Great. Thank you, Emma. Good afternoon and thanks for joining us today. I'd like to welcome all of you to our 2nd quarter and first half year conference call. With me on the call today are Werner Baumann, our CEO and Wolfgang Nickler, our CFO.
The businesses are represented as usual by the responsible management board members. For pharma, we have Stefan Ehrlich for Consumer Health, we have Heiko Schipper and for Crop Science Animal Health, we have Liam Condon. Werner will begin today's call with an overview of the key developments and performance of the various divisions and Wolfgang will then cover the financials for the Q2 and the outlook as well as our key focus areas for 2019 before we open the Q and A session. For the Q and A, I would like, as always, remind everyone to please limit your questions to 2 per person to allow us to address questions from as many participants as possible within the scheduled time of approximately 1 hour. I'd like to start the call today by drawing your attention the cautionary language that is included in our Safe Harbor statement as well as in all the materials that we have distributed today.
With that, Werner, with no further ado, I hand it over to you.
All right. So thanks, Oliver, and good afternoon to everybody, and welcome to our conference call also from my side. I'd like to open with a discussion of our performance in quarter 2 2019, which quite frankly varied by segment. Pharma continued its profitable growth path and Consumer Health returned both to top and bottom line growth. Crop Science was of course heavily impacted by wet weather in the Midwestern United States and weather overall.
Our Animal Health business showed a solid performance, especially in light of strong prior year quarter. Overall, we are on track from an operational point of view. Sales grew by 21% to €11,500,000,000 mainly driven by the acquisition and EBITDA before special items increased by 25 percent to €2,900,000,000 Our core EPS reached €1.62 up 6% year over year. Finally, our free cash flow reached €751,000,000
The decline of
about €1,200,000,000 versus prior year was related to the timing of the acquisition and reflects the seasonality of the underlying business. Wolfgang will share some more slides on this later on during his talk. With these results as a backdrop, I would like to give you an update on our 2019 focus areas. And I want to begin with target delivery. Given our overall solid performance in the first half, we confirm our guidance for the full year 2019, even though achieving it is becoming increasingly ambitious.
In Crop Science, I can confirm that the integration is well underway. We have secured business momentum and continuity in a very challenging quarter 2 environment characterized by really extreme weather conditions. Our pharma business had continued its sales and profit growth and we have seen several positive pipeline developments. Consumer Health has delivered good sales and earnings growth demonstrating that Heiko and his team are clearly making progress in turning around our business. At the end of 2018 November, we announced a comprehensive set of efficiency and structural measures from which we expect annual contributions of about €2,600,000,000 as of 2022, including around €1,000,000,000 from Crop Science.
We have successfully finished the detailing phase and are on track with the overall implementation. Finally, I'm pleased that we could sign the agreements to sell Coppertone and Doctor. Scholl's in May July, respectively. And our goal is to sign the remaining two transactions by the end of this year. The divestiture process for Currenta is despite small delay, the most advanced.
For the exit of Animal Health, our primary focus is on a sale, while we continue to consider all value maximizing options going forward. The separation carve out and preparation work is ongoing and we see strong interest from multiple potential acquirers. Let me now come to the performance of Crop Science. Overall, we reported a significant year over year increase in both reported sales and EBITDA driven by the acquisition. Currency and portfolio adjusted sales were down by 3%, cycling over a prior year quarter, which included Monsanto legacy sales from June 7 onwards.
The shortfall was caused by severe adverse weather conditions in the U. S. Market. Extreme weather in North America, with heavy spring rains and flooding in the Midwestern United States resulted in missed herbicide applications ahead of planting and reduced overall acres planted to both corn and soybeans. Looking at several external sources, we expect corn acres to be down by about 2% to 3% versus 2018 and corn acres to decline between 7% 10% in comparison to last year.
Soybean sales were in addition impacted by continued competitive dynamics in the U. S. And trade conflicts, which affected both price and also volume. When comparing the quarter on a pro form a basis to 2018, the 10% decline was driven by the same external factors. On a positive note, ClimateView is on track for 90,000,000 paid acres with good uptake in the seeds advisor trials and insecticide sales were sharply in the Europe, Middle East, Africa and Latin America regions as a result of higher prices and volumes.
The latter also benefited from volume increases in herbicides and fungicides. From an earnings perspective, Crop Science increases EBITDA before special items by 67% to €1,100,000,000 driven by the acquired business. Regarding the synergies, we remain well on track to deliver around 25% for 2019 of the total targeted €870,000,000 of cost synergies by 2022. Now we have included this next chart to give you a flavor and a visual how heavily the U. S.
Crop planting in the U. S. Was impacted by the severe rains in spring 2019. The picture on the right shows flooded fields and the chart on the left demonstrates that precipitation in May 2019 in many U. S.
States was well above average or record wettest since 18/95. The higher the number, the better the region in May 2019, meaning the 125 that you see in some of the states indicates that May 2019 was the wettest period for that region in the last 125 years, so since 18 95. Lastly, let me briefly update you on glyphosate litigation, a topic that of course stays top of mind for many of us. First of all, we of course remain convinced of the safety profile of glyphosate. Overall, as of July 11, there are now several lawsuits there are now served lawsuits from 18,400 plaintiffs.
