013 in order to clarify the legal basis of the
Commission’s decision. This decision is based on an assessment by the EFSA that in turn is
based on neither a validated nor an officially recognized risk assessment system. With a view to
future investment decisions, the company is primarily asking that the court clarify the regulatory
framework.
Model projects for water protection in agriculture
Crop Science develops strategies and solutions to support the agricultural industry in sustainable
water usage.
Online Annex: A 1.4.3.1-12
In the area of water pollution mitigation, we advise our customers and recommend biological
remediation systems such as Phytobac™ to them, for example. This system is intended to pre-
vent discharges into water bodies of crop protection active ingredients that are generated dur-
ing the filling and cleaning of spraying devices or the disposal of residual liquids. The system is
being tested in numerous E.U. countries and offered commercially by suppliers. In Europe,
more than 4,600 remediation systems are currently installed.
Erosion and runoff processes on agricultural land can also lead to substance emissions into ad-
jacent water systems. In this context, we are collaborating with external partners on the devel-
opment of a digital geoinformation system for water protection in agriculture. This enables the
visualization of site-related risks by means of high-resolution risk maps supplemented with pro-
posals for proven procedures. This system will be used as an advisory tool for water protection
in agricultural operations.
To more effectively account for increasing demands with regard to environmental protection
and occupational safety, Crop Science and the company agrotop GmbH have developed the
easyflow system. This is a closed, contamination-free discharge system for liquid crop protec-
tion products from sealed and unsealed canisters that enables partial and full discharge and
cleans itself fully. The system has already been successfully introduced in practice for small
plant sprayers used in fruit and vegetable cultivation. A new version for larger sprayers used in
farming is currently being introduced to the market.
Animal Health
Safety standards for animal health products
In line with the statutory requirements, strict safety and quality standards also apply to animal
health products, animal feed and feed additives. Within the scope of the approval / authorization
procedures, Animal Health carries out detailed studies in order to ensure the safety of its products
for the treated animals, people and the environment alike.
A particular focus lies on monitoring veterinary pharmaceutical safety and on activities aimed at
responsible product use. In line with our Prudent Use Policy, we support the responsible use of
antibiotics and promote their proper use, for example through strict guidelines. We also work on
the development of alternative strategies to antimicrobial treatment. Since 2015, we have been
marketing Zelnate™, a nonantibiotic immunostimulant.
116
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
Online Annex: A 1.4.3.1-13
Safety and control system for animal health products
We continuously compile all safety-relevant information such as reports of suspected adverse
effects of pharmaceuticals in our global safety database. This information is evaluated and re-
ported to the responsible authorities in accordance with national regulations. In this process,
Animal Health works closely with the responsible regulatory and supervisory authorities at the
national and supranational levels. This includes especially the European Medicines Agency
(EMA) and the national agencies in the European Economic Area, the U.S. Food and Drug Ad-
ministration (FDA) and Environmental Protection Agency (EPA), and the responsible authorities
in other countries.
We work together with veterinarians, pharmacists, farmers and private animal-owners world-
wide to promote the correct handling of our products. We participate in the European Platform
for the Responsible Use of Medicines in Animals and engage in dialogue with stakeholders from
academia, politics and society.
1.4.3.2 Safety
Within the framework of our responsibility for safety, preventing accidents and incidents in day-to-
day work, in the operation of production facilities, and on work-related travel and transportation
routes where people or the environment may suffer harm or damage has top priority for Bayer.
Responsibilities and framework conditions are defined in appropriate directives and corporate
policies. The overriding principle is always safety first.
Occupational health and safety
Safeguarding the occupational health and safety of our employees, and of the employees of con-
tractors and suppliers on our company premises and under the supervision of Bayer, is one of our
core tasks. This entails preventing work-related accidents and occupational illnesses, assessing
potential hazards, ensuring comprehensive risk management and creating a healthy working envi-
ronment.
The basis of our reporting on occupational injuries is the Recordable Incident Rate (RIR), which
covers all injuries to employees requiring medical treatment that goes beyond simple first aid. This
includes injuries and occupational illnesses both with and without lost workdays. In 2017, the RIR
climbed to 0.45 cases per 200,000 hours worked, corresponding to 493 occupational injuries
worldwide. This means that, in statistical terms, one recordable incident occurred for almost every
440,000 hours worked. Reportable injuries with lost workdays comprised 302 of the total of 493
occupational injuries, meaning that the corresponding parameter, the Lost Time Recordable Inci-
dent Rate (LTRIR), edged up to 0.28 in 2017.
Online Annex: A 1.4.3.2-1
Occupational illnesses are included in both parameters (LTRIR and RIR), regardless of whether
or not they are listed in national registers of occupational diseases. As lists of occupational dis-
eases are not globally standardized and in many countries do not exist at all, we document all
occupational illnesses, provided they have been diagnosed and recognized by a physician. Five
new cases of occupational illnesses were reported throughout the Bayer Group in 2017. These
were related to the musculoskeletal system and noise-induced hearing impairments among
other issues.
See also A 1.4.1.1
Group target 2020:
reduction of 35% in
occupational safety
incident rate (RIR);
see also A 1.2.1
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
117
Augmented Version
Bayer universally and regularly subjects all workplaces to a health-related risk assessment and
a hazard analysis. These analyses are used to derive measures that, in conjunction with target-
ed studies, are designed to prevent occupational illnesses. As part of our occupational health
and safety policy, we offer our employees regular medical examinations – in some cases on a
mandatory basis – in all countries in which this is legally permissible. The focus here is on the
risks that exist at each workplace. Furthermore, all respective country-specific provisions for
mandatory examinations are complied with.
Fortunately, there were no fatal work-related accidents in 2017.
Recordable Occupational Injuries
Rate of occupational injuries (RIR
1)
Rate of occupational injuries with lost workdays
(LTRIR
2)
Fatal injuries (total)
of which Bayer employees
of which contractor employees
3
2013
0.49
2014
0.44
2015
0.43
2016
0.40
2017
0.45
0.26
0.23
0.21
0.23
0.28
2
1
1
4
3
1
2
2
0
4
2
2
0
0
0
Bayer AG key data:
see also A 1.4.4
A 1.4.3.2/1
Prior years’ figures restated
1 RIR = Recordable Incident Rate
2 LTRIR = Lost Time Recordable Incident Rate
3 Employees working for third parties whose accidents occurred on our company premises and under Bayer supervision
Online Annex: A 1.4.3.2-2
Recordable Incidents (RIR) by Region
Europe / Middle East / Africa
North America
Asia / Pacific
Latin America
Total
Prior years’ figures restated
2013
0.65
0.56
0.21
0.48
0.49
2014
0.54
0.79
0.13
0.45
0.44
2015
0.55
0.67
0.12
0.49
0.43
A 1.4.3.2-2/1
2016
2017
0.49
0.69
0.14
0.38
0.40
0.54
0.70
0.17
0.54
0.45
As in previous years, we hardly recorded any accidents (less than 5%) involving contact with
chemicals in 2017. A significant proportion of the accidents and injuries suffered by our employ-
ees have behavior-linked causes. Our Behavioral Safety Program is addressing this challenge with
suitable training measures. Almost 8,500 employees have been trained at 120 sites worldwide
since 2015. Significant behavioral improvements were achieved in areas in which the program has
already been implemented, and the Recordable Incident Rate is therefore expected to decline
across the Group in the medium term.
Process and plant safety
We aim to design and operate our processes and production facilities in such a way that they do
not pose any inappropriate risks to employees, the environment or the community. Bayer is there-
fore continuously working to further develop the safety culture, the expertise of employees and the
globally applicable corporate policies on process and plant safety, which prescribe uniform proce-
dures and standards for identifying risks and defining safety measures, and thus ensure a uniform
safety level at all production sites. Compliance with internal and external safety regulations is veri-
fied in internal audits by a team of plant safety experts.
118
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
Bayer operates a central competence center for process and plant safety in Germany and regional
hubs in Asia and North, Central and South America that interlink safety experts from all production
sites. In a key move toward further standardization, the central competence center has introduced
a globally valid training and certification program for safety experts.
Online Annex: A 1.4.3.2-3
Participation in our TOPPS (Top Performance in Process and Plant Safety) training program is
compulsory for all Bayer employees who are able to influence process and plant safety at pro-
duction and auxiliary facilities, and is documented in the Bayer training system. TOPPS training
materials for both classroom and web-based training are available in several languages.
Group target 2020:
reduction of 30% in
process and plant safety
incidents;
see also A 1.2.1
A globally standardized key performance indicator (KPI) – Loss of Primary Containment (LoPC
material release / leakages) – is used at Bayer as an early indicator for plant safety incidents and is
integrated into Group-wide safety reporting. LoPC incidents refer to the leakage of chemical sub-
stances or energy in amounts above defined thresholds from their primary containment, such as
pipelines, pumps, tanks or drums. The LoPC Incident Rate (LoPC-IR) indicates the number of
LoPC incidents per 200,000 work hours. In 2017, the LoPC-IR was 0.13 (2016: 0.17). Bayer’s
LoPC reporting is based on the requirements of the European Chemical Industry Council (CEFIC),
which apply uniformly throughout Europe.
Online Annex: A 1.4.3.2-4
The causes of every reported LoPC incident are analyzed and the incident published across the
Group. The reporting threshold was intentionally set at such a low level that even material and
energy leaks that have no impact on employees, neighbors or the environment are systemati-
cally recorded and reported. This approach supports our commitment to maintain the integrity
of our facilities.
Bayer AG key data:
see also A 1.4.4
Rate of Plant Safety Incidents (LoPC-IR)
Loss of Primary Containment Incident Rate
(LoPC-IR)
1
Prior years’ figures restated
1 Number of LoPC incidents per 200,000 working hours
A 1.4.3.2/2
2013
2014
2015
2016
2017
0.16
0.13
0.11
0.17
0.13
Transportation safety
Transportation safety plays a key role both in the transportation of our products on public routes
and in loading, unloading, classification, labeling and packaging, particularly of hazardous goods.
The implementation of a dedicated corporate policy ensures that all materials are handled and
transported in line with applicable regulations and the potential hazard they pose. As part of our
voluntary Responsible CareTM activities, transportation safety instructions are also drawn up for
nonhazardous materials and corresponding transportation safety audits performed worldwide. In
addition to legally required training courses, we use special electronic training measures to convey
specialist knowledge that are also open to service providers. Transportation and storage safety is
a part of HSE management and is implemented by a network of experts and users with practical
experience who cooperate across divisional and regional lines. Details are specified in the corpo-
rate policies “Transportation Safety” and “Health, Safety, Environment and Quality (HSEQ) Audits.”
Apart from internal Bayer specifications the international regulations of the WHO and/or Crop Life
International also apply as standards.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
119
Augmented Version
In 2017, data recording on transportation movements was extended to all segments. In total,
almost six million consignments were transported in 2017. Despite our extensive safety precau-
tions and training activities, residual risks can result in transport incidents. At Bayer, these include
accidents that cause personal injury, and significant damage to property, environmental impact
resulting from the release of substances, or leakage of hazardous goods. They are recorded in
detail and assessed based on defined criteria. All nine transport incidents in 2017 were traffic
accidents. Two of the transport incidents were also classed as environmental incidents.
A 1.4.3.2/3
Number of
Transport Incidents
2013
2014
2015
2016
2017
3
0
0
5
9
Online Annex: A 1.4.3.2-5
Transport Incidents by Means of Transport
Road
Rail
Sea
Total
Prior years’ figures restated
0
6
12
A 1.4.3.2-5/1
2013
2014
2015
2016
2017
2
0
1
3
0
0
0
0
0
0
0
0
5
0
0
5
9
0
0
9
The table provides an overview of the transport and environmental incidents in 2017.
Transport and Environmental Incidents 2017
1
Crop Science, Hofu, Japan, February 6, 2017
On an icy road, a truck collided with several other vehicles. No product
leaked out.
Crop Science, Monheim, Germany, February 13, 2017
While transporting a Bayer product, a truck left the road and the driver
suffered a slight injury. No product leaked out.
Crop Science, Belford Roxo, Brazil, February 18, 2017
An accident occurred in which a truck transporting a Bayer product was hit
by a gas truck. All the vehicles involved caught fire. The product released was
cleaned up and disposed of in a professional manner.
Crop Science, Mereville, France, August 23, 2017
A truck caught fire during transportation. The product contained in the trailer
leaked out but could be cleaned up and disposed of in a professional
manner. There was no environmental impact.
Crop Science, Belford Roxo, Brazil, September 16, 2017
During transportation a truck lost part of its load. The product was cleaned
up and disposed of in a professional manner.
Crop Science, Belford Roxo, Brazil, November 6, 2017
A truck collided front-on with a car trying to overtake. The car driver died.
The truck driver was not injured. The majority of the liquid Bayer load was
pumped off, some of it burnt off and the rest of the product was cleaned up
and disposed of in a professional manner.
Crop Science, Yuki, Japan, November 14, 2017
During transportation on Bayer premises, an intermediate bulk container (IBC)
that had been wrongly secured by the disposal company and was filled with
wastewater from Bayer was torn open and the contents leaked out. Most of
the wastewater could be cleaned up and disposed of in a professional
manner.
A 1.4.3.2-5/2
Transport
Environ-
mental
Personal
injury
X
X
X
X
X
X
X
No
Yes
No
No
No
X
Yes
No
120
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
Transport and Environmental Incidents 2017
1
A 1.4.3.2-5/2 (continued)
Transport
Environ-
mental
Personal
injury
Crop Science, Belford Roxo, Brazil, November 17, 2017
The driver of a truck lost control over the vehicle, which then caught fire. Part
of the load burnt off while the remaining product entered the soil. The
contaminated soil was ablated and disposed of in a professional manner.
Crop Science, Belford Roxo, Brazil, December 7, 2017
The driver of a truck lost control over the vehicle. Product leaked out, most of
which was cleaned up and disposed of in a professional manner. There was no
environmental impact.
X
X
X
No
No
1 Standard practice at Bayer is to record all personal injuries (also of third persons) reported to us in connection with our
business activities. A difference between the number of fatalities in Table A 1.4.3.2/1 and Table A 1.4.3.2-5/2 may occur
because for occupational injuries, by definition, we show only fatalities of Bayer and contractor employees who were under
immediate Bayer supervision.
1.4.3.3 Environmental Protection
We meet our responsibility to protect the environment in many different ways. We continuously
work to reduce the environmental impact of our business activities and develop product solutions
that benefit the environment. As a pure life science company too, Bayer continues to be actively
committed to climate protection.
For us, a resource-friendly and low-emissions approach to raw materials and energy is ecological-
ly and economically expedient and efficient. These measures are designed to reduce environmen-
tal impact and, at the same time, cut the costs associated with materials, energy, emissions and
disposal.
Responsibilities and framework conditions are stipulated at Group level, e.g. by corporate policies,
targets and key performance indicators (KPIs). We use certified HSEQ management systems to
control operational implementation. Our environmental standards apply worldwide.
Energy consumption
As a consequence of the deconsolidation of Covestro, we now present two sets of data on energy
consumption at Bayer: with and excluding our service company Currenta. Currenta operates its
own combined heat and power plants at the Chempark sites in Germany and sells the electricity
and steam generated there primarily to other companies with energy-intensive production pro-
cesses (including Covestro). This split allows transparent presentation of energy use in the Bayer
Group.
Total energy consumption falls compared with 2016
Compared with 2016, Bayer’s total energy consumption declined by 1.6% to 25.8 petajoules in
2017. When calculating total energy consumption, we differentiate between primary and second-
ary energy consumption. Primary energy consumption mainly comprises fossil fuels for our own
generation of electricity and steam. Secondary energy consumption reflects the purchase of elec-
tricity, steam and cooling energy.
Excluding Currenta, Bayer’s total energy consumption fell in 2017 by 4.1% to 15.4 petajoules.
Primary energy consumption at Bayer excluding Currenta fell by 15.1%, while secondary energy
consumption increased by 10.2%. This reflects the divestment of the chemical park infrastructure,
including the power plant, at the Crop Science site in Institute, West Virginia, United States, which
reduced primary energy consumption. At the same time, site-specific secondary energy consump-
tion increased.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
121
Augmented Version
Energy Consumption in the Bayer Group
TJ
2013
2014
2015
2016
Primary energy consumption at Bayer excluding Currenta
11,647
10,555
11,347
9,028
Natural gas
Coal
Liquid fuels
Waste
Other
1
Secondary energy consumption at Bayer excluding Currenta
Electricity
2
Steam
Steam from waste heat (process heat)
Cooling energy
7,410
2,616
202
1,142
277
5,628
4,009
540
256
823
7,587
2,092
202
455
219
5,467
4,028
498
77
864
7,822
2,535
165
571
254
5,991
4,323
657
176
835
6,590
1,400
253
556
229
7,022
4,064
2,008
72
878
A 1.4.3.3/1
2017
7,661
6,447
285
175
539
215
7,739
4,075
2,547
70
1,047
Total energy consumption at Bayer excluding Currenta
17,275
16,022
17,338
16,050
15,400
Total energy consumption at Currenta
10,697
10,266
7,339
10,193
10,432
Total energy consumption in the Bayer Group
27,972
26,288
24,677
26,243
25,832
Bayer AG key data:
see also A 1.4.4
Prior years’ figures restated
1 E.g. hydrogen
2 The proportion of primary energy sources used in generating the electricity consumed depends on the respective national
electricity mix.
Since it operates power plants, Currenta uses primary energy resources. The steam and electricity
generated are mainly supplied to companies with energy-intensive production operations with
which it has supply agreements. Demand from these companies is exposed to fluctuations that
are beyond the influence of Currenta as an energy service provider. This explains the variations in
Currenta’s total energy consumption (2017: 10.4 petajoules, an increase of 2.3%).
Energy efficiency improved further
With effect from 2017, Bayer indicates energy efficiency as the relationship between the energy it
uses and its external sales, instead of the manufactured sales volume applied previously. Following
the deconsolidation of Covestro, this is a more appropriate reference value for our product portfolio.
Our Group target for 2020 is to improve the energy efficiency of Bayer excluding Currenta by 10%
relative to 2015. Bayer’s external sales excluding Currenta fell by 0.3% in 2017, while energy con-
sumption decreased by 4.1%. As a result, our energy efficiency improved by around 3.8% compared
with the previous year. Compared with 2015, energy efficiency has improved by 12.6% overall.
Group target 2020:
improvement of 10%
in energy efficiency;
see also A 1.2.1
Energy Efficiency
kWh / €1,000 external sales
A 1.4.3.3/2
2013
2014
2015
2016
2017
Energy efficiency of Bayer excluding Currenta
170.75
154.01
143.46
130.35
125.39
Energy efficiency of the Bayer Group
268.68
245.97
199.60
208.62
204.93
Prior years’ figures restated
Combined heat and power processes account for high proportion
of in-house energy generation
More than 90% of our own energy generation comes from highly efficient combined heat and
power processes that convert approximately 80% of the fuel energy used into electricity and
heat. In addition, we purchase electricity on the market – through energy exchanges, for exam-
ple. The electricity and heat generated and purchased are used in our own production facilities
and third-party facilities. The proportion of renewable energies is determined by the energy mix
of our energy suppliers. We comment in detail on these issues in our CDP (formerly Carbon Dis-
closure Project) Report.
CDP: see Glossary
www.bayer.com/
CDP-Climate
122
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
Air emissions
Climate protection
At Bayer, air emissions are caused mainly by the generation and consumption of electricity, steam
and process heat. As part of our Bayer Climate Program we have been able to continuously im-
prove our energy efficiency, primarily by focusing on production and process innovations and
introducing energy management systems. Despite significantly expanding production (Bayer in-
cluding Covestro’s energy-intensive production facilities), we reduced our absolute greenhouse
gas emissions significantly between 1990 and 2015, namely by around 30%. We have document-
ed our successes in the CDP reports and in 2017 were again awarded leadership status, thus
reaffirming the top rating of the previous years.
As a pure life science company too, we want to continue making positive contributions to pro-
tecting the climate and managing the effects of climate change on several levels. This includes
reducing our production-related emissions with targets relating to improving energy efficiency
and lowering specific greenhouse gas (GHG) emissions. In the future, we plan to focus more on
reducing emissions in nonproduction areas. These include our vehicle fleet (Sustainable Fleet
initiative), investigating the use of electric vehicles (electric mobility programs), optimizing logis-
tics and further developing our information and communication technologies in terms of environ-
mental aspects (Green IT). In addition, we are investigating further potential ways to lower green-
house gas emissions along the value chain, such as the question of whether state-of-the-art
cultivation methods and innovative solutions for precision agriculture contribute to a lower CO2
footprint in agriculture.
Online Annex: A 1.4.3.3-1
We are also working further to reduce our CO2 emissions in connection with our global fleet of
over 25,000 vehicles. For the just over 4,200 vehicles newly registered worldwide in 2017,
these rose to 157 g/km (2016: 145 g/km). Our goal as part of our Sustainable Fleet Initiative is
to reduce average CO2 emissions to 110 g/km for new vehicles registered in 2020. In 2018, we
shall reinforce our pilot projects on electric mobility, for example.
GHG Protocol:
see Glossary
Transparency on greenhouse gas emissions
Bayer reports all Group greenhouse gas emissions in line with the requirements of the Greenhouse
Gas (GHG) Protocol. Direct emissions from our own power plants, waste incineration plants and
production facilities (Scope 1) and indirect emissions from the procurement of electricity, steam
and cooling energy (Scope 2) are determined at all production locations and relevant research and
administrative sites.
Bayer reports in line with the updated GHG Protocol guideline for Scope 2, which states that
indirect emissions must be reported according to both the location-based and the market-based
methods.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
123
Augmented Version
A 1.4.3.3/3
Greenhouse Gas Emissions of the Bayer Group
Million metric tons of CO2 equivalents
2013
2014
2015
2016
2017
Direct emissions
1
Bayer excluding Currenta
Indirect emissions
2 according to the location-based method
Bayer excluding Currenta
Indirect emissions
2 according to the market-based method
Bayer excluding Currenta
Total greenhouse gas emissions according to the
market-based method
3
Bayer excluding Currenta
3.16
0.73
1.65
0.76
1.25
0.74
4.40
1.47
2.95
0.69
0.97
0.58
1.11
0.66
4.06
1.35
3.16
0.91
1.86
0.97
1.46
0.96
4.62
1.87
2.97
0.73
1.53
0.88
1.67
0.93
4.64
1.66
2.50
0.61
1.28
1.05
1.13
0.97
3.63
1.58
Specific greenhouse gas emissions of Bayer excluding Currenta
(kg CO2e / €1,000 external sales), market-based method
3,4
52.18
46.84
55.70
48.45
46.26
Prior years’ figures restated
1 In 2017, 94.86% of emissions were CO2 emissions, 3.69% N2O emissions, just under 0.64% partially fluorinated hydrocarbons
and 0.08% methane.
2 Typically, CO2 in incineration processes accounts for over 99% of all greenhouse gas emissions. When determining indirect
emissions, our calculations are therefore limited to CO2 and indicate direct emissions in CO2 equivalents.
3 The market-based method of the Scope 2 GHG Protocol most reliably reflects the indirect emissions and the success of emissions
reduction measures, so we used emissions volumes calculated using this method when calculating the total and specific
greenhouse gas emissions.
4 Specific Group emissions are calculated from the total volume of direct emissions, indirect emissions calculated using the market-
based method of the Scope 2 GHG Protocol and emissions from the vehicle fleet, divided by the external sales volume. Quantities
attributable to the supply of energy to external companies are deducted from the direct and indirect emissions.
In line with the GHG Protocol, in our energy balance we include all greenhouse gas (GHG) emis-
sions from the conversion of primary energy sources into electricity, steam or cooling energy.
This also applies to emissions of our service company Currenta, which additionally produces
energy for other companies at the German Chempark sites in Leverkusen, Krefeld-Uerdingen
and Dormagen that account for a significant proportion of our direct emissions. Consequently,
the figures for the greenhouse gas emissions in the Bayer Group are substantially higher than the
actual emissions resulting from the business activities of Bayer excluding Currenta alone.
In 2017, the Group recorded a reduction of 21.8% in total GHG emissions. GHG emissions of
Bayer excluding Currenta fell by 4.8%.
Direct emissions diminished across the Group by 15.8%, mainly due to the overhaul of a coal-fired
boiler at the Uerdingen site in Germany and the sale of the chemical park infrastructure at the
Crop Science site (including the attached power station) in Institute, West Virginia, United States.
Indirect emissions (market-based method) fell by 32.4%.
As with the calculation method for our energy efficiency, we changed our reporting of specific
greenhouse gas emissions in 2017. We indicate them as the relationship between GHG emissions
at Bayer excluding Currenta and our corresponding external sales. We are looking to achieve a
20% reduction in specific greenhouse gas emissions by 2020 compared with 2015.
Specific GHG emissions of Bayer excluding Currenta fell by 4.5% in 2017 compared with the
previous year.
Bayer AG key data:
see also A 1.4.4
Group target 2020:
reduction of 20% in
specific greenhouse
gas emissions;
see also A 1.2.1
The reporting of all relevant indirect emissions from the value chain is bindingly regulated by the
GHG Protocol Corporate Value Chain (Scope 3) Accounting & Reporting Standard. Bayer has
identified eight essential Scope 3 categories, which we report on in detail in the CDP Report.
www.bayer.com/
CDP-Climate
In 2017, the Bayer Group was involved in European emissions trading with 11 plants in total.
The CO2 emissions of these plants amounted to approximately 1.85 million metric tons.
124
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
Reduction in other direct air emissions
Emissions of ozone-depleting substances (ODS) fell by 3.1% in 2017, while emissions of volatile
organic compounds (VOCs) excluding methane dropped by 5.0%. This is mainly due to the sale of
a site in France and the waste air treatment measures we have introduced in Vapi, India.
Online Annex: A 1.4.3.3-2
The main source of both types of emissions is the Crop Science site in Vapi, India, which
accounts for 97.4% of ODS emissions and 67.9% of VOC emissions at Bayer. To significantly
reduce these emissions, Bayer launched a project at this site five years ago with the goal of
bringing together the many different sources of emissions at the site in a central waste air
treatment facility. The last subproject is to be implemented in 2018.
Other air emissions in the Group were positively influenced by an overhaul of a power plant at
the Krefeld-Uerdingen site in Germany. Sulfur dioxide emissions fell by 4.4%, particulate emis-
sions by 8.0% and carbon monoxide emissions by 7.5%.
Other Direct Air Emissions
1,000 metric tons
ODS
1
VOC
2
CO
NOX
SOX
Particulates
Prior years’ figures restated
1 Ozone-depleting substances (ODS) in CFC-11 equivalents
2 Volatile organic compounds (VOC) excluding methane
A 1.4.3.3-2/1
2013
2014
2015
2016
2017
0.0149
0.0142
0.0113
0.0088
0.0086
2.08
0.62
1.68
1.26
0.07
1.84
0.57
1.53
1.16
0.06
1.38
0.60
1.60
1.13
0.06
0.92
0.66
1.50
0.96
0.06
0.87
0.61
1.52
0.92
0.06
A 1.4.3.3/4
Number of Environmental
Incidents
2013
2014
2015
2016
2017
10
4
2
3
2
0
6
12
Lower number of environmental incidents
The number of environmental incidents – i.e. incidents that result in the release of substances into
the environment – decreased from three to two in 2017. There was a personal injury in one of
these incidents. Factors that determine whether there is a reporting obligation include, in particu-
lar, the nature and quantity of the substance, the amount of damage caused and any conse-
quences for nearby residents. In accordance with our internal voluntary commitment, we report
any leakage of substances with a high hazard potential from a quantity of 100 kg upward.
Both environmental incidents were transport incidents. Details of the environmental and transport
incidents in 2017 can be found in the section on transport incidents in Online Annex A 1.4.3.2-5.
Use of water and emissions into water
Clean water in sufficient quantities is essential for the health of people, animals and plants. There-
fore it is essential that industrial water usage does not lead to local problems in the future such as
a shortage of water for the people living in the area. Our Water Position commits us to compliance
with international and local legislation to protect water resources and use them efficiently. We
are currently finalizing our Water Stewardship Strategy, in which we are combining and further
developing our activities in this area.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
125
Augmented Version
Group target 2017:
establishment of water
management at all sites
in water-scarce areas;
see also A 1.2.1
CDP: see Glossary
www.bayer.com/
CDP-Water
Bayer AG key data:
see also A 1.4.4
In line with our Group target between 2013 and 2017, we introduced a water management
system at all Bayer sites in water-scarce areas or areas identified as being threatened by water
scarcity by the WBCSD Global Water Tool™. Using a method developed by Bayer, we analyzed
the yearly site data pertaining to water use, quality and source, and used this information to de-
velop site-specific measures to introduce and improve water management.
Bayer supports the CEO Water Mandate of the U.N. Global Compact with the goal of working with
key stakeholders to develop sustainable approaches for water usage. In our annual response to
the CDP Water Disclosure, we report in detail on our water usage and the company-specific water
footprint. This represents a progress report for the CEO Water Mandate.
Water use
In 2017, total water use in the Group was 98 million cubic meters (2016: 93 million cubic meters).
Some 50% of all water used by Bayer is cooling water that is only heated in this process and does
not come into contact with products. It can be returned to the water cycle without further treat-
ment in line with the relevant official permits.
At our production facilities, we endeavor to use water several times and to recycle it. Water is cur-
rently recycled at 17 sites, accounting for 48% of the total water used. The various forms of recy-
cling include closed cooling cycles, reuse of treated wastewater and recirculation of steam conden-
sates as process water. A total of around 6.9 million cubic meters of water was reused in 2017.
Online Annex: A 1.4.3.3-3
Water Use in the Bayer Group in 2017 (million m³)
A 1.4.3.3-3/1
Sources of water
Water usage 1
Water discharged 1
Surface water
46 (47%)
Cooling water
49 (50%)
Once-through
cooling water
43 (60%)
Boreholes / springs 49 (50%)
Drinking water supplies
1 (1%)
of which
recycled /
reused
Other sources 2 (2%)
Production ²
49 (50%)
7 (7%)
Losses due to evaporation 6 (8%)
from cooling water circuits
Process wastewater
with subsequent treatment
18 (24%)
Process wastewater
without subsequent treatment
5 (8%)
1 The differences between volumes of water consumed and water discharged can be explained, for example, by
unquantified losses due to evaporation, leaks, quantities of water used as raw materials in products and volumes of condensate
generated through the use of steam as a source of energy.
2 Sum from production processes, sanitary wastewater and rinsing and cleaning processes in production
126
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
Augmented Version
Bayer Annual Report 2017
The volumes of water from each source have remained within the usual fluctuation range over the
past five years.
Online Annex: A 1.4.3.3-4
Net Water Intake by Source
Million m³
Water consumption
of which from surface water
of which from boreholes / springs
of which from public drinking water supplies
of which from other sources, e.g. rainwater
Prior years’ figures restated
2013
117
64
50
1
2
2014
104
2015
110
58
43
1
2
59
48
1
2
A 1.4.3.3-4/1
2016
2017
93
43
47
1
2
98
46
49
1
2
A 1.4.3.3/5
Process Wastewater
Volume
Million m3
2013
2014
2015
2016
2017
29
30
25
22
23
0
20
40
Wastewater
The total quantity of wastewater, including process and sanitary wastewater, was 23 million cubic
meters in 2017, which is 5.1% up on 2016. All wastewater is subject to strict controls before it is
discharged into the various disposal channels. 75.9% of Bayer’s wastewater worldwide was puri-
fied in wastewater treatment plants (Bayer or third-party facilities). Following careful analysis, the
remaining volume was categorized as environmentally safe according to official provisions and
returned to the natural water cycle.
We aim to minimize our emissions into wastewater. In 2017, most of our water emissions fell.
At the Dormagen site in Germany, however, discharges of nitrogen rose by 32% owing to a
change in the production portfolio. In 2017, we also applied alternative means of disposing of
product-containing wastewater such as incineration, distillation or chemical treatment.
Emissions into Water
1,000 metric tons
Phosphorus
Nitrogen
TOC
1
Heavy metals
Inorganic salts
COD
2
A 1.4.3.3/6
2013
0.08
0.40
0.91
2014
0.06
0.48
0.58
2015
0.06
0.38
0.54
2016
0.05
0.30
0.54
2017
0.04
0.40
0.39
0.0043
0.0028
0.0021
0.0021
0.0019
233
2.73
178
1.74
202
1.63
184
1.62
188
1.17
Prior years’ figures restated
1 Total organic carbon
2 Chemical oxygen demand; calculated value based on TOC figures (TOC x 3 = COD)
Waste and recycling
Systematic waste management minimizes material consumption and disposal volumes. Safe dis-
posal channels with separation according to the type of waste and economically expedient recy-
cling processes serve this purpose. Production fluctuations and building refurbishment / land
remediation work also influence waste volumes and recycling paths. In accordance with Bayer’s
corporate policies, all production sites are obliged to prevent, recycle and reduce waste and dis-
pose of it safely and in line with good environmental practices.
Bayer Annual Report 2017
1.4 Sustainable Conduct ///// 1.4.3 Safety for People and the Environment
A Combined Management Report
127
Augmented Version
Higher volumes of waste
In 2017, the total volume of waste generated rose by 9.9%. Owing to various construction activi-
ties at the site in Wuppertal, Germany, the volume of nonhazardous waste increased by 5.5%. The
volume of hazardous waste rose by 13.3%, primarily due to demolition work at the Belford Roxo
site in Brazil. The volume of hazardous waste from production rose by around 5.7%, mainly due to
changes in the production portfolio at the Dormagen site in Germany.
Waste Generated
1
1,000 metric tons
Total waste generated
Hazardous waste
2
of which hazardous waste from production
2
2013
2014
2015
2016
2017
729
363
316
718
377
335
759
431
381
770
428
394
846
485
417
Bayer AG key data:
see also A 1.4.4
A 1.4.3.3/7
Prior years’ figures restated
1 Waste generated by Bayer only
2 Definition of hazardous waste in accordance with the local laws in each instance
The volume of waste disposed of rose by 9.3% in total. The volume proportions for the three
main types of disposal (landfill, incineration and recycling) have remained similar over the past five
years. 25% of waste disposed of could be recycled.
Online Annex: A 1.4.3.3-5
Waste by Means of Disposal
1,000 metric tons
Total volume of waste disposed of
1
Volume removed to landfill
Volume incinerated
Volume recycled
2
Others
3
Total volume of hazardous waste disposed of
4
Volume removed to landfill
Volume incinerated / recycled
A 1.4.3.3-5/1
2013
2014
2015
2016
2017
744
255
267
210
12
363
51
312
720
216
274
216
14
377
63
314
768
228
272
241
27
431
73
358
769
247
227
228
67
428
63
365
840
314
210
214
102
485
99
386
Prior years’ figures restated
1 Waste can also be stored at sites as an intermediate step. For that reason, the volume of waste disposed of differs slightly from
the volume of waste generated by Bayer.
2 Recycling refers to processes through which waste is reused or treated for reutilization.
3 E.g. passed on to third parties (e.g. providers / waste disposal companies)
4 Waste generated by Bayer only; definition of hazardous waste in accordance with the local laws in each instance
Our service company Currenta serves as a certified waste disposal plant operator at the
Chempark sites in Germany. At these locations, Bayer disposes not only of its own waste, but
also of waste from third parties (companies not belonging to the Bayer Group). In 2017, the
waste incineration plants operated by Currenta generated almost 800,000 metric tons of steam
from the incineration of more than 210,000 metric tons of waste from the Chempark sites and
some external production companies.
128
A Combined Management Report
1.4 Sustainable Conduct ///// 1.4.4 Nonfinancial and Other Disclosures by Bayer AG
Augmented Version
Bayer Annual Report 2017
Recycling
Recycling and processing / treatment is impossible for a large proportion of our materials, espe-
cially pharmaceuticals and crop protection products. Throughout the Group, we make use of
opportunities for recycling within the framework of legal regulations.
Online Annex: A 1.4.3.3-6
Pharmaceuticals, Consumer Health and Animal Health
Production-related recycling takes place in line with the requirements of the relevant production
site. The disposal of pharmaceutical products is subject to strict safety criteria, so no recycling
is possible for the portfolios of these segments. Packaging materials are recycled in line with
national regulations as part of the country-specific infrastructure for waste disposal.
Crop Science
Material-based recycling is important in Crop Science’s active ingredient and intermediate
product manufacture and is regulated individually at each production site. Solvents, catalysts
and intermediates are repeatedly processed and returned to the production process. In the
global process development of active ingredients and intermediates, material recycling is con-
sidered an important development criterion.
Packaging materials are disposed of or recycled in line with national legislation. In many
countries with no legal regulation, the industry has set up a returns system in collaboration with
other providers.
Returns of obsolete stocks of crop protection products are limited to individual cases. The crop
protection product industry has set up voluntary initiatives in various countries for the proper
disposal of obsolete stocks. In addition, as part of its activities in the CropLife association,
Crop Science is working with the Food and Agriculture Organization of the United Nations
(FAO) and the World Bank to support the proper collection and disposal of obsolete stocks in
Africa.
1.4.4 Nonfinancial and Other Disclosures by Bayer AG
The importance of Bayer AG within the Group has increased as a result of the business lease
agreements described in A 1.1.2. Further disclosures are necessary due to the transfer of the
operational business of Bayer Pharma AG and Bayer CropScience AG in Germany to Bayer AG
and the related increase in the number of employees to 17,072 (2016: 2,322). This pertains espe-
cially to reporting on significant nonfinancial information, which also became mandatory for the
parent company Bayer AG as a result of the CSR Directive Implementation Act that went into
effect in 2017.
The integrated presentation was selected in the management report for the nonfinancial statement
to be issued for the first time in 2017 pursuant to Section 289 b through e of the German Com-
mercial Code (HGB). All disclosures, provisions, described processes and key data contained in
the preceding statements in the management report apply to the Bayer Group including Bayer AG.
No additional aspects were identified pursuant to the CSR Directive Implementation Act that apply
exclusively to Bayer AG.
Bayer Annual Report 2017
A Combined Management Report
129
1.4 Sustainable Conduct ///// 1.4.4 Nonfinancial and Other Disclosures by Bayer AG
Augmented Version
The following table contains significant nonfinancial and other key data of Bayer AG. Further in-
formation on the business performance and the situation of the company is found in A 2.3 “Earn-
ings; Asset and Financial Position of Bayer AG.”
Nonfinancial and Other Key Data of Bayer AG
R&D expenses (€ million)
Employees
1
Employees by function
1
Production
Marketing and distribution
R&D
General administration
Employees by gender
1
Women
Men
Personnel expenses (€ million)
Pension obligations (€ million)
Short-term incentive program (€ million)
Procurement spend (€ billion)
Safety
Recordable Incident Rate (RIR)
Lost Time Recordable Incident Rate (LTRIR)
Loss of Primary Containment Incident Rate (LoPC-IR)
Environmental protection
Total energy consumption (terajoules)
Total greenhouse gas emissions (million metric tons of CO2 equivalents)
Water use (million cubic meters)
Total waste generated (1,000 metric tons)
1 Full-time equivalents (FTEs)
A 1.4.4/1
2017
2,186
17,072
8,858
936
5,468
1,810
6,104
10,968
2,045
4,251
194
3.9
0.52
0.34
0.21
7,878
0.69
4.74
302
130
A Combined Management Report
2.1 Overview of Business Performance ///// 2.1.1 Target Attainment 2017
Augmented Version
Bayer Annual Report 2017
2. Report on Economic Position
2.1 Overview of Business Performance
2.1.1 Target Attainment 2017
2017 Group targets:
Growth and Profitability;
see also A 1.2.1
Target Attainment 2017
A 2.1.1/1
Forecast 2017
incl. Covestro 1
Transition to new forecast
2017 excl. Covestro 2
Target attainment
Group sales
Low- to mid-single-digit
percentage increase 3
Low-single-digit percentage
increase 3
1.5% increase 3
More than €49 billion
€35 – 36 billion
€35 billion
EBITDA before
special items
Mid-single-digit percentage
increase
Slightly above the level of the
previous year
Level with previous year
Core earnings
per share
Mid-single-digit percentage
increase
Low-single-digit percentage
decrease
1.0% increase
1 Issued in February 2017 2 Issued in October 2017 3 Currency- and portfolio-adjusted
2.1.2 Economic Position of the Bayer Group
In 2017, the Bayer Group’s operational business was at the prior-year level. Sales increased by
1.5% on a currency- and portfolio-adjusted basis, while EBITDA before special items came in at
the prior-year level despite negative currency effects. Pharmaceuticals once again posted sales
and earnings increases that resulted primarily from the strong development of our key growth
products Xarelto™, Eylea™, Xofigo™, Stivarga™ and Adempas™. Our Consumer Health busi-
ness registered declining sales and earnings development, predominantly as a result of weak
business development in the United States. At Crop Science, currency- and portfolio-adjusted
sales and EBITDA before special items were down year on year. This development was attributa-
ble to an adjustment of inventories in the distribution channel in Brazil. Animal Health posted an
increase in sales and significant growth in EBITDA before special items. Core earnings per share
of the Bayer Group increased by 1.0% to €6.74. We met our adjusted Group forecast for the full
year for sales. EBITDA before special items came in slightly below our expectations, while core
earnings per share exceeded our expectations.
Bayer Annual Report 2017
2.1 Overview of Business Performance ///// 2.1.3 Key Events
A Combined Management Report
131
Augmented Version
2.1.3 Key Events
We made significant progress in 2017 with our strategic objectives. We considerably reduced our
interest in Covestro AG from 64.2% as of December 31, 2016, to 24.6% a year later, generating
proceeds of some €4.7 billion. We placed a further 4% of Covestro AG shares into Bayer Pension
Trust e.V., which held an 8.9% interest as of December 31, 2017. As a result of the reduction in
the shares held and the conclusion of a control termination agreement with Covestro AG, Bayer
ceded de facto control over Covestro AG in the third quarter of 2017. Following deconsolidation
as of September 30, 2017, the Covestro Group was presented as an associate for the first time.
Continuing operations are now comprised exclusively of the life science businesses.
In January 2018, we divested a further 10.4% of Covestro shares, bringing our current direct in-
terest in that company to 14.2%. It remains Bayer’s intention to achieve full separation from
Covestro.
In connection with the planned acquisition of Monsanto and the related customary closing condi-
tions, including approval by the relevant antitrust and other authorities, Bayer in 2017 received half
of the regulatory approvals it had applied for. We are cooperating with the authorities in the ongo-
ing procedures, including in the United States and Europe, as we look to close the transaction in
the second quarter of 2018.
In October 2017, furthermore, we signed an agreement concerning the sale of certain Crop Sci-
ence businesses to BASF SE. The transaction is subject to an approval process by the regulatory
authorities and is contingent upon the successful closing of Bayer’s acquisition of Monsanto. The
transaction volume is €5.9 billion.
2.1.4 Economic Environment
World economy grows faster than in the previous year
The global economy grew at a faster pace in 2017 than in the previous year. In the United States,
strong momentum resulted particularly from investment activity. In Europe, too, the pace of eco-
nomic growth increased despite uncertainty concerning the form of the United Kingdom’s exit
from the European Union. The growth rate of the Emerging Markets also picked up considerably.
The Chinese economy maintained the high level of growth seen in the previous year.
See also A 2.2.2
Economic Environment
World
European Union
of which Germany
United States
Emerging Markets ²
2016 figures restated
1 Real GDP growth, source: IHS Markit
2 Including about 50 countries defined by Global Insight as Emerging Markets in line with the World Bank
As of January 2018
A 2.1.4/1
1
Growth
2016
1
Growth
2017
+ 2.5%
+ 1.9%
+ 1.9%
+ 1.5%
+ 3.9%
+ 3.2%
+ 2.5%
+ 2.6%
+ 2.2%
+ 4.8%
132
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.1 Earnings Performance of the Bayer Group
Augmented Version
Currency development
Negative currency effects diminished sales of the Bayer Group by €490 million (–1.4%) and
EBITDA before special items by €195 million (–2.1%) in 2017. This currency effect negatively im-
pacted the margin of our business by 0.2 percentage points.
Currency Development Bayer Group
€ million
CAD
CNY
GBP
JPY
RUB
USD
All currencies
Source: Bloomberg, annual average closing rates
A 2.1.4/2
Delta Fx
effect on
sales
Delta Fx
effect on
clean
EBITDA
Of which
delta Fx
effect from
hedging
26
(84)
(74)
(119)
103
(125)
(490)
(3)
(42)
(53)
5
47
26
(195)
(21)
(13)
(15)
67
(29)
41
(11)
2016
1.47
7.36
0.82
120.06
73.79
1.11
2017
1.46
7.61
0.88
126.39
65.71
1.13
2.2 Earnings; Asset and Financial Position
of the Bayer Group
2.2.1 Earnings Performance of the Bayer Group
Bayer Group Summary Income Statements
€ million
Net sales
Cost of goods sold
Selling expenses
Research and development expenses
General administration expenses
Other operating income (+) and expenses (–)
EBIT
1
Financial result
Income before income taxes
Income taxes
Income from continuing operations after taxes
Income from discontinued operations after taxes
Income after income taxes (total)
of which attributable to noncontrolling interest
of which attributable to Bayer AG stockholders
(net income)
Q4 2016
Q4 2017 Change %
2016
2017 Change %
A 2.2.1/1
8,823
(3,148)
(3,198)
(1,245)
(553)
(93)
586
(224)
362
(63)
299
208
507
54
453
8,596
(3,047)
(3,074)
(1,234)
(588)
(28)
625
(258)
367
(435)
(68)
218
150
2
– 2.6
– 3.2
– 3.9
– 0.9
+ 6.3
– 69.9
+ 6.7
+ 15.2
+ 1.4
.
– 122.7
+ 4.8
– 70.4
– 96.3
34,943
35,015
(11,756)
(11,382)
(11,148)
(11,116)
(4,405)
(1,804)
(92)
5,738
(965)
4,773
(1,017)
3,756
1,070
4,826
295
(4,504)
(2,026)
(84)
5,903
(1,326)
4,577
(1,329)
3,248
4,846
8,094
+ 0.2
– 3.2
– 0.3
+ 2.2
+ 12.3
– 8.7
+ 2.9
+ 37.4
– 4.1
+ 30.7
– 13.5
.
+ 67.7
148
– 67.3
4,531
7,336
+61.9
758
+ 157.0
2016 figures restated
1 For definition see A 2.4 “Alternative Performance Measures for the Bayer Group.”
Bayer Annual Report 2017
A Combined Management Report
133
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.1 Earnings Performance of the Bayer Group
Augmented Version
Group sales increased by 1.5% (Fx & portfolio adj.)
Sales of the Bayer Group rose by 1.5% (Fx & portfolio adj.) to €35,015 million (reported: +0.2%) in
2017, including €3,392 million in Germany.
Sales of Pharmaceuticals advanced by 4.3% (Fx & portfolio adj.) to €16,847 million. Our key
growth products once again posted strong gains. Consumer Health registered a slight decline in
sales of 1.7% (Fx & portfolio adj.) to €5,862 million. Sales of Crop Science also declined slightly,
moving back by 2.2% (Fx & portfolio adj.) to €9,577 million, while sales at Animal Health increased
by 2.0% (Fx & portfolio adj.) to €1,571 million.
Changes in Sales
%
Volume
Price
Currency
Portfolio
Total
2016 figures restated
Online Annex: A 2.2.1-1
A 2.2.1/2
Bayer Group
2016
+ 3.9
+ 0.8
– 2.2
0.0
+ 2.5
2017
+ 2.3
– 0.8
– 1.4
+ 0.1
+ 0.2
A.2.2.1-1/1
Business Development by Region
€ million
Q4 2016 Q4 2017 Reported
Fx adj.
2016
2017 Reported
Fx adj.
Change in %
1
Change in %
1
Europe / Middle East /
Africa
North America
Asia / Pacific
Latin America
Group
(incl. Reconciliation)
2,962
2,413
1,862
1,586
3,115
2,219
1,774
1,488
+ 5.2
– 8.0
– 4.7
– 6.2
+ 6.9
– 1.0
+ 3.1
+ 0.1
13,062
13,388
10,066
10,143
7,413
4,402
7,637
3,847
+ 2.5
+ 0.8
+ 3.0
– 12.6
+ 2.9
+ 1.7
+ 5.7
– 9.5
8,823
8,596
– 2.6
+ 2.7
34,943
35,015
+ 0.2
+ 1.6
2016 figures restated
Fx adj.= currency adjusted
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
The cost of goods sold declined by 3.2% to €11,382 million in 2017. The ratio of the cost of
goods sold to total sales therefore declined year on year to 32.5% (2016: 33.6%). The selling
expenses of €11,116 million (–0.3%) amounted to 31.7% of sales (2016: 31.9%). Research and
development (R&D) expenses rose by 2.2% to €4,504 million. The ratio of R&D expenses to sales
was 12.9% (2016: 12.6%). General administration expenses climbed by 12.3% to €2,026 million,
due especially to additional expenditures for the Monsanto acquisition. The ratio of general admin-
istration expenses to total sales therefore increased to 5.8% (2016: 5.2%). The balance of other
operating expenses and other operating income of minus €84 million (2016: minus €92 million)
was at the prior-year level.
134
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.1 Earnings Performance of the Bayer Group
Augmented Version
EBITDA before special items at prior-year level
EBITDA before special items of the Bayer Group was at the prior-year level (–0.3%), coming in at
€9,288 million (2016: €9,318 million; Fx adj. +1.8%). At Pharmaceuticals, EBITDA before special
items climbed by an encouraging 8.8% to €5,711 million (2016: €5,251 million). This growth was
chiefly due to the good business development of our key growth products coupled with a lower
cost of goods sold. At Consumer Health, EBITDA before special items declined substantially, fall-
ing by 12.8% to €1,231 million, due particularly to lower volumes and a higher cost of goods sold.
EBITDA before special items also declined markedly at Crop Science, falling by 15.6% to
€2,043 million. This was largely attributable to the effects of an adjustment in inventories in the
distribution channel in Brazil. At Animal Health, EBITDA before special items improved substantial-
ly, rising by 9.2% to €381 million.
Depreciation and amortization
Depreciation, amortization and impairment losses declined by 13.2% in 2017 to €2,660 million
(2016: €3,063 million). They comprised €1,679 million (2016: €2,193 million) in amortization and
impairments on intangible assets and €981 million (2016: €870 million) in depreciation and impair-
ments on property, plant and equipment. Impairment losses in the amount of €474 million (2016:
€566 million) as well as accelerated depreciation in the amount of €28 million (2016: €5 million)
were included in special items. EBITDA for the reporting year amounted to €8,563 million.
See also A 2.4
+ 2.9 %
Increase in EBIT
See also A 2.4
EBIT and special items
EBIT increased by 2.9% in 2017 to €5,903 million after special charges of €1,227 million (2016:
€1,088 million). These mainly comprised €450 million in impairment losses on intangible assets
and €304 million in expenses in connection with the planned acquisition of Monsanto. Further
special charges included €227 million for efficiency improvement programs and €188 million in
provisions for litigations and legal risks. EBIT before special items rose by 4.5% to €7,130 million
(2016: €6,826 million).
Special items by seg-
ment: see also A 2.2.2
In 2017, the following special effects were taken into account in calculating EBIT and EBITDA
before special items.
A 2.2.1/3
Special Items Reconciliation by Segment
1
€ million
Before special items
Pharmaceuticals
Consumer Health
Crop Science
Animal Health
Reconciliation
Restructuring
Litigations / legal risks
Acquisition costs
Total special items
Impairment losses / reversals
Litigations / legal risks
Acquisition costs
Restructuring
Divestments
After special items
EBIT
Q4 2016
EBIT
Q4 2017
EBIT
2016
EBIT
2017
EBITDA
Q4 2016
EBITDA
Q4 2017
EBITDA
2016
EBITDA
2017
1,173
1,257
6,826
7,130
(310)
(199)
(39)
(5)
(34)
(34)
–
–
(587)
(330)
(85)
(64)
(104)
(4)
586
(187)
(258)
(155)
(23)
(9)
(15)
37
(31)
(632)
(304)
(88)
(134)
(103)
(3)
625
(558)
(292)
(143)
(7)
(88)
(83)
(5)
–
(340)
(300)
(408)
(31)
(148)
(57)
(60)
(31)
1,806
(152)
(38)
(37)
(4)
(34)
(34)
–
–
(1,088)
(1,227)
(265)
(561)
(94)
(186)
(242)
(5)
(450)
(188)
(304)
(227)
(58)
(12)
(85)
(64)
(100)
(4)
1,783
9,318
9,288
(128)
(54)
(111)
(21)
(9)
(15)
37
(31)
(323)
(2)
(88)
(134)
(97)
(2)
(167)
(115)
(141)
(6)
(88)
(83)
(5)
–
(517)
(12)
(94)
(186)
(220)
(5)
(135)
(86)
(327)
(29)
(148)
(57)
(60)
(31)
(725)
(3)
(188)
(304)
(197)
(33)
5,738
5,903
1,541
1,460
8,801
8,563
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Bayer Annual Report 2017
A Combined Management Report
135
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.1 Earnings Performance of the Bayer Group
Augmented Version
A 2.2.1/4
Special Items Reconciliation by Functional Costs
1
€ million
Total special items
of which cost of goods sold
of which selling expenses
of which research and
development expenses
of which general administration
expenses
of which other operating
income / expenses
(587)
(193)
(221)
(18)
(69)
(86)
EBIT
Q4 2016
EBIT
Q4 2017
EBIT
2016
EBIT
2017
EBITDA
Q4 2016
EBITDA
Q4 2017
EBITDA
2016
EBITDA
2017
(1,088)
(1,227)
(265)
(323)
(517)
(632)
(48)
(249)
(116)
(412)
(317)
(163)
(305)
(84)
(232)
(44)
(47)
(13)
(93)
(99)
(50)
(725)
(105)
(71)
(22)
(131)
(185)
(339)
(88)
(90)
(188)
(131)
(185)
(339)
(88)
(90)
(188)
(53)
(39)
(17)
(69)
(87)
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Income after income taxes from discontinued operations
Income after income taxes from discontinued operations rose to €4,846 million (2016:
€1,070 million). Of this amount, €4,468 million (2016: €802 million) was attributable to Covestro.
This figure primarily comprises a gain from deconsolidation and on remeasurement of the remain-
ing interest at the end of the third quarter, as well as operating income in the first nine months of
2017. In comparison with the prior-year reporting period, Covestro increased sales during the first
nine months of 2017 by 19.9% (Fx & portfolio adj.) to €10,556 million (9M 2016: €8,829 million), in
particular owing to significantly higher selling prices and higher volumes. EBITDA before special
items of Covestro improved by 56.2% in the first nine months to €2,517 million (9M 2016:
€1,611 million). Substantially higher selling prices more than offset increased raw material prices.
Increase in net income
Including a financial result of minus €1,326 million (2016: minus €965 million), income before in-
come taxes was €4,577 million (2016: €4,773 million). Among other items, the financial result
comprised net interest expense of €413 million (2016: €504 million), currency hedging costs in the
amount of €326 million (2016: €121 million), and interest cost of €189 million (2016: €251 million)
for pension and other provisions, as well as net other financial expenses of €428 million (2016:
€87 million). The financial result included special charges of €611 million (2016: positive special
items of €105 million), mainly in conjunction with the planned acquisition of Monsanto and the
exchangeable bond issued in June 2017.
Income taxes amounted to €1,329 million (2016: €1,017 million). This includes a negative one-
time effect of €455 million that relates exclusively to the tax reform in the United States and results
from the revaluation of deferred tax items and the recognition of an additional tax on unrepatriated
profits. After income tax expense, income from discontinued operations after taxes and noncon-
trolling interest, net income in 2017 came to €7,336 million (2016: €4,531 million).
Core earnings per share increased by 1.0%
Earnings per share (total) in 2017 improved to €8.41 (2016: €5.44). This takes into account the
remeasurement of the shares in Covestro AG in the third quarter of 2017, which is reflected in
income from discontinued operations. Core earnings per share from continuing operations im-
proved by 1.0% to €6.74 (2016: €6.67). This includes the effect of the difference in the number of
shares, which grew significantly in 2017 as a result of the mandatory convertible notes issued in
November 2016. If the number of shares had remained the same, core earnings per share from
continuing operations would have improved by 5.8% to €7.06.
See also A 2.2.4
136
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.1 Earnings Performance of the Bayer Group
Augmented Version
Core Earnings per Share
1
€ million
EBIT (as per income statements)
Amortization and impairment losses / loss reversals on intangible assets
Impairment losses / loss reversals on property, plant and equipment,
and accelerated depreciation included in special items
Special items (other than accelerated depreciation, amortization and
impairment losses / 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 related to amortization, impairment losses / loss reversals
and special items
Income after income taxes attributable to noncontrolling interest
(as per income statements)
Above-mentioned adjustments attributable to noncontrolling interest
Core net income from continuing operations
Shares
A 2.2.1/5
2017
5,903
1,679
2016
5,738
2,193
29
84
517
8,477
(965)
(105)
(1,017)
–
725
8,391
(1,326)
611
(1,329)
455
(826)
(922)
(13)
(1)
1
–
Q4 2016
Q4 2017
586
717
12
265
1,580
(224)
(61)
(63)
–
(293)
(4)
–
935
625
602
16
323
1,566
(258)
250
(435)
455
(342)
(2)
–
1,234
5,550
5,881
Weighted average number of shares
849,167,808 872,467,808 832,502,808 872,107,808
€
Core earnings per share from continuing operations
1.10
1.41
6.67
6.74
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Online Annex: A 2.2.1-2
Development in the fourth quarter of 2017
Group sales in the fourth quarter of 2017 rose by 2.7% (Fx & portfolio adj.) to €8,596 million
(reported: – 2.6%). Germany accounted for €883 million of this figure.
Sales of Pharmaceuticals improved by 3.6% (Fx & portfolio adj.) to €4,215 million (reported:
– 1.4%), due in particular to the strong business development of our key growth products.
Sales at Consumer Health came in 4.2% (Fx & portfolio adj.) below the prior-year quarter at
€1,399 million (reported: – 9.1%). Sales of Crop Science were up slightly year on year,
advancing by 1.1% (Fx & portfolio adj.) to €2,263 million (reported: – 5.9%). Animal Health
sales edged 1.8% higher to €322 million.
EBITDA before special items of the Bayer Group declined slightly, moving back by 1.3% to
€1,783 million in the fourth quarter of 2017 (Q4 2016: €1,806 million; Fx adj. + 4.4%). At Phar-
maceuticals, EBITDA before special items edged forward by 1.5% to €1,235 million (Q4 2016:
€1,217 million). EBITDA before special items of Consumer Health fell by a substantial 32.5% to
€251 million. EBITDA before special items of Crop Science declined by 13.4% to €304 million
(Q4 2016: €351 million). EBITDA before special items of Animal Health increased markedly,
moving forward by 28.9% to €49 million (Q4 2016: €38 million).
EBIT of the Bayer Group climbed by 6.7% to €625 million in the fourth quarter of 2017
(Q4 2016: €586 million) after special charges of €632 million (Q4 2016: €587 million). These
mainly comprised €304 million in impairment losses on intangible assets and €134 million in
expenses related to the planned acquisition of Monsanto. Litigations resulted in additional
charges of €88 million. EBIT before special items advanced by 7.2% to €1,257 million
(Q4 2016: €1,173 million).
Bayer Annual Report 2017
A Combined Management Report
137
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.1 Earnings Performance of the Bayer Group
Bayer Group Quarterly Sales, EBIT and EBITDA before Special Items
€ million
Sales
EBIT
1
EBITDA before special items
1
Q1
2017
9,680
2,427
3,054
Q2
2017
8,714
1,463
2,247
2016
8,258
1,397
2,118
Q3
2017
8,025
1,388
2,204
2016
8,858
1,771
2,511
2016
9,004
1,984
2,883
2016 figures restated.
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Augmented Version
A 2.2.1-2/1
Q4
2017
2016
Total
2017
8,596
34,943
35,015
2016
8,823
586
1,806
1,783
625
5,738
9,318
5,903
9,288
Including a financial result of minus €258 million (Q4 2016: minus €224 million), income before
income taxes came in at €367 million (Q4 2016: €362 million). The financial result mainly com-
prised net interest expense of €59 million (Q4 2016: €135 million), interest cost of €46 million
(Q4 2016: €73 million) for pension and other provisions, and currency hedging losses of
€5 million (Q4 2016: currency hedging gains of €36 million), as well as other financial income
and expenses of minus €187 million (2016: minus €48 million). The financial result included
special charges of €250 million (2016: positive special items of €61 million), mainly in conjunc-
tion with the planned acquisition of Monsanto and the exchangeable bond issued in June 2017.
Income taxes amounted to €435 million (Q4 2016: €63 million). This figure includes a negative
special effect of €455 million that relates to the tax reform in the United States and results from
the revaluation of deferred tax items and the recognition of an additional tax on unrepatriated
profits. After income tax expense, income from discontinued operations after taxes and non-
controlling interest, net income in the fourth quarter of 2017 came to €148 million (Q4 2016:
€453 million).
Earnings per share (total) declined to €0.17 in the fourth quarter of 2017 (Q4 2016: €0.53),
due mainly to a special effect in income tax expense in connection with the tax reform
in the United States. Core earnings per share from continuing operations improved to €1.41
(Q4 2016: €1.10). This is partly due to the difference in the number of shares, which grew sig-
nificantly in 2017 as a result of the mandatory convertible notes issued in November 2016. If
the number of shares had remained the same, core earnings per share would have improved
by 31.8% to €1.45.
Net cash provided by operating activities in continuing operations increased by 12.8% to
€2,256 million (Q4 2016: €2,000 million), due mainly to lower tax payments. In the fourth quar-
ter of 2017, we paid income taxes amounting to €291 million (Q4 2016: €576 million). Cash in-
flows from operating activities (total) fell by a substantial 16.9% to €2,269 million (Q4 2016:
€2,732 million), due entirely to the deconsolidation of Covestro in the preceding quarter.
Net financial debt declined by €1.1 billion in the fourth quarter of 2017 to €3.6 billion (Septem-
ber 30, 2017: €4.7 billion), due mainly to cash inflows from operating activities. The net defined
benefit liability for post-employment benefits increased by €0.2 billion against September 30,
2017, to €8.0 billion, due primarily to a slight decline in long-term capital market interest rates
for high-quality corporate bonds in Germany.
138
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Augmented Version
2.2.2 Business Development by Segment
Pharmaceuticals
Pharmaceuticals market continues to grow
Growth in the pharmaceuticals market in 2017 was 3% (2016: 5%). Intensified pricing pressure
caused by generic competition and health care reforms led to lower growth in all regions com-
pared with the prior year.
Key Data – Pharmaceuticals
Change %
1
A 2.2.2/1
Change %
1
€ million
Sales
Change in sales
1
Volume
Price
Currency
Portfolio
Sales by region
Europe / Middle East / Africa
North America
Asia / Pacific
Latin America
EBITDA
1
Special items
1
EBITDA before special items
1
EBITDA margin before special items
1
EBIT
1
Special items
1
EBIT before special items
1
Net cash provided
by operating activities
Q4 2016
Q4 2017
Reported Fx & p adj.
2016
2017
Reported Fx & p adj.
4,275
4,215
– 1.4
+ 3.6
16,420
16,847
+ 2.6
+ 4.3
+ 7.2%
– 0.1%
+ 0.2%
0.0%
+ 6.4%
– 2.8%
– 4.8%
– 0.2%
1,684
1,107
1,203
281
1,065
(152)
1,217
28.5%
606
(310)
916
1,720
1,027
1,188
280
1,107
(128)
1,235
29.3%
795
(187)
982
+ 9.0%
– 0.3%
– 1.4%
0.0%
+ 5.2%
– 0.9%
– 1.7%
0.0%
Reported
Fx adj.
Reported
Fx adj.
+ 2.4
+ 2.1
+ 8.5
+ 5.1
+ 2.1
– 7.2
– 1.2
– 0.4
+ 3.9
+ 1.5
+ 31.2
+ 7.2
+ 3.7
– 1.1
+ 7.1
+ 2.5
6,417
4,194
4,775
1,034
5,084
(167)
5,251
32.0%
3,389
(558)
3,947
6,521
4,229
5,013
1,084
5,576
(135)
5,711
33.9%
4,325
(340)
4,665
+ 1.6
+ 0.8
+ 5.0
+ 4.8
+ 9.7
+ 8.8
+ 27.6
+ 18.2
1,326
1,330
+ 0.3
3,368
3,867
+14.8
Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Increase in sales
Sales of Pharmaceuticals rose by 4.3% (Fx & portfolio adj.) to €16,847 million in 2017. Our key
growth products Xarelto™, Eylea™, Stivarga™, Xofigo™ and Adempas™ once again registered
strong growth, as their combined sales rose by 16.3% (Fx adj.) to €6,196 million (2016:
€5,413 million). Combined sales of the 15 best-selling Pharmaceuticals products advanced by
6.9% (Fx adj.). Sales of Kogenate™ declined considerably due particularly to a lower order volume
for the active ingredient from a distribution partner. After adjusting for this effect, sales of Pharma-
ceuticals rose by 5.6% (Fx & portfolio adj.).
Bayer Annual Report 2017
A Combined Management Report
139
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Best-Selling Pharmaceuticals Products
Q4 2016
Q4 2017
Reported
Fx adj.
Change %
1
€ million
Xarelto™
of which U.S.A.2
Eylea™
of which U.S.A.3
Xofigo™
of which U.S.A.
Stivarga™
of which U.S.A.
Adempas™
of which U.S.A.
836
161
426
0
90
59
77
42
70
35
914
178
507
0
101
59
80
41
72
30
Subtotal key growth products
1,499
1,674
Mirena™ product family
of which U.S.A.
Kogenate™ / Kovaltry™
of which U.S.A.
Nexavar™
of which U.S.A.
Betaferon™ / Betaseron™
of which U.S.A.
Adalat™
of which U.S.A.
YAZ™ / Yasmin™ / Yasminelle™
of which U.S.A.
Aspirin™ Cardio
of which U.S.A.
Glucobay™
of which U.S.A.
Gadavist™ / Gadovist™
of which U.S.A.
Avalox™ / Avelox™
of which U.S.A.
268
178
288
106
224
80
185
94
147
0
159
21
135
0
123
1
88
24
81
1
255
161
217
68
204
67
152
80
147
0
153
14
137
0
130
0
89
25
75
1
Total best-selling products
Proportion of Pharmaceuticals sales
Total best-selling products in U.S.A.
3,197
75%
802
3,233
77%
724
+ 9.3
+ 10.6
+ 19.0
.
+ 12.2
.
+ 3.9
– 2.4
+ 2.9
– 14.3
+ 11.7
– 4.9
– 9.6
– 24.7
– 35.8
– 8.9
– 16.3
– 17.8
– 14.9
.
.
– 3.8
– 33.3
+ 1.5
.
+ 12.5
+ 10.1
+ 24.2
.
+ 20.0
+ 8.4
+ 12.4
+ 7.2
+ 8.7
– 3.3
+ 16.1
+ 2.0
– 1.3
– 21.2
– 30.4
– 3.3
– 8.8
– 12.6
– 7.5
.
.
– 0.1
– 29.3
+ 7.1
.
+ 5.7
+ 12.3
.
+ 1.1
+ 4.2
– 7.4
.
+ 1.1
.
+ 6.3
+ 10.7
– 13.3
.
2016
2,928
489
1,625
0
331
225
275
142
254
121
5,413
1,043
701
1,166
394
870
312
734
386
624
1
678
128
538
0
515
3
346
104
353
5
Augmented Version
A 2.2.2/2
Change %
1
2017
Reported
Fx adj.
3,298
519
1,880
0
408
242
315
166
295
144
6,196
1,126
746
967
322
834
294
651
357
648
0
648
83
581
0
563
2
365
116
333
7
+ 12.6
+ 6.1
+ 15.7
.
+ 23.3
+ 7.6
+ 14.5
+ 16.9
+ 16.1
+ 19.0
+ 14.5
+ 8.0
+ 6.4
– 17.1
– 18.3
– 4.1
– 5.8
– 11.3
– 7.5
+ 3.8
.
– 4.4
– 35.2
+ 8.0
.
+ 13.9
+ 6.0
+ 18.5
.
+ 25.6
+ 9.6
+ 17.2
+ 19.3
+ 17.8
+ 21.3
+ 16.3
+ 9.2
+ 8.1
– 15.9
– 17.0
– 2.7
– 4.1
– 10.0
– 6.1
+ 7.0
.
– 4.2
– 34.7
+ 10.5
.
+ 9.3
+ 13.0
.
+ 5.5
+ 11.5
– 5.7
+ 40.0
+ 5.1
.
+ 7.2
+ 12.7
– 5.1
+ 36.4
+ 6.9
+ 5.6
12,280
12,912
– 9.7
– 3.7
75%
3,011
77%
2,998
– 0.4
+ 0.9
Fx adj. = currency-adjusted
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
2 Marketing rights owned by a subsidiary of Johnson & Johnson, U.S.A.
3 Marketing rights owned by Regeneron Pharmaceuticals Inc., U.S.A.
Sales by product
> Business with our oral anticoagulant Xarelto™ continued to develop successfully in 2017. The
significant growth in sales was primarily attributable to higher volumes in Europe, Japan and
China. We also posted further gains for our license revenues – recognized as sales – in the
United States, where Xarelto™ is marketed by a subsidiary of Johnson & Johnson.
> We recorded strong growth with our eye medicine Eylea™, due especially to expanded
+16.3%
growth in sales of our
key growth products
(Fx adj.)
volumes in Europe, Canada and Japan.
> Sales of our cancer drug Xofigo™ increased significantly, due mainly to its market launch in
Japan in 2016 and to higher demand in the United States.
> We registered a substantial increase in sales of our cancer drug Stivarga™. Here we benefited
from new approvals for the drug in 2017 as a second-line treatment for patients with
hepatocellular carcinoma, especially in the United States and Japan.
140
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Augmented Version
> We posted strong growth in sales of our pulmonary hypertension treatment Adempas™, mainly
as a result of expanded volumes in the United States. As in the past, sales of the product
reflected the proportionate recognition of upfront and milestone payments resulting from the
sGC collaboration with Merck & Co., United States.
> Business with the hormone-releasing intrauterine devices of the Mirena™ product family
(Mirena™, Kyleena™ and Jaydess™ / Skyla™) expanded noticeably. This trend mainly reflected
the successful launch of the Kyleena™ intrauterine device, which led to higher volumes
particularly in the United States and Europe. Sales of Mirena™ grew primarily in Latin America
and China.
> Sales of the blood-clotting medicines Kogenate™ / Kovaltry™ were down sharply overall due to
lower order volumes being placed for the active ingredient by a distribution partner ahead of the
planned contract termination at the end of the year. Adjusted for this development, sales came
in at the prior-year level.
> We registered a slight decline in sales of our cancer drug Nexavar™. This resulted from
decreased demand and elevated pressure on prices, particularly in Germany and the United
States.
> As expected, sales of our multiple sclerosis product Betaferon™ / Betaseron™ continued to fall.
Volumes receded primarily as a result of a highly competitive market environment in the United
States and Europe.
> We registered a decline in sales of our YAZ™ / Yasmin™ / Yasminelle™ line of oral
contraceptives, due primarily to generic competition in the United States. Sales growth in
Japan, where we benefited from a product line extension, and in China was insufficient to offset
this effect.
> We posted marked sales gains for Adalat™, our product to treat hypertension, our Aspirin™
Cardio product for the secondary prevention of heart attacks, and for our diabetes treatment
Glucobay™, mainly as a result of a continued positive business performance in China.
> There was an encouraging increase in sales of our MRI contrast agent Gadavist™ / Gadovist™
that was primarily attributable to the positive development of business in the United States and
Japan.
> Sales of the antibiotic Avalox™ / Avelox™ declined mainly as a result of lower license revenues
in Europe. Encouraging sales development in China was not sufficient to offset this effect.
