Bayer Ag S/Adr

Good afternoon and good morning everyone and welcome to our conference call to discuss Bayer's second quarter 2026 results. Bill will begin by sharing his perspective on the key achievements of the past few weeks and our path forward and we are delighted today to have Judith with us for a first quarterly earnings call. She will offer her initial perspectives and provide further insights into business performance and the outlook. Following the prepared remarks, we will open the call for Q&A and our three divisional presidents will join Bill and Judith then to address your questions. Before we get started, I would also like to encourage you to join our crop science field event on September the 2nd in Iowa. If you have any questions regarding registration or logistics, please reach out to our investor relations team. As always, please note the cautionary language in our safe harbor statement. And with that, over to you, Bill.

Hey, thanks, Jost, and hi, everyone. And by the way, I think most of you know this is Jost's last time leading the call before he runs off to lead the radiology business, so we'll try to make it a good one. But the past 90 days have been really important for Bayer, and operationally, we're on track for the year. We've made decisive progress on our long-term strategic priorities, and we're going to cover both of those things today. So let's start with the performance in the first half of 26. Across the group, our businesses are delivering what we committed. Sales are at 24 billion euros, growing 3% on a currency and portfolio adjusted basis, which we'll refer to throughout the call today. Core EPS is at 3 euros and 66 cents, which is also up 3% from our last year at this time. Our free cash flow in the first half is at negative 2.7 billion euros. This compares with negative 1.4 billion euros last year at this point, and it's due to the litigation-related payouts that we've previously communicated. So onto our businesses. CropScience delivered sales growth of 5.5%. This was driven by strong momentum in seeds and traits, including the additional licensing revenue we posted in the first quarter. EBITDA margin expanded to 31%, a considerable improvement over last year, reflecting higher margin sales, the licensing revenue I just mentioned, and disciplined execution. In pharma, we demonstrated continued resilience. Sales remained flat, with Nubeca and Corendia combining to grow 66%, overcoming significant and expected declines in Xarelto. ILEA is down 27%, driven by pressures from biosimilars, with the eight made business now representing half of our ILEA sales. The ENTRE continues to progress well and our base business is growing in part due to strong volume growth in radiology. Our EBITDA margin is at 26%. This puts us in line with expectations as we continue to invest in future growth in the second half of the year. Finally, Consumer Health posted growth of 3.5% with contributions from all but one category and particularly strong growth in nutritionals and dermatology. EBITDA margin is trailing prior year but on track to meet our outlook. Overall, we're pleased with our trajectory. Despite an uncertain environment, we're pacing well to meet our targets and we'll continue executing our plan. Team Bayer has what it takes to deliver. Now, I'll touch on our strategic priorities including some recent highlights. In pharma, we've received priority review for azindexin in both the U.S. and China, and we're preparing for a planned launch in the end of 26 or beginning of 27. Further, we closed the acquisition of perfused therapeutics, which we announced last quarter. This is a novel development medicine in glaucoma and diabetic retinopathy. CropScience continues to execute its five-year framework. and our efforts here are beginning to deliver tangible results as seen in the expansion of our margins. We're also optimizing our business setup. Last month, we consolidated our U.S. glyphosate business into Ruvion, a distinct entity that will be nimbler and better positioned in a commodity-driven market. Further, we continue to build our innovative portfolio. For instance, we announced a license agreement for broad commercialization of hybrid wheat One of the world's most important staple crops. Across the company, we continue to push for productivity gains with our operating model. Teams working on launches and pharma, driving profitability gains in crop science, and those making investment decisions in consumer health have much more ownership over their work. We think our lean entrepreneurial operating model positions us well to capitalize on the opportunities of artificial intelligence. And we're investing in AI. in both enterprise systems and tools for our people so that each person at Bayer can extend their productivity, making the greatest impact at the fastest pace and lowest cost. Finally, litigation. The last 90 days have been decisive in the company's years-long efforts to contain the litigation uncertainty. On June 25th, in Monsanto v. Dernell, the U.S. Supreme Court announced a landmark ruling for the cause of regulatory