2013 mar 20 — bayer ag

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Bayer AGPharmaceuticals

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Life Science businesses delivering well

On Tuesday Bayer held its annual Meet Management event inLeverkusen. In this note we review some key themes from the event

and update our model after the Q4 results. We think Bayers Life Science divisions (Healthcare and Crop) are

performing extremely well, driven by new products from the pipeline.We have increased forecasts in all divisions with group core EPSforecasts increasing by 2-5%. Our DCF- and SOTP-derived pricetarget climbs from 80 to 85 and we reiterate our Buyrecommendation.

At the group level CEO Marijn Dekkers continues to emphasise theimportance of the Life Science model (Healthcare and Crop), whichnow makes up 85% of group EBITDA. However, he also indicatedthere would be no immediate changes to the group structure. We

would not expect major acquisitions either. Dr Dekkers emphasisedorganic growth as the top priority for the company and we expectBayer to remain disciplined on external opportunities.

Within Healthcare the pipeline roll-out continues. The companyreiterated the more than 5.5bn sales potential for Xarelto, Stivarga,Eylea, alpharadin and riociguat. The roll out of Xarelto will be closelywatched now that Eliquis is approved in the US and Europe.However, Bayers Andreas Fibig thinks the initial signs show there hasbeen no meaningful impact on Xarelto. Furthermore, he believes thenext-generation anticoagulants are beginning to make real inroads intodisplacing warfarin.

The CropScience division is rolling out a pipeline with close to 2bn

sales potential and that is already showing through in the sales growthfor 2011 and 2012. The company reiterated its confidence that 2013will be another very good year.

MaterialScience remains the laggard, falling short of its CFROICtarget. This division needs to see demand absorb excess capacity,particularly in polycarbonates (PCs). However, there are encouragingsigns of growth and the company thinks it can cross its returns hurdlein 2015.

BuyRating system

Current price

EUR 78.24

Absolute

Price target

EUR 85.0019/03/2013 XETRA CloseMarket cap EUR 64,700mReuters BAYGn.DEBloomberg BAYN GY

Changes made in this noteRating Buy (no change)Price target EUR 85.00 (80.00)

Chg 2013 2014e 2015eold % old % old %

Sales 40279 1.7% 42017 2.3% 43765 2.7%EBIT 5792 1.5% 6325 2.6% 6875 3.8%EPS 5.73 1.9% 6.36 2.6% 7.02 3.6%Source: Berenberg Bank estimates

Share dataShares outstanding (m) 827Enterprise value (EURm) 70,158Daily trading volume 2,598,000

Performance dataHigh 52 weeks (EUR) 79Low 52 weeks (EUR) 48Relative performance to SXXP DAX1 month 6.5 % 4.9 %3 months 7.6 % 4.9 %12 months 41.2 % 36.3 %

Key dataPrice/book value 1.3Net gearing 10.5 %CAGR sales 2011-2016 4.0 %

CAGR EPS 2011-2016 22.5 %

Business activities:Development, production and marketingof pharmaceutical goods; material andcrop sciences.

20 March 2013

Alistair CampbellAnalyst+44 20 3207 [email protected]

Louise HindsAnalyst+44 20 3465 [email protected]

Frazer HallSpecialist Sales+44 20 3207 [email protected]

Y/E 31.12., EURm 2012 2013E 2014E 2015E 2016E

Sales 39,760 40,948 42,964 44,933 46,588

EBITDA 8,284 8,773 9,439 10,132 10,669EBIT 5,671 5,880 6,487 7,133 7,634

Net profit 2,446 3,809 4,379 4,995 5,505

Y/E net debt (net cash) 7,837 5,458 2,688 -900 -4,847

EPS (reported) 2.96 4.61 5.30 6.04 6.66

EPS (recurring) 5.35 5.84 6.53 7.27 7.89

CPS 5.48 7.96 8.46 9.04 9.58

DPS 1.90 2.34 2.61 2.91 3.16

Gross margin 51.5% 51.5% 52.0% 52.5% 52.5%

EBITDA margin 20.8% 21.4% 22.0% 22.5% 22.9%

EBIT margin 14.3% 14.4% 15.1% 15.9% 16.4%

Dividend yield 2.4% 3.0% 3.3% 3.7% 4.0%

ROCE 10.2% 15.3% 17.1% 18.5% 18.5%

EV/sales 1.8 1.8 1.7 1.6 1.6

EV/EBITDA 8.8 8.3 7.7 7.2 6.8

EV/EBIT 12.8 12.4 11.2 10.2 9.5

P/E 14.6 13.4 12.0 10.8 9.9

Cash flow RoEV 6.2% 9.0% 9.6% 10.3% 10.9%

Source: Company data, Berenberg Bank

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All about execution

Bayers annual Meet Management day in Leverkusen once again provided anexcellent opportunity to understand how well the company is positioned and howkey executives expect the business to evolve in the medium term. In truth,following hot on the heels of the Q4 results, there was no new news to share.However, Bayer remains very well positioned in its two main divisions ofHealthcare and CropScience. The Healthcare division is rolling out an excellentportfolio of new products and this division will be the primary driver of top-linegrowth and margin expansion for the foreseeable future. It is all about deliveringon the promise built from its pipeline.

