Bayer CropScience Limited (506285) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. It is my pleasure to welcome everyone to our investor meet. We are happy and thrilled to have all of you here today. We can see many attendees joined already and some more are still joining as we speak. Trust you and your family continues to be safe and healthy. Let me first introduce our speakers for this meet. Mr. D. Narain, Vice Chairman and Managing Director of the company; Mr. Simon Britsch, Chief Financial Officer of the company; and Mr. Simon Wiebusch, Chief Operating Officer of the company. Sequence of today's meet will be to start with presentation by management teams, which will be followed by question-and-answer session. We have received several questions in advance, some of which we'll be answering in our presentation, and rest of the questions we'll be taking in Q&A session. If there are additional questions, please locate the chat icon at the bottom of your screen and send in your questions to us through the chat box. In case we are unable to answer any of your questions, please feel free to send questions to us at [email protected], and we would be happy to answer your questions as always. Please note that we are recording this interaction and recording will be available at company's website. Presentation slides are also available at BSE website as well as company's website under the Investors section. With that, I would like to hand it over to Mr. D. Narain.

Thank you, Nikunj. And let me also echo a warm welcome to all of you who have joined our meeting today. And even from my side, I hope each one of you and your families are staying safe. Let me, before I get into the slide, make some broad comments about agriculture in general globally and then get into the presentation. We have been talking about it before, and we've highlighted it, we are seeing significant shifts in global agriculture, including India. And a big part of it is being driven by a strong convergence in thinking to make agriculture more resilient, especially given the challenges of climate change and food security. It's also important that these are challenges not in the future, but of today, and we are seeing the impacts playing out with extreme weather events all over the world, including India. Can we go to the next slide, please? Our vision globally for crop science is directly linking business outcomes with sustainability goals that are fully aligned to meet the societal objectives to make agriculture and food systems resilient. And at the same time to do this, we'll continue to drive it with innovation and strong collaboration of all these stakeholders because we have large goals and no single company can do it alone. As you can see in this slide, the cornerstone of our goals is benchmarked on 3 large targets, 30, 30, 100 sustainability targets. And these targets have a strong linkage to business outcomes of which Bayer in India has a strong role to contribute significantly to make a difference. More so in a country where these goals also need to focus on improving small holder incomes and rural development. We have strongly embarked on this journey with product innovation, cross system innovation and route-to-market innovation to deliver these outcomes. You're aware of the Better Life Farming initiatives, our ecosystem we have been building out for the last couple of years, especially focusing on agri entrepreneurs as the last mile connect to small holder communities. And these are the large role to play in driving -- in improving incomes in small holder communities. We have also been testing sustainable rice cropping systems focused on direct sowing and water management. Through these kind of initiatives, we hope small farmers might get additional values through compensation of carbon credits generated for reducing greenhouse gas emissions with this system, but also improving water efficiencies and soil health. Next slide, please. All these goals also have significant growth opportunities and create more value for all stakeholders, including Bayer CropScience and majorly contributed to the country's SDG goals as well. Let me also talk about how COVID-19 has impacted agriculture in general and what are the perspectives that we have in front of us today. So let's go to the next slide, please. As you can see here, there are 5 or 6 themes that we clearly see happening. Digital leapfrogging, clearly we are seeing significant step-up in digital connect with small holder farmers, the entire ecosystem supporting small holder farmers, and this is accelerating at a rapid pace. The acceleration of innovation, and I can give you examples, including policy changes by the government in India, for example, the recent deregulation of drones is a welcome step for not only efficient use of Crop Protection, but also directly linked to soil health and sustainability as well. We are also seeing a significant step-up in capacity building and knowledge dissemination using real-time connect with farmers using digital tools. Stronger and closer linkages to communities and here is where our Better Life Farming initiative drives those outcomes where with the agri entrepreneur sitting directly close to small farmer communities of 500 or 1,000 farmers, there's a very strong linkage established. FPOs or farmer collectivization becoming a major theme for reaching farmers. The other trend we are seeing, and especially in the area of talent, and this is important for the long term, is remote working is actually helping us target talent from anywhere in the country, right, because we have the best talent and remote working, it is now easier for us to get the best people into the company. Having said that, there are also significant challenges. And hopefully, they are short term because clearly, we are seeing this as major headwinds at this time, significant disruptions in global supply chains. Multifold increase in global cost of logistics, including fuel are all putting tremendous pressure in input costs, especially in Crop Protection as we work with a globally connected supply chain system. In India, on the seed side, the additional dimension we have faced is on the seed production process strained, including the timely supply of seeds to the market. In summary, if I was to look at all these trends, I would say they are overall extremely positive trends for improving competitiveness for the agricultural sector. Before I transition to Simon, I do want to share some comments on the current financial year and also how far we have come post integration under merger of the 2 companies. While we are seeing a challenging year from the profitability standpoint, mainly driven by a tough corn seed season and higher production cost impacts, the growth drivers of CP, the new most business models contributing for growth, the test and learn models we are driving on digital innovation, and finally the significant step-up in capacity building for small farmers are all moving in the right directions. All these are key strategic actions to drive long-term growth of the company. With that, let me transition over to Simon to start talking about the current business and take it forward. Thank you. Over to you, Simon.

