Bayer Aktiengesellschaft (BAYN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Bayer's Investor and Analyst Conference Call on June 24. [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.

Emma, thank you so much. I appreciate it. Thank you, everybody, for joining today's briefing call about the announcement Bayer just made just a short while ago regarding a series of agreements that will substantially resolve legacy Monsanto litigation, including Roundup, dicamba and PCB. We have with us today our CEO, Werner Baumann; our CFO, Wolfgang Nickl; we have Liam Condo, President for Crop Science and Board of management; Bill Dodero, our Global Head of Litigation for Bayer. You should have all received our press release announcing the resolution. [Operator Instructions] As always, I would like to start the call today 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. And with that, I will now hand it over to Werner.

Thank you, Oliver, and good afternoon or good evening to all of you. I'm pleased to announce today that Bayer has concluded a series of agreements that are designed to substantially resolve major legacy Monsanto litigation, including the Roundup product liability litigation, dicamba drift crop damage litigation and most PCB water litigation. The decision to settle this one were reached after extensive negotiations and after significant diligence and consideration by our Board of Management and Supervisory Board with the advise from our special litigation committee and also external experts and counsel. Reaching these resolutions is a significant step. Let me now start with Roundup. As you know, we have the remediation under the leadership of Ken Feinberg and Judge Chhabria appointed him to head these talks in May of last year. We appreciate Ken Feinberg's work in helping us reach this resolution. The resolution we have reached in the U.S. Roundup litigation is a multistep program that will bring closure to approximately 75% of the current Roundup product liability claims and puts in place a mechanism to resolve potential future claims efficiently. How this settlement, overall, solve the existing filed and unfiled cases and the futures, Bayer will make total payments between $10.1 billion and $10.9 billion. Or in euro terms, EUR 9.1 billion to EUR 9.8 billion. Here's how these numbers break down. To resolve the vast majority of current filed cases and unfiled claims, which total approximately 125,000 overall, Bayer will pay between $8.8 billion and $9.6 billion. This amount is intended to cover the resolution of all current cases, including an allowance expected to cover plaintiffs with whom we have not yet reached an agreement. The resolved claims include all plaintiff law firms leading the Roundup federal multi-district litigation or the California bellwether cases and those representing approximately 95% of the cases currently set for trial, and they also establish key values and parameters to guide the resolution of the remainder of the claims as negotiations advance. The final payment amount will depend on the actual cost of resolving these outstanding claims covered by the allowance and also on the number of claims from 125,000 that I mentioned that ultimately prove to be eligible under the agreements. In addition, Bayer will pay $1.25 billion for a separate agreement that puts in place a mechanism to manage and resolve potential future litigation. The appeals in the 3 cases trial to-date, Johnson, Hardeman and Pilliod, are not included in the resolution for good reasons. More on this later. One point I want to make very clear upfront is that we continue to stand strongly behind the safety and the utility of our Roundup products. And we are joined in our view by leading expert health regulators across the globe, including the U.S. Environmental Protection Agency, which released its interim registration review decision in January that found no human health risks associated with exposure to glyphosate. Our company is grounded in the well-being for our customers. As a science-based company committed to improving people's health, we have great sympathy for anyone who suffers from disease and we do understand their search for answers. At the same time, the extensive body of science indicates that Roundup does not cause cancer and, therefore, it is not responsible for the illnesses alleged in this litigation. Glyphosate-based herbicides are among the most rigorously studied products of their kind and 4 decades of science support their safety and that they are not carcinogenic. Today, we are also announcing resolutions to the previously discussed dicamba and PCB water litigation. On dicamba, Bayer will pay up to $400 million for a settlement agreement that will resolve the current MDL drift cases and claims involving alleged damage to soybeans and other crops. The Bader Farms case will continue through post-trial motions and appeals, if necessary, and is actually not included in the settlement. We will, of course, be seeking a contribution from BASF as they are a codefendant in this litigation and should shoulder responsibility for this settlement as well. And on PCBs, Bayer will pay a total of approximately $820 million to end most of the water litigation. More on these settlements later. So I want to spend a few moments now explaining our rationale for settling the vast majority of the Roundup litigation. There are essentially 3 primary reasons for this decision. First, given future risk and uncertainty, this settlement is the most efficient and financially reasonable outcome for the company. It's on us and all other stakeholders. The second reason is to end the significant uncertainties and confusion caused by the 3 Roundup verdicts and the volume of pending litigation. The negative coverage from the initial verdicts has affected the reputation and the share price of our company. It has also created confusion in markets around the world about the safety and the continued availability of our Roundup products. Addressing these issues was and remains a high priority for us. The third is to return the conversation about the safety and utility of glyphosate-based herbicides to the scientific and regulatory arena and move it away from the jury trial setting, where decisions were made based on a very small number of unreliable studies and dubious methodologies. One very important constant in the discussion about glyphosate has been the consistent favorable safety conclusions reached by independent health regulators when they assess the full body of relevant science. One of the important outcomes of settling the vast majority of these litigations is that it will help provide greater certainty about future availability of Roundup products to all customers and especially farmers around the world. Farmers rely on these products not only to control weeds, but also to minimize tillage farming practices, reduce greenhouse gas emissions, preserve more land for native habitats and provide enough food to meet the needs of a growing population worldwide. Additionally, the settlements allow us to bring the conversation back to where it should be, on the future, centering our attention on meeting people's most basic needs for food and health care, which is particularly relevant and important at a time when we face the challenges of a global pandemic. We also believe that this settlement will enable stakeholders to see our company and people for who we really are, a company grounded in strong ethics and values, committed to transparency and constructive engagements with our stakeholders and a company that is serious about building and maintaining public trust. Before making our decision to settle, we also considered the alternative course of continuing to litigate Roundup cases. I want to share a few points to explain why we concluded that continued litigation likely would come with a higher risk and prolonged uncertainty. We know that U.S. mass torts, like Roundup litigation, can persist for many years, and the number of plaintiffs, which is already very large at approximately 125,000 claimants, can grow in size year after year as a result of aggressive plaintiff advertising. As you know, Roundup has become the favorite target of plaintiffs' attorneys. Since 2015, no product has been subject to more TV ads by plaintiff lawyers than Roundup. And in 2019 alone, plaintiffs' attorneys and their surrogates spent an estimated $100 million on TV ads attacking Roundup and recruiting plaintiffs, which caused a surge in the number of plaintiffs filing cases. And we would likely face more advertising and another surge of cases without a settlement for years to come In addition, had we continued to litigate, we also could have faced upwards of 20 trials in a year in multiple venues, along with all the media coverage and confusion we have seen regarding the safety and availability of Roundup as a result of the 3 trials to-date. We are well aware of the negative impact high-profile trials already has had on our business and reputation. Financially, we would likely face very steep costs if we continue to defend these cases. And while the science remains very much on our side, having these decisions made with jury trial settings rather than by experts in the scientific arena would create a risk of more erroneous decisions with high damage awards and punitive damages, as we have seen in the 3 past cases. You also have to keep in mind that success at the appellate different level, including the U.S. Supreme Court, can take years. And even if accepted and we win an appeal, it won't necessarily bring 100% finality to this litigation. It would depend very much on the specifics of the ruling. I should add that these factors are not unique to our litigation. These are the challenging realities that many defendants face in dealing with large mass torts under the U.S. litigation system. These factors mentioned were assessed in different combinations and scenarios. The Board of Management and the Supervisory Board unanimously decided to settle now based on the conclusion that potential negative outcomes of further litigation and associated reputational and business impacts likely would substantially exceed the settlement and related costs. Now I'd like to ask Bill to describe in more detail the terms of the settlement.

