Bayer Ag S/Adr

Good afternoon, good morning to everybody. Thank you very much for joining our earnings call for the first quarter of 2024. Bill will start the presentations today with his perspective on our business development and the progress made towards our strategic objectives. Wolfgang will then speak in more detail to the group and divisional performances and comment on the full year outlook. We will then have our Q&A session together with the presidents of our three divisions. Before starting, I would like to briefly draw your attention to the cautionary language included in our safe harbor statement. And with that, over to you, Bill.

Thanks, Joost. And thanks to all of you for joining us today as we share our 2024 first quarter results. This call comes about 70 days after our comprehensive strategic update in March. So today I'll be focusing my remarks on our performance, on the progress that we've made in each of the focus areas that we shared at Capital Markets Day and on our priorities going forward. And I think that should leave us plenty of time to take questions. So let me start with our Q1 financial performance. Our sales came in at 13.8 billion euros. And in currency and portfolio adjusted terms, which I'll be using throughout my remarks, that puts us slightly below Q1 of last year. We posted core earnings per share of two euros, 82 cents, also slightly below prior year. Finally, our free cash flow came in at minus 2.6 billion euros. This is an improvement over Q1 of last year and is largely driven by lower litigation payouts. Overall, this result is in line with our expectations and we're reaffirming our 2024 outlook at constant currencies. Wolfgang's going to go through the financial performance in more detail in a few minutes, but I'd like to share a few highlights and some headwinds that we saw in Q1. First, on the highlights, in crop science, we outperformed all our peers in terms of sales trajectory in a very challenging market environment. Our global corn platform grew 2% despite declining acreage in North America and Latin America. This growth was bolstered by global price increases driven by the performance of the 240 new corn hybrids that we deployed last year. In pharmaceuticals, our launch medicines, Nubeca and Corandia, fueled our top-line growth. ILEA also posted gains in all regions, and we registered the first sales of ILEA 8-migs following the initial approvals. In consumer health, our dermatology category continued its impressive growth trajectory. A lot of that growth can be traced to innovation and geo-expansion. We're now taking that approach to our digestive health business as well. I'm encouraged by the great work that I see behind these efforts. As you know, we also have some headwinds to manage. In crop science, we saw strong volumes in glyphosate, but lower prices hurt our profitability. In the division's core business, we saw lower crop protection volumes, particularly in Europe, Middle East, and Africa. In pharmaceuticals, our team was actually able to manage a slight Xarelto sales increase in Q1, but we're seeing additional pressure from generics in some markets like Canada. Finally, currency effects weighed on our profitability across all three divisions, particularly consumer health. So while we're certainly never satisfied with declines, given market dynamics, particularly in agriculture, I think we can say that our teams kept their eyes on the ball in Q1. I'm proud of that, and I'm confident in our ability to deliver this year. Beyond those results, a lot happened that didn't immediately show up in our numbers. In March, I highlighted four areas that we're focused on to get Bayer back on track. Two months later, we've made progress in each area. On growth and innovation, in pharma, Ellen Zanatant has consistently delivered positive top-line results across all three late-stage trials. The first data from the OASIS program will be presented at the annual ACOG meeting this Friday, and our preparations to obtain first market authorizations are running at full steam. Another highlight in the first quarter was the in-licensing of Acoramidus from BridgeBio. This is an exciting opportunity for us, and we've started preparing ourselves to launch this very important medicine in 2025. Count on more updates from us as we approach the next milestones. In crop science, we're building on our leading position. With all of the new innovation we bring to the market, including hundreds of new hybrids and seed varieties, as well as several new crop protection formulations, we were able to outperform our peers in the first quarter. Just recently, we signed an agreement with Alpha Bio Control. This deal gives us exclusive rights to market the first ever biological insecticide for arable crops. And in consumer health, we introduced Iberogast to the United States last month. We acquired this trusted product in 2013 and have since scaled it to many countries in Europe and beyond. I've even been a customer in the past. Now, the tens of millions of Americans who experience occasional issues with their digestive health have the chance to benefit from Iberogast as well. Regarding litigation, about two weeks ago, a Washington state court decided in our favor by completely overturning a $185 million verdict. That's an important win because of its potential implications. as the errors that the court identified are relevant for all of the Sky Valley Education Center trials and verdicts. So what happened in this case? First, the court threw out a substantial portion of the key plaintiff's expert's testimony on exposure. That decision impacts both prior and future trials. The court's decision found that that testimony, I quote, was unreliable, untested, or junk science. Second, the court found that the company was improperly prevented from making an important legal defense argument, a critical error that was repeated in many of the subsequent trials. Plaintiffs will probably appeal the decision. However, we feel strongly that the appellate court's