Thursday - October 26, 2017
News Conference Call for the Third Quarter of 2017

Address by Werner Baumann

Chairman of the Board of Management

(Please check against delivery)

Ladies and gentlemen,

I would also like to welcome you to today’s conference call on the third quarter of 2017. It was another quarter on which we have much to report. I’d like to start out with that report before fielding your questions.


Last quarter we took some important strategic steps. For example, we made very good progress toward our goal of achieving full separation from Covestro in the medium term. We further reduced our stake in Covestro. The share held directly by Bayer now amounts to 24.6 percent.

We are also declining to exercise certain voting rights at the Covestro Annual General Meeting. We have thus ceded de facto control over Covestro and deconsolidated it. The remaining shares of Covestro are now recognized in the statement of financial position using the equity method.

This has corresponding effects on our financial information: continuing operations of the Bayer Group are now comprised exclusively of the Life Science businesses. The financial information for the preceding quarters and the prior-year figures have been restated accordingly.

Another important step with regard to the planned acquisition of Monsanto was the contractual agreement to sell selected Crop Science businesses to BASF for
EUR 5.9 billion. Here I’m talking about our global glufosinate-ammonium business and the related LibertyLink™ technology for herbicide tolerance. The planned divestiture also includes a substantial part of our field crop seeds business, including the respective research and development capabilities.

The divestiture still requires the approval of the antitrust authorities and is dependent on the successful closing of the Monsanto acquisition.

With this agreement, we are actively addressing the authorities’ possible concerns in connection with the planned acquisition of Monsanto. It is a milestone on the road to the successful closing of this transaction. However, I’d like to expressly state that it is not an attempt to preempt any decisions by the regulatory authorities.

I’ll go into more detail again later on about the current status of that acquisition.


Let me begin, however, with a look at our business performance. Please note that all the sales changes I mention are adjusted for currency and portfolio effects, and all the changes in product sales refer to currency-adjusted figures.

We increased sales and earnings in the third quarter. As expected, however, it was a difficult quarter in some areas. While our Pharmaceuticals Division maintained its course of growth, business at Consumer Health was weak as expected. Crop Science and Animal Health posted sales gains but saw earnings decline.

We confirmed our outlook for the full year based on the change in Group structure. I will now take a look at the figures in detail.


Group sales totaled EUR 8 billion in the third quarter of 2017. Let me stress once again that this is the sales figure for our Life Science businesses excluding Covestro, and it corresponds to an increase of 1.2 percent compared with the prior-year quarter. EBITDA before special items climbed by 4.1 percent to EUR 2.2 billion. Negative currency effects held back earnings by about EUR 100 million.

EBIT was level year on year at EUR 1.4 billion after net special charges of EUR 249 million. EBIT before these special items rose by 7.6 percent to EUR 1.6 billion.

Group net income was EUR 3.9 billion. This includes a gain of EUR 2.4 billion from the remeasurement of the remaining interest in Covestro. Due to this one-time effect, net income is not comparable with the prior-year figure. We therefore decided not to state a percentage change here.

Core earnings per share from continuing operations declined by 3.9 percent to EUR 1.47. This was mainly attributable to the fact that the number of shares taken into account increased significantly in 2017 as a result of the mandatory convertible note issued in November 2016. Had the number of shares remained the same, core earnings per share would have risen by 1.4 percent.

We considerably reduced net financial debt in the third quarter. That indicator declined by half compared with the end of the second quarter, to EUR 4.7 billion. This was made possible primarily by cash inflows from our operating business and income from the divestment of Covestro shares.

I would now like to turn to the business performance of the individual divisions.


First let’s look at our Pharmaceuticals Division. Sales of the Pharmaceuticals business advanced by 2.3 percent to EUR 4.1 billion in the third quarter. Our key growth products once again developed very strongly. Our oral anticoagulant Xarelto™, the eye medicine Eylea™, the cancer drugs Xofigo™ and Stivarga™, and the pulmonary hypertension treatment Adempas™ posted total combined sales of EUR 1.5 billion, up by around
13 percent compared with the prior-year quarter.

