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Edited Transcript of BAYN.DE earnings conference call or presentation 30-Oct-19 9:00am GMT

Q3 2019 Bayer AG Earnings Press Conference

Leverkusen Nov 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Bayer AG earnings conference call or presentation Wednesday, October 30, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Michael Preuss

Bayer Aktiengesellschaft - Head of Communications, Government Relations and Corporate Brand

* Werner Baumann

Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO

* Wolfgang U. Nickl

Bayer Aktiengesellschaft - CFO & Member of Management Board

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Conference Call Participants

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* Antje Höning;Rheinische Post

* Hendrik Geisler;Kölner Stadt-Anzeiger

* Jonas Jansen;Frankfurter Allgemeine Zeitung

* Patricia Weiss;Reuters

* Ruth Bender;Wall Street Journal

* Tim Loh;Bloomberg

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Presentation

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Operator [1]

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Welcome to today's conference call of Bayer AG. (Operator Instructions) The conference call is being recorded. (Operator Instructions)

I'll now hand the floor to Dr. Baumann, who is the CEO of Bayer AG.

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Michael Preuss, Bayer Aktiengesellschaft - Head of Communications, Government Relations and Corporate Brand [2]

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Ladies and gentlemen, a warm welcome from me as well to our conference call on the third quarter 2019, and thank you very much for turning out this morning.

Here we have the CEO, Werner Baumann. And we also have Wolfgang Nickl, the CFO. And as usual, Mr. Baumann will tell you about our performance in the previous quarter. And afterwards, we'll have a Q&A session.

Before we begin, I would like to point out the safe harbor agreement and also about the presentation. And please pay attention to these in connection with the following statements.

I'll now hand over to Mr. Baumann.

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Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [3]

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Thank you very much, Michael, ladies and gentlemen, and a warm welcome from me as well to our conference call on the third quarter of 2019.

We already published our news release and the quarterly statement early this morning, I'd like to explain the most important developments, and then I'll answer your questions together with Wolfgang Nickl.

Let me start by saying that Bayer had a successful third quarter. We increased the group's sales and EBITDA before special items. Businesses developed well in all divisions. Crop Science achieved sales growth and considerably higher earnings. Pharmaceuticals increased sales while its EBITDA before special items declined on account of onetime income in the prior year quarter. Consumer Health posted growth in sale after adjusting for currency and portfolio effects and also raised earnings. We can confirm our financial targets for 2019. More about that later.

At the same time, we have made major progress from a strategic viewpoint, especially with the efficiency, structural and portfolio measures that we announced at the end of 2018. I'll be speaking about these separately in a moment and also about the current status of the litigation in the United States relating to glyphosate.

First, I'd like to comment on our figures in detail. As I do so, please note that Animal Health and Currenta are reported as discontinued operations now that the sales agreements have been signed. The prior period figures have been restated accordingly. And please also remember that when I speak about changes in sales, I always mean the currency- and portfolio-adjusted figures, and I'll be able to answer questions about this as well.

So as I said, when I speak about sales, I always mean currency- and portfolio-adjusted figures.

Group sales in the third quarter of 2019 rose by 5.4% from the prior year period to EUR 9.8 billion. EBITDA before special items increased by 7.5% to EUR 2.3 billion. We recorded positive currency effects of EUR 77 million. EBIT fell from EUR 4.3 billion in the same quarter last year to EUR 1.2 billion because the prior year period included a special gain of EUR 3.9 billion from the portfolio divestments to BASF.

Core earnings per share from continuing operations rose by 6.4% from EUR 1.09 in the third quarter to EUR 1.16. Bayer net financial debt amounted to EUR 37.9 billion as of September 30. This was around EUR 950 million less than at the end of the second quarter, representing an improvement of 2.4%. All 3 rating agencies gave us an investment-grade rating, which is evidence of our good credit standing.

Now I will turn to the business development in each of the divisions, and I will start with our agricultural business. The Crop Science division achieved third quarter sales of EUR 3.9 billion. That was an improvement of 4.8%. The reason for the increase was growth in the Americas. In Latin America, sales rose by 12% to EUR 1.7 billion. In North America, we posted an increase of about 10% to EUR 1.1 billion. However, business at Crop Science was down in the Europe, Middle East, Africa and Asia Pacific regions.

At Herbicides, the largest of our strategic business entities, sales were level with the prior year period after adjusting for currency and portfolio effects. The strongest growth was at Fungicides at around 24%. Sales of Fox Xpro developed particularly well in Brazil. We also saw double-digit growth at Corn Seed & Traits and at Soybean Seed & Traits. The Vegetable Seeds, however, posted considerably lower sales mainly as a result of shifts in demand into the fourth quarter.