Thank you, Werner. Let me start by discussing how we will resolve the vast majority of the current U.S. Roundup litigation. This portion of the resolution covers both plaintiffs with filed cases in U.S. federal or state courts and parties who have retained counsel but not yet filed their claims in court. Bayer will make a payment that ranges from $8.8 billion and $9.6 billion to resolve approximately 75% of the current U.S. litigation and unfiled claims, about 125,000 total claimants overall, which includes an allowance for plaintiffs with whom we have not yet reached an agreement. All of those participating in the settlement will be required to dismiss their cases or agree not to file. As Werner mentioned, where the final payment lands within this range depends upon 2 factors. One, there are plaintiffs' firms with Roundup cases with which we still need to complete agreements. We provided an allowance that we expect to cover these agreements, but we don't know the precise final cost until the agreements are done. The claims still subject to negotiation largely consists of cases generated by TV advertising and for which plaintiffs' law firms have provided little or no information on the medical condition of their clients and/or cases held by law firms with small inventories. The second reason we provide a range for the final cost is because in large mass torts like this, there can be a significant number of claimants who don't meet the eligibility requirements. For instance, they have not been diagnosed with NHL. The final payment will depend on the number of claimants who are eligible, and that number won't be known until the claims process is well underway. The company also recognize the need to address people who may bring claims in the future and have not hired counsel to-date. To bring resolution to these potential future plaintiffs, the settlement establishes a multipronged process. This includes the establishment of a class of potential future plaintiffs, including all persons in the U.S. who claim exposure to Roundup prior to today, June 24, 2020, and either have non-Hodgkin's lymphoma or may develop it in the future, but who as of today have not filed a lawsuit against Monsanto or retained a lawyer to file such a lawsuit. In connection with this class, the settlement establishes an independent class science panel. This science panel, not juries in trial settings, will determine for purposes of the class whether Roundup can cause non-Hodgkin's lymphoma. The parties expect the class science panel determination will take several years from the date that the class agreement is finally approved following any appeals. During the science panel determination, class members will not be permitted to proceed with Roundup claims. The materials considered by the class science panel that Bayer has permission to disclose or are in the public domain will be posted on a public website. Both the class and Monsanto will be bound by the class science panel determination. If the science panel determines that Roundup does not cause non-Hodgkin's lymphoma, class members will be barred from claiming otherwise, and this would effectively end this litigation for class members. If the class science panel determines that Roundup can cause NHL, it will then determine at what minimum exposure levels. Monsanto could not claim otherwise in cases brought by class members. Class members with specified minimum exposure levels will be permitted to proceed with Roundup claims and would have to prove that they meet the exposure threshold. Monsanto would preserve all other defenses, including that Roundup did not cause the specific class members' disease and class members could not seek punitive damages. As part of the class agreement, Monsanto also will fund research into treatment of non-Hodgkin's lymphoma, NHL diagnostic programs in underserved areas and assistant payments to class members who developed non-Hodgkin's lymphoma before the class science panel determination and are eligible on a need basis for assistance during that period to compensate them for the delay in being able to file claims. This program will be administered by Ken Feinberg, subject to court oversight. The class agreement provisions are subject to approval by Judge Vince Chhabria of the U.S. district court for the Northern District of California, who presides over the multi-district litigation. This process will include notice to potential class members who will be given a 150-day period to opt out of the settlement. Monsanto retains the discretion to terminate if the -- the settlement if there are excessive opt outs. That said, we believe the class agreement is fair and the number of opt outs should be small and manageable. As part of this class agreement, we will make an additional payment of $1.25 billion for the programs and mechanisms I've described. I want to emphasize that the payment in connection with the class agreement is limited to this amount, regardless of the number of individuals in the class. Moving now to our appeals. The decision to exclude the Johnson, Hardeman and Pilliod appeals from the settlement affirms our commitment to the expert regulatory process that governs pesticide use in the U.S. We are arguing that panels of judges in the appellate courts should decide these cases based on expert regulatory assessments worldwide and the weight of the extensive body of science. This did not occur in the 3 trial settings. We have strong arguments in these appeals, and the final rulings in these cases could be important to any future potential litigation. For example, a federal preemption ruling in favor of Monsanto could substantially, if not entirely, restrict future state-based failure to warrant claims. The argument here is that the state law warning claims in the Roundup litigation conflict with U.S. federal law and, therefore, must be dismissed. The U.S. government submitted an Amicus brief in the Hardeman appeal that is supportive of the arguments we've made on preemption. Similarly, rulings on causation that the prevailing science cannot support a causal relationship between glyphosate and NHL likewise could curtail future litigation. Just this week, a federal judge in California found that the weight of scientific evidence does not support the state's Proposition 65 cancer warning requirement for glyphosate-based herbicides, a ruling that reinforces the very arguments the company has made at trial. Next, I want to describe the terms of the dicamba settlement. The claims in these drift cases are for economic damages allegedly caused by dicamba that impacted fields where the herbicide was not intended to be sprayed and caused damage to the yields of crops that were not resistant to it. Most of these cases involve soybeans, though some relate to other crops. The resolution covers the drift cases pending in the multi-district litigation and the federal court in the Eastern District of Missouri and claims for the 2015 through 2020 crop years. Bayer will pay up to a total of $400 million to resolve these multi-district litigation cases and claims. This is a traditional mass tort settlement, and those who have claims will need to provide proof of their crop yield damages and evidence that the damage was due to dicamba in order to collect. We expect the contribution from our codefendant, BASF, to this settlement. The Bader peach farm orchard case, which is the only dicamba drift case to go to trial, is not included in this resolution. Monsanto and BASF as codefendants will continue to purse post-trial motions and an appeal if necessary as we continue to believe the verdict in this case is inconsistent with the evidence and the law. We stand strongly behind our XtendiMax herbicide with VaporGrip technology and continue to enhance our training and education efforts to help ensure growers use our products successfully. To be clear, we are settling these cases solely to enable us to move forward and focus on the need of our customers. Of note, the dicamba settlement is separate from the EPA registration case. In response to the 9th circuit decision, the EPA has ordered that existing stocks of our XtendiMax herbicide with VaporGrip technology can be used until July 31, 2020. The last issue I want to cover are the agreements to resolve cases representing most of the company's exposure to PCB or polychlorinated biphenyl water litigation. Monsanto legally manufactured PCBs until 1977 when the company ceased their production 2 years before they were banned by EPA. Thus, the company has been out of this business for more than 40 years. This settlement will resolve the previously disclosed water litigation brought by local governments by establishing a class that includes all local governments with EPA permits involving water discharges impaired by PCBs. As part of this agreement, which is subject to court approval, Bayer will pay a total of approximately $650 million to the class. We also have entered into separate agreements with the attorneys general of New Mexico, Washington and the District of Columbia to resolve similar PCB claims. For these agreements, which are separate from the class, Bayer will make payments that together total approximately $170 million. Now I will turn the call over to Wolfgang Nickl.

