 Bayer AktiengesellschaftLeverkusenInterim Report as of June 30, 2016Second Quarter of 2016Bayer Raises Sales and Earnings
The Bayer Group posted further growth in the second quarter of 2016. Adjusted for
currency and portfolio effects (Fx & portfolio adj.), sales increased by 2.3% to €11.8
billion and EBITDA before special items by 5.7% to €3.1 billion. The Life Sciences
recorded encouraging sales and earnings growth overall. At Pharmaceuticals, we benefited
from the continued strong development of our recently launched products. Consumer
Health increased sales, while EBITDA before special items receded. Sales of Crop Science
held steady at the prior-year level despite a continuingly difficult market environment,
while earnings decreased. EBITDA before special items at Animal Health declined despite
sales growth. Covestro registered a substantial increase in EBITDA before special
items, while sales fell as expected. We are raising the Group forecast. 1. Overview of Sales, Earnings and Financial PositionSecond quarter of 2016Sales of the Bayer Group increased by 2.3% to €11,833 million in the second quarter of 2016 after adjusting for currency and portfolio changes (Fx & portfolio adj.1 ; reported2 : - 1.4%). Germany accounted for €1,177 million of this figure. Pharmaceuticals posted encouraging sales growth of 8.4% (Fx & portfolio adj.) to €4,104
million. Our recently launched products once again showed strong business development.
Consumer Health also raised sales by 4.0% (Fx & portfolio adj.) to €1,553 million.
Sales of Crop Science were level year on year (Fx & portfolio adj. + 0.4%) despite
the weak market environment, at €2,518 million. Animal Health sales rose by 4.2% (Fx
& portfolio adj.) to €426 million. Sales of the Life Science businesses amounted to
€8,858 million overall (Fx & portfolio adj. + 4.6%). Sales of Covestro fell by 3.9%
(Fx & portfolio adj.) to €2,975 million. Despite negative currency effects of €90 million, dissynergies from the Covestro IPO
and the divestiture of Diabetes Care, Group EBITDA before special items improved by
5.7% to €3,054 million. Pharmaceuticals improved EBITDA before special items by 13.3% to €1,352 million, due
mainly to the continued very good development of business. EBITDA before special items
of Consumer Health receded by 9.4% to €328 million. The earnings contributions from
the good business performance and cost synergies were not sufficient to offset the
higher selling expenses as well as allocation and currency effects. As a result of
the continuingly weak market environment, EBITDA before special items of Crop Science
fell by 8.2% to €663 million. Animal Health posted a 16.7% decline in EBITDA before
special items, to €100 million, that was attributable to factors including higher
selling expenses. The Life Science businesses recorded EBITDA before special items
of €2,511 million overall (+ 5.4%). Covestro raised EBITDA before special items by
7.3% to €543 million. Earnings of the reconciliation climbed sharply against the prior-year
quarter, largely on account of the change to provisions for long-term stock-based
compensation. EBIT of the Bayer Group advanced by 17.3% to €2,138 million (Q2 2015: €1,823 million)
after special charges of €104 million (Q2 2015: €255 million). These mainly comprised
€46 million for efficiency improvement measures, €29 million for the integration of
acquired businesses and €21 million in connection with the realignment of the Bayer
Group. EBIT before special items increased by 7.9% to €2,242 million (Q2 2015: €2,078
million). After a financial result of minus €314 million (Q2 2015: minus €287 million), income
before income taxes was €1,824 million (Q2 2015: €1,536 million). After income tax
expense of €431 million (Q2 2015: €390 million), income from discontinued operations
after income taxes and noncontrolling interest, net income in the second quarter of
2016 came to €1,380 million (Q2 2015: €1,164 million). Earnings per share (overall)
were €1.67 (Q2 2015: €1.40). Core earnings per share from continuing operations advanced
to €2.07 (Q2 2015: €1.99). 1
The currency- and portfolio-adjusted sales growth shows the percentage change in sales
excluding the impact of exchange rate effects and the acquisitions and divestitures
material to each business entity. Exchange rate effects are generally calculated on
the basis of the functional currency valid in the respective country. Exceptions exist
in Brazil and Argentina, primarily at Crop Protection, where the respective functional
currencies are restated in U.S. dollars for business-related reasons. Gross cash flow from continuing operations in the second quarter of 2016 climbed by
a substantial 9.3% to €2,366 million (Q2 2015: €2,165 million). Despite an increase
in cash tied up in working capital, net cash flow (total) edged forward by 1.2% to
€1,982 million (Q2 2015: €1,959 million). We paid income taxes of €659 million in
the second quarter of 2016 (Q2 2015: €352 million). Net financial debt increased by €1.5 billion, from €16.3 billion on March 31, 2016,
to €17.8 billion on June 30, 2016. The net defined benefit liability for post-employment
benefits - the difference between benefit obligations and plan assets - increased
from €13.3 billion to €13.8 billion over the same period, due especially to a decline
in long-term capital market interest rates for high-quality corporate bonds in Germany,
the United Kingdom and the United States. The number of people employed by the Bayer Group declined by 1.7% from 117,534 on
June 30, 2015, to 115,576 on June 30, 2016. Personnel expenses rose by 1.7% in the
same period, from €2,743 million to €2,789 million. First half of 2016Group sales in the first half of 2016 rose by 2.8% (Fx & portfolio adj.) to €23,687
million (reported: - 0.5%). The Life Science businesses contributed to this performance,
growing sales by 5.3% (Fx & portfolio adj.) to €17,862 million. Pharmaceuticals posted significant sales gains of 10.2% (Fx & portfolio adj.) to €7,993
million. Sales of Consumer Health improved by 3.1% (Fx & portfolio adj.) to €3,073
million. Despite the difficult market environment, sales of Crop Science were flat
year on year (Fx & portfolio adj.: + 0.8%) at €5,454 million. Sales of Animal Health
moved forward by 6.4% (Fx & portfolio adj.) to €834 million. Covestro saw sales fall
by 4.3% (Fx & portfolio adj.) to €5,825 million. EBITDA before special items of the Bayer Group advanced by 10.9% to €6,441 million
(H1 2015: €5,810 million). The good sales development particularly in the Life Science
businesses was accompanied by high R&D and selling expenses. Earnings were held back
by negative currency effects of around €150 million. Pharmaceuticals increased EBITDA
before special items by a substantial 14.7% to €2,613 million. EBITDA before special
items of Consumer Health receded by 2.7% to €711 million. The earnings contributions
from the good business performance and cost synergies were not sufficient to offset
selling expenses as well as allocation and currency effects. EBITDA before special
items was level year on year at Crop Science (+ 0.5%; €1,752 million) and Animal Health
(0.0%; €222 million). The Life Science businesses increased EBITDA before special
items by 10.5% to €5,394 million overall. EBITDA before special items of Covestro
climbed by a substantial 12.6% to €1,047 million. EBIT of the Bayer Group advanced robustly, gaining 18.9% to €4,458 million (H1 2015:
€3,748 million) after net special charges of €376 million (H1 2015: €499 million).
