1. Hier steht die Headline
Systematic Innovation:
Driving Profitable Growth at
Bayer MaterialScience
Dr. Robert Kumpf
Vice President, Future Business Americas
Presentation to Commercial Development and
Marketing Association, April 2006

2. Forward Looking Statements
This presentation 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.

3. The Core Businesses of the Bayer Group
2005 Global sales = > $ 30Billion

4. Sales Breakdown by Subgroup
BMS has highest sales share within Bayer
Net Sales in million EUR
Health Care
36%
9,429 Mio. €
Bayer 10,695 Mio. €
MaterialScience
41% 5,896 Mio. €
BMS 2005 Global
sales = > $ 10 CropScience
23%
Billion

5. BMS Products
Polycarbonates
Roof
Construction
Cellulose
Derivatives
Optical Data
Storage
Electronic
Industry
Insulation
Multimedia
Entertainment Comfort
Sport and Coatings
Adhesives
Leisure

6. BMS Products
Polyurethanes
Roof
Construction
Cellulose
Derivatives
Optical Data
Storage
Electronic
Industry
Insulation
Multimedia
Entertainment Comfort
Sport and Coatings
Adhesives
Leisure

7. BMS Products
Coatings, Adhesives and Sealants
Roof
Construction
Cellulose
Derivatives
Optical Data
Storage
Electronic
Industry
Insulation
Multimedia
Entertainment Comfort
Sport and Coatings
Adhesives
Leisure

8. BMS Products
Thermoplastice Polyurethanes
Roof
Construction
Cellulose
Derivatives
Optical Data
Storage
Electronic
Industry
Insulation
Multimedia
Entertainment Comfort
Sport and Coatings
Adhesives
Leisure

9. BMS Products
H.C. Starck
Roof
Construction
Cellulose
Derivatives
Optical Data
Storage
Electronic
Industry
Insulation
Multimedia
Entertainment Comfort
Sport and Coatings
Adhesives
Leisure

10. Generating Growth at Bayer MaterialScience –
Focus on Managements Role
Outline of Presentation:
What do we mean by Innovation?
Is there a business case for Innovation?
Management commitment to Innovation?
How we at BMS organizing and investing to achieve this growth?
Which Innovation Tools have we found to be effective?
Examples of trends and growth opportunities and a “case” study
in open innovation at Bayer Material Science?

11. Growth at Bayer MaterialScience
*innovation = implementing new ideas to create value.
Growth from *innovation is a business imperative.
*Innovation can come from anywhere

12. Business Case for Innovation - Qualitative
A consensus has emerged that
innovation in all its forms is the only true
sustainable comparative advantage, be it
for regions, countries, states, or private
sector companies

13. Innovation “moves the needle”
Is there a
price
premium
for
“innovation”
in a stock
price?
YES!
Source: Business Week , April 2006

14. Business Case for Innovation - Quantitative
Sustained above GDP growth was only achieved if 30% -40%
of sales resulted from new *innovations
20%
GROWTH (% Change in Revenues)
15%
10%
5%
0%
0% 10% 20% 30% 40% 50% 60%
-5%
-10%
% of revenues from innovations (last 5 years)
Source; ACC 2002, Study of 50 chemical companies

15. Organizing for Sustained Growth
Everyone wants sustained long term growth but daily business interferes.
Preventing this from occurring requires:
•CEO and Board level-commitment
•A “central” * growth-focused organization with influence and resources
•A world-class process and metrics for measuring success
•Passion for innovation and a tolerance for risk
*not necessarily a central R&D group

16. Our Vision To turn our inherent strength into efficiency,
innovation and profitable growth to cope with future challenges
Growth
Innovation
Efficiency
Our Vision
„To be the best and most
respected materials company in
the world; supplier and employer
of choice“
Strengths
Leading Market Positions Global presence & diversity
Product & Process know-how

17. Future Business Opportunities
Key Growth Drivers
New Emerging • Process development
materials
products new markets • Technical product
New
for existing with new management
applications products
• Application development
PRODUCT
modification
Product
• Product development via
materials research
New
known
Core applications • New business
Competencies for existing development outside
Bayer products existing portfolio
known emerging future
APPLICATION

18. Future Business Organization
New Technologies Creative Center
“Technology Push” “Market Pull”
» University Interactions » Market &
» New materials and application trend scouting
technmologies » New business and
application opportunities
“Automotive E/E in 2015”
“Automotive E/E in 2015”
“Implement Growth” and Customer Projects
» Implements profitable project ideas into new markets
» Focuses on application ready to market
Industry Innovation

19. A Modern “Tool Chest” for Innovation
Global Idea - Management
Systems “Open Innovation Model”
To have a good idea,
you need to have a lot of ideas
- Thomas Edison
Future Planning Tools
Ideation sessions with
Customers and Industrial
Designers

20. Global, 24/7, Web-based Idea Management
• In the global economy
ideas must be harvested
24/7
• Bayer MaterialScience has
established a Web-based
idea management tool –
North America, South
America, Europe, Asia.
• Event-based approach to
Idea Management
• Our database now
contains > 2000 ideas.