Business with our cancer drugs developed particularly well. Sales of Xofigo™ climbed by about 25 percent thanks especially to its successful launch in Japan and to higher demand in Europe. Stivarga™ grew by an even more substantial 28 percent, registering particularly strong growth in the United States and Japan.

Sales of our best-selling product Xarelto™ increased by 6.6 percent. In the United States, where it is marketed by a subsidiary of Johnson & Johnson, business with Xarelto™ expanded by a double-digit percentage in the market. However, license revenues – recognized as sales at Bayer – were flat year on year, in part due to a shift between reporting periods.

Sales of the blood-clotting medicine Kogenate™ receded by a substantial 26 percent due primarily to our distribution partner breaching a contractually agreed purchase obligation.

EBITDA before special items of Pharmaceuticals rose by 5.1 percent to just under EUR 1.5 billion. This resulted primarily from higher volumes and a lower cost of goods sold. Negative currency effects held back earnings by about EUR 60 million.


Now let’s look at our Consumer Health Division. As anticipated, we recorded a weak development of business with our self-care products in the third quarter. Sales fell by
2.9 percent to EUR 1.3 billion.

We recorded a decline in North America as strong competitive pressure in the United States held back sales of our analgesic Aleve™ and the sunscreen product Coppertone™ in particular. Sales also receded in Europe. The main reason for this was that we registered weaker business in Russia after a strong previous quarter.

By contrast, we posted significant sales gains for our antihistamine Claritin™, especially in China and the United States. Sales of that product increased by 9 percent compared with the weak prior-year quarter.

EBITDA before special items of Consumer Health declined by a substantial 16.5 percent to EUR 274 million in the third quarter. This trend was chiefly attributable to lower volumes and a higher cost of goods sold.


Sales of the Crop Science Division advanced by 2.7 percent to about EUR 2 billion. Overall, sales of crop protection products and seeds increased year on year. We posted strong gains at Insecticides and especially in the Seeds business. On the other hand, we registered a significant decline at Fungicides.

From a regional viewpoint, business performance was strongest in North America and Asia / Pacific. In Europe / Middle East / Africa and in Latin America, sales came in at the prior-year level.

EBITDA before special items of Crop Science declined by 3.5 percent to EUR 307 million in the third quarter. This was mainly attributable to lower selling prices and a negative currency effect.

On the positive side, we were able to reduce provisions for product returns in Brazil, which shows that the measures we have implemented to normalize the situation in Brazil are taking hold. There we had to establish provisions in the previous quarter due to unexpectedly high inventories of crop protection products.

Now let’s look at our Animal Health business unit. Here we raised sales by 1.4 percent to EUR 359 million in an overall weak market environment. Business with our Seresto™ flea and tick collar in particular developed very positively once again, expanding by
17 percent. EBITDA before special items declined by 9 percent due partly to higher selling expenses and negative currency effects.


Ladies and gentlemen,

This brings us to our financial targets, which are now based on the currency rates prevailing as of September 30. Furthermore, as I mentioned already, we have adjusted the Group data for last year to reflect our new corporate structure.

On this basis, we have confirmed our outlook for the full year 2017. As we stated after the second quarter in our forecast for the Life Science businesses, we are planning sales of between EUR 35 billion and EUR 36 billion. This corresponds to a low-single-digit percentage increase on a currency- and portfolio-adjusted basis. We continue to expect clean EBITDA to come in slightly above the prior-year level.

We expect core earnings per share from continuing operations to decline by a low-single- digit percentage. Please note that for this indicator we had not previously given a forecast for the Life Science businesses. It should also be noted that the increased number of shares has an effect here as well. Without the effect of the mandatory convertible note, core earnings per share would improve by a low-single-digit percentage.


Let me take a moment to look at a few more highlights of how Bayer is working on the future.

In September we formed a new company together with Ginkgo Bioworks. Its purpose is to improve microbes’ ability to provide certain plants with nitrogen fertilizers. This means these crops might be able to fertilize themselves some day. That would represent another quantum leap on the path to more sustainable farming. This joint venture is already the fifth investment undertaken by the Bayer Lifescience Center.

