Strategy and Management

Group Strategy and Targets

Our mission “Bayer: Science For A Better Life” guides our endeavors to address some of today’s most pressing global challenges in health and nutrition through better medicines and a sufficient quantity of high-quality food for a steadily growing and aging population. Together with our partners, we are developing innovative solutions to tackle these challenges and thus improve people’s quality of life.

We want to safeguard our company’s long-term success in balance with ecological responsibility and societal acceptance. Sustainability is embedded in all our business practices as a fundamental condition for achieving this.

Our diversified portfolio of Life Sciences This term describes Bayer’s activities in health care and agriculture and comprises the Bayer Group excluding its legally independent subsidiary Covestro. It refers to the businesses of the Pharmaceuticals, Consumer Health and Crop Science divisions and the Animal Health business unit. businesses delivers profitable growth. We continuously strive to develop our businesses such that they assume leading positions in the respective industries and segments. This development is sustained by our core competencies of innovation, customer focus, quality, process excellence and portfolio management, and by our people.

To advance the consistent implementation of our strategy, we have set ambitious targets for our group company in the areas of growth and profitability, innovation, sustainability and employees. These targets are explained in more detail on the following pages.

Strategies of the Segments

Pharmaceuticals

At Pharmaceuticals, our largest segment in terms of sales, we focus on researching, developing and marketing specialty-focused innovative medicines that provide significant clinical benefit and value, primarily in the therapeutic areas of cardiology, oncology, gynecology, hematology and ophthalmology. In this way, we are addressing the growing requirements of patients, physicians, health care payers and regulatory agencies.

We will continue to drive growth with our successfully launched products Xarelto™, Eylea™, Stivarga™, Xofigo™ and Adempas™. We are continuing to expand the use of these medicines through comprehensive clinical development programs – some of them in collaboration with other pharmaceutical companies – and to make them available to further patient groups.

To drive sustainable growth, we are continually increasing our investment in research and development, focusing on the areas with the greatest potential for innovation such as cardiology, oncology and gynecology. We aim to continue supplementing our own innovation strength through targeted external collaborations. In addition, we are expanding and supplementing our development portfolio through licensing agreements and acquisitions.

Moreover, we are seeking to further increase our efficiency as a means of ensuring the availability of resources for investment in innovation.

To improve access to our products in developing and emerging countries (Access to Medicine), we are implementing economically feasible concepts and further developing our compounds for the treatment of neglected tropical diseases alongside our philanthropic activities.

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Target: improving people’s quality of life

As an innovation company, we are addressing current challenges by improving people’s quality of life through disease prevention and therapy. Within the scope of our entrepreneurial possibilities, we seek to make a responsible contribution to the benefit of society. Our Access to Medicine (ATM) activities are aligned to our company’s expertise and our specific product portfolio.

Here we distinguish between not-for-profit and economically feasible activities. The former include our efforts in respect of neglected tropical diseases (NTDs). Having signed the London Declaration, Bayer is collaborating with other pharmaceutical companies and stakeholders to help control or if possible eliminate 10 of these tropical diseases by 2020. Each of the companies involved contributes its respective expertise. In this connection, we have been providing the WHO (World Health Organization) free of charge with two of our active ingredients to treat African sleeping sickness and Chagas disease for more than 10 years. In 2016, we supplied one million tablets of Lampit (active ingredient: nifurtimox) for the treatment of Chagas disease and additionally contributed €300,000 for logistics and distribution. Given the gratifying and continuous decline in the number of patients suffering from African sleeping sickness, the 10,000 Germanin ampoules we supplied in 2015 will be sufficient for treatment through 2018. Since 2013, we have also been supporting WHO mobile intervention teams in the Democratic Republic of Congo, the country with the highest incidence of African sleeping sickness.

