Ladies and gentlemen, thank you for standing by. Welcome to Bayer's Investor and Analyst Conference Call on the Third Quarter 2019 Results. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. And I would now like to turn the conference over to Mr.
Oliver Maier, Head of Investor Relations and Management of Bayer. Please go ahead, sir.
Thank you, Emma. Good afternoon, and thanks, everybody, for joining us today. I'd like to welcome all of you to our Q3 2019 conference call. With me on the call today are again Werner Baumann, our CEO Wolfgang Nickl, our CFO. The businesses are represented by the responsible management board members.
So for pharma, we have Stefan Oelrich for Consumer Health, we have HygroHIPA and for Crop Science, we have Liam Condon. Werner will begin today's call with an overview of the key developments and performance of the divisions and Wolfgang will then cover the financials for the Q3 of 2019 and the outlook as well as our key focus areas before we open up the Q and A session afterwards. For the Q and A, I would like to remind everyone again to please limit your questions 2 questions per person to allow us to address questions from as many participants as possible in the time available. So as always, I would like to start the call today by drawing your attention to the cautionary language that is included in our Safe Harbor statement as well as in all the materials that we've published and distributed today. With that, I'll hand it over to you, Werner.
The floor is yours.
All right. Thanks, Oliver, and good afternoon, ladies and gentlemen. It's my pleasure to welcome you also on behalf of my fellow colleagues to our today's conference call. Let's start with a discussion of our development in quarter 3 2019, which was encouraging across the group with all businesses delivering good performance. Please be aware that the numbers I will talk about refer to continuing operations and do not include our discontinued operations from Animal Health and Currenta.
Those are now reported separately and Wolfgang will shed some light on the development including discontinued operations later on. Overall, we are on track from an operational point of view. Sales grew by 5% to €9,800,000,000 and EBITDA before special items increased by 8% to €2,300,000,000 Our core EPS reached €1.16 up 6% from a year ago. Finally, our free cash increased free cash flow increased by 13% to €1,300,000,000 With these results as a backdrop, let's look at an update on our focus areas. 1st, target delivery.
Given the overall good performance in the 1st 9 months, we confirm our guidance for the full year 2019 on a going concern basis as published at the beginning of the year. In addition, we have adjusted this guidance for discontinued operations and foreign currency to provide as much transparency as possible to you. Wolfgang will share the details in his part of the presentation. 2nd, in Crop Science, I want to highlight the good operational performance in an overall challenging market environment. And I also want to reassure you that the integration and synergy realization is well underway.
3rd, our Pharmaceuticals business has continued its strong sales and profit growth, and we are on track to deliver an EBITDA margin before special items of 34%. Excluding last year's onetime income of 190,000,000 euros earnings grew by 12% in the quarter, which is twice our top line growth. 4th, Consumer Health has shown a solid sales and margin growth, demonstrating that the team is continuing to make good progress in turning around the business. 5th, almost a year ago, we announced a comprehensive set of efficiency and structural measures from which we expect annual contributions of €2,600,000,000 as of 2022, including around €1,000,000,000 from Crop Science. In this context, we have also decided to streamline the setup of our Board of Management with a reduction from 7 to 5 members effective January 2020.
And lastly, I'm pleased to mention that we have delivered on all announced portfolio measures ahead of time and which I believe with very attractive selling prices. We have already closed the sale of Coppertone derm RX business that was reported under Consumer Health and the closings of Doctor. Scholl's and Curenta are imminent. The divestment of Animal Health was signed on August 20, and we expect closing of this transaction to happen in the middle of 2020. Let me now briefly update you on the glyphosate litigation, a topic that remains top of mind for many of us.
Some of you might have been surprised this morning when you read in our quarterly report that the number of SURF lawsuits increased from 18,400 in quarter 2 to around 42,700 in quarter 3. This is actually not that surprising if you take into account that plaintiff lawyers increased their advertising spend exponentially from US6 $1,000,000 in quarter 1 to US21 $1,000,000 in quarter 2 and US51 $1,000,000 in quarter 3 in order to attract new plaintiffs. This increase in the number of lawsuits does not change our conviction of the safety profile of glyphosate is actually by no means a reflection of the merits of this litigation. In the meantime, the appeals in the first three cases are underway. In Powell, we are constructively engaging in the mediation process and are planning for litigation of further cases in 2020 as all remaining cases 2019 have been vacated.
With regards to the mediation, we would only consider a settlement if it is financially reasonable and will bring reasonable closure to the overall litigation. And I do hope you understand that I cannot be more specific with regards to the mediation process as we as an involved party need to maintain confidentiality. Let me now turn to the performance of Crop Science. Following a very challenging second quarter with heavy spring rains and flooding in the Midwestern U. S, we reported improvement in both sales and EBITDA for quarter 3.
Currency and portfolio adjusted sales were up by 5%, driven by the positive developments in North and Latin America. We have seen strong performance of corn and soybean seeds and traits as well as fungicides. In addition, herbicides had an encouraging increase in Roundup volumes in Latin America, offset by declines in Asia Pacific, primarily due to dry weather in Australia. From an earnings perspective, Crop Science increased its EBITDA before special items by 25 percent to now €127,000,000 This strong improvement was driven by price and volume growth in Latin America, lower than expected product returns in corn, seeds and traits in the U. S.
And the realization of synergies as we progress with the integration. Regarding the cost synergy realization, we progressed substantially better than expected and now assume that we will realize around €300,000,000 of cumulated cost synergies by year end and that is around €100,000,000 more than originally expected. The overall targeted synergies of around EUR 870,000,000 for 2022 does not change. So it's really phasing, and that means earlier realization, is also proof of a well running integration process. Moving on to pharma.