In our pharmaceutical pipeline, we recently made significant advances with our cancer drugs: Stivarga™ was approved in Europe for another indication. And in the United States, the Food and Drug Administration granted accelerated approval of the active ingredient copanlisib for the treatment of a certain type of non-Hodgkin lymphoma. Incidentally, copanlisib will be marketed under the tradename Aliqopa™ in the future.


That concludes our look at the business data, our outlook and a few aspects of our research and development. Now let me briefly summarize where we stand with the planned acquisition of Monsanto.

We are making progress in obtaining antitrust approval for the transaction and have so far received about one third of the necessary approvals. In the coming weeks,
furthermore, we will hold further discussions with the authorities with the aim of facilitating a successful conclusion to the regulatory reviews.

At the outset of my remarks, I mentioned the announced sale of selected businesses to BASF.

In addition, the European Commission initiated a Phase II investigation in August. In mergers of this magnitude, it is not unusual for the authorities to conduct a second, more in-depth discovery procedure, so we had expected this to happen.

The European Commission has also halted the ongoing approval process to give the companies more time to provide the requested information. It also is not unusual for the authorities to stop the clock in this way, particularly with very extensive cases. We will do everything in our power to answer all questions as quickly as possible.

In the United States, we fully answered the second request by the Department of Justice. As is customary in such cases, that authority is currently reviewing the very extensive material and undertaking further examinations. We are also involved in constructive dialog with CFIUS, the Committee on Foreign Investment in the United States.

What’s more, we are making progress with the refinancing of the planned acquisition of Monsanto. I already mentioned the EUR 4 billion mandatory convertible note that we successfully placed in November 2016. We plan to raise additional equity for more financing through a capital increase with subscription rights. Furthermore, we are planning bond placements in various currencies.

We will also use the net proceeds from the announced divestiture to BASF to refinance the Monsanto acquisition. As part of the detailed planning ahead of us, we will examine whether and to what extent the equity component of the financing will change as a result.


Ladies and gentlemen, allow me to briefly summarize my remarks.

From an operational point of view, the third quarter of 2017 was challenging in a number of areas, but ultimately successful. We increased our sales and earnings.

We also laid some important foundations. We deconsolidated Covestro. Thus we have made crucial progress toward our goal of achieving full separation from that company in the medium term.

We have also made further progress with the planned acquisition of Monsanto. We continue to work closely with the authorities in order to close the transaction by the beginning of 2018.

Thank you for your attention. I look forward to answering your questions.

Forward-Looking Statements
Certain statements contained in this presentation may constitute “forward-looking statements.” Actual results could differ materially from those projected or forecast in the forward-looking statements. Certain statements contained in this communication may constitute “forward-looking statements.” Actual results could differ materially from those projected or forecast in the forward-looking statements. The factors that could cause actual results to differ materially include the following: uncertainties as to the timing of the transaction; the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the merger within the expected time-frames or at all and to successfully integrate Monsanto’s operations into those of Bayer; such integration may be more difficult, time-consuming or costly than expected; revenues following the transaction may be lower than expected; operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected following the announcement of the transaction; the retention of certain key employees at Monsanto; risks associated with the disruption of management’s attention from ongoing business operations due to the transaction; the conditions to the completion of the transaction may not be satisfied, or the regulatory approvals required for the transaction may not be obtained on the terms expected or on the anticipated schedule; the parties’ ability to meet expectations regarding the timing, completion and accounting and tax treatments of the merger; the impact of the refinancing of the loans taken out for the transaction, the impact of indebtedness incurred by Bayer in connection with the transaction and the potential impact on the rating of indebtedness of Bayer; the effects of the business combination of Bayer and Monsanto, including the combined company’s future financial condition, operating results, strategy and plans; other factors detailed in Monsanto’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended August 31, 2016 and Monsanto’s other filings with the SEC, which are available at and on Monsanto’s website at; and other factors discussed in Bayer’s public reports which are available on the Bayer website at Bayer and Monsanto assume no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.

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