Investor Handout Q3 2002 Results
Table Of Contents Safe Harbour 1 Performance 2 A Far-Reaching Transformation 12 Strategic Priorities 19 Financials 29 2
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. 21
Major items affecting Q3 performance! General economic weakness! Decreasing but ongoing pressure on selling prices! 570m sales (cont.) lost through Fx! 280m charges following the ACS acquisition! Significant restructuring charges ( 140m in Q3)! Increasing raw material costs +! Significant volume growth (+ 5% in Q3)! Major savings achieved due to tight cost management! 909m gain from H&R divestment! Strong working capital performance ( 2.5bn since project start) 22
Group Quarterly Performance (cont.) million Sales 6,714 6,957 7,271 7,249 21,530! General economic weakness! Decreasing pressure on selling prices YoY -6.9% OPI (pre-except.) 39-6.5% 493-6.7% 318 +8.0% 54-2.2% 862! Significant volume growth (+ 5% in Q3)! Increasing raw material costs! 400m ACS-related charges and costs YoY Except. -94.6% -41.7% -374-45.9% 328-40.7% -91 +38.5% -128-42.1% 109! Tight cost management generated savings of 475m pre-except. (3/4 year) Q3'01 Q1'02 Q2'02 Q3'02 3/4Year'02 23
HealthCare Quarterly Performance million Sales 2,397 2,410 2,350 2,279 7,039! Weak Cipro and Adalat sales! Avelox growing strongly (Q3 + 163% y-o-y) YoY -13.7% -6.1% -15.3% -4.9% -9.0%! Biologicals improving but still loss-making OPI (pre-except.) 77 244 193 175 612! Warning letter on Kogenate closed! Consumer Care heavily impacted by LA economic crisis and soft U.S. markets YoY Except. -80.0% -307 Q3'01-35.8% -14 Q1'02 +35.0% 55 Q2'02 +127% -48 Q3'02 +2.0% -7 3/4 Year'02! Diagnostics continues to show significant improvement! Animal Health performing strongly 24
Pharmaceuticals/Biologicals Top 10 Products million Q3 02 % 3/4 Year 02 % (1) Cipro 338 30 1,113 9 (2) Adalat 181 24 625 17 (3) Kogenate* 96 + 123 272 + 90 (4) Gamimune 77 27 231 11 (5) Glucobay 64 14 209 8 (6) Avelox 50 + 163 162 + 31 (7) Prolastin* 34 + 3 116 + 30 (8) Nimotop 24 17 89 1 (9) Trasylol 35 + 46 99 + 8 (10) Fraction V* *) Biological Products 17 37 61 21 25
CropScience Quarterly Performance million Sales 3,262 YoY 557-13.2% OPI (pre-except.) -6 866 +6.4% 144-32.4% 1,083 +25.1% 20-87.7% 1,313 +135.7% - 216 +45.8% -52! Business nearly maintained in declining markets! Goodwill & inventory D&A 329m ( 243m in Q3 only)! 80m carve-out and integration costs! No additional bad debt write-offs required in Q3 (1H: 60m) YoY Except. 0 0 0-6 -6! Approx. 200m D&A in Q4 expected Q3'01 Q1'02 Q2'02 Q3'02 3/4 Year'02 26
CropScience: Comparable Sales Development million 3,262 + 45.8% 3/4 Year Q3 Q1 2,237 2,145 557 509-4.1% -8.6% 1.313 Q2 866 770-11.1% 1,083 + 25.1% 814 866 + 6.4% 866! Business nearly maintained in declining markets + 135.7%! World market Development trend by region: + 6.4% West Europe " NAFTA # LA $ Far East # 2001 2002 excl. ACS 2002 incl. ACS! Including 804m from ACS in Q3 27
CropScience: Comparable OPI Development (pre-except.) million 60m Latin A. 80m Acq. Costs! Underlying Q3 performance encouraging 3/4 Year 369 Q3-6 329m D&A 110m ACS OPI! Strong net cash flow performance Q2 162 40m Acq. Costs 167-45 68 219 Dilution - 54.7% % -58.0% -52! No additional bad debt write-offs required in Q3 (1H: 60m) n.m.! Goodwill & inventory D&A 329m ( 243m in Q3) Q1 213-216 %! ACS profit contribution 110m ( 72m in Q3) 20-87.7%! Approx. 200m D&A in Q4 144-32.4% 144-32.4% expected 2001 2002 excl. ACS 2002 incl. ACS 28
