Wednesday - February 27, 2019
Financial News Conference

Address by Wolfgang Nickl

Member of the Board of Management

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Ladies and gentlemen,

I’m also delighted to welcome you all here today. I will first take you through our business performance in the fourth quarter, and then provide a few more details about full-year 2018.


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Group sales amounted to 11.1 billion euros in the fourth quarter of last year, with the newly acquired business contributing 2.6 billion euros. Sales were up 5.8 percent year on year. Please note that I am referring to currency- and portfolio-adjusted figures when talking about sales, and that the reference period is the prior-year quarter. Overall business development was positive in the fourth quarter, especially against the backdrop of a persistently difficult market environment.

The same can be said about EBITDA before special items of the Bayer Group, which came in at 2.1 billion euros in the fourth quarter of last year, up 15.8 percent. The newly acquired business contributed a substantial 330 million euros to earnings. However, EBIT declined from 625 million euros in the fourth quarter of last year to minus 4.1 billion euros.

This figure includes special items of 5.3 billion euros which mainly relate to impairments of Consumer Health, restructuring measures and special items in connection to the newly acquired business.

Unlike in the first three quarters of 2018, negative currency effects did not significantly impact sales or earnings.

Core earnings per share declined by 21 percent to 1.10 euros, down from 1.39 euros in the prior-year quarter. This is due to higher interest expenses in connection with the acquisition and a higher number of shares.

The Pharmaceuticals Division increased sales and earnings in the fourth quarter, driven by the positive performance of our key growth products. Sales of Xarelto™, Eylea™, Xofigo™, Stivarga™ and Adempas™ were up by 11 percent. Overall, sales advanced in the fourth quarter by around 3 percent year on year to 4.3 billion euros, while EBITDA before special items increased by 3 percent to 1.3 billion euros.

By contrast, sales of the Consumer Health Division were down slightly in the fourth quarter, falling by around 2 percent to 1.3 billion euros. However, earnings increased significantly year on year, rising by 11 percent to 279 million euros. This was mainly due to a reduction in selling and general administration expenses.

The Crop Science Division posted the strongest earnings and sales growth, largely due to the strong contribution of the acquired business. Fourth-quarter sales rose by 15 percent to 4.7 billion euros, while EBITDA before special items advanced by 79 percent to 543 million euros.

At the Animal Health business unit, sales increased by 3 percent to 330 million euros, while earnings amounted to 47 million euros, down 4 percent against the prior-year quarter.


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I’d now like to move on to our net financial debt, which increased to 35.7 billion euros as of December 31, 2018. Following the increase due to the Monsanto acquisition, we are pleased that we have reduced our debt faster than anticipated. In early August, we had anticipated net financial debt of 39 billion euros at year-end; net financial debt is therefore 3 billion euros lower than our expectation. One of the main reasons for this was the acquired company’s cash level being higher than expected, along with the cash inflows in the quarters following the acquisition.

For 2019, we expect net financial debt to remain steady at around 36 billion euros. This is largely because of the application of a financial reporting standard, IFRS 16, which will increase our net financial debt by about 1.1 billion euros. Without this effect, net financial debt would fall by the same amount.


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Let us now take a look at cash flow development in 2018. I’d like to point out here that our free cash flow is the free operating cash flow from continuing operations plus interest and dividends received minus interest paid. At this point I’d also like to stress that cash flow will become a key performance indicator in the future, especially with regard to working capital and capital expenditures.

In 2018, capital expenditures amounted to approximately 2.6 billion euros, and we intend to significantly reduce this figure as a percentage of sales moving forward. The ratio of capital expenditures to sales, which is currently 7 percent, is set to be reduced to 5-6 percent by 2022.

We registered strong development of our free cash flow in 2018, largely due to positive contributions from the acquired business. Operating cash flow increased from 6.6 billion euros in 2017 to 7.9 billion euros in 2018. If you add to this the interest and dividends received and subtract the interest paid, you end up with a free cash flow of 4.7 billion euros for 2018, which is 17 percent above the previous year.


