Bayer : Financial News Conference -- Address by Werner Baumann -- Chairman of the Board of Management

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Ladies and Gentlemen,

On behalf of my colleagues on the Board of Management, I would like to welcome you here to Baykomm, where we will present our financial statements for 2016. We are very pleased that you could join us again today. I would especially like to welcome our guests from abroad, some of whom have traveled a long way to be here. We very much appreciate it.

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Fiscal 2016 was another very successful year for Bayer and we again posted a record operating performance. Both sales and clean EBITDA were higher than ever before. We can be very proud of our employees' achievement.

Also very important was that we made another great stride forward strategically. Here I'm talking above all about the agreed acquisition of Monsanto. With this transaction, we aim to further strengthen Bayer's Life Sciences business and create substantial additional value in the long term.

Of course, an acquisition of this magnitude is a marathon rather than a sprint. However, we have completed much of the distance already. In December, Monsanto's stockholders approved the transaction at an extraordinary stockholders' meeting. We are also making good progress with the financing of the transaction and securing the necessary antitrust clearances.

Furthermore, we last year undertook a number of smaller transactions and further expanded our innovation network with outstanding partners. I'll come back to that later on.

First, however, let me explain our business data for the past fiscal year.

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Sales of the Bayer Group rose by 3.5 percent to EUR 46.8 billion. As I already stated, that is a new record for Bayer. Our Life Science businesses - in other words excluding Covestro - contributed a 4.7 percent increase to total sales of EUR 34.9 billion. Please note that all the sales variations I mention are adjusted for currency and portfolio effects.

We also registered encouraging earnings growth last year. EBIT of the Bayer Group rose by nearly 13 percent to about EUR 7 billion after special charges of EUR 1.1 billion. EBITDA before special items increased by approximately 10 percent to EUR 11.3 billion. Core earnings per share rose by more than 7 percent to EUR 7.32.

Last year we once again invested substantially in strengthening our innovation capability. Research and development expenses of the Bayer Group - in other words, including Covestro - rose by 9.2 percent to nearly EUR 4.7 billion. In the Life Science businesses, research and development expenditures amounted to EUR 4.4 billion, which was nearly 13 percent of sales. This, too, is an all-time record for Bayer.

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Let's now take a look at business development in the divisions. Sales at Pharmaceuticals advanced by a gratifying 8.7 percent to EUR 16.4 billion. We expanded sales markedly in all regions.

Our key growth products once again made a substantial contribution: Xarelto™, Eylea™, Xofigo™, Stivarga™ and Adempas™ posted combined sales of EUR 5.4 billion, compared with EUR 4.2 billion in the previous year.

Our two best-selling products particularly, the anticoagulant Xarelto™ and the eye medicine Eylea™, made significant gains. Sales of Xarelto™ increased by 31 percent, mainly because of higher volumes in Europe and Japan. We also registered strong gains in the United States, where Xarelto™ is marketed by a subsidiary of Johnson & Johnson. Sales of Eylea™ rose by 33 percent, with business developing especially well in Europe, Canada and Japan.

Due to the gratifying development of business, we raised the combined peak annual sales potential of these five products last year - from previously at least EUR 7.5 billion to more than EUR 10 billion.

This assessment was recently reinforced by a Phase III clinical study involving rivaroxaban, the active ingredient in Xarelto™. The study showed that rivaroxaban can effectively prevent serious events such as heart attacks and strokes in patients with certain cardiovascular disorders. The study was ended ahead of schedule due to the outstanding efficacy of rivaroxaban. A very pleasing result - particularly for the patients affected who stand to benefit once Xarelto™ also becomes available in this indication following approval.

Based on the very good business performance, we also significantly raised earnings in the Pharmaceuticals Division, while at the same time increasing our research and development spending by more than EUR 300 million. EBITDA before special items climbed by 13.8 percent to EUR 5.3 billion. This yields an EBITDA margin before special items of 32.0 percent - an increase of 1.8 percentage points compared with the previous year.

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Let's now look at Consumer Health. Sales of self-care products increased by 3.5 percent to EUR 6 billion. This development largely mirrored that of our competitors. We posted substantial gains in Latin America and Asia/Pacific in particular. Sales increased slightly in the Europe/Africa/Middle East region, while business was level year on year in North America.

