Business Development by Segment

Crop Science

Market expands slightly

The global seed and crop protection market as a whole expanded slightly in 2018, growing by around 2% (2017: 2%), with demand for high-quality seeds rising faster than worldwide volumes of crop protection products. Growth momentum was strongest in the Asia / Pacific, North America and Latin America regions. Latin America, in particular, saw an above-average increase in market volume following the normalization of inventory levels for crop protection products in the Brazilian market and an expansion of soybean acreages. On the other hand, the market in Central and Western Europe stagnated due to a very hot, dry summer.

Key Data – Crop Science

 

 

Q4 2017

Q4 2018

Change1

 

2017

2018

Change1

 

 

€ million

€ million

Reported %

Fx & p adj. %

 

€ million

€ million

Reported %

Fx & p adj. %

Fx & p adj. = currency- and portfolio-adjusted

1

For definition see Chapter “Alternative Performance Measures Used by the Bayer Group”

Sales

 

2,263

4,661

+106.0

15.4

 

9,577

14,266

+49.0

+6.1

Change in sales1

 

 

 

 

 

 

 

 

 

 

Volume

 

+5.3%

+14.2%

 

 

 

+0.3%

+5.9%

 

 

Price

 

–4.2%

+1.2%

 

 

 

–2.5%

+0.2%

 

 

Currency

 

–7.0%

+1.3%

 

 

 

–1.2%

–4.3%

 

 

Portfolio

 

0.0%

+89.3%

 

 

 

0.0%

+47.2%

 

 

Sales by region

 

 

 

 

 

 

 

 

 

 

Europe / Middle East / Africa

 

440

592

+34.5

+4.2

 

3,335

3,689

+10.6

–3.0

North America

 

479

1,703

.

+32.8

 

2,772

4,696

+69.4

+7.5

Asia / Pacific

 

358

530

+48.0

+24.2

 

1,563

1,858

+18.9

+9.7

Latin America

 

986

1,836

+86.2

+8.7

 

1,907

4,023

+111.0

+17.1

EBITDA1

 

193

(441)

.

 

 

1,716

4,500

+162.2

 

Special items1

 

(111)

(984)

 

 

 

(327)

1,849

 

 

EBITDA before special items1

 

304

543

+78.6

 

 

2,043

2,651

+29.8

 

EBITDA margin before special items1

 

13.4%

11.6%

 

 

 

21.3%

18.6%

 

 

EBIT1

 

64

(934)

.

 

 

1,235

3,138

+154.1

 

Special items1

 

(155)

(985)

 

 

 

(408)

1,841

 

 

EBIT before special items1

 

219

51

–76.7

 

 

1,643

1,297

–21.1

 

Net cash provided by operating activities

 

552

1,549

+180.6

 

 

1,884

3,743

+98.7

 

Sales up significantly against prior year

Crop Science posted sales of €14,266 million in 2018. The businesses divested to BASF contributed approximately €1,500 million to sales prior to the closing of the respective transactions in August. Sales increased by 49.0% on a reported basis, thanks mainly to a positive portfolio effect of 47.2% due to the acquisition of Monsanto (€5,288 million) less the prorated contribution from the divested businesses in the prior year (€767 million). Sales were also impacted by negative currency effects of 4.3%. The 6.1% increase on a currency- and portfolio-adjusted basis largely resulted from the normalization of crop protection inventories in Brazil, where the prior-year figure had been impacted by the required measures in this context, and from positive sales development in the Asia / Pacific and North America regions. Sales also benefited from service agreements – especially product supply and distribution agreements – with BASF in connection with the divested businesses. By contrast, sales were down in Europe due to unfavorable weather conditions and regulatory changes affecting certain SeedGrowth products in France.

Crop Science – Sales by Strategic Business Unit

 

 

Q4 2017

Q4 2018

Change1

 

2017

2018

Change1

 

 

€ million

€ million

Reported %

Fx & p adj. %

 

€ million

€ million

Reported %

Fx & p adj. %

Fx & p adj. = currency- and portfolio-adjusted

1

For definition see Chapter “Alternative Performance Measures Used by the Bayer Group”

Crop Science

 

2,263

4,661

+106.0

+15.4

 

9,577

14,266

+49.0

+6.1

Herbicides

 

526

1,172

+122.8

+12.3

 

2,633

4,171

+58.4

+1.5

Corn Seed & Traits

 

4

1,036

.

