Address by Werner Baumann and Wolfgang Nickl

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Werner Baumann:

I would also like to welcome you to today’s conference call on the third quarter of 2022. Let me start by summarizing the key developments in the third quarter together with Wolfgang Nickl. 

We maintained our strong business performance across all three divisions in the third quarter. Despite rising inflation and the global supply chain problems, we were again able to boost sales and earnings. And we are right on track to achieve the full-year financial targets that we raised in August.

Crop Science in particular continued its growth trajectory. This was primarily due to higher prices for herbicides and a successful start to the new season in Latin America.

Sales were also up against the prior-year quarter at Pharmaceuticals and Consumer Health. At Pharmaceuticals, we continued to grow sales of our ophthalmology drug Eylea™. We were also especially pleased to see our new cancer drug Nubeqa™ contributing considerably to sales growth.

In the non-prescription medicines business, the Allergy & Cold category was particularly successful. Our Dermatology business also registered significant gains.

In addition, we made further progress with our innovation activities in all areas. At Crop Science, we recently concluded the multiyear partnership with Ginkgo Bioworks that we had announced in April. The aim of this partnership is to accelerate the research and development of biological products for agriculture. As you may or may not know, we are already the market leader in the area of biological crop protection products.

At Consumer Health, we have successfully launched our non-steroidal antihistamine nasal spray Astepro™ on the over-the-counter market in the United States.

We also achieved good progress with innovations at Pharmaceuticals. For example, we initiated our Phase III clinical program investigating the use of the active ingredient asundexian in the prevention of strokes. This is one of our largest Phase III projects to date, and it is expected to start before the end of this year.

There was also good news regarding our development candidate aflibercept 8 mg, which was compared with Eylea™ containing 2 mg of aflibercept in two pivotal studies. These trials showed that the dosing interval was able to be extended to 16 weeks in two different indications with aflibercept 8 mg, compared with eight weeks for Eylea™, while maintaining a consistent safety profile.

Regarding our products in early development, we received clearance in August to begin a clinical trial in France. The trial is investigating a gene therapy for Huntington’s disease, a serious hereditary disease that affects the nerve cells in the brain and for which there are currently no approved treatments.

We also achieved key milestones for Nubeqa™ in the third quarter. In August, that product was approved in the United States for an additional indication in patients with a certain type of prostate cancer. We have additionally submitted applications for this indication extension in the EU, Japan and China.

We also made progress with our established products. In August, for example, we received US approval extending the duration of contraceptive use of our long-acting Mirena™ system to up to eight years. The corresponding approval procedure was successfully concluded in Europe as well, with the first national approvals expected in the fourth quarter of 2022. This means that Mirena™ now offers the longest duration of contraceptive use of all hormonal intrauterine systems.

We also continued to make strides in the field of sustainability. Our efforts in this area are being acknowledged, as evidenced by another improvement in an important rating: MSCI has upgraded our ESG rating from BB to A. This represents another key milestone in our efforts to strengthen our ESG profile. The improved rating was partly thanks to a reevaluation of the alleged environmental risk presented by genetically modified organisms as well as the additional disclosure of data in dialogue with investors and rating agencies.

We also achieved an important milestone in the optimization of our portfolio: in early October, we completed the sale of our Environmental Science Professional business to private equity firm Cinven. The base purchase price for the business amounted to the equivalent of 2.6 billion euros.

Now I’d like to hand over to Wolfgang, who will give you a more detailed explanation of the business data and present our outlook for the full year.

Wolfgang Nickl:

Thank you, Werner. I’d also like to wish you all a warm welcome.

Let me start with the figures for the Group as a whole before I move on to the business performance in our three divisions. Please note that all the sales growth figures I mention are adjusted for currency and portfolio effects unless I explicitly state otherwise.

I'd like to begin by briefly summarizing the key factors influencing sales and earnings. The growth in sales was mainly driven by higher prices for glyphosate. However, we already saw these prices decline in the third quarter compared with the first half of 2022, and we expect them to normalize further in the fourth quarter.

At the same time, all our divisions had to contend with substantial cost increases for input materials, energy, freight and warehousing. Personnel expenses also increased.

Another key factor was exchange rates, which had a positive impact on sales but a negative effect on earnings in the third quarter. The latter was attributable to seasonally lower sales coupled with a high cost base in the United States, as well as to the posting of adjustments in connection with the hyperinflationary economies of Argentina and Turkey.

Now let’s look at the numbers. Group sales in the third quarter increased by 5.7 percent to 11.3 billion euros. There was a positive currency effect of 940 million euros.

Our earnings KPI, clean EBITDA, increased by more than 17 percent to 2.5 billion euros. The clean EBITDA margin of the Bayer Group rose from 21.4 percent in the prior-year quarter to 21.7 percent this year.

Core earnings per share increased by 7.6 percent year on year to 1.13 euros, driven primarily by our good business performance.

Free cash flow declined by 11.1 percent year on year to 1.7 billion euros in the third quarter. This decrease was partly due to inflation-related cost increases within inventories.

This brings me to our divisions, starting with our agricultural business.

