Bayer Aktiengesellschaft (BAYN) Earnings Call Transcript & Summary

Good afternoon, and good morning, everyone. It's a pleasure to welcome you all to our 2021 Investor Webinar for Bayer Crop Science. This will be the first of several investor webinars we envision going forward in an effort to keep you appraised of key developments and milestones across the group post our Capital Markets Day in March 2021. Showcasing our latest innovation in regular updates and in the field has been a hallmark of sharing our Crop Science story with you. Normally, we would have had a field event around this time of the year as we did back in August 2019. Given the fact that we can't bring you to the field yet despite ongoing progress against COVID-19, we thought you would appreciate it if we are bringing progress in the field to you through today's webinar. It has been a very busy year for us, and we are very excited about sharing the headway that we have made on our pipeline and on our commitments. Joining me today are Liam Condon, President of the Crop Science division; and Bob Reiter, our Head of R&D for Crop Science. We will begin the webinar with some prepared remarks from Liam, followed by a brief video showcasing some of our latest technologies in the field with our grower customers. We will then open up the floor for about 30 minutes of Q&A, and you will find instructions for participation in the Q&A in the Zoom chat. And I will also remind you of those later on again. Finally, in the appendix of the webinar presentation posted on our IR website today, you will find a link to our Bayer investment case located in our Investor Relations website, which we also updated today. We hope you take the time to review and reach out to me or to the IR team with any questions you may have. Forward-looking statements. Before we begin, as always, I will bring your attention to the forward-looking statements included in the materials today and currently on the stream. With that, the floor is yours, Liam.

