Bayer Ag S/Adr

Good afternoon, good morning everybody and welcome to our conference call to discuss the second quarter results for 2025. You have already seen our release end of last week. Bill and Wolfgang will keep the prepared remarks focused today on the business drivers and market dynamics behind the figures and a few more clarifying comments on litigation. Together with the presidents of our three divisions, they are then available for the Q&A. Before we begin, please note the cautionary language in our safe harbor statement. And with that, over to you, Bill.

Thanks, Joost. Hi, everyone. Thanks for joining our call. So as you know, we issued a comprehensive update on our 25 performance and outlook, as well as litigation provisions last week. And I'm sure those topics are of interest, and we're happy to address them in the Q&A. But to avoid repetition, I'll focus my remarks mainly on what we're seeing in our businesses and the bigger picture for Bayer. So Great, there's the first chart. So let's start with the numbers. As always, we'll speak about our sales growth in currency and portfolio adjusted terms. Across the group, sales remained flat throughout the first half of the year. Core EPS amounted to three euros and 72 cents. Our free cash flow is at minus 1.4 billion euros, and we're on track to reach our initial 2025 outlook. In crop science, we grew sales in Q2, primarily driven by our corn business, bringing our half-won sales to minus 1%. Our margin is at 26%, stable year over year, despite sales headwinds from the loss of both Dicamba and Movento due to regulatory events. Consumer health is up 1% on the year. Growth was muted due to soft market conditions in key regions and an allergy season that was weaker than expected. For the remainder of 25, we expect the softer market conditions to persist, particularly in North America, but we're starting to see a healthier growth contribution from our top brand and country intersections, which we call power couples. This is a promising early indicator that our investment and portfolio strategy is paying off. The margin is at 23%, a bit ahead of last year at this point. Pharmaceuticals continues to grow. We're at 2% at the half one mark, thanks to sustained growth behind Nubeka and Corendia, which were up a combined 65% year over year. Our pharma margin is at 25%. Looking at the broader industry, we continue to monitor ongoing developments in the geopolitical landscape. Our 25 pharma outlook includes what we know of the impact of that. So thanks to our year to date performance in pharma, we're raising 2025 currency adjusted guidance for the group on both sales and earnings. Now looking ahead, we're beginning an important second half of 25, which will be marked by further progress on all strategic priorities, our continued launches and geopolitical and currency crosswinds that we have to navigate. I'll now address our priorities, calling out some highlights. First, beyond the operational success of our pharma business, we continue to see news flow on our pipeline and launch assets. We launched Biantra in Germany on April 1st, and we're working to rapidly scale it to countries across Europe with encouraging signs in the early months. Beyond that, we've garnered important approvals for key additional medicines and pipeline assets, with important label extensions for ilea, corandia, and nubeca. On elenzanitant, branded now as Linquet, the FDA has extended the review timeline, and we expect it to conclude within the next 90 days. In the UK and Canada, we've received first approvals from our health authorities. Our crop science team is making headway on their plan to improve profitability. We've reached agreement on the central points of a joint declaration with our workers' representatives, and we can begin streamlining production and operations. We've also reached important milestones for our crop protection portfolio. The EPA has proposed approval for dicamba, and we recently submitted icofolin, our blockbuster herbicide molecule, for approval in the US, Canada, Brazil, and the EU. Next, I'll address where we stand in the fight against litigation. Last week, we communicated settlements and significant provisioning to limit our exposure to the litigation industry. These decisions are part of our multi-pronged strategy to significantly contain litigation by the end of 2026, which we affirm today. Simply put, every decision we make has the goal of positioning the company to move past our litigation woes. So here's an overview of the current state of affairs. In June, the US Supreme Court requested input from the Solicitor General in the glyphosate case. We welcome this step and we expect a recommendation in the coming weeks or months. This decision keeps intact the broader timeline of having a SCOTUS ruling by summer of next year. But our strategy is multi-pronged and we're not dependent on a singular milestone like a positive SCOTUS decision. As we've said all along, most disputes of this nature are settled with an agreement inside or outside of the