Edgar Filing: BAYER AKTIENGESELLSCHAFT

2007 Q2

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of August 2007

Commission File Number: 001-16829

Bayer Aktiengesellschaft
Bayer Corporation*

(Translation of registrant’s name into English)

Bayerwerk, Gebaeude W11
Kaiser-Wilhelm-Allee
51368 Leverkusen
Germany
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F þ Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b)(1): N/A

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b)(7): N/A

Indicate by check mark whether, by furnishing the information contained in this form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A

Bayer Corporation is also the name of a wholly-owned subsidiary of the registrant in the United States.

Bayer Group Key Data

2nd Quarter

1st Half

Full Year

2006

2007

Change

2006

2007

Change

2006

€ million

Net sales

6,736

8,217

+ 22.0

13,527

16,552

+ 22.4

28,956

Change in sales

Volume

+ 4

+ 5

+ 4

+ 6

+ 5

Price

+ 1

Currency

– 3

+ 3

– 4

Portfolio

+ 2

+ 19

+ 1

+ 20

+ 12

EBITDA¹

1,269

1,572

+ 23.9

2,705

3,346

+ 23.7

4,675

Special items

(34

)

(234

)

(162

)

(450

)

(909

)

EBITDA before special items

1,303

1,806

+ 38.6

2,867

3,796

+ 32.4

5,584

EBITDA margin before special items

19.3

22.0

21.2

22.9

19.3

EBIT²

877

917

+ 4.6

1,926

2,092

+ 8.6

2,762

Special items

(34

)

(268

)

(162

)

(468

)

(717

)

EBIT before special items

911

1,185

+ 30.1

2,088

2,560

+ 22.6

3,479

EBIT margin before special items

13.5

14.4

15.4

15.5

12.0

Non-operating result

(228

)

(257

)

– 12.7

(438

)

(475

)

– 8.4

(782

)

Net income

452

660

+ 46.0

1,052

3,469

•

1,683

Earnings per share (€)³

0.60

0.83

1.41

4.27

2.22

Core earnings per share (€)⁴

0.74

1.03

1.74

2.28

3.24

Gross cash flow⁵

928

1,187

+ 27.9

2,017

2,598

+ 28.8

3,913

Net cash flow⁶

882

816

– 7.5

920

1,191

+ 29.5

3,928

Cash outflows for capital expenditures

340

440

+ 29.4

759

641

– 15.5

1,876

Research and development expenses

439

650

+ 48.1

853

1,275

+ 49.5

2,297

Depreciation and amortization

392

655

+ 67.1

779

1,254

+ 61.0

1,913

Number of employees at end of period⁷

105,700

104,600

– 1.0

105,700

104,600

– 1.0

106,000

Personnel expenses

1,475

1,894

+ 28.4

2,961

3,792

+ 28.1

6,630


2006 figures restated

¹		ebitda = ebit plus amortization of intangible assets and depreciation of property, plant and equipment. ebitda, ebitda before special items and ebitda margin are not defined in the International Financial Reporting Standards and should therefore be regarded only as supplementary information. The company considers underlying ebitda to be a more suitable indicator of operating performance since it is not affected by depreciation, amortization, write-downs/write-backs or special items. The company also believes that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of data over time. The underlying ebitda margin is calculated by dividing underlying ebitda by sales. See also page 31.

²		ebit as shown in the income statement

³		Earnings per share as defined in IAS 33 = net income divided by the average number of shares. For details see page 42.

⁴		Core earnings per share is not defined in the International Financial Reporting Standards and should therefore be regarded only as supplementary information. The company believes that this indicator gives readers a clearer picture of the results of operations and ensures greater comparability of data over time. The calculation of core earnings per share is explained on page 33.

⁵		Gross cash flow = income after taxes from continuing operations plus income taxes, plus/minus non-operating result, minus income taxes paid, plus depreciation, amortization and write-downs, minus write-backs, plus/minus changes in pension provisions, minus gains/plus losses on retirements of noncurrent assets, plus non-cash effects of the remeasurement of acquired assets. The change in pension provisions includes the elimination of non-cash components of the operating result. It also contains benefit payments during the year. For details see page 26f.

⁶		Net cash flow = cash flow from operating activities according to IAS 7

⁷		Number of employees in full-time equivalents

Contents


Interim Group Management Report as of June 30, 2007
Overview of Sales, Earnings and Financial Position			4
Future Perspectives			7
Pharmaceuticals Research and Development Pipeline			8
Performance by Subgroup and Segment			10
Bayer HealthCare			12
Bayer CropScience			18
Bayer MaterialScience			22
Performance by Region			24
Liquidity and Capital Resources			26
Employees			28
Risk Report			29
Subsequent Events			30
Calculation of EBIT(DA) Before Special Items			31
Investor Information			32
Consolidated Interim Financial Statements as of June 30, 2007
Bayer Group Statements of Income			34
Bayer Group Balance Sheets			35
Bayer Group Statements of Cash Flows			36
Bayer Group Statements of Recognized Income and Expense			37
Notes to the Consolidated Interim Financial Statements as of June 30, 2007			38
Key Data by Segment			38
Key Data by Region			40
Explanatory Notes			42
Responsibility Statement			46
Review Report			47
Financial Calendar, Masthead			48

Half-Year Financial Report 2007

Gratifying performance in the second quarter of 2007:

Bayer continues on a path of growth

•		Sales up 22.0 percent to €8.2 billion

•		EBITDA before special items improves by 38.6 percent to €1.8 billion

•		EBIT before special items rises 30.1 percent to €1.2 billion

•		Net income advances by 46.0 percent to €0.7 billion

•		Pharmaceutical research and development realigned

•		Full-year EBITDA margin before special items expected to exceed 20 percent for the first time

Overview of Sales, Earnings and Financial Position

Second quarter of 2007

The Bayer Group had a very good second quarter in 2007, following on from the excellent figures for the first three months. Sales grew by 22.0 percent to €8,217 million (Q2 2006: €6,736 million). This figure includes a €1,489 million contribution from the acquired business of Schering AG, Berlin, Germany (Q2 2006: €144 million pro rata temporis). Adjusted for currency and portfolio effects, sales moved ahead by 5.4 percent, with business expanding by 9.3 percent at Bayer HealthCare, 1.9 percent at Bayer CropScience and 6.3 percent at Bayer MaterialScience.

ebitda before special items climbed by 38.6 percent to €1,806 million (Q2 2006: €1,303 million). The figures for HealthCare jumped by 106.2 percent to €969 million (Q2 2006: €470 million), mainly as a result of the Schering acquisition and the pleas-

Half-Year Financial Report 2007

ing performance of all the HealthCare divisions. CropScience increased its earnings contribution to €396 million (Q2 2006: €368 million), thanks largely to higher volumes and to savings from the cost-containment programs. ebitda before special items at MaterialScience came in level with the preceding quarter, as expected, at €409 million (Q2 2006: €450 million), in light of increased raw material costs.

ebit before special items improved by 30.1 percent in the second quarter of 2007, to €1,185 million (Q2 2006: €911 million). Special charges amounted to €268 million (Q2 2006: €34 million), including €209 million for the acquisition and integration of Schering, Berlin, Germany. ebit after special items rose by 4.6 percent to €917 million (Q2 2006: €877 million).

After a non-operating result of minus €257 million (Q2 2006: minus €228 million), income before income taxes was €660 million (Q2 2006: €649 million). The non-operating result contained net interest expense of €205 million (Q2 2006: €129 million), reflecting particularly the financing costs for the Schering acquisition. After tax expense of €247 million (Q2 2006: €198 million), income from continuing operations after taxes came to €413 million (Q2 2006: €451 million).

Income from discontinued operations after taxes was €244 million. This figure includes divestment proceeds of €231 million from the sale of Wolff Walsrode to Dow Chemical Company, which was completed in June 2007.

After minority stockholders’ interest, net income of the Bayer Group improved to €660 million (Q2 2006: €452 million). Earnings per share came to €0.83 (Q2 2006: €0.60).

Gross cash flow increased by 27.9 percent year on year to €1,187 million (Q2 2006: €928 million), due to the strong growth in business and the inclusion of Schering, Berlin, Germany. Net cash flow fell by €66 million to €816 million (Q2 2006: €882 million), mainly because of higher tax payments, bonus payments and disbursements for restructuring. Provisions for these payments had been recorded and recognized in income in previous quarters. The total net cash flow including discontinued operations was €780 million (Q2 2006: €1,002 million), with the decline attributable primarily to the discontinued operations.

Half-Year Financial Report 2007

Net debt amounted to €13.6 billion at June 30, 2007, exceeding the March 31 amount by €0.8 billion. This increase was mainly due to the €0.8 billion dividend payment. It should also be borne in mind that second-quarter interest and tax payments were at the expected high level.

Provisions for pensions and other post-employment benefits declined by €0.6 billion compared with March 31, 2007, to €5.6 billion, mainly because of higher capital market interest rates.

First half of 2007

In the first half of 2007, too, the Bayer Group posted a further significant improvement in operating performance. Sales from continuing operations increased by 22.4 percent to €16,552 million (H1 2006: €13,527 million). On a currency- and portfolio-adjusted basis, sales rose by 6.4 percent.

ebitda before special items advanced by 32.4 percent to €3,796 million (H1 2006: €2,867 million). ebit before special items rose by 22.6 percent in the first half of 2007, to €2,560 million (H1 2006: €2,088 million). Net special charges came to €468 million (H1 2006: €162 million). The acquisition and integration of Schering, Berlin, Germany, led to special charges of €348 million, while net special charges of €87 million resulted from restructuring at CropScience and MaterialScience. After special items, ebit of the Bayer Group moved ahead by 8.6 percent to €2,092 million (H1 2006: €1,926 million).

After a non-operating result of minus €475 million (H1 2006: minus €438 million), income before income taxes came in at €1,617 million (H1 2006: €1,488 million). The non-operating result contained net interest expense of €361 million (H1 2006: €272 million). After tax expense of €548 million (H1 2006: €475 million), income from continuing operations after taxes was €1,069 million (H1 2006: €1,013 million).

Income from discontinued operations after taxes was €2.4 billion, including divestment gains of €2.1 billion for the Diagnostics business and €0.1 billion for H.C. Starck in the first quarter and €0.2 billion for Wolff Walsrode in the second quarter.

After minority stockholders’ interest, the Bayer Group posted first-half net income of €3,469 million (H1 2006: €1,052 million). Earnings per share came to €4.27 (H1 2006: €1.41).

Gross cash flow in the first half of 2007 improved by 28.8 percent compared to the prior-year period, to €2,598 million (H1 2006: €2,017 million), due to the positive sales performance and the inclusion of Schering, Berlin, Germany. Net cash flow rose by €271 million to €1,191 million (H1 2006: €920 million) due to substantial cash receipts in the first quarter. The total net cash flow including discontinued operations was €1,193 million (H1 2006: €1,130 million).

Half-Year Financial Report 2007

Future Perspectives

Economic outlook

In the second half of 2007 we expect the global economic upswing to continue. Robust growth in Europe and in the emerging economies of Asia and Latin America is expected to compensate for the slight downturn in the United States. China and India, in particular, with their rapidly expanding economies, are contributing increasingly to global economic growth. While taking a confident overall view of the world economy, we are aware that the trend in oil prices and geopolitical uncertainties pose certain risks.

We anticipate that the pharmaceuticals market will maintain its current pace of steady growth. We expect a further improvement in the crop protection market environment compared to the prior-year period. Markets for the products of MaterialScience will probably show only a slight overall improvement, with regional growth rates diverging considerably.

Bayer Group sales and earnings forecast

We continue to target an increase of more than 10 percent in Group sales for the full year 2007. Adjusted for portfolio and currency effects, business should expand by about 5 percent.

In June we raised our full-year earnings guidance for the Bayer Group and Bayer Health-Care. We plan to increase the Group ebitda margin before special items to more than 20 percent (previous forecast: slightly increase on the prior-year figure of 19.3 percent). We expect to expand the ebitda margin before special items to more than 22 percent by 2009 (previous forecast: approximately 22 percent).

We are optimistic about the prospects for our HealthCare business. For the year as a whole, we continue to expect that all of its divisions will grow with or faster than the market. We have increased the target margin for HealthCare to 25 percent for the current year (previous forecast: improvement toward 24 percent). The integration of the acquired business of Schering, Berlin, Germany, is proceeding more quickly than planned. We are confident that we will be able to realize synergies of more than €800 million by 2009 (previous forecast: €700 million). Also by 2009, we aim to achieve an ebitda margin before special items of approximately 28 percent (previous forecast: 27 percent) in our HealthCare business.

The market environment for our CropScience business was positive in the first half of the year, as anticipated. We expect year-on-year growth in sales in the second half (previous forecast: full-year sales to grow slightly faster than the market) and are now targeting an increase in the full-year ebitda margin before special items to more than 22 percent (previous forecast: improvement toward 22 percent).

MaterialScience sustained a good, value-creating earnings level in the first six months of 2007. ebitda before special items in the third quarter is likely to remain on a par with the second quarter.

In connection with the passage of corporate tax reform legislation in Germany, we expect to receive one-time non-cash tax income of approximately €0.9 billion in the third quarter of 2007. This results particularly from the remeasurement of the deferred tax liabilities accrued in connection with the Schering acquisition based on the lower nominal rates of corporate income tax applicable in Germany beginning in 2008. Because the assessment base has been significantly widened in order to finance the reduction in nominal tax rates, only limited relief in terms of the total tax payable is expected in the coming years.

Half-Year Financial Report 2007

Pharmaceuticals Research and Development Pipeline

We announced in our 2006 Annual Report that the Pharmaceuticals Division’s research and development pipeline was under evaluation. Our research and development activities have now undergone a strategic realignment, representing a further milestone in the integration of Schering, Berlin, Germany.

Bayer’s drug discovery research will focus on four growth areas in the future: Oncology, Cardiology, Women’s Healthcare and Diagnostic Imaging. The clinical development of new products and further development of products already on the market will be maintained across all units.

The pharmaceuticals research and development pipeline comprises 20 projects in Phase iii, 16 projects in Phase ii and 14 projects in Phase i. A further 9 projects have already been submitted to the various regulatory authorities for marketing authorization. As part of the realignment, a total of 20 projects from the combined Bayer/Schering pipeline have been discontinued either for strategic reasons or due to low success prospects.

