Friday - April 25, 2008

Annual Stockholders' Meeting

"We got off to a very good start in 2008."

Address by Werner Wenning, Chairman of the Board of Management

(Please check against delivery)

Valued stockholders,
ladies and gentlemen,

On behalf of the Board of Management, I too would like to welcome you to our Annual Stockholders' Meeting here in Cologne.

We are pleased that so many of you have accepted our invitation. We hope you will enjoy the day and that we can provide you with some interesting information.

I think the film we just saw, and the exhibition in the lobby, make one thing abundantly clear:

Bayer makes an important contribution to reducing CO2 emissions and to dealing with the consequences of climate change. That is of great importance to us.

Ladies and gentlemen, our intentions and our ambitious goals are set out clearly in the Bayer Climate Program. In this connection, climate change and the efforts being made to reduce emissions present attractive opportunities for our products and technologies.

Yet I am sure that for you, as stockholders, it is not only the business perspectives that matter. It is also fundamentally important that your company live up to its role as a responsible corporate citizen.

I believe you will agree that true success involves the total contribution a company makes to society. That's one of the reasons why we will rigorously implement our Climate Program and continue to expand it in the future. After all, this is in the best interests of us all.


Ladies and gentlemen, I'm pleased to report to you today on what was Bayer's most successful year to date:

- For the first time in our history, we had sales of more than EUR 32 billion.

- Our operating performance exceeded both the previous year's record levels and the earnings targets we had set.

- Group net income came in at EUR 4.7 billion, boosted by the proceeds from the completed divestitures.

- And we considerably reduced our net debt.

These achievements are the result of the outstanding dedication displayed by all 106,000 employees in our subgroups, service companies, country organizations and the Corporate Center.

It is they who research, develop, manufacture and market our products worldwide. And they have once again impressively demonstrated their innovative capability, drive and customer orientation.
We can all be very proud of them. And I'm sure I also speak on behalf of you, our stockholders, when I thank our employees most sincerely for what they have accomplished.

Ladies and gentlemen, let's take a look at our business performance in 2007. Here I would like to focus on the key aspects, as we have already reported in detail on our 2007 performance in the Annual Report, on the Internet and at our Spring Financial News Conference.


Group sales rose by 12 percent to EUR 32.4 billion.

Adjusted for currency and portfolio effects, business expanded by 6 percent, with all three subgroups contributing to this growth.

The pleasing increase in Group sales led to a further considerable improvement in underlying earnings.

First, Group EBITDA before special items advanced by a substantial 21 percent to EUR 6.8 billion. The underlying EBITDA margin came in at 20.9 percent, ahead of our guidance for the year.
And second, EBIT before special items jumped by 23 percent to a record EUR 4.3 billion.
However, earnings in 2007 were diminished by a number of special items totaling minus EUR 1.1 billion on aggregate.

The acquisition and integration of Schering accounted for a large proportion of these items – nearly EUR 700 million in fact.

EBIT thus improved by 14 percent to EUR 3.15 billion.


Ladies and gentlemen, our positive business performance was also mirrored in the stock price, which moved sharply upward.

In 2007 alone, Bayer stock achieved a performance of 57 percent including the dividend, considerably outperforming both the DAX and the EuroStoxx 50 and maintaining a trend we have seen for several years now:

Long-term investors in Bayer stock achieved an average annual performance of approximately 30 percent between 2003 and 2007.

In the same period, the DAX rose by an average of about 23 percent a year.
Ladies and gentlemen, now let's take a look at our three subgroups.

The growth rates for individual products that I'll be mentioning here are currency-adjusted figures, as these are easier to compare to the previous year.


Bayer HealthCare grew sales in 2007 by 26 percent to EUR 14.8 billion. This included the acquired business of Schering on a full-year basis for the first time. Adjusted for currency and portfolio effects, sales were up by 7.3 percent.