courtroom. So when it serves company interests and our broader strategy, we will consider settling. More specifically, just recently, we've taken thousands of cases off the table through confidential settlements on a low cost per case average in the glyphosate litigation. In PCBs, we also reached an important settlement on confidential terms with the Burke case. With respect to the past Sky Valley Education Center verdicts, we continue to await a ruling from the Washington Supreme Court on the Erickson case. Independent of the merits, the court processes in these Sky Valley cases have proven to be particularly challenging. We have a strategy in place to limit our exposure. Therefore, we're provisioning now for potential settlements. We also remain active outside of the courtroom. We welcome legislation at the state and federal level that reaffirms the authority of the US EPA. Beyond these measures, we continue to examine additional options to protect the company, and everything remains on the table. We remain acutely aware of the threat of this issue for U.S. farmers, U.S. consumers, and our company. This is an important time with numerous prongs of our strategy advancing toward important junctures. As we move forward, we're making each decision with one broader goal in mind, narrowing the overall threat and bringing our company closer to containment. I'll close with a personal comment. You've seen the news that the supervisory board agreed to extend my contract to the end of March in 2029. I'm humbled by their trust. It's an honor for me to lead this company with its great mission, amazing people for an additional three years. I know that the extended time horizon invites questions about what will Bayer look like at the end of the decade. These are valid and important questions and ones that we all take very seriously. But right now, you'll understand that our focus is on the biggest work facing the company, delivering the year, building our pipelines, resolving litigation, improving crop science profitability and making all of Team Bayer leaner and faster and with maximum mission impact. I can assure you we will emerge from that work with a vision for how Bayer can best deliver its mission for the remainder of this decade and beyond. So thank you. And over to you, Wolfgang.

Thank you, Bill. And also a warm welcome to all of you from my side. Let's start with some more background to our preliminary Q2 release last week. I will focus on business drivers and discuss, amongst others, the currency impact as well. For the Group Q2, net sales grew slightly by 1% versus the prior year quarter in currency and portfolio adjusted terms. As reported, we saw a decline of 4% with material foreign exchange headwinds affecting our top line with approximately 550 million euros. EBITDA before special items came in at 2.1 billion euros in line with the prior year quarter. Low earnings in pharma were offset by better results in crop science, consumer health and our reconciliation. The better reconciliation result was mainly driven by the income from the transfer of some of our soccer players, partially offset by higher incentive provisions and balance sheet related hyperinflation postings. The FX headwind on EBITDA before special items amounted to €184 million in the second quarter. Our core earnings per share of 1 euro and 23 cents were 29 cents or 31% above prior year driven by a better financial result and lower taxes. The core financial result improved by about 150 million euros year on year due to lower interest expenses. The core tax rate was only 9% in Q2 benefiting from a reduction of tax provisions. I would also like to comment on the bridge from core to reported earnings per share, which came in at minus 20 cents in Q1. And you'll also find this in the appendix to the presentation. Main drivers for the delta are litigation-related expenses classified as special items, with some offset coming from write-offs to write-backs, excuse me, to crop science intangibles. For glyphosate, we recorded about 1.2 billion euros, significantly impacted by the adverse Anderson verdict. We will continue to appeal this case. However, a second instance ruling leads to an adjustment of our provision, as we have done this in the past. We also updated other litigation costs. On the number of cases, we settled 17,000 cases, but also accounted for new claims. For PCBs, we recorded about 530 million euros as provisions and liabilities for the Birk case and the potential future settlements related to the Sky Valley Educational Center. Also here, the provision includes other litigation costs. Against the backdrop of the five-year framework of crop science, we also recorded 840 million euros in write-backs on intangible assets in Q2 2025. In Q2, we recorded a free cash flow of 125 million euros compared to 1.3 billion euros in the prior year. The delta is largely driven by the higher incentive payouts, as considered in our full year outlook, and a prior year baseline effect from phasing of crop customer payments. On a year-to-date basis, free cash