Polymers Quarterly Performance million Sales 2,713 2,648 2,765 2,694 8,160! Weak demand from key customer industries YoY -7.7% OPI (pre-except.) 75-7.0% 92-4.1% 139-0.7% 152-4.1% 380! Decreasing pressure on selling prices! Encouraging volume growth in Q3! Top & bottom line negatively affected by Fx YoY Except. -71.8% -65 Q3'01-60.0% -102 Q1'02* -29.1% -128 Q2'02 +102.7% -69 Q3'02! Raw material prices -24.5% rising but still below previous year -299! Significant cost savings achieved 3/4 Year'02 *) Fibers in discont. operations 2 9
Polymers Raw material and selling price development 142 145 140 Raw materials 121 132 134 118 123 129 113 100 100 98 101 104 107 110 107 105 106 108 102 Prices 99 100 1999 2000 Q1 2000 Q2 2000 Q3 2000 Q4 2001 Q1 2001 Q2 2001 Q3 2001 Q4 2002 Q1 2002 Q2 2002 Q3 210
Chemicals Quarterly Performance million Sales 866 847 853 796 2,496! Encouraging performance of basic, fine and specialty chemicals YoY +3.5% -17.2-16.9-8.1% -14.4%! Op. margin 10% in Q3 excluding H.C. Starck OPI (pre-except.) YoY 7-91.8% 77-41.7% 30-75.6% 52-159 -39.3%! H.C. Starck suffering from weak demand from electronic industries! Caustic soda prices under severe pressure Except. -2 Q3'01-6 Q1'02-17 Q2'02-2 Q3'02-25 3/4 Year'02! Operating costs significantly reduced 211
A Far-Reaching Transformation Focus Portfolio Management Efficiency Improvement Asset Management Balance Sheet Outcome Optimization of business mix Implement countermeasures Strict capital discipline Reduction of debt Organization Management holding structure... to significantly increase corporate value 212
Efficiency Improvement Program million 400 Planned savings after exceptionals 700 700 2,200 400 One-time charges 450 440 250 120 2002 2003 2004 2005 Total 213
Headcount Reduction 15,000 Positions 1,400 1,300 5,300 3,000 4,000 8,800 6,200 BHC BCS BPO BCH Services Bayer AG Others 214
Working Capital Performance mill. Objectives: Reduction of 1 bn Additional 1 bn 1,821 1,207 1,093 Working Capital 834 647 757 Initiative Launched 441 1,175 240 766 Q2 01 336-594 1,397 601 796 Net cash flow Gross cash flow Change in net working capital 822 1,375 176 571 30 W. Cap. Improvement (prev. year) Q3 01 Q4 01 Q1 02 Q2'02 Q3'02 215
Strict Capital Discipline Enforced mill. 1.8 2,703 2,632 1.5 2,647 2,617 2,516 1,543 1,811 1.2 2,139 1.0 0.8 0.7 1998 1999 2000 2001 2002E Target Capital Expenditures Depreciation & Amortization CapEx/D&A Ratio 216
Satisfying Progress of our Disposal Program Divestments Acquisitions/Joint Ventures 2002 Jan Febr April Company housing & Organic pigments & Generics (E) & Generics (F) & 2002 May Oct Nov Agfa stake & Haarmann & Reimer & Rhein Chemie & ¹ ) CropScience disposals &¹) Household insecticides & ¹) June Oct + Aventis CropScience & + Visible Genetics & pending PolymerLatex pending + Aventis Behring 2) & closed or binding agreement 1) Subject to regulatory approvals 217 2) non-binding letter of intend
On Target to Reduce Net Debt to Below 10bn Net debt 16 15 12 12.1 11.4 bn 8 4 6.5 Acquisition of Aventis CropScience ( 7.25bn) < 10 Target 0 Q1 Q2 Q3 Year end '02 218
Strategic Priorities Portfolio incl. ACS HealthCare Establish strategic partnership CropScience Successfully manage ACS integration 31% 21% 13% 35% Polymers Chemicals Participate in industry consolidation Expand global leadership 219
