MOSCOW (MRC) -- Bayer swung to a third-quarter net loss of EUR2.74 billion (USD3.21 billion) from a net profit of EUR1.04 billion a year earlier on sales of EUR8.51 billion, down 5.1% on a currency- and portfolio-adjusted basis, said Chemweek.
The net loss includes non-cash impairment charges on intangible assets, and provisions, totaling EUR10.18 billion. They are mainly in Bayer’s agricultural division, crop science, in connection with potential future litigation in the US related to the company’s glyphosate-based herbicide Roundup™. Other special charges are from an ongoing restructuring program and litigation at Bayer’s pharmaceuticals business.
Bayer’s EBITDA before special items decreased by 21.4% year on year (YOY) in the third quarter to EUR1.79 billion, including a negative currency effect of EUR205 million, missing analysts’ consensus estimate by 12.7%. Crop science was the main driver of the miss with a big decline in third-quarter sales and earnings due partly to seasonal factors. Bayer has nevertheless confirmed its outlook for full year 2020.
“We saw a challenging quarter in our agricultural business, a recovery in our pharmaceuticals business, and strong growth at consumer health,” says Bayer CFO Wolfgang Nickl. “The impact of the pandemic is placing additional strain on our crop science division. We are also facing negative currency effects, such as the massive depreciation of the Brazilian real, which is weighing heavily on business in the world’s second-largest agricultural market."
The third quarter was “weak” with a “substantial impact of the pandemic,” and Bayer relied on “stringent cost management and the acceleration of our structural measures,” says Werner Baumann, Bayer chairman. Sales at the crop science business dropped 11.6% YOY, foreign exchange and portfolio adjusted, in the third quarter, to EUR3.03 billion. Business was down in North America in particular, and sales increased in APAC. EBITDA before special items swung to a negative EUR34 million from a positive €500 million in the year-earlier period, mainly due to the decrease in sales in North America. There was also a negative currency effect of EUR123 million, Bayer says.
Worldwide sales at the corn seed and traits segment fell by 39.9%, adjusted, with substantial declines in North America in particular due to higher product returns and lower license revenue arising from lower-than-anticipated planted acreages for corn this year. At the herbicides segment, sales declined by 12.7%, adjusted, against a strong prior-year quarter. Business was primarily down in North America, where sales in 2019 had shifted into the third quarter due to extreme weather conditions in the first half of that year.
Bayer says it continues to work on a joint proposal to address potential future Roundup™ claims together with plaintiffs’ counsel. Provisions taken by Bayer in the third quarter include an additional measure to cover the increased cost of a revised class plan, “as it is far enough along in the negotiations to know that the new plan will come in at approximately USD2 billion, an increase over the original cost of USD1.25 billion,” the company says.
Bayer says that approximately 88,500 claims in the litigation involving Roundup™ products are so far covered by fully executed master settlement agreements (MSAs), MSAs to be executed, or agreements in principle. At the end of June, Bayer reported that there were approximately 125,000 filed and unfiled claims. “Given uncertainties about eligibility and participation, this number will not be finalized until the settlement process is completed,” Bayer says.
Sales of Bayer’s pharmaceuticals business declined 1.8%, on a foreign-exchange and portfolio adjusted basis in the third quarter, to EUR4.23 billion with EBITDA before special items edging up 0.9% to EUR1.51 billion. “Thanks to stringent cost management, the division was able to grow its earnings and margin despite the decline in sales due to the negative overall impact of COVID-19 as well as negative currency effects of EUR48 million that additionally weighed on earnings,” Bayer says.
Sales of Bayer’s consumer health business increased 6.2%, adjusted, to €1.20 billion putting the division’s growth well ahead of industry market growth, the company says. The growth trend was driven by the nutritionals segment, with sales rising 21.4% due to the greater focus on health and prevention in connection with the COVID-19 pandemic as well as the launch of new products, Bayer says.
EBITDA before special items at consumer health increased by 12.3% to EUR301 million, primarily due to the substantial increase in sales and positive contributions from an efficiency program launched in late 2018.
Bayer has maintained its currency-adjusted group outlook for full year 2020 of an increase in sales to EUR43–44 billion and rise in its EBITDA margin before special items to about 28%. This would correspond to EBITDA before special items of about EUR12.1 billion after adjusting for currency effects. Bayer says it expects full-year sales and earnings to come under even greater pressure from currency headwinds.
As MRC informed earlier, Covestro (formerly Bayer MaterialScience) received its first delivery of certified renewable phenol from Borealis, to be used as a drop-in feedstock for the production of polycarbonate plastic. The phenol is manufactured by Borealis using renewable hydrocarbons feedstock supplied by Neste, sourced from waste and residual oils and fats.
As MRC reported earlier, Covestro has closed the sale of its European polycarbonates (PC) sheets business to the Munich-based Serafin Group effective January 2, 2020. This includes key management and sales functions throughout Europe as well as production sites in Belgium and Italy.
According to MRC's ScanPlast report, overall estimated consumption of PC granules in the Russian market reached 58,000 tonnes in January-July 2020, up by 22% year on year (47,500 tonnes).
Covestro (formerly Bayer MaterialScience) is an independent subgroup within Bayer. It was created as part of the restructuring of Bayer AG from the former business group Bayer Polymers, with certain of its activities being spun off to Lanxess AG. Covestro manufactures and develops materials such as coatings, adhesives and sealants, polycarbonates (CDs, DVDs), polyurethanes (automotive seating, insulation for refrigerating appliances) etc. With 2019 sales of EUR12.4 billion, Covestro has 30 production sites worldwide and employs approximately 17,200 people (calculated as full-time equivalents) at the end of 2019.
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