EBIT before special items moved forward by a clear 13.8% to €4,834 million (H1 2015:
€4,247 million). After a financial result of minus €629 million (H1 2015: minus €561 million), income
before income taxes was €3,829 million (H1 2015: €3,187 million). The financial result
mainly comprised net interest expense of €260 million (H1 2015: €288 million), interest
cost of €143 million (H1 2015: €148 million) for pension and other provisions, and
currency hedging costs of €177 million (H1 2015: €122 million). After tax expense
of €905 million (H1 2015: €759 million), income after income taxes was €2,924 million
(H1 2015: €2,428 million). After income from discontinued operations after income taxes and noncontrolling interest,
net income in the first half of 2016 came to €2,891 million (H1 2015: €2,498 million).
Earnings per share improved to €3.50 (H1 2015: €3.02), and core earnings per share
to €4.42 (H1 2015: €4.05). Gross cash flow from continuing operations climbed by 18.5% to €4,930 million (H1
2015: €4,162 million). Despite an increase in cash tied up in working capital, net
cash flow (total) rose by 23.1% to €3,304 million (H1 2015: €2,683 million) due mainly
to the inflow from the divestiture of the Diabetes Care business. This figure reflected
income tax payments of €1,208 million (H1 2015: €796 million). Net financial debt
increased by €0.4 billion compared with December 31, 2015 (€17.4 billion), to €17.8
billion as of June 30, 2016. The net defined benefit liability for post-employment
benefits rose from €10.8 billion on December 31, 2015, to €13.8 billion, mainly due
to a decrease in long-term capital market interest rates for high-quality corporate
bonds. 2. Economic OutlookEconomic Outlook1Table 1scroll
2015 figures restated 1
Real growth of gross domestic product, source: IHS Global Insight As of July 2016 Economic expectations slightly worsened overall in the first half of the year. We
now anticipate somewhat slower growth for the global economy in 2016 than in the previous
year. The British vote to leave the European Union will cause additional uncertainty,
particularly for the European economy. A slower pace of growth is also expected in
the United States, however, especially in view of the disappointing job market development.
The Emerging Markets are likely to grow at the same pace as in the previous year. Economic Outlook for the Segments1Table 2scroll
2015 figures restated As of July 2016 Covestro continues to anticipate an improved economic climate in 2016 for its main
customer industries. 3. Sales and Earnings ForecastThe forecasts for the alternative performance indicators EBITDA before special items,
core earnings per share and currency- and portfolio-adjusted sales changes have been
calculated in line with the reporting principles applied in preparing the financial
statements and the adjustments described in Chapters 7 and 8. We have adjusted the exchange rates relevant to our forecast to reflect current developments.
For the second half of 2016 we are now using the exchange rates prevailing on June
30, 2016, including a EUR-USD rate of 1.11. A 1% appreciation (depreciation) of the
euro against all other currencies would decrease (increase) sales on an annual basis
by some €300 million and EBITDA before special items by about €90 million. Following the signing in May 2016 of an agreement to sell the Consumer business of
Environmental Science in the Crop Science Division, this business is no longer included
in continuing operations and therefore is no longer included in the forecast. The following forecast for the current fiscal year is based on the business development
described in this report, taking into account the potential risks and opportunities
and assuming the inclusion of the Covestro business for the full year. Bayer GroupFor 2016, we are now planning sales of €46 billion to €47 billion (previously: more
than €47 billion) for the Bayer Group, including Covestro. This continues to correspond
to a low-single-digit percentage increase on a currency- and portfolio-adjusted basis.
We now plan to increase EBITDA before special items by a high-single-digit (previously:
mid-single-digit) percentage. It is now our aim to increase core earnings per share
from continuing operations (calculated as explained in Chapter 8 "Core Earnings Per
Share") by a mid- to high-single-digit percentage (previously: a mid-single-digit
percentage). This takes into account Covestro's inclusion at around 64% starting on
April 19, 2016 (January 1 to April 18, 2016: around 69%). Life Sciences totalWe continue to plan sales of approximately €35 billion for the Life Science activities,
i.e. the Bayer Group excluding Covestro. This still corresponds to a mid-single-digit
percentage increase on a currency- and portfolio-adjusted basis as previously forecasted.
We now plan to increase EBITDA before special items by a mid- to high-single-digit
(previously: mid-single-digit) percentage. Our planning includes dissynergies of around
€130 million from the legal independence of Covestro and from divestments. PharmaceuticalsFor Pharmaceuticals, we now expect sales above €16 billion (previously: approximately
€16 billion) despite some price decreases. This now corresponds to a high-single-digit
(previously: mid-single-digit) percentage increase on a currency- and portfolio-adjusted
basis. We now plan to raise sales of our recently launched pharmaceutical products
toward €5.5 billion (previously: to more than €5 billion). We now expect a low-teens
(previously: mid- to high-single-digit) percentage increase in EBITDA before special
items. We aim to improve the EBITDA margin before special items. Consumer HealthIn the Consumer Health Division, we now expect sales to come in at approximately €6
billion (previously: more than €6 billion). We now plan to grow sales by a low- to
mid-single-digit (previously: mid-singledigit) percentage on a currency- and portfolio-adjusted
basis. We now expect EBITDA before special items to come in on the level of the prior
year (previously: increase by a mid-single-digit percentage). Crop ScienceIn light of the continuingly weak market environment, we now expect Crop Science sales
to be on the prior-year level (previously: increase by a low-single-digit percentage)
on a currency- and portfolio-adjusted basis. This is equivalent to reported sales
of about €10 billion. We now expect a low-single-digit percentage decrease (previously:
low-single-digit percentage increase) in EBITDA before special items. Animal HealthAt Animal Health, we continue to expect sales to be slightly above the prior-year
level. We are still planning a currency- and portfolio-adjusted sales gain and an
increase in EBITDA before special items, each by a low- to mid-single-digit percentage. ReconciliationFor 2016, we now expect sales to come in at approximately €1 billion (previously:
to be level with the previous year; 2015: €1.1 billion). We are now planning EBITDA
before special items of roughly minus €0.1 billion (previously: minus €0.2 billion). CovestroFor 2016, Covestro is now expecting a sales decline (previously: sales at the prior-year
level) and, for the second half of 2016, EBITDA after adjustment for special items
at least at the prior-year level (previously: for the full year, a decline in EBITDA
after adjustment for special items). Further key data for the Bayer GroupWe continue to expect special charges in the region of €0.5 billion in 2016, with
the integration of the acquired consumer care businesses and charges in connection
with the reorganization of the Bayer Group accounting for most of this amount. Our prediction for the financial result is unchanged at around minus €1.2 billion.