Sales of Pharmaceuticals rose by almost 6% to €4,500,000,000 in quarter 3. Our best selling products Xarelto and Eylea have continued their strong performance. Also our business growth in China remained very robust. Xarelto grew by 9%, driven by higher volumes in China and Russia. Our licensing revenues in
the U. S. Exceeded the level of the prior year
period. Eylea posted significant growth of 16%, mainly as a result of volume increases. The business developed particularly well in Europe and here primarily in the UK and Germany, but also in Japan. We now expect both products to continue growing in the low teens percentage range for 2019. We also saw some encouraging products and other news in the quarter.
The FDA has approved darolutamide under the brand name Nubica. As a reminder, darolutamide significantly extends metastasis free survival in patients with non metastatic castration resistant prostate cancer, while at the same time demonstrating actually a very favorable safety profile. In addition, the FDA approved Xarelto for the prevention of venous thromboembolism or blood clots in acutely ill medical patients at risk for thromboembolic complications who are not at high risk of bleeding. Further good news also on Vitrakvi. The European Commission has granted marketing authorization in the EU for our physician oncology treatment, VITRACV.
The drug is indicated for the treatment of adult and pediatric patients with solid tumors that display NTRK gene fusion, who have a disease that is locally advanced metastatic over surgical resection is likely to result in severe morbidity and we have no satisfactory treatment options. On the investment side, we acquired the remaining stake in BlueRock Therapeutics, a privately held U. S. Biotech company focused on developing engineered cell therapies in the fields of neurology, cardiology and immunology using a proprietary induced pluripotent stem cell platform. This acquisition marks a major milestone on our path towards building a physician in cell therapy.
Finally, EBITDA before special items was down by 2% to €1,500,000,000 because last year's figure included an income of around €190,000,000 from our Xarelto development collaboration with Johnson and Johnson. If you adjust for this, EBITDA before special items is up by 12%, conforming the overall strong performance of the business. Let's move to Consumer Health next to close out the divisional updates. The performance of Consumer Health in quarter 3 was characterized by solid top and bottom line development. We have seen a positive sales performance in EMEA and Latin America overcompensating North America and Asia Pacific.
We are especially pleased with the sales development of the categories Nutritionals, Allergy and Cold and Pain and Cardio. Dermatology also reported higher sales. EBITDA before special items increased by 3%, mainly driven by the successful implementation of the announced performance improvement measures and also offsetting the margin losses that come from the sale of our Rx Dermatology business. Before I hand it over to Wolfgang, please let me point out that we are planning our next Capital Markets Day with a strong focus on pharma this time and its innovation pipeline towards the end of June 2020. And with that, I hand it over to you, Wolfgang.
Thank you, Werner. Ladies and gentlemen, also a warm welcome from my end. I will now walk you through some additional financial details for Q3 followed by a discussion of our outlook for the full year. After signing the sale of our Animal Health business and our 60% stake in Currenta, both businesses are from now on accounted for as discontinued operations. As mentioned by Werner, we will focus our discussion on the development of our continuing operations, but I will also bridge the changes between continued and discontinuous operation to allow comparability with our original guidance.
Let me start with continuing operations. We had a good quarter. Sales increased currency and portfolio adjusted by 5 percent to €9,800,000,000 and EBITDA before special items came in at €2,300,000,000 up 8% year on year. Our EBITDA margin increased by 30 basis points to 23.3%. Foreign exchange effects had a positive year on year impact on sales and EBITDA of €215,000,000 and €77,000,000 respectively.
Core earnings per share were up 6% year on year to EUR 1.16 Finally, compared to the prior year period, free cash flow increased by 13% from €1,100,000,000 to €1,300,000,000 mainly driven by the increased profitability. The next chart shows our performance including discontinued operations. Currency and portfolio adjusted sales growth is the same at +5%. EBITDA before special items would have increased by 9% to €2,400,000,000 and core EPS would have been up by 7% to €1.23 The restatements to the P and L have no impact on our free cash flow. We own the cash flows from discontinued operations until the respective divestments are closed.
On the next chart, we show the bridge from core EPS to reported EPS from continued and discontinued operations. On the left, we start with the €1.16 core EPS for continued operations. The next column describing an adjustment of minus €0.65 per share is mainly comprised of acquisition related amortization of intangible assets, about twothree of the impact stemmed from the acquisition of Monsanto. EBITDA relevant special items had a minor negative impact of €0.01 as the restructuring and litigation related special items were more or less offset by the divestment gain from the sale of our derm RX business, which closed in Q3. A positive special item in the financial results of EUR 0.28 resulted mainly from the revaluation of our original stake in Bluerock Therapeutics, which is now after the acquisition fully consolidated.
Previously, it was accounted for at equity. The next column shows the offsetting tax effects on the sum of the items I just explained, bringing us to the EPS from continuing operations of €0.01 Finally, there is an impact from discontinued operations of €0.04 leading to an EPS from continued and discontinued operations of €1.05 for the quarter. As Werner said, we are very pleased that we delivered on the portfolio measures, which we announced last November, not only ahead of schedule but also at attractive valuations. In order to help you with the modeling of Bayer going forward, we provide you with the restatements 2 weeks ago. These summaries are available on our webpage.
In addition, we thought it would be useful to share this slide with you, which summarizes key information on the full divestments. We have provided the sales and EBITDA before special items contributions of the divested businesses as well as the gross proceeds of about €9,300,000,000 expected closing dates and the respective consolidation procedure of each of the businesses. With the copper then sell already having closed in Q3 and Doctor. Scholz and Corenta expected to close in Q4, we expect gross proceeds of around EUR 2,000,000,000 in 2019. An additional EUR 200,000,000 is expected Q1 2020 from the real estate portion of the Corinda transaction.