EBITDA before special items at Crop Science rose in the third quarter by 25% to EUR 527 million. This was mainly due to price increases and higher volumes in Latin America. The synergies, already realized as we progress with the integration of the acquired business, had a positive effect on costs.

Now we come to Pharmaceuticals. Sales in our Pharmaceuticals business rose in the third quarter by 5.9% to EUR 4.5 billion. Business was driven by continued strong growth in China and sales gains for our anticoagulant, Xarelto, and the eye medicine, Eylea. Third quarter sales of Xarelto grew to more than EUR 1 billion, 9% ahead of the prior year period. This was mainly due to higher volumes in China and Russia.

Sales of Eylea saw a substantial increase of about 16%. Business with this product expanded primarily in the Europe, Middle East, Africa region, especially the United Kingdom and Germany, with Japan also contributing to the rise in sales.

We also registered strong growth for Adalat to treat high blood pressure and coronary heart disease; Adempas to treat pulmonary hypertension; our cancer drug, Stivarga; and our antibiotic, Avalox/Avelox. However, business with our multiple sclerosis treatment, Betaferon/Betaseron, showed another market decline mainly as a result of a strong competition in the United States.

EBITDA before special items at Pharmaceuticals declined by 1.7% in the third quarter to EUR 1.5 billion. This was largely due to the fact that earnings in the prior year period included onetime income of around EUR 190 million from a development collaboration. Subtracting this, the increase in earnings here would have been 12%.

Now let's look at the Consumer Health. Sales of our self-care health products rose by 3.7% in the third quarter to EUR 1.3 billion. We registered growth in the Europe, Middle East, Africa region, where business in allergy and cold category benefited from the improved supply chain situation for Aspirin Complex. We posted strong growth in sales in Latin America, while business in North America declined, especially in the pain and cardio category, which was impacted by lower demand for Aspirin.

We also saw sales decreased in the Asia Pacific region mainly as a result of regulatory changes in China that affected cross-border e-commerce. EBITDA before special items at Consumer Health advanced by 3.2% in the third quarter to EUR 256 million. Positive contributions to earnings came especially from the efficiency program launched at the end of 2018. By contrast, earnings were negatively impacted by the absence of the contribution from the divested prescription dermatology business.

Ladies and gentlemen, that brings me to the end of my comments on our business development in the third quarter. On this basis, we can confirm the financial targets for the current year that we communicated in February 2019 despite the reduced economic growth expectations worldwide. Our original financial targets did not take into account portfolio measures or changes in exchange rates. These targets are shown in the first column of this chart.

In the second column, you can see the amounts that the discontinued operations accounted for in the original forecast, in other words, the contributions from Animal Health and Currenta. And given the accounting standards we apply, they have to be reported separately.

The third column shows the forecast of our continuing operations at constant currencies. So these are the exchange rates that we had at the beginning of the year and which underlay our guidance at the start of the year. As most of the year has passed, we have added a fourth column, containing our expectations for the respective currency effects.

The final column shows our forecast for 2019, adjusted to exclude the discontinuing operations and taking into account the latest currency assumptions. On this basis, we are anticipating sales of approximately EUR 43.5 billion; EBITDA before special items of around EUR 11.5 billion; and core earnings per share of about EUR 6.35. The portfolio I mentioned just now were announced at the end of 2018 as one of our strategic priorities, and we've been able to implement them faster than planned.

In August, we announced the sale of our Animal Health business to the U.S. company, Elanco, for $7.6 billion. Closing of the transaction is expected for the middle of next year. Also in August, we signed an agreement to sell our 60% stake in the site services provider Currenta to a firm managed by Macquarie Infrastructure and Real Assets. In this case, we expect closing to take place in December 2019.

In July, we had already announced the sale of the Dr. Scholl's foot care portfolio to Yellow Wood Partners. Here, we anticipate closing in November 2019. The sale of Coppertone sun care brand to Beiersdorf was completed in September. Through these portfolio measures, we are sharpening the focus on our core businesses. At the same time, we are also systematically implementing the efficiency and structural measures that we also announced last November.

In addition, as part of these measures, the size of the Board of Management is being reduced from 7 to 5 members. As already communicated, we expect these measures to contribute EUR 2.6 billion annually from 2022, including the synergies from the Monsanto acquisition. We already expect to see contributions of over EUR 600 million in total in 2019 as we are making faster progress in realizing cost synergies of Crop Science than we originally anticipated. So these are phasing effects from the earlier realization of overall synergies.

