Edgar Filing: BAYER AKTIENGESELLSCHAFT

Form 6-K

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 2004

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 [X] Form 40-F [ ]

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 the registrant 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 [ ] No [X]

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.

(PICTURE)

Stockholders’ Newsletter 2004

Interim Report for the Second Quarter of 2004

(BAYER LOGO)

Bayer Group Key Data
€ million

2nd Quarter

1st Half

2003

2004

Change %

2003

2004

Change %

Net sales

7,256

7,583

+ 4.5

14,612

14,945

+ 2.3

of which discontinuing operations

1,604

1,754

3,253

3,380

Change in sales

Volume

+ 4

+ 6

+ 4

+ 8

Price

+ 3

+ 2

+ 1

Currency

– 11

– 2

– 11

– 4

Portfolio changes

+ 1

– 1

+ 5

– 2

EBITDA¹

1,120

1,151

+ 2.8

2,924

2,514

– 14.0

Operating result (EBIT)

475

524

+ 10.3

1,571

1,344

– 14.4

of which discontinuing operations

(55

)

(53

)

117

of which special items

(136

)

272

(143

)

Return on sales

6.5

6.9

10.8

9.0

Non-operating result

(197

)

(278

)

– 41.1

(390

)

(435

)

– 11.5

Net income

128

0.0

714

528

– 26.1

Earnings per share (€)

0.18

0.98

0.72

Gross cash flow²

903

831

– 8.0

2,330

1,815

– 22.1

Net cash flow³

937

1,146

+ 22.3

1,122

847

– 24.5

Capital expenditures

324

237

– 26.9

800

422

– 47.3

Research and development expenses

605

513

– 15.2

1,122

1,012

– 9.8

Depreciation and amortization

645

627

– 2.8

1,353

1,170

– 13.5

Number of employees (as of June 30)

117,500

113,600

– 3.3

Personnel expenses

2,012

1,858

– 7.7

3,916

3,708

– 5.3

1)		EBITDA = operating result (EBIT) plus depreciation and amortization

2)		Gross cash flow = operating result (EBIT) plus depreciation and amortization, less gains on retirements of noncurrent assets, less income taxes, and adjusted for changes in pension provisions

3)		Net cash flow = cash flow from operating activities according to IAS 7 2003 figures restated (for details see Notes, page 30 f)

Contents


Interim Report for the Second Quarter			4
Performance by Subgroup			6
- Bayer HealthCare			7
- Bayer CropScience			14
- Bayer MaterialScience			17
- Lanxess			21
Liquidity and Capital Resources			22
Employees			23
Statements of Income			23
Balance Sheets			24
Statements of Changes in Stockholders’ Equity			25
Notes			26
– Key Data by Segment			26
– Key Data by Region			28
– Notes to the Interim Report			30
Dates			32

Cover picture:

Scientists at Potsdam-based Bayer BioScience GmbH use modern biotechnology to optimize crop plants. For example, modified starches can be derived from potato tubers that have been altered with molecular biology methods. Julia Hemmerling and Menderes Kantemir investigate strips of this starch, which can be used in many applications.

Interim Report for the Second Quarter

EBIT before special items increases by 44 percent

Currency- and portfolio-adjusted sales up 8 percent

Bayer CropScience, Bayer MaterialScience and Lanxess improve significantly

Bayer HealthCare strengthened by the acquisition of Roche consumer health business

Lanxess stock-market listing proceeding on schedule

Substantial increase expected in second-half EBIT before special items

Bayer made gratifying operating gains in the second quarter of 2004. Sales grew by 4.5 percent to €7,583 million compared to the same period of 2003, and by 7.9 percent when adjusted for currency and portfolio effects. Bayer CropScience, Bayer MaterialScience and Lanxess contributed to this development.

EBIT improved by 10.3 percent to €524 million, and by 44.1 percent to €660 million before special items of €136 million. Included in the special items are €60 million for antitrust risks and €22 million for the stock-market listing of Lanxess. The biggest earnings improvements were achieved by CropScience and MaterialScience. Lanxess also posted a substantial increase in EBIT. As expected, EBIT of HealthCare was down significantly due to expiration of the U.S. patent for our anti-infective Cipro®.

With a non-operating result of minus €278 million, income before income taxes amounted to €246 million. The non-operating result includes non-cash expenses of €98 million from investments in affiliated companies, attributable mainly to one-time charges. After income taxes of €115 million and minority stockholders’ interest, Group net income in the second quarter totaled €128 million. The tax rate was 47 percent due to non-deductible expenses.

Gross cash flow declined by €72 million, or 8.0 percent, to €831 million compared to the same period of last year. By contrast, net cash flow advanced by €209 million, or 22.3 percent, year on year to €1,146 million. Net debt was reduced by €0.5 billion to €6.1 billion.

Looking at the first half of the year, operating performance was gratifying. EBIT before special items improved by 14.5 percent compared with the same period in 2003 to €1,487 million. Risks for the second half result above all from the costs of petrochemical raw materials, which have recently increased sharply and can only be passed on to some extent in our selling prices. Nonetheless, we forecast second-half EBIT before special items significantly above the level posted in the same period of last year. We also reaffirm our expectation of growing full-year EBITDA by more than 10 percent.

Net Sales
€ million

(BAR CHART)

Operating Result (EBIT)
€ million

(BAR CHART)

Gross Cash Flow
€ million

(BAR CHART)

Net Cash Flow
€ million

(BAR CHART)

Our preparations for the stock-market listing of Lanxess are proceeding on schedule. Lanxess will be separated from the Bayer Group by way of a spin-off. An Extraordinary Stockholders’ Meeting on November 17, 2004 will vote on this course of action. The proposal is that the stockholders of Bayer AG receive 100 percent of the shares of the spun-off Lanxess Group.

Pending the approval of the antitrust authorities, Bayer has acquired the consumer health business of Roche for a total purchase price of €2.38 billion. This transaction, which was announced in July, represents an important part of our HealthCare strategy of growing our consumer health activities by expanding the product portfolio. With total sales of about €2.4 billion, the combined OTC business will be among the world’s top three leading suppliers of non-prescription medicines.

Performance by Subgroup

Our business activities are grouped together in the HealthCare, CropScience, MaterialScience and Lanxess subgroups, comprising the following reporting segments:


Subgroup		Segments
HealthCare		Pharmaceuticals/Biological Products; Consumer Care/Diagnostics; Animal Health
CropScience		CropScience
MaterialScience		Materials; Systems
Lanxess		Lanxess

Performance by Subgroup in the Second Quarter of 2004
€ million

(BAR CHART)

Performance by Subgroup in the First Half of 2004
€ million

(BAR CHART)

Bayer HealthCare

Sales of the Bayer HealthCare subgroup fell by 4.4 percent to €2,108 million in the second quarter of 2004. Adjusted for currency and portfolio effects, sales dipped by 0.9 percent year on year. EBIT dropped by €169 million, or 43.8 percent, to €217 million, due mostly to special gains (€122 million) from the divestiture of the household insecticides business recognized in the previous year’s figure. We were able to largely offset the reduction in earnings resulting from the genericization of Cipro^® in the United States.

