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Ladies and gentlemen, thank you for standing by. Welcome to Bayer's investor and analyst conference call on the second quarter 2020 results. [Operator Instructions]I would now like to turn the conference over to Mr. Oliver Maier, Head of Investor Relations of Bayer AG. Please go ahead, sir.
Thank you, Emma. Good afternoon, and thanks for joining us today for our second quarter 2020 earnings conference call.With me on the call are Werner Baumann, our CEO; and Wolfgang Nickl, our CFO. The businesses are represented by the responsible management Board members who are also on the line. For Crop Science, we have Liam Condon; for Pharma, we have Stefan Oelrich; and for Consumer Health, we have Heiko Schipper.Werner will begin today's call with an overview of key events in this quarter, our group financial performance and the performance of the divisions. Wolfgang will then present a deep dive into the financials of the second quarter, the outlook and our key focus areas for the remainder of the year before we open up with a Q&A session.As always, I would like to start by drawing your attention to the cautionary language that is included in our safe harbor statement as well as in all the materials that we have distributed today.With that, I hand it over to you, Werner.
All right. Thanks, Oliver, and good afternoon to everybody. It's my pleasure to welcome you to our conference call today.Let me start with what is clearly top of mind and provide you with a short update on litigation. On June 24, we announced a series of agreements to resolve major outstanding Monsanto litigation related to U.S. Roundup product liability, dicamba drift and most PCB water cases. Of the 3, the most significant, of course, the agreement to settle most of the current Roundup litigation and to put in place a mechanism to manage and resolve potential future claims.Let me reiterate that Bayer remains strongly committed to a resolution that simultaneously addresses both the current Roundup litigation and potential future litigation. And as many of you know, we estimated the total costs to cover all 125,000 current cases, including an allowance to resolve plaintiffs with whom we have not yet reached an agreement, to be up to USD 9.6 billion.As we indicated in June, we plan to address potential future Roundup litigation through a separate class agreement between Monsanto and plaintiffs' counsel, which, of course, was supported by the court-appointed mediator Ken Feinberg.The proposal submitted to Judge Chhabria for approval included an additional payment of USD 1.25 billion. After the judge raised concerns about certain aspects of the agreement, the parties decided to withdraw their motion to comprehensively address the court's questions. We continue to work on addressing the court's concerns as expeditiously as possible, but given the number of parties involved and the complexity of the issues involved in these discussions, we cannot provide an estimate of the timetable for going back to the court at this point in time.Turning now to the appeals to the Johnson cases, one of the 3 Roundup cases that have gone to trial and they'll continue through the appeals process. The Appellate Court recently decided to further reduce the compensatory and punitive damages in this case. While we see this as a step in the right direction, we continue to believe that the jury's verdict and damage awards are inconsistent with the evidence at trial and the law. We will consider our legal options, including filing an appeal with the Supreme Court of California. Today, a motion for reconsideration will be filed with the Court of Appeal of the State of California, which is a necessary step before a state Supreme Court appeal.We continue to stand strongly behind the safety and utility of Roundup, position supported by -- for decades of extensive science and favorable assessments by leading health regulators around the world.In other major pending legal complexes, we have also made further progress in settlement discussions regarding the product Essure, a permanent birth control device. Our discussions with plaintiffs' lawyers have intensified in recent weeks. We have therefore made provisions as appropriate in quarter 2. To be clear, there is no settlement that has been signed and no payments have been made in connection with this provision. We will have more to say on this subject if and when we reach a formal resolution.I would also like to comment on COVID-19, which continues to affect our businesses, employees and actually also the way we work. Our primary aim during the coronavirus pandemic remains protecting the safety and well-being of employees while ensuring business continuity. We are assisting in the global fight against COVID-19 with our expertise in the areas of health and nutrition, consistent with our vision of health for all and hunger for none.While advances have been made and we collectively continue to learn a great deal about the virus, the coronavirus pandemic is far from over. Actually, as a matter of fact, we are selectively increasing our safety protocols, which is also prudent in light of the recently observed increases of infection rates in many countries as governments relax their measures.Ensuring reliable supply of our products and services to hospitals, physicians, patients, consumers and farmers has been our clear focus. Beyond that, we recently announced our involvement in the AMR Action Fund, which is designed to address the rapid rise of antibiotic-resistant infections. This research collaboration is the type of foresight that is necessary should we face other global challenges in the future.Before we move on, it's worth reiterating yesterday's announcement on the successful divestment of our Animal Health business to Elanco. The divestment is the last and actually largest transaction in a series of portfolio measures communicated at the 2018 Capital Markets Day.With this as a backdrop, I'd now like to share an update on our group and division performance for the second quarter.Given the dynamics of the pandemic, its impact is more pronounced in this quarter than in the previous one. While sales declined slightly to EUR 10.1 billion, which represents a 3% currency and portfolio-adjusted reduction, EBITDA before special items increased by 6% to EUR 2.9 billion. Our core EPS rose by 5% versus the prior year, reaching EUR 1.59, and our free cash flow stands at EUR 1.402 billion compared with EUR 751 million in quarter 2 of last year.If you expand the look to the first half of 2020 to even out some of the stockpiling and phasing effects, we have delivered solid results for the group despite headwinds from the COVID-19 situation, which particularly affected our Pharmaceuticals division in the first half of the year. Sales increased by 2% to EUR 22.9 billion, while EBITDA before special items advanced by 8% to EUR 7.3 billion, and core EPS rose by 8% to EUR 4.26, respectively.Let me stress that protecting our bottom line through prudent cost management and accelerated contributions from our efficiency programs, together with a strong focus on cash flow, remains of utmost importance to us.Finally, let me comment on our outlook. During the last investor call, we discussed the most relevant COVID-19-related variables we expected to have an impact on our business as a solid assessment for 2020 was not yet possible. Let me add that this obviously also holds true for our midterm guidance, which evidently also preceded the pandemic. The impacts we see are more