Bayer AG

XETRA:BAYN

Earnings Call Transcript 2020-Q3

[Operator]

[Interpreted] Welcome to the press conference of Bayer AG. [Operator Instructions] And that the conference is being recorded. [Operator Instructions] And now I'd like to hand over to Dr. Michael Preuss, who is Head of Bayer Group Communications.

[Michael Preuss]

[Interpreted] Thank you very much, Ms. Ent. Ladies and gentlemen, a very warm welcome to our conference call regarding the announcement of the third quarter figures for 2020. Thank you very much for your interest and your participation. We hope that you are well and that you are healthy in these challenging times. Here with me at the table are the CEO of Bayer AG, Mr. Werner Baumann; and Mr. Wolfgang Nickl, CFO of Bayer AG. And they will first provide you with the key figures on the business development, and then we will continue with the Q&A session. Before we do begin, I would just like to refer to the future-based information and also the fact that you should bear in mind all of the information that we've given. And I would now like to give the floor to Werner Baumann.

[Werner Baumann]

[Interpreted] Thank you. Ladies and gentlemen, I would also like to welcome you to today's conference call. Together with Wolfgang Nickl, I'd now like to explain the most important developments in the third quarter of 2020, and we look forward to answering your questions afterward.Let me start by saying that despite experiencing a seasonally weak third quarter in our Crop Science business, we're confident that on an operational level, we'll be able to meet the revised full year outlook we issued in August. In the first 9 months of the year, we were able to keep our business performance steady against the prior year period on a currency and portfolio-adjusted basis. This is also the case with core earnings per share, which came in at EUR 5.07 and thus match the prior year level despite negative currency effects. This clearly illustrates that we're active in the right markets and that Bayer is well positioned to overcome this unprecedented coronavirus crisis, bolstered by a resilient business and motivated workforce. Like all companies, we have experienced major challenges in 2020 that we hadn't been expecting at the beginning of the year. Even during the first wave of the pandemic, we did everything in our power to ensure that our employees and their families received the very best protection and support. We've provided customers, patients and farmers with a secure supply of what are, in some cases, life-saving products. And we've opened up our labs, the entire company, and the many volunteers from within our ranks have provided a huge amount of support with testing equipment and medicines as well as donations of money and equipment. We have learned how to respond to the pandemic and have worked to ensure we are best equipped to tackle it. The number of infections has been rising rapidly again in the -- in recent weeks. Governments around the world are introducing comprehensive protective measures and significant restrictions on public life and in private settings. We are all aware that the virus will be with us for a long period of time. And here at Bayer, we will continue to do our utmost to ensure that our employees are safe, that patients, consumers and farmers are supplied with products, and that we live up to our social responsibility as a good corporate citizen. That's what we stand for, as does our vision, "Health for all, hunger for none."Before handing over to Wolfgang Nickl to take you through the most important details of our third quarter performance, I'd like to take a look at some further developments over recent months. First, I would like to give you a brief update on the litigation-related to glyphosate. After the general agreement with the plaintiffs' counsel, we started to implement these specific settlement agreements on the current Roundup cases this summer. We have currently reached an agreement covering approximately 88,500 claims. Settlement talks with a large number of the remaining plaintiffs are being held with the support of mediator Ken Feinberg. So much for the current cases. Regarding possible future Roundup claims, we are negotiating a detailed settlement agreement with the plaintiffs' counsel based on the memorandum of understanding concluded beginning of September to address the court's concerns. It's already foreseeable that the revised proposal will cost around $2 billion more than the originally expected USD 1.25 billion. We expect completion of the formal agreement in the next few weeks, and we'll then file a motion for preliminary approval to the court. As I already said, we are expecting our business to be stable in 2020 despite all the headwinds. We even see an increase in currency-adjusted EBITDA before special items compared to 2019. And for 2021, we're also anticipating sales at the 2020 level, although earnings are set to decline year-on-year. However, under the current circumstances, the Bayer Group will not be able to achieve its original annual growth target of 4% to 5%. This is due in part to negative currency effects as well as a sharp decline in prices in China. Against this backdrop, we issued an ad hoc disclosure on the 30th of September in which we announced that, based on our planning, we would be unable to meet the more optimistic market expectations for 2021. We also announced noncash impairment charges for our agricultural business, which we have specified today. At the same time, we announced a series of countermeasures such as the acceleration of existing efficiency programs and additional cost savings. We're also reviewing options to exit nonstrategic business below the divisional level. The savings realized will be primarily utilized for further investment in innovation and profitable growth opportunities, and for advancing our debt reduction efforts, bolt-on acquisitions and in-licensing our plans in Pharmaceuticals and Consumer Health, in particular. Against this backdrop, I am delighted to say that we have successfully completed negotiations to acquire AskBio as announced last week. AskBio is an American pharmaceutical company that specializes in the research, development and manufacturer of gene therapies across different therapeutic areas. This acquisition significantly strengthens our position in cell and gene therapies. AskBio's development portfolio includes attractive preclinical and clinical-stage candidates for the treatment of neuromuscular, central nervous system, cardiovascular and metabolic diseases as well as disease of the central nervous system. This includes therapeutics for Parkinson's disease and in congestive heart failure as well as clinical candidates for hemophilia, just to name a few examples. AskBio is expected to generate a significant number of new products each year in the short, medium and long term. Considering the ongoing investments as well as our Pharmaceuticals and leaps partnerships, the acquisition of a majority stake in care of the purchase of KaNDy Therapeutics and now AskBio, we have invested almost EUR 3 billion in our Pharmaceuticals and Consumer Health businesses this year, and that's on top of ongoing R&D investment of around another EUR 3 billion in this field. As you can see, even during a challenging year such as 2020, we're consistently harnessing opportunities that arise and investing in for future growth. We also received some good news for our agricultural business last week with the U.S. EPA, Environmental Protection Agency, announcing a new 5-year registration for our herbicide, dicamba. This really is great news for U.S. farmers and also for competitive profile of our soy and cotton business in the coming years. That brings me to the end of my general remarks, so we can now move on to the data for the third quarter, which will be presented by Wolfgang Nickl.