Increased risks in our HealthCare business continue to exist from litigation commenced in the United States following the voluntary withdrawal of the statin Lipobay/Baycol from the market and the voluntary cessation in the marketing of products containing PPA. Without acknowledging any liability, the company had settled 2,825 Lipobay/Baycol cases as of August 6, 2004, resulting in settlement payments totaling approximately US$ 1,084 million. As of that date, 7,906 cases were pending worldwide. Bayer will

Bayer HealthCare

2nd Quarter

1st Half

€ million

2003

2004

Change %

2003

2004

Change %

Net sales

2,204

2,108

– 4.4

4,312

4,232

– 1.9

of which discontinuing operations

153

162

293

310

EBITDA*

509

341

– 33.0

1,123

721

– 35.8

of which discontinuing operations

)

Operating result (EBIT)

386

217

– 43.8

874

494

– 43.5

of which discontinuing operations

)

(23

)

of which special items

296

Gross cash flow*

438

211

– 51.8

912

469

– 48.6

of which discontinuing operations

)

Net cash flow*

112

333

+ 197.3

445

363

– 18.4

of which discontinuing operations

(28

)

(42

)

(25

)

* for definition see Bayer Group Key Data on page 2

Best-Selling

Change

Bayer HealthCare Products

2nd Quarter

in local

1st Half

in local

currencies

€ million

2004

Change %

2004

Change %

Ciprobay^®/Cipro^® (Pharmaceuticals)

202

– 54.4

483

– 38.0

– 34.3

Adalat^® (Pharmaceuticals)

172

– 6.5

– 6.0

340

+ 0.6

+ 3.3

Aspirin^® (Consumer Care/Pharmaceuticals)

165

+ 9.3

+ 15.9

293

+ 2.4

+ 8.0

Ascensia^® product line (Diagnostics)

157

+ 20.8

+ 27.7

293

+ 11.8

+ 16.4

Kogenate^® (Biological Products)

135

+ 27.4

+ 30.2

256

+ 19.1

+ 22.8

ADVIA Centaur^® System (Diagnostics)

112

+ 23.1

+ 30.8

216

+ 20.0

+ 25.0

Avalox^®/Avelox^® (Pharmaceuticals)

+ 77.4

+ 74.2

159

+ 14.4

+ 21.6

Gamimune^® N/Gamunex^®

(Biological Products)

+ 1.3

+ 6.4

158

+ 14.5

+ 23.2

Glucobay^® (Pharmaceuticals)

+ 7.7

+ 9.2

143

+ 5.9

+ 10.4

Advantage^®/Advantix^® (Animal Health)

– 2.9

0.0

112

+ 4.7

+ 12.1

Levitra^® (Pharmaceuticals)

•

106

•

Prolastin^® (Biological Products)

– 2.3

0.0

– 4.8

+ 2.4

One-A-Day^® (Consumer Care)

+ 50.0

+ 63.3

+ 12.3

+ 26.2

Trasylol^® (Pharmaceuticals)

+ 3.4

+ 5.8

+ 14.5

Baytril^® (Animal Health)

0.0

– 2.7

+ 2.7

Total

1,405

– 6.1

– 3.4

2,857

– 1.3

+ 3.9

Proportion of Bayer HealthCare sales

66.7

67.5

continue its policy of trying to agree on fair compensation for anyone who experienced serious side effects from Lipobay/Baycol on its own initiative and without acknowledging any legal liability. Where facts have been developed in the course of the litigation, it so far appears that the vast majority of plaintiffs did not suffer serious side-effects.

Should the U.S. plaintiffs in the Baycol litigation or in the phenylpropanolamine (PPA) product liability litigation substantially prevail despite the existing meritorious defenses, it is possible that Bayer could face payments that exceed its insurance coverage and are not covered through the accounting measures already taken. The same is true should a significant further increase in settlement cases occur in the Baycol litigation. PPA, which was widely used as an active ingredient in appetite suppressants and cough-and-cold medications by many manufacturers, was voluntarily replaced by Bayer and other producers in the U.S. after a recommendation in 2000 by the U.S. Food and Drug Administration.

Pharmaceuticals/Biological Products

Sales of the Pharmaceuticals Division fell in the second quarter by €186 million, or 20.0 percent, to €744 million. The decline in sales of the anti-infective Cipro^® following expiration of our patent in the United States could only be compensated in part by growing business with other products.

Sales of Ciprobay^®/Cipro^® declined by €241 million, or 54.4 percent, compared to the second quarter of 2003. The once-daily formulation Cipro XR^® claimed 16 percent of total ciprofloxacin prescriptions by the end of the second quarter.

Pharmaceuticals/Biological Products

2nd Quarter

1st Half

€ million

2003

2004

Change %

2003

2004

Change %

Net sales

1,190

1,040

– 12.6

2,321

2,216

– 4.5

of which discontinuing operations

153

162

293

310

Pharmaceuticals

930

744

– 20.0

1,811

1,650

– 8.9

Biological Products

260

296

+ 13.8

510

566

+ 11.0

EBITDA*

206

120

– 41.7

464

325

– 30.0

of which discontinuing operations

)

Operating result (EBIT)

150

– 56.7

353

229

– 35.1

of which discontinuing operations

)

(23

)

of which special items

(24

)

Gross cash flow*

175

– 57.7

364

197

– 45.9

of which discontinuing operations

)

Net cash flow*

(152

)

166

•

(45

)

•

of which discontinuing operations

(28

)

(42

)

(25

)

* for definition see Bayer Group Key Data on page 2

Our erectile dysfunction drug Levitra^®, which we launched in 2003, increased its market share to more than 10 percent. Contributing to this success were more than 30 further launches of the product in the first half of 2004, including its successful introduction in Japan on June 21, 2004. Levitra^® holds a 10 percent share of the U.S. market overall and a 15 percent share of new prescriptions. We captured higher market share in key European countries such as Germany (18 percent). However, overall the market performance of Levitra^® did not meet our expectations. Sales in the second quarter were additionally impacted by wholesalers reducing their inventories.

Avalox^®/Avelox^® (respiratory diseases), Glucobay^® (type 2 diabetes) and Aspirin Cardio^® (myocardial infarction and stroke prophylaxis) continued to perform positively. Avelox^® received marketing authorization from the U.S. Food and Drug Administration for the treatment of community-acquired pneumonia caused by the Streptococcus pneumoniae bacterium that is resistant to conventional antibiotics. Avelox^® is thus the first antibiotic approved for this indication in the United States.

