RNS Number:6769I
Bayer AG
13 March 2003
Cautious optimism in light of business development so far this year
Bayer expects growth in operating result in 2003
2002 figures: Net income up 10 percent to 1.1 billion euros / Sales from
continuing operations 1 percent lower/
Net debt down significantly to 8.9 billion euros / Ambitious medium-term profit
targets declared
Leverkusen - The Bayer Group expects to see an increase in its operating result
from continuing operations in 2003. "To achieve this we are relying mainly on
the steps we have taken to improve our earning power," the Chairman of Bayer's
Board of Management, Werner Wenning, told the spring financial news conference
in Leverkusen - although a precondition, he said, is that the present economic
situation does not radically deteriorate. He regards the development of sales
and operating result in the first two months of 2003 as encouraging and as
grounds for cautious optimism.
The Bayer CEO described 2002 as "a year of transition." The targets set for
realigning the Group were reached. Bayer delivered on its goals and in some
cases exceeded them. "I am convinced that our realignment has given us an
excellent foundation for future success," he said.
He said he was not satisfied with the business trend in 2002. The adverse
economic environment, high one-time costs connected with the acquisition of
Aventis CropScience (ACS) and a large number of restructuring measures all had
an impact on the operating business. Sales from continuing operations declined
by 1 percent to 29 billion euros, while the operating result before exceptional
items fell by 46 percent to 989 million euros. Net income, on the other hand,
rose 10 percent to 1.1 billion euros. A major factor here was the proceeds from
the extensive program of divestments.
To enable the stockholders to share appropriately in this exceptional income,
the Supervisory and Management Boards are to recommend to the Annual
Stockholders' Meeting an unchanged dividend of 0.90 euros. Based on Bayer's
current share price this represents a return of about 8 percent. "This
underlines that, even in difficult times, we maintain continuity in our dividend
policy in the interest of our stockholders," said Wenning.
Business in HealthCare was down by 12 percent to 9.4 billion euros, and the
operating result before exceptionals dropped by 21 percent to 739 million euros.
Wenning said this was mainly due to the pharmaceuticals division, which had to
contend with the effects of the withdrawal of Lipobay/Baycol and declines in
sales of the medicines Ciprobay and Adalat. Pharmaceutical sales fell by 23
percent to 3.7 billion euros. There was also a marked decline in the operating
result pre-exceptionals.
Bayer's CEO reported that the number of lawsuits filed in connection with
Lipobay/Baycol, which was voluntarily withdrawn from the market in summer 2001,
has reached 8,400. Of these, he said, 4,600 are virtually identical complaints
filed by a single law firm which has not provided details regarding the ailments
claimed by the plaintiffs. More than half of the approximately 600 new suits
also originate from this firm. These numbers are subject to change and the
company is providing periodic updates on its website.
Without concession of liability, Bayer has so far have entered settlement
agreements with more than 500 individuals who experienced serious side effects.
To date, a total of approximately 140 million euros has been paid for such
settlements. Where serious side effects are involved, Bayer is continuing its
efforts to reach out-of-court settlements on a case-by-case basis and is
currently in settlement negotiations for several hundred further cases. Wenning
reiterated that Bayer is vigorously defending itself in all cases in which there
is no connection between Lipobay/Baycol and the health problems that are the
subject of the claims, or where a fair settlement cannot be reached.
In the event plaintiffs substantially prevail despite existing defense
arguments, it is possible that Bayer could incur charges in excess of its
insurance coverage. Due to the considerable uncertainty associated with these
proceedings, it is currently not possible to more accurately estimate potential
liability. For this reason, provisions for any amount for which liability might
exceed insurance coverage have not presently been made. Bayer's auditor agrees
with this assessment. "We continue to watch the situation very closely," said
Wenning, "and, as the litigation progresses, we will regularly reconsider the
need to establish provisions."
The Board Chairman also pointed out that a shareholder lawsuit has been filed in
New York against Bayer AG and against Dr. Manfred Schneider as former Management
Board Chairman and himself as current Chairman. "We will examine the complaint
and vigorously defend ourselves," he said.
Wenning said Bayer remains firmly convinced it acted responsibly and
appropriately in the management of Lipobay/Baycol. The drug was prescribed for
over six million patients worldwide. The overwhelming majority of these
individuals took it safely and effectively, with no serious side effects.