Additionally, we are working with DNDi (Drugs for Neglected Diseases Initiative) to develop a new treatment for river blindness. As part of the TB Drug Accelerator program, Bayer is opening parts of its substance library to support the search for new compounds to combat tuberculosis. In 2016, we formed a collaboration with the University of Dundee, Scotland, and the University of Cape Town, South Africa, to study an approach resulting from that program. We are optimizing a special formulation of our active ingredient nifurtimox that will allow more accurate, weight-based dosing in the treatment of Chagas disease, especially for children. The related Phase III study was launched in 2016 in Argentina, Colombia and Bolivia.

Improved access to medicines

Our family planning programs are economically feasible and facilitate improved access to hormonal contraceptives for women in developing countries. These programs make our products available to international development partners at preferential prices.

In some countries, where sections of the population have no access to innovative medicines via health care systems, we have established patient assistance programs for selected products. These aim particularly to provide access to oncology and cardiovascular products and products to treat chronic diseases such as multiple sclerosis and hemophilia. Such programs exist in the United States and China, for example, as well as in a number of countries in South and Southeast Asia and Southeastern Europe.

Every two years, the Access to Medicine (ATM) Index analyzes the top 20 research-based pharmaceutical companies in terms of their efforts to improve access to medicines and health care in developing countries. The rating mainly focuses on infectious diseases such as HIV, malaria and neglected tropical diseases, indications for which Bayer’s portfolio has a limited offering. In 2016, Bayer placed 12th (10th in the 2014 ranking) with its access programs for hormonal contraceptives, its collaboration with the WHO and other development projects.

Consumer Health

The growing and aging world population represents an increasing challenge to public health care systems. For this reason, the issue of self-care is gaining importance for millions of people, as well as for governments, health care systems and health care payers.

Our Consumer Health segment is responding to this change with its mainly nonprescription ( OTC (over-the-counter) designates the business with nonprescription medicines. ) brand products to treat and prevent diseases and to improve well-being, providing consumers with the corresponding self-care solutions. Our strategy is aimed at further building on our strong position in the market for over-the-counter medicines, nutritional supplements and other self-care products in selected categories.

Increasing competition for consumer attention combined with ongoing industry and distribution channel consolidation require a stronger focus on brand building, key markets and consumer-centric innovation. In order to drive the organic growth of our core brands, such as Claritin™, Aspirin™, Aleve™, Bepanthen™, Canesten™, Alka-Seltzer™, Dr. Scholl’s™, One a Day™, Coppertone™, Elevit™ and Berocca™, we are investing in product innovation and geographical expansion. We additionally intend to further strengthen our positions in key markets such as the United States, Brazil, Russia and China through product developments, marketing innovations and new digital offerings.

We also plan to continue selectively pursuing external growth opportunities that arise from the progressive consolidation of the OTC industry in order to expand our presence in strategic focus categories and markets by way of acquisitions.

Crop Science

Our Crop Science segment is aligned to the long-term trends of the agricultural markets. Our aim is to help shape the future of the agricultural industry with innovative offerings that enable the production of sufficient high-quality food, animal feed and renewable raw materials for a growing world population despite the limited amount of available arable land. We want to contribute to global food security through an environmentally friendly and sustainable increase in agricultural productivity. Our innovation strength is intended to benefit both our customers and society as a whole and be the source of our long-term growth. Crop Science’s strategy is built on three cornerstones: leading the way in innovation, increasing customer centricity and promoting and further developing sustainable farming practices.

To lead the way in innovation and develop holistic solutions, we aim to build on our expertise in the integration of seed technology with chemical and biological crop protection. In so doing, we support our customers with improved and innovative solutions tailored to specific local requirements. Innovative technologies are increasingly being applied in research and development in order to enhance our product portfolio. Examples here include new breeding technologies to improve yields or computational life sciences for the collection, processing and analysis of extensive research and development data as the basis for faster and more customer-focused development.