The increase was due to the positive business performance of both segments: as expected, Pharmaceuticals expanded in line with the market, while in Consumer Health all divisions actually grew faster than the market.

Business with the oral contraceptives Yasmin®, YAZ® and Yasminelle® climbed by 37 percent pro forma last year. Sales of this product family passed the EUR 1 billion mark last year.

Sales of the multiple sclerosis treatment Betaferon®/Betaseron® also exceeded EUR 1 billion for the first time, with business up 7 percent pro forma.

Our cancer drug Nexavar® developed particularly well. We gave you a more detailed introduction to this product at last year's Stockholders' Meeting. Sales of Nexavar® more than doubled in only the second year after its introduction, to EUR 270 million.

In the Consumer Health segment, seven out of our ten best-selling products posted double-digit growth rates.

Among the top products of the Consumer Care Division, the strongest gains were registered by our Berocca® vitamin tablet with a 17 percent increase and our antifungal Canesten® with 15 percent.

To further expand our Consumer Care activities in the area of calcium dietary supplements, we acquired the Citracal® line of products last year.

Sales growth in the Diabetes Care Division was especially strong, thanks mainly to the outstanding performance of our Ascensia® Contour® blood glucose monitoring system. Sales of the Ascensia® product family expanded by a remarkable 24 percent.

Business in the Animal Health Division increased primarily due to the positive performance of the Advantage® range of flea and tick control products, sales of which rose by 21 percent.

We also further improved the subgroup's operating result thanks to the very good business performance, the full-year inclusion of Schering and the synergies already realized from the integration.

We are very pleased at how quickly the merger of the two pharmaceuticals businesses has proceeded. The Bayer Schering Pharma name is already firmly established in the market.

That's why today I would again like to thank all of the employees who helped to make the integration a success.

Bayer HealthCare EBITDA before special items jumped by 45 percent to EUR 3.8 billion. The underlying EBITDA margin of Bayer HealthCare came in at 25.6 percent, thus exceeding our earnings expectations for 2007.


Bayer CropScience had sales of EUR 5.8 billion in 2007. Business expanded by a currency- and portfolio-adjusted 5.6 percent.

Our young and innovative crop protection products turned in a particularly pleasing performance. Sales of the active substances we have introduced to core markets since 2000 rose by one third compared with 2006, reaching nearly EUR 1.4 billion.

Significant contributions here came from our seed treatment Poncho®, sales of which almost doubled, our fungicide Flint®, which saw sales grow by 37 percent, our cereal herbicide Atlantis® and the cereal fungicide Proline®.

Overall the crop protection business benefited from the positive business conditions on the world's agricultural markets. Farmers are now able to charge higher prices for their products – those used for food and feed and also the crops used as alternative energy sources. This in turn enables them to invest more heavily in innovative crop protection products as well as high-quality seed.

Ladies and gentlemen, it certainly has not escaped us that rising food prices pose serious problems in many regions of the world. This issue has become a focus of public attention, particularly in recent weeks.

It is very closely linked to the basic fact of global population growth.

Approximately 6.5 billion people currently live on our planet, and this number is increasing by about 80 million each year. By 2020 the world's population will have increased to roughly 7.5 billion – three times as many people as in 1950.

As we are seeing at the moment, the need to provide an adequate supply of food is already a major challenge. And demand will further increase as nutrition habits change with the rising standard of living in many of the emerging countries.

There are some 1.5 billion hectares of land available for growing crops, and there are currently very few options for increasing this. In fact, this arable land area is at risk of shrinking due to shifts in climatic conditions and changing weather patterns. What's more, the demand for renewable raw materials is also increasing as the search continues for alternative energy sources. That's why the agricultural industry needs to constantly raise yields.

Of course, we also see the looming conflict between the cultivation of food crops and those used for biofuels. As our film showed, we continue to work with our partners to develop plants that can also thrive on land unsuitable for growing food crops. Basically, however, we believe there needs to be a thorough political debate on the issue of land-use competition. That is the only way to do justice to the various social aspects of the problem.

