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Germany: After Monsanto Takeover

Baumann: "Bayer on Track to Achieve Targets"

| Editor: Alexander Stark

Werner Baumann, Chairman of Bayer's Board of Management, is optimistic about the second quarter 2018 - after the Monsanto takeover, his company has become a leader in the agricultural industry.
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Werner Baumann, Chairman of Bayer's Board of Management, is optimistic about the second quarter 2018 - after the Monsanto takeover, his company has become a leader in the agricultural industry. (Source: CC0 / CC0)

Bayer successfully completed the biggest acquisition in its history in the second quarter of 2018, while operational performance improved, even without taking into account the newly acquired Monsanto business. Sales advanced at three of the four segments on a currency- and portfolio-adjusted basis (Fx & portfolio adj.).

Leverkusen/Germany – “We are on track to achieve our annual targets,” said Werner Baumann, Chairman of the Board of Management, when he presented the interim report. Ebitda before special items increased thanks to growth at Crop Science and Animal Health. Bayer has adjusted its Group outlook to account for the sales and earnings contributions from Monsanto from the date of the acquisition. The company aims to pay out a dividend per share for 2018 that is at least at the same level as in the prior year. Bayer completed the acquisition of Monsanto on June 7, 2018, for $ 63 billion including debt. According to Baumann, the group is now a leader in the agricultural industry. Bayer now also had the strongest portfolio of seed and crop protection products for a wide range of crops and indications, the best research and development platform and the leading digital farming business, the company claimed in a statement.

Sales of the Bayer Group in the second quarter rose by 8.5 % (Fx & portfolio adj.) to $ 11 billion. On a reported basis, sales were up by 8.8 %. Ebitda before special items increased by 3.9 % to $ 2.7 billion. Negative currency effects held back earnings by around $ 151 million. Ebit fell by 7.7 % to $ 1.57 billion, after special charges of $ 421 million (Q2 2017: $ 283 million) that resulted mainly from expenses in connection with the acquisition of Monsanto. Net income declined by 34.7 % to $ 926,8 million, primarily due to the absence of earnings contributions from Covestro following its deconsolidation.

Pharmaceuticals Increases Sales Thanks to Key Growth Products

Sales of prescription medicines (Pharmaceuticals) increased by 3.1 % (Fx & portfolio adj.) to $ 4.89 billion. Combined sales of the oral anticoagulant Xarelto, the eye medicine Eylea, the cancer drugs Xofigo and Stivarga, and the pulmonary hypertension treatment Adempas came in at $ 1.96 billion, up by 13.2 % (Fx & portfolio adj.) year on year.

The strongest sales gains among the other top Pharmaceuticals products were recorded for the diabetes treatment Glucobay (Fx & portfolio adj.: +10.3 %), largely due to expanded volumes in China, and for the MRI contrast agent Gadavist/Gadovist (Fx & portfolio adj.: +13.0 %), which benefited from good business performance in the United States.

Ebitda before special items of Pharmaceuticals declined by 8.0 % to $ 1.58 billion. On a currency-adjusted basis, earnings were down by 4.3 %. The decrease was mainly attributable to higher R&D and selling expenses, effects relating to temporary supply disruptions, and an increase in the cost of goods sold.

Consumer Health Business Down Despite a Return to Sales Growth in Asia/Pacific

Sales of self-care products (Consumer Health) declined by 1.4 % (Fx & portfolio adj.) to $ 1.639 billion. “Business is growing again in Asia/Pacific,” Baumann said. However, sales growth in the region did not fully offset declines elsewhere, particularly in Europe/Middle East/Africa and North America.

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Crop Science Doubles Earnings Year on Year

In the agricultural business (Crop Science), Bayer registered sales of $ 3.492 billion. This figure included $ 629.86 million from the June 7, 2018, acquisition of Monsanto on a prorated basis, and $ 542.86 million from the businesses divested to BASF in August. On a currency- and portfolio-adjusted basis, sales increased by 21.4 %. This development was partly attributable to significantly higher provisions for crop protection product returns recognized in the prior-year quarter due to high inventory levels in Brazil. Inventories there have normalized as a result of the undertaken measures that were successfully completed in the second quarter of 2018.

Bayer considerably expanded its seed business through the acquisition of Monsanto, particularly for corn and soybeans. In addition, its existing herbicides business was significantly enlarged. In terms of regions, the transaction primarily expands Bayer’s business in North America and Latin America.

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Ebitda before special items of Crop Science increased by 99.1 % to $ 731.94 million. In the prior-year quarter, earnings had been negatively impacted by the situation in Brazil. In the second quarter of 2018, the newly acquired business provided a positive contribution of $ 81.2 million to earnings. By contrast, earnings were diminished by a negative currency effect of $ 60.32 million (excluding the Monsanto business).

Animal Health: Increase in Sales and Earnings

Sales of the Animal Health business rose by 7.6 % (Fx and portfolio adj.) to $ 525 million. Growth was strongest in North America, but this was mainly due to shifts in demand at the expense of subsequent quarters. Performance in the Asia/Pacific and Latin America regions was particularly positive on a currency- and portfolio-adjusted basis. On a currency- and portfolio-adjusted basis, sales only decreased in Europe/Middle East/Africa. The Seresto flea and tick collar saw the strongest growth in sales (Fx & portfolio adj.: +29.2 %). Business with the Advantage line of flea, tick and worm control products expanded by 13.8 % (Fx & portfolio adj.). By contrast, sales of the Baytril antibiotic fell by 17.1 % (Fx & portfolio adj.). Ebitda before special items increased by 10.3 % (Fx adj.: +19.0 %) to $ 148.5 million. This development was attributable to higher volumes that resulted primarily from shifts in demand in North America.

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Group Outlook Adjusted

As the acquisition of Monsanto closed later than anticipated, Bayer’s 2018 earnings will be lower than it had projected in its February forecast due to the seasonality of Monsanto’s business. “The acquired business generates the majority of its sales and, above all, earnings in the first half of the year,” Baumann explained.

Sales of the Bayer Group are now expected to come in at more than 39 billion euros (previously: below $ 45.2 billion), with more than $ 5.8 billion attributable to the acquired Monsanto business. The divestment of selected businesses to BASF will reduce anticipated sales by approximately $ 1.16 billion. This forecast now corresponds to a mid-single-digit percentage increase (previously: low- to mid-single-digit percentage increase) on a currency- and portfolio-adjusted basis.

Bayer now expects Ebitda before special items to increase by a low- to mid-single-digit percentage (previously: decline by a low-single-digit percentage). On a currency-adjusted basis, this corresponds to an increase by a high-single-digit percentage (previously: increase by a mid-single-digit percentage).

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