The Urethane Blog

Bayer Leaves Covestro Behind

Covestro carve out allows focus on 21st century challenges – Bayer CEO

29 October 2015 12:47 Source:ICIS News CovestroLarge

(updates with chairman comments throughout)

LONDON (ICIS)–Bayer’s carve-out of Covestro will allow the company in the future to focus on two of the ‘greatest challenges of the 21st century’, Marijn Dekkers, the German major’s chairman said on Thursday in a  news conference call for the group’s 2015 third-quarter earnings.

He said as the new company will be able to “concentrate even more intensively” on producing new medicines for an aging and growing world population, and crop protection products that yield more resilient plants.

A few weeks ago, Bayer announced changes to its organisational structure. From 1 January 2016, the business will be managed by three divisions: Pharmaceuticals, Consumer Health and Crop Science.

“Each of these three divisions serves an attractive market and generates good financial returns. And each business is characterized by different cycles and risks, ensuring that our portfolio is diversified and balanced,” Dekkers said.

Earlier on Thursday, Bayer announced that group net income rose by 20.9% year on year to €999m in the third quarter of this year, with all its main businesses reporting strong earnings growth.

The company’s overall earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 14.9% year on year to €2.33bn in the third quarter while sales were up by 1.9% at €11bn, the company said.

Within HealthCare, sales increased by 8.3% year on year in the third quarter to €5.7bn

EBITDA before special items of HealthCare improved by 22.6% to €1.7bn, mainly from the good development of business at Pharmaceuticals and Consumer Health and from positive currency effects of some €70m, Bayer said.

Sales in the CropScience subgroup in the third quarter rose 1.6% to €2.1bn, while EBITDA before special items increased 11.2% to €309m, largely driven by a positive currency effect.

Covestro, formerly named Bayer MaterialScience, posted EBITDA growth of 16.5% in the third quarter, with sales 0.9% lower.

Earlier in the month Covestro announced in a preliminary overview that its third-quarter operating profit rose year on year as lower raw materials costs, positive currency effects, and improved demand counterbalanced a fall in selling prices.

Further details of the subgroup’s performance will be published in the Covestro quarterly report on 12 November.

For the full year of 2015, Bayer said, based on the exchange rates prevailing on 30 September, which it is now applying for the fourth quarter, the group is planning group sales in the region of €46bn. The previous forecast was in the region of €47bn.

Dekkers said this total still corresponds to a low-single-digit percentage increase on a currency- and portfolio-adjusted basis.

“We now expect positive currency effects of approximately 6% compared with the prior-year period, instead of the previous figure of 7%,” he said.

“The expectation regarding the company’s earnings development is largely unchanged. It remains the aim to raise EBITDA before special items by a high-teens percentage,” he added.

“As before, we expect [for 2015] to take special charges in the region of approximately €900m. Three factors account for most of this amount: the integration of the acquired consumer care businesses, the carve-out and stock market flotation of Covestro and the optimization of production structures,” Dekkers said.

By Franco Capaldo