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Friday - February 28, 2014

Financial News Conference

Address by Dr. Marijn Dekkers

Chairman of the Board of Management

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Ladies and gentlemen,

I would like to welcome you most warmly to the presentation of our results for 2013. Thank you all for coming here today.

I'd like to start by saying a special word of thanks to our esteemed colleague Professor Wolfgang Plischke, who will be retiring on April 30. Professor Plischke joined Bayer in 1980 and has been a member of the Board of Management since March 1, 2006. I would like to thank him for the trust that characterized our working relationship and his valuable contributions to the development of the company. Wolfgang, I wish you all the best and, especially, good health.

I would like to welcome two new members to our executive management team. First, the new Bayer Management Board member Kemal Malik. He has been with our company since 1995 and in recent years very successfully drove forward the development of newer drug products such as the anticoagulant Xarelto™ for the prevention of stroke and thrombosis. He was previously Head of Global Development and Chief Medical Officer at Bayer HealthCare. From May 2014, he will be responsible for Innovation and the North America and Latin America region.

I would also like to welcome Olivier Brandicourt, who was appointed Chairman of the Board of Management of Bayer HealthCare and a member of Bayer's Executive Council effective November 1, 2013. He has 25 years of international experience in the pharmaceutical industry and in recent years was a member of the Executive Leadership Team at Pfizer in New York. Welcome to Bayer!

Michael König is also joining our news conference for the first time but he has been a member of the Board of Management for almost a year so a special welcome is hardly appropriate. However, I would like to introduce him to those of you who haven't seen him before. Mr. König is our Labor Director and Chief Human Resources Officer. From May, he will also assume responsibility for Technology and Sustainability and for the Asia/Pacific and Africa/Middle East regions.

Let's now move on to our presentation of the financial data for 2013.

Ladies and gentlemen,

2013 was a very special year. Not only did the 150th anniversary of our company's founding give us the opportunity to celebrate the successes Bayer has achieved over the years, we also strengthened our portfolio with new, innovative products and posted new financial records. I would like to take advantage of this opportunity to thank our employees for their outstanding work and our stakeholders for their ongoing support.

We continue to be motivated by our mission "Bayer: Science For A Better Life" as we work to further strengthen our position as a world-class innovation company. Our goal remains to improve the lives of many people around the world with our innovative products and solutions.


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Bayer's anniversary year gave us the unique opportunity worldwide to showcase the company's achievements in the 150 years since its founding in both our internal and external communications. One highlight was our stadium event. As you can see from the photo, the 30,000 guests – our employees and their families from all over Germany – experienced a tremendous day. This image of the world's largest Bayer Cross was broadcast to millions of people via a wide range of media and transported our mission worldwide. Let me take this opportunity to compliment everyone who worked so hard to design and very successfully implement the anniversary program.

Ladies and gentlemen,

Compared with this impressive image, the next slides are rather sober and businesslike. But you'll see that we also have exciting news to report concerning our business performance.


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We saw continuous growth and met important business objectives in our anniversary year. Let’s take a detailed look at the figures. Sales grew by more than 5 percent year on year to around EUR 40.2 billion, which is a new record. Please keep in mind that all the sales variations I mention today are adjusted for currency and portfolio effects.

EBIT rose by 25.6 percent to EUR 4.9 billion. EBITDA before special items increased by 1.5 percent to EUR 8.4 billion. And core earnings per share advanced by 5.8 percent to EUR 5.61.

One positive aspect was the continuing momentum in our Life Science businesses, in other words HealthCare and CropScience, where we focus on human, animal and plant health. We saw outstanding growth for our pharmaceutical products, and CropScience was very successful in a positive market environment. More on that in a moment.

We generated around 70 percent of total sales and 90 percent of clean EBITDA in our Life Science businesses. They were strengthened especially by expanded indications and additional approvals for products from our innovation pipeline. We also continued to grow our Life Science businesses through acquisitions. Overall, we achieved our operational targets in these businesses.

However, we encountered headwind at MaterialScience, where business development continued to be affected by a difficult market situation. In addition, negative currency effects held back clean EBITDA of the Bayer group by nearly EUR 260 million compared with the previous year.


