Bayer Ag S/Adr

Good afternoon and good morning, everybody, and welcome to our conference call for the third quarter of 2024. Bill will kick off our presentation today by sharing his perspective on business development year to date and the progress we've made towards our strategic objectives. Following this, Wolfgang will provide a summary of our financial performance in the third quarter, discuss the full year outlook for this year and outline key trends for 2025. Today, we have also invited our divisional heads to present detailed insights into the growth dynamics and future outlook of their respective businesses. And as usual, the presentations will then be followed by a Q&A session. Before we begin, I'd like to highlight the cautionary language in our safe harbor statement. And with that, over to you, Bill.

Thanks, Joost. Thanks everyone for joining us today. As Joost said, the three divisional presidents are joining Wolfgang and me, and we'll be sharing to what the latest goings on in their businesses are both today and in 2025. And what you're gonna hear from us, I think is excitement about the opportunities ahead of us, coupled with clarity about some headwinds and crosswinds that we need to navigate. That's the tone we aim to establish with you in March, and it reflects the way we're steering our businesses. We see great progress in some areas. We've had a good run of positive readouts in pharma. We've got great momentum on our launch assets, and we see outstanding first results of the new model. Even as we see this great progress in some areas, others do require more attention. So regulatory challenges and generic pricing pressures in our crop protection business are two examples. Regardless of whether these things are entirely in our control, we need to manage them with resources and decisions that are in our control. That's part of doing business, something you have to navigate, twists and turns that come in the road, and you have to adjust. And it's okay to do that, as long as you're on the right path. And we're confident that the course we've laid out for the company is the right one, and we intend to stay on it. So let me start by covering our year-to-date performance in 2024 and our full group outlook. As a group, we're going to deliver on nearly every parameter that we committed for 2024. We expect the agriculture market to decline around 2% this year. Given that, hitting those numbers is no small feat. Year to date, pharmaceuticals is up, pacing with the guidance we upgraded last quarter. In fact, we're confident that we'll deliver at the upper end of that upgraded guidance in both sales and earnings. Consumer health is growing, though not at the rate we expected given a slowdown in some markets, particularly the US and China. Still, our performance in pharmaceuticals and consumer health is offsetting some of the declines in crop science. Clean EBITDA will come in lower due to the headwinds I mentioned, but as a group, we're fully committed to hit our full-year targets on sales growth, core earnings per share, and free cash flow. Now let's look at our performance business by business. In crop science, we're going to come in under our guidance for 2024. LATAM is a big business for us, and we expected big contributions from the region in the second half of the year, similar to what we saw last year. Weather challenges and disease pressure have led to corn acreage decline in Argentina and Brazil. Compounded by soft commodity prices and generic crop protection pricing pressure, this led us to lower our 2024 targets. Now you've seen similar dynamics across the entire industry, and Rodrigo and team have shown we can compete with and withstand market pressures thanks to our innovation edge, but ultimately we're not immune to them. Nonetheless, we've got to own the results for this year. There's definitely areas we can improve going forward. For 2025, we're cautious on the market environment. On top of that, we have material regulatory pressure to contend with. Rodrigo will say more about that in his part. He'll also highlight what we're doing to address market pressures and prepare for industry-leading innovation launches in 2027 and beyond. So between now and then, it's on us to compete, whatever the market or regulatory context is. And there's a lot of things we can control. Optimizing our P&L, getting innovation to market, managing costs. These are muscles we've had to flex this year. They'll help us going forward, and I think we can strengthen them. We've got a great pipeline, a great portfolio, and wonderful people. So it's on us to deliver. In pharmaceuticals, we upped our guidance last quarter. We've got two months to go, and we're confident we will come in at the upper end of that guidance. We're happy with what we see from our launch products. Nubeca has accelerated this year. Corendia is showing excellent growth as well. That's important because we can expect the Xarelto loss of exclusivity impact to accelerate in the other direction. With that comes margin erosion, but we're focused on what we can control, moving assets through the pipeline, delivering successful launches. With Ecoramidus and LN Xanatant, we're expecting the next two to come in 2025. And we have great momentum in renewing the pipeline, in renewing the top line, sorry, in reinvigorating the pipeline and building the base for continued profitable growth in the future. Stefan's gonna tell you more about that. In consumer health, you've gotten used to continued growth from us over the past five years. Julio and team have every intention of continuing that while recalibrating growth back towards volumes. With that comes a reorientation of investments behind our brands. They're shifting resources to the right brands and the right