Realignment of HealthCare Strategy! HealthCare is and continues to be a significant value driver of our portfolio.! Most business segments are in good shape and well positioned for future growth.! Structural problem in pharmaceuticals addressed strategic guidelines realigned: - Full potential of the business can only be exploited with a partner. - Possible partnership will not be prevented by insisting on a certain shareholding. - Majority interest for Bayer in a partnership no longer a priority. - Active approach to participation in a joint venture. - Restructuring initiatives extended to maximize the value of our pharmaceutical business in a partnership 220
Bayer HealthCare: Strong Presence in Main Areas of the Business Sales 2001: 10.7 bn Consumer Care Pharma % Global # 5 in OTC % Strong brands % Sustainable growth % Focused business portfolio Diagnostics % Strong # 4 % Profitability improving 19% 20% 8% 9% 44% % Limited growth potential % Maturing top products % Avelox / Vardenafil opportunities % Structural difficulties % Very strong R&D-platform % Search for strategic partner continues % Excellent position in NAD % Pharmacogenomics opportunities * Animal Health business is part of HealthCare effective January 1, 2002 Animal Health* % Competitive # 4 position % Very stable business % Strong in companion animals Biologicals % Worldwide # 3 % Turnaround managed % Kogenate on track % Negotiations with Aventis Behring continue 221
Leading AG Companies Turnover 2001 million (including Seeds & Biotechnology) 1. 2. Syngenta Bayer CropScience* 7.062 7.011 3. Monsanto 5.821 4. 5. 6. DuPont BASF Dow 3.478 3.174 4.291 7. 8. 9. 10. MAI Sumitomo FMC Nufarm 876 818 729 589 650 700 m estimated divestments * Pro-forma basis without divestments Source: Phillips McDougall 222
Bayer CropScience: Matching the Critical Success Factors Economy of scale Cost structure Bundling capabilities Environmental Science Seed treatment A leading player in input traits (LibertyLink, Bt) Seed business (breeding know-how) Output trait know-how Competitive pricing Speciality applications Ag bio solutions Complete product portfolio Strong presence in key regions Innovative chemistry Strong position in all segments Herbicide #3 Fungicide #2 Insecticide #1 Env. Science #1 North America #3 Europe #1 Latin America #2 Asia #2 Excellent research platform 2-3 new launches per year 223
Bayer CropScience: Become the Leading Crop Science Company Objectives Sales growth of 4 % p.a. (double estimated market growth) EBITDA of 29 % in 2006 Key drivers Exploit full potential of new portfolio Drive innovation with pipeline products Portfolio optimization and migration to new products Optimize asset management and supply chain processes Realize full synergy potential 224
Bayer Polymers Global Leadership Sales 2001: 11.0 bn Sales% ms% # Sales% ms% # Polycarbonate 40 30 2 TDI 18 25 1 Styrenics 35 15 2 MDI 37 26 1 Semicristalline thermoplastics 10 > 5 6 Polyoles 45 26 1 Fabricated products 10 > 20 2 TPU 5 > 20 2 20% Rubber 31% Plastics 18% Coatings and Colorants 29% Polyurethanes Sales% ms% # Solid rubber 64 12 1 2% Fibers Sales% ms% # Isocyanates 39 > 50 1 Rubber chemicals 13 18 2 Adhesives raw mat. 12 34 1 Polymer Latex 1) 9 RheinChemie 1) 13 MS = market share # = ranking 1) to be divested Colorants 27 24 1 others 22 225
Strategic Challenges for Further Expansion of Global Leadership! Further site and plant consolidation! Implementation of competitive world-scale plants! Production partnerships for core products too! Improved asset management! Optimized raw-material purchasing ' Transformation of global leadership into excellent performance 226