The Animal Health deal is expected to close in the middle of 2020. As you may remember from our disclosures in August, 70% of the agreed value of USD 7,600,000,000 is due in cash at closing and 30% is due in stock, subject to a collar and a holding period. The transactions and corresponding gains are subject to taxation. Overall, we anticipate taxes to be paid of roughly €1,000,000,000 that need to be considered with some time lag. Let's move next to our balance sheet.
We reduced our net financial debt by around €900,000,000 since the end of Q2. This improvement was driven by cash inflows from operating activity as well as the proceeds from the sale of the prescription dermatology business outside the U. S. And Coppertone. It was partly offset by the cash out for the purchase of the remaining shares in Bluerock Therapeutics.
With the U. S. Dollar appreciating substantially during the quarter, we had a corresponding impact on our euro reporting, which you can mainly see in the bonds column. As a reminder, almost 60% of our financial debt is denominated in U. S.
Dollars. The impact of exchange rates changes to our net financial debt is therefore quite significant as every percentage point appreciation of the U. S. Dollar against the euro is increasing our net financial debt by about €200,000,000 and vice versa. Now let me focus on the key business drivers for Q4, which are important In addition In addition, and as already mentioned by Werner, we expect around €300,000,000 in cumulative cost synergies in fiscal year 2019 related to the integration, helping us to support our earnings also in Q4.
For Pharmaceuticals, we expect a continuation of the very strong development of both Xarelto and EYLEA as well as an ongoing favorable business performance in China. Consumer Health is on track to deliver on its turnaround plans and should see a further top and bottom line improvement in the months to follow. In North America, we also expect the business to return to growth in Q4. On the group level, we will continue to be very disciplined on cost and cash management across all businesses. In addition, we expect the cash in from the Corinda and Doctor.
Scholl's divestments in Q4. Let's move on and look at our guidance for the full year. Following the good performance in Q3 and seeing a good momentum for Q4, we confirm our group guidance for the full year on a going concern basis and at constant currencies. That is what you see in the first column on this chart. You will recognize, for instance, the core EPS of €6.80 which we have established as a target at our Capital Markets Day last December and reconfirmed as our guidance in February earlier this year.
In the second column, you see the impact from discontinued operations, specifically the contributions from NML Health and Corinda, which were included in our originally 2019 guidance. We are compensating some sales and EBITDA from a few months of Coppertone and Doctor. Scholl's businesses with the other remaining businesses. In the line net financial debt, we have also included the cash proceeds from these two transactions. The 3rd column shows original guidance adjusted for discontinued operations and thus representing our continuing operations.
Without the Animal Health business and Korinda, our currency neutral guidance would have been around EUR 43,000,000,000 for sales, approximately EUR 11,600,000,000 for EBITDA before special items and around €6.45 for our core EPS. There is almost no impact on free cash flow as already explained. We own the cash flows from discontinued operations until the deals are closed. We expect Currenta to close in December, so there is a very minimal impact from that transaction. Net financial debt is expected to be around €2,000,000,000 lower at approximately €34,000,000,000 which considers net proceeds from the Coppertone, Doctor.
Scholl's and Korinda transactions. With only 1 quarter left, we have added a 4th column to share our expectation of the currency impact on our full year financials. Our calculation considers the already realized year to date impact and our Q4 forecast, which is based September 30 spot rates, carried forward for the remainder of the year. Therefore, the last column depicts our 2019 guidance after adjusting for the discontinued operations and currencies. Specifically, this results in sales of around EUR 43,500,000,000 EBITDA before special items of approximately €11,500,000,000 and a core EPS at around €6.35 We aim to be at the upper end of the given free cash flow range and would expect net debt to be around €35,000,000,000 at year end.
Before we start the Q and A, let me wrap up by summarizing our focus areas. 1st and foremost, we are committed to delivering on our operational targets as reiterated today as a going concern and adjusted for discontinued operations in foreign currencies. 2nd, we are focused on the smooth integration of the acquired business in order to shape the future of agriculture. And course, we will continue to vigorously defend glyphosate while constructively engaging in mediation talks. 3rd, we expect to further deliver sales and margin growth in Pharmaceuticals.
In addition, we plan to strengthen our internal pipeline we intensify the external sourcing of innovation. 4th, we will strive for an improvement of the operational performance of our Consumer Health business as shown in Q3. 5th, we expect to deliver our targets for the Bayer 2022 program, both related to the synergy realization and efficiency improvements. And lastly, successful closing of our remaining portfolio measures. With that, I will hand the call back over to you, Oliver, to start the Q and A.
Great. Thank you, Wolfgang. Thank you, Werner, for your comments. I think, Emma, with that, we can open up the session for Q and A.
Thank First question comes from the line of Mr. Andrews. Please state your name, company name followed by your question.
Hi, thank you. Good morning. Vincent Andrews from Morgan Stanley. I apologize if I missed this because I had to hop off quickly, but could you help us understand the seed reversals in the quarter? Could you help us quantify those so that we can get a better sense of the sort of completion of the North American season versus the start of the Latin American season?
Thank you.
Thanks, Vincent, for the question. So we're not we haven't broken that out specifically yet, but let me just help you try and understand what happened there. Usually, we have our true ups in Q3. This year, as you know, was particularly volatile given this unique flooding in the U. S.
So we actually did as many true ups as we possibly could actually already in Q2 for corn and for soybeans. So we built provisions and then looked in Q3 at what the actual situation was. And what we saw was clearly there was more corn planted, less returns than we had been originally anticipating. So it's about 89,000,000 acres versus anticipated about 86,000,000 87,000,000 and there was less soybeans than anticipated. That was a more minor effect for us, but a very big effect for the market, 14% down year on year in acreage.
