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. If any participant has difficulty hearing the conference, please press the star key followed by zero on your telephone for operator assistance. I would now like to turn the conference over to Mr. Oliver Maier, Head of Investor Relations of Bayer. Please go ahead, sir.
Thank you, Emma. Good afternoon. Thanks, everybody, for joining us today. I'd like to welcome all of you to our third quarter 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. For Pharmaceuticals, we have Stefan Oelrich. For Bayer Consumer Health, we have Heiko Schipper. For Bayer Crop Science, we have Liam Condon. Werner will begin today's call with an overview of the key developments and performance of the divisions. Wolfgang will then cover the financials for the third quarter of 2019 and the outlook, as well as our key focus areas before we open up the Q&A session afterwards.
For the Q&A, I would like to remind everyone again to please limit your questions to two questions per person to allow us to address questions from as many participants as possible in the time available. 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 is my pleasure to welcome you also on behalf of my fellow colleagues to our today's conference call. Let's start with the discussion of our development in quarter three 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. Wolfgang will shed some light on the development, including discontinued operations later on. Overall, we are on track from an operation point of view. Sales grew by 5% to EUR 9.8 billion, and EBITDA before special items increased by 8% to EUR 2.3 billion. Our core EPS reached EUR 1.16, up 6% from a year ago.
Finally, our free cash flow increased by 13% to EUR 1.3 billion. With these results as a backdrop, let's look at an update on our focus areas. First, target delivery. Given the overall good performance in the first nine 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. Second, 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.
Third, 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 one-time income of EUR 190 million, earnings grew by 12% in the quarter, which is twice our top-line growth. Fourth, 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. Fifth, almost a year ago, we announced a comprehensive set of efficiency and structural measures from which we expect annual contributions of EUR 2.6 billion as of 2022, including around EUR 1 billion from Crop Science. In this context, we have also decided to streamline the setup of our board of management with a reduction from seven to five members effective January 2020.
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 and the Dermatology Rx business that was reported under Consumer Health, and the closings of Dr. Scholl's and Currenta are imminent. The divestment of Animal Health was signed on August 20th, 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 served lawsuits increased from 18,400 in quarter two to around 42,700 in quarter three.
This is actually not that surprising if you take into account that plaintiff lawyers increased their advertising spend exponentially from $6 million in quarter one to $21 million in quarter two and $51 million in quarter three in order to attract new plaintiffs. This increase in the number of lawsuits does not change our conviction of the safety profile of glyphosate and 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 parallel, 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.
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 three. 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 trades 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% to now EUR 527 million.
This strong improvement was driven by price and volume growth in Latin America, lower than expected product returns in corn seeds and trades 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 EUR 300 million of cumulative cost synergies by year-end. That is around EUR 100 million more than originally expected. The overall targeted synergies of around EUR 870 million for 2022 does not change. It's really phasing, and that means earlier realization is also proof of a well-running integration process. Moving on to Pharmaceuticals. Sales of Pharmaceuticals rose by almost 6% to EUR 4.5 billion in quarter three. Our best-selling products, Xarelto and EYLEA, have continued their strong performance. 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 U.K. and Germany, also in Japan. We now expect both products to continue growing in the low teens percentage range for 2019. We also saw some encouraging product and other news in the quarter. The FDA has approved darolutamide under the brand name NUBEQA. 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. Good news also on Vitrakvi. The European Commission has granted marketing authorization in the EU for our precision oncology treatment, Vitrakvi. 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 who 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 position in cell therapy. Finally, EBITDA before special items was down by 2% to EUR 1.5 billion because last year's figure included an income of around EUR 190 million from our Xarelto development collaboration with Johnson & Johnson. If you adjust for this, EBITDA before special items is up by 12%, confirming 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 three 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 Dermatology Rx 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. 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 discontinued operations 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% to EUR 9.8 billion and EBITDA before special items came in at EUR 2.3 billion, 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 EUR 215 million and EUR 77 million, 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 EUR 1.1 billion to EUR 1.3 billion, 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 plus 5%. EBITDA before special items would have increased by 9% to EUR 2.4 billion and core EPS would have been up by 7% to EUR 1.23. The restatements to the P&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 EUR 1.16 core EPS for continued operations. The next column describing an adjustment of minus EUR 0.65 per share is mainly comprised of acquisition-related amortization of intangible assets. About two-thirds of the impact stem from the acquisition of Monsanto. EBITDA relevant special items had a minor negative impact of EUR 0.01 as the restructuring and litigation-related special items were more or less offset by the divestment gain from the sale of our Dermatology 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 effect on the sum of the items I just explained, bringing us to the EPS from continuing operations of EUR 1.01. Finally, there is an impact on discontinued operations of EUR 0.04, leading to an EPS from continued and discontinued operations of EUR 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 two weeks ago. These summaries are available on our webpage. 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 EUR 9.3 billion, expected closing dates, and the respective consolidation procedure of each of the businesses. With the Coppertone sale already having closed in Q3 and Dr. Scholl's and Currenta expected to close in Q4, we expect gross proceeds of around EUR 2 billion in 2019. An additional EUR 0.2 billion is expected in Q1 2020 from the real estate portion of the Currenta 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 $7.6 billion 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 EUR 1 billion 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 EUR 900 million 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 EUR 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 EUR 200 million and vice versa. Let me focus on the key business drivers for Q4, which are important for us to achieve our guidance for 2019. For Crop Science, we expect the growth momentum in Latin America to continue, and we anticipate a strong start to the next season in the U.S. In addition, and as already mentioned by Werner, we expect around EUR 300 million 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 Currenta and Dr. 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, a core EPS of EUR 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 Animal Health and Currenta, which were included in our originally 2019 guidance. We are compensating some sales and EBITDA for a few months of Coppertone and Dr. 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 third column shows the original guidance adjusted for discontinued operations and thus representing our continuing operations.