In this note we review some highlights from the key divisions, with a fewilluminating slides from the event. We also update our model following the Q4

results.

The strategic view

CEO Marijn Dekkers pointed to the overall aim of the company, science for a better life, with an emphasis on human, animal and plant life. This Life Sciencesconcept at Bayer, first discussed in detail last year, is now responsible for 70% ofsales and 85% of EBITDA.

Life Sciences on the rise

Source: Bayer Meet Management Event 2013

As ever, this raises the question as to whether the MaterialScience division reallyhas a long-term future within the group. The CEO gave little away. He stressedthat each generation of management at Bayer has had the opportunity to reviewand improve the corporate portfolio, and the company has undergone substantialchange over the years. But he also added that he did not see the need to keep the

same pace of change when he took over as CEO. That does not mean largereorganisations are off the table, but there is no big necessity to do anything majornow. We think this is sensible, particularly given that the MaterialScience divisionneeds time to prove it can generate adequate returns (more later), but we continue

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to believe Bayer will part company with MaterialScience and become a 100% LifeScience company in the medium term.

Meanwhile, the near-term priority is delivering the pipeline in the pharmaceuticalsbusiness. The company reiterated its 5.5bn peak sales expectation for the fivemajor pipeline products of Xarelto, Stivarga, Eylea, alpharadin and riociguat. Inreality this portfolio is not really pipeline anymorethree of these drugs now haveregulatory approval and a fourth should gain approval before year end. It is now allabout realising the commercial potential for these drugs and the company revealedhow it thinks this collection of products will drive sales over the next three years.

Pipeline rolling out


Given the growth potential in the pharmaceuticals division, it is no surprise thattop-line organic growth is the number one priorityfor Bayer. Bolt-on deals willbe considered, but only if they make strategic sense, and only at the right price.Over dinner, CFO Werner Baumann reiterated Bayers stance that it is not willing

to give up more than 50% of the value of synergies in any transaction to the seller,unless there is an extremely compelling strategic rationale for the deal. Last yearsfailed attempt to acquire Schiff was a case in point. Bayer liked the deal and wantedto acquire Schiff, but it could not justify raising the offer to compete with Reckittso stepped aside. This financial prudence is good news for investors.

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Healthcare in delivery mode

The healthcare sessions were presided over by the interim divisional head,

Wolfgang Plischke. The sessions focused on the roll out of the key late-stageassets, with Xarelto leading the way.

So far, Xareltos roll out has been a success. It is stripping market share fromBoehringer Ingelheims Pradaxa and beat analyst expectations throughout 2012.However, it now faces a new challenge with the launch of Pfizer/Bristol-MyersEliquis. It is still very early days in the launch, but the initial signs from the USprescription data are encouraging. Early prescription data for Eliquis will beunreliable due to product sampling during the launch phase. Nevertheless, we donot see evidence of an impact on Xarelto prescriptions.

Andreas Fibig pointed to further encouraging signs in the marketplace. He believesthe roll out of Eliquis shows that the later you are to market, the harder it is to

establish a dominant position. He thinks this will also apply to the potential fourthentrant, edoxaban. Dr Fibig also hinted that the working relationship betweenPfizer and Bristol is not ideal, and this could account for what he sees as arelatively muted roll out.

More importantly for the class as a whole, Bayer thinks the new agents are finallygaining momentum versus warfarin. The stickiness of warfarin was probably thebiggest problem during the launch phase of the newer anticoagulants. Dr Fibignow believes warfarin is beginning to retreat and there is an accelerating switch tonewer agents. This is good news because the true multi-billion dollar potential ofthis drug class relies upon the displacement of warfarin. If this trend gathers pace,there will be sufficient room for all of the new anticoagulants to be successful.

Given this background, Dr Fibig described the guidance for Xarelto sales of600m this year as probably on the conservative side.

The next three years will be underpinned by the late-stage pipeline, but there weresome questions raised about the depth of the pipeline behind phase III. In fact theearly pipeline does look thin.

Pipeline lacks depth


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Bayer did recognise that this is a potential problem and it is its intention toreinforce the phase I/II line up with new projects and further lifecycle

management studies with later-stage drugs.However, it is also fair to say that the company has time on its sidewith Xarelto,Stivarga, Eylea, alpharadin and riociguat rolling out in the next few years, there willbe no desperate need for a late-stage product. The company has time to reload, butwe believe this process needs to start now.

Finally the departure of Jrg Reinhardt for Novartis leaves a vacancy at the top ofthis division. The company believes it has the operational team in place to deliverthe pipeline and there is no need to rush to make a new appointment. Bayer hasstarted the process of reviewing internal and external candidates, but we would notexpect an imminent appointment. Wolfgang Plischke indicated the company willtake time to make sure the right appointment is made.

CropScience still going strongfor now

After an excellent 2011 and 2012 we were concerned that the division could havepeaked. The guidance for 2013 of high single-digit sales growth suggests that is notthe case.