In the field of cancer research, we published encouraging news concerning the use of our Raf kinase inhibitor – which we are developing jointly with U.S.-based Onyx Pharmaceuticals, Inc.– to treat patients with advanced kidney and skin cancer. The substance is currently in Phase III clinical trials for the treatment of advanced renal cell carcinoma. We were also able to present positive study results for our Factor Xa inhibitor for the treatment and prevention of thrombosis.

Sales of the Biological Products Division climbed by 13.8 percent in the second quarter of 2004, to €296 million. Kogenate^®, in particular, continued to perform very satisfactorily, with sales moving ahead by €29 million, or 27.4 percent, to €135 million. Business expanded most strongly in Europe and North America. We are currently involved in negotiations with potential buyers for our plasma business, which is reported under discontinuing operations.

Change

Pharmaceuticals/Biological Products

2nd Quarter

in local

currencies

Net sales by market (€ million)

2003

2004

Change %

Europe

333

363

+ 9.0

+ 8.8

North America

554

351

– 36.6

– 35.1

Asia/Pacific

210

227

+ 8.1

+ 7.9

Latin America/Africa/Middle East

+ 6.5

+ 13.9

Total

1,190

1,040

– 12.6

– 11.4

The global pharmaceuticals market maintained its high growth rate in the second quarter, spurred primarily by North America, which accounts for almost 50 percent of the world market. Bayer saw business decline considerably in this region, due especially to the genericization of its best-selling product Cipro^®.

The European pharmaceuticals market expanded by an average 7 percent, with the rates differing considerably from country to country. Bayer slightly outperformed the European market overall, growing by 9.0 percent.

In the Asia/Pacific region, growth rates in Japan edged up to about 4 percent despite price reductions in April. Bayer grew considerably faster than the market, with sales up by 9.1 percent. Particularly pleasing was the growth in sales of 46.1 percent posted by our business in China.

Year-on-year EBIT of the Pharmaceuticals/Biological Products segment fell by €85 million to €65 million. This decline, which was due mostly to the expiration of our patent for Cipro^® in the United States and to high launch costs for Levitra^®, could only be partially offset by growing sales of individual products and by cost-containment measures.

Consumer Care/Diagnostics

2nd Quarter

1st Half

Change

€ million

2003

2004

2003

2004

Net sales

800

843

+ 5.4

1,598

1,613

+ 0.9

Consumer Care

340

333

– 2.1

690

659

– 4.5

Diagnostics

460

510

+ 10.9

908

954

+ 5.1

Diagnostics Professional Testing Systems

321

340

+ 5.9

628

643

+ 2.4

Diagnostics Self Testing Systems

139

170

+ 22.3

280

311

+ 11.1

EBITDA*

251

169

– 32.7

559

307

– 45.1

Operating result (EBIT)

191

107

– 44.0

436

188

– 56.9

of which special items

119

297

Gross cash flow*

214

104

– 51.4

458

213

– 53.5

Net cash flow*

242

129

– 46.7

448

234

– 47.8

* for definition see Bayer Group Key Data on page 2

Consumer Care/Diagnostics

Sales of the Consumer Care Division moved back by 2.1 percent to €333 million, due to the divestment of the household insecticides business. When adjusted for portfolio changes and currency effects, sales rose by 8.0 percent. The main growth market was North America, where sales were up by 11.7 percent in local currencies. This was attributable to new product launches – including the One-A-Day CarbSmart^® dietary supplement – and to the continued positive performance of Aleve^®. Co-marketed with Roche, this product is now the third leading pain reliever in the U.S. OTC market.

Effective June 1, 2004, we divided Diagnostics into two divisions: Diagnostics Professional Testing Systems and Diagnostics Self Testing Systems. The aim is to provide both divisions with added flexibility so that they can respond better to the unique characteristics of their respective markets in terms of, for example, customer structure and distribution channels. Sales of the Diagnostics Professional Testing Systems Division grew by 5.9 percent or 8.9 percent in local currencies. This was due mainly to considerable gains by the ADVIA Centaur^® product line (23.1 percent), particularly in the United States. Following the successful introduction in Europe, Latin America and Asia of a new test from our ADVIA^® system to support the diagnosis of hepatitis B infections, the test was recently approved by the U.S. Food and Drug Administration. Business in the Diagnostics Self Testing Systems Division improved by 22.3 percent year on year in the second quarter, and by 27.2 percent in local currencies. This was largely attributable to newly introduced blood glucose measurement systems from the Ascensia^® line. The Ascensia^® Contour system has now been successfully launched in the United States, Canada and the United Kingdom.

Change

Consumer Care/Diagnostics

2nd Quarter

in local

Change

currencies

Net sales by market (€ million)

2003

2004

Europe

268

297

+ 10.8

+ 10.5

North America

342

366

+ 7.0

+ 14.3

Asia/Pacific

– 4.9

– 4.0

Latin America/Africa/Middle East

109

103

– 5.5

+ 1.9

Total

800

843

+ 5.4

+ 9.5

The strong growth in Europe and North America resulted from the positive developments in Consumer Care and the two Diagnostics divisions.

There were contrasting trends in the world’s OTC markets. Growth in nearly all segments of the U.S. OTC market weakened slightly, although Bayer increased sales in the United States by 4.9 percent and 11.8 percent in local currencies. In Germany, Europe’s biggest OTC market, development was restrained largely by reforms to the country’s health care system. In other countries, such as Italy and the United Kingdom, we participated in the growth of the market, with business advancing by 23.2 and 8.9 percent, respectively.

Continued positive development in the U.S. self-testing market was the main factor in growth of 12 percent worldwide in the first half of 2004. All major suppliers in this industry benefited from market expansion in the United States, with Bayer achieving the highest growth rates. Bayer also grew faster than the market outside of the U.S. Globally, the professional testing market expanded by about 5 percent. Here, too, Bayer grew considerably faster than the market.

EBIT of the Consumer Care/Diagnostics segment fell by €84 million to €107 million as a result of special gains of €122 million from the divestment of the household insecticides business in the second quarter of 2003. Before special items, EBIT climbed significantly by €35 million, or 48.6 percent.

Animal Health

2nd Quarter

1st Half

€ million

2003

2004

Change %

2003

2004

Change %

Net sales

214

225

+ 5.1

393

403

+ 2.5

EBITDA*

0.0

100

– 11.0

Operating result (EBIT)

0.0

– 9.4

of which special items

Gross cash flow*

– 32.7

– 34.4

Net cash flow*

+ 72.7

+ 7.1

* for definition see Bayer Group Key Data on page 2

Animal Health

Sales of the Animal Health segment rose by €11 million, or 5.1 percent, overall to €225 million due largely to stronger demand in North America. Measured in local currencies, the increase was 8.8 percent. Our new antiparasitic Advantix^® and the coccidiosis treatment Baycox^® 5% continued to perform well. EBIT remained steady at last year’s pleasing level of €45 million.