And net, that turned out into for us a positive seeds basically driven by corn, seeds and traits. So that was one of the drivers of the Q3 results. The main effect was LatAm positive intact seed penetration and fungicide sales. But the North American corn true ups and reversal of provisions was the other point that helped us in Q3.
Okay. And as a follow-up, if you could just speak a little bit about seed price cards in North America. There's been a lot of commentary in the investment community about what's happened there with soy price cards being lower. And I think there's some confusion around what's happened to your corn price cards in terms of promotional spending and so forth. So maybe you
could you can help us there.
Yes. So one thing that was important for us now as an integrated company going forward is that we basically harmonize, unified all of our basically go to market offerings. And we have
a new
program, Bayer Plus, within which our overall seed offerings are included. And the net effect of that, if you look at it from a corn and soy seed point of view, net effect, we would still be looking at low single digit increases for our corn seeds and traits going forward. So as usual, wherever we have innovation, we're passing the added value. We also gain through increased pricing in the market. For soybeans, it's a different situation.
The market is much more highly competitive based simply on the fact that there is oversupply right now. The U. S. Is suffering from the U. S.-China trade conflict.
Commodity prices are low. There is more competition in the market. So here, we're expecting a low single digit decline going forward. So that's the on both corn and soybean, kind of the net impact that you would be seeing on the price cards. But overall, from a corn point of view, there is no decline.
So just to make that clear, because I think that was misunderstood from some of the changes in the rebate programs that have simply been harmonized. There's actually a net increase on new hybrids into the market.
Very helpful. Thank you very much.
Next question comes from the line of Mr. Kapadia. Please state your name, company name followed by your question.
Great. Wilma Kapadia from Bernstein. Thank you very much for taking my questions. So if I could just first start just with a little bit more color on 4Q 2019. So your EBITDA margin year to date for pharma is around 4%.
And when I look at historical earnings, 4Q is typically a high OpEx quarter. So should we expect a trend away from the norms that your guidance for 34% margin is achieved for the full year? Or is that target a little bit stretched? And then think the same question for consumer, year to date, it's sub-twenty percent EBITDA margin and your guidance is 21%. So that suggests a margin for the Q4 of 24% to 25%.
I suggest to get some color there would be very helpful. And then my second question is just on China. Clearly 4Q was strong for pharma in China and certain products such as Adelat and Avolox. But my question is how sustainable is that growth for these products? And then my second question is which of your products are potentially at risk from the next round of volume based procurement contracts in the region?
How do buyers see these risks more broadly for the portfolio? And what will the strategy be for the bidding? Will you bid competitively and play volume? Or will you attempt to maintain price and focus on value? Thank you very much.
Yes. Hi, Dimar. Stefan here. So first, to EBITDA question, we're still fully in line with full year guidance for pharma. So nothing has changed in the Q4 and expected Q4 and Q3 do not change anything about this.
So our Q3 was going according to our plans. Please be mindful that we also had the oncology launches in the ongoing quarter. But all in all, we're fully in line with plan. As to China, a very solid growth. We're extremely pleased with our performance in China in the Q3.
So continue strong basically on most of our major brands there. And when it comes to the volume based purchasing that you're alluding to, this is come how this is really going to impact. We have a few products that could be eligible for the list. So far, we're off the list. If we get on, we'll have to see then how our bidding strategy is going to be.
I don't think this would be wise to reveal it on this call, But I'm happy to elucidate you about that after we went into the bidding next year, if that happens. But so far, it's more guesswork, okay? So we'll have to wait what happens with that.
Okay. Thank you very much.
Yes. Just on the consumer profitability outlook, obviously, when you look at Q3 year to date and then outlook, we should have a pretty good Q4. The factors that really play here are, 1st of all, continued growth. And as we have reset the cost base, we should get good growth leverage. Secondly, I would say we continue to have some tail end brand divestments that are a bit more skewed towards Q4 this year.
So that's also going to help us. So overall, we think that we can still bring in that number.
Okay. Thank you.
The next question comes from the line of Mr. Zekauskas. Please state your name, company name followed by your question.
Jeff Zekauskas at JPMorgan. In your Crop Science business, your prices were up 4%. And so if you adjust for your divestitures last year, your sales were about €3,500,000,000 So a 4% price increase should be an increase of about €140,000,000 You had positive volume and you had positive currency. Why weren't the EBITDA numbers higher in the quarter? I noticed that you talked about some issues in cost of goods sold.
Can you quantify that and explain why you didn't make more than you did?
Thank you, Jeff. So EBITDA, the prices and the price increase was largely actually driven by LatAm Brazil. It was largely the intact penetration, increased penetration. We're on over 65,000,000 acres already, but that's still increasing further. So this was, for us at least, very good to see.
On the EBITDA side, what was, let's say, headwinds for us in the quarter? I'd highlight 2 things. 1, on the COGS side, still out of China because of the ongoing cleanup and the Blue Sky initiative. We are still seeing increased COGS coming for products and AIs that are sourced out of China. So this has been basically a recurring theme throughout the year and that continues.
It's unclear how long that will last, but it is a recurrent theme. It will also continue in Q4. Overall, we believe net net this is good for the industry because cleaning up means they're also bringing production up also to Western standards. But it's a cost issue for us. And the other one specific, which I'd say is clearly more of a one off event, given the soybean situation in the U.
S, there was significantly less soybeans planted than was originally anticipated, so only about 76,000,000, 77,000,000 acres. So here we have obsolescence costs on the seed side, which factors in
the cost.
