Financial News Conference Wednesday, February 28, 2018 Bayer Communication Center, Leverkusen. Address by. Werner Baumann,

Transcription

1 News Release Bayer AG Communications and Public Affairs Leverkusen Germany Tel Financial News Conference Wednesday, February 28, 2018 Bayer Communication Center, Leverkusen Address by Werner Baumann, Chairman of the Board of Management (Please check against delivery) ( e)

2 Ladies and gentlemen, I would like to welcome you to the presentation of our results for 2017 here at Baykomm. ( e-1) 2017 was another eventful year in which we made good progress, particularly strategically. We took major steps toward the proposed acquisition of Monsanto. I ll go into more detail on the current status of the acquisition later on. We also took a big step toward our goal of achieving full separation from Covestro in the medium term. In 2017, we sold about 36 percent of our interest in that company in four tranches, generating total proceeds of 4.7 billion euros. In January we again sold more than 10 percent of our shares in Covestro. Our direct interest in the company currently amounts to 14.2 percent. Another 8.9 percent is held by Bayer Pension Trust. What s important in respect of the data we re presenting to you today is that we ceded de facto control of Covestro and deconsolidated the company at the end of September. The remaining interest in Covestro is now accounted for in the statement of financial position using the equity method. Our figures for the full year have been restated accordingly, as have those for the previous year. - 1 / 19 -

3 Operationally, 2017 was a year of ups and downs. Pharmaceuticals once again registered a record year. However, Crop Science and Consumer Health performed below expectations for differing reasons. Overall, we matched the prior-year performance operationally. ( e-2) Now let me discuss the business data in detail. Sales of the Bayer Group came in at 35 billion euros in 2017, up by 1.5 percent against the prior year. Please note that all the sales variations I mention are adjusted for currency and portfolio effects. EBITDA before special items of the Group was level year on year at 9.3 billion euros. By contrast, EBIT rose by 2.9 percent to 5.9 billion euros after special charges of 1.2 billion euros. Core earnings per share rose by 7 cents to 6.74 euros. The mandatory convertible notes we issued in November 2016 had an effect here because the number of shares included in the calculation rose considerably as a result. Without this effect, core earnings per share would have risen by 39 cents. - 2 / 19 -

4 We thus achieved our operational targets for sales based on our adjusted Group forecast for the full year. By contrast, EBITDA before special items came in slightly below expectations. We exceeded our expectations for core earnings per share. ( e-3) This brings me to the business performance of the individual divisions, starting with Pharmaceuticals. Our business with prescription products achieved sales of 16.8 billion euros in 2017 as much as never before. This corresponds to an increase of 4.3 percent. The success of the division was once again driven by our key growth products. The oral anticoagulant Xarelto, the eye medicine Eylea, the cancer drugs Xofigo and Stivarga, and the pulmonary hypertension treatment Adempas posted total combined sales of 6.2 billion euros. These products thus registered currency-adjusted sales growth of more than 16 percent. Xofigo recorded the strongest increase at 26 percent. Our two best-selling products Xarelto and Eylea also made significant gains. Sales of Xarelto climbed by 14 percent on a currency-adjusted basis, to 3.3 billion euros. This was due particularly to higher volumes in Europe, Japan and China. We also saw further sales growth in the United States, where Xarelto is marketed by a subsidiary of Johnson & Johnson. - 3 / 19 -

5 Eylea posted a gain in sales of 19 percent to 1.9 billion euros. This was mainly attributable to higher volumes in Europe, Canada and Japan. Business with the hormone-releasing intrauterine devices of the Mirena product family developed positively, with sales of these products moving forward by more than 9 percent on a currency-adjusted basis. On the other hand, sales of our blood-clotting drug Kogenate fell considerably. This was mainly due to lower order volumes being placed for the active substance by a distribution partner. Pharmaceuticals recorded an encouraging increase in earnings. EBITDA before special items increased by nearly 9 percent to 5.7 billion euros. If the negative currency effects are disregarded, earnings rose even more substantially, by approximately 11 percent. This increase resulted mainly from higher sales volumes. ( e-4) Let s now look at our Consumer Health Division. Our nonprescription medicines business saw a slight decline in sales compared with the previous year. Sales fell by 1.7 percent to 5.9 billion euros due to persistently weak business development in the United States. Furthermore, the Chinese authorities changed the legal status of two of our brands from OTC to prescription. - 4 / 19 -

