Dive Brief:
-
Bayer AG is considering breaking off its crop sciences division as part of a broad restructuring of the business that will include “a significant reduction in the workforce” and changes to management compensation, CEO Bill Anderson said during an earnings call Wednesday.
-
As the company struggles with profits, Anderson said leadership is evaluating structural changes that could lead to the separation of Bayer’s consumer health or crop science divisions. Splitting the company simultaneously into three businesses is off the table, he assured investors.
-
“We are redesigning Bayer to focus only on what’s essential for our mission – and getting rid of everything else,” said Anderson, who took over in June. Third quarter earnings fell significantly from last year due to headwinds in the company’s crop science unit, resulting in a loss of 4.6 billion euros, or roughly $4.93 billion.
Dive Insight:
Bayer’s efforts to turn around declining profits “is not a traditional cost-cutting program,” Anderson said, and will focus on removing layers of managerial bureaucracy to prioritize operational performance.
“This step will unleash our teams with the mission-focus necessary to turn things around,” Anderson said. “Ninety-five percent of the decision-making in the organization will shift from managers to the people doing the work.”
During the call, Anderson underscored the importance of streamlining operations by cutting multiple layers of management and coordination so the “center of gravity” is closer to the customers and the enterprise can operate “like small business owners do.”
Over the past 90 days, changes have already begun. Bayer has started making leadership and organizational adjustments across the company, and all three divisions have designed ways to overhaul the current business model.
As part of the changes, leadership is evaluating ways to restructure the company. Options include spinning off the crop science or consumer health divisions, doing a sequential three-way breakup, or keeping all three divisions as is. However, Anderson said a simultaneous three-way breakup has been ruled out.
In addition to job cuts and a systems overhaul, a new executive compensation system also will be proposed, with Anderson noting it will be more closely aligned with the long-term development of the company’s share price.
During the third quarter, Bayer generated sales of 10.3 billion euros, down 8% from the previous year. The company also reported a net loss of 4.6 billion euros driven by higher interest rates in the crop division and lower glyphosate prices. This offset positive sales generated by pharmaceuticals and consumer health. EBITDA was down for the two divisions during what is traditionally Bayer’s weakest quarter.
Another update about Bayer’s restructuring plans will be given in March alongside its annual earnings report and 2024 guidance. The company affirmed its 2023 outlook to be as much as 49.5 billion euros, or about $53 billion.
“We are not happy with this year’s performance,” Anderson said. “Nearly 50 billion euros in revenue but zero cash flow is simply not acceptable.”