The key to this divisions recent success is its pipeline. When Dr Dekkers first tookover at Bayer, he quickly identified this division as an area in need of an overhaul.Dr Dekkers believed the division had been guilty of failing to deliver on itsexcellent science base. Innovative products came to market but did not get theprice points they deserved. Over the last 2-3 years this has changed.

This division continues to have a well-stocked pipeline, but now products reach

the market and are priced for the added value they deliver. The sales potential ofproducts launched from 2006 is approaching 2bn; off a 2006 sales base of under6bn, its easy to see how this portfolio is transforming the division.

CropScience new product developmenta 2bn platform


This pipeline is set to underpin 6% compound sales growth towards 10bn in salesby 2015.

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This great opportunity requires investment. A significant part of the increasedcapex budget for 2013 is aimed at boosting capacity in this division. Furthermore,

the crop business is working capital intensive and as the top-line grows so will theworking capital requirement. The capex pressures should ease over a few years, butwe will be watching to see whether Bayer can translate the sales opportunity intogood cash generation further ahead.

Materially important?

The MaterialScience division remains the underperformer within the group. Onceagain in 2012 this division failed to deliver a return above its hurdle WACC. This islargely due to the current phase of the cycle. Bayer made substantial investments innew capacity in 2005-08, particularly in PC and polyurethane (TDI and MDI).Unfortunately, these investments were made pre-crisis and, subsequently, demandhas fallen short. Nevertheless, the company believes the underlying drivers of PC

and polyurethane demand are robust and will return in coming years. In fact, thecompany already sees some recovery in demand in China, a vital market for thisdivision.

Division head Patrick Thomas provided an excellent overview of its intelligence onindustry supply and demand for the three core segments of PC, TDI and MDI.

MaterialSciencedemand to absorb more excess capacity through 2015


MaterialScience demand to absorb more excess capacity through 2015

This division intends to deliver a cash flow return on invested capital in excess ofWACC by 2015. We think growing demand for PCs in particular is key toachieving this target. Early signs are encouraging. After declining 7% in 2011,Bayers PC sales stabilised in 2012. Some key areas of PC demand are growing, forexample the prestige car market an Audi A6 typically uses around 30kg of PCcompared with 4kg in a Chinese-made Cherry.

PC sales will be the key number to watch this year. After sales growth of 1% lastyear we forecast 3% this year.

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Berenberg forecasts versus Bayers2013 guidance