clarity, The decision was in no way ideological, with a majority of justices nominated by both Republicans and Democrats siding with the company. Further, the opinion was unequivocal. The Environmental Protection Agency is the authority when it comes to regulating crop protection products. Claims grounded in states' failure-to-warn theories are preempted and should be dismissed. Lower courts have already started acting on the Supreme Court's ruling. What does this decision mean for the company's multi-pronged strategy? The proposed class settlement between Monsanto and leading plaintiff's firms is moving ahead, and we remain convinced it is the best path to resolution, including for plaintiffs whose primary legal theory was deemed without merit by the nation's highest court. We're in a stronger position following the court's ruling. The final approval hearing in the state court in Missouri is now scheduled for August 19th, with a final decision expected later this year. During the interim, the company will participate in the class process, including briefing the court regarding objections and assessing the quality and quantity of opt-outs. On PCBs, as previously communicated, we aim to enforce the indemnity agreements Monsanto had in place. and there's a case moving forward now in federal court. Overall, our containment strategy is in a strong place with some important milestones ahead. We remain focused on making the right decisions for the company, both in the moment and for the long term. Over the past two and a half years, we've been laser focused on a clear set of priorities. Rejuvenating the pharma pipeline, significantly containing litigation, deleveraging, improving profitability at crop science, and making Bayer leaner, more dynamic and more productive. We've progressed in each of these five areas and each of them has demanded intense focus. And it's imperative that we maintain that focus. So we're concentrating on delivering our commitments and ensuring the best future for Bayer. So with that, I'll hand it over to Judith to walk you through the financials as well as her first impressions of the company. She's joined at a pivotal moment for Bayer and has been all in from day one. Judith, over to you.

Thank you, Bill, and welcome to everyone on the call. It's a pleasure to be with you here today. I'm delighted to have joined Bayer at such an exciting time. The team has made significant progress on litigation, and we remain firmly focused on containing the overhang. The goal remains that Bayer is increasingly valued for the strength of its businesses, innovation, and its growth potential. Having spent my first month listening to customers, colleagues, and investors, the following themes stand out. First, Bayer's innovation engine is a fundamental competitive advantage. Our leadership positions are built on decades of R&D investments, delivering breakthrough innovation that farmers, patients, and consumers rely on. Our teams are committed to innovate for our mission. We have attractive growth opportunities ahead of us supported by powerful long-term trends. We have strong positions in large markets with growing and aging populations. Our new operating model has made us leaner and more customer focused. Third, our financial priorities are clear. To continue to strengthen the balance sheet, to improve productivity and cash generation, and to create flexibility to invest for future growth in next generation medicines, ag technologies and consumer health. While we've made good progress on the transformation, there's still important work ahead. I see a clear opportunity to build on the momentum with strong execution and financial discipline to deliver sustainable value. With that, let me turn to our financial results. Net sales increased by 3% to 24.3 billion euros in the first six months. In Q2, sales increased by 2% to 10.9 billion euros. EBITDA before special items rose 7% to 6.6 billion euros in the first half, including an increase of 2% to 2.1 billion euros in the second quarter. Foreign exchange effects were not a material headwind this quarter. Core earnings per share came in at €3.66 for the first six months. This is consistent with the underlying business seasonality and our expectations for the year. If you look at Q2 specifically, core EPS of $0.95 was 17% below prior year, given non-recurring benefits in taxes and the reconciliation result in 2025. Both items show a more normalized pattern this year. in line with our expectations. Let's move on to free cash flow. This year, material litigation-related payouts amounting to 2.5 billion euros in the first half drove the negative cash flow and explained the decline versus the prior year. For the second quarter, we saw higher incentive payouts compared to prior year. Finally, net financial debt remained rather stable with a slight increase to 33.6 billion euros compared to the second quarter of 2025. Compared to the end of the first quarter this year, net financial debt increased by 1.1 billion euros driven by litigation payouts, the profuse acquisition for our pharma business and