Earnings Call: Q4 2018

Feb 27, 2019

Ladies and gentlemen, thank you for standing by. Welcome to Bayer's investor and analyst conference call on the full year and fourth quarter 2018 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 AG. Please go ahead, sir. Emma, thank you very much. Good afternoon, and thanks for joining us today. I would like to welcome all of you for our fourth quarter and full year 2018 conference call. With me on the call today are Werner Baumann, our CEO, Wolfgang Nickl, our CFO, and the businesses are represented by the responsible management board members. For Pharma, we have Stefan Oelrich. For Consumer Health, we have Heiko Schipper. For Crop Science Animal Health, we have Liam Condon. Werner will start off today with an overview of the key developments and performance of the divisions in 2018. Wolfgang will then cover the financials for the fourth quarter and the full year and the outlook 2019 before Werner will close with some of the key focus areas for 2019 and then the Q&A session. For the Q&A, I would like to remind everyone to please limit your questions to about two per person to allow us to address questions from as many participants as possible within the scheduled time of roughly about an hour, maybe a little more. I would like to start the call today, as always, by mentioning the cautionary language that is now a safe harbor statement, as well as in all the materials that we have distributed today. With that, I hand it over to you, Werner. The floor is yours. All right. Thanks, Oliver, and good afternoon also from my side, ladies and gentlemen. It's my pleasure to welcome you to our conference call today. With that, let me go into our performance. 2018 was a truly transformative year for us, and I'm proud of what we've accomplished. Despite the challenges that come with this level of change, we were able to focus and achieve all of our post-closing updated group targets. Sales grew by 13% to EUR 39.6 billion. EBITDA increased by 3 percentage points to EUR 9.5 billion, and core EPS reached EUR 5.94, exceeding our guided corridor of EUR 5.70 to EUR 5.90. In 2018, we completed the biggest acquisition in Bayer history, advancing to the global number one position in agriculture input sector, and we are off to a strong start with our integration activities with top leadership in place and executing on our synergy plans. Our Pharmaceuticals business was driven once again by the strong performance of Xarelto and Eylea. In Consumer Health, we managed to move back to growth in the second half of 2018, as we indicated. Free cash flow generation was strong, and our EUR 36 billion net debt at year-end was EUR 3 billion below our initial target of EUR 39 billion for 2018. At the end of November 2018, we announced a comprehensive set of portfolio efficiency and structural measures, including the review of exit options for Animal Health business and our 60% stake in Currenta. From the announced efficiency and structural measures, we expect annual contributions of EUR 2.6 billion as of 2022. We are on track with the initiation of the entire program. One more word on the timing of potential disposals. The divestiture process for Currenta is the most advanced, and we expect news in Q2 2019. With regard to the sale of Coppertone and Dr. Scholl's, we anticipate one announcement in the first half and one in the second half of 2019. For the Animal Health process, we will update you as we indicated already at the Capital Markets Day in our Q1 earnings call. Finally, today we are also confirming our outlook for 2019 and our financial targets for 2022 as communicated at our Capital Markets Day in London on December 5th. Let me now come to our divisions, starting with Pharma. Sales of Pharmaceuticals rose by 3% to EUR 16.7 billion in 2018. Our key products, growth products, Xarelto, Eylea, Adempas, and Stivarga, have continued their strong performance overall, with their combined sales rising by 14 percentage points to EUR 6.8 billion for the year. Xarelto grew by 13%, driven by Europe, China, and Canada. Eylea was up 20%, mainly as a result of strong growth in Europe, Japan, and Canada. Going forward, we expect both products to continue their growth. In 2019, we expect for Xarelto an increase in the low teens percentage range and for Eylea an improvement in the high single-digit percentage range. In 2018, there was also some encouraging news about our pharmaceutical pipeline and our ongoing product development. For example, Xarelto became the only new oral anticoagulant to be approved for the treatment of coronary artery disease and peripheral artery disease. For Vitrakvi, a highly effective and innovative cancer medication, we received the approval in the U.S. More recently, we presented strong efficacy and safety data for darolutamide, which significantly extends metastasis-free survival in patients with non-metastatic castrate-resistant prostate cancer, while at the same time demonstrating a very favorable safety profile. EBITDA of the Pharma business was down 2% on a reported basis to EUR 5.6 billion. However, that was mainly due to negative currency effects. So adjusted for currency, EBITDA increased by 3%. Moving on to Crop Science, where we achieved a significant year-over-year improvement in both reported sales and EBITDA, driven by the acquisition, which is included in our numbers since June 7th, 2018. Please bear in mind that the second half of the year is the less profitable period, given the seasonality of the business. We have seen positive sales growth in three out of our four regions. Latin America was up 17%, North America grew by 8%, and Asia Pacific increased by 10%, all on a currency and portfolio-adjusted basis. On the other hand, Europe was affected by adverse weather conditions and the loss of a registration in France. Our herbicide sales improved in Latin America, mainly as a result of the measures we took to normalize inventory levels in Brazil in the prior year. The latter was also the main reason for the positive sales development of fungicides and insecticides for the full year. Insecticide sales also improved from an adjustment to our return provisions in Brazil in the fourth quarter, also related to our successful reduction in channel inventories in that country. In addition, sales benefited from service agreements with BASF on the divested businesses and added around 3 percentage points to our growth of 6%. Note, however, that these contracts run through 2020 and are expected to decline annually as BASF assumes