Financial Instruments

The system used by the Bayer Group to manage credit risks, liquidity risks and the different types of market price risk (interest-rate and currency risks), together with its objectives, methods and procedures, is outlined in the Opportunity and Risk Report, which forms part of the Combined Management Report.

Financial instruments by category

The following table shows the carrying amounts and fair values of financial assets and liabilities for each financial instrument category and a Reconciliation The reconciliation records, on the one hand, those business activities not assigned to any other segment (“All Other Segments”), including particularly the services provided by Business Services, Technology Services and Currenta. It also includes “Corporate Functions and Consolidation,” which largely comprises Bayer holding companies and the Bayer Lifescience Center. to the corresponding line item in the statements of financial position. Since the line items “Other receivables,” “Trade accounts payable” and “Other liabilities” contain both financial instruments and nonfinancial assets or liabilities (such as other tax receivables or advance payments for services to be received in the future), the reconciliation is shown in the column headed “Nonfinancial assets / liabilities.”

Carrying Amounts and Fair Values of Financial Instruments

 

 

Dec. 31, 2016

 

 

Carried at amortized cost

 

Carried at fair value [Fair value for information1]

 

Non-financial assets / liabilities

 

 

 

 

Carrying amount

 

Based on quoted prices in active markets (Level 1)

Based on observable market data (Level 2)

Based on unobservable inputs (Level 3)

 

Carrying amount

 

Carrying amount in the statement of financial position

 

 

 

Carrying amount

Carrying amount

Carrying amount

 

 

 

 

€ million

 

€ million

€ million

€ million

 

€ million

 

€ million

1

The exemption provisions under IFRS 7.29(a) were applied for information on specific fair values.

Trade accounts receivable

 

10,969

 

 

 

 

 

 

 

10,969

Loans and receivables

 

10,969

 

 

 

 

 

 

 

10,969

Other financial assets

 

2,245

 

523

3,985

803

 

 

 

7,556

Loans and receivables

 

2,148

 

 

[2,145]

[16]

 

 

 

2,148

Available-for-sale financial assets

 

32

 

520

3,283

794

 

 

 

4,629

Held-to-maturity financial assets

 

65

 

 

[68]

 

 

 

 

65

Derivatives that qualify for hedge accounting

 

 

 

 

269

 

 

 

 

269

Derivatives that do not qualify for hedge accounting

 

 

 

3

433

9

 

 

 

445

Other receivables

 

633

 

 

 

57

 

2,103

 

2,793

Loans and receivables

 

633

 

 

[633]

 

 

 

 

633

Available-for-sale financial assets

 

 

 

 

 

57

 

 

 

57

Nonfinancial assets

 

 

 

 

 

 

 

2,103

 

2,103

Cash and cash equivalents

 

1,899

 

 

 

 

 

 

 

1,899

Loans and receivables

 

1,899

 

 

[1,899]

 

 

 

 

1,899

Total financial assets

 

15,746

 

523

3,985

860

 

 

 

21,114

of which loans and receivables

 

15,649

 

 

 

 

 

 

 

15,649

of which available-for-sale financial assets

 

32

 

520

3,283

851

 

 

 

4,686

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

18,994

 

 

587

 

 

 

 

19,581

Carried at amortized cost

 

18,994

 

[16,040]

[3,362]

 

 

 

 

18,994

Derivatives that qualify for hedge accounting

 

 

 

 

312

 

 

 

 

312

Derivatives that do not qualify for hedge accounting

 

 

 

 

275

 

 

 

 

275

Trade accounts payable

 

6,035

 

 

 

 

 

375

 

6,410

Carried at amortized cost

 

6,035

 

 

 

 

 

 

 

6,035

Nonfinancial liabilities

 

 

 

 

 

 

 

375

 

375

Other liabilities

 

840

 

2

252

25

 

2,259

 

3,378

Carried at amortized cost

 

840

 

 

[840]

 

 

 

 

840

Carried at fair value (nonderivative)

 

 

 

 

 

8

 

 

 

8

Derivatives that qualify for hedge accounting

 

 

 

 

165

 

 

 

 

165

Derivatives that do not qualify for hedge accounting

 