Thanks, Bill. Let me turn briefly to some important financial topics related to the settlements. Given our frequent exchange with investors on the subject, we do understand that a settlement and the corresponding removal of the uncertainties of value not only to the company but also to our owners. To that end, we firmly believe that the settlements reached and the related economics are also in the best interest of our shareholders. Cash payments related to the settlements are expected to start in 2020. We currently expect cash outflows will not exceed USD 5 billion in 2020 and another USD 5 billion in 2021. The remaining balance would be paid in 2022 or thereafter. The overall payments are subject to tax treatment, and we assume a tax shield of around 15%. In order to finance these payments, we can make use of existing surplus liquidity, future free cash flows, the proceeds from the Animal Health divestiture and additional bond issuance, which will provide flexibility in managing the settlement payments as well as upcoming debt maturities, including approximately EUR 8 billion in bond and USD term loan maturities in 2021. As a reminder, the sale of our Animal Health business is expected to close in the middle of this year. The consideration is $5.3 billion pretax in cash at closing, and we will receive Elanco shares that were valued at around USD 2.3 billion when the transaction was announced. These shares are subject to a holding period and could be monetized by the middle of 2021, depending on market conditions. Please note that the value of these shares has been subject to the volatility we've seen in the overall market. Based on publications by the rating agencies and our close communication with them, we expect to keep investment-grade credit ratings. Given the strength of our underlying business, we also intend to keep our dividend policy with attractive levels of cash dividends. Additionally, deleveraging our balance sheet, albeit delayed, remains a high priority for Bayer. With that, I will turn the call back over to you, Werner, for final remarks.