the manufacturing capability for the divested assets. Crop Science increased its EBITDA by 30% to EUR 2.7 billion, mostly as a result of the newly acquired business, which contributed EUR 705 million to overall earnings. As mentioned at our Capital Markets Day, we committed to keep you up to date on the status of the glyphosate litigation. First of all, we are convinced of the safety profile of glyphosate. More than 800 scientific studies over several decades, 40 years of real-world experience, and the conclusions of regulators around the world confirm that glyphosate-based herbicides are safe when used as directed. This includes the National Cancer Institute-supported Agricultural Health Study, the largest and most recent epidemiological study that followed more than 50,000 licensed pesticide applicators for more than 20 years and found no association between glyphosate-based products like Roundup and non-Hodgkin's lymphoma at any level of exposure and for any subtype. On the slide, you can see two very recent comments from Health Canada and the German Federal Institute for Risk Assessment, one regarding the safety of glyphosate and the other speaking to the independence of European institutions. This continues to reinforce our belief that we will ultimately prevail in this litigation on the strength and sound science and remain committed to vigorously defending ourselves for the benefit of our customers, employees, and of course, our owners. Overall, there are lawsuits from 11,200 plaintiffs as of January 28. While there's an increase since our last reporting, it's by no means a reflection of the merits of the litigation. With regard to the Johnson trial, we have filed an appeal with the California Court of Appeal. The latest trial, the Hardeman trial in the Northern District of California, has just started. This is the first trial of the federal multidistrict litigation. What is ahead? As of today, we expect another six trials in 2019, one more in quarter one, two in quarter two, and three in the second half of the year. Note, however, that the number of trials and the respective dates are always subject to change. Going forward, to keep you updated on this topic, we have established a website which can be found at glyphosatelitigationfacts.com, all in one word. We would also encourage you to visit our glyphosate use and safety record site at bayer.com/glyphosate. Finally, I want to update you on Consumer Health. The good news is that we have returned to slight growth in the second half of 2018 and ended the year as expected. Even though there are still bumps on the road, Heiko and his team have started to implement their turnaround plan. 2018 was all about setting the foundation. With the new leadership in place, we are focused on defining our way forward. The plan foresees a small growth for 2019 and 2020, and accelerated growth in the years thereafter. Growth in 2019 is expected to be back-end loaded. In 2018, we saw positive growth in Asia Pacific by +4% and Latin America also by +4%, while EBITDA was down due to negative portfolio and currency effects of about EUR 82 million, as well as lower volumes. On the portfolio side, we are well on track with regard to the selling processes for Coppertone and Dr. Scholl's. With that, let me now hand it over to Wolfgang. Thank you, Werner. Ladies and gentlemen, also welcome from my side. I will now walk you through some more financial details for Q4 and the fiscal year. Let me dive right into Q4. Our numbers have been positively impacted by the acquisition. Reported sales of EUR 11.1 billion included a contribution of approximately EUR 2.5 billion from our newly acquired business. The underlying business performance was good, especially when considering a challenging global market environment. When adjusting for currency and portfolio effects, we achieved an organic sales growth at the group level of about 6%. EBITDA before special items for the group came in at EUR 2.1 billion, up 16% year-on-year, including a contribution from the acquired business of EUR 330 million. Foreign exchange effects had, in contrast to prior quarters and the full year, only a minor impact on sales and EBITDA in the quarter. Core earnings per share in the fourth quarter were down 21% year-on-year to EUR 1.10. This was primarily driven by increased interest expenses due to the debt financing of the acquisition and a higher number of shares due to two equity measures during the second quarter. The share count in Q4 was approximately 980 million shares. As a result of the overall good development in Q4, we have been able to deliver on all our key financial targets for 2018, as already just mentioned by Werner. Our reported sales figure of EUR 39.6 billion included a contribution of approximately EUR 5.3 billion from Monsanto. Negative FX effects built by a legacy business was almost EUR 1.5 billion, which was around 4% of total sales in 2018. The underlying business also performed well. Adjusting for currency and portfolio effects, sales grew by 5% organically. EBITDA for the group increased by 3% to EUR 9.5 billion, despite a negative FX impact of more than EUR 450 million, around 5% of total EBITDA in 2018. Core earnings per share in 2018 declined by 11% year-on-year to EUR 5.94. This was, as in Q4, primarily a result of increased interest expenses due to the debt financing of the acquisition and a higher number of shares. The weighted average share count for the full year was approximately 941 million. The market consensus of our core EPS was at EUR 5.79 per share. As a reminder, going forward, foreign currency fluctuations, including the newly acquired business, are expected to affect our business as follows. A 1% change of the euro against our currency basket is expected to impact our revenue by about EUR 340 million and our earnings by about EUR 100 million. Last year, we concluded successfully the biggest acquisition in Bayer's history and announced a comprehensive range of portfolio efficiency and structural measures to further strengthen our core life science businesses. This 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 added a bridge in our presentation to show you how our core EPS of EUR 5.94 translates back into the reported EPS of EUR 1.80. The first column shows minus EUR 1.89 per share, which summarizes acquisition-related amortization of intangible assets, including Monsanto, since closing. The next two items are total minus EUR 2.85 per share and cover the impairment in our Consumer Health business. Impairments