decision on these two points is very much in line with the applicable law. Now on to glyphosate. Both inside and outside of the courtroom, this issue remains at the top of our agenda because it's bigger than just us. Threats to a sustainable supply of glyphosate have huge consequences for our operations, but also for U.S. agriculture, for food prices, and for our planet. Farmers across the United States realize this, and they're concerned. That's why more than 80 groups have joined the Modern Ag Alliance. a coalition who wants to see U.S. agriculture regulated by science-based law, not the litigation industry. Simply put, we want lawmakers to hear the voice of the American farmer. Beyond that, we're looking at new ways to address this threat to our operations, carefully and urgently weighing the best way forward for U.S. farmers, for U.S. consumers, our employees, and you. Next, cash. Less than three weeks ago, at Bayer's annual stockholders meeting, 99% of voters approved our dividend proposal. We appreciate your overwhelming endorsement of this tough measure. It will help us deleverage and address the financial health of the company. Beyond this decision, Wolfgang will highlight our improved focus on cash conversion in just a few minutes. Finally, let's talk about dynamic shared ownership. I'll say more on the holistic impact on our businesses in the next slide. But for now, I want to focus on the organizational changes we've made. Both our crop science and pharmaceuticals teams have already announced the architecture of their new organizations. Julio just took over consumer health two weeks ago, and they are shaping their organization with speed and focus. We're consolidating roles. We're designing teams for more impact. and we're taking out layers, many layers. Our senior leadership circle is already noticeably smaller than it was a year ago. In the first quarter alone, we've reduced 1,500 roles. Approximately two-thirds of these were management jobs. We have a target of 500 million euros of sustainable cost savings in 2024 and 2 billion in 2026, and we're focused on delivering. We'll continue to report on this on a quarterly basis, so that you're clear on how our organization is progressing. But the most important measure of our impact will be much greater than an FTE number or a cost-saving target. Teams in every corner of Bayer are working in the new model. In both North America and Latin America, our two largest regions in crop science, all of our customer teams are now working in dynamic shared ownership. A significant portion of our manufacturing footprint is already fully operational in DSO, and they're moving at full speed to scale it across the whole network. All in all, this already sums up to more than 250 customer and product teams just in crop science. These teams are taking ownership of their work in a completely new way, making faster and better decisions with the grower at the center of their decision-making to advance our business and to innovate. Our pharmaceuticals division has more than 180 teams up and running, including the teams that are driving growth and market access behind launches like Nubeka, Carandia, and ILEA 8 Migs. And in consumer health, we have more than 90 teams activated all around the world. They're seeing improvements in decision-making, supply capacity, and innovation delivery. We're moving at full speed, We've 10x the number of customer and product teams in just five months. And by the end of the year, we will have rolled out DSO to every part of Team Bayer. Well, it's been an eventful start to the year at Bayer. There's a lot of change underway, and that can be distracting for a large organization. But I'm daily inspired by our people's mission commitment and their drive to always deliver a better result. That's why I'm convinced that there are plenty of wins in store for Bayer, both this year and in years to come. Those of you who follow the European soccer progress will know that the company is home to some pretty good role models when it comes to winning right now. Bayer Leverkusen has set the all-time record in any top European league for the most consecutive games without a loss and won the Bundesliga along the way. We're very proud of our colleagues at IRL4. Their success shows it. The right team, the right system, and a lot of focus and hard work pays off with time. And we're happy to lean on their example as we focus on steering Bayer to a consistent winning performance one quarter at a time. In that spirit, before handing over to Wolfgang, let me leave you with some priorities that will shape the next months at Bayer. On the innovation front, you can expect some progress out of our pipelines and our products in launch phase. Our pharmaceuticals team expects to have readouts of Corendia's first phase three study in heart failure and Nubeka's Aranote trial very soon. Our crop science team is partnering with U.S. farmers on the commercial introduction of our Presion smart corn system featuring short stature corn, a true game changer with the opportunity to reach more than 220 million acres globally. By the way, 220 million acres is like France plus Germany combined. It's going to be a tremendous impact. The experience that we gain here is very relevant for the broad-scale launch of the biotech version of this technology. We anticipate that in 2027. And our consumer health team has a focus on increasing launch effectiveness in to get the most out of the science, like a beer aghast, that we're bringing to the consumer market. So beyond what you see on the slide, we continue to execute on our priorities. A small group of people and myself continue to evaluate our options on the litigation front. We maintain a strong focus on cash generation, hitting our targets, and realizing our longer-term ambition. Finally, we have all hands on deck in implementing dynamic shared ownership across all of Team Bayer. Thank you very much. I look forward to your questions in a bit, but now over to Wolfgang for more on our performance.