[Wolfgang U. Nickl, CFO & Member of Management Board]

[Interpreted] thank you very much, Werner, and also a very warm welcome from me. Summary of the third quarter of 2020 can be summed up as follows. We saw a challenging quarter in our agricultural business and a recovery in our Pharmaceuticals business and strong growth at Consumer Health. Group sales totaled EUR 8.5 billion in the third quarter, which is down 5.1% compared with the prior year. Please note that when I speak of sales, the data are always adjusted for currency and portfolio effects. Group EBITDA before special items fell by 21.4% year-on-year to EUR 1.8 billion. And earnings were diminished here by negative currency effects of EUR 205 million. Core earnings per share from continuing operations declined to 81% (sic) [ EUR 0.81 ] primarily due to a steep drop in earnings at Crop Science. In the prior quarter year -- the prior year quarter, core earnings per share had come in EUR 1.16. Free cash flow, in other words, total cash flow from business operations less capital expenditures, stood at EUR 1.2 billion in the third quarter of this year. Now let us take a look at the business performance of our division, starting with our agricultural business. Sales at Crop Science decreased by 11.6% in the third quarter on the currency and portfolio-adjusted basis to EUR 3.0 billion. Sales was down substantially in North America, in particular, where we saw higher product returns and a decrease in license revenues at Corn Seed & Traits due to lower-than-anticipated planted acreages. Also registered substantial declines at Herbicides against the strong prior year quarter. Sales were primarily down in North America, but also fell in Europe, Middle East, Africa. By contrast, the Herbicides business was up in the Asia Pacific region. Sales of Fungicides advanced in all regions, thanks to expanded volumes. In Latin America, we mainly benefited from the market switching to our Fox Xpro product in Brazil. EBITDA before special items at Crop Science fell from EUR 500 million in prior year period to minus EUR 34 million in the third quarter of 2020. This decrease is largely attributable to the decline in sales in North America and a negative currency effect of EUR 123 million. Earnings were also impacted by technical effects and shifts between reporting periods. Let us now move on to our Pharmaceuticals division. Sales at Pharmaceuticals declined in the third quarter by 1.8% to EUR 4.2 billion. As in the second quarter, the implementation of new tender procedures in China had a negative impact. We were able to partly offset this effect with strong volume growth. The signs of recovery from the global impact of COVID-19, which had already become apparent toward the end of the previous quarter, largely continued, and this is especially true in ophthalmology and women's health. We registered strong sales growth of 14% for our oral anticoagulant, Xarelto, largely the result of higher volumes in China, Germany and Russia. Sales of our ophthalmology drug, Eylea, continue to edge higher against the previous year, driven once again by the launch of Eylea prefilled syringes and strong demand in China. EBITDA before special items at Pharmaceuticals advanced by 0.9% in the third quarter to EUR 1.5 billion. Thanks to stringent cost management here, we were able to grow our earnings and margin at Pharmaceuticals despite the slight decline in sales and negative currency effects. Ladies and gentlemen, as you know, we are continuously working to strengthen the research pipeline at Pharmaceuticals. To support these efforts, we are advancing the next generation of innovation platforms with new mechanisms and are investing in in-licensing and bolt-on acquisitions. Werner Baumann has already mentioned our acquisitions, especially the purchase of AskBio. Alongside a strong technology platform and clinical pipeline, AskBio is already generating revenues of its own and will, therefore, contribute to Bayer's growth from the start. We're also making major progress in our own research activities. Just a few days ago, we presented positive data for finerenone from a Phase III trial involving patients with chronic kidney disease and type 2 diabetes. And shortly before that, we announced positive data from a clinical Phase III trial in oncology investigating copanlisib in combination with rituximab. All of this is promising news for the future of our Pharmaceuticals business. And that brings us now to our Consumer Health division. Sales of our self-care products rose by 6.2% in the third quarter to EUR 1.2 billion. After the expected reduction of trait inventories in the second quarter, the growth trend continued at Consumer Health with a substantial increase in sales. Here, the Nutritionals category, in particular, benefited from consumers placing a greater focus on prevention and their own health in general during the pandemic. Business in the Nutritionals category was up across all regions with growth of 21.4%. In North America, we registered double-digit percentage growth that was driven by continued strong demand, particularly for our One A Day vitamins. Here, we also benefited from product line extensions. Sales in the digestive health category increased by 14%. On the other hand, the allergy and cold category posted a decline in sales that was mainly due to increased protective and hygiene measures in response to COVID-19. EBITDA before special items advanced by 12.3% in the third quarter, primarily due to the substantial increase in sales and positive contributions from the efficiency program launched in late in 2018. So that brings me to the end of my remarks regarding our third quarter performance, and I will now move on to our outlook for the full year 2020. I think we're all aware of the fact that fiscal year 2020 has been a very challenging year in every respect. This is true for all countries and industries, and of course, it also affects our company. At the beginning of the year, we published our forecast for 2020 without taking into account the possible effects of COVID-19. Based on our business performance in the first 6 months, which included a very good first quarter, but also accounting for the many uncertainties and also the foreseeable headwinds, we adjusted our outlook for 2020 in the summer. And at the time, we said we were expecting business to normalize overall at Pharmaceuticals and Consumer Health. And regarding our agricultural business, we already said back in the summer that we expected a weaker second half of the year with substantial currency headwinds. As Werner mentioned at the start, overall, our business in the first 9 months of the year was level with the prior year period. And that is also what you will be able to see when looking at the sales and earnings figures on this slide. And against this backdrop, we can today confirm that our revised currency-adjusted group outlook for the full year 2020 is despite the challenging times and the economic crisis in which we find ourselves. And you can see from the following slide what this outlook is like and what we expect in detail. We still expect sales to come in at between EUR 43 billion and EUR 44 billion on a currency-adjusted basis. We aim to increase the EBITDA margin before special items to around 28% on a currency-adjusted basis. Based on the sales side, this would correspond to an EBITDA before special items of around EUR 12.1 billion. Regarding core earnings per share, we expect a currency-adjusted increase to between EUR 6.70 and EUR 6.90. Currency headwinds are again anticipated in the fourth quarter. Our company generates around 80% of its net sales in currencies other than the euro. Therefore, our business is particularly exposed to the significant currency fluctuations as we have observed as a result of the pandemic. And I shall now hand back to Werner.

