Bayer Announces Cost-Cutting Measures of $1.8 BnBy
Bayer has announced additional cost-cutting measures of EUR 1.5 billion ($1.76 billion) by 2024 to address headwinds encountered in its crop sciences and pharmaceutical businesses that were attenuated by the COVID-19 pandemic.The additional cost-savings measures are in addition to planned annual efficiency and structural measures of EUR 2.6 billion ($3.1 billion), targeted to be achieved by 2022, and which the company announced in November 2018.
“We believe the additional measures are necessary to accelerate our overall transformation, generate margin improvements and thus maintain our competitive profile,” said Werner Baumann, Chairman of the Board of Management of Bayer, in a September 30, 2020 statement. “They will help mitigate the impact of COVID-19 on our business. We must adapt our cost structures to the changes in market conditions and at the same time generate resources for further investment in innovation and growth. We also remain committed to reducing our net financial debt.”
Bayer says it expects to offset the impact of lower revenues in its Crop Science and Pharmaceuticals Divisions through appropriate countermeasures, such as the acceleration of existing efficiency programs and cost contingencies. Overall, the company expects that for 2021, growth and cash flow generation will be lower than planned and can only be partially compensated by further savings measures. The company now expects 2021 sales to come in at around the 2020 levels.
Bayer says it expects its pharmaceuticals business to return to growth in 2021. To strengthen the mid- and longer-term growth potential of the pharmaceuticals business, the company says it is planning further increases in investments to bolster its product pipeline organically and through in-licensing agreements and bolt-on acquisitions.
Bayer says the direct and indirect effects of the COVID-19 pandemic will be deeper than expected on its crop science business. Bayer says the agricultural sector is characterized by reduced growth expectations due to low commodity prices for major crops, competition in soy, and reduced biofuel consumption, which are compounded by negative currency effects, some of which are significant as in the case of Brazil real. Bayer says it does not expect this situation to improve considerably in the near-term. Against that background, Bayer says it expects to take non-cash impairment charges in the mid to high-single-digit billion-euros range on assets in the agricultural business.
The downturn in its crop protection business follows settlement agreements announced earlier this year (June 2020) of between $10.1 billion and $10.9 billion to resolve current and future product-liability litigation in the US over its glyphosate-based herbicide, Roundup, which the company acquired in its $63-billion acquisition of the agrochemical and seed company, Monsanto, in 2018. The acquisition of Monsanto made Bayer’s crop-protection business the largest piece of Bayer, surpassing its pharmaceuticals business, which had been the company’s largest business. In 2019, the company’s crop-protection segment posted revenues of EUR 19.83 billion ($22.25 billion), its pharmaceuticals segment of EUR 17.96 billion ($20.15 billion) and its consumer health business of EUR 5.46 billion ($6.13 billion).
Bayer also plans to further optimize its working capital and capital expenditures. Further, the company is reviewing options to exit non-strategic businesses or brands below the divisional level. The Board of Management intends to leave Bayer’s dividend policy, which delivers 30% to 40% of core earnings per share to stockholders each year, in place. Payouts in the coming years are expected at the lower end of this corridor rather than at the upper end in previous years.
The additional operational savings measures, which may also lead to additional job reductions, are currently in the early stages of development. The company says they will be discussed with the relevant internal bodies, including employee representatives, and announced once finalized. The company says it will present a detailed forecast for 2021 along with an updated mid-term outlook when it publishes its results for the full year 2020.