pronounced and likely are also deeper, and they will take longer than most of us would have thought. We also see that currency developments are heavily impacted by the corona crisis. Wolfgang will provide you with an update on these variables and the financial effect on our 2020 full year guidance.Let me now turn to the performance of each of our divisions, starting with Crop Science. We delivered 3% currency and portfolio-adjusted sales growth, with growth driven by the Americas and APAC. In Latin America, we saw increases in corn, particularly in Brazil as well as in insecticides and herbicides driven by higher volumes. Fox Xpro fungicide continued its growth path in Latin America, but we also benefited from greater Intacta Roundup Ready 2 PRO trade penetration in our soybean business.FX growth came from fungicide and insecticides sales, while in Europe, purchase of crop protection in the prior quarter led to a safe decrease in herbicides, fungicides and insecticides.In North America, we saw good growth in soybeans due to an anticipated increase in acreage versus prior year, along with demand shifts from the first quarter due to grower delay in decision-making.We also held our Roundup Ready Xtend footprint in a very competitive environment with an estimated 50 million traded acres this season, including both our branded and licensed acres. Our herbicide and fungicide business in North America also expanded with normalized weather and the success of the Bayer PLUS program, while corn sales in North America came in at prior year level despite the modest increase in acres planted and expected share gains due to a shift in demand into previous quarters.We are also pleased to share that we are in excess of our goal of 110 million subscribed acres with Climate FieldView as growers continue to embrace digital technology to improve their productivity and profitability.From an earnings perspective, Crop Science increased its EBITDA before special items by 28% to EUR 1.4 billion. This improvement was driven by volume increases, continued cost control and cost synergies from the integration of our acquired business and timing of some of our return provisions in Brazil.Finally, earlier this month, we kicked off a new program called the Bayer Carbon Initiative. This initiative will reward growers for generating carbon credits by adopting climate-smart agronomic practices and essentially creates a new revenue stream on-farm. We are the first company to develop transparent, science-based and collaborative approach to the carbon market in agriculture, and we look forward to updating you as this program evolves.Let's shift to Pharma next. Sales at Pharmaceuticals declined by 9% on a currency and portfolio-adjusted basis to EUR 4 billion in the second quarter. This decline was largely driven by a reduction of elective treatments due to the COVID-19 situation and lower prices due to the implementation of the second round of volume-based procurement in China. This was partially offset by Xarelto, our best selling product, continuing its good growth trajectory with a growth of 7%. For the first half of 2020, Xarelto demonstrated sales growth of 13%, confirming the low teens percentage growth projection for the full year.The COVID-19 situation particularly affected our intrauterine device franchise, with sales decreasing by 37%; our radiology products, which were down 21%; and Eylea, which showed a decrease of 6%. For Eylea, the negative effects due to COVID-19 induced volume reductions and price cuts in Japan but partly compensated by phasing effects in Japan from quarter 1 into quarter 2 and the launch of the prefilled syringe.For the first half of 2020, sales of Eylea declined by 3%. We're expecting an improvement of the situation in the second half of the year and are now projecting full year sales to remain at prior year level. The negative price effect in the quarter was largely driven by the volume-based procurement for Glucobay and Avelox in China.While we participated successfully in the tenders for both products, we had to make significant concessions on price. For Glucobay, the negative price impact was partly compensated by good volume gains.Despite the significant sales decline and related gross margin loss in the quarter, we limited the impact on EBITDA before special items at Pharma to 7% and yielded EUR 1.4 billion EBITDA before special items. Prudent cost management with lower marketing costs and a shift in research and development expenses due to the COVID-19 situation helped protect the bottom line.Looking at our R&D activities, we also made some good progress recently. We submitted the marketing authorization applications for vericiguat in Europe and Japan for the treatment of chronic heart failure.We were also pleased by the FDA granting priority review of the new drug application for vericiguat. A few weeks ago, our FIDELIO diabetic kidney disease study, evaluating the efficacy and safety of finerenone in patients with chronic kidney disease and type 2 diabetes, met its primary end point. The clinical data will be presented at an upcoming scientific meeting. In addition, we have extended the clinical development program for finerenone with a Phase III study in patients with heart failure and preserved ejection fraction.We also presented exciting overall survival data for Nubeqa, our new drug for the treatment of prostate cancer. Nubeqa significantly reduced the risk of death by 31% in men with non-metastatic castration-resistant prostate cancer. This data adds to the previously published positive Phase III results and emphasizes the strong competitive profile of Nubeqa. In addition, we continue to strive for external growth opportunities by strategic portfolio additions and in-licensing.Let me turn now to Consumer Health to close the divisional updates. After an exceptionally strong first quarter, sales declined by 2% in the second quarter following an expected adjustment of trade inventory as well as a slowdown in store traffic due to the COVID-19-related quarantine measures in most countries. Balancing out those phasing effects, we saw a strong first half of the year in Consumer Health with a 6% currency and portfolio-adjusted growth.The nutritionals category showed an exceptionally strong growth trajectory also in the second quarter with 14% growth following improved consumption trends, while the allergy and cold category showed the strongest decline with 17% due to the COVID-19-related effects I just described.On a regional level, sales in Europe declined for digestive health, dermatology and allergy and cold mainly due to the aforementioned inventory buildup in the previous quarter.In North America, sales came in at prior year level. Strong growth in nutritionals was offset by declines in the allergy and cold category. Sales in Asia Pacific and especially in Latin America advanced, thanks to the strong demand for dermatology and nutritionals.On the earnings side, our EBITDA margin before special items improved to 21.1% in the second quarter, an increase of 130 basis points versus the previous quarter. The decrease in EBITDA before special items by 11% is mainly due to the absence of contributions from our divested businesses. Without the portfolio effect, the EBITDA before special items would be on prior year level. This underlying operational improvements offset by unfavorable currency developments. Overall, we are pleased to see our turnaround plan fully on track for Consumer Health.And with that, over to you, Wolfgang, to expand on our financial results and the outlook.