Crop Science registered strong growth in the third quarter, with sales rising by 8.4 percent to 4.7 billion euros. We achieved double-digit percentage gains in Latin America and Europe/Middle East/Africa, but saw sales fall significantly in North America – mainly due to higher seed returns.

Herbicides posted the strongest growth, with sales expanding by 45 percent – mainly due to a persistently positive market environment and the resulting higher prices.

Sales at Corn Seed & Traits decreased by 15.8 percent in the third quarter as a result of lower licensing revenues and higher returns due to lower acreages. However, sales in this unit are up overall in the year to date.

Sales at Soybean Seed & Traits were also down due to higher returns in North America, although business expanded in Latin America.

Clean EBITDA at Crop Science increased to 629 million euros in the third quarter of this year, up from 471 million euros in the prior-year period, primarily driven by our good business performance. The ongoing efficiency programs also had a positive impact. However, earnings were mainly diminished by inflation-driven cost increases.

That brings me to our Pharmaceuticals Division. Sales at Pharmaceuticals rose by 2.9 percent to nearly 5 billion euros in the third quarter. The division continued its successful launch of new products. Nubeqa™ and Kerendia™ in particular were important growth drivers at Pharmaceuticals, with sales of Nubeqa™ nearly doubling.

Our ophthalmology drug Eylea™ once again contributed to growth, with gains in all regions. Furthermore, we received milestone payments via our platforms for cell and gene therapy and for chemoproteomics.

As expected, sales of our anticoagulant Xarelto™ decreased notably, largely due to tender procedures in China as well as the expiration of our patent in Brazil.

Clean EBITDA at Pharmaceuticals rose significantly in the third quarter, advancing 15.2 percent to 1.6 billion euros. Earnings benefited from the growth in sales and from income from the sale of non-core businesses. These effects more than offset ongoing investments in marketing new products as well as research and development expenses.

Let’s now look at Consumer Health. Our business with over-the-counter products posted sales of more than 1.5 billion euros in the third quarter, representing a year-on-year increase of 4.4 percent.

The most significant gains were registered in the Allergy & Cold category, within which sales of cough and cold products rose by 19.2 percent, and sales of allergy products increased by 14.3 percent. This was attributable to elevated cold incidence rates and especially to the launch of Astepro™ in the United States. We also registered strong growth of 14.3 percent in the Dermatology category that was mainly driven by our new product Bepanthen™ Derma.

Sales in the Nutritionals category declined, but remained at a high level after the robust gains in the past two years.

Driven by the strong sales growth, clean EBITDA at Consumer Health advanced by 9.1 percent to 336 million euros. Earnings were mainly weighed down by investments associated with the launch of new products, especially Astepro™, and inflation-related increases in costs.

Now let’s move on to our outlook for full-year 2022, which we had upgraded in August. Following our strong third-quarter performance, we can now confirm this guidance – with only minor adjustments to our forecasts for free cash flow and net financial debt. We now predict that free cash flow will be somewhat higher on a currency-adjusted basis, at 3 billion euros, because the settlement payments for litigations will be lower than expected.

As such, we now anticipate that net financial debt at year end will be somewhat lower on a currency-adjusted basis, at around 31 billion euros. This takes into account higher cash flow and the sale of the Environmental Science Professional business.

Now it’s time for me to hand back to Werner.

Werner Baumann:

Thank you, Wolfgang.

As you can see, we remain very much on track to follow up the strong previous year with a very good performance in 2022 – all while navigating these difficult times. After all: we, too, are having to contend with the current unfavorable business environment. As we have already mentioned several times, costs have increased due to high inflation, and we expect that trend to continue in the coming year.

Energy supply risks are also on our radar. In Germany, we want to be independent of Russian gas by the end of this year. However, uncertainties remain.

As global supply chains remain very much under strain, procurement management and supply chain stability are our top priorities. We are therefore continuing to build up inventories to mitigate the impact of supply bottlenecks. And we are working closely with our suppliers and contract manufacturers to shore up supply chain stability.

However, I would like to take this opportunity to reiterate that the third quarter showed once again just how robust our businesses are and how well positioned we are with our clear portfolio focus on health and nutrition – especially in view of the current macroeconomic and geopolitical situation.

By leveraging our expertise in these areas, we can play a key part in overcoming some of the biggest challenges of our time. And to do that, we need innovation: to boost agricultural productivity and feed more and more people. To make business more sustainable and stop climate change. And to find better ways to treat and someday maybe even cure diseases like cancer, hemophilia or Parkinson’s.

These are the things we're working on. That’s why we are continuously expanding our research network – in part through our impact investment arm Leaps by Bayer. And that’s why we are investing continuously in research and development – over 5 billion euros each year.

This considerable sum reflects our confidence that we can truly make a difference with our expertise in science and research. And it is also the foundation of our future business success.

Thank you for your attention. We now look forward to taking your questions.

Forward-Looking Statements
This release may contain forward-looking statements based on current assumptions and forecasts made by Bayer management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in Bayer’s public reports which are available on the Bayer website at www.bayer.com. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.