The effective tax rate is still likely to be about 24%. We continue to expect net
financial debt at below €16 billion at the end of 2016. Further details of the business forecast are provided in Chapter 18.2 of the Combined
Management Report in our Annual Report 2015. 4. Changes to the Corporate StructureIn April 2016, Bayer AG deposited 10 million shares, or 4.9% of the issued shares,
of Covestro AG in Bayer Pension Trust e.V. Bayer therefore currently still owns around
64% of Covestro. In May 2016, Crop Science signed an agreement to divest the Consumer business of Environmental
Science, which is now reported under discontinued operations. Environmental Science
therefore now comprises only the business for professional users. The key data and
prior-year figures are restated accordingly. 5. Business Development by Segment and Region5.1 PharmaceuticalsKey Data - PharmaceuticalsTable 3scroll
scroll
2015 figures restated; Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted 1
For definition see Chapter 7 "Calculation of EBIT(DA) Before Special Items." Second quarter of 2016SalesSales of Pharmaceuticals rose by an encouraging 8.4% (Fx & portfolio adj.) to €4,104
million in the second quarter of 2016. Our recently launched products continued their
strong development. Xarelto™, Eylea™, Xofigo™, Stivarga™ and Adempas™ posted total
combined sales of €1,332 million (Q2 2015: €1,051 million; Fx adj. +28.8%). Our Pharmaceuticals
business expanded in all regions on a currency-adjusted basis. Best-Selling Pharmaceuticals ProductsTable 4scroll
scroll
Fx adj. = currency-adjusted 1
Marketing rights owned by Regeneron Pharmaceuticals Inc., U.S.A. Sales by product
EarningsEBITDA before special items of Pharmaceuticals increased by a substantial 13.3% to €1,352 million in the second quarter of 2016. As expected, the earnings contributions from the very good business development stood against high investments in research and development. Currency effects of around €40 million had a diminishing effect. EBIT grew by a robust 28.0% to €988 million, including special charges of €11 million (Q2 2015: €78 million) which largely resulted from efficiency enhancement programs. First half of 2016SalesSales of the Pharmaceuticals segment rose by 10.2% (Fx & portfolio adj.) in the first half of 2016, to €7,993 million. This increase was driven by our recently launched products Xarelto™, Eylea™, Stivarga™, Xofigo™ and Adempas™, which generated combined sales of €2,519 million (H1 2015: €1,948 million). Pharmaceuticals sales developed positively in all regions. EarningsEBITDA before special items improved by a substantial 14.7% in the first half of 2016, to €2,613 million, driven by very good business performance. At the same time, higher investments in research and development as well as negative currency effects of around €80 million had a diminishing effect. EBIT advanced by a substantial 11.0% to €1,686 million, including special charges of €242 million (H1 2015: €102 million). These mainly comprised €231 million for impairment losses on intangible assets (Essure™). 5.2 Consumer HealthKey Data - Consumer HealthTable 5scroll
scroll
2015 figures restated; Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted 1
For definition see Chapter 7 "Calculation of EBIT(DA) Before Special Items." Second quarter of 2016SalesSales of Consumer Health rose by 4.0% (Fx & portfolio adj.) in the second quarter
of 2016 to €1,553 million. Business developed well in the Latin America / Africa /
Middle East, Europe and Asia / Pacific regions, while sales in North America were
down compared with a strong prior-year quarter. Our Claritin™, Aspirin™, Bepanthen™
/ Bepanthol™ and Canesten™ brands posted very high growth rates. Best-Selling Consumer Health ProductsTable 6scroll
scroll
2015 figure for Aleve™ restated; Fx adj. = currency-adjusted 1
Trademark rights and distribution only in certain countries outside the European Union Sales by product
EarningsEBITDA before special items of Consumer Health declined by 9.4% to €328 million in the second quarter of 2016 (Q2 2015: €362 million). The earnings contributions from the good business performance and cost synergies were not sufficient to offset the higher selling expenses as well as allocation and currency effects of around €25 million. EBIT was level year on year at €190 million (- 0.5%), including special charges of €32 million (Q2 2015: €61 million). These largely reflected costs of €29 million for the integration of acquired businesses. First half of 2016SalesSales of Consumer Health in the first half of 2016 increased by 3.1% (Fx & portfolio
adj.) to €3,073 million. Business development in Latin America and in the Asia / Pacific
region was especially positive, whereas sales declined in the United States. EarningsEBITDA before special items decreased slightly by 2.7% in the first half of 2016, to €711 million (H1 2015: €731 million). The earnings contributions from the good business performance and cost synergies were not sufficient to offset the higher selling expenses as well as allocation and currency effects of around €40 million. EBIT advanced by a substantial 18.6% to €433 million (H1 2015: €365 million), including special charges of €64 million (H1 2015: €150 million). These reflected charges of €47 million for the integration of acquired businesses and €17 million for efficiency improvement measures. 5.3 Crop ScienceKey Data - Crop ScienceTable 7scroll
scroll
2015 figures restated; Fx & n adj. = currency- and nortfolio-adiusted; Fx adi. = currency-adiusted 1
For definition see Chapter 7 "Calculation of EBIT(DA) Before Special Items." Second quarter of 2016SalesIn the second quarter of 2016, Crop Science posted sales of €2,518 million (Fx & portfolio
adj. + 0.4%). Business at Crop Protection / Seeds was steady year on year despite
an ongoing weak market environment. Environmental Science posted a slight decline
in sales. Following the conclusion in May 2016 of an agreement to divest the Consumer business
of Environmental Science, these activities are reported under discontinued operations.
Environmental Science therefore now comprises only the business for professional users.