 

 

2

87

17

 

 

 

106

Nonfinancial liabilities

 

 

 

 

 

 

 

2,259

 

2,259

Total financial liabilities

 

25,869

 

2

839

25

 

 

 

26,735

of which carried at amortized cost

 

25,869

 

 

 

 

 

 

 

25,869

of which derivatives that qualify for hedge accounting

 

 

 

 

477

 

 

 

 

477

of which derivatives that do not qualify for hedge accounting

 

 

 

2

362

17

 

 

 

381

Carrying Amounts and Fair Values of Financial Instruments (Prior Year)

 

 

Dec. 31, 2015

 

 

Carried at amortized cost

 

Carried at fair value [Fair value for information1]

 

Non-financial assets / liabilities

 

 

 

 

Carrying amount

 

Based on quoted prices in active markets (Level 1)

Based on observable market data (Level 2)

Based on unobservable inputs (Level 3)

 

Carrying amount

 

Carrying amount in the statement of financial position

 

 

 

Carrying amount

Carrying amount

Carrying amount

 

 

 

 

€ million

 

€ million

€ million

€ million

 

€ million

 

€ million

1

The exemption provisions under IFRS 7.29(a) were applied for information on specific fair values.

Trade accounts receivable

 

9,933

 

 

 

 

 

 

 

9,933

Loans and receivables

 

9,933

 

 

 

 

 

 

 

9,933

Other financial assets

 

185

 

363

509

791

 

 

 

1,848

Loans and receivables

 

72

 

 

[64]

[18]

 

 

 

72

Available-for-sale financial assets

 

40

 

363

 

774

 

 

 

1,177

Held-to-maturity financial assets

 

73

 

 

[74]

 

 

 

 

73

Derivatives that qualify for hedge accounting

 

 

 

 

125

 

 

 

 

125

Derivatives that do not qualify for hedge accounting

 

 

 

 

384

17

 

 

 

401

Other receivables

 

506

 

 

 

59

 

1,882

 

2,447

Loans and receivables

 

506

 

 

[506]

 

 

 

 

506

Available-for-sale financial assets

 

 

 

 

 

59

 

 

 

59

Nonfinancial assets

 

 

 

 

 

 

 

1,882

 

1,882

Cash and cash equivalents

 

1,859

 

 

 

 

 

 

 

1,859

Loans and receivables

 

1,859

 

 

[1,859]

 

 

 

 

1,859

Total financial assets

 

12,483

 

363

509

850

 

 

 

14,205

of which loans and receivables

 

12,370

 

 

 

 

 

 

 

12,370

of which available-for-sale financial assets

 

40

 

363

 

833

 

 

 

1,236

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

19,169

 

 

765

 

 

 

 

19,934

Carried at amortized cost

 

19,169

 

[15,440]

[4,121]

 

 

 

 

19,169

Derivatives that qualify for hedge accounting

 

 

 

 

470

 

 

 

 

470

Derivatives that do not qualify for hedge accounting

 

 

 

 

295

 

 

 

 

295

Trade accounts payable

 

5,680

 

 

 

 

 

265

 

5,945

Carried at amortized cost

 

5,680

 

 

 

 

 

 

 

5,680

Nonfinancial liabilities

 

 

 

 

 

 

 

265

 

265

Other liabilities

 

606

 

 

117

45

 

1,831

 

2,599

Carried at amortized cost

 

606

 

 

[606]

 

 

 

 

606

Carried at fair value (nonderivative)

 

 

 

 

 

37

 

 

 

37

Derivatives that qualify for hedge accounting

 

 

 

 

93

 

 

 

 

93

Derivatives that do not qualify for hedge accounting

 

 

 

 

24

8

 

 

 

32

Nonfinancial liabilities

 

 

 

 

 

 

 

1,831

 

1,831

Total financial liabilities

 

25,455

 

 

882

45

 

 

 

26,382

of which carried at amortized cost

 

25,455

 

 

 

 

 

 

 

25,455

of which derivatives that qualify for hedge accounting

 

 

 

 

563

 

 

 

 

563

of which derivatives that do not qualify for hedge accounting

 

 

 

 

319

8

 

 

 

327

The loans and receivables reflected in other financial assets and the liabilities measured at amortized cost also include receivables and liabilities under finance leases in which Bayer is the lessor or lessee and which are therefore measured in accordance with IAS 17.

