Management Report
8. Financial Position of the Bayer Group
| Bayer Group Summary Statements of Cash Flows | [Table 15] |
|---|
| | 3rd
Quarter
2009 | 3rd
Quarter
2010 | First Nine
Months
2009 | First Nine
Months
2010 |
| | € million | € million | € million | € million |
| Gross cash flow* | 1,172 | 879 | 3,629 | 3,436 |
| Changes in working capital/other non-cash items | 345 | 676 | (20) | 396 |
| Net cash provided by (used in) operating activities (net cash flow) | 1,517 | 1,555 | 3,609 | 3,832 |
| Net cash provided by (used in) investing activities | (310) | (639) | (789) | (1,378) |
| Net cash provided by (used in) financing activities | (436) | (1,281) | (2,311) | (3,010) |
| Change in cash and cash equivalents due to business activities | 771 | (365) | 509 | (556) |
| Cash and cash equivalents at beginning of period | 1,834 | 2,551 | 2,094 | 2,725 |
| Change due to exchange rate movements and to changes in scope of consolidation | (10) | (62) | (8) | (45) |
| Cash and cash equivalents at end of period | 2,595 | 2,124 | 2,595 | 2,124 |
2009 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 write-downs, minus write-backs, plus/minus changes in pension provisions, minus gains/plus losses on retirements of noncurrent assets, plus non-cash effects of the remeasurement of acquired assets. The change in pension provisions includes the elimination of non-cash components of the operating result. It also contains benefit payments during the year. |
Operating cash flow
Gross cash flow in the third quarter of 2010 fell by 25.0% from the prior-year period to €879 million (Q3 2009: €1,172 million). MaterialScience saw a marked business-related improvement in gross cash flow. By contrast, gross cash flow was down significantly at HealthCare and CropScience. These declines were partly due to increased contributions to pension funds. Gross cash flow was also held back primarily by provisions established in connection with the LL RICE and YAZ® litigations that were not yet reflected in net cash flow. Net cash flow of the Group rose by 2.5% to €1,555 million (Q3 2009: €1,517 million), partly as a result of more effective working capital management. Net cash flow reflected income tax payments of €121 million (Q3 2009: €194 million).
Gross cash flow in the first three quarters of 2010 declined by 5.3% to €3,436 million (9M 2010: €3,629 million). Net cash flow rose to €3,832 million (9M 2009: €3,609 million) and reflected income tax payments of €614 million (9M 2009: €327 million).
Investing cash flow
Net cash outflow for investing activities in the third quarter of 2010 totaled €639 million (Q3 2009: €310 million). Cash outflows for property, plant and equipment and intangible assets were 6.0% lower at €395 million (Q3 2009: €420 million). Of this figure, HealthCare accounted for €175 million (Q3 2009: €170 million), CropScience for €74 million (Q3 2009: €79 million) and MaterialScience for €102 million (Q3 2009: €112 million). The outflows included payments in connection with a license and development agreement in the field of aesthetic dermatology products and the expansion of our polymers production site in Shanghai, China. Among the cash inflow items in the third quarter of 2010 was €36 million (Q3 2009: €6 million) in inflows from divestitures.
Net cash outflow for investing activities in the first nine months of 2010 was €1,378 million (9M 2009: €789 million). Cash outflows for property, plant and equipment and intangible assets were 8.3% lower at €990 million (9M 2009: €1,080 million). Of this figure, HealthCare accounted for €373 million (9M 2009: €349 million), CropScience for €181 million (9M 2009: €223 million) and MaterialScience for €349 million (9M 2009: €356 million). The cash outflows for acquisitions amounted to €18 million and mainly arose from the purchase by MaterialScience of Artificial Muscle, Inc., United Stes, in March 2010. Among the cash inflow items in the first nine months of 2010 were €77 million (9M 2009: €57 million) in inflows from divestitures and €48 million (9M 2009: €74 million) in interest and dividends received.
Financing cash flow
Net cash outflow for financing activities in the third quarter of 2010 amounted to €1,281 million (Q3 2009: €436 million). It included net loan repayments of €1,117 million (Q3 2009: €249 million). Interest payments decreased to €254 million (Q3 2009: €259 million).
Net cash outflow for financing activities in the first three quarters of 2010 amounted to €3,010 million (9M 2009: €2,311 million). This included net loan repayments of €1,397 million (9M 2009: €575 million). Interest payments were 28.3% lower at €773 million (9M 2009: €1,078 million). This was partly due to the reduction in financial debt and lower interest rates. There was a €1,159 million outflow for “dividend payments and withholding tax on dividends” (9M 2009: €973 million).
Liquid assets and net financial debt
| Net Financial Debt | [Table 16] |
|---|
| | Dec. 31, 2009 | June 30, 2010 | Sep. 30, 2010 |
| | € million | € million | € million |
| Bonds and notes | 8,301 | 8,308 | 8,207 |
| of which hybrid bond | 1,267 | 1,322 | 1,330 |
| Liabilities to banks | 3,251 | 3,653 | 2,368 |
| Liabilities under finance leases | 550 | 612 | 553 |
| Liabilities from derivatives | 578 | 1,016 | 606 |
| Other financial liabilities | 178 | 177 | 194 |
| Positive fair values of hedges of recorded transactions | (426) | (516) | (562) |
| Financial debt | 12,432 | 13,250 | 11,366 |
| Cash and cash equivalents | (2,725) | (2,551) | (2,124) |
| Current financial assets | (16) | (2) | (103) |
| Net financial debt | 9,691 | 10,697 | 9,139 |
Net financial debt of the Bayer Group was considerably reduced from €10.7 billion to €9.1 billion (-14.6%) in the third quarter of 2010 thanks to cash inflows from operating activities and positive currency effects of €0.4 billion. As of September 30, 2010 the Group had cash and cash equivalents of €2.1 billion. Financial liabilities amounted to €11.4 billion, including 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 declined during the third quarter of 2010 from €11.0 billion to €10.4 billion. At the same time, current financial liabilities decreased from €2.8 billion to €1.6 billion.
Standard & Poor’s gives Bayer a long-term issuer rating of A- with negative outlook, while Moody’s gives the company a 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 17] |
|---|
| | Dec. 31,
2009 | June 30,
2010 | Sep. 30,
2010 |
| | € million | € million | € million |
| Provisions for pensions and other post-employment benefits | 6,517 | 7,839 | 8,297 |
| Benefit plan assets in excess of obligation | (100) | (112) | (120) |
| Net pension liability | 6,417 | 7,727 | 8,177 |
The net pension liability increased from €7.7 billion to €8.2 billion in the third quarter of 2010, mainly because of lower long-term capital market interest rates. Provisions for pensions and other post-employment benefits rose from €7.8 billion to €8.3 billion. Benefit plan assets in excess of obligations – reflected in the statement of financial position under “other receivables” – came to €0.1 billion (June 30, 2010: €0.1 billion).