The key data and prior-year figures are restated accordingly. Sales by Business UnitTable 8scroll
scroll
2015 figures restated; Fx & p adj. = currency- and portfolio-adjusted Sales by region
EarningsEBITDA before special items of Crop Science declined by 8.2% to €663 million in the second quarter of 2016 (Q2 2015: €722 million). The higher cost of goods sold, slightly lower volumes and a negative currency effect of around €10 million were compensated only in part by higher selling prices and lower selling expenses. EBIT decreased by 8.7% to €512 million, after special charges of €30 million (Q2 2015: €28 million), due largely to restructuring measures. First half of 2016SalesSales of Crop Science in the first half of 2016 were level year on year at €5,454
million (Fx & portfolio adj. + 0.8%) despite the difficult market environment. At
Crop Protection / Seeds, the positive development of Fungicides compensated declining
Insecticides sales. We expanded business at Seeds and Environmental Science. Sales
increased in the Asia / Pacific and Europe regions, whereas business remained at the
prior-year level in North America and Latin America / Africa / Middle East. EarningsEBITDA before special items of Crop Science in the first half of 2016 was level year on year at €1,752 million (+ 0.5%; H1 2015: €1,743 million). Positive earnings contributions from higher selling prices stood against increased R&D expenses, lower volumes and a negative currency effect of around €25 million. EBIT increased slightly by 3.6% to €1,467 million after special charges of €33 million (H1 2015: €75 million), which were largely attributable to restructuring measures. 5.4 Animal HealthKey Data - Animal HealthTable 9scroll
scroll
Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted 1
For definition see Chapter 7 "Calculation of EBIT(DA) Before Special Items." Second quarter of 2016SalesSales of Animal Health in the second quarter of 2016 climbed by 4.2% (Fx & portfolio
adj.) to €426 million. All regions developed positively on a currency-adjusted basis,
the strongest gains being registered in Europe. Best-Selling Animal Health ProductsTable 10scroll
scroll
Fx adj. = currency-adjusted Sales by product
EarningsEBITDA before special items of Animal Health declined by 16.7% to €100 million in the second quarter of 2016 (Q2 2015: €120 million), due especially to seasonal shifts in selling expenses and negative currency effects of around €5 million. EBIT stood at €93 million, which was 11.4% lower than in the prior year (Q2 2015: €105 million) and included no special charges (Q2 2015: €6 million). First half of 2016SalesSales of Animal Health rose by 6.4% (Fx & portfolio adj.) in the first half of 2016
to €834 million. The strongest sales growth was recorded in the United States and
Europe. EarningsEBITDA before special items in the first half of 2016 amounted to €222 million (H1 2015: €222 million) and was thus level with the prior year. Positive earnings contributions from the good business development stood against higher selling expenses and negative currency effects of around €10 million. EBIT of Animal Health advanced by 21.8% to €207 million (H1 2015: €170 million) after special charges of €1 million (H1 2015: €38 million). 5.5 CovestroKey Data - CovestroTable 1 1scroll
scroll
Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted 1
For definition see Chapter 7 "Calculation of EBIT(DA) Before Special Items." Second quarter of 2016SalesSales of Covestro fell by 3.9% (Fx & portfolio adj.) in the second quarter of 2016
compared with the prior-year period, to €2,975 million. Selling prices were down significantly,
mainly due to raw material price development and primarily at Polyurethanes. Volumes
were above the level of the prior-year quarter overall. Sales by Business UnitTable 12scroll
scroll
Fx & p adj. = currency- and portfolio-adjusted Sales by business unit
EarningsEBITDA before special items of Covestro improved by 7.3% to €543 million in the second quarter of 2016 (Q2 2015: €506 million). The impact of lower selling prices was more than compensated by the net effect of lower raw material prices and higher volumes. Earnings were diminished by a negative currency effect of around €5 million. EBIT rose year on year by a substantial 32.0% to €367 million. There were no special items (Q2 2015: minus €59 million). First half of 2016SalesSales of Covestro fell by 4.3% (Fx & portfolio adj.) in the first half of 2016 compared
with the prior-year period, to €5,825 million. Selling prices declined in all three
business units, especially at Polyurethanes. Volumes were above the level of the prior-year
period overall, increasing at Polycarbonates and Polyurethanes but unchanged from
a year earlier at Coatings, Adhesives, Specialties. EarningsEBITDA before special items increased by 12.6% to €1,047 million. Lower raw material costs compensated the decline in selling prices. Increased volumes also had a positive effect on earnings. EBIT advanced by 41.4% to €703 million. There were no special items (H1 2015: minus €101 million). 6. Research, Development, InnovationBayer Group expenses for research and development rose by 9.4% (Fx adj.) to €1,122
million in the second quarter of 2016, with the Life Science businesses accounting
for €1,060 million of this figure (Fx adj. plus 10.5%). Research and Development ExpensesTable 13scroll
scroll
2015 figures restated Capital expenditures for property, plant and equipment and intangible assets amounted
to €589 million (Q2 2015: €601 million), including €509 million (Q2 2015: €466 million)
in the Life Science businesses. In addition to the partnership concluded at the end
of 2015 with CRISPR Therapeutics AG, Switzerland, Bayer and ERS Genomics, Ireland,
signed an agreement in May 2016 that will grant Bayer access to the CRISPR-Cas9 genome
editing patents of ERS. The agreement grants Bayer rights for defined research applications
of this technology in selected core strategic areas. PharmaceuticalsWe are conducting clinical trials with several drug candidates from our research and
development pipeline. The following table shows our most important drug candidates
currently in Phase II of clinical testing: Research and Development Projects (Phase II)1Table 14scroll
1
As of July 18, 2016 Following the recommendation of an independent data monitoring committee (DMC), we
terminated our Phase II study investigating riociguat (tradename: Adempas™) in patients
with pulmonary hypertension associated with idiopathic interstitial pneumonia (PH-IIP)
in May 2016. We also will not further pursue the development of BAY 98-7196 + anastrozole
(intravaginal ring) for the indication endometriosis. The following table shows our most important drug candidates currently in Phase III
of clinical testing: Research and Development Projects (Phase III)1Table 15scroll
1
As of July 18, 2016 In May 2016, a clinical Phase III study investigating regorafenib (tradename: Stivarga™)
in unresectable liver cancer reached its primary endpoint, a statistically significant
improvement of overall survival. The study investigated regorafenib in patients with
hepatocellular carcinoma that had further progressed during prior treatment with sorafenib
(tradename: Nexavar™). Based on these data, we plan to file for marketing authorization
for regorafenib in the treatment of unresectable liver cancer before the end of 2016. In June 2016, we agreed with Orion Corporation, Espoo, Finland, to expand the global
clinical development program for the novel androgen receptor (AR) antagonist BAY-1841788
(0DM-201). A new clinical Phase III study will evaluate BAY-1841788 in men with newly
diagnosed metastatic hormone-sensitive prostate cancer (mHSPC) who are starting first
line hormone therapy. Also in June 2016, we formed a new research partnership with the U.S. National Surgical
Adjuvant Breast and Bowel Project (NSABP), a leading clinical trials cooperative group.
A clinical Phase III study will investigate regorafenib as a single agent for adjuvant
treatment following completion of standard adjuvant chemotherapy in patients with
advanced but not yet metastatic colon cancer. The most important drug candidates in the approval process are: Products Submitted for Approval1Table 16scroll
1
As of July 18, 2016 In May 2016, the U.S. Food and Drug Administration (FDA) approved Gadavist™ / Gadovist™
(active ingredient: gadobutrol) as the first contrast agent for use with magnetic
resonance angiography (MRA) to evaluate known or suspected supra-aortic or renal artery
disease in patients of all ages. Consumer HealthIn April 2016, we expanded our Claritin™ portfolio in the United States to include
ClariSpray™, a 24-hour nasal spray to treat allergy symptoms. In June 2016, we began marketing Aleve™ Direct Therapy in the United States to expand
our range of analgesic products. This product is a medical device for transcutaneous
electrical nerve stimulation to help relieve lower back pain and tension. Crop ScienceIn April 2016, Crop Science announced a five-year research partnership with the Institute
of Geography and the Department of Informatics of the University of Hamburg that is
aimed at jointly developing new digital solutions for agriculture based on geoinformatics
methods and models. The project will leverage relevant geobasic data such as soil,
climate, land relief and usage parameters for IT-based visualization of the consequences
of agricultural processes. In May 2016, Crop Science and Planetary Resources, based in Redmond, Washington, United
States, signed a memorandum of understanding about the development of applications
and products based on satellite images. Animal HealthIn May 2016, we entered into an agreement with BioNTech AG, Germany, to develop novel
mRNA vaccines and therapeutics specifically for veterinary medicine applications. Also in May 2016, we signed a global license agreement with TransferTech Sherbrooke,
Quebec, Canada, to advance a novel vaccine candidate developed at Université de Sherbrooke.
