Bayer Chief Executive Bill Anderson is considering options to revamp the company's structure and eliminate multiple layers of management. This move is expected to result in significant job cuts within the company. However, Anderson has ruled out the possibility of splitting the group into three separate businesses.
Since taking over from Werner Baumann in June, Anderson has enlisted the help of a team of advisors to explore different structural options. One potential option under consideration is the separation of Bayer's crop science or consumer health divisions.
"We are open to various structures and will pursue the path that will ensure the highest value creation," stated Anderson.
Bayer is one of the few conglomerates that still brings together pharmaceutical and consumer health assets under one roof. However, other companies have been choosing to spin off their consumer-health businesses to focus on more lucrative prescription drugs. Recent examples include Sanofi, Johnson & Johnson, Pfizer, and GSK.
"Our initial consideration involved splitting the company into three businesses, but we have decided against that option," declared Anderson. "A three-way split would be a complex process that could potentially hamper our operational performance. We will not compromise on our current standards."
Shareholders, such as Bluebell Capital Partners, had previously urged Bayer to divide the company into three separate entities. They argued that the crop science, consumer health, and pharmaceutical divisions had minimal synergy with one another.
Restructuring at Bayer
Bayer, the multinational pharmaceutical company, has announced plans to restructure its management system in order to streamline its operations. The company aims to focus solely on what is essential for its mission and eliminate any unnecessary elements. This move will involve reducing the number of management layers within the organization.
According to Anderson, a spokesperson for Bayer, the company intends to adopt a model where most employees will work in small, self-managed teams, similar to the structure of a small business. This change will result in a significant reduction in costs.
Although Bayer has implemented various cost-cutting programs in the past, their senior leadership structure has remained unchanged. Anderson acknowledges that there are still twelve layers between him and the customers, a situation deemed excessive.
In the third quarter, Bayer's three divisions reported lower sales and earnings. The agricultural division faced challenges due to impairment losses resulting from high interest rates. Additionally, the company has been grappling with lower prices for glyphosate, a key ingredient found in herbicides and weed-control products. This decline in sales led Bayer to revise down its overall sales and earnings guidance for the year.
Recently, Bayer posted a net loss of 4.57 billion euros ($4.89 billion) for the three months ending in September. This is in contrast to a profit of EUR546 million in the same period last year.
Furthermore, the metric "earnings before interest, taxes, depreciation, amortization and special items" experienced a sharp decline of 31%, amounting to EUR1.69 billion. Core earnings per share, another crucial profitability indicator, also slumped to EUR0.38 from EUR1.13.
Bayer recognizes the need for change in order to adapt to current market conditions. The streamlining of operations through a restructured management system is seen as a necessary step towards financial stability and growth.
Bayer's Sales Figures Decline in 2022
Bayer, a leading global conglomerate, experienced a notable decline in sales for the fiscal year 2022. Sales fell by 8.3% to EUR10.34 billion, reflecting the challenging market conditions faced by the company.
The agricultural business division, crop science, recorded a 7% contraction in sales, reaching EUR4.37 billion. Similarly, the pharmaceuticals division also faced a decline of 8.4%, with sales totaling EUR4.54 billion. The consumer health business contributed EUR1.41 billion in sales, showing an 8.9% decrease compared to the previous year.
Analysts had previously projected 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.
Despite these challenges, Bayer remains confident in achieving its financial targets for the full year. The company continues to expect Ebitda before special items between EUR11.3 billion and EUR11.8 billion. Additionally, core EPS is projected to range from EUR6.20 to EUR6.40, with sales predicted to be between EUR48.5 billion and EUR49.5 billion. These projections are based on a currency-adjusted basis using the average monthly exchange rates in 2022.
Looking ahead to 2024, Bayer anticipates a year marked by soft growth and expects it to be challenging. The company plans to provide further guidance in March as it navigates this period.
Bayer's CEO, Mr. Anderson, expressed dissatisfaction with the company's performance this year. He highlighted that despite generating nearly EUR50 billion in revenue, the lack of cash flow is unacceptable. Furthermore, he acknowledged the negative trajectory of the company's share price.
Reflecting the market's response, Bayer shares in Frankfurt experienced a decline of approximately 1.5%, currently trading at EUR41.15 in mid-morning. Since the beginning of the year, the stock has lost roughly 15% of its value.
