Bayer Achieves Revised 2023 Financial Guidance and Outlines Strategic Plan Through 2026

Bayer Plans to Boost Performance and Restore Strategic Flexibility by 2026

Leverkusen and LondonMarch 5, 2024PR Newswire -- Bayer AG achieves adjusted financial targets for 2023. On Tuesday, Bayer CEO Bill Anderson spoke at the earnings press conference in London, summarizing the company’s current status and future outlook. Anderson stated: "Bayer is a purpose-driven life sciences company with a broad impact and three strong divisions, but we currently face four pressing challenges," namely, patent expirations and pipeline gaps in the pharmaceuticals division, litigation issues in the United States, high corporate debt, and bureaucratic layers hindering the company's progress.

Anderson stated that in the next 24 to 36 months, the company will focus on building a strong product pipeline for its prescription pharmaceuticals division, resolving litigation issues, reducing debt, and continuing to implement the new DSO operating model to improve performance. The DSO operating model helps reduce hierarchy, eliminate bureaucracy, streamline organizational structure, and significantly accelerate decision-making processes. Anderson explained that the company will be fully customer- and product-centric, with each division’s organizational structure being leaner and more efficient than competitors. He pointed out that starting from 2026, these measures will reduce organizational costs by 2 billion euros annually, with cost reduction being just one of the outcomes. Ultimately, the DSO operating model will drive business growth by better aligning with customers and accelerating innovation, such as strengthening the product pipeline of the prescription pharmaceuticals division. Additionally, the model will enable Bayer's Crop Science division to consolidate its leading position in agriculture through groundbreaking innovations and launch 10 blockbuster products into the market over the next decade. The consumer health division will also stand out in competition with its leading brands.

To reduce legal risks and related uncertainties, the company is restructuring its strategy and seeking new solutions both in and out of court. Bayer will also address debt issues with the aim of moving toward an A-rating through profitable growth and a planned revision of its dividend policy. As previously announced, Bayer has proposed to pay the statutory minimum dividend over the next three years.

Regarding the possibility of changes to the company structure and a potential breakup of the group, Anderson said, "Our answer to that is 'not now,' but it should not be misunderstood as 'never'." He added, "Of course, we remain open-minded." Given the limited room for maneuver at the company, "our top priority is to confront challenges, improve performance, and maintain strategic flexibility. We firmly believe this approach is in the best interest of Bayer."

2023: Sales and profits declined, meeting adjusted financial expectations

Looking ahead to the company's performance in 2023, Chief Financial Officer Wolfgang Nickl stated: "We have achieved our adjusted financial expectations across all key financial indicators." Bayer AG’s sales decreased by 1.2% (after adjustment for currency and portfolio effects) to EUR 47.637 billion. EBITDA before special items fell by 13.4% to EUR 11.706 billion. This amount includes a negative currency impact of EUR 375 million (2022: positive currency impact of EUR 429 million). Due to lower target achievement rates, short-term incentive plan expenditures across all divisions of the group declined, with an overall reduction of approximately EUR 1 billion. Additionally, long-term incentive plan expenditures were about EUR 400 million lower than the previous year. The EBITDA margin before special items was 24.6%, a decrease of 2.0 percentage points from the previous year. After deducting net special charges of EUR 6.977 billion (2022: EUR 2.245 billion), EBIT amounted to EUR 612 million (2022: EUR 7.012 billion). Special charges primarily stemmed from impairment losses, mainly related to the Crop Science Division. Net income was negative at EUR 2.941 billion (2022: positive EUR 4.15 billion). Core earnings per share decreased by 19.5% to EUR 6.39.

Free cash flow decreased by 57.9% to EUR 1.311 billion. Net financial debt as of December 31 increased by 8.5% compared to the end of 2022, reaching EUR 34.498 billion. The positive effects of cash inflows from operating activities and currency fluctuations were not sufficient to fully offset the outflows related to dividend payments and the settlement of litigation in the United States.

Crop Science Division's Sales and Profitability Decline Significantly Due to Lower Glyphosate Prices Compared to the Previous Year

Despite sales growth in Europe, the Middle East, Africa, and the Asia-Pacific region, Bayer's agricultural business (Crop Science Division) saw an overall sales decline of 3.7% (after adjustment for currency and portfolio effects), reaching €23.27 billion. The main reason for the decline was a significant drop in prices for glyphosate products due to competition from generic alternatives, resulting in a 26.0% decrease in herbicide sales (after adjustment for currency and portfolio effects). In an inflation-driven market environment, supported by price increases for innovative products and commodities, other parts of the portfolio showed an overall positive trend in pricing. The corn seeds and traits business experienced the strongest growth, with sales increasing by 13.8% (after adjustment for currency and portfolio effects), primarily driven by price increases. Fungicides also saw growth, rising by 8.8% (after adjustment for currency and portfolio effects), mainly due to price increases in Europe, the Middle East, and Africa, as well as higher sales volumes in Latin America and North America. Sales in the soybean seeds and traits business grew by 5.5% (after adjustment for currency and portfolio effects), primarily benefiting from increased licensing revenue in the Latin American region.

Crop Science Division's EBITDA margin before special items fell by 26.6% to EUR 5.038 billion, primarily due to a significant drop in glyphosate product prices. Meanwhile, profitability declined, mainly impacted by increased cost of goods sold driven by inflation. Currency fluctuations had a positive effect of EUR 103 million (EUR 284 million in 2022). The EBITDA margin before special items decreased by 5.6% to 21.7%.

Sales in the Prescription Medicines Division remained stable (after adjustment for currency and portfolio), but earnings declined.

