Bayer Crop Sciences Q3: The development of the agricultural market has been weaker than anticipated, especially in Latin America

The development of the agricultural market has been weaker than anticipated, especially in Latin America, and the Bayer Group also continues to face pricing pressure in the crop protection business, said Chief Executive Officer Bill Anderson on Tuesday when presenting the company’s Quarterly Statement. Bayer is therefore lowering its 2024 targets for Crop Science. For 2025, Bayer is cautious on the agricultural market environment. Additional regulatory challenges and generic pricing pressures are set to put pressure on the crop protection business.

Crop Science posts decline in sales and slight increase in EBITDA before special items

Third quarter of 2024

Sales

Sales at Crop Science declined by 3.6% (Fx & portfolio adj.) to €3,986 million in the third quarter of 2024. Fungicide and insecticide sales increased substantially, while business with the company's glyphosate-based herbicides declined significantly. In Latin America, the company also saw a significant acreage decline for corn that impacted its corn seed and related crop-protection businesses.

• At Corn Seed & Traits, the company saw an overall acreage decline, primarily driven by Latin America, and higher returns in North America.

• The Herbicides business recorded significant volume declines for glyphosate-based products, largely due to purchasing patterns normalizing in Latin and North America. Higher prices in North America had a positive impact but were partly offset by price declines in Latin America. Sales of non-glyphosatebased products increased slightly, primarily driven by higher prices in North America.

• At Fungicides, the company achieved strong sales growth thanks to increased volumes in all regions.

• Sales at Soybean Seed & Traits declined slightly, largely due to a weather-related delay to the start of the season in Latin America. This was only partially offset by higher license revenue in North America.

• The Insecticides business increased sales significantly, mainly driven by higher volumes in Latin America.

• The Vegetable Seeds business recorded encouraging gains that were largely driven by higher volumes and prices in Latin America.

• Sales in the reporting unit Other were up, partly thanks to higher prices in the SeedGrowth business. 

Earnings

EBITDA before special items at Crop Science increased to €35 million in the third quarter of 2024 (Q3 2023: minus €24 million), mainly due to the aforementioned STI effect and a decrease in the cost of goods sold. Earnings were negatively impacted by the slight decline in sales. There was a positive currency effect of €32 million (Q3 2023: €121 million). The EBITDA margin before special items rose by 1.4 percentage points to 0.9%.

EBIT came in at minus €4,420 million in the third quarter of 2024 (Q3 2023: minus €4,573 million) after net special charges of €3,869 million (Q3 2023: €3,964 million). The special charges primarily related to the aforementioned impairment losses, which, in turn, were mainly recognized on goodwill (€3,267 million).

Goodwill, other intangible assets and property,plant and equipment

Impairment testing was conducted in the Crop Science segment in the third quarter of 2024 due to the weaker-than-anticipated development of the agricultural market environment. This resulted in the recognition of impairment losses on intangible assets totaling €3,777 million. This figure included an impairment loss of €3,267 million on goodwill that was due to a deterioration in business prospects overall, especially in crop protection. This effect was partially offset by a decline in the weighted average cost of capital.

Impairment losses were also recognized in the cash-generating unit Cotton Seed (€510 million, comprising €25 million on research and development projects, €411 million on patents and technologies, €66 million on trademarks and €8 million on marketing and distribution rights). The impairment losses for Cotton Seed were mainly attributable to uncertainty caused by a delayed approval process for a complementary herbicide for specific applications and the related deterioration in anticipated business prospects.

The impairment losses on goodwill were recognized in other operating expenses. The impairment losses on Cotton Seed assets were allocated to the cost of goods sold, selling expenses, and research and development expenses. The impairment losses reflected the difference between the respective carrying amounts and their fair value less costs of disposal.

The table below indicates the capital cost factors used in the impairment testing in the fourth quarter of 2023 and third quarter of 2024. A long-term growth rate of 2% (Q4 2023: 2%) was applied in the testing of goodwill for impairment in the Crop Science segment in the third quarter of 2024.

Revised guidance for the Crop Science segment

Bayer has confirmed its 2024 Group guidance for currency- and portfolio-adjusted sales growth, currency-adjusted core earnings per share, and free cash flow.

However, in view of the weaker-than-anticipated development of the agricultural market, the company has revised some parts of its Group forecast. For Crop Science, Bayer now anticipates currency- and portfolio-adjusted sales growth of between minus 3 and minus 1 percent (previous forecast: lower end of the projected range of between minus 1 and plus 3 percent) and an EBITDA margin before special items of between 18 and 20 percent (previous forecast: lower end of the projected range of between 20 and 22 percent).