German drugs and pesticides maker Bayer forecast a year without earnings growth for its agricultural products business on Wednesday, as it seeks to complete its $66 billion deal to take over U.S. seed giant Monsanto.
Bayer has said the deal, which would put the size of its agricultural business on a par with its healthcare unit in terms of revenues, would enable it to develop new combinations of seeds and pesticides to compete against big rivals such as Dow and Dupont, which plan to merge their agricultural businesses.
However, in 2017 Bayer’s crop science division is expected to produce underlying earnings before interest, taxes, depreciation and amortization unchanged from last year, the company said on Wednesday in reporting fourth-quarter group earnings that slightly beat market expectations.
The shares were down 1.8 percent, reversing gains made over the last three trading sessions to leave the price up 7.9 percent so far this year.
“We’ve had outstanding harvests over the last three years, resulting in a certain oversupply in crops and a cyclical dent in our business,” says Liam Condon, the head of Bayer CropScience, adding that the trend could soon change. “Given the likelihood of extreme weather phenomena, it doesn’t take much for the cycle to turn.”
A recovery in demand was likely to be seen first in Asia, eastern Europe and Latin America toward the end of 2017, while markets in North America and Europe would not see a return to more robust growth before 2018.
Bayer said in its annual report it expected seed and crop protection market growth of 1 percent this year compared with a 1 percent decline in 2016. Prices of agricultural commodities such as corn, soy and wheat have recovered somewhat from multi-year lows hit in September.
The group also says it was on track to gain all regulatory approvals for the takeover by year’s end. Condon says this forecast anticipated a likely in-depth investigation by the European Union’s competition regulators.
Last month Bayer said CEO Werner Baumann and his counterpart at Monsanto had had a “productive” meeting with Donald Trump, before Trump took office as president, to discuss the proposed merger.
Source: Alberta Farmer Express