Thank you, D. Namaste and a warm welcome from my side and our commercial team. I hope you are all keeping safe, and I look forward to sharing some information on our on the ground performance. Next slide, please. Coming to the current season, we have been facing a multitude of challenges, which, in many ways, the measures we have taken in the past have helped us to mitigate. Despite the COVID restrictions faced particularly in early Kharif, low sales returns, prudent placements, flexible logistics and strong channel connect have allowed us to compensate a rather disappointing seed season with very strong Crop Protection growth. Throughout the season, barring very heavy weather impacts in late September, we have experienced solid liquidation on the back of successful, mainly digital farmer campaigns and good channel support. This allowed us to even make up for a challenging corn and cotton Crop Protection scenario. While overall monsoon was good, localized variations such as droughts in Gujarat and floods in the east significantly altered on-ground demand from our initial clients, which the team coped with successfully. Unseasonal rains during late September and partially still ongoing now, did defer some strains and will also influence the rabi season, specifically corn in Bihar and Eastern India. Commodity prices overall kept up well, though shifts in relative profitability, specifically towards all seeds away from corn and cotton effected acres negatively. Also, further expansion of illegal herbicide tolerant cotton took a toll on the industry. High volatility in vegetable prices meant quickly changing farmer moods. Despite the acre shifts, we were able to liquidate successfully and are looking at good water availability for rabi and spring also. Next. In addition to the already explained acre shifts, our seeds business started with very low seed stocks due to great sellout last year. Partly due to COVID, we struggled to get new yields to market in time. Our Crop Protection portfolio subsequently grew in the sales mix, which had some impact on overall margin development. Next slide, please. It is really a pleasure to report that we successfully broadened our product appeal basing growth on a variety of brands that are all performing strongly. Next slide, please. Noteworthy is the overproportional growth we were able to achieve in our differentiated portfolio, which is specifically targeted at small holder farmers. Solomon alone grew more than 30% in the April to September period. Also, our new launches were highly successful in terms of expanding our market presence and gaining quick penetration. Next slide, please. Our investments into small holder farming are really transforming our go-to market sustainably. We are leveraging digital tools, improving our sales force steering and building resilient value chains. Scaling up Better Life Farming centers and onboarding new partners significantly expands our -- the appeal to small holders. Intentionally supporting women entrepreneurs and hiring women sales executives is allowing us to broaden our talent base and cater to the specific needs of women farmers and their communities. Expanding our Bayer learning centers into more commercial areas is another initiative that allows us to showcase our agronomic crop solutions to farmers, academia and government stakeholders. With Sahbhaagi, we have launched a unique digitally enabled force of extension workers that can be deployed to create demand, offer services to farmers and support our Better Life Farming centers. Also, we're excited by the fast deregulation of drone technology for chemical application as we see it to significantly advance sustainable farming in India. Value chains around food and feed production as well as strong links with Farmer Producer Organizations will positively impact the resilience of food production. We believe we will see increasing demand for certified produce also in the domestic market following the export trends. Overall performance has been strong given the external environment, and movements in the field have actually been normalized now. This means that operational expenses for field travel and farmer and channel interactions are showing some catch-up trends owing to pent-up demand but also higher transportation and hospitality costs. I believe it is fair to say that the number of interactions will probably stay at a lower than pre-pandemic level as digital tools will remain, but those interactions that do take place will be of higher quality. With this, let me hand over to Simon Britsch, our CFO. Thank you.