Recently presented Phase iii study data on the prevention of venous thromboembolism (vte) in patients undergoing knee replacement surgery show the anticoagulant rivaroxaban (bay 59-7939) to be more effective than the current therapeutic standard enoxaparin. In this trial, patients treated with rivaroxaban were 49 percent less likely to suffer deep-vein thrombosis (dvt), pulmonary embolism or death than those treated with enoxaparin. An even greater (62 percent) reduction of risk of developing major vte was observed in the patients treated with rivaroxaban, which also demonstrated a similarly low rate of major bleeding compared to enoxaparin (0.6 percent and 0.5 percent, respectively). More than 2,500 patients were included in this Phase iii trial on the prevention of venous thromboembolism after major knee replacement surgery. The trial forms part of rivaroxaban’s extensive development program. We intend to apply for marketing approval in this first indication by the end of this year in Europe and in 2008 in the United States. It is planned to market the product under the trade name Xarelto^® following its approval by the regulatory authorities.

At the beginning of June 2007 we presented the results of a Phase iii study involving our oncology product Nexavar^® (sorafenib) in the treatment of liver cancer. The results show that Nexavar^® increases overall survival by 44 percent over placebo in patients with advanced hepatocellular carcinoma. Liver cancer is among the most common types of cancer worldwide. As there is currently no approved treatment that can demonstrably increase overall survival in patients suffering from this disease, Nexavar^® could have the potential to become the therapeutic standard. The dossiers for regulatory approval were submitted in the United States and the European Union in June 2007. Further clinical trials with Nexavar^® are ongoing in other indications as well.

In the field of hematology, our pipeline has been strengthened by the successful inlicensing of a late-stage hemostasis project. Bayer HealthCare has acquired the commercialization rights outside the United States for recombinant human thrombin (rThrombin) from U.S.-based ZymoGenetics. The two companies plan to jointly market the product in the United States for the control of surgical bleeding.

Phase ii clinical trials with a new formulation of our recombinant blood coagulation Factor viii product Kogenate^® are due to begin at the end of 2007. This formulation, based on liposome technology, could potentially prolong the product’s activity, thereby reducing the number of infusions needed and contributing significantly to the success of preventive therapy in hemophilia patients. Our developmental product would thus be the only long-acting Factor viii product in clinical trials. Market introduction is planned for 2011 in Europe and 2012 in the United States.

Half-Year Financial Report 2007

Milestones have also been achieved for our cardiology pipeline, with three compounds demonstrating efficacy in various human heart diseases: bay 58-2667 has been investigated in acute decompensated heart failure, bay 63-2521 in patients with pulmonary hypertension, and bay 68-4986 as a therapy for stable angina pectoris.

On top of these latest successes, we have defined clear objectives and expect 10 projects in our pipeline to reach Phase iii clinical testing by the end of 2009. Alemtuzumab for the treatment of multiple sclerosis is scheduled to enter Phase iii trials this year. The Phase iii development program for vegf Trap-Eye to treat serious eye diseases has now begun. In our early-stage pipeline, we aim to advance three drug candidates from preclinical development into Phase i clinical testing by the end of 2007. In our ongoing clinical trials, we also intend to demonstrate the efficacy of four more active substances in patients before the end of this year.

The following table shows the current status of the Phase iii and ii projects in our pharmaceuticals research and development pipeline:

Research and development projects (Phases III and II)


	Indication	Status
Rivaroxaban	Prevention of venous thromboembolism	Phase iii
Rivaroxaban	Stroke prevention in atrial fibrillation	Phase iii
Rivaroxaban	Treatment of deep-vein thrombosis	Phase iii
Nexavar^®	Melanoma	Phaseiii
Nexavar^®	Non-small-cell lung cancer	Phase iii
Zevalin^®	Non-Hodgkin lymphoma	Phase iii
Campath^®	Chronic lymphatic leukemia	Phase iii
Bonefos^®	Prevention of bone metastasis in breast cancer	Phase iii
Combined oral contraceptive for dysmenorrhea (Japan)	Dysmenorrhea	Phase iii
YAZ^® Extended Regimen	Fertility control	Phase iii
E2/DNG OC	Fertility control/excessive bleeding	Phase iii
Mirena^® Menorrhagia (USA)	Menorrhagia	Phase iii
Angeliq^® low-low	Menopause management	Phase iii
Visanne^®	Endometriosis	Phase iii
Combined oral contraceptive containing folate	Fertility control	Phase iii
LCS	Fertility control	Phase iii
Betaferon^® high dose (BEYOND)	Multiple sclerosis	Phase iii
VEGF Trap-Eye	Wet age-related macular degeneration (AMD)	Phase iii
Ultravist^® 370	Computed tomography	Phase iii
Avelox^®	New indications	Phase iii
Adenosine A1 agonist	Atrial fibrillation/stable angina pectoris	Phase ii
sGC activator	Acute heart failure	Phase ii
sGC stimulator	Pulmonary hypertension	Phase ii
Rivaroxaban	Acute coronary syndrome	Phase ii
L19 interleukin 2	Renal cell carcinoma	Phase ii
ZK-PRA	Breast cancer	Phase ii
Sagopilone (ZK-EPO)	Lung/ovarian/breast/prostate cancer	Phase ii
Spheramine^®	Parkinson’s disease	Phase ii
Kogenate^®	Formulation based on liposome technology	Phase ii
Nexavar^®	Breast cancer	Phase ii
Nexavar^®	Other solid tumors	Phase ii
FC Patch	Fertility control	Phase ii
Valette^® Low	Fertility control	Phase ii
Alemtuzumab	Multiple sclerosis	Phase ii
Gadovist^®	Magnetic resonance imaging	Phase ii
Levitra^®	New indications	Phase ii

Half-Year Financial Report 2007

Performance by Subgroup and Segment

Changes in corporate structure

Our business activities are grouped into the HealthCare, CropScience and MaterialScience subgroups.

As of June 30, 2007, our interest in the voting capital of Bayer Schering Pharma AG, Berlin, Germany, amounted to 96.3 percent. The acquired business of Schering, Berlin, Germany, is included in the Pharmaceuticals segment of the HealthCare subgroup as of June 23, 2006.

The names “Bayer Schering Pharma” or “Schering” as used in this report always refer to Bayer Schering Pharma AG, Berlin, Germany, or its predecessor, Schering AG, Berlin, Germany, respectively. The reference to Bayer Schering Pharma AG or Schering AG also includes business conducted by affiliated entities in countries outside Germany. Bayer Schering Pharma AG and Schering-Plough Corporation, New Jersey, United States, are unaffiliated companies that have been totally independent of each other for many years.

The commentaries in this report relate exclusively to continuing operations, except where specific reference is made to discontinued operations or to a total value (total). The divested activities of the Diagnostics Division, H.C. Starck and Wolff Walsrode are reported as discontinued operations. The prior-year data have been restated accordingly.

Sales by Segment in Percent, 1st Half 2007 (1st Half 2006 in parentheses)

Half-Year Financial Report 2007

Key Data by Subgroup and Segment


					EBIT						EBITDA				EBITDA margin
	Sales				before special items*						before special items*				before special items*
	2nd Quarter		2nd Quarter		2nd Quarter			2nd Quarter			2nd Quarter		2nd Quarter		2nd Quarter			2nd Quarter
€ million	2006		2007		2006			2007			2006		2007		2006			2007

HealthCare		2,257		3,717		371			640			470		969		20.8	%		26.1	%
Pharmaceuticals		1,188		2,583		173			416			237		711		19.9	%		27.5	%
Consumer Health		1,069		1,134		198			224			233		258		21.8	%		22.8	%

CropScience		1,578		1,562		230			262			368		396		23.3	%		25.4	%
Crop Protection		1,269		1,262		159			196			277		310		21.8	%		24.6	%
EnvironmentalScience, BioScience		309		300		71			66			91		86		29.4	%		28.7	%

MaterialScience		2,547		2,623		336			290			450		409		17.7	%		15.6	%
Materials		723		757		101			29			139		71		19.2	%		9.4	%
Systems		1,824		1,866		235			261			311		338		17.1	%		18.1	%

Reconciliation		354		315		(26	)		(7	)		15		32		4.2	%		10.2	%

Continuing operations		6,736		8,217		911			1,185			1,303		1,806		19.3	%		22.0	%

2006 figures restated


*		for definition see Bayer Group Key Data on page 2, also page 31


					EBIT					EBITDA				EBITDA margin
	Sales				before special items*					before special items*				before special items*
	1st Half		1st Half		1st Half			1st Half		1st Half		1st Half		1st Half			1st Half
€ million	2006		2007		2006			2007		2006		2007		2006			2007

HealthCare		4,460		7,327		756			1,264		935		1,917		21.0	%		26.2	%
Pharmaceuticals		2,336		5,078		380			836		483		1,422		20.7	%		28.0	%
Consumer Health		2,124		2,249		376			428		452		495		21.3	%		22.0	%

CropScience		3,349		3,348		638			709		919		980		27.4	%		29.3	%
Crop Protection		2,682		2,696		444			539		683		771		25.5	%		28.6	%
EnvironmentalScience, BioScience		667		652		194			170		236		209		35.4	%		32.1	%

MaterialScience		5,033		5,231		759			581		989		818		19.7	%		15.6	%
Materials		1,433		1,496		233			67		309		151		21.6	%		10.1	%
Systems		3,600		3,735		526			514		680		667		18.9	%		17.9	%

Reconciliation		685		646		(65	)		6		24		81		3.5	%		12.5	%

Continuing operations		13,527		16,552		2,088			2,560		2,867		3,796		21.2	%		22.9	%

2006 figures restated


*		for definition see Bayer Group Key Data on page 2, also page 31

Half-Year Financial Report 2007

Bayer HealthCare

Sales of the HealthCare subgroup rose in the second quarter of 2007 by 64.7 percent to €3,717 million (Q2 2006: €2,257 million), with the acquired business of Schering, Berlin, Germany, accounting for €1,489 million (Q2 2006: €144 million pro rata temporis). Adjusted for currency and portfolio effects, sales increased by 9.3 percent thanks to the positive business trend in both segments.

Bayer HealthCare improved ebitda before special items by 106.2 percent in the second quarter of 2007, to €969 million (Q2 2006: €470 million). The increase was mainly due to the earnings contributions from the acquired Schering business and the synergies of around €100 million already realized. ebit before special items also came in considerably above the prior-year period, at €640 million (Q2 2006: €371 million). After special charges of €209 million related to the integration of Schering, ebit amounted to €431 million, which was 21.4 percent more than for the same period of last year.

2nd

Quarter

1st Half

2006

2007

Change

2006

2007

Change

Bayer HealthCare

€ million

Net sales

2,257

3,717

+ 64.7

4,460

7,327

+ 64.3

EBITDA¹

454

788

+ 73.6

913

1,571

+ 72.1

Special items

(16

)

(181

)

(22

)

(346

)

EBITDA before special items²

470

969

+ 106.2

935

1,917

+ 105.0

EBITDA margin before special items

20.8

26.1

21.0

26.2

EBIT¹

355

431

+ 21.4

734

916

+ 24.8

Special items

(16

)

(209

)

(22

)

(348

)

EBIT before special items²

371

640

+ 72.5

756

1,264

+ 67.2

Gross cash flow¹

336

545

+ 62.2

628

1,102

+ 75.5

Net cash flow¹

367

284

– 22.6

410

667

+ 62.7


¹		for definition see Bayer Group Key Data on page 2

²		for definition see also page 31

2nd

Quarter

1st Half

2006

2007

Change

2006

2007

Change

Pharmaceuticals

€ million

Sales

1,188

2,583

+ 117.4

2,336

5,078

+ 117.4

Primary Care¹

753

766

+ 1.7

1,540

1,539

– 0.1

Women’s Healthcare²

652

•

1,279

•

Diagnostic Imaging (including Medrad)²

330

•

637

•

Specialized Therapeutics²

310

•

613

•

Hematology/Cardiology

252

271

+ 7.5

579

539

– 6.9

Oncology³

188

•

347

•

Dermatology (Intendis)²

•

124

•

EBITDA⁴

223

530

+ 137.7

464

1,076

+ 131.9

Special items

(14

)

(181

)

(19

)

(346

)

EBITDA before special items⁵

237

711

•

483

1,422

+ 194.4

EBITDA margin before special items

19.9

27.5

20.7

28.0

EBIT⁴

159

207

+ 30.2

361

488

+ 35.2

Special items

(14

)

(209

)

(19

)

(348

)

EBIT before special items⁵

173

416

+ 140.5

380

836

+ 120.0

Gross cash flow⁴

157

381

+ 142.7

319

771

+ 141.7

Net cash flow⁴

284

202

– 28.9

273

481

+ 76.2

2006 figures restated


¹		Schering andrology business included in 2006 pro rata temporis

²		Schering sales included in 2006 pro rata temporis

³		Schering oncology business included in 2006 pro rata temporis

⁴		for definition see Bayer Group Key Data on page 2

⁵		for definition see also page 31

Half-Year Financial Report 2007

Pharmaceuticals

Sales of our Pharmaceuticals segment rose by €1,395 million in the second quarter of 2007, to €2,583 million (Q2 2006: €1,188 million), with the acquired business of Schering, Berlin, Germany, accounting for €1,489 million (Q2 2006: €144 million pro rata temporis). Adjusted for currency and portfolio changes, we experienced growth of 9.0 percent, due primarily to sharply higher sales of Nexavar^® and Kogenate^®.

The figures for the second quarter of 2006 include the business of Schering, Berlin, Germany for the period June 23 through June 30, 2006. The commentaries given below on business developments related to the acquired products include comparisons with data for the second quarter of 2006 that were prepared by Schering AG, Berlin, Germany, and do not form part of the consolidated interim financial statements of the Bayer Group. We refer to those figures as “pro forma.”