Earnings
In 2017, EBITDA before special items increased by an encouraging 8.8% to €5,711 million. Ad-
justed for negative currency effects of €98 million, earnings advanced by 10.6%. Growth was
mainly driven by higher volumes and a lower cost of goods sold. Expenses for research and
development were level with the prior year and included a gain in the mid-double-digit millions
from a development collaboration. In addition, we recorded a positive earnings effect from the
recognition of a receivable in the mid-double-digit millions as one of our distribution partners for
the active ingredient in Kogenate™ did not fulfill its purchase obligation.
EBIT of Pharmaceuticals rose by a substantial 27.6% to €4,325 million, after special charges of
€340 million (2016: €558 million). These mainly comprised €207 million in impairment losses on
intangible assets and €124 million in provisions for litigations.
Bayer Annual Report 2017
A Combined Management Report
141
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Augmented Version
A 2.2.2/3
Special Items
1 Pharmaceuticals
€ million
Restructuring
Litigations
Impairment losses / reversals
Total special items
EBIT
Q4 2016
EBIT
Q4 2017
(51)
(89)
(170)
(310)
(2)
(124)
(61)
(187)
EBIT
2016
(69)
(88)
(401)
(558)
EBIT
2016
(9)
(124)
(207)
(340)
EBITDA
Q4 2016
EBITDA
Q4 2017
EBITDA
2016
EBITDA
2017
(51)
(89)
(12)
(152)
(2)
(124)
(2)
(128)
(67)
(88)
(12)
(167)
(8)
(124)
(3)
(135)
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Online Annex: A 2.2.2-1
The development of Pharmaceuticals in 2017 is shown in the following graphics (A 2.2.2-1/1,
A 2.2.2-1/2 and A 2.2.2-1/3).
Pharmaceuticals Quarterly Sales
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
A 2.2.2-1/1
€ million
3,889
4,263
4,104
4,304
4,152
4,065
4,275
4,215
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Pharmaceuticals
Quarterly EBIT 1
Pharmaceuticals
Quarterly EBITDA before Special Items 1
A 2.2.2-1/2
A 2.2.2-1/3
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
€ million
698
1,219
988
1,102
1,097
1,209
606
795
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
€ million
1,261
1,502
1,352
1,481
1,421
1,493
1,217
1,235
0
200
400
600
800
1,000
1,200
0
200
400
600
800
1,000
1,200
1,400
1,600
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
142
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Augmented Version
Consumer Health
Market growth unchanged
In 2017, growth of the global Consumer Health market came in at slightly below 4% (2016: 4%).
Important growth drivers included steady demand for self-care products and a strong cold season
in Europe. In contrast, a weaker allergy season, pricing pressure in the e-commerce distribution
channel, and intensified competition weighed on growth.
Key Data – Consumer Health
€ million
Sales
Changes in sales
1
Volume
Price
Currency
Portfolio
Sales by region
Europe / Middle East / Africa
North America
Asia / Pacific
Latin America
EBITDA
1
Special items
1
EBITDA before special items
1
EBIT
1
Special items
1
EBIT before special items
1
Net cash provided
by operating activities
Q4 2016
Q4 2017
Reported Fx & p adj.
1,539
1,399
– 9.1
– 4.2
Change %
1
A 2.2.2/4
Change %
1
2017
Reported Fx & p adj.
5,862
– 2.9
– 1.7
– 3.0%
+ 1.3%
– 1.2%
0.0%
2016
6,037
+ 0.6%
+ 2.9%
– 4.1%
0.0%
Reported
Fx adj.
Reported
Fx adj.
+ 2.1
– 4.1
– 4.0
– 0.4
– 1.6
– 10.5
– 25.3
– 7.6
– 41.0
– 32.5
.
– 44.6
+ 0.8
– 2.5
– 19.6
– 6.6
1,918
2,627
781
711
1,296
(115)
1,411
23.4%
695
(292)
987
1,962
2,480
738
682
1,145
(86)
1,231
21.0%
518
(300)
818
+ 2.3
– 5.6
– 5.5
– 4.1
– 11.7
– 12.8
– 25.5
– 17.1
+ 1.5%
+ 2.9%
– 2.2%
0.0%
– 4.2%
0.0%
– 4.9%
0.0%
499
649
194
197
334
(38)
372
491
581
145
182
197
(54)
251
68
(199)
267
(110)
(258)
148
221
297
+ 34.4
874
1,059
+ 21.2
Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Sales decline slightly against the previous year
Sales of Consumer Health fell by 1.7% (Fx & portfolio adj.) in 2017 to €5,862 million. This was
attributable to persistently weak business development in the United States. Furthermore, the
Chinese authorities changed the legal status of two of our medicated skincare brands from OTC
to prescription, which led to sales declines of around €70 million in the fourth quarter of 2017.
Sales in Latin America came in at the prior-year level (Fx adj.). By contrast, business expanded
slightly in Europe / Middle East / Africa, and particularly in Germany.
EBITDA margin before special items1
24.2%
17.9%
Bayer Annual Report 2017
A Combined Management Report
143
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Augmented Version
Best-Selling Consumer Health Products
Change %
1
A 2.2.2/5
Change %
1
€ million
Claritin™
Aspirin™
Bepanthen™ / Bepanthol™
Aleve™
Canesten™
Alka-Seltzer™ product family
One A Day™
Dr. Scholl’s™ ²
Coppertone™
Elevit™
Total
Proportion of Consumer Health sales
Q4 2016
Q4 2017
Reported
Fx adj.
2016
2017
Reported
Fx adj.
122
126
90
115
64
87
67
55
17
48
791
51%
113
124
96
103
68
73
63
54
11
42
747
53%
– 7.4
– 1.6
+ 6.7
– 10.4
6.3
– 16.1
– 6.0
– 1.8
– 35.3
– 12.5
– 5.6
+ 3.2
+ 4.5
+ 13.6
– 2.8
– 12.4
– 9.2
+ 4.2
+ 4.4
– 22.7
– 5.6
+ 0.2
605
463
362
416
269
253
222
235
219
182
585
462
379
375
278
244
222
211
208
189
3,226
53%
3,153
54%
– 3.3
– 0.2
+ 4.7
– 9.9
+ 3.3
– 3.6
0.0
– 10.2
– 5.0
+ 3.8
– 2.3
– 2.4
+ 1.8
+ 6.6
– 7.9
+ 3.5
– 1.2
+ 2.3
– 8.6
– 6.5
+ 4.7
– 0.9
Fx adj. = currency-adjusted
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
2 Trademark rights and distribution only in certain countries outside the European Union
Sales by product
> Sales of the antihistamine Claritin™ were down slightly against the previous year, in which we
benefited from a product line extension in the United States. The main reason for this was
intensified competition in the United States and Japan. Sales developed positively in China.
> We posted slight growth for our analgesic Aspirin™ that resulted primarily from a positive
business performance in North America and Europe / Middle East / Africa. Including business
with Aspirin™ Cardio, which is reported under Pharmaceuticals, sales climbed by 6.5% (Fx adj.)
to €1,043 million (2016: €1,001 million).
> Business with our Bepanthen™ / Bepanthol™ wound and skin care products expanded. We
achieved gratifying sales gains particularly in Europe / Middle East / Africa, and especially in
Germany.
> Sales of our analgesic Aleve™ fell sharply compared with the previous year, which benefited
from a product line extension. The primary reason for the sales decline in 2017 was intense
competition in the United States.
> We achieved sales growth with our Canesten™ skin and intimate health products, in a
development that was mainly attributable to a positive business performance in China and the
United Kingdom.
> Sales of our Alka-Seltzer™ product family to treat gastric complaints and cold symptoms
declined slightly against the previous year. Sales declines in Latin America were partly offset by
gains in the United States that resulted mainly from a strong cold season.
> Sales of our One A Day™ vitamin product advanced further on a currency-adjusted basis,
especially in the United States, where we benefited from the expansion of our regular and e-
commerce distribution channels.
> Sales of our Dr. Scholl’s™ foot care products declined markedly, particularly in the United
States, due to the repositioning of the brand. The success that followed this move was not
sufficient to fully offset the associated inventory reduction.
> Sales of our sunscreen product Coppertone™ were lower, primarily as a result of intensified
competition in the United States and Brazil.
> Business with our prenatal vitamin Elevit™ developed well, due mainly to steady demand in
Asia / Pacific.
144
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Augmented Version
Earnings
In 2017, EBITDA before special items declined by a substantial 12.8% to €1,231 million. Adjusted
for negative currency effects of €25 million, earnings were down 11.0%. This decline was largely
due to lower volumes, in part as a consequence of the reverse switch in China and the associated
effect of around €50 million, as well as a higher cost of goods sold, primarily as a result of inven-
tory impairments. Earnings were also held back by higher selling expenses. Positive contributions
came from one-time gains of around €80 million, predominantly relating to the divestment of
noncore brands.
EBIT of Consumer Health receded by 25.5% to €518 million, after special charges of €300 million
(2016: €292 million). These comprised €202 million for impairment losses on intangible assets and
€98 million for restructuring measures.
Special Items
1 Consumer Health
€ million
Restructuring
Integration costs
Impairment losses /
reversals
Total special items
EBIT
Q4 2016
EBIT
Q4 2017
(9)
(30)
(160)
(199)
(56)
–
(202)
(258)
EBIT
2016
(32)
(100)
(160)
(292)
EBIT
2017
EBITDA
Q4 2016
EBITDA
Q4 2017
EBITDA
2016
EBITDA
2017
(98)
–
(202)
(300)
(8)
(30)
–
(38)
(54)
–
–
(15)
(100)
–
(86)
–
–
(54)
(115)
(86)
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
A2.2.2/6
Online Annex: A 2.2.2-2
The development of Consumer Health in 2017 is shown in the following graphics (A 2.2.2-2/1,
A 2.2.2-2/2 and A 2.2.2-2/3).
Consumer Health Quarterly Sales
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
A 2.2.2-2/1
€ million
1,520
1,601
1,553
1,542
1,425
1,320
1,539
1,399
Bayer Annual Report 2017
A Combined Management Report
145
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Augmented Version
Consumer Health
Quarterly EBIT 1
Consumer Health
Quarterly EBITDA before Special Items 1
A 2.2.2-2/2
A 2.2.2-2/3
€ million
€ million
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
243
278
190
195
194
155
68
(110)
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
383
392
328
314
328
274
372
251
(200)
(100)
0
100
200
300
0
100
200
300
400
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Crop Science
Market environment improves slightly
Overall, the global seed and crop protection market expanded slightly in 2017, growing by around
1% (2016: 0%). While demand for high-quality seed increased, sales of crop protection products
stagnated worldwide. Positive growth momentum in 2017 came from the North America and
Eastern Europe regions. Market volumes in Latin America declined as a result of high inventories
of crop protection products and unfavorable macroeconomic conditions in Brazil. The Western
European market also contracted, primarily as a result of relatively low fungal infestation levels.
A 2.2.2/7
Change %
1
2017
Reported Fx & p adj.
9,577
– 3.4
– 2.2
+ 0.3%
– 2.5%
– 1.2%
0.0%
2016
9,915
– 1.3%
+ 1.4%
– 2.3%
+ 0.1%
Q4 2016
Q4 2017
Reported Fx & p adj.
2,404
2,263
– 5.9
1.1
Change %
1
Key Data – Crop Science
€ million
Sales
Change in sales
1
Volume
Price
Currency
Portfolio
Sales by region
Europe / Middle East / Africa
North America
Asia / Pacific
Latin America
EBITDA
1
Special items
1
EBITDA before special items
1
– 0.4%
– 1.2%
+ 1.6%
0.0%
+ 5.3%
– 4.2%
– 7.0%
0.0%
431
527
384
1,062
314
(37)
351
440
479
358
986
193
(111)
304
EBITDA margin before special items1
14.6%
13.4%
EBIT
1
Special items
1
EBIT before special items
1
Net cash provided
by operating activities
153
(39)
192
622
64
(155)
219
Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Reported
Fx adj.
Reported
Fx adj.
+ 1.5
+ 5.8
+ 2.0
– 18.0
+ 2.1
– 9.1
– 6.8
– 7.2
– 38.5
– 13.4
– 58.2
+ 14.1
+ 3.7
– 1.1
+ 0.5
+ 1.1
3,290
2,616
1,548
2,461
2,280
(141)
2,421
24.4%
1,755
(143)
1,898
3,335
2,772
1,563
1,907
1,716
(327)
2,043
21.3%
1,235
(408)
1,643
+ 1.4
+ 6.0
+ 1.0
– 22.5
– 24.7
– 15.6
– 29.6
– 13.4
552
– 11.3
2,071
1,884
– 9.0
146
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Augmented Version
Sales down slightly against the previous year
Sales of Crop Science fell by 2.2% (Fx & portfolio adj.) in 2017 to €9,577 million. The decline
was mainly attributable to the crop protection business in Brazil. High inventories in that market
necessitated measures to normalize the situation that in turn led to negative sales development.
When the Brazilian business is excluded, sales of Crop Science rose by 3.0% year on year on a
currency- and portfolio-adjusted basis. Environmental Science posted a positive performance, in
part due to the delivery of products to the company that acquired our consumer business.
Sales by Business Unit
€ million
Crop Protection / Seeds
Crop Protection
Herbicides
Fungicides
Insecticides
SeedGrowth
Seeds
Environmental Science
Q4 2016
Q4 2017
Reported Fx & p adj.
Change %
1
2,224
1,965
2,080
1,823
599
679
386
301
259
180
526
755
268
274
257
183
– 6.5
– 7.2
– 12.2
+ 11.2
– 30.6
– 9.0
– 0.8
+ 1.7
+ 0.4
– 0.4
– 6.5
+ 19.7
– 24.6
– 2.3
+ 6.6
+ 9.4
A 2.2.2/8
Change %
1
2016
9,317
7,961
2,693
2,961
1,357
950
1,356
598
2017
Reported Fx & p adj.
8,906
7,403
2,633
2,597
1,246
927
1,503
671
– 4.4
– 7.0
– 2.2
– 12.3
– 8.2
– 2.4
+ 10.8
+ 12.2
– 3.2
– 5.3
– 1.6
– 9.9
– 6.1
– 0.3
+ 9.1
+ 14.0
Fx & p adj. = currency- and portfolio-adjusted
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Sales by region
> Sales in the Europe / Middle East / Africa region improved by 1.5% (Fx adj.) to €3,335 million.
Insecticides developed very positively, thanks in part to increased demand and the introduc-
tion of new products. We also achieved sales growth in the Seeds business, particularly for
vegetables. On the other hand, increased competitive pressure led to declines at SeedGrowth
and Fungicides.
In the North America region, we posted a 5.8% (Fx adj.) increase in sales to €2,772 million. We
registered a double-digit growth rate in the Seeds business, with robust sales gains for oilseed
rape / canola – due to increased acreages in Canada – and for soybeans more than offsetting
declines for cotton. SeedGrowth also developed very positively due to increased demand for
products to treat soybean and wheat seed. In contrast, we recorded declines at Insecticides.
Environmental Science, for its part, posted a considerable increase in sales.
>
> Sales in Asia / Pacific moved forward by 2.0% (Fx adj.) year on year to €1,563 million. Business
performance was encouraging at Fungicides, particularly in Southeast Asia, and at Herbicides,
mainly due to new product launches in China and Japan. We also achieved sales growth in the
Seeds business, particularly for cotton and oilseeds, but posted a decline at Insecticides.
> Sales in Latin America decreased by 18.0% (Fx adj.) to €1,907 million. This decline was
attributable to returns of crop protection products and to lower sales into the distribution
channel to normalize inventories in Brazil. Price reductions also had an effect. We posted gains
in sales overall in the other Latin American countries on a currency-adjusted basis.
Earnings
In 2017, EBITDA before special items of Crop Science declined by 15.6% to €2,043 million. Ad-
justed for negative currency effects of €63 million, earnings were down by 13.0%. The decline is
largely attributable to the aforementioned situation in Brazil, which resulted in lower selling prices
and volumes. Outside of Brazil, lower selling prices were offset by expanded volumes. Other op-
erating income had a positive effect on earnings.
Bayer Annual Report 2017
A Combined Management Report
147
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Augmented Version
EBIT declined by 29.6% to €1,235 million, after special charges of €408 million (2016:
€143 million) that primarily related to the planned acquisition of Monsanto and the execution of a
divestment project.
Special Items
1 Crop Science
€ million
Restructuring
Litigations
Acquisition costs
Impairment losses / reversals
Divestments
Total special items
EBIT
Q4 2016
EBIT
Q4 2017
(5)
4
(34)
–
(4)
(39)
(7)
(1)
(103)
(41)
(3)
(155)
EBIT
2016
(51)
(1)
(86)
–
(5)
(143)
EBIT
2017
EBITDA
Q4 2016
EBITDA
Q4 2017
EBITDA
2016
EBITDA
2017
(32)
(4)
(273)
(41)
(58)
(408)
(3)
4
(34)
–
(4)
(37)
(5)
(1)
(103)
–
(2)
(49)
(1)
(86)
–
(5)
(111)
(141)
(17)
(4)
(273)
–
(33)
(327)
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
A 2.2.2/9
Online Annex: A 2.2.2-3
The development of Crop Science in 2017 is shown in the following graphics (A 2.2.2-3/1,
A 2.2.2-3/2 and A 2.2.2-3/3).
Crop Science Quarterly Sales
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
A 2.2.2-3/1
€ million
2,936
3,120
2,518
2,163
2,057
2,031
2,404
2,263
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Crop Science
Quarterly EBIT 1
Crop Science
Quarterly EBITDA before Special Items 1
A 2.2.2-3/2
A 2.2.2-3/3
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
€ million
955
970
512
117
135
84
153
64
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
€ million
1,089
1,115
663
317
318
307
351
304
0
200
400
600
800
1,000
0
200
400
600
800
1,000
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
148
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Augmented Version
Animal Health
Slower market growth
The Animal Health market expanded by around 2% in 2017 (2016: 5%), with growth significantly
lagging behind previous years. Alongside a difficult market environment in the farm animals busi-
ness in Europe and North America, growth rates in the companion animals business, and in the
important parasiticides market in particular, were also lower than in previous years. The slight
recovery of the farm animals business in the core markets and an upturn in the American compan-
ion animals business at the end of the year were unable to offset the weaker market development
in the first half of the year.
Key Data – Animal Health
€ million
Sales
Change in sales
1
Volume
Price
Currency
Portfolio
Sales by region
Europe / Middle East / Africa
North America
Asia / Pacific
Latin America
EBITDA
1
Special items
1
EBITDA before special items
1
Q4 2016
Q4 2017
Reported Fx & p adj.
329
322
– 2.1
+ 1.8
Change %
1
– 1.0%
+ 4.1%
0.0%
0.0%
+ 2.1%
– 0.3%
– 6.1%
+ 2.2%
84
129
79
37
34
(4)
38
82
126
79
35
28
(21)
49
A 2.2.2/10
Change %
1
2017
Reported Fx & p adj.
1,571
+ 3.2
+ 2.0
+ 0.4%
+ 1.6%
– 0.9%
+ 2.1%
2016
1,523
+ 2.6%
+ 2.2%
– 2.6%
0.0%
Reported
Fx adj.
Reported
Fx adj.
– 2.4
– 2.3
.
– 5.4
– 17.6
+ 28.9
– 60.0
+ 10.0
0.0
+ 6.4
+ 7.3
0.0
– 1.2
+ 5.4
+ 7.6
+ 2.7
445
621
300
157
343
(6)
349
442
655
317
157
352
(29)
381
22.9%
24.3%
313
(7)
320
193
307
(31)
338
209
– 0.7
+ 5.5
+ 5.7
0.0
+ 2.6
+ 9.2
– 1.9
+ 5.6
+ 8.3
EBITDA margin before special items1
11.6%
15.2%
EBIT
1
Special items
1
EBIT before special items1
Net cash provided
by operating activities
25
(5)
30
85
10
(23)
33
75
– 11.8
Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Sales growth driven by business in Asia / Pacific and the United States
Sales of Animal Health increased by 2.0% (Fx & portfolio adj.) to €1,571 million in 2017. Business
in the Asia / Pacific region developed especially positively due to higher demand and price increas-
es. We also registered currency-adjusted growth in North America, with the CydectinTM product
portfolio acquired in January 2017 from Boehringer Ingelheim Vetmedica, Inc., United States,
contributing to sales gains. The Europe / Middle East / Africa and Latin America regions remained
at the prior-year level.
Bayer Annual Report 2017
A Combined Management Report
149
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.2 Business Development by Segment
Augmented Version
Best-Selling Animal Health Products
Change %
1
A 2.2.2/11
Change %
1
€ million
Q4 2016
Q4 2017
Reported
Fx adj.
2016
2017
Reported
Fx adj.
Advantage™ product family
Seresto™
Drontal™ product family
Baytril™
Total
Proportion of Animal Health sales
102
28
31
34
195
59%
87
32
30
31
180
56%
– 14.7
+ 14.3
– 3.2
– 8.8
– 7.7
– 10.1
+ 26.0
+ 2.3
– 0.6
– 1.5
535
174
128
113
950
62%
488
218
132
113
951
61%
– 8.8
+ 25.3
+ 3.1
0.0
+ 0.1
– 7.8
+ 25.1
+ 4.5
+ 2.5
+ 1.1
Fx adj. = currency-adjusted
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
+ 25.1%
growth in sales of
Seresto™ (Fx adj.)
Sales by product
> Sales of our Advantage™ family of flea, tick and worm control products were down year on
year, due mainly to increased competitive pressure and the related decline in demand in the
Europe / Middle East / Africa and North America regions.
> We achieved continued strong growth with our Seresto™ flea and tick collar that resulted
chiefly from increased demand in the United States and Europe.
> Business with our Drontal™ family of dewormers expanded once again. Here we benefited
particularly from increased prices and volumes in the United States and the Asia / Pacific region.
> The increase in sales of our antibiotic Baytril™ was largely attributable to the United States,
partly due to a one-time effect in connection with a change in the distribution model, and to
expanded volumes in Mexico.
Earnings
In 2017, we raised EBITDA before special items by 9.2% to €381 million. Adjusted for negative
currency effects of €8 million, earnings increased by 11.5%. Price increases, the Cydectin™
business we acquired and lower selling expenses contributed to the growth in earnings. In
contrast, negative contributions came from net other operating expenses as well as higher
research and development expenses.
EBIT of Animal Health declined by 1.9% to €307 million, after special charges of €31 million
(2016: €7 million) in conjunction with efficiency improvement measures.
Special Items1 Animal Health
€ million
Restructuring
Total special items
EBIT
Q4 2016
EBIT
Q4 2017
(5)
(5)
(23)
(23)
EBIT
2016
(7)
(7)
EBIT
2017
EBITDA
Q4 2016
EBITDA
Q4 2017
EBITDA
2016
EBITDA
2017
(31)
(31)
(4)
(4)
(21)
(21)
(6)
(6)
(29)
(29)
1 For definition see Annual Report 2016, A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
A 2.2.2/12
150
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.3 Value-Based Performance
Augmented Version
Online Annex: A 2.2.2-4
The development of Animal Health in 2017 is shown in the following graphics (A 2.2.2-4/1,
A 2.2.2-4/2 and A 2.2.2-4/3).
Animal Health Quarterly Sales
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
2.2.2-4/1
€ million
408
0.440
426
0.450
360
0.359
329
0.322
0
50
100
150
200
250
300
350
400
450
500
Animal Health
Quarterly EBIT 1
Animal Health
Quarterly EBITDA before Special Items 1
A 2.2.2-4/2
A 2.2.2-4/3
€ million
€ million
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
114
126
93
107
81
64
25
10
Q1
Q2
Q3
Q4
2016
2017
2016
2017
2016
2017
2016
2017
122
135
100
116
89
81
38
49
0
20
40
60
80
100
120
0
20
40
60
80
100
120
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”
2.2.3 Value-Based Performance
ROCE – a value-based indicator
The ROCE (return on capital employed) indicates the capital return over a specified period. It is
the ratio of net operating profit after tax (NOPAT) to the average capital employed. NOPAT is de-
termined by deducting from EBIT the income taxes thereon, which are based on a historical aver-
age tax rate of 24%. The capital employed reflects the amount of capital used in the company’s
operations. Based on carrying amounts, it is calculated by subtracting from operational assets the
liability items that are largely non-interest-bearing, such as trade accounts payable, or would dis-
tort the operational capital base. To reflect the change in the capital employed during the year, an
average figure is determined from the amounts at the end of the previous year and the end of the
year under report. See also A 2.4 “Alternative Performance Measures Used by the Bayer Group”
for a definition of capital employed.
The ROCE is compared to the weighted average cost of capital (WACC), which corresponds to
the return expected by the providers of equity and debt. If the ROCE is in line with the WACC, the
expected return for the period has been achieved. If it exceeds the WACC, return expectations
have been exceeded, indicating that value has been created.
See also A 2.4
Bayer Annual Report 2017
A Combined Management Report
151
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.4 Asset and Financial Position of the Bayer Group
Augmented Version
Calculating the cost of capital
The WACC is based on an after-tax approach and was calculated at the beginning of the year as
the weighted average of the equity and debt cost factors. The cost of equity is the return ex-
pected by stockholders, computed from capital market information. The debt capital cost factor
we use to calculate the WACC is based on the financing terms for ten-year Eurobonds issued by
industrial companies with an “A–” credit rating. Historical capital market data is included in the
data smoothing process to guarantee the necessary stability for internal management. The WACC
for 2017 was 6.9% for the Bayer Group and the reporting segments. In impairment testing, by
contrast, individual capital cost factors are used for the reporting segments which explicitly take
account of segment-specific parameters (see “Basic principles, methods and critical accounting
estimates” in the notes to the consolidated financial statements). However, these are not used for
internal management, as they contain parameters relating to the closing date and therefore exhibit
greater volatility than desired for internal management.
Value-based business development
Bayer’s ROCE in 2017 amounted to 10.8%, exceeding the cost of capital by 3.9 percentage
points. It is thus an indicator for value creation. All segments except Consumer Health exceeded
the WACC in 2017, although negative special items had a significant impact on the performance
of all segments. Consumer Health’s performance continued to be mainly influenced by the high
level of capital employed as a result of the 2014 acquisition of the consumer care business of
Merck & Co., Inc., United States.
6.9 %
Capital cost factor for
the Bayer Group in 2017
ROCE in 2017 of 10.8%
See also A 2.2.2
A 2.2.3/1
Value-Based Performance by Segment
Pharmaceuticals Consumer Health
Crop Science
Animal Health
Group
1
€ million
EBIT
Income taxes
2
NOPAT
2016
2017
3,389
4,325
(813)
(1,038)
2,576
3,287
2016
695
(167)
528
518
1,755
1,235
(124)
(421)
394
1,334
(296)
939
Average capital employed
15,866 15,630 15,226 14,404 10,316
9,814
313
(75)
238
375
307
5,738
5,903
(74)
(1,377)
(1,417)
233
4,361
4,486
495 42,318 41,600
2017
2016
2017
2016
2017
2016
2017
ROCE
WACC
16.2%
21.0%
7.5%
6.9%
3.5%
7.5%
2.7%
12.9%
9.6%
63.5%
47.1%
10.3% 10.8%
6.9%
7.5%
6.9%
7.5%
6.9%
7.5%
6.9%
2016 figures restated
1 Including Reconciliation
2 24% on EBIT; based on historical average of tax rates
2.2.4 Asset and Financial Position of the Bayer Group
Financial management of the Group
The financial management of the Bayer Group is conducted by Bayer AG. Capital is a global re-
source, generally procured centrally and distributed within the Group. The foremost objectives of
our financial management are to help bring about a sustained increase in corporate value and to
ensure the Group’s liquidity and creditworthiness. This involves optimizing the capital structure
and effectively managing risks. The management of currency, interest-rate, commodity price and
default risks helps to reduce the volatility of our earnings.
See also A 1.2.2
152
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.4 Asset and Financial Position of the Bayer Group
Augmented Version
The contracted rating agencies assess Bayer as follows:
Rating
S&P Global Ratings
Moody’s
A 2.2.4/1
Long-term rating
Short-term rating
A–
A3
A–2
P–2
These credit ratings reflect the company’s high solvency and ensure access to a broad investor
base for financing purposes. As a result of the planned acquisition of Monsanto, both S&P Global
Ratings and Moody’s are reviewing the possibility of a downgrade. Bayer continues to aim for an
investment-grade credit rating after the successful closing of the Monsanto acquisition and is
aiming for the single “A” rating category in the long term.
As a matter of principle, we pursue a prudent debt management strategy to ensure flexibility, draw-
ing on a balanced financing portfolio. This is fundamentally based on bonds in various currencies,
syndicated credit facilities, bilateral loan agreements and a global commercial paper program.
See also A 3.2.2
We use financial derivatives to hedge against risks arising from business operations or financial
transactions, but do not employ contracts in the absence of an underlying transaction. It is our
policy to diminish default risks by selecting trading partners with a high credit standing. We closely
monitor the execution of all transactions, which are conducted in accordance with Group policies.
Liquidity and Capital Expenditures of the Bayer Group
Bayer Group Summary Statements of Cash Flows
€ million
2016
2017 Change %
A 2.2.4/2
Net cash provided by (used in) operating activities,
continuing operations
Net cash provided by (used in) operating activities, discontinued operations
Net cash provided by (used in) operating activities (total)
Net cash provided by (used in) investing activities (total)
Net cash provided by (used in) financing activities (total)
Change in cash and cash equivalents due to business activities
Cash and cash equivalents at beginning of period
Change due to exchange rate movements and to changes
in scope of consolidation
Cash and cash equivalents at end of period
2016 figures restated
6,435
2,654
9,089
(8,729)
(350)
10
1,859
30
1,899
6,611
1,523
8,134
(432)
(1,881)
5,821
1,899
(139)
7,581
+ 2.7
– 42.6
– 10.5
+ 95.1
.
.
+ 2.2
.
.
Bayer Annual Report 2017
A Combined Management Report
153
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.4 Asset and Financial Position of the Bayer Group
Augmented Version
Net cash provided by operating activities
The net cash provided by operating activities in continuing operations increased by 2.7% to
€6,611 million thanks to an improvement in EBIT and a reduction in cash tied up in working capi-
tal. This figure included the components of the payments received from DOW Chemical as part of
a patent dispute that fall under operating activities. By contrast, the net cash provided by operat-
ing activities (total) decreased by 10.5% to €8,134 million as the prior-year figure included inflows
from the sale of the Diabetes Care business.
A 2.2.4/3
Cash Inflows from
Operating Activities (from
Continuing Operations)
€ million
6,435
6,611
+ 2.7%
2016
2017
See also A 1.4.2.2
Net cash used in investing activities
The net cash outflow for investing activities in 2017 amounted to €432 million. Cash outflows for
property, plant and equipment and intangible assets were 8.2% lower at €2,366 million (2016:
€2,578 million) and included €915 million (2016: €835 million) at Pharmaceuticals, €178 million
(2016: €215 million) at Consumer Health, €553 million (2016: €757 million) at Crop Science,
€38 million (2016: €37 million) at Animal Health and €283 million (2016: €415 million) at Covestro.
Divestments resulted in a net inflow of €453 million. This includes the proceeds of €999 million
from the sale of Covestro shares on September 29, 2017, which, together with the control termi-
nation agreement, led to the de facto loss of control, less the Covestro cash and cash equivalents
of €637 million deducted as a consequence. Cash outflows for acquisitions in the amount of
€158 million related to the acquisition of the Cydectin™ product portfolio in the United States in
the Animal Health segment. Net cash inflows from current and noncurrent financial assets totaled
€1,230 million (2016: net outflows totaling €6,335 million).
Net cash used in financing activities
In 2017, there was a net cash outflow of €1,881 million for financing activities, including net loan
repayments of €2,479 million (2016: €730 million). Net interest payments were 7.8% lower at
€732 million (2016: €794 million). The cash outflow for dividends amounted to €2,364 million
(2016: €2,126 million).
A net inflow of €3,717 million came from the sale of Covestro shares before the de facto loss of
control. In the previous year, the net cash inflow from the issuance of mandatory convertible notes
amounted to €3,952 million, reported as a €3,300 million capital contribution and a €652 million
borrowing.
Liquid assets and net financial debt
Net Financial Debt
1
€ million
See also A 2.4
A 2.2.4/4
Dec. 31,
2016
Dec. 31,
2017
Change
(%)
Bonds and notes / promissory notes
15,991
12,436
of which hybrid bonds
2
Liabilities to banks
Liabilities under finance leases
Liabilities from derivatives
3
Other financial liabilities
Receivables from derivatives
3
Financial debt
Cash and cash equivalents
Current financial assets
4
Net financial debt
4,529
1,837
436
587
730
(313)
4,533
534
238
240
970
(244)
19,268
14,174
(1,899)
(5,591)
11,778
(7,581)
(2,998)
3,595
– 22.2
+ 0.1
– 70.9
– 45.4
– 59.1
+ 32.9
– 22.0
– 26.4
.
– 46.4
– 69.5
1 For definition see A 2.4 “Alternative Performance Measures Used by the Bayer Group.”.
2 Classified as debt according to IFRS
3 These include the market values of interest-rate and currency hedges of recorded transactions.
4 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 first-time recognition.
154
A Combined Management Report
Bayer Annual Report 2017
2.2 Earnings; Asset and Financial Position of the Bayer Group ///// 2.2.4 Asset and Financial Position of the Bayer Group
Augmented Version
Net financial debt of the Bayer Group declined by €8,183 million in 2017, due mainly to cash in-
flows from operating activities and from the sale of Covestro shares. A further reduction in net
financial debt resulted from the derecognition of financial liabilities and financial assets in connec-
tion with the deconsolidation of Covestro.
Net financial debt includes three subordinated hybrid bonds with a total volume of €4,533 million,
50% of which is treated as equity by Moody’s and S & P Global Ratings. The hybrid bonds thus
have a more limited effect on the Group’s rating-specific debt indicators than senior debt.
In May 2017, Bayer Holding Ltd., Japan, issued two bonds with a volume of JPY 10 billion each.
In addition, in June 2017, Bayer AG issued debt instruments (exchangeable bond) with a nominal
value of €1.0 billion, which mature in 2020. These can be repaid in cash, Covestro shares or a
combination of the two. The annual coupon is 0.05%. During 2017, five bonds totaling around
€2 billion were redeemed at maturity. In October 2017, one bond with a nominal value of
€750 million maturing in 2018 was redeemed early.
The decline in liabilities to banks mainly resulted from early repayment of a US$900 million bank
loan taken out to finance the acquisition of the Merck OTC business.
The other financial liabilities as of December 31, 2017, contained €525 million related to the man-
datory convertible notes issued in November 2016 and €292 million in commercial paper.
Asset and Capital Structure of the Bayer Group
Bayer Group Summary Statements of Financial Position
€ million
Noncurrent assets
Assets held for sale
Other current assets
Current assets
Total assets
Equity
Noncurrent liabilities
Current liabilities
Liabilities directly related to assets held for sale
Total current liabilities
Liabilities
Total equity and liabilities
A 2.2.4/5
Dec. 31,
2017 Change %
45,014
2,081
27,992
30,073
75,087
36,861
24,633
13,482
111
13,593
38,226
75,087
– 13.1
.
– 8.0
– 1.2
– 8.7
+ 15.6
– 22.5
– 27.3
.
– 26.7
– 24.1
– 8.7
Dec. 31,
2016
51,791
10
30,437
30,447
82,238
31,897
31,804
18,537
.
18,537
50,341
82,238
Bayer Annual Report 2017
A Combined Management Report
155
2.3 Earnings; Asset and Financial Position of Bayer AG
Augmented Version
Substantial increase in equity, while total assets decline
Total assets as of December 31, 2017, declined by €7.2 billion to €75.1 billion, mainly as a result
of the deconsolidation of Covestro. As part of that deconsolidation, assets of €11.2 billion were
derecognized in the respective line items in the statements of financial position. At the same time,
the remaining investment in the Covestro Group was recognized at its fair value of €3.6 billion.
Noncurrent assets decreased by €6.8 billion to €45.0 billion. Total current assets declined by
€0.4 billion to €30.1 billion. The assets held for sale in connection with the planned acquisition of
Monsanto increased by €2.1 billion.
Equity rose by €5.0 billion compared with December 31, 2016, to €36.9 billion. The income after
income taxes of €8.1 billion had a positive effect. Currency effects recognized outside profit and
loss reduced equity by €2.2 billion, and the dividend payment by Bayer AG also reduced equity by
€2.2 billion. An increase of €0.7 billion – recognized outside profit or loss – came from the reduc-
tion in post-employment benefit obligations. Effects of the reduction in the interest in Covestro
recognized directly in equity and the deconsolidation of this company increased equity by
€0.7 billion. The equity ratio (equity coverage of total assets) as of December 31, 2017, was
49.1% (2016: 38.8%).
Liabilities as of December 31, 2017, decreased by €12.1 billion to €38.2 billion. As part of the
deconsolidation of Covestro, liabilities of €6.0 billion were derecognized in the corresponding line
items in the statements of financial position. Provisions for pensions and other post-employment
benefits decreased to €8.0 billion, with €1.2 billion of this due to the deconsolidation of Covestro,
a further €1.2 billion to actuarial gains and €0.5 billion to the transfer of Covestro shares to Bayer
Pension Trust e.V. Financial liabilities declined by €5.2 billion to €14.4 billion, with a reduction of
€1.8 billion due to the deconsolidation of Covestro.
2.3 Earnings; Asset and Financial Position
of Bayer AG
Business lease agreements between Bayer AG on the one hand, and Bayer Pharma AG and Bayer
CropScience AG – the former parent companies of the respective divisions – on the other, have
been in place since the start of 2017 and govern the transfer of their operational business to
Bayer AG. As a result, the business of Bayer AG – previously confined to a holding company func-
tion – has expanded considerably and now also comprises the parent company functions of the
two divisions. A comparison between the financial statements for 2017 and those of the previous
year is therefore only possible to a limited extent. The financial statements of Bayer AG are pre-
pared in accordance with the German Commercial Code (HGB), Stock Corporation Act (AktG) and
German Energy Act (EnWG).
Bayer AG supplies third parties with electricity and gas at individual facilities. In accordance with
Section 3, No. 18 of the German Energy Act (EnWG), it is therefore classified as an energy provid-
er within the meaning of the EnWG. Furthermore, as the vertically integrated energy provider Cur-
renta GmbH & Co. OHG is a subsidiary of Bayer AG, Bayer AG is classed as a vertically integrated
energy provider pursuant to Section 3, No. 38 of the EnWG.
A 2.2.4/6
Total Assets
€ billion
82.2
75.1
– 8.7%
2016
2017
Bayer AG performs
important management
functions for the Group.
156
A Combined Management Report
Bayer Annual Report 2017
2.3 Earnings; Asset and Financial Position of Bayer AG ///// 2.3.1 Earnings Performance of Bayer AG
Augmented Version
2.3.1 Earnings Performance of Bayer AG
Bayer AG Summary Income Statements according to the German Commercial Code
€ million
Net sales
Cost of goods sold
Gross profit
Selling expenses
Research and development expenses
General administration expenses
Other operating income
Other operating expenses
Operating income
A 2.3.1/1
2017
14,730
(7,914)
6,816
(3,898)
(2,186)
(908)
85
(102)
(193)
2016
390
(353)
37
(39)
(46)
(666)
48
(227)
(893)
Income from investments in affiliated companies – net
4,647
5,794
Interest income / expense – net
Other financial income / expense - net
Nonoperating income
Income taxes
Income after taxes / net income
Allocation to other retained earnings
Distributable profit
54
163
4,864
(371)
3,600
(1,367)
2,233
(369)
(354)
5,071
(335)
4,543
(1,643)
2,900
Rise in earnings due to higher income from investments in affiliated companies
The assumption of the operational business of Bayer Pharma AG and Bayer CropScience AG
resulted in a significant increase in sales of Bayer AG, from €0.4 billion to €14.7 billion. Of this
increase, Pharmaceuticals accounted for €8.5 billion and Crop Science for €6.1 billion.
Sales of Pharmaceuticals declined by €0.3 billion compared with the figure of €8.8 billion posted
in the previous year by the predecessor company. Sales of our anticoagulant Xarelto™ increased
by €234 million, compared with declines of €194 million for Aspirin™ Cardio, €190 million for our
multiple sclerosis treatment Betaferon™ / Betaseron™, €53 million for LevitraTM and €48 million for
the MRI contrast agent Gadavist™ / Gadovist™. Of the total sales of Pharmaceuticals, business
with Group companies accounted for 90% and business with third parties for 10%.
Sales of Crop Science declined by €0.4 billion compared with the figure of €6.5 billion posted in
the previous year by Bayer CropScience AG. The declines pertained to nearly all units. Sales
moved back by €245 million at Insecticides, by €209 million at Fungicides and by €150 million at
Herbicides. Latin America was responsible for the decline in sales, with business in that region
shrinking by €0.6 billion as the high inventories in Brazil had a negative effect. The ratio of sales
between Group companies and those to third parties at Crop Science was 96% to 4%.
After deducting the cost of goods sold of €7.9 billion from sales, gross profit was €6.8 billion, or
46% of sales. The gross margin was 58% at Pharmaceuticals and 34% at Crop Science. Selling
expenses of €3.9 billion mainly comprised €3.3 billion in royalties, €2.7 billion of which was paid to
Bayer Intellectual Property GmbH for the use of patents, trademarks and other intellectual proper-
ty. Research and development expenses increased from €46 million in the previous year to
€2.2 billion in 2017 due to the expansion of business, with €1.5 billion attributable to Pharmaceu-
ticals and €0.5 billion to Crop Science. The €0.2 billion increase in administration expenses to
€0.9 billion also resulted from the transfer of business. Other operating expenses, net of other
operating income, decreased by €162 million to €17 million. In the previous year, expenses of
€198 million were incurred for the first-time recognition by Bayer AG of provisions for impending
losses from sales and licensing agreements transferred to Bayer AG effective January 1, 2017,
with the businesses leased from Bayer Pharma AG and Bayer CropScience AG.
Bayer Annual Report 2017
A Combined Management Report
157
2.3 Earnings; Asset and Financial Position of Bayer AG ///// 2.3.1 Earnings Performance of Bayer AG
Augmented Version
The operating loss at Bayer AG declined by €700 million, from €893 million in the previous year to
€193 million in 2017.
Income from investments in affiliated companies increased by €1,147 million to €5,794 million.
The significant improvement was due particularly to proceeds of €2,720 million (2016: €79 million)
from the sale of shares in Covestro AG. The dividends and similar income from subsidiaries also
increased year on year, moving forward by €490 million to €819 million (2016: €329 million). The
profit distribution of Bayer Hispania, S.L., Spain, (€591 million; 2016: €62 million) and Covestro
AG (€146 million; 2016: €91 million) played a particularly important role here. Profit transfers de-
clined from €4,188 million in the previous year to €2,245 million in 2017. This decline was mainly
attributable to the removal of Bayer CropScience AG from the fiscal unity; that company had
transferred profits of €1,017 million in the previous year. Earnings of Bayer Pharma AG were also
down significantly at €2,248 million (2016: €3,011 million) and now result mainly from income from
subsidiaries and the business lease. Significant effects of profit-and-loss transfer agreements were
the transfer of income of €130 million (2016: loss of €19 million) from Bayer Real Estate GmbH
due to income from subsidiaries and income of €94 million (2016: €204 million) from Siebte Bayer
VV GmbH, which receives regular dividend income from a U.S. subsidiary that handles export
business in the United States for Bayer Health Care LLC. Due partly to project costs, Bayer Busi-
ness Services GmbH reported a much higher loss of €201 million (2016: €50 million), which was
offset by Bayer AG.
Net interest expense was €369 million, after net interest income of €54 million in the previous year.
The interest portion of the allocation to provisions for pensions and other post-employment bene-
fits and the valuation of the fund assets resulted in a net gain of €174 million, which was
€129 million below the prior-year figure (2016: €303 million). This decline resulted mainly from
interest-related actuarial losses, after gains in the previous year due to the change in the method
for determining the discount rate.
Of the remaining €543 million (2016: €249 million) balance of interest expenses and income,
€297 million (2016: €196 million) was attributable to third parties, with the creditors of the bonds
and commercial paper programs accounting for €186 million (2016: €189 million), €109 million
(2016: 25 million) to interest-rate swaps and options, and €246 million (2016: €53 million) to
Group companies. The higher expense in the Group resulted chiefly from a corresponding in-
crease in intra-Group debt.
Other financial income and expenses yielded a negative balance of €354 million in 2017 after a
positive balance of €163 million in the previous year. This decline of €517 million was mainly
attributable to a difference of €391 million in income / losses from currency translation (minus
€212 million; 2016: plus €179 million), and to an increase of €164 million in expenses for credit
facilities. The latter accounted for expenses of €221 million (2016: €57 million), of which
€210 million was related to the financing of the planned acquisition of Monsanto. The absence in
2017 of the pre-payment penalty of €31 million incurred in the previous year for early repayment
of an intra-Group loan had a positive impact on earnings. Income from other subsidiaries to cov-
er pension expenses for retirees remaining with Bayer AG following the hive-down of the operat-
ing business in 2002 and 2003 amounted to €115 million (2016: €4 million). This increase corre-
sponds to a rise in pension expenses, the interest portion of which was reflected in interest
expense, while the remainder of €41 million was reflected in other financial income and expenses
(2016: income of €56 million).
158
A Combined Management Report
Bayer Annual Report 2017
2.3 Earnings; Asset and Financial Position of Bayer AG ///// 2.3.2 Asset and Financial Position of Bayer AG
Augmented Version
Income before income taxes greatly exceeded the prior-year level at €4,878 million (2016:
€3,971 million). Tax expense nonetheless declined from €371 million to €335 million due to higher
tax-free income from investments in affiliated companies and divestiture proceeds. After deduction
of taxes, net income was €4,543 million (2016: €3,600 million). An allocation of €1,643 million was
made to other retained earnings, giving a distributable profit of €2,900 million.
Distributable profit of
€ 2,900 million
The Board of Management and Supervisory Board will propose to the Annual Stockholders’
Meeting on May 25, 2018, that the distributable profit be used to pay a dividend of €2.80 per
share on the capital stock entitled to the dividend for 2017 and that the remaining portion be
carried forward.
2.3.2 Asset and Financial Position of Bayer AG
Bayer AG Summary Statements of Financial Position according
to the German Commercial Code
€ million
ASSETS
Noncurrent assets
Intangible assets, property, plant and equipment
Financial assets
Current assets
Inventories
Trade accounts receivable
Receivables from subsidiaries
Other assets and deferred charges
Cash and cash equivalents, marketable securities
Total assets
EQUITY AND LIABILITIES
Equity
Provisions
Other liabilities
Bonds and notes, liabilities to banks
Trade accounts payable
Payables to subsidiaries
Remaining liabilities and deferred income
Total equity and liabilities
2016 figures restated
A 2.3.2/1
Dec. 31,
2016
Dec. 31,
2017
58
49,112
49,170
3
77
4,092
776
2,728
7,676
56,846
152
47,071
47,223
2,109
2,002
2,585
901
4,272
11,869
59,092
16,565
1,905
18,875
2,201
6,673
86
7,618
1,750
31,197
28,078
420
38,376
56,846
570
38,016
59,092
See also A 2.3.2/1
Total assets increased due to the integration of the Pharmaceuticals and Crop Science
businesses
The asset and liability structure of Bayer AG is dominated by the management functions for
the Bayer Group, even following the integration of the parent company functions of the Pharma-
ceuticals and Crop Science divisions. The financial position is shaped particularly by the man-
agement of subsidiaries and the financing of corporate activities. This is primarily reflected in the
high level of investments in affiliated companies and of the receivables from, and payables to,
Group companies.
Bayer Annual Report 2017
A Combined Management Report
159
2.3 Earnings; Asset and Financial Position of Bayer AG ///// 2.3.2 Asset and Financial Position of Bayer AG
Augmented Version
Total assets of Bayer AG rose by €2.2 billion in 2017 to €59.1 billion, due particularly to the as-
sumption of the operational business of the Pharmaceuticals and Crop Science divisions from
Bayer Pharma AG and Bayer CropScience AG, respectively, which led especially to an increase in
current assets of €4.2 billion. Noncurrent assets declined by €1.9 billion.
A 2.3.2/2
Total Assets
€ billion
56.8
59.1
The decline in noncurrent assets resulted almost exclusively from the divestment of shares in
Covestro AG (€1.9 billion) and their placement into Bayer Pension Trust e.V. (€0.2 billion), respec-
tively. Investments in affiliated companies declined by €2.0 billion overall, but continued to account
for by far the largest item in total assets, amounting to €46.2 billion or 78.2% (2016: 84.9%). The
value of other financial assets and property, plant and equipment remained unchanged at
€0.9 billion and €29 million, respectively, while intangible assets increased by €0.1 billion to
€123 million.
+ 3.9%
2016
2017
Due to the transfer and integration of the Pharmaceuticals and Crop Science businesses, sub-
stantial inventories and customer receivables of €2.1 billion (2016: €0.0 billion) and €2.0 billion
(2016: €0.1 billion), respectively, were recognized for the first time in current assets. The latter
mainly comprised €1.6 billion (2016: €0.1 billion) from subsidiaries. Receivables from subsidiaries
amounted to €2.6 billion (2016: €4.1 billion) and accounted for 4.4% of total assets. The other
receivables reflected in current assets (including deferred charges) increased by €125 million to
€901 million; this total includes €284 million in shares of Covestro AG divested to banks while
retaining exposure to economic risks and opportunities. Cash and cash equivalents in the form of
higher bank deposits increased by €1.5 billion to €4.3 billion.
Bayer AG had equity of €18.9 billion (2016: €16.6 billion). The increase represents the excess of
the €4,543 million net income for 2017 over the €2,233 million dividend payment for 2016. The
equity ratio increased to 31.9% (2016: 29.1%) due to the less substantial growth in total assets.
Provisions increased by €0.3 billion to €2.2 billion. Among the items transferred to Bayer AG in
connection with the assumption of the operational business of Pharmaceuticals and Crop Science
and the corresponding transfers of undertaking were pension obligations of €1.0 billion and fund
assets of €0.4 billion, as well as net defined benefit liability of €0.6 billion. Nevertheless, pension
obligations declined by €162 million due to the increase in the value of fund assets and additional
contributions. Provisions for taxes also decreased, falling by €150 million to €391 million, while
miscellaneous provisions rose by €608 million to €1,075 million. The main factors here were a
€319 million increase in personnel commitments, which was attributable particularly to the in-
crease in the size of the workforce, and a €220 million increase in impending losses, especially
from hedging transactions.
Other liabilities (including deferred income) edged back by €0.4 billion to €38.0 billion (net of
deductible receivables). Due to the assumed Pharmaceuticals and Crop Science businesses,
significant trade accounts payable of €1.8 billion accumulated for the first time, while other oper-
ating liabilities declined by €1.7 billion. Financial debt was paid down by €0.5 billion, with a
€1.5 billion decline in intra-Group debt being partly offset by a €1.0 billion increase in external
financial debt. A €750 million DIP bond maturing in 2018 was early redeemed in 2017, while
€1 billion in debt instruments (exchangeable bonds) that can also be paid in Covestro shares
were newly issued. Liabilities to banks and other third parties increased by €0.7 billion and
€0.1 billion, respectively. Total financial debt at year end 2017 was €36.0 billion (2016:
€36.5 billion). After deduction of cash and cash equivalents of €4.3 billion (2016: €2.7 billion), net
debt fell by €2.1 billion to €31.7 billion (2016: €33.8 billion).
160
A Combined Management Report
2.4 Alternative Performance Measures Used by the Bayer Group
Augmented Version
Bayer Annual Report 2017
See also “About this
Report” and Note 2 to B
Consolidated Financial
Statements
2.4 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 disclo-
sures 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 ad-
justments may result from differences in calculation or measurement methods, nonuniform busi-
ness activities or special factors affecting the information value of these items. The APMs deter-
mined 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 per-
formance. 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
The (reported) change in sales is a relative indicator. It shows the percentage by which sales var-
ied 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 resta-
ted 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 activi-
ties. EBIT is calculated as follows:
Reconciliation to EBIT
Income before income taxes
+ / – Financial result (net income / loss from investments accounted for using the equity method, financial
income and expenses)
=
EBIT
A 2.4/1
Bayer Annual Report 2017
2.4 Alternative Performance Measures Used by the Bayer Group
A Combined Management Report
161
Augmented Version
EBITDA stands for earnings before interest, taxes, depreciation and amortization. This perfor-
mance 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 depre-
ciation of property, plant and equipment, plus impairment losses and minus impairment loss rever-
sals, recognized in profit or loss during the reporting period.
A 2.4/2
Reconciliation to EBITDA
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 opera-
tional 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. In the calculation of EBIT before special
items and EBITDA before special items, special charges are added and special gains subtracted.
The EBITDA margin before special items is a relative indicator used by Bayer for internal and ex-
ternal 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 based on the earnings per share (EPS) for the
Group as defined in IAS 33. Core earnings per share are determined by neutralizing the effects of
special items 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 calcu-
lated by dividing core net income per share by the weighted average number of shares.
See also A 2.2.1
Reconciliation to Core Earnings per Share
EBIT (as per Income Statements)
+ / – Amortization / impairment losses / impairment loss reversals on intangible assets
+ / – Impairment losses / impairment loss reversals on property, plant and equipment, and accelerated
depreciation included in special items
+ / – Special items (other than accelerated depreciation, amortization and impairment losses / loss reversals)
A 2.4/3
= 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 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.
162
A Combined Management Report
2.4 Alternative Performance Measures Used by the Bayer Group
Augmented Version
Bayer Annual Report 2017
Core earnings per share form the basis of the Bayer Group’s dividend policy.
See also A 2.2.4
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:
A 2.4/4
Reconciliation to Net Financial Debt
Bonds and notes / promissory notes
+ Liabilities to banks
+ Liabilities under finance leases
+ Liabilities from derivatives
1
+ Other financial liabilities
- Receivables from derivatives
1
= Financial liabilities
– Cash and cash equivalents
– Current financial assets
2
= Net financial debt
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.
The return on capital employed (ROCE) is the ratio of net operating profit after tax (NOPAT) to the
average capital employed. It is a value-oriented indicator used in long-term business and portfolio
analyses. 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. In addition to the items
reported in the previous fiscal year, “assets held for sale” and “liabilities directly related to assets
held for sale” are included in capital employed because these items contributed to EBIT in the
fiscal year. 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:
Bayer Annual Report 2017
2.4 Alternative Performance Measures Used by the Bayer Group
A Combined Management Report
163
Augmented Version
Components of Capital Employed
€ million
Goodwill
Other intangible assets
Property, plant and equipment
Other financial assets
1
Inventories
Trade accounts receivable
Other receivables
1
Deferred tax assets
1
Claims for income tax refunds
Assets held for sale
Gross capital employed
Other provisions
1
Trade accounts payable
Other liabilities
1
Financial liabilities
1
Deferred tax liabilities
1
Income tax liabilities
Liabilities directly related to assets held for sale
Capital employed
Average capital employed in 2017
A 2.4/5
Dec. 31,
2016
Dec. 31,
2017
16,048
13,470
8,475
49
6,687
9,319
1,367
2,591
676
10
58,692
(6,154)
(4,991)
(2,488)
–
(1,242)
(1,307)
–
42,510
–
14,751
11,674
7,633
47
6,550
8,582
1,293
2,371
474
2,081
55,456
(5,602)
(5,129)
(2,093)
(4)
(910)
(917)
(111)
40,690
41,600
2016 figures restated
1 Selected items of the component: nonoperative or non-interest-bearing items eliminated within capital employed
The total operating performance is the sum of net sales, other operating income, financial in-
come 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.
164
A Combined Management Report
3.1 Future Perspectives ///// 3.1.1 Economic Outlook
Augmented Version
Bayer Annual Report 2017
3. Report on Future Perspectives
and on Opportunities and Risks
3.1 Future Perspectives
3.1.1 Economic Outlook
Economic Outlook
World
European Union
of which Germany
United States
Emerging Markets ²
A 3.1.1/1
1
Growth
2017
Growth
1
forecast
2018
+ 3.2%
+ 2.5%
+ 2.6%
+ 2.2%
+ 4.8%
+ 3.3%
+ 2.2%
+ 2.8%
+ 2.7%
+ 4.8%
Growth 2017 restated
1 Real growth of gross domestic product, source: IHS Markit
2 Including about 50 countries defined by IHS Markit as Emerging Markets in line with the World Bank
As of February 2018
Global economic growth remains strong
The global economy should continue to grow strongly in 2018. In the United States, particularly,
we expect higher momentum than in 2017. Among other things, the recent tax cuts should pro-
vide economic impetus, and unemployment should also decline, reinforcing consumer spending.
Robust growth can also be expected in Europe, although it is likely to be slightly lower than in
2017. The economy is still being hampered by political uncertainty, including the wrangling about
what form the United Kingdom’s exit from the European Union should take. By contrast, a further
reduction in unemployment should have a positive impact. In the Emerging Markets, we anticipate
strong growth on the same level as in the previous year. As the global economy remains in good
shape, growth in these countries should be driven principally by exports. We expect strong growth
in China but at a slightly slower pace than in 2017.
Economic Outlook for the Segments
Pharmaceuticals market
Consumer health market
Seeds and crop protection market
Animal health market
A 3.1.1/2
1
Growth
2017
Growth
1
forecast
2018
+ 3%
+ 4%
+ 3 – 4%
+ 3 – 4%
+ 1%
+ 2%
+ 3%
+ 4%
1 Bayer’s estimate, except pharmaceuticals. Source for pharmaceuticals market: IMS Health. IMS Market Prognosis.
Copyright 2017. All rights reserved; currency-adjusted; 2017 data provisional
As of February 2018
We anticipate that the pharmaceuticals market will post slightly higher growth in 2018 (4%) than in
2017. The main growth drivers are likely to be new product launches. The expiration of patents is
expected to have a negative impact as it could result in increased competition from generics. We
see a positive development in the United States, Europe, Latin America and Asia, but slower
growth in the Japanese pharmaceuticals market.
Bayer Annual Report 2017
A Combined Management Report
165
3.1 Future Perspectives ///// 3.1.2 Corporate Outlook
Augmented Version
As regards the consumer health market, we anticipate growth of 3 to 4% in 2018. The market is
likely to remain tight as a result of rising price pressure from e-commerce and consolidation of the
retail sector.
The global seed and crop protection market should develop positively in 2018 (+3%). In our view,
the principal growth momentum will come from Latin America, mainly due to the expected normal-
ization of inventories of crop protection products in Brazil and a further increase in soybean acre-
ages. We also expect the market to grow in the Asia / Pacific region and in Eastern Europe. The
persistently low price of agricultural commodities in North America and Western Europe is likely to
be reflected in sluggish growth, which will lag behind the overall global development.
Following a slight upturn in the animal health market at the end of 2017, we expect growth to pick
up compared with 2017 to 4% in 2018. The main factors here are likely to be an improvement in
market conditions in the farm animals sector, along with further robust demand in the companion
animals business.
3.1.2 Corporate Outlook
The following forecast is based on the current business development and our internal planning.
The planned acquisition of Monsanto is not yet included in this forecast and is dealt with separate-
ly below.
Our forecast is based on the exchange rates as of December 31, 2017. To enhance the com-
parability of operating performance, the forecasts are also adjusted for currency effects
appreciation (depreciation) of the euro against all other currencies would decrease (increase) sales
on an annual basis by some €250 million and EBITDA before special items by about €70 million.
1. A 1%
For 2018, we expect sales of around €35 billion. This corresponds to a low- to mid-single-digit
percentage increase on a currency- and portfolio-adjusted basis. EBITDA before special items is
expected to match the prior-year level (currency-adjusted: increase by a mid-single-digit percent-
age). Core earnings per share from continuing operations are expected to come in at the prior-
year level (currency-adjusted: increase by a mid-single-digit percentage).
Forecast for Key Financial Data of the Group for 2018
Sales
Prior-year level
Increase by a low- to mid-single-digit
percentage
Closing rates on Dec. 31, 2017
Currency-adjusted
Development of EBITDA before
special items
Development of core earnings
per share
Prior-year level
Increase by a mid-single-digit percentage
Prior-year level
Increase by a mid-single-digit percentage
A 3.1.2/1
Sales and earnings forecast by segment
For Pharmaceuticals, we plan to generate sales of more than €16.5 billion, taking into account
product supply constraints out of the Leverkusen Supply Center. This corresponds to a low-
single-digit percentage increase on a currency- and portfolio-adjusted basis. We aim to raise sales
of our key growth products Xarelto™, Eylea™, Stivarga™, Xofigo™ and Adempas™ towards
€7 billion. We expect EBITDA before special items to decline by a low-single-digit percentage
(currency-adjusted: increase by a low-single-digit percentage), and anticipate a slight decline in
the EBITDA margin before special items.
1 The average monthly exchange rates from 2017 (see B 4/1) were applied.
166
A Combined Management Report
3.1 Future Perspectives ///// 3.1.2 Corporate Outlook
Augmented Version
Bayer Annual Report 2017
In the Consumer Health segment, we expect sales of more than €5.5 billion, which would be at
the prior-year level on a currency- and portfolio adjusted basis. We expect EBITDA before special
items to decline by a low-single-digit percentage (currency-adjusted: increase by a low-single-digit
percentage).
For Crop Science, we see sales coming in at more than €9.5 billion. This corresponds to a mid-
single-digit percentage increase on a currency- and portfolio-adjusted basis. We expect to in-
crease EBITDA before special items by a mid- to high-single-digit percentage (currency-adjusted:
mid-teens percentage increase).
See also B 3 for the
effects of IFRS 15
In the Animal Health segment, we expect a currency- and portfolio-adjusted increase in sales by a
low-single-digit percentage. We expect EBITDA before special items to decline by a mid-single-
digit percentage (currency-adjusted: at the prior-year level). Both sales and EBITDA before special
items are negatively impacted by revised financial reporting standards (IFRS 15).
Reconciliation: We expect sales of around €1.5 billion in 2018. We plan EBITDA before special
items in the region of minus €0.2 billion.
Forecast for Other Key Data of the Group for 2018
Special charges
1
Research and development expenses
Capital expenditures
of which for intangible assets
Depreciation and amortization
of which on intangible assets
Financial result
Effective tax rate
Net financial debt
2
A 3.1.2/2
Closing rates on Dec. 31, 2017
around €0.4 billion
around €4.1 billion
around €2.2 billion
around €0.6 billion
around €2.2 billion
around €1.2 billion
around minus €1 billion
20.0%
Net liquidity position
1 Mainly comprising costs in connection with the planned acquisition of Monsanto until closing, restructuring measures and efficiency
improvement programs
2 Excluding capital and portfolio measures
Bayer Annual Report 2017
A Combined Management Report
167
3.2 Opportunity and Risk Report ///// 3.2.1 Group-wide Opportunity and Risk Management System
Augmented Version
Outlook including Monsanto
Through the expected acquisition in the second quarter of 2018, we anticipate a significant in-
crease in sales and EBITDA before special items. Based on current assumptions about the equity
and financing measures to be undertaken, we expect a moderate decline in core earnings per
share. For the first full year following the acquisition, we continue to expect a significant increase
in sales and EBITDA before special items, and an increase in core earnings per share.
Outlook for Bayer AG
For Bayer AG we expect sales of approximately €15 billion and EBIT in the region of minus
€1.5 billion. Bayer AG comprises both its own operational business and that assumed from
Bayer Pharma AG and Bayer CropScience AG through business leases. In addition, the earnings
of most major Bayer subsidiaries in Germany are transferred directly to Bayer AG under profit
and loss transfer agreements. Also, specific intra-company dividend measures ensure the availa-
bility of sufficient distributable income. On account of the interdependencies between Bayer AG
and its subsidiaries, the outlook for the Bayer Group thus largely also reflects the expectations
for Bayer AG. In the coming year, based on these factors, we expect Bayer AG to report a dis-
tributable profit that will again enable our stockholders to adequately participate in the Bayer
Group’s earnings.
See also A 1.1.2
3.2 Opportunity and Risk Report
3.2.1 Group-wide Opportunity and Risk Management System
As a global life science enterprise, the Bayer Group is constantly exposed to a wide range of in-
ternal or external developments and events that could significantly impact the achievement of our
financial and nonfinancial objectives. Opportunity and risk management is therefore an integral
part of corporate management at Bayer. We regard opportunities as positive deviations, and risks
as negative deviations, from projected or target values for potential future developments.
Following the deconsolidation of Covestro at the end of the third quarter of 2017, the opportunity
and risk management of Covestro is no longer analyzed. The operational risks of Covestro are no
longer part of Bayer’s risk profile.
Opportunity management system
We identify opportunities as part of the annual strategic planning cycle, during which the seg-
ments analyze internal and external factors that may positively affect the development of our busi-
ness. These may be factors of a social, economic or environmental nature. The core phase of our
strategic planning process normally takes place in the first half of the year and starts with a com-
prehensive analysis of the markets. The segments build on this by analyzing their respective mar-
ket environments to identify their opportunities. They base these analyses on different time periods
to take into account the fact that trends or developments may impact our business over the short,
medium or long term. In addition, opportunities are identified by the management and employees
through daily observation of internal processes and markets. We have already taken account in
our planning of opportunities that we believe are highly probable to materialize.
Risk management system
In connection with the reorganization of the Bayer Group initiated at the beginning of 2016, coor-
dination of risk management activities was combined within the Risk Management function, which
reports directly to the Chief Financial Officer, and the risk management system was comprehen-
sively and extensively realigned. This realignment involved, among other things, the adjustment of
the risk management process – Enterprise Risk Management (ERM) process – to include a revised
risk catalogue (Bayer Risk Universe) and a modified assessment system.
168
A Combined Management Report
Bayer Annual Report 2017
3.2 Opportunity and Risk Report ///// 3.2.1 Group-wide Opportunity and Risk Management System
Augmented Version
The Bayer Group has implemented a holistic and integrated risk management system designed to
ensure the continued existence and future target attainment of the Group through the early identi-
fication, assessment and treatment of risks.
The Bayer Group’s risk management system is aligned to internationally recognized standards and
principles such as the ISO 31000 risk management standard of the International Organization for
Standardization (ISO).
Structure of Bayer’s Risk Management System
Structure of the Risk Management System
A 3.2.1/1
Supervisory Board
Board of Management
Bayer Risk Committee
Risk early warning system
Internal control system for
(Group) financial reporting
process
Compliance management system
Internal Audit
Pharmaceuticals
Consumer Health
Crop Science
Animal Health
Corporate functions,
Business Services & Currenta
Other systems
(e.g. quality management)
Operational business
Control and monitoring systems
Process-independent monitoring
Bayer principles, standards, methods and tools
Board of Management / Supervisory Board
The Board of Management of Bayer AG holds overall responsibility for an effective risk manage-
ment system. The Audit Committee of the Supervisory Board examines the appropriateness and
effectiveness of the risk management system at least once a year.
Bayer Risk Committee
The Bayer Risk Committee, which is chaired by the Chief Financial Officer, is comprised of repre-
sentatives from the segments and corporate functions. It ensures that all relevant risks are ade-
quately addressed with risk mitigation measures, and also discusses and regularly evaluates the
risk portfolio and the mitigation status.
Business operations
Responsibility for the identification, assessment, treatment and reporting of risks lies with the
operational business units in the segments and corporate functions.
Control and monitoring systems
To enable the Board of Management and the Supervisory Board to monitor material business risks
as required by law, the Bayer Group has implemented a risk early warning system pursuant to
Section 91, Paragraph 2 of the German Stock Corporation Act (AktG), an internal control system
for (Group) accounting and financial reporting processes and a compliance management system.
Various corporate functions are responsible for these systems.
Bayer Annual Report 2017
A Combined Management Report
169
3.2 Opportunity and Risk Report ///// 3.2.1 Group-wide Opportunity and Risk Management System
Augmented Version
As the main corporate function for control and monitoring systems, the Risk Management function
assumes governance and coordination responsibilities in relation to the risk management system.
It provides overarching standards, methods and tools, is responsible for the risk early warning
system, steers the annual ERM process and ensures reporting to the Bayer Risk Committee and
the Board of Management. The three systems in place at Bayer are described below.
Risk early warning system
Our ERM process meets the requirements set out in Section 91, Paragraph 2 of the German
Stock Corporation Act. This uses a risk early warning system to identify at an early stage devel-
opments that are material and / or could endanger the company’s continued existence. This pro-
cess establishes a consistent framework and uniform standards for the risk early warning system
throughout the Group.
Internal control system for (Group) accounting and financial reporting
(Report pursuant to Sections 289, Paragraph 4 and 315, Paragraph 4 of the German Commercial
Code)
As part of the comprehensive risk management system, Bayer has an internal control system (ICS)
in place for the (Group) accounting and financial reporting process. This process comprises de-
fined structures and workflows implemented throughout the organization. The purpose of our ICS
is to ensure proper and effective accounting and financial reporting in accordance with Section
289, Paragraph 4 and Section 315, Paragraph 4 of the German Commercial Code. The ICS is
designed to guarantee timely, uniform and accurate accounting for all business transactions based
on applicable statutory regulations, accounting and financial reporting standards and the internal
Group policies that are binding upon all consolidated companies. Risks are identified and as-
sessed, and mitigated using suitable countermeasures. Mandatory ICS standards such as system-
based and manual reconciliation processes and functional separation have been derived from
these frameworks and promulgated throughout the Group by the Risk Management function on
behalf of the Chief Financial Officer of Bayer AG. The ICS standards are implemented by the
Group companies and their compliance overseen by the respective management. Using Bayer’s
shared service centers, these companies prepare their financial statements locally and transmit
them with the aid of a standard Group data model. This data model is based on the Group ac-
counting policy and thus ensures the regulatory compliance of the consolidated financial state-
ments. The Board of Management has confirmed the effective functioning of the ICS and the rele-
vant criteria for the 2017 fiscal year. However, it should be noted that an internal control system,
irrespective of its design, cannot provide absolute assurance that material misstatements in the
financial reporting will be avoided or identified.
Compliance management system
Our compliance management system is aimed at ensuring lawful and responsible conduct by our
employees. It is designed to identify potential violations in advance and systematically prevent
their occurrence. The compliance management system thus contributes significantly to the inte-
gration of compliance into our operating units and their processes. Details on compliance man-
agement can be found under A 4.2 “Compliance.” This section describes in particular the process
used to identify risks and measures taken to mitigate them.
See also A 4.2
Process-independent monitoring
Among other tasks, the Internal Audit function supports the Board of Management in the inde-
pendent monitoring of the risk management system. It examines individual risk areas and the
measures undertaken.
In addition, the external auditor, as an independent external body, assesses the fundamental suit-
ability of the early warning system as part of its audit of the annual financial statements.
170
A Combined Management Report
Bayer Annual Report 2017
3.2 Opportunity and Risk Report ///// 3.2.1 Group-wide Opportunity and Risk Management System
Augmented Version
Basic Elements of the Risk Management System
Basic Elements of the Risk Management System
A 3.2.1/2
The basic elements of the risk management system are described below and established in bind-
ing documents.
Risk culture and objectives of the risk management system
The principles of the risk management system are based on the strategic objectives of the Bayer
Group as a whole and its individual segments, and establish the foundation for proper and re-
sponsible risk management.
The incorporation of all levels of the company into this process heightens awareness about and
understanding of risks, which is essential for creating a risk culture. Furthermore, the clearly de-
fined roles and responsibilities, principles, standards, methods, tools and training measures create
the foundation for the independent, proactive and systematic management of risks.
Risk management process
Identification: Risks are identified by risk owners in the operational companies and functions. To
support the most complete possible identification of risks, the Bayer Group maintains a Risk Uni-
verse that reflects the potential risk categories of Bayer as a life science company. The Bayer Risk
Universe also expressly accounts for risks of a nonfinancial nature that are linked with our busi-
ness activity or business relationships, products and services. Pursuant to the CSR Directive Im-
plementation Act, such risks can include environmental, employee and social issues, as well as
human rights, and corruption and bribery (compliance). The Bayer Risk Universe is regularly exam-
ined and updated if necessary.