While this is an increase since our last reporting is by no means a reflection of the merits of litigation. And despite this, we are making progress on many fronts. First, in the Hardiman case, the court reduced the overall damage award from $80,000,000 to $25,000,000 in the post trial motion and we now have initiated the appeals process. 2nd, in the Pilet case, the Superior Court of the State of California for the County of Alameda strongly reduced the overall damage award from more than US2 $1,000,000,000 to around US87 $1,000,000 in the post trial motion. Also in this case, we plan to file an appeal.
Meanwhile, the appeals process for the Johnson case continues. In parallel, with the continued litigation of further cases, we are constructively engaging the mediation process and welcome the appointment of Ken Feinberg as a mediator. In general, we will, of course, only consider a settlement if financially reasonable and if we can achieve finality of the overall litigation. I do hope that you understand that I cannot be more specific with regard to the mediation process as we as an involved party needs to maintain confidentiality about the details of our discussions. We believe that we will ultimately prevail in this litigation on the strength of sound science and remain committed to vigorously defending ourselves for the benefit of our customers, employees and our shareholders while, of course, at the same time actively and constructively engaging in the mediation process.
Moving on to pharma. Sales of Pharmaceuticals rose by 4% to €4,400,000,000 in quarter 2, 2019. Our best selling products, XERALZA and EYLEA, have continued this strong performance. Also, our business in China remained robust, which compensated for weaker sales in the U. S.
Xarelto, our oral anticoagulant grew by 12%, driven by higher volumes in China, Russia and France. Our licensing revenues recognized as sales in the U. S. Decreased year on year. Eylea also posted considerable growth of 11%, mainly as a result of volume increases across all regions.
The business developed particularly well in Europe, primarily in the UK and in Canada. Going forward, we expect both products to continue growing. This year, we continue to expect FOXALL to an increase in the low teens percentage range. Given the strong performance of EYLEA in the first half twenty nineteen, we now upgrade our guidance and expect also an increase in the low teens percentage range. We also saw some encouraging product and other news in the quarter.
Given strong efficacy and safety data for dalutamide, the FDA accepted a new drug application and granted priority review. As a reminder, daraldamide significantly sends metastasis free survival in patients with non metastatic castration resistant prostate cancer, while at the same time demonstrating a very favorable safety profile. For larotrectinib, a new analysis from clinical trials in patients with TRK fusion cancer and brain metastases of primary tumors of the central nervous system confirmed the strong activity of the product in both adults and children. In TRK fusion cancer patients with intracranial disease, the compound achieved responses and durable disease control across age and tumor histology. Just a few days ago, the Committee for Medicinal Products for Human Use of the European Agency has recommended naltrexinib for marketing authorization in the European Union.
On the investment side, LEAPS, a buyer, signed an up to US250 $1,000,000 investment in stem cell based cancer therapies through Centrix Therapeutics. Centriq's foundational technology is built on induced pluripotent stem cells that have unlimited self renewing capacity. This enables multiple rounds of cellular engineering to produce master cell banks of modified cells that can be expanded differentiated in immune effector cells to supply vast amounts of allogeneic homogeneous immune effector cells therapeutic products. This platform differentiates Centuri from competitors that are developing cell therapies made from nonrenewable donor derived cells. Finally, due to the robust volume growth, lower cost of goods sold and reduced R and D expenses, EBITDA before special items was up 10% to €1,500,000,000 Last year's R and D spend was relatively high, driven by efforts to accelerate prioritized products in our late stage pipeline such as funeral.
Let's move to consumer health next to close out the divisional updates. The performance of consumer health in quarter 2 was characterized by return to sales and profit growth. We have seen a positive development in EMEA, Asia Pacific and Latin America, particularly in the later where sales grew by 14%. North America sales are in line with our expectations and the region is deemed in early stages of recovery. We're optimistic to see a gradual improvement over the remainder of this year.
EBITDA before special items increased by 5%, driven by positive pricing and the successful implementation of the announced performance improvement measures. We anticipate a continuation of the solid Q2 performance in the coming quarters and confirm our full year guidance. With that, let me now hand it over to Wolfgang.
Thanks, Matsuno. Ladies and gentlemen, also a very warm welcome from this end. I will now walk you through some more financial details for Q2. And afterwards, I will discuss our outlook for the full year. Reported sales for Q2 increased by 21% to €11,500,000,000 including a substantial contribution from our newly acquired business.
The underlying overall business performance was positive. When adjusting for currency and portfolio effect, we achieved an organic sales growth at the group level of about 1%. EBITDA before special items for the group came in at €2,900,000,000 up 25% year on year, also including a meaningful contribution from the acquired business. Our EBITDA margin increased by 70 basis points to 25.5%. Foreign exchange effect had a positive year on year impact on sales of €113,000,000 and a negative year on year impact on EBITDA of €59,000,000 The negative impact on earnings results from the year over year hedging balance.
In the Q2 of last year, we had a gain of about €20,000,000 from hedges against a loss of approximately €40,000,000 in this year's Q2. Core earnings per share in the Q2 were up 6% year on year to €1.62 Significantly increased interest expenses related to the debt financing of the acquisition and the share count, which increased from €916,000,000 to €982,000,000 year on year impact of gross year. The increased share count alone had a negative effect of €0.12 per share. Finally, compared to prior year free cash flow declined from €1,900,000,000 to €751,000,000 Last year's free cash flow was extraordinarily high due to the timing of the acquisition at the beginning of June, and it also reflects the seasonality of the acquired business. This year shows a more normalized level, and we expect the majority of the cash inflow in the second half of the year.