	2nd			2nd					Currency-										Currency-
	Quarter			Quarter					adjusted		1st Half			1st Half					adjusted
	2006			2007			Change		change		2006			2007			Change		change
Best-Selling Pharmaceutical Products	€ million			€ million			%		%		€ million			€ million			%		%

Betaferon^®/Betaseron^® * (Specialized Therapeutics)		25			256			•		•		25			500			•		•
Yasmin^®/YAZ^®/Yasminelle^® * (Women’s Healthcare)		17			250			•		•		17			490			•		•
Kogenate^® (Hematology/Cardiology)		179			210			+17.3		+20.1		383			411			+7.3		+1.1
Adalat^® (Primary Care)		171			162			–5.3		+0.5		328			307			–6.4		–0.1
Avalox^®/Avelox^® (Primary Care)		88			90			+2.3		+4.0		218			218			0.0		+ 3.9
Cipro^®/Ciprobay^® (Primary Care)		127			93			–26.8		–24.3		259			201			–22.4		–19.6
Mirena^® * (Women’s Healthcare)		8			88			•		•		8			169			•		•
Levitra^® (Primary Care)		73			81			+11.0		+15.0		151			165			+9.3		+14.8
Magnevist^® * (Diagnostic Imaging)		9			74			•		•		9			154			•		•
Glucobay^® (Primary Care)		76			79			+3.9		+7.8		153			151			–1.3		+3.2
Ultravist^® * (Diagnostic Imaging)		7			64			•		•		7			119			•		•
CardioAspirin^® (Primary Care)		53			57			+7.5		+12.4		101			111			+9.9		+14.1
Nexavar^® (Oncology)		23			60			+160.9		+167.6		43			107			+148.8		+157.5
Iopamiron^® * (Diagnostic Imaging)		6			57			•		•		6			104			•		•
Diane^® * (Women’s Healthcare)		5			43			•		•		5			88			•		•
Total		867			1,664			•		•		1,713			3,295			•		•
Proportion of Pharmaceuticals sales		73	%		64	%						73	%		65	%

Products ranked by first-half 2007 sales


*		acquired Schering product, sales included in 2006 pro rata temporis

2nd

Currency-

Quarter

adjusted

1st Half

adjusted

Best-Selling Schering Products

2006

2007

Change

change

2006

2007

Change

change

(pro forma)

€ million

Betaferon^®/Betaseron^® (Specialized Therapeutics)

249

256

+ 2.8

+ 5.6

481

500

+ 4.0

+ 7.7

Yasmin^®/YAZ^®/Yasminelle^® (Women’s Healthcare)

181

250

+ 38.1

+ 43.1

361

490

+ 35.7

+ 42.1

Mirena^® (Women’s Healthcare)

+ 17.3

+ 21.3

143

169

+ 18.2

+ 23.1

Magnevist^® (Diagnostic Imaging)

–12.9

–9.4

161

154

–4.3

+ 0.6

Ultravist^® (Diagnostic Imaging)

–9.9

143

119

–16.8

–15.4

Iopamiron^® (Diagnostic Imaging)

–8.1

0.0

110

104

–5.5

+ 3.6

Diane^® (Women’s Healthcare)

–4.4

–2.2

–4.3

–2.2

Half-Year Financial Report 2007

Sales of the Primary Care business unit in the second quarter of 2007 came to €766 million (Q2 2006: €753 million). Adjusted for currency and portfolio effects, the increase was 3.5 percent. The main growth driver was Levitra^®, with currency-adjusted sales up 15.0 percent, while increasing competition from generic products led to a marked decline for Cipro^®/Ciprobay^®, sales of which fell 24.3 percent on a currency-adjusted basis. This effect was partially offset by sales in Japan of the novel cholesterol-lowering drug zetia^®. We have comarketing rights for this Schering-Plough product in Japan, where it received marketing approval in April 2007. (Please note that Schering-Plough Corporation, New Jersey, and the company acquired by Bayer in June 2006, i.e. Bayer Schering Pharma AG (formerly named Schering AG), Berlin, Germany, are unaffiliated companies that have been totally independent of each other for many years.)

In our Women’s Healthcare business unit, we achieved sales of €652 million in the second quarter of 2007 (Q2 2006: €58 million pro rata temporis). Principal growth drivers here were the oral contraceptives of the Yasmin^®/yaz^®/Yasminelle^® product line, sales of which rose by 43.1 percent (pro forma) in the second quarter when adjusted for currency changes. This positive performance was due particularly to the launches of Yasminelle^® in Europe and yaz^® in the United States and Latin America. Business with our intra-uterine system Mirena^® also made encouraging progress in the second quarter, advancing by 21.3 percent (pro forma) on a currency-adjusted basis. Growth was due mainly to increased sales in the United States.

Sales of the Diagnostic Imaging business unit in the second quarter of 2007 came to €330 million (Q2 2006: €37 million pro rata temporis). While the Medrad business expanded by 11.6 percent (pro forma) when adjusted for currency changes, Magnevist^® and Ultravist^® showed currency-adjusted, pro forma declines of 9.4 and 9.9 percent, respectively. Having voluntarily withdrawn the 370 mgI/ml formulation of Ultravist^® in the summer of 2006, we have resumed sales of this product in most countries since the first quarter of 2007. Its relaunch in the U.S. market is scheduled for August 2007.

Sales of the Specialized Therapeutics business unit in the second quarter of 2007 amounted to €310 million (Q2 2006: €30 million pro rata temporis). Currency-adjusted sales of our top product Betaferon^®/Betaseron^® to treat multiple sclerosis (MS) advanced by 5.6 percent (pro forma).

Sales of the Hematology/Cardiology business unit rose by €19 million in the second quarter of 2007, to €271 million (Q2 2006: €252 million). This represents an increase of 17.6 percent after adjusting for currency and portfolio effects. Second-quarter currency-adjusted sales of Kogenate^® advanced by 20.1 percent because part of the sales volume expected for the first quarter was delayed until the second quarter. However, currency-adjusted sales of Trasylol^®, our product for use during open-heart surgery, declined by 18.4 percent. Two separate observational studies reported on a possible correlation between the administration of Trasylol^® (aprotinin) and severe renal dysfunction and vasoconstriction (myocardial infarction and stroke). A follow-up study to one of them reported on a possible correlation between administration of this product and increased long-term mortality. Based on our study data and many years of experience with Trasylol^®, Bayer believes that this product is a safe and effective medicine when used correctly. We are currently cooperating closely with the relevant regulatory authorities to resolve the questions that have arisen. In this connection a joint meeting of the Cardiovascular and Renal Drugs Advisory Committee and the Drug Safety and Risk Management Advisory Committee of the U.S. Food and Drug Administration (fda) is scheduled for September 12, 2007.

Half-Year Financial Report 2007

Our Oncology business unit lifted sales substantially in the second quarter, to €188 million (Q2 2006: €52 million). Included in this figure is €113 million in sales of the acquired oncology business of Schering AG, Berlin, Germany, which mainly comprises the key products Fludara^® and Campath^®. Currency- and portfolio-adjusted sales rose by 75.4 percent. This was mainly due to the very successful development of Nexavar^®, sales of which rose to €60 million (Q2 2006: €23 million).

The Dermatology (Intendis) business unit achieved sales of €66 million in the second quarter of 2007. The main sales drivers were the principal products Skinoren^® and Advantan^®, sales of which rose by 13.4 percent and 9.6 percent (pro forma), respectively, after adjusting for currency changes.

ebitda before special items for the Pharmaceuticals segment moved ahead in the second quarter of 2007 to €711 million (Q2 2006: €237 million). As in the preceding quarter, the substantial increase was largely due to the earnings contributions from the acquired Schering business and the synergies already achieved. ebit before special items came in €243 million, or 140.5 percent, above the prior-year quarter, at €416 million. After special charges of €209 million related to the acquisition and integration of Schering, Berlin, Germany, ebit advanced by €48 million, or 30.2 percent, to €207 million.

First-half sales of the Pharmaceuticals segment increased to €5,078 million (Q2 2006: €2,336 million), including a €2,899 million contribution (Q2 2006: €144 million pro rata temporis) from the acquired Schering business. This is equivalent to a 6.7 percent increase after adjusting for currency and portfolio changes. Contributing especially to this growth were the gratifying gains by our core products Nexavar^®, Levitra^® and Kogenate^®, which compensated for the expected drop in sales of Cipro^®/Ciprobay^®. The Pharmaceuticals segment saw ebitda before special items for the first half of 2007 advance to €1,422 million (H1 2006: €483 million). ebit before special items climbed by €456 million, or 120 percent, to €836 million. After special charges of €348 million, ebit rose by €127 million, or 35.2 percent, to €488 million.

To safeguard our Betaseron^® business, we signed an agreement with Novartis in the first quarter of 2007 to acquire the biologics manufacturing facility in Emeryville, California. Bayer Schering Pharma will continue to pay Novartis royalties equivalent to those being paid currently on net sales of Betaseron^® manufactured by Bayer at the Emeryville facilities until the original agreement with Novartis expires in October 2008. After this date, no more royalties will be due to Novartis on the sales of Betaseron^®. Bayer Schering Pharma will also acquire the existing inventories. In return, Novartis will receive a license to establish its own brand based on interferon beta-1b starting in 2009. When it is approved by the regulatory authorities, Bayer Schering Pharma will manufacture the product for Novartis from 2009 forward and receive in return a royalty from Novartis.

Half-Year Financial Report 2007

Consumer Health

Sales of our Consumer Health segment in the second quarter of 2007 were €1,134 million (Q2 2006: €1,069 million). On a currency- and portfolio-adjusted basis this corresponds to a 9.6 percent increase, which was well ahead of market growth and to which all divisions contributed.

The Consumer Care Division posted second-quarter sales of €624 million (Q2 2006: €604 million). Adjusted for currency effects, sales rose by 6.3 percent. Among our top products, Bepanthen^®/Bepanthol^® (+17.6 percent, currency-adjusted) and Canesten^® (+18.6 percent, currency-adjusted) performed very well.

Sales of the Diabetes Care Division showed a particularly strong gain, to €244 million (Q2 2006: €213 million). On a currency-adjusted basis the increase came to 19.7 percent. This pleasing trend was mainly due to the successful marketing of our blood glucose monitoring systems Ascensia^® Contour^® and Ascensia^® Breeze^®, which replace the older Elite^® systems in the Ascensia^® product family.

Second-quarter sales of the Animal Health Division rose to €266 million (Q2 2006: €252 million), with currency-adjusted sales growth amounting to 9.6 percent. Contributing particularly to the increase was the Advantage^® product line, which saw business expand by 20.1 percent.

ebitda before special items for the Consumer Health segment advanced in the second quarter of 2007 by 10.7 percent to €258 million (Q2 2006: €233 million). Earnings on the additional business more than offset the higher marketing expenses necessary to support product introductions planned for 2007. ebit before special items moved ahead 13.1 percent to €224 million (Q2 2006: €198 million). ebit amounted to €224 million (Q2 2006: €196 million).

Sales of the Consumer Health segment in the first half of 2007 increased by €125 million to €2,249 million. Adjusted for currency effects, the increase came to 10.6 percent. The Consumer Health segment posted a €43 million increase in first-half ebitda before special items, to €495 million. ebit before special items rose by 13.8 percent to €428 million (H1 2006: €376 million). ebit amounted to €428 million (H1 2006: €373 million).

Half-Year Financial Report 2007

2nd

Quarter

1st Half

2006

2007

Change

2006

2007

Change

Consumer Health

€ million

Net sales

1,069

1,134

+ 6.1

2,124

2,249

+ 5.9

Consumer Care

604

624

+ 3.3

1,246

1,283

+ 3.0

Diabetes Care

213

244

+ 14.6

406

470

+ 15.8

Animal Health

252

266

+ 5.6

472

496

+ 5.1

EBITDA¹

231

258

+ 11.7

449

495

+ 10.2

Special items

)

EBITDA before special items²

233

258

+ 10.7

452

495

+ 9.5

EBITDA margin before special items

21.8

22.8

21.3

22.0

EBIT¹

196

224

+ 14.3

373

428

+ 14.7

Special items

)

EBIT before special items²

198

224

+ 13.1

376

428

+ 13.8

Gross cash flow¹

179

164

– 8.4

309

331

+ 7.1

Net cash flow¹

– 1.2

137

186

+ 35.8


¹		for definition see Bayer Group Key Data on page 2

²		for definition see also page 31

2nd

Currency-

Quarter

adjusted

1st Half

adjusted

2006

2007

Change

change

2006

2007

Change

change

Best-Selling Consumer Health Products

€ million

Ascensia^® product line
(Diabetes Care)

208

241

+ 15.9

+ 20.2

398

464

+ 16.6

+ 21.9

Aspirin^®* (Consumer Care)

115

107

– 7.0

– 3.8

231

220

– 4.8

– 0.7

Advantage^® product line
(Animal Health)

105

+ 15.4

+ 20.1

150

180

+ 20.0

+ 26.1

Aleve^®/naproxen
(Consumer Care)

– 1.8

+ 3.6

109

124

+ 13.8

+ 21.8

Canesten^® (Consumer Care)

+ 17.5

+ 18.6

+ 11.1

+ 12.9

Bepanthen^®/Bepanthol^®
(Consumer Care)

+ 17.6

+ 10.1

+ 11.2

Baytril^® (Animal Health)

– 5.7

– 1.0

– 2.7

+ 1.1

Supradyn^® (Consumer Care)

+ 3.2

+ 7.5

– 1.5

+ 1.8

One-A-Day^® (Consumer Care)

– 3.3

+ 4.3

0.0

+ 8.2

Rennie^® (Consumer Care)

+ 8.7

+ 8.5

+ 6.1

+ 6.9

Total

663

714

+ 7.7

+ 11.6

1,288

1,404

+ 9.0

+ 13.8

Proportion of Consumer Health sales


* Total Aspirin^® second-quarter sales = €164 million (Q2 2006: €168 million), first-half sales = €331 million (H1 2006: €332 million) including Aspirin^® Cardio, which is reflected in sales of the Pharmaceuticals segment

Half-Year Financial Report 2007

Bayer CropScience

Our CropScience subgroup had sales of €1,562 million in the second quarter of 2007 (Q2 2006: €1,578 million). Currency- and portfolio-adjusted sales grew by 1.9 percent.

Second-quarter ebitda before special items advanced 7.6 percent to €396 million, thanks largely to volume increases and savings from the cost-containment programs. These effects more than offset the negative impact of shifts in exchange rates and lower prices for some products. ebit before special items came in at €262 million (Q2 2006: €230 million). Special charges totaling €51 million (Q2 2006: €0 million) were recognized for the restructuring project initiated in 2006 and for defense costs related to the legal proceedings pending in the United States concerning genetically modified rice. As a result of these charges, second-quarter ebit dropped by 8.3 percent to €211 million.

