Bayer AG Annual Report 2013

FY2013 Annual Report · Bayer AG

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ABOUT THE
INTEGRATED REPORT

This year’s Annual Report
combinesourfinancialand
our sustainability reporting
forthefirsttime.Onpage
28-29youcanfindfurther
information about this report
andlearnhowtouseit.

A n n u a l R e p o r t

2013

Augmented Version

» Bayer: Science For A Better Life
» Key Data
» Chairman’s Letter

» FOR A BET TER LIFE
» Fighting cancer
» Safeguarding nutrition
» Conserving resources

» TO OUR STOCKHOLDERS
» Executive Council
» Report of the Supervisory Board
» Investor Information

01 » COMBINED MANAGEMENT REPORT OF THE BAYER GROUP AND BAYER AG

Report on Economic Position
» Overview of Sales, Earnings and Financial Position
» Business Development by Subgroup, Segment and Region
» Earnings; Asset and Financial Position of the Bayer Group
» Earnings; Asset and Financial Position of Bayer AG

02 » CONSOLIDATED FINANCIAL STATEMENTS OF THE BAYER GROUP

» RESPONSIBILIT Y STATEMENT

» INDEPENDENT AUDITORS’ REPORT

» INDEPENDENT ASSUR ANCE REPORT

For direct access
to a chapter, simply
click on its name.

03 » FURTHER INFORMATION

» Financial Calendar » Masthead, Disclaimer

10
16
22

30
32
37

151
152
156
170
181

227

330

331

333

336

» COVER PICTURE

Bayer is a global enterprise with core competencies
in the fields of health care, agriculture and high-tech
polymer materials.

As an innovation company, we set trends in research-
intensive areas. Our products and services are designed
to benefit people and improve their quality of life. At the
same time we aim to create value through innovation,
growth and high earning power.

We are committed to the principles of sustainable
development and to our social and ethical responsi-
bilities as a corporate citizen.

Cover picture

Bayer and tumor centers worldwide are searching for new treatment options
for cancer patients. Our cover picture shows Professor Mark Schrader, Medical
Director of the Department of Urology at Ulm University Hospital, and assistant
physician Kathi Adamczyk examining a CT scan for diagnosing bone metastases
in a patient with prostate cancer.

Read more about what Bayer’s researchers and the doctors at Ulm University
Hospital are doing to improve the lives of people with cancer in the magazine
section of this Annual Report beginning on page 10.

» TABLE OF CONTENTS

Key Data

Bayer Group
Sales

EBIT 1

EBIT before special items 2

EBITDA 3

EBITDA before special items 2

EBITDA margin before special items 4

Income before income taxes

Net income

Earnings per share (€) 5

Core earnings per share (€) 6

Gross cash flow 7

Net cash flow 8

Net financial debt

Capital expenditures as per segment table

Research and development expenses

Dividend per Bayer AG share (€)

HealthCare
Sales

EBIT

EBIT before special items 2

EBITDA 3

EBITDA before special items 2

EBITDA margin before special items 4

Gross cash flow 7

Net cash flow 8

CropScience
Sales

EBIT

EBIT before special items 2

EBITDA 3

EBITDA before special items 2

EBITDA margin before special items 4

Gross cash flow 7

Net cash flow 8

MaterialScience
Sales

EBIT

EBIT before special items 2

EBITDA 3

EBITDA before special items 2

EBITDA margin before special items 4

Gross cash flow 7

Net cash flow 8

[Table 1.1]

2012

2013

Change

€ million

39,741

40,157

3,928

5,639

6,916

8,280

4,934

5,773

7,830

8,401

20.8%

20.9%

3,176

2,403

2.91

5.30

4,556

4,530

7,022

2,012

3,013

1.90

4,207

3,189

3.86

5.61

5,832

5,171

6,731

2,155

3,190

2.10

18,604

18,924

2,205

3,787

3,866

5,119

3,260

3,973

4,858

5,334

27.5%

28.2%

2,659

3,546

8,383

1,556

1,543

2,050

2,025

3,573

2,980

8,819

1,729

1,801

2,184

2,248

24.2%

25.5%

1,332

899

1,590

682

11,491

11,238

581

613

1,236

1,263

11.0%

952

735

435

429

1,101

1,072

9.5%

887

977

+ 1.0

+ 25.6

+ 2.4

+ 13.2

+ 1.5

+ 32.5

+ 32.7

+ 32.6

+ 5.8

+ 28.0

+ 14.2

– 4.1

+ 7.1

+ 5.9

+ 10.5

+ 1.7

+ 47.8

+ 4.9

+ 25.7

+ 4.2

+ 34.4

– 16.0

+ 5.2

+ 11.1

+ 16.7

+ 6.5

+ 11.0

+ 19.4

– 24.1

– 2.2

– 25.1

– 30.0

– 10.9

– 15.1

– 6.8

+ 32.9

Employees
Percentage of women in senior management

Number of nationalities in the Group Leadership Circle

Proportion of employees with health insurance (%)

Proportion of employees covered by collective agreements
on pay and conditions (%)

Safety
Recordable Incident Rate for Bayer employees (RIR)

Lost Time Recordable Incident Rate for Bayer employees (LTRIR)

Loss of Primary Containment Incident Rate (LoPC-IR)9

Number of transport incidents

Environmental Protection 10

Direct greenhouse gas emissions
(CO2 equivalents in million t) 11

Indirect greenhouse gas emissions
(CO2 equivalents in million t) 11
Volatile organic compounds (VOC) (thousand t/a) 12

Ozone-depleting substances (t / a) 13

Total organic carbon (TOC) (thousand t/a)

Total phosphorus in wastewater (thousand t/a)

Total nitrogen in wastewater (thousand t/a)

Hazardous waste generated (thousand t/a)

Hazardous waste landfilled (thousand t/a)

Water use (million m³/a)

Primary energy consumption (petajoules [1015 joules]/a)

Secondary energy consumption (petajoules [1015 joules]/a)

Energy efficiency (MWh / t)14

2012 figures restated

[Table 1.1 (continued)]

2012

2013

Change

0.49

0.27

0.38

0.47

0.26

0.35

+ 34.8

– 4.1

– 3.7

– 7.9

+ 83.3

4.24

4.09

– 3.6

4.12

2.60

16.28

1.42

0.15

0.70

603

175

384

49.05

34.14

3.50

4.29

2.27

15.65

1.53

0.11

0.69

467

361

47.58

33.27

3.44

+ 4.1

– 12.9

– 3.9

+ 7.7

– 24.8

– 2.1

– 22.6

– 69.5

– 6.0

– 3.0

– 2.6

– 1.6

1 EBIT = earnings before financial result and taxes
2 EBIT before special items and EBITDA before special items are not defined in
the International Financial Reporting Standards and should therefore be re-
garded only as supplementary information. EBITDA before special items is a
meaningful indicator of operating performance since it is not affected by
depreciation, amortization, impairments or special items. By reporting this
indicator, the company aims to give readers a clear picture of the results of
operations and ensure comparability of data over time. See also Combined
Management Report, Chapter 16.2 “Calculation of EBIT(DA) Before Special
Items.”

3 EBITDA = EBIT plus amortization and impairment losses on intangible assets
and depreciation and impairment losses on property, plant and equipment,
minus impairment loss reversals. See also Combined Management Report,
Chapter 16.2 “Calculation of EBIT(DA) Before Special Items.”

7 Gross cash flow = income after income taxes, plus income taxes, plus finan-

cial result, minus income taxes paid or accrued, plus depreciation, amortiza-
tion and impairment losses, minus impairment loss reversals, plus / minus
changes in pension provisions, minus gains / plus losses on retirements of
noncurrent assets, minus gains from the remeasurement of already held as-
sets in step acquisitions. The change in pension provisions includes the elim-
ination of non-cash components of EBIT. It also contains benefit payments
during the year. For details see Combined Management Report, Chapter 16.5
“Liquidity and Capital Expenditures of the Bayer Group.“

8 Net cash flow = cash flow from operating activities according to IAS 7
9 LoPC-IR: rate of incidents in which chemicals leak from their primary con-

tainer, such as pipelines, pumps, tanks or drums, per 200,000 working hours
in areas relevant to plant safety

10 The changes indicated in percent were not calculated on the basis of rounded

4 The EBIT(DA) margin before special items is calculated by dividing EBIT(DA)

values.

before special items by sales.

5 Earnings per share as defined in IAS 33 = net income divided by the average

number of shares. For details see Note [16] to the consolidated financial
statements.

6 Core earnings per share are not defined in the International Financial Report-
ing Standards. By reporting this indicator, the company aims to give readers
a clear picture of the results of operations and ensure comparability of data
over time. The calculation of core earnings per share is explained in the Com-
bined Management Report, Chapter 16.3 “Core Earnings Per Share.”

11 Portfolio-adjusted in accordance with the Greenhouse Gas Protocol
12 Volatile organic compounds (VOC) excluding methane
13 Ozone-depleting substances (ODS) in CFC-11 equivalents
14 Energy efficiency: quotient of total energy consumption and manufactured
sales volume. For MaterialScience, only manufactured sales volumes that
also form the basis for calculating MaterialScience-specific emissions are
taken into account.

» TABLE OF CONTENTS» TABLE OF CONTENTS

Continuous growth
inourAnniversaryYear

2013 was a special year for Bayer. The 150th anniversary of our
company’sfoundingpromptedustocelebratethebenefitsofBayer
innovations. These have helped millions of people around the world,
including patients, customers, consumers, employees and sharehold-
ers. We not only celebrated Bayer’s long-term successes with our
stakeholders in 2013 but also added more innovative products to our
portfolioandpostedrecordfinancialresults.Andwearecommitted
tocontinuewiththisapproach.Ourmission“Bayer:ScienceForA
Better Life” remains our driving force.

Bayer’s products help to overcome urgent societal needs. In 1863
the global population was 2.5 billion and life expectancy around
40 years;nowthereareover7 billion people, and there are expected
to be over 9 billion by 2050. Life expectancy has nearly doubled in
many regions. This tremendous achievement by humankind is partly
the result of improvements in healthcare and nutrition over the last
150 years.

» TABLE OF CONTENTSDr. Marijn Dekkers, Chairman of the Board of Management of Bayer AG

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

» TABLE OF CONTENTSThe amount of arable land is limited, which is why we need a con-
siderable improvement in crop yields by 2050 to provide enough
food for over 9billionpeople.Andweneedtoraiseresourceand
energyefficiencytoensurethelong-termavailabilityofrawmateri-
als and energy sources. Bayer currently spends over €3 billion on
R & D each year and we will continue to do our part in developing
new products that truly address these urgent societal needs. In
other words, we remain dedicated to our mission “Bayer: Science
ForABetterLife.”Butwedependonasocietalandpoliticalenvi-
ronment that appreciates the contributions of science and supports
innovation.

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

The continuing success of our business in 2013 was driven by the
dynamic development in the Life Sciences. HealthCare achieved
encouraging growth, largely due to strong sales of our recently
launchedpharmaproducts.AndinCropScience,too,salescontinued
to grow strongly, especially those of its Crop Protection products.
We generated some 70 percent of total revenues and 90 percent of
clean EBITDA in our Life Science businesses. However, the perfor-
mance of MaterialScience created headwind for our com pany. In
addition,significantnegativecurrencyeffectsheldbackcleanEBITDA
by almost €260 million compared to the previous year.

Our strong focus on not just developing new products but also
successfullycommercializingthemisclearlypayingoff.Asaresult
we have improved our competitive position in the Life Sciences.
Forinstance,HealthCaremadestrongprogresswithfivenewer
products. These include our anticoagulant Xarelto™ for stroke and

» TABLE OF CONTENTSthrombosis prophylaxis as well as Eylea™ to treat age- related macu-
lardegenerationandmacularedema.Authorizationsweregranted
to Stivarga™ for the treatment of adult patients with advanced meta-
staticcolorectalcancer,Xofigo™ for bone metastases in prostate
cancerandAdempas™ for patients with pulmonary hypertension.
Totalsalesforthesefiveproductsreached€1.5 billion in 2013. We
increased our estimate of their combined peak annual sales potential
to at least €7.5 billion. In addition we are focusing on the accelerated
developmentoffiveentirelynewdrugcandidatesincardiology,on-
cology and gynecology. The common feature of these new drug can-
didates is that they are also new molecules with highly promising ac-
tivityprofiles.Theyareintendedtoimproveandbroadentreatment
options for patients in a wide range of indications.

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

MaterialScience faced considerable challenges in 2013, in what re-
mainedadifficultmarketenvironment.Bothvolumesandprices
were roughly unchanged compared with the prior year. However,
clean EBITDA fell by about 15 percent. This was largely due to raw
material cost increases that we were unable to share with our cus-
tomers. In spite of this disappointing result in 2013, we are cau-
tiously optimistic for the future. The expected increase in capacity
utilization in our industry in the coming years should lead to an im-
proving business climate.

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

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

In HealthCare we broadened the product offering of our women’s
healthcare franchise by acquiring the U.S. company Conceptus: its
Essure™ procedure is the only approved non- surgical permanent
birthcontrolmethod.AndweacquiredSteigerwaldArznei-
mittelwerk GmbH, which specializes in herbal medicines and rep-
resents a product line extension in our Consumer Care business.
We also plan to further strengthen our oncology portfolio with the
acquisitionofNorwegianpharmaceuticalcompanyAlgetaASA,
whichwouldgiveusfullcontroloverXofigo™. We are convinced of
the potential of this drug and the underlying technology to provide
prostate cancer patients with innovative treatment options.

Our CropScience portfolio was enhanced with the acquisition of
companies such as Prophyta GmbH, a leading supplier of micro-
bial crop protection products. This is an important step, after the
acquisitionofAgraQuestin2012, towards building a leading
biologics technology platform. We also acquired various seed com-
paniesinLatinAmericatostrengthenourlocalcapabilitiesthere,
includingWehrtecTecnologiaAgricolaLtdaandAgricolaWehr-
mann Ltda in Brazil as well as FN Semillas SAinArgentina.

We enter 2014 with continued optimism. We intend to drive further
growth from our new products in the Life Sciences, and we also
aimtoimproveprofitabilityatMaterialScience.Toenableourinno-
vationstoflourish,weplantoinvestover€18 billion in capital

» TABLE OF CONTENTS expenditures and research and development in the period from
2014 through 2016. Bayer is very well positioned: we have identi-
fiedourfuturegrowthopportunitiesandthechallengesweface,
and we have mapped out our strategy for continued success. It is
also important to us that economic growth be achieved in harmony
with environmental and social responsibility. We adhere to the
fundamentals of sustainable development and the ten principles
of the Global Compact of the United Nations.

Allofourachievementsandourfuturesuccessdependgreatly
on ourhighlytalentedandmotivatedworkforceandthework
environment we provide. I strongly believe that in this industry in
particular, a robust framework of corporate values is crucial for
sustainablesuccess.Leadership,Integrity,FlexibilityandEfficiency
– represented by the word LIFE – are our corporate values and the
cornerstones of our behavior and focus. These values are now
firmlyintegratedintoourglobalperformancemanagementsystem.
In addition, continuous learning is a fundamental part of our orga-
nizationalandtalentdevelopment.Buildingspecificskills,removing
organizational obstacles and making improvements every day are
important elements of Bayer’s culture. For instance, all of our top
500 leaders took part in a two-day “Leading Innovation” course
in 2013.

Last year’s anniversary events provided a special opportunity for
us tofocusonouremployees.Afterall,withouttheirdedication,
motivation and ingenuity, Bayer would not be the great company
it is today. On behalf of the entire Bayer Group management team,
I would like to thank them for their excellent work and their com-
mitment to Bayer.

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

Sincerely,

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

» TABLE OF CONTENTS10

Fighting
cancer

Nicole Trackl, a nurse in the Department of Urology at Ulm University Hospital,
prepares chemotherapy for 65-year-old Reinhold Härle.

For a Better LifeFor a Better LifeBayer Annual Report 2013Bayer Annual Report 2013» TABLE OF CONTENTS» TABLE OF CONTENTS12

Bayer HealthCare // A diagnosis of cancer can be an enormous
burden for patients and their families. How far has the tumor
spread? What is the best treatment option? Research-based
pharmaceutical companies like Bayer and tumor centers all
over the world are working on ways to further improve patient
care and identify new treatment options.

With its six tumor centers, Ulm University Hospital is among
Germany’s leaders in cancer therapy. An interdisciplinary
team of acknowledged specialists aims to ensure that each
of the 11,000 or so cancer patients the hospital treats ev-
ery year benefits from the latest medical advances. Reinhold
Härle is one of these patients. He has known since 2008
that he has prostate cancer. “It all happened very fast,” says
the 65-year-old, referring to the initial phase of his illness.
His general practitioner couldn’t find anything specific during
Härle’s yearly screening examination. The worrying find-
ings turned up five months later. “The urologist had warned
me that it could be cancer, yet the final diagnosis still hit
me hard,” he recalls.

It didn’t take long for him and his wife Zita Lampharth to
decide that he would use all the therapies available to get
the cancer under control. Then, during surgery, it was
found that the tumor had already spread beyond its initial
site. So Härle didn’t hesitate to undergo drug therapy. He
and his wife agreed: “We want our life to be as normal as
possible for as long as possible.”

Many men with prostate cancer do in fact achieve this, ac-
cording to Professor Mark Schrader, head of the prostate
carcinoma center and Medical Director of the Department
of Urology at Ulm University Hospital. “Surgery can cure
many patients if the cancer is diagnosed at an early stage,”
Schrader explains. “But even if curative treatment is no
longer possible, we have some effective therapeutic options
that often enable patients to live much longer while pre-
serving their quality of life,” he adds. “Our options have re-
cently been widened by the arrival of several innovative
drugs that can slow the progression of the disease even in
the later stages.”

In Härle’s case, too, the doctors repeatedly succeeded in
halting the spread of the cancer. After surgery he underwent
local radiotherapy and at the same time took medication to
modify his male hormones. This procedure, known as hor-
mone deprivation therapy, suppresses cancer growth. Härle’s
initial blood tests indicated a response to treatment and it
appeared that switching to different drugs was successful.
However, subsequent tests indicated possible progression.

8.2 million

people died of cancer in
2012 according to the
World Health Organization.

Lung and
bronchi

Esophagus

Liver

Stomach

Colorectum

Prostate

Lung and
bronchi

Breast

Liver
Stomach

Colorectum

Cervix

Frequent and
Fatal tumors //

The types of cancer that
most often prove fatal
are those of the lung, stom-
ach, liver, colorectum
and breast. The incidence
of these cancers varies
between men and women.

(Source: American Cancer
Society, Global Cancer Facts &
Figures, GLOBOCAN 2012)

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTS13

Reinhold Härle has known since 2008 that he has prostate cancer. He is a patient of Professor Mark Schrader (see cover) in the Department of Urology
at Ulm University Hospital.

“Our therapeutic options have recently been widened by the

arrival of several innovative drugs.”

Professor Mark Schrader, head of the prostate carcinoma center and
Medical Director of the Department of Urology at Ulm University Hospital

In many patients the various hormone-suppressing drugs
are able to counter the spread of cancer cells in the body for
a long time.

However, when the cancer stops responding to hormone
deprivation therapy, there is a very high risk of bone metas-
tases developing. The cancer cells associated with prostate
cancer tend to settle in the bones. The majority of patients
with late-stage prostate cancer have bone metastases. Doc-
tors refer to this condition as metastatic castration-resistant
prostate cancer. The metastases can damage and weaken
the bone, producing pain and increasing the risk of frac-
tures and other complications that can seriously impact the
patient’s quality of life.

Until a few years ago, doctors’ options for helping patients
at this stage of their disease were limited to a few treat-
ments designed mainly to relieve the symptoms. Effective
chemotherapeutic agents capable of delaying disease
progression have been available for about ten years. More
recently, innovative medicines have appeared, among
them radionuclides with a novel mechanism of action that
target tumor cells in the bone while largely sparing the
surrounding tissue.

“This generally relieves pain considerably,” says prostate
specialist Schrader. “What’s more, a major randomized
drug trial in patients with castration-resistant prostate can-
cer and bone metastases has shown that this therapy can

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTS100%

was the average 5-year survival
rate for prostate cancer in
the period 1996 through 2002.
(Source: EFPIA)

Above // Werner Diesch is
chairman of the prostate cancer
self-help group in Ulm. He was
diagnosed with prostate cancer
nine years ago.

Right // Prostate cancer can
often be cured through surgery
if it is diagnosed early.
Prof. Mark Schrader of Ulm
University Hospital operates
using minimally invasive
techniques where possible.

also prolong our patients’ lives. From my point of view these
are the most innovative of the new medicines,” he adds. “The
fact that the new substances have different mechanisms of
action also gives doctors more combination options so that
treatment can be better tailored to the needs of each patient.”

Yet there is still a great need for further research, particular-
ly into ways of extending survival. “This is where the re-
search-based pharmaceutical industry is playing a significant
role,” Schrader explains. For many patients the opportunity

to take part in a clinical trial can be a blessing in itself. “They
receive optimal medical care,” the doctor explains.

For a better quality oF liFe
Bayer HealthCare is one of the trial partners working with
doctors at Ulm University Hospital. “Our common goal is
to develop effective therapies so that cancer patients survive
for longer and enjoy a better quality of life. Although major
progress has been made in cancer therapy in recent years,
there is still a great need for innovative drugs,” explains

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTSDr. Jörg Möller, Head of Global Development at Bayer
HealthCare. The figures bear this out: according to the
World Health Organization’s International Agency for Re-
search on Cancer, 8.2 million people died of cancer world-
wide in 2012 alone, making malignant tumors one of the
leading causes of death. Möller stresses that effective treat-
ment options for many types of cancer are limited, particu-
larly in the advanced stages of the disease.

Bayer HealthCare’s research pipeline includes multiple
therapeutic approaches for numerous types of cancer, such
as prostate, breast, colorectal and lung cancer. The focus
is on the development of chemical and biological molecules
that specifically intervene in processes typically associated
with cancer cells. The aim is to attack the “Achilles heel” of
the cancer without harming healthy cells. This approach
makes such drugs potentially more effective than traditional
chemotherapies and at the same time less of a burden for
patients. One group of molecules capable of providing tar-
geted cancer therapy is the kinase inhibitors, some of which
are used to treat metastatic colorectal cancer, for example.

immunother apy For cancer
Immunotherapies are another example of the many inno-
vative approaches being pursued by Bayer’s researchers.
These involve proteins known as bispecific antibodies that
dock onto cancer cells, enabling the body’s immune system
to identify them. It is believed that “killer cells” in the im-
mune system also will bind to the antibody and destroy the
cancer cell. The company is currently studying one of these
innovative bispecific antibodies for the treatment of prostate
cancer.

Dr. Thomas Schnöller, a specialist in drug therapy of tumors
and a urologist at Ulm University Hospital, believes this and
other approaches in immunotherapy represent the future of
cancer treatment. He also expects to see progress with bio-
marker-guided therapies that enable treatment to be better
tailored to the patient. “Ideally, in the future we will be able
to use biomarker tests before we treat patients to predict
their response to a particular therapy. In this way we can
select the most suitable treatment option for each patient,”
he explains.

Nicole Trackl, a nurse in the Department of Urology in Ulm,
would love to see her patients benefit from this approach.
She looks after many people with cancer – including those
who regularly attend the unit to receive out-patient chemo-
therapy. She inserts cannulas, changes infusion bottles,
adjusts the flow rate of infusion pumps, documents every
action, and observes her patients. Each receives individual
treatment, usually consisting of several different medicines.
“Chemotherapy has side effects for nearly everyone,” she
says. “It would be great if the therapy had less of an impact
on their lives.”

Werner Diesch, 67, chairman of the prostate cancer self-help
group in Ulm, echoes her words. He was diagnosed with
prostate cancer nine years ago. His mission is now to encour-
age people to share their experiences and to provide infor-
mation and support to others affected by prostate cancer. The
group’s monthly meetings at the Weststadthaus community
center in Ulm are regularly attended by around 80 men and
their family members. He speaks for them all when he says,
“We welcome progress of any kind and hope to see new
drugs that are free of major side effects.”

Dr. Olivier Brandicourt,
Chairman of the Executive Committee of
Bayer HealthCare, on the subgroup’s strategy

“The value of innovation”

Developing innovative medicines and enabling better treat-
ment options is our main task as a health care company. The
ability to launch a series of new products, as we have recently
done in our Pharmaceuticals Division, is the result of our
long-standing commitment to innovation and our dedication
to deliver tangible value to patients around the world.

The health care industry is often publicly urged to deliver
more “breakthrough” innovation as opposed to merely “in-
cremental” innovation. The true value of innovation, however,
should be always seen in context. When looking at the very
specific example of cancer, while a new medicine may not
be able to cure the disease, it may still make a profound dif-
ference to the quality of life for patients and their families
and impact positively on health systems as a whole. This is
especially true in the field of oncology, where step-by-step
improvements in treatment options can add up to substantial
progress in addressing medical need. The same applies to
other areas: the gradual “chronification” of severe or even
life-threatening diseases, such as HIV or multiple sclerosis, is
first and foremost the result of our industry’s continuous ef-
forts in research and development.

Bayer HealthCare is in a strong position today. In the future,
we will continue to focus on improving people’s lives by de-
livering true value through innovation – not only in Pharma-
ceuticals, but also in our Consumer Health segment.

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTS16

Safeguarding
nutrition

Farmer Santos Tun Coc with members of his family during the snap pea harvest
in Guatemala, with Lake Atitlan in the background. The 42-year-old has
joined Bayer CropScience’s food chain partnership.

For a Better LifeFor a Better LifeBayer Annual Report 2013Bayer Annual Report 2013» TABLE OF CONTENTS» TABLE OF CONTENTS18

Bayer CropScience // Innovative concepts from Bayer
CropScience are helping to promote sustainable
agriculture. Food chain partnerships are an important
example. In this way Bayer supports all the partners
from seed to shelf: farmers and food processors,
importers and exporters, and wholesalers and retailers.

“The project is an enormous help to us,” says Santos Tun
Coc, a farmer who lives in the small village of Caserio San
Francisco on the Guatemalan plateau. The 42-year-old is
one of 2,000 farmers who have joined the local food chain
partnership project of Bayer CropScience. In the past, pest
infestation and disease infection regularly led to crop losses
of around 25 percent. Thanks to the new crop protection
products and especially to the training Bayer provides, he
is now able to sell almost his entire harvest. That in turn
means the farmer earns enough to send his six children to
school – something he could only have dreamed of when
he was a child. For neither Tun Coc nor any of his 11 siblings
ever attended school.

“Our food chain teams operate

worldwide with the aim of

ensuring abundant harvests and

reliable food supplies.”

Liam Condon,
CEO of Bayer CropScience

Working closely with customers to ensure a better harvest
is part of Bayer’s corporate strategy. “Safeguarding global
nutrition demands a holistic approach. We must all work
together on sustainable ways to produce enough food to
feed the steadily growing world population,” says Bayer
CropScience CEO Liam Condon. He explains that Crop-
Science has already established “food chain partnerships”
throughout the world in which farmers are offered seed,
crop protection products and training. “Our food chain
teams operate worldwide with the aim of ensuring abun-
dant harvests and reliable food supplies.”

Bayer launched its food chain partnership in Guatemala in
2008 together with the vegetable exporter SIESA. Farmer Tun
Coc has been involved since the beginning. SIESA’s aim in
joining the partnership was not only to meet the new quality
requirements of international import markets in the Ameri-
cas and Europe, but also to raise standards for sustainabili-
ty, user safety and environmental protection for its 2,000
suppliers – all of whom are small farmers like Tun Coc. Bay-
er CropScience has since offered nearly 100 training work-
shops in the villages. The farmers learn first-hand in their
own language, Kaqchikel, what they have to do to keep their
export certification and stay in business. This means good
prospects for the future, because SIESA Production Head Ed-
gar García is thrilled about the quality of the harvest: “Tun
Coc and his colleagues produce the best snap peas in the
world. That’s what our customers tell us. We can depend on
them because their harvests are good. And the steady in-
comes the farmers enjoy greatly improve their quality of life.”

Many mud huts have now been replaced by stone houses.
At the same time, the training programs have raised aware-
ness for hygiene, leading to a decline in gastrointestinal
disorders. And thanks to heightened environmental aware-
ness, empty product containers are no longer simply
thrown away, but collected and recycled. Last but not least,
the success of this program has given the farmers a new
self-esteem. “It makes us proud to think that somewhere in
the world, people are buying vegetables from the same
harvest as the food we are eating ourselves,” says Tun Coc.
The food chain team in Guatemala is dedicated to improv-
ing the quality of life for farmers. “That way we’re aiding our
country’s development, too,” says Juan Carlos Gonzalez
from Bayer CropScience.

Progr am extended to other croPs
Bayer CropScience food chain teams like those in Guatemala
work with farmers in more than 30 countries around the
world, providing them with a customized solution pack-

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTS19

30%

of agricultural production
comes from large-scale
enterprises.

50%

of crops are produced by
small farmers.

the imPortance of small farms // Farms averaging five acres in size account for half of
all agricultural production worldwide. Only 30 percent of production comes from large-scale enterprises.

(Source: World Bank)

The food chain partnership project in Guatemala was jointly initiated by Bayer CropScience and vegetable exporter SIESA. The picture shows SIESA
worker Rolando Machan in the field.

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTS20

Above // Devendra Singh Tomar (right) from
basmati exporter LT Foods and farmer Anand
Bhandari (center) check the quality of freshly
cut rice that has been drying in the field for
three days near the village of Bari in the Indian
state of Madhya Pradesh.

Left // Yogesh Mishra (left), food chain manager
for Bayer CropScience in India, and Vinit Wad-
hawan from LT Foods inspect new packages
of Daawat brand rice.

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTS21

problems ourselves, and we know the right solutions. The
knowledge I’ve gained has enabled me to increase yields
by as much as 15 to 20 percent.”

From Latin America to Europe to Asia, food chain partner-
ships are of long-term benefit to the participating farms and
communities worldwide. The projects give farmers access
to the latest scientific knowledge and to the expertise of a
global research-based company. In this way, Bayer helps to
improve people’s lives and safeguard food supplies for a
growing world population.

Liam Condon, Chairman of the Executive Committee
of Bayer CropScience, on the subgroup’s strategy

“Promoting sustainable
agriculture”

Our planet will have more than nine billion people to feed by
2050. This presents a tremendous challenge for farmers.
They need to produce more food, although their most impor-
tant resources – arable land and water – cannot be increased
indefinitely.

That is why we support farmers in sustainably raising their
productivity: with stress-tolerant, high-yielding seed varie-
ties for cotton, soybeans, canola, wheat and vegetables, and
with state-of-the-art crop protection products that safeguard
plants from diseases, insect pests and weeds. We offer farm-
ers technology and expertise in the safe, responsible and en-
vironmentally compatible use of our products. In addition,
we encourage sustainable agricultural practices through our
food chain partnerships.

Feeding the global population is among this century’s great-
est challenges. We can only master it by working together to
sustainably drive farming’s future.

age. The concept was devised eight years ago in response to
the needs of the food industry. “At that time the industry
was called upon to address the need for greater food securi-
ty, with consumers increasingly placing importance on prod-
ucts being sustainably produced and traceable all the way
back to the producer,” says Silke Friebe, Head of Global
Food Chain Management at Bayer CropScience. There are
now some 240 food chain partnership projects. Initially the
focus was on fruit and vegetables, and this successful
model was recently expanded to include field crops such
as rice – the staple food for half the world’s population.
With demand for this crop outstripping supply, the govern-
ment of the Indian state of Madhya Pradesh decided several
years ago to promote the growing of basmati rice. “The
challenge then was to deliver a quality level that would satis-
fy the requirements of European and North American reg-
ulators,” explains Surinder Kumar Arora, Co-Managing Di-
rector of LT Foods, one of India’s leading basmati
exporters. LT Foods therefore turned to the food chain team
of Bayer CropScience in 2010 to fight diseases and pests
and ensure that the import authorities’ requirements would
be met so that consumers could enjoy one of India’s finest
agri products.

Much has been achieved since then. “We have developed
customized crop protection solutions and trained some
2,000 small farmers,” says Yogesh Mishra, food chain man-
ager for Bayer CropScience in central India. The training
programs focused on identifying diseases and pests. Anoth-
er topic was the correct use of crop protection products,
spraying techniques and optimum user protection.

The crucial test takes place each fall to determine what has
been achieved. The basmati stalks, which are up to 1.4 meters
long, are then cut in bundles, laid out to dry, threshed by
hand and transported to the collection point of LT Foods.
“We have significantly improved quality and productivity
over the past three years. Our rice can hold its own in the
world’s supermarkets, and consumers can enjoy it with a
good conscience,” says Arora. He explains that the farmers’
yields have risen by 8 to 10 percent and their net incomes
by 10 to 12 percent.

One of the rice growers whose crops received the highest
marks from LT Foods is Anand Bhandari from the small
village of Bharkachha Kalan. The cooperation with Bayer
CropScience and LT Foods was a turning point in his farm-
ing career. “Our knowledge of pests, diseases and cultivation
methods makes us more independent. We can now identify

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTS22

Conserving
resources

Bayer MaterialScience has developed a nine-meter-long rotor blade made of polyurethane in
collaboration with the Huaye Wind Power Group, China. Dr. Marc Schütze (right), project
manager at Bayer MaterialScience, and Kim Klausen (left), head of the new Wind Energy Compe-
tence and Development Center, take delivery of a rotor blade in Leverkusen.

For a Better LifeFor a Better LifeBayer Annual Report 2013Bayer Annual Report 2013» TABLE OF CONTENTS» TABLE OF CONTENTS24

Bayer MaterialScience // Sun, wind and water: energy
from renewable sources is the way of the future. Bayer
MaterialScience is supporting this trend with innova-
tive products and continually developing new methods
for conserving energy and resources.

25%
25%

of the entire manufacturing
of the entire manufacturing
costs of a wind turbine relate
costs of a wind turbine relate
to the rotor blades.
to the rotor blades.

Dr. Marc Schütze runs his hand over the shiny white surface.
The rotor blade is smooth and compact, as if it were made
from one piece. “The surface actually hides a complex in-
terior,” he explains. The innovative rotor blade comprises
dozens of layers of thin glass fibers, a very stable core and a
special plastic that holds everything together. The project
manager from Bayer MaterialScience is proud of this mate-
rial, a polyurethane resin that could give wind energy a
real lift.

The nine-meter-long prototype that Schütze is inspecting
highlights the many advantages of the newly developed
plastic. It was built by a Chinese manufacturer in collabora-
tion with Bayer MaterialScience. “The polyurethane rotor
blade is more stable and durable than previous models made
using epoxy resins as the infusion material,” Schütze says.
And stability and durability are the critical properties in wind
power turbines, because the rotors are getting longer and
heavier to boost energy yields, and this increases the forces
acting on them. That makes high stability and low weight
all-important. Weight reductions of up to 10 percent will be
possible in the future.

However, this innovation from Bayer MaterialScience is use-
ful for another reason: it greatly simplifies the manufac-
ture of the rotor blades. The polyurethane resin flows more
quickly through the fiber layers, is distributed more evenly
and hardens more quickly. That saves manufacturers money.
“Cutting costs is a crucial factor for wind power,” Schütze
says, “because the rotor blades account for about one-fourth
of the total costs of a system.”

It is with products like this new infusion resin that Bayer
MaterialScience is helping to expand the use of renewable
energy sources so that energy systems can be restructured.
Whether in wind turbines or solar systems, raw materials
and application solutions for polyurethane foams or coatings
and high performance polycarbonate plastics make im-
provements possible in many areas.

“We also consider ourselves to be pioneers in the key field
of energy efficiency and are constantly developing new ways
to save electricity and conserve resources,” says Dr. Tony Van
Osselaer, the Bayer MaterialScience Management Board
member responsible for production. “Products and process-
es – the plastics industry is an important leader in both of
these areas as we advance toward a more sustainable future.”

Bayer MaterialScience intends to work as closely as possible
with other industries along the way. For example, the
company established a global Wind Energy Competence and
Development Center in Otterup, Denmark, in 2012 to steer
the company’s global wind energy activities. “We also want
to share experience and collaborate with the major wind
power companies in Denmark,” explains the center’s director,
Kim Harnow Klausen.

The choice of location was deliberate. After all, Denmark
has been the leader in this sector for decades and produces
nearly half of all wind turbines worldwide. The field offers
tremendous potential, with industry experts predicting wind
energy production to triple in the next ten years alone. In
other words, wind energy is a broad area of activity for the

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTS25

Left // Bayer engineer Dirk Passmann examines
the material and the production quality of a
component for a new wind turbine rotor blade.

Below // The rotor blades of wind turbines are
being steadily increased in length to raise elec
tricity output. This makes it essential to improve
the blades’ stability and reduce their weight.

“Cutting costs is a crucial factor

for wind power.”

Dr. Marc Schütze, project manager at Bayer MaterialScience

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTS26

The control room at the MDI
plant in Caojing, Shanghai:
Bayer employees Fanny Fan
(front), Todd Huang (center)
and Qi Wu use the STRUCTese™
management system to reduce
the facility’s energy consumption.

material experts at Bayer MaterialScience, who already are
coming up with new ideas. “For example, we think rotor
blade cores could be made from fiber-reinforced polyure-
thane rather than wood,” says Klausen.

Another of the company’s materials also is ideal for innova-
tions in wind energy: polycarbonate, a lightweight but
robust, high-performance plastic, can be used in the simple
mass production of mini-rotor blades to generate electricity
for individual homes in remote areas.

“We are constantly developing

new ways to save electricity

and conserve resources.”

Dr. Tony Van Osselaer, member of the Board of Management of
Bayer MaterialScience responsible for production

But Bayer MaterialScience does not just help others to use
energy more efficiently, it is also constantly striving to
reduce power, gas and steam inputs at its own production
facilities. In fact, the company has set itself a new goal:
“By 2020, we aim to increase energy efficiency by 30 percent
compared to 2005,” says Van Osselaer. At the same time,
carbon dioxide emissions per metric ton of material sold are
to be slashed by 40 percent.

Some of the most important conditions for achieving this
goal are already in place, including the STRUCTese™ man-
agement system, which optimally controls the energy con-
sumption of individual units, reducing it by an average of
one tenth. Developed by Bayer MaterialScience, this meth -
od has been introduced in 60 plants worldwide since 2008,
from Baytown in the United States to Leverkusen, Germany,
and Caojing, China. As a result, a total of over 1.2 million
megawatt hours of energy are now saved every year. “Ac-
cordingly, CO2 emissions are falling by a good 360,000 met-
ric tons annually,” reports energy manager Matthias Böhm.

Bayer MaterialScience also is setting its sights on innova-
tions for harnessing energy from the sun, such as with
photovoltaic modules that can be directly integrated into
the walls of a house. Solar cells of this kind currently have
a glass cover. Engineers in the company are now working
to provide them instead with a thin coating of polyure-
thane, thereby reducing weight, cutting costs, increasing
design options and improving energy efficiency.

In addition to this comprehensive method, Bayer
MaterialScience also uses numerous individual, innovative
methods to manufacture its products in the most eco-friendly
way possible. In the polyurethanes area, for example, the
company has developed a technology that reduces the ener-
gy required to produce the TDI component by 60 percent. The
fact that one critical chemical reaction no longer takes place
in solution, but in the gaseous state, makes this possible.

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTS1.2 million

megawatt hours of primary energy
per year can be saved using the
STRUCTese™ management system.

Optimizing energy
cOnsumptiOn //

The STRUCTese™ management system
developed by Bayer MaterialScience has
been introduced at some 60 facilities
worldwide since 2008. The system opti
mizes the energy consumption of individ
ual units, reducing it by an average of
one tenth. This lowers CO2 emissions by
more than 360,000 tons per year.

Known as gas-phase technology, it is already in use in Cao-
jing and will soon also be introduced in Dormagen, where
the company is building a new, large-scale TDI facility.

Chlorine, one of the most important base substances in the
entire chemical industry, is needed for plastics precursors
such as TDI, as well as for drugs and fertilizers. The produc-
tion of chlorine uses enormous amounts of electricity, roughly
two-thirds of total consumption at Bayer MaterialScience.
But the company has found a way to reduce the power re-
quirement here as well: using oxygen-depolarized cathode
(ODC) technology that the company developed with a part-
ner, chlorine can be produced with up to 30 percent less
electricity compared to the standard process.

“Widespread use of this innovative electrolysis method could
benefit some countries’ entire economies,” Van Osselaer
points out. “If all manufacturers in Germany were to use it,
we could save a quantity of electricity equal to the annual
consumption of a major city like Cologne.” Global market-
ing of the process began in 2013. However, it would seem
that ODC technology can be used to produce more than just
chlorine. Bayer MaterialScience currently is testing it for
numerous other potential applications, such as fuel cells or
zinc-air batteries that can store electricity produced from
renewable sources.

Whether highly efficient processes or eco-friendly products:
the innovative capability of Bayer MaterialScience continues
to provide new solutions for a sustainable energy supply.

Patrick Thomas, Chairman of the Executive Committee of
Bayer MaterialScience, on the subgroup’s strategy

“For the needs
of a changing world”

As the planet’s population increases in size and wealth, de-
mands on fossil-based resources are growing at an unprece-
dented level. Our modern world is characterized by major
challenges. Bayer MaterialScience believes that innovation
will be a major contributor to tackling these challenges and is
focused on developing new processes, products and solutions
for key areas such as the manufacturing, construction, auto-
motive and electronics industries.

Our focus is on understanding the main issues that society
faces and on satisfying the current and future needs of markets
and consumers. We intend to focus our research, develop-
ment and product portfolio through an agenda that meets the
needs of our own sustainability targets and the future needs
of society. Everything we do must benefit society, have no fur-
ther adverse effect on the environment and deliver economic
benefit. Our guide is the Group mission “Bayer: Science For
A Better Life.”

In line with this, we will continue to pursue long-term, profit-
able growth. We aim to maintain our leading position in
the traditional markets of Europe and the Americas while con-
tinuing our program of expansion in the growth markets,
particularly Asia. We will respond to the increasing competitive
pressure by, among other things, expanding our technical
excellence and continually improving our processes.

For a Better LifeBayer Annual Report 2013» TABLE OF CONTENTS28

About this Report

Bayer Annual Report 2013

Integrated Annual Report
This year’s Annual Report combines our
financial and our sustainability reporting
for the first time. Our aim in integrating
the two previous publications is to elucidate
the interactions between financial, eco
logical and societal factors and underline
their influence on our company’s longterm
development. In this Annual Report we
document our business achievements and
explain how sustainability is contributing
to our future success.

For further details see “Reporting Principles” on page 350.

» TABLE OF CONTENTS29

About this Report

How to use this report

The sales, earnings and other financial data for the Bayer Group can be
found in the Report on Economic Position, which is colorcoded in the table
of contents.

Our Annual Report is available in a print and an online version. The online
Annual Report at WWW.BAYER.COM / AR13 is the “Annual Report 2013 –
Augmented Version,” which contains supplementary material. The print
version refers the reader to numbered “Online annexes” featuring this
additional information. You can enter these numbers in a search mask on
any page of the online Annual Report to directly access the annexes.

Information regarding the external audits of the print and augmented versions
can be found under “Reporting Principles” on page 350.

PDF files of the print version (“Annual Report 2013”) and the online version
(“Annual Report 2013 – Augmented Version”) are available for download
from the Bayer website.

Online annexes

Cross-references within the Annual Report

References to internet sites

The Annual Report 2013 –
Augmented Version can be found
at WWW.BAYER.COM / AR13.

The Annual Report 2013 (print version)
is also available as an app from the
appstore under “Bayer Annual Report.”

» TABLE OF CONTENTS30

To our Stockholders

Executive Council

Bayer Annual Report 2013

To our Stockholders

Executive Council

PROf. WOlfgang PlisChke¹

DR. MaRijn DekkeRs

DR. OlivieR BR anDiCOuRT

liaM COnDOn

PaTRiCk ThOMas

WeRneR BauMann¹

keMal Malik¹

MiChael könig¹/²

Technology · innovation ·
sustainability · asia/Pacific region

Chief executive Officer of Bayer

Chief executive Officer,
Bayer healthCare

Chief executive Officer,
Bayer Cropscience

Chief executive Officer,
Bayer Materialscience

finance · europe and north
america regions

human Resources · latin america /
africa / Middle east region

Wolfgang Plischke studied biology
at Hohenheim University. Having
gained a Ph. D., Plischke began his
career with Bayer at the subsidiary
Miles in 1980. After holding a number
of positions in Germany and a broad,
he became Head of the Pharmaceu
ticals Business Group in North
America and subsequently world wide.
Plischke was appointed to the Board
of Management in March 2006.

Marijn Dekkers studied chemistry and
chemical engineering in Nijmegen
and Eindhoven. After gaining a Ph. D.,
he began a career in research with
General Electric in the United States.
Having held various positions in
the United States, latterly as Chief
Executive Officer and President
of Thermo Fisher Scientific Inc.,
Dekkers took over as Bayer Chief
Executive Officer in October 2010.

Olivier Brandicourt studied medicine
and biology in Paris and has worked as
a practicing physician. Having begun
his industrial career in 1987 at Parke
Davis / Warner-Lambert, he subse
quently joined Pfizer, where he held
positions of increasing responsibility,
becoming a member of its Executive
Leadership Team in 2010. Brandicourt
took over as Chief Executive Officer of
Bayer HealthCare in November 2013.

Liam Condon studied International Busi
ness at Dublin City University and the
Technical University of Berlin. He held
various positions of increasing responsibil
ity with the former Schering AG, Berlin,
Germany, and with Bayer HealthCare in
Europe and Asia, including Managing Direc
tor of Bayer HealthCare China and Head
of Bayer HealthCare in Germany. Condon
took over as Chief Executive Officer of
Bayer CropScience in December 2012.

¹ Prof. Wolfgang Plischke retires on April 29, 2014. He will be succeeded as of that date by Kemal Malik, who already joined the Board of Management in February. Malik then assumes responsibility

for Innovation and the North America and Latin America regions. Responsibility for Technology, Sustainability and the Asia/Pacific region will be transferred to Michael König effective April 30, 2014.

Patrick Thomas studied engineer
ing at Oxford University. He
began his career with Imperial
Chemical Industries (ICI). Posi
tions held by Thomas include
that of CEO of ICI Polyurethanes
and Corporate Executive Vice
President of Huntsman Matlin
Patterson. Thomas took over as
Chief Executive Officer of Bayer
MaterialScience in January 2007.

Werner Baumann studied eco nomics
in Aachen and Cologne. He joined
Bayer AG in 1988, where his first du
ties were in the Corporate Finance
Department. After holding positions of
increasing responsibility in Spain and
the United States, he became a mem
ber of the Board of Management of
Bayer HealthCare and its Labor Direc
tor. Baumann was appointed Chief
Financial Officer of Bayer in May 2010.

Kemal Malik studied medicine and
worked in a London hospital. After
holding different positions of increas
ing responsibility at BristolMyers
Squibb, he joined Bayer in 1995. In
2007 Malik became a member of the
Executive Committee, Head of Glob al
Development and Chief Medical
Officer of Bayer HealthCare. He was
appointed to the Bayer Board
of Management in February 2014.

Michael König studied chemical pro-
c ess engineering in Dortmund, joining
Bayer in 1990. After holding positions of
increasing responsibility, he transferred
to China in 2000 as a General Manager.
In 2007 König became Senior Bayer
Representative, and from 2011 he headed
up the Polycarbonates Business Unit of
Bayer MaterialScience in Shanghai.
He was appointed to the Bayer Board of
Management in April 2013.

² Labor Director

The Executive Council, chaired by the Group CEO
and comprising the members of the Bayer AG
Board of Management and the CEOs of the three
subgroups Bayer HealthCare, Bayer CropScience
and Bayer MaterialScience

» TABLE OF CONTENTS» TABLE OF CONTENTS32

Report of the Supervisory Board

During 2013 the Supervisory Board monitored the conduct of the company’s business by the Board of
Management on a regular basis with the aid of detailed written and oral reports received from the Board
of Management, and also acted in an advisory capacity. In addition, the Chairman of the Supervisory
Board and the Chairman of the Board of Management maintained a constant exchange of information.
In this way the Supervisory Board was kept continuously informed about the company’s intended busi
ness strategy, corporate planning (including financial, investment and human resources planning), earn
ings performance, the state of the business and the situation in the company and the Group as a whole.

Where Board of Management decisions or actions required the approval of the Supervisory Board,
whether by law or under the Articles of Incorporation or the rules of procedure, the draft resolutions
were inspected by the members at the meetings of the full Supervisory Board, sometimes after pre
paratory work by the committees, or approved on the basis of documents circulated to the members.
The Supervisory Board was involved in decisions of material importance to the company. We discussed
at length the business trends described in the reports from the Board of Management and the pros
pects for the development of the Bayer Group as a whole, the individual organizational units and the
principal affiliated companies in Germany and abroad.

Four meetings of the Supervisory Board took place during 2013. No member of the Supervisory Board
attended fewer than half of its meetings. The average attendance rate by Supervisory Board members at
the meetings held in 2013 was 95 percent.

The members of the Board of Management regularly attended the meetings of the Supervisory Board.

PrinciPal toPics discussed by the suPervisory board
The deliberations of the Supervisory Board focused on questions relating to the strategies and busi
ness activities of the Group as a whole and of the subgroups. The discussions at the respective meet
ings in 2013 centered on various topics. At the February meeting, the Supervisory Board discussed
the 2012 Annual Report and the agenda for the 2013 Annual Stockholders’ Meeting. It also dealt at
length with the Bayer Group’s risk management system and matters relating to the Board of Manage
ment’s compensation.

To our StockholdersBayer Annual Report 2013» TABLE OF CONTENTS33

Report of the Supervisory Board

Werner Wenning, Chairman of the Supervisory Board of Bayer AG

At its meeting in April, the Supervisory Board reviewed the development of the business in the first
quarter and discussed the imminent Annual Stockholders’ Meeting. It also adopted resolutions on the
projects to acquire Conceptus, Inc. and Steigerwald Arzneimittelwerk GmbH.

The discussions at the September meeting of the Supervisory Board focused on the situation of the
Group, including developments concerning its strategy and competitive position. The main areas of re
search in the HealthCare and CropScience subgroups were also discussed along with the compensation
of the Board of Management and the changes to the German Corporate Governance Code. Finally, the
Supervisory Board adopted a resolution on a formal amendment to the Articles of Incorporation.

At its meeting in December 2013, the Supervisory Board appointed Mr. Kemal Malik to the Board of
Management effective February 1, 2014 and extended the term of office of Prof. Wolfgang Plischke as
a member of the Board of Management until April 29, 2014, the date of the Annual Stockholders’

To our StockholdersBayer Annual Report 2013» TABLE OF CONTENTS34

Report of the Supervisory Board

Meeting. The Supervisory Board determined ceilings for the compensation of the Board of Manage
ment and discussed the latest recommendations of the German Corporate Governance Code. It also
undertook the routine review of the fixed compensation of the members of the Board of Management
and the pensions of the former members of the Board of Management. Another major focus was on
the planned acquisition of Algeta ASA. Also at this meeting, the Board of Management presented its
planning for the business operations, the finances and the asset and liability structure of the Bayer
Group in the years 2014 through 2016. In addition, the Supervisory Board resolved on the declaration
concerning the German Corporate Governance Code. Following the meeting, an information and dis
cussion forum was held on the management of risks associated with legal disputes.

committees of the suPervisory board
The Supervisory Board has a Presidial Committee, an Audit Committee, a Human Resources Committee
and a Nominations Committee. The current membership of the committees is shown on page 339.

The meetings and decisions of the committees, and especially the meetings of the Audit Committee,
were prepared on the basis of reports and other information provided by the Board of Management.
Reports on the committee meetings were presented at the meetings of the full Supervisory Board.

Presidial Committee: This comprises the Chairman and Vice Chairman of the Supervisory Board along
with a further stockholder representative and a further employee representative. The Presidial Commit
tee serves primarily as the mediation committee pursuant to the German Codetermination Act. It has the
task of submitting proposals to the Supervisory Board on the appointment of members of the Board of
Management if the necessary two-thirds majority is not achieved in the first vote at a meeting of the full
Supervisory Board. Certain decision-making powers in connection with capital measures, including
the power to amend the Articles of Incorporation accordingly, are also delegated to this committee. The
Presidial Committee may also undertake preparatory work for full meetings of the Supervisory Board.

In 2013 the Presidial Committee was not required to convene in its capacity as the mediation committee
or for any other purpose.

Its tasks include examining the company’s financial reporting along with the financial statements of
Bayer AG, the consolidated financial statements of the Bayer Group, the combined management report,
the proposal for the use of the distributable profit of Bayer AG, and the interim financial statements and
management reports of the Bayer Group, all of which are prepared by the Board of Management. On
the basis of the auditor’s report on the audit of the financial statements of Bayer AG, the consolidated
financial statements of the Bayer Group and the combined management report, the Audit Committee
develops proposals concerning the approval of the statements by the full Supervisory Board. The Audit
Committee is also responsible for the company’s relationship with the external auditor. The Audit Com
mittee submits a proposal to the full Supervisory Board concerning the auditor’s appointment, prepares
the awarding of the audit contract to the audit firm appointed by the Annual Stockholders’ Meeting,
suggests areas of focus for the audit and determines the audit fees. It also monitors the independence,
qualifications, rotation and efficiency of the auditor. In addition, the Audit Committee oversees the
company’s internal control system – along with the procedures used to identify, track and manage risk
– and the internal audit system. It also deals with corporate compliance issues and discusses develop
ments in this area at each of its meetings.

To our StockholdersBayer Annual Report 2013» TABLE OF CONTENTS35

Report of the Supervisory Board

The Chairman of the Board of Management and the Chief Financial Officer regularly attended the
meetings of the Audit Committee. Representatives of the auditor were also present at all the meetings
and reported in detail on the audit work and the audit reviews of the interim financial statements.

The meetings focused on a number of topics. At the February meeting, the Audit Committee discussed
the consolidated financial statements and the Group’s tax strategy. It also carefully considered the risk
report, which covered the risk management system, planning and market risks, legal risks, corporate
compliance, the report on process and organizational risks and the internal control system, and the re
port by Corporate Auditing. At this meeting it also submitted a recommendation to the full Supervisory
Board concerning the resolution to be put before the Annual Stockholders’ Meeting on the appointment
of the auditor of the financial statements.

The April meeting mainly dealt with the yearly report of the Group Compliance Officer and with
determining the main areas of focus for the audit of the 2013 financial statements. The July meeting
was devoted to the audit being conducted by the German Financial Reporting Enforcement Panel
(DPR). At its meeting in October, the Audit Committee discussed the ongoing reorganization of the
accounting function, the status of the DPR audit and the intended integration of the Sustainable Devel
opment Report into the management report.

Human Resources Committee: On this committee, too, there is parity of representation between stock
holders and employees. It consists of the Chairman of the Supervisory Board and three other members.
The Human Resources Committee prepares the personnel decisions of the full Supervisory Board, which
resolves on appointments or dismissals of members of the Board of Management. The Human Resources
Committee resolves on behalf of the Supervisory Board on the service contracts of the members of the
Board of Management. However, it is the task of the full Supervisory Board to resolve on the total com
pensation of the individual members of the Board of Management and the respective compensation
components, as well as to regularly review the compensation system on the basis of recommendations
submitted by the Human Resources Committee. The Human Resources Committee also discusses the
longterm succession planning for the Board of Management.

The Human Resources Committee convened on three occasions in 2013. The matters discussed at these
meetings concerned the compensation and contracts of the members of the Board of Management,
the appointment of Mr. Kemal Malik to the Board of Management and the extension of Prof. Wolfgang
Plischke’s term of office as a member of the Board of Management.

Nominations Committee: This committee carries out preparatory work when an election of stockholder
representatives to the Supervisory Board is to be held. It suggests suitable candidates for the Super
visory Board to propose to the Annual Stockholders’ Meeting for election. The Nominations Committee
comprises the Chairman of the Supervisory Board and the other stockholder representative on the
Presidial Committee.

At one meeting and on several other occasions in 2013, the Nominations Committee discussed
possible candidates for election to the Supervisory Board as stockholder representatives at the 2014
Annual Stockholders’ Meeting. The committee also discussed the mid-term planning for the next
regular elections.

corPor ate Governance
The Supervisory Board dealt with the ongoing development of corporate governance at Bayer, taking
into account the May 13, 2013 version of the German Corporate Governance Code. In December the
Board of Management and the Supervisory Board issued a new declaration concerning the German
Corporate Governance Code, which is reproduced on page 185 of the Annual Report.

To our StockholdersBayer Annual Report 2013» TABLE OF CONTENTS36

Report of the Supervisory Board

financial statements and audits
The financial statements of Bayer AG were prepared according to the requirements of the German
Commercial Code and Stock Corporation Act. The consolidated financial statements of the Bayer
Group were prepared according to the German Commercial Code and the International Financial
Reporting Standards (IFRS). The combined management report was prepared according to the German
Commercial Code. The auditor, PricewaterhouseCoopers Aktiengesellschaft, Wirtschaftsprüfungs
gesellschaft, Essen, has audited the financial statements of Bayer AG, the consolidated financial state
ments of the Bayer Group and the combined management report. The conduct of the audit is ex
plained in the auditor’s reports. The auditor finds that Bayer has complied, as appropriate, with the
German Commercial Code, the German Stock Corporation Act and / or the International Financial
Reporting Standards endorsed by the European Union, and issues an unqualified opinion on the finan
cial statements of Bayer AG and the consolidated financial statements of the Bayer Group. The finan
cial statements of Bayer AG, the consolidated financial statements of the Bayer Group, the combined
management report and the audit reports were submitted to all members of the Supervisory Board.
They were discussed in detail by the Audit Committee and at a meeting of the full Supervisory Board.
The auditor submitted a report on both occasions and was present during the discussions.

We examined the financial statements of Bayer AG, the proposal for the use of the distributable
profit, the consolidated financial statements of the Bayer Group and the combined management
report. We have no objections, thus we concur with the result of the audit.

We have approved the financial statements of Bayer AG and the consolidated financial statements of
the Bayer Group prepared by the Board of Management. The financial statements of Bayer AG are
thus confirmed. We are in agreement with the combined management report and, in particular, with
the assessment of the future development of the enterprise. We also concur with the dividend policy
and the decisions concerning earnings retention by the company. We assent to the proposal for
distribution of the profit, which provides for payment of a dividend of €2.10 per share.

The Supervisory Board would like to thank the Board of Management and all employees for their
dedication and hard work in 2013.

Leverkusen, February 26, 2014
For the Supervisory Board:

Werner WenninG

chairman

To our StockholdersBayer Annual Report 2013» TABLE OF CONTENTSBayer Annual Report 2013

To our Stockholders

Investor Information

Performance of Bayer Stock in 2013

[Graphic 2.1]

(indexed; 100 = Xetra closing price on December 31, 2012; source: Bloomberg)

150

140

130

120

110

100

Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

Bayer +45.2%

dax +25.5%

dj euro stoxx 50 +21.5%

// 2013: Bayer stock clearly outperforms DAX

with yield of 45 percent

// Share price above €100 for the first time

// Board of Management and Supervisory Board
propose dividend increase to €2.10 per share
for 2013

» TABLE OF CONTENTS38

Investor Information

The stock market in 2013

INterNAtIONAl equIt y MArketS PerFOrMeD POSItIvely
2013 was a good year for the international equity markets thanks to favorable economic prospects and
the expansionary monetary policies of the European Central Bank and the U.S. Federal Reserve. After the
DAX had topped 8,000 points in March, a brief downturn in April pushed it back below 7,500 and thus to
a lower level than at the start of the year. In October, however, the DAX exceeded 9,000 points for the
first time in its 25-year history. It closed 2013 at 9,552 points for a gain of about 25 percent on the year.

The European equities index EURO STOXX 50 (performance index) rose by about 22 percent, ending the
year at 5,625 points. Market trends in the United States and Japan were also very positive, with the S&P
500 gaining around 30 percent and the Nikkei 225 nearly 57 percent.

BAyer ShAreS ABOve €100 FOr the FIrSt tIMe
Bayer stock posted another excellent performance in 2013, appreciating by 41.8 percent and thus
outperforming the benchmark sector indices. The EURO STOXX Health Care Index (performance index)
rose by 14 percent in 2013, while the EURO STOXX Chemicals Index (performance index) climbed by
19 percent.

Bayer’s share price developed especially positively in the first and fourth quarters. Including the
dividend of €1.90 per share paid at the end of April 2013, the return for the year was 45.2 percent.
Bayer shares closed 2013 in triple digits at €101.95, close to the annual and all-time high of €103.05.

Our company’s market capitalization more than doubled over the two-year period from year end 2011 to
year end 2013. At the end of 2013 Bayer had the highest weighting in the DAX index, at over 10 percent.

More than 90 percent of the roughly 30 equity analysts who regularly rate our company had a buy or
hold recommendation on the stock at the end of last year.

Bayer Stock Data

[table 2.1]

Earnings per share

Core earnings per share *

Gross cash flow per share

Equity per share

Dividend per share

Year-end price **

High for the year **

Low for the year **

Total dividend payment

Number of shares entitled to the dividend (Dec. 31)

Market capitalization (Dec. 31)

Average daily share turnover on German stock exchanges

Price / EPS **

Price / core EPS **

Price / cash flow **

Dividend yield

€

€ million

million

€ billion

million

2012

2.91

5.30

5.51

22.43

1.90

71.89

72.95

47.97

1,571

826.95

59.4

2.7

24.7

13.6

13.0

2.6

2013

3.86

5.61

7.05

25.16

2.10

101.95

103.05

69.01

1,737

826.95

84.3

2.1

26.4

18.2

14.5

2.1

2012 figures restated
* For details on the calculation of core earnings per share, see Combined Management Report, Chapter 16.3.
** Xetra closing prices (source: Bloomberg)

To our StockholdersBayer Annual Report 2013» TABLE OF CONTENTS39

Investor Information

BAyer retAINS GOOD reFINANcING OPPOrtuNItIeS ON the BOND MArket
Issue volume on the corporate bond market in 2013 continued at the high level of the previous year,
with interest coupons at a historic low. There was excellent investor interest in corporate bonds, partly
because these continued to offer higher yields than government bonds, for example, and partly because
of particularly strong demand for the debt of German issuers with diversified global operations. Subordi-
nated debt benefited especially in 2013 following a further significant drop in risk premiums.

The development of risk premiums is apparent from the trend in credit default swaps (CDS). On the
derivatives market, the price of these tradable insurance contracts, which are used to hedge against de-
fault of a borrower, show how market participants rate a company’s credit standing. As can be seen from
Graphic 2.2, CDS volatility was relatively low in 2013. From an overall cost point of view, however, the
slight drop in risk premiums during the year was more than offset by higher costs resulting from the rise
in interest rates.

In April 2013, Bayer used this favorable environment to issue a three-year bond with a nominal vol-
ume of €200 million and a floating-rate coupon on attractive terms. In May, we placed a six-year bond
with a nominal volume of JPY 10 billion and a fixed-rate coupon of 0.594 percent. The financing situa-
tion in 2013 was also marked by the maturing of a €1 billion bond we had issued in 2006 to partially fi-
nance the acquisition of Schering, Berlin, Germany. Redemption took place out of operational liquidity
without any direct follow-on financing. Further details of outstanding bonds are given in Note [27] to
the consolidated financial statements.

Consolidated
Financial
Statements
Note [27]

rates for Five-year credit Default Swaps (cDS) 2013

[Graphic 2.2]

in basis points 1

140

120

100

Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

1 source: Bloomberg
2 iTraxx Europe is a CDS index comprising the CDS of 125 companies (including financial institutions) with investment-grade ratings.

iTraxx Europe2

Bayer CDS

To our StockholdersBayer Annual Report 2013» TABLE OF CONTENTS

Investor Information

lONG-terM returN ON BAyer StOck well AheAD OF the MArket
A long-term investor who purchased Bayer shares for €10,000 five years ago and reinvested all divi-
dends would have seen the value of the position grow to €28,392 as of December 31, 2013, giving an
average annual return of 23.2 percent.

long-term returns on Bayer Stock in % p. a. (Dividends reinvested)

[table 2.2]

Annual returns

1 year 2013

3 years 2011 – 2013

5 years 2009 – 2013

Bayer

DAX

DJ EURO STOXX 50

+ 45.2

+ 25.5

+ 21.5

+ 25.9

+ 11.4

+ 7.2

+ 23.2

+ 14.7

+ 8.5

DIvIDeND INcreASe tO €2.10 Per ShAre
The Board of Management and the Supervisory Board will propose to the Annual Stockholders’ Meet-
ing that the dividend be increased by €0.20 to €2.10 per share. Thus we once again intend that our
stockholders should participate in last year’s positive business performance. The resulting payout ratio
of 37 percent calculated on core earnings per share is within our target corridor of 30 to 40 percent
(for details on the calculation of core earnings per share, see Chapter 16.3 of the Combined Manage-
ment Report).

The dividend yield calculated on the share price of €101.95 at year end 2013 amounts to 2.1 percent and
the total dividend payment to €1,737 million.

Dividends Per Share

[Graphic 2.3]

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

€

1.35

1.40

1.50

2.10

1.90

1.65

2.5

2.0

1.5

1.0

0.5

0.0

0.95

1.00

0.55

To our StockholdersBayer Annual Report 2013» TABLE OF CONTENTS

Investor Information

total Dividend Payment

[Graphic 2.4]

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

€ million

1,800

1,600

1,400

1,200

1,000

800

600

400

200

402

694

764

1,032

1,070

1,158

1,240

1,364

1,571

1,737

A SuStAINABle INveStMeNt
In 2013 Bayer again qualified for inclusion in major sustainability indices that assess companies on
the basis of environmental, social and governance (ESG) criteria. Bayer was listed in the FTSE4Good
Global and Europe and the Dow Jones Sustainability World indices last year. Following Bayer’s first-
time classification as a pharmaceutical company, we were no longer included in the Dow Jones Sus-
tainability Index Europe. Bayer was featured in the Climate Disclosure Leadership Index for the ninth
consecutive year. In 2013 we continued our dialogue with current and potential investors who base
their investment decisions on ESG criteria.

Online Annex: 2-1

Sustainability Indices Featuring Bayer Stock in 2013

[Graphic 2.4-1]

Dow Jones Sustainability Index world

FtSe4Good Global Index

FtSe4Good europe Index

climate Disclosure leadership Index *

Access to Medicine Index * /**

* The Climate Disclosure Leadership Index and the Access to Medicine Index are not trading indices.
** not re-assessed in 2013

To our StockholdersBayer Annual Report 2013» TABLE OF CONTENTS

Investor Information

INterNAtIONAl OwNerShIP Structure
At the end of 2013, approximately 270,000 stockholders were listed in our share register. Bayer has a
100 percent free float as defined by Deutsche Börse, the operator of the Frankfurt Stock Exchange.

An analysis of our ownership structure carried out in the fourth quarter of 2013 shows the international
distribution of our capital stock. The highest proportion of our outstanding shares, almost 30 percent, is
held by investors in the U.S. and Canada. Bayer has a stable ownership structure that has altered only
marginally in recent years.

Ownership Structure by country

[Graphic 2.5]

Not covered by survey 6.1%

Denmark, Finland,
Norway, Sweden 3.8%

Benelux 3.3%

Austria, Switzerland,
Liechtenstein 3.8%

Other countries 5.4%

France, Spain,
Italy, Portugal 9.6%

U.K., Ireland 16.9%

source: IPREO

U.S.A., Canada 29.2%

Germany 21.9%

www.investor.

bayer.com

AccOlADeS FOr cAPItAl MArket DIAlOGue
In 2013 Bayer received several awards for its communications with the capital markets.

We were awarded first place in the IR Magazine Award in the Best Analyst/Investor Meetings category
for our regular “Meet Management” conferences. We have garnered first place three times in the
Thomson Reuters Extel IR Rankings for the best IR work in the Chemicals category. According to a report
published by the German Investor Relations Association (DIRK) and the German business magazine
Wirtschaftswoche, Bayer is among the best of the DAX 30 companies in terms of its investor relations
activities. Here we gained second place. Bayer’s IR website was judged the world’s best in the health
care sector in the IR Global Rankings 2013 (MZ-Consult, U.S.A.). At the end of the year we relaunched our
IR website for stockholders and analysts in light of the growing importance of mobile devices. The new
responsively designed site automatically adapts to different formats for PCs, laptops and mobile devices.

To our StockholdersBayer Annual Report 2013» TABLE OF CONTENTS43

Investor Information

We continued to step up our IR activities in 2013, attending 22 broker conferences, holding 22 road-
shows and participating in several field trips. These activities took place in a total of 25 financial
centers. Last year we held “Meet Management” conferences in New York, Leverkusen, and – for the
first time – London. This conference format enables small groups of investors and analysts to meet
with members of the management boards of Bayer AG and the subgroups for detailed discussions on
Bayer’s corporate and business development. As in previous years, private investors had an opportu-
nity to find out about our company and our mission “Bayer: Science For A Better Life” at a number of
stockholder forums at which the Investor Relations team was represented.

www.investor.

bayer.com

To our StockholdersBayer Annual Report 2013» TABLE OF CONTENTS» TABLE OF CONTENTS

Combined Management Report

Bayer Annual Report 2013

Combined Management Report

of the Bayer Group and Bayer AG as of December 31, 2013

Bayer at a Glance
Corporate Profile
Group Strategy
Targets and Performance Indicators
Internal Management System
Value Creation
Corporate Environment
Corporate Structure
Strategies of the Subgroups
Economic Environments of the Subgroups
Research, Development, Innovation
Sustainability
Employees
Procurement and Production
Products, Distribution and Markets
Product Stewardship
Safety
Environmental Protection
Energy Consumption

Fundamental Information About the Group
1.
1.1
1.2
1.3
1.4
1.5
1.6
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
12.1
12.2 Air Emissions
12.3 Use of Water and Emissions into Water
12.4 Waste and Recycling
12.5 Biodiversity
12.6
12.7
13.

Environmental Incidents
International Standards and Certifications
Social Commitment

46
46
48
49
56
57
58
60
62
68
70
84
96
108
116
119
128
132
132
133
138
141
142
144
147
148

Report on Economic Position
14.

Overview of Sales, Earnings and
Financial Position
Business Development by Subgroup,
Segment and Region

15.

15.1 HealthCare
15.2 CropScience
15.3 MaterialScience
15.4 Business Development by Region
15.5

Business Development in the
Emerging Markets
Earnings; Asset and Financial Position
of the Bayer Group

16.

16.1 Earnings Performance of the Bayer Group
16.2

Calculation of EBIT(DA)
Before Special Items

16.3 Core Earnings Per Share
16.4 Value Management
16.5

Liquidity and Capital Expenditures
of the Bayer Group
Asset and Capital Structure
of the Bayer Group

16.6

16.7 Financial Management of the Group
17.

Earnings; Asset and Financial Position
of Bayer AG

17.1 Earnings Performance of Bayer AG
17.2 Asset and Financial Position of Bayer AG

152

156
156
162
165
168

168

170
170

171
172
173

175

178
180

181
181
183

Report on Corporate Governance
18.
18.1

Corporate Governance Report
Declaration Concerning the
German Corporate Governance Code

18.2 Governance
18.3 Compliance
18.4 Compensation Report
18.4.1 Compensation of the Board of Management
18.4.2 Disclosures Pursuant to the Recommendations

of the German Corporate Governance Code

18.4.3 Compensation of the Supervisory Board
18.4.4 Further Information

185

185
186
191
193
193

202
205
207

Events After the End of the Reporting Period
19.

Events After the End of the Reporting Period 208

Report on Future Perspectives and on Opportunities and Risks

Future Perspectives
20.
Economic Outlook
20.1
Forecast for Key Data
20.2
20.3 Opportunity and Risk Report
20.3.1 Group-wide Opportunity and

Risk Management System

20.3.2 Opportunities and Risks
21.

Takeover-Relevant Information

209
209
211
214

214
217
224

For direct access to a chapter, simply click on its name.

1. Bayer at a Glance
1.1 Corporate Profile

Fundamental Information
About the Group

1. Bayer at a Glance

1.1 Corporate Profile

The Bayer Group

[Graphic 3.1.0]

riculture

g
A

cienc e

S
p
o
r
C

l
t

MaterialS c i e n
High-tech p o l y m e r

Bayer is a global enterprise with core competencies in the areas of health care, agriculture and high-
tech polymer materials.

Bayer AG, Leverkusen, Germany, acts as a strategic management holding company. It defines the values,
goals and strategies of the entire Group. It is also responsible for resource allocation and managerial
appointments. Led by Bayer AG, the HealthCare, CropScience and MaterialScience subgroups inde-
pendently manage their business operations in line with preset objectives.

Bayer HealthCare is one of the leading companies in the area of prescription medicines and consumer
products. This subgroup researches, develops, manufactures and markets products to improve the
health of people and animals.

Bayer CropScience is one of the world’s leading research-intensive companies in the agricultural indus-
try, offering a broad range of innovative chemical and biological products for improving plant health,
along with high-value seeds. It also provides extensive customer service to support modern, sustainable
agriculture. A further focus is on non-agricultural applications.

Bayer MaterialScience is a renowned supplier of high-tech polymers and develops innovative product
solutions for a wide variety of everyday uses. Products holding leading positions on the world market
account for a large proportion of its sales.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT
47

1. Bayer at a Glance
1.1 Corporate Profile

The holding company and subgroups are supported in their activities by the three service companies
Bayer Business Services, Bayer Technology Services and Currenta.

The Bayer Group in 2013

[Graphic 3.1.1]

Total

Sales

employees

r&D expenditures

Bayer AG and no. of fully consolidated companies

40,157 (39,741) (€ million)

113,200 (110,000)

3,190 (3,013) (€ million)

289 (290)

north America

9,680 (9,576) (€ million)

15,200 (15,300)

812 (588) (€ million)

40 (46)

Latin America /Africa / Middle east

6,768 (6,684) (€ million)

16,400 (16,200)

51 (41) (€ million)

44 (45)

2012 in parentheses

europe

15,086 (14,722) (€ million)

53,600 (52,300)

2,153 (2,198) (€ million)

150 (144)

Asia / Pacific

8,623 (8,759) (€ million)

28,000 (26,200)

174 (186) (€ million)

55 (55)

Today, the Bayer Group comprises around 290 consolidated companies in 73 countries throughout the
world. We have corporate locations in close proximity to our customers and markets worldwide, invest
locally and offer attractive jobs.

Our Mission

“BAyer: Science For A BeTTer LiFe”
Bayer is a world-class innovation company. Our scientific successes are intended to help improve
people’s lives. At the same time, our innovations form the basis for sustainable and profitable business
activity.

Our products are helping to address some of today’s biggest challenges, including global population
growth, an aging society and the need to make efficient – and, wherever possible, sustainable – use of
natural resources.

• We are improving people’s quality of life by preventing, alleviating or curing diseases.
• We are helping to provide an adequate supply of high-quality food, feed and renewable plant-based

raw materials.

• And our high-tech polymer materials are making significant contributions to factors such as energy

and resource efficiency in the areas of mobility, construction and home living.

We have laid the foundations for achieving these goals in over more than 150 years of successful busi-
ness activity, and are the only global company to combine expertise in human, animal and plant health
and in high-tech polymer materials. Our focus on innovation is the key to maintaining or achieving lead-
ership positions in all of our markets.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

1. Bayer at a Glance
1.2 Group Strategy

Our Values

A central role is played by our LIFE values, which guide us in fulfilling our mission “Bayer: Science For A
Better Life.” LIFE stands for Leadership, Integrity, Flexibility and Efficiency.

These values apply to everyone at Bayer and are firmly integrated into our global performance manage-
ment system for managerial employees. Our value culture ensures a common identity within the enter-
prise across national boundaries, management hierarchies and cultural differences.

1.2 Group Strategy

In line with our mission “Bayer: Science For A Better Life,” we aim to improve people’s quality of life.
For this endeavor, we focus on our core competency of developing and successfully commercializing
innovative products and solutions based on scientific knowledge.

our oBjecTive: proFiTABLe GrowTH

Our corporate strategy is aligned toward profitable growth that will sustainably increase corporate value.
We place special importance on developing new products and solutions that create significant value for
customers and patients, and on serving the Emerging Markets, particularly those of Asia and Latin
America. In this way we are giving more and more customers access to our products and establishing a
solid basis for further growth.

our SucceSS iS BASeD on innovATion

Bayer is a world-class innovation company that is steadily opening up new, attractive market segments
in fast-growing and research-driven areas. Apart from the Life Sciences – the health care and agriculture
businesses –, a further focus of our activities is on high-tech polymer materials. Our success is based on
the development of new molecules, technologies, processes and business models. In the long term we
expect additional growth impetus to come from interdisciplinary research at the interfaces between
human, animal and plant health. We are convinced that such research can leverage significant synergies.

We plan to continue playing leading roles in our business areas and to reinforce the strong positions we
already hold. A strategic focus of our investment is on expansion in the Life Sciences. We aim to drive
organic growth in these businesses through investment in research and development and through tar-
geted acquisitions and collaborations. At MaterialScience we intend to defend the leading positions we
hold in our market segments. We are also continuing to adjust business processes to changing market
conditions in order to improve profitability. We are investing heavily to deliver organic growth in all
areas of activity. Bayer plans to spend a total of some €18 billion for research and development and for
property, plant and equipment between 2014 and 2016.

AcTinG SuSTAinABLy

Sustainable business practices are essential to the Group’s future viability. We therefore endeavor to
balance our economic objectives with social and ecological requirements in the development, manufac-
turing and marketing of our products. We aim to gain broad social acceptance for our activities through
responsible business practices and by taking into account the expectations of relevant stakeholders.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 49

1. Bayer at a Glance
1.3 Targets and Performance Indicators

our eMpLoyeeS Are our MoST cruciAL reSource

Motivated employees are especially important for the successful development of our business. Bayer
embraces a performance- and development-oriented corporate culture, coupled with a pronounced sense of
social responsibility. We encourage human and cultural diversity within the company, placing special impor-
tance on pleasant work environments, flexible working conditions and excellent vocational and advanced
training opportunities. We offer attractive career prospects and aim to continue attracting the most talented
people to support our company’s successful and sustainable development.

1.3 Targets and Performance Indicators

To consistently implement our strategy, we have set ambitious economic, social and ecological targets
and measure their attainment in terms of selected performance indicators.

Bayer Business Targets

[Graphic 3.1.2]

// Profitable Growth

Approx. 5% increase in Group sales (Fx & portfolio adj.) in 2014 to approx. €41 billion – €42 billion
(expected negative currency effects of approx. 2%)

Low- to mid-single-digit percentage increase in EBITDA before special items in 2014
(expected negative currency effects of approx. 5%, approx. minus €450 million)

Mid-single-digit percentage increase in core earnings per share in 2014
(expected negative currency effects of approx. 6%)

// Innovation

Group: Increase in R&D investment for the Bayer Group to approx. €3.5 billion in 2014

HealthCare: Transition of more than 10 new molecular entities (nmes) into development in 2014

CropScience: Transfer of at least six new molecular entities (nmes) or traits into confirmatory technical
proof-of-concept field studies in 2014

MaterialScience: Improvement of production process technology to achieve better energy efficiency

// Sustainability

Supplier management
Evaluation of all strategic suppliers by 2017 and of all potential high-risk suppliers with significant
Bayer spend by 2020, and development and establishment of a new sustainability standard for our supply
base by 2020

Resource efficiency
Improvement in Group-wide energy efficiency of 10% and reduction in Group-wide specific greenhouse gas
emissions of 20% by 2020 (based on 2012), and establishment of a water management system at all sites in
water-scarce areas by 2017

Safety
Reduction in occupational safety incidents of 35% and in transport incidents and incidents relevant to process
and plant safety of 30% (all by 2020 based on 2012)

Product stewardship
Conclusion of assessment of hazard potential for substances used in quantities exceeding one metric ton per
annum by 2020

Compliance
Conducting of precautionary risk assessments in all three subgroups by 2015 and annual compliance
training for all Bayer managers from 2015

// Employees

Continuous improvement in employee engagement; increase in the proportion of women in senior
management to 30% and in the proportion of managers from outside the European Union, the United States
or Canada to 25% by 2015

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 50

1. Bayer at a Glance
1.3 Targets and Performance Indicators

See Chapter 20

The new non-financial targets replace the existing set of sustainability targets for 2015 and are ex-
plained in detail in the online annex, which also includes definitions and KPIs. The forecast for further
key financial data is given in Chapter 20 “Future Perspectives.”

Online annex: 3-1.3-1

new non-FinAnciAL TArGeTS
With the first integrated Annual Report, we have adopted a new program of non-financial targets
based on the Group strategy. This enables us to highlight the challenges we see in our core business
within the context of sustainable development and identify the continuous improvements we are
endeavoring to make throughout the Group. This is achieved through clearly defined targets and
indicators along the value chain. These are used to monitor our progress in Innovation, Supplier
Management, Resource Efficiency, Safety, Product Stewardship, Compliance and Employees.

The targets are largely based on the old “Targets 2015” program. We have also conducted our own
materiality analyses on the basis of stakeholder expectations and benchmarks. Table 3.1.0-1 shows
all the new target categories and definitions in detail.

previouS TArGeTS For 2015
In 2010 the Bayer Group set ambitious non-financial targets with “Targets 2015.” We have
reported on annual progress in achieving the targets as part of our sustainability communications.

At the end of 2013 we met the targets in the categories Product Stewardship and Process and Plant
Safety in full. We have defined new targets for both categories. Our previous Research & Develop-
ment target is being continued with an absolute value. In the categories Compliance, Supplier Man-
agement, Diversity, Safety and Climate Protection, we have – for the most part – made good prog-
ress over the last few years. The definitions of targets for these categories are being continued with
a partial change of focus in the new target program. However, despite good reduction results, our
emission reduction targets for volatile organic compounds (VOC) and ozone depleting substances
(ODS) will no longer be part of the new program as, due to reasons of materiality, we will be focus-
ing on the areas of Water and Energy in the future. This is the case for the Waste category as well.
We will still be continuing to report on the indicators for waste, ODS and VOC. Spending and proj-
ects in the area Social Commitment also remain part of our reporting.

In Table 3.1.0-2, we give a detailed overview of the completed “Targets 2015” program.

new non-Financial Target program

[Table 3.1.0-1]

Definition of target

Target value

Target year explanations of target

innovATion

Group
Increase in R&D investment

Healthcare
Transition of more than 10 new

molecular entities (NMEs) into

development

cropScience
Transfer of at least six new

€3.5 billion

2014

R&D investments include expenditures for

research and development in the HealthCare,

CropScience and MaterialScience subgroups

and at Bayer Technology Services.

> 10 new molecular

2014

A new molecular entity is a chemical or biological

entities

substance that has not yet been developed at Bayer

for a specific indication.

≥ 6 new molecular

2014

A new molecular entity is a chemical or biological

entities or plant

substance that has not yet been developed at Bayer

molecular entities (NMEs) or

traits

traits into confirmatory

technical proof-of-concept

field studies

MaterialScience
Improvement of production

process technology to achieve

better energy efficiency

for a specific indication. A new plant trait is a spe-

cific characteristic that has not yet been available

or offered at Bayer for the crop plant in question.

This innovation target supports the achievement of

the resource efficiency targets.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

1. Bayer at a Glance
1.3 Targets and Performance Indicators

new non-Financial Target program

[Table 3.1.0-1]

Definition of target

Target value

Target year explanations of target

SuppLier MAnAGeMenT

Increase in evaluation coverage

100%

2017

Strategic suppliers for Bayer are those with a

of strategic suppliers

Reference year:

major influence on business in terms of procure-

2013*

ment spend, sales and long-term collaboration

prospects (3 – 5 years). Sustainability performance

is evaluated in assessments and audits.

Increase in evaluation coverage

100%

2020

Risk definition is based on a country- and

of potential high-risk suppliers

Reference year:

material-based approach. We define significant

with significant Bayer spend

2013*

procurement spend as > €1 million p.a.

Development and establish-

ment of a new sustainability

standard for our supply base

2020

The sustainability standard for our suppliers is to

be driven forward in tandem with relevant industry

initiatives. We are currently working with the

“Together for Sustainability” initiative and the

Pharmaceutical Supply Chain Initiative. Among

other objectives, the goal is to standardize and

share sustainability assessments of suppliers in

the same industry.

reSource eFFiciency

Improvement in Group-wide
energy efficiency

+ 10%
Reference year:

2020

Energy efficiency at Bayer is defined as the
quotient of energy consumption in MWh per t

2012

Reference value:

3.50 MWh / t

manufactured sales volume.

Reduction in Group-wide spe-

– 20%

2020

cific greenhouse gas emissions

Reference year:

Specific greenhouse gas emissions: measured in
CO2 equivalents per t manufactured sales volume

2012

Reference value:
0.98 t CO2 / t

Establishment of a water

100%

2017

We define water management as part of environ-

management system at all sites

in water-scarce areas

SAFeTy

mental management systems as specified in ISO

14001, for example. We use the WBCSD Global

Water Tool™ to define water-scarce areas and dif-

ferentiate activity levels and local targets.

Reduction in occupational

– 35%

2020

The basis is the number of injuries with and with-

safety incident rate among the

Reference year:

out lost workdays per 200,000 working hours,

Bayer workforce

2012

Reference value:

RIR of 0.49

summarized as RIR (Recordable Incident Rate).

Until the end of 2015, we will continue reporting

on our success in achieving our LTRIR (Lost Time

Recordable Incident Rate) target, which covers

only occupational injuries with lost workdays per

200,000 working hours. The 2015 target is an

LTRIR of 0.21.

Reduction in transport

– 30%

2020

Transport incidents relate to both our own

incidents

Reference year:

transports and those we commission and pay third

2012

Reference value: 6

parties to perform on our behalf.

Reduction in process and plant

– 30%

2020

The key indicator is the number of incidents in

safety incidents

Reference year:

which chemicals leak from their primary container,

2012

such as pipelines, pumps, tanks or drums, desig-

Reference value:

nated as LoPC (Loss of Primary Containment). We

0.38

use the associated rate (LoPC Incident Rate) to de-

termine the number of LoPC incidents per 200,000

working hours in areas relevant to plant safety.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

1. Bayer at a Glance
1.3 Targets and Performance Indicators

new non-Financial Target program

[Table 3.1.0-1 (continued)]

Definition of target

Target value

Target year explanations of target

proDucT STewArDSHip

Completion of assessment of

> 99%

2020

This globally harmonized Bayer standard also

hazard potential for substances

Reference year:

covers assessment of such substances that are not

used in quantities exceeding

2013*

subject to the REACH Regulation (No. 1907 / 2006).

one metric ton p.a.

