Thursday - February 26, 2015

Financial News Conference

Address by Dr. Marijn Dekkers

Chairman of the Board of Management

(Please check against delivery)

Ladies and gentlemen,

I would like to welcome you to the presentation of our results for 2014. I’m very pleased that you could all be here today.

As you know, 2014 was the first year following Bayer’s 150th anniversary – the dawn of the next 150 years of Bayer, so to speak. And indeed, we last year set a course that will shape the future of our company for the long term. We decided to demerge the MaterialScience business and thus initiated our transformation into a pure Life Science company.

At the same time, we strengthened our Life Science businesses – HealthCare and CropScience – through important acquisitions. Here I’m thinking particularly of the purchase of the consumer care business of Merck & Co. for USD 14.2 billion, which is the second-biggest acquisition in Bayer’s history. We also successfully completed the acquisition of Norwegian company Algeta, with which we had already collaborated on the development and commercialization of the cancer drug Xofigo™ since 2009.

Yet 2014 wasn’t just an eventful year full of important strategic decisions, it was also an extremely successful year operationally. Now let’s take a look at the figures for fiscal 2014.


Group sales climbed by 7.2 percent to EUR 42.2 billion, which was the highest level in the company’s history. Contributing to this in particular was the continuing growth momentum in our Life Science businesses, and especially the pleasing development of our recently launched products – more on that later. And MaterialScience also registered encouraging sales gains. Please note that all the sales variations I mention are adjusted for currency and portfolio effects.

EBIT advanced by 11.6 percent to EUR 5.5 billion. EBITDA before special items increased by 4.9 percent to EUR 8.8 billion. This is also a record high for our company – despite negative currency effects of about EUR 410 million. Core earnings per share of the Bayer Group rose by 7.3 percent to EUR 6.02.

It should be noted that we have not achieved these very good figures at the expense of our long-term growth perspectives – quite the contrary. Last year again, we invested substantially in our future. For example, we increased our spending on research and development and on sales and marketing by a significant amount.


The positive development of our business is also reflected in the performance of Bayer stock, as you can see here. Our stock outperformed the relevant reference indices last year. At the end of 2014, Bayer had a market capitalization of around EUR 93 billion, making it the most valuable company in the German share index DAX for the first time. This trend continued at the beginning of this year – our market capitalization currently stands at some EUR 105 billion.


Also pleasing from an investor’s point of view is the development of our stock over the medium term. This table shows that no reference index came close to matching the performance of Bayer stock – neither over the three-year nor the five-year timeframe.

Our current prominent position on the capital market is rooted in this value development.


Ladies and gentlemen,
We want our stockholders to once again benefit from our company’s impressive development. We notified you yesterday of the corresponding resolutions by the Board of Management and the Supervisory Board: we will propose to the Annual Stockholders’ Meeting that the dividend be increased to EUR 2.25. This would be an increase of 7 percent compared with the EUR 2.10 per share paid out to stockholders last year.

As well as the stockholders, our employees benefit each year from the positive development of Bayer’s business. For fiscal 2014, bonuses totaling some EUR 900 million are earmarked for them just in connection with the Group-wide short-term incentive program. That’s because we understand that our company can only remain successful if we have highly qualified, motivated and dedicated employees. I would like to take this opportunity to thank them for their outstanding work.

Now let’s take a closer look at the business development in the subgroups, starting with HealthCare.


Sales of HealthCare increased by 7.5 percent last year to nearly EUR 20 billion. This was attributable above all to the significant expansion of business at Pharmaceuticals, where sales were up by 11 percent.

Our Consumer Health business expanded slightly overall against the prior year. We registered gains at Consumer Care – in other words with our non-prescription products – and in our Animal Health business. Sales of Medical Care receded, however, as business with our blood glucose meters was held back by price declines, especially in the United States.

EBITDA before special items of HealthCare rose by 2.8 percent to nearly EUR 5.5 billion. This improvement was driven primarily by the gratifying business development in Pharmaceuticals, whereas earnings in Consumer Health declined slightly. HealthCare earnings were diminished overall by higher research and development spending in Pharmaceuticals, higher selling expenses and negative currency effects.

Once again, the primary growth drivers at Pharmaceuticals were our recently launched products: the anticoagulant Xarelto™, the eye medicine Eylea™, the cancer drugs Stivarga™ and Xofigo™, and the pulmonary hypertension treatment Adempas™. These products have played a crucial role in making us one of the fastest-growing large companies in the pharmaceutical industry.

In addition, we considerably strengthened our HealthCare business by acquiring Algeta, the consumer care division of Merck & Co. and the Chinese company Dihon.