Without the Animal Health business and Currenta, our currency neutral guidance would have been around EUR 43 billion for sales, approximately EUR 11.6 billion for EBITDA before special items, and around EUR 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, there is a very minimal impact from that transaction. Net financial debt is expected to be around EUR 2 billion lower at approximately EUR 34 billion, which considers net proceeds from the Coppertone, Dr. Scholl's, and Currenta transactions. With only one quarter left, we have added a fourth 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 on September 30th spot rates carried forward for the remainder of the year. The last column depicts our 2019 guidance after adjusting for the discontinued operations and currencies. Specifically, this results in sales of around EUR 43.5 billion, EBITDA before special items of approximately EUR 11.5 billion, and a core EPS at around EUR 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 EUR 35 billion at year-end. Before we start the Q&A, let me wrap up by summarizing our focus areas. First and foremost, we are committed to delivering on our operational targets as reiterated today as a going concern and adjusted for discontinued operations and foreign currencies.
Second, we are focused on the smooth integration of the acquired business in order to shape the future of agriculture. Of course, we will continue to vigorously defend glyphosate while constructively engaging in mediation talks. Third, we expect to further deliver sales and margin growth in Pharmaceuticals. In addition, we plan to strengthen our internal pipeline as we intensify the external sourcing of innovation. Fourth, we will strive for improvement of the operational performance of our Consumer Health business as shown in Q3. Fifth, we expect to deliver our targets for the Bayer 2022 program, both related to the synergy realization and efficiency improvements. Lastly, we anticipate the successful closing of our remaining portfolio measures. With that, I will hand the call back over to you, Oliver, to start the Q&A.
Great. Thank you, Wolfgang. Thank you very for your comments. I think, Emma, with that, we can open up the session for Q&A.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star followed by one on your telephone. If you wish to cancel your request, please press star followed by two. Your questions will be answered in the order they are received. If you are using speaker equipment today, please lift the handset before making your selection. One moment for the first question, please. 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 completion of the North American season versus the start of the Latin American season? Thank you.
Thanks, Vincent, for the question. 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. We actually did as many true-ups as we possibly could actually already in Q2 for corn and for soybeans. We built provisions, and then looked in Q3 at what the actual situation was. What we saw was clearly there was more corn planted, less returns than we had been originally anticipating. It's about 89 million acres versus anticipated about 86, 87. 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.
Net, that turned out into, for us, a positive upside on the corn seeds, basically driven by corn seeds and trades. That was one of the drivers of the Q3 results. The main effect was LatAm positive Intacta seed penetration and fungicide sales. The North American corn true-ups and reversal of provisions was the other point that helped us in Q3.
Okay. 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 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. Maybe you can help us there.
Yeah. 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. 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 trades going forward. 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.
Here we're expecting a low single-digit decline going forward. That's on both corn and soybean, kind of the net impact that you would be seeing on the price cards. Overall, from a corn point of view, there is no decline. 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.
Sure.
Next question comes the line of Mr. Raffat. Please state your name, company name, followed by your question.
Great. Umer Raffat from Bernstein. Thank you very much for taking my questions. If I could just first start just with a little bit more color on full Q 2019. Your EBITDA margin year to date for Pharma is around 54%. When I look at historical earnings, Q4 is typically a high OpEx quarter. Should we expect a trend away from the norms that your guidance for 34% margin is achieved for the full year? Is that target a little bit stretched? I think the same question for Consumer. Year to date, it's sub 20% EBITDA margin and your guidance is at 21%. That suggests a margin for the fourth quarter of 24%-25%. Just to get some color there would be very helpful. My second question is just on China.