If no relevant datasets are generated within the

scope of REACH, substance information and the

ability to provide data on key substance properties

are to be determined to ensure and document

responsible handling of the substances (including

substance characteristics, purity, intended use,

toxicological data).

coMpLiAnce

Conducting of precautionary

100%

2015

Risk assessments are based on the integrated

risk assessments in all three

subgroups

compliance management method developed by

Ernst & Young.

From 2015 compliance training

> 99%

annually

Managers will participate in specific training

for all Bayer managerial staff

courses depending on the risk area.

eMpLoyeeS

Continuous increase in

Current reference

every two

We measure employee engagement in line with the

employee engagement

year: 2012

years

Towers Watson engagement system. Engagement

(determined using an employee

Current reference

looks at how strongly an employee identifies

survey)

value: 85%

with / feels attached to his / her company by support-

ing corporate values and objectives, for example.

Increase in the proportion of

30%

2015

Senior managers are managers in the five highest

women in senior management

Reference year:

management grade levels.

2010

Reference value:

21%

Increase in the proportion of

25%

2015

Senior managers are managers in the five highest

senior managers who do not

Reference year:

management grade levels.

come from the E.U., the United

2013*

States or Canada

* reference value will be specified in 2014; calculation of values for 2013 not yet complete

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

1. Bayer at a Glance
1.3 Targets and Performance Indicators

Targets 2015 *: Development of Targets since the Start of the program and Final Documentation

2010 (Start)

2011

2012

2013

[Table 3.1.0-2]

Final

documentation

MAnAGeMenT & corporATe

GovernAnce

compliance

Extend compliance

61% of all Bayer

90% of all Bayer

From 2012 focus

Continued focus

From 2012 the focus was

training to 100% of all

managers

on new Bayer

on new Bayer managers to

Bayer managers

managers;

continually increase the

> 90% of all

to the target.

B ayer managers

Bayer managers

We are extending the

trained

previous target as part of the

coverage rate and come closer

new target program.

Supplier Management

Inform all suppliers with

Launch of the

As a fixed ele-

Target achieved. The Bayer

purchase-order-relevant

Supplier Code of

ment of our sup-

Supplier Code of Conduct is

volumes about Bayer

Conduct at the

plier selection

an established part of the sup-

Supplier Code of Conduct

end of 2009 –

and evaluation

plier selection and evaluation

gradual integra-

process, the

process and is contractually

tion into all elec-

tronic ordering

systems

Supplier Code of
Conduct is
legally binding
and integrated

into all electronic

ordering systems

and contracts

throughout the

Group.

integrated into electronic

ordering systems and agree-
ments throughout the Group.

Assess the sustainability

Approx. 50%

25% of the total

Focus on process

34% of the total

Checking of suppliers’ sus-

performance of suppliers

coverage of the

procurement

quality and effi-

procurement vol-

tainability performance has

representing ≥ 75% of the

procurement vol-

volume and 56%

ciency. Nonethe-

ume and 51% of

been expanded considerably

total procurement volume

ume in risk coun-

of the procure-

less, approx.

the procurement

in the last few years. The

and ≥ 75% of the procure-

tries, proportion

ment volume

25% of the total

volume from

“Together for Sustainability”

ment volume from risk

of total procure-

from risk areas

procurement vol-

risk areas are

initiative and the Pharmaceu-

areas

ment volume not

covered

ume and a good

covered.

tical Supply Chain Initiative

yet assessed

completely at this

stage

50% of the pro-

curement volume

from risk areas

are covered.

have contributed to this. The

lower coverage in risk areas in

2013 compared to previous

years is explained by the in-

creased procurement from

non-OECD countries,

resulting in a changed ratio in

the database.

These targets are being incor-

porated into the new target

program in a slightly modified

form, and the target achieve-

ment level increased.

Annually audit the

Initial pilot audits

15 suppliers

17 suppliers

41 suppliers

Target achieved. The number

sustainability performance

of at least 10% of the

suppliers from risk areas

or at least 15 suppliers

of audits has risen continuous-

ly in the last few years.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT
54

1. Bayer at a Glance
1.3 Targets and Performance Indicators

Targets 2015 *: Development of Targets since the Start of the program and Final Documentation

[Table 3.1.0-2 (continued)]

2010 (Start)

2011

2012

2013

Final

documentation

innovATion & proDucT
STewArDSHip

research & Development

Maintain or increase

€3 billion (8.7%)

€2.9 billion

€3.0 billion

€3.2 billion

The level of R&D spending

R&D spending in relation

(8.0%)

(7.6%)

(7.9%)

was maintained at around the

to sales

product Stewardship

same level in the evaluation

period. This target is being

continued with an absolute

target value.

Roll out Global Product

Implementation

In five countries

In 10 countries in

Target already

Target achieved. GPS is avail-

Strategy (GPS) in another

started

in the relevant

three other lan-

achieved in 2012

able via the “Product Safety

10 countries with different

national languages

eMpLoyeeS

Diversity

national

languages

guages (via new

“Product Safety

First” website)

First” website in the E.U.

and 14 other countries and in

seven languages.

Increase the proportion of

21%

22%

23%

25%

Positive upward trend in the

women in senior manage-

ment to approaching 30%

occupational Safety

proportion of women in senior

management. The target will

remain part of the new target

program until 2015.

Reduce the number

0.34

0.31

0.27

0.26

The target has been raised

of occupational injuries

with lost workdays to

≤ 0.21 LTRIR**

once again and remains part

of the new target program.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

1. Bayer at a Glance
1.3 Targets and Performance Indicators

Targets 2015 *: Development of Targets since the Start of the program and Final Documentation

[Table 3.1.0-2 (continued)]

2010 (Start)

2011

2012

2013

Final

documentation

ecoLoGy

climate protection

Reduce specific green-

house gas emissions*** in

1.09 t CO2e per t
manufactured

0.95 t CO2e per t
manufactured

0.98 t CO2e per t
manufactured

1.00 t CO2e per t
manufactured

In 2013 greenhouse gas emis-

sions Group-wide remained at

the Group by 35% (direct

sales volume

around the same level as in

and indirect emissions in

relation to manufactured

sales volume in t) between

2005 and 2020; target

based on figures defined
in 2005: 0.79 t CO2 equiv-
alents per t manufactured

sales volume

emissions

the previous years at approx.
one t CO2e per t manufactured
sales volume.

We are incorporating the

reduction target into the new

target program.

Reduce other relevant

ODS: 20.77 t;

ODS: 16.32 t;

ODS: 16.28 t;

ODS: 15.65 t;

Reductions were achieved in

emissions:

both categories in the last few

ozone depleting

VOC: 0.2436 kg / t

VOC: 0.2457 kg / t

VOC: 0.2316 kg / t

VOC: 0.2047 kg / t

reporting years. Since 2010

substances (ODS) – 70%,
ODS target based on

2010: 6.2 t;

volatile organic com-

pounds (VOC) – 50%; VOC
target based on 2010:

0.1218 kg / t manufactured
sales volume

waste

ODS have fallen by almost

25% and VOC by around

16%. The ODS / VOC targets
are not being continued, but

the relevant figures will

continue to be reported.

Reduce specific

3.12%

3.23%

3.54%

3.77%

This target is not being

hazardous waste from pro-

duction to 2.5% in

relation to manufactured

sales volume

achieved. Due to changes in

process steps, mainly in the

Crop Science subgroup, additi-

onal “hazardous” production

waste is being generated, for

example during synthesis of

active ingredients in the form

of by- products that do not al-

low further processing or use.

Reducing hazardous produc-

tion waste remains a key fac-

tor for our product and pro-

cess development. We will be

reporting further on the rele-

vant quantities. Because of a

change in essential relevance,

the previous target will no

longer be part of the new

target program.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

1. Bayer at a Glance
1.4. Internal Management System

Targets 2015 *: Development of Targets since the Start of the program and Final Documentation

[Table 3.1.0-2 (continued)]

2010 (Start)

2011

2012

2013

Final

documentation

process and plant Safety

Implement the Bayer-wide

Start of imple-

Pilot training pro-

26,000 employ-

Further develop-

A large number of measures

initiative to increase pro-

mentation of ini-

grams at the sites

ees trained;

ment of teaching

(training courses, symposia,

cess and plant safety; sys-

tiative; staging of

in Wuppertal-

further develop-

materials for the

Group regulations, standard-

tematic process and plant

the first Process

Elberfeld, Germa-

ment of the

long-term contin-

ized risk assessments etc.)

safety training for approx.

and Plant Safety

ny (HealthCare),

Group Regulation

uation of the

raised awareness of process

26,000 employees world-

Symposium with

Hürth-Knapsack,

“Process and

training pro-

and plant safety worldwide.

wide by the end of 2012

100 Bayer

Germany (Crop-

Plant Safety”

grams using both

The target has been achieved.

experts from

Science) and Map

14 countries

Ta Phut, Thailand

(Material-

Science); 3,700

employees

trained; training

materials devel-

oped in around

20 languages

traditional and

The initiative is being contin-

web- based train-

ued and remains part of our

ing; anchoring of

reporting on safety.

the training pro-

gram in the HSEQ

management

systems of the

subgroups

SociAL coMMiTMenT

Focus our global commit-

Analysis of global

Further interna-

In the selection

Further concen-

In the selection of projects,

ment further on scientific

commitment in

tionalization and

of projects, the

tration on coun-

the focus was continuously on

education, fostering

terms of our core

alignment of

focus was on

tries in which

those countries in which

talent, cutting-edge

business areas;

scholarship

those countries in

Bayer is repre-

Bayer is represented and on

research, health care and,

review of funding

awards to the

which Bayer is

sented and on

issues that are of relevance to

in Germany, additionally

programs to

company’s mis-

represented and

areas that are of

our subgroups and their

on recreational, youth and

check support of

sion; allocation of

on issues that are

relevance to the

areas of business. This target

disabled sports

business strategy

funds on an even

of relevance to

Group’s business

is not part of the new target

greater multina-

our subgroups

strategy

program.

tional basis, fo-

and their areas of

cusing on core

business.

areas, and spon-

soring programs

that consistently

support the busi-

ness strategy

We will be reporting further

on sponsorship spending and

fields.

* unless indicated otherwise
** LTRIR = Lost Time Recordable Incident Rate
*** Specific Group emissions are calculated from the total volume of direct and indirect emissions of the subgroups, including from the vehicle fleet, divided by the

manufactured sales volume of the three subgroups. Quantities attributable to the supply of energy to external companies are deducted from the direct and indirect
emissions. At MaterialScience the by-products sodium hydroxide solution and hydrochloric acid generated during production are not included in the production
volume as they will occur in much smaller amounts in the future, thanks to measures aimed at enhancing energy efficiency. Trade products are also not included.

1.4 Internal Management System

The economic planning and steering for the business units is carried out within a framework laid down by
the Board of Management that is refined during the strategic planning process. Operational planning then
translates this framework into specific, measurable targets. Continuous monitoring of business develop-
ments complements the planning and management process, and key management and performance indi-
cators are regularly updated. This process also involves tracking the implementation of the strategic ob-
jectives and adopting countermeasures in the event of deviations from the budget.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

1. Bayer at a Glance
1.5 Value Creation

Key inDicATorS
One of the prime objectives of the Bayer Group is to steadily increase enterprise value. We use the fol-
lowing steering parameters to plan, steer and monitor the development of our business:

The key performance indicators at the strategic level are cash value added (CVA), which is a value-based
steering parameter, and cash flow return on investment (CFROI). These indicators support management
in its decision-making, especially in the areas of strategic portfolio optimization and the allocation of
resources for acquisitions and capital expenditures. (See Chapter 16.4 “Value Management” for further
details.)

See Chapter 16.4

The principal economic steering parameters within the Bayer Group at the operational level are sales
and earnings figures. With regard to earnings, special attention is paid to EBITDA (earnings before finan-
cial result, taxes, depreciation and amortization) before special items. The EBITDA margin before special
items, which is the ratio of EBITDA before special items to sales, serves as a relative indicator for the in-
ternal and external comparison of operational earning power. (See Chapter 16.2 “Calculation of EBIT(DA)
Before Special Items” for further details.)

See Chapter 16.2

Targets and performance indicators are defined and established in areas such as supplier management,
safety and product stewardship to align the Group toward sustainability. Working closely with the sub-
groups, Bayer AG has implemented management systems to steer the Group’s sustainable development.

1.5 Value Creation

The value added statement shows Bayer’s contribution to public and private incomes and is a measure
of the value the company’s business activities create for its stakeholders. We define value added as the
company’s total operating performance in the previous fiscal year less the costs of procured and con-
sumed goods and services, depreciation and amortization.

The total operating performance of the Bayer Group in 2013 was €41.4 billion. Value added increased by
9% to €14.5 billion. Of the value added, €9.4 billion (64%) was distributed to employees, €1.7 billion
(12%) to stockholders, €0.7 billion (5%) to lenders and €1.3 billion (9%) to governments. The remain-
der was allocated to reserves.

Bayer Group value Added

[Graphic 3.1.3]

€2.9 billion
Depreciation,
amortization,
impairments

€24.0 billion
Material costs /
Other expenses

€41.4 billion
Total operating
performance**

€14.5 billion
Value added

€9.4 billion (64%)
Employees

€1.7 billion (12%)
Stockholders*

€0.7 billion (5%)
Lenders

€1.3 billion (9%)
Taxes

€1.4 billion (10%)
Reserves /Other

* Bayer AG dividend proposal for 2013
** total operating performance = sales + other operating income + financial income / equity-method income (loss)

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

1. Bayer at a Glance
1.6 Corporate Environment

In addition to direct cash flows, the company creates value for its stakeholders in various ways, focus-
ing on innovative products and solutions that add value to our core businesses. We operate production
sites throughout the world, invest locally in research and development, work with international and
local suppliers and contribute to the economic development of our target markets. As an employer, we
provide jobs in industrialized, emerging and developing economies and create purchasing power
through the salaries we pay. We also support public infrastructure through regional taxes.

1.6 Corporate Environment

Bayer’s business activities are impacted by economic and social conditions. At the same time, Bayer
contributes to shaping these conditions.

econoMic environMenT
Global economic growth in 2013 was at the previous year’s level. The crisis in a number of European
countries continued to hamper development, especially as a result of ongoing national budget consolida-
tion and high unemployment. However, the trend was positive – over the course of the year, the Euro-
pean economy grew slightly again after several quarters of recession. Economic output continued to in-
crease in the United States, albeit at a slower pace than in the previous year. The biggest contribution to
global growth again came from the emerging markets. The global economy also received a positive stim-
ulus from the highly expansionary monetary policy that continued in the industrialized countries.

economic environment

World

European Union

of which Germany

United States

Emerging markets ***

[Table 3.1.1]

Growth * in 2012

Growth * in 2013

+ 2.6%

– 0.3%**

+ 0.7%

+ 2.8%**

+ 4.8%**

+ 2.5%

+ 0.1%

+ 0.4%

+ 1.9%

+ 4.7%

real GDP growth, source: Global Insight; source for Germany: Federal Statistical Office

*
** revised
*** including about 50 countries defined by Global Insight as emerging markets in line with the World Bank
as of February 2014

See Chapter 4

See Chapter 4 for more information on the business environments of our subgroups.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT
59

1. Bayer at a Glance
1.6 Corporate Environment

SociAL environMenT
As a commercial enterprise, Bayer is part of society, and the company’s business activity is therefore close-
ly linked to the social environment. The influence of stakeholders on our business activity has steadily in-
creased in recent years. Their expectations regarding sustainable development affect public acceptance of
the company and thus our commercial success. We take the wide-ranging requirements of our stakehold-
ers seriously and consider them wherever possible in our business activities. Evaluating these expectations
and requirements provides significant impetus for the continued development of our activities, our risk
management and our reporting. At the same time, open dialogue with our stakeholders gives us an oppor-
tunity to demonstrate the value that our products and services hold for society. This is of growing impor-
tance for the success of our business model.

Stakeholder Dialogue at Bayer: our Most important interest Groups

[Graphic 3.1.4]

Partners

Suppliers
Customers
Employees
Associations
Universities /Schools

Social interest
groups

Public
NGOs
Local community
Competitors

bayer

Financial market
participants

Stockholders
Banks
Insurance companies
Rating agencies

Regulators

Lawmakers
Politicians
Authorities

Read more about Bayer’s commitment to its stakeholders in Chapter 6 “Sustainability.”

See Chapter 6

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 60

2. Corporate Structure

Bayer AG, headquartered in Leverkusen, Germany, is the strategic management holding company
for the Bayer Group. Business operations are conducted by the HealthCare, CropScience and Material-
Science subgroups, supported by our three service companies.

Bayer Group Structure

[Graphic 3.2.1]

bayer

Corporate Center

HealthCare

Pharma-
ceuticals

Consumer
Health

Consumer
Care

Medical
Care

Animal
Health

CropScience

MaterialScience

Crop Protection / Seeds

Polyurethanes

Environmental Science

Polycarbonates

Coatings, Adhesives, Specialties

Industrial Operations

Business
Services

Technology
Services

Currenta

The globally operating HealthCare subgroup is divided into two reporting segments: Pharmaceuticals and
Consumer Health. The Pharmaceuticals segment focuses on prescription products, especially for women’s
healthcare and cardiology and also on specialty therapeutics in the fields of oncology, hematology and
ophthalmology. Our Consumer Health segment includes the Consumer Care, Medical Care and Animal
Health divisions. The main focus of the Consumer Care Division is on non-prescription medicines, dietary
supplements and dermatology products. The Medical Care Division comprises the Diabetes Care business
unit, which markets blood glucose monitoring systems, and the Radiology & Interventional business unit,
which offers contrast-enhanced diagnostic imaging equipment along with the necessary contrast agents,
as well as mechanical systems for treating constricted or blocked blood vessels. The products of the Ani-
mal Health Division are destined for use in farm and companion animals.

CropScience has businesses in seeds, crop protection and non-agricultural pest control. It is organized
into two operating segments: Crop Protection / Seeds and Environmental Science. Crop Protection / Seeds
markets a portfolio of high-value seeds and traits along with chemical and biological pest management
solutions, at the same time providing extensive customer service to the agriculture industry. Environ-
mental Science focuses on non-agricultural applications, with a broad portfolio of pest control products
and services for areas ranging from the home and garden sector to forestry.

MaterialScience develops, manufactures and markets high-tech polymer materials including polyure-
thane raw materials, polycarbonates, coating and adhesive raw materials and functional films. This sub-
group also manufactures and markets selected inorganic basic chemicals. MaterialScience is organized
into the Polyurethanes, Polycarbonates, and Coatings, Adhesives, Specialties business units, and the
Industrial Operations area.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 61

2. Corporate Structure

Share of Sales by Segment 2013

[Graphic 3.2.2]

3%(3 %)
reconciliation

€40.1 billion
(€39.7 billion)

47% (47%)

Healthcare

Pharmaceuticals 28% (27%)

Consumer Health 19% (20%)

28% (29%)

MaterialScience

22% (21%)

cropScience

2012 in parentheses

Our subgroups are supported by the Business Services, Technology Services and Currenta service compa-
nies, which are reported in the reconciliation under “All Other Segments.” The reconciliation also includes
the Corporate Center and consolidation effects.

Key Data by Subgroup and Segment

[Table 3.2.1]

Full year
2012

€ million

18,604

10,798

7,806

8,383

11,491

1,263

39,741

Sales

Full year
2013

€ million

18,924

11,188

7,736

8,819

11,238

1,176

40,157

eBiT

eBiTDA before special items *

Full year
2012

Full year
2013

Full year
2012

Full year
2013

€ million

2,205

1,104

1,101

1,556

581

(414)

3,928

3,260

2,031

1,229

1,729

435

(490)

4,934

5,119

3,232

1,887

2,025

1,263

(127)

8,280

5,334

3,490

1,844

2,248

1,072

(253)

8,401

Healthcare

Pharmaceuticals

Consumer Health

cropScience

MaterialScience

reconciliation

Group

2012 figures restated
* For definition see Chapter 16.2 “Calculation of EBIT(DA) Before Special Items.”

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT
62

3. Strategies of the Subgroups

See Chapter 1.2

The subgroups’ strategies are outlined below (for the Bayer Group strategy, see Chapter 1.2).

HeALTHcAre
The health care sector worldwide is in a state of flux driven by the rise in life expectancy, growing
demand for health care products particularly in the emerging markets, greater patient and consumer in-
fluence on health-related decisions, and increasing insistence that the health care industry demonstrate
the value added by new therapies. In addition, health systems everywhere need to find ways to curb ris-
ing costs while safeguarding and improving health care quality and access.

Our strategy in this environment is aimed at achieving above-average, profitable and sustainable
growth. To this end, our focus is on innovation and on further strengthening our position in the Emerg-
ing Markets.

In our largest segment in terms of sales – Pharmaceuticals – we aim to become a leader in cardiovascu-
lar health and defend our market position in women’s healthcare. In the area of specialty therapeutics,
we aim to strengthen or defend our respective market positions. To achieve our growth targets, we are
focusing particularly on Xarelto™, Eylea™, Stivarga™, Xofigo™ and riociguat (approved in the United
States and Japan under the trademark Adempas™), whose market introduction is continuing in addition-
al countries. We plan to steadily expand the indications for these medicines through comprehensive
study programs and make them available to additional patient groups.

Innovative products for
profitable and sustain-
able growth

We intend to step up our investment in research and development. First, for example, we plan to drive
forward the development of five drug candidates in cardiology, oncology and gynecology. We are also
conducting research in the therapeutic area of hematology. Complementing this work is common mech-
anism research in areas such as ophthalmology and inflammation.

In addition, we are selectively expanding and supplementing our product portfolio through licensing
agreements and acquisitions. In June 2013, we acquired the U.S. company Conceptus, Inc., whose prod-
uct Essure™ rounds out our contraception portfolio with the only approved non-surgical permanent
birth control method.

The focus on certain therapeutic areas is supplemented by tailored measures in key markets such as the
United States, Japan, Germany, Brazil and China.

We are developing concepts to facilitate access to our products, especially in developing and emerging
countries, as part of our “Access to Medicine” (ATM) strategy.

Online annex: 3-3-BHC-1

In the area of hormonal contraception, we collaborate in family planning programs with international
development partners. We support the World Health Organization (WHO) in the fight against neglected
tropical diseases and tuberculosis and also offer patient access programs in some markets where large
segments of the population cannot currently benefit from innovative medicines.

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3. Strategies of the Subgroups

TArGeTeD FAMiLy pLAnninG
As the world market leader in oral contraceptives, the Pharmaceuticals Division has many years of
expertise in the field of hormonal contraception. We have been supporting family planning programs of
national and international organizations for 50 years. Our support represents a significant contribution
toward achieving the United Nations Millennium Development Goals, including that of improving
maternal health. Self-determined family planning also supports the struggle against poverty and
strengthens women’s role in society. We provide a broad range of hormonal contraception methods
for family planning programs: apart from oral contraceptives, we offer monthly and three-monthly
injections and the contraceptive implant Jadelle™, a reversible long-term contraceptive method that is
effective for up to five years.
In 2013 we provided the following quantities of oral contraceptives, injections and implants to family
planning programs in developing countries. CYP* (couple-years of protection) is the number of couples
for whom one year of contraception is provided.

• Jadelle™: 3 million packs (10.5 million CYPs)
• oral contraceptives: 130 million cycle packs (8.7 million CYPs)
• injections: 9.2 million (1.7 million CYPs)

The total of 20.9 million CYPs represents a 10% increase over the previous year.

THe BAyer-uSAiD conTr AcepTive SecuriT y iniTiATive
At the same time, we are looking for new ways to improve the availability of our contraceptives.
In 2009, for example, we launched the Contraceptive Security Initiative (CSI) jointly with USAID and
introduced an oral contraceptive, Microgynon™ Fe, to the African market at a reduced price. The
CSI aims to complement subsidized aid programs by making oral contraceptives available mainly to
middle-class couples. The supply price is adjusted such that pharmacies can offer the products at
prices that match the financial resources of middle-income women and couples. At the same time,
we cover our costs and can thus provide a continuous supply beyond the five-year term of the agree-
ment. As local wholesalers and pharmacists benefit from sales, CSI has the effect of generating national
income and thus further reducing dependence on charitable support. Since December 2010 the ini-
tiative has been successively introduced in Ethiopia, Uganda, Tanzania, Rwanda, Ghana, Kenya and
Malawi; four more countries are scheduled to join the program by the end of 2014.

THe jADeLLe™ AcceSS proGr AM
Since January 2013, a partnership between HealthCare and the U.S.-based Bill & Melinda Gates Founda-
tion has been improving access to our contraceptive implant Jadelle™. Under this agreement, we have
reduced the price for our Jadelle™ implant, which was prequalified by the WHO in September 2009, by
more than half, and up to 27 million women in the world’s poorest countries can gain access to this
efective, long-acting reversible contraceptive by 2018. In 2013 the program won the CIPS (Chartered In-
stitute of Purchasing & Supply) Annual Award for “Best International Procurement Project of the
Year.”

* All CYPs are determined using the MSI Impact Calculator (Version 1.2) and the calculation basis of the U.S. Agency for International

Development (USAID). Example for oral contraceptives: 1 CYP = approx. 15 cycle packs

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3. Strategies of the Subgroups

TAcKLinG neGLecTeD TropicAL DiSeASeS
Many diseases that primarily affect the poorest sections of the population can only be tackled through
a substantial international effort. In 2012 13 pharmaceutical companies – including Bayer HealthCare
– therefore joined with the governments of the United States, the United Kingdom and the United
Arab Emirates, the Bill & Melinda Gates Foundation, the World Bank and several global health organi-
zations to launch the largest ever campaign designed to combat neglected tropical diseases. The goal
of the “London Declaration on Neglected Tropical Diseases” is to contain or, if possible, eliminate
10 of these tropical diseases by 2020. The various companies’ commitments reflect their respective
areas of expertise. For more than 10 years we have supported the WHO by providing medicines to
treat African sleeping sickness and Chagas’ disease free of charge.

We are providing the WHO with up to one million tablets of Lampit™ (active ingredient: nifurtimox
120 mg) per year, along with US$300,000 for logistics and distribution, to combat Chagas’ disease.
We are also currently developing a smaller nifurtimox tablet with a lower active ingredient content
(30 mg) to simplify the treatment of children with Chagas’ disease.

Since 2002 we have supported the WHO in the fight against African sleeping sickness – also known
as human African trypanosomiasis (HAT) – by providing 10,000 ampoules of Germanin™ per year
free of charge to combat a form of the disease that mainly occurs in eastern and southern Africa.
West African sleeping sickness, the most widespread form, can be treated since 2009 with a combi-
nation therapy (NECT) using two active ingredients – nifurtimox from Bayer and eflornithine from
Sanofi. Following completion of the clinical studies, the new treatment was included in the WHO List
of Essential Medicines. Bayer has been supplying the WHO with 400,000 nifurtimox tablets per year
for the combination therapy since 2009. The rate of new infections has declined since then.

Currently some 70% of all registered cases of HAT worldwide occur in the Democratic Republic of
the Congo. In 2013 we therefore increased our commitment to the fight against African sleeping
sickness, setting up a project for an initial term of three years during which we will provide €100,000
per year for the mobile intervention teams deployed by the WHO in DR Congo to tackle local out-
breaks. With the help of these teams, people in remote areas are gaining better access to diagnosis
and treatment. This also represents a major step toward achieving the target set by the London
Declaration on Neglected Tropical Diseases of eradicating African sleeping sickness by 2020.

new TreATMenTS For TuBercuLoSiS
The current six- to eight-month standard therapy for tuberculosis (TB) is based on four drugs that
were discovered more than 30 years ago and often have to be administered under the direct supervision
of health care professionals. The long period makes consistent treatment more difficult to achieve,
and the number of resistant strains of bacteria is therefore increasing. The available medicines are
not effective against the multi-drug-resistant TB (MDR-TB) caused by resistant bacteria. As part of the
WHO’s STOP-TB partnership, we have therefore provided our Avalox™ / Avelox™ (active ingredient:
moxifloxacin) antibiotic at a reduced price for an emergency aid program to combat MDR-TB since
2011.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

3. Strategies of the Subgroups

16 countries have joined the program since December 2011. A total of around 1.3 million moxifloxa-
cin tablets were supplied to six countries (China, Georgia, Armenia, Haiti, Russia and Indonesia) in
2013. This quantity of the drug enables the treatment of a good 2,450 MDR-TB patients for the
minimum treatment period of 18 months. Since 2005 we have also been collaborating with the U.S.-
based Global Alliance for TB Drug Development (TB Alliance) on a broadly based clinical trial program
investigating the efficacy and tolerability of moxifloxacin as part of a combination therapy to shorten
the treatment period for pulmonary tuberculosis. The results of this trial are currently being evaluat-
ed. We have committed to file for registration of moxifloxacin to treat TB and provide the drug at a
reduced price if the trial outcome is positive.

proGr AMS For iMproveD DruG AcceSS
In certain countries where large segments of the population do not have access to innovative medicines
– such as India and China, but also in the United States – patient access programs are established for
selected products. These programs, jointly run with partners from local health authorities and
non-governmental organizations, help to fill existing treatment gaps by making available innovative
products for cancer treatments, for instance, or therapeutic options for patients with chronic diseases
such as multiple sclerosis or hemophilia, for example. Some of the programs go beyond the supply
of medicines and provide patient and family support, medical personnel and access to the necessary
diagnostic facilities. The programs are developed on a local or regional basis to optimally meet
specific patient needs.

Our Consumer Health segment includes non-prescription medicines, dermatology products, blood
glucose meters, medical devices and contrast agents, as well as pharmaceutical and grooming products
for livestock and companion animals.

The goal of the Consumer Care Division is to become the market leader for over-the-counter (OTC)
medicines. We aim to achieve this mainly by exploiting the organic growth potential of proven brands
such as Aspirin™, Aleve™, Bepanthen™ / Bepanthol™ and Canesten™. In addition, we are investing heav-
ily in the Emerging Markets of Eastern Europe, Latin America and Asia. We are also utilizing external
growth opportunities in the form of acquisitions or product inlicensing, an example being the acquisition
in July 2013 of Steigerwald Arzneimittelwerk GmbH, Darmstadt, Germany, a company specializing in
non-prescription herbal medicines.

In the Medical Care Division, we continue to focus on our competitive positions in the core areas of
diabetes management, contrast agents and medical devices. In the Diabetes Care business unit, we are ex-
panding our range of products and services by developing new blood glucose monitoring systems to help
people with diabetes better manage the disease. In the Radiology & Interventional unit, our core focus is in
the areas of contrast agents, contrast agent injection systems, and thrombectomy and atherectomy sys-
tems. We are also developing new software and IT solutions to optimize contrast agent and radiation dos-
age management.

The Animal Health Division is among the world’s major producers of veterinary pharmaceuticals. We
aim to strengthen our position through organic growth, acquisitions and inlicensing.

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3. Strategies of the Subgroups

cropScience
Sustainable agriculture, higher crop yields and improved crop quality are becoming increasingly impor-
tant in view of the need to ensure adequate food supplies for a growing world population despite the
limited amount of arable land and the increased demand for animal feed and renewable raw materials.

CropScience aligns its corporate planning to long-term trends in the markets for agricultural products.

CropScience
strategy based on four
core elements

The subgroup’s strategy for future growth is built on four key elements: enhancing the Crop Protection
and Environmental Science portfolio, increasing customer centricity along the entire value chain, lead-
ing the way in the area of innovation, and expanding the Seeds business.

We aim to enhance our Crop Protection and Environmental Science portfolios by adding new and
improved products, concentrating on core brands and offering integrated solutions in major crops. We
have a significant technology platform for both chemical and biological crop protection, enabling us to
offer customers complete solutions from seed treatment through to the harvest. We are investing sub-
stantially in our production capacities to meet rising demand for our products.

Another major part of our strategy is to strengthen customer centricity along the entire value chain
and optimize distribution management. We are also steadily expanding the successful business model of
food chain partnerships in the form of collaborations with food processors and retailers. This supports
our objective of sustainably increasing our customers’ productivity. In these partnership projects, Crop-
Science works with all participants in the food chain to safeguard and increase yields and improve the
quality of harvested produce.

To lead the way in innovation, we aim to build on our expertise in the integration of seed technology
and chemical and biological crop protection so that we can develop holistic solutions.

Another key element in our strategy is the expansion of our Seeds business. We plan to further
strengthen our positions in our established crops – cotton, oilseed rape / canola, rice and vegetables –
and plan to build significant positions in soybeans and wheat. For example, we intend to gain long-term
access to high-quality breeding material through acquisitions, inlicensing and partnerships and to
steadily expand our existing breeding expertise.

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3. Strategies of the Subgroups

MATeriALScience
MaterialScience, with its high-tech polymer materials and application solutions, is helping to address
the challenges posed by population growth, the depletion of fossil resources, climate change, greater
mobility and increasing urbanization. We are continuing to develop our product portfolio, which mainly
comprises components for polyurethane foams, high-tech polycarbonate plastics and raw materials for
coatings and adhesives. In addition to product innovations, we are working on new or improved,
eco-friendly production processes that also bring cost benefits for ourselves and our partners.

MaterialScience
helps to address global
challenges

Against this background, MaterialScience is targeting long-term, profitable growth. We aim to sustain-
ably earn a premium on our capital costs and thus help to increase corporate value. We intend to safe-
guard or expand our leading competitive positions in world markets in a challenging environment. This
applies particularly to emerging economies such as China, India, Brazil and Russia.

We take sustainability principles fully into account in our business processes. We want our products to
benefit both the environment and society. We aim to continue our steady investment in process tech-
nology in order to increase safety, mitigate environmental impacts and raise efficiency.

In the Polyurethanes (PUR) business unit, we intend to safeguard our strong position on the world
market as an integrated raw material and systems supplier, mainly for rigid and flexible foams. Demand
is expected to continue increasing in the coming years. The uses for polyurethane foams include insu-
lations for buildings and refrigerated appliances. These materials thus help to reduce energy consump-
tion and greenhouse gas emissions. They also ensure added comfort in many areas of everyday life. In
line with our objective of achieving cost leadership, we are concentrating on further increasing efficien-
cy at our production facilities, partly through the use of the latest process technologies. At our site in
Dormagen, Germany, for example, we are erecting a large-scale, state-of-the-art facility for toluene di-
isocyanate (TDI), a key precursor for flexible foams. In the rigid foam sector, we are further expanding
our capacities in Shanghai, China, for the precursor diphenylmethane diisocyanate (MDI) to service the
demand in Asia.

The global market for polycarbonates is focused on Asia, which accounts for more than 60%. The
Polycarbonates (PCS) business unit has several large production facilities for this high-tech plastic in
the region. To safeguard our position in the world market, we plan to gradually increase production
capacity in Shanghai. We also aim to further improve the efficiency of our plants worldwide. This par-
ticularly lightweight and stable polymer material is used in the automotive and consumer electronics
industries and other sectors due to its versatility.

The focus of the Coatings, Adhesives, Specialties (CAS) business unit is on the production of polyure-
thane-based raw materials for coatings and adhesives. Here we aim to maintain our excellent position
in our core business and open up new, related growth areas. Our chemical expertise and years of expe-
rience in formulation development make us a preferred development partner and supplier of custom-
ized solutions for many new coating and adhesive applications that offer not only attractive design op-
tions, but also provide effective mechanical protection.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 68

4. Economic Environments of the Subgroups

See Chapter 1.6

The economic environments in which the subgroups operate are outlined below. (The economic en-
vironment for the Bayer Group as a whole is described in Chapter 1.6 “Corporate Environment.”)

economic environments of the Subgroups

[Table 3.4.1]

Growth* in 2012

Growth* in 2013

Healthcare

Pharmaceuticals

Consumer Care

Medical Care

Animal Health

cropScience

Seed and crop protection market

MaterialScience
(Main customer industries)

Automotive industry

Construction industry

Electrical / electronics industry

Furniture market

+ 3%

+ 4%

0%**

+ 4%

> 10%

+ 6%

+ 2%

+ 3%

+ 5%

+ 3%

+ 5%

– 2%

+ 3%

≥ 5%

+ 3%

+ 4%

+ 3%

* Bayer’s estimate, excluding pharmaceuticals market, source: IMS Health. IMS Market Prognosis. Copyright 2014.
All rights reserved, currency-adjusted; 2013 data provisional
** revised
as of Febrary 2014

HeALTHcAre
Growth in the pharmaceuticals market was based mainly on increased demand in the emerging econo-
mies. In the United States and a number of European countries, growth continued to be impeded by
restrictive health policies.

The consumer care market expanded somewhat faster than in the previous year, mainly due to continu-
ing high demand for non-prescription medicines in the emerging markets. A strong cold season in the
first half of 2013 facilitated market growth in North America and Europe. The slight downturn in the
medical care market was due to a weaker diabetes care market, while the market for contrast agents
and medical equipment (Radiology & Interventional business unit) was flat year on year. The animal
health market expanded at a slightly slower pace than in the previous year.

cropScience
The seed and crop protection market continued its dynamic development in 2013. Farmers benefited
from a positive market environment due to persistently low inventory levels for most agricultural com-
modities. This in turn led to strong demand for high-value seeds and for crop protection products.

Growth in the global seed and crop protection market last year was again driven by Latin America, par-
ticularly Brazil and Argentina. In North America, we also registered above-average growth rates in 2013
despite persisently cold weather and a drought at the beginning of the year. In Asia / Pacific, too, the pos-
itive overall market trend continued in 2013 with slightly higher growth than in the previous year. The
Chinese and Indian crop protection markets displayed the strongest growth momentum in the region. In
Europe, on the other hand, growth rates were below the world market average, mainly as a result of the
late start to the season and adverse weather conditions in northern Europe. Growth rates were moderate
in the Mediterranean countries but higher than average in Eastern Europe.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

4. Economic Environments of the Subgroups

MATeriALScience
Global development in the principal customer industries of importance to MaterialScience (automotive,
construction, electrical / electronics and furniture) was at a generally low level in 2013 as expected due
to the continuing economic weakness in the eurozone and the downturn in Asia.

The automotive industry registered considerably weaker global growth compared with the previous
year. Volumes continued to decline in Europe as a result of ongoing weak demand in nearly all countries.
Growth momentum also slowed in North America. The very dynamic trend continued in China, however,
while growth in the other Asian countries slowed.

Growth in the global construction sector improved compared with the previous year. While construc-
tion investment in the United States showed signs of recovering and growth in the principal Asian coun-
tries remained stable, demand in Western Europe again declined.

The global electrical / electronics industry again posted robust growth in 2013. While the previous
year’s solid growth rates persisted in North America and Asia, slight growth was recorded in Europe
(mainly driven by the Eastern European countries), following the downward trend in the prior year.

Global development of the furniture industry was weaker in 2013 than the year before. The pace of
growth in Asia slowed due to weaker domestic and export demand. Austerity programs and consumer
reticence in Europe caused the sector to shrink once again, though at a much slower rate than the
year before.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 70

5. Research, Development, Innovation

With strong and efficient research and development (R&D), a focus on growth areas and the Emerging
Markets, and a national and international network of outstanding partners, we are creating the foun-
dation for innovation and thus the company’s future success. In 2013 a total of €3,190 million (2012:
€3,013 million) was spent on research and development. This was equivalent to 7.9% (2012: 7.6%) of
sales. The number of employees working in research and development worldwide was 13,700.

Online annex: 3-5-1

For our leading experts in research and development, we offer targeted career advancement
opportunities through our Expert Career initiative. In addition, the 120-member Expert Club – headed
by the member of the Board of Management responsible for research – promotes the sharing of best
practices among scientific experts from different subgroups.

We also ensure that special contributions by individuals or employee groups are announced and
honored. For example, we bestow research awards such as the Otto Bayer Medals, which are presented
every two years to teams of scientists for outstanding achievements.

Employees use the Bayer Group’s suggestion system, known as the Bayer Ideas Pool, mainly to
propose improvements to methods or processes. In 2013 the employees once again displayed their
commitment to the company by making numerous valuable suggestions for potential improvements.
Altogether some 4,800 ideas were submitted to the Bayer Ideas Pool. Of these, 51% were implemented,
resulting in savings totaling more than €4 million by year end from the proposals implemented in
2013. We paid out a total of over €1 million in special employee bonuses for the suggestions imple-
mented.

Research collaborations with external partners from academia and industry form an integral part of our
innovation strategy. These collaborations and alliances with leading universities, public research insti-
tutes and partner companies are supplemented by incubators, crowdsourcing and science hubs in Asia
and the United States to tap into external innovative potential using the open innovation approach. Some
of our collaborations are supported by public funding.

Online annex: 3-5-2

In Germany alone, Bayer participated in more than 100 publicly funded projects in 2013, receiving
a total of about €8 million in grants. This is equivalent to roughly 0.3% of our annual R&D expenses.

Research and Development Expenses 2013

[Graphic 3.5.1]

7% (8%)

MaterialScience

27% (26%)

CropScience

2012 figures in parentheses

2% (1%)
Reconciliation

€3.2 billion

(€3.0 billion)

64% (65%)

HealthCare

Pharmaceuticals 52% (52%)

Consumer Health 12% (13%)

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 71

5. Research, Development, Innovation

www.annual-
RePoRt2013.
bayeR.Com/
PolItICal-
PosItIon-IP

Reliable, global protection of intellectual property rights is essential for an innovation company like
Bayer. At the end of 2013, we owned approximately 67,400 valid patent applications and patents
worldwide relating to some 8,700 protected inventions.

Online annex: 3-5-3

The term of a patent is normally 20 years. Since it takes an average of 12 years to develop a new
medicine, for example, only eight years of patent protection generally remain following the product’s
approval. In most cases it would be impossible to cover the substantial costs incurred in the research
and development of innovative medicines or of new indications or dosage forms for existing
drugs without patent protection. We are therefore committed to protecting both the international
patent system and our own intellectual property worldwide. You can read more about this topic in
our political positions: www.annualRepoRt2013.bayeR.com/political-position-ip.

To support the development of intellectual property rights (ipR) and copyright in China, Bayer sponsors
the ipR chair at Tongji University in Shanghai. As well as arranging law studies for more than
100 students, the chair works with Bayer – supported by the Chinese Patent Office – to organize an
annual ipR forum dealing with issues related to the protection of intellectual property.

StREnGtHEninG RESEaRCH in tHE LifE SCiEnCES
Bayer is the only global company simultaneously researching improvements in human, animal and plant
health. Systematic and intensive collaboration among researchers from both Life Science subgroups is pro-
viding new impetus. In this context, researchers from HealthCare and CropScience are collaborating on
projects involving central biological processes such as gene regulation or energy metabolism. The joint use
of technology platforms is being expanded. These projects have been supported since 2012 by Bayer’s in-
ternal “Life Sciences Fund” and are mostly implemented together with external partners.

HEaLtHCaRE
in 2013 we spent €2,040 million (2012: €1,955 million) for research and development in the Pharmaceu-
ticals and Consumer Health segments. This amounted to 63.9% of R&D spending in the Bayer Group and
was equivalent to 10.8% (2012: 10.5%) of HealthCare sales. At the end of 2013, some 7,800 employees
of HealthCare were working in research and development.

Research and development expenses in the Pharmaceuticals segment amounted to €1,654 million
(2012: €1,561 million), or 14.8% (2012: 14.5%) of segment sales. Drug discovery in the Pharmaceuti-
cals segment focuses on the areas of cardiology, oncology, gynecological disorders and hematology.
Complementing this work is common mechanism research in areas such as ophthalmology and inflam-
mation. We conduct research activities at four centers, of which two are located in Germany and two
in the United States. Work in Berlin and Wuppertal, Germany, mainly focuses on the discovery, optimi-
zation and development of new active substances. Research is also carried out at these sites in the
fields of drug metabolism, pharmacokinetics, toxicology and clinical pharmacology. Our research and
development activities in the Mission Bay district of San Francisco and in Berkeley, California, United
States, are concentrated on biologicals and hematology. We also operate innovation centers in Beijing,
China, and Singapore, through which we coordinate our research partnerships in Asia.

We conducted clinical trials with several drug candidates from our research and development pipeline
during 2013 to drive the development of new substances for treating diseases with a high unmet medical
need. Following the completion of the required studies with a number of these drug candidates, we sub-
mitted applications to one or more regulatory agencies for approvals or approval expansions.

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5. Research, Development, Innovation

We have recently launched five innovative medicines on the market. Of special importance is our antico-
agulant Xarelto™ (active ingredient: rivaroxaban). In the area of oncology, Stivarga™ (active ingredient:
regorafenib) is approved for the treatment of advanced colorectal cancer and gastrointestinal stromal
tumors (Gist) in some countries, and approvals are pending in others. In 2013 we received marketing
authorization for Xofigo™ (active ingredient: radium-223 dichloride) in the treatment of bone metastases
in prostate cancer patients. Other promising products recently launched include Eylea™ (active ingredi-
ent: aflibercept) to treat various eye diseases. Riociguat, a new substance to treat different forms of
pulmonary hypertension, was approved in the u.s. and Japan in 2013 under the trade name Adempas™.
In addition, we strengthen our products through life-cycle management to improve their value for pa-
tients and / or expand their indications.

The most important drug candidates in the approval process are:

Products Submitted for approval *

[table 3.5.1]

Aflibercept

FC-Patch low

Octocog alfa**
(recombinant Factor VIII)

Regorafenib

Riociguat

Rivaroxaban***

Sorafenib

indication

E.U.; treatment of diabetic macular edema

Japan; treatment of myopic choroidal neovascularization

e.u.; contraceptive patch

u.s.a.; prophylaxis in adult patients with hemophilia a

E.U.; treatment of metastatic and/or unresectable gastrointestinal stromal tumors

e.u.; treatment of pulmonary hypertension (CtePH)

e.u.; treatment of pulmonary hypertension (PaH)

u.s.a.; secondary prophylaxis of acute coronary syndrome

e.u., Japan; treatment of thyroid cancer

* as of February 11, 2014
** octocog alfa = active ingredient of Kogenate™
*** submitted by Janssen Research & Development, LLC

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

Research and Development Projects (Phases ii and iii) *

[table 3.5.2]

indication

amikacin inhale

treatment of pulmonary infection

BAY 94-9027 (rFVIII mutein)

treatment of hemophilia a

Ciprofloxacin DPI

treatment of pulmonary infection

lCs-16 (ulD lnG Contraceptive system)

Intrauterine contraception, duration of use: up to 5 years

Prasterone **

Regorafenib

Rivaroxaban

Treatment of vulvovaginal atrophy

treatment of refractory liver cancer

Treatment of colorectal cancer following surgical removal
of liver metastases

Prevention of major adverse cardiac events (maCe)

Anti-coagulation in patients with chronic heart failure ***

Sodium deoxycholate ****

Injection for reduction of submental fat

Sorafenib

tedizolid

Treatment of breast cancer

treatment of liver cancer, adjuvant therapy

treatment of kidney cancer, adjuvant therapy

treatment of complicated skin infections and pneumonia

Status

Phase III

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

5. Research, Development, Innovation

Research and Development Projects (Phases ii and iii) *

[table 3.5.2 (continued)]

Copanlisib (PI3k inhibitor)

Treatment of recurrent / resistant non-Hodgkin’s lymphoma

indication

BAY 85-8501 (neutrophil elastase inhibitor)

Lung diseases

bay 1021189 (sGC stimulator)

Chronic heart failure

BAY 1067197 (partial adenosine A1 agonist) Heart failure

Finerenone (MR antagonist)

Chronic heart failure

Diabetic nephropathy

Molidustat (HIF-PH inhibitor)

anemia

Radium-223 dichloride

Treatment of bone metastases in cancer

Refametinib (MEK inhibitor)

Regorafenib

Riociguat

Sorafenib

Cancer therapy

Pulmonary hypertension (IIP)

Raynaud’s phenomenon

Diffuse systemic sclerosis

Cancer therapy

Status

Phase II

*
as of February 11, 2014
** prasterone = Vaginorm
*** conducted by Janssen Research & Development, LLC
**** sodium deoxycholate = ATX-101
The nature of drug discovery and development is such that not all compounds can be expected to meet the pre-defined 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 Food and Drug Administration (FDA), European Medicines Agency
(EMA) or other regulatory approvals will not be granted for these compounds.

We regularly evaluate our research and development pipeline in order to prioritize the most promising
pharmaceutical projects.

Xarelto™ (active ingredient: rivaroxaban) has been approved for more indications than any of the
other new oral anticoagulants. Xarelto™ is registered in the following indications in the United States
and Europe:

• prevention of venous thromboembolism (Vte) in adult patients after elective hip or knee joint

replacement surgery

• prevention of stroke and systemic embolism in adult patients with non-valvular atrial fibrillation

(aF) and one or more risk factors

• treatment of deep vein thrombosis (DVt) and pulmonary embolism (pe) in adults
• prevention of recurrent DVt and pe in adults

In May 2013, Xarelto™ was additionally approved by the European Commission for the prevention of
atherothrombotic events after acute coronary syndrome (acs) in patients with elevated cardiac biomark-
ers in combination with standard antiplatelet therapy. In January 2014, the Cardiovascular and Renal
Drugs Advisory Committee of the u.s. Food and Drug Administration (FDa) voted against the approval of
Xarelto™ for the treatment of acs. The FDa will consider the Advisory Committee’s recommendations in
its review of the application for approval of rivaroxaban in this indication but is not bound by them.
Xarelto™ is marketed in the u.s. by Janssen Pharmaceuticals, Inc., a subsidiary of Johnson & Johnson.

Beyond the already approved indications, rivaroxaban is also being investigated in other cardiovascular
disorders. Ongoing clinical Phase iii trials include compass and commanDeR-HF. The aim of the compass
study is to investigate the potential of rivaroxaban in the prevention of major adverse cardiac events. The
commanDeR-HF study is evaluating the potential additional benefit of rivaroxaban in combination with
standard therapy in reducing the risk of mortality, myocardial infarction and stroke in patients with
chronic heart failure and significant coronary heart disease.

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74

5. Research, Development, Innovation

Xarelto™ is approved in more than 125 countries worldwide across all indications, its approval status
varying from country to country.

Rivaroxaban was discovered by HealthCare and jointly developed with Janssen Research & Develop-
ment, llc.

Riociguat is the first member of a new class of vasodilating agents known as soluble guanylate cyclase
(sGC) stimulators. Administered in tablet form, riociguat is currently being investigated as a new
approach for the treatment of various forms of pulmonary hypertension. Based on the Phase iii studies
cHest-1 and patent-1, we submitted riociguat in February 2013 for marketing approval in the United
States and the European Union for the treatment of inoperable chronic thromboembolic pulmonary
hypertension (ctepH) and pulmonary arterial hypertension (paH). We received the first approval in the
indication ctepH in September 2013 in Canada. In October 2013, following priority review, the FDa
approved riociguat in the u.s. under the trade name Adempas™ for use in ctepH and paH. In January
2014, we received approval for Adempas™ for the treatment of ctepH in Japan, and in the European ap-
proval process, the European Committee for Medicinal Products for Human Use (cHmp) recommended
that riociguat be approved to treat ctepH and paH. A final decision from the European Commission is
expected in the first half of 2014.

Stivarga™ (active ingredient: regorafenib) is a novel, oral multikinase inhibitor. It inhibits various signal
pathways that are responsible for tumor growth. Stivarga™ was approved in the United States in 2012
for the treatment of patients with metastatic colorectal cancer (mCRC). The Japanese Ministry of Health,
Labour and Welfare (mHlw) approved the product in this indication in March 2013. In August 2013, the
product was approved in the European Union.

In February 2013, the FDa approved Stivarga™ to treat patients with locally advanced, unresectable or
metastatic gastrointestinal stromal tumors (Gist) who have been previously treated with imatinib and
sunitinib. In August 2013, Stivarga™ was approved by the Japanese mHlw for the treatment of Gist. In
September 2013, the product was submitted for approval in this indication in the European Union.

Regorafenib is a compound developed by Bayer and co-promoted by Bayer and Onyx Pharmaceuticals,
Inc., a subsidiary of Amgen Inc., in the United States. In 2011, we signed an agreement with Onyx under
which that company receives a royalty on any future global sales of Stivarga™ in oncology.

Xofigo™ (active ingredient: radium-223 dichloride), a cancer drug jointly developed with Algeta asa,
Norway, received FDa approval in May 2013 to treat adult patients with castration-resistant prostate can-
cer (cRpc) with symptomatic bone metastases and no known visceral metastases. In November 2013, the
product was approved in this indication in the European Union. In the United States, Xofigo™ is co-pro-
moted with Algeta us, llc.

We are jointly developing and commercializing our cancer drug Nexavar™ (active ingredient:
sorafenib) with Onyx Pharmaceuticals, Inc., United States. The successful active ingredient sorafenib,
which targets both cancer cells and the vascular system of the tumor, has been registered for the treat-
ment of advanced renal cell carcinoma since 2005 and hepatocellular carcinoma since 2007. We plan to
develop the product beyond these two therapeutic areas with a broadly based life-cycle management
program. Based on the clinical Phase iii Decision study, we submitted sorafenib to the European Medi-
cines Agency (ema) and the FDa in June 2013 for regulatory approval in the treatment of locally ad-
vanced or metastatic differentiated thyroid cancer refractory to radioactive iodine. The FDa granted this
approval in November 2013 following a priority review. In September 2013, sorafenib was submitted to
the Japanese mHlw for marketing authorization for the treatment of thyroid cancer. Sorafenib is also
being investigated in Phase iii registration studies as an adjuvant therapy following curative tumor re-
section in patients with renal cell carcinoma or hepatocellular carcinoma. We are also conducting
Phase iii registration studies in breast cancer.

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5. Research, Development, Innovation

Eylea™ (active ingredient: aflibercept) is our joint developmental project with Regeneron Pharmaceuti-
cals, Inc., United States. Aflibercept blocks the natural growth factor VeGF (vascular endothelial growth
factor), thus preventing the abnormal formation of new blood vessels that tend to leak blood. The medi-
cation is administered directly into the eye. Regeneron Pharmaceuticals holds exclusive rights in the
United States, where Eylea™ is approved for the treatment of wet age-related macular degeneration
(amD) and treatment of macular edema secondary to central retinal vein occlusion (cRVo). Bayer markets
the product outside the United States. Eylea™ has been approved since 2012 in Europe, Japan, Australia
and additional countries for the treatment of wet amD. In August 2013, the European Commission ap-
proved Eylea™ for the treatment of visual impairment due to macular edema secondary to central retinal
vein occlusion (cRVo). In November 2013, Eylea™ was approved by the Japanese mHlw for the treatment
of cRVo.

The first regulatory submissions in two further indications were made in November 2013: we applied to
the ema for approval of aflibercept in the treatment of diabetic macular edema (Dme) and to the Japanese
mHlw for approval in the treatment of choroidal neovascularization caused by pathologic myopia
(mCNV).

In the area of hematology, a clinical Phase ii / iii trial with the developmental substance BAY 86-6150 did
not show the desired results and was discontinued ahead of schedule in May 2013. The trial investigated
the efficacy and safety of the substance in people with hemophilia A and hemophilia B in whom antibod-
ies to coagulation factors had developed.

We are not currently pursuing approval for the oral contraceptive YAZ™ Flex Plus in the United States.

Five new drug candidates currently in clinical Phase i or ii trials are at the focus of our early-stage devel-
opment and are to be transitioned to Phase iii trials as quickly as possible. Finerenone, a next-genera-
tion oral non-steroidal mineralocorticoid receptor antagonist, is being developed for use in cardiology.
Finerenone is currently in clinical Phase iib development for the treatment of worsening chronic heart
failure and diabetic nephropathy. The second drug candidate in cardiology is an oral soluble guanylate
cyclase (sGC) stimulator (bay 1021189). A Phase iib study in patients with worsening chronic heart fail-
ure began in November 2013. A Phase iib program with the investigational new drug molidustat is un-
der initiation for the treatment of cardiorenal syndrome in patients with anemia associated with chronic
kidney disease and / or end-stage renal disease. In oncology, copanlisib, a novel, intravenous phosphati-
dylinositol-3 kinase (pi3K) inhibitor, was selected for accelerated development. We have also progressed
toward the development of new treatment options for patients with gynecological diseases: sPRM
(bay 1002670) is a novel oral progesterone receptor modulator that shows promise in the long-term
treatment of women with symptomatic uterine fibroids.

Some of our pipeline candidates are being developed for the treatment of serious, very rare diseases –
also known as orphan diseases. For example, regorafenib was designated by the regulatory authorities
as an orphan drug for the treatment of patients with gastrointestinal stromal tumors (Gist).

Bayer regards research into cancer stem cells as promising and is active in this area together with
u.s.-based OncoMed Pharmaceuticals, Inc. Cancer stem cells are present in tumors and have typical
characteristics of stem cells, such as self-renewal and differentiation potential. Cancer stem cells are
those considered responsible for the genesis, metastasis and recurrence of cancer. However, Bayer is
not active in the area of conventional stem cell research, which examines adult or embryonic stem
cells.

Research and development expenditures in the Consumer Health segment amounted to €386 million
(2012: €394 million), or 5.0% (2012: 5.0%) of segment sales.

New drug candidates
for diseases with a high
medical need

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5. Research, Development, Innovation

In our Consumer Care Division, research and development activities at the product development centers
in Morristown, New Jersey, United States, and Gaillard, France, focus on developing non-prescription
(over-the-counter = otc) products, medical skincare products and nutritional supplements to market
maturity. Aligned to end consumers, our development strategies are geared toward expanding and
improving our brand portfolio through new products, packaging and delivery forms. We also work to
achieve reclassification of current prescription medicines as otc products. We introduced a number of
new product line expansions to various markets in 2013. They included new delivery forms and uses for
existing brands such as Canesten™ and Bepanthen™ / Bepanthol™.

The research and development activities of our Medical Care Division focus on blood glucose monitor-
ing and the continuing development of contrast agents and medical equipment used in the diagnosis or
treatment of various diseases.

At our two u.s. research and development locations for the Diabetes Care business unit – Tarrytown,
New York, and Mishawaka, Indiana – we are focusing on strengthening our product lines and expanding
into further attractive segments of the diabetes market. In 2013 we again launched a number of innova-
tive products in key markets to meet the specific needs of people with diabetes. Examples included the
Contour™ Next and Contour™ Link blood glucose meters in Europe and the new Contour™ Plus platform
in selected markets in Europe, Africa and the Middle East.

The aim of our research and development activities in the area of contrast agents and medical equip-
ment (Radiology & Interventional business unit) is to steadily improve our contrast agents and our con-
trast injection, thrombus removal and other vascular intervention systems in order to build on our lead-
ership position. Our research and development centers are located near Pittsburgh, Pennsylvania, and
Minneapolis, Minnesota, in the United States; in Berlin, Germany; and in Sydney, Australia. In 2013 we
worked to expand the capabilities of our informatics product offerings by developing new software and
informatics to improve contrast agent and radiation dose management.

In our Animal Health Division, we focus our research and development activities on antiparasitics, anti-
biotics and medicines to treat non-infectious disorders. We operate R&D centers in Germany, the United
States, New Zealand and Brazil. Our central research activities are conducted in Monheim, Germany, as
part of our Life Sciences platform in conjunction with pharmaceutical research and in close collabora-
tion with our researchers at CropScience. We reinforce the business through numerous external collabo-
rations and by inlicensing product development candidates.

Strategic cooperation
in research and devel-
opment

OPEn innOvatiOn
We gain access to complementary technologies and external innovation potential through strategic
collaborations with partners. Our Pharmaceuticals segment works with various partners during the
individual development stages of a medicine. A number of examples are listed below:

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5. Research, Development, Innovation

Pharmaceuticals Cooperation Partners

[table 3.5.3]

Partner

Algeta ASA

Cooperation objective

Codevelopment of radium-223 dichloride for the treatment of castration-resistant
prostate cancer patients with bone metastases

Amgen Research GmbH

Access to BiTE™ antibodies for developing novel tumor therapies

ardea biosciences Inc.

Codevelopment of oncological products based on MEK
(mitogen-activated ERK kinase) inhibitors

bioInvent International ab

Access to antibody library with antibody inlicensing option

broad Institute

Compugen Ltd.

Strategic partnership in oncology to discover and develop active substances
that specifically target tumor-specific gene mutations

Collaboration for the research and development of new immunotherapy
approaches in oncology

German Cancer Research Center

Strategic partnership for the development of new therapeutic options in oncology
and immunotherapy

Dyax Corp.

endoCeutics Inc.

evotec aG

ImmunoGen Inc.

Access to antibody library with the option to inlicense antibodies for the
development and commercialization of novel tumor therapies

Development of prasterone to treat vaginal atrophy and female sexual dysfunction

Research collaboration to identify and validate development candidates
in endometriosis

Cooperation in the field of antibody-drug conjugates (ADCs) for novel
tumor therapies

Inception 4, Inc.

Research into new approaches for the treatment of various eye diseases

Janssen Research & Development,
LLC of Johnson & Johnson

Ludwig Boltzmann Institutes

nektar therapeutics

novartis aG

Development of Xarelto™ (rivaroxaban)

Research into lung vascular disease, especially pulmonary hypertension, and
search for ways to treat heartmuscle weakness.

Codevelopment of a targeted antibiotic inhalation therapy for lung infections
(amikacin inhale)

Development of a targeted antibiotic inhalation therapy for lung infections
(ciprofloxacin DPI)

oncomed Pharmaceuticals Inc.

Discovery and development of novel anti-cancer stem cell therapeutics

onyx Pharmaceuticals Inc.
of Amgen Inc.

Codevelopment of Nexavar™ (sorafenib) for various types of cancer

Peking University

Research cooperation and establishment of a joint research center

Prometheus Laboratories Inc.

Development of diagnostic in-vitro assays for personalized medicine

Qiagen Manchester Ltd.

Development of diagnostic tests in personalized oncology treatment

Regeneron Pharmaceuticals Inc.

Development of Eylea™ (aflibercept) to treat various eye diseases
Development of a PDGFR-beta antibody for ophthalmology

seattle Genetics Inc.

Cooperation in the field of antibody-drug conjugates (ADCs) for novel
tumor therapies

Trius Therapeutics Inc. of Cubist
Pharmaceuticals

Codevelopment of tedizolid to treat a range of infections

Tsinghua University

Research cooperation and establishment of a joint research center

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5. Research, Development, Innovation

In 2008 we entered into a strategic alliance with the German Cancer Research Center (DKFZ) in Heidel-
berg, Germany, focusing on the identification and early development of new therapeutic approaches for
cancer. This collaboration is designed to turn new scientific findings about cancer into new medicines or
therapies as quickly as possible. A total of 26 projects have been initiated so far that relate to biological
target identification for drug discovery or to early drug discovery. In April 2013, we expanded the collab-
oration to include immunotherapy. The first projects in this field began in June 2013.

Also in June 2013, we concluded a new licensing agreement with Seattle Genetics, Inc., United States,
in the area of antibody-drug conjugates (aDcs). Under this agreement, we will receive worldwide rights
to utilize Seattle Genetics’ special aDc technology for antibodies to several protein targets in the field
of oncology.

In August 2013, we signed a collaboration and licensing agreement with Compugen Ltd., Israel, pertain-
ing to the research, development, and commercialization of antibody-based therapeutics for cancer im-
munotherapy.

In September 2013, we entered into a strategic alliance with the Broad Institute, Cambridge, Massachu-
setts, United States, in the area of oncogenomics and drug discovery. The goal of this five-year collabo-
ration is to jointly discover and develop therapeutic agents that selectively target cancer genome alter-
ations.

In November 2013, we entered into a collaboration with Inception Sciences, Inc. and Versant Ventures,
both in the United States, to conduct early research in the area of ophthalmology. The goal of the new al-
liance is to develop innovative treatment options for patients with eye diseases, such as wet age-related
macular degeneration and geographic atrophy. This work will focus on a novel target and pathway and
will be carried out by Inception 4, Inc., United States.

In January 2014, we signed an agreement with Regeneron Pharmaceuticals, Inc., United States, to joint-
ly develop an innovative antibody to the platelet-derived growth factor receptor beta (pDGFR-beta) as a
potential combination therapy with Eylea™ (aflibercept) for the treatment of wet amD. The first clinical
studies in this indication are scheduled to start in early 2014.

In January 2014, Bayer and Peking University, Beijing, China, signed a collaboration agreement on a
three-year strategic partnership to promote translational research for drug discovery. Under this agree-
ment, the two partners will establish a joint research center at Peking University.

Since 2009, we have operated the internet platform “Grants4Targets,” through which researchers at uni-
versities, other research institutions or start-up companies can propose biological targets for study in
collaboration with Bayer. In 2013 we expanded this platform to include two further initiatives – “Grants-
4Leads” and “Grants4Apps”: “Grants4Leads” gives chemists and pharmacists the opportunity to submit
biologically active molecules as leads for collaboration with Bayer. This program adds a chemical com-
ponent to the biology-oriented Grants4Targets initiative. “Grants4Apps” is a portal for proposing it solu-
tions designed to enable a wide range of applications in the area of health care. Unlike the first two plat-
forms, which are important for early research, “Grants4Apps” looks for applications that can be used
from the research stage right through to commercialization. The program saw a very successful rollout
in 2013, with 22 grants already awarded.

In 2012, we opened the CoLaborator™, a new center in the Mission Bay district of San Francisco with
laboratory facilities for bioscience startup companies. With this incubator concept, the scientists benefit
both from the laboratory infrastructure and from the expertise of the Bayer researchers, which can facili-
tate the professional, goal-oriented design of development programs, for example. At the same time, we
aim to be the first contact point for young companies in their search for possible cooperation partners.
A second CoLaborator™ is currently being established at the Berlin site.

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5. Research, Development, Innovation

CROPSCiEnCE
In 2013, CropScience invested €857 million (2012: €779 million) in research and development, which
was 26.9% of R&D spending in the Bayer Group and equivalent to 9.7% (2012: 9.3%) of CropScience
sales.

CropScience maintains a global network of research and development facilities employing some 4,700
people. Our largest R&D sites for chemical and biological crop protection products are located in Mon-
heim and Frankfurt am Main, Germany; Lyon, France; and Davis, California, United States. The major
research centers of the Seeds unit, which focuses on improving seed through seed technology and
breeding, are located in Ghent, Belgium; Haelen, Netherlands; and Morrisville / Raleigh, North Carolina,
United States. While research is carried out centrally at a small number of sites, our development and
plant breeding activities take place both at these sites and at numerous field testing stations across the
globe. This ensures that future active substances and crop varieties can be tested according to specific
regional requirements.

In Crop Protection / Seeds, our scientists working in the areas of seed technology, agricultural chemistry
and biologics are closely collaborating as part of our integrated research approach. This bundles the
technical expertise acquired in chemical and biological research and field development, aligning it to
our long-term research objectives and business strategies for the various crops.

In the Crop Protection unit, we identify and develop innovative, safe and sustainable products for use
in agriculture as insecticides, fungicides, herbicides or seed treatments. In the fields of chemistry, biolo-
gy and biochemistry, modern technologies such as high-throughput screening and bioinformatics play
an important role in identifying new chemical lead structures. Collaborations with external partners
complement our own activities.

In January 2013, CropScience acquired the German agrochemical company Prophyta Biologischer
Pflanzenschutz GmbH. The transaction enables CropScience to further expand its research and product
pipeline in the area of biological crop protection. The acquisition is also intended to promote the devel-
opment of a leading technology platform for biological products and strengthen the fruit and vegetables
business.

We are broadening the range of uses for our active ingredients by developing new mixtures or innova-
tive formulations of products already on the market so that they can be applied in additional crops or be
made easier to handle.

In mid-2014 we will combine our u.s. research and development activities in vegetable seeds and bio-
logical crop protection products at a new, integrated site in West Sacramento, California. Our goal is to
better exploit the potential of our global research and development capacities by merging and expand-
ing activities.

We plan to launch several more new products based on biological and chemical crop protection mecha-
nisms in the coming years. For example, in 2014 we plan to introduce an insecticide to control nema-
todes under the Verango™ and Velum™ trademarks. In 2015 we expect to launch a further insecticide
under the Sivanto™ brand, a new insecticide class to control sucking insects, and begin marketing the
herbicide Council™ and a biological fungicide.

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5. Research, Development, Innovation

Research in our Seeds unit is devoted to optimizing plant traits. We are developing new varieties in our
existing core crops – cotton, oilseed rape / canola, rice and vegetables. We have now expanded our
research activities to include two new core crops – wheat and soybeans. Our work focuses on improving
the agronomic traits of these crops. Our researchers are working to increase the quality and yield
potential of crop plants – for example, by improving the profile of rapeseed (canola) oil or enhancing the
properties of cotton fibers. We are also targeting the development of plants that have high tolerance
against external stress factors such as drought and can better utilize water. Further areas of focus
include developing new herbicide tolerance technologies based on alternative modes of action, and
improving insect resistance and disease tolerance. To do this we employ modern breeding techniques
ranging from marker-assisted breeding to plant biotechnology methods.

In March 2013, CropScience acquired the soybean seed producer Wehrtec Tecnologia Agricola Ltda.
and the soybean business of Agricola Wehrmann Ltda., both headquartered in Brazil. This transaction
strengthens the research and development activities of CropScience in soybeans and contributes to the
development of varieties tailored to the requirements of Brazilian soybean growers.

Also in March 2013, CropScience and Syngenta filed for approval of a new herbicide-tolerance soybean
trait in various countries. The application is currently being reviewed by the regulatory authorities in the
United States, Canada, and major soybean-importing regions, including the European Union. This trait
gives soybean plants tolerance toward the three active ingredients mesotrione, glufosinate-ammonium
(Liberty™) and isoxaflutole, and is an important new way to combat difficult-to-control weeds. Its esti-
mated launch date is between 2015 and 2020.

In April 2013, CropScience and Monsanto Company, u.s.a., entered into licensing agreements for
next-generation technologies in the field of plant biotechnology. Monsanto will provide CropScience
with a royalty-bearing license to herbicide tolerance technologies in soybeans in the United States and
Canada. In addition, CropScience will receive a royalty-bearing license to an insect-resistance technolo-
gy in soybeans in Brazil with an option on a royalty-bearing license in other Latin American countries.
CropScience will grant Monsanto licenses to evaluate technologies for corn rootworm control and herbi-
cide tolerance.

In December 2013, CropScience acquired the start-up company Fn Semillas s.a., headquartered in Ar-
gentina. Closing of this acquisition remains subject to regulatory approvals. Fn Semillas s.a. specializes
in the breeding, production and marketing of improved soybean seeds in Argentina. This acquisition
marks CropScience’s entry into the Argentinian market for soybean seeds.

In 2013 we also successfully launched Roundup-Ready™ hybrid canola seed in Australia and began mar-
keting an oilseed hybrid in India. Here we introduced our mustard seed to the market.

Our proprietary glyphosate herbicide tolerance technology GlyTol™ has been available in FiberMax™
cotton seed varieties in the United States since 2011. In 2014, we plan to launch a new combination of
insect resistance and herbicide tolerance for cotton containing both TwinLink™ and GlyTol™ technology,
which will offer farmers integrated pest and weed control.

In the coming years we plan to market numerous new hybrid rice and canola varieties with improved
stress and insect resistance under the Arize™ and InVigor™ trademarks.

With many crops, such as vegetables, major success can be achieved using conventional plant breeding
methods. As vegetables are mostly intended to be marketed and eaten fresh, merchants and consumers
have particularly strict requirements regarding their appearance, nutrient content, taste and shelf life.
We are launching a succession of new vegetable seed varieties that satisfy these requirements.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 81

5. Research, Development, Innovation

Our integrated product pipeline for crop protection and seed technology contains more than 25 individu-
al projects, along with numerous new seed varieties and improved products, that have estimated launch
dates between 2011 and 2016. We believe these products have a combined peak sales potential in ex-
cess of €4 billion. Crop Protection plans to have launched around 10 products during this period. In our
Seeds business, we plan to bring some 15 projects to market maturity for the broad-acre crops of cotton,
oilseed rape / canola, rice, wheat and soybeans, along with several hundred new vegetable varieties, over
the same period.

In Environmental Science, we evolve chemically and biologically based solutions for consumers and
professional users by tailoring substances from our Crop Protection unit or external partners for use in
non-agricultural scenarios. Current development projects include insect gels and baits, herbicides, fun-
gicides and products for the control of disease-transmitting insects.

In 2013 Environmental Science expanded its range of biological solutions by adding to the Natria™
product line for the Bayer Garden™ business in the United States and Europe, and launched Harmo-
nix™ Insect Control, the first biological insecticide for professional pest control, in the United States.
The launch of Marengo™ for use on ornamental plants in the United States broadened our range of her-
bicides based on the active substance indaziflam. The golf course business was strengthened by the
market launch of the fungicide Interface™ in the United Kingdom and South Korea and the herbicide
Specticle G™ in the United States. The product range for professional pest control was expanded in
numerous countries to include a new formulation of the insecticide Maxforce™.

Online annex: 3-5-BCS-1

On the European market we offer a mild weed control product based on fatty acids derived from
palm oil. As the production of palm oil is often associated with social and ecological problems, Bayer
joined the Round Table for Sustainable Palm Oil (Rspo) in 2012. This underscores our commitment
to responsible materials procurement. Bayer purchases GreenPalm certificates, which support the
production of sustainable palm oil.

OPEn innOvatiOn
CropScience is part of a global network of research and industry partners from diverse segments of the
agriculture industry, chemical and biological research, and the food industry. These cross-industry part-
nerships enable us to better understand and do justice to the needs of our customers over the long term.
An example is the partnership between CropScience and the u.K.-based Innovative Vector Control Con-
sortium (iVcc), which we extended by three years in 2012. We are cooperating with iVcc to develop new
substances for use against mosquitoes that transmit diseases such as malaria and dengue fever.

Online annex: 3-5-BCS-2

Malaria, for example, remains one of the most dangerous tropical diseases and is the leading cause
of mortality in children under the age of five. Bayer has played an active role in the fight against malaria
for more than 50 years. We estimate that indoor and outdoor insect sprays and larvicides from
CropScience provided protection for up to 70 million people against malaria and for up to 30 million
people against dengue fever in 2013. Dengue is currently the fastest-spreading mosquito-borne
disease in tropical regions.

CropScience is a leading producer of indoor insecticide sprays to control malaria mosquitoes. Over
the past three years, the Environmental Science product Ficam™ has played a particularly important
role in controlling mosquitoes resistant to pyrethroids.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 82

5. Research, Development, Innovation

In 2013 these activities reached an important milestone: The World Health Organization issued a
recommendation for a new, long-acting and thus more cost-effective, deltamethrin-based spray insecti-
cide that offers a possible alternative to the older insecticide DDt (dichlorodiphenyltrichloroethane) for
indoor use. It is planned to introduce the product in selected Sub-Saharan African countries and other
malaria-endemic areas in 2014 as soon as the respective national approvals have been obtained.

CropScience also maintained its wheat research collaboration with the Commonwealth Scientific and In-
dustrial Research Organisation (csiRo) in Australia. This strategic collaboration, which began in 2009, is
aimed at raising wheat yields and thus boosting global wheat production in the long term.

However, it is a long way from the breeding, cultivation and protection of crop plants to the production
of healthy food products with a good shelf life and their distribution to retailers. Special mention should
therefore be made of our food chain partnerships, in which CropScience supports all the players in the
food chain – from farmers and food processors to importers, exporters, wholesalers and retailers. Crop-
Science has initiated food chain partnership projects for over 40 crops in more than 30 countries, mainly
in Asia, Latin America and Europe. Our experts advise farmers on sustainable growing methods – from
seed selection and the controlled, eco-friendly use of crop protection products to the transparent moni-
toring of production.

Our cooperation with partner organizations in joint projects is now an internationally successful busi-
ness model for all participants in the food chain. Small farmers in developing and emerging economies
draw particular benefit from the improved production and marketing structures. In 2013 we continued to
expand our partnerships in Latin America. An example is the project in Chile in which we work together
with Walmart and lettuce growers to ensure the traceable production of lettuces. In Peru we are current-
ly collaborating with PepsiCo and potato farmers to ensure sustainable potato chip production that con-
serves natural resources, creates value for developing communities and makes potato-growing more ef-
ficient by optimizing the use of crop protection products.

MatERiaLSCiEnCE
In 2013, MaterialScience spent €208 million (2012: €241 million) for research and development. The
subgroup thus accounted for roughly 6.5% of the Bayer Group’s R&D expenses. The ratio of R&D expens-
es to sales in the subgroup itself was 1.9% (2012: 2.1%). In addition, MaterialScience spent €97 million
(2012: €115 million) on joint development projects with customers.

A total of about 1,100 people were employed in research and development in 2013, many of them at Inno-
vation Centers in Leverkusen, Germany, and Pittsburgh, Pennsylvania, United States, or the new facility for
the Asia / Pacific region that opened in Shanghai, China, in 2013. This increase in our local presence is
aimed at bringing research and development even closer to our customers in the Emerging Markets.

Our activities in the Polyurethanes (PUR) business unit focus partly on the continuing development of
polyurethane rigid foam as a highly efficient insulating material for buildings and refrigerated applianc-
es. Our principal goal in this respect is to further improve the material’s insulating and flame retardancy
properties. Among the most recent innovations is an especially fine-pored foam with up to 10% lower
thermal conductivity than conventional polyurethane rigid foam.

Our research and development activities are also directed toward meeting the growing demand for add-
ed comfort. Our innovative solutions in this area include viscoelastic polyurethane flexible foam that is
increasingly being used in furniture and mattresses.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 83

5. Research, Development, Innovation

We have made significant progress in recent years in the area of process development. We are currently
working with carbon dioxide as a new source of carbon for polyurethanes to make us less dependent on
petrochemical raw materials. In 2013 we completed the “Dream Production” research project in this
field. We also pressed ahead with plans for the commercial exploitation of this new technology.

Our research and development activities in the Polycarbonates (PCS) business unit are geared to the de-
velopment of new products – mainly for the automotive and electrical / electronics industries – that help
to reduce weight, improve energy efficiency and safety, and increase design freedom.

Materials we have developed and introduced for the consumer electronics sector include extra light-
weight, glass-fiber-reinforced materials for ultramobile laptop computers and other applications.

For the automotive industry, we are developing not only lightweight solutions but also materials and sys-
tems for high-quality, individual car interior designs. Here the “DirectCoating / DirectSkinning” technolo-
gy co-developed by MaterialScience enables the efficient manufacture of coated components in a single
production step. We also offer sustainable solutions for car bodies, laptop housings and other items us-
ing recycled plastics.

In the Coatings, Adhesives, Specialties (CAS) business unit, we are driving the development of raw
materials for high-performance polyurethane coatings, adhesives and sealants. These are used in areas
such as renewable energies, mobility and infrastructure facilities, as well as for textiles and sporting
goods.

Our development activities are directed toward eco-friendly products that consume less resources and
can be more efficiently applied. Here we are concentrating on low-solvent, solvent-free and waterborne
systems. The use of renewable raw materials is also playing an increasingly important role. In addition
to the conventional application areas, we aim to open up lucrative market segments by continuously
evolving our product and technology portfolio.

Our activities in Functional Films center on products based on polycarbonates or thermoplastic polyure-
thanes, into which holographic functions can also be incorporated for attractive markets such as 3D flat
screens.

OPEn innOvatiOn
In line with the open innovation approach, MaterialScience collaborates with external scientific institu-
tions and with academic spin-offs and start-up companies. These collaborations are mainly based in Eu-
rope, the United States, China or Japan. They focus on areas such as renewable raw materials and ener-
gies, and new composite materials for lightweight construction.

Our partners include RwtH Aachen University in Germany, with which we jointly operate the cat Catalyt-
ic Center, as well as Tongji University in China and several institutes of the Chinese Academy of Science.
In the United States, too, we support research activities at renowned universities such as Pennsylvania
State University, Case Western Reserve University, Carnegie Mellon University, Virginia Polytechnic In-
stitute and State University. Key areas here include functional materials, renewable raw materials and
fundamental subjects such as new crosslinking mechanisms for polymers.

In the scientific field, we take either a leading or an advisory role in numerous publicly funded projects,
as in the area of “sustainable chemistry” in the German research cluster SusChemSys and in the pro-
gram run by the German Federal Ministry of Education and Research aimed at using co2 as a building
block for plastics. We also participate in industry associations and other specialist bodies such as the
German Chemical Society (GDCh), the DecHema Society for Chemical Engineering and Biotechnology in
Germany and the American Chemical Society.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 84

6. Sustainability

Our innovation capability is also spurred by collaborations with customers or other industry sectors. Ex-
amples here include the “future_bizz” corporate network or “clib2021,” which is concerned with renew-
able raw materials. We aim to work with the best partners from the industry sectors that are important to
us in order to combine competencies and turn them into innovations.

Technology Services
supports all bayer
subgroups with tech-
nology platforms

BayER tECHnOLOGy SERviCES
Bayer Technology Services is an important innovation partner to the subgroups in the areas of techno-
logical development, plant construction and production. All Bayer subgroups work closely with this ser-
vice company worldwide on technology solutions, particularly in the fields of process technology, engi-
neering, and the safe and efficient operation of production facilities.

Online annex: 3-5-4

Together with the subgroups, Technology Services is developing process technology, biotechnology
and systems biology platforms to support the research, development and production of new products
and applications, with the focus on open innovation. Development activities at the inVite research
center, a collaborative venture with Dortmund Technical University, include work on new flexible,
modular production concepts. At the Joint Research Center on Computational Biomedicine, a collabo-
ration with RwtH Aachen, computer-assisted models and methods for investigating fundamental
biological mechanisms are researched and developed for clinical use together with Aachen University
Hospital.

6. Sustainability

To us, sustainability basically means future viability and it forms an integral part of our business
strategy. We are convinced that we can only achieve lasting commercial success if we balance economic
growth with ecological and social responsibility.

Responsible business practices are the foundation of the Bayer Group‘s sustainable alignment. We can
identify and mitigate risks at an early stage by implementing this alignment in the areas of compliance
(e.g. anti-corruption and responsible marketing), human resources policy, product stewardship, health,
environmental protection and safety, and supplier management. This is one of the key requirements for
society’s acceptance of our business. On this basis, we aim to contribute to overcoming global challeng-
es with our innovations, and in so doing develop additional business opportunities.

In addition, we identify opportunities and risks by analyzing the expectations of important stakeholders.
We match these up with our own assessment, thereby deriving the relevant fields of action for Bayer.
We document the findings in a materiality matrix.

Online annex: 3-6-1

The analysis takes place through regular dialogue with and surveys of external and internal stake-
holders. Within the context of a stakeholder process, we examined, restructured and refocused the
existing materiality matrix in 2011 together with an international think tank. This process involved
external surveys, internal workshops, benchmarking and analyses. We are planning a new materiality
analysis for 2014.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT
85

6. Sustainability

Essential fields of action

[Graphic 3.6.0-1]

• New technologies:

• Product stewardship 4

biotechnology, nanotechnology 1

• Innovation 5

• Safeguarding of jobs 2

• Counterfeits 3

• Business ethics & transparency 6

• Resource availability 7

• access to health care 8

• Human rights 9

• Intellectual property /

patent protection 10

• Sustainable food supply 11

• Climate change 12

• social commitment 13

• Human capital 15

• Animals in scientific research and

alternative methods 14

• Diversity 16

• safety 17

• Supplier management 18

• environmental protection 19

s
r
e
d

l
o
h
e
k
a
t
s

l
a
n
r
e
t
x
e

r
o
f

e
c
n
a
v
e
l
e
R

h
g

e
t
a
r
e
d
o
m

w
o

low

moderate

high

Bayer relevance

1 New technologies: managing risks & opportunities
2 Commitment to job security
3 Fighting health risks posed by counterfeits
4 Product safety, REACH, monitoring impact of endocrines and active ingredients in the environment,

HCFCs and withdrawal of wHo Class I products
5 Innovation to meet customer and societal needs
6 Incl. compliance, integrity, anticorruption, responsible marketing & sales practices
7 Promoting energy efficiency, efficient resource use (e.g. water, energy) and switch to renewables where possible
8 Facilitating greater access to health care through R&D, differentiated pricing, patent protection, collaboration etc.
9 Respect and promotion of human rights throughout the value chain, incl. the abolition of child labor
10 Safeguarding IP while providing access to products and innovations
11 Contributing to sustainable food production, supply and availability
12 Climate protection through mitigation & adaptation
13 Social investment and social volunteering programs
14 Reduced use of animals where possible, commitment to welfare of animals as part of scientific R&D process
15 Comprises employee training & development, remuneration, benefits, recruitment, retention
16 Ensuring a sound diversity of gender, ethnic background etc. of employees
17 Ensuring occupational, process & plant and transportation safety
18 Promoting fair and constructive relations and influencing sustainable behavior in the supply chain,

incl. ESG performance and human rights

19 Reducing environmental impacts of products and processes on water, air, soil, supporting biodiversity

Our stakeholder engagement, i.e. the integration of different target groups, provides an important basis
and is necessary for better mutual understanding.

Online annex: 3-6-2

As a socially engaged, globally active company, we know that this understanding can only be achieved
through open and transparent dialogue with all relevant stakeholder groups. We view a systematic
stakeholder dialogue not only as an important foundation for acceptance, but also above all as a basic
condition for enabling us to understand and analyze the viewpoints and expectations of our stakeholders
at an early stage. We aim to create trust in our work, and take the views of our stakeholders seriously.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

6. Sustainability

We seek targeted dialogue both with stakeholders who are directly impacted by our business activity
and with those who for their part directly or indirectly exert influence on our operations. We divide the
main stakeholders with whom we interact into four groups: partners, financial market participants,
regulators and a wide variety of social interest groups. Below we give an overview of our engagement
with the various stakeholder groups relevant to us, drawing on selected examples from 2013.

StakEHOLDER DiaLOGuE at BayER
Bayer considers itself a part of society and of public life. Society’s acceptance and appreciation
of our corporate activities are therefore essential to our reputation and business success.

The influence of stakeholders has grown continually over the last few years. We are therefore
seeking interaction with players relevant to us at local, national and international level.

In doing so, we evaluate various trends, opinions and suggestions to take these into account as far
as possible in our commercial decision-making processes. The same applies when our assessments
differ from those of our stakeholders and thus harbor a certain potential for conflict. Against this
backdrop we have to find some flexibility in our decision-making through constructive discussions
with representatives of our stakeholder groups. This approach helps us to identify social and
market trends early, avoid risks, assess our contribution and thereby set focus areas for our activities.

At Bayer, we systematically involve our stakeholders using the stakeholder engagement process,
which is set out in a manual for our employees. This process describes how – throughout the Group
and on a project-by-project basis – stakeholder groups can be identified, their expectations charted
and dialogue with them steered. The engagement process requires regular review and needs to
be reflected against social trends. The focus is on objectives, personal commitment and an ade-
quate consideration of the needs of target groups, as well as efficiency and effectiveness.

