MOSCOW (MRC) -- Bayer has provided a business update confirming its adjusted outlook for 2020, and says it expects 2021 sales to be at approximately the same levels as in 2020 despite significant headwinds from the COVID-19 pandemic, especially in the agricultural market, said Chemweek.
As a result, the company’s board has decided to introduce additional operational savings that may lead to more job cuts. Bayer says it also plans to optimize further its working capital and capital expenditure and is reviewing options to exit nonstrategic businesses or brands that are below the divisional level, it says.
The additional savings from the planned measures will be more than EUR1.50 billion (USD1.76 billion) on an annualized basis from 2024, on top of annualized earnings contributions of EUR2.6 billion as of 2022, which were announced in November 2018, Bayer says. The incremental cash flow from these efforts will mainly be allocated for investments in innovation, profitable growth opportunities, and debt reduction, it says. Bernstein Research (London, UK) estimates that the additional cost savings announced will boost Bayer's margins by approximately 330 basis points (bps) in 2024.
These measures are currently in the early stages of development and will be discussed with the relevant internal bodies, including employee representatives, and announced in detail once finalized, the company says. The COVID-19 pandemic has led to headwinds in 2020 for Bayer with significant currency effects creating an additional burden on sales and earnings growth, the company says. However, Bayer expects to offset the impact of lower revenue in its crop science and pharmaceutical divisions through appropriate countermeasures, such as the acceleration of existing efficiency programs and cost contingencies.
"We believe the additional measures are necessary to accelerate our overall transformation, generate margin improvements, and thus maintain our competitive profile. 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,” says Werner Baumann, chairman of Bayer.
The effects of the pandemic will be deeper than expected on the company’s crop science business with reduced growth expectations due to low commodity prices for major crops, intense competition in soy, and reduced biofuel consumption, Bayer says. This is compounded by the negative currency effects, some of which are significant as in the case of the Brazilian currency, it says. The company notes that the situation is unlikely to improve considerably in the near term and 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 company’s pharmaceuticals business is anticipated to return to growth in 2021, Bayer says. The company plans to invest further in the business to strengthen its mid- and longer-term growth potential. Bayer’s consumer health business has shown a strong performance and is expected to outpace peer growth in the coming years, the company says.
Meanwhile, Bayer expects core earnings per share in 2021 to be slightly below 2020 levels at constant exchange rates. Bayer’s board intends to retain the company’s dividend policy, which delivers 30–40% of core earnings per share to stockholders each year, with payouts in the coming years expected to be at the lower end of this corridor rather than at the upper end in previous years, it says.
Growth and cash-flow generation in 2021 are expected to be lower than planned and can only be partially compensated by further savings measures, Bayer says. The company will present a detailed forecast for 2021 together with an updated midterm outlook when it publishes its results for the full year 2020.
As MRC informed earlier, Bayer says that its supervisory board has unanimously decided to extend the contract of Werner Baumann, CEO and chairman of the management board at Bayer. Baumann has been the company’s CEO and chairman since May 2016 and his contract was due to expire at the 2021 annual stockholders’ meeting.
According to MRC's ScanPlast report, Russia's overall estimated consumption of PC granules totalled 47,300 tonnes in the first two quarters of 2020 (excluding imports and exports to/from Belarus), compared to 40,700 tonnes a year earlier. Demand increased by 16% year on year.