Hello, everyone, and many thanks for joining us today for our strategic update and 2024 annual press conference. Thanks very much for your time and your interest in Bayer. As you know, we will host our Capital Markets Day with investors and analysts later today here in London. Before this afternoon session, we wanted to give you the opportunity to hear an update on the company's strategic priorities and outlook, as well as business results for 2023 and guidance for 2024. All members of Bayer's Board of Management are here in the room, and you will hear from each of them before we open the floor for your questions and their answers. Okay, let's get started. Before we begin, I would like to draw your attention to the forward-looking statement disclaimer and other legal information provided on this chart.
With that, I'd like now to hand it over to the CEO of Bayer, Bill Anderson.
Well, welcome, everyone. Thanks for joining us today. As Michael just said, we have the whole board here, including our two newest members. Heike has been with us since last summer, so she may already be familiar to some. Julio is so new to the team that he's not even officially on board yet. He was named the next president of our Consumer Health division. Julio's been in healthcare for 30 years, and he pairs strong commercial, financial, and analytic skill sets. He joins us from the Pharma division, and he's also spent considerable time in Consumer Health. Heiko is still fully on board until the end of April, and he'll be representing his business today. But I'd also like to give you the chance to get to know Julio, so why don't you say a few words?
Yeah. Thanks, Bill, and hello to all of you. It is a real pleasure for me to be here today. I'm looking forward to officially joining the board and the Consumer Health team. The Consumer Health market is an incredibly attractive and dynamic market. Our business is home to great brands and tremendous science. Heiko and the team have done a fantastic job with the business, and I can't wait to get started to get to know you. Thank you. Thanks, Bill.
Well, thanks, Julio. And to all of you, we really appreciate you taking an interest in Bayer. We're very happy to have the opportunity to share our plans for the company with all of you today. Let me start by looking at where the company comes from. Over decades, Bayer has built businesses in Crop Science, Pharmaceuticals, and Consumer Health. That's happened through organic growth and a lot of M&A, including 12 major transactions in less than 20 years. That includes seven acquisitions and five separations. In that time, Bayer has almost completely changed its lines of business from being one of the world's largest chemical companies, now down to three areas of focus. That's a remarkable feat, and my predecessors have shown remarkable strategic foresight and guts.
But all that rearrangement has come at a very high cost, both in terms of the debt that we now have on our balance sheet and in shifting the focus away from operations. What is operations? That's really the core task of ensuring that each employee can add value for customers every day. Well, that's where we come from. Today, we're only 10 weeks into the year, but I'd like to share a snapshot of what's happened, both inside and outside of the company, in just the past 65 days. In Pharma, we received market authorization for EYLEA 8 mg in the EU. Our experimental medicine for menopause symptoms, elinzanetant, met all primary and secondary endpoints in two phase III studies. We announced that we have the plan and the support of our employee representatives to implement our new operating model. That's important because it's a massive change.
To address our debt challenge, we proposed cutting the dividend to the legal minimum. That's a step that's unprecedented in Bayer's modern history. We received an adverse verdict in glyphosate litigation, we won another case, and we saw a mistrial in a third. Right now, we're introducing short stature corn to farmers in the U.S. Yesterday, we strengthened our Pharma pipeline with a new cardiology drug for Europe. And tomorrow, Aspirin celebrates its 125th birthday. We recently launched two new formulations behind the brand in both the U.S. and Germany. Think about that, a 12-decade heritage, and we're still innovating behind it. Meanwhile, over the course of these 10 weeks, our share price has hovered around a 20-year low.
Well, I share this 65-day retrospective because it's indicative of what I found when I joined the company: a relevant mission, strong scientific and innovative capacity, a Pharma business that's progressing very well on an important rebuild. We have leading positions in both Crop Science and Consumer Health, and a highly skilled and dedicated workforce. But we're facing some material challenges that remain unresolved, and they weigh on our company, and it's time for that to change. Capitalizing on our opportunities while resolving our challenges, that's what today is all about. We need to consider what's best for Bayer today to enable a better future for the company tomorrow. Let me illustrate this idea with a personal experience. In 2021, I had a number of important plans and goals, both professional and personal.
But on a Sunday morning in June that year, I was skateboarding, something I'd been doing regularly for more than 40 years... and I had a freak fall, and I broke my right femur in 4 places. I was face down in the street, no friends or family with me, and my leg was bent almost 90 degrees, and I was on the edge of unconsciousness from the pain. At that moment, all my plans and goals were suspended. Facts took over. I needed a hospital, a surgeon, titanium parts to hold my bone together, days of nursing care, and months of intense physical therapy. Well, today, I can come before you with the ability to do everything I could before my accident, except for skateboarding, due to a lack of authorization from my wife.
My change in circumstances, it didn't stop my pursuit of the most important goals, but it did force me to alter my path. Before the accident, I was a man with a plan. After the accident, I was a man with a plan and a shattered femur. Having a broken leg didn't make me a lesser person, but it did dictate my immediate actions, and it greatly limited my options in the moment. Due to the wonders of modern video conferencing, I barely missed a day of work, but the accident did pretty much change my ability to do everything else. There are some parallels between my personal story and Bayer today. Today, we're a company that makes a tremendous impact in the world every day for millions of farmers, patients, and consumers.
Sustainability is an integral part of our operations, and our businesses make enormous contributions to food security, to health equity, and the health of the planet. We've shown that we can lead in industries. We've shown we can turn businesses around. We also have a decades-long track record of managing our portfolio, investing in businesses we want to grow, and separating from businesses that are best positioned elsewhere. If I stop the description of Bayer there, one could ask several strategic questions of the firm. What's the right structure for the company? Are these businesses all best positioned under one roof? Are there new business areas we should be pursuing that are adjacent to the existing ones or even further afield? But the description of Bayer doesn't stop there. We are a high-impact, mission-driven life science company with three strong businesses, but we're badly broken in four places.
Shareholders who've been with us for the past five years have experienced the pain of this condition, and our employees have been through multiple rounds of layoffs. All of that has been highly unsatisfactory because the brokenness has not been fixed. The four broken areas are our Pharma loss of exclusivities, litigation, our debt levels, and a hierarchical bureaucracy that blocks progress. These four challenges greatly limit our ability to choose our destiny, whether that be as a three-division company or in smaller parts. We seriously considered the structure of our company. We did this with the help of numerous external advisors and a set of assessment criteria that included valuation levels, value creation, speed of execution, execution certainty, timing of cash generation, and the resulting leverage ratios, and the impact on our future optionality. At first glance, there are really valid arguments to make a change.
A pure-play structure has become the norm in our industries. It's certainly the simplest approach. I think we can all understand its appeal. But you always have to consider where you're coming from, and today, these four broken areas severely limit our access to structural options. Here's what I mean. When it comes to an IPO or a spin, this would require an all-hands-on-deck effort for 18-24 months, and cash contributions would be delayed beyond that timeframe. In the meantime, the leverage ratios of RemainCo or NewCo could go up significantly, and that could jeopardize our access to reasonable financing. Then you could also look at a sale, which in our case, is only relevant for Consumer Health. And, you know, that could be attractive. I mean, we could pay down some debt with the one-time proceeds. Consumer Health is a great business.
It has a track record of delivering excellent results. But a separation would come with significant costs and tax leakage. We also have some pretty clear indications from comparables that valuations aren't so strong at the moment, and we would have to say goodbye to a business that's been generating steady cash every year. Further, neither of those options address the litigation ambiguity or the loss of exclusivities in Pharma. I've seen companies try to get through patent cliffs by purchasing phase III assets. That's a very expensive game with a lot of risk, and frankly, the industry track record on these sorts of deals is poor. Finally, any kind of structural change would consume the bulk of management's time and energy over at least a 24-month period. Since joining Bayer, I've talked to a number of CEOs who've gone through big structural changes.