2nd
Quarter

1st Half

2006

2007

Change

2006

2007

Change

Bayer CropScience

€ million

Net sales

1,578

1,562

−1.0

3,349

3,348

0.0

EBITDA¹

368

348

−5.4

919

896

−2.5

Special items

(48

)

(84

)

EBITDA before special items²

368

396

+7.6

919

980

+6.6

EBITDA margin before special items

23.3

25.4

27.4

29.3

EBIT¹

230

211

−8.3

638

619

−3.0

Special items

(51

)

(90

)

EBIT before special items²

230

262

+13.9

638

709

+11.1

Gross cash flow¹

289

259

−10.4

676

628

−7.1

Net cash flow¹

534

494

−7.5

184

256

+39.1


¹		for definition see Bayer Group Key Data on page 2

²		for definition see also page 31

2nd
Quarter

Currency-
adjusted

1st Half

Currency-
adjusted

Best-Selling

2006

2007

Change

change

2006

2007

Change

change

Bayer CropScience

€ million

Confidor^®/Gaucho^®/Admire^®/Merit^® (Insecticides/Seed Treatment/ Environmental Science)

147

132

−10.2

−10.3

312

295

−5.4

−1.9

Basta^®/Liberty^® (Herbicides)

+11.3

+10.5

152

161

+5.9

+12.3

Proline^® (Fungicides)

+36.4

+34.2

113

147

+30.1

Folicur^®/Raxil^® (Fungicides/Seed Treatment)

−15.3

−15.0

167

138

−17.4

−14.8

Puma^® (Herbicides)

−6.8

142

138

−2.8

+1.6

Flint^®/Stratego^®/Sphere^® (Fungicides)

+39.5

+37.2

113

+29.9

+33.5

Betanal^® (Herbicides)

+7.0

+7.9

102

106

+3.9

+6.2

Decis^®/K-Othrine^® (Insecticides)

−7.1

−7.4

100

−3.0

+0.4

Atlantis^® (Herbicides)

−28.6

−31.4

+30.0

+29.8

Poncho^® (Seed Treatment)

+63.2

+61.8

+80.0

+91.3

Total

619

638

+3.1

+2.6

1,295

1,376

+6.3

+9.8

Proportion of Bayer CropScience sales


*		Figures are based on active ingredient class. For the sake of clarity, only the principal brands and business units are listed.

Half-Year Financial Report 2007

Crop Protection

Sales of the Crop Protection segment in the second quarter of 2007 amounted to €1,262 million (Q2 2006: €1,269 million). Adjusted for currency and portfolio changes, business expanded by 2.5 percent, the main contributions to this increase coming from our fungicides and seed treatment products.

Sales of the Herbicides business unit amounted to €479 million (Q2 2006: €519 million) in the second quarter of 2007. Adjusted for currency and portfolio effects, sales were down by 5.1 percent, the early start to the season in Europe having caused some cereal herbicide orders to be brought forward to the first quarter. In a difficult market environment in North America, pleasing sales of Basta^® and Liberty^® offset the negative impact of a reduction in cereal acreages in Canada.

Sales of our Fungicides business unit in the second quarter improved to €385 million (Q2 2006: €352 million). Currency- and portfolio-adjusted sales expanded by 10.8 percent, thanks mainly to our business in the United States, where we saw a gratifying sales increase in the second quarter following a weak start to the fungicide season. Very strong performers were our young cereal fungicide Proline^® throughout the world and the potato fungicide Infinite^® that was launched only last year in Europe.

Second-quarter sales of the Insecticides business unit came to €313 million (Q2 2006: €317 million). Adjusted for currency and portfolio effects, business expanded by 2.7 percent. In Europe we recorded very encouraging sales of our young insecticide Biscaya^®.

Following pleasing growth in the first three months of the year, sales of our Seed Treatment business unit climbed to €85 million in the second quarter. Currency- and portfolio-adjusted sales moved ahead by 10.8 percent. Our young insecticidal seed treatments, such as Poncho^® and the new mix product CropStar^®, were the main contributors to this increase.

2nd

Quarter

1st Half

2006

2007

Change

2006

2007

Change

Crop Protection

€ million

Net sales

1,269

1,262

– 0.6

2,682

2,696

+ 0.5

Herbicides

519

479

– 7.7

1,069

1,047

– 2.1

Fungicides

352

385

+ 9.4

730

769

+ 5.3

Insecticides

317

313

– 1.3

665

624

– 6.2

Seed Treatment

+ 4.9

218

256

+ 17.4

EBITDA¹

277

297

+ 7.2

683

722

+ 5.7

Special items

(13

)

(49

)

EBITDA before special items²

277

310

+ 11.9

683

771

+ 12.9

EBITDA margin before special items

21.8

24.6

25.5

28.6

EBIT¹

159

180

+ 13.2

444

484

+ 9.0

Special items

(16

)

(55

)

EBIT before special items²

159

196

+ 23.3

444

539

+ 21.4

Gross cash flow¹

227

219

– 3.5

512

501

– 2.1

Net cash flow¹

434

313

– 27.9

145

200

+ 37.9


¹		for definition see Bayer Group Key Data on page 2

²		for definition see also page 31

Half-Year Financial Report 2007

ebitda before special items in the Crop Protection segment expanded by 11.9 percent in the second quarter, to €310 million, due primarily to increased volumes and cost savings from the performance programs. ebit before special items climbed by 23.3 percent to €196 million. After special charges of €16 million incurred in connection with the restructuring project initiated in 2006, ebit rose by 13.2 percent to €180 million (Q2 2006: €159 million).

In the first half of 2007, sales of the Crop Protection segment reached €2,696 million (H1 2006: €2,682 million). After adjusting for currency and portfolio effects, business expanded by 4.6 percent. This was due to overall improvements in market conditions, such as the increased cultivation of plants for the production of biofuels and internationally high prices for crop commodities. First-half ebitda before special items in the first six months increased by €88 million to €771 million. ebit before special items, at €539 million, came in 21.4 percent above the prior-year period. After €55 million in special charges for restructuring, ebit came in at €484 million (H1 2006: €444 million).

Environmental Science, BioScience

In the Environmental Science, BioScience segment, we achieved second-quarter sales of €300 million (Q2 2006: €309 million). Adjusted for currency changes, business was roughly level with the prior-year period (minus 0.2 percent).

Sales of Environmental Science came to €200 million (Q2 2006: €225 million). Here, currency-adjusted sales were down 8.1 percent. The positive trend in home and garden products for consumers did not compensate for a significant drop in sales of products for professional users that resulted primarily from increased generic competition in North America.

Sales of the BioScience unit improved to €100 million (Q2 2006: €84 million). On a currency-adjusted basis this was equivalent to a 21.3 percent increase. This positive performance was attributable above all to our canola seed marketed under the brand name InVigor^®, as well as to our vegetable seed business, the cotton seed FiberMax^® and our hybrid rice seed Arize^®.

Second-quarter ebitda before special items for the Environmental Science, BioScience segment receded to €86 million (Q2 2006: €91 million). The decline was due to lower sales of products for professional users in the Environmental Science unit and adverse shifts in currency parities. ebit before special items was €66 million (Q2 2006: €71 million). After special charges totaling €35 million for restructuring in Environmental Science and provisions for the aforementioned defense costs, ebit came in at €31 million (Q2 2006: €71 million).

Half-Year Financial Report 2007

In the first half of 2007 the Environmental Science, BioScience segment posted sales of €652 million (H1 2006: €667 million). Currency-adjusted sales moved ahead 1.9 percent. Segment ebitda before special items came to €209 million (H1 2006: €236 million), while ebit before special items amounted to €170 million (H1 2006: €194 million). After special charges of €35 million (H1 2006: €0 million), ebit for the first half of 2007 was €135 million (H1 2006: €194 million).

2nd

Quarter

1st Half

2006

2007

Change

2006

2007

Change

Environmental Science, BioScience

€ million

Net sales

309

300

– 2.9

667

652

– 2.2

Environmental Science

225

200

– 11.1

418

388

– 7.2

BioScience

100

+ 19.0

249

264

+ 6.0

EBITDA¹

– 44.0

236

174

– 26.3

Special items

(35

)

(35

)

EBITDA before special items²

– 5.5

236

209

– 11.4

EBITDA margin before special items

29.4

28.7

35.4

32.1

EBIT¹

– 56.3

194

135

– 30.4

Special items

(35

)

(35

)

EBIT before special items²

– 7.0

194

170

– 12.4

Gross cash flow¹

– 35.5

164

127

– 22.6

Net cash flow¹

100

181

+ 81.0

+ 43.6


¹		for definition see Bayer Group Key Data on page 2

²		for definition see also page 31

Half-Year Financial Report 2007

Bayer MaterialScience

The MaterialScience subgroup saw further growth in business, with sales rising to €2,623 million in the second quarter of 2007 (Q2 2006: €2,547 million). Adjusted for currency effects, sales advanced by 6.3 percent year on year. The increase was largely due to higher volumes in nearly all segments and regions. Despite heavy pressure on prices in a number of markets, we achieved slightly positive price effects overall.

ebitda before special items in the second quarter of 2007 came to €409 million, down 9.1 percent from the high level of the prior-year period (Q2 2006: €450 million). Higher volumes and the slightly positive price effects did not compensate for the roughly €110 million in additional costs for raw materials and energy. ebit before special items dropped 13.7 percent to €290 million, from €336 million in the second quarter of 2006. Earnings were impacted by special charges of €24 million (Q2 2006: €18 million) for restructuring. ebit came to €266 million (Q2 2006: €318 million).

Materials

Sales in the Materials segment climbed to €757 million in the second quarter of 2007. After adjusting for currency effects, business increased by 8.5 percent. Growth took place mainly in the Polycarbonates business unit, where sales rose in all regions thanks to higher volumes.

Second-quarter ebitda before special items dropped to €71 million (Q2 2006: €139 million), with ebit down from €101 million to €29 million. This significant drop in earnings resulted chiefly from a sharp rise in raw material costs. Prices for important feedstocks such as phenol reached record highs in the second quarter, while product selling prices registered a year-on-year decline. The earnings contributions from additional volumes only partially offset these effects.

First-half sales increased to €1,496 million (H1 2006: €1,433 million). On a currency-adjusted basis, sales rose 8.7 percent. ebitda before special items came to €151 million (H1 2006: €309 million). First-half ebit amounted to €67 million (H1 2006: €233 million).

Systems

The Systems segment posted second-quarter sales of €1,866 million (Q2 2006: €1,824 million) due to slight increases in selling prices and volumes. Currency-adjusted sales improved by 5.4 percent. Our Coatings, Adhesives, Sealants business unit was the main contributor to the improvement, with currency-adjusted sales growth of 10.8 percent. We achieved slight increases in volumes and selling prices.

Second-quarter ebitda before special items in the Systems segment advanced to €338 million (Q2 2006: €311 million). The higher selling prices and volumes offset increases in raw material costs and the charges attributable to continuing difficulties experienced by our supplier of crude mdi in Shanghai. ebit before special items was €261 million (Q2 2006: €235 million). We took special charges of €24 million in the second quarter for the closure of our mdi plant in New Martinsville, West Virginia. ebit after special items came to €237 million (Q2 2006: €217 million).

The Systems segment saw sales rise to €3,735 million in the first half of 2007, with the currency-adjusted increase amounting to 7.5 percent. ebitda before special items remained nearly level with the prior-year period, at €667 million. ebit before special items was €514 million (H1 2006: €526 million). Thanks to much lower special items in the first half of 2007, ebit moved ahead by 22.2 percent to €484 million (H1 2006: €396 million).

Half-Year Financial Report 2007

2nd

Quarter

1st Half

2006

2007

Change

2006

2007

Change

Bayer MaterialScience

€ million

Net sales

2,547

2,623

+ 3.0

5,033

5,231

+ 3.9

EBITDA¹

432

389

– 10.0

859

798

– 7.1

Special items

(18

)

(20

)

(130

)

(20

)

EBITDA before special items²

450

409

– 9.1

989

818

– 17.3

EBITDA margin before special items

17.7

15.6

19.7

15.6

EBIT¹

318

266

– 16.4

629

551

– 12.4

Special items

(18

)

(24

)

(130

)

(30

)

EBIT before special items²

336

290

– 13.7

759

581

– 23.5

Gross cash flow¹

327

293

– 10.4

644

597

– 7.3

Net cash flow¹

251

278

+10.8

524

315

– 39.9

2006 figures restated


¹		for definition see Bayer Group Key Data on page 2

²		for definition see also page 31

2nd

Quarter

1st Half

2006

2007

Change

2006

2007

Change

Materials

€ million

Net sales

723

757

+ 4.7

1,433

1,496

+ 4.4

Polycarbonates

670

703

+ 4.9

1,326

1,386

+ 4.5

Thermoplastic Polyurethanes

+ 1.9

107

110

+ 2.8

EBITDA¹

139

– 48.9

309

151

– 51.1

Special items

EBITDA before special items²

139

– 48.9

309

151

– 51.1

EBITDA margin before special items

19.2

9.4

21.6

10.1

EBIT¹

101

– 71.3

233

– 71.2

Special items

EBIT before special items²

101

– 71.3

233

– 71.2

Gross cash flow¹

105

– 47.6

231

124

– 46.3

Net cash flow¹

– 71.6

123

– 100.0

2006 figures restated


¹		for definition see Bayer Group Key Data on page 2

²		for definition see also page 31

2nd

Quarter

1st Half

2006

2007

Change

2006

2007

Change

Systems

€ million

Net sales

1,824

1,866

+ 2.3

3,600

3,735

+ 3.8

Polyurethanes

1,301

1,313

+ 0.9

2,570

2,645

+ 2.9

Coatings, Adhesives, Sealants

380

410

+ 7.9

749

803

+ 7.2

Inorganic Basic Chemicals

100

104

+ 4.0

206

210

+ 1.9

Others

– 9.3

+ 2.7

EBITDA¹

293

318

+ 8.5

550

647

+ 17.6

Special items

(18

)

(20

)

(130

)

(20

)

EBITDA before special items²

311

338

+ 8.7

680

667

– 1.9

EBITDA margin before special items

17.1

18.1

18.9

17.9

EBIT¹

217

237

+ 9.2

396

484

+ 22.2

Special items

(18

)

(24

)

(130

)

(30

)

EBIT before special items²

235

261

+ 11.1

526

514

– 2.3

Gross cash flow¹

222

238

+ 7.2

413

473

+ 14.5

Net cash flow¹

163

253

+ 55.2

401

315

– 21.4


¹		for definition see Bayer Group Key Data on page 2

²		for definition see also page 31

Half-Year Financial Report 2007

Performance by Region

Bayer’s global sales expanded in the second quarter of 2007 by €1,481 million from the prior-year period, to €8,217 million. Adjusted for shifts in exchange rates, business rose by 24.9 percent. The increase was mainly due to the inclusion of Schering, Berlin, Germany. Adjusted for both currency and portfolio effects, sales gained 5.4 percent.

The largest increases in absolute terms were recorded in Europe, where second-quarter sales rose by €686 million to €3,697 million. On a currency-adjusted basis, business grew by 22.6 percent. Europe thus accounted for 45.0 percent of Group sales in the second quarter, with all subgroups posting year-on-year improvements. Adjusted for currency and portfolio changes, business in Europe grew by 4.1 percent, mainly as a result of substantial increases in the Consumer Health; Environmental Science, BioScience; and Systems segments. Sales in Germany climbed by 13.1 percent to €1,199 million, giving a 2.7 percent increase after adjusting for portfolio changes.

