Meet Management in Tokyo Bayer MaterialScience Patrick Thomas CEO of Bayer MaterialScience AG November 21, 2012 Disclaimer This presentation may contain forward-looking statements based on current assumptions and forecasts made by Bayer Group or subgroup management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in Bayer s public reports which are available on the Bayer website at www.bayer.com. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments. Page 2 Meet Management in Tokyo November 2012
MaterialScience Leading Positions in All Segments Sales in million Sales Split by Segment 2011 Polyurethanes 5,435m #1-2; approx. 22-24% market share* 50% 17% 27% 6% Polycarbonates 2,893m #1; approx. 27% market share Coatings, Adhesives, Specialties 1,845m #1; >40% market share** MaterialScience 10,832m Industrial Operations 659m Page 3 Meet Management in Tokyo November 2012 *depending on segment ** aliph. isocyanates MaterialScience High Performance Polymers Polycarbonates A transparent, tough and heat-resistant performance material Application in automotive (weight reduction) Construction (integrated heat and light management) Electronics & IT Polyurethanes Rigid foams for insulation in construction and along the cold chain Flexible foams for comfort applications Further applications include equipment housing or structural parts in automotive Coatings, Adhesives, Specialties Input materials for coatings and adhesives used for vehicles, industrial coatings, corrosion protection Functional films and development businesses Page 4 Meet Management in Tokyo November 2012
MaterialScience Sales By Key Customer Industries Bayer MaterialScience sales by industry in 2011 Chemicals Automotive 8% 21% Others (sports, leisure, footwear packaging, medical, etc.) 20% 28% Electro/ Electronics 16% 16% Furniture / Wood 19% Construction Page 5 Meet Management in Tokyo November 2012 Major Products Grow Above GDP on Average Major products sales growth (polyurethanes and polycarbonates) Global GDP index (nominal) Index 1992 = 100 100 % Business Development Business growth: 1992-2011 CAGR: +8% Global GDP growth: 1992-2011 CAGR: +6% Major products performing above GDP growth Historically, long-term growth trend intact across the business cycles Growth trend expected to continue as global megatrends need sustainable solutions 1992 2011 Page 6 Meet Management in Tokyo November 2012
Cash Generation in Excess of Own Investment Need In million Net Cash Flow CapEx (cash-relevant) ~ 3.5bn Free Operating Cash Flow in 10 years 1,388 1,281 1,108 1,113 1,147 902 464 498 715 690 870 782 672 849 763 504 498 775 565 332 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Page 7 Meet Management in Tokyo November 2012 2002 and 2003 as reported in 2004 excluding acquisitions or divestments 9M 2012 Further Sales Growth Page 8 Meet Management in Tokyo November 2012
9M 2012 Operating Performance Sales in million; % y-o-y, () Fx & portfolio adj. 9M 2012 Sales Earnings Polyurethanes +12% (+8%) 25% 4,522 Polycarbonates -3% (-8%) Adjusted EBITDA* 1,065 996-6% Adjusted EBIT* 2,154 637 Coatings, 1,521 Adhesives, Specialties +2% (+3%) 545 Industrial Operations +11% (+8%) 536-16% MaterialScience 8,742m; +6% (+2%) Price 0% Volume +2% Fx +4% Portfolio -1% 9M 11 9M 12 9M 11 9M 12 Page 9 Meet Management in Tokyo November 2012 * before special items 9M 2012 Regional Sales Development Sales in million; % y-o-y Fx adjusted 9M 2012 MaterialScience Sales Emerging Economies USA +6% 25% 20% 1% 42% Emerging Economies¹ +3% 0% ~2,100 +13% Western Europe -2% 36% 33% 5% 4% Others² +1% ~690 +7% ~510-6% ~430 MaterialScience 8,742m; +2% Emerging Asia³ Latin America Eastern Europe Africa & Middle East Page 10 Meet Management in Tokyo November 2012 ¹ Emerging economies include: Latin America, Asia w/o Japan, Australia, New Zealand, Africa and Middle East incl. Turkey, Eastern Europe ² Others = Japan, Australia, New Zealand, Canada ³ Emerging Asia = Asia without Japan, Australia, New Zealand
Fiscal 2012 Business Outlook Q4 2012 Outlook We aspire to achieve Fx- and portfolioadjusted sales and EBITDA before special items well above the weak level of the same quarter last year FY 2012 Outlook We forecast Fx- and portfolio-adjusted sales slightly above prior year and EBITDA before special items to remain level with the prior year Page 11 Meet Management in Tokyo November 2012 Capitalize On Global Megatrends Page 12 Meet Management in Tokyo November 2012