Another major part of our strategy is customer centricity along the entire value chain, which is coupled with the continuous optimization of distribution. We aim to offer our customers integrated solutions for the most important crops. In response to the increasing digitization of agriculture, we plan to develop a proprietary digital platform and specific data models in the area of digital farming so that we can give farmers more customized and sustainable agronomic recommendations for improving their yields. We are also seeking to support smallholder farmers in developing and emerging economies with specially tailored and sustainable solutions that help them optimize their agricultural production methods and improve their standard of living.

In line with our commitment to sustainable agriculture, we promote and improve corresponding farming practices. Moreover, we are steadily expanding our successful food chain partnerships. In these projects, Crop Science works with all participants in the food chain to sustainably safeguard and increase yields, and to satisfy the quality criteria in the food chain. With the Bayer Forward Farming initiative, we cooperate with farmers to develop and promote innovative solutions for the respective crops and facilitate sustainable agriculture. We plan to establish model operations known as “ForwardFarms” in all major agricultural markets by 2018.

Cooperation is crucial to the implementation of these strategic priorities. To find innovative and sustainable solutions to the challenges facing the agricultural industry, we maintain numerous collaborations and partnerships with leading research institutes and partners from the public and private sectors.

On September 14, 2016, as the logical next step in our evolution as a Life Science company, we signed a binding agreement to acquire Monsanto Company. Monsanto’s shareholders approved the merger at an extraordinary shareholders’ meeting held on December 13, 2016. Subject to receipt of the required regulatory approvals, successful closing of the transaction is anticipated by the end of 2017. Together we would be able to offer a broader portfolio of innovative products customized to serve farmers’ many needs and individual requirements. In the medium to long term, the combined enterprise would be able to bring innovations to the market faster and provide its customers with better solutions and an optimized product offering on the basis of agricultural analysis and supporting digital farming applications.

Animal Health

Driven by an increasing world population and higher incomes, the animal health market remains very attractive. In the companion animals segment, we are benefiting from growing pet ownership rates. In the farm animals segment, moreover, the aspiration to adopt Western lifestyle habits is leading to higher meat consumption.

In the companion animals business, Animal Health has a strong position in the field of parasiticides. To safeguard and further expand this position, we are focusing on maintaining the strong performance of the Seresto™ collar, opening up new distribution channels and leveraging the brand equity of the Advantage™ product family.

In the farm animals business, we are focusing on parasiticides and anti-infectives for the treatment of infectious diseases. We are striving to develop new options for the prevention and treatment of diseases in livestock. In this connection, we recently launched the innovative, nonantibiotic immunostimulant Zelnate™. Additionally, we strengthened our antiparasitics business in the United States with the acquisition in January 2017 of the Cydectin™ endectocide portfolio.

Covestro

As a global supplier of high-tech polymer materials and associated application solutions for many areas of modern life, Covestro supplies key industry sectors such as the automotive, construction and electronics industries. Driven by macro trends such as climate change, the diminishing availability of fossil resources, the expanding global population, urbanization and increasing mobility, the company is seeking to achieve profitable growth in the long term. Through its products – alongside polycarbonates especially raw materials for polyurethanes, coatings, adhesives and sealants as well as speciality products – Covestro aims to help master these challenges in line with its vision “To make the world a brighter place.” It operates efficient, safe and environmentally friendly production facilities and processes that are capable of serving the anticipated growth in demand. Covestro intends to further optimize cost structures and efficiency throughout the company.

Targets and key performance indicators

Our strategy is aimed at achieving economic growth balanced with our responsibility for the environment and society. We measure our progress in this on the basis of ambitious Group targets along the value chain. These targets are in the areas of growth and profitability, innovation, sustainability and employees.

In this way, we aim to make clear the challenges we have identified in our core business in the context of sustainable development, and at the same time to highlight the continuous improvements we are committed to making throughout the Group. The current status of our progress in these areas is documented in the following table and the respective chapters.

