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Bayer AG

Interim / Quarterly Report Jul 27, 2017

48_10-q_2017-07-27_acfe3e1f-8c4c-4830-b4fb-904572ab5caf.pdf

Interim / Quarterly Report

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Interim Report

Second Quarter of 2017

Bayer Group Key Data

€ million Q2 2016 Q2 2017 Change % H1 2016 H1 2017 Change % Full Year
2016
Sales 11,833 12,193 + 3.0 23,687 25,437 + 7.4 46,769
Change (adjusted for currency and portfolio effects) 1 + 1.9 + 5.7 + 3.5%
Change in sales 1
Volume + 4.4% – 1.9% + 4.8% + 2.0% + 4.2%
Price – 2.1% + 3.8% – 2.0% + 3.7% – 0.7%
Currency – 3.8% + 1.0% – 3.3% + 1.7% – 2.0%
Portfolio + 0.1% + 0.1% 0.0% 0.0% 0.0%
EBITDA 1 2,952 2,983 + 1.1 6,311 6,829 + 8.2 10,785
Special items 1 (102) (73) (130) (120) (517)
EBITDA before special items 1 3,054 3,056 + 0.1 6,441 6,949 + 7.9 11,302
EBITDA margin before special items 1 25.8% 25.1% 27.2% 27.3% 24.2%
EBIT 1 2,138 2,151 + 0.6 4,458 5,267 + 18.1 7,042
Special items 1 (104) (205) (376) (290) (1,088)
EBIT before special items 1 2,242 2,356 + 5.1 4,834 5,557 + 15.0 8,130
Financial result (314) (405) – 29.0 (629) (754) – 19.9 (1,155)
Net income
(from continuing and discontinued operations)
1,380 1,224 – 11.3 2,891 3,307 + 14.4 4,531
Earnings per share
(from continuing and discontinued operations) (€) 1
1.67 1.40 – 16.2 3.50 3.79 + 8.3 5.44
Core earnings per share (from continuing operations) (€) 1 2.07 1.81 – 12.6 4.42 4.44 + 0.5 7.32
Net cash provided by operating activities
(from continuing and discontinued operations)
1,982 2,313 + 16.7 3,304 3,154 – 4.5 9,089
Cash outflows for capital expenditures 589 476 – 19.2 952 891 – 6.4 2,578
Research and development expenses 1,122 1,165 + 3.8 2,231 2,323 + 4.1 4,666
Depreciation, amortization and impairments 814 832 + 2.2 1,853 1,562 – 15.7 3,743
Number of employees at end of period 2 115,576 115,680 + 0.1 115,576 115,680 + 0.1 115,200
Personnel expenses (including pension expenses) 2,789 2,826 + 1.3 5,621 5,950 + 5.9 11,357

2016 figures restated

1 For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

2 Employees calculated as full-time equivalents (FTEs)

Contents

Bayer Group Key Data 2
Bayer Interim Group Management Report as of June 30, 2017 4
1. Overview of Sales, Earnings and Financial Position 5
1.1 Earnings Performance of the Bayer Group 5
1.2 Business Development by Segment 9
1.3 Asset and Financial Position of the Bayer Group 21
2. Research, Development, Innovation 24
3. Report on Future Perspectives and on Opportunities and Risks 28
3.1 Future Perspectives 28
3.2 Opportunities and risks 29
Condensed Consolidated Interim Financial Statements as of June 30, 2017 30
Bayer Group Consolidated Income Statements 30
Bayer Group Consolidated Statements of Comprehensive Income 31
Bayer Group Consolidated Statements of Financial Position 32
Bayer Group Consolidated Statements of Cash Flows 33
Bayer Group Consolidated Statements of Changes in Equity 34
Notes to the Condensed Consolidated Interim Financial Statements 35
Responsibility Statement 52
Review Report 53
Financial Calendar 55

Reporting Principles

The Bayer Interim Report complies with the requirements made of a half-year financial report in accordance with the applicable provisions of the German Securities Trading Act (WpHG) and, pursuant to Section 37w of the WpHG, comprises condensed consolidated interim financial statements and an interim group management report, as well as a responsibility statement. Bayer has prepared the condensed consolidated interim financial statements according to the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and endorsed by the European Union (E.U.). The condensed consolidated interim financial statements also comply with the IFRS published by the IASB. The interim group management report should be read in conjunction with our Annual Report 2016, which contains a detailed description of our business operations.

Masthead 55

Second quarter of 2017 Bayer: Group performance matches prior year despite declines at Crop Science

  • > Group sales increase by 1.9% (Fx & portfolio adj.) to €12.2 billion
  • > EBITDA before special items level with the prior year, at €3.1 billion (+ 0.1%)
  • > Pharmaceuticals posts strong increase in earnings and margins
  • > Brazil business weighs on Crop Science
  • > Consumer Health encounters difficult market environment in the United States
  • > Significant increase in sales and earnings at Covestro
  • > Net income €1.2 billion (–11.3%)
  • > Core earnings per share €1.81 (–12.6%)
  • > Monsanto acquisition on track
  • > Group outlook for 2017 adjusted

Economic Position of the Bayer Group

The Bayer Group increased sales by 1.9% (Fx & portfolio adj.) to €12.2 billion in the second quarter of 2017. EBITDA before special items matched the prior-year period, coming in at €3.1 billion (+ 0.1%). We achieved encouraging growth in earnings and margins at Pharmaceuticals and Animal Health. Business declined at Consumer Health, in particular due to the difficult market environment in the United States. Against the backdrop of high inventories in Brazil, the world's second-largest agriculture market, we posted substantial declines in sales and earnings at Crop Science. As such, sales and earnings of our Life Science businesses were down. Covestro once again posted substantial growth in sales and earnings.

Key Events

On June 7, 2017, Bayer reduced its directly held interest in Covestro from 53.3% to 44.9%, by placing 17.25 million shares at a price of €62.25 per share. Bayer AG's interest in Covestro was reduced by a further 4 percentage points through the contribution of Covestro shares to the Bayer Pension Trust e. V. In addition, Bayer has issued €1 billion in bonds maturing in 2020 that can be redeemed in cash, Covestro shares or a combination of the two. Covestro continues to be fully consolidated in Bayer's financial statements, as, even with these transactions having been completed, Bayer will still hold the de facto majority at a Covestro stockholders' meeting.

On June 30, 2017, Bayer filed an application with the European Commission seeking approval for the planned acquisition of Monsanto, representing a further significant milestone in the transaction.

Bayer also announced on June 30, 2017, that it was revising its annual guidance.

1. Overview of Sales, Earnings and Financial Position

1.1 Earnings Performance of the Bayer Group1

Second quarter of 2017

Group sales

Sales of the Bayer Group increased by 1.9% (Fx & portfolio adj.) to €12,193 million in the second quarter of 2017 (reported: + 3.0%). Germany accounted for €1,216 million of this figure. Sales of the Life Science businesses declined by 2.8% (Fx & portfolio adj.) to €8,714 million.

Pharmaceuticals posted sales growth of 4.4% (Fx & portfolio adj.) to €4,304 million, mainly due to our key growth products continuing to deliver strong performance. Sales at Consumer Health declined year on year, falling by 2.2% (Fx. & portfolio adj.) to €1,542 million. Sales at Crop Science fell by a significant 15.8% (Fx & portfolio adj.) to €2,163 million, primarily due to its Brazil business. Excluding Brazil, sales matched the prior-year level. Animal Health achieved growth of 2.1% (Fx & portfolio adj.), with sales rising to €450 million. Sales at Covestro improved considerably, increasing by 15.8% (Fx & portfolio adj.) to €3,479 million.

EBITDA before special items

At €3,056 million, EBITDA before special items of the Bayer Group matched the prior-year level (+ 0.1%). EBITDA before special items at Pharmaceuticals improved by a very encouraging 9.5% to €1,481 million. At Consumer Health, EBITDA before special items declined by 4.3% to €314 million. EBITDA before special items at Crop Science decreased by a significant 52.2% to €317 million, mainly due to provisions for product returns in Brazil. EBITDA before special items of Animal Health climbed by 16.0% to €116 million. Overall, EBITDA before special items of our Life Science businesses declined by 10.5% to €2,247 million. Covestro raised EBITDA before special items by a considerable 49.0% to €809 million.

Depreciation, amortization and special items

Depreciation, amortization and impairment losses were 2.2% higher in the second quarter of 2017, at €832 million (Q2 2016: €814 million), comprising €422 million (Q2 2016: €447 million) in amortization and impairments on intangible assets and €410 million (Q2 2016: €367 million) in depreciation and impairments on property, plant and equipment. Impairment losses and impairment loss reversals amounted to €126 million, of which €122 million (Q2 2016: €0 million) constituted special items. In addition, an amount of €10 million was included in special items as accelerated depreciation.

EBIT

EBIT of the Bayer Group came to €2,151 million, matching the prior-year period (Q2 2016: €2,138 million; + 0.6%). This figure reflected net special charges of €205 million (Q2 2016: €104 million). These mainly comprised €118 million in value adjustments in the Pharmaceuticals segment, €47 million in charges in conjunction with the agreed acquisition of Monsanto, and €37 million in charges related to efficiency improvement programs. EBIT before special items moved forward by 5.1% to €2,356 million (Q2 2016: €2,242 million).

In the second quarter of 2017, the following special effects were taken into account in calculating EBIT and EBITDA:

A 1

Special Items Reconciliation1
€ million EBIT
Q2 2016
EBIT
Q2 2017
EBIT
H1 2016
EBIT
H1 2017
EBITDA
Q2 2016
EBITDA
Q2 2017
EBITDA
H1 2016
EBITDA
H1 2017
Before special items 2,242 2,356 4,834 5,557 3,054 3,056 6,441 6,949
Pharmaceuticals (11) (120) (242) (156) (10) (7) (10) (10)
Consumer Health (32) (15) (64) (24) (31) (7) (50) (15)
Crop Science (30) (95) (33) (132) (30) (84) (33) (108)
Animal Health (1) (1)
Reconciliation (31) (14) (36) (34) (31) (14) (36) (34)
Restructuring (26) (14) (31) (29) (26) (14) (31) (29)
Litigations (5) (5) (5) (5) (5) (5)
Total special items Life Sciences (104) (244) (376) (346) (102) (112) (130) (167)
Covestro 39 56 39 47
Total special items (104) (205) (376) (290) (102) (73) (130) (120)
of which cost of goods sold (16) (66) (199) (74) (14) (42) (22) (44)
of which selling expenses (30) (40) (71) (41) (30) (8) (35) (9)
of which research and development
expenses
(18) (77) (53) (113) (18) (3) (20) (6)
of which general administration
expenses
(31) (58) (44) (93) (31) (58) (44) (93)
of which other operating income /
expenses
(9) 36 (9) 31 (9) 38 (9) 32
After special items 2,138 2,151 4,458 5,267 2,952 2,983 6,311 6,829
1

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Net income

Including a financial result of minus €405 million (Q2 2016: minus €314 million), income before income taxes was €1,746 million (Q2 2016: €1,824 million). After income tax expense of €417 million (Q2 2016: €431 million) and adjusting for income from discontinued operations after income taxes and noncontrolling interest, net income for the second quarter of 2017 amounted to €1,224 million (Q2 2016: €1,380 million).

Core earnings per share

Earnings per share (total) declined by 16.2% in the second quarter of 2017, to €1.40 (Q2 2016: €1.67), while core earnings per share from continuing operations fell by 12.6% to €1.81 (Q2 2016: €2.07). Material effects included the reduction of our interest in Covestro and the increased number of shares following the issuance of the mandatory convertible notes.

Core Earnings per Share1
€ million Q2 2016 Q2 2017 H1 2016 H1 2017
EBIT (as per income statements) 2,138 2,151 4,458 5,267
Amortization and impairment losses / loss reversals
on intangible assets
447 422 1,114 771
Impairment losses /loss reversals on property, plant
and equipment, and accelerated depreciation included in
special items
(1) 33 17 39
Special items
(other than amortization and impairment losses / loss reversals)
102 73 130 120
Core EBIT 2,686 2,679 5,719 6,197
Financial result (as per income statements) (314) (405) (629) (754)
Special items in the financial result 164 (10) 199
Income taxes (as per income statements) (431) (417) (905) (1,012)
Special items in income taxes
Tax effects related to amortization, impairment losses / loss
reversals and special items
(156) (195) (374) (332)
Income after income taxes attributable to noncontrolling interest
(as per income statements)
(68) (253) (138) (441)
Above-mentioned adjustments attributable
to noncontrolling interest
(5) 9 (7) 12
Core net income from continuing operations 1,712 1,582 3,656 3,869
Shares
Weighted average number of shares 826,947,808 872,107,808 826,947,808 871,747,808
Core earnings per share from continuing operations 2.07 1.81 4.42 4.44
Core earnings per share from discontinued operations 0.13 0.17 0.20 0.28
Core earnings per share from continuing
and discontinued operations
1
2.20 1.98 4.62 4.72

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

In calculating net income and core earnings per share, the sale of a further 17.25 million shares in Covestro AG to institutional investors in the second quarter, at a price of €62.25 per share, was taken into consideration. In addition, 8 million shares of Covestro AG were deposited in Bayer Pension Trust e.V. at a price of €63.04 per share. Bayer thus reduced its interest from 53.3% to 40.9% of the issued stock.

As of June 30, 2017, personnel expenses rose by 1.3% compared with June 30, 2016, to €2,826 million (Q2 2016: €2,789 million). As of the closing date, the number of employees in the Bayer Group was largely unchanged year on year, at 115,680 (June 30, 2016: 115,576; + 0.1%).

  1. Overview of Sales, Earnings and Financial Position

First half of 2017

Group sales

Sales of the Bayer Group in the first half of 2017 increased by 5.7% (Fx & portfolio adj.) to €25,437 million (reported: + 7.4%), with Germany accounting for €2,610 million of this figure. Our Life Science businesses grew sales by 1.1% (Fx & portfolio adj.) to €18,394 million.

Sales of Pharmaceuticals advanced by 5.8% (Fx & portfolio adj.) to €8,567 million. At Consumer Health, sales were flat year on year at €3,143 million (Fx & portfolio adj.: + 0.2%). Crop Science sales declined by 5.4% (Fx & portfolio adj.) to €5,283 million. Animal Health posted a 2.5% increase (Fx & portfolio adj.) in sales to €890 million. At Covestro, sales improved by a substantial 19.6% (Fx & portfolio adj.) to €7,043 million.

EBITDA before special items

EBITDA before special items of the Bayer Group advanced by 7.9% to €6,949 million (H1 2016: €6,441 million). Pharmaceuticals increased EBITDA before special items by a substantial 14.2% to €2,983 million. EBITDA before special items of Consumer Health came to €706 million, matching the prioryear period (– 0.7%). EBITDA before special items at Crop Science declined by a substantial 18.3% to €1,432 million, while Animal Health registered a significant earnings increase of 13.1% to €251 million. Overall, EBITDA before special items of the Life Science businesses declined slightly by 1.7% compared with the prior-year period, to €5,301 million. Covestro raised EBITDA before special items by a considerable 57.4% to €1,648 million.

Depreciation, amortization and special items

In the first half of 2017, depreciation, amortization and impairments amounted to €1,562 million (H1 2016: €1,853 million), comprising €771 million (H1 2016: €1,114 million) in amortization and impairments on intangible assets and €791 million (H1 2016: €739 million) in depreciation and impairments on property, plant and equipment. Impairment losses and impairment loss reversals amounted to €166 million (H1 2016: €298 million). Impairment losses and impairment loss reversals in the amount of €160 million (H1 2016: €244 million) as well as accelerated depreciation in the amount of €10 million constituted special items.

