Wednesday - February 28, 2018
Financial News Conference

Address by Johannes Dietsch

Member of the Board of Management

(Please check against delivery)

Ladies and gentlemen,

I am very pleased to present to you today the figures and facts from Bayer’s financial reporting. I will begin with a report on Bayer’s business development in the fourth quarter of 2017, before providing details of the company’s performance for the full year.


Sales of the Bayer Group in the fourth quarter of last year were 8.6 billion euros, an increase of 2.7 percent. Please note that all the sales variations I mention are adjusted for currency and portfolio effects.

Our Pharmaceuticals segment improved its sales by 3.6 percent to 4.2 billion euros. The good development of our key growth products Xarelto™, Eylea™, Xofigo™, Stivarga™ and Adempas™ contributed particularly to this performance. At Consumer Health, sales receded by 4.2 percent to 1.4 billion euros, after 1.5 billion euros in the prior-year quarter. Among the reasons for this decline in sales is the change to the legal status of two products in China, as already mentioned by Mr. Baumann. Sales of Crop Science were up slightly year on year, advancing by 1.1 percent to 2.3 billion euros. Animal Health raised sales by 1.8 percent to 322 million euros. Reported sales of the Bayer Group decreased by 2.6 percent year on year. They were impacted by negative currency effects of almost 470 million euros or minus 5.3 percent of our reported sales performance. This was mainly attributable to the weakening of the U.S. dollar, the Brazilian real and the Japanese yen in the fourth quarter compared with the prior-year period.

Unfavorable currency effects also impacted EBITDA before special items in the fourth quarter. EBITDA before special items of the Bayer Group declined by a slight 1.3 percent to 1.8 billion euros. Let’s take a closer look at earnings performance. EBITDA before special items at Pharmaceuticals grew by a slight 1.5 percent to 1.2 billion euros. This was due above all to gratifying volume growth. However, earnings of the Pharmaceuticals segment were held back by negative price and currency effects. EBITDA before special items of Consumer Health decreased by a substantial 32.5 percent to 251 million euros, due to factors including lower volumes and unfavorable currency effects. Moreover, Crop Science posted a decline in EBITDA before special items of 13.4 percent, to 304 million euros. Here, too, earnings were held back by negative price and currency effects. EBITDA before special items of Animal Health increased by a substantial 28.9 percent to 49 million euros. Core earnings per share from continuing operations advanced by 28.2 percent to 1.41 euros, compared with 1.10 euros in the prior-year quarter. The main drivers of this development were primarily favorable tax effects and the contribution from Covestro, which we have reported as an associate since the fourth quarter. As Mr. Baumann already mentioned, another effect was the difference in the number of shares, which grew significantly in 2017 as a result of the mandatory convertible notes issued in November 2016. If the number of shares had remained the same, core earnings per share would have actually improved by 31.8 percent to 1.45 euros.


That brings me to the full year 2017.

Sales of the Bayer Group in 2017 increased by 1.5 percent to 35 billion euros. EBITDA before special items amounted to 9.3 billion euros. Despite negative currency effects of 195 million euros, clean EBITDA was on a par with the previous year. It was impacted especially by the weakening of the Brazilian real and the British pound. Thanks to a decline in depreciation, amortization and impairment losses, EBIT before special items rose by 4.5 percent to 7.1 billion euros, from 6.8 billion euros in 2016. Earnings were additionally held back by special items of 1.2 billion euros. These were 139 million euros, or 12.8 percent, higher than in the previous year. Whereas the special charges for impairment losses and restructuring decreased, there was an increase in special charges for portfolio changes and litigations. In 2017 alone, 304 million euros in special charges were incurred in connection with the proposed acquisition of Monsanto.

Nevertheless, EBIT of the Bayer Group after special items increased by 2.9 percent to 5.9 billion euros.


This brings us to the financial result, which declined by more than 37 percent compared with the prior year, to 1.3 billion euros. The main drivers of this development were higher currency hedging costs and other financial expenses. The financial result includes special charges of 611 million euros, mainly in conjunction with the proposed acquisition of Monsanto and the exchangeable bond on Covestro shares issued in June 2017. These special items have been removed from the calculation of core earnings per share.
Income taxes amounted to 1.3 billion euros. They included a negative one-time effect of 455 million euros that relates to the tax reform in the United States and results from the revaluation of the deferred tax surplus and the recognition of additional taxes on unrepatriated profits.

Allow me to briefly talk about the tax reform in the United States. This creates additional incentives for multinational companies to reduce exports to the United States and increasingly create value locally. This is initially a positive message for a company like Bayer, which already has a strong presence in the American market and plans to intensify its activities there in the future. However, it is a matter of concern for us if “punitive taxation” is imposed with the aim of bringing about certain business decisions. Protectionism is not the answer. This is not an exclusively American phenomenon, however, but something we are also currently experiencing on this side of the Atlantic. Yet jobs and prosperity – and ultimately also bountiful tax revenues – result only from cooperation between all parties and, above all, from investment incentives. Germany, too, could still do a lot in this respect and, for example, introduce tax incentives for research. This would also encourage large companies to locate new research and development activities in Germany. There is also a need to substantially reduce corporation tax rates in Germany. While other countries are engaged in tax competition, Germany has been a “high-tax country” for many years and the distance to other leading economies is growing.

Let’s now turn our attention back to fiscal 2017. After income tax expense, income from discontinued operations after taxes and noncontrolling interest, net income in 2017 came to 7.3 billion euros, which is almost 62 percent higher than a year earlier. Earnings per share in 2017 improved from 5.44 euros to 8.41 euros. This takes into account the remeasurement of the shares of Covestro in the third quarter of 2017, which is reflected in income from discontinued operations. Core earnings per share from continuing operations advanced by 1.0 percent to 6.74 euros. Without the previously mentioned effect from the placement of the mandatory convertible notes, i.e. if the number of shares had remained the same, core earnings per share would have actually increased by 5.8 percent to 7.06 euros.


