Management Report
8. Financial Position of the Bayer Group
| Bayer Group Summary Statements of Cash Flows | [Table 13] |
|---|
| | 2nd
Quarter
2010 | 2nd
Quarter
2011 | 1st
Half
2010 | 1st
Half
2011 |
| | € million | € million | € million | € million |
| Gross cash flow* | 1,292 | 1,532 | 2,470 | 2,841 |
| Changes in working capital/other non-cash items | 253 | (2) | (193) | (510) |
Net cash provided by (used in) operating activities
(net cash flow) | 1,545 | 1,530 | 2,277 | 2,331 |
| Net cash provided by (used in) investing activities | (427) | (965) | (739) | (1,540) |
| Net cash provided by (used in) financing activities | (1,613) | (1,443) | (1,729) | (1,759) |
| Change in cash and cash equivalents due to business activities | (495) | (878) | (191) | (968) |
| Cash and cash equivalents at beginning of period | 3,041 | 2,686 | 2,725 | 2,840 |
| Change due to exchange rate movements and to changes in scope of consolidation | 5 | (11) | 17 | (75) |
| Cash and cash equivalents at end of period | 2,551 | 1,797 | 2,551 | 1,797 |
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 second quarter of 2011 was up by 18.6% from the prior-year period to €1,532 million, largely because of the improvement in the operating result. While CropScience significantly raised gross cash flow, it remained nearly level at MaterialScience and HealthCare. Cash tied up in working capital remained unchanged in the second quarter of 2011, compared to a decrease of about €250 million in the same period of the previous year. Net cash flow of the Bayer Group thus came in at the prior-year level, at €1,530 million, and reflected income tax payments of €296 million (Q2 2010: €319 million).
Gross cash flow in the first half of 2011 rose by 15.0% to €2,841 million, due mainly to the higher operating result. Net cash flow climbed by 2.4% to €2,331 million. This figure contains income tax payments of €520 million (H1 2010: €493 million).
Investing cash flow
Net cash outflow for investing activities in the second quarter of 2011 was €965 million. Cash outflows for property, plant and equipment and intangible assets were 18.4% lower at €298 million (Q2 2010: €365 million). Of this figure, HealthCare accounted for €101 million (Q2 2010: €129 million), CropScience for €52 million (Q2 2010: €69 million) and MaterialScience for €117 million (Q2 2010: €141 million). Included here are disbursements related to the expansion of our polymers production facilities in Shanghai, China. Outflows for acquisitions of €43 million (Q2 2010: €1 million) related mainly to the purchase of the seed company Hornbeck, United States. Cash outflows for noncurrent and current financial assets amounted to €677 million (Q2 2010: €109 million). Among the cash inflow items in the second quarter of 2011 was €14 million (Q2 2010: €12 million) in interest and dividends received.
Net cash outflow for investing activities in the first half of 2011 totaled €1,540 million. Cash outflows for additions to property, plant and equipment and intangible assets declined 9.9% to €536 million (H1 2010: €595 million). Of this figure, HealthCare accounted for €170 million (H1 2010: €198 million), CropScience for €99 million (H1 2010: €107 million) and MaterialScience for €218 million (H1 2010: €247 million). The €148 million (H1 2010: €17 million) in outflows for acquisitions related mainly to the purchase of the animal health company Bomac, New Zealand, and Hornbeck, United States. Cash outflows for noncurrent and current financial assets amounted to €1,001 million (H1 2010: €226 million). Among the cash inflow items in the first six months of 2011 were €52 million (H1 2010: €41 million) in inflows from divestitures and €28 million (H1 2010: €33 million) in interest and dividends received.
Financing cash flow
Net cash outflow for financing activities in the second quarter of 2011 amounted to €1,443 million. It included net loan repayments of €21 million (Q2 2010: €250 million). Net interest payments were 12.2% lower at €180 million (Q2 2010: €205 million). There was a €1,241 million outflow for “dividend payments and withholding tax on dividends” (Q2 2010: €1,158 million).
Net cash outflow for financing activities in the first half of 2011 amounted to €1,759 million. This figure included net loan repayments of €235 million (H1 2010: €280 million). Net interest payments were 3.1% lower at €281 million (H1 2010: €290 million). There was a €1,241 million outflow for “dividend payments and withholding tax on dividends” (H1 2010: €1,158 million).
Liquid assets and net financial debt
| Net Financial Debt | [Table 14] |
|---|
| | Dec. 31, 2010 | March 31, 2011 | June 30, 2011 |
| | € million | € million | € million |
| Bonds and notes/promissory notes | 8,209 | 7,860 | 7,681 |
| of which hybrid bond | 1,303 | 1,271 | 1,293 |
| Liabilities to banks | 2,271 | 2,185 | 2,395 |
| Liabilities under finance leases | 562 | 529 | 521 |
| Liabilities from derivatives | 529 | 393 | 343 |
| Other financial liabilities | 196 | 189 | 179 |
| Positive fair values of hedges of recorded transactions | (331) | (436) | (373) |
| Financial debt | 11,436 | 10,720 | 10,746 |
| Cash and cash equivalents | (2,840) | (2,686) | (1,797) |
| Current financial assets | (679) | (932) | (1,551) |
| Net financial debt | 7,917 | 7,102 | 7,398 |
Net financial debt of the Bayer Group increased by 4.2% to €7.4 billion as of June 30, 2011. High cash inflows from operating activities partly offset the outflows for the dividend payment, variable compensation to our employees and interest payments. 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 declined in the second quarter of 2011 from €9.9 billion to €7.3 billion. At the same time, current financial liabilities increased from €1.9 billion to €3.9 billion. This was chiefly due to the reclassification of the bond issued by Bayer AG in 2002 with a nominal value of €2 billion, which will mature in April 2012.
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 | March 31, 2011 | June 30, 2011 |
| | € million | € million | € million |
| Provisions for pensions and other post-employment benefits | 7,305 | 6,705 | 6,813 |
| Benefit plan assets in excess of obligation | (76) | (74) | (94) |
| Net pension liability | 7,229 | 6,631 | 6,719 |
The net pension liability edged forward from €6.6 billion to €6.7 billion in the second quarter of 2011, due especially to lower long-term capital market interest rates.