EBIT

EBIT of the Bayer Group rose by a substantial 18.1% to €5,267 million (H1 2016: €4,458 million), after net special charges of €290 million (H1 2016: €376 million). These mainly comprised €151 million in value adjustments, €68 million in charges in conjunction with the agreed acquisition of Monsanto, and €63 million in charges related to efficiency improvement programs. EBIT before special items moved forward by a significant 15.0% to €5,557 million (H1 2016: €4,834 million).

Net income

Including a financial result of minus €754 million (H1 2016: minus €629 million), income before income taxes amounted to €4,513 million (H1 2016: €3,829 million). The financial result comprised in particular a net interest expense of €268 million (H1 2016: €260 million), currency hedging costs in the amount of €233 million (H1 2016: €177 million), and interest cost of €115 million (H1 2016: €143 million) for pension and other provisions. After tax expense of €1,012 million (H1 2016: €905 million), income after income taxes was €3,501 million (H1 2016: €2,924 million). Adjusted for income from discontinued operations after income taxes and noncontrolling interest, net income came to €3,307 million (H1 2016: €2,891 million).

Core earnings per share

Earnings per share (total) increased to €3.79 (H1 2016: €3.50), while core earnings per share from continuing operations amounted to €4.44, in line with the prior-year period (H1 2016: €4.42).

1.2 Business Development by Segment

Pharmaceuticals

Key Data – Pharmaceuticals

Change % Change %
€ million Q2 2016 Q2 2017 Reported Fx & p
adj.
H1 2016 H1 2017 Reported Fx & p
adj.
Sales 4,104 4,304 + 4.9 + 4.4 7,993 8,567 + 7.2 + 5.8
Change in sales 1
Volume + 9.6% + 4.7% + 11.1% + 6.2%
Price – 1.2% – 0.3% – 0.9% – 0.4%
Currency – 2.9% + 0.5% – 2.9% + 1.4%
Portfolio 0.0% 0.0% 0.0% 0.0%
Reported Fx adj. Reported Fx adj.
Sales by region
Europe / Middle East / Africa 1,602 1,647 + 2.8 + 3.3 3,144 3,253 + 3.5 + 3.6
North America 1,027 1,101 + 7.2 + 5.3 2,016 2,174 + 7.8 + 5.1
Asia / Pacific 1,219 1,290 + 5.8 + 5.7 2,349 2,602 + 10.8 + 9.5
Latin America 256 266 + 3.9 + 1.6 484 538 + 11.2 + 5.8
EBITDA 1 1,342 1,474 + 9.8 2,603 2,973 + 14.2
Special items 1 (10) (7) (10) (10)
EBITDA before special items 1 1,352 1,481 + 9.5 2,613 2,983 + 14.2
EBITDA margin
before special items 1
32.9% 34.4% 32.7% 34.8%
EBIT 1 988 1,102 + 11.5 1,686 2,321 + 37.7
Special items 1 (11) (120) (242) (156)
EBIT before special items 1 999 1,222 + 22.3 1,928 2,477 + 28.5
Net cash provided by
operating activities
310 528 + 70.3 1,044 1,501 + 43.8

A 3

2016 figures restated; Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted

1 For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Second quarter of 2017

Sales

Sales of Pharmaceuticals increased by 4.4% (Fx & portfolio adj.) to €4,304 million in the second quarter of 2017. Our key growth products Xarelto™, Eylea™, Xofigo™, Stivarga™ and Adempas™ once again delivered strong performance, with their combined sales rising by 16.6% (Fx adj.) to €1,555 million (Q2 2016: €1,332 million). Combined sales of the 15 best-selling Pharmaceuticals products advanced by 7.7% (Fx adj.). Our Pharmaceuticals business expanded in all regions.

Best-Selling Pharmaceuticals Products

Change % Change %
€ million Q2 2016 Q2 2017 Reported Fx adj.1 H1 2016 H1 2017 Reported Fx adj.1
Xarelto™ 703 834 + 18.6 + 18.4 1,320 1,585 + 20.1 + 19.0
of which U.S.A.2 103 117 + 13.6 + 13.1 189 203 + 7.4 + 7.2
Eylea™ 418 458 + 9.6 + 10.6 790 904 + 14.4 + 14.7
of which U.S.A.3 0 0 0 0
Xofigo™ 81 105 + 29.6 + 28.0 156 205 + 31.4 + 29.2
of which U.S.A. 56 62 + 10.7 + 7.6 106 124 + 17.0 + 12.8
Stivarga™ 67 83 + 23.9 + 20.8 134 158 + 17.9 + 14.9
of which U.S.A. 33 46 + 39.4 + 35.9 68 85 + 25.0 + 21.0
Adempas™ 63 75 + 19.0 + 17.9 119 148 + 24.4 + 22.2
of which U.S.A. 30 38 + 26.7 + 24.1 56 76 + 35.7 + 31.8
Total key growth products 1,332 1,555 + 16.7 + 16.6 2,519 3,000 + 19.1 + 18.2
Mirena™ product family 258 276 + 7.0 + 4.5 506 591 + 16.8 + 13.4
of which U.S.A. 168 176 + 4.8 + 2.2 337 395 + 17.2 + 13.6
Kogenate™ / Kovaltry™ 280 260 – 7.1 – 7.7 576 535 – 7.1 – 8.1
of which U.S.A. 87 91 + 4.6 + 2.8 183 185 + 1.1 – 1.3
Nexavar™ 221 229 + 3.6 + 2.1 434 436 + 0.5 – 1.7
of which U.S.A. 78 86 + 10.3 + 5.9 159 161 + 1.3 – 2.2
Betaferon™ / Betaseron™ 196 185 – 5.6 – 6.4 386 356 – 7.8 – 9.2
of which U.S.A. 111 108 – 2.7 – 4.1 211 202 – 4.3 – 6.6
Adalat™ 161 171 + 6.2 + 7.3 321 345 + 7.5 + 7.9
of which U.S.A. 0 0 1 0
YAZ™ / Yasmin™ / Yasminelle™ 166 158 – 4.8 – 6.3 338 328 – 3.0 – 6.8
of which U.S.A. 31 25 – 19.4 – 20.7 71 45 – 36.6 – 38.3
Aspirin™ Cardio 138 148 + 7.2 + 8.0 275 305 + 10.9 + 10.9
of which U.S.A. 0 0 0 0
Glucobay™ 128 139 + 8.6 + 10.5 267 297 + 11.2 + 12.6
of which U.S.A. 1 0 2 1
Avalox™ / Avelox™ 88 87 – 1.1 + 0.1 186 187 + 0.5 + 1.2
of which U.S.A. 0 2 0 5
Gadavist™ / Gadovist™ 89 97 + 9.0 + 7.9 171 186 + 8.8 + 7.1
of which U.S.A. 27 34 + 25.9 + 23.7 54 61 + 13.0 + 10.4
Total best-selling products 3,057 3,305 + 8.1 + 7.7 5,979 6,566 + 9.8 + 8.6
Proportion of Pharmaceuticals sales 74% 77% 75% 77%
Total best-selling products in U.S.A. 725 785 1,437 1,543

A 4

Fx adj. = currency-adjusted; for definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group." 2

Marketing rights owned by an affiliate of Johnson & Johnson, U.S.A.

3 Marketing rights owned by Regeneron Pharmaceuticals Inc., U.S.A.

Sales by product

  • > Our oral anticoagulant Xarelto™ once again achieved strong sales growth, primarily due to an expansion of volumes in Europe and China. Our license revenues – recognized as sales – in the United States, where Xarelto™ is marketed by a subsidiary of Johnson & Johnson, also developed positively.
  • > We achieved a significant increase in sales of our eye medicine Eylea™, largely due to higher volumes in Europe and encouraging sales growth in Canada and Australia.
  • > We once again recorded substantial sales gains for our cancer drug Xofigo™, with business benefiting from a successful market launch in Japan and growth in the United States and Europe.

  • Overview of Sales, Earnings and Financial Position

  • > Sales of the pulmonary hypertension treatment Adempas™ advanced significantly on a currencyadjusted basis, and, as in the past, reflected the proportionate recognition of the one-time payment resulting from the sGC collaboration with Merck & Co., United States. Business continued to benefit mainly from positive performance in the United States.

  • > We expanded our business with the hormone-releasing intrauterine devices of the Mirena™ product family (Mirena™, Kyleena™ and Jaydess™ / Skyla™), including in the United States, where we continued to benefit from the successful market launch of the Kyleena™ intrauterine device.
  • > Sales of our Kogenate™ / Kovaltry™ blood-clotting medicines were lower than in the year-earlier quarter, due to order volumes placed by our distribution partner remaining significantly lower.
  • > Sales of our cancer drug Nexavar™ edged higher, mainly as a result of positive performance in the United States and China.
  • > As expected, business with our multiple sclerosis product Betaferon™ / Betaseron™ declined. This development was triggered in particular by lower demand in the United States and Latin America.
  • > Adalat™, our product for the treatment of hypertension and coronary heart disease, once again achieved encouraging sales gains, particularly as a result of higher volumes in China.
  • > Sales of our YAZ™ / Yasmin™ / Yasminelle™ line of oral contraceptives were down, primarily due to falling demand in Europe and generic competition in the United States. Positive business development in Asia was insufficient to offset this effect.
  • > Sales of our diabetes treatment Glucobay™ and our Aspirin™ Cardio product for the secondary prevention of heart attacks advanced significantly as a result of a persistently favorable market environment in China.
  • > We achieved an encouraging increase in sales of our MRI contrast agent Gadovist™, primarily due to the good development of business in the United States.

Earnings

EBITDA before special items of Pharmaceuticals improved by a very encouraging 9.5% to €1,481 million in the second quarter of 2017 (Q2 2016: €1,352 million). Positive earnings effects resulted primarily from higher volumes, while the cost of goods sold and expenses for research and development were lower.

EBIT increased by a substantial 11.5% to €1,102 million, and included special charges of €120 million (Q2 2016: €11 million). These largely comprised €69 million in impairments on intangible assets in the area of oncology (OncoMed), and €49 million in value adjustments in the area of women's health.

A 5

Special Items 1
Pharmaceuticals
€ million EBIT
Q2 2016
EBIT
Q2 2017
EBIT
H1 2016
EBIT
H1 2017
EBITDA
Q2 2016
EBITDA
Q2 2017
EBITDA
H1 2016
EBITDA
H1 2017
Restructuring (10) (2) (12) (5) (9) (1) (11) (4)
Litigations (1) 1 (1) 1
Value adjustments (118) (231) (151) (6) (6)
Total special items (11) (120) (242) (156) (10) (7) (10) (10)
1

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

First half of 2017

Sales

Sales of Pharmaceuticals rose by 5.8% (Fx & portfolio adj.) to €8,567 million in the first half of 2017. Our key growth products Xarelto™, Eylea™, Stivarga™, Xofigo™ and Adempas™ delivered strong performance, with their combined sales rising by 18.2% (Fx adj.) to €3,000 million (H1 2016: €2,519 million). Pharmaceuticals sales developed positively in all regions.

Earnings

EBITDA before special items improved by a substantial 14.2% in the first half of 2017, to €2,983 million. This positive earnings performance was the result of the good development of business, while the cost of goods sold and expenses for research and development were lower. In addition, selling expenses increased at a slower rate than sales.

EBIT increased substantially, rising by 37.7% to €2,321 million. Special charges amounted to €156 million (H1 2016: €242 million) and were primarily the result of value adjustments.

A 6

Consumer Health

Key Data – Consumer Health
Change % Change %
€ million Q2 2016 Q2 2017 Reported Fx & p
adj.
H1 2016 H1 2017 Reported Fx & p
adj.
Sales 1,553 1,542 – 0.7 – 2.2 3,073 3,143 + 2.3 + 0.2
Changes in sales 1
Volume + 1.2% – 4.6% – 0.1% – 2.2%
Price + 2.8% + 2.4% + 3.2% + 2.4%
Currency – 6.3% + 1.5% – 5.4% + 2.1%
Portfolio 0.0% 0.0% 0.0% 0.0%
Reported Fx adj. Reported Fx adj.
Sales by region
Europe / Middle East / Africa 480 503 + 4.8 + 2.7 962 1,041 + 8.2 + 5.8
North America 701 661 – 5.7 – 7.8 1,378 1,362 – 1.2 – 4.1
Asia / Pacific 201 195 – 3.0 – 3.0 402 415 + 3.2 + 1.7
Latin America 171 183 + 7.0 + 8.8 331 325 – 1.8 0.0
EBITDA 1 297 307 + 3.4 661 691 + 4.5
Special items 1 (31) (7) (50) (15)
EBITDA before special items 1 328 314 – 4.3 711 706 – 0.7
EBITDA margin
before special items 1
21.1% 20.4% 23.1% 22.5%
EBIT 1 190 195 + 2.6 433 473 + 9.2
Special items 1 (32) (15) (64) (24)
EBIT before special items 1 222 210 – 5.4 497 497 0.0
Net cash provided by
operating activities
241 297 + 23.2 438 562 + 28.3

2016 figures restated; Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted

1 For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Second quarter of 2017

Sales

Sales of Consumer Health in the second quarter of 2017 fell by 2.2% (Fx & portfolio adj.) to €1,542 million. We recorded substantial declines in sales in North America, particularly in the United States, due to the difficult market environment. In contrast, we expanded our business in Latin America and Europe / Middle East / Africa.

Best-Selling Consumer Health Products

Change % Change %
€ million Q2 2016 Q2 2017 Reported Fx adj.1 H1 2016 H1 2017 Reported Fx adj.1
Claritin™ 178 159 – 10.7 – 12.3 365 349 – 4.4 – 6.9
Aspirin™ 102 104 + 2.0 + 0.7 218 221 + 1.4 + 0.1
Bepanthen™ / Bepanthol™ 95 100 + 5.3 + 4.9 187 195 + 4.3 + 3.6
Aleve™ 110 101 – 8.2 – 10.5 200 183 – 8.5 – 11.1
Coppertone™ ² 94 80 – 14.9 – 16.7 175 182 + 4.0 + 0.8
Canesten™ 75 74 – 1.3 + 3.1 139 144 + 3.6 + 7.0
Alka-Seltzer™ product family 45 44 – 2.2 – 4.8 102 114 + 11.8 + 8.7
One A Day™ 55 55 0.0 + 0.2 99 110 + 11.1 + 8.7
Dr Scholl's™ ² 65 65 0.0 – 3.2 125 106 – 15.2 – 17.8
Elevit™ 40 44 + 10.0 + 9.9 83 96 + 15.7 + 11.7
Total 859 826 – 3.8 – 4.9 1,693 1,700 + 0.4 – 1.5
Proportion of Consumer Health sales 55% 54% 55% 54%
1

A 7

Fx adj. = currency-adjusted; for definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

2 Trademark rights and distribution only in certain countries outside the European Union

Sales by product

  • > Sales of our antihistamine Claritin™ declined substantially compared with a strong prior-year quarter, primarily in the United States and in China. In the United States, business was impacted by a weaker allergy season, among other factors. We had also benefited from the market launch of ClariSpray™ in 2016.
  • > Sales of our analgesic Aspirin™ matched the strong prior-year quarter. Including business with Aspirin™ Cardio, which is reported under Pharmaceuticals, sales advanced by 4.9% (Fx adj.) to €252 million (Q2 2016: €240 million).
  • > We increased sales of our Bepanthen™ / Bepanthol™ wound and skin care products, primarily in Asia / Pacific and Latin America.
  • > Sales of our analgesic Aleve™ came in much lower than in the prior-year quarter, largely as a result of increased competitive pressure in the United States.
  • > We recorded a substantial decline in sales of our sunscreen product Coppertone™, mainly due to increased competitive pressure and a weak season to date in the United States.
  • > Sales of our Canesten™ skin and intimate health products advanced on a currency-adjusted basis, particularly in China.
  • > Business with our Alka-Seltzer™ family of products to treat gastric complaints and cold symptoms declined, primarily in the United States.
  • > Sales of our One A Day™ vitamin product matched the level of the strong prior-year quarter, with gains in Latin America offsetting declines in North America.
  • > Sales of our Dr. Scholl's™ foot care products were down slightly from the prior-year quarter on a currency-adjusted basis. Gains in the United States only partly offset declines in Latin America.
  • > The considerable increase in sales of our prenatal vitamin Elevit™ was largely the result of demand remaining strong in Asia / Pacific, primarily in China.