Thanks, Werner. Ladies and gentlemen, also a warm welcome from me. I will walk you through some additional financial details for the second quarter, followed by a discussion of the business dynamics and our outlook for the full year.Reported sales for the second quarter decreased by 6% to EUR 10.1 billion. The underlying business performance was slightly more positive as our sales declined by 3% at group level when adjusting for currency and portfolio effects.EBITDA before special items for the group came in at EUR 2.9 billion, up 6% year-on-year, while our EBITDA margin increased by 320 basis points to 28.7%. Stringent cost management and acceleration of efficiency programs and a reduction in provisions for variable compensation contributed to the earnings increase despite a slight reduction in sales.In a year-over-year comparison, foreign exchange effects had a negative impact on sales of EUR 214 million. The negative impact on EBITDA was EUR 12 million.Core earnings per share in the second quarter were up 5% versus the prior year and amounted to EUR 1.59. Our Crop Science business has been the biggest contributor to this increase.Our core tax rate came in at 23% for the quarter vis-a-vis 21% in the second quarter of last year, resulting in higher tax expenses. The core financial result improved slightly from minus EUR 402 million to minus EUR 342 million mainly due to the change in the fair value of debt instruments.Finally, compared to the prior year, our free cash flow increased from EUR 751 million to EUR 1.4 billion. The main reasons were strong collections, timing of incentive payout for last year and lower tax payments compared to the previous year. Prior year tax payments were related to the asset sale to BASF.While our core earnings per share grew by EUR 0.08 in the second quarter compared to the previous year, the reported EPS decreased year-on-year from a gain of EUR 0.41 to a reported loss of EUR 9.72. As usual, we adjusted for acquisition-related amortization, special items in the financial results, which are related to the fair value of the Covestro shares and the contribution of our discontinued business.What does stand out this quarter is obviously the column special items with a negative impact of EUR 12.71 per share or an absolute amount of around EUR 12.5 billion. This amount splits into EUR 10.8 billion for litigation in Crop Science, about EUR 1.3 billion for the issuer matter that Werner outlined and EUR 0.4 billion for restructuring related to provisions.A positive tax effect of EUR 1.97 is offsetting to a small degree and also includes the tax shield of around 15% that we referred to during our litigation call at the end of June.This all brings us to the EPS from continued and discontinued operations of minus EUR 9.72 for the second quarter of 2020.Let's move next to our balance sheet. Our net financial debt increased by roughly EUR 0.6 billion to about EUR 36 billion compared to the end of last quarter. We redeemed our exchangeable bond for EUR 1 billion in cash and benefited from a weaker U.S. dollar having an effect of approximately EUR 0.5 billion. In order to provide financial flexibility, we tapped into the commercial paper market with 10 years into the fall.As a reminder, our dividend payment of about EUR 2.8 billion was approved and executed during the quarter.Based on the recent publications of our rating agencies, we expect to maintain our investment-grade rating.Finally, please note that almost 60% of our financial debt is denominated in U.S. dollars. The impact of exchange rate changes to our net financial debt is quite significant as every percentage point appreciation of the U.S. dollar against the euro increases our net financial debt by about EUR 200 million and vice versa.We continue to monitor the COVID-19 vectors we outlined at our investor call in April. Here is how we are thinking about the remainder of the year for the context of our updated guidance.First, and it bears repeating, protecting the safety and well-being of our employees while ensuring business continuity remains our primary focus. Second, while COVID-19 continues to weigh on our business, we focus on factors within our control, specifically cost management and cash flow management. To that end, we are actively managing our flexible spend like travel and event costs and are accelerating our efficiency programs.Furthermore, the crisis has prompted significant movements in the currency markets. Based on the Q2 rates, we expect a substantial negative impact on our results for the remainder of the year. Take the Brazilian real, for example, which now stands at around BRL 6 per euro compared to the previous year average of BRL 4.41 per euro. This equates to a devaluation of 36%.Looking at our businesses. We expect the reduced demand for corn-based bioethanol and grains this year will decrease acres planted in our key crops and thus impact the expected sell-in for the 2021 growing season in the U.S. For our soybean business in the U.S., we expect continued competitive pressure.For Pharmaceuticals, Werner already mentioned the decline in demand, especially for our IUD, ophthalmology and radiology franchises. We expect this trend to reverse and improve sequentially over the next quarters.For Consumer Health, we expect the good growth dynamics to prevail and, therefore, better growth and earnings than originally forecasted.Against this backdrop, let's look at our updated guidance. In the first column of the chart, you see the group guidance we provided in February for the full year at constant currencies. This guidance did not take the effects of the COVID-19 pandemic into account.Before we move on, let me underline that the new outlook assumes that we