CropScience Analyst & Investor Days September 5-6, 2005 Lyon, France CropScience Analyst & Investor Days Shaping the Environmental Science Markets as a Dedicated World Leader September 5-6, 2005 Lyon, France Pascal Housset CEO Bayer Environmental Science President Bayer CropScience SA 1
Forward Looking Statements This presentation contains forward-looking statements based on current assumptions and forecasts made by Bayer AG and Bayer CropScience AG 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 Bayer CropScience AG or our parent company, Bayer AG, and the estimates given here. These factors include those discussed in Bayer AG's public reports filed with the Frankfurt Stock Exchange and with the U.S. Securities and Exchange Commission (including Bayer AG's Form 20-F). Neither Bayer AG nor Bayer CropScience AG assume any liability whatsoever to update these forward-looking statements or to conform them to future events or developments. CropScience Analyst & Investor Days Lyon / September 5-6, 2005 Slide 3 Environmental Science Overview Our Markets Our Position Key Drivers and Success Factors Our Competencies and Competitive Advantages CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 4 2
Access to Attractive Branded Product Markets Outside Crop Protection Crop Protection Active Ingredient Innovation Development Production Environmental Science Proximity Innovation (Tailor-made products & services) Marketing & Distribution set up for the specific needs of ES customers Specific regulatory skills Strong brands Consumer Competitive Advantage through Forward Integration: Augmented value of innovative active ingredients Markets with strong growth potential Higher margins through branding Business risk diversification CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 5 The Only Ag-Chem Company Serving the Two Routes to the End Consumer Branded Consumer Products Branded Professional Products Home Improvement Speciality Retailers Lawn Care Operators Pest Control Operators Termites Control Operators Do-It-Yourself Home Owner Home/ Business Owner Two complementary businesses managed by two separate business units. CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 6 3
Our Market is a Cluster of Very Different Market Segment Branded Lawn & Garden Pest & Weed Control Market 2004: 1.3 bn Green Industry Market 2004: 1.2 bn Speciality Actives Market 2004: 0.5 bn Strategic Market 2004 4.3 bn Professional Pest Mgmt. Market 2004: 1.1 bn Fertilizers Vector / Locust Control Market 2004: 0.2 bn Growing Media / Soils Farm Hygiene Wood Preservation Consumer Segment: Products for Consumers Home & Gardening Needs Professional Segment: Pest Control Solutions for Professionals Non Strategic Market Segments CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 7 Which Market Segments Do We Operate in? Consumer Products Branded Lawn & Garden Products Pest & Weed Control Pest & weed control solutions for do-it-yourself gardeners (includes fertilizer / insecticide / herbicide combinations) A 1.3 bn market opportunity, growing at 2-3 % p.a. Insecticides and herbicides representing 90 % of the market 70 % of the market is in North America Bayer position: # 3 Our main customers include: LOWE S, Home Depot, Wal*Mart, OBI, B&Q/Castorama CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 8 4
Which Market Segments Do We Operate in? Consumer Products Speciality Actives Sales of active ingredients and concentrates to household insecticide consumer marketers and lawn & garden consumer marketers A stable market of 0.5 bn Predominantly insecticides and herbicides Lawn & garden is driven by North America, 60 % of household insecticide market in Asia Bayer position: # 2 Our main customers include: SC Johnson, Scotts, TechPac, Sumitomo CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 9 Which Market Segments Do We Operate in? Professional Products Green Industry Turf, lawn & ornamentals - lawn care operators Golf & sport facilities, nurseries, cities / parks Industrial vegetation management; railways / roads, forestry A 1.2 bn market, growing at ~1 % p.a. Turf & ornamentals, combining more than 2/3 of the market and representing the high value segments 66 % of the market are in North America Bayer position: # 1 Our main customers include: Lesco, Prokoz, DB/SNCF, TrueGreen/Chem Lawn, Verdicon CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 10 5