Assessment: As set out in the following matrix, the identified risks are evaluated according to their
potential impact and likelihood of occurrence, taking into account mitigation measures. Beginning
this year, risks are classified in a 5x5 matrix; previously a 3x3 matrix was used.
For further information
on the implementation
of the CSR Directive,
see “About this Report”
Bayer Annual Report 2017
A Combined Management Report
171
3.2 Opportunity and Risk Report ///// 3.2.1 Group-wide Opportunity and Risk Management System
Augmented Version
A 3.2.1/3
Risk Assessment Matrix
Severe /
> 2,500
Major /
> 1,500 –2,500
Significant /
> 750– 1,500
Medium /
> 250– 750
Moderate /
> 150– 250
t
c
a
p
m
i
l
a
i
t
n
e
t
o
P
e
v
i
t
a
t
i
t
n
a
u
q
/
e
v
i
t
a
t
i
l
a
u
q
)
n
o
i
l
l
i
m
€
(
Likelihood of occurrence in a 10-year period (%)
Very unlikely
< 10%
Unlikely
10%– 30%
Possible
30%– 50%
Likely
50%– 70%
Very likely
> 70%
High
Medium
Low
Risks to be reported externally
The extent of the impact is rated according to quantity and / or quality. The quantitative assess-
ment reflects the possible loss of cash flows, whereas an earnings parameter was previously
used. A qualitative assessment of damages is based on criteria such as the impact on our strate-
gy or reputation, the potential loss of stakeholder confidence, and the potential violation of sus-
tainability principles (e.g. in the area of safety, environmental protection or human rights). The
highest rating – qualitatively or quantitatively – determines the overall assessment. The likelihood
of occurrence is calculated based on a period of ten years. Risks are classified as high, medium
or low to assess their materiality regarding the overall risk portfolio.
Risks with a potential impact of over €4,000 million are separately examined by the Bayer Risk
Committee to determine their potential to endanger the company’s continued existence.
Treatment: The risk owners decide on a targeted risk level based on a cost-benefit analysis and
define a risk management strategy as well as risk management measures. These include risk
avoidance, risk reduction, risk transfer and risk acceptance.
Reporting: The results are reported to the Bayer Risk Committee by the Risk Management func-
tion. In addition, new risks above a defined threshold are reported to the Risk Management func-
tion on an ad-hoc basis and, if relevant, to the Bayer Risk Committee and the Chief Financial Of-
ficer. A report on the risk portfolio is submitted to the Board of Management and the Audit
Committee of the Supervisory Board once a year.
Monitoring and improvement
The appropriateness and timeliness of the principles, standards, methods and tools are continu-
ously evaluated by those responsible for ERM. Should the targets and / or the Bayer Risk Universe
change, for example, this leads to an adjustment.
172
A Combined Management Report
3.2 Opportunity and Risk Report ///// 3.2.2 Opportunity and Risk Status
Augmented Version
Bayer Annual Report 2017
3.2.2 Opportunity and Risk Status
As material reportable risks pursuant to German Accounting Standard No. 20, all high and medi-
um – or at least significant in terms of potential impact – financial and nonfinancial risks, within the
black outline in the rating matrix A 3.2.1/3, are reported as follows. By contrast, according to the
system applied in the previous year, all risks with a total potential impact of €500 million were
taken into account. In addition, we report relevant risks that from a financial point of view may not
be sufficiently or meaningfully quantifiable, if at all. The risks reported in this section are described
in detail and include the measures established to mitigate them (net risk). We also report on the
principal opportunities identified in the course of our opportunity management.
Comparable risks existing in different segments of the company are bundled where applicable.
The order in which the risks are listed does not imply any order of importance. The risk manage-
ment processes were further developed compared with the previous year and the assessment
method changed as described above. For this reason, a year-on-year comparison of risks is only
possible to a limited extent and is therefore not illustrated here. Wherever relevant, we also de-
scribe segment-specific peculiarities of opportunities and risks.
See also A 3.2.1 and
“About this Report”
According to our understanding, risks relating to the aspects outlined in the CSR Directive Imple-
mentation Act that would have to be reported separately would have to have at least a “severe”
potential impact and their likelihood of occurrence would have to be classified as “highly likely.”
We did not identify any such risks in 2017.
See also A 3.2.3
The following table provides an overview of the individual risk categories together with risk classes
and the segments that are affected. The opportunities and risks resulting from the planned acqui-
sition of Monsanto are described in detail in the following chapter.
Overview of Material Risk Areas
Risk category
Strategic risks
External network and partnerships
Operational performance risks
Intellectual property
Research and development
Market supply
Personnel
Information technology
Finance, accounting and tax
Safety, quality and compliance risks
Product safety
Health, safety and environment
Quality and regulatory requirements
Legal compliance
External risks
Business markets
Political, social and macroeconomic environment
Natural disasters and crises
A 3.2.2/1
Risk class
Affected segment(s)
1
or Group
Medium
Medium
High
Medium
Medium
Medium
Medium
Medium
Medium
High
PH, Group
PH, CS
PH, CS
2
CS
Group
Group
Group
PH, CS
Group
CS, PH
2
See A.3.2.2 “Legal
compliance”
Medium
Medium
Medium
PH, CS, CH
CS
PH, Group
PH: Pharmaceuticals; CS: Crop Science; CH: Consumer Health
1 Listed are those segments that have identified material risks. Other segments may also be affected to a lesser extent.
The Group has been indicated where material risks have been reported by corporate functions.
2 Risk class: medium
Bayer Annual Report 2017
3.2 Opportunity and Risk Report ///// 3.2.2 Opportunity and Risk Status
A Combined Management Report
173
Augmented Version
External network and partnerships
We collaborate with partners 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 the marketing rights for certain pharmaceutical products are held by third par-
ties. 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.
Furthermore, some materials, particularly in our Pharmaceuticals segment, are provided by only a
very limited number of suppliers. Production could be disrupted by delays in delivery. Price ad-
justments may also occur that could have a negative impact on our margin. We counter these
risks by establishing alternative suppliers, concluding long-term agreements, expanding invento-
ries or producing raw materials ourselves. Strategic Material Review Committees (SMRCs) regular-
ly examine and assess the supplier risks.
From the perspective of the Group as a whole, there is a risk that our corporate values, ethical
requirements, compliance and sustainability are not adequately accounted for by our external
network and our partners. We counter this risk through an evaluation process, a code of conduct
for suppliers, and supplier evaluations and audits.
See also A 1.4.2.1
Intellectual property
The Bayer Group, now as in the past, has a portfolio that largely consists of patent-protected
products. 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 invest-
ment 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. We are currently involved in legal proceedings to enforce patent protection for our
products. 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 re-
views 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.
See also Note 32 to
B Consolidated Financial
Statements
Research and development
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.
See also A 1.3
In the Pharmaceuticals segment, opportunities result from digitalization and associated new re-
search and development methods that save time and increase development effectiveness.
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.
174
A Combined Management Report
3.2 Opportunity and Risk Report ///// 3.2.2 Opportunity and Risk Status
Augmented Version
Bayer Annual Report 2017
See also
A 1.4.2.1 and A 1.4.2.2
See also A 1.4.1.1
Despite all our efforts, we cannot assure that we will identify a sufficient number of research can-
didates and that all of the products we are currently developing or will develop in the future will
achieve and retain planned approval / registration or commercial success. Among other factors,
this may result from the failure to meet technical, capacity- and time-related requirements or the
inability to meet trial objectives in product development. The performance of our research partners
could also have a limiting impact in this respect. Delays or cost overruns might occur during prod-
uct registration or launch. 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 pro-
jects.
Market supply
Despite all precautions, operations at our sites may be disrupted by fires, power failures, cyber
attacks or supply disruptions. This also applies to external partners. If we are unable to meet de-
mand 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.
Personnel
Skilled and dedicated employees are essential for the company’s success. Difficulties in recruiting,
hiring, retaining and further developing specialized employees could have significant adverse con-
sequences for the company’s future development. Furthermore, an inadequate and nontranspar-
ent company culture and strategy, as well as the resulting objectives and demands placed on
employees, could lead to declining motivation and unsatisfactory performance and have a nega-
tive impact on Bayer’s attractiveness as an employer.
Based on our analysis of future requirements, we design appropriate employee recruitment and
development measures. In addition, the alignment of our company culture toward diversity and
employee needs enables us to tap the full potential of the employment market. Furthermore, de-
liberate and transparent change management forms an integral part of our human resources man-
agement, enabling us to constantly motivate our employees.
Information technology
Business and production processes and the internal and external communications of the Bayer
Group are dependent on global IT systems. The confidentiality of internal and external data is of
fundamental importance to Bayer in this connection. A loss of data confidentiality, integrity or
authenticity, for example due to (cyber) attacks, could lead to manipulation and / or the uncon-
trolled outflow of data and know-how. Measures undertaken to counter this risk include the high-
intensity testing of new technologies to be deployed and the implementation of projects to keep
technical security standards up to date and proactively examine new threats (e.g. Information
Security@Bayer, Cyber Security Initiative, User Awareness). In addition, the existing IT infrastruc-
ture is protected against unwanted access through security measures by the Corporate Cyber
Defense Center.
Bayer Annual Report 2017
3.2 Opportunity and Risk Report ///// 3.2.2 Opportunity and Risk Status
A Combined Management Report
175
Augmented Version
Finance, accounting, tax
Liquidity risk
Liquidity risks reflect the possible inability of the Bayer Group to meet current or future payment
obligations. The liquidity risk is determined and managed by the Finance function 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. For unbudgeted shortfalls in cash
receipts or unexpected disbursements, furthermore, a reserve is maintained whose amount is
regularly reviewed and adjusted. Credit facilities also exist with banks, including, in particular, an
undrawn €3.5 billion syndicated revolving credit facility with a current maturity of 2020.
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 per-
formance obligations. The maximum default risk is reduced by existing collateral, especially our
global credit insurance programs. 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 condi-
tions. These include credit insurances 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 expo-
sure is €10 million or more are evaluated locally and submitted to the Group Finance function.
Credit risks from financial transactions are managed centrally in the Finance function. To minimize
risks, financial transactions are only conducted within predefined exposure limits and with banks
and other partners that preferably have investment-grade ratings.
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 assump-
tions 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 regular-
ly reviewed.
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 pay-
ables) and of anticipated payment receipts and disbursements in the functional currency. Receiva-
bles and payables in liquid currencies from operating activities and financial items are generally
fully exchange-hedged through cross-currency interest-rate swaps. Anticipated exposure from
planned payment receipts and disbursements in the future is hedged through forward exchange
contracts and currency options according to management guidelines.
Sensitivities were determined on the basis of a hypothetical scenario in which the euro appreci-
ates or depreciates by 10% against all other currencies compared with the year-end exchange
rates. In this scenario, the estimated hypothetical increase or decrease in cash flows from deriva-
tive and nonderivative financial instruments would have improved or diminished earnings and equi-
ty (other comprehensive income) as of December 31, 2017, by €346 million (December 31, 2016:
€380 million). Of this amount, €155 million is related to the U.S. dollar (USD), €66 million to the
Chinese renminbi (CNY), €44 million to the Japanese yen (JPY) and €40 million to the Canadian
dollar (CAD). 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 improved or diminished other comprehensive income by €353 million.
176
A Combined Management Report
3.2 Opportunity and Risk Report ///// 3.2.2 Opportunity and Risk Status
Augmented Version
Bayer Annual Report 2017
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 instru-
ments 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 that 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 receiva-
bles and payables position at year end 2017, 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, 2017, would have raised our interest expense for the year ended
December 31, 2017, by €13 million (December 31, 2016: €31 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.
Tax risks
Bayer AG and its subsidiaries operate worldwide and are thus subject to many different national
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 interpreta-
tion 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 de-
ferred tax assets and liabilities. We counter the resulting risks by continuously identifying and eval-
uating the tax framework.
Product safety
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. We counter these risks through our 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.
See also A 1.4.3.1
Bayer Annual Report 2017
3.2 Opportunity and Risk Report ///// 3.2.2 Opportunity and Risk Status
A Combined Management Report
177
Augmented Version
See also
A 1.4.3.2 and A 1.4.3.3
Health, safety and environment
We attach great importance not only to product safety but also to protecting our employees and
the environment. Misconduct and noncompliance with these requirements may result in personal
injury, property, reputation and environmental damage, loss of production, business interruptions
and / or liability for compensation payments. With our principles, standards and measures, we
ensure that our requirements are adequately communicated, understood and optimally imple-
mented.
Quality and regulatory requirements
In almost every country where we operate, our business activity is subject to extensive regula-
tions, standards, requirements and inspections. Due to growing public and regulatory expecta-
tions, we continue to anticipate considerably more stringent regulatory requirements; for example
for clinical studies or production processes in the area of health or at Crop Science in the monitor-
ing of genetically modified organisms, particularly at country level. The presence of traces of un-
wanted genetically modified organisms in agricultural products and / or foodstuffs cannot be en-
tirely excluded. Potential infringements of current or changing regulatory requirements may result
in the imposition of civil or criminal penalties, including substantial monetary fines, a restriction on
our freedom to operate, and / or other adverse financial consequences. They could also harm
Bayer’s reputation and lead to declining sales and / or margins. Changed requirements can also
lead to higher product development costs and times as well as a necessary adjustment in the
product portfolio.
We counter these risks through binding principles and standards, and implemented control mech-
anisms. Changes in regulatory requirements are monitored to ensure their implementation. Quality
requirements are defined and implemented in global quality management systems.
See also A 1.4.3.1
See also A 3.2.1, A 4.2
and Note 32 to
B Consolidated Financial
Statements
Legal 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, data protection and environmental pro-
tection. 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 con-
sequences, harm Bayer’s reputation and hamper our commercial success. Bayer has established
a global compliance management system to ensure the observance of laws and regulations.
Business market
There is a risk that our growth and market share could be impeded by increasing global cost
pressure on health care systems, as well as price regulations. Government price controls, in part
due to global cost pressure on health care systems, could reduce earnings from our pharmaceuti-
cal products and may occasionally make the market launch of a new product unprofitable. Fur-
thermore, our growth and the development of our market share could be negatively affected by
innovative and aggressive (pricing) policies by competitors, including generic competitors.
We expect the current extent of regulatory controls and pricing pressure to persist or increase. We
are responding to this trend by expanding in-house research and development capacities and
through acquisitions and collaborations.
178
A Combined Management Report
3.2 Opportunity and Risk Report ///// 3.2.2 Opportunity and Risk Status
Augmented Version
Bayer Annual Report 2017
See also A 3.2.3
The current global consolidation process in the seeds and crop protection is also altering our
future competitive environment. We also see a risk in the Crop Science segment that digitalization
could fundamentally change markets for seeds and crop protection products, and have an impact
on value creation and access to markets and customers. Should we be unable to profit from or
counteract these developments through suitable initiatives, this could lead to a loss of customers,
market share or business value and necessitate higher subsequent investments. We are counter-
ing this risk in part through our Digital Farming Initiative, in which we utilize findings from the anal-
ysis and interpretation of agricultural data, and through selected further acquisitions and broadly
based scientific and commercial partnerships.
The risk of existing business models being disrupted by digitalization or new digital products is
also present in the Consumer Health segment. Digitalization is a key factor in gaining a competi-
tive advantage. If we fail to adequately integrate this development into our existing business mod-
els, we could lose customers or market share. In the context of initiatives, we monitor the market
very closely and develop strategies to illustrate developments in our business models.
Political, social and macroeconomic environment
Changes in political, social and macroeconomic factors such as economic growth, life expectancy,
population size and consumer behavior as well as societal trends, political crises and instability
result in opportunities for us, but are also associated with risks.
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 could
also affect agricultural imports from other parts of the world and therefore our business in those
regions. To mitigate such risks, we are closely monitoring the regulatory and legislative decision-
making processes and developing our product portfolio with a view to the anticipated changes.
We are also engaged in a constant dialogue with interest groups and regulators to promote a
scientifically founded, rational and responsible discussion and decision-making process.
The opportunities for our agricultural businesses arise from global population growth and the in-
creasing demand for food. In addition, consumer behavior in some regions is shifting toward high-
er 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 in-
creasing pesticide resistance. We expect the demand for high-quality seed and crop protection
products to rise in light of the need to produce sufficient food and animal feed to meet the grow-
ing demand in spite of limited acreages. In response, Crop Science is developing processes to
more effectively protect plants against climatic and environmental influences and raise crop yields,
for example.
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 grow-
ing demand for innovative health care products to treat age-related diseases, Bayer’s Pharma-
ceuticals segment is concentrating its research and development activities on relevant therapeu-
tic areas.
Bayer Annual Report 2017
A Combined Management Report
179
3.2 Opportunity and Risk Report ///// 3.2.3 Opportunities and Risks Related to the Planned Acquisition of Monsanto
Augmented Version
Natural disasters and crises
Our business activities could be affected by natural disasters, pandemics and epidemics, terrorist
activities or comparable critical events. For example, some of our production sites are located in
regions that could be affected by natural disasters such as flooding or earthquakes. Such events
could cause stoppages at production plants or other disruptions, or result in personal injury and
damage to our reputation, as well as lead to declines in sales and / or margins and necessitate the
reconstruction of damaged infrastructure.
We address these risks through our local crisis organizations, which, among other things, provide
response plans. We have implemented early warning systems, ensure continuous reporting and
carry out regular crisis simulation exercises. In addition, we have established global safety com-
munities, and the Business Continuity Management department within the Group Risk Manage-
ment function assesses such risks and defines appropriate measures together with the responsi-
ble specialist units.
3.2.3 Opportunities and Risks Related to the Planned Acquisition
of Monsanto
In order to prepare the future integration of the Monsanto business, Bayer has initiated a project in
which the integration process is being carefully planned in all business areas so that it can be
achieved after all regulatory approvals have been received and the transaction has been closed.
Our existing risk management methods are being applied here to identify at an early stage possi-
ble risks resulting from the acquisition and integration, and to initiate suitable countermeasures as
quickly as possible. The integration process will start after the transaction is closed, which we
now expect in the second quarter of 2018. Bayer is experienced in successfully integrating acqui-
sitions from a business, geographical and cultural perspective, and in so doing remains committed
to its strong culture of innovation, sustainability and social responsibility.
Opportunities
Following the successful integration of the Monsanto business, we see additional opportunities for
combining our complementary innovative expertise. Feeding a growing global population in an
ecologically sustainable way is among the challenges faced by agriculture, and is one that requires
a new approach that more systematically integrates expertise across seeds, traits and crop pro-
tection including biologicals. The merger would enable us to offer a broader portfolio of innovative
products tailored to meet farmers' individual needs and the many challenges they face. The range
and depth of our research and development activities should make it possible to optimize the
various technologies so that we can accelerate the time-to-market of enhanced innovations. We
believe that by combining our innovation capacities and our research and development budget,
we can more effectively tackle the challenges faced in developing and introducing innovations in
agriculture, including longer and more costly development cycles or stricter regulatory require-
ments. In the medium to long term, we plan to leverage the strengths of the combined R&D plat-
form to deliver pioneering technologies faster and to provide our customers with advanced, cus-
tomized product solutions on the basis of agricultural analysis, along with supporting digital
farming applications. These developments are expected to result in significant and lasting benefits
for farmers: from improved sourcing and increased convenience to higher yield, better environ-
mental protection and sustainability. We believe the combined company will be very well posi-
tioned to tap the considerable long-term growth potential of the agricultural sector.
See also A 1.2.1 for
Crop Science strategy
180
A Combined Management Report
Bayer Annual Report 2017
3.2 Opportunity and Risk Report ///// 3.2.3 Opportunities and Risks Related to the Planned Acquisition of Monsanto
Augmented Version
Risks
The size and importance of the acquisition result in the following principal risks, which could ad-
versely affect our current or future business, financial position, share price or dividend payments.
As Bayer and Monsanto are currently still independent companies, the risks are not assessed
through the previously described Enterprise Risk Management process. Some are identified and
evaluated as part of the project set up to prepare for the integration, based on available infor-
mation. The list of risks therefore makes no claim to completeness, nor does the order in which
they are listed imply any order of importance.
Requirements for closing
At the present time, the possibility cannot be excluded that the planned acquisition will be delayed
or not take place at all. The transaction remains subject to customary closing conditions, including
relevant antitrust and other regulatory approvals. The necessary approvals may be refused or
could be tied to certain divestment actions or other commitments required by regulators of Bayer
and / or Monsanto. Such measures could negatively impact our strategic planning and necessitate
substantial adjustments to our operational and financial structures. Furthermore, Bayer may not
be able to effect commitments in a timely manner, or at all, or on economically viable terms.
The merger agreement also provides for payment by Bayer of a US$2 billion reverse break fee, in
particular, in the event that the transaction has not been closed at the latest by June 14, 2018,
because a necessary antitrust approval has not been granted and Bayer or Monsanto therefore
terminates the merger agreement.
Strategic or operational objectives may not be met
Our strategic and operational objectives regarding the acquisition and integration of the Monsanto
business are based on assumptions and estimates we have made that may prove inaccurate,
including Monsanto’s earning potential and cost structure, the synergy and innovation potentials
of both companies and future economic developments and market changes.
Integration-related risks
In addition, difficulties may arise in connection with the acquisition and integration of the Monsan-
to business that adversely impact our current business or may prevent the expected benefits of
the acquisition from being fully realized.
It is therefore possible that combining businesses, processes and workforces as intended while
retaining multiple corporate locations could be more complex than expected, partly in view of
different corporate cultures and divergent internal control and compliance systems. The merger
could also lead to the loss of customers, suppliers, partners, licensors or contacts to other stake-
holders.
The possible loss of employees in key positions could have a particularly negative effect. The
successful integration and the implementation of a joint strategy require managerial staff and tal-
ented employees from both Bayer and Monsanto. Should we be unsuccessful in retaining these
employees, for example due to potential uncertainty among employees regarding jobs, company
locations or corporate culture, this could impede the efficient integration and leveraging of the two
companies’ respective strengths. In particular, we could lose the know-how of these managerial
staff and talented employees. This could negatively affect our innovation capability and lead to
business disruptions.
Bayer Annual Report 2017
A Combined Management Report
181
3.2 Opportunity and Risk Report ///// 3.2.4 Overall Assessment of Opportunities and Risks by the Board of Management
Augmented Version
The achievement of expectations in terms of the tax and accounting treatment of the transaction
will be subject to a future detailed review. In light of this, it is possible that there will be unexpect-
edly high transaction and integration costs along with further risks and/or charges. It is also pos-
sible that we may be forced to recognize an impairment loss on the intangible assets of Monsanto
and the goodwill of Crop Science if unforeseen difficulties arise during the integration, if the
Monsanto business fails to develop as expected or if other business developments affecting Crop
Science occur that have not been anticipated.
Change in the risk profile and in regulatory and legal requirements
We anticipate that our risk profile will change as a consequence of acquiring and integrating the
Monsanto business. We could be exposed to additional risks in connection with the combined
agricultural business of Bayer and Monsanto that in some cases may not yet have been identified
or cannot be conclusively assessed. We may face increased or additional risks as well as further
regulatory or legal requirements that are not yet transparent, such as those resulting from Mon-
santo’s stronger focus on seed, modified plant traits and phosphate mining. Noncompliance with
these requirements could result in export restrictions, product recalls or litigations. The rejection or
limitation of marketing authorizations would lead to the restriction or discontinuation of marketing
for the affected products. Furthermore, a lack of public understanding and of acceptance or per-
ceived acceptance of biotechnology and other agricultural products of Monsanto and of the ad-
vantages of the pending transaction could damage Bayer’s reputation and consequently negative-
ly impact Bayer’s business or earnings situation. It is possible that the acquisition of the Monsanto
business could, among other things, lead to a sustainability rating downgrade. This increased
reputation risk exists for the entire Group and could, for example, have a negative impact on regu-
latory decisions.
Risks from the financing of the planned acquisition
We are also exposed to certain risks from the financing of the planned acquisition. These mainly
result from the need to refinance the original acquisition financing, the increase in debt and the
possible credit rating downgrade by the rating agencies. Risks also arise from the development of
the USD / EUR exchange rate and the interest rate level, as well as from potential difficulties in
refinancing the transaction with (additional) equity capital to the extent planned.
3.2.4 Overall Assessment of Opportunities and Risks
by the Board of Management
In the opinion of the Board of Management, based on the current evaluations, none of the risks
described above endanger the company’s continued existence. Nor could we identify any risk
interdependencies that could combine to endanger the company’s continued existence. Based on
our existing business activity, we do not see any change in our risk situation compared with the
previous year. However, we see an increase in the overall risk situation when the planned acquisi-
tion of Monsanto is taken into account. We remain convinced that we can take advantage of the
opportunities resulting from our entrepreneurial activity and successfully master the challenges
resulting from the risks stated above.
No risks that could
endanger the company’s
existence.
182
A Combined Management Report
Bayer Annual Report 2017
4.1 Declaration by Corporate Management pursuant to Section 289f and Section 315d of the German Commercial Code
Augmented Version
4. Corporate Governance Report
Conformance with the recommendations of the German Corporate
Governance Code
Diversity concepts and new targets defined for proportion of women in
senior positions
Nonfinancial statement integrated into management report
The Corporate Governance Report of the Bayer Group conforms with the recommendations of the
German Corporate Governance Code and includes a Declaration by Corporate Management pur-
suant to Sections 289f and 315d of the German Commercial Code as well as all the information
and explanations required by Section 289a through e and Section 315a through d of the German
Commercial Code. The contents of the Corporate Governance Report are also included in the
management report. The information contained in the Declaration by Corporate Management is
unaudited pursuant to Section 317, Paragraph 2, Sentence 4 and Sentence 5, of the German
Commercial Code.
4.1 Declaration by Corporate Management pursuant
to Section 289f and Section 315d of the German
Commercial Code
With the Declaration by Corporate Management pursuant to Sections 289f and 315d of the
German Commercial Code for Bayer AG and the Bayer Group, the company provides information
on the main elements of the Bayer Group’s corporate governance structures, relevant corporate
governance practices, the composition and procedures of the Board of Management and the
Supervisory Board and its committees, and the objectives and concepts that must be established
when composing the Board of Management and the Supervisory Board.
Declaration concerning the German Corporate Governance Code pursuant to
Section 161 of the German Stock Corporation Act
In December 2017, the Board of Management and the Supervisory Board of Bayer AG again is-
sued an unqualified declaration pursuant to Section 161 of the German Stock Corporation Act
that they fully complied with the recommendations of the German Corporate Governance Code in
the past and intend to maintain full compliance in the future.
Information on corporate governance practices
Bayer AG is subject to German stock corporation law and therefore has a dual governance
system consisting of the Board of Management and the Supervisory Board. The Board of Man-
agement and the Supervisory Board of Bayer AG manage the company based on a transparent
strategy that is geared toward the long-term success of the company and complies with
applicable law and ethical standards.
Corporate governance practices that go beyond the legal requirements are derived from our vision
and our common values, which form the basis of the respectful working relationship between our
employees and with our external partners. Compliance with responsible practices at every stage
of the value chain is crucial in corporate governance. The main guidelines are summarized primari-
ly in our Corporate Policies on compliance, human rights, and fairness and respect at work, as
well as our Supplier Code of Conduct. The organization and oversight obligations of the Board of
Management and the Supervisory Board are mainly ensured by compliance management and risk
management systems.
The Board of Manage-
ment and the Super-
visory Board have com-
piled a complete Corpo-
rate Governance Report,
which is available on the
Bayer AG website at
www.bayer.com/en/
Corporate-
Governance.aspx
See also C
Governance Bodies
The declaration issued in
December 2017 con-
cerning the German
Corporate Governance
Code is published on the
Bayer website along with
previous declarations:
www.bayer.com/en/
corporate-
governance.aspx
See A 1.1
Vision and values
https://www.bayer.com/
en/corporate-
compliance-policy.aspx
https://www.bayer.com/
en/supplier-code-of-
conduct.aspx
Bayer Annual Report 2017
A Combined Management Report
183
4.1 Declaration by Corporate Management pursuant to Section 289f and Section 315d of the German Commercial Code
Augmented Version
Board of Management
Composition and objectives (diversity concept)
The Board of Management of Bayer AG is comprised of seven members and runs the company on
its own responsibility with the goal of sustainably increasing the company’s enterprise value and
achieving defined corporate objectives.
In the composition of the Board of Management, the Supervisory Board mainly takes into account
specialist expertise and personal aptitude, as well as aspects such as age, gender, education and
professional background. With regard to the proportion of women on the company’s Board of
Management, the Supervisory Board aims to ensure that there is at least one woman serving on
the Board of Management. This corresponds to a share of around 14% on the seven-member
Board of Management.
Another aspect relating to the composition of the Board of Management that the Supervisory
Board has resolved to pursue is diversity. Without basing selection decisions on this aspect in
individual cases, the Supervisory Board aims to ensure that different age groups are adequately
represented on the Board of Management, while also taking into account the experience required
for a position on the Board of Management. Irrespective of this, members of the Board of Man-
agement should generally step down from that office when they turn 62. The composition of the
Board of Management should adequately reflect the company’s international operations. The Su-
pervisory Board therefore endeavors to include on the Board of Management several members of
different nationalities or with an international background (e.g. several years of career experience
outside Germany or the oversight of foreign business activities). The Supervisory Board also
strives to ensure diversity with regard to the educational and professional background of the
members of the Board of Management. In addition to the requisite specific professional expertise,
management and leadership experience for the given task, members of the Board of Management
should cover as broad a spectrum of knowledge, experience, and educational and professional
backgrounds as possible.
With this concept for the composition of the Board of Management, the Supervisory Board pur-
sues the goal of ensuring not just the greatest possible individual suitability of its various mem-
bers, but also that as many different perspectives as possible are represented in the leadership of
the company through a balanced and diverse Board of Management structure and that the candi-
date selection pool is as large as possible.
In accordance with statutory requirements, furthermore, there are also targets pertaining to the
proportion of women at the first and second management levels below the Board of Management
of Bayer AG. The Board of Management has set objectives of 20% women on the first manage-
ment level of Bayer AG and 25% women on the second management level. These objectives are
to be attained by June 30, 2022.
Implementation status of the objectives
In accordance with the target set by the Supervisory Board, the Board of Management has one
female member, namely Erica Mann. However, she will leave the company effective March 31,
2018. Erica Mann will be succeeded by Heiko Schipper, meaning that the Board of Management
will not comprise any women for the time being. We will continue to intensively pursue our target
of having one woman on the Board of Management by our deadline of June 30, 2022, or before-
hand if at all possible. The goal of adequate representation of different age groups, while also
taking into account the experience required for Board of Management positions, was achieved.
The ages of the members of the Board of Management were relatively evenly spread across a
range of 49 to 61 years as of December 31, 2017. Four of the seven members of the Board of
Management are citizens of a country other than Germany. All members of the Board of Manage-
ment have amassed many years of career experience outside Germany. The members of the
Board of Management also have diverse educational and professional backgrounds: Some have
completed various business-related courses of study or training, while others have studied in
various scientific fields including medicine.
Compensation of the
members of the Board of
Management: see A 4.4
In the future, there
should continue to be at
least one woman on the
Board of Management.
184
A Combined Management Report
Bayer Annual Report 2017
4.1 Declaration by Corporate Management pursuant to Section 289f and Section 315d of the German Commercial Code
Augmented Version
Members of the Board
of Management and
offices they hold: see C
Governance Bodies
Compensation of the
members of the Board of
Management: see A 4.4
Procedure and committees
The Board of Management performs its tasks according to the law, the Articles of Incorporation
and the Board’s rules of procedure, and works with the company’s other governance bodies in a
spirit of trust.
Online Annex: A 4.1-1
The Board of Management of Bayer AG defines the long-term goals and the strategies for the
company and the Group and sets forth the principles and directives for the resulting corporate
policies. It coordinates and monitors the most important activities, defines the portfolio, devel-
ops and deploys managerial staff, allocates resources and decides on the Group’s financial
steering and reporting.
The members of the Board of Management bear joint responsibility for running the business as
a whole. However, the individual members manage the areas assigned to them on their own re-
sponsibility within the framework of the decisions made by the full Board. The allocation of
functions among the members of the Board of Management is defined in a written schedule.
The full Board of Management makes decisions on all matters of fundamental importance and
in cases where a decision of the full Board is prescribed by law or otherwise mandatory. The
rules of procedure of the Board of Management contain a list of topics that must be dealt with
and resolved by the full Board.
Meetings of the Board of Management are held regularly. They are convened by the Chairman
of the Board of Management. Any member of the Board of Management may also demand that
a meeting be convened. The Board of Management makes decisions by a simple majority of
the votes cast, except where unanimity is required by law. In the event of a tie, the Chairman
has the casting vote.
According to the Board of Management’s rules of procedure and the functional responsibilities
assigned to its members, the Chairman bears particular responsibility for leading and coordi-
nating the Board’s work. He represents the company and the Group in dealings with third par-
ties and the workforce on matters relating to more than one part of the company or the Group.
He also bears special responsibility for certain functions.
In addition to the function of Board Chairman, there are three functions with special responsibil-
ity for the operating divisions and three further functions: Finance; Human Resources, Technol-
ogy and Sustainability (the incumbent also serving as Labor Director); and Innovation.
A Deal Committee was established within the Board of Management that makes final decisions
with regard to acquisitions and divestitures and license transactions of a defined, medium size.
There are no other committees within the Board of Management.
Supervisory Board
Composition and objectives (diversity concept and expertise profile)
Under the German Codetermination Act, half of the Supervisory Board’s 20 members are elected
by the stockholders, and half by the company’s employees.
The Supervisory Board endeavors to ensure that its members together possess the necessary
expertise, skills and professional experience to properly perform their duties. It strives particularly
to ensure that the members of the Supervisory Board possess expertise, skills and professional
experience in the following areas: management and leadership of international companies, a busi-
ness understanding with regard to the company’s main areas of activity, research and develop-
ment, finance, controlling / risk management, human resources and governance / compliance.
Members of the Super-
visory Board and offices
they hold: see C Further
Information / Governance
Bodies
Compensation of the
members of the Supervi-
sory Board: see A 4.3
Bayer Annual Report 2017
A Combined Management Report
185
4.1 Declaration by Corporate Management pursuant to Section 289f and Section 315d of the German Commercial Code
Augmented Version
The Supervisory Board has also resolved to pursue diversity in its composition, for instance with
regard to age, gender, education and professional background. With respect to the international
business alignment of Bayer AG, the Supervisory Board strives to ensure at all times that several
of its members have international business experience or an international background in other
respects. Further objectives concerning the composition of the Supervisory Board are that differ-
ent age groups be suitably represented on the Supervisory Board and that, absent special cir-
cumstances, a member should not hold office beyond the end of the next Annual Stockholders’
Meeting following his or her 72nd birthday. With a view to avoiding potential conflicts of interest
and taking into account the ownership structure of the company and the number of independent
Supervisory Board members, the Supervisory Board has set itself the goal that more than half of
the stockholder representatives be independent. In addition, the Supervisory Board aims for at
least three quarters of its total membership (stockholder and employee representatives) to be
independent. The Supervisory Board assesses the independence of its members according to the
recommendation contained in Section 5.4.2 of the German Corporate Governance Code. In as-
sessing independence, the Supervisory Board also considers the criteria given in the recommen-
dation of the European Commission of February 15, 20051. Finally, the Supervisory Board has set
a standard limit on the duration of any person’s membership of the Supervisory Board in line with
the recommendation in Section 5.4.1, Paragraph 2 of the Code. Absent special circumstances,
no person should remain a member of the Supervisory Board for more than three full terms of
office. For members of the Supervisory Board serving at the time the standard limit was intro-
duced (September 2015) who have already exceeded this limit or will exceed it by the end of their
current term of office, the limit will be applied with effect from the conclusion of their current
term of office.
The stated objectives refer to the Supervisory Board as a whole unless otherwise determined.
However, since the Supervisory Board can only nominate candidates for election as stockholder
representatives, it can only take the objectives into account in these nominations. An objective for
Supervisory Board elections is that neither women nor men account for less than 30% of the
membership.
The Supervisory Board aims to achieve a balanced and diverse composition, to the extent that
it can influence this. The aim is to ensure that as many different perspectives as possible are
represented in the leadership of the company and that the candidate selection pool is as large
as possible.
Implementation status of the objectives
The Supervisory Board has several members with international business experience or an interna-
tional background. The ages of the members of the Supervisory Board were relatively evenly
spread across a range of 47 to 71 years as of December 31, 2017. The objective that a member
should step down from the Supervisory Board at the Annual Stockholders’ Meeting following his
or her 72nd birthday – absent special circumstances – is being met. Two members of the Supervi-
sory Board were previously members of the company’s Board of Management: Werner Wenning
was Chairman of the Board of Management until 2010, and Prof. Dr. Wolfgang Plischke was a
member of the Board of Management until 2014. One member of the Supervisory Board, Dr. Paul
Achleitner, has been a member of the Supervisory Board for more than three terms of office. How-
ever, neither Werner Wenning nor Prof. Dr. Wolfgang Plischke nor Dr. Paul Achleitner has any per-
sonal or business relationship with the company or a governance body of the company that in the
opinion of the Supervisory Board gives rise to a material conflict of interest of a more than tempo-
rary nature.
1 Annex 2 to the recommendation of the European Commission of February 15, 2005, on the role of nonexecutive or supervisory
directors of listed companies and on the committees of the (supervisory) board (2005/162/EC)
186
A Combined Management Report
Bayer Annual Report 2017
4.1 Declaration by Corporate Management pursuant to Section 289f and Section 315d of the German Commercial Code
Augmented Version
There are no indications of any possible lack of independence in the case of the other Supervisory
Board members. Thus the Supervisory Board considers all of its members to be independent. The
proportion of women on the Supervisory Board is currently 30% for the full Supervisory Board and
30% for both the employee and the stockholder representatives. Four members of the Supervisory
Board are citizens of a country other than Germany. Numerous other members have many years
of international business experience. The members of the Supervisory Board have also completed
various different vocational training and study courses.
Procedure and committees
The role of the Supervisory Board is to oversee and advise the Board of Management. The Super-
visory Board is directly involved in decisions on matters of fundamental importance to the compa-
ny, regularly conferring with the Board of Management on the company’s strategic alignment and
the implementation status of the business strategy. The Report of the Supervisory Board in this
Annual Report provides details about the work of the Supervisory Board and its committees.
Online Annex: A 4.1-2
The Chairman of the Supervisory Board coordinates its work and presides over the meetings.
Through regular discussions with the Board of Management, the Supervisory Board is kept
constantly informed of business policy, corporate planning and strategy. The Supervisory Board
approves the annual budget and financial framework. It also approves the financial statements
of Bayer AG and the consolidated financial statements of the Bayer Group along with the com-
bined management report, including the nonfinancial statement, while also taking into account
the reports by the auditor.
The Supervisory Board has the following committees:
Presidial Committee: This comprises the Chairman and Vice Chairman of the Supervisory
Board along with a further stockholder representative and a further employee representative.
The Presidial Committee serves primarily as the mediation committee pursuant to the German
Codetermination Act. It has the task of submitting proposals to the Supervisory Board on the
appointment of members of the Board of Management if the necessary two-thirds majority is
not achieved in the first vote at a plenary meeting. Certain decision-making powers in connec-
tion with capital measures, including the power to amend the Articles of Incorporation accord-
ingly, have also been delegated to this committee. On a case-by-case basis, furthermore, the
Supervisory Board can delegate certain responsibilities to the Presidial Committee. Finally, the
Presidial Committee may also undertake preparatory work for full meetings of the Supervisory
Board.
Audit Committee: The Audit Committee comprises three stockholder representatives and three
employee representatives. The Chairman of the Audit Committee in 2017, Dr. Klaus Sturany,
satisfies the statutory requirements concerning the expertise in the field of accounting or audit-
ing that a member of the Supervisory Board and the Audit Committee is required to possess.
The Audit Committee meets regularly four times a year. Its tasks include in particular oversight
of financial reporting, the financial reporting process, the effectiveness and ongoing develop-
ment of the internal control system, the risk management system, the internal audit system, the
compliance system and the audit of the financial statements. The Audit Committee prepares
the resolutions of the Supervisory Board concerning the financial statements and management
report of Bayer AG and the proposal for the use of the distributable profit, as well as resolutions
concerning the consolidated financial statements and management report of the Bayer Group
and the agreements with the auditor (particularly the awarding of the audit contract, the deter-
mination of the main areas of focus for the audit and the audit fee agreement). The committee
submits a reasoned proposal to the full Supervisory Board concerning the auditor’s appoint-
ment that contains at least two candidates in the tender process, and takes appropriate
measures to determine and monitor the auditor’s independence. It is also responsible for ap-
proving all services performed by the auditor in addition to the audit of the financial statements.
The audit focuses particularly on whether the financial statements have been prepared in com-
Bayer Annual Report 2017
A Combined Management Report
187
4.2 Compliance
Augmented Version
pliance with the statutory requirements and whether the financial reporting provides a true and
fair view of the financial position and results of operations of the company and the Group. The
Audit Committee discusses developments in the area of corporate compliance at each of its
meetings. The Chairman of the Board of Management and the Chief Financial Officer regularly
attended the meetings of the Audit Committee. Representatives of the auditor were also pre-
sent at all the meetings and reported in detail on the audit work and the audit reviews of the in-
terim financial reports.
Human Resources Committee: On this committee, too, there is parity of representation be-
tween stockholders and employees. It consists of the Chairman of the Supervisory Board and
three other Supervisory Board members. The Human Resources Committee prepares the per-
sonnel decisions of the full Supervisory Board, which resolves on appointments or dismissals of
members of the Board of Management. The Human Resources Committee resolves on behalf
of the Supervisory Board on the service contracts of the members of the Board of Manage-
ment. However, it is the task of the full Supervisory Board to resolve on the total compensation
of the individual members of the Board of Management and the respective compensation com-
ponents, as well as to regularly review the compensation system on the basis of recommenda-
tions submitted by the Human Resources Committee. The Human Resources Committee also
discusses the long-term succession planning for the Board of Management.
Nominations Committee: This committee carries out preparatory work when an election of
stockholder representatives to the Supervisory Board is to be held. It suggests suitable candi-
dates for the Supervisory Board to propose to the Annual Stockholders’ Meeting for election.
The Nominations Committee comprises the Chairman of the Supervisory Board and the other
stockholder representative on the Presidial Committee.
Innovation Committee: The Innovation Committee is primarily concerned with the innovation
strategy and innovation management, the strategy for the protection of intellectual property, and
major research and development programs at Bayer. Within its area of responsibility, the commit-
tee advises and oversees the management and prepares any Supervisory Board decisions. The
Committee comprises the Chairman of the Supervisory Board and seven other members of the
Supervisory Board, with parity of representation between stockholder and employee representa-
tives. The Chairman of the Board of Management and the member of the Board of Management
responsible for Innovation regularly attend the meetings of the Innovation Committee.
Further information
Securities transactions by members of governance bodies
Members of the Board of Management or Supervisory Board and persons with whom they have
close relationships are legally obligated to report own-account transactions in shares or debt se-
curities of Bayer AG, associated derivatives or other associated financial instruments to Bayer AG
and the German Federal Financial Supervisory Authority (BaFin) as soon as the total volume of
transactions made by a member of the Board of Management or Supervisory Board, or a person
with whom he or she has a close relationship, within a calendar year has reached the €5,000
threshold. The transactions reported to Bayer AG in 2017 were duly published and can be viewed
on the company’s website.
www.bayer.com/en/
disclosure-of-securities-
transactions.aspx
4.2 Compliance
Bayer manages its businesses responsibly and in compliance with the statutory requirements
and regulations of the countries in which it operates. We define compliance as legally and ethically
impeccable conduct by all employees in their daily work, because the way they carry out their
duties affects our company’s reputation. We do not tolerate any violation of laws, codes of con-
duct or internal regulations. Compliance is essential for our long-term economic success.
www.bayer.com/
compliance
188
A Combined Management Report
4.2 Compliance
Augmented Version
Bayer Annual Report 2017
The Board of Management is unreservedly committed to compliance, and Bayer will forego any
business transaction that would violate the compliance principles in force throughout the Bayer
Group.
The global compliance management system is steered by a central compliance organization within
the Bayer Group. This organization is headed by the Group Compliance Officer, who reports di-
rectly to the Chairman of the Board of Management and to the Audit Committee of the Superviso-
ry Board on matters of this nature. The compliance organization is staffed with specialized compli-
ance managers who are responsible for the corporate functions and for establishing business-
and industry-specific standards in the divisions, business units and service companies.
Through our compliance management system, we aim to ensure lawful and responsible behavior
by our employees. Potential compliance risks are identified together with the operational units to
achieve systematic and preventive risk detection and assessment. Risks are identified not just by
the global functions (top-down), but also by the Bayer country organizations (bottom-up). Com-
piled findings about risks are entered into a global statistical database for compliance risk man-
agement that we use to develop suitable measures for specific processes, business activities or
countries, for example. We assess our business partners to the same extent with regard to poten-
tial compliance risks.
Corporate Compliance Policy
Our compliance principles apply throughout the Bayer Group and are established in our Corporate
Compliance Policy. Here we commit to uphold ten principles, particularly in antitrust and anticor-
ruption matters.
Online Annex: A 4.2-1
> Antitrust: fair competition in our markets
> Anticorruption: integrity in our business dealings at all times
> Corporate responsibility: sustainability, safety and product stewardship
> Foreign trade law: observance of relevant trade controls
>
> Accurate books and records: complete and detailed recording of our business activities and
Insider trading: safeguarding of equal opportunity in securities trading
financial transactions
Intellectual property: safeguarding our own intellectual property and respecting that of others
> Fairness and respect at work: treating one another with fairness and respect
>
> Avoiding conflicts of interest: separation of business and personal interests
> Privacy: precautions to protect and secure personal data
All employees are required to observe these principles and to immediately report any violation of
the Corporate Compliance Policy. This general reporting requirement does not apply in France due
to peculiarities of national law. Bayer’s senior managers serve as role models and therefore have a
vital part to play in implementing the compliance principles. They may lose their entitlement to
variable compensation components and be subject to further disciplinary measures if violations of
applicable law or internal regulations have occurred in their sphere of responsibility. Compliant and
lawful conduct also factors into the performance evaluations of all managerial employees.
Adherence to the corporate compliance principles is among the subjects covered in audits con-
ducted by Bayer’s Internal Audit. The planning of these audits follows a function- and risk-based
approach that also takes a corruption perceptions index into account. The largest companies,
which together account for about 80% of Group sales, are generally subjected to audits at three-
year intervals. A total of 191 compliance audits were completed in 2017, of which 22 were pre-
ventive or incident-related audits. The head of Internal Audit and the Group Compliance Officer
regularly attend the meetings of the Audit Committee of the Supervisory Board, presenting a
summary of conducted audits and key findings at least once a year.
Corruption Perceptions
Index: see Glossary
Bayer Annual Report 2017
A Combined Management Report
189
4.2 Compliance
Augmented Version
Compliance training
To create a positive compliance culture in our company, we support all employees in conducting
their professional activities with integrity and avoiding potential violations before they can occur.
Bayer therefore organizes Group-wide training programs tailored to requirements and target
groups, along with extensive communications activities on relevant compliance issues and risks. In
addition, compliance managers are available worldwide to answer questions from all employees
regarding lawful and ethical behavior in business-related situations. Employees can also discuss
such matters with their supervisors, who serve as role models for compliance.
We have set a Group target for nearly all of Bayer’s managerial employees worldwide to complete
at least one compliance training program each year. In 2017, 35,159 employees, or around
96.6%, completed such a program.
Group target: annual
compliance training for
virtually 100% of Bayer
managers
Online Annex: A 4.2-2
The aim of these targeted training programs is to ensure that employees do not overstep
boundaries out of ignorance or uncertainty. Our compliance training programs reflect the main
compliance risk areas and are available in various formats to meet the training needs of differ-
ent employee groups. Some take the form of web-based training (WBT) programs, while others
involve face-to-face training sessions or workshops.
In 2017, we implemented a new global web-based training program in 67 countries on the sub-
ject of data privacy. This program, currently available in ten languages, has already been com-
pleted by 57,613 employees as at December 31, 2017.
New hires and employees switching to different areas of responsibility within Bayer undergo
training according to their functions.
Handling of suspected and actual compliance violations
Suspected compliance violations can be reported – anonymously if desired and if permitted by
respective national law – via a central compliance hotline that has been set up worldwide. It is also
accessible to the general public. In 2017, the compliance organization received a total of 245
reports in this way (including 157 anonymous reports), with six reports coming from Germany and
239 from other countries. Alternatively, suspected compliance violations may also be reported to
the respective compliance functions in Germany or the country organizations, or to Internal Audit.
Compliance violations at Bayer are systematically sanctioned. The action taken in each case de-
pends on factors including the gravity of the compliance violation and applicable law. All cases are
recorded according to uniform criteria throughout the Group and dealt with under the rules set
forth in Bayer’s Corporate Policy “Management of Compliance Incidents.”
Online Annex: A 4.2-3
Where an investigation confirms that a compliance violation has occurred, the company has a
graduated set of measures at its disposal. These include a verbal warning or written reprimand,
transfer to a different unit, cancellation of a planned promotion, a reduction in the short-term
incentive payment, downgrading to a lower collectively agreed pay rate or managerial contract
level, and ordinary or extraordinary termination. Bayer also reserves the right to assert further
claims against the employee for cost reimbursement or damages and / or initiate criminal pro-
ceedings.
190
A Combined Management Report
Bayer Annual Report 2017
4.3 Disclosures pursuant to Section 289b through e and Section 315b and c of the German Commercial Code (HGB)
Augmented Version
Lobbying
As part of our commitment to tackle corruption, our Corporate Policy “Code of Conduct for Re-
sponsible Lobbying” sets out binding rules for our involvement in political matters and creates
transparency in our collaboration with the representatives of political institutions. We also proac-
tively participate in existing transparency initiatives such as those established by the European
institutions or the U.S. Congress.
As set out in our corporate policy on responsible lobbying, we did not make any direct donations
to political parties, politicians or candidates for political office in 2017. Some associations of which
the Group is a member make donations on their own initiative, in compliance with statutory regu-
lations.
Online Annex: A 4.2-4
Our liaison offices in Berlin, Brussels, Washington, Moscow, Brasília and Beijing are key touch-
points between the company and political stakeholders. We publish details of costs, employee
numbers and any of the other statistics required in each country in the transparency registers of
the European institutions and the U.S. Congress. Bayer goes far beyond the statutory require-
ments in doing so. For instance, the Group also publishes data for countries such as Germany
where there is no legal publication requirement. In 2017, the costs incurred at the liaison offic-
es, including human resources, material and project expenses, totaled approximately €1.35 mil-
lion in Berlin, Germany; €2.3 million in Brussels, Belgium; €6.97 million in Washington, United
States; €0.28 million in Moscow, Russia; €1.5 million in Brasília, Brazil; and €0.82 million in Bei-
jing, China.
In the United States, where corporate donations are prohibited by law for federal elections and
in many cases also state and local elections, some employees use the Bayer Corporation Polit-
ical Action Committee (BayPac) to support legislative candidates through private donations.
Political action committees are state-regulated, legally independent employee groups. The pri-
vate donations made by BayPac are regularly reported to the U.S. Federal Election Commission
and can be viewed on its website.
4.3 Disclosures pursuant to Section 289b through e
and Section 315b and c of the German
Commercial Code (HGB)
www.bayer.de/us-
lobbying-disclosure
www.fec.gov
The index to the
nonfinancial statement
can be found in A 4.6
The Bayer Group meets the requirements for the nonfinancial statement pursuant to Section 289b
through e and Section 315b and c of the German Commercial Code (HGB). The relevant disclo-
sures pertaining to the nonfinancial statement in accordance with the Corporate Social Responsi-
bility Directive Implementation Act (CSR-RUG) are integrated into the management report.
The Supervisory Board fulfilled its auditing duty for the nonfinancial statement pursuant to Section
170, Paragraph 1 and Section 171, Paragraph 1 of the German Stock Corporation Act (AktG).
Bayer Annual Report 2017
4.4 Compensation Report ///// 4.4.1 Compensation of the Board of Management
A Combined Management Report
191
Augmented Version
4.4 Compensation Report
The Compensation Report describes the essential features of the compensation packages for the
members of the Board of Management and the Supervisory Board of Bayer AG and explains the
compensation the individual members were granted or received for the 2017 fiscal year. The re-
port complies with the requirements of the applicable financial reporting standards for publicly
traded companies (German Commercial Code [HGB], German Accounting Standards [DRS] and
the International Financial Reporting Standard [IFRS]) as well as with the recommendations con-
tained in the current version of the German Corporate Governance Code.
4.4.1 Compensation of the Board of Management
Objective
The compensation system for the Board of Management of Bayer AG applies in the version ap-
proved by a large majority at the Annual Stockholders’ Meeting on April 29, 2016.
The Bayer Group’s compensation system is aligned to the corporate strategy and geared toward
performance-driven, sustainable corporate governance and an appropriate compensation struc-
ture and level. The nature and appropriateness of the compensation system for the members of
the Board of Management are determined by the full Supervisory Board on the proposal of the
Human Resources Committee of the Supervisory Board, regularly reviewed and adjusted as nec-
essary. All of the assessment criteria recommended in Section 4.2.2 of the German Corporate
Governance Code are taken into account. An independent compensation consultant has con-
firmed that the compensation is appropriate and on a customary level. The compensation struc-
ture in the Bayer Group is, in principle, the same for the Board of Management as for all other
managerial employees.
Transparent compensation structure
The compensation paid to members of the Board of Management of Bayer AG comprises a non-
performance-related component of about 30% and a performance-related variable component of
about 70%. The compensation components under the system are as follows, assuming 100%
target attainment by a member of the Board of Management.
Compensation Structure Based on 100% Target Attainment
A 4.4.1/1
Non-performance-related
compensation
~ 30% Fixed annual compensation 1
Performance-related compensation
~ 40% Long-term stock-based
cash compensation via Aspire 2.0
~ 30% Short-term annual variable
cash compensation
1 Excluding fringe benefits and pension entitlements
The non-performance-related compensation component comprises the fixed annual compensa-
tion along with fringe benefits. The variable performance-related compensation components com-
prise a variable annual cash payment (STI = short-term incentive) based on target attainment,
which is paid out in cash in the following year, and a long-term variable cash payment (LTI = long-
term incentive). The system for the LTI program is based on stockholder return. The individual
performance-related components are capped upon payment. There is also a cap on the total cash
compensation. This amounts to 1.8 times the respective target compensation and is determined
annually when the fixed compensation is set.
192
A Combined Management Report
4.4 Compensation Report ///// 4.4.1 Compensation of the Board of Management
Augmented Version
Bayer Annual Report 2017
The members of the Board of Management also receive pension entitlements for themselves and
their surviving dependents.
Non-performance-related components
Fixed annual compensation
The level of the non-performance-related, fixed annual compensation takes into account the func-
tions and responsibilities assigned to the members of the Board of Management as well as market
conditions. The fixed annual compensation is regularly reviewed by the Supervisory Board in light
of the consumer price index and adjusted if necessary. It is paid out in twelve monthly install-
ments.
Fringe benefits
This component mainly includes perquisites such as a company car with driver or the use of the
company carpool, payments toward the cost of security equipment, and the reimbursement of the
cost of annual health screening examinations. Fringe benefits are reported at cost or the amount
of the pecuniary advantage gained.
Performance-related components
Short-term variable cash compensation
The short-term variable cash compensation (STI) depends on the company’s business success in
the respective year. The level of the STI is determined by the target attainment for three subcom-
ponents – the Group component, the divisional component and the individual performance com-
ponent – each of which is given a one-third weighting in the performance evaluation. The perfor-
mance evaluation takes into account both positive and negative developments.
> The Group component is based on the core earnings per share of the Group and is capped at
200%.
> The divisional component is incentivized based on the weighted average performance of the
three divisions and is capped at 300%. For the members of the Board of Management with
functional responsibility, this component is based on the average performance of the divisions,
weighted as follows: Pharmaceuticals 50%, Consumer Health 20%, Crop Science (including
Animal Health) 30%. For the Board members with divisional responsibility, however, this one-
third of the STI is incentivized entirely on the basis of the respective division’s earnings. The
assessment of divisional performance comprises a 70% component linked to the attainment of
financial targets in relation to the EBITDA margin before special items and divisional sales
growth, and a 30% component based on the attainment of qualitative goals in areas such as
innovative progress, safety, compliance and sustainability.
> The target attainment criteria for the individual performance component are based on the duties
and resulting personal targets of the respective member of the Board of Management, as well
as on his or her individual contribution to the attainment of the Group targets. The individual
targets for the members of the Board of Management are determined annually by the
Supervisory Board, which also assesses their attainment.
The entire amount of the STI is paid out in cash in the second quarter of the following year and is
capped at 200%.
Bayer Annual Report 2017
4.4 Compensation Report ///// 4.4.1 Compensation of the Board of Management
A Combined Management Report
193
Augmented Version
Short-Term Variable Cash Compensation Components (STI)
STI
A 4.4.1/2
Group component
Divisional component
Individual component
1/3 of STI target value
1/3 of STI target value
1/3 of STI target value
Based on Group target
attainment (core earnings per
share)
Based on the attainment of
financial (70%) and qualitative
(30%) targets by the divisions
Based on individual
performance and individual
contribution to Group target
attainment
Board members with functional responsibility
Board members with divisional responsibility
Average performance of the Pharmaceuticals
(50%), Consumer Health (20%) and Crop
Science (30%) divisions
Performance of the respective division (100%)
Long-term stock-based cash compensation (LTI)
Members of the Board of Management are eligible to participate in the annual tranches of the
long-term stock-based compensation program “Aspire” on condition that they purchase a certain
number of Bayer shares – determined for each individual according to specific guidelines – as a
personal investment and hold them for as long as they continue in the service of the Bayer Group.
The target amounts for the Aspire 2.0 tranches issued since 2016 are generally based on a con-
tractually agreed target percentage of the fixed annual compensation. The starting value is also
partly determined by the individual STI payment factor for the Board member concerned for the
year prior to the issuance of the respective tranche. The cash payment amounts are determined
after four years based on the average share price calculated over the last 30 trading days of the
fiscal year, the performance of Bayer stock relative to the EURO STOXX 50 and the dividends
paid in the meantime (total stockholder return approach). As with the other management levels,
the cap for Aspire 2.0 is 250%. For the Board of Management, however, an additional perfor-
mance measure has been included in the LTI program in the form of the comparison with the
EURO STOXX 50 mentioned above. This increases or decreases the payout by the percentage of
overperformance or underperformance, respectively.
The payments made under the tranches of the Aspire program issued in the years up to 2015
continue to be based until their expiration on the Aspire Target Opportunity, which is a contrac-
tually agreed percentage of fixed annual compensation. Depending on the performance of Bayer
stock, both in absolute terms and relative to the EURO STOXX 50 benchmark index, participants
are granted an award of between 0% and a maximum 300% of their individual Aspire Target
Opportunity at the end of the respective performance periods.
The payout / perfor-
mance matrix according
to the absolute and
relative development of
Bayer’s share price is
explained at
www.investor.bayer.com
/en/stock/stock-
programs/aspire/.
194
A Combined Management Report
4.4 Compensation Report ///// 4.4.1 Compensation of the Board of Management
Augmented Version
Tranches of the Aspire Program
2013
2014
2015
2016
2017
2018
2019
2020
2013 – 2016
2014 – 2017
2015 – 2018
2016 – 2019
2017 – 2020
Performance periods of the respective tranches
Bayer Annual Report 2017
A 4.4.1/3
Aspire 1.0 tranches
up to Dec. 31, 2015
Aspire 2.0 tranches
from Jan. 1, 2016
If a member of the Board of Management enters retirement during the year or steps down from
the Board of Management during the year due to the nonextension of his or her service contract
by mutual agreement or by the company’s decision, the Aspire tranche granted for that year is
reduced on a prorated basis according to the duration of the member’s active service on the
Board of Management during this first year of the tranche. In this case, tranches granted for pre-
vious years remain in effect without any changes.
Share ownership guidelines
As a condition for receiving payments under the LTI program, members of the Board of Manage-
ment must meet certain requirements regarding their personal investment in Bayer stock. As of
2016, they have been required to build a position in Bayer shares to the value of 75% of their fixed
annual compensation within four years and hold these shares until the end of their service on the
Board of Management. The Board of Management members must provide documentary evidence
of their compliance with this obligation, first at the end of the four-year position-building period
and then yearly thereafter. In the event of significant changes in fixed annual compensation, the
value to which shares must be held is adjusted accordingly.
Pension entitlements (retirement and surviving dependents’ pensions)
The annual pension entitlement for members of the Board of Management is based on contribu-
tions. Each year Bayer provides a hypothetical contribution amounting to 42% of the respective
fixed annual compensation. This percentage is comprised of a basic contribution of 6% and a
matching contribution of 36%, which is four times the member’s personal contribution of 9%. The
total annual contribution is converted into a pension module according to the annuity table for the
applicable tariff of the Rheinische Pensionskasse VVaG pension fund. The annual pension entitle-
ment upon retirement is the total amount of the accumulated pension modules including an in-
vestment bonus. The investment bonus is determined annually based on the net return on the
assets of the Rheinische Pensionskasse VVaG minus the minimum return on the contributions that
is guaranteed under the tariff and approved by the German Financial Supervisory Authority (BaFin).
Future pension payments are annually reviewed and adjusted to take into account the develop-
ment of consumer prices.
In addition, special individual arrangements exist for the following members of the Board of Man-
agement:
> Werner Baumann has been granted a vested entitlement to an annual pension of €200 thou-
sand starting on his 60th birthday. This is subject to a prorated reduction in the event that his
term of office ends prior to his 60th birthday under certain conditions.
> Dr. Marijn Dekkers had the option to receive either a lifelong monthly annuity or a capital sum.
After leaving the Bayer Group, he opted for the payment of a monthly annuity.
Bayer Annual Report 2017
4.4 Compensation Report ///// 4.4.1 Compensation of the Board of Management
A Combined Management Report
195
Augmented Version
> Kemal Malik has been granted a vested entitlement to an annual pension of €80 thousand
starting on his 65th birthday. This is subject to a prorated reduction in the event that his term of
office ends prior to his 65th birthday under certain conditions.
> Erica Mann participates in pension plans in Germany (30%) and Switzerland (70%) on a
prorated basis in view of her split service contract. As regards the payment of pension benefits
from her two pension plans, Ms. Mann has the option to receive either a lifelong monthly
annuity or a capital sum when her pension benefits fall due.
Certain assets are administered by Bayer Pension Trust e.V. under a contractual trust arrangement
(CTA) to cover pension entitlements resulting from direct commitments in Germany. This provides
substantial additional security – beyond the benefits from the Pension Insurance Association – for
the respective pension entitlements of the members of the Board of Management in Germany.
Benefits upon termination of service on the Board of Management
Post-contractual noncompete agreements
Post-contractual noncompete agreements exist with the members of the Board of Management,
providing for compensatory payments to be made by the company for the two-year duration of
these agreements. The compensatory payment amounts to 100% of the average fixed compensa-
tion for the twelve months preceding their departure.
Change of control
Agreements exist with the members of the Board of Management providing for severance indem-
nity in certain circumstances in the event of a change in control. The amount of any possible
severance indemnity in the case of early termination of service on the Board of Management as a
result of a change in control is limited to the value of three years’ compensation in line with the
recommendation in Section 4.2.3 of the German Corporate Governance Code. Such payments
do not exceed the compensation payable for the remaining term of the service contract.
Unfitness for work
In the event of temporary unfitness for work, members of the Board of Management continue to
receive the contractually agreed compensation. Bayer AG may early terminate the service contract
if the Board member has been continuously unfit for work for at least 18 months and is likely to be
permanently incapable of fully performing his or her duties (permanent incapacity to work). A disa-
bility pension is paid in the event of contract termination before the age of 60 due to permanent
incapacity to work. For members of the Board of Management, the amount of the disability pen-
sion under the service contract corresponds to the entitlement accrued on the date of contract
termination, taking into account a fictitious period of service between that date and the member’s
55th birthday, where applicable.
Compensation of the Board of Management in 2017
The aggregate compensation for the members of the Board of Management in 2017 totaled
€24,324 thousand (2016: €28,445 thousand), comprising €6,414 thousand (2016: €7,049 thou-
sand) in non-performance-related components and €17,910 thousand (2016: €21,396 thousand)
in performance-related components. The pension service cost amounted to €2,546 thousand
(2016: €2,887 thousand).
As of December 31, 2017, the Board of Management of Bayer AG consisted of seven members.
There were no changes in the membership of the Board of Management in 2017.
Effective April 26, 2018, the Supervisory Board has appointed Wolfgang Nickl as member
of the Board of Management of Bayer AG. He will succeed Johannes Dietsch as Chief Financial
Officer of Bayer AG on June 1, 2018.
196
A Combined Management Report
4.4 Compensation Report ///// 4.4.1 Compensation of the Board of Management
Augmented Version
Bayer Annual Report 2017
Effective March 1, 2018, the Supervisory has appointed Heiko Schipper as a member of the Board
of Management of Bayer AG and, from April 1, 2018, head of the Consumer Health Division, suc-
ceeding Erica Mann.
The following table shows the aggregate compensation of the individual members of the Board of
Management who served in 2016 and / or 2017 according to the German Commercial Code:
A 4.4.1/4
Board of Management Compensation (German Commercial Code)
Fixed annual
compensation
Fringe benefits
Short-term
variable cash
compensation
Long-term
stock-based
cash
compensation
1
(Aspire)
Aggregate
compensation
Pension
2
service cost
€ thousand
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
Serving members of the
Board of Management
as of December 31, 2017
Werner Baumann (Chairman)
1,285
1,487
Liam Condon
Johannes Dietsch
Dr. Hartmut Klusik
Kemal Malik
Erica Mann
3
Dieter Weinand
Former member
Dr. Marijn Dekkers
4
Total
800
750
750
775
750
800
806
756
756
781
756
806
475
–
6,385
6,148
47
44
83
140
35
182
34
99
664
49
43
42
40
36
24
32
2,329
1,335
1,983
3,530
5,644
6,401
1,106
978
1,053
1,050
798
1,274
519
679
565
604
378
810
1,624
1,677
3,574
3,045
1,522
1,483
3,333
2,960
1,522
1,597
3,465
2,958
1,573
1,591
3,433
3,012
1,522
1,210
3,252
2,368
1,623
1,932
3,731
3,580
764
330
318
316
318
219
240
809
320
305
305
310
257
240
–
475
–
964
–
2,013
–
382
–
266
9,063
4,890 12,333 13,020 28,445 24,324
2,887
2,546
1 Fair value at grant date; for Dr. Marijn Dekkers, 4/12 of the grant amount for Aspire 2.0 was shown in 2016.
2 Including company contributions to Bayer-Pensionskasse VVaG, Rheinische Pensionskasse VVaG and to a pension fund outside Germany
3 It has been agreed that Erica Mann will receive a severance payment of €1,978 thousand in view of her leaving the company effective March 31, 2018. This puts
her in the same position as if she had held office until December 31, 2018, and had then retired.
4 Dr. Marijn Dekkers additionally received a severance payment of €4,341 thousand. This puts him in the same position as if he had held office regularly until
December 31, 2016, and had then retired.
Fixed annual compensation
The fixed annual compensation of the members of the Board of Management was adjusted in
2017. The total fixed annual compensation of all the members was €6,148 thousand (2016:
€6,385 thousand).
Short-term variable cash compensation
The total short-term variable cash compensation for all the members of the Board of Management
in 2017 totaled €4,890 thousand (2016: €9,063 thousand) after deduction of the solidarity contri-
bution. Provisions of €4,890 thousand (2016: €8,588 thousand) were established for payment of
this compensation component to the members of the Board of Management serving as of De-
cember 31, 2017. The solidarity contribution is made by all employees of the companies covered
by the respective agreements with the employee representatives to help safeguard jobs at the
German sites. For 2017 it amounted to 0.25% (2016: 0.27%) of each person’s STI award.
Long-term variable cash compensation based on virtual Bayer shares
This compensation component no longer exists following the adjustment of the compensation
system for the Board of Management effective January 1, 2016. The conversion of 50% of the STI
into virtual Bayer shares took place for the last time in 2015 and was based on an average price
of €119.17. The aggregate compensation for 2017 according to the IFRS includes a change of
€538 thousand (2016: minus €1,275 thousand) in the value of existing entitlements. Provisions of
€6,841 thousand (2016: €7,777 thousand) existed as of December 31, 2017, for the future cash
disbursements to currently serving members of the Board of Management based on the virtual
Bayer Annual Report 2017
4.4 Compensation Report ///// 4.4.1 Compensation of the Board of Management
A Combined Management Report
197
Augmented Version
Bayer shares granted in previous years. This amount also contains the dividend entitlements at-
tributable to the respective prior years.
Long-term stock-based cash compensation (Aspire)
The long-term stock-based cash compensation under the Aspire program is included in the ag-
gregate compensation according to the German Commercial Code at its fair value of
€13,020 thousand (2016: €12,333 thousand) at the respective grant date.
The aggregate compensation according to the IFRS includes the fair value of the partial entitle-
ment earned in the respective year. Grants of stock-based compensation with a four-year perfor-
mance period are therefore expensed at their respective fair values over four years starting with
the grant year. The stock-based compensation according to the IFRS also includes the change in
the value of existing entitlements under ongoing Aspire tranches granted in prior years.
Board of Management Compensation – Aspire Program (IFRS)
Serving members of the Board of Management as of December 31, 2017
A 4.4.1/5
Former
member
€ thousand
Stock-based
compensation
entitlements
earned in the
respective year
1
Change in value
of existing
entitlements
2
Total
Werner
Baumann
(Chairman)
Liam
Condon
Johannes
Dietsch
Dr.
Hartmut
Klusik
Kemal
Malik
Erica
Mann
Dieter
Weinand
Dr. Marijn
Dekkers
Total
2017
2016
2017
2016
2017
2016
1,528
715
(120)
(120)
1,408
595
871
506
(77)
(83)
794
423
2,038
413
(51)
(57)
1,987
356
819
414
(42)
(47)
777
367
830
431
(58)
(98)
772
333
2,049
848
(240)
(165)
1,809
683
947
369
(53)
(69)
894
300
–
1,521
–
(284)
–
1,237
9,082
5,217
(641)
(923)
8,441
4,294
1 The newly earned entitlements are derived from the 2014 – 2017 (2016: 2013 – 2016) tranches of the Aspire program because this compensation was or is being
earned over a four-year period. They are stated at their prorated fair values in 2016 and 2017, respectively. Johannes Dietsch and Erica Mann are earning their
entitlements at an accelerated rate until they leave the company on May 31, 2018, and March 31, 2018, respectively. Accordingly, the proportion earned in 2017
is higher than in the prior year. The Aspire entitlements earned in 2016 and 2017 and the value changes for Liam Condon, Johannes Dietsch, Dr. Hartmut Klusik,
Kemal Malik, Erica Mann and Dieter Weinand relate in part to Aspire tranches granted to them before they joined the Board of Management but not yet fully
earned.
2 This line shows the change in the value of the entitlements already earned in 2014, 2015 and 2016 (2016: 2013, 2014 and 2015).
Provisions of €11,747 thousand (2016: €7,288 thousand) were established for the Aspire entitle-
ments of the members of the Board of Management serving as of December 31, 2017. Of this
amount, €6,048 thousand relates to the tranches issued up to 2016 and €5,699 thousand to the
2017 tranche.
Pension entitlements
The pension service cost recognized for the members of the Board of Management in 2017 ac-
cording to the German Commercial Code was €2,546 thousand (2016: €2,887 thousand), while
the current service cost for pension entitlements recognized according to the IFRS was
€3,907 thousand (2016: €3,902 thousand). The following table shows the service cost and the
settlement or present value of the pension obligations attributable to the individual members of the
Board of Management.