Chemicals Business Portfolio and Operational Performance Substantially Improved Sales EUR 4,898 m Inorganics Organic Chemicals Specialty Products H.C. Starck EC Erdölchemie " H-acid " Solar-grade silicon " Titanium dioxide " Silicones " Citric acid " Enamels " Abrasives & Refractory " Organic Pigments " ChemDesign divested Cytec Sybron Sales EUR 3,748 m Basic & Fine Chemicals Specialty Products DyStar divested CSM H.C. Starck Haarmann & Reimer divested 1) regrouped Wolff Walsrode 1996 Divestitures Σ 2,800 Acquisitions Σ 480 2001 Headcount 10,000 2) 1) pending; subject to regulatory approval 2) including 3,800 of H & R 227
A Far-Reaching Transformation Focus Portfolio Management Efficiency Improvement Asset Management Balance Sheet Outcome Optimization of business mix Implement countermeasures Strict capital discipline Reduction of debt Organization Management holding structure... to significantly increase corporate value 228
Appendix 229
2002 Financial Highlights million Q3'02 % 3/4'02 % Sales 7,459 + 7.6 22,196 3.1 Sales (cont.) 7,249 + 8.0 21,530 2.2 Operating income 848. 1,936 + 42.9 Operating income (cont.) (74) + 77.9 971 + 0.7 Operating income 54 + 38.5 862 42.1 pre-exceptionals (cont.) Non-operating result (231) 23.5 (340) + 18.5 Pre-tax income 617. 1,596 + 70.1 After-tax income 661. 1,481 + 80.2 Net income 656. 1,472 + 78.9 Earnings/share ( ) 0.90. 2.02 + 78.9 230
Components of 3/4 Year Sales Trend million Sales ( Discontinuing ( Continuing + Acquisitions/ Divestitures + Currencies +Prices + Volumes ( Continuing 2001 2002 % 22,903 896 22,007 22,196 666 3.1 + 1.013 + 4.6-846 -626-18 21,530-3.8-2.8-0.1 2.2 ( Aventis CropScience + 1.117 ( ChemDesign - 51 ( Covexx - 42 ( Bayer Classics - 11 ( H-acid - 8 ( Tectrade + 8 231
Components of Q3 Sales Trend million Sales ( Discontinuing ( Continuing + Acquisitions/ Divestitures 2001 2002 % 6,931 217 6,714 7,459 210 + 7.6 + 794 + 11.8 ( Aventis CropScience + 804 ( Others - 10 + Currencies +Prices + Volumes ( Continuing -570-35 + 346 7,249-8.5-0.5 + 5.2 + 8.0 232
2002 Quarterly Sales Development million 2002 2001 % 3/4 Year* H & R EC Continuing operations 3rd quarter* H & R EC Continuing operations 22,196 666 21,530 7.459 210 7,249 22,903 663 233 22,007 6,931 217 6,714-3.1-2.2 7.6 8.0 2nd quarter* H & R EC Continuing operations 7,504 233 7,271 8,071 224 57 7,790-7.0-6.7 1st quarter H & R EC Fibers Continuing operations *) restated, Fibers in cont. operations 7,233 223 53 6,957 7,901 222 176 63 7,440-8.5-6.5 233
3/4 Year Comparable Operating Income million 2002 2001 % OPI reported 1,936 1,355 + 42.9 Segments 762 1,228 Reconciliation 209 (264) Discontinuing operations 965 391 H&R (OPI) 56 58 H&R (sale) 909 Erdölchemie (OPI + sale) 333 OPI continuing 971 964 + 0.7 Exceptional items (cont.) 109 (525) OPI underlying 862 1,489 42.1 continuing operations 234
2002 Quarterly OPI Development million 2002 2001 % 3rd quarter* H & R (OPI & sale) EC (OPI + sale) Exceptional items OPI underlying - continuing operations 848 922 (128) 54 (316) 20 (374) 39 38.5 2nd quarter* H & R EC (OPI + sale) Exceptional items OPI underlying - continuing operations 248 21 (91) 318 823 14 319 (46) 536-69.9-40.7 1st quarter H & R EC Fibers Exceptional items OPI underlying - continuing operations 840 22 (3) 328 493 848 24 15 2 (105)** 912-0.9-45.9 *) restated, Fibers in cont. operations **) incl. (17) from Fibers 235