In other words, we confirm our free cash flow guidance of €3,000,000,000 to €4,000,000,000 for the full year. Last year's acquisition, our portfolio measures and the comprehensive Bayer 2022 program came with a number of extraordinary effects, which had a significant impact on our reported earnings. In order to give you full transparency, we have again added a bridge in our presentation to show you how our core EPS of €1.62 translates back into the reported EPS of €0.41 dollars The first column describing changes shows minus €1.10 per share, which summarizes acquisition related amortization of intangible assets as well as impairment losses in connection with the divestment of our Doctor. Scholl Footcare portfolio. The latter accounted for around minus €0.43 On the special items side, we had a negative impact of €0.45 The two main adjustments are related to integration costs of the acquisition, which accounted for about minus €0.11 and the Bayer 2022 restructuring costs accounting for about minus €0.25 The negative impact on special items in the financial results of €0.06 is mainly driven by the changes in the market value of the Covestro shares we are holding.
And finally, last column shows the offsetting tax effect on the sum of the items I just explained. Let's now move on to our balance sheet. Our net financial debt of €38,800,000,000 is around €2,000,000,000 higher than at the end of Q1. This increase is related to our dividend payment of about €2,600,000,000 in April. During Q2, we repaid a €100,000,000 Japanese yen bond.
For the remainder of 2019, we have 2 bond maturities left, €400,000,000 in July and €1,800,000,000 in October, both U. S. Dollar denominated. We intend to redeem these bonds by a combination of cash on hand and future free cash flow generation. The July bond actually was redeemed a few days ago after quarter end close.
We continue to expect our net financial debt to be around €36,000,000,000 by the end of December of this year. This estimate is based on constant 2018 currency rates and does not take any divestment proceeds from Coppertone and Doctor. Scholl's in account. Please also keep in mind that at the end of Q2, almost 60% of our financial debt was denominated in U. S.
Dollars. The impact of exchange rate changes to our net financial debt is quite significant as every percentage point appreciation of the U. S. Dollar against the euro would increase our net financial debt by about €200,000,000 and vice versa. Before we come to the guidance, let me share some business drivers for the second half of the year.
For Crop Science, we expect strong market growth in Latin America and Asia Pacific for the second half of the year. Furthermore, we expect the next season in North America to strong with early deliveries starting in Q4. This year's production of both corn and soybeans expected to be down in the U. S. Driven by lower overall planted acres and lower than average yield.
This is driving commodity prices up and will likely lead to more acres planted in all of the Americas going forward. Our growth in Asia Pacific is expected to be driven mostly by crop protection volumes, particularly in China and India. Overall, we are forecasting
our currency and portfolio adjusted sales growth in
Crop Science in the mid single digit percentage range for the second half. Moreover, we are well on track with regard to the integration of the acquired business, thus confirming our guidance of expected cost savings of more than €200,000,000 for 2019. For Pharmaceuticals, we expect a continuation of the very good performance in the first half and the second half of the year. The main drivers remain the strong development of both Xarelto and EYLEA as well as our growth in our China business. Consumer Health is fully on track with regard to its turnaround and should see further top and bottom line improvements in the months to follow.
For the year, we see top line growth of at least 1 percentage point as well as margin expansion by 1 percentage point when compared with the last year. Finally, we are confident with regard to our Bayer 2022 synergy and deficiency programs and expect gross savings of at least €500,000,000 across all programs to strengthen the bottom line in 2019. With this information as a backdrop, let's move on and look at our guidance for the year. Following a strong first quarter, have seen a second quarter that was heavily impacted by weather conditions in the United States in our Crop Science segment as outlined by Werner. All other segments performed very well against their plans.
Therefore, even though it has become increasingly ambitious, we are confirming our group guidance for the full fiscal year, supported by the business drivers we have just discussed. I would also like to remind you that our group guidance is based on constant currencies and a going concern. Specifically, this means that the effects of the outstanding portfolio measures are not yet included. Our assumption is that we have to account for Animal Health and Currenta as discontinued operations once we sign these deals. Against this backdrop, we expect Bayer Group sales still of around €46,000,000,000 an increase of around 16% year on year, of which about 12% are attributable to portfolio effects.
We anticipate EBITDA to increase by almost 30% to around €12,200,000,000 while core earnings per share are estimated to come in at around €6.80 up 14% on the prior year figures, reflecting higher interest payments and an increased share count. The core financial results for the year is included at an expense of approximately €1,800,000,000 and for our core tax rate, we continue to model about 23%. Finally, we expect free cash flow to be in the range of between €3,000,000,000 €4,000,000,000 The decline compared to 2018 is a result of expected restructuring related cash outs as well as the historically negative free cash flow in the first half of the year from the acquired business. Before we start the Q and A, let me wrap up summarizing our focus areas for the year. 1st and foremost, we are committed to deliver on our operational targets as reiterated today, even though they are becoming increasingly ambitious.
2nd, we are focused on the smooth integration of the acquired business in order to shape the future of agriculture. We look forward to seeing many of you at our inaugural Crop Science Technology Showcase later this week in St. Louis where you can see this firsthand. Of course, we will continue to vigorously constructively engaging in mediation talks. 3rd, we expect to further strengthen our internal pipeline in pharmaceuticals and intensify the external sourcing of innovation.
