24. 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 Key indicator for assessing a company’s financial strength; in addition to gross cash flow, the statement of cash flows also reports the cash flow from operating activities (net cash flow), which shows the amount of funds available from operating activities for financing investments, repaying debts or distributing dividends. The cash flows from investing and financing activities are also reported. and effectively managing risk.

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

Rating

 

 

Long-term rating

 

Outlook

 

Short-term rating

Standard & Poor's

 

A–

 

stable

 

A–2

Moody's

 

A3

 

stable

 

P–2

These investment-grade ratings reflect the company’s good creditworthiness and ensure access to a broad investor base. Bayer’s financial management is partly based on the debt ratios published by rating agencies, which – by somewhat differing methods – take into account the cash flows for a given period in relation to debt, for example. Bayer’s financial strategy focuses on an “A” category rating and on preserving our financial flexibility. 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 equityequivalent properties, usually with either no maturity date or a very long maturity. Due to its 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 authorized and conditional capital amounts 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 2014 and 2015 are shown in the consolidated statements of changes in equity.

Capital stock

The capital stock of Bayer AG on December 31, 2015 amounted to €2,117 million (2014: €2,117 million), divided into 826,947,808 (2013: 826,947,808) registered shares, and was fully paid in. Each share confers one voting right.

Authorized capital

Authorized capital of €530 million was approved by the Annual Stockholders’ Meeting on April 29, 2014. It expires on April 28, 2019. It can be used to increase the capital stock by issuing new no-par registered shares against cash contributions and / or contributions in kind, but capital increases against contributions in kind may not exceed a total of €423 million (Authorized Capital I). Stockholders must normally be granted subscription rights. However, the Board of Management is authorized, with the consent of the Supervisory Board, to exclude stockholders’ subscription rights where the subscription ratio gives rise to fractions in the case of capital increases against cash and / or contributions in kind, and also to the extent necessary to grant the holders of bonds with warrants or conversion rights or obligations issued by the Company or its group companies a right to subscribe for new shares to the extent to which they would be entitled after exercise of their warrants or conversion rights, or performance of their exercise or conversion obligations. The Board of Management is also authorized, with the consent of the Supervisory Board, to exclude stockholders’ subscription rights if the shares are issued in connection with the admission of shares to a foreign stock exchange and the total interest in the capital stock attributable to the new shares for which subscription rights are excluded does not exceed 10% of the existing capital stock on the date of entry of the authorization in the commercial register or, in the event that this amount is lower, 10% of the existing capital stock on the date of issuance of the new shares. The Board of Management is further authorized, with the consent of the Supervisory Board, to exclude stockholders’ subscription rights if the capital is increased against contributions in kind to issue shares either for the purpose of acquiring companies, parts of companies, interests in companies, or other assets, or for the purpose of implementing a scrip dividend, where stockholders are given the option of contributing their dividend entitlements to the Company (either in whole or in part) as a contribution in kind against the issuance of new shares out of the Authorized Capital I. The amount of capital stock represented by shares issued against cash contributions and / or contributions in kind without granting subscription rights to the stockholders must not exceed a total of 20% of the capital stock that existed on the date the authorized capital was approved by the Annual Stockholders’ Meeting.

Further authorized capital of €212 million was approved by the Annual Stockholders’ Meeting on April 29, 2014. It expires on April 28, 2019. The Board of Management is authorized, with the consent of the Supervisory Board, to increase the capital stock by up to a total of €212 million by issuing new no-par registered shares against cash contributions (Authorized Capital II). Stockholders must normally be granted subscription rights. However, the Board of Management is authorized, with the consent of the Supervisory Board, to exclude stockholders’ subscription rights where the subscription ratio gives rise to fractions and also if the shares are issued against cash contributions and the total interest in the capital stock attributable to the new shares for which subscription rights are excluded does not exceed 10% of the existing capital stock on the date of entry of the authorization in the commercial register or, in the event that this amount is lower, 10% of the existing capital stock on the date of issuance of the new shares, and the issue price of the new shares is not significantly below the market price of the already listed shares of the company of the same class at the time when the issue price is finalized by the Board of Management within the meaning of Section 203, Paragraphs 1 and 2, in conjunction with Section 186, Paragraph 3, sentence 4, of the German Stock Corporation Act. Any own shares that are sold on or after April 29, 2014, while excluding stockholders’ subscription rights pursuant to Section 71, Paragraph 1, No. 8, Sentence 5, in conjunction with Section 186, Paragraph 3, Sentence 4, of the German Stock Corporation Act count toward the above 10% limit. Shares that have been or may be issued to service bonds with warrants or conversion rights or obligations, where such bonds are issued on or after April 29, 2014, while excluding stockholders’ subscription rights in analogous application of Section 186, Paragraph 3, Sentence 4, of the German Stock Corporation Act also count toward this limit.

Neither of these authorized capital amounts has been utilized so far.