3/4 Year Exceptional Items million 2002 2001 Charge Gain Net Charge Gain Net HealthCare -85 +78-7 -333 +22-311 +304 CropScience -6 0-6 0 0 0-6 Polymers* -305 +6-299 -120 0-120 -179 Chemicals -25 0-25 -89 +14-75 +50 Reconciliation -6 +452 +446-19 0-19 +465 Continuing -427 +536 +109-561 +36-525 +634 Discontinuing* 0 +909 +909 0 +316 +316 +593 Total -427 +1.445 +1.018-561 +352-209 +1.227 *) Restated, (17) in Q1/2001 for Fibers in Polymers 236
Q3 Exceptional Items million 2002 2001 Charge Gain Net Charge Gain Net HealthCare -50 +2-48 -307 0-307 +259 CropScience -6 0-6 0 0 0-6 Polymers -75 +6-69 -65 0-65 -4 Chemicals -2 0-2 -2 0-2 0 Reconciliation -3 0-3 0 0 0-3 Continuing -136 +8-128 -374 0-374 +246 Discontinuing 0 +909 +909-1 0-1 +910 Total -136 +917 +781-375 0-375 +1.156 237
3/4 Year Non-Operating Result million 3/4 Year 02 3/4 Year 01 % Non-operating result (340) ( 417) + 18.5 Income from affiliated companies net 214 28 Interest expense net (310) (282) 9.9 Interest portion of pension provisions (204) (209) + 2.4 Exchange gain net 3 28 89.3 Miscellaneous net (43) 18 238
Q3 Non-Operating Result million Q3 02 Q3 01 % Non-operating result (231) (187) 23.5 Income (expenses) from affiliated companies net (20) (14) 42.9 Interest expense net (132) (93) 41.9 Interest portion pension provisions (67) (75) + 10.7 Exchange gain net 5 7 28.6 Miscellaneous net (17) (12) 41.7 239
3/4 Year 2002 Sales by Region Total 22,196 million, - 3.1 % Continuing operations: 21,530 million, - 2.2 % Germany -6.2 % 5,961 6,755 North America -7.6 % 10,030 Europe -0.5 % 1,778 2,967 Latin America 2.6 % Far East/ Asia/ Pacific 2.9 % point of origin 240
3/4 Year 2002 Overview by New Reporting Segments Sales Q1 Q2 1H Q3 9M Q1 % Q2 % 1H % Q3 % 9M % (Euro mill.) 2001 2001 2001 2001 2001 2002 yoy 2002 yoy 2002 yoy 2002 yoy 2002 yoy PH + BP CC + DS Animal Health HealthCare 1,422 964 180 2,566 1,510 1,033 232 2,775 2,932 1,997 412 5,341 1,143 1,024 230 2,397 4,075 3,021 642 7,738 1,257 950 203 2,410-11.6-1.5 12.8-6.1 1,167 971 212 2,350-22.7-6.0-8.6-15.3 2,424 1,921 415 4,760-17.3-3.8 0.7-10.9 1,116 940 223 2,279-2.4-8.2-3.0-4.9 3,540 2,861 638 7,039-13.1-5.3-0.6-9.0 Crop Science 814 866 1,680 557 2,237 866 6.4 1,083 25.1 1,949 16.0 1,313 3,262 45.8 KA + KU PU + LS Polymers 1,522 1,324 2,846 1,467 1,416 2,883 2,989 2,803 5,792 1,343 1,370 2,713 4,332 4,173 8,505 1,308 1,340 2,648-14.1 1.2-7.0 1,415 1,350 2,765-3.5-4.7-4.1 2,723 2,743 5,466-8.9-2.1-5.6 1,359 1,335 2,694 1.2-2.6-0.7 4,082 4,078 8,160-5.8-2.3-4.1 Chemicals 1,023 1,027 2,050 866 2,916 847-17.2 853-16.9 1,700-17.1 796-8.1 2,496-14.4 OPI pre exc. (Euro mill.) Q1 2001 Q2 2001 1H 2001 Q3 2001 9M 2001 Q1 2002 % yoy Q2 2002 % yoy 1H 2002 % yoy Q3 2002 % yoy 9M 2002 % yoy PH + BP CC + DS Animal Health HealthCare 285 73 22 380 30 57 56 143 315 130 78 523-100 124 53 77 215 254 131 600 131 63 50 244-54.0-13.7-35.8 38 112 43 193 26.7 96.5-23.2 35.0 169 175 93 437-46.3 34.6 19.2-16.4-3 126 52 175 97.0 1.6-1.9 127.3 166 301 145 612-22.8 18.5 10.7 2.0 Crop Science 213 162 375-6 369 144-32.4 20-87.7 164-56.3-216 -52 KA + KU PU + LS Polymers 185 45 230 131 65 196 316 112 428 44 31 75 360 143 503 24 68 92-87.0 51.1-60.0 98 41 139-25.2-36.9-29.1 122 106 228-61.4-5.4-46.7 99 53 152 125.0 71.0 102.7 221 159 380-38.6 11.2-24.5 Chemicals 132 123 255 7 262 77-41.7 30-75.6 107-58.0 52 159-39.3 * Fibers included in Polymers (PU + LS) effective April 1, 2002 241