The new vaccine is intended to help protect dairy cattle from mastitis caused by the
bacterium Staphylococcus aureus. CovestroIn June 2016, Covestro inaugurated a production facility at the Dormagen site that will manufacture a novel foam component with 20% CO2 content, enabling input of the traditional oil-based raw material to be reduced by an equal amount. The new plant with an annual capacity of 5,000 tons will allow the company to manufacture plastics using carbon dioxide for the first time on an industrial scale. 7. Calculation of EBIT(DA) Before Special ItemsEBIT (income after income taxes, plus income taxes, plus financial result), which
is not defined in the International Financial Reporting Standards, is influenced by
special effects and by the amortization of intangible assets and depreciation of property,
plant and equipment, along with impairment losses and impairment loss reversals. To
elucidate the effects of these parameters on the operational business and facilitate
the comparability of operational earning power over time, we determine additional
indicators: EBITDA, EBIT before special items, EBITDA before special items and the
EBITDA margin before special items. These indicators also are not defined in the International
Financial Reporting Standards. Special Items ReconciliationTable 17scroll
scroll
2015 figures restated
In the second quarter of 2016, depreciation, amortization and impairments were level
year on year at €814 million (Q2 2015: €814 million), comprising €447 million (Q2
2015: €446 million) in amortization and impairments on intangible assets and €367
million (H1 2015: €368 million) in depreciation and impairments on property, plant
and equipment. The impairments totaled €39 million (Q2 2015: €19 million) and included
no special items (Q2 2015: €4 million). Depreciation, amortization and impairments were 14.7% higher in the first half of
2016 at €1,853 million (H1 2015: €1,615 million), comprising €1,114 million (H1 2015:
€870 million) in amortization and impairments on intangible assets and €739 million
(H1 2015: €745 million) in depreciation and impairments on property, plant and equipment.
The impairments totaled €298 million (H1 2015: €67 million), of which €244 million
(H1 2015: €52 million) constituted special items. 8. (Core) Earnings Per ShareEarnings per share according to IFRS are affected by the purchase price allocation
for acquisitions and other special factors. To elucidate the impact of these effects
on earnings and facilitate the comparability of our performance over time, we determine
additional indicators - core EBIT, core net income and core earnings per share - which
are not defined in the International Financial Reporting Standards. Core Earnings Per ShareTable 18scroll
2015 figures restated Core EBIT is determined by first eliminating from EBIT (income after income taxes,
plus income taxes, plus financial result), which is not defined in the International
Financial Reporting Standards, all amortization and impairment losses / impairment
loss reversals on intangible assets, impairment losses/ impairment loss reversals
on property, plant and equipment, and special items (other than amortization and impairment
losses / impairment loss reversals). This core EBIT is then used to calculate core
net income, which comprises the financial result (as per income statements), income
taxes (as per income statements), income after income taxes attributable to noncontrolling
interest (as per income statements), special items in the financial result, special
items in income taxes, tax effects related to amortization, impairment losses / impairment
loss reversals and special items, and the above-mentioned adjustments attributable
to noncontrolling interest. From this core net income we calculate core earnings per share in the same way as
earnings per share. Core earnings per share form the basis for our dividend policy.
They are determined for both continuing and discontinued operations. In the second
quarter of 2016, we improved core earnings per share from continuing operations by
4.0% to €2.07 (Q2 2015: €1.99). Earnings per share rose by 19.3% in the same period
to €1.67 (Q2 2015: €1.40). 9. Financial Position of the Bayer Group9.1 Statements of Cash FlowsBayer Group Summary Statements of Cash FlowsTable 19scroll
2015 figures restated Net cash provided by operating activities (net cash flow)
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
9.2 Liquid Assets and Net Financial DebtNet Financial Debt1Table 20scroll
1
Net financial debt is not defined in the International Financial Reporting Standards
and is calculated as shown in this table.
9.3 Asset and Capital StructureBayer Group Summary Statements of Financial PositionTable 21scroll
Net Defined Benefit Liability for Post-Employment BenefitsTable 22scroll
10. Opportunities and RisksAs a global enterprise with a diversified portfolio, the Bayer Group is exposed to
a wide range of internal or external developments or events that could significantly
impact the achievement of our financial and nonfinancial objectives. Bayer regards opportunity and risk management as an integral part of corporate governance.
Our risk management process and the opportunities / risks outlined in detail in the
Annual Report 2015 (Combined Management Report, Chapter 18.3) are materially unchanged.
No risks have been identified that could endanger the Bayer Group's continued existence.
