Working To Create Value. Version Summer 2004 Q2'04. Investor Handout. Performance Objectives Opportunities Strategy Financials

Transcription

1 Working To Create Value Version Summer 2004 Q2'04 Investor Handout Performance Objectives Opportunities Strategy Financials

2 Table of Contents Safe Harbour 4 Create Value 5 Q2'04 Performance 7 Organization 16 Portfolio 18 Structures 20 Achieve Benchmark Performance 24 Objectives and Strategy 26 New Product Portfolio 38 Acquisition Of Roche OTC 43 Pharma Alliance with Schering-Plough 50 Q2'04 Financials 60

3 Table of Contents Contacts and Events 77

4 Safe Harbor This presentation contains forward-looking statements based on current assumptions and forecasts made by Bayer Group 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 our public reports filed with the Frankfurt Stock Exchange and with the U.S. Securities and Exchange Commission (including our Form 20-F). The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments. 4

5 Working To Create Value We are focusing our portfolio and improving our cost structures We have set new financial targets that reflect the benefits of cost savings, our business refocus and the expected market dynamics We are targeting benchmark performance 5

6 Bayer's Transformation Process Has Yielded Results Performance Organization Reorganization fully implemented Portfolio Structures Portfolio realignment under way Structures adjusted FY2003 financial objectives broadly achieved Strong operating performance in 1H'04 Drive FY financial targets reiterated, 2H'04 underlying EBIT expected significantly above previous year performance and deliver on commitments 6

7 Q2'04 Operating Performance: On Target Towards FY Objectives Performance Strong (+8%) portfolio and currency adjusted sales growth New products continue to drive sales growth Underlying EBIT 660m substantially improved (+44% yoy) Pricing environment started to develop more favorably Capacity utilization rates advanced significantly in the quarter, mainly in Polycarbonates Cost and efficiency projects contributed 239m Focus on capital discipline resulted in strong free cash flow development (almost tripled) Net debt down by 519m in the quarter 7

8 Q2'04 - Strong Sales Growth Continues* Performance million Q2'04 Sales breakdown Bayer + 7.1% 7,583 (+4.5%) CropScience + 8.1% * Currency adjusted growth rates ( ) change as reported Materials % 800 (+15.3%) 1,642 (+4.8%) Animal Health + 8.8% 225 (+5.1%) 1,291 (+11.3%) 843 (+5.4%) Consumer Care/ Diagnostics + 9.5% 1,592 (+9.7%) 1,040 (-12.6%) Systems % LANXESS % Pharmaceutical/ Biological Products % 8

9 Q2'04 - New Products Continue To Drive Sales Growth* Performance HealthCare new product sales contributed 250m Levitra performance ( 40m) below expectations, impacted by smaller than expected market growth and destocking Combined One-A-Day CarbSmart and WeightSmart sales soar up to 29m Ascensia Contour enhanced growth momentum, lifting glucose meter sales 28 percent yoy (7% in Q1) ADVIA Centaur diagnostic systems grew 31 percent yoy CropScience innovations generated 380m sales in 1H, 190m in the quarter Slight decline in Flint sales (-2%), overcompensated by new mixtures BioScience business strong in relevant markets * Local currency growth rates 9

10 Q2'04 Established Products Face Varying Market Dynamics* Performance Avelox up 74 percent compared to a moderate 2nd quarter in '03 Adalat down 6 percent yoy, moderately up during 1H Cipro sales down by 54 percent due to US patent expiration Kogenate up 30 percent Aspirin sales advanced by 16 percent Leading insecticide Imidacloprid up 11 percent due to late season Folicur fungicide up 12 percent, spurred by Brazilian market Basta/Liberty up 23%, due to favorable development in Canada Axiom up 10 percent, profiting from new liquid formulation in corn Polycarbonates increased sales by 21 percent driven by strong demand for optical data storage and higher prices Polyurethane raw materials MDI / TDI advanced by 10 / 14 percent, due to high demand and price increases (mainly MDI) * Comments based on local currency growth rates 10