Sales in North America advanced to €2,140 million, or by 25.5 percent when adjusted for currency changes. Currency- and portfolio-adjusted sales were level with the prior-year quarter (+ 0.3%). The Consumer Health segment in North America developed particularly well. The CropScience and MaterialScience subgroups, however, experienced a decline in business.

In Asia/Pacific we expanded business by a substantial, currency-adjusted 30.6 percent. Adjusted for currency and portfolio changes, sales rose by 15.6 percent. In the Health-Care subgroup, we improved sales of both our Pharmaceuticals and Consumer Health businesses. Sales of CropScience in this region posted a small increase of 2.9 percent on a currency-adjusted basis. MaterialScience again registered substantial growth in Asia/ Pacific in the second quarter, with currency-adjusted sales up 19.9 percent.

Sales in the Latin America/Africa/Middle East region climbed by 30.2 percent when adjusted for currency effects. Currency- and portfolio-adjusted sales advanced by 7.7 percent. CropScience sales in the region rose by 4.6 percent (currency-adjusted), due primarily to good business with crop protection products. We also generated higher sales in HealthCare (+ 7.8 percent currency- and portfolio-adjusted) and in the MaterialScience subgroup (+ 9.1 percent currency-adjusted).

Europe

North America

Sales by Region and Segment

2nd

(by Market)

Quarter

€ million

2006

2007

adj. %

2006

2007

adj. %

HealthCare

899

1,566

+ 74.2

+ 73.9

690

1,093

+ 58.4

+ 69.7

Pharmaceuticals

477

1,114

+ 133.5

+ 133.1

314

696

+ 121.7

+ 137.1

Consumer Health

422

452

+ 7.1

+ 6.8

376

397

+ 5.6

+ 13.4

CropScience

669

675

+ 0.9

+ 0.5

462

431

– 6.7

– 0.6

Crop Protection

565

566

+ 0.2

– 0.4

337

319

– 5.3

+ 1.2

Environmental Science, BioScience

104

109

+ 4.8

+ 5.8

125

112

– 10.4

– 5.5

MaterialScience

1,118

1,169

+ 4.6

668

613

– 8.2

– 1.9

Materials

283

289

+ 2.1

+ 1.9

151

149

– 1.3

+ 5.4

Systems

835

880

+ 5.4

+ 5.5

517

464

– 10.3

– 4.0

Continuing operations (incl. reconciliation)

3,011

3,697

+ 22.8

+ 22.6

1,823

2,140

+ 17.4

+ 25.5

Asia/Pacific

Latin America/Africa/Middle East

Sales by Region and Segment

2nd

(by Market)

Quarter

€ million

2006

2007

adj. %

2006

2007

adj. %

HealthCare

336

523

+ 55.7

+ 67.0

332

535

+ 61.1

+ 65.4

Pharmaceuticals

256

438

+ 71.1

+ 84.8

141

335

+ 137.6

+ 141.7

Consumer Health

+ 6.3

+ 10.2

191

200

+ 4.7

+ 8.9

CropScience

237

0.0

+ 2.9

210

219

+ 4.3

+ 4.6

Crop Protection

185

184

– 0.5

+ 2.8

182

193

+ 6.0

+ 5.9

Environmental Science, BioScience

+ 1.9

+ 3.1

– 7.1

– 4.3

MaterialScience

476

537

+ 12.8

+ 19.9

285

304

+ 6.7

+ 9.1

Materials

217

244

+ 12.4

+ 19.5

+ 4.2

+ 7.4

Systems

259

293

+ 13.1

+ 20.2

213

229

+ 7.5

+ 9.6

Continuing operations (incl. reconciliation)

1,061

1,308

+ 23.3

+ 30.6

841

1,072

+ 27.5

+ 30.2

Continuing Operations

Sales by Region and Segment

2nd

(by Market)

Quarter

€ million

2006

2007

adj. %

HealthCare

2,257

3,717

+ 64.7

+ 68.1

Pharmaceuticals

1,188

2,583

+ 117.4

+ 120.6

Consumer Health

1,069

1,134

+ 6.1

+ 9.7

CropScience

1,578

1,562

– 1.0

+ 1.1

Crop Protection

1,269

1,262

– 0.6

+ 1.4

Environmental Science, BioScience

309

300

– 2.9

– 0.2

MaterialScience

2,547

2,623

+ 3.0

+ 6.3

Materials

723

757

+ 4.7

+ 8.5

Systems

1,824

1,866

+ 2.3

+ 5.4

Continuing operations (incl. reconciliation)

6,736

8,217

+ 22.0

+ 24.9

2006 figures restated

adj. = currency-adjusted

Europe

North America

Sales by Region and Segment

(by Market)

1st Half

€ million

2006

2007

adj. %

2006

2007

adj. %

HealthCare

1,785

3,061

+ 71.5

+ 71.5

1,384

2,238

+ 61.7

+ 74.5

Pharmaceuticals

928

2,153

+ 132.0

669

1,450

+ 116.7

+ 133.7

Consumer Health

857

908

+ 6.0

715

788

+ 10.2

+ 19.1

CropScience

1,436

1,537

+ 7.0

+ 6.8

999

878

– 12.1

– 5.3

Crop Protection

1,188

1,289

+ 8.5

+ 8.2

717

611

– 14.8

– 8.0

Environmental Science, BioScience

248

0.0

+ 0.5

282

267

– 5.3

+ 1.7

MaterialScience

2,182

2,354

+ 7.9

1,368

1,244

– 9.1

– 1.7

Materials

557

572

+ 2.7

302

298

– 1.3

+ 6.6

Systems

1,625

1,782

+ 9.7

1,066

946

– 11.3

– 4.1

Continuing operations (incl. reconciliation)

6,029

7,545

+ 25.1

+ 25.0

3,759

4,366

+ 16.1

+ 25.4

Asia/Pacific

Latin America/Africa/Middle East

Sales by Region and Segment

(by Market)

1st Half

€ million

2006

2007

adj. %

2006

2007

adj. %

HealthCare

643

989

+ 53.8

+ 64.8

648

1,039

+ 60.3

+ 70.4

Pharmaceuticals

479

817

+ 70.6

+ 83.8

260

658

+ 153.1

+ 166.9

Consumer Health

164

172

+ 4.9

+ 9.3

388

381

– 1.8

+ 5.7

CropScience

473

456

– 3.6

+ 1.0

441

477

+ 8.2

+ 13.0

Crop Protection

392

373

– 4.8

+ 0.1

385

423

+ 9.9

+ 14.2

Environmental Science, BioScience

+ 2.5

+ 5.7

– 3.6

+ 4.0

MaterialScience

926

1,043

+ 12.6

+ 20.1

557

590

+ 5.9

+ 10.6

Materials

436

484

+ 11.0

+ 18.5

138

142

+ 2.9

+ 6.7

Systems

490

559

+ 14.1

+ 21.6

419

448

+ 6.9

+ 11.9

Continuing operations (incl. reconciliation)

2,067

2,508

+ 21.3

+ 29.3

1,672

2,133

+ 27.6

+ 34.4

Continuing Operations

Sales by Region and Segment

(by Market)

1st Half

€ million

2006

2007

adj. %

HealthCare

4,460

7,327

+ 64.3

+ 68.6

Pharmaceuticals

2,336

5,078

+ 117.4

+ 121.4

Consumer Health

2,124

2,249

+ 5.9

+ 10.6

CropScience

3,349

3,348

0.0

+ 3.2

Crop Protection

2,682

2,696

+ 0.5

+ 3.5

Environmental Science, BioScience

667

652

– 2.2

+ 1.9

MaterialScience

5,033

5,231

+ 3.9

+ 7.8

Materials

1,433

1,496

+ 4.4

+ 8.7

Systems

3,600

3,735

+ 3.8

+ 7.5

Continuing operations (incl. reconciliation)

13,527

16,552

+ 22.4

+ 26.1

2006 figures restated

adj. = currency-adjusted

Half-Year Financial Report 2007

Liquidity and Capital Resources

2nd

Bayer Group Summary Cash Flow Statements

Quarter

1st Half

€ million

2006

2007

2006

2007

Gross cash flow*

928

1,187

2,017

2,598

Changes in working capital/other non-cash items

(46

)

(371

)

(1,097

)

(1,407

)

Net cash provided by (used in) operating activities (net cash flow), continuing operations

882

816

920

1,191

Net cash provided by (used in) operating activities (net cash flow), discontinued operations

120

(36

)

210

Net cash provided by (used in) operating activities (net cash flow) (total)

1,002

780

1,130

1,193

Net cash provided by (used in) investing activities (total)

(13,836

)

(53

)

(14,028

)

4,536

Net cash provided by (used in) financing activities (total)

12,320

(3,889

)

12,133

(5,653

)

Change in cash and cash equivalents due to business activities (total)

(514

)

(3,162

)

(765

)

Cash and cash equivalents at beginning of period

3,026

6,143

3,290

2,915

Change due to exchange rate movements and to changes in scope of consolidation

(21

)

(34

)

(11

)

Cash and cash equivalents at end of period

2,491

2,980

2,491

2,980


2006 figures restated

*		for definition see Bayer Group Key Data on page 2

Operating cash flow

Gross cash flow in the first half of 2007 amounted to €2,598 million, up 28.8 percent from the first half of 2006 (€2,017 million). The increase was mainly due to the inclusion of Schering, Berlin, Germany, and the strong performance of the business. Net cash flow improved by €271 million to €1,191 million (H1 2006: €920 million), thanks to the substantial cash inflows in the first quarter.

In the second quarter, however, net cash flow fell by €66 million to €816 million (Q2 2006: €882 million), mainly because of higher tax payments, bonus payments and disbursements for restructuring. Provisions for these payments had been recorded and recognized in income in previous quarters. The total net cash flow including discontinued operations was €780 million (Q2 2006: €1,002 million), with the decline attributable primarily to the discontinued operations. The prior-year figures included the operating cash flows of the since-divested Diagnostics and H.C. Starck businesses.

Investing cash flow

There was a net cash inflow of €4,536 million for investing activities in the first six months of 2007, compared to a €14,028 million outflow in the prior-year period. The main items this year were €3.5 billion in proceeds from the divestment of the Diagnostics business, €0.9 billion from the sale of H.C. Starck, and €0.4 billion from the divestment of Wolff Walsrode to The Dow Chemical Company in June 2007.

The €4.3 billion transaction volume for the Diagnostics business comprised an initial receipt of €0.4 billion at the end of 2006 and a further purchase-price payment of €3.9 billion in the first quarter of 2007. After deducting €0.2 billion in divested cash and €0.2 billion in tax on the divestment gain paid in the second quarter, net proceeds of divestitures in the first half of 2007 totaled €3.5 billion. Further tax payments totaling some €0.3 billion will be due in subsequent quarters. We sold H.C. Starck to Advent International and The Carlyle Group for approximately €1.2 billion. The transaction volume consisted mainly of a cash component in excess of €0.9 billion, including the compensation for financial liabilities, along with the assumption of €0.2 billion in pension

Half-Year Financial Report 2007

obligations. The €0.5 billion proceeds of the sale of Wolff Walsrode mainly comprised a cash component of €0.4 billion, including compensation for financial liabilities, and the assumption of pension obligations by the acquirer.

Cash outflows for acquisitions consisted mainly of the US$310 million (approximately €230 million) purchase price for U.S. cotton seed producer Stoneville. Bayer CropScience acquired Stoneville Pedigreed Seed Company from Monsanto in June 2007 in order to strengthen the position of its BioScience business unit in the rapidly expanding U.S. cotton seed market. Cash outflows in the prior-year period were largely attributable to the acquisition of Schering, Berlin, Germany.

Cash outflows for property, plant and equipment in the first half of 2007 came to €594 million (H1 2006: €566 million) and those for intangible assets to €47 million (H1 2006: €193 million), giving a total of €641 million (H1 2006: €759 million). This figure chiefly comprised expenditures for the expansion of our polymers production facilities in Caojing, China. Prior-year cash outflows for intangible assets included in particular the purchase of the European marketing rights for the blood pressure treatments Pritor^® and PritorPlus^®.

Financing cash flow

Net cash outflow for financing activities in the first half of 2007 amounted to €5,653 million (H1 2006: €12,133 million inflow). Net loan repayments totaled €3,893 million, including €2.1 billion for the scheduled redemption of our 2002/2007 Eurobond in April 2007. The Bayer AG dividend and dividend payments to minority stockholders of consolidated companies accounted for a further €775 million (H1 2006: €527 million). The item “Bayer AG dividend, dividend payments to minority stockholders” in the prior-year period contained an inflow of €176 million from the reimbursement of advance capital gains tax payments made on intragroup dividends in 2004.

As of June 30, 2007 the Bayer Group had cash and cash equivalents of €2,980 million, including €778 million held in escrow accounts. The latter amount comprises €698 million deposited in a guarantee account following the decision by the Extraordinary Stockholders’ Meeting of Bayer Schering Pharma AG on January 17, 2007 to squeeze out Bayer Schering Pharma AG’s remaining minority stockholders. The decision means the shares still held by minority stockholders will be transferred to the main stockholder, Bayer Schering GmbH, a wholly owned subsidiary of Bayer AG, in return for cash compensation of €98.98 per share. Dissenting stockholders are seeking to have the stockholder resolution set aside or to have it declared null and void.

In view of the restriction on its use, the liquidity held in escrow accounts was not deducted when calculating net debt.

Half-Year Financial Report 2007

Liquid assets and net debt

Net debt (total) as of June 30, 2007 declined by €4.0 billion compared with December 31, 2006, to €13.6 billion, primarily because of cash inflows from the divestitures and also due to the improvement in operating cash flow. The increase compared with March 31, 2007 was mainly attributable to a dividend payment of €0.8 billion, along with the expected high level of interest and tax payments in the second quarter.


Net Debt	Dec. 31,			March 31,			June 30,
€ million	2006			2007			2007

Noncurrent financial liabilities as per balance sheets (including derivatives)		14,723			14,626			13,644
of which mandatory convertible bond		2,276			2,278			2,280
of which hybrid bond		1,247			1,245			1,234
Current financial liabilities as per balance sheets (including derivatives)		5,078			3,673			2,309
Derivative receivables		(185	)		(165	)		(194	)
Financial liabilities		19,616			18,134			15,759
Cash and cash equivalents*		(2,116	)		(5,359	)		(2,202	)
Current financial assets		(27	)		(5	)		(6	)
Net debt from continuing operations		17,473			12,770			13,551
Net debt from discontinued operations		66			7			0
Net debt (total)		17,539			12,777			13,551


*		In view of the restriction on its use, the €778 million liquidity in escrow accounts in the second quarter of 2007 (Q2 2006: €304 million) was not deducted when calculating net debt. June 30, 2007: €2,202 million = €2,980 million – € 778 million (March 31, 2007: €5,359 million – € 6,143 million – € 784 million: Dec. 31, 2006: €2,116 million = €2,915 million – € 799 million).