198
A Combined Management Report
4.4 Compensation Report ///// 4.4.1 Compensation of the Board of Management
Augmented Version
Bayer Annual Report 2017
Pension Entitlements (German Commercial Code and IFRS)
German Commercial Code
Pension
1
service cost
Settlement value of
pension obligation
2
as of December 31
A 4.4.1/6
IFRS
Current
service cost
for pension
entitlements
Present value
of defined benefit
pension obligation
as of December 31
€ thousand
2016
2017
2016
2017
2016
2017
2016
2017
Serving members of the
Board of Management
as of December 31, 2017
Werner Baumann (Chairman)
Liam Condon
Johannes Dietsch
Dr. Hartmut Klusik
Kemal Malik
Erica Mann
Dieter Weinand
Former member
Dr. Marijn Dekkers
3
Total
764
330
318
316
318
219
240
382
809
320
305
305
310
257
240
7,452
2,151
2,854
4,533
1,990
7,199
468
9,044
2,345
3,951
5,302
2,186
7,492
700
1,054
1,290
12,429
13,544
487
431
399
438
288
322
563
483
435
493
275
368
3,860
4,882
6,782
2,507
7,232
735
4,038
5,919
7,285
2,697
7,532
988
–
–
–
483
–
–
–
2,887
2,546
26,647
31,020
3,902
3,907
38,427
42,003
1 Including company contribution to Bayer-Pensionskasse VVaG, Rheinische Pensionskasse VVaG and a pension fund outside
Germany
2 The pension obligations of foreign subsidiaries and foreign Bayer pension funds are included at present value according to IFRS.
3 Dr. Marijn Dekkers stepped down from the Board of Management as of midnight on April 30, 2016.
The difference between the pension service cost according to the German Commercial Code and
the service cost for pension entitlements according to the IFRS arises from the difference in the
valuation principles used in calculating the settlement value according to the German Commercial
Code and the present value of the defined benefit pension obligation according to the IFRS.
Benefits upon termination of service on the Board of Management
It was agreed with Erica Mann that she be granted a severance package worth €1,978 thousand
in light of the mutually agreed early termination, effective March 31, 2018, of her service contract,
which originally ran until December 31, 2018. This package primarily comprises severance pay-
ments for fixed compensation, short-term variable compensation components, Aspire and pay-
ments for pension entitlements, each for the period April 1, 2018, through December 31, 2018.
Erica Mann’s entitlements under the company pension plan and the Aspire program were set at
the levels they would have reached if she had been eligible to participate until December 31,
2018. The severance payment for her fixed compensation and the short-term variable compensa-
tion component, together amounting to €1,172 thousand, will be paid in April 2018. The payments
from the Aspire tranches will be made upon expiration of each tranche based on the respective
Aspire program parameters. In addition, a noncompete agreement ending on December 31, 2018,
exists with Erica Mann.
It was agreed with Dr. Marijn Dekkers that he be granted benefits of €4,341 thousand according
to the German Commercial Code and €4,542 thousand according to the IFRS in light of the mutu-
ally agreed early termination, effective April 30, 2016, of his service contract, which originally ran
until December 31, 2016. These comprised the fixed compensation, the short-term variable com-
pensation components, Aspire and the pension service cost, each for the period May 1, 2016,
through December 31, 2016. Dr. Dekkers’ entitlements under the company pension plan and the
Aspire program were set at the levels they would have reached if he had been eligible to partici-
pate until December 31, 2016. The fixed compensation and the short-term variable compensation
component, together amounting to €1,900 thousand, were paid in May 2016. The payments from
the Aspire tranches will be made upon expiration of each tranche based on the respective Aspire
program parameters.
Bayer Annual Report 2017
A Combined Management Report
199
4.4 Compensation Report ///// 4.4.2 Disclosures Pursuant to the Recommendations of the German Corporate Governance Code
Augmented Version
The aggregate Board of Management compensation according to the IFRS is shown in the
following table.
Board of Management Compensation according to IFRS
€ thousand
Fixed annual compensation
Fringe benefits
Total short-term non-performance-related compensation
Short-term performance-related cash compensation
Total short-term compensation
Change in value of existing entitlements to stock-based compensation
(virtual Bayer shares)
Stock-based compensation (Aspire) earned in the respective year
Change in value of existing entitlements to stock-based compensation (Aspire)
Total stock-based compensation (long-term incentive)
Service cost for pension entitlements earned in the respective year
Total long-term compensation
Severance indemnity in connection with the termination of a service contract
Aggregate compensation (IFRS)
Table A 4.4.1/7
2016
6,385
664
7,049
9,063
2017
6,148
266
6,414
4,890
16,112
11,304
(1,275)
5,217
(923)
3,019
3,902
6,921
4,542
538
9,082
(641)
8,979
3,907
12,886
1,978
27,575
26,168
4.4.2 Disclosures Pursuant to the Recommendations of the
German Corporate Governance Code
In accordance with the recommendations of the German Corporate Governance Code, the
following tables show the compensation – including fringe benefits – granted for 2017, indicating
the target values and the maximum and minimum achievable values for the variable compensation
components, along with the allocation of compensation.
Compensation and Benefits Granted for 2017 (Part I)
A 4.4.2/1
Serving members of the Board of Management as of December 31, 2017
Werner Baumann
(Chairman)
Liam Condon
(Crop Science)
Johannes Dietsch
(Finance)
Joined Jan. 1, 2010
Joined Jan. 1, 2016
Joined Sept. 1, 2014
Target
value
2016
Target
value
2017
Min.
2017
Max.1
2017
Target
value
2016
Target
value
2017
Min.
2017
Max.1
2017
Target
value
2016
Target
value
2017
Min.
2017
Max.1
2017
1,285
1,487
1,487
1,487
47
49
49
49
800
44
806
43
806
43
806
43
750
83
756
42
756
42
756
42
1,332
1,536
1,536
1,536
844
849
849
849
833
798
798
798
1,475
1,487
0
2,974
800
806
0
1,613
750
756
0
1,512
1,983
4,790
1,624
3,530
6,553
0
8,826
1,536
13,336
3,268
1,677
3,332
0
849
4,191
6,653
1,522
3,105
1,483
3,037
0
798
3,708
6,018
764
809
809
809
330
320
320
320
318
305
305
305
€ thousand
Fixed annual
compensation
Fringe benefits
Total fixed annual
compensation
Short-term variable cash
compensation
Long-term stock-based
compensation
(Aspire)
2016 (Jan. 1, 2016 –
Dec. 31, 2019)
2017 (Jan. 1, 2017 –
Dec. 31, 2020)
Total
Service cost /
benefit expense
Total compensation
5,554
7,362
2,345
14,145
3,598
3,652
1,169
6,973
3,423
3,342
1,103
6,323
200
A Combined Management Report
Bayer Annual Report 2017
4.4 Compensation Report ///// 4.4.2 Disclosures Pursuant to the Recommendations of the German Corporate Governance Code
Augmented Version
Compensation and Benefits Granted for 2017 (Part II)
A 4.4.2/1 (continued)
Serving members of the Board of Management as of December 31, 2017
Dr. Hartmut Klusik
(Human Resources, Technology &
Sustainability)
Kemal Malik
(Innovation)
Erica Mann2
(Consumer Health)
Joined Jan. 1, 2016
Joined Feb. 1, 2014
Joined Jan. 1, 2016
Target
value
2016
Target
value
2017
750
140
756
40
Min.
2017
756
40
Max.1
2017
756
40
Target
value
2016
Target
value
2017
775
35
781
36
Min.
2017
781
36
Max.1
2017
781
36
Target
value
2016
Target
value
2017
750
182
756
24
Min.
2017
Max.1
2017
756
24
756
24
890
796
796
796
810
817
817
817
932
780
780
780
750
756
0
1,512
775
781
0
1,562
750
756
0
1,512
1,522
1,573
1,522
€ thousand
Fixed annual compensation
Fringe benefits
Total fixed annual
compensation
Short-term variable cash
compensation
Long-term stock-based
compensation
(Aspire)
2016 (Jan. 1, 2016 –
Dec. 31, 2019)
2017 (Jan. 1, 2017 –
Dec. 31, 2020)
Total
3,162
3,149
Service cost / benefit expense
316
305
796
305
6,300
3,158
305
318
310
1,591
3,189
0
3,978
817
310
6,357
3,204
310
219
1,210
2,746
257
0
3,025
780
257
5,317
257
1,597
0
3,992
Total compensation
3,478
3,454
1,101
6,605
3,476
3,499
1,127
6,667
3,423
3,003
1,037
5,574
Compensation and Benefits Granted for 2017 (Part III)
Serving members of the Board of
Management as of December 31, 2017
Dieter Weinand
(Pharmaceuticals)
A 4.4.2/1 (continued)
Former member
Dr. Marijn Dekkers
Joined Jan. 1, 2016
Stepped down April 30, 2016
€ thousand
Fixed annual compensation
Fringe benefits
Total fixed annual compensation
Short-term variable cash compensation
Long-term stock-based compensation
(Aspire)
2016 (Jan. 1, 2016 – Dec. 31, 2019)
2017 (Jan. 1, 2017 – Dec. 31, 2020)
Total
Service cost / benefit expense
Total compensation
Target
value
2016
Target
value
2017
Target
value
2016
Target
value
2017
Min.
2017
Max.1
2017
Min.
2017
806
32
838
Max.1
2017
806
32
838
0
1,613
806
32
838
806
475
99
574
475
964
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,932
3,576
240
0
838
240
4,829
7,280
240
2,013
382
3,497
3,816
1,078
7,520
2,395
800
34
834
800
1,623
3,257
240
1 The maximum achievable variable compensation shown here does not yet take into account the caps applicable. Payments in a single year are limited to 1.8 times
the target compensation (see A 4.4.1 “Compensation Structure”).
2 In December 2017, Erica Mann was additionally awarded a severance payment of €1,978 thousand.
Bayer Annual Report 2017
A Combined Management Report
201
4.4 Compensation Report ///// 4.4.2 Disclosures Pursuant to the Recommendations of the German Corporate Governance Code
Augmented Version
A 4.4.2/2
Allocation of Compensation for 2016 and 2017 (Part I)
Serving members of the Board of Management as of December 31, 2017
Werner Baumann
(Chairman)
Joined
Jan. 1, 2010
Liam Condon
(Crop Science)
Joined
Jan. 1, 2016
Johannes Dietsch
(Finance)
Joined
Sept. 1, 2014
Dr. Hartmut Klusik
(Human Resources,
Technology &
Sustainability)
Joined
Jan. 1, 2016
2016
2017
2016
2017
2016
2017
€ thousand
Fixed annual compensation
Fringe benefits
Total
Short-term variable cash
compensation
for 2016
for 2017
Long-term cash compensation
(virtual Bayer shares)
2016
1,285
47
1,332
2,329
2017
1,487
49
1,536
1,335
2012 (Jan. 1, 2013 – Dec. 31, 2015)
1,747
2013 (Jan. 1, 2014 – Dec. 31, 2016)
911
800
44
844
1,106
806
43
849
519
564
Long-term stock-based cash
compensation (Aspire)1
2012 (Jan. 1, 2012 – Dec. 31, 2015)
789
2013 (Jan. 1, 2013 – Dec. 31, 2016)
Total
Service cost / benefit expense
2
Total compensation
6,197
764
6,961
959
4,741
809
5,550
1,950
330
2,280
513
2,445
320
2,765
Allocation of Compensation for 2016 and 2017 (Part II)
750
83
833
978
301
2,112
318
2,430
756
42
798
679
750
140
890
1,053
756
40
796
565
279
1,756
305
2,061
1,943
316
2,259
312
1,673
305
1,978
A 4.4.2/2 (continued)
Serving members of the Board of Management as of December 31, 2017
Former member
Kemal Malik
(Innovation)
Joined
Feb. 1, 2014
Erica Mann
(Consumer Health)
Dieter Weinand
(Pharmaceuticals)
Joined
Jan. 1, 2016
Joined
Jan. 1, 2016
Dr. Marijn Dekkers
Stepped down
April 30, 2016
2016
2017
2016
2017
2016
2017
2016
2017
€ thousand
Fixed annual compensation
Fringe benefits
Total
Short-term variable cash
compensation
for 2016
for 2017
775
35
810
1,050
781
36
817
604
750
182
932
798
756
24
780
378
800
34
834
1,274
806
32
838
810
Long-term cash compensation
(virtual Bayer shares)
2012 (Jan. 1, 2013 – Dec. 31, 2015)
2013 (Jan. 1, 2014 – Dec. 31, 2016)
Long-term stock-based cash
compensation (Aspire)1
2012 (Jan. 1, 2012 – Dec. 31, 2015)
364
2013 (Jan. 1, 2013 – Dec. 31, 2016)
Total
Service cost / benefit expense
2
Total compensation
2,224
318
2,542
303
1,724
310
2,034
1,730
219
1,949
1,596
2,754
257
3,011
2,108
240
2,348
1,648
240
1,888
475
99
574
475
3,039
1,495
5,583
382
5,965
–
–
–
–
–
–
–
–
–
–
–
–
1 The payment to Johannes Dietsch and Kemal Malik from the 2012 Aspire tranche related to vesting periods that in some cases began before they joined the Board
of Management. The tranches were not yet fully vested at the dates on which they joined the Board of Management. The same applies to the payments in 2017
from the 2013 Aspire tranche for Johannes Dietsch, Liam Condon, Dr. Hartmut Klusik, Kemal Malik and Erica Mann.
2 The total service cost is the service cost in accordance with HGB plus contributions to pension funds.
202
A Combined Management Report
4.4 Compensation Report ///// 4.4.3 Compensation of the Supervisory Board
Augmented Version
Bayer Annual Report 2017
4.4.3 Compensation of the Supervisory Board
The Supervisory Board is compensated based on the relevant provisions of the Articles of
Incorporation, which were approved by a large majority at the Annual Stockholders’ Meeting on
April 28, 2017. The compensation of the Supervisory Board was thus increased by 10% with
effect from April 29, 2017.
The members of the Supervisory Board now receive fixed annual compensation of €132 thou-
sand (2016: €120 thousand) plus reimbursement of their expenses.
In accordance with the recommendations of the German Corporate Governance Code, additional
compensation is paid to the Chairman and Vice Chairman of the Supervisory Board and for
chairing and membership of committees. As of April 29, 2017, the Chairman of the Supervisory
Board receives fixed annual compensation of €396 thousand (2016: €360 thousand), the Vice
Chairman €264 thousand (2016: €240 thousand). These amounts also cover membership and
chairmanship of committees. The other members receive additional compensation for committee
membership. The chairman of the Audit Committee receives an additional €132 thousand (2016:
€120 thousand), the other members of the Audit Committee €66 thousand (2016: €60 thousand)
each. The chairmen of the remaining committees receive €66 thousand (2016: €60 thousand)
each, the other members of those committees €33 thousand (2016: €30 thousand) each. As
before, no additional compensation is paid for membership of the Nominations Committee. A
Supervisory Board member who is a member of more than two committees receives compensa-
tion only for the two committees with the highest compensation. If changes are made to the
Supervisory Board and / or its committees during the year, members receive compensation on a
prorated basis. As in the past, the members of the Supervisory Board also receive an attendance
fee of €1 thousand each time they personally attend a meeting of the Supervisory Board or a
committee. The attendance fee is limited to €1 thousand per day.
The members of the Supervisory Board have given a voluntary pledge that they will each pur-
chase Bayer shares for 25% of their pretax fixed compensation, including any additional com-
pensation for committee membership, and hold these shares for as long as they remain mem-
bers of the Supervisory Board. This does not apply to members who are prevented from
purchasing shares due to a service or employment contract with a company or who transfer at
least 85% of their fixed compensation to the Hans Böckler Foundation in accordance with the
rules of the German Trade Union Confederation or whose service or employment contract with a
company requires them to transfer such compensation to that company. If less than 85% of the
fixed compensation is transferred, the voluntary pledge applies to the portion not transferred.
The obligation to purchase Bayer shares was adjusted in 2017 and now only applies for the first
five years of membership of the Supervisory Board; these shares must then be held until mem-
bership of the Supervisory Board ceases. Bayer shares acquired prior to 2017 in connection with
the voluntary pledge are taken into account for this purpose. By voluntarily pledging to invest in
and hold Bayer shares, the Supervisory Board members reinforce their interest in the long-term,
sustainable success of the company.
Bayer Annual Report 2017
4.4 Compensation Report ///// 4.4.3 Compensation of the Supervisory Board
A Combined Management Report
203
Augmented Version
Compensation of the Supervisory Board in 2017
The following table shows the components of each Supervisory Board member’s compensation
for 2017.
Compensation of the Members of the Supervisory Board of Bayer AG in 2017
Fixed compensation
Attendance fee
€ thousand
2016
2017
2016
2017
2016
Members of the Supervisory Board
serving as of December 31, 2017
Dr. Paul Achleitner
Dr. Simone Bagel-Trah
Dr. Norbert W. Bischofberger
1
André van Broich
Thomas Ebeling
Dr. Thomas Elsner
1
Johanna W. (Hanneke) Faber
Colleen A. Goggins
1
Heike Hausfeld
1
Reiner Hoffmann
Frank Löllgen
Prof. Dr. Wolfgang Plischke
Petra Reinbold-Knape
Detlef Rennings
2
Sabine Schaab
3
Michael Schmidt-Kießling
Dr. Klaus Sturany
Werner Wenning (Chairman)
Prof. Dr. Otmar D. Wiestler
Oliver Zühlke (Vice Chairman)
Members who left the Supervisory
Board in 2016 and 2017
Dr. Clemens Börsig
4
Dr. Thomas Fischer
4
Yüksel Karaaslan
5
Petra Kronen
6
Dr. Helmut Panke
7
Sue H. Rataj
4
Heinz Georg Webers
4
Prof. Dr. Dr. Ernst-Ludwig Winnacker7
180
120
–
150
120
–
81
–
–
127
173
162
180
–
–
120
240
360
150
240
120
180
150
150
59
120
120
59
192
128
92
170
128
134
128
90
112
128
192
256
192
76
36
128
256
384
160
256
39
58
65
105
–
39
39
–
5
5
–
5
4
–
2
–
–
5
8
5
5
–
–
4
9
9
4
9
5
9
5
4
4
5
5
2
5
3
3
6
4
7
4
3
4
2
8
8
4
3
3
5
9
10
6
8
2
4
2
3
–
2
2
–
185
125
–
155
124
–
83
–
–
132
181
167
185
–
–
124
249
369
154
249
125
189
155
154
63
125
125
61
A 4.4.3/1
Total
2017
197
131
95
176
132
141
132
93
116
130
200
264
196
79
39
133
265
394
166
264
41
62
67
108
–
41
41
–
Total
3,361
3,583
118
120
3,479
3,703
1 Member of the Supervisory Board since April 28, 2017
2 Member of the Supervisory Board since June 4, 2017
3 Member of the Supervisory Board since October 1, 2017
4 Member of the Supervisory Board until April 28, 2017
5 Member of the Supervisory Board until June 4, 2017
6 Member of the Supervisory Board until September 30, 2017
7 Member of the Supervisory Board until April 29, 2016
In addition to their compensation as members of the Supervisory Board, those employee
representatives who are employees of Bayer Group companies receive compensation unrelated to
their service on the Supervisory Board. The total amount of such compensation in 2017 was €767
thousand (2016: €939 thousand).
No compensation was paid or benefits granted to members of the Supervisory Board for person-
ally performed services such as consultancy or agency services. The company has purchased
204
A Combined Management Report
4.5 Takeover-Relevant Information
Augmented Version
Bayer Annual Report 2017
insurance for the members of the Supervisory Board to cover their personal liability arising from
their service on the Supervisory Board.
4.4.4 Further Information
Advances or loans to members of the Board of Management or
Supervisory Board
There were no advances or loans to members of the Board of Management or the Supervisory
Board outstanding as of December 31, 2017, nor at any time during 2017 or 2016.
Pension payments to former members of the Board of Management or
their surviving dependents
We currently pay retired members of the Board of Management a monthly pension equal to a
maximum of 80% of the fixed compensation received immediately prior to retirement. The pen-
sions paid to former members of the Board of Management or their surviving dependents are
reassessed annually and adjusted, taking into account the development of consumer prices. The
pensions paid to former members of the Board of Management or their surviving dependents in
2017 totaled €12,758 thousand (2016: €12,800 thousand). These benefits are paid in addition to
any amounts they receive under previous employee pension arrangements. The present value of
the defined benefit pension obligation for former members of the Board of Management and their
surviving dependents according to the IFRS amounted to €184,479 thousand (2016: €188,850
thousand), while the settlement value of the pension obligation according to the German Com-
mercial Code amounted to €153,388 thousand (2016: €149,948 thousand).
4.5 Takeover-Relevant Information
Explanatory report pursuant to Section 289a, Paragraph 1 and
Section 315a, Paragraph 1 of the German Commercial Code (HGB)
The capital stock of Bayer AG amounted as of December 31, 2017, to €2,117 million, divided into
826,947,808 no-par registered shares. The capital stock and the number of shares were thus
unchanged from the end of the previous year. Each share confers one voting right. A small number
of shares may be subject to temporary trading restrictions, such as retention periods, in connec-
tion with employee stock participation programs. We received no notifications in 2017 of direct or
indirect holdings of shares in Bayer AG that exceed 10% of the capital stock. The company thus is
not in possession of any notifications of holdings that exceed 10% of the capital stock.
The appointment and dismissal of members of the Board of Management are subject to the
provisions of Sections 84 and 85 of the German Stock Corporation Act, Section 31 of the German
Codetermination Act and Section 6 of the company’s Articles of Incorporation. Pursuant to Sec-
tion 84, Paragraph 1 of the German Stock Corporation Act, the members of the Board of Man-
agement are appointed and dismissed by the Supervisory Board. Since Bayer AG falls within the
scope of the German Codetermination Act, the appointment or dismissal of members of the Board
of Management requires a majority of two thirds of the votes of the members of the Supervisory
Board on the first ballot pursuant to Section 31, Paragraph 2 of that act. If no such majority is
achieved, the appointment is resolved pursuant to Section 31, Paragraph 3 of the Codetermina-
tion Act on a second ballot by a simple majority of the votes of the members of the Supervisory
Board. If the required majority still is not achieved, a third ballot is held. Here again, a simple ma-
jority of the votes suffices, but in this ballot the Chairman of the Supervisory Board has two votes
pursuant to Section 31, Paragraph 4 of the Codetermination Act. Under Section 6, Paragraph 1 of
the Articles of Incorporation of Bayer AG, the number of members of the Board of Management is
determined by the Supervisory Board but must be at least two. The Supervisory Board may ap-
point one member of the Board of Management to be the Chairman of the Board of Management
pursuant to Section 84, Paragraph 2 of the German Stock Corporation Act and Section 6, Para-
graph 1 of the Articles of Incorporation.
See also
www.bayer.com/
ownership-structure
Bayer Annual Report 2017
A Combined Management Report
205
4.5 Takeover-Relevant Information
Augmented Version
Any amendments to the Articles of Incorporation are made pursuant to Section 179 of the German
Stock Corporation Act and Sections 10 and 17 of the Articles of Incorporation. Under Sec-
tion 179, Paragraph 1 of the German Stock Corporation Act, amendments to the Articles of Incor-
poration require a resolution of the Stockholders’ Meeting. Pursuant to Section 179, Paragraph 2
of the German Stock Corporation Act, this resolution must be passed by a majority of three quar-
ters of the voting capital represented at the meeting, unless the Articles of Incorporation provide
for a different majority. However, where an amendment relates to a change in the object of the
company, the Articles of Incorporation may only specify a larger majority. Section 17, Paragraph 2
of the Articles of Incorporation of Bayer AG utilizes the scope for deviation pursuant to Sec-
tion 179, Paragraph 2 of the German Stock Corporation Act and provides that resolutions may be
passed by a simple majority of the votes cast or, where a capital majority is required, by a simple
majority of the capital represented. Pursuant to Section 10, Paragraph 9 of the Articles of Incorpo-
ration, the Supervisory Board may resolve on amendments to the Articles of Incorporation that
relate solely to their wording.
Provisions of the Articles of Incorporation concerning Authorized Capital I and Authorized Capital II
are entered in the commercial register of Bayer AG. With the approval of the Supervisory Board
and until April 28, 2019, the Board of Management may use the Authorized Capital I to increase
the capital stock by up to a total of €530 million. New shares may be issued against cash contri-
butions and / or contributions in kind, but capital increases against contributions in kind may not
exceed a total of €423 million. If the Authorized Capital I is used to issue shares in return for cash
contributions, stockholders must normally be granted subscription rights. The Board of Manage-
ment may only exclude stockholders’ subscription rights to a volume of shares issued out of the
Authorized Capital I that did not represent more than 20% of the existing capital stock at the time
the respective resolution was adopted by the Annual Stockholders’ Meeting on April 29, 2014.
Absent a further resolution on the exclusion of stockholders’ subscription rights, the Board of
Management also may only exclude stockholders’ subscription rights to a volume of shares issued
under other authorizations regarding capital measures (Authorized Capital II, bonds with warrants
or convertible notes, purchase and disposal of own shares) that did not represent more than 20%
of the existing capital stock at the time the respective resolution was adopted by the Annual
Stockholders’ Meeting on April 29, 2014.
With the approval of the Supervisory Board and until April 28, 2019, the Board of Management is
authorized to increase the capital stock by up to €212 million in one or more installments by issu-
ing shares out of the Authorized Capital II against cash contributions. The stockholders must nor-
mally be granted subscription rights. However, the Board of Management is authorized, with the
approval of the Supervisory Board, to exclude subscription rights for stockholders provided the
volume of shares issued out of the Authorized Capital II against cash contributions does not ex-
ceed 10% of the capital stock existing at the time this authorization is registered or at the time the
new shares are issued and the issue price of the new shares is not significantly below the market
price of the already listed shares.
Conditional capital of €212 million exists in connection with an authorization – valid through April
28, 2019 – to issue bonds with warrants or convertible notes, profit-sharing rights or profit partici-
pation bonds (collectively referred to as “bonds”) with a total face value of €6 billion, €4 billion of
which has already been used for mandatory convertible notes. The Board of Management may,
with the consent of the Supervisory Board and under certain conditions, exclude the bond sub-
scription rights that would otherwise be granted to stockholders. One of the conditions is that the
total volume of shares required to service the bonds exceed neither 10% of the capital stock that
existed at the time the respective resolution was adopted by the Annual Stockholders’ Meeting on
April 29, 2014, nor 10% of the capital stock existing at the time this authorization is exercised.
Any other shares issued without granting subscription rights to the stockholders in direct or anal-
ogous application of Section 186, Paragraph 3, Sentence 4 of the German Stock Corporation Act
shall be credited against this 10% limit.
206
A Combined Management Report
4.5 Takeover-Relevant Information
Augmented Version
Bayer Annual Report 2017
Further, by resolution of the Annual Stockholders’ Meeting on April 29, 2014, the Board of Man-
agement is authorized to purchase and dispose of own shares representing up to 10% of the
capital stock existing at the time the resolution was adopted. The authorization to purchase own
shares also includes the purchase of own shares using put or call options (derivatives) up to a
volume of 5% of the capital stock existing at the time the resolution was adopted or at the time
the authorization is exercised. This authorization also expires on April 28, 2019.
A material agreement that is subject to the condition precedent of a change of control pertains to
the undrawn €3.5 billion syndicated credit facility arranged by Bayer AG and its U.S. subsidiary
Bayer Corporation. This facility is available until December 2020. The participating banks are enti-
tled to terminate the credit facility in the event of a change of control at Bayer and demand re-
payment of any loans that may have been granted under this facility up to that time.
A similar clause is also contained in the agreement on a syndicated credit facility in the original
amount of US$56.9 billion granted to Bayer US Finance II LLC and Bayer AG in September 2016.
This facility, which remained undrawn as of December 31, 2017, serves to finance the planned
acquisition of Monsanto. Pursuant to the agreement, it was reduced in 2016 by the US$4.2 billion
net proceeds from the issuance of mandatory convertible notes, to US$52.7 billion, and in June
2017 by the US$1.2 billion net proceeds from the issuance of an exchangeable bond, to
US$51.5 billion. The mandatory convertible notes were issued by Bayer Capital Corporation B.V.,
guaranteed by Bayer AG and mature in November 2019. The terms on which holders may convert
the notes into shares before the maturity date are more favorable in the event of a change of con-
trol than they would be otherwise. The exchangeable bond was issued by Bayer AG and matures
in 2020, and Bayer AG can flexibly exchange bonds for cash, Covestro AG shares or a combina-
tion of the two. Holders of these notes have the right to demand the redemption of unexchanged
notes by Bayer AG in the event of a change of control if Bayer AG’s credit rating is downgraded
within 120 days after such change of control becomes effective.
The terms of the nominal €2.0 billion (as of December 31, 2017) in notes issued by Bayer in the
years 2006 to 2017 under its existing Debt Issuance Programme also contain a corresponding
change-of-control clause. The terms of the US$7 billion bond in 144A / Reg S format issued in
October 2014 also contain a clause to this effect. The outstanding amount of this bond as of
December 31, 2017, was US$5.3 billion.
Agreements exist for the members of the Board of Management in compliance with Section 4.2.3
of the German Corporate Governance Code to cover the eventuality of a takeover offer being
made for Bayer AG. Under these agreements, payments promised in the event of early termination
of the service contract of a Board of Management member due to a change of control are limited
to the value of three years’ compensation and may not compensate more than the remaining term
of the contract.
Bayer Annual Report 2017
4.6 CSR Directive Implementation Act: Index to Nonfinancial Statement
A Combined Management Report
207
Augmented Version
4.6 CSR Directive Implementation Act:
Index to Nonfinancial Statement
CSR Directive Implementation Act
1: Index to Nonfinancial Statement
Business model
We present our business model within the meaning of the German Commercial
Code (HGB), Section 289c and Section 315c in Chapter A 1.1 Corporate
Profile and Structure
Page
43-49
Aspects
Bayer area of activity
Concept:
Management approaches, Group targets, measures,
results, due diligence processes; nonfinancial key
data
Environmental aspects
Chapter
Resource efficiency;
environmental protection
(emissions into air,
water, soil);
safety;
product stewardship
A 1.2.1 Group Strategy and Targets
1.4.2.2 Production and Logistics
A 1.4.3.1 Product Stewardship
A 1.4.3.2 Safety: plant and transportation safety
A 1.4.3.3 Environmental Protection
Page
50, 53-55
99-100, 101
106-109, 112-114
104-105, 117-119
104-105, 120-128
Supplier management
Supplier management
Employee-related
aspects
A 1.2.1 Targets and Key Performance Indicators
A 1.4.2.1 Procurement and Supplier
54
93, 94-97
Management
Chapter
Page
Employee relations and
developments;
safety;
human rights
A 1.2.1 Targets and Key Performance Indicators
A 1.4.1.1 Employees
A 1.4.1.2 Human Rights
A 1.4.3.2 Safety: occupational health and safety
55
79, 81-82, 83-86, 87-88
89
116-117
Supplier management
Supplier management
A 1.2.1 Targets and Key Performance Indicators
A 1.4.2.1 Procurement and Supplier Management
54
93, 94-97
Social aspects
Chapter
Stakeholder engagement
and partnerships;
societal engagement;
production;
safety
A 1.2.1 Targets and Key Performance Indicators
A 1.2.3 Sustainability Management –
Stakeholder dialogue
A 1.4.1.3 Societal Engagement
A 1.4.2.2 Production
A 1.4.3.2 Safety: plant and transportation safety
Bribery and corruption
Chapter
Page
55
58-59
90
99-100
104-105, 116, 117-119
Page
Instruments for
combating corruption
and bribery
Business ethics
Supplier management
Supplier management
A 1.2.1 Targets and Key Performance Indicators
A 1.4.1.2 Human Rights
A 1.4.2.3 Marketing and Distribution:
55
89
103
A 4.2
commitment to ethical conduct
Compliance
187-190
A 1.2.1 Targets and Key Performance Indicators
A 1.4.2.1 Procurement and Supplier Management
54
93, 94-97
Respect for
human rights
Employee relations and
developments (fair
working conditions);
human rights
Supplier management
Chapter
Page
A 1.2.1 Targets and Key Performance Indicators
A 1.4.1.1 Employees
A 1.4.1.2 Human Rights
A 1.4.2.1 Procurement and Supplier Management,
54, 55
83, 84-85, 88
89-90
97-98
including child labor
Material risks
In chapters A 3.2.1 Group-wide Opportunity and Risk Management System,
A 3.2.2 Opportunity and Risk Status and B 32. Legal Risks, we report on
material risks that arise through our business activity, business relationships,
products and services
Page
170,172, 176-179,
296-300
Diversity concept
We present our diversity concept for the Board of Management and
Supervisory Board in Chapter A 4.1 Declaration by Corporate Management,
and for Group employees in general in Chapter A 1.4.1.1 Employees
Page
183-186
84
1 Sections 289b to e HGB, sections 315b and c HGB; additional information on the nonfinancial statement of Bayer AG in accordance with
sections 289b to e HGB is given in Chapter A 1.4.4
206
B Consolidated Financial Statements
Bayer Group Consolidated Income Statements
Augmented Version
Bayer Annual Report 2017
Consolidated
Financial Statements
208
B Consolidated Financial Statements
Bayer Group Consolidated Income Statements
Augmented Version
Bayer Annual Report 2017
Bayer Group Consolidated
Income Statements
€ million
Net sales
Cost of goods sold
Gross profit
Selling expenses
Research and development expenses
General administration expenses
Other operating income
Other operating expenses
EBIT
1
Equity-method income (loss)
Financial income
Financial expenses
Financial result
Income before income taxes
Income taxes
Income from continuing operations after income taxes
of which attributable to noncontrolling interest
of which attributable to Bayer AG stockholders
Income from discontinued operations after income taxes
of which attributable to noncontrolling interest
of which attributable to Bayer AG stockholders
Income after income taxes
of which attributable to noncontrolling interest
of which attributable to Bayer AG stockholders (net income)
€
Earnings per share
From continuing operations
Basic
Diluted
From discontinued operations
Basic
Diluted
From continuing and discontinued operations
Basic
Diluted
B 1
Note
2016
2017
[7]
34,943
35,015
[8]
[9]
[10]
[11]
[13.1]
[13]
[14]
[6.3]
[15]
[16]
[16]
[16]
[16]
(11,756)
(11,382)
23,187
23,633
(11,148)
(11,116)
(4,405)
(1,804)
787
(879)
(4,504)
(2,026)
864
(948)
5,738
5,903
(6)
149
(1,108)
(965)
4,773
(1,017)
3,756
13
3,743
1,070
282
788
4,826
295
4,531
4.50
4.50
0.94
0.94
5.44
5.44
20
289
(1,635)
(1,326)
4,577
(1,329)
3,248
(1)
3,249
4,846
759
4,087
8,094
758
7,336
3.73
3.73
4.68
4.68
8.41
8.41
2016 figures restated
1 For definition, see Combined Management Report, Chapter 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Bayer Annual Report 2017
Bayer Group Consolidated Statements of Comprehensive Income
B Consolidated Financial Statements
209
Augmented Version
Bayer Group Consolidated
Statements of Comprehensive
Income
€ million
Income after income taxes
of which attributable to noncontrolling interest
of which attributable to Bayer AG stockholders
Remeasurements of the net defined benefit liability
for post-employment benefit plans
Income taxes
Note
[15]
[25]
[14]
2016
4,826
295
4,531
(1,036)
228
B 2
2017
8,094
758
7,336
1,236
(515)
Other comprehensive income from remeasurements of the net defined
benefit liability for post-employment benefit plans
Other comprehensive income relating to associates accounted
for using the equity method
Other comprehensive income that will not be reclassified subsequently
to profit or loss
Changes in fair values of derivatives designated as cash flow hedges
[30.3]
[14]
[20]
[14]
Reclassified to profit or loss
Income taxes
Other comprehensive income from cash flow hedges
Changes in fair values of available-for-sale financial assets
Reclassified to profit or loss
Income taxes
Other comprehensive income from available-for-sale financial assets
Changes in exchange differences recognized on translation
of operations outside the eurozone
Reclassified to profit or loss
Other comprehensive income from exchange differences
Other comprehensive income relating to associates accounted
for using the equity method
Other comprehensive income that may be reclassified subsequently
to profit or loss
Total other comprehensive income
1
of which attributable to noncontrolling interest
of which attributable to Bayer AG stockholders
Total comprehensive income
of which attributable to noncontrolling interest
of which attributable to Bayer AG stockholders
1 Total changes recognized outside profit or loss
(808)
721
–
(44)
(808)
58
3
(16)
45
65
–
(8)
57
703
(58)
645
677
(144)
3
53
(88)
(3)
(2)
3
(2)
(2,152)
–
(2,152)
(14)
101
733
(75)
(10)
(65)
4,751
285
4,466
(2,141)
(1,464)
(106)
(1,358)
6,630
652
5,978
210
B Consolidated Financial Statements
Bayer Group Consolidated Statements of Financial Position
Augmented Version
Bayer Annual Report 2017
Bayer Group Consolidated
Statements of Financial Position
€ million
Noncurrent assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments accounted for using the equity method
Other financial assets
Other receivables
Deferred taxes
Current assets
Inventories
Trade accounts receivable
Other financial assets
Other receivables
Claims for income tax refunds
Cash and cash equivalents
Assets held for sale
Total assets
Equity
Capital stock
Capital reserves
Other reserves
Equity attributable to Bayer AG stockholders
Equity attributable to noncontrolling interest
Noncurrent liabilities
Provisions for pensions and other post-employment benefits
Other provisions
Financial liabilities
Income tax liabilities
Other liabilities
Deferred taxes
Current liabilities
Other provisions
Financial liabilities
Trade accounts payable
Income tax liabilities
Other liabilities
Liabilities directly related to assets held for sale
Total equity and liabilities
B 3
Note
Dec. 31,
2016
Dec. 31,
2017
[17]
[17]
[18]
[19]
[20]
[23]
[14]
[21]
[22]
[20]
[23]
[6.3]
[24]
[25]
[26]
[27]
[29]
[14]
[26]
[27]
[28]
[29]
[6.3]
16,312
13,567
13,114
584
1,281
583
6,350
14,751
11,674
7,633
4,007
1,634
400
4,915
51,791
45,014
8,408
10,969
6,275
2,210
676
1,899
10
30,447
82,238
2,117
9,658
18,558
30,333
1,564
31,897
11,134
1,780
16,180
423
957
1,330
31,804
5,421
3,401
6,410
884
2,421
–
6,550
8,582
3,529
1,276
474
7,581
2,081
30,073
75,087
2,117
9,658
25,026
36,801
60
36,861
8,020
1,366
12,483
495
1,116
1,153
24,633
4,344
1,935
5,129
422
1,652
111
18,537
82,238
13,593
75,087
Bayer Annual Report 2017
Bayer Group Consolidated Statements of Changes in Equity
B Consolidated Financial Statements
211
Augmented Version
Bayer Group Consolidated
Statements of Changes in Equity
€ million
Dec. 31, 2015
Equity transactions with owners
Capital increase
Dividend payments
Other changes
Other comprehensive income
Income after income taxes
Dec. 31, 2016
Equity transactions with owners
Capital increase
Dividend payments
Other changes
Other comprehensive income
Income after income taxes
Dec. 31, 2017
€ million
Dec. 31, 2015
Equity transactions with owners
Capital increase
Dividend payments
Other changes
Other comprehensive income
Income after income taxes
Dec. 31, 2016
Equity transactions with owners
Capital increase
Dividend payments
Other changes
Other comprehensive income
Income after income taxes
Dec. 31, 2017
B 4
Capital stock
Capital
reserves
Retained
earnings
incl. net
income
Exchange
differences
Fair-value
measurement
of securities
2,117
6,167
16,581
(622)
24
3,491
2,117
9,658
(2,067)
129
(781)
4,531
18,393
(2,233)
2,727
628
7,336
53
614
45
(1,915)
2,117
9,658
26,851
(1,870)
Cash flow
hedges
Revaluation
surplus
Equity
attributable
to Bayer AG
stockholders
Equity
attributable
to non-
controlling
interest
(23)
21
24,265
1,180
3,491
(2,067)
178
(65)
4,531
30,333
(2,233)
2,723
(1,358)
7,336
36,801
(4)
17
(4)
13
(58)
157
(10)
295
1,564
(131)
(2,025)
(106)
758
60
45
22
(88)
(66)
57
81
17
98
B 4 (continued)
Equity
25,445
3,491
(2,125)
335
(75)
4,826
31,897
(2,364)
698
(1,464)
8,094
36,861
212
B Consolidated Financial Statements
Bayer Group Consolidated Statements of Cash Flows
Augmented Version
Bayer Annual Report 2017
Bayer Group Consolidated
Statements of Cash Flows
€ million
Income from continuing operations after income taxes
Note
Income taxes
Financial result
Income taxes paid
Depreciation, amortization and impairments
Change in pension provisions
(Gains) losses on retirements of noncurrent assets
Decrease (increase) in inventories
Decrease (increase) in trade accounts receivable
(Decrease) increase in trade accounts payable
Changes in other working capital, other noncash items
Net cash provided by (used in) operating activities
from continuing operations
Net cash provided by (used in) operating activities from discontinued operations
Net cash provided by (used in) operating activities
[33]
B 5
2017
3,248
1,329
1,326
(1,821)
2,660
(227)
(133)
(293)
(18)
265
275
6,611
1,523
8,134
2016
3,756
1,017
965
(1,701)
3,063
(297)
(45)
(78)
(385)
310
(170)
6,435
2,654
9,089
Cash outflows for additions to property, plant, equipment and intangible assets
(2,578)
(2,366)
Cash inflows from sales of property, plant, equipment and other assets
Cash inflows from (outflows for) divestments
Cash outflows for noncurrent financial assets
Cash inflows from (outflows for) acquisitions less acquired cash
Interest and dividends received
Cash inflows from (outflows for) current financial assets
Net cash provided by (used in) investing activities
[34]
Capital contributions
Proceeds from shares of Covestro AG
Dividend payments
Issuances of debt
Retirements of debt
Interest paid including interest-rate swaps
Interest received from interest-rate swaps
Cash outflows for the purchase of additional interests in subsidiaries
Net cash provided by (used in) financing activities
[35]
Change in cash and cash equivalents due to business activities
Cash and cash equivalents at beginning of year
Change in cash and cash equivalents due to changes in scope of consolidation
Change in cash and cash equivalents due to exchange rate movements
Cash and cash equivalents at end of year
2016 figures restated
111
(18)
(690)
2
89
(5,645)
(8,729)
3,300
–
(2,126)
241
453
(313)
(158)
168
1,543
(432)
–
3,717
(2,364)
15,190
10,369
(15,920)
(12,848)
(853)
59
–
(350)
10
1,859
3
27
1,899
(801)
69
(23)
(1,881)
5,821
1,899
–
(139)
7,581
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
213
Augmented Version
Notes to the Consolidated Financial
Statements of the Bayer Group
1. Key data by segment
Key Data by Segment
€ million
Net sales (external)
Change
1
Pharmaceuticals
Consumer Health
Crop Science
Animal Health
2016
2017
16,420
16,847
2016
6,037
2017
5,862
2016
2017
2016
9,915
9,577
1,523
2017
1,571
+ 7.3%
+ 2.6% – 0.6%
– 2.9% – 2.1%
– 3.4%
+ 2.2%
+ 3.2%
Currency-adjusted change
1
+ 8.7%
+ 4.3% + 3.5%
– 1.7% + 0.2%
– 2.2%
+ 4.8%
+ 4.1%
B 1/1
Intersegment sales
Net sales (total)
EBIT
1
EBIT before special items
1
EBITDA before special items
1
ROCE
1
Net cash provided
by operating activities
29
38
5
14
16,449
16,885
6,042
5,876
3,389
3,947
5,251
4,325
4,665
5,711
16.2%
21.0%
695
987
1,411
3.5%
518
818
1,231
36
9,951
1,755
1,898
2,421
38
9,610
1,235
1,643
2,043
10
8
1,533
1,579
313
320
349
307
338
381
2.7% 12.9%
9.6%
63.5%
47.1%
3,368
3,867
874
1,059
2,071
1,884
193
209
Equity-method income (loss)
Equity-method carrying amounts
2
–
3
1
3
2
11
1
11
(1)
15
(1)
35
22,173
21,753
16,558
14,896
14,868
13,106
Assets
2
Capital expenditures
2
Depreciation, amortization
and impairments
of which impairment losses
of which impairment loss reversals
Research and development
expenses
851
1,126
1,695
1,251
464
–
217
–
2,787
2,888
220
601
175
–
259
181
773
670
627
213
–
525
52
–
481
72
(1)
–
–
838
39
30
1
(1)
–
–
935
41
45
9
–
240
1,164
1,166
140
155
1 For definition, see Combined Management Report, Chapter 2.4 “Alternative Performance Measures Used by the Bayer Group.”
2 2016 Group total including Covestro
214
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
B 1/1 continued
Key Data by Segment
€ million
Net sales (external)
Change
1
All Other Segments
2016
1,042
2017
1,142
Reconciliation
Corporate Functions
and Consolidation
2016
2017
2016
Group
2017
6
16
34,943
35,015
– 5.0%
+ 9.6% +50.0% +166.7%
+ 2.5%
+ 0.2%
Currency-adjusted change
1
– 4.2% + 10.5%
–
–
+ 4.7%
+ 1.6%
Intersegment sales
Net sales (total)
EBIT
1
EBIT before special items
1
EBITDA before special items
1
ROCE
1
Net cash provided by operating activities
Equity-method income (loss)
Equity-method carrying amounts
2
Assets
2
Capital expenditures
2
Depreciation, amortization and impairments
of which impairment losses
of which impairment loss reversals
Research and development expenses
1,356
2,398
2,324
3,466
(1,436)
(2,417)
–
–
(1,430)
(2,401)
34,943
35,015
(50)
18
224
–
503
–
–
4
115
358
–
256
–
–
(364)
(344)
(338)
–
(574)
(7)
(486)
(449)
(436)
5,738
6,826
9,318
5,903
7,130
9,288
–
10.3%
10.8%
(664)
6,435
6,611
19
(6)
20
325
3,958
584
4,007
2,632
2,206
15,986
22,191
82,238
75,087
307
206
7
–
39
359
243
2
–
3
18
6
–
–
16
41
13
–
–
2,627
3,063
699
(1)
2,418
2,660
513
(1)
52
4,405
4,504
2016 figures restated
1 For definition, see Combined Management Report, Chapter 2.4 “Alternative Performance Measures Used by the Bayer Group.”
2 2016 Group total including Covestro
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
215
Augmented Version
2. General information
The consolidated financial statements of the Bayer Group as of December 31, 2017, were prepared by
Bayer Aktiengesellschaft (Bayer AG) according to the International Financial Reporting Standards (IFRS)
issued by the International Accounting Standards Board (IASB), London, United Kingdom, in effect at the
end of the reporting period, and the interpretations of the IFRS Interpretations Committee (IFRS IC) as
endorsed by the European Union. The applicable further requirements of Section 315e of the German
Commercial Code were also taken into account.
Bayer AG (which is entered in the commercial register of the Local Court of Cologne, Germany, HRB
48248) is a global enterprise based in Germany. Its registered office is at Kaiser-Wilhelm-Allee 1, 51368
Leverkusen. Its material business activities in the fields of health care and agriculture took place in the
reporting period in the Pharmaceuticals, Consumer Health, Crop Science and Animal Health segments.
The activities of each segment are outlined in Note [5].
The declarations required under Section 161 of the German Stock Corporation Act concerning the German
Corporate Governance Code have been issued and made available to stockholders.
The Board of Management of Bayer AG prepared the consolidated financial statements of the Bayer Group
on February 20, 2018. They were discussed by the Audit Committee of the Supervisory Board of Bayer AG
at its meeting on February 26, 2018, and approved by the Supervisory Board at its plenary meeting on
February 27, 2018.
In the income statement and statement of comprehensive income, statement of financial position, state-
ment of cash flows and statement of changes in equity, certain items are combined for the sake of clarity.
These are explained in the Notes. The income statement is prepared using the cost-of-sales method. As-
sets and liabilities are classified by maturity. They are regarded as current if they mature within one year or
within the normal business cycle of the company or the Group, or are held for sale. The normal business
cycle is defined for this purpose as beginning with the procurement of the resources necessary for the
production process and ending with the receipt of cash or cash equivalents as consideration for the sale of
the goods or services produced in that process. Inventories and trade accounts receivable and payable are
always presented as current items. Deferred tax assets and liabilities and pension provisions are always
presented as noncurrent items.
The consolidated financial statements of the Bayer Group are drawn up in euros. Amounts are stated in
millions of euros (€ million) except where otherwise indicated.
The financial statements of the individual consolidated companies are prepared as of the closing date of
the Group financial statements.
3. Effects of new financial reporting standards
Financial reporting standards applied for the first time in 2017
The first-time application of the following amended financial reporting standards had no impact, or no
material impact, on the presentation of Bayer’s financial position or results of operations, or on earnings
per share.
In January 2016, the IASB published amendments to IAS 7 (Statement of Cash Flows) under the title
“Amendments to IAS 7: Disclosure Initiative.” The following changes in liabilities arising from financing ac-
tivities must be disclosed: (a) changes from financing cash flows; (b) changes arising from obtaining or
losing control of subsidiaries or other businesses; (c) the effect of changes in foreign exchange rates; (d)
changes in fair values; (e) other changes.
216
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
In January 2016, the IASB also published amendments to IAS 12 (Income Taxes) under the title “Recogni-
tion of Deferred Assets for Unrealised Losses.” These amendments basically clarify that in the case of
assets recognized at fair value (e.g. fixed-rate debt instruments) where the taxable value is the cost of
acquisition, unrealized losses result in deductible temporary differences, irrespective of the future use of
the asset. Further, when estimating future taxable profits for the purpose of recognizing deferred tax as-
sets, the tax deductions resulting from the reversal of other deductible temporary differences must be
eliminated.
In December 2016, the IASB published “Annual Improvements to IFRS Standards 2014 - 2016 Cycle” as
part of its annual improvements project. The changes relating to IFRS 12 (Disclosure of Interest in Other
Entities) primarily pertain to clarifications.
Published financial reporting standards that have not yet been applied
The IASB and the IFRS Interpretations Committee have issued the following standards, amendments to
standards, and interpretations whose application was not yet mandatory for the 2017 fiscal year, or for
which the European Union had not yet completed the endorsement process. The application of these
standards and amendments is conditional upon their endorsement by the European Union.
IFRS 9 (Financial Instruments) is the new standard for accounting for financial instruments that is to be
applied for annual reporting periods beginning on or after January 1, 2018. It was endorsed by the Euro-
pean Union in November 2016.
Bayer will apply IFRS 9 retrospectively, accounting for the aggregate amount of any transition effects by
way of an adjustment to equity as of January 1, 2018, and presenting the comparative period in line with
previous rules. IFRS 9 introduces new provisions for the classification and measurement of financial assets
and replaces the current rules on the impairment of financial assets. The new standard requires a change
in accounting methods for the effects resulting from a change in the company's own credit risk for financial
liabilities classified at fair value and modifies the requirements for hedge accounting. The classification and
measurement of financial liabilities is otherwise largely unchanged from the existing regulations.
Under IFRS 9, the classification and measurement of financial assets is determined by the company’s
business model and the characteristics of the cash flows of each financial asset. As at the transition date,
these changes in the classification of financial assets will not have any material impact on the presentation
of the Group’s financial position and results of operations. In the case of equity instruments held as of
January 1, 2018, that are not held for trading, Bayer will uniformly opt to recognize future changes in their
fair value through other comprehensive income in the statement of comprehensive income and to continue
to classify these as equity upon the derecognition of the financial instrument.
Furthermore, IFRS 9 will lead to an increase in the loss allowance for expected credit losses on financial
assets, including trade accounts receivable. Loss allowances for expected credit losses on trade accounts
receivable will increase by an amount in the region of approximately €95 million. As at the transition date,
the measurement effects for other financial assets will be immaterial.
In the future, changes in the fair values of financial liabilities measured at fair value through profit or loss
resulting from Bayer's own credit risk will be recognized through other comprehensive income in the
statement of comprehensive income rather than in the income statement. At Bayer, this change principally
affects the debt instruments (exchangeable bond) issued in June 2017, which also can be exchanged into
Covestro shares. As at the transition date, this change will not have any material effects on these items.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
217
Augmented Version
For hedge accounting, Bayer is opting to prospectively apply IFRS 9 from January 1, 2018. If only the
intrinsic value of an option is designated as a hedging instrument in a hedging relationship, IFRS 9 requires
that changes in the fair value of the time value of the options during the hedging period initially be recog-
nized as other comprehensive income in the statement of comprehensive income. Subsequent measure-
ment depends on the type of hedged transaction. In contrast to the other rules on hedge accounting, the
revised accounting method is to be applied retrospectively. As at the transition date, these changes will not
have any material impact on the presentation of the Group’s financial position and results of operations.
The IASB issued IFRS 15 (Revenues from Contracts with Customers) in May 2014 and provided clarifica-
tions to the standard in April 2016. Both the standard and the clarifications have been endorsed by the
European Union. IFRS 15 replaces the current IAS 18 (Revenue) and IAS 11 (Construction Contracts) reve-
nue recognition standards and the related interpretations, and is applicable for annual reporting periods
beginning on or after January 1, 2018. The new standard establishes a five-step model related to revenue
recognition from contracts with customers. Under IFRS 15, revenue is recognized at amounts that reflect
the consideration that an entity expects to be entitled to in exchange for transferring goods or services to a
customer. Revenue is recognized when (or as) the entity transfers control of goods or services to a cus-
tomer either over time or at a point in time. In addition, IFRS 15 clarifies the allocation of individual topics
to (new) line items in the statement of financial position and to functional cost items in the income state-
ment, and whether gross or net amounts are to be presented.
Bayer will implement IFRS 15 on the basis of the modified retrospective method, accounting for the aggre-
gate amount of any transition effects by way of an adjustment to retained earnings as of January 1, 2018,
and presenting the comparative period in line with previous rules. All of the established business models
for the Bayer Group were examined in the course of the implementation project. The previous assessment
that the new standard is not expected to materially affect the timing of revenue recognition for the transac-
tions concerned or their components was confirmed. With regard to total Group sales, there are indica-
tions of immaterial transition effects specifically due to the different accounting for milestone payments in
connection with right-to-access licenses and the recognition of revenues from trademark rights divested in
the past. This is likely to result in an immaterial increase in retained earnings on the transition date as ex-
plained in greater detail below:
>
>
IFRS 15 requires catch-up adjustments to revenue when milestone payments for right-to-access
licenses become unconstrained leading to earlier revenue recognition. This change is expected to result
in an increase in retained earnings and a decrease in contract liabilities (currently presented as deferred
income in other liabilities) by roughly €100 million on January 1, 2018. This would translate into a
decrease of less than 0.1% in annual net sales and less than 0.3% in annual EBIT through 2027 in the
Pharmaceuticals segment as measured in relation to the segment’s current figures. These effects are
presented before deferred taxes.
IFRS 15 in conjunction with IAS 38 (Intangible Assets) generally requires the recognition of the purchase
price related to a brand divestment net of associated carrying amounts in other operating income or
expenses upon control transfer. Some cases have been identified where the purchase price was
deferred under former policy in line with IAS 18, but would have been recognized in income earlier under
IFRS 15, leading to an expected increase in retained earnings and an expected decrease in contract
liabilities (currently presented as deferred income in other liabilities) by roughly €30 million on the date of
transition. This would translate into a decrease of less than 1.2% and 0.2% in annual net sales and less
than 6.2% and 1% in annual EBIT in 2018 and 2019, respectively, for the Animal Health segment as
measured in relation to the segment’s current figures. For the Pharmaceuticals segment, this would lead
to a decrease of less than 0.04% in annual net sales and less than 0.2% in annual EBIT in 2018 as
measured in relation to the segment’s current figures. These effects are presented before deferred
taxes.
218
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
At the time these consolidated financial statements were finalized, Bayer had not fully concluded its analy-
sis of the impact IFRS 15 will have on the sale of goods for which it also organizes transportation services.
However, preliminary analyses have not revealed any material effects. Line items added to the statement of
financial position through IFRS 15, and the corresponding allocation rules, will give rise to presentational
changes within the statement of financial position. Overall, based on current knowledge, we do not antici-
pate any material effects on the results of operations or on earnings per share.
In January 2016, the IASB issued IFRS 16 (Leases), the new standard for lease accounting, which will
replace IAS 17. IFRS 16 introduces a uniform lease accounting model for lessees, requiring recognition of
a right-of-use asset and a liability for all leases with a term of more than 12 months unless such leases are
immaterial. It will eliminate the current requirement for lessees to classify lease contracts as either operat-
ing leases – without recognizing the respective assets or liabilities – or as finance leases. As in the previous
standard, IAS 17, lessors still have to differentiate between finance and operating leases. Companies in the
Bayer Group mainly act as lessees. The application of IFRS 16 is expected to impact Bayer’s financial
position and results of operations as follows: Instead of the minimum lease payments arising from operat-
ing leases currently recognized under other financial commitments, application of IFRS 16 will increase
noncurrent assets by requiring the recognition of rights of use. Similarly, financial liabilities will be increased
by recognition of the corresponding lease liabilities. In the statement of comprehensive income, the amorti-
zation of rights of use and the interest expense for the liabilities will be recognized in place of the expenses
for operating leases. In the statement of cash flows, IFRS 16 will probably result in an improvement in the
operating cash flow by reducing cash flows for operating activities, while the repayment component of
lease payments and the interest expense will be recognized in the financing cash flow. The new standard is
to be applied for annual periods beginning on or after January 1, 2019. It was endorsed by the European
Union in October 2017. A Group-wide project is steering the implementation of this new standard. Bayer is
currently evaluating the quantitative impacts the amendments will have on the presentation of its financial
position and results of operations. In this connection, we refer to the other financial commitments from
operating leases reported in Note [31].
In June 2016, the IASB published an amendment to IFRS 2 (Share-based Payment) under the title “Classi-
fication and Measurement of Share-based Payment Transactions.” This amendment provides guidance on
certain accounting issues relating to cash-settled share-based payments. For example, the fair value of the
equity instruments is not to be adjusted for service conditions or non-market-based performance condi-
tions. Instead, these are to be taken into account by adjusting the number of equity instruments expected
to vest. The amendment is to be applied for annual periods beginning on or after January 1, 2018. It has
not yet been endorsed by the European Union. The changes are not expected to have a material impact
on the presentation of Bayer’s financial position or results of operations.
In September 2016 the IASB published an amendment to IFRS 4 (Insurance Contracts) under the title
“Applying IFRS 9 ‘Financial Instruments’ with IFRS 4 ‘Insurance Contracts’.” These amendments aim to
mitigate the impact of the different dates of first-time application of IFRS 9 and IFRS 17, the successor to
IFRS 4, especially at companies with extensive insurance business. It introduces two optional approaches
which insurers can use provided that certain conditions are fulfilled: the overlay approach and temporary
exemption. The amendment is to be applied for annual periods beginning on or after January 1, 2018. It
was endorsed by the European Union in November 2017. The changes are not expected to have a materi-
al impact on the presentation of Bayer’s financial position or results of operations.
In December 2016, the IASB published an amendment to IAS 40 (Investment Property) under the title
“Transfers of Investment Property.” This specifies that a property may only be transferred to or from the
investment property classification when there has been an actual change in use and not when there is a
mere change of intent concerning the property. The amendment is to be applied for annual periods begin-
ning on or after January 1, 2018. It has not yet been endorsed by the European Union. The changes are
not expected to have a material impact on the presentation of Bayer’s financial position or results of opera-
tions.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
219
Augmented Version
In December 2016, the IASB published “Annual Improvements to IFRS Standards 2014-2016 Cycle” as
part of its annual improvements project. The amendments relate to IFRS 1 (First Time Adoption of IFRS),
IFRS 12 (Disclosure of Interest in Other Entities) and IAS 28 (Investments in Associates and Joint Ventures).
They mainly contain clarifications on the scope of application and other matters. The amendments to
IFRS 1 and IAS 28 are to be applied for annual periods beginning on or after January 1, 2018. The
amendments were endorsed by the European Union in February 2018. The changes are not expected to
have a material impact on the presentation of Bayer’s financial position or results of operations.
In December 2016, the IASB published the IFRIC Interpretation 22 (Foreign Currency Transactions and
Advance Consideration) relating to IAS 21 (The Effects of Changes in Foreign Exchange Rates). The Inter-
pretation clarifies that the assets, income and expenses accounted for following a foreign currency trans-
action are to be translated at the same exchange rate as any related receipts or payments of advance
consideration. IFRIC 22 is to be applied for annual periods beginning on or after January 1, 2018. It has
not yet been endorsed by the European Union. Bayer is currently evaluating the impact the amendments
will have on the presentation of its financial position and results of operations.
In May 2017, the IASB published IFRS 17 (Insurance Contracts), which will replace IFRS 4. Its scope com-
prises insurance contracts, reinsurance contracts and investment contracts with discretionary participation
features. IFRS 17 is to be applied for annual periods beginning on or after January 1, 2021. The amend-
ments have not yet been endorsed by the European Union. Bayer is currently evaluating the impact the
amendments will have on the presentation of its financial position and results of operations.
In June 2017, the IASB published IFRIC Interpretation 23 (Uncertainty over Income Tax Treatments) to
clarify uncertainty relating to the accounting treatment of income taxes. IFRIC 23 is to be applied for annu-
al periods beginning on or after January 1, 2019. It has not yet been endorsed by the European Union.
Bayer is currently evaluating the impact the amendments will have on the presentation of its financial posi-
tion and results of operations.
In October 2017, the IASB published an amendment to IFRS 9 (Financial Instruments) under the title “Pre-
payment Features with Negative Compensation.” This addresses the treatment of symmetrical rights to
terminate a contract to allow measurement of financial assets at amortized cost or at fair value through
comprehensive income. In addition, it contains clarification on the modification of financial liabilities that
does not result in derecognition. The amendment to IFRS 9 is to be applied for annual periods beginning
on or after January 1, 2019. It has not yet been endorsed by the European Union. Bayer is currently evalu-
ating the impact the amendments will have on the presentation of its financial position and results of oper-
ations.
In October 2017, the IASB published an amendment to IAS 28 (Investments in Associates and Joint Ven-
tures) under the title “Long-term Interests in Associates and Joint Ventures.” This clarifies that a company
is required to apply IFRS 9 (Financial Instruments), including its impairment rules, to long-term interests in
associates and joint ventures that, in substance, form part of the net investment in the associate or joint
venture and to which the equity method is not applied. The application of IFRS 9 thus takes precedence
over IAS 28. The amendment to IAS 28 is to be applied for annual periods beginning on or after January 1,
2019. It has not yet been endorsed by the European Union. Bayer is currently evaluating the impact the
amendments will have on the presentation of its financial position and results of operations.
220
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
In December 2017, the IASB published “Annual Improvements to IFRS Standards 2015-2017 Cycle” as
part of its annual improvements project. The amendments relate to IFRS 3 (Business Combinations),
IFRS 11 (Joint Arrangements), IAS 12 (Income Taxes) and IAS 23 (Borrowing Costs). They principally com-
prise clarifications. The amendments are to be applied for annual periods beginning on or after January 1,
2019. Earlier application is permitted. The amendments have not yet been endorsed by the European Un-
ion. Bayer is currently evaluating the impact the amendments will have on the presentation of its financial
position and results of operations.
In February 2018, the IASB published amendments to IAS 19 (Employee Benefits). These amendments
relate to how a company accounts for a defined benefit plan when a change – an amendment, curtailment
or settlement – takes place, and require a company to remeasure its net defined benefit liability or asset
when said change occurs. They also require a company to use the updated acturial assumptions from this
remeasurement to determine current service cost and net interest for the remainder of the reporting period
after the change to the plan. The amendments also include clarifications regarding the related effects on
determining the asset ceiling. The amendments are to be applied for annual reporting periods beginning on
or after January 1, 2019. Early application is permissable. They have not yet been endorsed by the Euro-
pean Union. Bayer will evaluate the impact the amendments will have on the presentation of its financial
position and results of operations.
4. Basic principles, methods and critical accounting
estimates
The financial statements of the consolidated companies are prepared according to uniform accounting
policies and measurement principles.
The consolidated financial statements of the Group are based on the principle of the historical cost of
acquisition, construction or production, with the exception of the items reflected at fair value, such as for
example, financial assets held for trading or available for sale, derivatives, and liabilities for which Bayer
has made use of the fair value option.
In preparing the consolidated financial statements, the management has to make certain assumptions and
estimates that may substantially impact the presentation of the Group’s financial position and / or results of
operations.
Such estimates, assumptions or the exercise of discretion mainly relate to the useful life of noncurrent
assets, the discounted cash flows used for impairment testing and purchase price allocations, and the
recognition of provisions, including those for litigation-related expenses, pensions and other benefits, tax-
es, environmental compliance and remediation costs, sales allowances, product liability and guarantees.
Essential estimates and assumptions that may affect reporting in the various item categories of the finan-
cial statements are described in the following sections of this Note. Estimates are based on historical ex-
perience and other assumptions that are considered reasonable under given circumstances. They are
continually reviewed but may vary from the actual values.
Changes in accounting policies or measurement principles in light of new or revised standards are general-
ly applied in line with the options permitted within the respective standard. Depending on the option that
Bayer makes use of, the income statement for the previous year and the opening statement of financial
position for that year are adjusted where necessary. For detailed information on standards to be applied for
the first time from January 1, 2018, please see Note [3].
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
221
Augmented Version
Consolidation
The consolidated financial statements include subsidiaries, joint operations, joint ventures and associates.
Subsidiaries are companies over which Bayer AG is currently able to exercise power by virtue of existing
rights. Power means the ability to direct the relevant activities that significantly affect a company’s profita-
bility. Control is therefore only deemed to exist if Bayer AG is exposed, or has rights, to variable returns
from its involvement with a company and has the ability to use its power over that company to affect the
amount of that company’s returns. The ability to control another company generally derives from
Bayer AG’s direct or indirect ownership of a majority of the voting rights. In the case of structured entities,
however, control is based on contractual agreements. Inclusion of an entity’s accounts in the consolidated
financial statements begins when the Bayer Group is able to exercise control over the entity and ceases
when it is no longer able to do so.
Joint operations and joint ventures are based on joint arrangements. A joint arrangement is deemed to
exist if the Bayer Group through a contractual agreement jointly controls activities managed with a third
party. Joint control is only deemed to exist if decisions regarding the relevant activities require the unani-
mous consent of the parties sharing control.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have
rights to the assets, and obligations for the liabilities, relating to the arrangement. The Bayer Group recog-
nizes the share of assets, liabilities, revenues and expenses relating to its interest in a joint operation in
accordance with its rights and obligations.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have
rights to the net assets of the arrangement. Joint ventures are accounted for using the equity method.
Associates are companies over which Bayer AG exerts significant influence, generally through an owner-
ship interest between 20% and 50%. They also are accounted for using the equity method. In addition,
Bayer AG can generally exert significant influence on companies in which it holds an interest of below 20%
when it has representation in that company’s supervisory body.
The carrying amount of a company accounted for using the equity method is adjusted annually by the
percentage of any change in its equity corresponding to Bayer’s percentage interest in the company. Dif-
ferences arising upon first-time inclusion using the equity method are accounted for according to full-
consolidation principles. Bayer’s share of changes – recognized in profit or loss – in these companies’
equities, impairment losses recognized on goodwill, and gains and losses from the sale of investments
accounted for using the equity method, are reflected in equity-method income / loss.
Interests in subsidiaries, joint ventures and associates that do not have a material impact on the Group’s
financial position or results of operations, either individually or in aggregate, are accounted for at cost of
acquisition less any impairment losses.
Foreign currency translation
The financial statements of the individual companies for inclusion in the consolidated financial statements
are prepared in their respective functional currencies. A company’s functional currency is that of the eco-
nomic environment in which it primarily generates and expends cash. The majority of consolidated compa-
nies carry out their activities autonomously from a financial, economic and organizational point of view, and
their functional currencies are therefore the respective local currencies.
222
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
In the consolidated financial statements, the assets and liabilities of companies that do not use the euro as
their functional currency at the start and end of the year are translated into euros at closing rates. All
changes occurring during the year and all income and expense items and cash flows are translated into
euros at average monthly rates. Equity components are translated at the historical exchange rates prevail-
ing at the respective dates of their first-time recognition in Group equity.
The exchange differences arising between the resulting amounts and those obtained by translating at clos-
ing rates are recognized outside profit or loss as “Exchange differences on translation of operations out-
side the eurozone” (in other comprehensive income) or presented as “Exchange differences” in the tables
in the Notes. When a company is deconsolidated or the net investment in a foreign operation is reduced,
such exchange differences are reclassified from equity to profit or loss.
The exchange rates for major currencies against the euro varied as follows:
Exchange Rates for Major Currencies
€1/
BRL
CAD
CHF
CNY
GBP
JPY
MXN
RUB
USD
Brazil
Canada
Switzerland
China
United Kingdom
Japan
Mexico
Russia
United States
Closing rate
Average rate
B 4/1
2017
3.98
1.51
1.17
7.81
0.89
135.01
23.66
69.41
1.20
2016
3.84
1.47
1.09
7.36
0.82
120.06
20.62
73.79
1.11
2017
3.59
1.46
1.11
7.61
0.88
126.39
21.28
65.71
1.13
2016
3.43
1.42
1.07
7.35
0.86
123.36
21.78
64.30
1.05
In 2017, as in prior years, the rules of IAS 29 (Financial Reporting in Hyperinflationary Economies) were
relevant for Bayer S.A., Venezuela. Gains and losses incurred upon adjusting the carrying amounts of
nonmonetary assets and liabilities and of items in the income statement for inflation are recognized in other
operating income and expenses.
Starting in January 2016, foreign currency translation and valuation were switched to the “hyperinflation-
adjusted” SIMADI exchange rate. This is determined internally because reliable exchange rates are not
available externally. It was initially based on the official SIMADI rate and has subsequently been adjusted in
line with published inflation rates. The exchange rate thus calculated was VEF 74,258 to the U.S. dollar at
the end of December 2017 (2016: VEF 2,737 to the U.S. dollar). The resulting U.S. dollar amounts were
then translated at the dollar / euro closing-date rate.
Receivables from the Venezuelan exchange control authority relating to the allocation of U.S. dollars at a
preferential exchange rate are impaired to zero as soon as they are posted.
Foreign currency measurement
In the separate financial statements of the individual consolidated companies, monetary items, such as
receivables and liabilities, that are denominated in currencies other than the respective functional currency
are measured at closing rates. Related exchange differences are recognized in profit or loss as exchange
gains or losses under other financial income or expenses.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
223
Augmented Version
Net sales and other operating income
All revenues derived from the selling of products or rendering of services or from licensing agreements are
recognized as sales. Other operational revenues are recognized as other operating income. Sales are rec-
ognized in profit or loss when the significant risks and rewards of ownership of the goods have been trans-
ferred to the customer, the company retains neither continuing managerial involvement to the degree usu-
ally associated with ownership nor effective control over the goods sold, the amount of revenue and costs
incurred or to be incurred can be measured reliably, and it is sufficiently probable that the economic bene-
fits associated with the transaction will flow to the company.
Sales are stated net of sales taxes, other taxes and sales deductions at the fair value of the consideration
received or to be received. Sales deductions are estimated amounts for rebates, cash discounts and prod-
uct returns. They are deducted at the time the sales are recognized, and appropriate provisions are rec-
orded. Sales deductions are estimated primarily on the basis of historical experience, specific contractual
terms and future expectations of sales development. It is unlikely that factors other than these could mate-
rially affect sales deductions in the Bayer Group.