6 A glance at the individual products shows widely divergent developments. Business with our best-selling Consumer Health product, the antihistamine Claritin, was down slightly against the previous year. Sales moved back by 2.4 percent on a currency-adjusted basis, to 585 million euros. The main reason for this was intensified competition in the United States and Japan. Sales of Claritin developed positively in China. By contrast, business with our Bepanthen / Bepanthol wound and skin care products expanded. Sales grew by 6.6 percent on a currency-adjusted basis. Sales of Aspirin rose slightly, moving forward by 1.8 percent to 462 million euros on a currency-adjusted basis. Including business with Aspirin Cardio, which is reported under Pharmaceuticals, sales came in at over 1 billion euros. Our Aspirin products thus posted combined currency-adjusted sales growth of 6.5 percent compared with the previous year. EBITDA before special items of Consumer Health was 1.2 billion euros in 2017, down substantially by approximately 13 percent against the previous year. This decline was largely due to lower volumes. Earnings were also held back by a higher cost of goods sold and higher selling expenses, as well as negative currency effects. ( e-5) - 5 / 19 -

7 Sales of our Crop Science Division also fell slightly in 2017, down 2.2 percent year on year at 9.6 billion euros. The main reason for this was the situation in Brazil, where unexpectedly high inventories in the market held back the business with crop protection products. We have initiated a number of measures to normalize this situation. For example, we took back crop protection products from our distribution partners and concluded new agreements at amended terms. We are now seeing that these measures are taking effect. A look at the regional sales development shows that the Crop Science business developed positively outside of Brazil. Excluding Brazil, global sales advanced by 3 percent year on year. Sales in Latin America moved back by 18 percent on a currency-adjusted basis, but increased here as well when Brazil is excluded. Business developed positively in the North America region, where sales improved by nearly 6 percent. We registered a gain of 1.5 percent in the Europe / Middle East / Africa region. Sales rose by 2 percent in Asia / Pacific. Now let s take a look at the individual business units of Crop Science. Sales of Crop Protection products declined by more than 5 percent. By contrast, we registered a gain of 9 percent at Seeds. We also saw positive development at Environmental Science, our business with applications for the nonagricultural segment. EBITDA before special items of Crop Science declined by about 16 percent in 2017, to 2 billion euros. This, too, was due primarily to the situation in Brazil. In addition, negative currency effects had an impact of 63 million euros. - 6 / 19 -

8 ( e-6) Now let s look at our Animal Health business unit. Here we raised sales by 2 percent last year on a currency- and portfolio-adjusted basis, to 1.6 billion euros. Benefiting from a product acquisition, EBITDA before special items rose by more than 9 percent. Business in the Asia / Pacific region developed especially positively, and North America also registered sales growth. The strong growth of the Seresto flea and tick collar continued last year, posting a currency-adjusted sales increase of 25 percent. By contrast, sales were down for our best-selling product, the Advantage family of flea, tick and worm control products. This was mainly due to increased competitive pressure in a number of regions. - 7 / 19 -

9 ( e-7) Ladies and gentlemen, That concludes our look at our business performance. Now let me explain where we stand with the proposed acquisition of Monsanto. We have received further regulatory approvals in recent months. Only recently, the Brazilian antitrust authorities gave the green light. That is an important milestone on the road to closing this transaction. After all, Brazil is one of the world s most important agricultural markets. Overall, more than half of around 30 authorities worldwide have now approved the transaction. An important step last year was the contractual agreement to sell certain Crop Science businesses to BASF. Within the context of the antitrust approvals, we have now also committed to divest our entire vegetable seed business. Certain additional business activities of Bayer and Monsanto may also be sold or out-licensed. - 8 / 19 -