Thank you, Bill. And hello also from my end. I'd like to provide a bit more color on the drivers of our first quarter results. Our financial results came in largely as expected. On a currency and portfolio adjusted basis, Q1 sales were slightly below the prior year, down 1%. As reported, however, we saw a 4% decline driven by about 500 million euros in foreign exchange headwinds. On earnings, our EBITDA before special items came in at 4.4 billion euros, which is 1% or about 60 million euros below the prior quarter. We saw two major effects that largely compensated each other, a decline in crop science profitability, which is largely a function of lower glyphosate pricing, and a positive reconciliation result driven by lower long-term incentive provisions. We also saw about €200 million of FX headwinds in our EBITDA before special items. Core earnings per share of €2.82 were 13 cents or 4% below the prior year period, mainly impacted by higher interest payments and FX effects in the core financial result. The core financial result is in line with our modeling assumptions of around minus 2.3 billion euros for the full year. Our free cash flow came in at minus 2.6 billion euros. In line with the crop business cycle, we saw a negative cash flow in the first quarter. However, it improved 1.5 billion compared to last year. This was mainly driven by lower litigation-related payouts for PCB. Additionally, the organization is laser-focused on improving earnings conversion into cash and actively managing the working capital of the company. Our Q1 free cash flow includes positive results from our inventory initiatives already. Net financial debt increased to 37.5 billion euros by the end of Q1 in line with the seasonality of our cash flow profiles. The debt level was also impacted by the appreciation of the U.S. dollar. As introduced at the Capital Markets Day, you will find additional information on reported earnings, on cash flow, and divisional cost lines in the appendix to this presentation. Let's now pivot and look at the divisional performance. When I talk about sales growth, I refer to currency and portfolio adjusted figures. Crop sign sales came in at 7.9 billion euros in the first quarter, down 3% versus the prior year. Our core business declined by 3%, which includes different effects. AdWords weather condition delayed crop protection purchases and competitive pricing pressures weighed on our fungicides and other herbicide sales volumes in EMEA. However, we were able to mitigate some of this by the growth in our corn business, which saw 6% average global price increases despite headwinds from declining acres in both Latin and North America. Our glyphosate business recorded a 6% sales decline on the back of lower year-over-year prices as anticipated. This was nearly offset by a strong volume recovery compared to the prior year quarter. In terms of profitability, EBITDA before special items came in at 2.8 billion euros. and a margin of 36%. The decline versus the prior year was primarily driven by lower prices for our glyphosate-based herbicides. In addition, negative currency effects of approximately 90 million euros and continued inflationary pressures were recorded. Let's now move on to our pharmaceuticals business. The division generated sales growth of 4% with volumes up 3% and prices up 1%. Once again, our launch assets performed particularly strong. Additionally, the continued robust development of ILEA and the radiology business helped to more than offset headwinds in parts of our mature portfolio. Nubeka maintained its growth momentum with gains in all regions and we are on a good path to treat 70,000 patients and exceed 1 billion euros in total sales this year. We also recorded significant gains with Corentia, mainly driven by substantially higher volumes in the United States and in China. Our ILEA franchise continued to grow solidly thanks to higher volumes and prices. As Bill said earlier, ILEA 8 mg generated first sales in Q1 following first approvals in Europe and other countries earlier this year. Turning to Xarelto. We registered a slight sales increase following a week prior year quarter. As expected, the expiration of the compound patent in additional markets such as Canada end of last year triggered generic launches. In Europe, we saw a mixed bag of patent dispute outcomes. Xarelto's once-daily patent was confirmed in countries like the Netherlands. In Germany and other European countries, we have seen preliminary injunctions against generic