Earnings

EBITDA before special items of Consumer Health declined by 4.3% to €314 million in the second quarter of 2017 (Q2 2016: €328 million). The fall in earnings is mainly attributable to lower volumes and the higher cost of goods sold, which resulted in part from inventory write-offs.

EBIT increased by 2.6% to €195 million, and included special charges of €15 million (Q2 2016: €32 million).

Special Items 1
Consumer Health
€ million EBIT
Q2 2016
EBIT
Q2 2017
EBIT
H1 2016
EBIT
H1 2017
EBITDA
Q2 2016
EBITDA
Q2 2017
EBITDA
H1 2016
EBITDA
H1 2017
Restructuring (3) (15) (17) (24) (2) (7) (3) (15)
Integration costs (29) (47) (29) (47)
Total special items (32) (15) (64) (24) (31) (7) (50) (15)
1

A 8

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

First half of 2017

Sales

In the first half of 2017, Consumer Health posted sales of €3,143 million (Fx & portfolio adj. + 0.2%). Business developed positively in Europe in particular, while sales fell in North America due to a difficult market environment in the United States.

Earnings

EBITDA before special items decreased by 0.7% in the first half of 2017, to €706 million (H1 2016: €711 million). Earnings contributions from the development of business stood against the higher cost of goods sold, which was due in part to inventory write-offs.

EBIT moved ahead by a clear 9.2% to €473 million (H1 2016: €433 million). Special charges amounted to €24 million (H1 2016: €64 million).

A 9

Crop Science

Key Data – Crop Science
Change % Change %
€ million Q2 2016 Q2 2017 Reported Fx & p
adj.
H1 2016 H1 2017 Reported Fx & p
adj.
Sales 2,518 2,163 – 14.1 – 15.8 5,454 5,283 – 3.1 – 5.4
Change in sales 1
Volume – 1.0% – 13.7% – 0.8% – 4.3%
Price + 1.4% – 2.1% + 1.6% – 1.1%
Currency – 5.2% + 1.7% – 4.3% + 2.3%
Portfolio + 0.3% 0.0% + 0.2% 0.0%
Reported Fx adj. Reported Fx adj.
Sales by region
Europe / Middle East / Africa 897 908 + 1.2 – 0.2 2,317 2,370 + 2.3 + 1.4
North America 812 865 + 6.5 + 5.0 1,721 1,907 + 10.8 + 7.1
Asia / Pacific 455 459 + 0.9 – 2.0 797 825 + 3.5 + 0.3
Latin America 354 (69) 619 181 – 70.8 – 73.5
EBITDA 1 633 233 – 63.2 1,719 1,324 – 23.0
Special items 1 (30) (84) (33) (108)
EBITDA before special items 1 663 317 – 52.2 1,752 1,432 – 18.3
EBITDA margin
before special items 1
26.3% 14.7% 32.1% 27.1%
EBIT 1 512 117 – 77.1 1,467 1,087 – 25.9
Special items 1 (30) (95) (33) (132)
EBIT before special items 1 542 212 – 60.9 1,500 1,219 – 18.7
Net cash provided by
operating activities
1,088 1,170 + 7.5 422 491 + 16.4

2016 figures restated; Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted

1 For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

1. Overview of Sales, Earnings and Financial Position

Second quarter of 2017

Sales

Sales of Crop Science in the second quarter of 2017 fell by 15.8% (Fx & portfolio adj.) to €2,163 million. This decline is mainly due to significantly higher provisions for product returns – specifically crop-protection products – in Brazil. At the end of the harvest season, regular stocktaking revealed high channel inventories in the Brazilian market, requiring measures to be taken to normalize the situation. Excluding the €428 million decline in sales in Brazil, business at Crop Science was up slightly year on year on a currencyadjusted basis. Environmental Science delivered positive performance, in part due to the delivery of products to the company that acquired our consumer business.

A 10

Sales by Business Unit
Change % Change %
€ million Q2 2016 Q2 2017 Reported Fx & p
adj.
H1 2016 H1 2017 Reported Fx & p
adj.
Crop Protection / Seeds 2,363 1,971 – 16.6 – 18.2 5,182 4,944 – 4.6 – 6.8
Crop Protection 2,055 1,637 – 20.3 – 21.6 4,237 3,888 – 8.2 – 9.8
Herbicides 769 742 – 3.5 – 6.0 1,614 1,654 + 2.5 + 0.2
Fungicides 840 502 – 40.2 – 40.2 1,667 1,289 – 22.7 – 23.3
Insecticides 302 256 – 15.2 – 16.9 586 557 – 4.9 – 6.7
SeedGrowth 144 137 – 4.9 – 6.3 370 388 + 4.9 + 1.9
Seeds 308 334 + 8.4 + 4.6 945 1,056 + 11.7 + 6.8
Environmental Science 155 192 + 23.9 + 20.6 272 339 + 24.6 + 21.0

Fx & p adj. = currency- and portfolio-adjusted;

for definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Sales by region

  • > Sales in Europe / Middle East / Africa matched the prior-year level at €908 million (Fx adj. 0.2%). The Insecticides business delivered very positive performance due to higher pest pressure. This development stood against substantial declines at Fungicides due to lower infestation levels as a result of drought in western Europe, as well as increased competitive pressure. The Seeds business developed positively.
  • > Sales in North America advanced by 5.0% (Fx adj.) to €865 million. We recorded strong gains at SeedGrowth, particularly with products to treat soybean seed in the United States and cereal seed in Canada. We also achieved growth in the Seeds business due to expanded oilseed rape / canola acreages in Canada, as well as at Fungicides. This was partly offset by a substantial decline at Insecticides in the United States.
  • > Sales in the Asia / Pacific region fell by 2.0% (Fx adj.) to €459 million. Business at Insecticides declined noticeably, due to sales declines in China and restrained demand in India. In contrast, business at Fungicides and Herbicides expanded.
  • > Sales in the Latin America region amounted to minus €69 million. This negative development is largely due to significantly higher provisions, primarily for product returns, as well as lower sell-in to the distribution channel in Brazil. At the end of the harvest season, regular stocktaking revealed high channel inventories of crop protection products in the Brazilian market. This situation was caused by weaker demand due to significantly lower insect and fungal infestation levels, while the level of inventory-building among distributors was high. We slightly increased sales in the other countries in the Latin America region overall.

Earnings

EBITDA before special items of Crop Science declined by 52.2% to €317 million in the second quarter of 2017 (Q2 2016: €663 million), in particular due to the situation in Brazil, where we recorded a substantial negative impact on earnings in the amount of €355 million in total. This included provisions for product returns in the amount of €173 million, impairment losses recognized on receivables in the amount of €53 million, inventory write-offs in the amount of €56 million, and other effects totaling €73 million. Excluding our business in Brazil, earnings were up slightly year on year.

EBIT decreased by 77.1% to €117 million, and included special charges in the amount of €95 million (Q2 2016: €30 million) related mainly to the agreed acquisition of Monsanto and the completion of a divestiture project.

Special Items 1
Crop Science
€ million EBIT
Q2 2016
EBIT
Q2 2017
EBIT
H1 2016
EBIT
H1 2017
EBITDA
Q2 2016
EBITDA
Q2 2017
EBITDA
H1 2016
EBITDA
H1 2017
Restructuring (28) (6) (28) (22) (28) (5) (28) (8)
Litigations (2) (2) (5) (2) (2) (2) (5) (2)
Acquisition costs (47) (68) (47) (68)
Divestments (40) (40) (30) (30)
Total special items
1
(30) (95) (33) (132) (30) (84) (33) (108)

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

First half of 2017

Sales

Sales of Crop Science in the first half of 2017 declined by 5.4% (Fx & portfolio adj.) to €5,283 million. Sales fell at Fungicides and Insecticides in particular due to the aforementioned adjustments made to provisions for product returns and weak business in Brazil. In contrast, we achieved gains at Seeds and Environmental Science. Higher sales in North America and Europe / Middle East / Africa were insufficient to offset the substantial decline in business in Latin America. Sales in Asia / Pacific came in at the prior-year level. Excluding Brazil, sales increased slightly overall.

Earnings

EBITDA before special items of Crop Science declined by 18.3% to €1,432 million (H1 2016: €1,752 million) in the first half of 2017, significantly weighed down by the aforementioned effects in Brazil. Excluding Brazil, earnings were higher than in the prior-year period.

EBIT declined by 25.9% to €1,087 million. Earnings were held back by special charges of €132 million (H1 2016: €33 million) largely related to the agreed acquisition of Monsanto, the completion of a divestiture project and efficiency improvement programs.

Animal Health

Key Data – Animal Health
Change % Change %
€ million Q2 2016 Q2 2017 Reported Fx & p
adj.
H1 2016 H1 2017 Reported Fx & p
adj.
Sales 426 450 + 5.6 + 2.1 834 890 + 6.7 + 2.5
Change in sales 1
Volume + 1.4% – 0.7% + 4.7% – 0.5%
Price + 2.8% + 2.8% + 1.7% + 3.0%
Currency – 4.7% + 1.6% – 3.9% + 2.3%
Portfolio 0.0% + 1.9% 0.0% + 1.9%
Reported Fx adj. Reported Fx adj.
Sales by region
Europe / Middle East / Africa 123 122 – 0.8 + 2.4 261 266 + 1.9 + 2.3
North America 193 208 + 7.8 + 4.7 355 385 + 8.5 + 5.1
Asia / Pacific 71 80 + 12.7 + 9.9 138 156 + 13.0 + 9.4
Latin America 39 40 + 2.6 – 2.6 80 83 + 3.8 – 1.3
EBITDA 1 100 116 + 16.0 221 251 + 13.6
Special items 1 (1)
EBITDA before special items 1 100 116 + 16.0 222 251 + 13.1
EBITDA margin
before special items 1
23.5% 25.8% 26.6% 28.2%
EBIT 1 93 107 + 15.1 207 233 + 12.6
Special items 1 (1)
EBIT before special items 1 93 107 + 15.1 208 233 + 12.0
Net cash provided by
operating activities
48 97 + 102.1 28 66 + 135.7

A 12

2016 figures restated; Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted

1 For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Second quarter of 2017

Sales

Sales of Animal Health in the second quarter of 2017 moved ahead by 2.1% (Fx & portfolio adj.) to €450 million. The development of business in the Asia / Pacific region was encouraging. In North America, the Cydectin™ product portfolio that was acquired in January 2017 contributed to sales growth on a currency-adjusted basis. We recorded a slight increase in sales in Europe / Middle East / Africa on a currencyadjusted basis, while the performance of our Latin America business matched the prior-year period.

A 13

Best-Selling Animal Health Products
Change % Change %
€ million Q2 2016 Q2 2017 Reported Fx adj.1 H1 2016 H1 2017 Reported Fx adj.1
Advantage™ product family 157 146 – 7.0 – 7.7 305 282 – 7.5 – 8.8
Seresto™ 67 81 + 20.9 + 17.4 121 157 + 29.8 + 26.6
Drontal™ product family 32 33 + 3.1 + 4.8 64 68 + 6.3 + 5.4
Baytril™ 24 31 + 29.2 + 25.8 52 58 + 11.5 + 8.9
Total 280 291 + 3.9 + 2.6 542 565 + 4.2 + 2.5
Proportion of Animal Health sales 66% 65% 65% 63%
1 Fx adj. = currency-adjusted; for definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Sales by product

  • > Sales of our Advantage™ family of flea, tick and worm control products declined overall, primarily due to lower than expected demand in the United States.
  • > We once again achieved double-digit percentage sales gains year on year with our Seresto™ flea and tick collar, thanks largely to strong demand in the United States and Europe.
  • > Sales of our Drontal™ line of wormers increased again, buoyed by the good development of business in the United Kingdom, United States, China and elsewhere.
  • > The strong sales gains recorded for our antibiotic Baytril™, primarily in the United States, were largely the result of a one-time effect due to changes in the distribution model. Intensified marketing activities also had a positive impact.

Earnings

EBITDA before special items of Animal Health increased by 16.0% to €116 million in the second quarter of 2017 (Q2 2016: €100 million). Positive earnings contributions resulted from price increases, the lower cost of goods sold as well as the Cydectin™ business that Bayer acquired. These more than offset a decline in volumes and slightly higher expenses for research and development.

EBIT climbed by 15.1% to €107 million, with no special items (Q2 2016: €0 million) recorded.

Special Items 1 Animal Health
€ million EBIT
Q2 2016
EBIT
Q2 2017
EBIT
H1 2016
EBIT
H1 2017
EBITDA
Q2 2016
EBITDA
Q2 2017
EBITDA
H1 2016
EBITDA
H1 2017
Restructuring (1) (1)
Total special items
1
- (1) (1)

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

First half of 2017

Sales

Sales of Animal Health rose by 2.5% (Fx & portfolio adj.) to €890 million in the first half of 2017. Development in the Asia / Pacific region was especially positive. We also recorded sales gains in North America and Europe / Middle East / Africa, while business in Latin America declined slightly on a currency-adjusted basis.

Earnings

EBITDA before special items increased by 13.1% to €251 million in the first half of 2017. Performance was driven by positive price effects and the newly acquired Cydectin™ business. This development stood against higher expenses for research and development.

EBIT improved by 12.6% to €233 million, with no special items (Q2 2016: special charges of €1 million) recorded.