So they're kind of the two factors that would have held us back from achieving even more.
And for my second question, because of your FieldView software, you guys have a very good view of corn yields in the United States. The USDA thinks that corn yields will be about 168 bushels an acre this year. Do you agree with that? Do you think that number is basically right? Or you think it's high or low or by how much?
Yes. So really hard to call right now, but we do have some quite unique insights. What we are seeing is harvested, let's say, harvested the versus plant that we're at about 40% also for FieldView. So that tallies more or less with what USDA has been saying. It's significantly lower or slower than what the average period would have been like the last 5 years, but also last year, which would have been well over 60% on corn.
What we're seeing with FieldView is what was planted early has very good yields. So and that I think is the USDA assumption is possibly extrapolating forward what's already been harvested. The problem is there was an awful lot that was planted late. And the later it was planted, the weaker the yield is going to be. So we don't yet see that in our field view numbers because it's still too early.
But we do have an implicit assumption that the harvest, that the yield is going to be lower than what USDA is currently forecasting. But it's too early to make the call, but given the quality of seed, what we can see in the fields right now, it's hard to imagine that the yields would be as good as are currently being forecast.
Thank you so much for that.
Your next question comes from the line of Mr. Jain. Please state your name, company name followed by your
It's Sachin Jain from Bank of America. Thanks for taking my questions. A few, please. Firstly, on Xarelto and the 218 patent debate. Could you confirm that you're in settlement discussions with Mylan as the legal docket seemed to suggest?
And wonder if you could just give color as to what is outstanding. Is it just a choice of date? Or are you still in substantial discussions as to whether that settlement stands or not? Second one for Liam on 4th quarter crop. I know there's already been some comments around this, but guidance implies roughly 7% or 8% for 4th quarter.
So you just discussed the variables and what you're seeing that gives you confidence in achieving that. And then just a final one on Werner, regarding your introductory comments around glyphosate mediation. You referred to the 2 criteria as financially reasonable and then reasonable closure. The last part of that reasonable closure is slightly different how you worded it on the 2Q call where you referred to as finality of litigation. Now I would interpret the comment today as slightly looser, but I just wondered if I was over interpreting that and if you could comment there.
Thank you.
Hi, Sajan, Stefan here. So on the Xarelto patent, you're right. We have once daily patent for Xarelto in the U. S, the so called 218 patent, which expires in February 2000 and 34. This has been challenged.
We, of course, believe strongly in the validity of our IP. So we're defending this. And we're currently, as Mylan has challenged this, discussing still and discussions on settlement. So this hasn't really changed much since we last talked about this. So you'll have to stay tuned.
And I would hope that on the next call, we can give you a little bit more concrete information on where that stands.
Okay. All right. Thank you, Sachin. So Q4, I'd characterize our confidence as good, relatively strong. I say relatively strong because whether or not sales fall into the last week of December, 1st week of January is not always directly influenceable.
But I'll indicate to you where we see the growth coming from. Number 1, primarily, it's LatAm. It's specifically against particularly Brazil. And this will be largely driven by the crop protection portfolio because the seeds and traits and we booked a good portion now in Q3, so particularly fungicides, herbicides, insecticides. In APAC, where we are expecting now in the Southern Hemisphere also a good growth on the crop vegetable seeds in Q4.
You'll have noticed that we had a very weak Q3. This is simply due to the fact that we took over. We sold our the legacy Bayer seeds, vegetable seeds business to BASF, and we acquired the Monsanto business, Seminess de Roite, which was significantly bigger. And we are basically tuning the business now to a full year calendar. You know that Monsanto was on a different financial calendar than Bayer originally was.
And that leads to some changes in the phasing, which simply on a year on year basis, it means a low Q3 and a high Q4, but just to explain where we would expect to see something coming. And the last one is we're getting early indications from the market of high interest in corn seed in the U. S, North America. Whether or not that actually happens, we'll see. But at least we the demand appears to be there.
So that could also help drive growth. On the bottom line, I'd just highlight very briefly all of the above so that the sales growth that you indicated, that will be driving the bottom line. We'll also have a better mix. As you recall, we have some divested we have some sales post closing agreement sales to BASF, which were much more significant in Q4 last year. This year, they are significantly lower.
But these sales were highly dilutive for their dilutive on our margin. And so this helps us overall as well from a mix point of view. And of course, what Vernon Wolfgang alluded to earlier, the increasing or the accelerated synergies, which helps us on the bottom line because relatively, of course, more is going to flow into Q4 than other quarters.
Okay. Thank you, Liam. So Sachin, to your question on wording and your finality and reasonable closure, I think your content wise, there's no difference between what we were talking about end of quarter 2 and gives me the gives me the opportunity to explain a little bit where we are and what we really are working on. As most of you know, the glyphosate case is a very special one because it's different from pharma where you have a door closing event with a label change or what have you or let's say a change in your, let's say, promotional marketing activity, whatever the reason was for litigation. Here, we have a product that is perfectly fine in terms of its regulatory status as has been actually seen over and over again with regulatory confirmation, also the very strong EPA stands that EPA took on, let's say, the idea to put a cancer warning on a product that shouldn't have one because it doesn't carry a cancer risk that you will have seen from EPA.
So we are going to see a product that will continue to be on the market with the existing label. And we need structural measures that we are working on as part of the structural discussions in mediation, as we talked about, that provide us, I would call it de facto or close to de facto finality from a structural perspective, so that we can work with the remaining tail, that is of course one of the key considerations beyond the immediate settlement of the cases that we will have at hand at the time of an envisaged settlement, should we be successful with the mediation on Ken Feinberg's auspices. Thank you.