Change

Animal Health

2nd Quarter

in local

Change

currencies

Net sales by market (€ million)

2003

2004

Europe

+ 7.6

+ 7.1

North America

+ 8.5

+ 16.3

Asia/Pacific

– 8.6

– 7.8

Latin America/Africa/Middle East

+ 6.5

+ 11.0

Total

214

225

+ 5.1

+ 8.8

Bayer CropScience

2nd Quarter

1st Half

€ million

2003

2004

Change %

2003

2004

Change %

Net sales

1,567

1,642

+ 4.8

3,228

3,374

+ 4.5

Crop Protection

1,284

1,352

+ 5.3

2,641

2,768

+ 4.8

Insecticides

353

383

+ 8.5

723

769

+ 6.4

Fungicides

325

349

+ 7.4

651

688

+ 5.7

Herbicides

540

547

+ 1.3

1,073

1,100

+ 2.5

Seed Treatment

+ 10.6

194

211

+ 8.8

Environmental Science

215

216

+ 0.5

420

402

– 4.3

BioScience

+ 8.8

167

204

+ 22.2

EBITDA*

232

341

+ 47.0

877

897

+ 2.3

Operating result (EBIT)

159

•

484

538

+ 11.2

of which special items

(49

)

(41

)

(15

)

(41

)

Gross cash flow*

154

192

+ 24.7

670

539

– 19.6

Net cash flow*

735

585

– 20.4

543

346

– 36.3

* for definition see Bayer Group Key Data on page 2

Bayer CropScience

Following a strong first quarter, the Bayer CropScience subgroup increased its year-on-year sales in the second quarter as well. Business was up by €75 million, or 4.8 percent, to €1,642 million; when adjusted for currency and portfolio effects, the improvement was 7.5 percent.

The Crop Protection Business Group saw sales increase by 5.3 percent to €1,352 million.

Business in our highest-volume product group, Confidor^®/Gaucho^®/Admire^®/Merit^®, improved in the second quarter by 5.3 percent, or by 10.7 percent in local currencies. This was mainly attributable to weather conditions favorable to our business and the delayed start – in part into the second quarter – to the insecticides business.

Sales of our Folicur^® fungicide rose by 7.2 percent to €104 million. This resulted both from continuing efforts to eliminate Asian rust in Brazil and from the weather conditions in Europe, which led to higher sales of crop protection products for cereals.

Due to lower sales in Canada and the United States, in particular, our Puma^® herbicide saw a year-on-year decline of 13.7 percent in the second quarter. However, sales remained steady for the first half as a whole.

2nd Quarter

1st Half

Best-Selling

Change

Bayer CropScience Products

in local

Change

currencies

Change

currencies

€ million

2004

Confidor^®/Gaucho^®/Admire^®/Merit^®

(Insecticides/Seed Treatment/Environmental Science)

158

+ 5.3

+ 10.7

329

– 5.2

– 0.6

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

104

+ 7.2

+ 12.4

212

+ 21.1

+ 24.6

Puma^® (Herbicides)

– 13.7

– 9.5

142

– 0.7

+ 3.5

Basta^®/Liberty^® (Herbicides)

+ 17.7

+ 22.6

123

+ 23.0

+ 29.0

Betanal^® (Herbicides)

– 5.9

– 1.5

116

– 3.3

0.0

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

– 7.0

– 1.8

113

+ 0.9

+ 4.5

Decis^®/K-Othrine^®

(Insecticides/Environmental Science)

+ 5.9

+ 9.8

+ 10.8

+ 14.5

Temik^® (Insecticides)

– 20.0

– 24.0

+ 36.0

+ 46.0

Hussar^® (Herbicides)

– 4.5

– 9.1

– 3.2

– 1.6

Axiom^®/Define^®/Epic^® (Herbicides)

+ 9.5

+ 31.0

+ 38.1

Total

652

+ 0.6

+ 4.6

1,310

+ 6.2

+ 10.5

Proportion of Bayer CropScience sales

39.7

38.8

Our Basta^® herbicide put in a strong showing, with sales advancing by 17.7 percent overall to €73 million. The product performed particularly well in Canada.

Sales of our FLINT^® fungicide receded by 7.0 percent to €53 million in a difficult western European market for products containing strobilurins as the active substance. In local currencies the decrease was 1.8 percent. However, we were able to more than compensate for this decline through the successful introduction of the innovative Proline^® family of cereal fungicides in Germany.

Compared with the same period last year, sales of the Environmental Science Business Group remained steady at €216 million. After adjustment for currency changes, the improvement was 4.6 percent. This was due in part to higher sales of the insecticide Merit^® for landscape management and of the U.S. home and garden products.

Sales of the BioScience Business Group moved ahead year on year by 8.8 percent to €74 million, with strong contributions coming from InVigor^® (canola seed) and FiberMax^® (cotton seed), as well as from our rice seed products.

2nd Quarter

Change

CropScience

in local

Change

currencies

Net sales by market (€ million)

2003

2004

Europe

615

641

+4.2

+4.3

North America

507

551

+8.7

+15.7

Asia/Pacific

222

228

+2.7

+3.0

Latin America/Africa/Middle East

223

222

–0.4

+6.3

Total

1,567

1,642

+4.8

+8.1

The positive trend in the global crop protection market continued in the second quarter.

The industry benefited from favorable weather conditions in Europe, although sales were held back in some countries by high inventories from the previous year. Bayer expanded its sales in this region by 4.2 percent, improving particularly in fungicides.

In the North America region, too, our business performed very well in the second quarter, primarily as a result of good growing conditions for key crops: cereals, corn and soybeans. A further reason for the 8.7 percent growth in sales was the weather-related increase in the occurrence of corn pests. After adjustment for currency effects, sales advanced by 15.7 percent.

In Asia, market performance was unsatisfactory, particularly in the important Japanese and South Korean markets, as a result of intense competition and heavy pressure on prices. Bayer made modest gains in the region as a whole, with sales up by 2.7 percent.

Growth in the Latin America region remained brisk year on year. The increase in soybean acreages, coupled with a massive outbreak of Asian rust in soybean crops, triggered a marked increase in fungicide use, from which Bayer also benefited. Despite receding sales in the Middle East, we grew our business by 6.3 percent for the region as a whole in local currencies.

EBIT of CropScience rose by €122 million in the second quarter, to €159 million. This substantial increase in earnings resulted above all from higher sales and the achievement of further synergies from the integration of the ACS business. The special charges of €41 million comprise mainly restructuring expenses for site closures in the United Kingdom, as well as charges for legal risks. After adjustment, EBIT thus climbed by €114 million to €200 million.