will not see a substantial second COVID-19 wave later this year. With this in mind, we now expect the full year sales outlook to decline by around EUR 1 billion, translating into 0 to 1% growth adjusted for currency and portfolio effects.At the beginning of the year, we had expected a growth of 3% to 4%. Roughly 2/3 of the negative COVID-19 impact can be attributed to the Pharmaceutical division and 1/3 is driven by Crop Science. Hence, we now expect a slightly negative growth of approximately minus 1% currency and portfolio-adjusted for Pharmaceuticals, including an anticipated milestone payment for Adempas towards the end of the year.For Crop Science, we now anticipate approximately 2% currency and portfolio-adjusted growth.While the situation for Pharma is expected to sequentially improve until the end of the year, the impact from COVID-19 on the Crop Science business is expected to fully materialize in the second half of the year.Following the positive start into the year in our Consumer Health business, we expect that COVID-19 will have a marginally positive top line impact, leading to a slightly increased currency and portfolio-adjusted growth rate for the year of about 4%.Despite these sales headwinds, we're confirming our EBITDA margin before special items of approximately 28% at the group level. For Crop Science, we now forecast slightly lower EBITDA margin before special items of 25%. For Pharma, we target between 34% and 35%. And for Consumer Health, we confirm the original margin target range of 22% to 23%.For our core EPS, we expect to see an operational net decline of around EUR 0.30. Here, the shortfall in sales and its related gross profits is partially offset by cost management, including a reduction in provisions for variable compensation.Our free cash flow outlook is impacted by the aforementioned reduction in earnings and further affected by anticipated settlement cash outflows of around EUR 4.5 billion. The reduction of free cash flow also impacts the net financial debt guidance for the end of the year. The net financial debt is further affected by the change in the fair value of our Elanco shares.The third column shows the updated guidance, excluding currency impacts. Our currency-neutral sales guidance is now around EUR 43 billion to EUR 44 billion. The EBITDA margin before special items remains unchanged, and the core EPS would be in the range from EUR 6.70 to EUR 6.90. Our free cash flow range between minus EUR 0.5 billion and EUR 0 billion. And net financial debt would be around EUR 33 billion.In the fourth column, we share our expectation of the currency effect on our full year financials. Our calculation considers what has already been realized to-date and our forecast, which is based on June spot rates that we've carried forward for the remainder of the year. We expect a negative currency effect of approximately EUR 1 billion on our full year net sales by and large driven by the devaluation of the Brazilian real, mostly affecting our Crop Science business in the second half of the year. Please refer to the footnote on the slide for assumed exchange rates for major currencies.The last column depicts our new 2020 guidance, including the currency effect, specifically sales in the range of EUR 42 billion to EUR 43 billion. EBITDA margin confirmed at around 28% and a core EPS between EUR 6.40 and EUR 6.60.The currency impact on our free cash flow and net financial debt are within the rounded numbers I mentioned earlier. Please note that we have listed other major KPIs in the appendix of our investor presentation.Before we start the Q&A, it's important to note that despite headwinds from the pandemic, we expect to increase our core EPS versus last year when it stood at EUR 6.38. This continued track record of increasing core EPS is made possible by a continued leadership in highly relevant and resilient markets and the relentless focus on managing factors that are within our control.With that, I will hand the call back to you, Oliver, to start the Q&A.
Great. Thank you, Wolfgang, thank you, Werner, for your comments. Before we begin, I would like to give you a heads-up also that as most of you might know, we plan to have a fully virtual event with a focus on our Pharmaceutical division at the end of this year, most probably early December, addressing the mid- to long-term perspective of that business and our pipeline. The invitations will go out in the coming weeks, just as a heads-up. And with regards to midterm guidance, our current thinking is that we will provide an update after our closure of 2020 financials.So now to the Q&A. [Operator Instructions]And with that, Emma, I think we can open up the lines for the Q&A session.
[Operator Instructions] The first question comes from Mr. Vincent Andrews with Morgan Stanley.
Vincent Andrews with Morgan Stanley. Just to start off with the discussion in the quarter about better-than-expected returns or better-than-year ago returns in Brazil. Could you just give us a little more detail on how much that was? I just don't recall it being an issue in the year ago period.
Yes, sure. Thanks, Vincent. So there was 2 topics related to better-than-expected returns or what you could call kind of returns phasing, which positively impacted us in Q2 and which are then subsequently, you could argue, missing in Q3. One was lower product returns for fungicides in Brazil, and the other was a base effect from corn true-ups that we had last year. You recall, in Q2, we had the flooding, and we built then provisions for higher returns. In the end, we actually did pretty well and reversed those provisions in Q3. So that was overall an effect, in the ballpark, if you take it together, it was about $70 million.
