Bayer Ag S/Adr

Good afternoon and good morning everybody and welcome to our conference call to discuss the fourth quarter and full year results for 2024. To begin, Bill will share his perspective on our business development, the progress we've made in our transformation and the path ahead of us. Wolfgang will then provide an overview of our financial performance in 2024 along with the outlook for 2025. We will then hear from our divisional heads who will delve into last year's performance of their businesses, as well as the future ambitions and action plans. We will conclude the presentations with the Q&A sessions as usual. Before we begin, please note the cautionary language in our safe harbor statement. And with that, over to you, Bill.

Thanks Joost. Thank you everyone for joining and I'm going to start with our 2024 results and our 2025 outlook and then I'll outline what you can expect from us this year as we continue our turnaround. So let's start with 24. We adjusted our full year EBITDA guidance in November of last year and as a group our results were in line with that revised outlook. In fact, EBITDA before special items actually netted out just shy of our original target, thanks to our pharmaceuticals division, which performed better than expected, compensating for other areas. We were slightly ahead of our guidance on cash flow, and we reduced our net debt to 32.6 billion euros. But it's clear we still have work to do. We have three great businesses with attractive long-term prospects. We expect them to compete at the forefront of their fields. Whenever that's not the case, we're going to take action. And that brings me to 2025. So it's the second year in our turnaround. And as indicated in November, we expect it to be the most difficult in terms of financial performance. with net sales roughly in line with and earnings and cash flow behind prior year. Let's look at it business by business. In pharmaceuticals, we're planning on net sales slightly below 24. We expect slight margin declines as the impact of the Xarelto patent loss accelerates. In consumer health, we're targeting growth that's in line with the market and an EBITDA margin before special items in the same corridor as 2024. In crop science, we anticipate a slow market recovery with earnings pressure from regulatory challenges and crop protection pricing keeping margins at current levels. 2024 exacerbated these headwinds for our crop science business. That's evident in our results, and we expect continued impact in 2025. You'll note that we've added crop science profitability to our agenda as a fifth focus area. Take that as a first sign that we're committed to improving. We're one year into a multi-year effort. In 2024, we kicked off a comprehensive transformation to address Bayer's most pressing challenges and to set the company up for a better future. We see an improved trajectory starting in 2026. And later today, you'll hear reasons why we are optimistic. However, to get to these opportunities, we need to steer through a tight 2025. It's a pivotal year for our turnaround. From managing litigation, to generating cash, paying down debt, to operating each of our businesses, we have a big, big year ahead of us. Here's what you can expect. First, on our pharmaceuticals growth and pipeline, our two flagship launches, Nubeka and Carandia, grew to a combined 2 billion euros in sales last year. In 2025, we plan to grow cumulative sales on those two medicines to more than 2.5 billion euros. And we have two more pharmaceutical launches coming in 2025, with Biantra launching in European markets starting in April, and Elanxanatant expected in the US in the second half of the year. We're also rejuvenating the pipeline. In 2024, we saw the successful completion of nine positive phase three trials, and we've advanced more than 20 clinical programs over the past 18 months. We're very confident that our pharma business will return to growth from 2027 onwards and expand margins beginning in 2028. Onto litigation. In 2024, we were active in the courtroom with lawmakers and in communicating important facts to the public. We're continuing our multi-pronged strategy in 2025, including working with the new administration, with the US Congress and lawmakers in a number of states to provide important regulatory clarity for the future of farming and crop protection. I've personally invested a lot of my time on this effort so far this year and obviously in 2024 as well. In this calendar year, we're going to strive to make major steps toward containment. We want to build on important progress from 2024 in the appellate courts, and we expect to hear from the Washington State Supreme Court on PCBs, and we hope to advance the labeling preemption topic to the U.S. Supreme Court as well. These are all milestones toward our goal of significantly containing litigation by the end of 2026, and we reaffirm that goal today. Onto cash and deleveraging. One year ago, we committed to prioritizing debt reduction. And you see that reflected in our 2024 numbers. For 25, that commitment has not changed. Wolfgang is gonna say more about that later. Next, our additional focus area, crop science profitability. Our crop science business is home to outstanding assets, exceptional global platforms, including a highly