  1. Overview of Sales, Earnings and Financial Position

Covestro

Key Data – Covestro
Change % Change %
€ million Q2 2016 Q2 2017 Reported Fx & p
adj.
H1 2016 H1 2017 Reported Fx & p
adj.
Sales 2,975 3,479 + 16.9 + 15.8 5,825 7,043 + 20.9 + 19.6
Change in sales 1
Volume + 5.0% + 0.6% + 5.4% + 5.3%
Price – 8.9% + 15.2% – 9.7% + 14.3%
Currency – 2.7% + 1.1% – 1.7% + 1.3%
Portfolio 0.0% 0.0% 0.0% 0.0%
Reported Fx adj. Reported Fx adj.
Sales by region
Europe / Middle East / Africa 1,254 1,380 + 10.0 + 9.9 2,464 2,793 + 13.4 + 13.2
North America 686 756 + 10.2 + 7.3 1,369 1,517 + 10.8 + 7.5
Asia / Pacific 866 1,129 + 30.4 + 29.8 1,659 2,311 + 39.3 + 38.2
Latin America 169 214 + 26.6 + 23.1 333 422 + 26.7 + 24.6
EBITDA 1 543 848 + 56.2 1,047 1,695 + 61.9
Special items 1 39 47
EBITDA before special items 1 543 809 + 49.0 1,047 1,648 + 57.4
EBITDA margin before special items 1 18.3% 23.3% 18.0% 23.4%
EBIT1 367 688 + 87.5 703 1,377 + 95.9
Special items 1 39 56
EBIT before special items 1 367 649 + 76.8 703 1,321 + 87.9
Net cash provided by
operating activities
309 415 + 34.3 478 690 + 44.4

A 15

2016 figures restated; Fx & p adj. = currency- and portfolio-adjusted; Fx adj. = currency-adjusted

1 For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Second quarter of 2017

Sales

Sales of Covestro in the second quarter of 2017 increased by 15.8% (Fx & portfolio adj.) to €3,479 million. Selling prices were much higher overall, especially at Polyurethanes, while volumes matched the prior-year period overall.

A 16

Sales by Business Unit

Change % Change %
€ million Q2 2016 Q2 2017 Reported Fx & p
adj.
H1 2016 H1 2017 Reported Fx & p
adj.
Polyurethanes 1,482 1,889 + 27.5 + 26.1 2,883 3,783 + 31.2 + 29.7
Polycarbonates 831 912 + 9.7 + 8.7 1,617 1,866 + 15.4 + 14.2
Coatings, Adhesives, Specialties 532 532 – 0.8 1,044 1,096 + 5.0 + 3.9
Other Covestro business 130 146 + 12.3 + 12.4 281 298 + 6.0 + 5.7
Total 2,975 3,479 + 16.9 + 15.8 5,825 7,043 + 20.9 + 19.6

Fx & p adj. = currency- and portfolio-adjusted;

for definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Sales by business unit

  • > Sales at Polyurethanes increased by 26.1% (Fx & portfolio adj.) to €1,889 million, bolstered by significantly higher selling prices, while volumes remained stable.
  • > Polycarbonates saw sales advance by 8.7% (Fx & portfolio adj.) to €912 million due to higher selling prices and slightly expanded volumes.
  • > Sales at Coatings, Adhesives, Specialties were flat year on year at €532 million (Fx & portfolio adj. 0.8%). A slight decline in volumes stood against stable selling prices.

Earnings

EBITDA before special items of Covestro improved by 49.0% to €809 million in the second quarter of 2017 (Q2 2016: €543 million). Substantially higher selling prices more than offset the effect of increased raw material prices.

EBIT increased by 87.5% to €688 million, and included a special gain in the amount of €39 million (Q2 2016: €0 million) resulting from the sale of the segment's North American spray polyurethane foam system house.

Special Items 1
Covestro
€ million EBIT
Q2 2016
EBIT
Q2 2017
EBIT
H1 2016
EBIT
H1 2017
EBITDA
Q2 2016
EBITDA
Q2 2017
EBITDA
H1 2016
EBITDA
H1 2017
Divestitures 39 39 39 39
Restructuring 17 8
Total special items
1
39 56 39 47

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

First half of 2017

Sales

Sales of Covestro increased by 19.6% (Fx & portfolio adj.) in the first half of 2017 compared with the prioryear period, to €7,043 million, due to significantly higher selling prices, especially at Polyurethanes. All business units reported higher volumes.

Earnings

EBITDA before special items of Covestro improved by 57.4% to €1,648 million in the first half of 2017 (H1 2016: €1,047 million). A significant increase in selling prices and higher volumes more than offset higher raw material costs.

EBIT climbed by 95.9% to €1,377 million, and included special gains of €56 million (H1 2016: €0 million) related to the aforementioned sale and the decision made in the first quarter of 2017 to postpone the closure of a production facility until further notice.

1.3 Asset and Financial Position of the Bayer Group

Statement of Cash Flows

A 18
Q2 2016 Q2 2017 Change % H1 2016 H1 2017 Change %
1,992 2,316 + 16.3 2,544 3,142 + 23.5
(10) (3) + 70.0 760 12 – 98.4
1,982 2,313 + 16.7 3,304 3,154 – 4.5
(1,245) (1,178) + 5.4 (1,707) (2,314) – 35.6
(3,235) (549) + 83.0 (2,412) 62
(2,498) 586 (815) 902
3,552 2,224 – 37.4 1,859 1,899 + 2.2
1 (37) 11 (28)
1,055 2,773 + 162.8 1,055 2,773 + 162.8
Bayer Group Summary Statements of Cash Flows

2016 figures restated

Net cash provided by operating activities

  • > In the second quarter of 2017, the net cash provided by operating activities (total) increased by 16.7% to €2,313 million. The net cash provided by operating activities in continuing operations rose by 16.3% to €2,316 million due to a less significant increase in cash tied up in working capital. This figure included the components of the payments received from Dow Chemical as part of a patent dispute that fall under operating activities.
  • > The contribution of Covestro shares to Bayer Pension Trust e. V. in the amount of €504 million was a noncash transaction and, as such, did not result in on operating cash outflow.
  • > In the first half of 2017, the net cash provided by operating activities (total) declined by 4.5% to €3,154 million. The prior-year figure included inflows from the divestiture of Diabetes Care. The net cash provided by operating activities in continuing operations climbed by a substantial 23.5% to €3,142 million, due mainly to the improvement in EBITDA.

Net cash used in investing activities

  • > In the second quarter of 2017, cash outflows for property, plant and equipment and intangible assets were 19.2% lower at €476 million (Q2 2016: €589 million), and included €142 million (Q2 2016: €236 million) at Pharmaceuticals, €31 million (Q2 2016: €48 million) at Consumer Health, €135 million (Q2 2016: €164 million) at Crop Science, €5 million (Q2 2016: €6 million) at Animal Health and €92 million (Q2 2016: €80 million) at Covestro.
  • > In total we invested €818 million in primarily current financial assets (Q2 2016: €697 million in noncurrent and current financial assets).
  • > In the first half of 2017, cash outflows for property, plant and equipment and intangible assets fell by 6.4% to €891 million (H1 2016: €952 million), and included €294 million (H1 2016: €377 million) at Pharmaceuticals, €55 million (H1 2016: €87 million) at Consumer Health, €234 million (H1 2016: €261 million) at Crop Science, €11 million (H1 2016: €11 million) at Animal Health and €166 million (H1 2016: €126 million) at Covestro.
  • > Cash outflows for acquisitions in the amount of €158 million related to the acquisition of the Cydectin™ product portfolio in the United States in the Animal Health segment.
  • > Overall we invested €1,455 million in primarily current financial assets (H1 2016: €841 million particularly in noncurrent financial assets).

Net cash provided by (used in) financing activities

  • > In the second quarter of 2017, the net cash outflow for financing activities amounted to €549 million, with inflows of €1,045 million from the sale of Covestro shares and net borrowings of €1,014 million (Q2 2016: net loan repayments of €950 million) standing against dividend payments of €2,361 million (Q2 2016: €2,120 million).
  • > Net interest expense was €82 million higher at €247 million.
  • > The contribution of Covestro shares to Bayer Pension Trust e. V., in the amount of €504 million, was a noncash transaction and therefore did not result in a financing cash inflow.
  • > In the first half of 2017, there was a net cash inflow of €62 million for financing activities. There was a net inflow of €2,505 million from the sale of Covestro shares, while net borrowings came to €270 million (H1 2016: net loan repayments of €41 million). Cash outflows for dividend payments amounted to €2,361 million (H1 2016: €2,120 million).

A 19

> Net interest expense rose by €101 million to €352 million.

Liquid assets and net financial debt

Net Financial Debt 1

€ million Dec. 31,
2016
March 31,
2017
June 30,
2017
Change vs.
March 31,
2017 (%)
Bonds and notes / promissory notes 15,991 15,421 15,871 + 2.9
of which hybrid bonds 2 4,529 4,530 4,531
Liabilities to banks 1,837 1,846 1,756 – 4.9
Liabilities under finance leases 436 435 412 – 5.3
Liabilities from derivatives 3 587 534 369 – 30.9
Other financial liabilities 730 751 797 + 6.1
Receivables from derivatives 3 (313) (235) (299) + 27.2
Financial liabilities 19,268 18,752 18,906 + 0.8
Cash and cash equivalents (1,899) (2,224) (2,773) + 24.7
Current financial assets 4 (5,591) (6,128) (6,691) + 9.2
Net financial debt 11,778 10,400 9,442 – 9.2
1

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

2 Classified as debt according to IFRS

3 These include the market values of interest-rate and currency hedges of recorded transactions.

4 These include short-term loans and receivables with maturities between 3 and 12 months outstanding from banks and other companies as well as available-for-sale financial assets that were recorded as current on initial recognition.

  • > Net financial debt of the Bayer Group decreased by €1.0 billion between March 31, 2017, and the end of the second quarter. Cash inflows from operating activities and positive currency effects offset the outflow for the dividend payment. The Group generated proceeds of approximately €1.0 billion from the sale of Covestro shares.
  • > Net financial debt includes three subordinated hybrid bonds with a total volume of €4.5 billion, 50% of which is treated as equity by Moody's and S & P Global Ratings. The hybrid bonds thus have a more limited effect on the Group's rating-specific debt indicators than senior debt.
  • > In April and June 2017, Bayer Holding Ltd., Japan, redeemed at maturity two bonds with nominal volumes of JPY 30 billion and JPY 10 billion issued under its debt issuance program. That company also issued two bonds with volumes of JPY 10 billion each in May 2017.
  • > In June 2017, Bayer AG issued debt instruments with a nominal value of €1.0 billion that will mature in 2020. These bonds can be redeemed in cash, Covestro shares or a combination of the two. The annual interest rate is 0.05%.

  • > Other financial liabilities as of June 30, 2017, included €657 million in connection with the mandatory convertible notes issued in November 2016.

  • > S & P Global Ratings and Moody's give Bayer long-term issuer ratings of A– and A3, respectively. The short-term ratings are A–2 (S & P Global Ratings) and P–2 (Moody's). These investment-grade ratings document good creditworthiness. In connection with the agreed acquisition of Monsanto, both rating agencies are currently reviewing the long-term issuer ratings with regard to a potential downgrade. In addition, Moody's is currently reviewing its short-term P–2 rating.

Asset and capital structure

Bayer Group Summary Statements of Financial Position
€ million Dec. 31,
2016
March 31,
2017
June 30,
2017
Change vs.
March 31,
2017 (%)
Noncurrent assets 51,791 51,664 49,988 – 3.2
Current assets 30,437 33,362 32,649 – 2.1
Assets held for sale 10 28 3 – 89.3
Total current assets 30,447 33,390 32,652 – 2.2
Total assets 82,238 85,054 82,640 – 2.8
Equity 31,897 35,857 35,483 – 1.0
Noncurrent liabilities 31,804 29,625 28,397 – 4.1
Current liabilities 18,537 19,572 18,760 – 4.1
Liabilities 50,341 49,197 47,157 – 4.1
Total equity and liabilities 82,238 85,054 82,640 – 2.8

> Between March 31, 2017, and June 30, 2017, total assets decreased by €2.4 billion to €82.6 billion.

> Noncurrent assets decreased by €1.7 billion to €50.0 billion due particularly to currency effects. Total current assets declined by €0.7 billion to €32.7 billion.

  • > Equity decreased by €0.4 billion compared with March 31, 2017, to €35.5 billion. Income after income taxes of €1.5 billion was a positive factor here. The contribution of further Covestro AG shares to Bayer Pension Trust e. V. and the divestment of further Covestro AG shares had a total positive equity effect of €1.6 billion. On the other hand, the dividend payment reduced equity by €2.4 billion. Exchange rate differences – recognized outside profit or loss – reduced equity by €1.2 billion. The equity ratio (equity coverage of total assets) increased slightly to 42.9% as of June 30, 2017 (March 31, 2017: 42.2%).
  • > Liabilities decreased by €2.0 billion to €47.2 billion in the second quarter of 2017. Provisions for pensions and other post-employment benefits fell by €0.9 billion to €9.6 billion. The contribution of further Covestro AG shares to Bayer Pension Trust e. V. led to a €0.5 billion reduction in provisions. There were also actuarial gains of €0.3 billion due to higher discounting factors that were mainly attributable to a slight increase in long-term capital market interest rates for high-quality corporate bonds in Germany.

2. Research, Development, Innovation

Bayer Group expenses for research and development rose by 3.0% (Fx adj.) to €1,165 million in the second quarter of 2017, with the Life Science businesses accounting for €1,097 million (Fx adj. +2,6%) of this figure.

A 21

R&D expenses before special items
Change
%
% Change
%
Change
%
Q2
2016
Q2
2017
Fx.
adj.
H1
2016
H1
2017
Fx.
adj.
Q2
2016
Q2
2017
Fx.
adj.
H1
2016
H1
2017
Fx.
adj.
679 707 + 3.5 1,379 1,419 + 1.9 679 638 – 6.6 1,346 1,317 – 3.1
71 65 – 8.6 129 124 – 5.5 60 59 – 3.3 116 116 – 2.1
272 275 – 0.4 533 558 + 2.6 265 273 + 1.5 526 555 + 3.5
34 38 + 10.3 64 71 + 9.2 34 38 + 10.3 64 71 + 9.2
4 12 0 19 4 12 0 19
1,060 1,097 + 2.6 2,105 2,191 + 2.8 1,042 1,020 – 3.0 2,052 2,078
62 68 + 9.7 126 132 + 4.0 62 68 + 9.7 126 132 + 4.0
1,122 1,165 + 3.0 2,231 2,323 + 2.8 1,104 1,088 – 2.4 2,178 2,210 + 0.2
Research and Development Expenses R&D expenses
Change

Pharmaceuticals

We are conducting clinical trials with a number of drug candidates from our research and development pipeline.

The following table shows our most important drug candidates currently in Phase II of clinical testing:

A 22

Research and Development Projects (Phase II) 1
Projects Indication
Anetumab ravtansine (mesothelin ADC) Cancer
BAY 1142524 (chymase inhibitor) Heart failure
BAY 1193397 (AR alpha 2c Rec Ant.) Peripheral artery disease (PAD)
BAY 2306001 (IONIS-FXIRx) Prevention of thrombosis 2
Copanlisib (PI3K inhibitor) Relapsed / refractory diffuse large B-cell lymphoma
Molidustat (HIF-PH inhibitor) Renal anemia
Neladenoson bialanate (BAY 1067197) Chronic heart failure
Nesvacumab (previously: Ang2 antibody) + aflibercept Serious eye diseases 3
Radium-223 dichloride Breast cancer with bone metastases
Radium-223 dichloride Cancer, various studies
Regorafenib Cancer
Riociguat Diffuse systemic sclerosis
Riociguat Cystic fibrosis
Vilaprisan (S-PRM) Endometriosis

1 As of July 3, 2017

2 Sponsored by Ionis Pharmaceuticals, Inc.

3 Sponsored by Regeneron Pharmaceuticals, Inc.

The nature of drug discovery and development is such that not all compounds can be expected to meet the predefined project goals. It is possible that any or all of the projects listed above may have to be discontinued due to scientific and / or commercial reasons and will not result in commercialized products. It is also possible that the requisite U.S. Food and Drug Administration (FDA), European Medicines Agency (EMA) or other regulatory approvals will not be granted for these compounds. Moreover, we regularly review our research and development pipeline so that we can give priority to advancing the most promising pharmaceuticals projects.

