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Ladies and gentlemen,
I would like to welcome you to the presentation of our results for 2015. I’m very pleased that you could all be here again today.
Bayer had a very successful year in 2015, both operationally and strategically.
Operationally it was another record year for Bayer. Sales reached the highest level in the company’s history, exceeding EUR 46 billion. Clean EBITDA substantially rose by about 18 percent and also set a new record of more than EUR 10 billion.
Strategically we have taken all the necessary steps to make Bayer a pure Life Science company.
We successfully floated our former MaterialScience subgroup on the stock market under the name Covestro.
And with the reorganization of Bayer, we set the course for the company’s successful further development. At the beginning of 2016, we replaced the strategic management holding structure with an integrated structure comprising three divisions: Pharmaceuticals, Consumer Health and Crop Science. The heads of these divisions are now also members of the Board of Management of Bayer AG. This enhances operational accountability and accelerates decision-making.
I’m pleased to have the opportunity today to introduce our new Management Board members: Erica Mann, head of the Consumer Health Division; Liam Condon, who heads up Crop Science; and Dieter Weinand, head of the Pharmaceuticals Division. Also new on our Board of Management is Hartmut Klusik. Since the beginning of the year, he has been responsible for Human Resources, Technology & Sustainability and is also the company’s Labor Director.
You already know the other Management Board members here today. Werner Baumann is responsible for Strategy and Portfolio Management and will take over as my successor in two months’ time. Johannes Dietsch is our Chief Financial Officer and Kemal Malik is responsible for Innovation.
In addition to these important organizational changes, we undertook further transactions in support of our strategy. For example, we sold our Diabetes Care business to Japan-based Panasonic Healthcare Holdings. Another example is the acquisition of SeedWorks India, headquartered in Hyderabad, which further strengthened the vegetable seed business of Crop Science.
At the same time, we progressed further with the integration of the consumer care businesses of Merck & Co. and Dihon, which we acquired in 2014. These acquisitions expanded our Consumer Health portfolio to include major products in important markets, giving this business the critical mass to form our third division alongside Pharmaceuticals and Crop Science.
Now I’d like to discuss the figures for fiscal 2015. I’ll refer at first to the previous corporate structure that applied in fiscal 2015.
Group sales advanced by 2.7 percent in 2015 to EUR 46.3 billion. The biggest contribution once again came from our Life Science businesses. HealthCare in particular posted strong sales and earnings gains. As we hold a majority interest in Covestro, that company remains fully consolidated. Sales there receded. Please note that all the sales variations I mention are adjusted for currency and portfolio effects.
We registered particularly encouraging earnings growth last year. EBIT of the Bayer Group rose by about 16 percent to EUR 6.3 billion after special charges of EUR 819 million. EBITDA before special items increased by about 18 percent to EUR 10.3 billion. Positive currency effects contributed around EUR 680 million here. Core earnings per share rose by 16 percent to EUR 6.83.
At the same time, however, we invested substantially in our future again last year, spending around EUR 740 million more on research and development than we did in 2014. Thus, our research and development expenses have continuously increased between 2011 and 2015 – from EUR 2.9 billion to EUR 4.3 billion.
This shows that we think and act sustainably, and that we do not achieve our good results at the expense of our future viability and innovation strength.
Ladies and gentlemen,
now let’s take a look at our financial performance over the past five years.
As you can see, we achieved robust increases for the most important financial indicators and took performance to a record level in 2015. Over the five-year period, sales rose by about EUR 10 billion, or 27 percent. Earnings grew even more substantially:
• Since 2011, core earnings per share have risen by exactly two euros, representing a gain of more than 40 percent.
• We increased net income by EUR 1.6 billion, or 64 percent.
• We also substantially grew EBITDA before special items by more than one-third.
• And the clean EBITDA margin has steadily risen from 20.8 percent in 2011 to 22.2 percent last year.
I would like to stress that improving these indicators is not an end in itself. However, they show us that we’re on the right track. Ultimately our aim is to develop innovative technologies and products that genuinely help our customers. I’ll address some specific examples in more detail later on.
First, however, I’d like to look at business development in our individual subgroups in 2015.
Let’s start with HealthCare. Here we raised sales by 8.1 percent last year to EUR 22.9 billion. Sales at Pharmaceuticals increased by a robust 9.9 percent and business at Consumer Health expanded by a significant 5.1 percent.
We posted a strong improvement in earnings at HealthCare as well. EBITDA before special items rose by 19.8 percent to EUR 6.4 billion. All our businesses contributed to this performance, with positive currency effects an additional influence.