Because of the short maturities of most trade accounts receivable and payable, other receivables and liabilities, and cash and cash equivalents, their carrying amounts at the closing date do not significantly differ from the fair values.

The fair values of loans and receivables, held-to-maturity financial investments and of financial liabilities carried at amortized cost that are given for information are the present values of the respective future cash flows. The present values are determined by discounting the cash flows at a closing-date interest rate, taking into account the term of the assets or liabilities and the creditworthiness of the counterparty. Where a market price is available, however, this is deemed to be the fair value.

The fair values of available-for-sale financial assets correspond to quoted prices in active markets (Level 1), are determined using valuation techniques based on observable market data as of the end of the reporting period (Level 2) or are the present values of the respective future cash flows, determined on the basis of unobservable inputs (Level 3).

The fair values of derivatives for which no publicly quoted prices exist in active markets (Level 1) are determined using valuation techniques based on observable market data as of the end of the reporting period (Level 2). In applying valuation techniques, credit value adjustments are determined to allow for the contracting party’s credit risk.

Currency and commodity forward contracts are measured individually at their forward rates or forward prices on the closing date. These depend on spot rates or prices, including time spreads. The fair values of interest-rate hedging instruments and cross-currency interest-rate swaps are determined by discounting future cash flows over the remaining terms of the instruments at market rates of interest, taking into account any foreign currency translation as of the closing date.

Fair values estimated using unobservable inputs are categorized within Level 3 of the fair value hierarchy. This applies to certain available-for-sale debt or equity instruments, in some cases to the fair values of embedded derivatives, and to obligations for contingent consideration in business combinations. Credit risk is frequently the principal unobservable input used to determine the fair values of debt instruments classified as available-for-sale financial assets by the discounted cash flow method. Here the credit spreads of comparable issuers are applied. A significant increase in credit risk could result in a lower fair value, whereas a significant decrease could result in a higher fair value. However, a relative change of 10% in the credit spread does not materially affect the fair value.

Embedded derivatives are separated from their respective host contracts. Such host contracts are generally sale or purchase agreements relating to the operational business. The embedded derivatives cause the cash flows from the contracts to vary with exchange-rate or price fluctuations. The internal measurement of embedded derivatives is mainly performed using the discounted cash flow method, which is based on unobservable inputs. These include planned sales and purchase volumes, and prices derived from market data. Regular monitoring is carried out based on these fair values as part of quarterly reporting.

The changes in the amount of financial assets and liabilities recognized at fair value based on unobservable inputs (Level 3) for each financial instrument category were as follows:

Development of Financial Assets and Liabilities (Level 3)

 

 

2015

 

2016

 

 

Available-for-sale financial assets

Derivatives (net)

Liabilites measured at fair value (non-derivative)

Total

 

Available-for-sale financial assets

Derivatives (net)

Liabilites carried at fair value (non-derivative)

Total

 

 

€ million

€ million

€ million

€ million

 

€ million

€ million

€ million

€ million

Carrying amounts of net assets / (net liabilities), Jan. 1

 

803

6

(31)

778

 

833

9

(37)

805

Gains (losses) recognized in profit or loss

 

22

(12)

(3)

7

 

18

(17)

23

24

of which related to assets / liabilities recognized in the statements of financial position

 

22

(17)

(3)

2

 

18

(17)

1

Gains (losses) recognized outside profit or loss

 

19

19

 

9

9

Additions of assets / (liabilities)

 

11

(4)

7

 

46

46

Settlements of (assets) / liabilities

 

(22)

9

1

(12)

 

(23)

6

(17)

Transfers (IFRS 5)

 

6

6

 

Transfers to a different fair-value hierarchy

 

 

(32)

(32)

Net carrying amounts of assets / (liabilities), Dec. 31

 

833

9

(37)

805

 

851

(8)

(8)

835

The changes recognized in profit or loss were included in other operating income / expenses, interest income or exchange gains / losses.