Berenberg forecasts versus Bayers2015 guidance

2013 Bayer guidance Berenberg estimates

Group

Full year sales Grow 4-5% towards 41bn 40.9bn

USD:EUR Currency Assumption $1.29 per $1.31

EBITDA before special items mid single digit increase 5.9%

Core EPS high single digit increase 9.1%

HealthCare

Sales growth (CER) mid single digit growth to 19bn 19.1bn

EBITDA before special items margin slightly up from 27.2% 28.0%

Pharma


EBITDA before special items margin slightly up from 29.6% 30.0%

Consumer


EBITDA before special items margin level with prior year (23.9%) 24.0%

CropScience

Sales growth (CER) high single digit growth to 9bn 8.8bn

EBITDA before special items margin slightly up from 24% 24.0%

MaterialScience

Sales growth (CER) slight increase to 12bn 11.6bn

EBITDA before special items Adj. EBITDA to improve 1.8%

Further assumptions

CapEx approx. 1.9bn 1.9bn

R&D 3.2bn 3.2bn

Source: Company reports, Berenberg estimates

2015 Bayer guidance Berenberg estimates

HealthCare

Sales Towards 22bn 21.0bn

EBITDA margin Towards 29% 29.7%

Pharma

Sales towards 13bn 12.3bn

EBITDA margin >31% 31.8%

Consumer

Sales ~9bn 8.7bn

EBITDA margin ~25% 24.7%CropScience

Sales towards 10bn 9.8bn

EBITDA margin ~24% 24.0%

Source: Company reports, Berenberg estimates

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Forecast changes

(m) 2013 E 2014 E 2015 E 2016 E 2017 E

Group Sales New 40,948 42,964 44,933 46,588 48,064

Old 40,279 42,017 43,765 45,333 46,728

Chg 1.7% 2.3% 2.7% 2.8% 2.9%

Group core EBIT New 5,880 6,487 7,133 7,634 8,036

Old 5,792 6,325 6,875 7,307 7,642

Chg 1.5% 2.6% 3.8% 4.5% 5.2%

Pharma Sales New 11,239 11,868 12,534 13,034 13,463

Old 11,051 11,537 12,091 12,591 13,026

Chg 1.7% 2.9% 3.7% 3.5% 3.4%

- EBITDA (underlying) New 3,421 3,740 4,092 4,365 4,595

Old 3,325 3,581 3,901 4,165 4,355

Chg 2.9% 4.4% 4.9% 4.8% 5.5%

Consumer Sales New 8,000 8,342 8,671 8,985 9,262

Old 7,889 8,209 8,506 8,775 8,996

Chg 1.4% 1.6% 1.9% 2.4% 3.0%


Old 1,893 1,991 2,075 2,154 2,222

Chg 1.4% 1.8% 3.2% 3.7% 4.2%

Crop Science Sales New 8,845 9,380 9,838 10,221 10,556

Old 8,595 9,020 9,408 9,753 10,060

Chg 2.9% 4.0% 4.6% 4.8% 4.9%


Old 2,063 2,178 2,281 2,365 2,440

Chg 2.9% 3.3% 3.5% 3.7% 3.8%

Mat. Sci. Sales New 11,577 12,062 12,550 12,981 13,389

Old 11,422 11,901 12,383 12,809 13,213

Chg 1.4% 1.4% 1.3% 1.3% 1.3%


Old 1,228 1,339 1,424 1,473 1,520

Chg 3.7% 3.6% 5.8% 7.9% 7.9%

Group Core EPS New 5.84 6.53 7.27 7.89 8.42

Old 5.73 6.36 7.02 7.57 8.02

Chg 1.9% 2.6% 3.6% 4.2% 4.9%

Source: Berenberg Bank estimates

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Sales summary

Key Sales m 2012A 2013E 2014E 2015E 2016E 2017E 12-17 CAGR

Yaz franchise 1,045 965 916 871 827 786 -5.5%Mirena 677 737 796 843 886 912 6.1%

Betaferon / Betaseron 1,216 1,146 1,066 991 902 812 -7.8%

Kogenate 1,182 1,194 1,242 1,292 1,318 1,278 1.6%

Xarelto (Bayer consolidated) 325 601 839 1,065 1,288 1,545 36.6%

Nexavar 792 800 808 784 745 708 -2.2%

Eylea 14 100 230 368 478 574 110.2%

Alpharadin 0 50 175 394 524 602 n/a

Stivarga 32 130 215 300 390 468 71.0%

Other Pharmaceuticals 5,520 5,515 5,581 5,627 5,676 5,778 0.9%

Pharmaceuticals 10,803 11,239 11,868 12,534 13,034 13,463 4.5%

Consumer Care 3,853 3,942 4,099 4,251 4,404 4,526 3.3%

Medical Care 2,653 2,681 2,773 2,868 2,953 3,037 2.7%

Animal Health 1,303 1,376 1,470 1,552 1,629 1,699 5.5%

Consumer Health 7,809 8,000 8,342 8,671 8,985 9,262 3.5%Crop Protection 6,741 7,087 7,500 7,862 8,168 8,434 4.6%

Environmental Science 680 677 691 705 719 733 1.5%

BioScience 962 1,080 1,188 1,272 1,335 1,388 7.6%

Crop Science 8,383 8,845 9,380 9,838 10,221 10,556 4.7%

Polyurethanes 5,995 6,125 6,431 6,752 7,022 7,303 4.0%

Polycarbonates 2,823 2,761 2,844 2,929 3,017 3,077 1.7%

Coatings, adhesives 1,972 1,967 2,026 2,077 2,118 2,160 1.8%

Industrial operations 713 725 761 792 823 848 3.5%

Material Science 11,503 11,577 12,062 12,550 12,981 13,389 3.1%

Reconciliation 1,262 1,287 1,313 1,339 1,366 1,393 2.0%

Group Sales 39,760 40,948 42,964 44,933 46,588 48,064 3.9%

Source: Berenberg Analysis, Company Reports

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Financials

Profit and loss accountConsolidated P&L (m) 2012A 2013E 2014E 2015E 2016E 2017E CAGR (12-17)