11 Q2'04 Gratifying Underlying EBIT Increase Performance million Group Pharma/ Biologicals Consumer Care/ Diagnostics Animal Health CropScience Materials 45 Systems 86 LANXESS -24 Reconciliation -25 Q2'03 EBIT underlying Q2' % - 63% + 49% +2% + 133% + 73% Pharma broadly in line with expected market dynamics Diagnostics business momentum continues to improve CropScience increase driven by improved cost structures and top line growth MaterialScience supported by rising capacity utilization and higher prices A robust business environment + 59% enhanced LANXESS profitability +8% YoY 11

12 Q2'04 Non-Operating Result Performance million Q2'03 Q2'04 % Non-operating result (197) (278) Income (exp.) from affiliated companies - net 3 (97) Interest expense net (107) (89) Interest portion of provisions (85) (87) -2.4 Exchange losses net (3) (3) 0.0 Miscellaneous net (5) (2) Pre-tax income Income taxes (149) (115) Net income

13 Q2'04 Capital Is Managed Tightly Performance Gross cash flow yoy -8.0% million WC Net cash flow 937 yoy +22.3% 1,146 CapEx Interest, dividends, others Net acquisition/ divestments Free cash flow (after acq./ divest.) Q2'03 Q2'

14 Strict Capital Discipline Has Resulted In Financial Flexibility And Excellent Liquidity Position Performance billion 15 Acquisition of Aventis CropScience Divestment program Capital discipline 8.9 Working capital management Q1'02 FY'02 FY'03 Q1'04 Q2'04 14

15 FY'04 Sales Target Upwardly Revised Performance Sales EBIT underlying Old New Old New Group Slightly declining Small increase Increase by 10+% Reiterated HealthCare Slightly declining Unchanged Decline somewhat more pronounced Unchanged CropScience Slightly declining On last year s level Overcompensate lost EBIT from divestments Reiterated Material Science Slightly declining Above last year Significant increase Reiterated Lanxess Stable Increase Significant increase Reiterated For 2H'04 we expect underlying EBIT to improve significantly compared to the same period of last year This growth is expected to be driven mainly by our industrial activities 15

16 Reorganization Finalized Organization Management holding structure with in future three operating business units Clear separation of responsibilities Strong focus on markets, core competencies and business performance Strengthened entrepreneurial approach, direct management and direct responsibility for earnings Enhanced visibility and competitive stance of service functions 16

17 Setting New Standards In Management Compensation And Transparency Organization Holding board members compensation published individually Variable compensation tied to cash generation, dividend link abolished Senior management compensation linked to value generation (highly regarded stock-option program 1) ) Senior management variable component at least 50 percent of fixed income and tied to performance Broad Compliance with German Corporate Governance Code 1) Union Investment Ranking 17

18 Actively Managing The Business Portfolio Business focused on growth and innovation driven markets Portfolio Life science share expanded to 65% of 2003 sales Creation of a world-leading OTC business under way Cyclical exposure significantly reduced More than 80 percent of portfolio hold market leader or top 5 positions Exit of major parts of industrial business under way 18

19 Portfolio Changing The Face Of Bayer 23bn Sales Volume Portfolio Management 2) 1996 Sales 24.9bn HealthCare CropProtection Polymers Generics Household insecticides Roche OTC 1) Plasma 1) Antitrust requirements Chiron Diagnostics Visible Genetics 2003 (cont.) Sales 23.2bn 3) HealthCare 5.8bn sales volume to be floated 1) Lanxess Chemicals H.C. Strack Wolff Walsrode EC Erdölchemie Haarmann&Reimer Silicones TiO2 Acrylic fibers PolymerLatex regrouped regrouped divested divested Aventis CropScience Flint Mikado Seed treatment activities Lyondell Polyols CropScience MaterialScience 1) Pending 2) Major examples since ) Including 1bn Roche OTC sales Agfa Real estate Headcount 142,200 divested divested Headcount 93,400 19

20 Restructuring Actions Reduce Costs And Focus Portfolio 2.5bn efficiency improvement program launched Structures 14,000 headcount reduction program under way Exit of major parts of industrial business in preparation Pharma business refocus under way 1.9bn impairment losses and write-offs taken in Q4'03 20