10 Thus we are actively addressing observations expressed by antitrust authorities. Here it must be kept in mind that any sales and licenses would be subject to a successful closing of the Monsanto acquisition, which remains subject to customary closing conditions, including receipt of required regulatory approvals. In Europe, the E.U. Commission has repeatedly extended the examination deadline or halted the process in order to receive more information. Such measures are not unusual with a transaction of this magnitude. The examination period of the E.U. Commission currently will run through April 5. We are confident that we can fully allay the concerns of the authorities with the pledged measures. In the United States, we received the green light from CFIUS the Committee on Foreign Investment in the United States at the end of last year. This approval means there are no longer any unresolved national security concerns with regard to the proposed merger. The antitrust examination of the acquisition is being conducted in the United States by the Department of Justice. Last year, we responded in full to the second request from the Department of Justice. Since then, that authority has been reviewing the very extensive material and undertaking further examinations. At the same time, we are continuing our constructive discussions with the Department of Justice. Where do we stand with the financing of the transaction? I already briefly mentioned the mandatory convertible notes with a volume of 4 billion euros that we issued in November We plan to raise additional equity as further external financing. Moreover, we are planning bond placements in various currencies. We will examine in detail the extent to which the planned financing structure in other words, the ratio of equity to debt will be changed by the proceeds from the sale of our interest in Covestro, by the exchangeable bond that can be paid in Covestro shares and by the announced sale of business activities to BASF. Here we will continue to focus particularly on our aim of maintaining a sound investment-grade rating following the closing of the transaction. As you can see, we are making progress. We are on track with the financing, and we continue to work together with the authorities worldwide to bring the investigations to a successful conclusion. Here it is becoming evident that the regulatory examination - 9 / 19 -

11 procedures will require more time despite our intensive efforts. Our goal now is to be able to close the transaction in the second quarter of This does not affect our expectation of a successful conclusion to the regulatory review process, nor our conviction that the acquisition is the right step. That s because the agriculture industry is facing major challenges. Harvests are threatened by extreme weather and climate change, while the available percapita acreages are declining. At the same time, the global population is increasing by about 80 million people each year equivalent to the population of Germany. Given these conditions, we cannot keep going as we have in the past if we want to be able to feed the world population in the future as well. That s why we need innovation. And that s what this merger is about. Together with Monsanto, we can be even more innovative. The proposed acquisition is therefore beneficial for all the stakeholders involved: for our stockholders, because we are creating a leading agricultural company with outstanding growth perspectives; for farmers around the world, because we will create a product range that is even better tailored to their needs; and for society as a whole, because together with Monsanto, we can make an even better contribution to safeguarding the world s food supply / 19 -

12 ( e-8) Ladies and gentlemen, We are pursuing a long-term perspective with the acquisition of Monsanto, and that applies to our entire business model. We turn scientific findings into innovative products. That requires perseverance. Today it usually takes more than ten years to develop a new pharmaceutical product. It s a similar scenario in chemical crop protection. I d now like to briefly talk about how we are using our research and development activities to achieve our long-term perspective. We further increased our research and development spending last year to 4.5 billion euros. And we did so in a year that in some respects wasn t easy. By further expanding our research efforts, we are working to solve tomorrow s problems and working on innovative products that help people: doctors and patients, farmers and consumers. And we are making progress here. Our pharmaceutical pipeline is well stocked. We currently have around 50 projects in clinical development. And of course, we are also working on the further development of products that are already on the market. For example, this year we might receive marketing authorization in Europe and the United - 11 / 19 -

13 States for the use of Xarelto in a further indication: the treatment of coronary heart disease and peripheral artery disease, also known as intermittent claudication. At Crop Science, too, our product pipeline contains numerous new crop protection products, seed varieties and enhanced products. We estimate the combined peak sales potential of products with launch dates between 2015 and 2020 to be more than 5 billion euros. At the same time, we are strengthening our innovation capability through numerous external collaborations and partnerships. One example is the cooperation with Loxo Oncology, a highly innovative biopharmaceutical company from the United States, which we entered into in November of last year with the aim of further expanding our oncology business. The collaboration is focused on the development and marketing of two innovative active substances which are currently being investigated in global studies for the treatment of patients with cancers harboring alterations of a certain gene. The alteration of this NTRK gene is rare overall. However, it is found in many different types of cancers that affect both adults and children. We expect to complete filing of the marketing authorization application in the United States for one of the two active substances larotrectinib within the coming weeks. The collaboration with Loxo Oncology also demonstrates that the acquisition of Monsanto isn t coming at the expense of our other businesses. We have always said that we will continue to drive the growth of our Pharmaceuticals, Consumer Health and Animal Health businesses as before. Projects like these show that we are keeping our word. But of course we are also continuing to develop our research network in the Crop Science Division. I d like to describe an example from last year. In September, Bayer and Bosch entered into a three-year research collaboration with the aim of developing a smart spraying technology that makes the application of crop protection products more efficient. Camera sensors help to precisely determine what is growing in the fields so that crop protection products can be targeted to weeds while weed-free areas are not sprayed. All of this takes place in a single work step / 19 -