Sales 39,760 40,948 42,964 44,933 46,588 48,064 3.9%

COGS -19,059 -19,860 -20,623 -21,343 -22,129 -22,830 3.7%

Gross Profit 20,701 21,088 22,342 23,590 24,458 25,233 4.0%

- Margin 51.5% 51.5% 52.0% 52.5% 52.5% 52.5%

Selling expenses -9,987 -10,114 -10,612 -11,008 -11,297 -11,535 2.9%

- as % sales -25.1% -24.7% -24.7% -24.5% -24.3% -24.0%

R&D -3,013 -3,194 -3,351 -3,505 -3,634 -3,749 4.5%

-as % sales -7.6% -7.8% -7.8% -7.8% -7.8% -7.8%

General admin -1,866 -1,679 -1,676 -1,707 -1,724 -1,778 -1.0%

-as % sales -4.7% -4.1% -3.9% -3.8% -3.7% -3.7%

Other operating income 1,083 614 644 674 699 721 -7.8%

-as % sales 2.7% 1.5% 1.5% 1.5% 1.5% 1.5%

Other operating expenses -2,958 -835 -860 -910 -869 -856 -22.0%

-as % sales -7.4% -2.0% -2.0% -2.0% -1.9% -1.8%

Operating Profit 3,960 5,880 6,487 7,133 7,634 8,036 15.2%

- Margin 10.0% 14.4% 15.1% 15.9% 16.4% 16.7%

Equity Method -46 -46 -46 -46 -46 -46

Non-operating income 502 280 259 312 496 685

Non-operating expenses -1,168 -925 -735 -597 -586 -586

PBT 3,248 5,190 5,965 6,803 7,497 8,089 20.0%

- Margin 8.2% 12.7% 13.9% 15.1% 16.1%

Taxation -752 -1,375 -1,581 -1,803 -1,987 -2,144 23.3%

- Rate -23.2% -26.5% -26.5% -26.5% -26.5% -26.5%

PAT 2,496 3,814 4,384 5,000 5,510 5,945 19.0%

- Margin 6.3% 9.3% 10.2% 11.1% 11.8% 12.4%

Minority interest -50 -5 -5 -5 -5 -5

Basic EPS 2.96 4.61 5.30 6.04 6.66 7.18 19.4%

Diluted EPS 2.96 4.61 5.30 6.04 6.66 7.18 19.4%

Source: Berenberg Bank estimates, company reports

Reconciliation to Core EPS 2012A 2013E 2014E 2015E 2016E 2017E CAGR

Reported EBIT 3,960 5,880 6,487 7,133 7,634 8,036 15.2%

Amortisation of intangibles 1,637 1,536 1,536 1,536 1,536 1,536Write-downs of PPE 41 0 0 0 0 0

Other special items (non-A&I) 1,364 0 0 0 0 0

Core EBIT 7,002 7,416 8 ,023 8,669 9,170 9 ,572 6.5%

- Margin 17.6% 18.1% 18.7% 19.3% 19.7% 19.9%

Non-operating result -785 -691 -521 -330 -136 53

Income taxes -752 -1,375 -1,581 -1,803 -1,987 -2,144

Tax adjustment -1,024 -517 -517 -517 -517 -517

Minority Interest -15 -5 -5 -5 -5 -5

Core PAT 4,426 4,829 5,399 6,014 6,525 6,960 9.5%

Financing adjustment 0 0 0 0 0 0

Core EPS 5.35 5.84 6.53 7.27 7.89 8.42 9.5%


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Balance sheet

Balance Sheet (m) 2012A 2013E 2014E 2015E 2016E 2017E

Inventories 6,980 7,189 7,543 7,888 8,179 8,438Trade accounts receivable 7,431 7,653 8,030 8,398 8,707 8,983

Other financial assets 856 856 856 856 856 856Other receivables 1,648 1,648 1,648 1,648 1,648 1,648

Claims for income tax refunds 376 376 376 376 376 376Cash and cash equivalents 1,695 2,574 1,700 5,288 9,235 13,799

Assets held for sale and disc. ops 0 0 0 0 0 0

Current assets 18,986 20,296 20,153 24,454 29,001 34,099

Goodwill 9,293 9,293 9,293 9,293 9,293 9,293

Other intangible Assets 9,464 8,014 6,478 4,942 3,406 1,870PPE 9,863 10,405 10,808 10,788 10,767 10,714

Investments in associates 284 284 284 284 284 284Other financial assets 1,324 1,324 1,324 1,324 1,324 1,324

Other receivables 541 541 541 541 541 541

Deferred taxes 1,581 1,581 1,581 1,581 1,581 1,581Noncurrent Assets 32,350 31,442 30,309 28,753 27,196 25,608

Total Assets 51,336 51,738 50,462 53,207 56,196 59,707

Other provisions 4,844 4,844 4,844 4,844 4,844 4,844

Financial liabilities 2,570 2,570 2,570 2,570 2,570 2,570

Trade accounts payable 4,295 4,207 4,376 4,535 4,673 4,802Income tax liabilities 72 72 72 72 72 72

Other liabilities 1,318 1,318 1,318 1,318 1,318 1,318

Current liabilities 13,099 13,011 13,180 13,339 13,477 13,606

Provision for pensions 9,373 9,073 8,773 8,473 8,173 8,173Other provisions 1,986 1,986 1,986 1,986 1,986 1,986

Financial liabilities 6,962 5,462 1,818 1,818 1,818 1,818

Other liabilities 409 409 409 409 409 409Deferred taxes 938 938 938 938 938 938

Noncurrent liabilities 19,668 17,868 13,924 13,624 13,324 13,324

Total Liabilities 32,767 30,880 27,105 26,963 26,802 26,931

Net Assets 18,569 20,858 23,357 26,244 29,395 32,776

Capital stock 2,117 2,117 2,117 2,117 2,117 2,117Capital reserves 6,167 6,167 6,167 6,167 6,167 6,167

Other reserves 10,185 12,469 14,963 17,845 20,991 24,367

Minority interest 100 105 110 115 120 125

Total Equity 18,569 20,858 23,357 26,244 29,395 32,776


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Cash flow statement

Cashflow (m) 2012A 2013E 2014E 2015E 2016E 2017E

PAT (Continuing Ops) 2,496 3,814 4,384 5,000 5,510 5,945Income taxes 752 1,375 1,581 1,803 1,987 2,144Non-operating result 712 691 521 330 136 -53

Income taxes paid or accrued -1,560 -1,375 -1,581 -1,803 -1,987 -2,144D&A 2,960 2,893 2,952 2,998 3,036 3,073Pension provisions () -542 -300 -300 -300 -300 0

