Financial Statements
5. Segment reporting
At Bayer the Board of Management, as the chief operating decision maker, allocates resources to the operating segments and assesses their performance. The reportable segments and regions are identified, and the disclosures selected, in line with the internal financial reporting system (management approach) and based on the Group accounting policies outlined in
Note [4].
As of December 31, 2010, the Bayer Group comprised three subgroups, with operations subdivided into strategic business entities known as divisions (HealthCare) or business units (CropScience and MaterialScience). Their activities are aggregated into the five reportable segments listed below according to economic characteristics, products, production processes, customer relationships, methods of distribution and regulatory environment.
The segments’ activities are as follows:
| Activities of the Segments | [Table 4.12] |
|---|
| Subgroup/Segment | Activities |
| HealthCare | |
Pharmaceuticals
| Development, production and marketing of prescription pharmaceuticals, such as for the treatment of hypertension, cardiovascular diseases, infectious diseases, cancer, multiple sclerosis, and for contraception; contrast media for use in diagnostic imaging |
Consumer Health
| Development, production and marketing of over-the-counter medications, dermatology products, nutritional supplements for humans and animals, veterinary medicines and grooming products for animals; diagnostic systems such as blood glucose meters; medical equipment such as injection systems for diagnostic procedures |
| CropScience | |
Crop Protection
| Development, production and marketing of a comprehensive portfolio of fungicides, herbicides, insecticides and seed treatment products to meet a wide range of regional requirements |
Environmental Science, BioScience
| Development, production and marketing of a wide range of products for the green industry, garden care, non-agricultural pest and weed control as well as seeds and traits |
| MaterialScience | |
MaterialScience
| Development, production and marketing of high-tech materials in the field of polyurethanes, polycarbonates, coating and adhesive raw materials and functional films; production and marketing of selected inorganic basic chemicals |
Business activities that cannot be allocated to any other segment are reported under “All other segments.” These include primarily the services of the service companies: Business Services, Technology Services and Currenta.
Holding companies’ activities and the elimination of intersegment sales are presented in our segment reporting as “Corporate Center and Consolidation.”
The reconciliation in the region table eliminates interregional items and transactions and reflects income, expenses, assets and liabilities not allocable to geographical areas, particularly those relating to the Corporate Center.
The segment data are calculated as follows:
- The intersegment sales reflect intra-Group transactions effected at transfer prices fixed on an arm’s-length basis.
- Although EBIT before special items and EBITDA before special items are not defined in the International Financial Reporting Standards, they represent key performance indicators for
the Bayer Group. The special items comprise effects that are non-recurring or do not regularly recur or attain similar magnitudes. EBITDA is the EBIT as reported in the income statement plus amortization and impairment losses on intangible assets and depreciation and impairment losses on property, plant and equipment, minus impairment loss reversals.
- The gross cash flow comprises income after taxes, plus income taxes, plus non-operating result, minus income taxes paid or accrued, plus depreciation, amortization and impairment losses, minus impairment loss reversals, plus/minus changes in pension provisions, minus gains/plus losses on retirements of noncurrent assets, minus gains from the remeasurement of already held assets in step acquisitions. The change in pension provisions includes the elimination of non-cash components of the operating result (EBIT). It also contains benefit payments during the year.
- The net cash flow is the cash flow from operating activities as defined in IAS 7 (Statement of Cash Flows).
- The capital invested and the assets include all assets serving the respective segment that are required to yield a return on their cost of acquisition. Starting in 2010 they also include material participating interests of direct relevance to business operations. The figures for 2009 are restated accordingly. Intangible assets, property plant and equipment are included in the capital invested at cost of acquisition or construction throughout their useful lives because the calculation of cash flow return on investment (CFRoI) requires that depreciation and amortization be excluded. Interest-free liabilities are deducted. The capital invested is stated as of December 31 of the respective year.
- The CFRoI is the ratio of the gross cash flow to the average capital invested for the year and is thus a measure of the return on capital employed.
- The equity items reflect the earnings and carrying amounts of companies accounted for using the equity method.
- Since financial management of Group companies is carried out centrally by Bayer AG, financial liabilities are not directly allocated among the segments. Consequently, the liabilities shown for the individual segments do not include financial liabilities. These are included in the reconciliation.
- The number of employees on either permanent or fixed-term contracts is stated in full-time equivalents (FTE), with part-time employees included in proportion to their contractual working hours. By contrast to the previous year, the figures include fixed-term employees but not trainees. The figures for 2009 are restated accordingly.
The reconciliations of the operating result (EBIT), assets and liabilities of the segments to the pre-tax income, assets and liabilities of the Group are given in the following tables:
| Reconciliation of Segments’ Operating Result to Group Income Before Income Taxes | [Table 4.13] |
|---|
| | 2009 | 2010 |
| | € million | € million |
| Operating result of segments | 3,204 | 2,949 |
| Operating result of Corporate Center | (198) | (219) |
| Operating result [EBIT] | 3,006 | 2,730 |
| Non-operating result | (1,136) | (1,009) |
| Income before income taxes | 1,870 | 1,721 |
| Reconciliation of Segments’ Assets to Group Assets | [Table 4.14] |
|---|
| | 2009 | 2010 |
| | € million | € million |
| Assets of the operating segments | 45,098 | 44,515 |
| Corporate Center assets | 1,222 | 1,016 |
| Non-allocated assets | 4,722 | 5,975 |
| Total assets | 51,042 | 51,506 |
| 2009 figures restated |
| Reconciliation of Segments’ Liabilities to Group Liabilities | [Table 4.15] |
|---|
| | 2009 | 2010 |
| | € million | € million |
| Liabilities of the operating segments | 12,295 | 14,373 |
| Corporate Center liabilities | 3,204 | 3,382 |
| Non-allocated liabilities | 16,592 | 14,855 |
| Total liabilities | 32,091 | 32,610 |
The reconciliation of segment sales to Group sales is apparent from the table of key data by segment in
Note [1].
Information on geographical areas
The following table provides a regional breakdown of external sales by market and of intangible assets, property, plant and equipment:
| Information on Geographical Areas | [Table 4.16] |
|---|
| | Net sales (external)
by market | Intangible assets and
property, plant and equipment |
| | 2009 | 2010 | 2009 | 2010 |
| | € million | € million | € million | € million |
| Germany | 4,147 | 4,432 | 15,944 | 14,425 |
| United States | 6,753 | 7,109 | 5,333 | 5,633 |
| China | 1,741 | 2,418 | 1,966 | 2,230 |
| Other | 18,527 | 21,129 | 7,712 | 7,710 |
| Total | 31,168 | 35,088 | 30,955 | 29,998 |
Information on major customers
Revenues from transactions with a single customer in no case exceeded 10% of Bayer Group sales in 2010 or 2009.