We have concluded an employment pact with the workers' counsel valid through 2025 to safeguard the future of our German sites. This represents an important agreement for our employees in Germany. All of these measures make our company leaner, more agile and more focused.

And we will also continue to strengthen our innovative capability, partly by deploying some of the freed-up resources for this very purpose. From 2019 through 2022, we plan to invest a total of around EUR 35 billion in our future, which is more than 2/3 of this being for research and developments. That's because innovation is the heart of our business model. We research and develop new products to improve people's lives. That's what Bayer is all about and I will, therefore, like to briefly report to you on some of the progress we have made in this area recently.

A major focus of our innovation activities in agriculture is, as you know, digitalization. Our digital platform, Climate FieldView, is already in widespread use. It helps farmers make better decisions to optimize their yield potential and, at the same time, save on resources. In July, we reached another milestone in this regard, the introduction of Climate FieldView in Argentina. We now expect this platform to be used at around 36 million hectares worldwide in 2019, including in Europe, by the way.

We also saw encouraging progress at Pharmaceuticals. At the end of July, Nubeqa, based on the active ingredient darolutamide, received marketing approval in the United States to treat prostate cancer. We are developing darolutamide jointly with the Finnish pharmaceutical company Orion Corporation.

In September, our new cancer drug, Vitrakvi, received approval from the European Commission, making it the first medicine ever to be approved in the tumor-agnostic indication in Europe.

At the same time, we are of course continuing the development of products that are already on the market. Xarelto, for example, was approved in the United States in October to help prevent blood clots in acutely ill medical patients.

In September, we also accomplished the complete takeover of the former joint venture BlueRock Therapeutics. This company focuses on the development of new cell therapies in the fields of neurology, cardiology and immunology using a platform for induced pluripotent stem cells.

Ladies and gentlemen, let me now move on to the current status of the lawsuits related to glyphosate. In recent weeks and months, the number of lawsuits has again increased. By October 11, 2019, approximately 42,700 plaintiffs have filed lawsuits against us in the United States. Now this is a substantial increase from the figure of 18,400 plaintiffs as of July 11, 2019, that we communicated in our half year report.

This increase in the number of plaintiffs is clearly driven by a substantial surge in anti-Roundup advertising spending from the plaintiff's side following Judge Chhabria's mediation order in May 2019. They are estimated to have spent over USD 50 million on TV advertising alone in the third quarter. That's roughly twice as much as in the entire first half of this year. Therefore, we expected a considerable increase in the number of cases. However, the number of lawsuits tells us nothing about their merits. We do not expect any new trials to take place before the end of this year. All the trials originally scheduled for 2019 have been postponed.

I would therefore like to reiterate the strategy we have already communicated. We have appealed the 3 first instance judgments in the state of California. The appeals are underway and we are defending our company vigorously in all these cases. And we will vigorously defend ourselves in any future cases. We remain convinced of the safety of glyphosate-based products as do all the leading regulatory bodies worldwide. At the same time, we are all aware of glyphosate's tremendous importance. Farmers throughout the world apply this technology because it controls weeds and safeguards harvests. Glyphosate is effective, enables more sustainable farming practices and is safe when used as directed. We are constructively engaging in the mediation process audit by Judge Vince Chhabria with a view to finding a solution. The mediation negotiations are confidential, so I can't give you any information about the timescale or what is being discussed. However, it is clear that Bayer will only accept a mediation outcome that is financially reasonable and is structured in a way that will bring the matter to a reasonable conclusion.

Ladies and gentlemen, I'm coming to the end of my remarks today. We're seeing that Bayer is making progress in all important areas. We have confirmed our financial targets for 2019 despite reduced growth expectations worldwide and have now taken into account the communicated portfolio measures and changes in exchange rates. The business at Crop Science is developing well, even in a market environment that remains challenging. And we're improving our innovation capability in this area all the time.

We continue to achieve strong sales growth in Pharmaceuticals and are making encouraging progress with the registration of new products and indications. We can see that the measures adopted at Consumer Health are working and that sales and earnings have begun to recover. We are progressing with the announced divestments faster than planned while systematically implementing our efficiency and structural measures. All this shows that Bayer is on track, both operationally and strategically.

And now I will be happy to take your questions.

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Michael Preuss, Bayer Aktiengesellschaft - Head of Communications, Government Relations and Corporate Brand [4]

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Thank you very much, Werner. Ladies and gentlemen, you now have the opportunity to ask questions of Mr. Baumann and Mr. Nickl. Ladies and gentlemen, we are now opening the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Mr. [Burga] from Reuters.