on property, plant and equipment, mostly related to the Factor VIII plant in Germany, reduced our reported EPS by another EUR 0.73. On the special item side, we had significant divestment gains, mainly stemming from the required sale of businesses to BASF. The step up of acquired inventories to fair value, acquisition-related and other restructuring costs, as well as legal defense costs, are special items on the expense side. In addition, we classified minus EUR 0.53 per share, mainly resulting from the fair value change of Covestro shares as special items in the financial results. I would like now to turn to free cash flow. As mentioned at the Capital Markets Day in December, free cash flow is an important KPI for us. We're in particular focused on CapEx spend and working capital management. Past and current levels of CapEx, EUR 2.6 billion in 2018, are heavily impacted by single large-scale investments in fixed assets like our dicamba plant in Louisiana or TA, a production in Alabama, which was divested to BASF. CapEx as a percentage of sale is expected to decline to around 5%-6% by 2022. Overall, free cash flow increased from EUR 4 billion in 2017 to EUR 4.7 billion in 2018. For 2019, we expect free cash flow to be in the range of EUR 3 billion-EUR 4 billion. 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 in the acquired business. As a reminder from our Capital Markets Day in December, we expect a total free cash flow of approximately EUR 23 billion for the period from 2019 to 2022. For 2022, we expect a free cash flow level of around EUR 8 billion. Now let's turn to our debt levels. Driven by the financing of the acquisition, our net financial debt increased to EUR 35.7 billion. This is slightly better than our latest guidance of around EUR 36 billion and EUR 3 billion lower than our original target of EUR 39 billion, which we communicated at the beginning of August 2018. For 2019, we expect our net debt to be flat at around EUR 36 billion. You may ask, why not lower? This has to do with IFRS 16. Operating lease contracts will be recorded as right of use assets and respective lease liabilities. The latter will increase the net debt position by around EUR 1.1 billion. That means, on a like-to-like basis, we expect to reduce net debt by the same amount. Our current estimate is based on constant FX rates. Please keep in mind that at year-end, almost 60% of our financial debt was in US dollar. The impact of exchange rate changes to our net financial debt is quite significant, as every percentage point appreciation of the US dollar against the euro would increase our net financial debt by about EUR 200 million, and vice versa, of course. I do not want to spend too much time on the next chart, as you all received some detailed information on the purchase price allocation and the respective restatements for Q2 and Q3 with our analyst and investor briefing document earlier this morning. Within the scope of the PPA review, additional facts have been identified or were evaluated for the first time. The findings were mainly related to existing liabilities, including higher provisions for taxes, environment, and legal fees. As a result, goodwill increased from EUR 22.9 billion to EUR 24.5 billion compared to the preliminary PPA published in September of 2018. As a reminder, this PPA is still not final, as adjustments are possible until one year after closing. I believe it is important to mention that the amortization of intangible assets of EUR 26.9 billion, the depreciation of the step-up in fixed assets of EUR 1 billion related to the acquired business are expected to be between EUR 1.5 billion and EUR 1.9 billion on an annual basis. These are the incremental numbers, with fixed asset depreciation included in core EPS and amortization of intangible assets adjusted for in core EPS. The EUR 1.5 billion to EUR 1.9 billion range will be the run rate of acquisition-related charges for about 12 years. Thereafter, the charges will decrease continuously. We've also illustrated in our analyst briefing document how this will affect our EBITDA and EBIT before and after special items going forward. Before we come to our guidance for 2019, let's have a quick look at our balance sheet. As a result of the acquisition, total assets increased from EUR 75 billion at the end of 2017 to EUR 126 billion at the end of 2018. Goodwill grew, as we have just discussed, from 20% to 30% of total assets. On the total equity and liability side, current and non-current financial liabilities increased from 19% to 33%. Our equity ratio is still solid at 37%. I would like to take this opportunity to emphasize again that we are committed to continue to de-lever our balance sheet quickly with a target of net financial debt of between EUR 26 billion and EUR 28 billion at the end of 2022 at constant currencies and not considering yet the additional partial use of potential divestment proceeds for additional reductions of net financial debt. Overall, we confirm our group guidance for fiscal year 2019, which is based on constant currencies and going concern, meaning it does not include announced portfolio measures. In addition, the guidance is in line with the indication given at the Capital Markets Day in December in London. We expect Bayer group sales of around EUR 46 billion, 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 EUR 12.2 billion, while core earnings per share are estimated to come in at around EUR 6.80, up 14% on the prior year figure. If we look at our guidance by segment, you will also find no surprises. All sales growth rates and EBITDA margin targets are in line with the indications given at the Capital Markets Day and point to an improvement versus 2018. With that, I will turn the call back over to Werner for some closing remarks. Thanks, Wolfgang. Just let me rev it up real quick with the priorities we have at board level and, of course, throughout the entire organization and what it is that we are going to do for 2019 in order to make things happen. First and foremost, of course, to deliver on our operation targets as they have been presented in November and December and also reiterated throughout today. Secondly, the smooth integration of Crop Science and the advancement of our number one industry platform going forward. Third, execution against our targets for our Bayer 2022 program, both related to synergies but also to efficiency programs. Fourth, of course, the continuation of our defense of glyphosate, and we will do that vigorously. Fifth, to strengthen our internal pipeline in Pharmaceuticals and to intensify the external sourcing of innovation. And sixth, to improve the operational performance of our Consumer Health business. With that, let me now hand it back to Oliver, and we are looking forward to the discussion and your questions. Thank you. Thank you, Werner Baumann. Thank you, Wolfgang Nickl, for the presentation and the comments. I think with that, Emma, we can open up the call 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 the star followed by 1 on your telephone. If you wish to cancel your request, please press the star followed by 2. 