Next question comes from the line of Mr. Papadakis. Please state your name, company name followed by your question.
Emmanuel Papadakis from Barclays. Thanks for taking the two questions. Maybe one on hemophilia. You had a surprisingly resilient result again for Cogenate. Clearly, it is, however, something of a legacy asset in a space that is therapeutically changing and you just discontinued one of your potential next generation options for the TFPI and you don't seem to have made a huge amount of progress on the gene therapy collaboration with Ultragenyx.
So if you could just talk about your strategic vision for that franchise, do you think you need to now go externally to fix that gap? Do you think what you have in hand is sufficient? Any comments on the gene therapy program or plans would also be of interest? And then one on EYLEA, again another resilient performance. We've obviously got some competitors launching currently and into next year and plenty more data points coming from potential additional competitors through next year and beyond.
Could you just talk about the extent to which you think volume growth in indications such as DME, etcetera, will potentially offset that competitive pressure, I. E, should we expect that it can remain a growth asset into 2020 and beyond? Many thanks.
Yes. Thanks for your question, Emmanuel. So first question on hemophilia. Let me start off by saying we're extremely pleased with the results that we had in the quarter and that we're having throughout this year with both the Jivi launch, but our overall Factor VIII based line of products. What is really interesting to note when you look at the hemophilia market is that we were predicted to come into really heavy weather.
And what we're seeing in the facts is that Jivi is hitting a nerve in the market and that we are serving to the needs of our customers. And there is a reason why evolution put Factor VIII as a clotting factor into humans. And we're providing exactly that factor that these patients are deficient with, with a very long lasting safety profile, with the strong loyalty that our customers have and our patients have. So we feel actually quite good about our Factor VIII franchise in itself. When it comes to the future, it's too early to say where our gene program gene therapy program that we have is going.
We have a factor we have a Phase 1 ongoing. We have the amount of patients on product so far as planned, and it's really a little bit too early to talk about the results. But we're not discouraged at all by what we're seeing so far in our gene based therapy program there. So I think it's still an interestingly resilient business, maybe more than some observers may have thought. Then on EYLEA, well, EYLEA is really an interesting one.
And we've upped our guidance for EYLEA this year to lower teens from singles higher single digits. So we're very pleased there. What we're seeing on EYLEA for this year positively for the most part is that both volume and pricing are ahead of where we thought we may be given some of the some countries that had favored use of, let's say, alternative products like in the U. K. Especially, but also in Canada.
This is not coming through as And then when it comes to the new products, I think this is an interesting one because they have to go up against the standard that we have established with EYLEA, which is really hard to beat. I mean, you look at brolacizumab, for example, which was recently approved by the FDA, and you look at the label and you see a slightly different type of label compared to Eylea on side effects. So from a safety perspective and in a way that is actually from an occurrence perspective not insignificant. When you consider that an ophthalmologist probably sees about 60 to 100 EYLEA patients per month and you have a side effect profile that gives you a 5% or so in unpleasant side effects, then I would say this is significant and even observable in your daily practice. So we feel comfortable about this, but even more so that from a label perspective, as we compare labels efficacy wise, there is no disadvantage whatsoever from an efficacy standpoint compared to what we believe is a standard of care, which continues to be highly.
And when it comes to other products that may join, these data are very early and preliminary, so I wouldn't speculate on this. So the only true comparison that I have so far is FDA label from brolacizumab, and we feel quite confident that we can handle this.
Next question comes from the line of Mr. Vosser. Please state your name, company name followed by your question.
Hi, it's Richard Vosser from JPMorgan. Thanks for taking my questions. First question, just thinking more widely in terms of the savings from the cost saving program that you initiated across the divisions outside of Crop. Could you give us an idea of how those are going? What savings you think you can achieve for this year and particularly the savings you might achieve in the reconciliation or the central cost bucket?
Secondly, linked to that, just thinking about the reconciliation, perhaps you could give us the idea of where that might come out this year in terms of guidance? Are we looking at another €400,000,000 loss relative to the or cost relative to the level that was in your restated numbers? And then second question just on pharma. Just thinking about some of the pipeline data points that are coming, perhaps you could set the scene for us on vericiguat and maybe feneronone. Certainly, vericiguat, I think there are Phase III trials imminently around the corner.
Perhaps you could give us an idea of when we should think about the timelines and maybe some of the commercial hurdles for success given we now have SGLT2s with a 26%, 25% plus benefit in terms of cardiovascular risk and obviously Entresto there as well. So just some thoughts there on Vericiguet, please.
Okay, Richard. Thanks for your question. Let me start you off on the savings programs and then also shed some light on recon. As you may recall, we are aiming for a total contribution of about €2,600,000,000 some of which will be reinvested in the business. Out of this, about €1,000,000,000 comes from the synergies out of the post merger integration with about €500,000,000 out of Consumer Health, €200,000,000 out of pharma, rationalizing R and D to go more external, balance coming from the platform functions.
We had at the Capital Market savings in 2020, 70% of the savings in 2021 and then 100% in 2022. We are doing altogether very well, like we already outlined on the call. This is driven by the PMI portion right now. We had originally thought to get 25% of the savings this year. With the €300,000,000 that we indicated earlier, that's more like 34 percent savings.
So we are ahead of the game there. That also brings the total on the overall program over €600,000,000 And if you, for a second, take the €600,000,000 contrasted with the €2,600,000,000 altogether. You're approaching 25%, which gives you a clue that the 30% next year are certainly well within reach. Teams are doing a really good job there, trying to contain onetime cost where they can and not dropping a ball in the business. So that's really very, very encouraging.