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Unidentified Participant, [2]

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I have a question for Mr. Baumann with respect to the glyphosate problems. What is the significance with respect to the course of the proceedings of the Dewayne Johnson case? And when do you expect a ruling to be handed down in this appeal proceedings?

The second question is this. Recently and frequently, you have stated the conditions under which an adequate settlement could be reached. You now speak about a reasonable conclusion, and that's probably a verbatim quote from English. Now what is a reasonable conclusion for you? In the past, you spoke of the finality of the overall litigation that should come about before you settled. What exactly is behind this change in wording? Do you now have a different stance with respect to the future lawsuits? The potential future plaintiffs once the settlement has been reached?

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Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [3]

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Thank you for your questions. Let me start by addressing the Johnson case. In the Johnson case, well, it has been appealed and we have submitted our briefs. We now expect in these appeal proceedings an outcome at the beginning of next year. It's probably not going to happen at the end of this year. So at the beginning of next year, we believe that a judgment will be handed down with respect to the appeal.

As far as the entire liability situation is concerned, I believe it's safe to say that the pending lawsuits, which are already being tried, have to be separated from the rest. In this litigation, in all 3 cases, in Hardeman and Pilliod as well, we are going into appeal proceedings. They will all continue into the next year and perhaps beyond. And that is already the first instance of appeal. And as I mentioned before, the mediation talks will be conducted simultaneously. How and in what form, at the end of the day, the cases that have already been tried in court are factored into an overall solution will be up to the discussions with the lawyers of the plaintiffs. The content of these talks is confidential and, therefore, I ask of your understanding that I can't share with you any of it.

The second question that you asked was mainly caused by translation. We have always said that the mediation talks would be conducted constructively with a view to achieving a solution from our side, but there's always 2 to this. Ken Feinberg is doing a very good job in assisting the 2 parties in the mediation proceedings and he's also moderating the mediation proceedings. But certain criteria, we believe, have to be satisfied in order for a mediation result to be achieved that is acceptable to us. First of all, it has to be acceptable from an economic point of view. And second of all, it has to provide us with quite substantial certainty with respect to the finalization of the entire topic. The finality issue is the ideal scenario. However, given certain peculiarities regarding the glyphosate lawsuits, it cannot necessarily always be achieved directly and completely. But we have to get as close as possible to finality as possible. That is part of the structural discussions that the mediation process is also dealing with and it actually is taking center stage there.

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Operator [4]

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The next question is from Patricia Weiss from Reuters.

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Patricia Weiss;Reuters, [5]

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I'm going to pick off where my colleague left off. Mr. Baumann, could you tell us the reasons for the postponement of the last 3 lawsuits in the United States? There's been speculation about this, but I'd like to hear a statement from the horse's mouth. Do you believe that there will be some trials in January? Or do you believe that there will be some further postponements instead?

I'd also like to know about the economic reasonability of a settlement. We are talking about billions of dollars. Where -- what is your pain threshold there? And the digitization of agriculture, it has been expressed by providers on the market that there isn't absolute consensus, some claim that you -- they cannot earn any money. This is what the seed providers are saying. Can you give us some information on the sales figures and how much you earn in this business?

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Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [6]

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Now by the way, against the backdrop of the ongoing mediation discussions, we have reached an agreement with the plaintiffs that these lawsuits will be postponed for the time being. They haven't been stayed, they haven't been ended, they're just postponed. This means that they will be tried in court at some point but the timing has been shifted. And this will support the mediation talks and negotiations. Next year, we will have a number of lawsuits which are currently on the trial calendar. In the first quarter, there are 7 or 8. And having said that, the number of cases that are being tried and the dates of these trials have to be taken with a grain of salt because there may be some movement here as well. This is always part and parcel of the discussions between the judges, the plaintiffs and the defendants. And this is us, of course. The details may lead to postponement on a case-by-case basis, but they are also subject to confidentiality and, therefore, I ask of your understanding that we cannot make any disclosure in that respect. Of course, we know that there is a wide spectrum of estimations with respect to the potential settlement amount in the glyphosate lawsuits, but we're not going to comment on that at present. This, of course, is an issue that is being discussed between the parties. There is a lot of intelligence, if I may put it in those words, and prospects and perspectives in the market. We respect them and we read all of these news. But for obvious reasons, we cannot comment on that.

With respect to the digitization of agriculture, the fact of the matter is that, as I said before, we have a certain penetration from 2018 to 2019, it will rise by approximately 50% from 420,000 hectares to about 630,000 hectares as part of a solution portfolio that we're offering farmers. This product solution portfolio has very specific advantages and it dovetails our other products. This is why we cannot give you separate sales figures for FieldView. This is part of an overall solution which we are providing to the farmers.