Okay. And then your comments on the fourth quarter in terms of next year's season, in particular, to soybeans expecting more competition. It sounds like that's a foreshadowing of further price declines on the price cards that will be released later this month. So perhaps you could provide some color on that as well as what your sort of contingency plan is for Xtend next year if you don't get reregistration for XtendFlex.
Yes. Yes. So on soybeans, the -- let's say, our indication of lower sale -- or lower sell-in in Q4 is simply related to the fact that we're waiting for the new registration for XtendiMax, and we're expecting this in Q4, but this is heavily dependent on when it comes in Q4. So of course, as long as we don't have the registration, we can't actually promote for the product and sell the product. So that's why we simply have to be a little bit cautious. But all indications are that we will get the registration in Q4, but we're not -- just not quite sure when.On top of that, then going into the new year, the whole soybean market, as you know, is highly dynamic, highly competitive right now. And our plan is to launch XtendFlex as well then in the market next year where we're planning a launch of 20 million acres of soybeans, and with that, we'll be in a better position also from a pricing point of view because we'll have an even more premium product in the market. So our base assumption is very clearly that we will get the new registration in Q4 and that we will be launching XtendFlex to increase our overall market penetration next year.
The next question comes from the line of Mr. Richard Vosser with JPMorgan.
It's Richard Vosser from JPMorgan. Two, please. First, could you give us an update where you are on synergy realization and the efficiency program that were announced at the Capital Markets Day, I think, totaled to EUR 2.6 billion? How far along are you relative to targets? And aligned to that, what additional savings have you got so far this year from lack of travel and things like that from COVID-19? And how much you think of those you might be able to stick going forward?And then second question, just thinking about your radiology franchises and some of the pharma franchises that have been impacted by COVID in Q2, just what are you seeing maybe in the months of June, July so far in terms of the recovery? How should we think about the recovery of those and maybe the recovery in Eylea as well?
Okay. Thank you. Richard, this is Wolfgang. Thanks for your question. Yes, like I mentioned in the prepared remarks, we are doing everything we can to accelerate the measures under the various programs, be it on the platforms or the synergy programs or the programs in the other divisions. We had originally targeted for the total group about 50% for the year, which was already upgraded from what we said a year before. We're doing very well on the synergy realization. We had originally said that, that would be like 55%. We're going to move towards 70% there. And then also on the platform program, some things we can accelerate, others we cannot accelerate, but we think we will be also ahead of the game there. So overall, I would expect this to come in greater than 50%. It's a little bit too early to say what is going to be exactly.And yes, like you rightfully state, we as a company have travel and event costs in the several hundred millions. You could have, of course, not saved everything in the first couple of months because the travel restrictions came in, in the March time frame, and of course, we had some cancellation fees and so forth. But that will contribute to the savings this year.As it relates to the stickiness of those savings, it's a little bit early to say that. I think every company will tell you that we will change the way of working going forward and probably do a little bit more virtually and travel a bit less, but it's a little bit too early to put that into numbers.But I would also highlight for you that some of our costs are actually increased. I mean, in particular, when you think about logistic costs, there, we have seen quite, quite significant increase, for instance, in our consumer business as well. So there's always puts and takes. But as we move forward with forward guidance, we'll keep you updated on the stickiness there.
Okay. Stefan?
So on radiology, second quarter was quite tough. We've seen procedures go down significantly, as you've seen, with some slight improvement in June and further improving in July. As we said, we expect sequential improvement throughout the year in radiology. And then on Eylea, it's really getting better over the last months. So there, we've had -- really are down at the beginning of the second quarter, and it's improving there also sequentially.
The next question comes from the line of Mr. Michael Leuchten with UBS.
It's Michael Leuchten from UBS. Two questions, please. One, I guess, for Wolfgang or maybe Werner, how do we think about the interplay between the first big tranche of the settlement payments due this year with the uncertainty around the future class and the sort of judge asking for clarity what the settlement process is? So is there an interplay? If there is, how does it work? Or is it entirely independent?And then a question for Pharma -- on Pharma. The margin guidance increase of 200 basis points relative to prior guidance, is that something we should think about as sustainable? Or are we actually looking at the benefits, as you just discussed, from COVID, and then some of this will actually have to be given up as we think about 2021?
Okay. Michael, thanks for the question. Let me say the following on the interplay. We anticipate in line with a comprehensive solution the EUR 4.5 billion that we have guided for, for this year. And as I mentioned in my prepared remarks, we are working very hard on getting both pieces of that comprehensive solution activated. I fully appreciate and understand that not only you but most of you on the call would like to know more about it. But we are in the middle of working with the representatives of the future class. We are working, of course, with our court-appointed mediator, Ken Feinberg, who is in the middle of it and actually helps both parties. But also it's our line into Judge Chhabria to get a solution ready as soon as humanly possible so that it can be presented back to the judge.Now very importantly, we've always said that we don't want to have a solution for the inventory without having a solution for the future. That, of course, remains the objective while those 2 are not contractually bound to each other, yes? So we have 2 separate sets of agreements, but we are and will continue to focus on a comprehensive solution addressing both the inventory and the future.
So Stefan here. Thanks for acknowledging our profile improvement. We're pleased with that, too, given that we couldn't fully hold the top line. We'll guide early next year for '21. So I can't really give you the learnings for '21 now, but I can assure you that we're learning a lot in this crisis about how to spend money.
The next question comes from the line of Ms. Jo Walton with Crédit Suisse.