Ladies and gentlemen, the products of Bayer CropScience help to safeguard and increase crop yields.

It goes without saying that our research activities, too, are focused on further increasing agricultural yields. For this reason, we are also directing our innovative capability toward making crops more stress-tolerant in order to safeguard yields even under extreme conditions such as heat, drought and saline soil. In this way we want to help lessen the consequences of the marked deterioration in growing conditions in some regions of the world.

Our bioscience activities also make valuable contributions in this area.

Ladies and gentlemen, BioScience saw business expand by 14 percent on a currency- and portfolio-adjusted basis. With the acquisition of U.S.-based Stoneville, which is this subgroup's largest corporate purchase since the acquisition of Aventis CropScience, we have significantly expanded our position in the cotton seed market and are now the world's second-leading supplier.

Business in Environmental Science receded, with sales of products for professional users hampered by generic competition and by unfavorable weather conditions in North America.

EBITDA before special items of the subgroup rose by 10 percent year on year to EUR 1.3 billion. This was due in part to higher volumes and cost savings, which more than offset lower margins caused by negative currency effects.

The underlying EBITDA margin came to 22.7 percent, thus exceeding our expectations.


Bayer MaterialScience continued its positive sales performance in 2007, expanding business by 6 percent on a currency- and portfolio adjusted basis, to EUR 10.4 billion. This subgroup thus succeeded in reinforcing its leading position on the world market.

The gain in sales was mainly the result of higher volumes in both segments. We were also able to raise selling prices slightly overall.

EBITDA before special items of the Bayer MaterialScience subgroup amounted to EUR 1.6 billion, only 4 percent below the very high level of the previous year.

The substantial rise in the cost of petrochemical raw materials and energy, along with negative currency effects, was largely offset by higher volumes and selling price increases.

The subgroup achieved an underlying EBITDA margin of 15.4 percent, and thus the good, value-creating earnings level we were aiming for.

Strategically, at Bayer MaterialScience we have continued to expand our polyurethane systems house business in the growth regions of central and eastern Europe and Asia.

In addition, we are underlining our commitment in one of the world's most important growth regions with the continuing expansion of our integrated production site at Caojing, China.


Ladies and gentlemen, now let's take a look at our financial data for 2007. Gross cash flow rose by 22 percent to EUR 4.8 billion, thanks to the gratifying expansion of business and the full-year inclusion of Schering.

We substantially reduced our net debt, from EUR 17.5 billion at the end of 2006 to EUR 12.2 billion at the end of last year. Contributory factors here were the purchase price payments received for the diagnostics business, H.C. Starck and Wolff Walsrode, and the improvement in operating cash flow.

Including the EUR 2.4 billion in earnings from discontinued operations, Group net income climbed to EUR 4.7 billion.

As a result, earnings per share increased from EUR 2.22 to EUR 5.84.

Since 2006 we have also published core earnings per share to facilitate a performance comparison.

To calculate core earnings per share, Group net income is adjusted for the one-time effects described in the Annual Report. Our core EPS rose from EUR 2.99 in the previous year to EUR 3.80.

This key indicator also forms the basis for our dividend policy, which is to pay out between 30 and 40 percent of core earnings per share.

Together with the Supervisory Board, we are proposing today to pay out 36 percent of core earnings per share. Subject to your approval, the dividend per share for fiscal 2007 will thus rise by 35 percent to EUR 1.35.

This gives a payout in excess of EUR 1 billion, the amount by which you, our stockholders, will benefit from our gratifying business performance.

Ladies and gentlemen, it is surely in your interests as well that our employees around the world participate in the success of the Bayer Group. We will be paying out approximately EUR 490 million to our employees under the Group-wide incentive program, for example. I believe that is a respectable figure. Our payscale employees in Germany alone will receive an amount averaging more than one month's salary.