profitable seeds business, an industry leading pipeline, and excellent people. but our business is exposed to cost pressures in ways that are both unique to our business and general to our industry. The biggest factor being generic pricing pressure on our leading crop protection business. This is eroded earnings specifically in crop protection that a leading business simply can't accept. Our crop science team has kicked off a comprehensive plan to address earnings headwinds. What I want to emphasize is that we are pursuing a path to fuel more growth and significantly improving our margins through measures that are in our control. The entire board of management backs these efforts. We're targeting above market growth, including more than three and a half billion euros of incremental sales from innovation, and an EBITDA margin improvement to the mid-20s by 2029. Rodrigo will say more about the measures we're taking to get there. The crop science program is incremental too and will complement our operating model, dynamic shared ownership, which is moving forward fast. We activated the system across the organization last year, reducing about 7,000 positions in 2024. If you go back to the beginning of our work on this, to the summer of 2023, and you go forward all the way through January of this year, it's actually 10,000 positions that have been eliminated, most of them management roles. So we expect continued reduction as the new setup is established. In 2025, our focus is on ensuring all the teams and networks of teams become proficient at the new ways of working, with people and resources flowing toward the highest priority outcomes, delivering more speed and impact, as well as the committed savings. We have 800 million euros planned in savings for 2025. By 2026, I'm confident that we will not only deliver the 2 billion euros in committed savings, but more importantly, we're going to see broader performance benefits. In conclusion, 2025 is a year when you will see Team Bayer dialed in on the biggest things facing the company with a clear commitment to deliver. So thank you for your attention, and Wolfgang, over to you. Thank you, Bill.

I'd like to go into some more details on the group performance for 24 before focusing on the outlook for 25. In 2024, net sales grew slightly by 1% versus the prior year on a currency and portfolio adjusted basis. This is in line with the guidance given at the Capital Markets Day back in March. Growth in pharmaceuticals and consumer health offset the decline in crop science. EBITDA before special items came in at 10.1 billion euros, which is 14% or about 1.6 billion euros below the prior year, but in line with the revised guidance we discussed in November. The year-on-year delta is largely driven by lower crop signs and reconciliation results, as well as negative foreign currency effects. I would like to note that on reconciliation, we actually came in better than our guidance assumptions. We were cycling over a positive EBITDA before special items in 2023. On foreign exchange, we digested significant headwinds both on our top and bottom line. On group level, net sales were impacted by over 1.3 billion euros and EBITDA before special items by almost 600 million euros. On our group EBITDA margin, currencies had a 60 basis points dilutive effect. Due to the geographic distribution of our sales and cost base, the pharma margin saw a significant headwind of 190 basis points, whereas crop science and consumer health saw margin tailwinds. On short-term incentive provisions, we accounted for higher expenses of about 600 million euros compared to the prior year, which was mostly driven by the results of our pharma division. Related to our dynamic shared ownership model, we accounted for about €500 million in total organizational savings at the group level in 2024 that partly compensated for increased STI and inflation in 2024. The core financial result was in line with the prior year as higher interest expenses were compensated by lower hedging costs versus 2023. Our core tax rate came in at 25.4% for the full year. The increase versus 23 was largely driven by the devaluation of deferred tax assets in the United States. Consequently, core earnings per share of 5 euros and 5 cents were below the prior year, driven by the decline in EBITDA before special items. The FX headwind on core earnings per share was about 40 cents. Reported earnings per share came in at minus 2 euros and 60 cents, as you can see in the appendix. The delta to core earnings per share is largely driven by regular amortization as well as non-cash relevant impairment losses on intangibles of approximately 4.2 billion euros. The latter was primarily driven by the crop science impairment already posted in Q3 and impairment losses related to increased development costs and regulatory uncertainties in pharma posted in Q4. Furthermore, special items in EBITDA accounted for approximately 1.4 billion euros and were primarily driven by restructuring. Our free cash flow came in ahead of our guidance at 3.1 billion euros compared to 1.3 billion euros last year. The year-on-year increase is mainly driven by lower settlements and incentive payouts, as well as reduced inventory levels. We made progress with our working capital management measures in 2024, particularly