Bayer to drive value creation as company pursues ambitious growth targets through 2022
The Bayer Group aims to significantly enhance its performance in the coming years and has set itself ambitious growth and margin targets through 2022.
“Following our transformation into a life science company with leading businesses in health and nutrition, we are strongly positioned to benefit from key megatrends,” commented Werner Baumann, Chairman of the Board of Management of Bayer AG, on Wednesday at Bayer’s Capital Markets Day in London. “We will create substantial value by leveraging our innovation capabilities into growth, improved profitability and a higher cash flow. The recently announced efficiency and structural measures will further support us in these endeavours. All of Bayer’s divisions are expected to contribute to an improvement in Group performance through 2022 and beyond.”
Bayer is targeting sales growth of approximately 4% next year and an annual average of 4% - 5% in the following years through 2022, based on constant foreign exchange rates. This corresponds to an increase in sales from an anticipated €44.6 billion in 2018 to around €46 billion in 2019 and to approximately €52 billion in 2022. The target for EBITDA before special items is average annual growth of 9%, with an increase from an anticipated €11.5 billion (pro forma) in 2018 to around €12.2 billion in 2019 and to approximately €16 billion in 2022. The EBITDA margin before special items is expected to amount to about 26% in 2018 (pro forma), with a target of around 27% in 2019 and more than 30% in 2022. As previously announced, Bayer is targeting an average annual increase for core earnings per share of around 10%. Core EPS is expected to amount to €5.70 to €5.90 in 2018 in line with previous guidance, with a target of around €6.80 in 2019 and approximately €10 in 2022.
The 2018 pro-forma figures are based on the assumption that the acquisition of Monsanto and the corresponding divestments – including financing measures – had already taken place as of January 1, 2018. The mid-term guidance takes into account the effects of the efficiency and structural measures announced on November 29. Not included are the planned divestiture of Bayer’s Animal Health business unit, the sale of Consumer Health brands Coppertone™ and Dr Scholl’s™, as well as the divestment of Bayer’s 60% interest in the German site services provider Currenta.
Crop Science sales are expected to increase by 4% in 2019, based on this year’s expected pro-forma sales of €19.3 billion. Between 2019 and 2022, Bayer is targeting average annual sales growth of more than 4% at the division. Crop Science’s EBITDA margin before special items is expected to amount to approximately 23% in 2018, with a target of around 25% in 2019 and over 30% in 2022. This increase is based on expected pro-forma EBITDA before special items of €4.5 billion in 2018. Crop Science will leverage its industry-leading market position and research and development capabilities to deliver world class innovation that benefits farmers and society, harnessing digital innovation to provide tailored solutions.
Pharmaceuticals sales are expected to increase by 4% in 2019, with average annual growth of 4% - 5% targeted between 2019 and 2022. The division’s EBITDA margin before special items is expected to amount to 33% in 2018, with a target of approximately 34% in 2019 and over 35% in 2022. The division’s long-term growth prospects are based on delivering pipeline output and successful sourcing of external innovation.
Bayer is targeting accelerated sales at Consumer Health, with growth gradually increasing to 3% - 4% by 2022 from approximately 1% in 2019. The division’s EBITDA margin before special items is expected to increase to approximately 21% in the coming year. Taking into account portfolio changes, Bayer is targeting an increase in the Consumer Health Division’s EBITDA margin before special items to approximately 24% by 2022. Key drivers of the improvement under the new leadership team are the announced portfolio changes that sharpen the division’s focus on its core over-the-counter categories, accelerated innovation to enhance growth, a modernised marketing and sales strategy to promote the division’s strong brands and targeted efficiencies in the range of €500 million by 2022.
Between 2019 and 2022, Bayer is targeting a total of approximately €23 billion in free cash flow. Free cash flow generation is targeted to accelerate by an annual average of 18% compared to the 2018 base year – hitting approximately €8 billion in 2022. “We intend to use these funds, together with the additional cash generated from the announced portfolio measures, to further increase dividends and to continue to reduce net financial debt in order to reach financial metrics in line with our A-category credit rating target. Beyond that, we will also explore the option of utilising a significant portion of the divestment proceeds for share buybacks,” said CFO Wolfgang Nickl. Due to the new IFRS accounting standard on leasing Bayer’s net debt level is expected to remain stable at around €36 billion in 2019, and then targeted to decrease significantly to between €26 - €28 billion by 2022. “Furthermore, the resources will support our efforts to strengthen Bayer’s innovative capabilities and finance selective bolt-on acquisitions,” Mr Nickl stated.
Over the past decade and a half, Bayer has transformed from a diversified chemicals and pharmaceuticals group into a life science company with leading positions in health and nutrition, very well positioned to benefit from the megatrends of a growing and ageing world population. As an innovation leader, Bayer aims to invest a total of around €35 billion in the company’s future through the end of 2022 alone with research and development accounting for over two-thirds of this figure and capital expenditures for just under one third.
The Crop Science Division features a pipeline with more than 75 projects. Bayer’s Pharmaceuticals Division has about 50 projects in clinical development. In addition to the successful advancement of the internal research and development activities, Bayer’s reconfigured innovation approach at Pharmaceuticals also includes an increased focus on external sourcing of innovative technologies, for example via licensing agreements and collaborative research models.
“Through our leading position in health and nutrition, we are creating substantial value for our shareholders and society,” Mr Baumann said. “In doing so, we are utilising our innovation capabilities, improved profitability and disciplined capital allocation policy, building upon our renowned Bayer brand and the highest sustainability standards it stands for.”