Equity

The foremost objectives of our financial management are to help bring about a sustained increase in Bayer’s value for the benefit of all stakeholders, and to ensure the Group’s creditworthiness and liquidity. The pursuit of these goals means reducing our cost of capital, optimizing our capital structure, improving our financing cash flow and effectively managing risk.

The rating agencies commissioned by Bayer assess Bayer’s creditworthiness as follows:

Rating

 

 

Long-term rating

 

Short-term rating

S & P Global Ratings

 

A–

 

A–2

Moody's

 

A3

 

P–2

These ratings reflect the company’s good creditworthiness and ensure access to a broad investor base for financing. Both S & P Global Ratings and Moody’s are currently considering a rating downgrade in view of the agreed acquisition of Monsanto Company. Bayer will continue to target an investment-grade rating after the successful closing of the Monsanto acquisition. We remain committed to the single “A” credit rating category over the long term.

Apart from utilizing cash inflows from our operating business to reduce net financial debt, we are implementing our financial strategy by way of vehicles such as the subordinated Hybrid bond A hybrid bond is a corporate bond with equity equivalent properties, usually with either no maturity date or a very long maturity. Due to ist subordination, it has a lower likelihood of repayment than a normal bond in the event of issuer bankruptcy. issued in July 2014 and April 2015, the mandatory convertible notes issued in November 2016, the authorized and conditional capital created by resolutions of the Annual Stockholders’ Meeting, and a potential share buyback program. Bayer’s Articles of Incorporation do not stipulate capital ratios.

The changes in the various components of equity during 2015 and 2016 are shown in the consolidated statements of changes in equity.

Capital stock

The capital stock of Bayer AG on December 31, 2016 amounted to €2,117 million (2015: €2,117 million), divided into 826,947,808 (2015: 826,947,808) registered no-par shares, and was fully paid in. Each no-par share confers one voting right.

Authorized and conditional capital

The authorized and conditional capital was comprised as follows:

Authorized and Conditional Capital

Capital

 

Resolution

 

Amount / shares

 

Expires

 

Purpose

Authorized capital I

 

April 29, 2014

 

€530 million

 

April 28, 2019

 

Increase the capital stock by issuing new no-par shares against cash contributions and / or contributions in kind, the latter not to exceed €423 million

Authorized capital II

 

April 29, 2014

 

€212 million

 

April 28, 2019

 

Increase the capital stock by issuing new no-par shares against cash contributions

Conditional capital

 

April 29, 2014

 

€212 million / up to 82,694,750 shares

 

April 28, 2019

 

Increase the capital stock by granting no-par shares to the holders of bonds with warrants or convertible notes, profit participation certificates or income bonds; the authorizations to issue such instruments are limited to a total nominal amount of €6 billion.

Capital increases are effected by issuing new registered no-par shares. Stockholders must normally be granted subscription rights. However, subscription rights may be excluded under certain conditions stated in the authorization resolutions. Absent a further resolution of the Annual Stockholders’ Meeting on the exclusion of stockholders’ subscription rights, the Board of Management will only use the existing authorizations to increase the capital stock out of the authorized or conditional capital – while excluding stockholders’ subscription rights – up to a total amount of 20% of the capital stock that existed when the respective resolutions were adopted by the Annual Stockholders’ Meeting on April 29, 2014. All issuances or sales of no-par shares or of bonds with warrants or conversion rights or obligations that are effected while excluding stockholders’ subscription rights also count toward this 20% limit. Details of the authorized and conditional capital are provided in the Notice of the Annual Stockholders’ Meeting of April 29, 2014, and on the Bayer website.

On November 22, 2016, Bayer placed mandatory convertible notes in the amount of €4,000 million without granting subscription rights to existing stockholders of the company. The notes, denominated in units of €100,000, were issued by Bayer Capital Corporation B.V. under the subordinated guarantee of Bayer AG. At maturity, the outstanding amount of the notes will be mandatorily converted into registered no-par shares of Bayer AG. After deduction of €48 million in transaction costs and recognition of €191 million in deferred taxes, €3,491 million were allocated to capital reserves and €652 million to financial liabilities. The deferred taxes result from temporary differences in accounting for the liability component and were recognized outside profit or loss in equity. The issuance of the mandatory convertible notes constitutes a utilization of conditional capital.

