Bayer

Continuous growth in our Anniversary Year

2013 was a special year for Bayer. The 150th anniversary of our ­company’s founding prompted us to celebrate the benefits of Bayer innovations. These have helped millions of people around the world, including patients, customers, consumers, employees and shareholders. We not only celebrated Bayer’s long-term ­successes with our stakeholders in 2013 but also added more ­innovative products to our portfolio and posted record financial results. And we are committed to continue with this approach. Our mission “Bayer: ­Science For A Better Life” remains our ­driving force.

Bayer’s products help to overcome urgent societal needs. In 1863 the global population was 2.5 billion and life expectancy around 40 years; now there are over 7 billion people, and there are expected to be over 9 billion by 2050. Life expectancy has nearly doubled in many regions. This tremendous achievement by humankind is partly the result of improvements in healthcare and nutrition over the last 150 years.

However, the growing and aging population now faces com­pletely new challenges. Health care needs are increasing steadily, particularly due to age-related and new diseases, while at the same time health care has to remain affordable.

The amount of ­arable land is limited, which is why we need a considerable ­improvement in crop yields by 2050 to provide enough food for over 9 billion people. And we need to raise resource and energy efficiency to ensure the long-term availability of raw materials and energy sources. Bayer currently spends over €3 billion on R & D each year and we will continue to do our part in developing new products that truly address these urgent societal needs. In ­other words, we remain dedicated to our mission “Bayer: Science For A Better Life.” But we depend on a societal and political environment that appreciates the contributions of science and supports innovation.

2013 was once again a record year for Bayer. Revenues ­increased to over €40 billion, which is more than 5 percent ­after adjusting for currency and portfolio effects. Reported EBIT improved by more than 25 percent to over €4.9 billion, while net income rose almost 33 percent to nearly €3.2 billion. Clean ­EBITDA increased by 1.5 percent to €8.4 billion and core earnings per share rose 5.8 percent to €5.61.

The continuing success of our business in 2013 was driven by the dynamic development in the Life Sciences. HealthCare achieved ­encouraging growth, largely due to strong sales of our recently launched pharma products. And in CropScience, too, sales continued to grow strongly, especially those of its Crop Protection products. We generated some 70 percent of total revenues and 90 percent of clean EBITDA in our Life Science businesses. However, the performance of MaterialScience created headwind for our com­pany. In ­addition, significant negative currency effects held back clean EBITDA by almost €260 million compared to the previous year.

Our strong focus on not just developing new products but also ­successfully commercializing them is clearly paying off. As a ­result we have improved our competitive position in the Life Sciences. For instance, HealthCare made strong progress with five newer products. These include our anticoagulant Xarelto™ for stroke and thrombosis prophylaxis as well as Eylea™ to treat age-­related macular ­degeneration and macular edema. Authorizations were granted to Stivarga™ for the treatment of adult patients with ­advanced metastatic ­colorectal cancer, Xofigo™ for bone metastases in prostate cancer and ­Adempas™ for patients with pulmonary ­hypertension. Total sales for these five products reached €1.5 billion in 2013. We increased our estimate of their combined peak ­annual sales potential to at least €7.5 billion. In addition we are ­focusing on the accelerated development of five entirely new drug candidates in cardiology, oncology and gynecology. The common ­feature of these new drug candidates is that they are also new ­molecules with highly promising activity profiles. They are intended to improve and broaden treatment options for patients in a wide range of indications.

CropScience also had a successful year. Sales advanced substantially, helped by positive market conditions. This was largely due to successful business with our new Crop Protection products. Total sales of these new products rose to more than €1.5 billion in 2013. They include the fungicides Luna™ and Xpro™. We also have new biological products such as the insecticide Votivo™ and the fungicide Serenade™. We anticipate a combined peak annual sales potential of at least €4 billion for CropScience products with estimated launch dates between 2011 and 2016.

MaterialScience faced considerable challenges in 2013, in what remained a difficult market environment. Both volumes and prices were roughly unchanged compared with the prior year. However, clean EBITDA fell by about 15 percent. This was largely due to raw material cost increases that we were unable to share with our customers. In spite of this disappointing result in 2013, we are cautiously optimistic for the future. The expected increase in capacity utilization in our industry in the coming years should lead to an improving business climate.

Bayer’s positive overall performance last year was supported by the commitment and expertise of our employees in the ­service companies and administrative functions.

In 2013 we continued to successfully pursue our strategy of augmenting organic growth in the Life Sciences with small and ­medium-sized bolt-on acquisitions. Such acquisitions improve our regional positioning, round out our product portfolio or give us ­access to major new technologies.

In HealthCare we broadened the product offering of our ­women’s healthcare franchise by acquiring the U.S. company ­Conceptus: its ­Essure™ procedure is the only approved non-­surgical permanent birth control method. And we acquired ­Steigerwald Arznei­mittelwerk GmbH, which specializes in ­herbal medicines and represents a product line extension in our Consumer Care business. We also plan to further strengthen our oncology portfolio with the acquisition of Norwegian pharma­ceutical company Algeta ASA, which would give us full control over ­Xofigo™. We are convinced of the potential of this drug and the underlying technology to provide prostate cancer patients with innovative treatment options.

Our CropScience portfolio was enhanced with the acquisition of companies such as Prophyta GmbH, a leading supplier of microbial crop protection products. This is an important step, after the ­acquisition of AgraQuest in 2012, towards building a leading ­biologics technology platform. We also acquired ­various seed companies in Latin America to strengthen our ­local capabilities there, including Wehrtec Tecnologia Agricola Ltda and Agricola Wehrmann Ltda in Brazil as well as FN Semillas SA in Argentina.

We enter 2014 with continued optimism. We intend to drive ­further growth from our new products in the Life Sciences, and we also aim to improve profitability at MaterialScience. To enable our innovations to flourish, we plan to invest over €18 billion in capital ­expenditures and research and development in the period from 2014 through 2016. Bayer is very well positioned: we have identified our future growth opportunities and the challenges we face, and we have mapped out our strategy for continued success. It is also important to us  that economic growth be achieved in harmony with environmental and social responsibility. We adhere to the ­fundamentals of sustainable ­development and the ten principles of the Global Compact of the United Nations.

All of our achievements and our future success depend greatly on our highly talented and motivated workforce and the work ­environment we provide. I strongly believe that in this industry in ­particular, a robust framework of corporate values is crucial for ­sustainable success. Leadership, Integrity, Flexibility and Efficiency – represented by the word LIFE – are our corporate values and the cornerstones of our behavior and focus. These values are now firmly integrated into our global performance management system. In ­addition, continuous learning is a fundamental part of our orga­nizational and talent development. Building specific skills, removing ­organizational obstacles and making improvements every day are important elements of Bayer’s culture. For instance, all of our top 500 leaders took part in a two-day “Leading Innovation” course in 2013.

Last year’s anniversary events provided a special opportunity for us to focus on our employees. After all, without their dedication, ­motivation and ingenuity, Bayer would not be the great company it is today. On behalf of the entire Bayer Group management team, I would like to thank them for their excellent work and their commitment to Bayer.

I would also like to thank you, our shareholders, for your ongoing support as we continue to pursue our mission and dedicate ourselves to innovation.

Sincerely,

Dr. Marijn Dekkers

Chairman of the Board of Management of Bayer AG

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Last updated: February 28, 2014  Copyright © Bayer AG
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