Jo Walton from Crédit Suisse. On the ag side, I wonder if you could tell us a little bit more about these FieldView acres that you've got that are paid for and what the farmers are actually paying for. Is it really high value-added services that are going to keep them tied to you? Or still relatively low value-added services you're almost still giving it away for free to try and keep people involved?And on the Pharma side, I wonder if you could give us a little bit more on Nubeqa and how that is beginning to build and any ideas on how it's starting in Europe. I appreciate it must be a virtual launch, but perhaps you've got some pricing and early information you can supply for us.
Okay. Thanks. So Liam first and then Stefan, please.
Yes. Thanks a lot, Jo. So on our FieldView, our Climate FieldView platform, we're very happy that we're now at over 110 million acres, which is by far the leading penetration globally from a digital ag point of view. And as you know, for any kind of a platform business, it's all about market penetration, first and foremost, and we do price for that penetration initially and then gradually sell additional products as we go along.So this is the overall strategy. It's a mix of -- we take a price per acre from farmers. We sell products specifically to farmers, for example, seed adviser about how to use -- which -- what kind of seeds to plant, at what density, on what field, and gives them a clear indication of the yield that they can achieve with that. And then, of course, we can use this data as an enabler for our own business operations to basically improve our own research and development and our own targeting of customers. So there's multiple benefits in here. And as I said, we're very happy that we're continuing very strong penetration primarily in the Americas and gradually now starting to roll out also in Europe.
Okay. Thanks, Liam. Stefan?
So thanks for the Nubeqa question. So we continue to be super excited about the progress of Nubeqa, even though I must confess that the COVID-19 crisis in the U.S. has somewhat delayed new patient starts because there are just fewer patients coming into the office. So -- but still, if I look at the numbers, it's sequentially improving month-over-month, even throughout this difficult moment.And in Europe, you're absolutely right. It's too early to say. But what I can say, I don't know if you saw this yesterday, the GBA rendered its vote on the added benefit for Nubeqa, and it came out extremely positive. So we're very, very pleased how this is going, and this is foreshadowing how the reimbursement authorities in Europe are looking at this, and it's very much in line with what I've been saying from the beginning.
The next question comes from the line of Mr. Tony Jones with Redburn.
Tony Jones, Redburn. I have 2, one for Wolfgang and one for Liam. So first, on the EBITDA result for Crop Science. Can we get a bit of a feel for the cost reduction number in the quarter just by mechanically backing out from the absolute change year-on-year and then adjusting for the volume gain? I appreciate you don't usually talk about this on a quarterly basis, but it looked like it's quite important in this period.And then for Liam, could you talk a bit about how you're going to position XtendFlex from a price perspective next year? Is it the idea to market at a premium price given the enhanced tolerance? Or is the strategy about market share protection and there's going to be minimal change to price?
Yes. Thanks, Tony. If you don't mind, I'll take both of them because the impact certainly on Crop Science. So on the cost reduction in Q2, what -- to give you a sense of how much that was for Crop Science and our EBITDA results, so it's about -- overall, the increase in EBITDA in the quarter is about EUR 300 million. And about half of that is cost reduction. And that is a mix of accelerated cost synergies and what we simply call additional COVID-related and other cost savings.So we're tracking these very specifically as separate buckets because we don't want to mix them up. We've got our cost synergies. And then we've got additional costs that we weren't originally planning, but given the situation we're in, we do see additional opportunities. So that gives you a sense of how much of the cost impact is in there and the additional EBITDA that was achieved in Q2.On XtendFlex, we haven't -- to be very honest, we haven't yet decided on pricing. Of course, we need to finally get all registrations in place and have our final data in place. What you can assume from our previous approach to the market, if you look at how we've approached Xtend overall in the market within the soybean market, we've been the premium price leader. We have the best genetics. We believe we have then a highly, highly competitive additional trade package going forward. So we will continue on that path of setting a standard in the market simply because we have premium products.
The next question from the line of Mr. Falko Friedrichs with Deutsche Bank.
It's Falko Friedrichs from Deutsche Bank. Two questions, please. And firstly, on the Animal Health divestment, what is the expected tax impact on the divestment proceeds? And then secondly, on the dicamba litigation, have you reached an agreement with BASF about the split of the payout?
Yes. This is Wolfgang. I'll take the first one, and I think Werner is taking the second one. We have never split this out by divestment, but I'll give you an idea on the overall divestment package, so between Animal Health, Currenta and then the businesses within our Consumer Health business. The total proceeds -- the gross proceeds at the headline values at the time were about EUR 9.4 billion, and we said that the total tax effect is about EUR 1 billion, so a little bit more than 10% in average over these. And with Animal Health being the biggest one, you can make your assumption that it's going to be in that ZIP code as well.
Okay. Thanks, Wolfgang. Falko, on dicamba, we have not yet reached an agreement with BASF relative to their cost share that they would be contributing. So that is still a to-do for us for the next months to come.
The next question comes from the line of Mr. Laurent Favre with Exane BNPP.
Laurent Favre from Exane. I've got 2 questions for Liam, please. Thank you very much for the details on the bridge for Q2. So I guess it leads to the question on the second half. Liam, can you talk a little bit about why margins would be down year-on-year to get to your full year EBITDA margin target? Is it mostly about the Q4 impact on seeds and the mix, therefore? Or is there something else going on, in particular, with lumpiness of the cost savings that fell into Q2?And then the second question is a bit more about LatAm. You -- on the call, you talked a lot about the currency impact. I was just wondering if you could talk about pricing power and how you think about local pricing, talking separately about seeds and crop protection.
