Management Report
8. Financial Position of the Bayer Group
| Bayer Group Summary Statements of Cash Flows | [Table 13] |
|---|
| | 3rd Quarter
2010 | 3rd Quarter
2011 | First Nine
Months 2010 | First Nine
Months 2011 |
| | € million | € million | € million | € million |
| Gross cash flow* | 887 | 1,327 | 3,357 | 4,168 |
| Changes in working capital/other non-cash items | 668 | 250 | 475 | (260) |
| Net cash provided by (used in) operating activities (net cash flow) | 1,555 | 1,577 | 3,832 | 3,908 |
| Net cash provided by (used in) investing activities | (639) | (1,637) | (1,378) | (3,177) |
| Net cash provided by (used in) financing activities | (1,281) | (567) | (3,010) | (2,326) |
| Change in cash and cash equivalents due to business activities | (365) | (627) | (556) | (1,595) |
| Cash and cash equivalents at beginning of period | 2,551 | 1,797 | 2,725 | 2,840 |
| Change due to exchange rate movements and to changes in scope of consolidation | (62) | 11 | (45) | (64) |
| Cash and cash equivalents at end of period | 2,124 | 1,181 | 2,124 | 1,181 |
2010 figures restated * Gross cash flow = 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 retirement 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. |
Operating cash flow
Gross cash flow in the third quarter of 2011 rose by 49.6% from the prior-year period to €1,327 million, mainly due to the increase in the operating result. The growth in cash flow was largely attributable to the significant improvement at CropScience. Substantial provisions were established in the prior-year period in connection with litigations concerning genetically modified rice (LL RICE), which diminished gross cash flow of CropScience but have not yet affected net cash flow. Net cash flow of the Bayer Group thus came in flat with the prior year, at €1,577 million, reflecting income tax payments of €201 million (Q3 2010: €121 million). The €217 million in funding for the U.S. pension plan through the transfer of bonds was a non-cash item.
Gross cash flow in the first nine months of 2011 climbed by 24.1% to €4,168 million, due mainly to the higher operating result. Net cash flow rose by 2% to €3,908 million, reflecting income tax payments of €721 million (9M 2010: €614 million).
Investing cash flow
Net cash outflow for investing activities in the third quarter of 2011 was €1,637 million. Cash outflows for property, plant and equipment and intangible assets were 10.4% lower at €354 million (Q3 2010: €395 million). Of this figure, HealthCare accounted for €129 million (Q3 2010: €175 million), CropScience for €62 million (Q3 2010: €74 million) and MaterialScience for €119 million (Q3 2010: €102 million). Included here are disbursements related to the expansion of our polymers production facilities in Shanghai, China. The €87 million (Q3 2010: €1 million) in outflows for acquisitions related mainly to the purchase of Pathway Medical Technologies, Inc., United States. Disbursements for noncurrent and current financial assets amounted to €1,261 million (Q3 2010: €309 million). The transfer of €217 million in bonds as funding for the U.S. pension plan was a non-cash item. Among the cash inflow items in the third quarter of 2011 was €13 million (Q3 2010: €15 million) in interest and dividends received.
Net cash outflow for investing activities in the first nine months of 2011 was €3,177 million. Cash outflows for property, plant and equipment and intangible assets were 10.1% lower at €890 million (9M 2010: €990 million). Of this figure, HealthCare accounted for €299 million (9M 2010: €373 million), CropScience for €161 million (9M 2010: €181 million) and MaterialScience for €337 million (9M 2010: €349 million). The €235 million (9M 2010: €18 million) in outflows for acquisitions related mainly to the acquisitions of the animal health company Bomac, New Zealand; Hornbeck Seed Company, Inc., United States; and Pathway Medical Technologies, Inc., United States. Cash outflows for noncurrent and current financial assets amounted to €2,262 million (9M 2010: €535 million). Among the cash inflow items in the first nine months of 2011 were €80 million (9M 2010: €77 million) in income from divestitures and €41 million (9M 2010: €48 million) in interest and dividends received.
Financing cash flow
Net cash outflow for financing activities in the third quarter of 2011 amounted to €567 million, including net loan repayments of €372 million (Q3 2010: €1,117 million). Net interest payments were 20.9% higher at €191 million (Q3 2010: €158 million).
Net cash outflow for financing activities in the first nine months of 2011 amounted to €2,326 million, including net loan repayments of €607 million (9M 2010: €1,397 million). Net interest payments were 5.4% higher at €472 million (9M 2010: €448 million). There was a €1,243 million outflow for “dividend payments and withholding tax on dividends” (9M 2010: €1,159 million).
Liquid assets and net financial debt
| Net Financial Debt | [Table 14] |
|---|
| | Dec. 31,
2010 | June 30,
2011 | Sep. 30,
2011 |
| | € million | € million | € million |
| Bonds and notes/promissory notes | 8,209 | 7,681 | 7,639 |
| of which hybrid bond | 1,303 | 1,293 | 1,334 |
| Liabilities to banks | 2,271 | 2,395 | 2,398 |
| Liabilities under finance leases | 562 | 521 | 538 |
| Liabilities from derivatives | 529 | 343 | 451 |
| Other financial liabilities | 196 | 179 | 199 |
| Positive fair values of hedges of recorded transactions | (331) | (373) | (433) |
| Financial debt | 11,436 | 10,746 | 10,792 |
| Cash and cash equivalents | (2,840) | (1,797) | (1,181) |
| Current financial assets | (679) | (1,551) | (2,623) |
| Net financial debt | 7,917 | 7,398 | 6,988 |
Net financial debt of the Bayer Group decreased by 5.5% to €7.0 billion as of September 30, 2011. High cash inflows from operating activities were partly offset by negative currency effects of €0.3 billion. Financial debt included the €1.3 billion subordinated hybrid bond issued in July 2005. Net financial debt should be viewed against the fact that Moody’s and Standard & Poor’s treat 75% and 50%, respectively, of the hybrid bond as equity. Unlike conventional borrowings, the hybrid bond thus only has a limited effect on the Group’s rating-specific debt indicators. Our noncurrent financial liabilities rose in the third quarter of 2011 from €7.3 billion to €7.5 billion. At the same time, current financial liabilities decreased from €3.9 billion to €3.7 billion.
Standard & Poor’s gives Bayer a long-term issuer rating of A- with stable outlook, while Moody’s gives us a long-term rating of A3 with stable outlook. The short-term ratings are A-2 (Standard & Poor’s) and P-2 (Moody’s). These investment-grade ratings document good creditworthiness.
Net Pension Liability
| Net Pension Liability | [Table 15] |
|---|
| | Dec. 31,
2010 | June 30,
2011 | Sep. 30,
2011 |
| | € million | € million | € million |
| Provisions for pensions and other post-employment benefits | 7,305 | 6,813 | 7,524 |
| Benefit plan assets in excess of obligation | (76) | (94) | (77) |
| Net pension liability | 7,229 | 6,719 | 7,447 |
The net pension liability rose from €6.7 billion to €7.4 billion in the third quarter of 2011, due especially to lower long-term capital market interest rates.