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 selections. One moment for the first question, please. First question comes from the line of Mr. Verdult. Please state your name, company name, followed by your question. Thank you. Peter here from Citi. Two questions, please. Assuming Liam Condon's on the call, just wondering if you could give us a little mini state of the union address on the current outlook for Bayer's Crop Science business in the Americas and Europe. Then specifically, when you give your guidance for 2019, does that already assume a big shift to corn in the U.S.? If not, could you maybe help us understand how much of a margin upside driver this could be if that plays out? Then secondly, for Wolfgang Nickl, I realize you're not going to mention companies, but could you at least characterize the level of interest or competitiveness with respect to the assets that you've earmarked for disposal? Thank you. Okay. Okay. Thanks a lot, Peter, for the question. The state of the union outlook for Crop Science. We are forecasting a growth rate for the total market of approximately 3%. It's still early days in the year, so it's very hard to call, but given that the market grew by approximately 2% last year, we think approximately 3% is a reasonable estimate, and we're forecasting, as you know, for ourselves, a CPA adjusted growth rate of 4%. That growth is geographically, we expect, would primarily come from Latin America and from APAC. In the Americas, we do believe, particularly in the U.S., we are forecasting a shift from soybean acres to corn acres. So we're forecasting a shift of 3%-4% additional corn acres and a decline in soybean acres of maybe 4%-5%. Also additional cotton acres in the U.S. as well. That is factored into our overall estimate right now and built into our forecast of approximately 3% overall market growth and 4% for Crop Science CPA adjusted. Okay. Thanks, Liam. Let me quickly answer the second question, Peter. First of all of these assets are highly attractive to the buyer universe, depending on what they are looking for. We are fairly far advanced, I have to say, quote-unquote, on the home stretch with the divestiture of our 60% stake in Currenta. We are phased essentially in two steps with the divestiture of our Coppertone and Dr. Scholl's business. Coppertone is going to be first. Dr. Scholl's going to be second. The first one may still certainly be announced in the first half of the year, then in the second half of the year. Last but not least, we communicated that we are going to give you an update on what it is that we intend to do with our Animal Health business, specifically in our Q1 earnings call. With that, you would have to bear with us maybe another 7-8 weeks, and we can talk a little bit more in detail. But I can confirm that for all of these assets, there is keen interest because of their attractiveness. Thank you. The next question comes from the line of Jeff Zekauskas with JP Morgan. Please go ahead. Thanks very much. Two questions. In 2018, were your glyphosate prices up by more or less than $1 a gallon? In soybeans, you had very nice growth in Intacta in Brazil and Xtend in the U.S., but on an FX adjusted basis, your sales were flat. Can you talk about the factors that mitigated the growth in that business? Okay. Jeff, thanks a lot. I can't comment specifically on the corridor of $1, but I can confirm that glyphosate prices were overall up for the year, and that also contributed significantly to the growth that you're seeing in the herbicide business. On soybeans, we have a dual, or let's say two main factors that are impacting the overall sales development. So one, as you rightly point out, positive growth for Intacta in Latin America and continued further penetration in the market. So a very positive development there. The reason why sales are flat is because of a degree lower acreage in North America, so specifically in the U.S. For sure, there is some delayed purchasing from the fourth quarter. Some farmers simply haven't made up their mind yet of the split between soy and corn beans and have pushed their pre-order decisions into the first quarter. It was mainly a fourth quarter event rather than the previous three quarters on a pro forma basis in assessing the sales growth. Yeah, I think that's a fair reflection. Yeah. Okay. Yeah. Thank you so much. Next question comes from the line of Sachin Jain. Please state your name, company name, followed by your question. Hi, Sachin Jain from Bank of America. Two questions, please. Firstly, just on the portfolio measures and the related share buyback. What is the deciding factor for the buyback? When do you think you will be in a position to communicate on potential size of it? Is the broad intent to offset dilution from the portfolio measures? Second question on darolutamide. I wonder if you could just comment on the data differentiation versus the existing competitors and your level of confidence in the peak sales. Our assessment of the data was it looked undifferentiated versus competition. I was just interested in your perspective. Thank you. I will take the share buyback. Hello, Sachin. Just as a reminder to ground everybody, what we said at the Capital Markets Day is that we look at share buybacks as it relates to the proceeds of the divestment, so not on the ongoing free cash flow. Also, when it comes to the proceeds of the divestment, our first order of business is to take some for de-levering because we are also selling EBITDA, so we do not want to hamper the leverage ratio. Then you are exactly right. We have said we are considering, in particular current levels, to use a significant portion of the proceeds for share buybacks. We think the investment in our shares is fantastic. It is too early to say how much that is and when that will be. I think you heard about the status of the divestments from Werner earlier. We gave you what the current share count