Capitalize on Global Megatrends and Spur Future Growth Urbanization Increasing Energy Consumption Buildings are responsible for more than 40% of global energy use* Globalization Increase in Greenhouse Gas Emissions 14% of greenhouse gases worldwide origin from the transport of goods, making it the third largest emission source** Mobility Increasing Noise Pollution About 30% of the EU population are exposed to road traffic noise in excess of 55 db(a) during night time*** Page 13 Meet Management in Tokyo November 2012 *Source: UNEP, Sustainable Buildings and Climate Initiative **Source: World Resources Institute *** WHO recommends less than 30 db(a); db(a): A-weighted decibel quality Polyurethane-based Insulation for Residential & Commercial Buildings PUR Isoboards for Thermal Insulation For buildings Highest thermal insulating capacity relative to wall thickness, easy to apply PUR Metal Sandwich Panels Prefabricated and mainly applied for industrial and commercial buildings Easy handling and fast site assembly High energy efficiency for cold storage Growth drivers EU: From 2020 on, new buildings have to be constructed as nearly zeroenergy buildings US: New standard requires 30% less energy use for renovated homes and commercial buildings 1 kg polyurethane saves 360 to 755 kg CO 2 emissions* PUR in construction industry in 2011: approx. 4.8bn, estimated average growth rate of ~8% p.a. Page 14 Meet Management in Tokyo November 2012 *Additional insulation, savings over entire product life-cycle of 50 years, including production and end-of-life stages; PUR: polyurethane
Polycarbonate Sheets for Heat Management in Buildings Polycarbonate Multi-Wall Sheets Combined light and heat management to reduce energy requirements Significant reduction of CO 2 emissions Integration of solar energy panels Good weather stability Advantages over glass: Design freedom, safety, weight Growth drivers Growing demand for nonelectrical indoor climate control Translucency levels of 65-85%, ensure the maximum amount of daylight inside buildings Makrolon meets international fire protection requirements (not self-igniting) Global market size 2011 approx. 45 kt, estimated average growth rate of ~10% p.a. Page 15 Meet Management in Tokyo November 2012 Examples of Bayer s Materials for Energy Efficient Cars MaterialScience s Solutions for Saving Weight Roof elements out of polycarbonate and polyurethanes Instrument panels out of polycarbonate and polyurethanes Seats out of polyurethanes Housings for charging stations out of polycarbonate Polycarbonate tailgate Development of material share in %* 14 27 19 32 Polyurethanes, coatings and adhesives for the body shell Polycarbonate for flame resistant battery housings Colored polycarbonate parts for the body Load floor out of polyurethanes 59 49 Polymers Others Steel/Metal Page 16 Meet Management in Tokyo November 2012 * Based on an average automotive weight of 1,300 kg
Increased Energy Efficiency in Cars Through Polycarbonates Growth drivers Polycarbonates Heat stability and optical quality enable new LED-based lighting systems Flame-retardant polycarbonate blends protect batteries used in future cars with hybrid engines Car body parts made from polycarbonate blends reduce weight Automotive glazing out of polycarbonate combines high weight saving potential with outstanding thermal insulation Broad global political initiatives promoting e-mobility Increasing use of electrical devices requires flame retardancy of plastics Polycarbonate glazing offers a weight advantage of 30-50% compared to real glass 77m light vehicles* produced globally in 2011, estimated average growth rate of 5-6% p.a. Page 17 Meet Management in Tokyo November 2012 *includes cars and light commercial vehicles up to a weight of 6t Noise Reduction in the Transportation Sector Growth drivers Polyurethane Durflex track system stabilizes ballast stones with polyurethane foam Creates a durable track system with long-term elasticity Combines the advantages of ballast track (elasticity & dampening effect) and of slab track (durability) Improves the economics of track operations Reduces maintenance costs Increases track availability Noise absorption of up to 3dB(A) Reduction of vibrations by approx. 40% 1.37 million km rail network worldwide Especially for busy high-speed passenger and heavy cargo routes Page 18 Meet Management in Tokyo November 2012