Thank you, Simon. Hello, everyone, and also a warm welcome from my end. I will now walk you through our business performance in the second quarter and the first 6 months and then finish off with a comparison of key financial metrics before and after the merger. Please move to the next slide. So before we look at the performance of BCSL, let me briefly share with you the year-to-date global Bayer Group performance. So you can see that group sales advanced by 9% to EUR 33 billion. And the EBITDA before special items came in at EUR 8.8 billion, showing a 3% decline. Kindly move to the next slide, where we can review the financial performance of BCSL. Let me first focus on the second quarter, where revenue from operations declined by 1% to INR 13.6 billion. One major driver here was the performance of the corn portfolio, where we witnessed a drop in acreages due to lower farmer profitability for corn compared to other crops. In addition, higher corn returns came in due to weather-related events. Another driver impacting revenue in this quarter was an unseasonal monsoon, leading to lower liquidation based on which we consciously reduce channel placements. On a positive note, we have increased prices, especially for Roundup and corn seeds to soften some of the volume decrease. Now let me comment on profit in the second quarter, which declined by 26% to INR 2.2 billion. Major reasons for that development were cost increases that could only be partially offset by price increases and also the unfavorable portfolio mix due to the lower corn seed sales. In addition, we saw that operating costs are returning to pre-COVID levels. Now let me zoom out a bit and comment on the half year, where we recorded a revenue growth of 7% and to INR 27.8 billion. This growth was driven by our Crop Protection brands, including Roundup as well as new launches such Buonos and Fenos Quick. However, as mentioned before, growth was also partially offset by reduced corn portfolio sales and the unseasonal monsoon. I also would like to mention here that out of the total revenue in the first half of current year, the traded [ seeds ] that we announced for divestment represents 1.6%. Now moving on to profit for the half year. There has been a 12% decrease compared to last year. So a decline from 6.1 billion to 5.4 billion. Main reasons for this are the same as I explained earlier during the quarterly profitability review. Please move to the next slide. Here, I would like to give you some selected comments on the balance sheet. First, inventory is up by roughly 3 billion, mainly in preparation for the upcoming season, but also due to lower corn sales, the sales of our corn portfolio during the Kharif season. Second, trade receivables increased by 1.3 billion, which was, on the one hand, caused by our business growth. On the other hand, there has been a reduced collection compared to last year, where there was a higher willingness and ability to pay and therefore, ensure supply during the COVID crisis. Nevertheless, you can see that our current DSO are well below our standard payment terms. Please switch to the next slide. With respect to cash flow, there has been a reduction in cash flow from operations by 6 billion compared to the same period last year. Major factors here were the increase in working capital, where I explained the background during the balance sheet review and the tax payment under the VSV Act. Cash outflow for financing activities was lower compared to last year, where we paid an interim dividend of 4 billion during the second quarter. As we have communicated, we will pay an interim dividend in the third quarter of this year amounting to 5.6 billion. Please click for the next slide. To finish off, I would like to focus your attention to the upper part of the slide, where we have conducted a comparison of our performance prior to the merger and afterwards. You can observe the healthy growth both in revenue and profit post merger, which we have also passed on to our shareholders with a significant increase in dividend payout. Thank you very much for your attention. And now I would like to invite Simon to outline the key strategic drivers that were paramount in achieving these results.

Thank you. Thank you, Simon. Yes. Leaving COVID aside a little bit, it has been a rather busy 3 years that D and I have spent in India already. Clearly, we quickly and successfully navigated through the integration, setting up a strong and highly motivated team across all functions. We went through an accelerated selection process to put in place an organization that would meet our synergy commitments while transforming our customer approach with a pivotal focus on channel management and engagement while transforming our farmer engagement towards a more highly diversified, inclusive base with clear small holder focus. New business models such as Better Life Farming, commercial key accounts and e-commerce have helped diversify our footprint towards more geographies and crops than we have ever operated in before. Advancing value chain partnerships and enabling FPOs are 2 more areas that will cater to our belief that farming in India will see more collectivization, mechanization, digitalization and that it will become more sustainable. We are fast advancing our digital services offerings, offering disease prediction and self-service order entry. We are improving our product movement tracking and are stepping up our digital sales force steering, while expanding our digital farmer connect to evermore customers. Tools such as drones will greatly improve product application and large-scale projects on direct seed advice and carbon farming underpin our sustainability drive. With this, I think we can move to the Q&A. Thank you very much.