As it relates to reconciliation, I appreciate the question because I can understand how this is a little bit difficult to follow. Remember, there was Corenta in these numbers before. And now with that being a discontinued operation, reconciliation remains a collection of smaller business that includes things like our gastro business. It includes not gastro in a medical sense. It's our restaurant business basically.
We have the travel boards. We have our sports business. But then the main deal in reconciliation are the platform costs that we are not charging to the divisions because there is no clear key. Those numbers can be volatile throughout a year, and you have seen less of an impact in Q3 than in Q1 and Q2, which has to do with, yes, with better platform cost altogether, but it also has to do with some central adjustment to STI, LTI. We had to make some adjustments to the IFRS 16 implications.
And we had some movements to the prior quarter and to the following quarter. I think for your modeling, the most important thing is that we changing our guidance for now that Currenta is out, it used to be €1,600,000,000 in revenue and a negative €200,000,000 in EBITDA. Now with Currenta out, it's €300,000,000 in revenue and €35,000,000 in EBITDA contribution. So if you look at that and you have 3 quarters of actual, you know that the 4th quarter is closer to what we had in quarter 1 and in quarter 2. So you can use this for your planning considerations.
Last but not least, as the portfolio has changed, as our business has changed, how we're changing some of the structures, we are obviously also reviewing how we do these allocations. And if we make any changes there, we will let you know with our guidance for 2020 and then at the very latest at the Capital Market Day that Werner mentioned will happen in June of next year.
Richard, so when it comes to the pharma pipeline, yes, we've got some exciting months ahead of ourselves here because we're waiting basically on a daily basis now on the results of the first Vericiguat Phase III trial, the VICTORIA study in heart failure with reduced ejection fraction. So that study is completed. I haven't seen the data yet, but I can't wait to see it. I guess, same for you. We also have, when it comes to the near future, by end of year, we should have study completion and hopefully also the results for the Phase II trial in variciguat with the HFpEF, so in preserved ejection fraction patients.
More to the pipeline on funarone. So primary completion for our first Phase III trial in diabetic kidney disease, so called FIDALIO study, which is an outcome study, we will have primary completion probably beginning of Q2. So we should have in the Q2 some top line data hopefully. Not to forget that we filed Nubeka, so darolutamide in Europe. So this is coming too.
We expect launch next year there. And we also have an interesting study that should complete before end of year in Phase III for Xarelto in peripheral artery disease, the VOYAGER PAD study. Now you asked about giving some context from a competitive standpoint in the heart failure field and how variciguate could potentially differentiate. That's how I understand it against a more busy field of competitors, especially SGLT2s and also Entresto there. So first of all, please be reminded that this will be the potential 1st in class treatment for chronic heart failure because no other stimulator has so far been approved for use in heart failure.
And when I personally, when I look at the field and when I also talk to specialists up in the field, they see room for multiple different approaches in treatment, multiple classes that you would treat patients with. So there should be enough room. And you would see that not only do we believe that we have a very nice PK profile, which allows for good dosing, but that's comparable to competitors. We see our novel action mode with the opportunity to demonstrate value where others can't go, for example, in post post event patients or in patients with worsening heart failure. So there are, to my knowledge, on worsening heart failure, no concluded studies with SGLT2, so we would be ahead of them there.
And I think there's enough room to differentiate, but let's not get ahead of ourselves. This is a new class, and I'm keeping my fingers crossed that we actually establish a new class to be effective in the treatment of heart failure, which still, let's not forget, is one of the primary killers worldwide overall.
Thanks so much.
Next question comes from the line of Mr. Lockey. Please state your name, company name followed by your question.
Thank you. Joe Lockey, Morgan Stanley. Two questions, please. First of Werner, you said this morning that the Johnson appeal outcome is now expected at the beginning of next year. Is this delay a function of the mediation process or simply a function of court time lines?
I appreciate there's only so much you can say, but any clarification would be helpful. And second, Wolfgang, at the Capital Markets Day in December, you gave us a constant portfolio target of €23,000,000,000 in free cash flow generation from €19,000,000 to €22,000,000,000 I think €12,000,000,000 was to support growing dividends, €9,000,000,000 for deleveraging and €2,000,000,000 for bolt ons. Over the next 12 to 18 months, you've got cash coming in from divestments, €8,300,000,000 net, as you say, but also potentially some cash going out for settlement. So how should we think about your original cash allocation priorities in that context? And then related to that, when do you think you'll be in a position to provide updated 2022 targets?
Thank you.
Okay. Let me start before I hand it then to Wolfgang. On the Johnson appeal, that potential court decision is going to come based on our best guesstimate in early 2020, very unlikely that that is still going to happen in 2019. Relative to timing, there is no relation to the ongoing mediation discussions here. So it's completely separate.
So you shouldn't read anything into it other than the fact that this is in the hand of the courts and not in our hands and in our control relative to timing. Relative to decision that may come might come out of it, This is, of course, nothing but the specific decision in an individual case. Should we prevail? Yes, it is a slight positive. Should we not?
It might be slight negative. So relative to the significance, yes, you shouldn't take it as something that is too relevant for the overall litigation complex, yes? And we are just going to wait for the outcome of that first appeal. The 2 others will be following later, yes, because if only filed one set for the appeals that Johnson, the others are still coming. Yes?
Okay.
Thank you.
Yes. Let me talk about capital allocation and targets. You got it exactly right on the €23,000,000,000 That is the strategy that we communicated, which stresses the importance of dividends, but also stresses our commitment towards an A rating, I. E, delevering, like we have done this previously after we made other bigger acquisitions. On the divestiture gain, it's a little bit time before we spent that money.