Based on the results of the GEMINI trial conducted by Janssen Research & Development, LLC, which had investigated rivaroxaban (tradename: Xarelto™) used in connection with a single antiplatelet therapy (SAPT) for the secondary prophylaxis of acute coronary syndrome (ACS), the decision was made to no longer pursue the development of rivaroxaban in this indication.

The following table shows our most important drug candidates currently in Phase III of clinical testing:

A 23

Research and Development Projects (Phase III) 1
Projects Indication
Amikacin Inhale Pulmonary infection
Ciprofloxacin DPI Non-cystic fibrosis bronchiectasis
Copanlisib (PI3K inhibitor) Various forms of non-Hodgkin lymphoma (NHL)
Damoctocog alfa pegol (BAY 94-9027,
long-acting rFVIII)
Hemophilia A
Darolutamide (previously: ODM-201, AR antagonist) Nonmetastatic castration-resistant prostate cancer
Darolutamide (previously: ODM-201, AR antagonist) Metastatic hormone-sensitive prostate cancer
Finerenone (MR antagonist) Diabetic kidney disease
Radium-223 dichloride Combination treatment of castration-resistant prostate cancer
Regorafenib Colon cancer, adjuvant therapy
Rivaroxaban Prevention of major adverse cardiac events (MACE)
Rivaroxaban Anticoagulation in patients with chronic heart failure 2
Rivaroxaban Prevention of venous thromboembolism in high-risk patients after
discharge from hospital 2
Rivaroxaban Embolic stroke of undetermined source (ESUS)
Rivaroxaban Peripheral artery disease (PAD)
Tedizolid Pulmonary infection
Vericiguat (BAY 1021189, sGC stimulator) Chronic heart failure 3
Vilaprisan (S-PRM) Symptomatic uterine fibroids

As of July 03, 2017

2 Sponsored by Janssen Research & Development, LLC

3 Sponsored by Merck & Co., Inc., USA

The nature of drug discovery and development is such that not all compounds can be expected to meet the predefined project goals. It is possible that any or all of the projects listed above may have to be discontinued due to scientific and / or commercial reasons and will not result in commercialized products. It is also possible that the requisite U.S. Food and Drug Administration (FDA), European Medicines Agency (EMA) or other regulatory approvals will not be granted for these compounds. Moreover, we regularly review our research and development pipeline so that we can give priority to advancing the most promising pharmaceuticals projects.

In July 2017, Bayer initiated the Phase III clinical trial program ASTEROID, which is investigating the development candidate vilaprisan in women with symptomatic uterine fibroids. The product of Bayer's research efforts, vilaprisan is a novel oral and selective progesterone receptor modulator that is aimed at treating uterine fibroids long term.

The most important drug candidates in the approval process are:

Main Products Submitted for Approval 1

Projects Indication
Copanlisib (PI3K inhibitor) USA: Recurrent / resistant non-Hodgkin lymphoma (NHL)
Regorafenib Europe: second-line treatment for unresectable liver cancer
Rivaroxaban Europe, U.S.A.: long-term prevention of venous thromboembolic events
Rivaroxaban 2 U.S.A.: secondary prophylaxis of acute coronary syndrome (ACS), Rivaroxaban in
combination with dual antiplatelet therapy (DAPT); ATLAS trial

A 24

1 As of July 3, 2017

2 Submitted by Janssen Research & Development, LLC

In April 2017, Bayer and its development partner Janssen Research & Development submitted an additional dose option for the oral Factor Xa inhibitor rivaroxaban (tradename: Xarelto™) to the U.S. Food and Drug Administration (FDA), seeking an expansion of indications. The application is supported by data from the EINSTEIN CHOICE trial. The new dose of 10mg of rivaroxaban once a day is to supplement the current therapy of 20mg once a day and is intended for use as an anticoagulation therapy to reduce the risk of recurrent venous thromboembolism after at least six months of standard therapy with anticoagulants.

In May 2017, the FDA granted priority review status to the development candidate copanlisib in the registration process, based on the Phase II data presented in the first quarter of 2017. The substance is being reviewed for the treatment of relapsed or refractory follicular lymphoma.

In April and June 2017, Bayer received approvals from the FDA and Japanese Ministry of Health, Labour and Welfare (MHLW) for the use of its oral multikinase inhibitor Stivagra™ (active ingredient: regorafenib) for the second-line treatment of patients with hepatocellular carcinoma who previously had been treated with Nexavar™ (active ingredient: sorafenib). Stivarga™ is the first drug product to show a significant improvement in overall survival in the second-line treatment of patients with hepatocellular carcinoma.

In June 2017, the European Committee for Medicinal Products for Human Use recommended the approval of Bayer's cancer drug Stivarga™ (active ingredient: regorafenib) for the treatment of adult patients with hepatocellular carcinoma in the European Union who had previously been treated with Nexavar™ (active ingredient: sorafenib). The European Commission is expected to make a decision in the third quarter of 2017.

Collaborations

On April 6, 2017, Bayer decided to not exercise its option to further develop and market Wnt signaling pathway inhibitors, a class of biologics, as part of its collaboration with OncoMed Pharmaceuticals Inc., United States.

Crop Science

In April 2017, we received regulatory approval for the biological nematicide BioAct™ Prime DC in Greece. The new substance is intended for use in a variety of fruit and vegetables and directly targets eggs and larvae from nematode pests. The product is scheduled to be launched in Greece in 2017 and there are plans to gain approvals in other European countries, too.

In June 2017, Bayer and KWS SAAT SE, Germany – in line with their research cooperation which began in 2012 – granted a long-term license to the Belgian company SESVanderHave for their new CONVISO™SMART sugar beet cultivation system. The technology, which is based on conventionally cultivated sugar beet varieties that are tolerant to certain herbicides, makes weed management easier. It will initially be made available to farmers in 2018, mainly in Eastern and Northern Europe, and is to be introduced in the following years in Germany, France and Poland, among other countries.

We also signed a two-year research agreement with the Shanghai Institutes for Biological Sciences (SIBS) of the Chinese Academy of Sciences in June 2017. The purpose of the agreement is to increase wheat yields using new mathematical models and computer simulations for more efficient photosynthesis. The improvement in photosynthesis is considered to be a promising approach to considerably increasing plant productivity.

In June 2017, Bayer also signed an agreement with the Sumitomo Chemical Company, which is headquartered in Tokyo, Japan, for fungicide mixes used to control soybean diseases in Brazil. The companies plan to develop an effective substance to control widespread plant diseases such as soybean rust by combining a new fungicide produced by Sumitomo Chemical with established Bayer fungicides. Both companies expect to file a product registration application at the end of 2017.

Covestro

Covestro and its partners have developed a new procedure for producing the basic chemical aniline using industrial sugar. The chemical is used in the production of plastics. This means that benzene, a raw material derived from crude oil, can be replaced by biomass. The laboratory-tested procedure is now to be transferred to a larger pilot facility with the goal of manufacturing aniline on an industrial scale using renewable raw materials.

3. Report on Future Perspectives and on Opportunities and Risks

3.1 Future Perspectives

3.1.1 Economic Outlook

Economic Outlook1
Growth
2016
Growth
forecast
2017
World + 2.5% + 3.0%
European Union + 1.8% + 1.9%
of which Germany + 1.8% + 2.0%
United States + 1.6% + 2.3%
Emerging Markets 2 + 3.8% + 4.5%

A 25

2016 figures restated

Real growth of gross domestic product, source: IHS Global Insight

2 Including about 50 countries defined by IHS Global Insight as emerging markets in line with the World Bank

As of June 2017

The economic prospects further improved in the first half of 2017, and the global economy is likely to expand at a faster pace than in the previous year. In the United States, particularly, we expect more favorable economic development. We now expect a slightly faster pace of growth in the European Union despite uncertainty surrounding future political development there. Economic output in the Emerging Markets will probably pick up considerably overall compared with the previous year. We continue to expect strong growth in China but at a slightly slower pace.

A 26
-- ------
Economic Outlook for the Segments 1
Growth
2016
Growth
forecast
2017
Pharmaceuticals market + 5% + 4%
Consumer health market + 4% + 3 – 4%
Seed and crop protection market 0% + 1%
Animal health market + 5% + 5%

2016 figures restated

1 Bayer's estimate, except pharmaceuticals; source for pharmaceuticals market: 2017-2021 IMS Market Prognosis, Latest Update May 2017; all rights reserved; currency-adjusted

As of June 2017

In 2017, Covestro expects a continuation of the growth trend in its main customer industries – construction, electrical engineering and electronics, and furniture. Growth in the automotive industry is still expected to be weaker than in the previous year.

3.1.2 Corporate Outlook

Due to the current business and currency development, we are adjusting our forecast for the fiscal year 2017.

The forecast for the second half is based on the exchange rates as of June 30, 2017, including a rate of US\$1.14 (previously: US\$1.07) to the euro. A 1% appreciation (depreciation) of the euro against all other currencies would decrease (increase) sales on an annual basis by €300 million and EBITDA before special items by €80 million.

This results in the following changes overall for the Bayer Group: Sales are now expected to increase to more than €49 billion (previously: around €51 billion). This now corresponds to a mid-single-digit (previously: mid- to high-single-digit) percentage increase on a currency- and portfolio-adjusted basis. EBITDA before special items is now targeted to increase by a high-single-digit percentage (previously: low-teens percentage). We now aim to grow core earnings per share from continuing operations by a low- to mid-single-digit percentage (previously: mid- to high-single-digit percentage). Here it must be noted that Bayer's interest in Covestro amounts to only 41% as of June 2017 (previously: 53%). Excluding capital and portfolio measures, net financial debt is targeted to be around €7 billion at the end of 2017 (previously: around €8 billion).

We are now budgeting for sales of between €35 billion and €36 billion (previously: approximately €37 billion) for our Life Science businesses. This corresponds to a low-single-digit percentage (previously: midsingle-digit percentage) increase on a currency- and portfolio-adjusted basis. We expect EBITDA before special items to come in slightly above the level of the previous year (previously: rise by a mid- to highsingle-digit percentage).

Despite negative currency development, we confirm the forecast we published in February for Pharmaceuticals and continue to expect sales of more than €17 billion. This corresponds to a mid-single-digit percentage increase on a currency- and portfolio-adjusted basis. As before, we plan to raise sales of our key growth products to more than €6 billion. We continue to expect a high-single-digit percentage increase in EBITDA before special items. There is no change in our expectation of further improving the EBITDA margin before special items.

For Consumer Health, we forecast a weak second half of the year and now expect to generate full-year sales of about €6 billion (previously: more than €6 billion). This would be in line with the prior-year level on both a reported and a currency- and portfolio-adjusted basis (previously: low- to mid-single-digit percentage increase on a currency- and portfolio-adjusted basis). We now expect EBITDA before special items to decline by a high-single-digit percentage (previously: increase by a low- to mid-single-digit percentage).

We are now budgeting for sales of below €10 billion (previously: more than €10 billion) for Crop Science. This corresponds to low-single-digit-percentage decline on a currency- and portfolio-adjusted basis (previously: low-single-digit percentage increase). We now expect EBITDA before special items to decline by a mid-teens percentage (previously: at the prior-year level).

We confirm the forecasts published in February and April 2017 for Animal Health, the Reconciliation and Covestro. This also applies to the forecasts for the other key data.

3.2 Opportunities and risks

As a global enterprise with a diversified portfolio, the Bayer Group is exposed to a wide range of internal or external developments and events that could significantly impact the achievement of our financial and nonfinancial objectives.

Bayer regards opportunity and risk management as an integral part of corporate governance. Our risk management process and the opportunities / risks are outlined in detail in the Annual Report 2016 (Combined Management Report, A 3.2 "Opportunity and Risk Report"). For risks related to the acquisition of Monsanto Company, United States, we refer specifically to A 3.2.3 "Planned Acquisition of Monsanto." There have been no material changes to Bayer's overall risk situation.

From the current perspective, no risks have been identified that could endanger the Bayer Group's continued existence. There are also no risks with mutually reinforcing dependencies that could combine to endanger the Group's continued existence.

Significant developments that have occurred in respect of the legal risks since publication of the Bayer Annual Report 2016 (Note [32] to the Consolidated Financial Statements) are described in the Notes to the Condensed Consolidated Interim Financial Statements under "Legal Risks."

Condensed Consolidated Interim Financial Statements as of June 30, 2017

B 1

Bayer Group Consolidated Income Statements

€ million Q2 2016 Q2 2017 H1 2016 H1 2017
Net sales 11,833 12,193 23,687 25,437
Cost of goods sold (5,028) (5,119) (10,072) (10,464)
Gross profit 6,805 7,074 13,615 14,973
Selling expenses (3,092) (3,175) (5,980) (6,188)
Research and development expenses (1,122) (1,165) (2,231) (2,323)
General administration expenses (489) (608) (984) (1,180)
Other operating income 159 271 362 446
Other operating expenses (123) (246) (324) (461)
EBIT 1 2,138 2,151 4,458 5,267
Equity-method loss (6) (11) (11) (24)
Financial income 42 101 79 136
Financial expenses (350) (495) (697) (866)
Financial result (314) (405) (629) (754)
Income before income taxes 1,824 1,746 3,829 4,513
Income taxes (431) (417) (905) (1,012)
Income from continuing operations after income taxes 1,393 1,329 2,924 3,501
Income from discontinued operations after income taxes 55 148 105 247
Income after income taxes 1,448 1,477 3,029 3,748
of which attributable to noncontrolling interest 68 253 138 441
of which attributable to Bayer AG stockholders (net income) 1,380 1,224 2,891 3,307
Earnings per share
From continuing operations
Basic 1.60 1.23 3.37 3.51
Diluted 1.60 1.23 3.37 3.51
From discontinued operations
Basic 0.07 0.17 0.13 0.28
Diluted 0.07 0.17 0.13 0.28
From continuing and discontinued operations
Basic 1.67 1.40 3.50 3.79
Diluted
1
1.67 1.40 3.50 3.79

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Bayer Group Consolidated Statements of Comprehensive Income

€ million Q2 2016 Q2 2017 H1 2016 H1 2017
Income after income taxes 1,448 1,477 3,029 3,748
of which attributable to noncontrolling interest 68 253 138 441
of which attributable to Bayer AG stockholders 1,380 1,224 2,891 3,307
Remeasurements of the net defined benefit liability
for post-employment benefit plans
(844) 300 (3,407) 905
Income taxes 235 (132) 991 (327)
Other comprehensive income from remeasurements of the net
defined benefit liability for post-employment benefit plans
(609) 168 (2,416) 578
Other comprehensive income that will not be reclassified
subsequently to profit or loss
(609) 168 (2,416) 578
Changes in fair values of derivatives designated as
cash flow hedges
(129) 10 (76) (78)
Reclassified to profit or loss (19) (27) (35) 27
Income taxes 49 8 49 23
Other comprehensive income from cash flow hedges (99) (9) (62) (28)
Changes in fair values of available-for-sale financial assets 14 (27) 26 (34)
Reclassified to profit or loss
Income taxes (5) (1) (9) 8
Other comprehensive income from available-for-sale
financial assets
9 (28) 17 (26)
Changes in exchange differences recognized on translation
of operations outside the eurozone
301 (1,213) (208) (1,384)
Reclassified to profit or loss
Other comprehensive income from exchange differences 301 (1,213) (208) (1,384)
Other comprehensive income relating to associates accounted
for using the equity method
(6) 40 12 47
Other comprehensive income that may be reclassified
subsequently to profit or loss
205 (1,210) (241) (1,391)
Total other comprehensive income 1 (404) (1,042) (2,657) (813)
of which attributable to noncontrolling interest (9) (86) (110) (63)
of which attributable to Bayer AG stockholders (395) (956) (2,547) (750)
Total comprehensive income 1,044 435 372 2,935
of which attributable to noncontrolling interest 59 167 28 378
of which attributable to Bayer AG stockholders
1
985 268 344 2,557