Thank you, Simon. So if we move to the next slide, I'll try and summarize and before we transition to the Q&A. First of all, thanks to both Simon and Simon for walking us through the business and also the financial summary. As I pull this all back together, here's what I would say, number one, it's been a tough season for corn and also the cost evolution, especially the input cost, which has impacted profitability. But having said that, as we looked at the last 3 years post integration, I think we have a strong growth trajectory established coming into the future. So -- and also strongly driving the synergies. But the bigger point I would make is we continue to be optimistic that the long-term market fundamentals for agriculture in India are really taking shape very nicely. And a big part of it is aligned with what we are trying to achieve improved farm incomes and driving towards sustainability, which is also aligned with the goals of the government. As we look at our strategy and the pillars, we have always talked about it, clearly, while innovation -- product innovation will continue to be core. The business model innovation is going to be a key part of the execution of our growth strategy, including building sustainable partnerships and impactful partnership with other players in the ecosystem. And finally, driving it with a very strong financial discipline like we've always talked about, including being disciplined in terms of how we look at the market and therefore, competitiveness overall will be -- continue to be key cornerstones. Finally, before we get into the Q&A, I do also want to highlight, we are celebrating 125 years of Bayer in the country this year. And we do want to share not just our pride, but a short video which summarizes Bayer's journey in this time frame before we get into the Q&A section. With that, could we have the video, please? [Presentation]

Thank you very much, D, Simon and Simon for the presentation. We now open the session for Q&A. And I invite all of you again, D, Simon Britsch and Simon Wiebusch again. We have received a couple of questions in advance and also from the chat. So I'll start with Simon Britsch, first question for you. Please provide breakdown of first half and quarter 2 revenues with year-on-year comparisons by Crop Protection, seeds, environmental science and others. Please also break out revenues from exports.

Sure. Thanks for the question. So let me start by looking at the half year 1. So as I said earlier on, the revenue increased by 6% compared to the same previous last year. To break this down further, the growth from Crop Protection, including Roundup, was 4% compared to the last year, which was therefore partially offset by the reduction in corn, which decreased by 2%. And for the traded seeds portfolio, we saw a reduction of 1% to the previous year, which was mainly driven by cotton. For the second quarter, so also, as I mentioned earlier on, the revenue declined by 2% compared to the last year. This was mostly driven by corn, which decreased by 3%. But was partially offset by the Crop Protection brands, including Roundup again, which increased by 3% in the same period. For the trade seeds portfolio, the overall sales increase was 2% compared to the previous year. For the exports in the first half, this was a reduction by 1% and respectively 2% in the second quarter.

Thank you, Simon. We have a few more questions about financial results. So I'll pose 2 more questions to you. With Corp Protection, how much of revenue growth came from volume growth and how much from higher prices?

The major share of the growth during the first half was driven by volume and was also supported by price increase for selected Crop Protection products such as Roundup and also a price increase for corn seeds.

Okay. The next question is what percentage of revenue in the first half came from new products?

So let's say, for sales from newly launched products after September 2020, the contribution was 3% in the first half and 4% in the second quarter.

Thanks, Simon. What percentage of revenue in first half came from top 5 products? Can you please name these products, please?

Sure. So the top 5 brands are Dekalb, Nativo, Laudis, Solomon and Roundup. And the contribution, which was the other part of the question was 42% in the first half of the year.

So I can see 2 more questions coming in. First one, did we benefit from increase in glyphosate prices? Can you please share trends in glyphosate in Q2 and H1 versus last year, and similarly for the rest of the portfolio?

I'd rather comment on what I said before. So of course, Roundup price was increase, and therefore, also led to a sales increase for Roundup.

Another question is debtors have gone up from INR 755 crores as of March '21 to INR 1,355 as on September 21. If you could please elaborate on the reasons for the same.

So first of all, and as I explained in my presentation, so there is an increase in our Kharif season sales and also reduced collection because we're comparing this to a COVID time and there was more liquidity in the market. So if you're comparing this year-on-year, the debt as of September 2020 stood at INR 12.2 billion.