Yes. Thank you, Wolfgang. Now before we open the line for questions, I want to make a few final points. The settlements we announced today, including Roundup, are the right decisions for Bayer and our shareholders. They remove uncertainty, allow us to focus fully on our customers and our business priorities and move us back to a discussion about the utility and safety of our products and actually on the full body of science, consistent with our purpose of science for a better life. And science has never been more important in our lifetimes than it is today. The settlements also meet the criteria we said at the outset in that they are financially reasonable, given the realities we face. And the Roundup agreement puts in place a mechanism that we believe can manage and resolve any potential future litigation efficiently. As we look ahead, our focus remains on the future. We are in a strong position to live up to our vision of health for all and hunger for none with increased engagement, confidence and support of our many stakeholders. This appears to be more important than ever with the massive impact of the COVID-19 pandemic on our society. We run businesses that are literally of existential relevance. On top of that, as you can see by our investments in R&D, we are committed to being an innovation leader that embraces sustainability as an integral part of our business model. In closing, and before we take your questions, we are well positioned for the future. Thank you.

Thank you, Werner. Thank you, Wolfgang. Thank you, Bill, for your comments and remarks. Much appreciate it. And I think, Emma, we are now ready to open up for Q&A.

[Operator Instructions] The first question comes from the line of Mr. Peter Verdult from Citi.

Pete Verdult, Citi. Just a few, please. Just firstly, on the settlement, what impact, if any, does that have on the recent appeal, a court ruling related in the EPA license for the dicamba. For Liam, I realize this is not a quarterly conference call, but could we take the opportunity maybe to talk about something not related to litigation. Any commentary you're willing to make regarding trends you're seeing in the field would be appreciated. And then lastly for Wolfgang. Ever since the Monsanto deal was announced that Bayer have not been able to get on the front foot to showcase the merits of the deal. So when you think about that Monsanto pipeline, I mean, what is the earliest time line in terms of key projects that we're going to see readout to allow you to sort of begin to go out to the front foot?

Okay. So first question, the impact of the EPA ruling on the dicamba litigation, there was none because the EPA ruling related to the 2018 to 2020 registration, you have seen that the EPA ruling was responded by the EPA so that the product can still be used until the end of the season, which was actually also now reconfirmed by the courts. So there's no bearing on our dicamba settlement. And we are in the process of actually discussing and renewing the registration for the 2021 and beyond season. So on trends relative to our business and then also on your third question that I did not fully get, probably the others neither, maybe Liam starts first, yes. And then, Peter, if you could briefly repeat your third question, that would be appreciated. So Liam.