Which Market Segments Do We Operate in? Professional Products Professional Pest Management General insect and rodent control Termite control Stored products (agricultural commodities) Market size 1.1 bn, growing at ~1.5 % p.a. 100 % insecticide market but highly segmented Globally driven market segment Bayer position: # 1 Our main customers include: Univar, Speckoz, Terminix, Orkin CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 11 Which Market Segments Do We Operate in? Professional Products Vector / Locust Control Insect-borne disease control (Malaria, Chagas ) Urban mosquito control Market size 0.2 bn, growing at 2-3 % p.a. Driven by donor / funding community Primarily in southern hemisphere countries Bayer position: # 1 Our main customers include: UNICEF, NGO s, Ministries of Health CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 12 6
North America, Europe and Japan Represent more than 80% of our Strategic Market Relevant Market Size: 4,280 m North America 58 % of the 58% market Branded Pest & Weed Control Turf & Ornamentals Termites General Insect Control Europe 19 % of the market Branded Pest & Weed Control Turf & Ornamentals Ind. Vegetation Management General Insect Control Market Growth: +1.5 % Market Growth: +3 % Region International 16 % of the market Vector Control General Insect Control 16% Market Growth: +2 % Japan 7 % of the market Turf & Ornamentals Termites General Insect Control Market Growth: -0.5 % CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 13 A Balanced Presence in the Environmental Science Global Strategic Markets Global Market 2004* 4,280 million Environmental Science Sales 2004 678 million 5 % Vector / Locust 7 % 25 % Professional Pest Management 20 % 28 % Green Industry 29 % 12 % Speciality Actives 15 % 30 % Branded Pest and Weed Control 29 % *) Strategic market: excluding fertilizers and growing media, farm hygiene and wood preservation CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 14 7
Leading Position in ES Professional and Consumer Markets Professional Consumer Branded Pest and Weed Control** 2004 Total Market: 2.5 bn* 2004 Total Market 1.3 bn 22 % 16 % 17 % 12 % 9 % 8 % 13 % 10 % 4 % 3 % Bayer Dow Syngenta BASF FMC Scotts Monsanto Bayer UIC Central Garden *) Strategic market only, excluding farm hygiene and wood preservation **) w/o speciality actives CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 15 The Key Growth Drivers for Both Businesses are very Positive Trends Cocooning and aging Increased hygiene and health awareness Growing importance of brands Safe, easy-to-use delivery solutions in Professional and Consumer markets Higher, more Environmental Science specific regulatory hurdles Growing urbanization and income level Consequences Driver of market growth in Branded Lawn & Garden and Lawn Care business Driving growth in Professional Pest Mgmt., Vector Control and Lawn& Garden Strong umbrella brands increase business value and raise hurdle for generic entry Increase of baiting solutions in Professional and Ready-To-Use mixtures in Consumer Raises costs but also hurdles for generic entry into the market Driver of long term market growth ex US, Europe and Japan CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 16 8
Key Success Factors to Exploit the Full Value of the Environmental Science Business Presence in all Environmental Science professional segments with a broad product portfolio based on Bayer CropScience in-house active ingredients Strong brands in Environmental Science markets Dedicated marketing, sales and customer support organizations Competence in proximity innovation Bayer Environmental Science is well positioned to meet the key success factors of its business CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 17 Competence in Proximity Innovation Generating Tailor-made Products for our Customers From aerial applications to impregnated bed nets From liquid applications to plant pins with month-long insect control From sprays and dust to gel and foam baits Key objectives of proximity innovation are easy application, convenience and user safety CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 18 9