Thank you. Thank you, Simon Britsch. Simon Wiebusch, there are a couple of questions on new products. So let me start it with you. Which new products were launched during first half?

Yes. We basically launched Cipel, Berdera and Ghasa, which is a growth regulator for cotton, but that was rather after the season. But really, what we're happy with is we're successfully scaling up products like Fenos Quick, Buonos, Council, Emesto Prime and EverGol. So it's actually quite a broad portfolio of products, which are very new and are growing. Also, we're targeting a successful scale-up of Momiji now in the wheat season.

Thank you. Has the insecticide Vayego been launched?

Vayego have been launched in financial Q3. So the upcoming months, either in November or December, we have marketing authorization now. But we only have limited quantities available. So really the big Vayego demand will be coming starting next year.

Thank you. The next question, can you please share your future pipeline of new products in CP and seeds for FY '22 and FY '23?

Yes, I would like to keep it at this point focus. So really, Vayego is a major focus launch at this point, and this is what we need to drive forward. There will be a couple of prelaunches of some Dekalb hybrids as well. But it's really the organization needs to focused on Vayego because this is really the opportunity we see with the new insecticide in the diamide segment coming from Bayer into the market. So that's where the focus is for us.

Thank you. There are a couple of questions which relates to corn, and I'll take it in sequence. First one, according to government data, Kharif corn acreages was stable year-on-year this year at around 8.1 million hectares versus 8 million last year. Yet Bayer has said in its press release that Kharif corn season witnessed a drop in acreage. Can you please clarify it?

I can give it a try. So Kharif corn commodity prices recovered from spring. However, there was higher increases in oilseeds, especially on soybeans. So this led to a relatively more favorable farm ROI on these oilseeds. We have observed some movement out of corn in West and Central. The government released its estimates of crop acreages at different stages, and we have also, in the past, seen them change with revisions. Clearly, if you look also at some of the industry players, they would be reporting similar as we are. So we do expect also government reporting to be shifting with these revisions coming in.

Thank you. Would you expect rabi core acreage to be up this year?

We were, yes. Well, it's not majorly in the east. As you know, Bihar, West Bengal and Assam, also some in the south. In the south, the weather is actually quite conducive for rabi, corn and we expect, yes, a slight increase in acres there for sure. In the east, we're really watching it on a daily basis. We had unseasonal rains in October. So at least the early season is definitely impacted. We are, yes, as I say, we're monitoring. But at this point, assuming that the corn acres will definitely not go up significantly. If anything, be more on par with last year, especially if the weather conditions were to persist.

Another question again on the corn. We have been continuously facing challenges in the offtake of corn seeds. What are your plans in this segment? When do you see a revival in this part?

Yes, apart from the average development, corn seeds is a competitive segment. And farmers tend to develop clear preferences. In some areas, we are the leading brands. In others, we really need to hope also for future products that it will increase our competitiveness. But clearly, we're targeting to leverage our strong channel, which worked out very, very nicely last year, for example. So from that perspective, we do continue to see good developments and especially also opportunities in South India at this point.

Thank you. If you could also kind of elaborate on which crops are being preferred by farmers over corn?

And I think I said so already. It's primarily the oil crops. Depending on the geography, we've clearly seen sunflower and soybeans take over, but also mustard was very strong this year.

Thank you. Thanks, Simon. D, I have 1 question for you. The question is, post the proposed divestment of vegetable seeds business to Crystal Crop, will Bayer seed business primarily constitute corn, rice and cotton hybrids?

Yes. I just want to correct, what we sold is not the vegetable seed. It is pearl millet, mustard and cotton. So I think a step back and this is also related to the question that came to Simon on corn as well. Globally for us, our investments and innovation in seed is clearly confined to largely acre crops of corn and soybean and cotton, and then of course, on the horticulture side on the vegetable seeds. So what we do in India as well, definitely will be in alignment with the global program because that's what we leverage as a global company, the research and the investments that we make on breeding here also will mirror the similar kind of a footprint of focusing on rice, corn and the vegetable seed. Having said that, as far as cotton is concerned, India's cotton seed breeding was a hybrid seed program, which is unique to India, whereas globally it's a [ variety of ] program. And therefore, for us, as we look at our strengths and where we want to continue investing, we're going to be largely focused on what I already elaborated earlier. So that's where we have seen this divestment taking place. But that doesn't mean that we are walking away from the crop itself, right? And as we talked about it earlier, what we're creating is a shift from just product selling to move towards a crop system kind of a selling through collaborative partnerships and value chains. And there, whether it is with Crop Protection, partnership with other seed companies and then other technologies including digital, we see great opportunities to continue to play in these divested crops as well. So Simon Wiebusch, any other comments you might feel like adding, but that's the way we approach it.