Yes. Thanks, Peter. So let me just reemphasize also what Werner said, so there's no connection between the 9th circuit ruling and then the -- following that, the EPA ruling related to dicamba. And as you know, basically, the EPA said that farmers can use their stocks on hand until 31st of July, which is, in essence, the end of the season. And this gives us a lot of confidence for the reregistration process that is ongoing for the next season. So we continue to expect a new registration for XtendiMax in the fall of this year. So this is our baseline assumption. And that those developments on this litigation are completely disconnected, but the EPA ruling gave us further confidence there. On the market overall and market trends, clearly, in the northern hemisphere, particularly now in the U.S., it's a, what we'd call, a very robust season, particularly versus last year where there was a lot of flooding, which heavily affected particularly the soybean market. So corn is 100% planted, soybean is 96% planted. And it's very good with maybe the exception of the Dakotas with too much rain, but it's good growing conditions, so we expect a plentiful harvest. And I think the challenges a little bit looking forward, if we look at commodity prices for corn, clearly, they're very low. I mean they're around the $3.20 level. And what's weighing down things here is, of course, the impact that the fall in bioethanol, which was directly related to COVID-19, lack of traffic on the road, particularly in the U.S., lack of demand then for bioethanol plays through into the demand for corn. So that's weighing a little bit on commodity prices. So we have to see now what ultimately gets harvested at the end of the year, what decisions are made then by growers in Brazil. But we think there will be a good harvest. But probably this year and next year, we would assume it will still be a relatively low commodity price environment. There's not much reason to believe that there will be a sudden uptake. But overall, we still believe that we're very well positioned with our portfolio to benefit from an uptake once that then happens.

So Peter, would you mind repeating your third question? I think you were addressing it to Wolfgang.

Yes. No, I think already reminded by my competition that I was addressing it to the CFO. I meant you, Werner, the CEO. Since the Monsanto deal was announced, Bayer have not been able to get -- to extol the virtues of the deal because of the time it took to close the deal, and obviously, the litigation that you've been clouded under for the last couple of years. So when you talk about the innovation side of the equation, the Monsanto pipeline, can you just remind us when the key milestones or the imminent milestones are coming for some of the projects in terms of readouts, where you tend to sort of bring that innovation story forward to investors?

Yes. Thanks, Peter. So this whole combination has always been about science and innovation going forward and what the 2 companies in a very complementary way can do together. We've seen the first low-hanging fruit materialize, but more is to come. And as a matter of fact, I think there was a good opportunity to look at what is coming in the Innovation Day that was held in the first quarter of this year. We are one of the, I think, very emblematic and effective things that are coming to market, actually, as a matter of fact, I think, first, in Latin America. And with it, I hand it over to Liam is short-stature corn that may completely revolutionize the way how corn is farmed, Liam?

Yes, sure. So let me briefly recap some highlights from crop science. And then, maybe Werner wants to take it back on the farmer side, what we might be expecting then, any latest news on the innovation front, data we're expecting. On Brazil next year, if we look at the coming -- just the coming season, what we're expecting, I think we're quite excited about the fact that, for Brazil, a huge and growing market we have Intacta 2 Xtend. So this is the latest revolution then as far as insect protection is in soybean, high-yielding soybean seeds. So Intacta 2 has just gotten import approval from China, which is really important for us. So we're confident that we can launch there next year. XtendFlex, our soybeans with 3-way herbicide, is then planned for next year in the U.S. with a relatively massive launch. And as Werner pointed out, we're in the process now with short-stature corn, developing different approaches to this in different markets. But we'll be rolling this out successively over multiple years. And we believe this will revolutionize how corn is grown, and this is something that we're very excited about. There's a lot more, as Werner mentioned, that was highlighted at the Innovation Day, but they're 3 things that we think really will have a big impact on the market.

Yes. My suggestion, Peter, would be that you hold your question for, let's say, the next update and some breaking news on pharma that might come with the pipeline coming through because we really want to focus it on the news today, and that is about the litigation.

The next question comes from the line of Mr. Vincent Andrews from Morgan Stanley.

I have 2 questions. One is a clarification, but the real question is what can you do on a go-forward basis to better insulate yourself? You sell other crop chemicals, none are as ubiquitous as glyphosate, but what can you do to better insulate yourself against any future health claims like these and/or the sort of user issues that you had with Xtend coming out of the gate? Is there stuff you need to do with the regulators? Is there stuff that needs to be done from a legislative perspective? Is there stuff that needs to be done internally? What's sort of the thought process around that? And just my clarifying question would just be on the tax shield. I believe you said 15%, so I just wanted to confirm that and understand what makes it 15%? Is it a jurisdiction issue of where the payments are made or just what that mechanism is, and if there's any possibility that winds up being higher?