Fire Ants An Opportunity in a Fast Growing Market Professional Fire Ant Control Red imported fire ants (RIFA) are very aggressive stinging insects Infesting more than 300 million acres in the southern U.S. Primary insect problem for Southern home lawns, schools, parks, business and industrial sites. Nearly 60 % of residents living in infested areas are stung each year. CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 19 Fire Ants An Opportunity in a Fast Growing Market Heighten awareness of fire ants as a serious public health pest Increase awareness of and demand for top choice brand Creating consumer demand in the lawn care professional segment Video Clip CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 20 10
Leveraging the BAYER Brand in Both Businesses Consumer Corporate Umbrella Brand Strategy Solutions from Bayer Professional One product One brand Strategy Specific branding strategies for the Consumer and the Professional Segment, build on Bayer brand value CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 21 Focus on Strong Brands Rationalization of 90 active ingredients from 2002 to 2007 (to 110 a.i. s) Balanced portfolio of brands in all relevant market segments Consumer Pest & Weed Control Green Industry Prof. Pest Management Vector/Locust Control Umbrella brand US Broad spectrum insecticide Insecticide gel Insecticide tablet Umbrella brand Europe Contact fungicide Termiticide Contact insecticide CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 22 11
Imidacloprid Lifecycle Extension through Proximity Innovation Targeted replacements Label expansion and enhanced formulations Co-Formulation Limited launch formulations Life Cycle Tree Care Gel Marathon 1%G Plant Pins + Fertilizer 2nd Gen. Allectus 3rd Gen. Discus Lesco Bandit Complete All in One Tree Care Gel Marathon 1%G Plant Pins + Fertilizer ETQ/EPQ Plus FXT 2nd Gen. Allectus 3rd Gen. Discus Lesco Bandit Complete All in One Tree Care Gel Marathon 1%G Plant Pins + Fertilizer 1993-2002 2003-2004 2005-2007 2008 onwards Proximity innovation and branding - important tools in market segmentation and product differentiation CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 23 Imidacloprid Lifecycle Extension through Proximity Innovation Products with IP protection Targeted replacements Label expansion and enhanced formulations Co-Formulation Limited launch formulations Life Cycle Tree Care Gel Marathon 1%G Plant Pins + Fertilizer 2nd Gen. Allectus 3rd Gen. Discus Lesco Bandit Complete All in One Tree Care Gel Marathon 1%G Plant Pins + Fertilizer 1993-2002 2003-2004 2005-2007 2008 onwards Proximity innovation and branding - important tools in market segmentation and product differentiation ETQ/EPQ Plus FXT 2nd Gen. Allectus 3rd Gen. Discus Lesco Bandit Complete All in One Tree Care Gel Marathon 1%G Plant Pins + Fertilizer CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 24 12
Exploiting the Full Value of our Active Ingredients Environmental Science Sales Crop Protection Sales 2004 Sales Imidacloprid 25 % 75 % 603 m Deltamethrin 42 % 58 % 172 m Cyfluthrin 42 % 58 % 64 m Environmental Science products add significantly to the potential of our active ingredients CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 25 Increasing Consumer Acceptance by Shifting from Killing Insects & Weeds to Providing Health & Greening Solutions Perceived higher risks and lower benefit Perceived lower risks and higher benefit Killing Growing Greening Hygiene Health Pesticides (liquids) Fertilizers Soil Household Detergents Cosmetics Drugs Bayer Garden Plant Pins MaxForce Select Baits MaxForce TickBox Impregnated Bednets CropScience Investor Days Lyon, September 5 & 6, 2005 Slide 26 13
New Products Driving above Market Growth Environmental Science market expected to grow 1 2 percent per annum. 130 m Bayer Environmental Science intends to grow 3 percentage points above market. New products* expected to drive above market growth. Biggest contribution from products based on proximity innovation. 50 m 2004 2007e Sales of new products based on new active ingredients Sales of new products based on proximity innovation * new products launched since 2003 CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 27 Adding Value to Bayer CropScience Strong brands Capturing the full market potential of our active ingredients Sustaining the product lifecycle Exploiting attractive growth potential and above average margins Bayer Environmental Science - A leading force in its industry CropScience Analyst & Investor Days Lyon, September 5-6, 2005 Slide 28 14
Your partner for growth 15