on optimizing inventories in farm-mine crop science. Net financial debt was reduced to 32.6 billion euros by the end of 2024 due to the positive cash contribution and clearly in line with our guidance given at the Capital Markets Day. It is noteworthy that we experienced a significant debt-increasing FX translation effect based on the strengthened US dollar. Let's now move to the outlook for 2025. I would like to start with the main drivers of changes to core earnings per share year-over-year. As already indicated in November, the accelerated decline of high-margin Xarelto sales as well as the loss of the Dicampa label and Movento registration in Europe in crop science will negatively affect earnings year-over-year in a significant way. Furthermore, our outlook accounts for merit and inflation. On the positive, we expect growth contributions from higher corn and crop protection volumes as well as our pharma launch assets. We also anticipate that our consumer health business will return to volume growth. We also plan to generate the next wave of 800 million euros in incremental savings towards our target of about 2 billion euros in total by the end of 26. Our core financial result and our core tax rate are expected to remain largely in line with what we saw last year. As a result, we expect core earnings per share to come in between €4.50 and €5 at constant currencies. You will find all of our modeling assumptions in the appendix to our presentation. But let's now look at our outlook for all group KPIs for 2025. We anticipate net sales of between 45 and 47 billion euros, representing a growth range of minus 3% to plus 1% in currency and portfolio adjusted terms. For EBITDA before special items, we anticipate 9.5 to 10 billion euros in 2025, representing a 1% to 6% decline at constant currencies. And this is mainly driven by the negative product mix effect from the accelerated Xarelto decline, as well as the loss of Movento and Dicamba in crop science. As mentioned already, core earnings per share are expected to come in between 450 and 5 euros at constant currencies. For free cash flow, our outlook is 1.5 to 2.5 billion euros at constant currencies and accounts for the lower expected year-over-year profitability. higher severance payouts and short-term incentive payouts related to the year 2024. These effects will be partially offset by additional working capital reductions. We expect net financial debt to decrease to 31 to 32 billion euros at constant currencies. Our plans include the proposed minimum dividend payout as well as minor M&A milestone payments, pension funding and other items consuming free cash flow. In the last column of this slide, you will find the estimated foreign exchange impact based on month-end December 24 spot rates. Let me also take the opportunity here to summarize key swing factors for our 2025 guidance. My colleagues will obviously add more color to that later. For pharma, the main source of risk and opportunity to our guidance range relates to the speed and magnitude of Xarelto generalization. Our crop science outlook depends on the development of channel inventory levels in the industry and pricing pressure and crop protection, as well as the level of ag market recovery this year. For consumer health, our guidance accounts for potential further trade inventory pressure in retail markets. Our current guidance does not account for any geopolitical uncertainty, particularly around potential tariffs, as well as exchange rate fluctuations. In terms of our strategic priorities, I would like to reaffirm that we remain completely focused on and committed towards debt reduction with the target to enhance strategic flexibility and improve towards a single A category. You could observe our focus on cash generation and targeted capital allocation last year. In 2024, our improvement initiatives led to a reduction of the working capital to sales ratio to 25%. As I mentioned, we saw progress in particular in inventories, but also in weighted average terms with suppliers. On CapEx, we need to differentiate between investments in property, plant and equipment or PP&E and intangible assets. Fixed assets as a percentage of net sales came down significantly to 3.5% last year due to diligent assessment and reprioritization. This is reflected by the blue line in the bottom right chart. Total capex and percent of sales increased slightly year on year. This was driven by intangible capex, including higher milestone payments and investments in business development and licensing, given our strategic priority of replenishing our farmer pipeline. In 2025, we expect a lower profit, but will further intensify our efforts on cash conversion and scrutinizing capex. Let me highlight some examples. Our pharma division launched an extensive project last year aiming to reduce inventory levels significantly. The focus is on addressing both the supply and the demand side and the premise that cash intensive launch products need to be overcompensated by optimizations elsewhere in the portfolio. Within crop science, the team plans to realize a total of more than 1.5 billion euros in working capital improvements until the end of 2029. Rodrigo will elaborate on that during his remarks. And as a matter of fact, I'm handing over to Rodrigo right now.