Strategy and Management
One of the prime objectives of the Bayer Group is to achieve profitable growth in order to steadily increase the enterprise value and sustain the company as a going concern. Economic planning and management for the company takes place within a framework for the divisions determined by the Board of Management in the course of the strategic management process and translated into specific targets during operational planning. Continuous monitoring of business developments complements the planning and management process, and key management and performance indicators are regularly updated. This process also involves tracking the implementation of the strategic objectives and adopting countermeasures in the event of deviations from the budget. Moreover, the Board of Management uses targets and performance indicators to steer the company’s sustainable alignment.
We use the following indicators to plan, manage and monitor the development of our business.
Operational management indicators
The main parameters in economic management within the Bayer Group at the operational level are figures for sales, earnings and tied-up capital, which therefore also significantly affect short-term variable compensation.
Growth is measured primarily in terms of the change in sales after adjusting for currency and portfolio effects (Fx & p. adj.) in order to reflect the operational business development of the Group and the divisions. A key measure of profitability at the Group and division levels is EBITDA before special items. The EBITDA margin before special items, which is the ratio of EBITDA before special items to sales, serves as a relative indicator for the internal and external comparison of operational earning power. Another important profitability indicator for the Bayer Group is core earnings per share, which is the core net income divided by the weighted average number of shares.
New value-based indicator: return on capital employed
At the strategic level, Bayer introduced the return on capital employed (ROCE) for fiscal 2016. This indicator of value-based performance replaces the cash value added (CVA) and cash flow return on investment (CFROI). The periodic capital return is measured by comparing ROCE with the weighted average cost of capital. This supports the management in evaluating long-term business development.
Management of the Covestro segment
The principal indicators used for internal management in the Covestro segment are core volume growth, return on capital employed (ROCE) and free operating cash flow. These indicators also serve as the basis for short-term incentive awards to all Covestro employees. For management at Group level, however, the indicators used by Covestro are converted into those defined for Bayer above.