Bayer Q3 2023 results: Crop Science sales at prior-year level thanks to higher volumes

Date:11-09-2023

Bayer has confirmed its Group outlook for 2023 after posting third-quarter figures that were down against the previous year. ″The results came in largely as we expected, knowing that Q3 is never our strongest quarter. The important message is that, based on where we are and what we see for the remaining quarter, we are confirming the updated 2023 guidance,″ CEO Bill Anderson said on Wednesday when presenting the company’s Quarterly Statement. ″We know that this requires a strong fourth quarter. We’re fully focused on delivering exactly that – and the team is confident in our outlook.″

″We’re not happy with this year’s performance. Nearly 50 billion euros in revenue but zero cash flow is simply not acceptable,″ stated Anderson, who has been at the helm of the company since June. He intends to focus everything on Bayer’s mission of ″Health for all, hunger for none,″ and on driving innovation and strengthening financial performance. ″Our mission hasn’t always been front and center in our operations. That will change. We are redesigning Bayer to focus only on what’s essential for our mission – and getting rid of everything else.″ By the end of next year, Bayer will remove multiple layers of management and coordination, he said. ″This step will unleash our teams with the mission-focus necessary to turn things around. 95 percent of the decision-making in the organization will shift from managers to the people doing the work.″ Even though this will include a significant reduction in the workforce, it is not a traditional cost-cutting program, Anderson said. In addition, a new Board of Management compensation system will be proposed at the next Annual Stockholders’ Meeting, he said, noting that it will be more closely aligned with the long-term development of the company’s share price.

″We are looking closely at our structural options. We have an expert team – including external financial advisors – evaluating them. They’re reviewing market conditions, what structural changes would mean for our value creation, one-time costs and dis-synergies, cash flows and leverage ratios, tax leakage, and other criteria,″ Anderson explained. In terms of structural options, beyond maintaining three divisions, a separation of either Consumer Health or Crop Science remains under evaluation. ″We have also taken some options out of consideration. For example, we considered simultaneously splitting the company into three businesses. We’re ruling that option out. A three-way split would require a two-step process.″ The company will share further details in March at its Capital Markets Day together with the publication of the Annual Report and the 2024 guidance. Based on current market dynamics and first assumptions, Bayer expects a soft growth outlook and continued challenges to the company’s profitability for next year.

Group sales remain stable (Fx & portfolio adj.)

Group sales came in at 10.342 billion euros in the third quarter, and were therefore in line with the prior-year period on a currency- and portfolio-adjusted basis (Fx & portfolio adj. minus 0.2 percent). There was a negative currency effect of 742 million euros (Q3 2022: positive currency effect of 940 million euros). EBITDA before special items decreased by 31.3 percent to 1.685 billion euros, mainly due to the decline in earnings at the Crop Science Division. There was also a negative currency effect of 31 million euros (Q3 2022: 78 million euros). EBIT came in at minus 3.594 billion euros (Q3 2022: 1.199 billion euros). This figure included net special charges of 4.303 billion euros (Q3 2022: 153 million euros) that mainly related to non-cash impairment losses in the Crop Science Division due to interest rates. Net income amounted to minus 4.569 billion euros (Q3 2022: plus 546 million euros), while core earnings per share decreased by 66.4 percent to 0.38 euros.

Free cash flow declined by 6.4 percent to 1.626 billion euros. Net financial debt as of September 30 came in at 38.721 billion euros, down 2.3 percent from the end of June 2023, mainly as a result of cash inflows from operating activities.

Crop Science sales at prior-year level (Fx & portfolio adj.) thanks to higher volumes

Third quarter of 2023

Sales

Sales at Crop Science in the third quarter of 2023 were level year on year at €4,365 million (Fx & portfolio adj. +0.6%). Higher volumes in all regions were mostly offset by lower prices for the glyphosate-based products following an exceptionally strong prior year.

• Sales at Corn Seed & Traits rose significantly thanks to increased prices in all regions.

• At Herbicides, Crop Science recorded substantial price declines for the glyphosate-based products. Higher volumes in all regions were insufficient to offset this effect.

• Business at Fungicides was up considerably, mainly due to higher volumes in Latin America.

• Soybean Seed & Traits business posted double-digit percentage growth, primarily thanks to higher license revenues in Latin America.

• Sales at Insecticides increased, especially in Europe/Middle East/Africa due to higher prices and volumes. However, Crop Science recorded a decrease in sales in Brazil, largely driven by lower prices.

• Cotton Seed business recorded lower volumes in North America in a seasonally low quarter.

• Sales at Vegetable Seeds were up, largely due to higher volumes and prices in Europe/Middle East/Africa. However, sales declined in North America as a result of lower volumes.

• The reporting unit ″Other″ registered a drop in sales, especially at Industrial Turf and Ornamental (IT&O). 

Earnings

EBITDA before special items at Crop Science declined to minus €24 million in the third quarter of 2023 (Q3 2022: €629 million), primarily due to lower prices for the glyphosate-based products. Earnings were also diminished by a mainly inflation-related increase in the cost of goods sold. There was a positive currency effect of €121 million (Q3 2022: negative currency effect of €93 million). The EBITDA margin before special items declined by 13.9 percentage points to minus 0.5%.

EBIT came in at minus €4,573 million (Q3 2022: €53 million) after net special charges of €3,964 million (Q3 2022: €10 million) that mainly related to the aforementioned impairment losses due to interest rates. The impairment losses were primarily recognized on goodwill (€3,621 million).