To ensure the long-term acceptance and appreciation of our corporate activities, we plan to link
our stakeholder engagement even more closely to corporate strategy in the future. In the second
half of 2012, we therefore launched a project whose initial phase includes a review of our current
stakeholder engagement. As well as various workshops – including at top management levels –
this involved conducting comprehensive benchmarking and best practice analyses. Based on the
results from these, previous stakeholder activities and our experience with the Stakeholder Check
(a tool for identifying and evaluating stakeholders in connection with new investment projects),
we developed a new concept that concentrates on stakeholder engagement in investment projects
and new product launches. We are currently conducting training in our subgroups to test the con-
cept in practice and develop it further.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT Stakeholder Engagement Process

[Graphic 3.6.0-2]

6. Sustainability

Preparation

Controlling

Identification

Interaction

Characteri-
zation

Strategy
development

Prioritization

Clustering

Our current stakeholder activities range from targeted dialogue locally, nationally and internationally
at both Group and subgroup level, through active participation in committees and specialist work-
shops, to comprehensive information programs and involvement in international initiatives and
collaborations. We believe that stakeholder engagement is only successful when we adapt the form
the dialogue takes to the individual stakeholder situation. Our stakeholder dialogue therefore includes
both communication with the individual target groups and also issue-related multi-stakeholder events.
We use surveys to determine which issues are particularly important to our stakeholder groups. For
2014 we are planning a review of the most significant issues for us, involving relevant stakeholders in
the process. The next major Group-wide employee survey is scheduled for 2014.

We distinguish between four stakeholder groups with whom we have most interaction – partners,
financial market participants, regulators and a wide variety of social interest groups. Selected exam-
ples from 2013 are elaborated on below to provide an insight into our involvement with the various
stakeholder groups relevant to us.

OuR PaRtnERS: CuStOMERS, SuPPLiERS, EMPLOyEES, aSSOCiatiOnS,
univERSitiES anD SCHOOLS

Customers
Our conduct toward customers is shaped in particular by a sense of responsibility. The long-term success
of our company is essentially dependent on both the provision of innovative products, and a partner-
ship-based relationship with our customers together with a high level of satisfaction on their part. In our
view, products that satisfy customer demands while at the same time providing a benefit to society are
the key to sustainability and business success. Our diversified business means that our products and
customer structures vary greatly. The three Bayer subgroups have therefore put in place both specific
systems for measuring customer satisfaction and their own complaint management systems.

HealthCare’s divisions maintain their own active dialogues with target groups that vary significantly
due to their portfolios. The sales organizations of the divisions carry out various satisfaction studies –
for example with physicians from different disciplines, or with pharmacists and other partners in the
health care system. Furthermore, customer studies are carried out and systematically evaluated so
that we can better understand the needs of patients, health care staff, hospitals, wholesalers, and
public and private payers.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 88

6. Sustainability

However, different legal requirements apply for prescription medicines than for non-prescription or
medicinal products. This makes the conditions under which customer satisfaction data are gathered
in the health sector correspondingly complex. For example, patients may not be surveyed directly
about the effects and side effects of prescription medicines. HealthCare therefore conducts primary
market and data research.

The Global Market Research function in the Pharmaceuticals segment initiated a study in 2012 to
evaluate the satisfaction of approximately 3,000 physicians in six countries. The second phase, which
includes another six countries, was launched in 2013.

As the link to German customers, Bayer Vital, HealthCare’s distribution company in Germany, tracks
key success parameters relating to customer service issues. These include, for example, the obser-
vance of delivery dates and / or specifications on the part of external logistics companies, complaints
concerning orders or deliveries and telephone availability. In this connection, various performance
indicators were defined that provide information about availability and are analyzed.

At Animal Health, the methods for measuring customer satisfaction are dependent on the market
segment. The division also carries out market research projects on specific disease-related issues and
measures satisfaction with its own products.

Feedback and answers to questions about HealthCare products and services are made available
online by the relevant business units and country organizations. In Germany, these include Bayer
Vital and HealthCare Germany with the website www.GesunDHeit.bayeR.De/De/seRVice/
KunDenseRVice/inDex.pHp, in German only.

To enable it to ensure optimal service in the long term, the customer service center has a quality
management system certified to iso 9001:2008.

CropScience investigates the satisfaction of its customers using standardized surveys as part of its
commercial excellence activities, among other tools. In addition, CropScience plans to completely
overhaul its internal customer relationship management (cRm) processes by the end of 2014. The
goal is to come to a new understanding of cRm that concentrates less on technical aspects but rather
is more consistently aligned to customer requirements. Alongside the farmers, this new approach
also focuses on distribution channels and disseminators in both complex, developed markets and
smaller ones. A centralized, global cRm platform will also standardize core processes.

At MaterialScience, four regional Supply Chain Centers serve as the central link to the customer. This
enables the pooling of all information streams from order acceptance to dispatch planning, delivery
and complaint acceptance in the Europe / Middle East / Africa, Latin America, naFta and Asia/Pacific
regions. Through the online information platform BayerONE, MaterialScience customers can check
the status of their orders at any time.

The subgroup’s supply, production and delivery processes are certified to Din iso 9001 and are
regularly audited both internally and externally.

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6. Sustainability

Customer satisfaction data are systematically compiled at MaterialScience, too. To ensure optimal
quality of service, customers are surveyed, their complaints systematically evaluated in the global
complaints management system, and the supplier evaluations performed by customers analyzed in
detail. A new complaints management system was introduced in 2013 to enable complaints to be
processed better and more quickly. The customer satisfaction analyses are conducted separately by
the individual business units. The results flow directly into quality management and the continuous
improvement process.

Suppliers
Procurement of products and services in differentiated markets and locations represents a particular
challenge for our procurement organization. Dialogue with our suppliers is essential to ensure
smooth production routines and should bring transparency into the business relationships and help
build up reliable relations. Our goal is to enable our suppliers to better understand the principles of
our procurement policy and our requirements, particularly as regards sustainability. In return, we
would like to know more about the suppliers’ situation, so as to be able first to identify obstacles and
second to develop innovative solutions together. To this end, we again arranged numerous initiatives
and events with our suppliers worldwide in the reporting year.

Together with other companies, we are active in the “Together for Sustainability” (TfS) initiative for
greater sustainability in the supply chain. The newly developed website offers, for example, online
training courses in various aspects of sustainability.

In 2013 HealthCare held Supplier Days in the Chinese cities of Shanghai and Beijing that focused
particularly on sustainability. The Pharmaceutical Supply Chain Initiative (psci), assisted by Health-
Care, held the first capability building conference for suppliers, focusing on occupational safety, in
Rome, Italy, in May 2013. In July 2013, MaterialScience presented sustainability issues at a regional
Supplier Day in Shanghai, China. Bayer’s Indian national company again organized a local Supplier
Day in Mumbai, India, in October 2013. During this event, the BayBuy Awards are presented every
year, which include recognition of the most sustainable suppliers in India.

In September 2013, we introduced the Bayer Safety Award for contractors. This newly established
prize for exceptional safety work is based on an initiative on the part of Procurement and HseQ
(Health, Safety, Environmental Protection, Quality) and is to be awarded for the first time in 2014.

In December 2013, the second Group-wide global town hall meeting of the Procurement Community
took place at the Leverkusen site in Germany. Live transmission enabled colleagues at international
sites also to take part. The town hall meeting provided the opportunity to put questions about
sustainability in the supply chain directly to the relevant subgroup heads of procurement and to find
out about current developments in supplier management.

Employees
The expertise and commitment of our employees safeguard our business success. To sustain such
success, the Bayer Group needs a modern human resources and talent management organization
with competitive structures and processes. This includes regularly providing up-to-date information
to our workforce, as well as involving our employees through active and targeted dialogue.

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6. Sustainability

Examples of Employee Dialogue

[table 3.6.0-1]

aCtivE EMPLOyEE DiaLOGuE at aLL LEvELS

CEO blog “What’s important to me”: intranet blog by

Ongoing

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

“Bayer Talk” with the Chairman of the Board of Management

once a year

Town hall meetings followed by a question-and-answer session

Quarterly with Chairman of the board of

Management Dr. Dekkers from company head-

quarters, broadcast to all Bayer sites worldwi-

de, and at unspecified intervals in the sub-

groups and service companies as well

Global Leadership Conferences with workshops

at least once a year

Global employee surveys

Regularly, every 18 months; the next will be

in March 2014

fORuMS fOR tHE ExCHanGE Of infORMatiOn aBOut CHanGES in

tHE COMPany

Information meetings for managerial employees

Regularly at company headquarters for

Employee assemblies

the holding company and at all subgroups

and service companies

Regularly, at unspecified intervals,

at least once a year at German sites

European Forum: discussion between the Board of Management

once a year

and bayer employee representatives from all european countries

where bayer has sites

DiSCuSSiOnS On PERfORManCE, MOtivatiOn anD

DEvELOPMEnt PERSPECtivES

Mandatory feedback discussions as part of the Bayer Performance

Ongoing

Management Process and the Bayer Development Dialogue

360° feedback for managers

Optionally on request as part of the Develop-

ment Dialogue

ExaMPLES Of iSSuE-SPECifiC DiaLOGuES anD EvEntS

fOR DiffEREnt EMPLOyEE GROuPS

W11 dialogues: national and international stakeholders in discourse

Regularly, at unspecified intervals

with Bayer’s top management

Expert Club Meeting: exchange of experiences on the theme of

at least once a year

innovation among the scientific network of experts comprising Bayer

scientists from the R&D units and the member of the Board of

Management responsible for Innovation, Technology & Sustainability

Process and Plant safety symposium with approximately 100 bayer

every two years

experts from around the world and international experts

Global Safety Day

Continuing education events in the areas of compliance, human
rights, sustainability in procurement, and diversity

Every September

Ongoing (see Online Annex 3-7-5)

Regular discourse in the global Public & Governmental Affairs

Regularly

Community on political developments and framework conditions

relevant to the Group

“Meet HR” series – staff from the HR department meet personally

Regularly in Germany, international roll-out

with employees to discuss key issues in more detail

All subgroups hold issue-specific employee events

launched

Ongoing

worldwide.

MEDia fOR EMPLOyEES

Bayer Group publications: print and online

Employee magazines; intranet; numerous

newsletters and occasion-related mailings,

brochures, presentations, social media

Print and online media by the subgroups and service companies

Employee magazines; intranet; newsletters

for their employees

and occasion-related mailings, social media

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

6. Sustainability

associations, universities, scientific institutions and schools
Alongside its business activities, Bayer is also an active member of numerous national, European and
international associations and their committees, such as the Federation of German Industries (bDi),
the German Chemical Industry Association (Vci), the German Equities Institute (Dai), the European
Chemical Industry Council (ceFic), BusinessEurope and the International Council of Chemical Associ-
ations (icca). Bayer also currently chairs econsense, German industry’s sustainable development
forum.

The Bayer subgroups are also involved in their respective trade associations, such as HealthCare in
the European Federation of Pharmaceutical Industries and Associations (eFpia), CropScience in the
European Crop Protection Association (ecpa) and MaterialScience in PlasticsEurope. Along with
general issues pertaining to particular areas, product stewardship and sustainability play an important
role in many working groups.

Furthermore, scientists from our company maintain constant contact with renowned research institu-
tions, support partnership projects in the public and private sectors (e.g. in rice cultivation with the
International Rice Research Institute), hold teaching positions at universities around the world (e.g.
in Germany and China) and regularly invite scientists and university and school students to various
events, such as symposia on health issues and research days for schoolchildren. We also consider this
involvement to be an investment in the next generation. As a research-oriented company, we are
heavily dependent on well-trained and talented individuals and on society’s acceptance of technology.

You can find more information on our comprehensive activities in dialogue with school and university
students in Chapter 13 “Social Commitment.”

REGuLatORS: LEGiSLatORS, autHORitiES, POLitiCianS
The underlying conditions in which our company operates are shaped by authorities, legislators and
politicians. Our political stakeholders include, in particular, political parties, ministries, subordinate
authorities, foundations and political interest groups that have a decisive influence on the framework
conditions in which our business operates. At the same time, they have an interest in industry’s
expertise and economic contribution. Our active participation in political decision-making processes
is not only democratically legitimate, it is also explicitly called for by essential players, for example
through committees and expert and working groups.

Our current dialogues with authorities and ministries at local, national and international level include
targeted discussions and active involvement in specialist workshops and cooperation projects.
It is vital to have a trusting collaboration with these institutions, as they play a key role in shaping
the framework conditions for our business, through legislative decisions or permits, for example.
Owing to the economic importance of the industry, representatives of political parties and institu-
tions also have a keen interest in the expertise of and dialogue with representatives from our company,
one example being the parliamentary evenings that the Foundation for World Population organizes
together with HealthCare.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 92

6. Sustainability

Lobbying
In its Group Regulation “Code of Conduct for Responsible Lobbying,” Bayer sets out clear and
binding rules for its involvement in political matters, aiming to ensure transparency in collaborations
with the representatives of political institutions. Within the Group, the Public and Governmental Af-
fairs Committee is responsible for the strategic planning of Bayer’s political work. This especially in-
cludes dealing with specific political questions, as well as developing the company’s political posi-
tions.
In 2013 Bayer’s political lobbying again focused on the acceptance of products and technologies in
society, fostering and recognizing innovation, sustainable health care systems, chemicals and energy
policy, and climate protection.

www.bayeR.

For more on our political principles see www.bayeR.com/en/political-pRinciples.aspx

Com/en/
PolItICal-
PRINCIPLES.ASPX

Our liaison offices in Berlin, Brussels, Washington, Moscow, São Paulo and Beijing are key points of
contact between our company and the political arena. In 2013 we spent €0.8 million on our liaison office
in Berlin. That figure comprises personnel, operating and project costs. Bayer was one of the first
companies in the life sciences sector to allow itself to be entered in the European Commission’s lobby
register and discloses the relevant costs of its lobby work at e.u. level (approximately €2.8 million in
2013). In accordance with our Bayer Group Regulation “Code of Conduct for Responsible Lobbying,”
we enter ourselves in every transparency register set up by governments, regardless of whether entry
is voluntary or legally required, as in Austria since the start of 2013. Should a similar initiative be in-
troduced in Germany, Bayer will participate in such a register there, too.

In the United States, Bayer discloses its lobbying costs in several public databases. In keeping with
our Group Regulation, we have committed not to make any direct donations to political parties,
politicians or candidates for political office. However, some associations to which we belong make
donations on their own initiative, in compliance with statutory regulations. In the United States,
companies are legally prohibited from donating to political candidates directly. However, some of our
employees there utilize the opportunity to support candidates for parliamentary office by making
private donations of their own funds via the Bayer Corporation Political Action Committee (BayPac).
Political action committees in the United States are state-regulated, legally independent employee
groups. Consequently, such donations are not donations made by the company. The BayPac contribu-
tions are regularly reported to the u.s. Federal Election Commission and can be viewed on its website.

finanCiaL MaRkEt PaRtiCiPantS: invEStORS, BankS, inSuR anCE COMPaniES,
R atinG aGEnCiES
Intensive dialogue with the capital market is a high priority for Bayer. In our dealings with analysts,
investors and rating agencies, we aim to increase the market value of the company and contribute to
achieving an appropriate credit rating. These efforts are focused on ensuring a comprehensive,
consistent and prompt exchange of information between the company and the various members of
the financial community. The top priority of our work in this area is to achieve a fair valuation of Bayer.

We further intensified our investor relations activities, such as broker conferences, “Meet Manage-
ment” conferences, roadshows and field trips in the past year. Bayer was present in a total of 25
financial centers in 2013. You can find out more under “Investor Information.”

We also regularly exchange ideas with analysts and investors from the field of sustainable invest-
ments. For example, we took part in a conference on Sustainable Responsible Investment (sRi)
in 2013, and discussed inquiries from sustainability-focused financial market players in specific
telephone conferences.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 93

6. Sustainability

SOCiaL intERESt GROuPS: nOn-GOvERnMEntaL ORGanizatiOnS, PuBLiC,
LOCaL COMMunit y, COMPEtitORS

non-governmental organizations (nGOs)
Bayer is involved in a variety of projects, thematic initiatives and specialist conferences at a national
and international level to play an active role in the common task of shaping sustainable development.
This also includes collaboration with non-governmental organizations and international organizations
on various global issues such as nutrition (e.g. Society for International Cooperation), climate protec-
tion (e.g. u.n. Global Compact’s “Caring for Climate” initiative) or the following example in the area
of family planning.

International Dialogue on Population and Sustainable Development: The issues of population and
sustainable development have been the subject of increased debate around the world since the Unit-
ed Nations Millennium Development Goals were first formulated in 2001. HealthCare works toward
achieving these development goals as a private-sector partner, maintaining close contact with gov-
ernments and non-governmental organizations. To promote networking between the various players
and provide a forum for discussing reproductive health issues, HealthCare since 2002 has organized
together with a number of development policy organizations a series of conferences entitled “Interna-
tional Dialogue on Population and Sustainable Development.” The partner organizations include the
non-governmental organization International Planned Parenthood Federation (ippF), the German So-
ciety for International Cooperation (GiZ) and, the German Foundation for World Population (Dsw).

The goal of this international conference is to share experiences and opinions, discuss strategies and
– based on the results of the conference – draw up recommendations to assist political decision-makers.
Held annually in Berlin, the themes for this two-day event are decided jointly with the various partners
and protagonists. In 2013 the participants discussed the future prospects for a strong young genera-
tion. To satisfy the need for intensive exchange and for the largest possible participation, the format
of the event has changed over the years. The spectrum now ranges from panel discussions and expert
meetings to interactive stakeholder forums. The establishment of the “World Café of Possibilities”
created an additional discussion forum that involves the participants even more intensively.

Public / local community
The communities near our sites play a key role in our success. For this reason, we endeavor to
be recognized at all of our sites as a reliable partner and attractive employer that meets its social
responsibility.

MaterialScience: In spring 2013 a citizens’ forum was launched in connection with the planned
MaterialScience carbon monoxide pipeline between the Dormagen and Krefeld-Uerdingen sites in
Germany. The goal of this was to further intensify the sharing of information and dialogue with the
local communities around the pipeline. Headed by an external communications agency, this round
table should provide a platform for exchanging and explaining facts and information about the
project. In doing so, Bayer is emphasizing the importance of objective and expert discussion. The aim
of the co Dialogue Forum is to be fair to all stakeholders as far as possible – including those who
are opposed to the project. More information is available online at www.pipeline.bayer.de
(in German only).

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 94

6. Sustainability

www.mateRIal-

sCIenCe.
bayeR.De/en/
PRoJeCts-anD-
CooPeRatIons/
tDI-PRoJeCt.
ASPX

Public debate is also focusing on another, existing pipeline that supplies production facilities at the
Leverkusen site with carbon monoxide from Dormagen. MaterialScience has been operating this
pipeline with co since 2002. It is part of a pipeline bundle, running mainly on the left bank of the
Rhine and crossing beneath the Rhine to the Leverkusen site in what is known as a culvert. The pipe-
line is approved by the authorities, is continually monitored and regularly inspected. Chemical park
operator Currenta and MaterialScience informed the public about this in its presentation of the
planned construction of a new culvert. As part of a project at the Dormagen site in Germany lasting
several years, MaterialScience is building a new large-scale plant for the production of the chemical
toluene diisocyanate (tDi). The company has pursued an active information policy since the start of
planning at the end of 2008. This includes an open dialogue with the relevant stakeholders. During
the permit process, MaterialScience thus sought dialogue on numerous occasions with environmental
groups, politicians, residents, citizens’ groups and media representatives among others. After submit-
ting the permit documents to the Cologne district authority, MaterialScience held an information
week in May 2011 to provide information about the current status of the project. In February 2012,
the Cologne district authority issued MaterialScience with early planning permission. The final ap-
proval was granted at the beginning of 2013, with start-up now scheduled for the second half of 2014.

Our information policy includes regular news releases on the project’s progress. MaterialScience
has also set up a special website www.mateRialscience.bayeR.De/en/pRojects-anD-coopeRations/
tDi-pRoject.aspx containing detailed information about the construction project. This site can also
be used to ask questions.

CropScience: The safety of its production facilities is also of vital importance to CropScience. As part
of the “Safety dialogue,” experts at the Dormagen site explain to interested citizens what safety
measures the companies based at the cHempaRK site there undertake. CropScience also regularly
uses forums, print media, and personal discussions with citizens’ initiatives, representatives of the
church communities and the regional press to keep its neighbors at the Frankfurt-Hoechst and
Knapsack sites in Germany informed.

Currenta: Local dialogue at the Lower Rhine sites (Dormagen, Krefeld-Uerdingen, Leverkusen) is
supported by the new Currenta neighborship offices, which opened in mid-2013.

SuStainaBiLit y ManaGEMEnt anD StEERinG
Responsibility for steering and aligning our Group-wide sustainability strategy lies with the Group Man-
agement Board member responsible for Innovation, Technology and Sustainability in his function as
Chief Sustainability Officer of the Bayer Group, and with the Group Sustainable Development
Committee chaired by the Head of Environment & Sustainability in the Corporate Center.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 95

6. Sustainability

Online annex: 3-6-3

integration of Sustainability at Bayer

[Graphic 3.6.0-3]

Mission: “Bayer: Science For A Better Life” // LIFE Values

Group Strategy

Sustainability in the Group

Measurement and
documentation
of the sustainability
performance

Engagement

Targets /indicators

UN Global Compact

Sustainability reporting
in the annual Report with
independent assurance

Responsible Care

WBCSD **

Global Reporting
Initiative (GRI)

Steering

Relevant Group
positions, such as on

Member of the Group
Management Board
responsible for
Technology, Innovation
and Sustainability *

Environment & Sustain-
ability Department
in the Corporate Center

Sustainable
Development

Human Rights

Corporate
Compliance

Responsible
Marketing & Sales

Supported by bodies
such as

Responsible
Lobbying

• Sustainable Develop-

ment Committee

• HseQ Committee

• bayer safety Council

Sustainability in the subgroups and service companies (incl. regions and countries)

• Strategies, objectives and directives
• HSEQ management systems and audits

• Responsible Care programs and initiatives
• Opportunity and risk management

* from April 30, member of the Group Management Board responsible for Human Resources, Technology and Sustainability
** World Business Council for Sustainable Development

The committee identifies and evaluates sustainability-relevant opportunities and risks for our company,
sets targets, draws up initiatives, management systems and regulations and is responsible for monitor-
ing.

Targets and indicators help us to operationalize our strategy and make it measurable. In 2013 we adopted
an ambitious program of non-financial objectives that comprises both new and further developed sustain-
ability targets along the value chain (see Chapter 1.3 “Targets and Performance Indicators”). This replaces
our previous program of targets for 2015, whose degree of achievement is elaborated on in detail online.

see Chapter 1.3

Internal Group regulations ensure the implementation of our sustainability principles in business
operations. These principles are realized through corresponding management systems, regulations and
processes at the subgroup level.

Online annex: 3-6-4

The internal Bayer Group regulations include above all the “Sustainable Development Policy,” our
“Human Rights Position,” the “Corporate Compliance Policy,” our “Supplier Code of Conduct,” the
“Responsible Marketing & Sales Policy,” our “Directive on Process and Plant Safety,” and positions,
for example, on the key issues of climate, water and biodiversity.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

7. Employees

www.annual-

report2013.bayer.
com/ en/commit-
ment-sustainability

To underline our mission as a sustainably operating company, we have committed to internationally
recognized sustainability initiatives such as the u.n. Global Compact and the Responsible Care™ initia-
tive, and we participate globally in leading (industry) forums such as the World Business Council for
Sustainable Development (wbcsD).

7. Employees

Employee Data

Employees by region

europe

north america

Asia / Pacific

latin america / middle east / africa

Employees by corporate function

Production

Marketing and distribution

Research and development

General administration

total

apprentices

Proportion of women in senior management

Proportion of full-time employees with contractually agreed working time
not exceeding 48 hours per week

Proportion of employees with health insurance

Proportion of employees eligible for a company pension plan
or company-financed retirement benefits

Proportion of employees covered by collective agreements on pay and conditions

[table 3.7.1]

Dec. 31, 2012

Dec. 31, 2013

in Fte

52,300

15,300

26,200

16,200

45,700

42,300

12,900

9,100

53,600

15,200

28,000

16,400

45,800

44,500

13,700

9,200

110,000

113,200

2,500

100

2012 figures restated
The number of employees on either permanent or fixed-term contracts is stated in full-time equivalents, with part-time employees included
on a pro-rated basis in line with their contractual working hours.

SuStainaBLE HuMan RESOuRCES POLiCy
Bayer pursues a sustainable human resources policy. The objectives and principles are based on our
corporate values, known by the acronym liFe, which are valid throughout the world. liFe stands for
Leadership, Integrity, Flexibility and Efficiency. These values encapsulate the core elements of our cor-
porate culture, which combines a strong focus on performance and development with a high degree of
social responsibility. At the same time, they are a simple and practical guide for employees in their work.
The liFe values are therefore firmly integrated into our global performance management system, which
covered more than 77,000 employees, i.e. about two-thirds of our workforce, in 2013. Participation is
mandatory for all managerial employees, which means they are assessed partly according to how well
they apply the four corporate values in the pursuit of their career goals. This factor can therefore affect
their compensation. Of the employees whose performance was assessed regularly using this system,
40% were female and 60% were male.

EMPLOyEE Data
On December 31, 2013 Bayer had 113,200 employees worldwide, 107,700 of whom had permanent
employment contracts, while 5,500 had temporary contracts.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

7. Employees

Online annex: 3-7-1

Employees * by Employment Status, Region and Gender in 2013

[table 3.7.1-1]

Permanent employees

temporary employees

europe

north america

Asia / Pacific

latin america / africa / middle east

Women

18,400

5,700

9,200

5,800

Men

total

Women

32,400

9,300

17,200

9,700

50,800

15,000

26,400

15,500

1,400

100

400

total

39,100

68,600

107,700

2,300

Men

1,400

100

1,200

500

3,200

total

2,800

200

1,600

900

5,500

* The number of employees on either permanent or fixed-term contracts is stated in full-time equivalents (FTE), with part-time employees

included on a pro-rated basis in line with their contractual working hours.

Thus the headcount showed a slight increase of 2.9% from the prior year. In Germany we had 35,300
employees (2012: 34,600), who made up 31.2% of the Group workforce. HealthCare had 56,000 employ-
ees, CropScience 22,400 and MaterialScience 14,300. The remaining 20,500 employees, reported in the
reconciliation, worked for the service companies or Bayer AG. In addition there were 2,500 (2012: 2,500)
apprentices on the closing date who are not included in the Group total.

Employees by Segment

[Graphic 3.7.1]

20,500 (19,900)
Reconciliation

113,200

(110,000)

14,300 (14,500)

MaterialScience

22,400 (20,800)

CropScience

2012 figures restated
2012 figures in parentheses

56,000 (54,800)

HealthCare

Pharmaceuticals 38,000 (37,200)

Consumer Health 18,000 (17,600)

In 2013 the Group-wide fluctuation rate, which includes employer- and employee-driven terminations,
retirements and deaths, was unchanged at around 14%.

Online annex: 3-7-2

Employee fluctuation *

[table 3.7.1-2]

Region

Asia / Pacific

europe

latin america / africa / middle east

north america

total

* headcount

Women

21.8

10.7

16.7

20.0

15.4

Men

16.7

9.1

15.2

18.4

13.1

total

18.5

9.7

15.8

19.0

14.0

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 98

7. Employees

On a small scale, we also use personnel from staffing agencies in certain circumstances.

Online annex: 3-7-3

To enable us to respond flexibly to short-term personnel requirements caused, for example, by
fluctuations in the order situation, temporary projects or long-term illness, in Germany we use
personnel from staffing agencies. We only work with agencies whose employees are covered by a
valid collective bargaining agreement entered into by organizations that belong to the German trade
union confederation (DGb). In this way, we make sure that they receive the collectively agreed rates
of pay. The proportion of temporary staff employed in Germany varies between 1% and 3% of the
total workforce. Personnel from staffing agencies do not play a significant role at Group companies
outside Germany either. Separate global data are not available.

taLEnt ManaGEMEnt anD fEEDBaCk CuLtuRE
We are convinced that systematic people development is exceptionally important for the future success
of our company. Group-wide talent management, in other words measures and tools to further our
employees’ professional and personal development, is therefore a key element in our human resources
policy. The basic principle is that every employee has his or her own individual strengths and talents that
deserve recognition and development in the workplace.

Vacancies in the Bayer Group, from non-managerial right up to senior management level, are advertised
via a globally accessible platform. In 2013 we posted over 9,900 vacancies in 61 countries via this plat-
form.

We believe regular feedback is necessary for the continuous development of our employees and our
organization and that it helps us adapt to changing requirements. Alongside our performance manage-
ment system, we use 360° feedback. This insight from colleagues and business associates is designed to
foster the performance and leadership behavior of our employees and support their professional devel-
opment.

Our most important feedback tool at the corporate level is our Group-wide employee survey. Every two
years, this gives us competent feedback from our employees on our strategy, culture and working condi-
tions. Since the last survey in 2012, we have launched a variety of initiatives and improvements world-
wide to overcome the shortcomings identified in specific areas. The next employee survey is scheduled
for spring 2014.

Online annex: 3-7-4

Many of the initiatives introduced throughout the world in 2013 aim to improve the feedback culture
in specific organizational units and involve employees more closely in decision-making processes.
The spectrum ranges from a new target picture for the 4,900 employees at Bayer Business Services
through programs to recognize outstanding achievements by employees, and the introduction of
home offices, to new information and dialogue offerings in many areas of the company and innovative
video blogs for members of the field force.

Our Development Dialogue is an ideal link between feedback, which is based on the present situation,
and long-term career planning. Employees discuss their strengths and development needs, career
expectations and aspirations with their direct supervisor with the objective of agreeing on a personal
development plan to enable them to realize their potential within the company.

Once a year our managers are required to conduct the Development Dialogue with their employees –
last year this was done nearly 24,000 times throughout the Group. The results are documented in our
global employee portal.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 99

7. Employees

aDvanCinG knOWLEDGE anD LEaDERSHiP SkiLLS
Fostering our employees’ “lifelong learning“ is a central element of both people development and the
management of demographic change at Bayer. Our aim is to empower all employees to continuously re-
fresh and expand their knowledge and skills in all phases of their working lives.

Online annex: 3-7-5

Our education and training activities comprise a wide range of work-related programs that enable
employees to broaden and update their specialist knowledge and abilities or acquire new skills, for
example by learning a language or acquiring leadership competencies. In addition, the goal of the
Bayer Academy, which launched its first modules in 2013, is to provide systematic training for man-
agers throughout the Bayer Group and to harmonize function-related continuing education and
training worldwide and make it available to all employees.

Examples of Continuing Education

[table 3.7.1-3]

BayER aCaDEMy

Leadership training, general management training

Global / Group-wide

knOWLEDGE anD SkiLLS tRaininG

in SPECifiC aREaS

Introduction to the company

leadership skills

Communication, working methods and project management

business administration and law

Marketing, sales and customer focus

Languages and intercultural skills

Information technology and SAP

Research, production and technology

GROuP fOCuSES

Corporate compliance, anticorruption

Human rights

Global / Group-wide

Changes in technology (Personalized Workplace Program)

Supplier management / Supplier Code of Conduct

Global / Group-wide

SuBGROuP PROGRaMS

occupational safety (PeGasus)

Fit in Production (FIP)

COntinuinG EDuCatiOn OffERinGS fOR EMPLOyEES

OutSiDE WORktiME

Global / subgroup-wide

local / national

At the heart of our employee training concept is the Bayer Academy, within which the extensive range
of continuing education opportunities is systematically organized. The Academy’s Group-wide roll-out
began in 2013. It comprises two principal areas, a Leadership & General Management Academy for man-
agers and various functional academies focusing on a wide range of topics and corporate functions. The
functional academies are geared specifically to the continuous professional development of our employ-
ees. In many countries, including important Emerging Markets such as China and Brazil, national
versions of the Bayer Academy are already fully operational.

Online annex: 3-7-6

The aim of the Leadership Academy introduced in 2013 is to place management training on
a systematic footing and establish a common understanding of leadership throughout the Bayer
Group. In the first year, more than 2,500 employees worldwide attended the management training
seminars run by the Leadership Academy.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

100

7. Employees

Functional academies harmonize function-specific ongoing training offerings across the Bayer Group
and make them available to all employees in the function. The academy concept therefore also
provides impetus for the internationalization of our ongoing training programs and for sharing knowl-
edge and experience within functions. One good example is the new Bayer HR Academy for human
resources professionals, which started operating in November 2013.

Our management training also addresses important subject areas.

Online annex: 3-7-7

To strengthen the Leadership component of liFe and promote performance orientation in the
company, we have developed a Group-wide training program called “Enhancing Performance & Feed-
back Culture (epFc)”. This is designed to support our managers in regularly giving their employees
candid and constructive feedback on their work and conduct. The goal is to establish a true feedback
culture throughout the enterprise that promotes individual strengths, addresses existing deficits and
thus enhances employees’ personal and professional development over the long term. epFc training
is mandatory for employees with personnel responsibility and has now been completed by almost
13,000 managers worldwide. Two years after its introduction, there has been a clear increase in the
ability and willingness of our managers to give a differentiated evaluation of their employees’ capabil-
ities in the annual Performance Management Process.

Innovation ranks alongside feedback and diversity as part of our corporate culture. A new workshop
format, “Leading Innovation,” has therefore been added to our management training on aspects of
strategic corporate development to foster individual innovative capability. Since the introduction of
this series of workshops in 2012, it has been used to train approximately 570 members of the Group
Leadership Circle and other selected managers in the strategies and methods of effective innovation
management.

Harmonization of our employee training concept in the Bayer Academy also helps us to better report on
participation rates. We currently compile data on the main training activities in the twelve largest coun-
tries through our global training reporting system. Last year, employees in these countries received be-
tween eight and 42 hours of continuing education and training according to need. The average was 17.8
hours per employee across these twelve countries, with women taking an average 23.3 hours of training
and men 18.5 hours. These averages do not include figures for the United States or Japan as statutory
regulations preclude differentiation by gender in these countries.

EMPLOyEE COMPEnSatiOn anD BEnEfitS
An important principle of our human resources policy is linking employees’ compensation to their
performance and enabling them to share in the company’s success. Regular benchmarking against com-
petitors and a globally standardized system help us to set basic salaries in line with the demands and
responsibilities of each position. These salaries are supplemented by performance-related compensation
components and extensive ancillary benefits. We attach great importance to avoiding gender-based
inequality, providing fair compensation worldwide and informing our employees transparently about the
overall structure of their compensation.

Online annex: 3-7-8

Our compensation system does not differentiate between men and women. At Bayer, individual
salaries are based on each employee’s personal and professional abilities and the level of responsibility
assigned to them. At managerial level, this is based on uniform evaluation of all positions throughout
the Group using the internationally recognized Hay method. In areas of the Group and jobs that fall
within the scope of binding collective bargaining agreements, there are no differences in pay based
on gender either. This also applies for the compensation of apprentices.

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7. Employees

In the Emerging Markets and developing countries, too, compensation is aligned to local market
conditions. In keeping with our Human Rights Position, our aim is to pay our employees adequate
salaries that ensure they and their families have an appropriate standard of living. In all Emerging
Markets where Bayer has a significant presence, the lowest salary paid by Bayer is at least in line
with the applicable minimum wage and in most cases higher.

To provide a transparent overview of their compensation, including all additional benefits provided
by the company and employer pension and social insurance contributions, some 29,000 employees
worldwide now receive an extensive annual compensation and benefits statement containing all
relevant information. We intend to extend this service to employees in a total of 17 major countries in
the coming year.

Under our Group-wide Short-Term Incentive program alone, variable one-time payments totaling more
than €650 million are earmarked for our employees for 2013. In addition, various employee stock pro-
grams enable our staff to purchase shares in Bayer at a discount. In many countries, such employee
stock programs are included in our extensive range of ancillary benefits, giving employees an additional
opportunity to share in the company’s business success. We also offer senior and middle managers
throughout the Group uniform stock-based compensation programs known as “Aspire” (see Note [26.6]
to the consolidated financial statements). These are based on ambitious earnings targets and – in the
case of Group Leadership Circle members – require an appropriate personal investment in Bayer stock.
In 2013 our personnel expenses amounted to €9,430 million (2012: €9,194 million). The increase was
mainly due to higher employee bonuses and salary adjustments.

Consolidated
Financial
statements
note 26.6

Online annex: 3-7-9

Personnel Expenses and Pension Obligations

[table 3.7.1-4]

Personnel expenses

of which pension and social security contributions

2009

2010

2011

2012

2013

€ million

7,776

1,490

8,099

1,623

8,726

1,672

9,194

1,823

9,430

1,845

Pension obligations *

15,931

17,699

19,310

22,588

20,682

2012 figures restated
* present value of defined-benefit obligations for pensions and other post-employment benefits

HuMan RiGHtS anD SOCiaL RESPOnSiBiLit y
Our social responsibility as a company and an employer is rooted in an unreserved commitment to
support and foster human rights in our sphere of influence. Bayer’s Human Rights Position is set out
in a binding Group-wide regulation. We respect the United Nations’ Declaration of Human Rights
and are a founding member of the un Global Compact. Bayer’s mission statement, liFe values and
Corporate Compliance Policy commit all employees around the world to fair and lawful conduct
toward staff, colleagues, business partners and customers.

To enhance our employees’ awareness of the importance of human rights in their day-to-day activities,
in 2013 we organized a variety of training seminars on the main aspects of our Human Rights Position.
Courses were offered in some 80 countries and were attended by approximately 90,000 employees,
more than 75% of our workforce.

The compliance organizations at the Group and country levels monitor compliance with the relevant
directives. If there are signs of violation, employees can contact their Compliance Officer at any time,
anonymously if required. For further details see Chapter 18.3 “Compliance.”

see Chapter 18.3

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102

7. Employees

Our social responsibility is also reflected in our approach to necessary changes and restructuring
measures. In Germany, which remains the company’s largest operational base with 35,300 employees,
business-related dismissals are excluded through the end of 2015 for a large proportion of employees
under an agreement with the employee representatives.

The reduction of 700 positions at Bayer MaterialScience worldwide in the next four years, which was an-
nounced in September 2013, will also be undertaken in a socially compatible manner wherever possible,
for example by utilizing natural fluctuation and avoiding business-related dismissals.

Full and timely information for employees is provided on significant operational changes in compliance
with the relevant national and international obligations.

Online annex: 3-7-10

The Human Resources and Communications departments work together closely to ensure timely
communication of far-reaching changes through a wide range of carefully coordinated media. In
Germany we combine providing timely information to the employee representatives in the Economics
Committee of the company concerned with coordinating and jointly deciding on the proposed
communication measures.

Our human resources policy also includes ensuring a high level of social protection. For example, nearly
all employees either have statutory health insurance or can obtain health insurance through the compa-
ny. 72% of employees also have access to a company pension plan. In 2013, we once again expanded or
improved the quality of the benefits provided for employees in many countries.

Online annex: 3-7-11

In 2013 we achieved further improvements for our employees in the Czech Republic, Hong Kong,
Bangladesh, Morocco, the Central American countries and Mexico in the scope and terms of their
health insurance.

We also introduced company pension plans in a further four countries and adjusted the terms of
the established pension plans in favor of the employees in four European countries and one Asian
country.

Health insurance and Pension Plans by Region

[table 3.7.2]

Region

Asia / Pacific

europe

latin america / africa / middle east

north america

total

Health insurance *

Pension plans **

2012

2013

2012

96***

70***

2013

* government- or employer/employee-funded
** programs to supplement statutory pension plans
*** 2012 figures restated: the figures for North America and the total we published in our Annual Report 2012 were too low. This was due to
subsequent report updates from the United States resulting from a divergent understanding of what had to be reported under “Company
Pensions.”

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

103

7. Employees

The working conditions for 55% of our employees are governed by collective or company agreements.
The contractually agreed working hours of our employees do not exceed 48 hours a week in any country.
At many smaller country companies, the interests of the workforce are represented by elected employee
representatives who have a right to be consulted on certain personnel-related decisions. China is a good
example of the continuous expansion of the consultation with labor unions in the Bayer Group.

Online annex: 3-7-12

At our companies there, elected councils representing nearly 10,000 employees are in place. This
means that more than 90% of our employees in China are now represented by the local union.

In 2013 we stepped up our collaboration with the union in China and extended information rights
of employee representatives. In the future, quarterly meetings will be held with employee representa-
tives at our six largest companies in this country. Union representatives are consulted before the
introduction of major ancillary wage benefits. The local management has also given an undertaking
to inform employee representatives in advance of any planned capacity adjustments and restructuring
activities. For two companies, formal collective agreements were concluded with the union in 2013.
Negotiations on similar collective agreements for three other Bayer companies in China should be
completed in the near future.

Percentage of Employees Covered by Collective agreements, by Region

[table 3.7.3]

Percentage of employees covered
by collective agreements,
especially on compensation
and working conditions*

Percentage of full-time
employees with contractually
agreed working weeks

of max. 48 hours

2012

2013

2012

100

2013

100

Region/area

Asia / Pacific

europe

latin america/africa/middle east

north america

total

* collective or company agreement

Our understanding of our role as a socially responsible company includes a commitment to helping dis-
advantaged individuals. We employ a total of 2,800 people with disabilities in 28 countries. Most of them
work for our companies in Germany, where they made up 4.5% of the workforce in 2013. More than
32% of the 1,600 disabled employees there were female. In the year under review we received public
accolades in Germany and the u.K. for our initiatives to support people with disabilities and disadvan-
taged young people, some of which have been running for many years.

Online annex: 3-7-13

In 2013 the u.K. Department of Work and Pensions’ “Double Tick” symbol for exemplary integration
of disabled people was awarded to our site in Newbury. This accreditation rewards Bayer’s voluntary
commitment to implement a defined list of measures for the employment and support of people with
disabilities.

In Germany, our program to help disadvantaged school leavers prepare for vocational training
celebrated its 25th anniversary. Bayer has been running this special one-year program for socially
and educationally disadvantaged young people since 1988. More than 1,600 youngsters have
completed the program over the years, and 80% of them subsequently enrolled for vocational train-
ing in science or technology. In 2013 Bayer accepted another 137 young people into this highly
acclaimed program.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

104

7. Employees

DivERSit y anD intERnatiOnaLit y
Workforce diversity is vital for our company’s future competitiveness. This is particularly true for our
management. Diversity improves our understanding of changing markets and consumer groups, gives
us access to a broader pool of talented employees, and enables us to benefit from the enhanced innova-
tive and problem-solving abilities that are demonstrably associated with a high cultural diversity within
the company. We pursue this aim especially in the emerging countries of Asia and Latin America, where
we intend to significantly increase the proportion of local people among our managerial employees in
the medium term. Of the members of our Group Leadership Circle, in which 31 nationalities are current-
ly represented, around 67% come from the country in which they are employed. The Bayer Group cur-
rently employs people from 144 countries.

Special training for members of the management team is one focus of our activities to achieve greater
employee diversity.

Online annex: 3-7-14

Since 2012 a workshop format has been used to raise the awareness of senior managers and their
management teams of the strategic benefits of diversity. The workshop outcomes are consolidated in
an action plan for each organizational unit.

We also want to empower our managers to form teams that incorporate the principles of diversity and
to lead them successfully across the cultural divide. To this end a new seminar on “Leading Across
Cultures and Genders” was launched worldwide in 2013. It was attended by some 670 managers from
all levels.

Training for senior management members is supported by supplementary initiatives in the countries
and subgroups. Since last year, diversity and inclusion officers in the Middle East have been driving
forward local initiatives.

Another focus of our diversity strategy is on improving the gender balance, especially in management.
We view a male / female ratio of between 30 to 70 and 70 to 30 as acceptable and have therefore set our-
selves the voluntary target of raising the proportion of women on the five highest management levels
throughout the Group toward 30% by 2015. Women currently account for 25% of employees in this
management segment worldwide, while men account for 75%. Since we set this target in 2010, the pro-
portion of women in managerial positions has therefore risen by 4 percentage points. The ratio of female
to male employees in the Bayer Group as a whole was 36.5% to 63.5%.

Online annex: 3-7-15

Bayer Group Workforce Structure*

Senior management

Junior management

skilled employees

total

apprentices

* number of employees converted into full-time equivalents (FTE)

[table 3.7.3-1]

Men

6,800

15,400

49,600

71,800

1,800

total

9,000

25,000

79,200

113,200

2,600

Women

2,200

9,600

29,600

41,400

800

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT
105

7. Employees

Our employees’ lifestyles are as diverse as the people themselves. Flexible worktime arrangements help
employees to balance their employment with their personal or family lives by helping them to better plan
their leisure time, enabling working parents to make equal use of career opportunities in the company
and helping the growing number of employees who also care for close relatives. Bayer offers its employ-
ees a variety of such opportunities in all countries. We continued to expand our range of employee bene-
fits in this area worldwide in 2013.

Online annex: 3-7-16

A General Works Agreement concluded in Germany in 2013 means that employees at the large Group
companies who care for close relatives will in the future receive support well in excess of the statutory
provisions. This includes extensive professional advice and 10 days’ paid leave of absence for any
sudden urgent need for nursing care in the family. Bayer employees can also decide to switch to part-
time work to look after a needy relative for up to three years and reduce contractual working hours by
up to 50% of full-time employment.

In 2013 the Bayer Group had 7,850 part-time employees, around 6.8% of the total headcount.

Online annex: 3-7-17

Percentage of Part-time Employees by Region

[table 3.7.3-2]

Region

Asia / Pacific

europe

latin america / africa / middle east

north america

total

Women

4.7

21.3

0.2

1.9

11.9

Men

0.8

7.5

0.0

0.2

3.8

total

2.2

12.8

0.1

0.8

6.8

By the end of 2013 around 77% of employees in Germany who took statutory parental leave or partici-
pated in the company’s more far-reaching “Family & Career” program over the past five years had re-
turned to work. Of the returnees, roughly 60% were women and 40% were men. Since parental leave
regulations vary widely from country to country, we only compile data for Germany.

Online annex: 3-7-18

The next table shows the number of employees who have returned after the standard statutory parental
leave program and the Bayer “Family & Career” model since 2009. It also shows the number of male
and female returnees and of employment contract terminations at the end of employees’ parental
leave. It covers all employees in Germany who have taken parental leave since January 1, 2009.

Employees Returning from Parental Leave using Germany as an Example

[table 3.7.3-3]

total no. of employees who have taken parental leave since 2009

Returnees by 2013

women

Returned

terminated

men

Returned

terminated

100

77.3

61.5

65.5

7.3

38.5

96.2

0.8

Absolute

2,361

1,824

1,453

951

106

908

873

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

106

7. Employees

ManaGinG DEMOGR aPHiC CHanGE anD RECRuitinG yOunG PEOPLE
Demographic change, in other words, the steady reduction in the birth rate and the aging population,
is a challenge for many industrialized countries. Economically, it involves both opportunities and risks.
We have prepared forecasts of the age structure of the workforce in the entire Bayer Group up to 2020 in
order to assess the impact of this issue on our company. Currently, we are not facing an acute shortage
of skilled staff. Nevertheless, we are already addressing the foreseeable consequences of demographic
change by stepping up our activities to recruit staff, especially from the younger generation, retain
knowledge in the company and foster the health of our employees worldwide.

Employees by age Group

Age in years

< 20

20 - 29

30 - 39

40 - 49

50 - 59

> 60

[Graphic 3.7.2]

0.2

15.7

29.8

29.1

22.2

3.0

Bayer endeavors to appeal to the most talented people worldwide and to retain employees for long
periods by providing good development opportunities, a modern working environment and competitive
compensation. In 2013 we again attracted more than 4,900 academically qualified specialists and man-
agers worldwide. We recruited approximately 660 university graduates in Germany, 520 in Russia, about
420 in Brazil and more than 340 in India. In 2013 we hired more than 19,400 new people across all oc-
cupations throughout the Group.

Online annex: 3-7-19

new Hires by Region *

Region

Asia/Pacific

europe

latin america / africa / middle east

north america

total

* converted into full-time equivalents (FTE)

[table 3.7.3-4]

Women

Men

total

2,668

3,050

1,093

1,256

8,067

4,109

3,332

1,669

2,265

6,777

6,382

2,762

3,521

11,375

19,442

www.bayeR.

Com /en /awaRDs.
ASPX

Our success in recruiting employees is attributable to our attractiveness as an employer, which was
once again confirmed by numerous awards in 2013, and proactive recruiting activities at the local level.

Online annex: 3-7-20

Bayer has longstanding contact with leading universities in almost all countries in order to raise
talented students’ awareness of the wide-ranging opportunities it offers. In China, for example, we
currently cooperate with more than 40 universities and offer up to 500 students a year an opportunity
to undertake internships in all areas of the company. In addition, we offer students in China training
programs, scholarships and technical support for their dissertations.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

107

7. Employees

In recent years, we have steadily extended our collaboration with universities in Brazil as part of our
recruiting strategy. Around 260 students in this country now take part in our trainee and internship
program. These activities pay off: in 2013 Brazilian students ranked us among their 100 “dream
employers,” while upcoming health care professionals see us as the second most attractive company
in the country. In Canada, our internship program was rated by the Talent Egg online portal as one of
the best in the country. In Turkey, we enabled more than 110 students to do their mandatory intern-
ships in various parts of our company. Overall, we offered more than 2,900 demanding professional
internships to students around the world in 2013.

Alongside hiring university graduates, Bayer’s training programs for young people are among the most
important steps the company takes to guard against a possible shortage of specialists due to demo-
graphic change. Once again in 2013, more than 900 young people entered training programs for more
than 30 occupations at Bayer’s sites in Germany. At the same time, we aim to utilize and develop the
potential of older employees even more effectively. Passing on knowledge from the older to the younger
generation is the aim of the Bayer Senior Experts Network, known as BaySEN for short. Together with
our extensive on-the-job training offering, we thus ensure that the knowledge of our employees is up-to-
date and is shared across generations.

Group-wide we offer our employees a wide variety of benefits to promote their health. These range from
medical checkups and on-site medical services to sports opportunities inside and outside the company
and the provision of advice and reintegration assistance after recovery from an illness. In this way we
also contribute significantly to maintaining long-term employability, which is of growing importance as
many countries are raising the retirement age in light of demographic change. In 2013, we once again
launched a wide range of additional initiatives to maintain and improve the health of our employees.

Online annex: 3-7-21

Group-wide initiatives to foster employees’ health and maintain their employability in view of the
rise in the retirement age include the 2010 General Works Agreement on lifetime working and
demographic change in Germany. This innovative agreement contains measures to reduce the
workload of older shift workers, ease the return to work after long-term illness and an extensive
health screening program for all employees. Including the collectively agreed contribution to the
demographic change fund, in 2013 we increased the funding available for measures under this
agreement to €8 million per year.

The type and scope of the health promotion programs offered by Bayer Group companies worldwide
varies depending on national health care provision and access to it. In many countries, preventive
health care measures are a discretionary benefit provided by the company, while in others they are
required by law. Preventive programs are often organized in cooperation with external physicians or
organizations. The following examples from 2013 are only a small selection of the very broad global
offering.

In 2013 HealthCare’s country organizations continued to increase the quality and number of health
care programs. For example, talks and advisory events on a range of health issues were held at
many sites in Germany. In July, the “Heart liFe” program was launched in Socorro, Brazil, to raise
employees’ awareness of cardiovascular diseases and highlight preventive measures. This pilot
project is to be extended to further sites in 2014. In collaboration with a health insurer in Finland,
we launched health coaching for employees who are already suffering health problems or who have
high health risks in order to help them mitigate individual risk factors.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 108

8. Procurement and Production

In 2013 CropScience also introduced numerous measures and initiatives to foster the general health
of employees. Topics such as nutrition, addiction prevention, fitness and relaxation were addressed
through special programs at many sites worldwide.

Health checks were also offered at many sites, for example on Bayer Safety Day or special health
days, and sometimes as part of company-wide health weeks. Examples in 2013 were Ecuador, Brazil
and Australia.

Very extensive occupational health programs were offered at many MaterialScience sites in 2013.
At its locations in the Lower Rhine region of Germany, MaterialScience conducted a health survey
to make more targeted use of occupational health management measures in the areas of exercise,
relaxation skills for shift workers and stress management. The three MaterialScience sites in Shanghai
organized a comprehensive program of events on women’s health in 2013.

The “B Well” program in the United States is an integrated health and wellness program for all Bayer
employees. It helps employees play an active role in promoting their health. In 2013 the focus was on
preventive health screening and personal advice, supplemented by programs on stress prevention,
weight management, exercise and preventing diabetes.

8. Procurement and Production

SuPPLiER ManaGEMEnt
Bayer’s procurement volume in 2013 was approximately €18.7 billion (2012: €18.1 billion). Goods and
services were procured from some 107,000 (2012: some 101,000) suppliers in approximately 138
(2012: 125) countries and recorded in the Group-wide reporting system. To cover specific require-
ments as efficiently as possible, each subgroup procures direct and production-related materials itself,
while indirect and non-production-related goods and services are sourced in each case by the organi-
zational unit that is their major user within the Bayer Group. Our Group-wide procurement strategy
and application of the major-user principle enable us to realize synergy potentials in the form of stan-
dardization, volume pooling and streamlining of negotiations.

The procurement volume in Germany, the United States and Japan in 2013 accounted for nearly 67%
of the expenditures in the countries of the oecD (Organisation for Economic Co-operation and Develop-
ment), or about 54% of the Bayer Group’s total procurement spend. Brazil, India and China together ac-
counted for about 72% of the expenditures in the non-oecD countries or about 14% of the total spend.

Online annex: 3-8-1

number of Suppliers and Procurement Spend by Economic Region

[table 3.8.0-1]

oeCD countries

non-oeCD countries

Suppliers

Spend

Procurement Spend in OECD and non-OECD Countries

[table 3.8.0-2]

oeCD countries

non-oeCD countries

%
Germany
27.4

China
9.0

%
united states
21.3

brazil
2.6

%
Japan
5.7

India
2.4

%
other
26.3

other
5.3

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

109

8. Procurement and Production

Sustainability in procurement
Bayer regards adherence to sustainability standards within the supply chain as a crucial factor in the val-
ue chain. By acting responsibly in collaboration with our suppliers, we aim to minimize risks and create
stable, long-term business relationships with our partners. It is also an important strategic lever for Bay-
er in safeguarding both its global competitiveness and the supply of materials and services. For this rea-
son, the company applies not just economic standards, but also environmental, social and corporate gov-
ernance (esG) standards in choosing new suppliers or continuing its relationships with existing ones.
These standards are defined in Bayer’s Supplier Code of Conduct, which generally forms the basis for
our collaboration with suppliers. It is legally binding and integrated into electronic ordering systems and
contracts throughout the Group. The Supplier Code of Conduct is based on the principles of the u.n.
Global Compact and our Human Rights Position.

Online annex: 3-8-2

To participate in it-based bidding processes, suppliers must give a binding assurance before
submitting an offer in our supplier management system that they acknowledge Bayer’s Supplier
Code of Conduct. This creates an important foundation for a business relationship aligned to
sustainability principles.

Sustainability assessments and audits of our suppliers
We track our suppliers’ adherence to the Code of Conduct by monitoring their sustainability perfor-
mance. This is done partly on the basis of on-site audits and partly through online supplier assessments
carried out by a leading web-based platform for sustainability performance monitoring (EcoVadis).
The assessments are based on a web-based, modular questionnaire completed by the supplier, coupled
with accompanying verification documents and 360° screening. Suppliers are selected for these assess-
ments based on a combination of country and material risks and procurement volume.

To leverage synergies in the monitoring of suppliers’ sustainability performance, we participate in
two industry initiatives – the “Pharmaceutical Supply Chain Initiative” (psci) and “Together for Sustain-
ability” (tFs), an initiative of the chemical industry that was co-founded by Bayer. The focus of these
initiatives is on standardizing sustainability aspects in the relevant industries. Assessments and audits
are also exchanged among the members, giving us access to additional evaluations of suppliers that also
work with Bayer.

Online annex: 3-8-3

In both initiatives, sustainability assessments and audits of suppliers are exchanged through it
platforms. This minimizes the administrative burden for both suppliers and the member companies.

Members of the TfS initiative initiated a total of over 1,850 assessments and successfully completed
150 audits during the one-year pilot phase from July 2012 through June 2013. In the psci initiative,
the first joint pilot audit program was successfully completed and evaluated in 2013. Both initiatives
focus not only on performing audits, but also on providing support and training for suppliers.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 110

8. Procurement and Production

Benefits from the
production network

Under the Bayer Audit Program, we carry out supplier audits together with an external, independent
partner, applying the standard of the respective industry initiatives in which we participate in order to
benefit from synergies. We also obtain further audits of Bayer suppliers on an exchange basis as part of
our collaboration with the members of the psci and tFs initiatives. In addition, Bayer auditors perform
inspections focusing on health, safety, environmental protection and sustainability. An overview of the
number of supplier assessments and audits:

Online annex: 3-8-4

Supplier assessments

Bayer assessments via the EcoVadis platform

Assessments * by TfS ** members of suppliers that also work for Bayer

National assessments by Indian country company

* assessments exchanged via the EcoVadis platform as part of TfS initiative
** Together for Sustainability (TfS)

Supplier audits

bayer audits with external auditors

Audits * by TfS ** members of suppliers that also work for Bayer

Audits * by PSCI ** members of suppliers that also work for Bayer

HSE *** / sustainability audits by Bayer auditors

* audits exchanged as part of TfS and PSCI initiatives
** Together for Sustainability (TfS) / Pharmaceutical Supply Chain Initiative (PSCI)
*** Health, Safety, Environmental Protection

[table 3.8.0-3]

278

107

243

[table 3.8.0-4]

All assessment and audit results are thoroughly analyzed and documented. If deficiencies are found, the
company develops action plans together with the respective suppliers to ensure that they observe social,
ethical and environmental standards in the future. Where improvement needs have been identified, we
work together continuously with our suppliers to achieve these improvements. As a result, we did not
have to terminate any supplier relationship in 2013 for reasons related to sustainability performance.

Our assessments and audits accounted for 34% of the total procurement volume in the Bayer Group
with regard to sustainability performance and 51% of the procurement volume in high-risk areas, which
are defined by a combination of country and material risk.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 111

8. Procurement and Production

Sustainability training for purchasers and suppliers
Training for purchasers in the Bayer Group includes attending courses on sustainability aspects of
procurement and our Code of Conduct. In 2013 we completely revised the training course on our sus-
tainability assessment process via our collaboration platform.

Online annex: 3-8-5

Our purchasers are thoroughly trained in the EcoVadis assessment process, with 243 purchasers
attending the training course in 2013. The subgroups also provide their respective purchasers with
supplementary information. For example, HealthCare has initiated a sustainability roadshow for
various local purchasing units. The purchasing and quality functions in Brazil, India and China
received extensive training in the supplier evaluation process. MaterialScience held both a global and
a China-specific procurement meeting to provide information on sustainability.

We also offer training courses for our suppliers. Both the information material and the range of courses
were updated and extended in 2013.

Online annex: 3-8-6

The TfS initiative offers e-learning courses to provide suppliers with general information on the
initiative and the audit process. The psci initiative likewise promotes continuing supplier develop-
ment by means of the comprehensive information provided on the psci website, and by organizing
training events and conferences on subjects such as occupational safety.

As part of the training and information program for suppliers, Bayer’s company in India presents its
BayBuy Awards at an annual Supplier Day. The awards for India’s most sustainable suppliers are
based on the national sustainability assessments.

The Supplier Days organized by HealthCare and MaterialScience at various locations in China in
2013 focused on sustainability.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 112

8. Procurement and Production

tackling child labor in the supply chain
For Bayer, responsible corporate governance includes recognizing and respecting human rights both in-
ternally and within our external sphere of influence. This includes the supply chain. Our Human Rights
Position is unequivocal and includes a strict ban on child labor. We obligate our suppliers along our sup-
ply chain not to employ children. Particularly when working with suppliers in developing countries or
emerging markets, we take care that they are not using child labor – which is still widespread in these
regions.

For many years, CropScience has taken systematic action to prevent child labor in the seed supply chain
in India through its Child Care Program. Teams from Bayer visit the fields used in cotton seed production
at least six times each season in order to determine the age of the workers there. A separate organiza-
tional unit is responsible for this. Thanks to this stringent monitoring system, there are now only very
few instances of child labor at our contractors, and we are closely tracking these cases. In India we have
also carried out systematic field monitoring in vegetable seed production since 2009 and in the produc-
tion of hybrid rice seed since 2010.

Online annex: 3-8-7

The table shows how cotton seed production has developed since the main 2009 / 2010 season,
based on the results of field monitoring.

field Monitoring Results: Production of Cotton Seed in india

[table 3.8.0-5]

Season *

Standing acres **

Monitored acres ***

Labor details

Total laborers monitored

Proven child labor cases

Adult laborers

Child labor incidence per
monitored acre

Child laborers as a percentage
of total laborers

kharif
2009 /
2010

1,683

10,575

Rabi
2009 /
2010

kharif
2010 /
2011

Rabi
2010 /
2011

kharif
2011 /
2012

Rabi
2011 /
2012

kharif
2012 /
2013

Rabi
2012 /
2013

kharif ****
2013 /
2014

172

2,152

335

2,771

542

3,857

389

3,618

1,052

13,856

2,276

17,427

3,564

24,161

2,433

20,991

35,826

3,902

43,150

7,198

52,979

12,128

82,192

9,253

60,422

35,804

3,900

43,136

7,198

52,961

12,128

82,171

9,253

60,404

0.002

0.001

0.06%

0.05%

0.03%

Kharif growing cycle: cultivation in the rainy season (summer) and harvest in the fall / Rabi growing cycle: cultivation in the fall and harvest in winter

*
** 1 acre = 4,046.86 m²
*** cumulated depiction of the area under cultivation monitored on the basis of control inspections performed (at least 6 per season)
**** as of Dec. 31, 2013

Suppliers who show that they are strictly observing our ban on child labor receive a bonus from
Bayer along with training in agricultural efficiency. Graduated sanctions are applied for non-
compliance. These range from written warnings to termination of the contract in the case of repeated
non-compliance. Once a year, the audit firm Ernst & Young (India) conducts unannounced inspections
of randomly selected farms. The two indicators highlighted in the table are used to measure the
success of our extensive package of measures.

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113

8. Procurement and Production

We regard school attendance not only as essential for children’s development but also as a tool to
drive the elimination of child labor. As an important part of the child protection program, our
“Learning for Life” initiative consists of projects aimed at ensuring that children and young people
get a proper education. Between 2005 and the end of June 2013, the “Learning for Life” educational
programs benefited more than 5,500 children and young people.

The Child Care Program has received broad public recognition. It is a multi-disciplinary project
involving management, specialists from the Child Care Team, and staff from the seed production team
and Corporate Communications, who play a key role in raising awareness for this issue.

MatERiaL anD R aW MatERiaL inPutS
As the subgroups’ business activities and therefore the materials they use differ fundamentally, each
subgroup organizes the procurement of the materials needed for its own production operations. Sustain-
ability considerations are important when procuring raw materials, an example being the purchase of
renewables or minerals from conflict areas.

Online annex: 3-8-8

Renewables so far have played only a secondary role in Bayer’s use of raw materials. We are using
them more intensively when it makes technical, economic and ecological sense to do so.

At HealthCare, some hormones are synthesized by way of certain sterols or phytosterols generated
as byproducts of the manufacture of vegetable oils from soybeans, canola or sunflowers. Palm oil or
palm kernel oil is not used due to its low sterol content. We also purchase various steroids produced
from diosgenin, which is mainly derived from yam root grown in China and other countries. In the
fermentation process, we also use raw materials such as water, glucose, yeast, soybean starch, castor
oil and corn steep water. Extracts of plant leaves (Centella asiatica) are used in some Consumer Care
products. This plant is widely found in Asia and is not an endangered species.

MaterialScience is experimenting with the replacement of petroleum-based raw materials as part
of its innovation and cooperation projects. For example, the subgroup is testing a biotechnological
process that is based on the conversion of biomass by microorganisms and can supply material for
the production of plastics. The use of carbon dioxide as a raw material for polyurethanes has already
been successfully implemented at the pilot plant level – and the first results of an independent
ecological assessment give grounds for optimism.

At the international level, companies are increasingly obligated to disclose the origin of certain raw
materials used in their products. “Conflict minerals” from the Congo region are one example. Bayer is
currently investigating whether minerals from this region – such as tin, tungsten and tantalum ores or
gold – could have found their way into our products through the supply chain. In parallel with these
efforts, we are working on a special process for systematically investigating and evaluating potential
suppliers of such minerals.

HEaLtHCaRE
The Product Supply unit of HealthCare steers the subgroup’s entire supply chain, from raw material
procurement to manufacturing to product shipment, utilizing a global production network consisting of
its own sites and those of subcontractors. The manufacturing of pharmaceutical products is subject to
extraordinarily stringent quality standards. These standards are known collectively as “Good Manufac-
turing Practices” (Gmp). Compliance with these requirements is regularly audited by internal experts,
regulatory authorities and external consultants.

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8. Procurement and Production

The Pharmaceuticals segment generally procures the starting materials for the active ingredients of its
prescription pharmaceuticals from external suppliers. To prevent supply bottlenecks and mitigate major
price fluctuations, these starting materials and the intermediates we do not produce ourselves are gener-
ally purchased under global contracts and / or from a number of suppliers we have audited and approved.

Our active ingredients are manufactured primarily at the sites in Wuppertal and Bergkamen, Germany,
and Berkeley, California, United States. These substances are processed into finished products and
packaged worldwide. Our medicines come in a wide range of delivery forms including solids such as
tablets, coated tablets or powders; semi-solids such as ointments or creams; and liquid pharmaceuti-
cals such as those used in injections or infusions. Our hormonal contraceptives are supplied as sugar-
or film-coated tablets or used in intrauterine systems (coils), for example. Formulating and packaging
takes place in Berlin, Leverkusen and Weimar, Germany; Garbagnate, Italy; Beijing, China; São Paulo,
Brazil; and Turku, Finland. Our hemophilia drug Kogenate™ is manufactured by a biotechnological pro-
cess at Berkeley, California, United States. Pharmaceuticals that we do not produce ourselves due to
the use of special technologies are generally purchased under global contracts from suppliers we have
audited and approved. For example, Betaferon™ / Betaseron™ for the treatment of multiple sclerosis is
produced by a contract manufacturer.

For the Consumer Care Division of the Consumer Health segment, we produce certain active substanc-
es, such as acetylsalicylic acid and clotrimazole, in La Felguera, Spain. The principal raw materials we
purchase from third parties are naproxen, citric acid, ascorbic acid, other vitamins and paracetamol. To
minimize business risks, we diversify our raw material procurement sources worldwide and conclude
long-term supply agreements. Among the division’s production sites are the facilities in Myerstown,
Pennsylvania, United States; Cimanggis, Indonesia; Lerma, Mexico; Bitterfeld-Wolfen and Grenzach-
Wyhlen, Germany; Madrid, Spain; and Segrate, Italy.

The Diabetes Care products (such as blood glucose meters) of our Medical Care Division are mainly
procured from original equipment manufacturers. Material prices and availability are covered in most
cases by long-term contracts. We hold strategic reserves of certain materials and finished products so
that we can supply our customers consistently and reliably. The contrast agents for diagnostic imaging
procedures are produced mainly in Berlin, Germany. Medical devices such as contrast agent injectors
and mechanical systems for treating constricted or blocked blood vessels are manufactured at the u.s.
sites near Pittsburgh, Pennsylvania, and in Minneapolis, Minnesota. Most of the materials and compo-
nents needed to manufacture our medical devices are procured from external suppliers. The availabili-
ty, quality and price stability of the materials are ensured by way of long-term agreements, careful
choice of suppliers and active supplier management.

The Animal Health Division procures the pharmaceutical active ingredients for its veterinary medicines
both from within the Bayer Group and from external suppliers throughout the world. Our animal health
products are manufactured mainly at the sites in Kiel, Germany, and Shawnee, Kansas, United States,
and marketed worldwide.

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8. Procurement and Production

Global procurement
and production network
for seeds and crop
protection products at
Cropscience

CROPSCiEnCE
CropScience, too, manages procurement and production as a single organizational unit. This enables an
integrated supply chain from raw material purchase through end-product manufacture to warehousing,
followed by a two- or three-step distribution system depending on local market conditions.

Our principal procurement countries, representing the bulk of our procurement volume, are centrally
managed. This enables us to operate efficiently in procurement markets and optimize our cost position.
We mainly procure supplies of important raw materials on the basis of long-term supply agreements to
minimize procurement risks such as supply shortages or substantial price fluctuations. Regular sustain-
ability and quality audits of our suppliers ensure compliance with internal and external standards.

Crop Protection and Environmental Science products are mainly manufactured at our own production
sites and formulating facilities. Among the largest are the facilities in Dormagen, Knapsack and Frank-
furt am Main, Germany; Kansas City, Missouri, United States; and Vapi, India. Our network of decentral-
ized formulation and filling sites enables us to respond rapidly to local market needs. At these sites the
active ingredients are processed into herbicides, fungicides, insecticides, seed treatment products and
Environmental Science products according to local requirements and application areas. Packaging of the
products also takes place in these facilities.

Production in the Seeds business unit takes place at locations close to our customers in Europe, Asia,
and North and South America at our own farms or under contract.

Investment in our global production network is continuing in order to create capacities for new products
and technologies and to improve manufacturing processes. We plan to significantly increase our capital
investment to meet the steadily rising demand in a competitive and timely manner. In September 2013,
we therefore announced an increase in our capital expenditure budget. We now intend to invest some
€2.4 billion in property, plant and equipment between 2013 and 2016.

MatERiaLSCiEnCE
Procurement at MaterialScience is globally steered by the Procurement & Trading unit. Worldwide pro-
curement and trading processes are centrally managed to leverage synergies within MaterialScience.

Key raw materials for our MaterialScience products are petrochemical feedstocks such as benzene, tolu-
ene and phenol. We purchase these materials on the procurement markets, mainly under supply agree-
ments. The operation of our production facilities also requires large amounts of energy, mostly in the
form of electricity or steam. In steam and electricity generation, we aim for a balanced diversification of
fuels and a mix of external procurement and captive production to minimize the price fluctuation risk.

The principal production facilities of MaterialScience are at Dormagen, Krefeld and Leverkusen,
Germany; Shanghai, China; and Baytown, Texas, United States. These supply all the subgroup’s busi-
ness units and are centrally managed by the Industrial Operations unit. Further major production sites
are located at Antwerp, Belgium; Brunsbüttel, Germany; Map Ta Phut, Thailand; and Tarragona, Spain.
Each of these sites is managed by the respective business unit.

In the field of commodities, we endeavor to reduce costs by operating high-capacity production facilities
that enable us to supply our markets on an international basis. We maintain a relatively large number of
production facilities in selected countries to serve our differentiated businesses. These facilities include
systems houses, where we formulate and supply customized polyurethane systems, and plants where we
compound polycarbonate granules to meet specific customer requirements or manufacture semi-fin-
ished products (polycarbonate sheets). We also operate regional production facilities for functional films
made of polycarbonate or thermoplastic polyurethane.

world-scale facilities
reduce costs for com-
modities

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9. Products, Distribution and Markets

Broad product
portfolio in the
Pharmaceuticals
segment

Consumer Health
segment: focus on
non-prescription
products

9. Products, Distribution and Markets

Bayer does not tolerate legal violations in the marketing of its products. Responsible marketing means
acting ethically and morally and adhering to sustainability principles. This involves communicating with
our target groups in a transparent, consistent and reliable manner. We are also committed to regularly
evaluating the properties of our products and acting on our findings where necessary. Our Group
directive on “Responsible Marketing & Sales” was already adopted by all subgroups in 2012 and has
been integrated into the relevant regulations. With distribution activities decentrally organized due to
the diversity of Bayer’s business portfolio, the directive’s ongoing implementation and the respective
training programs took place in a variety of ways in 2013.

HealtHCare
Our Pharmaceuticals segment supplies prescription products. Our range of cardiovascular products
includes the anticoagulant Xarelto™, Adalat™ to treat hypertension and coronary heart disease, and
Aspirin™ Cardio for secondary prevention of heart attacks. The product portfolio in women’s healthcare
comprises contraceptives such as YAZ™ / Yasmin™ / Yasminelle™, Mirena™ and the Essure™ procedure.
We also offer specialty pharmaceuticals that are mainly prescribed by specialist physicians, including
Kogenate™ for people with hemophilia A, Betaferon™ / Betaseron™ to treat multiple sclerosis, the cancer
drugs Nexavar™, Stivarga™ (regorafenib) and Xofigo™ (radium-223 dichloride), the eye medicine
Eylea™ (aflibercept), and riociguat (approved in the United States and Japan under the trademark
Adempas™) to treat two forms of pulmonary hypertension. Our pharmaceutical products are primarily
distributed through wholesalers, pharmacies and hospitals. Co-promotion and co-marketing agreements
serve to optimize our distribution network. For example, we cooperate with Janssen Pharmaceuticals,
Inc. in the United States in the marketing of Xarelto™.

The portfolio of our Consumer Health segment mainly comprises non-prescription products. The Consumer
Care Division specializes in over-the-counter (OTC) medicines – those available without a prescription –
and is among the leading suppliers in the OTC market with a portfolio covering all the major therapeutic
areas. Our offering includes the pain relievers Aspirin™ and Aleve™ and the OTC medical skincare products
Bepanthen™ / Bepanthol™ and Canesten™. The product range also includes nutritionals such as One A
Day™, Supradyn™, Berocca™ and Redoxon™, antacids such as Talcid™, and cough-and-cold products such
as Alka-Seltzer Plus™ and White & Black™. We also offer prescription dermatology products. The division’s
sales and distribution channels are generally pharmacies, with supermarket chains and other large retailers
also playing a significant role in certain important markets such as the United States.

In the Medical Care Division we offer blood glucose monitoring devices such as the single-strip
Contour™ system and the multi-strip Breeze™ system. We also market the Contour™ USB meter, which
features integrated diabetes management software and direct plug-in to computers. Outside Europe,
these products are generally sold to consumers through pharmacies, drugstores, mass merchants,
hospitals or wholesalers. In Europe, they are sold mainly through pharmacies. We are among the prin-
cipal players in the market for blood glucose meters and are also the world’s leading supplier of con-
trast agent injection systems for diagnostic and therapeutic medical procedures in X-ray, computed
tomography and magnetic resonance imaging. We are among the leading companies in the field of
mechanical systems for removing thrombi from blood vessels, offering service products for these sys-
tems in addition. Examples from our portfolio of contrast agents for diagnostic imaging are Ultravist™,
Gadovist™ / Gadavist™ and Magnevist™. Our products are marketed to cardiologists, radiologists and
vascular surgeons in hospitals and out-patient clinical sites through a global direct sales organization,
supplemented in some cases by local distributors.

The Animal Health Division offers an extensive portfolio of pharmaceuticals, nutritionals, grooming
products and hygiene products for farm and companion animals. Our innovative Advantage™ family of
products to protect dogs and cats from parasite infestation gives our company the number two position
in the parasiticides market. The newly developed Seresto™ collar replaces conventional dog and cat col-
lars with a modern system for controlled release of the active ingredient and reinforces our leading mar-
ket position. Other important products include Baytril™ for the control of infectious diseases, Drontal™
and Drontal™ Plus wormers, and Baycox™ to treat coccidiosis in livestock. The integration of the prod-

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9. Products, Distribution and Markets

uct portfolio we acquired in 2013 from Teva Animal Health Inc., United States, is progressing with the
relaunch of companion and farm animal products in the U.S. market. Depending on local regulatory
frameworks, animal health products may be available to end users on a veterinarian’s prescription or
prescription-free from veterinarians, pharmacies or retail stores.

responsible business practices at HealthCare
In marketing its medicines, HealthCare applies strict standards and observes the relevant international
industry codes. This includes all codes of the International Federation of Pharmaceutical Manufacturers
& Associations (IFPMA) and of regional associations such as the European Federation of Pharmaceutical
Industries and Associations (EFPIA) concerning relations with health care professionals and patient or-
ganizations. These codes include rules governing the distribution of advertising materials and product
samples, cooperation with health care and pharmacy professionals under speaker and consultancy
agreements, and scientific studies. HealthCare has also undertaken to implement the EFPIA transparen-
cy code. The codes apply to prescription medicines. There are also local laws and codes applicable to
all medicines.

Online annex: 3-9-BHc-1

The IFPMA code applies not only to prescription medicines but also to over-the-counter products
that are directly advertised to health care professionals. Since 2012 the IFPMA code has also included
basic principles for cooperation with patient groups. HealthCare views the IFPMA code as a global
minimum standard. The EFPIA Code of Conduct for cooperation with patient organizations mandates
universal transparency and requires that these organizations’ independence not be compromised by
the provision of support to patient organizations. Under the code, donations to health care profes-
sionals or organizations must be disclosed on a publicly accessible website. This information must be
published for the first time by June 30, 2016, and must include the relevant donations made in the
2015 calendar year.

These local codes generally serve to bring the provisions of the global or regional codes mentioned above
into line with local laws. In the event of discrepancies among the rules we have committed to respect,
HealthCare always observes the more stringent requirement.

We regard the WHO’s Ethical Criteria for Medicinal Drug Promotion as the minimum standard for the
advertising of pharmaceutical products. We also observe national ethical standards, which usually are
also enshrined in industry codes at the local level, an example being that of the association "voluntary
self-regulation for the Pharmaceutical Industry (FSA). The provisions of our Group-wide Corporate Com-
pliance Policy, the Responsible Marketing & Sales Policy, and the Directive on Integrity & Responsibility
in Communications and Marketing also apply.

HealthCare has summarized the key requirements for compliant and ethical conduct in globally valid
HealthCare Compliance Manuals that set minimum standards for all activities.

Online annex: 3-9-BHc-2

Specifically, the minimum global standard for responsible marketing and ethically acceptable dealings
with important stakeholders such as officials, health care professionals and patient organizations is
established by the Manual for Human Pharmaceuticals and Consumer Care Businesses, the Manual
for Medical Devices Business and the Manual for Animal Health.

The global training program for the compliance manuals launched in 2012 was continued in 2013.
The training materials are now available in eight languages. There are also web-based and personal-
ized compliance training courses for which employees can enroll via the intranet. These web-based
programs were honored with the Brandon Hall Excellence in Learning Award 2013, receiving the
silver medal in the “Best in Compliance Training” category. Additional support and information are
available for employees in conjunction with all training courses.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 118

9. Products, Distribution and Markets

As part of our compliance management system, we register and investigate any suspected violation of
our responsible marketing principles. This includes complaints received from either inside or outside the
company.

Integrated
product portfolio
at CropScience

CropSCienCe
CropScience offers a comprehensive range of products and services for agriculture in the areas of seed
breeding, crop protection and plant traits. It also supplies products for non-agricultural pest and weed
control. These are commercialized according to local market conditions. Our business is subject to the
growing seasons for the relevant crops and the resulting sales cycles.

CropScience markets its products in more than 120 countries. In the coming years we intend to continue
expanding our business, particularly in the Emerging Markets, by deploying innovative, leading-edge
technologies in order to meet the increasing global demand for high-quality food and feed.

The marketing and distribution activities of the Crop Protection / Seeds operating segment are aligned to
our product range.

The Crop Protection business is based on a broad portfolio of highly effective herbicides, fungicides,
insecticides and seed treatment products with chemical or biological modes of action. Our innovation
capability and long years of experience with crop protection products have placed us among the global
leaders in this market. The activities of the Seeds unit are focused on cotton, oilseed rape / canola, rice,
soybeans and vegetables. We market high-value seeds based on our own research and breeding exper-
tise. In our core crops, we have achieved strong market positions and are internationally represented.

Our Crop Protection products are marketed through a two- or three-step distribution system, either via
wholesalers or directly to retailers. We also sell products directly to customers in selected markets where
farmers and market conditions require this mode of distribution.

Our seeds are sold to growers, plant raisers, specialist retailers and the processing industry. Plant
traits developed using modern breeding methods are either incorporated into our own seed varieties or
licensed to other seed companies.

The products of our Environmental Science operating segment are based on both proprietary and inli-
censed active ingredients and designed for non-agricultural uses. We market pest control and plant
care products both to private customers in the home and garden sector and to professional users in the
green industry (including for public parks and golf courses), forestry, infrastructure (such as railroad
tracks and roads), professional pest control and public health (vector control to combat malaria and
dengue fever). CropScience is among the world’s leading suppliers of products and solutions for such
non-agricultural uses. The Environmental Science products are mainly sold through wholesalers and
specialist retailers. Much of our business in the area of vector control is transacted in response to ten-
dering by government agencies and non-governmental organizations.

CropScience follows the International Code of Conduct on the Distribution and Use of Pesticides issued
by the Food and Agriculture Organization of the United Nations (FAO). This forms the basis for Crop-
Science’s expanded Product Stewardship Policy, which satisfies the requirements of the Group’s posi-
tion on responsible marketing and sales. Training materials to explain this Group position have been
distributed throughout the global organization and are posted on the Bayer intranet.

Online annex: 3-9-BcS-1

In Germany, responsible marketing had already been a focus of all training programs by the end of
2012, with other countries following suit in 2013. In parallel with the training courses on compliance,
the topic of responsibility marketing and sales has formed an integral part of the Marketing & Sales
Excellence training programs at CropScience since the fall of 2012.

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10. Product Stewardship

MaterialSCienCe
One of the world’s largest polymer companies, MaterialScience is a manufacturer and supplier of pre-
cursors for rigid and flexible foams, plastic granules, and raw materials for coatings and adhesives. The
subgroup holds leading competitive positions in these product groups. We also manufacture and market
plastic sheets, functional films and selected inorganic basic chemicals. Some of these chemicals serve as
raw materials for the manufacture of our products. Others are generated as by-products of our produc-
tion and sold to external customers.

Our products are used mainly in the automotive, construction, electrical / electronics, furniture, wood,
textile, sports and leisure goods, medical equipment and chemical industries.

Rigid or flexible polyurethane foams based on our diphenylmethane diisocyanate (MDI), toluene diiso-
cyanate (TDI) or polyether (PET) raw materials have found a broad range of applications in a variety of in-
dustries. Automotive uses include the manufacture of car seats and components. These foams are used
in the construction industry and the refrigeration chain as insulating materials, and in the furniture
industry for cushioning and mattresses.

Our polycarbonates are marketed as granules (Makrolon™), sheet, films and blends (APEC™,
Bayblend™). Their uses include electrical appliance housings, CDs / DVDs, roof structures and automotive
headlamps.

The Coatings, Adhesives, Specialties business unit manufactures raw materials for car and commercial
vehicle coatings and for footwear and textile adhesives, for example. Specialties include films used in ID
and credit cards, along with raw materials for cosmetic and medical products.

We market our products mostly through regional and local distribution channels, making increasing use
of e-commerce platforms for order processing. We also work with trading houses and local distributors
who are responsible for business with small customers. Major customers with global operations are
serviced directly by our key account managers.

In the marketing of our products, we also take into account all the requirements of the Group’s position
on responsible marketing and sales. The importance of observing antitrust law and preventing corrup-
tion is regularly emphasized in training programs, internal communications and discussions with man-
agement.

Online annex: 3-9-BMS-1

The third major training focus at MaterialScience in 2013 regarding responsible marketing and
sales was product liability. A total of 77 training courses were held worldwide to inform some
1,700 employees working in the areas of sales and marketing, quality management, development and
production.

10. Product Stewardship

We assess the possible health and environmental risks of a product along the entire value chain.
This starts with research and development and continues through production, marketing and use by the
customer through to disposal.

At issue here are not just the safe handling and use of our products, but also the transparent communi-
cation and transfer of product safety information. Product stewardship involves both compliance with
statutory requirements and voluntary commitment. Here, we also take into account the precautionary
principle as explained by the United Nations and the European Commission.

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10. Product Stewardship

Online annex: 3-10-1

The precautionary principle describes the preventive use of protective measures against risks, should
sufficient scientific information not be available. It is a possible tool for consumer protection and risk
management. It is explained in Principle 15 of the Rio Declaration of the United Nations Conference
on Environment and Development (1992) and in the communication from the European Commission
(COM 2000 / 1). This principle is applied whenever there is scientific uncertainty in a given area and
sufficient evidence also exists that there could be a sustainable impact on people or the environment.
We support the application of the precautionary principle according to the stipulations of the Europe-
an Commission. These measures should be proportionate – i.e. they should meet the chosen level of
protection; be applicable without discrimination, in other words comparable situations should not be
treated in different manners; be consistent with similar measures undertaken previously; and be ex-
amined to determine which costs and benefits are associated with the application of the precaution-
ary principle. The measures undertaken are reviewed as soon as new scientific data are available for
the particular situation.

Since 1994 Bayer has supported the voluntary Responsible Care™ initiative of the chemical industry,
which was globalized in 2006 with the introduction of the Responsible Care Global Charter. We cover all
main elements of the charter with our HSEQ (health, safety, environmental protection and quality) man-
agement systems and activities. We are also actively involved in the further development of scientific risk
assessment through associations and initiatives.

Online annex: 3-10-2

International associations such as the European and international chemical industry associations
(CEFIC / ICCA) and the OECD (Organisation for Economic Co-operation and Development), as well as
initiatives such as the ECETOC (European Centre for Ecotoxicology and Toxicology of Chemicals) or
the EPAA (European Partnership for Alternative Approaches to Animal Testing), work to evolve the
scientific assessment of chemicals, research new test methods and monitor the implementation of
statutory regulations. Bayer actively accompanies these efforts in its association activities. We are
also involved in the Long-Range Research Initiative of the ICCA and endorse the goals of the WHO
and E.U. action plans for improving health and environmental protection, for example with the further
development of human biomonitoring through an alliance with the German Chemical Industry
Association (VCI) and the German Federal Ministry of the Environment.

iMpleMentation of regulationS and voluntary prograMS pertaining
to CHeMiCalS
Since 2007 we have operated in accordance with the European chemicals regulation REACH (Registra-
tion, Evaluation, Authorization and Restriction of Chemicals). It affects all our activities as manufacturer,
importer and user. To adequately address the scope and complexity of the REACH requirements, we have
approved Group-wide and subgroup-specific regulations. The registration obligation under REACH
applies irrespective of marketing activities for all substances that we produce or import in quantities of
more than one metric ton.

Online annex: 3-10-3

We observe the required registration phases for substances that have been used for a longer period
of time. The final registration phase will end on June 1, 2018. Substances registered already during
the first two phases are now being evaluated by the regulatory authorities. In the future this could
result, for example, in additional testing requirements, new risk management measures or inclusion
in the authorization procedure.