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Between December 31, 2017, and December 31, 2018, total assets increased by 51.2 euros to 126.3 billion euros, mainly due to the acquisition of Monsanto. Noncurrent assets rose by 50.3 billion euros to 95.3 billion euros, while goodwill as of the closing date amounted to around 38.1 billion euros. This corresponds to 30 percent of total assets compared to 20 percent in the previous year. Equity rose by 9.2 billion euros compared with the previous year end, to 46.1 billion euros. Current and non-current financial liabilities increased by 27 billion euros to 41.4 billion euros. This corresponds to 33 percent of total equity and liabilities compared with 19 percent in the previous year. Although the equity ratio declined from 49 percent as of December 31, 2017, to 37 percent as of December 31, 2018, it can still be considered solid.

And here I’d like stress once again that quickly deleveraging our statement of financial position remains a high priority for us.

Finally, I’d like to draw your attention to one of the highlights of the past year from a financial perspective: the successful financing of the Monsanto acquisition, with a total volume of USD 63 billion. I’d like to touch on just a few aspects that underline how this transaction was anything but ordinary, including from a financial point of view.

- For example, the capital increase with subscription rights for existing shareholders, which had a volume of around US$7 billion, had to be postponed several times due to delays in obtaining regulatory clearance.

- Furthermore, our bond placements totaling around US$ 21 billion were extraordinary transactions. The dollar-denominated bond with a volume of US$15 billion was the biggest ever placed by a German issuer, while the eurobond was the third-biggest bond placed by a European issuer.

- I would also like to emphasize the positive response we received from investors. Both issuances in U.S. dollars and euros with maturities of three to 30 years were multiple times oversubscribed.


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Let us now turn our attention to the future and take a look at our forecasts for the main financial performance indicators. To enhance comparability, we have presented our forecasts on a currency-adjusted basis. On this basis we can confirm the targets for 2019 that we communicated at our Capital Markets Day on December 5.

We expect to post sales of around 46 billion euros this year – based on average exchange rates in 2018. This corresponds to an increase of about 4 percent on a currency- and portfolio-adjusted basis.

We expect EBITDA before special items in 2019 to come in at around 12.2 billion euros. The EBITDA margin before special items should be roughly 27 percent. In 2018, the EBITDA margin before special items only amounted to 24 percent.

For core earnings per share in 2019 we anticipate a figure of approximately 6.80 euros. This forecast is based on constant currencies and includes all current businesses: Currenta, Animal Health, Coppertone™ and Dr. Scholl’s™.

Now to the targets for our divisions: At Pharmaceuticals we expect sales to grow by about 4 percent, with the EBITDA margin before special items increasing to around 34 percent.

In the current year we expect sales at Consumer Health to increase by about 1 percent, with the EBITDA margin before special items coming in at around 21 percent.

At Crop Science we expect a rise in sales of roughly 4 percent in 2019 along with an EBITDA margin before special items of approximately 25 percent.

And at Animal Health we also plan to increase sales by some 4 percent, with the EBITDA margin before special items targeted at around 24 percent.

As we announced at the Capital Markets Day, we aim to continue along this path of growth beyond 2019. We intend to grow Group sales by an average of 4 to 5 percent annually through 2022, when they would hit around 52 billion euros. We plan to raise EBITDA before special items by about 9 percent a year on average to about 16 billion euros by 2022. And core earnings per share are expected to grow by around 10 percent a year to reach about 10 euros by 2022.

Please note that our forecasts for 2022 also do not take into account the planned divestments of Animal Health, the Consumer Health brands Coppertone™ and Dr. Scholl’s™, or our Currenta interest and are based on constant currencies.

Forward-Looking Information
This release may contain forward-looking statements based on current assumptions and forecasts made by Bayer 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.

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