Growth and Profitability (icon)Growth and Profitability (icon) Growth and Profitability

Target
Target attainment (as of 2016)
New or adjusted target

Increase in Group sales (Fx & portfolio adj.); forecast issued in February 2016: low-single-digit percentage increase to more than €47 billion

3.5% increase to €46.8 billion

Low- to mid-single-digit percentage increase (Fx & portfolio adj.) to more than €49 billion

Increase in EBITDA before special items; forecast issued in February 2016: mid-single-digit percentage increase

10.2% increase

Mid-single-digit percentage increase

Increase in core earnings per share; forecast issued in February 2016: mid-single-digit percentage increase

7.3% increase

Mid-single-digit percentage increase

Innovation (icon)Innovation (icon) Innovation

Target
Target attainment (as of 2016)
New or adjusted target

Group: increase in R&D investment to €4.5 billion (2016)

€4.7 billion

Increase in R&D investment to €4.8 billion (2017)

Pharmaceuticals: transition of 10 new molecular entities (NMEs) into development (2016)

12 new molecular entities (NMEs) transferred

Transition of 10 new molecular entities (NMEs) into development (2017)

Consumer Health: transition of 20 consumer-validated concepts into early development (2016)

30 new concepts transferred

Transition of 25 consumer-validated concepts into early development (2017)

Crop Science: transfer of 3 new molecular entities (NMEs), plant traits or biologics into confirmatory technical proof-of-concept field studies (2016)

Start of field studies on 4 new molecular entities (NMEs) and 1 new plant trait

Transfer of 3 new molecular entities (NMEs), plant traits or biologics into confirmatory technical proof-of-concept field studies

See Chapter Focusing on Innovation for more information

Sustainability (icon)Sustainability (icon) Sustainability

Target
Target attainment (as of 2016)
New or adjusted target
Supplier management

Evaluation of all strategically important suppliers (2017)

98%

Target unchanged

Evaluation of all potentially high-risk suppliers with significant Bayer spend (2020)

83%

Target unchanged

Development and establishment of a new sustainability standard for our supply base (2020)

In implementation

Target unchanged

See Chapter Procurement and Supplier Management for more information

Resource efficiency

Improvement of 10% in energy efficiency (2020); reference value 2012: 8.86 MWh/t

6.77 MWh/t (24% improvement)

Improvement of 10% in energy efficiency (2020); reference value 2015: 143 kWh/€1,000 external sales

Reduction of 15% in specific greenhouse gas emissions (2020); reference value 2012: 1.88 t CO2/t

1.54 t CO2/t (–18%)

Reduction of 20% in specific greenhouse gas emissions (2020); new reference value (2015): 54.5 kg CO2/€1,000 external sales

Establishment of water management at all sites in water-scarce areas (2017)

95%

Target unchanged

See Chapter Environmental Protection for more information

Safety

Reduction of 35% in occupational safety incident rate (Recordable Incident Rate – RIR) (2020); reference value 2012: 0.50

RIR 0.40 (–20%)

Target unchanged

Reduction of 30% in process and plant safety incidents (Loss of Primary Containment Incident Rate – LoPC-IR) (2020); reference value 2012: 0.21

LoPC-IR 0.17 (–19%)

Target unchanged

See Chapter Safety for more information

Product stewardship

Conclusion of assessment of hazard potential of all substances (>99%) used in quantities exceeding one metric ton per annum (2020)

66%

Target unchanged

See Chapter Product Stewardship for more information

Compliance

Annual compliance training for virtually 100% of Bayer managers

97%

Target unchanged

See Chapter Compliance for more information

Employees (icon)Employees (icon) Employees

Target
Target attainment (as of 2016)
New or adjusted target

Continuous improvement in employee engagement; reference value 2012: 85%

87%

Target unchanged

Increase in the proportion of women in senior management to 35% (2020); reference value 2010: 21%

31%

Target unchanged

Increase in the proportion of senior managers from outside the European Union, the United States or Canada to 25% (2020); reference value 2013: 18%

21%

Target unchanged

See Chapter Commitment to employees and society for more information

1 All targets other than “Growth and Profitability” and R&D investment targets do not include Covestro