Bayer MaterialScience

2nd Quarter

1st Half

€ million

2003

2004

Change %

2003

2004

Change %

Net sales

1,854

2,091

+12.8

3,721

3,968

+6.6

EBITDA*

253

366

+44.7

555

647

+16.6

Operating result (EBIT)

215

+131.2

191

350

+83.2

of which special items

(38

)

(51

)

Gross cash flow*

241

264

+9.5

522

495

–5.2

Net cash flow*

174

141

–19.0

337

193

–42.7

* for definition see Bayer Group Key Data on page 2

Bayer MaterialScience

In the second quarter of 2004, the Bayer MaterialScience subgroup increased sales by a gratifying €237 million, or 12.8 percent, to €2,091 million. Currency- and portfolio-adjusted sales jumped by 17.3 percent. EBIT rose by €122 million, or 131.2 percent, to €215 million, due especially to the improved earnings performance in Polycarbonates and Polyurethanes. The growth in EBIT before special items was €84 million, or 64.1 percent.

Materials

2nd Quarter

1st Half

€ million

2003

2004

Change %

2003

2004

Change %

Net sales

694

800

+15.3

1,389

1,500

+8.0

Polycarbonates

417

489

+17.3

847

919

+8.5

Thermoplastic Polyurethanes

+2.2

Wolff Walsrode

–5.8

169

158

–6.5

H.C. Starck

145

183

+26.2

283

331

+17.0

EBITDA*

140

+59.1

190

232

+22.1

Operating result (EBIT)

+136.4

110

+61.8

of which special items

(12

)

(12

)

Gross cash flow*

104

+22.4

178

179

+0.6

Net cash flow*

(22)

•

–19.4

* for definition see Bayer Group Key Data on page 2

Materials

Sales of the Materials segment were up substantially compared with the second quarter of 2003, growing 15.3 percent to €800 million. When adjusted for currency and portfolio effects, sales growth was even stronger at 20.8 percent.

In this segment, the Polycarbonates Business Unit posted very pleasing growth of €72 million, or 17.3 percent, to €489 million. This was attributable particularly to strong demand from producers of optical storage media such as CDs and DVDs.

H.C. Starck also significantly boosted its performance year on year, growing sales by 26.2 percent. This was due mainly to the upturn in the electronics industry and to price increases for some products. In the North America region, we were able to grow faster than the market.

Change

Materials

2nd Quarter

in local

Change

currencies

Net sales by market (€ million)

2003

2004

Europe

322

342

+6.2

North America

148

178

+20.3

+27.7

Asia/Pacific

180

228

+26.7

+31.2

Latin America/Africa/Middle East

+18.2

+23.0

Total

694

800

+15.3

+18.3

Second-quarter sales of the segment increased by 6.2 percent in Europe. However, growth fell far short of that in the other regions due to the sluggish economy.

In North America, Bayer benefited from vigorous economic growth, increasing sales by a total of 20.3 percent – 27.7 percent in local currencies – thanks to strong demand for Makrolon^® polycarbonate.

Buoyed by continuing strong demand from the electronics industry, sales in the Asia/Pacific region increased by 26.7 percent. High sales of polycarbonate in China played a key role in this growth.

EBIT of the Materials segment advanced by €45 million to €78 million in the second quarter, due particularly to a demand-driven increase in production capacity utilization. This earnings increase was also made possible in part by the success of our cost-containment programs and by the absence of special charges that were still a factor in the previous year. Significantly higher raw material costs could only be passed on to customers in part through price increases.

Systems

2nd Quarter

1st Half

Change

€ million

2003

2004

2003

2004

Net sales

1,160

1,291

+11.3

2,332

2,468

+5.8

Polyurethanes

797

912

+14.4

1,587

1,732

+9.1

Coatings, Adhesives, Sealants

296

323

+9.1

616

624

+1.3

Inorganic Basic Chemicals

–12.1

110

100

–9.1

Others

–44.4

–36.8

EBITDA*

165

226

+37.0

365

415

+13.7

Operating result (EBIT)

137

+128.3

123

240

+95.1

of which special items

(26

)

(39

)

Gross cash flow*

156

160

+2.6

344

316

–8.1

Net cash flow*

196

–58.2

244

118

–51.6

* for definition see Bayer Group Key Data on page 2

Systems

Sales of the Systems segment moved ahead by 11.3 percent to €1,291 million compared to the previous year, and by 15.3 percent when adjusted for currency and portfolio effects.

Polyurethanes performed gratifyingly, with sales advancing by 14.4 percent. MDI production has been increased to full capacity. As raw material costs remain high, nearly all producers have implemented price increases. The announcement of further price adjustments for the third quarter led to our customers building up inventories in the second quarter. The polyether business also contributed to improved sales through higher prices and volumes.

Growth in the Coatings, Adhesives, Sealants Business Unit was largely achieved with the aliphatic and aromatic isocyanates product lines (for surface coatings).

Sales of Inorganic Basic Chemicals declined by 12.1 percent due to a sharp drop in prices for caustic soda.

Change

Systems

2nd Quarter

in local

Change

currencies

Net sales by market (€ million)

2003

2004

Europe

535

575

+7.5

+7.6

North America

345

384

+11.3

+18.1

Asia/Pacific

163

194

+19.0

+21.1

Latin America/Africa/Middle East

117

138

+17.9

+21.8

Total

1,160

1,291

+11.3

+14.1

Despite stagnation in the automotive industry, sales in the Europe region improved by a gratifying 7.5 percent to €575 million.

Sales in North America and the Asia/Pacific region climbed 18.1 and 21.1 percent, respectively, due especially to continuing strong demand from the construction industry for MDI for thermal insulating materials.

Currency-adjusted sales in the Latin America/Africa/Middle East region rose by 21.8 percent, mostly as a result of good business with polyurethane raw materials. Due to restrained demand from the construction industry, only single-digit growth was recorded in Latin America.

EBIT of the Systems segment improved by €77 million to €137 million in the second quarter. EBIT before special items grew by €51 million, or 59.3 percent. High utilization of capacities and successful cost-containment measures were largely responsible for this rise in earnings. Sharply increased raw material prices, especially for benzene, could only be partially offset by price increases.


Lanxess	2nd Quarter								1st Half
							Change								Change
€ million	2003			2004			%		2003			2004			%
Net sales		1,451			1,592			+9.7		2,960			3,070			+3.7
Chemical Intermediates		272			288			+5.9		546			570			+4.4
Performance Chemicals		478			488			+2.1		970			954			–1.6
Engineering Plastics		333			424			+27.3		683			810			+18.6
Performance Rubber		340			371			+9.1		696			695			–0.1
Others		28			21			–25.0		65			41			–36.9
EBITDA*		57			135			+136.8		186			271			+45.7
Operating result (EBIT)		(47	)		20			•		(30	)		95			•
of which special items		(23	)		(31	)				(25	)		(31	)
Gross cash flow*		47			113			+140.4		155			224			+44.5
Net cash flow*		(74	)		78			•		(123	)		16			•

* for definition see Bayer Group Key Data on page 2

Lanxess

Sales of the Lanxess subgroup advanced by €141 million, or 9.7 percent, to €1,592 million in the second quarter, and by 11.6 percent when adjusted for currency and portfolio effects.