No, I think you said it very well. We will continue to look at opportunities in these crops. We just felt that we would not be able to put the necessary resources in to be really competitive on the germplasm and you would even see a trend here. The issue is cotton, for example, is only hybridized in India, nowhere else in the world, and it's a very specific business which is there. So I think in many ways, it is a decision one to understand. But that doesn't mean we're not interested in those areas. And we'll hopefully be in a position to tell you more in the future.

Thank you. A couple of other questions, business related. So Simon Wiebusch, maybe you can take these questions. What is the position of industry and Bayer's own inventory in the channel for upcoming rabi season?

Yes. As I said, we basically, from mid-September really tapered our channel filling because we saw that liquidation was slowing down, and this has been our strategy for the, let's say, past quarters, and it has proven to be good for us. Having said that, we are seeing a good opportunity for rabi coming up now, and that means we are filling the channel accordingly. I believe it's fair to say that Bayer's channel position is lower throughout the year than our competitors. I know that some competitors even had cotton products still in when closing the last quarter, which all we had taken back. So in many ways I feel very comfortable with our channel position. And at the same time, we are getting ready or are ready already for a good liquidation season, which is awaiting us, specifically in the vegetable, grapes, potatoes and as I said, the wheat for Momiji is important for us now.

Thank you. Another question is considering significant compression in gross margins over the last 7 quarters, will management still continue to focus on volume-led growth?

I think it is paramount for us to have a footprint across the country. And our margins are -- the gross margins are quite sensitive, obviously, to the product mix and the performance of the corn portfolio. But clearly, it is a topic that we are very carefully watching, especially as D was saying with the COGS development, which is out there as well and logistics cost inflation as well. So we need to look at the pricing environment, but it is important for us to really be in a competitive position to grow this business. So I would hope that we will be seeing an improvement in margins. But definitely, we need to continue to go for market share.

Thank you. Next question is reason for soft performance in the Crop Protection and seeds portfolio.

Yes. As I say, I don't see it as a soft performance in Crop Protection. It's potentially just that the later half of September was not so much going into the channel and the seeds we had talked about. So in many ways, I think that question should be answered, really.

Okay. Next question is, can you highlight recent initiatives taken with regard to increasing the sales, distribution channels, new product launches and digital tie-ups?

Probably, again, answered during the presentation already. But yes, we continue to deal with internal management. I think it's absolutely essential, especially seeing what we found when we started. The expansion of Sahbhaagi is going to be important to us, the Better Life Farming centers, scale up of new products, obviously, and more partnerships, including also in the e-commerce area.

Thank you. The next question, can you share factors that will lead to revenue growth ahead of industry growth, along with improvement in operating profit margins?

Yes. As I say, the margins will continue to be sensitive to product mix and should be seen in a longer-term context, not by financial quarter. But really this year was exceptional for seeds and we would hope to see a better environment in the future. That's what we're banking on. No question whatsoever.

Thank you. Another question, have we witnessed an increase in sale of illegal BT cotton seeds on ground?

Yes. I think I mentioned, yes, definitely. That has really impacted the whole industry.

We have seen consistent EBITDA contractions since last 4 quarters despite reasonably good season. Can you please explain?

Yes. I think we've gone through it several times. There are different partially and also deliberate reasons. Remember, we repositioned certain products last year really to gain that footprint. We're still aiming to increase our acre share and expand our footprint in small horder geographies. But specifically on corn seeds, we need to work on the product mix and yes, keep getting back. And that should, in many ways solve also this perceived margin percentage topic.

Thank you. The next question is Channel Check suggests we have brought down prices for key brands like Solomon.