In addition to this substantial variable income, however, our employees in Germany have also seen their fixed incomes increase. The rise in total remuneration in recent years has considerably outpaced inflation.

In addition, our employees have benefited from stock participation programs for a number of years. In this way we are continuing our policy of enabling our employees to participate appropriately in the development of our company and in our capital growth.

The efforts of recent years have therefore paid off for our employees. And we can certainly say that they have participated in the upswing at our company. That too, ladies and gentlemen, is an expression of our social responsibility.

At this point I'd like to say a few words about the current discussion surrounding the role of companies in society and the responsibility borne by corporate executives. In my opinion, this debate also touches on fundamental questions of social cohesion.

It seems to me that the current debate here in Germany is polarizing the issue in a way that is good neither for our society nor for our country's attractiveness as a location for industry. I firmly believe that we should not call into question our social market economy – a system that has proven effective. We must work together with the politicians to put across the advantages of this system.

However, ladies and gentlemen, there can also be no doubt that the reputation of industry managers, and therefore people's confidence in them, has suffered considerably of late. There are a number of reasons for this that I will not go into here.

For me, one thing is obvious. Industry executives, politicians and the so-called opinion leaders are regarded as role models – whether they like it or not. The people holding these positions and these offices have to accept that and live up to it.

I believe it is important to achieve a lasting improvement in the image of managers in this country. If there is a lack of confidence in their integrity and leadership abilities, they cannot properly exercise their very important role in our society.

By that I mean their task of aligning and leading companies so that companies can achieve sustained growth and earn respectable profits. After all, that too is an important basis for safeguarding jobs and creating new ones.

However, we must not overlook the fact that a successful corporate strategy may also involve changes and upheavals.

A company with global operations can only be successful if it identifies the key challenges and changes and reacts to them in time.

In Asia especially, new markets and new industrialized nations are emerging at a breathtaking rate. This region possesses enormous potential. And completely new competitors are also emerging in the Middle East.

That not only affects our business in these countries, but also the situation here in Germany. We cannot escape the dynamic change processes taking place in the globalized economy – nor should we try to. We experienced such change processes at Bayer too, particularly in recent years, and we mastered the challenge.

In that connection I need only remind you of the fundamental portfolio and structural changes that featured prominently at recent Annual Stockholders' Meetings.

Essential as these changes were, however, it is important to me that we worked together with the employees' representatives in an effort to take the necessary action in a socially responsible manner.

Our endeavors were directed at taking proper account of the interests of all our stakeholders – from the employees to the stockholders. For example, we implemented the personnel adjustments here in Germany without dismissing anyone for operational reasons.

Ladies and gentlemen, we are well aware that acceptance of our company and its actions by society forms an important part of the basis for lasting success. It is a major priority for us to do all we can to achieve this social acceptance.

Yet it is not always easy to reach a productive consensus of different opinions. This is also true of a project that we aim to implement here in our region.

I'm referring to our plan to build a carbon monoxide pipeline between our sites at Dormagen and Krefeld-Uerdingen. The project has met with a lack of understanding and caused concern among many of our neighbors.

In addition, emergency rulings by the Higher Administrative Court in Münster, while allowing construction of the pipeline to continue, have prevented us from operating it for the time being.

I would like to reiterate here that we are convinced of the necessity and the safety of the carbon monoxide pipeline. Our safety measures go beyond those required by law.

And the pipeline is very important for the Uerdingen site and for industry in North Rhine-Westphalia as a whole. Without secure supplies – whether of raw materials or energy, for example – a site like Uerdingen has difficulty competing in the international arena.

However, ladies and gentlemen, even projects as important as this one cannot be implemented without public acceptance. The public-interest aspect of this project is the subject of an ongoing evaluation which we know is supported by the state government. After that, we expect that the parties and fractions in the state parliament will examine the project again. The parliamentary vote will then point the way to our future course of action.

Ladies and gentlemen, this process brings us to a crucial issue, namely the basic attitude to investment at our industrial sites.

