Investor Handout Q3 2014 November 2014
This presentation 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 www.bayer.com. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments. Figures for 2012 have been restated due to changes in accounting policies relating to the accounting standards IAS 19R ( Employee Benefits ) and IFRS 11 ( Joint Arrangements ). In addition, Bayer changed accounting for the stock-based compensation program. Disclaimer
The New Bayer Creating Value as an Innovation and Science Company HealthCare CropScience Human Health Animal Health Plant Health Build on a track record of success in science and innovation Address attractive markets with high growth rates and profitability Exit MaterialScience high-tech polymers by mid-2016 at the latest Page 1 Bayer Investor Handout November 2014 The New Bayer A Pure Life Science Player Sales Split 2013 By Subgroup* Health Care Material Science HealthCare - 18.9bn sales Pharmaceuticals 11.2bn, leading positions in core indications Consumer Health 7.7bn, OTC #2, blood glucose meters #3, Animal Health #5, contrast media #1 Crop Science CropScience - 8.8bn sales Chemical crop protection & biologicals #2, seeds & traits Page 2 Bayer Investor Handout November 2014 *Excluding reconciliation
The New Bayer Setting Trends in Research-Intensive Areas of Life Science Page 3 Bayer Investor Handout November 2014 Performance/ Aspirations
Q3 2014 Strong Organic Growth / Earnings Performance Impacted By FX Sales in million % currency & portfolio adj. EBIT in million EBITDA adjusted* in million Core EPS in 9,643 10,187 1,221 1,376 1,984 2,011 1.27 1.35 Q3 13 Q3 14 Q3 13 Q3 14 Q3 13 Q3 14 Q3 13 Q3 14 +7% +13% +1% +6% Page 5 Bayer Investor Handout November 2014 *before special items Q3 2014 Full-Year Group Guidance Raised Sales Fx and portfolio adjusted, EBITDA before special items 2013 2014E as of Feb 14 (Avg. Fx rates Q4 13) 2014E* (Spot Fx rates as of Sep 30, 2014 for Q4 14) Sales 40.2bn ~5% to ~ 41-42bn (neg. FX effect approx. -2%) ~6% to ~ 42bn (neg. FX effect approx. -3%) adj. EBITDA 8.4bn low- to mid-singledigit % increase mid-single-digit % increase (neg. FX effect approx. -5%) (neg. FX effect approx. -5%) core EPS 5.61 mid-single-digit % increase (neg. FX effect approx. -6%) mid- to high-singledigit % increase (neg. FX effect approx. -7%) Page 6 Bayer Investor Handout November 2014 Outlook depends on specific planning assumptions as detailed in the Annual Report *including Merck & Co. Consumer Care business from Oct 1, 2014
Aspirations for HealthCare and CropScience Division Sales CAGR (2013-2016) EBITDA margin 2016 (before special items) HealthCare 6% ~30% Pharma 8% 33% Consumer Health* 3% ~24% CropScience 6% 24-25% Consumer Health aspirations will be updated to include Merck & Co. Consumer Care and Dihon Pharmaceutical Group after publication of Q4 results Page 7 Bayer Investor Handout November 2014 *Excluding pending transactions Deliver Profitable Growth
One of the Fastest-Growing Global Pharma Companies Pharma Sales billion; % Fx & portfolio adj. +1% 10.0 9.9 +4% 10.8 +9% 11.2 +12% 8.8 Plans for continued growth Maximize the value of launch products Drive commercial excellence in marketing and sales Advance early and mid-stage pipeline Achieve Phase III readiness for 5 projects in 2015 2010 2011 2012 2013 9M 2014 Explore opportunities for partnerships, open innovation and bolt-on acquisitions Page 9 Bayer Investor Handout November 2014 Pharma Launch Products Drive Growth - Combined Peak Sales Potential of 7.5bn Collective Sales billion 9M 2014 Individual Sales million ~2.8 58 128 0.1 0.1 0.4 1.5 1,163 Total 2.1bn 161 540 2010 2011 2012 2013 2014e Page 10 Bayer Investor Handout November 2014
Aspiring for OTC Leadership Consumer Care Sales billion, 2013 pro forma 5.5 3.4 2010 2013 Merck & Co. Consumer Care; pending Achievements Strong #2 position Some of the world s most recognized brands Track record of outperforming market growth Success in long-term brand building Highly complementary acquisitions, incl. Merck OTC Plans for continued growth Globalize established brands Launch innovation pipeline Execute Emerging Markets focus strategies Fully realize synergy potential from acquisitions Target strategic acquisitions and alliances Page 11 Bayer Investor Handout November 2014 Aspiring for Crop Protection Leadership CropScience Sales billion; % Fx & portfolio adj. Plans for continued growth 6.8 +9% 7.3 +12% 8.4 +9% 8.8 +12% 7.3 Strengthen portfolio through focused and integrated crop solutions Drive commercial excellence in marketing and sales Drive new product growth, invest in life-cycle management 2010 2011 2012 2013 9M 2014 Extend seeds portfolio by building business in soybeans and wheat Page 12 Bayer Investor Handout November 2014