That was deliberate. We talked about it. We attract a new segment with this. And I mean if you were to, let's say, talk to the channel today, versus at the end of 2018, you'll find something very interesting, which is at the end of 2018, people would have been telling me, Bayer products are too expensive. We do not see farmers being able to buy them. With some of the repositioning specifically around Solomon, we have significantly changed the perception within the channel that Bayer has products which are available to farmers and farmers will come to me and say, Simon, finally, I can afford a Bayer product. And that gives us an opportunity to upsell also in the future. So again, the acre expansion is very deliberate move to really get ourselves onto more acres, also with profitable products in the future.

Thank you. The next question is raw material prices and logistics costs have seen an increase which has been partially offset by price hike in CP business. Are we looking at further price hikes to compensate for the same? Or are we looking at reversal of increasing costs?

Yes. I think the global environment currently indicates continued pressure on raw materials and logistic capacities. It's very clear. This is bound to translate into higher cost of goods. And we see subsequently really positive pricing environment, if I may call it so. Still I need to balance it out. You know that there is a very large generic segment in the country, and we are currently actually seeing that the differential between generics and our branded products is becoming smaller because generics are inflating their prices quicker. And that is actually allowing farmers to up trade. And that is something which given my cost of goods situation, I might potentially want to use as much as possible in this environment.

Thank you. Next question is our margins for Q2 FY '22 have gone down from 22% to 16% year-on-year basis. What is your guidance for H2 FY '22?

Yes, I don't think we should be giving margin guidance here, but we've talked about it. We had impacts specifically from the corn season. I would hope that we will not have such a negative development in the corn season going forward. And I am quite positive about the rest of the portfolio and for the rabi season. So I would put in that sense, not be able to say much more but it should be okay.

Thanks, Simon. I can say 3, 4 more questions we still have to continue with. The first one. We have also mentioned about product mix impacting the margin in CP segment. If you also touch upon how are we looking to reverse this impact and make it a favorable product mix scenario for the company?

Yes, as I say, the biggest swing really comes from the development of the corn seed business. And in this case, it's yes, very negative, right? And if we would assume improvements here in the future. Having said that, clearly, we will look at supporting our margin development. And also in the CP area where possible, again, as I said, the pricing environment might be positive. But these swings will come in bad corn seasons. We are not able to compensate that, if it happens this way. Still, I believe we have probably seen the worst of it. I would hope it reverses.

The next question in Q2 FY '22, you've also seen higher sales return. Can you please comment on the same and should it be looked at as a one-off event?

Yes. It's actually a base effect. We had exceptionally low returns last year. Some of you might remember, we even we're in a position to reverse provisions. This time, unfortunately, we had more returns than we had provisioned for. So that had some effect.

Thank you. Next question, Bayer has achieved good growth in Crop Protection driven by new product launches. What are our future plans in this segment, specifically on gaining market share?

Look, we expect our Crop Protection portfolio to continue to perform well and clearly are working on improving our seeds positioning. So in many ways, if you look at it, right, to be able to compensate what we lost in seeds is actually testament to a very, very strong team performance out there. And I would see it as a new strong base to build upon. So we obviously want to continue the growth momentum we've seen in Crop Protection. And with the seed business coming back, that should give us a nice, may I call it, tailwinds in that sense.

Thank you. How has small farm holders scale up been for us? What would be percentage of sales from them?

Yes. Given that a large number of farmers in India would always be considered as small holders in any case, it's hard to differentiate precisely, right? And I also don't think it's sensible to do that. But it's important that we have significantly expanded our footprint and back to these statements initially, Bayer targeting 100 million small holders, you can imagine what that means. If we in India don't expand our footprint, Bayer will not achieve or we as Bayer would not achieve these global goals. So portfolio decisions around Solomon but also the launch of Fenos Quick and Buonos in segments which are approachable to more farmers give us a lot of back win tailwind in that sense to expand the footprint. And that's going to be a strategy going forward.

How should one understand gross margins for us going forward, especially given supply chain issues in China. So we have taken any price increase in this? Asking as our margin, especially gross margins been all over the place and seen considerable volatility.

Clearly, we would like to reduce the volatility. No question. And the performance of the seed portfolio -- corn seed portfolio specifically will be crucial to reduce the swings. We are going into the situation in terms of supply chain open eyed. We have already seen quite some price adaptations as Simon has already said in the glyphosate portfolio and I'm looking also at the broader portfolio. But again, for us, it's important to find the right timing and also find the right may I say -- yes how may I call it, the sweet spot, I would call it the sweet spot, right? We have an opportunity right now to really gain customers because I think we will be seeing massive swings with companies which are solely dependent on spot pricing. And that gives me an opportunity to, on the one hand, yes, take price increases where it is essential and where it's also possible. But on the other side, continue to gain new farmer customers into the Bayer fold.

