Bayer stays on course and promises profit growth – the flash analysis

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Leverkusen Bayer AG presented the figures for the fourth quarter and for the full year 2019 this Thursday morning – the flash analysis:

Operationally, Bayer remains on track and has fully met its own goals and the expectations of the analysts. A positive signal is that the promised growth has been achieved in all three divisions, including the over-the-counter medication segment, which has weakened significantly in recent years. With sales of EUR 5.5 billion, it increased adjusted profit (Ebitda before special items) to EUR 1.09 billion.

The agricultural division also presents itself positively with the acquired Monsanto business: it makes a profit jump of 81 percent to 4.8 billion euros with sales of 19.8 billion euros. Bayer is better able to cope with the problems caused by severe weather in the United States than the competition. The pharmaceutical division made high contributions as usual.

In total, Bayer achieved an increase in group sales of 3.5 percent to 43.5 billion euros. Adjusted profit rose 28 percent to 11.5 billion euros. Bayer generated sales of EUR 10.75 billion in the fourth quarter, an increase of almost four percent. Adjusted operating profit increased by more than a quarter to EUR 2.48 billion. This also met the forecasts.

What stands out negatively

At Bayer, all eyes are on a possible out-of-court solution to the glyphosate case in the United States. The company said nothing new on Wednesday. The parallel strategy remains: “If necessary, we will operate the three appointment procedures through all instances,” said Bayer CEO Werner Baumann. At the same time, Bayer participates constructively in the mediation procedure ordered by the court.

This is to explore whether a comparison can be achieved on reasonable terms. That means: Bayer must be able to finance it financially. However, it is more important that a solution avoids new waves of lawsuits in the future. This is a difficult point where lawyers on both sides have been working for a long time.

The number of pending lawsuits has continued to grow. As of February 6, 2020, there were approximately 48,600 lawsuits against Bayer in the United States. The growth is significantly lower than in autumn 2019, when the number of cases had practically doubled to 42,000.

This is also due to the fact that US law firms are less likely to raise new lawsuits in the light of the settlement negotiations. The potential number of lawsuits that could be included in a comprehensive comparison is estimated to be much higher – up to 80,000.

How it goes on

Investors continue to assume that Bayer will provide an out-of-court solution by the Annual General Meeting. There is a comparative sum of ten billion dollars in the room.

However, it is still unclear whether this will succeed. Operationally, Bayer plans to increase all key figures this year: Sales are expected to increase by three to four percent to € 44 billion to € 45 billion.

In terms of adjusted profit, Bayer promises to grow to EUR 12.3 billion to EUR 12.6 billion. Free cash flow is expected to amount to approximately five billion euros. However, the prognosis does not yet contain an estimate of the effects that may result from the outbreak of the coronavirus. The dividend for 2019 is expected to remain constant at EUR 2.80.

More: Signal to investors: Bayer chief overseer resigns early.

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