Let me give you an example to illustrate it. By using FieldView in all of the areas in which we are conducting pilot trials, it is possible to refine the business model where we're moving away from the sale of individual application factors, fungicides, herbicides or feed to an overall solution where we guarantee a certain result and sell a certain result to the farmers. And this result, depending on the quality, is compensated for. This is done with a fungicide application, if you will, where, on the basis of the field data that we have, prospectively, we can determine where a fungicide will make sense and where it will increase yield. Also where it will be neutral and also where perhaps it will reduce yield. And we therefore ensure that it is only applied in areas where yield can be increased. This is something that we can guarantee the farmers. And on the basis of these guarantees, we receive money. So stating sales for FieldView is something that we cannot do. And of course, you mustn't forget that there's the issue of the profitability of the applications. No, you always have to look at the overall profitability of the application as such.

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Operator [7]

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The next question is from Jonas Jansen from FAZ.

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Jonas Jansen;Frankfurter Allgemeine Zeitung, [8]

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I have a brief follow-up question on the estimated spend on TV commercials. Who exactly made this estimate? Did this information come from the plaintiffs? Or is it your estimate?

And I'd also like to know, with respect to Crop Science, you said that there was growth in Latin America and North America. Can you tell us the share of glyphosate in this?

If the number of lawsuits increases so much, does that change demand from your customers or not?

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Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [9]

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Well, Mr. Jansen, thank you very much for your question. Now figures, with respect to TV commercials, are from publicly available sources. So these are not in-house estimates, these are sources that are available to the public. But overall, there has been more investment across all media. The figures that we've mentioned have basically stood for the overall rise in spend by the plaintiffs. So we have a significant rise in TV advertising spend. If you've been in the States recently, you will realize that this is an issue that is constantly covered in all channels.

Now moving on to glyphosate, maybe I have to give you a broader response. If you look at the entire herbicide business, well, in the third quarter, it was roughly on par year-on-year. The lion's share of it is glyphosate in Latin America, since you alluded to that directly, where we have seen an encouraging development of volume.

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Operator [10]

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The next question is from Ruth Bender from Wall Street Journal, Germany.

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Ruth Bender;Wall Street Journal, [11]

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Mr. Baumann, I have 2 questions. Now I believe that you cannot comment on the content or timing of the negotiations. But one of the plaintiffs' lawyers made a statement in the United States. They said that they didn't expect or hope for a quick settlement. Can you make a statement about that?

The second question is after the crisis at the AGM in April where the shareholders were very dissatisfied with management, you have emphasized the progress that you have made since then. Does that mean that you've overcome the crisis? Or does that remain to be seen once a final solution has been reached with respect to the glyphosate litigation?

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Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [12]

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Mrs. Bender, with respect to your first question, the statement by Mrs. Wagstaff is something that we've also read.

With respect to your second question regarding the AGM, well, I think we have communicated about this quite extensively. The Supervisory Board, immediately after the AGM, convened a meeting, an action package was adopted. And here, I am -- basically, you're going to describe what the Supervisory Board did. The operating management team isn't responsible for this but I can report this to you anyway. The Supervisory Board formed a glyphosate litigation committee, which is assisted externally by one of the best lawyers of the United States in the field of product liability lawsuits, and that is Mr. Beisner. This Litigation Committee has convened several times since then, and it's assisting the Board of management in dealing with the glyphosate complex of issues.

As I mentioned earlier, we are basically taking a 2-pronged approach here. On the one hand, we are defending ourselves in the cases that have already been tried, where we have moved them into the second instance. And on the other hand, we have this litigation committee. The mediation talks are also closely intertwined with this.

A second point that I would like to make here is that at the AGM, it was approached that the composition of the Supervisory Board should better represent the composition of business. Ertharin Cousin, who was appointed by court order in October, is a seasoned expert and a legal expert in the field of nutrition and she was the chair of the World Food Program for a couple of years. So these are the issues that are being addressed by the Supervisory Board. We are dealing with our operational and strategic issues, which we presented to you in November last year.

With respect to the nonapproval of the acts of the Board of Management, this is exactly what you're driving at, Mrs. Bender, I believe. Well, it doesn't really play a role with respect to the business performance in the quarter. We report on the progress made in business on the degree to which targets have been achieved, the progress that have been made with respect to the goals that we have set ourselves for 2019, et cetera. Now how the AGM assesses the performance of the Board of management is something that will be addressed later on. Basically, we are doing our job at -- and at the end of the day, it is up to our shareholders to pass the corresponding resolutions on the approval of the act or not. But that remains to be seen in 2020.