What I heard from them is clear: You can overhaul operations to improve performance, or you can make a big structural change, but you can't do both at the same time. A big structural change could be a good reason for all hands on deck... But not today, when we need total focus on overcoming these four challenges. In short, on the question of structure, our answer is not now, and this shouldn't be misunderstood as never. Of course, we'll keep an open mind. We always do that, but our priority is on tackling our challenges, boosting performance, and creating strategic flexibility. We're convinced that this approach is what's best for Bayer.
So for the next 24-36 months, that's where we'll put our energy and our focus: implementing our dynamic shared ownership operating model to improve performance, meaningfully address litigation, advancing the debt level toward an A rating, and building a strong Pharma pipeline. The past 11 months weren't just marked by analysis. Over that time, we've taken bold action. In the summer of 2023, we initiated a decisive overhaul of Bayer's operating model that's already resulted in faster decision-making, an acceleration of innovation timelines, and simpler structures. We've mobilized the entire company, including our employee representatives, behind a reimagination of every aspect of our operations. In July of 2023, we made the tough call to cut our guidance. In August, a few weeks later, I said we had to deliver to begin learning, earning back trust.
In November, I said we were confident in our adjusted guidance. Today, as you saw from the results we published this morning, we delivered at the upper end of each aspect of our adjusted guidance. Now, there are 12 more ninety-day cycles between today and the end of 2026. At each one of those, our team, we intend to get up and say that we've delivered. Bayer Supervisory Board is also making major changes, including refreshing its membership with expertise in capital markets, mass litigation, and Pharma product development. They're also proposing a new incentive compensation system for us and the managers of Bayer. Short term, our management team will be compensated by three simple measures: revenue growth, profitability, and cash. That's the triangle that we're going to be measured against, and we'll be measured not as individuals, but as a team.
Long-term, based closely on shareholder input, the Supervisory Board is proposing a compensation scheme that more closely aligns outcomes for management with outcomes for shareholders. There's a lot of change happening at Bayer. It's making us more accountable and transparent. That starts with taking a hard look at our four challenges. The first is the Pharma loss of exclusivities and our pipeline. We see this as the biggest lever to recover value for the company. I like the progress here, but we have a lot more to do. The company has developed a strong early pipeline, and we have some very promising later-stage candidates, but there's no doubt we're facing some difficult years with Xarelto and EYLEA facing a loss of exclusivity.
Our team has an unwavering focus on building the base business, accelerating our highest impact early-stage projects, and maximizing the momentum we already have behind our launch assets. We delivered eight investigational new drug applications in 2023, and we're going to keep moving at that pace. Our focus is on increasing the value of our assets over time, and we're leaning on our new operating model to boost our speed and efficiency in that work. Another major challenge is litigation. This is a huge burden on our financials and also on our ability to invest in better medicines and solutions to feed the world. Both PCBs and glyphosate are at the top of the boards and my agenda right now. They're very different cases with different dynamics, and that shapes the nature and the pace of our response.
But I can tell you, we're making a number of changes in the way we manage them. Let me briefly start with PCBs. This is a product that Monsanto stopped selling in the 1970s, and there were multiple, multiple parties involved in the production chain, so we're not alone. This is a different dynamic than glyphosate. The litigation on PCBs will ebb and flow over time, and that's going to influence our response. We'll defend ourselves in individual cases as we also assess the broader situation. Switching to glyphosate, let me start with some facts. Glyphosate is safe. That's been confirmed time and time again by regulatory authorities and scientific bodies worldwide. Just three months ago, the European Commission extended the product's registration for another 10 years based on the European Food Safety Authority's thorough assessment.
Even in California, a state where I've lived for many years, where even routine household items carry cancer warnings, a court said it would be false and misleading to put a cancer warning label on glyphosate products. Glyphosate is essential. It's the most widely used crop protection chemical in the world because of the unique role it plays in keeping weeds at bay and protecting the yields of important crops, from row crops to fruits and vegetables.... This has major implications on keeping food prices affordable, which is especially important today after several years of high food inflation. Glyphosate facilitates no-till farming, which is pivotal for keeping carbon in the soil, which significantly reduces both energy and fertilizer requirements. Without glyphosate, carbon emissions from farming would rise dramatically. Glyphosate plays a major role in farm economics.
Threats to its availability jeopardize the livelihood of farmers, as evidenced by the more than 360 farmer advocacy groups that recently brought this issue to the attention of the U.S. Congress. They're concerned because Bayer is the only U.S. source of glyphosate. Those are the facts. Now to actions. We have a number of cases upcoming this year. Our new general counsel has brought in some new external counsel, and we're adding a litigation expert to our Supervisory Board. We will defend ourselves vigorously. We welcome positive outcomes like the ones we saw on Friday, and we will continue to appeal every unfavorable verdict. By the way, we continue to see reductions of awards by roughly 90% on average, and we're still working to have these verdicts set aside completely. It's clear that a strategy of defense alone is not enough.
We're looking at the litigation topic from every angle, inside and outside the courtroom. That includes much more thorough engagement with other stakeholders in the realm of public policy. It includes considering every possible means to bring closure to these lawsuits for the company and for our customers. You should expect more action from Bayer in this space, but we'll only comment on it when and where it's in the company's best interests. Third, the debt. You can expect an intense focus on profitable growth from our base business, as well as conversion to higher cash flows, and we're not stopping there. Two weeks ago, we shared our plans to amend the dividend policy to reduce debt. We plan to pay out only the legal minimum over the next three years. That wasn't an easy step to take.
In fact, it's the first time in post-war history Bayer has taken such a decision. We're determined to get back to strategic optionality, and we will continue to make the hard decisions that are right for the company. We're confident that our proposal will get approved by shareholders at the upcoming shareholders meeting. The reactions I've heard and seen, they really confirm that this difficult step was a necessary one. Debt reduction will be our top priority with the retained cash. This step will help us advance toward a single A rating category over the next 36 months. Finally, bureaucracy. We're well underway in implementing a radical new operating model, Dynamic Shared Ownership. This system redesigns the entire company into teams focused on improving lives for customers or improving our products, and it eliminates everything else. Let me be clear, this is not simply a cost savings program.
Cost savings will be the outcome, not the goal. DSO will fuel growth through customer proximity and innovation. Consumer Health, our division with the shortest innovation cycles, has already shortened the timelines for some key launches. Crop Science is reimagining its commercial model to simplify the customer experience in all four regions, and Pharma is accelerating market access for EYLEA 8 mg, one of our biggest launches this year. Work like that is what makes me confident, because beyond the four challenges I just addressed, we have a lot to build on in our businesses. Dynamic Shared Ownership will focus the entire organization on customers and products. Resources will dynamically flow away from the old static processes and the committees and governance toward our highest impact projects.
It will take out about EUR 2 billion in annual organizational costs as of 2026, but costs are only one of the benefits. Now, let me hand over to Heike for more on how we're bringing DSO to life.
Thank you, Bill. By the end of this year, Dynamic Shared Ownership will touch each and every part of our organization, with dedicated teams organized around and focused on customers and products. These teams are supported by a network of enabling and technical functions, making decisions faster and in ways that best support customer needs in a more synergistic way than was possible in our previous hierarchical model. At the end of 2023, we already had 50 teams and 2,500 people working in this model. Today, we've scaled it up to 300 teams with thousands more working in the system, and we'll continue to scale with unprecedented speed, and we expect to have nearly every employee at Bayer engaged in DSO by year-end. To do this, we are working on a complete redesign of our operating model.
We are reducing layers to the minimum imaginable. In some areas, we have 12 layers between Bill and our customers today. So here, our target are 5-6 layers across the entire company.... We're also reimagining span of enablement and coaching, something we used to call span of control, towards a minimum of more than 15 employees per leader, and we are optimizing our management structures. To put this into perspective, today, we have more than 17,000 people managers. More than 30% of those managers lead small micro teams with few or with 4 or fewer direct reports. Some managers even only have one direct report. This not only creates complexity, but it also showcases the underlying challenges of a hierarchical model. So we are really flipping the script across our businesses. Let me give you one concrete example from our Pharma team in North America.