Thanks a lot, Oliver. And good afternoon and good morning to everybody from me as well. I'm really excited to update you today on how we are shaping the future of agriculture and progressing towards our midterm commitments aligned to our long-term vision. We continue to accelerate our operational performance and deliver world-class innovation while simultaneously pioneering the digital transformation of agriculture and setting new standards in sustainability. As we shared at Capital Markets Day in March, our primary goal in the midterm is to grow our sales 3% to 5% annually from 2022 to 2024 and to expand our industry-leading profitability to a 27% to 29% EBITDA before special items margin by 2024. But first, we need to deliver on 2021. We knew this would be an important transitional year for our company as we had to deal with some negative onetime effects. However, we've also experienced some unexpected tailwinds that allowed us to raise our sales guidance at Q2 from 2% to 7% currency- and portfolio-adjusted. In addition, we maintained our EBITDA before special items margin guidance of 23% at June 2021 currency rates, reflecting the ongoing higher costs the entire industry is experiencing. Since the year began, we've had record first half sales in Crop Science, delivering more than 8% currency- and portfolio-adjusted sales growth in a greatly improved market environment; nearly 15% sales growth in Herbicides, buoyed by XtendiMax recovery and strong global Roundup pricing; and more than 22% sales growth in Fungicides, especially from Fox Xpro, has been particularly impressive in the first half of the year. As the established leader in the ag input sales, profitability and R&D investments, we've delivered milestones that will advance our leadership and further increases our confidence in our ability to achieve our ambitious midterm targets. And we look forward to sharing our Q3 results with you on November 9. The year isn't over yet, and as I think back on what we've accomplished, the list is long. So with that, let's explore 2021 in greater depth. Let's begin with soybeans in the Americas, where according to both Kynetec and our internal estimates, we have defended our position as the #1 weed control system in North America. We also estimate that we grew our U.S. Asgrow brand share in 2021. We are quickly upgrading our Roundup Ready 2 Xtend footprint with XtendFlex soybeans, which reached approximately 15 million acres this year. And don't forget, this is just its first year on the market and we did not even have the benefit of a full selling season. This latest offering adds glufosinate tolerance to Roundup Ready 2 Xtend soybeans to provide additional weed control flexibility. Combined, these 2 trait offerings covered more than 55% of the U.S. soybean acres this year. In our 2020 germplasm trials, our newest top volume XtendFlex soybeans had a greater than 4 bushel-per-acre yield advantage compared to Corteva's Enlist. And in the latest farmer survey, farmers rate the Xtend trait soybeans as delivering on higher yield compared to the Enlist trait. This performance, coupled with 14 days residual activity with XtendiMax and with VaporGrip technology and control of significantly more weeds than the Enlist system, gives us confidence in our growth plan. With combines now rolling across the U.S., we look forward to this year's yield results. Sales of XtendiMax herbicide grew strongly in the first half. In fact, it was 1 of the key contributors to the approximately 15% cpa sales growth we saw on global herbicides in the first half. Farmer feedback we're hearing on the system has been very positive, and we're seeing a stronger start to our selling season this year. We're also upgrading our soybean trait platform in Brazil. where we are transitioning from Intacta Roundup Ready 2 Pro to Intacta 2 Xtend. All regulatory approvals have been secured and launch is underway. Intacta 2 Xtend has built on the performance of first-generation Intacta and that's 2 proteins for insect control, important for insect resistance management as well as tolerance to dicamba. We are targeting a robust transition across our existing footprint in Brazil, which plans more than 95 million acres of soybeans annually. The trait has been broadly licensed and is sold in more than 30 soybean varieties that are well adapted to the main soybean growing regions in Brazil. The performance advantage of the technology is significant for farmers, delivering approximately 3 bushels per acre compared to similar varieties that are on the market. We launched Intact 2 Xtend with a 5% premium over varieties with Intacta Roundup Ready 2 Pro. Intact 2 Xtend is the cornerstone for how we're leading the industry and protecting soybean yield against insect and weed pressure, and we're supplementing that with continued momentum in fungicides. Fox Xpro continues to upgrade our Fox family of fungicides in Brazil for excellent control of Asian rust, the industry's only offering to include 3 different actives in 1 product. The product has been a critical driver of our global sales in Fungicides. In fact, sales rose nearly 22% in the first half, mainly as a result of higher volumes in Latin America for Fox Xpro. And today, the Fox family enjoys the leading position with 25% market share in Brazil. But we are stopping there. We will upgrade this again in 2022 with the launch of Fox Supra. Let's transition to corn mix, where we hold leading share positions in nearly every key corn market around the globe. And once again, according to Kynetec research and our internal estimates, we gained seed share this past season in the U.S. while maintaining our price leadership. We're particularly pleased to see DEKALB share climbing this year. Our strong innovation capabilities are key to the annual refresh of this portfolio. In fact, we expect to launch at least 150 new hybrids a year through the end of 2030, which is unmatched in the industry also in terms of performance as we see in ongoing trials. We're protecting those yield gains with biotechnology traits. And the latest addition is our Corn Rootworm III technology, which we launched in Brazil this past season. Corn Rootworm III is our next-generation RNAi-based corn root rootworm trait, the first in the industry and supplements the Bt proteins we've used for biotech insect control for the last 2 decades. The additional mode of action helps protect against evolving resistance. In Brazil, we launched the technology as a part of the VTPRO4's trait offering and expected on 500,000 acres in 2021. This is an exciting upgrade to our current corn trait offering, VTPro3, adding Corn Rootworm III, an additional mode of above-ground control. And in North America, we're introducing the Corn Rootworm III technology as part of SmartStax PRO and the sales rollout for the 2022 launch is underway. This is a particularly timely introduction, and we expect it to be well received by growers following increased rootworm pressure this summer in the U.S. Not only did SmartStax and SmartStax PRO performed well, but we were particularly pleased compared to performance of Corteva's Qrome. The efficacy could not be clearer in the photos from this year's U.S. field trials, which show better stance and stronger roots, which ultimately mean better yields for growers. In fact, hybrids with the SmartStax PRO technology demonstrated a 97% win rate in the field. Because of that, we plan to transition our current 15 million-acre trait SmartStax footprint in the U.S. over the next few years to this new technology. That begins in 2022 with more than 50,000 acres of SmartStax PRO in trials across the Northern and Central Corn Belt, and we expect to ramp significantly in 2023. While insect control will remain core to how we protect yield, we have a new entrant in the segment. Our breeding and biotech engine is developing yet another innovation, which is short-stature corn. Supplemented with biotechnology and gene editing approaches to derive the same characteristic, short-stature corn will change the way corn is produced. The excitement here is really building. We featured it in demo trials throughout the U.S. Corn Belt this year in addition to the VITALA beta launch of the breeding version in Mexico. The grower interest has been truly tremendous. Shorter than corn growing today, it has several beneficial