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Operator [13]

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The next question is from [Annetta Becker] from (inaudible).

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Unidentified Participant, [14]

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I also have 2 or 3 questions for you. First of all, I have a question for the sake of understanding. The first one is directed to your outlook. I don't understand, if you adjust everything and if you adjust for currency effects, why sales are increasing but earnings are declining, especially given that in the Q3 report, you report that the operating earnings benefited from positive currency effect. That's just something that I don't understand clearly.

Well, with respect to the lawsuits, they have risen in number to 42,000. To what degree has the number of the lawsuits played a role with -- in the amount of the settlement? Because, after all, this is one of the goals. The plaintiffs are increasing their TV advertising spend in order to increase the amount of the settlement. Now in the settlement, will you not concede guilt? And to what degree do the merits of the lawsuits play a role?

And then Mr. Baumann, you also emphasized several times that you've made progress with respect to the structural measures, et cetera. Portfolio measures, in my view, have been completed. Correct me if I'm wrong. What is missing with respect to the structural measures? What haven't you implemented yet?

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Wolfgang U. Nickl, Bayer Aktiengesellschaft - CFO & Member of Management Board [15]

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Thank you for your question. This is Wolfgang Nickl. I'm going to respond to your first question with respect to the development of foreign exchange rates, and I'll refer you to the chart where we made statements on the updates to our outlook.

Well, currencies play a role in the earnings and, with respect to debt, you've addressed earnings. You're right, in the third quarter, in terms of sales, we had an advantage of EUR 215 million and EUR 77 million in terms of earnings. But if you look at the year on the 9-month basis, you will see that in terms of sales, about EUR 413 million were a benefit, but we had a negative effect of EUR 190 million. You may recall Q1 and Q2 where hedging transactions included hedging costs. If you now look at the fourth quarter, where we currently expect that foreign exchange rates as of the 31st of September apply, we still see slightly positive share in sales, but we don't see enough tailwind from currencies in order to offset the EUR 90 million over the year. So we assume right now EUR 0.10, that's the adjustment to earnings. But at the end of the day, of course, it's going to depend on the development of foreign exchange rates.

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Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [16]

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Thank you, Wolfgang. [Mrs. Becker], let me now respond to your question with the -- with respect to the number of lawsuits and the monetary issues that are tied into that before I hand the floor back to Wolfgang Nickl, who's going to tell you some more about the structural measures. Structural and portfolio measures have always been bundled. The structural measures cover a host of issues which we are addressing under a program called Bayer 2020. Wolfgang Nickl can give you some more information on that shortly.

Now the number of lawsuits, first and foremost, doesn't tell us anything about their merits. I emphasized earlier that we have a very clear stance with respect to product safety and, of course, can therefore be very clear in our statements because the regulatory situation is entirely clear. If you look at the statement from the EPA of August, where the EPA refrained from accepting cancer warnings for glyphosate because on the basis of the regulatory assessment, they are completely out of place, we -- they are strengthening our position with respect to product liability as a whole. Because at the end of the day, the question is whether glyphosate poses a cancer risk or not. I think that question was answered by the EPA quite clearly. The number of the lawsuits in no way, shape or form is indicative of, A, the amount of a settlement; or B, the merits of the lawsuits. You have to keep these things entirely separate from each other and they cannot be rolled up into one. Everything else, as I've said before, has already been said. I cannot make any further comments with respect to the contents. I'd rather refer to the responses that I have given you today on the other questions because I'll just be repetitive. Now I would like to hand the floor to Wolfgang.

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Wolfgang U. Nickl, Bayer Aktiengesellschaft - CFO & Member of Management Board [17]

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Thank you, Werner. With respect to your third question, as we said earlier, there were 2 packages which we announced at the end of last year: portfolio measures and structural measures. The portfolio measures, something that we've said enough about. Dr. Scholl's, Coppertone, which will be completed this year. Here, we will see cash flows. Animal Health, the contract has been signed there. And we anticipate that by the middle of next year, we will close that deal. Overall, on a gross basis, proceeds will be EUR 9.3 billion. And approximately EUR 1 billion in taxes will be added to that. As Mr. Baumann said, we're very satisfied with the figures that we've achieved and also in particular with respect to timing and the speed at which we're able to complete these deals.