Employees

The number of employees is shown as full-time equivalents, which means part-time employees are included in proportion to their contractual working hours. We believe this presentation improves the comparability of personnel expenses and employee numbers.

On June 30, 2007 the Bayer Group had 104,600 employees, 1.3 percent fewer than on December 31, 2006. Personnel expenses in the first half of the year increased by 28.1 percent to €3,792 million (H1 2006: €2,961 million), mainly due to the inclusion of personnel expenses for the employees of the former Schering group.

We currently employ 16,600 people in North America, 18,000 in Asia/Pacific, 13,800 in Latin America/Africa/Middle East and 56,200 in Europe. Our 39,200 employees in Germany account for 37.5 percent of the Group total.

Half-Year Financial Report 2007

Risk Report

As a global company with a diverse business portfolio, the Bayer Group is exposed to numerous risks which are monitored within the context of a risk management system. These risks include financial risks and, in particular, business-specific selling market risks, procurement market risks, product development risks, patent risks, and product and environmental risks.

Legal risks exist particularly in the areas of product liability, competition and antitrust law, patent disputes, tax assessments and environmental matters. The outcome of any current or future proceedings cannot be predicted with certainty. It is therefore possible that legal or regulatory judgments or settlements could give rise to expenses that are not covered, or not fully covered, by insurers’ compensation payments and could significantly affect our revenues and earnings.

To find out more about the Bayer Group’s overall risk situation, please see pages 80 to 88 of the Bayer Annual Report 2006, which can be downloaded free of charge at www.bayer.com. Since publication of the Bayer Annual Report 2006, the following significant changes have occurred in respect of the legal risks:

Proceedings involving syringe injectors and related products: As stated on page 87 of the Bayer Annual Report 2006, Liebel-Flarsheim Company and its parents, Mallinckrodt, Inc. and Tyco Healthcare Group LP, filed suit against Bayer’s U.S. subsidiary Medrad alleging that some of Medrad’s front load syringe injectors infringe patents held by Liebel-Flarsheim. In March 2007, the U.S. Court of Appeals decided that the Liebel-Flarsheim patents are invalid. The legal risks involved in these proceedings are no longer material for the Bayer Group.

Proceedings involving genetically modified rice: On page 86 of the Bayer Annual Report 2006 we described lawsuits and putative class actions filed against Bayer in the United States after traces of the genetically modified rice llrice 601 from the Liberty Link product line were identified in samples of conventional long-grain rice grown in the U.S. In March 2007, traces of llrice 62 and llrice 604 were then found in Clearfield 131 conventional hybrid rice marketed by basf. Subsequently the usda issued an order temporarily prohibiting the sale or planting of Clearfield 131. The usda and the fda have stated that llrice 62, 601 and 604 do not constitute a health risk and are safe for use in food and feed and for the environment. Bayer believes it has meritorious defenses against claims made or any possible future claims and intends to defend these cases vigorously. Bayer has recorded a provision of €29 million for related defense costs.

Arbitration proceedings concerning propylene oxide: As reported on page 86 of the Bayer Annual Report 2006, an arbitration panel in May 2006 issued a final award in favor of Lyondell Chemical Co. in respect of a dispute with Bayer over interpretation of their joint venture agreements for the manufacture of propylene oxide. Bayer was seeking to vacate the final award, while Lyondell was seeking to confirm the award as well as obtain pre-award interest. On March 20, 2007, the Texas District Court denied Bayer’s motion to vacate, confirmed in part the final award and ordered additional discovery relevant to one issue on which confirmation was not granted. Bayer has established appropriate provisions for the entire matter. In January 2007, Bayer filed a suit against Lyondell in the Delaware State Court of Chancery, seeking equitable reformation of one of the agreements relating to the joint venture and restitution of certain monies paid or allegedly owing by Bayer to Lyondell.

Half-Year Financial Report 2007

Proceedings involving the oral contraceptive Yasmin^®: On page 86 of the Bayer Annual Report 2006, we reported that, in April 2005, Bayer Schering Pharma filed an anda iv suit against Barr Pharmaceuticals Inc. and Barr Laboratories Inc. in U.S. federal court alleging patent infringement by Barr for the intended generic version of Bayer Schering Pharma’s Yasmin^® oral contraceptive product in the United States. In June 2005 Barr filed its counterclaim seeking to invalidate Bayer Schering Pharma’s patent. Trial of the matter has been set to start on November 15, 2007. Bayer highly values its Yasmin^® oral contraceptive product and is deeply committed to maintaining its leadership position in oral contraception. Bayer will continue to vigorously defend its rights in this litigation.

As far as can be seen today, no risks have been identified which alone or in combination could jeopardize the continued existence of the Bayer Group.

Subsequent Events

On July 1, 2007, Bayer MaterialScience completed the acquisition of the Ure-Tech Group, Taiwan, a supplier of tpu resins and films. In 2006, the approximately 200 employees of the Ure-Tech Group generated sales of around us$ 60 million. In the same period, Bayer MaterialScience’s Thermoplastic Polyurethanes business unit employed some 450 people and had sales of €205 million.

Half-Year Financial Report 2007

Calculation of ebit(da) Before Special Items

To permit a more accurate assessment of business operations, ebit and ebitda are also stated “before special items.” The special items concerned are detailed in the table below. “ebitda ,” “ebitda before special items” and “ebit before special items” are not defined in the International Financial Reporting Standards and should therefore be regarded only as supplementary information.


	EBIT		EBIT			EBIT		EBIT		EBITDA		EBITDA			EBITDA		EBITDA
	2nd		2nd							2nd		2nd
Special Items Reconciliation	Quarter		Quarter			1st Half		1st Half		Quarter		Quarter			1st Half		1st Half
€ million	2006		2007			2006		2007		2006		2007			2006		2007

After special items		877		917			1,926		2,092		1,269		1,572			2,705		3,346
HealthCare		16		209			22		348		16		181			22		346
Schering PPA effects*		0		33			0		53		0		50			0		114
Employees (Schering integration costs)		0		85			0		158		0		85			0		158
External consultancy and IT costs (Schering integration costs)		4		22			4		29		4		22			4		29
Depreciation and amortization (Schering integration costs)		0		45			0		63		0		0			0		0
Other Schering integration costs		10		24			10		45		10		24			10		45
Litigation		0		0			5		0		0		0			5		0
Other		2		0			3		0		2		0			3		0
CropScience		0		51			0		90		0		48			0		84
Restructuring		0		18			0		57		0		15			0		51
Litigation		0		33			0		33		0		33			0		33
MaterialScience		18		24			130		30		18		20			130		20
Restructuring		0		24			0		30		0		20			0		20
Litigation		18		0			130		0		18		0			130		0
Reconciliation		0		(16	)		10		0		0		(15	)		10		0
Restructuring Industry Services		0		(16	)		0		0		0		(15	)		0		0
Litigation		0		0			10		0		0		0			10		0
Total special items		34		268			162		468		34		234			162		450
Before special items		911		1,185			2,088		2,560		1,303		1,806			2,867		3,796

2006 figures restated

The purchase price paid for Schering AG, Germany, was allocated among the acquired assets and assumed liabilities in accordance with the International Financial Reporting Standards (IFRS). The purchase price allocation resulted in total charges to EBIT of €242 million in the second quarter of 2007. To ensure comparability with future earnings data, the expected long-term effects of the step-up are reflected in EBIT and EBITDA before special items, whereas temporary, non-cash effects of the purchase price allocation are eliminated. When calculating EBIT before special items, we deducted a €33 million special charge recorded in this connection. EBIT before special items therefore reflects €209 million in charges resulting from the purchase price allocation. EBITDA before special items remains unaffected by the purchase price allocation.

Investor Information


	2nd Quarter		2nd Quarter		1st Half		1st Half
Bayer Stock Key Data	2006		2007		2006		2007

High for the period (€)		36.75		56.68		36.75		56.68
Low for the period (€)		30.56		47.58		30.56		40.20
Average daily share turnover on German stock exchanges (million)		7.3		6.2		6.4		5.9


							Change
							June 30, 2007/
	June 30,		June 30,		Dec. 31,		Dec. 31, 2006
	2006		2007		2006		%

Share price (€)		35.94		56.10		40.66		38.0
Market capitalization (€ million)		26,248		42,879		31,078		38.0
Stockholders’ equity (€ million)		12,827		16,249		12,851		26.4
Number of shares entitled to the dividend (million)		730.34		764.34		764.34		0.0
DAX		5,683		8,007		6,597		21,4

XETRA closing price; source: Bloomberg

Bayer stock maintained its upward trend in the second quarter of 2007, closing on June 30, 2007 at €56.10, up 38.0 percent from the closing price at the end of 2006. Including the dividend of €1.00 per share for 2006 paid on April 30, 2007, our stock achieved a performance of 40.7 percent in the first half of 2007. Over the same period the dax rose 21.4 percent to 8,007 points.

In the second quarter Bayer held a HealthCare Investor Day in Leverkusen. This included numerous presentations and discussion forums at which Bayer provided information on topics such as the combined research and development pipeline of Bayer Schering Pharma, trends regarding our pharmaceuticals products, and the future strategy for the Consumer Health business. Webcasts of the presentations are available on the Internet at www.investor.bayer.com.

Performance of Bayer Stock
Index (100 = xetra closing price on December 31, 2005)

Half-Year Financial Report 2007

ubs AG, Switzerland, informed us pursuant to Section 21, Paragraph 1 of the German Securities Trading Act (WpHG) that the proportion of voting rights it holds in our company exceeded the 3 percent threshold defined therein on May 24, 2007, and that since that date it has held 3.18 percent of the voting rights. Of these voting rights, 0.02 percent are to be attributed to ubs AG pursuant to Section 22, Paragraph 1, Sentence 1, No. 1 of the Securities Trading Act (“undertakings controlled by the notifying party”).

Calculation of core earnings per share

Earnings per share according to ifrs are affected by the purchase price allocation and other special factors. To enhance comparability, we also determine core net income from continuing operations after elimination of the amortization of intangible assets, asset write-downs (including any impairment losses), special items in ebitda and extraordinary factors affecting income from investments in affiliated companies (such as divestment gains or write-downs), including the related tax effects.

The expected €0.9 billion in one-time non-cash tax income related to the German corporate tax reform, mentioned on page 7, represents a special tax effect and has therefore been eliminated.

The calculation of earnings per share in accordance with ifrs is explained in the notes to this interim report on page 42. Adjusted core net income, core earnings per share and core ebit are not defined in the International Financial Reporting Standards. Therefore they should be regarded as supplementary information rather than stand-alone indicators.


Calculation of Core EBIT and Core Earnings per Share	2nd Quarter			2nd Quarter			1st Half			1st Half
€ million	2006			2007			2006			2007


EBIT as per income statement		877			917			1,926			2,092
Amortization and write-downs of intangible assets		147			325			278			618
Write-downs of property, plant and equipment		—			53			6			77
Special items (other than write-downs)		34			234			162			450
Core EBIT		1,058			1,529			2,372			3,237
Non-operating result (as per income statement)		(228	)		(257	)		(438	)		(475	)
Extraordinary income/loss from investments in affiliated companies		—			—			—			—
Income taxes (as per income statement)		(198	)		(247	)		(475	)		(548	)
Tax adjustment		(63	)		(205	)		(156	)		(382	)
Income after taxes attributable to minority interest (as per income statement)		(3	)		3			0			2
Core net income from continuing operations		566			823			1,303			1,834
Financing expenses for the mandatory convertible bond, net of tax effects		23			24			23			48

Adjusted core net income		589			847			1,326			1,882


Shares
Weighted average number of issued ordinary shares		730,341,920			764,341,920			730,341,920			764,341,920
Potential shares to be issued upon conversion of the mandatory convertible bond		63,254,424			59,565,835			31,801,948			59,544,939
Adjusted weighted average total number of issued and potential ordinary shares		793,596,344			823,907,755			762,143,868			823,886,859
Core earnings per share from continuing operations (€)		0.74			1.03			1.74			2.28

Half-Year Financial Report 2007

Bayer Group Consolidated Statements of Income


	2nd			2nd
	Quarter			Quarter			1st Half			1st Half
€ million	2006			2007			2006			2007

Net sales		6,736			8,217			13,527			16,552
Cost of goods sold		(3,571	)		(4,072	)		(7,009	)		(8,206	)
Gross profit		3,165			4,145			6,518			8,346

Selling expenses		(1,442	)		(1,919	)		(2,807	)		(3,726	)
Research and development expenses		(439	)		(650	)		(853	)		(1,275	)
General administration expenses		(377	)		(425	)		(730	)		(861	)
Other operating income		167			228			375			371
Other operating expenses		(197	)		(462	)		(577	)		(763	)
Operating result (EBIT)		877			917			1,926			2,092

Equity-method loss		(3	)		(13	)		(11	)		(27	)
Non-operating income		151			190			294			432
Non-operating expenses		(376	)		(434	)		(721	)		(880	)
Non-operating result		(228	)		(257	)		(438	)		(475	)

Income before income taxes		649			660			1,488			1,617

Income taxes		(198	)		(247	)		(475	)		(548	)

Income from continuing operations after taxes		451			413			1,013			1,069

Income from discontinued operations after taxes		4			244			39			2,398

Income after taxes		455			657			1,052			3,467
of which attributable to minority interest		3			(3	)		0			(2	)
of which attributable to Bayer AG stockholders (net income)		452			660			1,052			3,469

Earnings per share (€)
From continuing operations
Basic*		0.59			0.53			1.36			1.36
Diluted*		0.59			0.53			1.36			1.36
From continuing and discontinued operations
Basic*		0.60			0.83			1.41			4.27
Diluted*		0.60			0.83			1.41			4.27

2006 figures restated


*		The ordinary shares to be issued upon conversion of the mandatory convertible bond are treated as already issued shares.

