4.5 Liquidity and Capital Expenditures of the Bayer Group

Bayer Group Summary Statements of Cash Flows		[Table 3.19]
	2008	2009
	€ million	€ million
Gross cash flow*	5,295	4,658
Changes in working capital/other non-cash items	(1,687)	717
Net cash provided by (used in) operating activities (net cash flow)	3,608	5,375
Net cash provided by (used in) investing activities	(3,089)	(1,126)
Net cash provided by (used in) financing activities	(873)	(3,621)
Change in cash and cash equivalents due to business activities	(354)	628
Cash and cash equivalents at beginning of period	2,531	2,094
Change due to exchange rate movements and to changes in scope of consolidation	(83)	3
Cash and cash equivalents at end of period	2,094	2,725
* Gross cash flow = income from continuing operations 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 2009 was down by 12.0% from the previous year to €4,658 million (2008: €5,295 million), largely because of the decline in the operating result. HealthCare showed a slight improvement in gross cash flow due to the steady growth in business. At CropScience and MaterialScience, lower operating results caused gross cash flow to recede. info

Net cash flow of the Group, however, rose by 49.0% to €5,375 million (2008: €3,608 million). This was mainly the result of improved working capital management. Considerably lower income tax payments (2009: €500 million; 2008: €1,073 million) also contributed to the improvement.

Investing cash flow

Net cash outflow for investing activities in 2009 totaled €1,126 million (2008: €3,089 million). Cash outflows for property, plant and equipment and intangible assets were 10.5% lower at €1,575 million (2008: €1,759 million). Of this amount, HealthCare accounted for €528 million (2008: €567 million), CropScience for €341 million (2008: €299 million) and MaterialScience for €504 million (2008: €672 million). Included here are disbursements related to the expansion of our polymers production facilities in Shanghai, China, and for marketing rights in the pharmaceuticals field. The €354 million in cash outflows for acquisitions related primarily to the purchase in November 2009 of Athenix Corp., United States, for which total payments of €247 million were made. In 2009 we also acquired two product lines from SkinMedica, Inc., United States, and the remaining 10% interest in Bayer Polymers Shanghai. The prior-year figure of €1,617 million related mostly to payments in connection with the acquisition of the remaining interest in Bayer Schering Pharma AG, Berlin, Germany, the acquisition of Possis Medical, Inc., United States, the purchase of the eastern European OTC business of Sagmel, Inc., the acquisition of the OTC business of the Chinese Topsun group and the purchase of Direvo Biotech AG, Germany. For further information see Note [6.2] to the consolidated financial statements. The main cash inflow item in 2009 was €477 million (2008: €553 million) in interest and dividends received.

The principal strategically relevant capital expenditures for property, plant and equipment in the operating segments of the Bayer Group in 2009 and 2008 are listed in the following table:

Capital Expenditures for Property, Plant and Equipment		[Table 3.20]
Segment	Description
Capital expenditures 2009
Pharmaceuticals	Expansion of the production facility for contrast agents in Bergkamen, Germany
	Expansion and modernization of the Kogenate® facility in Berkeley, California, U.S.A.
	Expansion of production capacity for the YAZ® product family in Berlin, Germany
	Expansion of production capacity in Jakarta, Indonesia
Consumer Health	Expansion of the production facility for vitamins in Myerstown, Pennsylvania, U.S.A.
Consumer Health	Construction of a new distribution center in Lerma, Mexico, to consolidate storage capacities existing in different parts of Mexico
Crop Protection	Capacity expansions for herbicidal active ingredients in Frankfurt am Main and Knapsack, Germany, and Muskegon, Michigan, U.S.A.
	Expansion of production capacity for fungicides in Dormagen, Germany, and Kansas City, Missouri, U.S.A.
	Expansion of production capacity for high-activity herbicides in Kansas City, Missouri, U.S.A.
	Expansion of formulating capacity for non-herbicides in Belford Roxo, Brazil
	Expansion of production capacity for fungicides in Muttenz, Switzerland
BioScience	Capacity expansion for the production of vegetable seeds in Parma, Idaho, U.S.A.
BioScience	Extension to a BioScience research laboratory in Ghent, Belgium
MaterialScience	Construction of a world-scale TDI production complex in Shanghai, China
	Production facility for polyisocyanates in Ankleshwar, India
	Roll-to-roll coating line in Leverkusen, Germany
	Construction of a systems house in Guangzhou, China
	Nitrous oxide reduction unit at the nitric acid production facility in Dormagen, Germany
	Construction of a pilot plant for carbon nanotubes in Leverkusen, Germany
	EcoCommercial Building in Noida, India
Capital expenditures 2008
Pharmaceuticals	Optimization of steroid production in Bergkamen, Germany
	New packaging lines in Weimar and Berlin, Germany, and Gaillard, France
	Expansion of the production site in Beijing, China
	Capacity expansion in Jakarta, Indonesia
Crop Protection	Capacity expansions for herbicidal active ingredients in Frankfurt am Main and Knapsack, Germany
	Consolidation of formulating activities in Kansas City, Missouri, U.S.A
	Expansion of formulating capacity for non-herbicides in Belford Roxo, Brazil
	New insecticide formulation plant in Hangzhou, China
	Modification of a herbicide production facility in Ankleshwar, India
BioScience	Construction of canola greenhouse, phytotron and laboratory complex in Saskatoon, Canada
MaterialScience	Construction of a world-scale integrated production facility for MDI in Shanghai, China
	Polyether capacity increases in Dormagen, Germany, and Santa Clara, Mexico
	Construction of a pilot plant for carbon nanotubes in Leverkusen, Germany
	Construction of a polyurethane systems house in Noida, India
	Construction of the MacroColor Center in Noida, India
	Modification of a facility for the manufacture of high-purity polycarbonate in Antwerp, Belgium

Financing cash flow

Net cash outflow for financing activities in 2009 amounted to €3,621 million (2008: €873 million). It included €1,442 million in net loan repayments, the main item here being the €1,600 million disbursement to redeem the floating-rate EMTN note in the second quarter of 2009. Interest payments were 5.2% lower at €1,206 million (2008: €1,272 million). There was a €973 million outflow for “dividend payments and withholding tax on dividends” (2008: €1,126 million), including Bayer AG’s €1,070 million dividend payment made in May 2009 and €101 million in refunds of withholding tax on intra-Group dividend payments.

Liquid assets and net financial debt

Net Financial Debt		[Table 3.21]
	Dec. 31, 2008	Dec. 31, 2009
	€ million	€ million
Bonds and notes	10,729	8,301
of which hybrid bond	1,245	1,267
of which mandatory convertible bond	2,296	0
Liabilities to banks	4,438	3,251
Liabilities under finance leases	535	550
Liabilities from derivatives	612	578
Other financial liabilities	333	178
Positive fair values of hedges of recorded transactions	(454)	(426)
Financial debt	16,193	12,432
Cash and cash equivalents*	(2,037)	(2,725)
Current financial assets	(4)	(16)
Net financial debt	14,152	9,691
* after deducting €0 million (December 31, 2008: €57 million) of the liquidity in escrow accounts

Net financial debt of the Bayer Group declined by €4.5 billion and amounted to €9.7 billion on December 31, 2009. Of this amount, €2.3 billion resulted from the conversion of the mandatory convertible bond, issued in 2006, into new shares. As of December 31, 2009 the Group had cash and cash equivalents of €2.7 billion. Financial debt on the closing date amounted to €12.4 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 indicators. Our noncurrent financial liabilities as of December 31, 2009 amounted to €11.5 billion.