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How did investors view our performance? This graphic shows that our stock was very much in demand. In a trend that became evident starting January 3, 2013, our stock significantly outperformed the health care and chemical industries, the DAX and the Eurostoxx 50. Our market capitalization at the end of 2013 was around EUR 84 billion – up more than 40 percent compared with the previous year.

Now I'd like to report on business development in the subgroups and how they contributed to our overall performance.


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Let's start with HealthCare: Sales of that subgroup advanced by 6.8 percent in 2013, to EUR 18.9 billion. This was largely attributable to gains posted by the five recently launched pharmaceutical products. I'll tell you more about that in a moment. Adjusted for currency and portfolio effects, sales of our Pharmaceuticals segment climbed by 9.4 percent to EUR 11.2 billion. Consumer Care also saw positive sales development. We were also pleased at the above-average performance of HealthCare in the Emerging Markets.

EBITDA before special items of HealthCare as a whole rose by 4.2 percent to EUR 5.3 billion. Earnings were slightly hampered by disproportionately high expenditures for research and development and for marketing associated with product launches. The slight decline at Medical Care resulted from a downturn in the Diabetes Care market. Negative currency effects also played a role.

HealthCare can look back at a very good year overall. In the next slide I'd like to go into more detail about the potential of the recently launched pharmaceutical products that contributed to this performance.


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Our five recently launched pharmaceuticals include the anticoagulant Xarelto™ for the prevention of stroke and thrombosis and Eylea™ for the treatment of age-related macular degeneration and macular edema. They also include Stivarga™ for adult patients with advanced metastatic colorectal cancer, Xofigo™ to treat bone metastases in prostate cancer and Adempas™ for patients with pulmonary hypertension. Total sales of these five products already came to EUR 1.5 billion in 2013. We had originally budgeted EUR 1 billion for the year.

The good news is that, in light of this very positive performance, we have now significantly increased our estimate of the combined peak annual sales potential of these products to at least EUR 7.5 billion. At the right you can see how this peak annual sales potential breaks down individually. We have increased our estimate of the annual potential of Xarelto™ from more than EUR 2 billion to approximately EUR 3.5 million. We have also substantially raised our prediction for the annual potential of Eylea™ by EUR 0.5 billion to at least EUR 1.5 billion.

However, further investments in marketing, distribution and life-cycle management will be required to exploit these opportunities and actually achieve the aforementioned sales potential. Life-cycle management refers to the search for additional indications and the development of new delivery forms.


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Although we are pleased at the early success of our five recently launched products, we of course have to think about the future. In other words, what else do we have in our pipeline? It's good to know that our pharmaceutical pipeline is well stocked with promising projects. Among them are five development candidates with good prospects in the areas of cardiology, oncology and gynecology. The common feature of these new drug candidates is that they are new molecules with highly promising activity profiles.

We believe they have the potential to significantly improve and broaden treatment options for patients in a large number of indications. The objective for these five projects is to be able to make a decision in 2015 on the start of Phase III trials.


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Now let’s move on to CropScience. This subgroup also had a very successful year. The new strategy we introduced in 2011 is paying off. Sales improved substantially in a positive market environment, rising by 9.4 percent to EUR 8.8 billion. This growth was mainly driven by successful business with new Crop Protection products. We achieved the most significant gains in the Latin America region.

EBITDA of CropScience climbed by a substantial 11 percent to EUR 2.2 billion – despite higher investment in research and development.


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In the case of CropScience, too, I'd like to briefly talk about the importance of new products that are already contributing to growth and will continue to do so in the future. We anticipate growth particularly for our new Crop Protection products. In 2013, we exceeded our sales target for these products and posted reported growth of 33 percent to more than EUR 1.5 billion.

Products we hope will help us to achieve growth in the future include our Xpro™ and Luna™ fungicides lines and the insecticide Belt™. Overall, we plan to introduce more than 25 new products to the market between 2011 and 2016.


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MaterialScience faced considerable challenges in 2013, in what remained a difficult market environment. Both volumes and prices were virtually unchanged compared with the prior year. Sales moved forward by 0.4 percent to EUR 11.2 billion. Savings resulting from our efficiency measures made a positive contribution to earnings.