B 2

Total changes recognized outside profit or loss

Bayer Group Consolidated Statements of Financial Position

Bayer Group Consolidated Statements of Financial Position

B 3

€ million June 30, 2016 June 30, 2017 Dec. 31, 2016
Noncurrent assets
Goodwill 15,982 15,823 16,312
Other intangible assets 14,167 12,685 13,567
Property, plant and equipment 12,275 12,672 13,114
Investments accounted for using the equity method 505 548 584
Other financial assets 1,246 1,402 1,281
Other receivables 398 526 583
Deferred taxes 6,238 6,332 6,350
50,811 49,988 51,791
Current assets
Inventories 8,334 8,459 8,408
Trade accounts receivable 11,792 12,077 10,969
Other financial assets 913 7,233 6,275
Other receivables 2,074 1,652 2,210
Claims for income tax refunds 495 455 676
Cash and cash equivalents 1,055 2,773 1,899
Assets held for sale 3 10
24,663 32,652 30,447
Total assets 75,474 82,640 82,238
Equity
Capital stock 2,117 2,117 2,117
Capital reserves 6,167 9,658 9,658
Other reserves 14,435 20,875 18,558
Equity attributable to Bayer AG stockholders 22,719 32,650 30,333
Equity attributable to noncontrolling interest 1,316 2,833 1,564
24,035 35,483 31,897
Noncurrent liabilities
Provisions for pensions and other post-employment benefits 13,838 9,618 11,134
Other provisions 1,586 1,631 1,780
Financial liabilities 16,488 14,168 16,180
Income tax liabilities 387 505 423
Other liabilities 1,095 985 957
Deferred taxes 989 1,490 1,330
34,383 28,397 31,804
Current liabilities
Other provisions 5,243 5,631 5,421
Financial liabilities 3,220 5,037 3,401
Trade accounts payable 5,055 5,211 6,410
Income tax liabilities 983 935 884
Other liabilities 2,537 1,946 2,421
Liabilities directly related to assets held for sale 18
17,056 18,760 18,537
Total equity and liabilities 75,474 82,640 82,238

Bayer Group Consolidated Statements of Cash Flows

B 4

€ million Q2 2016 Q2 2017 H1 2016 H1 2017
Income from continuing operations after income taxes 1,393 1,329 2,924 3,501
Income taxes 431 417 905 1,012
Financial result 314 405 629 754
Income taxes paid (621) (524) (1,099) (1,046)
Depreciation, amortization and impairments 814 832 1,853 1,562
Change in pension provisions (112) (65) (211) (119)
(Gains) losses on retirements of noncurrent assets (3) (24) (5) (81)
Decrease (increase) in inventories 190 (12) 71 (269)
Decrease (increase) in trade accounts receivable 170 280 (1,498) (1,690)
(Decrease) increase in trade accounts payable 39 (290) (854) (984)
Changes in other working capital, other noncash items (623) (32) (171) 502
Net cash provided by (used in) operating activities
from continuing operations
1,992 2,316 2,544 3,142
Net cash provided by (used in) operating activities from
discontinued operations
(10) (3) 760 12
Net cash provided by (used in) operating activities (total) 1,982 2,313 3,304 3,154
Cash outflows for additions to property, plant, equipment
and intangible assets
(589) (476) (952) (891)
Cash inflows from the sale of property, plant, equipment
and other assets
18 19 39 73
Cash inflows from divestitures 8 54 8 54
Cash inflows from (outflows for) noncurrent financial assets (356) (42) (608) (96)
Cash outflows for acquisitions less acquired cash 2 (158)
Interest and dividends received 15 43 37 63
Cash inflows from (outflows for) current financial assets (341) (776) (233) (1,359)
Net cash provided by (used in) investing activities (total) (1,245) (1,178) (1,707) (2,314)
Proceeds from shares of Covestro AG 1,045 2,505
Dividend payments (2,120) (2,361) (2,120) (2,361)
Issuances of debt 3,346 1,424 7,668 1,716
Retirements of debt (4,296) (410) (7,709) (1,446)
Interest paid including interest-rate swaps (199) (275) (300) (389)
Interest received from interest-rate swaps 34 28 49 37
Cash outflows for the purchase of additional interests in subsidiaries
Net cash provided by (used in) financing activities (total) (3,235) (549) (2,412) 62
Change in cash and cash equivalents due to business activities (total) (2,498) 586 (815) 902
Cash and cash equivalents at beginning of period 3,552 2,224 1,859 1,899
Change in cash and cash equivalents due to changes in scope
of consolidation
(1) (2)
Change in cash and cash equivalents due to exchange rate movements 2 (37) 13 (28)
Cash and cash equivalents at end of period 1,055 2,773 1,055 2,773

2016 figures restated

Bayer Group Consolidated Statements of Changes in Equity

B 5

€ million Capital stock Capital
reserves
Other
reserves
Equity
attributable
to Bayer AG
stockholders
Equity
attributable
to non
controlling
interest
Equity
Dec. 31, 2015 2,117 6,167 15,981 24,265 1,180 25,445
Equity transactions with owners
Capital increase / decrease
Dividend payments (2,067) (2,067) (52) (2,119)
Other changes 177 177 160 337
Total comprehensive income 344 344 28 372
June 30, 2016 2,117 6,167 14,435 22,719 1,316 24,035
Dec. 31, 2016 2,117 9,658 18,558 30,333 1,564 31,897
Equity transactions with owners
Capital increase / decrease
Dividend payments (2,233) (2,233) (129) (2,362)
Other changes 1,993 1,993 1,020 3,013
Total comprehensive income 2,557 2,557 378 2,935
June 30, 2017 2,117 9,658 20,875 32,650 2,833 35,483

Notes to the Condensed Consolidated Interim Financial Statements of the Bayer Group as of June 30, 2017

Key Data by Segment and Region

Key Data by Segment

Pharmaceuticals Consumer Health Crop Science Animal Health
€ million Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017
Net sales (external) 4,104 4,304 1,553 1,542 2,518 2,163 426 450
Change 1 + 5.5% + 4.9% – 2.3% – 0.7% – 4.5% – 14.1% – 0.5% + 5.6%
Currency-adjusted change 1 + 8.4% + 4.4% + 4.0% – 2.2% + 0.7% – 15.8% + 4.2% + 4.0%
Intersegment sales 8 11 3 4 8 8 1 1
Net sales (total) 4,112 4,315 1,556 1,546 2,526 2,171 427 451
EBIT 1 988 1,102 190 195 512 117 93 107
EBIT before special items 1 999 1,222 222 210 542 212 93 107
EBITDA before special items 1 1,352 1,481 328 314 663 317 100 116
Net cash provided
by operating activities
310 528 241 297 1,088 1,170 48 97
Depreciation, amortization,
impairment losses / loss reversals
354 372 107 112 121 116 7 9
1

B 6

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Key Data by Segment

Reconciliation
All Other Segments Corporate Functions
and Consolidation
Life Sciences Covestro Group
€ million Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017
Net sales (external) 256 252 1 3 8,858 8,714 2,975 3,479 11,833 12,193
Change 1 – 6.2% – 1.6% + 0.5% – 1.6% – 6.6% + 16.9% – 1.4% + 3.0%
Currency-adjusted change 1 – 5.5% – 0.8% + 4.7% – 2.7% – 3.9% + 15.8% + 2.4% + 2.0%
Intersegment sales 478 508 (516) (551) 18 19
Net sales (total) 734 760 (515) (548) 2,993 3,498 11,833 12,193
EBIT1 18 45 (30) (103) 1,771 1,463 367 688 2,138 2,151
EBIT before special items 1 40 58 (21) (102) 1,875 1,707 367 649 2,242 2,356
EBITDA before special items 1 88 118 (20) (99) 2,511 2,247 543 809 3,054 3,056
Net cash provided
by operating activities
170 (74) (174) (117) 1,683 1,901 309 415 1,992 2,316
Depreciation, amortization,
impairment losses / loss reversals
48 60 1 3 638 672 176 160 814 832
1

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

B 6 continued

Key Data by Segment

Pharmaceuticals Consumer Health Crop Science Animal Health
€ million H1 2016 H1 2017 H1 2016 H1 2017 H1 2016 H1 2017 H1 2016 H1 2017
Net sales (external) 7,993 8,567 3,073 3,143 5,454 5,283 834 890
Change 1 + 7.3% + 7.2% – 2.3% + 2.3% – 3.3% – 3.1% + 2.5% + 6.7%
Currency-adjusted change 1 + 10.2% + 5.8% + 3.1% + 0.2% + 1.0% – 5.4% + 6.4% + 4.4%
Intersegment sales 15 21 4 9 17 16 2 2
Net sales (total) 8,008 8,588 3,077 3,152 5,471 5,299 836 892
EBIT 1 1,686 2,321 433 473 1,467 1,087 207 233
EBIT before special items 1 1,928 2,477 497 497 1,500 1,219 208 233
EBITDA before special items 1 2,613 2,983 711 706 1,752 1,432 222 251
Net cash provided
by operating activities
1,044 1,501 438 562 422 491 28 66
Depreciation, amortization,
impairment losses / loss reversals
917 652 228 218 252 237 14 18
Number of employees
(as of June 30) 2
40,197 37,999 13,085 11,898 22,839 20,969 3,859 3,621

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

2 Full-time equivalents

Key Data by Segment

Reconciliation All Other Segments Corporate Functions and Consolidation Life Sciences Covestro Group € million H1 2016 H1 2017 H1 2016 H1 2017 H1 2016 H1 2017 H1 2016 H1 2017 H1 2016 H1 2017 Net sales (external) 506 504 2 7 17,862 18,394 5,825 7,043 23,687 25,437 Change 1 – 6.5% – 0.4% – – + 1.5% + 3.0% – 6.0% + 20.9% – 0.5% + 7.4% Currency-adjusted change 1 – 5.9% + 0.6% – – + 5.3% + 1.2% – 4.3% + 19.6% + 2.8% + 5.7% Intersegment sales 903 1,218 (980) (1,307) – – 39 41 – – Net sales (total) 1,409 1,722 (978) (1,300) – – 5,864 7,084 23,687 25,437 EBIT1 21 19 (59) (243) 3,755 3,890 703 1,377 4,458 5,267 EBIT before special items 1 46 50 (48) (240) 4,131 4,236 703 1,321 4,834 5,557 EBITDA before special items 1 141 163 (45) (234) 5,394 5,301 1,047 1,648 6,441 6,949 Net cash provided by operating activities 167 (241) (33) 73 2,066 2,452 478 690 2,544 3,142 Depreciation, amortization, impairment losses / loss reversals 95 113 3 6 1,509 1,244 344 318 1,853 1,562 Number of employees

(as of June 30) 2 19,114 24,640 752 593 99,846 99,720 15,730 15,960 115,576 115,680 1 For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

2 Full-time equivalents

B 7

B 7 continued

Key Data by Region

Middle East / Africa Asia / Pacific
Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017
4,599 4,806 3,417 3,591 2,816 3,156
+ 0.0% + 4.5% – 4.8% + 5.1% + 3.1% + 12.1%
+ 3.2% + 4.2% – 2.0% + 3.0% + 6.6% + 11.3%
4,811 5,059 3,332 3,477 2,758 3,101
+ 0.5% + 5.2% – 5.9% + 4.4% + 3.2% + 12.4%
+ 3.5% + 4.9% – 3.1% + 2.1% + 6.8% + 11.6%
2,712 2,699 1,078 1,105 229 296
1,391 1,601 431 408 336 530
Europe / North America

B 8

2016 figures restated

1 For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Key Data by Region B 8 continued
Latin America Reconciliation Total
€ million Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017
Net sales (external) – by market 1,001 640 11,833 12,193
Change 1 – 7.7% – 36.1% – 1.4% + 3.0%
Currency-adjusted change 1 + 2.9% – 37.9% + 2.4% + 2.0%
Net sales (external) – by point of origin 932 556 11,833 12,193
Change 1 – 6.9% – 40.3% – 1.4% + 3.0%
Currency-adjusted change 1 + 4.7% – 42.1% + 2.4% + 2.0%
Interregional sales 128 129 (4,147) (4,229)
EBIT 1 10 (285) (30) (103) 2,138 2,151

2016 figures restated

1 For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Key Data by Region

€ million Middle East / Africa North America Asia / Pacific
H1 2016 H1 2017 H1 2016 H1 2017 H1 2016 H1 2017
Net sales (external) – by market 9,627 10,219 6,839 7,346 5,352 6,312
Change 1 + 1.0% + 6.1% – 1.3% + 7.4% + 2.5% + 17.9%
Currency-adjusted change 1 + 3.6% + 5.8% 0.0% + 4.3% + 4.9% + 16.3%
Net sales (external) – by point of origin 10,014 10,714 6,690 7,141 5,244 6,181
Change 1 + 1.2% + 7.0% – 2.1% + 6.7% + 3.0% + 17.9%
Currency-adjusted change 1 + 3.8% + 6.6% – 0.8% + 3.5% + 5.4% + 16.2%
Interregional sales 5,377 5,552 2,122 2,213 427 545
EBIT 1 2,977 3,643 920 1,077 568 1,126
Number of employees
(as of June 30) 2
59,213 60,638 16,106 15,719 27,697 27,239

B 9

2016 figures restated

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

2 Full-time equivalents

B 9 continued

Key Data by Region

Latin America Reconciliation Total
€ million H1 2016 H1 2017 H1 2016 H1 2017 H1 2016 H1 2017
Net sales (external) – by market 1,869 1,560 23,687 25,437
Change 1 – 11.5% – 16.5% – 0.5% + 7.4%
Currency-adjusted change 1 + 3.1% – 19.2% + 2.8% + 5.7%
Net sales (external) – by point of origin 1,739 1,401 23,687 25,437
Change 1 – 12.1% – 19.4% – 0.5% + 7.4%
Currency-adjusted change 1 + 3.7% – 22.1% + 2.8% + 5.7%
Interregional sales 199 217 (8,125) (8,527)
EBIT 1 52 (336) (59) (243) 4,458 5,267
Number of employees
(as of June 30) 2
12,560 12,084 115,576 115,680

2016 figures restated

1 For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

2 Full-time equivalents

Explanatory Notes

Accounting policies

The consolidated interim financial statements as of June 30, 2017, were prepared in condensed form in compliance with IAS 34 according to the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB), London, which are endorsed by the European Union, and the Interpretations of the IFRS Interpretations Committee in effect at the closing date.

Reference should be made as appropriate to the Notes to the Consolidated Financial Statements for the 2016 fiscal year, particularly with regard to the main recognition and valuation principles.