21 Structures Restructuring Actions Reduce Costs And Focus Portfolio Flotation of Lanxess Spin-off decided Dedicated business organization established EGM mid-november Exit of Plasma business Integration of ACS Business refocus Pharma Final negotiations Signing of deal expected soon Integration broadly completed Synergy exploitation on target Business portfolio streamlined Savings projects on target R&D sites consolidated and refocused Site consolidation program Polymers 14K headcount reduction Impairment test of all activities Broadly finalized More than 11,000 achieved Concluded in Q4'03 1.9bn impairment losses and write-offs 21

22 Structures Restructuring Actions Indicate Sustainable Improvements Sales per employee ( thousands) + 42% Employees (in thousands) Total - 20% Foreign -13% Domestic -28% Q1/04 Q2/ Personnel expenses (% of sales) 22

23 Structures Restructuring Actions Are Improving Our Cost Base 0.9bn Increment > 2.5bn 2.5bn efficiency improvement project initiated in 2002 Over 1.2bn efficiency improvement and cost savings realized by 2003 Programs expected to generate highest contribution in bn Achievement Total Program ) ) 70% of related one-time costs already charged Bottom-up approach across all functions and divisions Involves headcount reduction of 14,000 people 1) Savings increment YoY (=Gross savings one-time costs curr. year + one-time costs prev. year) 2) Compared to cost base

24 Bayer's Transformation Process Has Yielded Results Performance Organization Portfolio Structures Financial performance in line with status of transformation process Business portfolio focused on non-cyclical, innovation-driven growth markets with strong or leading positions in vast majority of activities Restructuring actions defined and well under way Strong free cash flow development restored financial flexibility Achieve benchmark performance 24

25 Targeting Benchmark Performance Bayer s transformation process has provided a sound basis for further improvement Exit of Lanxess activities will free up resources Crop and Materials will drive mid-term profit growth Crop will set the industry standard in terms of performance Materials will capitalize on top-in-class cost structures Pharma business refocus will secure long-term growth, "Consumer Health" opportunities will be exploited New products to drive profitable growth Promising pharma pipeline Costs will be managed tightly Financial targets reflect benefits of cost savings, business refocus and expected market dynamics Our commitment is to target benchmark performance 25

26 Commitment To Deliver EBITDA margin Long-term aspiration Achieving benchmark performance: >2006 BHC 23% BCS 26% BMS 21% Group 22% Mid-term commitment Narrow the gap: BHC 17% BCS 25% BMS 18% Group 19% Short-term planning Improve by 10% at least. 26

27 FY 2004 Financial Objectives - New Forecasted 10+ percent underlying EBIT growth and a small sales increase HealthCare sales expected to decline slightly, EBIT* decline somewhat more pronounced CropScience plans to overcompensate lost EBIT contributions from divested business, sales expected on last year s level MaterialScience is targeting sales above last year and a significant EBIT* improvement Lanxess plans higher sales and a strong EBIT* increase *underlying EBIT 27

28 Mid-Term Financial And Strategic Objectives Forecasted 10+ percent underlying EBIT growth and a small sales increase in 2004 Bayer's portfolio offers significant mid-term potential with its level of leadership positions and technological expertise for CropScience to set the industry standard in terms of both growth and profitability HealthCare to build a Consumer Health business and manage the new Pharma focus MaterialScience to capitalize on top-in-class cost structures 28

29 The Future Shape Of Bayer Crop Science 5.8bn 26% 41% 33% MaterialScience 7.5bn Pro forma sales breakdown FY bn* HealthCare 9.3bn HealthCare Leading positions in consumer health Excellent technology base Significant new product opportunities Promising pharmaceuticals pipeline CropScience Leader in conventional Crop Protection Leader in Environmental Science Emerging player in BioScience Rich pipeline MaterialScience Market leader in most products Cost advantages through worldscale production sites Technology leadership Expansion in Asia under way *Including 1bn Roche OTC excluding 0.6bn Plasma 29

30 CropScience: Setting Out For Benchmark Performance Goal Now CropScience plans to set the industry standard in terms of both growth and profitability 26% Long-term aspiration Annual synergies of 570m to be fully exploited by 2006 New product launches expected to drive market share gains Best-in-class portfolio offers a unique competitive advantage 25% 2006 commitment Expansion of fast growing specialty business under way Next generation biotech solutions in development EBITDA margin 30

