Chairman's Letter

Investment in the future

Dear stockholders and friends of Bayer: (handwriting)

2015 marked a decisive year in the history of our company. We successfully executed all the necessary steps to transform Bayer into an integrated Life Science company. For more than 150 years, the core of Bayer’s business model has been to invent new molecules and turn them into innovative products. Now we are focusing solely on those molecules that influence the biochemical processes within living organisms.

With the enormous and ongoing progress being made in the Life Sciences, our ability to turn scientific findings into innovative products and solutions continues to grow. We are harnessing this potential to improve the health of humans, animals and plants. As a Life Science company, we can now sharpen the focus of our entire organization on fulfilling our mission, “Bayer: Science For A Better Life.”

Our portfolio is well diversified and balanced, both in terms of profitability and risks. Our divisions are highly competitive, holding leadership positions in their markets. And our focused business model offers significant potential to leverage synergies across the board – from research to product approval processes and from operations to talent development. It is important to sustain this momentum and continue reaping the fruits of our strategy.

In order to leverage our focus, we have given our organization a clear, integrated and more operations-based structure. Since January 2016, the heads of our new divisions – Pharmaceuticals, Consumer Health and Crop Science – have been members of the Board of Management of Bayer AG. This enhances operational accountability and accelerates decision-making, which are important for an innovation company. In this connection, I’m proud of the extensive measures we have taken to broaden Bayer’s diversity in terms of gender and culture. This is now also reflected in the membership of the Board of Management.

Bayer’s transformation into a pure Life Science company has consistently been accompanied by robust financial results. Over the last five years we showed very good performance. It demonstrates the strength of our company and the commitment of our employees.

In 2015, revenues from continuing operations rose to a record level of more than €46 billion. On a currency- and portfolio-adjusted basis, this is an increase of 2.7 percent. Our clean EBITDA rose substantially by more than 18 percent to €10.3 billion, and core earnings per share advanced by 16 percent to €6.83. Our innovative new products especially contributed to this success and also played a substantial role in making 2015 another record year for Bayer. All three new divisions posted above-market growth.

Dialogue at a pharmacy in Germany: Bayer CEO Dr. Marijn Dekkers meets pharmacist Valeska Pritz-Gottschall from Cologne. (Photo)

Dialogue at a pharmacy in Germany: Bayer CEO Dr. Marijn Dekkers meets pharmacist Valeska Pritz-Gottschall from Cologne.

Sales of our Pharmaceuticals segment climbed by 9.9 percent on a currency- and portfolio-adjusted basis. Our five recently launched products – Xarelto™, Eylea™, Stivarga™, Xofigo™ and Adempas™ – again contributed to this pleasing performance with combined sales of €4.2 billion, compared with €2.9 billion in 2014.

At Consumer Care (now called Consumer Health), currency- and portfolio-adjusted sales growth was 6.1 percent. During the past year, we successfully integrated the business acquired from Merck & Co., Inc.

Despite a weaker market environment, CropScience raised sales by 1.7 percent on a currency- and portfolio-adjusted basis. Of the regions, Europe showed the strongest growth, which was driven by the positive development of crop protection products and seeds.

Thanks to the ongoing support of our investors, Bayer continued to have the highest market capitalization of all the DAX companies in 2015. And despite a challenging market environment, we successfully floated our former MaterialScience subgroup on the stock market in October 2015 – nine months before the end of our original roadmap. It is now a legally and economically independent company: Covestro. We wish our former colleagues every success for the future!

In addition to the IPO of Covestro, we undertook further transactions in support of our strategy. In June 2015, we signed an agreement to sell the Diabetes Care business to Panasonic Healthcare Holdings Co., Ltd., Tokyo, Japan. In July 2015, we closed the acquisition of SeedWorks India Pvt. Ltd., based in Hyderabad, India.

Over the years, our portfolio strategy has consistently enhanced our profile as a Life Science company. In particular, the acquisitions of the consumer health businesses of Merck and Dihon in 2014 gave our Consumer Health business the necessary critical mass to operate as a separate division.

Being successful as a Life Science company requires a pronounced innovation culture that is the breeding ground for new ideas and facilitates their translation into successful products. It often all starts in the laboratory which is why, between 2011 and 2015, we increased our annual research and development spending by €1.4 billion to €4.3 billion. This is a substantial investment in our future. At the same time, we have become better and faster at bringing our innovations to market.

At the end of 2015, we established our new Bayer Life Science Center. This strategic innovation unit has been designed to help uncover, encourage and unlock breakthrough cross-species technologies and know-how for Bayer by enabling collaborations with entrepreneurial best-in-class companies. The first of these partnerships is a joint venture with CRISPR Therapeutics AG, a company specialized in utilizing the new CRISPR-cas9 gene editing technology. Together we aim to discover, develop and commercialize groundbreaking therapeutics to cure blood disorders, blindness and congenital heart disease. We could use any findings that go beyond these three indications in nonhuman applications as well – for example, in agriculture.

Successful innovation requires an ongoing reassessment and refinement of processes and partnerships. The freedom to experiment and the determination to execute with precision must be well balanced. Today, Bayer is one of the most innovative companies in our industry. As a Life Science company, we are in very good shape to continue to deliver profitable growth.

With our innovations we address major societal challenges on a global scale. Around 9.7 billion people will be living on our planet by 2050. How can humankind succeed in feeding so many people, especially in regions where agriculture is difficult? By developing better seeds and new products to protect crops, Bayer is helping to ensure an adequate food supply for the world’s population.

At the same time, average life expectancy continues to increase. How can humankind ensure that a high quality of life is preserved at an advanced age? By developing innovative solutions and new medications, Bayer is helping people tackle diseases and lead an active life longer.

But it’s not just through our innovations, but also through our activities, that we are helping people lead a better life. We seek to achieve economic growth in harmony with ecological and social responsibility. As evidence of this commitment, we adhere to the fundamentals of sustainable development and the ten principles of the United Nations Global Compact.

In this context, it is essential to maintain an open and active dialogue with all our stakeholders. We act responsibly, have good arguments and need not shun controversy. Ultimately, no one can deny the huge benefit delivered by the innovations from our laboratories. In the life science industry, it’s all too easy to overlook the significant downside of not deploying these innovations. We need the societal acceptance and appreciation to continue to contribute those benefits.

The best ambassadors for our company are our employees. With their passion to innovate, they live our mission each and every day. On behalf of the entire Board of Management, I would like to thank them for their dedication. Their daily efforts are what make Bayer a great company and a good investment.

This is my last Chairman’s Letter to you as CEO of Bayer. I am thankful for your continued trust and support. It has been an extremely rewarding experience for me to have the opportunity to lead such a fantastic company to new heights. I have enjoyed working with so many great colleagues, and while I contributed with my know-how to our joint success, I feel I learned just as much in turn.

Bayer is an iconic brand, offering an endless source of innovation. With its solid foundation and a deep management bench in place, I am convinced that Bayer can continue its journey as one of the most innovative companies in our industry.

Sincerely,

Marijn Dekkers (signature)

Dr. Marijn Dekkers
Chairman of the Board of Management of Bayer AG