Let’s now look at our cash flow development in 2017.

Operating cash flow from continuing operations climbed by 2.7 percent to 6.6 billion euros. This is due to an improvement in EBIT, as well as to a decrease in the amount of cash tied up in working capital. It includes some 300 million euros that are the components of the payments received from Dow Chemicals as part of a patent dispute that fall under operating activities. The total cash provided by operating activities, i.e. from both continuing and discontinued operations, amounted to 8.1 billion euros. This represents a decline of 10.5 percent from the high prior-year value, which included inflows from the sale of the Diabetes Care business.

In 2017, our capital expenditures for property, plant and equipment and intangible assets for continuing operations decreased by 3.7 percent. Nevertheless, our capital expenditures in 2017 totaled 2.1 billion euros. For example, we continuously invest in our global production networks for both Pharmaceuticals and Consumer Health. Production capacities for the manufacture of hemophilia A products are being established at the Wuppertal and Leverkusen sites in Germany through the currently biggest capital expenditure program of Pharmaceuticals with a total volume of around 800 million euros. At Crop Science, we are investing in both our production capacities and research and development facilities. We invested some 2.5 billion euros overall in property, plant and equipment between 2014 and 2017 to satisfy increased demand for crop protection products and seed.

We are pleased that we were able to substantially reduce our net financial debt from 11.8 billion euros at the end of 2016 to 3.6 billion euros at the end of 2017. This was due both to cash inflows from operating activities and to the derecognition of the net financial debt of Covestro in connection with that company’s deconsolidation. There were further inflows from the sale of Covestro shares. I would therefore like to talk briefly about the various Covestro transactions made in 2017.


The IPO of Covestro took place in October 2015. The issue price was 24 euros per share. The share price developed very positively in 2016 and 2017 and currently stands at more than 90 euros. We took advantage of the positive share price performance last year and sold a number of Covestro shares. It has been our intention from the start to achieve full separation from Covestro in the medium term. Therefore, between March and September 2017, we undertook a total of six transactions and continuously reduced our interest.

Let me now mention a few highlights.

In 2017, we sold three tranches of shares at an average price of around 64 euros per share, generating total gross proceeds of 3.7 billion euros. In June 2017, we generated further gross proceeds of 1 billion euros through the placement of an exchangeable bond. We additionally deposited a further 8 million shares with a value of 0.5 billion euros in Bayer Pension Trust e.V. At the end of September 2017, we then sold more Covestro shares in a private placement with a volume of 1 billion euros and concluded a control termination agreement with Covestro AG. Bayer thus ceded de facto control over Covestro in the third quarter of 2017.

In fiscal 2017, therefore, we moved a significant step toward achieving full separation from Covestro as intended. In summary, we substantially reduced our interest in the Covestro Group, from 64.2 percent at the end of 2016 to 24.6 percent at the end of 2017. We will retain about 6.5 percent of the issued Covestro shares for when the exchangeable bond matures. In addition to the deposit made into Bayer Pension Trust e.V. and the placement of the exchangeable bond, we generated proceeds of 4.7 billion euros in 2017.

And we have been active this year already, divesting a further 10.4 percent of Covestro shares in January to reduce our current direct interest to just 14.2 percent. A total of 21 million shares were sold at the attractive price of 86.25 euros. Given the strong level of interest shown by investors, the volume of shares placed amounted to 1.8 billion euros. This was above the target of 1.5 billion euros.

Ladies and gentlemen:

We can state that we have benefited substantially from the positive development of the Covestro AG share price to divest various tranches of shares. And we will carefully consider these proceeds, which are around 4 billion euros more than we had anticipated, when deciding the further equity measures that still need to be taken. Of course, it should be mentioned in this connection that other positive and negative effects need to be considered in respect of the amount of equity financing that is still required.

I would now like to discuss the positive development of our net financial debt since 2014 and the outlook for 2018.


As a result of acquisitions, net financial debt increased to 19.6 billion euros in 2014. In the subsequent years and especially in 2017, we substantially reduced our indebtedness. As previously mentioned, net financial debt was just 3.6 billion euros at the end of 2017. Excluding further capital and portfolio measures, such as those for the proposed acquisition of Monsanto, we actually expect net liquidity, i.e. the complete reduction of our debt, in 2018. We are therefore in a good position for the pending financing activities connected with the proposed acquisition of Monsanto.


To conclude, let me summarize our business performance in the context of recent years:

- Please note that only the figures for 2016 and 2017 - but not those for 2013 through 2015 - have been adjusted for the effect of Covestro.

- In fiscal 2017, the Bayer Group’s operational business was at the prior-year level.

- Reported Group sales were also level with the prior year, due especially to negative currency effects. On a currency- and portfolio-adjusted basis, we increased sales by 1.5 percent to 35 billion euros thanks to volume growth.

- Despite negative currency effects, EBITDA before special items was on a par with the previous year. Pharmaceuticals again increased earnings, primarily as the result of the strong development of our key growth products.

- Core earnings per share were 7 cents higher than a year earlier.

- We met our adjusted Group forecast for the full year for sales. EBITDA before special items came in slightly below our expectations, while core earnings per share exceeded our expectations.

- The Board of Management and Supervisory Board of Bayer are proposing to the Annual Stockholders’ Meeting that the dividend to be paid in 2018 be increased by 10 cents to 2.80 euros per share. We are delighted that our shareholders are thus able to expect a higher payout for the eighth year in succession.

Thank you.

Cautionary Statements Regarding Forward-Looking Information
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 Thursday, August 31, 2017 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.

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