A particularly significant factor on the cost side was the increase in research and development investment at Pharmaceuticals. At Consumer Health, selling expenses rose. The clean EBITDA margin was flat with the prior year at 28.1 percent.
Let’s now look at business development in detail. At Pharmaceuticals, our five recently launched products again drove growth. Sales of our anticoagulant Xarelto™, the eye medicine Eylea™, Adempas™ for the treatment of pulmonary hypertension and the cancer drugs Stivarga™ and Xofigo™ rose to EUR 4.2 billion. This represents an impressive reported increase of 45 percent compared with the prior year.
Sales of Xarelto™ were up substantially, mainly as a result of expanded volumes in Germany and Japan. We also registered a strong sales gain in the United States, where Xarelto™ is marketed by a subsidiary of Johnson & Johnson. Following its approval in additional indications, sales of Eylea™ also posted substantial gains, particularly in Europe and Japan.
Our Pharmaceuticals business registered encouraging growth overall in all regions. Business developed especially well in Germany, Japan and the United States.
At Consumer Health, all divisions contributed to the growth in sales. Business at Consumer Care – which is the Consumer Health Division in our new structure – improved by 6.1 percent. Sales of Consumer Health climbed by a reported 30 percent. Alongside the positive impact of currency effects, this was chiefly attributable to the recently acquired businesses.
Last year, we posted sales of EUR 1.8 billion with the products acquired from Merck & Co. Business with the antihistamine Claritin™ developed especially well. It is now our best-selling Consumer Health product.
Now let’s move on to CropScience, which raised sales by 1.7 percent to EUR 10.4 billion despite a weaker market environment. We thus grew faster than the average achieved by our most important competitors. Both Crop Protection/Seeds and Environmental Science registered growth.
Clean EBITDA improved by 2.4 percent to EUR 2.4 billion. Volumes expanded and selling prices improved slightly. On the other hand, there was an increase in the cost of goods sold and in research and development expenses.
Sales in Crop Protection / Seeds increased by 1.5 percent to EUR 9.5 billion. Crop Protection posted gratifying sales gains at Fungicides and Herbicides but saw a distinct decline at Insecticides and SeedGrowth. In the Seeds business, which expanded by 8.8 percent, sales of soybean and canola seed developed particularly well. Our vegetable seeds also contributed to this encouraging growth.
Business development at CropScience varied by region. While sales in Europe rose by 8.2 percent, they shrank by 1.6 percent in North America. In Latin America/Africa/Middle East, sales were level year on year – despite a weak market environment, particularly in Brazil. Sales in the Asia/Pacific region came in slightly above the prior-year level, up 1.3 percent.
Now let’s take a look at Covestro. As that company presented its figures two days ago, I’d like to keep my remarks here brief.
Covestro registered a 5.1 percent decrease in sales in 2015, to just under EUR 12 billion. This decline resulted mainly from lower selling prices. On the other hand, volumes expanded.
However, earnings of Covestro rose significantly. EBITDA before special items improved by 40 percent to EUR 1.7 billion. This was largely due to a sharp drop in raw material prices coupled with positive currency effects.
Ladies and gentlemen,
let me give you a few examples to explain what’s behind our numbers. Innovation is at the heart of our strategy and culture. We develop new molecules for use in innovative products to improve the health of humans, animals and plants. Here we rely on our committed and highly qualified scientific teams – we employ nearly 15,000 people worldwide in research and development. We work closely with universities, research institutes and other companies, which means we are always at the cutting edge of technology.
We saw a few minutes ago that growth at Pharmaceuticals is being driven by our five recently launched products.
One of them, Adempas™, recently received a very special kind of accolade. At the end of 2015, Bayer’s researchers and their cooperation partners from the University of Giessen, Germany, were rewarded with the German Future Prize for the development of the active substance riociguat. This award is presented by the President of Germany for outstanding innovation achievements. It is the highest honor of its kind in the country.
That is something we are very proud of, especially as we have now received this accolade for the second time within just a few years – the first time in 2009 for our thrombosis treatment Xarelto. For us, it is encouraging confirmation of our efforts and serves as a tremendous incentive. And it strengthens us in our resolve to pursue our chosen course as a Life Science company that deploys all its strength in developing innovative products.
In this connection, Adempas™ especially shows how important alliances are. The drug’s principle of action – known as sGC stimulation – was discovered by Bayer researchers in Wuppertal. It was then further developed in close cooperation with pulmonary specialists at the University of Giessen.