Published financial reporting standards that have not yet been applied

IFRS 15 (Revenue from Contracts with Customers) is the new standard for revenue recognition that is to be applied for annual reporting periods beginning on or after January 1, 2018.

Bayer will implement IFRS 15 on the basis of the modified retrospective method, accounting for the aggregate amount of any transition effects by way of an adjustment to retained earnings as of January 1, 2018, and presenting the comparative period in line with previous rules. All of the established business models for the Bayer Group's Life Science divisions were examined in the course of the implementation project. The previous assessment that the new standard is not expected to materially affect the timing of revenue recognition for the transactions concerned or their components has been confirmed for companies examined since then. The analysis has not yet been completed in a number of material consolidated companies. Possible but currently not quantifiable effects in the Covestro segment can result with regard to the timing of revenue recognition for certain storage agreements, a number of customer-specific products and the provision of services such as transport or freight services. Furthermore, the evaluation of certain individual licensing agreements has not yet been completed for Bayer. With regard to total Group sales, there are indications of immaterial transition effects due to the different accounting of milestone payments in connection with right-to-access licenses that would result in an increase in retained earnings on the transition date. IFRS 15 clarifies the allocation of individual topics to (new) line items in the statement of financial position and to functional cost items in the income statement, and whether gross or net amounts are to be presented. Determination of the effects on the level of sales or selling expenses has not yet been completed. Based on current knowledge, however, we do not anticipate any material effects on these items. Overall, based on current knowledge, we do not anticipate any material effects on the presentation of the Life Science businesses' financial position or results of operations, or on earnings per share. A similar statement concerning the Covestro segment cannot yet be made at the present point in time.

Changes in underlying parameters

Changes in the underlying parameters relate primarily to currency exchange rates and the interest rates used to calculate pension obligations.

The exchange rates for major currencies against the euro varied as follows:

Exchange Rates for Major Currencies
Closing rate Average rate
€1 Dec. 31, 2016 June 30, 2016 June 30, 2017 H1 2016 H1 2017
BRL Brazil 3.43 3.59 3.76 4.13 3.43
CAD Canada 1.42 1.44 1.48 1.48 1.44
CHF Switzerland 1.07 1.09 1.09 1.10 1.08
CNY China 7.35 7.40 7.73 7.30 7.42
GBP United Kingdom 0.86 0.83 0.88 0.78 0.86
JPY Japan 123.36 114.05 127.72 124.50 121.60
MXN Mexico 21.78 20.63 20.57 20.12 20.99
RUB Russia 64.30 71.52 67.47 78.07 62.69
USD United States 1.05 1.11 1.14 1.12 1.08

The most important interest rates used to calculate the present value of pension obligations are given below:

Discount Rate for Pension Obligations
June 30, 2017
1.80 1.90 2.00
2.65 2.55 2.60
3.70 3.80 3.50
Dec. 31, 2016 March 31, 2017

B 11

Segment reporting

Since January 1, 2016, the Bayer Group has comprised the five reportable segments Pharmaceuticals, Consumer Health, Crop Science, Animal Health and Covestro.

The following table shows the reconciliation of EBITDA before special items of the above-mentioned segments and the reconciliation to income before income taxes of the Group:

B 10

Q2 2017 H1 2016 H1 2017
3,155 6,486 7,183
(99) (45) (234)
3,056 6,441 6,949
(697) (1,604) (1,386)
(3) (3) (6)
(700) (1,607) (1,392)
2,458 4,882 5,797
(102) (48) (240)
2,356 4,834 5,557
(204) (365) (287)
(1) (11) (3)
(205) (376) (290)
2,254 4,517 5,510
(103) (59) (243)
2,151 4,458 5,267
(405) (629) (754)
1,746 3,829 4,513

For definition see Annual Report 2016, A 2.4 "Alternative Performance Measures Used by the Bayer Group."

Scope of consolidation

Changes in the scope of consolidation

The consolidated financial statements as of June 30, 2017, included 293 companies (December 31, 2016: 301 companies). As in the statements as of December 31, 2016, one of these companies was accounted for as a joint operation in line with Bayer's interest in its assets, liabilities, revenues and expenses in accordance with IFRS 11 (Joint Arrangements). Six (December 31, 2016: six) joint ventures and five (December 31, 2016: five) associates were accounted for in the consolidated financial statements using the equity method according to IAS 28 (Investments in Associates and Joint Ventures).

Acquisitions, divestitures and discontinued operations

Acquisitions

On January 3, 2017, Bayer acquired the Cydectin™ portfolio in the United States from Boehringer Ingelheim Vetmedica Inc., St. Joseph, United States. The acquisition comprises the CYDECTIN Pour-On, CYDECTIN Injectable and CYDECTIN Oral Drench endectocides for cattle and sheep. The acquisition is intended to strengthen the antiparasitics portfolio in the United States, and will see endectocides added to the portfolio. A purchase price of €158 million was agreed, which is subject to the usual price adjustment mechanisms. The purchase price was provisionally allocated mainly to trademarks and goodwill. The purchase price allocation currently remains incomplete pending compilation and review of the relevant financial information. It is therefore possible that changes will be made in the allocation of the purchase prices to the individual assets.

The effects of this transaction – as of the acquisition date – on the Group's assets and liabilities in the first half of 2017 are shown in the following table. The transaction resulted in the following cash outflow:

B 13

Acquired Assets, Assumed Liabilities and Adjustments (Fair Values at the Respective Acquisition Dates)

€ million H1 2017
Goodwill 51
Trademarks 85
Production rights 4
Inventories 18
Net assets 158
Changes in noncontrolling interest
Purchase price 158
Net cash outflow for acquisitions 158

Planned acquisitions

Details of the planned acquisition of Monsanto are given in our Annual Report 2016.

Divestments

On April 3, 2017, Covestro completed the sale of a North American spray polyurethane foam system house to Accella Polyurethane Systems LLC, Maryland Heights, United States. A purchase price of €47 million was agreed. Income of €39 million was reported in special items.

On April 1, 2017, Consumer Health completed the sale of a production facility in Pointe-Claire, Canada, to Famar Montréal Inc., Montréal, Canada. The base sale price was CAD1 million.

The effects of these divestments made in the first half of 2017 were as follows:

B 14
Divested Assets and Liabilities
€ million H1 2017
Goodwill 2
Property, plant and equipment 3
Inventories 12
Other liabilities (3)
Divested net assets 14

The divested assets were reported in previous quarters as assets held for sale.

Discontinued operations

The sale of the Diabetes Care business to Panasonic Healthcare Holdings Co., Ltd., Tokyo, Japan, for around €1 billion was completed on January 4, 2016. The sale includes the leading Contour™ portfolio of blood glucose monitoring meters and strips, as well as other products such as Breeze™2, Elite™ and Microlet™ lancing devices.

The sale of the Diabetes Care business also comprises further significant obligations by Bayer that will be fulfilled over a period of up to two years subsequent to the date of divestment. The sale proceeds will be recognized accordingly over this period and reported as income from discontinued operations. Deferred income has been recognized in the statement of financial position and will be dissolved as the obligations are fulfilled. An amount of €287 million was recognized in sales in the first half of 2017.

The obligations to be fulfilled over a period of up to two years after the divestment of the Diabetes Care business are also reported as discontinued operations in the income statement and the statement of cash flows. They resulted in sales of €25 million in the first half of 2017.

The items in the statement of financial position pertaining to the Diabetes Care business are shown in the segment reporting under "All Other Segments." In addition to the aforementioned deferred income (€177 million), the statement of financial position includes other receivables (net: €60 million), deferred tax assets (net: €29 million), income tax liabilities (€56 million) and other provisions (€4 million).

The sale of the Consumer business (CS Consumer) of Bayer's Environmental Science unit to SBM Développement SAS, Lyon, France, was completed on October 4, 2016. These activities have been reported as discontinued operations since the second quarter of 2016.

The income statements of the discontinued operations for the second quarter of 2017 are given below:

B 15

Income Statements for Discontinued Operations
Diabetes Care CS Consumer Total
€ million Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017
Net sales 146 184 79 225 184
Cost of goods sold (25) (7) (40) (65) (7)
Gross profit 121 177 39 160 177
Selling expenses (5) (1) (31) (36) (1)
Research and development expenses (3) (3)
General administration expenses (3) (3) (2) (5) (3)
Other operating income / expenses (7) (54) (61)
EBIT 1 106 173 (51) 55 173
Financial result
Income before income taxes 106 173 (51) 55 173
Income taxes (16) (25) 16 (25)
Income after income taxes 90 148 (35) 55 148
1
EBIT = income after income taxes, plus income taxes, plus financial result

The income statements of the discontinued operations for the first half of 2017 are given below:

Income Statements for Discontinued Operations
Diabetes Care CS Consumer Total
€ million H1 2016 H1 2017 H1 2016 H1 2017 H1 2016 H1 2017
Net sales 295 312 166 461 312
Cost of goods sold (121) (14) (82) (203) (14)
Gross profit 174 298 84 258 298
Selling expenses (8) (2) (57) (65) (2)
Research and development expenses (2) (4) (6)
General administration expenses (10) (5) (4) (14) (5)
Other operating income / expenses (5) 5 (55) (60) 5
EBIT 1 149 296 (36) 113 296
Financial result
Income before income taxes 149 296 (36) 113 296
Income taxes (20) (49) 12 (8) (49)
Income after income taxes 129 247 (24) 105 247
1
EBIT = income after income taxes, plus income taxes, plus financial result

B 16

In the second quarter of 2017, the discontinued operations affected the Bayer Group statement of cash flows as follows:

B 17
Total
Q2 2016 Q2 2017 Q2 2016 Q2 2017 Q2 2016 Q2 2017
(41) (3) 31 (10) (3)
41 3 (31) 10 3
Diabetes Care CS Consumer

In the first half of 2017, the discontinued operations affected the Bayer Group statement of cash flows as follows:

Statements of Cash Flows for Discontinued Operations B 18
Diabetes Care CS Consumer Total
€ million H1 2016 H1 2017 H1 2016 H1 2017 H1 2016 H1 2017
Net cash provided by (used in) operating activities
(net cash flow)
778 12 (18) 760 12
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities (778) (12) 18 (760) (12)
Change in cash and cash equivalents

As no cash is assigned to discontinued operations, the balance of the cash provided is deducted again in financing activities.

Financial instruments

June 30, 2017
Carried at
amortized
Carried at fair value Nonfinancial
assets /
cost [Fair value for information 1] liabilities
Based on
quoted
prices in
active
markets
(Level 1)
Based on
observable
market data
(Level 2)
Based on
unobservable
inputs
(Level 3)
€ million Carrying
amount
Carrying
amount
Carrying
amount
Carrying
amount
Carrying
amount
Carrying
amount in
the state
ment of
financial
position
Trade accounts receivable 12,077 12,077
Loans and receivables 12,077 12,077
Other financial assets 5,195 379 2,271 790 8,635
Loans and receivables 5,097 [5,089] [15] 5,097
Available-for-sale financial assets 33 376 1,626 779 2,814
Held-to-maturity financial assets 65 [67] 65
Derivatives 3 645 11 659
Other receivables 602 64 1,512 2,178
Loans and receivables 602 [602] 602
Available-for-sale financial assets 64 64
Nonfinancial assets 1,512 1,512
Cash and cash equivalents 2,773 2,773
Loans and receivables 2,773 [2,773] 2,773
Total financial assets 20,647 379 2,271 854 24,151
of which loans and receivables 20,549 20,549
of which available-for-sale financial assets 33 376 1,626 843 2,878
Financial liabilities 17,781 1,055 369 19,205
Carried at amortized cost 17,781 [14,950] [3,478] 17,781
Carried at fair value (nonderivative) 1,055 1,055
Derivatives 369 369
Trade accounts payable 5,153 58 5,211
Carried at amortized cost 5,153 5,153
Nonfinancial liabilities 58 58
Other liabilities 773 2 268 13 1,875 2,931
Carried at amortized cost 773 [773] 773
Carried at fair value (nonderivative) 8 8
Derivatives 2 268 5 275
Nonfinancial liabilities 1,875 1,875
Total financial liabilities 23,707 1,057 637 13 25,414
of which carried at amortized cost 23,707 23,707
of which carried at fair value
(nonderivative)
1,055 8 1,063

B 19

of which derivatives 2 637 5 644 1 Fair value of the financial instruments carried at amortized cost; the exemption provisions under IFRS 7.29(a) were applied for information on specific fair values.

B 20

Carrying Amounts and Fair Values of Financial Instruments

Dec. 31, 2016
Carried at
amortized
cost
Carried at fair value
[Fair value for information 1]
Nonfinancial
assets /
liabilities
Based on
quoted
prices in
active
markets
(Level 1)
Based on
observable
market data
(Level 2)
Based on
unobservable
inputs
(Level 3)
€ million Carrying
amount
Carrying
amount
Carrying
amount
Carrying
amount
Carrying
amount
Carrying
amount in
the state
ment of
financial
position
Trade accounts receivable 10,969 10,969
Loans and receivables 10,969 10,969
Other financial assets 2,245 523 3,985 803 7,556
Loans and receivables 2,148 [2,145] [16] 2,148
Available-for-sale financial assets 32 520 3,283 794 4,629
Held-to-maturity financial assets 65 [68] 65
Derivatives 3 702 9 714
Other receivables 633 57 2,103 2,793
Loans and receivables 633 [633] 633
Available-for-sale financial assets 57 57
Nonfinancial assets 2,103 2,103
Cash and cash equivalents 1,899 1,899
Loans and receivables 1,899 [1,899] 1,899
Total financial assets 15,746 523 3,985 860 21,114
of which loans and receivables 15,649 15,649
of which available-for-sale financial assets 32 520 3,283 851 4,686
Financial liabilities 18,994 587 19,581
Carried at amortized cost 18,994 [16,040] [3,362] 18,994
Carried at fair value (nonderivative)
Derivatives 587 587
Trade accounts payable 6,035 375 6,410
Carried at amortized cost 6,035 6,035
Nonfinancial liabilities 375 375
Other liabilities 840 2 252 25 2,259 3,378
Carried at amortized cost 840 [840] 840
Carried at fair value (nonderivative) 8 8
Derivatives 2 252 17 271
Nonfinancial liabilities 2,259 2,259
Total financial liabilities 25,869 2 839 25 26,735
of which carried at amortized cost 25,869 25,869
of which carried at fair value
(nonderivative)
8 8
of which derivatives 2 839 17 858

1 Fair value of the financial instruments carried at amortized cost; the exemption provisions under IFRS 7.29(a) were applied for information on specific fair values.

The preceding two tables show the carrying amounts and fair values of financial assets and liabilities for each financial instrument category and a reconciliation to the corresponding line items in the statements of financial position. Since the line items "Other receivables," "Trade accounts payable" and "Other liabilities" contain both financial instruments and nonfinancial assets or liabilities (such as other tax receivables or advance payments for services to be received in the future), the reconciliation is shown in the column headed "Nonfinancial assets / liabilities."

The loans and receivables reflected in other financial assets and the liabilities measured at amortized cost also include receivables and liabilities under finance leases in which Bayer is the lessor or lessee and which are therefore measured in accordance with IAS 17.

Because of the short maturities of most trade accounts receivable and payable, other receivables and liabilities and cash and cash equivalents, their carrying amounts at the closing date do not significantly differ from the fair values.