Loss - sales of noncurr' assets -219 0 0 0 0 0Revaluation of acquired assets 0 0 0 0 0 0Decrease in inventories -674 -209 -354 -345 -291 -259

Decrease in receivables -452 -222 -377 -368 -309 -276Decrease in payables 539 -88 169 159 139 129Other working capital () 520 0 0 0 0 0

Discontinued operations 0 0 0 0 0 0

Operating Cash Flow 4,532 6,580 6,996 7,474 7,921 8,559

Capex -1,929 -1,934 -1,879 -1,504 -1,542 -1,550

Disposals - PPE 227 57 60 62 64 65Divestitures 178 0 0 0 0 0Non-current financial assets -261 0 0 0 0 0

Acquisitions -466 -108 0 0 0 0Interest & dividends received 104 280 259 312 496 685Current financial assets 1,329 0 0 0 0 0

Investing Cash Flow -818 -1,704 -1,560 -1,130 -983 -799

Dividend payments -1,366 -1,571 -1,931 -2,159 -2,406 -2,610

Issuances of debt 1,309 0 0 0 0 0Retirement of debt -3,254 -1,500 -3,644 0 0 0Interest paid -793 -925 -735 -597 -586 -586Interest from swaps 325 0 0 0 0

Purchase of subsids -3 0 0 0 0

Financing Activities -3,782 -3,996 -6,310 -2,756 -2,992 -3,196

Net Cash Increase -68 879 -874 3,588 3,946 4,564

Cash (BOP) 1,770 1,695 2,574 1,700 5,288 9,235Consolidation effects 0 0 0 0 0 0

Cash (EOP) 1,695 2,574 1,700 5,288 9,235 13,799


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Contacts: Investment Banking

Equity Research E-mail: [email protected]; Internet www.berenberg.de

BANKS ECONOMICS MID-CAP GENERAL

Nick Anderson +44 (0) 20 3207 7838 Dr. Holger Schmieding +44 (0) 20 3207 7889 Gunnar Cohrs +44 (0) 20 3207 7894

James Chappell +44 (0) 20 3207 7844 Dr. Christian Schulz +44 (0) 20 3207 7878 Bjoern Lippe +44 (0) 20 3207 7845

Andrew Lowe +44 (0) 20 3465 2743 Robert Wood +44 (0) 20 3207 7822 Anna Patrice +44 (0) 20 3207 7863

Eleni Papoula +44 (0) 20 3465 2741 Alexandra Schlegel +44 (0) 20 3207 7896

FOOD MANUFACTURING Stanislaus von Thurn und Taxis +44 (0) 20 3207 2631BEVERAGES Fintan Ryan +44 (0) 20 3465 2748

Philip Morrisey +44 (0) 20 3207 7892 James Targett +44 (0) 20 3207 7873 REAL ESTATE

Josh Puddle +44 (0) 20 3207 7881 Kai Klose +44 (0) 20 3207 7888GENERAL RETAIL & LUXURY GOODS Estelle Weingrod +44 (0) 20 3207 7931

BUSINESS SERVICES Bassel Choughari +44 (0) 20 3465 2675William Foggon +44 (0) 20 3207 7882 John Guy +44 (0) 20 3465 2674 TECHNOLOGY

Simon Mezzanotte +44 (0) 20 3207 7917 Adnaan Ahmad +44 (0) 20 3207 7851Arash Roshan Zamir +44 (0) 20 3465 2636 HEALTHCARE Sebastian Grabert +44 (0) 20 3207 7834

Konrad Zomer +44 (0) 20 3207 7920 Scott Bardo +44 (0) 20 3207 7869 Daud Khan +44 (0) 20 3465 2638

Alistair Campbell +44 (0) 20 3207 7876 Ali Khwaja +44 (0) 20 3207 7852CAPITAL GOODS Charles Cooper +44 (0) 20 3465 2637 Tammy Qiu +44 (0) 20 3465 2673Frederik Bitter +44 (0) 20 3207 7916 Louise Hinds +44 (0) 20 3465 2747

Benjamin Glaeser +44 (0) 20 3207 7918 Adrian Howd +44 (0) 20 3207 7874 TELECOMMUNICATIONS

William Mackie +44 (0) 20 3207 7837 Tom Jones +44 (0) 20 3207 7877 Wassil El Hebil +44 (0) 20 3207 7862Margaret Paxton +44 (0) 20 3207 7934 Usman Ghazi +44 (0) 20 3207 7824Alexander Virgo +44 (0) 20 3207 7856 HOUSEHOLD & PERSONAL CARE Stuart Gordon +44 (0) 20 3207 7858

Felix Wienen +44 (0) 20 3207 7915 Seth Peterson +44 (0) 20 3207 7891 Laura Janssens +44 (0) 20 3465 2639Andrew Steele +44 (0) 20 3207 7926 Paul Marsch +44 (0) 20 3207 7857

CHEMICALS Barry Zeitoune +44 (0) 20 3207 7859Jade Barkett +44 (0) 20 3207 7937 INSURANCE