Business in Chemical Intermediates grew by 5.9 percent over the second quarter of 2003 to €288 million, due particularly to increased sales of basic chemicals in North America and inorganic pigments in Europe.

Change

Lanxess

2nd Quarter

in local

Change

currencies

Net sales by market (€ million)

2003

2004

Europe

782

820

+4.9

+4.7

North America

322

369

+14.6

+21.1

Asia/Pacific

222

255

+14.9

+16.3

Latin America/Africa/Middle East

125

148

+18.4

+22.1

Total

1,451

1,592

+9.7

+11.6

Performance Chemicals boosted sales by 2.1 percent year on year to €488 million. Gratifying gains were made above all by Rhein Chemie, Material Protection Products and Ion Exchange Resins.

Sales of Engineering Plastics were up by 27.3 percent compared to the same period of 2003, to €424 million. This was mainly attributable to the Styrenic Resins business, where we were able to grow volume sales and pass on raw material cost increases to some extent in our selling prices.

Sales of Performance Rubber moved ahead by 9.1 percent to €371 million. The Technical Rubber Products business grew by 17.1 percent, while sales of Butyl Rubber rose by 10.9 percent as a result of higher prices and volumes.

EBIT of the Lanxess segment amounted to €20 million in the second quarter, a year-on-year gain of €67 million. We improved EBIT before special items by €75 million. In a pleasing development, we increased EBITDA by €78 million to €135 million.

Bayer Group Summary Cash Flow Statements

2nd Quarter

1st Half

€ million

2003

2004

2003

2004

Gross cash flow*

903

831

2,330

1,815

Changes in working capital

315

(1,208

)

(968

)

Net cash provided by operating activities

937

1,146

1,122

847

of which discontinuing operations

(102

)

(82

)

(165

)

Net cash provided by (used in) investing activities

(40

)

949

215

of which discontinuing operations

(57

)

(15

)

(72

)

(63

)

Net cash used in financing activities

(1,318

)

(977

)

(1,093

)

(1,135

)

of which discontinuing operations

(159

)

(67

)

(237

)

(72

)

Changes in cash and cash equivalents due to business activities

(421

)

224

978

(73

)

Cash and cash equivalents at beginning of period

2,165

2,440

767

2,734

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

(16

)

(17

)

Cash and cash equivalents at end of second quarter

1,728

2,666

1,728

2,666

Marketable securities and other instruments

215

Liquid assets as per balance sheets

1,758

2,881

1,758

2,881

* for definition see Bayer Group Key Data on page 2
2003 figures restated (for details see Notes, page 30 f)

Liquidity and Capital Resources

Compared to the same period of 2003, the gross cash flow of the Bayer Group receded by €72 million, or 8.0 percent, to €831 million. A diminishing effect came from higher payments associated with the utilization of provisions for early retirement programs, as well as from non-cash gains of €121 million resulting from a reduction in pension programs in the United States. By contrast, the net cash flow increased by €209 million, or 22.3 percent, to €1,146 million, due to a reduction in working capital. Depreciation and amortization amounted to €627 million in the second quarter; for the full year we expect depreciation and amortization to total approximately €2.3 billion.

Net cash of €55 million was provided by investing activities. Outflows of €237 million were partially offset by €70 million in cash receipts from sales of noncurrent assets. Interest and other cash inflows amounted to €222 million. Capital expenditures in the second half of 2004 will substantially exceed those of the first half (€422 million). For the full year 2004, we expect capital expenditures to total around €1.4 billion.

Financing activities resulted in net cash outflows of €977 million, including dividend payments of €372 million, net loan repayments of €263 million and interest payments of €342 million, which decreased largely because of a reduction in our financial liabilities.

Cash and cash equivalents increased overall by €226 million to €2,666 million. Including marketable securities and other instruments, the Group had liquid assets of €2,881 million on June 30, 2004.

Employees

On June 30, 2004 the Bayer Group had 113,600 employees, 1,800 fewer than at the start of the year. Headcount was reduced by 1,300 in Europe, 500 in North America and 100 in Asia/Pacific. The workforce in the Latin America/Africa/Middle East region grew by 100. The Bayer Group had 117,500 employees on June 30, 2003.

Personnel expenses in the second quarter of 2004 were down by 7.7 percent to €1,858 million. The first-half total of €3,708 million represents a year-on-year decrease of 5.3 percent.

Bayer Group Consolidated Statements of Income (Summary)

€ million


	2nd Quarter						1st Half

	2003			2004			2003			2004
Net sales		7,256			7,583			14,612			14,945
of which discontinuing operations		1,604			1,754			3,253			3,380
Cost of goods sold		(4,143	)		(4,494	)		(8,114	)		(8,470	)
Gross profit		3,113			3,089			6,498			6,475
Selling expenses		(1,620	)		(1,605	)		(3,179	)		(3,094	)
Research and development expenses		(605	)		(513	)		(1,122	)		(1,012	)
General administration expenses		(384	)		(423	)		(761	)		(813	)
Other operating income		296			262			717			391
Other operating expenses		(325	)		(286	)		(582	)		(603	)
Operating result (EBIT)		475			524			1,571			1,344
of which discontinuing operations		(55	)		31			(53	)		117
Non-operating result		(197	)		(278	)		(390	)		(435	)
Income before income taxes		278			246			1,181			909
Income taxes		(149	)		(115	)		(459	)		(372	)
Income after taxes		129			131			722			537
Minority stockholders’interest		(1	)		(3	)		(8	)		(9	)
Net income		128			128			714			528
Earnings per share (€)		0.18			0.18			0.98			0.72

2003 figures restated (for details see Notes, page 30 f)

Bayer Group Consolidated Balance Sheets (Summary)

€ million


	June 30,			June 30,			Dec. 31,
	2003			2004			2003
Assets
Noncurrent assets
Intangible assets		8,366			6,336			6,514
Property, plant and equipment		11,437			9,663			9,937
Investments		2,261			1,689			1,781
		22,064			17,688			18,232
Current assets
Inventories		6,534			6,151			5,885
Receivables and other assets
Trade accounts receivable		5,860			5,988			5,071
Other receivables and other assets		3,313			3,079			3,854
		9,173			9,067			8,925
Liquid assets		1,758			2,881			2,863
		17,465			18,099			17,673
Deferred taxes		742			1,310			1,298
Deferred charges		357			274			242
Total assets		40,628			37,371			37,445
of which discontinuing operations		6,345			5,393			5,655

