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Friday - February 28, 2014

Financial News Conference

Address by Werner Baumann

Member of the Board of Management

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Ladies and gentlemen,

Now that Dr. Dekkers has presented some key data for the full year 2013, I’ll start with a review of our performance in the fourth quarter of 2013.

Bayer posted encouraging sales growth in the final three months of the year, but EBITDA before special items came in below the prior-year level.


(2012-1504e-1)

Group sales increased by 6.4 percent on a currency- and portfolio-adjusted basis. HealthCare improved sales by 7.2 percent on a currency- and portfolio-adjusted basis, due especially to the outstanding growth of our recently launched pharmaceutical products. As a result of higher volumes, CropScience raised sales by a substantial 12.8 percent year on year after adjusting for currency and portfolio changes. The 1.6-percent growth in sales of MaterialScience was largely attributable to increased volumes.

Fourth-quarter EBIT of the Bayer Group declined by 10.2 percent to EUR 655 million. Earnings were diminished by net special charges of EUR 439 million, comprising mainly restructuring expenses of EUR 192 million and EUR 182 million in additional charges related to legal claims. Of the latter amount, claims concerning Yasmin™/YAZ™ in the United States accounted for EUR 155 million. As a result, EBIT before special items of the Bayer Group moved back by 5.1 percent against the prior-year figure, to approximately EUR 1.1 billion.

EBITDA before special items receded by 3.1 percent to about EUR 1.8 billion. Earnings were held back by higher research and development expenses and negative currency effects, as well as by expenses for long-term stock-based compensation programs.

EBITDA before special items of HealthCare was down slightly year on year at some EUR 1.3 billion. This decline resulted above all from research, development, marketing and distribution expenditures, as well as from negative currency effects that mainly held back earnings at Pharmaceuticals. CropScience significantly improved earnings compared with the fourth quarter of the prior year due to growth in volumes. EBITDA before special items came in at EUR 319 million, up about 8 percent year on year. MaterialScience posted EBITDA before special items of EUR 248 million, which was 6.1 percent lower than in the prior-year quarter. This decline in earnings was due largely to a drop in selling prices coupled with almost constant raw material costs.


(2012-1504e-2)

The financial result improved by about 50 percent, lifted mainly by a EUR 77 million gain from the sale of our shares in Onyx Pharmaceuticals Inc. Net income also posted a gratifying increase, climbing by around 24 percent to EUR 455 million. Core earnings per share for the fourth quarter saw a substantial improvement of about 9 percent to EUR 1.10.

That brings me to the full year 2013: We grew sales last year to a record level of EUR 40.2 billion, with the Emerging Markets once again making an above average contribution to this development. HealthCare achieved encouraging growth with its recently launched pharmaceutical products. CropScience, too, was very successful in an attractive market environment, particularly with Crop Protection products launched since 2006. This enabled us to achieve our operational targets in the Life Science businesses despite substantial negative currency effects. By contrast, the business of MaterialScience continued to be affected by a difficult market situation.


(2012-1504e-3)

After special items, we achieved EBIT of approximately EUR 4.9 billion – representing a very pleasing increase of 25.6 percent compared with the previous year.

Earnings were diminished by special charges of about EUR 840 million, down substantially on the prior-year figure of around EUR 1.7 billion. This was chiefly attributable to the fact that we took accounting measures of just EUR 155 million in connection with the Yasmin™/YAZ™ line of oral contraceptives, after EUR 1.2 billion a year earlier.

Special items at CropScience and MaterialScience were low overall. By contrast, HealthCare faced the most substantial impact on earnings, at EUR 713 million, due to charges related to legal claims, restructuring expenses and impairments.

EBIT before special items of the Bayer Group advanced by 2.4 percent overall to around EUR 5.8 billion.


(2012-1504e-4)

EBITDA before special items rose by 1.5 percent from the prior-year period, to EUR 8.4 billion. This growth in earnings due to the good performance of the Life Science businesses was partly offset by a market-related decline in earnings at MaterialScience. Earnings were also held back by negative currency effects of about EUR 260 million and higher expenses of some EUR 70 million related to long-term stock-based compensation programs, the latter due to the gratifying performance of Bayer stock.


