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Bayer acknowledges Roundup claims could force asset sales

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Bayer acknowledged that it could be forced into an asset firesale to fund payouts if loses legal battles over its Roundup weedkiller, even as the group admitted its ag performance had fallen short last year.

 

The German-based chemicals conglomerate revealed that the number of claims lodged by plaintiffs arguing that Roundup causes cancers such as non-Hodgkin’s lymphoma and multiple myeloma had risen to 48,600, as of February 6.

 

That represents a rise of 5,900 since October 11, although does show a slowdown in the rate of new allegations, with the number of plaintiffs rising by 24,300 in the July-to-October period.

 

“The number of plaintiffs has grown further, which does not come as a surprise in view of the huge rise in anti-Roundup advertising spend from the plaintiffs’ side,” said Werner Baumann, the Bayer chief executive.

 

‘Divesting assets’

Mr Baumann restated that the company remained “firmly convinced that our glyphosate-based herbicides”, which include Roundup, “are safe and are not carcinogenic.

 

“That view is supported by a large body of scientific studies and is shared by leading regulatory authorities worldwide,” he said, quoting a finding by the US Environmental Protection Agency that it “did not identify any human health risks from exposure to glyphosate”.

 

However, the group – which has lost three trials in California over the cancer claims, verdicts against which it is appealing – acknowledged the heavy financial toll that the lawsuits could bring, in terms of both “compensatory and possibly punitive damages.

 

“We could be compelled to cover any such increased financial requirements by issuing additional external debt, increasing our equity capital or divesting assets – possibly on unfavourable terms – or through combinations of these measures,” Bayer said.

 

“The terms on which we obtain external financing could become less favourable as a result of any increased financial requirements.

 

“These risks may also adversely affect our reputation.”

 

Case mediation

In the first California trial, in March last year, a jury awarded Edwin Hardeman, who claimed that Roundup caused his non-Hodgkin’s lymphoma, $5m in compensation, plus $75m in punitive damages, although these were later reduced to $20m.

 

Mr Baumann said that while Bayer was “confident that science will prevail in the end”, the group was continuing “to pursue mediation” with plaintiffs “in good faith to explore whether we can reach a solution.

 

“One thing is clear, however - Bayer will only accept a mediation outcome that is financially reasonable and is structured in a way that will bring the matter to a reasonable conclusion, including in the long term.”

 

‘A little lower than forecast’

The comments came as Bayer reported a 26% rise to E2.48m in adjusted ebitda for the October-to-December quarter, a figure in line with investor expectations, on sales up 3.8%.

 

The crop science division – the group’s largest, after the $63bn purchase of Monsanto, whose portfolio included Roundup – achieved a 61% gain to E872m in adjusted ebitda, despite an easing of 0.2% to E4.66bn in sales.

 

This took to E4.80m adjusted ebitda for the full year, a gain of 81%, on sales up 39% at E19.83bn, although figures inflated by the impact of the Monsanto deal.

 

Adjusted for the acquisition, sales rose by 1.3%, with even that growth down to currency factors.

 

“Sales at our crop science division came in a little lower than forecast – mainly due to the extreme weather in some regions and the negative impact this had on our agriculture business,” Mr Baumann said.

 

Soybean seed sales provide particularly weak, falling by 10.9% year on year to E2.12bn thanks to “strong competitive pressure” and the dire spring sowing season in North America.

 

However, corn seed sales rose by 6.0% to E5.16bn, helped by “increased market share”, and strong growth in European volumes.

 

Group guidance

For 2020, Bayer forecast sales growth of some 4% at its crop science unit, with a margin on adjusted ebitda of about 26%, which would represent a rise of 1.8 points year on year.

 

At a group level, sales growth was pegged at 3-4%, and the ebitda margin at about 28%, implying ebitda before special items of $12.3bn-12.6bn.

 

Core earnings per share were forecast at E7.00-7.20, up from E6.40 for 2019.

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