November 11, 2003
Bayer AG Fall Financial News Conference

Werner Wenning: Third-quarter results in line with expectations

Sales increase 4.6 percent after adjustment for portfolio and exchange rate effects / EBIT up 53 percent before special effects / Net debt cut to EUR 6.9 billion

- Against an unchanged and difficult economic background, the Bayer Group posted third-quarter results with which "we can by no means be satisfied, although they are largely in line with our expectations," as Bayer CEO Werner Wenning told the company's Fall Financial News Conference. Sales declined by 8.4 percent to EUR 6.83 billion, mainly due to currency effects. However, adjusted for portfolio and exchange rate effects, sales grew by 4.6 percent. EBIT was EUR 21 million. Adjusted for special effects - mainly the proceeds of the sale of Haarmann & Reimer in the same period last year - EBIT increased by 53 percent to EUR 104 million.

Wenning does not anticipate a sustained economic recovery before the end of the year, even though there are a few positive signals at the moment, especially from North America. He stated that, in connection with the extensive realignment of Bayer's portfolio, there would be a review of the valuation of all relevant assets in the fourth quarter. This may lead to charges against the fourth quarter, he said, but these would not affect cash flow or impair Bayer's ability to pay a dividend. "We expect EBIT before these special effects to increase by a double-digit percentage as forecast," said Wenning.

Speaking on the separation of considerable parts of the industrial business, he outlined the future alignment of the Bayer Group. Activities will focus on innovation and on accessing the Asian growth markets, in particular. The Bayer Group will be about 80 percent of its present size, with some 94,500 employees and annual sales of about EUR 22 billion. The expected return on sales in the current year for the future Bayer portfolio should be significantly higher than before.

"With our stronger focus, we will in future be able to dedicate the financial and management resources of the Bayer Group exclusively to the development and expansion of the three subgroups - HealthCare, CropScience and MaterialScience," said Wenning. "Bayer is an inventor company and we aim to continue concentrating on these abilities in future." The company is starting from a very good position because, in addition to its innovative strength, it also has excellent technology platforms and strong market positions. Wenning sees the main engines for growth as new products, especially those yielded by active ingredient research in the life science operations, the potential offered by new technologies such as biotechnology, and economic growth in Asia in general and China in particular.

Wenning explained that the new company, provisionally named "NewCo", would have a profitable portfolio which will include businesses such as material protection, basic chemicals, butyl rubber and semi-crystalline products, to name but a few. "We are convinced that both Bayer and NewCo will benefit from this split," he said. This year, Bayer expects the NewCo businesses to achieve EBITDA in the region of EUR 500 million to 550 million. This is equivalent to an EBITDA margin of about 10 percent, which certainly withstands comparison with NewCo's competitors. It is planned that NewCo will assume debts of around EUR 1.7 billion, including pensions. To safeguard its creditworthiness, a triple B rating is to be sought for the new company.

Turning to HealthCare, Wenning said that the Consumer Care, Diagnostics and Animal Health divisions would be concentrating more closely on consumer health activities: OTC, self-testing and companion animals. These businesses are in excellent shape and already hold very strong positions. It is planned to continue their active development and expand them to make Bayer the world's leading consumer health company. "We aim to achieve this by means of both internal and external growth."

Reporting on the process of seeking a partner for Bayer's Pharmaceuticals business, Wenning said that, after examining all the options, it was clear that none would adequately reflect the value of the Pharmaceuticals Division. The business will thus remain part of Bayer. "We therefore intend to focus on our own strengths and steer our Pharmaceuticals business with significantly modified structures towards a successful future," he said.

Bayer's pharmaceutical research will concentrate on the therapeutic areas of anti-infectives, cardiovascular and urology, in which the company already has a successful product range. Bayer also has some very promising developments in the oncology field. "In future we intend to position our realigned and refocused Pharmaceuticals Division among the leading mid-sized European pharmaceuticals businesses," said Wenning. "We are convinced this will generate the greatest value for our stockholders and employees."

In his comments on business developments, CFO Klaus Kühn pointed out that Bayer achieved EBIT of EUR 1.55 billion in the first three quarters of 2003 (2002: EUR 1.95 billion). Before special items, EBIT was up 53 percent to EUR 1.36 billion.

Net debt was reduced to EUR 6.9 billion by September 30, 2003, already achieving the goal set for the end of the year. "We believe we have some scope for a further reduction in the fourth quarter," said Kühn. Over a period of 17 months Bayer has brought down net debt to what it was prior to the acquisition of Aventis CropScience, and considerably strengthened its balance sheet again.

The non-operating result for the third quarter improved by 12.4 percent to minus 211 million, mainly due to lower interest expense following the significant reduction in debt. This resulted in pre-tax income of minus 190 million. Net income was minus 123 million. Due to higher tax payments than in the same quarter last year, gross cash flow dropped 12 percent to EUR 541 million. Net cash flow came in at EUR 1.19 billion due to a pleasing improvement in working capital. Said Kühn: "This figure underlines our company's cash-generating power."

The main contributor to third quarter performance was the HealthCare subgroup, which held sales more or less steady at EUR 2.26 billion. Before portfolio changes and in local currencies, business was up 11 percent. EBIT rose by EUR 88 million to EUR 216 million.

The CFO was particularly pleased that the anti-impotence drug Levitra got off to a successful start in the United States, where Bayer's product garnered 14 percent of new prescriptions by October. There are indications that in the growing market for anti-impotence drugs, Levitra is popular with patients who are being treated for their condition for the first time.

CropScience sales fell 14 percent to EUR 1.13 billion. Adjusted for portfolio changes and currency effects, business increased by 3.5 percent. Despite the lower sales and some restructuring charges, EBIT improved to minus EUR 134 million (2002: minus 219 million). The nine-month EBIT was EUR 342 million (2002: minus 53 million), and the EBIT margin 21 percent.

In Polymers, price erosion and currency effects caused a 5 percent drop in sales, to EUR 2.46 billion. EBIT fell sharply to minus EUR 11 million (2002: EUR 101 million), which Kühn said was due to weak demand, high raw material costs and, again, exchange rate effects. Sales of Bayer Chemicals declined by 24.1 percent to EUR 839 million; after adjusting for portfolio changes (EUR 210 million) and in local currencies, it almost matched the previous year. EBIT amounted to EUR 13 million.

Dr. Axel Claus Heitmann, CEO designate of NewCo, explained the strategy and objectives of the new company. The chemicals and polymers industries are currently undergoing far-reaching change, especially in Europe, he said. Spin-offs of the industrial sectors of major companies have brought a lasting increase in competition. In addition, Asian suppliers are advancing into the European and North American markets, also heightening the competition. As an independent company, NewCo will be able to respond faster and more flexibly to these changes. NewCo will also be operating in part in mature markets where there is already a substitution situation as far as competition is concerned. "In order to survive and be successful in these markets, the change to an independent company is both expedient and necessary," said Heitmann.

NewCo is to be positioned in the market as a competitive, steadily growing and above all value-creating company. Independence will enable NewCo to focus all its human and financial resources exclusively on its core businesses of chemicals and polymers. Being an independent, stock exchange listed company with its own reporting structures will also create greater transparency, both internally and externally, and help to show where there is scope for improvement. "Necessary structural adjustments will be systematically carried out," Heitmann stressed. "Our goals are ambitious, and achieving them will not be easy. But we will do everything to make our new company a success story."

Forward-looking statements<br/>
This news release 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.



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