flow is at minus 1.4 billion euros, only slightly behind the prior year, and despite lower earnings as well as higher incentive and restructuring payouts. Compared to the end of Q1, net financial debt decreased by about €1 billion to €33.3 billion, mainly driven by FX translation effects related to US dollar denominated debt. Year-on-year, net financial debt was down by about €3.5 billion. Let's now take a closer look at the divisional performance. For crop science, net sales came in at 4.8 billion euros in the second quarter, up 2% versus the prior year. The core business grew by 3% versus the prior year, with seeds and trades up 11% for the quarter. Corn sales rose by 30% in Q2 based on global price increases and acreage expansion. This growth was amplified by the expected volume phasing from the first quarter following the strategic adjustment of our distribution network. Due to the US dicamba label vacature, soy and cotton sales declined by 18 and 26% respectively. Core crop protection was down 6% for the quarters. Trifers were a 13% decline in insecticides due to the expiration of the Movento registration in the EU, and lower fungicides partially offset by higher demand for non-glyphosate herbicides. The regulatory impact related to Dicamba and Movento remains in line with the previously communicated 200 to 300 basis points impact for the full year. Glyphosate sales remained stable compared to prior year as volume recovered from the first quarter while prices declined. On profitability, EBITDA before special items came in at €0.7 billion, resulting in a margin of 14.5%. The margin expansion was supported by corn growth and substantial cost savings initiatives. Let's move now to our pharma business. Net sales here grew by 1% to 4.5 billion euros in the second quarter. Sustained growth of our launch assets continued to more than offset the expected XRL to decline. In Q2, Nubeka and Corentia reached combined sales of €729 million. Nubeka grew by 51%, showing strong growth across all regions, but in particular in the US and Europe. While we saw the IRA weighing on pricing in the US, we also recorded corresponding positive volume momentum. Corentia sales increased by 67% year-on-year, particularly driven by the US and China. ILEA maintained its leading market position with growth of 4% over the prior year quarter, with the 8 mg dosage now contributing 25% to overall ILEA sales. Our base business declined slightly by 1% in Q2. Ongoing solid growth in our radiology and women's health portfolio largely compensated negative volume-based procurement effects in China for Aspirin and Cardio in Sri Lanka. As expected, Xarelto declined in Q2, coming in 27% below the prior year. This was mainly driven by continued generic pressure in Europe and also in Japan. On the bottom line, EBITDA before special items dropped by 17% to 1.1 billion euros in Q2, resulting in a margin of 24.5%. The margin decline is largely driven by the changing product mix, gross investments into launches and pipeline, higher incentive provisions, and an FX headwind. Sales of our consumer health business remained at prior year levels. Ongoing challenging market conditions in both the U.S. and China held back growth across the portfolio. The market softness in China particularly impacted sales in our nutritionals business, compounded by the discontinuation of our direct-to-consumer business, CareOff, last year in the United States. While we experienced a 6% sales increase in allergy and cold cycling over a very soft prior year quarter, a weaker than anticipated allergy season in the US hindered further growth. As Bill already pointed out, we are seeing early indications that our enhanced focus on innovation in power couples is paying off. We particularly saw strong performance of our dermatology product, like in Germany, Kangwang in China, and of our pain and cardio product, Actron in Latam. Digestive health saw a decline of 4%, cycling over a strong per-year quarter, which benefited from supply recovery. However, this decline was partially offset by growth in MiraLAX, supported by the launch of MiraFAST in the United States. Our EBITDA before special items increased to €331 million, primarily driven by efficiency gains from our new operating model and ongoing cost management efforts, while we continue strategic reinvestments in our brands and innovation. The resulting margin of 23.2% is considerably above the prior year and within our guidance range. Let's now move on to the divisional outlook for the full year 2025. For crop science, we reaffirmed our full-year outlook at constant currencies, including the expected regulatory impacts. With the recent proposal of the EPA to approve dicampa, we are optimistic in regaining registration for the next season, which could also help in soy and cotton pricing going forward. Global corn growth and crop protection volume increases supported our year-to-day performance. Going forward, we are monitoring potential headwinds that could follow a historically high U.S. corn season and strong recovery in other