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Bayer warns outlook 'increasingly ambitious' after trading setbacks

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Bayer warned its financial outlook was becoming "increasingly ambitious" after setbacks from weather and trade upsets to its agricultural unit, which also faces an rising number of legal claims against its Roundup herbicide.

 

Shares in the German chemicals giant fell by 4.3% to E56.75 in early deals in Frankfurt, wiping E2.4bn from the company’s stockmarket value, before recovering some ground to stand at E57.28 in lunchtime deals.

 

The decline followed a caution that challenges in its herbicides and seeds division had placed a cloud over expectations of growth to E12.2bn in group ebitda (earnings before interest, tax, depreciation and amoritisation) for 2019.

 

“The outlook is becoming increasingly ambitious in view of the challenging environment for the crop science business,” Bayer said.

 

’Extreme weather’

 

The agriculture division posted a fall in operating profit within its crop science division of 5.4% to E405.0m in the three months to the end of June, despite revenues soaring 59% to E4.78bn, boosted by the acquisition of Monsanto.

 

However, the group noted that sales had fallen within the crop science arm by 3.1% after stripping out the extra business and currency impacts, with business hurt by the unusually wet US spring.

“Business at crop science in the second quarter was significantly impacted by extreme weather conditions.

 

"In particular, flooding and heavy rains in the Midwestern United States and drought large parts of Europe had a negative effect,” Bayer said.

 

‘Considerable drop’

 

It also said that “the ongoing trade disputes involve the United States also weighed on business”.

 

The US is this week in talks to resolve its ongoing trade tensions with China.

 

Indeed, sales in North America shows a “considerable drop” of 13.5% on an underlying basis.

 

Sales also eased in Europe, by 1.8% on an underlying basis, with dry weather hurting sales of fungicides, with Asian sales down 1.7%.

 

However, sales in Latin America rose by underlying 17.7%, led by gains in herbicides, fungicides and insecticides in Brazil.

 

Bayer also revealed that a further 5,000 people have come forward in the last three months alleging health setbacks blamed on exposure to glyphosate-based products manufactured by Monsanto, which developed the Roundup brand.

 

The increase, equivalent to about an extra 55 plantiffs a day coming forward, brings the number of claimants to 18,500 as of July 11.

 

Roundup claims rising

 

The firm said it continued to disagree with a US court decision to fine the firm $75m in damages over claims that an active ingredient in its Roundup herbicide products had caused non-Hodgkin lymphoma and had filed post-trial motions to reserve its verdict.

 

The accounts show the cost of litigation and legal risks had cost the firm E40m in the reporting period.

 

Bayer said: "We continue to believe that we have meritorious defences and we intend to defend ourselves vigorously in all of these lawsuits."

 

Overall, the group reported an increase in sales of E11.49bn for the period with of E2.93bn, with earnings attributable to shareholders near doubled to E794m.

 

Better news needed - analyst

 

Bernstein Research analyst Gunther Zechmann said investors would likely grow dubious of the maintained guidance.

 

Analysts at Liberum said the market continued to overestimate the payout that Bayer will eventually settle for to buy itself out of the litigation wave, as is widely expected.

 

"Bayer needs better news from the courts in the next 12 months, probably on appeal, to ease concerns," they added.

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