A research odyssey that lasted almost 20 years overall culminated in an entirely new drug to treat two forms of pulmonary hypertension. In the one case, Adempas™ is actually the first drug product ever approved.
Pulmonary hypertension is a serious, progressive disease characterized by significantly elevated pressure in the pulmonary arteries. This can lead to heart failure and death. Patients suffer from dizziness, shortness of breath and fainting spells. Many are so weak that they can barely cope with daily life.
Although Adempas™ cannot heal the disease, it dilates the blood vessels in the lungs and thereby improves the supply of oxygen in patients. It improves their condition and enables them to lead a more active life again.
And development continues. The mechanism of action – sGC stimulation – in riociguat used to treat pulmonary hypertension could also be applied in other indications. For example, we are currently cooperating with U.S. pharmaceutical company Merck & Co. to develop the new active substance vericiguat, an sGC stimulator optimized for the treatment of chronic heart failure.
It is a promising approach for treating this disease, which is characterized by inadequate stimulation of the sGC enzyme. Two Phase IIb trials were concluded last year and the first data were presented in November. We and our cooperation partner Merck & Co. are currently deliberating the next steps in the vericiguat development program.
Vericiguat is representative of our research pipeline, which is stocked with a large number of promising projects. And it shows that today, in order to be a leader in science, it is essential to work together with external partners.
That is illustrated by a further alliance which was recently initiated. This focuses on the new, groundbreaking technology of genome editing. Named CRISPR/Cas9, the technology makes it possible to cut DNA at specific sites using “molecular scissors.” This in turn could make it possible to treat or even cure serious genetic diseases by correcting the flawed component of the DNA that causes the disease.
The technology could also be used to modify the genome of plants in order to improve their yield and resistance properties, for example. The result is barely distinguishable from that produced by conventional breeding – but it can be achieved much more accurately and thus more quickly.
We have now established a long-term joint venture with CRISPR Therapeutics. This company is one of the most prominent names in the field of genome editing.
Together with CRISPR Therapeutics, we aim to discover, develop and commercialize new treatment methods for blood disorders, blindness and heart disease. To this end, we will be investing at least US$300 million in research and development by the joint venture over the next five years. We also acquired a minority interest in CRISPR Therapeutics for US$35 million.
The joint venture gives us access to this innovative technology; in return, we will contribute our expertise in protein technology and our knowledge of the indications I just mentioned.
The joint venture represents the first investment made by the new Bayer Life Science Center, which has been established to discover, promote and enable access by Bayer to groundbreaking, multispecies technologies and know-how. To achieve this, Bayer plans to enter into partnerships with first-class companies like CRISPR Therapeutics.
Ladies and gentlemen,
innovation does not just take place in our laboratories, but across the company.
Let me give you an example from our Crop Science business. In agriculture, as in other sectors, digitization is in full swing. Today, terms such as “big data” or the “Internet of Things” are familiar to farmers and industry production managers alike.
Indeed, digitization offers tremendous opportunities and perspectives in agriculture as well. For example, modern tractors and harvesters are often equipped with sensors that collect information about the condition of the crops and soil, and send these data directly to the farmer’s laptop or tablet computer.
Aerial photographs from drones or satellites can also provide valuable information. Commercial satellites already make it possible to analyze a given land surface at a resolution of 30 centimeters.
Based on such data, it is possible today to practice precision agriculture. From the treatment of the soil to the selection of the seed to fertilization and the use of crop protection products – all aspects can be precisely and efficiently planned for each area of farmland.
If the plants in one part of a field are infested by pests or disease pathogens, this is very quickly recognized. That means action can be taken at an early stage before pests or diseases can spread further.
In this way, digital farming not only improves yields and incomes, but also results in the more efficient and environmentally friendly deployment of resources. We want to help actively shape this development and further expand our range of digital services for our customers.
For this reason, we recently acquired the company proPlant. Originally established as a spin-off by former employees of the Institute for Geoinformatics at the University of Münster, Germany, the company today is one of the leading providers of IT solutions for the agricultural industry. Now operating as Bayer Digital Farming, it strengthens our technology platform, providing the basis for developing new digital solutions for sustainable and resource-efficient agricultural production.
Ladies and gentlemen,
after this brief excursion into the world of innovation at Bayer, I would now like to present our financial targets for 2016. Our forecast is based on the exchange rates as of December 31, 2015. In 2016, we are not planning any substantial currency effects on sales, EBITDA before special items and core earnings per share.