features. First, it has thus far shown unparalleled production stability in high winds as evidenced by our still standing plots of short-stature corn in Iowa following last summer's devastating windstorm and again at our Field of Dreams plots this summer. Second, that allows for extended in-season crop access due to its shorter height, which enables tailored solutions for precise late-season applications of fertilizers or crop protection. Finally, we see a more sustainable future with this technology. There is a potential to optimize nutrients with late-season access as well as less land and water with the opportunity to plant at higher densities as seen with our VITALA beta launch. This next slide further reinforces the sustainable future of the technology, demonstrating precise in-season access for over-the-top nitrogen application, our technology development location in Poseyville, Indiana this summer. This product has true global potential with unique benefits that address diverse needs worldwide. And with 3 technological approaches, it has an addressable market of more than 220 million acres. For North America alone, we see an incremental peak sales opportunity of EUR 1 billion related to the premium and share gains this technology could drive. There's significant upside potential from the rest of the world that we have not yet factored in, a true blockbuster in the making. Short-stature corn is the next big thing in agriculture, and you'll hear from a grower in Mexico in our video about the experience he is already enjoying with short-stature corn. And the benefits aren't just one dimensional. In fact, we're also developing a full season recommendation for short-stature corn, fully optimized with Climate FieldView. This will be the result of the convergence of the new short-stature corn technology, next-generation crop protection and digitally enabled tailored solutions. Like the full system recommendation with short corn, getting the most out of seed and trait crop protection products is where digital tools like Climate FieldView really shine. We are focused on expanding FieldView's footprint, which grew to more than 180 million subscribed acres this year and operates in 23 countries, several of which are in Europe. You'll hear from a customer shortly, who is using the FieldView in France, to help maximize his productivity in wheat. Wheat farmers are using the tool to monitor crop health and crop progress to inform fertility applications. As the season advances, they're able to analyze yield by zones, by field and by variety. Within the U.S., where U.S. corn growers have been using our FieldView tools for several years now, we see increased corn seed sales amongst our FieldView users. In fact, Bayer-branded corn seed customers who used FieldView Plus from 2018 to 2020, on average, purchased more than 5% more Bayer-branded corn seed volumes than nonusers. The increasing transparency of digital tools showcases the strength of our Bayer portfolio. Examples like these help explain how we plan to use this platform to enable tailored solutions and unlock growth from new digital business models. And this is really where we see the future heading. The carbon market is a great example to highlight next because FieldView is enabling how carbon sequestration will be incentivized in agriculture. This is a new market and a new revenue stream for farmers that we are developing. FieldView is expected to enable a simple, robust, scalable process to measure, verify and report on practices that sequester carbon. When we pair this with our global sales organization to assist in the adoption of climate smart practices and a new generation of products that yield more and sequester more carbon, we see the potential to create a continuous cycle of new value creation in carbon farming. Carbon markets are worth more than $200 billion annually, so there's tremendous growth opportunity. And we're working with regulators and other partners around the world to help make carbon farming a reality. In fact, the trials we conducted with more than 2,500 growers in the U.S. and Brazil, including Cristian in our video are a testament to the strong interest. And we are proud to be ranked #1 in the carbon space by U.S. growers, ranking especially high in terms of grower trust. Carbon sequestration isn't the only place we're setting the standard for sustainability. Our Crop Protection portfolio has a very low environmental impact relative to our high market share, which was confirmed earlier this year by a preliminary assessment from an independent academic consortium. This strong starting point underlines progress towards our environmental commitments and the progress Bob's team is making in R&D advancements to further improve our pedigree in this area. Those same Crop Protection products will also play a critical role in our goal of empowering 100 million in smallholder farmers, and you'll hear from a farmer in the video who's experiencing the benefits of our approach today. Already today, we estimate we reached nearly 45 million smallholders, which generate roughly EUR 1.7 billion of our annual revenue. That's about 9% of our 2020 Crop Science sales, and we think we can grow this to at least EUR 3 billion by 2030. Whether on farming operations, large or small in the United States or Africa, we know we can help answer challenges that agriculture is facing. The most recent evidence of our progress is the announcement just last week that Bayer has been ranked #1 in the Access to Seeds Index for Eastern and Southern Africa as well as for Western and Central Africa. This was based on a benchmark of more than 30 companies in each region and is a true testament to our commitment to smallholders. We are highly confident that our unmatched innovation, the leading digital platform and our exceptionally strong customer access and penetration will deliver above-market sales growth and leading profitability as we look out to 2024. We know we can deliver because it's working today. The convergence of these solutions is already driving value for our grower customers, and it is allowing us to grow very competitively with industry-leading profitability. In fact, the integrated experience throughout the entire growing cycle that really only we can provide is already helping to shape the market today. FieldView is helping analyze farm data in 1 place and then delivers tailored agronomic advice to growers. Then we help them act on that tailored advice. In a country like Brazil, our Orbia marketplace helps growers compare offers and purchases, access credit, collect loyalty points and trade farm outputs. It's been an incredibly popular model, and in Brazil alone, Orbia is reaching more than 185,000 farmers covering more than 70% of the country's planted area. And it's growing, not only in Brazil, but throughout Latin America. The platform just launched in Mexico, Argentina and Colombia. To see why we're highly encouraged by the power of technology conversion, let's look at a compelling example. In Brazil, we have a valued customer in Cristian Dalben, who is also an avid Orbia user. Cristian recently returned to the family farm and Bayer solution set is helping to make a tremendous difference in his productivity, profitability and sustainability on the operation. He's a 4-year user of FieldView, a participant in our loyalty program, is piloting an outcome-based pricing model in the country and is now part of our carbon initiative. The performance of these technologies and systems have helped earn his business year after year. In fact, just a few years ago, he planted only 33% of his farm to Bayer hybrids. Today, we've earned all of his corn seed business and 80% of his soybeans are Intacta Roundup Ready 2 Pro. In addition, we've earned more than half of his crop protection business from a base of just 16%. I think it's one thing for us to tell you about these technologies and show them on slides. However, the real power in these offerings is best told by our customers like Cristian and our field teams. We compiled examples from all over the globe to illustrate the benefits they are seeing from recent launches. So let's hear from them in their own words how Bayer technologies are delivering value on their farms. Let's go to the video. And following that, Oliver will start the Q&A session. [Presentation]