Yes. I probably do the second one, tax shield. Yes, it's predominantly depending on the U.S. tax legislation. It depends on timing and it depends on the timing of the profits you can count it against. And with that, we currently expect it to be somewhere around 15%, 1-5-percent. And we'll keep you updated as things develop around that.

Yes, Vincent, on your first question, I think there's not that one simple single answer to what we need to do in order to insulate ourselves better against future claims. There's a few things that come to mind. I think, one, if you look at dicamba, I think it is also on us to work more intensively and do more on product stewardship and training as we have stepped up our efforts significantly, and we've also seen the result of that. Now that is water down the drain for dicamba. But certainly, it informs our view for our product stewardship activities going forward. Secondly, if we are outside of the U.S., there's always a question on your trust and confidence that people have in our products. And this is all about -- it all starts with transparency. And building and rebuilding trust, we are actually very, very proactively doing that. We are the first company that put out all of the safety studies that are available to us on our products already in 2017. So we were the only company and the first one doing that at the time. We run an open book process for the reregistration of glyphosate in Europe. And these are the things we are doing proactively. You're taking it one level higher in the U.S. It is virtually impossible to give your full protection with what we can do. And glyphosate is the perfect example for that, unfortunately. It is a positively federally regulated product and still, we see that massive litigation that has brought us to paying essentially more than EUR 10 billion to settle it away. I think what not only we, but the business community is in dire need of is actually tort reform in the U.S.

The next question comes from the line of Mr. Richard Vosser with JPMorgan.

Richard Vosser from JPMorgan. First question, just a clarification on the provision timing, quite obviously, probably this quarter, but how much of the overall amount will be provided this quarter? Second question, in terms of the dicamba litigation, could you give us any idea of how much of contribution BASF might make? And then third question, you alluded to the Elanco shareholding, which, of course, is a little bit lower at the moment. How desperate is it to use that? I believe you could ask a third-party to take it off your hands. Or are you thinking more of setting that out as you did patiently with Covestro?

Okay. Very good. Thanks, Rich. So the first 2 questions -- or the questions on provision timing and then Elanco are going to be taken by Wolfgang, and Bill is going to address your BASF contribution question.

Yes. So Richard, let me start with the provisions and I probably best summarize the numbers one more time, and then we'll get to the... So we have glyphosate, which is made up by the current of $8.8 billion to $9.6 billion. And then we have the futures at $1.25 billion for a total of glyphosate, $10.1 billion to $10.9 billion. On dicamba, we have about $400 million, up to $400 million. And on PCB, we have around just over $800 million. All value is in U.S. dollars. If you add it up, it's between $11.3 billion and $12.1 billion. You should assume that we take a complete litigation settlement reserve for this at the end of this quarter, at the upper end of this or somewhere in -- towards the upper end of that range. Of course, that is a P&L item, but it will be a special item, so it has no impact on our operational business that we reflect in core EPS. As it relates to the Elanco shares, as you know, at the time of announcement, about USD 2.3 billion of the total consideration of USD 7.6 billion is going to be given to us in the form of Elanco shares. There is a collar around the share price. The reference price was $33.60, which would give us about 68 million shares. There was some downside and upside protection. Right now, obviously, with the current trading, the numbers are somewhat lower. We are not, a, able to sell them right away. We are subject to a holding period. As roughly speaking, it will take us between 6 and 9 months to resolve this. That's why it's at approximately middle of next year. And we have enough flexibility that we are not desperate to sell them. So from that perspective, we'll pick the right point to monetize them.

All right. Thanks, Wolfgang. Bill, please.

Yes. Thank you. As you noted in the dicamba litigation, BASF is, in fact, a codefendant with us. It is our belief that BASF should contribute to the overall resolution and settlement equally with us.

The next question comes from the line of Mr. Jameel Bakhsh of Barclays.

Jameel Bakhsh from Barclays. Can you just explain a bit more to the effect about how your current Roundup agreements potentially caps the future litigation amounts coming. And secondly, is there any connection between your assessment here and the ongoing Proposition 65 labeling case?

Okay. Thanks, Jameel, for the question. So on the mechanisms on Roundup and how we capture the futures, Bill is going to answer that. And he can probably also answer the Prop 65 question.

Yes, in terms of the cap and the future. So first of all, the futures agreement is capped at the numbers we discussed. Secondly as well, when you look at the entirety of what we've announced today, the holistic settlement covers the current litigation and the futures as discussed. And the class panel outcome, if it is in our favor, will, in fact, be binding such that then class litigants cannot maintain that glyphosate was a cause of their NHL going forward. And I'm sorry, what was the Prop 65 question?

