Wednesday - October 26, 2016

News Conference Call for the Third Quarter of 2016

Address by Werner Baumann

Chairman of the Board of Management

(Please check against delivery)


Ladies and gentlemen,

I too would like to welcome you most warmly to today’s conference call, during which we will be presenting our business figures for the third quarter of 2016. You will have received our news release early this morning so I would like to keep my remarks brief to ensure we have enough time for your questions.


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As you know, this quarter was very special for us. The announcement that we had reached agreement to acquire Monsanto is a major strategic milestone for Bayer. We will be creating a global leader in agriculture and, at the same time, reinforcing our leadership position as a Life Science company. I would like to comment on the next steps in this transaction and its strategic rationale at the end of my remarks.

Let me first reflect on our business performance. The third quarter was very successful in operational terms as well. We continued on our path of growth and increased sales and earnings year on year.

In the Life Science activities – our core business – we achieved encouraging sales and earnings growth overall.

Our Pharmaceuticals Division especially once again registered very good business development. Consumer Health, our business with self-care products, achieved moderate sales growth. The Crop Science Division was successful in a persistently difficult market environment and held operating performance steady year on year. Animal Health raised sales and earnings.

Covestro, which remains fully consolidated on account of our present majority interest of 64 percent, registered slight growth in sales and substantially expanded EBITDA before special items.

In light of these developments, we remain very confident for the current fiscal year and have raised our guidance for core earnings per share.

This brings us to the individual figures. Please note that the sales variations I mention are adjusted for currency and portfolio effects.


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Sales of the Bayer Group in the third quarter of 2016 amounted to EUR 11.3 billion – year-on-year growth of 3.5 percent. EBITDA before special items actually increased by 6.0 percent to EUR 2.7 billion.

EBIT advanced by 14.2 percent to EUR 1.8 billion after special charges of EUR 125 million. EBIT before special items rose by 8.1 percent to EUR 1.9 billion.

Net income came to EUR 1.2 billion, representing growth of 18.8 percent against the prior-year period. Core earnings per share advanced by 2.4 percent to EUR 1.73.

We further reduced net financial debt in the third quarter. It stood at EUR 15.8 billion on September 30, 2016 – EUR 2 billion lower than at the end of the preceding quarter.

I would now like to turn to the business performance of the individual divisions.


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Turning first to our Pharmaceuticals Division, sales rose by a gratifying 7.6 percent in the third quarter of 2016 to EUR 4.2 billion. Business expanded in all regions.

Our recently launched products especially showed continued strong development. Our oral anticoagulant Xarelto™, the eye medicine Eylea™, the cancer drugs Xofigo™ and Stivarga™, and the pulmonary hypertension treatment Adempas™ posted total combined sales of EUR 1.4 billion, up by around 28 percent against the prior-year quarter.

Xarelto™ posted the strongest growth of 34 percent, mainly in Europe and Japan. We also considerably raised sales of Eylea™ by around 27 percent year on year.

EBITDA before special items of Pharmaceuticals increased by a substantial 13.4 percent to EUR 1.4 billion in the third quarter of 2016, although investment in research and development remained disproportionately high. One factor in this earnings growth was the very good development of business and another was our success in keeping selling expenses at around the same level year on year.


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Let’s now look at Consumer Health. Sales of this division rose by 3.6 percent to EUR 1.4 billion. Business developed positively in the Latin America / Africa / Middle East, North America and Asia / Pacific regions. In Europe, however, sales declined slightly, albeit compared with a strong prior-year quarter.

The analgesic Aleve™, the vitamin products Elevit™ and One A Day™ and the Alka-Seltzer™ family of products to treat gastric complaints and cold symptoms posted double-digit growth.

However, business with our antihistamine Claritin™ and our sunscreen product Coppertone™ receded. Sales of our Bepanthen™ / Bepanthol™ wound and skin care products were also down slightly, whereas sales of Aspirin™ were level year on year.