Thank you, Simon. So before I go for a couple of synergy questions, D, I would like to take this question [ as it's very recent ]. Any plan to merge unlisted entity of legacy Monsanto into BCS?

That's a very popular question all the time. All I can say is we're very focused on executing our strategy, what we have in Bayer Crop Science. We have a very strong portfolio of both Crop Protection and corn seeds, and now, of course, very focused on rice seeds distribution. And so that's what we will focus on to create value at Bayer Crop Science at this point in time.

Thank you. So questions with respect to synergies, Simon Britsch, you can take this. What is the quantum of revenue and post synergies approved in first half FY '22, post merger. Do you believe most of the synergy benefits are already achieved by the company?

So thanks for the question. So in general, as we reported in the last meeting of that kind, the combination of the both business is going very well, and we already delivered above our expectations and also ahead of our anticipated timeline of 3 years. That is also true for the commercial integration, as we've also seen in this discussion today, where we have really strong contributions on the top line from the combined distribution also for the portfolio, especially around the corn seeds business and Roundup. And therefore, we are well on track. We are also well below our onetime cost estimations. However, what is still pending is the ERP system integration, which is to come in the coming years.

Thank you. Simon, there are 2 more questions for you. Employee expenses and other expenses increased by roughly 30% year-on-year during Q2 FY '22. Any specific reason for sharp increase in operating cost?

Let me highlight 3 major reasons. So 1 is the one which was also mentioned in the questions for employee costs, that is mainly driven due to a significantly lower bonus in the last year. So the other part is that we have also higher utilization in incentives in kind. So that's the second piece. And the third piece, as I also mentioned in my presentation earlier on, is that we see an increase or returning to the levels pre-COVID when it comes to promotional expenses and travel.

Thank you. Thanks, Simon. I can see 2 more questions coming. Largely, rest to the question, I think, is something which we have already covered already. But this is the one, Simon Wiebusch, goes to you. Can you explain what Bayer India has initiative on outcome-based digital offering?

Yes. I think the most tangible ones is really around food chain and certifications there, where we're really seeing, let's say, also near-term opportunities. We believe that you will be seeing more producers really looking not just to meet export necessities like residue levels and quality standards, but also this will be coming more for domestic, especially, may I say, organized retail. And here, we hope that we will be able to via predictive models really help farmers to reduce the inputs of specifically fungicides, if you like, on disease prediction, but also on insecticides when you identify insect development early. And that should allow us to build outcome-based service income models around it. But quite honestly, I think this is still going to take some time until we would really be seeing this having a significant or mentionable impact on the turnover. Still, we are clearly looking also with Better Life Farming centers, how we can -- yes, monetize the franchise around onboarding partners and potentially having service incomes there as well. Another model that we're really looking at with accelerated interest is around GHG. So greenhouse gas emission reduction on our carbon farming initiative, where the jury is still out in how far we're going to be seeing a real carbon trading market in India. And then how far also agriculture will be, let's say, eligible here, but the discussion is actually quite vivid. And I assume post the Glasgow meeting now 26th, we might be getting a bit more clarity on this. So we are working together with [indiscernible], but also certification agencies to try to really monitor the reduction of greenhouse gas emissions when you change the model of rice cultivation, and with that have a tangible proof that farmers are emitting less greenhouse gases, specifically methane than they would have done in the past, which, in theory, should allow us then to apply also for carbon credits.

Thank you. Thanks, Simon. We just exceeded our scheduled time, but let me take this -- the last question, which is a quick one, Simon Britsch, to you. What is Crop Protection growth, excluding Roundup?

That's a real short question. So is it in the first half or in the second quarter?

Didn't mention specifically first half...

Why don't you say first half?

First half, it is 5%.

Great. Thanks, Simon. So now we just exceeded our time. So ladies and gentlemen, thank you very much for taking out time and attending today's investor meet of Bayer Crop Science Limited. We thank you for your support and association with us. And wish you good health. Stay safe and take care. With this, I close this investor meet. Thanks to you once again.

Thank you.

Thank you, everybody.