Pursuant to Section 37w Paragraph 3 of the German Securities Trading Act, the consolidated interim financial statements as of June 30, 2014 have been prepared in condensed form according to the International Financial Reporting Standards (IFRS) – including IAS 34 – 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 2013 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 2014 or accounting policies have changed.
Financial reporting standards applied for the first time in 2014
The first-time application of the following amended financial reporting standards had no impact, or no material impact, on the presentation of the Group financial position or results of operations, or on earnings per share.
In December 2011, the IASB issued the amendment “Offsetting Financial Assets and Financial Liabilities” to IAS 32 (Financial Instruments: Presentation), clarifying what is meant by “right of set-off in all circumstances” and “simultaneous settlement.” The amendment has been applied since January 1, 2014. The changes had no material impact on the presentation of the Group’s financial position or results of operations.
In October 2012, under the title “Investment Entities,” the IASB issued amendments to IFRS 10 (Consolidated Financial Statements), IFRS 12 (Disclosure of Interests in Other Entities) and IAS 27 (Separate Financial Statements) for investment entities. Such entities are exempted from the requirement to consolidate certain subsidiaries according to IFRS 10. Instead, they must recognize them at fair value through profit or loss. IFRS 12 introduces additional disclosure requirements for investment entities. The amendments have been applied since January 1, 2014. The changes had no impact on the presentation of the Group’s financial position or results of operations.
In May 2013, the IFRS IC issued the interpretation IFRIC 21 (Levies). The interpretation covers the accounting for government-imposed levies with the exception of income taxes covered by IAS 12 (Income Taxes). It also provides guidance on when to recognize a liability for a levy. The interpretation is to be applied for annual periods beginning on or after January 1, 2014. The changes had no material impact on the presentation of the Group’s financial position or results of operations.
Changes in the reporting of functional costs and special items
To enhance the comparability and transparency of functional cost reporting, the organizational view has been replaced in 2014 by a more function-based approach. This has the effect of reducing general administration expenses while increasing selling expenses and the cost of goods sold. In addition, certain special items are reflected in the respective functional costs rather than in other operating income or expenses so that their relationship to the functional costs is immediately apparent.
The prior-year figures are restated accordingly.
Changes in underlying parameters
Changes 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 Currencies[Table 30]|
| || ||Closing Rate||Average Rate|
The most important interest rates used to calculate the present value of pension obligations are given below:
|Discount Rate for Pension Obligations[Table 31]|
The following table shows the reconciliation of EBITDA before special items of the segments to income before income taxes of the Group.
|Reconciliation of Segments’ EBITDA Before Special Items to Group Income Before Income Taxes[Table 32]|
|€ million||€ million||€ million||€ million|
|EBITDA before special items of segments||2,292||2,322||4,876||5,156|
|EBITDA before special items of Corporate Center||(97)||(105)||(228)||(201)|
|EBITDA before special items||2,195||2,217||4,648||4,955|
|Depreciation, amortization and impairment losses before special items of segments||(651)||(695)||(1,287)||(1,343)|
|Depreciation, amortization and impairment losses before special items of Corporate Center||(1)||(1)||(2)||(2)|
|Depreciation, amortization and impairment losses before special items||(652)||(696)||(1,289)||(1,345)|
|EBIT before special items of segments||1,641||1,627||3,589||3,813|
|EBIT before special items of Corporate Center||(98)||(106)||(230)||(203)|
|EBIT before special items||1,543||1,521||3,359||3,610|
|Special items of segments||(256)||(48)||(301)||(41)|
|Special items of Corporate Center||–||–||–||–|
|EBIT of segments||1,385||1,579||3,288||3,772|
|EBIT of Corporate Center||(98)||(106)||(230)||(203)|
|Income before income taxes||1,062||1,300||2,643||3,237|
Changes in the scope of consolidation
The consolidated financial statements as of June 30, 2014, included 286 companies (December 31, 2013: 289 companies). Of these, one company (December 31, 2013: two 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). The numbers of joint ventures (three) and associated companies (two) accounted for in the consolidated financial statements using the equity method according to IAS 28 (Investments in Associates and Joint Ventures) were unchanged from December 31, 2013.
