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Bayer Aktienges Ads (

BAYRY.PK

)

Q4 2010 Earnings Call

February 28, 2011 9:00 AM ET

Executives

Alexander Rosar – Head, IR

Marijn Dekkers – Chairman and CEO

Joerg Reinhardt – Chairman, HealthCare

Werner Baumann – CFO

Sandra Peterson – Chairman, CropScience

Analysts

Richard Vosser – J.P. Morgan

Sachin Jain – Bank of America-Merrill Lynch

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Thomas Gilbert – UBS

Andreas Heine – UniCredit

Ronald Koehler – MainFirst

Martin Flückiger – Helvea

Michael Leuchten – Barclays Capital

Ronald Köhler – MainFirst

Presentation

Operator

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Ladies and gentlemen, thank you for standing by. Welcome to Bayer’s Investor and Analyst Conference Call on the Full-Year and Fourth Quarter 2010 Results. Throughout today’s recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to Mr. Alexander Rosar, Head of Investor Relations of Bayer AG. Please go ahead, sir.

Alexander Rosar

Thank you, Clare. Ladies and gentlemen, dear friends, it’s a great pleasure for me to welcome you also on behalf of my colleagues to our conference call.

With me on the call are Marijn Dekkers, our new CEO, and Werner Baumann, our CFO. And from our subgroups, we have Jörg Reinhardt, CropScience us represented by Sandra Peterson, and MaterialScience by Patrick Thomas.

You have received developed information this morning including the annual report, our Investor Relations briefing documents and the conference slides. Marijn Dekkers will start off our conference call with a brief summary of the main developments in the quarter and during 2010. Please understand that we have to close our call at 12:30 AM.

Before handing over to Marijn, I’d like to draw your attention also to the Safe Harbor statement. Thank you. Marijn?

Marijn Dekkers

Thank you, Alexander. Ladies and gentlemen, I would like to summarize 2010 as the year in which Bayer is operationally untracked. The global economy recovered surprisingly quickly from the deep recession in 2010. And in this environment, we raised group sales to all-time high of EUR35.1 billion. EBITDA before special items came in at EUR7.1 billion and core earnings per share were up 15.1%.

We essentially as a result of that, achieved the targets we communicated for 2010. We also reduced net financial debt by EUR1.8 billion to now 7.9 billion by further increasing our operating cash flow. With regard to Q4 in particular, we are pleased to report that, operationally the business improved with positive momentum into 2011.

So overall, 2010 was a successful year for Bayer. However earnings in 2010 were partly supported by unexpected development. For example, the MaterialScience sub-group returned to the precrisis level much more quickly than anticipated. And currency effects were also clearly in our favor.

On the other hand, the performance of HealthCare and CropScience did not meet our expectations. In addition, reported earnings were significantly reduced by high special charges. Reported earnings per share declined by 8% versus the prior-year. I am convinced the Bayer has good growth prospect in all of its businesses, and our key priority going forward is to strengthen our innovation capability and to successfully commercialize our innovation, especially the Xarelto.

In 2010, we invested a record EUR3.1 billion in R&D, up 11% over the previous year. In addition, we will further expand our business in the emerging markets this year where we’re already enjoying above average growth. The restructuring measures we announced in November are creating the financial (inaudible) room we need to systematically invest in these opportunities and to further leverage our balance sheet.

Over the next three years, we are planning to invest a total of approximately EUR15 billion in R&D and capital expenditures to further fuel and fuel our growth. So we’re also confident for 2011, our outlook projects 10% core EPS growth.

So, let’s not take a brief look at the Q4 figures. In my comments, I will concentrate on the sales data adjusted for portfolio and currency effects. Net sales in the quarter improved by 8% driven by higher volumes, higher selling prices contributed 2% to the increase. Adjusted EBITDA rose by 12% and core earnings per share by 6% to EUR0.59.

Net cash flow increased by 10%. Reported fourth quarter earnings were diminished by substantial special charges. EUR825 million were mainly due to impairments and asset write-downs, EUR67 million were incurred for litigations in the United States and 62 million for restructuring and healthcare. As a result, reported group EBIT dropped by 86% to EUR51 million. After non-operating results of minus 237 million, we recorded a pre-tax loss of 186 million for the quarter and net loss of 145 million and earnings per share of minus EUR0.18.

From a regional perspective, the strongest growth was achieved in the emerging economies. In Western Europe, business gained 4% and in the United States, business declined by 1%. The emerging markets however accomplished for now 38% of group sales. In these markets, we extended our sales by 19% versus strongest growth achieved in the emerging Asian markets and Latin America. These figures clearly demonstrate that we are well positioned in the emerging markets and as our significant investment stack are paying up.

Gross cash flow of the Bayer Group advanced in the fourth quarter by 37% to EUR1.4 billion in light of the improved operating performance. Net cash flow moved ahead by 10% to EUR1.9 billion and free operating cash flow by 11% to 1.4 billion. As a result of the strong performance, we were able to reduce net financial debt in the quarter by 1.2 billion compared to the previous quarter to now 7.9 billion at year-end.

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