New Products Drive Growth at Crop Protection Sales of New Crop Protection Products by Segment (2013) billion; new products launched since 2006; % y-o-y, fx adj. 2.6 Insecticides Fungicides +33% 1.1 1.5 1.8 1.5bn Herbicides Seed Growth 2012 2013 2014e 2016e New products generated 82% of absolute sales growth at Crop Protection Page 13 Bayer Investor Handout November 2014 Develop New Growth Opportunities
High Confidence in R&D Investments R&D Budget 2014 billion Pharma 0.4 1.9 Consumer Health 0.9 Crop Science Achievements 25 successful Phase III clinical trials at Pharma since 2010 Strengthened brands through multiple line or product introductions in Consumer Care Launched 30 active ingredients between 2000 and 2013 in CropScience Initiated R&D projects that leverage synergies between human, animal and plant health Expect R&D-to-sales ratio to increase Page 15 Bayer Investor Handout November 2014 Track Record - 25 Successful Phase III Clinical Trials at Pharma Since 2010 Major examples Various indications incl. treatment of deep vein thrombosis/pulmonary embolism, stroke prevention in atrial fibrillation and secondary prevention of acute coronary syndrome Wet age-related macular degeneration, diabetic macular edema, myopic choroidal neovascularization and central retinal vein occlusion Metastatic colorectal cancer and metastatic gastrointestinal stromal tumors Metastatic castration-resistant prostate cancer with symptomatic bone metastases Pulmonary arterial hypertension and chronic thromboembolic pulmonary hypertension Radioactive iodine refractory differentiated thyroid cancer Damoctocog alfa pegol Long-acting rfviii Prophylaxis in hemophilia A: Site-specific PEGylated Factor VIII with potential for 5-/ 7-days dosing intervals Page 16 Bayer Investor Handout November 2014
Mid- and Late-Stage Pharma Pipeline Progressing Project Mechanism Indication Status Copanlisib (BAY 80-6946) PI3-Kinase Inhibitor Cancer Phase II in NHL ongoing Finerenone (BAY 94-8862) MR Antagonist Chronic heart failure (CHF) Diabetic nephropathy (DN) Phase IIb in CHF ongoing; phase II in DN completed Molidustat (BAY 85-3934) HIF-PH Inhibitor Anemia Phase IIb ongoing Vericiguat (BAY 1021189) Vilaprisan (sprm) (BAY 1002670) sgc Stimulator Progesterone Receptor Antagonist Worsening chronic heart failure Symptomatic uterine fibroids Phase IIb ongoing; collaboration with Merck & Co. Inc. Phase IIb ongoing ODM-201 AR Antagonist Non-metastatic castrationresistant prostate cancer Phase III ongoing Page 17 Bayer Investor Handout November 2014 MR: Mineralocorticoid receptor; NHL: Non-Hodkin s lymphoma HIF-PH: HIF prolyl hydroxylase; sgc: Soluble guanylate cyclase; sprm: Selective progesterone receptor modulator; AR: Androgen receptor Expect Significant Newsflow from Progressing Pharma Pipeline Asset Intended Indication Status/ Expected Completion Milestone / Data Presentation* Targeted Finerenone Mineralocorticoid receptor antagonist Diabetic nephropathy Phase IIb; compl. 2H 2014e WCN March 2015e Worsening chronic heart failure Phase IIb; compl. end 2014e ESC Aug/Sept 2015e Vilaprisan Progesterone receptor antagonist Uterine fibroids Phase IIb; completion end 2015e Phase IIa data at SRI March 2015e Vericiguat sgc stimulator Worsening chronic heart failure Phase IIb; reduced ejection fraction - compl. mid 2015e Phase IIb; preserved ejection fraction - compl. mid 2015e AHA Nov 2015e Damoctocog alfa pegol Long-acting FVIII Copanlisib PI3 kinase inhibitor Regorafenib Multikinase inhibitor Molidustat HIF-PH inhibitor Hemophilia A Data from Phase III reported Filing mid 2016e Non-Hodgkin s lymphoma Phase II completion 1H 2015e ASH Dec 2015e Wet AMD (eye drops) Phase II completion 1H 2016e tbd Anemia Phase II completion 2H 2015e tbd ODM-201 Androgen receptor antagonist Non-metastatic castrationresistant prostate cancer Phase III completion 2018e tbd Page 18 Bayer Investor Handout November 2014 *Current plan for presentation
