The Combined Management Report and the Consolidated Financial Statements of the Bayer Group are prepared according to the applicable accounting standards. In addition to the disclosures and metrics these require, we also publish alternative performance measures (APMs) that are not defined or specified in these standards and for which there are no generally accepted definitions within regulatory frameworks. We calculate APMs to enable a comparison of performance indicators over time and against those of other companies in its industry sectors. These APMs are calculated by making certain adjustments to items in the statement of financial position or the income statement prepared according to the applicable accounting standards. Such adjustments may result from differences in calculation or measurement methods, nonuniform business activities or special factors affecting the information value of these items. The APMs determined in this way apply to all periods and are used both internally for business management purposes and externally by analysts, investors and rating agencies to assess the company’s performance. We determine the following APMs:
Change in sales (reported, currency-adjusted, currency- and portfolio-adjusted)
EBITDA
EBITDA before special items
EBITDA margin before special items
EBIT
EBIT before special items
Clean depreciation and amortization
Core earnings per share
Net financial debt
Return on capital employed (ROCE)
Net operating profit after tax (NOPAT)
Capital employed
Weighted average cost of capital (WACC)
Free cash flow
Forecast key financial data
The (reported) change in sales is a relative indicator. It shows the percentage by which sales varied from the previous year.
The currency-adjusted or currency- and portfolio-adjusted change in sales shows the percentage change in sales excluding the impact of exchange rate effects and, in the latter case, disregarding material acquisitions and divestments as well. Exchange rate effects are generally calculated on the basis of the functional currency valid in the respective country. An exception existed in Argentina, primarily in our crop protection business, where the currency effect was calculated on the basis of the US dollar instead of the functional currency.
EBITDA (earnings before interest, taxes, depreciation and amortization) encompasses earnings before the financial result, taxes, depreciation and impairment losses/loss reversals on property, plant and equipment, impairment losses on goodwill, and amortization and impairment losses/loss reversals on other intangible assets. This performance indicator neutralizes the effects of the financial result along with distortions of operational performance that result from divergent depreciation and amortization methods and the exercise of measurement discretion. EBITDA is EBIT plus the amortization of intangible assets and the depreciation of property, plant and equipment, plus impairment losses and minus impairment loss reversals, recognized in profit or loss during the reporting period.
EBIT (earnings before interest and taxes) serves to present a company’s performance while eliminating the effects of differences between local taxation systems and different financing activities.
EBITDA before special items and EBIT before special items show the development of the operational business irrespective of special items, i.e. effects relating to the steering of the Bayer Group that are not of a regular nature and magnitude. To constitute a special item within these metrics, such effects must exceed pre-defined thresholds. These effects may include acquisition costs, divestments, litigations, restructuring, integration costs, impairment losses and impairment loss reversals. In the calculation of EBIT before special items and EBITDA before special items, special charges are added and special gains subtracted. Clean depreciation and amortization exclude the effect of (corresponding) special items on the depreciation and amortization figures.
The EBITDA margin before special items is a relative indicator that we use for internal and external comparisons of operational earnings performance. It is the ratio of EBITDA before special items to net sales.
The APM core earnings per share (core EPS) from continuing operations is based on the concept of earnings per share (EPS) as defined in IAS 33.
Core EPS is calculated using the following method: Based on EBIT (as per the income statements), the special items, impairment losses on goodwill, amortization/impairment losses/loss reversals on other intangible assets, impairment losses/loss reversals on property, plant and equipment and the accelerated depreciation included in special items are neutralized to determine core EBIT. This enables a comparison of performance over time. Core EBIT is reconciled to core net income from continuing operations. This is calculated by adding the core financial result to core EBIT. Special items in the financial result include nonrecurring financial expenses or income that are not part of our normal financing activities. These primarily pertain to changes in the fair value of equity instruments that are not held for medium- or long-term strategic purposes, as well as to nonrecurring financial expenses or income arising from acquisitions, divestments and litigations. Income taxes – net of special items – are then deducted from this figure to give core net income. Special items relating to income taxes include material effects from tax reforms, among other things.
Core EPS is then calculated by dividing core net income by the weighted average number of shares.
As core EPS is calculated for each interim reporting period, core EPS for the fiscal year or for each interim reporting period up to the respective closing date may deviate from the cumulated core EPS for the individual interim reporting periods.
Net financial debt is an important financial management indicator for the Bayer Group and is used both internally and externally in assessing its liquidity, capital structure and financial flexibility.
The return on capital employed (ROCE) measures the capital return over a specified period and is employed as a strategic indicator to evaluate value creation. It is the ratio of net operating profit after taxes (NOPAT) to the average capital employed in a fiscal year. NOPAT is calculated by subtracting income taxes from EBIT. Income taxes are calculated by multiplying EBIT by a uniform tax rate that is based on a historical average of tax rates.
The capital employed by Bayer is the total carrying amount of operational noncurrent and current assets, minus liabilities that are largely non-interest-bearing in character and/or would distort the capital base. An average value, calculated from the values at the end of the prior year and of the reporting year, is used to depict the change in capital employed during the reporting year.
The ROCE is compared to the weighted average cost of capital (WACC), which is the return expected by the providers of equity and debt. If the ROCE exceeds the WACC, return expectations have been exceeded, indicating that value has been created.
The WACC is based on an after-tax approach and calculated at the start of the year as the weighted average of the equity and debt cost factors. The cost of equity is determined using the capital asset pricing model (CAPM), while the debt-capital cost factor is calculated based on the average returns of 10-year German federal bonds and credit spreads derived from the average returns on 10-year USD bonds issued by industrial companies. Further information on the segment-specific capital cost factors used in impairment testing is provided in Note [4] to B Consolidated Financial Statements.
Free cash flow (FCF) is an alternative performance measure that is based on the cash flow from operating activities under IAS 7. FCF illustrates the cash flows available for paying dividends and reducing debt as well as for investing in innovation and acquisitions. It is calculated by subtracting cash outflows for additions to property, plant and equipment and intangible assets from the cash flow from operating activities from continuing and discontinued operations, adding interest and dividends received along with interest received from interest-rate swaps, and deducting interest paid including interest-rate swaps.
The forward-looking key performance indicators published in the forecast for key financial data are based on data that is determined in the course of our planning process. The key financial data in the forecast is determined in accordance with the applied accounting policies and with the calculation models for alternative performance measures described in this chapter.
From 2026, we will be updating the way we calculate core earnings per share (core EPS) from continuing operations. In addition to the depreciation of property, plant and equipment that is already accounted for as part of the approach outlined above, the updated method for calculating this metric will also factor in the amortization of certain intangible assets, in particular software.