In the courtroom Bayer is showing evidence that Lipobay/Baycol was a safe and
effective drug when taken as directed. The company is also showing documents
that prove that it shared all pertinent safety information with the health
authorities, including the U.S. Food and Drug Administration, beginning before
Lipobay/Baycol ever went on the market and continuing until after Lipobay/Baycol
was voluntarily withdrawn from the market. "And, most importantly, we are
demonstrating that at all times patient safety was, and is, our first and
foremost priority."
Bayer CropScience saw sales rise by 66 percent to 4.7 billion euros through the
acquisition of Aventis CropScience. "It was especially significant that the
existing Bayer business, despite the integration process, was able to increase
its share in a market which shrank 9 percent," said Wenning. The operating
result before exceptionals was negative to the tune of minus 15 million euros,
although this has to be seen against the background of the ACS acquisition.
While the acquired business contributed 120 million euros to earnings, 536
million euros in amortization and inventory write-downs associated with the
first-time consolidation of ACS, along with 125 million euros in integration
costs, had a negative effect.
Programs to improve efficiency show results
Bayer's industrial business was hit in 2002 by the economic situation, exchange
rate fluctuations, falling prices and increased raw material costs. Polymer
sales fell 2 percent to 10.8 billion euros, although the operating result before
exceptional items was held at 418 million euros, the same level as the previous
year. "This was an indication of the success of our extensive programs to
improve efficiency, which already produced significant savings in 2002," said
Wenning.
Chemicals saw sales fall by 12 percent to 3.3 billion euros; the operating
result before exceptionals declined by 41 percent to 160 million euros. Account
should be taken, he said, of the situation at subsidiary H.C. Starck, which
suffered especially from the slump in the electronics industry. Excluding H.C.
Starck, the decline in the operating result for Chemicals pre-exceptionals was
only 2 percent, while sales fell 9 percent. This shows the action taken in
Chemicals, too, is bearing fruit.
Bayer's top priorities for the current year are to improve performance and
resolve strategic issues. This includes strictly implementing the efficiency
improvement programs, which will bring planned savings of 500 million euros in
2003 alone, streamlining the investment program, and further optimizing current
assets. It is planned to bring down net debt, which was already reduced to 8.9
billion last year, to about 7 billion euros by year end.
Capitalizing on value creation and growth potentials
Finally, according to Wenning, every effort will be made to capitalize on
potentials to increase value creation and growth. The Group is deliberately
targeting markets which promise future growth and will continue to do so, he
said. Bayer is now a leader in 80 percent of the businesses in which it
operates, and "only activities which can earn more than the capital costs in the
long term will remain in our portfolio."
As part of the corporate realignment, the Chairman said, medium-term profit
targets have been redefined. "Our targets are ambitious, but we believe they are
a realistic reflection of our strategic scenario," he said. Assuming that
overall economic demand will pick up from 2004 at the latest and without
counting possible portfolio changes, the Group is aiming for an EBITDA margin of
21 percent (2002: 10 percent) by 2006. In Polymers and Chemicals the medium-term
profit targets are 19 and 17 percent EBITDA, respectively, and 29 percent for
Bayer CropScience.
In HealthCare the profit target is 20 percent EBITDA. "We are very confident we
will also be able to significantly improve our performance in the HealthCare
field," said Wenning. The four divisions - Animal Health, Biological Products,
Consumer Care and Diagnostics - are already leading players in their respective
markets today.
Bayer is currently making maximum efforts to strengthen the earning power in
Pharmaceuticals. This relates not only to the restructuring, in which great
progress has been made, but also to the launch of new products. Wenning cited
the very recent E.U. approval for Levitra and other very promising launches such
as Cipro XR in the United States and the availability of the hypertension drug
Kinzalmono in five European countries. Bayer's research is to be concentrated on
cardiovascular drugs, products to treat metabolic disorders, and
anti-infectives. Activities and investments in the field of cancer therapy will
be continuously expanded.
With these measures, already announced at the news conference in November 2002,
Bayer has strengthened its business in order to maximize the value of its
pharmaceutical activities. "This is an important precondition for finding a
strategic solution for our pharmaceuticals division, a process we are
energetically pursuing," said the Bayer CEO.