[Werner Baumann]

[Interpreted] Thank you, Wolfgang. Ladies and gentlemen, we are currently experiencing an unparalleled global crisis that is placing a great strain on us all and leading to far-reaching changes on a personal, social, cultural and economic level. Yet here as well, it's clear that every crisis serves as an opportunity, and that's also true for Bayer. The importance of our business areas, health care and nutrition, has never been clearer than it is today. The pandemic has shown us just how important our health is, not just for each of us individually, but also for society at large, for our modern economy and our prosperity. Rising health care costs have often dominated discussion in the past. But now we have the opportunity to view health care as an investment in quality of life and prosperity. At the same time, the pandemic is once again shining a spotlight on global nutrition. That's because the crisis is most severely impacting the poorest among us and thus threatens to exacerbate world hunger. The global nutrition report warrants that the COVID-19 pandemic could push up to 130 million more people into chronic hunger by the end of 2020. And this year's Nobel Peace Prize being awarded to the World Food Programme of the United Nations also underscores just how big and indeed pressing the challenges in this area are. Against this backdrop, we remain firmly convinced that we are operating in the right field of business for in no other area is the huge need for new solutions, balanced so promisingly with advances in research, than in these fields. And this, too, is underscored by the 2020 Nobel Peace -- the Nobel Prize, in this case, for chemistry. As you know, it was awarded to the inventors of the genome editing method CRISPR/Cas9, Emmanuelle Charpentier and Jennifer Doudna. In doing so, The Royal Swedish Academy of Sciences honored a branch of research that opens up tremendous opportunities in both medicine and plant breeding, and thus serves as an example of the enormous innovation potential of the life sciences. Indeed, 8 of the last 10 Nobel Prizes in Chemistry have been awarded to researchers who have made discoveries in the world of genes and proteins. It's a world that experts refer to as the Bio Revolution and -- in which the boundaries between biology and artificial intelligence are becoming increasingly blurred. Bayer is better positioned than almost any other company to harness the long-term innovation potential of the Bio Revolution in health and agriculture, and thus make a key contribution to solving some of the most pressing questions facing humanity: How can we feed up to 10 billion people by 2050 in a world impacted by climate change, and how can we ensure quality of life for a growing number of elderly people? Finding answers to these questions, that's what underpins our outstanding long-term growth prospects. That leads me to the end of my presentation. Thank you for your attention. And now we welcome any questions you might have.

[Michael Preuss]

[Interpreted] thank you very much, Werner Baumann. Thank you very much Wolfgang Nickl. Ladies and gentlemen, you can now ask your questions as Ms. Ent will explain.

[Operator]

[Interpreted] [Operator Instructions] And the first question is from [ Hendrik Jan Beck ], from Der Tagesspiegel.