Performance varied by product group and region. Business with our polyurethane raw materials, such as MDI and TDI, was positive overall. Here, the balance of volume and price effects on sales was positive. Sales were down in all other units, particularly Polycarbonates, where the market continued to be hampered by overcapacities.

EBITDA before special items fell by around 15 percent to EUR 1.1 billion, held back particularly by a EUR 250 million increase in raw material costs. Despite the difficult market environment for MaterialScience in 2013, we are cautiously optimistic about the future. The expected increase in capacity utilization in our industry in the coming years should relieve the pressure on prices.


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Ladies and gentlemen,

The day before yesterday, we notified you of the Supervisory Board's resolution on the dividend proposal. We will recommend to the Annual Stockholders’ Meeting that the dividend be increased to EUR 2.10 per share. This represents a 10.5 percent increase over the dividend of EUR 1.90 paid for 2012.

Bayer pursues a stable dividend payment policy within the corridor of 30 to 40 percent of core earnings per share. In this way, we are enabling our stockholders to appropriately participate in the success of our company. The significant increase is also an expression of our confidence in Bayer's future performance.


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Of course, growth does not happen automatically. We must continuously invest substantial sums of money to create the conditions for further innovation and growth. We plan to spend more than EUR 18 billion for research and development and capital expenditures in the next three years, mainly in the Life Science businesses. Overall, EUR 11.2 billion are to be allocated to research and development and EUR 7.3 billion to capital expenditures.

HealthCare will spend EUR 7.4 billion on R&D and EUR 2.6 billion on capital expenditures. At CropScience, the figures are EUR 3.0 billion and EUR 2.1 billion, respectively. MaterialScience will invest EUR 0.6 billion in research and development and EUR 1.9 billion in capital expenditures.

Nevertheless, we also expect a strong performance and expanding business in the coming year, even though we also anticipate negative currency effects which I will come back to later.


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Ladies and gentlemen,

We will continue to safeguard our business success for the long term. We are establishing the foundation for this by consistently integrating sustainability into our business processes. At Bayer, we recognized at a very early stage that we can only achieve lasting success if we maintain the balance of economic growth with ecological and social responsibility.

Responsible business practices underpin the Bayer Group's sustainable alignment. The safety of people and our production facilities is our top priority. This includes above all the prevention of accidents, and we can proudly say that their number has declined year by year. We also set high standards for product safety.

In addition, we are committed to responsible practices in marketing our products and will not forgive any violations. We expect every employee to act with integrity and will not tolerate infringements of our compliance and anti-corruption guidelines.

Moreover, we are working to improve access to drug products. For example, as part of our Access to Medicine strategy, we are collaborating with other pharmaceutical companies to combat neglected tropical diseases. And over a period of six years, our new partnership with the Bill & Melinda Gates Foundation will give more than 27 million women in over 50 countries around the world access to safer and effective contraception.

Sustainable development is an active element of our strategy. It therefore is no wonder that we today became one of the first DAX companies to publish an integrated annual report. By combining the presentation of financial and non-financial information, we aim to highlight the link between economic, ecological and social factors.


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I would now like to give you three examples of how we are implementing our mission "Bayer: Science For A Better Life."

Let's begin with HealthCare. Colorectal cancer is the second most common form of cancer in women and men. It is estimated that more than 1.2 million people are diagnosed with colorectal cancer and approximately 600,000 people die of the disease each year. In Germany alone, there are around 70,000 new cases each year. In about one third of the diagnosed cases, the cancer has already spread. Chemotherapy and certain specific medicines may prove effective for a time, but their effectiveness declines when tumor cells develop resistances.

Our recently launched oral multikinase inhibitor Stivarga™ inhibits tumor progression after the failure of standard therapies and helps to extend life. Unlike other treatments, Stivarga™ can be taken on its own and does not necessarily have to be administered in combination with chemotherapy. Briefly put, our drug extends life and slows disease progression, particularly when standard therapies can no longer help. This gives patients more time and improves their quality of life.


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Now let me give you a second example: In 2050, the world will need to provide food for more than nine billion people. However, the amount of arable land is limited, so it will have to produce significantly higher yields.