Teddy, 4Q was strong for pharma in China and certain products such as Adalat and Avelox. My questions are, how sustainable is that growth for these products? 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.
Yeah. Hi, Umer. Stefan here. First to the EBITDA question, we're still fully in line with full year guidance for Pharmaceuticals, so nothing has changed. Expected Q4 and Q3 do not change anything about this. 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 third quarter. Continue strong, basically on most of our major brands there. When it comes to the volume-based purchasing that you're alluding to, this is difficult to assess from today 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. I'm happy to elucidate you about that after we went into the bidding next year if that happens. So far it's more guesswork, okay? We'll have to wait what happens with that.
Okay, great. Thank you very much.
Yeah, 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, first of all, continued growth. 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. That's also going to help us. Overall, we think that we can still bring in that number.
Okay. Thank you.
Next question comes from line of Mr. Holford. Please state your name, company name, followed by your question.
Jeff Holford, JPMorgan. In your Crop Science business, your prices were up 4%. If you adjust for your divestitures last year, your sales were about EUR 3.5 billion. A 4% price increase should be an increase of about EUR 140 million. 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 COGS. Can you quantify that and explain why you didn't make more than you did?
Thank you, Jeff. EBITDA, the price increase was largely actually driven by LatAm Brazil. It was largely the impact of penetration, increased penetration. We're on over 65 million acres already, but that's still increasing further. 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 two things. One, 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. 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 recurring theme. It will also continue in Q4.
Overall, we believe net this is good for the industry because cleaning up means they're also bringing production up also to Western standards. It's a cost issue for us. 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, 77 million acres. Here we have obsolescence costs on the seed side, which factors into COGS. They're kind of the two factors that would have held us back from achieving even more.
Mm-hmm. For my second question, because of your FieldView software, you guys have a very good view of corn yields in the U.S. 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 do you think it's high or low, or by how much?
Yeah. Really hard to call right now, but we do have some quite unique insights.
Right.
What we are seeing is harvested, let's say harvested versus planted, we're at about 40% also for FieldView. 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 five 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. 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. We don't yet see that in our FieldView numbers because it's still too early.
We do have an implicit assumption that the harvest, that the yield is going to be lower than what USDA is currently forecasting. It's too early to make the call. 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 question.
Hi, 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 seem to suggest? I 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 fourth quarter crop. I know there's already been some comments around this. Guidance implies roughly 7% or 8% for fourth quarter. You just discussed the variables on what you're seeing that gives you confidence in achieving that. Then just a final one on Werner regarding your introductory comments around glyphosate mediation. You referred to the two criteria as financially reasonable and then reasonable closure.
The last part of that reasonable closure is slightly different to how you worded 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.
You're starting.
Oops. Hi, Sachin. Stefan here. On the Xarelto patent, you're right. We have a once-daily patent for Xarelto in the U.S., the so-called '218 patent, which expires in February 2034. This has been challenged. We, of course, believe strongly in the validity of our IP. We're defending this, and we're currently, as Mylan has challenged this, still in discussions on settlement. This hasn't really changed much since we last talked about this. You'll have to stay tuned. 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. Q4, I'd characterize our confidence as good and relatively strong. I say relatively strong because whether or not sales fall into the last week of December or first week of January is not always directly influenceable. I'll indicate to you where we see the growth coming from. Number one, primarily, it's LATAM. It's specifically and particularly Brazil. This will be largely driven by the crop protection portfolio because the seeds and traits, and we've booked a good portion now in Q3, particularly fungicides, herbicides, insecticides. In APAC, where we are expecting now in the southern hemisphere also a good growth on the crop protection side, again, across the board with the portfolio. We have a significant sales expectation for 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 the legacy Bayer vegetable seeds business to BASF, and we acquired the Monsanto business, Seminis /De Ruiter, which was significantly bigger. We are basically tuning the business now to a full-year calendar that Monsanto was on a different financial calendar than Bayer originally was. 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, just to explain where we would expect to see something coming. 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. At least the demand appears to be there, that could also help drive growth.
On the bottom line, I 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 post-closing agreement sales to BASF, which were much more significant in Q4 last year. This year, they're significantly lower. These sales were highly dilutive. They're dilutive on our margin. This helps us overall as well from a mix point of view. Of course, what Werner and Wolfgang alluded to earlier, the increasing or the accelerated synergies, which also helps us on the bottom line because relatively, of course, more is going to flow into Q4 than other quarters.