Among the Consumer Health products, the skin and intimate health brand Canesten™ and the prenatal vitamin Elevit™ posted double-digit sales growth. Business with our Bepanthen™ / Bepanthol™ wound and skin care products also expanded considerably.
Sales of Aspirin™ increased slightly. Including business with Aspirin™ Cardio, which is reported under Pharmaceuticals, sales were up by 5.0 percent to EUR 1 billion. On the other hand, business with the antihistamine Claritin™ receded.

EBITDA before special items of Consumer Health declined by 3.1 percent to EUR 1.4 billion. Earnings were diminished by a higher cost of goods sold and negative currency effects. This was largely offset by positive sales development and cost synergies. The clean EBITDA margin declined by 0.6 percentage points to 23.4 percent.

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Ladies and Gentlemen,

The market environment for our Crop Science Division remained weak last year, particularly in Latin America. Sales nonetheless held steady year on year at EUR 9.9 billion. The significant decline in Latin America was compensated by gains in the other regions.

At Crop Protection, sales were down sharply particularly for Insecticides, while the Fungicides and SeedGrowth businesses developed positively. Sales at Seeds & Traits advanced by more than 8 percent. Environmental Science also posted a gratifying gain of 4.5 percent.

EBITDA before special items of Crop Science matched the prior-year level, at EUR 2.4 billion. Earnings were lifted by higher selling prices, and the currency effect was also very positive due mainly to hedging transactions. These effects were offset by lower volumes, higher research and development expenses and higher impairment losses on receivables. The clean EBITDA margin of Crop Science increased by 0.6 percentage points to 24.4 percent.

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Last but not least - our Animal Health business unit. It grew sales by 4.8 percent to EUR 1.5 billion. Business developed especially positively in the North America and Asia / Pacific regions. The SerestoTM flea and tick collar registered very strong growth. EBITDA before special items was flat year on year at EUR 349 million.

As you know, Covestro remains fully consolidated on account of our continued majority interest of 64 percent at present. As that company presented its annual financial statements already the day before yesterday, I'd just like to mention the two most important key data. Sales of Covestro were level year on year at EUR 11.8 billion. Earnings improved considerably, with clean EBITDA advancing by 19.6 percent to nearly EUR 2 billion.

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Ladies and Gentlemen,

That concludes our look at our figures. As you can see, we were very successful operationally. However, last year was also marked by a major strategic step - the agreed acquisition of Monsanto.

The acquisition perfectly fits our strategy of aspiring to occupy leadership positions with our Life Science businesses in attractive, innovation-driven markets. I am convinced that, once the businesses have been combined, we would create substantial additional value in the long term through more innovation, stronger growth and greater efficiency.

In this way we are pursuing our mission 'Science For A Better Life,' because the combination of two highly innovative companies would above all also be beneficial for people and society. By 2050, our planet will likely be home to about ten billion people. How can all these people be fed although the amount of available farmland per head is declining? That's one of the most pressing questions of our time.

To find the answers, we need new ideas and the courage to implement them. In other words, we need innovation. By combining our expertise with that of Monsanto, we can become even more innovative - and make an even better contribution to safeguarding the world's food supply.

Together we would be able to offer farmers around the world a strong product portfolio: from seed through seed treatment to controlling weeds, pests and fungal diseases. Good customer support will play an ever more important role, particularly with regard to increasing digitization in agriculture. Monsanto would contribute valuable expertise in this area as well.

In our view, there is growing understanding for our strategy and the agreed acquisition of Monsanto - as shown by our share price, which is now substantially higher than it was when we announced our intention to acquire Monsanto.

And let me reiterate that the acquisition of Monsanto will not come at the expense of our other businesses.

We will continue to drive forward the organic growth of our Pharmaceuticals, Consumer Health and Animal Health businesses as before. And the necessary funding will also be available for investments at our sites as well as for smaller acquisitions and in-licensing.

So much for the rationale behind the merger. Where do we currently stand in this process? As I mentioned at the outset of my remarks, we are making good progress. As previously announced, the acquisition is to be financed through a mix of debt and equity. We implemented the first equity measure in November 2016 with the successful issue of mandatory convertible notes. Mr. Dietsch will discuss the financing in more detail in a moment.

We are also making good progress in obtaining antitrust approvals for the transaction. We have already applied for clearance from some two-thirds of around 30 authorities.

Bayer and Monsanto are working closely with the authorities. We are currently responding to a second request from the U.S. Department of Justice. In mergers of this magnitude, it is not unusual for the authorities to conduct a second, more in-depth discovery procedure. We had been expecting this to happen.

We have also submitted an application to CFIUS - the Committee on Foreign Investment in the United States - for approval of the acquisition.

