Explanatory Notes

Financial Instruments

The following table shows the carrying amounts and fair values of financial assets and liabilities by category of financial instrument under IFRS 9 and a reconciliation to the corresponding line items in the statements of financial position. Since the line items “Trade accounts receivable,” “Other receivables” 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.”

The transition effects from the reclassification and remeasurement of financial assets upon the first-time application of IFRS 9 are detailed in the section “Financial reporting standards applied for the first time in 2018.”

Carrying Amounts and Fair Values of Financial Instruments

 

 

 

 

 

 

 

 

September 30, 2018

 

 

Carried at amortized cost

 

Carried at fair value [Fair value for information2]

 

Nonfinancial assets / liabilities

 

 

 

 

 

 

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

Carrying amount

Carrying amount

 

Carrying amount

 

Carrying amount in the statement of financial position

Measurement category (IFRS 9)1

 

€ million

 

€ million

€ million

€ million

 

€ million

 

€ million

1

AC: at amortized cost
FVTOCI: at fair value through other comprehensive income
FVTPL: at fair value through profit or loss

2

Fair value of the financial instruments at amortized cost; IFRS 7.29(a) was applied for information on specific fair values.

Trade accounts receivable

 

11,528

 

 

 

 

 

201

 

11,729

AC

 

11,528

 

 

 

 

 

 

 

11,528

Nonfinancial assets

 

 

 

 

 

 

 

201

 

201

Other financial assets

 

161

 

2,576

428

1,093

 

 

 

4,258

AC

 

161

 

 

[161]

 

 

 

 

161

FVTPL

 

 

 

2,341

145

859

 

 

 

3,345

FVTOCI (no recycling)

 

 

 

223

 

214

 

 

 

437

Derivatives

 

 

 

12

283

20

 

 

 

315

Other receivables

 

744

 

 

 

44

 

1,884

 

2,672

AC

 

744

 

 

[745]

 

 

 

 

744

FVTPL

 

 

 

 

 

44

 

 

 

44

Nonfinancial assets

 

 

 

 

 

 

 

1,884

 

1,884

Cash and cash equivalents

 

4,850

 

 

 

 

 

 

 

4,850

AC

 

4,850

 

 

[4,850]

 

 

 

 

4,850

Total financial assets

 

17,283

 

2,576

428

1,137

 

 

 

21,424

of which AC

 

17,283

 

 

 

 

 

 

 

17,283

of which FVTPL

 

 

 

2,341

145

903

 

 

 

3,389

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

42,549

 

1,093

208

 

 

 

 

43,850

AC

 

42,549

 

[28,466]

[14,120]

 

 

 

 

42,549

FVTPL (nonderivative)

 

 

 

1,093

 

 

 

 

 

1,093

Derivatives

 

 

 

 

208

 

 

 

 

208

Trade accounts payable

 

5,281

 

 

 

 

 

 

 

5,281

AC

 

5,281

 

 

 

 

 

 

 

5,281

Other liabilities

 

1,125

 

7

264

15

 

890

 

2,301

AC

 

1,125

 

 

[1,125]

 

 

 

 

1,125

FVTPL (nonderivative)

 

 

 

 

 

15

 

 

 

15

Derivatives

 

 

 

7

264

 

 

 

 

271

Nonfinancial liabilities

 

 

 

 

 

 

 

890

 

890

Total financial liabilities

 

48,955

 

1,100

472

15

 

 

 

50,542

of which AC

 

48,955

 

 

 

 

 

 

 

48,955

of which FVTPL (nonderivative)

 

 

 

1,093

 

15

 

 

 

1,108

of which derivatives

 

 

 

7

472

 

 

 

 

479

The category “AC – measured at amortized cost” within other financial assets and in financial liabilities also includes receivables and liabilities under finance leases in which Bayer is the lessor or lessee and which are therefore measured in accordance with IAS 17.

Due to 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 financial assets and liabilities measured 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 financial assets measured at fair value correspond to quoted prices in active markets (Level 1), or 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 were 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 measured using unobservable inputs are categorized within Level 3 of the fair value hierarchy. This applies to certain 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 “FVTPL – at fair value through profit or loss” 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, provided these are not financial instruments. 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 financial liabilities arising from the debt instruments (exchangeable bond) issued in June 2017 that can be converted into Covestro shares are measured at fair value through profit or loss. This exchangeable bond is a hybrid financial instrument containing a debt instrument as a nonderivative host contract and multiple embedded derivatives.

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 (see table “Carrying Amounts and Fair Values of Financial Instruments (September 30, 2018)” for definitions) were as follows:

Development of Financial Assets and Liabilities (Level 3)

 

 

FVTPL

 

FVTOCI (no recycling)

 

Derivatives (net)

 

FVTPL (non-derivative)

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

 

€ million

Carrying amounts (net), January 1, 2018

 

821

 

68

 

10

 

(7)

 

892

Gains (losses) recognized in profit or loss

 

29

 

 

(7)

 

 

22

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

 

29

 

 

(7)

 

 

22

Gains (losses) recognized outside profit or loss

 

 

12

 

 

 

12

Additions of assets (liabilities)

 

67

 

145

 

17

 

(10)

 

219

Settlements of (assets) liabilities

 

(14)

 

(7)

 

 

1

 

(20)

Transfers (IFRS 5)

 

 

 

 

 

Disposals from divestments / changes in scope of consolidation

 

 

(4)

 

 

1

 

(3)

Carrying amounts (net), September 30, 2018

 

903

 

214

 

20

 

(15)

 

1,122

The changes recognized in profit or loss were included in other operating income / expenses, as well as in the financial result in interest income and in other financial income and expenses.