Sales of prescription drugs (Prescription Drug Division) were flat year-on-year at 18.081 billion euros (a decrease of 0.4% after adjustment for exchange rates and portfolio changes). The division's newly launched products achieved significant growth, particularly the anticancer drug Nubeqa.^®The growth rate was 93.6% (after exchange rate and portfolio adjustments), for Kerendia used to treat chronic kidney disease associated with type 2 diabetes.^®The growth rate was 160.6% (after exchange rate and portfolio adjustments). In addition, the division's ophthalmic drug Eylea^®And imaging diagnostics business (including Ultravist^®, CT High-Pressure Injection System Product Line and Gadovist^®The sales of the product series) have also achieved continuous growth, among which Eylea^®The growth rate was 5.6% (after adjustment for exchange rates and portfolio changes). In contrast, the division's sales in China declined significantly, partly due to the pandemic-related developments at the beginning of the year and the impact on products such as Bayxin Tong.^®The impact of related bidding and procurement; globally, the sales of cardiovascular drugs decreased by 27.2% (after adjustment for exchange rates and portfolio changes). In addition, the anti-corruption campaign carried out in China's healthcare industry had some indirect effects on market demand in the second half of the year. As expected, under the dual pressures of generic drug competition and pricing, the oral anticoagulant drug Xarelto faced challenges.^®Sales also declined, with a decrease of 6.1% (after adjustment for exchange rates and portfolio changes).

Primarily due to unfavorable product mix, cost increases driven by inflation, and higher R&D investments in cell and gene therapies, chemical proteomics technologies, and late-stage clinical development projects, the EBITDA before special items for Bayer's Pharmaceuticals Division decreased by 11.6% to EUR 5.189 billion. In contrast, earnings benefited from lower marketing expenses and a slight revenue increase from non-core businesses. Currency effects had a negative impact of EUR 221 million (2022: currency effects had a positive impact of EUR 9 million). The EBITDA margin before special items declined by 1.8% to 28.7%.

The Health Consumer Products Division continues to maintain good performance.

Sales of self-care products (Consumer Health division) grew by 6.3% (after adjustment for currency and portfolio) compared to the highly competitive previous year, reaching 6.027 billion euros. Business grew in all regions except North America, where sales remained flat compared to the previous year. The division's dermatology category as well as the pain management and cardiovascular categories achieved double-digit growth. Sales in the dermatology category increased by 12.1%, partly driven by continued strong demand for Bepanthen™ and Canesten™. Meanwhile, sales in the pain management and cardiovascular categories grew by 11.5% (after adjustment for currency and portfolio). Despite a lower incidence of allergy season, sales in the allergy and cold category grew by 6.8% (after adjustment for currency and portfolio), mainly due to a high incidence of colds, particularly in Europe. Nutrition category business was flat compared to the previous year (a decline of 0.4% after adjustment for currency and portfolio).

EBITDA before special items of the Consumer Health division increased by 3.2% to EUR 1.411 billion, while the EBITDA margin before special items rose by 0.9% to 23.4%. The division's growth offset significant cost increases due to inflation, higher marketing investments for innovative products, and negative currency effects amounting to EUR 133 million (in 2022: positive currency effects amounted to EUR 85 million), thanks to years of continuous efficiency programs, successful price management, and sustained sales growth.

Outlook: Expected decrease in revenue, increase in free cash flow

After exchange rate adjustment (i.e., based on the monthly average exchange rate in 2023), Bayer expects its sales revenue to reach 47 to 49 billion euros in 2024. The company forecasts an EBITDA before special items of 10.7 to 11.3 billion euros (after exchange rate adjustment). The core earnings per share are projected to be 5.10 to 5.50 euros (after exchange rate adjustment), with a free cash flow of 2 to 3 billion euros (after exchange rate adjustment). By the end of 2024, its net financial debt is expected to reach 32.5 to 33.5 billion euros (after exchange rate adjustment).

For the business performance of each division (after currency and portfolio adjustments), Bayer anticipates sales growth for the Crop Science Division to range from negative 1% to positive 3%, sales growth for the Pharmaceuticals Division to range from negative 4% to 0%, and sales growth for the Consumer Health Division to range from 3% to 6%. Additionally, Bayer expects the currency-adjusted EBITDA margin before special items for the Crop Science Division, Pharmaceuticals Division, and Consumer Health Division to be 20%-22%, 26%-29%, and 23%-24%, respectively.

Bayer also made forecasts based on the closing exchange rates as of December 31, 2023, with the following differences from the above forecasts adjusted for exchange rates: at the group level, sales are expected to be between 46 billion and 48 billion euros, and core earnings per share are expected to be between 4.95 and 5.35 euros.

Making good progress in achieving the Sustainable Development Goals

Bayer Continued to Implement Its Sustainable Development Strategy in 2023. The company made further good progress toward achieving its 2030 sustainable development goals, including not only reducing its ecological footprint but also promoting self-care, ensuring widespread access to contraception, and supporting smallholder farmers in low- and middle-income countries. In March 2023, Bayer introduced a new "Water Strategy" at the United Nations Water Conference in New York, committing to addressing the global water crisis.

For more information, please visit:www.bayer.com。

Forward-Looking Statements

This press release includes forward-looking statements by the management of Bayer AG based on current assumptions and forecasts. Various known and unknown risks, uncertainties, and other factors could lead to significant differences between the company's actual future operational results, financial condition, development, or performance and the estimates provided in the aforementioned forward-looking statements. These factors are detailed on Bayer's official website.www.bayer.comThe various reports of Bayer disclosed. The Company has no obligation to update these forward-looking statements or to conform them to events or developments that may occur in the future.