They went live at the end of last year with an entirely new operating model. They reduced the number of managers by around 40%, and they increased their span of coaching from 8-9 employees per leader to 15-20. They now operate with 68 field-based so-called micro enterprises that are designed to provide a unified, much more seamless customer experience. These squads of around 15-20 people are largely autonomous, cross-functional units that set and they execute their own strategy. They have ownership of their spend and can flex resources or evolve team composition to address unique market dynamics and opportunities. This has already led to radical changes to unleash the power in our organization with a much flatter organization, with more people being coached and guided by far fewer leaders. Across our enabling functions, we can also see substantial movements.
We want to highlight two big steps we've taken to move towards a system that puts customers and not internal processes at the center. We dissolve complete organizations, such as our in-house business consulting team, and we are substantially reducing control organizations, such as our internal audit team, by close to 50% by reducing their scope to focus only on material risks. Across all our functions, we are putting everything on the table. We are not relying on how it's always been done, but really looking at what's really required, what really adds value, and how we can best set ourselves up to deliver on customer needs. As a labor director, I would be remiss if I didn't point out how important our employee representatives are in this whole transformation. In a Co-determination system like Germany, changes of the magnitude we are undertaking can sometimes take more time.
Fortunately, our employee representatives understand the urgency of our situation and are very supportive partners in this transformation. They are helping us to move swiftly and at the pace we need to succeed. I'm in regular contact with them, and we are confident that DSO will propel Bayer to a better performance while creating more meaningful jobs at our company. With that, I'm handing over to Bill again.
Thanks, Heike. Yeah, it's been great having you on board these last months, and we got a really important work to do, and we're very fortunate to have someone of your talents and knowledge on the case. So in a minute, Wolfgang is gonna tell you how we see our business developing in 2024. But first, I'd like to paint a picture of where we're taking Bayer over the next three years.
By the end of 2026, I see a company that has weathered the loss of exclusivities and rebuilt the Pharma pipeline, that advanced effective strategies to contain litigation and has significantly improved our leverage ratios, that strengthened our leading position in agriculture, and that we're well on our way to bringing 10 blockbusters to market in Crop Science, that we're outperforming our peers with leading brands in Consumer Health. I see a Bayer that has tackled the bureaucracy, fully centered on customers and products, with each one of our businesses leaner and more effective than their competitors, with the strategic flexibility to claim its own destiny and a system of performance that pushes us to be better in rapid intervals. The reason for all of that, the reason it's so important, is because the work that we do, it really matters.
When we say, "Health for all, hunger for none," we're not being naive idealists. Hunger and disease aren't problems you can solve even in a lifetime. They're some of the biggest issues facing the world today, and we know our businesses can be a true force in addressing them. For Crop Science, that means taking today's level of agricultural production and then producing 50% more, all while restoring nature. For Pharma, that means looking at diseases that have afflicted human life for as long as we can remember and daring to go after a new treatment, if not a cure. For Consumer Health, that means delivering medicines most of us take for granted, for heart health, for cuts and bruises, or for a headache, but reaching 1 billion people with them, especially those who need healthcare the most. Those are big goals.
They extend over decades, but they will give us clarity of what we're working toward, and I'm confident that we have the people, we have the products, and we have the plan to go after them. We're focused on doing that in the fastest, most productive way possible and getting rid of everything that stands in our way... Thank you very much, and I'd like to hand it over to Wolfgang.
Thank you, Bill. First, I would like to briefly take you through our financial results for 2023. As you all know, we lowered our outlook in July last year, mostly due to much lower than expected glyphosate prices. We have delivered against our revised commitments based on a strong performance in the fourth quarter, in particular on the cash side. Sales came in at EUR 47.6 billion, and EBITDA before special items at EUR 11.7 billion, both at the higher end of the ranges we provided. Core earnings per share came in at EUR 6.39 at the upper end of the guidance corridor as well. With our revised outlook, we forecasted EUR 0 free cash flow for the year, but we actually achieved EUR 1.3 billion by the end of the year.
This also translated into a better-than-expected net financial debt, where we closed the year with EUR 34.5 billion. There can be no doubt that we are far from the good results we had the year before. It must be kept in mind, however, that 2022 was an exceptionally good year for us, in which we benefited from very high glyphosate prices. If we look at the past five years, we can see that our performance over that time frame was actually very robust, and we achieved this in a highly volatile macroeconomic environment, which was dominated by crisis such as the pandemic and the war in Ukraine. Over the five-year period, we raised sales by around 2% per year and clean EBITDA by approximately 1% per year. But the clean EBITDA results do not fully translate into consistent free cash flow growth.
Out of about EUR 11.9 billion in EBITDA before special items, we only generated EUR 2.3 billion in free cash flow on average per year. Of course, we need to account for CapEx, tax, financial results, and restructuring, but another major impact comes from litigation-related payouts. These latter include settlements and judgments and very significant cost of defense as well. Without these, our company would have generated about EUR 5 billion of cash flow on average per year. I would now like to briefly talk about the 2023 business performance in our three divisions, which my colleagues will then explain in more detail later on. Please remember that we always refer to sales growth in currency and portfolio-adjusted terms. This applies to what you will hear from me and also what you hear from my colleagues later on today.
Let's start with the agricultural business. Sales at Crop Science fell by 4% to EUR 23.3 billion. EBITDA before special items decreased by 27% to EUR 5 billion. This development was mainly due to the significant price decline for glyphosate-based products. By contrast, the division achieved an above-market sales growth of 7% in its core business, excluding glyphosate, thanks especially to price increases. Sales at Pharmaceuticals in 2023 came in level year on year at EUR 18.1 billion. We achieved significant gains with our most recently launched products, Nubeqa and Kerendia. Furthermore, we posted continued sales growth for EYLEA and in our radiology business. These effects were more than offset by declining Xarelto sales and much lower than anticipated sales in China.
This latter was due partly to pandemic-related developments at the start of the year and an anti-corruption campaign in the health sector that indirectly impeded demand there. EBITDA before special items at Pharmaceuticals decreased by 12% to EUR 5.2 billion in 2023. This was primarily due to an unfavorable product mix and higher R&D investments. Sales at Consumer Health increased by an encouraging 6.3% to EUR 6 billion against an already strong previous year. We posted double-digit percentage sales growth in the dermatology category, thanks partially to continued high demand for Bepanthen and Canesten, as well as in the pain and cardio category. We also significantly increased sales of cough and cold products, particularly in Europe.
EBITDA before special items at Consumer Health increased by 3% to EUR 1.4 billion in 2023, so mainly driven by operational productivity programs, successful price management, and sustained sales growth. We thus more than offset the inflation-related strong rise in cost and higher investment in marketing innovative products. That concludes my review of our financial figures for full year 2023. Let me now move on to the outlook for 2024, which is again adjusted for currency effects. For sales, we expect a relatively moderate development of -1% to +3%, growth in 2024, resulting in between EUR 47 billion and EUR 49 billion. The fairly broad range that we are forecasting here is due to the unpredictability of key business drivers.
Regarding our top line, these are the expected double-digit decline of Xarelto sales due to the loss of exclusivity, the continued negative impact on our Pharma business in China, and the volatility of the agricultural markets. Furthermore, we expect increased pressure on our profitability and thus an approximately 3%-9% decline in EBITDA before special items. This results in EUR 10.7 billion-EUR 11.3 billion. We anticipate that core earnings per share will come in between EUR 5.10 and EUR 5.50. Despite the lower profitability, we expect free cash flow to increase to between EUR 2 billion and EUR 3 billion. As a result, we aim to reduce our net financial debt to between EUR 32.5 billion and EUR 33.5 billion.