On March 6, 2014, CropScience completed the acquisition of all the shares of Biagro Group, a producer and distributor of biological seed treatment solutions headquartered in Gral. Las Heras in the province of Buenos Aires, Argentina. The company operates production facilities in Argentina and Brazil. Its portfolio of established brands includes seed-applied inoculants, plant-growth-promoting microorganisms and other products for integrated pest management based on bacterial and fungal strains. The acquisition will help CropScience to build on the success of its soybean seed business in Latin America. The acquisition remains subject to the approval of the Argentinian antitrust authorities. A one-time payment of €9 million was agreed upon, plus potential milestone payments which are reflected at €6 million in the purchase price allocation. The milestone payments are mainly dependent on the achievement of certain sales targets and product approvals. The purchase price mainly pertained to the technology platform and goodwill.
In March 2014, HealthCare successfully completed the takeover offer for the shares of Algeta ASA, Oslo, Norway, and acquired 100% of the outstanding shares. Bayer issued a takeover offer for all the shares of Algeta at a price of NOK 362 per share in cash on January 20, 2014. On expiration of the offer deadline, Bayer had received acceptances from Algeta shareholders representing about 98% of the share capital. On March 14, 2014, a compulsory acquisition process was carried out to obtain the remaining 2% of the shares, also at a price of NOK 362 per share.
Algeta develops novel cancer therapies based on its world-leading, patented technologies. The company develops alpha-pharmaceuticals designed to target cancers using the unique properties of alpha particle radiation. HealthCare and Algeta have collaborated since 2009 to develop and commercialize radium-223 dichloride, which was approved in the United States in May 2013 under the tradename Xofigo™. The acquisition strengthens HealthCare’s oncology business. The purchase price was €1,974 million, including €35 million for the settlement of the pre-existing relationship between Algeta and Bayer. The latter amount represents the value of the advantage enjoyed by the acquirer from the contractual relationship that existed prior to the acquisition compared to current market conditions for similar collaborations. The settlement amount is reflected in other operating income and at the same time increases the consideration transferred.
The purchase price mainly pertained to an intangible asset for the product-specific radium-223 technology along with goodwill. The goodwill is mainly attributable to synergies in administration processes and infrastructure, including cost savings in the selling, research and development, and general administration functions.
The acquisition generated an operating result (EBIT) of minus €10 million since the acquisition date. An after-tax result of minus €15 million was recorded since the date of first-time consolidation. This includes the financing costs incurred since the acquisition date. If the acquisition had already been made as of January 1, 2014, income after income taxes of the Bayer Group for the first half of 2014 would have amounted to €2,358 million after the financing costs that would have been attributable to the period.
The purchase price allocations for Biagro Group and Algeta ASA currently remain incomplete pending compilation and review of the relevant financial information. It is therefore possible that changes will be made in the allocation of the purchase price to the individual assets and liabilities.
The effects of these transactions made in the first half of 2014 – and of purchase price adjustments made in the first half of 2014 relating to previous years’/quarters’ transactions – on the Group’s assets and liabilities as of the respective acquisition or adjustment dates are shown in the table. Net of acquired cash and cash equivalents, the transactions resulted in the following cash outflow:
|Acquired Assets and Assumed Liabilities (Fair Values at the Respective Acquisition Dates)[Table 33]|
|€ million||€ million|
|Patents and technologies||1,758||1,758|
|Other intangible assets||29||23|
|Property, plant and equipment||24||23|
|Other current assets||42||39|
|Cash and cash equivalents||91||90|
|Deferred tax assets||39||39|
|Deferred tax liabilities||(485)||(483)|
|Changes in non-controlling interest||–||–|
|Acquired cash and cash equivalents||(91)||(90)|
|Settlement gain from pre-existing relationship||(35)||(35)|
|Liabilities for future payments||(4)||–|
|Payments for previous years’/quarters’ acquisitions||1||–|
|Net cash outflow for acquisitions||1,858||1,849|
In February 2014, HealthCare signed an agreement to acquire all the shares of Dihon Pharmaceutical Group Co. Ltd., Kunming, Yunnan, China. Dihon is a pharmaceutical company specializing in the manufacture and marketing of over-the-counter (OTC) and herbal traditional Chinese medicine products. A provisional purchase price of 3.6 billion yuan was agreed. Closing of the transaction is subject to several conditions, some of which have not yet materialized, and is planned to occur in the second half of 2014.