is and when and if share buybacks happen, we will of course give you the adjustments necessary to the overall share count. Stefan? Hi, Sachin. Thanks for the question. On darolutamide, I think we said at the Capital Markets Day how excited we were, and I hope you now see the color of it. Of course, I have a hard time to give you a view on a head-to-head comparison because we did not do head-to-head trials with darolutamide. That notwithstanding, when you look at the efficacy which is comparable at least as it looks like to other trials, we see a significant improvement here compared to any other thing that has been tested in the category on the tolerability. So safety looks exceptionally good on this product, and that is where we see a strong differentiator. When you look at some of the criteria, especially also from a reimbursement and a pricing criteria that is being used in Europe for sure, but also increasingly in the U.S., we are looking especially in oncology at both efficacy but also tolerability very much. In this setting, we have asymptomatic patients which live, despite their prostate cancer, a normal life and it makes a huge difference for them whether they have strong side effects or not. So we see a clear differentiation here inside of the category which we believe makes this product extremely attractive. Thank you. Next question comes from line of Mr. Cespedes. Please state your name, company name, followed by your question. Good afternoon, gentlemen. Florent Cespedes from Société Générale. Two quick questions. First one on Pharma for Stefan Oelrich. When you joined the company, you said that you would try to find some opportunities, some product assets outside the company. Could you share with us if it is still high on the agenda and remind us which are the areas that you are looking for products or assets? The second question on Crop Science for Lem. Could you give us a little bit more color on the supply agreement with BASF, the impact in Q4? We understand that the agreement will gradually vanish from 2020. So it would be great to have a little bit more color on this contribution or in other words, what was the Q4 growth of the division excluding the BASF supply agreement? Thank you. Bonjour, Florent. Bonjour. In terms of outside opportunity, I would stand by the comment that I made without giving you too much detail. I think we got a nice catch just recently as we were able to convert our Loxo agreement into a plain exclusive licensing agreement. So that's a good one in terms of improving our portfolio on very short notice. Other than that, we're typically looking in areas where we're strong therapeutically or if we go earlier, where we can acquire rights to some strong platform play from an R&D perspective. But please accept that I cannot be more specific on this one. Okay, thank you. Thanks a lot for the question. The TSA agreement with BASF is related to manufacturing and distribution primarily for seed growth. As part of the divestments, we had to give certain products to, or sell certain products to BASF. Over time, they're taking over the manufacturing and distribution capacities, but they can't do that immediately from the point in time that we closed the deal. This is something that will play out through 2020. The impact will gradually decline over time. If you look, the majority of the impact is related to Q4 in our overall sales for the full year of 2018. And if you look at the difference between the reported sales and the pro forma sales, that difference of the 15% growth in reported versus the 3% in pro forma, that is largely, not only, but largely due to the TSA agreement. You can kind of factor in a ballpark number of roughly about EUR 200 million would've been the impact. Okay, thank you very much. Very clear. Next question comes from the line of Mr. Lockey. Please state your name, company name, followed by your question. Thank you. This is Joe Lockey from Morgan Stanley. Two for Stefan, please. At the Capital Markets Day, you mentioned that you were reassessing the peak Xarelto opportunity internally. It sounded like you were optimistic. Is there any update there? Second, we also learned in December about the clinical hold on the vilaprisan after finding some new preclinical findings. It's been a few months, so I assume the full analysis of the data has been completed. Do you have an update on that program, or is this something that could take 12 months plus to play out while you wait to assess longer-term safety in humans? Thank you. So hi, Joe. Thanks for the question. On Xarelto, yes, we remain optimistic, but that doesn't mean that on this call we're going to update our peak sale expectation. We've said that we see this as more than EUR 5 billion. We stand by that. Give us a little bit more runway for our CAD/PAD launch before we take a different stab at that. But yes, Xarelto, you've seen it for last year, looks good. We have no reason to be less optimistic about it. On vilaprisan, nothing really substantial and new to report. Just as a reminder, we have observed those safety signals in preclinical toxicology studies with rodents. As a precautionary measure in close cooperation with the FDA and with EMA, we decided to halt the trials. Now, you know once you've halted the trials, how difficult that is to get this thing going again. But we're still waiting for the readout of further data, and then we'll make a final call. Quite frankly, we'll have to also assess what we can do with the data that we have accumulated so far on vilaprisan in the existing studies and whether we can do something with that. Because it's going to be really hard to restart a trial. Very clear. Thank you. Next question comes from the line of Ms. Walton. Please state your name, company name, followed by your question. Thank you. Jo Walton from Credit Suisse. On the Pharma side, I wonder if you could tell us a little bit about how the COMPASS indication has been adopted outside of the U.S. Clearly, there seems to have been very little change in the disappointing trajectory of Xarelto, in the hands of J&J, but perhaps you have a better story to tell us outside of the U.S. And on Eylea, you are guiding for, as I understand it, high single-digit growth for this year. For the whole of last year, not just the fourth quarter, you did 19% constant currency growth. So I wonder if you could tell us why you feel that the Eylea market will slow down so quickly because new entrants like RTH258 are unlikely to make a difference. And just on the ag side, if you