In Europe, we are currently preparing our submission. As the European Commission has requested further documents, we now intend to file the submission in the second quarter of 2017.

As our businesses are highly complementary in terms of both products and geographical focus, we remain confident that we will be granted all the necessary clearances. We are aware that certain overlaps exist in the combined product portfolio so we will be collaborating with the authorities in this regard in order to find appropriate solutions.

This process is still at an early stage. Nonetheless, we are making all appropriate preparations to facilitate successful completion of the acquisition and the integration of the two companies.

Overall, we remain confident of closing the transaction before the end of 2017.

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Ladies and Gentlemen,

Let me now explain in a bit more detail what we are doing to further strengthen our innovation capability. This is of central importance for us, because innovation is our core competence and the foundation of our commercial success. It is based on excellence in research and development - including early-stage research, which serves to safeguard our long-term growth.

We maintain a global network of research and development locations, where more than 14,000 people are employed. Last year we increased our R&D investment in the Life Science businesses once again - to EUR 4.4 billion, with the Pharmaceuticals and Crop Science divisions accounting for some 90 percent of this amount. And we are planning a further increase in the current fiscal year.

Today, however, a company also needs excellent partners if it is to remain at the cutting edge of scientific and technological development. For this reason, we maintain a network of collaborations and strategic alliances with leading universities, public research institutes, partner companies and start-ups.

Let me give an example of this kind of cooperation. At the end of last year, we joined with Versant Ventures in establishing BlueRock Therapeutics to develop stem cell therapies for curing a range of diseases.

Bayer and Versant committed combined funding of US$225 million to this joint venture. BlueRock will use this start-up financing to transition numerous programs to clinical development, with an initial focus on cardiovascular diseases, neurological disorders and diseases of the central nervous system.

BlueRock Therapeutics is the second large investment made by the Bayer Lifescience Center. This strategic entity has the mission to rapidly uncover, encourage and unlock fundamental scientific breakthroughs in medicine and agriculture, which it seeks to achieve through collaborations or joint ventures with first-class biotechnology companies or academic institutes.

We reported at last year's Financial News Conference on the first major investment made by the Bayer Lifescience Center - a collaboration with CRISPR Therapeutics in the field of genome editing. Our joint venture began work last August as Casebia Therapeutics, which is headquartered in Cambridge, Massachusetts.

These efforts to further strengthen our innovation capability are paying off, as we can see in our development pipelines. At Pharmaceuticals, for example, we have a whole series of promising product candidates currently undergoing clinical development. Six of them - in the mid- to late-stage pipeline - have an estimated combined peak annual sales potential of at least EUR 6 billion.

At Crop Science, the combined peak annual sales potential of Bayer's crop protection and seed technology pipeline is estimated at more than EUR 5 billion from products that have been or will be brought to market between 2015 and 2020.

That concludes our look at our innovation activities. Mr. Dietsch will now discuss our business performance in the fourth quarter of 2016 and explain further details for the full year.

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DIETSCH ADDRESS
(see separate document)

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(Baumann' s address continues)

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Ladies and Gentlemen,

Let me now look ahead and explain our financial targets for 2017. We expect the positive development of the Bayer Group to continue in fiscal 2017. These forecasts are based on the exchange rates as at December 31, 2016.

As you can see on the slide, we are planning sales of approximately EUR 37 billion for the Life Science businesses. This corresponds to a mid-single-digit percentage increase on a currency- and portfolio-adjusted basis. EBITDA before special items of our Life Science businesses is targeted to increase by a mid- to high-single digit percentage.

For the Bayer Group as a whole - in other words also including Covestro - we are planning to increase sales to more than EUR 49 billion. This corresponds to a low- to mid-single-digit percentage increase on a currency- and portfolio-adjusted basis. Both EBITDA before special items and core earnings per share are expected to grow by a mid-single-digit percentage.

This brings us to the targets for the individual segments. We expect sales of Pharmaceuticals to advance by a mid-single-digit percentage on a currency- and portfolio-adjusted basis to more than EUR 17 billion. We plan to increase sales of our key growth products Xarelto™, Eylea™, Stivarga™, Xofigo™ and Adempas™ to more than EUR 6 billion. EBITDA before special items is targeted to rise by a high-single-digit percentage, and we aim to improve the clean EBITDA margin.

For Consumer Health, we are anticipating sales of more than EUR 6 billion which, in line with expected market growth, corresponds to a low- to mid-single-digit percentage increase on a currency- and portfolio-adjusted basis. We expect that EBITDA before special items will increase by a low- to mid-single-digit percentage.

