BAYRY Bayer Aktiengesellschaft (PK)

   By Mauro Orru 
 

Bayer Chief Executive Bill Anderson said he is looking at options to overhaul the company's structure and remove multiple layers of management in a move that will result in significant job cuts, but ruled out splitting the group into three businesses.

Anderson, who took the helm of the German pharmaceutical and agricultural conglomerate from Werner Baumann in June, said he had engaged a team of advisors to look at various structural options, including the separation of either its crop science or consumer health divisions.

"We are not wedded to one structure; we will pursue the best course to ensure maximum value creation," Anderson said.

Bayer is one of few remaining groups housing pharmaceutical and consumer-health assets under the same roof. Last month, French drug giant Sanofi set out plans to spin off its consumer-health business, the latest company to hive off a division selling over-the-counter medicines and other retail products to focus on more commercially lucrative but scientifically riskier prescription drugs following similar moves by Johnson & Johnson, Pfizer and GSK.

"We considered simultaneously splitting the company into three businesses. We're ruling that option out," Anderson said. "A three-way split would require a two-step process. And we certainly will not pursue structural moves that come with a downgrade of our operational performance."

Shareholders such as Bluebell Capital Partners had been calling for Bayer to split into three businesses--crop science, consumer health and pharmaceuticals--saying the divisions had nothing to do with each other.

Bayer plans to cut into several layers of management by the end of next year to streamline operations. "We are redesigning Bayer to focus only on what's essential for our mission -- and getting rid of everything else," Anderson said.

Going forward, Anderson said most employees would work in small, self-managed teams just like in a small business, removing a lot of the management layers that large corporations have traditionally divided into boxes. This move would yield a major reduction in costs, he said.

Bayer has embarked on several cost-cutting programs in the past six years, but the number of senior leaders has remained unchanged, Anderson said. "There are still 12 layers between me and our customers. That's simply too much."

Bayer's three divisions reported lower sales and earnings for the third quarter, particularly at its agricultural division, which booked impairment losses due to high interest rates. The company has also been grappling with lower prices for glyphosate, the active ingredient found in herbicides and other weed-control products, a development that in July forced the group to slash its overall sales and earnings guidance for the year.

Bayer on Wednesday posted a net loss of 4.57 billion euros ($4.89 billion) for the three months to the end of September compared with profit of EUR546 million in last year's third quarter.

Earnings before interest, taxes, depreciation, amortization and special items--a profitability metric that is closely watched by analysts and investors--plunged 31% to EUR1.69 billion. Core earnings per share--another key profitability indicator--slumped to EUR0.38 from EUR1.13.

Sales fell 8.3% to EUR10.34 billion. Bayer's agricultural business, crop science, recorded a 7% contraction in sales to EUR4.37 billion. Sales at its pharmaceuticals division fell 8.4% to EUR4.54 billion, while the consumer health business contributed EUR1.41 billion in sales, down 8.9% on year.

Analysts had forecast a net profit of EUR33 million, Ebitda before special items of EUR1.73 billion, core EPS of EUR0.73 and sales of EUR10.44 billion, according to a Vara Research consensus.

Bayer continues to expect Ebitda before special items between EUR11.3 billion and EUR11.8 billion for the full year, core EPS of EUR6.20 to EUR6.40, and sales between EUR48.5 billion and EUR49.5 billion, all on a currency-adjusted basis based on the average monthly exchange rates in 2022. The group expects a challenging 2024 marked by soft growth, and said it plans to provide guidance in March.

"It goes without saying that we're not happy with this year's performance. Nearly EUR50 billion in revenue but zero cash flow is simply not acceptable. Nor is the trajectory of our share price," Anderson said.

Bayer shares in Frankfurt were down roughly 1.5% at EUR41.15 in mid-morning trading. The stock has lost about 15% of its value since January.

Write to Mauro Orru at mauro.orru@wsj.com

(END) Dow Jones Newswires

November 08, 2023 05:17 ET (10:17 GMT)

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