Income, expense, gains and losses on financial instruments can be assigned to the following categories:

Income, Expense, Gains and Losses on Financial Instruments

 

 

2016

 

 

Loans and receivables

 

Held-to-maturity financial investments

 

Available-for-sale financial assets

 

Held for trading

 

Liabilities carried at amortized cost

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

Interest income

 

44

 

 

21

 

2

 

62

 

129

Interest expense

 

 

 

 

(3)

 

(642)

 

(645)

Income / expenses from affiliated companies

 

 

 

 

 

 

Changes in fair value

 

 

 

 

(77)

 

 

(77)

Impairment losses

 

(171)

 

 

(2)

 

 

 

(173)

Impairment loss reversals

 

26

 

 

 

 

 

26

Exchange gains / losses

 

355

 

 

 

(103)

 

(374)

 

(122)

Gains / losses from retirements

 

 

 

6

 

 

 

6

Other financial income / expenses

 

(1)

 

 

 

 

(34)

 

(35)

Net result

 

253

 

 

25

 

(181)

 

(988)

 

(891)

Income, Expense, Gains and Losses on Financial Instruments (Previous Year)

 

 

2015

 

 

Loans and receivables

 

Held-to-maturity financial investments

 

Available-for-sale financial assets

 

Held for trading

 

Liabilities carried at amortized cost

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

Interest income

 

55

 

1

 

22

 

25

 

86

 

189

Interest expense

 

 

 

 

(25)

 

(703)

 

(728)

Income / expenses from affiliated companies

 

 

 

3

 

 

 

3

Changes in fair value

 

 

 

 

147

 

 

147

Impairment losses

 

(93)

 

 

(1)

 

 

 

(94)

Impairment loss reversals

 

32

 

 

 

 

 

32

Exchange gains / losses

 

450

 

 

 

(235)

 

(679)

 

(464)

Gains / losses from retirements

 

 

 

31

 

 

 

31

Other financial income / expenses

 

(1)

 

 

13

 

 

(12)

 

Net result

 

443

 

1

 

68

 

(88)

 

(1,308)

 

(884)

The interest expense of €642 million (2015: €703 million) from nonderivative financial liabilities also included the income and expense from interest-rate swaps that qualified for hedge accounting. Interest income from financial assets not measured at fair value through profit or loss amounted to €65 million (2015: €73 million). Interest income from interest-rate derivatives that qualified for hedge accounting was €62 million (2015: €86 million). The changes in fair values of financial assets held for trading related mainly to forward commodity contracts and embedded derivatives.

Derivatives that form part of a master netting arrangement, constitute a financial asset or liability and can only be netted in the event of breach of contract by, or insolvency of, one of the contracting parties do not satisfy, or only partially satisfy, the criteria for offsetting in the statement of financial position according to IAS 32. The volume of such derivatives with positive fair values was €630 million (2015: €415 million), and the volume with negative fair values was €762 million (2015: €761 million). Included here is an amount of €362 million (2015: €256 million) in positive and negative fair values of derivatives concluded with the same contracting party.

Maturity analysis

The liquidity risks to which the Bayer Group was exposed from its financial instruments at the end of the reporting period comprised obligations for future interest and repayment installments on financial liabilities and the liquidity risk arising from derivatives, as shown in the table in chapter “Information on derivatives”.

In addition, loan commitments existed for an as yet unpaid €1,213 million (2015: €1,213 million) portion of the effective initial fund of Bayer-Pensionskasse VVaG, which may result in further payments by Bayer AG (€1,005 million) and / or Covestro AG (€208 million) in subsequent years.