Provisions for rebates in 2017 amounted to 6.1% of total net sales (2016: 5.5%). In addition to rebates,
Group companies offer cash discounts for prompt payment in some countries. Provisions for cash dis-
counts as of December 31, 2017, and December 31, 2016, were less than 0.1% of total net sales for the
respective year.
Sales are reduced by the amount of the provisions for expected returns of defective goods or of saleable
products that may be returned under contractual arrangements. The net sales are reduced on the date of
sale or on the date when the amount of future product returns can be reasonably estimated. Provisions for
product returns in 2017 amounted to 0.6% of total net sales (2016: 0.6%). If future product returns cannot
be reasonably estimated and are significant to a sales transaction, the revenues and the related cost of
sales are deferred until a reasonable estimate can be made or the right to return the goods has expired.
Some of the Bayer Group’s revenues are generated on the basis of licensing agreements under which third
parties have been granted rights to products and technologies. Payments received, or expected to be
received, that relate to the sale or out-licensing of technologies or technological expertise are recognized
in profit or loss as of the effective date of the respective agreement if all rights relating to the technologies
and all obligations resulting from them have been relinquished under the contract terms. However, if rights
to the technologies continue to exist or obligations resulting from them have yet to be fulfilled, the pay-
ments received are deferred accordingly. Upfront payments and similar nonrefundable payments received
under these agreements are recorded as other liabilities and recognized in profit or loss according to the
degree of performance over the estimated performance period stipulated in the agreement.
License agreements and research and development collaboration agreements may be multiple-deliverable
arrangements with varying consideration terms, such as upfront, milestone or similar payments. Such
agreements therefore have to be assessed to determine whether the revenues allocated to individual deliv-
erables must be recognized at different points in time and therefore form separate units of account.
To qualify as a separate unit of account for revenue recognition purposes, a deliverable must have value to
the licensee on a standalone basis. If this is not the case, the agreement as a whole or a combination of
individual deliverables that has value on a standalone basis forms a unit of account.
If necessary goods have yet to be delivered or necessary services provided for a unit of account and such
delivery or provision is probable, nonrefundable (royalty) payments already received are recognized through
profit or loss over the periods in which these goods are delivered or these services are provided.
Income may also arise from the exchange of intangible assets. The amount recognized is generally based
on the fair value of the asset received plus (less) any cash received (dispersed).
224
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Research and development expenses
For accounting purposes, research expenses are defined as costs incurred for current or planned investi-
gations undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
Development expenses are defined as costs incurred for the application of research findings or specialist
knowledge to plans or designs for the production, provision or development of new or substantially im-
proved products, services or processes, respectively, prior to the commencement of commercial produc-
tion or use.
Research and development expenses are incurred in the Bayer Group for in-house research and devel-
opment activities as well as numerous research and development collaborations and alliances with third
parties.
Research and development expenses mainly comprise the costs for active ingredient discovery, clinical
studies, research and development activities in the areas of application technology and engineering, field
trials, regulatory approvals and approval extensions.
Research costs cannot be capitalized. The conditions for capitalization of development costs are closely
defined: a key precondition for recognition of an intangible asset is that it is sufficiently certain that the
development activity will generate future cash flows that will cover the associated development costs.
Since our own development projects are often subject to regulatory approval procedures and other uncer-
tainties, the conditions for the capitalization of costs incurred before receipt of approvals are not normally
satisfied.
In the case of research and development collaborations, a distinction is generally made between payments
on contract signature, upfront payments, milestone payments and cost reimbursements for work per-
formed. If an intangible asset (such as the right to the use of an active ingredient) is acquired in connection
with any of these payment obligations, the respective payment is capitalized even if it is uncertain whether
further development work will ultimately lead to the production of a saleable product. Reimbursements of
the cost of research or development work are recognized in profit or loss, except where they are required
to be capitalized.
Income taxes
Income taxes comprise the taxes levied on taxable income in the individual countries along with changes in
deferred tax assets and liabilities that are recognized in profit or loss. The income taxes recognized are
reflected at the amounts likely to be payable under the statutory regulations in force, or already enacted in
relation to future periods, at the end of the reporting period.
Complex tax regulations may give rise to uncertainties with respect to their interpretation and the amounts
and timing of future taxable income. Given the wide range of international business relationships and the
long-term nature and complexity of existing contractual agreements, differences arising between the actual
results and the assumptions made, or future changes to such assumptions, could necessitate adjustments
to tax income and expense in future periods. The Group establishes provisions for taxes, based on rea-
sonable estimates, for liabilities to the tax authorities of the respective countries that are uncertain as to
their amount and the probability of their occurrence. The amount of such provisions is based on various
factors, such as experience with previous tax audits and differing legal interpretations by the taxable entity
and the responsible tax authority.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
225
Augmented Version
In compliance with IAS 12 (Income Taxes), deferred taxes are recognized for temporary differences be-
tween the carrying amounts of assets and liabilities in the statement of financial position prepared accord-
ing to IFRS and their tax bases. Deferred taxes are also recognized for consolidation measures and for loss
carryforwards, interest carryforwards and tax credits that are likely to be usable.
Deferred tax assets relating to deductible temporary differences, tax credits, loss carryforwards and inter-
est carryforwards are recognized where it is sufficiently probable that taxable income will be available in the
future to enable them to be used. Deferred tax liabilities are recognized on temporary differences taxable in
the future. Deferred taxes are calculated at the rates which – on the basis of the statutory regulations in
force, or already enacted in relation to future periods, as of the closing date – are expected to apply in the
individual countries at the time of realization. Deferred tax assets and deferred tax liabilities are offset if
they relate to income taxes levied by the same taxation authority and Bayer has a legal right to settle on a
net basis. Material effects of changes in tax rates or tax law on deferred tax assets and liabilities are gen-
erally accounted for in the period in which the changes are enacted. Such effects are recognized in profit
or loss except where they relate to deferred taxes that were recognized outside profit or loss, in which
case they are recognized in other comprehensive income or directly in equity.
Deferred and current taxes are recognized in profit or loss unless they relate to items recognized outside
profit or loss, in which case they, too, are recognized in other comprehensive income or directly in equity.
The probability that deferred tax assets resulting from temporary differences, loss carryforwards or interest
carryforwards can be used in the future is the subject of forecasts by the individual consolidated compa-
nies regarding their future earnings situation and other parameters.
Deferred tax liabilities are recognized on planned dividend payments by subsidiaries. Where no dividend
payment is planned for the foreseeable future, no deferred tax liability is recognized on the difference be-
tween the proportionate net assets according to IFRS and the tax base of the investment in the subsidiary.
Goodwill
In a business combination, goodwill is capitalized at the acquisition date. It is measured at its cost of ac-
quisition, which is the excess of the acquisition price for shares in a company over the acquired net assets.
The net assets are the balance of the fair values of the acquired identifiable assets and the assumed liabili-
ties and contingent liabilities.
Goodwill is not amortized, but tested annually for impairment. Details of the annual impairment tests are
given under “Procedure used in global impairment testing and its impact.” Once an impairment loss has
been recognized on goodwill, it is not reversed in subsequent periods.
Other intangible assets
An “other intangible asset” is an identifiable nonmonetary asset without physical substance, other than
goodwill (such as a patent, a trademark or a marketing right). It is capitalized if the future economic bene-
fits attributable to the asset will probably flow to the company and the cost of acquisition or generation of
the asset can be reliably measured.
226
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Other intangible assets are recognized at the cost of acquisition or generation. Those with a determinable
useful life are amortized accordingly on a straight-line basis over a period of up to 30 years, except where
their actual depletion demands a different amortization pattern. Determination of the expected useful lives
of such assets and the amortization patterns is based on estimates of the period for which they will gener-
ate cash flows. An impairment test is performed if there is an indication of possible impairment.
Other intangible assets with an indefinite life (such as the Bayer Cross trademark) and intangible assets not
yet available for use (such as research and development projects) are not amortized, but tested annually
for impairment.
Property, plant and equipment
Property, plant and equipment is depreciated by the straight-line method over an asset’s useful life, except
where depreciation based on actual depletion is more appropriate.
The following depreciation periods are applied throughout the Group:
Useful Life of Property, Plant and Equipment
Buildings
Outdoor infrastructure
Storage tanks and pipelines
Plant installations
Machinery and equipment
Furniture and fixtures
Vehicles
Computer equipment
Laboratory and research facilities
B 4/2
20 to 50 years
10 to 20 years
10 to 20 years
6 to 20 years
6 to 12 years
4 to 10 years
5 to 8 years
3 to 5 years
3 to 5 years
When assets are sold, closed down or scrapped, the difference between the net proceeds and the net
carrying amount of the assets is recognized as a gain or loss in other operating income or expenses, re-
spectively.
Investment property comprises land and buildings not being used for operational or administrative purpos-
es. It is measured using the cost model. The fair value of the investment property reported in the Notes is
determined using the discounted cash flow method, comparisons with the current market values of similar
properties, or reports from external experts.
Financial assets
Financial assets comprise loans and receivables, acquired equity and debt instruments, cash and cash
equivalents, and derivatives with positive fair values.
Regular-way purchases and sales of financial assets are generally posted on the settlement date. Financial
assets are initially recognized at fair value plus transaction costs. The transaction costs incurred for the
purchase of financial assets held at fair value through profit or loss are expensed immediately.
If there are substantial and objective indications of a decline in the value of loans and receivables, held-to-
maturity financial assets or available-for-sale financial assets, an impairment test is performed. Indications
of possible impairment include a high probability of insolvency, a significant deterioration in credit standing,
a material breach of contract, operating losses reported by a company over several years, a reduction in
market value, the financial restructuring of the debtor, or the disappearance of an active market for the
asset.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
227
Augmented Version
Impairment losses are generally recorded on receivables in the event of insolvency or similar proceedings
being launched, financial restructuring at business partners, or the initiation of enforcement measures.
Payment history and past-due receivables are also analyzed, with customer-specific facts assessed in
each case.
Financial assets are derecognized when contractual rights to receive cash flows from the financial assets
expire or the financial assets are transferred together with all material risks and benefits.
Inventories
In accordance with IAS 2 (Inventories), inventories encompass assets consumed in production or in the
rendering of services (raw materials and supplies), assets in the production process for sale (work in pro-
cess), goods held for sale in the ordinary course of business (finished goods and goods purchased for
resale), and advance payments on inventories. Inventories are recognized at their cost of acquisition or
production (production-related full costs) – calculated by the weighted-average method – or at their net
realizable value, whichever is lower. The net realizable value is the estimated selling price in the ordinary
course of business less estimated cost to complete and selling expenses.
Cash and cash equivalents
Cash and cash equivalents comprise cash, checks received and balances with banks and companies.
Cash equivalents are highly liquid short-term financial investments that are subject to an insignificant risk of
changes in value, are easily convertible into a known amount of cash and have a maturity of three months
or less from the date of acquisition or investment.
Provisions for pensions and other post-employment benefits
Within the Bayer Group, post-employment benefits are provided under defined contribution and / or defined
benefit plans. In the case of defined contribution plans, the company pays contributions to publicly or
privately administered pension plans on a mandatory, contractual or voluntary basis. Once the contribu-
tions have been paid, the company has no further payment obligations. The regular contributions consti-
tute expenses for the year in which they are due and as such are included in the functional cost items, and
thus in EBIT. All other post-employment benefit systems are defined benefit plans, which may be either
unfunded, i.e. financed by provisions, or funded, i.e. financed through pension funds.
The present value of provisions for defined benefit plans and the resulting expense are calculated in ac-
cordance with IAS 19 (Employee Benefits) by the projected unit credit method. The future benefit obliga-
tions are valued by actuarial methods and spread over the entire employment period on the basis of spe-
cific assumptions regarding beneficiary structure and the economic environment. These relate mainly to the
discount rate, future salary and pension increases, variations in health care costs, and mortality rates.
The discount rates used are calculated from the yields of high-quality corporate bond portfolios in specific
currencies with cash flows approximately equivalent to the expected disbursements from the pension
plans. The uniform discount rate derived from this interest-rate structure is thus based on the yields, at the
closing date, of a portfolio of AA-rated corporate bonds whose weighted residual maturities approximately
correspond to the duration necessary to cover the entire benefit obligation.
228
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The fair value of plan assets is deducted from the present value of the defined benefit obligation for pen-
sions and other post-employment benefits to determine the net defined benefit liability. The obligations and
plan assets are valued at regular intervals of not more than three years. Comprehensive actuarial valuations
for all major plans are performed annually as of December 31. Plan assets in excess of the benefit obliga-
tion are reflected in other receivables, subject to the asset ceiling specified in IAS 19 (Employee Benefits).
The balance of all income and expenses relating to defined benefit plans, except the net interest on the net
liability, is recognized in EBIT. The net interest is reflected in the financial result under other financial income
and expenses.
The effects of remeasurements of the net defined benefit liability are reflected in the statement of compre-
hensive income as other comprehensive income. They consist of actuarial gains and losses, the return on
plan assets and changes in the effects of the asset ceiling, less the respective amounts included in net
interest. Deferred taxes relating to the effects of remeasurements are also recognized in other comprehen-
sive income.
Other provisions
Other provisions are recognized for present legal and constructive obligations arising from past events that
will probably give rise to a future outflow of resources, provided that a reliable estimate can be made of the
amount of the obligations.
If the projected obligation declines as a result of a change in the estimate, the provision is reversed by the
corresponding amount and the resulting income recognized in the operating expense item(s) in which the
original charge was recognized.
To enhance the information content of the estimates, certain provisions that could have a material effect on
the financial position or results of operations of the Group are tested for their sensitivity to changes in the
underlying parameters. To reflect uncertainty about the likelihood of the assumed events actually occurring,
the impact of a five-percentage-point change in the probability of occurrence is examined in each case.
This analysis has not shown other provisions to be materially sensitive.
Provisions for environmental protection are recorded if future cash outflows are likely to be necessary to
ensure compliance with environmental regulations or to carry out remediation work, such costs can be
reliably estimated and no future benefits are expected from such measures. Provisions for environmental
protection mainly relate to the rehabilitation of contaminated land, recultivation of landfills, and redevelop-
ment and water protection measures.
Estimating the future costs of environmental protection and remediation involves many uncertainties, par-
ticularly with regard to the status of laws, regulations and the information available about conditions in the
various countries and at the individual sites. Significant factors in estimating the costs include previous
experiences in similar cases, conclusions drawn from expert opinions obtained regarding the Group’s envi-
ronmental programs, current costs and new developments affecting costs, management’s interpretation of
current environmental laws and regulations, the number and financial position of third parties that may
become obligated to participate in any remediation costs on the basis of joint liability, and the remediation
methods likely to be deployed. Changes in these assumptions could impact future reported results of the
Group.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
229
Augmented Version
Taking into consideration experience gained to date regarding environmental matters of a similar nature,
provisions are believed to be adequate based upon currently available information. Given the difficulties
inherent in estimating environmental liabilities in the businesses in which the Group operates, especially
those for which the risk of environmental damage is greater in relative terms (Crop Science), it remains
possible that material additional costs will be incurred beyond the amounts accrued. It may transpire dur-
ing remediation work that additional expenditures are necessary over an extended period and that these
exceed existing provisions and cannot be reasonably estimated.
Provisions for restructuring only cover expenses that arise directly from restructuring measures, are nec-
essary for restructuring and are not related to future business operations. Such expenses include sever-
ance payments to employees and compensation payments in respect of rented property that can no long-
er be used.
Restructuring measures may include the sale or termination of business units, site closures, relocations of
business activities or fundamental reorganizations of business units.
Trade-related provisions are recorded mainly for the granting of rebates or discounts, product returns,
obligations in respect of services already received but not yet invoiced, and impending losses or onerous
contracts.
As a global enterprise with a diverse business portfolio, the Bayer Group is exposed to numerous legal
risks for which provisions for litigations must be established under certain conditions – particularly in the
areas of product liability, competition and antitrust law, patent disputes, tax law and environmental protec-
tion.
Litigations and other judicial proceedings often raise complex issues and are subject to many uncertainties
and complexities including, but not limited to, the facts and circumstances of each particular case, the
jurisdiction in which each suit is brought and differences in applicable law. The outcomes of currently
pending and future proceedings generally cannot be predicted. It is particularly difficult to assess the likely
outcomes of class actions for damages or mass compensation claims in the United States, which may give
rise to significant financial risks for the Bayer Group. As a result of a judgment in court proceedings, regu-
latory decisions or the conclusion of a settlement, the Bayer Group may incur charges for which no ac-
counting measures have yet been taken for lack of reasonable estimability or which exceed presently es-
tablished provisions and the insurance coverage.
The Bayer Group considers the need for accounting measures in respect of pending or future litigations,
and the extent of any such measures, on the basis of the information available to its legal department and
in close consultation with legal counsel acting for the Bayer Group.
Where it is more likely than not that such a litigation will result in an outflow of resources that is already
reasonably estimable, a provision for litigation is recorded in the amount of the present value of the ex-
pected cash outflows. Such provisions cover the estimated payments to the plaintiffs, court and procedur-
al costs, attorney costs and the cost of potential settlements.
It is frequently impossible to reliably determine the existence of a present obligation or reasonably estimate
the probability that a potential outflow of resources will result from a pending or future litigation. The status
of the material “legal risks” is described in Note [32]. Due to the special nature of these litigations, provi-
sions generally are not established until initial settlements allow an estimate of potential amounts or judg-
ments have been issued. Provisions for legal defense costs are established if it is probable that material
costs will have to be incurred for external legal counsel to defend the company’s legal position.
230
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Internal and external legal counsel evaluate the current status of the Bayer Group's material legal risks at
the end of each reporting period. The need to establish or adjust a provision and the amount of the provi-
sion or adjustment are determined on this basis. Adjusting events are reflected up to the date of prepara-
tion of the consolidated financial statements. The measurement of provisions in the case of class actions
or mass compensation claims is mainly based on any settlements reached during the past year and on
pending or anticipated future claims.
Provisions for personnel commitments mainly include those for variable one-time payments under short-
term incentive programs and for stock-based compensation. Also reflected here are commitments for
service awards, early retirements and pre-retirement part-time working arrangements. Provisions for sever-
ance payments resulting from restructuring are reflected in provisions for restructuring.
Miscellaneous provisions include those for other liabilities, contingent liabilities from business combina-
tions, and asset retirement obligations (other than those included in provisions for environmental protec-
tion).
Financial liabilities
Financial liabilities comprise financial liabilities, trade accounts payable and other liabilities that are settled
in cash and cash equivalents or other financial instruments, as well as negative fair values of derivatives.
Financial liabilities are measured at amortized cost unless they are carried at fair value. Examples include
derivatives with negative fair values or liabilities for which the fair value option has been used.
Liabilities for contingent consideration arising from business combinations are measured at fair value.
Changes in fair value are recognized through profit or loss as of the respective closing date.
Financial liabilities are derecognized when the contractual obligation is discharged or canceled, or has
expired.
Mandatory convertible notes are assessed to determine whether they should be accounted for entirely as
debt or split into an equity component and a debt component. This involves examining whether Bayer’s
early conversion rights have economic substance. These rights may have economic substance with re-
spect to maintaining the current credit rating if early conversion can prevent a rating downgrade. In this
event, future savings of credit interest would more than offset the cost of early conversion by Bayer. If the
right to early conversion is deemed to have economic substance, components of the mandatory converti-
ble notes are classified as equity.
The mandatory convertible notes issued are accounted for as a hybrid financial instrument. The directly
attributable costs along with the debt component, which corresponds to the present value of the future
interest payments, are deducted from the proceeds of the issue. The debt component is included in finan-
cial liabilities. The remaining amount is the equity component, which is reflected in capital reserves.
The fair value option under IAS 39.11A may be used if a bond represents a hybrid financial instrument, i.e.
if the nonderivative host contract constitutes a debt instrument, multiple derivatives are embedded in the
bond and at least one of the derivatives has to be separated from the host contract and significantly modi-
fies the contractual cash flows.Such a bond is designated in its entirety as a financial liability at fair value
through profit or loss. Changes in its fair value are recognized in other financial income and expenses. Use
was made of this fair value option for the first time for the debt instruments issued in June 2017 (ex-
changeable bond 2017 / 2020), which are exchangeable into Covestro shares.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
231
Augmented Version
Other receivables and liabilities
Accrued items and other nonfinancial assets and liabilities are carried at amortized cost. They are amor-
tized to income by the straight-line method or according to performance of the underlying transaction.
Grants and subsidies from third parties that serve to promote investment are reflected in the statement of
financial position under other liabilities and amortized to income over the useful lives of the respective in-
vestments or in line with the terms of the grant or subsidy.
Derivatives
The Bayer Group uses derivatives to mitigate the risk of changes in exchange rates, interest rates or prices
and to hedge stock-based compensation programs. The instruments used include forward exchange con-
tracts, interest-rate swaps and stock options. Derivatives are recognized at the trade date.
Contracts concluded in order to receive or deliver nonfinancial items for the company’s own purposes are
not accounted for as derivatives but treated as pending transactions. Where embedded derivatives are
identified that are required to be separated from the pending transactions, they are accounted for sepa-
rately. To take advantage of market opportunities or cover possible peak demand, a nonmaterial volume of
transactions may be entered into for which the possibility of immediate resale cannot be excluded. Such
transactions are allocated to separate portfolios upon acquisition and accounted for as derivatives accord-
ing to IAS 39.
Derivatives are carried at fair value. Positive fair values at the end of the reporting period are reflected in
financial assets, negative fair values in financial liabilities. Changes in the fair values of these derivatives are
recognized directly in profit or loss except where hedge accounting is used.
Changes in the fair values of the effective portion of derivatives designated as cash flow hedges are initially
recognized outside profit or loss in accumulated other comprehensive income. They are reclassified to
profit or loss when the underlying transaction is realized. If such a derivative is sold or ceases to qualify for
hedge accounting, the change in its value continues to be recognized in accumulated other comprehen-
sive income until the forecasted transaction is realized. If the forecasted transaction is no longer expected
to occur, the amount previously recognized in accumulated other comprehensive income is reclassified to
profit or loss. The ineffective portion of gains or losses on derivatives designated as cash flow hedges is
recognized either in other operating income or expenses or in the financial result, depending on the type of
underlying transaction.
Changes in the fair values of derivatives designated as fair-value hedges and the adjustments in the carry-
ing amounts of the underlying transactions are recognized in profit or loss.
Changes in the fair values of forward exchange contracts and currency options serving as hedges of items
in the statement of financial position are reflected in other financial income and expenses as exchange
gains or losses, while changes in the values of interest-rate swaps and interest-rate options are recognized
in interest income or expense. Changes in the fair values of commodity futures and options, and of forward
exchange contracts used to hedge forecasted sales transactions in foreign currencies, are recognized in
other operating income or expenses. Changes in the fair values of stock options or forward stock transac-
tions used to hedge stock-based employee compensation are initially recognized outside profit or loss and
subsequently reclassified to profit or loss in the functional costs over the periods of the Aspire programs.
The income and expense reflected in the financial result pertaining to the derivatives and the underlying
transactions are shown separately. Income and expense are not offset.
232
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Acquisition accounting
Acquired businesses are accounted for using the acquisition method, which requires that the assets ac-
quired and liabilities assumed be recorded at their respective fair values on the date Bayer obtains control.
Ancillary acquisition costs are recognized as expenses in the periods in which they occur.
The application of the acquisition method requires certain estimates and assumptions to be made, espe-
cially concerning the fair values of the acquired intangible assets, property, plant and equipment and the
liabilities assumed at the acquisition date, and the useful lives of the acquired intangible assets, property,
plant and equipment.
Measurement is based to a large extent on anticipated cash flows. If actual cash flows vary from those
used in calculating fair values, this may materially affect the Group’s future results of operations. In particu-
lar, the estimation of discounted cash flows from intangible assets under development, patented and non-
patented technologies and brands is based on assumptions concerning, for example:
> The outcomes of research and development activities regarding the efficacy of a crop protection or seed
product, compound, results of clinical trials
> The probability of obtaining regulatory approvals in individual countries
> Long-term sales projections
> Possible selling price erosion due to offerings of unpatented products following patent expirations
> The behavior of competitors (launch of competing products, marketing initiatives, etc.)
For significant acquisitions, the purchase price allocation is carried out with assistance from independent
third-party valuation specialists. The valuations are based on the information available at the acquisition
date.
In step acquisitions, the fair values of the acquired entity’s assets and liabilities are measured in accord-
ance with IFRS 3 (Business Combinations) at the date on which control is obtained. Any resulting adjust-
ments to the fair value of the existing interest are recognized in profit or loss. The carrying amount of the
assets and liabilities already recognized in the statement of financial position is then adjusted accordingly.
Divestment accounting
Divestments of shares in subsidiaries that result in a loss of control are generally accounted for in profit or
loss. When shares in a subsidiary are gradually divested in several tranches, a reduction in the majority
shareholding without the loss of control is reflected outside profit or loss and results in an increase in the
equity attributable to noncontrolling stockholders.
After the loss of control, the interest remaining at the time of the loss of control is carried at fair value. If
Bayer AG still retains significant influence after divesting shares, the remaining interest is recognized as an
interest in an associate and is accounted for using the equity method. If Bayer can no longer exert signifi-
cant influence on the company, the remaining interest is immediately classified as an available-for-sale
financial asset and recognized at fair value outside profit or loss.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
233
Augmented Version
Procedure used in global impairment testing and its impact
Impairment tests are performed not only on individual items of intangible assets, property, plant and
equipment, but also at the level of cash-generating units or groups of cash-generating units. A cash-
generating unit is the smallest identifiable group of assets that generates cash inflows that are largely inde-
pendent of the cash inflows from other assets or groups of assets. The Bayer Group regards its strategic
business entities or groups of strategic business entities, as well as certain product families, as cash-
generating units and subjects them to global impairment testing. The strategic business entities constitute
the second financial reporting level below the segments.
Cash-generating units and unit groups are globally tested if there is an indication of possible impairment.
Those to which goodwill is allocated are tested at least annually.
Impairment testing involves comparing the carrying amount of each cash-generating unit, unit group or
item of intangible assets, property, plant or equipment to the recoverable amount, which is the higher of its
fair value less costs of disposal or value in use. If the carrying amount exceeds the recoverable amount, an
impairment loss must be recognized for the difference. In this case an impairment loss is first recognized
on any goodwill allocated to the cash-generating unit or unit group. Any remaining part of the impairment
loss is then allocated among the other noncurrent nonfinancial assets of the cash-generating unit or unit
group in proportion to their carrying amounts. The resulting expense is reflected in the functional item of
the income statement in which the depreciation or amortization of the respective assets is recognized. The
same applies to income from impairment loss reversals.
The recoverable amount is generally determined on the basis of the fair value less costs of disposal, taking
into account the present value of the future net cash flows as market prices for the individual units are not
normally available. These are forecasted on the basis of the Bayer Group’s current planning, the planning
horizon normally being three to five years. Forecasting involves making assumptions, especially regarding
future selling prices, sales volumes, costs, market growth rates, economic cycles and exchange rates.
These assumptions are based on internal estimates along with external market studies. Where the recov-
erable amount is the fair value less costs of disposal, the cash-generating unit or unit group is measured
from the viewpoint of an independent market participant. Where the recoverable amount is the value in
use, the cash-generating unit, unit group or individual asset is measured as currently used. In either case,
net cash flows beyond the planning period are determined on the basis of long-term business expectations
using the respective individual growth rates derived from market information. The fair value less costs of
disposal is determined on the basis of unobservable inputs (Level 3).
The net cash inflows are discounted at a rate equivalent to the weighted average cost of equity and debt
capital. To allow for the different risk and return profiles of the Bayer Group’s principal businesses, the
after-tax cost of capital is calculated separately for each reporting segment, and a segment-specific capital
structure is defined by benchmarking against comparable companies in the same industry sector. The cost
of equity corresponds to the return expected by stockholders, while the cost of debt is based on the con-
ditions on which comparable companies can obtain long-term financing. Both components are derived
from capital market information.
234
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The growth rates applied for impairment testing in 2017 and 2016 and the capital cost factors used to
discount the expected cash flows are shown in the following table:
Impairment Testing Parameters
%
Pharmaceuticals
Consumer Health
Crop Protection
Seeds
Environmental Science
Animal Health
B 4/3
Growth rate After-tax cost of capital
2016
2017
2016
2017
0.0
0.0
2.1
1.7
2.4
0.0
0.0
1.0
2.0
2.0
2.0
1.0
5.5
5.2
5.3
5.3
5.3
5.3
5.6
4.8
5.4
5.4
5.4
5.0
No impairment losses were recognized on goodwill on the basis of the global annual impairment testing of
the cash-generating units and unit groups in 2017 or 2016. Impairment losses on intangible assets, prop-
erty, plant and equipment – net of €13 million (2016: €1 million) in impairment loss reversals – totaled
€506 million (2016: €711 million). Details are provided in Notes [17] and [18].
Although the estimates of the useful lives of certain assets, assumptions concerning the macroeconomic
environment and developments in the industries in which the Bayer Group operates, and estimates of the
discounted future cash flows are believed to be appropriate, changes in assumptions or circumstances
could require changes in the analysis. This could lead to the recognition of additional impairment losses in
the future or – except in the case of goodwill – to reversals of previously recognized impairment losses if
developments are contrary to expectations.
The sensitivity analysis for cash-generating units and unit groups to which goodwill is allocated was based
on a 10% reduction in future cash flows, a 10% increase in the weighted average cost of capital or a one-
percentage-point reduction in the long-term growth rate. Bayer concluded that no impairment loss would
need to be recognized on goodwill in any cash-generating unit or unit group under these conditions.
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].
The Bayer Group lost control of the Covestro Group at the end of the third quarter of 2017 and deconsoli-
dated Covestro. As of December 31, 2017, there are four reportable segments: Pharmaceuticals, Con-
sumer Health, Crop Science and Animal Health. Therefore, total figures for the four Life Science segments
are no longer presented separately.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
235
Augmented Version
The segments’ activities are as follows:
Activities of the Segments
Segment
Activities
B 5/1
Pharmaceuticals
Development, production and marketing of prescription products, especially for cardiology and women’s
healthcare; specialty therapeutics in the areas of oncology, hematology and ophthalmology; diagnostic
imaging equipment and the necessary contrast agents
Consumer Health
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
Crop Science
Development, production and marketing of a broad portfolio of products in seeds and plant traits, crop
protection and nonagricultural pest control
Animal Health
Development, production and marketing of prescription and nonprescription veterinary products
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 distri-
bution methods, including via wholesalers in particular.
Business activities that cannot be allocated to any other segment are reported under “All Other Seg-
ments.” These primarily include the services provided by the service areas: Business Services and Curren-
ta.
The items in “Corporate Functions and Consolidation” mainly comprise the Bayer holding companies and
and Leaps by Bayer (formerly 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 con-
solidation of intersegment sales (2017: €2.4 billion; 2016: €1.4 billion).
The segment data are calculated as follows:
> Table B 1/1 “Key Data by Segment” 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 (ROCE). These supplementary indicators are defined, and their
calculation explained, in Chapter 2.4 “Alternative Performance Measures Used by the Bayer Group” of
the Combined Management Report in the Bayer Annual Report 2017.
> 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.
> The equity items reflect the earnings and carrying amounts of investments accounted for using the
equity method.
236
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Reconciliations
The reconciliations of EBITDA before special items, EBIT before special items and EBIT to Group income
before income taxes and of the segments’ assets to Group assets are given in the following tables:
Reconciliation of Segments’ EBITDA Before Special Items to Group Income Before Income Taxes
€ million
EBITDA before special items of segments
EBITDA before special items of Corporate Functions and Consolidation
EBITDA before special items
1
Depreciation, amortization and impairment losses / loss reversals before special items of segments
2016
9,656
(338)
9,318
(2,486)
B 5/2
2017
9,724
(436)
9,288
(2,145)
Depreciation, amortization and impairment losses / loss reversals before special items of Corporate
Functions and Consolidation
(6)
(13)
Depreciation, amortization and impairment losses / loss reversals before special items
(2,492)
(2,158)
EBIT before special items of segments
EBIT before special items of Corporate Functions and Consolidation
EBIT before special items
1
Special items of segments
Special items of Corporate Functions and Consolidation
Special items
1
EBIT of segments
EBIT of Corporate Functions and Consolidation
EBIT
1
Financial result
Income before income taxes
7,170
(344)
6,826
(1,068)
(20)
(1,088)
6,102
(364)
5,738
(965)
4,773
2016 figures restated
1 For definition, see Combined Management Report, Chapter 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Reconciliation of Segments’ Assets to Group Assets
€ million
Assets of the operating segments
Corporate Functions and Consolidation assets
Nonallocated assets
Group assets
Prior-year figures include Covestro
2016
66,252
507
15,479
82,238
7,579
(449)
7,130
(1,190)
(37)
(1,227)
6,389
(486)
5,903
(1,326)
4,577
B 5/3
2017
52,896
4,207
17,984
75,087
The reconciliation of the segments’ sales to Group sales is apparent from the table of key data by segment
in Note [1].
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
237
Augmented Version
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
€ million
Europe / Middle East / Africa
of which Germany
of which Switzerland
North America
of which United States
Asia / Pacific
of which China
Latin America
of which Brazil
Total
2016 figures restated
B 5/4
Net sales (external) – by market
Intangible assets and property,
plant and equipment
2016
13,062
3,329
510
10,066
8,706
7,413
2,441
4,402
2,173
2017
13,388
3,392
485
10,143
8,561
7,637
2,594
3,847
1,647
34,943
35,015
2016
23,438
12,468
5,047
14,693
14,297
4,116
2,938
746
340
42,993
2017
21,356
10,856
5,190
10,354
10,056
1,771
853
577
209
34,058
Information on major customers
Revenues from transactions with a single customer in no case exceeded 10% of Bayer Group sales in
2017 or 2016.
6. Scope of consolidation; subsidiaries and affiliates
6.1 Changes in the scope of consolidation
Changes in the scope of consolidation in 2017 were as follows:
Change in Number of Consolidated Companies
Bayer AG and consolidated companies
December 31, 2016
Changes in scope of consolidation
Retirements
December 31, 2017
Germany
Other
countries
64
(9)
(5)
50
237
(39)
(11)
187
B 6.1/1
Total
301
(48)
(16)
237
The decrease in the total number of consolidated companies in 2017 was primarily due to the deconsoli-
dation of Covestro. Covestro AG has since been accounted for as an associate in the consolidated finan-
cial statements.
In conjunction with the acquisition of the consumer care business of Merck & Co., Inc., United States,
Bayer entered into a strategic collaboration with that company in 2014. This collaboration is included in the
consolidated financial statements as a joint operation. Bayer and Merck & Co., Inc., have mutually agreed
to collaborate on the development, production, life-cycle management and marketing of active ingredients
and products in the field of soluble guanylate cyclase (sGC) modulation.
GRI G4-17
238
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Four (2016: five) associates and eight (2016: six) joint ventures were accounted for in the consolidated
financial statements using the equity method. Details of these companies are given in Note [19].
Flagship Ventures V Agricultural Fund, L.P., United States, was included in the consolidated financial
statements for the first time in 2015 and classified as an associate. Bayer has no control over this associ-
ate despite owning 99.9% of the capital, but is able to significantly influence its financial and operating
policy decisions.
Bayer Trendlines Ag Innovation Fund, Limited Partnership, Israel, was included in the consolidated financial
statements for the first time in 2016 and classified as an associate. Bayer is a limited partner and has no
control over this entity due to contractual restrictions, despite owning 100% of the capital.
Nanjing Baijingyu Pharmaceutical Co., Ltd., China, was classified as an associate in view of Bayer’s repre-
sentation on its executive committee and supervisory board. This enables Bayer to significantly influence
its financial and operating policy decisions despite owning only 15% of its voting rights and capital.
A total of 76 (2016: 72) subsidiaries, including one (2016: one) structured entities and 12 (2016: 12) asso-
ciates or joint ventures that in aggregate are immaterial to the Bayer Group’s financial position and results
of operations are neither consolidated nor accounted for using the equity method, but are recognized at
cost. The immaterial subsidiaries accounted for less than 0.1% of Group sales, less than 0.2% of equity
and less than 0.1% of total assets.
Details of the companies included in the consolidated financial statements, the subsidiary and affiliated
companies of the Bayer Group pursuant to Section 313, Paragraph 2 of the German Commercial Code,
and a list of domestic subsidiaries that availed themselves in 2017 of certain exemptions granted under
Section 264, Paragraph 3, and Section 264b of the German Commercial Code, are included in the audited
consolidated financial statements that have been submitted for publication in the electronic version of the
Federal Gazette. This information can also be accessed at www.bayer.com/owner17.
6.2 Business combinations and other acquisitions
Business combinations and other acquisitions in 2017
The purchase price of the acquisition made in 2017 was €158 million (2016: minus €5 million). The pur-
chase price of the acquired businesses was settled mainly in cash. Goodwill amounted to €51 million
(2016: €9 million). It resulted from the following transaction:
On January 3, 2017, Bayer Animal Health acquired the Cydectin™ portfolio in the United States from
Boehringer Ingelheim Vetmedica, Inc., St. Joseph, Missouri, United States. The acquisition comprises the
CYDECTIN Pour-On, CYDECTIN Injectable and CYDECTIN Oral Drench endectocides for cattle and sheep.
The acquisition is intended to strengthen the antiparasitics portfolio in the United States through the addi-
tion of endectocides. A purchase price of €158 million was agreed. The purchase price pertained mainly to
trademarks and goodwill, which, as expected, is fully tax-deductible.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
239
Augmented Version
The effects of this transaction – as of the acquisition date – on the Group’s assets and liabilities in 2017
are shown in the following table. The transaction resulted in the following cash outflow:
Acquired Assets and Assumed Liabilities (Fair Values at the Respective Acquisition Dates)
€ million
Goodwill
Patents and technologies
Trademarks
Production rights
R&D projects
Inventories
Provisions for pensions and other post-employment benefits
Deferred tax liabilities
Net assets
Purchase price
Net cash (inflow) outflow for acquisitions
B 6.2/1
2016
2017
9
1
–
–
(24)
–
1
8
(5)
(5)
(5)
51
–
85
4
–
18
–
–
158
158
158
In fiscal 2017, the Cydectin™ business contributed €31 million to the sales of the Bayer Group. After-tax
income of €5 million was recorded for the Cydectin™ business from the date of first-time consolidation.
This includes the financing costs incurred since the acquisition date.
On September 13, 2017, Bayer and Gingko Bioworks, Inc., Boston, Massachusetts, United States, found-
ed the joint venture Cooksonia Opco LLC, Boston, Massachusetts, United States. The joint venture will
focus on technologies to improve plant-associated microbes with a major focus on nitrogen fixation, which
is important in agriculture. Capital contribution liabilities of US$70 million to Cooksonia Opco LLC were
recognized in the statement of financial position as of December 31, 2017. These liabilities mature on De-
cember 31, 2024, at the latest. US$10 million was contributed in 2017.
Planned acquisitions
On September 14, 2016, Bayer signed a definitive merger agreement with Monsanto Company, St. Louis,
Missouri, United States, which provides for Bayer’s acquisition of all outstanding shares in Monsanto
Company against a cash payment of US$128 per share. At the time this corresponded to an expected
transaction volume of approximately US$66 billion, comprising an equity value (purchase price) of approx-
imately US$56 billion and net debt to be assumed in an amount of US$10 billion, which includes pension
obligations as of May 31, 2016, as well as liabilities for payments under stock-based compensation pro-
grams. Based on Monsanto’s interim report as at November 30, 2017, the transaction value currently
amounts to US$62 billion. Bayer thus has a contingent financial commitment in the amount of approxi-
mately US$56 billion to acquire Monsanto’s entire outstanding capital stock. The planned transaction has
been partially hedged against the euro / U.S. dollar currency risk using derivatives contracts.
The transaction brings together two different, but highly complementary businesses. Monsanto is a leading
global provider of agricultural products, including seeds and seed technologies, herbicides, and digital
platforms to give farmers agronomic recommendations. The combined business will offer a comprehensive
portfolio of seed and crop protection products for a broad range of crops and indications, along with sup-
porting digital farming applications. The combination also brings together both companies’ leading innova-
tion capabilities and R&D technology platforms.
Syndicated bank financing of US$56.9 billion was committed by Bank of America Merrill Lynch, Credit
Suisse, Goldman Sachs, HSBC and JP Morgan upon the signing of the merger agreement. The credit
facility was subsequently syndicated to more than 20 other partner banks of Bayer. Further refinancing of
the purchase price is to be achieved through a capital increase, the issuance of bonds and existing liquidi-
ty. In November 2016, Bayer successfully placed mandatory convertible notes with a nominal value of €4
billion. The credit facility was reduced by the net proceeds from the mandatory convertible notes in 2016
240
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
and by the net proceeds from an exchangeable bond in June 2017. As of December 31, 2017, the credit
facility amounts to US$51.5 billion.
The stockholders of Monsanto Company approved the merger with the requisite majority on December 13,
2016. The transaction remains subject to customary closing conditions, including relevant antitrust and
other regulatory approvals. With the support of Monsanto, Bayer has initiated the process of obtaining the
required regulatory approvals. In 2017, Bayer obtained regulatory approvals in 16 countries.
In connection with this transaction, Bayer reached an agreement with BASF in October 2017 regarding the
sale of selected Crop Science businesses. Further information can be found in Note [6.3].
The merger agreement also provides for payment by Bayer of a US$2 billion reverse break fee, in particu-
lar, in the event that the transaction has not been closed at the latest by June 14, 2018, because a neces-
sary antitrust approval has not been granted and Bayer or Monsanto therefore terminates the merger
agreement.
Acquisitions in 2016
The following acquisitions and adjustments to purchase price allocations were reported in 2016:
In the course of the global purchase price allocation for SeedWorks India Pvt. Ltd, Hyderabad, India, which
was acquired in July 2015, improved information obtained about the acquired assets in the first quarter of
2016 led to decreases of €23 million in intangible assets and €8 million in deferred tax liabilities and a cor-
responding increase of €13 million in goodwill in the opening statement of financial position. In addition,
the purchase price declined by €2 million to €78 million following completion of the final purchase price
negotiations.
On February 12, 2016, Bayer and CRISPR Therapeutics AG, Basel, Switzerland, established the joint ven-
ture Casebia Therapeutics LLP, Ascot, United Kingdom. Its purpose is the development and commerciali-
zation of new methods to treat blood disorders, blindness and heart diseases.
On December 9, 2016, Bayer and Versant Ventures, San Francisco, United States, established the joint
venture BlueRock Therapeutics LP, San Francisco, United States. The joint venture will be active in the field
of next-generation regenerative medicine. Its goal is to develop induced pluripotent stem cell (iPSC) thera-
pies to cure a range of diseases.
6.3 Divestments, material sale transactions and discontinued operations
Divestments in 2017
The effects of divestments in 2017 on the consolidated financial statements were as follows:
In October 2015, Bayer successfully floated the former MaterialScience subgroup on the stock market
under the name “Covestro”. In view of the remaining majority interest, Covestro was fully consolidated in
the Bayer Group until the end of September 2017.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
241
Augmented Version
Following various share sales, the interest held directly by Bayer was reduced to 24.6% by the end of Sep-
tember 2017. The buyers of the approximately 14 million shares sold on September 29, 2017, agreed to
be bound by a lock-up arrangement pursuant to which they would not sell the shares they purchased until
at least December 11, 2017. Under the contractual agreement, Bayer retained economic exposure to the
price of the shares. Bayer Pension Trust holds a further 8.9% of the equity of Covestro AG.
In addition, Bayer and Covestro signed a control termination agreement at the end of September, as part
of which Bayer undertakes not to exercise certain voting rights at the Covestro Annual General Meeting.
Bayer therefore ceded de facto control of Covestro at the end of September 2017. Accordingly, the
Covestro Group was deconsolidated at the end of the third quarter and, in view of Bayer’s remaining signif-
icant influence, was recognized for the first time as an associate. Further details of the accounting for the
Covestro Group as an associate using the equity method are given in Note [19]. Details of share sales are
provided in Note [24].
At the end of September, the fair value of the remaining interest, €3.6 billion, was determined on the basis
of the share price. The deconsolidation and remeasurement of the remaining interest in Covestro resulted
in overall income before taxes of €3.1 billion, which is included in income from discontinued operations.
This figure reflects a gain of €2.4 billion from the remeasurement of the remaining interest, a gain of
€0.5 billion from the deconsolidation, and a gain of €0.2 billion from the performance of the shares sold on
September 29, 2017, in the fourth quarter of 2017. The overall gain after taxes amounted to €3.0 billion. A
deferred tax expense of €32 million was accounted for as part of the remeasurement of the remaining
interest. In addition, an amount of minus €0.6 billion recognized in other comprehensive income was re-
classified to retained earnings attributable to Bayer AG stockholders.
The aforementioned divestment and additional smaller divestments had the following effect in 2017:
Divested Assets and Liabilities
€ million
Goodwill
Patents and technologies
Marketing and distribution rights
Other rights
Property, plant and equipment
Other noncurrent assets
Deferred taxes
Inventories
Other current assets
Assets held for sale
Cash and cash equivalents
Provisions for pensions and other post-employment benefits
Other provisions
Financial liabilities
Other liabilities
Divested net assets
B 6.3/1
2017
254
18
28
33
4,206
233
506
1,840
3,005
3
637
(1,201)
(779)
(1,809)
(1,715)
5,259
2016
36
4
16
–
–
–
–
184
–
–
–
(28)
(97)
–
–
115
Discontinued operations
Following the loss of control, Covestro fulfilled the conditions for presentation as a discontinued operation
for all of the periods prior to deconsolidation, including the prior year.
242
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The sale of the Diabetes Care business to Panasonic Healthcare Holdings Co., Ltd., Tokyo, Japan, for
approximately €1 billion was completed on January 4, 2016. The sale included the leading Contour™ port-
folio of blood glucose meters and strips, other blood glucose monitoring sysems such as Breeze™2 and
Elite™, and Microlet™ lancing devices.
The sale of the Diabetes Care business also comprised further significant obligations by Bayer that were
fulfilled over a period of up to two years subsequent to the date of divestment. The sale proceeds were
recognized accordingly until the end of 2017 and reported as income from discontinued operations. De-
ferred income was recognized in the statement of financial position and was dissolved as the obligations
were fulfilled. Of this, an amount of €462 million was recognized in sales in 2017.
The obligations fulfilled over a period of up to two years after the divestment of the Diabetes Care business
are also reported as discontinued operations in the income statement and the statement of cash flows.
They resulted in sales of €39 million in 2017.
The items in the statement of financial position pertaining to the Diabetes Care business are shown in the
segment reporting under “All Other Segments.” The statement of financial position includes other receiva-
bles (net: €3 million), income tax liabilities (€57 million) and miscellaneous provisions (€2 million).
The sale of the Consumer business (CS Consumer) of Bayer’s Environmental Science unit to SBM
Développement SAS, Lyon, France, was completed on October 4, 2016. These activities were reported as
discontinued operations from the second half of 2016.
The income statements for the discontinued operations are given below:
Income Statements for Discontinued Operations
Covestro
Diabetes Care
CS Consumer
€ million
Net sales
Cost of goods sold
Gross profit
Selling expenses
Research and development expenses
General administration expenses
Other operating income / expenses
EBIT
1
Financial result
Income before income taxes
Income taxes
Income after income taxes
of which attributable to
noncontrolling interest
2016
2017
11,826
10,556
(8,539)
(6,973)
3,287
3,583
(1,326)
(1,016)
(261)
(452)
56
1,304
(200)
(345)
3,150
5,172
(190)
(124)
1,114
5,048
(312)
(580)
802
4,468
2016
573
(146)
427
(9)
(1)
(12)
(4)
401
–
401
(76)
325
2017
501
(28)
473
(4)
–
(8)
(3)
458
–
458
(80)
378
2016
195
(121)
74
(83)
(11)
(9)
(55)
(84)
–
(84)
27
(57)
282
759
–
–
–
of which attributable to Bayer AG
stockholders (net income)
520
3,709
325
378
(57)
B 6.3/2
Total
2017
2017
2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12,594
11,057
(8,806)
(7,001)
3,788
4,056
(1,418)
(1,020)
(273)
(473)
(3)
1,621
(190)
(200)
(353)
3,147
5,630
(124)
1,431
5,506
(361)
(660)
1,070
4,846
282
759
788
4,087
1 For definition, see Combined Management Report, Chapter 2.4 “Alternative Performance Measures Used by the Bayer Group.”
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
243
Augmented Version
The cash flows for the discontinued operations are as follows:
Cash Flows from Discontinued Operations
€ million
2016
2017
2016
2017
2016
2017
2016
Covestro
Diabetes Care
CS Consumer
B 6.3/3
Total
2017
Net cash provided by (used in)
operating activities
Net cash provided by (used in)
investing activities
Net cash provided by (used in)
financing activities
Change in cash and cash equivalents
1,824
1,473
788
(1,020)
(742)
–
1,014
1,818
(224)
507
(788)
–
50
–
(50)
–
42
–
(42)
–
–
–
–
–
2,654
1,523
(1,020)
(742)
184
1,818
(274)
507
As no cash was assigned to the discontinued operations Diabetes Care and CS Consumer, the balance of
the cash provided is deducted again in financing activities.
Assets held for sale
In connection with the planned acquisition of Monsanto, Bayer signed an agreement with BASF on Octo-
ber 13, 2017, concerning the sale of selected Crop Science businesses. The businesses to be sold com-
prise Bayer’s global glufosinate ammonium business and the related LibertyLinkTM technology for herbicide
tolerance, a substantial part of the field crop seed business, including the related research and develop-
ment capabilities. The seeds business being divested includes the global cotton seed business (excluding
India and South Africa), the North American and European canola seed business, and the soybean seed
business. The agreed base purchase price of €5.9 billion excludes the value of any net working capital and
is subject to the customary adjustment mechanisms.
The transaction is subject to regulatory approvals as well as the successful closing of Bayer’s acquisition of
Monsanto. Bayer will continue to own, operate and maintain these businesses until the divestment is con-
cluded.
The assets and liabilities held for sale are presented below:
Assets and Liabilities Held for Sale
€ million
Goodwill
Other intangible assets
Property, plant and equipment
Other receivables
Deferred taxes
Inventories
Assets held for sale
Provisions for pensions and other post-employment benefits
Other provisions
Financial liabilities
Other liabilities
Deferred taxes
Liabilities directly related to assets held for sale
B 6.3/4
Dec. 31, 2017
479
287
1,062
41
63
149
2,081
11
79
14
4
3
111
244
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Notes to the Income Statements
7. Net sales
Net sales are derived primarily from product deliveries. Total reported net sales for 2017 amounted to
€35,015 million, rising by €72 million, or 0.2%, compared with 2016. The increase resulted from the follow-
ing factors:
Factors in Sales Development
Volume
Price
Currency
Portfolio
Total
B 7/1
2017
%
+ 2.3
– 0.8
– 1.4
+ 0.1
+ 0.2
€ million
810
(269)
(490)
21
72
Breakdowns of net sales by segment and geographical area are given in the table in Note [1] and in
Note [5], respectively.
8. Selling expenses
Selling expenses comprise all expenses incurred in the reporting period for the sale, storage and transpor-
tation of saleable products, advertising, the provision of advice to customers, and market research.
9. Research and development expenses
Research and development expenses and their accounting treatment are defined in Note [4]. Breakdowns
of research and development expenses by segment and region are given in Note [1].
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
245
Augmented Version
10. Other operating income
Other operating income was comprised as follows:
Other Operating Income
€ million
Gains on retirements of noncurrent assets
Reversal of impairment losses on receivables
Reversals of unutilized provisions
Gains from derivatives
Miscellaneous operating income
Total
of which special items
2016 figures restated
B 10/1
2017
173
23
26
291
351
864
14
2016
64
18
122
255
328
787
115
Gains on retirements of noncurrent assets included an €81 million gain from the sale of trademark rights
for the Vagitrol™, Benadon™, Claradol™, Transipeg™ and Colopeg™ brands and some smaller brands
(Consumer Health segment). In addition, a €49 million gain was realized on the sale of capitalized transfer
rights by Bayer 04 Leverkusen Fußball GmbH (All Other Segments), Germany. In the Crop Science seg-
ment, a license agreement for herbicide active ingredients with FMC Corporation, United States resulted in
income of €18 million..
Miscellaneous operating income includes a receivable relating to the nonfulifillment of a purchase obligation
by one of our distribution partners in the amount of €34 million (Pharmaceuticals segment). The Crop Sci-
ence segment received €25 million from insurers. A further €13 million was generated by the sale of re-
search data following patent expirations (Crop Science segment). The transfer of a database to the joint
venture Cooksonia Opco LLC, United States, with Ginkgo Bioworks, Inc., United States, brought additional
income of €9 million for the Crop Science segment. In addition, a claim for damages of €8 million resulting
from an infringement of a patent for YasminTM was recorded in the Pharmaceuticals segment.
Income from reversals of unutilized provisions included €9 million from the reversal of provisions for the
YasminTM
/ YAZTM litigation (2016: €104 million).
Furthermore, in 2016 miscellaneous operating income included a gain of €32 million at Bayer 04 Lever-
kusen Fußball GmbH from the sale of non-capitalized transfer rights (All Other Segments). In the Crop
Science segment, milestone payments led to income of €21 million. In the Pharmaceuticals segment, a
€14 million compensation payment was received in connection with the closure of the production site in
Putuo, China. A €10 million gain (All Other Segments) was incurred on the sale of the BAYQUIK™ technol-
ogy to Chemetics, Inc., Canada (Corporate Functions segment).
246
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
11. Other operating expenses
Other operating expenses were comprised as follows:
Other Operating Expenses
€ million
Losses on retirements of noncurrent assets
Impairment losses on receivables
Expenses related to significant legal risks
Losses from derivatives
Miscellaneous operating expenses
Total
of which special items
2016 figures restated
B 11/1
2017
(39)
(139)
(258)
(258)
(254)
(948)
(202)
2016
(19)
(163)
(262)
(171)
(264)
(879)
(205)
Of the impairment losses on receivables, €74 million (2016: €115 million) pertained to past-due receivables
in Brazil.
The expenses related to significant legal risks amounted to €258 million in 2017 (2016: €262 million),
which, as in the previous year, primarily included expenses in connection with litigation relating to the
produts XareltoTM, EssureTM and CiproTM
/ AveloxTM.
Miscellaneous operating expenses included donations to charitable causes (all segments) and subsidies for
patient assistance programs with government agencies and partners of health care systems (Pharmaceuti-
cals segment) in the amount €52 million (2016: €43 million). A settlement relating to a seed license agree-
ment led to an expense of €14 million (Crop Science segment). Further expenses of €11 million were in-
curred in connection with intellectual property and patent disputes about a herbicide active ingredient
(Crop Science segment). In addition, expenses of €11 million were recorded for restructuring at Currenta
GmbH & Co. OHG, Germany (All Other Segments).
The remaining amount of miscellaneous operating expenses comprised a large number of individually im-
material items at the subsidiaries.
In 2016, miscellaneous operating expenses included €34 million for provisions established by the Crop
Science segment for environmental protection measures in the United States.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
247
Augmented Version
12. Personnel expenses and employee numbers
Personnel expenses for continuing operations rose in 2017 by €69 million to €9,528 million (2016:
€9,459 million). The change was mainly due to higher expenses in connection with compensation adjust-
ments, which were partially offset by lower employee bonuses.
Personnel Expenses
€ million
Salaries
Social expenses and expenses for pensions and other benefits
of which for defined contribution pension plans
of which for defined benefit and other pension plans
Total
2016 figures restated
B 12/1
2017
7,567
1,961
488
445
2016
7,602
1,857
491
389
9,459
9,528
The personnel expenses shown here do not contain the interest portion of the allocation to personnel-
related provisions – mainly for pensions and other post-employment benefits – which is included in the
financial result under other financial expenses (Note [13.3]).
The average numbers of employees, classified by corporate function, were as shown in the table below:
Employees
Production
Marketing and distribution
Research and development
General administration
Total
Apprentices
2016 figures restated
B 12/2
2017
39,298
37,147
13,958
9,359
99,762
1,918
2016
40,397
37,270
13,999
8,322
99,988
1,998
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.
13. Financial result
The financial result for 2017 was minus €1,326 million (2016: minus €965 million), comprising equity-
method income of €20 million (2016: loss of €6 million), financial expenses of €1,635 million (2016:
€1,108 million) and financial income of €289 million (2016: €149 million). Details of the components of the
financial result are provided in the following sections.
248
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
13.1 Income (loss) from investments in affiliated companies
The net income (loss) from investments in affiliated companies was comprised as follows:
Income (Loss) from Investments in Affiliated Companies
€ million
Net income (loss) from investments accounted for using the equity method
(equity-method income / loss)
Expenses
Impairment losses on investments in affiliated companies
Losses from the sale of investments in affiliated companies
Income
Impairment loss reversals on investments in affiliated companies
Income / losses from investments in affiliated companies and from profit and
loss transfer agreements (net)
Gains from the sale of investments in affiliated companies
Total
2016 figures restated
B 13.1/1
2016
2017
(6)
(2)
–
–
–
6
(2)
20
(1)
(1)
5
2
5
30
The main components of the income from investments in affiliated companies were the equity-method
income of €51 million from the remaining interest in Covestro and the equity-method losses of €16 million
(2016: €4 million) and €15 million (2016: €3 million), respectively, from the Casebia Group and the
BlueRock joint ventures.
Further details of the companies accounted for using the equity method are given in Note [19].
13.2 Net interest expense
The net interest expense was comprised as follows:
Net Interest Expense
€ million
Expenses
Interest and similar expenses
Interest expenses for derivatives (held for trading)
Income
Interest and similar income
Interest income from derivatives (held for trading)
Total
2016 figures restated
B 13.2/1
2016
2017
(638)
(3)
135
2
(504)
(682)
(3)
272
–
(413)
Interest and similar expenses included interest expense of €54 million (2016: €41 million) relating to non-
financial liabilities. Interest and similar income included interest income of €96 million (2016: €10 million)
from nonfinancial assets.
The change in the liability for redeemable noncontrolling interest is reflected in interest income or expense.
In 2017, a €49 million (2016: €0 million) increase in this liability was recognized as interest expense.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
249
Augmented Version
13.3 Other financial income and expenses
Other financial income and expenses were comprised as follows:
Other Financial Income and Expenses
€ million
Expenses
Interest portion of interest-bearing provisions
Exchange loss
Miscellaneous financial expenses
Income
Miscellaneous financial income
Total
2016 figures restated
B 13.3/1
2016
2017
(251)
(121)
(93)
6
(459)
(189)
(326)
(433)
5
(943)
The interest portion of noncurrent provisions comprised €191 million (2016: €236 million) in interest ex-
pense for pension and other post-employment benefit provisions and a positive amount of €2 million
(2016: minus €15 million) in effects of interest expense and interest-rate fluctuations for other provisions
and corresponding overfunding. The interest expense for pension and other post-employment benefit pro-
visions included €539 million (2016: €640 million) for the unwinding of discount on the present value of the
defined benefit obligation and €348 million (2016: €404 million) in interest income from plan assets.
The miscellaneous financial expenses included €210 million in commitment fees and other fees related to
the syndicated bank financing for the planned acquisition of Monsanto. The €172 million in negative fair
value changes of the debt instruments (exchangeable bond) issued in June 2017 was also recognized in
miscellaneous financial expenses.
14. Taxes
The breakdown of tax expenses by origin was as follows:
Tax Expense by Origin
€ million
Taxes paid or accrued
Current income taxes
Germany
Other countries
Other taxes
Germany
Other countries
Deferred taxes
from temporary differences
from tax loss and interest carryforwards
and tax credits
Total
2016 figures restated
2016
Of which
income
taxes
B 14/1
2017
Of which
income
taxes
(864)
(725)
(80)
(137)
(794)
(737)
(87)
(118)
(1,806)
(1,589)
(1,736)
(1,531)
524
48
572
70
132
202
202
572
(1,234)
(1,017)
(1,534)
(1,329)
250
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The other taxes mainly include land, vehicle and other indirect taxes. They are reflected in the respective
functional cost items.
The deferred tax assets and liabilities were allocable to the following items in the statements of
financial position:
Deferred Tax Assets and Liabilities
€ million
Intangible assets
Property, plant and equipment
Financial assets
Inventories
Receivables
Other assets
Provisions for pensions and other post-employment benefits
Other provisions
Liabilities
Tax loss and interest carryforwards
Tax credits
of which noncurrent
Set-off
Total
B 14/2
Dec. 31, 2016
Dec. 31, 2017
Deferred
tax assets
Deferred
tax
liabilities
Deferred
tax assets
1,478
1,766
264
240
1,267
71
39
3,637
1,083
793
473
177
9,522
7,868
(3,172)
6,350
692
224
32
547
13
983
112
133
4,502
3,662
(3,172)
1,330
799
79
204
1,117
60
39
2,520
610
534
486
200
6,648
5,194
(1,733)
4,915
Deferred
tax
liabilities
1,469
323
81
15
464
2
367
64
101
–
–
2,886
2,214
(1,733)
1,153
Deferred taxes on remeasurements, recognized outside profit or loss, of the net liability for defined benefit
pension and other post-employment benefits diminished equity by €515 million (2016: increased equity by
€228 million). Deferred taxes on changes, recognized outside profit or loss, in fair values of available-for-
sale financial assets and derivatives designated as hedges increased equity by €56 million (2016: dimin-
ished equity by €24 million). These effects on equity are reported in the statement of comprehensive in-
come.
The use of tax loss carryforwards reduced current income taxes in 2017 by €47 million (2016: €82 million).
The use of tax credits reduced current income taxes by €16 million (2016: €16 million).
Of the total tax loss and interest carryforwards of €6,443 million, including interest carryforwards of
€148 million (2016: €5,447 million, including interest carryforwards of €118 million), an amount of
€2,890 million, including interest carryforwards of €1 million (2016: €2,269 million, including interest car-
ryforwards of €0 million) is expected to be usable within a reasonable period. The increase in tax loss and
interest carryforwards was mainly due to the current development of business in the United States and
Brazil. Deferred tax assets of €486 million (2016: €473 million) were recognized for the amount of tax loss
and interest carryforwards expected to be usable.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
251
Augmented Version
The use of €3,553 million of tax loss and interest carryforwards, including interest carryforwards of
€147 million (2016: €3,178 million, including interest carryforwards of €118 million) was subject to legal or
economic restrictions. Consequently, no deferred tax assets were recognized for this amount. If these tax
loss and interest carryforwards had been fully usable, deferred tax assets of €351 million (2016:
€294 million) would have been recognized.
Tax credits of €200 million were recognized in 2017 (2016: €177 million) as deferred tax assets. The use of
€28 million (2016: €37 million) of tax credits was subject to legal or economic restrictions. Consequently,
no deferred tax assets were recognized for this amount.
Unusable tax credits, tax loss carryforwards and interest carryforwards will expire as follows:
Expiration of Unusable Tax Credits, Tax Loss and Interest Carryforwards
B 14/3
€ million
Within one year
Within two years
Within three years
Within four years
Within five years
Thereafter
Total
Tax credits
Tax loss and interest
carryforwards
Dec. 31,
2016
Dec. 31,
2017
Dec. 31,
2016
Dec. 31,
2017
4
–
4
–
29
–
37
4
–
–
1
19
4
28
4
1
31
132
31
2,979
3,178
17
15
114
28
70
3,309
3,553
In 2017, subsidiaries that reported losses for 2017 or 2016 recognized net deferred tax assets totaling
€2,303 million (2016: €2,575 million) from temporary differences and tax loss carryforwards. These assets
were considered to be unimpaired because the companies concerned were expected to generate taxable
income in the future.
Deferred tax liabilities of €22 million were recognized in 2017 (2016: €41 million) for planned dividend pay-
ments by subsidiaries. Deferred tax liabilities were not recognized for differences on €18,272 million (2016:
€20,069 million) of retained earnings of subsidiaries because these earnings are to be reinvested for an
indefinite period.
The reported tax expense of €1,329 million for 2017 (2016: €1,017 million) differed by minus €246 million
(2016: €135 million) from the expected tax expense of €1,083 million (2016: €1,152 million) that would
have resulted from applying an expected weighted average tax rate to the pre-tax income of the Group.
This average rate, derived from the expected tax rates of the individual Group companies, was 23.7% in
2017 (2016: 24.1%). The effective tax rate was 29.0% (2016: 21.3%).
252
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The reconciliation of expected to reported income tax expense and of the expected to the effective tax rate
for the Group was as follows:
Reconciliation of Expected to Actual Income Tax Expense
Expected income tax expense and expected tax rate
1,152
24.1
1,083
2016
€ million
%
€ million
Reduction in taxes due to tax-free income
Income related to the operating business
Income from affiliated companies and divestment proceeds
First-time recognition of previously unrecognized deferred tax assets on
tax loss and interest carryforwards
Use of tax loss and interest carryforwards on which deferred tax assets
were not previously recognized
Increase in taxes due to non-tax-deductible expenses
Expenses related to the operating business
Impairment losses on investments in affiliated companies
New tax loss and interest carryforwards unlikely to be usable
Existing tax loss and interest carryforwards on which deferred tax assets
were previously recognized but which are unlikely to be usable
Tax income (–) and expenses (+) relating to other periods
Tax effects of changes in tax rates
Other tax effects
(127)
(1)
(17)
(2)
142
2
43
6
(76)
(5)
(100)
(2.6)
–
(0.4)
–
3.0
–
0.9
0.1
(1.6)
(0.1)
(2.1)
(135)
(16)
(31)
(4)
168
–
69
1
(128)
384
(62)
B 14/4
2017
%
23.7
(3.0)
(0.3)
(0.7)
(0.1)
3.7
–
1.5
–
(2.8)
8.4
(1.4)
Actual income tax expense and effective tax rate
1,017
21.3
1,329
29.0
2016 figures restated
The reported tax expense contains a one-time effect in the amount of €455 million that results solely from
the U.S. tax reform passed on December 22, 2017, which provides for a reduction in the corporate tax
rate from 35% to 21% from January 1, 2018, leading to a remeasurement of all deferred tax assets and
liabilities associated with U.S. companies. This resulted in deferred tax expense of €409 million for 2017
due to changes in tax rates. The additional tax on nonrepatriated profits, which previously had not been
taxed in the United States, led to prior-period tax expenses of €46 million.
15. Income / losses attributable to noncontrolling interest
Income attributable to noncontrolling interest amounted to €791 million (2016: €468 million). Losses at-
tributable to noncontrolling interest amounted to €33 million (2016: €173 million). As in the previous years,
the income and losses primarily related to Covestro.
16. Earnings per share
Earnings per share from continuing operations are determined according to IAS 33 (Earnings per Share) by
dividing net income (income after income taxes attributable to Bayer AG stockholders) minus income from
discontinued operations after income taxes (attributable to Bayer AG stockholders) by the weighted aver-
age number of shares. Earnings per share for continuing and discontinued operations are calculated by
dividing net income by the weighted average number of shares.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
253
Augmented Version
In November 2016, Bayer placed €4.0 billion in mandatory convertible notes without granting subscription
rights to existing stockholders of the company. According to IAS 33.23, the weighted average number of
shares increases as soon as the notes contract is signed, and this increase must be taken into account in
calculating undiluted and diluted earnings per share. The new weighted average number of shares is based
on a minimum conversion price that is adjusted annually due to the dividend payment and determines the
maximum conversion ratio. The minimum conversion price stood at €87.82 as of December 31, 2017 (De-
cember 31, 2016: €90.00). Undiluted and diluted earnings per share are not adjusted for financing ex-
penses incurred in connection with the mandatory convertible notes because the interest component was
recognized outside profit or loss when the notes were placed. Further details of the mandatory convertible
notes are provided in Note [24].
Since the undiluted and diluted earnings per share were determined for each interim reporting period,
earnings per share for the full year or year to date may differ from the sum of the earnings per share for the
respective interim reporting periods.
Earnings per Share
€ million
Income from continuing operations after income taxes
of which attributable to noncontrolling interest
of which attributable to Bayer AG stockholders
Income from discontinued operations after income taxes
of which attributable to noncontrolling interest
of which attributable to Bayer AG stockholders
Income after income taxes
of which attributable to noncontrolling interest
of which attributable to Bayer AG stockholders (net income)
Weighted average number of shares
Earnings per share (€)
From continuing operations
Basic
Diluted
From discontinued operations
Basic
Diluted
From continuing and discontinued operations
Basic
Diluted
2016 figures restated
B 16/1
2017
3,248
(1)
3,249
4,846
759
4,087
8,094
758
7,336
2016
3,756
13
3,743
1,070
282
788
4,826
295
4,531
Shares
Shares
832,502,808 872,107,808
4.50
4.50
0.94
0.94
5.44
5.44
3.73
3.73
4.68
4.68
8.41
8.41
254
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Patents
and
technol-
ogies
Marketing
and
distribution
rights
Trade-
marks
Acquired
goodwill
Production
rights
R&D
projects
Other
rights and
advance
payments
Notes to the Statements
of Financial Position
17. Goodwill and other intangible assets
Changes in intangible assets in 2017 were as follows:
Changes in Intangible Assets
Transfers (IFRS 5)
(481)
(123)
€ million
Cost of acquisition
or generation,
December 31, 2016
Acquisitions
Capital expenditures
Retirements
Transfers
Divestments / changes
in the scope
of consolidation
Inflation adjustment
(IAS 29)
Exchange
differences
16,312
13,162
11,045
2,044
2,138
51
–
–
–
–
78
(61)
–
(254)
5
(31)
–
85
–
(31)
1
(40)
(5)
–
–
54
(4)
45
(14)
4
–
–
–
(118)
(105)
(96)
–
(109)
1,911
–
(5)
1,923
December 31, 2017
14,751
12,861
10,453
(882)
(164)
(602)
Accumulated
amortization
and impairment
losses,
December 31, 2016
Retirements
Amortization and
impairment losses in
2017
Amortization
Impairment losses
Impairment loss
reversals
Transfers
Transfers (IFRS 5)
Divestments / changes
in the scope
of consolidation
Exchange
differences
December 31, 2017
Carrying amounts,
December 31, 2017
Carrying amounts,
December 31, 2016
–
–
–
–
–
–
–
–
–
–
–
9,312
3,673
1,268
2,027
(36)
(20)
(4)
596
596
–
–
–
(86)
580
369
211
–
–
(39)
170
133
37
–
1
(9)
–
21
21
–
–
–
(118)
(13)
(5)
(77)
(90)
(135)
9,638
(148)
4,041
(66)
1,283
(4)
1,836
14,751
3,223
6,412
16,312
3,850
7,372
628
776
87
111
B 17/1
Total
887
–
458
(220)
17
(43)
–
–
2,666
48,254
–
167
(365)
(63)
(403)
140
757
(681)
–
(1,222)
(322)
(813)
–
5
(55)
1,044
(116)
1,564
(1,933)
44,507
235
(201)
1,860
18,375
(356)
(617)
98
–
98
–
–
(2)
–
(13)
117
927
652
228
118
110
–
(1)
1,693
1,237
456
–
–
(199)
(453)
(295)
(480)
(70)
(436)
1,167
18,082
397
26,425
806
29,879
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
255
Augmented Version
Capital expenditures for research and development projects include an advance payment to Loxo Oncolo-
gy, Inc., in the amount of US$400 million as part of an exclusive global collaboration relating to the devel-
opment and marketing of larotrectinib.
Impairment losses of €456 million were recognized on intangible assets. In the Pharmaceuticals segment,
impairment losses of €69 million were recognized on intangible assets in the oncology area
(OncoMed). In addition, impairment losses of €59 million were recognized on a drug candidate for the
treatment of lung infections (Amikacin Inhale) due to new research findings. Furthermore, impairment loss-
es of €65 million were recognized on intangible assets in the women's health and ophthalmology areas. In
the Consumer Health segment, a weaker market environment led to impairment losses of €155 million for a
sunscreen product brand (Coppertone™) and €47 million on a trademark in the allergies area (Aerius™). In
the Crop Science segment, an impairment loss of €41 million was recognized in connection with the termi-
nation of a research project.