At Crop Science, we expect sales to come in at more than EUR 10 billion and plan growth by a low-single-digit percentage on a currency- and portfolio-adjusted basis. EBITDA before special items is likely to be at the prior-year level.

For Animal Health, we anticipate a low- to mid-single digit percentage increase in sales on a currency- and portfolio-adjusted basis. We plan to raise EBITDA before special items by a high-single-digit percentage.

Ladies and Gentlemen,

As you can see, we are optimistic and have set ambitious targets for our company. Yet our long-term success is also highly dependent on the political and societal environment in which we operate. I'd like to say a few brief words about this.
Our high level of investment in research and development is associated with considerable risks. For example, today it costs an average of more than EUR 1 billion and usually takes more than ten years to develop a new drug product.

It's a similar scenario in chemical crop protection. Here the costs of developing a new product average EUR 250 million, and it generally takes 10 to 14 years from the first laboratory test to receiving marketing approval. Of 150,000 substances tested for their effectiveness in crop protection, only one or two eventually make it to the market.

Against this background, it is important to encounter reliable and innovation-friendly conditions in our markets. Unfortunately, there are a number of reasons for concern here. I'd like to mention two points.

First: Europe is experiencing an identity crisis, with centrifugal forces increasing. The United Kingdom has become the first country to decide to leave the European Union and go its own way.

In view of this situation, we need to inject new strength into the European ideal. The debate on how to achieve this has only just begun. One thing seems clear, however. Given the skepticism of many E.U. citizens about the institutions in Brussels, we can't simply carry on as before. The European Union will have to consider reform if it is to remain attractive in the long term. That's because we all need a Europe that is flourishing and fit for the future.

At the same time, Brexit should be shaped in such a way that the negative economic and social effects are minimized as far as possible. After all, barriers to free trade would ultimately harm everyone.

Second, for some time now we've been observing a profound change in the culture of political discourse. Unfortunately, objective debate can no longer be expected and emotions are increasingly the substitute for facts.

This, however, is resulting in a situation in which decisions are no longer based primarily on rational reasoning. It has made politics unpredictable - which is a severe handicap especially for innovative companies like Bayer that have to plan and invest on a long-term basis.

That's why we are advocating, for example, the introduction of a European innovation principle for examining the effects that all new laws might have on industry's innovation capability. This would meaningfully supplement the precautionary principle, which is productive and important. Together, the two principles could ensure a more balanced assessment of the benefits and risks of new technologies.

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Ladies and Gentlemen,

While certain political and social developments are a cause for concern to us and others, we still have every reason to be optimistic about the future. That is reflected in our expectations for 2017, as we have seen. And we started the new business year well.

We are also optimistic for the future beyond 2017. That's because we trust in our strengths: the attractiveness and sustainability of our corporate culture, the successful implementation of our strategy and, of course, the skills and creativity of our employees.

We therefore invest a great deal of effort in recruiting and retaining the best minds for Bayer. One indication of our success in this endeavor is the latest survey of 100,000 employees in Germany by Focus magazine, in which Bayer was rated the country's best employer for 2017. Bayer also ranks among the most popular employers in many other countries as well.

In conclusion, let me say that, over the past ten years or so, Bayer has evolved into a pure Life Science company with a clearly focused portfolio. We are now ideally positioned to benefit from and advance current technological developments in the Life Sciences. These include, for example, the groundbreaking genome editing technology or digitization, which offers amazing new opportunities in our businesses as well - in agriculture, for instance.

At the same time, there is great demand for new products and solutions in the Life Science areas in particular. As I already mentioned, we need innovations if we are to be able to feed the growing world population in the future. And we urgently need new advances in health care - such as new medicines to treat diseases like cancer or cardiovascular disease. That's because treatment options for two-thirds of the some 30,000 known diseases worldwide are still inadequate or non-existent.

In other words, by focusing on the Life Sciences, we are active in precisely those areas where an especially significant long-term need for innovation meets increasing technological possibilities. We are convinced that this is a recipe for the successful future of our company because it will enable us to deliver the greatest benefit to humankind. That's what we mean by Bayer: Science For A Better Life.

We 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: 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; 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 announcement of 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 SEC for the fiscal year ended August 31, 2016 and Monsanto's other filings with the SEC, which are available athttp://www.sec.govand on Monsanto's website atwww.monsanto.com; and other factors discussed in Bayer's public reports which are available on the Bayer website atwww.bayer.com. Bayer and Monsanto assume 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.