[Unknown Attendee]

[Interpreted] I have a question regarding the Roundup litigations. Mr. Baumann, you said that you had reached a settlement for about 88,000 plaintiffs. There are a number of other litigations ongoing. How many cases are still open and ongoing? And the second question here would be what solution are you trying to find for future settlements and try and find legal security here? That was a particular bone of contention there.

[Werner Baumann]

[Interpreted] Thank you very much, [ Jan Beck ] for your question. Regarding the first question, for these 88,500 suits, we have actually reached a settlement now for -- furthermore, we have further plaintiffs with whom we are currently in discussions. On the 24th of June, we had 120,000 cases that we mentioned. And we don't have any updated figure here because, of course, the number of suits and cases have to be verified as to whether they are actually valid. So that is the reference that I can tell you at the moment. Regarding your second question, we had already announced at the beginning of September that we were speaking to the representatives of future affected persons with this memorandum of understanding as it's called. And this memorandum of understanding addresses the concerns that Judge Chhabria had that he announced on the 6th of July, and we are currently trying to enshrine this memorandum of understanding as a contract. And in the coming weeks, we shall be filing this with Judge Chhabria for preliminary approval.

[Operator]

[Interpreted] The next question is from Jonas Jansen from FAZ newspaper.

[Jonas Jansen]

[Interpreted] In your ad hoc announcement, you referred to negative effects. I suspect that these effects are now more severe. I suspect also the glyphosates negative effect will be more severe as well. So I'd like to know how you see the future. But also the Monsanto acquisition from today's perspective, was that a good idea?

[Werner Baumann]

[Interpreted] Thank you very much for your question. We did state a framework within which we would be in -- with our adjustments, and that was referring to the deadline of the 30th of September. And we are still within that range that we had communicated. And as you mentioned, we're still actually in the upper area of that framework. Glyphosate is a little more expensive. We already specifically stated here that this is within the implementation of the memorandum of understanding referring to adjustments that we have introduced to taking into account the consent of Judge Chhabria. And we're talking about $750 million, and this is exclusively regarding the future. And I hope that, that has answered your question.

[Operator]

[Interpreted] And then next question from Reuters.

[Unknown Attendee]

[Interpreted] Could you indicate what has changed in the future? And then second question with regard to the amortization to the write-offs, I would like to have more details about those, please? Then can you tell us a time frame within which the existing cases will be taken care of?

[Werner Baumann]

[Interpreted] I'll begin with the first and then with the last question. And then with regard to the breakdown between Monsanto and Bayer, well, Mr. Nickl will answer that. The details on the negotiations regarding the memorandum of understanding and how it will be implemented are, of course, confidential. So that means with the exception of what's been communicated so far, I can't tell you any more details. And I would request that you understand this, please. I can just say that the framework for the negotiations, other negotiations that we're in, do take account the concerns of the judge to his satisfaction, at least that is our opinion. And that we'll also take into account of anyone who might fall ill in the future. And then with regards to the time frame for handling the existing cases, I can just say that we're in active negotiations now and that this is a process that we don't have completely in our own control, of course. That means we have to wait to see what the results of negotiations are within the framework that we've set. But we're confident. And you see that if you look at the numbers that we've received so far. And so we're confident that in the next few months, we're going to see further substantial improvement.

[Wolfgang U. Nickl, CFO & Member of Management Board]

[Interpreted] Yes. Let me answer the question about depreciation write-offs. Well, it's about EUR 9.3 billion. And it's hard to say exactly what is Monsanto, what is Bayer. We have one Crop Science business. But let me just give you 2 details. We're talking about EUR 7 billion of intangible assets in cash-generating units. And there is corn and soybeans and vegetables and Roundup, and there's about EUR 2 billion for goodwill. And let me add one more thing about the depreciation and why we're at the upper end of the quarter, and Werner also already mentioned this, this is connected to the situation at the end of the quarter. And let me add here that this depreciation is based on 2 different things. First of all, growth. Growth expectations are now lower because last year, we saw no growth, very little growth this year. But also, it's expressly a result of currency and interest effects. I can give you an order of magnitude for the whole amount of depreciation. I can say that 2/3 of that is a result of discount factors, weighted cost of capital; and 1/3 is from growth. So this gives you a little bit of a background as to why we had a range and now why we're at the top end of that range.

[Operator]

[Interpreted] Next question is from Annette Becker, Börsen-Zeitung.

[Annette Becker]

[Interpreted] I have 2 questions. First of all, it's about your outlook. There you talked about the currency-adjusted result and then the one without that. And I'm talking about the adjusted one, which is the basis for your dividend policy to 30% to 40%. Well, that refers to which one, the one including currency adjustments or without currency adjustments? And then I'd like to know about your savings program that you announced at the end of September. By when do you expect to be able to tell us more details, in particular, with regards to the costs? And during the current fiscal year, will they be included in your numbers, in your balance sheet?