4th, we strive for improvement of the operational performance of our consumer health business as discussed. 5th, we are delivering against our targets for the Bayer 2022 program, both related to synergy realization and efficiency improvements. This is foundational for delivering on the 2019 2022 targets, which we outlined at the Capital Markets Day last December. And lastly, we're making very good progress on executing all announced portfolio measures to further shape in our business focus sharpen our business focus. With that, I will hand it back over to Oliver to kick off the Q and A session.
Yes, great. Thank you very much, Wolfgang. Thank you very much, Werner, for your presentation and for the comments. Emma, I think we are now ready to open up the lines for Q and A.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. State your name, company name followed by your question.
Jeff Zekauskas from JPMorgan. I was hoping you could compare the performance of the soybean seed business in the United States and in South America? How did those changes compare for the second quarter and for the first half?
Okay.
Thanks a lot, Jeff, for the question. So soybean decline in the U. S. Is very significant as you've seen from the reported numbers. This is primarily, of course, due to the weather situation and less acreage.
But there's also a price effect in here related to a very intense competition, simply due to the overall situation that demand for soybeans is relatively low given the U. S.-China trade conflict. On the LatAm side, this is of course a very small part of the season now for us for soybeans. Here the main effect, so that there was a decline in soybeans. Here the main effect was purely related to an accounting issue.
This was related to IFRS. And we had a gain in Q3 2018, because according to IRS, we book when we have the sales to distributors as opposed to when they're with customers. And we had a corresponding hit in the subsequent quarters when you do the like for like comparison. So that was more a pure technicality. Going forward, we would, of course, expect that there will be a significant increase in LatAm in soybeans from an overall market point of view and of course from a home sales point of view.
In cornseeds, are farmers trading up where they want higher quality corn seed and paying more? Or in general in the United States, are they trading down and they want a simpler lower cost solution?
Well, the biggest issue for us right now was simply with the pretty disastrous weather situation. For a long time, we didn't know how much was actually going to be planted. And farmers weren't sure how much they were going to plant and we're looking for shorter maturity corn. And I think in this type of situation, many farmers are trying to hedge their bets and were rather trading down as opposed to trading up. This is particularly relevant in areas where there's corn rootworm pressure, where there was less corn rootworm pressure, it would then trade down to in our portfolio.
And that's more in areas that we say are on the fringes with corn rootworm pressure. But so far this year, there was rather some degree of trading down as opposed to trading up given the overall market situation. Going forward, looking at where commodity prices are going, I would personally expect that there would rather be a tendency to be trading up in the future, but that we'll see in the future quarters.
The next question comes from Mr. Cappadio. Please state your name, company name followed by your question.
Great. Thanks for taking my questions. Wilmar Cappadio from Bernstein. Just a couple on Xarelto actually. So first, clearly, the U.
S. Is suffering, but I'd be interested to hear more about the role CAD and PAD indications are having on a growth And then secondly, I know it's several years away, but it's a question I get from investors quite often is, I'd love to hear your thoughts on what sort of tail revenues Bayer expects for Xarelto post the patent expiry? And then tied to that, could you give us any comments on the anti Factor XIA and Factor XI itself in terms of being able to maintain some level of franchise for the antiretroviral franchise post the zerototype improve? Thank you.
Hi, Vimal. Thanks for your question. So on CAD,
good question. The uptake is as we had already guided before, it continues to be slow, but that is expected, which is linked to the fact that we're really breaking ground here and it's a paradigm shift in the treatment of CAD, PAD for Xarelto. So we continue to be positive about this indication as we move forward. We're putting significant efforts behind it to educate physicians. So this is going according to plan for now, even though it still remains small for the time being.
So I think we will have some better view on that towards the end of the year and early next year. The tail revenue on Xarelto, that's not something we would disclose at this point in time. So I would not have a number here readily available for you. And on Factor XI, this is indeed something that we're currently in the process of discussing as we haven't fully made up our mind about the development profile of this, we're obviously looking at some of the indications for currently other anticoagulants like our own are indicated, but we're also looking at extending the indication spectrum potentially here to areas where Factor Xa ambition is not warranted for use. So that gives you a little bit of a picture.
We have both an injectable and an oral in our early stage portfolio here, which would allow us to cover a broad range of spectrum. But it's a little bit too early to give you more color on this because we haven't fully decided this yet.
Great. Thanks very much.
Thanks.
Next question comes from the line of Mr. Andrews. Please state your name, company name followed by your question.
Thank you. Vincent Andrews from Morgan Stanley. And good morning, everyone. Liam, if
I could just ask you about
seed production. Yields are probably going to be lower than expected this year. It sounds like there's going to be more demand in Latin America and then maybe a pull forward of demand from North America in the Q4. What do you think ability is to serve that demand with existing inventory plus whatever is produced this year? Are you all worried there's going to be a bit of a shortfall in seed production out of the U.
S. That might force you to do some winter nursery in South America?
Yes. Thanks, Vincent. So hopefully, there will be an increase
in demand in at
an early start of the season in Q4. An increase in demand in or an early start to the season in Q4 already for corn in North America, and we are expecting a strong season in LatAm. But from a seed production point of view, we feel pretty good about where we are right now. So we, of course have a highly distributed field production or seed production setup. So we weren't as effective, for example, as the overall market situation is now in the U.