In May 2014, HealthCare signed an agreement to acquire the consumer care business of Merck & Co., Inc., Whitehouse Station, New Jersey, United States. In 2013, this business generated about 70% of its sales in the U.S., where it holds leading brand positions. The business is primarily comprised of products in the cold, allergy, sinus & flu, dermatology (including sun care), foot health and gastrointestinal categories. The most important brands are Claritin™ (allergy), Coppertone™ (sun care), Dr. Scholl’s™ (foot health), MiraLAX™ (gastrointestinal) and Afrin™ (cold).
The acquisition makes HealthCare the market leader for non-prescription products in North and Latin America and the second-leading supplier worldwide. Pro forma sales of the combined consumer care business of Bayer and Merck & Co., Inc. in 2013 were approximately €5.5 billion.
A purchase price of US$14.2 billion was agreed. In a related transaction, HealthCare entered into a global development and commercialization collaboration with Merck & Co., Inc. in the area of soluble guanylate cyclase (sGC) modulation. For this collaboration HealthCare will receive US$1.0 billion plus substantial revenue-based milestone payments. The transaction remains subject to approvals from antitrust authorities. Closing is planned to occur in the second half of 2014.
The effects of divestitures in the first half of 2014 were as follows:
|Patents and technologies||2|
|Property, plant and equipment||2|
|Other noncurrent assets||2|
|Divested net assets||6|
|Net cash inflow from divestitures||6|
|Changes in future cash payments receivable||–|
|Net gain from divestitures (before taxes)||0|
Noncurrent assets and disposal groups held for sale
In May 2014, HealthCare entered into a global development and commercialization collaboration with Merck & Co., Inc. in the area of soluble guanylate cyclase (sGC) modulation. The collaboration includes HealthCare’s drug Adempas™ (riociguat), which is already approved for the treatment of certain classifications of pulmonary hypertension, and its development for additional indications. Also included is vericiguat, an investigational compound currently being developed in two Phase IIb clinical studies to treat chronic heart failure. HealthCare and Merck & Co., Inc. will assume joint control of the sGC modulators business. Merck & Co., Inc. will in future receive one half of the net cash flow expected to be realized under the collaboration. A pro rata amount of the goodwill allocated to the Pharmaceuticals segment will be derecognized as of the date the collaboration comes into effect. Goodwill of €143 million was recognized as held for sale.
In May 2014, HealthCare signed an agreement to sell the Interventional device business to Boston Scientific Corporation, Natick, Massachusetts, United States. The sale comprises the AngioJet™ thrombectomy system and the Jetstream™ atherectomy system, as well as the Fetch™2 aspiration catheter used in cardiology, radiology and peripheral vascular procedures. A sale price of US$415 million was agreed, including fees for transitional services to Boston Scientific. Closing of the transaction is subject to customary conditions, including relevant antitrust clearance, and is planned to occur in the second half of 2014.
The assets held for sale were initially measured at the lower of their carrying amount and fair value less costs of disposal in accordance with IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations).
The assets and disposal groups held for sale were comprised as follows:
|Assets and Disposal Groups Held for Sale[Table 35]|
|Other intangible assets||75|
|Property, plant and equipment||17|
|Assets held for sale||363|
The following table shows the carrying amounts and fair values of financial assets and liabilities by category of financial instrument and a reconciliation to the corresponding line items 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 “Non-financial 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 value stated for noncurrent receivables, loans, held-to-maturity financial investments and non-derivative financial liabilities is the present value of the respective future cash flows. This was determined by discounting the cash flows at a closing-date interest rate that takes 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 for identical assets (Level 1).
The fair values of derivatives for which no publicly quoted market prices existed were determined using valuation techniques based on 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. The respective 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.
