Bayer makes money in polymers on level sales.

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Author: White, Liz

In 2002, Bayer AG's polymers business faced, "tough market conditions, with heavy pressure on margins and prices," said Werner Wenning, chairman of the board, at Bayer's 13 Mar results meeting in Leverkusen, Germany.

Bayer's total sales for 2002 were €29 000 million on continuing operations, a 1 percent drop from 2001. Operating profit before exceptional items was 46 percent down, at €989 million, but proceeds from extensive divestments in 2002 meant net income rose 10 percent to €1100 million, the Bayer chairman said.

Polymer sales fell 2 percent to €10 800 million, but operating profit before exceptional items stayed at last year's level, €418 million, an indication of the success of efficiency and cost-cutting programmes, Wenning said.

In 2002, rubber contributed 20 percent (€201.6 million) of the sales of Bayer's polymers unit, which includes polyurethanes, plastics and coatings.

Bayer has completed a major divestment programme and started a cost-cutting/efficiency exercise which will see a total of 15 000 jobs cut.

"We used last year to improve the cost structures in our polymers business" Wenning said, "seeking to counter the pressure on margins, which was felt especially strongly last year because of increased raw material prices and the economic situation in customer industries."

Bayer's reliance on innovation means high R&D spending: it plans to invest €2600 million this year, 10 percent in polymers, which will also get 34 per cent of Bayer's €1800 million capital expenditure for 2003.

"China remains one of the main investment areas--above all for polymers" Wenning said. Bayer is investing €3000 million over the next few years in the region," mostly in polymers, he added.

Bayer has some €4600 million turnover in Asia today, or 14 to 15 percent of its sales, Wenning commented: "We intend to extend this to 25 percent" over the next few years."

In Shanghai, Bayer has its first investment in the pipeline, in coatings raw materials, set to be commissioned in May, Wenning said.

In a separate interview, Hagen Noerenberg, head of Bayer's polymers business, said the new polymers group will naturally, be assessing "every part of the portfolio."

Noerenberg said rubber will play a role in Bayer's planned expansion of its polymer turnover in Asia, but added that in BR, "we have to face it, we are heading toward further consolidation, in this business environment." Noerenberg said investment in butyl rubber capacity in Asia has more potential, although the market still needs assessing.

In EPDM, Noerenberg added, high capacity globally is a, "major issue:" hence imports of EPDM material into Asia are likely to continue for the present.

Bayer's results were overshadowed by difficulties in its pharmaceuticals division, which has many lawsuits pending over alleged side-effects of its withdrawn cholesterol-reducing drug Lipobay.

Discussing polymer chemicals unit Rhein Chemie Rheinau, whose sale to US equity firm Advent International Corp. was stopped last year, Wenning said the company had a "lower price limit," that was not reached.

Rhein Chemie is a "good company, with good profitability, well managed, but long term it does not fit," Wenning said. "Eventually we will come back to the question of sailing Rhein Chemie, but at the moment it is not on the agenda," he concluded.

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By Liz White, ERJ staff