markets while addressing the key factors weighing on our costs and cash. Our dermatology and digestive health categories are growing consistently, largely due to this approach. Now our team is translating it to the rest of the portfolio, and we expect it to fuel growth in 2025. Onto our strategic progress, starting with innovation. I've highlighted where we stand with the Precion Smart Corn in the last few quarters. The biotech version will be launched in 2027, and the breeding version has already been launched in three countries. In September, I got to see it for myself. I walked a field with Jerry, a fourth generation farmer in Northeast Iowa. He was able to plant Precion at significantly higher density than his tall corn. The crop withstood heavy winds in July, up to 70 miles per hour. While his neighbors had to deal with broken crops and dramatically lower yields, his corn stood tall. Or I guess short is probably more appropriate. Well, ultimately, the crop delivered the best performance he's ever had on that field, 258 bushels per acre. Earlier, I mentioned some of the challenges we see in agriculture. That makes innovation like this even more important for farmers who want differentiated value from us. In pharmaceuticals, Nubeka crossed the blockbuster threshold in September and has achieved market-leading positions in its current indications. Our new model has helped turbocharge this growth. Decisions about how to cover sales territories, how to allocate resources are now made mainly by the people doing the work instead of being run up and down the hierarchy. This translates into more time with physicians and patients, faster, more focused work on things like filing dossiers and NDAs and accelerated growth. In consumer health, teams on the ground tell me they're cutting launch times nearly in half, particularly in our nutritional supplement business. We're going to keep shrinking the time from consumer insight to hitting the market and meeting the need. Now onto litigation. We remain true to our commitment to containing this issue over the coming two years. There will be continued news flow on trials, our legislative efforts, and speculation about other potential measures. As I've said previously, we're exploring every possible avenue to contain the issue, but we will only comment on those plans when it's in the interest of the company. In the glyphosate litigation, we will now decide on which case we will request review by the US Supreme Court. If the court accepts our case, we hope to obtain a ruling in the 2025-26 session. Outside of the courtroom, I see momentum among politicians, farmers, other stakeholders, demanding American farmers get the legislative certainty they deserve. Further, companies like ours are standing up to the nebulous funding that often bankrolls the U.S. litigation industry. We recently joined more than 100 major companies across industries to petition the courts to mandate disclosure of third-party financing in lawsuits. On PCBs, we also expect an important decision in the upcoming months. In this case, by the Supreme Court in the state of Washington regarding the Erickson case. All in all, there remains a lot to do on the litigation front. This is a long road with no quick fix. We're focused on the bigger picture, and we're pursuing multiple avenues. We'll learn more about the Supreme Court in 2025, and we'll continue working to significantly contain the risks. Now Wolfgang is gonna cover cash in his update, but as I said up front, we're fully on track for the year. Now finally, on dynamic shared ownership, it was in our Q3 call last year that I first introduced our new operating model to you. At that time, we had just kicked off the journey. We had about 2,500 people that we'd introduced to the system. Well, today, we've scaled it to the vast majority of the organization. We're seeing big changes as a result. We have 5,500 fewer jobs in the company since the beginning of the year, and a significant majority of them are managerial positions. Most importantly, we're seeing improvements in the way we run our business. I recently visited Garbagnate, a production site for our pharma division outside of Milan. The team there created a cross-functional team to try to cut 10% off the batch release time, which was approximately two to three weeks. They worked in three 90-day cycles. They had authority to make decisions on the spot, and they included factory floor operators on the team. At this point, now, they've cut the release time by almost 50% with tangible benefits on inventory, reducing waste, and improving cash flow. Mission impact for our people, quicker innovation for patients, and better cash conversion for you. That's what we're going after. There's no doubt we have a lot more work to do in scaling this effort. We're at a critical phase of implementation right now. So as a management team, we're keeping our eye on the ball. We're making sure this overhaul doesn't go the way of more traditional, usually ineffective restructuring. At first, when I'd ask about some success stories, I kept hearing the same two or three examples. And then we'd get a new one monthly. Now I'm hearing these stories, like the ones I gave you, basically on a daily basis. I'm confident that that's gonna translate into results for you and a bright future for our customers and for us. So before handing over to Wolfgang, I would just like to say that I'm very happy he's extending his contract. He originally planned to retire after his contract expired next year, but he's going to stay on board for an additional year to see through the three-year journey. Wolfgang, you've been a great partner to me, and I'm really happy you're staying on board. So thank you for your attention, and over to you, Wolfgang.