Structural measures and the Bayer 2020 program. You may recall that overall earnings contributions will take effect from 2020, and we have an effect of EUR 2.6 billion that is anticipated. And this can be traced back to innovation. This has to do with the synergies of the Monsanto transaction, which will contribute approximately EUR 1 billion. We have extensive measures in the Consumer Health business, EUR 0.5 billion there, and several measures to press ahead with external innovation in the field of Pharmaceuticals. Here, the contribution is EUR 0.2 billion. And then we have the balance with the support areas under the Bayer 2020 program. We're making very good progress, in particular, with the internal approvals in the divisions and functions and the employee representatives, in the introductory remarks we addressed this.

With respect to phasing, we are moving slightly faster than originally announced, driven especially by the synergies in the field of integration in our new agricultural business. We had always stated a phasing of 25% in 2019, 55% in 2020, 80% in 2021 and then the full effect in 2022. If you take the 25% now, you're at approximately EUR 300 million, slightly above that. This means that relative to the cost synergies, our goal was EUR 870 million. That's what we had announced. So you can see that we had over 30%. And with respect to the program of EUR 2.6 billion as a whole, more than EUR 600 million of the EUR 2.6 billion have already been achieved. So we're at just under 25%. So we are faring quite well. And we believe that in terms of phasing, next year, we'll be able to make a lot of good progress and, therefore, we are satisfied with how things have gone so far. Very satisfied, that is.

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Operator [18]

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The next question comes from Tim Loh from Bloomberg.

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Tim Loh;Bloomberg, [19]

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I know that some questions have already been answered, so I won't ask them again. Now I wonder if you're surprised about the development of EBIT relative to sales. Do you think there will be some backlash from Roundup and that maybe that might be the reason?

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Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [20]

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Thank you very much, Tim, for your question. I have already made a statement with respect to herbicide sales. In the third quarter, they were roughly at the same level as in the third quarter of 2018 in the United States, as I base everything on the United States. There are 2 parts to the glyphosate business, one being the lawn and garden business, which is operated via Scotts. I can't say much about that because, essentially, we are a supplier there and we take a share in the result of these sales. Where we have a much clearer view is the professional area. This is the agricultural area where we serve farmers' needs. We have great support here, and I believe it's safe to say that our customers are imploring us to do everything that we can in order to ensure that this absolutely system-relevant active ingredient for the treatment of farmland, for the various reasons that we have stated, is kept on the market. So our customers, as before, are unwavering in their support for this system-relevant herbicide. As I said before, there are a lot of advantages, chemical advantages, advantages in terms of sustainability and environmental protection. And this is why it is very important for the non-aerial farming landscape. And therefore, everything is all right there.

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Operator [21]

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The next question comes from Antje Höning from Rheinische Post.

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Antje Höning;Rheinische Post, [22]

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I also have 3 questions, one being related to glyphosate. The settlement amounts that are mentioned by analysts are between EUR 25 billion and up. From what sum upwards would you have a problem with respect to your rating grade?

And I'd also be interested in the share of Elliott and whether the investor is putting pressure on you to reach settlements?

The third question is relating to redundancies, the distribution of the 4,500 employees that are supposed to be shed in Germany, and when can you establish clarity on that?

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Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [23]

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Mrs. Höning, with respect to your first question, glyphosate. Well, we already spoke about the range of the estimates of the product liability. We cannot make any comment on that specifically. With respect to our balance sheet structure and our debt structure, we're in the process of reducing the company's debt substantially. This involves the divestment proceeds that we will receive as a result of the portfolio sales that we mentioned earlier on. Wolfgang Nickl can give you some more insight into this in just a minute and tell you about the ballpark figures after taxes. You cannot transpose that into rating impacts 1:1. There will be an impact from reducing debt. And if you look at where our rating is today and you factor in debt and operating cash flows, then more or less you will receive the response to your question automatically.

With respect to the second point you raised, we are talking with all shareholders. In other words, also with critical shareholders and shareholders that cause a lot of commotion. The subject matter of the discussion of the shareholders is always within the scope of general disclosure. There is no selective disclosure here, no one desires that, neither of the sides wants that. So it's all within the realms of normal disclosure and here, again, there is nothing else to be said.

With respect to the structure of the redundancy scheme, well, Wolfgang Nickl can give you some more information on that and perhaps fill in some of the gaps. So I'd like to hand the floor over to you now, Wolfgang.