Our food chain partnerships promote a sustainable increase in productivity and improve the quality of harvested produce. In this way, we support all market participants – from farmers to retailers. Bayer's food chain teams operate in a total of 30 countries and focus on more than 40 crops worldwide.

Let me give you a specific example: In Guatemala, insect pests and crop diseases have caused harvest losses of up to 25 percent in the past. Also, new quality requirements set by the import markets in Europe and North America have presented challenges for local farmers. In a food chain partnership with the exporter Siesa, Bayer has developed a crop protection program for contract farmers that is tailored to local needs. In addition, Bayer has offered nearly 100 training workshops on sustainability, user safety and environmental standards.

These efforts have resulted in good prospects for the future, as everyone involved has been extremely satisfied with the quality of the harvest. For farmers it means a 20 percent increase in their marketable harvest, providing them with steady and higher incomes. As a result, their families enjoy an improved quality of life and their children can attend school.


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Another challenge is saving energy. Keeping homes warm or cool uses enormous amounts of energy and accounts for about 40 percent of global consumption. What’s more, growing demand in developing countries is increasing the pressure on limited resources. Many insulating materials are unsuitable for use in extreme climate conditions.

Bayer has developed novel solutions for the manufacture of rigid polyurethane foam sheets that offer affordable insulation adapted to local conditions. Polyurethane sheets manufactured from our raw materials are a cost-effective, lightweight and simple alternative to conventional building materials, which can often be expensive and bulky. They protect against the heat in tropical regions and prevent heat loss in cold climates. They save 70 times more energy during their service life than is required for their production. And they are cheap to transport due to their light weight.

Let me give you an example: Daytime temperatures in tropical regions can exceed 40 degrees Celsius. Thanks to our raw materials, these polyurethane sheets can keep indoor temperatures at around 28 degrees – without air conditioning.

Ladies and gentlemen,

Bayer products such as those I have just described are helping to address urgent societal needs. They are examples of the innovations we work on every day – and will continue to do so in the future. Yet even the most outstanding ideas and scientific breakthroughs have no chance if people do not accept, appreciate and support them. All too often, people are afraid of or uneasy about new ideas, inventions, processes or products – and also afraid of unfamiliar technologies and the science on which these are based.

We have to address this situation. We must take these fears and concerns seriously and do more to properly explain why and how the benefits far outweigh the risks, which can never be entirely ruled out.

All of us can and must make a contribution here. To give you a current example: Almost every day, newspapers publish something about cancer – statistics, the best doctors, the best hospitals, the best treatments. What they don't mention is the molecule, the invention or the scientist behind the invention without which the doctors, hospitals and treatments could not help patients.

I feel that this lack of appreciation for our ideas and innovations has to change. We believe it's important for society to recognize that our activities and products truly embody our mission "Bayer: Science For A Better Life." That is why we have to defend our intellectual property and the capital this generates to fund our science for a better life. But we must balance this with the imperative to reach those most in need with what they most need.

That concludes the first part of my remarks. Mr. Baumann will now give you more details on the data in the Group's financial statements for 2013.

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BAUMANN ADDRESS
(see separate document)

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(Continuation of Dr. Dekkers’ address)


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Ladies and gentlemen,

Let me close with a few remarks about our strategic priorities and objectives. In line with our mission "Bayer: Science For A Better Life,” we aim to improve people's living conditions. For this endeavor, we focus on our core competency of developing innovative products and solutions based on scientific knowledge.

First, we aim to further accelerate the pace of growth at HealthCare. A priority again at HealthCare in 2014 is to successfully commercialize the recently launched pharmaceutical products. We aim to continuously expand the indications for our recently launched products and make our medicines accessible to additional patient groups.

We also aim to continue growing our Consumer Care business – expanding our presence in the Emerging Markets, strengthening our successful brands and examining options for acquisitions.

We expect HealthCare sales to advance by a mid-single-digit percentage in 2014 on a currency- and portfolio-adjusted basis.