The following table shows the carrying amounts and fair values of financial assets and liabilities by category of financial instrument as of December 31, 2017, under IAS 39.

Carrying Amounts and Fair Values of Financial Instruments

 

 

 

 

 

 

 

 

 

 

Dec. 31, 2017

 

 

Carried at amortized cost

 

Carried at fair value [Fair value for information2]

 

Nonfinancial assets / liabilities

 

 

 

 

 

 

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

Carrying amount

Carrying amount

 

Carrying amount

 

Carrying amount in the statement of financial position

Measurement category (IAS 39)1

 

€ million

 

€ million

€ million

€ million

 

€ million

 

€ million

1

AfS: available for sale; at fair value through other comprehensive income
HtM: held to maturity; at amortized cost
LaR: loans and receivables; at amortized cost

2

Fair value of the financial instruments at amortized cost; IFRS 7.29(a) was applied for information on specific fair values.

Trade accounts receivable

 

8,582

 

 

 

 

 

 

 

8,582

LaR

 

8,582

 

 

 

 

 

 

 

8,582

Other financial assets

 

1,823

 

452

2,085

803

 

 

 

5,163

LaR

 

1,731

 

 

[1,731]

 

 

 

 

1,731

AfS

 

35

 

448

1,452

793

 

 

 

2,728

HtM

 

57

 

 

[58]

 

 

 

 

57

Derivatives

 

 

 

4

633

10

 

 

 

647

Other receivables

 

380

 

 

 

46

 

1,250

 

1,676

LaR

 

380

 

 

[380]

 

 

 

 

380

AfS

 

 

 

 

 

46

 

 

 

46

Nonfinancial assets

 

 

 

 

 

 

 

1,250

 

1,250

Cash and cash equivalents

 

7,581

 

 

 

 

 

 

 

7,581

LaR

 

7,581

 

 

[7,581]

 

 

 

 

7,581

Total financial assets

 

18,366

 

452

2,085

849

 

 

 

21,752

of which LaR

 

18,274

 

 

 

 

 

 

 

18,274

of which AfS

 

35

 

448

1,452

839

 

 

 

2,774

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

12,958

 

1,220

240

 

 

 

 

14,418

At amortized cost

 

12,958

 

[11,327]

[2,183]

 

 

 

 

12,958

At fair value (nonderivative)

 

 

 

1,220

 

 

 

 

 

1,220

Derivatives

 

 

 

 

240

 

 

 

 

240

Trade accounts payable

 

4,568

 

 

 

 

 

561

 

5,129

At amortized cost

 

4,568

 

 

 

 

 

 

 

4,568

Nonfinancial liabilities

 

 

 

 

 

 

 

561

 

561

Other liabilities

 

681

 

2

319

7

 

1,759

 

2,768

At amortized cost

 

681

 

 

[681]

 

 

 

 

681

At fair value (nonderivative)

 

 

 

 

 

7

 

 

 

7

Derivatives

 

 

 

2

319

 

 

 

 

321

Nonfinancial liabilities

 

 

 

 

 

 

 

1,759

 

1,759

Total financial liabilities

 

18,207

 

1,222

559

7

 

 

 

19,995

of which at amortized cost

 

18,207

 

 

 

 

 

 

 

18,207

of which derivatives

 

 

 

2

559

 

 

 

 

561

The following table shows the changes in the amounts of financial assets and liabilities recognized at fair value based on unobservable inputs (Level 3) for each financial instrument category (see table “Carrying Amounts and Fair Values of Financial Instruments (Dec. 31, 2017)” for definitions) for the comparative period under IAS 39:

Development of Financial Assets and Liabilities (Level 3)

 

 

AfS

 

Derivatives (net)

 

Liabilities – at fair value (non-derivative)

 

Total

 

 

€ million

 

€ million

 

€ million

 

€ million

Carrying amounts (net), January 1, 2017

 

851

 

(8)

 

(8)

 

835

Gains (losses) recognized in profit or loss

 

11

 

20

 

 

31

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

 

11

 

20

 

 

31

Gains (losses) recognized outside profit or loss

 

(18)

 

 

 

(18)

Additions of assets (liabilities)

 

6

 

 

 

6

Settlements of (assets) liabilities

 

(17)

 

 

1

 

(16)

Disposals from divestments / changes in scope of consolidation

 

 

(3)

 

 

(3)

Carrying amounts (net), September 30, 2017

 

833

 

9

 

(7)

 

835

Interest held in Covestro reduced to 6.8%

In the first quarter, Bayer sold 21.0 million shares of Covestro AG to institutional investors at a price of €86.25 per share. A further 28.81 million shares of Covestro AG were sold to institutional investors in the second quarter at a price of €75.50 per share. In addition, 13.79 million shares of Covestro AG were acquired from Bayer Pension Trust e. V., which no longer holds any Covestro shares. Bayer AG thus now holds only a 6.8% interest in Covestro to service the exchangeable bond issued in 2017 that matures in 2020.

Until May 2018, the interest in Covestro was accounted for in the Bayer Group consolidated financial statements as an associate using the equity method. The aforementioned share disposals led to the loss of significant influence on the financial and business policy decisions of Covestro. This in turn resulted in a change in the accounting method. Since May 2018, Bayer has reported the Covestro interest as an equity instrument. Changes in its fair value are recognized through profit or loss.

Compare to Last Year