Leverkusen,
Germany
November 12, 2003
Sales increase 4.6 percent after adjustment for portfolio and
exchange rate effects
EBIT up 53 percent before special effects / Net debt cut to EUR
6.9 billion
Against an
unchanged and difficult economic background, the Bayer Group
posted third-quarter results with which "we can by no means be
satisfied, although they are largely in line with our
expectations," as Bayer CEO Werner Wenning told the company's
Fall Financial News Conference. Sales declined by 8.4 percent to
EUR 6.83 billion, mainly due to currency effects. However,
adjusted for portfolio and exchange rate effects, sales grew by
4.6 percent. EBIT was EUR 21 million. Adjusted for special
effects – mainly the proceeds of the sale of Haarmann & Reimer
in the same period last year – EBIT increased by 53 percent to
EUR 104 million.
Wenning
does not anticipate a sustained economic recovery before the end
of the year, even though there are a few positive signals at the
moment, especially from North America. He stated that, in
connection with the extensive realignment of Bayer's portfolio,
there would be a review of the valuation of all relevant assets
in the fourth quarter. This may lead to charges against the
fourth quarter, he said, but these would not affect cash flow or
impair Bayer's ability to pay a dividend. "We expect EBIT before
these special effects to increase by a double-digit percentage
as forecast," said Wenning.
Speaking on the separation of considerable parts of the
industrial business, he outlined the future alignment of the
Bayer Group. Activities will focus on innovation and on
accessing the Asian growth markets, in particular. The Bayer
Group will be about 80 percent of its present size, with some
94,500 employees and annual sales of about EUR 22 billion. The
expected return on sales in the current year for the future
Bayer portfolio should be significantly higher than before.
"With our stronger focus, we will in future be able to dedicate
the financial and management resources of the Bayer Group
exclusively to the development and expansion of the three
subgroups – HealthCare, CropScience and MaterialScience," said
Wenning. "Bayer is an inventor company and we aim to continue
concentrating on these abilities in future." The company is
starting from a very good position because, in addition to its
innovative strength, it also has excellent technology platforms
and strong market positions. Wenning sees the main engines for
growth as new products, especially those yielded by active
ingredient research in the life science operations, the
potential offered by new technologies such as biotechnology, and
economic growth in Asia in general and China in particular.
Wenning explained that the new company, provisionally named
"NewCo", would have a profitable portfolio which will include
businesses such as material protection, basic chemicals, butyl
rubber and semi-crystalline products, to name but a few. "We are
convinced that both Bayer and NewCo will benefit from this
split," he said. This year, Bayer expects the NewCo businesses
to achieve EBITDA in the region of EUR 500 million to 550
million. This is equivalent to an EBITDA margin of about 10
percent, which certainly withstands comparison with NewCo's
competitors. It is planned that NewCo will assume debts of
around EUR 1.7 billion, including pensions. To safeguard its
creditworthiness, a triple B rating is to be sought for the new
company.
Turning to HealthCare, Wenning said that the Consumer Care,
Diagnostics and Animal Health divisions would be concentrating
more closely on consumer health activities: OTC, self-testing
and companion animals. These businesses are in excellent shape
and already hold very strong positions. It is planned to
continue their active development and expand them to make Bayer
the world's leading consumer health company. "We aim to achieve
this by means of both internal and external growth."
Reporting on the process of seeking a partner for Bayer's
Pharmaceuticals business, Wenning said that, after examining all
the options, it was clear that none would adequately reflect the
value of the Pharmaceuticals Division. The business will thus
remain part of Bayer. "We therefore intend to focus on our own
strengths and steer our Pharmaceuticals business with
significantly modified structures towards a successful future,"
he said.
Bayer's pharmaceutical research will concentrate on the
therapeutic areas of anti-infectives, cardiovascular and
urology, in which the company already has a successful product
range. Bayer also has some very promising developments in the
oncology field. "In future we intend to position our realigned
and refocused Pharmaceuticals Division among the leading
mid-sized European pharmaceuticals businesses," said Wenning.