21. Ideation Events: Management, Customers
and Non-traditional Stakeholders
Scientists and engineer now find
themselves “ideating” with customers,
artists, designers, and…… senior
management
Future Business-NALT Innovation Summit on Sustainability

22. Trend Analysis and Future Planning Tools

23. Bayer Open Innovation Model
Old “Closed” Model of Innovation:
•Invent and develop internally – sell what you invent
•“Silo” organizations
•Only national and sector competition
New “Open” Model of Innovation:
•Starts with questions:
? Where do we want to go, with what new technologies;
and with whom ?
•Core strategy and integrated organizations
•International and “extra-sector” competition

24. Bayer Open Innovation Model
Technology Alliances
Universities (Globally)
Venture Capital Funds
Investment in Start-ups

25. Results from BMS Innovation Tools
An implemented innovation process
Society demand
Technology push Market pull
Polymer technology trend scouting Market & application trend scouting
New materials and process opportunities New business and application opportunities
Flag- New Interface Security
Sensitive Nano- Medical Sustainable Electronics Optics Energy
Data Man / &
Materials Technology Materials Chemistry Enabling & Light Management
Technol. ships Storage Machine Defense
IdeaWorks
Review
Priorisation
Feasibility
Project Management
Business Units Greenhouse
Senior management ia BMS is involved already in the “fuzzy front end”

26. Mass Customization and Lux for the Masses:
the “my.xyz. com” Generation

27. AURA® Color Infusion Technology
Trend Marketing and Mass Customization
► AURA color infusion technology colors
already molded, extruded or
thermoformed parts made from clear,
translucent or opaque resins
► AURA technology is now being
licensed by innovative companies in
the United States and we are actively
pursuing potential licensees
► Recent licensees: Replex Plastics,
3form and Apollo Color Coatings

28. New Dimensions in Data Storage
MaterialScience is Actively Involved
Today
600
Holography
Multilayer
500
New technologies
200 – 1.600 GB
400
Capacity (GB)
300
Near Field
Recording
200 > 100 GB
HD
100 Blu-ray DVD
DVD 25 GB 20 GB
CD 4,7 GB
0,7 GB
0
1980 1985 1990 1995 2000 2005 2010 2015 2020

29. Holographic Data Storage
Digital Hologram
Spatial light
► Page wise recording modulator
► Angle Multiplexing
Volume Storage
Reference
beam
Signal
beam α
Active recording
Disc
volume

30. The Future of Holographic Technologies
Potential Beyond ODS
Market growth Market growth
through increased performance through new applications
Source: Siemens VDO
Source: Bundesdruckerei Source: ECB HoloProTM
German passport with New types of holographic images - Holographic mirror for next generation
holographic shadow pictures (HSPTM) for advanced banknote and brand projection displays, e.g. automotive "heads-up"
made of a photopolymer security - Full-color 3-D display and image
2006-2007 2010e ≥ 2015e
► Document security ► Anti-counterfeiting ► New display technologies
► 3-D imaging media

31. Future Trends in the Electronics Industry
Functional Polymers Entering the Scene
► Addition of new functionalities (e.g. electroconductivity, luminescence) opens up
new opportunities for use of polymers in the electronics industry
► Polymer electronics adds to today´s silicon-based technologies
Lighting
Advantages of
Flexible Displays
Increasing functionalities
polymer electronics
Large-scale Displays
Barrier films
► Mass product
Integrated Sensors
nics
(e.g. MEMS)
ro ► Flexible material
t
Simple lec ► Cheap, disposable
RFID tags
erE
lym ► Good processability
Po
Today Future
Multi-functionality as a key factor in polymer electronics

32. zaZen: Concept Car from Bayer and Rinspeed
► Debuting at the Geneva International
Motor Show – March 2006
► Holographic back light
► Smoothly contoured single-section roof
dome made of polycarbonate Makrolon®
► technoGel pads used on the seats
► Car seats based on Makrolon sheet
► Coating based on raw materials with
special effects

33. Future Business - Greenhouse Initiative
“Greenhouse” is parts of our Future Business A Greenhouse project –
initiatives , providing a platform for projects Carbon Nanotubes (Baytubes)
outside the primary scope of current business
units
Future Business organization identifies
attractive projects and supports business case
Greenhouse is the business development phase
with milestone-controlled funding for a
predefined period
After Greenhouse phase, business is integrated Cost-efficient manufacturing of
into BMS business or follows exit models ultrapure carbon nanotubes
Product development using
New Greenhouse Core carbon nanotubes: hybrids with
Business Business Business outstanding mechanical, electrical
Opportunities Development or Exit and physico-chemical properties
at significantly lower loadings than
conventional fillers

34. Baytubes®: multi-walled carbon nanotubes
Process development for large scale
BTS
production and polymer processing
Electrical conductivity
Thermal conductivity
20 nm
Tensile strength
25 nm
Baytubes™
Main Restraints for broad commercialization
► Price and large scale availability Further information
► Quality and Reproducibility www.baytubes.com
The Goal: Low cost / high quality production

35. Greenhouse Initiative to Start-up Company

36. Organizing for Sustained Based Growth
Everyone wants sustained long term growth but daily business interferes.
Preventing this from occurring requires:
•CEO and Board level-commitment
•A “central” * growth-focused organization with influence and resources
•A world-class innovation process and metrics for measuring success
•Passion for innovation and a tolerance for risk

37. Questions?