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Outlook and Targets
Please read our caution about Forward-Looking Statements in the Conditions of Use when using this information.
(published on September 5, 2018 in the Interim Report Q2 2018)
Following the closing of the Monsanto acquisition on June 7, 2018, and taking into account the business development described in this report and the potential risks and opportunities, we have revised our expectations for fiscal 2018.
Our outlook now includes the sales and earnings contributions from Monsanto since the date of acquisition. As the transaction closed later than we had anticipated, 2018 earnings will be lower than we had projected in our February forecast including Monsanto due to the seasonality of the agricultural business. Our outlook takes into account the financing costs for the acquisition of Monsanto shares as well as the higher number of shares of Bayer AG following the capital increases on a pro rata temporis basis. The businesses divested to BASF are excluded as of their respective divestment dates.
The forecasts are based on the exchange rates as of June 30, 2018, and adjusted for currency effects4 to enhance the comparability of operating performance.
4 Using the average monthly exchange rates from 2017 (see table Bayer Group Consolidated Statements of Cash Flows)
We now expect Bayer Group sales of more than €39 billion (previously: below €35 billion), with more than €5 billion attributable to the acquired business. The divestment of selected businesses to BASF will reduce anticipated sales by approximately €1 billion. This forecast now corresponds to a mid-single-digit percentage increase (previously: low- to mid-single-digit percentage increase) on a currency- and portfolio-adjusted basis.
We now expect EBITDA before special items to increase by a low- to mid-single-digit percentage (previously: decline by a low-single-digit percentage). On a currency-adjusted basis, this corresponds to an increase by a high-single-digit percentage (previously: increase by a mid-single-digit percentage).
We now expect core earnings per share to come in at between €5.70 and €5.90 (previously: at the prior-year level). On a currency-adjusted basis, this corresponds to a decrease by a high-single-digit percentage (previously: increase by a mid-single-digit percentage). Prior-year core earnings per share were restated to €6.64 to reflect the bonus component of the capital increase with subscription rights, and this is taken into account here.
Forecast for Key Financial Data of the Group for 2018
|Closing rates on June 30, 2018||Currency-adjusted|
|Sales||More than €39 billion||Increase by a mid-single-digit percentage1|
|Development of EBITDA before special items||Increase by a low- to mid-single-digit percentage||Increase by a high-single-digit percentage|
|Development of core earnings per share||€5.70 – €5.90||Decrease by a high-single-digit percentage|
1 Adjusted for currency and portfolio effects
We aim to pay out a dividend for 2018 that is at least at the same level as in the prior year, which would represent an upward deviation from our existing dividend policy (30-40% of core earnings per share as a mathematical basis for calculating the dividend payout). Due to the late closing of the Monsanto acquisition, anticipated core earnings per share for the full year will only include a small contribution from the acquired business. However, we will be able to utilize substantial operating cash flows from the acquired business due to seasonal trends. Bayer is also able to benefit from earnings contributions in the form of expected proceeds from the divestments to BASF and income from the sale of Covestro shares that has already been recognized. Overall, net financial debt at the end of the year will therefore be significantly lower than originally anticipated. Taking into account the cash flows and in view of the successful performance the combined business is expected to deliver, we want to enable our shareholders to share in our company’s success by paying out an attractive dividend.
For Pharmaceuticals, we confirm our previous sales and earnings guidance.
For Consumer Health, we confirm our expectations for sales and currency-adjusted EBITDA before special items. As for EBITDA before special items, we now anticipate a decline by a mid-single-digit percentage (previously: decline by a low-single-digit percentage) as a result of currency effects.
For Crop Science, we now forecast sales of slightly more than €14 billion (previously: more than €9.5 billion). As previously outlined, this includes a positive sales effect of more than €5 billion from the acquired business as well as a negative effect of approximately €1 billion from the divestment of selected businesses to BASF. We continue to expect a mid-single-digit percentage increase on a currency- and portfolio-adjusted basis. As for EBITDA before special items, we anticipate an increase by a mid-twenties percentage (previously: mid- to high-single-digit percentage). On a currency-adjusted basis, we now anticipate an increase of around 30% (previously: mid-teens percentage increase).
For the Animal Health segment, the Reconciliation and Bayer AG, we confirm our sales and earnings guidance.
Forecast for Other Key Data of the Group for 2018
Based on the business development described in this report and taking into account the potential risks and opportunities, we confirm the currency-adjusted forecasts published in February for operating performance (see Annual Report 2017, Chapter “Corporate Outlook”). We continue to expect 2018 sales to increase by a low- to mid-single-digit percentage on a currency- and portfolio-adjusted basis. As before, we aim to increase EBITDA before special items and core earnings per share by a mid-single-digit percentage on a currency-adjusted basis.