Stockholders’ Equity and Liabilities
Stockholders’ equity
Capital stock and reserves		4,812			4,812			4,812
Retained earnings		10,480			8,753			10,479
Net income		714			528			(1,361	)
Currency translation adjustment		(981	)		(1,514	)		(1,699	)
Miscellaneous items		98			27			(18	)
		15,123			12,606			12,213
Minority stockholders’ interest		129			100			123
Liabilities
Long-term liabilities
Long-term financial obligations		7,044			6,671			7,113
Miscellaneous long-term liabilities		83			105			98
Provisions for pensions and other post-employment benefits		4,992			5,020			5,072
Other long-term provisions		1,249			1,410			1,343
		13,368			13,206			13,626
Short-term liabilities
Short-term financial obligations		2,992			2,699			2,313
Trade accounts payable		1,983			2,079			2,265
Miscellaneous short-term liabilities		1,950			1,709			2,361
Short-term provisions		2,424			2,903			2,448
		9,349			9,390			9,387
		22,717			22,596			23,013

of which discontinuing operations		2,844			3,314			2,933
Deferred taxes		2,194			1,435			1,462
Deferred income		465			634			634
Balance sheet total		40,628			37,371			37,445

Bayer Group Consolidated Statements of Changes in Stockholders’ Equity (Summary)

€ million


						Net			Currency			Miscel-
	Capital stock		Retained			income			translation			laneous
	and reserves		earnings			(loss)			adjustment			items			Total
December 31, 2002		4,812		10,076			1,060			(593	)		(20	)		15,335
Dividend payment							(657	)								(657	)
Allocation to retained earnings				404			(403	)								1
Exchange differences										(388	)					(388	)
Other changes in stockholders’ equity													118			118
Net income							714									714

June 30, 2003		4,812		10,480			714			(981	)		98			15,123

December 31, 2003		4,812		10,479			(1,361	)		(1,699	)		(18	)		12,213
Dividend payment							(365	)								(365	)
Allocation from retained earnings				(1,726	)		1,726									0
Exchange differences										185						185
Other changes in stockholders’ equity													45			45
Net income							528									528
June 30, 2004		4,812		8,753			528			(1,514	)		27			12,606

Notes

Key Data by Segment


2nd Quarter	Bayer HealthCare


							of which
							discontinuing
	Pharmaceuticals/						operations					Consumer Care/
	Biological Products						Plasma					Diagnostics						Animal Health

	2nd Quarter						2nd Quarter					2nd Quarter						2nd Quarter
Segments
€ million	2003			2004			2003			2004		2003			2004			2003			2004
Net sales (external)		1,190			1,040			153			162		800			843			214			225
– Change in €		+ 2.0	%		– 12.6	%							– 17.6	%		+ 5.4	%		+ 0.9	%		+ 5.1	%
– Change in local currencies		+ 15.2	%		– 11.4	%							– 4.2	%		+ 9.5	%		+ 15.1	%		+ 8.8	%
Intersegment sales		14			20								2			3			0			1
Operating result (EBIT)		150			65			(8	)		11		191			107			45			45
Return on sales		12.6	%		6.3	%							23.9	%		12.7	%		21.0	%		20.0	%
Gross cash flow*		175			74			2			22		214			104			49			33
Net cash flow*		(152	)		166			(28	)		4		242			129			22			38
Depreciation and amortization		56			55			7			12		60			62			7			7


1st Half	Bayer HealthCare


							of which
							discontinuing
	Pharmaceuticals/						operations						Consumer Care/
	Biological Products						Plasma						Diagnostics						Animal Health

	1st Half						1st Half						1st Half						1st Half
Segments
€ million	2003			2004			2003			2004			2003			2004			2003			2004
Net sales (external)		2,321			2,216			293			310			1,598			1,613			393			403
– Change in €		– 4.2	%		– 4.5	%								– 16.8	%		+ 0.9	%		– 5.3	%		+ 2.5	%
– Change in local currencies		+ 8.6	%		+ 0.3	%								– 2.8	%		+ 6.9	%		+ 8.9	%		+ 7.8	%
Intersegment sales		22			21									3			4			1			2
Operating result (EBIT)		353			229			(23	)		22			436			188			85			77
Return on sales		15.2	%		10.3	%								27.3	%		11.7	%		21.6	%		19.1	%
Gross cash flow*		364			197			(5	)		33			458			213			90			59
Net cash flow*		(45	)		84			(42	)		(25	)		448			234			42			45
Depreciation and amortization		111			96			14			12			123			119			15			12

* for definition see Bayer Group Key Data on page 2

2003 figures restated (for details see Notes, page 30 f)


																		Lanxess
Bayer CropScience									Bayer MaterialScience
																		Lanxess
																		discontinuing
CropScience						Materials						Systems						operations						Reconciliation						Bayer Group

2nd Quarter						2nd Quarter						2nd Quarter						2nd Quarter						2nd Quarter						2nd Quarter

2003			2004			2003			2004			2003			2004			2003			2004			2003			2004			2003			2004
	1,567			1,642			694			800			1,160			1,291			1,451			1,592			180			150			7,256			7,583
	+ 44.7	%		+ 4.8	%		– 7.3	%		+ 15.3	%		– 1.4	%		+ 11.3	%		– 11.9	%		+ 9.7	%								– 3.3	%		+ 4.5	%
	+ 58.0	%		+ 8.1	%		+ 2.9	%		+ 18.3	%		+ 9.5	%		+ 14.1	%		– 5.3	%		+ 11.6	%								+ 7.3	%		+ 7.1	%
	21			16			11			12			65			97			28			73			(141	)		(222	)
	37			159			33			78			60			137			(47	)		20			6			(87	)		475			524
	2.4	%		9.7	%		4.8	%		9.8	%		5.2	%		10.6	%		(3.2	)%		1.3	%								6.5	%		6.9	%
	154			192			85			104			156			160			47			113			23			51			903			831
	735			585			(22	)		59			196			82			(74	)		78			(10	)		9			937			1,146
	195			182			55			62			105			89			104			115			63			55			645			627



Bayer CropScience									Bayer MaterialScience									Lanxess

																		Lanxess
																		discontinuing
CropScience						Materials						Systems						operations						Reconciliation						Bayer Group

1st Half						1st Half						1st Half						1st Half						1st Half						1st Half

2003			2004			2003			2004			2003			2004			2003			2004			2003			2004			2003			2004
	3,228			3,374			1,389			1,500			2,332			2,468			2,960			3,070			391			301			14,612			14,945
	+ 65.6	%		+ 4.5	%		– 3.1	%		+ 8.0	%		– 3.4	%		+ 5.8	%		– 8.3	%		+ 3.7	%								– 0.8	%		+ 2.3	%
	+ 77.7	%		+ 8.6	%		+ 7.5	%		+ 12.9	%		+ 7.7	%		+ 10.4	%		– 0.8	%		+ 6.8	%								+ 9.8	%		+ 6.6	%
	32			31			21			25			100			165			138			158			(317	)		(406	)
	484			538			68			110			123			240			(30	)		95			52			(133	)		1,571			1,344
	15.0	%		15.9	%		4.9	%		7.3	%		5.3	%		9.7	%		(1.0	)%		3.1	%								10.8	%		9.0	%
	670			539			178			179			344			316			155			224			71			88			2,330			1,815
	543			346			93			75			244			118			(123	)		16			(80	)		(71	)		1,122			847
	393			359			122			122			242			175			216			176			131			111			1,353			1,170