Here I am thinking for example of the construction of new coal-fired power plants that are essential to safeguard our energy supplies. The project of the company Trianel at the Krefeld-Uerdingen site is also encountering considerable resistance from the local population.

We have to ask ourselves how we can create jobs and affluence if we do not ensure a modern, competitive infrastructure. It does not make sense to be putting our faith in expensive renewable energies whose efficiency is in dispute, yet at the same time shutting down nuclear power plants while other countries are tapping into this energy source. And on top of that, people are even opposing the building of modern coal-fired power plants right on site.

Ladies and gentlemen, this approach can only have a detrimental effect on the local economy in the medium term. We will therefore have to draw even greater attention to these issues and work together with the political community to ensure stable conditions for investment.


Now let's take a look at our gratifying operating performance in the current year. We got off to an excellent start, carrying over last year's positive trend into 2008 in terms of both sales and earnings.

Group sales in the first three months came in at EUR 8.5 billion, which was 2.4 percent above the same period of 2007. This corresponds to a 7 percent improvement when adjusted to reflect currency and portfolio effects. The main contributions to this improvement came from CropScience, with plus 15 percent, and HealthCare, with plus 9 percent. MaterialScience held steady at the prior-year level.

The gratifying sales performance also led to a further increase in Group operating profit.
EBITDA before special items rose by 10 percent in the first quarter to EUR 2.2 billion despite adverse shifts in currency parities, and EBIT before special items advanced by 9 percent to EUR 1.5 billion.

Ladies and gentlemen, both of these earnings numbers are the highest Bayer has ever achieved for a quarter.


Since the beginning of 2003, we have posted steady year-on-year increases in quarterly earnings before special items – in other words our underlying operating performance. And in the first quarter of 2008, we presented a further earnings increase – the 21st in a row.
I think this is a remarkable record that we can be very proud of.

All subgroups made significant contributions to this strong performance. Bayer HealthCare increased first-quarter EBITDA before special items by 11 percent to EUR 1.05 billion. CropScience boosted its figure by an even more substantial 22 percent, to over EUR 700 million. EBITDA before special items at MaterialScience was virtually flat at about EUR 400 million.

First-quarter earnings were diminished by special charges of approximately EUR 150 million, mostly related to the acquisition and integration of Schering.

EBIT after special items improved by 14 percent in the first quarter of 2008, to EUR 1.3 billion. After a non-operating result of minus EUR 275 million, income before income taxes improved to EUR 1.1 billion. After tax expense of roughly EUR 300 million, net income amounted to EUR 762 million.

Gross cash flow also benefited from the growth in earnings in the first quarter, climbing by 17 percent to EUR 1.65 billion. Net cash flow improved by a substantial 41 percent to EUR 528 million.

As you can see, ladies and gentlemen, we got off to a very good start operationally in 2008 – and we were also successful with our strategic acquisition projects. For example, we strengthened our HealthCare business, expanding our activities for the treatment of cardiovascular surgery patients with the acquisition of U.S.-based Possis Medical.

We have also reached an agreement with Sagmel to acquire a leading over-the-counter medicines business in the countries of the CIS – the Commonwealth of Independent States. In this way we hope to strengthen our Consumer Care business in eastern Europe, one of the world's fastest-growing OTC markets.

And at Bayer MaterialScience, we have further expanded our network of polyurethane systems houses with acquisitions in Germany, France and the Netherlands.


Ladies and gentlemen, the start to 2008 exceeded our expectations from an operational viewpoint, strengthening our confidence for the year as a whole.

We expect global economic growth to slow in 2008 compared to the previous year, particularly as a result of the economic weakness in the United States.

We anticipate that growth in the other industrialized countries and the emerging economies will remain relatively stable at a lower level.

It remains difficult to predict the extent to which the U.S. subprime crisis and the turbulence on the international financial markets will affect the global economy.