Taking into account the exchange rates as at March 31, 2018, reported sales would decline in 2018 overall by a low-single-digit percentage (previously: remain at the prior-year level). In absolute terms, sales would now come in at below €35 billion (previously: around €35 billion). EBITDA before special items would decline by a low-single-digit percentage (previously: match the prior-year level). Core earnings per share would come in at the prior-year level, as previously forecast.
The following forecast is based on the current business development and our internal planning. The planned acquisition of Monsanto is not yet included in this forecast and is dealt with separately below.
Our forecast is based on the exchange rates as of December 31, 2017. To enhance the comparability of operating performance, the forecasts are also adjusted for currency effects1. A 1% appreciation (depreciation) of the euro against all other currencies would decrease (increase) sales on an annual basis by some €250 million and EBITDA before special items by about €70 million.
1 The average monthly exchange rates from 2017 (see Annual Report 2017, chapter “Basic Principles, Methods and Critical Accounting Estimates”) were applied.
For 2018, we expect sales of around €35 billion. This corresponds to a low-to mid-single-digit percentage increase on a currency- and portfolio-adjusted basis. EBITDA before special items is expected to match the prior-year level (currency-adjusted: increase by a mid-single-digit percentage). Core earnings per share from continuing operations are expected to come in at the prior-year level (currency-adjusted: increase by a mid-single-digit percentage).
Forecast for Key Financial Data of the Group for 2018
|Closing rates on Dec. 31, 2017||Currency-adjusted|
|Sales||Prior-year level||Increase by a low- to mid-single-digit percentage|
|Development of EBITDA before special items||Prior-year level||Increase by a mid-single-digit percentage|
|Development of core earnings per share||Prior-year level||Increase by a mid-single-digit percentage|
Sales and earnings forecast by segment
For Pharmaceuticals, we plan to generate sales of more than €16.5 billion, taking into account product supply constraints out of the Leverkusen Supply Center. 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. We expect EBITDA before special items to decline by a low-single-digit percentage (currency-adjusted: increase by a low-single-digit percentage), and anticipate a slight decline in the EBITDA margin before special items.
In the Consumer Health segment, we expect sales of more than €5.5 billion, which would be at the prior-year level on a currency- and portfolio adjusted basis. We expect EBITDA before special items to decline by a low-single-digit percentage (currency-adjusted: increase by a low-single-digit percentage).
For Crop Science, we see sales coming in at more than €9.5 billion. This corresponds to a mid-single-digit percentage increase on a currency- and portfolio-adjusted basis. We expect to increase EBITDA before special items by a mid- to high-single-digit percentage (currency-adjusted: mid-teens percentage increase).
In the Animal Health segment, we expect a currency- and portfolio-adjusted increase in sales by a low-single-digit percentage. We expect EBITDA before special items to decline by a mid-single-digit percentage (currency-adjusted: at the prior-year level). Both sales and EBITDA before special items are negatively impacted by revised financial reporting standards (IFRS 15).
Reconciliation: We expect sales of around €1.5 billion in 2018. We plan EBITDA before special items in the region of minus €0.2 billion.
Forecast for Other Key Data of the Group for 2018
|Closing rates on Dec. 31, 2017|
|Special charges1||around €0.4 billion|
|Research and development expenses||around €4.1 billion|
|Capital expenditures||around €2.2 billion|
of which for intangible assets
|around €0.6 billion|
|Depreciation and amortization||around €2.2 billion|
|of which on intangible assets||around €1.2 billion|
|Financial result||around minus €1 billion|
|Effective tax rate||20.0%|
|Net financial debt2||Net liquidity position|
1 Mainly comprising costs in connection with the planned acquisition of Monsanto until closing, restructuring measures and efficiency improvement programs
2 Excluding capital and portfolio measures
Outlook including Monsanto
Through the expected acquisition in the second quarter of 2018, we anticipate a significant increase in sales and EBITDA before special items. Based on current assumptions about the equity and financing measures to be undertaken, we expect a moderate decline in core earnings per share. 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.
Outlook for Bayer AG
For Bayer AG we expect sales of approximately €15 billion and EBIT in the region of minus €1.5 billion. Bayer AG comprises both its own operational business and that assumed from Bayer Pharma AG and Bayer CropScience AG through business leases. In addition, the earnings of most major Bayer subsidiaries in Germany are transferred directly to Bayer AG under profit and loss transfer agreements. Also, specific intra-company dividend measures ensure the availability of sufficient distributable income. On account of the interdependencies between Bayer AG and its subsidiaries, the outlook for the Bayer Group thus largely also reflects the expectations for Bayer AG. In the coming year, based on these factors, we expect Bayer AG to report a distributable profit that will again enable our stockholders to adequately participate in the Bayer Group’s earnings.