The remaining impairment losses pertained to intangible assets in the Pharmaceuticals (€2 million),
Consumer Health (€3 million), Crop Science (€5 million) and Animal Health (€9 million) segments along with
All Other Segments (€1 million).
Details of acquisitions and divestments are provided in Notes [6.2] and [6.3]. The impairment testing pro-
cedure for goodwill and other intangible assets is explained in Note [4].
Changes in intangible assets in 2016 were as follows:
Changes in Intangible Assets (Previous Year)
Patents
and
technol-
ogies
Marketing
and
distribution
rights
Trade-
marks
Acquired
goodwill
Production
rights
R&D
projects
Other
rights and
advance
payments
B 17/2
Total
€ million
Cost of acquisition
or generation,
December 31, 2015
Acquisitions
Capital expenditures
Retirements
Transfers
Transfers (IFRS 5)
Divestments / changes
in the scope
of consolidation
Inflation adjustment
(IAS 29)
Exchange
differences
16,096
13,069
10,952
1,944
2,172
9
–
–
–
–
–
3
1
55
(6)
5
(5)
–
–
–
3
(39)
–
(8)
(8)
–
–
47
(14)
50
(15)
–
–
204
43
145
32
–
5
(25)
3
(16)
–
–
(1)
946
(23)
96
(108)
(43)
–
–
–
2,600
47,779
–
157
(80)
(15)
(11)
–
–
(13)
363
(272)
–
(55)
(8)
3
19
887
15
457
2,666
48,254
December 31, 2016
16,312
13,162
11,045
2,044
2,138
256
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Changes in Intangible Assets (Previous Year)
Bayer Annual Report 2017
B 17/2 (continued)
€ million
Accumulated
amortization
and impairment
losses,
December 31, 2015
Retirements
Amortization and
impairment losses in
2016
Amortization
Impairment losses
Impairment loss
reversals
Transfers
Transfers (IFRS 5)
Divestments / changes
in the scope
of consolidation
Exchange
differences
December 31, 2016
Carrying amounts,
December 31, 2016
Carrying amounts,
December 31, 2015
Patents
and
technol-
ogies
Marketing
and
distribution
rights
Trade-
marks
Acquired
goodwill
Production
rights
R&D
projects
Other
rights and
advance
payments
Total
–
–
–
–
–
–
–
–
–
–
–
8,277
(2)
3,083
(38)
1,134
(14)
2,021
(25)
1,007
708
299
–
–
(5)
–
35
604
393
211
(1)
–
(8)
–
33
144
137
7
–
–
(15)
–
19
48
28
20
–
–
(16)
–
(1)
225
(106)
109
–
109
–
–
–
–
7
1,765
16,505
(66)
(251)
160
129
31
–
–
(11)
(1)
13
2,072
1,395
677
(1)
–
(55)
(1)
106
9,312
3,673
1,268
2,027
235
1,860
18,375
16,312
3,850
7,372
16,096
4,792
7,869
776
810
111
151
652
721
806
29,879
835
31,274
Goodwill and other intangible assets with an indefinite useful life that are of material significance for the
Bayer Group are allocated to the following cash-generating units or unit groups as of the end of the report-
ing period:
Intangible Assets with an Indefinite Useful Life
Reporting segment
Pharmaceuticals
Consumer Health
Crop Science
Crop Science
Cash-generating unit /
unit group
Pharmaceuticals
Consumer Care
Crop Protection
Seeds
B 17/3
Material intangible
assets with indefinite
useful life
(€ million)
Goodwill
(€ million)
7,105
5,854
1,120
122
857
24
41
98
In the case of research and development projects, the point in time from which a capitalized asset can be
expected to generate an economic benefit for the company cannot be determined. Such assets are there-
fore classified as having an indefinite useful life. Development projects were capitalized at a total amount of
€927 million as of the end of 2017 (2016: €652 million).
Another intangible asset classified as having an indefinite useful life is the Bayer Cross, which was reac-
quired for the North America region in 1994, having been awarded to the United States and Canada under
the reparations agreements at the end of the First World War. The period for which the Bayer Group will
derive an economic benefit from this name cannot be determined as Bayer intends to make continuous
use of it. The Bayer Cross is capitalized at €108 million.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
257
Augmented Version
18. Property, plant and equipment
Changes in property, plant and equipment in 2017 were as follows:
Changes in Property, Plant and Equipment
€ million
Cost of acquisition or construction,
December 31, 2016
Acquisitions
Capital expenditures
Retirements
Transfers
Transfers (IFRS 5)
Divestments / changes in the scope
of consolidation
Inflation adjustment (IAS 29)
Exchange differences
December 31, 2017
Accumulated depreciation
and impairment losses,
December 31, 2016
Retirements
Depreciation and impairment losses in 2017
Depreciation
Impairment losses
Impairment loss reversals
Transfers
Transfers (IFRS 5)
Divestments / changes in the scope
of consolidation
Exchange differences
December 31, 2017
Carrying amounts, December 31, 2017
Carrying amounts, December 31, 2016
Plant
installations
and
machinery
Furniture,
fixtures and
other
equipment
Construction
in progress
and advance
payments
Land and
buildings
B 18/1
Total
10,346
20,335
2,297
2,551
35,529
–
286
(82)
282
(498)
–
460
(304)
699
(601)
(3,167)
(11,059)
5
(466)
6,706
–
(884)
8,646
–
193
(143)
52
(66)
(500)
–
(112)
1,721
–
1,022
–
(1,033)
(240)
(455)
–
(82)
1,763
–
1,961
(529)
–
(1,405)
(15,181)
5
(1,544)
18,836
5,592
15,111
1,685
27
22,415
(60)
334
310
24
(7)
6
(82)
(1,923)
(199)
3,661
3,045
4,754
(280)
893
860
33
(6)
4
(214)
(8,631)
(610)
6,267
2,379
5,224
(125)
223
222
1
–
(1)
(31)
(420)
(75)
1,256
465
612
–
5
–
5
–
(9)
–
(1)
(3)
19
1,744
2,524
(465)
1,455
1,392
63
(13)
–
(327)
(10,975)
(887)
11,203
7,633
13,114
Including impairment loss reversals of €13 million, net impairment losses totaling €50 million were recog-
nized on property, plant and equipment in the Pharmaceuticals (€23 million), Consumer Health (€8 million),
and Crop Science (€25 million) segments, as well as All Other Segments (€1 million), while impairment loss
reversals were recognized for Covestro (€7 million).
In 2017, borrowing costs of €31 million (2016: €31 million) were capitalized as components of the cost of
acquisition or construction of qualifying assets, applying an average interest rate of 2.5% (2016: 2.5%).
Capitalized property, plant and equipment included assets with a total net value of €231 million (2016:
€471 million) held under finance leases. The cost of acquisition or construction of these assets as of the
closing date totaled €368 million (2016: €867 million). They comprised buildings with a carrying amount of
€98 million (2016: €146 million), plant installations and machinery with a carrying amount of €75 million
(2016: €191 million), and other property, plant and equipment with a carrying amount of €58 million (2016:
€134 million). For information on the liabilities arising from finance leases, see Note [27].
258
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
In 2017, rental payments of €385 million (2016: €346 million), excluding Covestro, were made for assets
held under operating leases as defined in IAS 17 (Leases).
Lease payments of €1 million are expected to be received in 2018 from operating leases – as defined in
IAS 17 (Leases) – pertaining to property, plant and equipment, excluding the investment property stated
below. Lease payments totaling €1 million are expected to be received between 2019 and 2022 and lease
payments totaling €0 million after 2022.
Investment property
The fair values of investment property are mainly determined using the income approach based on internal
valuations for buildings and developed sites, and using the market comparison approach for undeveloped
sites.
The total carrying amount of investment property as of December 31, 2017, was €97 million (Decem-
ber 31, 2016: €136 million). The fair value of this property was €336 million (2016: €507 million). The rental
income from investment property was €14 million (2016: €11 million), and the operating expenses directly
allocable to this property amounted to €4 million (2016: €5 million). A further amount of €1 million (2016:
€1 million) in operating expenses was directly allocable to investment property from which no rental income
was derived.
Changes in property, plant and equipment in 2016 were as follows:
Changes in Property, Plant and Equipment (Previous Year)
€ million
Cost of acquisition or construction,
December 31, 2015
Acquisitions
Capital expenditures
Retirements
Transfers
Transfers (IFRS 5)
Divestments / changes in the scope
of consolidation
Inflation adjustment (IAS 29)
Exchange differences
December 31, 2016
B 18/2
Total
Plant
installations
and
machinery
Furniture,
fixtures and
other
equipment
Construction
in progress
and advance
payments
Land and
buildings
9,685
19,418
2,142
2,295
33,540
–
248
(69)
407
(14)
–
3
86
10,346
–
369
(262)
698
(4)
–
1
115
20,335
–
206
(158)
82
(1)
–
–
26
–
1,441
(9)
(1,187)
(1)
–
–
12
2,297
2,551
–
2,264
(498)
–
(20)
–
4
239
35,529
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
259
Augmented Version
Changes in Property, Plant and Equipment (Previous Year)
B 18/2 (continued)
€ million
Accumulated depreciation
and impairment losses,
December 31, 2015
Retirements
Depreciation and impairment losses in 2016
Depreciation
Impairment losses
Impairment loss reversals
Transfers
Transfers (IFRS 5)
Divestments / changes in the scope
of consolidation
Divestments / changes in the scope
of consolidation
Exchange differences
December 31, 2016
Carrying amounts, December 31, 2016
Carrying amounts, December 31, 2015
Plant
installations
and
machinery
Furniture,
fixtures and
other
equipment
Construction
in progress
and advance
payments
Land and
buildings
5,255
14,303
1,578
(49)
334
314
20
–
5
(2)
–
–
49
5,592
4,754
4,430
(245)
936
927
9
–
(4)
(1)
–
–
122
15,111
5,224
5,115
(139)
235
234
1
–
–
(1)
–
–
12
1,685
612
564
29
(6)
5
–
5
–
(1)
–
–
–
–
27
2,524
2,266
Total
21,165
(439)
1,510
1,475
35
–
–
(4)
–
–
183
22,415
13,114
12,375
19. Investments accounted for using the equity method
Four (2016: five) associates and eight (2016: six) joint ventures were accounted for in the consolidated
financial statements using the equity method.
Associates and Joint Ventures Accounted for Using the Equity Method
Company name
Associates
Place of business
Bayer’s interest (%)
B 19/1
Bayer Trendlines Ag Innovation Fund, L.P
1
Misgav, Israel
Covestro AG
Leverkusen, Germany
Flagship Ventures V Agricultural Fund, L.P
1
Cambridge, Massachusetts, U.S.A.
Nanjing Baijingyu Pharmaceutical Co., Ltd.1
Nanjing, China
Joint ventures
Bayer Zydus Pharma Private Limited
BlueRock Therapeutics Canada ULC
BlueRock Therapeutics GP LLC
BlueRock Therapeutics LP
Casebia Therapeutics LLC
Casebia Therapeutics LLP
Cooksonia Opco LLC
DCSO Deutsche Cyber-Sicherheitsorganisation
GmbH
Mumbai, India
Vancouver, Canada
San Francisco, California, U.S.A.
San Francisco, California, U.S.A.
Cambridge, Massachusetts, U.S.A.
Ascot, U.K.
Boston, Massachusetts, U.S.A.
Berlin, Germany
1 For information concerning significant influence, see Note [6.1].
100
24.6
99.9
15
50
42.9
50
42.9
50
50
50
25
260
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
In October 2015, Bayer successfully floated the former MaterialScience subgroup on the stock market
under the name “Covestro”. Covestro is a leading global producer of high-tech polymer materials and
develops innovative product solutions for a wide variety of everyday uses. The Covestro Group was de-
consolidated at the end of the third quarter of 2017, and, in view of Bayer’s remaining significant influence,
was recognized for the first time as an associate and accounted for using the equity method. See Note
[6.3] for details on the deconsolidation of the Covestro Group.
The remaining interest in Covestro at the time of deconsolidation was remeasured at €3.6 billion based on
its share price, which led to the identification of hidden reserves and liabilities. According to the purchase
price allocation, the hidden reserves and liabilities primarily related to noncurrent assets (€1.9 billion), cur-
rent assets (€0.1 billion), noncurrent liabilities (€0.6 billion) and goodwill (€1.0 billion).
The following two tables contain summarized data from the income statements and statements of financial
position of the Covestro Group, and show the respective amounts recognized in the consolidated financial
statements of the Bayer Group.
Earnings Data of the Covestro Group
€ million
Net sales
Income after income taxes
of which attributable to Covestro AG shareholders
Other comprehensive income after income taxes
of which attributable to Covestro AG shareholders
Total comprehensive income after income taxes
of which attributable to Covestro AG shareholders
Share of total comprehensive income after income taxes
Share of income after income taxes
Group adjustments
Equity-method income
Data from the Statements of Financial Position of the Covestro Group
€ million
Noncurrent assets
Current assets
Noncurrent liabilities
Current liabilities
Equity
Share of equity
Group adjustments
Carrying amount
B 19/2
2016
Q4 2017
–
–
–
–
–
–
–
–
–
–
–
3,522
569
566
(193)
(191)
376
375
92
139
(88)
51
B 19/3
Dec. 31, 2016 Dec. 31, 2017
–
–
–
–
–
–
–
–
5,606
5,735
2,885
3,091
5,365
1,320
2,307
3,627
The adjustments to the Group data contain hidden reserves and liabilities identified in the course of the
purchase price allocation and their measurement using the equity method.
In December 2015, Bayer and CRISPR Therapeutics AG, Switzerland, agreed to establish a company to
develop and commercialize new, breakthrough therapeutics for blood disorders, blindness and congenital
heart diseases. The joint venture Casebia Therapeutics, established at the beginning of 2016, has access
to gene-editing technology from CRISPR Therapeutics in specific disease areas, as well as access to pro-
tein engineering expertise and relevant disease know-how through Bayer.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
261
Augmented Version
The following two tables contain summarized data from the income statements and statements of financial
position of the Casebia Group, which is accounted for using the equity method, and show the respective
amounts recognized in the consolidated financial statements of the Bayer Group.
Earnings Data of the Casebia Group
€ million
Net sales
Loss after income taxes
Share of loss after income taxes
Equity-method loss
Data from the Statements of Financial Position of the Casebia Group
€ million
Noncurrent assets
Current assets
Noncurrent liabilities
Current liabilities
Equity
Share of equity
Other
Carrying amount
2016
–
(8)
(4)
(4)
B 19/4
2017
–
(32)
(16)
(16)
B 19/5
Dec. 31, 2016 Dec. 31, 2017
68
4
–
3
69
38
242
280
70
24
8
4
82
69
162
231
The item “Other” comprises Bayer’s outstanding capital contribution obligation.
The following table contains a summary of the aggregated income statement data and aggregated carrying
amounts of the individually nonmaterial associates accounted for using the equity method.
Earnings Data and Carrying Amounts of Associates Accounted for Using the Equity Method
€ million
Income after income taxes
Other comprehensive income after income taxes
Total comprehensive income after income taxes
Share of income after income taxes
Share of total comprehensive income after income taxes
Carrying amount
2016 figures restated
B 19/6
2016
2017
4
3
7
2
5
247
7
28
35
1
29
37
The following table contains a summary of the aggregated income statement data and aggregated carrying
amounts of the individually nonmaterial joint ventures that are accounted for using the equity method.
Earnings Data and Carrying Amounts of Joint Ventures Accounted for Using the Equity Method
€ million
Income after income taxes
Total comprehensive income after income taxes
Share of income after income taxes
Share of total comprehensive income after income taxes
Carrying amount
2016 figures restated
B 19/7
2016
2017
(6)
(6)
(4)
(4)
57
(16)
(16)
(16)
(16)
112
262
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
20. Other financial assets
The other financial assets were comprised as follows:
Other Financial Assets
€ million
Loans and receivables
Available-for-sale financial assets
of which debt instruments
of which equity instruments
Held-to-maturity financial investments
Receivables from derivatives
Receivables under lease agreements
Total
B 20/1
Dec. 31, 2016
Dec. 31, 2017
Total
2,140
4,629
4,371
258
65
714
8
Of which
current
2,087
3,517
3,514
3
8
663
–
Total
1,718
2,728
2,463
265
57
647
13
Of which
current
1,501
1,502
1,499
3
15
509
2
7,556
6,275
5,163
3,529
Loans and receivables included €1,390 million (2016: €1,770 million) in bank deposits and €108 million
(2016: €305 million) in commercial paper.
The debt instruments classified as available-for-sale financial assets included capital of €605 million (2016:
€612 million) provided to Bayer-Pensionskasse VVaG (Bayer-Pensionskasse) for its effective initial fund,
and jouissance right capital (Genussrechtskapital) of €152 million (2016: €154 million), also provided to
Bayer-Pensionskasse. Also reported in this category were investments of €1,497 million (2016:
€3,513 million) in money market funds.
The equity instruments reported as available-for-sale financial assets included the €101 million (2016:
€98 million) investment in CRISPR Therapeutics AG, Switzerland, along with €35 million (2016: €32 million)
in instruments whose fair value could not be determined from a stock exchange or other market price or by
discounting reliably determinable future cash flows. These equity instruments were recognized at cost.
Further information on the accounting for receivables from derivatives is given in Note [30].
Receivables under lease agreements relate to finance leases where Bayer is the lessor and the economic
owner of the leased assets is the lessee. These receivables comprised expected lease payments of
€15 million (2016: €39 million), including €2 million (2016: €31 million) in interest. Of the expected lease
payments, €3 million (2016: €1 million) is due within one year, €10 million (2016: €2 million) within the fol-
lowing four years and €2 million (2016: €36 million) in subsequent years.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
263
Augmented Version
21. Inventories
Inventories were comprised as follows:
Inventories
€ million
Raw materials and supplies
Work in process, finished goods and goods purchased for resale
Advance payments
Total
B 21/1
Dec. 31,
2016
Dec. 31,
2017
2,396
5,991
21
8,408
1,761
4,776
13
6,550
The deconsolidation of Covestro reduced inventories by €1,831 million.
Impairment losses recognized on inventories were reflected in the cost of goods sold. They were com-
prised as follows:
Impairments of Inventories
€ million
Accumulated impairment losses, January 1
Divestments / changes in the scope of consolidation
Impairment losses in the reporting period
Impairment loss reversals or utilization
Exchange differences
Transfers (IFRS 5)
Accumulated impairment losses, December 31
B 21/2
2017
(416)
13
(235)
261
45
1
(331)
2016
(427)
–
(321)
346
(18)
4
(416)
22. Trade accounts receivable
Trade accounts receivable less impairment losses amounted to €8,582 million (2016: €10,969 million) on
the closing date and were comprised as follows:
Trade Accounts Receivable
€ million
Trade accounts receivable (before impairments)
Accumulated impairment losses
Carrying amount, December 31
of which noncurrent
B 22/1
2017
9,007
(425)
8,582
97
2016
11,377
(408)
10,969
144
The deconsolidation of Covestro reduced trade accounts receivable by €1,943 million.
264
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Changes in impairment losses on trade accounts receivable were as follows:
Impairments of Trade Accounts Receivable
€ million
Accumulated impairment losses, January 1
Divestments / changes in the scope of consolidation
Impairment losses in the reporting period
Impairment loss reversals or utilization
Exchange differences
Accumulated impairment losses, December 31
B 22/2
2017
(408)
41
(133)
29
46
(425)
2016
(248)
–
(165)
35
(30)
(408)
Trade accounts receivable amounting to €8,189 million (2016: €10,954 million) were not individually
impaired. Of this amount, €1,440 million (2016: €1,161 million) was past due or due immediately on the
closing date.
The amounts of impaired and past-due trade accounts receivable are summarized in the following table:
Impaired and Past-Due Trade Accounts Receivable
Of which
neither
impaired
nor past
due at the
closing date
B 22/3
Of which
impaired
at the
closing
date
Of which
unimpaired but
past due at the
closing date
Carrying amount
December 31, 2017
December 31, 2016
€ million
8,582
10,969
up to
3 months
3 – 6
months
6 – 12
months
more than
12 months
6,749
9,793
934
780
142
162
104
125
260
94
393
15
The gross carrying amount of individually impaired trade accounts receivable was €798 million (2016:
€192 million). The impairment losses recognized on these assets totaled €405 million (2016: €177 million),
resulting in a net carrying amount of €393 million (2016: €15 million).
The unimpaired receivables were deemed to be collectible on the basis of established credit management
processes and individual assessments of customer risks. Recognized impairment losses included an ap-
propriate allowance for the default risk as of the end of the reporting period.
Receivables from government health service institutions, especially in Greece, Italy, Portugal and Spain, are
under special observation in view of the government debt crisis. Although there were no material defaults
on such receivables in 2017 or 2016, it is possible that future developments in these countries could result
in payment delays and / or defaults. This could necessitate the recognition of impairment losses due to new
occurrences. Trade accounts receivable from government health service institutions in the above countries
at the end of 2017 totaled €102 million (2016: €134 million).
An excess-of-loss policy exists for the Pharmaceuticals, Consumer Health and Animal Health segments as
part of a global credit insurance program. More than 80% of the receivables of these segments are insured
up to a maximum total annual compensation payment of €150 million (2016: €150 million). A global ex-
cess-of-loss policy has also existed for the Crop Science segment since January 2016. In this global credit
insurance program, more than 80% of this segment’s receivables are insured up to a maximum total annual
compensation payment of €300 million (2016: €300 million).
A further €696 million (2016: €743 million) of receivables was secured by advance payments, letters of
credit or guarantees or by liens on land, buildings or harvest yields.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
265
Augmented Version
23. Other receivables
Other receivables were comprised as follows:
Other Receivables
€ million
Other tax receivables
Deferred charges
Reimbursement claims
Net defined benefit asset
Receivables from employees
Miscellaneous receivables
Total
B 23/1
Dec. 31, 2016
Dec. 31, 2017
Total
764
549
120
26
50
1,284
2,793
Of which
current
746
358
104
–
49
953
2,210
Total
554
298
85
36
47
656
1,676
Of which
current
541
192
71
–
46
426
1,276
The reimbursement claims of €85 million (2016: €120 million) predominantly consisted of receivables from
insurance companies in connection with product liability claims.
In 2016, miscellaneous receivables included a €441 million receivable from Dow AgroSciences LLC, United
States, for damages and royalty payments resulting from the infringement of Bayer’s rights to the Liber-
tyLink™ weed control system. This receivable was settled in May 2017.
Other receivables included €426 million (2016: €690 million) in financial receivables. Of this amount, re-
ceivables of €383 million (2016: €612 million) were neither impaired nor past due. Receivables of €26 mil-
lion (2016: €50 million) were due immediately or up to three months past due. Receivables of €17 million
(2016: €27 million) were more than three months past due.
Other receivables are stated net of impairment losses of €70 million (2016: €56 million), of which
€67 million (2016: €52 million) related to a receivable from the Venezuelan exchange control authority re-
flecting the right to receive U.S. dollars at a preferential rate.
24. Equity
The foremost objectives of our financial management are to help bring about a sustained increase in
Bayer’s value for the benefit of all stakeholders, and to ensure the Group’s creditworthiness and liquidity.
The pursuit of these goals means reducing our cost of capital, optimizing our capital structure, improving
our financing cash flow and effectively managing risk.
266
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The rating agencies commissioned by Bayer assess Bayer’s creditworthiness as follows:
Rating
S&P Global Ratings
Moody's
B 24/1
Long-term rating
Short-term rating
A-
A3
A-2
P-2
These credit ratings reflect the company’s high solvency and ensure access to a broad investor base for
financing purposes. As a result of the agreed acquisition of Monsanto, both S & P Global Ratings and
Moody’s are reviewing the possibility of downgrade. Bayer will continue to target an investment-grade
rating after the successful closing of the Monsanto acquisition. We remain committed to the single “A”
credit rating category over the long term.
Apart from utilizing cash inflows from our operating business to reduce net financial debt, we are imple-
menting our financial strategy by way of vehicles such as the subordinated hybrid bonds issued in July
2014 and April 2015, the mandatory convertible notes issued in November 2016, the authorized and con-
ditional capital, and a potential share buyback program.
The changes in the various components of equity during 2016 and 2017 are shown in the consolidated
statements of changes in equity.
Capital stock
The capital stock of Bayer AG on December 31, 2017, amounted to €2,117 million (2016: €2,117 million),
divided into 826,947,808 (2016: 826,947,808) registered no-par shares, and was fully paid in. Each no-par
share confers one voting right.
Authorized and conditional capital
The authorized and conditional capital was comprised as follows:
B 24/2
Authorized and Conditional Capital
Capital
Authorized
capital I
Authorized
capital II
Conditional
capital
Resolution
Amount / shares
Expires
Purpose
April 29, 2014
€530 million
April 28, 2019
April 29, 2014
€212 million
April 28, 2019
April 29, 2014
April 28, 2019
€212 million /
up to
82,694,750 no-par
shares
Increase the capital stock by issuing new
no-par shares against cash contributions
and / or contributions in kind, the latter
not to exceed €423 million
Increase the capital stock by issuing new
no-par shares against cash contributions
Increase the capital stock by granting
no-par shares to the holders of bonds
with warrants or convertible notes, profit
participation certificates or income
bonds; the authorizations to issue such
instruments are limited to a total nominal
amount of €6 billion.
Capital increases are effected by issuing new registered no-par shares. Stockholders must normally be
granted subscription rights. However, subscription rights may be excluded under certain conditions stated
in the authorization resolutions. Absent a further resolution of the Annual Stockholders’ Meeting on the
exclusion of stockholders’ subscription rights, the Board of Management may only use the existing author-
izations to increase the capital stock out of the authorized capital I and II or the conditional capital – while
excluding stockholders' subscription rights – up to a total amount of 20% of the capital stock that existed
when the respective resolutions were adopted by the Annual Stockholders’ Meeting on April 29, 2014. All
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
267
Augmented Version
issuances or sales of no-par shares or of bonds with warrants or conversion rights or obligations that are
effected while excluding stockholders’ subscription rights also count toward this 20% limit. Details of the
authorized and conditional capital are provided in the Notice of the Annual Stockholders’ Meeting of
April 29, 2014, and on the Bayer website. The authorized capital I and the authorized capital II have not
been utilized so far.
On November 22, 2016, Bayer placed mandatory convertible notes in the amount of €4,000 million without
granting subscription rights to existing stockholders of the company. The notes, denominated in units of
€100,000, were issued by Bayer Capital Corporation B.V. under the subordinated guarantee of Bayer AG.
At maturity, the outstanding amount of the notes will be mandatorily converted into registered no-par
shares of Bayer AG. After deduction of €48 million in transaction costs and recognition of €191 million in
deferred taxes, €3,491 million were allocated to capital reserves and €652 million to financial liabilities. The
deferred taxes result from temporary differences in accounting for the liability component and were recog-
nized outside profit or loss in equity. As at December 31, 2017, the financial liability had decreased by
€125 million, resulting in a €41 million deferred tax reversal through profit or loss. The issuance of the
mandatory convertible notes constitutes a utilization of the conditional capital.
Accumulated comprehensive income
Accumulated comprehensive income comprises retained earnings and accumulated other comprehensive
income. The retained earnings comprise prior years’ undistributed income of consolidated companies
and all remeasurements of the net defined benefit liability for pension or other post-employment benefits
that are recognized outside profit or loss. The accumulated other comprehensive income comprises ex-
change differences, the changes in fair values of cash flow hedges and available-for-sale financial assets,
and the revaluation surplus. In 2017, an amount of €4 million (2016: €4 million) corresponding to the
annual amortization / depreciation of the respective assets was transferred from the revaluation surplus to
retained earnings.
Dividend
Under the German Stock Corporation Act (AktG), the dividend payment is determined by the distributable
profit reported in the annual financial statements of Bayer AG, which are prepared according to the Ger-
man Commercial Code. Retained earnings were diminished by payment of the dividend of €2.70 per share
for 2016. The proposed dividend for the 2017 fiscal year is €2.80 per share, which – based on the current
number of shares – would result in a total dividend payment of €2,315 million. Payment of the proposed
dividend is contingent upon approval by the stockholders at the Annual Stockholders’ Meeting and there-
fore is not recognized as a liability in the consolidated financial statements.
268
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Noncontrolling interest
The changes in noncontrolling interest in equity during 2016 and 2017 are shown in the following table:
Changes in Noncontrolling Interest in Equity
€ million
January 1
Changes in equity not recognized in profit or loss
Remeasurements of the net liability under defined benefit pension plans
Changes in fair value of cash flow hedges
Changes in fair value of securities
Exchange differences on translation of operations outside the eurozone
Other changes in equity
Dividend payments
Income after income taxes
December 31
B 24/3
2016
1,180
2017
1,564
(27)
–
–
17
157
(58)
295
1,564
49
–
–
(155)
(2,025)
(131)
758
60
Of the dividend payments, €129 million pertained to the noncontrolling interest in the equity of Covestro
AG.
The principal subsidiary with third-party noncontrolling interest holders is Bayer CropScience Limited, In-
dia. The interest and share of voting rights attributable to noncontrolling interest amounted to 31.3% as at
December 31, 2017 (December 31, 2016: 31.4%), and the equity attributable to this noncontrolling interest
stood at €52 million (2016: €85 million).
During fiscal 2017, Bayer AG reduced its interest in Covestro AG from 64.2% to 24.6%. In the first quarter,
Bayer sold 22 million shares of Covestro AG to institutional investors at a price of €66.50 per share. A
further 17.25 million shares of Covestro AG were sold to institutional investors in the second quarter at a
price of €62.25 per share. Further, 8 million shares of Covestro AG were deposited in Bayer Pension
Trust e. V. at a price of €63.04 per share. In the third quarter of 2017, Bayer AG sold shares 19 million
shares in Covestro AG at a price of €63.25 per share on September 12, 2017, and approximately 14 mil-
lion Covestro AG shares at a price of €71.72 on September 29, 2017. The buyers of the around 14 million
shares sold on September 29, 2017 agreed to be bound by a lock-up arrangement pursuant to which they
would not sell the shares they purchased until at least December 11, 2017. Under the contractual agree-
ment, Bayer retained the economic exposure to the price of these shares at least until that date.
The reductions in Bayer's interest through September 12, 2017, detailed above had a €4.2 billion positive
effect on Bayer Group equity, which was recognized in other changes in equity. Of this amount, €2.7 billion
was attributable to stockholders of Bayer AG and €1.5 billion to noncontrolling interest. As part of the
deconsolidation at the end of September 2017, the noncontrolling interest in Covestro AG equity was de-
recognized in its entirety. See Note [6.3] for details on the deconsolidation of Covestro.
As of December 31, 2017, Bayer held 24.6% of the shares of Covestro AG. Bayer Pension Trust e.V. held a
further 8.9%.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
269
Augmented Version
25. Provisions for pensions and other post-employment
benefits
Provisions were established for defined benefit obligations pertaining to pensions and other post-
employment benefits. The net liability was accounted for as follows:
Net Defined Benefit Liability Reflected in the Statement of Financial Position
Pensions
Other post-employment
benefits
B 25/1
Total
€ million
Provisions for pensions and other post-
employment benefits (net liability)
of which Germany
of which other countries
Net defined benefit asset
of which Germany
of which other countries
Net defined benefit liability
of which Germany
of which other countries
Dec. 31,
2016
Dec. 31,
2017
Dec. 31,
2016
Dec. 31,
2017
Dec. 31,
2016
Dec. 31,
2017
10,736
9,176
1,560
25
23
2
10,711
9,153
1,558
7,798
6,778
1,020
36
22
14
7,762
6,756
1,006
398
–
398
1
–
1
397
–
397
222
–
222
–
–
–
222
–
222
11,134
9,176
1,958
26
23
3
11,108
9,153
1,955
8,020
6,778
1,242
36
22
14
7,984
6,756
1,228
The deconsolidation of Covestro reduced provisions for pensions and other post-employment benefits by
€1,201 million.
The expenses for defined benefit plans for pensions and other post-employment benefits comprised the
following components:
Expenses for Defined Benefit Plans
B 25/2
Pension plans
Other post-employment
benefit plans
€ million
Current service cost
Past service cost
of which plan
curtailments
Plan settlements
Plan administration
cost paid out of plan
assets
Net interest
Total
2016 figures restated
Germany
Other countries
2016
281
17
–
–
3
175
476
2017
312
20
–
–
3
135
470
2016
2017
86
(4)
1
(8)
1
46
121
93
(3)
(2)
8
1
43
142
2016
367
13
1
(8)
4
221
597
Total
2017
405
17
(2)
8
4
178
612
Other countries
2016
2017
14
(1)
–
–
–
14
27
13
(2)
(2)
–
–
13
24
In addition, a total of €1,236 million in effects of remeasurements of the net defined benefit liability was
recognized in 2017 outside profit or loss (2016: minus €1,036 million). Of this amount, €1,223 million
(2016: minus €1,063 million) related to pension obligations, €1 million (2016: €34 million) to other post-
employment benefit obligations, and €12 million (2016: minus €7 million) to the effects of the asset ceiling.
270
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The net defined benefit liability developed as follows:
Changes in Net Defined Benefit Liability
€ million
Germany
January 1, 2017
Acquisitions
Divestments / changes in the scope of consolidation
Current service cost
Past service cost
Net interest
Net actuarial gain / (loss)
of which due to changes in financial assumptions
of which due to changes in demographic assumptions
of which due to experience adjustments
Return on plan assets excluding amounts recognized as interest income
Employer contributions
Employee contributions
Payments due to plan settlements
Benefits paid out of plan assets
Benefits paid by the company
Plan administration cost paid from plan assets
Reclassification to current assets / liabilities held for sale
December 31, 2017
Other countries
January 1, 2017
Acquisitions
Divestments / changes in the scope of consolidation
Current service cost
Past service cost
Gains / (losses) from plan settlements
Net interest
Net actuarial gain / (loss)
of which due to changes in financial assumptions
of which due to changes in demographic assumptions
of which due to experience adjustments
Return on plan assets excluding amounts recognized as interest income
Remeasurement of asset ceiling
Employer contributions
Employee contributions
Payments due to plan settlements
Benefits paid out of plan assets
Benefits paid by the company
Plan administration costs paid out of plan assets
Reclassification to current assets / liabilities held for sale
Exchange differences
December 31, 2017
of which other post-employment benefits
Total, December 31, 2017
Covestro is included in the net defined benefit liability.
Defined
benefit
obligation
Fair value of
plan assets
Effects of the
asset ceiling
–
–
–
–
(20,962)
11,809
–
3,021
(368)
(32)
(358)
206
180
(1)
27
(39)
–
216
441
38
–
(2,075)
208
755
593
39
–
(216)
(3)
(29)
B 25/3
Net defined
benefit
liability
(9,153)
–
946
(368)
(32)
(150)
206
180
(1)
27
755
593
–
–
–
441
(3)
9
(17,837)
11,081
–
(6,756)
(8,033)
–
840
(109)
8
(8)
(244)
(166)
(191)
21
4
(14)
32
300
94
10
635
(6,655)
(671)
(24,492)
6,127
–
(589)
(49)
–
3
183
(3)
429
125
14
(41)
(300)
(1)
(8)
(481)
5,458
449
16,539
12
–
6
(31)
–
(31)
(1,955)
–
254
(109)
8
(8)
(64)
(166)
(191)
21
4
429
12
125
–
(9)
–
94
(1)
2
160
(1,228)
(222)
(7,984)
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
271
Augmented Version
Changes in Net Defined Benefit Liability (Previous Year)
€ million
Germany
January 1, 2016
Acquisitions
Divestments / changes in the scope of consolidation
Current service cost
Past service cost
Net interest
Net actuarial gain / (loss)
of which due to changes in financial assumptions
of which due to changes in demographic assumptions
of which due to experience adjustments
Return on plan assets excluding amounts recognized as interest income
Employer contributions
Employee contributions
Payments due to plan settlements
Benefits paid out of plan assets
Benefits paid by the company
Plan administration cost paid from plan assets
Reclassification to current assets / liabilities held for sale
December 31, 2016
Other countries
January 1, 2016
Acquisitions
Divestments / changes in the scope of consolidation
Current service cost
Past service cost
Gains / (losses) from plan settlements
Net interest
Net actuarial gain / (loss)
of which due to changes in financial assumptions
of which due to changes in demographic assumptions
of which due to experience adjustments
Return on plan assets excluding amounts recognized as interest income
Remeasurement of asset ceiling
Employer contributions
Employee contributions
Payments due to plan settlements
Benefits paid out of plan assets
Benefits paid by the company
Plan administration costs paid out of plan assets
Reclassification to current assets / liabilities held for sale
Exchange differences
December 31, 2016
of which other post-employment benefits
Total, December 31, 2016
Covestro is included in the net defined benefit liability.
Defined
benefit
obligation
Fair value of
plan assets
Effects of the
asset ceiling
B 25/4
Net defined
benefit
liability
(19,148)
10,199
–
4
(350)
(26)
(452)
(1,610)
(1,563)
(1)
(46)
(39)
–
219
440
–
–
(2)
248
669
878
39
–
(219)
(3)
–
–
–
–
–
(8,949)
–
2
(350)
(26)
(204)
(1,610)
(1,563)
(1)
(46)
669
878
–
–
–
440
(3)
–
(20,962)
11,809
–
(9,153)
(7,660)
5,799
1
(3)
(32)
–
–
–
4
(118)
6
9
(284)
(515)
(650)
89
46
(12)
83
295
87
–
72
215
(3)
427
152
12
(84)
(295)
(1)
–
(96)
(7)
–
(7)
(49)
–
(49)
(8,033)
(867)
(28,995)
6,127
471
17,936
(1,893)
1
1
(118)
6
9
(72)
(515)
(650)
89
46
427
(7)
152
–
(1)
–
87
(1)
–
(31)
(1,955)
(396)
(11,108)
The benefit obligations pertained mainly to Germany (73%; 2016: 72%), the United States (12%;
2016: 14%) and the United Kingdom (8%; 2016: 7%). In Germany, current employees accounted for about
43% (2016: 46%), retirees or their surviving dependents for about 50% (2016: 47%) and former employees
with vested pension rights for about 7% (2016: 7%) of entitlements under defined benefit plans. In the
272
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
United States, current employees accounted for about 21% (2016: 25%), retirees or their surviving de-
pendents for about 65% (2016: 53%) and former employees with vested pension rights for about 14%
(2016: 22%) of entitlements under defined benefit plans.
The actual return on the assets of defined benefit plans for pensions or other post-employment benefits
amounted to €1,517 million (2016: €1,519 million) and €58 million (2016: €40 million), respectively.
The following table shows the defined benefit obligations for pensions and other post-employment benefits
along with the funded status of the funded obligations.
Defined Benefit Obligation and Funded Status
€ million
Defined benefit obligation
of which unfunded
of which funded
Funded status of funded obligations
Overfunding
Underfunding
Pension obligation
Other post-
employment
benefit obligation
2016
2017
2016
2017
2016
B 25/5
Total
2017
28,128
23,821
1,231
1,117
26,897
22,704
74
67
9,506
6,681
867
125
742
1
272
671
64
607
28,995
24,492
1,356
1,181
27,639
23,311
–
75
67
158
9,778
6,839
Pension and other post-employment benefit obligations
Group companies provide retirement benefits for most of their employees, either directly or by contributing
to privately or publicly administered funds. The benefits vary depending on the legal, fiscal and economic
conditions of each country. The obligations relate both to existing retirees’ pensions and to pension enti-
tlements of future retirees.
Bayer has set up funded pension plans for its employees in various countries. The most appropriate in-
vestment strategy is determined for each defined benefit pension plan based on the risk structure of the
obligations (especially demographics, the current funded status, the structure of the expected future cash
flows, interest sensitivity, biometric risks etc.), the regulatory environment and the existing level of risk
tolerance or risk capacity. A strategic target investment portfolio is then developed in line with the plan’s
risk structure, taking capital market factors into consideration. Further determinants are risk diversification,
portfolio efficiency and the need for both a country-specific and a global risk / return profile centered on
ensuring the payment of all future benefits. As the capital investment strategy for each pension plan is
developed individually in light of the plan-specific conditions listed above, the investment strategies for
different pension plans may vary considerably. The investment strategies are generally aligned less toward
maximizing absolute returns and more toward the maximum probability of being able to finance pension
commitments over the long term. For pension plans, stress scenarios are simulated and other risk analyses
(such as value at risk) undertaken with the aid of risk management systems.
Bayer-Pensionskasse VVaG (Bayer-Pensionskasse), Leverkusen, Germany, is by far the most significant of
the pension plans. It has been closed to new members since 2005. This legally independent fund is re-
garded as a life insurance company and therefore is subject to the German Insurance Supervision Act. The
benefit obligations covered by Bayer-Pensionskasse comprise retirement, surviving dependents’ and disa-
bility pensions. It constitutes a multi-employer plan, to which the active members and their employers
contribute. The company contribution is a certain percentage of the employee contribution. This percen-
tage is the same for all participating employers, including those outside the Bayer Group, and is set by
agreement between the plan’s executive committee and its supervisory board, acting on a proposal from
the responsible actuary. It takes into account the differences between the actuarial estimates and the ac-
tual values for the factors used to determine liabilities and contributions. Bayer may also adjust the com-
pany contribution in agreement with the plan’s executive committee and its supervisory board, acting on a
proposal from the responsible actuary. The plan’s liability is governed by Section 1, Paragraph 1, Sentence
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
273
Augmented Version
3 of the German Law on the Improvement of Occupational Pensions. This means that if the pension plan
exercises its right under the articles of association to reduce benefits, each participating employer has to
make up the resulting difference. Bayer is not liable for the obligations of participating employers outside
the Bayer Group, even if they cease to participate in the plan.
Pension entitlements for people who joined Bayer in Germany in 2005 or later are granted via Rheinische
Pensionskasse VVaG, Leverkusen. Future pension payments from this plan are based on contributions and
the return on plan assets; a guaranteed interest rate applies.
Another important pension provision vehicle is Bayer Pension Trust e. V. (BPT). This covers further retire-
ment provision arrangements of the Bayer Group, such as deferred compensation, pension obligations
previously administered by Schering Altersversorgung Treuhand e. V., and components of other direct
commitments.
The defined benefit pension plans in the United States have been frozen for some years, and no significant
new entitlements can be earned under these plans. The assets of all the U.S. pension plans are held by a
master trust for reasons of efficiency. The applicable regulatory framework is based on the Employee Re-
tirement Income Security Act (ERISA), which includes a statutory 80% minimum funding requirement to
avoid benefit restrictions. The actuarial risks, such as investment risk, interest-rate risk and longevity risk,
remain with the company.
The defined benefit pension plans in the United Kingdom have been closed to new members for some
years. Plan assets in the U.K. are administered by independent trustees, who are legally obligated to act
solely in the interests of the beneficiaries. A technical assessment is performed every three years in line
with U.K. regulations. This serves as the basis for developing a plan to cover any potential financing re-
quirements. Here, too, the actuarial risks remain with the company.
The other post-employment benefit obligations outside Germany mainly comprised health care benefit
payments for retirees in the United States.
274
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The fair value of the plan assets to cover pension and other post-employment benefit obligations was
as follows:
Fair Value of Plan Assets as of December 31
B 25/6
Pension obligations
Other post-employment
obligations
Germany
Other countries
Other countries
€ million
2016
2017
2016
2017
2016
2017
Plan assets based on quoted prices
in active markets
Real estate and special real estate funds
Equities and equity funds
Callable debt instruments
Noncallable debt instruments
Bond funds
Derivatives
Cash and cash equivalents
Other
Plan assets for which quoted prices
in active markets are not available
Real estate and special real estate funds
Equities and equity funds
Callable debt instruments
Noncallable debt instruments
Bond funds
Derivatives
Other
–
–
2,919
3,617
–
556
–
–
215
1,861
263
736
181
1,739
27
602
3,754
3,737
1,823
1,631
11
243
–
11
164
–
(3)
114
6
–
74
–
7,483
7,529
5,015
4,254
563
115
1,525
1,870
–
1
252
4,326
496
121
1,399
1,394
–
–
142
3,552
124
72
–
–
72
–
373
641
179
71
–
–
74
–
431
755
Total plan assets
11,809
11,081
5,656
5,009
22
149
–
128
104
–
17
–
420
–
–
–
–
–
–
51
51
471
16
158
–
127
94
–
13
–
408
–
–
–
–
–
–
41
41
449
The fair value of plan assets in Germany included real estate leased by Group companies, recognized at a
fair value of €82 million (2016: €82 million), and Bayer AG shares and bonds held through investment
funds, recognized at their fair values of €37 million (2016: €41 million) and €3 million (2016: €3 million),
respectively.
In 2017, Bayer AG deposited 8 million (2016: 10 million) shares it held in Covestro AG with BPT. The mar-
ket value of BPT’s total shareholding in Covestro AG amounted to €1,549 million as of December 31, 2017
(2016: €652 million). In 2016, Covestro deposited short-term securities totaling €450 million with Metzler
Trust e. V.
The other plan assets comprised mortgage loans granted, other receivables and qualified insurance policies.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
275
Augmented Version
Risks
The risks from defined benefit plans arise partly from the defined benefit obligations and partly from the
investment in plan assets. These risks include the possibility that additional contributions will have to be
made to plan assets in order to meet current and future pension obligations, and negative effects on provi-
sions and equity.
Demographic / biometric risks
Since a large proportion of the defined benefit obligations comprises lifelong pensions or surviving de-
pendents’ pensions, longer claim periods or earlier claims may result in higher benefit obligations, higher
benefit expense and / or higher pension payments than previously anticipated.
Investment risks
If the actual return on plan assets were below the return anticipated on the basis of the discount rate, the
net defined benefit liability would increase, assuming there were no changes in other parameters. This
could happen as a result of a drop in share prices, increases in market rates of interest, default of individu-
al debtors or the purchase of low-risk but low-interest bonds, for example.
Interest-rate risk
A decline in capital market interest rates, especially for high-quality corporate bonds, would increase the
defined benefit obligation. This effect would be at least partially offset by the ensuing increase in the mar-
ket values of the debt instruments held.
Measurement parameters and their sensitivities
The following weighted parameters were used to measure the obligations for pensions and other post-
employment benefits as of December 31 of the respective year:
Parameters for Benefit Obligations
%
Pension obligations
Discount rate
of which U.S.A
of which U.K.
Germany
Other countries
2016
2017
2016
2017
2016
1.80
1.90
3.25
3.70
2.65
3.50
3.35
2.95
3.40
2.50
3.60
3.25
2.15
3.70
2.65
2.95
1.95
B 25/7
Total
2017
2.15
3.40
2.50
2.95
2.10
Projected future salary increases
Projected future benefit increases
2.75
1.50
2.75
1.70
Other post-employment benefit obligations
Discount rate
–
–
4.35
4.25
4.35
4.25
The data selection criteria used to determine the discount rate in the eurozone were modified starting in
the third quarter of 2017 in connection with the deconsolidation of Covestro. As before, the underlying
bond portfolio consists entirely of high-quality corporate bonds with a minimum AA or AAA rating. It no
longer contains corporate bonds issued by government-owned entities. The bond portfolio includes corpo-
rate bonds of special-purpose entities and exchange-traded corporate bonds. Without these modifica-
tions, the interest rate as of December 31, 2017, would have been 20 basis points lower. Provisions for
pensions would therefore have been €0.6 billion higher.
In Germany the Heubeck 2005 G mortality tables were used, in the United States the RP-2014 Mortality
Tables, and in the United Kingdom 95% of S1NXA.
276
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The following weighted parameters were used to measure the expense for pension and other post-
employment benefits in the respective year:
Parameters for Benefit Expense
%
Pension obligations
Discount rate
Projected future salary increases
Projected future benefit increases
Other post-employment benefit obligations
Germany
Other countries
2016
2017
2016
2017
2016
2.40
3.00
1.75
1.80
2.75
1.50
3.85
3.35
3.20
3.25
3.50
3.35
2.75
3.10
2.15
B 25/8
Total
2017
2.15
2.95
1.95
Discount rate
–
–
4.45
4.35
4.45
4.35
The parameter sensitivities were computed by expert actuaries based on a detailed evaluation similar to
that performed to obtain the data presented in Table B 25/3. Altering individual parameters by 0.5 percent-
age points (mortality by 10% per beneficiary) while leaving the other parameters unchanged would have
impacted pension and other post-employment benefit obligations as of year-end 2017 as follows:
Sensitivity of Benefit Obligations
€ million
Pension obligations
Germany
Other countries
B 25/9
Total
Increase Decrease
Increase Decrease
Increase Decrease
0.5%-pt. change in discount rate
(1,417)
1,620
(414)
468
(1,831)
2,088
0.5%-pt. change in projected future
salary increases
0.5%-pt. change in projected future
benefit increases
10% change in mortality
Other post-employment benefit obligations
0.5%-pt. change in discount rate
10% change in mortality
87
(82)
50
(47)
137
(129)
921
(587)
–
–
(841)
660
–
–
146
(172)
(36)
(20)
(110)
176
39
22
1,067
(759)
(36)
(20)
(951)
836
39
22
B 25/10
Total
Sensitivity of Benefit Obligations (prior year)
Germany
Other countries
€ million
Pension obligations
Increase Decrease
Increase Decrease
Increase Decrease
0.5%-pt. change in discount rate
(1,752)
2,014
(478)
539
(2,230)
2,553
0.5%-pt. change in projected future
salary increases
0.5%-pt. change in projected future
benefit increases
10% change in mortality
Other post-employment benefit obligations
0.5%-pt. change in discount rate
10% change in mortality
135
(125)
50
(47)
185
(172)
1,107
(670)
(1,009)
752
–
–
–
–
139
(195)
(48)
(24)
(94)
209
53
27
1,246
(865)
(1,103)
961
(48)
(24)
53
27
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
277
Augmented Version
Provisions are also set up for the obligations, mainly of U.S. subsidiaries, to provide post-employment
benefits in the form of health care cost payments for retirees. The valuation of health care costs was based
on the assumption that they will increase at a rate of 6.5% (2016: 6.8%), which should gradually decline to
5.0% by 2023 (assumption in 2016: gradually decline to 5.0% by 2023). The following table shows the
impact on other post-employment benefit obligations and total benefit expense of a one-percentage-point
change in the assumed cost increase rates:
Sensitivity to Health Care Cost Increases
€ million
Impact on other post-employment benefit obligations
Impact on benefit expense
B 25/11
Increase of one
percentage point
2016
2017
77
4
55
3
Decrease of one
percentage point
2016
(66)
(3)
2017
(47)
(3)
Payments made and expected future payments
The following payments or asset contributions correspond to the employer contributions made or expected
to be made to funded benefit plans:
Employer Contributions Paid or Expected
€ million
Pension obligations
Other post-employment benefit obligations
Total
Germany
2018
expected
42
–
42
2017
593
–
593
2016
151
1
152
2016
878
–
878
B 25/12
Other countries
2017
146
(21)
125
2018
expected
104
1
105
Bayer has currently committed to make deficit contributions for its U.K. pension plans of approximately
GBP 16 million annually through 2019. For its U.S. pension plans, Bayer made payments of US$50 million
in 2017 and expects to make payments of US$50 million in 2018, the latter amount being subject to
change depending on future circumstances.
Pensions and other post-employment benefits payable in the future from funded and unfunded plans are
estimated as follows:
B 25/13
Future Benefit Payments
Payments out of plan assets
Payments by the company
€ million
Germany
Other post-
employment
benefits
Pensions
Other
countries
Other
countries
Other post-
employment
benefits
Pensions
Other
countries
Other
countries
Total
Germany
2018
2019
2020
2021
2022
203
205
208
211
216
247
247
251
259
261
22
23
23
24
25
472
475
482
494
502
434
439
443
449
454
69
66
70
77
78
14
16
17
18
18
Total
517
521
530
544
550
2023-2027
1,135
1,363
128
2,626
2,311
415
110
2,836
The weighted average term of the pension obligations is 17.0 years (2016: 18.0 years) in Germany and
13.8 years (2016: 13.3 years) in other countries. The weighted average term of the obligations for other
post-employment benefits in other countries is 11.5 years (2016: 11.5 years).
278
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
26. Other provisions
Changes in the various provision categories in 2017 were as follows:
Changes in Other Provisions
€ million
December 31, 2016
Divestments /
changes in the scope
of consolidation
Additions
Utilization
Reversal
Reclassification to
current liabilities
Interest cost
Exchange
differences
December 31, 2017
Environ-
mental
protec-
tion
Restruc-
turing
Trade-
related
commit-
ments Litigations
Personnel
commit-
ments
Miscella-
neous
321
276
2,375
512
3,290
386
Other
Taxes
41
(6)
19
(18)
(5)
–
–
(2)
29
(44)
34
(32)
(14)
–
(2)
(20)
243
(56)
103
(101)
(37)
–
–
(14)
171
(88)
5,440
(4,423)
(567)
(11)
–
(245)
2,481
(7)
172
(199)
(47)
–
–
(38)
393
(552)
2,706
(2,720)
(589)
(2)
7
(102)
2,038
(25)
332
(255)
(61)
–
–
(22)
355
B 26/1
Total
7,201
(778)
8,806
(7,748)
(1,320)
(13)
5
(443)
5,710
The provisions recognized in the statement of financial position as of December 31, 2017, were expected
to be utilized as follows:
Expected Utilization of Other Provisions
€ million
2018
2019
2020
2021
2022
2023 or later
Total
Environ-
mental
protec-
tion
Restruc-
turing
Trade-
related
commit-
ments Litigations
69
13
8
7
2
144
243
109
29
11
6
4
12
171
2,313
147
9
2
2
8
2,481
258
65
2
3
6
59
393
Personnel
commit-
ments
Miscella-
neous
1,334
249
59
187
159
40
259
2,038
3
2
1
5
95
355
Other
Taxes
12
–
–
–
–
17
29
B 26/2
Total
4,344
316
219
178
59
594
5,710
The provisions were partly offset by claims for refunds in the amount of €74 million (2016: €110 million),
which were recognized as receivables. These claims predominantly related to product liability.
Restructuring
Provisions for restructuring included €116 million (2016: €179 million) for severance payments and €55
million (2016: €97 million) for other restructuring expenses, which mainly comprised other costs related to
the closure of production facilities.
In the Pharmaceuticals segment, restructuring took place mainly in the areas of marketing and supply
network optimization as part of the Continuous Efficiency Program. In 2017, further use was made of the
restructuring provisions established for this program in previous years, primarily in Japan, France and the
United States. Provisions for the above and other restructuring measures in Pharmaceuticals as of Decem-
ber 31, 2017, totaled €45 million. Of this amount, severance payments accounted for €44 million and other
restructuring expenses for €1 million.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
279
Augmented Version
In the Consumer Health segment, restructuring took place mainly in France, Germany and Italy. The re-
structuring measures in France and in Italy related to distribution, and in Germany to the discontinuation of
contract manufacturing of medical products for third parties. Provisions for restructuring in this segment
totaled €33 million as of December 31, 2017, with severance payments accounting for the entire amount.
In the Crop Science segment, provisions were established for the planned restructuring of the site in Insti-
tute, West Virginia, United States, to prepare for the termination of thiodicarb production. The restructuring
measures initiated in connection with the “Advancing our Leadership Strategy” program to improve cus-
tomer centricity, innovation and efficiency continued to be implemented. Restructuring provisions for the
above and other measures at Crop Science as of December 31, 2017, totaled €73 million. Of this amount,
severance payments accounted for €21 million and other restructuring expenses for €52 million.
Provisions for restructuring in the Animal Health segment as of December 31, 2017, totaled €6 million. Of
this amount, severance payments accounted for €5 million and other restructuring expenses for €1 million.
In “All Other Segments,” provisions were established for the relocation of a shared service center in China
from Shanghai to Dalian. In addition, the provisions established in past years were utilized to implement
planned restructuring measures to enhance efficiency. The restructuring provisions totaled €14 million as of
December 31, 2017. Of this amount, severance payments accounted for €13 million and other restructur-
ing expenses for €1 million.
Litigations
The legal risks currently considered to be material, and their development, are described in Note [32].
Personnel commitments
Stock-based compensation programs
Bayer offers stock-based compensation programs collectively to different groups of employees. As re-
quired by IFRS 2 (Share-based Payment) for compensation systems involving cash settlement, awards to
be made under the stock-based programs are covered by provisions in the amount of the fair value of the
obligations existing as of the date of the financial statements vis-à-vis the respective employee group. All
resulting valuation adjustments are recognized in profit or loss.
The following table shows the changes in provisions for the various programs:
Changes in Provisions for Stock-Based Compensation Programs
€ million
Aspire I
Aspire II Aspire 2.0
Aspire I
Covestro
Aspire II
Covestro
Covestro
Prisma
December 31, 2016
Acquisitions / divestments
Additions
Utilization
Reversal
Exchange differences
December 31, 2017
61
–
54
(51)
(56)
(2)
6
203
–
163
(157)
(167)
(7)
35
85
–
292
–
(98)
(16)
263
17
(7)
2
(8)
(3)
(1)
–
48
(22)
5
(27)
(3)
(1)
–
15
(27)
15
–
(1)
(2)
–
B 26/3
Total
429
(56)
531
(243)
(328)
(29)
304
280
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The value of the Aspire tranches that were fully earned at the end of 2017, resulting in payments at the
beginning of 2018, was €34 million (2016: €241 million).
The net expense for all stock-based compensation programs (excluding Covestro) was €194 million (2016:
€87 million), including €5 million (2016: €5 million) for the BayShare stock participation program and ex-
pense of €1 million (2016: €1 million income) for grants of virtual Bayer shares.
The fair value of the obligations under the Aspire I, Aspire II and Aspire 2.0 programs (excluding Aspire
programs for Covestro) was calculated using the Monte Carlo simulation method based on the following
key parameters:
Parameters for Monte Carlo Simulation
Dividend yield
Risk-free interest rate
Volatility of Bayer stock
Volatility of EURO STOXX 50
Correlation between Bayer stock price and the EURO STOXX 50
B 26/4
2017
2.46%
(0.35)%
15.49%
9.27%
0.71
2016
2.90%
(0.67)%
22.78%
11.66%
0.67
Long-term incentive program for members of the Board of Management and other
senior executives (Aspire I)
From 2005 through 2015, members of the Board of Management and other senior executives were entitled
to participate in Aspire I on the condition that they purchased a certain number of Bayer shares – deter-
mined for each individual according to specific guidelines – and retained them for the full term of the pro-
gram. A percentage of the executive’s annual base salary – according to his or her position – was defined
as a target for variable payments (Aspire target opportunity). Depending on the performance of Bayer
stock, both in absolute terms and relative to the EURO STOXX 50 index over a four-year performance
period, participants receive a payment of up to 300% of their individual Aspire target opportunity at the
end of the period. The prices used to determine the amount of the payment are the averages of the official
closing prices of Bayer shares over the last 30 stock-exchange trading days of the respective year. At the
start of 2017, a payment of 270% was made for the tranche issued in 2013. A payment of 20% was made
at the start of 2018 for the tranche issued in 2014.
Long-term incentive program for middle management (Aspire II)
From 2005 through 2015, other senior managers were offered Aspire II, which was similar to Aspire I but
did not require a personal investment in Bayer shares. The amount of the payment is based entirely on the
absolute performance of Bayer stock over a four-year period. The maximum payment is 250% of each
manager’s Aspire target opportunity. The prices used to determine the amount of the payment are the
averages of the official closing prices of Bayer shares over the last 30 stock-exchange trading days of the
respective year. At the start of 2017, a payment of 220% was made for the tranche issued in 2013. A
payment of 40% was made at the start of 2018 for the tranche issued in 2014.
Long-term incentive program Aspire 2.0
Since 2016, Aspire has been offered to all eligible employees in a new, standardized format named Aspire
2.0. For the Board of Management, there is an additional hurdle in the form of a comparison between the
performance of Bayer stock and that of the EURO STOXX 50. Each tranche runs for four years. Aspire 2.0
is also based on a percentage of each employee’s annual base salary, the percentage varying according to
his or her position. This target value is multiplied by the employee’s STI payment factor for the previous
year to give the Aspire grant value. The STI payment factor reflects the employee’s individual performance
and the business performance under the global short-term incentive program (STI). The Aspire grant value
is converted into virtual Bayer shares by dividing it by the share price at the start of the program. The pro-
gram’s performance is based on these virtual shares. The fair value of the obligations is determined from
the price of Bayer stock at year end and the dividends paid up to that time. The payment made at the end
of each tranche is determined by multiplying the number of virtual shares by the Bayer share price at that
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
281
Augmented Version
time and adding an amount equivalent to the dividends paid during the period of the tranche. The maxi-
mum payment for Aspire 2.0 is 250% of the Aspire grant value.
BayShare 2017
All management levels and nonmanagerial employees are offered an annual stock participation program
known as BayShare, under which Bayer subsidizes their personal investments in the company’s stock. The
discount under this program in 2017 was 20% (2016: 20%) of the subscription amount. Employees stated
a fixed amount that they wished to invest in shares. The maximum subscription amount in Germany was
set at €2,500 (2016: €2,500) or €5,000 (2016: €5,000), depending on the employee’s position. These
shares must be retained until December 31, 2018.
In 2017, employees purchased a total of about 229,000 shares (2016: 259,000 shares) under the Bay-
Share program.
27. Financial liabilities
Financial liabilities were comprised as follows:
Financial Liabilities
€ million
Bonds and notes / promissory notes
Liabilities to banks
Liabilities under finance leases
Liabilities from derivatives
Other financial liabilities
Total
B 27/1
Dec. 31, 2016
Dec. 31, 2017
Total
15,991
1,837
436
587
730
Of which
current
Total
Of which
current
2,010
12,436
820
59
309
203
534
238
240
970
505
513
32
221
664
19,581
3,401
14,418
1,935
The development of financial liabilities in 2017 is outlined in Note [35].
A breakdown of financial liabilities by contractual maturity is given below:
Maturities of Financial Liabilities
€ million
2017
2018
2019
2020
2021
2022 or later
Total
Dec. 31, 2016
€ million
Dec. 31, 2017
B 27/2
3,401
3,241
2,456
44
2,714
7,725
2018
2019
2020
2021
2022
2023 or later
19,581
Total
1,935
2,155
1,248
2,096
89
6,895
14,418
282
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
In addition to promissory notes in the amount of €45 million (2016: €45 million), the Bayer Group has
issued the following bonds and notes:
Bonds and Notes
Effective
interest rate
Stated rate
1.253%
5.774%
5.541%
0.050%
2.086%
3.811%
2.517%
3.093%
1.333%
6.061%
Bayer AG, Germany
1.125% DIP bond 2014 / 20183
5.625% DIP bond 2006 / 2018
5.625% DIP bond 2006 / 2018 (increase)
0.050% Exchangeable bond
4 2017 / 2020
1.875% DIP bond 2014 / 2021
3.750% Hybrid bond 2014 / 2024
5
/ 2074
2.375% Hybrid bond 2015 / 2022
5
/ 2075
3.000% Hybrid bond 2014 / 2020
5
/ 2075
Bayer Capital Corporation B.V., Netherlands
1.250% DIP bond 2014 / 2023
5.625% Mandatory convertible notes
6 2016 / 2019
Bayer Corporation, U.S.A.
6.670%
6.650% Notes 1998 / 2028
Bayer Holding Ltd., Japan
0.858%
1.493%
3.654%
0.629%
0.270%
0.301%
0.816% DIP bond 2012 / 2017
1.459% DIP bond 2010 / 2017
3.575% DIP bond 2008 / 2018
0.594% DIP bond 2013 / 2019
0.230% DIP bond 2017 / 2021
0.260% DIP bond 2017 / 2022
Floating
1
Floating
1 DIP bond 2014 / 2017
Bayer Nordic SE, Finland
Bayer U.S. Finance LLC, U.S.A.
Floating
2
1.615%
2.564%
3.096%
3.579%
Floating
1.076%
1.782%
Floating
2 Notes 2014 / 2017
1.500% Notes 2014 / 2017
2.375% Notes 2014 / 2019
3.000% Notes 2014 / 2021
3.375% Notes 2014 / 2024
Covestro AG, Germany
Floating DIP bond 2016 / 2018
1.000% DIP bond 2016 / 2021
1.750% DIP bond 2016 / 2024
Total
1 Floating-rate coupon comprising three-month EURIBOR plus 22 basis points
2 Floating-rate coupon comprising three-month USD-LIBOR plus 28 basis points
3 Bond was early redeemed in October 2017
4 Bond can be redeemed in cash, Covestro shares or a combinaton thereof
5 Date of first option to early redeem the bond at par
6 The mandatory convertible notes were allocated to capital reserves and to other financial liabilities.
B 27/3
Nominal volume
Dec. 31, 2016
€ million
Dec. 31, 2017
€ million
EUR 750 million
GBP 250 million
GBP 100 million
EUR 1,000 million
EUR 750 million
EUR 1,500 million
EUR 1,300 million
EUR 1,750 million
EUR 500 million
EUR 4,000 million
US$ 350 million
JPY 30 billion
JPY 10 billion
JPY 15 billion
JPY 10 billion
JPY 10 billion
JPY 10 billion
EUR 500 million
US$ 400 million
US$ 850 million
US$ 2,000 million
US$ 1,500 million
US$ 1,750 million
EUR 500 million
EUR 500 million
EUR 500 million
749
292
117
–
755
1,494
1,290
1,745
497
–
351
243
81
122
81
–
–
500
379
806
1,889
1,419
1,642
500
497
497
–
281
113
1,220
753
1,495
1,292
1,746
498
–
307
–
–
111
74
74
74
–
–
–
1,662
1,247
1,444
–
–
–
15,946
12,391
Debt Issuance Programme
An important means of external financing are the bonds issued under the Debt Issuance Programme (DIP).
Bayer Holding Ltd., Japan, issued two JPY 10 billion bonds under the DIP in May 2017.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
283
Augmented Version
Hybrid bonds
The hybrid bonds issued by Bayer AG are subordinated, and 50% of their amount is treated by Moody’s
and S & P Global Ratings as equity. They therefore have a more limited effect on the Group’s rating-
relevant debt indicators than senior borrowings.
Mandatory convertible notes
On November 22, 2016, Bayer Capital Corporation B.V. placed subordinated mandatory convertible notes
in the amount of €4,000 million, which will be converted into no-par shares of Bayer AG at maturity. The
notes represented the first part of the equity component of the financing for the planned acquisition of
Monsanto. The mandatory convertible notes were recognized in capital reserves and other financial liabili-
ties.
Exchangeable bond
On June 14, 2017, Bayer AG issued bonds with a nominal value of €1,000 million which mature in 2020.
The issue price was 105.25 percent of the principal amount and the initial exchange price was fixed at
€80.93. These bonds can be settled in cash, by delivery of Covestro shares or by a combination thereof at
or prior to maturity. Applying the fair value option under IAS 39.11A, these debt instruments were desig-
nated as financial liabilities at fair value through profit or loss upon first-time recognition.
Bayer AG guarantees all the bonds issued by subsidiaries.
Lease liabilities
Lease payments totaling €365 million (2016: €609 million), including €127 million (2016: €173 million) in
interest, are to be made under finance leases to the respective lessors in future years.
The liabilities under finance leases mature as follows:
B 27/4
Lease Liabilities
€ million
Maturity
2017
2018
2019
2020
2021
2022 or later
Total
Lease
payments
Interest
component
88
76
68
59
57
261
609
29
24
21
17
15
67
173
Dec. 31, 2016
€ million
Dec. 31, 2017
Liabilities
under
finance
leases
59
52
47
42
42
194
436
Maturity
2018
2019
2020
2021
2022
2023 or later
Total
Lease
payments
Interest
component
Liabilities
under
finance
leases
49
44
39
31
25
177
365
17
13
12
11
10
64
127
32
31
27
20
15
113
238
284
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Other financial liabilities
Other financial liabilities as of December 31, 2017, comprised €525 million (2016: €652 million) relating to
the mandatory convertible notes issued in November 2016, and €292 million (2016: €0 million) in commer-
cial paper.
Other information
As of December 31, 2017, the Group had undrawn credit facilities at its disposal totaling €47 billion (2016:
€55 billion), including €43 billion, or US$52 billion (2016: €50 billion, or US$53 billion), in bridge financing
for the planned acquisition of Monsanto.
Further information on the accounting for liabilities from derivatives is given in Note [30].
28. Trade accounts payable
Trade accounts payable comprised €5,116 million (2016: €6,403 million) due within one year and €13 mil-
lion (2016: €7 million) due after one year. As a result of the deconsolidation of Covestro, trade accounts
payable decreased by €1,286 million.
29. Other liabilities
Other liabilities comprised:
Other Liabilities
€ million
Other tax liabilities
Deferred income
Liabilities to employees
Liabilities for social expenses
Accrued interest on liabilities
Miscellaneous liabilities
Total
B 29/1
Dec. 31, 2016
Dec. 31, 2017
Total
544
1,463
229
168
186
788
Of which
current
527
651
219
157
181
686
Total
420
1,156
181
138
149
724
Of which
current
418
195
164
130
139
606
3,378
2,421
2,768
1,652
Deferred income included an upfront payment, originally amounting to US$1 billion, in connection with the
strategic pharmaceutical collaboration agreed between Bayer and Merck & Co., Inc., United States, in the
field of soluble guanylate cyclase (sGC) modulation. This deferred income is being amortized over a period
of 13.5 years as the obligations are satisfied. At the end of 2017, the remaining amount of deferred income
was €601 million (2016: €660 million). In addition, a milestone achieved in 2017 in the course of the col-
laboration led to the recognition of €291 million in deferred income at year end.
Deferred income also included the proceeds from the sale of the Diabetes Care business at the beginning
of 2016. As at December 31, 2016, the amount deferred was €469 million. The original proceeds of
around €1 billion were accrued over a period of 24 months in line with the rendering of the services and
were fully realized by the end of 2017.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
285
Augmented Version
The deferred income included €48 million (2016: €62 million) in grants and subsidies received from gov-
ernments, of which €17 million (2016: €15 million) was reversed through profit or loss.
The miscellaneous liabilities included financing commitments of US$195 million (2016: US$255 million) for
the joint venture Casebia Therapeutics LLP, United Kingdom, established in December 2015 with CRISPR
Therapeutics AG, Switzerland, and a further financing commitment of US$70 million for the joint venture
Cooksonia Opco LLC, United States, established in September 2017 with Ginkgo Bioworks, Inc., United
States, which will operate in the area of the plant microbiome.
The miscellaneous liabilities included €321 million (2016: €271 million) from derivatives.
30. Financial instruments
The system used by the Bayer Group to manage credit risks, liquidity risks and the different types of mar-
ket price risk (interest-rate and currency risks), together with its objectives, methods and procedures, is
outlined in the Opportunity and Risk Report, which forms part of the Combined Management Report.
30.1 Financial instruments by category
The following table shows the carrying amounts and fair values of financial assets and liabilities for each
financial instrument category and a reconciliation to the corresponding line item in the statements of finan-
cial position. Since the line items “Other receivables,” “Trade accounts payable” and “Other liabilities” con-
tain both financial instruments and nonfinancial assets or liabilities (such as other tax receivables or ad-
vance payments for services to be received in the future), the reconciliation is shown in the column headed
“Nonfinancial assets / liabilities.”