As you can see here, our five recently launched products generated combined sales of EUR 2.9 billion – nearly twice as much as in the previous year. The rapid pace of growth in sales of Xarelto™ continued, and the anticoagulant is now our best-selling pharmaceutical product following a roughly 80 percent increase year on year to around EUR 1.7 billion. It holds a share of 32 percent in the overall anticoagulants market – the highest among the new oral anticoagulants. Eylea™ was approved in additional indications, facilitating sales growth of over 130 percent. In 2015, the sales of the five products named here are to be increased toward EUR 4 billion.

Overall, we continue to believe that they have a combined peak annual sales potential of at least EUR 7.5 billion.


A further operational and strategic focus last year at HealthCare was our Consumer Care business, sales of which climbed by 5.3 percent to more than EUR 4.2 billion. We also concentrated on integrating the aforementioned businesses we had acquired – Merck & Co.’s consumer care activities and Dihon. These projects are proceeding according to plan.

If these acquisitions had been undertaken already in January 2014, Consumer Care would have posted sales of around EUR 5.6 billion last year. We have thus overtaken Johnson & Johnson and now occupy a strong second place in the market behind the planned joint venture between Novartis and Glaxo. The stable cash flow in this business helps to balance out the volatility in our other businesses.

And we have set ambitious targets for Consumer Care: in the next two years, we aim to further expand our business in the Emerging Markets and leverage the synergy potential from the acquisitions. We also continue to target complementary acquisitions and alliances, should suitable opportunities arise.

Furthermore, we offer very good and well-known brands in this area – the skincare product Bepanthen™ and the analgesic Aleve™ alongside Aspirin™. The current development of even well-established products like these is evidence of their attractiveness. For example, sales of Aspirin™ – including those reported by Pharmaceuticals – expanded by 5 percent last year. Aleve™ posted growth of 10 percent, while Bepanthen™ achieved 18 percent. This shows that there is still a great deal of potential in these products.

And through the acquisition of Merck & Co.’s consumer care division, more well-known brands have been added to our portfolio in this area. Examples here are Claritin™ and Coppertone™. The goal now will be to strengthen the marketability of these brands by linking them as closely as possible with the Bayer umbrella brand. That’s because, according to our studies, people especially like using products they know are from Bayer. The Bayer Cross is perceived around the world as a seal of quality and reliability.

Ladies and gentlemen,
All our actions are focused on the fact that the innovative molecules our products are based on actually help people; that they give people new perspectives and make their lives better. This is what we mean by “Bayer: Science For A Better Life,” and this is what vitalizes our mission.

Let me give you a brief example by explaining how our pulmonary hypertension treatment Adempas™ benefits patients.


Chronic thromboembolic pulmonary hypertension, or CTEPH for short, is one form of pulmonary hypertension. In this serious, progressive disease, the arteries that supply the lungs become blocked. This means that too little oxygen enters the circulation, so the heart needs to pump harder. This can lead to heart failure and death.

Patients have difficulties leading a normal life. They suffer from fatigue, dizziness, loss of consciousness and shortness of breath. Just walking to the bus stop or climbing a few stairs is an ordeal. Normal daily activities are often too much to cope with.

As CTEPH is rare and the symptoms may occur in many other diseases, it often takes up to two years to get a correct diagnosis. In many cases, only a special operation can bring relief or even a cure. However, this is not an option for about one third of patients and it doesn’t always help: the condition recurs in a further third of patients following surgery.

Adempas™ is the first medicine to treat this disease. It dilates the blood vessels in the lungs and thus improves the supply of oxygen in patients. This relieves the strain on their hearts and improves their ability to cope in everyday life.

But it took a very long time to develop this innovative medicine. The story of the active ingredient in Adempas™ – riociguat – began in 1987. Back then, scientists found out that the human body produces nitric oxide, which regulates the diameter of blood vessels, blood pressure and blood coagulation. However, nitric oxide is difficult to administer as a medicine because it has a half-life of only five to ten seconds and quickly disappears.

Yet nitric oxide has a partner: an enzyme known as soluble guanylate cyclase. In 1994, Bayer’s researchers began an intensive search for a way to use this alternative pathway to relax the vessel wall musculature, reduce blood pressure in the lungs and relieve the strain on the heart. After synthesizing 4,000 substances, the first potential active ingredients were identified in 1997. But the breakthrough didn’t come until 2000, with riociguat. The high point of the nearly 20-year research odyssey was the first registration of the product in September 2013.