Despite the positive business performance, EBITDA before special items of Consumer Health declined by 3.5 percent to EUR 328 million in the third quarter. This was mainly attributable to the higher cost of goods sold and negative currency effects of around EUR 20 million.


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At EUR 2.1 billion, sales of the Crop Science Division were steady at the prior-year level. Our agriculture business thus remained successful in a persistently difficult market environment.

Business at Crop Protection / Seeds was steady overall at the prior-year level despite the weak market environment, particularly in Latin America. At Crop Protection, Fungicides especially posted an encouraging increase, whereas the Insecticides business saw a double-digit decline. By contrast, Seeds gained more than 20 percent. Sales of Environmental Science also developed very encouragingly.

EBITDA before special items of Crop Science increased by 0.6 percent to EUR 318 million. Higher selling prices and a currency effect of around EUR 80 million had a positive impact, standing against lower volumes, higher write-downs on receivables and higher research and development expenses, among other things.

Our Animal Health business unit, which is represented on the Board of Management by Liam Condon, head of the Crop Science Division, grew sales by 2.5 percent to EUR 360 million. In particular, business with our Seresto™ flea and tick collar developed positively, advancing by almost 20 percent. EBITDA before special items of Animal Health increased by 6 percent to EUR 89 million.


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Following this overview of our business performance, I would now like to briefly detail our financial targets for the full year. Please note that we are now basing our forecasts for the fourth quarter on the exchange rates prevailing on September 30.

For the Bayer Group as a whole, in other words also including Covestro, we are still planning sales of EUR 46 billion to EUR 47 billion in 2016. This continues to correspond to a low-single-digit percentage increase on a currency- and portfolio-adjusted basis.

As before, we plan to increase EBITDA before special items by a high-single-digit percentage. We are raising our guidance for core earnings per share from continuing operations, which we now aim to increase by a high-single-digit percentage. Previously, we had been targeting an increase by a mid- to high-single-digit percentage.

We continue to plan sales of approximately EUR 35 billion for the Life Science activities, i.e. the Bayer Group excluding Covestro. This still corresponds to a mid-single-digit percentage increase as previously forecasted. As before, we plan to increase EBITDA before special items by a mid- to high-single-digit percentage.

We continue to expect net financial debt at below EUR 16 billion at the end of 2016.


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Ladies and gentlemen,

Overall, our business performance in the third quarter has confirmed our confidence for the current year. And we also have good reason to be optimistic for the future beyond 2016. We have therefore set ambitious growth and earnings aspirations for the mid term as well.

At Pharmaceuticals, we are seeking to achieve average annual sales growth of around six percent through to the end of 2018. We are aiming for an EBITDA margin before special items of between 32 and 34 percent in 2018, up from around 30 percent in 2015.

In particular, our recently launched Pharmaceuticals products are expected to contribute to this development and we have raised their combined peak annual sales potential from at least EUR 7.5 billion to more than EUR 10 billion.

We intend to increase momentum at Consumer Health as well. By the end of 2018, we are seeking to achieve average annual sales growth of four to five percent. We are aiming for a clean EBITDA margin of approximately 25 percent in 2018 – after 24 percent last year. In achieving these aims, we will be relying on our broad portfolio of strong global brands.

Lastly, at Crop Science we are seeking to achieve above-market average annual sales growth in the years ahead. The agreed acquisition of Monsanto has already been taken into account in this aspiration. The combined agriculture business is expected to achieve an EBITDA margin before special items of more than 30 percent after the third year following closing of the transaction. On a pro forma basis, this parameter stood at around 27 percent in 2015.

To conclude my remarks, let me briefly touch on the merger with Monsanto.

As you know, we signed a definitive merger agreement on September 14 that enables Bayer to acquire Monsanto for USD 128 per share in an all-cash transaction. Monsanto’s Board of Directors, Bayer’s Board of Management and Bayer’s Supervisory Board have unanimously approved the agreement. We have now initiated the process for obtaining the requisite merger control clearances. We intend to submit the necessary application in the United States before the end of this year and in the European Union probably in the first quarter of 2017. Closing of the transaction is expected by the end of 2017.