–19.2

 

87

1,808

.

–12.2

Soybean Seed & Traits

 

57

602

.

+26.2

 

210

1,200

.

+11.4

Fungicides

 

755

757

+0.3

–2.0

 

2,597

2,647

+1.9

+4.8

Insecticides

 

268

364

+35.8

+34.4

 

1,246

1,345

+7.9

+12.3

Environmental Science

 

183

229

+25.1

+9.3

 

671

732

+9.1

–3.3

Vegetable Seeds

 

102

91

–10.8

–0.2

 

434

629

+44.9

+1.0

Other

 

368

410

+11.4

+47.8

 

1,699

1,734

+2.1

+16.0

Sales by region

  • Sales in the Europe / Middle East / Africa region improved by 13.7% (Fx adj.) to €3,689 million. There was a portfolio effect of €557 million. On a currency- and portfolio-adjusted basis, sales fell by 3.0%. The SeedGrowth business (Other) in particular saw a decline due to the loss of registrations in France. We also posted slightly lower sales at Fungicides and Herbicides, primarily due to unfavorable weather conditions in Central and Western Europe.
  • In the North America region, we posted a 75.4% (Fx adj.) increase in sales to €4,696 million. The portfolio effect was €1,881 million. The 7.5% increase on a currency- and portfolio-adjusted basis was chiefly attributable to sales generated by the service agreements with BASF in connection with the divested SeedGrowth business (Other) and to strong growth of the subsequently divested canola seed business (Other) in Canada in the first half of the year. We also saw encouraging sales gains at Fungicides, in part due to new product launches. The decline in sales at Environmental Science resulted from planned lower product deliveries to the acquirer of the consumer business divested in 2016.
  • Sales in Asia / Pacific increased by 25.0% (Fx adj.) year on year to €1,858 million. The portfolio effect amounted to €238 million. Sales expanded by 9.7% on a currency- and portfolio-adjusted basis. We registered sales gains in all business units, especially Herbicides, Fungicides and Insecticides due to higher volumes. The expansion of business was particularly strong in China, Japan, India and Southeast Asia.
  • Sales in Latin America advanced by 113.8% (Fx adj.) to €4,023 million, with the portfolio effect amounting to €1,844 million. We posted a 17.1% sales increase on a currency- and portfolio-adjusted basis. This development was largely attributable to the effects in the previous year of significantly higher provisions recognized for product returns and of lower sales of crop protection products due to high inventory levels in Brazil. The measures undertaken to normalize inventories of crop protection products were successfully completed at the end of the season, during the second quarter of 2018. Excluding Brazil, sales were down slightly in the other Latin American countries.

Earnings

EBITDA before special items of Crop Science advanced by 29.8% to €2,651 million in 2018. This increase is primarily attributable to the earnings contribution from the newly acquired business (€705 million) and the recognition in the second quarter of 2017 of significantly higher provisions for product returns in Brazil. By contrast, earnings were diminished by the prior-year prorated earnings contribution from the businesses divested to BASF, a decrease in volumes in Europe and a negative currency effect of €101 million (excluding the acquired business).

EBIT increased by 154.1% to €3,138 million, and included special gains of €1,841 million (2017: special charges of €408 million) primarily resulting from divestment proceeds of approximately €4.1 billion before taxes in connection with the sale of businesses to BASF. However, earnings were held back by special charges relating to the acquisition of Monsanto in the amount of €1,931 million, of which €1,256 million pertained to reversals of inventory step-ups, and by defense costs for litigations. Also included in EBIT were additional depreciation and amortization in the amount of €645 million resulting from remeasurements or the first-time recognition of assets in the course of the purchase price allocation.