Yes. Okay. Thanks a lot, Laurent. So on the second half, the decline in margin, 3/4 of that decline in margin is basically related to the currency decline and the devaluation of the Brazilian real in Brazil. So that's the single biggest impact that we have on the EBITDA. The remaining 1/4 is, in essence, due to lower sales, and this is a mix of the lower sell-in of corn and soybeans in North America, which I mentioned earlier, plus the missing returns -- the positive returns that we then had -- that we've -- let's say, that benefited us in Q2 that are then missing in Q3 when you do the year-on-year comparison. So that, in essence, explains what's going on.We do have, as was mentioned -- overall, we do have additional COVID-related costs, as you can imagine, from a hygiene and simply transportation, logistics point of view, but these are by and large compensated by our synergies. So that's primarily what's happening on the EBITDA side in the second half.On the currency in -- and this is specifically LatAm and primarily Brazil, also, of course, Argentina. This is -- LatAm is the bulk of our sales in the second half of the year. This is where we have the currency risk. And we have usually multiple ways of trying to mitigate this risk. And usually, this balances out. In Brazil, it's important to note that our functional currency is U.S. dollar. So we have -- we can protect ourselves reasonably well there.The big challenge we have is in Brazil where 3/4 of the business is crop protection, and we have to price in local currency. And at the end of the day, then we -- at some stage, we will translate that -- those sales into euros. And whenever there's a change in currency, we rapidly adjust -- or as rapidly as we can, we adjust our price lists and simply then compensate for that currency devaluation through new price lists.The challenge comes for us when we take preorders, for example, in the second quarter at a certain currency rate, and then we only book the sales at a future rate, for example, in Q3 or Q4. And then we have to accept whatever the currency rate is at that point in time. And if we look at where currencies are today and where they were when we took some preorders, this is basically the part that is missing for this year, which is reflected in our guidance from a ForEx point of view. This will be in all subsequent pricing lists. They're, of course, immediately adjusted and go upwards, and we will catch up on this later on but not during this year. So those -- that's the element that we will be basically affected by within this year.Apart from that, we have -- corn seed production is -- we have a natural hedge because we grow corn locally with local currency rates. We have barter, which is about 20%, 30% in Brazil and Argentina. And then we have certain hedging policies. But the issue for us that we need to manage is really the pricing differences in crop protection and any timing differences between preorders and booking sales.
The next question is from the line of James Quigley with Morgan Stanley.
It's James Quigley from Morgan Stanley. A question on Eylea. So if you compare to Lucentis, Lucentis was down 25% in the quarter. Is there anything about Eylea that has led you to gain share as opposed to just maybe a boost from sort of stocking around the prefilled syringe?And secondly, a question on Consumer. Obviously, in certain categories, there's been a big tailwind in the last couple of quarters. GSK did a recent survey sort of suggesting there was greater appreciation of health and use of vitamins. What are you seeing in the market? What does your research tell you? And based on sort of whatever you've seen historically, do you think it is sustainable? Or could some of this benefits sort of unwind over the next couple of years?
Okay. Thanks, James. So Stefan and then Heiko, please.
So yes, we're very, very pleased within a very difficult marketplace that we're doing better than competition in the ophthalmology space. It's hard to speculate what the reasons for that are. But please note that we've introduced the prefilled syringe lately. And in the COVID crisis, extending treatment regimen becomes very important. And our treat and extend evidence is, I believe, better than any other product in the class in conjunction with its very good safety and tolerable profile. So we're pleased about that. And I hope that, that will show also moving forward as overall volume picks up again.
Okay. Thanks, Stefan. Heiko?
Yes, James. Let me try to give you a bit our reading of the underlying elements of, of course, the higher growth that we're seeing and how much of that is sustainable. Obviously, it's hard to say, and we'll still have to go through the year to see how we land. But if you analyze our numbers by category, you obviously see that nutritionals is a major driver of the growth. And I think you can see that across the industry.Our view is that in the end, COVID will put a greater focus on self-care. People realize that they have to stay healthy and then have lower risk of contracting viruses. So people will, in general, have a greater appreciation for health care. So if I will break it down by category, certainly, nutritionals is going to have, I think, a lasting positive effect. For the other categories, we will have to see that. Certainly, there's a lot of factors influencing now. Of course, wearing masks doesn't help the regular cough and cold business, neither the allergy business because also when you stay a lot at home, you obviously will have less allergy exposure.So if I would say, overall, I think, long term, will have some positive effect. How much it is, I think it's really early to say. And then mainly on the nutritional part of the business.
The next question comes to the line to Mr. Keyur Parekh with Goldman Sachs.
One for Werner and one for Liam, please. Werner, just in sense of clarification, if I heard you correctly, you said your midterm guidance also is reliant on -- or could be impacted by kind of the ongoing COVID dynamics. So I wonder if you can elaborate a bit on that and what do you think -- how we should think about the impact onto your midterm guidance from that. That's one.Secondly, in response -- in your opening comments and response to Michael's question on the settlement, you reiterated your preference for finding a solution that gives you certainty and visibility on both the existing cases but also the potential for future litigation. I wonder if you could comment your willingness to engage in something that only resolves the current litigation but does not resolve the future litigation. Is that a no-go? Or is that just [ obstructions ]?And then for Liam, you have kind of obviously [indiscernible] -- kind of obviously too early to issue 2021 guidance. But just wondering, as you see the shape of kind of consensus and expectations going into 2021, do you see them as fairly reflecting kind of how you see the shape of the business?