Continuous Flow of Product Innovation with Promising Potential at CropScience Innovation Execution Potential Chemicals Biologicals Seeds&Traits LCM Products launched 2011-2016* Peak sales 4bn 8 Chemicals 2 Herbicides 2 Fungicides 2 Insecticides 2 SeedGrowth 2 Biologicals 1 Fungicide 1 Insecticide 15 Seeds/traits 3 Cotton 6 Oilseed 4 Rice 1 Soybean 1 Wheat Seed varieties Several hundred new varieties in vegetables and broad acre crops Life-cycle management New formulations and mixtures, incl. Biologicals Page 19 Bayer Investor Handout November 2014 *Estimated and subject to regulatory approval Sivanto A New Premium Insecticide for Fruit and Vegetable Growers Significant benefits to growers quick feeding cessation effective virus vector control flexible applicability at any crop stage higher-quality produce at harvest Outstanding safety profile Use in fruits, vegetables and selected broad-acre crops Resistance management by novel butenolide chemistry (flupyradifurone) First launch in 2015* Page 20 Bayer Investor Handout November 2014 *Planned first registrations for foliar application; SeedGrowth use planned to follow subsequently
Life-Cycle Management Generates Returns Beyond Patent Expiry Sales Example: Fungicide Trifloxystrobin Nativo brand family Other brands Patent expiry Key Activities Innovative mixtures with IP Examples: Fox, Stratego Yield Efficiency gains by production process optimization Explore product properties beyond efficacy Examples: yield, quality, abiotic stress Develop integrated crop solutions Example: Much More Rice 2001 2003 2005 2007 2009 2011 2013 Page 21 Bayer Investor Handout November 2014 Building a Global Wheat Seed Business Largest Broad-Acre Crop Worldwide Measures Taken 7 wheat breeding centers operating Acquisition of superior germplasm Numerous alliances Significant R&D investments Planned Market Entry Launch of first variety planned in 2015 Suitable for Ukraine Open pollinated variety Hybrid seed varieties, providing opportunity for both yield increase and improved yield stability, expected after 2020 Market value still small - major potential seen with productivity improvement Page 22 Bayer Investor Handout November 2014
The Life Science Approach Promises Opportunities What we have achieved What we aim to achieve World-class Life Science businesses R&D excellence in established areas Track record of success in bringing innovation to patients and farmers Maintain R&D productivity and innovation leadership in existing areas and establish leading positions in new areas Gain new perspectives and explore the Life Science approach to target breakthrough innovations that address unmet needs Page 23 Bayer Investor Handout November 2014 Similar Challenges within Human, Animal and Plant Health Can Stimulate Life Science R&D Related challenges for human, animal and plant health* Potential for collaboration & synergies Regain control over unregulated growth Bring upcoming resistances back under control Understand and exploit the hostmicrobe interaction Page 24 Bayer Investor Handout November 2014 *Examples
Transforming into a Pure Life Science Company Portfolio Evolution Transaction Volume > 47bn Since 2004* Major examples only 2003 Sales 28.6bn Pro-Forma 2013 Sales 29.3bn HealthCare CropScience Diagnostics Plasma Divestitures 11bn Merck & Co. Consumer Care Dihon** Algeta Conceptus Steigerwald GmbH Teva Animal Health Schering AG Roche OTC + + + + + + + + HealthCare MaterialScience Capital-market exit planned Acquisitions 36bn Chemicals HC Starck Wolff Walsrode Lanxess spin-off Bayer Silicones Divested Divested AgraQuest + Athenix + Stoneville Cotton Seed + Gustafson Seed Treatment + CropScience Headcount: 115,400 Pro-forma headcount: 99,000 Page 26 Bayer Investor Handout November 2014 *Transaction volume: acquisitions/divestments 2004 - Aug 2014 **Closing expected in H2 2014