Second, we want to drive forward the very good growth at CropScience. Sustainable agriculture, higher crop yields and improved crop quality are becoming increasingly important. Corporate planning at CropScience is aligned to long-term trends in the agricultural markets. CropScience's strategy for future growth is built on four key elements:

- Strengthening the crop protection portfolio;
- Increasing customer centricity along the entire value chain;
- Leading the way in innovation;
- Expanding the seeds business.

In 2014, we anticipate that market conditions for our CropScience business will remain good but be slightly less favorable than in the previous year. We plan to grow faster than the market at CropScience and raise sales by a mid- to high-single-digit percentage on a currency- and portfolio-adjusted basis.

Third, we aim to leverage the synergy potential that is unique to Bayer, based on our interdisciplinary research expertise in improving the health of humans, animals and plants. Researchers in our Life Science businesses are jointly working on projects relating to central biological processes. In the long term, we expect our interdisciplinary research at the interface between human, animal and plant health to result in additional growth impetus.

The fourth point is that we aim to significantly improve profitability at MaterialScience. MaterialScience, with its high-tech polymer materials and application solutions, is helping to address global challenges such as population growth, the depletion of fossil resources, climate change, increasing mobility and growing urbanization. In addition to product innovations, MaterialScience is working on new or improved, eco-friendly production processes that also bring cost benefits for our customers. As I have already stated, we are cautiously optimistic for MaterialScience in 2014 and plan to raise sales by a mid-single-digit percentage on a currency- and portfolio-adjusted basis.

The fifth point is that we aim to support our organic growth through bolt-on acquisitions. Growth, ladies and gentlemen, remains one of our company's main objectives. In strategic terms, it is crucial that our Life Science businesses grow faster than the market. With this in mind, we are focusing on innovation and the expansion of our activities in the Emerging Markets. We also aim to continue supplementing Bayer's organic growth through small and medium-sized acquisitions in the Life Sciences.

At HealthCare we have expanded our women's healthcare business with the purchase of U.S. company Conceptus. And we acquired the herbal medicines specialist Steigerwald Arzneimittelwerk GmbH to add to our Consumer Care product range. We aim to further strengthen our oncology portfolio with the acquisition of Norwegian pharmaceutical company Algeta ASA, which would give us full control over Xofigo™. Furthermore, we aim to acquire Dihon, a leading Chinese OTC company whose core business comprises non-prescription medicines. Dihon is especially strong in the dermatology segment. It is to become part of our Consumer Care business.

We strengthened our CropScience portfolio through the acquisition of companies such as Prophyta GmbH, an established supplier of microbial crop protection products. After the purchase of AgraQuest in 2012, this was another important step in the development of a leading technology platform for biologicals. We also acquired various seed companies in Latin America to strengthen our local expertise. These include Wehrtec Tecnologia Agricola Ltda. and Agricola Wehrmann Ltda. in Brazil, and Argentinian seed company FN Semillas S.A. That concludes our look at Bayer's acquisitions.

Ladies and gentlemen,

Highly motivated employees are our most important resource in continuing the successful development of our business. Employee development is a major aspect of our human resources strategy, and the Bayer Academy plays a key role here. A primary objective of these activities is strengthening leadership expertise.


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I would like to briefly present the Bayer Group's financial targets. We remain optimistic. Our forecast for 2014 is based on average currency exchange rates for the fourth quarter of 2013. In 2014 we plan to grow sales by around 5 percent on a currency- and portfolio-adjusted basis. Allowing for expected negative currency effects of around 2 percent compared to the prior year, sales would be between approximately EUR 41 billion and EUR 42 billion.

We plan to raise EBITDA before special items by a low- to mid-single-digit percentage, allowing for expected negative currency effects of about EUR 450 million or around 5 percent. We aim to increase core earnings per share by a mid-single-digit percentage.

We expect to take special charges of approximately EUR 200 million for restructuring in 2014. And we intend to increase our research and development spending by more than EUR 300 million year on year to EUR 3.5 billion. Ladies and gentlemen, that concludes my remarks on our guidance.

Looking back we can say that 2013 was a very successful year for Bayer. We achieved important targets, and we expect to sustain our successful development in the coming years thanks to our newer products. Our strategy of growth and innovation offers us excellent prospects for the future.

Thank you for your attention.


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 www.bayer.com. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.