Bayer MaterialScience split will make two global champions: CEO

Franco Capaldo

30-Oct-2014

(adds further detail on MaterialScience split, outlook and segment financials throughout)

dekkersLONDON (ICIS)–Bayer is confident the strategic decision to float its MaterialScience unit on the stock market as a separate company to focus entirely on its Life Sciences businesses will create “two global champions”, the company’s CEO Marijn Dekkers said on Thursday.

In September, Bayer announced plans to either spin off or launch an initial public offering (IPO) for MaterialScience on the German stock exchange. Its Life Sciences business consists of its HealthCare and CropScience units.

“We are confident that this strategic decision is beneficial for both Bayer and MaterialScience and will allow both companies to create value in the long term, resulting in two global champions,” Dekkers said in news conference call for the third quarter of 2014.

“Bayer will become a pure life science company that is acknowledged for its success in science and innovation – a foundation we can build on,” he said.

“At the same time, MaterialScience can continue to develop its competitive position as a separate company. The business has an outstanding starting position and holds market leadership positions.

“Thanks to the significant investment of recent years, MaterialScience can benefit from one of the most modern global production networks – and from the cost leadership and customer proximity this network provides. With autonomous access to capital to finance its investment needs, MaterialScience can continue to develop successfully as an independent company for high-tech polymers,” he added.

The Germany-based major said its MaterialScience division will be floated on the stock market as a separate company by mid-2016 at the latest.

Earlier on Thursday, Bayer reported that its third-quarter net profit increased 12.7% year on year to €826m, backed by improved performance across its businesses.

Sales for the three months to September 2014 rose 5.6% to €10.2bn, with operating profit up 12.7% at €1.38bn. Earnings before interest, taxes, depreciation and amortisation (EBITDA) before special items over the same period increased 1.4% to €2.01bn.

Bayer MaterialScience had a 2.2% increase in third-quarter operating profit to €184m, with sales rising 4.8% at €3.03bn, it said.

Dekkers said the growth was due to significantly higher volumes for polycarbonates; polyurethanes; and coatings, adhesives and specialties, although selling prices were slightly lower compared with the prior-year period.

EBITDA before special items at MaterialScience fell slightly by 3.5% to €334m. “Earnings were enhanced by higher volumes, efficiency improvements and somewhat lower raw material and energy costs, but held back by a drop in selling prices and negative currency effects of around €10m. A further factor was the one-time gains of €17m in the prior-year quarter,” the company said.

The group’s CropScience sales in the third quarter increased by 12.7% year on year to €1.93bn as all its units developed positively. Third-quarter EBITDA before special items at CropScience climbed 24.1% year on year to €278m.

“Both Crop Protection/Seeds and Environmental Science contributed to this encouraging growth,” said Dekkers.

In the HealthCare business, sales increased by 4.6% year on year in the third quarter to €4.96bn.

“This growth continued to be driven by our recently launched pharmaceutical products,” said Dekkers. All regions contributed to the increase, with particularly encouraging development in the US, China and Germany, Bayer said.

EBITDA before special items of Bayer HealthCare, at €1.40bn, was slightly ahead of the prior-year quarter of €1.39bn, despite earnings being diminished by higher selling expenses and higher research and development spending at Pharmaceuticals.

Dekkers also said Bayer has raised its guidance for 2014 on the back of positive business developments and the inclusion of the consumer care business acquired from US-based pharmaceuticals group Merck & Co, as well as a reversing trend for currency effects.

Bayer on 1 October announced it had closed the acquisition of Merck & Co’s consumer care business for $14.2bn. Dekkers said the acquisition gives its HealthCare business the global number two position in non-prescription medicines.

The company anticipates the consumer care business of Merck & Co will contribute additional sales of €300m-350m and EBITDA before special items of about €70m in the fourth quarter of 2014.

“We expect [total group] sales to increase by 6% after adjusting for currency and portfolio changes. Allowing for negative currency effects of 3% instead of the previously assumed 4%, our sales forecast is around €42bn,” Dekkers said.

“We now plan to increase EBITDA before special items by a mid-single-digit percentage. Overall, we expect to see negative currency effects of approximately €450m or 5%,” he added. In 2013, Bayer’s EBITDA before special items was €8.4bn.

“We now aim to increase core earnings per share by a mid- to high-single-digit percentage, allowing for expected negative currency effects of around 7%,” Dekkers said. Core earnings per share in 2013 were €5.61.

Bayer said it still expects sales in HealthCare to advance by a mid-single-digit percentage on a currency- and portfolio-adjusted basis and thus be approximately €20bn (previously: approximately €19.5bn).

Within the Pharmaceuticals segment, Bayer confirmed its guidance that sales should increase by about 10%, but raised its guidance for CropScience in light of the encouraging business development. The CropScience subgroup now expects to increase sales by about 10% (previously: a high-single-digit percentage).

“MaterialScience continues to expect sales to increase in 2014 by a mid-single-digit percentage on a currency- and portfolio-adjusted basis,” the company added.

In the first nine months of the year, Bayer reported a 17.1% year-on-year increase in net profit to €3.20bn, with sales up 3.1% at €31.2bn, it said. EBITDA before special items over the period rose 5.0% year on year to €6.97bn.

Bayer MaterialScience’s operating profit for January-September 2014 jumped 40.3% to €512m on the back of a 1.8% increase in sales to €8.70bn.

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