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Thursday - February 26, 2015

Financial News Conference

Address by Johannes Dietsch

Member of the Board of Management

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Ladies and gentlemen,

I am pleased to stand here for the first time today to explain the figures and facts of Bayer's financial reporting. I would like to start my presentation with a brief report on our business development in the fourth quarter of 2014.


(2015-1501e-1)

The Bayer Group's positive business performance continued in the fourth quarter of 2014. Sales rose by 11.6 percent on a reported basis and by 6.9 percent after adjustment for portfolio and currency effects to more than EUR 11 billion. HealthCare achieved a currency- and portfolio-adjusted growth of 7.8 percent, due especially to the encouraging development of our recently launched pharmaceutical products. The subgroup's sales came in at EUR 5.6 billion, including a contribution of EUR 289 million at Consumer Care from the business newly acquired from Merck & Co. CropScience benefited from higher volumes and increased sales by 8.3 percent on a currency- and portfolio-adjusted basis to EUR 2.2 billion. With sales of EUR 2.9 billion, MaterialScience posted a currency- and portfolio-adjusted increase of 5.5 percent, thanks primarily to higher volumes.

EBITDA before special items increased by 4.4 percent to some EUR 1.8 billion, mainly as a result of higher volumes in all subgroups. Earnings were held back by higher R&D and selling expenses. At HealthCare, EBITDA before special items was 6.7 percent above the prior-year quarter at EUR 1.4 billion. This development was due above all to improved earnings in the Pharmaceuticals segment. CropScience significantly improved earnings against the fourth quarter of the prior year. EBITDA before special items came to EUR 369 million, and therefore 15.7 percent higher year on year. MaterialScience posted EBITDA before special items of EUR 217 million, 12.5 percent below the prior-year quarter due partly to higher production costs.

Core earnings per share for the fourth quarter rose by 8.2 percent to EUR 1.19.


(2015-1501e-2)

That brings me to the full year 2014. We are pleased to have set a new sales record of EUR 42.2 billion. EBITDA before special items came in at EUR 8.8 billion, 4.9 percent higher than in 2013. However, it was held back by a negative currency effect of EUR 410 million or 4 percent, due particularly to a weakening of the Japanese yen and some Emerging Market currencies such as the Russian ruble.

Earnings were additionally impacted by special items of EUR 438 million. However, these were substantially lower than in the previous year. HealthCare especially saw a decline in special items for restructuring and legal defense costs. As in the previous year, HealthCare accounted for a large proportion of the special items in our EBIT in 2014. They included above all charges in connection with our acquisition activities last year. HealthCare posted integration costs and other expenses associated with divestitures. Earnings were additionally held back by a provision for legal defense costs related to Xarelto™. Special items at CropScience and MaterialScience were low. EBIT of the Bayer Group rose by 11.6 percent to EUR 5.5 billion.

In summary, I would like to note that all three subgroups contributed to sales and earnings growth in 2014.


(2015-1501e-3)

I would now like to look at our financial result, which declined by EUR 254 million compared with 2013. This was mainly due to foreign currency losses and a positive one-time effect in 2013 from the sale of our interest in Onyx Pharmaceuticals.

In line with expectations, income taxes were slightly up on the prior year at around EUR 1.1 billion, giving an effective tax rate of 23.9 percent. At this point, allow me to briefly digress. Last year, more than 40 percent of the taxes Bayer owed worldwide were paid to the German treasury. Yet the company posted just under 12 percent of its global sales in Germany.

After deduction of the financial result and income taxes, net income came to EUR 3.4 billion. This was 7.4 percent higher than the prior year and equated with earnings per share of EUR 4.14. Core earnings per share came in at a gratifying EUR 6.02, against EUR 5.61 in 2013.


(2015-1501e-4)

Turning now to cash flow development: Gross cash flow climbed by 16.9 percent in 2014 to around EUR 6.8 billion, mainly because of the improvement in operative earnings. We therefore significantly exceeded the defined gross cash flow hurdle of around EUR 4.4 billion, which is the threshold for covering our capital and asset reproduction costs.

On account of the growth in our business activity, the amount of cash tied up in working capital increased. However, cash flow was improved by a one-time payment of EUR 778 million in connection with the sGC collaboration with Merck & Co. in the cardiovascular area. Free operating cash flow thus came in at around EUR 3.4 billion, up 14 percent on the previous year. Due to acquisitions, net financial debt rose by EUR 12.9 billion against December 31, 2013, to EUR 19.6 billion.

Fiscal 2014 was not only significant operationally and strategically, but also with regard to financial transactions. Our financial market transactions amounted to more than EUR 22 billion, including bonds with a volume of EUR 11.8 billion and a bridge financing and loans totaling EUR 10.3 billion.


(2015-1501e-5)

The financing of the acquisition of Merck & Co.'s consumer care business was the first major financing deal for a corporate acquisition in Germany since the start of the financial crisis. In early May last year, an agreement for a loan of USD 14.2 billion was signed at the same time as the purchase agreement with Merck. This loan consisted of a bridge financing and a separate term loan with a volume of USD 2 billion. The bridge financing has since been replaced in full by capital market transactions. The refinancing comprises three elements.

In June 2014, we placed two hybrid bonds with a total volume of EUR 3.25 billion. This was the largest corporate EUR hybrid bond ever.

In October, we also issued U.S. dollar bonds in 144A/Reg S format with a total volume of USD 7 billion. This was the largest capital market transaction in Bayer's history. It was also the largest transaction of this kind to date made by a German company.
Lastly, in November, we issued an EMTN bond with a volume of EUR 500 million. With a maturity of nine years and a coupon of 1.25 percent, it rounds out our maturity profile.

Ladies and gentlemen,

The success of a bond issue of this magnitude is not obvious. The fact that we were so successful in these financing activities is also evidence of Bayer's good reputation on the capital market.


(2015-1501e-6)

To end, let me summarize our business performance in the context of recent years.

• We continued our successful development with sales of EUR 42.2 billion. All subgroups contributed to this outcome.

• We again increased EBITDA before special items to EUR 8.8 billion with a stable margin of 20.9 percent. Our net income for 2014 was held back to a lower extent by special items.

• Core earnings per share also reached a new record level.

• Our stockholders have seen steady growth in our dividend. We are proposing that the dividend for 2014 be increased by 15 cents to EUR 2.25 per share.

• We further strengthened our Life Science businesses with targeted acquisitions including Merck & Co. consumer care, Algeta and Dihon. However, as a result, our net financial debt increased substantially. In the time ahead, therefore, we will be focusing clearly on reducing our financial debt.

Dr. Dekkers will now talk about our strategic priorities and objectives.

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.