There are also no risks with mutually reinforcing dependencies that could combine
to endanger the Group's continued existence. Significant developments that have occurred in respect of the legal risks since publication
of the Bayer Annual Report 2015 (Note [32] to the Consolidated Financial Statements)
are described in the Notes to the Condensed Consolidated Interim Financial Statements
under "Legal Risks." Condensed Consolidated Interim Financial Statements as of June 30, 2016Bayer Group Consolidated Income StatementsTable 23scroll
2015 figures restated 1
EBIT = income after income taxes, plus income taxes, plus financial result Bayer Group Consolidated Statements of Comprehensive IncomeTable 24scroll
2015 figures restated 1
Total changes recognized outside profit or loss Bayer Group Consolidated Statements of Financial PositionTable 25scroll
2015 figures restated Bayer Group Consolidated Statements of Cash FlowsTable 26scroll
2015 figures restated Bayer Group Consolidated Statements of Changes in EquityTable 27scroll
scroll
2015 figures restated Notes to the Condensed Consolidated Interim Financial Statements of the Bayer Group as of June 30, 2016Key Data by Segment and RegionKey Data by SegmentTable 28scroll
scroll
scroll
scroll
scroll
2015 figures restated 1
For definition see Interim Group Management Report, Chapter 1 "Overview of Sales,
Earnings and Financial Position." Key Data by SegmentTable 29scroll
scroll
scroll
scroll
scroll
2015 figures restated 1
For definition see Interim Group Management Report, Chapter 1 "Overview of Sales,
Earnings and Financial Position." Key Data by RegionTable 30scroll
scroll
scroll
2015 figures restated 1
For definition see Interim Group Management Report, Chapter 1 "Overview of Sales,
Earnings and Financial Position." Key Data by RegionTable 31scroll
scroll
scroll
2015 figures restated 1
For definition see Interim Group Management Report, Chapter 1 "Overview of Sales,
Earnings and Financial Position." Explanatory NotesAccounting policiesThe interim financial statements as of June 30, 2016, were prepared in condensed form
in compliance with IAS 34 according to the International Financial Reporting Standards
(IFRS) of the International Accounting Standards Board (IASB), London, which are endorsed
by the European Union, and the Interpretations of the IFRS Interpretations Committee
in effect at the closing date. Reference should be made as appropriate to the Notes to the Consolidated Financial
Statements for the 2015 fiscal year, particularly with regard to the main recognition
and measurement principles, except where financial reporting standards have been applied
for the first time in 2016 or an accounting policy has changed. Financial reporting standards applied for the first time in 2016 and changes in accounting methodsThe first-time application of the following amended financial reporting standards
had no impact, or no material impact, on the presentation of the Group's financial
position or results of operations, or on earnings per share. In May 2014, the IASB published amendments to IAS 16 (Property, Plant and Equipment)
and IAS 38 (Intangible Assets) entitled "Clarification of Acceptable Methods of Depreciation
and Amortisation." These amendments clarify that revenue-based depreciation of property,
plant and equipment or amortization of intangible assets is inappropriate. The amendments
are to be applied for annual periods beginning on or after January 1, 2016. In May 2014, the IASB published amendments to IFRS 11 (Joint Arrangements) entitled
"Accounting for Acquisitions of Interests in Joint Operations." The amendments clarify
the accounting for the acquisition of an interest in a joint operation in which the
activity constitutes a business. They are to be applied for annual periods beginning
on or after January 1, 2016. In June 2014, the IASB issued amendments to IAS 16 (Property, Plant and Equipment)
and IAS 41 (Agriculture) entitled "Agriculture: Bearer Plants." The amendments clarify
that plants used solely to grow agricultural produce are to be accounted for according
to IAS 16 (Property, Plant and Equipment). The amendments are to be applied for annual
periods beginning on or after January 1, 2016. In September 2014, the IASB published "Annual Improvements to IFRSs 2012-2014 Cycle."
The amendments address details of the recognition, measurement and disclosure of business
transactions and serve to standardize terminology. They consist mainly of editorial
changes to existing standards. They are to be applied for annual periods beginning on or after January 1, 2016. In December 2014, the IASB published its Disclosure Initiative containing amendments
to IAS 1 (Presentation of Financial Statements), which are intended to clarify the
disclosure requirements. They relate to materiality, line-item aggregation, subtotals,
the structure of the notes to the financial statements, the identification of significant
accounting policies and the separate disclosure of the other comprehensive income
of associates and joint ventures. The amendments are to be applied for annual periods
beginning on or after January 1, 2016. Financial reporting standards not applied in 2016 that the IASB had decided must be applied for annual periods beginning on or after January 1, 2016In January 2014, the IASB issued IFRS 14 (Regulatory Deferral Accounts). This standard
addresses the accounting for regulatory deferral account balances by first-time adopters
of the IFRS and therefore does not apply to entities that already prepare their financial
statements according to the IFRS. IFRS 14 is to be applied for annual periods beginning
on or after January 1, 2016. As this standard will only apply for a transitional period
until a final standard is published, the E.U. endorsement process will not begin until
the final standard has been adopted by the IASB. IFRS 14 will have no impact on the
presentation of the Group's financial position or results of operations. In December 2014, the IASB issued amendments to IFRS 10 (Consolidated Financial Statements),
IFRS 12 (Disclosure of Interests in Other Entities) and IAS 28 (Investments in Associates
and Joint Ventures) entitled "Investment Entities: Applying the Consolidation Exception."
The amendments largely clarify which subsidiaries an investment entity must consolidate
and which must be recognized at fair value through profit or loss. The amendments
are to be applied for annual periods beginning on or after January 1, 2016. They have
not yet been endorsed by the European Union. The changes currently have no impact
on the presentation of Bayer's financial position or results of operations. Changes in accounting methodsThe legal and economic independence of Covestro results in changes to the global annual
impairment tests for Covestro. In the future, from the perspective of the Bayer Group,
the strategic business entities of Covestro will be subjected to impairment testing
as a group of cash-generating units because the goodwill of Covestro will be monitored
by Bayer Group management at this aggregated level from now on. Changes in underlying parametersChanges in the underlying parameters relate primarily to currency exchange rates and
the interest rates used to calculate pension obligations. The exchange rates for major currencies against the euro varied as follows: Exchange Rates for Major CurrenciesTable 32
scroll
The most important interest rates used to calculate the present value of pension obligations
are given below: Discount Rate for Pension ObligationsTable 33scroll
Segment reportingIn September 2015, it was decided to introduce a new organizational structure effective
January 1, 2016, in line with Bayer's focus on the Life Science businesses. The former
Bayer HealthCare subgroup was dissolved and the Radiology business is now assigned
to the Pharmaceuticals Division. The Consumer Health Division now consists entirely
of the Consumer Care business. Animal Health has become a separate reportable segment.
The Bayer CropScience subgroup is now the Crop Science Division. Since January 1,
2016, therefore, the Bayer Group has comprised the five reportable segments Pharmaceuticals,
Consumer Health, Crop Science, Animal Health and Covestro. The following table shows the reconciliation of EBITDA before special items of the
above-mentioned segments and the reconciliation to income before income taxes of the
Group: Reconciliation of Segments' EBITDA Before Special Items to Group Income Before Income TaxesTable 34scroll
2015 figures restated Scope of consolidationChanges in the scope of consolidationThe consolidated financial statements as of June 30, 2016, included 307 companies
(December 31, 2015: 307 companies). As in the statements as of December 31, 2015,
one of these companies was accounted for as a joint operation in line with Bayer's
interest in its assets, liabilities, revenues and expenses in accordance with IFRS
11 (Joint Arrangements). Four (December 31, 2015: three) joint ventures and five (December
31, 2015: four) associates were accounted for in the consolidated financial statements
using the equity method according to IAS 28 (Investments in Associates and Joint Ventures). Acquisitions, divestitures and discontinued operations AcquisitionsIn connection with the global purchase price allocation of SeedWorks India Pvt. Ltd.,
India, which was acquired in July 2015, improved information about the acquired assets
led to a decline in intangible assets and a corresponding increase in goodwill in
the opening statement of financial position in the first quarter of 2016. In addition,
the purchase price declined by €2 million as a result of the final purchase price
negotiations. The effects of this and other, smaller adjustments made in the first half of 2016
to purchase price allocations relating to previous years' transactions on the Group's
assets and liabilities as of the respective adjustment dates are shown in the table
and resulted in the following cash outflow: Acquired Assets, Assumed Liabilities and Adjustments (Fair Values at the Respective Acquisition Dates)Table 35scroll
Adjustment of purchase price allocation in the previous yearThe global purchase price allocation for the consumer care business of Merck & Co.,
Inc., United States, which was acquired in 2014, was completed in September 2015.