31 MaterialScience: Setting Out For Benchmark Performance Goal Now MaterialScience plans to capitalize on market leadership and best-in-class cost structures 21% Long-term aspiration Business portfolio will be focused on growth markets Expansion into Asia offers significant potential for growth Site consolidation program expected to show ongoing positive effects 18% 2006 commitment The focus will be put on sufficiently backward-integrated world-scale facilities Researching new areas of application expected to fuel growth and strengthen customer relationships EBITDA margin 31

32 Achieving Economies Of Scale Site consolidation program for Polyurethanes is on track Index 2001 = 100% PET MDI TDI 100% spec. Production Costs 80% 60% 100% -4% -9% 87% 100% -7% -12% 81% 100% -16% -13% 71% 40% Cost Effect Volume Effect 32

33 HealthCare: Setting Out For Benchmark Performance Goal Now HealthCare is developing a Consumer Health business and managing the Pharma refocus 23% Long-term aspiration Building a world leading OTC business A sustainable business model for Pharma, concentrating on segments where commercial success can be secured Dedicated self- and professional testing units will increase focus on market and customer needs 17% 2006 commitment Exit of low margin plasma business R&D resources will be concentrated on high priority projects with biggest commercial potential EBITDA margin 33

34 Acquisition Of Roche Consumer Health* Building A World Leading OTC Business 2003 Sales 8,871m Self Testing CC 16% 7% 15% Prof. Testing 9% AH 41% 12% 39% PH BP Pro forma 2003 Comb. Sales* 9,270m CC Self Testing 26% 7% Prof. Testing 14% 5% 9% AH PH BP 2.4bn investment in Bayer s world-class OTC business with a track record of consistent market outperformance (5-Y CAGR +2.5% above market) Share of Consumer Health activities increased to 33% Strong position in four of the top five OTC categories Critical mass in key OTC markets Ideally positioned for further expansions (Rx-OTC switches, growth platform Asia) m synergy potential fully exploited by 2006, related restructuring costs approx. 300m, thereof 80% in year 1 EPS dilutive in 2005 after one-time costs, midsingle digit percent accretive already in 2006 * Subject to regulatory approval; Pro forma 2003 figures excluding plasma ( 613 m), including Roche Consumer Health ( 1,012 m) 34

35 Building A Sustainable, Profitable And Highly Performing Pharma Business Distinct regional approach that reflects specific strengths and market needs Product mix moved to more profitable, less promotionally sensitive products Bridging the portfolio gap ahead of anticipated launch of promising late stage pipeline projects R&D resources to be concentrated on high priority projects with biggest commercial potential 35

36 Long-Term Financial And Strategic Objectives Forecasted 10+ percent underlying EBIT growth and a small sales increase in 2004 Bayer s portfolio offers significant mid-term potential with its level of leadership positions and technological expertise New product portfolio and pipeline development expected to drive long-term profit aspirations World-class CropScience pipeline and biotech opportunities Raf Kinase-Inhibitor and Factor Xa Inhibitor could offer significant potential New areas of application offer new growth opportunities 36

37 Our Roadmap To Benchmark Performance Forecasted 10+ percent underlying EBIT growth and a small sales increase in 2004 Bayer's portfolio offers significant mid-term potential with its level of leadership positions and technological expertise New product portfolio and pipeline development expected to drive long-term profit aspirations Targeting benchmark performance can be expected by our shareholders 37

38 Going East Upcoming Investment Projects Shanghai Strengthen our regional competitiveness through local production in China PCS PUR CAS PC 100 kt in kt in 2009 MDI Splitter in kt in 2008 TDI 150 kt in 2009 Desmodur L 11 kt in 2004 HDI up to 50 kt PCS: Polycarbonates PUR: Polyurethanes CAS: Coating Raw Materials 38

39 Innovation Driver For Future High Volume Markets Development of Bayer Polycarbonate Capacity (kt/a) Sheets >1971 Automotive Glazing > kt/a Optical Data Storage >1982 Films >

40 Continuous Stream Of Innovation Drives Future Growth CropScience Pipeline Methoxyfenozide Spirodiclofen Fluoxastrobin Spiromesifen Ketoenole #3 Mesosulfuron Clothianidin Prothioconazole Ethiprole Herbicides plus Safener Foramsulfuron Picobenzamid Herbicides Insecticides Fungicides 40

