Bayer seeks Euro200m cost cuts from CropScience

06 March 2006 13:02  [Source: ICIS news]

LEVERKUSEN, Germany (ICIS News)--Bayer would need to cut costs in its CropScience business by Euro200m ($240m) in 2006, to bring its performance up to standard and hit current margin targets, chairman Werner Wenning said on Monday.

"We are examining the relative and absolute costs of the business compared to our competitors," he said in Leverkusen at the German group's Q4 and 2005 financial results press conference. "We are examining the number of formulation stations, compared to our competitors, the relative costs of our research and administration costs."

"With sales at Euro6bn, our EBITDA (earnings before interest, tax, depreciation and amortisation) margin was 21.6%; we want 25%," he said, promising a programme to examine costs by the end of the second quarter.

Wenning said the cost-cutting programme would be designed to focus research and development (R&D) on key products that bring benefits to farmers, because "they have a better price profile", and to develop a business with a cost structure that would be the industry's benchmark.

The crop science market is characterised by only moderate expansion, he said.

"We believe the main success factor is organic growth based on our own innovative capability. The years since 2000 have seen the launch of 16 new active ingredients. Including these and another 10 that we plan to introduce between now and 2011, we anticipate total sales potential of Euro2bn from our crop science pipeline," he added.

CropScience sales totalled Euro5.90bn ($4.9bn) last year, about level with 2004. Adjusted for currency and portfolio changes, however, sales were down 4.2%. Lower crop protection sales were partly offset by growth in the environmental science and bioscience sector. CropScience earnings before interest and tax (EBIT) were up 40% to Euro690m.

Before special items, CropScience EBIT rose by Euro163m to Euro685m. This was due to the absence of the Euro134m in goodwill amortisation charges taken in 2004 and improved operating efficiencies in the environmental science, bioscience segment. But crop protection sales were down 1.7 % on 2004  to Euro4.87bn. In this segement, insecticide sales were down almost 5% to Euro1.31bn. Business was hampered by significantly lower pest infestation, particularly in Asia. Fungicides sales declined by 2.3% to Euro1.25bn due to the long drought in Southern Brazil. 

Bayer's crop protection segment EBIT grew by Euro146m, to Euro532m. Before special items, EBIT advanced by Euro97m to Euro525m. The earnings improvement was due to the absence of goodwill amortisation.

By: Simon Robinson
+44 20 8652 3214

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