The fair values of loans and receivables, held-to-maturity financial investments and of financial liabilities carried at amortized cost that are given for information are the present values of the respective future cash flows. The present values are determined by discounting the cash flows at a closing-date interest rate, taking into account the term of the assets or liabilities and the creditworthiness of the counterparty. Where a market price is available, however, this is deemed to be the fair value.

The fair values of available-for-sale financial assets correspond to quoted prices in active markets (Level 1), are determined using valuation techniques based on observable market data as of the end of the reporting period (Level 2) or are the present values of the respective future cash flows, determined on the basis of unobservable inputs (Level 3).

The fair values of derivatives for which no publicly quoted prices exist in active markets (Level 1) are determined using valuation techniques based on observable market data as of the end of the reporting period (Level 2). In applying valuation techniques, credit value adjustments are determined to allow for the contracting party's credit risk.

Currency and commodity forward contracts are measured individually at their forward rates or forward prices on the closing date. These depend on spot rates or prices, including time spreads. The fair values of interest-rate hedging instruments and cross-currency interest-rate swaps were determined by discounting future cash flows over the remaining terms of the instruments at market rates of interest, taking into account any foreign currency translation as of the closing date.

Fair values measured using unobservable inputs are categorized within Level 3 of the fair value hierarchy. This applies to certain available-for-sale debt or equity instruments, in some cases to the fair values of embedded derivatives, and to obligations for contingent consideration in business combinations. Credit risk is frequently the principal unobservable input used to determine the fair values of debt instruments classified as available-for-sale financial assets by the discounted cash flow method. Here the credit spreads of comparable issuers are applied. A significant increase in credit risk could result in a lower fair value, whereas a significant decrease could result in a higher fair value. However, a relative change of 10% in the credit spread does not materially affect the fair value.

Embedded derivatives are separated from their respective host contracts. Such host contracts are generally sale or purchase agreements relating to the operational business. The embedded derivatives cause the cash flows from the contracts to vary with exchange-rate or price fluctuations. The internal measurement of embedded derivatives is mainly performed using the discounted cash flow method, which is based on unobservable inputs. These include planned sales and purchase volumes, and prices derived from market data. Regular monitoring is carried out based on these fair values as part of quarterly reporting.

Within the financial liabilities, use was made of the fair value option according to IAS 39.11A for the debt instruments (exchangeable bond) issued in June 2017 that can be converted into Covestro shares. This exchangeable bond is a hybrid financial instrument containing a debt instrument as a nonderivative host contract and several embedded derivatives. Due to the application of the fair value option, the bond was designated as a financial liability at fair value through profit or loss at its initial recognition including the embedded derivatives.

The changes in the amounts of financial assets and liabilities recognized at fair value based on unobservable inputs (Level 3) for each financial instrument category were as follows:

Development of Financial Assets and Liabilities (Level 3) B 21
2017
€ million Available
for-sale
financial
assets
Derivatives
(net)
Liabilities
carried at
fair value
(non
derivative)
Total
Carrying amounts of net assets (net liabilities), January 1 851 (8) (8) 835
Gains (losses) recognized in profit or loss 8 14 22
of which related to assets / liabilities recognized
in the statements of financial position
8 14 22
Gains (losses) recognized outside profit or loss (20) (20)
Additions of assets (liabilities) 4 4
Settlements of (assets) liabilities
Carrying amounts of net assets (net liabilities), June 30 843 6 (8) 841

Development of Financial Assets and Liabilities (Level 3)

2016
€ million Available
for-sale
financial
assets
Derivatives
(net)
Liabilities
carried at
fair value
(non
derivative)
Total
Carrying amounts of net assets (net liabilities), January 1 833 9 (37) 805
Gains (losses) recognized in profit or loss 9 (3) 6
of which related to assets / liabilities recognized
in the statements of financial position
9 (3) 6
Gains (losses) recognized outside profit or loss 14 14
Additions of assets (liabilities) 38 38
Settlements of (assets) liabilities (3) 5 2
Carrying amounts of net assets (net liabilities), June 30 891 6 (32) 865

B 22

The changes recognized in profit or loss were included in other operating income / expenses, interest income or exchange gains / losses.

Interest held in Covestro reduced to 40.9%

In the first quarter, Bayer sold 22 million shares of Covestro AG to institutional investors at a price of €66.50 per share. In the second quarter, Bayer sold a further 17.25 million shares of Covestro AG to institutional investors at a price of €62.25 per share. In addition, 8 million shares of Covestro AG were deposited in Bayer Pension Trust e. V. at a price of €63.04, thus reducing the pension provisions of Bayer AG by €504 million.

The transactions had a €3.0 billion positive effect on Bayer Group equity, with €2.0 billion attributable to shareholders of Bayer AG and €1.0 billion to noncontolling interest. Bayer reduced its interest in Covestro AG from 64.2% to 40.9% of the issued shares.

Legal risks

To find out more about the Bayer Group's legal risks, please see Note 32 to the consolidated financial statements in the Bayer Annual Report 2016, which can be downloaded free of charge at www.bayer.com. Since the Bayer Annual Report 2016, the following significant changes have occurred in respect of the legal risks:

Mirena™: As of July 13, 2017, lawsuits from approximately 3,000 users of Mirena™, an intrauterine system providing long-term contraception, had been served upon Bayer in the United States. Plaintiffs allege personal injuries resulting from the use of Mirena™, including perforation of the uterus, ectopic pregnancy or idiopathic intracranial hypertension, and seek compensatory and punitive damages. Additional lawsuits are anticipated. In April 2017, most of the cases pending in U.S. federal courts in which plaintiffs allege idiopathic intracranial hypertension were consolidated in a second multidistrict litigation proceeding for common pre-trial management. The first multidistrict litigation proceeding concerns perforation cases.

Xarelto™: As of July 13, 2017, U.S. lawsuits from approximately 19,900 recipients of Xarelto™, an oral anticoagulant for the treatment and prevention of blood clots, had been served upon Bayer. Plaintiffs allege that users have suffered personal injuries from the use of Xarelto™, including cerebral, gastrointestinal or other bleeding and death, and seek compensatory and punitive damages. Additional lawsuits are anticipated. In May and June 2017, the first two cases set for trial in the federal multidistrict litigation resulted in complete defense verdicts. Two further trials have been scheduled this year (one in the federal multi district litigation, one in the Pennsylvania state court). Bayer anticipates that additional trials will be scheduled. As of July 13, 2017, ten Canadian lawsuits relating to Xarelto™ seeking class action certification had been served upon Bayer.

Essure™: As of July 13, 2017, U.S. lawsuits from approximately 5,700 users of Essure™, a medical device offering permanent birth control with a nonsurgical procedure, had been served upon Bayer. Plaintiffs allege personal injuries from the use of Essure™, including hysterectomy, perforation, pain, bleeding, weight gain, nickel sensitivity, depression and unwanted pregnancy, and seek compensatory and punitive damages. Additional lawsuits are anticipated. As of July 13, 2017, two Canadian lawsuits relating to Essure™ seeking class action certification had been served upon Bayer.

Related parties

Related parties as defined in IAS 24 (Related Party Disclosures) are those legal entities and natural persons that are able to exert influence on Bayer AG and its subsidiaries or over which Bayer AG or its subsidiaries exercise control or joint control or have a significant influence. They include, in particular, nonconsolidated subsidiaries, joint ventures and associates included in the consolidated financial statements at cost of acquisition or using the equity method, post-employment benefit plans and the corporate officers of Bayer AG.

In the second quarter, Bayer AG increased the coverage of Bayer Pension Trust e.V. with the deposit of 8 million of the shares it held in Covestro AG. The number of shares deposited amounted to 4.0% of the issued shares of Covestro AG and had a value of €504 million.

Sales to related parties were not material from the viewpoint of the Bayer Group. Goods and services in the amount of €0.3 billion were procured from the associate PO JV, LP, Wilmington, United States, mainly in the course of day-to-day business operations. There was no significant change in receivables vis-à-vis related parties compared with December 31, 2016. Liabilities declined by €0.1 billion to €0.2 billion, with the greater part of the decrease pertaining to Casebia Therapeutics Limited Liability Partnership, Ascot, United Kingdom, the newly established joint venture with CRISPR Therapeutics AG, Basel, Switzerland.

Other information

The Annual Stockholders' Meeting on April 28, 2017, approved the proposal by the Board of Management and the Supervisory Board that a dividend of €2.70 per share be paid for the 2016 fiscal year.

The actions of the members of the Board of Management and the Supervisory Board in office in 2016 were ratified in accordance with the proposals by the Board of Management and the Supervisory Board.

Six stockholder representatives were elected to the Supervisory Board in accordance with the nominations submitted by the Supervisory Board.

Furthermore, in accordance with the proposal by the Board of Management and the Supervisory Board, the Annual Stockholders' Meeting approved the amendment to the Articles of Incorporation with regard to the compensation of the members of the Supervisory Board.

The Annual Stockholders' Meeting also approved the control agreement between Bayer AG and Bayer CropScience Aktiengesellschaft of February 21, 2017, as proposed by the Board of Management and the Supervisory Board.

In accordance with the proposal by the Supervisory Board, Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Munich, was elected as the auditor of the annual and consolidated financial statements for the fiscal year 2017 and to review the condensed financial statements and interim management reports as of June 30, 2017, September 30, 2017 and March 31, 2018.

Leverkusen, July 25, 2017 Bayer Aktiengesellschaft

The Board of Management

Werner Baumann

Liam Condon Johannes Dietsch Dr. Hartmut Klusik

Kemal Malik Erica Mann Dieter Weinand

Responsibility Statement

To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Bayer Group, and the interim management report includes a fair review of the development and performance of the business and the position of the Bayer Group, together with a description of the principal opportunities and risks associated with the expected development of the Bayer Group for the remaining months of the financial year.

Leverkusen, July 25, 2017 Bayer Aktiengesellschaft

The Board of Management

Werner Baumann

Liam Condon Johannes Dietsch Dr. Hartmut Klusik

Kemal Malik Erica Mann Dieter Weinand

Review Report

To Bayer Aktiengesellschaft, Leverkusen, Germany

We have reviewed the condensed interim consolidated financial statements – comprising the income statement and the statement of comprehensive income, the statement of financial position, the statement of cash flows, the condensed statement of changes in equity as well as selected explanatory notes to the financial statements – and the interim group management report for the period from 1 January 2017 until 30 June 2017 of Bayer AG, which are components of the half-year financial report under § 37w WpHG (Wertpapierhandelsgesetz: German Securities Trading Act).

Review Report on the Condensed Interim Consolidated Financial Statements Management Board's Responsibility for the Condensed Interim Consolidated Financial Statements

The preparation of the condensed interim consolidated financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU is the responsibility of the entity's Management Board. The Management Board is also responsible for such internal control as the Management Board determines is necessary to enable the preparation of condensed interim consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Practitioner's Responsibility for the Review of the Condensed Interim Consolidated Financial Statements

Our responsibility is to express a conclusion on the condensed interim consolidated financial statements based on our review. We conducted our review in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW) as well as in supplementary compliance with the International Standard on Review Engagements "Engagements to Review Historical Financial Statements" (ISRE 2400 (revised)). Those standards require that we plan and perform the review in compliance with professional standards such that we can preclude through critical evaluation, with limited assurance, that the condensed interim consolidated financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU.

A review of the condensed interim consolidated financial statements in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW) as well as in supplementary compliance with ISRE 2400 (revised) is a limited assurance engagement. A review is limited primarily to inquiries of personnel of the entity and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditor's report.

Conclusion on the Condensed Interim Consolidated Financial Statements

Based on our review, no matters have come to our attention that cause us to presume that the condensed interim consolidated financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU.

Review Report on the Interim Group Management Report

Management Board's Responsibility for the Interim Group Management Report

The preparation of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports is the responsibility of the entity's Management Board. The Management Board is also responsible for such internal control as the Management Board determines is necessary to enable the preparation of an interim group management report that is free from material misstatement, whether due to fraud or error.

Practitioner's Responsibility for the Review of the Interim Group Management Report

Our responsibility is to express a conclusion on the interim group management report based on our review. We conducted our review in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW) as well as in supplementary compliance with the International Standard on Review Engagements "Engagements to Review Historical Financial Statements" (ISRE 2400 (revised)). Those standards require that we plan and perform the review in compliance with professional standards such that we can preclude through critical evaluation, with limited assurance, that the interim group management report has not been prepared, in all material respects, in accordance with the requirements of the WpHG applicable to interim group management reports.

A review of the interim group management report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW) as well as in supplementary compliance with ISRE 2400 (revised) is a limited assurance engagement. A review is limited primarily to inquiries of personnel of the entity and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditor's report.

Conclusion on the Interim Group Management Report

Based on our review, no matters have come to our attention that cause us to presume that the interim group management report has not been prepared, in all material respects, in accordance with the requirements of the WpHG applicable to interim group management reports.

Munich, Germany, 26 July 2017

Deloitte GmbH Wirtschaftsprüfungsgesellschaft

Heiner Kompenhans Prof. Dr. Frank Beine

Wirtschaftsprüfer Wirtschaftsprüfer (German Public Auditor) (German Public Auditor)

Financial Calendar 1

Q3 2017 Interim Report October 26, 2017
Annual Report 2017 February 28, 2018
Q1 2018 Interim Report May 3, 2018
Annual Stockholders' Meeting 2018 May 25, 2018
Q2 2018 Interim Report July 31, 2018
Q3 2018 Interim Report October 30, 2018

Masthead

Published by Bayer AG, 51368 Leverkusen, Germany

Editor Jörg Schäfer, phone +49 214 30 39136 Email: [email protected]

Investor Relations

Peter Dahlhoff, phone +49 214 30 33022 Email: [email protected]

English edition Bayer Business Services GmbH Translation Services

Date of publication Thursday, July 27, 2017

Bayer on the internet www.bayer.com

ISSN 0343 / 1975

Interim Group Management Report and Condensed Consolidated Interim Financial Statements produced in-house with FIRE.sys.

Forward-Looking Statements

Certain statements contained in this report may constitute "forward-looking statements." Actual results could differ materially from those projected or forecast in the forward-looking statements. The factors that could cause actual results to differ materially include the following: uncertainties as to the timing of the transaction; the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the merger within the expected time-frames or at all and to successfully integrate Monsanto's operations into those of Bayer; such integration may be more difficult, time-consuming or costly than expected; revenues following the transaction may be lower than expected; operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected following the announcement of the transaction; the retention of certain key employees at Monsanto; risks associated with the disruption of management's attention from ongoing business operations due to the transaction; the conditions to the completion of the transaction may not be satisfied, or the regulatory approvals required for the transaction may not be obtained on the terms expected or on the anticipated schedule; the parties' ability to meet expectations regarding the timing, completion and accounting and tax treatments of the merger; the impact of the refinancing of the loans taken out for the transaction, the impact of indebtedness incurred by Bayer in connection with the transaction and the potential impact on the rating of indebtedness of Bayer; the effects of the business combination of Bayer and Monsanto, including the combined company's future financial condition, operating results, strategy and plans; other factors detailed in Monsanto's Annual Report on Form 10-K filed with the SEC for the fiscal year ended August 31, 2016 and Monsanto's other filings with the SEC, which are available at http://www.sec.gov and on Monsanto's website at www.monsanto.com; and other factors discussed in Bayer's public reports which are available on the Bayer website at www.bayer.com. Bayer and Monsanto assume no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date.

Legal Notice

The product names designated with ™ are brands of the Bayer Group or our distribution partners and are registered trademarks in many countries.

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