could please help my confusion. There's a comment in the announcement that the sales of corn seed and traits were up due to a timing shift from 1Q 2019, presumably to 4Q 2018. Is that something that we should be concerned about that might leave us a little bit light in 1Q? If you could try and just scale that for us, please. Okay, Jo. On COMPASS maybe first. I am with you on, because I'm obviously also looking at what's happening in the U.S. What we're seeing is, I find, a remarkably interesting same pickup that we've also seen with other recently launched cardio drugs in the area of here in cardiology like, for example, Entresto or other anticoagulants of a different class. That's something that we so far only have data from Germany, and we don't have that many data points, but we're seeing is a relatively slow uptake. On the more qualitative side, we're seeing that there are few physicians that actually do adopt this type of new paradigm. And once they adopt it, they also have many more patients. So it's not for lack of potential, it's for sort of really them changing their paradigm. So far, patients that have had an event and are diagnosed with CAD or PAD, they are not put on an anticoagulant. This is a real different way of practicing cardiology. And there is a lot of explaining to be done. It reminds me a little bit of Entresto, which was also from a clinical data, extremely solid, like in our case, too. I think this is the best data ever from an outcome perspective in this patient setting. Yet, it takes time to convince them, because there are, let's say, characteristics associated to anticoagulant treatments that are not what a physician would ideally put in the first place on top of an already existing therapy with multiple products. That's the COMPASS. We are remaining optimistic here for Germany. I am also optimistic that J&J will be successful there as to the U.S., maybe a little bit more than you. On the other one, on Eylea, we sort of go opposite ways. You seem to be more bullish. We are seeing a little bit of a softening of the growth trend on Eylea. We are getting some headwinds in a few markets in terms of use of, let us call it alternatives, or let us call it dilutive use of our product. We will see. I think we will need, in the future, once we have the prefilled syringe, I think that is going to give us an additional boost. That is a little later. Okay, Jo, thanks for the question. I will try and clear up any confusion that might be on that Crop Science side with the corn seeds and traits and phasing impact. Corn seeds and traits are up by about 2%. As was mentioned, there is a bit of a timing shift in North America, with volumes coming back into Q4 from Q1. This is a totally, let us say, normal thing that we always have. It can be in December, sales can be in January. Some years it is one way, the other years, it is the other way. With herbicides, we also have some phasing into December. For example, because of an environmental action in France, we will not make the sales in January. They have been pulled into or they just happen in December. On the flip side, we have phasing of soybeans would be more expected going into 2019 as opposed to in our Q4, which we usually would have seen more, and fungicides as well. For us, this is just swings and roundabouts. It does not change anything in the total picture and in our outlook, where we continue to guide for 4% currency and portfolio-adjusted growth for the year. Thank you. Next question comes the line of Mr. Vosser. Please state your name, company name, followed by your question. Hi, thanks for taking my questions. It's Richard Vosser from JP Morgan. Just going back to the TSA agreement and the guidance for Crop Science. Is in that 4% growth, which I think is from the pro forma numbers, in terms of the Crop Science, which doesn't include the transition service agreements, should we expect incremental sales on top of that 4% guidance, or is the TSA in 2019 included in the guidance? Then a couple of extra questions. Firstly, on the insecticides, obviously very strong Latin American season in the fourth quarter. Just thinking about the sustainability of that, perhaps you could give us some comments there through into 2019. Then secondly, on KOGENATE, just thinking about the impacts. Have you seen any impacts in terms of KOGENATE from the newer therapies? I'm thinking about Hemlibra pressure in the non-inhibitor setting. Thanks very much. Yeah. Thanks a lot. So, on the question of the TSA, is it in the guidance at 4% CPA? We can say yes, it is included in the guidance, just to clarify that point. The second question we didn't fully catch. Can you just repeat the second one again? Sorry, Liam. The second one was just thinking about the insecticides and the sustainability. It was clearly very strong- Yeah use in LATAM, but how should we think about that? Yeah. So I think it's better to look at the overall performance, the full-year pro forma. You get a more realistic view as opposed to only the Q4, where we have very strong growth. A part of this is clearly related to different accounting measures that we have for provisions, simply because we have way lower channel inventories than we had previously and can adjust our provisions for returns accordingly. So that positively impacts results in Q4. But the overall results for the pro forma in the year, which is about 13%, that's largely coming from Latin America. Again, as a result of the normalization of inventory channels in Brazil. We would continue to see robust growth. There is continued robust demand for insecticides. We don't think it'll be at this double-digit level for sure, but the growth or the demand is clearly pretty strong going forward. Sorry, I didn't catch that question. Can you please repeat the question? What we see in KOGENATE in terms of competitive pressure and how KOGENATE performs and holds up against I see. some of the newer therapies such as Hemlibra. Oh, so sorry for that. We have actually been quite pleased in the last quarter with our hematology performance, especially given the recent introduction of Jivi and also KOVALTRY. What we are seeing is that we are holding quite nicely with the competitive pressure. As you know, there have been many more market entrants, and some people have been saying that we are going to be swept in this market, which we are not seeing right now. I think it is a testament to loyalties that we see with patients in this marketplace. We have been serving Factor VIII patients for many, many