For the first half of 2015, this resulted in an increase in deferred tax assets of
€933 million and a corresponding decrease in goodwill of €890 million in the statement
of financial position. In the income statement, income after income taxes increased
by €43 million. For the first half of 2015, this adjustment led to an increase of
€0.05 in earnings per share from continuing operations, to €2.92. Divestitures and discontinued operationsThe sale of the Diabetes Care business to Panasonic Healthcare Holdings Co., Ltd.,
Tokyo, Japan, for around €1 billion was completed on January 4, 2016. The transaction
includes the leading Contour™ portfolio of blood glucose monitoring meters and strips,
as well as other products such as Breeze™2 and Elite™ along with Microlet™ lancing
devices. The effect of this divestiture in the first half of 2016 is shown in the table: DivestituresTable 36scroll
The sale of the Diabetes Care business also comprises further significant obligations
by Bayer that will be fulfilled over a period of up to two years subsequent to the
date of divestiture. The sale proceeds will be recognized accordingly over a two-year
period and reported as income from discontinued operations. Deferred income has been
recognized in the statement of financial position and will be dissolved as the obligations
are fulfilled. An amount of €250 million was recognized in sales in the first half
of 2016. The €71 million outflow of net assets is shown in the cost of goods sold. The obligations to be fulfilled over the next two years in connection with the divestiture
of the Diabetes Care business are also reported as discontinued operations in the
income statement and statement of cash flows. They resulted in sales of €45 million
in the first half of 2016. This information is provided from the standpoint of the
Bayer Group and does not present these activities as a separate entity. It is therefore
not possible to compare these sales against the proceeds from operational product
sales achieved in 2015. The items in the statement of financial position pertaining to the Diabetes Care business
are shown in the segment reporting under other segments. In addition to the aforementioned
deferred income (€718 million), the statement of financial position includes other
receivables (net: €57 million), deferred tax assets (net: €84 million), income tax
liabilities (€21 million) and provisions for restructuring expenses (€2 million). On May 19, 2016, an agreement was signed to sell the Consumer business (CS Consumer)
of Bayer's Environmental Science unit to SBM Développement SAS, Lyon, France. The
Consumer business encompasses the Bayer Garden and Bayer Advanced businesses in Europe
and North America. Closing of the transaction is expected in October 2016. These activities
are reported as a discontinued operation. The income statements of the discontinued operations for the second quarter of 2016
are given below: Income Statements for Discontinued OperationsTable 37scroll
1
EBIT = income after income taxes, plus income taxes, plus financial result For the first half of 2016, the income statements of the discontinued operations are
as follows: Income Statements for Discontinued OperationsTable 38scroll
1
EBIT = income after income taxes, plus income taxes, plus financial result The assets and liabilities of the Consumer business of Bayer's Environmental Science
unit that were held for sale are shown in the following table: Assets and Liabilities Held for SaleTable 39scroll
In the second quarter of 2016, the discontinued operations affected the Bayer Group
statements of cash flows as follows: Statements of Cash Flows for Discontinued OperationsTable 40scroll
In the first half of 2016, the effects of the discontinued operations on the statements
of cash flows were as follows: Statements of Cash Flows for Discontinued OperationsTable 41scroll
Financial instrumentsCarrying Amounts and Fair Values of Financial InstrumentsTable 42scroll
scroll
Carrying Amounts and Fair Values of Financial InstrumentsTable 43scroll
scroll
Dec. 31, 2015 The preceding two tables show the carrying amounts and fair values of financial assets
and liabilities by category of financial instrument and a reconciliation to the corresponding
line item in the statements of financial position. Since the line items "Other receivables,"
"Trade accounts payable" and "Other liabilities" contain both financial instruments
and non-financial assets or liabilities (such as other tax receivables or advance
payments for services to be received in the future), the reconciliation is shown in
the column headed "Nonfinancial assets / liabilities." 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. Because of 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 did not significantly differ from the fair values. The fair values of loans and receivables, held-to-maturity financial investments and
financial liabilities carried at amortized cost that are given for information are
the present values of the respective future cash flows. The present values were 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 was available, however, this was deemed to be the fair value. The fair values of available-for-sale financial assets correspond to quoted prices
in active markets (Level 1) 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 existed in active
markets (Level 1) were determined 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 were determined to allow for the contracting party's credit
risk. Currency and commodity forward contracts were 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 account 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. Reference is made here to the
credit spreads of comparable issuers. 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 10% relative change in the credit spread would not materially
affect fair value. Embedded derivatives are separated from their respective host contracts, which are
generally sales or purchase agreements relating to the operational business, and cause
the cash flows from the contracts to vary with fluctuations in exchange rates or prices,
for example. 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. The changes in the amount of financial assets and liabilities recognized at fair value
based on unobservable inputs (Level 3) for each individual financial instrument category
were as follows: Changes in the Amount of Financial Assets and Liabilities Recognized at Fair Value Based on Unobservable InputsTable 44scroll
The changes recognized in profit or loss were included in other operating income/expenses
or in interest income. Contribution to the plan assets of Bayer Pension Trust e.V.The contribution of 4.9% of the issued shares of Covestro AG to Bayer Pension Trust
e.V. led to a €337 million reduction in the pension provisions of Bayer AG. The equity
of the Bayer Group rose accordingly. An amount equal to 4.9% of the equity of Covestro
AG was allocated to noncontrolling interest. Legal risksTo find out more about the Bayer Group's legal risks, please see Note 32 to the consolidated
financial statements in the Bayer Annual Report 2015, which can be downloaded free
of charge at www.bayer.com. Since the Bayer Annual Report 2015, the following significant
changes have occurred in respect of the legal risks: PharmaceuticalsYasmin™ / YAZ™: As of July 14, 2016, the number of claimants in the pending lawsuits and claims in the United States totaled about 500 (excluding claims already settled). Claimants allege that users have suffered personal injuries, some of them fatal, from the use of Bayer's drospirenone-containing oral contraceptive products such as Yasmin™ and / or YAZ™ or from the use of Ocella™ and / or Gianvi™, generic versions of Yasmin™ and YAZ™, respectively, marketed by Barr Laboratories, Inc. in the United States. As of July 14, 2016, Bayer had reached agreements, without admission of liability,
to settle approximately 10,500 claims in the United States for venous clot injuries
(primarily deep vein thrombosis or pulmonary embolism) for a total amount of about
U.S. $2.08 billion. Bayer will continue to consider the option of settling such claims
after a case-specific analysis of medical records. At present, about 100 such claims
are under review. In August 2015, Bayer reached an agreement to settle, without admission of liability,
lawsuits and claims in which plaintiffs allege an arterial thromboembolic injury (primarily
strokes and heart attacks) for a total maximum aggregate amount of U.S. $56.9 million.