As we already communicated two weeks ago, our clear focus for the next three years is to reduce our debt level. This is what we will mainly use our cash for. We therefore plan to change our dividend policy to only pay out the legally required minimum dividend for the next three years. For 2023, the Supervisory Board and Board of Management will propose a resulting dividend payment of EUR 0.11 per share at the upcoming annual shareholder meeting. Now I'd like to hand over to my colleagues who are in charge of running our operational businesses, and we start with Rodrigo in Crop Science.
Thank you, Wolfgang. I'm pleased to provide more insight into Crop Science performance. Overall, our Crop Science business has a solid year, delivering our revised guidance as previously adjusted for the glyphosate price normalization. Our core business, so everything except glyphosate, has shown robust growth of 7%, outpacing our industry peers and the broader market. This growth spans across every region and nearly every business segment. With our world-class innovation in seeds, crop protection, and digital technologies, we are delivering value to farms of all sizes, regions, and crops. Let's take corn, for example, with the Preceon Smart Corn System. The breeding approach saw a successful Ground Breakers program last year, and is now moving on to the target commercial introduction in the U.S. Our biotech trait approach advanced to phase IV, moving closer to an estimated launch of 2027.
These are big milestones for this promising corn system solution, which is expected to fit on 220 million acres globally. In our crop protection business, the launch of Fox Xpro, our newest offering for the control of Asian soybean rust, will further strengthen our number one position in soybeans in Latin America. These are just two examples of the continuous innovation we bring to farms every year. In 2023, we launched more than 400 new hybrids and varieties, registered more than 190 new crop protection products, and introduced six new formulations. We're making big strides on our journey of scaling regenerative agriculture and tapping into new market opportunities. In India, we introduced our Direct Seeded Rice system, and compared to the traditional rice transplant growth in flooded paddy fields, direct seeded rice is sown in the ground.
This system has the potential to cut both water usage and greenhouse gas emissions by more than 40%. We also saw first revenue streams from our carbon programs, ForGround in the U.S. and ProCarbono in Brazil. With ProCarbono Commodities, we are able to make our first shipments of the Brazilian soybeans with a major tracked and deforestation-free carbon footprint. A great example of our efforts to protect forest and other natural vegetation. On the digital front, the Azure Data Manager for Agriculture is officially in preview, developed as part of our strategic partnership with Microsoft. The platform enables companies in the agri food value chain to accelerate digital innovation and build new business value. Built on top of the Azure Data Manager, our Ag Powered Services leverage our industry-leading expertise to provide insights on crop health, weather forecast, crop growth tracking, and more.
On the operational side, we are moving fast with the implementation of our Dynamic Shared Ownership model, with a fifth of our 450 plant customer-facing squads already launched and executing changes. In summary, we deliver solid core business results, and we continue to advance key technologies in our pipeline, helping us to execute our vision of producing more, restoring more, and scaling regenerative agriculture. With that, I would like to share our outlook for 2024. We expect sales to grow by -1% to +3% on a currency- and portfolio-adjusted basis, with core growth of 1%-4% and an EBITDA margin before special items in the range of 20%-22% at constant currency. With that, let me hand it over to Stefan for an update on the Pharma business.
Thank you, Rodrigo. For our Pharmaceuticals division, 2023 was quite the roller coaster. We saw remarkable achievements, but also faced significant challenges. So first, let me highlight the progress we made in executing our strategy. Our cancer medicine, Nubeqa, and our heart and kidney medicine, Kerendia, delivered very good results in 2023. Sales of Nubeqa almost doubled, mainly driven by strong uptakes in the United States and also in Europe. For Nubeqa, we aim to surpass EUR 1 billion in sales this year.... For our ophthalmology blockbuster product, we received approval for EYLEA 8 mg, you heard it from Bill, here in Europe, as well as in Japan in January 2024, which will allow us to secure our market leadership for the treatment of two specific types of eye diseases and provide patients with up to five months between injections.
These positive developments will support us in driving sales momentum and support our top line. We also made considerable progress with our late-stage development pipeline. For our potential blockbuster candidate, elinzanetant, we obtained positive top-line results in two pivotal phase III studies, reinforcing the candidate's potential as a non-hormonal treatment option, capable of transforming the way menopausal symptoms are treated. We've just acquired, you heard yesterday, the marketing rights in Europe for acoramidis, an orally administered small molecule drug for the treatment of a progressive and fatal heart disease. Acoramidis met all endpoints in phase III clinical studies and is already being reviewed by the European regulators for marketing approval, hopefully with a launch in next year. As part of the ongoing transformation of our Pharmaceutical division, we bolstered further our research and development capabilities and sharpened our research focus on four therapeutic areas.
Those are oncology, cardiovascular and renal diseases, neurology and rare diseases, and immunology. Selected investments, as well as the successful work of our teams at AskBio, BlueRock, and Vividion, continue to strengthen our early, mid, and late-stage pipeline. We have made significant progress in the area of cell therapies and gene therapies, reaching important clinical trial milestones and advancing development programs into the next phases of clinical testing. From our chemoproteomics platform, we successfully advanced two programs into the clinic to address unmet need in cancer patients. However, we also encountered some challenges. While the results of a phase III study investigating asundexian in patients with atrial fibrillation at risk for stroke did not allow for a continuation of this specific development, we will continue to investigate this important compound for secondary stroke prevention.
Another challenge, and Bill has mentioned it, was the expected loss of market exclusivity for Xarelto. We felt increasing pressure from generics in several markets. This situation will continue and expand in further markets throughout 2024. In China, the ongoing volume-based procurement policy had a negative impact on our business. Furthermore, the country's anti-corruption campaign in the healthcare sector posed indirect challenges. We've seen an indirect negative effect on our businesses due to the postponement of medical events and limited access to healthcare practitioners. However, let me be very clear, with our strong compliance culture, we will ultimately benefit from a fairer and more ethical competitive environment in China over time. In 2024, we will continue to deal with some of these and other challenges. At the same time, our new dynamic shared ownership operating model will help us to become more efficient and more product and customer-centric.
We will therefore continue to invest in our Pharmaceutical business and with that, into our future. For 2024, we're forecasting sales decline of 0%-4% and an EBITDA margin before special items of 26%-29%. Thank you for listening, and with that, I will hand over to Heiko.
Thank you, Stefan. It is my pleasure to give you an overview of our Consumer Health divisional performance for 2023, and to give you a sense of where we want to go in 2024 and beyond. In 2023, we achieved strong, broad-based growth of 6.3%, amounting in just over EUR 6 billion on top of a very strong prior year growth. This performance surpassed our 2023 growth guidance of around 5%. In addition, we recorded an EBITDA margin of 23.4%, a substantial expansion of 90 basis points versus the prior year, meeting the upper end of our full year guidance of around 23%. Achieving this amid a volatile economic and geopolitical environment is a testament to our teams, to good consumer demand resilience, and the continued appreciation and trust in our iconic brands.
The standouts were our dermatology category, which saw strong 12% growth across the regions and brands, driven by Bepanthen and Canesten, and high demand for our regional brands in China, as well as the 12% growth we achieved in pain and cardio. Our allergy and cold business, as well as digestive health categories, achieved strong single-digit growth in 2023, while nutritionals were on previous years' levels. Other positive developments were the strong growth of our e-commerce business, as it recorded over 20% growth and the launch of our new precision health unit. Looking at our results from a regional perspective, we achieved growth in three out of our four regions. North America sales were just on prior year levels. A final point of pride is how we, in 2023, reached over 75 million people in underserved communities with our special access programs, contributing to around 20% of our total 23% growth, demonstrating that expanding access to proven healthcare solutions is not only good for our business, but it also to serve the communities.