Conditional capital

The Annual Stockholders’ Meeting on April 29, 2014 approved the creation of Conditional Capital 2014, again authorizing a conditional increase of up to €212 million in the capital stock through the issuance of up to 82,694,750 new no-par registered shares. The conditional capital increase serves to grant registered no-par value shares to the holders of bonds with warrants or convertible bonds, profit participation certificates, or income bonds (or combinations of these instruments) (collectively referred to as “debt instruments”), each with options or conversion rights or obligations, that may be issued up to April 28, 2019, on the basis of the authorization resolved by the Annual Stockholders’ Meeting on April 29, 2014, by Bayer AG or a group company of Bayer AG within the meaning of Section 18 of the German Stock Corporation Act in which Bayer AG has a direct or indirect interest in at least 90% of the votes and capital. Such new shares are to be issued at the option premium or conversion price to be determined in accordance with the authorizing resolution referred to above. The authorization to issue such instruments is limited to a total nominal amount of €6 billion. In principle, stockholders have a statutory right to be granted subscription rights to such instruments. However, the Board of Management is authorized, with the consent of the Supervisory Board, to exclude stockholders’ subscription rights where the subscription ratio gives rise to fractions and also to the extent necessary to grant the holders of bonds with warrants or conversion rights or obligations a right to subscribe for new shares to the extent to which they would be entitled after exercise of their warrants or conversion rights, or performance of their exercise or conversion obligations. Furthermore, the Board of Management is authorized, with the consent of the Supervisory Board, to fully exclude stockholders’ subscription rights to debt instruments with options or conversion rights or obligations issued against cash contributions if the Board of Management, after due consideration, is of the opinion that the issue price of the debt instruments is not significantly below their hypothetical fair value determined in accordance with accepted methods, and in particular, valuation techniques. This authorization to exclude subscription rights applies to bonds with warrants or conversion rights or exercise or conversion obligations for shares with a proportionate interest in the capital stock not exceeding 10% of the total capital stock either at the date when the resolution is adopted or, in the event that this amount is lower, at the date on which this authorization is exercised. New shares that are issued on or after April 29, 2014, while excluding stockholders’ subscription rights in accordance with Sections 203, Paragraphs 1 and 2, in conjunction with Section 186, Paragraph 3, Sentence 4, of the German Stock Corporation Act as well as own shares that are sold on or after April 29, 2014, while excluding stockholders’ subscription rights pursuant to Section 71, Paragraph 1, Number 8, Sentence 5, in conjunction with Section 186, Paragraph 3, Sentence 4,of the German Stock Corporation Act also count toward this 10% limit.

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 Capital or the 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 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.

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 2015, an amount of €5 million (2014: €5 million) corresponding to the annual amortization / depreciation of the respective assets was transferred from the revaluation surplus to retained earnings. The exchange differences included an amount of minus €45 million (2014: minus €28 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 €2.25 per share for 2014. The proposed dividend for the 2015 fiscal year is €2.50 per share, which would result in a total dividend payment of €2,067 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

The former MaterialScience subgroup became a separate economic and legal entity on September 1, 2015, operating under the name Covestro. Following the stock exchange listing of Covestro AG on October 6, 2015, 30.9% of the shares in the equity of Covestro AG and its subsidiaries are reflected in noncontrolling interest.

The changes in noncontrolling interest in equity during 2014 and 2015 are shown in the following table:

Components of Noncontrolling Interest in Equity

 

 

2014

 

2015

 

 

€ million

 

€ million

January 1

 

86

 

112

Changes in equity not recognized in profit or loss

 

 

 

 

Remeasurements of the net pension liability

 

 

10

Changes in fair value of cash flow hedges

 

 

Changes in fair value of securities

 

 

Exchange differences on translation of operations outside the eurozone

 

11

 

23

Other changes in equity

 

 

1,055

Dividend payments

 

(2)

 

(8)

 

 

 

 

 

Changes in equity recognized in profit or loss

 

17

 

(12)

 

 

 

 

 

December 31

 

112

 

1,180

The exchange differences included an amount of minus €20 million (2014: €0 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

 

 

 

2014

2015

 

2014

2015

*

including direct and indirect subsidiaries

Interest held

%

 

30.9

 

31.4

31.4

Voting rights

%

 

30.9

 

31.4

31.4

Equity attributable to noncontrolling interest

€ million

 

1,092

 

85

73

Dividends paid to noncontrolling interest

€ million

 

 

1

3

Noncurrent assets

€ million

 

4,237

 

48

52

Current assets

€ million

 

6,294

 

317

304

Noncurrent liabilities

€ million

 

4,564

 

10

11

Current liabilities

€ million

 

2,355

 

85

92

Sales

€ million

 

12,082

 

410

465

Income (loss) after income taxes

€ million

 

352

 

45

6

Total comprehensive income

€ million

 

558

 

25

15

Net cash provided by (used in) operating activities

€ million

 

1,473

 

21

44

Net cash provided by (used in) investing activities

€ million

 

(380)

 

(1)

53

Net cash provided by (used in) financing activities

€ million

 

(645)

 

(5)

(79)