286
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Carrying Amounts and Fair Values of Financial Instruments
Bayer Annual Report 2017
B 30.1/1
Dec.31, 2017
Carried at
amortized
cost
Carried at fair value
1]
[fair value for information
Nonfinancial
assets /
liabilities
Based on
quoted
prices in
active
markets
(Level 1)
Based on
observable
market data
(Level 2)
Based on
unobserv-
able inputs
(Level 3)
Carrying
amount
Carrying
amount
Carrying
amount
Carrying
amount
Carrying
amount
€ million
Trade accounts receivable
Loans and receivables
Other financial assets
Loans and receivables
Available-for-sale financial assets
Held-to-maturity financial assets
Derivatives that qualify for hedge accounting
Derivatives that do not qualify for hedge accounting
Other receivables
Loans and receivables
Available-for-sale financial assets
Nonfinancial assets
Cash and cash equivalents
Loans and receivables
Total financial assets
of which loans and receivables
Trade accounts payable
Carried at amortized cost
Nonfinancial liabilities
Other liabilities
Carried at amortized cost
Carried at fair value (non-derivative)
Derivatives that qualify for hedge accounting
Derivatives that do not qualify for hedge accounting
Nonfinancial liabilities
Total financial liabilities
of which carried at amortized cost
of which derivatives that qualify
for hedge accounting
of which derivatives that do not qualify
for hedge accounting
8,582
8,582
1,823
1,731
35
57
380
380
7,581
7,581
18,366
18,274
452
448
4
2,085
[1,731]
1,452
[58]
296
337
[380]
452
[7,581]
2,085
240
[2,183]
187
53
319
[681]
288
31
4,568
4,568
681
681
2
2
18,207
18,207
1,222
559
475
84
2
of which available-for-sale financial assets
35
448
1,452
Financial liabilities
Carried at amortized cost
Carried at fair value (non-derivative)
Derivatives that qualify for hedge accounting
Derivatives that do not qualify for hedge accounting
12,958
12,958
1,220
[11,327]
1,220
Carrying
amount
in the
statement
of financial
position
8,582
8,582
5,163
1,731
2,728
57
296
351
1,250
1,676
1,250
561
561
1,759
1,759
380
46
1,250
7,581
7,581
21,752
18,274
2,774
14,418
12,958
1,220
187
53
5,129
4,568
561
2,768
681
7
288
33
1,759
19,995
18,207
475
86
803
793
10
46
46
849
839
7
7
7
1 Fair value of the financial instruments carried at amortized cost; the exemption provisions under IFRS 7.29(a) were applied for information on specific fair values.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
287
Augmented Version
Carrying Amounts and Fair Values of Financial Instruments
B 30.1/2
Dec. 31, 2016
Carried at
amortized
cost
Carried at fair value [fair value for
1]
information
Nonfinancial
assets /
liabilities
Based on
quoted
prices in
active
markets
(Level 1)
Based on
observable
market data
(Level 2)
Based on
unobser-
vable inputs
(Level 3)
Carrying
amount
Carrying
amount
Carrying
amount
Carrying
amount
Carrying
amount
€ million
Trade accounts receivable
Loans and receivables
Other financial assets
Loans and receivables
Available-for-sale financial assets
Held-to-maturity financial assets
Derivatives that qualify for hedge accounting
Derivatives that do not qualify for hedge accounting
Other receivables
Loans and receivables
Available-for-sale financial assets
Nonfinancial assets
Cash and cash equivalents
Loans and receivables
Total financial assets
of which loans and receivables
of which available-for-sale financial assets
Financial liabilities
Carried at amortized cost
Carried at fair value (non-derivative)
Derivatives that qualify for hedge accounting
Derivatives that do not qualify for hedge accounting
Trade accounts payable
Carried at amortized cost
Nonfinancial liabilities
Other liabilities
Carried at amortized cost
Carried at fair value (nonderivative)
Derivatives that qualify for hedge accounting
Derivatives that do not qualify for hedge accounting
Nonfinancial liabilities
Total financial liabilities
of which carried at amortized cost
of which derivatives that qualify for hedge accounting
of which derivatives that do not qualify
for hedge accounting
10,969
10,969
2,245
2,148
32
65
633
633
1,899
1,899
15,746
15,649
32
18,994
18,994
6,035
6,035
840
840
25,869
25,869
523
520
3
3,985
[2,145]
3,283
[68]
269
433
[633]
523
[1,899]
3,985
803
[16]
794
9
57
57
860
520
3,283
851
[16,040]
2
2
2
2
587
[3,362]
312
275
252
[840]
165
87
839
477
362
25
8
17
25
17
Carrying
amount
in the
statement
of financial
position
10,969
10,969
7,556
2,148
4,629
65
269
445
2,103
2,793
2,103
375
375
2,259
2,259
633
57
2,103
1,899
1,899
21,114
15,649
4,686
19,581
18,994
–
312
275
6,410
6,035
375
3,378
840
8
165
106
2,259
26,735
25,869
477
381
1 Fair value of the financial instruments carried at amortized cost; the exemption provisions under IFRS 7.29(a) were applied for information on specific fair values.
288
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The loans and receivables reflected in other financial assets and the liabilities measured at amortized cost
also include receivables and liabilities under finance leases in which Bayer is the lessor or lessee and which
are therefore measured in accordance with IAS 17.
Due to the short maturities of most trade accounts receivable and payable, other receivables and liabilities,
and cash and cash equivalents, their carrying amounts at the closing date do not significantly differ from
the fair values.
The fair values of loans and receivables, held-to-maturity financial investments and of financial liabilities
carried at amortized cost that are given for information are the present values of the respective future cash
flows. The present values are determined by discounting the cash flows at a closing-date interest rate,
taking into account the term of the assets or liabilities and the creditworthiness of the counterparty. Where
a market price is available, however, this is deemed to be the fair value.
The fair values of available-for-sale financial assets correspond to quoted prices in active markets (Level 1),
are determined using valuation techniques based on observable market data as of the end of the reporting
period (Level 2) or are the present values of the respective future cash flows, determined on the basis of
unobservable inputs (Level 3).
The fair values of derivatives for which no publicly quoted prices exist in active markets (Level 1) are de-
termined using valuation techniques based on observable market data as of the end of the reporting period
(Level 2). In applying valuation techniques, credit value adjustments are determined to allow for the con-
tracting party’s credit risk.
Currency and commodity forward contracts are measured individually at their forward rates or forward
prices on the closing date. These depend on spot rates or prices, including time spreads. The fair values of
interest-rate hedging instruments and cross-currency interest-rate swaps were determined by discounting
future cash flows over the remaining terms of the instruments at market rates of interest, taking into ac-
count any foreign currency translation as of the closing date.
Fair values measured using unobservable inputs are categorized within Level 3 of the fair value hierarchy.
This applies to certain available-for-sale debt or equity instruments, in some cases to the fair values of
embedded derivatives, and to obligations for contingent consideration in business combinations. Credit
risk is frequently the principal unobservable input used to determine the fair values of debt instruments
classified as available-for-sale financial assets by the discounted cash flow method. Here the credit
spreads of comparable issuers are applied. A significant increase in credit risk could result in a lower fair
value, whereas a significant decrease could result in a higher fair value. However, a relative change of 10%
in the credit spread does not materially affect the fair value.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
289
Augmented Version
Embedded derivatives are separated from their respective host contracts. Such host contracts are general-
ly sale or purchase agreements relating to the operational business. The embedded derivatives cause the
cash flows from the contracts to vary with exchange-rate or price fluctuations. The internal measurement
of embedded derivatives is mainly performed using the discounted cash flow method, which is based on
unobservable inputs. These include planned sales and purchase volumes, and prices derived from market
data. Regular monitoring is carried out based on these fair values as part of quarterly reporting.
Within financial liabilities, the fair value option permitted by IAS 39.11A was used for the first time for the
debt instruments issued in June 2017 (exchangeable bond 2017/2020). On first-time recognition, the bond
was designated as a financial liability at fair value through profit or loss.
The changes in the amount of financial assets and liabilities recognized at fair value based on unobserva-
ble inputs (Level 3) for each financial instrument category were as follows:
Development of Financial Assets and Liabilities (Level 3)
2016
€ million
Carrying amounts of net assets /
(net liabilities), Jan. 1
Gains (losses) recognized
in profit or loss
of which related to assets / liabilities
recognized in the statements
of financial position
Gains (losses) recognized outside
profit or loss
Additions of assets / (liabilities)
Settlements of (assets) / liabilities
Disposals from divestments /
changes in scope of consolidation
Transfers to a different fair-value
hierarchy
Carrying amounts of net assets /
(net liabilities), Dec. 31
Available-
for-sale
financial
assets
Derivatives
(net)
Liabilities
measured
at fair
value (non-
derivative)
Available-
for-sale
financial
assets
Total
Derivatives
(net)
Liabilities
carried at
fair value
(non-
derivative)
833
18
18
9
46
(23)
–
(32)
9
(17)
(17)
–
–
–
–
–
(37)
23
805
851
24
15
–
–
–
6
–
–
1
9
46
(17)
–
(32)
15
(16)
6
(17)
–
–
851
(8)
(8)
835
839
(8)
21
21
–
–
–
(3)
–
10
(8)
–
–
–
–
1
–
–
(7)
842
The changes recognized in profit or loss were included in other operating income / expenses, in interest
income in the financial result, and in exchange gains / losses.
B 30.1/3
2017
Total
835
36
36
(16)
6
(16)
(3)
–
290
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Income, expense, gains and losses on financial instruments can be assigned to the following categories:
Income, Expense, Gains and Losses on Financial Instruments
€ million
Interest income
Interest expense
Income / expenses from affiliated
companies
Changes in fair value
Impairment losses
Impairment loss reversals
Exchange gains / losses
Gains / losses from retirements
Other financial income / expenses
Net result
Held-to-
maturity
financial
invest-
ments
Available
for-sale
financial
assets
Liabilities
carried at
amortized
cost
Liabilities
carried at
fair value
(non-
derivative)
Held for
trading
Loans and
receivables
61
–
–
–
(139)
23
(733)
–
(14)
(802)
–
–
–
–
–
–
–
–
–
–
37
–
2
–
(1)
5
–
5
(7)
41
–
(3)
–
17
–
–
(232)
–
–
(218)
78
(628)
–
–
–
–
620
–
–
70
–
–
–
(172)
–
–
–
–
–
(172)
(1,081)
B 30.1/4
2017
Total
176
(631)
2
(155)
(140)
28
(345)
5
(21)
Income, Expense, Gains and Losses on Financial Instruments (Previous Year)
Held-to-
maturity
financial
invest-
ments
Available-
for-sale
financial
assets
Liabilities
carried at
amortized
cost
Liabilities
carried at
fair value
(non-
derivative)
Held for
trading
Loans and
receivables
42
–
–
–
(163)
23
348
–
–
250
–
–
–
–
–
–
–
–
–
–
21
–
–
–
(2)
–
–
6
–
2
(3)
–
(71)
–
–
(55)
–
–
25
(127)
62
(597)
–
–
–
–
(329)
–
(34)
(898)
–
–
–
–
–
–
–
–
–
–
€ million
Interest income
Interest expense
Income / expenses
from affiliated companies
Changes in fair value
Impairment losses
Impairment loss reversals
Exchange gains / losses
Gains / losses from retirements
Other financial income / expenses
Net result
2016 figures restated
B 30.1/5
2016
Total
127
(600)
–
(71)
(165)
23
(36)
6
(34)
(750)
The interest expense of €628 million (2016: €597 million) from non-derivative financial liabilities also
included the income and expense from interest-rate swaps that qualified for hedge accounting. Interest
income from financial assets not measured at fair value through profit or loss amounted to €98 million
(2016: €63 million). Interest income from interest-rate derivatives that qualified for hedge accounting was
€78 million (2016: €62 million). The changes in fair values of financial assets held for trading related
mainly to forward commodity contracts and embedded derivatives.
The changes of minus €172 million in the fair value of (nonderivative) liabilities measured at fair value
contain fair value adjustments pertaining to debt instruments (exchangeable bond 2017/2020) issued in
June 2017. The changes in fair value relating to credit risks were not material.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
291
Augmented Version
Derivatives that form part of a master netting arrangement, constitute a financial asset or liability and can
only be netted in the event of breach of contract by, or insolvency of, one of the contracting parties do not
satisfy, or only partially satisfy, the criteria for offsetting in the statement of financial position according to
IAS 32. The volume of such derivatives with positive fair values was €654 million (2016: €630 million), and
the volume with negative fair values was €520 million (2016: €762 million). Included here is an amount of
€312 million (2016: €362 million) in positive and negative fair values of derivatives concluded with the same
contracting party.
30.2 Maturity analysis
The liquidity risks to which the Bayer Group was exposed from its financial instruments at the end of the
reporting period comprised obligations for future interest and repayment installments on financial liabilities
and the liquidity risk arising from derivatives.
There were also loan commitments under an as yet unpaid €1,005 million (2016: €1,005 million) portion of
the effective initial fund of Bayer-Pensionskasse VVaG, which may result in further payments by Bayer AG
in subsequent years.
Maturity Analysis of Financial Instruments
€ million
Financial liabilities
2018
2019
2020
2021
2022
B 30.2/1
after
2022
Interest and repayment
Dec. 31,
2017
Carrying
amount
Bonds and notes / promissory notes
Liabilities to banks
Remaining liabilities
12,436
534
1,208
719
527
716
2,096
1,487
2,288
236
7,125
20
359
–
40
–
32
–
26
–
177
Trade accounts payable
4,568
4,555
11
Other liabilities
Accrued interest on liabilities
Remaining liabilities
Liabilities from derivatives
149
539
140
455
Derivatives that qualify for hedge accounting
475
443
Derivatives that do not qualify
for hedge accounting
Receivables from derivatives
Derivatives that qualify for hedge accounting
Derivatives that do not qualify
for hedge accounting
Loan commitments
Financial guarantees
86
88
296
351
144
331
–
–
1,005
12
2
1
3
–
2
1
66
34
1
62
17
4
–
–
1
–
–
–
1
2
6
–
2
1
–
–
–
1
2
–
–
–
–
–
–
–
5
11
–
–
–
–
–
–
292
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Maturity Analysis of Financial Instruments
€ million
Financial liabilities
2017
2018
2019
2020
2021
B 30.2/2
after
2021
Interest and repayment
Dec. 31,
2016
Carrying
amount
Bonds and notes / promissory notes
15,991
2,261
2,160
2,367
295
2,916
8,093
Liabilities to banks
Remaining liabilities
1,837
1,166
884
293
998
303
39
382
–
61
–
58
9
268
Trade accounts payable
6,035
6,028
Other liabilities
Accrued interest on liabilities
Remaining liabilities
Liabilities from derivatives
186
662
181
626
4
1
3
2
1
5
Derivatives that qualify for hedge accounting
477
178
231
157
Derivatives that do not qualify
for hedge accounting
Receivables from derivatives
381
374
3
Derivatives that qualify for hedge accounting
269
210
23
Derivatives that do not qualify
for hedge accounting
Loan commitments
Financial guarantees
445
467
–
–
1,213
14
2
–
–
4
4
2
–
–
1
1
2
2
2
3
1
–
–
–
–
1
–
1
2
1
–
–
–
2
25
–
1
–
1
–
3
30.3 Information on derivatives
Asset and liability fair values and future cash flows are exposed to currency, interest-rate and commodity
price risks. Derivatives are used to reduce this risk. In some cases they are designated as hedging instru-
ments in a hedge accounting relationship.
Currency risks
Foreign currency receivables and liabilities are hedged using foreign exchange derivatives without the ex-
istence of a hedge accounting relationship. A bond of Bayer AG denominated in British pounds was
swapped on the issuance date into a fixed-rate euro bond by means of a cross-currency interest-rate
swap, which was designated as a cash flow hedge. Cross-currency interest-rate swaps used to hedge
intra-Group loans were also designated as cash flow hedges.
Fluctuations in future cash flows resulting from forecasted foreign currency transactions and procurement
activities are avoided partly through derivatives contracts, most of which are designated as cash flow
hedges.
Foreign currency risks related to the planned acquisition of Monsanto Company were partially hedged with
currency derivatives, which were designated as cash flow hedges.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
293
Augmented Version
Interest-rate risk
The interest-rate risks from fixed-interest borrowings are managed in part using interest-rate swaps.
Two interest-rate swaps in the total amount of €200 million were designated as fair value hedges for the
€750 million DIP bond issued in 2014 and maturing in 2021.
Losses of €3 million were recorded on fair-value hedging instruments in 2017 (2016: €1 million). Gains of
€4 million were recorded on the underlying hedged items (2016: €1 million).
Interest-rate risks relating to the planned acquisition of Monsanto were partly hedged using interest-rate
derivatives. These were designated as cash flow hedges.
Commodity price risks
Hedging contracts are also used to partly reduce exposure to fluctuations in future cash outflows and
inflows resulting from price changes on procurement and selling markets.
Hedging of obligations under stock-based employee compensation programs
A portion of the obligations to make variable payments to employees under stock-based compensation
programs (Aspire) is hedged against share price fluctuations using derivatives contracts that are settled in
cash at maturity. These derivatives are designated as cash flow hedges.
Further information on cash flow hedges
Other comprehensive income from cash flow hedges declined in 2017 by €89 million (2016: increased by
€44 million) due to changes in the fair values of derivatives net of tax. Total changes of €3 million in the fair
values of derivatives were expensed in 2017 (2016: €3 million). The respective pro-rated deferred tax in-
come of €2 million (2016: €2 million) was likewise recognized through profit or loss.
No material ineffective portions of hedges required recognition through profit or loss in 2017 or 2016.
The income and expense from cash flow hedges recognized in other comprehensive income as at Decem-
ber 31, 2017, mainly comprised gains of €177 million (2016: €204 million) and losses of €289 million
(2016: €143 million) from the hedging of forecasted transactions in foreign currencies and the planned
acquisition of Monsanto Company. Of these gains and losses, a net amount of €102 million (2016: minus
€91 million) will be re-classifiable to profit or loss within one year, and a net amount of minus €17 million
(2016: €2 million) in subsequent years.
294
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The fair values of existing contracts in the major categories at the end of the reporting period are indicated
in the following table together with the included volumes of hedges.
B 30.3/1
Dec. 31, 2016
Dec. 31, 2017
Notional
1
amount
Positive
fair value
Negative
fair value
Notional
1
amount
Positive
fair value
Negative
fair value
Fair Values of Derivatives
€ million
Currency hedging of recorded transactions
Forward exchange contracts
Cross-currency interest-rate swaps
of which cash flow hedges
22,645
20,454
2,191
2,146
Currency hedging of forecasted transactions
17,799
Forward exchange contracts
of which cash flow hedges
Currency options
of which cash flow hedges
Interest-rate hedging of recorded
transactions
Interest-rate swaps
of which fair value hedges
Interest-rate hedging of forecasted
transactions
Interest-rate swaps
of which cash flow hedges
Commodity price hedging
Forward commodity contracts
Commodity option contracts
Hedging of stock-based employee
compensation programs
Share price options
of which cash flow hedges
Forward share transactions
of which cash flow hedges
Total
of which current derivatives
for currency hedging
for interest-rate hedging
2
for raw material price hedging
for hedging of stock-based employee
compensation programs
3,805
3,672
13,994
13,698
200
200
200
–
–
–
–
168
167
1
532
152
152
380
380
41,344
38,349
38,111
–
168
70
299
296
3
3
317
48
43
269
161
14
14
14
–
–
–
–
5
4
1
48
48
48
–
–
683
635
597
3
5
30
(587)
(273)
(314)
(312)
(206)
(145)
(138)
(61)
(5)
–
–
–
–
–
–
–
(4)
(4)
–
(22)
–
–
(22)
(22)
(819)
(514)
(510)
–
(4)
–
12,321
10,399
1,922
1,880
9,475
9,292
9,205
183
183
200
200
200
9,086
9,086
9,086
–
420
414
6
544
75
75
469
469
32,046
30,259
20,678
9,086
420
75
233
144
89
87
116
105
103
11
11
11
11
11
64
64
64
–
6
6
–
20
5
5
15
15
450
317
242
64
6
5
(240)
(53)
(187)
(187)
(194)
(194)
(192)
–
–
–
–
–
(81)
(81)
(81)
–
(3)
(3)
–
(15)
–
–
(15)
(15)
(533)
(499)
(415)
(81)
(3)
–
1 The notional amount is reported as gross volume, which also contains economically closed hedges.
2 The portion of the fair value of long-term interest-rate swaps that relates to current interest payments was classified as current.
Other information
In connection with the sale of Covestro AG shares in 2017, Bayer AG entered into derivative contracts.
These resulted in Bayer AG retaining economic exposure to the price of Covestro AG shares. As at the end
of the year, Bayer AG continued to hold derivatives on the Covestro AG shares with a notional amount of
€752 million, and had generated a gain of €50 million from these derivatives. The derivatives had a fair
value of €150 million as of December 31, 2017, that was also recognized in profit and loss.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
295
Augmented Version
31. Contingent liabilities and other financial commitments
Contingent liabilities
The following warranty contracts, guarantees and other contingent liabilities existed at the end of the re-
porting period:
Contingent Liabilities
€ million
Warranties
Guarantees
Other contingent liabilities
Total
B 31/1
Dec. 31, 2016 Dec. 31, 2017
100
264
444
808
88
148
614
850
The guarantees mainly comprise a declaration issued by Bayer AG to the trustees of the U.K. pension
plans guaranteeing the pension obligations of Bayer Public Limited Company and Bayer CropScience
Limited. Under the declaration, Bayer AG – in addition to the two companies – undertakes to make further
payments into the plans upon receipt of a payment request from the trustees. The net liability with respect
to these defined benefit plans as of December 31, 2017, declined to €148 million (2016: €264 million).
Other financial commitments
The other financial commitments were as follows:
Other Financial Commitments
€ million
Operating leases
Commitments under purchase agreements for property, plant and equipment
Contractual obligation to acquire intangible assets
Capital contribution commitments
B 31/2
Dec. 31, 2016 Dec. 31, 2017
1,101
479
243
182
801
493
83
149
Binding acquisition agreement with Monsanto Company, St. Louis, Missouri, U.S.A.
1
53,000
47,000
Unpaid portion of the effective initial fund
Potential payment obligations under R&D collaboration agreements
Revenue-based milestone payment commitments
Total
1,213
2,444
1,839
1,005
2,349
1,923
60,501
53,803
1 The contingent financial commitment of approximately US$56 billion was translated at the closing rate and rounded.
On September 14, 2016, Bayer signed a definitive merger agreement with Monsanto Company, St. Louis,
Missouri, United States, which provides for Bayer’s acquisition of all outstanding shares in Monsanto
Company against a cash payment of US$128 per share. Bayer thus has a contingent financial commitment
in the amount of approximately US$56 billion to acquire Monsanto’s entire outstanding capital stock. Fur-
ther details of this planned acquisition are given in Note [6.2].
Financial commitments resulting from orders already placed under purchase agreements related to planned
or ongoing capital expenditure projects totaled €493 million (2016: €479 million), while contractual obliga-
tions to acquire intangible assets totaled €83 million (2016: €243 million).
296
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
The nondiscounted future minimum lease payments relating to operating leases totaled €801 million (2016:
€1,101 million). The decline is largely due to the deconsolidation of Covestro. The maturities of the respec-
tive payment obligations were as follows:
Operating Leases
Maturing in
2017
2018
2019
2020
2021
2022 or later
Total
Dec. 31, 2016
Maturing in
€ million
237
192
161
138
102
271
2018
2019
2020
2021
2022
2023 or later
1,101
Total
B 31/3
Dec. 31, 2017
€ million
166
143
124
93
73
202
801
The Bayer Group has entered into cooperation agreements with third parties under which it has agreed to
fund various research and development projects or has assumed other payment obligations based on the
achievement of certain milestones or other specific conditions. If all of these payments have to be made,
their maturity distribution as of December 31, 2017, was expected to be as set forth in the following table.
The amounts shown represent the maximum payments to be made, and it is unlikely that they will all fall
due. Since the achievement of the conditions for payment is highly uncertain, both the amounts and the
dates of the actual payments may vary considerably from those stated in the table.
Potential Payment Obligations Under R&D Collaboration Agreements
Maturing in
Dec. 31, 2016
Maturing in
2017
2018
2019
2020
2021
2022 or later
Total
€ million
233
151
333
66
28
2018
2019
2020
2021
2022
1,633
2023 or later
2,444
Total
B 31/4
Dec. 31, 2017
€ million
157
510
143
143
54
1,342
2,349
In addition to the above commitments, there were also revenue-based milestone payment commitments
totaling €1,923 million (2016: €1,839 million), of which €1,764 million (2016: €1,834 million) was not ex-
pected to fall due until 2023 (2016: 2022) or later. These commitments are also highly uncertain.
32. Legal risks
As a global company with a diverse business portfolio, the Bayer Group is exposed to numerous legal
risks, particularly in the areas of product liability, competition and antitrust law, anticorruption, patent dis-
putes, tax assessments and environmental matters. The outcome of any current or future proceedings
cannot normally be predicted. It is therefore possible that legal or regulatory judgments or future settle-
ments could give rise to expenses that are not covered, or not fully covered, by insurers’ compensation
payments and could significantly affect our revenues and earnings.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
297
Augmented Version
Legal proceedings currently considered to involve material risks are outlined below. The legal proceedings
referred to do not represent an exhaustive list.
Product-related litigation
Mirena™: As of January 30, 2018, lawsuits from approximately 2,900 users of Mirena™, a levonorgestrel-
releasing intrauterine system providing long-term contraception, had been served upon Bayer in the United
States (excluding lawsuits no longer pending). Plaintiffs allege personal injuries resulting from the use of
Mirena™, including perforation of the uterus, ectopic pregnancy or idiopathic intracranial hypertension, and
seek compensatory and punitive damages. Plaintiffs claim, inter alia, that Mirena™ is defective and that
Bayer knew or should have known of the risks associated with it and failed to adequately warn its users.
Additional lawsuits are anticipated. In April 2017, most of the cases pending in U.S. federal courts in which
plaintiffs allege idiopathic intracranial hypertension were consolidated in a multidistrict litigation (“MDL”)
proceeding for common pre-trial management. As of January 30, 2018, lawsuits from approximately 400
users of Mirena™ alleging idiopathic intracranial hypertension had been served upon Bayer in the United
States. Another MDL proceeding concerning perforation cases has, in the meantime, been dismissed. The
Second Circuit Court of Appeals affirmed the perforation MDL district court’s summary judgment order of
2016 dismissing approximately 1,230 cases pending before that court. In August 2017, Bayer reached an
agreement in principle with plaintiffs’ counsel leadership for global settlement of the perforation litigation,
for a total amount of US$12.2 million. As of January 30, 2018, a total of approximately 4,000 cases would
be included in the settlement. The idiopathic intracranial hypertension MDL proceeding is not included in
the settlement.
As of January 30, 2018, five Canadian lawsuits relating to Mirena™ seeking class action certification had
been served upon Bayer. Bayer believes it has meritorious defenses and intends to defend itself vigorously.
Xarelto™: As of January 30, 2018, U.S. lawsuits from approximately 22,000 recipients of Xarelto™, an oral
anticoagulant for the treatment and prevention of blood clots, had been served upon Bayer. Plaintiffs allege
personal injuries from the use of Xarelto™, including cerebral, gastrointestinal or other bleeding and death,
and seek compensatory and punitive damages. They claim, amongst other things, that Xarelto™ is defec-
tive and that Bayer knew or should have known of these risks associated with the use of Xarelto™ and
failed to adequately warn its users. Additional lawsuits are anticipated. Cases pending in U.S. federal
courts have been consolidated in an MDL for common pre-trial management. In May, June and August
2017, the first three MDL trials resulted in complete defense verdicts; plaintiffs have appealed all three
verdicts. In January 2018, after the first trial to proceed in Pennsylvania state court had initially resulted in a
judgment in favor of the plaintiff, the trial judge vacated the jury’s verdict and granted judgment in favor of
Bayer. Further Pennsylvania state court trials are currently scheduled for the first and second quarters of
2018. Bayer anticipates that additional trials will be scheduled.
As of January 30, 2018, ten Canadian lawsuits relating to Xarelto™ seeking class action certification had
been served upon Bayer. Bayer believes it has meritorious defenses and intends to defend itself vigorously.
298
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Essure™: As of January 30, 2018, U.S. lawsuits from approximately 16,100 users of Essure™, a medical
device offering permanent birth control with a nonsurgical procedure, had been served upon Bayer. Plain-
tiffs allege personal injuries from the use of Essure™, including hysterectomy, perforation, pain, bleeding,
weight gain, nickel sensitivity, depression and unwanted pregnancy, and seek compensatory and punitive
damages. Additional lawsuits are anticipated.
As of January 30, 2018, two Canadian lawsuits relating to Essure™ seeking class action certification had
been served upon Bayer. Bayer believes it has meritorious defenses and intends to defend itself vigorously.
Class actions over neonicotinoids in Canada: Proposed class actions against Bayer were filed in Quebec
and Ontario (Canada) concerning crop protection products containing the active substances imidacloprid
and clothianidin (neonicotinoids). Plaintiffs are honey producers, who have filed a proposed nationwide
class action in Ontario and a Quebec-only class action in Quebec. Plaintiffs claim for damages and punitive
damages and allege Bayer and another crop protection company were negligent in the design, develop-
ment, marketing and sale of neonicotinoid pesticides. The proposed Ontario class action is in a very early
procedural phase. In Quebec, the plaintiff sought authorization (certification) of a class for which a motion
was heard in November 2017. Bayer believes it has meritorious defenses and intends to defend itself
vigorously.
In connection with the above-mentioned proceedings, Bayer is insured against statutory product liability
claims against Bayer to the extent customary in the respective industries and has, based on the infor-
mation currently available, taken appropriate accounting measures for anticipated defense costs. However,
the accounting measures relating to Essure™ claims exceed the available insurance coverage.
Patent disputes
Adempas™: In January 2018, Bayer filed patent infringement lawsuits in a U.S. federal court against Alem-
bic Pharmaceuticals Limited, Alembic Global Holding SA, Alembic Pharmaceuticals, Inc. and INC Re-
search, LLC (together “Alembic”), against MSN Laboratories Private Limited and MSN Pharmaceuticals Inc.
(together “MSN”) and against Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd.
(together “Teva”). In December 2017, Bayer had received notices of an Abbreviated New Drug Application
with a paragraph IV certification (“ANDA IV”) pursuant to which Alembic, MSN and Teva each seek approv-
al of a generic version of Bayer’s pulmonary hypertension drug Adempas™ in the United States.
Betaferon™ / Betaseron™: In 2010, Bayer filed a complaint against Biogen Idec MA Inc. in a U.S. federal
court seeking a declaration by the court that a patent issued to Biogen in 2009 is invalid and not infringed
by Bayer’s production and distribution of Betaseron™, Bayer’s drug product for the treatment of multiple
sclerosis. Biogen is alleging patent infringement by Bayer through Bayer’s production and distribution of
Betaseron™ and Extavia™ and has sued Bayer accordingly. Bayer manufactures Betaseron™ and distrib-
utes the product in the United States. Extavia™ is also a drug product for the treatment of multiple sclero-
sis; it is manufactured by Bayer, but distributed in the United States by Novartis Pharmaceuticals Corpora-
tion, another defendant in the lawsuit. In 2016, the U.S. federal court decided a disputed issue regarding
the scope of the patent in Biogen’s favor. Bayer disagrees with the decision, which may be appealed at the
conclusion of the proceedings in the U.S. federal court.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
299
Augmented Version
Damoctocog alfa pegol (BAY 94-9027, long-acting recombinant factor VIII): In August 2017, Bayer filed a
lawsuit in a U.S. federal court against Nektar Therapeutics (“Nektar”), Baxalta Incorporated and Baxalta
U.S., Inc. (together “Baxalta”) seeking a declaration by the court that a patent by Nektar is invalid and not
infringed by Bayer’s drug candidate BAY 94-9027 for the treatment of hemophilia A. In September 2017,
Baxalta and Nektar filed a complaint in a different U.S. federal court against Bayer alleging that BAY
94-9027 infringes seven other patents by Nektar. Regarding the complaint by Bayer, Nektar and Baxalta
gave Bayer a covenant not to make any claims against Bayer for infringement of that patent. Bayer
amended the complaint to now seek a declaration by the court that the seven other patents by Nektar are
not infringed by BAY 94-9027. The patents are part of a patent family registered in the name of Nektar and
further comprising European patent applications with the title “Polymer-factor VIII moiety conjugates”
which are at issue in a lawsuit Bayer filed against Nektar in 2013 in the district court of Munich, Germany.
In this proceeding, Bayer claims rights to the European patent applications based on a past collaboration
between Bayer and Nektar in the field of hemophilia. However, Bayer believes that the patent family does
not include any valid patent claim relevant for Bayer’s drug candidate BAY 94-9027 for the treatment of
hemophilia A.
Nexavar™: In 2015, Bayer filed patent infringement lawsuits in a U.S. federal court against Mylan Pharma-
ceuticals Inc. and Mylan Inc. (together “Mylan”). In 2014 and 2015, Bayer had received notices of an ANDA
IV application pursuant to which Mylan seeks approval of a generic version of Bayer’s cancer drug
Nexavar™ in the United States. In October 2017, Bayer reached agreement with Mylan to settle this patent
dispute. Under the settlement terms, Mylan will obtain a license to sell its generic version of NexavarTM in
the United States at a date after the expiration of the patent for the active ingredient expiring in January
2020. In 2016, Bayer had received another notice of such an ANDA IV application by Teva Pharmaceuti-
cals USA, Inc. Bayer filed a patent infringement lawsuit against Teva in the same U.S. federal court. In
January 2018, Bayer reached agreement with Teva to settle this patent dispute. Under the settlement
terms, Teva will obtain a license to sell its generic version of NexavarTM in the United States at a date after
the expiration of the patent for the active ingredient expiring in January 2020.
Stivarga™: In 2016, Bayer filed patent infringement lawsuits in a U.S. federal court against Apotex, Inc.
and Apotex Corp. (together “Apotex”) and against Teva. Bayer had received notices of an ANDA IV appli-
cation pursuant to which Apotex and Teva each seek approval of a generic version of Bayer’s cancer drug
Stivarga™ in the United States.
Xarelto™: In 2015, Bayer and Janssen Pharmaceuticals filed a patent infringement lawsuit in a U.S. federal
court against Aurobindo Pharma Limited, Aurobindo Pharma USA, Inc. (together “Aurobindo”), Brecken-
ridge Pharmaceutical Inc. (“Breckenridge”), Micro Labs Ltd., Micro Labs USA Inc. (together “Micro Labs”),
Mylan, Prinston Pharmaceutical Inc. (“Prinston”), Sigmapharm Laboratories, LLC (“Sigmapharm”), Torrent
Pharmaceuticals, Limited and Torrent Pharma Inc. (together “Torrent”). Bayer had received notices of an
ANDA IV application by Aurobindo, Breckenridge, Micro Labs, Mylan, Prinston, Sigmapharm and Torrent,
each seeking approval to market a generic version of Xarelto™, an oral anticoagulant for the treatment and
prevention of blood clots, in the United States. In 2016, Bayer received another notice of such an ANDA IV
application by InvaGen Pharmaceuticals, Inc. (“InvaGen”). Bayer and Janssen Pharmaceuticals filed a pa-
tent infringement lawsuit against InvaGen in the same U.S. federal court.
Bayer believes it has meritorious defenses in the above ongoing patent disputes and intends to defend
itself vigorously.
Further Legal Proceedings
Trasylol™ / Avelox™: A qui tam complaint relating to marketing practices for Trasylol™ (aprotinin) and
Avelox™ (moxifloxacin) filed by a former Bayer employee is pending in the United States District Court in
New Jersey. The U.S. government has declined to intervene at the present time.
300
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Newark Bay Environmental Matters: In the United States, Bayer is one of numerous parties involved in a
series of claims brought by federal and state environmental protection agencies. The claims arise from
operations by entities which historically were conducted near Newark Bay or surrounding bodies of water,
or which allegedly discharged hazardous waste into these waterways or onto nearby land. Bayer and the
other potentially responsible parties are being asked to remediate and contribute to the payment of past
and future remediation or restoration costs and damages. In 2016, Bayer learned that two major potentially
responsible parties had filed for protection under Chapter 11 of the U.S. Bankruptcy Code. While Bayer
remains unable to determine the extent of its liability for these matters, this development is likely to ad-
versely affect the share of costs potentially allocated to Bayer.
In the Lower Passaic River matter, a group of more than sixty companies including Bayer is investigating
contaminated sediments in the riverbed under the supervision of the United States Environmental Protec-
tion Agency (EPA) and other governmental authorities. Future remediation will involve some form of dredg-
ing, the nature and scope of which are not yet defined, and potentially other tasks. The cost of the investi-
gation and the remediation work may be substantial if the final remedy involves extensive dredging and
disposal of impacted sediments. In the Newark Bay matter, an unaffiliated party is currently conducting an
investigation of sediments in Newark Bay under EPA supervision. The investigation is in a preliminary
stage. Bayer has contributed to certain investigation costs in the past and may incur costs for future inves-
tigation and remediation activities in Newark Bay.
Bayer has also been notified by governmental authorities acting as natural resource trustees that it may
have liability for natural resource damages arising from the contamination of the Lower Passaic River,
Newark Bay and surrounding water bodies. Bayer is currently unable to determine the extent of its liability.
Asbestos: A further risk may arise from asbestos litigation in the United States. In many cases, the plaintiffs
allege that Bayer and co-defendants employed third parties on their sites in past decades without provid-
ing them with sufficient warnings or protection against the known dangers of asbestos. Additionally, a
Bayer affiliate in the United States is the legal successor to companies that sold asbestos products until
1976. Union Carbide has agreed to indemnify Bayer for this liability. Bayer believes it has meritorious de-
fenses and intends to defend itself vigorously.
Tax Proceedings
Stamp taxes in Greece: In 2014, 2016 and 2017, a Greek administrative court of first instance dismissed
Bayer’s lawsuits against the assessment of stamp taxes and contingent penalties in a total amount of ap-
proximately €130 million on certain intra-Group loans to a Greek subsidiary. Bayer is convinced that the
decisions are wrong and either has appealed the relevant decisions or plans to do so in due course. Bayer
believes it has meritorious arguments to support its legal position and intends to defend itself vigorously.
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
301
Augmented Version
Notes to the Statements
of Cash Flows
The statement of cash flows shows how cash inflows and outflows during the fiscal year affected the cash
and cash equivalents of the Bayer Group. Cash flows are classified by operating, investing and financing
activities in accordance with IAS 7 (Statement of Cash Flows). Effects of changes in the scope of consoli-
dation are stated separately.
Of the cash and cash equivalents, an amount of €14 million (2016: €17 million) had limited availability due
to foreign exchange restrictions. Past experience has shown such restrictions to be of short duration. The
above amount included €0 million (2016: €3 million) of exchange-restricted cash in Venezuela. The conver-
sion of cash from Venezuelan bolivars (VEF) into U.S. dollars is subject to a government approval process.
The cash flows reported by consolidated companies outside the eurozone are translated at average
monthly exchange rates, with the exception of cash and cash equivalents, which are translated at closing
rates. The “Change in cash and cash equivalents due to exchange rate movements” is reported in a sepa-
rate line item.
33. Net cash provided by (used in) operating activities
The operating cash flow (total) declined by 10.5% in 2017, to €8,134 million. The prior-year figure included
inflows from the divestment of Diabetes Care. The operating cash flow from continuing operations was
€6,611 million, up 2.7% from the previous year. It included the operating portion of the payments received
from DOW Chemical in connection with a patents dispute.
The transfer of Covestro shares with a value of €504 million (2016: €337 million) to Bayer Pension Trust
e. V. was a noncash transaction and therefore did not result in an operating cash outflow.
34. Net cash provided by (used in) investing activities
The net cash outflow for investing activities in 2017 amounted to €432 million (2016: €8,729 million).
Additions to property, plant and equipment and intangible assets in 2017 resulted in a cash outflow of
€2,366 million (2016: €2,578 million). Cash inflows from sales of property, plant and equipment and intan-
gible assets amounted to €241 million (2016: €111 million).
The proceeds of €999 million from the sale of Covestro shares as of September 29, 2017, which, together
with the control termination agreement concluded, led to the de facto loss of control, less the cash of
€637 million derecognized with Covestro, resulted in a cash inflow of €362 million from divestments. The
sale of some of these shares by the banks in December 2017 resulted in a further cash inflow of
€37 million.
The net cash inflow from noncurrent and current financial assets amounted to €1,230 million (2016: net
cash outflow of €6,335 million).
302
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
35. Net cash provided by (used in) financing activities
In 2017 there was a net cash outflow of €1,881 million (2016: €350 million) for financing activities. Net loan
repayments amounted to €2,479 million (2016: €730 million).
Cash outflows for dividend payments amounted to €2,364 million (2016: €2,126 million). Net interest pay-
ments – including payments for and receipts from interest-rate swaps – declined to €732 million (2016:
€794 million). The sale of Covestro shares prior to the de facto loss of control resulted in a total net inflow
of €3,717 million. In 2016, the net inflow of €3,952 million from the mandatory convertible notes was re-
flected as a capital contribution of €3,300 million and a borrowing of €652 million.
The transfer of Covestro shares with a value of €504 million (2016: €337 million) to Bayer Pension Trust
e. V. was a noncash transaction and therefore did not result in a financing cash inflow.
B 35/1
Financial Liabilities
€ million
Bonds and notes /
promissory notes
Liabilities to banks
Liabilities under finance leases
Liabilities from derivatives
Other financial liabilities
Cash flows
Non-cash changes
Dec. 31,
2016
Acquisition
Divestment
Currency
effects
New
contracts
Fair value
1
changes
Dec. 31,
2017
15,991
1,837
(1,121)
(1,006)
436
587
730
(153)
(434)
235
(1,492)
(92)
(229)
(6)
–
(788)
(203)
(28)
–
(4)
–
–
212
–
–
(154)
12,436
(2)
–
93
9
(54)
534
238
240
970
14,418
Total
19,581
(2,479)
(1,819)
(1,023)
212
1 Including discount effects
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
303
Augmented Version
Other Information
36. Audit fees
The following fees for the services of the worldwide network of Deloitte or Deloitte GmbH
Wirtschaftsprüfungsgesellschaft (Deloitte GmbH WPG) were recognized as expenses:
Audit Fees
€ million
Financial statements auditing
Audit-related services and other audit work
Tax consultancy
Other services
Total
B 36/1
Of which
PwC
GmbH
WPG
Of which
Deloitte
GmbH
WPG
PwC
Deloitte
2016
16
2
3
7
28
2017
2016
2017
9
2
1
5
17
7
1
–
5
13
3
2
–
4
9
The fees for the auditing of financial statements mainly comprised those for the audits of the consolidated
financial statements of the Bayer Group and the financial statements of Bayer AG and its subsidiaries. In
2016, €2 million in fees related to the auditing of the Covestro Group’s financial statements.
The non-audit-related services primarily related to the analysis of financial information concerning business
entities considered for divestment (Other services), the assessment of financial and nonfinancial infor-
mation outside of financial statement auditing (Audit-related services and other audit work), and compli-
ance-related tax consultancy services that had neither a material or direct impact on the annual financial
statements or consolidated financial statements.
Deloitte has been Bayer’s auditor since 2017 and is thus the successor to PricewaterhouseCoopers (PwC).
The Independent Auditor’s Report on the consolidated financial statements for fiscal 2017 was signed by
Mr. Heiner Kompenhans and Prof. Frank Beine. Both signed the Independent Auditor’s Report for the first
time for the year ended December 31, 2017, and are the responsible audit partners.
37. Related parties
Related parties as defined in IAS 24 (Related Party Disclosures) are those legal entities and natural persons
that are able to exert influence on Bayer AG and its subsidiaries or over which Bayer AG or its subsidiaries
exercise control or joint control or have a significant influence. They include, in particular, nonconsolidated
subsidiaries, joint ventures and associates included in the consolidated financial statements at cost of
acquisition or using the equity method, and post-employment benefit plans, as well as the corporate offic-
ers of Bayer AG whose compensation is reported in Note [38] and in the Compensation Report, which
forms part of the Combined Management Report.
Transactions with nonconsolidated subsidiaries, joint ventures and associates included in the consolidated
financial statements at cost of acquisition or using the equity method, and post-employment benefit plans
are carried out on an arm’s-length basis.
The following table shows the volume of transactions with related parties included in the consolidated
financial statements of the Bayer Group at amortized cost or using the equity method, and with post-
employment benefit plans:
304
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
Related Parties
€ million
Nonconsolidated
subsidiaries
Joint ventures
Associates
Post-employment
benefit plans
2016
B 37/1
2017
Sales of
goods and
services
Purchases
of goods
and
services
Receiv-
ables
Liabilities
Sales of
goods and
services
Purchases
of goods
and
services
Receiv-
ables Liabilities
4
24
34
–
5
–
557
9
4
3
–
907
19
243
6
63
5
25
84
–
6
–
84
–
6
3
119
974
16
164
87
70
Intercompany profits and losses for companies accounted for in the consolidated financial statements
using the equity method were immaterial in 2017 and 2016.
In the second quarter of 2017, Bayer AG increased the coverage of Bayer Pension Trust e. V. through a
deposit of 8 million of the shares it held in Covestro AG. The shares deposited amounted to 4.0% of the
outstanding shares of Covestro AG and had a value of €504 million.
Due to the loss of control at the end of the third quarter of 2017, Covestro is now an associate. Conse-
quently, receivables from and payables to associates both increased from €0.0 billion as of December 31,
2016, to €0.1 billion as of December 31, 2017. In this connection, goods and services received from asso-
ciates declined from €0.6 billion to €0.1 billion. From the end of the third quarter of 2017, transactions in
goods and services between Covestro and its associates are no longer reflected in the consolidated finan-
cial statements of the Bayer Group.
Bayer AG has undertaken to provide jouissance right capital (Genussrechtskapital) in the form of an inter-
est-bearing loan with a nominal volume of €150 million (2016: €150 million) for Bayer-Pensionskasse
VVaG. The entire amount remained undrawn as of December 31, 2017. The carrying amount as of Decem-
ber 31, 2017, was €152 million (2016: €154 million). Loan capital was first provided to Bayer-
Pensionskasse VVaG in 2008 for its effective initial fund. This capital had a nominal volume of €595 million
as of December 31, 2017 (2016: €595 million). The carrying amount as of December 31, 2017, was
€605 million (2016: €612 million). The outstanding receivables, comprised of different tranches, are each
subject to a five-year interest-rate adjustment mechanism. Interest income of €15 million was recognized
for 2017 (2016: €18 million).
Impairment losses of €2 million were recognized on receivables from associates in 2017 (2016: €0 million).
Bayer Annual Report 2017
Notes to the Consolidated Financial Statements of the Bayer Group
B Consolidated Financial Statements
305
Augmented Version
38. Total compensation of the Board of Management and
the Supervisory Board, advances and loans
The compensation of the Board of Management comprises short-term payments, stock-based payments
and post-employment benefits.
The following table shows the individual components of the Board of Management’s compensation accord-
ing to IFRS. Further details are provided in the Compensation Report, which forms part of the Combined
Management Report:
Board of Management Compensation according to IFRS
€ thousand
Fixed annual compensation
Fringe benefits
Total short-term non-performance-related compensation
Short-term performance-related cash compensation
Total short-term compensation
Change in value of existing entitlements to stock-based compensation (virtual Bayer shares)
Stock-based compensation (Aspire) earned in the respective year
Change in value of existing entitlements to stock-based compensation (Aspire)
Total stock-based compensation (long-term incentive)
Service cost for pension entitlements earned in the respective year
Total long-term compensation
Severance indemnity in connection with the termination of a service contract
Aggregate compensation (IFRS)
B 38/1
2017
6,148
266
6,414
4,890
2016
6,385
664
7,049
9,063
16,112
11,304
(1,275)
5,217
(923)
3,019
3,902
6,921
4,542
538
9,082
(641)
8,979
3,907
12,886
1,978
27,575
26,168
In addition to the above compensation, actuarial gains of €245 thousand (2016: losses of
€3,196 thousand) incurred in connection with pension obligations to the currently serving members of the
Board of Management were recognized outside profit or loss. The losses in the previous year mainly re-
sulted from the decline in the level of interest rates.
Pension payments to former members of the Board of Management and their surviving dependents in
2017 amounted to €12,758 thousand (2016: €12,800 thousand). The defined benefit obligation for former
members of the Board of Management and their surviving dependents amounted to €184,479 thousand
(2016: €188,850 thousand).
The compensation of the Supervisory Board amounted to €3,703 thousand (2016: €3,479 thousand).
In addition to their compensation as members of the Supervisory Board, those employee representatives
who are employees of Bayer Group companies receive compensation unrelated to their service on the
Supervisory Board. The total amount of such compensation in 2017 was €767 thousand (2016:
€939 thousand).
Pension obligations for employee representatives on the Supervisory Board amounted to €3,941 thousand
(2016: €4,399 thousand).
There were no advances or loans to members of the Board of Management or the Supervisory Board out-
standing as of December 31, 2017, nor at any time during 2017 or 2016.
306
B Consolidated Financial Statements
Notes to the Consolidated Financial Statements of the Bayer Group
Augmented Version
Bayer Annual Report 2017
39. Events after the end of the reporting period
Sale of 10.4% of the shares in Covestro
On January 10, 2018, Bayer AG reduced its direct interest in Covestro from 24.6% to 14.2%. This was
achieved by selling 21 million shares to institutional investors at a price of €86.25 per share. In addition to
Bayer AG’s direct stake in Covestro, Bayer Pension Trust holds a further 8.9%. As already announced,
Bayer intends to achieve full separation from Covestro in the medium term.
The proceeds from the divestment of Covestro shares were largely used to reduce the syndicated credit
facility arranged to finance the planned acquisition of Monsanto by US$1.8 billion to US$49.7 billion.
Divestments in conjunction with the planned acquisition of Monsanto
In connection with the proposed acquisition of Monsanto and related anti-trust clearance proceedings,
Bayer has committed to divest its entire vegetable seed business, in addition to the sale of certain Crop
Science businesses to BASF. Certain additional business activities of Bayer and Monsanto may also be
sold or out-licensed. Through the move, Bayer is actively addressing observations expressed by anti-trust
authorities. Any sales and licenses would be subject to a successful closing of the proposed acquisition of
Monsanto, which remains subject to customary closing conditions, including receipt of required regulatory
approvals.
Leverkusen, February 20, 2018
Bayer Aktiengesellschaft
The Board of Management
Bayer Annual Report 2017
Responsibility Statement
307
Augmented Version
Responsibility Statement
To the best of our knowledge, and in accordance with the applicable reporting principles for financial
reporting, the consolidated financial statements give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Bayer Group, and the combined management report includes a fair review
of the development and performance of the business and the position of the Bayer Group and Bayer AG,
together with a description of the principal opportunities and risks associated with the expected develop-
ment of the Bayer Group and Bayer AG.
Leverkusen, February 20, 2018
Bayer Aktiengesellschaft
The Board of Management
Werner Baumann
Chairman
Liam Condon
Johannes Dietsch
Dr. Hartmut Klusik
Kemal Malik
Erica Mann
Dieter Weinand
308
Independent Auditor’s Report
Augmented Version
Bayer Annual Report 2017
Independent Auditor’s Report
To: Bayer Aktiengesellschaft, Leverkusen
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
AND THE COMBINED MANAGEMENT REPORT
Audit opinions
We audited the consolidated financial statements of Bayer Aktiengesellschaft, Leverkusen, and its subsidi-
aries (the Group), which comprise the consolidated statements of financial position as at December 31,
2017, the consolidated income statement and consolidated statement of comprehensive income, the con-
solidated statement of changes in equity and the consolidated statements of cash flows for the fiscal year
from January 1, 2017 through December 31, 2017 as well as the notes to the consolidated financial
statements, including a summary of significant accounting policies. In addition, we audited the group man-
agement report of Bayer Aktiengesellschaft, Leverkusen, which is combined with the Company’s manage-
ment report, for the fiscal year from January 1, 2017 through December 31, 2017. In conformity with Ger-
man legal regulations, we have not audited the parts of the combined management report specified in the
Chapter “Other information” of our independent auditor’s report with regard to their content.
In our opinion, based on our knowledge obtained during the audit,
>
>
the accompanying consolidated financial statements comply with International Financial Reporting
Standards (IFRS) as adopted by the EU and the supplementary German legal regulations to be applied
in accordance with Section 315e (1) German Commercial Code (HGB) in all material respects and give a
true and fair view of the Group’s net assets and financial position as of December 31, 2017 as well as its
results of operations for the fiscal year from January 1, 2017 through December 31, 2017 in accordance
with these requirements and
the accompanying combined management report as a whole provides a suitable view of the Group’s
position. In all material respects, this combined management report is consistent with the consolidated
financial statements, complies with German legal requirements and suitably presents the opportunities
and risks of future development. Our audit opinion on the combined management report does not
extend to the content of the parts of the combined management report detailed in the Chapter “Other
information” section.
Pursuant to Section 322 (3) Sentence 1 German Commercial Code (HGB), we state that our audit has not
led to any reservations with respect to the propriety of the consolidated financial statements and the com-
bined management report.
Basis for the audit opinions
We conducted our audit of the consolidated financial statements and the combined management report in
accordance with Section 317 German Commercial Code (HGB) and the EU Audit Regulation (No.
537/2014; hereinafter referred to as “EU Audit Regulation”), and generally accepted German standards for
the audit of financial statements promulgated by the Institute of Public Auditors in Germany [Institut der
Wirtschaftsprüfer] (IDW). We conducted our audit of the consolidated financial statements also in accord-
ance with International Standards on Auditing (ISA). Our responsibilities under these requirements, princi-
ples, and standards are further described in the Section “Auditor’s responsibility for the audit of the consol-
idated financial statements and the combined management report” of our report. We are independent of
the group companies in accordance with European and German commercial law and rules of professional
conduct and we have fulfilled our other ethical responsibilities applicable in Germany in accordance with
these requirements. In addition, pursuant to Article 10 (2) lit. f EU Audit Regulation, we declare that we
have not provided any prohibited non-audit services pursuant to Article 5 (1) EU Audit Regulation. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinions on the consolidated financial statements and combined management report.
Bayer Annual Report 2017
Independent Auditor’s Report
309
Augmented Version
Key audit matters in the audit of the consolidated financial statements
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the fiscal year from January 1, 2017 through December
31, 2017. These matters were addressed in the context of our audit of the consolidated financial state-
ments as a whole and in forming our opinion thereon but we do not provide a separate opinion on these
issues.
In the following we present the key audit matters in our view:
Impairment of goodwill and brand rights
1. Sales of shares in Covestro AG and deconsolidation of the Covestro Group
2.
3. Financial instruments – hedge accounting
4. Depiction of risks from product-related legal disputes
5. Adjustments to EBITDA for special items
Our presentation of these key audit matters is structured as follows:
a) Description (including reference to corresponding information in the consolidated financial statements)
b) Auditor’s response
1. Sales of shares in Covestro AG and deconsolidation of the Covestro Group
a) Following the creation of the financial and legal autonomy of the MaterialScience segment in autumn
2015 and the subsequent IPO under the name of Covestro, at the end of 2016 the Bayer Group still
held directly and indirectly via Bayer Pension Trust e. V. a total of 69.1 % of the shares in Covestro AG
(of which 64.2 % were held directly). Due to three separate share sales transactions totaling 58.25 mil-
lion or 28.7 % of the shares in Covestro AG for EUR 3.7bn and the contribution of 8 million shares or
4 % of the shares in Covestro AG worth EUR 0.5bn to Bayer Pension Trust e. V., the direct interest
held by Bayer in Covestro AG fell to 31.5 % and the directly and indirectly held interest to 40.4 % by
the beginning of September 2017. Since Bayer would still have held a majority at the Covestro AG An-
nual General Meeting at that time and was therefore able to exercise de facto control over the
Covestro Group, these transfers of shares were accounted for as transactions between shareholders
under IFRS 10 and the Covestro Group continued to be (fully) consolidated by Bayer. In all, the Bayer
Group’s equity increased by EUR 4.2bn as a result of these transactions, of which EUR 1.5bn were at-
tributable to non-controlling interests.
Finally, at the end of September 2017 Bayer sold a further 13.94 million or 6.9 % of the shares in
Covestro AG for EUR 1.0bn and entered into a relinquishment of control agreement with Covestro AG
with effect from September 30, 2017. The consequence of this was the relinquishment of de facto
control over the Covestro Group. Pursuant to IFRS 10, these two transactions were recognized eco-
nomically as a single transaction. The Covestro Group was deconsolidated as of September 30, 2017
and has since been shown in the consolidated financial statements as a discontinued operation, in ac-
cordance with IFRS 5. Since Bayer currently directly holds 24.6 % and indirectly holds 33.5 % of the
shares in Covestro AG and can continue to exercise significant influence over the Covestro Group,
Covestro AG was included as of September 30, 2017 in the Bayer consolidated financial statements
as an associated company with a carrying amount (fair value) of EUR 3.6bn according to the equity
method. Bayer received income of EUR 3.1bn at Group level from the deconsolidation in 2017, in par-
ticular due to the recognition of the carrying amount at fair value. As of December 31, 2017, the equity
value is virtually unchanged.
In our opinion, this issue was of particular significance due to the complexity of the underlying contrac-
tual agreements and the numerous material effects on the consolidated financial statements.
The Company’s disclosures on the discontinued operation, the deconsolidation, and the first-time
inclusion of the Covestro Group as an associate are set out in Sections 6.3 and 19 of the Notes to the
consolidated financial statements.
310
Independent Auditor’s Report
Augmented Version
Bayer Annual Report 2017
b) We assessed whether Bayer had in fact continued to control the Covestro Group, despite the share
sales up until the beginning of September, and thus ought to have continued to consolidate the
Covestro Group. Moreover, by inspecting the relevant Board of Management resolutions and Board of
Management and Supervisory Board minutes, we investigated whether the Board of Management had
not already at the time of the individual share sales drawn up a plan that would have led to a loss of
control over the Covestro Group, so that it would have been necessary, under IFRS 5, to report the
Covestro Group as a discontinued operation even before September 30, 2017. We analyzed the sale
of shares at the end of September 2017 and the conclusion of the relinquishment of control agreement
to determine whether these can be treated as a single transaction under IFRS 10 and isolated from the
earlier sales of shares up to mid-September.
We also assessed the relinquishment of control agreement as to whether the agreement fulfilled the
company and stock corporation law requirements for the loss of control and thus for the deconsolida-
tion of the Covestro Group and whether Covestro should have been deconsolidated as of September
30, 2017. We also examined whether the first-time classification as a discontinued operation as of
September 30, 2017 was appropriate and that the presentation in the income statement and state-
ments of cash flows as a discontinued operation is in accordance with IFRS 5.
Furthermore, we verified whether the deconsolidation was technically correct and whether the result of
the deconsolidation was correctly determined and recognized in the accounts. We also performed au-
dit procedures to ascertain whether the carrying amount of the investment in Covestro AG as an asso-
ciated company and the provisional purchase price allocation made in this connection for the initial fair
value measurement had been appropriately calculated.
2. Impairment of goodwill and brand rights
a) In the consolidated financial statements, an amount of EUR 14,751m (20 % of total Group assets) is
reported under the balance sheet item “Goodwill”. In addition, brand rights of EUR 6,412m (9 % of the
Group’s total assets) are reported under “Other intangible assets”. The Company allocates goodwill to
the strategic business units or groups of strategic business units within the Bayer Group. Regular im-
pairment tests of goodwill and case-related impairment tests of brand rights compare the respective
carrying amounts with their recoverable amounts. Fundamentally, the recoverable amount is deter-
mined on the basis of the fair value less costs to sell. The present value of future cash flows is used as
a basis, since as a rule no market values are available for the individual strategic business units. The
present value is determined using discounted cash flow models based on the Bayer Group’s three-
year operating plan drawn up by the legal representatives and acknowledged by the Supervisory
Board and perpetuated with assumptions about long-term growth rates. Discounting is based on the
weighted average cost of capital of the reporting segments concerned. The result of this valuation de-
pends to a large extent on the estimates by the legal representatives of the future cash flows of the
strategic business unit concerned and the discount rate used and is therefore fraught with considera-
ble uncertainty. In the light of this, and owing to the underlying complexity of the valuation models, this
issue was of particular importance within the framework of our audit.
The Company’s disclosures on goodwill and brand rights are contained in Section 4 and 17 of the
Notes to the consolidated financial statements.
b) In our audit, among other things we reconstructed the methodology used to perform the impairment
tests and assessed the calculation of the weighted cost of capital. We convinced ourselves of the ap-
propriateness of the future cash inflows used in the valuation among other things by recording and
critically assessing the underlying planning process. We also compared this information with the cur-
rent budget from the three-year plan drawn up by the legal representatives and noted by the Supervi-
sory Board, and reconciled it with general and industry-specific market expectations. For this, we also
convinced ourselves that the costs of the Group functions included in the Corporate Functions and
Consolidation segment of segment reporting were appropriately taken into account in the impairment
test of the strategic business unit concerned. We studied intensively the parameters used to determine
the discount rate applied and assessed the completeness and correctness of the calculation scheme.
Owing to the material significance of goodwill, we further performed additional sensitivity analyses of
our own for the strategic business units (carrying amount in comparison to the recoverable amount).
Bayer Annual Report 2017
Independent Auditor’s Report
311
Augmented Version
3. Financial instruments - hedge accounting
a) Bayer Group companies conclude a large number of different derivative financial instruments to hedge
against currency, commodity price, and interest rate risks from ordinary business operations. The basis
for this is the hedging policy prescribed by the legal representatives, which is documented in appropri-
ate internal guidelines. The currency risk essentially results from sales revenues, sales and procure-
ment transactions (in particular relating to raw materials), and financing transactions in foreign curren-
cies. The aim of interest rate hedging is, on the one hand to achieve a reasonable relationship between
variable and fixed interest rates and on the other to secure a low rate of interest for planned financing
transactions. Derivative financial instruments are recognized at their fair value as of balance sheet
date. The positive fair values of all derivative financial instruments used as hedges amounted to EUR
450m as of the closing date (i.e., 1 % of total Group assets), the negative fair values amounted to EUR
533m (representing 1 % of total Group assets). To the extent that the financial instruments used by the
Bayer Group are effective hedges of future cash flows under hedge accounting in accordance with IAS
39, changes in fair value are recognized in equity until the due date of the hedged cash flow (effective
portion) over the term of the hedge relationship. As of the balance sheet date, a cumulative amount of
EUR -112m had been recognized outside profit or loss as expenses and income before taxes on in-
come. In our view, these issues were of particular importance due to the high complexity and the
great number of transactions, and the extensive accounting and reporting requirements of IAS 39 and
IFRS 7.
The disclosures on hedge accounting are contained in Sections 4 and 30 of the Notes to the consoli-
dated financial statements. Risk reporting with regard to the use of financial instruments is provided in
the combined management report in Section 3.2.2.
b) Within the framework of our audit, and with the support of our internal specialists from the Financial
Risk Solutions unit, we assessed the contractual and financial fundamentals of the financial instru-
ments, among other things, and reconstructed the accounting including the effects on equity and
earnings of the various hedging transactions. Jointly with our specialists, we also assessed the Com-
pany’s internal control system in the area of derivative financial instruments, including the internal mon-
itoring of compliance with the hedging policy, and reviewed the controls with regard to design, imple-
mentation, and effectiveness. Furthermore, while auditing the fair value measurement of the financial
instruments, we also checked, on the basis of market data and within the framework of our risk as-
sessment, the calculation methods of representatively selected samples and reconstructed the correct
implementation of the methods in the system. In order to audit the effectiveness of the hedging trans-
actions, we analyzed the various methods (prospective critical term match method; retrospective re-
gression method) and, in the framework of our risk assessment, reconstructed their correct implemen-
tation in the system. With regard to the expected cash flows, we essentially assessed the past
hedging ratios in retrospect.
4. Depiction of risks arising from product-related legal disputes
a) Bayer Group companies are involved in legal and out-of-court proceedings with public authorities,
competitors, and other parties. These give rise to legal risks, in particular in the areas of product liabil-
ity, competition and anti-trust law, patent law, tax law, and environmental protection.
Against the background of pending and expected product liability lawsuits relating to the product
Mirena™, the Bayer Group had been served in the United States with lawsuits from approximately
2,900 (previous year: 2,600) (women) users of Mirena™ by January 30, 2018. In addition, by January
30, 2018, the Bayer Group had been served in the United States with about 22,000 claims (prior year:
16,400) for damages and punitive damages from users of the product Xarelto™. Moreover, by January
30, 2018, the Bayer Group had been served in Canada with ten lawsuits relating to Xarelto™, in each
of which the admission of a class action has been applied for. By January 30, 2018, the Bayer Group
had been served with lawsuits in the United States by about 16,100 (prior year 3,700) (women) users
of Essure™ and two lawsuits in Canada, in each of which the admission of a class action has been
applied for.
Whether a pending legal dispute makes the recognition of a provision to cover the risk necessary and,
if so, to what extent, is determined to a large extent by estimates and assumptions by the legal repre-
312
Independent Auditor’s Report
Augmented Version
Bayer Annual Report 2017
sentatives. Against this background, and in view of the amount of the claims asserted, the above-
mentioned product-related disputes of the Bayer Group were of particular significance from our point
of view.
The disclosures about and explanations of the legal disputes mentioned are contained in Section 32 of
the notes to the consolidated financial statements.
b) Within the framework of our audit, we assessed, among other things, the process established by the
Company to ensure the recognition, the estimate of the outcome of the proceedings, and the account-
ing presentation of a legal dispute. Furthermore, we held regular discussions with the Company’s in-
ternal legal department in order to be informed about current developments and the reasons that led
to the corresponding estimates. The development of material legal disputes, including the estimates by
the legal representatives with regard to the possible outcome of proceedings, was made available to
us in writing by Bayer AG’s internal legal department. As of the closing date, we furthermore obtained
external attorney’s certificates, which we compared with the risk assessment made by the legal repre-
sentatives about the product-related disputes named in the “Description of the facts” section.
5. Adjustments to EBITDA for special items
a) For management and analysis purposes, the Bayer Group adduces EBITDA (Earnings Before Interest,
Taxes, Depreciation, and Amortization, and also impairment losses and reversals), adjusted for special
items (by their nature or amount special effects). Adjustments to EBITDA amounting to EUR 725m are
presented in Bayer AG’s consolidated financial statements in continuing operations. Adjusted EBITDA
from continuing operations are used by Bayer as a key financial performance indicator in its capital
market communications. They are furthermore adduced as a degree of target achievement for the an-
nual performance-based compensation of the employees of the Bayer Group. The adjustments to
EBITDA were of particular significance within the framework of our audit, as they are made on the ba-
sis of the Bayer Group’s internal accounting guideline and there is a risk that the legal representatives
may exercise their discretionary powers one-sidedly.
The company’s disclosures on the adjustments to EBITDA and the calculation thereof are presented in
Section 5 of the notes to the consolidated financial statements and in Section 2.2 of the combined
management report.
b) We reconstructed the calculation of adjusted EBITDA and critically examined the identification of the
Group companies’ special items taken into account by the legal representatives. For this we analyzed
the composition of the adjustments in terms of the extent to which the individual components corre-
spond to the corresponding guidelines for special items and were correctly excluded from adjusted
EBITDA. At the same time, we examined, on the basis of the findings of our audit and the information
provided by the legal representatives, whether the adjustments made were carried out in accordance
with the definition and procedure presented in the explanations in the combined management report
and in the segment reporting.
Bayer Annual Report 2017
Independent Auditor’s Report
313
Augmented Version
Other information
The legal representatives are responsible for the other information. The other information comprises:
>
>
the Group’s statement on business management pursuant to Section 289f and Section 315d HGB
specified in Chapter 4.1 of the combined management report,
the “Compliance” section of the Corporate Governance Report contained in Chapter 4.2 of the
combined management report pursuant to No. 3.10 of the German Corporate Governance Code,
> all online annexes referred to in the combined management report and contained in the augmented
online version of the Annual Report,
> assurance pursuant to Section 297 (2) Sentence 4 German Commercial Code (HGB) to the consolidated
financial statements and assurance pursuant to Section 315 (1) Sentence 5 German Commercial Code
(HGB) to the combined management report, and
the remaining components of the annual report, with the exception of the audited consolidated financial
statements and the combined management report and our Auditor’s Report.
>
Our audit opinions on the consolidated financial statements and the combined management report do not
extend to cover the other information, and accordingly we do not issue an audit opinion or any other form
of assurance conclusion thereon.
In connection with our audit, our responsibility is to read the other information and, in doing so, to consider
whether the other information
>
is materially inconsistent with the consolidated financial statements, the combined man-agement report
or our knowledge obtained in the audit, or
> otherwise appears to be substantially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this infor-
mation, we are required to report on that fact. We have nothing to report in this regard.
Responsibilities of the legal representatives and the Supervisory Board for the consolidated
financial statements and the combined management report
The legal representatives are responsible for the preparation of the consolidated financial statements which
comply with IFRS as adopted by the EU and the supplementary requirements of the German legal regula-
tions pursuant to Section 315e (1) German Commercial Code (HGB) in all material respects, so that the
consolidated financial statements give a true and fair view of the net assets, financial position, and results
of operations of the Group in accordance with these requirements. In addition, the legal representatives are
responsible for the internal controls they have identified as necessary in order to enable the preparation of
consolidated financial statements that are free from material misstatements, whether intentional or uninten-
tional.
In preparing the consolidated financial statements, the legal representatives are responsible for assessing
the Group’s ability to continue as a going concern. Furthermore, they have the responsibility to disclose
matters relating to the Group’s ability to continue as a going concern, if relevant. In addition, they are re-
sponsible for using the going concern basis of accounting, unless the intention is to liquidate the Group or
to cease operations, or there is no realistic alternative but to do so.
In addition, the legal representatives are responsible for the preparation of the combined management
report, which as a whole provides a suitable view of the Group’s position, is consistent with the consolidat-
ed financial statements in all material respects, complies with German legal regulations and suitably pre-
sents the opportunities and risks of future development. Furthermore, the legal representatives are respon-
sible for such arrangements and measures (systems) which they have deemed necessary in order to
enable the preparation of a combined management report in accordance with the applicable German legal
regulations and to furnish sufficient and appropriate evidence for the statements in the combined man-
agement report.
The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the prepa-
ration of the consolidated financial statements and the combined management report.
314
Independent Auditor’s Report
Augmented Version
Bayer Annual Report 2017
Auditor’s responsibilities for the audit of the consolidated financial statements and the
combined management report
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatements, whether due to fraud or error, and whether the combined
management report as a whole provides an appropriate view of the Group’s position and, in all material
respects, is consistent with the findings of the audit, is in accordance with the German legal regulations,
and appropriately presents the opportunities and risks of future development, as well as to issue an audi-
tor’s report that includes our audit opinions on the consolidated financial statements and the combined
management report.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in ac-
cordance with Section 317 German Commercial Code (HGB) and the EU Audit Regulation and generally
accepted German standards for the audit of financial statements promulgated by the Institute of Public
Auditors in Germany (IDW), and subject to supplementary compliance with ISA, will always detect a mate-
rial misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these consolidated financial statements and this combined management re-
port.
As part of an audit, we exercise professional judgement and maintain professional skepticism. We also
>
identify and assess the risks of material misstatements in the consolidated financial statements and in
the combined management report, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
for our audit opinions. The risk of not detecting a material misstatement resulting from fraud is higher
than one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the overriding of internal controls.
> obtain an understanding of internal controls relevant to the audit of the consolidated financial
statements and the arrangements and measures relevant to the audit of the combined management
report in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of these systems.
> evaluate the appropriateness of the accounting policies used by the legal representatives and the
>
reasonableness of accounting estimates and related disclosures made by the legal representatives.
form a conclusion on the appropriateness of the legal representatives’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists relating to
events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that there is a material uncertainty, we are required to draw attention in our
auditor’s report to the related disclosures in the consolidated financial statements and combined
management report, or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Group to cease to continue as a going concern.
> evaluate the overall presentation, structure, and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner such that the consolidated financial statements give a true and fair
view of the net assets and financial position as well as the results of operations of the Group in
accordance with IFRS as adopted by the EU and the supplementary requirements of German law
pursuant to Section 315e (1) German Commercial Code (HGB).
> obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express opinions on the consolidated financial statements and the
combined management report. We are responsible for the direction, supervision, and performance of
the group audit. We remain solely responsible for our audit opinions.