S. And given our forecast and we are expecting growth going forward, we feel we'll be able to deliver and meet the demand that's there. So we feel good about that. We don't see that as any kind of a significant risk on our side. Okay.
And
then just as a follow-up
on soybean. Can you talk about the Xtend penetration this year? Did you reach your targets? And is your price per acre still at your target? Or was that competed away a bit?
Yes. So extent penetration was strong and as strong as we expected. So we've moved up to or expecting to be up to 60,000,000 acres for corn and soybeans. So basically 50,000,000 beans and 1,000,000 sorry for soybeans and cotton. So basically 50,000,000 acres for soybeans and approximately 10,000,000 for cotton.
So that's particularly given the overall market situation, that's been a very strong penetration. And from pricing point of view, of course, given the overall weakness in the market, that hasn't, let's say, been as positive as the overall market penetration itself. So we have dropped a bit on the price side.
Thank you very much. Okay. Thanks, Liam.
Your next question comes from the line of Mr. Papadakis.
Emmanuel Papadakis from Barclays. For taking the questions. Maybe a couple on pharma. EYLEA, obviously, running a bit ahead of expectations for 2019, but maybe you could give us some thoughts on evolution beyond that given the competitive developments and likely arrivals? And then for TRACV, you've neglected to tell us anything about how the launch is going.
Any color on patient numbers, penetration of the diagnostic, how the uptake of that is going would
be very helpful. Many thanks. Okay.
Thanks, Emmanuel. So, EMEA, yes, we're very pleased. I mean, you guys were challenging me on being too pessimistic in the beginning of the year. So I guess you were right. And so we're upping this a little bit.
We still remain cautious because the market conditions are such that we expect in certain key markets potential pressure on price and also volumes by using some substitutes where you know that we're fighting, which which are not in line with our regulatory status as we believe. So those are still there, but they haven't materialized yet. We remain now more optimistic for the second half of the year. And with regards to VITRACV, we're progressing fine. This is going according to our plans.
We're not disclosing the number of patients that we have on product for the time being, but the uptake is exactly according going according to plan. And we're happy to I think this is new news. Today, Canada is actually approving VITRACI for use. So that should give us some additional room. And then you've heard the positive CHMP decision here on Vitrucci.
So we think that will compound further a positive situation plus very nice data we got in other indications that again support our claim that this is really a pan tumor treatment for people that are affected by an NTRK fusion anomaly. So all in all, it's on track, in line with expectations and we're getting very positive feedback across the board from all stakeholders. So, worldwide, please. Okay. Thanks, Stefan.
Next question comes from Mr. Vosser.
It's Richard Vosser here from JPMorgan. Just a question on the synergies. I think you said that the synergy number would be $500,000,000 for this year. I think back at the Capital Markets Day, you were targeting $300,000,000 So could you just confirm that you have brought forward an extra $200,000,000 of savings into this year? And perhaps confirm that the overall synergy target should still remain at $2,600,000,000 by 2022?
Then a second question just on Crop Science. And I think you obviously pointed to mid single digit growth in the second half. You had a decline in the first half, which looks like sales growth maybe 1% for the end of the year. Obviously, a little bit lighter on the sales for Crop Science. Are you planning on trying to make those sales up at the group level in other areas?
And maybe give us some idea of how you're making that up? Thanks very much.
Wolfgang is taking this question here, Richard. Thanks for your question. On the synergies, yes, the €2,600,000,000 is intact. That remains our target. As you recall, that includes the contribution from the post merger integration, but also included our programs on the platforms and consumer health and in pharma.
Against this target, like I mentioned in my prepared remarks, for the year, we are delivering more than €500,000,000 altogether, so which is above 20%. What we said, we didn't give a guidance for 2019, but we gave a guidance that we would achieve about 30% of that number in 2020. So you can imagine as we ramp through the year that we will likely come in higher for next year than we have guided. So this is a pretty positive development in my mind. Just for everybody's clarity, those 500 include more than 200 from the cost synergy targets from the post merger integration.
I think we outlined that also at the call. I'll take a crack at the second part of your question, yes. We're not a one business business and Liam has to achieve some pretty significant growth rates in the second half of the year, which we have a plan on delivering on, but it's not completely in our hand. But we have the other two businesses doing very well, as we outlined, plus what I just said. We're doing well on costs, and we're obviously managing also on the ongoing run rate costs to counter potential weaker markets, and that's what put us in a position that we could confirm the $6.80 EPS guidance for the year.
But of course, we had to outline that it's a bit more ambitious because there's a big growth rate in crop science in the second half. I hope this answers the question, Rich.
Perfect. Thank you very much.
You're welcome.
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 at UBS. One question for Liam and one for pharma, please. Liam, the margin in Q2 above 22% was pretty respectable despite all the headwinds. And I think in the past, you've demonstrated that the division really is able to deliver a good margin through the cycle.
This year, has there been anything that you've been doing beyond the normal course of business to deliver this? And has it question for pharma is on China. At the Capital Markets Day, you outlined how you see that region going to €3,000,000,000 Another way halfway through this year with the tenders biting or not biting in China, is that region delivering according to plan? Or is it actually going better than you had anticipated?
Okay. So Liam first and then Stefan. Thanks, Michael, for the question.
Yes. Thanks, Michael. So as you say, the margin has been holding up very well given the overall weakness in the market. This is actually also due to very significant cost discipline in our organization. I think we've been going through a couple of weak years and we've gotten the organization to a point where it's pretty agile and able to deal more flexibly with weaker market situations.