Embedded derivatives were separated from their respective host contracts. Such host contracts are generally sales or purchase agreements relating to the operational business. The embedded derivatives cause the cash flows from the contracts to vary with fluctuations in exchange rates, commodity prices or other prices, for example. The internal measurement of embedded derivatives is mainly performed using the discounted cash flow method, which is based on unobservable inputs (Level 3). These included 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 net amount of financial assets and liabilities recognized at fair value based on unobservable inputs were as follows:
|Changes in the Net Amount of Financial Assets and Liabilities Recognized at|
Fair Value Based on Unobservable Inputs
|€ million |
|Net carrying amounts, Jan. 1||(7)|
|Gains (losses) recognized in profit or loss||11|
|of which related to assets/liabilities recognized in the statements of financial position ||11|
|Gains (losses) recognized outside profit or loss||–|
|Additions of assets/(liabilities)||–|
|Settlements of (assets)/liabilities||10|
|Net carrying amounts, June 30||14|
No gains or losses from divestments were recorded in the second quarter of 2014. The changes recognized in profit or loss were included in other operating income or expenses.
Uncertainty persisted in the second quarter of 2014 regarding the economic situation in Venezuela. Future currency developments are difficult to predict, especially in view of new currency conversion rules and the government’s ability to intervene in the setting of exchange rates.
Yasmin™/YAZ™: As of July 9, 2014, the number of claimants in the pending lawsuits and claims in the United States totaled about 5,000 (excluding claims already settled). Claimants allege that they 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 9, 2014, Bayer had reached agreements, without admission of liability, to settle the claims of approximately 8,900 claimants in the U.S. for a total amount of about US$1.8 billion. Bayer has only been settling claims in the U.S. for venous clot injuries (deep vein thrombosis or pulmonary embolism) after a case-specific analysis of medical records on a rolling basis. Such injuries are alleged by about 2,400 of the pending unsettled claimants. Bayer will continue to consider the option of settling such individual lawsuits in the U.S. on a case-by-case basis.
In March 2014, one of the insurers involved contested its coverage. Bayer has agreed to settle the matter on terms that will not have a material impact on Bayer’s financial position.
Mirena™: As of July 9, 2014, lawsuits from approximately 2,120 users of Mirena™, an intrauterine system providing long-term contraception, had been served upon Bayer in the U.S. Additional lawsuits are anticipated. 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.
Partial exemption from the surcharge under the Renewable Energy Act: In 2014, Bayer has continued to benefit from its partial exemption from the surcharge payable under the German Renewable Energy Act (Erneuerbare-Energien-Gesetz) of 2012. The amount of any claims that Bayer might face should the exemption provisions be declared invalid retroactively therefore continues to increase during the course of 2014.
Related parties as defined in IAS 24 (Related Party Disclosures) are those entities and 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, non-consolidated subsidiaries, joint ventures, associates, post-employment benefit plans and the corporate officers of Bayer AG. Sales to related parties were not material from the viewpoint of the Bayer Group. Goods and services to the value of €0.4 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 or payables vis-à-vis related parties compared with December 31, 2013.
The Annual Stockholders’ Meeting on April 29, 2014, approved the proposal by the Board of Management and the Supervisory Board that a dividend of €2.10 per share be paid for the 2013 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 Annual Stockholders’ Meeting approved the cancellation of existing authorized and conditional capital, the creation of new authorized and conditional capital, the authorization to issue bonds with warrants or convertible bonds, and the necessary amendments to the Articles of Incorporation. The Annual Stockholders’ Meeting also reauthorized the Board of Management to acquire and use own shares with the potential disapplication of subscription and other tender rights.
In accordance with the proposal by the Supervisory Board and the Board of Management, the Annual Stockholders’ Meeting approved the control and profit-and-loss transfer agreements between Bayer AG and eight Group companies.
PricewaterhouseCoopers Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, Essen, was elected as auditor of the financial statements of Bayer AG and the consolidated financial statements of the Bayer Group for the fiscal year 2014 and to perform the audit review of the 2014 half-year financial report.
At its meeting on June 3, 2014, the Supervisory Board of Bayer AG extended the contract of Dr. Marijn Dekkers as Chairman of the company’s Board of Management until December 31, 2016. At the same meeting, the Supervisory Board appointed current Chief Financial Officer Werner Baumann as Chief Strategy and Portfolio Officer (CSPO) effective October 1, 2014. Also effective October 1, 2014, Johannes Dietsch will take over as Chief Financial Officer. The Supervisory Board appointed him to the Board of Management of Bayer AG effective September 1, 2014.
Leverkusen, July 28, 2014
Dr. Marijn Dekkers Werner Baumann Michael König Kemal Malik