First quarter of 2004 gives Bayer grounds for optimism

The Bayer Group got off to a good start in 2004, with currency- and portfolio-adjusted sales up 9% and EBIT before special items expected to match the high level of the first quarter of 2003 (€833 million). 'The pleasing performance recorded in January and February continued in March', said Werner Wenning, chairman of the board of management of Bayer AG, at the company's annual stockholders' meeting in Cologne. 'Overall, our performance in the first three months confirms our positive forecast and gives us reason to be optimistic.' Provided current business conditions do not worsen, Bayer expect to improve both EBITDA and the operating result before special items by more than 10% in 2004. Bayer Group sales in the first quarter of 2004 were steady year-on-year, at €7.4 billion. Before currency translations, there were sales gains in all business areas, including Lanxess. According to the Bayer CEO, the operating result also showed an encouraging improvement. This applies not only to the life science areas - HealthCare and CropScience - but also to the industrial businesses, including Lanxess. 'We have thus gotten off to a good start in 2004, and we intend to build on this', declared Wenning. In his address to the stockholders, Wenning pointed out that the Bayer Group has been fundamentally realigned over the past two years 'through an enormous show of strength'. The Bayer chairman said the goal is 'to equip Bayer for the future, create value for our stockholders, and offer our employees clear perspectives'. He said management has made systematic use of the time available to focus the Bayer portfolio on innovation-driven, growth-oriented activities. The targets set have been achieved. In particular, the company's reorganisation - 'probably the biggest restructuring process in Bayer's history' - was fully implemented last year. Bayer now have highly capable and independently operating subgroups that can align themselves fully to their respective markets. These subgroups are supported by competent service companies. Furthermore, the realignment of Bayer's portfolio got under way at the end of 2003 with the planned separation of the new company Lanxess, including a large part of the chemical activities and about one third of the polymers business. Bayer itself will concentrate in future on three areas: health care, nutrition and high-tech materials. Explained Wenning: 'The new strategy is based on our clear focus on two key elements: innovation and growth. As an inventor company, we aim to shape the future and be innovative in ways that benefit society.' This objective is reflected in the company's products. 'We want our products and our technologies to help make people's lives healthier, easier and more comfortable - in other words, better', said Wenning. 'That's why we've devised a new international slogan: Bayer - Science For A Better Life.' Wenning expressed confidence about the future of the Bayer Group: 'As a company with a 140-year history, we believe we have a responsibility to start thinking today about how things will be tomorrow.' By focusing their resources on the growth platforms of the innovative HealthCare, CropScience and MaterialScience businesses, Bayer are laying the foundations for sustained, long-term growth. Wenning sees special potential in the use of Bayer technologies in different parts of the Group: 'We need only think of the opportunities that could emerge from the use of plants as 'bioreactors', or the combination of materials and active substances in medical technology', he said. Although billions of euros in sales in such markets are not yet a realistic prospect, Wenning is convinced that Bayer have what it takes to participate in their enormous potential. However, the yardstick of Bayer's success is performance improvement, which is essential for long-term value creation. In the context of the realignment, Bayer have therefore redefined their target returns and plan to place more emphasis on EBITDA, which is increasingly becoming the standard controlling parameter, both in Germany and internationally. In line with the long-term potential, the target return for the future Bayer Group has been set at 22%, with an EBITDA margin of 19% planned for 2006 following the separation of Lanxess. This means that within three years, Bayer aim to increase the 12% EBITDA margin achieved in 2003 by nearly 60%. 'We realise that these targets are ambitious', said Wenning, 'yet in our view they represent a realistic scenario that could be achieved by our strategy.' In his comments on the planned stock market listing of Lanxess, the Bayer ceo explained that Lanxess will be one of Europe's leading chemical companies, with some €6 billion in sales and approximately 20,000 employees. Its four business segments will be Chemical Intermediates, Performance Chemicals, Performance Plastics and Performance Rubber. Lanxess is scheduled to be placed on the stock market by the beginning of 2005 at the latest, subject to the approval of the Annual Stockholders' Meeting. Wenning said the company would decide early in the second half of this year whether this will take place by way of an IPO or through a spin-off to existing stockholders. The decision will depend on the capital market situation, general economic conditions and the unit's operating performance over the coming months. Wenning expressed his confidence that both Bayer and Lanxess will benefit from the separation, as it will allow them to implement their different strategies to the full. He said the configuration of the new company is almost finalised, and the company anticipates that the activities concerned will be carved out within the Bayer Group effective July 1, allowing Lanxess to operate more or less independently as of that date.