41 Promising Pharma Pipeline Project Indication Status Expected Launch Signal Transduction Inhibitor (Raf Kinase Inhibitor) Cancer Phase III 2006 Repinotan Stroke Phase IIb > 2007 Factor Xa Inhibitor Cardiovascular Phase IIb Projects Phase I > Projects Pre-clinical > 2008 As of July

42 Outlook 2004 R&D and CapEx R & D Group 2.3bn (-5% yoy) CapEx Group 1.4bn (-20% yoy) Lanxess Material Science 11% 4% 53% HealthCare 25% 15% Services Lanxess Crop Science 32% thereof Pharma 70% Crop Science 16% 24% 20% Material Science 42

43 Acquisition Of Roche OTC Business Exploiting Consumer Health Opportunities Creating a world leading global OTC company Strengthening of Bayer s core healthcare activity with a track record of consistent market growth outperformance Strengthened position in four of the top five OTC categories Achieving critical mass in key OTC markets Inclusion of US joint-venture facilitates integration of the Roche Consumer Health business Ideally positioned for further expansions (e.g. Rx/OTC switches, growth platform Asia) 43

44 Roche Consumer Health Acquisition Agreement Acquisition price Sales (2003 pro forma) EBITDA (2003 pro forma) Multiples Synergies EPS dilution One-time costs Closing 2,380m 1,012m (including 50% stake in US joint-venture) 190m (including 50% stake in US joint-venture) 2.4 x sales / 12.5 x EBITDA Approx m p.a. Approx per share in year 1, accretive thereafter Approx. 300m (incl. approx. 90m from step-up inventory) Turn of the year 2004/2005 expected* Chugai JV not included in the transaction *subject to approval by the relevant authorities 44

45 Combination Offers Significant Synergy Potential Synergy potential Restructuring costs Synergy phase-in Approx. 4-5% of combined business ( m p.a.) mainly through Infrastructure, shared services and administration Headcount reduction Estimated 300m in total Split over 4 years, approx. 80% in year 1 Including approx. 90m non-cash costs (step-up inventory) Expected over three years Approx. 1/3 in 2005 and 2/3 in % after 2006 On a reported basis, including one-time costs, the acquisition is expected to be EPS dilutive in 2005, but mid-single digit percent accretive already in

46 Strengthened Position In Key Categories Analgesics 2003 pro forma sales in million 592 Global market position #2 Vitamins/ Minerals #2 Dermatologicals #2 Gastrointestinals #4 Cough & Cold/ Others NA Total 1,333 1,012 2,345 Bayer Roche Consumer Health 46

47 Improved Portfolio Balance Bayer OTC 2003 sales 1,333m Cough&Cold/ Other 11% Gastroint. 14% Vitamins/ Minerals 15% Analgesics 44% Balanced product portfolio Reduced dependency on single categories (e.g. analgesics) Pro forma 2003 combined sales Cough&Cold/ Other 9% Gastroint. 13% Dermatolog. 16% Analgesics 35% Top tier position in vitamins/minerals worldwide Strengthened position in dermatologicals 2,345m Vitamins/ Minerals 26% Dermatolog. 17% reflects OTC market segmentation 47

48 Well Balanced Geographic Presence Bayer OTC 2003 sales Latin America 16% Asia Pacific 3% Achieving a sound regional presence 1,333 m Pro forma 2003 combined sales 2,345 m Europe/Africa Middle East 31% Latin America 16% Asia Pacific 6% Europe/Africa Middle East 45% North America 50% North America 33% No.1 in Europe: Strengthened position in 2nd largest European OTC market (France) Achieving No.1 position in Italy and Spain, No. 3 in Germany Latin America: No.1 position in the region Strengthened position in Australia and China through the combination of complementary businesses 48

49 Successful Track Record In OTC 1H growth 1H'03 1H'04 Market: +2 % Bayer: +7 % 1 year growth Market: +3 % Bayer: +12 % 5 year growth* Market: +2.5 % Bayer: +5 % 10 year growth* Market: +4 % Bayer: +10 % *CAGR in local currencies 49