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Wolfgang U. Nickl, Bayer Aktiengesellschaft - CFO & Member of Management Board [24]

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Thank you for the question. Now generally speaking with respect to reducing debt and the rating agencies' reaction to that, I think that we've been quite clear to this and also at our Capital Markets Day, there are various components, one being free cash flow that we generate from the business over the next couple of years, and I'm talking about the growing concern which has to be adjusted to the new circumstances. Of the EUR 23 billion in free cash flow for 2019, '20, '21, '22, we assume that if the dividend was stable or grew, EUR 12 billion would be for the dividend. And there, quite clearly, would there be a EUR 9 billion reduction in debt and EUR 2 billion for bolt-on acquisitions and investments. This path will bring us back to the A category, at least as far as the KPIs are concerned, and our leverage should be at around 2.5 at the end of the day. At the same time, we made some divestitures. The divestitures were briefly mentioned earlier. Growth, it's about EUR 9.3 billion in proceeds, roughly EUR 1 billion in taxes against that. And of course, for the time being, we will use that to reduce debt because we will also shed some earnings, and this is in order to stay the course to reducing the debt level of the company. And then, of course, we will have a certain buffer that we can also use to reduce debt further. We've spoken about potential share buybacks and other investments and payments such as potential settlements. Mr. Baumann said earlier on that at this juncture, we can't speculate about the amount of a potential settlement. We've only said that it has to be commercially or economically reasonable and financeability plays a role here as well.

With respect to the communication with the rating agencies, well, of course, we are constantly in touch with them. They publish their opinions on this and we have 100% transparency in this area. So that's the only thing that we can do right now. We can't give you any figures with respect to the settlements.

Now with respect to job cuts, in summary, the structural and portfolio measures will translate into about 12,000 positions worldwide. 9,600 are allocated to portfolio measures in Germany. Of the 12,000, 4,500 are accounted for. Now I'm not aware of any breakdown per site or location. But in terms of structure and where the 12,000 positions were in sum, you can draw conclusions as to what the sites were in 2020 and 2021. We will accomplish about half of this, largely in Leverkusen, but also at other sites. The Monsanto integration, of the 12,000, approximately 4,000 were Consumer Health, 1,100 were in Germany and then we had Pharmaceuticals' research and development accounting for approximately 900 colleagues. And you know where research takes place, at what sites that's done. And then de facto 8 factories in Wuppertal, 350 colleagues roughly. That's what we said at the time, just for the sake of repetition, and I don't want to go above and beyond that for now.

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Operator [25]

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The next question is [Annetta Becker] from (inaudible).

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Unidentified Participant, [26]

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Excuse me, I just need to ask a follow-up question. Now in -- you said about December, you were speaking about share buybacks, so you wanted to make a decision by then. But now it sounds as though, if at all, it will be decided next year. Is that correct?

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Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [27]

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Yes, thank you very much for your follow-up question. Now at our Capital Markets event, we said that with the divestments -- with (inaudible) of divestments, share buybacks could be considered. We think our stock is an excellent investment. That the lion's share of the -- for the lion's share of the divestments will be Animal Health. And we won't be closing this transaction until the middle of next year. And as you know, 70% is in the care select, 30% in the Elanco, and then there'll be more after. So at that point, that's when we'll have to think about the use of the proceeds. So nothing has changed in this respect, but we're not able to give a definitive statement on that today.

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Operator [28]

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And the final question is from Hendrik Geisler from Kölner Stadt-Anzeiger.

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Hendrik Geisler;Kölner Stadt-Anzeiger, [29]

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I'd also like to speak about job cuts. Now you just told us where job cuts will take place, but how much progress have you made? How many jobs -- how many cuts have you already made? When do you expect the program to reach its conclusion?

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Werner Baumann, Bayer Aktiengesellschaft - Chairman of the Board of Management & CEO [30]

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I don't have any specific numbers for you. But by the end of 2021, that's when we expect to conclude the program. Let me just have a look at some of the figures. This will be quicker abroad than it will be in Germany, because there were a number of instruments and tools that we have at our disposal that we will use. Now I don't have the exact number here but, yes, Mr. Geisler, we can give you a number for outside of Germany. Just -- it's important that when we speak about the changes, we're speaking about the headcount not including Animal Health and Currenta. So Animal Health and Currenta are still part of our workforce, but they are now recorded discontinued operations. As such, since the start of the year, there has been a reduction of 3,000 in our headcount to one -- and it is reduced in total by this amount to -- we have around 25,000 people employed here and the job cut is down to 104,700, around 450,000 fewer than -- 450 fewer at -- than at the start of the year.

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Michael Preuss, Bayer Aktiengesellschaft - Head of Communications, Government Relations and Corporate Brand [31]

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Okay. Thank you very much for your questions and for taking an interest in this morning's press conference. And we hope all of you have a very nice day.