Asad Farid +44 (0) 20 3207 7932 Tom Carstairs +44 (0) 20 3207 7823 TOBACCO

John Philipp Klein +44 (0) 20 3207 7930 Peter Eliot +44 (0) 20 3207 7880 Erik Bloomquist +44 (0) 20 3207 7870Jaideep Pandya +44 (0) 20 3207 7890 Kai Mueller +44 (0) 20 3465 2681 Kate Kalashnikova +44 (0) 20 3465 2665

Matthew Preston +44 (0) 20 3207 7913CONSTRUCTION Sami Taipalus +44 (0) 20 3207 7866 UTILITIES

Chris Moore +44 (0) 20 3465 2737 Robert Chantry +44 (0) 20 3207 7861

Robert Muir +44 (0) 20 3207 7860 MEDIA Andrew Fisher +44 (0) 20 3207 7937Michael Watts +44 (0) 20 3207 7928 Robert Berg +44 (0) 20 3465 2680 Oliver Salvesen +44 (0) 20 3207 7818

Emma Coulby +44 (0) 20 3207 7821 Lawson Steele +44 (0) 20 3207 7887DIVERSIFIED FINANCIALS Laura Janssens +44 (0) 20 3465 2639Pras Jeyanandhan +44 (0) 20 3207 7899 Sarah Simon +44 (0) 20 3207 7830

Richard Perrott +44 (0) 20 3207 7925

Sales

Specialist Sales E-mail: [email protected]; Internet www.berenberg.de

CONSUMER HEALTHCARE UTILITIES

Rupert Trotter +44 (0) 20 3207 7815 Frazer Hall +44 (0) 20 3207 7875 Benita Barretto +44 (0) 20 3207 7829

INSURANCE TECHNOLOGY INDUSTRIALS

Trevor Moss +44 (0) 20 3207 7893 Jean Beaubois +44 (0) 20 3207 7835 Chris Armstrong +44 (0) 20 3207 7809Kaj Alftan +44 (0) 20 3207 7879

LONDON HAMBURG

Miel Bakker +44 (0) 20 3207 7808 Susette Mantzel +49 (0) 40 350 60 694 Sales Trading

John von Berenberg-Consbruch +44 (0) 20 3207 7805 Marco Weiss +49 (0) 40 350 60 719 HAMBURG

Ronald Bernette +44 (0) 20 3207 7828 Paul Dontenwill +49 (0) 40 350 60 563

Matt Chawner +44 (0) 20 3207 7847 PARIS Christian Endras +49 (0) 40 350 60 359Toby Flaux +44 (0) 20 3465 2745 Christophe Choquart +33 (0) 1 5844 9508 Gregor Labahn +49 (0) 40 350 60 571

Sean Heath +44 (0) 20 3465 2742 Dalila Farigoule +33 (0) 1 5844 9510 Chris McKeand +49 (0) 40 350 60 798David Hogg +44 (0) 20 3465 2628 Clmence La Clavire-Peyraud +33 (0) 1 5844 9521 Fin Schaffer +49 (0) 40 350 60 596

Ben Hutton +44 (0) 20 3207 7804 Olivier Thibert +33 (0) 1 5844 9512 Lars Schwartau +49 (0) 40 350 60 450James Matthews +44 (0) 20 3207 7807 Marvin Schweden +49 (0) 40 350 60 576

David Mortlock +44 (0) 20 3207 7850 ZURICH Tim Storm +49 (0) 40 350 60 415

Peter Nichols +44 (0) 20 3207 7810 Stephan Hofer +41 (0) 44 283 2029 Philipp Wiechmann +49 (0) 40 350 60 346George Smibert +44 (0) 20 3207 7911 Carsten Kinder +41 (0) 44 283 2024

Max von Doetinchem +44 (0) 20 3207 7826 Gianni Lavigna +41 (0) 44 283 2038 LONDONPaul Walker +44 (0) 20 3465 2632 Benjamin Stillfried +41 (0) 44 283 2033 Stewart Cook +44 (0) 20 3465 2752

Simon Messman +44 (0) 20 3465 2754CRM Stephen O'Donohoe +44 (0) 20 3465 2753

FRANKFURT LONDON

Michael Brauburger +49 (0) 69 91 30 90 741 Greg Swallow +44 (0) 20 3207 7833 PARIS

Nina Buechs +49 (0) 69 91 30 90 735 Laura Cooper +44 (0) 20 3207 7806 Sylvain Granjoux +33 (0) 1 5844 9509

Andr Grosskurth +49 (0) 69 91 30 90 734Boris Koegel +49 (0) 69 91 30 90 740 CORPORATE ACCESS EVENTS

Joachim Kopp +49 (0) 69 91 30 90 742 LONDON LONDON

Patricia Nehring +44 (0) 20 3207 7811 Natalie Meech +44 (0) 20 3207 7831Charlotte Kilby +44 (0) 20 3207 7832

Charlotte Reeves +44 (0) 20 3465 2671Hannah Whitehead +44 (0) 20 3207 7922

US Sales E-mail: [email protected]

BERENBERG CAPITAL MARKETS LLC

Member FINRA & SIPC Andrew Holder +1 (617) 292 8222 Kelleigh Faldi +1 (617) 292 8288

Colin Andrade +1 (617) 292 8230 Kieran O'Sullivan +1 (617) 292 8292

Cathal Carroll +1 (646) 445 7206 Emily Mouret +1 (646) 445 7204

Burr Clark +1 (617) 292 8282 Jonathan Saxon +1 (646) 445 7202Julie Doherty +1 (617) 292 8228

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14

Please note that the use of this research report is subject to the conditions and restrictions set forth in theGeneral investment-related disclosuresand the Legal disclaimerat the end of this document.