Looking now at 2024, we expect continued broad-based growth across our regions and categories at around 3%-6%, with an EBITDA margin between 23% and 24%, with acceleration towards these goals really kicking in post Q2. Talking of acceleration, we are doing this, embarking on a bold new vision to help over 1 billion people live healthier lives with the most trusted self-care solutions. Achieving this will be based on an evolved game plan to grow our brands ahead of the market, generating stronger demands with our consumers and customers for our iconic, much-loved brands.
A focus on innovation and launch effectiveness and the winning creative and consumer-centric capabilities of our teams. We will also seek to accelerate our operational efficiencies and our progress towards this vision by adopting new ways of working under DSO, and have started working in truly cross-functional customer and category brand teams. The impact of this way of working speaks for itself, and our front-runner teams are already achieving impressive outcomes, including significantly faster times to market for innovative product and much reduced supply chain lead times. You already have heard that I'll be leaving Bayer at the end of April. It is with tremendous pride that I look back on this team's many accomplishments over the past six years, how we turned around the business and built a true foundation for success.
In Julio Triana, the team is getting an experienced healthcare leader with a proven track record of delivering and a fantastic knowledge of the company and his business, having now been a member of team Bayer for over 20 years, including time spent in Consumer Health. I leave knowing fully well that this division, under Julio's leadership, is well-positioned to continue to deliver on its commitments, and that it will work with passion and drive towards achieving continued success and growth in the future. Thank you very much.
Thank you very much, and with that, I hand it over to Michael for our Q&A session.
All right. Many thanks to each of our board members for their remarks. And with that, we now start with the Q&A session. If you would like to ask a question, please do the following: First, make sure that Zoom is the only active chat program open on your computer, as other programs might interfere with your ability to engage. Second, make sure your microphone is activated within Zoom. And third, use the raise hand function. We will register your interest in asking a question, and then if it's your turn, I will call your name, and a pop-up window will open on your screen. And when you see this pop-up window, please unmute yourself to ask your question. And your camera, of course, will remain off. So enough about the logistics, let's get started, and let me see where the first question comes from.
Patricia Weiss from Reuters. Patricia, over to you.
Hello, good morning to London. I have three questions, if I may. You said you wanted to cut the management layers from 12 to 5 to 6 layers. In terms of people, can you now tell us how many jobs will be affected by the cutbacks? And secondly, you said that you are updating Bayer's legal strategy, pursuing new approaches, both inside, outside courtroom, includes more intensive cooperation with other players in the field of politics. What exactly does that mean? And last question, you declared the Pharma pipeline as a top priority, but you also emphasized that buying phase III assets is an expensive game with a lot of risk. How do you want to strengthen the pipeline? Thank you.
Patricia, we had a very hard time to hear you, at least here in the room, so hold, hold the question for a second, and let's just see how we, how we fix it, because we, we couldn't really hear you. There was a lot of noise in between. We just wait for a second. Oh, we continue? Yeah? Okay. So, Patricia, hold, hold the question. We're going to get back to you and see that we can, that we can fix the, the technical issues that we were having here. Let's see if we can get to Olaf Storbeck first from the Financial Times, and then, Patricia, we take you afterwards.
Okay. Can you hear me?
Difficult to hear you right now.
Okay, well, Patricia was great on the webcast, so it must be a problem on your side in the acoustics.
Olaf, we also have a difficulty hearing you here. Give me, give us one second. Can they write the question? Yeah, that's obviously not grounding issue. Not possible. It's something on the connection. Yeah. Yeah. We're gonna fix this here in the room, I hope. Give us one second, please. But with that, we cannot hear you. And they. Yeah? Yeah, we are just. Give us, give us one second. We're trying to fix it. Can we try that again?
Hello, can you hear me? Can you hear me? It should be.
Are we gonna do it like this? Yeah, one second.
Team is fixing on it. So, apologize once. So, let's give it another try. Patricia, you were first. I know that you could be heard by everyone else, but not here in the room. So, again, over to you, and then we take Olaf Storbeck afterwards. Patricia, please start when you can hear us.
Good morning to London. I hope you can hear me now.
Yep, we can hear you now. Great.
Sorry for the rest to listen to my questions again. I have three, if I may. You said you wanted to cut the management layers to five to six. In terms of people, can you tell us now how many jobs will be affected by the cutbacks? Secondly, you said that you are updating Bayer's legal strategy, pursuing new approaches. This includes more intensive cooperation with other players in the field of politics. What exactly does that mean? And, last question, you declared the Pharma pipeline as a top priority, but you also emphasized that buying phase three assets is an expensive game with a lot of risk. How do you want to strengthen the pipeline? Thank you.
Great. Yeah, thanks, Patricia. So on the question of how many jobs, we couldn't really give a precise figure today because our approach is fundamentally different than the typical restructuring approach that companies do. And we've all been, you know, part of these exercises in the past where, you know, there's a target, like a 10% reduction, and then everyone sort of gets the target. They take out their org chart, and they just eliminate 10% of the boxes. That's not at all what we're doing. We don't start with a target. We start with a, you know, a quest to basically maximize the ability of our people on the ground to take action fast, take action today to help customers, take action today to drive innovation forward, and we basically take out everything that hinders that.
Every step that is like a hurdle, we take that out, and that ends up being the sort of cost savings part of dynamic shared ownership. So we couldn't tell you how many jobs it'll be. We know it'll be substantial. I think we've given examples, like in the U.S. recently in Pharma, they took out about 40% of the management jobs, but there will be a broad range, and we'll provide more updates on that as we go. In terms of the legal strategy, you know, I think I addressed this pretty thoroughly in my talk. I wanna make clear we're on this. This is a top priority. It's not, you know, somewhere off to the side, but it's front and center for us.
We're not gonna say much more than what I just said, because we... Well, I think you'll agree, we- it doesn't make sense for us to, to give our adversaries the, the litigation industry, and it is an industry, we're not giving them our, our playbook in advance. So thanks for the questions on that. Maybe, Stefan, would you like to talk about, you know, is, is there a, a tension between saying we're, we're not buying phase three assets on the one hand, but we do wanna bolster our Pharma pipeline? How would you answer that?
Thank you. So, Patricia, thanks for this excellent question. This is a priority that we've been dealing with now for a number of years. How can we bolster our pipeline in our Pharmaceuticals business? Now, you also need to understand that if you stay away from doing probably not value-adding late-stage deals, it's something that you don't fix overnight. So what we've been working on, what we continue tirelessly to work on, is really to fix our overall approach to our R&D model. That means looking at the capabilities that we have, and you've seen us make continued investments in platform capabilities and in earlier deals.
Over 120 deals over the last five years is one area. The other thing is how to improve focus. So we've clearly outlined that we wanna focus around four areas that we see most interest for us, and most unmet need being in cardiovascular medicine and oncology, being in neurology and rare disease, and being in the area of immunology, where we believe we have unique capabilities paired to strong unmet need. And then it's about the quality. We need to advance now all of these early assets that we've added to our pipeline faster through the funnel.
So to make a very promising early pipeline, convert it over the next three years into a promising late-stage pipeline. And then let's not forget that when you look at the size of the problem that we're facing with loss of exclusivity of Xarelto and EYLEA, which are not small problems, that we have significant opportunities with the products that either are being launched right now or that are gearing up to get ready for launch. So we have a number of candidates that have blockbuster potential over the coming years, and with the addition of acoramidis that we added yesterday, I think we get more credibility on our late-stage shots on goal.
So all of this obviously needs to continue, and we will continue to make reasonable and measured investments into rather earlier deals, trying to advance them as fast as we can. Thank you.
Hey, and, the next question comes from Olaf Storbeck. Olaf, again, over to you.
Okay, can you hear me?
Yep, we can hear you.
