Liquidity and Capital Expenditures of the Bayer Group

Bayer Group Summary Statements of Cash Flows

 

 

Q4 2017

 

Q4 2018

 

2017

 

2018

 

 

€ million

 

€ million

 

€ million

 

€ million

1

The difference in cash and cash equivalents at end of period 2017 and beginning of period 2018 is due to a reclassification through the application of IFRS 9.

Net cash provided by (used in) operating activities, continuing operations

 

2,256

 

2,968

 

6,611

 

7,917

Net cash provided by (used in) operating activities, discontinued operations

 

13

 

 

1,523

 

Net cash provided by (used in) operating activities (total)

 

2,269

 

2,968

 

8,134

 

7,917

Net cash provided by (used in) investing activities (total)

 

1,709

 

(571)

 

(432)

 

(34,152)

Net cash provided by (used in) financing activities (total)

 

(1,906)

 

(3,172)

 

(1,881)

 

23,432

Change in cash and cash equivalents due to business activities

 

2,072

 

(775)

 

5,821

 

(2,803)

Cash and cash equivalents at beginning of period1

 

5,555

 

4,850

 

1,899

 

7,435

Change due to exchange rate movements and to changes in scope of consolidation

 

(46)

 

(23)

 

(139)

 

(580)

Cash and cash equivalents at end of period

 

7,581

 

4,052

 

7,581

 

4,052

Net cash provided by operating activities

The net cash provided by operating activities in continuing operations increased by 19.8% to €7,917 million thanks to a reduction in cash tied up in working capital. However, net cash provided by operating activities (total) fell by 2.7% as Covestro was still included here in the previous year.

Net cash used in investing activities

The net cash outflow for investing activities in 2018 amounted to €34,152 million. Cash outflows for property, plant and equipment and intangible assets were 9.6% higher at €2,593 million (2017: €2,366 million). Divestments resulted in an inflow of €7,563 million and included the proceeds from the divestment of part of the crop protection business to BASF. Cash outflows for acquisitions in the amount of €45,316 million related to the acquisition of Monsanto. Net cash inflows from current and noncurrent financial assets totaled €5,717 million (2017: €1,230 million), and included €2,909 million in proceeds from the sale of Covestro shares.

Net cash provided by (used in) financing activities

In 2018, there was a net cash inflow of €23,432 million for financing activities, including net borrowings of €17,819 million (2017: net loan repayments of €2,479 million). Net interest payments were 25.5% higher at €919 million (2017: €732 million). The cash outflow for dividends amounted to €2,407 million (2017: €2,364 million).

Capital increases resulted in an inflow of €8,986 million.

Free cash flow

Free cash flow, which is total operating cash flow less capital expenditures plus interest and dividends received less interest paid, amounted to €4,652 million in 2018.

Capital Expenditures

Capital Expenditures for Property, Plant and Equipment and for Intangible Assets1

 

 

2017

 

2018

 

 

€ million

 

€ million

1

Capital expenditures as per statement of cash flows

2

2017 Group total includes Covestro

Pharmaceuticals

 

915

 

964

Consumer Health

 

178

 

204

Crop Science

 

553

 

1,000

Animal Health

 

38

 

55

Corporate functions and Reconciliation

 

400

 

370

Group2

 

2,366

 

2,593

The highest expenditures for property, plant, and equipment at Pharmaceuticals were modernization programs for the production network of our product supply organization (€46 million) and for our research activities (€39 million) in Wuppertal and Berlin, Germany; the expansion of production capacities for recombinant products (€37 million) in Leverkusen and Wuppertal, Germany, and for Eylea™ (€25 million) at our sites in Berlin, Germany, and Shiga, Japan; and the construction of a pilot plant for continuous solids production (€6 million) in Leverkusen, Germany.

Capital expenditures for intangible assets included a milestone payment of US$275 million to Loxo Oncology, Inc. in connection with the FDA approval of Vitrakvi™ in the United States.

At approximately €45 million, Consumer Health’s largest investment was the GMP upgrade program across its global production sites, including €23 million for the production site in Guatemala City, Guatemala, and €12 million for the production site in Cleveland, Tennessee, United States.

Crop Science continuously invests in its global production network for crop protection products and seeds as well as in research, development and digital transformation. The largest projects in 2018 included capital expenditures for the production of herbicides and fungicides in Luling, Louisiana, United States, and Kansas City, Missouri, United States, as well as for seed processing sites in Lubbock, Texas, United States (cotton) and Pochuyki, Ukraine (corn). In 2018, Bayer also initiated substantial capital spending on research facilities in Chesterfield, Missouri, United States, and invested in digital farming.

In 2018, Animal Health invested €19 million in the expansion of the site in Kiel, Germany, where we manufacture some 60% of the Animal Health products we market worldwide.

Strategic Investments in Property, Plant and Equipment

 

 

 

2017

 

2018

1

Monsanto was responsible for these projects until the closing of the acquisition.