So we have been able, I think, to compensate on the cost side. And of course, as we look at our synergies now, they're starting to kick in. Wolfgang already outlined that we're targeting for this year, for the full year, over €200,000,000 in net cumulative synergies going forward. And so that's starting to benefit us as well. So I think that's something that you will continue to see going forward, a very strong cost discipline in the organization that will help at least on the bottom line side to balance out any market headwinds that we're facing as far as possible.
Okay. Liam,
Stefan? Yes. Michael, so yes, we're very pleased with our China performance. And it's compared to what we presented last year at the Capital Markets Day, we're even slightly ahead despite of our already very strong growth. So this quarter, again, 25% growth, which is really, really strong.
Now, as we go about the guidance that we gave at the Capital Markets Day on where we said we target 3,000,000,000 and more in China that is still within reach. I think the market conditions, however, are slightly changing as we move forward with some uncertainty for China with the volume based purchasing exercise now in the 4+7 metropolitan areas, which you know is about, I think, 40% of national. We'll have to see how quickly this continues. The first batch has been released of products. We were not concerned with that first round.
We expect that this will not continue to go on without our products being part of this. So Glucovery could well be as we had already announced, you could be concerned. But for now, overall target that we stipulated last year for China, I think, is still in play.
Thank you.
Thanks, Stefan.
Next question comes from the line of Mr. Ceesidis. Please state your name, company name followed by your question.
Good afternoon, gentlemen. Thank you very much for taking my questions. Florent Cespedes from Societe Generale. Two quick ones on pharma for Stephane. First on Cogenate, this quarter was a bit better than usual when some competitors are suffering.
Could you maybe give us a little bit more color on the performance of this product this quarter? And my second question is on Eylea. Again, has pretty strong performance with this product. But do you intend to strengthen your sales force organization in Europe ahead of the launch of some competitors? Thank you.
Okay, Stefan.
So on Cogentate, yes, we're equally pleased because what we're seeing is compared to market, we seem to be much less affected for now by the Hemlibra advance in the market. So that comes to show the strong size we have with our patients and the degree of satisfaction that they have with our products. We believe that Jivi is helping here also. We see a good uptick with Jivi, which is hopefully going to develop into a really strong backbone of our hemophilia franchise. So far, so good for this year also when I look at this market overall.
And then on EYLEA, that's a good question you're asking. We feel actually that we're pretty well resourced here in terms of our promotional capabilities. And the success of Eylea has been pretty much riding on the product itself less so than on its promotion. This is a product which has an unmatched profile, scientific profile in the marketplace. And we believe that this continues to be the case as some of these new products are entering the market.
We have some very, very strong data that we intend to continue to educate our prescribers about, which doesn't have to hide at all, I would say, to the contrary, behind what we're seeing at least in the clinical trials from some of the incoming products. So we feel quite strong on I would say that increased promotion may even benefit market leaders when the market expands. So I hope that answers your question.
Yes. Thank you very much, Stefan.
Next question comes from the line of Mr. Lockey. Please state your name, company name followed by your question.
Thank you. Joe Lockey from Morgan Stanley. Stefan, back to the Factor XI antibody. As far as we can see the Phase 2 FOXTROT trial complete in January, but has not yet been reported. So do you definitely intend to progress that asset into Phase 3?
And if so, have you entered into any partnership discussions Or do you intend to develop it yourself and perhaps take on the U. S. Opportunity alone? Thank you.
Stefan? So, Joe, as I said before, this is a little early to go about this. So all those points are still in play. We're considering our options on both partnering and as well as the how we're going
to go about our Phase III. So this
is something that I hope to give you more clarity probably someone next year around this and then you'll have the detail you need.
Okay. Thank you. Thanks, Stefan.
Next question comes from the line of Mr. Verdult. Please state your name, company name, followed by your question.
Thank you. Peter Verdult, Citi. Apologies for any background noise. Two questions. Firstly, Wolfgang, thanks for your comments about levers you have to maintain guidance.
But on crop specifically, maybe Liam, could you talk about what you're expecting in H2 to happen to be able to meet or maintain the revenue guidance you've given of 4%. I'm just trying to understand better what needs to happen for that target to be achieved. Secondly, just Werner, we've seen a number of transactions from your pharma peers with respect to their consumer businesses. If you're fit to win strategy plays out as you expect and you get consumer back on track for 2020, are you and the board open to explore options for consumer to create value given the current share price? Thank you.
Okay. Thanks, Peter. So first on the revenue
path. I'll start with the crop. So thanks a lot, Guy, for the question. So maybe I'll give you a bit of color around what we see as growth drivers for the second half of the year for Crop Science. And I think it's really important to flag upfront that, of course, the second half is literally a new game.
And the first half of the year is dominated by the Northern Hemisphere, North America and Europe, and the second half is dominated by LatAm and by APAC. So it is really a completely different game. I think that's just important to bear in mind. We see the primary growth coming clearly from Latin America. And if you think about factors that were negative in the Northern Hemisphere, it was primarily a once in 125 year bad weather event and U.
S.-China trade conflict. For LATAM, we're not expecting this, let's say, this once in a lifetime weather event. And Brazil and Argentina are probably beneficiaries of the U. S.-China trade conflict. So we see strong growth potential going forward.