Great. Great video. Thank you so much, Liam, for your comments.

And with that, let's move, as Liam indicated, to the Q&A with Liam and with Bob. Before we start, some housekeeping items in the Q&A session from my end. [Operator Instructions] We need -- I see there's quite a big crowd that joined and we have the first hands up. So we need a little bit for the first question, but I see Michael Leuchten from UBS raised his hand and I would ask Michael to ask his question first.

Yes. So Liam, a question to you. Just given we've seen the input prices go up and bringing farming income down a little bit, I guess it's reasonable to argue that we might see a shift in crop in North America next year, maybe away from corn towards soybean. Given the outline you've just given on corn being important for your performance going forward, does that matter? Does that shift the time line? Does it shift the strategy? Would you focus more on the XtendiMax focus and then maybe on corn a little bit later? Or is it just normal seasonality and it doesn't make a big difference.

Yes. Thanks a lot, Michael. So I think a very topical question right now. But in natural fact, it's really completely too early to call what the corn and soybean planting intentions are really going to be next year. It is very clear that input prices, whether it's fertilizer, crop protection, seed prices have gone up and costs have gone up in the entire industry. So of course, prices are going up. But I think what's really important to always reflect on is that most farmers have a fixed rotation between corn and soybeans. So they usually look at what they had in the past season, and they want to rotate something else just to keep the fertility of the soil as well. So this is really important, where are they in their own rotation of the crop. And typically, corn is a very profitable crop. And if you have, for example, increases in fertilizer prices, typically in the past we've also seen then increases in corn prices as well. Those final planting decisions, they're not going to be taken till the spring, and they also will depend a little bit on the overall weather situation. So right now, we would classify this as rather normal seasonality. And we don't see any big -- right now, we're not foreseeing any big shift between corn and soybeans. We do expect -- I mean we've had record acreage planted this year if you take corn and soy together. We do expect with where commodity prices are that growers will be pushing for a similar record acreage also next year. What it finally is will depend heavily on weather. But we don't see any, let's say, impetus now to have any change in strategy around this. We believe this has played out in the past and will play out in the future as well.

Okay. Great. I see the next question comes from Laerke Engkilde from JPMorgan.

Just 2 from my side. Firstly, it would be really great if you could tell us a little bit about the potential impact from the Louisiana plant having been offline for about 6 weeks or so, I believe. And secondly, maybe just following up on your commentary just now. Appreciate you can't give guidance, but how should we think about higher input costs for crop in terms of that impacting the gross margins in 2022 and beyond.