key geographies. We also remain cautious on the crop protection dynamics. For the second half of this year, we project solid acreage recovery and a strong market positioning in Latin America, underpinning our confidence to deliver our financial guidance for 2025. On profitability, we continue to project cost savings and mix effects to secure a stable margin at constant currencies in 2025 versus 2024. Due to market volatility, we are intensely focused on margin resilience through execution of our five-year framework. For Pharma, we raised our currency and portfolio adjusted sales growth guidance based on a robust business performance in the first half of the year, With growth of our launch products more than offsetting declines in our maturing portfolio, specifically for Xarelto, we now expect a sales decline towards the lower end of the 1 to 1.5 billion euros range previously provided. As this pushes part of the LOE impact to 2026, we anticipate next year sales erosion of Xarelto at a comparable level to 2025, which is again likely to be balanced by the continued growth dynamics of our launch products. Switching to profitability, we expect the 2025 EBITDA margin before special items within a narrowed range between 24% and 26% at constant currencies. For consumer health, net sales were up 1% in the first half of the year with balanced price and volume dynamics. While we anticipate that innovation and the strong performance of our power couples accelerate sales growth during the second half of the year, we foresee full year growth now to be at the lower end of our guidance corridor. But with continued emphasis on our operational efficiency initiatives, we expect that our EBITDA margin before special items will stay within the previously guided range. In the last column of the chart, you'll find the latest FX estimates based on June month's end rates for each one of our three businesses. The headwinds on sales increased while the individual impacts on margin fell below the materiality threshold. Based on the divisional projections, we raised our net sales and EBITDA before special items outlook for the group at constant currencies, as you can see on slide 12 of the presentation. We are also seeing a slightly better core financial result, which we now projected between minus 1.7 and minus 1.9 billion euros for the full year. The improvements in EBITDA and financial results allow us to raise our forecast for core earnings per share by 30 cents at constant currencies. Based on the additional litigation related liabilities and provisions we booked in Q2 and our trajectory for restructuring expenses in the second half, we now expect special items in the range of between minus two and a half and minus three and a half billion euros for the full year. We are confirming our free cash flow and net financial debt outlook as previously guided. Let's now look at the impact of foreign exchange rates and the latest geopolitical developments. We have updated our FX estimate based on June months and rates. Given the continued depreciation of the US dollar, as well as a weaker Brazilian REI and Chinese Yuan, we expect material FX headwinds for sales and earnings for this year. For net debt, we anticipate a reducing FX translation effect. We are monitoring the currency development closely. It's a big, big swing factor for our business with expected material impacts also in 26. Let me close with some comments on geopolitics and the potential direct and indirect effects on our business. Overall, we still continue to observe high volatility. We have gained more clarity around tariffs on European exports to the US, establishing a 15% baseline ceiling without stacking for most EU exports, including pharmaceutical products. It remains to be seen if the ongoing sectoral investigations will lead to additional pharma tariffs. Indirect effects remain hard to predict, particularly around the development of consumer confidence impacting our consumer health business, as well as the timing and execution of most favored nation principles and their effects on truck pricing. Of all, we need to deal with a new reality of geopolitical volatility. We have established very effective and flexible work streams to react quickly in this new environment. We also continue our efforts to effectively manage our supply chains with mitigation measures around sourcing and inventory management. In areas like seeds, for example, in production, our regional footprint continues to be a benefit. For 2025, based on the latest status of the announcement, we still feel very well positioned to digest potential impacts within our full-year outlook at constant currencies. Looking forward into next year, we continue to carefully monitor and potentially any potential direct and indirect developments. We relentlessly work on countermeasures to ensure the stability of our supply chains and minimize any potential impacts on our business performance. We will, of course, keep you updated as we move along. And with that, I'll hand back over to you, Joost, to facilitate the Q&A.