decades, and I think that plays in here. We are really pleased so far with the Jivi uptake, even though it is early days. The next question comes from the line of Mr. Faitz. Please state your name, company name, followed by your question. Yes, thanks. Christian Faitz from Kepler. Two questions for Liam, please. One figure stands out negatively in your otherwise excellent Crop Science performance, vegetable seeds. On a pro forma view, it was down some 15% year-on-year in Q4. I am obviously aware that Q4 is a low-season business, but to the best of my knowledge, Q4 2017 had not exactly been a very strong quarter either. So what is going on there? Second, can you confirm my observation that looking at current weather patterns into March, one should expect a rather early start in the European crop season and a rather late start in North America? That is it. Thank you. Yeah. Thanks a lot, Christian. You are exactly right. The vegetable seeds performance in Q4 is clearly an anomaly. It is actually specifically related to an issue we had in Turkey, where we also had to build basically a provision. This is, I would say, simply a one-off related to a specific situation in a very specific market that has been addressed completely now. Going forward, and I think that is more important, we do expect solid growth from the vegetable seeds business going forward into 2019, and would rather categorize this Q4 significant decline as a one-off, one country, very specific issue. On weather, I am always very cautious to call. I think you are right that, let us say, the current pattern is maybe early start in Europe and maybe a bit later start in the U.S. But I would always say let us wait and see. It is still very early days. But overall, it would be good to get back to an early start in Europe when you consider the situation last year in Europe that we had, which was a very weak year in the first half of the year overall. It would be nice to get back to a semi-normal European ag market. Okay, great. Thanks, Liam. Next question comes from the line of Mr. Papadaki. Please state your name, company name, followed by your question. Thank you. It's Emmanuel Papadakis from Barclays. Just a couple left, maybe one on Vitrakvi. If you could give us some commentary on the early uptake. You were a little cautious, I think, on, should we say, creating the market in TRK biomarking when we spoke at the Capital Markets Day. Maybe you could give us an update on how that is progressing and how quickly you think we may get to that $750 million plus guidance. Then maybe I take a question on restructuring costs and FCF. The EUR 3 billion to EUR 4 billion for this year was a bit lower than we'd expected. You said there's going to be substantial, quote-unquote, special charges. Could you talk about what the amount might be in terms of cash costs, and how quickly we might then build beyond that towards the EUR 8 billion target for 2022? Many thanks. According to expectations. We had said it's going to be slow, so we confirmed that this is not going to be fast. However, what we're seeing is that this is already seen by many oncologists now as a real advancement in their clinical practice. Anecdotally, this has been described by some as they see the cancer really melt away. So the effectiveness of this product, I think, is confirmed in clinical practice compared to what we've also seen in the trials. So on that end, everything works out fine. It remains a topic that we need to diagnose those patients. That's something that we're working on and what makes it slow. As to how far we're going to get to our peak sales, I don't want to speculate on the call here how fast it's going to go, but again, we're tracking to expectations. This is Wolfgang, Emmanuel. I'll talk about the restructuring cost. Just for context, we talked about total contributions that we are aiming at by 2022 of all the programs we have announced of $2.6 billion, with a factor of 1.7 times for the one-time charges. We're not in a position to give exact details on the one-time charges. But generally, we have said that the Contributions come in 30% by 2020, 70% by 2021, and then the full effectiveness in 2022. You should, in general, assume that the restructuring charges and related cash outs come before that. In terms of the restructuring charges that we put on the balance sheet for last year, they were still pretty benign because you can only do it in those cases where the actions are very clearly defined. So a few hundred million that were under special items. As we define the action and extend offers to people and get very clear on the measures, you will certainly see that amount going up this year and it is also one of the reasons why the free cash flow is lower this year than it was last year. As I said earlier, in 2022, we expect a free cash flow of around EUR 8 billion, which also tells you that some of the cash outlays for the restructuring costs have already happened by then. Next question comes from the line of Mr. Jones. Please state your name, company name, followed by your question. Good afternoon, everybody. Tony Jones at Redburn. I have two left. Question for Liam on Crop Science. Corteva has export approval now for their 2,4-D trait technology. Could you talk a little bit about whether you think that might be a barrier to growth for Xtend or any of your other seed platforms? Probably more 2020 once they have got proof of concept out. On Consumer Health, I thought volume growth was a little slightly negative in Q4, and I think you are calling out some sort of supply interruption in Europe. Is that just the tail impacts of the FDA warning letter or something new that might linger into 2019? Thank you. Yeah. Thanks a lot, Tony, for the question. With that, I can't comment specifically on the new product of Corteva, because I don't think anybody has much experience with it so far. But as you know, with Roundup Ready Xtend, which we launched in 2016, we now have very extensive experience and are on over 50 million acres. We think we'll be on 60 million at the end of this year, so fantastic penetration. Of course, in any system like this, the key thing is the value of the genetics. For the ninth year in a row, we've been able to show a clear yield advantage over competitive products. So that experience is out in the market. We also have a broader weed control spectrum than, at least from what we've seen of any trial data related to weed control of the Corteva product. Corteva product controls about 260 species of weeds. Roundup