Well, thank you, Bill. I'd like to briefly talk about our Q3 results before I turn to our outlook for the full year and the vectors we see moving into the next year, 2025. As always, sales growth comments are on a currency and portfolio adjusted basis. Now, Q3 group sales increased slightly by 1% versus the prior year with growth in pharma and consumer health offsetting a decline in crop science. Our EBITDA before special items came in at 1.3 billion euros, which is 26% or about 430 million euros below the prior year quarter. The delta is largely driven by lower pharma and recon results. Foreign exchange remains a major track this year, with nearly €440 million headwind to our top line in Q3 and about €1.2 billion year-to-date. On the bottom line, FX leads to a 40 basis points negative impact to the group margin in Q3 and also year-to-date. Impacts on divisional margins differ significantly, which is largely driven by different geographic distribution of sales and the cost base. In line with the respective business performance and outlook, we see lower expenses from short-term incentive provisions for crop science and consumer health, whereas we see the opposite for pharmaceuticals with increased provisions versus the prior year. Core earnings per share of 24 cents in Q3 are 14 cents below prior year. Lower contributions from EBITDA before special items were partly compensated by a better core financial result. Our core tax rate came in at 46% in Q3, driven by a revaluation of deferred tax assets in the United States that was triggered by an impairment in crop science this quarter. Reported earnings per share came in at minus 4 euros and 26 cents, as you can see in the appendix. The delta to core earnings per share is largely driven by the non-cash relevant impairment losses of approximately 3.8 billion euros posted in our crop science division. Main drivers are reduced business prospects, especially in crop protection, FX, and the dicamba label uncertainty, whereas weighted average cost of capital were favorable. Our free cash flow came in at 1.1 billion compared to 1.6 billion euros in last year's third quarter, mainly due to quarterly timing of customer payments and crop signs. Year-to-date, our free cash flow is at minus €200 million. This compares to minus €2.9 billion for the first nine months of the prior year. The difference is mainly driven by lower incentive payouts and lower settlements. We anticipate strong cash contributions in Q4 to deliver on our full-year commitments. Net financial debt was reduced to 35 billion euros by the end of Q3 due to the positive cash contribution in the quarter and an FX tailwind of about 600 million euros. Let's now move on to the performance of each one of the divisions. For crop science, the third quarter is seasonally our smallest quarter in terms of sales and earnings. Latin America, the strongest contributor in Q3s, has experienced significant weather challenges and stunt disease pressure. As mentioned by Bill, this materially reduced corn acreage in both Argentina and Brazil compounded by prolonged commodity price softness and generic pressure on crop protection pricing. Glyphosate-based herbicides were down 19% as shipping patterns normalized as expected. This drives an overall sales decline of 4%, with sales coming in at about 4 billion euros. Our core business came in flat in Q3. Latam weakness was offset slightly by strong volume in our core crop protection products, despite ongoing pricing pressure in the industry. On the profitability side, EBITDA before special items came in at 35 million euros, being in absolute terms roughly 60 million euros above prior year's quarter. Main drivers were the already mentioned adjustment to the short-term incentive provision, lower COX, accelerated DSO efficiencies, and a favorable FX effect on the margin. Let's now move on to pharma. Sales grew 2% year-on-year to 4.5 billion euros in Q3, mainly driven by the strong performance of our launch assets and ILEA. With a growth of 83%, Nubeka has now reached blockbuster status. with almost 1.1 billion euros of sales in the first nine months of this year. For Carinthia, we were able to nearly double sales compared to last year's Q3. ILEA registered a 9% sales increase versus prior year with growth in the majority of our marketed territories. In contrast and in line with what we have guided, Xarelto saw accelerating generic headwinds in the third quarter. Quarterly sales declined by 23% year-on-year, resulting in an 11% decline year-to-date, and that's in line with our guidance of double-digit sales decline. Sales in the third quarter were impacted by nearly complete generalization in Canada, as well as rising generic pressure in the UK. With the recent ruling of the highest patent court declaring the once daily patent invalid, we expect UK sales to irreversibly degrade until year end. In addition, we are seeing increasing at risk launch dynamics of generics across many European countries led by France. As you would expect, we are taking vigorous action in court to defend our IP rights. In terms of profitability, EBITDA before special items came in at 1.1 billion euros and a margin of 24.4%. The significant decline versus the prior year is driven by the already mentioned short-term incentive provisions and a negative currency effect of about 134 million euros. or ongoing growth investments into our launch products, while we were able to balance the described