[Wolfgang U. Nickl, CFO & Member of Management Board]

[Interpreted] Ms. Becker, my name -- I'm Wolfgang Nickl. With regard to your first question, well, our dividend policy is 30% to 40% of core EPS, including currencies. So that refers to the EUR 6.30 to EUR 6.50. And we said that quite probably we'll be at the lower end during this time period. Then savings program, EUR 1.5 billion plus, we haven't specified that yet. This is, of course, being detailed right now in the different divisions and in different areas, of course, including the negotiations with labor representatives around the world. And very clearly, what's important is to continue to assure that Bayer is secured for the future, Bayer 2025, and this rules out redundancies or -- redundancies up until then. And seeing details right now, and the details will be available, I think, at the beginning of next year. And then we have our Capital Market Day, which will be at the end of February, probably early March. And by then we'll -- we hopefully will be able to tell you more details. Then measures with regard to savings in terms of overheads and manpower cost, well, it's hard to talk about one-off costs here. But just as a general indication, I can tell you that we have a factor of 1.7 that we mentioned in 2018 for this program. And if you're not familiar with the measures, well, you really can't make any provisions yet. So at the end of this year, I don't think we should look forward to any provisions by then.

[Operator]

[Interpreted] Next question, [ Patrick Klevitz ] from Reuters.

[Unknown Attendee]

[Interpreted] Yes. I would like to ask about the revised concept regarding the litigation and why you have that. I understand that you won't be able to give us any details, but perhaps you can give us some general information. You could maybe tell us what the revised strategy will apply to. Maybe you will have more clarification for next year as well. And maybe you can also tell us what the overall loss might be.

[Werner Baumann]

[Interpreted] If I can just respond to your first question before I pass on to Wolfgang Nickl to tell you something about the overall. Yes, I think the figures can be found in our guidance. And it's clear that every -- beyond the concept, which is currently being negotiated and the fact that we have this memorandum of understanding that has been signed by both sides, I can only reiterate what I said. I can't give you any further details here. The negotiations are confidential. We are within a closed memorandum of understanding, and details are currently being negotiated and put into writing. I can't tell you anything more about that. The second point regarding the nonstrategic operations, we've already said that we will look at our portfolio and our nonstrategic operations. We see this outside of the portfolio. This is always an ongoing process. We're going to intensify that somewhat. For example, in this quarter, we are selling smaller brands that don't fit in with the overall portfolio. For example, in Consumer Health, we are now looking at somewhat larger divisions and business units which are not necessarily a core part of our strategy. What they will be in detail, I cannot tell you at the moment. We are currently discussing these and analyzing these at management level. And when we can tell you, well, there will be a Supervisory Board announcement after the agreement. But regarding any redundancies or job cuts, it is to be expected that there will be redundancies. But where they will be made and when, I can't tell you beyond the already known programs. I can't tell you any more details here as of Wolfgang Nickl has already said. But -- and as Wolfgang said, this is probably not expected before the end of the year.

[Wolfgang U. Nickl, CFO & Member of Management Board]

[Interpreted] Well, I would just like to say something about the guidance for 2020. I would like to reiterate as well that the core EPS will -- after currency effects, which have been significant, will be around EUR 6.30 to EUR 6.50. And just by way of comparison, last year, we were talking about EUR 6.38. So I don't think we need to hide behind the situation. Then we, of course, have a number of special items. And we've already spoken about the impairment, EUR 9.3 billion. We also, at the beginning of the year, spoke about further effects from restructuring measures, which is somewhat over EUR 1 billion. That's also known. And then if we look at all of the various lawsuits -- dicamba, glyphosate, Essure and so on and so forth, we're talking around EUR 13 billion. And that is all offset somewhat by gains from sales of the Animal Health business. And that is an estimated EUR 5.2 billion. But it has to be noted here that, that will, of course, be corrected I think around 120 days after conclusion. That will be in November at some stage. But these are the basic parameters that you can be aware of here.

[Operator]

[Interpreted] The next question, [ BPA ].

[Unknown Attendee]

[Interpreted] Where are we after -- following the announcements that you made about your divisions in 2018, 12,000 jobs were to be cut. How many jobs have been cut? And when will that process be concluded?

[Wolfgang U. Nickl, CFO & Member of Management Board]

[Interpreted] Thank you very much for your question, Wolfgang Nickl here. We are making good progress here in a number of divisions. Overall, we were talking about EUR 2.6 billion of savings and sales synergies that we announced at the time. And we achieved over 30% this year. We originally wanted to achieve 40% and 60% next year, and then be finished completely in 2022. We are doing better than we'd originally planned. This year we'll be going more towards 60%. We have accelerated things here. And one-off costs are very much within plan, 1.7 is the factor there. And as you already mentioned as well, up to 12,000 positions. I don't know the exact figure. I think, last year, we were around 104,000 people working for us. And at the moment, we have around 101,000, so 3,000 to 3,500 people who have been made redundant.

[Unknown Attendee]

[Interpreted] And so of the 12,000, how many have already been cut? Because in 2018, you already began with this process, did you not?

[Wolfgang U. Nickl, CFO & Member of Management Board]

[Interpreted] Well, I would have to check those figures. I don't have the figures here. I just know that this year, we're talking about 3,500 people.