At the same time, it was a milestone for patients suffering from pulmonary hypertension. Treatment with Adempas™ can make a big difference to their everyday life. It means they might be able to walk to the bus stop again, or even return to work. Although we are unable to cure patients, Adempas™ can help them to live more actively and independently again – and thus improve their quality of life.


Ladies and gentlemen,
This brings us to CropScience. Here we raised sales by 11.2 percent to EUR 9.5 billion and gained market share. All business groups and regions contributed to this pleasing performance. Sales of Crop Protection climbed by 10.5 percent, while Seeds posted a gain of nearly 20 percent. As in the prior year, we registered the strongest sales growth in Latin America, where business expanded by more than 20 percent.

EBITDA before special items advanced by 5 percent to around EUR 2.4 billion. Earnings were held back by higher R&D and selling expenses as well as negative currency effects.


As at HealthCare, sales growth at CropScience was driven mainly by our recently launched products. Sales of crop protection products introduced to the market since 2006 gained strongly last year to EUR 1.9 billion. The recently launched products thus account for 70 percent of sales growth at Crop Protection. We are targeting sales of around EUR 2.8 billion with these products by 2017.

We also made strategic progress at CropScience – for example through the acquisition of Biagro Group in Argentina, which has a portfolio including biological seed treatments. We also acquired the seed business of Paraguayan company Granar, which specializes in soybean seeds.

Now let me go into a little more detail with an example that shows how CropScience products also help to solve pressing problems.


The United Nations estimates that the world’s population will increase from the current level of around 7 billion to more than 9 billion people by 2050. For an important food staple such as rice, this means that global demand is expected to double over the same period.

We are helping to meet this demand with our hybrid rice seed Arize™. It offers an up to 30 percent higher yield than conventional varieties.

In India, for example, Arize™ is grown on an area of about one million hectares. Its yields are approximately five metric tons per hectare, which is roughly one ton more than with traditional rice variants. As a result, about one million tons more rice can be harvested in India every year – a major contribution to food security.

Yet Arize™ offers further advantages, too. Not only does it ensure higher yields, it also has higher stress tolerance to extreme temperatures or severe droughts. That’s because hybrid rice has a robust root system that enables it to absorb water and nutrients particularly well.

And we are constantly improving these varieties. Next year in India, and later in other Asian countries, we plan to launch rice seed that can tolerate higher salinity levels.

Salinization is an issue in many regions of Asia that has become more urgent because of climate change. For example, seawater is increasingly entering river deltas. Our new rice variety is designed to grow in soils with a salinity level twice that which today’s most resilient varieties can tolerate.

Our researchers are also working on rice varieties that are more resilient to flooding. Using state-of-the-art methods such as molecular breeding to produce complex crosses, we are incorporating the desired traits in our high-yielding varieties. By analyzing the plants’ genetic material, we can tell already at an early stage of growth how resilient a rice variety will be, which greatly accelerates the breeding process.


Ladies and gentlemen,
Now let’s move on to MaterialScience. As you know, we announced our plans in September to float this subgroup on the stock market. We are on schedule here, as I will explain in a moment.

First, however, let me talk about the business figures for MaterialScience. The subgroup’s sales rose by nearly 5 percent to EUR 11.7 billion in 2014. This was mainly due to higher volumes. However, selling prices fell slightly overall.

Sales increased in all business units except Industrial Operations, where business receded due to lower selling prices and volumes. The biggest gain was registered by Polycarbonates, where sales advanced by 7.2 percent.

EBITDA before special items of MaterialScience climbed by 10.7 percent to just under EUR 1.2 billion. This was due not only to higher volumes, but also particularly to savings from our efficiency improvement measures and lower raw material and energy costs. Earnings were held back by lower selling prices. On the other hand, currency fluctuations were neutral to the subgroup’s earnings.


Now let’s return to the planned stock market flotation of MaterialScience, which we still intend to implement by mid-2016 at the latest. We have now completed the design phase to decide the future legal and organizational structures. The task in the coming months will be to implement these. We have also made decisions concerning key management positions.

The next important milestone in the process will be the economic and legal separation – or carve-out – of MaterialScience. This should be completed by the end of August. In the second half of this year, we intend to decide which of the possible variations to select for the stock market flotation: either an IPO or a spin-off.

That concludes the first part of my remarks. Mr. Dietsch will now explain other key data from the Group’s financial statements for 2014.

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(Continuation of Dr. Dekkers’ address)

Ladies and gentlemen,
Let me follow up on Mr. Dietsch’s remarks by presenting the financial targets for the Bayer Group.


We remain optimistic about the future. For 2015 we are targeting a low-single-digit percentage sales increase on a currency- and portfolio-adjusted basis. This forecast is based on the exchange rates as of December 31, 2014.