Okay. Thank you, Liam. 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 two and now end of quarter three. Your question 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 promotion or 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.
The very strong EPA stance 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. We are going to see a product that will continue to be on the market with the existing label. 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 end user settlement, should we be successful with the mediation under Kenneth Feinberg's auspices.
Thank you.
Next question comes from 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 surprisingly resilient results again for Kogenate. Clearly it is, however, something of a legacy asset in a space that is therapeutically changing, and you've 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. 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. 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, et cetera, will potentially offset that competitive pressure? I.e., should we expect that it can remain a growth asset into 2020 and beyond? Many thanks.
Thanks for your question, Emmanuel. 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. 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. There is a reason why evolution put Factor VIII as a clotting factor into humans. We're providing exactly that factor that these patients are deficient with a very long-lasting safety profile, with the strong loyalty that our customers have and our patients have.
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 therapy program that we have is going. We have phase I ongoing. We have the amount of patients on product so far as planned. It's really a little bit too early to talk about the results. We're not discouraged at all by what we're seeing so far in our gene-based therapy program there. I think it's still an interestingly resilient business, maybe more than some observers may have thought. On EYLEA. Well, EYLEA is really an interesting one, and we've upped our guidance for EYLEA this year to lower teens from higher single digits. 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 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 maybe we may have anticipated, which is, I think, good news for patients. 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. You look at brolucizumab, 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.
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 60-100 EYLEA patients per month
You have a side effect profile that gives you 5% or so in unpleasant side effects, then I would say this is significant and even observable in your daily practice. 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 the standard of care, which continues to be EYLEA. When it comes to other products that may join, these data are very early and preliminary, so I wouldn't speculate on this. The only true comparison that I have so far is FDA label from brolucizumab, and we feel quite confident that we can handle this.
Thank you.
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 EUR 400 million loss or cost relative to the level that was in your restated numbers? 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 finerenone. 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 interest there as well. Just some thoughts there on vericiguat, please. Thanks very much.
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 EUR 2.6 billion, some of which will be reinvested in the business. Out of this, about EUR 1 billion comes from the synergies out of the post-merger integration, with about EUR 500 million out of Consumer Health, EUR 200 million out of Pharmaceuticals, rationalizing R&D to go more external. The balance coming from the platform functions. We had at the capital market day indicated a preliminary phasing of 30% of these savings in 2020, 70% of these savings in 2021, and then 100% in 2022. We are doing all together 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 EUR 300 million that we indicated earlier, that's more like 34% savings. We are ahead of the game there. That also brings the total on the overall program over EUR 600 million. If you, for a second, take the EUR 600 million, contrast it with the EUR 2.6 billion 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 one-time costs where they can and not dropping the ball in the business. That's really 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 Currenta in these numbers before, and now with that being a discontinued operation, reconciliation remains a collection of smaller business that include things like our gastro business. Not gastro in a medical sense, it's our restaurant business, basically. We have the travel boards, we have our sports business. 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 costs 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. 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 are changing our guidance. Now that Currenta is out, it used to be EUR 1.6 billion in revenue and a negative EUR 200 million in EBITDA. Now with Currenta out, it's EUR 0.3 billion in revenue. EUR 0.35 billion in EBITDA contribution. If you look at that and you have three quarters of actual, you know that the fourth quarter is closer to what we had in quarter 1 and in quarter 2. 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.
At the very latest, at the capital market day that Werner mentioned will happen in June of next year.
Hi, Richard. When it comes to the pharma pipeline, 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. 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 vericiguat with the HFpEF, so in preserved ejection fraction patients. More to the pipeline on finerenone. Primary completion for our first phase III trial in diabetic kidney disease, so-called FIDELIO-DKD study, which is an outcome study. We will have primary completion probably beginning of second quarter.
We should have in the second quarter some top line data, hopefully. Not to forget that we filed NUBEQA, so darolutamide in Europe. This is coming too. We expect launch next year there. 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. You asked about giving some context from a competitive standpoint in the heart failure field and how vericiguat could potentially differentiate, that's how I understand it, against a more busy field of competitors, especially SGLT2s and also ENTRESTO there. First of all, please be reminded that this will be the potential first-in-class treatment for chronic heart failure, because no other sGC stimulator has so far been approved for use in heart failure.
Personally, when I look at the field and when I also talk to specialists in the field, they see room for multiple different approaches in treatment, multiple classes that you would treat patients with. There should be enough room. More specifically, when you look at how we've conducted the trials for vericiguat here in HFrEF patients, 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-event patients or in patients with worsening heart failure. There are, to my knowledge, on worsening heart failure, no concluded studies with SGLT2, so we would be ahead of them there. I think there's enough room to differentiate.
