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Ladies and Gentlemen,
Welcome to our press call and thank you for taking time to join us on short notice.
As you’ve likely seen from our press release, today the Supervisory Board of Bayer AG reviewed and gave its support to a series of measures outlined by the Board of Management.
With these measures, we are positioning Bayer’s portfolio and organization for the future, sustainably strengthening our productivity and profitability. Today, we would like to explain the background and substance of these measures, as well as take your questions. In addition to today’s call, we will be sharing further information at our Capital Market’s Day in London on December 5th. You will be able to follow this event online.
Before going any further, let me be clear: Today’s decisions were not made necessary by the recent acquisition. And certainly not by glyphosate litigation in the United States. The measures we’re taking today extend beyond the commitments we’ve made as part of the integration. They represent the right step for our company. And they position us for the future, as a leader across all of our core life science businesses.
Before outlining the measures in detail, I’d like to explain what we aim to achieve with these measures – measures that will affect all areas of Bayer and strengthen two of our core pursuits: innovation and value creation for our stakeholders.
We aim to focus our portfolio by concentrating on our leading, core life sciences businesses. We aim to increase our productivity by pursuing best-in-class innovation with a mindset that is informed by data, embraces external collaboration and is driven by the latest in technology.
We will enhance the efficiency of our structures to ensure our ability to respond quickly to customer needs, which will allow us to better address changing market dynamics, like the rise of new technologies, the introduction of new competition and the ongoing digital transformation.
These actions will enhance our cost structure, strengthen our profitability and bolster our long-term competitiveness. They will sharpen our focus on our leading businesses in health and nutrition, two markets which are poised for sustainable growth and aligned with global megatrends. And with that, they will safeguard our role in helping to care for and feed a growing and aging world population.
I’d now like to address each of the measures in detail.
Regarding our portfolio, we will exit our Animal Health business and are evaluating available options. Our Animal Health business is well positioned in an attractive industry which will continue to grow. The necessary investments to further develop this business are however not available within Bayer given the priorities with our core areas Pharmaceuticals, Consumer Health and Crop Science. Because of these priorities, we are convinced that Bayer is no longer the best owner for Animal Health.
Additionally, as part of a comprehensive turn-around plan at the Consumer Health division, we will use the coming months to evaluate an exit from two product lines that we believe have stronger development potential outside of Bayer. In addition to the announced divestment of prescription dermatology products, we are evaluating an exit from the Coppertone™ and Dr. Scholl’s™ product lines in sun care and foot care respectively. This will enable us to focus on our core categories in Consumer Health.
Finally, we are in conversations regarding the sale of our 60-percent ownership of German site services provider Currenta. After successfully separating from Covestro, the sale of Bayer’s share in Currenta represents a logical step as Bayer’s use of Currenta’s services has significantly decreased. Currenta also needs an ownership structure that strategically supports and funds the longer term development of its operations.
We intend to advance all the portfolio measures in 2019.
Beyond the planned changes to our portfolio, we aim to improve our profitability and productivity with a series of efficiency and structural measures. Touching all areas of the company, these measures will free up resources for innovation and growth.
Both the recent and upcoming changes to our portfolio make it necessary that we make significant adjustments to the size and structure of our supporting functions and services. These adjustments will lead to a considerable improvement of our cost structure and will enhance the competitiveness of Bayer as a whole. We are also convinced that a leaner organization will help us become more responsive to changing markets and increase our agility.
Additionally, at Consumer Health, the turn-around plan previously mentioned includes reorganized structures to become more efficient and respond quicker to changing consumer and customer needs.
We are also announcing adjustments within Pharmaceuticals. As you know, our Pharmaceuticals division has enjoyed great success in recent years. The business has consistently outperformed the market over the last years and we are optimistic about the further growth in coming years. We can attribute a lot of this success to our blockbuster products Xarelto™ and Eylea™.