Focus on Key Strategic Projects Page 19 Meet Management in Tokyo November 2012 A Leader in Process Technology, Competitiveness and Sustainability Process TDI Gas Phase Phosgenation Adiabatic Aniline Production ODC Technology for Chlorine Production Benefits* Uses up to 60% less energy Requires 80% less solvent CapEx reduced by 20% Uses 25% less energy 20% less CO 2 emissions CapEx reduced by 30% Uses 30% less energy Reduces indirect CO 2 emissions Status World-scale facility since 2011 in Shanghai, China Technology to be used in new TDI plant in Dormagen Pilot plant in Antwerp, Belgium Plant in Shanghai since 2010 Demo facility in Krefeld- Uerdingen External marketing planned from 2013 Page 20 Meet Management in Tokyo November 2012 *Compared with conventional technology ODC: Oxygen depolarized cathode
World Scale in Polycarbonates Production Reduces Costs Through Economies of Scale Bayer Has a Competitive Production Line Concept in All 3 World Regions 100 Bayer 50kt Effect of capacity increase on conversion costs Bayer is the only PCS producer that runs highly efficient, single 100kt lines Conversion cost index 90 80 70 Bayer 60kt Peer group 75kt average Bayer 100kt world scale 100kt lines are operated in: 2002 Map Ta Phut, Thailand (first 100kt line worldwide) 2003 Uerdingen, Germany 2006 Caojing, China 60 50 60 70 80 90 100 Name plate capacity in kt p.a. per production line 2009 Caojing ll, China + Further expansion of Caojing Page 21 Meet Management in Tokyo November 2012 PCS: polycarbonate Build on European Market Leadership With Further Investments 700m in Capital Expenditures Planned in Germany Investments focused on meeting growing local demand New facilities use innovative process technologies for more efficient production New multipurpose plant for HDI and IPDI by 2013 New 300kt/year TDI plant* by 2014 Expansion of MDI capacity by 220kt/year (timing t.b.d.) Expansion of PCS capacity by 100kt/year(timing t.b.d.) Chlorine production unit with new oxygen depolarized cathode technology Page 22 Meet Management in Tokyo November 2012 * Construction of a new 300kt/year TDI facility replacing existing 205kt IPDI: isophorone diisocynate, MDI: methyl diphenylene diisocyanate, TDI: toluene diisocyanate, HDI: hexamethylene diisocyanate, PCS: polycarbonate
Grow in China by Expanding Bayer s Largest, Fully Integrated Site in Shanghai Strengthening Leadership Through Further Local Production and Know-how Second investment stage Increase MDI capacity to 1,000kt/year Increase PCS capacity to 500kt/year Increase HDI capacity, new 50kt line planned New IPDI line planned PCS headquarters transferred to Shanghai mid 2011 Expansion of local R&D activities PUR MDI 350 kt in 2011 +650 kt TDI 250 kt in 2011 PCS PCS 200 kt in 2011 +300 kt CAS HDI 30 kt in 2011 +50 kt Page 23 Meet Management in Tokyo November 2012 MDI: methyl diphenylene diisocyanate, TDI: toluene diisocyanate, IPDI: isophorone diisocyanate, HDI: hexamethylene diisocyanate, PCS: polycarbonate Getting Closer to Our Customers Polymer R&D Center Shanghai Broad service range: Technical service/help Customer training programs Specialized laboratories for product and process R&D Technical Sales Technical Service Application Development Product Development Research Phase I started 2001 Phase II started 2006 Phase III started 2011 Phase III expansion part of our 1 billion investment program Number of employees expected to double from currently 130 Provides a full range of R&D expertise Page 24 Meet Management in Tokyo November 2012
Sustainable Production Making Carbon Dioxide a Feedstock Production of high quality polyurethane foam with the help of carbon dioxide (CO 2 ) Oil partly replaced by CO 2, reduced raw material costs Unique technology, good properties of final (foam) products Pilot plant started operating in Germany in 2011 Project partnered with RWE (supplies CO 2 ) and RWTH Aachen Industrial production expected to start 2015 earliest The Dream Production project receiving governmental funding CO 2 as Feedstock Page 25 Meet Management in Tokyo November 2012 Summary Leading positions in all business segments Excellent versatility of high performance materials Growing above GDP on average, yet a cyclical business Global megatrends expected to spur future growth Committed to further optimize worldwide production network Leading in process technology, with further innovations underway Future investments to focus on key strategic projects Page 26 Meet Management in Tokyo November 2012