This step is entirely logical. We are strengthening our Crop Science business – and we are strengthening Bayer as an innovative global Life Science company with leadership positions in our core businesses.

The two companies are a perfect fit and complement each other ideally. We will combine our strengths in seeking solutions to one of the major societal challenges: how to feed a substantially growing global population in an ecologically sustainable way.

Our portfolio will be tailored to the needs of customers throughout the world – from large-scale commercial operations in the United States to smallholder farmers in India. We aim to help produce enough safe, healthy and affordable food. That is what we are committed to achieving: for the benefit of our customers, stockholders and employees and for society as a whole.

Thank you for your attention. I now look forward to taking your questions.

Cautionary Statements Regarding Forward-Looking Information
Certain statements contained in this communication may constitute “forward-looking statements.” Actual results could differ materially from those projected or forecast in the forward-looking statements. The factors that could cause actual results to differ materially include the following: the risk that Monsanto Company’s (“Monsanto”) stockholders do not approve the transaction; uncertainties as to the timing of the transaction; the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the merger within the expected time-frames or at all and to successfully integrate Monsanto’s operations into those of Bayer Aktiengesellschaft (“Bayer”); such integration may be more difficult, time-consuming or costly than expected; revenues following the transaction may be lower than expected; operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected following the transaction; the retention of certain key employees at Monsanto; risks associated with the disruption of management’s attention from ongoing business operations due to the transaction; the conditions to the completion of the transaction may not be satisfied, or the regulatory approvals required for the transaction may not be obtained on the terms expected or on the anticipated schedule; the parties’ ability to meet expectations regarding the timing, completion and accounting and tax treatments of the merger; the impact of indebtedness incurred by Bayer in connection with the transaction and the potential impact on the rating of indebtedness of Bayer; the effects of the business combination of Bayer and Monsanto, including the combined company’s future financial condition, operating results, strategy and plans; other factors detailed in Monsanto’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) for the fiscal year ended August 31, 2016 and Monsanto’s other filings with the SEC, which are available at http://www.sec.gov and on Monsanto’s website at www.monsanto.com; and other factors discussed in Bayer’s public reports which are available on the Bayer website at www.bayer.com. Bayer assumes no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.

Additional Information and Where to Find It
This communication relates to the proposed merger transaction involving Monsanto Company (“Monsanto”) and Bayer Aktiengesellschaft (“Bayer”). In connection with the proposed merger, Monsanto and Bayer intend to file relevant materials with the U.S. Securities and Exchange Commission (the “SEC”). Monsanto has filed with the SEC a preliminary proxy statement on Schedule 14A and will file and provide to Monsanto stockholders a definitive proxy statement (the “Proxy Statement”) that will contain important information regarding the proposed merger. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, and is not a substitute for the Proxy Statement or any other document that Monsanto may file with the SEC or send to its stockholders in connection with the proposed merger. STOCKHOLDERS OF MONSANTO ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE DEFINITIVE PROXY STATEMENT, WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders will be able to obtain the documents (when available) free of charge at the SEC’s website, http://www.sec.gov, and Monsanto’s website, www.monsanto.com, and Monsanto stockholders will receive information at an appropriate time on how to obtain transaction-related documents for free from Monsanto. In addition, the documents (when available) may be obtained free of charge by directing a request to Corporate Secretary, Monsanto Company, 800 North Lindbergh Boulevard, St. Louis, Missouri 63167, or by calling (+1) (314) 694-8148.

Participants in Solicitation
Monsanto, Bayer and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the holders of Monsanto common stock in respect of the proposed transaction. Information about the directors and executive officers of Monsanto is set forth in the proxy statement for Monsanto’s 2016 annual meeting of stockholders, which was filed with the SEC on December 10, 2015, and in Monsanto’s Annual Report on Form 10-K for the fiscal year ended August 31, 2016, which was filed with the SEC on October 19, 2016. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the Proxy Statement and other relevant materials to be filed with the SEC in respect of the proposed transaction when they become available.

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