A number of Bayer substances are also affected by the REACH authorization process, which restricts the
use of particularly hazardous substances or can lead to their replacement or prohibition.

The authorities monitor the implementation of REACH through regular inspections. So far none of the in-
spections at Bayer has resulted in complaints. As we also use many products from other manufacturers,
we maintain close contacts with our suppliers and ensure that they confirm compliance with REACH for
these products.

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10. Product Stewardship

Our Group Regulation “Substance Information and Its Availability” extends beyond the scope of legal
requirements. In this way we are ensuring that substance assessments comparable to those established
under REACH will also be applied at Bayer sites that are not subject to this European regulation.

At the same time, we are implementing the Globally Harmonized System (GHS) for the classification and
labeling of chemicals, which came into force in the European Union (E.U.) in 2009. The purpose of this
regulation is to achieve a globally standardized system for classifying chemicals and labeling them ap-
propriately on packaging and in safety data sheets.

We also support the Global Product Strategy (GPS), a voluntary commitment by the chemical industry ini-
tiated by the International Council of Chemical Associations (ICCA). Its objective is to improve knowledge
about chemical products, especially in emerging and developing countries, and thus increase safety in
the handling of these products. The ICCA has established an information portal through which summa-
rized details on products (GPS Safety Summaries) are made available. GPS is of particular relevance for
Material Science.

In accordance with the respective product safety and information obligations, all subgroups compile
product information on raw materials, intermediates or end products. To ensure worldwide access to
this information, our subgroups use corresponding IT systems, including for product labeling.

produCt StewardSHip in tHe uSe of bioteCHnology
Product development in our Pharmaceuticals and Crop Protection businesses makes use of biotechno-
logical methods. Biotechnology has already gained significant importance in pharmaceutical product de-
velopment. The HealthCare products Betaferon™ / Betaseron™, Kogenate™ and Eylea™ are manufactured
by a biotechnological process.

Plant biotechnology can help to improve crop yields, yield security and the stress tolerance of plants
without the need for an increased input of resources through both genetic engineering and non-genetic
engineering methods.

Safety is Bayer’s top priority in the use of biotechnology too. Beyond our observance of all relevant legal
provisions, we have formulated a Bayer Group Regulation “Position on the Responsible Use of Gene
Technology” and specific regulations for the subgroups and service companies.

Online annex: 3-10-4

Before any product reaches market maturity, we subject it to a stringent approval procedure to
determine whether it is safe for human health, animals and the environment.

HealthCare has established strict safety measures for handling and for research & development in
its “Biological Safety” regulation and its “Requirements for the safe handling of biological agents”
procedure.

In 2013 CropScience maintained its focus on product stewardship for customers both within and
outside the company through its activities in the context of the industry’s Excellence Through
Stewardship Program. Product stewardship and quality management processes are the top priority
in all activities connected to plant biotechnology.

We provide our stakeholders with comprehensive, transparent and reliable information about our
products and services in accordance with our Bayer Group Regulation “Responsible Marketing &
Sales.”

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10. Product Stewardship

foCuSing on aniMal welfare
During research into new active pharmaceutical ingredients, animal studies are prescribed and only re-
placeable to a certain extent. They are essential from a scientific viewpoint to assess the effects of our
products, especially on people, but also on nature and the environment. In our handling of animals, we
respect all legal requirements pertaining to animal welfare. Should animal studies be required to evalu-
ate our substances, Bayer observes the so-called 3rs principle:

• Replace: prior to each project, we check whether a recognized method is available that does not rely on

animal studies and apply it.

• Reduce: in case no alternative method exists, only as many animals are used as are needed to achieve

scientifically meaningful results based on statutory requirements.

• Refine: we make sure animal studies are performed in a way that is as gentle on the animals as possible.

www.animalstudies.

bayer.com

Our principles also apply to both the research institutes we commission and our suppliers, whose com-
pliance with our animal welfare requirements we regularly monitor.

Online annex: 3-10-5

Bayer’s Global Animal Welfare Committee monitors the observance of our principles on animal welfare
and animal studies within the Bayer Group and in external studies. In 2011 this body – comprised
of the animal welfare officers at our research sites and further Bayer experts – began defining perfor-
mance indicators. Within this context, we each year analyze aspects such as the number of animals
used, the number of animals at contract research organizations (CROs), the breakdown according to
species and the ratio of regulatorily required studies to exploratory studies. Other indicators such as
the number and quality of audits performed at our suppliers and CROs have been initiated and are
being internally evaluated. We have begun with the establishment of an internal Bayer database that
combines all information about our own animal studies and the evaluation of our cooperation part-
ners. Bayer participates in several European consortia that aim to reduce the number of animal studies
or improve their validity: we are active, for example, in the European Partnership for Alternative
Approaches to Animal Testing (EPAA); we also help to implement the Safety Sciences for Medicines
(SafeSciMET) program and are involved in the leadership of the eTOx project and the MARCAR project
of the Innovative Medicines Initiative (IMI). Furthermore, we support the Foundation for the Promo-
tion of Alternate and Complementary Methods to Reduce Animal Testing (SET).

proteCtion againSt produCt Counterfeiting
Illegal trade with counterfeit medicines and crop protection products is on the rise worldwide. Coun-
terfeit products in the areas of health care and nutrition put patients and consumers at risk. Sub-
standard products also cause considerable financial damage for both producers and users.

Industry, associations, governmental agencies and non-governmental organizations must join together
to fight product counterfeiting. Bayer continuously advocates the strengthening and expansion of exist-
ing laws and provisions aimed at the identification and confiscation of illegal products. We undertake a
wide range of measures to inform our customers about both the danger posed by, and the insufficient ef-
fectiveness of, counterfeit products.

Online annex: 3-10-6

Counterfeit pharmaceuticals rank near the top of the E.U.’s customs statistics. The number of investi-
gations in Germany increased by 39% in 2012 compared with the previous year, and has risen by an
even more substantial 100% since 2010. In close cooperation with the authorities, Bayer works to
protect the health of patients, customers and users. The focus is on education and information to
ensure the reliable identification of our original products, as well as on legal steps aimed at minimiz-
ing illegal trade.

Through the internet platform “Beware of Counterfeits,” HealthCare informs patients about the risks
of counterfeit pharmaceuticals and provides patients with tips on how they can protect themselves.

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10. Product Stewardship

Bayer participates in the Pharmaceutical Industry Initiative to Combat Crime (PIICC) of Interpol to
counteract pharmaceutical counterfeiting through global prosecution and the elimination of related
criminal networks.

We also support the establishment of a pan-European system for the verification of pharmaceutical
packaging that satisfies the requirements of the E.U. Falsified Medicine Directive. We participate in
the SecurPharm project in Germany.

According to an estimate by Europol from 2012, illegal products account for 25% of the crop protec-
tion market in some E.U. member states. CropScience provides information and anti-counterfeiting
training materials (manuals, workshops, etc.) to retailers, farmers and authorities. In 2013 training
courses were conducted in the Middle East, in several E.U. countries and in other regions at which
Bayer warned of the dangers of product counterfeiting. In this connection, we also support initiatives
by global and regional association committees such as the Anti-Counterfeiting Expert Group of the
European Crop Protection Association (ECPA) and the Anti-Counterfeiting Steering Committee of the
industry association CropLife International (CLI).

CropScience works together intensively with national and international authorities, thus frequently
enabling the confiscation of counterfeit products. In 2013 we further intensified our cooperation with
the European authorities to support them in their investigation into criminal networks that place
illegal and counterfeit crop protection products onto the European market. CropScience works to-
gether with shipping companies and European ports of entry to prevent the transport of counterfeit
products by more closely inspecting freight and customers, among other measures. Most counterfeit
products originate in Asia and reach the trade market through central European cargo ports. With our
support, substantial quantities of illegal products were confiscated by the port authorities again in
2013. CropScience also carries out its own inspections of suspicious goods shipments. In the report-
ing year, legal action was successfully taken four times against sellers of counterfeit parallel imports
in Germany alone.

HealtHCare
benefit-riSk ManageMent for MediCinal produCtS and MediCal deviCeS
HealthCare continuously assesses the medical benefit-risk balance of its pharmaceuticals and medical
devices throughout their entire life cycle. For this process, experts from various disciplines form
cross-functional Safety Management Teams (SMTs). These teams jointly evaluate the available benefit
and risk data along with other relevant information on the product in order to identify possible safety
risks at an early stage and assess the medical benefit-risk balance. The evaluation also makes use of ex-
ternal databases so as to ensure as broad a base of data as possible. Should significant risks be identi-
fied, HealthCare immediately takes measures to minimize them, such as updating the product informa-
tion for patients and physicians.

Online annex: 3-10-BHc-1

Further tools in risk minimization programs can include targeted information, e.g. patient education
brochures, and training measures for health care providers and patients. SMTs compile medical
benefit-risk data and information and produce detailed safety risk management plans. These plans
are updated as soon as relevant new benefit-risk data become available. Implementation of risk mini-
mization activities is coordinated by local SMTs in the country organizations.

The Global Pharmacovigilance unit of HealthCare pools safety-relevant information on our products in
the company’s own pharmacovigilance database on an ongoing basis. This information is continuously
updated and evaluated by experts. In this process, Bayer works closely with the responsible regulatory
and oversight authorities at an international, national and regional level. These include the U.S. Food and
Drug Administration (FDA), the European Medicines Agency (EMA) and Germany’s Federal Institute for
Drugs and Medical Devices (BfArM).

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10. Product Stewardship

HealthCare’s quality and risk management functions make further contributions to increased safety.
We examine external and internal quality assurance requirements for our products through systematic
internal inspections – not just in research and development, but also in production. These inspections
also cover institutes sub-contracted by us and our suppliers. Through our safety risk management sys-
tem, drug product risks are systematically identified and assessed, and the necessary steps initiated.
Countries and regions receive continuous support to help them comply with regulatory requirements for
pharmaceuticals.

www.annual-

report2013.bayer.
com/clinical-trials

Scientific publications by our researchers satisfy recognized international standards that we have under-
taken to observe in our Good Publication Policy. We base the implementation of all clinical studies on the
Good Clinical Practice guidelines of the World Health Organization (WHO) and on the guidelines of the
International Conference on Harmonization (ICH). We disclose the methods and results of clinical trials.

analySiS of pHarMaCeutiCal tr aCe aMountS in tHe environMent
Active pharmaceutical ingredients can enter the environment through human excreta or livestock excre-
ment, improper disposal by users or residues in wastewater from pharmaceutical production.

To assess the potential environmental impact of our pharmaceutical products, HealthCare carries out
ecotoxicological investigations of the environmental behavior of trace amounts and degradation prod-
ucts. These assessments are contained in the dossiers submitted to the European regulatory authorities
for both veterinary and human pharmaceuticals. It must be demonstrated during the approval procedure
that no significant risk exists for the environment when the drug products are used correctly.

Internal company wastewater standards are in place to ensure that no risk to the environment results
from the release of traces of active ingredients in wastewater from production sites. The company
aims to define specific threshold values that must be met by all HealthCare production sites world-
wide.

Measurements carried out by authorities and scientific institutes have revealed that the concentration
of individual active pharmaceutical ingredients from human or veterinary medicines present in drinking
water is lower than the level that would have pharmacological effects in humans. On the basis of our
current knowledge, the presence of individual active pharmaceutical ingredients in bodies of water or
drinking water does not pose any risk to humans. This is confirmed by the WHO Report on Pharmaceuti-
cals in Drinking Water published in 2012.

Online annex: 3-10-BHc-2

At the scientific level, HealthCare participates in projects aimed at further researching and reducing
pharmaceutical residues in the environment:

Within the PILLS project concluded at the end of 2012, HealthCare and its European partners exam-
ined the extent to which new purification technologies at so-called point sources are able to complete-
ly eliminate pharmaceutical residues. The project partners demonstrated that the construction of
wastewater treatment facilities at hospitals featuring special purification technology can further reduce
the active ingredient content in wastewater. However, the cost of this purification technology currently
remains substantial. The E.U.-sponsored successor project noPILLS therefore examines whether it is
possible to address the problem at a lower cost directly at the point of entry. noPILLS also focuses on
studying the influence on consumer behavior, for example, with regard to the disposal of expired drug
products. Bayer is a member of the Scientific Advisory Board of noPILLS too.

In Germany, HealthCare participates in the “Risk Management of Emerging Compounds and
Pathogens in the Water Cycle” (RISKWA) initiative sponsored by the German Ministry for Education
and Research. HealthCare is a member of the steering committee.

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10. Product Stewardship

Safet y and qualit y StandardS at aniMal HealtH
In line with the statutory requirements, strict quality standards apply to all Animal Health product
classes. Safety and quality standards comparable to those governing human medicine apply for veteri-
nary pharmaceuticals such as parasiticides, anthelmintics or antibiotics. Within the scope of the ap-
proval procedures, Animal Health carries out studies in order to minimize the environmental impact of
the products’ use.

We train veterinarians, farmers and private users in the responsible use of our products. In this context,
we also support the European Platform for the Responsible Use of Medicines in Animals, which brings
together various partner organizations from politics, industry and society.

CropSCienCe
Safety is the top priority with products from CropScience. We analyze already prior to the development
of a product whether the envisaged solution is compatible with our sustainability approach. During the
development phase, we examine the products in stringent tests that are monitored by the authorities. At
issue here are an active ingredient’s toxicological properties on the one hand and on the other hand the
question of how significant the remaining trace amount of a crop protection product is following proper
application to the plants. Before a product is introduced to the market, we conduct numerous further
safety tests with regard to its use and environmental behavior, depending on the product area.

CropScience allowed the sale of all remaining WHO Class I insecticide formulations for leaf and soil
applications and seed treatments to expire at the end of 2012. All insecticides affected were replaced by
modern, targeted and more environmentally friendly formulations.

CropScience observes the International Code of Conduct on the Distribution and Use of Pesticides of the
United Nations Food and Agriculture Organization (FAO). The principles of this code cover the entire life
cycle of a product, from its development to its application and beyond. We implement all major aspects
of responsible product handling in our Product Stewardship Program, which is based on the principles
of our Product Stewardship Policy.

Online annex: 3-10-BcS-1

Even beyond its core business, CropScience participates specifically in projects aimed at added
product stewardship. We are a member of the Better Sugarcane Initiative, which works to promote
sustainable sugarcane cultivation in Brazil, and the International Sustainability & Carbon Certification
organization, which is working to establish a system for certifying biomass and bioenergy. We also
take part in the Round Table for Responsible Soy, which works to promote sustainable soybean
production, as well as in the Round Table for Sustainable Palm Oil Production, an organization that
promotes sustainable cultivation methods for the production of palm oil.

reSponSibilit y for CuStoMerS and partnerS
The application of crop protection products requires the greatest possible care. Supporting our custom-
ers and partners in the proper and safe handling of the products is therefore a focus of product steward-
ship at CropScience. We address farmers and dealers particularly through numerous programs world-
wide. Targeted workshops are aimed at enabling effective application of our products and ensuring the
safety of users, the environment and consumers. Furthermore, we provide our customers with hand-
books explaining the safe use, storage and disposal of all of our products.

Online annex: 3-10-BcS-2

CropScience concentrated its training activities in 2013 on the Asia and Latin America regions. In
India, for example, the subgroup has been organizing general training and information events, through
which 600 farmers receive training in good agricultural practice. They learn how they can enhance
the growth of their produce, use crop protection products effectively and safely, and thus increase the
quality of the goods they produce. The smallholders are also shown new ways of marketing their
products and thus increasing their profits.

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10. Product Stewardship

Promoting agricultural development is often a more effective way to fight hunger and poverty than
other forms of support. Higher incomes in turn enable farmers in countries such as India to improve
their standard of living and invest more in their children’s education and their own businesses.
Value is created for society as a result of the increased production of high-quality food. With these
measures, we contribute to sustainable agricultural development.

In Latin America, we combined all our activities dealing with product safety measures within our
AgroVida program. This comprises various initiatives with which we have been continuously increasing
the farmers’ safety awareness and specialist expertise since the 1990s. Safety training offerings for
farmers play a role here, for example. In 2013 we trained some 20,000 farmers in the Andean region
and approximately 3,700 farmers in the Central America and Caribbean region (excluding Mexico).
We also carried out safety training measures in numerous African countries in 2013.

Bayer supports industry’s efforts in various countries to establish a cross-company waste disposal
concept for used packaging and containers. In anticipation of such a solution, Bayer also established
its own disposal systems.

In the area of water pollution control, we offer customers a biological purification system, Phytobac™.
This is intended to prevent the discontinuous discharge of crop protection active ingredients in the
disposal of residual liquids that are generated during the filling and cleaning of spraying devices. In
Europe, there are already around 2,500 Phytobac™ facilities. It is planned to introduce this system
in Asia and Latin America as well.

Furthermore, we also work to improve technical solutions to minimize risks associated with the use
of our products: in Europe, for example, we drove forward the optimization of sowing machines to
provide better protection for users and the environment. The goal here was primarily to restrict the
spread of dust.

The company’s range of continuing education programs for product stewardship is rounded out by
internal employee training measures. Our aforementioned Product Stewardship Policy also provides
information on all principles for the responsible handling of our products, combined with specific
instructions for use for our employees and those who work with our products.

bee HealtH and Crop proteCtion
Crop protection products that benefit farmers, consumers and the environment are necessary to safe-
guard the nutrition of a growing world population both now and in the future. At the same time, it is
essential to protect the pollinators that contribute to a wide variety of healthy foods. In 2013 the debate
surrounding the use of certain neonicotinoid crop protection products and the subjective assessment of
their impact on bee health had an effect at the political level. As a result, the European Commission re-
stricted the use of a number of products in this active ingredient class for certain applications in Europe.
Bayer considers the decision by the European Commission to be scientifically unjustified and legally
flawed. The active ingredients in question were extensively examined with regard to their impact on bee
health already during the approval procedure. Bayer has appealed the decision by the European Com-
mission in order to ensure legal certainty for approval procedures. Bayer continues to work on behalf of
bee health and the responsible use of crop protection products. Within the context of its product stew-
ardship, the company invests in research to minimize the effects of crop protection products on honey
bees.

Online annex: 3-10-BcS-3

In 2012 Bayer launched a worldwide bee care program to promote a better understanding of the
many factors that can impact bee health. This program included the construction of the first Bayer
Bee Care Center at the site of CropScience and HealthCare’s Animal Health Division in Monheim,
Germany. CropScience’s center in Monheim, which opened in June 2012, combines Bayer’s extensive
knowledge and expertise in bee health under one roof. It also serves as a platform for dialogue with
stakeholders who share our interest in promoting bee health worldwide. Following the success of this
facility, a second Bayer Bee Care Center will open in 2014 that will deal specifically with bee health

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10. Product Stewardship

issues in North America. The North America center will be located at the U.S. headquarters of
CropScience at Research Triangle Park near Raleigh, North Carolina, United States, and will bring
together important technological, scientific and academic resources.

There is broad consensus among scientists who work in the area of bee health that the spread of
the difficult-to-combat Varroa mite presents the main risk to bee health, partly because this pest
transmits numerous viral diseases to bees. The Animal Health Division of HealthCare is working with
researchers at the Institute for Apiculture in Oberursel, Germany, to develop the Varroa gate – an
innovative way to control Varroa mites that is intended to keep this parasite from infesting beehives.
However, another important factor that can impact bee health is generally more intensive agriculture
in some regions, which limits suitable food sources for bees and breeding places for wild bees.

In addition to the focus on bee health, we assign importance to the product stewardship measures
we are developing to accompany the use of our crop protection products. These initiatives include
a new conveyor technology in the United States for sowing machines that reduces friction and thus
promotes the even flow of seed; the additional labeling of seed sacks; two new technologies devel-
oped in Europe to treat exhaust air during sowing; and new, even more stringent quality control
standards for seed dressing.

We have also launched an extensive bee monitoring program that is being implemented in five
European countries (France, the United Kingdom, Germany, Hungary and Poland). The tests are
carried out on winter canola, a crop that is very attractive for bees and is generally treated with
neonicotinoid seed dressings. The monitoring includes a scientific study led by an independent
research institute that will be implemented at various sites in the above countries and will begin with
the sowing of the winter canola in summer 2014. In addition, to illustrate the monitoring activities
a network of agricultural demonstration plants is being established in these countries that will come
into play in spring 2014. These activities are scheduled to take two to three years.

CropScience remains convinced that neonicotinoids are safe for bees if they are used responsibly and
properly. Our view is supported by the analysis of monitoring studies that were carried out by inde-
pendent institutes in addition to the studies generated in extensive approval procedures. The current
findings and many years of safe application of these products in agricultural practice confirm the
results of the risk assessments performed by the E.U. member states’ regulatory authorities on neo-
nicotinoid seed dressings. These results state that the products are harmless to bee colonies provided
they are used according to the product information. We initiated the above additional monitoring
study independently of the numerous scientific studies that confirm the safety of neonicotinoids.

MaterialSCienCe
The products of MaterialScience satisfy the most stringent of safety requirements. This applies not just
to those substances subject to standard review in accordance with the European REACH regulation. With-
in the context of the voluntary Global Product Strategy (GPS) of the chemical industry, we also assess the
substances we use and reduce potential health and environmental risks that could result from our chem-
icals. The product safety assessments apply to the entire life cycle of a product – from research and pro-
curement through production and logistics to application, disposal and recycling. Our product steward-
ship does not just end with our company, but also includes suppliers, customers and partners. GPS is
accessible at MaterialScience through the “Product Safety First” internet portal, and has been available
worldwide in seven languages since 2013. Through this website, we inform customers and other interest
groups about our activities and product safety assessments.

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11. Safety

Online annex: 3-10-BMS-1

A product safety assessment at MaterialScience takes place in several steps: first, chemicals that
are subject to statutory regulations are identified and the corresponding laws compiled. Their risk
potential is then examined so as to provide a basis for the effective minimization of risks. Such steps
can include proposals for technical measures such as protective clothing, or marketing restrictions.
Finally, we produce the legally required material safety data sheets, technical information sheets and
labeling for the chemicals.

For especially important products such as MDI, TDI, polycarbonate and polyether, MaterialScience addi-
tionally works with associations to draw up environmental product declarations and eco-balances certi-
fied according to ISO 14040 and 14044 and based on industry averages.

With regard to substances that come into direct contact with food, MaterialScience is following the sci-
entific discussion about the chemical Bisphenol A (BPA), a feedstock for various plastics. Critics are con-
cerned that health risks could result for users if traces of BPA are released from polymers. As document-
ed by numerous scientifically valid studies, we are convinced that the safety of BPA is ensured in its
existing areas of application. This assessment is consistent with evaluations by the responsible regulato-
ry authorities in Europe, the United States, Australia, Japan and other countries. In cooperation with the
PlasticsEurope association, we work to make the discussion more objective through being based on sci-
entific analysis.

MaterialScience discontinued its work on carbon nanotubes (CNTs) in 2013 due to strategic consider-
ations. Researchers from MaterialScience had collaborated with external partners in recent years to re-
solve complex issues related to the safe production of specific carbon nanotubes. Much of the knowl-
edge gleaned has already been made available to other companies and research institutions within the
Innovation Alliance for Carbon Nanotubes (Inno.CNT).

11. Safety

Safety management is a keystone of corporate responsibility in the Bayer Group. We consider the pre-
vention of accidents in day-to-day work, in the operation of production facilities, and on work-related
travel and transportation routes to be a top priority. Our activities in the areas of health, safety, environ-
mental protection and quality (HSEQ) are geared to ensuring the occupational health and safety of em-
ployees, contractors and suppliers on our company premises and under the supervision of Bayer, and
the smooth and safe operation of our facilities. In this way, we also reduce running costs by avoiding
damage and work disruptions.

At the Group level, responsibilities and framework conditions for HSEQ are regulated through appropri-
ate directives. Operational responsibility lies with the boards of management / executive boards of the re-
spective subgroups and service companies and the corresponding line organizations, who have their
own management systems, committees and working groups to steer HSEQ. Continuous review and
revision of directives and regular internal audits ensure that our HSEQ management systems meet the
specific requirements in each case.

oCCupational HealtH and Safet y
The rate of occupational injuries with lost workdays at Bayer has been falling for several years. In 2013
we were once again able to report a reduction in injury figures thanks partly to intensive training and
awareness-raising.

We record all injuries to Bayer employees requiring medical treatment that goes beyond simple first aid.
These are indicated by the Recordable Incident Rate (RIR), which covers both injuries with lost workdays
and those without. In 2013 this rate dropped to 0.47 cases per 200,000 hours worked (2012: 0.49) in the
Group. This means that, in statistical terms, one recordable incident occurred for around every 425,000
hours worked.

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11. Safety

The rate of recordable occupational injuries with lost workdays (LTRIR, Lost Time Recordable Incident
Rate) also fell. In 2013 it stood at 0.26 (2012: 0.27).

Unfortunately, in 2013 we had to report the work-related death of a Bayer employee in Mexico and of a
contractor’s employee in China.

occupational injuries

[table 3.11.1]

Occupational injuries to Bayer employees
with lost workdays (LTRIR *)

Recordable occupational injuries to Bayer
employees (RIR *)

Fatal injuries (total)

of which Bayer employees

of which contractor employees **

2009

2010

2011

2012

2013

0.40

0.34

0.31

0.27

0.26

0.62

0.56

0.49

0.47

* The values up to 2010 were calculated on the basis of the former MAQ values and do not include work-related illnesses.
** employees working for third parties whose accidents occurred on our company premises and under Bayer supervision

The injury figures varied both within individual regions and according to subgroup/service company.

Online annex: 3-11-1

recordable occupational injuries (rir) to bayer employees by region

[table 3.11.1-1]

Europe

North America

Asia / Pacific

Latin America / Middle East / Africa

total

2012

0.21

0.56

0.54

0.53

0.49

2013

0.72

0.49

0.20

0.40

0.47

The unusually sharp increase in the RIR injury rate in Europe is currently being closely investigated.

Since 2012 workplace-related illnesses have been recorded separately from legally listed occupational
diseases and are included in the LTRIR parameter. In the reporting period, six new cases of illness direct-
ly attributable to work-related factors were recorded throughout the Group. We report such cases when
they have been diagnosed and officially recognized by a medical officer.

As in previous years, we hardly recorded any sector-typical accidents involving contact with chemicals in
2013. The absolute number of injuries declined further. A significant proportion of our work-related ac-
cidents and injuries relates to traffic accidents. In the previous year (2012) these were even at the top of
our list of injury statistics. As a result, road safety was the focus of many programs and training courses
in 2013.

Online annex: 3-11-2

Safety in motorized and non-motorized transport was also a central issue at the HealthCare sites
worldwide, along with accidents caused by tripping, slipping and falling, as they account for most
occupational injuries with lost workdays at HealthCare. Various measures and campaigns to prevent
accidents on the road and on company premises were therefore carried out at many sites in 2013.
Dedicated training courses and activities were also used to raise awareness in other areas of
occupational safety such as workshops on the safe handling of hazardous substances for employees
at various Chinese sites.

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130

11. Safety

Road safety was also a big issue at CropScience in 2013, especially in training sessions for employees
in Brazil, Colombia, Chile and Venezuela, and in several Asian countries, where motorcyclists in
particular were given instruction. In a monthly “QHSE Update,” CropScience publishes up-to-date
information and advice for its employees worldwide.

In 2013 MaterialScience once again called on its employees to submit their suggestions for the
subgroup’s own CEO Safety Award. Measures implementing the winning entries will be rolled out
worldwide at MaterialScience in 2014.

On the basis of a 2012 employee survey on HSE (Health, Safety, Environment) performed at Bayer
Corporation in North America and at MaterialScience worldwide, all MaterialScience sites drew up
action plans by the end of 2013. The goal is further improvement in occupational safety and the cor-
responding HSE management systems.

At the annual Group-wide Safety Day in September 2013 there was also a particular focus on correct
road safety procedures.

proCeSS and plant Safet y
Through the Group-wide process and plant safety (PPS) initiative, Bayer is continuously working to im-
prove the safety culture and corresponding standards in plants and laboratories and to optimize safety
technology.

Online annex: 3-11-3

By the end of 2012, the process and plant safety initiative had provided training to approximately
26,000 production and technology employees and had led to the introduction of a standardized risk
assessment including a catalog of measures. Based on the experience gained from these initial train-
ing courses, work began in 2013 on preparing teaching materials to enable the long-term continua-
tion of the training program using both traditional and web-based training. To maintain the standard
achieved in the long term, the process and plant safety training program will be firmly established
in the subgroups’ HSEQ management systems.

Further standardized KPIs, such as Loss of Primary Containment (LoPC), were also prescribed for all
Bayer plants. LoPC refers to unsafe conditions in production facilities, for example chemicals leaking
from their primary container such as pipelines, pumps, tanks or drums. LoPC was introduced as an early
indicator. We use the associated rate (LoPC Incident Rate) to determine the number of LoPC incidents
per 200,000 working hours in areas relevant to plant safety. The LoPC Incident Rate for 2013 was 0.35
(2012: 0.38).

Online annex: 3-11-4

Every incident reported is carefully analyzed with respect to its causes. The result of the cause analysis
is publicized across the Group to heighten the safety awareness of employees. The reporting level is
set so low that even material and energy leaks that have no impact on employees, neighbors or the
environment are systematically recorded and reported. This approach is in line with our commitment
to maintaining the integrity of our facilities at all times. As expected, the evaluations from the first
few years have indicated areas where there is room for further improvement in the safety of existing
facilities. The introduction of both this parameter and the global training program mentioned above
is helping us to raise awareness of the significance of minor leaks and releases.

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11. Safety

The Bayer Group Regulation “Process and Plant Safety” stipulates uniform processes and standards. The
methods and criteria for identifying and assessing the risks posed to people and the environment by
plants and processes underwent further development and were globally standardized.

The Bayer Group’s competence center for process and plant safety, together with the Group HSEQ
Platform for Process and Plant Safety, is managed by Technology Services. This comprises three region-
al competence centers, which are located in Leverkusen, Germany; Shanghai, China; and the Baytown
and Kansas City sites in the United States.

tr anSportation Safet y
A central objective of the Board of Management is to make transportation safety a very high priority
within the Bayer safety culture. The Bayer Group Regulation “Transportation Safety” specifies proce-
dures that ensure that all transported materials are handled in line with applicable regulations and the
materials’ hazard potential. Logistics service providers are to be selected following a defined procedure,
and their fulfillment of safety and quality standards is to be assessed regularly. The regulation requires
every organizational unit concerned to appoint people who will be responsible for implementation.

A Group-wide Transportation Safety Platform has been set up that is chaired by each of the subgroups
in turn. In 2013 the focus of the platform’s activities lay, for example, on sustainable training tools for
transportation safety, reviewing internal instructions and evaluating and selecting our logistics service
providers. This was documented in corresponding HSEQ targets. As part of our Responsible Care™ activi-
ties, transportation safety instructions are also being drawn up for non-hazardous materials. This goes
beyond what is required under transportation legislation.

The transportation safety management of the subgroups is part of the audit system of the Bayer Group
detailed in the Bayer Group Regulation “Health, Safety, Environment and Quality (HSEQ) Audits.”

We classify critical incidents during the transportation of our products as transport incidents. These
include accidents that cause personal injury, significant damage to property, environmental impact
through the release of substances or leakage of hazardous materials. We record transport incidents
using defined criteria. Assessment is based on the leaked load, graded according to the volume and dan-
gerous goods class, personal injury and blocked transportation routes. We take into account both our
own chemical transports and those we commission and pay third parties to perform on our behalf.

In total, well over one million transport movements took place in 2013. Despite extensive safety precau-
tions and training activities, it is unfortunately impossible to prevent transport incidents from occurring
altogether. We carefully analyze and evaluate all incidents so that adequate steps can be taken to prevent
a recurrence. The number of transport incidents in the reporting period rose from six to 11. All incidents
occurred on the road or at sea.

transport incidents by Means of transport

[table 3.11.2]

Road

Rail

Inland waterways

Sea

Air

Pipeline

Total

2009

2010

2011

2012

2013

A detailed overview of the transport incidents can be found in Chapter 12.6 “Environmental Incidents.”

See Chapter 12.6

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12. Environmental Protection
12.1 Energy Consumption

12. Environmental Protection

Bayer takes its responsibility to protect the environment very seriously. It is constantly working to
reduce environmental impact and find innovative solutions that benefit the environment. Our environ-
mental standards apply worldwide.

Eco-efficient processes help cut the costs associated with materials, energy, emissions and disposal. After
all, an efficient approach to raw materials and energy is now more than ever an economic imperative too.
Ever increasing costs oblige us to take measures to improve resource and energy efficiency that relieve the
strain on the environment while also cutting costs.

Our commitment to environmental protection, health and safety extends beyond the scope of legal re-
quirements. It includes factoring in environmental aspects and performing a voluntary ecological assess-
ment for capital expenditure projects exceeding €10 million. In the case of acquisitions we examine
prior to the transaction whether the applicable environmental and occupational safety regulations and
fundamental employee rights are complied with at the production sites in question.

We are committed to the chemical industry’s Responsible Care™ initiative and have set out the basic
principles of this commitment in our Bayer Sustainable Development Policy. Certified HSEQ manage-
ment systems control its operational implementation.

12.1 Energy Consumption

Energy and material consumption and emission levels are highly dependent on the manufactured sales
volume. Consequently, this is our reference parameter for evaluating energy and resource efficiency.

In 2013 Bayer’s manufactured sales volume fell by 1.4%. The Group’s total energy consumption mean-
while was even down 2.8% at 80.8 petajoules. We differentiate between primary energy consumption at
our sites – mainly of fossil fuels to generate our own electricity and steam – and secondary energy con-
sumption that reflects the purchase of electricity, steam and refrigeration energy and the use of process
heat. Primary energy consumption fell by 3.0% and secondary energy consumption by 2.6%. Alongside
the lower manufactured sales volume, an increased drive to improve efficiency also contributed to this dis-
proportionately large decrease. The trend away from a correlation between manufactured sales volume
and energy consumption already identified in previous years thus continued in 2013.

The volume of the fossil fuels natural gas, oil and coal consumed decreased in 2013. In the area of sec-
ondary energy sources, steam consumption fell significantly but electricity consumption was only slight-
ly below the figure for the previous year. Developments varied according to subgroup and site.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 133

12. Environmental Protection
12.2 Air Emissions

relationship between energy Consumption and Manufactured Sales volume

[table 3.12.1]

primary energy consumption
for the in-house generation of electricity & steam

(1,000 TJ)

Natural gas

Coal

Liquid fuels

Waste

Other *

Secondary energy consumption
as steam, electricity and refrigeration energy

(net, 1,000 TJ)

Electricity **

Steam (net from purchase / sale)

Steam from waste heat (process heat)

Refrigeration energy (net from purchase / sale)

total energy consumption
(1,000 TJ)

Manufactured sales volume
(million metric tons)

2009

2010

2011

2012

2013

Terajoules

48.1

29,413

16,976

772

(33)

996

29.2

23,675

(2,092)

8,273

(654)

51.6

31,847

17,801

532

678

774

34.1

25,229

722

8,722

(595)

50.1

31,162

16,776

660

515

983

34.8

25,475

1,054

9,000

(683)

49.0

30,411

15,954

656

1,005

1,021

34.1

25,849

(121)

9,144

(735)

47.6

29,796

15,094

416

1,282

994

33.3

25,560

(801)

9,146

(639)

77.3

85.7

84.9

83.2

80.8

8.7

10.4

11.0

11.2

11.1

Energy efficiency (MWh / t) ***

4.09

3.77

3.63

3.50

3.44

* e.g. hydrogen
** Secondary energy consumption for electricity is based on the raw material mix of the country concerned.
*** Energy efficiency: quotient of total energy consumption and manufactured sales volume. For MaterialScience, only manufactured sales

volumes that also form the basis for calculating MaterialScience-specific emissions are taken into account.

Bayer utilizes primary energy as efficiently as possible and applies cogeneration in more than 90% of its
energy generation. The electricity and heat generated are used in our own production facilities and
third-party facilities (especially of Lanxess Deutschland GmbH as the other shareholder of our service com-
pany Currenta). The (secondary) energy purchased via us is also used at third-party production facilities.
Furthermore, we purchase electricity on the market – through electricity exchanges, for example. In the
reporting period, the proportion of renewable energies Group-wide was 0.7%. We comment in detail on
these issues in the CDP (Carbon Disclosure Project-Climate Change Program) Report.

www.annual-

report2013.bayer.
com/CDP-climate

12.2 Air Emissions

At Bayer, air emissions are caused mainly by the generation and consumption of energy. Our com-
mitment to greater energy efficiency helps reduce both costs and emissions. In addition, we aim to
contribute to climate protection on several levels and have established a Group-wide Climate Pro-
gram for this purpose.

CliMate progr aM
For some years, we have been working through our Climate Program to improve resource and energy
efficiency, one objective being to reduce greenhouse gas emissions during production operations. We
also offer market solutions aimed at protecting the climate and adapting to climate change.

By introducing this Climate Program, Bayer already reduced its specific emissions by around 18% be-
tween 2005 and the end of 2013. We have therefore achieved our ambitious medium-term targets. By
implementing energy management systems and investing in energy efficiency measures we have also
improved the Group’s energy efficiency by around 18% over the same period as planned.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

134

12. Environmental Protection
12.2 Air Emissions

See Chapter 1.3

As part of our new package of targets (see Chapter 1.3 “Targets and Performance Indicators”), the exist-
ing emissions reduction target will be raised slightly and relate to a more recent base year. This new,
ambitious emissions reduction target will be supplemented by an energy efficiency target. Between 2012
and 2020, Bayer intends to cut its specific greenhouse gas emissions by 20% and improve its energy
efficiency by 10%.

Alongside aiming to achieve the overall Group climate target, the Bayer Climate Program reflects a com-
mitment to three specific areas:

1. More efficient production: reducing emissions at Bayer’s own production facilities by increasing
energy efficiency and by developing and utilizing new, innovative technologies.

Online annex: 3-12.2-1

By the end of 2013 MaterialScience had introduced the STRUCTese™ (Structured Efficiency System
for Energy) energy management system at 58 particularly energy-intensive facilities across the
globe. The annual energy saving amounted to over 1.2 million MWh, while CO2 emissions were cut
by over 360,000 metric tons per annum. German MaterialScience sites that have all implemented
STRUCTese™ were successfully recertified to ISO 50001 in 2013.

Innovative production processes also help reduce electricity consumption and greenhouse gas
emissions. Using oxygen depolarized cathode (ODC) technology in chlorine production cuts electricity
requirements, for example, by 30% compared with the standard process. This was revealed during
a two-year test period at a demonstration plant with an annual capacity of 20,000 metric tons of
chlorine at the Krefeld-Uerdingen site in Germany. The process has been marketed globally since
2013 so as to raise potential for improved efficiency outside Bayer too. If ODC technology were intro-
duced throughout Germany’s chlorine industry, for example, it would cut the country’s total electricity
consumption by 1%.

A further process innovation is gas phase technology in the manufacture of the polyurethane
precursor TDI. This technology uses up to 60% less energy and up to 80% less solvent. Among other
things, the process is to be used at a new TDI plant with an annual capacity of 300,000 metric tons
that is currently being built at the Dormagen site in Germany at a cost of €250 million.

Partially replacing crude oil with CO2 in the production of plastics could help conserve resources. In
this process, polyol, another precursor required to make polyurethane, can be manufactured with the
help of CO2.

A global review of energy management systems is being performed in our life science businesses
with the goal of identifying at which production sites certification to ISO 50001 should be envisaged.

Chemical park operator Currenta started introducing energy management systems at the German
sites in Dormagen, Leverkusen and Krefeld-Uerdingen in 2012. Certification to ISO 50001 will be
completed by the end of 2015 at the latest.

2. Market solutions: using Bayer products – particularly in the areas of building insulation, lightweight
construction and agriculture – to reduce customer emissions. Our products play their part in saving
energy and conserving resources in many different ways. They help customers reduce emissions and
provide them with solutions for adapting to climate change.

Online annex: 3-12.2-2

Products and solutions from MaterialScience help conserve resources and save energy in a number
of key industries and areas of life, at the same time also cutting emissions. Prime examples include
lightweight construction in the automotive sector and the insulation of buildings and refrigeration
equipment. For instance, a particularly fine-pored rigid polyurethane foam has been developed that
can bring about a further significant improvement in the insulating performance of refrigerators and
freezers.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT
135

12. Environmental Protection
12.2 Air Emissions

MaterialScience is also demonstrating possible applications for insulating materials in the
EcoCommercial Building Program – a global network of experts for sustainable construction initiated
by the company. It brings together over 80 specialists from a variety of sectors including lighting
technology, energy management and renewable energies. The objective is to develop solutions for
reducing buildings’ energy consumption and using renewable sources to cover the remaining
requirements. Bayer itself makes use of the global network to construct its own reference buildings.
Such buildings have so far been constructed in Germany, Belgium, the United States, India, China
and, most recently, Brazil.

The transparent, high-performance plastic polycarbonate also paves the way for energy-efficient
market solutions supporting, for example, energy-saving LED technology that can be used in the
automotive industry and for innovative street lights. The latter consume up to 70% less energy than
conventional models.

Materials from MaterialScience also play a role in generating renewable energies. The latest develop-
ment projects include transparent polyurethane coatings for solar cells that require no outer glass
panel, thus cutting weight, saving costs and making energy generation more efficient. In the area of
wind power, the company has developed a new polyurethane infusion resin for rotor blades that out-
perform rotors based on the epoxy resins previously used in terms of lightness, fracture toughness
and durability.

CropScience’s seed and crop protection strategy actively helps reduce specific greenhouse gas
emissions per yield. Chemical crop protection products that, for example, specifically increase stress
tolerance enable customers to make efficient use of resources so as to boost yields. CropScience has
expanded its Tabela project in Indonesia, which focuses on rice cultivation with direct seeding, to an
area of 10,000 ha – a 40% increase compared with 2012. Under this initiative, the company is work-
ing with international and local partners to demonstrate just what can be achieved through direct
seeding of pregerminated rice and with the help of a customized package comprising seeds and crop
protection. The benefits include enhanced water efficiency, lower greenhouse gas emissions, higher
rice yields and improved incomes for farmers. It is expected that the project will be continuously
expanded in the future, with the goal of supporting the sustainability of rice cultivation in Indonesia.
The Republic of Indonesia has recognized CropScience’s Tabela project as a U.N. Clean Development
Mechanism through its responsible body.

The successful continuation of the cooperation with the International Vector Control Consortium
(IVCC) in combating malaria through targeted defense against the insects transmitting the disease
using technological solutions such as long-lasting insecticides helps fight the growing threat of
malaria resulting from climate change.

3. Supporting activities: reducing emissions in non-production areas – such as the vehicle fleet and IT –
involving the workforce in the process.

Online annex: 3-12.2-3

Bayer maintains a variety of initiatives to cut costs in the Group’s non-production areas by saving
energy and fuel. Examples include improvements to the vehicle fleet and in the field of information
technology. A new reduction target was implemented in 2013 as part of the Bayer EcoFleet initiative.
By 2020 Bayer is planning to reduce the specific CO2 emissions of the Group’s global fleet comprising
over 25,000 vehicles to 110 g/km. In the area of communication, Bayer is increasingly using energy-
efficient workstation solutions with integrated voice and video functions. Such IT solutions reduce the
number of business trips necessary and thus emission levels.

greenHouSe gaS eMiSSionS
Bayer reports all Group greenhouse gas emissions in line with the requirements of the Greenhouse
Gas Protocol (GHG Protocol). Direct emissions from our own power plants, waste incineration plants
and production facilities (corresponding to Scope 1 of the GHG Protocol) are determined at all pro-
duction locations and relevant administrative sites.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 136

12. Environmental Protection
12.2 Air Emissions

In the reporting year, greenhouse gas emissions remained Group-wide at about the same level as the
previous year (+0.2%). While direct emissions fell by 3.6%, indirect emissions rose by 4.1% in
arithmetical terms. At the site where we consume the most power, Baytown in the United States, the
local energy producer has updated the emission factors for electricity and steam procurement, which
led to an arithmetical rise in our greenhouse gas emissions.

Specific greenhouse gas emissions for 2013 rose owing to the fall in manufactured sales volume com-
pared to 2012, reaching 1.00 metric ton of CO2 equivalents per metric ton of sales product.

Online annex: 3-12.2-4

Thanks to their environmentally friendly and resource-efficient combined heat and power (chp) tech-
nology, our power plants convert approximately 80% of the fuel energy used into electricity and heat.
Despite this, they cause a significant proportion of the Group’s direct greenhouse gas emissions.

It is important to note that, in line with the regulations of the GHG Protocol, we include in our figures
all greenhouse gas emissions from the conversion of primary energy sources into electricity, steam or
refrigeration energy, even though a significant proportion of direct emissions result from the genera-
tion of energy that is supplied to third parties (other companies). Consequently, our absolute figures
for greenhouse gas emissions are higher than the actual emissions resulting from Bayer’s business
activities. The level of specific greenhouse gas emissions is a more meaningful statistic. This indicates
only the greenhouse gas emissions for which Bayer is responsible in relation to the manufactured
sales volumes of the three Bayer subgroups.

Each year, the waste incineration plants operated by Currenta produce around 1 million metric tons
of steam from the incineration of approximately 280,000 metric tons of hazardous waste. Compared
to using fossil fuels, this reduces emissions by 200,000 metric tons of CO2 per year.

Information on subgroup-specific greenhouse gas emissions:

Online annex: 3-12.2-5

greenhouse gas emissions by Subgroup and Service Company

[table 3.12.2-1]

HealthCare

CropScience

MaterialScience **

Others ***

Currenta ****

Specific greenhouse gas emissions for

MaterialScience
(metric tons of CO2 equivalents per metric ton
of manufactured sales volume) *****

total direct and indirect emissions in million metric tons of Co2 equivalents

2009

0.55

1.09

4.83

0.02

1.62

2010

0.54

1.09

5.24

0.02

1.62

2011

0.54

1.00

4.63

0.01

1.97

2012 *

2013 *

0.55

0.92

4.89

–

1.88

0.52

0.95

4.98

–

1.83

1.09

0.96

0.82

0.86

0.89

***

Emissions from the Group’s vehicle fleet amounting to 0.10 million metric tons of CO2 equivalents are not assigned to specific
subgroups but are reported in the Group direct emissions (see Table 3.12.2 “Group Greenhouse Gas Emissions”).
In collaboration with our energy suppliers we were able to update a large proportion of the conversion factors for calculating
emissions. These plant-specific values are increasingly replacing the statistically determined factors of the International Energy
Agency (IEA) previously used. This step led to a worsening of MaterialScience’s emission reduction (2005 – 2013) from 27.1%
to 23.7%. Bayer does not intend to adjust its targets.
Total greenhouse gas emissions for Technology Services and Business Services. These companies’ production facilities were
incorporated into other subgroups in 2012.

**** The emissions reported for Currenta are attributable to the provision of energy to external companies at the Chempark sites.
***** The by-products sodium hydroxide solution and hydrochloric acid generated during production are not included in the manufactured

sales volume. Trade products are also not included.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 137

12. Environmental Protection
12.2 Air Emissions

group greenhouse gas emissions *

Direct greenhouse gas emissions **

Indirect greenhouse gas emissions ***

total greenhouse gas emissions

Specific greenhouse gas emissions
(metric tons of CO2 equivalents per metric ton
of manufactured sales volume) ****

Manufactured sales volume (million metric tons)

[table 3.12.2]

Million metric tons of Co2 equivalents

2009

4.57

3.53

8.10

1.23

8.7

2010

4.80

3.70

8.50

1.09

10.4

2011

4.23

3.92

8.15

0.95

11.0

2012

4.24

4.12

8.36

0.98

11.2

2013

4.09

4.29

8.37

1.00

11.1

*
**

portfolio-adjusted in accordance with the GHG Protocol
In 2013, 89.5% of emissions were CO2 emissions, 10.0% N2O emissions, just under 0.5% partially fluorinated hydrocarbons and
0.04% methane.

*** Typically, CO2 in incineration processes accounts for over 99% of all greenhouse gas emissions. We therefore base our calculation of

indirect emissions on CO2 only.

**** Specific Group emissions are calculated from the total volume of direct and indirect emissions of the subgroups, including from the

vehicle fleet, divided by the manufactured sales volume of the three subgroups. Quantities attributable to the supply of energy to external
companies are deducted from the direct and indirect emissions. At MaterialScience the by-products sodium hydroxide solution and hy-
drochloric acid generated during production are not included in the production volume as they will occur in much smaller amounts in the
future, thanks to measures aimed at enhancing energy efficiency. Trade products are also not included.

Since 2011 the reporting of all relevant indirect Scope 3 emissions under the GHG Protocol has been
bindingly regulated by the Corporate Value Chain Accounting & Reporting Standard. Following a
thorough examination Bayer has identified nine material Scope 3 categories, which are reported on in
detail in the CDP Report.

Online annex: 3-12.2-6

As part of the Carbon Disclosure Project – Climate Change Program, we will again be publishing a
detailed report for 2013 on these emissions that result from the value chain. We take particular
account of emissions where there is significant potential for reduction. These include our transport-
related emissions resulting from business trips.

In 2013 the Bayer Group was involved in European emissions trading with 10 incineration plants and five
chemical production plants. The greenhouse gas emissions of these facilities comprised approx. 2.17 mil-
lion metric tons of CO2 (incineration plants) and approx. 0.48 million metric tons of CO2 equivalents
(chemical production plants).

otHer direCt eMiSSionS into tHe air
Emissions of ozone depleting substances (ODS) fell by 3.9%. Emissions of volatile organic compounds ex-
cluding methane (VOCs) dropped by around 13%. The main source of emissions remains the CropScience
site in Vapi, India, which accounts for over 70% of all VOC emissions. The project initiated there to reduce
these emissions is starting to have an impact: VOC emissions have fallen by a further 11%, which is equiva-
lent to 8.8% of the Group total. By 2016 at the latest, a central waste air treatment system will bring
together the many different emission streams in Vapi and significantly reduce these emissions. At the
HealthCare site in Bergkamen, Germany, targeted organizational and technical improvements led to a
reduction of almost 70% in local VOC emissions.

emissions of ozone depleting Substances (odS) *

ODS

* in CFC-11 equivalents

voC* emissions

VOC in 1,000 metric tons p.a.

VOC in kg per metric ton
of manufactured sales volume

* volatile organic compounds excluding methane

[table 3.12.3]

Metric tons p.a.

2009

17.5

2010

20.8

2011

16.3

2012

16.3

2013

15.7

2009

2.59

2010

2.54

2011

2.69

2012

2.60

2013

2.27

[table 3.12.4]

0.2979

0.2436

0.2457

0.2316

0.2047

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 138

12. Environmental Protection
12.3 Use of Water and Emissions into Water

Other direct emissions also fell in 2013.

Online annex: 3-12.2-7

other important direct air emissions

[table 3.12.4-1]

NOX

SOX

Particulates

2009
1,000 metric
tons p.a.

2010
1,000 metric
tons p.a.

2011
1,000 metric
tons p.a.

2012
1,000 metric
tons p.a.

2013
1,000 metric
tons p.a.

1.4

3.5

2.8

0.2

1.4

3.7

2.7

0.2

1.3

3.7

2.3

0.2

1.0

3.1

1.9

0.2

0.9

2.5

1.3

0.2

12.3 Use of Water and Emissions into Water

The continuous availability of clean water in sufficient quantities is essential for our production sites and
the surrounding areas. However, this cannot be taken for granted in many parts of the world. We safeguard
our water supply under the premises that industrial water usage does not lead to local problems such as a
shortage of water for the local population.

www.annual-

report2013.bayer.
com/CDP-water

Bayer supports the CEO Water Mandate of the U.N. Global Compact with the goal of working with key
stakeholders to develop sustainable strategies for water usage. Our CDP Water Disclosure reports on our
water usage and the associated risks.

See Chapter 1.3

Online annex: 3-12.3-1

We are currently actively involved in the CEO Water Mandate’s working group to develop Corporate
Water Disclosure Guidelines. We provide details of our commitment, the measures implemented and
the results achieved within the Group in our annual CDP Water Disclosure response, which represents
a progress report for the CEO Water Mandate. In this survey initiated by the Carbon Disclosure Project
(CDP), 530 institutional investors call on 629 of the world’s biggest companies to disclose details of
their water management, their company-specific water footprint, and the opportunities and risks they
have identified in connection with the use of water.

Based on our company’s Water Position, we have established a program for the targeted and ongoing
improvement of our water-related operating procedures. This covers both the protection and the effi-
cient use of resources. As part of the Water Disclosure Project we have performed a screening of all
environmentally relevant sites with respect to water shortage. Sites located in arid regions that are
subject to particular risks when it comes to the availability and quality of water will establish a water
management system with regional targets and measures by 2017 (see also Chapter 1.3 “Targets and
Performance Indicators”). This will be performed on the basis of the analysis of environmental aspects
in existing Bayer environmental management systems. Previous local reduction targets, as established
in Spain, New Zealand and Australia, will be taken into consideration.

Our three subgroups apply specific systems and standards to tackle the respective challenges they
face in their usage of water.

Online annex: 3-12.3-2

In its Water Protection Directive, HealthCare commits itself to responsible water usage. For example,
new facilities for collecting, treating and using rainwater are under construction at the Bergkamen
site in Germany. HealthCare sees itself as duty-bound to continue developing its strategy for dealing
with pharmaceutical residues in the environment.

CropScience is a member of the World Business Council for Sustainable Development’s Water
Programme Leadership Group. At the end of 2012 a pilot project was launched at the Quart de Poblet
site in Spain. As part of the European Water Stewardship Programme, this project will evaluate the
sustainable use of water and investigate potential for improvement.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

139

12. Environmental Protection
12.3 Use of Water and Emissions into Water

MaterialScience regulates the resource-friendly use of water in its HSEQ policy. This policy
includes a commitment to handle resources carefully. The company also feels it has a responsibility
to continuously improve its contribution to environmental protection and energy efficiency.

water ConSuMption and uSage
In 2013 the Group’s water consumption fell by around 23 million m³ or approx. 6%. The biggest
reductions were seen at the Chempark Leverkusen site in Germany and the MaterialScience site in
Antwerp, Belgium. The gradual closure of production facilities at the CropScience site in Institute,
West Virginia, United States, has reduced water consumption there by almost 24 million m³, which
corresponds to over 6% of the Group’s total water volume. Water was essentially obtained from the
same sources as in the previous year.

net water intake by Source

[table 3.12.5]

Water consumption (million m³ p.a.)

Proportion from surface water (%)

Proportion from bore holes / springs (%)

Proportion from public drinking
water supplies (%)

Proportion from other sources, generally
rainwater (%) *

2009

407

2010

474

2011

411

2012

384

2013

361

* Through an optimization in the accounting of water use, it was possible to assign most of the water to the actual sources from 2010 onward,

thus reducing the figure for water from other sources.

The total volume of once-through cooling water in 2013 was around 253 million m³. This is approxi-
mately 12% down on the previous year, which amounts to a reduction of 36 million m³ worldwide. 70%
of all water used by Bayer is once-through cooling water. This water is only heated and does not come
into contact with products. It can be returned to the water cycle without further treatment in line with
the relevant official permits. The main reasons for the reduction in the volume of once-through cooling
water are the partial closure of the CropScience site in Institute, West Virginia, United States, and the
lower production volume at the MaterialScience site in Antwerp, Belgium.

In our production activities, we endeavor to use water several times and to recycle it. Water is already
recycled and reused at 36 sites, e.g. in closed cooling cycles, or through the reuse of treated wastewater
or steam condensate recovery as process water. A total of around 11 million m³ of water was reused in
the reporting year.

Online annex: 3-12.3-3

The graphic shows the distribution of the different types of water usage within the Bayer Group.

water use in the bayer group in 2013 (million m3)

[graphic 3.12.2-1]

Sources of water

Water usage *

Water discharged *

Surface water

226 (63%)

Cooling water

265 (73%)

Boreholes / springs

120 (33%)

Drinking water supplies

10 (3%)

of which
recycled / reused

11 (3%)

Other sources

6 (2%)

Production **

96 (27%)

Once-through
cooling water

253 (77%)

Losses due to evaporation 12 (4%)
from cooling water circuits

Process wastewater with 51 (16%)
subsequent treatment

Process wastewater
without subsequent treatment

12 (4%)

* The differences between volumes of water consumed and water discharged can be explained, for example, by unquantified losses

due to evaporation, leaks, quantities of water used as raw materials in products and volumes of condensate generated through the use
of steam as a source of energy.

** sum from production processes, sanitary wastewater and rinsing and cleaning processes in production

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 140

12. Environmental Protection
12.3 Use of Water and Emissions into Water

waStewater and waStewater diSCHargeS
The total volume of process wastewater fell by around 3.6%. All wastewater is subject to strict monitor-
ing and analysis before it is discharged into disposal channels. 81% of Bayer’s process wastewater
worldwide is purified in wastewater treatment plants (Bayer or third-party facilities). Following careful
analysis, the remaining 19% was categorized as environmentally safe. Part of it contained nutrients and
was therefore used to water gardens and agricultural land. The volume of treated wastewater fell by 4%
compared to the previous year. Its proportion of the total discharge of water remained at the previous
year’s level. The decrease in the volume of wastewater not requiring treatment is primarily due to the
reduced use of once-through cooling water at the two German Chempark sites in Leverkusen and
Krefeld-Uerdingen.

volume of process wastewater (million m³)

2009

2010

2011

2012

2013

[graphic 3.12.1]

Million m3

100

Our goal is to minimize emissions into wastewater. In 2013 the amount of nitrogen compounds released
into wastewater fell by 2%, and the amount of phosphate discharged decreased by 25%.

In 2013 we recorded an increase of around 8% in total organic carbon (TOC) emissions. The main
generators of this were the CropScience sites in Muttenz, Switzerland, and Kansas City, Missouri, United
States. The most important reason for this was a considerable increase in production, along with a defect
in a heat exchanger in Muttenz.

emissions into water

Phosphorus (1,000 metric tons p.a.)

Nitrogen (1,000 metric tons p.a.)

Nitrogen (kg per metric ton of manufactured
sales volume)

TOC * (1,000 metric tons p.a. of organically
bound carbon)

TOC (kg per metric ton of manufactured sales volume)

[table 3.12.6]

absolute values

2009

0.74

0.64

2010

0.09

0.49

2011

0.08

0.53

2012

0.15

0.70

2013

0.11

0.69

0.0737

0.0474

0.0486

0.0624

0.0620

1.35

0.155

1.42

0.136

1.50

0.137

1.42

0.126

1.53

0.138

Heavy metals (1,000 metric tons p.a.)

0.0090

0.0114

0.0108

0.0098

0.0091

Inorganic salts (1,000 metric tons p.a.)

COD ** (1,000 metric tons p.a.)

726

4.05

866

4.26

926

4.51

1,048

4.25

946

4.58

* total organic carbon
** chemical oxygen demand; calculated value based on TOC figures (TOC x 3 = COD)

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 141

12. Environmental Protection
12.4 Waste and Recycling

12.4 Waste and Recycling

Bayer minimizes material consumption and disposal volumes through systematic waste management.
Safe disposal channels with separation according to the type of waste and economically expedient
recycling processes serve this purpose. Production fluctuations and building refurbishment / land re-
mediation work also influence waste volumes and recycling paths.

In 2013 the total volume of waste generated fell by around 11%. The main reason for this was the
completion of a major soil remediation project at CropScience’s Thane site in India. The site has now
been sold. Another soil remediation project, at the HealthCare site in Orizaba, Mexico, was also com-
pleted, leading to a further drop in waste volumes.

Waste Generated *

[table 3.12.7]

Total waste generated (1,000 metric tons p.a.)

Hazardous waste generated **

of which hazardous waste from production

Specific volume of hazardous
production waste (%)

2009

914

375

302

3.47

2010

807

354

325

3.12

2011

958

474

354

3.23

2012

1,014

603

397

3.54

2013

899

467

417

3.77

* only waste generated by Bayer
** definition of hazardous waste in accordance with the local laws in each instance

In line with the general reduction in the volume of waste, the amount of waste disposed of fell
by 10.4%. This had no significant effect in 2013 on the distribution of waste among the different
disposal channels, however.

Online annex: 3-12.4-1

waste by Means of disposal

[table 3.12.7-1]

total volume of waste disposed of *
(1,000 metric tons p.a.)

Proportion removed to landfill (%)

Proportion incinerated (%)

Proportion recycled (%)

Waste that cannot be unambiguously
assigned (%)

2009

2010

2011

2012

2013

918

809

966

1,021

915

* Bayer serves as a certified waste disposal plant operator at various sites. At these locations, Bayer disposes not only of its own

waste but also of waste from third parties (companies not belonging to the Bayer Group). For that reason the volume of waste disposed
of differs slightly from the volume of waste generated by Bayer.

Hazardous waste * generated by Means of disposal

[table 3.12.7-2]

total volume of hazardous
waste generated

Amount removed to landfill

Amount incinerated/recycled

* only waste generated by Bayer

2009
1,000 metric
tons p.a.

2010
1,000 metric
tons p.a.

2011
1,000 metric
tons p.a.

2012
1,000 metric
tons p.a.

2013
1,000 metric
tons p.a.

375

286

354

298

474

122

352

603

175

428

467

414

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 142

12. Environmental Protection
12.5 Biodiversity

reCyCling
In addition to satisfying economic and environmental criteria, the recycling of our materials also has to
comply with legal requirements. This results in restrictions, particularly in the areas of pharmaceuticals
and crop protection. Throughout the Group, we are developing opportunities for recycling within the
framework of legal regulations.

In the reporting period, the volume of waste recycled was just under 250,000 metric tons (27%) of the
total volume of waste disposed of, which is two percentage points down on the previous year. Numerous
examples of recycling measures provide proof of Bayer’s commitment to recycling.

Online annex: 3-12.4-2

At the Bergkamen site in Germany, HealthCare binds iodine released during the incineration of waste
from X-ray contrast medium production and processes it into an iodide solution that can be marketed.
This process enabled us to recover and recycle around 220 metric tons of iodine in 2013.

CropScience supports the drawing up of directives on the return of crop protection product packaging
in collaboration with national industrial associations. The subgroup is also globally committed to
establishing efficient take-back systems with the corresponding reclamation organizations. In 2013,
2,250 metric tons of rinsed primary packaging was collected and, to a great extent, recycled (about
85% of the total volume). The PAMIRA system for the safe and environmentally responsible disposal
of crop protection and liquid fertilizer packaging was introduced on a voluntary basis in the 1990s
by the crop protection industry and the commercial sector. The amount of packaging taken back in
Germany has been steadily growing since 2010. In 2013, 2,666 metric tons of packaging were
accepted and passed on for controlled, environmentally responsible recycling.

MaterialScience supports the recycling of its plastic products and items made from them, among
other things by working extensively in associations and bodies such as PlasticsEurope’s sustainability
platform. The subgroup is also a shareholder of BKV GmbH, German industry’s competence platform
for recycling plastic. In its own production operations, too, MaterialScience uses material recycled
from plastic waste. Such high-quality secondary raw materials are used to make certain engineering
thermoplastics. Current products include a flame-retardant plastic compound comprising 30% old
PET water bottles that is used to make TV housings.

In 2013 MaterialScience also became involved in PlasticEurope’s “Zero Pellet Loss” initiative, which
aims to prevent plastic granules from being released at any stage in the life cycle of thermoplastic
products. In particular, production and logistics processes are to be reviewed.

Currenta has developed a process for the thermal treatment of composite materials. This process
destroys all organic, flammable substances, converts the heat released into usable steam and releases
the usable precious metals with a recovery rate of up to 99%. Recycling industrial waste, materials
from demolitions and chemical waste from the Chempark sites is also part of Currenta’s remit. This
also involves the inspection of buildings for contamination, the environmentally sound disposal of
rubble and the reuse of all recyclable materials. In 2013 Currenta’s recycling measures resulted in
around 46,000 metric tons of construction materials, 40,000 metric tons of metal and 12,000 metric
tons of chemicals such as sulfuric acid, solvents and iodine being returned to the material cycle.

12.5 Biodiversity

A new, Group-wide biodiversity position has applied at Bayer since the beginning of 2013. This incor-
porates the existing CropScience subgroup position. It takes into account influences on biodiversity
along the whole value chain and the sustainable use of raw materials. Particular attention is paid to
product innovations that are of specific benefit to biodiversity.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 143

12. Environmental Protection
12.5 Biodiversity

In this position, all subgroups commit themselves to the Convention on Biological Diversity. Under this
Convention, the industrialized nations entered into an undertaking in October 2012 to provide develop-
ing countries with greater support in implementing international biodiversity goals.

Online annex: 3-12.5-1

CropScience’s research and development activities include improving plant health, providing
assistance in tackling invasive species, and supporting and implementing measures to promote
integrated crop management. Farmers and breeders can use CropScience products to improve
their production efficiency with the goal of reducing the area needed for agricultural use, which in
turn leaves room for the preservation of valuable ecosystems with a large diversity of species.

Great importance is also attached to the protection of biodiversity as part of the European Union’s
reform of its Common Agricultural Policy in line with the Convention on Biological Diversity.

Building on the measures initiated as part of the International Year of Biodiversity in 2010, Crop-
Science started a raft of other projects in 2011 and continued them in 2013. The subgroup thus also
supports the European Union’s Action Plan for Biodiversity in the key areas that we can influence.
To protect and encourage pollinating insects, several strips of flowers have been planted in front of
and on the grounds of the CropScience site in Monheim, Germany. Under the motto “Blühende
Wege” (Areas in bloom), the subgroup is appealing to municipalities, beekeepers and individuals to
turn unused strips of grass into feeding areas for bees. The goal is to trigger a dynamic process that
will create a network of thriving biotopes throughout Germany. A total of nine sites were supported
with special seeds in 2013 and an expansion of the initiative is planned for 2014.

In the Upper Rhine Plain, Germany, a project examining the influence of strips of flowers, beetle
banks and other measures on the populations of wild bees and butterflies is already in its fourth year.

The Bayer Forward Farming project earmarked for roll-out throughout Europe was started in 2011
with the goal of demonstrating that it is possible to strike a successful balance between productive
agriculture on the one hand and the maintenance and promotion of biodiversity on farmland on the
other. Farms in Germany, Belgium, the United Kingdom and France are currently involved, and further
activities are planned in the Netherlands and Poland.

HealthCare also attaches great importance to maintaining biological diversity. As a member of the
Association of Research-Based Pharmaceutical Companies, it supports the association’s position
on the U.N. Convention on Biological Diversity. A new biodiversity policy has been in place at Health-
Care’s sites since June 1, 2013. Among other things, this takes into account that the subgroup
concentrates on the chemical synthesis of substances using state-of-the-art technologies in medicinal,
combinatorial and computational chemistry. Research on natural substances is not a focal point of
its work, accounting for less than 5% of its research activities. If such substances are used during
research into new pharmaceuticals, they are first checked with respect to the Convention on
Biological Diversity.

A Group-wide directive stipulates that new production sites must not be set up in areas that are protect-
ed by statutory requirements of the countries concerned relating to natural characteristics, biodiversity
or other factors.

Online annex: 3-12.5-2

Using our global site register, we compared the geographical coordinates of relevant production sites
against those of internationally recognized protected areas (ASEAN Heritage, Barcelona Convention,
UNESCO-MAB Biosphere Reserve, Wetlands and World Heritage Convention and Ramsar Convention).
This analysis showed that three of our sites lie less than three kilometers from protected areas. These
are Schorren van de Benenden Schelde, Belgium; the Wadden Sea of Lower Saxony, Germany; and
Blesbokspruit, South Africa. For example, we regularly check water usage and discharge at water-in-
tensive sites so as to prevent significant extractions of water and wastewater discharges that could
adversely affect the protected areas.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 144

12. Environmental Protection
12.6 Environmental Incidents

12.6 Environmental Incidents

Bayer uses the term “environmental incidents” to define incidents in the course of our business activities
that result in the release of substances into the environment. Factors that determine whether there is a re-
porting obligation include, in particular, the nature and quantity of the substance, the amount of damage
caused and any consequences for nearby residents. In accordance with our internal voluntary commit-
ment, we report any leakage of substances with a high hazard potential from a quantity of 100 kg upward.

Despite extensive safety precautions and training, it is unfortunately impossible to prevent the occur-
rence of environmental incidents altogether. In 2013 the number of environmental incidents rose from
five to 10, and the number of transport incidents from six to 11. Five of these come under both
categories. A detailed description of environmental and transport incidents:

Online annex: 3-12.6-1

environmental and transport incidents

CropScience, india, february 12, 2013

While being transported by ship to India, a big bag containing the product Nativo™ was ripped open

owing to the container of another company being inadequately secured. Around 400 kg of the

product was dispersed on the ship. The carrier received detailed cleaning and decontamination

instructions.

CropScience, Muskegon, Michigan, united States, february 28, 2013

Methanol gas escaped during routine maintenance. The incident was reported to the authorities,

because the locally permitted threshold was exceeded. An accident analysis was performed,

the responsible technical staff received appropriate training and the control system was reviewed.

CropScience, vapi, india, March 13, 2013

A plastic pipe leading to a tank ruptured and 20 m³ of a liquid containing hydrogen chloride (HCl)

leaked out. The product was collected and the remnants neutralized.

MaterialScience, knoxville, tennessee, united States, april 4, 2013

A fork-lift truck damaged a transport container during loading of the adhesive Desmodur™. Around

225 liters of the product leaked out inside a container and was properly soaked up and disposed of.

MaterialScience, sea route between brazil and argentina, april 9, 2013

During routine cleaning of a ship’s tank at sea, 500 metric tons of polyol (non-toxic polyurethane

precursor) was accidentally mixed with around 10 metric tons of seawater. This resulted in 35 metric

tons of polyol being released into the Atlantic Ocean.

CropScience, lubbock, texas, united States, May 8, 2013

One of six hydrogen chloride tanks on a supplier’s trailer sprung a leak. The cause was initially

unknown. An emergency plan was initiated, with around 100 residents living within a radius of 800 m

being evacuated as a precaution. Once the leak had been plugged, they were able to return to their

homes. Bayer asked the responsible supplier to perform a detailed investigation to analyze the cause

of the incident.

CropScience, kansas City, united States, May 11, 2013

The actuation of a pressure relief valve resulted in approximately 790 kg of ammonia being released

into the atmosphere. The cause was the decomposition of a valve seal. This defect was corrected

through the use of another, chemically resistant seal.

environment

transport

[table 3.12.7-3]

personal
injury

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 145

12. Environmental Protection
12.6 Environmental Incidents

environmental and transport incidents

[table 3.12.7-3 (continued)]

environment

transport

personal
injury

MaterialScience, krefeld-uerdingen, germany, June 19, 2013

A residue drain valve in a hydrochloric acid line that connected two tank farms and had a maximum fill

volume of approximately 20 m³ developed a defect. The line was not in operation at the time. As a

result of hydrostatic pressure, the acid leaked out at the location of the defect. The Fire Department

prevented any more serious damage by creating a wall of water. It was possible to drain off a large

part of the leaked acid into the in-house sewerage system. The embankment of the adjacent internal

rail line was contaminated as a result of this incident and was subsequently decontaminated properly.

MaterialScience, a3 freeway near neustadt, germany, June 20, 2013

A traffic accident involving a van and a truck occurred on the A3 freeway. Both vehicles were loaded

with Bayer materials. Approximately 3 metric tons of these materials escaped but they were not haz-

ardous. The two injured drivers were taken to hospital and released after a short time. The freeway

had to be closed while the debris was cleared away. The regional media visited the scene and report-

ed on the incident.

MaterialScience, near padang, Sumatra, indonesia, June 26, 2013

A traffic accident resulted in a contractor’s truck overturning and plunging down a 200 m cliff.

The driver and co-driver were both killed. Around 9 metric tons of polyol (non-toxic polyurethane

precursor) escaped.

MaterialScience, irving, texas, united States, July 17, 2013

A transport company reported a leak in a 200-liter metal drum filled with Desmodur™. A drum

transporter had accidentally collided with and punctured the drum during loading. Approximately 200 l

of the product leaked out. No one was injured and no emissions were released into the environment.

A specialist company was brought in to clean up and dispose of the product that had leaked.

CropScience, guatemala, august 3, 2013

A truck loaded with CropScience products collided with an oncoming truck. The truck that was hit

overturned and approximately 290 kg of product leaked onto the road, some of it reaching the

roadside ditch. The road was closed for 8 hours. The product and the contaminated soil were removed

and disposed of. Investigations revealed that the volume and type of product released did not meet

the criteria for an environmental incident.

MaterialScience, Ham/Hasselt, belgium, august 13, 2013

A tire blowout caused a truck loaded with 22.9 metric tons of polyol (no hazardous materials) to

overturn and catch fire on the E313 freeway in Belgium. The driver was not injured. No product

leaked out thanks to the tank container’s special leak protection. The fire was put out and the Belgian

police made the truck safe.

CropScience, brazil, September 15, 2013

A truck loaded with CropScience products collided with an oncoming truck. The loaded truck

overturned and a large part of the load fell onto the road. A number of drums were so badly

damaged that the product leaked onto the road. All necessary measures were taken to prevent

any environmental pollution. The undamaged products were returned to the production site

(Belford Roxo) and reprocessed. All waste was transported to a waste incineration plant with the

help of a specialist company. The road had to be closed for 5 hours.

MaterialScience, Hürth, germany, october 29, 2013

The driver of a tanker loaded with 30% hydrochloric acid drove too quickly on the way to

a customer. The vehicle tipped on its side. Since the tank and its shell were not seriously damaged,

only small amounts of hydrochloric acid (less than 50 l) leaked out. The investigation into the precise

damage caused is still under way. The driver suffered minor injuries, and was taken to hospital.

Six people (first-aiders) were also taken to hospital because they had breathed in the fumes from the

hydrochloric acid.

MaterialScience, Hong kong, december 3, 2013

While a consignment of polyol (non-toxic polyurethane precursor) was being transported to

Hong Kong by sea, a leak was discovered in one of the product containers (a flexi bag). Since the

threshold of 1,000 kg for the release of non-hazardous products was slightly exceeded (1,123 kg),

we classified this as a transport and environmental incident.

Of the 16 incidents reported, 10 were environmental incidents and 11 transport incidents.
Five incidents fell into both categories, resulting in them (intentionally) being counted twice.

Yes

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

146

12. Environmental Protection
12.6 Environmental Incidents

incidents observed by Stakeholders

[table 3.12.7-4]

The following incidents came to the attention of our stakeholders, but are not classed as environmental or transport incidents according

to Bayer criteria.

location of the incident

description

Comments

HealthCare, Lerma,

Stolen truck

A truck loaded with HealthCare products was stolen at a faked vehicle checkpoint

Mexico, February 24, 2013

near Guadalajara. The driver, assistant and security personnel reported back the next

day. The incident was reported to the local authorities.

HealthCare, Wuppertal,

Methanol leak

Approx. 600 l of methanol leaked in a HealthCare plant. The product was soaked up

Germany, March 10, 2013

immediately and incinerated as thermal waste. There was no impact outside the plant.

MaterialScience, Caojing,

Fatal workplace injury of a

There was a fatal injury during work at a construction site on the Caojing production

China, May 13, 2013

contractor’s employee

location. Heavy metal sheets were being lifted and moved using a crane. During this

maneuver, one of the sheets escaped from its binding and injured a construction worker

so severely that he later died in hospital. Bayer classified this accident in the “Fatal

workplace injury” category and subjected it to a thorough accident investigation.

HealthCare, Bitterfeld,

Flooding / disaster alert

The Bayer Bitterfeld site was threatened by floodwater. The company established

Germany, June 3, 2013

a temporary Emergency Task Force in Bitterfeld which was in contact with the local

community’s emergency task force. Appropriate precautions in the plants ensured

that this incident had no impact.

MaterialScience,

People injured by carbon

During the start-up of a production facility at the Brunsbüttel production site, carbon

Brunsbüttel, Germany,

monoxide

monoxide escaped through a leaky underpressure safety feature. Five external employees

September 24, 2013

who were in the immediate vicinity of the leak were taken to the company’s Medical

Department or to nearby hospitals. They were able to be released the same or the

following day. Bayer classified this accident in the “Workplace injury” and “Unsafe plant

status (LoPC)” categories, and subjected it to a thorough accident investigation.

HealthCare, Wuppertal,

Ruptured water main in

There was a ruptured water main on a major public road. Bayer Site Security checked

Germany, October 6, 2013

the public supply network

the neighboring construction sites and buildings for possible water ingress. Various

kinds of damage were discovered and arrangements made for these to be rectified.

HealthCare, Orizaba

Fatal workplace injury

There was an explosion in a drying area of a facility for intermediates at the Orizaba site.

Proquina, Mexico,

of a Bayer employee;

The Fire Department brought the resulting fire under control after a short time. One

October 23, 2013

explosion and fire

employee was killed and another taken to hospital with burns as a result of the accident.

in drying area

The public prosecutor opened an investigation to examine the cause and course of the

accident. A team of experts from Bayer is also investigating the accident. Bayer classi-

fied this accident in the “Fatal workplace injury” category.

HealthCare, Wuppertal,

Dripping tank car (water)

A liquid was found to be dripping on public property from a rail tank car hired by

Germany, November 11,

HealthCare in Wuppertal that was filled with mixed organic solvents. The Wuppertal

2013

municipal Fire Department and the Bayer Safety and Security Control Center were

informed. Due to the official tank car signage, it was assumed as a precaution that this

was a solvent leak. Tests on the sample taken revealed the leaking liquid to be water,

which had probably accumulated as rainwater in the cladding of the tank car.

HealthCare, Chengdu,

Fire on a building site

During welding work, small particles and sparks fell into a container of isoamyl acetate,

China, December 25, 2013

causing it to ignite. Employees were able to adequately extinguish the fire.

CropScience, Vapi, India,

Production facilities

The production facilities at CropScience‘s Vapi site were shut down as part of scheduled

December 27, 2013 –

downtime

downtime. This was due to an inspection of the entire industrial park (12 companies) by

January 2, 2014

the local state authorities. This incident was reported in the local press.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT number of environmental incidents

2009

2010

2011

2012

2013

147

12. Environmental Protection
12.7. International Standards and Certifications

[graphic 3.12.2]

Number

12.7. International Standards and Certifications

To ensure high health, safety, environmental protection and quality (HSEQ) standards throughout the
Group, Bayer has established management systems that are aligned to acknowledged international stand-
ards and are regularly evaluated and updated. They form an integral part of all our business processes.
Regular upkeep of the management systems and appropriate training and certification also demonstrate
our commitment to the guidelines of the chemical industry’s Responsible Care Global Charter.

With regard to the coverage of our business activities with HSEQ management systems based on energy
consumption, around 99% of our production sites had an HSE management system audited internally by
Bayer and over 90% of our Group-wide business activities were certified externally to internationally rec-
ognized standards in 2013. As part of a Group-wide certification plan, we are seeking to further increase
the level of coverage separately for each subgroup by 2017. The goal is for each subgroup to have a
coverage based on energy consumption of at least 80% by then. This applies to both environmental and
occupational safety management.

Certifications *

ISO 14001 certification / EMAS validation

HSEQ management systems based on other external standards **

Certified to OHSAS 18001

HSE management systems audited by Bayer

[table 3.12.8]

2011

2012

2013

* % of business activities (based on energy consumption)
** e.g. RCMS (Responsible Care Management System) in the United States or Industria Limpia (Clean Industry) in Mexico

All subgroups also have industry-specific international quality management systems such as ISO 9001,
ISO 17025, ISO 13485 or GMP (Good Manufacturing Practice). Group-wide, coverage is over 91%.

In 2012 we started applying ISO 50001, which defines requirements for introducing, implementing,
maintaining and improving an energy management system. So far, the MaterialScience sites in
Brunsbüttel, Dormagen, Leverkusen and Krefeld-Uerdingen (all Germany) have gained certification. In
2013 CropScience completed the implementation of energy management systems at the Knapsack and
Monheim sites in Germany with certification to ISO 50001. Together with the EMAS-certified site in
Frankfurt, three of the German sites have thus been prepared to meet the Group’s energy efficiency tar-
get. HealthCare has started implementing ISO 50001 and the certification process at the Bitterfeld site
was completed in 2013. By 2015 the subgroup intends to introduce energy management systems certi-
fied to ISO 50001 at all its German production sites. Currenta has also started introducing an energy
management system.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT
148

13. Social Commitment

€ 50
million

for the development
of society

Throughout the world, Bayer is active in a variety of ways in the core fields of education and science,
health and social needs, and sports and culture. With its foundations, the Bayer Group promotes cut-
ting-edge research, talented individuals and innovative educational and social projects. In 2013 Bayer
provided some €50 million (2012: €49 million) for these activities. As with its business operations,
Bayer’s social commitment is based on innovation and pioneering spirit.

Online annex: 3-13-1

expenses for Social initiatives in 2013

[table 3.13.0-1]

Share of total

Share of category

€ million

in %

education and science

School projects, focus: natural science and technology

Medical and clinical research

Science and research support (e.g. awards, endowed chairs,
research funding, symposia)

Nature and environment, environmental education

Scholarships for students, talent management programs

Health and social needs

Health care provision, social medicine, emergency medical care

Community projects

Health education, patient groups

Disaster aid, reconstruction

Volunteering projects

Sports and culture

Bayer clubs (sports, leisure, culture)

Culture incl. Bayer Arts & Culture

Other sports projects and projects in the communities surrounding the sites

total

expenses for Social initiatives

Main sponsorship areas

Education and science

Health and social needs

Sports and culture

[table 3.13.1]

2012

2013

€ million

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 149

13. Social Commitment

The Foundation & Donations Management Department within the Corporate Office of Bayer AG is re-
sponsible for strategically aligning and coordinating our social commitment, as well as for monitoring
and reporting activities. Social initiatives are implemented decentrally.

Online annex: 3-13-2

All project sponsoring is subject to the provisions of a Group-wide donation directive that establishes
a framework for its content-related and strategic alignment, as well as the proper handling of the
funds. We steer the selection of the projects through allocation guidelines comprising, among other
aspects, the indicators “social relevance” and “thematic proximity to the company’s fields of expertise.”
In all activities, we focus on countries in which Bayer is represented and on areas that are of
relevance to the company’s business strategy. Neither Bayer AG nor other Bayer Group companies
make donations to political parties or associations affiliated with them.

eduCation and SCienCe
The Bayer Science & Education Foundation supports young scientists and renowned researchers across
the globe through scientific awards, endowed chairs and research scholarships. In 2013 the foundation ap-
proved total funding of €2 million for this purpose.

The international Bayer Early Excellence in Science Award is presented annually in three categories: biolo-
gy, chemistry and materials. The Bayer foundation presents this award to talented young scientists in the
early stages of their academic careers. Further honorary awards presented by the Bayer Science & Educa-
tion Foundation for scientific achievements include the Otto Bayer Award, the Hansen Family Award and
the Bayer Thrombosis Research Award.

Promoting talent and
pioneering spirit

Bayer also supports the scientific instruction of young people. We want to help awaken and promote an in-
terest in science, technology and medicine through initiatives for schoolchildren and scholarship pro-
grams. In this way, we are helping talented young people at an early age who have the potential to become
leading-edge researchers.

Online annex: 3-13-3

The Bayer School Support Program specifically assists teachers near Bayer’s German sites who
organize scientific and technical instruction in an innovative way. The foundation supported the
implementation of such ideas with total funding of €500,000 in 2013.

The international Bayer education initiative “Making Science Make Sense” aims to help elementary
school students experience the world of science through target-group-oriented experimental
instruction. In 2013 we once again implemented locally specific programs in North and South America,
Europe and Asia, some of which involve volunteering activities by our employees.

The Bayer foundation established a total of 100 German scholarships at 22 universities throughout
the country, making available €180,000 for this purpose in the reporting period. The foundation
accepted 52 students into the international scholarship program in 2013, approving funding
of €200,000. In addition, 10 schoolchildren were accepted into the Science Teens Program and
20 physicians from 16 countries were included in the Young Physician Leaders Program. In addition
to funding, the Bayer scholarship students also benefit from the opportunity to make valuable
contacts at the company.

The Humboldt-Bayer Research Fellowship was initiated in 2013, marking the first time the Alexander
von Humboldt Foundation has collaborated with an industrial company. The program gives outstand-
ing young international researchers the opportunity to spend time conducting research in Germany
and to engage in intensive exchange with Bayer’s science networks. Bayer made available total fund-
ing of €500,000 for this purpose.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT
150

13. Social Commitment

HealtH and SoCial needS
We work to improve health services and social conditions in many regions of the world. To achieve
this objective, we cooperate with partners within international programs and support local initiatives.

One of the projects Bayer maintains in the area of public health is a collaboration with the Chinese
government aimed at promoting advanced training for physicians in rural, medically underserved
areas of western China. Supplementing Bayer’s economic activities in its core business is the Access
to Medicine (ATM) strategy. As part of this program, the company supplies medicines free of charge
to combat “neglected” tropical diseases.

To mark the company‘s 150th anniversary, the Bayer Cares Foundation for the first time supported
employees around the world who endeavor to improve living conditions in the communities sur-
rounding the company’s sites through their own project ideas.

Online annex: 3-13-4

In its volunteering program, the foundation made available total funding of €680,000 in 2013 for 172
employee and citizen projects in 50 countries. The foundation especially supports measures in its
core areas of promoting education and health, and meeting basic social needs. Their goal is to help
close supply gaps.

Disaster aid is another area of activity for our social needs foundation. While the company itself pro-
vides areas hit by natural disasters with immediate aid in the form of donations of money and goods,
the foundation supports sustainable reconstruction projects to help people who find themselves in a
state of hardship.

SportS and Culture
Bayer has been actively involved in supporting culture and sports for more than a century, thereby making
a sustainable contribution to the cultural life and sports opportunities at its sites in Germany. In 2013 the
company provided funding of some €13 million for recreational, disabled and competitive sports activities.