foreign exchange. In recent weeks, We successfully completed two important financing transactions. The €3 billion equity investment from Apollo marks an important strategic milestone. It strengthens our capital structure and provides additional flexibility for future financing needs. Upon closing, it will reduce our net financial debt in the second half of the year. We have since successfully placed $5 billion in U.S. dollar bonds, further demonstrating our ability to access the capital markets. These achievements have been an important team effort, and I would like to sincerely thank all of our colleagues who contributed to this, and importantly, to our first half results. Overall, our performance puts us well on track to deliver our full year guidance. Let's now take a closer look at the performance of our businesses. For crop science, disciplined execution of our five-year framework drives growth and margin expansion. Here today, we saw sustained momentum across the seed and trades portfolio and improved profitability while core crop protection continued to face pressure. Overall, the strong first half reinforces our confidence in delivering full-year guidance Even a sales mix is expected to shift towards lower margin products in the second half. In the second quarter, net sales grew 4% to 4.9 billion euros, driven by strong seed and trades performance and improved glyphosate volumes and pricing. Soybean sales exceeded expectations with 17% growth for the quarter. driven strong North America performance, including higher prices from the return of the dicamba label in the US. Soy growth reached nearly 70% year to date, or 13% excluding licensing income. In the second half, we expect lower excess seed sales in the United States due to improved utilization rates. Additionally, our transition from Intacta Roundup Ready 2 Pro to impact the two extend is expected to weigh on Brazil sales. Cotton also benefited from return of the Decamba label, driving both volumes and prices as expected for the quarter and contributing to 9% year-to-date growth. Other seeds and trades grew 21% for the quarter on solid canola expansion, growing 63% year-to-date. Following the strong Q1, Corn declined by 3% in the second quarter. It includes the anticipated phasing impact in North America, partly compensated by double digit growth in EMEA and APAC. For the first half, the business grew 4% with strong growth across all regions, despite reduced acres in the US. Corn crop protection declined 2% in the second quarter, driven by lower prices. The expected volume recovery was muted by dry weather, mainly in parts of Europe. The temporary reintroduction of Movento in France drove insecticide growth in the second quarter. Year to date, core crop protection declined 5% from ongoing generic pressure and portfolio pruning impacts. We expect growth in the second half of the year, supported by higher volumes. However, continued regulatory and pricing headwinds are anticipated to weigh on performance. Glyphosate sales recovered this quarter with higher pricing and increased volumes contributing to a 13% increase. A price spike in the second quarter nearly offset volume decline from the first quarter leaving glyphosate broadly flat over the first half of the year. On profitability, EBITDA before special items of approximately 900 million euros came in 30% higher than prior year, resulting in a margin of 18.4 in the second quarter. In addition to higher seed and trade sales, the strong execution of our five-year framework contributes to low margin exits in core crop protection, as well as COGS efficiencies. Furthermore, we benefited from insurance income and divestment gains. Year to date, EBITDA before special items margin of 31.4% is expected to moderate in the second half. This also includes a different distribution of licensing resolution income, which was realized in the first quarter this year compared to the fourth quarter last year, as well as pricing pressure and the impact from the Middle East war. Our pharmaceuticals business continues with solid delivery against its strategic priorities. This is clearly shown with strong growth of our new products and a solid base business contribution, which balanced the expected declines of Xarelto and ILEA. We're now at the inflection point of turning to growth going forward. While sales were in line with the prior year in the first six months, We expect to accelerate growth in the second half, putting us on track to achieve our full year outlook. For the second quarter, we achieved net sales of 4.5 billion euros, representing 1% growth versus the prior year period. Our key growth drivers continued their strong momentum. Nubeca grew by 64% in Q2 across regions, while Carendia sales increased by 83%, mainly driven by the US and China. With combined sales of more than 2 billion euros for the half year, and based on the current dynamics, we are well-proficient to meet the market expectations for the full year. On our new launches, performance of LinkWit and Biontra continues to be in line or even above our expectations. and we're continuing