[Unknown Attendee]

[Interpreted] And the 60% that you said this is the savings and the synergies that you're talking about? That 60% that you will have achieved by the end of the year, is that what you're referring to?

[Wolfgang U. Nickl, CFO & Member of Management Board]

[Interpreted] Yes, that is correct.

[Operator]

[Interpreted] The next question on Antje Höning, Rheinische Post.

[Antje Höning]

[Interpreted] I've got 3 questions. I'd like to hear about the job cuts, too. If you look at the math, you're talking about cutting 7,000 jobs. 2.6 billion, that's 12,000. And now with this figure, it's 7,000. Is that the right numbers that I'm looking at? And then I'd like to hear something about the dividend. The stockholders have to prepare for a decline. How much of a decline will that be? And you didn't give us an answer to what the other colleague asked, about the Monsanto purchase mistake. That was the question from the FAZ colleague.

[Werner Baumann]

[Interpreted] Well, with regard to the size of the workforce reduction, I can't tell you anything right now about that. Wolfgang Nickl already said that we are in the planning process right now. We're also in the process of identifying the measures and detailing these measures. There will be cuts in overheads. And we'll cut them as much as we can, of course. And this will, of course, be manpower costs, too. But I can't tell you right now how much that will account for. Even if I wanted to, I couldn't say that. And that will be communicated next year. Then with regard to the dividend, Wolfgang Nickl already really said it all. We are, within the quarter, of 30% to 40% of the core earnings per share. With regards to the dividend to be proposed by management, well, this has to be discussed by the Board of Management and Supervisory Board. And therefore, at the current point in time, I can't tell you anything about that. In addition to that, well, we talked about our agricultural business. And in my preliminary remarks, I said quite about that, I believe, as to why we're quite confident for that business. We've always been confident about it. That hasn't changed. And I can say specifically that this won't change due to the current crisis. I'd like to point out once again what Wolfgang Nickl mentioned. 2/3 of the value adjustment or impairments we're seeing are driven by currency and interest specs, and 1/3 is due to growth changes. Now here, we've got to see that if you compare this to the market growth that we originally looked at -- and we can't decouple from that, in 2019 and 2020 and '21 where I looked, there will be a clearly weaker environment. And this means that due to the relevance of the earlier years, this will have a major impact on the valuation. But regardless of that, we believe that this business over the long term is very, very well positioned with the leading positions that we have here. And in addition to that, there will be long-term growth in the market. This hasn't changed either. And I think we have to distinguish things here. The current situation is one thing. And that's the situation at this point in time, and you've got to look at that. And then on the other hand, the strategic prospects for our business.

[Antje Höning]

[Interpreted] And one more question. In view of the dramatic decline in the stock price, EUR 40, do you feel that Bayer might become a candidate for a takeover?

[Werner Baumann]

[Interpreted] Well, we're doing good business. We've got a lot of value in the company. The stock price is not something that we establish. Our job is to manage the company as best as possible. And then we think that the value that we believe the company has will, at some point in time, be reflected in the stock price.

[Operator]

[Interpreted] The next question please, you have the floor.

[Unknown Attendee]

[Interpreted] Regarding your agricultural business and the correction, you had cash for several products and this is all connected with the correction. Can you tell us if this has a direct correlation with the litigations in the U.S.A. because at the end of the day, the Monsanto image is rather damaged and that could also have negative effect on the demand for the product. So can you tell us in simple terms whether the litigations have any connection with the changes here? And Monsanto, you've said that you're absolutely convinced that the purchase and acquisition was a good idea. Could you at least admit that you paid too high a price in hindsight?

[Werner Baumann]

[Interpreted] Thank you for your question. Let me go back to the year 2016, but just very briefly. The price that we paid in 2016 was a result of competition and bids at the time, and we had to look at the stock levels of Monsanto. And the price that we paid, we weren't actually that far away from what Monsanto itself had in its market capitalization that it would have been rated around 1.5 years before. So I don't think there's anything else I can say about this. We always have to look at the particular time in that context and then look at the activities that resulted there from. For the second question, I would like to pass on to Wolfgang Nickl.

[Wolfgang U. Nickl, CFO & Member of Management Board]

[Interpreted] Well, I would say, no. Of course, it's very difficult now to say what the long-term volume effects were. Perhaps one customer didn't make purchases due to the litigations. But I can say that even in the consumer sector with Roundup in the U.S.A., we don't have any considerable significant effects in the figures there, so that's why I would say generally no.

[Operator]

[Interpreted] The next question, Ruth Bender, Wall Street Journal.

[Ruth Bender]

[Interpreted] Yes. I just wanted to refer to the glyphosate litigations and also the California court rejected your appeal. How will you progress here? What does this mean for your long-term strategy to generate success and also try and achieve a positive ruling for yourselves?

[Werner Baumann]

[Interpreted] Yes, Ms. Bender. I suspect that you're referring to the Johnson proceedings. And of course, regarding the appeal, we are disappointed. And we're currently looking at the next steps regarding the appeal at the U.S. Supreme Court, and we're preparing all of this accordingly. And the most important case for us is, of course, the Hardeman case for many reasons, because the proceedings is somewhat quicker, the potential proceedings at U.S. Supreme Court.

