Bayer CEO Upbeat Despite Gloom
Germany's Bayer MaterialScience experienced an unprecedented collapse in the fourth quarter, and there is little sign of improvement during 2009
"WE HAVE not seen anything like this before." These words from Bayer's management board chairman Werner Wenning at the German major's financial results conference on March 3 highlight the extent to which the ongoing financial crisis has sullied an otherwise positive year for the company.
The "dramatic decline" seen in Bayer's MaterialScience business made it, by far, Bayer's worst performer, with this year's sales falling 5% to €9.7bn ($12.2bn), and earnings before interest, tax, depreciation and amortisation (EBITDA) before special items plunging by 32% year on year to €1.1bn. Rising raw material and energy costs had significantly impacted earnings, said Wenning.
The fourth quarter (Q4) was particularly galling for the business EBITDA, before special items, slumped to €54m from €367m in Q4 2007. This was mainly due to the steep decline in volumes as a result of a sharp deterioration in the automotive, construction and furniture industries, Bayer said.
"In the main sectors of importance for our MaterialScience business, we anticipate a very difficult year, marked by a great deal of uncertainty. The high-tech materials business is heavily impacted by the global recession," said Wenning.
"The start to the year has been even weaker than anticipated, and we must expect a severe drop in this subgroup's sales and earnings for 2009," he said.
MaterialScience recently announced that it would reduce the working hours of German non-managerial employees by 6.7% from February 9, and cut wages accordingly for an initial nine-month period.
At the conference, Wenning emphasized that Bayer has been forced to respond to the difficult industry conditions. "Management and the employee representatives have agreed to temporarily reduce working hours at the subgroup's German sites, coupled with a corresponding reduction in collectively agreed rates of pay. Comparable measures have been instituted for managerial employees of MaterialScience," he said.
"The aim of this solidarity-based solution is to help us overcome the difficult business situation," he added.
POSITIVE FUTURE
Otherwise, Wenning appeared largely upbeat by the results. "Although there is a great deal of uncertainty surrounding the future development of the world economy, we are looking to the future with relative confidence overall," he said. "From an operational standpoint, 2008 was the most successful year in Bayer's long history."
Overall, 2008 sales rose by 1.6% to €32.9bn, although the Group's net income totalled €1.72bn, down from €4.7bn in 2007.
Wenning said the company was benefiting from its life-science businesses HealthCare and CropScience, which are less dependent on global economic developments.
Both the CropScience and HealthCare businesses performed strongly, the former marking its best ever performance. They reported respective sales of €6.4bn, up 14%, and €15.4bn, up 7%.
Looking ahead, he predicted steady growth of 3-5% for HealthCare over the coming year, and 2-3% for CropScience.
On an equally positive note, he added that Bayer has committed to raising its research (R&D) spending to €2.9bn in 2009 - the largest R&D budget in its history.
"I would particularly like to stress that we remain firmly committed to research and development - even in difficult times. After all, a long-term, sustainable orientation is now more essential than ever," he said.
Wenning emphasized that helping to improve earnings in the short term by cutting research funding would be a move in the wrong direction. It would not only be unsustainable, he said, but would be short-sighted.
"After all, our investment in R&D is intended to produce groundbreaking innovations. That is how we safeguard growth - and with it jobs and prosperity, even if in most cases it will be many years before we reap the fruits of this investment."
He concluded his speech by noting that the company's net debt had reached €14.2bn in 2008, partly due to higher-than-expected spending on acquisitions and the injection of capital into its pension fund. However, he was confident that this could be cut to around €10bn by the end of the year.
For Bayer, 2008 proved tough and the year ahead is full of uncertainty. Nevertheless, said Wenning, "we believe we are well positioned, and remain relatively confident."
"WE HAVE not seen anything like this before." These words from Bayer's management board chairman Werner Wenning at the German major's financial results conference on March 3 highlight the extent to which the ongoing financial crisis has sullied an otherwise positive year for the company.
The "dramatic decline" seen in Bayer's MaterialScience business made it, by far, Bayer's worst performer, with this year's sales falling 5% to €9.7bn ($12.2bn), and earnings before interest, tax, depreciation and amortisation (EBITDA) before special items plunging by 32% year on year to €1.1bn. Rising raw material and energy costs had significantly impacted earnings, said Wenning.
The fourth quarter (Q4) was particularly galling for the business EBITDA, before special items, slumped to €54m from €367m in Q4 2007. This was mainly due to the steep decline in volumes as a result of a sharp deterioration in the automotive, construction and furniture industries, Bayer said.
"In the main sectors of importance for our MaterialScience business, we anticipate a very difficult year, marked by a great deal of uncertainty. The high-tech materials business is heavily impacted by the global recession," said Wenning.
"The start to the year has been even weaker than anticipated, and we must expect a severe drop in this subgroup's sales and earnings for 2009," he said.
MaterialScience recently announced that it would reduce the working hours of German non-managerial employees by 6.7% from February 9, and cut wages accordingly for an initial nine-month period.
At the conference, Wenning emphasized that Bayer has been forced to respond to the difficult industry conditions. "Management and the employee representatives have agreed to temporarily reduce working hours at the subgroup's German sites, coupled with a corresponding reduction in collectively agreed rates of pay. Comparable measures have been instituted for managerial employees of MaterialScience," he said.
"The aim of this solidarity-based solution is to help us overcome the difficult business situation," he added.
POSITIVE FUTURE
Otherwise, Wenning appeared largely upbeat by the results. "Although there is a great deal of uncertainty surrounding the future development of the world economy, we are looking to the future with relative confidence overall," he said. "From an operational standpoint, 2008 was the most successful year in Bayer's long history."
Overall, 2008 sales rose by 1.6% to €32.9bn, although the Group's net income totalled €1.72bn, down from €4.7bn in 2007.
Wenning said the company was benefiting from its life-science businesses HealthCare and CropScience, which are less dependent on global economic developments.
Both the CropScience and HealthCare businesses performed strongly, the former marking its best ever performance. They reported respective sales of €6.4bn, up 14%, and €15.4bn, up 7%.
Looking ahead, he predicted steady growth of 3-5% for HealthCare over the coming year, and 2-3% for CropScience.
On an equally positive note, he added that Bayer has committed to raising its research (R&D) spending to €2.9bn in 2009 - the largest R&D budget in its history.
"I would particularly like to stress that we remain firmly committed to research and development - even in difficult times. After all, a long-term, sustainable orientation is now more essential than ever," he said.
Wenning emphasized that helping to improve earnings in the short term by cutting research funding would be a move in the wrong direction. It would not only be unsustainable, he said, but would be short-sighted.
"After all, our investment in R&D is intended to produce groundbreaking innovations. That is how we safeguard growth - and with it jobs and prosperity, even if in most cases it will be many years before we reap the fruits of this investment."
He concluded his speech by noting that the company's net debt had reached €14.2bn in 2008, partly due to higher-than-expected spending on acquisitions and the injection of capital into its pension fund. However, he was confident that this could be cut to around €10bn by the end of the year.
For Bayer, 2008 proved tough and the year ahead is full of uncertainty. Nevertheless, said Wenning, "we believe we are well positioned, and remain relatively confident."
quoted from: www.ICIS.com