50 Building A Sustainable, Profitable And Highly Performing Pharma Business Distinct regional approach that reflects specific strengths and market needs Product mix moved to more profitable, less promotionally sensitive products Bridging the portfolio gap ahead of anticipated launch of promising late stage pipeline projects R&D resources to be concentrated on high priority projects with biggest commercial potential 50

51 Bayer And Schering-Plough To Establish An Alliance For Their Pharmaceutical Activities Core elements of the transaction USA US & Key EU Markets Schering-Plough will market and distribute Bayer's US primary care products Avelox, Cipro Oral and IV, Levitra, Adalat and some other smaller products Bayer will promote Schering-Plough's oncology products in the US and key European territories Japan In Japan, Bayer will co-market Zetia, Schering-Plough's cholesterol absorption inhibitor One-time costs are estimated in the range of 50-70m, the majority will occur in The agreement is expected to be accretive in subsequent years. 51

52 Bayer Will Focus On Segments And Regions Where Commercial Success Can Be Secured US activities will be focused on high growth / high margin specialty and biotech pharmaceuticals, including a new global oncology unit Bayer s new business paradigm for the US will facilitate necessary infrastructure adjustments post genericization of Cipro - Termination of contract sales force (550 reps) - Reduction of primary care sales and marketing organization by 1,800 positions, significant part to be transferred to Schering-Plough - Alignment of remaining administrative cost structure to reflect new Specialty organization Strengthening of Japanese business as a market leading cardiovascular products company Bayer's strong presence in Europe will benefit from promoting Schering-Plough's cancer products 52

53 A New Business Paradigm for Bayer's US Primary Care Business 1H'04 Sales Pharma + Kogenate: 1,906m EU & ROW 13% Japan 61% 8% 18% USA Specialty & Biotech USA Primary care Schering-Plough will undertake all sales and marketing activities for Bayer's US primary care products including Avelox, Cipro, Levitra and Adalat Schering-Plough will purchase these products from Bayer at negotiated, sales-volume dependant rates, and will record US market sales Bayer to receive a substantial portion of US product revenues Bayer and Schering-Plough will share Bayer's portion of the profits on US sales of Levitra Bayer products will continue to be sold under the Bayer brand names and remain property and legal responsibility of Bayer Agreement does not cover products in development 53

54 Effectively Addressing The US Infrastructure Size Post Genericization Of Cipro Termination of contract sales force (550 reps) Reduction of primary care sales and marketing organization by 1,800 positions, significant part to be transferred to Schering-Plough Alignment of remaining administrative cost structure to reflect new Specialty organization 54

55 US Primary Care Sales Will Be Maximized Seasonal complementary script trend of Avelox and Clarinex NRx Thousands /3/03 11/3/03 12/3/03 1/3/04 Avelox Clarinex 2/3/04 3/3/04 4/3/04 5/3/04 6/3/04 7/3/04 Date Complementary detailing from a highly competitive US sales organization in terms of both, size and national coverage Avelox needs heavy promotion in Autumn/ Winter Schering-Plough s Clarinex and Nasonex need heavy promotion in Spring/Summer High overlap between physicians prescribing Levitra and Schering- Plough s Vytorin/Zetia A new paradigm for mid-size companies to compete with big Pharma (Win/Win) 55

56 Bayer's Strong Japanese Cardiovascular Business Will Be Strengthened 1H'04 Sales Pharma + Kogenate: 1,906m EU & ROW Bayer holds a strong position in the Japanese cardiovascular market Adalat CR is patent protected until % Japan 61% 18% 8% USA Zetia, Schering-Plough's new, high potential cholesterol lowering agent, will be co-marketed with both parties recording sales from their distribution channels Zetia profits will be shared between both companies Leveraging Bayer sales force and fix cost base in Japan 56

57 Jump-Start In Oncology Business Through Promotion Of SP's Oncology Portfolio Promotion of certain Schering-Plough cancer products in key global markets offers jump-start opportunity to enter the cancer market Development of marketing expertise ahead of anticipated launch of the novel raf kinase and VEGFR inhibitor BAY No marketing agreement for BAY Promotion agreement limited to a certain period of time Bayer to receive fixed promotion fee for promoted products 57

