Report on Future Perspectives and on Opportunities and Risks

Future Perspectives

Economic Outlook

Economic Outlook1

 

 

Growth 2017

 

Growth forecast 2018

2017 figures restated

1

Real growth of gross domestic product, source: IHS Markit

2

Including about 50 countries defined by IHS Markit as Emerging Markets in line with the World Bank

As of July 2018

World

 

+3.3%

 

+3.3%

European Union

 

+2.6%

 

+2.1%

of which Germany

 

+2.5%

 

+2.2%

United States

 

+2.3%

 

+3.0%

Emerging Markets2

 

+4.8%

 

+4.8%

We continue to expect the global economy to achieve strong growth. However, the risks for the world economy have increased, especially due to the current conflicts over trade policy. We expect greater growth dynamics in the United States, while growth in Europe will likely be lower than in the prior year. As for the Emerging Markets, we anticipate a strong increase in economic output to match the pace of the prior year, while for China we continue to anticipate strong growth at a slightly slower rate than in the prior year.

Economic Outlook for the Segments1

 

 

Growth 2017

 

Growth forecast 2018

2017 figures restated

1

Bayer’s estimate, except pharmaceuticals; source for pharmaceuticals market: IQVIA Market Prognosis (May 2018); all rights reserved; currency-adjusted

As of July 2018

Pharmaceuticals market

 

+3%

 

+4%

Consumer health market

 

+3−4%

 

+3−4%

Seed and crop protection market

 

+1%

 

+2−3%

Animal health market

 

+2%

 

+4%

Corporate Outlook

Following the closing of the Monsanto acquisition on June 7, 2018, and taking into account the business development described in this report and the potential risks and opportunities, we have revised our expectations for fiscal 2018.

Our outlook now includes the sales and earnings contributions from Monsanto since the date of acquisition. As the transaction closed later than we had anticipated, 2018 earnings will be lower than we had projected in our February forecast including Monsanto due to the seasonality of the agricultural business. Our outlook takes into account the financing costs for the acquisition of Monsanto shares as well as the higher number of shares of Bayer AG following the capital increases on a pro rata temporis basis. The businesses divested to BASF are excluded as of their respective divestment dates.

The forecasts are based on the exchange rates as of June 30, 2018, and adjusted for currency effects4 to enhance the comparability of operating performance.

4 Using the average monthly exchange rates from 2017 (see table Bayer Group Consolidated Statements of Cash Flows)

We now expect Bayer Group sales of more than €39 billion (previously: below €35 billion), with more than €5 billion attributable to the acquired business. The divestment of selected businesses to BASF will reduce anticipated sales by approximately €1 billion. This forecast now corresponds to a mid-single-digit percentage increase (previously: low- to mid-single-digit percentage increase) on a currency- and portfolio-adjusted basis.

We now expect EBITDA before special items to increase by a low- to mid-single-digit percentage (previously: decline by a low-single-digit percentage). On a currency-adjusted basis, this corresponds to an increase by a high-single-digit percentage (previously: increase by a mid-single-digit percentage).

We now expect core earnings per share to come in at between €5.70 and €5.90 (previously: at the prior-year level). On a currency-adjusted basis, this corresponds to a decrease by a high-single-digit percentage (previously: increase by a mid-single-digit percentage). Prior-year core earnings per share were restated to €6.64 to reflect the bonus component of the capital increase with subscription rights, and this is taken into account here.

Forecast for Key Financial Data of the Group for 2018

 

 

Closing rates on June 30, 2018

 

Currency-adjusted

1

Adjusted for currency and portfolio effects

Sales

 

More than €39 billion

 

Increase by a mid-single-digit percentage1

Development of EBITDA before special items

 

Increase by a low- to mid-single-digit percentage

 

Increase by a high-single-digit percentage

Development of core earnings per share

 

€5.70 – €5.90

 

Decrease by a high-single-digit percentage

We aim to pay out a dividend for 2018 that is at least at the same level as in the prior year, which would represent an upward deviation from our existing dividend policy (30-40% of core earnings per share as a mathematical basis for calculating the dividend payout). Due to the late closing of the Monsanto acquisition, anticipated core earnings per share for the full year will only include a small contribution from the acquired business. However, we will be able to utilize substantial operating cash flows from the acquired business due to seasonal trends. Bayer is also able to benefit from earnings contributions in the form of expected proceeds from the divestments to BASF and income from the sale of Covestro shares that has already been recognized. Overall, net financial debt at the end of the year will therefore be significantly lower than originally anticipated. Taking into account the cash flows and in view of the successful performance the combined business is expected to deliver, we want to enable our shareholders to share in our company’s success by paying out an attractive dividend.

For Pharmaceuticals, we confirm our previous sales and earnings guidance.

For Consumer Health, we confirm our expectations for sales and currency-adjusted EBITDA before special items. As for EBITDA before special items, we now anticipate a decline by a mid-single-digit percentage (previously: decline by a low-single-digit percentage) as a result of currency effects.

For Crop Science, we now forecast sales of slightly more than €14 billion (previously: more than €9.5 billion). As previously outlined, this includes a positive sales effect of more than €5 billion from the acquired business as well as a negative effect of approximately €1 billion from the divestment of selected businesses to BASF. We continue to expect a mid-single-digit percentage increase on a currency- and portfolio-adjusted basis. As for EBITDA before special items, we anticipate an increase by a mid-twenties percentage (previously: mid- to high-single-digit percentage). On a currency-adjusted basis, we now anticipate an increase of around 30% (previously: mid-teens percentage increase).

For the Animal Health segment, the Reconciliation and Bayer AG, we confirm our sales and earnings guidance.

Forecast for Other Key Data of the Group for 2018

 

 

Updated forecast

 

Forecast as of Feb. 28, 2018

1

Mainly comprising income from disposals of certain Crop Science activities as required by antitrust authorities

2

Excluding capital and portfolio measures

Special charges

 

Special gain1 of around €1.9 billion

 

Special charges of around €0.4 billion

Research and development expenses

 

Around €4.9 billion

 

Around €4.1 billion

Capital expenditures

 

Around €2.8 billion

 

Around €2.2 billion

of which for intangible assets

 

Around €0.6 billion

 

Around €0.6 billion

Depreciation and amortization

 

Around €3.0 billion

 

Around €2.2 billion

of which on intangible assets

 

Around €2.0 billion

 

Around €1.2 billion

Financial result

 

Around minus €1.2 billion

 

Around minus €1 billion

Effective tax rate

 

21.0%

 

20.0%

Net financial debt

 

around €37 billion

 

Net liquidity position2

Compare to Last Year