Online annex: 3-13-5

Bayer is realigning its charitable sponsorship of sports in the communities near its Lower Rhine
sites in Germany. These activities will be gradually concentrated at six major clubs by 2015. Bayer’s
involvement in professional soccer at Bayer 04 Leverkusen GmbH is not part of its social sports
sponsorship activities because it belongs to the company’s image advertising.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT Bayer Annual Report 2013

Combined Management Report

151

Report on Economic Position

F i s c a l 2 0 13 :

Continuous growth in Bayer’s Anniversary Year

// Dynamic development in the Life Sciences, MaterialScience

below expectations

// Outstanding growth for recently launched pharmaceutical

products

// Group sales €40.2 billion (Fx & portfolio adj. + 5.1%)

// EBIT €4.9 billion (+ 25.6%)

// EBITDA before special items €8.4 billion (+ 1.5%)

// Net income €3.2 billion (+ 32.7%)

// Core earnings per share €5.61 (+ 5.8%)

// Forecast for 2014: further growth in sales and earnings

» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 152

14. Overview of Sales, Earnings and Financial Position

14. Overview of Sales, Earnings and

Financial Position

Ta r g e T aT Ta i n m e n T i n 2 0 13

Forecast issued in
February 2013 (calculated
at average exchange rates
for Q4 2012)

target attainment
(at actual exchange rates
for 2013)

target attainment
(calculated at average
exchange rates for
Q4 2012)

Group sales*

4% – 5% increase
to approx. €41 billion

5.1% increase
to €40.2 billion

5.1% increase
to €41.6 billion

EBITDA
before special items

Mid-single-digit
percentage increase

1.5% increase

5.6% increase

Core earnings
per share

High-single-digit
percentage increase

5.8% increase

11.7% increase

* currency- and portfolio-adjusted

Full yeaR 2013
In 2013 we saw continuous growth and met important business objectives. HealthCare posted excel-
lent sales gains for its recently launched pharmaceutical products. CropScience was very successful in
a positive environment. In the Life Sciences, we continued to strengthen our businesses through
acquisitions. We achieved our operational targets overall despite substantial negative currency effects.
The business of MaterialScience continued to be affected by a difficult market situation. We remain
optimistic for 2014 and plan to further improve sales and earnings.

changes in sales

[table 3.14.1]

Volume

Price

Currency

Portfolio

total

2012

+ 4.7

+ 0.6

+ 4.0

– 0.5

+ 8.8

2013

+ 4.3

+ 0.8

– 4.4

+ 0.3

+ 1.0

Group sales advanced by 5.1% on a currency- and portfolio-adjusted basis (reported: +1.0%) to
€40,157 million (2012: €39,741 million). Sales at HealthCare climbed by 6.8% (Fx & portfolio adj.).
CropScience posted a substantial 9.4% sales gain (Fx & portfolio adj.). Sales at MaterialScience
were level with the prior year (Fx & portfolio adj. +0.4%).

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 14. Overview of Sales, Earnings and Financial Position

153

Bayer Group Quarterly sales

[Graphic 3.14.1]

€ million

2012
2013

1,282
1,283

2012
2013

1,139

1,209

2012
2013

1,148
1,223

2012
2013

1,071
1,147

Total

2012
2013

4,640
4,862

8,772
8,983

9,027

9,151

8,513
8,420

8,789
8,741

35,101
35,295

Total

10,054
10,266

10,166
10,360

9,661
9,643

9,860
9,888

39,741
40,157

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2012 figures restated

Germany

Other countries

EBIT of the Bayer Group rose by 25.6% to €4,934 million (2012: €3,928 million) after net special
charges of €839 million (2012: €1,711 million). The special charges mainly included €358 million in
restructuring expenses and €276 million in additional charges related to legal claims. EBIT before
special items came in at €5,773 million (2012: €5,639 million). EBITDA before special items increased
by 1.5% to €8,401 million (2012: €8,280 million). Earnings growth was attributable to good sales de-
velopment in the Life Science businesses, while MaterialScience saw earnings decline due to market
factors. Negative currency effects diminished Group earnings by about €260 million. In addition,
expenses for long-term stock-based compensation increased by €70 million in light of the pleasing
market performance of Bayer stock. EBITDA before special items at HealthCare advanced by 4.2% to
€5,334 million (2012: €5,119 million) as a result of the positive business development in the Pharma-
ceuticals segment. EBITDA before special items in Crop Science rose by 11.0% to €2,248 million (2012:
€2,025 million), largely on account of significant volume increases and higher selling prices. EBITDA
before special items of MaterialScience fell by 15.1% to €1,072 million (2012: €1,263 million), mainly
because of significantly higher raw material costs.

Bayer Group
Quarterly eBit

[Graphic 3.14.2]

Bayer Group
Quarterly eBitDa Before special items

[Graphic 3.14.3]

€ million

Total

2012
2013

1,631
1,771

740
1,287

828
1,221

729
655

3,928
4,934

Total

2012
2013

2,443
2,453

2,169
2,195

1,842
1,984

1,826
1,769

8,280
8,401

500

1,000

1,500

2,000

2,500

500

1,000

1,500

2,000

2,500

2012 figures restated

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 154

14. Overview of Sales, Earnings and Financial Position

After a financial result of minus €727 million (2012: minus €752 million), income before income taxes
amounted to €4,207 million (2012: €3,176 million). After tax expense of €1,021 million (2012: €723 mil-
lion) and non-controlling interest, net income in 2013 came in at €3,189 million (2012: €2,403 million).
Earnings per share were €3.86 (2012: €2.91). Core earnings per share advanced by 5.8% to €5.61 (2012:
€5.30), calculated as explained in Chapter 16.3 “Core Earnings Per Share.”

See Chapter 16.3

Gross cash Flow by Quarter

[Graphic 3.14.4]

net cash Flow by Quarter

[Graphic 3.14.5]

€ million

Total

2012
2013

1,600
1,807

1,224
1,680

1,006
1,367

726
978

4,556
5,832

Total

2012
2013

237
327

1,401
1,536

1,986
1,728

906
1,580

4,530
5,171

500

1,000

1,500

2,000

500

1,000

1,500

2,000

2012 figures restated

Gross cash flow climbed by 28.0% in 2013 to €5,832 million (2012: €4,556 million), mainly because of
the improvement in EBIT. Cash tied up in working capital increased considerably for business-related
reasons. Net cash flow moved ahead by 14.2% to €5,171 million (2012: €4,530 million). Net financial
debt fell by €0.3 billion against December 31, 2012, to €6.7 billion. The net defined benefit liability for
post-employment benefits – the difference between benefit obligations and plan assets – declined from
€9.2 billion at the end of 2012 to €7.3 billion, mainly due to a rise in long-term capital market interest
rates.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 14. Overview of Sales, Earnings and Financial Position

155

FouRth QuaRteR oF 2013
Group sales in the fourth quarter of 2013 rose by 6.4% (Fx & portfolio adj.) to €9,888 million (reported:
+0.3%). Sales of HealthCare gained 7.2% (Fx & portfolio adj.) to €4,939 million (reported: +0.4%).
Business in the Pharmaceuticals segment expanded by 11.5% (Fx & portfolio adj.) to €2,975 million
(reported: +3.8%), driven by the encouraging development of our recently launched products. Sales at
Consumer Health came in slightly ahead of the prior-year quarter at €1,964 million (Fx & portfolio adj.
+1.0%; reported: –4.4%). CropScience sales climbed by 12.8% (Fx & portfolio adj.) in the fourth quar-
ter to €1,951 million (reported: +5.1%) as a result of higher volumes. Sales of MaterialScience rose by
1.6% (Fx & portfolio adj.) against the prior-year period, to €2,691 million (reported: –2.5%) thanks to
volume increases.

EBIT of the Bayer Group declined by 10.2% in the fourth quarter of 2013, to €655 million (Q4 2012:
€729 million). Earnings were diminished by net special charges of €439 million (Q4 2012: €424 million).
The special charges mainly included €192 million in restructuring expenses and €182 million in addi-
tional charges related to legal claims. Of the latter amount, €155 million related to claims concerning
Yasmin™ / YAZ™ in the United States. EBIT before special items fell by 5.1% to €1,094 million (Q4 2012:
€1,153 million).

EBITDA before special items declined in the fourth quarter of 2013 by 3.1% to €1,769 million (Q4 2012:
€1,826 million). Earnings were held back by higher research and development expenses and negative
currency effects. In addition, expenses for long-term stock-based compensation increased in light of the
pleasing market performance of Bayer stock. HealthCare registered a 1.6% decline in EBITDA before
special items to €1,337 million (Q4 2012: €1,359 million), while CropScience posted an 8.1% increase to
€319 million (Q4 2012: €295 million). EBITDA before special items at MaterialScience amounted to
€248 million (Q4 2012: €264 million), down 6.1% against the prior-year quarter.

The financial result improved in the fourth quarter of 2013 to minus €84 million (Q4 2012: minus
€169 million), primarily due to gains from the sale of the shares in Onyx Pharmaceuticals Inc., United
States. Income before income taxes amounted to €571 million (Q4 2012: €560 million). After taxes and
non-controlling interest, net income came in at €455 million (Q4 2012: €366 million). Earnings per share
improved to €0.55 (Q4 2012: €0.45). Core earnings per share rose to €1.10 (Q4 2012: €1.01), calculated
as explained in Chapter 16.3 “Core Earnings Per Share.”

See Chapter 16.3

Gross cash flow of the Group advanced by 34.7% to €978 million (Q4 2012: €726 million) and net cash
flow by 74.4% to €1,580 million (Q4 2012: €906 million). The sharp increase in net cash flow was partly
due to lower tax payments. Net financial debt declined by €1.0 billion in the fourth quarter of 2013 to
€6.7 billion (September 30, 2013: €7.7 billion), largely thanks to cash inflows from operating activities.
The net defined benefit liability for post-employment benefits declined by €0.5 billion against September
30, 2013, to €7.3 billion, mainly due to a rise in long-term capital market interest rates.

Key Data by subgroup and segment

[table 3.14.2]

sales

eBit

eBitDa before special items *

4th Quarter
2012

4th Quarter
2013

4th Quarter
2012

4th Quarter
2013

4th Quarter
2012

4th Quarter
2013

€ million

4,921

2,866

2,055

1,856

2,760

323

9,860

4,939

2,975

1,964

1,951

2,691

307

9,888

558

165

393

247

(170)

729

631

321

310

163

(209)

655

€ million

1,359

835

524

295

264

(92)

1,826

€ million

1,337

822

515

319

248

(135)

1,769

healthcare

Pharmaceuticals

Consumer Health

cropscience

materialscience

Reconciliation

Group

2012 figures restated
* For definition see Chapter 16.2 “Calculation of EBIT(DA) Before Special Items.”

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 156
156

Combined Management Report

Business Development by Subgroup, Segment and Region

15.
15.1 HealthCare

Bayer Annual Report 2013

15. Business Development by Subgroup,

Segment and Region

15.1 HealthCare

Key Data – healthcare

sales

change in sales

Volume

Price

Currency

Portfolio

sales by segment

Pharmaceuticals

Consumer Health

sales by region

Europe

North America

Asia / Pacific

Latin America / Africa / Middle East

eBit

Special items

EBIT before special items *

eBitDa*

Special items

EBITDA before special items *

EBITDA margin before special items *

Gross cash flow **

Net cash flow **

4th Quarter
2012

4th Quarter
2013

€ million

4,921

4,939

+ 0.4

change
Fx (& p) adj.
%

+ 7.2

+ 11.5

+ 1.0

+ 6.5

+ 5.5

+ 12.5

+ 9.8

+ 5.3%

– 0.2%

+ 2.4%

– 0.4%

2,866

2,055

1,731

1,281

1,104

805

558

(460)

1,018

895

(464)

1,359

27.6%

595

1,063

+ 4.7%

+ 2.5%

– 7.7%

+ 0.9%

2,975

1,964

1,817

1,286

1,080

756

631

(354)

985

1,069

(268)

1,337

27.1%

840

959

+ 3.8

– 4.4

+ 5.0

+ 0.4

– 2.2

– 6.1

+ 13.1

– 3.2

+ 19.4

– 1.6

+ 41.2

– 9.8

Full year
2012

Full year
2013

€ million

18,604

+ 3.7%

+ 0.5%

+ 4.5%

– 0.3%

10,798

7,806

6,483

4,961

4,196

2,964

2,205

(1,582)

3,787

3,866

(1,253)

5,119

27.5%

2,659

3,546

€ million

18,924

+ 5.9%

+ 0.9%

– 5.7%

+ 0.6%

11,188

7,736

6,853

5,024

4,188

2,859

3,260

(713)

3,973

4,858

(476)

5,334

28.2%

3,573

2,980

[table 3.15.1]

change
Fx (& p) adj.
%

+ 6.8

+ 1.7

+ 9.4

+ 3.2

+ 6.8

+ 4.7

+ 11.1

+ 8.0

+ 3.6

– 0.9

+ 5.7

+ 1.3

– 0.2

– 3.5

+ 47.8

+ 4.9

+ 25.7

+ 4.2

+ 34.4

– 16.0

2012 figures restated
Fx (& p) adj. = currency- (and portfolio-)adjusted (Fx & p adj.: Sales and Sales by segment; Fx adj.: Sales by region)
* For definition see Chapter 16.2 “Calculation of EBIT(DA) Before Special Items.”
** For definition see Chapter 16.5 “Liquidity and Capital Expenditures of the Bayer Group.”

PHOTO // The picture above, taken with a scanning electron microscope,
shows a blood clot – magnified about 7,500 times.

» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 15. Business Development by Subgroup, Segment and Region
15.1 HealthCare

157

Sales of the HealthCare subgroup rose by 6.8% (Fx & portfolio adj.) in 2013, to €18,924 million (report-
ed: +1.7%). This encouraging growth was driven by our recently launched pharmaceutical products.

healthcare Quarterly sales

2012
2013

[Graphic 3.15.1]

€ million

4,341
4,443

4,625
4,800

4,717
4,742

4,921
4,939

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2012 figures restated

EBIT of the HealthCare subgroup advanced by a substantial 47.8% in 2013 to €3,260 million, mainly
because net special charges were much lower at €713 million (2012: €1,582 million). EBIT before
special items improved by 4.9% to €3,973 million. EBITDA before special items rose by 4.2% to
€5,334 million. This was attributable to the gratifying business development in Pharmaceuticals, while
earnings in Consumer Health posted a slight decline. Earnings at HealthCare were held back by
negative currency effects of about €290 million.

healthcare
Quarterly eBit

[Graphic 3.15.2]

healthcare
Quarterly eBitDa Before special items

[Graphic 3.15.3]

€ million

2012
2013

741
922

234
729

672
978

558
631

2012
2013

1,181
1,277

1,248
1,328

1,331
1,392

1,359
1,337

200

400

600

800

1,000

200

400

600

800

1,000

1,200

1,400

2012 figures restated

The integration of Conceptus, Inc., United States, and Steigerwald Arzneimittelwerk GmbH, Darmstadt,
Germany, both acquired in 2013, proceeded on schedule.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 158

15. Business Development by Subgroup, Segment and Region
15.1 HealthCare

phaRmaceuticals

Key Data – pharmaceuticals

sales

sales by region

Europe

North America

Asia / Pacific

Latin America / Africa / Middle East

eBit

Special items

EBIT before special items *

eBitDa*

Special items

EBITDA before special items *

change
Fx (& p) adj.
%

+ 11.5

+ 7.5

+ 15.6

+ 16.6

+ 12.4

4th Quarter
2012

4th Quarter
2013

€ million

2,866

2,975

988

601

775

502

165

(437)

602

392

(443)

835

1,049

663

783

480

321

(259)

580

618

(204)

822

+ 3.8

+ 6.2

+ 10.3

+ 1.0

– 4.4

+ 94.5

– 3.7

+ 57.7

– 1.6

EBITDA margin before special items *

29.1%

27.6%

Gross cash flow **

Net cash flow **

228

545

510

625

+ 123.7

+ 14.7

2012 figures restated
Fx (& p) adj. = currency- (and portfolio-)adjusted (Fx & p adj.: Sales; Fx adj.: Sales by region)
* For definition see Chapter 16.2 “Calculation of EBIT(DA) Before Special Items.”
** For definition see Chapter 16.5 “Liquidity and Capital Expenditures of the Bayer Group.”

[table 3.15.2]

change
Fx (& p) adj.
%

+ 9.4

+ 7.5

+ 10.6

+ 14.9

+ 6.8

Full year
2012

Full year
2013

€ million

10,798

€ million

11,188

3,677

2,370

2,939

1,812

1,104

(1,223)

2,327

2,022

(1,210)

3,232

29.9%

1,319

2,262

3,918

2,540

3,016

1,714

2,031

(521)

2,552

3,124

(366)

3,490

31.2%

2,293

1,853

+ 3.6

+ 6.6

+ 7.2

+ 2.6

– 5.4

+ 84.0

+ 9.7

+ 54.5

+ 8.0

+ 73.8

– 18.1

Sales of the Pharmaceuticals segment registered dynamic growth in 2013, climbing by 9.4% (Fx &
portfolio adj.) to €11,188 million. The increase was driven by our recently launched products Xarelto™,
Eylea™, Stivarga™ and Xofigo™, which recorded combined sales of €1,520 million (2012: €368 million).
Marketing of Adempas™ (active ingredient: riociguat), our new medicine to treat pulmonary hyperten-
sion, commenced in the fall following approvals in North America. Our Pharmaceuticals business posted
currency-adjusted sales growth in all regions, and especially in Japan, the United States, Germany and China.

Best-selling pharmaceuticals products

Kogenate™

Betaferon™ / Betaseron™

Xarelto™

YAZ™ / Yasmin™ / Yasminelle™

Nexavar™

Mirena™

Adalat™

Aspirin™ Cardio

Avalox™ / Avelox™

Glucobay™

Eylea™

Levitra™

Cipro™ / Ciprobay™

Stivarga™

Zetia™

total

Proportion of Pharmaceuticals sales

Fx adj. = currency-adjusted

4th Quarter
2012

4th Quarter
2013

€ million

298

329

131

270

212

135

169

129

123

274

259

316

219

194

195

157

120

106

112

126

2,140

75%

2,293

77%

change
Fx adj.
%

– 2.1

– 17.6

– 8.1

– 21.3

+ 141.2

+ 158.9

– 18.9

– 8.5

+ 44.4

– 7.1

– 7.0

– 13.8

+ 13.1

– 20.7

– 25.0

+ 90.3

– 21.1

+ 7.1

– 11.4

– 1.2

+ 51.6

+ 6.1

+ 1.9

– 7.6

+ 19.3

– 15.2

– 15.4

100.2

+ 3.9

+ 15.9

Full year
2012

Full year
2013

€ million

1,182

1,216

322

1,045

792

677

670

476

486

408

307

229

207

1,202

1,038

949

853

771

719

603

452

426

423

333

290

197

172

8,063

75%

8,625

77%

[table 3.15.3]

change
Fx adj.
%

+ 6.4

– 11.6

+ 1.7

– 14.6

+ 194.7

+ 210.7

– 18.4

– 2.7

+ 6.2

– 10.0

– 5.0

– 12.3

+ 3.7

– 5.5

– 14.0

– 16.9

+ 7.0

– 12.5

+ 3.3

+ 10.0

– 0.9

+ 0.6

– 8.8

+ 6.6

– 1.2

– 7.8

+ 5.4

+ 13.4

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 15. Business Development by Subgroup, Segment and Region
15.1 HealthCare

159

Xarelto™ became the world leader among the novel oral anticoagulants in terms of sales in 2013 follow-
ing considerable sales gains, especially in Germany, Japan and France.* Business with Xarelto™ also de-
veloped very positively in the United States, where it is marketed by a subsidiary of Johnson & Johnson.
Sales of the eye medicine Eylea™ rose substantially, particularly in Japan, Australia and Germany. We
successfully introduced our cancer drug Stivarga™ in additional countries, and recorded the first sales of
the cancer drug Xofigo™ (2013 sales: €41 million).

Sales of our blood-clotting medicine Kogenate™ rose thanks to higher volumes. The cancer drug
Nexavar™ posted currency-adjusted gains, mainly as a result of price increases in the United States.
Sales of our hormone-releasing intrauterine device Mirena™ also increased, particularly in light of ad-
justments to provisions for rebates in the United States and higher volumes in other countries. The oral
diabetes treatment Glucobay™ benefited from continuing growth in demand in the Emerging Markets.

Sales of the multiple sclerosis drug Betaferon™ / Betaseron™ receded as expected, particularly in the
United States due to increased competition there. Business with our YAZ™ / Yasmin™ / Yasminelle™ line of
oral contraceptives was hampered mainly by generic competition in Western Europe and the United
States. Business with the antibiotic Avalox™ / Avelox™ declined, mainly as a result of lower demand in
the United States. Our antibiotic Cipro™ / Ciprobay™ registered lower sales, particularly in the United
Kingdom, where we had benefited from a government contract in the previous year.

EBIT of the Pharmaceuticals segment rose by a substantial 84.0% in 2013, to €2,031 million. The main
reason for this – apart from the increase in operational earnings – was the decrease in special charges to
€521 million (2012: €1,223 million). The special charges comprised €269 million in charges related to le-
gal claims, including €155 million related to claims concerning Yasmin™ / YAZ™ in the United States;
€140 million in impairment losses recognized on research projects; €66 million in restructuring charges;
and €46 million in expenses for the integration of our Conceptus business. EBIT before special items rose
by 9.7% to €2,552 million. We raised EBITDA before special items by 8.0% to €3,490 million. This earn-
ings growth was mainly attributable to the good business development and especially to sharp sales in-
creases for our recently launched products, while earnings were diminished by higher selling and R&D
expenses and roughly €140 million in negative currency effects.

* as of November 2013; source: internal calculations based on IMS Health MIDAS database – monthly sales November 2013

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 160

15. Business Development by Subgroup, Segment and Region
15.1 HealthCare

consumeR health

Key Data – consumer health

sales

Consumer Care

Medical Care

Animal Health

sales by region

Europe

North America

Asia / Pacific

Latin America / Africa / Middle East

eBit

Special items

EBIT before special items *

eBitDa*

Special items

EBITDA before special items *

4th Quarter
2012

4th Quarter
2013

€ million

2,055

1,055

1,964

1,015

716

284

743

680

329

303

393

(23)

416

503

(21)

524

653

296

768

623

297

276

310

(95)

405

451

(64)

515

EBITDA margin before special items *

25.5%

26.2%

Gross cash flow **

Net cash flow **

367

518

330

334

change
Fx (& p) adj.
%

Full year
2012

Full year
2013

€ million

+ 1.0

+ 0.9

– 3.1

+ 11.6

+ 5.2

– 3.5

+ 2.7

+ 5.6

7,806

3,853

2,650

1,303

2,806

2,591

1,257

1,152

1,101

(359)

1,460

1,844

(43)

1,887

24.2%

1,340

1,284

7,736

3,904

2,526

1,306

2,935

2,484

1,172

1,145

1,229

(192)

1,421

1,734

(110)

1,844

23.8%

1,280

1,127

– 4.4

– 3.8

– 8.8

+ 4.2

+ 3.4

– 8.4

– 9.7

– 8.9

– 21.1

– 2.6

– 10.3

– 1.7

– 10.1

– 35.5

[table 3.15.4]

change
Fx (& p) adj.
%

+ 3.2

+ 5.1

– 0.3

+ 4.5

+ 6.0

– 0.7

+ 2.1

+ 10.0

– 0.9

+ 1.3

– 4.7

+ 0.2

+ 4.6

– 4.1

– 6.8

– 0.6

+ 11.6

– 2.7

– 6.0

– 2.3

– 4.5

– 12.2

Sales of the Consumer Health segment advanced by 3.2% (Fx & portfolio adj.) in 2013 to €7,736 mil-
lion. The increase was attributable to the Consumer Care and Animal Health divisions and to gratifying
overall development in the Emerging Markets, particularly Russia and Brazil.

Best-selling consumer health products

Contour™ (Medical Care)

Advantage™ product line (Animal Health)

Aspirin™ (Consumer Care)

Ultravist™ (Medical Care)

Aleve™ (Consumer Care)

Bepanthen™/Bepanthol™ (Consumer Care)

Canesten™ (Consumer Care)

Gadovist™ / Gadavist™ (Medical Care)

One A Day™ (Consumer Care)

Supradyn™ (Consumer Care)

total

Proportion of Consumer Health sales

4th Quarter
2012

4th Quarter
2013

€ million

120

– 13.0

change
Fx adj.
%

– 4.1

+ 12.8

– 8.1

0.0

– 1.0

– 7.3

+ 6.5

– 2.4

– 5.7

+ 14.9

+ 23.6

– 6.2

– 8.3

– 9.4

+ 2.4

– 4.1

+ 1.5

– 4.8

– 3.4

+ 10.4

+ 0.9

179

843

43%

193

138

879

43%

[table 3.15.5]

change
Fx adj.

+ 2.2

+ 2.0

– 2.5

+ 2.3

+ 3.3

0.0

– 1.6

– 6.1

0.0

– 0.6

+ 15.2

+ 20.3

+ 2.8

– 1.9

– 10.2

+ 8.2

– 0.1

+ 8.4

– 0.2

– 7.0

+ 14.3

+ 3.3

Full year
2012

Full year
2013

€ million

722

495

494

322

323

269

250

209

196

146

722

487

464

322

321

310

257

205

176

158

3,426

44%

3,422

44%

Fx adj.= currency-adjusted
Total sales of Aspirin™ (including Aspirin™ Complex), also including Aspirin™ Cardio, which is reflected in sales of the Pharmaceuticals segment, decreased
by 5.6% (Fx adj. – 1.0%) in 2013 to €916 million (2012: €970 million). Total sales of this product in the fourth quarter of 2013 declined by 10.1% (Fx adj. – 3.3%) to
€240 million (Q4 2012: €267 million).

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 15. Business Development by Subgroup, Segment and Region
15.1 HealthCare

161

Sales in the Consumer Care Division rose by 5.1% (Fx & portfolio adj.) to €3,904 million. Business
with our analgesic Aleve™ expanded on a currency-adjusted basis, mainly due to increased marketing
activities in Brazil and price increases in the United States. The skincare product Bepanthen™ /
Bepanthol™ registered strong growth in the Emerging Markets, especially Brazil and Russia. The anti-
fungal Canesten™ also developed positively. Sales of the dietary supplement Supradyn™ advanced by a
double-digit percentage on a currency-adjusted basis, partly as a result of strong business development
in Russia. Business with our analgesic Aspirin™ and the dietary supplement One A Day™ declined, pri-
marily due to lower demand in the United States.

Sales in the Medical Care Division were level year on year (Fx & portfolio adj.) at €2,526 million
(–0.3%). Business in the United States was hampered particularly by reimbursement pressure and lower
prices, while sales developed positively elsewhere. Our Diabetes Care business performed at around
the previous year’s level in a shrinking overall market. However, we achieved slight currency-adjusted
sales gains for the Contour™ line of blood glucose meters, mainly thanks to the launch of Contour™
Next. Sales of contrast agents and medical devices in the Radiology & Interventional business were at
the prior-year level on a currency-adjusted basis.

Sales of the Animal Health Division rose by 4.5% (Fx & portfolio adj.) to €1,306 million. We slightly
raised sales of the Advantage™ line of flea, tick and worm control products due to gratifying develop-
ment in Europe. We achieved robust sales growth for the Seresto™ flea and tick collar (2013 sales:
€31 million), which was also launched in the United States in 2013.

EBIT of the Consumer Health segment improved by 11.6% in 2013 to €1,229 million. This increase was
attributable to the lower net special charges of €192 million (2012: €359 million). The special charges
comprised €138 million in restructuring charges, a €44 million impairment loss recognized on an intan-
gible asset and €30 million in expenses for the integration of acquired businesses. EBIT before special
items amounted to €1,421 million (–2.7%). EBITDA before special items fell by 2.3% to €1,844 million.
Positive earnings contributions from sales growth in the Consumer Care and Animal Health divisions
were more than offset by higher selling expenses in the Emerging Markets and roughly €150 million in
negative currency effects.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 162

Combined Management Report

15. Business Development by Subgroup, Segment and Region
15.2 CropScience

Bayer Annual Report 2013

15.2 CropScience

Key Data – cropscience

sales

change in sales

Volume

Price

Currency

Portfolio

sales by operating segment

Crop Protection / Seeds

Environmental Science

sales by region

Europe

North America

Asia / Pacific

Latin America / Africa / Middle East

eBit

Special items

EBIT before special items *

eBitDa*

Special items

EBITDA before special items *

4th Quarter
2012

4th Quarter
2013

€ million

1,856

1,951

+ 5.1

change
Fx (& p) adj.
%

Full year
2012

Full year
2013

€ million

+ 12.8

8,383

8,819

[table 3.15.6]

change
Fx (& p) adj.
%

+ 9.4

+ 5.2

+ 9.0%

+ 0.1%

+ 1.9%

– 0.3%

1,682

174

393

287

363

813

247

168

374

295

+ 11.8%

+ 1.0%

– 8.2%

+ 0.5%

1,797

154

411

301

329

910

163

(40)

203

282

(37)

319

+ 10.1

+ 1.3

+ 4.3

+ 5.0

+ 7.9

+ 23.6

+ 11.6%

+ 0.8%

+ 3.8%

– 0.7%

7,703

680

2,706

2,154

1,386

2,137

1,556

1,543

2,050

2,025

24.2%

1,332

899

+ 6.8%

+ 2.6%

– 4.7%

+ 0.5%

8,168

651

2,799

2,211

1,358

2,451

1,729

(72)

1,801

2,184

(64)

2,248

25.5%

1,590

682

+ 6.0

– 4.3

+ 3.4

+ 2.6

– 2.0

+ 14.7

+ 11.1

+ 16.7

+ 6.5

+ 11.0

+ 19.4

– 24.1

+ 14.6

– 4.6

+ 5.3

+ 10.5

+ 4.4

+ 22.3

+ 6.8

– 11.5

+ 4.6

+ 4.9

– 9.4

+ 11.9

– 34.0

+ 20.8

– 24.6

+ 8.1

+ 72.7

– 72.4

EBITDA margin before special items *

15.9%

16.4%

Gross cash flow **

Net cash flow **

132

105

228

2012 figures restated
Fx (& p) adj. = currency- (and portfolio-)adjusted (Fx & p adj.: Sales and Sales by operating segment; Fx adj.: Sales by region)
* For definition see Chapter 16.2 “Calculation of EBIT(DA) Before Special Items.”
** For definition see Chapter 16.5 “Liquidity and Capital Expenditures of the Bayer Group.”

PHOTO // The scanning electron micrograph above shows part of the
surface of a soybean plant leaf – magnified about 4,500 times.

» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 15. Business Development by Subgroup, Segment and Region
15.2 CropScience

163

CropScience raised sales in 2013 by 9.4% (Fx & portfolio adj.) to €8,819 million (reported: +5.2%).
Thus we succeeded in substantially growing the business despite the late start to the season in the
northern hemisphere. Sales in Crop Protection / Seeds developed positively, due to the attractive market
environment and especially to an increase in sales of the new Crop Protection products we have
launched since 2006 to more than €1,510 million (reported: approx. +30%). Sales in the Seeds unit rose
slightly overall despite reduced canola and cotton acreages in North America. The Environmental Sci-
ence unit also registered a small increase in sales.

cropscience Quarterly sales

2012
2013

[Graphic 3.15.4]

€ million

2,610
2,764

2,276
2,392

1,641
1,712

1,856
1,951

500

1,000

1,500

2,000

2,500

3,000

2012 figures restated

Sales in Crop Protection / Seeds climbed by 10.1% (Fx & portfolio adj.), to €8,168 million. All of the
Crop Protection business units developed positively. Fungicides and Insecticides achieved the largest in-
creases in percentage terms, with Herbicides and SeedGrowth posting encouraging gains. Sales of vege-
table seeds also moved ahead.

Sales in Environmental Science edged upward by 1.3% (Fx & portfolio adj.) to €651 million. The positive
development in products for professional users more than offset the decline in the consumer business.

sales by Business units

Herbicides

Fungicides

Insecticides

SeedGrowth

Crop Protection

Seeds

crop protection / seeds

environmental science

2012 figures restated
Fx & p adj. = currency- and portfolio-adjusted

4th Quarter
2012

4th Quarter
2013

€ million

451

445

424

220

1,540

142

1,682

174

469

445

465

247

1,626

171

1,797

154

change
Fx & p adj.
%

Full year
2012

Full year
2013

€ million

+ 11.5

+ 6.7

+ 20.1

+ 18.6

+ 13.6

+ 25.2

+ 14.6

– 4.6

2,356

1,974

1,514

897

6,741

962

7,703

680

2,456

2,195

1,622

921

7,194

974

8,168

651

+ 4.0

0.0

+ 9.7

+ 12.3

+ 5.6

+ 20.4

+ 6.8

– 11.5

[table 3.15.7]

change
Fx & p adj.
%

+ 8.3

+ 14.9

+ 14.1

+ 7.1

+ 11.4

+ 1.2

+ 10.1

+ 1.3

+ 4.2

+ 11.2

+ 7.1

+ 2.7

+ 6.7

+ 1.2

+ 6.0

– 4.3

CropScience achieved currency-adjusted sales increases in all regions.

In Europe, sales rose by 4.3% (Fx adj.) to €2,799 million, mainly in light of the positive development
at Crop Protection / Seeds. Fungicides posted double-digit growth. Both Insecticides and the vegetable
seed business developed well, while sales of Herbicides showed only a small increase. Business in
SeedGrowth receded overall, partly as a consequence of use restrictions for products containing
neonicotinoids. Sales of Environmental Science receded due to the downturn in the consumer business.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

164

15. Business Development by Subgroup, Segment and Region
15.2 CropScience

Sales in North America advanced by 5.0% (Fx adj.) to €2,211 million. This was primarily attributable to
the robust business development in SeedGrowth with products for use in corn and soybeans and to posi-
tive development in Herbicides. Double-digit growth was also recorded in Fungicides, while sales in the
Insecticides unit declined due to lower infestation pressure. Business in Seeds was down against a
strong prior year. The positive development of our vegetable seeds business did not fully offset the lower
sales of canola and cotton seed, which were due to reduced acreages. Business expanded at Environ-
mental Science.

Sales in the Asia / Pacific region advanced by 7.9% (Fx adj.) to €1,358 million, thanks partly to increased
sales in Herbicides. Business in Insecticides and Fungicides also expanded. Our Seeds business devel-
oped successfully, too, with double-digit growth for vegetable and rice seeds. The region as a whole
benefited especially from a significant business improvement in India. Sales in Environmental Science
were at the previous year’s level.

Growth was strongest in Latin America / Africa / Middle East, where sales climbed by a substantial
23.6% (Fx adj.) to €2,451 million. We achieved double-digit growth in Crop Protection / Seeds in a very
positive market environment. Sales of the Insecticides unit posted particularly good gains, driven by our
products for use in soybeans and corn. In Fungicides, products for use in soybeans were especially suc-
cessful. The SeedGrowth and Herbicides businesses also developed very well. Sales in Seeds advanced
in addition, particularly for vegetable and cotton seed. The soybean seed business also developed very
well, partly due to acquisitions made in 2013. Brazil and Argentina accounted for a major part of the
region‘s positive sales development. Sales in Environmental Science also moved ahead.

cropscience
Quarterly eBit

[Graphic 3.15.5]

cropscience
Quarterly eBitDa Before special items

[Graphic 3.15.6]

2012
2013

€ million

854
964

382
496

73
106

247
163

2012
2013

€ million

984
1,081

549
624

197
224

295
319

200

400

600

800

1,000

200

400

600

800

1,000

2012 figures restated

EBIT of CropScience rose in 2013 by a substantial 11.1%, from €1,556 million in the prior year to
€1,729 million after special charges of €72 million (2012: special gain of €13 million). The special
charges mainly comprised restructuring expenses in Crop Protection. EBIT before special items ad-
vanced by 16.7% to €1,801 million. EBITDA before special items moved ahead by 11.0% to €2,248 mil-
lion. Earnings growth was mainly the result of significant volume increases and higher selling prices,
with positive currency effects of some €20 million also contributing to the increase.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

Bayer Annual Report 2013

Combined Management Report

15. Business Development by Subgroup, Segment and Region
15.3 MaterialScience

165

15.3 MaterialScience

Key Data – materialscience

sales

change in sales

Volume

Price

Currency

Portfolio

sales by business unit

Polyurethanes

Polycarbonates

Coatings, Adhesives, Specialties

Industrial Operations

sales by region

Europe

North America

Asia / Pacific

Latin America / Africa / Middle East

eBit

Special items

EBIT before special items *

eBitDa*

Special items

EBITDA before special items *

4th Quarter
2012

4th Quarter
2013

€ million

2,760

2,691

– 2.5

change
Fx (& p) adj.
%

+ 1.6

+ 2.6%

+ 2.2%

– 0.6%

+ 4.1%

– 2.5%

– 3.6%

– 0.5%

1,473

1,472

668

451

168

640

417

162

1,027

1,040

579

771

383

(1)

265

264

561

762

328

(18)

244

(4)

248

+ 4.0

– 0.9

– 1.1

– 2.4

+ 1.5

+ 1.6

+ 5.2

– 8.9

– 0.1

– 4.2

– 7.5

– 3.6

+ 1.3

– 3.1

– 1.2

– 14.4

– 25.5

– 7.4

– 7.9

– 6.1

+ 0.5

Full year
2012

Full year
2013

€ million

11,491

+ 2.4%

+ 0.6%

+ 3.9%

– 0.7%

5,987

2,819

1,972

713

4,403

2,441

3,149

1,498

581

(32)

613

1,236

(27)

1,263

11.0%

952

735

€ million

11,238

+ 0.6%

– 0.2%

– 2.4%

– 0.2%

6,054

2,640

1,863

681

4,363

2,424

3,048

1,403

435

429

1,101

1,072

9.5 %

887

977

[table 3.15.8]

change
Fx (& p) adj.

+ 0.4

– 2.2

+ 3.9

– 4.5

– 1.9

– 3.6

– 0.8

+ 2.5

+ 0.9

– 2.3

+ 1.1

– 6.3

– 5.5

– 4.5

– 0.9

– 0.7

– 3.2

– 6.3

– 25.1

– 30.0

– 10.9

– 15.1

– 6.8

+ 32.9

EBITDA margin before special items *

9.6%

9.2 %

Gross cash flow**

Net cash flow **

216

250

217

545

2012 figures restated
Fx (& p) adj. = currency- (and portfolio-)adjusted (Fx & p adj.: Sales and Sales by business unit; Fx adj.: Sales by region)
* For definition see Chapter 16.2 “Calculation of EBIT(DA) Before Special Items.”
** For definition see Chapter 16.5 “Liquidity and Capital Expenditures of the Bayer Group.”

PHOTO // The scanning electron micrograph above shows a cross-section
through a flexible polyurethane foam – magnified about 85 times.

» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 166

15. Business Development by Subgroup, Segment and Region
15.3 MaterialScience

The MaterialScience subgroup posted sales of €11,238 million in 2013, matching the prior-year
level on a currency- and portfolio-adjusted basis (+0.4%; reported: –2.2%). There was a slight overall
improvement in volumes, with increases in Asia and North America offsetting volume declines in
Latin America / Africa / Middle East and Europe. However, selling prices overall were slightly below the
prior-year level. Higher prices in North and Latin America roughly compensated for decreases in
Asia / Pacific and Europe.

materialscience Quarterly sales

2012
2013

[Graphic 3.15.7]

€ million

2,787
2,775

2,954
2,875

2,990
2,897

2,760
2,691

500

1,000

1,500

2,000

2,500

3,000

2012 figures restated

Sales in the Polyurethanes business unit rose by 3.9% (Fx & portfolio adj.) to €6,054 million. Volume
gains in Asia / Pacific and North America contributed to this increase. Selling prices as a whole were at
the prior-year level. Prices for diphenylmethane diisocyanate (MDI) increased, with volumes unchanged
from the previous year. Volumes of toluene diisocyanate (TDI) improved significantly, but prices receded.
Volumes for polyether (PET) moved somewhat lower, with selling prices at the level of the prior year.

Sales of the Polycarbonates business unit receded by 4.5% (Fx & portfolio adj.) to €2,640 million. This
decline was mainly due to a drop in volumes in all regions on account of weaker demand. A further fac-
tor was the lower level of selling prices in Asia / Pacific caused by market overcapacities.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 15. Business Development by Subgroup, Segment and Region
15.3 MaterialScience

167

Sales in the Coatings, Adhesives, Specialties business unit fell by 1.9% (Fx & portfolio adj.) to
€1,863 million, largely as a result of lower selling prices in Asia / Pacific. Volumes as a whole were flat
with the prior year.

Sales of Industrial Operations moved back by 3.6% (Fx & portfolio adj.) to €681 million due to lower
overall price levels. Volumes, however, were unchanged.

materialscience
Quarterly eBit

[Graphic 3.15.8]

materialscience
Quarterly eBitDa Before special items

[Graphic 3.15.9]

€ million

2012
2013

121
42

201
143

165
180

94
70

2012
2013

279
204

383
274

337
346

264
248

100

150

200

250

300

100

200

300

400

500

2012 figures restated

EBIT of MaterialScience receded by 25.1% in 2013 to €435 million. This included a net special gain of
€6 million (2012: special charges of €32 million), the €42 million gain from the disposal of parts of our
polyester resins business being largely offset by restructuring expenses. EBIT before special items fell by
a substantial 30.0% to €429 million. EBITDA before special items dropped by 15.1% to €1,072 million.
This decline was mainly due to a sharp rise in raw material costs, especially in the first half of the year.
Earnings were also diminished by somewhat lower selling prices. These effects were partly offset by a
slight rise in volumes, savings from our efficiency improvement measures and positive currency effects
of about €10 million. Successful working capital management resulted in a significant improvement in
cash flow, to €977 million (2012: €735 million; +32.9%).

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

168

15. Business Development by Subgroup, Segment and Region
15.4 Business Development by Region

15.4 Business Development by Region

15. Business Development by Subgroup, Segment and Region
15.5 Business Development in the Emerging Markets

169

Sales by region and Segment (by Market)

[table 3.15.9]

europe

north america

Asia / Pacific

latin america / africa / Middle east

Full Year
2012

Full Year
2013

Full Year
2012

Full Year
2013

Full Year
2012

Full Year
2013

Full Year
2012

Full Year
2013

Full Year
2012

Full Year
2013

€ million

% yoy

HealthCare

Pharmaceuticals

Consumer Health

CropScience

MaterialScience

6,483

3,677

2,806

2,706

4,403

6,853

3,918

2,935

2,799

4,363

Group (incl. reconciliation)

14,722

15,086

2012 figures restated
yoy = year on year; Fx. adj. = currency-adjusted

+ 5.7

+ 6.6

+ 4.6

+ 3.4

– 0.9

+ 2.5

Fx adj.
% yoy

+ 6.8

+ 7.5

+ 6.0

+ 4.3

– 0.8

+ 3.1

€ million

% yoy

4,961

2,370

2,591

2,154

2,441

9,576

5,024

2,540

2,484

2,211

2,424

9,680

+ 1.3

+ 7.2

– 4.1

+ 2.6

– 0.7

+ 1.1

Fx adj.
% yoy

+ 4.7

+ 10.6

– 0.7

+ 5.0

+ 2.5

+ 4.2

15.5 Business Development in the Emerging Markets

The Emerging Markets again accounted for a disproportionately large share of sales growth in 2013.
For reporting purposes we have defined the Emerging Markets as Asia (excluding Japan), Latin America,
Eastern Europe, Africa and the Middle East.

Sales in these markets rose in 2013 by 7.3% (Fx adj.) to €15,040 million (2012: €14,785 million), with
pleasing gains in Latin America, Asia and Eastern Europe. The Emerging Markets accounted for 37.5%
of sales (2012: 37.2%).

Sales Development in 2013

[Graphic 3.15.10]

38% (Fx adj. + 7%)

emerging Markets

62% (Fx adj. + 4%)

industrialized countries

currency-adjusted changes in parentheses

HealtHCare
HealthCare raised sales in the Emerging Markets by 8.0% (Fx adj.) in 2013 to €6,236 million (2012:
€6,169 million), with the Latin America region posting the highest currency-adjusted growth rate. Here,
Argentina and Brazil saw the strongest currency-adjusted increases, especially in sales of our Consumer
Care products. The largest increase in absolute terms occurred in China, mainly in light of the continued
expansion of our distribution network. We also achieved gratifying sales growth in Russia, primarily in
Consumer Care. The Emerging Markets accounted for 33.0% (2012: 33.2%) of total HealthCare sales.

Online annex: 3-15.5-1

In Russia, HealthCare is supporting the ongoing reorganization of the country’s health system that
forms part of the government’s “Pharma 2020” reform program. This program is designed to achieve
a 10-year increase in life expectancy by 2020 by improving health care, establishing a govern-
ment-run health insurance system and modernizing the pharmaceutical industry. Bayer plans to
provide assistance with educational and prevention programs.

€ million

% yoy

€ million

% yoy

4,196

2,939

1,257

1,386

3,149

8,759

4,188

3,016

1,172

1,358

3,048

8,623

– 0.2

+ 2.6

– 6.8

– 2.0

– 3.2

– 1.6

Fx adj.
% yoy

+ 11.1

+ 14.9

+ 2.1

+ 7.9

+ 0.9

+ 6.9

2,964

1,812

1,152

2,137

1,498

6,684

Fx adj.
% yoy

+ 8.0

+ 6.8

+ 10.0

2,859

1,714

1,145

– 3.5

– 5.4

– 0.6

2,451

+ 14.7

+ 23.6

1,403

6,768

– 6.3

+ 1.3

– 2.3

+ 10.2

€ million

% yoy

18,604

10,798

7,806

8,383

11,491

39,741

18,924

11,188

7,736

8,819

11,238

40,157

+ 1.7

+ 3.6

– 0.9

+ 5.2

– 2.2

+ 1.0

total

Fx adj.
% yoy

+ 7.4

+ 10.1

+ 3.7

+ 9.9

+ 0.2

+ 5.4

CropSCienCe
CropScience improved sales in the Emerging Markets by 18.2% (Fx adj.) in 2013, to €3,959 million
(2012: €3,570 million). Business developed particularly well in Latin America, especially in Brazil and
Argentina. We posted encouraging sales gains in Asia and Eastern Europe. Sales in Africa / Middle
East also increased. The Emerging Markets’ share of total CropScience sales in 2013 was 44.9%
(2012: 42.6%).

Online annex: 3-15.5-2

Growing the business in the Emerging Markets, and especially in developing countries, also involves
finding solutions to specific local challenges.

CropScience aims to contribute to increased agricultural productivity in Africa and intends to
expand its presence there. The subgroup’s range of products and services is tailored to the needs
of African farmers and includes integrated crop solutions based on improved seed varieties and
modern crop protection technologies. We also run product safety programs and provide training in
good agricultural practice. We regard public-private partnerships as the key to rural development
and affluence in Africa and therefore work together with local governments, farmers’ associations,
cooperatives, non-governmental organizations, agricultural input suppliers, banks and insurers.

CropScience also aims to help raise living standards in rural areas of India by boosting value added
and ensuring it is reinvested in the community. An example is the Model Village Project launched in
2010. The aim of this project is to train farmers in sustainable cultivation methods and show them
new ways of irrigating their land in order to improve productivity. Parallel measures are also being
taken to improve general living conditions, such as the commissioning of a drinking water purifica-
tion plant and the launch of health promotion and children’s educational programs. The Bayer Prayas
Rural Development Association coordinates the activities at the local level in the model villages in the
state of Karnataka in southwest India.

MaterialSCienCe
In the Emerging Markets, MaterialScience had sales of €4,761 million in 2013 (2012: €4,933 million),
down 1.0% year on year (Fx. adj.). Sales fell considerably in Africa / Middle East, especially in Turkey.
Sales in Asia were practically flat with the prior year, although business expanded in China. In Latin
America, too, sales came in at the previous year‘s level. In Eastern Europe, however, we posted a slight
increase. The Emerging Markets accounted for 42.4% (2012: 42.9%) of total sales at MaterialScience.

Online annex: 3-15.5-3

In cooperation with external partners, MaterialScience is evolving and implementing technical
solutions to help low-income people in developing countries and Emerging Markets gain improved
access to high-quality, safe and easy-to-build yet affordable housing. These activities currently focus
on Asia. The company is mainly contributing its expertise in the field of polyurethane rigid foam for
the construction industry.

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170

16. Earnings; Asset and Financial Position of the Bayer Group
16.1 Earnings Performance of the Bayer Group

16. Earnings; Asset and Financial Position

of the Bayer Group

16.1 Earnings Performance of the Bayer Group

Bayer Group Summary Income Statements

[Table 3.16.1]

Net sales

Cost of goods sold

Selling expenses

Research and development expenses

General administration expenses

Other operating income (+) and expenses (–)

EBIT *

Financial result

Income before income taxes

Income taxes

Income after income taxes

of which attributable to non-controlling interest

of which attributable to Bayer AG stockholders (net income)

2012 figures restated
* EBIT = earnings before financial result and taxes

2012

2013

Change

€ million

39,741

19,070

9,981

3,013

1,866

(1,883)

3,928

(752)

3,176

(723)

2,453

2,403

€ million

40,157

19,347

10,080

3,190

1,883

(723)

4,934

(727)

4,207

(1,021)

3,186

(3)

3,189

+ 1.0

+ 1.5

+ 1.0

+ 5.9

+ 0.9

+ 61.6

+ 25.6

+ 3.3

+ 32.5

– 41.2

+ 29.9

–

+ 32.7

Sales of the Bayer Group rose to €40,157 million (+1.0%). The increase after adjusting for currency
and portfolio effects was 5.1%.

The cost of goods sold increased by 1.5% to €19,347 million, mainly due to higher volumes and a rise in
raw material costs at MaterialScience. The ratio of the cost of goods sold to total sales was 48.2%
(2012: 48.0%). The selling expenses of €10,080 million (+1.0%) amounted to 25.1% of sales (2012:
25.1%). Research and development (R&D) expenses rose in 2013 by 5.9% to €3,190 million, the increase
being attributable to HealthCare and CropScience. The ratio of R&D expenses to sales was slightly higher
at 7.9% (2012: 7.6%). General administration expenses, at €1,883 million, were level with the prior year
(+0.9%). The ratio of general administration expenses to total sales thus remained unchanged at
4.7%. The negative balance of other operating income and expenses was reduced considerably to minus
€723 million (2012: minus €1,883 million), mainly because special charges for accounting measures re-
lated to legal claims were lower in 2013 (see also Chapter 16.2 “Calculation of EBIT(DA) Before Special
Items”).

EBIT climbed by 25.6% in 2013 to €4,934 million.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

16. Earnings; Asset and Financial Position of the Bayer Group
16.2 Calculation of EBIT(DA) Before Special Items

171

The financial result improved by 3.3% to minus €727 million. It included €355 million (2012: €252 mil-
lion) in net interest expense, €297 million (2012: €389 million) in interest cost for pension and other pro-
visions, a €120 million (2012: €69 million) net exchange loss and a €59 million net gain (2012: €23 mil-
lion net loss) from investments in affiliated companies. Income from investments in affiliated companies
included a €77 million gain from the sale of Bayer’s interest in Onyx Pharmaceuticals Inc., United States.
The net interest position was particularly affected by interest expense in connection with a court pro-
ceeding brought by former Schering stockholders. The decrease in pension-related interest cost resulted
partly from the effect of lower interest rates on the interest cost for defined benefit plans, which is re-
ported net of the expected return on plan assets.

Tax expense in 2013 increased to €1,021 million as a result of earnings growth (2012: €723 million).
Income after income taxes came in at €3,186 million. Income attributable to non-controlling interest fell by
€53 million to minus €3 million. The prior-year figure contained minority stockholders’ interest in dives-
titure gains. Bayer Group net income for 2013 was €3,189 million (2012: €2,403 million).

16.2 Calculation of EBIT(DA) Before Special Items

Key performance indicators for the Bayer Group are EBIT before special items and EBITDA before special
items. These indicators are reported in order to allow a more accurate assessment of business opera-
tions. The special items – comprising effects that are non-recurring or do not regularly recur or attain
similar magnitudes – are detailed in the following table. EBITDA, EBITDA before special items and EBIT
before special items are not defined in the International Financial Reporting Standards and should there-
fore be regarded only as supplementary information. EBITDA before special items is a meaningful indica-
tor of operating performance since it is not affected by depreciation, amortization, impairment losses,
impairment loss reversals or special items. By reporting this indicator, the company aims to give readers
a clear picture of the results of operations and ensure comparability of data over time. The EBITDA mar-
gin before special items, which is the ratio of EBITDA before special items to sales, serves as a relative
indicator for the internal and external comparison of operational earning power.

Depreciation, amortization and impairments decreased by 3.1% in 2013 to €2,896 million (2012:
€2,988 million), comprising €1,572 million (2012: €1,659 million) in amortization and impairments of
intangible assets, impairment loss reversals of €13 million (2012: €21 million) and €1,337 million (2012:
€1,350 million) in depreciation and impairments of property, plant and equipment. A total of €268 mil-
lion (2012: €347 million) in depreciation, amortization and impairments constituted special items. This
amount comprised €259 million (2012: €315 million) in impairment losses and €22 million (2012:
€48 million) in depreciation and amortization, less €13 million (2012: €16 million) in impairment loss re-
versals.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 172

16. Earnings; Asset and Financial Position of the Bayer Group
16.3 Core Earnings Per Share

Special Items Reconciliation

[Table 3.16.2

EBIT *
4th Quarter
2012

EBIT *
4th Quarter
2013

EBIT *
Full Year
2012

EBIT *
Full Year
2013

EBITDA**
4th Quarter
2012

EBITDA**
4th Quarter
2013

EBITDA**
Full Year
2012

EBITDA**
Full Year
2013

€ million

1,153

(460)

1,094

(354)

(59)

(455)

–

(25)

(59)

158

(1)

(6)

–

(42)

(24)

(29)

(424)

729

(55)

(109)

(180)

(10)

–

(40)

–

(18)

–

(27)

(25)

(2)

–

(439)

655

5,639

(1,582)

(289)

(182)

(1,160)

–

(83)

158

(32)

(50)

–

(110)

(81)

(55)

5,773

(713)

(171)

(197)

(269)

(76)

–

(72)

(67)

(5)

–

(36)

–

(60)

(58)

(2)

1,826

(464)

1,769

(268)

–

(47)

(455)

–

(25)

(59)

158

(4)

–

(41)

(23)

(29)

–

(78)

(180)

(10)

–

(37)

–

(4)

–

(27)

(25)

(2)

8,280

(1,253)

–

(142)

(1,160)

–

(71)

(83)

158

(27)

(45)

–

(109)

(80)

(55)

8,401

(476)

(145)

(269)

(76)

–

(64)

(59)

(5)

–

(13)

–

(60)

(58)

(2)

(1,711)

3,928

–

(839)

4,934

(425)

1,401

–

(336)

1,433

(1,364)

6,916

–

(571)

7,830

Before special items

HealthCare

Impairment losses /
impairment loss reversals

Restructuring

Litigations

Integration costs

Adjustments to post-employ-
ment benefit entitlements

CropScience

Restructuring

Litigations

Divestitures

Adjustments to post-employ-
ment benefit entitlements

MaterialScience

Restructuring

Divestitures

Adjustments to post-employ-
ment benefit entitlements

Reconciliation

Restructuring

Litigations

Adjustments to post-employ-
ment benefit entitlements

Total special items

After special items

2012 figures restated
* EBIT = earnings before financial result and taxes
** EBITDA = EBIT plus amortization and impairment losses on intangible assets and depreciation and impairment losses on property, plant and equipment,

minus impairment loss reversals

16.3 Core Earnings Per Share

Earnings per share according to IFRS are affected by the purchase price allocation for acquisitions and
other special factors. To enhance comparability, we also determine core net income after eliminating
amortization and impairments / impairment loss reversals of intangible assets, impairments / impair-
ment loss reversals of property, plant and equipment, and special items in EBITDA including the related
tax effects.

From this core net income we calculate core earnings per share in the same way as earnings per
share. Core earnings per share form the basis for our dividend policy. Core earnings per share in 2013
rose by 5.8% to €5.61 (2012: €5.30).

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

16. Earnings; Asset and Financial Position of the Bayer Group
16.4 Value Management

173

Core Earnings per Share

[Table 3.16.3]

EBIT (as per income statements)

Amortization and impairment losses / loss reversals
of intangible assets

Impairment losses / loss reversals on property,
plant and equipment

Special items (other than amortization and
impairment losses / loss reversals)

Core EBIT

Financial result (as per income statements)

Special items in the financial result

Income taxes (as per income statements)

Tax effects related to amortization,
impairment losses / loss reversals and special items

Income after income taxes attributable
to non-controlling interest (as per income statements)

Special items in income after income taxes attributable
to non-controlling interest

Core net income

4th Quarter
2012

4th Quarter
2013

Full Year
2012

Full Year
2013

€ million

729

327

425

1,490

(169)

(73)

(156)

655

437

336

1,449

(84)

(72)

(129)

3,928

4,934

1,637

1,559

1,364

6,970

(752)

(73)

(723)

571

7,112

(727)

(1,021)

(255)

(266)

(1,024)

(734)

(38)

834

–

911

(50)

4,383

–

4,643

number of issued ordinary shares

826,947,808

Core earnings per share (€)

2012 figures restated

1.01

1.10

5.30

5.61

The calculation of earnings per share according to IFRS is explained in Note [16] to the consolidated
financial statements. Core net income, core earnings per share and core EBIT are not defined in IFRS.

Consolidated
Financial
Statements
Note 16

16.4 Value Management

SYSTEM BASED on CASH vAluE ADDED
The principal value-based steering parameters in the Bayer Group are the cash value added (CVA) and
the cash flow return on investment (CFROI). If the CVA is positive, the respective company or business en-
tity has exceeded the minimum requirements of the equity and debt capital providers and has created
value. The CFROI is a ratio indicating the profitability of the Group or of individual business entities and
must be compared to the cost of capital.

CAlCulATInG THE CoST oF CApITAl
Bayer calculates the cost of capital according to the debt / equity ratio at the beginning of the year using
the weighted average cost of capital (WACC) formula. The cost of equity capital is the return expected by
stockholders, computed from capital market information. The cost of debt capital used in calculating
WACC is based on the terms for ten-year Eurobonds issued by industrial companies with an “A–”rating.

To take into account the different risk and return profiles of our principal businesses, we calculate indi-
vidual capital cost factors after income taxes for each of our subgroups. These were 7.9% (2012: 8.1%)
for HealthCare, 7.3% for CropScience (2012: 7.5%) and 6.9% (2012: 7.1%) for MaterialScience. The
capital cost factor for the Group in 2013 was 7.6% (2012: 7.8%).

Cost of capital for
the Bayer Group

7.6%

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

174

16. Earnings; Asset and Financial Position of the Bayer Group
16.4 Value Management

GRoSS CASH Flow, CASH vAluE ADDED AnD CASH Flow RETuRn on InvESTMEnT
AS pERFoRMAnCE YARDSTICkS
The gross cash flow is the measure of our internal financing capability. Bayer has chosen this
parameter because it is relatively free of accounting influences and is therefore a more meaningful
performance indicator.

Positive CVA =
value created

Taking into account the costs of capital and of reproducing depletable assets, we determine the gross
cash flow hurdle. If the gross cash flow hurdle is exceeded, the CVA is positive and thus the required
return on equity and debt plus the cost of asset reproduction has been earned.

The CFROI is the difference between the gross cash flow and the cost of reproducing depletable assets,
divided by the capital invested. The capital invested is calculated from the statement of financial position
and basically comprises the property, plant and equipment and intangible assets required for operations
– stated at the historical cost of acquisition or construction – plus working capital, less interest-free lia-
bilities (such as current provisions). To mitigate the effect of fluctuations in the capital invested during
the year, the CFROI is computed on the basis of the average capital invested for the respective year.

The gross cash flow hurdle for 2013 was €4,260 million (2012: €4,337 million).

Actual gross cash flow came in at €5,832 million, exceeding the hurdle by 36.9%. Thus the entire cost of
capital and asset reproduction costs were earned in 2013. The positive CVA of €1,572 million shows that
Bayer exceeded the minimum return and reproduction requirements and created value. The CVA rose by
a clear €1,353 million compared with 2012. The CFROI for 2013 amounted to 11.1% (2012: 8.2%).

HealthCare and CropScience exceeded their required returns (including asset reproduction),
raised their CVA and helped to increase the value of the Group. At MaterialScience, capital expenditures
for new production facilities form the basis for profitable growth in the future. This strategic investment
is aligned to medium- and long-term market developments and is currently holding back this subgroup’s
value management indicators.

value Management Indicators by Subgroup

[Table 3.16.4]

HealthCare

CropScience

MaterialScience

Bayer Group

2012

2013

2012

2013

2012

2013

2012

2013

€ million

Gross cash flow* (GCF)

Gross cash flow hurdle

Cash value added (CVA)

Cash flow return on
investment (CFROI)

WACC

Average capital invested

2,659

2,214

445

3,573

2,109

1,464

1,332

1,590

824

508

906

684

952

1,079

887

1,060

(127)

(173)

10.3%

14.1%

12.5%

14.2%

8.1%

22,180

7.9%

22,480

7.5%

9,203

7.3%

9,881

5.8%

7.1%

5.5%

6.9%

10,525

10,371

43,247

4,556

4,337

219

8.2%

7.8%

5,832

4,260

1,572

11.1%

7.6%

43,548

2012 figures restated
Delta cash value added is not listed due to its limited importance.
* For definition see Chapter 16.5 “Liquidity and Capital Expenditures of the Bayer Group.”

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

16. Earnings; Asset and Financial Position of the Bayer Group
16.5 Liquidity and Capital Expenditures of the Bayer Group

175

16.5 Liquidity and Capital Expenditures

of the Bayer Group

Bayer Group Summary Statements of Cash Flows

Gross cash flow *

Changes in working capital / other non-cash items

Net cash provided by (used in) operating activities (net cash flow)

net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Change in cash and cash equivalents due to business activities

Cash and cash equivalents at beginning of period

Change due to exchange rate movements and to changes in scope of consolidation

Cash and cash equivalents at end of period

[Table 3.16.5]

2012

2013

€ million

4,556

(26)

4,530

(814)

(3,783)

(67)

1,771

(6)

1,698

5,832

(661)

5,171

(2,581)

(2,535)

1,698

(91)

1,662

2012 figures restated
* Gross cash flow = income after income taxes, plus income taxes, plus financial result, minus income taxes paid or accrued, plus deprecia-
tion, amortization and impairment losses, minus impairment loss reversals, plus / minus changes in pension provisions, minus gains / plus
losses on retirements of noncurrent assets, minus gains from the remeasurement of already held assets in step acquisitions. The change in
pension provisions includes the elimination of non-cash components of EBIT. It also contains benefit payments during the year.

opER ATInG CASH Flow
Gross cash flow climbed by 28.0% year on year in 2013 to €5,832 million, mainly on account of the
increase in EBIT. While HealthCare and CropScience recorded a business-related increase in cash tied
up in working capital, MaterialScience was able to release cash thanks to successful working capital
management. Cash flow was impacted by higher charges related to legal claims. Income tax payments
were lower at €1,281 million (2012: €1,667 million). Net cash flow of the Group rose by 14.2% to
€5,171 million.

InvESTInG CASH Flow
Net cash outflow for investing activities in 2013 amounted to €2,581 million. Cash outflows for proper-
ty, plant and equipment and intangible assets were 11.8% higher at €2,157 million and included
€809 million (2012: €720 million) at HealthCare, €538 million (2012: €376 million) at CropScience and
€559 million (2012: €621 million) at MaterialScience. The €1,082 million (2012: €466 million) in out-
flows for acquisitions mainly related to the acquisition of Conceptus, Inc., United States, and Steiger-
wald Arzneimittelwerk GmbH, Germany. The cash inflows in 2013 comprised €79 million (2012:
€178 million) pertaining to divestitures, mainly income from the sale of the global powder polyester
resins business and revenue-based payments received in connection with the sale of the hematologi-
cal oncology portfolio to Genzyme Corp., United States. Interest and dividends totaling €125 million
(2012: €104 million) were also received along with income of €301 million (2012: €1,069 million) from
noncurrent and current financial assets.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

176

16. Earnings; Asset and Financial Position of the Bayer Group
16.5 Liquidity and Capital Expenditures of the Bayer Group

The principal strategically relevant capital expenditures for property, plant and equipment in the
operating segments during the past two years are listed in the following table:

Capital Expenditures for property, plant and Equipment

[Table 3.16.6]

Segment

Description

CApITAl EXpEnDITuRES 2013

Pharmaceuticals

Consolidation of a number of administrative and business operations in Whippany,
New Jersey, U.S.A.

Expansion of XareltoTM production capacities in Wuppertal and Leverkusen, Germany

Expansion of production capacities for biologics in Wuppertal, Germany

Consumer Health

–

CropScience

Capacity expansion and process modifications for the production of fungicides in
Germany, Switzerland and the U.S.A. and for related formulation units in France

Expansion of manufacturing capacities for herbicidal active ingredients in Germany
and the U.S.A.

Establishment of breeding stations for wheat in Europe, North America and Asia / Pacific,

for soybeans in North America and Latin America, and for other crops and trait

development

MaterialScience

Doubling of production capacities for polycarbonates in Shanghai, China

CApITAl EXpEnDITuRES 2012

Pharmaceuticals

Consumer Health

CropScience

MaterialScience

Expansion of production capacities for MDI (diphenylmethane diisocyanate)

in Shanghai, China

Construction of a world-scale production complex for TDI (toluene diisocyanate) based
on gas-phase phosgenation technology in Dormagen, Germany

Completion of a multi-purpose facility for the aliphatic isocyanates HDI (hexamethylene
diisocyanate) and IPDI (isophorone diisocyanate) in Leverkusen, Germany

Consolidation of a number of administrative and business operations in Whippany,
New Jersey, U.S.A.

Establishment of a pilot facility for the production of biomolecules for clinical trials
in Wuppertal, Germany

Production facilities for the formulation and packaging of hormonal solids in Weimar,
Germany

Expansion of XareltoTM production capacities in Wuppertal and Leverkusen,
Germany

Expansion of production and packaging capacities for effervescents in Cimanggis,
Jakarta, Indonesia

Capacity expansions and process modifications for the production of fungicides in
Germany and Switzerland

Establishment of wheat breeding stations in Europe, North America and Australia

Construction of a greenhouse in Research Triangle Park, North Carolina, U.S.A.

Construction of a world-scale production complex for TDI (toluene diisocyanate) based
on gas-phase phosgenation technology in Dormagen, Germany

Construction of a multi-purpose facility for the aliphatic isocyanates HDI (hexamethylene
diisocyanate) and IPDI (isophorone diisocyanate) in Leverkusen, Germany

Completion of a polyurethanes systems house in Qingdao, China

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 16. Earnings; Asset and Financial Position of the Bayer Group
16.5 Liquidity and Capital Expenditures of the Bayer Group

177

FInAnCInG CASH Flow
Net cash outflow for financing activities in 2013 amounted to €2,535 million, including net loan repay-
ments of €619 million (2012: €1,946 million). The increased use of current financial instruments led to a
higher debt turnover ratio.

Net interest payments were 27.8% lower at €338 million (2012: €468 million). The cash outflow for
“dividend payments and withholding tax on dividends” amounted to €1,574 million (2012: €1,366 million).

lIQuID ASSETS AnD nET FInAnCIAl DEBT

net Financial Debt

Bonds and notes / promissory notes

of which hybrid bond

Liabilities to banks

Liabilities under finance leases

Liabilities from derivatives

Other financial liabilities

Positive fair values of hedges of recorded transactions

Financial liabilities

Cash and cash equivalents

Current financial assets

Net financial debt

2012 figures restated

[Table 3.16.7]

Dec. 31, 2012

Dec. 31, 2013

€ million

5,528

1,364

2,841

542

304

310

(456)

9,069

(1,698)

(349)

7,022

4,520

1,344

2,302

382

310

1,516

(504)

8,526

(1,662)

(133)

6,731

Net financial debt of the Bayer Group as of December 31, 2013 was lower than on December 31, 2012, at
€6.7 billion. Cash inflows from operating activities were partly offset by outflows for dividends and acqui-
sitions. As of December 31, 2013, the Group had cash and cash equivalents of €1.7 billion (2012: €1.7 bil-
lion). Financial liabilities at the end of the reporting period amounted to €8.5 billion (2012: €9.1 billion),
with the subordinated hybrid bond issued in July 2005 reflected at €1.3 billion. Net financial debt should
be viewed against the fact that Moody’s and Standard & Poor’s treat 75% and 50%, respectively, of the
hybrid bond as equity. Unlike conventional borrowings, the hybrid bond thus only has a limited effect
on the Group’s rating-specific debt indicators. Our noncurrent financial liabilities declined in 2013 from
€7.0 billion to €5.6 billion, while current financial liabilities rose from €2.6 billion to €3.4 billion.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 178

16. Earnings; Asset and Financial Position of the Bayer Group
16.6 Asset and Capital Structure of the Bayer Group

16.6 Asset and Capital Structure of the Bayer Group

Bayer Group Summary Statements of Financial position

[Table 3.16.8]

Noncurrent assets

Current assets

Total assets

Equity

noncurrent liabilities

Current liabilities

liabilities

Total equity and liabilities

2012 figures restated

Dec. 31, 2012

Dec. 31, 2013

Change

€ million

32,308

19,010

51,318

18,551

19,663

13,104

32,767

51,318

€ million

32,289

19,028

51,317

20,804

16,490

14,023

30,513

51,317

– 0.1

+ 0.1

–

+ 12.1

– 16.1

+ 7.0

– 6.9

–

Total assets as of December 31, 2013, were unchanged from the previous year at €51.3 billion. Noncur-
rent assets were at the prior-year level of €32.3 billion and included goodwill of €9.9 billion (2012:
€9.3 billion). The increase in goodwill was mainly the result of acquisitions made in 2013. The decline
in other intangible assets and fluctuations in exchange rates had a negative effect. The carrying amount
of current assets was also level with the previous year, at €19.0 billion.

Equity was higher by €2.2 billion at €20.8 billion. The factors in this increase included the net income
of €3.2 billion and the decline of €1.3 billion – recognized outside profit or loss – in post-employment
benefit obligations. The €1.6 billion (2012: €1.4 billion) dividend payment and €0.7 billion (2012: €0 bil-
lion) in negative exchange differences had an offsetting effect. Our equity ratio (equity coverage of total
assets) as of December 31, 2013 was 40.5% (2012: 36.1%).

Liabilities receded by €2.3 billion compared with December 31, 2012, to €30.5 billion, mainly because
of the decline in provisions for pensions and other post-employment benefits.

Net Defined Benefit Liability for Post-Employment Benefits

[Table 3.16.9]

Provisions for pensions and other post-employment benefits

Benefit plan assets in excess of obligation

Net defined benefit liability for post-employment benefits

2012 figures restated

Dec. 31, 2012

Dec. 31, 2013

€ million

9,246

(27)

9,219

7,368

(117)

7,251

The net defined benefit liability for pensions and other post-employment benefits decreased from €9.2 bil-
lion to €7.3 billion in 2013, mainly in light of higher long-term capital market interest rates.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

16. Earnings; Asset and Financial Position of the Bayer Group
16.6 Asset and Capital Structure of the Bayer Group

179

Ratios/Indicators

Cost of sales ratio (%)

R & D expense ratio (%)

Return on sales (%)

EBIT margin (%)

EBITDA margin before special items (%)

Asset intensity (%)

Reinvestment ratio (%)

Liability structure (%)

Gearing

Free operating cash flow (€ million)

Inventory turnover

Receivables turnover

Payables turnover

Equity ratio (%)

Return on equity (%)

Return on assets (%)

2012 figures restated
* property, plant and equipment

Cost of goods sold

Sales

Research and development expenses

Sales

Income after income taxes

Sales

EBIT

Sales

EBITDA before special items

Sales

Property, plant and equipment
+ intangible assets
Total assets

Capital expenditures *

Depreciation *

Current liabilities

Liabilities

Net debt + pension provisions

Equity

Net operating cash flow
less cash outflows for property, plant
and equipment and intangible assets

Cost of goods sold

Inventories

Sales

Trade accounts receivable

Cost of goods sold

Trade accounts payable

Equity

Total assets

Income after income taxes

Average equity

Income before income taxes and interest expense

Average total assets for the year

[Table 3.16.10]

2012

48.0

2013

48.2

7.6

7.9

6.2

9.9

7.9

12.3

20.8

20.9

55.8

56.1

119.9

137.5

40.0

46.0

0.9

0.7

2,601

3,014

2.7

5.3

4.4

5.3

4.3

36.1

40.5

13.0

16.2

7.5

9.5

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

180

16. Earnings; Asset and Financial Position of the Bayer Group
16.7 Financial Management of the Group

16.7 Financial Management of the Group

The financial management of the Bayer Group is conducted by the strategic management holding
company Bayer AG. Capital is a global resource, generally procured centrally and distributed within
the Group. The foremost objectives of our financial management are to help bring about a sustained
increase in corporate value and to ensure the Group’s liquidity and creditworthiness. This involves
optimizing the capital structure and effectively managing risks. The management of currency, interest
rate, raw material price and default risks helps to reduce the volatility of our earnings.

The contracted rating agencies assess Bayer as follows:

Rating

Standard & Poor’s

Moody’s

[Table 3.16.11]

Long-term rating

outlook

Short-term rating

A –

positive

A – 2

P – 2

These credit ratings reflect the company’s high solvency and ensure access to a broad investor base for
financing purposes. It remains our goal to achieve and maintain financial ratios that support an A rating
in order to maintain our financial flexibility.

We pursue a prudent debt management strategy to ensure flexibility, drawing on a balanced financing
portfolio. Chief among these resources are a multi-currency European Medium Term Notes program,
syndicated credit facilities, bilateral loan agreements and a global commercial paper program.

We use financial derivatives to hedge against risks arising from business operations or financial
transactions, but do not employ contracts in the absence of an underlying transaction. It is our policy to
diminish default risks by selecting trading partners with a high credit standing. We closely monitor the
execution of all transactions, which are conducted in accordance with Group directives.

Further details of our risk management objectives and the ways in which we account for all the major
types of hedged transactions – along with price, credit and liquidity risks as they relate to the use of
financial instruments – are given in Chapter 20.3 “Opportunity and Risk Report.”

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT
17. Earnings; Asset and Financial Position of Bayer AG
17.1 Earnings Performance of Bayer AG

181

17. Earnings; Asset and Financial Position

of Bayer AG

Bayer AG is the parent corporation of the Bayer Group and functions as a management holding
company. The principal management functions for the entire Group are performed by the Board of
Management of Bayer AG. These include strategic planning, resource allocation, executive manage-
ment and financial management. The performance of Bayer AG is largely determined by the
business performance of the Bayer Group.

The financial statements of Bayer AG are prepared in accordance with the German Commercial Code
(HGB) and Stock Corporation Act (AktG).

17.1. Earnings Performance of Bayer AG

Bayer AG Summary Income Statements according to the German Commercial Code

[Table 3.17.1]

Income from investments in affiliated companies – net

Interest expense – net

Other financial income – net

Other operating income

General administration expenses

Other operating expenses

Income before income taxes

Income taxes

net income

Withdrawal from / allocation to retained earnings

Distributable profit

2012

2013

€ million

1,719

(445)

(228)

(106)

1,116

(227)

889

682

1,571

3,542

(315)

110

118

(266)

(148)

3,041

(543)

2,498

(761)

1,737

In fiscal 2013 Bayer AG’s net income increased by €1,609 million to €2,498 million, mainly because of sig-
nificantly higher income from investments in affiliated companies and a decrease in net interest expense.
The main negative effect came from higher income taxes.

Income from investments in affiliated companies posted a large increase of €1,823 million to €3,542 mil-
lion. The previous year’s income was impacted by a one-time charge of €256 million in connection with
the extension of the period during which various subsidiaries are assuming the pension fund’s long-term
statutory obligation to raise pensions. Bayer Pharma AG again made the largest contribution to income
from investments in affiliated companies with income of €1,934 million (2012: €1,397 million). This sig-
nificant improvement was mainly attributable to the good business performance resulting from a higher
proportion of high-margin, recently launched products, as well as the non-recurrence of the one-time
pension charge. Bayer CropScience AG increased its contribution to earnings by €933 million to €1,379
million (2012: €446 million). This amount included €570 million from the intra-Group sale of seed tech-

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

182

17. Earnings; Asset and Financial Position of Bayer AG
17.1. Earnings Performance of Bayer AG

nologies. Earnings of the CropScience subgroup were also driven by the positive business development,
especially the substantial rise in volumes and an improved product mix. A loss of €20 million (2012:
€179 million) was assumed for Bayer MaterialScience AG. However, this was considerably lower than in
the previous year, principally because of the impact of extensive cost-cutting programs on operational
earnings. Other significant earnings contributions comprised €213 million (2012: €291 million) from a
subsidiary that receives foreign dividend income. Bayer Business Services GmbH posted a loss of €74
million (2012: €103 million), and Bayer Technology Services GmbH reported a loss of €30 million (2012:
€59 million).

Net interest expense declined by €130 million compared with the previous year, to €315 million, thanks
mainly to lower interest rates and also to the restructuring of some debt into lower-interest instruments.
Of the net interest expense, €218 million was attributable to transactions with third parties and €97
million to intra-Group transactions.

Other financial income and expenses yielded a positive balance of €110 million (2012: €89 million). This
mainly comprised income of €162 million (2012: €183 million) from the subgroups and service compa-
nies to cover pension expenses for retirees remaining with Bayer AG following the hive-down of the op-
erating business. The non-interest portion of the corresponding expense, amounting to €26 million
(2012: €56 million), is included in other financial expenses; the remainder is reflected in net interest ex-
pense. A further charge of €14 million (2012: €33 million) resulted from the translation of foreign curren-
cy receivables and payables and from currency derivatives.

General administration expenses relating to Bayer AG’s performance of its functions as a holding company
amounted to €266 million (2012: €228 million). Miscellaneous operating expenses relating to these func-
tions, net of the respective miscellaneous operating income, came to €30 million (2012: €19 million). The
increase in administration expenses was attributable to the higher number of employees and higher per-
formance-related compensation. The other operating expenses include an amount of €14 million for the
company’s 150th anniversary celebrations.

Pre-tax income increased by €1,925 million to €3,041 million (2012: €1,116 million). Tax expense also in-
creased, by €316 million to €543 million. After deduction of taxes, net income was €2,498 million (2012:
€889 million). An allocation of €761 million was made to other retained earnings, leaving a distributable
profit of €1,737 million.

The Board of Management and Supervisory Board will propose to the Annual Stockholders’ Meeting on
April 29, 2014 that the distributable profit be used to pay a dividend of €2.10 per share (826,947,808
shares) on the capital stock of €2,117 million entitled to the dividend for 2013.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 17. Earnings; Asset and Financial Position of Bayer AG
17.2. Asset and Financial Position of Bayer AG

183

17.2 Asset and Financial Position of Bayer AG

Bayer AG Summary Statements of Financial position according to the German Commercial Code

[Table 3.17.2]

ASSETS

noncurrent assets

Intangible assets, property, plant and equipment

Financial assets

Current assets

Receivables from subsidiaries

Remaining receivables, other assets

Cash and cash equivalents, marketable securities

Total assets

EQuITY AnD lIABIlITIES

Equity

provisions

other liabilities

Bonds and notes, liabilities to banks

Payables to subsidiaries

Remaining liabilities

Total equity and liabilities

Dec. 31, 2012

Dec. 31, 2013

€ million

34,310

34,332

316

471

903

1,690

35,300

35,321

1,712

455

972

3,139

36,022

38,460

13,888

14,815

2,719

2,976

3,188

15,874

353

19,415

2,229

16,983

1,457

20,669

36,022

38,460

The asset and liability structure of Bayer AG is dominated by its role as a holding company in manag-
ing the subsidiaries and financing corporate activities. This is primarily reflected in the high level of
investments in affiliated companies and of receivables from, and payables to, Group companies.

Total assets of Bayer AG as of December 31, 2013 were €38.5 billion (2012: €36.0 billion), which was
€2.5 billion more than at the start of the year. Non-current assets rose by €1.0 billion and current as-
sets by €1.5 billion.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

184

17. Earnings; Asset and Financial Position of Bayer AG
17.2 Asset and Financial Position of Bayer AG

Property, plant and equipment and intangible assets totaled €21 million (2012: €22 million) and were
therefore of secondary importance. Financial assets increased by €1 billion, from €34.3 billion in the pre-
vious year to €35.3 million at year end 2013, principally as a result of capital increases at subsidiaries.
Investments in affiliated companies continued to account for by far the greater proportion of total assets
(89.7%; 2012: 93.0%).

Receivables from subsidiaries amounted to €1.7 billion (2012: €0.3 billion) while payables to subsidiaries
totaled €17.0 billion (2012: €15.9 billion). These amounts accounted for 4.5% of total assets and 44.2%
of total equity and liabilities, respectively.

Including the deferred charges, the other receivables reflected in current assets declined by €16 million
to €455 million (2012: €471 million) and were of only secondary importance in relation to total assets.
Cash and cash equivalents were €69 million higher than in the previous year at €972 million (2012: €903
million) due to higher bank deposits.

Bayer AG had equity of €14.8 billion (2012: €13.9 billion), an increase of €0.9 billion. Equity included
net income for 2013 of €2,498 million, but was diminished by the €1,571 million dividend payment for
2012. The equity ratio was virtually unchanged at 38.5% (2012: 38.6%) despite the considerable in-
crease in equity, as total assets also increased.

Provisions rose by €0.3 billion to €3.0 billion (2012: €2.7 billion). The greater part of this increase was at-
tributable to a rise of €304 million in tax provisions to €682 million (2012: €378 million). Provisions for
other personnel-related obligations, especially performance-related compensation, were increased by
€28 million. By contrast, pension provisions decreased by €55 million to €2,162 million (2012: 2,217 mil-
lion).

Other liabilities rose by €1.3 billion, mainly due to an increase of €1.2 billion in financial debt, and
amounted to €20.7 billion (net of deductible receivables; 2012: €19.4 billion). A bond with a nominal vol-
ume of €1 billion, issued in 2006, was redeemed at maturity in May 2013. However, a commercial paper
program was increased by €795 million, intra-Group debt rose by €1,304 million and other loans were
€51 million higher. Bayer AG had financial liabilities of €22.1 billion at year end 2013 (2012: €20.9 bil-
lion). After deduction of cash and cash equivalents of €1.0 billion, net debt was higher than in the
previous year at €21.1 billion (2012: €20.0 billion).

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 18. Corporate Governance Report
18.1 Declaration Concerning the German Corporate Governance Code

185

Report on Corporate Governance

18. Corporate Governance Report

This Corporate Governance Report also constitutes the report pursuant to Section 3.10 of the German
Corporate Governance Code.

18.1 Declaration Concerning the German Corporate

Governance Code *
* not part of the audited management report

DEClAR ATIon BY THE BoARD oF MAnAGEMEnT AnD SupERvISoRY BoARD
concerning the German Corporate Governance Code (May 13, 2013 version) pursuant to Section 161
of the German Stock Corporation Act**

Under Section 161 of the German Stock Corporation Act, the Board of Management and the Supervisory
Board of Bayer AG are required to issue an annual declaration that the company has been, and is, in
compliance with the recommendations of the “Government Commission on the German Corporate Gover-
nance Code” as published by the Federal Ministry of Justice in the official section of the Federal Gazette
(Bundesanzeiger), or to advise of any recommendations that have not been, or are not being, applied and
the reasons for this. An annual declaration was last issued in December 2012.

With respect to the past, the following declaration refers to the May 15, 2012 version of the Code.
With respect to present and future corporate governance practices at Bayer AG, the following declaration
refers to the recommendations in the May 13, 2013 version of the Code.

Pursuant to Section 161 of the German Stock Corporation Act, the Board of Management and
Supervisory Board of Bayer AG hereby declare as follows:

1. The company has been in compliance with the recommendations of the Code since issuance

of the last annual compliance declaration in December 2012.

2. All the recommendations of the Code are now being complied with in full.

Leverkusen, December 2013

For the Board of Management:

For the Supervisory Board:

DR. DEkkERS

BAuMAnn

wEnnInG

** This is an English translation of a German document. The German document is the official and controlling version, and this English

translation in no event modifies, interprets or limits the official German version.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT
186

18. Corporate Governance Report
18.2 Governance

18.2 Governance *
* not part of the audited management report

BAYER In CoMplIAnCE wITH THE RECoMMEnDATIonS oF THE GERMAn CoRpoR ATE
GovERnAnCE CoDE
Bayer has always placed great importance on responsible corporate governance and will continue to
do so. In 2013 the company was able to issue a declaration that it had fully complied with the recom-
mendations of the German Corporate Governance Code in the past and continued to do so.

In 2013, the Board of Management and Supervisory Board again addressed the question of compli-
ance with the Corporate Governance Code, particularly in light of the Code amendments of May 13,
2013. The resulting declaration, which is reproduced on the previous page, was issued in December
2013 and posted on Bayer’s website along with previous declarations.

DuTIES AnD ACTIvITIES oF THE BoARD oF MAnAGEMEnT
Bayer AG is a strategic management holding company, run by its Board of Management on the
Board’s own responsibility with the goal of sustainably increasing the company’s enterprise value and
achieving defined corporate objectives. The Board of Management performs its tasks according to the
law, the Articles of Incorporation and the Board’s rules of procedure, and works with the company’s
other governance bodies in a spirit of trust.

The Board of Management defines the long-term goals and the strategies for the Group, its subgroups
and its service companies, and sets forth the principles and directives for the resulting corporate poli-
cies. It coordinates and monitors the most important activities, defines the portfolio, develops and de-
ploys managerial staff, allocates resources and decides on the Group’s financial steering and report-
ing.

The members of the Board of Management bear joint responsibility for running the business as a whole.
However, the individual members manage the areas assigned to them on their own responsibility within
the framework of the decisions made by the entire Board. The allocation of duties among the members
of the Board of Management is defined in a written schedule.

The entire Board of Management makes decisions on all matters of fundamental importance and in cas-
es where a decision of the entire Board is prescribed by law or otherwise mandatory. The rules of proce-
dure of the Board of Management contain a list of topics that must be dealt with and resolved by the en-
tire Board.

Meetings of the Board of Management are held regularly. They are convened by the Chairman of the
Board of Management. Any member of the Board of Management may also demand that a meeting be
held. The Board of Management makes decisions by a simple majority of the votes cast, except where
unanimity is required by law. In the event of a tie, the Chairman has the casting vote.

According to the Board of Management’s rules of procedure and schedule of duties, the Chairman bears
particular responsibility for leading and coordinating the Board’s work. He represents the company and
the Group in dealings with third parties and the workforce on matters relating to more than one part of
the company or the Group. He also bears special responsibility for certain departments of the Corporate
Center and their fields of activity.

The schedule of duties also assigns particular areas of specialist responsibility to the other members who
served on the Board of Management in 2013 with respective responsibility for Finance; Innovation, Tech-
nology and Sustainability; and Human Resources. Each of these members also represents certain geo-
graphical regions. The responsibilities for specialist areas and regions were redistributed in 2013 upon the
change of the member responsible for Human Resources.