Maturity Analysis of Financial Instruments

 

 

Carrying amount

 

Interest and repayment

 

 

Dec. 31, 2016

 

2017

2018

2019

2020

2021

after 2021

 

 

€ million

 

€ million

€ million

€ million

€ million

€ million

€ million

Financial liabilities

 

 

 

 

 

 

 

 

 

Bonds and notes / promissory notes

 

15,991

 

2,261

2,160

2,367

295

2,916

8,093

Liabilities to banks

 

1,837

 

884

998

39

9

Remaining liabilities

 

1,166

 

293

303

382

61

58

268

Trade accounts payable

 

6,035

 

6,028

4

2

1

Other liabilities

 

 

 

 

 

 

 

 

 

Accrued interest on liabilities

 

186

 

181

1

1

1

2

Remaining liabilities

 

662

 

626

3

5

2

1

25

Liabilities from derivatives

 

 

 

 

 

 

 

 

 

Derivatives that qualify for hedge accounting

 

477

 

178

231

157

2

Derivatives that do not qualify for hedge accounting

 

381

 

374

3

4

2

1

1

Receivables from derivatives

 

 

 

 

 

 

 

 

 

Derivatives that qualify for hedge accounting

 

269

 

210

23

4

3

2

Derivatives that do not qualify for hedge accounting

 

445

 

467

2

2

1

1

1

Loan commitments

 

 

1,213

Financial guarantees

 

 

14

3

Maturity Analysis of Financial Instruments (Prior Year)

 

 

Carrying amount

 

Interest and repayment

 

 

Dec. 31, 2015

 

2016

2017

2018

2019

2020

after 2020

 

 

€ million

 

€ million

€ million

€ million

€ million

€ million

€ million

Financial liabilities

 

 

 

 

 

 

 

 

 

Bonds and notes / promissory notes

 

15,547

 

1,475

2,334

1,704

2,282

277

9,845

Liabilities to banks

 

2,779

 

1,221

298

1,387

38

10

Remaining liabilities

 

843

 

440

79

69

60

61

307

Trade accounts payable

 

5,680

 

5,673

3

3

2

Other liabilities

 

 

 

 

 

 

 

 

 

Accrued interest on liabilities

 

189

 

180

1

2

1

1

4

Remaining liabilities

 

454

 

420

5

2

1

1

25

Liabilities from derivatives

 

 

 

 

 

 

 

 

 

Derivatives that qualify for hedge accounting

 

563

 

397

11

122

50

Derivatives that do not qualify for hedge accounting

 

327

 

312

8

1

3

1

2

Receivables from derivatives

 

 

 

 

 

 

 

 

 

Derivatives that qualify for hedge accounting

 

125

 

66

26

13

2

2

1

Derivatives that do not qualify for hedge accounting

 

401

 

379

2

3

2

2

4

Loan commitments

 

 

1,213

Financial guarantees

 

 

14

2

Information on derivatives

Asset and liability fair values and future cash flows are exposed to currency, interest-rate and commodity price risks. Derivatives are used to reduce this risk. In some cases they are designated as hedging instruments in a hedge accounting relationship.

Currency risks

Foreign currency receivables and liabilities are hedged using Foreign exchange Claims for payments in foreign currencies traded on foreign exchanges, usually in the form of balances with foreign banks or bills of exchange or checks payable abroad; banknotes and coins denominated in foreign currencies are not considered to be foreign exchange. derivatives without the existence of a hedge accounting relationship. A bond of Bayer AG denominated in British pounds was swapped on the issuance date into a fixed-rate euro bond by means of a cross-currency interest-rate swap, which was designated as a cash flow hedge. Cross-currency interest-rate swaps used to hedge intra-Group loans were also designated as cash flow hedges.

Fluctuations in future cash flows resulting from forecasted foreign currency transactions and procurement activities are avoided partly through derivatives contracts, most of which are designated as cash flow hedges.

Foreign currency risks related to the planned acquisition of Monsanto Company were partially hedged with currency derivatives, which were designated as cash flow hedges.

Interest-rate risk

The interest-rate risks from fixed-interest borrowings are managed in part using interest-rate swaps. Two interest-rate swaps in the total amount of €200 million were designated as fair value hedges for the €750 million Debt Issuance Program (DIP) Formerly the multi-currency European Medium Term Notes (EMTN) program, DIP is a documentation platform that enables Bayer to flexibly issue notes in various currencies and with different maturities. bond issued in 2014 and maturing in 2021.

Losses of €1 million were recorded on fair-value hedging instruments in 2016 (2015: €26 million). Gains of €1 million were recorded on the underlying hedged items (2015: €25 million).