"We are convinced this will generate the greatest value for our
stockholders and employees."
In
his comments on business developments, CFO Klaus Kühn pointed
out that Bayer achieved EBIT of EUR 1.55 billion in the first
three quarters of 2003 (2002: EUR 1.95 billion). Before special
items, EBIT was up 53 percent to EUR 1.36 billion.
Net
debt was reduced to EUR 6.9 billion by September 30, 2003,
already achieving the goal set for the end of the year. "We
believe we have some scope for a further reduction in the fourth
quarter," said Kühn. Over a period of 17 months Bayer has
brought down net debt to what it was prior to the acquisition of
Aventis CropScience, and considerably strengthened its balance
sheet again.
The
non-operating result for the third quarter improved by 12.4
percent to minus 211 million, mainly due to lower interest
expense following the significant reduction in debt. This
resulted in pre-tax income of minus 190 million. Net income was
minus 123 million. Due to higher tax payments than in the same
quarter last year, gross cash flow dropped 12 percent to EUR 541
million. Net cash flow came in at EUR 1.19 billion due to a
pleasing improvement in working capital. Said Kühn: "This figure
underlines our company's cash-generating power."
The
main contributor to third quarter performance was the HealthCare
subgroup, which held sales more or less steady at EUR 2.26
billion. Before portfolio changes and in local currencies,
business was up 11 percent. EBIT rose by EUR 88 million to EUR
216 million.
The
CFO was particularly pleased that the anti-impotence drug
Levitra got off to a successful start in the United States,
where Bayer's product garnered 14 percent of new prescriptions
by October. There are indications that in the growing market for
anti-impotence drugs, Levitra is popular with patients who are
being treated for their condition for the first time.
CropScience
sales fell 14 percent to EUR 1.13 billion. Adjusted for
portfolio changes and currency effects, business increased by
3.5 percent. Despite the lower sales and some restructuring
charges, EBIT improved to minus EUR 134 million (2002: minus 219
million). The nine-month EBIT was EUR 342 million (2002: minus
53 million), and the EBIT margin 21 percent.
In
Polymers, price erosion and currency effects caused a 5 percent
drop in sales, to EUR 2.46 billion. EBIT fell sharply to minus
EUR 11 million (2002: EUR 101 million), which Kühn said was due
to weak demand, high raw material costs and, again, exchange
rate effects. Sales of Bayer Chemicals declined by 24.1 percent
to EUR 839 million; after adjusting for portfolio changes (EUR
210 million) and in local currencies, it almost matched the
previous year. EBIT amounted to EUR 13 million.
Dr.
Axel Claus Heitmann, CEO designate of NewCo, explained the
strategy and objectives of the new company. The chemicals and
polymers industries are currently undergoing far-reaching
change, especially in Europe, he said. Spin-offs of the
industrial sectors of major companies have brought a lasting
increase in competition. In addition, Asian suppliers are
advancing into the European and North American markets, also
heightening the competition. As an independent company, NewCo
will be able to respond faster and more flexibly to these
changes. NewCo will also be operating in part in mature markets
where there is already a substitution situation as far as
competition is concerned. "In order to survive and be successful
in these markets, the change to an independent company is both
expedient and necessary," said Heitmann.
NewCo is to be positioned in the market as a competitive,
steadily growing and above all value-creating company.
Independence will enable NewCo to focus all its human and
financial resources exclusively on its core businesses of
chemicals and polymers. Being an independent, stock exchange
listed company with its own reporting structures will also
create greater transparency, both internally and externally, and
help to show where there is scope for improvement. "Necessary
structural adjustments will be systematically carried out,"
Heitmann stressed. "Our goals are ambitious, and achieving them
will not be easy. But we will do everything to make our new
company a success story."
Sales and
EBIT in line with expectation:
http://www.bayer.de/stockholdersnewsletter3q2003/financial_data/overview.php
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