Tuesday - November 13, 2018
News Conference Call for the Third Quarter of 2018

Address by Werner Baumann

Chairman of the Board of Management

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Ladies and gentlemen:

I would also like to welcome you to today’s conference call on the third quarter of 2018. Seeing as we published our news release and interim report early this morning, I’d like to focus on the most important figures and topics. And then Wolfgang Nickl and I will answer your questions.


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Our acquisition in the agricultural industry was a prominent theme in the third quarter as well. This is the first full quarter in which the acquired business is included in our figures. It contributed 2.2 billion euros to sales and 255 million euros to clean EBITDA.

After adjusting for portfolio effects and the impact of exchange rates, Group sales increased in the third quarter. EBITDA before special items was level year on year. As such, we can look back at a good business performance in a challenging environment during the third quarter.

Pharmaceuticals saw encouraging performance and Crop Science registered a substantial increase in earnings due to the acquisition. As for Consumer Health, sales increased on a currency- and portfolio-adjusted basis while earnings were held back by currency effects.

We confirm our Group outlook for the full year, which we had adjusted in the second quarter, while the forecasts for Consumer Health and Animal Health are now increasingly ambitious.

Another important event in the third quarter was undoubtedly the jury’s verdict – an incorrect one in our eyes – in a California court of first instance in the Johnson case involving glyphosate. I’ll discuss the current status in a few moments.

First, however, let me explain our business data in more detail. Please note that the sales variations I mention are adjusted for currency and portfolio effects.


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Group sales totaled 9.9 billion euros in the third quarter of 2018. As mentioned at the outset, the acquired business is now included for a full quarter. The businesses divested to BASF are also included on a prorated basis. If these portfolio changes and currency effects are disregarded, sales rose by 1.9 percent.

EBITDA before special items was level year on year at 2.2 billion euros. Earnings were once again diminished by negative currency effects. This effect amounted to around 160 million euros for the original Bayer business alone.

EBIT of the Bayer Group climbed from 1.4 billion euros in the prior-year quarter to 4.4 billion euros. This mainly included divestiture proceeds of 3.9 billion euros before taxes from the divestments to BASF.

Core earnings per share from continuing operations were below the prior-year level as expected, at 1.19 euros. This was due to higher financing costs owing to the acquisition which stood against the earnings contribution from the acquired business that was lower due to seasonal reasons. In addition, the number of Bayer shares increased significantly as a result of the equity measures undertaken during the first half of the year.

Bayer’s net financial debt as of September 30, 2018, amounted to 36.5 billion euros, and was therefore down by more than 8 billion euros – or over 18 percent – from the end of the second quarter. This was mainly due to the proceeds from the divestment of Crop Science businesses to BASF.


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I would now like to turn to the business performance of the individual divisions. Let’s start with Pharmaceuticals.

Sales of our Pharmaceuticals business increased by an encouraging 4.8 percent in the third quarter to 4.2 billion euros, with our key growth products continuing to make significant gains overall. These products achieved sales of 1.7 billion euros – which was nearly 16 percent more than in the previous year.

Our anticoagulant Xarelto™, the eye medicine Eylea™, and Adempas™ to treat pulmonary hypertension posted especially strong growth rates of between 18 and 22 percent.

The cancer drug Stivarga™ registered a slight increase in sales, mainly in China. However, sales of our cancer drug Xofigo™ declined by a substantial 13 percent, due particularly to lower volumes in the United States and Japan.

EBITDA before special items of Pharmaceuticals rose by 4.1 percent to 1.6 billion euros in the third quarter. If the negative currency effects are disregarded, earnings actually rose by 9 percent.

This earnings growth was predominantly attributable to the very good development of business and to income of approximately 190 million euros from a Xarelto development collaboration with Janssen Research and Development, after U.S. approval was obtained in a new and highly promising indication.

Third-quarter earnings were held back above all by temporary supply disruptions for certain products and a higher cost of goods sold.


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Let’s now look at our Consumer Health Division. Sales of our self-care products totaled 1.3 billion euros in the third quarter, corresponding to an increase of 3 percent. All regions contributed to this growth, but Asia/Pacific delivered the strongest sales gains, with an increase of over 9 percent.

Our best-selling product, the antihistamine Claritin™, registered a decline that was mainly attributable to the continuing weak season for this market segment in the United States.

Sales of our analgesic Aspirin™ were also below the level of the prior-year quarter, due mostly to anticipated temporary supply disruptions.

By contrast, business with our Bepanthen™ / Bepanthol™ brand of wound and skin care products developed positively, especially in Europe.

The prenatal vitamin Elevit™ even posted double-digit growth, driven by continuing strong demand in Asia/Pacific.

EBITDA before special items of Consumer Health in the third quarter declined by 9.5 percent to around 250 million euros. A factor here was that earnings in the prior-year period were buoyed by one-time gains from the sale of noncore brands. We also had to contend with negative currency effects. On the other hand, higher volumes, lower selling expenses and a decrease in general administration expenses had a positive impact on earnings.


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Our Crop Science Division posted sales of 3.7 billion euros in the third quarter. After adjusting for currency and portfolio effects, sales declined by 9.5 percent.