We were forecasting an increase in acreage, both for soy and for corn going forward in LatAm and both in Brazil and in Argentina. So we're expecting a higher intact penetration, which will, of course, benefit us. We also have the launch of a new fungicide, a three way fungicide FOX Expo, which we believe is going to be a blockbuster that will really take off in the market this year. So kind of with that combination with the crop protection, with the inventories at completely normal levels, there's great opportunity for growth given that we expect simply very robust organic market growth in Latin. In APAC, we expect growth to be driven by India and China.
If you recall, last year, India had relatively low growth. So we're trading off or we're kind of basing against we've got a low base year to trade off against. So we are expecting good growth out of those 2 major countries where we have a very strong crop protection portfolio. So that will be another big growth driver for us. And in the 3rd growth driver, and this is the one that is less certain than the first two, We're sure there will be growth, but it's a question of how much.
It will be a question in North America, how much do we regain of what we lost from the first half. So there will be some phasing could expect, of fungicides and herbicides, for example, into Q3. How much now depends on weather situation. And depending on how robust demand is for corn, which we're expecting. And we believe that the market is seriously underestimating what the negative yield impact is going to be in the U.
S. From not only lower acreage, but also a lower yield from that lower acreage given the quality of crop that's been planted. And we expect corn prices to be increasing and there that will probably drive an early demand pattern for corn seed already in Q4 in North America. So that's an additional possible growth driver for us. LATAM and APAC, I think, are fairly certain.
North America is the one, depends then on what's happening in the market. So that's on the sales side. And then on the bottom line side, of course, we've got our cost discipline and our mix of cost synergies kicking in to help us protect and drive the bottom line as well going forward.
Okay. Thanks, Liam. So Peter, let me frame the answer to your question with a few comments before I hand it over to Heiko, who can talk a little bit more and shed some more light on how fit to win is going. I spent almost 2 days with Heiko and Hisim about 2 weeks ago. I was really deeply impressed on how far we've come with not only Fit2win but also the overall organization and how strongly the team has grown together.
So for me, there's no question that Haikou and his team are up to the challenge. You see that we've been actually coming up nicely also in terms of performance also if you look at our peers. And we see good strong underlying momentum. We see the cost base that has been reset. And so there are no second thoughts at all for our consumer business actually to the contrary.
And with that, let me hand it over to Heiko.
Okay. Well, thank you, Werner, and thanks for the comments. I can just give a little bit of color on the quarter. Obviously, we should not call this a turnaround yet with one positive quarter after clearly not a very impressive performance before. So I we need a few more of these.
But definitely, this was a good start and maybe more so than just some of the growth numbers or the bottom line. I think more importantly is what we presented to you in December during the Capital Markets Day is a rather comprehensive list of activities that needed to be done to turn around this business. So you've seen the closure, 1st on portfolio. I mean, frankly, we've moved pretty fast. We've been able to sell Coppertone, Scholl.
We have closed RxDerm by now. So before the end of the year, we will have kind of re achieved the kind of focus around the businesses that we think that we can really win. If you look on the operational side, also maybe first on the top line, good developments, particularly in Q2 in EMEA getting back to healthy growth. Our supply situation improving, but also good growth across many of the geographies there. LatAm, very strong double digit and also APAC maintaining growth.
North America is still not where we want them to be. They are still negative, but the gap is closing. And sort of brand by brand, we are fixing that. And also there, we just see good progress everywhere. So I think that's what's encouraging.
Werner commented on the resetting of the cost base. I think this is also always something where you can have a high sense of urgency. This is something that is directly under your control. And whereas things like innovation sometimes take a little bit longer, cost is something that you can hack on much faster. And if we basically compare the first half of last year versus this year, we are basically operating with an organization that is more than 1,000 people less.
An SG and A base that is 200 to 300 basis points lower. So that's really giving us the, I would say, the fuel to reinvest in growth because that remains our best lever of performance. But we just have to make money for that available and at the same time, of course, also improving our margins so that we are able to deliver not only talk but also higher bottom line.
Next question comes from the line of Ms. Walton.
Joe Walton from Credit Suisse. Two questions, please. Firstly, on the pharma side, we've now all seen the data on darolutamide. I wonder if you could comment as to whether you feel that the characteristics of the drug should mean that it would have a faster ramp up than the other relatively new drug in the category leader. So whether that would be a good early trajectory for us to look for.
And on the ag side, I wonder, Liam, the amazingly tough conditions, has that given you any longer term competitive advantage? Have any of the smaller, perhaps more troublesome players been shaken out by this? Or has everybody weathered it and effectively you're all coming out essentially the same at the other end? Thank you.
So Stefan and then Liam.
Hi, Joe. Yes, we're obviously, we're as pleased as you state with the clinical profile. We think our darolutamide is really nicely differentiated against the comparative competition here. We believe that FDA has recognized that by giving us fast track designation as well. I mean, we've stated our peak potential at about SEK1 1,000,000,000 We obviously stand by that for the time being.
Really in the product that we haven't even introduced yet, I hesitate to give you some more guidance on how fast the uptake is going to happen. But let's put it that way, we're optimistic about this product, and we believe that we're differentiated. Okay. Thanks, Stefan. Liam?
Yes.
Thanks, Joe. Very interesting question. I hadn't thought about it in the short term context. And to be very honest, we're not seeing any shakeout in the market based on the current short term difficulties that are particularly driven by the U. S.