Cool. Yeah, I would like to pick up Patricia's question on the job cuts, again. Because, I mean, you gave a number on the cost cuts you're expecting by 2026 from DSO, which is EUR 2 billion. As you have EUR 10.7 billion in personnel expenses at the moment, which is kind of, that's a reduction of 18%. Does this kind of, if I'm sure that about 18% of your staff has to go, which would be like between 15,000-18,000 people, would that be completely misleading? Or is this kind of roughly in the area, what you expect? I mean, you must know where the EUR 2 billion are coming from, or is this different costs than expenses?
That would be my first question, and I've got two more, which I would like to ask later.
Yeah. So Olaf, maybe at a high level, I could say, yeah, you're... There's a number of things that go into this, and of course, it also has to do with the fact that these are, you know, management jobs. They tend to be more expensive jobs, and the higher up you go, the more expensive it is. So you can't translate from a cost savings number to a % of workforce. I think, you know, and I think our focus again, is take everything out of the way that's coming between our people at the ground level, offering a new solution for a customer today, advancing a product faster. And as we look at that and sort of estimate the different effects it could be, we come up with about EUR 2 billion.
We think we can deliver that, and yeah, we're quite confident in it.
I also have a cheap.
Other questions, Olaf? Maybe ask them, or we collect them, and then we answer them.
Okay, yeah, maybe ask them all. It seems to be otherwise difficult echo-wise and stuff. So could you give us an estimate how much the DSO initiatives will cost you per year by 2026? And then I have a question on leverage or a few questions on leverage. One is, you said that in a potential split, you would be expecting to—the leverage for these different units would go up, at least temporarily. Could you explain why? Because, I mean, the earnings flows or the income flows would remain the same or should remain the same in this. I don't really understand that. And then the other question on you said that will come down by one to two billion euros this next year in 2024, if I got that right.
As you already—I mean, that's only the dividend cut, more or less, kind of, which translates into lower debt, while free cash flow is way expected to be up significantly as well. Why isn't the deleveraging kind of going faster, and what else are you going to do with the cash?
Yeah, Olaf, I'll take a at this, and then others can supplement. The EUR 2 billion savings will obviously produce one-time cost. They will be lower as a factor of the savings when compared to previous programs. You will probably recall that we always talked about 1.5x-0.7x. This time you will see this closer to 1x. Has to do with the makeup of the actions for the most part. Let me address the debt first. It is our top priority to advancing towards a single A/A rating. Very clear. I think that became also clear through the dividend cut.
Good question on why the free cash flow doesn't translate all the way to the net financial debt, and that has simply to do that there are certain factors between free cash flow and the overall change in cash. For instance, milestone payments that we have on M&A action that we did in the past that are still outstanding. It could be certain provisions to pensions. It is indeed the dividend that you mentioned, and we have also provisioned for some further effects, fluctuation there as well.
So we'll obviously try to optimize that number, but that is really, those are the main factors going in there. And last but not least, when you look at a spin or an IPO, as Bill mentioned, there's many factors that you look at, and one of them is time to money, right? And in an IPO, it takes you two or three years, if you're lucky, to get the shares sold. But in the meantime, you're accumulating a lot of cost. It's one-time cost of rewiring the systems, it is potential tax leakage that you could incur depending on how the transaction is structured. And that will all drive up your cost, profitability down, leverage up.
And then don't forget, when you sell a business, you're also giving away the profit of that business, and that will also have an impact on leverage. So I hope that gives you a few pointers to your questions.
Thank you. The next question comes from Ludwig Burger, Reuters. Ludwig, over to you.
Thank you very much, and good morning. A question for Bill, if I can, on you've hinted in your release on the dividend measures that you had a conversation with shareholders, and now today, you've called off specific measures on the structure. I wonder what is your sense of how this will go down with the shareholders, some of which have requested, have really urged you to reconsider or to review the structure of the company, and specifically now with Jeffrey Ubben due to join the Supervisory Board? I have to be really curious. How are you getting along with him? What are Jeffrey Ubben's ideas? What does he bring to the table?
Will he be happy about you calling off restructuring measures or group structure changes or the by up to three years? Thank you.
Yeah, Ludwig, thanks for the questions. So, yeah, regarding this decision to defer any sort of structural measures, at least for the next two to three years, we've had an opportunity to have many, many dialogues with major shareholders, frankly, over the whole time I've been at the company. It's clear that there's been a lot of calls for a breakup for the reasons I mentioned, that you know, a pure-play structure is simple. Most of our competitors are pure-play. But our major shareholders also understand the nitty-gritty of corporate breakups, and they understand that there's one-time costs, they understand that there's considerable tax leakage, and they understand that the present valuation environment is not particularly favorable.
And so I think what we've heard mostly from them is, "Hey, we, we need to do what's best for the company in the long term." And I, I think that they, they understand that the four topics that I've mentioned, these four challenges, that they're, they're things that we need to address, and that the time that it takes for, you know, some sort of major financial structure change is, is time we can't afford and, to lose in addressing those, those topics. With respect to, to Jeffrey Ubben, I won't speak for him. That's not my job, but I can say that, you know, he, he's been a, a productive member of a number of boards.
I had an opportunity to talk to CEOs from other companies that have worked with him over the years, and I think he's known by shareholders as someone who advocates very squarely for the best thing for the shareholders. But I think he's known for management for someone who's yeah highly intelligent and focused on really adding value and how companies add value. So I look forward, I think as we all do, to having his input from our Supervisory Board as well as the other new and old members.
Okay, next question comes from Jonas Jansen, Frankfurter Allgemeine Zeitung. Jonas, over to you.
Hi, thank you. Thank you, and good morning to you. I wanted to ask if you can share a little bit more about the glyphosate plans, not like the legal topic, but more on the financials, because you had a big effect in the last year. What are your plans with glyphosate in the future? And maybe, and then there we come to the legal part, how big will the role of glyphosate be in the next years for Bayer?
So let me take that question. So what we had, and we're gonna share more details this afternoon, but basically, when you think about glyphosate, we had 2022 as an exceptional year, and now we're back into a normal situation for glyphosate. And that's how we are guiding for the future as well, for next year. We are basically guiding based on 15 years average of the glyphosate price for the coming 2024 season, what allow us to focus really on the core business. The core business is all the innovation that we bring is in the core, and that's why we reinforce the performance of last year of 7% growth on the core business.
We're planning another growth for 2024, and this is the foundation of based on our innovation, our new launches in the seeds and traits and in CP and the digital technology. So we are managing glyphosate as a more volatile business, guiding for the 15 years, but highly focused on the core business and how we deliver that innovation to the farmers. Thank you for your question.
Yeah, and I might just add, in terms of, you know, future plans, Bayer is, I think, as many of you know, we're the largest investor in R&D for agriculture, for the future of feeding the world and ensuring we can do it in a way that's also good for the planet. And glyphosate, you know, it today is a big part of that for the world. That's not Bayer's call. That's basically what the farmers tell us, that, hey, it, it's indispensable for allowing them to produce food at an affordable price for, yeah, for consumers in the developed world and in the emerging markets. So that's the situation today. Going forward, we're investing in a number of new herbicide projects.
We are looking forward in, I think, 2028 to bring in the world the next sort of, you know, fundamentally new category of molecules as a herbicide. This is, you know, this is something that's really important because weeds, fungi, insects, they all evolve, and if you just keep using the same protection products over time, they're gonna break through, and you're gonna have problems. So, you know, we look forward to a future of all the things Rodrigo said, that we're gonna deliver, agriculture for the world, food for the world, and we wanna do that with better products.
Yeah, next in line is Aimee Donnellan from Reuters. Aimee, over to you.
Hi there. Can you hear me okay?
Yes, we can hear you.
Okay, great. I just had a question about, you know, you talk about the reasons why it doesn't make sense to sell the consumer business, and one of them is that you talk about tax leakage and extra costs. I wonder if you could maybe talk us through a little bit about what the tax leakage is exactly and what those extra costs are?