In his review of the financial statements for 2002, CFO Klaus Kuhn highlighted
the positive cash flow development and the related reduction of net debt to 8.9
billion euros. The operating cash flow rose by 3 percent to a little more than 3
billion euros. A reduction of 1.4 billion euros in working capital boosted net
cash flow by 15 percent to a record 4.4 billion euros. "We easily surpassed our
target of bringing indebtedness down to below 10 billion euros," said Kuhn.
"Achievement of this goal was aided by the reduction in capital expenditures,
aggressive working capital management and the proceeds of the divestment
program, which was successfully implemented despite difficult conditions on the
capital market."
Bayer is also taking a longer-term view of its financing and will continue to
pursue its sound financing policy in the future, Kuhn stressed. The proceeds of
divestments already agreed upon will be used primarily to repay debt.
"Thanks to consistent reduction in debt, Bayer therefore continues to have a
very healthy balance sheet," said Kuhn. Total assets rose by 4.7 billion to 41.7
billion euros. Financial liabilities increased by a net amount of 2.8 billion
euros due to the financing of the ACS takeover. Stockholders' equity fell by 1.6
percent to 15.3 percent, mainly because of currency factors, and equity coverage
of total assets was thus 37 percent.
Leverkusen, March 13, 2003
Forward-Looking Statements
This news release contains forward-looking statements based on current
assumptions and forecasts made by Bayer Group management. Various known and
unknown risks, uncertainties and other factors could lead to material
differences between the actual future results, financial situation, development
or performance of the company and the estimates given here. These factors
include those discussed in our public reports filed with the Frankfurt Stock
Exchange and with the U.S. Securities and Exchange Commission (including our
Form 20-F).The company assumes no liability whatsoever to update these
forward-looking statements or to conform them to future events or developments.
Financial Statements
Bayer Group Consolidated Statements of Income Note 2002 2001 1)
Euro million
Net sales (1) 29,624 30,275
Net sales from discontinuing operations (6) (666) (1,105)
Net sales from continuing operations 28,958 29,170
Cost of goods sold (17,509) (16,747)
Gross profit 11,449 12,423
Selling expenses (2) (6,786) (7,006)
Research and development expenses (3) (2,532) (2,496)
General administration expenses (1,228) (999)
Other operating income (4) 1,732 481
Other operating expenses (5) (2,041) (1,198)
Operating result from continuing operations 594 1,205
Operating result from discontinuing operations (6) 980 406
Operating result (7) 1,574 1,611
Income from investments in
affiliated companies - net (8) 223 54
Interest expense - net (9) (449) (349)
Other non-operating expenses - net (10) (392) (201)
Non-operating result (618) (496)
Income before income taxes 956 1,115
Income taxes (11) 107 (154)
Income after taxes 1,063 961
Minority stockholders' interest (13) (3) 4
Net income 1,060 965
Earnings per share (Euro) (14) 1.45 1.32
Diluted earnings per share (Euro) (14) 1.45 1.32
1) 2001 Figures restated
Bayer Group Consolidated Balance Sheets Note Dec. 31, 2002 Dec. 31, 2001 1)
Euro million
Assets
Noncurrent assets
Intangible assets (18) 8,879 5,014
Property, plant and equipment (19) 12,436 13,543
Investments (20) 2,198 3,145
23,513 21,702
Current assets
Inventories (21) 6,342 5,818
Receivables and other assets
Trade accounts receivable (22) 5,542 5,415
Other receivables and other assets (23) 4,210 2,447
9,752 7,862
Liquid assets (24)
Marketable securities and other instruments 29 52
Cash and cash equivalents 767 719
796 771
16,890 14,451
Deferred taxes (11) 967 608
Deferred charges (25) 322 278
41,692 37,039
of which discontinuing operations (35) 0 820
Stockholders' Equity and Liabilities
Stockholders' equity
Capital stock of Bayer AG 1,870 1,870
Capital reserves of Bayer AG 2,942 2,942
Retained earnings 10,076 9,841
Net income 1,060 965
Other comprehensive income
Currency translation adjustment (593) 759