shifts in our product mix, driven by the Xarelto sales decline, through stringent optics management and pricing tailwinds. Our consumer health division achieved a 6% year-over-year sales growth in the third quarter, reaching €1.4 billion in revenues. This growth was broad-based across all the categories, albeit with different regional dynamics. In the EMEA region, we recorded significantly higher sales of cough and cold products at the start of the cold season, largely driven by increased volumes, especially for the aspirin product family. Sales in Latin America also rose, primarily fueled by strong performance in both nutritionals and pain and cardio. However, we faced some challenges as well. A slow start to the cold season in the United States led to lower than expected retailer orders. In China, notably weaker household consumption impacted our prevention-focused categories such as nutritionals and digestive health. Furthermore, we felt the effects of discontinuing our direct-to-consumer nutritional supplements business care-of in the United States. Despite these challenges, our Q3 clean EBITDA margin improved to 25.5%, a 330 basis point increase year over year. This improvement was primarily driven by our sales growth, lower incentive provisions, and favorable foreign exchange effects on the margin. We remain committed to effectively manage cost while ensuring that we invest sufficiently in our innovative brands and product launches. Let's now move on to the divisional guidance for 2024. For crop science, we now expect sales to decline from minus 3% to minus 1% in currency and portfolio adjusted terms. This is driven by a revised outlook for our core business impacted by the challenges in LATAM, as well as intensified generic pricing pressure on crop protection. This also affects our margin outlook. The EBITDA margin before special items is now expected to come in between 18 and 20% at constant currencies. For pharmaceuticals, we confirm the full year guidance at constant currencies, which we raised after the second quarter. However, we now anticipate coming in towards the higher end of the sales and margin guidance ranges. For consumer health, we anticipate moderately lower market growth for the rest of 2024. This is largely due to softening economic conditions in selected markets. US consumers are becoming more cost-conscious and there are early signs of a weaker-than-expected cough and cold season. In China, we see a deceleration of market growth. For Q4, we anticipate that our retailers will continue to optimize their working capital due to improved supply chains and product availability. From a full-year perspective, this affects our ex-factory net sales, while our sellout performance remains consistent with market trends. Considering all these factors, we now estimate full-year sales growth for 2024 between 1% and 3% on a currency and portfolio adjusted basis. With a clear focus on our operational efficiency programs and targeted price management, we expect our EBITDA margin still within the previously guided corridor. On group level, we are fully committed to achieving our sales growth, core EPS, free cash flow, and net financial debt targets for the year. And this is all at constant currencies. Based on the updated divisional outlook, we lower the clean EBITDA outlook to minus 11% to minus 8% compared to previous year. we now expect a better core financial result of approximately minus 2 billion euros versus approximately minus 2.3 billion euros previously. This is in line with the actual year-to-date performance as well. Furthermore, we had to adjust our core tax rate for the full year to a range of 24% to 25% versus approximately 23% previously. The adjustment is driven by a revaluation of deferred tax assets in the US that were triggered by the previously mentioned impairment in crop science during Q3. We've also updated our FX estimates based on September end spot rates. We now expect a stronger FX headwind on our sales of minus three to minus four percentage points. On net debt, we see the opposite effect, now assuming no material FX impact versus a 500 million increasing effect previously. Let me finally also use the opportunity here to summarize key business vectors for next year. My divisional colleagues will then add more color to this in their paths. For pharmaceuticals, we expect continued strong growth dynamics of our launch brands. At the same time, we anticipate rising generic headwinds for Xarelto, which adds margin pressure compared to 2024. For crop science, we are cautious on the ag market outlook and anticipate muted growth. In addition, we foresee regulatory challenges in our crop protection business leading to increased pressure on profitability. For consumer health, we expect market growth at a similar level with this year. With that market, we expect to deliver robust growth with a focus on volumes. Based on current assumptions, FX is likely to remain a material headwind. Overall, we expect a muted outlook on top and bottom line next year, with likely declining earnings. We plan to accelerate our cost and efficiency methods to partly compensate and remain laser focused on cash conversion. While we intend to provide some level of transparencies on the main drivers for next year, our planning discussions are currently ongoing. We will provide specific 2025 guidance with our full year results. And with that, I'd like to hand over to my colleague Stefan for Pharma.