Let’s first look at the total for our Life Science activities, which now comprise our core business. Here we plan sales of approximately EUR 35 billion. This corresponds to a currency- and portfolio-adjusted increase in the mid-single-digit percentage range. For the Life Science businesses, we plan to improve EBITDA before special items by a mid-single-digit percentage.
For the Bayer Group as a whole – in other words also including Covestro – we are planning total sales in 2016 of more than EUR 47 billion. This corresponds to a currency- and portfolio-adjusted increase in the low-single-digit percentage range.
We plan to increase both EBITDA before special items and core earnings per share by a mid-single-digit percentage.
Mr. Dietsch will now give you further details on fiscal 2015 and present the outlook for our divisions.
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(Dr. Dekkers’ address continues)
Ladies and gentlemen,
following this detailed look at our figures, I would like to continue with a few political remarks. You will have seen from my presentation what efforts we are making to enhance our company’s innovation strength. This is integral to our mindset and our operations – similar to a professional athlete who works on his fitness every day.
Yet I never tire of emphasizing that we need an environment that supports our innovation efforts if we are to fully exhaust our potential. I am firmly convinced that Europe must become more innovative. In my view, three aspects are particularly important.
First, there is the sociocultural environment. Everyone is in favor of innovation in theory and all the fine speeches would appear to show consensus. However, when it comes to specific technologies, concerns quickly gain the upper hand.
Please don’t misunderstand me. It’s good and right to openly discuss new technologies. However, this debate should be based on scientific facts. That’s why all of us – science, politics and of course industry – must strengthen our engagement in public debate.
It’s especially important in the Life Sciences where we work with molecules that no-one can see. That reinforces a certain sense of unease about innovations in our industry – in contrast to something like a new smartphone, which people find easier to get enthusiastic about.
Secondly, it’s important to support technological advances with appropriate regulations, rather than to hinder them. I’m therefore very much in favor of introducing a European innovation principle – a kind of innovation inspection to examine the effects that regulations would have on industry’s innovation strength.
This could meaningfully supplement the European precautionary principle, which is a sound and important approach. Taken together, the two principles could ensure a more balanced assessment of the benefits and risks of new technologies. This would make it possible to improve regulations – and increase innovation.
Let me give you a specific example. In Germany, the prices for innovative new medicines are increasingly aligned to those for off-patent generic products that have been on the market for decades. However, this is no basis for adequately rewarding the innovative achievements of pharmaceutical companies.
In the long term, it will mean that companies can no longer finance their growing research and development expenses. At some point, the industry’s innovation strength will be diminished – ultimately to the detriment of patients waiting for new therapies.
I well understand the need to consider the financial interests of the statutory health insurance funds. However, we need to achieve a new balance in Germany that also takes better account of the concerns of the research-based pharmaceutical companies. A workable solution must be found as quickly as possible.
That brings me to my third point. If we are to become more innovative, we must also improve the external financing conditions for innovation. I have pointed out on many occasions already, for example, that Germany needs a venture capital law that gives young companies easier access to start-up capital. That’s because such start-ups are an important link between research institutes and universities on the one hand and established companies on the other.
Ladies and gentlemen,
drawing now to a close.
In the forecast for 2016 you can see that, building on a record year, we are targeting further expansion with above-market sales growth and improved earnings.
What makes us so confident? The answer to that is quite simple. We’ve done our homework and set the course for a successful future. Our portfolio is well diversified and balanced. Our divisions are competitive and hold leadership positions in their markets. And our focused business model offers many opportunities for cooperation between the divisions – with mutual benefits. This applies not just to research, but to many other areas as well.
For more than 150 years, Bayer’s business model has been based on inventing new molecules and turning them into innovative products. It began in 1863 with synthetic dyes. Today we concentrate on molecules that can positively influence the biochemical processes in living organisms.
In our work, we make use of the tremendous opportunities resulting from progress made in the Life Sciences. We deploy the latest findings and technologies to develop innovative products – with the aim of improving the health of people, animals and plants.
All the things that set Bayer apart as a Life Science company are summarized in the brochure you have been given. It’s well worth reading.
One thing I’m certain of: On this basis – and with our dedicated and highly qualified employees – Bayer will remain one of the most innovative companies in the business in the future as well.
Thank you very much.
This release may contain forward-looking statements based on current assumptions and forecasts made by Bayer management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in Bayer’s public reports which are available on the Bayer website at www.bayer.com. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.
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