> evaluate the consistency of the combined management report with the consolidated financial
statements, its legal consistency, and the view provided of the Group’s position.
Bayer Annual Report 2017
Independent Auditor’s Report
315
Augmented Version
> perform audit procedures on the forward-looking information presented by the legal representatives in
the combined management report. On the basis of sufficient appropriate audit evidence, we particularly
evaluate the significant assumptions underlying the forward-looking information by the legal
representatives and evaluate the correct derivation of forward-looking information from these
assumptions. We do not issue an independent opinion on the forward-looking information or on the
underlying assumptions. There is a significant unavoidable risk that future events will differ materially
from the forward-looking information.
We communicate with those charged with governance among other matters, on the planned scope and
timing of the audit and significant audit findings, including any deficiencies in internal control, which we
identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate with them all relationships and other mat-
ters that may reasonably be thought to bear on our independence, and where applicable, related safe-
guards.
From the matters communicated with those charged with governance we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current reporting
period and are therefore the key audit matters. We describe these matters in our auditor’s report on the
consolidated financial statements unless law or regulation precludes public disclosure about the matter.
OTHER LEGAL AND REGULATORY REQUIREMENTS
Other information pursuant to Article 10 EU Audit Regulation
We were appointed by the Annual General Meeting on April 28, 2017 to audit the consolidated financial
statements. We were engaged by the Supervisory Board on June 1/28, 2017. We have been engaged
continuously as the auditors of the consolidated financial statements of Bayer Aktiengesellschaft,
Leverkusen, since the fiscal year 2017.
We confirm that the audit opinions contained in this auditor’s report are consistent with the additional re-
port to the audit committee pursuant to Article 11 EU Audit Regulation (“Prüfungsbericht”).
RESPONSIBLE AUDITOR
The auditor responsible for the audit is Prof. Dr. Frank Beine.
Munich, February 21, 2018
Deloitte GmbH
Wirtschaftsprüfungsgesellschaft
Heiner Kompenhans
German Public Auditor
Prof. Dr. Frank Beine
German Public Auditor
316
Independent Auditor’s Report on a Limited Assurance Engagement on Sustainability Information
Bayer Annual Report 2017
Augmented Version
Independent Auditor’s Report on
a Limited Assurance Engagement
on Sustainability Information
To: Bayer Aktiengesellschaft, Leverkusen
We performed a limited assurance engagement on the disclosures marked with “limited assurance” in the
online annexes of the augmented online version of the Annual Report of Bayer Aktiengesellschaft,
Leverkusen, (hereafter “the Company”) for the period from January 1 through December 31, 2017 (“Annual
Report 2017 – Augmented Version” hereafter “the Online Version”).
Responsibility of the legal representatives
The legal representatives of Bayer Aktiengesellschaft are responsible for preparing the Online Version in
accordance with the criteria stated in the G4 Sustainability Reporting Guidelines of the Global Reporting
Initiative (GRI) (hereafter “the GRI Criteria”) and for selecting the disclosures to be evaluated.
This responsibility of the Company’s legal representatives includes the selection and application of appro-
priate sustainability reporting methods, and the making of assumptions about and estimates of individual
sustainability disclosures that are appropriate in the circumstances. The legal representatives are further-
more responsible for the internal controls which they have determined are necessary to enable the prepa-
ration of an Online Version that is free from material misstatements, whether due to intentional or uninten-
tional error.
Auditor’s statements regarding independence and quality
We are independent of the entity in accordance with the provisions under German commercial law and
professional requirements, and we have fulfilled our other ethical responsibilities in accordance with the
relevant provisions within these requirements.
The Deloitte GmbH Wirtschaftsprüfungsgesellschaft applies the German national legal requirements and
the German profession’s pronouncements for quality control, in particular the by-laws regulating the rights
and duties of Wirtschaftsprüfer and vereidigte Buchprüfer in the exercise of their profession (Berufssatzung
für Wirtschaftsprüfer und vereidigte Buchprüfer) as well as the IDW Standard on Quality Control 1: Re-
quirements for Quality Control in Audit Firms [IDW Qualitätssicherungsstandards 1: Anforderungen an die
Qualitätssicherung in der Wirtschaftsprüferpraxis (IDW QS 1)], that are consistent with the International
Standard on Quality Control 1 issued by the International Auditing and Assurance Standards Board
(IAASB).
Responsibility of the Auditor
Our responsibility is to express a limited assurance conclusion on the disclosures marked with limited as-
surance in the Online Version, based on the assurance engagement we have performed.
Bayer Annual Report 2017
Independent Auditor’s Report on a Limited Assurance Engagement on Sustainability Information
317
Augmented Version
We performed our assurance engagement in accordance with the International Standard on Assurance
Engagements (ISAE) 3000 (Revised): Assurance Engagements Other than Audits or Reviews of Historical
Financial Information issued by the IAASB. Those standards require that we plan and perform the audit
such that we are able to state with limited assurance that we have not become aware of any matters that
cause us to believe that the disclosures in the Company’s Online Version for the period from January 1
through December 31, 2017 have not been prepared in accordance with the relevant GRI criteria in all
material respects. This does not mean that a separate audit opinion has been issued for each disclosure
marked. In a limited assurance audit, the audit procedures performed are less in extent than for a reasona-
ble assurance engagement and therefore a substantially lower level of assurance is obtained. The assur-
ance procedures selected depend on the practitioner’s professional judgement.
Within the framework of our audit, we performed the following audit procedures and other activities,
including:
> Obtaining an understanding of the structure of the sustainability organization and the stakeholder
>
engagement
Inquiries of personnel involved in the compilation of the Online Version about the compilation process,
the internal control system related to this process and about selected disclosures in the Online Version
> The identification of likely risks of material misstatements in the Online Version, under consideration of
the GRI criteria
> The performance of on-site audit procedures to deepen the recording of processes and to analyze
selected data at Bayer’s locations Berlin, Bergkamen and Wuppertal (each Pharmaceuticals, Germany),
Institute and Kansas City (each Crop Science, USA) as well as Dormagen, Leverkusen and Krefeld-
Uerdingen (each Currenta, Germany)
> Remote assessments to analyze selected data for Bayer’s sites Berkeley (Pharmaceuticals, USA) and
Vapi (Crop Science, India)
> Analytical assessment of selected disclosures in the Online Version
> A comparison of disclosures with the corresponding data in the consolidated financial statements and
the group management report
> An assessment of the presentation of the selected sustainability performance data
> The timing of the audit procedures performed
Audit opinion
On the basis of the audit procedures performed and the audit evidence obtained, nothing has come to our
attention that causes us to believe that the disclosures marked with limited assurance in the Company’s
Online Version for the period from January 1 to December 31, 2017, have not been prepared, in all material
aspects, in accordance with the relevant GRI criteria.
Intended use of the Report
We issue this Report on the basis of the engagement concluded with Bayer Aktiengesellschaft, Leverkus-
en. The limited assurance engagement was conducted for the purposes of Bayer Aktiengesellschaft and
the Report is solely intended to inform Bayer Aktiengesellschaft as to the results of the assurance en-
gagement.
318
Independent Auditor’s Report on a Limited Assurance Engagement on Sustainability Information
Bayer Annual Report 2017
Augmented Version
Limitation of liability
The report is not intended to provide third parties with support in making (financial) decisions. Our respon-
sibility lies solely toward Bayer Aktiengesellschaft and is also limited by the “General Terms and Conditions
for Auditors and Auditing Firms” in the version dated January 1, 2017, as published by the Institut der
Wirtschaftsprüfer in Deutschland e. V. We assume no responsibility towards third parties.
Munich, February 21, 2018
Deloitte GmbH
Wirtschaftsprüfungsgesellschaft
[Heiner Kompenhans]
German Public Auditor
[Prof. Dr. Frank Beine]
German Public Auditor
Bayer-Geschäftsbericht 2017
Fehler! Kein Text mit angegebener Formatvorlage im Dokument.
A Zusammengefasster Lagebericht
1
Further Information
Bayer Annual Report 2017
C Further Information
319
Governance Bodies
Augmented Version
Governance Bodies
Supervisory Board
Members of the Supervisory Board held offices as members of the supervisory board or a comparable supervising
body of the corporations listed (as at December 31, 2017, or the date on which they ceased to be members of
the Supervisory Board of Bayer AG) and as shown attended the meetings of the Supervisory Board and committees
to which he or she belonged:
Memberships in comparable
supervising bodies of German or
foreign corporations:
Thomas Ebeling
Muri bei Bern, Switzerland
(born February 9, 1959)
• InCarda Therapeutics, Inc.
(Board of Directors)
Member of the Supervisory Board
effective April 2012
Werner Wenning
Leverkusen, Germany
(born October 21, 1946)
Chairman of the Supervisory Board
effective October 2012
Chairman of the Supervisory Board
of Bayer AG
Memberships on other
supervisory boards:
• Henkel Management AG
• Siemens AG (Vice Chairman)
Memberships in comparable
supervising bodies of German or
foreign corporations:
• Henkel AG & Co. KGaA
(Shareholders’ Committee)
Attendance at Supervisory Board
and committee meetings: 20 of 20
Oliver Zühlke
Solingen, Germany
(born December 11, 1968)
Vice Chairman of the Supervisory
Board effective July 2015
Member of the Supervisory Board
effective April 2007
Chairman of the Bayer Central
Works Council
Memberships on other supervisory
boards:
• Bayer Pharma AG
(until January 2017)
Attendance at Supervisory Board
and committee meetings: 15 of 15
Dr. Paul Achleitner
Munich, Germany
(born September 28, 1956)
Member of the Supervisory Board
effective April 2002
Chairman of the Supervisory Board
of Deutsche Bank AG
Memberships on other supervisory
boards:
• Daimler AG
• Deutsche Bank AG (Chairman)
Memberships in comparable
supervising bodies of German or
foreign corporations:
• Henkel AG & Co. KGaA
(Shareholders’ Committee)
Attendance at Supervisory Board
and committee meetings: 13 of 14
Dr. rer. nat. Simone Bagel-Trah
Düsseldorf, Germany
(born January 10, 1969)
Attendance at Supervisory Board
and committee meetings: 6 of 6
Dr. Clemens Börsig
Frankfurt am Main, Germany
(born July 27, 1948)
Member of the Supervisory Board
until April 2017
Member of various supervisory
boards
Member of the Supervisory Board
effective April 2014
Memberships on other supervisory
boards:
Chairwoman of the Supervisory
Board of Henkel AG & Co. KGaA
and Henkel Management AG
and of the Shareholders’ Commit-
tee of Henkel AG & Co. KGaA
Memberships on other
supervisory boards:
• Henkel AG & Co. KGaA
(Chairwoman)
• Henkel Management AG
(Chairwoman)
• Heraeus Holding GmbH
Memberships in comparable
supervising bodies of German or
foreign corporations:
• Henkel AG & Co. KGaA
(Shareholders’ Committee,
Chairwoman)
Attendance at Supervisory Board
meetings: 8 of 9
Dr. Norbert W. Bischofberger
Hillsborough, U.S.A.
(born January 10, 1956)
Member of the Supervisory Board
effective April 2017
Executive Vice President Research
& Development and Chief Scientific
Officer of Gilead Sciences, Inc.
• Daimler AG
• Linde AG
Memberships in comparable
supervising bodies of German or
foreign corporations:
• Emerson Electric Co. (Board of
Directors)
Attendance at Supervisory Board
meetings: 3 of 3
André van Broich
Dormagen, Germany
(born June 19, 1970)
Member of the Supervisory Board
effective April 2012
Chairman of the Bayer Group
Works Council
(effective September 2017)
Chairman of the Works Council
of the Dormagen site
Memberships on other supervisory
boards:
• Bayer CropScience AG
(until January 2017)
Attendance at Supervisory Board
and committee meetings: 14 of 14
Chief Executive Officer of
ProSiebenSat.1 Media SE
(until February 2018)
Memberships on other
supervisory boards:
• GfK SE (effective April 2017)
Memberships in comparable
supervising bodies of German or
foreign corporations:
• Cullinan Oncology, LLC
(Board of Directors)
(effective November 2017)
• Lonza Group AG (until April 2017)
Attendance at Supervisory Board
meetings: 7 of 9
Dr. Thomas Elsner
Düsseldorf, Germany
(born April 24, 1958)
Member of the Supervisory Board
effective April 2017
Chairman of the Bayer Group
Managerial Employees’ Committee
Chairman of the Managerial Em-
ployees’ Committee of Bayer AG
Leverkusen
Attendance at Supervisory Board
and committee meetings: 8 of 8
Johanna W. (Hanneke) Faber
Amstelveen, Netherlands
(born April 19, 1969)
Member of the Supervisory Board
effective April 2016
Chief E-Commerce and Innovation
Officer and Member of the
Executive Committee of Koninklijke
Ahold Delhaize N.V.
(until December 2017)
President Europe at Unilever
N.V. / plc (effective January 2018)
Attendance at Supervisory Board
meetings: 6 of 9
320
C Further Information
Governance Bodies
Augmented Version
Bayer Annual Report 2017
Dr.-Ing. Thomas Fischer
Krefeld, Germany
(born August 27, 1955)
Member of the Supervisory Board
until April 2017
Chairman of the Managerial
Employees’ Committee of Covestro
Deutschland AG
Yüksel Karaaslan
Hohen Neuendorf, Germany
(born March 1, 1968, deceased
June 4, 2017)
Member of the Supervisory Board
until June 2017
Chairman of the Bayer Group
Works Council
Memberships on other supervisory
boards:
Vice Chairman of the Bayer Central
Works Council
Memberships on other supervisory
boards:
Vice Chairwoman of the Works
Council of the Elberfeld site
• Evotec AG (Chairman)
Attendance at Supervisory Board
and committee meetings: 15 of 15
Attendance at Supervisory Board
and committee meetings: 3 of 3
• Covestro AG
• Covestro Deutschland AG
Attendance at Supervisory Board
and committee meetings: 5 of 5
Colleen A. Goggins
Princeton, U.S.A.
(born September 9, 1954)
Member of the Supervisory Board
effective April 2017
Independent consultant
Memberships in comparable
supervising bodies of German or
foreign corporations:
• The Toronto-Dominion Bank
(Board of Directors)
• IQVIA Holdings Inc. (formerly
QuintilesIMS Holdings, Inc.)
(Board of Directors)
(effective July 2017)
Attendance at Supervisory Board
meetings: 6 of 6
Heike Hausfeld
Leverkusen, Germany
(born September 19, 1965)
Member of the Supervisory Board
effective April 2017
Chairwoman of the Works Council
of the Leverkusen site
Memberships on other supervisory
boards:
• Bayer Business Services GmbH
(Vice Chairwoman)
Attendance at Supervisory Board
and committee meetings: 9 of 9
Reiner Hoffmann
Wuppertal, Germany
(born May 30, 1955)
Member of the Supervisory Board
effective October 2006
Chairman of the German Trade
Union Confederation
Attendance at Supervisory Board
meetings: 8 of 9
Chairman of the Works Council
of the Berlin site
Memberships on other supervisory
boards:
• Bayer Pharma AG (Vice
Chairman) (until January 2017)
Attendance at Supervisory Board
and committee meetings: 6 of 7
Sue H. Rataj
Sebastopol, U.S.A.
(born January 8, 1957)
Member of the Supervisory Board
until April 2017
Member of the Board of Directors
of Cabot Corporation, Boston,
U.S.A.
Member of the Board of Directors
of Agilent Technologies Inc., Santa
Clara, U.S.A.
Attendance at Supervisory Board
meetings: 3 of 3
Petra Kronen
Krefeld, Germany
(born August 22, 1964)
Member of the Supervisory Board
until September 2017
Petra Reinbold-Knape
Gladbeck, Germany
(born April 16, 1959)
Chairwoman of the Central Works
Council of Covestro
Member of the Supervisory Board
effective April 2012
Chairwoman of the Works Council
of Covestro of the Uerdingen site
Memberships on other supervisory
boards:
• Covestro AG (Vice Chairwoman)
• Covestro Deutschland AG
(Vice Chairwoman)
Attendance at Supervisory Board
and committee meetings: 8 of 8
Frank Löllgen
Cologne, Germany
(born June 14, 1961)
Member of the Supervisory Board
effective November 2015
North Rhine District Secretary of
the German Mining, Chemical and
Energy Industrial Union
Memberships on other supervisory
boards:
• Evonik Industries AG
• IRR-Innovationsregion
Rheinisches Revier GmbH
Member of the Executive
Committee of the German Mining,
Chemical and Energy Industrial
Union
Memberships on other supervisory
boards:
• Lausitz Energie Bergbau AG
(Vice Chairwoman)
• Lausitz Energie Kraftwerk AG
(Vice Chairwoman effective
March 2017)
Attendance at Supervisory Board
and committee meetings: 11 of 11
Detlef Rennings
Krefeld, Germany
(born April 29, 1965)
Member of the Supervisory Board
effective June 2017
Chairman of the Central Works
Council of CURRENTA
Chairman of the Works Council of
CURRENTA of the Uerdingen site
Attendance at Supervisory Board
and committee meetings: 13 of 13
Memberships on other supervisory
boards:
Prof. Dr. Wolfgang Plischke
Aschau im Chiemgau, Germany
(born September 15, 1951)
Member of the Supervisory Board
effective April 2016
Independent consultant
• Currenta Geschäftsführungs-
GmbH
Attendance at Supervisory Board
meetings: 4 of 4
Sabine Schaab
Wuppertal, Germany
(born June 25, 1966)
Michael Schmidt-Kießling
Schwelm, Germany
(born March 24, 1959)
Member of the Supervisory Board
effective April 2012
Chairman of the Works Council
of the Elberfeld site
Attendance at Supervisory Board
meetings: 8 of 9
Dr. Klaus Sturany*
Ascona, Switzerland
(born October 23, 1946)
Member of the Supervisory Board
effective April 2007
Member of various supervisory
boards
Memberships on other supervisory
boards:
• Hannover Rück SE
(Vice Chairman)
Attendance at Supervisory Board
and committee meetings: 12 of 13
Heinz Georg Webers
Bergkamen, Germany
(born December 27, 1959)
Member of the Supervisory Board
until April 2017
Chairman of the Bayer European
Forum
Chairman of the Works Council of
the Bergkamen site
Memberships on other supervisory
boards:
• Bayer Pharma AG
(until January 2017)
Attendance at Supervisory Board
meetings: 3 of 3
Prof. Dr. Dr. h.c. Otmar
D. Wiestler
Berlin, Germany
(born November 6, 1956)
Member of the Supervisory Board
effective October 2014
President of the Helmholtz
Association of German Research
Centres
Attendance at Supervisory Board
and committee meetings: 10 of 11
Member of the Supervisory Board
effective October 2017
* Expert member pursuant to Section
100, Paragraph 5 of the German
Stock Corporation Act (AktG)
Bayer Annual Report 2017
C Further Information
321
Governance Bodies
Augmented Version
Board of Management
Standing committees of the
Supervisory Board of Bayer AG
(as at December 31, 2017)
Members of the Board of Management held offices as members of the
supervisory board or a comparable supervising body of the corporations
listed (as at December 31, 2017):
Werner Baumann
(born October 6, 1962)
Chairman
Member of the Board of
Management effective
January 1, 2010, appointed
until April 30, 2021
Liam Condon
(born February 27, 1968)
Member of the Board of
Management effective
January 1, 2016, appointed
until December 31, 2018
Johannes Dietsch
(born January 2, 1962)
Member of the Board of
Management effective
September 1, 2014, appointed
until May 31, 2018
• Bayer Business Services GmbH
(Chairman)
• Bayer CropScience AG
(Chairman) (until February 2017)
• Covestro AG
• Covestro Deutschland AG
Dr. Hartmut Klusik
(born July 30, 1956)
Member of the Board of
Management effective
January 1, 2016, appointed
until December 31, 2018
Labor Director
• Bayer Pharma AG (Chairman)
(until February 2017)
• Currenta Geschäftsführungs-
GmbH (Chairman)
Kemal Malik
(born September 29, 1962)
Member of the Board of
Management effective
February 1, 2014, appointed
until January 31, 2022
Erica Mann
(born October 11, 1958)
Member of the Board of
Management effective
January 1, 2016, appointed
until March 31, 2018
Dieter Weinand
(born August 16, 1960)
Member of the Board of
Management effective
January 1, 2016, appointed
until December 31, 2018
• HealthPrize Technologies LLC
(Board of Directors)
Presidial Committee /
Mediation Committee
Wenning (Chairman),
Achleitner, Reinbold-Knape,
Zühlke
Audit Committee
Sturany* (Chairman),
Elsner, Löllgen, Plischke,
Wenning, Zühlke
Human Resources Committee
Wenning (Chairman),
Achleitner, Hausfeld, van Broich
Nominations Committee
Wenning (Chairman),
Achleitner
Innovation Committee
Plischke (Chairman), Bischofberger,
van Broich, Reinbold-Knape,
Schaab, Wenning, Wiestler, Zühlke
)
322
C Further Information
Organization Chart
Bayer Annual Report 2017
Organization Chart
C 1
Werner Baumann
Chairman
Johannes Dietsch 1
Finance
Hartmut Klusik *
Human Resources, Technology
& Sustainability
Kemal Malik
Innovation
A. Bouchon
Bayer Lifescience Center
M. Lessl
Corporate Innova tion and
Research & Development
M. Arnold
Corporate Office
T.-P. Hausner
Strategy
M. Baum
Risk Management
B.-P. Bier
Accounting & Taxes
O. Maier
Investor Relations
V. Hahn
Regional Coordination
M. Preuss
Communications and
Public Affairs
G. Harnier
Law, Patents & Compliance
F. Rittgen
Mergers, Licencing & Acquisi-
tions
R. Schwarz
Internal Audit
D. Hartert
Business Services
P. Müller
Finance
G. Schildmeyer
Corporate Controlling
T. Udesen
Procurement
A. Günther
Human Resources
& Organization
P.-G. Heiden
Corporate Quality
D. Heinz
Corporate Technology
& Manufacturing
R. Heumann
Corporate Supply Chain
G. Hilken
Currenta
A. Knors
Engineering & Technology
K. van Laak
Corporate Health,
Safety & Sustainability
* Labor Director
1 From June 1, 2018, Wolfgang Nickl
2 Europe / Middle East / Africa
3 Asia / Pacific
4 From April 1, 2018, Heiko Schipper
Augmented Version
Bayer Annual Report 2017
C Further Information
323
Organization Chart
C 1
C 1 (continued)
Dieter Weinand
Pharmaceuticals
Erica Mann 4
Consumer Health
Liam Condon
Crop Science
C. Brunn
Commercial Operations
Americas
N. Bartner
Commercial Operations
North America
W. Carius
Product Supply
S. James
Innovation & Development
M. Devoy
Chief Medical Officer
J. Koelink
Product Supply
R. Franzen
Commercial Operations EMEA 2
O. Mauroy-Bressier
Finance
S. Meyer
Commercial Operations
Europe / Middle East / Africa
A. Sanchez
Commercial Operations
Latin America
G. Vreeken
Strategic Marketing
L. Yuen
Commercial Operations
Asia / Pacific
S. Guth
Strategic Marketing
W. Jiang
Commercial Operations
China & APAC 3
R. LaCaze
Oncology
J. Möller
Research & Development
H. Prinz
Commercial Operations
Japan
J. Triana
Finance
J. Applegate
Environmental Science
D. Backhaus
Product Supply
M. Dawkins
Post-Merger Integration
M. Kremer
Crop Strategies & Portfolio
Management
T. Menne
Digital Farming
B. Naaf
Business Affairs
& Communications
A. Percy
Research & Development
M. Reichardt
Agricultural Commercial
Operations
M. A. Schulz
Finance
F. Terhorst
Pre-Merger Planning
D. Ehle
Animal Health
As of March 1, 2018
Augmented Version
324
C Further Information
GRI Content Index
Augmented Version
Bayer Annual Report 2017
G4 Content Index of the Global
Reporting Initiative (GRI) with the 10
Principles of the U.N. Global Compact
For fiscal 2017 we are once again applying the GRI G4 Guidelines that are valid until June 30, 2018. We have again
drafted our report in accordance with the “comprehensive” option of the Guidelines. If there is insufficient information
available on a GRI indicator, we have explained this. The detailed GRI Content Index additionally includes the correspond-
ing UNGC principles and the assignment of our areas of activity to the GRI aspects. Moreover, we indicate whether our
scope to exercise influence lies within or outside the company (GRI G4–19, G4–20, G4–21).
For the implementation of the GRI Materiality Disclosure Service the GRI had access to the “Annual Report 2017 –
Augmented Version.” The correct positioning of the “G4 Materiality Disclosures” (G4-17 – G4-27) was confirmed by the GRI.
GRI aspect
limitation
G4-20 G4-21
within
out-
side
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area
of activity
General Standard Disclosures
Strategy and Analysis
G4–1
Statement from the most
senior decision-maker
1-7
Key impacts, risks and
opportunities concerning
sustainability
43, 50 – 55,
56 – 58, 62,
94, 173
G4–2
Organizational Profile
G4–3 Name of the organization 46
G4–4
Primary brands, products
and services
43, 46 – 47, 52
Location of the
organization’s
headquarters
G4–5
44
G4–6
Countries with significant
operations
44 – 46
Nature of ownership
and legal form
G4–7
39, 48
G4–8 Markets served
Scale of the
organization
G4–9
6
G4–10
Employees by
employment type, gender
and region
44 – 45, 102,
102 – 103
Cover 3 (front
inside cover),
44 – 45, 79, 99,
208, 210
80 – 81, 86
Bayer Annual Report 2017
C Further Information
325
GRI Content Index
Augmented Version
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
General Standard Disclosures
3
G4–11
Percentage of employees
covered by collective
bargaining agreements
G4–12
Description of the
supply chain
Significant changes
during the reporting
period
G4–13
Page
Comments
Bayer area
of activity
GRI aspect
limitation
G4-20 G4-21
within
out-
side
88
93
2, 46, 48, 62,
64, 131
G4–14
Implementation of the
precautionary principle
107
External initiatives
that the organization
endorses
G4–15
40, 51, 56, 61,
85, 90, 94 – 95,
105, 107, 125
Significant memberships
in industry and business
associations
G4–16
56, 60, 85, 107,
109
Identified Material Aspects and Boundaries
Entities included in the
consolidated financial
statements
G4–17
G4–18
Process for defining
the report content
G4–19
Material Aspects
identified
G4–20
Aspect Boundaries
within the organization
G4–21
Aspect Boundaries
outside the organization
42, 237
57;
www.bayer.com/
materiality
328 – 337;
www.bayer.com/
areas-of-activity
328 – 337;
www.bayer.com/
areas-of-activity
328 – 337;
www.bayer.com/
areas-of-activity
Restatements of
information provided
in previous reports
G4–22
42, 48
Significant changes in
the Scope and Aspect
Boundaries
57;
www.bayer.com/
areas-of-activity
G4–23
Stakeholder Engagement
G4–24
Stakeholder groups
engaged
58 – 59
G4–25
Identification and
selection of stakeholders 58 – 59
Approach to stakeholder
engagement and
frequency
G4–26
38 – 39, 57 – 62,
64, 83 – 84, 97
Key topics and concerns
raised through
stakeholder engagement
and response
G4–27
38 – 39, 57, 61
Bayer Annual Report 2017
GRI aspect
limitation
G4-20 G4-21
within
out-
side
326
C Further Information
GRI Content Index
Augmented Version
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area
of activity
General Standard Disclosures
Report Profile
G4– 28 Reporting period
42
G4–29
Date of most recent
previous report
Annual Report:
2016-02-22
G4–30 Reporting cycle
Annually
Contact point for
questions regarding
the report
G4–31
“In accordance” option
with GRI and Content
Index chosen
G4–32
Cover 4 (back
inside cover)
40, 324 – 337
G4–33
External verification
of the report
35, 42, 308 –
315, 316 – 318
Governance
Governance structure,
incl. committees of the
highest governance body
28 – 30, 32 – 34,
182, 184,
186 – 187
G4–34
Process for delegating
authority for economic,
environmental and social
topics
57, 184,
186 – 188
G4–35
Executive-level position
with responsibility for
economic, environ-
mental and social topics
28 – 29, 31, 33,
57, 89, 104,
167 – 169, 184,
188
G4–36
Processes for
consultation between
stakeholders and the
highest governance body
G4–37
34, 38 – 39,
Cover 4 (back
inside cover);
www.bayer.com/
en/corporate-
governance.aspx
Composition of the
highest governance body
and its committees
33, 183,
185 – 186
G4–38
Independence of the
Chair of the highest
governance body
G4–39
Nomination and selection
processes for the highest
governance body and its
committees
G4–40
30, 186
34, 183 – 187
G4–41
Process for avoiding
conflicts of interest
183 – 185,
187 – 188
Highest governance
body's role concerning
strategy and goals
G4–42
31, 56, 184
Measures taken
concerning the highest
governance body’s
knowledge in
sustainability issues
33
G4–43
Bayer Annual Report 2017
C Further Information
327
GRI Content Index
Augmented Version
GRI aspect
limitation
G4-20 G4-21
within
out-
side
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area
of activity
General Standard Disclosures
Evaluation of the highest
governance body’s
performance concerning
sustainability
G4–44
30, 33
Highest governance
body’s role concerning
sustainability impacts,
risks, and opportunities
Highest governance
body’s role concerning
the effectiveness of the
risk management
Frequency of the highest
governance body’s
review of sustainability
impacts, risks, and
opportunities
Highest committee that
formally reviews and
approves the
sustainability report
Process for
communicating critical
concerns to the highest
governance body
Critical concerns that
were communicated to
the highest governance
body
G4–45
G4–46
G4–47
G4–48
G4–49
G4–50
Remuneration policies for
the highest governance
body and senior
executives
G4–51
G4–52
Process for determining
remuneration
G4–53
Stakeholders’ views
regarding remuneration
171, 188
31, 33,168 –
169, 186 – 187
33, 168,
170 – 171
35, 41, 57, 190
34, 38 – 39, 189;
www.bayer.com/
asm
31;
www.bayer.com/
asm
43, 188,
191 – 195, 202
31, 191, 202
191, 202;
www.bayer.com/
asm
Ratio of the highest
annual total
compensation to the
median annual total
compensation
G4–54
Ratio of percentage
increase in the
highest annual total
compensation
G4–55
Not available: we do not consider this
compensation detail to be of informative
value for the evaluation of the
appropriateness of our compensation
structures. We report on these in detail in the
section “Competitive compensation and
variable pay” and in our Compensation
Report.
Not available: we do not consider this
compensation detail to be of informative
value for the evaluation of the
appropriateness of our compensation
structures. We report on these in detail in the
section “Competitive compensation and
variable pay” and in our Compensation
Report.
328
C Further Information
GRI Content Index
Augmented Version
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area
of activity
Bayer Annual Report 2017
GRI aspect
limitation
G4-20 G4-21
within
out-
side
General Standard Disclosures
Ethics and Integrity
10
G4–56
Values, principles,
standards and norms of
behavior
43, 57, 83, 89,
188
10
G4–57
Mechanisms for seeking
advice on ethical and
lawful behavior
189
10
G4–58
Mechanisms for reporting
concerns about unethical
or unlawful behavior
89, 103,
188 – 189
Specific Standard Disclosures G4-19
Economic
7
7
Aspect: Economic Performance –
Management Approach
49, 91
G4-
EC1
Direct economic value
created and distributed
49 – 50, 86,
90 – 91, 249
Financial implications
and other risks and
opportunities due to
climate change
G4-
EC2
G4-
EC3
Coverage of benefit plan
obligations
G4-
EC4
Financial assistance
received from
government
178;
www.bayer.com
/CDP-Climate
86, 88,176,
269 – 272,
272 – 274, 277
64
84
6
Aspect: Market Presence –
Management Approach
6
6
G4-
EC5
G4-
EC6
Ratios of standard entry
level wage compared to
local minimum wage
Proportion of senior
management hired from
the local community
84
within
out-
side
Employee relations &
development
Product and process
innovation
Environmental
protection / resource
efficiency
X
X
X
X
X
Employee relations &
development
X
We align our compensation with local
market conditions in Emerging Markets
and developing countries. Furthermore,
in keeping with our human rights
position, we pursue the goal of paying
adequate salaries that ensure a suitable
standard of living for our employees and
their families. In all Emerging Markets
where we are active, the lowest salary
paid by Bayer is at least in line with the
applicable minimum wage and in most
cases higher. We therefore do not
report on the margin between standard
entry salary according to gender and
local minimum wage.
Bayer Annual Report 2017
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Specific Standard Disclosures G4-19
Aspect: Indirect Economic
Impacts – Management Approach 49
G4-
EC7
G4-
EC8
Infrastructure
investments and
services provided
Indirect economic
impacts
Aspect: Procurement Practices –
Management Approach
51 – 52, 91, 98
49
93
G4-
EC9
Proportion of spending
on local suppliers
42, 93, 338 –
339
Environmental
C Further Information
329
GRI Content Index
Augmented Version
Bayer area of
activity
Sustainable food
supply
Access to
health care
Supplier
management
GRI aspect
limitation
G4-20 G4-21
within
out-
side
X
X
X
7, 8
Aspect: Materials –
Management Approach
94, 99,
104 – 105,
120, 128
Environmental
protection / resource
efficiency
X
X
We do not report on the weight and volume of
the materials used. This information constitutes
a business secret. On account of our product
portfolio we additionally do not consider this
information to be meaningful.
We do not provide any information on volumes
relating to the total material use of secondary
raw materials since this also constitutes a
business secret. We do provide information on
production-, material- and, where possible,
product-related recycling.
Such energy consumption is contained in the
details of greenhouse gas emissions for Scope
3, which we publish in the CDP Report
(www.bayer.com/CDP-Climate).
We do not consider this indicator to be
applicable to our product portfolio as a Life
Science company. Data are therefore not
available.
Environmental
protection / resource
efficiency
X
X
Environmental
protection / resource
efficiency
X
X
7, 8
G4-
EN1
Materials used by
weight or volume
94
8
G4-
EN2
Percentage of materials
used that are recycled
input materials
7, 8,
9
Aspect: Energy –
Management Approach
55, 99,
104 – 105,
120 – 122
7, 8
G4-
EN3
Energy consumption
within the organization
120 – 121
G4-
EN4
G4-
EN5
G4-
EN6
8
8, 9
Energy consumption
outside of the
organization
121
Energy intensity
121 – 124
Reduction of energy
consumption
121 – 124
8, 9
G4-
EN7
Reductions in energy
requirements of
products and services
Aspect: Water –
Management Approach
G4-
EN8
Total water with-
drawal by source
G4-
EN9
Water resources
significantly affected
55, 99,
104 – 105, 120,
124 – 125
125 – 126
125;
www.bayer.com
/CDP-Water
G4-
EN10
Water recycled and
reused
125
7; 8
7, 8
8
8
330
C Further Information
GRI Content Index
Augmented Version
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area of
activity
Bayer Annual Report 2017
GRI aspect
limitation
G4-20 G4-21
within
out-
side
Specific Standard Disclosures G4-19
Aspect: Biodiversity –
Management Approach
99, 109
G4-
EN11
Operational sites
in protected areas
G4-
EN12
Impacts on protected
areas or areas of high
biodiversity value
99
109
8
8
8
Environmental
protection / resource
efficiency
X
X
We use our site register to record all site-related
data (including size). For confidentiality reasons,
we do not publish any size data on our sites, for
example.
7, 8,
9
Aspect: Emissions –
Management Approach
55, 99,
104 – 105, 120,
122 – 123
Environmental
protection / resource
efficiency
X
X
G4-
EN15
G4-
EN16
G4-
EN17
G4-
EN18
G4-
EN19
G4-
EN20
G4-
EN21
Direct greenhouse gas
(GHG) emissions
(Scope 1)
Energy indirect
greenhouse gas (GHG)
emissions (Scope 2)
122 – 123
122 – 123
Other indirect
greenhouse gas (GHG)
emissions (Scope 3)
122 – 123;
www.bayer.com/
CDP-Climate
Greenhouse gas (GHG)
emissions intensity
123
Reduction of
greenhouse gas (GHG)
emissions
122, 127
Emissions of ozone-
depleting substances
(ODS)
124
NOx, SOx and other
significant air emissions 124
Aspect: Effluents and Waste –
Management Approach
G4-
EN22
G4-
EN23
G4-
EN24
Total water discharge
by quality and
destination
Total weight of waste
by type and disposal
method
Total number and
volume of significant
spills
99, 104 – 105,
112, 120,
124 – 126, 128,
177
126
127
119 – 120, 124
G4-
EN25
Handling of hazardous
waste
127
Waste transported across borders is recorded
in Europe in line with legal regulations and
reported to the responsible authorities.
Water bodies
significantly affected
by discharges of water
and runoff
G4-
EN26
99, 124 – 125,
126
We give detailed information on all water-
related issues in our CDP Water Report
(www.bayer.com/CDP-Water)
7, 8
7, 8
7, 8
8
8, 9
7, 8
7, 8
8
8
8
8
8
8
Environmental
protection / resource
efficiency
X
X
Bayer Annual Report 2017
C Further Information
331
GRI Content Index
Augmented Version
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area of
activity
Specific Standard Disclosures G4-19
GRI aspect
limitation
G4-20 G4-21
within
out-
side
Product and process
innovation
Product stewardship
Environmental
protection / resource
efficiency
X
X
X
X
X
X
Business ethics
X
X
Safety
Environmental
protection / resource
efficiency
X
X
Supplier
management
X
X
X
Business ethics
X
X
7, 8,
9
Aspect: Products and Services –
Management Approach
7, 8,
9
G4-
EN27
Mitigation of
environmental impacts
of products and
services
106, 108, 112,
113, 115, 120,
176
64, 112 – 113,
115
8
8
8
8
8
8
8
8
8
G4-
EN28
Reclaimed products
and packaging
128
Aspect: Compliance –
Management Approach
Fines and sanctions
for noncompliance
with environmental
regulations
G4-
EN29
55, 89,
103 – 104,
169,177, 182,
187 – 189
229 – 230, 278,
296 – 297, 300
Aspect: Transport –
Management Approach
101
G4-
EN30
Significant
environmental impacts
of transports
Aspect: Supplier Environmental
Assessment – Management
Approach
101, 122
54, 93 – 96, 101
Percentage of new
suppliers that were
screened using
environmental criteria
G4-
EN32
95
Significant negative
environmental impacts
in the supply chain and
actions taken
G4-
EN33
Aspect: Environmental
Grievance Mechanisms –
Management Approach
95 – 96
189
8
G4-
EN34
Grievances about
environmental impacts
189
We do not report on the percentage of
new suppliers screened using
environmental criteria because these data
are not available. We report on the
procedure used for assessment.
We do not report in detail on the negative
environmental impact determined during
supplier assessment. We give details on
the areas in which essential impacts were
identified and corrective measures were
defined.
We do not report on the number of grievances
with respect to negative environmental impact.
We report on the total number of notifications
registered with the compliance hotline. We
internally record the precise reason for the
grievance, track how it is followed up and take
corresponding action in line with our corporate
policy. More detailed information on this would
constitute a business secret.
332
C Further Information
GRI Content Index
Augmented Version
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area of
activity
Bayer Annual Report 2017
GRI aspect
limitation
G4-20 G4-21
within
out-
side
G4-
LA1
G4-
LA2
G4-
LA3
Specific Standard Disclosures G4-19
Labor Practices and Decent Work
Aspect: Employment –
Management Approach
79, 86
New employee hires
and employee turnover
81 – 82
Benefits provided to
full-time employees
85
Return to work and
retention rates after
parental leave
86 – 87
83 – 84
Aspect: Labor / Management
Relations – Management
Approach
G4-
LA4
Minimum notice
period(s) regarding
operational changes
83
6
6
6
3
3
Employee relations
& development
X
Employee relations
& development
X
Aspect: Occupational Health
and Safety –
Management Approach
55, 79, 87, 99,
104 – 105, 116 –
117, 177, 188
1, 6
Safety
X
X
We do not report on the percentage of the total
workforce represented in health and safety
committees as these data are not globally
available. We plan to record these data in the
future.
We do not report on occupational injuries by
gender, as these data have to be collected in
certain regions anonymously. It is important for
us to have classification by incident type and a
detailed analysis of the causes of the individual
incidents.
Percentage of total
workforce represented
in health and safety
committees
G4-
LA5
G4-
LA6
G4-
LA7
G4-
LA8
Injuries, occupational
diseases, lost days and
work-related fatalities
116 – 117
Workers with high
incidence or risk of
diseases
116
Health and safety topics
covered in formal
agreements with trade
unions
87
Aspect: Training and Education –
Management Approach
79, 82, 174
G4-
LA9
Average hours of
training
83
Programs that support
the continued
employability of
employees
62, 82, 87, 117;
www.bayer.com
/training
Percentage of
employees receiving
regular performance
and career
development reviews
83
G4-
LA10
G4-
LA11
Aspect: Diversity and
Equal Opportunity –
Management Approach
55, 79, 83 – 85,
174, 183 – 185
6
6
6
1, 6
Employee relations
& development
X
Employee relations
& development
X
Bayer Annual Report 2017
C Further Information
333
GRI Content Index
Augmented Version
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area of
activity
GRI aspect
limitation
G4-20 G4-21
within
out-
side
6
6
6
Specific Standard Disclosures G4-19
Composition of
governance bodies and
breakdown of
employees by aspects
of diversity
28 – 29, 80 – 81,
84 – 85, 183,
185 – 186,
319 – 322
G4-
LA12
Aspect: Equal Remuneration for
Women and Men –
Management Approach
85
G4-
LA13
Ratio of basic salary
and remuneration of
women to men
85
Aspect: Supplier Assessment
for Labor Practices –
Management Approach
54, 89, 93 – 96,
101
Percentage of new
suppliers that were
screened using labor
practices criteria
G4-
LA14
95
Significant negative
impacts
for labor practices in
the supply chain and
actions taken
G4-
LA15
Aspect: Labor Practices
Grievance Mechanisms –
Management Approach
89, 95 – 96
89, 189
G4-
LA16
Grievances about
labor practices
189
Human Rights
6
Aspect: Non-discrimination –
Management Approach
83, 89, 188
6
G4-
HR3
Incidents of
discrimination and
corrective actions taken 89, 189
Employee relations
& development
X
Supplier
management
X
Business ethics
X
X
Business ethics
Employee relations
& development
X
X
X
We do not report on minorities, as these data
may not be recorded in some countries on
grounds of protection of personal rights.
We do not report quantitatively on the ratio of
the basic salary and compensation of women
to men. Male and female employees at Bayer
receive equal compensation. It is awarded on
the basis of qualifications and responsibility.
We do not report on the percentage of
new suppliers screened using labor
practices criteria because these data are
not available. We report on the procedure
used for assessment.
We do not report in detail on the negative
impact on labor practices determined
during supplier assessment. We give
details on the areas in which essential
impacts were identified and corrective
measures were defined.
We do not report on the number of
grievances with respect to the negative
impact on labor practices. We report on
the total number of notifications registered
with the compliance hotline. We internally
record the precise reason for the
grievance, track how it is followed up and
take corresponding action in line with our
corporate policy. More detailed
information on this would constitute a
business secret.
We do not report on the number of
incidents of discrimination. We report on
the total number of notifications registered
with the compliance hotline. We internally
record the precise reason for the
grievance, track how it is followed up and
take corresponding action in line with our
corporate policy. More detailed
information on this would constitute a
business secret.
334
C Further Information
GRI Content Index
Augmented Version
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area of
activity
Bayer Annual Report 2017
GRI aspect
limitation
G4-20 G4-21
within
out-
side
Specific Standard Disclosures G4-19
Aspect: Freedom of Association
and Collective Bargaining –
Management Approach
2, 3
88 – 89, 94 – 95,
188
Operations and
suppliers identified in
which the right to
exercise freedom of
association may be
violated or at risk, and
measures taken
89, 95 – 96
2, 3
G4-
HR4
2, 5
Aspect: Child Labor –
Management Approach
83, 89, 94 – 95,
97 – 98, 188
Operations and
suppliers having
significant risk for
incidents of child labor,
and measures taken
89, 95 – 96,
98 – 99
2, 5
G4-
HR5
Aspect: Forced or
Compulsory Labor –
Management Approach
2, 4
83, 89, 94 – 95,
188
Operations and
suppliers having
significant risk for
incidents of forced or
compulsory labor, and
measures taken
89, 95, 96
2, 4
G4-
HR6
1
1
2
2
2
Aspect: Security Practices –
Management Approach
G4-
HR7
Percentage of security
personnel trained in the
field of human rights
89
89
Aspect: Supplier Human Rights
Assessment – Management
Approach
54, 83, 89,
93 – 96, 101
Percentage of new
suppliers that were
screened using human
rights criteria
95
G4-
HR10
Significant negative
human rights impacts in
the supply chain and
actions taken
G4-
HR11
89, 95 – 96
We do not report on the percentage of
new suppliers screened using human
rights criteria because these data are not
available. We report on the procedure
used for assessment.
We do not report in detail on the negative
impact on human rights determined
during supplier assessment. We give
details on the areas in which essential
impacts occurred and corrective
measures were defined.
Employee relations
& development
X
Supplier
management
X
X
Employee relations
& development
Supplier
management
Employee relations
& development
Supplier
management
X
X
X
X
Employee relations
& development
Business ethics
X
X
Supplier
management
X
X
X
X
Bayer Annual Report 2017
C Further Information
335
GRI Content Index
Augmented Version
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area of
activity
GRI aspect
limitation
G4-20 G4-21
within
out-
side
Specific Standard Disclosures G4-19
Aspect: Human Rights
Grievance Mechanisms –
Management Approach
1
89, 189
1
G4-
HR12
Grievances about
human rights impacts
89, 189
Society
1
1
1
Aspect: Local Communities –
Management Approach
Percentage of
operations with
implemented local
community
engagement, impact
assessments and
development programs
Operations with actual
and potential negative
impacts on local
communities
G4-
SO1
G4-
SO2
10
Aspect: Anti-corruption –
Management Approach
Percentage of
operations assessed
for risks related to
corruption and risks
identified
10
G4-
SO3
10
G4-
SO4
Communication
and training on
anti-corruption
55, 58, 61 – 62,
99 – 101,
104 – 105,
116 – 119, 124,
177, 188
58, 60 – 61
100, 117 – 119,
124
55, 103 – 104,
169, 177,
187 – 189
188
189
G4-
SO5
Confirmed incidents of
corruption and actions
taken
Aspect: Public Policy –
Management Approach
G4-
SO6
Total value of political
contributions
189
190
190
10
10
10
Business ethics
X
X
We do not report on the number of formal
grievances with respect to human rights
violations, but on the total number of
notifications registered with the compliance
hotline. We internally record the precise
reason for the grievance and take corre-
sponding action in line with our corporate
policy. More detailed information on this
would constitute a business secret.
Safety
Stakeholder
engagement /
partnering
Societal
engagement
X
X
X
X
X
X
Business ethics
X
X
Business ethics
X
X
We do not report such risks in relation to
operations but in relation to sales. Complete
coverage is key in compliance / anti-corruption
in the first instance. Areas at risk are monitored
more frequently than others.
We do not report quantitatively on training for
the Board of Management, Supervisory Board
and business partners. Anti-corruption training
is performed globally, we therefore do not
disclose such information explicitly according to
region.
We do not report on the number of confirmed
incidents of corruption. We report on the total
number of notifications registered with the
compliance hotline. We internally record the
precise reason for the grievance, track how it is
followed up and take corresponding action in
line with our corporate policy. More detailed
information on this would constitute a business
secret.
336
C Further Information
GRI Content Index
Augmented Version
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area of
activity
Bayer Annual Report 2017
GRI aspect
limitation
G4-20 G4-21
within
out-
side
Specific Standard Disclosures G4-19
Aspect: Anti-competitive
Behavior – Management
Approach
55, 169, 177,
187 – 189
Legal actions for anti-
competitive behavior,
anti-trust and monopoly
practices
G4-
SO7
Aspect: Compliance –
Management Approach
229 – 230, 278,
296 – 297
55, 169, 177,
187 – 189
G4-
SO8
Fines and sanctions for
noncompliance with
laws and regulations
229 – 230, 278,
296 – 297, 300
Aspect: Supplier Assessment
for Impacts on Society –
Management Approach
2
54, 89, 93 – 96,
101
Percentage of new
suppliers that were
screened using criteria
for impacts on society
95
G4-
SO9
2
G4-
SO10
Significant negative
impacts on society in
the supply chain and
actions taken
89, 95 – 96
Aspect: Grievance Mechanisms
for Impacts on Society –
Management Approach
189
2, 3
2, 3
G4-
SO11
Number of grievances
about impacts on
society
189
Product Responsibility
Aspect:
Customer Health and Safety –
Management Approach
55, 104 – 107,
108 – 113, 115,
176, 188
Percentage of significant
product and service
categories for which health
and safety impacts are
assessed
Incidents of
noncompliance with
regulations and
voluntary codes
concerning the health
and safety impacts of
products and services
G4-
PR1
G4-
PR2
55, 105 – 108,
111 – 113, 115,
176, 188
296 – 297
We do not report on the percentage of new
suppliers screened using criteria for impact on
society because these data are not available.
We report on the procedure used for
assessment.
We do not report in detail on the negative
impact on society determined during supplier
evaluation. We give details on the areas in
which essential impacts occurred and
corrective measures were defined.
We do not report on the number of formal
grievances with respect to the negative impact
on society. We report on the total number of
notifications registered with the compliance
hotline. We internally record the precise reason
for the grievance, track how it is followed up
and take corresponding action in line with our
corporate policy. More detailed information on
this would constitute a business secret.
We do not report on the number of incidents of
noncompliance with regulations and voluntary
codes concerning the health and safety impact
of products and services. Any proceedings
on account of violations would be reported in
B Note 32 to the Consolidated Financial
Statements, Chapter “Legal Risks”.
Business ethics
X
X
Business ethics
X
X
Supplier
management
X
Business ethics
X
X
Sustainable food
supply
Product
stewardship
X
X
X
Bayer Annual Report 2017
C Further Information
337
GRI Content Index
Augmented Version
GRI G4 Content Index
UNGC
Prin-
ciples G4 Standard Disclosures
Page
Comments
Bayer area of
activity
GRI aspect
limitation
G4-20 G4-21
within
out-
side
Product
stewardship
X
X
We do not report on the number of incidents of
noncompliance with regulations and voluntary
codes concerning product and service
information and labeling. Any proceedings on
account of violations would be reported in B
Notes to the Consolidated Financial
Statements, Chapter “Legal Risks”.
We do not report on the number of incidents of
noncompliance with regulations and voluntary
codes concerning marketing communications.
Any proceedings on account of violations
would be reported in B Note 32 to the
Consolidated Financial Statements, Chapter
“Legal Risks”.
Product
stewardship
X
X
Business ethics
X
X
7
7
7
7
Specific Standard Disclosures G4-19
Aspect: Product and Service
Labelling – Management
Approach
102 – 103, 106 –
108, 111, 113
G4-
PR3
Principles / procedures
for product and service
information and labeling
102 – 103, 106 –
108, 111, 113
Incidents of
noncompliance with
regulations and
voluntary codes
concerning product
and service information
and labeling
Results of surveys
measuring customer
satisfaction
G4-
PR4
G4-
PR5
296 – 297
102 – 103
Aspect:
Marketing Communications –
Management Approach
102 – 104, 108,
113
G4-
PR6
Sale of banned or
disputed products
115, 178
Incidents of
noncompliance with
regulations and
voluntary codes
concerning marketing
communications
G4-
PR7
Aspect: Compliance –
Management Approach
Significant fines
concerning the
provision and use of
products and services
G4-
PR9
296 – 297
55, 169, 177,
187 – 189
229 – 230, 246,
278, 296 – 299
Further G4 Standard Disclosures
Significant investment
agreements and
contracts that include
human rights clauses
or screening
99
G4-HR1
G4-HR2
Employee training on
human rights issues
83, 89, 97
Aspect: Customer Privacy –
Management Approach
104, 174, 188
2
1
338
C Further Information
Glossary
Augmented version
Glossary
A
Access to Medicine (ATM)
describes activities to promote
general access to essential
medicines and improve
knowledge on health.
APM is the abbreviation for
alternative performance measure;
see A 2.4 for more information.
B
Biocides are substances and
products that control pests such
as insects, mice and rats, as well
as algae, fungi and bacteria.
C
CDP is a nonprofit organization
that works on behalf of institu-
tional investors to compile annual
rankings of detailed environmen-
tal data, especially in respect of
greenhouse gas emissions (CDP-
Climate) and water management
(CDP-Water), from over 5,000
companies worldwide. According
to CDP, more than 800 investors
representing fund assets of
around US$100 trillion currently
draw on this information for their
investment decisions.
Conflict minerals are those
mined in conflict regions.
They include tin, tungsten and
tantalum ores, gold or their
derivatives. Armed conflicts over
the control of these resources
occur particularly in the eastern
part of the Democratic Republic
of Congo and neighboring
countries.
Consumer-validated concepts
are concepts that are assessed
in terms of their potential for
success through consumer
surveys conducted as part of
market research activities.
Continuing operations Sales
and earnings reporting for
continuing operations pertains
only to business operations that
are expected to remain in the
company’s portfolio for the
foreseeable future; opposite of
discontinued operations.
(Corporate) compliance
comprises the observance of
statutory and company regula-
tions on lawful and responsible
conduct.
Corporate governance com-
prises the long-term manage-
ment and oversight of the com-
pany 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.
Corruption Perceptions Index
(CPI) Since 1995, NGO Trans-
parency International has pro-
duced an annual index of coun-
tries by the perceived level of
public-sector corruption. The CPI
ranks countries according to the
extent to which public servants
and politicians are believed to
engage in bribery and to grant or
accept undue advantage.
Credit default swaps (CDS) are
tradable insurance contracts
used to hedge against the default
of a borrower.
D
Debt Issuance Program (DIP)
DIP is a documentation platform
that has enabled Bayer to flexibly
issue notes in various currencies
and with different maturities.
Diversity designates the varia-
tion within the workforce in terms
of gender, origin, nationality, age,
religion, sexual orientation and
physical capability.
Bayer Annual Report 2017
F
Field crops are cultivated
plants with life cycles – vegeta-
tive development, flowering,
ripening and death – lasting up
to one year. Examples include
cereals, oilseed rape and sugar
beets.
Foreign exchange Claims for
payments in foreign currencies
traded on foreign exchanges,
usually in the form of balances
with foreign banks or bills of
exchange or checks payable
abroad; banknotes and coins
denominated in foreign curren-
cies are not considered to be
foreign exchange.
G
GHG Protocol The Greenhouse
Gas Protocol is an internationally
recognized tool for recording,
quantifying and reporting green-
house gas emissions. Its stand-
ards cover all emissions within
a company’s value chain. Bayer
aligns itself to the Corporate
Standard for direct (Scope 1)
and indirect (Scope 2) green-
house gas emissions and also
to the Corporate Value Chain
(Scope 3) Accounting and Re-
porting Standard, which covers
further indirect emissions along
the value chain. Dual reporting
was introduced in 2015 with
the updating of the GHG guide-
lines for Scope 2. Indirect emis-
sions have now to be reported
using both the location-based
and the market-based methods.
The location-based method
uses regional or national average
emissions factors, while the
market-based method applies
provider- or product-specific
emissions factors based on
contractual instruments.
Global commercial paper
program Commercial paper (CP)
issued under Bayer’s program is
a short-term, unsecured debt
instrument normally issued at a
discount and redeemed at nomi-
nal value. It is a flexible way of
obtaining short-term funding on
the capital market. Bayer’s com-
mercial paper program allows the
company to issue commercial
paper on both the U.S. and
European markets.
GRI (Global Reporting Initia-
tive) is a nonprofit organization
that works to promote the dis-
semination and optimization of
sustainability reporting. The GRI
guidelines are considered the
most frequently used and inter-
nationally most recognized
standard for sustainability report-
ing. These guidelines are evolved
in a multi-stakeholder process.
GRI was established in 1997 by
Ceres (Coalition for Environmen-
tally Responsible Economies) and
UNEP (United Nations Environ-
ment Programme).
The Group Leadership Circle
is the highest level of manage-
ment at the Bayer Group and
comprises roughly 480 managers
with significant responsibility on
a national or global level.
GxP is a collective term for all
guidelines that govern “good
working practice” and are partic-
ularly relevant for the fields of
medicine, pharmacy and phar-
maceutical chemistry. The “G”
stands for “Good” and the “P” for
“Practice,” while the “x” in the
middle is replaced by the respec-
tive abbreviation for the specific
area of application – such as
Good Manufacturing Practice
(GMP), Good Laboratory Practice
(GLP), Good Clinical Practice
(GCP) or Good Agricultural Prac-
tice (GAP). These guidelines are
established by institutions such
as the European Medicines
Agency or the U.S. Food and
Drug Administration.
H
HSEQ stands for health, safety,
environment and quality.
Hybrid bond A hybrid bond
is a corporate bond with equity-
equivalent properties, usually
with either no maturity date or
a very long maturity. Due to its
subordination, it has a lower
likelihood of repayment than a
normal bond in the event of
issuer bankruptcy.
Bayer Annual Report 2017
I
ILO core labor standards
The eight core labor standards
of the ILO (International Labour
Organization) that define the
minimum requirements for hu-
mane working conditions are
internationally recognized “quali-
tative social standards.” They
represent universal human rights
that are deemed valid in all
countries regardless of their
economic development status.
J
Junior management refers to
managerial employees below the
five highest management levels.
L
Local procurement at Bayer
means that goods and services
are ordered from suppliers that
are based in the same country as
the (Bayer) company that re-
ceives them.
N
Neonicotinoids are a chemical
class of systemic insecticides.
O
OTC (over-the-counter) desig-
nates the business with nonpre-
scription medicines.
P
Pharmacovigilance is defined
as activities and the science they
are based on that relate to the
identification, assessment, com-
prehension and prevention of
side effects or other problems
associated with pharmaceutical
products.
Phase I-IV studies are clinical
phases in the development of a
drug product. The active ingredi-
ent candidate is generally tested
in healthy subjects in Phase I,
and in patients in Phases II and
III. The studies test the therapeu-
tic tolerability and efficacy of
active ingredients in a specific
indication. Phase IV studies are
conducted following the approval
of a new drug product to monitor
its safety and efficacy over an
extended period of time. The
studies are subject to strict legal
requirements and documentation
procedures.
C Further Information
339
Glossary
Augmented version
S
V
Vector control describes meth-
ods for the avoidance or targeted
control of organisms that trans-
mit pathogens triggering infec-
tious diseases. Vectors include
blood-sucking insects such as
the Anopheles mosquito, which
can transfer malaria parasites, for
example.
W
Working capital is the differ-
ence between short-term current
assets and short-term liabilities;
it is calculated by deducting
short-term liabilities from current
assets (excluding cash and cash
equivalents). In the statement of
cash flows, the change in work-
ing capital is one of the variables
used to assess a company’s
financial health. The objective of
working capital management is
to reduce working capital by
minimizing the “financing gap”
caused by the time lapse be-
tween the disbursement of funds
(= payment for necessary raw
materials) and the receipt of
funds for the finished product.
Price / cash flow ratio
The price / cash flow ratio is the
ratio of the share price to operat-
ing cash flow per share. It shows
how long it would take for the
company’s cash flow to cover the
share price.
Price / earnings ratio
This is the ratio of the current
share price to earnings per share
(EPS). A high price / earnings
ratio indicates that the market
assigns a high value to the stock
in the expectation of future
earnings growth.
Purchase price allocation (PPA)
describes the process of allocat-
ing the purchase price into vari-
ous assets and liabilities when a
company is acquired.
R
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 Busi-
ness Services and Currenta. It
also includes “Corporate Func-
tions and Consolidation,” which
largely comprises Bayer holding
companies and Leaps by Bayer
(formerly the Bayer Lifescience
Center).
3Rs principle (replace, reduce,
refine) Replace: prior to each
project, Bayer checks whether
an approved method is available
that does not rely on animal
studies and then applies it.
Reduce: in case no alternative
method exists, only as many
animals are used as are needed
to achieve scientifically meaning-
ful results based on statutory
requirements. Refine: Bayer
ensures that animal studies are
performed in a way that mini-
mizes any suffering.
RSPO and RTRS credits
The credit system is a model that
supports the production of eco-
logically, socially and economi-
cally sustainable products with
RTRS / RSPO certification through
the sale of so-called credits. The
financial proceeds from credits
benefit farmers, who are able to
use the money to offset the
additional costs of sustainable
production.
Senior management refers to
managerial employees in the five
highest management levels.
Short-Term Incentive program
(STI program) is the variable
income component for all mana-
gerial staff. Employees taking
part in the program share in the
company’s success of the past
year in line with a uniform model
that applies across the Group.
Significant locations of
operation A selection of coun-
tries that accounted for more
than 80% of total Bayer Group
sales in 2017 (United States,
Germany, China, Brazil, Japan,
France, Canada, Italy, Mexico,
U.K., India, Spain, Australia,
Russia, Switzerland, Poland,
Turkey and Argentina)
Social innovation To tackle
the challenges of our time, we
need to think and work in a
way that goes beyond the
boundaries of scientific disci-
plines and institutions – both in
the science sector and social
domain. The term defines the
process by which new social
practices emerge, prevail and
become more widespread in
various areas of society.
Syndicated credit facility
Credit line agreed with a group
of banks; generally used for
extensive financing requirements,
such as when making an acquisi-
tion, 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 por-
tions, during its term.
U
United Nations Global
Compact (UNGC) The United
Nations Global Compact is
the most far-reaching and im-
portant responsible corporate
governance initiative in the
world. Based on 10 universal
principles in the areas of human
rights, labor, environment and
anticorruption, the UNGC pur-
sues the vision of an inclusive
and sustainable global economy
that benefits people, communi-
ties and markets everywhere.
By committing to the UNGC,
companies agree to document
each year their efforts to uphold
the 10 principles.
340
C Further Information
Five-Year Summary
Augmented Version
Five-Year Summary
Bayer Annual Report 2017
€ million
Bayer Group
Sales
EBITDA
1
EBITDA before special items
1
EBITDA margin before special items
1
EBIT
1
EBIT before special items
1
Income before income taxes
Net income (from continuing and discontinued operations)
Earnings per share (from continuing and discontinued operations) (€)
1
Core earnings per share (from continuing operations) (€)
1
Net cash provided by operating activities
(from continuing and discontinued operations)
Net financial debt
Capital expenditures (as per segment table)
2
Bayer AG
Total dividend payment
Dividend per share (€)
Innovation
Research and development expenses
Ratio of R&D expenses to sales – Pharmaceuticals (%)
Ratio of R&D expenses to sales – Crop Science (%)
Employees in research and development
Employees
Number of employees
3 (Dec. 31)
Personnel expenses (including pension expenses) (€ million)
Proportion of women in senior management (%)
Proportion of employees with health insurance (%)
Fluctuation (voluntary / total) (%)
2013
2014
2015
2016
2017
40,157
41,339
7,830
8,401
20.9%
4,934
5,773
4,207
3,189
3.86
5.61
5,171
6,731
2,155
8,315
8,685
21.0%
5,395
5,833
4,414
3,426
4.14
5.89
5,810
19,612
2,484
46,085
9,573
10,256
22.3%
6,241
7,060
5,236
4,110
4.97
6.82
6,890
17,449
2,554
34,943
35,015
8,801
9,318
26.7%
5,738
6,826
4,773
4,531
5.44
6.67
9,089
11,778
2,627
8,563
9,288
26.5%
5,903
7,130
4,577
7,336
8.41
6.74
8,134
3,595
2,418
1,737
2.10
1,861
2.25
2,067
2.50
2,233
2.70
2,315
2.80
3,406
15.8
9.8
3,537
15.6
10.3
4,274
16.0
10.7
4,405
16.7
11.7
4,504
16.2
11.7
13,509
13,900
14,753
14,213
14,041
112,400
117,400
116,600
9,430
9,693
11,176
99,592
9,459
99,820
9,528
25
95
26
96
28
96
31
98
32
98
5.5 / 14.0
4.8 / 11.4
5.0 / 13.9
4.8 / 13.2
4.8 / 10.4
Hours of vocational and ongoing training per employee
17.8
18.0
20.0
23.0
23.4
Safety & Environmental Protection
Recordable Incident Rate for Bayer employees (RIR)
Loss of Primary Containment Incident Rate (LoPC-IR)
4
Total energy consumption (terajoules)
Energy efficiency (kWh / €1,000 external sales)
5
Total greenhouse gas emissions (CO2 equivalents in million t)
6
Specific greenhouse gas emissions (CO2 equivalents in kg / €1,000 external
sales), according to the market-based method
7
Water use (million m³)
0.49
0.16
0.44
0.13
0.43
0.11
0.40
0.17
0.45
0.13
27,972
26,288
24,677
26,243
25,832
171
4.40
52.18
117
154
4.06
46.84
104
143
4.62
55.70
110
130
4.64
48.45
93
125
3.63
46.26
98
2016 figures restated; figures for 2013 – 2015 as last reported; Safety & Environmental Protection: prior years’ figures restated
1 For definitions of the indicators, see A 2.4
2 Group total 2016 including Covestro
3 Employees calculated as full-time equivalents (FTEs)
4 LoPC = Loss of Primary Containment; number of incidents in which chemicals leak from their primary container, such as pipelines, pumps, tanks or drums,
per 200,000 working hours
5 Quotient of total energy consumption and external sales; Bayer excluding Currenta
6 Direct emissions from power plants, waste incinerators and production plants and indirect emissions from external supplies of electricity, steam and cooling
(according to the market-based method); portfolio-adjusted in accordance with the GHG Protocol
7 Bayer excluding Currenta
Financial Calendar
Q1 2018 Interim Report
Annual Stockholders’ Meeting 2018
Planned dividend payment day
Q2 2018 Interim Report
Q3 2018 Interim Report
Annual Report 2018
Q1 2019 Interim Report
Annual Stockholders’ Meeting 2019
Masthead
May 3, 2018
May 25, 2018
May 30, 2018
September 5, 2018
November 13, 2018
February 27, 2019
April 25, 2019
April 26, 2019
Publisher
Bayer AG, 51368 Leverkusen,
Germany
Editor
Jörg Schäfer, Tel. +49 214 30 39136
email: joerg.schaefer@bayer.com
Investor Relations
Peter Dahlhoff, Tel. +49 214 30 33022
email: peter.dahlhoff@bayer.com
Date of publication
Wednesday, February 28, 2018
Sustainability & Business
Stewardship
Dagmar Jost, Tel. +49 214 30 75284
email: dagmar.jost@bayer.com
English edition
Bayer Business Services GmbH
Translation Services
ISSN 0343 / 1975
For fast and easy access to our online services, there’s no need to copy down the internet addresses.
Simply scan the codes below with your smartphone and an appropriate app:
Annual Report
online
Available at:
bayer.com / ar17
Annual Stockholders’
Meeting 2018
Information available at:
bayer.com / asm
Other publications
Overview available at:
bayer.com / publications
Bayer on the internet: www.bayer.com
Combined management report and consolidated financial statements produced in-house with firesys.
The paper this report is printed on is derived from
sources managed in line with social, economic
and ecological principles and therefore bears the
seal of the Forest Stewardship Council®.
The inside section was produced using 100%
recycled fibers – as guaranteed by the E.U.
Ecolabel certification (paper reg. no. FR / 011 / 003).
Cautionary Statements Regarding
Forward-Looking Information
Certain statements contained in this Annual
Report may constitute “forward-looking state-
ments.” Actual results could differ materially
from those projected or forecast in the for-
ward-looking statements. The factors that
could cause actual results to differ materially
include the following: uncertainties as to the
timing of the transaction; the possibility that
the parties may be unable to achieve expected
synergies and operating efficiencies in the
merger within the expected time frames or at
all and to successfully integrate Monsanto’s
operations into those of Bayer; such integra-
tion may be more difficult, time-consuming or
costly than expected; revenues following the
transaction may be lower than expected; oper-
ating costs, customer loss and business dis-
ruption (including, without limitation, difficulties
in maintaining relationships with employees,
customers, clients or suppliers) may be greater
than expected following the announcement of
the transaction; the retention of certain key
employees at Monsanto; risks associated with
the disruption of management’s attention from
ongoing business operations due to the trans-
action; the conditions to the completion of the
transaction may not be satisfied, or the regula-
tory approvals required for the transaction may
not be obtained on the terms expected or on
the anticipated schedule; the parties’ ability to
meet expectations regarding the timing, com-
pletion and accounting and tax treatments of
the merger; the impact of the refinancing of the
loans taken out for the transaction, the impact
of indebtedness incurred by Bayer in connec-
tion with the transaction and the potential im-
pact on the rating of indebtedness of Bayer;
the effects of the business combination of
Bayer and Monsanto, including the combined
company’s future financial condition, operat-
ing results, strategy and plans; other factors
detailed in Monsanto’s Annual Report on
Form 10-K filed with the SEC for the fiscal
year ended August 31, 2017 and Monsanto’s
other filings with the SEC, which are available
at http://www.sec.gov and on Monsanto’s
website at www.monsanto.com; and other
factors discussed in Bayer’s public reports
which are available on the Bayer website at
www.bayer.com. Bayer and Monsanto as-
sume no obligation to update the information
in this communication, except as otherwise
required by law. Readers are cautioned not to
place undue reliance on these forward-look-
ing statements that speak only as of the date.
Legal Notice
The product names designated with ™ are
brands of the Bayer Group or our distribution
partners and are registered trademarks in
many countries.
7
1
0
2
t
h
c
i
r
e
b
s
t
f
ä
h
c
s
e
G
-
r
e
y
a
B
Kennzahlen
siehe Rückseite
Kennzahlen
siehe Rückseite
Geschäftsjahr 2017
Bayer: Geschäft auf Vorjahresniveau –
Geschäftsjahr 2017
strategisch auf Kurs
Bayer: Geschäft auf Vorjahresniveau –
Konzernumsatz 35,0 Mrd. € (wpb. +1,5 %)
strategisch auf Kurs
Pharmaceuticals mit weiterem Rekordjahr
Consumer Health mit schwacher Geschäftsentwicklung
Konzernumsatz 35,0 Mrd. € (wpb. +1,5 %)
Crop Science durch Brasilien-Effekt unter Vorjahr –
Pharmaceuticals mit weiterem Rekordjahr
Maßnahmen greifen
Consumer Health mit schwacher Geschäftsentwicklung
EBITDA vor Sondereinflüssen 9,3 Mrd. € (– 0,3 %)
Crop Science durch Brasilien-Effekt unter Vorjahr –
Konzernergebnis 7,3 Mrd. € (+61,9 %)
Maßnahmen greifen
Bereinigtes Ergebnis je Aktie 6,74 € (+1,0 %)
EBITDA vor Sondereinflüssen 9,3 Mrd. € (– 0,3 %)
Covestro entkonsolidiert – weitere Mittelzuflüsse von
Konzernergebnis 7,3 Mrd. € (+61,9 %)
Bereinigtes Ergebnis je Aktie 6,74 € (+1,0 %)
Übernahme von Monsanto für das 2. Quartal 2018
Covestro entkonsolidiert – weitere Mittelzuflüsse von
erwartet
Weitere Fortschritte bei der Umsetzung der Nachhaltig-
Übernahme von Monsanto für das 2. Quartal 2018
keitsziele
Konzernausblick 2018: wpb. Umsatzsteigerung, EBITDA
Weitere Fortschritte bei der Umsetzung der Nachhaltig-
vor Sondereinflüssen und bereinigtes Ergebnis je Aktie
keitsziele
währungsbedingt auf Vorjahresniveau
Konzernausblick 2018: wpb. Umsatzsteigerung, EBITDA
vor Sondereinflüssen und bereinigtes Ergebnis je Aktie
währungsbedingt auf Vorjahresniveau
4,7 Mrd. €
4,7 Mrd. €
erwartet
www.bayer.com