Key Data by Region

2nd Quarter


	Europe						North America

Regions	2nd Quarter						2nd Quarter
€ million	2003			2004			2003			2004
Net sales (external) – by market		3,098			3,254			2,299			2,293
Net sales (external) – by point of origin		3,443			3,653			2,317			2,302
of which discontinuing operations		977			1,096			420			444
– Change in €		– 2.1	%		+ 6.1	%		– 1.5	%		– 0.6	%
– Change in local currencies		– 1.2	%		+ 6.1	%		+ 16.7	%		+ 4.9	%
Interregional sales		963			951			518			532
Operating result (EBIT)		159			239			145			155
of which discontinuing operations		(21)			5			(46)			3
Return on sales		4.6	%		6.5	%		6.3	%		6.7	%
Gross cash flow*		421			414			334			247

1st Half


	Europe						North America

Regions	1st Half						1st Half
€ million	2003			2004			2003			2004
Net sales (external) – by market		6,450			6,569			4,416			4,388
Net sales (external) – by point of origin		7,154			7,307			4,499			4,466
of which discontinuing operations		1,950			2,036			888			930
– Change in €		+ 2.7	%		+ 2.1	%		– 4.0	%		– 0.7	%
– Change in local currencies		+ 3.4	%		+ 2.3	%		+ 14.0	%		+ 9.1	%
Interregional sales		2,070			2,053			982			968
Operating result (EBIT)		998			794			247			294
of which discontinuing operations		4			78			(85)			(1)
Return on sales		14.0	%		10.9	%		5.5	%		6.6	%
Gross cash flow*		1,356			1,073			649			420

* for definition see Bayer Group Key Data on page 2

2003 figures restated (for details see Notes, page 30 f)


Asia/						Latin America/
Pacific						Africa/Middle East						Reconciliation						Bayer Group

2nd Quarter						2nd Quarter						2nd Quarter						2nd Quarter
2003			2004			2003			2004			2003			2004			2003			2004
	1,116			1,240			743			796									7,256			7,583
	965			1,064			531			564									7,256			7,583
	142			146			65			68									1,604			1,754
	– 10.6	%		+ 10.3	%		– 4.7	%		+ 6.2	%								– 3.3	%		+ 4.5	%
	+ 4.8	%		+ 11.9	%		+ 19.0	%		+ 14.6	%								+ 7.3	%		+ 7.1	%
	72			60			45			38			(1,598	)		(1,581	)
	94			120			135			61			(58	)		(51	)		475			524
	8			31			4			(8	)								(55	)		31
	9.7	%		11.3	%		25.4	%		10.8	%								6.5	%		6.9	%
	90			111			111			66			(53	)		(7	)		903			831


Asia/						Latin America/
Pacific						Africa/Middle East						Reconciliation						Bayer Group

1st Half						1st Half						1st Half						1st Half
2003			2004			2003			2004			2003			2004			2003			2004
	2,287			2,362			1,459			1,626									14,612			14,945
	1,933			2,020			1,026			1,152									14,612			14,945
	284			283			131			131									3,253			3,380
	–3.7	%		+ 4.5	%		– 5.0	%		+ 12.3	%								– 0.8	%		+ 2.3	%
	+ 10.3	%		+ 9.6	%		+ 27.0	%		+ 19.6	%								+ 9.8	%		+ 6.6	%
	131			111			82			74			(3,265	)		(3,206	)
	199			210			233			160			(106	)		(114	)		1,571			1,344
	18			36			10			4									(53)			117
	10.3	%		10.4	%		22.7	%		13.9	%								10.8	%		9.0	%
	204			209			202			145			(81	)		(32	)		2,330			1,815

Notes to the Interim Report for the Second Quarter of 2004

Accounting policies

Like the financial statements for 2003, the unaudited, consolidated financial statements for the second quarter of 2004 have been prepared according to the rules issued by the International Accounting Standards Board (IASB), London. Reference should be made as appropriate to the notes to the 2003 statements. IAS 34 (Interim Financial Reporting) has been applied in addition.

To enhance the transparency of our reporting, we have reclassified certain income and expense items related to funded pension obligations as of January 1, 2004. Through December 31, 2003, the balance of all income and expenses related to funded defined benefit plans was recognized in the operating result. Only the interest cost for unfunded pension obligations was included in the non-operating result under other non-operating expense. Effective January 1, 2004, all interest cost — including that pertaining to funded pension obligations — is reflected in the non-operating result. The same applies to the return on plan assets. This reporting change has the effect of increasing the operating result for fiscal 2003 by €84 million and reducing the non-operating result by the same amount. This effect is fairly evenly spread over the four quarters and impacts all segments.

Also effective January 1, 2004 and likewise for reasons of transparency, we have altered our gross cash flow computation, which continues to reflect changes in pension provisions but no longer takes into account the changes in any other long-term provisions. The latter are now reflected only in the reconciliation of gross cash flow to net cash flow. The net cash flow remains unaffected. Direct comparison between changes in pension provisions and the corresponding balance sheet items is facilitated as a result.

Segment reporting

With effect from January 1, 2004, we have adjusted our segment reporting to reflect the realignment of the Bayer Group. Our Bayer MaterialScience subgroup is divided into the Materials and Systems segments. In light of our plans to list Lanxess on the stock market by the beginning of 2005 at the latest, this segment is reported under discontinuing operations.

Leverkusen, August 25, 2004

Bayer Aktiengesellschaft

The Board of Management

Dates


First Half Results		Spring Financial News Conference
Tuesday, August 31, 2004		Tuesday, March 15, 2005

London Investor Conference		Spring Investor Conference
Tuesday, August 31, 2004		Tuesday/Wednesday, March 15/16, 2005

Fall Financial News Conference		Annual Stockholders’ Meeting 2005
Thursday, November 25, 2004		Friday, April 29, 2005

Fall Investor Conference		Payment of Dividend
Thursday/Friday, November 25/26, 2004		Monday, May 2, 2005


Publisher Bayer AG 51368 Leverkusen Germany		If you would like to receive the Bayer Stockholders’ Newsletter in electronic rather than print form in future, please send an e-mail to the editor.

Editor
Ute Bode
Phone + 49 214 30 58992
E-mail: ute.bode.ub@bayer-ag.de

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

Investor Relations
Peter Dahlhoff
Phone +49 214 30 33022
E-mail: peter.dahlhoff.
pd1@bayer-ag.de

Bayer on the Internet
www.bayer.com

Forward-Looking Statements

This Stockholders’ Newsletter 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, 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 Stockholders’ Newsletter.

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.

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/ ppa. Alexander Rosar

		Name: Alexander Rosar
		Title: Head of Investor Relations

	By:	/s/ Armin Buchmeier

		Name: Armin Buchmeier
		Title: Senior Counsel

Date: August 31, 2004

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