[Operator]

[Interpreted] The next question is from [ Jan Danisman of Bild ].

[Unknown Attendee]

[Interpreted] I have a question which refers to the guidance. Today is a very important day, we have the U.S. elections and new politicians. And so we can see what kind of donations have been made. And we have the political action campaign. And we see that they have also been involved with the Republican candidate. But from the employees from Bayer, there's been more money going to Biden. And Mr. Baumann, in 2016 as Trump had just been elected. Well, would you be happy to see Trump reelected because you already have a connection? Or are you more on the side of your U.S. employees who are more supportive of Biden? What is your position here as Bayer?

[Werner Baumann]

[Interpreted] Thank you very much for your questions. Regarding the Political Action Committee, this is a committee which is exclusively made up of employees who make their own decisions. That doesn't have anything to do with the company even if the committee is called BAYERPAC. And just to make this clear, we are not talking about presidency candidates being supported here. Regarding the outcome of the elections, we're very anxious to see what will happen in the next few weeks, also regarding the effects on our business. And we hope that we will be able to work with either administration on a good basis.

[Operator]

[Interpreted] Next question is from [ Renè Bush ] APM Health Europe.

[Unknown Attendee]

[Interpreted] You mentioned that the acquisition has been agreed on. And can you tell us about the acquisition for AskBio? You can talk more about the pipeline effect and also about the late-stage pipeline of AskBio in Pharmaceuticals.

[Werner Baumann]

[Interpreted] Thank you for the questions, [ Ms. Bush ]. First of all, well, we do have some products in the late-stage pipeline that were there in the last 18 to 24 months that have come out of that pipeline. And it's always good to have products in this late pipeline better than license, for instance, in oncology, Vitrakvi and [ VKA ]. And despite the very difficult situation with licensing for our new product in the pandemic, we are still very hopeful here. We think this is very promising. And we believe that the revenues and growth rates will be above our expectations. And in this situation, in particular, well, our plans call for normal business activities. And despite the pandemic, we see much more momentum here. And this is one of the biggest product in terms of its potential that we've got. Wolfgang Nickl already talked about the positive study results and the pipeline for copanlisib and finerenone. And that is another one of the biggest pipeline products in terms of potential revenues. He pointed these out. And of course, we did -- we've done a few other things too, which help us out in our medium- to long-term prospects. Just be -- of course, beyond the short-term projects, that makes us optimistic for our Pharmaceuticals business. First of all, with KaNDy pharmaceuticals, we've got an acquisition of late pipeline products in women's health. And this is the area where we are leading around the world with a new effective mechanism for treatment of menopause. It's a very attractive product that next year will go into Phase III of clinical testing, clinical development. In addition to that, we've got big hopes with regard to further progress with Neuro. And we're working here in the field of cell therapy, and this is successful. And the preclinical studies that have better success indicate this. And this, we believe, might give us an opportunity for the first possible curative treatment. That is curative treatment of Parkinson's disease. Now these, of course, are all high-risk projects, but you see what the potential there is and also the commitment of our organization. You see that we're very serious about "Health for all and hunger for none".And then last but not least, with regard to AskBio, that's a very interesting company because they really have a lot in that company. And therefore, I'd like to expressly thank you for that question. First of all, they have many, many patents there, big repository of patents that we're acquiring with the acquisition there. And they have a team in the field of AAV vectors that is doing -- has done pioneering work for more than 20 years. And this expertise is now coming into our company. And this expertise can be used in different divisions. It's like with biotechnology 25 years ago with the cell and gene therapy treatments that are currently being developed in many different companies, there are current -- there are chronic bottlenecks that we can already anticipate here in production. And AskBio is bringing to us a production platform in clinical right now, and it's being built up right now and will probably be available in 2022. And it will add production capacities for us that will give us growth and earnings and very attractive margins in addition to the further buildup of our experience in production of these therapies. Furthermore, we already have a clinical portfolio of clinical candidates, development candidates in Phase I for [indiscernible] disease and heart disease and also for Parkinson again. And in the next few years, as I already said, you have the R&D machine at AskBio. And each and every year, every year, you have further development candidates coming out of that pipe, and they will significantly complement to our long-term pipeline.

[Unknown Attendee]

[Interpreted] But over the short term, you don't think there are any more candidates that could be marketed to?

[Werner Baumann]

[Interpreted] No, in the short term, well, those profit contributions will come from licensing. And AskBio will already provide us positive EBITDA contribution next year. And over the medium term, then there will be the other effects seen from our own pipeline, too, that we will be able to take advantage of. And then, of course, from contract production, as I already mentioned.

[Operator]

Next question is in English. [indiscernible] [ AFP ].

[Unknown Attendee]

There's been a lot of concentration in the press about Roundup. I want to ask about Essure, which has affected 40,000 women. You say in your report that you are in resolution discussions with counsel for the remaining plaintiffs. Can I get an update on that? What exactly does that mean? And my second question, in this 26-page report, unless my control F function doesn't work, you mentioned -- you never mentioned Brexit. Can I get a number or figure of what the impairment would be that you'd have to put into your yearly statement or next year's earnings if there is a no-deal cliff-edge Brexit?