No committees of the Board of Management have been set up in view of the small number of members
and the role of Bayer AG as a strategic management holding company.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 187

18. Corporate Governance Report
18.2 Governance

SupERvISoRY BoARD: ovERSIGHT AnD ConTRol FunCTIonS
The role of the 20-member Supervisory Board is to oversee and advise the Board of Management. Under
the German Codetermination Act, half the members of the Supervisory Board are elected by the stock-
holders, and half by the company’s employees. The Supervisory Board is directly involved in decisions
on matters of fundamental importance to the company, regularly conferring with the Board of Manage-
ment on the company’s strategic alignment and the implementation status of the business strategy.

The Chairman of the Supervisory Board coordinates its work and presides over the meetings. Through
regular discussions with the Board of Management, the Supervisory Board is kept constantly informed
of business policy, corporate planning and strategy. The Supervisory Board approves the annual budget
and financial framework. It also approves the financial statements of Bayer AG and the consolidated
financial statements of the Bayer Group, along with the combined management report, taking into ac-
count the reports by the auditor.

CoMMITTEES oF THE SupERvISoRY BoARD
The Supervisory Board currently has the following committees:

Presidial Committee: This comprises the Chairman and Vice Chairman of the Supervisory Board along
with a further stockholder representative and a further employee representative. The Presidial Commit-
tee serves primarily as the mediation committee pursuant to the German Codetermination Act. It has the
task of submitting proposals to the Supervisory Board on the appointment of members of the Board of
Management if the necessary two-thirds majority is not achieved in the first vote at a plenary meeting.
Certain decision-making powers in connection with capital measures, including the power to amend the
Articles of Incorporation accordingly, have also been delegated to this committee.

Audit Committee: The Audit Committee comprises three stockholder representatives and three em-
ployee representatives. The Chairman of the Audit Committee in 2013, Dr. Klaus Sturany, satisfies the
statutory requirements concerning the independence and the expertise in the field of accounting or
auditing that a member of the Supervisory Board and the Audit Committee is required to possess. The
Audit Committee meets regularly four times a year. Its tasks include examining the company’s finan-
cial reporting along with the financial statements of Bayer AG, the consolidated financial statements of
the Bayer Group, the combined management report, the proposal for the use of the distributable profit
of Bayer AG, and the interim financial statements and management reports of the Bayer Group, all of
which are prepared by the Board of Management. On the basis of the auditor’s report on the audit of
the financial statements of Bayer AG, the consolidated financial statements of the Bayer Group and the
combined management report, the Audit Committee develops proposals concerning the approval of
the statements by the full Supervisory Board. The Audit Committee is also responsible for the compa-
ny’s relationship with the external auditor. The Audit Committee submits a proposal to the full Super-
visory Board concerning the auditor’s appointment, prepares the awarding of the audit contract to the
audit firm appointed by the Annual Stockholders’ Meeting, suggests areas of focus for the audit and
determines the auditor’s remuneration. It also monitors the independence, qualifications, rotation and
efficiency of the auditor.

In addition, the Audit Committee oversees the company’s internal control system – along with the proce-
dures used to identify, track and manage risk – and the internal audit system. It also deals with corporate
compliance issues and discusses developments in this area at each of its meetings.

Human Resources Committee: On this committee, too, there is parity of representation between stock-
holders and employees. It consists of the Chairman of the Supervisory Board and three other members.
The Human Resources Committee prepares the personnel decisions of the full Supervisory Board, which
resolves on appointments or dismissals of members of the Board of Management. The Human Resources
Committee resolves on behalf of the Supervisory Board on the service contracts of the members of the
Board of Management. However, it is the task of the full Supervisory Board to resolve on the total com-
pensation of the individual members of the Board of Management and the respective compensation
components, as well as to regularly review the compensation system on the basis of recommendations
submitted by the Human Resources Committee. The Human Resources Committee also discusses the
long-term succession planning for the Board of Management.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 188

18. Corporate Governance Report
18.2 Governance

Nominations Committee: This committee carries out preparatory work when an election of stockhold-
er representatives to the Supervisory Board is to be held. It suggests suitable candidates for the Su-
pervisory Board to propose to the Annual Stockholders’ Meeting for election. The Nominations Com-
mittee comprises the Chairman of the Supervisory Board and the other stockholder representative on
the Presidial Committee.

Detailed information on the work of the Supervisory Board and its committees is provided in the Report
of the Supervisory Board on page 32ff. of this Annual Report.

oBjECTIvES FoR THE CoMpoSITIon oF THE SupERvISoRY BoARD
The Supervisory Board should be composed in such a way that its members together possess the neces-
sary expertise, skills and professional experience to properly perform their duties. In view of Bayer AG’s
global operations, the Supervisory Board has set itself the goal of always having several members with
international business experience or an international background. A further objective concerning the
composition of the Supervisory Board is that, absent special circumstances, its members should not hold
office beyond the end of the next Annual Stockholders’ Meeting following their 72nd birthday. With a
view to avoiding potential conflicts of interest, the Supervisory Board has set itself the goal that more
than half of the stockholder representatives be independent and also that at least three quarters of the
total Supervisory Board membership (stockholder and employee representatives) be independent. The
Supervisory Board assesses the independence of its members according to the recommendation con-
tained in Section 5.4.2 of the the German Corporate Governance Code. In assessing independence, the
Supervisory Board also considers the criteria given in the recommendation of the European Commission
of February 15, 2005.1

Another goal for the composition of the Supervisory Board is to increase the proportion of women on the
Supervisory Board to at least 20% in the medium term and for the female membership to be distributed as
evenly as possible between the stockholder and employee groups. It is intended to achieve this goal when
the entire Supervisory Board is elected in 2017.

The goals described refer to the Supervisory Board as a whole unless resolved otherwise. However,
since the Supervisory Board can only nominate candidates for election as stockholder representatives,
it can only take the targets into account in these nominations.

Implementation status of the objectives
The Supervisory Board has several members with international business experience and other interna-
tional connections. The objective that members should step down from the Supervisory Board at the
Annual Stockholders’ Meeting following their 72nd birthday is fully met. One member of the Supervisory
Board, Werner Wenning, was the Chairman of the company‘s Board of Management until 2010. One
member, Ernst-Ludwig Winnacker, has been a member of the Supervisory Board since 1997, and thus
has served more than three terms of office. However, neither Mr. Wenning nor Mr. Winnacker has any
personal or business relationship with the company or a governance body of the company that in the
opinion of the Supervisory Board gives rise to a material conflict of interest of a more than temporary
nature. The proportion of women on the Supervisory Board is currently 15%. A female candidate has
been nominated for election to the Supervisory Board at the 2014 Annual Stockholders’ Meeting. If she
is elected, this will bring the proportion of women on the Supervisory Board to 20%.

DISCloSuRE oF SECuRITIES TR AnSACTIonS BY MEMBERS oF THE BoARD
oF MAnAGEMEnT oR SupERvISoRY BoARD
Members of the Board of Management and Supervisory Board and their close relatives are legally required
to disclose all transactions involving the purchase or sale of Bayer stock where such transactions total
€5,000 or more in a calendar year. Bayer publishes details of such transactions immediately on its website
and also notifies the German Financial Supervisory Authority accordingly. This information is provided to
the company register for archiving. The following transactions in 2013 were reported to Bayer AG:

1 Annex 2 to the recommendation of the European Commission of February 15, 2005, on the role of non-executive or supervisory directors of

listed companies and on the committees of the (supervisory) board (2005/162/EC)

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 189

18. Corporate Governance Report
18.2 Governance

Securities Transactions by Members of the Board of Management or Supervisory Board

Date / place

Security / Right

Financial
instrument

ISIn

Transaction

price /
Currency

Quantity

[Table 3.18.1]

Total
transaction
volume

Dec. 27, 2013 /

Xetra

Werner Baumann,
Board of Management

Nov. 11, 2013 /
Xetra

Oliver Zühlke,
Supervisory Board

Nov. 4, 2013 /

Michael

Düsseldorf

Schmidt-Kiessling,

DE000BAY0017

Sale

EUR 102.87

4,600

EUR 473,211.20

DE000BAY0017

Sale

EUR 93.88

EUR 844.92

Supervisory Board

DE000BAY0017

Sale

EUR 92.40

EUR 8,316.00

Aug. 15, 2013 /
Xetra

Dr. Marijn Dekkers,
Board of Management

April 23, 2013 /
Düsseldorf

Oliver Zühlke,
Supervisory Board

March 6, 2013 /
Frankfurt

Oliver Zühlke,
Supervisory Board

March 5, 2013 /
Xetra

Werner Wenning,
Supervisory Board

March 5, 2013 /
Xetra

Dr. Paul Achleitner,
Supervisory Board

March 5, 2013 /
Xetra

Dr. Clemens Börsig,
Supervisory Board

March 5, 2013 /
Xetra

Thomas Ebeling,
Supervisory Board

March 5, 2013 /
Xetra

Dr. Thomas Fischer,
Supervisory Board

March 5, 2013 /
Xetra

Dr. Klaus Kleinfeld,
Supervisory Board

March 5, 2013 /

Sue H. Rataj,

NYSE

Supervisory Board

March 5, 2013 /

Michael

Xetra

Schmidt-Kiessling,

DE000BAY0017

Purchase

EUR 85.96

6,000

EUR 515,760.00

DE000BAY0017

Sale

EUR 79.46

EUR 3,973.00

DE000BAY0017

Sale

EUR 77.86

EUR 1,557.20

DE000BAY0017

Purchase

EUR 76.12

297

EUR 22,607.79

DE000BAY0017

Purchase

EUR 76.12

400

EUR 30,448.20

DE000BAY0017

Purchase

EUR 76.12

267

EUR 20,324.17

DE000BAY0017

Purchase

EUR 76.12

267

EUR 20,324.17

DE000BAY0017

Purchase

EUR 76.12

400

EUR 30,448.20

DE000BAY0017

Purchase

EUR 76.12

267

EUR 20,324.17

Bayer AG

American

Depositary

Receipts (ADR)

US0727303028

Purchase

US$ 101.75

273

US$ 27,777.75

Supervisory Board

DE000BAY0017

Purchase

EUR 76.12

267

EUR 20,324.17

March 5, 2013 /

Prof. Dr.-Ing.

Xetra

Ekkehard D. Schulz,

Supervisory Board

DE000BAY0017

Purchase

EUR 75.70

500

EUR 37,850.00

March 5, 2013 /
Xetra

Dr. Klaus Sturany,
Supervisory Board

March 5, 2013 /
Xetra

Dr. Helmut Panke,
Supervisory Board

March 5, 2013 /

Prof. Dr. Ernst-Ludwig

Xetra

Winnacker,

DE000BAY0017

Purchase

EUR 76.12

534

EUR 40,648.35

DE000BAY0017

Purchase

EUR 76.12

267

EUR 20,324.17

Supervisory Board

DE000BAY0017

Purchase

EUR 76.12

267

EUR 20,324.17

Information filed with the company by members of the Board of Management and Supervisory Board
shows that, on the closing date for the financial statements, their total holdings of Bayer AG stock or
related financial instruments were equivalent to less than 1% of the issued stock.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT

190

18. Corporate Governance Report
18.2 Governance

Common values and leadership prinCiples
Bayer has committed itself to the values of Leadership, Integrity, Flexibility and Efficiency, or “LIFE” for
short. These values provide guidance to all Bayer employees, both in business dealings and in working
together within the company. All employees are obligated to align their work to the LIFE values. This is
taken into account in human resources development and the regular performance evaluations.

systematiC risk management
The established internal control system enables the company to identify any business or financial risks
at an early stage and take appropriate action to manage them. This control system is designed to ensure
that risks are monitored in a timely manner, all business transactions are properly accounted for, and
reliable data on the company’s financial position is always available.

When acquisitions are made, we aim to bring the acquired units’ internal control systems into line with
those of the Bayer Group as quickly as possible.

However, the control and risk management system cannot provide absolute protection against losses
arising from business risks or fraudulent actions.

detailed reporting
To maximize transparency, we provide regular and timely information on the Group’s position and sig-
nificant changes in business activities to stockholders, financial analysts, stockholders’ associations,
the media and the general public. Bayer complies with the recommendations of the Corporate Gover-
nance Code by publishing reports on business trends, financial position, results of operations and
related risks four times a year.

In line with statutory requirements, the members of the Group Management Board provide an assur-
ance that, to the best of their knowledge, the financial statements of Bayer AG, the consolidated finan-
cial statements of the Bayer Group and the combined management report provide a true and fair view.

The financial statements of Bayer AG, the consolidated financial statements of the Bayer Group and
the combined management report are published within 90 days following the end of each fiscal year.
During the fiscal year, stockholders and other interested parties are kept informed of developments by
means of the half-year financial report and additional interim reports for the first and third quarters.
The half-year financial report is voluntarily subjected to an audit review by the auditor, whose appoint-
ment by the Annual Stockholders’ Meeting also relates specifically to this audit review.

Bayer also provides information at news conferences and analysts’ meetings. In addition, the company
uses the internet as a platform for timely disclosure of information, including details of the dates of ma-
jor publications and events, such as the annual report, quarterly financial reports (Stockholders‘ News-
letters) or the Annual Stockholders’ Meeting.

In line with the principle of fair disclosure, all stockholders and other principal target groups are treated
equally as regards the communication of valuation-relevant information. All significant new facts are
disclosed immediately to the general public. Stockholders also have immediate access to the information
that Bayer publishes locally in compliance with the stock market regulations of various countries.

In addition to our regular reporting, we issue ad-hoc statements on developments that otherwise might
not become publicly known but have the potential to materially affect the price of Bayer stock.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 191

18. Corporate Governance Report
18.3 Compliance

18.3 Compliance

Bayer manages its business responsibly and in compliance with the statutory and regulatory requirements
of the countries in which it operates.

We define compliance as legally and ethically impeccable conduct by all employees in their daily work –
because the way they carry out their duties affects the company’s reputation. Bayer does not tolerate any
violation of applicable laws, relevant codes of conduct or internal regulations.

The Board of Management is unreservedly committed to corporate compliance and Bayer will forgo any
business transaction that would violate our compliance principles. These principles are enshrined in our
Corporate Compliance Policy, which is available in 42 languages. This document details our commitment
to fair competition, integrity in business dealings including zero tolerance of corruption, the principles
of sustainability and product stewardship, the upholding of foreign trade laws and insider trading laws,
the separation of business and private interests, proper record-keeping and transparent financial report-
ing, fair and respectful working conditions, and avoidance of all forms of discrimination. Every employee
is required to immediately report any infringement of this policy (except in France where this require-
ment does not apply due to national law).

Managerial employees have a vital part to play in implementing the Corporate Compliance Policy. As
role models, they must help to ensure that this important code of conduct is adhered to in practice. Man-
agers may lose their entitlement to variable compensation components and be subject to disciplinary
measures if systematic violations of applicable law entailing loss or damage to Bayer have occurred in
their sphere of responsibility and could have been prevented if they had taken appropriate action. Com-
pliant and lawful conduct forms part of the performance evaluations of all managerial employees.

Bayer’s Corporate Auditing department regularly verifies adherence to the Corporate Compliance Poli-
cy. In 2013, 205 audits, including 52 compliance audits, were performed on the basis of a risk-oriented
audit plan that takes potential corruption and other risks into account. Such audits were either preven-
tive or incident-related. Observance of the Corporate Compliance Policy is also a focus of all regular
audits. The head of Corporate Auditing regularly attends the meetings of the Audit Committee of the
Supervisory Board and provides it with a list of conducted audits and their outcomes at least once a year.

The head of the Bayer Group’s compliance organization is the Group Compliance Officer, who reports
directly to the Chairman of the Board of Management. The Group Compliance Officer reports regularly
to the Audit Committee of the Supervisory Board on any confirmed compliance violations. The sub-
groups and service companies each have their own compliance officer, who is responsible for ensuring
that the respective subgroup or company adheres to Group-wide standards and any further subgroup- or
industry-specific standards that may apply. Operational coordination of Group-wide compliance activi-
ties is the task of the central Compliance Department, which was expanded in 2013. There are central
Compliance Officers in 35 countries and country groups, supported where necessary by further compli-
ance functions. Their role is to advise employees on lawful and ethically correct behavior in business-
related situations.

The compliance organization operates in accordance with international standards such as the OECD
Recommendations of the Council for Further Combating Bribery of Foreign Public Officials in Interna-
tional Business Transactions.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 192

18. Corporate Governance Report
18.3 Compliance

Compliance is crucial to the success of our business. In 2013 Bayer adopted a Group-wide Compliance
Charter to integrate compliance even more closely into all operating units and their work processes
with the aim of making the compliance organization an even stronger partner for our operational busi-
ness. The priority is to prevent compliance violations from occurring. Extensive communication and
training activities are designed to help employees develop a permanent awareness of compliance is-
sues and the associated risks.

Online annex: 3-18.3-1

Through our extensive training activities on specific aspects of compliance, we aim to ensure
employees are permanently aware of the meaning of compliance, its importance for Bayer, and how
they can avoid inadvertently violating compliance principles.

The web-based training program on the Corporate Compliance Policy is an integral part of the official
onboarding process for new managers. They are requested to take this training within three months
of becoming a manager or joining Bayer. In 2013 it was taken by 2,800 managers, which was about
50% of the managers newly hired or appointed during the year.

The web-based training program entitled “Anti-Corruption” has been translated into 10 languages
and adapted for different media formats. It is already available in 78 countries and has been completed
by some 55,000 employees, or about 48% of the total workforce.

At the same time, the HealthCare subgroup has developed a separate online training program relating
to the compliance manuals for pharmaceutical products and medical devices to provide preventive
training about specific compliance risks. These training modules outline the basic rules for responsible
and ethically correct dealings with members of the medical professions, the promotion of HealthCare
products, non-reciprocal benefits, and the exchange of services with people working in the health
care sector and at medical facilities.

In 2013 we again ran an extensive communication campaign about compliance aimed at providing
all employees with further information, explaining who is now available to advise them under the new
business partnering concept, and raising awareness for compliance-critical situations. A quarterly
newsletter for employees is published on the compliance intranet site.

Bayer’s intranet site and internal print media reported widely on the new mandatory web-based
anti-corruption training program, the setting-up of a new email address for employees’ questions
relating to compliance, the Compliance Charter, the tasks and structure of the new central global
compliance organization, and the new ICM@bayer project. ICM stands for Integrated Compliance
Management, a new Group-wide system through which the systematic, risk-based approach to the
identification of compliance risks is to be developed further and mapped in a closed management
system. The goal is to move away from an event-driven approach to a preventive one.

Since 2012 Bayer has used short videos depicting typical compliance-critical situations as an addi-
tional communication tool. Employees can view these on the compliance website. The films currently
available focus on anti-corruption, conflicts of interest and equal opportunities for everyone and show
typical key compliance scenarios.

Compliance was also a focus of communication and training activities at the subgroups and service
companies in 2013.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 193

18. Corporate Governance Report
18.4 Compensation Report

We have established hotlines worldwide through which compliance violations can be reported. This
can also be done anonymously. In 2013 the compliance organization registered 72 reports via the cen-
tral compliance hotline and email address. Of these, 20 were from Germany and 52 from other coun-
tries; 58 reports were received by email (24 of them anonymously), 12 by telephone (10 anonymously)
and 2 anonymously by regular mail. Suspected compliance violations may also be reported to the Com-
pliance Officers, to Bayer’s Corporate Auditing Department or via local hotlines set up by the country
organizations. All suspected compliance violations in the Group are recorded according to uniform cri-
teria and processed according to the rules set forth in the Directive on the Management of Compliance
Incidents.

18.4 Compensation Report

The Compensation Report describes the essential features of the compensation system for the members
of the Board of Management and the Supervisory Board and explains the compensation of the individual
members. The report conforms to the requirements of the German Commercial Code including the
principles of German Accounting Standard No. 17 (DRS 17). It also complies with the recommendations of
the German Corporate Governance Code and the International Financial Reporting Standards (IFRS).

18.4.1 Compensation of the Board of Management

objeCtives
The structure of the compensation system for the Board of Management of Bayer AG is aimed at ensuring
performance-oriented corporate governance and a long-term increase in the company’s value. The core
elements of the system include fixed compensation, which takes into account the tasks and duties of the
Board of Management members, and an incentivized component – the short-term incentive (STI) –, which
depends on the attainment of the annual corporate performance targets. In addition to the compensation
directly related to each year of service, there are two long-term stock-based components that are directly
related to the development of Bayer’s share price over time and thus are intended to create an incentive for
a sustained commitment to the company. The system is also designed to enable the company to success-
fully compete for highly qualified executives and to ensure statutory and regulatory compliance. Board of
Management compensation is in line with the basic principles of the compensation structure for manageri-
al employees in the Bayer Group. The appropriateness of the system and the compensation level are regu-
larly reviewed by the Supervisory Board, which then makes any necessary adjustments.

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18. Corporate Governance Report
18.4 Compensation Report

Compensation struCture
The compensation paid to the members of the Board of Management includes both non-performance-
related and performance-related components. The compensation structure, based on average total annu-
al compensation and 100% target attainment, is as follows:

board of management Compensation structure (german Commercial Code) *

[graphic 3.18.1]

~ 30%

Fixed annual
compensation

~ 30%

short-term variable
cash compensation
(50% sti)

* excluding fringe benefits and pension entitlements

~ 40%

long-term variable
compensation

~ 10% Aspire

~ 30% Virtual shares

(50% STI)

The non-performance-related compensation comprises the fixed annual compensation along with fringe
benefits. The performance-related compensation partly comprises a variable component (STI), of which
50% takes the form of short-term variable cash compensation and 50% consists of long-term cash com-
pensation involving a grant of virtual Bayer shares that are retained for three years. The other perfor-
mance-related compensation component serving as a long-term incentive is the stock-based cash com-
pensation program Aspire. Here, a four-year retention period applies.

The individual performance-related components are capped at the grant date. To comply with the rec-
ommendation newly included in the 2013 version of the German Corporate Governance Code, caps have
also been agreed for the disbursement of the performance-related components and for the compensa-
tion as a whole (total of the annual fixed compensation and the variable components) with effect from
the fiscal year 2014. The cap on the total compensation is 1.8 times the respective target compensation
and is determined annually when the fixed compensation is set.

The members of the Board of Management also receive pension entitlements for themselves and their
surviving dependents.

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195

18. Corporate Governance Report
18.4 Compensation Report

non-performance-related components
Fixed annual compensation
The level of the non-performance-related, fixed annual compensation takes into account the functions
and responsibilities assigned to the members of the Board of Management as well as market condi-
tions. The fixed compensation is regularly reviewed by the Supervisory Board in light of the consumer
price indexes and adjusted if necessary. It is paid out in twelve monthly installments.

Fringe benefits
This component mainly includes perquisites such as a company car with driver or the use of the
company carpool, payments toward the cost of security equipment, and the reimbursement of the cost
of annual health screening examinations. Fringe benefits are reported at the value assigned to them
for tax purposes.

performance-related components
short-term variable cash compensation
The short-term variable compensation (short-term incentive, or STI) is based on a set percentage of
the fixed annual compensation (target value). This amount is adjusted according to the target attain-
ments of the Bayer Group, the subgroups and the individual Board of Management member.

The Group component is determined in relation to core earnings per share of the Group, while the
subgroup components are governed by the weighted average target attainments of the HealthCare,
CropScience and MaterialScience subgroups. The annual subgroup targets are derived from the re-
spective business strategies and operational priorities. The target attainment for HealthCare and Crop-
Science is mainly based on the comparison of target and actual values for the EBITDA margin before
special items and sales growth. At MaterialScience it is measured in terms of the cash flow return on
investment (CFROI). Target attainment also takes into account qualitative objectives including safety,
compliance and sustainability aspects.

The target attainment for the individual component of the variable compensation is determined by the
Supervisory Board. One half of the STI for each year is paid out in the second quarter of the following
year, while the other half is granted in the form of virtual Bayer shares.

short-term variable Compensation (sti) Components

[graphic 3.18.2]

bayersti

Group
component

Subgroup
component

Individual
component

1/ 3 of sti target value

Based on Group target
attainment (core earnings
per share)

Based on attainment of
financial and qualitative targets
by the three subgroups
(weighted average)

Based on individual
performance

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18. Corporate Governance Report
18.4 Compensation Report

long-term variable cash compensation based on virtual bayer shares
Both the number of virtual shares granted and the amount of the payment at the end of a three-year
retention period are based on the average official closing price of Bayer shares over the last 30 trading
days of the respective year in the Xetra system of the Frankfurt Stock Exchange. A cash payment with
respect to the number of virtual shares held is made at the end of the three-year period according to the
market price of Bayer shares at that time. In addition, the members of the Board of Management receive
an amount equal to the total dividends paid on the equivalent number of real shares during the period.
Payment is made in January of the year following the end of the three-year period. This payment is
capped at 200% of the amount converted into virtual shares at the beginning of the three-year period.
No option exists for the Board of Management members to extend the retention period or defer the
payout. When a member leaves the Board of Management, the retention period for two-thirds of each
tranche is shortened to two years. If the member leaves during a fiscal year, payment is made immedi-
ately with respect to two-thirds of any tranche that has already been retained for more than two years.
The remaining one-third of each tranche continues to be subject to the three-year retention period.

long-term stock-based cash compensation (aspire i)
Members of the Board of Management are eligible to participate in the annual tranches of the long-term
stock-based compensation program Aspire I (“Aspire”) on condition that they purchase a certain number
of Bayer shares – determined for each individual according to specific guidelines – as a personal invest-
ment and for as long as they continue in the service of the Bayer Group. The payments made under this
program are based on the Aspire Target Opportunity, which is a contractually agreed percentage of fixed
annual compensation. Depending on the performance of Bayer stock, both in absolute terms and relative
to the EURO STOXX 50 benchmark index, participants are granted an award of between 0% and 300% of
their individual Aspire Target Opportunity for four-year tranches, or between 0% and 200% for three-
year tranches, at the end of the respective performance period. The Aspire program was switched from
three- to four-year tranches starting in 2010 to increase its long-term incentive effect. For the transition
year 2010, a three-year half-tranche was issued in addition to the four-year tranche. Starting in 2011,
only tranches with a four-year performance period have been issued. The performance matrix and the
respective amounts of the awards depending on the absolute and relative performances of Bayer stock
are explained at HTTP://WWW.INVESTOR.BAYER.COM/EN/STOCK/STOCK-PROGRAMS/ASPIRE.

tranches of the aspire program

[graphic 3.18.3]

2010 – 2013 *

2011 – 2014

2012 – 2015

2013 – 2016

2010

2011

2012

2013

2014

2015

2016

performance period

* three- and four-year tranches of the Aspire program were issued in 2010

When a member of the Board of Management retires, current tranches may be shortened. In this
case, tranches up to the one issued in 2011 are shortened on a pro-rated basis according to the dura-
tion of the member’s active service on the Board of Management during the period of the tranche;
tranches issued in 2012 or later are shortened according to the duration of the member’s active ser-
vice on the Board of Management during the first year of the tranche.

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18. Corporate Governance Report
18.4 Compensation Report

expanded share ownership guidelines
On top of the requirement for participants in the Aspire program to make a personal investment in
Bayer shares, the members of the Board of Management have undertaken to comply with expanded
Share Ownership Guidelines. These require the Chairman of the Board of Management to build a posi-
tion in Bayer shares to the value of 150% of his fixed annual compensation, and the other members to
the value of 100% of their fixed annual salaries, within four years and to continue to hold them for as
long as they remain Board of Management members. Half the number of virtual shares granted to
them through conversion of 50% of the STI into virtual shares counts toward this position. The Board
of Management members must provide documentary evidence of their compliance with this obligation
for the first time at the end of the four-year position-building period and again yearly thereafter. In the
event of significant changes in fixed annual compensation, the value to which shares are held must be
adjusted accordingly.

pension entitlements (retirement and surviving dependents‘ pensions)
The members of the Board of Management appointed prior to 2013 are generally entitled to receive a
lifelong company pension after leaving the Bayer Group, though not before the age of 60. This pension
is normally paid out in the form of a monthly life annuity. Dr. Dekkers has the option to receive a capital
sum in place of an annuity.

The annual pension granted equals at least 15% of final fixed annual compensation. This percentage
can increase with continuing service on the Board of Management up to a maximum of 60%, except in
the case of a member appointed prior to 2006, who is entitled to a pension of up to 80% of his final fixed
annual compensation. The arrangements for surviving dependents basically provide for a widow’s pen-
sion amounting to 60% of the member’s pension entitlement and an orphan’s pension amounting to
15% of the member’s pension entitlement for each child.

Future pension payments are annually reviewed and adjusted based on the development of consumer
prices. Pension rights are suspended if a Management Board member works for a competitor of
Bayer AG or of another Group company before the age of 65 without the prior written consent of the
Supervisory Board.

The annual pension entitlement for members of the Board of Management appointed in 2013 or there-
after is based on contributions. Bayer provides a hypothetical contribution amounting to 33% of the
respective fixed compensation each year. This percentage is comprised of a 6% basic contribution and a
27% matching contribution – three times the member’s personal contribution of 9%. The total annual
contribution is converted into a pension module according to the annuity table for the applicable tariff of
the Rheinische Pensionskasse VVaG pension fund. The annual pension entitlement upon retirement
(at 62 years of age at the earliest) is the total amount of the accumulated pension modules including an
investment bonus. The investment bonus is determined annually based on the net return on the assets of
the Rheinische Pensionskasse VVaG minus the minimum return on the contributions that is guaranteed
under the tariff and approved by the German Financial Supervisory Authority.

The ultimate pension entitlement cannot be precisely determined in advance. It depends on the develop-
ment of the member’s compensation, the number of years of service on the Board of Management and
the return on the assets of the Rheinische Pensionskasse VVaG. We currently estimate the achievable
total pension entitlement at approximately 45% of a member’s annual fixed compensation immediately
prior to retirement, with roughly 38% financed by the company and 7% by the member of the Board of
Management.

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18. Corporate Governance Report
18.4 Compensation Report

benefits upon termination of service on the board of management
post-contractual non-compete agreements
Post-contractual non-compete agreements exist with the members of the Board of Management, provid-
ing for compensatory payments to be made by the company for the two-year duration of these agree-
ments. For the members newly appointed to the Board of Management on or after January 1, 2010, the
compensatory payment is 100% of the average fixed compensation for the twelve months preceding
their departure.

Change of control
Agreements exist with the members of the Board of Management providing for severance payments to
be made in certain circumstances in the event of a change in control. The amount of any possible sever-
ance payments in the case of early termination of service on the Board of Management as a result of a
change in control is limited to the value of three years’ compensation in line with the recommendation in
Section 4.2.3 of the German Corporate Governance Code. Such payments do not exceed the compensa-
tion payable for the remaining term of the service contract.

unfitness for work
In the event of temporary unfitness for work, members of the Board of Management continue to receive
the contractually agreed compensation. Bayer AG may early terminate the service contract if the mem-
ber has been continuously unfit for work for at least 18 months and is likely to be permanently incapable
of fully performing his duties (permanent incapacity to work). A disability pension is paid in the event of
contract termination before the age of 60 due to permanent incapacity to work. For the members ap-
pointed to the Board of Management prior to 2013, the disability pension, like the retirement pension,
amounts to at least 15% of the final fixed compensation and can increase with continuing service on the
Board of Management up to a maximum of 60%. For members of the Board of Management appointed
in 2013 or thereafter, the amount of the disability pension under the service contract corresponds to the
entitlement accrued on the date of contract termination, taking into account a fictitious period of service
between that date and the member’s 55th birthday where applicable.

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18. Corporate Governance Report
18.4 Compensation Report

Compensation oF the board oF management in 2013
The aggregate compensation of the members of the Board of Management in 2013 totaled €13,563 thou-
sand (2012: €12,997 thousand), comprising €3,956 thousand (2012: €3,541 thousand) in non-perfor-
mance-related components and €9,607 thousand (2012: €9,456 thousand) in performance-related
components. The pension service cost amounted to €1,271 thousand (2012: €1,861 thousand). The perfor-
mance-related components in 2013 included an additional one-time variable component for Prof. Plischke
with a target value of €500 thousand, the exact amount of this payment depending on the target attainment
of the HealthCare subgroup (in terms of the EBITDA margin before special items and sales growth). It re-
lates to the additional function as head of the HealthCare subgroup that was temporarily assigned to him
and to a subsequent period covering the necessary handover to his successor in this function. This one-
time payment, amounting to €771 thousand, does not form part of his pensionable income.

The following changes in the membership of the Board of Management took place in 2013: effective April
1, 2013, Mr. König was appointed to the Board of Management of Bayer AG. Effective June 1, 2013, he
succeeded Dr. Pott, who retired as of that date.

The following table shows the compensation components of the individual members of the Board of
Management in 2013:

board of management Compensation (german Commercial Code)

[table 3.18.2]

Fixed annual
Compensation

Fringe
Benefits

short-term
variable Cash
Compensation

long-term variable Cash
Compensation based on
virtual bayer shares 1

aggregate
Compensation

pension
service Cost 3

long-term
stock-based
Cash
Compensation
(aspire) 2

2012
€ thou-
sand

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

2012
No. of
shares 4

2012
€ thou-
sand

2013
No. of
shares 4

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

Dr. Marijn

Dekkers

(Chairman)

1,271

1,347

Werner
Baumann

Prof. Dr.

Wolfgang
Plischke 5

Michael König

Dr. Richard
Pott

783

888

670

–

710

533

670

296

total

3,394

3,774

–

147

1,702

1,532

24,228

1,702

15,802

1,532

352

382

5,062

4,832

561

677

979

881

13,928

979

9,085

881

186

252

2,971

2,945

1,056

189

783

1,476

11,701

822

7,631

529

–

5,451

740

529

783

294

11,329

796

3,028

294

182

4,247

4,712 61,186

4,299

40,997

3,976

186

–

186

910

201

2,495

3,162

–

1,642

–

120

2,469

982

239

279

919 12,997

13,563

1,861

1,271

1 fair value at conversion date
2 fair value at grant date
3 including company contribution to Bayer-Pensionskasse VVaG
4 In return for their acceptance of the early change made to the system of variable cash compensation in 2010, Prof. Plischke and Dr. Pott since 2010 have received one
additional virtual Bayer share for every 20 virtual Bayer shares resulting from the conversion of 50% of the STI into virtual Bayer shares. This arrangement no longer
applies to Dr. Pott under his new service contract effective May 1, 2012.

5 The short-term variable cash compensation total for Prof. Plischke includes the additional one-time variable payment made to him of €771 thousand.

Fixed annual compensation
The fixed compensation of the members of the Board of Management was adjusted in 2013. The total
fixed compensation of all the members was €3,774 thousand (2012: €3,394 thousand).

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18. Corporate Governance Report
18.4 Compensation Report

short-term variable cash compensation
The total short-term variable cash compensation (short-term portion of the STI) for all the members of the
Board of Management in 2013 totaled €4,712 thousand (2012: €4,247 thousand) after deduction of the soli-
darity contribution and including the additional variable one-time payment for Prof. Plischke. The solidari-
ty contribution is paid by all employees of the companies covered by the respective agreements with the
employee representatives to help safeguard jobs at the German sites. For 2013 this contribution amounted
to 0.47% (2012: 0.67%) of each member’s total STI award.

long-term variable cash compensation based on virtual bayer shares
The conversion of 50% of the STI into virtual Bayer shares was based on an average price of €96.96 (2012:
€70.26). Prof. Plischke and Dr. Pott each received one additional virtual Bayer share for every 20 virtual
Bayer shares resulting from the conversion in return for their acceptance of the early change made to the
system of variable cash compensation in 2010. This applies for the duration of the service contract in effect
at that time. The additional virtual shares are subject to the same retention period and therefore to the
same change in value. This arrangement no longer applied to Dr. Pott under his new service contract that
became effective May 1, 2012. The retention period for some of Dr. Pott’s virtual shares was shortened
pursuant to his service contract upon his retirement. He therefore received a first payment in June 2013.

The long-term variable cash compensation based on virtual Bayer shares that is included in the aggregate
compensation according to the German Commercial Code was valued at €3,976 thousand (2012:
€4,299 thousand). The aggregate compensation according to the IFRS also includes a change of
€5,030 thousand (2012: €3,136 thousand) in the value of existing entitlements.

Provisions of €18,310 thousand (2012: €13,222 thousand) existed as of December 31, 2013, for the future
cash disbursements to currently serving members of the Board of Management based on the virtual Bayer
shares granted in the respective year. This amount also contains the dividend attributable to the respective
prior year.

long-term stock-based cash compensation (aspire)
The long-term stock-based cash compensation under the Aspire program is included in the aggregate
compensation according to the German Commercial Code at its fair value of €919 thousand (2012:
€910 thousand) at the grant date.

According to the IFRS, the aggregate compensation includes the fair value of the partial entitlement
earned in the respective year. Grants of stock-based compensation with a four-year performance period
are therefore expensed at their respective fair values over four years starting with the grant year. The
aggregate compensation according to the IFRS also includes the change in the value of existing entitle-
ments under ongoing Aspire tranches granted in prior years.

board of management Compensation – aspire program (iFrs)

[table 3.18.3]

dr. marijn
dekkers
(Chairman)

Werner
baumann

prof. dr.
Wolfgang
plischke

michael
könig

dr. richard
pott

total

Stock-based compensation entitle-
ments earned in the respective year 1

Change in value of existing
entitlements 2

total

€ thousand

2013

2012

2013

2012

2013

2012

1,115

535

703

306

1,818

841

679

322

444

214

1,123

536

651

406

444

338

1,095

744

141

–

228

–

339

744

634

338

973

1,082

2,925

2,007

2,312

1,196

5,237

3,203

1 The newly earned entitlements are derived from the 2010, 2011, 2012 and 2013 tranches of the Aspire program because this compensation

was or is being earned over three- or four-year periods. They are stated at their pro-rated fair values in 2012 and 2013, respectively.

2 This line shows the change in the value of the entitlements already earned in 2010, 2011 and 2012 (2012: 2010 and 2011).

Provisions of €6,813 thousand (2012: €3,793 thousand) existed as of December 31, 2013, for the entitle-
ments of the currently serving members of the Board of Management under the Aspire program.

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18. Corporate Governance Report
18.4 Compensation Report

pension entitlements
The pension service cost recognized for the members of the Board of Management in 2013 according
to the German Commercial Code was €1,271 thousand (2012: €1,861 thousand), while the current
service cost for pension entitlements recognized according to the IFRS was €1,805 thousand (2012:
€2,501 thousand).

The service costs and the settlement or present value of the pension obligations attributable to the indi-
vidual members of the Board of Management are shown in the following table.

pension entitlements (german Commercial Code and iFrs)

german Commercial Code

[table 3.18.4]

iFrs

pension service cost 1

settlement value
of pension obligation
as of december 31

service cost for
pension entitlements

Present value of defined
benefit pension obli ga-
tion as of december 31

2012

2013

2012

2013

2012

2013

2012

2013

€ thousand

Dr. Marijn Dekkers

Werner Baumann

Prof. Dr.
Wolfgang Plischke

Michael König

Dr. Richard Pott

total

561

1,056

–

239

1,861

677

189

120

279

1,271

4,354

4,379

5,451

4,936

7,512

–

8,074

24,319

7,621

1,327

19,335

637

1,600

–

264

2,501

960

291

185

369

1,805

6,282

6,888

6,684

6,354

9,556

–

10,722

33,448

8,716

1,719

23,473

1 including company contribution to Bayer-Pensionskasse VVaG

The difference between the pension service cost according to the German Commercial Code and the
service cost for pension entitlements according to the IFRS arises from the difference in the valuation
principles used in calculating the settlement value according to the German Commercial Code and the
present value of the defined pension benefit obligation according to the IFRS.

In 2012 a contribution was made to Bayer Pension Trust e.V. under a contractual trust arrangement
(CTA) to cover direct pension commitments, resulting in a substantial additional security for all direct
pension commitments in Germany. In particular, this means that pension commitments not covered by
the German Corporate Pension Assurance Association (PSV) are fully and permanently secured. This
includes pension commitments toward members of the Board of Management.

The aggregate compensation according to the IFRS is shown in the following table:

board of management Compensation according to iFrs

Fixed annual compensation

Fringe benefits

total short-term non-performance-related compensation

Short-term performance-related cash compensation

total short-term compensation

Stock-based compensation (virtual Bayer shares) earned in the respective year

Change in value of existing entitlements to stock-based compensation (virtual Bayer shares)

Stock-based compensation (Aspire) earned in the respective year

Change in value of existing entitlements to stock-based compensation (Aspire)

total stock-based compensation (long-term incentive)

Service cost for pension entitlements earned in the respective year

total long-term compensation

aggregate compensation (iFrs)

[table 3.18.5]

2012

2013

€ thousand

3,394

147

3,541

4,247

7,788

4,299

3,136

2,007

1,196

10,638

2,501

13,139

20,927

3,774

182

3,956

4,712

8,668

3,976

5,030

2,925

2,312

14,243

1,805

16,048

24,716

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18. Corporate Governance Report
18.4 Compensation Report

203

18. Corporate Governance Report
18.4 Compensation Report

18.4.2 Disclosures Pursuant to the Recommendations
of the German Corporate Governance Code

The following table lists the compensation and fringe benefits paid for 2013, including the maximum
and minimum achievable variable compensation, in line with the recommendations in the May 2013
version of the German Corporate Governance Code.

Compensation and Benefits Granted for 2013

[Table 3.18.6]

Dr. Marijn Dekkers
(Chairman)

Werner Baumann
(Finance)

Prof. Dr. Wolfgang Plischke1
(Technology, Innovation,

Sustainability)

Michael König2
(Human Resources)

Dr. Richard Pott1
(Strategy, Human Resources)

Joined Jan. 1, 2010

Joined March 1, 2006

Joined April 1, 2013

Stepped down June 1, 2013

Target
value
2012

Target
value
2013

Min.
2013

Max.3
2013

Target
value
2012

Target
value
2013

Min.
2013

Max.3
2013

€ thou-
sand

Target
value
2012

Target
value
2013

Min.
2013

Max.3
2013

Target
value
2012

Target
value
2013

Min.
2013

Max.3
2013

Target
value
2012

Target
value
2013

Min.
2013

Max.3
2013

€ thou-
sand

Fixed annual compensation

1,271

1,347

Fringe benefits

Total annual fixed compensation

1,306

1,386

783

827

888

931

888

931

888

931

670

704

710

745

710

745

710

745

533

584

533

584

670

704

296

310

296

310

1,420

1,448

2,896

816

833

1,665

653

666

1,332

Short-term variable cash compensation
(50% of STI)

Long-term stock-based compensation
(Aspire) 2012 (Jan. 1, 2012 – Dec. 31, 2015) 4

Long-term stock-based compensation
(Aspire) 2013 (Jan. 1, 2013 – Dec. 31, 2016) 4

Long-term variable cash compensation

(virtual Bayer shares) in 2012
(Jan. 1, 2013 – Dec. 31, 2015) 5

Long-term variable cash compensation

(virtual Bayer shares) in 2013
(Jan. 1, 2014 – Dec. 31, 2016) 5

HealthCare special bonus

Total compensation

Service cost

Total

498

–

263

–

539

1,617

–

355

1,066

–

816

–

1,420

–

1,448

–

5,793

–

4,644

4,821

1,386

11,692

561

677

5,205

5,498

2,063

12,369

833

–

2,952

189

–

2,722

1,056

3,778

–

3,330

–

931

189

6,992

189

1 including any contractually agreed free shares in connection with the grant of virtual shares
2 Benefits granted to Mr. König refer solely to compensation for his duties as a member of the Board of Management. The 2013 Aspire tranche
was granted to him prior to his appointment to the Board of Management. Its vesting period extends past the date on which he joined the
Board of Management.

3 The caps applicable with effect from 2014 are not yet accounted for in the total of maximum achievable compensation.
4 capped at 300%
5 capped at 200%

–

533

584

500

–

500

–

1,677

120

1,797

–

584

120

704

999

653

278

–

263

–

278

–

118

–

664

–

1,998

–

3,859

2,284

120

239

278

–

984

279

3,979

2,523

1,263

296

310

555

–

355

–

310

279

589

1,220

279

1,499

263

–

284

686

–

699

500

–

2,306

2,894

745

–

853

–

2,797

1,500

7,227

3,141

1,120

7,181

2,311

2,900

751

7,233

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18. Corporate Governance Report
18.4 Compensation Report

allocation of Compensation in / for 2012 and 2013

[table 3.18.7]

dr. marijn dekkers
(Chairman)

Werner baumann
(Finance)

prof. dr.
Wolfgang plischke
(technology, innova-
tion, sustainability)

michael könig
(human resources)

dr. richard pott
(strategy,

human resources)

joined
jan. 1, 2010

joined
march 1, 2006

joined
april 1, 2013

stepped down
june 1, 2013

2012
€ thou-
sand

1,271

2013
€ thou-
sand

1,347

1,306

1,386

Fixed annual compensation

Fringe benefits

total

Short-term variable cash

compensation for the period

2012
€ thou-
sand

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

783

827

888

931

670

704

710

745

Jan. 1. – Dec. 31, 2011

1,420

–

653

–

653

–

Short-term variable cash

compensation for the period

Jan. 1 – Dec. 31, 2012

Long-term stock-based cash

compensation (Aspire) 2009
(Jan. 1, 2009 – Dec. 31, 2011)1

Long-term stock-based cash

compensation (Aspire) 2010

(Jan. 1, 2010 – Dec. 31, 2012)

Advance payment of 2 / 3 of

long-term cash compensation

(virtual Bayer shares) 2010

(Jan. 1, 2011 – Dec. 31, 2013)

total

Service cost / benefit expense

total compensation

–

1,702

–

979

–

783

–

202

–

430

–

253

–

2,726

3,088

561

677

3,287

3,765

1,682

1,056

2,738

1,910

1,787

1,781

189

2,099

1,792

1,787

1 The payment to Mr. Baumann from the 2009 Aspire tranche applied to a vesting period that began before he joined the Board of Management.

The tranche was not yet fully vested at the date on which he joined the Board of Management.

–

533

584

670

704

296

310

–

584

120

704

653

–

783

430

–

253

587

1,787

1,933

239

279

2,026

2,212

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18. Corporate Governance Report
18.4 Compensation Report

18.4.3 Compensation of the Supervisory Board

The Supervisory Board is compensated according to the relevant provisions of the Articles of Incorpora-
tion, which were amended effective April 28, 2012 by resolution of the Annual Stockholders’ Meeting held
on April 27, 2012.

supervisory board Compensation system eFFeCtive april 28, 2012
The members of the Supervisory Board receive fixed annual compensation of €120,000 plus reim-
bursement of their expenses.

In accordance with the recommendations of the German Corporate Governance Code, additional com-
pensation is paid to the Chairman and Vice Chairman of the Supervisory Board and for chairing and
membership of committees. The Chairman of the Supervisory Board receives fixed annual compensa-
tion of €360,000, the Vice Chairman €240,000. These amounts also cover membership and chairman-
ship of committees. The other members receive additional compensation for committee membership.
The chairman of the Audit Committee receives an additional €120,000, the other members of the Audit
Committee €60,000 each. The chairmen of the remaining committees receive €60,000 each, the other
members of those committees €30,000 each. No additional compensation is paid for membership of the
Nominations Committee. A Supervisory Board member who is a member of more than two committees
receives compensation only for the two committees with the highest compensation. If changes are
made to the Supervisory Board and/or its committees during the year, members receive compensation
on a pro-rated basis. The members of the Supervisory Board also receive an attendance fee of €1,000
each time they personally attend a meeting of the Supervisory Board or a committee. The attendance
fee is limited to €1,000 per day.

The members of the Supervisory Board have given a voluntary pledge that they will each purchase
Bayer shares for 25% of their fixed compensation, including any compensation for committee mem-
bership (before taxes), and hold these shares for as long as they remain members of the Supervisory
Board. This does not apply to members who transfer at least 85% of their fixed compensation to the
Hans Böckler Foundation in accordance with the rules of the German Trade Union Confederation or
whose service or employment contract with a company requires them to transfer such compensation
to that company. If less than 85% of the fixed compensation is transferred, the voluntary pledge ap-
plies to the portion not transferred. By voluntarily pledging to invest in and hold Bayer shares, the
Supervisory Board members reinforce their interest in the long-term, sustainable success of the com-
pany. With respect to the fiscal year 2012, the voluntary pledge applies to the fixed compensation paid
for the period from April 28, 2012.

supervisory board Compensation system until april 27, 2012
Until April 27, 2012, the compensation of the Supervisory Board was based on the relevant provisions
of the Articles of Incorporation decided by the Annual Stockholders’ Meeting on April 29, 2005. Each
member of the Supervisory Board received fixed annual compensation of €60,000 plus reimbursement of
their expenses and a variable annual compensation component. The variable component was based on
corporate performance in terms of the gross cash flow reported in the consolidated financial statements of
the Bayer Group for the respective fiscal year. The members of the Supervisory Board received €2,000 for
every €50 million or part thereof by which the gross cash flow exceeded €3.1 billion, but the variable com-
ponent for each member could not exceed €30,000.

In accordance with the recommendations of the German Corporate Governance Code, additional com-
pensation was paid to the Chairman and Vice Chairman of the Supervisory Board and for chairing and
membership of committees. The Chairman of the Supervisory Board received three times the basic
compensation, while the Vice Chairman received one-and-a-half times the basic compensation. Mem-
bers of the Supervisory Board who were also members of a committee received an additional one quar-
ter of the amount, with those chairing a committee receiving a further quarter. However, no member of
the Supervisory Board received total compensation exceeding three times the basic compensation. It
was agreed that no additional compensation should be paid for membership of the Nominations Com-
mittee. If changes were made to the Supervisory Board or its committees during the fiscal year, mem-
bers received compensation on a pro-rated basis.

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18. Corporate Governance Report
18.4 Compensation Report

Compensation oF the supervisory board in 2013
The following table shows the components of each Supervisory Board member’s compensation for 2013.

Compensation of the members of the supervisory board of bayer ag in 2013

Fixed
Compensation

attendance
Fee

variable
Compensation

Compensation
for Committee
membership

[table 3.18.8]

total

2012
€ thou-
sand

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

2012
€ thou-
sand

2013
€ thou-
sand

members of the supervisory board
as of december 31, 2013

Dr. Paul Achleitner

Dr. Clemens Börsig

André van Broich

Thomas Ebeling

Dr. Thomas Fischer

Peter Hausmann

Reiner Hoffmann

Yüksel Karaaslan

Dr. Klaus Kleinfeld

Petra Kronen

Dr. Helmut Panke

Sue H. Rataj

Petra Reinbold-Knape

Michael Schmidt-Kiessling

Prof. Dr. Ekkehard D. Schulz

Dr. Klaus Sturany

Werner Wenning
(Chairman effective October 1, 2012)

Thomas de Win (Vice Chairman)

Prof. Dr. Dr. Ernst-Ludwig Winnacker

Oliver Zühlke

members who left the supervisory
board during 2012

André Aich

Willy Beumann

Prof. Dr. Hans-Olaf Henkel

Hubertus Schmoldt

Dr. Manfred Schneider
(Chairman until September 30, 2012)

Roswitha Süsselbeck

Dr. Jürgen Weber

100

192

100

211

180

120

180

150

180

120

150

120

180

240

360

240

120

150

–

160

113

162

141

154

111

142

112

155

210

225

112

135

243

184

124

188

154

188

124

153

123

124

188

248

368

247

124

154

–

* Further details on the membership of the committees of the Supervisory Board are given under “Further Information,” page 337ff.

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207

18. Corporate Governance Report
18.4 Compensation Report

In addition to their compensation as members of the Supervisory Board, those employee representatives
who are employees of Bayer Group companies receive compensation unrelated to their service on the
Supervisory Board. The total amount of such compensation in 2013 was €727 thousand (2012:
€670 thousand).

No compensation was paid or benefits granted to members of the Supervisory Board for personally
performed services such as consultancy or agency services. The company has purchased insurance for
the members of the Supervisory Board to cover their personal liability arising from their service on the
Supervisory Board.

18.4.4 Further Information

advanCes or loans to members oF the board oF management
or supervisory board

There were no advances or loans to members of the Board of Management or the Supervisory Board
outstanding as of December 31, 2013, nor at any time during 2013 or 2012.

pension payments to Former members oF the board oF management
or their surviving dependents
We currently pay retired members of the Board of Management a monthly pension equal to a maximum
of 80% of the fixed compensation received immediately prior to retirement. The pensions of former
members of the Board of Management or their surviving dependents have been reassessed annually
since January 1, 2009 and adjusted taking into account the development of consumer prices. The pen-
sions paid to former members of the Board of Management or their surviving dependents in 2013 to-
taled €12,871 thousand (2012: €12,673 thousand). These benefits are in addition to any amounts they
receive under previous employee pension arrangements. The present value of the pension obligation
for former members of the Board of Management and their surviving dependents at the closing date
amounted to €150,148 thousand (2012: €149,746 thousand) according to IFRS and €136,307 thousand
(2012: €126,424 thousand) according to the German Commercial Code.

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19. Events After the End of the Reporting Period

Events After the End of the
Reporting Period

19. Events After the End of the

Reporting Period

On January 21, 2014, Bayer AG issued three tranches of bonds with a combined nominal volume of
€2 billion under the multi-currency European Medium Term Notes program.

healthCare
On December 19, 2013, Bayer announced its intention to acquire the pharmaceutical company Algeta
ASA, Norway. The formal takeover offer at a price of NOK 362 per share in cash was made to Algeta
ASA shareholders on January 20, 2014. The offer, which implies an equity value of NOK 17.6 billion
(€2.1 billion), is subject to a minimum acceptance level of 90% of the outstanding shares of Algeta
ASA by the end of the offer period. The offer period expires at 9:00 a.m. Central European Time on
February 24, 2014. If the offer is successful, payment to Algeta shareholders is to be made at the be-
ginning of March 2014.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 209

20. Future Perspectives
20.1 Economic Outlook

Report on Future Perspectives
and on Opportunities and Risks

20. Future Perspectives

20.1 Economic Outlook

global eConomy

economic outlook

World

European Union

of which Germany

United States

Emerging markets**

[table 3.20.1]

growth * 2013

growth forecast * 2014

+ 2.5%

+ 0.1%

+ 0.4%

+ 1.9%

+ 4.7%

+ 3.3%

+ 1.3%

+ 1.8%

+ 2.7%

+ 5.3%

* real growth of gross domestic product, source: Global Insight; source for Germany: Federal Statistical Office (2013) / Federal Ministry of
Economics and Technology (2014)
** including about 50 countries defined by Global Insight as emerging markets in line with the World Bank
as of February 2014

The global economy will probably grow more quickly in 2014 than in the previous year, with positive
impetus coming mainly from the industrialized countries, especially the United States. At the same
time, the European economy appears to have overcome the recession. The major central banks will
likely continue to support global growth overall, although a cautious normalization of monetary poli-
cy is expected in the United States.

We anticipate moderate growth in the European Union as a whole, supported in particular by the
relatively favorable economic situation in Germany and the United Kingdom. Some southern Euro-
pean countries, however, are likely to see only slight or even negative GDP growth. The economy will
continue to be hampered by high unemployment and a lack of international competitiveness in some
countries.

The economic recovery in the United States is predicted to continue, buoyed by low energy prices,
the recovery in the property market and other factors.

We also expect the emerging countries to grow faster than in the previous year, mainly because their
exports are likely to benefit from higher demand from the industrialized countries. China will proba-
bly remain among the principal drivers of global economic expansion in 2014, with growth matching
the previous year.

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210

20. Future Perspectives
20.1 Economic Outlook

economic outlook for the subgroups

healthCare

Pharmaceuticals market

Consumer Care market

Medical Care market

Animal Health market

Cropscience

Seed and crop protection market

materialscience
(main customer industries)

Automotive industry

Construction industry

Electrical / electronics industry

Furniture market

[table 3.20.2]

growth *
2013

growth forecast*
2014

+ 3%

+ 5%

– 2%

+ 3%

≥ 5%

+ 3%

+ 4%

+ 3%

+ 4%

– 2%

+ 4%

≥ 5%

+ 5%

+ 4%

+ 6%

+ 4%

currency-adjusted; 2013 data provisional

as of February 2014

healthCare
The pharmaceuticals market is predicted to grow somewhat faster in 2014 than in the prior year. We
expect a further increase in the demand for medicines in the emerging economies. Pharmaceutical
sales will probably increase in the United States and a number of European countries, mainly due to
the launch of new products – despite a persistently restrictive health policy environment.

Following the strong cold season in the previous year, the consumer care market will likely normalize
and expand at a somewhat slower pace in 2014. We expect to see further slight shrinkage in the
medical care market in 2014, with the diabetes care market weakening and the market for contrast
agents and medical equipment (Radiology & Interventional business unit) almost reaching the previ-
ous year’s level. Growth in the animal health market in 2014 is forecasted to exceed the previous year
in view of favorable economic prospects in important markets.

CropsCienCe
Following the dynamic growth in the global seed and crop protection market last year, we expect the
market environment to remain favorable in 2014 but weaken over the course of the year. Price levels are
expected to stay relatively high from a historical perspective, mainly in light of the steady rise in demand
for food and feed products. However, prices for agricultural commodities are likely to be lower than in
the previous year. As a result, the economic prospects for farmers will likely remain positive, encourag-
ing investment in high-value seed and crop protection products. However, it is also predicted that global
inventories for most agricultural commodities will increase. We thus anticipate an overall growth rate in
the mid-single digits in 2014, which would be lower than in the preceding year.

We expect Latin America to continue experiencing the strongest growth. This region’s seed and crop
protection market is mainly characterized by the steady expansion of soybean farming, which accounts
for nearly 40% of the cultivated land area. In Asia / Pacific, too, we expect agricultural production to
continue expanding, though with markedly lower growth rates than in Latin America. The trend in this
region will mainly depend on cereals and rice along with specialty crops such as fruit and vegetables.
We see Eastern Europe and parts of Africa as further regions with above-average growth potential, albeit
from relatively low levels. In the industrialized regions of the northern hemisphere, however, we expect
markets to expand much more slowly than in 2013.

materialsCienCe
We expect the business climate for our principal customer industries to improve during 2014. In North
America there are clear stimuli to growth, raising hopes that the economy will continue to stabilize.
Distinct recovery trends are also apparent in the emerging economies of Asia. On the other hand, the
economic recovery in Western Europe will likely progress at a slower pace, while the development in
Latin America involves certain risks.

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We expect the automotive industry to develop positively in 2014, with the principal growth stimuli
coming from Asia and North America because of rising demand. The sector will post a slight expansion
in Europe.

The global construction industry will probably continue to recover in 2014, mainly as a result of robust
investment activity in North America and Asia. Continuing positive development in private housing con-
struction in the United States and stable investment in China and India are likely to contribute to this.

Robust growth is predicted for the global electrical / electronics industry in 2014. Demand is forecasted
to grow briskly in nearly all market segments, mainly in Asia and especially in China. In Western Europe,
however, we expect to see persistently weak growth due to the ongoing debt crisis.

We expect the development of the global furniture industry to show regional variations in 2014. The
demand for furniture in Europe as a whole will probably show only a slight increase, while there are
signs that the market in North America will continue to recover. In Asia we expect to see stable growth.

20.2 Forecast for Key Data

The following forecast is based on the business development described in this report, taking into ac-
count the potential risks and opportunities.

bayer group
Our forecast for fiscal 2014 is based on average exchange rates for the fourth quarter of 2013, includ-
ing a rate of US$1.36 to the euro. A 1% appreciation (depreciation) of the euro against all other curren-
cies would decrease (increase) sales on an annual basis by some €260 million and EBITDA before special
items by about €70 million.

In 2014 we plan to grow sales by about 5% on a currency- and portfolio-adjusted basis. Allowing for
expected negative currency effects of about 2% compared to the previous year, Group sales would be
approximately €41 billion to €42 billion. We plan to raise EBITDA before special items by a low- to
mid-single-digit percentage, allowing for expected negative currency effects of about €450 million or
roughly 5%. We aim to increase core earnings per share (calculated as explained in Chapter 16.3 “Core
Earnings Per Share”) by a mid-single-digit percentage, allowing for expected negative currency effects
of around 6%.

See Chapter 16.3

Forecast 2014

Currency effects allowed for
in the forecast **

Group sales

Approx. 5% increase *

Approx. €41 billion to €42 billion

Minus approx. 2%

eBiTDa before special items

Low- to mid-single-digit
percentage increase

Minus approx. 5%
Minus approx. €450 million

Core earnings per share

Mid-single-digit percentage
increase

Minus approx. 6%

* currency- and portfolio-adjusted
** 2014 calculated at Q4 2013 exchange rates compared to full year 2013 rates

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We expect to take special charges of approximately €200 million for restructuring in 2014.

research and development budget 2014 by subgroup

[graphic 3.20.1]

materialscience

26%

Cropscience

3%
reconciliation

€3.5 billion

65%

healthCare

Capital expenditure budget 2014 by subgroup

[graphic 3.20.2]

10%
reconciliation

€2.4 billion

37%

healthCare

26%

materialscience

27%

Cropscience

We intend to increase our research and development expenses to €3.5 billion in 2014. We have
planned capital expenditures of about €2.1 billion for property, plant and equipment and €0.3 billion
for intangible assets. Depreciation and amortization are estimated at about €2.6 billion, including
€1.3 billion in amortization of intangible assets.

We predict the financial result to come in at around minus €0.8 billion. The effective tax rate is likely
to be around 25%. Taking into account the planned acquisition of Algeta ASA, Norway, we expect net
financial debt to be below €9 billion at the end of 2014.

healthCare
The main priority for HealthCare in 2014 continues to be the successful commercialization of the
recently launched pharmaceutical products. We expect sales to advance by a mid-single-digit percent-
age on a currency- and portfolio-adjusted basis. Allowing for expected negative currency effects of
about 2%, sales would be approximately €19.5 billion to €20 billion. We predict EBITDA before special
items to slightly exceed the prior-year level, allowing for negative currency effects of roughly
€250 million.

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In the Pharmaceuticals segment, we expect sales to move ahead by a high-single-digit percentage on a
currency- and portfolio-adjusted basis. We predict negative currency effects of around 2% compared to
2013. We intend to raise sales of our recently launched products to about €2.8 billion and are planning
significantly higher investment in order to continue marketing them successfully. We will also intensify
the activities aimed at exploiting the potential of our development pipeline. Additional marketing and
R&D expenditures totaling €0.5 billion are planned for 2014. Against this background we expect a low-to
mid-single-digit percentage increase in EBITDA before special items, allowing for negative currency
effects of about €150 million. The EBITDA margin before special items is expected to be level with the
previous year.

In 2016 we plan to achieve an EBITDA margin before special items of at least 33%. We have increased
our estimate for the peak sales potential of our recently launched products to at least €7.5 billion.

In the Consumer Health segment, we predict sales to rise by a low- to mid-single-digit percentage on a
currency- and portfolio-adjusted basis. We anticipate negative currency effects of around 3% compared
to 2013. We expect EBITDA before special items to come in slightly below the level of the prior year,
allowing for negative currency effects of about €100 million.

CropsCienCe
For 2014 we continue to predict favorable market conditions for our CropScience business, although we
will not see quite such a positive environment as in 2013.

We expect to grow faster than the market and raise sales by a mid- to high-single-digit percentage on
a currency- and portfolio-adjusted basis. We anticipate negative currency effects of about 3% compared
to 2013. We plan to increase EBITDA before special items by a low-single-digit percentage, allowing for
negative currency effects of approximately €150 million.

materialsCienCe
We plan to raise sales in 2014 by a mid-single-digit percentage on a currency- and portfolio-adjusted
basis. We predict negative currency effects of about 2% compared to 2013. We anticipate an increase in
EBITDA before special items, allowing for negative currency effects of roughly €50 million.

For the first quarter of 2014, we expect sales to increase on a currency- and portfolio-adjusted basis
against the prior-year period and EBITDA before special items to gain significantly.

reConCiliation
For 2014 we expect sales on a currency- and portfolio-adjusted basis to be level with the previous year.
We are planning EBITDA before special items of roughly minus €0.2 billion.

bayer ag
As the holding company for the Bayer Group, Bayer AG derives most of its income from its subsidiaries.
The earnings of the major subsidiaries in Germany are transferred directly to Bayer AG under profit and
loss transfer agreements. The earnings of Bayer AG are therefore expected to reflect the positive busi-
ness development anticipated in the Bayer Group. A concerted dividend policy within the Group ensures
the availability of sufficient distributable income. We anticipate that the net interest position will remain
steady in light of the continuing low level of interest rates. Based on these factors, we expect Bayer AG
to report a distributable profit that will again enable our stockholders to adequately participate in the
Bayer Group’s earnings.

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20. Future Perspectives
20.3 Opportunity and Risk Report

20.3 Opportunity and Risk Report

// Opportunity and risk management integral to Bayer’s Group-wide corporate

governance system

// No risks currently identified that could endanger the Bayer Group’s continued existence

20.3.1 Group-wide Risk Management System

Corporate governance forms the basis for sustainable growth and economic success.
One factor for corporate governance is the ability to systematically detect and take advantage
of opportunities while identifying any risks to the company’s operations at an early stage.

Corporate Governance

[Graphic 3.20.3]

Corporate Governance

Business processes

Opportunity
management

Risk management

Internal control and monitoring systems

Strategic
& planning
processes

Internal
control system

(Process risks)

Compliance
management
system
(Compliance risks)

Risk early warning
system

(Risks that could endan-
ger the company’s
continued existence)

Identification // Evaluation // Management // Monitoring // Reporting

Process-independent monitoring

The entrepreneurial decisions we make daily in the course of business processes are based on balanc-
ing opportunities and risks. We therefore regard risk management as an integral part of our business
management system rather than the task of a specific organizational unit. The starting-point for our risk
management is our strategy and planning processes, from which relevant external and internal opportu-
nities are derived and risks of an economic, ecological or social nature are identified. Opportunities and
risks are identified by observing and analyzing trends along with macroeconomic, industry-specific, re-
gional and local developments. The identified opportunities and risks are subsequently incorporated
into the subgroups’ strategic and operational planning. We attempt to avoid or mitigate risks by taking
appropriate countermeasures, or to transfer them to third parties (such as insurers) to the extent possi-
ble and economically acceptable. We consciously accept and bear calculable and manageable risks
commensurate with the anticipated opportunities. Opportunities and risks are continuously monitored
using indicators so that changes in the economic or legal environment, for example, can be identified
and suitable countermeasures initiated at an early stage if necessary.

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20. Future Perspectives
20.3 Opportunity and Risk Report

To enable the Board of Management and the Supervisory Board to monitor material business risks as
required by law, the following systems are also in place: an internal control system ensuring proper and
effective financial reporting pursuant to Section 289 Paragraph 5 and Section 315 Paragraph 2 No. 5 of
the German Commercial Code; a compliance management system; and a risk early warning system
pursuant to Section 91 Paragraph 2 of the German Stock Corporation Act.

Differences exist among these management systems with regard to the processes, methods and IT sys-
tems used to identify, evaluate, manage, monitor and report risks depending on the type and level of risk
and the time horizon. The principles underlying the various systems are documented in Group directives
that are integrated into our central document control process (Margo) and accessible to all employees
via the Bayer intranet. Depending on the system, responsibilities are assigned at the management level
and coordinators are appointed in the subgroups, service companies and country companies and in the
central functions of the Bayer Group. Overall responsibility for the effectiveness and appropriateness of
the systems lies with the Chief Financial Officer.

The different systems are described below.

Internal Control system for (Group) aCCountInG and fInanCIal reportInG
(report pursuant to Sections 289 Paragraph 5 and 315 Paragraph 2 No. 5 of the German
Commercial Code)

Bayer has an internal control system (ICS) in place for the (Group) accounting and financial reporting
process. This process comprises defined structures and workflows implemented throughout the organi-
zation. The purpose of our ICS is to ensure proper and effective accounting and financial reporting in
accordance with Section 289 Paragraph 5 and Section 315 Paragraph 2 No. 5 of the German Commer-
cial Code.

The ICS is designed to guarantee timely, uniform and accurate accounting for all business processes and
transactions based on applicable statutory regulations, accounting and financial reporting standards and
the internal Group directives that are binding upon all consolidated companies.

The ICS is based on the COSO I (Committee of the Sponsoring Organizations of the Treadway Commis-
sion) and COBIT (Control Objectives for Information and Related Technology) frameworks and addresses
misreporting risks in the consolidated financial statements. Risks are identified and evaluated, and steps
are taken to counter them. Mandatory ICS standards such as system-based and manual reconciliation
processes and functional separation have been derived from these frameworks and promulgated
throughout the Group by the Group Accounting and Controlling unit of Bayer AG.

The management of each Group company holds responsibility for implementing the ICS standards at the
local level. Using the Group’s own shared service centers, the Group companies prepare their financial
statements locally and transmit them with the aid of a data model that is standardized throughout the
Group and based on the Group accounting directive. This ensures the regulatory compliance of the con-
solidated financial statements.

The effectiveness of the ICS processes for accounting and financial reporting is evaluated based on a
cascaded self-assessment system that starts with the persons directly involved in the processes, then
involves the principal responsible managers and ends with the Group Management Board. The system
also makes use of internal and external audits. An IT system in use throughout the Group ensures uni-
form and audit-proof documentation and transparent presentation of all ICS-relevant business processes
along with the relevant risks, controls and effectiveness evaluations.

The Group Management Board has confirmed the effective functioning of the internal control system
for accounting and financial reporting and the relevant criteria for the 2013 business year. However,
it should be noted that an internal control system, irrespective of its design, cannot provide absolute
assurance that material misstatements in the accounting will be avoided or identified.

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20. Future Perspectives
20.3 Opportunity and Risk Report

ComplIanCe manaGement system
Our compliance management system aims to encourage and ensure lawful, responsible and sustainable
conduct by our employees. It is designed to identify potential violations in advance and systematically
prevent their occurrence. The compliance management system thus contributes significantly to the inte-
gration of compliance into our operating units and their processes.

In light of the Bayer Group’s diversified structure and international alignment, we are active in different
industry sectors, markets and geographical regions worldwide, each of which has its own local legisla-
tion and industry codes. All significant compliance risks are identified by evaluating cases reported
around the world and performing a trend analysis on this basis. New tools were also developed and com-
municated in 2013 together with the subgroups to enhance the systematic, preventive identification and
assessment of risks. Risk identification will be carried out both bottom-up via the country organizations
and top-down via the global functions, taking global, local and business-specific aspects into account. In
addition, the Corporate Auditing department performed compliance program audits for the first time be-
ginning in mid-2013. These audits proactively evaluate the implementation of the Corporate Compliance
Policy in the country organizations.

rIsk early WarnInG system pursuant to seCtIon 91 par aGr aph 2 of the
German stoCk Corpor atIon aCt
A process known as BayRisk has been established to enable the early identification of developments that
could endanger the company’s continued existence, thus satisfying the legal requirements regarding an
early warning system for corporate risks pursuant to Section 91 Paragraph 2 of the German Stock Corpo-
ration Act. A central unit within the Corporate Center establishes the framework and standards for the
design of the Group’s early warning system.

The BayRisk process is decentrally organized, with each subgroup, service company or central function
being originally responsible for identifying, evaluating, managing and reporting at an early stage any
potential developments or events that could prevent our company from sustainably increasing its value.
It not only includes risks that could immediately impact our financial targets, but also those that could
affect the achievement of qualitative objectives. In the Life Science subgroups, the information required
for the BayRisk process is supported by separate enterprise risk management systems. Risk officers are
appointed to evaluate, manage and monitor the identified risks according to both financial and non-
financial criteria.

Risks are evaluated using estimates of the likelihood that they will materialize, the potential impact
and / or their relevance for our external stakeholders. The following matrix illustrates the financial crite-
ria for rating a risk as high, medium or low.

assessment matrix according to financial Criteria

[table 3.20.3]

accumulated impact (€ million)

> 1,250

500 – 1,250

< 500

* H = high risk, M = medium risk, L = low risk

likelihood of occurrence based on a ten-year period

unlikely

(< 10%)

possible

(10 – 70%)

Very likely

(> 70%)

All significant risks and the respective countermeasures are documented in a Group-wide database. The
risk portfolio is reviewed three times a year. Significant changes must be quickly entered in the database
and reported directly to the Group Management Board. Details of the risk portfolio form part of a man-
agement information system accessible to the members of the Group Leadership Circle. A report on the
risk portfolio is submitted to the Audit Committee of the Supervisory Board once a year.

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20.3 Opportunity and Risk Report

proCess-Independent monItorInG
The effectiveness of our management systems is monitored and evaluated by Bayer’s internal audit
department (Corporate Auditing) at regular intervals. Corporate Auditing performs an independent and
objective audit function that is designed to verify compliance with laws and directives. The unit also
supports the company in achieving its goals by systematically and deliberately evaluating the efficiency
and effectiveness of governance and control environments, management systems and the implemented
controls, and helping to improve them. The selection of audit targets follows a risk-based approach.
Corporate Auditing performs its tasks according to internationally recognized standards and delivers
reliable audit outcomes. This is confirmed by a quality assessment undertaken in 2012 by the American
Institute of Internal Auditors (IAA). A report is presented annually to the Audit Committee of the Super-
visory Board on the internal control system and its effectiveness.

Risks in the areas of occupational health and safety, plant safety, hazard prevention, environmental pro-
tection and product quality are assessed through specific HSEQ (health, safety, environment and quality)
audits.

In addition, the external auditor, as part of its audit of the annual financial statements, assesses the basic
suitability of the early warning system for identifying at an early stage any risks that could endanger the
company’s continued existence. The auditor regularly reports to the Group Management Board and the
Supervisory Board on the identification of any weaknesses in the internal control system.

Audit outcomes are taken into account in the continuous enhancement of our management processes.

20.3.2 Opportunities and Risks

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

This chapter outlines both opportunities and risks. Only those risks that are classified in our risk matrix
as “medium” or “high” are included. The risks are more highly aggregated here than in our internal doc-
umentation. The sequence in which the risks are listed does not imply any order of significance. The op-
portunities and risks described apply to all subgroups unless otherwise indicated.

enVIronment
Ethical conduct is a matter of essential importance for society. Many stakeholders evaluate companies
according to whether they conduct themselves not just “legally” – but also “legitimately.” The Bayer
Group is dedicated to sustainable development in all areas of its business activity. Any violations of this
voluntary commitment and the resulting adverse media reporting or negative public perception of the
company may damage the reputation of the Bayer brand. We counter this risk through responsible cor-
porate governance that is geared toward generating not only economic but also ecological and social
benefit.

In the Emerging Markets – particularly Asia and Latin America, and prospectively in Africa – we see
opportunities arising out of increasing affluence and the associated growth in demand for pharmaceuti-
cal products, for example. Bayer is therefore systematically expanding its business in these regions in
particular.

At the same time, however, the risk exists that our growth could be impeded by increasing global cost
pressure on health systems. Pharmaceutical products are subject to regulatory price controls in many
markets, and government reimbursement systems often favor less expensive generic medicines over
branded products. In addition, in some markets, major suppliers in the health care sector can exert sub-
stantial pressure on prices. Price controls and pricing pressure reduce earnings from our pharmaceutical

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20. Future Perspectives
20.3 Opportunity and Risk Report

products and may occasionally make the market launch of a new product unprofitable. We expect the
current extent of regulatory controls and market pressures on pricing to persist or increase. Changes
with respect to price development and governmental price controls in our key markets are continuously
monitored. Where necessary, we adjust our business model depending on the extent of such price con-
trols and the pressure on prices.

Further opportunities and risks may also result if actual market developments vary from those we predict
in Chapter 20.1 “Economic Outlook.” Where macroeconomic developments deviate from forecasts, this
may either positively or negatively impact our sales and earnings expectations.

For MaterialScience, an economic downturn, changes in competitors’ behavior or the market entry of
new competitors can lead to a more intense competitive situation characterized by overcapacities and
increased pressure on prices.

Continuous analysis of the business environment and of economic forecasts enables us to pursue the
opportunities we identify and mitigate risks. We respond to fluctuations in demand by adjusting our
capacities.

InnoVatIon
Innovation is the key driver of Bayer’s future growth.

The trends described below not only pose challenges, but also offer opportunities for us to develop and
market innovative solutions to overcome them.

Increase in life expectancy
Certain diseases, such as cancer or chronic cardiovascular disorders, are on the rise as a consequence
of higher life expectancy. HealthCare is responding to the increased demand for innovative health care
products to treat age-related diseases by focusing its R&D activities on therapeutic areas such as oncolo-
gy and cardiology.

shortage of arable land, increasing demand for food
The growing world population poses one of the principal challenges to the sustainable supply of food,
particularly in view of the reduction in arable land caused by increasing urbanization and extreme
weather events associated with climate change. Increasing affluence in the emerging countries is boost-
ing the demand for animal-based food products. We expect there to be an increasing need for high-value
seed and crop protection products to allow sufficient food and animal feed to be produced to satisfy
rising demand despite limited acreages. For example, CropScience is developing processes to better
protect crops against climate and environmental stresses.

Conserving natural resources and protecting the climate
The finite nature of certain natural resources and efforts to protect the climate are boosting the demand
for innovative products and technologies that reduce resource consumption and lead to lower emissions.
This trend is being reinforced by increasingly stringent regulatory requirements and growing consumer
awareness for the need to use resources sustainably. MaterialScience is therefore developing new mate-
rials that help to raise energy efficiency and reduce emissions. For example, polyurethane from Material-
Science is used in the construction industry for thermal insulation, giving a positive energy balance,
while its polycarbonate is used in the automotive industry to reduce vehicle weight.

Our activities concentrate on the development of innovative solutions to address these trends and global
challenges. To strengthen our innovation capability, we place special importance on networking and
cooperation both within and outside of our company. Of particular significance here is interdisciplinary
research at the interface between human, animal and plant health, which is being driven forward by Nim-
bus, a joint project of our two Life Science subgroups. Substantial research synergies can be achieved in
this way and new mechanisms of action investigated that could lead to the development of new products

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20. Future Perspectives
20.3 Opportunity and Risk Report

in the long term. Our strategy also encompasses research projects with outside partners from academia
and industry that give us access to complementary technologies and external innovation potential.

For further information, see Chapter 5 “Research, Development, Innovation” and Chapter 3 “Strategies
of the Subgroups.”

See Chapters
5 and 3

Despite all our efforts, we cannot assure that all of the products we are currently developing or will de-
velop in the future will achieve planned approval / registration or commercial success, if, for example, a
drug candidate fails to meet trial endpoints. The Bayer Group pursues a holistic portfolio management
strategy in order to estimate the probability of success and prioritize its development projects. Further-
more, the expectations of the public and the regulatory authorities with regard to the safety and efficacy
of chemical and pharmaceutical products are constantly rising. Against this background, we continue to
anticipate increasing regulatory requirements for clinical or (eco)toxicological studies, for example. This
increases product development costs and the time it takes to obtain registration or marketing approval.
Special projects are set up to coordinate the successful implementation of new regulations.

Where it appears strategically advantageous, we may supplement our organic growth through acquisi-
tions of companies or businesses. Failure to successfully integrate a newly acquired business or unex-
pectedly high integration costs could jeopardize the achievement of qualitative or quantitative targets
and adversely impact earnings. Teams of experts therefore manage both the due diligence process and
the integration itself. Due diligence includes reviewing risk-relevant factors such as compliance with ap-
plicable environmental regulations and occupational health and safety standards at production sites.

patent proteCtIon
Patents guarantee the protection of our intellectual property. In the event of successful commercializa-
tion, profits can be invested to enable continued, sustainable research and development. Due to the long
period of time between the patent application and the market launch of a product, Bayer generally only
has a few years in which to earn an adequate return on its intellectual property. This makes effective and
reliable patent protection all the more important.

A large proportion of our products, especially in our Life Science businesses, is protected by patents.
Generic manufacturers and others attempt to contest patents prior to their expiration. Sometimes a
generic version of a product may even be launched “at-risk” prior to the issuance of a final patent deci-
sion. We are currently involved in legal proceedings to enforce patent rights relating to our products.
Details of these proceedings are given in Note [32] to the consolidated financial statements. When a
patent defense is unsuccessful, or if one of our patents expires, our prices are likely to come under
pressure because of increased competition from generic products entering the market. Legal action by
third parties for alleged infringement of patent or proprietary rights by Bayer may impede or even halt
the development or manufacturing of certain products or require us to pay monetary damages or
royalties to third parties. Our patents department regularly reviews the patent situation in conjunction
with the respective operating units and watches for potential patent infringements so that legal action
can be taken if necessary.

produCts and produCt steWardshIp
Bayer assesses the potential health and environmental risks of a product along the entire value chain –
from research and development through production, marketing and use by the customer to disposal.

Despite extensive studies prior to approval or registration, it is possible that products could be partially
or completely withdrawn from the market due to the occurrence of adverse side effects or other factors.
Such a withdrawal may be voluntary or result from legal or regulatory measures. The possibility that un-
wanted trace amounts of genetically modified organisms may occur in agricultural products and / or
foodstuffs cannot be entirely excluded. Potential payments of damages in connection with the above
risks may materially diminish our earnings.

Consolidated
Financial
Statements
Note 32

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20. Future Perspectives
20.3 Opportunity and Risk Report

Our Life Science businesses counter these risks through a holistic organizational structure and process
organization in the areas of pharmaceutical and crop protection product safety and testing. In addition, a
comprehensive product stewardship program is in place at CropScience. For further information, see
Chapter 10 “Product Stewardship.”

See Chapter 10

Another risk we face is that of illegal trading of counterfeit medicines and crop protection products by
criminal third parties. In most cases, the composition and quality of counterfeit products is inferior to
that of the original products. No local regulatory authority assures the quality of the manufacturing or
distribution process, so product recall is not possible. Products originating from illegal third-party manu-
facturing not only endanger patients, users, animals and the environment, but also jeopardize the good
reputation of our company and our products and undermine our competitiveness.

Bayer actively cooperates with authorities’ efforts to combat product counterfeiting through preventive
measures and the prosecution of offenders.

proCurement and produCtIon
Our Supplier Code of Conduct sets forth our sustainability principles and explains what we expect from
our partners along the value chain. The Code requires, among other things, that our suppliers observe
environmental regulations, occupational health and safety rules, human rights and other provisions –
such as forgoing all forms of child labor. Violations of the Code may harm our company’s reputation.
Through supplier assessments and audits, we verify that our partners along the supply chain actually
implement and adhere to our Code of Conduct (see Chapter 8 “Procurement and Production”).

The Bayer Group requires significant quantities of energy and petrochemical feedstocks for its produc-
tion processes. Procurement prices for energy and raw materials may fluctuate significantly. Experi-
ence has shown that higher production costs cannot always be passed on to our customers through
price adjustments. This applies especially at MaterialScience.

We place great importance not only on product safety and compatibility but also on protecting our em-
ployees and the environment. Risks associated with the manufacturing, filling, storage or shipping of
products are mitigated through integrated quality, health, environmental protection and safety manage-
ment. The materialization of such risks may result in personal injury, property damage, environmental
contamination, loss of production, business interruptions and / or liability for compensation payments.

Operations at our sites may be disrupted by natural disasters, fires or explosions, sabotage or supply
shortages for our principal raw materials or intermediates. This applies particularly to the biotech prod-
ucts of HealthCare because of the highly complex manufacturing processes. If we are unable to meet de-
mand, structural sales declines may occur, particularly in our Pharmaceuticals business. We counter this
risk by distributing production for certain products among multiple sites or by building up safety stocks.
Furthermore, the Bayer Emergency Response System (BayErs) was developed for our production sites
as a mandatory component of our HSEQ management. It is aimed at protecting employees, neighbors,
the environment and production facilities from the risks described. The Group Regulation “Safety and
Crisis Management” forms the basis for this.

Increased ecological awareness creates opportunities for MaterialScience in two ways. On the one hand,
market potential results from the development of innovative materials for our customers (see Chapter 5
“Research, Development, Innovation”). On the other hand, if we succeed in increasing the efficiency of
our production processes, this benefits the environment and reduces our costs at the same time. By de-
veloping new production technologies and applying internationally recognized energy management sys-
tems, we aim to help meet increasingly stringent environmental regulations, further reduce emissions
and waste, and increase energy efficiency. In this way we not only contribute to sustainable climate pro-
tection and the conservation of natural resources, but also achieve cost and competitive advantages.

See Chapter 8

See Chapter 5

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20.3 Opportunity and Risk Report

employees
Skilled and dedicated employees are essential for the company’s success. Particularly in the Emerging
Markets of Asia and Latin America, the number of people with the technical and language skills needed
to meet the demanding requirements of an international enterprise remains relatively small. According-
ly, those who possess these skills are highly sought after by locally based companies. If we are unable
to recruit a sufficient number of employees in these countries and retain them within Bayer, this could
have significant adverse consequences for the company’s future development.

We aim to convince our target groups of the benefits offered by our company through comprehensive
human resources marketing. These include competitive compensation with performance-related com-
ponents as well as an extensive range of training and development opportunities. We also pursue a
diversity-based human resources policy to tap the full potential of the employment market. Our human
resources policy is based on the principles of our Human Rights Position, corporate values and Corpo-
rate Compliance Policy.

For more information see Chapter 7 “Employees.”

See Chapter 7

InformatIon teChnoloGy
Business and production processes and the internal and external communications of the Bayer Group
are increasingly dependent on global IT systems.

A significant technical disruption or failures of IT systems could severely impair our business and pro-
duction processes. Technical precautions such as data recovery and continuity plans are defined and
continuously evolved together with our internal IT service provider.

The confidentiality of internal and external data is of fundamental importance to us. A loss of data confi-
dentiality, integrity or authenticity could lead to manipulation and / or the uncontrolled outflow of data
and know-how. We have measures in place to counter this risk, including a comprehensive authorization
concept.

A Group-wide committee has been established to determine the fundamental strategy, architecture and
safety measures for the Bayer Group. The measures are now being implemented by the subgroups and
service companies in conjunction with this central organization.

laW and ComplIanCe
The Bayer Group is exposed to numerous legal risks from legal disputes or proceedings to which we are
currently a party or which could arise in the future, particularly in the areas of product liability, competi-
tion and antitrust law, patent disputes, tax assessments and environmental protection.

Investigations of possible legal or regulatory violations, such as potential infringements of antitrust law
or certain marketing and / or distribution methods, may result in the imposition of civil or criminal
penalties – including substantial monetary fines – and / or other adverse financial consequences, harm
Bayer’s reputation and ultimately detract from the company’s success.

To encourage and ensure the observance of laws and regulations, Bayer has established a global compli-
ance management system that forms part of its corporate culture (see Chapter 18.3 “Compliance”).

Legal proceedings currently considered to involve material risks are described in Note [32] to the
consolidated financial statements.

fInanCIal opportunItIes and rIsks
The Bayer Group has financial opportunities at its disposal in the form of the market prices it can
command for its products, and is exposed to financial risks in the form of liquidity, credit and market
price risks, as well as risks resulting from pension obligations.