Allowing for expected positive currency effects of about 3 percent compared to the previous year, Group sales would be around EUR 46 billion. Our sales expectation for the Group as a whole is held back by the outlook for MaterialScience, where we anticipate a decline in sales due to lower selling prices – despite further growth in volumes.

We plan to raise EBITDA before special items by a low- to mid-teens percentage, allowing for expected positive currency effects of about EUR 200 million or roughly 2 percent. We expect to improve core earnings per share by a low-teens percentage. The currency effect here will likely be about 3 percent.

We are anticipating special charges of approximately EUR 700 million in 2015, mainly due to the integration of the acquired consumer care businesses and the planned stock market listing of MaterialScience.


Turning to the outlook for the individual subgroups, we can see that growth is anticipated mainly in the Life Science businesses. We are targeting a mid-single-digit percentage increase in sales at HealthCare to approximately EUR 23 billion and a mid-teens percentage improvement in EBITDA before special items.

For CropScience, we expect to increase both sales and clean EBITDA by a low- to mid-single digit percentage. At MaterialScience, on the other hand, we predict that sales will decline as already mentioned. We anticipate a substantial rise in EBITDA before special items of MaterialScience.

Ladies and gentlemen,
Our optimism is reflected in the fact that we are once again planning to significantly increase our expenditures for research and development. We are budgeting approximately 10 percent growth in R&D spending to more than EUR 4 billion in 2015. The Life Science businesses will account for most of this amount, roughly EUR 3.8 billion.

This demonstrates our confidence in our innovative capability and the future of our business model. Let me stress, however, that we also need favorable and stable framework conditions in the long term in order to achieve lasting success.

I have repeatedly pointed out, for example, that we as an innovation company depend on a social environment that is open to innovation. That’s why we have to find better ways to keep explaining the benefits of innovative products – a task that must be addressed by all stakeholders in industry, society and politics. I am firmly convinced that we need innovation in order to master the challenges of the future and further improve people’s lives.

Let me address another aspect that I feel is important, particularly for Germany. A country’s innovative capability is also critically dependent on the number of new start-ups. Especially in the Life Sciences, however, start-ups are only possible if sufficient venture capital is available. This market is underdeveloped in Germany. In the past three years, only some EUR 2 billion was invested in venture capital – compared with EUR 64 billion in the United States.

We must therefore make venture capital investment in Germany easier and, above all, more attractive in terms of taxation. This would strengthen the country’s innovative capability and would also be an important step toward more growth and new jobs.

Ladies and gentlemen,
Now let me briefly summarize our strategic priorities for 2015.


First, we will focus on further driving forward the organic growth of our Life Science businesses, HealthCare and CropScience. The emphasis here is on our recently launched pharmaceutical products. At CropScience, too, our growth is being driven mainly by the innovative products we have introduced to the market in recent years.

A second area of focus will be integrating the companies we acquired last year into our Consumer Care business. I have already explained the strategic importance of this business and the recent acquisitions.

Third, we will of course concentrate on the carve-out of MaterialScience – another topic I have already talked about in detail.

And fourth, we will invest all our energy in driving forward our transformation into a pure Life Science company, which is being initiated with the separation of MaterialScience.

As we have said right from the start, this will also impact Bayer’s organizational structure. We therefore recently launched a project aimed at examining our corporate structure and developing proposals for reorganization.

The aim here will be to optimally support Bayer’s strategy as a leading Life Science company and to make us even more agile compared with our competitors. I must emphasize that it is not about eliminating jobs. We continue to expect that headcount at Bayer will remain stable in the coming years – both in Germany and elsewhere in the world. And it goes without saying that the agreement on safeguarding employment reached for Germany in September will remain valid until 2020.

Ladies and gentlemen,
It is important to me to stress that the separation of MaterialScience in no way represents a break with our company’s tradition. On the contrary, Bayer’s success has always been based on inventing new molecules and turning them into innovative and useful products. It began with synthetic dyestuffs and continued with pain relievers, polymers and synthetic rubber. The company has always flexibly adapted to the needs of people and the markets. Today, we are creating a Life Science company that uniquely combines expertise in the health of people, animals and plants under one roof.

In this connection, we are seeking above all to leverage synergies in research based on the recognition that the various species have much in common: many mechanisms are comparable, particularly at the cellular level where our active substances are effective.

As a pure Life Science company, Bayer has excellent growth perspectives – thanks to its outstanding expertise in R&D and marketing, its dynamic innovation pipeline, its strong brands and an outstanding presence in the Emerging Markets.

Thank you.

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 The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.