Just if there's any connection between your settlement here and the ongoing Proposition 65 case? Or should we consider them as 2 completely independent events?

Well while they are different events, they rest on the same scientific and -- principles that we've been discussing here, which is these are areas where you can see when there is a fulsome assessment of the science and it is learned and taken into account, the result is that no carcinogenicity warning would be placed on the product. And that is consistent with what we believe the outcome should be and as well reflects the well-understood entirety of the scientific record as the basis for that decision.

The next question comes from the line of Sachin Jain of Bank of America.

It's Sachin Jain from Bank of America. Just 2 quick ones. The first one is just on leverage and your rating agencies conversations, so just what conversations have you had with them to maintain the rating? And how do you communicate debt pay-down from here? And I guess a simple question is what is your '22 net debt target now versus the prior 26 to 28? Can we just add the provision and any other flexes that you can put through from here? And the second one is, does the appeal outcome have any relevance here now other than future litigation?

Okay. Thanks, Sachin. The first 2 questions are going to be answered by Wolfgang, and then the appeal outcome and how it informs future outcomes of the litigation is going to be taken by Bill.

Yes. Thanks, Sachin, for your question. Although we could, of course, not upfront talk to the rating agencies about any details of this, we, of course, are in a constant dialogue with them, and they do, of course, have certain assessments themselves. They also look at what the Street expectations are. And I think with this level -- set of settlements, we're well within those expectations. If you include PCB and dicamba, probably even below those expectations. So we, therefore, anticipate that we clearly will remain in investment-grade rating. We will have these discussions very, very shortly with them. We are very committed to generate strong cash flows in the operational business and committed to the takedown of our debt. Probably a bit premature to give you the exact net debt number for next year because we need to assess the overall business situation as well. But I think it's very important for them to see that it is financed out of the Animal Health divestiture proceeds that we never had in our projections, and that balances this to some degree. So I will keep you informed about what the outlooks are, but we expect to clearly stay in investment-grade rating.

Okay. So Bill, on the appeals?

Yes. On the appeals, as part of the holistic program we've announced, to your point, the 75% of the currents, the 95% of all trials, that case is -- the currents being largely contained. The class mechanism that we've discussed as well and the third element, the appeal that you asked about, all holistically bring the closure we've been discussing. With specific reference to the appeals, crosscutting legal decisions such as preemption, by a way of example, or a fulsome causation decision that reflect the science as it is in the real world outside of the courtroom can have a very preclusive and beneficial effect because they would find, one, that a state law imposition of a duty to warn when the evidence is such that there is no carcinogenicity and the federal labeling rests on that; and two, that the foundations of causation, which are simply nonexistent, can run or crosscut the entirety of any remaining litigation and serve to inform and possibly reduce or even forestall any future litigation. So that's how it would work.

The next question comes from the line of Sebastian Bray with Berenberg.

I would have 2, please. The first is that I don't think the release is referred to insurance. Are any insurance payments likely to cover Bayer for some of the settlement? My second question is on the extent to which this settlement agreement provides finality. My understanding is that it applies to cases of non-Hodgkin's lymphoma only. If in 2 or 3 years' time, the IARC comes out and makes a link between glyphosate and another type of cancer, will the plaintiffs' law firms be able to sue Bayer on this basis?

Okay. Thank you. So the insurance question is going to be taken by Wolfgang, and then I'll try to answer your second question, and Bill may chime in as well.

Yes. Thanks for your question. Yes, we do have product liability insurance. You will understand that we are now entering the process for all 3 cases to discuss this with the insurance companies, it's premature to put a number to it. And also, we will not record a receivable on the balance sheet. It's also very important. We do that once we have clarity what the negotiated numbers are. But there is customary insurance levels in these 3 cases.

Okay. Thanks, Wolfgang. So to your second question on finality in NHL. If we just dial back to 2015, yes, or I guess, it was 2015 when the IARC assessment came out, it was a complete outlier and was actually also strongly objected by regulators around the world because this was a risk assessment without looking at realized exposure levels. So even here, we are in a situation that I mentioned earlier, it's positively regulated noncarcinogenic. And still, we have to defend ourselves and ultimately settle for huge amounts, even without any substance to the case based on our and the regulator's perspective, if you look at the full body of science. So this goes back to what I said earlier. This is an issue of the U.S. legal system and jury trials where difficult scientific assessments are being put in the hands of layman juries that, of course, want to do a good job, but they lack the expert's expertise to really render an educated assessment. So that is something that we will continue to be exposed to. In terms of other cancers, I think that was the second part of the question, there has been absolutely no signal actually of any carcinogenicity of glyphosate in the biggest ever study that was run for more than 20 years and with more than 50,000 participants. That is the U.S. Ag Health Study that was actually supported and sponsored by the National Cancer Institute in the U.S. So to the extent of realized evidence, and your very, very well-designed studies, there is no signal of carcinogenicity as of today, and that includes your 40 years of evidence. So that's all I can say to your second question. I don't know whether there's anything to be added, Bill?