Against this background, we continue to target about 5 percent currency-adjusted growth in Bayer Group sales, an increase in EBITDA before special items and a further improvement in the underlying EBITDA margin.


We remain confident about the performance of our HealthCare business, and are targeting a market or above-market rate of currency-adjusted sales growth in all divisions in 2008.

Following the negative ruling in the United States regarding our Yasmin® patent, we have made a minor adjustment to our HealthCare guidance. We aim to improve our EBITDA margin before special items toward 27 percent.

A major focus lies on our antithrombotic drug rivaroxaban. We plan to launch this product this year in Canada and the E.U. under the name Xarelto®. We believe this innovative medicine has the potential to reach peak annual sales more than EUR 2 billion.

Our CropScience business shared in the positive performance of the world's agricultural markets in the first quarter of 2008.

We now believe that we will exceed our forecast of 5 percent currency-adjusted sales growth. Our goal now is to improve the EBITDA margin before special items for the full year to about 24 percent.

Our MaterialScience business turned in a pleasingly robust performance in the first quarter. Its development over the remainder of the year is difficult to forecast due to the considerable uncertainty regarding the business environment and the movement of raw material prices.

Against this background, we expect second-quarter EBITDA before special items at MaterialScience to be close to the level of the first quarter.

For the year as a whole, we continue to expect that we can achieve a good, value-creating earnings level, though without matching the 2007 figure.

Ladies and gentlemen, our long-term success will be based on the solid foundation that we are continuing to build on. We plan to invest EUR 1.7 billion this year in property, plant and equipment to safeguard further sustainable growth.

We plan to spend some EUR 2.8 billion on research and development this year. This is once again the largest R&D budget of any German company in our sector. Germany accounts for about 60 percent of this budget.

Thus we plan to invest a total of some EUR 4.5 billion in our company's future in 2008 alone.

We are doing this in the best interests of the company, our employees and of course you, our stockholders.

I am firmly convinced that innovation and growth are the key success factors in our globalized world.

In keeping with our mission statement "Bayer: Science For A Better Life", we want to go on creating products that help make people's lives better.

To achieve this we continue to require well trained, qualified and motivated employees. Yet the situation on the employment market, particularly here in Germany, is taking a critical turn.

There is already a lack of good technical personnel and highly qualified academics in core disciplines – and this shortage is likely to increase in the future. Demographic change is presenting new challenges to large companies.

Our competitive remuneration packages, our international alignment and the numerous social benefits we provide make Bayer an attractive employer. We also place great emphasis on the professional and personal development of our employees.

Ladies and gentlemen, we are convinced that in the long run, Germany will only be able to assert itself as an industrial base in the global arena if government, society and industry invest in education and training.

Equal opportunity in education is a cornerstone of our social market economy.

This year again, Bayer will offer vocational training opportunities to more than 800 young people in Germany and hire about 250 university graduates. Here again, as you see, we take our social responsibility as an employer very seriously.

In addition, our newly established Bayer Science and Education Foundation is helping schools to finance various projects and equip classrooms. The first projects are already successfully under way.

Ladies and gentlemen,
It is our wish and our duty to play an active role in society through our products, our business operations and our social activities – in other words, through what is referred to nowadays as corporate social responsibility.

From the example I gave of our support for education and training, you have seen that our voluntary social commitment is also in our own best interests.

Ladies and gentlemen, let me now sum up my report by saying that

- 2007 was an outstanding, record-breaking year for Bayer;

- we got off to a very good start in 2008 and aim to further increase our earning power compared to the previous year;

- and we believe our company is on a successful path thanks to the innovation and growth potential of our portfolio.

We are therefore looking to the future with confidence.

Ladies and gentlemen, on behalf of my colleagues on the Board of Management, may I thank you for the trust you continue to place in us.

Forward-Looking Statements
This release may contain forward-looking statements based on current assumptions and forecasts made by Bayer Group or subgroup management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in Bayer's public reports which are available on the Bayer website at The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.