Yes. Thanks a lot, Laerke. So our -- just to give context for those also who are not familiar with it, our main production site actually for glyphosate is in Louisiana, is Luling, and it was actually in the of the storm of Hurricane Ida. And as a standard practice then when you have a hurricane of that kind of magnitude, we had to shut down the facility -- basically all facilities in that area and most of the cells were actually shut down. And we were off-line for approximately 5 weeks. And the reason we were off-line was less because the plant was heavily impacted, it was simply because the surrounding infrastructure was partially destroyed. There was no regular access to energy and water supplies were challenged. And quite frankly, a lot of employees were very -- basically had to look after their own families in the situation. So I think our teams did a fantastic job in getting the plant back up and running as fast as possible and as safely as possible. And that's been achieved. So we're now back fully on track, but we have lost 5 weeks of production in essence. And this will, of course, involve some idle costs, it will have some impact on sales, but nothing to any degree that would impact our full year guidance for this year. So that just to give a bit of context on the Louisiana plant and that overall Luling impact. On the higher input prices and potential impact on margins going forward. So of course, we're only going to guide -- typically, we guide end of February. When we do our full year reporting, we would give guidance then for the full year. In 2022, the whole industry is seeing higher input costs, but our strategy has always been to pass on inflation clearly into the market. I mean this is the only way we can maintain a sustainable business, and we're confident in our ability to do that. So just from an overall margin point of view, I wouldn't see this impacting us negatively going forward. But we'll give you further color on that when we do -- or when we give our guidance then for 2022.

Thank you, Liam. I see a lot of hands. So the next one I see is from Sebastian Bray from Berenberg.

I would have 2, please. The first is what the actual margin target for 2024 would be at the moment. If I were to imply spot FX and take out the EST (sic) [ ESP ] business due for divestment, is the answer somewhere around 26% EBITDA? My second question is a little simpler. It's on short-stack corn. When would I, as if I were to pretend to be a U.S. farmer, be able to buy this on a commercial basis. Have I interpreted your slide correctly in saying that the year is 2024?

Thanks. So on the margin in 2024, of course, when we gave the original guidance, this was at constant currency rates. So that was -- what we'd basically given out in March was on the constant currency basis. So that's still the 27% to 29% is what we're aiming for in 2024. And I wouldn't expect this to be negatively impacted by the divestment of the Environmental Science business. So overall, that has an impact on the absolute sales and profitability that we have but shouldn't have on the relative profitability on the margin just to give a bit of context on that. And short-stature corn, Bob, do you want to take commercialization, when will growers get that first in their hands in the U.S.

Yes, sure. So what -- first commercial sale will actually happen in '23, but it will be with our Ground Breakers trial. So that's a restricted launch with limitation on how many growers will have the opportunity to have a direct experience with short-stature corn. So full launch would be in '24. That's, of course, our first generation of the technology. So that is based on our approach that we used with traditional breeding. The biotech version we'll be launching later in the decade and is really the one that I think opens up the full opportunity for us because that technology has certain attributes that favor us in terms of full deployment across our genetic base and really will be the one that unlocks, I would say, the biggest part of the value proposition. But we'll have a great opportunity with growers beginning in '23 and beyond to really start to position the technology, build the system components for growers and get them to start to adopt the technology over the next years as we move toward the biotech version in the later part of the decade.

Thank you so much, Liam and Bob. I see the next question from Vincent, Vincent Andrews from Morgan Stanley.

Just on short-stature corn, you talked about the opportunity for over-the-top nitrogen application, which I assume has a convenience orientation for the farmer that has value, but you also talked about reducing actual nitrogen use. So could you talk about what sort of the order of the magnitude is about in terms of the value proposition to the farmer? And then also just within that, I wanted to understand how much of that capability was coming from short-stature corn itself versus your FieldView platform and the nitrogen application that you've had in place for a number of years?

Bob?

Yes. So Vincent, we're still working through, I would say, the magnitude of the benefits, particularly in the fertility space with short-stature corn. So that's kind of the work that's ongoing right now as we talk about how do we launch the product into a systems approach and really leverage the full advantages that we see the technology having. So I'd call that a work in progress. But I think, clearly, we see these management opportunities for the grower because of the improved access to the field. And I would argue a continuing shift in terms of nitrogen application technology and how growers are looking at best optimizing their fertility usage on the farm. As it relates to the FieldView platform and some of the work we did in the past with the nitrogen adviser, a lot of the learnings, of course, that we have there from a fertility perspective, how do you best optimize fertility utilization on the farm and the data access that we had in building that platform and then the learnings we've gotten, they all feed into our approach in terms of what we'll ultimately do with short-stature corn as well because they're -- obviously, corn is still corn and so a lot of the core features of what we learned there could apply to short-stature corn, but of course, then there's the optimization because of the novelties of short-stature corn itself. So work in progress, but a lot of good learnings coming out of the field in the season and in the next ones coming.

Great. I see the next one is from Laurent, Laurent Favre, Exane BNP.