For analyst certification and remarks regarding foreign investors and country-specific disclosures, pleaserefer to the respective paragraph at the end of this document.

Disclosures in respect of section 34b of the German Securities Trading Act(WertpapierhandelsgesetzWpHG)

Company Disclosures

Bayer 5

(1) Berenberg Bank or its affiliate(s) was Lead Manager or Co-Lead Manager over the previous 12 months of apublic offering of this company.

(2) Berenberg Bank acts as Designated Sponsor for this company.(3) Over the previous 12 months, Berenberg Bank and/or its affiliate(s) has effected an agreement with this

company for investment banking services or received compensation or a promise to pay from this companyfor investment banking services.

(4) Berenberg Bank and/or its affiliate(s) holds 5% or more of the share capital of this company.(5) Berenberg Bank holds a trading position in shares of this company.(6) Berenberg Bank and/or its affiliate(s) holds a net short position of 1% or more of the share capital of this

company, calculated by methods required by German law as of the last trading day of the past month.

Historical price target and rating changes for Bayer in the last 12 months (full coverage)

Date Price target - EUR Rating Initiation of coverage08 May 12 67.00 Buy 13 July 0901 August 12 71.00 Buy30 November 12 78.00 Buy21 February 13 80.00 Buy20 March 13 85.00 Buy

Berenberg distribution of ratings and in proportion to investment banking services

Buy 44.47 % 63.33 %Sell 17.51 % 6.67 %Hold 38.03 % 30.00 %

Valuation basis/rating key

The recommendations for companies analysed by Berenberg Banks equity research department are either made on anabsolute basis (absolute rating system) or relative to the sector (relative rating system), which is clearly stated inthe financial analysis. For both absolute and relative rating system, the three-step rating key Buy, Hold and Sellis applied. For a detailed explanation of our rating system, please refer to our website at

http://www.berenberg.de/research.html?&L=1

NB: During periods of high market, sector or stock volatility, or in special situations, the rating system criteria asdescribed on our website may be breached temporarily.
http://www.berenberg.de/research.html?&L=1http://www.berenberg.de/research.html?&L=1http://www.berenberg.de/research.html?&L=1

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I, Louise Hinds, hereby certify that all of the views expressed in this report accurately reflect my personal viewsabout any and all of the subject securities or issuers discussed herein.

In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to thespecific recommendations or views expressed in this research report, nor is it tied to any specific investmentbanking transaction performed by Berenberg Bank or its affiliates.

Remarks regarding foreign investorsThe preparation of this document is subject to regulation by German law. The distribution of this document in otherjurisdictions may be restricted by law, and persons into whose possession this document comes should informthemselves about, and observe, any such restrictions.

United KingdomThis document is meant exclusively for institutional investors and market professionals, but not for private customers.It is not for distribution to or the use of private investors or private customers.

United States of AmericaThis document has been prepared exclusively by Berenberg Bank. Although Berenberg Capital Markets LLC, anaffiliate of Berenberg Bank and registered US broker-dealer, distributes this document to certain customers, BerenbergCapital Markets LLC does not provide input into its contents, nor does this document constitute research ofBerenberg Capital Markets LLC. In addition, this document is meant exclusively for institutional investors and marketprofessionals, but not for private customers. It is not for distribution to or the use of private investors or privatecustomers.

This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital MarketsLLC (+1 617.292.8200), if you require additional information.

Third-party research disclosures

Company DisclosuresBayer no disclosures

(1) Berenberg Capital Markets LLC owned 1% or more of the outstanding shares of any class of the subjectcompany by the end of the prior month.*

(2) Over the previous 12 months, Berenberg Capital Markets LLC has managed or co-managed any publicoffering for the subject company.*

(3) Berenberg Capital Markets LLC is making a market in the subject securities at the time of the report.(4) Berenberg Capital Markets LLC received compensation for investment banking services in the past 12 months,

or expects to receive such compensation in the next 3 months.*(5) There is another potential conflict of interest of the analyst or Berenberg Capital Markets LLC, of which the

analyst knows or has reason to know at the time of publication of this research report.

* For disclosures regarding affiliates of Berenberg Capital Markets LLC please refer to the Disclosures in respect ofsection 34b of the German Securities Trading Act (WertpapierhandelsgesetzWpHG) section above.

CopyrightBerenberg Bank reserves all the rights in this document. No part of the document or its content may be rewritten,copied, photocopied or duplicated in any form by any means or redistributed without Berenberg Banks prior writte nconsent.

June 2012 Berenberg Bank

2013 mar 20 — bayer ag

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