14 This intelligent system reduces costs and strengthens farmers earning power. Above all, however, it is environmentally friendly because in the future, crop protection products will only be applied where they are actually needed. Bayer isn t just making available its data to companies like Bosch, however, but also to nonprofit organizations. For example, we are supplying Quantified Planet with data from more than 70 countries that provide information on the location, prevalence and distribution of certain plant varieties. Quantified Planet will make these data available worldwide for use in scientific research in the area of biodiversity. The aim here is to help improve the understanding of climate change and its effects on sustainable farming. That concludes my brief overview of our innovation activities. Mr. Dietsch will now report on our business performance in the fourth quarter of 2017 and provide further details about the full year DIETSCH ADDRESS (see separate document) (Baumann s address continues) - 13 / 19 -

15 ( e-9) Ladies and gentlemen, Let me follow up on Mr. Dietsch s remarks by presenting our financial targets for We expect to achieve sales of around 35 billion euros in This forecast is based on the exchange rates as of December 31, 2017, so a significant negative currency effect overlays our operational planning. To improve comparability, therefore, the following forecasts are adjusted for currency effects, as can be seen in the right column of the table. On a currency- and portfolio-adjusted basis, we expect sales to increase by a low- to mid-single-digit percentage. For both EBITDA before special items and core earnings per share, we expect mid-single-digit percentage increases on a currency-adjusted basis. The forecast takes into account temporary supply interruptions due to remediation measures in production. Bayer expects the impact on adjusted EBITDA to be about 300 million euros. The largest proportion of this amount is related to the Pharmaceuticals Division and a minor part to the Consumer Health Division / 19 -

16 This brings us to the targets for the individual segments. For Pharmaceuticals, we plan to generate sales of more than 16.5 billion euros. This corresponds to a low-single-digit percentage increase on a currency- and portfolio-adjusted basis. We aim to raise sales of our key growth products Xarelto, Eylea, Stivarga, Xofigo and Adempas towards 7 billion euros. We expect the currency-adjusted EBITDA before special items of Pharmaceuticals to increase by a low-single-digit percentage. We expect Consumer Health to achieve sales of more than 5.5 billion euros, which would be at the prior-year level on a currency- and portfolio-adjusted basis. We expect EBITDA before special items to increase by a low-single-digit percentage after adjusting for currency effects. For Crop Science, we see sales coming in at more than 9.5 billion euros in This corresponds to a mid-single-digit percentage increase on a currency- and portfolioadjusted basis. We expect to increase EBITDA before special items by a mid-teens percentage after adjusting for currency effects. For Animal Health, we expect a currency- and portfolio-adjusted increase in sales by a low-single-digit percentage. EBITDA before special items is expected to be at the prior-year level after adjusting for currency effects. The proposed acquisition of Monsanto is not yet accounted for in these forecasts. As explained before, we are confident that we will receive the necessary approvals and will be able to close the acquisition in the second quarter. In this case, we expect to see a significant increase in sales and EBITDA before special items. We expect a moderate decline in core earnings per share due to the planned equity and financing measures. For the first full year following the acquisition, we continue to expect a significant increase in sales and EBITDA before special items, and an increase in core earnings per share / 19 -

17 ( e-10) Ladies and gentlemen, I d like to close with a few sociopolitical observations. We live in an era of distrust in which facts are less and less important. This does not apply only to companies. Polls show that people have a very low level of confidence in important societal institutions. According to the most recent Global Trust Report of the think tank GfK Verein, for example, only 18 percent of those surveyed in Germany have confidence in political parties, 30 percent trust large companies and 45 percent trust the media. To some extent, this distrust is being deliberately stirred up. We see that the current debate is often based on an emotional appeal to people s fears rather than on communicating facts. The purpose of this is to create a certain mood and solicit donations. Fear has become a business model. But when there is no trust and no certainty, what can we base our decisions on? We all have an interest in ensuring that the course we set for our future is not overly politicized. This applies not just to legislation, but also to the registration of products and of the way society views new technologies / 19 -