We had initially indicated that we may do some share buybacks. We still think the shares are very good investment. But we'll cross that bridge when we get there because these divestment proceeds, the vast majority will come from the transaction we're proceeds, the vast majority will come from the transaction with Elanco. And you know that's not going to happen between the middle of next year with a portion of it, the equity part becoming afterwards. It's too early to speculate about if there is a settlement, how high that settlement will be.
Rest assured that we're, of course, playing through several scenarios on that front. What I can say about the 2022 targets, I mean, you got a bit of a clue today regarding the €10, This will obviously not have Animal Health and Currenta included. So you can assume the €0.35 that we indicated with some growth in that business already for now. We'll have to look at the rest of the business. And in currencies, again, our current plan is to provide you an update at that Capital Markets Day in June with the full model, including P and L and capital allocation and everything.
Great. Thank you very much.
Okay. And I think we have time for 2 more rounds of questions. Thank you.
The next question comes from Mr. Parekh. Please state your name, company name followed by your question.
Good afternoon. It's Keyur Parekh from Goldman Sachs. Two big picture questions, please. One for Werner. Werner, as we think about your the breadth of your portfolio and your portfolio measures, should we now think of this as being broadly done?
Or are there other parts of the business that you might think of as potentially not being part of Bayer longer term? Linked with that, as we think about the emphasis on sourcing innovation externally, Can you help us think about what are the what is the magnitude of external kind of firepower that you think you have over the next kind of 6, 12, 24 months that would be useful? Secondly, we believe there was kind of a recent agreement by which kind of you've agreed with your German employees that until 2025, there will be no more kind of restructuring of your German employee base. Can you confirm that? And if that's the case, kind of where do you
Gerrit. Many thanks for your questions. First of all, on the portfolio measures, yes, all of them are done and those refer to the ones that we had announced as part of our Capital Markets Agenda that we communicated in November. As you know, the business portfolio is always subject to assessment on whether we are the best owner operator for our businesses relative to our big businesses, be it pharma, consumer or crop science, there is no question around it. And you also see that reflected in our performance.
We are doing what we said that we were going to do, be it your integration and synergy, the strong leadership positions we have in crop, be it sustained and continued in pharma, while further building the pipeline or the consumer business that we are turning around. And Heiko commented on that before, also the prospects of another growth quarter to sustain the turnaround that we were talking about by refreshing our product portfolio and then also catching up, which essentially we are at our peer growth rate roughly already this quarter. So things are going well relative to everything that we have said. There will be smaller things that we are looking at. Heiko referred to those with some tail brands, but nothing major that you should expect because these are the ones that we announced on purpose so that you know what is coming last year in November.
Secondly, external firepower. We can continue to invest in our businesses. And that is, of course, very important and that is of course very important relative to driving their development competitively. We have done a few things certainly for the building our LEAPS portfolio. We have engaged with a number of additional new companies that we are a partner to in setting them up.
We have actually acquired the remaining outstanding shares of Bluerock. And we continue to be on the on looking out for further opportunities. Of course, we will always have to look at certainly for the time being at what it is that we can do incrementally while not knowing what is going to come our way with the glyphosate litigation. I can only refer back to what Wolfgang was saying. Our finance and treasury department also from a risk management perspective is looking at it carefully.
And that's the frame within which we are moving for the time being, while the settlement discussions are going on. Relative to the agreement in Germany, there's one thing that is I think very important to understand on how these agreements work. These agreements are there to enable the further development of our workforce, also in this case, the reduction in force. And we are typically doing that with a negotiated umbrella that we have with employee representatives that actually negotiate with us on behalf of our entire workforce. And we are then looking at ways to come to voluntary agreements because that is the only meaningful and reasonable way of doing that.
You're looking at an overall 4,500 people that we are going to reduce our workforce by in Germany. The alternative would be to go through social selection and that is actually in nobody's interest. The agreement overall is absolutely no impediment to the realization of savings. It's actually an enabler thereof just to make sure that that is clearly understood and heard by everybody.
It's Michael Leuchten from UBS. Just a clarification question to Liam, please. Just going back to the commentary on input prices and COGS, is it fair to assume that this will actually annualize as we come out of Q4 and should see more revenue driven margin leverage going into 2020? Or is this a trend that sort of gets incrementally worse and we should be careful with that assumption?
Yes. Thanks, Michael. So the two issues that I referred to, clearly the soybean obsolescence COGS effect, that's a one off related to the weather. China is hard to call how long that will last. We've been seeing that all year.
We assume that, that will continue at least partially into 2020. But it's hard to make that, let's say, be that specific on forecasting because it depends now completely on what happens in China. But of course, our bottom line is going to be driven by the revenue growth going forward and the synergies, which will clearly outbalance the any COGS related impact in 2020.
Thank you.
I think with that, Emma, we are running out of time. So I think we're going to close the call here as there's no more questions in the line, right?
Yes, it's not.
Okay, good. So with that, there's actually one more thing, I'd like to make everybody aware of that I think is important. As indicated, we as Bayer actually have spent a substantial amount of time to upgrade our efforts and ambitions and targets in the ESG area. And our leadership of Matthias Berninger, who joined BioXion in January this year, the team has teams have worked diligently to be able to develop a 2,030 ESG strategy. And what we think with ambitious targets with overlaying the ESG strategy with the business strategy.
And there will be, as it looks like, we plan for a web cast to introduce that 2,030 HD strategy on December 10, just to make you aware of that and the invitations are going to go out in due course within the next couple of days. And with that, I'd like to thank everybody participating in this call and talk to you soon. Thank you.
Ladies and gentlemen, this concludes the Q3 2019 results investor and analyst conference call of Bayer. Thank you for participating. You may now disconnect.