Inauguration of production facilities in Shanghai (China)

Shanghai. At a ceremony on Tuesday before 500 guests, Bayer inaugurated the new production facilities of the Bayer MaterialScience subgroup in Shanghai. "China is of central importance to Bayer in the Asia-Pacific region - both as a production base and for our business strategy," said Management Board Chairman Werner Wenning, underlining the country’s significance for Bayer.

The project at the Shanghai Chemical Industry Park represents a total capital expenditure volume of about US$ 1.8 billion through 2009, explained Wenning in the presence of numerous guests from politics, industry and the media: "This is our biggest-ever project outside of Germany."

At the inauguration ceremony attended by leading representatives of the City of Shanghai, the entire Management Board of Bayer AG and journalists
from Asia and Europe, Wenning said: "The integrated Bayer site in Shanghai is developing into our biggest and most technically advanced production
site in the entire Asia-Pacific region. In turn, this region – and particularly China - is one of the most important future markets for the Bayer Group, a market that is set to become even more significant and dynamic." Wenning said the newly inaugurated facilities of Bayer MaterialScience will add substantially to production capacities.

Bayer MaterialScience CEO Dr. Hagen Noerenberg described the remarkable perspectives offered by the integrated site: "In the future this site will
supply customers throughout the region with approximately 900,000 tons of plastics products a year. Our long-term commitment to the Chinese market and our customers here is a strategic cornerstone of our activities. We aim to play a leading role in advancing the Chinese plastics industry through our products, technologies and employee training."

In these respects the company expects the new production facilities to play a key role. Dr. Jürgen Dahmer - Senior Bayer Representative for Greater China and Senior Representative for Bayer MaterialScience in China, and thus "landlord" of the Shanghai site - presented the details of these plans in his welcoming address. The existing facilities will now be supplemented by - a world-scale polycarbonate production unit with a starting capacity of 100,000 tons per year, - the first polyurethane facility at the Bayer site - a crude MDI (diphenylmethane diisocyanate) splitter with a capacity of 80,000 tons per year and - a production unit for HDI (hexamethylene diisocyanate) with an initial capacity of 30,000 tons per year.

The polycarbonate facility for the manufacture of Bayer’s high-tech material Makrolon® represents a capital investment of US$ 450 million. There are already plans to expand the capacity of this facility, which will primarily supply customers in the region, to 200,000 tons per year by 2008. Makrolon® is used in the manufacture of CDs, DVDs, automotive glazing and many other applications. It is also used in the construction industry: for example, the futuristic roof of the Tianjin Olympic Center Stadium will be made of Makrolon® polycarbonate. The company is confident that the material will be used at other sports arenas as well.

The Asia-Pacific region is the biggest market for polycarbonate in terms of volume, with 1.5 million tons sold last year, more than half the world market of 2.7 million tons. Of this volume, Greater China alone accounts for 650,000 tons, with consumption growing at around 18 percent a year.

Polyurethane raw materials are a further focus of production at the site. These MDI-based intermediates are used in the production of rigid foam for thermal insulation, among other applications. The inaugurated facility - a "splitter" that separates crude MDI into monomeric and polymeric MDI – is just the beginning. A large-scale MDI production facility with a capacity of 350,000 tons per year, due on stream in 2008, will be the largest of its kind in the world. Also planned is a production facility for the intermediate TDI (toluene diisocyanate), which is used to manufacture flexible foams for applications such as car seats, mattresses and furniture. With a capacity of 160,000 tons per year, this plant is expected to come on stream in 2009.

Bayer began its production activities at the site in 2003 with coating raw materials, for which capacity currently is 22,500 tons per year. The company will now be able to produce another 30,000 tons of the raw material HDI, with the option of expanding this capacity by a further 20,000 tons Polyurethane-based coatings today offer the best performance spectrum. They are used, for example, on the Lupu Bridge - Shanghai’s most famous landmark - or in high-tech automotive coatings to provide long-term protection against weathering.

International news conference

At a news conference attended by journalists from around the world, Wenning had already outlined the corporate context of the investment projects in Shanghai. After explaining the Bayer Group’s overall strategic realignment, Wenning emphasized the leading positions it holds worldwide in the areas of health care, nutrition and high-tech materials. Bayer had global sales of EUR 27.4 billion in 2005.