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. Locke. Please state your name, company name, followed by your question.
Thank you. Joe Locke, Morgan Stanley. Two questions, please. First for 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 timelines? I appreciate there's only so much you can say, but any clarification would be helpful. Second, Wolfgang, at the Capital Markets Day in December, you gave us a constant portfolio target of EUR 23 billion in free cash flow generation from 2019 to 2022. I think EUR 12 billion was to support growing dividends, EUR 9 billion for de-leveraging, and EUR 2 billion for bolt-ons. Over the next 12 to 18 months, you've got cash coming in from divestments, EUR 8.3 billion net, as you say, but also potentially some cash going out for settlement.
How should we think about your original capital allocation priorities in that context? 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 is still going to happen in 2019. Relative to timing, there is no relation to the ongoing mediation discussions here. It's completely separate. 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 might come out of it. This is, of course, nothing but the specific decision in an individual case. Should it prevail, there's a slight positive. Should we not, it might be a slight negative. Relative to the significance, you shouldn't take it as something that is too relevant for the overall litigation complex. We are just going to wait for the outcome of that first appeal. The two others will be following later. We've only filed one set for the appeals, that's Johnson. The others are still coming. Yeah. Okay.
Thank you.
Wolfgang.
Yeah, let me talk about capital allocation and targets. You got it exactly right on the EUR 23 billion. That is the strategy that we communicated, which stresses the importance of dividends, also stresses our commitment towards an A rating, i.e., de-levering, like we have done this previously after we made other bigger acquisitions. On the divestiture gain, it's a little bit time before we spend that money. We had initially indicated that we may do some share buybacks. We still think the shares are a very good investment. We'll cross that bridge when we get there, because these divestment proceeds, the vast majority will come from the transaction with Elanco, you know that's not going to happen between the middle of next year with a portion of it, the equity part, coming afterwards.
It is too early to speculate about if there is a settlement, how high that settlement will be. Rest assured that we are, 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 EUR 10. This will obviously not have Animal Health and Currenta included. You can assume the EUR 0.35 that we indicated with some growth in that business already for now. We will have to look at the rest of the business. In currencies, again, our current plan is to provide you an update at that set Capital Markets Day in June with the full model, including P&L and capital allocation and everything.
Great. Thank you very much.
Okay. Emma, I think we have time for two 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 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 is the magnitude of external kind of firepower that you think you have over the next six, 12, 24 months? That would be useful. Secondly, we believe there was kind of a recent agreement by which you've agreed with your German employees that until 2025, there will be no more restructuring of your German employee base. Can you confirm that?
If that's the case, where do you expect the majority of your incremental cost savings to come through? Thank you.
Okay, Keyur. Many thanks for your question. 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. You also see that reflected in our performance. We are doing what we said that we were going to do. Be it integration and synergy, the strong leadership positions we have in Crop Science. Be it sustained and continued growth in Pharma while further building the pipeline or the Consumer business that we are turning around.
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. 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. That is, of course, very important relative to driving their development competitively.
We have done a few things, certainly further 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. We continue to be 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. Yeah. 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. 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. 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 of 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 our savings.
It's actually an enabler thereof, just to make sure that that is clearly understood and heard by everybody.
Your next question comes from the line of Mr. Leuchten. Please state your name, company name, followed by your question.
Thank you. 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 we should see more revenue-driven margin leverage going into 2020? Or is this a trend that will get incrementally worse, and we should be careful with that assumption? Thank you.
Yeah, thanks, Michael. 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 will continue at least partially into 2020. It's hard to make that, let's say, be that specific on forecasting because it depends now completely on what happens in China. Of course, our bottom line is going to be driven by the revenue growth in going forward and the synergies, which will clearly outbalance any COGS relative related impact in 2020.
Thank you.
I think with that, Emma, we are running out of time. I think we're going to close the call here as there's no more questions in the line, right? Yes. Okay, good. 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. Under the leadership of Matthias Berninger, who joined Bayer actually in January this year, the teams have worked diligently to be able to develop a 2030 ESG strategy. What we think with ambitious targets, with overlaying the ESG strategy with a business strategy.
There will be, as it looks like, we plan for a webcast to introduce that 2030 ESG strategy on December 10th, just to make you aware of that, and the invitations are going to go out in due course within the next couple of days. 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 third quarter 2019 results investor and analyst conference call of Bayer. Thank you for participating. You may now disconnect.