[Werner Baumann]

Okay. Thank you for your question. Yes, we announced the assured settlement in late August. And we announced at the time that we pay around $1.6 billion to resolve roughly 90% of the 39,000 filed and unfiled claims. And on top of that, the consideration also includes an allowance for the cases that have not yet been filed. So it is essentially 100% amount here for the entire litigation. We also continue to make progress here. We will make or have already made first payments, and we are in advanced process of resolution. To your second question, first and foremost, it's important for us that we can serve patients also in a Brexit scenario. This whole situation has been kind of a hangover for the last few years. We were well prepared for an uncoordinated Brexit. We are still well prepared for an uncoordinated Brexit. And the most important thing here is that we continue to have working supply chains. That's what we ensured. Just to give you a perspective on the criticality thereof, the most difficult area for us, with your typical customs timelines and the like, is that we get our radiopharmaceutical products to patients very quickly because they are subject to very rapid decay. Also here, we have provided for solutions that allow us essentially an on-the-spot delivery to patients who are in dire need of these products because they are otherwise in very, very bad pain. These are prostate cancer patients. Last but not least, the regulatory framework that is to be expected after Brexit will evolve over time, yes? So there's going to be transitional arrangements that we do understand well and that have been studied in detail. So we don't expect and anticipate that we have major negative impacts that would lead to, let's say, asset write-downs. We'll see how the overall situation of the British economy is going to evolve. But that is something that is very much the same for all companies that do business in the U.K., and that's just about what I can say relative to the Brexit situation.

[Operator]

[Interpreted] And the last question is once again from the English telephone, [ Kevin Roland ].

[Unknown Attendee]

Yes. I got a few pharma questions. First of all, have you secured an accelerated assessment for finerenone from the EMA? And second is you talked about stringent cost management in Pharma, can you give me a few details specifically? I mean obviously with COVID sort of the spend or capital spend have disappeared. Can you give us some more details? Also third one is with Europe going back into lockdown, is this going to slow down the recovery of Eylea? And also, how have you been dealing with the competition of Beovu? And finally, could you just give me some comments on the settlement for Xarelto with Unichem, which I think it was last month? And also, what's the patent situation for Xarelto in Europe?

[Werner Baumann]

So I'm sorry. So first of all, let me start with the pandemic situation. We've seen a significant impact of the lockdown, in particular, in elective treatments with Eylea being one of them. Eylea was heavily hit in quarter 2. It saw a complete recovery into positive territory with a plus 2% growth in quarter 3. And it remains to be seen how severe the measures are going to be that governments have implemented and will continue to implement. Of course, people have, by now, learned to live with the pandemic. They protect themselves better. But I cannot give you, let's say, any perspective because we lack the basis to give you a specific perspective. I would hope that the impact on the elective treatments would be lower than the first time around because, again, people have actually learned to live better with the situation. When it comes to the patent situation of Xarelto, we have the first patents that will expire actually in China by the end of this year. Now patent protection in China is a different thing compared to other countries. It very much -- the Chinese market still very much operates in segments like branded generics market, which we have largely benefited from over the last decade plus, and we'll see more debt yields. The rest of the countries is mostly the 2023, 2024 time frame that we are exposed to patent expirations in Europe. In the U.S., the situation is a little bit different because we do have a once-daily patent that is valid until 2034. We have reached a number of agreements with [ under ] filers to provide them with earlier access, so we assume that the exclusivity period -- de facto exclusivity period might last a little bit longer than the patent protection, which including the pediatric extension would otherwise end in early 2025, yes? So that's just about all I can say relative to settlements and the patent situation with Xarelto. Your other question on finerenone, we have communicated and published good clinical data. I cannot go beyond in this call and would ask you that -- we'll come back to you on that question.

[Unknown Attendee]

And the cost basis?

[Werner Baumann]

Pardon?

[Wolfgang U. Nickl, CFO & Member of Management Board]

Yes, I can take that. Yes, we -- I mean we were working the cost on all fronts. As you can imagine, with the pandemic, there automatically came significant savings in travel and event costs. A good portion of that will be, by the way, sustainable because we were nicely invested in digital interaction with our health care professionals and that really paid off. Obviously, on all flexible spend like consulting, projects that are not mission-critical, we put the brakes on. And as the business is not coming out at the growth expectation that we originally predicted, we are obviously having some savings on the variable incentive programs as well. Let me finish by saying that we did not cut any cost on investments in future research, future development. So that's also clear.

[Werner Baumann]

I do have a quick update on finerenone. So the FIDELIO data, we'll discuss in an upcoming congress, most likely the ASN 2020 in the next time to come, still this year. And then we are discussing our data with relevant health authorities for the submission of our marketing authorization.

[Michael Preuss]

Good [Interpreted] Thank you very much. Thank you very much, ladies and gentlemen, for your interest, for your attention and your questions and for the fruitful discussion. We wish you a very good day. And, of course, most important, stay healthy. Thank you very much.