The financial management of the Bayer Group is conducted by the strategic management holding company Bayer AG. Finance is a global resource, generally procured centrally and distributed within the Group. The foremost objectives of our financial management are to help bring about a sustained increase in corporate value and ensure the Group’s creditworthiness and liquidity. That means reducing our cost of capital, improving our financing cash flow, optimizing our capital structure and effectively managing risk. The management of currency, interest rate, raw material price and default risks helps to reduce the volatility of our earnings.
The rating agencies contracted by Bayer assess us as follows:
| Long-term rating | Outlook | Short-term rating |
|---|---|---|---|
Standard&Poor’s | A- | stable | A-2 |
Moody's | A3 | stable | P-2 |
These credit ratings reflect the company’s good solvency and ensure access to a broad investor base for financing purposes. Our strategy is geared toward achieving the single-A rating category in order to maintain our financial flexibility. We therefore plan to use part of our operating cash flows to reduce net debt.
We pursue a prudent debt management strategy aimed at ensuring flexibility, drawing on a balanced financing portfolio. Chief among these resources are a multi-currency European Medium Term Note program, syndicated acquisition financing, a syndicated credit facility and a multi-currency commercial paper program. We also have various structured products, especially asset-backed securities programs.
We use financial derivatives to hedge against risks arising from business operations or financial transactions, but do not employ contracts in the absence of an underlying transaction. It is our policy to diminish the default risk by selecting trading partners with a high credit standing. We closely monitor the execution of all transactions, which are conducted according to Group-wide guidelines.
Further details of our risk management objectives and the ways in which we hedge all the major types of transaction to which hedge accounting is applied, along with procurement market, credit and liquidity risks, as they relate to our use of financial instruments, are given in the Risk Report in the Annual Report 2007.