2014 Acquisitions Significantly Strengthen HealthCare Portfolio Algeta: Oncology portfolio Full control over Xofigo Comprehensive life-cycle management: studies in earlier settings of prostate cancer, combination studies, and other tumors Merck Consumer Care: American OTC/CC brands Creating global OTC #2 Scaling-up US business to #1 Gaining global leadership in dermatology and GI Entry into new categories: allergy, suncare, footcare Dihon Pharmaceutical Group: Chinese OTC brands Creating leading position amongst multinationals in OTC in China Access to lower-tier cities Page 27 Bayer Investor Handout November 2014 Note: Algeta closed in Mar 2014; Dihon signed in Feb 2014; Merck & Co. Consumer Care signed in May 2014 Demerger of MaterialScience: Leverage the Competitive Edge Strong fundamentals for successful operations Leading #1 & #2 positions in attractive, growing markets Broad customer base Global production network providing customer proximity State-of-the art process technology Significant investments in new plants during recent years... better leveraged as a separate company Ability to further develop own portfolio Autonomous funding capability Opportunity to develop a culture fitting with the business Tailored business processes and incentive systems MaterialScience has the potential to deliver significant value creation as a stand-alone business Page 28 Bayer Investor Handout November 2014
Demerger of MaterialScience: Design of Planned Capital-Market Exit H2 2014 2015 H1 2016 09/18 Supervisory Board Decision - Exit MaterialScience Preparation of pro-forma financials Design of MaterialScience New Legal carve-out Expected first trading day of MaterialScience New shares Targeted time frame for capital-market exit: 12-18 months Timing and structure of capital-market exit option depending on future market environment Investment of any potential proceeds mainly in Life Science businesses/ reduction of net debt Unhindered business operations safeguarded during exit preparation Page 29 Bayer Investor Handout November 2014 Credit Highlights
Bayer s Credit Highlights Diverse business model across geographies and segments Conservative capital structure and strong investment grade credit rating Careful balance sheet management and strong track record of deleveraging Active portfolio management approach with a proven track record of successful integration Strong and consistent cash flow generation with modest leverage Page 31 Bayer Investor Handout November 2014 Bayer Pursues a Conservative Financial Policy Centralized financial management as part of the strategic management holding Key Objectives: Ensure the Group s liquidity and creditworthiness at all times Maintain investment grade credit rating in the single A category Support a sustained increase in corporate value Measures: Optimization of capital structure Effective and efficient financial risk management to reduce earnings volatility Strict financial guidelines and worldwide financial governance Credit supportive financing of acquisitions Prudent debt management with excellent access to diverse sources of liquidity Multi-currency debt issuance program Syndicated credit facilities Bilateral loan agreements Global Commercial Paper program Page 32 Bayer Investor Handout November 2014
Net Financial Debt & Leverage in bn in % 20 Acquisition of Schering Divestments of Diagnostics, H.C. Starck & Wolff Walsrode 100 18 90 16 Acquisition of Merck & Co. CC 80 14 70 12 60 10 Acquisition of Algeta 50 8 40 6 30 4 Acquisition of Aventis CropScience 20 2 Net Financial Debt 10 0 (Net Financial Debt + Provision for Pensions) / Market Capitalization 0 Q4 2001 Q2 2002 Q4 2002 Q4 2003 Q4 2004 Q4 2005 Q2 2006 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q3 2014 11/2014 Page 33 Bayer Investor Handout November 2014 Prudent Debt Management Targeting Solid Single A Category Rating S&P Ratio (FFO/Net Debt) Moody's Ratio (RCF/Net Debt) 38% 38% 34% 28% 31% 32% 33% 25% 46% 39% 12/2009 12/2010 12/2011 12/2012 12/2013 S&P s A- A- A- A- (positive) Moody s A3 A3 A3 A3 A- (positive) A3 (positive) After the announcement to acquire Merck & Co. s Consumer Care Business in 05/2014 S&P s affirmed Bayer s A-/A-2 ratings (reducing outlook to stable). Moody's affirmed Bayer's A3/P-2 ratings (also reducing outlook to stable) After the announcement of the planned separation of MaterialScience in 09/2014, both rating agencies confirmed their current rating assessments Page 34 Bayer Investor Handout November 2014