2

In conjunction with the divestments to BASF

Pharmaceuticals

Expansion of Eylea™ production capacities in Berlin, Germany, and Shiga, Japan

 

started

 

ongoing

Pilot facility for continuous solids production in Leverkusen, Germany

 

started

 

ongoing

Modernization of production facilities at sites across the production network (Leverkusen, Germany; Garbagnate, Italy; etc.)

 

ongoing

 

ongoing

Construction of a new research building in Wuppertal (Aprath), Germany

 

ongoing

 

ongoing

Modernization of research facilities in Berlin, Germany

 

ongoing

 

ongoing

Back-up active ingredient production for Xarelto™ in Bergkamen, Germany

 

ongoing

 

ongoing

Consumer Health

Upgrade of global production site facilities to new GMP standards

 

ongoing

 

ongoing

Crop Science

Capacity expansions for herbicide production in Muskegon, Michigan, and Mobile, Alabama, U.S.A., and Frankfurt and Knapsack, Germany

 

ongoing

 

divested2

Construction of a production facility for insecticides in Dormagen, Germany

 

ongoing

 

completed

Expansion of production capacities for fungicides in Dormagen, Germany

 

ongoing

 

completed

Expansion of research and development facilities in Monheim, Germany

 

ongoing

 

ongoing

Construction of breeding stations for various plant species worldwide

 

ongoing

 

divested2

Expansion of R&D facilities in Raleigh, North Carolina, U.S.A.

 

ongoing

 

divested2

Expansion of production and research greenhouses in Nunhem, Netherlands

 

ongoing

 

divested2

Establishment of a production site for fungicides in Kansas City, Missouri, U.S.A.

 

ongoing

 

ongoing

Expansion of production capacities for insecticides in Vapi, India

 

ongoing

 

ongoing

Construction of a production facility for herbicides in Luling, Louisiana, U.S.A.1

 

ongoing

 

ongoing

Construction of a corn seed production site in Pochuyki, Ukraine1

 

ongoing

 

ongoing

Construction of a corn breeding station in Marana, Arizona, U.S.A.1

 

ongoing

 

ongoing

Expansion of R&D facilities in Chesterfield, Missouri, U.S.A.1

 

ongoing

 

started

Construction of a cotton seed production site in Lubbock, Texas, U.S.A1

 

ongoing

 

ongoing

IT solutions to support digital transformation1

 

ongoing

 

ongoing

Animal Health

Expansion of production capacities for Seresto™ in Kiel, Germany

 

ongoing

 

ongoing

Liquid assets and net financial debt

Net Financial Debt1

 

 

Dec. 31, 2017

 

Dec. 31, 2018

 

Change

 

 

€ million

 

€ million

 

%

1

For definition see Chapter “Alternative Performance Measures Used by the Bayer Group”.

2

Classified as debt according to IFRS

3

These include the market values of interest-rate and currency hedges of recorded transactions.

4

These include short-term loans and receivables with maturities between 3 and 12 months outstanding from banks and other companies as well as financial investments in debt and equity instruments that were recorded as current on first-time recognition.

5

These solely comprise the remaining interest in Covestro that is to be used to repay the convertible bond issued in 2017 that will mature in 2020.

Bonds and notes / promissory notes

 

12,436

 

35,402

 

+184.7

of which hybrid bonds2

 

4,533

 

4,537

 

+0.1

Liabilities to banks

 

534

 

4,865

 

.

Liabilities under finance leases

 

238

 

399

 

+67.6

Liabilities from derivatives3

 

240

 

172

 

–28.3

Other financial liabilities

 

970

 

556

 

–42.7

Receivables from derivatives3

 

(244)

 

(137)

 

–43.9

Financial debt

 

14,174

 

41,257

 

+191.1

Cash and cash equivalents

 

(7,581)

 

(4,052)

 

–46.6

Current financial assets4

 

(2,998)

 

(930)

 

–69.0

Noncurrent financial assets5

 

 

(596)

 

.

Net financial debt

 

3,595

 

35,679

 

.

Net financial debt of the Bayer Group increased by €32 billion in 2018, due primarily to the acquisition of Monsanto.

In addition to equity measures totaling €9 billion, bonds amounting to US$15 billion and €5 billion were issued to finance the acquisition. These bonds were issued by the subsidiaries Bayer U.S. Finance II LLC, Pittsburgh, Pennsylvania, United States, and Bayer Capital Corporation B.V., Mijdrecht, Netherlands, respectively.

As part of the acquisition, outstanding bonds with a nominal volume of US$6.9 billion were taken over from Monsanto. In July 2018, Bayer initiated an exchange offer for all 16 debt instruments, granting Monsanto bondholders the option of acquiring securities guaranteed by Bayer AG. Some 83% of the outstanding bond volume was exchanged in total.

Financial debt includes three subordinated hybrid bonds with a total volume of €4.5 billion, 50% of which is treated as equity by the rating agencies. As such, the hybrid bonds have a positive impact on the Group’s rating-specific debt indicators.

The increase in liabilities to banks mainly resulted from the use of the bridge financing for the acquisition of Monsanto. As of December 31, 2018, the outstanding acquisition loan amounted to US$4.9 billion.

The other financial liabilities as of December 31, 2018, contained €309 million related to the mandatory convertible notes issued in November 2016.

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