Ready Xtend controls about 350 different species of weeds. I think what's very important as well, we have a very strong pipeline coming. So we have this product now on the market for a few years. Great experience, great feedback, great penetration. But we are also doing the ground breakers now this year for our XtendFlex, which is also the three-way herbicide soybean with the high-quality genetics that customers know from Xtend. This is ground breakers now and will be relatively soon thereafter, whether it's 2020, 2021, depends on the regulatory situation, but will be launched into the market as well. So we feel pretty confident about our ability to compete here. Also, I think important to note that the XtendFlex system is already on the market for cotton, which is the reason why our cotton market share has massively jumped. Very strong appreciation of the product. As you know, particularly in the South, farmers might switch with cotton and soy, but they want to use one system, and they've got such a great experience with the XtendFlex system for cotton that they will most likely want to stick with that for soy as well. So we feel competitively we're in good space here. It's good that new products are coming out to the market. It's good for growers, but competitively, we're in a good spot. Okay. Thank you. Helpful. Yeah, Tony, just to help you understand the volume development in Q4, maybe I just want to highlight two main impactors. The first one is North America. North America, first of all, the market was generally weak. Cough and cold was low, and also the late allergy season was low. At the same time, we did see a very high level of A&P spending in the market, which we consciously made selective choices where to participate and not. Clearly, we are in a fixed environment for North America, and every time when you decide to put your A&P spending, it's a choice of top and bottom line. We did spend where we felt we have brands that are in the right spot to win. We invested a bit less where we felt we were not yet ready to do that. While that impacted the volumes, it did help significantly our bottom line. So North America had a good closing of the year on bottom line. That also helped the quarter very much on bottom line, together with the first impact of our SG&A cost savings that we have started to put in place. The second element is more in EMEA, and there indeed, similar to what we already said during the Capital Markets Day and also in our announcement of today, the impact of some of the temporary supply interruptions. These are still with us a bit in the coming two quarters, and then they will fade out. Thank you very much. Emma, I think we have time for two more questions. The next question comes from the line of Mr. Zechmann. Please state your name, company name, followed by your question. Hi, good afternoon. Gunther Zechmann from Bernstein. Thanks for fitting me in. First one, both for Liam, I'm afraid. First one, do you see any risk that first quarter sales could slip into Q2 with farmers pushing decisions as late as they can given the trade war uncertainty? The second one, more specifically, can you share with us what acreage you achieved for Intacta in 2018 and also what your outlook is for 2019? Those are my two questions. Thank you. Yep. Okay, Q1, Q2, I can't make a specific call right now. What I can say is that from our order book versus previous year is that corn and cotton are up and that soybeans are down. If anything, we think the soybean decision is being pushed out as far as possible. This is also, of course, related to the U.S.-China trade conflict and how that is going to play out. So overall, that's our expectation, that if there's any shifting going on, it would rather be a further shifting of soybeans out possibly even into Q2. Otherwise, for the Intacta question, we're on in LATAM approximately 60 million. This is a massive market penetration, but we still expect to increase or to grow further during this year as well. Just to clarify the numbers you've given earlier for corn, soya, and cotton are for the spring planting season in the U.S., is that right? Yes, exactly. Yes. Great. Thank you. The next question comes from Ms. Hector. Please state your name, company name, followed by your question. Thank you. It's Luisa Hector at Exane BNP Paribas. Is it possible to just confirm the impact from the Leverkusen manufacturing in Q4 and just give us a quick update on the status and outlook for recovery into 2019? And maybe just to push a little bit further on the hemophilia. Did Jivi make a meaningful contribution in Q4? And obviously, we're seeing progress in the gene therapies, and you do have your relationship with Ultragenyx. Is there any update there, please? Hi, Louisa. Quickly to answer. We have stated for last year the impact of the FDA situation, the quality situation on our manufacturing at EUR 300 EBIT, so we can confirm that that was happening last year. As for this year, we are in a good place in terms of our working off the things that FDA had seen. We have a scheduled inspection in our Leverkusen plant in the month of March. Everything is going according to plan when it comes to that. As for this year, now we are ramping up on certain of our lines to get to full capacity. There is still a little bit of an effect, but we see this to be minor overall. We do not want to guide the specific effect for 2019, because we think that is part of the overall noise. For Jivi, meaningful is in the eye of the beholder. Our good hematology business was mainly driven by KOVALTRY. That was really meaningful in terms of positive gains there. What I can tell you is, this is a business where we know all of our patients by first and last name, more or less. It is a very close business for us and we are counting the Jivi patients, and this is very much in line or even slightly better than what we had anticipated in the first place. We are quite pleased. Because you know that in the U.S., there was a question around competitiveness of our label, and we are seeing this not materialize in practice. There are no further questions at this time. I would like to pass back to Mr. Maier for closing remarks. Okay. Thank you very much, everybody. Really appreciate you participating in our call. Very much appreciate it. Talk to you guys soon. Thank you very much. Take care. Ladies and gentlemen, this concludes the full year and fourth quarter 2018 results investor and analyst conference call of Bayer AG. Thank you for participating. You may now disconnect.