The strategic strengthening of the health care business through the acquisition of Schering for approximately EUR 17 billion puts Bayer in seventh position among suppliers of specialty pharmaceuticals, Wenning commented. With Bayer CropScience the world market leader in conventional crop protection and Bayer MaterialScience the number one in polyurethanes and the number two in polycarbonates, Bayer has a highly competitive portfolio, he said. "This portfolio enables us to fully capitalize on our value creation potential, particularly in the Asia-Pacific region," the Bayer Chairman explained.

Bayer has annual sales of EUR 4.6 billion in Asia-Pacific Bayer’s sales in the Asia-Pacific region climbed by 15.5 percent in 2005, to EUR 4.6 billion, which means the region accounts for 17 percent of the Group’s business. The group has 55 subsidiaries and affiliates in the region, some 14,200 employees, and last year served nearly every local market. Headcount has since risen to about 18,000, including 2,900 Schering employees.

Thanks to high growth rates, the Greater China country group – which includes the People’s Republic of China, Hong Kong and Taiwan - already generates 28 percent of Bayer’s sales in the region, putting it in second place behind Japan. The number of employees has jumped from 3,700 to 4,900 over the past year, including about 600 Schering employees. It is planned to create more new jobs.

High growth rates for Bayer in China

Bayer’s sales in Greater China grew by 24 percent in 2005, to EUR 1.26 billion. According to Wenning, this shows "that Bayer is participating in the region’s dynamic economic growth. And this positive trend is continuing: our sales here showed a 22 percent year-on-year gain in the first half of 2006, to EUR 714 million."

Bayer MaterialScience contributed by far the largest share of sales in the first six months, with revenues of this subgroup advancing by 18 percent to EUR 524 million. BMS is targeting sales in excess of EUR 1 billion for the year as a whole. The CropScience subgroup raised sales by 33 percent, with Bayer HealthCare sales growing even faster at 39 percent. The increase at HealthCare was driven mainly by the Pharmaceuticals Division. Including the Schering activities, Bayer ranks fifth among international pharmaceutical suppliers in China.

"Bayer’s Solutions for China’s Needs"

Bayer plans to invest US$ 26 million to enlarge HealthCare production facilities in Beijing, Wenning announced. The company is thus making good on the motto "Bayer’s Solutions for China’s Needs", a regional variation on the global slogan "Bayer: Science For A Better Life". As an example of Bayer’s commitment to China, the Management Board Chairman mentioned the diabetes initiative of Bayer HealthCare. About 40 million Chinese already suffer from diabetes, and this disease will affect an estimated 50 million people there by 2008. In "diabetes houses," Bayer offers patients improved access to diagnosis, treatment, monitoring and consulting services. The medicine Glucobay to treat diabetes is the top-selling product on the Chinese pharmaceuticals market, Wenning said.

For 50 years, the Bayer CropScience subgroup has offered innovative, high-quality products and solutions for local agriculture needs in China. As part of the Agricare initiative, the company trains Chinese farmers in the proper use of crop protection products.

Bayer MaterialScience strives to further improve cooperation with Chinese customers in the development of new applications. To this end, BMS is expanding the Polymers Research and Development Center in Shanghai-Pudong, Wenning explained. The aim is to create an innovative "campus" for all BMS products and applications that is unique in the world.

Sustainable development applies to Bayer worldwide

Wenning emphasized the importance of sustainable-development principles. Bayer strives to uphold the highest possible standards in health, safety and environmental compatibility. This applies worldwide and is thus also valid for the facilities at the Shanghai site, Wenning said, with social responsibility being another fundamental aspect of Bayer’s corporate policy.

The Bayer Management Board Chairman thanked the Chinese authorities, particularly the Shanghai city administration, saying their cooperation and support are essential to the project’s successful implementation.

Wenning also had special words of appreciation for Bayer’s employees and partners, whom he thanked for their enduring cooperation, dedication and commitment. He said it was that commitment that enabled the facilities to be inaugurated on schedule.

Forward-looking statements
This news release contains forward-looking statements based on current assumptions and forecasts made by Bayer Group management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in our public reports filed with the Frankfurt Stock Exchange and with the U.S. Securities and Exchange Commission (including our Form 20-F). The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.

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