to drive launches in additional markets throughout 2026 and beyond. Xarelto and ILEA declined by 42 and 33% in Q2 effectively, driven by the expected effects of loss of exclusivity and biosimilar competition. While both declines were modestly above our guidance range, this was against the stronger prior year comparison. For the second half, we expect a softer comparison base. Importantly, ILEA 8mg continues to see strong uptake reaching around 55% of franchise sales in the second quarter and remaining on track for about 70% share by year end. Our base business grew 4% in the second quarter with continued strength in radiology and women's health more than offsetting volume-based procurement related impact on Asprin Cardio and Stevarga in China, as well as declined across other parts of our mature portfolio. For the first half, base business growth was 1% and we foresee broadly stable performance going forward. EBITDA before special items was down by 4% to 1.1 billion euros in Q2. resulting in a margin of 23.7%. The year-on-year decline was mainly driven by our decision to increase growth investments as well as pricing pressures partially compensated by higher volumes, a write-back for inventory and continued savings from efficiency programs. While our margin for the first half of the year was 26.4%, we will continue to invest into growth going forward and expect to end the year in line with our guidance. Turning to consumer health, we continue to focus on driving sustainable growth while navigating a volatile market environment, particularly in the United States, where consumer sentiment remains up to. Against this backdrop, net sales increased by 1.5% in the second quarter and 3.5% in the first six months. With that, we remain well-positioned to deliver within our full-year guidance range. Growth was driven by all non-seasonal categories, highlighting the strength of our balanced portfolio, strong category of positions, and focused investments. E-commerce continued to be an important growth driver, reflecting our investments in digital capabilities, and our ability to adapt to evolving consumer purchasing behaviors across channels. In nutritionals, brands such as Natural Elements and Elevit delivered strong online growth. These favorable sales dynamics helped offset the decline in allergy and cold reflecting softer seasonal demand as well as the pull forward of customer orders in the first quarter due to timing of seasonal orders in allergy as previously highlighted. Turning to profitability, the EBITDA margin before special items was 22.1% in the second quarter and 22.3% in the first half of the year. Benefits from our new operating model and ongoing cost efficiencies continue to support profitability while targeted investments in brands, innovation and digital capabilities are positioning the business for future growth. Foreign exchange headwinds impacted the first half year margin by about 50 basis points. Excluding these profitability remained broadly in line with the prior year and within our full year guidance corridor. Onto our outlook for 2026. We reiterate our group outlook on sales, earnings, and free cash flow at constant currencies for the full year 2026. Our outlook reflects the strong performance in the first half, but also the anticipated dynamics for the remainder of the year. In addition, we remain mindful of the dynamic external environment. On net financial debt, we have reflected the minority equity investment by Apollo with closing expected in the second half of this year. With that, we now anticipate net financial debt in the range of 29 to 30 billion euros down from previously guided 32 to 33 billion euros. Overall, we currently see a balanced risk and opportunity profile for our full year outlook, which continues to include our latest assessments on several external factors and geopolitics. Looking ahead, we continue to closely follow several key topics that remain fluid. For crop science, we continue to monitor geopolitical and weather-related developments, including potential El Nino impacts, whether volatility could affect planting and yields in some regions, and our technology-based seed and crop protection solutions are helping growers to manage these challenges. For our pharma business, We do not expect tariffs to materially affect our outlook this year. At the same time, we remain focused on developments in global drug pricing, particularly around MFN policies, and continue to evaluate the potential implications for our pricing and launch strategies. For consumer health, key variables in the second half of the year remain the trajectory of the consumer sentiment in the US and other key markets, The performance of seasonal categories and developments in the macroeconomic environment. Finally, on foreign exchange rates, in line with our practice, we have updated the foreign exchange estimate based on June month end spot rates. Compared to constant currencies, this leads to slightly lower headwind, the net sales, and to core earnings per share compared to the last estimate. And with that, over to you, Jost, for the Q&A.