Bayer: Challenging third quarter – Group outlook confirmed
Nov. 4, 2020
- Group sales decrease by 5.1 percent (Fx & portfolio adj.) to 8.506 billion euros
- EBITDA before special items falls 21.4 percent to 1.795 billion euros
- Substantial decline in sales and earnings at Crop Science, heavily impacted by seasonal and currency effects
- Net loss of 2.744 billion euros – impairment charges at Crop Science, proceeds from divestment of Animal Health
- Free cash flow falls by 2.1 percent to 1.237 billion euros
Bayer has confirmed its targets for full-year 2020 following a challenging third quarter due to seasonal factors. “Despite the weak quarter and the substantial impact of the pandemic, our currency- and portfolio-adjusted sales and core earnings per share in the first nine months of the year were level with the prior-year period thanks to stringent cost management and the acceleration of our structural measures. We can therefore confirm our currency-adjusted Group outlook for 2020,” said Werner Baumann, Chairman of the Board of Management, on Tuesday during a conference call. Summarizing the company’s business performance, Chief Financial Officer Wolfgang Nickl said: “We saw a challenging quarter in our agricultural business, a recovery in our pharmaceuticals business and strong growth at Consumer Health.” Employee safety during the pandemic remains a top priority for Bayer. The company has implemented a wide range of protective measures to ensure that it can continue to provide patients, farmers and consumers with a reliable supply of products, especially life-saving medicines.
“The impact of the pandemic is placing additional strain on our Crop Science Division. We are also facing negative currency effects, such as the massive depreciation of the Brazilian real, which is weighing heavily on business in the world’s second-largest agricultural market,” said Nickl. In view of the headwinds in the agriculture business, the company has taken non-cash impairment charges for the division, as announced on September 30.
Crop Science impacted by high product returns
In the agricultural business (Crop Science), sales declined by 11.6 percent (Fx & portfolio adj.) to 3.028 billion euros. Business was down in North America in particular, while sales increased in the Asia/Pacific region. Global sales at Corn Seed & Traits fell by 39.9 percent (Fx & portfolio adj.), with substantial declines in North America in particular due to higher product returns and lower license revenues arising from lower than anticipated planted acreages for corn this year. At Herbicides, sales declined by 12.7 percent (Fx & portfolio adj.) against the strong prior-year quarter. Business was primarily down in the North America region, where sales in the prior year had shifted into the third quarter due to extreme weather conditions in the first half of the year.
Sales at Soybean Seed & Traits were level with the prior-year period (Fx & portfolio adj. plus 0.2 percent), with growth in Latin America offsetting lower volumes in North America. Sales at Fungicides advanced by 12.0 percent (Fx & portfolio adj.), with growth across all regions. In Latin America, Bayer primarily benefited from the market switching to the Fox Xpro™ product in Brazil.
EBITDA before special items at Crop Science decreased to minus 34 million euros (Q3 2019: plus 500 million euros). The decline was mainly due to the decrease in sales in North America, which was primarily attributable to the developments relating to product returns. There was also a negative currency effect of 123 million euros.
In October there was some encouraging news from the United States, with the country’s Environmental Protection Agency (EPA) announcing a new five-year registration for the dicamba-based XtendiMax™ herbicide with VaporGrip™ Technology, an important weed-control tool for many U.S. growers. The news puts an end to the uncertainty following a U.S. court decision in June that prohibited the use of dicamba.
There are approximately 88,500 claims in the litigation involving glyphosate-based Roundup™ products that are either covered by fully executed master settlement agreements (MSAs), MSAs to be executed, or agreements in principle. At the end of June, Bayer had reported that there were approximately 125,000 filed and unfiled claims. Given uncertainties about eligibility and participation, this number will not be finalized until the settlement process is completed. The company is also continuing to work on a joint proposal to address potential future Roundup™ claims together with plaintiffs’ counsel and is working in good faith to address the issues raised by the court to the satisfaction of all parties. Though progress is being made, it will take more time to complete this process. Bayer took an additional provision in the third quarter to cover the increased cost of a revised class plan, as it is far enough along in the negotiations to know that the new plan will come in at approximately 2 billion U.S. dollars, an increase over the original cost of 1.25 billion U.S. dollars. Upon completion of the formal agreement, the company will file a motion for preliminary approval.
Currency-adjusted Group outlook for 2020 confirmed
Bayer has confirmed its revised currency-adjusted Group outlook for full-year 2020. On a currency-adjusted basis, the company aims to grow sales to between 43 and 44 billion euros and increase its EBITDA margin before special items to around 28 percent. This would correspond to EBITDA before special items of around 12.1 billion euros after adjusting for currency effects. Core earnings per share are expected to rise to between 6.70 and 6.90 euros on a currency-adjusted basis. However, due to revised growth assumptions, the company now expects to post currency- and portfolio-adjusted sales growth of 1 percent (previously: 2 percent) at Crop Science and 5 percent (previously: 4 percent) at Consumer Health. Bayer expects full-year sales and earnings to come under even greater pressure from currency headwinds.
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