Half-Year Financial Report 2007

Bayer Group Consolidated Balance Sheets


	June 30,		June 30,		Dec. 31,
€ million	2006		2007		2006

Noncurrent assets
Goodwill		7,753		8,439		8,227
Other intangible assets		15,922		15,112		15,807
Property, plant and equipment		9,208		8,662		8,867
Investments in associates		760		501		532
Other financial assets		1,528		1,190		1,094
Other receivables		261		413		176
Deferred taxes		982		773		1,205
		36,414		35,090		35,908
Current assets
Inventories		7,044		6,277		6,153
Trade accounts receivable		6,638		6,843		5,802
Other financial assets		445		252		401
Other receivables		1,530		1,637		1,567
Claims for income tax refunds		232		243		220
Cash and cash equivalents		2,491		2,980		2,915
Assets held for sale and discontinued operations		1,396		82		2,925
		19,776		18,314		19,983

Total assets		56,190		53,404		55,891

Stockholders’ equity
Capital stock of Bayer AG		1,870		1,957		1,957
Capital reserves of Bayer AG		2,942		4,028		4,028
Other reserves		6,865		10,183		6,782
		11,677		16,168		12,767
Equity attributable to minority interest		1,150		81		84
		12,827		16,249		12,851

Noncurrent liabilities
Provisions for pensions and other post-employment benefits		6,237		5,550		6,543
Other provisions		1,771		1,671		1,464
Financial liabilities		10,373		13,644		14,723
Other liabilities		517		504		449
Deferred taxes		4,240		4,347		4,346
		23,138		25,716		27,525

Current liabilities
Other provisions		3,803		4,087		3,765
Financial liabilities		12,053		2,309		5,078
Trade accounts payable		1,995		2,244		2,369
Income tax liabilities		116		127		109
Other liabilities		1,822		2,672		3,346
Liabilities directly related to assets held for sale and discontinued operations		436		—		848
		20,225		11,439		15,515


Total stockholders’ equity and liabilities		56,190		53,404		55,891

2006 figures reclassified

Half-Year Financial Report 2007

Bayer Group Consolidated Statements of Cash Flows


	2nd			2nd
	Quarter			Quarter			1st Half			1st Half
€ million	2006			2007			2006			2007

Income from continuing operations after taxes		451			413			1,013			1,069
Income taxes		198			247			475			548
Non-operating result		228			257			438			475
Income taxes paid		(284	)		(342	)		(500	)		(685	)
Depreciation and amortization		392			655			779			1,254
Change in pension provisions		(50	)		(86	)		(180	)		(182	)
(Gains) losses on retirements of noncurrent assets		(7	)		(6	)		(8	)		6
Non-cash effects of the remeasurement of acquired assets (inventory work-down)		—			49			—			113
Gross cash flow		928			1,187			2,017			2,598

Decrease (increase) in inventories		11			38			(103	)		(175	)
Decrease (increase) in trade accounts receivable		25			(52	)		(864	)		(1,063	)
(Decrease) increase in trade accounts payable		(40	)		16			(271	)		(98	)
Changes in other working capital, other non-cash items		(42	)		(373	)		141			(71	)
Net cash provided by (used in) operating activities (net cash flow), continuing operations		882			816			920			1,191
Net cash provided by (used in) operating activities (net cash flow), discontinued operations		120			(36	)		210			2
Net cash provided by (used in) operating activities (net cash flow) (total)		1,002			780			1,130			1,193

Cash outflows for property, plant, equipment and intangible assets		(340	)		(440	)		(759	)		(641	)
Cash inflows from sales of property, plant, equipment and other assets		24			13			44			31
Cash inflows from divestitures less divested cash		39			230			39			4,903
Cash outflows for acquisitions less acquired cash		(14,110	)		(235	)		(14,130	)		(257	)
Cash inflows from noncurrent financial assets		43			3			69			8
Interest and dividends received		375			376			482			469
Cash inflows/outflows from current financial assets		133			0			227			23
Net cash provided by (used in) investing activities (total)		(13,836	)		(53	)		(14,028	)		4,536

Bayer AG dividend, dividend payments to minority stockholders, reimbursements of advance capital gains tax payments		(692	)		(766	)		(527	)		(775	)
Issuances of debt		13,493			1,159			13,762			1,603
Retirements of debt		(20	)		(3,542	)		(413	)		(5,496	)
Interest paid		(461	)		(740	)		(689	)		(985	)
Net cash provided by (used in) financing activities (total)		12,320			(3,889	)		12,133			(5,653	)

Change in cash and cash equivalents due to business activities (total)		(514	)		(3,162	)		(765	)		76

Cash and cash equivalents at beginning of period		3,026			6,143			3,290			2,915

Change in cash and cash equivalents due to changes in scope of consolidation		0			(3	)		(2	)		(4	)
Change in cash and cash equivalents due to exchange rate movements		(21	)		2			(32	)		(7	)

Cash and cash equivalents at end of period		2,491			2,980			2,491			2,980

2006 figures restated

Half-Year Financial Report 2007

Bayer Group Consolidated Statements of Recognized Income and Expense


	2nd			2nd
	Quarter			Quarter			1st Half			1st Half
€ million	2006			2007			2006			2007

Changes in fair values of derivatives designated as hedges and available-for-sale financial assets, recognized in stockholders’ equity		(21	)		(3	)		(12	)		(2	)
Changes in actuarial gains/losses on defined benefit obligations for pensions and other post-employment benefits, recognized in stockholders’ equity		382			774			1,187			1,105
Exchange differences on translation of operations outside the euro zone, recognized in stockholders’ equity		(331	)		(36	)		(475	)		7
Deferred taxes on valuation adjustments offset directly against stockholders’ equity		(146	)		(297	)		(461	)		(431	)
Changes due to changes in scope of consolidation		—			5			—			36
Valuation adjustments recognized directly in stockholders’ equity		(116	)		443			239			715
Minority interests in partnerships, recognized in stockholders’ equity		—			(12	)		—			(19	)
Income after taxes		455			657			1,052			3,467
Total income and expense recognized in the financial statements		339			1,088			1,291			4,163
of which attributable to minority interest		2			(4	)		(3	)		(2	)
of which attributable to Bayer AG stockholders		337			1,092			1,294			4,165

2006 figures restated

Half-Year Financial Report 2007

Notes to the Consolidated Interim Financial Statements of the Bayer Group as of June 30, 2007

Key Data by Segment


	HealthCare
	Pharmaceuticals						Consumer Health
	2nd			2nd			2nd			2nd
	Quarter			Quarter			Quarter			Quarter
€ million	2006			2007			2006			2007

Net sales (external)		1,188			2,583			1,069			1,134
Change		+ 20.2	%		+117.4	%		+ 5.3	%		+6.1	%
Currency-adjusted change		+ 20.5	%		+120.6	%		+ 4.6	%		+9.7	%
Intersegment sales		12			10			1			1
Operating result (EBIT)		159			207			196			224
Depreciation, amortization and write-downs/write-backs		64			323			35			34
Gross cash flow*		157			381			179			164
Net cash flow*		284			202			83			82


	CropScience
	Crop Protection						Environmental Science, BioScience
	2nd			2nd			2nd			2nd
	Quarter			Quarter			Quarter			Quarter
	2006			2007			2006			2007

Net sales (external)		1,269			1,262			309			300
Change		– 3.7	%		– 0.6	%		+ 8.0	%		– 2.9	%
Currency-adjusted change		– 4.8	%		+ 1.4	%		+ 8.0	%		– 0.2	%
Intersegment sales		17			16			1			2
Operating result (EBIT)		159			180			71			31
Depreciation, amortization and write-downs/write-backs		118			117			20			20
Gross cash flow*		227			219			62			40
Net cash flow*		434			313			100			181


	MaterialScience
	Materials						Systems
	2nd			2nd			2nd			2nd
	Quarter			Quarter			Quarter			Quarter
	2006			2007			2006			2007

Net sales (external)		723			757			1,824			1,866
Change		– 0.7	%		+ 4.7	%		+ 8.0	%		+ 2.3	%
Currency-adjusted change		– 1.1	%		+ 8.5	%		+ 7.3	%		+ 5.4	%
Intersegment sales		7			4			43			37
Operating result (EBIT)		101			29			217			237
Depreciation, amortization and write-downs/write-backs		38			42			76			81
Gross cash flow*		105			55			222			238
Net cash flow*		88			25			163			253


	Reconciliation						Continuing Operations
	2nd			2nd			2nd			2nd
	Quarter			Quarter			Quarter			Quarter
	2006			2007			2006			2007

Net sales (external)		354			315			6,736			8,217
Change								+ 5.8	%		+22.0	%
Currency-adjusted change								+ 5.2	%		+24.9	%
Intersegment sales		(81	)		(70	)
Operating result (EBIT)		(26	)		9			877			917
Depreciation, amortization and write-downs/write-backs		41			38			392			655
Gross cash flow*		(24	)		90			928			1,187
Net cash flow*		(270	)		(240	)		882			816


2006 figures restated

*		for definition see Bayer Group Key Data on page 2

Half-Year Financial Report 2007

Notes to the Consolidated Interim Financial Statements of the Bayer Group as of June 30, 2007

Key Data by Segment


	HealthCare
	Pharmaceuticals						Consumer Health
	1st Half			1st Half			1st Half			1st Half
€ million	2006			2007			2006			2007

Net sales (external)		2,336			5,078			2,124			2,249
Change		+20.4	%		+117.4	%		+13.0	%		+5.9	%
Currency-adjusted change		+17.9	%		+121.4	%		+9.8	%		+10.6	%
Intersegment sales		25			22			3			4
Operating result (EBIT)		361			488			373			428
Depreciation, amortization and write-downs/write-backs		103			588			76			67
Gross cash flow*		319			771			309			331
Net cash flow*		273			481			137			186
Number of employees at end of period*		40,500			39,200			10,900			11,100


	CropScience
	Crop Protection						Environmental Science, BioScience
	1st Half			1st Half			1st Half			1st Half
	2006			2007			2006			2007

Net sales (external)		2,682			2,696			667			652
Change		–1.9	%		+0.5	%		+8.8	%		–2.2	%
Currency-adjusted change		–5.3	%		+3.5	%		+5.5	%		+1.9	%
Intersegment sales		35			34			3			4
Operating result (EBIT)		444			484			194			135
Depreciation, amortization and write-downs/write-backs		239			238			42			39
Gross cash flow*		512			501			164			127
Net cash flow*		145			200			39			56
Number of employees at end of period*		15,400			14,800			2,800			3,000


	MaterialScience
	Materials						Systems
	1st Half			1st Half			1st Half			1st Half
	2006			2007			2006			2007

Net sales (external)		1,433			1,496			3,600			3,735
Change		+5.2	%		+4.4	%		+8.8	%		+3.8	%
Currency-adjusted change		+2.5	%		+8.7	%		+6.1	%		+7.5	%
Intersegment sales		13			8			82			75
Operating result (EBIT)		233			67			396			484
Depreciation, amortization and write-downs/write-backs		76			84			154			163
Gross cash flow*		231			124			413			473
Net cash flow*		123			0			401			315
Number of employees at end of period*		4,900			5,000			9,800			10,200


	Reconciliation						Continuing Operations
	1st Half			1st Half			1st Half			1st Half
	2006			2007			2006			2007

Net sales (external)		685			646			13,527			16,552
Change								+8.5	%		+22.4	%
Currency-adjusted change								+5.7	%		+26.1	%
Intersegment sales		(161	)		(147	)
Operating result (EBIT)		(75	)		6			1,926			2,092
Depreciation, amortization and write-downs/write-backs		89			75			779			1,254
Gross cash flow*		69			271			2,017			2,598
Net cash flow*		(198	)		(47	)		920			1,191
Number of employees at end of period*		21,400			21,300			105,700			104,600


2006 figures restated

*		for definition see Bayer Group Key Data on page 2

Half-Year Financial Report 2007

Key Data by Region


	Europe						North America
	2nd			2nd			2nd			2nd
	Quarter			Quarter			Quarter			Quarter
€ million	2006			2007			2006			2007

Net sales (external) — by market		+3,011			3,697			1,823			2,140
Change		+4.2	%		+22.8	%		+7.6	%		+17.4	%
Currency-adjusted change		+4.1	%		+22.6	%		+5.9	%		+25.5	%
Net sales (external) — by point of origin		3,260			3,970			1,826			2,160
Change		+5.3	%		+21.8	%		+7.5	%		+18.3	%
Currency-adjusted change		+5.2	%		+21.7	%		+5.9	%		+26.5	%
Interregional sales		895			1,271			428			530
Operating result (EBIT)		518			629			249			192



	Asia/Pacific						Latin America/ Africa/Middle East
	2nd			2nd			2nd			2nd
	Quarter			Quarter			Quarter			Quarter
	2006			2007			2006			2007

Net sales (external) — by market		1,061			1,308			841			1,072
Change		+3.9	%		+23.3	%		+10.1	%		+27.5	%
Currency-adjusted change		+4.3	%		+30.6	%		+9.0	%		+30.2	%
Net sales (external) — by point of origin		1,021			1,266			629			821
Change		+2.6	%		+24.0	%		+8.6	%		+30.5	%
Currency-adjusted change		+3.0	%		+31.6	%		+7.4	%		+33.8	%
Interregional sales		43			62			39			59
Operating result (EBIT)		90			67			61			75


							Continuing
	Reconciliation						Operations
	2nd			2nd			2nd			2nd
	Quarter			Quarter			Quarter			Quarter
	2006			2007			2006			2007

Net sales (external) — by market								6,736			8,217
Change								+5.8	%		+22.0	%
Currency-adjusted change								+5.2	%		+24.9	%
Net sales (external) — by point of origin								6,736			8,217
Change								+5.8	%		+22.0	%
Currency-adjusted change								+5.2	%		+24.9	%
Interregional sales		(1,405	)		(1,922	)
Operating result (EBIT)		(41	)		(46	)		877			917


2006 figures restated


	Europe						North America
	1st Half			1st Half			1st Half			1st Half
€ million	2006			2007			2006			2007

Net sales (external) — by market		6,029			7,545			3,759			4,366
Change		+5.5	%		+25.1	%		+14.0	%		+16.1	%
Currency-adjusted change		+5.3	%		+25.0	%		+7.8	%		+25.4	%
Net sales (external) — by point of origin		6,486			8,123			3,778			4,380
Change		+6.1	%		+25.2	%		+14.2	%		+15.9	%
Currency-adjusted change		+6.0	%		+25.1	%		+7.9	%		+25.3	%
Interregional sales		1,940			2,645			905			1,046
Operating result (EBIT)		1,181			1,353			511			549
Number of employees at end of period*		58,000			56,200			17,200			16,600


							Latin America/
	Asia/Pacific						Africa/Middle East
	1st Half			1st Half			1st Half			1st Half
	2006			2007			2006			2007

Net sales (external) — by market		2,067			2,508			1,672			2,133
Change		+5.7	%		+21.3	%		+11.6	%		+27.6	%
Currency-adjusted change		+3.3	%		+29.3	%		+5.4	%		+34.4	%
Net sales (external) — by point of origin		1,985			2,403			1,278			1,646
Change		+4.7	%		+21.1	%		+11.3	%		+28.8	%
Currency-adjusted change		+2.2	%		+29.3	%		+3.5	%		+37.3	%
Interregional sales		102			115			81			116
Operating result (EBIT)		213			140			105			138
Number of employees at end of period*		16,800			18,000			13,700			13,800


							Continuing
	Reconciliation						Operations
	1st Half			1st Half			1st Half			1st Half
	2006			2007			2006			2007

Net sales (external) — by market								13,527			16,552
Change								+8.5	%		+22.4	%
Currency-adjusted change								+5.7	%		+26.1	%
Net sales (external) — by point of origin								13,527			16,552
Change								+8.5	%		+22.4	%
Currency-adjusted change								+5.7	%		+26.1	%
Interregional sales		(3,028	)		(3,922	)
Operating result (EBIT)		(84	)		(88	)		+1,926			2,092
Number of employees at end of period*								105,700			104,600


2006 figures restated

*		Number of employees in full-time equivalents

Half-Year Financial Report 2007

Explanatory Notes

Accounting policies

Pursuant to Section 315a of the German Commercial Code, the consolidated interim financial statements as of June 30, 2007 have been prepared according to the International Financial Reporting Standards (ifrs) — including ias 34 — of the International Accounting Standards Board (iasb), London, which are endorsed by the European Union, and the Interpretations of the International Financial Reporting Interpretations Committee (ifric), in effect at the closing date.