Sales were impacted by the accounting measures taken in the prior year in Brazil, which had a positive effect on sales in the third quarter of 2017.

Another factor that held back sales is the development of business in Europe, where we registered declines as a result of exceptionally dry weather. By contrast, the newly acquired business drove an over 80 percent increase in sales on a reported basis.

Among our Crop Science business units, we recorded positive performance at Vegetable Seeds and Environmental Science.

EBITDA before special items of Crop Science increased by 26 percent to 386 million euros in the third quarter. This was mainly due to the earnings contribution from the newly acquired business.


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Now let’s look at our Animal Health business unit. As expected, third-quarter sales were down following a very strong second quarter, falling by 13.5 percent to around 300 million euros.

Business declined particularly in North America as some of the demand for our Advantage™ family of flea, tick and worm control products had shifted from the third quarter into the first half of the year. On the other hand, our Seresto™ flea and tick collar registered a slight increase in sales.

EBITDA before special items of Animal Health declined by 46 percent to 44 million euros in the third quarter, due mainly to lower sales.


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Ladies and gentlemen:

That concludes our look at our third-quarter business performance. I’d now like to give you a brief overview of our innovation activities. With regard to our late-stage pharmaceutical pipeline, we have registered encouraging progress of late.

In August, we submitted a registration application for larotrectinib to the European Medicines Agency. Larotrectinib is a novel active substance to fight cancer that we are jointly developing with U.S. company Loxo Oncology. The registration application is also being processed by the regulatory authority FDA in the United States. We expect a decision by the end of this month.

We also took a big step forward with darolutamide, a novel substance for the oral treatment of prostate cancer. A Phase III trial found that it significantly extended metastasis-free survival.

Of course, we are also continuing to develop the products that are already on the market. For example, just over a month ago we received marketing authorization for Xarelto in the United States in another indication: treatment of coronary artery disease and peripheral artery disease, a condition where the blood flow to the legs is reduced. This means that Xarelto is the only oral anticoagulant approved for this indication, offering substantial therapeutic benefit for patients and high sales potential.

At Crop Science, the focus after the acquisition has been on integrating our R&D activities. Combining the two companies gives rise to great opportunities, particularly in the areas of research and digital farming.


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Now I’d like to briefly address the current status of the litigations related to glyphosate, as I mentioned earlier.

Glyphosate is an essential active ingredient in modern agriculture – it’s safe to use, highly effective and efficient in terms of resources. It has a positive impact on carbon emissions and helps reduce soil erosion.

As of October 30, 2018, we have been served with lawsuits from about 9,300 plaintiffs in the United States. Additional lawsuits are anticipated. We are convinced that we have meritorious defenses and intend to defend ourselves vigorously in all of these lawsuits.

As regards the Johnson case, the verdict is a single judgment by a court of first instance and is not binding for the other lawsuits. We consider this verdict to be incorrect and will file an appeal before the California Court of Appeal.

Glyphosate is safe when used as directed, as confirmed by more than 800 scientific studies, decades of practical experience with glyphosate and the assessments of regulatory authorities around the world.

The Agricultural Health Study commissioned by the U.S. government arrives at the same conclusion. Over 50,000 agricultural workers took part in this extensive study over a period of more than 20 years.


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Ladies and gentlemen,

I’d like to finish by talking about our financial targets. As I mentioned at the outset, we have confirmed our adjusted Group outlook for the full year.

This means that we continue to expect sales of the Bayer Group to come in at more than 39 billion euros in 2018. This corresponds to a mid-single-digit percentage increase on a currency- and portfolio-adjusted basis.

We see EBITDA before special items rising by a low- to mid-single-digit percentage. On a currency-adjusted basis, this corresponds to an increase by a high-single-digit percentage.

We expect to generate core earnings per share of between 5.70 and 5.90 euros, which corresponds to a decrease by a high-single-digit percentage on a currency-adjusted basis.

As before, we aim to pay out a dividend per share for 2018 that is at least at the same level as in the prior year.

This demonstrates our optimism moving forward, while at the same time underlining the success we expect the combined business to achieve. And you can rest assured, ladies and gentlemen, that we will not cease in our efforts to drive innovation, while also keeping an eye on profitability.

We will provide further details, including specific medium-term targets, at our Capital Markets Day on December 5. You can follow the event live online.

And now I would welcome your questions.

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: the risk that the parties may be unable to achieve expected synergies and operating efficiencies in the merger within the expected timeframes (or at all) and to successfully integrate the operations of Monsanto Company (“Monsanto”) into those of Bayer Aktiengesellschaft (“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 difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater or more significant than expected following the transaction; the retention of certain key employees at Monsanto; the parties’ ability to meet expectations regarding the accounting and tax treatments of the merger; the impact of refinancing the loans taken out for the transaction; the impact of indebtedness incurred by Bayer in connection with the transaction and the potential impact on Bayer’s rating of indebtedness; 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 U.S. Securities and Exchange Commission (the “SEC”) for the fiscal year ended August 31, 2017, and Monsanto’s other filings with the SEC, which are available at http://www.sec.gov and on Monsanto’s website at www.monsanto.com; and other factors discussed in Bayer’s public reports which are available on the Bayer website at www.bayer.com. Bayer assumes 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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