The authorized capital has not been utilized so far.

Accumulated comprehensive income

Accumulated comprehensive income comprises retained earnings and accumulated other comprehensive income. The retained earnings include prior years’ undistributed income of consolidated companies and all remeasurements of the net liability for defined benefit pension and other post-employment benefit plans that are recognized outside profit or loss. The accumulated other comprehensive income comprises exchange differences, the changes in fair values of cash flow hedges and available-for-sale financial assets, and the revaluation surplus. In 2016, an amount of €4 million (2015: €5 million) corresponding to the annual amortization / depreciation of the respective assets was transferred from the revaluation surplus to retained earnings. The reserves for exchange differences included an amount of minus €51 million (2015: minus €45 million) attributable to associates and joint ventures accounted for using the equity method.

Dividend

Under the German Stock Corporation Act (AktG), the dividend payment is determined by the distributable profit reported in the annual financial statements of Bayer AG, which are prepared according to the German Commercial Code. Retained earnings were diminished by payment of the dividend of €2.50 per share for 2015. The proposed dividend for the 2016 fiscal year is €2.70 per share, which would result in a total dividend payment of €2,233 million. Payment of the proposed dividend is contingent upon approval by the stockholders at the Annual Stockholders’ Meeting and therefore is not recognized as a liability in the consolidated financial statements.

Noncontrolling interest

In April 2016, Bayer AG contributed 10 million shares it held in Covestro AG – equivalent to 4.9% of the outstanding shares – to Bayer Pension Trust e.V. Bayer therefore currently holds 64.2% of the shares in the capital stock of Covestro AG.

The changes in noncontrolling interest in equity during 2015 and 2016 are shown in the following table:

Components of Noncontrolling Interest in Equity

 

 

2015

 

2016

 

 

€ million

 

€ million

January 1

 

112

 

1,180

Changes in equity not recognized in profit or loss

 

 

 

 

Remeasurements of the net pension liability

 

10

 

(27)

Changes in fair value of cash flow hedges

 

 

Changes in fair value of securities

 

 

Exchange differences on translation of operations outside the eurozone

 

23

 

17

Other changes in equity

 

1,055

 

157

Dividend payments

 

(8)

 

(58)

Income after income taxes

 

(12)

 

295

December 31

 

1,180

 

1,564

The reserves for exchange differences included an amount of minus €28 million (2015: minus €20 million) attributable to associates and joint ventures accounted for using the equity method.

Noncontrolling interest mainly pertained to the following companies:

Material Noncontrolling Interests

 

 

 

Covestro AG*

 

Bayer CropScience Limited, India

 

 

 

2015

2016

 

2015

2016

*

Including direct and indirect subsidiaries

Interest held

%

 

30.9

35.8

 

31.4

31.4

Equity attributable to noncontrolling interest

€ million

 

1,092

1,472

 

73

85

Dividends paid to noncontrolling interest

€ million

 

0

52

 

3

3

Current assets

€ million

 

4,237

4,268

 

52

55

Noncurrent assets

€ million

 

6,294

5,966

 

304

352

Current liabilities

€ million

 

4,564

2,474

 

11

11

Noncurrent liabilities

€ million

 

2,355

3,544

 

92

97

Sales

€ million

 

12,082

11,904

 

465

484

Income after income taxes

€ million

 

352

806

 

6

44

Total comprehensive income

€ million

 

558

747

 

15

47

Net cash provided by (used in) operating activities

€ million

 

1,473

1,786

 

44

Net cash provided by (used in) investing activities

€ million

 

(380)

(1,042)

 

53

(4)

Net cash provided by (used in) financing activities

€ million

 

(645)

(1,122)

 

(79)

(9)