Yeah, I'll, you know what? I'll just keep it simple, and if there's more... So the tax leakage, it's kind of simple. On a company's balance sheet, you have a value for the assets. So we have a value for the assets of Consumer Health sitting on our balance sheet. You know, that, those are by product or, in some cases, whole business lines. And basically, if you sell something for more than the worth, then the tax authorities in various jurisdictions say, "Hey, that—you just made a profit because, you know, the value on your books is EUR 1 billion, and you sold it for EUR 5 billion, so you made EUR 4 billion in profit. So, you need to write us a check for 30% of that," and 30% of that is EUR 1.2 billion.
So in that example, you know, you have EUR 5 billion of cash coming in, but you got to write a check for EUR 1.2 billion. And where we're standing right now, the idea of writing checks to governments for selling things is not very appealing. So I think that's sort of the simple answer on the tax leakage. Extra cost is just, you know, right now we have one finance system for all of Bayer. We have one payroll department for all of Bayer. If we split, we got to have separate finance systems, we got to have separate payroll systems, and there's cost associated with that. So those are the kinds of costs that we're talking about.
Can I just follow up on that? Because if you're talking about what you are.
From Tim Loh from Bloomberg. Tim, over to you.
Hi, thanks. Yeah, Bill, your answer to the last question kind of sets me up for a question I had, and I have two here. First, I'll just ask, all along, one thing on my mind has been whether implicitly in this review, you've been sort of saying that Pharma is core to Bayer, because you've talked about the possibility of selling off Consumer Health or doing something with crops, but I haven't heard anything about. I don't think there was ever a possibility of selling off Pharma and keeping the other two. So that's question one: Is Pharma somehow more core to Bayer than the others? The second question is, you just sort of discussed some of the reasons why now is not the time to engage in this split, and possibly for the next 24-36 months.
If you were to decide in 2 years' time or 3 years' time that you do want to sell off Consumer Health or do something with crops, does that start the clock at, you know, at that point, and then you have to go through all of these steps that you're not wanting to do right now? In which case, some sort of a separation is potentially 4 or 5 years away, or are you gonna start doing preparatory work now so that should you decide to sell off one of those, pieces, you can do it very fast?
IPO of Pharma, does that—is that because Pharma is core? I don't know. Core, that can be sort of a feeling, and of course, we love our Pharma business. We love being a part of, you know, providing solutions to the world for cancer and for Parkinson's disease and heart disease. That being said, that's not really the, you know, why we didn't consider a Pharma spin or a Pharma sale. Fundamentally, it's just because right now there's a high degree of ambiguity around the, you know, the Pharma outlook because of the patent expirations, and so it probably wouldn't be a very smart time to try to spin it or try to IPO it. And likewise, you know, I don't think this would be a good time valuation-wise.
So we just sort of took that off the table, and frankly, I don't think any of our investors have had any appetite for that option either. On the other question of, you know, if not now, if we went to do one of these structural moves in two to three years, does that mean the clock starts over? I think right now, as I said, we're really focused on these four things. If we can fix those four things, that gives us strategic flexibility. To be direct on your question of, like, will the prep work start now? Not so much, other than we're preparing all of our businesses for a stronger future. I say that because in my example, about having separate payroll systems, we're not gonna start creating separate payroll systems.
That would be an unproductive activity at the moment, and this is a time where we can't afford unproductive activities. We gotta have everything focused on customers and product innovation. So, I'm confident that if in 2-3 years' time, we decide a structural move is the right answer, we'll be able to execute that in an expeditious manner. Thanks, Tim.
Okay, Aimee, I think you had a follow-up question that we couldn't hear in the room, but I would like to give you the opportunity to ask this. So again, to Aimee from Reuters. Can you hear us, Aimee? So let's try it again. Otherwise, we take you later in the row, which is also possible.
Okay, I think I'm on now. Can you hear me okay?
Maybe we just go ahead and then, Aimee, we come back to you then afterwards. Next in line is Stephen Wilmot from the Wall Street Journal. So, Stephen, over to you.
Hi there. Can you hear me?
Yes, we can hear you.
So, three questions from me. One, in your guidance, you talk about lower EBITDA, higher free cash flow. Can you just explain to me what's different in terms of the, the cash conversion? Also, can you just explain, when you say that the present valuation environment isn't favorable for a Consumer Health sale, it doesn't strike me as terrible. We've had these reports about interest in the Sanofi Consumer Health business. Haleon's share price hasn't been a disaster. I, I'm just not totally sure what I see, what you mean about the environment not being favorable. So just maybe can you clarify that? And also, can you just...
You said that the Supervisory Board is preparing a new incentive scheme with the short-term focus on revenue growth, profitability, and cash, and then the long term more aligned to outcomes for shareholders. Can you just be a bit more specific about what that means? Is there a—I mean, obviously, with the share price at a 20-year low, this—it would be obvious to have a bigger focus on the share prices as part of that, but I just wanted to understand what's in store there. Although, I appreciate you are not the Supervisory Board.
It's Wolfgang. I'll take your first one, and then Bill is going to, I guess, address the other two. Good catch there. Yeah, profitability is going down both on the EBITDA and the EPS level is going up. I would point to three major factors. Number one, even though we are not spelling it out, we are planning on less settlements in 2024 than we paid out in 2023. A second reason is that the timing of STI payouts or short-term incentive payouts in the following year influences the cash flow. So you can imagine in 2023, we paid the incentive systems, the incentive entitlements for 2022, which was very high, and in 2024, we're paying for 2023, which is very low.
So you see a difference there. And certainly, we're really intensely focused on working capital and CapEx management. We could go into every area, inventory, AP, AR, we'll attack everything, and we expect progress there as well, which obviously also helps to leverage the cash flow over the profitability. Bill?
Yep. Yeah, and Stephen, regarding your question about valuations and why do we think that the valuations are not sort of optimal right now in Consumer Health? I think it's just a simple look at some of the facts that there have been the two largest Consumer Health businesses that are part of other companies, one of those being Bayer. That there have been discussions about those being, you know, separate or made separate for a number of years now, and you haven't seen it happen yet. And in an environment where valuations are high, typically an acquiring company is knocking on the door and putting down the money. And that sort of hasn't happened yet, right?
So it's I think we have a lot of conversations with investment bankers and with other leaders in industry, and that's basically the read of the land. On the question about alignment of LTI, maybe just simply put, the current LTI structure for senior managers has 20% on ESG measures, 40% that's basically tied to the share price, and 40% that's tied to a measure called return on capital employed, which is a financial metric. And the fact is that financial metric is highly subject to things like changes in the valuation of intangibles on the balance sheet.
Which means that it could go up in a year when the share price goes down, it can go down in a year where the share price goes up. It's for various sort of idiosyncratic reasons, it's not particularly aligned with shareholders' interests, either in a sort of one-year increments or in some cases, over a longer term. So, the recommendation from the Supervisory Board is instead of having 20, 40, 40, with 40% directly sort of aligned with the share price, to go 20% on ESG and 80% aligned with the share price. So hope that clarifies it for you, Stephen.
Okay, and the next question comes from Kevin Grogan from Scrip. Kevin, over to you.
Morning, everyone. Can you hear me?
Yeah.
Marvelous. Yes, it's just a quick one, a couple of questions really on Pharma. Bill, you were saying that, again, going back to Tricia's point, that acquiring Phase III assets is an expensive game and a lot of risk. But you've just done the deal with BridgeBio. A very interesting deal, I think it's fair to say. Now, is it, though, should we expect more licensing deals in certain areas, perhaps, rather than acquiring products? Because the late-stage pipeline does still look a bit thin, given that maybe the only filing coming up shortly now will be elinzanetant in the near future. And just one more for Stefan as well. Could you say a bit more about the issues in China that you were referring to and the indirect challenges from the country's anti-corruption campaign?
How long do you think it's gonna take before things in China recover for Bayer? Thank you.