To continue our track record of successfully bringing innovative medicine to the market, we are – in addition to the continued development of our pipeline – strengthening our investment into collaborative research models and external innovations. We will adapt our internal research and development activities accordingly. Our future innovation model in Pharmaceuticals will follow a simple principle: Where an innovation comes from is less important than how we turn it into benefit for customers and patients.
Actually, with this week’s FDA approval for our new cancer drug Vitrakvi™, we have a great example of how successful innovation can come about through external collaboration. That’s exactly how we want to move forward.
Additionally, within the hemophilia business, the introduction of a number of new products has led to a significant increase in competition. In order to remain competitive in this segment, we have decided not to utilize the factor VIII facility we have built in Wuppertal in Germany. We will focus all recombinant factor VIII production in Berkeley in the United States.
Through all these efficiency and structural measures, we anticipate annual contributions of 2.6 billion euros from 2022 onwards. This includes 1 billion euros in synergies from the integration at Crop Science, equal to the previously communicated 1.2 billion U.S. dollars. Of these contributions, a portion will be reinvested in our core businesses. Over the next four years, we plan to dedicate a total of 35 billion euros to future investments in research and development and capital expenditures.
All in all, we are expecting one-time costs at a factor of 1.7 times the annual savings. We expect core earnings per share to increase by around 1 euro to 6,80 euros in 2019. We target achieving a core EPS of around 10 euros in 2022. The Group EBITDA margin before special items is targeted to increase to over 30 percent in the period through 2022.
We expect these measures to result in a reduction of approximately 12,000 jobs worldwide by the end of 2021. Details will be worked out in the months ahead. A significant number of jobs will be reduced in Germany. We are in close contact with the employee representatives and have agreed on a joint declaration. In our press release, we have provided you with an overview of how the 12,000 jobs are allocated across different projects and divisions.
We are aware of the gravity of these decisions and are grateful for the commitment and dedication of our employees around the world. Just as we have in the past, we will treat employees fairly and responsibly throughout the process.
Before we get to your questions, I would like to summarize why we are taking these steps and how we are positioning ourselves for the future.
First: We are focusing on our core businesses in Pharmaceuticals, Consumer Health and Crop Science.
Second: The changes we’ve made over the past years, as well as the changes to come, demand broad and additional adjustments to the size and structure of our organization in order to best serve our businesses and customers.
Third: We participate in changing markets, subject to accelerating market dynamics. Just like our competitors, we need to ensure the sustainability of our cost structure, enhance our competitiveness, and consistently improve the innovative potential that is at the heart of Bayer’s history.
With these measures, we are positioning Bayer optimally for the future. We will become more agile, more efficient, and better-equipped to lead in the life sciences, creating value for all of our stakeholders.
Thank you very much. I’m happy to take your questions.
Cautionary Statements Regarding Forward-Looking Information
This news release contains forward-looking statements. A forward-looking statement is any statement that does not relate to historical facts and events, but rather reflects Bayer’s current beliefs, expectations and assumptions regarding the future. This applies, in particular, to statements in this news release on revenue growth, including product introductions and peak sales potential, synergies, especially in relation to the acquisition and integration of Monsanto Company, portfolio adjustments, cost reduction, financial targets and earnings, cash flow generation, deleveraging and other similar statements relating to future performance, including with respect to the markets in which Bayer is active.
Although the forward-looking statements contained in this news release are based upon what Bayer’s management believes are reasonable assumptions, they necessarily involve known and unknown risks and uncertainties that could cause actual results and future events to differ materially from those anticipated in such statements. Forward-looking statements are not guarantees of future performance and undue reliance should not be placed on them. Bayer undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change except as required by applicable securities laws.
For more information on factors that could cause actual results and future events to differ from those anticipated in forward looking statements, please refer to the factors discussed in Bayer’s public reports which are available on the Bayer website at https://www.investor.bayer.de/en/reports/annual-reports/overview, including in the Annual Report 2017 under the caption “Report on Future Perspectives and on Opportunities and Risks”.
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