Taking a page from a classic marketing campaign, Bayer CropScience says it isn't satisfied with being No. 2. It's setting its sights on being No. 1, and it's willing to try harder to make it happen.
In what was billed as a progress report on its acquisition of Aventis CropScience, the largest purchase in the company's 140-year history, Bayer management discussed its recent past and where it expects to be in the future during a press conference at its headquarters in Monheim, Germany.
“We will be more than just the sum of the two combined businesses,” said Jochen Wulff, chairman of the board of management of Bayer Crop Science AG. “Together with our customers, we intend to grow faster than the market to become the world's leading crop science company.”
In a wide-ranging presentation, Wulff said Bayer CropScience is on track for meeting its goal of launching 14 new active ingredients between 2001 and 2005. Additional sales from those new products could exceed 800 million Euros (about $864 million) by 2006.
“Assuming a long-term growth in the world crop protection market of 2 percent per year, we are planning to increase our revenue by 4 percent,” he said. “At the same time, we are striving to attain an EBITDA margin of 29 percent by 2006 (earnings before interest, taxes, depreciation and amortization).
“With an EBITDA margin of 27 percent in the first half of 2003 we are already head to head with our main competitors, an exceptional achievement as we still had to manage our major acquisition-related tasks well beyond our daily business.”
Bayer's purchase of Aventis CropScience in early June 2002 moved it from No. 6 to the second largest crop protection company in the world, fulfilling one of the company's strategic objectives.
“Since the acquisition, we have been able to hold our own extremely well in a difficult market environment,” said Wulff. “Sales in the first half-year of 2003 increased by 66 percent to 3.2 billion Euro.
“A pro forma comparison with the same period the previous year indicates a decline in sales of 4 percent, primarily caused by the currency effects in our core markets in NAFTA, Asia and South America,” he noted. “At constant exchange rates, our figures indicate a growth of 8 percent, a clear sign that the overall business performance is well on track.”
Calling the acquisition a major shift that dramatically changed what was required of the organization, Wulff said he believes the new company has made profound progress integrating its global processes.
“Merging the business on the country level was one of the most crucial and challenging tasks of integration, as the huge administrative effort associated with the integration process had to be managed in parallel to the utmost business priority of defending our market share.”
In addition, he said, the company has successfully completed the divestitures imposed by the European and U.S. Federal Trade Commissions as a condition for approving the acquisition of Aventis. The divestment of 33 product lines generated 1.7 billion Euro, representing a sales multiple of 2.4.
“We set out to merge two global ventures, thereby creating a market leader,” he said. “I am proud to say that, within a very short period of time, we have built an excellent base from which to achieve our ambitious goals.”
Bayer had to overcome difficult market conditions because of adverse weather conditions in North America and other important markets such as India and Australia, said Esmail Zirakparvar, member of the board of management with responsibility for business operations.
“We can see signs of recovery in the markets in North America and Latin America in 2003,” he said, adding that unusual weather conditions in Europe and the strength of the Euro are having a negative impact.
Following the acquisition of Aventis, Bayer CropScience has organized itself into three operational businesses:
Crop protection — insecticides, fungicides, herbicides and seed treatments;
Environmental science with professional and consumer units — the first oriented toward professional pest managers and organizations dealing with disease-carrying insects and termites and the second, to do-it-yourself gardeners with a wide range of garden, lawn and home products;
Bioscience with its crop improvement and Nunza business units. In crop improvement, Bayer's current plant biotechnology research and development focuses on five crops — canola, corn, soybeans, cotton and rice. Nunza is one of the leading international developers and suppliers of high quality hybrid vegetable seed varieties.
Zirakparvar said Bayer CropScience sees the greatest opportunities for growth in the plant biotechnology segment. “The BioScience business will benefit in the medium-term from new agricultural practices and new processes being developed in plant biotechnology,” he noted.
Meeting those goals will require research, and Bayer CropScience expects to invest around 650 million Euros in research and development in the long run, says Bernard Garthoff, a member of the board of management with responsibilities for technology.
“This makes our R&D budget one of the highest in the industry,” he said.
For the year 2004, the company is planning to spend more than 200 million Euros on upgrading existing facilities and constructing new ones. A new 18 million Euro BioScience research center is now under construction near Gent, Belgium and is due to be opened in 2004.
Garthoff said he sees substantial growth potential for the BioScience business. “With pro forma sales of 240 million Euro in 2002 and 168 million Euro in the first six months of 2003, we are one of the fastest-growing companies in the plant biotechnology market.”
He acknowledged that although consumer acceptance of green biotechnology is still low in Europe, Bayer CropScience expects demand for high-quality food, feed and fibers for the textile industry to increase. “The new technology is the key to production of affordable, renewable and sustainable biomaterials,” he said.
“Our wide range of biotech development activities goes well beyond current applications such as plants with herbicide tolerance,” he said. One example is Bayer's ongoing development of potatoes with improved starch properties.
Bayer is also fast becoming one of the world's leading suppliers of cottonseed. “Since our FiberMax business was launched, we have achieved a market share of 11 percent in the United States, the biggest market for cotton, and we will continue to expand this position,” said Garthoff.