Market situation. So that isn't visible yet. Whether this turns out to be a longer term advantage, very honest, I mean, our whole deal was is built on a vision that we can generate more innovation and get rewarded for that better than anybody else. And if I look at where we're going and still targeting this year, a margin of 25 percent. We have our goal out there for 'twenty two percent and where we're saying north of 30% margin.
And this, we believe, still is absolutely realistic and something that we're clearly holding on to. And I think that will be ultimately our competitive advantage is that we will be able to grow and grow more profitably than all of our competitors, and that's simply going to be based on innovation.
Next question comes from the line of Mr. Parekh. Please state your name, company name followed by your question.
Good afternoon. Thank you for taking my questions. It's Keyur Parekh from Goldman Sachs. 3, please, if I may. First one on the increased number of cases for Roundup from 13,400 in April to 18,000 or in July.
How should we think about the rate of that increase? Was it linear across the quarter? Or was there a particular incident that led to a bolus of new kind of plaintiffs joining? And I mean by that, kind of was it the mediation that led to a step change? And how should we think of that number going forward?
That's number 1. Number 2 for Liam. Liam, you mentioned kind of the potential or the opportunity for the corn seeds to come back in North America in the Q4. Should we think of that being required to get to your 4% kind of crop guidance? Or if were that to happen, that would be upside kind of to your 4% guidance for the year?
And then thirdly, going back to China, beyond kind of the 4+7, on a longer term view, do you feel like you have the right portfolio for that market? Or do you think there are things that you could do from a portfolio adjustment perspective in that market to drive longer term growth? Thank you.
Okay. Maybe before we go into the answer of the question, your portfolio question does relate to which business does relate, pharma, crop or both?
Both, please.
Both. Okay. So then maybe I a start on the cases. Yes, we have seen a significant increase. There is no singular event that would have driven that increase.
There's also actually quite frankly very little merit in looking at it on a weekly basis because a lot of the cases that are being filed are sitting in the drawers of the law firms and they elect to submit based on their liking. It may, but this would be purely speculative quite frankly. It may be related to some of the activities that are underway with the mediation discussions, but we don't have any visibility relative to the reasoning of the plaintiff lawyers submitting more or less of the cases that they have in the inventory. Now then let me give it now to Liam on corn quarter 4 in growth and same taken token China and portfolio before it's then going to be Stefan, who is going to conclude with China portfolio for pharma.
Yes. Thank you. So we have included a small part of our growth in Q4 is predicated on an increase in corn shipments in North America. And I emphasize a small part because the vast majority of growth is coming from somewhere else. But because the question was very specific, I won't be specific in answering it.
To give you a sense of how we think about this as well, different parts of the world, there's always going to be upsides and downsides. You recall last year, we took a big hit in Australia in cotton, which is a very significant market for us in the Southern Hemisphere, and this was due to drought. We could build in an assumption this year that the market will come back. There will be normal weather pattern and that would be an upside. We haven't built that in this year.
So just to give you a sense, that could be an upside, for example, if the upside in if the corn didn't come in North America, possibly cotton in Australia would balance that out. We haven't factored that in. So we have a variety of elements in our plan that try and ensure that we have the most reasonable estimate possible going forward for our growth estimate, so just to give you a sense about that. For China, we have a very strong crop protection business, and that's growing very nicely. And we do foresee significant additional growth.
The weaknesses in China is, of course, from a portfolio point of view that none of the multidash are allowed to have an own seats, business seats and trades business due to the closed nature of the market. So we have a JV and you have to a Chinese partner. And we have Sinochem, where we have a certain amount of corn sales. So if there was one area where it was to flag strategically, would we like to improve things, would clearly be on the seeds and trade side in China. But that requires a change in Chinese regulations to be more open for competition and to allow us to compete on an equal field.
And I think that's also part of the ongoing China U. S.-China trade negotiation. So we'll see how that goes. But that's an area where we for sure would like to increase our presence in the market.
Stefan? Yes.
Thank you, Maher. Thank you, Dean.
And from the pharma side, I think it's a really good question that a number of companies having to answer right now given some of the ongoing changes in China. I think you will have to and we will all have to look at China, if you like, from 2 angles going forward. 1 is going to be much more the volume business that we participate in already today. But that's probably going to be even more important from a volume side, while prices are somewhat going to come down within the VBP initiative by the government. And then you have on the other side, an innovative portfolio.
We We still have a number of launches to come into China that are currently not in the reimbursement list. So that's something that we're looking forward to and that should help us continue some dynamic evolution in China despite of being exposed to the VBP plays with some of our brands. So I think this is how we're going to look at this from those two angles. On top of that, we believe that we're also an excellent partner for China, for other companies because we're one of the largest multinational companies in China. We're significantly above our average share in other parts of the world here in China.
So we continue to be quite optimistic despite some of the headwinds that we can see coming in China.
Thank you, gentlemen. We kindly ask you for your understanding that we have to close this call due to time constraints. Excuse me, Mr. Majer, please continue with any other points you wish to raise.
Thank you very much, Emma. Thank you very much, everybody for participating today. Thanks to the management board for being evaluable, answering all the questions. Looking forward to seeing many of these at our inaugural events actually on Thursday Friday in St. Louis.
And other than that, we will talk soon going forward. Thank you very much for participating.