Chairman's Letter

The safety of our products is our top priority

Dear stockholders and friends of Bayer (signature)

I’m pleased to present our new Annual Report, which looks back on a particularly eventful year that was not an easy one. In 2018, we completed the biggest acquisition in Bayer’s history, advancing to the number one position in the agriculture sector. With that, we have stringently focused our businesses on the growth markets of health and nutrition, where we are among the best companies in the world with our know-how and innovation capabilities.

Nevertheless, the performance of our stock in 2018 was very disappointing. While the DAX was down 18 percent on the year, our share price dropped by about 40 percent. After we had to accept a ruling – which we consider to be incorrect – by a court of first instance in the United States, the strategic progress we made and the company’s solid operational performance were overshadowed by the uncertain outcome of the product liability litigation concerning glyphosate.

Although it was these topics that dominated the headlines, I believe it’s important to emphasize that last year we again kept our company’s main promise – “Science for a better life” – millions of times over. Our products have helped to improve the lives of our customers – patients, consumers and farmers. That is what defines us, and that is what drives our actions.

Bayer CEO Werner Baumann (Foto)

Bayer CEO
Werner Baumann

Our employees throughout the world are key to making this possible. In 2018, they again put their skills and their passion into their commitment to Bayer. On behalf of the Board of Management, I would like to sincerely thank them for that commitment, and I also would like to thank you, dear stockholders, for your support and trust.

Operationally, we experienced a difficult market environment in 2018, with significant negative currency effects and growing uncertainty caused by global trade disputes. On top of that, we were unable to fully exploit our growth potential because of production bottlenecks in the Pharmaceuticals Division and structural problems at Consumer Health.

We nevertheless increased our Group sales by 4.5 percent on a currencyand portfolio-adjusted basis. EBITDA before special items benefited from the second-half earnings contribution from the acquired Monsanto business and rose by nearly 3 percent.

In 2018, there was also some encouraging news about our pharmaceuticals pipeline and our ongoing product development. For example, we received approval in the United States for Vitrakvi™, a highly effective and innovative cancer medication. We successfully concluded a Phase III study of darolutamide, a development substance we are working on in oncology together with a partner.

Xarelto™ became the only oral anticoagulant to be approved in the United States and Europe for the treatment of coronary artery disease and peripheral artery disease. At the same time, we achieved further progress with our Leaps projects in disruptive technologies, such as in the area of stem cell research, together with our partners.

We successfully completed the acquisition of Monsanto in summer 2018 following lengthy and intensive antitrust processes. The integration is off to a very good start and advancing rapidly. Equally encouraging is the progress we have made on reducing debt. Our net financial debt of approximately €36 billion is €3 billion less than we had expected at the start of the year.

As I already mentioned, there was a great deal of discussion last year about the safety of glyphosate. The ruling by a court of first instance in the Johnson case led to negative reactions in the media and the capital markets. This played into the hands of the activists and professional critics of agriculture. Among consumers and stockholders, it mainly caused uncertainty.

Yet the facts have not changed: glyphosate is a safe product. That has been proven by numerous scientific studies and the independent assessments of regulatory authorities throughout the world over a period of more than 40 years.

Most recently, the Canadian health ministry once again reviewed the safety of glyphosate, stating unequivocally in January 2019 that “No pesticide regulatory authority in the world currently considers glyphosate to be a cancer risk to humans at the levels at which humans are currently exposed.” For us, this official statement serves to underline once again that we have the scientific facts on our side. We will therefore continue to vigorously defend glyphosate in all the pending litigation.

In light of all these developments, 2018 was a challenging year but also a year of significant progress. I am pleased that for 2018 we can once again enable you, our stockholders, to participate appropriately in Bayer’s success. We are therefore proposing to the Annual Stockholders’ Meeting a dividend of €2.80 per share, leading to a new record dividend payout.

At the end of last year, we announced and explained our company’s updated strategy along with a related package of measures and ambitious medium-term financial targets. Our success in the coming years will depend partly on accomplishing the integration at Crop Science but also on implementing the measures we announced and adjusting the innovation model in our pharmaceuticals business.

This will put Bayer in the best possible position to deliver long-term value creation as a world-leading life science company.

Based on our mission “Science for a better life,” we help to address questions in health and nutrition that are of paramount importance in people’s lives: How can we feed a constantly growing global population in an era of climate change? How can we use innovation to shape demographic change in such a way that it leads to a longer lifetime that can be actively used in good physical and mental condition? How can we ensure that people in developing countries benefit better from the latest research and technological progress? How can we best utilize the opportunities of digitalization and artificial intelligence for the benefit of patients, consumers, farmers and the environment? How can we ensure that the world manages its finite resources responsibly and sustainably?

The answers to these questions will clearly determine not only our future prosperity but also our social cohesion. We aim to make our contribution as a company with a global reach, a global perspective and a strong sense of responsibility. We plan to invest some €35 billion in our future during the period through 2022, with research and development accounting for over two-thirds of this figure.

Our realigned Crop Science Division is working on innovative seed and crop protection products, digital and customized solutions for farms of all sizes, and new approaches to sustainable, resource-efficient agriculture.

We are working on improvements in health care, whether through our Pharmaceuticals Division which is focusing on therapeutic areas with a high medical need or through the over-the-counter products of our Consumer Health Division which support individual health protection.

The safety of our products and the well-being of customers and patients are our top priority.

Our activities in health and nutrition are united by the common Bayer brand, which enjoys a very good reputation around the world, standing for quality and integrity, as well as by a common infrastructure and, not least, by a common and vibrant corporate culture. At Bayer, we place great value on trust and mutual respect in our dealings with one another.

We want people to know what Bayer stands for. We plan to build on the pioneering role we have assumed regarding transparency, such as through the publication of numerous safety studies in crop protection. And we intend to live up to our responsibility as a global corporation through our ongoing commitment to the principles of the United Nations Global Compact and an orientation toward clear values.

We want to be judged – also by you, our stockholders – on our adherence to these values and our attainment of the ambitious targets we have set for the coming years. Thank you for the trust you place in Bayer. In 2019, we will continue to do all we can to live up to this trust.

Sincerely,

Werner Baumann (signature)

Werner Baumann
Chairman of the Board of Management of Bayer AG

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