Scope of Consolidation

Changes in the scope of consolidation

The 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

Acquisitions

In 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)

 

 

H1 2016

 

 

€ million

Goodwill

 

9

Patents and technologies

 

Other intangible assets

 

(23)

Property, plant and equipment

 

Inventories

 

Other current assets

 

Cash and cash equivalents

 

Deferred tax assets

 

Provisions for pensions and other post-employment benefits

 

1

Other provisions

 

Financial liabilities

 

Other liabilities

 

Deferred tax liabilities

 

8

Net assets

 

(5)

Changes in noncontrolling interest

 

Purchase price

 

(5)

Acquired cash and cash equivalents

 

Settlement gain from pre-existing relationship

 

Liabilities for future payments

 

3

Purchase price adjustment

 

Payments for previous years’ / quarters’ acquisitions

 

Net cash outflow for acquisitions

 

(2)

Adjustment of purchase price allocation in the previous year

The 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 operations

The 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:

Divestitures

 

 

H1 2016

 

 

€ million

Assets held for sale

 

183

Liabilities directly related to assets held for sale

 

(112)

Divested net assets

 

71

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 Operations

 

 

Diabetes Care

 

CS Consumer

 

Total

 

 

Q2 2015

Q2 2016

 

Q2 2015

Q2 2016

 

Q2 2015

Q2 2016

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

1

EBIT = income after income taxes, plus income taxes, plus financial result

Net sales

 

235

146

 

87

79

 

322

225

Cost of goods sold

 

(96)

(25)

 

(45)

(40)

 

(141)

(65)

Gross profit

 

139

121

 

42

39

 

181

160

Selling expenses

 

(94)

(5)

 

(30)

(31)

 

(124)

(36)

Research and development expenses

 

(12)

 

(1)

(3)

 

(13)

(3)

General administration expenses

 

(6)

(3)

 

(2)

(2)

 

(8)

(5)

Other operating income / expenses

 

(7)

(7)

 

1

(54)

 

(6)

(61)

EBIT1

 

20

106

 

10

(51)

 

30

55

Financial result

 

 

 

Income before income taxes

 

20

106

 

10

(51)

 

30

55

Income taxes

 

(3)

(16)

 

(3)

16

 

(6)

Income after income taxes

 

17

90

 

7

(35)

 

24

55

For the first half of 2016, the income statements of the discontinued operations are as follows:

Income Statements for Discontinued Operations

 

 

Diabetes Care

 

CS Consumer

 

Total

 

 

H1 2015

H1 2016

 

H1 2015

H1 2016

 

H1 2015

H1 2016

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

1

EBIT = income after income taxes, plus income taxes, plus financial result

Net sales

 

473

295

 

173

166

 

646

461

Cost of goods sold

 

(186)

(121)

 

(85)

(82)

 

(271)

(203)

Gross profit

 

287

174

 

88

84

 

375

258

Selling expenses

 

(179)

(8)

 

(53)

(57)

 

(232)

(65)

Research and development expenses

 

(22)

(2)

 

(3)

(4)

 

(25)

(6)

General administration expenses

 

(18)

(10)

 

(3)

(4)

 

(21)

(14)

Other operating income / expenses

 

6

(5)

 

(55)

 

6

(60)

EBIT1

 

74

149

 

29

(36)

 

103

113

Financial result

 

 

 

Income before income taxes

 

74

149

 

29

(36)

 

103

113

Income taxes

 

(12)

(20)

 

(9)

12

 

(21)

(8)

Income after income taxes

 

62

129

 

20

(24)

 

82

105

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 Sale

 

 

June 30, 2016

 

 

€ million

Assets held for sale

 

Provisions for pensions and other post-employment benefits

 

5

Other provisions

 

13

Liabilities directly related to assets held for sale

 

18

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 Operations

 

 

Diabetes Care

 

CS Consumer

 

Total

 

 

Q2 2015

Q2 2016

 

Q2 2015

Q2 2016

 

Q2 2015

Q2 2016

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

Net cash provided by (used in) operating activities (net cash flow)

 

9

(41)

 

(10)

31

 

(1)

(10)

Net cash provided by (used in) investing activities

 

(1)

 

 

(1)

Net cash provided by (used in) financing activities

 

(8)

41

 

10

(31)

 

2

10

Change in cash and cash equivalents

 

 

 

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 Operations

 

 

Diabetes Care

 

CS Consumer

 

Total

 

 

H1 2015

H1 2016

 

H1 2015

H1 2016

 

H1 2015

H1 2016

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

Net cash provided by (used in) operating activities (net cash flow)

 

56

778

 

(52)

(18)

 

4

760

Net cash provided by (used in) investing activities

 

(1)

 

 

(1)

Net cash provided by (used in) financing activities

 

(55)

(778)

 

52

18

 

(3)

(760)

Change in cash and cash equivalents