I'd like to come back to the margin point, Liam, for 2024. So you expect 400 to 500 basis point margin improvement over 3 years after 3 years of flat margins. I was wondering if you could remind us of the main building blocks for this margin improvement story. In particular, how do you -- well, should we expect the ratio of R&D to sales to come down? Can you maybe give us a final update on the merger synergy cost savings? Have you achieved now all of them? Or do you have more into 2022? What else can drive such a sharp margin improvement over just 3 years.

Yes, sure. Thanks, Laurent. So let me briefly recap the major points of that margin improvement. And you can kind of put it into, I'd say, 2 categories. One is cost and efficiencies, which is roughly half of the incremental margin gain. And the other half is, in essence, pricing related to innovation, but also simply related to the overall market environment. So from our side, we have no intent on changing the overall R&D investment level or adapting further somehow, reducing it significantly in any way. We think the whole innovation engine is ultimately what allows us to achieve premium pricing in the market. And we are -- we do have premium prices across the board, whether it's corn, whether it's soybean, whether it's Crop Protection because we simply have the highest yielding and best products in the market. So we've typically been at an R&D ratio at sales of about 10%. This, of course, can fluctuate a little bit depending on what's happening with sales. But we're rather looking at the absolute spend that's behind that. So for example, if sales jump up by 20%, R&D doesn't necessarily need to jump up by 20%. But if sales were to drop, God forgive, by 20%, we wouldn't expect R&D to drop in a single year by 20% because these are all long-term projects. It takes us 10 years to get something through the pipeline typically. So we have to take a long-term view on this. That's why, in essence, we keep that relatively stable our absolute investment in R&D, and it will work out at ballpark 10% is that ratio. From a synergies point of view, in essence, by the end of this year, we'll have achieved our originally targeted integration synergies, which was in the region of EUR 870 million. And we have already started a second efficiency program, which is, in essence, the next layer now. And this really kicks in from 2022 to 2024. And this is what will be helping us achieve them, on top of the integration synergies, what will be helping us achieve further efficiencies on top of the premium pricing that we're already seeing. We can take this year -- particularly, we see it in the second half of the year and you'll see that going into 2022 as well. And of course, the thing -- I think the important thing to note is here once -- it's difficult to increase prices in a low commodity price environment. When commodity prices improve, there is then, of course, a much better environment for increasing prices. And those increased prices tend to stick. So I think you'll start to see that now showing up in the latter part of the year, and for sure, you'll see that in '22. And that carries forward. So the combination of that plus the efficiencies is what gives us confidence in the overall margin going forward. So hope that helps put it into perspective, Laurent.

Sure. And then if I can have a follow-up. I don't think you've mentioned at all cotton. I know it's a small crop. It's also a crop where prices have increased quite substantially over the last few weeks and months. I was wondering if you could give us a short update on, I guess, the pipeline there in terms of innovation as well.

Yes, sure. So cotton, let me just briefly say and Bob will take it over to talk about the pipeline, so acres were down. When acres were down from about 12 million in the U.S. to about 11 million, despite the decrease in acres, we were able to increase and significantly increase our already high market share. That's actually due to the innovation that we have in the pipeline. But Bob, you could maybe talk about what's driving market share today and what's to come?

Yes. So we have excellent genetic performance in cotton. And as the data is rolling in and we're looking at that data for harvest in '21, we're very -- we feel very good about the performance of our genetics and continue to see an opportunity there as far as our total performance. And then the other big exciting piece is that we'll be locking next year. We had Ground Breakers this year with our ThryvOn technology. So this is our brand-new technology against a new class of insects. So again, sucking/piercing insects, primarily Lygus and Thrips. And so this is a brand-new technology and a great complement to our existing insect protection and weed control systems that we have in place in cotton. So it puts us in a terrific leading position in terms of the total package that we'll have offering to growers for the '22 growing season. So we've got good momentum just in our core business there. And then when you put it together with an exciting new launch of technology for cotton, I think we feel pretty good about our prospects over the next years as we grow the opportunity with ThryvOn in our core business in cotton.

Great. Thank you, Bob. I think the next question I see comes from Joel, Joel Jackson from BMO.

Do you hear me?

Yes. Yes.

Great. Looking at FieldView, you gave us some good information today in terms of value add you're getting from customers that are part of the Pro, What I want to know is where are we now? We're a decade in after Monsanto bought this technology. You and -- Monsanto and Bayer put a lot of money into this now and you developed a lot of new application and functionalities -- functionality, excuse me. What is the ROI right now on this set of tools [indiscernible] providing superior tools you can help sell more products and services. Or is this going to be more like what you're showing in your slides where you'll be able to show you're selling more seeds and a higher brand of seed and more -- and a better suite of crops.