See Chapter 18.3

Consolidated
Financial
Statements
Note 32

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 222

20. Future Perspectives
20.3 Opportunity and Risk Report

The management of financial opportunities and risks takes place using established, documented pro-
cesses. One component is financial planning, which serves as the basis for determining the liquidity risk
and the future foreign currency and interest-rate risks and covers all Group companies that are relevant
from a cash-flow perspective. Financial planning comprises a planning horizon of 12 months and is reg-
ularly updated.

The following paragraphs provide details of these and other financial opportunities and risks and how
they are managed.

See Chapter 16.7

Further information is provided in Chapter 16.7 “Financial Management of the Group.”

Consolidated
Financial
Statements
Note 30.2

liquidity risk
Liquidity risks result from the possible inability of the Bayer Group to meet current or future payment
obligations due to a lack of cash or cash equivalents. The liquidity risk is determined and managed by
the central finance department as part of our same-day and medium-term liquidity planning.

Payment obligations from financial instruments are explained according to their maturity in Note [30.2]
to the consolidated financial statements.

The Group holds sufficient liquidity to ensure the fulfillment of all planned payment obligations at matu-
rity. In addition, a reserve is maintained for unbudgeted shortfalls in cash receipts or unexpected dis-
bursements. The amount of this liquidity reserve is regularly reviewed and adjusted as necessary ac-
cording to circumstances.

Liquid assets are held mainly in the form of overnight and term deposits. Credit facilities also exist with
banks. These include, in particular, a €3.5 billion syndicated credit facility, which is undrawn.

Credit risks
Credit risks arise from the possibility that the value of receivables or other financial assets of the Bayer
Group may be impaired because counterparties cannot meet their payment or other performance obliga-
tions. The Bayer Group does not conclude master netting arrangements with its customers for non-de-
rivative financial instruments. Here, the total value of the financial assets represents the maximum credit
risk exposure. In the case of derivatives, positive and negative market values may be netted under cer-
tain conditions.

To manage credit risks from trade receivables, the respective invoicing companies appoint credit manag-
ers who regularly analyze customers’ creditworthiness. Some of these receivables are collateralized, and
the collateral is used according to local conditions. It includes credit insurance, advance payments, let-
ters of credit and guarantees. Reservation of title is generally agreed with our customers. Credit limits
are set for all customers. All credit limits for debtors where total exposure is €10 million or more are
evaluated by local credit management and submitted to the Group’s Central Financial Risk Committee.

Credit risks from financial transactions are managed centrally in the finance department. To minimize
risks, financial transactions are only conducted within predefined exposure limits and with banks and
other partners that preferably have investment-grade ratings. All risk limits are based on methodical
models. Adherence to the risk limits is continuously monitored.

opportunities and risks resulting from market price changes
Opportunities and risks resulting from changes in market currency and interest rates are managed
by the central finance department. Risks are eliminated or mitigated through the use of derivative
financial instruments. Further details on derivatives are given in Note [30.3] to the consolidated finan-
cial statements.

Consolidated
Financial
Statements
Note 30.3

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 223

20. Future Perspectives
20.3 Opportunity and Risk Report

The type and level of currency and interest-rate risks are explained in the following paragraphs using
sensitivity analyses based on hypothetical changes in risk variables (such as interest curves) to deter-
mine the potential effects of market price fluctuations on equity and earnings. The assumptions used in
the sensitivity analyses reflect our view of the changes in currency exchange and interest rates that are
reasonably possible over a one-year period. These assumptions are regularly reviewed.

foreign currencies
Foreign currency opportunities and risks for the Bayer Group result from changes in exchange rates and
the related changes in the value of financial instruments (including receivables and payables) and of an-
ticipated payment receipts and disbursements in the functional currency.

Receivables and payables in liquid currencies from operating activities and financial items are generally
fully exchange-hedged through forward exchange contracts and cross-currency interest-rate swaps.

Anticipated payment receipts and disbursements are hedged according to the rules agreed between the
Group Management Board, the finance department and the operating units. Hedging takes place
through forward exchange contracts and currency options.

Sensitivities were determined based on a hypothetical adverse scenario in which the euro depreciates by
10% against all other currencies compared with the year-end exchange rates. Under this scenario, the
estimated hypothetical loss of cash flows from derivative and non-derivative financial instruments would
have diminished earnings and equity (other comprehensive income) as of December 31, 2013 by
€250 million (December 31, 2012: €256 million). Of this amount, €122 million is related to the U.S. dollar,
€35 million to the Japanese yen and €28 million to the Canadian dollar.

Derivatives used to hedge anticipated currency exposure that are designated for hedge accounting
would have diminished other comprehensive income by €267 million.

Interest rates
Interest-rate opportunities and risks result for the Bayer Group through changes in capital market inter-
est rates, which in turn could lead to changes in the fair value of fixed-rate financial instruments and
changes in interest payments in the case of floating-rate instruments.

Interest-rate opportunities and risks are managed over a target duration established by management for
Bayer Group debt. This target duration is subject to regular review. Interest-rate swaps are concluded to
achieve the target structure for Group debt.

A sensitivity analysis based on our net floating-rate receivables and payables position at year end 2013,
taking into account the interest rates relevant for our receivables and payables in all principal curren-
cies, produced the following result: a hypothetical increase of 100 basis points, or 1 percentage point, in
these interest rates (assuming constant currency exchange rates) as of January 1, 2013 would have
raised our interest expense for the year ended December 31, 2013 by €33 million (December 31, 2012:
€46 million).

risk to pension obligations from capital market developments
The Bayer Group has obligations to current and former employees related to pensions and other
post-employment benefits. Changes in relevant valuation parameters such as interest rates, mortality
and rates of increases in compensation may raise the present value of our pension obligations. This may
lead to increased costs for pension plans or diminish equity due to actuarial losses being recognized out-
side profit or loss. A large proportion of our pension and other post-employment benefit obligations is
covered by plan assets including fixed-income securities, shares, real estate and other investments. De-
clining or even negative returns on these investments may adversely affect the future fair value of plan
assets. This in turn may diminish equity, and / or it may necessitate additional contributions by the com-
pany. Further details are given in Note [25] to the consolidated financial statements.

Consolidated
Financial
Statements
Note 25

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 224

21. Takeover-Relevant Information

We address the risk of market-related fluctuations in the fair value of our plan assets through
prudent strategic investment, and we constantly monitor investment risks in regard to our global
pension obligations.

oVer all assessment of opportunItIes and rIsks
The risks reported above do not endanger the company’s continued existence. There are also no
risks with mutually reinforcing dependencies that could combine to endanger the company’s continued
existence.

Risks rated as “medium” or “high” did not change significantly compared with the previous year.

Based on our product portfolio, our know-how and our innovation capability, we are convinced that
we can take advantage of the opportunities resulting from our entrepreneurial activity and successfully
master the challenges resulting from the risks stated above.

21. Takeover-Relevant Information

explanatory report pursuant to seCtIons 289 par aGr aph 4 and
315 par aGr aph 4 of the German CommerCIal Code (hGB)
The capital stock of Bayer AG amounted as of December 31, 2013 to €2,117 million, divided into
826,947,808 no-par bearer shares. The capital stock and the number of shares were thus unchanged
from the end of the previous year. Each share confers one voting right.

A small number of shares may be subject to temporary trading restrictions, such as retention periods, in
connection with employee stock participation programs.

We received no notifications in 2013 of direct or indirect holdings of shares in Bayer AG that exceed
10% of the capital stock. The company thus is not in possession of any notifications of holdings that
exceed 10% of the capital stock.

Pursuant to Section 84, Paragraph 1 of the German Stock Corporation Act (AktG), the members of the
Board of Management are appointed and dismissed by the Supervisory Board. Since Bayer AG falls with-
in the scope of the German Codetermination Act, the appointment or dismissal of members of the Board
of Management requires a majority of two thirds of the votes of the members of the Supervisory Board
on the first ballot. If no such majority is achieved, the appointment may be approved pursuant to Section
31, Paragraph 3 of the Codetermination Act on a second ballot by a simple majority of the votes of the
members of the Supervisory Board. If the required majority still is not achieved, a third ballot is held.
Here again, a simple majority of the votes suffices, but in this ballot the Chairman of the Supervisory
Board has two votes pursuant to Section 31, Paragraph 4 of the Codetermination Act. Under Section 6,
Paragraph 1 of the Articles of Incorporation of Bayer AG, the Board of Management must comprise at
least two members. The Supervisory Board may appoint one member to be Chairman of the Board of
Management pursuant to Section 84, Paragraph 2 of the German Stock Corporation Act or Section 6,
Paragraph 1 of the Articles of Incorporation.

Under Section 179, Paragraph 1 of the German Stock Corporation Act, amendments to the Articles of
Incorporation require a resolution of the Stockholders’ Meeting. Pursuant to Section 179, Paragraph 2 of
the German Stock Corporation Act, this resolution must be passed by a majority of three quarters of the
voting capital represented at the meeting, unless the Articles of Incorporation provide for a different
majority. However, where an amendment relates to a change in the object of the company, the Articles of
Incorporation may only specify a larger majority. Section 17, Paragraph 2 of the Articles of Incorporation
of Bayer AG utilizes the scope for deviation pursuant to Section 179, Paragraph 2 of the German Stock
Corporation Act and provides that resolutions may be passed by a simple majority of the votes or, where
a capital majority is required, by a simple majority of the capital.

We publish

voting rights an-
nouncements at
WWW.INVESTOR.
BAYER.DE/EN/
STOCK/
OWNERSHIP-
STRUCTURE

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT 225

21. Takeover-Relevant Information

Provisions of the Articles of Incorporation concerning Authorized Capital I and Authorized Capital II are
entered in the commercial register of Bayer AG. With the approval of the Supervisory Board and until
April 29, 2015, the Board of Management may use the Authorized Capital I to increase the capital stock
by up to a total of €530 million. New shares may be issued against cash contributions and / or contribu-
tions in kind, but capital increases against contributions in kind may not exceed a total of €423 million.
If the Authorized Capital I is used to issue shares in return for cash contributions, stockholders must
normally be granted subscription rights. The Board of Management may only exclude stockholders’
subscription rights to shares issued out of the Authorized Capital I that do not represent more than 20%
of the existing capital stock. Absent a further resolution on the exclusion of stockholders’ subscription
rights, the Board of Management also may only exclude stockholders’ subscription rights to shares is-
sued under other authorizations regarding capital measures (Authorized Capital II, bonds with warrants
or convertible bonds, purchase and sale of own shares) provided that such shares do not in total repre-
sent more than 20% of the existing capital stock.

With the approval of the Supervisory Board and until April 29, 2015, the Board of Management is also
authorized to increase the capital by up to €212 million in one or more installments by issuing shares out
of the Authorized Capital II in exchange for cash contributions. The stockholders must normally be
granted subscription rights. However, the Board of Management is authorized, with the approval of the
Supervisory Board, to exclude subscription rights for stockholders provided the capital increase out of
the Authorized Capital II does not exceed 10% of the capital stock existing at the time this authorization
becomes effective or the time this authorization is exercised and the issue price of the new shares is not
significantly below the market price of the already listed shares.

Conditional capital of €212 million exists in connection with an authorization – valid through April 29,
2015 – to issue bonds with warrants or convertible bonds, profit-sharing rights or profit participation
bonds (collectively referred to as “bonds”) with a total face value of €6 billion. The Board of Manage-
ment may, with the consent of the Supervisory Board and under certain conditions, exclude the bond
subscription rights that would otherwise be granted to stockholders. One of the conditions is that the to-
tal amount of the shares required to service the bonds does not exceed 10% of the capital stock.
Any other shares issued without granting subscription rights to the stockholders in direct or analogous
application of Section 186, Paragraph 3, Sentence 4 of the German Stock Corporation Act shall be credit-
ed against this 10% limit. Further, the 2010 Annual Stockholders’ Meeting authorized the Board of Man-
agement to purchase and sell company shares representing up to 10% of the capital stock. This authori-
zation also expires on April 29, 2015.

A material agreement that is subject to the condition precedent of a change of control pertains to the un-
drawn €3.5 billion syndicated credit facility arranged by Bayer AG and its U.S. subsidiary Bayer Corpora-
tion. This facility is available until December 2018 and can be extended to run for up to two further one-
year periods. The participating banks are entitled to terminate the credit facility in the event of a change
of control at Bayer and demand repayment of any loans that may have been granted under this facility
up to that time.

In addition, the terms of the €2.4 billion (as of December 31, 2013) in notes issued by Bayer in the years
2006 to 2013 under its multi-currency European Medium Term Notes program also contain a change-of-
control clause. Holders of these notes have the right to demand the redemption of their notes by Bayer
AG in the event of a change of control if Bayer AG’s credit rating is downgraded within 120 days after
such change of control becomes effective.

Agreements exist for the members of the Board of Management in compliance with Section 4.2.3 of
the German Corporate Governance Code to cover the eventuality of a takeover offer being made for
Bayer AG. Under these agreements, payments promised in the event of early termination of the service
contract of a Board of Management member due to a change of control are limited to the value of three
years’ compensation and may not compensate more than the remaining term of the contract.

Combined Management ReportBayer Annual Report 2013» TABLE OF CONTENTS COMBINED MANAGEMENT REPORT » TABLE OF CONTENTS

Consolidated Financial Statements

175

Bayer Annual Report 2013

Consolidated Financial Statements

Bayer Group Consolidated
Income Statements

Bayer Group Consolidated Statements
of Comprehensive Income

Bayer Group Consolidated Statements
of Financial Position

Bayer Group Consolidated Statements
of Cash Flows

Bayer Group Consolidated Statements
of Changes in Equity

Notes to the Consolidated Financial
Statements of the Bayer Group

228

229

230

231

Notes to the Statements of Financial Position

17.

18.

19.

20.

21.

22.

23.

24.

25.

Goodwill and other intangible assets

Property, plant and equipment

Investments accounted for using
the equity method

Other financial assets

Inventories

Trade accounts receivable

Other receivables

Equity

Provisions for pensions and
other post-employment benefits

232

26.

Other provisions

26.1 Taxes

234

236

Key data by segment and region

General information

Effects of new financial reporting standards

236

Basic principles, methods and
critical accounting estimates

Segment reporting

Scope of consolidation; subsidiaries
and affiliates

Changes in the scope of consolidation

245

259

263

26.2

Environmental protection

26.3 Restructuring

26.4 Trade-related commitments

26.5

Litigations

26.6 Personnel commitments

26.7 Miscellaneous

27.

28.

29.

30.

Financial liabilities

Trade accounts payable

Other liabilities

Financial instruments

Business combinations and other acquisitions 265

30.1

Financial instruments by category

Divestitures

6.1

6.2

6.3

268

269

270

271

272

273

274

277

30.2 Maturity analysis

30.3

Information on derivatives

31.

Contingent liabilities and
other financial commitments

32.

Legal risks

Notes to the Statements of Cash Flows

33.

34.

35.

Net cash provided by
(used in) operating activities

Net cash provided by
(used in) investing activities

Net cash provided by
(used in) financing activities

Other Information

36.

37.

38.

Audit fees

Related parties

Total compensation of the Board of
Management and the Supervisory Board,
advances and loans

39.

Events after the end of the reporting period

Notes to the Income Statements

10.

11.

12.

13.

Net sales

Selling expenses

Research and development expenses

Other operating income

Other operating expenses

Personnel expenses and employee numbers

Financial result

13.1

Income (loss) from investments
in affiliated companies

13.2 Net interest expense

13.3 Other financial income and expenses

14.

15.

Taxes

Income / losses attributable to
non-controlling interest

16.

Earnings per share

For direct access to a chapter, simply click on its name.

278

284

286

287

288

289

291

292

295

304

305

306

308

311

317

318

319

321

325

326

327

328

329

228

Bayer Group Consolidated Income Statements

Net sales

Cost of goods sold

Gross profit

Selling expenses

Research and development expenses

General administration expenses

Other operating income

Other operating expenses

EBIT *

Equity-method loss

Financial income

Financial expenses

Financial result

Income before income taxes

Income taxes

Income after income taxes

of which attributable to non-controlling interest

of which attributable to Bayer AG stockholders (net income)

Earnings per share

Basic

Diluted

2012 figures restated
* EBIT: earnings before financial result and taxes

[Table 4.1]

Note

2012

2013

[7]

[8]

[9]

[10]

[11]

[13.1]

[13]

€ million

39,741

€ million

40,157

(19,070)

(19,347)

20,671

20,810

(9,981)

(3,013)

(1,866)

1,087

(2,970)

3,928

(18)

503

(1,237)

(752)

(10,080)

(3,190)

(1,883)

897

(1,620)

4,934

(16)

389

(1,100)

(727)

3,176

4,207

[14]

(723)

(1,021)

[15]

[16]

2,453

2,403

3,186

(3)

3,189

€

2.91

3.86

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

Bayer Group Consolidated Statements of Comprehensive Income

229

Bayer Group Consolidated Statements
of Comprehensive Income

Income after income taxes

of which attributable to non-controlling interest

of which attributable to Bayer AG stockholders

Remeasurements of the net defined benefit liability
for post-employment benefit plans

Income taxes

Other comprehensive income from remeasurements of the
net defined benefit liability for post-employment benefit plans

[Table 4.2]

Note

2012

2013

[15]

[25]

[14]

€ million

2,453

2,403

3,186

(3)

3,189

(2,779)

848

1,946

(604)

(1,931)

1,342

Other comprehensive income that will not be reclassified subsequently to profit or loss

(1,931)

1,342

Changes in fair values of derivatives designated as cash flow hedges

Reclassified to profit or loss

Income taxes

Other comprehensive income from cash flow hedges

Changes in fair values of available-for-sale financial assets

Reclassified to profit or loss

Income taxes

Other comprehensive income from available-for-sale financial assets

Changes in exchange differences recognized on translation
of operations outside the eurozone

Reclassified to profit or loss

Other comprehensive income from exchange differences

[30.3]

[14]

[20]

[14]

148

(53)

133

–

(12)

(17)

–

(17)

221

(156)

(18)

(76)

(8)

(737)

–

(737)

Other comprehensive income that may be reclassified subsequently to profit or loss

134

(698)

Effects of changes in scope of consolidation

Total other comprehensive income *

of which attributable to non-controlling interest

of which attributable to Bayer AG stockholders

Total comprehensive income

of which attributable to non-controlling interest

of which attributable to Bayer AG stockholders

2012 figures restated
* total changes recognized outside profit or loss

(1,792)

(4)

(1,788)

661

615

(1)

643

(14)

657

3,829

(17)

3,846

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

230

Bayer Group Consolidated Statements of Financial Position

Bayer Group Consolidated Statements
of Financial Position

Noncurrent assets

Goodwill

Other intangible assets

Property, plant and equipment

Investments accounted for using the equity method

Other financial assets

Other receivables

Deferred taxes

Current assets

Inventories

Trade accounts receivable

Other financial assets

Other receivables

Claims for income tax refunds

Cash and cash equivalents

Assets held for sale

Total assets

Equity

Capital stock of Bayer AG

Capital reserves of Bayer AG

Other reserves

Equity attributable to Bayer AG stockholders

Equity attributable to non-controlling interest

Noncurrent liabilities

Provisions for pensions and other post-employment benefits

Other provisions

Financial liabilities

Other liabilities

Deferred taxes

Current liabilities

Other provisions

Financial liabilities

Trade accounts payable

Income tax liabilities

Other liabilities

Liabilities directly related to assets held for sale

Total equity and liabilities

2012 figures restated

[Table 4.3]

Note

Jan. 1, 2012

Dec. 31, 2012

Dec. 31, 2013

€ million

[17]

[18]

[19]

[20]

[23]

[14]

[21]

[22]

[20]

[23]

[24]

[25]

[26]

[27]

[29]

[14]

[26]

[27]

[28]

[26.1]

[29]

9,148

10,284

9,887

265

1,348

425

1,312

9,293

9,464

9,898

225

1,308

541

1,579

9,862

8,914

10,015

203

1,203

496

1,596

32,669

32,308

32,289

6,370

7,060

2,784

1,636

372

1,771

6,991

7,433

857

1,655

376

1,698

–

7,129

7,569

779

1,476

413

1,662

–

20,077

19,010

19,028

52,746

51,318

51,317

2,117

6,167

10,912

19,196

19,255

7,787

1,726

7,995

474

2,116

2,117

6,167

10,167

18,451

100

18,551

9,246

2,111

6,962

409

935

2,117

6,167

12,434

20,718

20,804

7,368

1,977

5,590

362

1,193

20,098

19,663

16,490

4,217

3,683

3,785

1,629

4,844

2,568

4,305

1,315

–

4,727

3,441

4,473

101

1,281

–

13,393

13,104

14,023

52,746

51,318

51,317

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

Bayer Group Consolidated Statements of Cash Flows

231

Bayer Group Consolidated Statements
of Cash Flows

Income after income taxes

Income taxes

Financial result

Income taxes paid or accrued

Depreciation, amortization and impairments

Change in pension provisions

(Gains) losses on retirements of noncurrent assets

Gross cash flow

Decrease (increase) in inventories

Decrease (increase) in trade accounts receivable

(Decrease) increase in trade accounts payable

Changes in other working capital, other non-cash items

[Table 4.4]

Note

2012

2013

€ million

2,453

723

752

(1,560)

2,988

(581)

(219)

4,556

(680)

(455)

550

559

3,186

1,021

727

(1,644)

2,896

(249)

(105)

5,832

(608)

(751)

389

309

Net cash provided by (used in) operating activities (net cash flow)

[33]

4,530

5,171

Cash outflows for additions to property, plant, equipment and intangible assets

(1,929)

(2,157)

Cash inflows from sales of property, plant, equipment and other assets

Cash inflows from divestitures

Cash inflows from (outflows for) noncurrent financial assets

Cash outflows for acquisitions less acquired cash

Interest and dividends received

Cash inflows from (outflows for) current financial assets

Net cash provided by (used in) investing activities

Dividend payments and withholding tax on dividends

Issuances of debt

Retirements of debt

Interest paid including interest rate swaps

Interest received from interest rate swaps

Cash outflows for the purchase of additional interests in subsidiaries

[34]

230

178

(258)

(466)

104

1,327

(814)

(1,366)

1,308

(3,254)

(793)

325

(3)

153

204

(1,082)

125

(2,581)

(1,574)

9,078

(9,697)

(550)

212

(4)

Net cash provided by (used in) financing activities

[35]

(3,783)

(2,535)

Change in cash and cash equivalents due to business activities

Cash and cash equivalents at beginning of year

Change in cash and cash equivalents due to changes in scope of consolidation

Change in cash and cash equivalents due to exchange rate movements

Cash and cash equivalents at end of year

2012 figures restated

(67)

1,771

1,698

–

(6)

–

(91)

1,698

1,662

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

232

Bayer Group Consolidated Statements of Changes in Equity

233

Bayer Group Consolidated Statements
of Changes in Equity

Dec. 31, 2011 as reported

Restatement

Dec. 31, 2011 restated

Equity transactions with owners

Capital increase / decrease

Dividend payments

Other changes

Other comprehensive income

Income after income taxes

Dec. 31, 2012

Equity transactions with owners

Capital increase / decrease

Dividend payments

Other changes

Other comprehensive income

Income after income taxes

Dec. 31, 2013

2012 figures restated

Capital stock
of Bayer AG

Capital reserves
of Bayer AG

Retained earnings
incl. net income

Exchange
differences

€ million

2,117

€ million

6,167

2,117

6,167

€ million

12,755

(16)

12,739

(1,364)

(1,926)

2,403

€ million

(1,811)

(1,809)

(13)

2,117

6,167

11,861

(1,822)

(1,571)

(3)

1,341

3,189

14,817

(723)

(2,545)

2,117

6,167

Accumulated Comprehensive Income

Fair-value
measurement
of securities

Cash flow
hedges

Revaluation
surplus

Equity attributable
to Bayer AG
stockholders

Equity attributable
to non-controlling
interest

€ million

[Table 4.5]

Equity

€ million

19,271

(16)

19,255

(1,366)

(1,792)

2,453

(5)

€ million

19,212

(16)

19,196

(1,364)

(1,788)

2,403

€ million

(2)

(3)

(4)

18,451

100

18,551

(5)

(1,571)

(8)

657

3,189

20,718

(3)

(14)

(3)

(1,574)

(2)

643

3,186

20,804

(2)

(8)

(81)

133

Consolidated Financial StatementsConsolidated Financial StatementsBayer Annual Report 2013Bayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS » TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

234

Notes
1. Key data by segment and region

Notes to the Consolidated Financial Statements
of the Bayer Group

235

Notes
1. Key data by segment and region

1. Key data by segment and region

Key Data by Segment

Net sales (external)

Change

Currency-adjusted change

Intersegment sales

Net sales (total)

Other operating income

EBIT

EBIT before special items

EBITDA before special items

Gross cash flow

Capital invested

CFROI

Net cash flow

Equity-method income (loss)

Equity-method investments

Assets

Capital expenditures

Additions to noncurrent assets from acquisitions

Depreciation, amortization and impairments

of which impairment losses

of which impairment loss reversals

Liabilities

Research and development expenses

Number of employees (as of Dec. 31)

2012 figures restated

Key Data by Region

Net sales (external) – by market

Change

Currency-adjusted change

Net sales (external) – by point of origin

Change

Currency-adjusted change

Interregional sales

Other operating income

EBIT

Assets

Capital expenditures

Depreciation, amortization and impairments

Liabilities

Research and development expenses

Number of employees (as of Dec. 31)

2012 figures restated

HealthCare

CropScience

MaterialScience

Pharmaceuticals

Consumer Health

CropScience

MaterialScience

All Other Segments

Reconciliation

Corporate Center and
Consolidation

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

[Table 4.6]

Group

2013

€ million

10,798

+ 8.5%

11,188

+ 3.6%

+ 4.1% + 10.1%

383

11,181

11,258

255

1,104

2,327

3,232

1,319

13,579

7.7%

2,262

(1)

150

2,031

2,552

3,490

2,293

14,953

14.2%

1,853

–

7,806

+ 8.1%

+ 3.5%

7,812

1,101

1,460

1,887

1,340

8,061

7,736

– 0.9%

+ 3.7%

7,743

1,229

1,421

1,844

1,280

8,367

14.8%

14.0%

1,284

1,127

–

8,383

+ 15.5%

+ 11.7%

8,413

432

1,556

1,543

2,025

1,332

9,852

8,819

+ 5.2%

+ 9.9%

8,853

171

1,729

1,801

2,248

1,590

9,909

11,491

+ 6.1%

+ 2.2%

11,238

– 2.2%

+ 0.2%

11,540

11,294

581

613

1,263

952

112

435

429

1,072

887

10,713

10,029

12.5%

14.2%

5.8%

5.5%

899

682

–

735

(17)

224

977

(16)

203

1,260

– 0.7%

– 1.0%

1,971

3,231

(75)

214

(131)

1,366

–

(370)

–

1,169

– 7.2% – 25.0% +133.3%

– 6.6% – 25.0% +133.3%

2,196

3,365

(11)

222

113

597

–

308

–

(2,439)

(2,436)

(2,363)

(2,356)

150

(339)

(346)

(341)

(256)

(224)

–

(280)

–

316

(479)

(475)

(331)

(107)

–

224

–

39,741

+ 8.8%

+ 4.7%

–

40,157

+ 1.0%

+ 5.4%

–

39,741

40,157

1,087

3,928

5,639

8,280

4,556

43,347

8.2%

4,530

897

4,934

5,773

8,401

5,832

43,748

11.1%

5,171

(18)

225

(16)

203

16,433

16,585

8,576

8,515

10,364

10,826

8,968

8,429

1,709

1,981

5,268

4,981

51,318

51,317

527

–

918

(16)

6,007

1,561

564

1,121

1,093

150

–

4,873

1,654

257

743

320

–

2,413

394

209

419

505

101

(13)

2,108

386

365

518

494

(5)

4,405

779

532

455

–

4,114

857

638

655

–

2,861

241

605

–

666

–

2,473

208

223

–

173

–

2,992

37,200

38,000

17,600

18,000

20,800

22,400

14,500

14,300

19,200

19,800

239

–

173

–

2,012

599

2,988

368

(21)

2,155

1,637

2,896

298

(13)

3,657

14,089

13,288

32,767

30,513

700

3,013

3,190

110,000

113,200

Europe

North America

Asia / Pacific

Latin America /
Africa / Middle East

Reconciliation

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

[Table 4.7]

Total

2013

€ million

14,722

+ 2.0%

+ 1.5%

16,371

+ 1.7%

+ 1.3%

7,880

495

2,623

15,086

9,576

+ 2.5% + 17.1%

+ 3.1%

16,649

+ 8.8%

9,469

+ 1.7% + 15.9%

+ 2.3%

+ 7.4%

8,828

576

3,965

2,934

195

160

9,680

+ 1.1%

+ 4.2%

9,556

+ 0.9%

+ 4.2%

3,285

103

27,715

27,359

10,480

11,178

949

1,845

1,136

1,758

20,380

19,756

2,198

2,153

574

675

6,644

588

531

672

5,444

812

52,300

53,600

15,300

15,200

8,759

8,623

6,684

6,768

+ 11.7%

– 1.6% + 10.2%

+ 1.3%

+ 3.9%

+ 6.9%

+ 8.3% + 10.2%

8,479

8,442

5,422

5,510

+ 12.8%

– 0.4% + 14.3%

+ 1.6%

+ 4.6%

+ 8.3% + 12.2% + 12.6%

653

223

802

642

612

518

174

682

607

133

753

7,215

6,694

4,330

4,490

366

3,449

186

363

373

2,937

174

123

1,355

125

1,183

26,200

28,000

16,200

16,400

39,741

+ 8.8%

+ 4.7%

39,741

+ 8.8%

+ 4.7%

–

1,087

3,928

40,157

+ 1.0%

+ 5.4%

40,157

+ 1.0%

+ 5.4%

–

897

4,934

–

(11,985)

(13,362)

–

(479)

–

(339)

1,578

–

1,596

51,318

51,317

–

2,012

2,988

2,155

2,896

939

1,193

32,767

30,513

–

3,013

3,190

110,000

113,200

236

Notes
2. General information

2. General information

The consolidated financial statements of the Bayer Group as of December 31, 2013, were prepared by Bayer Aktien-
gesellschaft (Bayer AG) according to the International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (IASB), London, and the interpretations of the IFRS Interpretations Committee (IFRS IC),
both as endorsed by the European Union and in effect at the end of the reporting period. The applicable further re-
quirements of Section 315a of the German Commercial Code were also taken into account.

Bayer AG is a global enterprise based in Germany. Its registered office is at Kaiser-Wilhelm-Allee 1, 51368 Leverkusen.
Its material business activities in the fields of health care, agriculture and high-tech polymer materials take place in
the HealthCare, CropScience and MaterialScience subgroups, respectively. The activities of the various segments are
outlined in Note [5].

A declaration concerning the German Corporate Governance Code has been issued pursuant to Section 161 of the
German Stock Corporation Act and made available to stockholders.

The Board of Management of Bayer AG prepared the consolidated financial statements of the Bayer Group on
February 17, 2014. They were discussed by the Audit Committee of the Supervisory Board of Bayer AG at its meeting
on February 25, 2014, and approved by the Supervisory Board at its plenary meeting on February 26, 2014.

In the income statement and statement of comprehensive income, statement of financial position, statement of cash
flows and statement of changes in equity, certain items are combined for the sake of clarity. These are explained in
the Notes. The income statement is prepared using the cost-of-sales method. Assets and liabilities are classified by
maturity. They are regarded as current if they mature within one year or within the normal business cycle of the com-
pany or the Group, or are held for sale. The normal business cycle is defined for this purpose as beginning with the
procurement of the resources necessary for the production process and ending with the receipt of cash or cash equiv-
alents as consideration for the sale of the goods or services produced in that process. Inventories and trade accounts
receivable and payable are always presented as current items. Deferred tax assets and liabilities and pension provi-
sions are always presented as noncurrent items.

The consolidated financial statements of the Bayer Group are drawn up in euros. Amounts are stated in millions of
euros (€ million) except where otherwise indicated.

The financial statements of the individual consolidated companies are prepared as of the closing date of the Group
financial statements.

3. Effects of new financial reporting standards

Financial reporting standards applied For the First time in 2013
The first-time application of the following financial reporting standards was of material importance. The prior-year
figures have been restated accordingly.

IAS 19 (Employee Benefits) as revised in 2011, referred to in the following as IAS 19R (IAS 19 revised), contains
amended accounting rules for defined benefit pension plans and severance agreements. Contrary to the previous rule,
IAS 19R requires that past service cost be recognized immediately in profit or loss. In addition, the net interest cost
calculated on the net pension liability by applying a discount rate for high-quality corporate bonds is now recognized

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 237

Notes
3. Effects of new financial reporting standards

in profit or loss. Remeasurement amounts resulting from actuarial gains and losses, the balance of the return on plan
assets and amounts already recognized as net interest income, and the effect of the asset ceiling are recognized out-
side profit or loss in the statement of comprehensive income. Net interest expense continues to be recognized in the
financial result.

IAS 19R further specifies that severance payments to be earned in future periods must be recognized in profit or loss
over the respective period of service. This revision led to a change in the accounting for top-up payments to employees
under pre-retirement part-time working agreements in Germany. In the past, provisions were established at the time
the offer of a pre-retirement part-time working agreement was made or the agreement was concluded, even when
service remained to be provided by the employee in the future.

In view of the clarifying information contained in IAS 19R, “other post-employment benefit obligations” in Germany
(particularly from pre- and early retirement obligations) were reclassified from provisions for pensions and other
post-employment benefits to other provisions for personnel commitments.

IFRS 11 (Joint Arrangements) prescribes the accounting for joint arrangements and supersedes IAS 31 (Interests in Joint
Ventures) and SIC-13 (Jointly Controlled Entities – Non-Monetary Contributions by Venturers). A joint arrangement is
deemed to exist if the Bayer Group through a contractual agreement jointly controls activities managed with a third
party. Joint control is only deemed to exist if decisions regarding the relevant activities require the unanimous consent
of the parties sharing control. Joint arrangements are classified as either joint operations or joint ventures. The Bayer
Group recognizes the share of assets, liabilities, revenues and expenses relating to its interest in a joint operation in
accordance with its rights and obligations. The investment in a joint venture is accounted for using the equity method
in accordance with the provisions of the amended IAS 28 (Investments in Associates and Joint Ventures). The applica-
tion of IFRS 11 (Joint Arrangements) and IAS 28 (Investments in Associates and Joint Ventures) is mandatory in the E.U.
for annual periods beginning on or after January 1, 2014. Earlier application is permitted. The Bayer Group has applied
these standards retrospectively since January 1, 2013 in compliance with the transitional provisions.

Due to the first-time application of IFRS 11, Lyondell Bayer Manufacturing Maasvlakte VOF, Netherlands – which was
previously accounted for using the equity method – is now accounted for as a joint operation and therefore the share
of the Bayer Group in the assets, liabilities, revenues and expenses is included in the consolidated financial statements
in accordance with the Bayer Group’s rights and obligations. The €15 million difference, arising from the reclassifica-
tion, between the previous carrying amount according to the equity method and the pro-rated net assets was reflected
as a reduction in other reserves.

Pursuant to IFRS 11, the joint ventures Bayer IMSA, S.A. de C.V., Mexico, and Bayer Zydus Pharma Private Limited,
India, which were previously included by proportionate consolidation, are now accounted for using the equity method.

The interest in Baulé S.A.S., France, was accounted for retrospectively for the first quarter of 2012 using the equity
method. Prior to the application of IFRS 11 it was included by proportionate consolidation. The remaining shares of
Baulé were acquired effective March 31, 2012, and the company has been fully consolidated since that date.

The effects that the new financial reporting standards applied for the first time in 2013 would have had on the relevant
figures for the prior-year period or the respective opening / closing dates are shown in the following tables.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 238

Notes
3. Effects of new financial reporting standards

accounting changes: consolidated income statement 2012

net sales

Cost of goods sold

Gross profit

Selling expenses

Other operating income

Other operating expenses

eBit *

Equity-method loss

Financial income

Financial expenses

Financial result

income before income taxes

Income taxes

income after income taxes

of which attributable to Bayer ag stockholders
(net income)

earnings per share (€)

* EBIT: earnings before financial result and taxes

[table 4.8]

2012

accounting changes

iFrs 11

transition to
accounting for
share in assets
and liabilities

ias 19r
(2011)

transition
to equity
method

after
accounting
changes

€ million

–

(8)

(3)

–

(70)

(73)

(44)

(0.05)

(8)

(16)

(24)

–

(3)

(27)

–

(11)

(6)

(1)

(2)

(1)

–

(1)

–

€ million

39,741

(19,070)

20,671

(9,981)

1,087

(2,970)

3,928

(18)

503

(1,237)

(752)

3,176

(723)

2,453

2,403

2.91

Before
accounting
changes

€ million

39,760

(19,059)

20,701

(9,987)

1,083

(2,958)

3,960

(46)

502

(1,168)

(712)

3,248

(752)

2,496

2,446

2.96

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

accounting changes: consolidated statement of comprehensive income 2012

239

Notes
3. Effects of new financial reporting standards

[table 4.9]

2012

accounting changes

iFrs 11

Before
accounting
changes

transition to
accounting for
share in assets
and liabilities

ias 19r
(2011)

transition
to equity
method

after
accounting
changes

€ million

income after income taxes

of which attributable to Bayer AG stockholders

Remeasurements of the net defined benefit liability
for post-employment benefit plans

Income taxes

other comprehensive income from remeasurements

of the net defined benefit liability for post-employment

benefit plans

Other comprehensive income that will not be reclassified
subsequently to profit or loss

Changes in exchange differences recognized
on translation of operations outside the eurozone

other comprehensive income from exchange differences

Other comprehensive income that may be reclassified
subsequently to profit or loss

total other comprehensive income *

of which attributable to Bayer AG stockholders

total comprehensive income

of which attributable to Bayer AG stockholders

* total changes recognized outside profit or loss

2,496

2,446

(2,849)

876

(1,973)

(16)

135

(1,833)

(1,829)

663

617

(44)

(28)

–

(2)

–

(1)

2,453

2,403

–

(1)

(2)

(2,779)

848

(1,931)

(17)

134

(1,792)

(1,788)

661

615

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

240

Notes
3. Effects of new financial reporting standards

accounting changes: consolidated statement of Financial position as of January 1, 2012

[table 4.10]

Jan. 1, 2012

accounting changes

iFrs 11

Before
accounting
changes

transition to
accounting for
share in assets
and liabilities

ias 19r
(2011)

transition to
equity method

after
accounting
changes

€ million

noncurrent assets

Goodwill

Other intangible assets

Property, plant and equipment

Investments accounted for using the equity method

Other financial assets

Deferred taxes

current assets

Inventories

Trade accounts receivable

Other receivables

Claims for income tax refunds

Cash and cash equivalents

total assets

equity

Other reserves

equity attributable to Bayer ag stockholders

noncurrent liabilities

Provisions for pensions and other post-employment benefits

Other provisions

Deferred taxes

current liabilities

Other provisions

Financial liabilities

Trade accounts payable

Other liabilities

total equity and liabilities

9,160

10,295

9,823

319

1,364

1,311

32,697

6,368

7,061

1,628

373

1,770

20,068

52,765

10,928

19,212

19,271

7,870

1,649

2,116

20,104

4,218

3,684

3,779

1,630

13,390

52,765

–

(83)

(2)

–

(89)

(17)

–

(40)

–

(21)

(23)

–

(3)

–

(2)

(21)

(12)

(11)

(2)

–

(7)

(1)

(3)

9,148

10,284

9,887

265

1,348

1,312

32,669

6,370

7,060

1,636

372

1,771

(10)

20,077

–

(1)

–

(1)

(2)

52,746

10,912

19,196

19,255

7,787

1,726

2,116

20,098

4,217

3,683

3,785

1,629

13,393

52,746

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

accounting changes: consolidated statement of Financial position as of december 31, 2012

241

Notes
3. Effects of new financial reporting standards

[table 4.11]

dec. 31, 2012

accounting changes

iFrs 11

Before
accounting
changes

transition to
accounting for
share in assets
and liabilities

ias 19r
(2011)

transition
to equity
method

after
accounting
changes

€ million

noncurrent assets

Property, plant and equipment

Investments accounted for using the equity method

Other financial assets

Deferred taxes

current assets

Inventories

Trade accounts receivable

Other financial assets

Other receivables

Cash and cash equivalents

total assets

equity

Other reserves

equity attributable to Bayer ag stockholders

noncurrent liabilities

Provisions for pensions and other post-employment benefits

Other provisions

Deferred taxes

current liabilities

Financial liabilities

Trade accounts payable

Other liabilities

9,863

284

1,324

1,581

32,350

6,980

7,431

856

1,648

1,695

18,986

–

(1)

–

(63)

(17)

–

(43)

–

51,336

(1)

(16)

10,185

18,469

18,569

9,373

1,986

938

19,668

2,570

4,295

1,318

13,099

(127)

125

–

(2)

–

(21)

–

(3)

–

(3)

total equity and liabilities

51,336

(1)

(16)

(2)

(1)

(3)

(1)

(2)

(3)

(1)

–

(2)

(1)

–

(3)

(1)

9,898

225

1,308

1,579

32,308

6,991

7,433

857

1,655

1,698

19,010

51,318

10,167

18,451

18,551

9,246

2,111

935

19,663

2,568

4,305

1,315

13,104

51,318

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

242

Notes
3. Effects of new financial reporting standards

accounting changes: consolidated statement of cash Flows 2012

Income after income taxes

Income taxes

Financial result

Depreciation, amortization and impairments

Change in pension provisions

Gross cash flow

Decrease (increase) in inventories

Decrease (increase) in trade accounts receivable

(Decrease) increase in trade accounts payable

Changes in other working capital, other non-cash items

net cash provided by (used in) operating activities
(net cash flow)

Cash outflows for additions to property, plant, equipment
and intangible assets

Cash inflows from sales of property, plant, equipment
and other assets

Cash inflows from (outflows for) noncurrent financial assets

Cash inflows from (outflows for) current financial assets

net cash provided by (used in) investing activities

Issuances of debt

Net cash provided by (used in) financing activities

change in cash and cash equivalents due to business activities

cash and cash equivalents at beginning of year

Change in cash and cash equivalents due to
exchange rate movements

cash and cash equivalents at end of year

accounting changes

iFrs 11

transition to
accounting for
share in assets
and liabilities

ias 19r
(2011)

transition to
equity method

€ million

(44)

(29)

–

(39)

(42)

–

(29)

–

(5)

–

(4)

(1)

–

(1)

–

(1)

–

(2)

(1)

(3)

–

(1)

–

(1)

(3)

–

(2)

[table 4.12]

2012

after
accounting
changes

€ million

2,453

723

752

2,988

(581)

4,556

(680)

(455)

550

559

4,530

(1,929)

230

(258)

1,327

(814)

1,308

(3,783)

(67)

1,771

(6)

1,698

Before
accounting
changes

€ million

2,496

752

712

2,960

(542)

4,599

(674)

(452)

539

520

4,532

(1,929)

227

(261)

1,329

(818)

1,309

(3,782)

(68)

1,770

(7)

1,695

The following new standards had no impact, or no material impact, on the presentation of the Group financial position
or results of operations, or on earnings per share:

IFRS 10 (Consolidated Financial Statements) sets forth the requirements for the preparation and presentation of con-
solidated financial statements and supersedes IAS 27 (Consolidated and Separate Financial Statements) and SIC-12
(Consolidation – Special Purpose Entities). The standard defines a uniformly applicable control concept for all company
forms to serve as the basis for determining which companies are to be fully consolidated. Control is only deemed to
exist if Bayer AG is exposed, or has rights, to variable returns from its involvement with a company and has the ability
to use its power over that company to affect the amount of that company’s returns. IFRS 10 was applied for the first time
retrospectively in compliance with the transitional provisions.

IFRS 12 (Disclosure of Interests in Other Entities) prescribes the information to be disclosed in the notes to the financial
statements about interests in subsidiaries, associates, joint arrangements and structured entities.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

243

Notes
3. Effects of new financial reporting standards

The revised IAS 27 (Separate Financial Statements) is now devoted entirely to accounting for interests in subsidiaries,
associates and joint ventures in IFRS separate financial statements.

The application of IFRS 10 (Consolidated Financial Statements), IFRS 12 (Disclosure of Interests in Other Entities)
and the amendments to IAS 27 (Separate Financial Statements) is mandatory in the E.U. for annual periods beginning
on or after January 1, 2014. Earlier application is permitted. The Bayer Group has applied these standards since
January 1, 2013.

IFRS 13 (Fair Value Measurement) provides a uniform definition of fair value and how it is measured. Fair value is now
defined as the price that would be received to sell an asset or paid to transfer a liability. IFRS 13 also requires specific
notes to the consolidated financial statements for assets and liabilities measured at fair value. IFRS 13 was applied for
the first time prospectively.

The publication of IFRS 13 (Fair Value Measurement) in May 2011 also entailed consequential amendments to the
disclosure requirements in IAS 36 (Impairment of Assets). It became necessary to disclose the recoverable amount of
the cash-generating unit in every reporting period, whether or not an impairment loss was recognized or reversed in
the period. In May 2013, the IASB amended IAS 36 by issuing “Recoverable Amount Disclosures for Non-Financial As-
sets” to modify this unintentionally broad disclosure requirement. The recoverable amount of a cash-generating unit
now only has to be disclosed for periods in which an impairment loss has been recognized or reversed. Additional
disclosures are required when an impairment loss is recognized or reversed and the recoverable amount is based on
fair value less costs of disposal. The amendments are to be applied for annual periods beginning on or after January 1,
2014. However, earlier application is permitted where IFRS 13 is already applied. The Bayer Group made use of the
early application provision.

In compliance with the amendment “Presentation of Items of Other Comprehensive Income” to IAS 1 (Presentation of
Financial Statements), published in June 2011, the items of other comprehensive income are for the first time reported
separately in the statement of comprehensive income according to whether or not they may subsequently become
reclassifiable to profit or loss.

The amendment “Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities” to IFRS 7,
issued in December 2011, requires gross and net offsetting amounts reflected in the statement of financial position –
along with other existing rights of set-off that do not meet the requirements for set-off in the statement of financial
position – to be presented in tabular form, unless a different form of presentation is more appropriate.

In May 2012, the IASB published its fourth set of “Annual Improvements to IFRSs.” The amendments address details
of the recognition, measurement and disclosure of business transactions and serve to standardize terminology. They
consist mainly of editorial changes to existing standards.

In June 2013, the IASB issued “Novation of Derivatives and Continuation of Hedge Accounting,” an amendment to
IAS 39 (Financial Instruments: Recognition and Measurement). The amendment introduces new rules for continuing an
existing hedge accounting relationship using a novated derivative. A novation occurs when the original parties to a
derivative agree that one or more clearing counterparties replace their original counterparty to become the new coun-
terparty to each of the parties. The new rules enable a derivative to remain a hedging instrument in a continuing hedge
accounting relationship despite its novation if certain criteria are met. The amendment is to be applied for annual
periods beginning on or after January 1, 2014. Earlier application is permitted. The Bayer Group made use of the early
application provision.

puBlished Financial reporting standards that have not yet Been applied
The IASB and the IFRS Interpretations Committee have issued the following standards, amendments to standards,
and interpretations whose application was not yet mandatory for the 2013 fiscal year and is conditional upon their
endorsement by the European Union.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 244

Notes
3. Effects of new financial reporting standards

In November 2009, the IASB issued IFRS 9 (Financial Instruments), containing rules for the classification and measure-
ment of financial assets. In October 2010, it issued new requirements for the classification and measurement of finan-
cial liabilities, incorporating them into IFRS 9. The new standard defines two instead of four measurement categories
for financial assets, with classification to be based partly on the company’s business model and partly on the character-
istics of the contractual cash flows from the respective financial asset. In the case of equity investments that are not
held for trading, an entity may irrevocably opt at initial recognition to recognize future changes in their fair value out-
side profit or loss in the statement of comprehensive income. In November 2013, the IASB issued further amendments
under the title “Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39.” The focus of the amendments is on a
thorough revision of hedge accounting rules with the aim of more appropriately reflecting risk management activities
in the financial statements. This involves additional disclosures in the notes. The mandatory effective date of January 1,
2015, previously contained in IFRS 9 was removed. The current version no longer includes a mandatory effective date.
The amendments are not expected to be endorsed by the European Union until the IASB has published all parts of the
project relating to the accounting treatment of financial instruments.

In December 2011, the IASB issued the amendment “Offsetting Financial Assets and Financial Liabilities” to IAS 32
(Financial Instruments: Presentation), clarifying what is meant by “right of set-off in all circumstances” and “simultane-
ous settlement.” The amendment is to be applied for annual periods beginning on or after January 1, 2014. The
changes will not have a material impact on the presentation of the Group’s financial position or results of operations.

In October 2012, under the title “Investment Entities,” the IASB issued amendments to IFRS 10, IFRS 12 and IAS 27 for
investment entities. Such entities are to be exempted from the requirement to consolidate certain subsidiaries accord-
ing to IFRS 10. Instead, they must recognize them at fair value through profit or loss. IFRS 12 introduces additional
disclosure requirements for investment entities. The amendments are to be applied for annual periods beginning on or
after January 1, 2014. The changes will not have a material impact on the presentation of the Group’s financial position
or results of operations.

In May 2013, the IFRS IC issued the interpretation IFRIC 21 (Levies). The interpretation covers the accounting for gov-
ernment-imposed levies with the exception of income taxes covered by IAS 12 (Income Taxes). It also provides guid-
ance on when to recognize a liability for a levy. The interpretation is to be applied for annual periods beginning on or
after January 1, 2014. However, it has not yet been endorsed by the European Union. The changes are not expected to
have a material impact on the presentation of the Group’s financial position or results of operations.

In November 2013, the IASB published narrow-scope amendments to IAS 19 (Employee Benefits) under the title
“Defined Benefit Plans: Employee Contributions.” These amendments address the accounting for contributions from
employees or third parties to defined benefit pension plans where the contributions are a fixed percentage of salary
throughout the period of employment. Such contributions may be accounted for as a reduction in current service cost
in the period in which the related service was rendered. The amendments are to be applied for annual periods begin-
ning on or after July 1, 2014. Earlier application is permitted. The amendments have not yet been endorsed by the Eu-
ropean Union. The changes are not expected to have a material impact on the presentation of the Group’s financial po-
sition or results of operations.

In December 2013, the IASB published the fifth and sixth sets of “Annual Improvements to IFRSs.” The amendments
address details of the recognition, measurement and disclosure of business transactions and serve to standardize
terminology. They consist mainly of editorial changes to existing standards. They are applicable for annual periods
beginning on or after July 1, 2014. Earlier application is permitted. The amendments have not yet been endorsed by the
European Union. The Bayer Group is currently evaluating the impact the changes will have on the presentation of its
financial position and results of operations.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS Notes
4. Basic principles, methods and critical accounting estimates

245

4. Basic principles, methods and
critical accounting estimates

The financial statements of the consolidated companies are prepared according to uniform accounting policies and
measurement principles.

The consolidated financial statements of the Group are based on the principle of the historical cost of acquisition, con-
struction or production, with the exception of the items reflected at fair value, such as financial assets held for trading
or available for sale, and derivatives.

In preparing the consolidated financial statements, the management has to make certain assumptions and estimates
that may substantially impact the presentation of the Group’s financial position and / or results of operations.

Such estimates, assumptions or the exercise of discretion mainly relate to the useful life of noncurrent assets, the
discounted cash flows used for impairment testing and purchase price allocations, and the recognition of provisions,
including those for litigation-related expenses, pensions and other benefits, taxes, environmental compliance and re-
mediation costs, sales allowances, product liability and guarantees. Essential estimates and assumptions that may
affect reporting in the various item categories of the financial statements are described in the following sections of this
note. Estimates are based on historical experience and other assumptions that are considered reasonable under given
circumstances. They are continually reviewed but may vary from the actual values.

Changes in accounting policies or measurement principles in light of new or revised standards are applied retrospec-
tively, except as otherwise provided in the respective standard. The income statement for the previous year and the
opening statement of financial position for that year are adjusted as if the new accounting policies and / or measure-
ment principles had always been applied.

consolidation
The consolidated financial statements include subsidiaries, joint arrangements and associates.

Subsidiaries are companies over which Bayer AG is currently able to exercise power by virtue of existing rights. Power
means the ability to direct the activities that significantly influence a company’s profitability. Control is therefore only
deemed to exist if Bayer AG is exposed, or has rights, to variable returns from its involvement with a company and has
the ability to use its power over that company to affect the amount of that company’s returns. The ability to control an-
other company generally derives from Bayer AG’s direct or indirect ownership of a majority of the voting rights. In the
case of structured entities, however, control is based on contractual agreements. Inclusion of an entity’s accounts in the
consolidated financial statements begins when the Bayer Group is able to exercise control over the entity and ceases
when it is no longer able to do so.

Sales revenues, income and expenses, and gains and losses arising from transactions among the consolidated compa-
nies, along with receivables and liabilities existing between them, are eliminated. Deferred income tax effects are re-
flected in consolidation.

Capital consolidation is performed by offsetting the carrying amounts of subsidiaries against their underlying equity.
When a majority interest in a company is acquired, its pro-rated equity at the acquisition date is measured using the
acquisition method. Identifiable assets and liabilities (including contingent liabilities) are recognized at their fair values
along with attributable deferred tax assets and liabilities. Any remaining difference to the purchase price is recognized
as goodwill. The purchase prices of acquired companies domiciled outside the eurozone are translated at the exchange
rates in effect at the respective dates of acquisition.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 246

Notes
4. Basic principles, methods and critical accounting estimates

The purchase of shares from other owners is presented as an equity transaction. The difference between the equity
acquired from other owners and the purchase price is therefore directly offset against equity.

Joint operations and joint ventures are based on joint arrangements. A joint arrangement is deemed to exist if the
Bayer Group through a contractual agreement jointly controls activities managed with a third party. Joint control is only
deemed to exist if decisions regarding the relevant activities require the unanimous consent of the parties sharing
control.

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to
the assets, and obligations for the liabilities, relating to the arrangement. The Bayer Group recognizes the share of
assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with its rights and
obligations.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the
net assets of the arrangement. Joint ventures are accounted for using the equity method.

Associates over which Bayer AG exerts significant influence, generally through an ownership interest between 20%
and 50%, also are accounted for using the equity method.

The carrying amount of a company accounted for using the equity method is adjusted annually by the change in its
equity corresponding to Bayer’s percentage interest in the company. Differences arising upon first-time inclusion using
the equity method are accounted for according to full-consolidation principles. Bayer’s share of changes in these
companies’ equities recognized in profit or loss – including impairment losses recognized on goodwill – are reflected in
equity-method income / loss. Intercompany profits and losses for these companies were not material in either 2013 or 2012.

Companies that do not have a material impact on the Group’s financial position or results of operations, either
individ ually or in aggregate, are accounted for at cost of acquisition less any impairment losses.

Foreign currency tr anslation
The financial statements of the individual companies for inclusion in the consolidated financial statements are prepared
in their respective functional currencies. A company’s functional currency is that of the economic environment in which
it primarily generates and expends cash. The majority of consolidated companies carry out their activities autonomous-
ly from a financial, economic and organizational point of view, and their functional currencies are therefore the respec-
tive local currencies.

In the separate financial statements of the individual consolidated companies, receivables and liabilities in currencies
other than the respective functional currency are translated at closing rates. Related exchange differences are recog-
nized in profit or loss as exchange gains or losses under other financial income and expenses.

In the consolidated financial statements, the assets and liabilities of companies outside the eurozone at the start and
end of the year are translated into euros at closing rates. All changes occurring during the year and all income and
expense items and cash flows are translated into euros at average monthly rates. Equity components are translated at
the historical exchange rates prevailing at the respective dates of their first-time recognition in Group equity.

The exchange differences arising between the resulting amounts and those obtained by translating at closing rates are
recognized outside profit or loss as “Exchange differences on translation of operations outside the eurozone” (in other
comprehensive income) or “Exchange differences” (in the tables in the notes). When a company is deconsolidated,
such exchange differences are reclassified from equity to profit or loss.

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4. Basic principles, methods and critical accounting estimates

247

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

exchange rates for major currencies

€ 1 /

ARS

BRL

CAD

CHF

CNY

GBP

JPY

MXN

USD

Argentina

Brazil

Canada

Switzerland

China

United Kingdom

Japan

Mexico

United States

closing rate

average rate

[table 4.13]

2012

6.48

2.69

1.31

1.21

8.22

0.82

2013

8.99

3.26

1.47

1.23

8.35

0.83

2012

5.83

2.50

1.28

1.21

8.10

0.81

2013

7.21

2.85

1.37

1.23

8.16

0.85

113.61

144.72

102.38

129.20

17.18

1.32

18.07

1.38

16.90

1.28

16.93

1.33

Subsidiaries whose functional currencies have experienced a cumulative inflation rate of more than 100% over the past
three years apply the rules of IAS 29 (Financial Reporting in Hyperinflationary Economies). Gains and losses incurred
upon adjusting the carrying amounts of non-monetary assets and liabilities and the items of the statement of compre-
hensive income for inflation are recognized in other operating income and expenses. The only company to apply infla-
tion accounting in 2013 was Bayer S.A., Venezuela. The exchange rate used for translation was the year-end rate calcu-
lated on the basis of the official exchange rate for the Venezuelan bolivar (VEF) against the U.S. dollar, converted at the
respective USD / EUR rate.

net sales and other oper ating income
All revenues derived from the selling of products or rendering of services or from licensing agreements are recognized
as sales. Other operational revenues are recognized as other operating income. Sales are recognized in profit or loss
when the significant risks and rewards of ownership of the goods have been transferred to the customer, the company
retains neither continuing managerial involvement to the degree usually associated with ownership nor effective con-
trol over the goods sold, the amount of revenue and costs incurred or to be incurred can be measured reliably, and it is
sufficiently probable that the economic benefits associated with the transaction will flow to the company.

Sales are stated net of sales taxes, other taxes and sales deductions at the fair value of the consideration received or to
be received. Sales deductions are estimated amounts for rebates, cash discounts and product returns. They are deduct-
ed at the time the sales are recognized, and appropriate provisions are recorded. Sales deductions are estimated pri-
marily on the basis of historical experience, specific contractual terms and future expectations of sales development. It
is unlikely that factors other than these could materially affect sales deductions in the Bayer Group. Adjustments to pro-
visions made in prior periods for rebates, cash discounts or product returns were of secondary importance for income
before income taxes in the years under report.

Provisions for rebates in 2013 amounted to 2.8% of total net sales (2012: 2.4%). In addition to rebates, Group compa-
nies offer cash discounts for prompt payment in some countries. Provisions for cash discounts as of December 31, 2013
and December 31, 2012 were less than 0.1% of total net sales for the respective year.

Sales are reduced by the amount of the provisions for expected returns of defective goods or of saleable products that
may be returned under contractual arrangements. The net sales are reduced on the date of sale or on the date when
the amount of future returns can be reasonably estimated. Provisions for product returns in 2013 amounted to 0.3% of
total net sales (2012: 0.3%). If future product returns cannot be reasonably estimated and are significant to a sales
transaction, the revenues and the related cost of sales are deferred until a reasonable estimate can be made or the right
to return the goods has expired.

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248

Notes
4. Basic principles, methods and critical accounting estimates

Some of the Bayer Group’s revenues are generated on the basis of licensing agreements under which third parties have
been granted rights to products and technologies. Payments received, or expected to be received, that relate to the sale
or outlicensing of technologies or technological expertise are recognized in profit or loss as of the effective date of the
respective agreement if all rights relating to the technologies and all obligations resulting from them have been relin-
quished under the contract terms. However, if rights to the technologies continue to exist or obligations resulting from
them have yet to be fulfilled, the payments received are deferred accordingly. Upfront payments and similar non-re-
fundable payments received under these agreements are recorded as other liabilities and recognized in profit or loss
over the estimated performance period stipulated in the agreement.

License or research and development collaboration agreements may consist of multiple elements and provide for vary-
ing consideration terms, such as upfront payments and milestone or similar payments. They therefore have to be as-
sessed to determine whether sales revenues should be recognized for individually delivered elements of such arrange-
ments, i.e. for more than one unit of account. The condition for separate revenue recognition for individual units of
account is that each element has value to the customer on a stand-alone basis, the fair value of the undelivered goods
or unrendered services can be reliably determined, and delivery or performance of the as yet undelivered element(s) is
probable and substantially within the control of the Bayer Group.

Other operating income may also arise from the exchange of intangible assets. The amount recognized is generally
based on the fair value of the assets given up, calculated using the discounted cash flow method. If the assets given up
are internally generated, the gain from the exchange generally equals their fair value.

research and development expenses
For accounting purposes, research expenses are defined as costs incurred for current or planned investigations under-
taken with the prospect of gaining new scientific or technical knowledge and understanding. Development expenses
are defined as costs incurred for the application of research findings or specialist knowledge to plans or designs for the
production, provision or development of new or substantially improved products, services or processes, respectively,
prior to the commencement of commercial production or use.

Research and development expenses are incurred in the Bayer Group for in-house research and development activities
as well as numerous research and development collaborations and alliances with third parties.

Research and development expenses mainly comprise the costs for active ingredient discovery, clinical studies,
research and development activities in the areas of application technology and engineering, field trials, regulatory
approvals and approval extensions.

Research costs cannot be capitalized. The conditions for capitalization of development costs are closely defined: an in-
tangible asset must be recognized if, and only if, there is reasonable certainty of receiving future cash flows that will
cover an asset’s carrying amount. Since our own development projects are often subject to regulatory approval proce-
dures and other uncertainties, the conditions for the capitalization of costs incurred before receipt of approvals are not
normally satisfied.

In the case of research and development collaborations, a distinction is generally made between payments on contract
signature, upfront payments, milestone payments and cost reimbursements for work performed. If an intangible asset
(such as the right to the use of an active ingredient) is acquired in connection with any of these payment obligations,
the respective payment is capitalized even if it is uncertain whether further development work will ultimately lead to
the production of a saleable product. Reimbursements of the cost of research or development work are recognized in
profit or loss.

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4. Basic principles, methods and critical accounting estimates

249

goodWill
In a business combination, goodwill is capitalized at the acquisition date. It is measured at its cost of acquisition,
which is the excess of the acquisition price for shares in a company over the acquired net assets. The net assets are
the balance of the fair values of the acquired identifiable assets and the assumed liabilities and contingent liabilities.

Goodwill is not amortized, but tested annually for impairment. Details of the annual impairment tests are given un-
der “Procedure used in global impairment testing and its impact.” Once an impairment loss has been recognized on
goodwill, it is not reversed in subsequent periods.

other intangiBle assets
An “other intangible asset” is an identifiable non-monetary asset without physical substance, other than goodwill (such
as a patent, a trademark or a marketing right). It is capitalized if the future economic benefits attributable to the asset
will probably flow to the company and the cost of acquisition or generation of the asset can be reliably measured.

Other intangible assets are recognized at the cost of acquisition or generation. Those with a determinable useful life
are amortized accordingly on a straight-line basis over a period of up to 30 years, except where their actual depletion
demands a different amortization pattern. Determination of the expected useful lives of such assets and the amortiza-
tion patterns is based on estimates of the period for which they will generate cash flows. An impairment test is per-
formed if there is an indication of possible impairment.

Other intangible assets with an indefinite life (such as the Bayer Cross trademark) and intangible assets not yet avail-
able for use (such as research and development projects) are not amortized, but tested annually for impairment.

Any impairment losses are recognized in profit or loss. If the reasons for a previously recognized impairment loss no
longer apply, the impairment loss is reversed provided that the reversal does not cause the carrying amount to exceed
the (amortized) cost of acquisition or construction.

propert y, plant and equipment
Property, plant and equipment is carried at the cost of acquisition or construction and depreciated over its estimated
useful life. An impairment loss is recognized in addition if an asset’s recoverable amount falls below its carrying
amount.

The cost of acquisition comprises the acquisition price plus ancillary and subsequent acquisition costs, less any reduc-
tion received on the acquisition price. The cost of self-constructed property, plant and equipment comprises the direct
cost of materials, direct manufacturing expenses, and appropriate allocations of material and manufacturing over-
heads. Where an obligation exists to dismantle or remove an asset or restore a site to its former condition at the end of
its useful life, the present value of the related future payments is capitalized along with the cost of acquisition or con-
struction upon completion and a corresponding liability is recognized.

If the construction phase of property, plant or equipment extends over a substantial period of time, the interest in-
curred on borrowed capital up to the date of completion is capitalized as part of the cost of acquisition or construction
in accordance with IAS 23 (Borrowing Costs).

Costs for regular, comprehensive maintenance work (such as the major overhaul of a technical facility) are capitalized
as a separate component if they satisfy the recognition criteria.

Property, plant and equipment is depreciated by the straight-line method over an asset’s useful life, except where
depreciation based on actual depletion is more appropriate.

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Notes
4. Basic principles, methods and critical accounting estimates

The following depreciation periods are applied throughout the Group:

useful life of property, plant and equipment

Buildings

Outdoor infrastructure

Storage tanks and pipelines

Plant installations

Machinery and equipment

Furniture and fixtures

Vehicles

Computer equipment

Laboratory and research facilities

[table 4.14]

20 to 50 years

10 to 20 years

6 to 20 years

6 to 12 years

4 to 10 years

4 to 8 years

3 to 5 years

Significant asset components with different useful lives are accounted for and depreciated separately.

If there are indications that an individual item of property, plant and equipment may be impaired, the recoverable
amount is compared to the carrying amount. If the recoverable amount is less than the carrying amount, an impairment
loss is recognized for the difference. If the reasons for a previously recognized impairment loss no longer apply, the im-
pairment loss is reversed provided that the reversal does not cause the carrying amount to exceed the cost of acquisi-
tion or construction less depreciation.

When assets are sold, closed down or scrapped, the difference between the net proceeds and the net carrying amount
of the assets is recognized as a gain or loss in other operating income or expenses, respectively.

Real estate held for investment comprises land and buildings not being used for operational or administrative purpos-
es. It is measured using the cost model. The fair value of the investment property reported in the Notes is determined
using the discounted cash flow method, comparisons with the current market values of similar properties, or reports
from external experts.

leasing
A lease is an agreement whereby the lessor assigns to the lessee the right to use an asset for an agreed period of time
in return for a payment or series of payments. Leases are classified as either finance or operating leases. Leasing trans-
actions that transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee are
treated as finance leases. All other leasing agreements are classified as operating leases. Whether an agreement
constitutes a lease or contains a lease is determined upon inception of the lease.

Where the Bayer Group is the lessee in a finance lease, the leased asset is capitalized at the lower of the fair value of
the asset and the present value of the minimum lease payments at the beginning of the lease term and simultaneously
recognized under financial liabilities. The minimum lease payments are divided into the principal portion of the remain-
ing obligation and the financing costs, which are determined using the effective-interest method. The leased asset is
depreciated by the straight-line method over the shorter of its estimated useful life or the lease term.

Where the Bayer Group is the lessee in an operating lease, the lease payments are expensed. Where it is the lessor, the
lease payments received are recognized in profit or loss. The leased asset continues to be recognized under property,
plant and equipment in the Bayer Group’s statement of financial position.

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4. Basic principles, methods and critical accounting estimates

251

cash and cash equivalents
Cash and cash equivalents comprise cash, checks received, and balances with banks and companies. Cash equivalents
are highly liquid short-term financial investments that are subject to an insignificant risk of changes in value, are easily
convertible into a known amount of cash and have a maturity of three months or less from the date of acquisition or in-
vestment.

Financial assets
Financial assets comprise loans and receivables, acquired equity and debt instruments, cash and cash equivalents, and
derivatives with positive fair values.

They are recognized and measured in accordance with IAS 39 (Financial Instruments: Recognition and Measurement).
Accordingly, financial assets are recognized in the consolidated financial statements if the Bayer Group has a contrac-
tual right to receive cash or other financial assets from another entity. Regular-way purchases and sales of financial
assets are generally posted on the settlement date. Financial assets are initially recognized at fair value plus transaction
costs. The transaction costs incurred for the purchase of financial assets held at fair value through profit or loss are
expensed immediately. Interest-free or low-interest receivables are initially reflected at the present value of the expect-
ed future cash flows. For purposes of subsequent measurement, financial assets are allocated to the following catego-
ries according to IAS 39, with different measurement rules applying to each category. Allocation is made at the date of
first-time recognition:

Financial assets held at fair value through profit or loss comprise those financial assets that are held for trading. Such
financial assets were mainly acquired for purposes of liquidity management with the intention of reselling them within
a short time. Receivables from forward commodity contracts and receivables from other derivatives that are included in
other financial assets are also allocated to this category, except where hedge accounting is used. Changes in the fair
value of financial assets in this category are recognized in profit or loss when the increase or decrease in fair value
occurs.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are accounted for at amortized cost using the effective interest method. This category comprises
trade accounts receivable, the loans and receivables included in other financial assets, the additional financial receiv-
ables reflected in other receivables, and cash and cash equivalents. Interest income from items assigned to this catego-
ry is determined using the effective interest method.

Held-to-maturity financial assets are non-derivative financial assets, with fixed or determinable payments, that the Bayer
Group is willing and able to hold until maturity. They are accounted for at amortized cost using the effective interest
method. Held-to-maturity financial investments are recognized in other financial assets.

Available-for-sale financial assets are those non-derivative financial assets that are not assigned to any of the above
categories. They mainly include equity instruments, such as shares, and debt instruments not to be held to maturity
that are included in other financial assets. After their first-time recognition, available-for-sale financial assets are
measured at fair value and any unrealized gains or losses are recognized outside profit or loss in equity. These are only
reclassified to profit or loss if the assets are sold or if there are objective indications of impairment, in which case the
accumulated loss is recognized in profit or loss. An objective indication of impairment is a significant or prolonged
decrease in the fair value of an equity instrument to below its acquisition cost. Previously recognized impairment losses
are reversed if the reasons for them no longer apply. Impairment loss reversals for equity instruments are recognized
outside profit or loss, while those for debt instruments are recognized in profit or loss. Where possible, a fair value for
equity and debt securities is derived from market data. Financial assets for which no market price is available and
whose fair value cannot be reasonably estimated are recognized at cost less any impairment losses.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 252

Notes
4. Basic principles, methods and critical accounting estimates

If there are substantial and objective indications of a decline in the value of loans and receivables, held-to-maturity
financial assets or available-for-sale financial assets, an impairment test is performed. Indications of possible impair-
ment include a high probability of insolvency, a significant deterioration in credit standing, a material breach of
contract, operating losses reported by a company over several years, a reduction in market value, the financial re-
structuring of the debtor, or the disappearance of an active market for the asset.

In the case of loans and receivables, and held-to-maturity financial assets, an impairment test is performed in which
the carrying amount is compared to the present value of the expected future cash flows, discounted at the original
effective interest rate. If the carrying amount exceeds the present value, an impairment loss is recognized for the
difference between the two amounts. If the reasons for previously recognized impairment losses no longer apply, the
impairment losses are reversed provided that this does not cause the carrying amounts to exceed the amortized
cost of acquisition.

Financial assets are derecognized when contractual rights to receive cash flows from the financial assets expire or
the financial assets are transferred together with all material risks and benefits.

derivatives
The Bayer Group uses derivatives – such as forward exchange contracts and interest-rate swaps – to mitigate the risk of
changes in exchange rates, interest rates and commodity prices. Derivatives are recognized at the trade date.

Contracts concluded in order to receive or deliver non-financial goods for the company’s own purposes are not ac-
counted for as derivatives but treated as pending transactions. Where embedded derivatives are identified that are re-
quired to be separated from the pending transactions, they are accounted for separately. To take advantage of market
opportunities or cover possible peak demand, a non-material volume of transactions may be entered into for which
the possibility of immediate resale cannot be excluded. Such transactions are allocated to separate portfolios upon
acquisition and accounted for as derivatives according to IAS 39.

Derivatives are carried at fair value. Positive fair values at the end of the reporting period are reflected in financial as-
sets, negative fair values in financial liabilities. Changes in the fair values of these derivatives are recognized directly
in profit or loss except where hedge accounting is used. Changes in the fair values of forward exchange contracts and
currency options serving as hedges of items in the statement of financial position are reflected in other financial in-
come and expenses as exchange gains or losses, while changes in the values of interest-rate swaps and interest-rate
options are recognized in interest income or expense. Changes in the fair values of commodity futures and options,
and of forward exchange contracts used to hedge forecasted transactions in foreign currencies, are recognized in
other operating income or expenses.

Changes in the fair values of derivatives designated as fair-value hedges and the adjustments in the carrying amounts
of the underlying transactions are recognized in profit or loss.

Changes in the fair values of the effective portion of derivatives designated as cash flow hedges are initially recognized
outside profit or loss in accumulated other comprehensive income. They are reclassified to profit or loss when the un-
derlying transaction is realized. If such a derivative is sold or ceases to qualify for hedge accounting, the change in its
value continues to be recognized in accumulated other comprehensive income until the forecasted transaction is
realized. If the forecasted transaction is no longer probable, the amount previously recognized in accumulated other
comprehensive income has to be reclassified to profit or loss. The ineffective portion of gains or losses on derivatives
designated as cash flow hedges is recognized either in other operating income or expenses or in the financial result,
depending on the type of underlying transaction.

The income and expense reflected in the financial result pertaining to the derivatives and the underlying transactions
are shown separately. Income and expense are not offset.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS Notes
4. Basic principles, methods and critical accounting estimates

253

inventories
In accordance with IAS 2 (Inventories), inventories encompass assets consumed in production or in the rendering of
services (raw materials and supplies), assets in the production process for sale (work in process), goods held for sale in
the ordinary course of business (finished goods and goods purchased for resale), and advance payments on inventories.
Inventories are recognized at their cost of acquisition or production – calculated by the weighted-average method – or
at their net realizable value, whichever is lower. The net realizable value is the estimated selling price in the ordinary
course of business less estimated cost to complete and selling expenses.

income ta xes
Income taxes comprise the taxes levied on taxable income in the individual countries along with changes in deferred
tax assets and liabilities that are recognized in profit or loss. The income taxes recognized are reflected at the amounts
likely to be payable under the statutory regulations in force, or already enacted in relation to future periods, at the end
of the reporting period.

In compliance with IAS 12 (Income Taxes), deferred taxes are recognized for temporary differences between the
carrying amounts of assets and liabilities in the statement of financial position prepared according to IFRS and their tax
bases. Deferred taxes are also recognized for consolidation measures and for tax loss carryforwards and tax credits that
are likely to be usable.

Deferred tax assets relating to deductible temporary differences, tax credits or tax loss carryforwards are recognized
where it is sufficiently probable that taxable income will be available in the future to enable them to be used. Deferred
tax liabilities are recognized on temporary differences taxable in the future. Deferred taxes are calculated at the rates
which – on the basis of the statutory regulations in force, or already enacted in relation to future periods, as of the
closing date – are expected to apply in the individual countries at the time of realization. Deferred tax assets and de-
ferred tax liabilities are offset if they relate to income taxes levied by the same taxation authority and Bayer has a legal
right to settle on a net basis. Material effects of changes in tax rates or tax law on deferred tax assets and liabilities are
generally accounted for in the period in which the changes are enacted. Such effects are recognized in profit or loss ex-
cept where they relate to deferred taxes that were recognized outside profit or loss, in which case they are recognized
in other comprehensive income.

Deferred and current taxes are recognized in profit or loss unless they relate to items recognized outside profit or loss
in other comprehensive income, in which case they, too, are recognized in other comprehensive income.

The probability that deferred tax assets resulting from temporary differences or loss carryforwards can be used in the
future is the subject of forecasts by the individual consolidated companies regarding their future earnings situation and
other parameters.

Deferred tax liabilities are recognized on planned dividend payments by subsidiaries. Where no dividend payment is
planned for the foreseeable future, no deferred tax liability is recognized on the difference between the proportionate
net assets according to IFRS and the tax base of the investment in the subsidiary.

PrOvisiONs fOr PeNsiONs aNd Other POst-emPlOymeNt beNefits
Within the Bayer Group, post-employment benefits are provided under defined contribution and / or defined benefit
plans. In the case of defined contribution plans, the company pays contributions to publicly or privately administered
pension plans on a mandatory, contractual or voluntary basis. Once the contributions have been paid, the company
has no further payment obligations. The regular contributions constitute expenses for the year in which they are due
and as such are included in the functional cost items, and thus in EBIT. All other post-employment benefit systems are
defined benefit plans, which may be either unfunded, i.e. financed by provisions, or funded, i.e. financed through
pension funds.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 254

Notes
4. Basic principles, methods and critical accounting estimates

The present value of provisions for defined benefit plans and the resulting expense are calculated in accordance with
IAS 19 (Employee Benefits) by the projected unit credit method. The future benefit obligations are valued by actuarial
methods and spread over the entire employment period on the basis of specific assumptions regarding beneficiary
structure and the economic environment. These relate mainly to the discount rate, future salary and pension increases,
variations in health care costs, and mortality rates.

The discount rates used are calculated from the yields of high-quality corporate bond portfolios in specific currencies
with cash flows approximately equivalent to the expected disbursements from the pension plans. The uniform discount
rate derived from this interest-rate structure is thus based on the yields, at the closing date, of a portfolio of “AA” rated
corporate bonds whose weighted residual maturities approximately correspond to the duration necessary to cover the
entire benefit obligation.

The fair value of plan assets is deducted from the present value of the defined benefit obligation for pensions and other
post-employment benefits to determine the net defined benefit liability. The obligations and plan assets are valued at
regular intervals of not more than three years. Comprehensive actuarial valuations for all major plans are performed
annually as of December 31. Plan assets in excess of the benefit obligation are reflected in other receivables, subject to
the asset ceiling specified in IAS 19 (Employee Benefits).

The balance of all income and expenses relating to defined benefit plans, except the net interest on the net liability, is
recognized in EBIT. The net interest is reflected in the financial result under other financial income and expenses.

The effects of remeasurements of the net defined benefit liability are reflected in the statement of comprehensive in-
come as other comprehensive income. They consist of actuarial gains and losses, the return on plan assets and changes
in the effects of the asset ceiling, less the respective amounts included in net interest. Deferred taxes relating to the ef-
fects of remeasurements are also recognized in other comprehensive income.

other provisions
Other provisions are recognized for present legal and constructive obligations arising from past events that will proba-
bly give rise to a future outflow of resources, provided that a reliable estimate can be made of the amount of the obliga-
tions.

Other provisions are measured in accordance with IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) or,
where applicable, IAS 19 (Employee Benefits). Where the cash outflow to settle an obligation is expected to occur after
one year, the provision is recognized at the present value of the expected cash outflow. Claims for reimbursements
from third parties are separately reflected in other receivables if their realization is virtually certain.

If the projected obligation declines as a result of a change in the estimate, the provision is reversed by the correspond-
ing amount and the resulting income recognized in the operating expense item(s) in which the original charge was rec-
ognized.

To enhance the information content of the estimates, certain provisions that could have a material effect on the finan-
cial position or results of operations of the Group are selected and tested for their sensitivity to changes in the underly-
ing parameters. To reflect uncertainty about the likelihood of the assumed events actually occurring, the impact of a
five-percentage-point change in the probability of occurrence is examined in each case. This analysis has not shown
other provisions to be materially sensitive.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS Notes
4. Basic principles, methods and critical accounting estimates

255

Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future
taxable income. Given the wide range of international business relationships and the long-term nature and complexity
of existing contractual agreements, differences arising between the actual results and the assumptions made, or future
changes to such assumptions, could necessitate adjustments to tax income and expense in future periods. The Group
establishes provisions for taxes, based on reasonable estimates, for liabilities to the tax authorities of the respective
countries that are uncertain as to their amount and the probability of their occurrence. The amount of such provisions
is based on various factors, such as experience with previous tax audits and differing legal interpretations by the tax-
able entity and the responsible tax authority.

Provisions for environmental protection are recorded if future cash outflows are likely to be necessary to ensure com-
pliance with environmental regulations or to carry out remediation work, such costs can be reliably estimated and no
future benefits are expected from such measures.

Estimating the future costs of environmental protection and remediation involves many uncertainties, particularly with
regard to the status of laws, regulations and the information available about conditions in the various countries and at
the individual sites. Significant factors in estimating the costs include previous experiences in similar cases, the conclu-
sions in expert opinions obtained regarding the Group’s environmental programs, current costs and new developments
affecting costs, management’s interpretation of current environmental laws and regulations, the number and financial
position of third parties that may become obligated to participate in any remediation costs on the basis of joint liability,
and the remediation methods likely to be deployed. Changes in these assumptions could impact future reported results.

Taking into consideration experience gained to date regarding environmental matters of a similar nature, provisions
are believed to be adequate based upon currently available information. Given the difficulties inherent in estimating
liabilities in the businesses in which the Group operates, especially those for which the risk of environmental damage is
greater in relative terms (CropScience and MaterialScience), it remains possible that material additional costs will be
incurred beyond the amounts accrued. It may transpire during remediation work that additional expenditures are nec-
essary over an extended period and that these exceed existing provisions and cannot be reasonably estimated.

Provisions for restructuring only cover expenses that arise directly from restructuring measures, are necessary for re-
structuring and are not related to future business operations. Such expenses include severance payments to employees
and compensation payments in respect of rented property that can no longer be used.

Restructuring measures may include the sale or termination of business units, site closures, relocations of business
activities or fundamental reorganizations of business units.

The respective provisions are established when a detailed restructuring plan has been drawn up, resolved upon by the
responsible decision-making level of management and communicated to the employees and / or their representatives.
Provisions for restructuring are established at the present value of future disbursements.

Trade-related provisions are recorded mainly for the granting of rebates or discounts, product returns, or obligations
in respect of goods or services already received but not yet invoiced.

As a global company with a diverse business portfolio, the Bayer Group is exposed to numerous legal risks, particular-
ly in the areas of product liability, competition and antitrust law, patent disputes and environmental matters. Provi-
sions for litigations are recorded in the statement of financial position in respect of pending or future litigations, sub-
ject to a case-by-case examination. Such legal proceedings are evaluated on the basis of the available information,
including that from legal counsel acting for the Group, to assess potential outcomes. Where it is more likely than not
that a present obligation arising out of legal proceedings will result in an outflow of resources, a provision is recorded
in the amount of the present value of the expected cash outflows if these are considered to be reliably measurable.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 256

Notes
4. Basic principles, methods and critical accounting estimates

These provisions cover the estimated payments to plaintiffs, court fees, attorney costs and the cost of potential settle-
ments. The evaluation is based on the current status of the litigations at the end of each reporting period and includes
an assessment of whether the criteria for recording a provision are met and, if so, the amount of the provision to be
recorded. Adjusting events are reflected up to the date of preparation of the consolidated financial statements.

Litigation and other judicial proceedings generally raise complex issues and are subject to many uncertainties and
complexities including, but not limited to, the facts and circumstances of each particular case, the jurisdiction in which
each suit is brought and differences in applicable law. The outcome of currently pending and future proceedings there-
fore cannot be predicted. As a result of a judgment in court proceedings or the conclusion of a settlement, the Bayer
Group may incur charges in excess of presently established provisions and related insurance coverage.

Personnel-related provisions are mainly those recorded for annual bonus payments, variable one-time payments,
individual performance awards, long-service awards, severance payments in connection with early retirement arrange-
ments, surpluses on long-term accounts and other personnel costs. Obligations under stock-based compensation
programs that provide for awards payable in cash are also included here.

Financial liaBilities
Financial liabilities comprise primary financial liabilities and negative fair values of derivatives.

Primary financial liabilities are initially recognized in the consolidated financial statements at fair value if the Bayer
Group has a contractual obligation to transfer cash or other financial assets to another party. In subsequent periods,
such liabilities are measured at amortized cost using the effective interest method.

Financial liabilities are derecognized when the contractual obligation is discharged or canceled, or has expired.

other receivaBles and liaBilities
Accrued items and other non-financial assets and liabilities are carried at amortized cost. They are amortized to income
by the straight-line method or according to performance of the underlying transaction.

Grants and subsidies from third parties that serve to promote investment are reflected in the statement of financial po-
sition under other liabilities and amortized to income over the useful lives of the respective investments.

assets held For sale
Assets held for sale comprise noncurrent assets or disposal groups (together with any liabilities), the carrying amounts
of which will be realized principally through a highly probable sale transaction within the next twelve months or an
already contractually agreed sale transaction, and not through continued use. At the time of their classification as “held
for sale,” such assets are collectively measured at the lower of the carrying amount and fair value less costs to sell, and
depreciation or amortization ceases.

acquisition accounting
Acquired businesses are accounted for using the acquisition method, which requires that the assets acquired and liabil-
ities assumed be recorded at their respective fair values on the date Bayer obtains control. Ancillary acquisition costs
are recognized as expenses in the periods in which they occur.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS Notes
4. Basic principles, methods and critical accounting estimates

257

The application of the acquisition method requires certain estimates and assumptions to be made, especially concern-
ing the fair values of the acquired intangible assets, property, plant and equipment and the liabilities assumed at the
acquisition date, and the useful lives of the acquired intangible assets, property, plant and equipment.

Measurement is based to a large extent on anticipated cash flows. If actual cash flows vary from those used in calculat-
ing fair values, this may materially affect the Group’s future results of operations. In particular, the estimation of dis-
counted cash flows from intangible assets under development, patented and non-patented technologies and brands is
based on assumptions concerning, for example:

• the outcomes of research and development activities regarding compound efficacy, results of clinical trials, etc.,
• the probability of obtaining regulatory approvals in individual countries,
• long-term sales trends,
• possible selling price erosion due to generic competition in the market following patent expirations,
• the behavior of competitors (launch of competing products, marketing initiatives, etc.).

For significant acquisitions, the purchase price allocation is carried out with assistance from independent third-party
valuation specialists. The valuations are based on the information available at the acquisition date.

In step acquisitions, the fair values of the acquired entity’s assets and liabilities are measured in accordance with IFRS 3
(Business Combinations) at the date on which control is obtained. Any resulting adjustments to the fair value of the
existing interest are recognized in profit or loss. The carrying amount of the assets and liabilities already recognized in
the statement of financial position is then adjusted accordingly.

procedure used in gloBal impairment testing and its impact
Impairment tests are performed not only on individual items of intangible assets, property, plant and equipment, but
also at the level of cash-generating units or groups of cash-generating units. A cash-generating unit is the smallest
identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other as-
sets or groups of assets. The Bayer Group regards its strategic business entities or groups of strategic business entities,
as well as certain product families, as cash-generating units and subjects them to global impairment testing. The strate-
gic business entities constitute the second financial reporting level below the segments.