Reference should be made as appropriate to the notes to the consolidated financial statements for the 2006 fiscal year, particularly with regard to recognition and valuation principles.

Information on earnings per share

The ordinary shares to be issued upon conversion of the mandatory convertible bond are treated as already issued shares. Diluted earnings per share are therefore equal to basic earnings per share.

Calculation of Earnings per Share


	2nd Quarter		2nd Quarter			1st Half		1st Half
€ million	2006		2007			2006		2007

Income after taxes		455		657			1,052		3,467
Income attributable to minority interest		3		(3	)		0		(2	)
Income attributable to Bayer AG stockholders		452		660			1,052		3,469
Income from discontinued operations		4		244			39		2,398

Financing expenses for the mandatory convertible bond, net of tax effects		23		24			23		48
Adjusted income after taxes from continuing operations		471		440			1,036		1,119
Adjusted net income		475		684			1,075		3,517

Weighted average number of issued ordinary shares		730,341,920		764,341,920			730,341,920		764,341,920
Potential shares to be issued upon conversion of the mandatory convertible bond		63,254,424		59,565,835			31,801,948		59,544,939
Adjusted weighted average total number of issued and potential ordinary shares		793,596,344		823,907,755			762,143,868		823,886,859

Basic earnings per share (€)
from continuing operations		0.59		0.53			1.36		1.36
from continuing and discontinued operations		0.60		0.83			1.41		4.27
Diluted earnings per share (€)
from continuing operations		0.59		0.53			1.36		1.36
from continuing and discontinued operations		0.60		0.83			1.41		4.27

2006 figures restated

Half-Year Financial Report 2007

Changes in the Bayer Group

Scope of consolidation

As of June 30, 2007, the Bayer Group comprised 347 fully or proportionately consolidated companies, compared with 432 companies as of December 31, 2006. This decrease is primarily the result of companies leaving the group through the Diagnostics, H.C. Starck and Wolff Walsrode divestitures and of intragroup mergers of companies as part of the integration of Schering, Berlin, Germany.

Consolidation of Schering

In June 2006, the majority of the shares of Schering AG, Berlin, Germany, were acquired by Bayer Schering GmbH (then known as Dritte BV GmbH), a subsidiary of Bayer AG. As of June 23, 2006, Schering AG was included in full in the consolidated financial statements of the Bayer Group. As of June 30, 2007, Bayer Schering GmbH held 96.3 percent of the shares of Bayer Schering Pharma AG.

The Extraordinary Stockholders’ Meeting of Bayer Schering Pharma AG resolved on January 17, 2007, to effect a squeeze-out of the remaining minority stockholders. The decision means the shares still held by minority stockholders will be transferred to the main stockholder, Bayer Schering GmbH, in return for cash compensation of €98.98 per share. Recognition of the expected cash compensation and the guaranteed dividend for the minority stockholders as liabilities increases the purchase price by €736 million to €17,007 million.

The purchase price allocation has since been completed and is almost unchanged compared with December 31, 2006. The finalized allocation reflects a €33 million reduction in the value of research and development projects, reclassifications between other asset and liability items and a corresponding €65 million increase in goodwill.

Acquisitions

On May 31, 2007 an agreement was signed to acquire Stoneville Pedigreed Seed Company, a leading U.S. producer of cotton seeds, from Monsanto for US$ 310 million (approximately €230 million). The acquired company was included in full in the consolidated financial statements of the Bayer Group effective June 1, 2007. The as yet incomplete allocation of the purchase price among the acquired assets and liabilities at the date of acquisition resulted in the addition of more than €200 million in intangible assets, including goodwill, in the second quarter. Adjustments to the purchase price allocation may be made in the future. The goodwill remaining after the purchase price allocation is largely attributable to synergies in the areas of technology and marketing. In addition, the acquisition strengthens the position of Bayer’s BioScience business unit in the rapidly expanding U.S. cotton seed market.

Discontinued operations

In mid-2006 Bayer AG and Siemens AG signed an agreement concerning the sale of the Diagnostics business, which was transferred to the new owner on January 2, 2007.

Half-Year Financial Report 2007

On November 23, 2006 an agreement was concluded to divest the activities of the H.C. Starck group, formerly assigned to the Materials segment, to a consortium of two financial investors, Advent International and The Carlyle Group. This business was transferred to the new owners on February 1, 2007.

The agreement to sell the companies of the Wolff Walsrode group, which operates principally in the field of cellulose chemistry, to The Dow Chemical Company, United States, was signed in December 2006. Wolff Walsrode also was formerly assigned to the Materials segment. Following approval by the antitrust authorities, the transfer of this business took place on June 30, 2007.

The Diagnostics activities, H.C. Starck and Wolff Walsrode are recognized as discontinued operations. The prior-period data have been restated accordingly.

This information, which is provided from the standpoint of the Bayer Group, is to be regarded as part of the reporting for the entire Bayer Group by analogy with our segment reporting and is not intended to portray either the discontinued operations or the remaining operations of Bayer as separate entities. This presentation is thus in line with the principles for reporting discontinued operations.

Discontinued Operations


	Diagnostics						H.C. Starck					Wolff Walsrode						Total
	2nd			2nd			2nd			2nd		2nd			2nd			2nd			2nd
	Quarter			Quarter			Quarter			Quarter		Quarter			Quarter			Quarter			Quarter
€ million	2006			2007			2006			2007		2006			2007			2006			2007

Net sales		377			—			247			—		89			87			713			87
Operating result (EBIT)*		9			—			(6	)		—		7			254			10			254
Income after taxes		6			—			(5	)		—		3			244			4			244
Gross cash flow*		50			—			26			—		10			5			86			5
Net cash flow*		107			(39	)		11			—		2			3			120			(36	)
Net investing cash flow		(17	)		(209	)		(12	)		—		(4	)		432			(33	)		223
Net financing cash flow		(90	)		248			1			—		2			(435	)		(87	)		(187	)


*		for definition see Bayer Group Key Data on page 2


	1st Half			1st Half			1st Half			1st Half			1st Half			1st Half			1st Half			1st Half
€ million	2006			2007			2006			2007			2006			2007			2006			2007

Net sales		755			—			494			74			167			172			1,416			246
Operating result (EBIT)*		40			2,778			16			109			13			267			69			3,154
Income after taxes		27			2,044			7			103			5			251			39			2,398
Gross cash flow*		114			(10	)		53			14			20			15			187			19
Net cash flow*		171			(32	)		37			26			2			8			210			2
Net investing cash flow		(46	)		3,539			(22	)		922			(6	)		430			(74	)		4,891
Net financing cash flow		(125	)		(3,507	)		(15	)		(948	)		4			(438	)		(136	)		(4,893	)


*		for definition see Bayer Group Key Data on page 2

Half-Year Financial Report 2007

Related parties

In the course of the operating business, materials, inventories and services are sourced from a large number of business partners around the world. These include companies in which an interest is held, and companies with which members of the Supervisory Board of Bayer AG are associated. Transactions with these companies are carried out on an arm’s-length basis. Business with such companies was not material from the viewpoint of the Bayer Group. The Bayer Group was not a party to any transaction of an unusual nature or structure that was material to it or to companies or persons closely associated with it, nor does it intend to be party to such transactions in the future.

Business transactions with companies included in the consolidated financial statements at equity, or at cost less impairment charges, mainly comprised trade in goods and services. The value of these transactions was, however, immaterial from the point of view of the Bayer Group. The same applies to financial receivables and payables vis-à-vis related parties.

Leverkusen, July 31, 2007
Bayer Aktiengesellschaft

The Board of Management


Werner Wenning		Klaus Kühn		Dr. Wolfgang Plischke		Dr. Richard Pott

Half-Year Financial Report 2007

Responsibility Statement

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

Leverkusen, July 31, 2007
Bayer Aktiengesellschaft

The Board of Management


Werner Wenning		Klaus Kühn		Dr. Wolfgang Plischke		Dr. Richard Pott

Half-Year Financial Report 2007

Review Report

To Bayer AG, Leverkusen

We have reviewed the condensed consolidated interim financial statements — comprising the statement of income, balance sheet, cash flow statement, statement of recognized income and expense and selected explanatory notes — and the interim group management report of Bayer AG for the period from January 1, 2007 to June 30, 2007 which are part of the half-year financial report pursuant to § (Article) 37w WpHG (“Wertpapierhandelsgesetz”: German Securities Trading Act.) The preparation of the condensed consolidated interim financial statements in accordance with the ifrs applicable to interim financial reporting as adopted by the E.U. and of the interim group management report in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent company’s Board of Management. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim group management report based on our review.

We conducted our review of the condensed consolidated interim financial statements and the interim group management report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (idw) and additionally observed the International Standard on Review Engagements “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” (ISRE 2410). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the ifrs applicable to interim financial reporting as adopted by the E.U. and that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot express an audit opinion.

Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the ifrs applicable to interim financial reporting as adopted by the E.U. nor that the interim group management report has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports.

Essen, August 6, 2007

PriceWaterhouseCoopers
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft


A. Slotta		V. Linke
(German Public Auditor)		(German Public Auditor)

Financial Calendar




Q3 2007 Interim Report		November 6, 2007
2007 Annual Report		February 28, 2008
Annual Stockholders’ Meeting 2008		April 25, 2008
Payment of Dividend		April 28, 2008

Masthead

Published by
Bayer AG, 51368 Leverkusen, Germany

Editor
Ute Bode, phone +49 214 30 58992, email: ute.bode.ub@bayer-ag.de

English edition
Bayer Industry Services GmbH & Co. OHG, Language Service

Investor Relations
Peter Dahlhoff, phone +49 214 30 33022, email: peter.dahlhoff@bayer-ag.de

Orders/Distribution
Michael Heinrich, phone +49 214 30 57546, email: serviceline@bayer-ag.de

Date of publication
August 7, 2007

Many business and financial terms are explained on the Bayer Investor Relations website at
www.investor.bayer.com>Stock>Glossary

Bayer on the Internet
www.bayer.com

If you would like to receive the Bayer Stockholders’ Newsletter in electronic rather than print form in future, please email the editor.

Forward-Looking Statements

This Annual Report contains forward-looking statements. These statements use words like “believes,” “assumes,” “expects” or similar formulations. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, assets, development or performance of our company and those either expressed or implied by these statements. These factors include, among other things:

•		downturns in the business cycle of the industries in which we compete;

•		new regulations, or changes to existing regulations, that increase our operating costs or otherwise reduce our profitability;

•		increases in the price of our raw materials, especially if we are unable to pass these costs along to customers;

•		loss or reduction of patent protection for our products;

•		liabilities, especially those incurred as a result of environmental laws or product liability litigation;

•		fluctuation in international currency exchange rates as well as changes in the general economic climate; and

•		other factors identified in this Annual Report.

These factors include those discussed in our public reports filed with the Frankfurt Stock Exchange and with the U.S. Securities and Exchange Commission (including our Form 20-F). In view of these uncertainties, we caution readers not to place undue reliance on these forward-looking statements. We assume no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.

Important Information from Bayer AG:
This is neither an offer to purchase nor a solicitation of an offer to sell shares or American depositary shares of Bayer Schering Pharma AG (formerly Schering AG). Bayer Schering GmbH (formerly Dritte BV GmbH) filed a tender offer statement with the U.S. Securities and Exchange Commission (SEC) with respect to the mandatory compensation offer on November 30, 2006, the time of commencement of the mandatory compensation offer. Simultaneously Bayer Schering Pharma AG (formerly Schering AG) filed a solicitation/recommendation statement on Schedule 14D-9 with the SEC with respect to the mandatory compensation offer. Investors and holders of shares and American depositary shares of Bayer Schering Pharma AG (formerly Schering AG) are strongly advised to read the tender offer statement and other relevant documents regarding the mandatory compensation offer that have been filed or will be filed with the SEC because they contain important information. Investors and holders of shares and American depositary shares of Bayer Schering Pharma AG (formerly Schering AG) will be able to receive these documents free of charge at the SEC’s website (www.sec.gov), or at the website www.bayer.com.

These documents and information contain forward-looking statements based on assumptions and forecasts made by Bayer Group management as of the respective dates of such documents. 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 Group and/or Bayer Schering Pharma AG (formerly Schering AG) and the estimates contained in these documents and to differences between actions taken by the Bayer Group with respect to its investment in Bayer Schering Pharma AG (formerly Schering AG) and the intentions described in these documents. These factors include those discussed in reports filed with the Frankfurt Stock Exchange and in our reports filed with the U.S. Securities and Exchange Commission (including on Form 20-F). All forward-looking statements in these documents are made as of the dates thereof, based on information available to us as of the dates thereof. Except as otherwise required by law, we assume no obligation to update or revise any forward-looking statement to reflect new information, events or circumstances after the applicable dates thereof.

The names “Bayer Schering Pharma” or “Schering” as used in this publication always refer to Bayer Schering Pharma AG, Berlin, Germany, or its predecessor, Schering AG, Berlin, Germany, respectively.

Please note that Bayer Schering Pharma AG is not legally related to Schering-Plough Corporation, New Jersey, United States. The two companies have been totally independent of each other for many years.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


BAYER AKTIENGESELLSCHAFT (Registrant)
By:	/s/ Dr. Roland Hartwig
	Name:	Dr. Roland Hartwig
	Title:	General Counsel


By:	/s/ ppa. D_R. A_RMIN B_UCHMEIER
	Name:	Dr. Armin Buchmeier
	Title:	Senior Counsel

Date: August 9, 2007