Okay. Joel, I think I got -- I'm not 100% sure, but I think I got -- I think you're kind of asking really about the core business model out there, where is the value creation in the digital platform. And for sure, there's been a lot of learnings, as you say, over the past years. Monsanto started in this very early. After the acquisition from Bayer, we actually accelerated further. And the original proposition -- or the original value proposition and thinking was that probably a purely subscription-based platform could be highly lucrative. I have to say, very honestly, that never really played out from a value creation point of view. Farmers love the technology, but just by creating transparency about what's happening on the farm, there was never enough to justify any kind of a significant premium. So we have actually been adapting the overall business model further. And we've done a lot of testing over the years and what we've seen where we can create the most value is, in essence, 2, 3 spaces. Number one is when we can get FieldView on a farm, we can show the grower, with complete 100% transparency without any sales reps in between, show them the difference in performance between different products. And if you have the most innovative portfolio, you can show the additional benefit of that, and inevitably, that is leading to higher sales of our own seeds and Crop Protection products. So part 1 of the value equation is actually we can sell more of our own portfolio by creating more transparency on the farm and helping the farmer take smarter, more real-time decisions that are ultimately increasing their yield and increasing their sustainability footprint. So that's now something that we have basically learned over the -- just the very recent years that this is actually where the bigger -- probably the bigger value -- initial value for us is as opposed to just trying to get a subscription for a certain service that we're providing. Second area where we see tremendous potential is basically giving us access to entirely new business models. And here, I think that carbon farming is the best example because in essence, this is -- it's something that is really only possible with a strong digital platform. If you have to track manually that a farmer is using the right practices to sequester carbon in a verifiable manner, it's prohibitively expensive. It's completely impossible. If you have a digital system that can do this in a very easy-to-use manner for a grower, in essence they just need to do the right practices, but don't need to keep documentation because the system keeps the documentation and ideally connect them to a carbon emissions trading platform and ensure a flow of income back to the farmer, all of that is only going to be possible with a very strong digital ag platform. And that's why we're so intent here in investing heavily in this space to also help create this new market, of which we want to take them, at least in agriculture, take the lion's share. And a third value stream is ultimately going to be -- we have a partnership model. We have over 70 partner companies. And depending on service provided to the grower, we can also take a portion of the value that we help create on the farm. That's the part of the model that I would say is probably least developed today, but the potential is there. So our main goal right now is to increase penetration, market access as any digital platform model, to work on the 3 different legs of value creation. And over time, we would expect to be then putting, let's say, very clear numbers from an ROI point of view in how this is translating into value. But we're so convinced that this is actually going to drive the future of ag that we do put in a significant upfront investment, but we are starting to see it play through now already in our sales today. And one of our underlying hypotheses is the fact -- or the assumption that we can grow above market from a sales point of view is also based on the fact that we'll have -- or have the leading digital ag platform that will help us power those sales. So that just to give you a bit of flavor of how we think about today and how that has changed over time because it has actually changed significantly from what the original value hypothesis as well.

Yes. Thank you, Liam. I have the next question from Alexander. Alexander [indiscernible] from [indiscernible]

The R&D pipeline looks terrific. 2021 was a very good market environment, as you said. I find the -- your guidance of EBITDA margin for this year very disappointing indeed. And I just wondered if you felt that it's an inevitability of the business model that it would always be slow? Or are there any lessons to learn? I have to tell you I am very disappointed with what's happened. If a good market is actually bad for your margins, then what's going to happen in a bad market? This is the time to do well. So is it just absolutely inevitable or could you learn anything?

Yes. Thanks a lot, Alexander. And I think it's a completely fair challenge. I think what's underestimated in our business is there's a significant time lag between cost increase going up and price catching up or ideally passing out what those cost increases are. So I mean to give the concrete example on the seed pricing side, we basically price once a year because you only sell the product once a year. If you missed the start of the uplift in the commodity prices, then you missed 12 months of pricing opportunity. On Crop Protection side, we have very significant COGS paying like material cost increases, freight cost increases. And it takes a while for this to pass through into pricing in the market. You have pretty long supply chains here. But what I can tell you very clearly is you should expect to start seeing some of that already the pricing -- the positive pricing uplift already in the latter half of this year and clearly going into '22 and basically carrying forward then to '24. So I do not, in any way, see this as the new normal or somehow an inevitable consequence of the business model. It's simply a lag effect, and you don't have to wait until 2022 to actually see that the pricing will be kicking in, but I think we can give you more flavor on that when we have third quarter results update on the 9th of November.