58 Bayer Pharma Will Focus Its US Activities On Fast Growing Specialty & Biotech Business 1H'04 Sales Pharma + Kogenate: 1,906m EU & ROW 61% Kogenate Second generation recombinant Factor VIII for treatment of hemophilia Trasylol Indicated for prophylactic use to reduce peri-operative blood loss and the need for blood transfusion in patients undergoing coronary artery bypass graft surgery Japan 13% 18% 8% USA Specialty & Biotech USA Primary care Viadur Innovative, controlled release leuprolide delivery system for palliative treatment of prostate cancer BAY Raf kinase and VEGFR inhibitor intended for treatment of cancer, currently in phase III development for renal cell cancer 58

59 Accelerating The Transformation To A Best In Class Mid-Size Pharmaceutical Company Focus Reduce cost Accelerate growth Access new products Strengthen Japan Enter cancer market Repositioning of Bayer's US pharma operations as a high growth, high profit specialty and biotech business Efficient adaptation of US sales and marketing infrastructure to the post Cipro case Maximizing the future potential of the Bayer primary care brands in the US Unique opportunity to bridge the portfolio gap ahead of anticipated launch of promising pipeline projects Strengthening of Japanese business as a market leading cardiovascular company Offering immediate access to the cancer market and building the foundation for a global oncology franchise 59

60 Q2 Financial Highlights million Q2'03 Q2'04 % yoy Sales 7,256 7, EBIT Net special items 17 (136) EBIT underlying EBITDA 1,120 1, Non-operating result (197) (278) Pre-tax income After-tax income Net income Gross cash flow Net cash flow 937 1, Earnings per share ( )

61 Q2 Sales By Region Total 7,583m (+ 4.5 %) Continuing operations: 5,829m (+ 3.1 %) Germany % 2,249 1,005 2,293 North America % Europe (ex Germany) % 796 1,240 By market million Latin America/ Middle East/Africa % Far East/ Asia/ Pacific % 61

62 Components Of Q2 Sales Trend million Q2'03 Q2'04 % yoy Sales 7,256 (52) -0.7 HH Insecticides, CC (17) - Acquisitions / Divestitures PolymerLatex, PO Walothen, WW Bayer Shell PO (16) (14) (11) Vaccines, AH (4) Gustafson, CP 10 - Currencies (188) Prices Volume Sales 7,

63 Q2 Cash Flow Figures million Q2'03 Q2'04 % yoy Gross cash flow /- Change in working capital = Net cash flow 937 1, Capital expenditures (324) (237) = Operating free cash flow Interest, dividends (830) (485) = Free cash flow (217) 424 +/- Acquisitions / divestments = Free cash flow after acquis. (168) 511 +/- Derivatives, currency, others Net debt (financial statements) 30 (519) 63

64 Q2 And 1H Taxes million Q2'03 Q2'04 H1'03 H1'04 Pre-tax income , Tax-free gains/charges Litigation provisions Goodwill amortization Miscellaneous net 0 7 (65) 7 Taxable income ,233 1,089 Income taxes (149) (115) (459) (372) After-tax income Tax rate (reported) 53.6% 46.7% 38.9% 40.9% Tax rate (normalized) 44.2% 30.3% 37.2% 34.2% 64

65 MaterialScience EBITDA 20 (47) EBIT ,592 1,451 Sales EBITDA EBIT ,091 1,854 Sales EBITDA EBIT ,642 1,567 Sales EBITDA EBIT ,108 2,204 Sales % yoy Q2'04 Q2'03 HealthCare CropScience Key Figures For Subgroups million Lanxess 65

66 Q2 Pharma / Biological Products million Q2'03 Q2'04 % yoy % yoy in LC Sales 1,190 1, EBITDA EBIT Special items (24) 0 EBIT underlying Depreciation & Amortization Gross cash flow Net cash flow (152)

67 Top 10 Pharma / Biological Products Sales in million Q2'03 Q2'04 % yoy % yoy in LC 1 Cipro Adalat Kogenate* Gamimune/Gamunex* Glucobay Avelox/Avalox Prolastin* Levitra Aspirin Cardio Trasylol * Biological Products 67

68 Q2 Consumer Care / Diagnostics million Q2'03 Q2'04 % yoy % yoy in LC Sales EBITDA EBIT Special items EBIT underlying Depreciation & Amortization Gross cash flow Net cash flow