The participation thresholds have been met (97.5% of those who are eligible, and 96%
of those who are eligible and allege death or catastrophic injuries) and the settlement
was funded in May 2016. As of July 14, 2016, about 10 of the 500 above-mentioned claimants
alleged arterial thromboembolic injuries. Xarelto™: As of July 14, 2016, U.S. lawsuits from approximately 11,500 recipients of Xarelto™, an oral anticoagulant for the treatment and prevention of blood clots, had been served upon Bayer. Plaintiffs allege that users have suffered personal injuries from the use of Xarelto™, including cerebral, gastrointestinal or other bleeding and death, and seek compensatory and punitive damages. Additional lawsuits are anticipated. As of July 14, 2016, ten Canadian lawsuits relating to Xarelto™ seeking class action certification had been served upon Bayer. Betaferon™ / Betaseron™: Since 2010, Bayer and Biogen Idec have been litigating in U.S. federal court about the validity of a Biogen patent and its alleged infringement by the production and distribution of Betaseron™, Bayer's drug product for the treatment of multiple sclerosis. In March 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. This development does not change Bayer's belief that it has meritorious defenses in this dispute and that it will continue to defend itself vigorously. Beyaz™ / Safyral™: In the patent infringement proceedings against Watson Laboratories, Inc., the U.S. Court of Appeals for the Federal Circuit in May 2016 invalidated the patent claims asserted by Bayer and reversed last year's judgment by a U.S. federal court. Bayer filed a petition for rehearing. Beyaz™ and Safyral™ are Bayer's oral contraceptives containing folate. In September 2015, a U.S. federal court ruled in favor of Bayer regarding both the validity of the patent and the infringement thereof by Watson. Watson had filed Abbreviated New Drug Applications with a Paragraph IV certification ("ANDA IV") seeking approval of generic versions of both Beyaz™ and Safyral™ in the United States and appealed the decision. Finacea™: In May 2016, the U.S. Court of Appeals for the Federal Circuit affirmed last year's decision by a U.S. federal court that Bayer's patent relating to Finacea™ topical gel is valid and infringed by Glen-mark Generics Ltd. Glenmark had filed an ANDA IV seeking approval of a generic version of Finacea™ in the United States and appealed the U.S. federal court decision. Related partiesRelated 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 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, post-employment benefit plans and the corporate officers
of Bayer AG. On April 19, 2016, Bayer AG increased the coverage of Bayer Pension Trust e.V with
the deposit of 10 million of the shares it held in Covestro AG. The number of shares
deposited amounted to 4.9% of the issued shares of Covestro AG and had a value of
€337 million. Sales to related parties were not material from the viewpoint of the Bayer Group.
Goods and services to the value of €0.2 billion were procured from the associated
company PO JV, LP, Wilmington, Delaware, United States, mainly in the course of normal
business operations. There was no significant change in receivables vis-à-vis related
parties compared with December 31, 2015. Payables increased by €0.2 billion, primarily
vis-à-vis the newly established joint venture with CRISPR Therapeutics AG, Basel,
Switzerland. Other informationThe Annual Stockholders' Meeting on April 29, 2016, approved the proposal by the Board
of Management and the Supervisory Board that a dividend of €2.50 per share be paid
for the 2015 fiscal year. The actions of the members of the Board of Management and the Supervisory Board were
ratified. Two stockholder representatives were elected to the Supervisory Board in accordance
with the nominations submitted by the Supervisory Board. The compensation system for the members of the Board of Management was approved as
proposed by the Board of Management and the Supervisory Board. PricewaterhouseCoopers Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, Essen,
was elected as the auditor of the annual and consolidated financial statements for
the fiscal year 2016 and to review the condensed financial statements and interim
management report as of June 30, 2016 as well as to review the condensed financial
statements and interim management report as of September 30, 2016. Deloitte & Touche GmbH, Wirtschaftsprüfungsgesellschaft, Munich, was elected to review
the condensed financial statements and interim management report as of March 31, 2017. Leverkusen, July 25, 2016 Bayer Aktiengesellschaft The Board of Management scroll
Responsibility StatementTo the best of our knowledge, and in accordance with the applicable reporting principles
for interim financial reporting, the interim 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 interim management report includes a fair review
of the development and performance of the business and the position of the Bayer Group,
together with a description of the principal opportunities and risks associated with
the expected development of the Bayer Group for the remaining months of the financial
year. Leverkusen, July 25, 2016 Bayer Aktiengesellschaft The Board of Management scroll
Review ReportTo Bayer Aktiengesellschaft, Leverkusen We have reviewed the condensed consolidated interim financial statements - comprising
the consolidated income statement and statement of comprehensive income, the consolidated
statement of financial position, the consolidated statement of cash flows, the condensed
consolidated statement of changes in equity and selected explanatory notes - and the
interim group management report of Bayer AG for the period from January 1, 2016 to
June 30, 2016 which are part of the half-year financial report pursuant to § (Article)
37w WpHG ("Wertpapierhandelsgesetz": German Securities Trading Act). The preparation
of the condensed consolidated interim financial statements in accordance with the
IFRS applicable to interim financial reporting as adopted by the EU and of the interim
group management report in accordance with the provisions of the German Securities
Trading Act applicable to interim group management reports is the responsibility of
the parent Company's Board of Management. Our responsibility is to issue a review
report on the condensed consolidated interim financial statements and on the interim
group management report based on our review. We conducted our review of the condensed consolidated interim financial statements
and the interim group management report in accordance with German generally accepted
standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer
(Institute of Public Auditors in Germany) (IDW) and additionally observed the International
Standard on Review Engagements "Review of Interim Financial Information Performed
by the Independent Auditor of the Entity" (ISRE 2410). Those standards require that
we plan and perform the review so that we can preclude through critical evaluation,
with moderate assurance, that the condensed consolidated interim financial statements
have not been prepared, in all material respects, in accordance with the IFRS applicable
to interim financial reporting as adopted by the EU and that the interim group management
report has not been prepared, in all material respects, in accordance with the provisions
of the German Securities Trading Act applicable to interim group management reports.
A review is limited primarily to inquiries of company personnel and analytical procedures
and therefore does not provide the assurance attainable in a financial statement audit.
Since, in accordance with our engagement, we have not performed a financial statement
audit, we cannot express an audit opinion. Based on our review, no matters have come to our attention that cause us to presume
that the condensed consolidated interim financial statements have not been prepared,
in all material respects, in accordance with the IFRS applicable to interim financial
reporting as adopted by the EU nor that the interim group management report has not
been prepared, in all material respects, in accordance with the provisions of the
German Securities Trading Act applicable to interim group management reports. Essen, July 26, 2016 PricewaterhouseCoopers scroll
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||