manufacturers. However, we also experienced some setbacks in first-instance rulings in the UK and also in France, and we will appeal those. We will continue to take vigorous action against any infringement of the European once-daily intake patent until its expiry. Our full-year guidance on Xarelto remains intact as we have taken a risk-adjusted approach. Moving to the bottom line, EBITDA before special items increased by 8% to 1.2 billion euros in Q1. While R&D investments in early-stage clinical development increased, cost for projects in advanced clinical development such as Sundexian's Phase 3 Oceanic Program came down. In addition, we shifted funding from our mature portfolio to gross investments into our launch products. For the pharma margin, foreign exchange currencies had a negative impact of about 140 basis points. Moving on to consumer health, here sales declined by 2% compared to prior year levels. Main reason for that was a 17% decline in our allergy and cold business. which could only be partially compensated by the performance of the other categories. The strength of our brands and innovation enabled us to actively manage prices and balance impacts from price elasticity. However, retailers in the United States continued to optimize their inventory across the industry, leading to declines in volumes. On top of this, we have also been experiencing a very mild cold and flu season. On the positive side, as we further improve supply and availability of key products and start rolling out consumer-benefiting innovations such as Iberogast in the United States, we will compensate trends seen last quarter. EBITDA before special items came in as expected at 331 million euros and a margin of 23.1%. Currency effects of 46 million euros had a negative impact. Thanks to continuous focus on cost and price management, we were largely able to offset the decline in sales and inflation-driven rising costs and higher investments in marketing our innovative products. Now let me now look at the outlook. Based on our latest forecast, we reaffirm our full year outlook at constant currencies. In crop science, we are still well positioned to deliver a fourth consecutive year of growth in our core business and remain within the range as we guide it. The key vectors we anticipate for our core business are higher crop protection volumes and pricing in corn. The latter, despite lower planted acres, as I mentioned before, for glyphosate, We expect lower pricing, partially mitigated by volume recovery. In pharmaceuticals, we are still expecting headwinds on Xarelto to increase throughout the year, likely resulting in year-on-year sales declines of the division for the next three quarters to come. With the first quarter result, we feel comfortable to deliver on the division's full-year guidance for 2024. For consumer health, we continue to further improve the supply situation, and also focus on driving consumption. In addition, we are launching new innovation to the market. With that, we plan to return to growth again in Q2 and to accelerate growth in the second half of the year. As you can see on the right-hand side of this slide, we have updated our FX estimates based on March end spot rates. Compared to December end spot rates, we have seen an appreciation in the U.S. dollar. While this positively impacts our top line, it has a proportionally higher negative effect on our cost positions. Furthermore, and as discussed on many occasions, the portion of our debt denominated in the U.S. dollar will see a negative translation impact. At the same time, we have seen depreciation in other currencies, like the Argentinian peso, the Turkish lira, and also the Japanese yen, for instance. The current FX estimates consider these latest developments. Sales growth, as reported, remains in the range provided due to offsetting dynamics in the currency basket. At the same time, we now see an increased headwind on EBITDA before special items of minus 4 percentage points compared to about minus 3 percentage points previously. This then also translates down to approximately minus 30 cents FX effect in core earnings per share. We also updated our FX estimates on free cash flow to approximately minus 300 million euros and net financial debt to about 500 million euros. Other modeling considerations remain as previously guided, as you can see in the appendix to this presentation. And with that, I would like to close our prepared remarks, and Joost, I hand it back over to you to guide us through the Q&A, please.