Okay. Maybe I'll just give a sort of short answer, and then if there's more, you know, we can also turn to Stefan, who has a lot of experience in this field. I think the BridgeBio is a example of a win-win deal. It's good for them because this is a small company that's really getting going with their first launch, and they can focus their energies in the U.S. Meanwhile, we have a large sales force and presence in cardiovascular health in Europe, and it fits right in there. And it's a, you know, a deal we were able to get on reasonable terms. It's not high risk because the clinical data is already available, and so it's good for us, and it's good for them.
I think, yeah, certainly deals like that, we're always open to, and as Stefan mentioned, we've done over 100 licensing deals in recent years, and you should expect to see that continue. From the question about the anti-corruption campaign in China, it just sort of had an effect over the whole healthcare sector and reducing demand in healthcare in general. That's why we call it an indirect effect, because we weren't involved or implicated in the actual investigations, but it just affects the overall business for many companies in China, and because we have a relatively large share of our business in China, we were more affected than some. So thanks.
Okay. So then we have, next one, Aimee. We tried again, so I know that you redialed, and you have a follow-up question, so Aimee, over to you. Let's see that we can get it now online.
Hello again, and apologies if... Are you able to hear me now?
Works? Yeah, we can hear you.
Yeah. Okay, great. You know, I just wanted to follow up on the question. I think I just basically was cut off. But the consumer bit, the reason I was asking about selling the consumer business and why you might do that, and I understand, obviously, the tax implications. But if you're thinking about your business and thinking about your debt levels, the U.S. litigation, this would be a way of raising some money to pay down debt, to put money into your drugs pipeline. And if ultimately, your plan is to break up the business in the future, I'm not saying it is, but if it is, then why not do it now? And I think I heard one of my peers talk about the fact that there is obviously a number of other, you know, businesses out there. There's...
There is going to be Sanofi's consumer business, there is Haleon, and there is talk of a lot of private equity interest in these businesses. So I'm just kind of curious as to why that timing wouldn't be right. And then I have just one other question about the U.S. litigation. Somebody was mentioning to me that it might be better, this might be maybe pie in the sky, but if you could deal with maybe a large law firm that might pool some of these cases together, and therefore, you wouldn't be having such regular court cases, and the headlines and all of that that's associated with that. And I wondered if that was something that you guys had been thinking about or discussing.
Yeah. So, Aimee, thanks for the questions. Yeah, I think the question about, you know, why not sell Consumer Health, I mean, I covered most of that area. The simple fact is, we feel pretty good about our ability to fund the kind of rejuvenation in our Pharma pipeline that we believe is value-added for shareholders. In other words, we don't have, you know, $10 billion extra dollars to go make a phase III purchase or a you know ready-to-launch purchase... But we do have the funding to fund you know the 13 INDs that we got approved in the last two years to do deals like the one that Stefan mentioned with BridgeBio and many others.
Can I just, is it possible just to follow up just on your sponsor?
And the next question comes from Rayna.
Changes under DSO, and you previously talked about making the most of your German footprint in Pharma R&D. Does this mean that Pharma R&D will be focused in Germany moving forward? And my second question is, you said that cardiovascular would be a part of your focus. Would that extend to metabolic diseases, like maybe including obesity?
Let me be very clear. We've traditionally had a very strong R&D footprint, you're right, in Germany. But, if you look at the recent acquisitions over the last five years, we've, significantly expanded that footprint, especially with the focus on the U.S. So we will see... But this would be a long shot for us.
Maybe I would just add one other comment because I have this as being still a relative newcomer. As Stefan mentioned, we have a really good balance in the innovation side between the U.S. and Germany. But I think probably a little-noticed fact is what an excellent place Germany is for drug development, and I'm distinguishing that from research. So there's innovation happening on both sides of the Atlantic, but Germany is actually a very effective place for the, you know, the blocking and tackling work of drug development, which is, you know, running clinical trials, statistics, process development for new products. All of these things are things where the cost base in Germany is substantially lower than the key centers of Pharmaceuticals and biotechnology, for example, in the U.S.
We have a substantial cost base, and we have excellent talent, you know, highly qualified scientists, doctors, statisticians. So I think that's one of the way that Stefan and Christian Rommel and their team are able to drive so much innovation on so many molecules with, you know, relatively modest R&D budget. And, yeah, I wouldn't change that for, yeah, at all.
We are using our Italian P harma organization as the front runner in implementing DSO, and this is already yielding very strong energy and unleashing more energy in terms of how we address customer needs in Italy. And then, of course, Italy will continue to be an important outlet to bring new medicines to patients. And I have good confidence that with the current administration, we also can get good access to patients for these innovations in Italy. Thank you very much.
I can probably, as Wolfgang, take a quick shot at the artificial intelligence thing and do it for the total company, and then colleagues can supplement. Hugely important. I think there are researchers out there that say they put it in the same category as the development of the steam engine or the World Wide Web. So, we see it everywhere in the company. You would see it in the divisions, whether it's in silico development or getting better at marketing or digital farming. I think my colleagues could elaborate on that, but also on the corporate sector. I mean, if you think of expert systems, for instance, in legal, or if you think about our global business services being much better in providing services to our employees, to our suppliers, to our customers.
So yes, we are focusing on artificial intelligence everywhere in the company.
Yeah. I'd just give you an anecdote because this is how AI is going. But by the way, somebody suggested to me recently that maybe we should hire a head of AI, create an AI department. You might imagine as our new system, Dynamic Shared Ownership, is about, you know, really putting the power with the people doing the work, we're not very into creating new central functions with, you know, new heads of things. I said that would be like a company in 1990 hiring a head of personal computers, do you know? Because that's what... That's how AI is propagating right now.
Just to give you a concrete example of that: so we have a new system for running the company, and it's very different than what typically companies have done in the past and what Bayer's done in the past. So we have 100,000 people at our company with questions about Dynamic Shared Ownership. You know, what does that mean for career? What does that mean for promotions? What does that mean for this and that? And so last week, there was a couple employees sent me a link to a new AI chatbot that they created in their spare time to answer employees' questions about Dynamic Shared Ownership. You know, they, I guess, they found lots of materials that we had talked about, that I had used, YouTube videos, all kinds of sources.
They created a chatbot on their, you know, on their spare time. So I put it to the test, you know, and I asked 5 or 6 of the most common questions that I get, and I was just curious, like, "Hmm, how would the answers compare to how I would have answered them?" And I got to say, you know, they were—like, 5 of the answers were quite good, and 1 of them was okay. But this is how AI is propagating. So if you hear leaders saying, "Oh, yeah, we're in charge of AI, and we've got this all figured out," like, don't believe it. AI is happening all around us, and the key is: how do we unleash our people's ability to harness these new tools and get their jobs done better and faster?
Okay, and then we have one final question, follow-up questions from Tim Loh from Bloomberg. Tim, over to you for the final question.
Hi, thanks. Then you kind of answered the question someone had about litigation in the U.S., so I figured I'd try my luck. You've talked about being open, and your team is, you know, considering all the possibilities. One of the ideas that's been raised, including by Jeffrey Ubben, about a year ago, is the so-called Texas Two-Step, which is something that, J&J's been trying, talc and whatnot. It's somewhat controversial. Supreme Court has had some thoughts on it. But short of that, I haven't heard a whole lot of options, that to help sort of consolidate all these claims. And I'm curious, is that something that you think Bayer would be open to considering, or is that something that you think is too extreme?
There's really not much more that I can say on this. We're on the case, and we're gonna explore every reasonable option to protect the company and protect our mission from the litigation industry. So, we're not. I think you'd agree that it's not in our best interest to sort of give away our plans in advance. So you should expect to see more action from us in the months ahead, but not necessarily to hear about it beforehand. Thanks.
All right. Well, with that, many, many thanks. Many thanks for your questions. Many... Like to wish all of you a very nice day. All the best, and stay healthy. Bye-bye.