Cash-generating units and unit groups are globally tested if there is an indication of possible impairment. Those to
which goodwill is allocated are tested at least annually.

Impairment testing involves comparing the carrying amount of each cash-generating unit, unit group or item of intan-
gible assets, property, plant or equipment to the recoverable amount, which is the higher of its fair value less costs to
sell or value in use. If the carrying amount exceeds the recoverable amount, an impairment loss must be recognized for
the difference. If a strategic business entity or entity group is found to be impaired, an impairment loss is first recog-
nized on any goodwill allocated to it. Any remaining part of the impairment loss is then allocated among the other as-
sets of the strategic business entity or entity group in proportion to their carrying amounts. The resulting expense is re-
flected in the same functional item of the income statement as the depreciation or amortization of the respective assets.
If the criteria for a special item are satisfied, the impairment loss is recognized in profit or loss under other operating
expenses. Income from impairment loss reversals is recognized in other operating income.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 258

Notes
4. Basic principles, methods and critical accounting estimates

The recoverable amount is generally determined on the basis of the fair value less costs to sell, taking into account the
present value of the future net cash flows as market prices for the individual units are not normally available. These
are forecasted on the basis of the Bayer Group’s current planning, the planning horizon normally being three to five
years. Forecasting involves making assumptions, especially regarding future selling prices, sales volumes and costs.
Where the recoverable amount is the fair value less costs to sell, the cash-generating unit or unit group is measured
from the viewpoint of an independent market participant. Where the recoverable amount is the value in use, the cash-
generating unit, unit group or individual asset is measured as currently used. In either case, net cash flows beyond the
planning period are determined on the basis of long-term business expectations using the respective individual growth
rates derived from market information. The measurement of fair value less costs to sell is based on unobservable inputs
(Level 3).

The net cash inflows are discounted at a rate equivalent to the weighted average cost of equity and debt capital.
To allow for the different risk and return profiles of the Bayer Group’s principal businesses, the after-tax cost of capital
is calculated separately for each subgroup and a subgroup-specific capital structure is defined by benchmarking
against comparable companies in the same industry sector. The cost of equity corresponds to the return expected by
stockholders, while the cost of debt is based on the conditions on which comparable companies can obtain long-term
financing. Both components are derived from capital market information.

The growth rates applied for impairment testing in 2013 and 2012 and the capital cost factors used to discount the
expected cash flows are shown in the following table:

impairment testing parameters

[table 4.15]

Growth rate

After-tax cost of capital

Pre-tax cost of capital

healthcare

cropscience

materialscience

2012

– 2.0 – 0.0

5.6

2013

0.0

6.5

2012

2013

2012

2013

1.7 – 2.9

1.3 – 2.8

0.0 – 2.0

0.0 – 1.5

6.7

7.3

6.9

7.4

7.2 – 10.1

9.0 – 9.3

8.3 – 9.4

8.7 – 9.8

8.8 – 9.9

9.6 – 10.5

No impairment losses were recognized on goodwill on the basis of the global annual impairment testing of the
cash-generating units and unit groups in 2013 or 2012. Taking into account impairment loss reversals of €13 million
(2012: €21 million), net impairment losses on intangible assets, property, plant and equipment amounted to €285 mil-
lion (2012: €347 million). Details are provided in Notes [17] and [18].

Although the estimates of the useful lives of certain assets, assumptions concerning the macroeconomic environment
and developments in the industries in which the Bayer Group operates, and estimates of the discounted future cash
flows are believed to be appropriate, changes in assumptions or circumstances could require changes in the analysis.
This could lead to additional impairment losses in the future or – except in the case of goodwill – to reversals of previ-
ously recognized impairment losses if developments are contrary to expectations.

The sensitivity analysis for cash-generating units and unit groups to which goodwill is allocated was based on a 10%
reduction in future cash flows, a 10% increase in the weighted average cost of capital and a one-percentage-point re-
duction in the long-term growth rate. Bayer concluded that under these conditions the only cash-generating unit in
which an impairment loss would need to be recognized would be Diphenylmethane Diisocyanate (MDI). The sensitivi-
ties for MDI and – in light of the currently weak market environment for Polycarbonates (PCS) – the cash-generating unit
PCS are as follows: in the event of a relative 3% (MDI) or 15% (PCS) increase in the weighted average cost of capital, a
3% (MDI) or 17% (PCS) reduction in future cash flows, a 0.24-percentage-point (MDI) or 1.34-percentage-point (PCS) re-
duction in the long-term growth rate or a 0.21-percentage-point (MDI) or 1.11-percentage-point (PCS) reduction in the
EBITDA margin, the recoverable amount would correspond to the carrying amount of the unit.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

259

Notes
5. Segment reporting

5. Segment reporting

At Bayer the Board of Management, as the chief operating decision maker, allocates resources to the operating seg-
ments and assesses their performance. The reportable segments and regions are identified, and the disclosures select-
ed, in line with the internal financial reporting system (management approach) and based on the Group accounting
policies outlined in Note [4].

As of December 31, 2013, the Bayer Group comprised three subgroups, with operations subdivided into strategic busi-
ness entities known as divisions (HealthCare), business groups (CropScience) or business units (MaterialScience).
Their activities are aggregated into four reportable segments according to economic characteristics, products, produc-
tion processes, customer relationships, methods of distribution and regulatory environment.

The segments’ activities are as follows:

activities of the segments

[table 4.16]

subgroup / segment

activities

healthcare

Pharmaceuticals

Development, production and marketing of prescription pharmaceuticals, such as

contraceptives, hemophilia treatments, anticoagulants and medicines to treat multiple

sclerosis, cancer, hypertension and infectious diseases

Consumer Health

Development, production and marketing of over-the-counter medications, dermatology products,

nutritional supplements, veterinary medicines and animal grooming products; diagnostic

systems such as blood glucose meters; medical products such as injection systems and contrast

media for diagnostic procedures

cropscience

CropScience

materialscience

MaterialScience

Development, production and marketing of a comprehensive product portfolio in the areas

of seeds and plant traits; crop protection; and for gardens, the green industry and non-

agricultural pest control

Development, production and marketing of high-tech polymer materials in the areas

of polyurethanes, polycarbonates, coating and adhesive raw materials and functional films;

production and marketing of selected inorganic basic chemicals

Business activities that cannot be allocated to any other segment are reported under “All other segments.” These
include primarily the services provided by the service areas: Business Services, Technology Services and Currenta.

Holding companies’ activities, the elimination of intersegment sales, and higher or lower expenses for Group-wide
long-term stock-based compensation arising from fluctuations in the performance of Bayer stock are presented in our
segment reporting as “Corporate Center and Consolidation.”

The reconciliation in the table “Key Data by Region” eliminates interregional items and transactions and reflects in-
come, expenses, assets and liabilities not allocable to geographical areas, particularly those relating to the Corporate
Center.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

260

Notes
5. Segment reporting

The segment data are calculated as follows:

• The intersegment sales reflect intra-Group transactions effected at transfer prices fixed on an arm’s-length basis.
• Although EBIT before special items and EBITDA before special items are not defined in the International Financial

Reporting Standards, they represent key performance indicators for the Bayer Group. The special items comprise
effects that are non-recurring or do not regularly recur or attain similar magnitudes. EBITDA is the EBIT as reported
in the income statement plus amortization and impairment losses on intangible assets and depreciation and
impairment losses on property, plant and equipment, minus impairment loss reversals.

• The gross cash flow comprises income after taxes, plus income taxes, plus financial result, minus income taxes paid
or accrued, plus depreciation, amortization and impairment losses, minus impairment loss reversals, plus / minus
changes in pension provisions, minus gains / plus losses on retirements of noncurrent assets, minus gains from the
remeasurement of already held assets in step acquisitions. The change in pension provisions includes the elimina-
tion of non-cash components of EBIT. It also contains benefit payments during the year.

• The net cash flow is the cash flow from operating activities as defined in IAS 7 (Statement of Cash Flows).
• The capital invested and the segment assets include all assets serving the respective segment that are required to

yield a return on their cost of acquisition. Segment assets include, in addition, assets held for sale where the return
is covered by the sale proceeds. Similarly, the segment liabilities include the liabilities directly related to assets held
for sale. Also included in the capital invested and in segment assets are material participating interests of direct
relevance to business operations. Intangible assets and property, plant and equipment are included in the capital in-
vested at cost of acquisition or construction throughout their useful lives. Interest-free liabilities are deducted from
the capital invested, which is stated as of December 31.

• The CFROI – a measure of the return on the capital employed – is the difference between the gross cash flow and the

cost of reproducing depletable assets, divided by the average capital invested for the year.

• The equity items reflect the earnings and carrying amounts of companies accounted for using the equity method.
• Since financial management of Group companies is carried out centrally by Bayer AG, financial liabilities are not
directly allocated among the segments. Consequently, the liabilities shown for the individual segments do not
include financial liabilities. These are included in the reconciliation.

• The number of employees on either permanent or fixed-term contracts is stated in full-time equivalents (FTE), with
part-time employees included on a pro-rated basis in line with their contractual working hours. The figures do not
include apprentices.

EffEcts of thE first-timE application of nEw financial rEporting standards and
othEr changEs in accounting policiEs on sEgmEnt rEporting
Segment reporting in 2013 was impacted by the first-time application of the financial reporting standards described
in Note [3] and by the change in the reporting of long-term stock-based compensation. In 2013 Bayer adjusted the
allocation of the stock-based compensation (long-term incentive – LTI) among the segments to increase the transpar-
ency and information value of its segment reporting and improve planning and steering processes. A normalized
expense based on 100% target attainment is now allocated to the respective operating segments. Higher or lower
expenses arising from fluctuations in the performance of Bayer stock are no longer allocated to the operating seg-
ments but instead reflected in the reconciliation under Corporate Center and Consolidation. The prior-year figures
are restated accordingly.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 261

Notes
5. Segment reporting

The effects of the changes in accounting policies on the key segment data are shown in the following table.

accounting changes: Key data by segment 2012

[table 4.17]

2012

accounting changes

ifrs 11

Before
accounting
changes

transition to
accounting for
share in assets
and liabilities

ias 19r
(2011)

transition to
equity method

after
accounting
changes

lti

net sales

Pharmaceuticals

Consumer Health

CropScience

MaterialScience

All other segments

Corporate Center and consolidation

EBit

Pharmaceuticals

Consumer Health

CropScience

MaterialScience

All other segments

Corporate Center and consolidation

EBit before special items

Pharmaceuticals

Consumer Health

CropScience

MaterialScience

All other segments

Corporate Center and consolidation

EBitda before special items

Pharmaceuticals

Consumer Health

CropScience

MaterialScience

All other segments

Corporate Center and consolidation

€ million

39,760

10,803

7,809

8,383

11,503

1,259

3,960

1,075

1,079

1,539

597

(82)

(248)

5,671

2,298

1,438

1,526

629

(255)

8,284

3,203

1,865

2,008

1,251

207

(250)

€ million

–

(3)

(5)

–

(1)

–

(3)

(5)

–

(1)

–

(3)

(5)

–

(1)

–

(8)

–

(8)

–

(27)

–

(27)

–

(27)

–

(27)

–

(11)

(5)

(3)

–

(4)

–

(2)

(1)

–

(1)

–

(2)

(1)

–

(1)

–

(2)

(1)

–

(1)

–

(91)

–

(91)

–

(91)

€ million

39,741

10,798

7,806

8,383

11,491

1,260

3,928

1,104

1,101

1,556

581

(75)

(339)

5,639

2,327

1,460

1,543

613

(346)

8,280

3,232

1,887

2,025

1,263

214

(341)

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

262

Notes
5. Segment reporting

rEconciliations
The reconciliations of EBITDA before special items, EBIT before special items and EBIT to Group income before income
taxes and of the assets and liabilities of the segments to the assets and liabilities, respectively, of the Group are given in
the following tables:

reconciliation of segments’ EBitda Before special items to group income Before income taxes

[table 4.18]

EBITDA before special items of segments

EBITDA before special items of Corporate Center

EBitda before special items

Depreciation, amortization and impairment losses before special items of segments

Depreciation, amortization and impairment losses before special items of Corporate Center

depreciation, amortization and impairment losses before special items

EBIT before special items of segments

EBIT before special items of Corporate Center

EBit before special items

Special items of segments

Special items of Corporate Center

special items

EBIT of segments

EBIT of Corporate Center

EBit

Financial result

income before income taxes

2012 figures restated

reconciliation of segments’ assets to group assets

assets of the operating segments

Corporate Center assets

Non-allocated assets

group assets

2012 figures restated

reconciliation of segments’ liabilities to group liabilities

liabilities of the operating segments

Corporate Center liabilities

Non-allocated liabilities

group liabilities

2012 figures restated

2012

2013

€ million

8,621

(341)

8,280

8,876

(475)

8,401

(2,636)

(2,624)

(5)

(4)

(2,641)

(2,628)

5,985

(346)

5,639

(1,718)

(1,711)

4,267

(339)

3,928

(752)

3,176

6,252

(479)

5,773

(839)

–

(839)

5,413

(479)

4,934

(727)

4,207

[table 4.19]

2012

2013

€ million

46,050

265

5,003

€ million

46,336

179

4,802

51,318

51,317

[table 4.20]

2012

2013

€ million

18,678

3,410

10,679

32,767

€ million

17,225

2,842

10,446

30,513

The reconciliation of segment sales to Group sales is apparent from the table of key data by segment in Note [1].

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

Notes
6. Scope of consolidation; subsidiaries and affiliates

263

information on gEogr aphical arEas
The following table provides a regional breakdown of external sales by market and of intangible assets, property, plant
and equipment:

information about geographical areas

[table 4.21]

Germany

United States

China

Other

total

2012 figures restated

net sales (external)

– by market

intangible assets and property,
plant and equipment

2012

2013

2012

2013

€ million

4,640

8,244

3,113

23,744

39,741

4,862

8,351

3,305

23,639

40,157

€ million

12,945

6,097

2,396

7,217

€ million

12,806

6,836

2,349

6,800

28,655

28,791

information on maJor customErs
Revenues from transactions with a single customer in no case exceeded 10% of Bayer Group sales in 2013 or 2012.

6. Scope of consolidation; subsidiaries and affiliates

6.1 Changes in the scope of consolidation

Changes in the scope of consolidation in 2013 were as follows:

change in number of consolidated companies

[table 4.22]

Bayer ag and consolidated companies

December 31, 2012

Changes in scope of consolidation

Additions

Retirements

December 31, 2013

2012 figures restated

germany

other countries

total

(2)

227

(13)

224

290

(15)

289

The decrease in the number of consolidated companies in 2013 was primarily due to mergers among Group companies.

The Bayer Group holds 100% of the voting rights in the fully consolidated subsidiary Bayer Pearl Polyurethane
Systems LLC, United Arab Emirates, pursuant to a contractual agreement with the non-controlling stockholders.

Texas Brine Company LLC, United States, is fully consolidated as a structured entity. The Bayer Group guarantees the
liabilities of Texas Brine Company LLC to banks. These liabilities, which are reflected in full in the consolidated state-
ment of financial position, amounted to €22 million as of December 31, 2013 (2012: €27 million).

The above table includes two (2012: two) joint operations, Indurisk Rückversicherung AG, Luxembourg, and Lyondell
Bayer Manufacturing Maasvlakte VOF, Netherlands, as of December 31, 2013. Pursuant to IFRS 11, Bayer’s shares of
these companies’ assets, liabilities, revenues and expenses are included in the consolidated financial statements in
accordance with Bayer’s rights and obligations. The main purpose of Lyondell Bayer Manufacturing Maasvlakte VOF is
the joint production of propylene oxide (PO) for Bayer and its partner Lyondell.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

264

Notes
6. Scope of consolidation; subsidiaries and affiliates

Two (2012: two) associated companies and three (2012: three) joint ventures are accounted for in the consolidated
financial statements using the equity method. Details of these companies are given in Note [19].

A total of 79 (2012: 86) subsidiaries, including one (2012: 0) structured entity and 14 (2012: 14) associates or joint
ventures that in aggregate are immaterial to the Bayer Group’s financial position and results of operations are not con-
solidated but recognized at cost. The immaterial subsidiaries accounted for less than 0.3% of Group sales, less than
0.3% of equity and less than 0.2% of total assets.

Details of subsidiary and affiliated companies pursuant to Section 313 of the German Commercial Code can be
accessed at WWW.ANNUALREPORT2013.BAYER.COM/EN/COMPANYLIST.PDFX

The following domestic subsidiaries availed themselves in 2013 of certain exemptions granted under Section 264
Paragraph 3 and Section 264b of the German Commercial Code regarding the preparation, auditing and publication of
financial statements:

german Exempt subsidiaries

company name

place of Business

[table 4.23]

Bayer’s interest

AgrEvo Verwaltungsgesellschaft mbH

Frankfurt am Main, Germany

Bayer 04 Immobilien GmbH

Bayer 04 Leverkusen Fußball GmbH

Bayer Altersversorgung GmbH

Bayer Animal Health GmbH

Bayer Beteiligungsverwaltung Goslar GmbH

Bayer Business Services GmbH

Bayer Chemicals AG

Bayer Consumer Care Deutschland GmbH

Bayer CropScience AG

Bayer CropScience Deutschland GmbH

Bayer Direct Services GmbH

Bayer Gastronomie GmbH

Bayer Gesellschaft für Beteiligungen mbH

Bayer HealthCare AG

Bayer Innovation GmbH

Bayer Intellectual Property GmbH

Bayer MaterialScience AG

Bayer MaterialScience Customer Services GmbH

Bayer MaterialScience GmbH

Bayer MaterialScience Oldenburg GmbH & Co. KG

Bayer Real Estate GmbH

Bayer Schering Pharma AG

Bayer Technology Services GmbH

Bayer Vital GmbH

Bayer Weimar GmbH und Co. KG

Bayer-Handelsgesellschaft mit beschränkter Haftung

Chemion Logistik GmbH

Dritte Bayer Real Estate VV GmbH & Co. KG

Dritte K-W-A Beteiligungsgesellschaft mbH

Epurex Films GmbH & Co. KG

Erste Bayer Real Estate VV GmbH & Co. KG

Erste K-W-A Beteiligungsgesellschaft mbH

Leverkusen, Germany

Berlin, Germany

Monheim am Rhein, Germany

Langenfeld, Germany

Leverkusen, Germany

Monheim am Rhein, Germany

Leverkusen, Germany

Darmstadt, Germany

Oldenburg, Germany

Leverkusen, Germany

Berlin, Germany

Leverkusen, Germany

Weimar, Germany

Leverkusen, Germany

Schönefeld, Germany

Leverkusen, Germany

Bomlitz, Germany

Schönefeld, Germany

Leverkusen, Germany

100

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

Notes
6. Scope of consolidation; subsidiaries and affiliates

265

german Exempt subsidiaries

company name

place of Business

Bayer’s interest

[table 4.23 (continued)]

Euroservices Bayer GmbH

Fünfte Bayer Real Estate VV GmbH & Co. KG

Generics Holding GmbH

GP Grenzach Produktions GmbH

Hild Samen GmbH

Intendis GmbH

Intraserv GmbH & Co. KG

Jenapharm GmbH & Co. KG

KOSINUS Grundstücks-Verwaltungsgesellschaft mbH & Co.
Gamma OHG

KVP Pharma+Veterinär Produkte GmbH

Marotrast GmbH

MENADIER Heilmittel GmbH

Leverkusen, Germany

Schönefeld, Germany

Leverkusen, Germany

Grenzach-Wyhlen, Germany

Marbach am Neckar, Germany

Berlin, Germany

Schönefeld, Germany

Jena, Germany

Schönefeld, Germany

Kiel, Germany

Jena, Germany

Berlin, Germany

Schering-Kahlbaum Gesellschaft mit beschränkter Haftung

Berlin, Germany

Sechste Bayer Real Estate VV GmbH & Co. KG

Siebte Bayer VV GmbH

Steigerwald Arzneimittelwerk GmbH

TECTRION GmbH

TravelBoard GmbH

Vierte Bayer Real Estate VV GmbH & Co. KG

Zweite Bayer Real Estate VV GmbH & Co. KG

Zweite K-W-A Beteiligungsgesellschaft mbH

Schönefeld, Germany

Leverkusen, Germany

Darmstadt, Germany

Leverkusen, Germany

Schönefeld, Germany

Leverkusen, Germany

100

6.2 Business combinations and other acquisitions

acquisitions in 2013
Acquisitions are accounted for by the aquisition method, the results of the acquired businesses therefore being includ-
ed in the consolidated financial statements as of the respective acquisition dates. The purchase prices of acquired com-
panies domiciled outside the eurozone were translated at the exchange rates in effect at the respective acquisition
dates.

Acquisition costs in 2013 amounted to €1,440 million (2012: €502 million). The purchase prices of the acquired
companies or businesses were settled mainly in cash. Total goodwill of €801 million (2012: €190 million) arose on these
acquisitions. It related principally to the following transactions:

On January 2, 2013, HealthCare wholly acquired the U.S. company Teva Animal Health Inc., headquartered in
St. Joseph, Missouri. The acquisition broadens HealthCare’s range of anti-infective solutions for livestock and ex-
pands the existing product offering to include reproductive hormones. The transaction also adds dermatological prod-
ucts for companion animals, pet wellness products and nutraceuticals to the company’s portfolio. The parties agreed
on a one-time payment of €38 million plus potential milestone payments, for which an amount of €45 million was in-
cluded in the purchase price allocation. The milestone payments are mainly dependent on the achievement of various
sales targets. The purchase price pertained mainly to product trademarks. Sales of €11 million were recorded since
the acquisition date.

On January 18, 2013, CropScience acquired all the shares of PROPHYTA Biologischer Pflanzenschutz GmbH, a leading
supplier of biological crop protection products headquartered in Malchow in the German state of Mecklenburg-
Western Pomerania. In addition to research and development facilities, the acquisition also includes state-of-the-art
production and formulation facilities in the city of Wismar. A purchase price of €25 million was agreed, pertaining
mainly to technologies, research and development projects and goodwill. In addition, two related distribution rights
were acquired for €5 million. Sales of €4 million were recorded since the acquisition date.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

266

Notes
6. Scope of consolidation; subsidiaries and affiliates

On March 15, 2013, CropScience wholly acquired soybean seed producer Wehrtec Tecnologia Agricola Ltda. and the
soybean business of Agricola Wehrmann Ltda. Both companies are headquartered in Cristalina in the Brazilian state of
Goiás. This transaction strengthens the soybean research and development activities of CropScience and contributes to
the development of varieties tailored to the requirements of Brazilian soybean growers. A purchase price of €34 million
was agreed along with potential milestone payments of up to €11 million. The purchase price pertained mainly to mar-
ketable crop plants, breeding material and goodwill. Sales of €16 million were recorded since the acquisition date.

In June 2013, HealthCare successfully completed the tender offer for the shares of Conceptus, Inc., currently headquar-
tered in Milpitas, California, United States, and acquired 100% of the outstanding shares. Conceptus, Inc. has devel-
oped Essure™, the only non-surgical permanent birth control method, which it markets in the U.S. and other countries.
This acquisition enables Bayer to offer an even broader range of short-term, long-term and permanent contraceptive
choices for women. A purchase price of €780 million was paid, pertaining mainly to technology and trademark rights.
The goodwill remaining after the purchase price allocation is attributable to various factors, including significant cost
savings in the marketing and sales functions along with general administration and infrastructure synergies. Sales of
€74 million were recorded since the acquisition date.

In April 2013, the District Court of Berlin reached a decision in the court proceeding initiated by former minority stock-
holders of Bayer Pharma AG (formerly Bayer Schering Pharma AG) to review the adequacy of compensation payments
made by Bayer in connection with the domination and profit and loss transfer agreement of 2006. The court decided
that the compensation paid by Bayer at the time should be increased by about 40%. Bayer disagrees with this decision
and has appealed. The potential supplementary payment represents a subsequent purchase price adjustment according
to the March 31, 2004 version of IFRS 3 applicable at the acquisition date. Additional goodwill of €261 million, exclud-
ing interest, has been capitalized for this proceeding and for the parallel proceeding relating to the squeeze-out of the
former minority stockholders.

On July 1, 2013, HealthCare acquired all the shares of Steigerwald Arzneimittelwerk GmbH, Darmstadt, Germany.
Steigerwald holds a strong position in the German phytopharmaceuticals market, which is focused on pharmacy-only
herbal medicines. Its product portfolio includes Iberogast™ for the treatment of functional gastrointestinal disorders
and Laif™ for the treatment of mild to moderate depression. A purchase price of €218 million was agreed, pertaining
mainly to product trademarks, technologies and goodwill. Sales of €33 million were recorded since the acquisition date.

On December 2, 2013, CropScience acquired the start-up company FN Semillas S.A. and its parent company Holding
Manager S.A., both headquartered in Buenos Aires, Argentina. The necessary regulatory approvals are pending.
FN Semillas S.A. specializes in the breeding, production and marketing of improved soybean seeds in Argentina.
A purchase price of €25 million was agreed, pertaining mainly to commercial cultivars, germplasm and goodwill.

The purchase price allocations for FN Semillas S.A. and its parent company Holding Manager S.A. currently remain in-
complete pending compilation and review of the relevant financial information. It is therefore possible that changes will
be made in the allocation of the purchase price to the individual assets and liabilities. The measurement of deferred tax
for the Conceptus group also currently remains incomplete. Adjustments may be offset against goodwill.

In 2013 the acquired businesses named above contributed €138 million (of which Conceptus: €74 million) to Bayer
Group sales and minus €69 million (of which Conceptus: minus €26 million) to EBIT. Their total income after taxes since
the respective dates of their first-time consolidation was minus €57 million (of which Conceptus: minus €25 million).
This includes the financing costs incurred since the respective acquisition dates.

If these acquisitions had already been made as of January 1, 2013, the Bayer Group would have had total sales of
€40,244 million (of which Conceptus: €120 million) in 2013. Income after taxes would have amounted to €3,171 million
(of which Conceptus: minus €46 million), taking into account the effects of the hypothetical financing costs for the full
year. Earnings per share would not have been materially affected.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS Notes
6. Scope of consolidation; subsidiaries and affiliates

267

The effects of these and other, smaller transactions made in 2013 – and of purchase price adjustments made in 2013
relating to previous years’ transactions – on the Group’s assets and liabilities are shown in the table. Net of acquired
cash and cash equivalents, the transactions resulted in the following cash outflow:

acquired assets and assumed liabilities (fair Values at the respective acquisition dates)

2012

2013

[table 4.24]

of which
conceptus, inc.

€ million

Goodwill

Patents and technologies

Trademarks

R & D projects

Marketing rights

Production rights

Other rights

Software

Property, plant and equipment

Other noncurrent assets

Deferred tax assets

Inventories

Other current assets

Cash and cash equivalents

Provisions for pensions and other post-employment benefits

Other provisions

Financial liabilities

Other liabilities

Deferred tax liabilities

net assets

Changes in non-controlling interest

purchase price

Acquired cash and cash equivalents

Liabilities for future payments

Payments for previous years´ / quarters´ acquisitions

Net cash outflow for acquisitions

190

254

–

(1)

(3)

(1)

(14)

(151)

502

–

502

(4)

(34)

469

801

400

281

–

101

(9)

(16)

(85)

(93)

(273)

1,440

1,441

(74)

(295)

1,086

475

338

–

(10)

(83)

(76)

(160)

780

–

780

(58)

–

722

acquisitions in 2012
In 2012 the following acquisitions were accounted for in accordance with IFRS 3:

On March 31, 2012, Bayer acquired the remaining 50% interest in the systems house joint venture Baulé S.A.S.,
France. This joint venture was formed in 2008 by MaterialScience and Michel Baulé S.A., which was later renamed
EXIMIUM S.A.S. Baulé S.A.S. is a global leader in the development, formulation and processing of polyurethane cast
elastomers. The purchase price of €50 million pertained mainly to customer relationships and goodwill. The income
statement of Baulé S.A.S. was included in the consolidated financial statements by proportionate consolidation for the
last time in the first quarter of 2012, whereas its assets and liabilities were already fully consolidated as of March 31,
2012. Following the purchase price allocation, the following assets and liabilities were recognized: goodwill (€39 mil-
lion), other intangible assets (€55 million), other noncurrent assets (€3 million), inventories and other current assets
(€21 million), cash and cash equivalents (€5 million), other liabilities (€8 million) and deferred tax liabilities (€16 mil-
lion). The revaluation of mainly intangible assets that were previously held by the joint venture resulted in other oper-
ating income of €19 million. The fair value of the prior interest was €49 million at the time of the acquisition.

On July 2, 2012, CropScience acquired the watermelon and melon seed business of the U.S. company Abbott & Cobb
Inc., headquartered in Feasterville, Pennsylvania. Abbott & Cobb has a robust position in the U.S. watermelon market,
with increasing business in Mexico, Australia and Asia. The acquisition significantly strengthens the presence of

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

268

Notes
6. Scope of consolidation; subsidiaries and affiliates

CropScience in the watermelon and melon market. The melon seed business and the related germplasm add to its ex-
isting seed portfolio and provide the basis for new hybrids. A net purchase price of €43 million was agreed, pertaining
mainly to germplasm, customer relations and goodwill.

On July 3, 2012, CropScience signed an agreement to purchase the U.S. company AgraQuest, Inc., headquartered
in Davis, California. AgraQuest, Inc. is a global supplier of innovative biological pest management solutions based on
natural microorganisms. It focuses on discovering, manufacturing and marketing highly effective products for biologi-
cal pest and disease control to safeguard and increase crop production. The acquisition will help CropScience to build
a leading technology platform for biological products and to further strengthen its strategically important fruit and
vegetables business. A purchase price of €375 million was agreed, pertaining mainly to the technology platform and
goodwill. This amount comprised a one-time payment and potential milestone payments with a total fair value of
€31 million.

6.3 Divestitures

diVEstiturEs in 2013
The effects of divestitures made in 2013 and previous years on the consolidated financial statements for 2013 are
detailed below.

On June 1, 2013, MaterialScience sold its global powder polyester resins business and its U.S.-based liquid polyester
resins merchant business to Stepan Company of Northfield, Illinois, United States. A purchase price of €45 million was
agreed. The divestment gain of €42 million is reported under special items.

The Bayer Group received further revenue-based payments of €25 million in connection with the transfer of the hema-
tological oncology portfolio to Genzyme Corp., United States, effected in May 2009.

The effects in 2013 of the above divestitures, an additional smaller divestiture and the payments received from
Genzyme were as follows:

divestitures

divested assets and liabilities

Property, plant and equipment

Inventories

Other current assets

Assets held for sale

Other provisions

Other liabilities

divested net assets

Non-controlling interest

net assets

Net cash inflow from divestitures

Divested net assets

Changes in future cash payments receivable

net gain from divestitures (before taxes)

[table 4.25]

2012

2013

€ million

–

178

(71)

(103)

–

(2)

(3)

–

(12)

(25)

diVEstiturEs in 2012
On April 15, 2012, Bayer entered into an agreement to sell all PET tracer substances to Piramal Imaging SA., Switzer-
land. This transaction includes the PET tracer florbetaben, which is currently in development for the detection of Alzhei-
mer’s disease, the most common form of dementia. Revenue-based milestone and royalty payments were agreed upon.

The agreement with Genzyme Corp., United States, announced in March 2009, comprised the transfer of the hemato-
logical oncology portfolio to Genzyme, which was effected in May 2009. We also agreed to transfer the production site

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

269

Notes
7. Net sales

for Leukine after final inspection by the U.S. Food and Drug Administration (FDA). This inspection took place in
March 2012. The agreement concerning the sale of the production site including inventories was signed on May 29,
2012. A purchase price of €71 million was agreed.

The Bayer Group received revenue-based payments of €99 million in 2012 in connection with the aforementioned
transfer of the hematological oncology portfolio to Genzyme Corp., United States.

Notes to the Income Statements

7. Net sales

Net sales are derived primarily from product deliveries. Total reported net sales rose in 2013 by €416 million, or 1.0%,
year on year to €40,157 million. The increase resulted from the following factors:

factors in sales development

Volume

Price

Currency

Portfolio

total

[table 4.26]

2013

+ 4.3

+ 0.8

– 4.4

+ 0.3

+ 1.0

€ million

1,713

330

(1,737)

110

416

Breakdowns of net sales by segment and by region are given in the table in Note [1].

8. Selling expenses

Selling expenses comprise all expenses incurred in the reporting period for the sale, storage and transportation
of saleable products, advertising, the provision of advice to customers, and market research. Selling expenses were
comprised as follows:

selling Expenses

Internal and external sales force

Advertising and customer advice

Physical distribution and warehousing of finished products

Commission and licensing expenses

Other selling expenses

total

2012 figures restated

[table 4.27]

dec. 31, 2012

dec. 31, 2013

€ million

4,595

2,271

1,322

680

1,113

9,981

4,547

2,393

1,071

877

1,192

10,080

9. Research and development expenses

Research and development expenses and their accounting treatment are defined in Note [4]. Breakdowns of research
and development expenses by segment and region are given in Note [1].

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

270

Notes
10. Other operating income

10. Other operating income

Other operating income was comprised as follows:

other operating income

Gains on retirements of noncurrent assets

Reversals of impairment losses on receivables

Reversals of unutilized provisions

Gains from derivative hedging transactions

Miscellaneous operating income

total

of which special items

2012 figures restated

[table 4.28]

2012

2013

€ million

226

171

593

1,087

288

134

324

368

897

Gains from the sale of noncurrent assets included a €42 million gain from the sale of the global powder polyester resins
business and the U.S.-based liquid polyester resins merchant business to Stepan Company of Northfield, Illinois, United
States. A gain of €22 million was also incurred from the sale of transfer rights at Bayer 04 Leverkusen Fußball GmbH. A
gain of €11 million was recorded from the sale of the “Bayer House” administration building in Powdai, India. In the
HealthCare subgroup, a gain of €11 million was received from the sale of the French insect repellent Cinq sur Cinq.

The miscellaneous operating income contained a €17 million gain from the sale of the Desmolux product line for
UV-curing coating systems to Allnex S.à r.l., Luxembourg, and Allnex Belgium SA, Belgium, and a €16 million gain from
the sale of the antibiotic Binotal to Paladin Labs Inc., Canada. Also included here are gains of €41 million from embed-
ded derivatives. The HealthCare subgroup recorded a €13 million gain from the reversal of an impairment loss previ-
ously recognized on a patent.

In 2012, gains from the sale of noncurrent assets contained a gain of €158 million from the sale of a parcel of land in
India. Also included was a €24 million gain from the sale of the fungicidal active ingredient fluoxastrobin to Arysta Life-
Science Corporation, Japan. A gain of €10 million was also incurred from the sale of the insecticidal active ingredient
carbaryl to Tessenderlo Kerley, Inc., United States. In the HealthCare subgroup, a gain of €22 million was received from
the sale of the oncology product clastoban to Bioprojet Pharma S.A.R.L., France.

The miscellaneous operating income in 2012 included a €16 million impairment loss reversal for a product family in
the Pharmaceuticals reporting segment and income of €114 million from adjustments of entitlements to “pension and
other post-employment benefits“ in the United States. In addition, a gain of €17 million arose from the payment of a
break-up fee following termination of the intended acquisition of Schiff Nutrition International, Inc., United States. Also
included here was €18 million in compensation payments from insurers following a fire at the Dormagen site.

The following table provides a breakdown of the special items included in other operating income by the function to
which they relate:

Breakdown of special items by function

Production-related

Marketing- and distribution-related

Research- and development-related

General-administration-related

Other

total

[table 4.29]

2012

2013

€ million

–

272

288

–

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

11. Other operating expenses

Other operating expenses were comprised as follows:

Other Operating Expenses

Losses on retirements of noncurrent assets

Impairment losses on receivables

Expenses related to significant legal risks

Losses from derivative hedging transactions

Miscellaneous operating expenses

Total

of which special items

2012 figures restated

271

Notes
11. Other operating expenses

[Table 4.30]

2012

2013

€ million

(26)

(95)

(1,298)

(324)

(1,227)

(2,970)

(2,005)

(28)

(82)

(276)

(194)

(1,040)

(1,620)

(887)

The €276 million in expenses for significant legal risks resulted primarily from accounting measures taken in connec-
tion with claims concerning Yasmin™ / YAZ™ , Cipro™ and Mirena™. The previous year’s expenses of €1,298 million
mainly related to claims concerning Yasmin™ / YAZ™ and litigation concerning genetically modified rice (LL RICE).

The miscellaneous operating expenses included €358 million (2012: €396 million) in restructuring expenses, largely
consisting of personnel expenses and impairment losses. Of this amount, €197 million (2012: €182 million) was in-
curred by the HealthCare subgroup. Restructuring expenses in the CropScience subgroup amounted to €67 million
(2012: €83 million) and those at MaterialScience to €36 million (2012: €50 million). The service areas accounted for a
further €58 million (2012: €81 million) in restructuring expenses.

The miscellaneous operating expenses also included €184 million in impairment losses recognized on research and de-
velopment projects and product lines in the HealthCare subgroup. In the previous year they included impairment losses
of €175 million on the product name “Medrad” and €130 million on a patent. The HealthCare subgroup also incurred
expenses of €76 million for the integration of acquired businesses. Included in addition were expenses of €59 million
relating to embedded derivatives. As in the previous year, the remaining amount of miscellaneous operating expenses
comprised a large number of individually immaterial items at the subsidiaries.

The following table provides a breakdown of the special items included in other operating expenses by the function to
which they relate:

Breakdown of Special Items by Function

Production-related

Marketing- and distribution-related

Research- and development-related

General-administration-related

Other

Total

[Table 4.31]

2012

2013

€ million

(183)

(217)

(48)

(60)

(1,497)

(2,005)

(115)

(73)

(212)

(56)

(431)

(887)

Of the expenses incurred for the restructuring program in the HealthCare subgroup, an amount of €16 million
was recognized as a special item in the cost of goods sold and therefore is not reflected in miscellaneous operating
expenses.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

272

Notes
12. Personnel expenses and employee numbers

12. Personnel expenses and employee numbers

Personnel expenses rose in 2013 by €236 million to €9,430 million (2012: €9,194 million), with higher variable compensa-
tion and regular salary adjustments accounting for most of this increase.

personnel Expenses

Salaries

Social expenses and expenses for pensions and other benefits

of which for defined contribution pension plans

of which for defined benefit and other pension plans

total

2012 figures restated

[table 4.32]

2012

2013

€ million

7,371

1,823

481

200

9,194

7,585

1,845

487

410

9,430

The personnel expenses shown here do not contain the interest portion of the allocation to personnel-related
provisions – mainly for pensions and other post-employment benefits – which is included in the financial result under
other financial expenses (Note [13.3]).

The average numbers of employees, classified by corporate functions, were as shown in the table below:

Employees

Production

Marketing and distribution

Research and development

General administration

total

Apprentices

2012 figures restated

[table 4.33]

2013

46,115

43,652

13,297

9,182

2012

46,830

42,218

12,990

9,092

111,130

112,246

2,320

2,364

The number of employees on either permanent or fixed-term contracts is stated in full-time equivalents, with
part-time employees included on a pro-rated basis in line with their contractual working hours. The figures do not
include apprentices.

13. Financial result

The financial result for 2013 was minus €727 million (2012: minus €752 million), comprising an equity-method loss
of €16 million (2012: €18 million), financial expenses of €1,100 million (2012: €1,237 million) and financial income of
€389 million (2012: €503 million). Details of the components of the financial result are provided below.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

273

Notes
13. Financial result

13.1 Income (loss) from investments in affiliated companies

The net income (loss) from investments in affiliated companies was comprised as follows:

Income (Loss) from Investments in Affiliated Companies

Net loss from investments accounted for using the equity method (equity-method loss)

Expenses

Impairment losses on investments in affiliated companies

Losses from the sale of investments in affiliated companies

Expenses from investments in affiliated companies and from profit and loss transfer agreements (net)

gains

Gains from the sale of investments in affiliated companies

total

2012 figures restated

[table 4.34]

2012

2013

€ million

(18)

(16)

(6)

(1)

–

(23)

(2)

–

The income from investments in affiliated companies mainly comprised a €77 million gain from the sale of an invest-
ment in Onyx Pharmaceuticals, Inc., United States, and the equity-method loss of €20 million (2012: €21 million) from
the associate PO JV, LP, United States.

Further details of the companies accounted for using the equity method are given in Note [19].

13.2 Net interest expense

The net interest expense was comprised as follows:

net interest Expense

Expenses

Interest and similar expenses

Interest expenses for derivatives (held for trading)

income

Interest and similar income

Interest income from derivatives (held for trading)

total

[table 4.35]

2012

2013

€ million

(587)

(156)

317

174

(252)

(602)

(54)

257

(355)

Interest and similar expenses included interest expense of €43 million (2012: €29 million) relating to non-financial
liabilities. Interest and similar income included interest income of €26 million (2012: €10 million) from non-financial
assets.

At the end of April 2013, the District Court of Berlin reached a decision in the court proceeding initiated by former
minority stockholders of Bayer Pharma AG (formerly Bayer Schering Pharma AG) to review the adequacy of compensa-
tion payments made by Bayer in connection with the domination and profit and loss transfer agreement of 2006. The
court decided that the compensation paid by Bayer at the time should be increased by about 40%. Bayer disagrees
with this decision and has appealed. Interest expense of €63 million was recognized in 2013 in connection with a
potential additional payment.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

274

Notes
14. Taxes

The change in the liability for redeemable non-controlling interests is reflected in interest income or expense.
A €31 million increase (2012: €27 million decrease) in this liability was recognized as interest expense (income).

13.3 Other financial income and expenses

Other financial income and expenses were comprised as follows:

other financial income and Expenses

Expenses

Interest portion of interest-bearing provisions

Exchange loss

Miscellaneous financial expenses

income

Miscellaneous financial income

total

2012 figures restated

[table 4.36]

2012

2013

€ million

(390)

(69)

(28)

(477)

(297)

(120)

(25)

(431)

The interest portion of noncurrent provisions comprised €302 million (2012: €332 million) in interest expense for
pension provisions less €5 million (2012: plus €58 million) in effects of interest expense and interest-rate fluctuations
for other provisions and corresponding overfunding. The interest expense for pension provisions included €763 mil-
lion (2012: €862 million) for the unwinding of discount on the present value of the defined benefit obligation and
€461 million (2012: €530 million) in interest income from plan assets.

14. Taxes

The breakdown of tax expenses by origin was as follows:

tax Expense by origin

taxes paid or accrued

Income taxes

Germany

Other countries

Other taxes

Germany

Other countries

deferred taxes

from temporary differences

from tax loss carryforwards and tax credits

total

2012 figures restated

2012

of which
income taxes

[table 4.37]

2013

of which
income taxes

€ million

(534)

(1,026)

(28)

(235)

(1,823)

782

837

(1,560)

837

(795)

(849)

(43)

(188)

(1,875)

569

623

(1,644)

623

(986)

(723)

(1,252)

(1,021)

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

275

Notes
14. Taxes

The other taxes mainly include land, vehicle and other indirect taxes. They are reflected in the respective functional
cost items.

The deferred tax assets and liabilities were allocable to the following items in the statement of financial position:

deferred tax assets and liabilities

[table 4.38]

Intangible assets

Property, plant and equipment

Financial assets

Inventories

Receivables

Other assets

Provisions for pensions and other post-employment benefits

Other provisions

Liabilities

Tax loss carryforwards

Tax credits

of which noncurrent

Set-off

total

2012 figures restated

dec. 31, 2012

dec. 31, 2013

deferred
tax assets

deferred

tax liabilities

deferred
tax assets

deferred

tax liabilities

€ million

245

169

585

205

2,735

1,042

458

212

5,856

4,643

(4,277)

1,579

2,427

729

217

451

971

265

–

5,212

4,950

(4,277)

935

328

181

628

207

2,044

933

587

313

126

5,452

4,142

(3,856)

1,596

2,217

639

185

538

1,075

288

–

5,049

4,692

(3,856)

1,193

Deferred taxes on remeasurements, recognized outside profit or loss, of the net liability for defined benefit pension and
other post-employment benefits diminished equity by €604 million (2012: increased equity by €848 million). Deferred
taxes on changes, recognized outside profit or loss, in fair values of available-for-sale financial assets and derivatives
designated as cash flow hedges diminished equity by €2 million (2012: €65 million). These effects on equity are report-
ed in the statement of comprehensive income.

The use of tax loss carryforwards reduced the income taxes paid or accrued in 2013 by €62 million (2012: €48 million).
The use of tax credits reduced income taxes paid or accrued by €18 million (2012: €20 million).

Of the total tax loss carryforwards of €3,071 million in 2013 (2012: €1,302 million), an amount of €2,127 million
(2012: €922 million) is expected to be usable within a reasonable period. The increase in loss carryforwards was mainly
due to existing loss carryforwards of acquired companies and tax reassessments for prior years. Deferred tax assets of
€313 million (2012: €212 million) were recognized for the amount of loss carryforwards expected to be usable. The de-
ferred tax assets included an amount of €98 million (2012: €18 million) that resulted from purchase price allocations
and was recognized outside profit or loss.

The use of €944 million (2012: €380 million) of tax loss carryforwards was subject to legal or economic restrictions.
Consequently, no deferred tax assets were recognized for this amount. If these tax loss carryforwards had been fully
usable, deferred tax assets of €117 million (2012: €73 million) would have been recognized.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

276

Notes
14. Taxes

Tax credits of €126 million were recognized in 2013 (2012: €93 million) as deferred tax assets, including €2 million
(2012: €0 million) outside profit or loss. The use of €29 million (2012: €49 million) of tax credits was subject to legal or
economic restrictions. Consequently, no deferred tax assets were recognized for this amount.

Unusable tax credits and tax loss carryforwards will expire as follows:

Expiration of unusable tax credits and tax loss carryforwards

[table 4.39]

One year

Two years

Three years

Four years

Five years

Thereafter

total

tax credits

tax loss carryforwards

dec. 31, 2012

dec. 31, 2013

dec. 31, 2012

dec. 31, 2013

€ million

–

337

380

–

867

944

In 2013, subsidiaries that reported losses for 2013 or 2012 recognized net deferred tax assets totaling €757 million
(2012: €289 million) from temporary differences and tax loss carryforwards. These assets were considered to be unim-
paired because the companies concerned were expected to generate taxable income in the future.

Deferred tax liabilities of €10 million were recognized in 2013 (2012: €23 million) for planned dividend payments
by subsidiaries. Deferred tax liabilities were not recognized for temporary differences on €10,583 million
(2012: €10,911 million) of retained earnings of subsidiaries and associates because the Bayer Group is able to control
the timing of the difference reversal and the temporary differences will not reverse in the foreseeable future.

The reported tax expense of €1,021 million for 2013 (2012: €723 million) differed by €32 million (2012: €64 million)
from the expected tax expense of €1,053 million (2012: €787 million) that would have resulted from applying an
expected weighted average tax rate to the pre-tax income of the Group. This average rate, derived from the expected
tax rates of the individual Group companies, was 25.0% in 2013 (2012: 24.8%). The effective tax rate was 24.3%
(2012: 22.8%).

The reconciliation of expected to reported income tax expense and of the expected to the effective tax rate for the
Group was as follows:

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

Notes
15. Income / losses attributable to non-controlling interest

277

reconciliation of Expected to actual income tax Expense

[table 4.40]

Expected income tax expense and expected tax rate

Reduction in taxes due to tax-free income

Income related to the operating business

Income from affiliated companies and divestiture proceeds

First-time recognition of previously unrecognized deferred tax assets
on tax loss carryforwards

Use of tax loss carryforwards on which deferred tax assets
were not previously recognized

Increase in taxes due to non-tax-deductible expenses

Expenses related to the operating business

Impairment losses on investments in affiliated companies

New tax loss carryforwards unlikely to be usable

Existing tax loss carryforwards on which deferred tax assets
were previously recognized but which are unlikely to be usable

Tax income (–) and expenses (+) relating to other periods

Tax effects of changes in tax rates

Other tax effects

2012

€ million

787

€ million

24.8

1,053

(140)

(16)

(26)

(21)

135

(15)

(74)

(4.4)

(0.5)

(0.8)

(0.7)

4.3

–

0.3

(0.5)

(2.3)

2.3

(123)

(39)

(6)

–

173

(55)

(36)

2013

25.0

(2.9)

(0.9)

(0.1)

–

4.1

–

0.2

–

1.0

(1.3)

(0.8)

actual income tax expense and effective tax rate

723

22.8

1,021

24.3

2012 figures restated

15. Income / losses attributable to non-controlling interest

Income attributable to non-controlling interest amounted to €1 million (2012: €51 million). Losses attributable to
non-controlling interest amounted to €4 million (2012: €1 million). The income in the prior year included the gain from
the sale of a parcel of land in India.

16. Earnings per share

Earnings per share are determined according to IAS 33 (Earnings per Share) by dividing net income by the weighted
average number of ordinary shares in issue during the year.

Earnings per share

Income after taxes

of which attributable to non-controlling interest

of which attributable to Bayer AG stockholders (net income)

Weighted average number of issued ordinary shares

Basic earnings per share

Diluted earnings per share

2012 figures restated

2012

€ million

2,453

2,403

[table 4.41]

2013

€ million

3,186

(3)

3,189

826,947,808

€

2.91

€

3.86

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

278

Notes
17. Goodwill and other intangible assets

Notes to the Statements of Financial Position

17. Goodwill and other intangible assets

Changes in intangible assets in 2013 were as follows:

Changes in Intangible Assets

Cost of acquisition
or generation,
December 31, 2012

Changes in scope
of consolidation

Acquisitions

Capital expenditures

Retirements

Transfers

Transfers (IFRS 5)

Inflation adjustment (IAS 29)

Remeasurement (IFRS 3)

Exchange differences

December 31, 2013

Accumulated amortization
and impairment losses,
December 31, 2012

Changes in scope
of consolidation

Retirements

Amortization and
impairment losses in 2013

Amortization

Impairment losses

Impairment loss reversals

Transfers

Transfers (IFRS 5)

Exchange differences

December 31, 2013

Carrying amounts,
December 31, 2013

Carrying amounts,
December 31, 2012

2012 figures restated

Acquired
goodwill

Patents and
technologies

Trade-
marks

Marketing
and distribu-
tion rights

Production
rights

R & D
projects

Other rights
and advance
payments

[Table 4.42]

Total

€ million

9,293

10,743

4,048

1,440

2,079

899

2,968

31,470

–

801

–

400

(185)

–

281

–

(4)

–

117

(44)

126

–

(13)

–

(238)

9,862

(59)

11,021

(43)

4,282

(42)

1,598

(4)

2,062

6,082

2,107

760

1,661

–

(158)

766

737

(13)

–

(24)

6,653

–

(2)

180

176

–

(23)

2,262

9,862

4,368

2,020

9,293

4,661

1,941

–

(44)

135

131

–

(17)

834

764

680

–

(13)

128

114

–

(3)

1,773

289

418

–

(55)

(180)

–

(22)

775

–

(55)

186

–

186

–

(6)

131

644

893

162

(32)

(33)

–

1,581

383

(333)

–

(109)

2,994

(517)

32,594

2,097

12,713

(32)

177

164

–

(304)

1,572

1,322

250

(13)

–

(79)

2,165

(152)

13,818

829

18,776

871

18,757

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

279

Notes
17. Goodwill and other intangible assets

The capitalized patents and technologies include an amount pertaining to the active ingredient alemtuzumab (product
name: Lemtrada) for the treatment of multiple sclerosis. Bayer gave back the worldwide distribution rights for alemtu-
zumab to Genzyme Corp., United States, in 2009 and in return received global co-promotion rights and an entitlement
to royalties and revenue-based milestone payments. On September 16, 2013, Genzyme Corp. received marketing ap-
proval for alemtuzumab in Europe. In the course of the approval process for the United States, the FDA issued a Com-
plete Response Letter in December 2013. Bayer has decided not to exercise its co-promotion rights for countries out-
side of the United States.

Impairment losses of €237 million, net of a €13 million impairment loss reversal, were recognized on other intangible
assets. The development activities for an intangible asset in the Pharmaceuticals segment were terminated in light of
clinical study results. An impairment loss of €85 million was recognized on this asset. Also in the Pharmaceuticals seg-
ment, a €33 million impairment loss was recognized on an intangible asset because of the U.S. FDA’s request for the
submission of additional data and the resulting delays. In the Consumer Health segment, a €58 million impairment loss
was recognized on an asset under development in view of repeated delays to the product’s market introduction and the
current appraisal of the market environment.

Impairment losses were recognized on further intangible assets in the Pharmaceuticals segment (€25 million), the
Consumer Health segment (€23 million), the MaterialScience segment (€12 million) and Other Segments (€1 million).

Details of acquisitions and divestitures are provided in Notes [6.2] and [6.3]. The impairment testing procedure for
goodwill and other intangible assets is explained in Note [4].

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 280

Notes
17. Goodwill and other intangible assets

Changes in intangible assets in 2012 were as follows:

Changes in Intangible Assets (Previous Year)

Acquired
goodwill

Patents and
technologies

Trade-
marks

Marketing
and distribu-
tion rights

Production
rights

R & D
projects

Other rights
and advance
payments

[Table 4.43]

Total

Cost of acquisition
or generation,
December 31, 2011

Changes in scope
of consolidation

Acquisitions

Capital expenditures

Retirements

Transfers

Transfers (IFRS 5)

Inflation adjustment (IAS 29)

Remeasurement (IFRS 3)

Exchange differences

December 31, 2012

Accumulated amortization
and impairment losses,
December 31, 2011

Changes in scope
of consolidation

Retirements

Amortization and
impairment losses in 2012

Amortization

Impairment losses

Impairment loss reversals

Transfers

Transfers (IFRS 5)

Exchange differences

December 31, 2012

Carrying amounts,
December 31, 2012

Carrying amounts,
December 31, 2011

2012 figures restated

€ million

9,169

10,527

4,054

1,227

2,072

791

2,789

30,629

–

190

–

(21)

–

(66)

254

(9)

(48)

–

(26)

9,293

10,743

–

(6)

–

(15)

4,048

–

(9)

122

–

(8)

1,440

–

(2)

2,079

–

163

(4)

(123)

–

(8)

899

181

(30)

–

(45)

2,968

585

444

(79)

–

(170)

31,470

5,290

1,774

655

1,547

1,898

11,197

–

(21)

–

(6)

891

759

132

(16)

(70)

–

(7)

6,082

–

(4)

347

172

175

–

(10)

2,107

9,293

4,661

1,941

9,148

5,237

2,280

–

(8)

118

110

–

(5)

760

680

572

–

116

–

(2)

1,661

418

525

–

(4)

–

(5)

(2)

–

893

779

(28)

182

175

–

(28)

2,097

(71)

1,659

1,332

327

(21)

–

(52)

12,713

871

18,757

891

19,432

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

281

Notes
17. Goodwill and other intangible assets

Changes in the carrying amounts of goodwill for the reporting segments in 2013 and 2012 were as follows:

Goodwill by Reporting Segment

[Table 4.44]

Pharma-
ceuticals

Consumer
Health

HealthCare

Crop-
Science

Material-
Science

Bayer
Group

€ million

Carrying amounts, January 1, 2012

4,664

2,436

7,100

Change in scope of consolidation

Acquisitions

Retirements

Impairment losses in 2012

Transfers

Transfers (IFRS 5)

Inflation adjustment (IAS 29)

Remeasurement (IFRS 3)

Exchange differences

Carrying amounts, December 31, 2012

Change in scope of consolidation

Acquisitions

Retirements

Impairment losses in 2013

Transfers

Transfers (IFRS 5)

Inflation adjustment (IAS 29)

Remeasurement (IFRS 3)

Exchange differences

Carrying amounts, December 31, 2013

2012 figures restated

–

(17)

4,648

–

680

–

(1)

–

(25)

2,420

–

(42)

7,068

–

775

–

1,844

–

162

–

(23)

1,983

–

204

–

(1)

242

–

9,148

–

190

–

(66)

9,293

–

801

–

(90)

5,238

(86)

2,435

(176)

7,673

(58)

1,951

(4)

238

(238)

9,862

Goodwill and other intangible assets with an indefinite useful life that are of material significance for the Bayer Group
are allocated to the following cash-generating units or unit groups as of the end of the reporting period:

Intangible Assets with Indefinite Useful Life

[Table 4.45]

Reporting segment

Pharmaceuticals

Consumer Health

CropScience

Cash-generating unit /
unit group

Goodwill

Important intangible assets
with indefinite useful life

Pharmaceuticals

Radiology & Interventional

Consumer Care

Crop Protection

Seeds

€ million

5,238

1,259

1,097

1,208

383

€ million

345

139

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

282

Notes
17. Goodwill and other intangible assets

In the case of research and development projects, the point in time from which a capitalized asset can be expected to
generate an economic benefit for the company cannot be determined. Such assets are therefore classified as having an
indefinite useful life. Development projects were capitalized at a total amount of €644 million as of the end of 2013
(2012: €893 million).

Another intangible asset classified as having an indefinite useful life is the Bayer Cross, which was reacquired for the
North America region in 1994, having been awarded to the United States and Canada under the reparations agree-
ments at the end of the First World War. The period for which the Bayer Group will derive an economic benefit from
this name cannot be determined as Bayer intends to make continuous use of it. The Bayer Cross is capitalized at
€107 million.

PAtents And technoLogIes
The Bayer Group endeavors to obtain patent protection for its products and technologies in the major markets.
Depending on the jurisdiction, patent protection may be available for:

• individual active ingredients,
• specific compounds, formulations and combinations containing active ingredients,
• manufacturing processes,
• working methods,
• equipment,
• intermediates for the manufacture of active ingredients and products,
• isolated genes or proteins,
• new uses for existing active ingredients or products,
• material combinations and
• semi-finished products.

The protection that a patent provides varies from country to country, depending on the type of claim granted, the scope
of the claim’s coverage and the legal remedies available for enforcement.

The Bayer Group currently owns some 67,400 patents or patent applications. Although in our Pharmaceuticals segment
the patents on Avalox™ / Avelox™, Betaferon™ / Betaseron™, Eylea™ / Eylia™, Kogenate™, Levitra™, Magnevist™,
Mirena™, Nexavar™, Stivarga™, Xarelto™, YAZ™, Yasmin™ and Yasminelle™ are particularly important to our business,
we believe that no single patent (or group of related patents) is crucial to our business as a whole.

TeRM AnD exPIR ATIOn Of PATenTS
Patents are valid for varying periods, depending on the laws of the jurisdiction granting the patent. In some jurisdic-
tions, patent protection begins from the date a patent application was filed; in others, it begins on the date the patent is
granted.

The European Union member countries as well as the United States, Japan and certain other countries extend patent
terms or issue supplementary protection certificates to compensate for patent term loss due to regulatory review and
for the substantial investments in product research and development. We endeavor to obtain such patent term exten-
sions or supplementary certificates wherever possible. Apart from substance and product patents, we continue to seek

• patents on processes and intermediates used in manufacturing an active ingredient,
• patents relating to specific uses for an active ingredient,
• patents relating to novel compositions and formulations, and
• market exclusivity in countries where this is possible (such as the United States).

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 283

Notes
17. Goodwill and other intangible assets

The following table sets forth the expiration dates in our major markets of the most important patents covering
Adempas™, Avalox™ / Avelox™, Betaferon™ / Betaseron™, Eylea™ / Eylia™, Kogenate™, Levitra™, Magnevist™,
Mirena™, Nexavar™, Stivarga™, Xarelto™, Xofigo™, YAZ™, Yasmin™ and Yasminelle™:

expiration Dates of Most Important Patents

Germany

france

U.K.

Italy

Spain

Japan

China

U.s.A.

[Table 4.46]

Market

Canada

Products

Adempas™

Active ingredient

2023a

2023

2023a

2023

Avalox™ / Avelox™

Active ingredient

2014

2013

2014

2015

Active ingredient
monohydrate

Tablets

Betaferon™ / Betaseron™

2016

2019

2016

2019

2016

2019

2016

2019

2016

2019

2016

2019

2016

2019

2016

2019

Active ingredient

–

Eylea™ / Eylia™

Active ingredient

2020

2020a

2020

–

Kogenate™

Active ingredient

Formulation

Levitra™

–

2017

–

2017

–

2017

–

2017

–

2017

–

2017

–

2017

2014

2017

2016

2019

2016

2020

2019

2017

Active ingredient

2018

2020

2018

Magnevist™

Process

Mirena™

Inserter

Inserter (improved)

Nexavar™

–

2015

2029d

2015

2029d

2015

2029d

2015

2029d

2015

2029d

–

2029b

–

2013

–

2015

2029

2015

2029b

2015

2029b

Active ingredient

2021c

2021

2020a

2020

Stivarga™

Active ingredient

2024a

2024

2024e

2024b

Xarelto™

Active ingredient

2023c

2023

2024c

2020

2021a

2020

2019a

2019

2020a

2019

Xofigo™

Application

YAZ™

Formulation

Dosage regimen

–

Production process

2025

Yasmin™

Formulation

Production process

Yasminelle™

Formulation

Production process

–

2025

–

2025

–

2025

–

2025

–

2025

–

2025

–

2025

–

2025

–

2025

–

2025

a current expiration date; extension applied for
b patent pending
c patent expiration date updated
d opposition to EP patent pending
e adjustment of patent term under calculation
f patent extension confirmed
g opposition appeal pending

Information on specific patent disputes is given in Note [32].

2021f

2014b

2026

2020

2026

2020

2026

2020g

–

2026

2020g

2026

2020g

2026

–

2025

–

2025

–

2025

2020

2014

2026b

2020

2026b

2020

2026b

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

284

Notes
18. Property, plant and equipment

18. Property, plant and equipment

Changes in property, plant and equipment in 2013 were as follows:

Changes in Property, Plant and equipment

Cost of acquisition or construction,
December 31, 2012

Changes in scope of consolidation

Acquisitions

Capital expenditures

Retirements

Transfers

Transfers (IFRS 5)

Inflation adjustment (IAS 29)

Remeasurement (IFRS 3)

Exchange differences

December 31, 2013

Accumulated depreciation
and impairment losses,
December 31, 2012

Changes in scope of consolidation

Retirements

Depreciation and impairment losses in 2013

Depreciation

Impairment losses

Impairment loss reversals

Transfers

Transfers (IFRS 5)

Exchange differences

December 31, 2013

Carrying amounts, December 31, 2013

Carrying amounts, December 31, 2012

2012 figures restated

Land and
buildings

Plant
installations
and
machinery

furniture,
fixtures and
other
equipment

Construction in
progress
and advance
payments

[Table 4.47]

Total

€ million

8,273

16,555

1,854

1,343

28,025

196

(119)

217

–

(228)

8,375

406

(387)

360

–

(406)

16,556

190

(162)

–

(69)

1,853

4,539

12,214

1,370

(82)

276

264

–

(117)

4,630

3,745

3,734

(363)

844

826

–

(1)

–

(288)

12,414

4,142

4,341

(144)

208

199

–

(1)

–

(46)

1,390

463

484

–

980

(8)

(609)

–

(52)

1,671

–

(7)

–

1,665

1,339

1,772

(676)

–

(755)

28,455

18,127

(596)

1,337

1,289

–

(451)

18,440

10,015

9,898

Impairment losses totaling €48 million were recognized on property, plant and equipment in the MaterialScience seg-
ment (€17 million), Other Segments (€14 million), the Consumer Health segment (€7 million), the Pharmaceuticals seg-
ment (€7 million) and the CropScience segment (€3 million). They included €14 million resulting from the subgroups’
restructuring programs.

In 2013, borrowing costs of €34 million (2012: €20 million) were capitalized as components of the cost of acquisition or
construction of qualifying assets, applying an average interest rate of 3.8% (2012: 3.8%).

Capitalized property, plant and equipment included assets with a total net value of €439 million (2012: €447 million)
held under finance leases. The cost of acquisition or construction of these assets as of the closing date totaled €695 mil-
lion (2012: €1,185 million). They comprised plant installations and machinery with a carrying amount of €201 million
(2012: €204 million), buildings with a carrying amount of €126 million (2012: €126 million) and other property, plant
and equipment with a carrying amount of €112 million (2012: €117 million). For information on the liabilities arising
from finance leases, see Note [27].

In 2013, rental payments of €215 million (2012: €226 million) were made for assets leased under operating leases as
defined in IAS 17 (Leases).

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

285

Notes
18. Property, plant and equipment

Lease payments of €3 million are expected to be received in 2014 from operating leases – as defined in IAS 17 (Leases)
– pertaining to property, plant and equipment. Lease payments totaling €7 million are expected to be received in
2015 – 2018. No lease payments are expected to be received after 2018.

InveSTMenT PROPeRT Y
The fair values of investment property are mainly determined using the income approach based on internal valuations
for buildings and developed sites, and using the market comparison approach for undeveloped sites.

The total carrying amount of investment property as of December 31, 2013, was €173 million (December 31, 2012:
€90 million). The fair value of this property was €540 million (2012: €236 million). The rental income from investment
property was €20 million (2012: €21 million), and the operating expenses directly allocable to this property amounted
to €12 million (2012: €4 million). A further amount of €4 million (2012: €0 million) in operating expenses was directly
allocable to investment property from which no rental income was derived.

The increase in the fair value of investment property was mainly due to the classification of further property as invest-
ment property and the general rise in the prices of land and buildings.

Changes in property, plant and equipment in 2012 were as follows:

Changes in Property, Plant and equipment (Previous Year)

Land and
buildings

Plant
installations
and
machinery

furniture,
fixtures
and other
equipment

Construction
in progress
and advance
payments

[Table 4.48]

Total

Cost of acquisition or construction,
December 31, 2011

Changes in scope of consolidation

Acquisitions

Capital expenditures

Retirements

Transfers

Transfers (IFRS 5)

Inflation adjustment (IAS 29)

Remeasurement (IFRS 3)

Exchange differences

December 31, 2012

Accumulated depreciation
and impairment losses,
December 31, 2011

Changes in scope of consolidation

Retirements

Depreciation and impairment losses in 2012

Depreciation

Impairment losses

Impairment loss reversals

Transfers

Transfers (IFRS 5)

Exchange differences

December 31, 2012

Carrying amounts, December 31, 2012

Carrying amounts, December 31, 2011

2012 figures restated

€ million

8,361

16,264

1,792

–

142

(225)

126

(65)

–

(70)

8,273

4,490

–

(196)

303

283

–

(1)

(18)

(39)

4,539

3,734

3,871

–

321

(210)

345

(14)

–

(162)

16,555

(2)

–

182

(123)

(2)

–

(19)

1,854

11,668

1,315

–

(191)

854

838

–

(5)

(117)

12,214

4,341

4,596

(2)

(114)

188

–

(5)

(1)

(11)

1,370

484

477

953

925

(12)

(506)

–

(19)

1,343

–

(10)

–

(2)

1,339

943

27,370

(1)

1,570

(570)

(9)

(81)

–

(270)

28,025

17,483

(2)

(511)

1,350

1,309

–

(24)

(169)

18,127

9,898

9,887

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

286

Notes
19. Investments accounted for using the equity method

19. Investments accounted for using the equity method

Two (2012: two) associated companies and three (2012: three) joint ventures were accounted for using the equity
method.

Associated companies and Joint Ventures Accounted for Using the equity Method

Company name

Place of Business

[Table 4.49]

Bayer’s interest

Associated companies

Paltough Industries (1998) Ltd.

PO JV, LP

Joint ventures

Bayer IMSA, S.A. de C.V.

Bayer Zydus Pharma Private Limited

DIC Bayer Polymer Ltd.

Kibbutz Ramat Yochanan, Israel

Wilmington, U.S.A.

Nuevo Leon, Mexico

Mumbai, India

Tokyo, Japan

39.7

In 2000 Bayer acquired the polyols business and parts of the propylene oxide (PO) production operations of Lyondell
Chemicals with the objective of ensuring access to patented technologies and safeguarding the long-term supply of
PO, a starting product for polyurethane. As part of this strategy, a company was established to produce PO (PO JV, LP,
United States, in which Bayer holds a 39.7% interest). Bayer benefits from fixed long-term supply quotas / volumes of
PO from this company’s production. The two following tables contain summarized data from the income statements
and statements of financial position of the associated company PO JV, LP, United States, which is accounted for using
the equity method, and show the respective amounts recognized in the consolidated financial statements of the
Bayer Group.

Income statement data of Po JV, LP, Accounted for Using the equity Method

Net sales

Net loss after taxes

Share of net loss after taxes

Share of total comprehensive income after taxes

Gain (loss) after taxes from impairments / derecognition of other interests

Recognized loss after taxes of Po JV, LP, accounted for using the equity method

2012 figures restated

[Table 4.50]

2012

2013

€ million

2,242

2,217

(53)

(21)

–

(21)

(46)

(18)

(2)

(20)

data from the statements of Financial Position of Po JV, LP, Accounted for Using the equity Method

[Table 4.51]

Noncurrent assets

Current liabilities

Equity

Share of equity

Other

carrying amount of Po JV, LP, accounted for using the equity method

Dec. 31, 2012

Dec. 31, 2013

€ million

481

477

189

196

441

–

441

175

(1)

174

The item “Other” mainly comprised differences arising from adjustments of data to Bayer’s uniform accounting
policies, purchase price allocations and their amortization in profit or loss.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

287

Notes
20. Other financial assets

The following table contains summarized income statement data of the individually non-material associated company
Paltough Industries (1998) Ltd., Israel, which is accounted for using the equity method, and shows its carrying amount
in the consolidated financial statements of the Bayer Group.

Income statement data and carrying Amount of Paltough Industries (1998) Ltd.

Income after taxes

Share of income after taxes

Share of total comprehensive income after taxes

carrying amount of the investment in Paltough Industries (1998) Ltd.,
accounted for using the equity method

[Table 4.52]

2012

2013

€ million

The following table contains the summarized aggregated income statement data of the individually non-material
joint ventures accounted for using the equity method and shows their aggregated carrying amount in the consolidat-
ed financial statements of the Bayer Group.

Income statement data and carrying Amount of Joint Ventures Accounted for Using the equity Method

[Table 4.53]

Income after taxes

Share of income after taxes

Share of total comprehensive income after taxes

Gain (loss) after taxes from impairments / derecognition of other interests

Recognized income after taxes of joint ventures accounted for using the equity method

Carrying amount of joint ventures accounted for using the equity method

2012 figures restated

20. Other financial assets

The other financial assets were comprised as follows:

2012

2013

€ million

(1)

Other financial Assets

[Table 4.54]

Loans and receivables

Available-for-sale financial assets

of which debt instruments

of which equity instruments

Held-to-maturity financial investments

Non-derivative held-for-trading financial assets

Receivables from derivatives

Receivables under lease agreements

Total

2012 figures restated

Dec. 31, 2012

Dec. 31, 2013

Total

Of which
current

Total

Of which
current

€ million

842

344

235

109

102

196

647

2,165

133

–

196

405

857

815

298

238

–

765

1,982

133

–

574

–

779

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

288

Notes
21. Inventories

The loans and receivables mainly comprised capital with a nominal volume of €595 million (2012: €595 million) provid-
ed to Bayer-Pensionskasse VVaG (Bayer-Pensionskasse) for its effective initial fund, and jouissance right capital (Ge-
nussrechtskapital) with a nominal volume of €150 million (2012: €150 million), also provided to Bayer-Pensionskasse.

The debt instruments reported as available-for-sale financial assets comprised German treasury bills in the amount of
€125 million (2012: €125 million). These treasury bills, which were lent to a bank, continue to be recognized as avail-
able-for-sale financial assets because the related risks and rewards remain with Bayer. Upon maturity or redemption of
the treasury bills, Bayer is obligated to replace them with German government securities until 2016.

The equity instruments reported as available-for-sale financial assets included €22 million (2012: €32 million) in instru-
ments whose fair value could not be determined from a stock exchange or other market price or by discounting reliably
determinable future cash flows. These equity instruments were recognized at cost.

In 2013, impairment losses totaling €2 million (2012: €6 million) on available-for-sale financial assets were recognized
in profit or loss.

Unimpaired other financial assets of €8 million (2012: €10 million) were past due on the closing date.

Further information on the accounting for receivables from derivatives is given in Note [30].

Receivables under lease agreements relate to finance leases where Bayer is the lessor and the economic owner of the
leased assets is the lessee. These receivables comprised expected lease payments of €48 million (2012: €75 million),
including €40 million (2012: €41 million) in interest. Of the expected lease payments, €1 million (2012: €26 million) is
due within one year, €4 million (2012: €4 million) within the following four years and €43 million (2012: €45 million)
in subsequent years.

21. Inventories

Inventories were comprised as follows:

Inventories

Raw materials and supplies

Work in process, finished goods and goods purchased for resale

Advance payments

Total

2012 figures restated

[Table 4.55]

Dec. 31, 2012

Dec. 31, 2013

€ million

1,353

5,625

6,991

1,369

5,745

7,129

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

289

Notes
22. Trade accounts receivable

Impairment losses recognized on inventories were reflected in the cost of goods sold. They were comprised as follows:

Impairments of Inventories

Accumulated impairment losses, January 1

Changes in scope of consolidation

Impairment losses in the reporting period

Impairment loss reversals or utilization

Exchange differences

Accumulated impairment losses, December 31

2012 figures restated

[Table 4.56]

2012

2013

€ million

(404)

–

(208)

223

(384)

(214)

149

(423)

22. Trade accounts receivable

Trade accounts receivable less impairment losses amounted to €7,569 million (2012: €7,433 million) on the closing date
and were comprised as follows:

Trade Accounts Receivable

Trade accounts receivable (before impairments)

Accumulated impairment losses

Carrying amount, December 31

of which noncurrent

2012 figures restated

Changes in impairment losses on trade accounts receivable were as follows:

Impairments of Trade Accounts Receivable

Accumulated impairment losses, January 1

Changes in scope of consolidation

Impairment losses in the reporting period

Impairment loss reversals or utilization

Exchange differences

Accumulated impairment losses, December 31

[Table 4.57]

2012

2013

€ million

7,673

(240)

7,433

7,769

(200)

7,569

[Table 4.58]

2012

2013

€ million

(243)

(240)

–

(66)

–

(66)

(240)

(200)

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

290

Notes
22. Trade accounts receivable

Trade accounts receivable amounting to €7,499 million (2012: €7,322 million) were not individually impaired. Of this
amount, €1,222 million (2012: €1,095 million) was past due or due immediately on the closing date.

The amounts of impaired and past-due trade accounts receivable are summarized in the following table:

Impaired and Past-Due Trade Accounts Receivable

[Table 4.59]

Of which
neither
impaired
nor past due
at the

closing date

Of which
unimpaired but
past due at the
closing date

Of which
impaired
at the

closing date

Carrying
amount

up to
3 months

3 – 6
months

6 – 12
months

more than
12 months

€ million

7,569

7,433

6,277

6,227

848

743

130

144

104

140

104

111

December 31, 2013

December 31, 2012

2012 figures restated

The gross carrying amount of individually impaired trade accounts receivable was €193 million (2012: €248 million).
The impairment losses recognized on these assets totaled €123 million (2012: €137 million), resulting in a net carrying
amount of €70 million (2012: €111 million).

The unimpaired receivables were deemed to be collectible on the basis of established credit management processes
and individual assessments of customer risks. The impairment losses recognized included an appropriate allowance for
the default risk as of the end of the reporting period.

Receivables from government health service institutions, especially in Greece, Italy, Portugal and Spain, are under spe-
cial observation in view of the government debt crisis. Although there were no material defaults on such receivables in
2013 or 2012, it is possible that future developments in these countries could result in payment delays and / or defaults.
This could necessitate the recognition of impairment losses due to new occurrences. Trade accounts receivable from
government health service institutions in the above countries at the end of 2013 totaled €231 million (2012: €240 mil-
lion).

An excess-of-loss policy exists for the HealthCare subgroup as part of a global credit insurance program. More than
80% of the receivables of the HealthCare subgroup are insured up to a maximum total annual compensation payment
of €100 million. A further €438 million of receivables was secured by advance payments, letters of credit or guarantees
or by liens on land, buildings or harvest yields.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

291

Notes
23. Other receivables

23. Other receivables

Other receivables, after impairment losses of €4 million (2012: €60 million), were comprised as follows:

Other Receivables

Benefit plan assets in excess of obligation

Receivables from employees

Other tax receivables

Deferred charges

Reimbursement claims

Miscellaneous receivables

Total

2012 figures restated

Dec. 31, 2012

Of which
current

Total

[Table 4.60]

Dec. 31, 2013

Of which
current

Total

€ million

562

232

607

725

–

474

205

599

334

117

577

269

321

647

–

504

240

321

370

2,196

1,655

1,972

1,476

The reimbursement claims of €321 million (2012: €607 million) consisted mainly of receivables from insurance compa-
nies in connection with product liability claims.

Of the €526 million (2012: €634 million) in financial receivables included in other receivables, €524 million (2012:
€606 million) was unimpaired. Of this amount, €204 million (2012: €221 million) was past due or due immediately on
the closing date. The gross carrying amount of individually impaired other receivables was €6 million (2012: €88 mil-
lion). The impairment losses recognized on these assets totaled €4 million (2012: €60 million), resulting in a net carry-
ing amount of €2 million (2012: €28 million).

The amounts of impaired and past-due financial receivables included in other receivables are summarized in the
following table:

Impaired and Past-Due Other financial Receivables

[Table 4.61]

Of which
neither
impaired
nor past due
at the

closing date

Of which
unimpaired but
past due at the
closing date

Of which
impaired
at the

closing date

Carrying
amount

up to
3 months

3 – 6
months

6 – 12
months

more than
12 months

€ million

526

634

320

385

148

172

December 31, 2013

December 31, 2012

2012 figures restated

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

292

Notes
24. Equity

24. Equity

The foremost objectives of our financial management are to help bring about a sustained increase in the value of the
Bayer Group for the benefit of all stakeholders, and to ensure the Group’s creditworthiness and liquidity. The pursuit of
these goals means reducing our cost of capital, optimizing our capital structure, improving our financing cash flow and
effectively managing risk.

The rating agencies commissioned by Bayer assess the creditworthiness of the Bayer Group as follows:

Rating

Standard & Poor’s

Moody’s

[Table 4.62]

Long-term rating

Outlook

Short-term rating

A –

positive

A – 2

P – 2

These investment-grade ratings reflect the company’s good creditworthiness and ensure access to a broad investor
base for financing purposes. Bayer’s capital management strategy is based on the debt ratios published by the rating
agencies, which – by somewhat differing methods – look at the cash flow for a given period in relation to debt. The fi-
nancial strategy of the Bayer Group focuses on an “A” rating and on preserving our financial flexibility. Apart from uti-
lizing cash inflows from our operating business to reduce net financial debt, we are implementing our financial strategy
by way of vehicles such as the subordinated hybrid bond issued in July 2005, the authorized and conditional capital
amounts created by resolutions of the Annual Stockholders’ Meeting, and a potential share buyback program. Bayer’s
Articles of Incorporation do not stipulate capital ratios.

The changes in the various components of equity during 2012 and 2013 are shown in the consolidated statements of
changes in equity.

cAPItAL stocK
The capital stock of Bayer AG on December 31, 2013 amounted to €2,117 million (2012: €2,117 million), divided into
826,947,808 (2012: 826,947,808) registered shares, and was fully paid in. Each share confers one voting right.

AUthoRIzed cAPItAL
Authorized capital of €530 million was approved by the Annual Stockholders’ Meeting on April 30, 2010. It expires on
April 29, 2015. It can be used to increase the capital stock by issuing new no-par registered shares against cash con-
tributions and / or contributions in kind, but capital increases against contributions in kind may not exceed a total of
€423 million (Authorized Capital I). Stockholders must normally be granted subscription rights. However, subject to
the approval of the Supervisory Board, the Board of Management is authorized to exclude subscription rights for the
stockholders with respect to any excess shares remaining after rights have been allocated (fractional amounts) and
also to the extent necessary to grant subscription rights for new shares to holders of bonds with optional or mandatory
warrants or conversion rights issued by Bayer AG or its Group companies who would be entitled to subscription rights
upon the exercise of such optional or mandatory warrants or conversion rights. In addition, the Board of Management
is authorized to exclude stockholders’ subscription rights, subject to the approval of the Supervisory Board, in cases
where an increase in capital against contributions in kind is carried out for the purpose of acquiring companies, parts
of companies, participating interests in companies or other assets. The amount of capital stock represented by shares
issued in the above cases against cash contributions and / or contributions in kind without granting subscription rights
to the stockholders must not exceed a total of 20% of the capital stock that existed on the date the authorized capital
was approved by the Annual Stockholders’ Meeting.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS
293

Notes
24. Equity

Further authorized capital was approved by the Annual Stockholders’ Meeting on April 30, 2010. The Board of Man-
agement is authorized until April 29, 2015 to increase the capital stock, subject to the approval of the Supervisory
Board, by a total amount of up to €212 million by issuing new no-par registered shares against cash contributions
(Authorized Capital II). Under the resolution adopted by the Annual Stockholders’ Meeting, stockholders must normally
be granted subscription rights. However, the Board of Management is authorized to exclude subscription rights for
stockholders with respect to one or more capital increases out of the Authorized Capital II, subject to the approval of
the Supervisory Board, provided that such capital increase or the total of such capital increases does not exceed 10%
of the capital stock existing at the time this authorization becomes effective or the time it is exercised, for purposes of
issuing new shares against cash contributions at a price that is not significantly below the market price of the compa-
ny’s shares of the same category that are already listed on the stock exchange on the date the issue price is finally de-
termined. Any treasury shares acquired on the basis of an authorization of the Stockholders’ Meeting and sold pursuant
to Section 71 Paragraph 1 No. 8 Sentence 5 of the German Stock Corporation Act in conjunction with Section 186 Para-
graph 3 Sentence 4 of the German Stock Corporation Act during the term of this authorization shall count toward the
above 10% limit. Shares issued or to be issued to service bonds with optional or mandatory warrants or conversion
rights shall also count toward this limit where such bonds were issued during the term of this authorization and stock-
holders’ subscription rights were excluded by application of Section 186 Paragraph 3 Sentence 4 of the German Stock
Corporation Act.

Neither of these authorized capital amounts has been utilized so far.

condItIonAL cAPItAL
The Annual Stockholders’ Meeting on April 30, 2010 approved the creation of Conditional Capital 2010, authorizing a
conditional increase of up to €212 million in the capital stock through the issuance of up to 82,694,750 shares. This
conditional capital increase may be used to grant registered shares to the holders of warrant bonds, convertible bonds,
jouissance rights (Genussrechte) or profit participation bonds (or combinations of these instruments) with optional or
mandatory warrants or conversion rights, issued by Bayer AG or a Group company in which Bayer AG holds a direct or
indirect interest of at least 90% on or before April 29, 2015 in accordance with authorizations granted by the Annual
Stockholders’ Meeting of April 30, 2010. The authorization to issue such instruments is limited to a total nominal
amount of €6 billion. In principle, stockholders have a statutory right to be granted subscription rights to such instru-
ments. However, the Board of Management is authorized to exclude subscription rights, subject to the approval of the
Supervisory Board, if the instruments are issued at a price that is not significantly below the market price. The limit of
10% of the capital stock for the exclusion of stockholders’ subscription rights in analogous application of Section 186
Paragraph 3 Sentence 4 of the German Stock Corporation Act may not be exceeded. Both shares and other such instru-
ments shall count toward this limit if they were issued without granting subscription rights to the stockholders in direct
or analogous application of Section 186 Paragraph 3 Sentence 4 of the German Stock Corporation Act.

Absent a further resolution of the Annual Stockholders’ Meeting on the exclusion of stockholders’ subscription rights,
the Board of Management will only use the existing authorizations to increase the capital stock out of the Authorized
Capital or the Conditional Capital – without granting subscription rights to the stockholders – up to a total amount of
20% of the capital stock that existed when the respective resolutions were adopted by the Annual Stockholders’ Meet-
ing on April 30, 2010. This 20% limit includes all issuances or sales of shares or of bonds with optional or mandatory
warrants or conversion rights that are effected without granting subscription rights to the stockholders.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS 294

Notes
24. Equity

AccUMULAted coMPRehensIVe IncoMe
Accumulated comprehensive income comprises retained earnings and accumulated other comprehensive income. The
retained earnings include prior years’ undistributed income of consolidated companies and all remeasurements of the
net liability for defined benefit pension and other post-employment benefit plans that are recognized outside profit or
loss. The accumulated other comprehensive income comprises exchange differences, the changes in fair values of
cash flow hedges and available-for-sale financial assets, and the revaluation surplus. The latter results from the acqui-
sition in 2005 of the remaining 50% interest in an OTC joint venture with Roche in the United States that was estab-
lished in 1996 and the acquisition in 2008 of the remaining 50% interest in Bayer MaterialScience Oldenburg GmbH &
Co. KG, Oldenburg, Germany. In 2013, an amount of €5 million (2012: €5 million) corresponding to the annual amorti-
zation / depreciation of the respective assets was transferred from the revaluation surplus to retained earnings. The ex-
change differences included an amount of €12 million (2012: €2 million) attributable to associated companies and joint
ventures accounted for using the equity method.

DIvIDenD
Under the German Stock Corporation Act (AktG), the dividend payment is determined by the distributable profit
reported in the annual financial statements of Bayer AG, which are prepared according to the German Commercial
Code. Retained earnings were diminished by payment of the dividend of €1.90 per share for 2012. The proposed divi-
dend for the 2013 fiscal year is €2.10 per share, which would result in a total dividend payment of €1,737 million.
Payment of the proposed dividend is contingent upon approval by the stockholders at the Annual Stockholders’ Meet-
ing and therefore is not recognized as a liability in the consolidated financial statements.

non-contRoLLIng InteRest
The changes in the non-controlling interest in Group equity during 2012 and 2013 are shown in the following table:

Components of non-Controlling Interest in equity

January 1

changes in equity not recognized in profit or loss

Exchange differences on translation of operations outside the eurozone

Other changes in equity

Dividend payments

changes in equity recognized in profit or loss

December 31

[Table 4.63]

2012

2013

€ million

(4)

(3)

(2)

100

(14)

(3)

Non-controlling interests exist mainly in the equities of Bayer CropScience Limited, India; Bayer Jinling Polyurethane
Co. Ltd., China; Bayer Pearl Polyurethane Systems FZCO, United Arab Emirates; Bayer East Africa Ltd., Kenya; and
Sumika Bayer Urethane Co. Ltd., Japan.

Consolidated Financial StatementsBayer Annual Report 2013» TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS

Notes
25. Provisions for pensions and other post-employment benefits

295

25. Provisions for pensions and other post-employment benefits

The provisions for defined benefit obligations pertaining to pensions and other post-employment benefits
were as follows:

Provisions for defined Benefit obligations

Germany

Other countries

Total

2012 figures restated

Pensions