Bayer AG (

BAYRY.PK

)

Q4 2011 Earnings Call

February 28, 2012 08:00 pm ET

Executives

Alexander Rosar - Head, IR

Marijn Dekkers - Chairman & CEO

Werner Baumann - CFO

Jörg Reinhardt - Chairman, Bayer HealthCare AG

Sandra Peterson - Chairman &CEO, Bayer CropScience AG

Patrick Thomas - Chairman, Bayer MaterialScience AG

Analysts

Tim Race - Deutsche Bank

Sachin Jain - Merrill Lynch

Jeremy Redenius - Sanford Bernstein

Richard Vosser - JPMorgan

Fabian Wenner - Kepler Capital Markets

Christian Faitz - Macquarie

Andrew Baum - Citi

Jo Walton - Credit Suisse

Peter Spengler - DZ Bank

Florent Cespedes - Exane BNP Paribas

Damien Conover - Morningstar

Ronald Köhler - MainFirst

Matt Lowe - JPMorgan

Presentation

Operator

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Ladies and gentlemen thank you for standing by. Welcome to Bayer’s Investor and Analyst Conference Call on the full year and fourth quarter 2011 results. Throughout today’s recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. (Operator Instructions)

I would now like to turn over the conference over to Mr. Alexander Rosar, Head of Investor Relations of Bayer AG. Please go ahead, sir.

Alexander Rosar

Thank you, Clare. Ladies and gentlemen, good afternoon and welcome, also on behalf of my colleagues to our conference call during which we will review our fourth quarter and full-year figures with you.

With me on the call are Marijn Dekkers, our CEO; Werner Baumann, our CFO. HealthCare is represented by Jörg Reinhardt, CropScience by Sandra Peterson; and MaterialScience by Patrick Thomas.

Marijn will start off with a brief summary of the developments in the fourth quarter and our achievements in the full year. We assume you have all received and reviewed the briefing documents and the slides, so we’ll just run you through the main points.

Before handing over to Marijn, I’d also like to draw your attention to the Safe Harbor statement. Thank you. Marijn?

Marijn Dekkers

Thank you, Alexander. Ladies and gentlemen, good afternoon. 2011 was a very good year for Bayer. We grew our business than we substantially improved earnings. We achieved the targets that we raised after the first quarter and against this background, we are proposing at the shareholders meeting to increase the dividend to EUR 1.65 per share.

As the global economic recovery lost momentum during the second half of 2011, we were faced with mixed business performance in the fourth quarter. HealthCare and CropSciences performed in line, but MaterialScience clearly below our expectations. During 2011, we continue to aggressively pursue our strategy of target investment in our innovation capability.

And in this respect we were especially successful in 2011. At Pharma we now have four new products with blockbuster potential which are launching or expect to launch near term. Our Crop Protection new product pipeline includes products with a combined sales potential of approximately EUR 2 billion. We also successfully strengthened our presence in the dynamic emerging markets where sales moved ahead by 9% in 2011.

We are creating the necessary financial flexibility to the restructuring program we communicated in November 2010 to improve efficiency and reduced internal complexity. This program is proceeding as planned according to the principal, more innovation, less administration. We are looking with a good level of confidence to 2012 and are targeting higher sales and earnings, although the outlook for the global economy and especially for the Euro Zone is marked by uncertainty.

Let me now elaborate on some key figures for the fourth quarter. When talking about sales, I will concentrate on portfolio and currency adjusted data. Group sales rose by 2% to EUR 9.2 billion in the quarter. This was largely attributable to a good performance of Consumer Health and CropScience. Reported EBIT rose significantly to EUR 629 billion mainly due to lower special charges.

In Q4, 2011 earnings were diminished by net special charges of EUR 215 million mainly from restructuring compared to net special charges of EUR 954 million in the previous year quarter. Adjusted EBITDA declined by 9% mainly caused by a sharp drop in earnings of MaterialScience. HealthCare and CropScience were able to increase earnings.

Net cash flow receded by 41% to EUR 1.152 billion and was impacted by payments made in connection with litigations concerning Liberty Link rights of $484 million. After investments of EUR 725 million, the operating free cash flow came in at EUR 427 million. Net income in the fourth quarter amounted to EUR 397 million. Earnings per share rose to EUR 0.48 while core earnings per share came in at EUR 0.97, an increase of 2% over the prior-year quarter.

How does this development breakdown by segments? HealthCare sales rose by 2%, business in pharma slightly increased by 1% with declines in Europe and the US offset by higher sales in the emerging economies and Japan. Sales of Consumer Health moved ahead by 5% with all divisions contributing to the growth. The adjusted EBITDA of HealthCare was up 4%, driven by the business expansion in Consumer Health.

CropScience sales increased by 3% due to higher volumes especially at Crop Protection in Latin America as well as due to a favorable BioScience development. The adjusted EBITDA increased slightly. It included as a divestment gain of EUR 22 million, half the size of the gain in the fourth quarter of 2010. MaterialScience sales were on last year’s level, with higher prices compensating for lower volumes. The adjusted EBITDA fell sharply by 64%. Higher selling prices were not able to compensate for the impact of higher raw material prices.

So, ladies and gentlemen, let me now briefly comment on our full-year performance against the targets we set ourselves for 2011. Group sales in fiscal 2011 rose by 6% to a record EUR 36.5 billion, exceeding our original target of EUR 35 billion to EUR 36 billion sales. With an adjusted EBITDA of EUR 7.6 billion generated in 2011, we clearly exceeded our original targets to increase adjusted EBITDA towards EUR 7.5 billion. Core EPS was originally forecast to improve by 10%, we achieved a 15% plus, again more than we communicated early 2011. And we were also able to substantially reduce our net financial debt by EUR 0.9 billion.

Now let me discuss 2011 for the three sub groups versus their respective targets. HealthCare showed only modest growth in 2011, but it’s operating results improved significantly. As in the previous year, the pharma segment was hampered by the efforts of many countries to reduce health system costs. Intense competition from generic products also presented an ongoing challenge. That makes it all the more important that our cost management was successful, that our consumer health segment outperformed the market and that we achieved or exceeded our communicated times.

Boosted by improved weather conditions in the major growing regions and good prices for agricultural commodities, our CropScience sub group posted encouraging sales growth and even better increase in earnings compared with a relatively weak 2010 and thus achieved or exceeded our communicated times.

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