Okay. Thanks. So then let's start with guidance with Wolfgang. Then we go into litigation, so I'll take that question. And then we move over to Liam answering the crop question.
Yes. Very quickly, I think we talked about savings that some of it potentially may be sustainable. But I got to tell you, it's a bit too early to talk about midterm guidance. As Oliver said in the intro remarks, we do that at the beginning of next year. So many factors, COVID being one, FX being another, now having divested of all the business as being a third one. So we'll get through this year, and then we'll give you the midterm guidance early next year.
Okay. Then let me come to the litigation. So as I mentioned earlier, our approach has been and continues to be that we are shooting for a comprehensive solution. And to the extent that you are following us closer, it's very clear that Judge Chhabria is very supportive of the inventory settlement. So that's not where the issue is. We are working on finding a solution that addresses the concerns for -- major concerns that Judge Chhabria raised in a new proposal that we are negotiating with the representatives of the future class. And we are optimistic and we continue to make progress, and we'll see what the next weeks yield.
Thank you. On the 2020 -- if I understood you right, you're asking what our take on consensus '21 if that's in the right ballpark. So it's the same as Wolfgang answered, we'll only be talking about '21 later in the year. The one thing that I would comment on because it was related to Q4 and, of course, going into '21 then, what's impacting our thinking is particularly the COVID-related impact on demand for biofuel and with that, the demand for corn. And the math that we've been doing is that there'll be about 1.9 billion less tonnes of production of ethanol in 2020. This translates into about 680 million bushels of corn, which is roughly 4 million acres of corn. And of course, the corn acres didn't go down this year. They went up rather by 1 million acres. So that's why we are being conservative on our outlook for prepurchasing in Q4 because we think there needs to be an adjustment there.
The final question comes from Mr. Daniel Wendorff with Commerzbank.
It's Daniel Wendorff from Commerzbank. I also have 2. One is on -- a general question on Pharma. Can you update us on the next important data points from your pharma pipeline over the next few months? And the second question is also on Pharma but potentially a bit more detailed. And I would actually be interested in how we track the performance in Q2. And how does the market launch so far compared to your expectations, in particular, how well the whole procedure with the companion diagnostic test that beforehand actually works?
Okay. Thanks, Daniel. So Stefan, please.
So in terms of news flow, maybe just as a reminder, we just had 2 important data points that came in. One was the positive trial, FIDELIO for finerenone, which gives us a path to registration because our -- one of our pivotal Phase III reported positive both on the primaries and the secondaries here. So that's quite exciting.The second one is in terms of news flow, we just had priority review granted on vericiguat by the FDA, which underlines the value in an underserved patient population that the FDA sees. And moving forward for the remainder of the year and into next year, we, of course, expect the submission for finerenone following the FIDELIO -- the positive FIDELIO results. We expect an approval for Molidustat at some point in the future for Japan in renal anemia. We have coming in for this year, in principle, in lymphoma patients the copanlisib data that should come in for Phase III. And then we should see next year the second pivotal trial for finerenone with the FIGARO data, which I think is going to give us a very robust data package with 2 large Phase III trials here.And we're also looking very much forward to the ARASENS readout in darolutamide next year where we should also have Phase III, which will significantly, potentially enlarge the addressable patient population for this very, very interesting compound.
So on the track fee?
And the track fee, that is a complicated one because, I mean, we are tracking in line with expectations. But at the same time, we continue to struggle in identifying those patients. So -- and during the COVID crisis, this has not necessarily improved. So this is a difficult one. Maybe sometimes a little bit too sophisticated for physicians to diagnose patients appropriately, but we're not giving up. This is something that we're working on.
Great. I think we are running out of time. Nevertheless, I got one more question by e-mail because Pete Verdult from Citigroup, he couldn't answer -- he couldn't ask a question because of technical issues. Pete is asking, how excited are you about sharing the finerenone DKD data in October? He's realizing that you can't speak to the data per se, but what you believe in the data? And how competitive it is compared to the data that has been generated by the diabetic drug classes, including SGLT2 and the GLP-1?
Yes. So I'll take that one. So Pete, I hope you can hear us, at least, if you can't speak to us. So when you have a large cardiovascular outcome trial, you must always be excited when it informs positive because you have got so much riding on it, with so many patients on it and so much investment going there. So we're quite excited about this because that gives us a pathway to approval in an area where I believe that we have a very underserved patient population.So even though there have been lately some options for DKD patients, it's very much a limited choice still, and we believe that we offer something that may -- that other group or other therapeutic choices may not. And having the first non-steroidal MRA in this area, I think, gives us confidence that we have a very valid option for patients. We'll see what happens with the second trial, but I think we have a pathway to submission and then hopefully also to approval.
Okay. Great. Thank you, Stefan. So thanks, Emma, and thanks to all of you, actually, for your time and the attention today. We greatly appreciate it. And I think, Emma, this closes our call. Thank you.
Ladies and gentlemen, this concludes the Second Quarter 2020 Results Investor and Analyst Call of Bayer AG. Thank you for participating. You may now disconnect.