(2012-1504e-5)

Ladies and gentlemen,

The non-operating result for 2013 improved by EUR 25 million to minus EUR 727 million. This gain was mainly driven by an increase in income from investments in affiliated companies as a result of the sale of our shares in Onyx Pharmaceuticals Inc., and by lower interest cost for pension and other provisions. Net interest expense rose by around 41 percent, due largely to interest expense in connection with a possible additional payment to former minority stockholders of Bayer Pharma AG. Income before income taxes rose by approximately 33 percent to about EUR 4.2 billion.


(2012-1504e-6)

Our tax expense in 2013 came to around EUR 1 billion, against EUR 723 million in the previous year. The effective tax rate grew correspondingly to 24.3 percent. This increase in the effective tax rate resulted from high special charges in the United States related to the accounting measures taken in connection with the claims concerning Yasmin™/YAZ™, which in 2012 significantly lowered the effective tax rate.

Net income rose substantially in 2013, coming in around 33 percent higher than in the prior year at approximately EUR 3.2 billion. This equated to earnings per share of EUR 3.86. Core earnings per share came in at a gratifying EUR 5.61, against EUR 5.30 in 2012.


(2012-1504e-7)

Ladies and gentlemen,

Let me say just a few words about our statement of financial position. Total assets of the Bayer Group were virtually level with the end of 2012, as was the carrying amount of noncurrent and current assets.

As of December 31, 2013, we had equity of around EUR 20.8 billion. This yielded an equity ratio of some 41 percent, which was slightly higher than a year earlier. The increase in equity resulted from, among other things, the EUR 1.3 billion decline in post-employment benefit obligations, which was recognized outside profit or loss, and the gratifying net income of EUR 3.2 billion. Liabilities receded by around 7 percent, mainly because of the decline in provisions for pensions and other post-employment benefits. We have maintained a balanced long-term financing structure, and remain in a solid financial position with strong ratios.


(2012-1504e-8)

This brings us to our cash flow: Gross cash flow climbed by 28 percent to around EUR 5.8 billion, mainly because of the improvement in EBIT. This means we exceeded our gross cash flow hurdle of some EUR 4.3 billion – in other words, the threshold for earning our capital and asset reproduction costs – by about 37 percent.

HealthCare and CropScience recorded a significant business-related increase in cash tied up in working capital, while MaterialScience was able to release cash thanks to successful working capital management. Cash flow was also impacted by high charges related to legal claims. Net cash flow of the Bayer Group increased by 14.2 percent overall, to about EUR 5.2 billion. This figure included income tax payments of about EUR 1.3 billion, which was some EUR 400 million lower than in the preceding year.

The net financial debt fell by some EUR 300 million compared with December 31, 2012, to EUR 6.7 billion. Due to the strong cash flow, we were able to slightly reduce debt despite high capital expenditures and the acquisitions of Conceptus and Steigerwald. The net defined benefit liability for pensions declined in the same period from EUR 9.2 billion to EUR 7.3 billion, due largely to higher long-term capital market interest rates.

Our outstanding financial liabilities have a balanced maturity structure. We therefore intend to continue making repayments entirely from available liquidity and current cash flows in the coming years.


(2012-1504e-9)

Ladies and gentlemen,

Let me just summarize my comments to you today:

• We continued our successful development in our anniversary year with sales of EUR 40.2 billion. Our recently launched pharmaceutical products in particular achieved outstanding growth.

• We also posted records for EBITDA before special items, at EUR 8.4 billion, and core earnings per share, at EUR 5.61. We achieved our operational targets in the Life Science businesses despite substantial negative currency effects.

• Earnings this year were held back to a much lesser extent by special items than in the previous year.

• We further strengthened our Life Science businesses with targeted acquisitions including Conceptus, Steigerwald and Prophyta.

• We reduced net debt by EUR 300 million despite substantial capital expenditures and a number of acquisitions.

With an equity ratio of around 41 percent and a balanced financing structure, we have a solid financial base overall. Furthermore, we strengthened our already good position with a view to future growth. We are therefore optimistic for 2014 and plan further growth in sales and earnings.

Dr. Dekkers will now focus on our strategic priorities and objectives.

Thank you very much.


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.