Q4 2016 Real-Time Call Brief

Highlights

We released an aggregate, peak sales potential for selected Pharma pipeline assets of at least EUR6 billion.

For five growth products at pharma, we raised the estimate of the combined annual peak sales potential from previously at least EUR7.5 billion, to now more than EUR10 billion.

We are proposing a dividend of EUR2.70 per share for fiscal 2016.

This represents an 8% increase over the prior year.

The revising payout ratio of 37% of core EPS lies within our targeted 30% to 40% dividend payout range.

Group sales increased organically by 5% over the prior year to EUR11.8 billion.

Reported EBIT declined by 14% to EUR789 million.

Adjusted EBITDA of EUR2.2 billion was 14% above the previous year, predominantly driven by the business expansion in Pharma and Covestro.

Currencies added around EUR85 million in the quarter.

Core earnings per share in Q4 advanced by 10% to EUR1.19.

Pharma sales grew 7% with our key growth products driving the performance.

Following the strong business development, EBITDA before special items increased by 12% to EUR1.2 billion.

Consumer health sales advanced by 4% versus the prior year.

EBITDA before special items declined by 3% to EUR372 million following higher cost of goods as well as higher marketing costs mainly supporting the newly acquired brands.

In an ongoing weak market environment especially in Latin America, crop science sales receded by 2% to EUR2.4 billion.

Seeds grew a remarkable 10% mostly driven by strong development in Soyabean.

EBITDA before special items at Crop Science increased slightly by 1% to EUR351 million helped by positive currency effects by about EUR80 million but diminished by lower selling prices and higher investment in R&D.

In Animal health, sales advanced 3% compared to the prior year period.

EBITDA before special items diminished by 7% mainly due to higher marketing cost.

Covestro added EUR3 billion to group sales and EUR373 million of adjusted EBITDA to the group performance.

The operating cash flow from continuing operations improved noticeably by 39% to approximately EUR2.7 billion.

Capital expenditures came in at around EUR970 million.

Net financial debt at the end of the quarter stood at EUR11.8 billion, a decrease of EUR4 billion from the end of Q3.

Full Year 2016: Sales grew organically by 3% to EUR46.8 billion.

Nominal sales were held back by negative currency impact of around EUR0.9 billion.

We over delivered on our earnings promise with adjusted EBITDA rising 10%.

We exceeded our mid single digit percentage increase guidance on core EPS by achieving more than 7% growth in 2016 or 8% growth if adjusted for the mandatory convertible notes issued in November.

In delivering core EPS, Covestro's contribution accounts for 71 cents per share.

In 2016, we incurred EUR1.1 billion of special charges on EBIT level.

These mainly comprised around EUR560 million for impairment losses on intangible assets including EUR391 million for sure, charges of roughly EUR240 million in connection with efficiency improvement programs, and EUR100 million in cost for the integration of acquired businesses.

Further special charges of EUR94 million were related to provisions for defense cost while EUR86 million were connected to the agreed acquisition of Monsanto.

Pharma sales advanced a remarkable 9%, significantly above market growth of about 6% in 2016.

Collectively, our key growth products generated EUR5.4 billion in sales, up 29% versus the prior year.

So, ready to end 2016 with EUR2.9 billion in sales.

We generated sales of EUR1.6 billion in 2016, an increase of 33% over the prior year.

Xofigo ended the year with EUR331 million in sales up 29% mainly driven by very solid business expansion in the US and Europe.

Stivarga finished the year with EUR275 million in sales.

In line of the very positive business development, adjusted EBITDA of Pharma showed a substantial 14% improvement over the prior year periods to over EUR5.2 billion despite negative currency effects of around EUR65 million and the disproportionately high investment in research and development.

In line with expected growth profile of our main competitors Consumer Health increased sales by 4% in the year.

On an annual basis, Aspirin sales including Pharma were up 5%, achieving a EUR1 billion in annual sales for the first time.

Despite positive top line development and cost synergies, adjusted EBITDA of Consumer Health showed a 3% decline over the prior year period to EUR1.4 billion.

Higher cost of goods sold and negative currency effects of roughly EUR65 million weighed on earnings development.

Crop Science business: We recorded a solid 4% growth in both our Fungisides and SeedGrowth business, herbicides and pesticides had to face top line regression especially insecticides down 13%.

Our seeds business delivered 8% growth over the prior year.

From the regional perspective, Crop Science developed well in Europe, Asia-Pacific, and North America, but had to face a decline of 7% in Latin America due to unfavorable weather conditions and higher inventories of Crop Protection products in Brazil.

Adjusted EBITDA of Crop Science came in on prior year level at around EUR2.4 billion.

The positive currency impact of about EUR140 million mostly resulted from hedging losses booked in hedging losses booked in 2015.

In 2016, sales of our Animal Health business advanced by 5% to EUR1.5 billion.

Adjusted EBITDA of Animal Health came in on prior year level at around EUR350 million.

The positive impact from our sales expansion was absorbed by our marketing and selling expenses as well as higher cost of goods sold and the negative currency effect of around EUR10 million Our guidance for 2017 is based on December 31, 2016, exchange rates, including a EUR, US dollar rate of 1.05.

We plan to grow our Life Science sales organically by a mid-single-digit percentage to approximately EUR37 billion, and to improve EBITDA before special items by a mid to high single digit percentage.

We expect to report group sales to exceed EUR49 billion in 2017.

Group EBITDA before special items is expected to improve in the mid single digit percentage range.

Full year core earnings per share is anticipated to also improve by mid single digit percentage.

It includes a 64% stake in Covestro and a higher number of shares as a result of the issuance of the mandatory convertible notes.

We expect special items in the EBITDA of around EUR0.5 billion.

We are guiding for a financial result of minus EUR1.4 billion for fiscal 2017 which includes bridge financing costs in the context of the Monsanto transaction.

The effective tax rates in expected to come in at about at about 23%.

We expect sales to exceed EUR17 billion at Pharmaceuticals..

We plan to raise combined sales for our key growth products so, Xarelto, Eylea, Xofigo, Stivarga, and Adempas, to more than EUR6 billion.

We expect a high-single-digit percentage increase in EBITDA before special items together with a margin improvement.

In the Consumer Health division, we expect sales to come in at more than EUR6 billion.

EBITDA before special items is anticipated to improve by low to mid single percentage.

At Crop Science, we expect sales to come in at more than EUR10 billion.

At Animal Health, we expect sales to advance in the low to mid single digit percentage range and EBITDA before special items to increase by a high single digit percentage.

We plan to increase research and development expenditures to EUR4.8 billion.

Fixed asset investments are planned at around EUR2.5 billion and investments in intangible assets with around EUR400 million.

We made good progress with the financing of Monsanto transaction in quarter four to the successful placement of 4 billion mandatory convertible notes.