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Bayer Crop Science sales up 6% in 2018 - leader in agriculture after acquisitionqrcode

Feb. 28, 2019

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Feb. 28, 2019

Bayer Crop Science sales up 6% in 2018 - leader in agriculture after acquisition

Bayer Crop Science registered sales of €14.266 billion in 2018, increased by 6.1% (Fx & portfolio adj.) compared with last year. The acquired business accounted for around €5.3 billion of this figure, while the businesses divested to BASF contributed €1.5 billion prior to the closing of the respective transactions in August 2018. Sales increased by 49.0% on a reported basis, mainly due to a positive portfolio effect of 47.2% due to the acquisition of Monsanto (€5,288 million) less the prorated contribution from the divested businesses in the prior year (€767 million). Sales were also impacted by negative currency effects of 4.3%. The 6.1% increase on a currency- and portfolio-adjusted basis largely resulted from the normalization of crop protection inventories in Brazil, where the prior-year figure had been impacted by the required measures in this context, and from positive sales development in the Asia / Pacific and North America regions. Sales also benefited from service agreements – especially product supply and distribution agreements – with BASF in connection with the divested businesses. By contrast, sales were down in Europe due to unfavorable weather conditions and regulatory changes affecting certain SeedGrowth products in France.

Bayer successfully completed the largest acquisition in its history and attained its operational targets in 2018. “We have set the right course for the future,” said Werner Baumann, Chairman of the Board of Management, on Wednesday at the Financial News Conference in Leverkusen.
 
“Over recent years we have systematically developed into a focused life science company, clearly aligned to the megatrends in health and agriculture and united under the strong umbrella brand Bayer,” Baumann said. “The acquisition in agriculture has lifted us to the number one position in this market. The integration of the two companies has gotten off to an excellent start.”
 
EBITDA before special items of Crop Science advanced by 29.8% to €2,651 million in 2018. This increase is primarily attributable to the earnings contribution from the newly acquired business (€705 million) and the recognition in the second quarter of 2017 of significantly higher provisions for product returns in Brazil. By contrast, earnings were diminished by the prior-year prorated earnings contribution from the businesses divested to BASF, a decrease in volumes in Europe and a negative currency effect of €101 million (excluding the acquired business).  
 
EBIT increased by 154.1% to €3,138 million, and included special gains of €1,841 million (2017: special charges of €408 million) primarily resulting from divestment proceeds of approximately €4.1 billion before taxes in connection with the sale of businesses to BASF. However, earnings were held back by special charges relating to the acquisition of Monsanto in the amount of €1,931 million, of which €1,256 million pertained to reversals of inventory step-ups, and by defense costs for litigations. Also included in EBIT were additional depreciation and amortization in the amount of €645 million resulting from remeasurements or the first-time recognition of assets in the course of the purchase price allocation.


Sales by region 
 
Sales in the Europe / Middle East / Africa region improved by 13.7% (Fx adj.) to €3,689 million. There was a portfolio effect of €557 million. On a currency- and portfolio-adjusted basis, sales fell by 3.0%. The SeedGrowth business (Other) in particular saw a decline due to the loss of registrations in France. We also posted slightly lower sales at Fungicides and Herbicides, primarily due to unfavorable weather conditions in Central and Western Europe.  
 
In the North America region, we posted a 75.4% (Fx adj.) increase in sales to €4,696 million. The portfolio effect was €1,881 million. The 7.5% increase on a currency- and portfolio-adjusted basis was chiefly attributable to sales generated by the service agreements with BASF in connection with the divested SeedGrowth business (Other) and to strong growth of the subsequently divested canola seed business (Other) in Canada in the first half of the year. We also saw encouraging sales gains at Fungicides, in part due to new product launches. The decline in sales at Environmental Science resulted from planned lower product deliveries to the acquirer of the consumer business divested in 2016. 
 
Sales in Asia / Pacific increased by 25.0% (Fx adj.) year on year to €1,858 million. The portfolio effect amounted to €238 million. Sales expanded by 9.7% on a currency- and portfolio-adjusted basis. We registered sales gains in all business units, especially Herbicides, Fungicides and Insecticides due to higher volumes. The expansion of business was particularly strong in China, Japan, India and Southeast Asia. 
 
Sales in Latin America advanced by 113.8% (Fx adj.) to €4,023 million, with the portfolio effect amounting to €1,844 million. We posted a 17.1% sales increase on a currency- and portfolio-adjusted basis. This development was largely attributable to the effects in the previous year of significantly higher provisions recognized for product returns and of lower sales of crop protection products due to high inventory levels in Brazil. The measures undertaken to normalize inventories of crop protection products were successfully completed at the end of the season, during the second quarter of 2018. Excluding Brazil, sales were down slightly in the other Latin American countries.
 
Pro-forma sales by strategic business entity (unaudited) 
 
Due to the scope of the acquired activities and the seasonality of the business, we are presenting sales by strategic business entity on an unaudited, pro-forma basis in order to more transparently reflect the underlying operational business development for the combined business of Crop Science and Monsanto, among other reasons. In this context, sales are presented as if both the acquisition of Monsanto and the associated divestments had already taken place as of January 1, 2017. Sales from the aforementioned service agreements with BASF after the divestments closed are not taken into account.
 
Sales increased by 3.1% (Fx adj.) in 2018 on a pro-forma basis. 
 
The increase at Herbicides resulted mainly from higher prices and expanded volumes in Latin America, as well as the aforementioned measures undertaken in the previous year to normalize inventories in Brazil. By contrast, sales were down slightly in North America, due primarily to unfavorable weather conditions in the first half of the year. 
 
Higher sales in the Corn Seed & Traits business were largely attributable to shifts in sales from the previous year in North America due to later purchasing, and to a special effect in Latin America and the associated license revenues in Brazil.  
 
Sales at Soybean Seed & Traits came in at the prior-year level. We recorded a decline in North America due to a slight decrease in market share, lower acreages and seasonal shifts from 2018 into 2019. By contrast, sales increased in Latin America, mainly due to increased acreages and higher market penetration by Intacta RR2 PRO™. 
 
Sales growth at Fungicides and Insecticides was largely attributable to the aforementioned situation in Brazil in the prior year. 
 
The strategic business units subsumed under Other were down overall, primarily due to the decline at SeedGrowth as a result of the aforementioned loss of registrations in France. On the other hand, we saw very encouraging growth at Cotton Seed & Traits due to increased acreages in Latin America and in North America, where higher market penetration by XtendFlex™ also had a positive effect.
 
Bayer confirms short- and medium-term growth targets
 
Bayer has confirmed the forecasts for 2019 and the medium-term targets for 2022 that it provided in conjunction with its Capital Markets Day on December 5, 2018. For 2019, the company expects sales to amount to around 46 billion euros. This corresponds to an increase of approximately 4 percent (Fx & portfolio adj.). Bayer aims to increase EBITDA before special items to approximately 12.2 billion euros (Fx adj.), while core earnings per share are seen rising to approximately 6.80 euros (Fx adj.). These targets do not take into account changes in exchange rates or the plans to exit the Animal Health business unit, divest the Consumer Health brands Coppertone™ and Dr. Scholl’s™, and sell the 60-percent interest in German site services provider Currenta.
 
For Crop Science, Bayer sees 2019 sales rising by around 4 percent (Fx & portfolio adj.) and anticipates an EBITDA margin before special items of approximately 25 percent.
 
To read the entire report click here
 
 

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