18 Such decisions should be based on scientific findings. We have to be able to trust that this will be the case: in the interests of consumers and in the interests of economic and social progress. Distrust is no basis for shaping the future, which is why I firmly believe that we must all invest in trust. For companies, this means above all that they will have to make an even stronger commitment to their social responsibility. We have a responsibility to all our stakeholders: to our customers and employees, to our stockholders and to society as a whole. We must live up to this responsibility. This means that business ambitions must go hand in hand with social, economic and ecological responsibility. To ensure this, ethical principles must be firmly anchored in all corporate processes. This is the case at Bayer. Our company applies high ethical, ecological and social standards in all its business relationships. Clear processes and responsibilities ensure that the relevant corporate policies are actually implemented. This has a very specific impact on how we approach things. We endeavor to ensure that our products are used safely by customers. This helps to minimize possible side effects on the health of people, animals and plants. We work constantly to make our production processes more resource-friendly and to lower the emissions they generate. And we leverage our relationships with suppliers to effect positive changes in the market. Not just economic, but also ethical, ecological and social principles are anchored in our Procurement Policy. These are just a few examples that show we re on the right track. Of course, we can still improve as regards our responsibility to society and the environment. That s why we set ourselves specific nonfinancial targets and key performance indicators against which we can be measured. These targets, too, can be found in our Annual Report. In the end, what matters is what we do. We want people to measure us by our deeds. Yet that alone is not enough to create trust. To achieve that, we must strengthen our efforts to seek dialogue with all stakeholders in society. We can only bridge divides if we talk with one another. Action and dialogue go hand in hand. Trust is created when we say what we do and do what we say / 19 -

19 Sincere and fruitful dialogue requires transparency above all. That s why Crop Science launched a transparency initiative at the end of last year. A special website now provides access to safety-relevant information about our crop protection products. Full study reports are also available for noncommercial purposes upon request. We are thus playing a pioneering role in terms of transparency. Incidentally, for many years we have been honoring a commitment to make public information about our clinical studies in the area of Pharmaceuticals. In this way, we address the frequently expressed allegation that pharmaceutical studies are only published if their results are advantageous for companies. And in so doing, we are building a bridge between the public and our scientists, who are deeply convinced that they make a valuable contribution to society. ( e-11) Allow me to summarize. Operationally, 2017 was a year of ups and downs. Pharmaceuticals registered another record year, and business was also positive at Animal Health. By contrast, business performance at Consumer Health was weak, and Crop Science suffered from the situation in Brazil / 19 -

20 Overall, therefore, it was not an easy year. We nonetheless continued to invest in our future. We further increased research and development spending and expanded our research network. We also made good progress strategically. We took a big step toward our goal of achieving full separation from Covestro in the medium term. We made progress on the path to the proposed acquisition of Monsanto and continue to cooperate constructively with the regulatory authorities. Our goal now is to close the transaction in the second quarter of We will thus create a leading innovation company in the agricultural industry. This step therefore perfectly fits our goal of striving to occupy leading positions in all our markets. We are focusing on health care and nutrition, both areas that are specifically addressed by the United Nations Sustainable Development Goals. And in both these areas, there is a significant need for innovation in the long term. In short, we remain focused on our objectives and are convinced of our long-term perspective. We therefore have every reason to look to the future with optimism. Thank you for your attention. Cautionary Statements Regarding Forward-Looking Information Certain statements contained in this communication may constitute forward-looking statements. Actual results could differ materially from those projected or forecast in the forward-looking statements. The factors that could cause actual results to differ materially include the following: uncertainties as to the timing of the transaction; the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the merger within the expected time-frames or at all and to successfully integrate Monsanto s operations into those of Bayer; such integration may be more difficult, time-consuming or costly than expected; revenues following the transaction may be lower than expected; operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected following the announcement of the transaction; the retention of certain key employees at Monsanto; risks associated with the disruption of management s attention from ongoing business operations due to the transaction; the conditions to the completion of the transaction may not be satisfied, or the regulatory approvals required for the transaction may not be obtained on the terms expected or on the anticipated schedule; the parties ability to meet expectations regarding the timing, completion and accounting and tax treatments of the merger; the impact of the refinancing of the loans taken out for the transaction, the impact of indebtedness incurred by Bayer in connection with the transaction and the potential impact on the rating of indebtedness of Bayer; the effects of the business combination of Bayer and Monsanto, including the combined company s future financial condition, operating results, strategy and plans; other factors detailed in Monsanto s Annual Report on Form 10-K filed with the SEC for the fiscal year ended Thursday, August 31, 2017 and Monsanto s other filings with the SEC, which are available at and on Monsanto s website at www. monsanto.com; and other factors discussed in Bayer s public reports which are available on the Bayer website at www. bayer.com. Bayer and Monsanto assume no obligation to update the information in this communication, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date / 19 -