Special Items1 Crop Science

 

 

EBIT Q4 2017

EBIT Q4 2018

 

EBIT
2017

EBIT
2018

 

EBITDA Q4 2017

EBITDA Q4 2018

 

EBITDA 2017

EBITDA 2018

 

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

 

€ million

€ million

1

For definition see Chapter “Alternative Performance Measures Used by the Bayer Group”

Restructuring

 

(7)

(27)

 

(32)

(35)

 

(5)

(27)

 

(17)

(35)

Litigations

 

(1)

(243)

 

(4)

(249)

 

(1)

(243)

 

(4)

(249)

Acquisition costs

 

(103)

(839)

 

(273)

(1,931)

 

(103)

(839)

 

(273)

(1,924)

Impairment losses / loss reversals

 

(41)

 

(41)

 

 

Divestments

 

(3)

125

 

(58)

4,060

 

(2)

125

 

(33)

4,061

Other

 

 

(4)

 

 

(4)

Total special items

 

(155)

(984)

 

(408)

1,841

 

(111)

(984)

 

(327)

1,849

Pro-forma sales by strategic business entity (unaudited)

Due to the scope of the acquired activities and the seasonality of the business, we are presenting sales by strategic business entity on an unaudited, pro-forma basis in order to more transparently reflect the underlying operational business development for the combined business of Crop Science and Monsanto, among other reasons. In this context, sales are presented as if both the acquisition of Monsanto and the associated divestments had already taken place as of January 1, 2017. Sales from the aforementioned service agreements with BASF after the divestments closed are not taken into account.

Pro-Forma Sales by Strategic Business Unit1

 

 

Q4 2017

Q4 2018

Change2

 

2017

2018

Change2

 

 

€ million

€ million

Reported %

Fx adj. %

 

€ million

€ million

Reported %

Fx adj. %

Fx adj. = currency-adjusted

1

The unaudited pro-forma data is presented as if both the acquisition of Monsanto and the associated divestments had taken place as of January 1, 2017. Sales of Monsanto are presented in periods as per the Bayer fiscal year. One-time effects of business operations, the accounting for discontinued operations and the recognition and measurement of sales from certain business transactions have been adjusted in line with our accounting. Due to this simplified procedure, they explicitly do not reflect sales according to IFRS or IDW RH HFA 1.004.

2

For definition see Chapter “Alternative Performance Measures Used by the Bayer Group”

Crop Science

 

4,379

4,511

+3.0

+3.1

 

20,063

19,332

–3.6

+3.1

Herbicides

 

1,071

1,125

+5.0

+5.0

 

5,104

5,014

–1.8

+3.8

Corn Seed & Traits

 

1,022

1,036

+1.4

+1.7

 

5,112

4,871

–4.7

+3.9

Soybean Seed & Traits

 

690

651

–5.7

–1.0

 

2,645

2,378

–10.1

–0.5

Fungicides

 

755

753

–0.3

–2.0

 

2,597

2,643

+1.8

+5.3

Insecticides

 

268

366

+36.6

+35.5

 

1,248

1,346

+7.9

+12.7

Environmental Science

 

216

228

+5.6

+4.3

 

1,041

955

–8.3

–3.0

Vegetable Seeds

 

107

91

–15.0

–15.3

 

706

670

–5.1

–0.7

Other

 

250

261

+4.4

0.8

 

1,610

1,455

–9.6

–1.8

Sales increased by 3.1% (Fx adj.) in 2018 on a pro-forma basis.

  • The increase at Herbicides resulted mainly from higher prices and expanded volumes in Latin America, as well as the aforementioned measures undertaken in the previous year to normalize inventories in Brazil. By contrast, sales were down slightly in North America, due primarily to unfavorable weather conditions in the first half of the year.
  • Higher sales in the Corn Seed & Traits business were largely attributable to shifts in sales from the previous year in North America due to later purchasing, and to a special effect in Latin America and the associated license revenues in Brazil.
  • Sales at Soybean Seed & Traits came in at the prior-year level. We recorded a decline in North America due to a slight decrease in market share, lower acreages and seasonal shifts from 2018 into 2019. By contrast, sales increased in Latin America, mainly due to increased acreages and higher market penetration by Intacta RR2 PRO™.
  • Sales growth at Fungicides and Insecticides was largely attributable to the aforementioned situation in Brazil in the prior year.
  • The strategic business units subsumed under Other were down overall, primarily due to the decline at SeedGrowth as a result of the aforementioned loss of registrations in France. On the other hand, we saw very encouraging growth at Cotton Seed & Traits due to increased acreages in Latin America and in North America, where higher market penetration by XtendFlex™ also had a positive effect.
Compare to Last Year