Great. Thank you, Liam. I think that answers Alexander's question. I'm very conscious to time. We have maybe time for maybe a couple more questions. And I see the next one from Dominic, Dominic Lunn from Credit Suisse.

My question is on Europe and your latest thoughts on expanding in Europe with regards to shifting views on the use of GM or CRISPR? So recently, we saw the U.K. ease its restrictions on doing R&D with gene-edited crops. So just your latest thoughts on the evolving kind of European attitude in this space.

Yes. Bob, do you want to take it? I mean from a regulatory point of view, I think we're enthused by what's happening in Europe, but we have to acknowledge as well that things tend to move a bit slowly in Europe as well. But Bob, maybe you give a bit of flavor around that?

Or maybe not always with full predictability, Liam, I guess that's the way I think about it. No, no doubt. I mean it's -- GM crops, I mean, in the core of Europe, we don't really see the likelihood that we're going to see any foundational change for cultivation of GM crops in Europe. Even though I would agree with Liam that the general tonality of wanting to use technology to help agriculture in Europe is improving. So the hot topic continues to be around gene editing. Certainly, with the U.K. I would say, going independent, the U.K. is taking, I would say, a faster view on change. And looking again at how they want to benefit their agricultural production systems and continue to make it competitive and so I think it will be -- we'll see this consistently, I think, where the U.K. probably will be a leader in the European framework around regulatory and the adoption of new technology for their growers. And I think that's across the board, not just with gene editing and with GMO approval and other things, but also even in the space of crop protection. And that's good because it can have a positive influence on what would ultimately happen in Europe as well. So it's moving. I would say still we're far from having a place where we know where we'll land fully with gene editing technology and what it will mean for growers. But there is good positive momentum. I think there's a recognition at the end of the day that if you're going to achieve some of the goals around climate change, sustainability and agriculture, that innovation is core to that. So given that those are some fairly foundational topics in terms of sustainability, biodiversity and climate change for Europe, it is an environment where we have some optimism that things will ultimately open up and prove to be an opportunity for us. But we'll see. Still ways to go on this.

Great. Thank you, Bob. Thank you, Liam. I don't see any hands raised anymore, but maybe I personally conclude the meeting today with a question because, Liam and Bob, we found in the preparation of the webinar a lot of people always ask what our lead time is on competition with respect to short-stature corn. Anything you could indicate there in terms of lead time on competition? That would be a question that we've heard a couple of times.

Bob will give you the technical answer. But I'd say if your competition is not talking about something, they're probably [ not ] very far.

Yes. I would have started there as well, Liam. I think the fact that we don't hear any of our, I'll call it, core competition really talking about it yet gives us a bit of an indication of where they stand with the technology. We certainly feel that we're significantly ahead with the biotechnology version of and the gene editing version of the technologies, we can see that with IP filings and regulatory work that's going on. So we know that we've got a significant lead there. And that's important because we still think that's really the one that helps to unlock the big opportunity that we see in front of us for certainly in the Americas and then obviously with gene editing and just going back to the earlier question. I have some optimism that I'd like to see gene edit at short-stature corn being cultivated in Europe someday. And so let's hope we get there, both technically as well as from a sort of an acceptance perspective as well. So -- but yes, we feel pretty good about our lead and we feel pretty good about our overall approach because, again, I think it's not just the trait, it's about a whole different way of a grower to thinking about how to produce corn. And so I think it's also for us really a sentinel opportunity to kind of move to where we want to go as a business in terms of not just selling products, but selling outcomes to growers.

Great. Thank you, Bob. Great answer. I think that add some flavor. And with that, I think that concludes our program for today. And I would like to thank all of you for your participation. We hope you enjoyed this event and would appreciate your feedback on the format. Stay tuned for an invitation to our next upcoming webinar as I indicated, where we like to feature, I think, finerenone, KERENDIA, our late-stage pharma as such for the treatment of chronic kidney disease Type 2 diabetes. In addition, we look forward to speaking to you, as Liam indicated to you, again on our November 9 Q3 disclosure for the quarter and the financial results call there. And until then, I'd like to thank you for your continued interest and stay safe. Thank you so much.

Thanks a lot.