Miscellaneous items (20) 545
(26) 15,335 16,922
Minority stockholders' interest (27) 120 98
Liabilities
Long-term liabilities
Long-term financial liabilities (30) 7,318 3,071
Miscellaneous long-term liabilities (32) 92 140
Provisions for pensions and other post-employment
benefits (28) 4,925 4,407
Other long-term provisions (29) 1,215 1,288
13,550 8,906
Short-term liabilities
Short-term financial liabilities (30) 2,841 4,309
Trade accounts payable (31) 2,534 1,993
Miscellaneous short-term liabilities (32) 2,138 1,832
Short-term provisions (29) 2,257 1,477
9,770 9,611
23,320 18,517
of which discontinuing operations (35) 0 233
Deferred taxes (11) 2,453 1,238
Deferred income (34) 464 264
41,692 37,039
1) 2001 Figures restated
Bayer Group Consolidated Statements of Changes in Stockholders' Equity
Miscellaneous items
Euro million Capital Fair-value
Capital reserves Currency remeasure-
stock of of Retained Net translation ment of Cash flow
Bayer AG Bayer AG earnings income adjustment securities hedges Total
Dec. 31, 2000 1,870 2,942 9,047 1,816 465 0 0 16,140
Jan.1, 2001 1,870 2,942 9,047 1,816 465 1,339 95 17,574
Changes in stockholders' equity
resulting from capital contributions and
dividend payments
Capital contributions 0
Dividend payments (1,022) (1,022)
(1,022) (1,022)
Other changes in stockholders' equity
not recognized in net income
Exchange differences 294 294
Other differences (785) (104) (889)
of which realized gains (losses) (25) (68) (93)
294 (785) (104) (595)
Changes in stockholders' equity
recognized in net income
Allocation in retained earnings 794 (794) 0
Net income for 2001 965 965
794 171 965
Dec. 31, 2001, 1,870 2,942 9,841 965 759 554 (9) 16,922
Changes in stockholders' equity
resulting from capital contributions
and dividend payments
Capital contributions 0
Dividend payments (657) (657)
(657) (657)
Other changes in stockholders' equity
not recognized in net income
Exchange differences (1,352) (1,352)
Other differences (561) (4) (565)
of which realized gains (losses) (154) 9 (145)
(1,352) (561) (4) (1,917)
Changes in stockholders' equity
recognized in net income
Allocation to retained earnings 235 (308) (73)
Net income for 2002 1,060 1,060
235 752 987
Dec. 31, 2002 1,870 2,942 10,076 1,060 (593) (7) (13) 15,335
Bayer Group Consolidated Statements of Cash Flows Note 2002 2001 1)
Euro million
Operating result 1,574 1,611
Income taxes (339) (637)
Depreciation and amortization 3,313 2,516
Change in long-term provisions (135) (193)
Gains on retirements of noncurrent assets (1,401) (374)
Gross cash provided by operating activities 3,012 2,923
(Increase) Decrease in inventories (55) 146
Decrease in trade accounts receivable 546 638
Increase in trade accounts payable 419 73
Changes in other working capital 498 79
Net cash provided by operating activities (39) 4,420 3,859
of which discontinuing operations (42) 87 131
Cash outflows for additions to property, plant and equipment (2,239) (2,617)
Cash inflows from sales of property, plant and equipment 2,114 521
Cash inflows from sales of investments 903 109
Cash outflows for acquisitions less acquired cash (7,776) (502)
Interest and dividends received 402 138
Net cash inflow from marketable securities 26 219
Net cash used in investing activities (40) (6,570) (2,132)
of which discontinuing operations (42) 1,286 310
Bayer AG dividend and dividend payments to
minority stockholders (662) (1,028)
Issuances of debt 7,427 2,514
Retirements of debt (3,890) (2,551)
Interest paid (704) (505)
Taxes on the non-operating result 38 21
Net cash provided by (used in) financing
ctivities (41) 2,209 (1,549)
of which discontinuing operations (42) 1 77
Change in cash and cash equivalents due to
business activities 59 178
Cash and cash equivalents at beginning of year 719 491
Change in cash and cash equivalents due to changes in
scope of consolidation 4 42
Change in cash and cash equivalents due to
exchange rate movements (15) 8
Cash and cash equivalents at end of year (43) 767 719
Marketable securities and other instruments 29 52
Liquid assets as per balance sheets 796 771
1) 2001 Figures restated
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UOAKROVROARR