Balanced Debt Maturity Profile million 3,500 3,000 2,500 EUR Hybrid First Call Dates EUR Bond Maturities USD Bond Maturities GBP Bond Maturities JPY Bond Maturities USD Term Loan EUR Promissory Notes and Major Loans 2,000 1,500 1,000 500 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Bonds and Major Loans as of Q3 2014 plus bond issuances in October + November 2014 Page 35 Bayer Investor Handout November 2014 Diversified Debt Structure Instrument* Nominal Outstanding ( billion) EUR Hybrid Bonds 4.6 EUR Senior Bonds 3.2 EUR Commercial Paper 1.7 EUR Major Loans 1.3 EUR Promissory Notes 0.1 EUR 3.5bn Backup Facility 0.0 USD 144A Senior Bonds ~5.6 USD 4y Term Loan ~1.6 JPY Senior Bonds ~0.5 GBP Senior Bonds ~0.4 Total ~19.0 USD 38% Currency Split** GBP 2% JPY 3% EUR 57% Notes * Major debt positions as of Q3 2014 plus bond issuances in October + November 2014 ** before derivatives Page 36 Bayer Investor Handout November 2014
Strong Cash Flow Generation Profile Figures in billion FY 2011 FY 2012 FY 2013 01-09 2014 Sales 36.5 39.8 40.2 31.2 adj. EBITDA* 7.6 8.3 8.4 7.0 Free Operating Cash Flow** 3.4 2.5 3.0 2.1 Net Financial Debt 7.0 7.0 6.7 8.5 Provision for Pensions 7.9 9.4 7.4 11.4 Market Capitalization 40.9 59.4 84.3 91.7 Net Financial Debt / adj. EBITDA 0.9 0.8 0.8 - Figures as reported in respective year * adj. = before special items ** Net Cash Flow minus Capex Page 37 Bayer Investor Handout November 2014 Merck & Co. Consumer Care Business: Acquisition Financing Structure Purchase Price Bridge+Term Loan Take-Out USD ~4.4bn EUR Hybrid USD 14.2bn USD 12.2bn 1-year loan with 2 extension options of 6 months USD 2.0bn 4-year Term Loan USD 7.0bn USD Senior Bonds USD ~0.7bn EUR Senior Bonds USD 2.0bn 4-year Term Loan The entire purchase amount was underwritten by 3 and subsequently syndicated to 23 of Bayer s key relationship banks. All 26 banks participated in the bond take-out. The bridge loan was drawn for 2 weeks. Page 38 Bayer Investor Handout November 2014
Bayer s Debt Issuance Highlights 2014 EUR 3.25 billion Hybrid Largest corporate EUR hybrid ever settled on July 1 ~EUR 11bn orderbook with >400 investors USD 7.0 billion 144A/RegS Largest bond ever issued by Bayer settled on October 8 Largest 144A ever issued from German corporate ~USD 27bn orderbook with >1,000 investors Tranches: Type Tenor Volume in million Coupon in % EUR Hybrid 61y (1st call in 2020) 1,750 3.0 EUR Hybrid 60y (1st call in 2024) 1,500 3.75 USD Senior FRN 2y 500 3M USDLIBOR + 0.25 USD Senior FRN 3y 400 3M USDLIBOR + 0.28 USD Senior 3y 850 1.5 USD Senior 5y 2,000 2.375 USD Senior 7y 1,500 3.0 USD Senior 10y 1,750 3.375 Page 39 Bayer Investor Handout November 2014 Summary
Conclusion Bayer is well positioned in its markets Strong track record of performance 2014 Group guidance targets further sales and earnings growth Strong growth momentum in the Life Science businesses Planned capital-market exit of MaterialScience to create a world-class Life Science company and a market leader in high-tech polymers under new ownership Acquisition of Merck & Co. s Consumer Care business creates a global leader in OTC Conservative financial policy in place - targets credit rating in the single A category Page 41 Bayer Investor Handout November 2014
Date Event Publication Thursday, February 26, 2015 Thursday, April 30, 2015 Wednesday, May 27, 2015 Wednesday, July 29, 2015 Thursday, October 29, 2015 Investor Conference Call Investor Conference Call Annual General Meeting Investor Conference Call Investor Conference Call 2014 Annual Report First Quarter 2015 Results Stockholders Newsletter Second Quarter 2015 Results Stockholders Newsletter Third Quarter 2015 Results Stockholders Newsletter Reporting Events and AGM
Dr. Alexander Rosar Head of Investor Relations Phone: +49-214-30-81013 E-mail: alexander.rosar@bayer.com Dr. Jürgen Beunink Phone: +49-214-30-65742 E-mail: juergen.beunink@bayer.com Judith Nestmann Phone: +49-214-30-66836 E-mail: judith.nestmann@bayer.com Peter Dahlhoff Phone: +49-214-30-33022 E-mail: peter.dahlhoff@bayer.com Constance Spitzer Phone: +49-214-30-33021 E-mail: constance.spitzer@bayer.com Dr. Olaf Weber Phone: +49-214-30-33567 E-mail: olaf.weber@bayer.com Debt investors may also contact: Dr. Sven Vorstius Head of Capital Markets Phone: +49-214-30-48334 E-mail: sven.vorstius@bayer.com Contacts