Nothing to be added.

Okay. Very good.

Great, thanks. I think, Emma, we have time for 1 more set of questions and then...

Great. The final question comes from the line of Keyur Parekh with Goldman Sachs.

I've got 3, if I may. First one for you, Werner. Can you just remind us of -- in the context of something now being behind you today, a big part of the Monsanto kind of disruption, in that people had not been behind you. Can you remind us of your commitment to the existing kind of structure of the business kind of having 3 different businesses? Or kind of are you willing to explore kind of some other shape or form of the business as you look at the next 2 to 3 years? That's question number one. Secondly, then, as we look at your kind of priorities for capital allocation, can you remind us kind of where business development kind of sits in that? And as you kind of look at managing maintaining an investment-grade rating, you are reiterating your commitment for dividend policy, how much capital might you have to do business development over the next kind of 12 to 36 months? And then lastly, to the extent you can, would you mind giving us an update of where you stand with some litigation in the -- on the glyphosate litigation in sort of the ex U.S. countries?

Okay. Thanks for your question. I'll start with your last question first. Capital allocation is going to be answered by Wolfgang in line with our Capital Markets Day communication of 2018. So that's, I guess, still up to date. And in terms of structure, we have the structure of the 3 pillars that we operate. We have made significant strategic and operational process since our Capital Markets Day in 2018. If you look at the noncore assets that we shared also, I think, very successfully in terms of the value that we generated for our shareholders. But also beyond that, we are just looking at the consumer health turnaround that is actually really solidifying with very, very commendable growth rate, not only in the first quarter, that was clearly exaggerated by COVID. But if you look at 2019, where we are back into the peer group actually in terms of top line growth, the #2 of our peers, so all of that is pointing into the right direction. So we continue to see ourselves as the best owner operators of the 3 core businesses that we have. There will, of course, always been a little bit of portfolio adjustment here and there that relates to pruning on one side. But on the other side, also, on bringing new higher growth assets, better and more pipeline into the company. And I think that is a perfect segue to go into the capital allocation question that Wolfgang is going to touch on now.

Yes. Thanks, Werner. Yes, I'll indeed take you back to the Capital Markets Day of 2018, and I think that's a good starting point. Our very, very strong focus is on free cash flow generation. We said, in the year 2019 through 2022, we want to get to EUR 23 billion. That still included Animal Health, so we need to make a little bit of a reduction there. And we were very clear on how we wanted to spend this. We're committed to our dividend policy. We mentioned that earlier during the call. We're committed to delevering. And we said, while we can't do any big stage acquisitions, we're doing very targeted bolt-ons. When we made that statement, we didn't know about the settlement we're announcing today, but we didn't account for any of the divestiture proceeds that we got subsequently. And that has included Animal Health, but that also included our 60% stake in Currenta, our various assets in the consumer health space. And that's a pretty good match, in particular, if you look at the staging, the EUR 5 billion and the balance after 2022. So the story pretty much remains the same. We have the wherewithal to do bolt-ons. You saw BlueRock last year. And we'll revisit all these numbers and do a Capital Markets Day at the end of this year. But there's fundamentally no change in direction there.

Okay. Thanks, Wolfgang. On your last question on ex U.S. litigation, this is -- with all caution, this is not really material. Yes. So the big exposure that we have that all companies continue to have are -- is driven by the U.S. legal system, yes. So that is U.S. tort law. Everything else is, let's say, literally minute, so no update of any substance. And that doesn't mean that there is no update because we are not along in the process. There's no real substantial substance behind U.S. -- ex U.S. litigation.

And I think we're running out of time. If there are no further questions.

Yes, ladies and gentlemen, we kindly ask for your understanding that we have to close this call now due to time restraints. Excuse me, Mr. Preuss (sic) [ Maier ], please continue with any other points you wish to raise.

Okay. Great. Thank you very much, everybody, for participating tonight. I think there's another opportunity. There's another call tomorrow at 10:00 a.m. German time. And the narrative of today's call is also available as a download on our website in case somebody needs some other detail. Looking forward to talking to you tomorrow. Thank you so much. Appreciate it.

Thank you. Good night. Bye-bye

Thank you.

Ladies and gentlemen, this concludes the Investor Relations conference of Bayer AG. Thank you for participating, you may now disconnect.