Commodity price risks

Hedging contracts are also used to partly reduce exposure to fluctuations in future cash outflows and inflows resulting from price changes on procurement and selling markets.

Hedging of obligations under stock-based employee compensation programs

A portion of the obligations to make variable payments to employees under stock-based compensation programs (Aspire) is hedged against share price fluctuations using derivatives contracts that are settled in cash at maturity. These derivatives are designated as cash flow hedges.

Further information on cash flow hedges

Accumulated other comprehensive income from cash flow hedges increased in 2016 by €44 million (2015: decreased by €203 million) due to changes in the fair values of derivatives net of tax. Total changes of €3 million in the fair values of derivatives were expensed in 2016 (2015: €304 million). The respective pro-rated deferred tax income of €2 million (2015: €88 million) was likewise recognized through profit or loss.

No material ineffective portions of hedges required recognition through profit or loss in 2016 or 2015.

The income and expense from cash flow hedges recognized in accumulated other comprehensive income mainly comprised gains of €204 million (2015: €91 million) and losses of €143 million (2015: €90 million) from the hedging of forecasted transactions in foreign currencies and the planned acquisition of Monsanto Company. Of these gains and losses, a net amount of minus €91million (2015: minus €5 million) will be reclassifiable to profit or loss within one year, and a net amount of €2 million (2015: €6 million) in subsequent years.

The fair values of existing contracts in the major categories at the end of the reporting period are indicated in the following table together with the included volumes of cash flow hedges.

Fair Values of Derivatives

 

 

Dec. 31, 2015

 

Dec. 31, 2016

 

 

Notional amount1

Positive fair value

Negative fair value

 

Notional amount1

Positive fair value

Negative fair value

 

 

€ million

€ million

€ million

 

€ million

€ million

€ million

1

The notional amount is reported as gross volume, which also contains economically closed hedges.

2

The portion of the fair value of long-term interest-rate swaps that relates to current interest payments is classified as current.

Currency hedging of recorded transactions

 

22,275

337

(753)

 

22,645

299

(587)

Forward exchange contracts

 

19,896

336

(283)

 

20,454

296

(273)

of which cash flow hedges

 

 

Cross-currency interest-rate swaps

 

2,379

1

(470)

 

2,191

3

(314)

of which cash flow hedges

 

2,362

(470)

 

2,146

3

(312)

 

 

 

 

 

 

 

 

 

Currency hedging of forecasted transactions

 

4,082

99

(100)

 

17,799

317

(206)

Forward exchange contracts

 

3,627

86

(99)

 

3,805

48

(145)

of which cash flow hedges

 

3,255

78

(90)

 

3,672

43

(138)

Currency options

 

455

13

(1)

 

13,994

269

(61)

of which cash flow hedges

 

368

13

(1)

 

13,698

161

(5)

 

 

 

 

 

 

 

 

 

Interest-rate hedging of recorded transactions

 

200

13

 

200

14

Interest-rate swaps

 

200

13

 

200

14

of which fair value hedges

 

200

13

 

200

14

 

 

 

 

 

 

 

 

 

Commodity price hedging

 

91

14

(12)

 

168

5

(4)

Forward commodity contracts

 

86

12

(10)

 

167

4

(4)

Commodity option contracts

 

5

2

(2)

 

1

1

 

 

 

 

 

 

 

 

 

Hedging of stock-based employee compensation programs

 

80

21

(2)

 

532

48

(22)

Share price options

 

30

21

 

152

48

of which cash flow hedges

 

30

21

 

152

48

Share price forwards

 

50

(2)

 

380

(22)

of which cash flow hedges

 

50

(2)

 

380

(22)

 

 

 

 

 

 

 

 

 

Total

 

26,728

484

(867)

 

41,344

683

(819)

of which current derivatives

 

25,022

435

(692)

 

38,349

635

(514)

for currency hedging

 

24,931

420

(680)

 

38,111

597

(510)

for interest-rate hedging2

 

1

 

3

for commodity price hedging

 

91

14

(12)

 

168

5

(4)

for hedging of stock-based employee compensation programs

 

 

70

30