69 Q2 Animal Health million Q2'03 Q2'04 % yoy % yoy in LC Sales EBITDA EBIT Special items 1 0 EBIT underlying Depreciation & Amortization Gross cash flow Net cash flow

70 Q2 CropScience Sales Development million Q2'03 Q2'04 % yoy % yoy in LC Sales 1,567 1, Crop Protection 1,284 1, Insecticides Fungicides Herbicides Seed Treatment Environmental Science BioScience

71 Q2 CropScience EBIT Development million Q2'03 Q2'04 % yoy EBITDA EBIT Special items (49) (41) EBIT underlying Depreciation & Amortization Gross cash flow Net cash flow

72 Top 10 CropScience Products Sales in million Q2'03 Q2'04 % yoy % yoy in LC 1 Confidor/Gaucho/Admire/Merit Folicur/Raxil Puma Basta/Liberty Betanal Decis/K-Othrine Flint/Stratego/Sphere Axiom/Define/Epic Hussar Temik

73 Q2 Materials million Q2'03 Q2'04 % yoy % yoy in LC Sales EBITDA EBIT Special items (12) 0 EBIT underlying Depreciation & Amortization Gross cash flow Net cash flow (22) 59 73

74 Q2 Systems million Q2'03 Q2'04 % yoy % yoy in LC Sales 1,160 1, EBITDA EBIT Special items (26) 0 EBIT underlying Depreciation & Amortization Gross cash flow Net cash flow

75 Q2 LANXESS million Q2'03 Q2'04 % yoy % yoy in LC Sales 1,451 1, EBITDA EBIT (47) 20 Special items (23) (31) EBIT underlying (24) 51 Depreciation & Amortization Gross cash flow Net cash flow (74) 78 75

76 Q2 Special Items million Q2'03 Q2'04 Charge Gain Net Charge Gain Net Net Pharma / BP (24) 0 (24) CC / DS (4) (119) Animal Health (1) CropScience (53) 4 (49) (41) 0 (41) 7 Materials (12) 0 (12) Systems (27) 1 (26) Lanxess (23) 0 (23) (54) 23 (31) (8) Reconciliation (64) 0 (64) (96) Group (142) (160) 23 (136) (154) Thereof Disc. (23) 0 (23) (54) 23 (31) (8) 76

77 2004 Calendar of Events Date Event Location Publication Thursday August 31, 2004 Half Year Investor Conference London First Half 2004 Results Stockholders' Newsletter Financial Presentations to Analysts and Investors Wednesday November 17, 2004 Extraordinary Stockholders' Meeting Essen Thursday November 25, 2004 Fall Press Conference Leverkusen First Three Quarters 2004 Results Stockholders' Newsletter Thursday - Friday November 25-26, 2004 Fall Investor Conference Leverkusen Financial Presentations to Analysts and Investors Tuesday March 15, 2005 Spring Press Conference Leverkusen Full Year 2004 Results Stockholders Newsletter Tuesday March 15-16, 2005 Spring Investor Conference Leverkusen Financial Presentations to Analysts and Investors Friday April 29, 2005 Annual Stockholders Meeting Cologne Monday Ex-dividend Day May 02, 2005 Payment of dividend 77

78 Investor Relations Contacts Dr. Alexander Rosar Head of Investor Relations Building W 11 D Leverkusen Phone: Fax: alexander.rosar.ar1@bayer-ag.de Dr. Jürgen Beunink Investor Relations Manager Building W 11 D Leverkusen Phone: Fax: juergen.beunink.jb@bayer-ag.de Peter Dahlhoff Investor Relations Manager Building W11 D Leverkusen Phone: Fax: peter.dahlhoff.pd@bayer-ag.de Ute Krippendorf Investor Relations Manager Building W 11 D Leverkusen Phone: Fax: ute.krippendorf.uk@bayer-ag.de Ilia Kürten Junior Investor Relations Manager Building W 11 D Leverkusen Phone: Fax: ilia.kuerten.ik@bayer-ag.de Judith Nestmann Investor Relations Manager Building W 11 D Leverkusen Phone: Fax: judith.nestmann.jn@bayer-ag.de 78