The Bayer Group focuses on the rapidly growing, innovation-driven health care, nutrition and high-tech materials businesses in line with its mission statement “Bayer: Science For A Better Life.” Our strategic alignment toward these attractive markets and our concentration on core competencies enable us to invest in growth areas and innovative technologies. We aim to continue playing leadership roles and to steadily expand our already strong market positions. We will also continue our efforts to contain costs and improve efficiency in order to further increase the company’s value. We are pursuing a long-term growth strategy, mindful of the need to manage the business sustainably.
To facilitate investment in further growth, annual cost savings of €800 million are planned by 2013. About half of this amount is to be reinvested. By the end of 2012 the company is likely to take one-time charges in the region of €1 billion, part of this amount having already been incurred in the fourth quarter of 2010. In connection with this program, it is planned to reduce the global headcount of 111,400 by an aggregate of about 2,000 by the end of 2012. Approximately 4,500 positions – including roughly 1,700 in Germany – are to be cut, while some 2,500 new jobs will be created over the same period, particularly in the emerging markets.
HealthCare continues to aim for a market or above-market rate of growth in all of its businesses. We aim to further strengthen this subgroup and grow it into a world-leading diversified health care company. For example, we plan to continue strengthening our Consumer Health segment for the long term, sharpen our focus in the Pharmaceuticals segment on specialty pharmaceuticals, further increase the overall productivity of research and development and place even greater importance on the emerging markets. This will require a high level of investment in the coming years. Among the ways we will raise the funds needed for this expansion are by carefully redistributing resources and introducing efficiency and cost saving measures. For this reason, we plan to cut the number of positions at HealthCare by around 1,800 by the end of 2012. Most of the reductions will be in our Pharmaceuticals Division, the Medical Care Division in the United States and in the platform functions within HealthCare. However, we will create 1,500 new positions in the emerging markets and in connection with product launches.
Activities in our strongest segment – Pharmaceuticals – are focused on medicines prescribed mainly by specialist physicians in the areas of women’s healthcare, cardiology, oncology, hematology, diagnostic imaging and multiple sclerosis. Our portfolio also includes drug products that are usually prescribed by general practitioners.
We will maintain our focus on diseases where there is a high unmet medical need and major potential exists for improving diagnosis and therapy. Research and development is thus an important growth engine for our Pharmaceuticals segment, which consequently accounts for the largest share of the R & D budget. Here we also aim to strengthen our portfolio and supplement our own research and development activities with inlicensing, alliances and collaborations. An example in 2010 was the discovery, development and commercialization agreement signed with Californian company OncoMed Pharmaceuticals, Inc. in the area of novel therapeutics to target cancer stem cells.
We already hold leading positions in the pharmaceuticals markets of many emerging countries, particularly China and Russia. A key element of our pharmaceuticals strategy is the selective expansion of business in the emerging markets. An example in 2010 was the market launch of Betaferon™ in China to treat the relapsing-remitting form of multiple sclerosis (MS).
Our Consumer Health segment includes non-prescription medicines, dermatology products, blood glucose meters, medical devices and the animal health business.
The goal of the Consumer Care Division is to build on our position in the global over-the-counter (OTC) medicines market. The division’s strategy is aimed at fully leveraging the growth potential of proven brands such as Aspirin™. We are pursuing a clear course of expansion in fast-growing regions such as central and eastern Europe and Asia/Pacific and aim to further strengthen our business in areas with potential for growth. We will continue to take advantage of external growth opportunities in the form of strategically relevant acquisitions or inlicensing. One such growth opportunity is provided by the exclusive licensing agreement with AstraZeneca PLC for the marketing of omeprazole under the Losec™ Pro, Antra™ or Mopralpro™ trademarks as an OTC medication to treat heartburn. Currently this product has been introduced in seven markets, and launches are planned in additional countries.
The strategy of the Medical Care Division is to build on its competitive positions in the fields of blood glucose monitoring, diabetes management, injection systems for contrast agents, and vascular intervention systems such as thrombectomy systems for treating constricted or blocked blood vessels. We also plan to continue expanding our portfolio by investing in additional business areas and geographic regions and entering into strategic partnerships. It is our intention to steadily improve our products, reduce costs and deploy resources even more efficiently. We are aiming to expand our product range by developing new blood glucose monitoring systems and innovative solutions that help people with diabetes to better manage the disease. In the medical equipment business, we are continuing to develop our core radiology portfolio of contrast agent injection and thrombectomy systems. We are also developing new software products and IT-based service solutions to optimize both contrast media dosage and the clinical workflows involved in processing diagnostic data and images.
In the Animal Health Division, we aim to build on our strong positions in the companion animals and livestock markets. Our strategy is directed toward achieving organic growth by focusing on countries and markets with long-term sales potential and successfully managing the life cycles of existing core brands. In addition, we are pursuing external growth opportunities through acquisitions and inlicensing. For example, in 2010 we acquired an innovative, oral administration technology for animal health products from the U.S. company Piedmont Pharmaceuticals, LLC. Our acquisition of the New Zealand-based Bomac Group, an innovative manufacturer of animal health products used mainly in livestock, is aimed at strengthening our business, particularly in the Asia/Pacific region. We aim to step up the development of new proprietary products to safeguard our long-term success.
CropScience, one of the leading innovation-driven companies in its industry, aligns its corporate planning to long-term trends in agricultural markets. It aims to offer products and customer-oriented solutions for the production of affordable, high-quality food, feed, fiber and energy crops. Against a background of limited arable land, advancing climate change and a steadily increasing global population, it is essential to safeguard and further increase crop yields. We manage our business responsibly, in keeping with our commitment to sustainable development and our goal of achieving long-term growth and attractive returns.
We are committed to offering our customers comprehensive, single-source solutions and therefore evolve coordinated and sustainable concepts – from seed to harvest – for specific crops in different regions. Our customer-oriented approach comprises seed, optimized plant traits and crop protection products as well as related services and partnerships along the food value chain.
Innovation is the basis for value creation at CropScience. The development of new active ingredients and formulations and high-quality seed enables us to replace older products and technologies with those that offer superior performance properties, environmental compatibility and user safety along with higher added value for the customer. Our new products are crucial to increasing sales and achieving attractive margins. In November 2010 we announced a package of measures, to be largely implemented by 2012, which will make necessary funds available for further investment and optimize our cost structures. We will make a net cut of approximately 600 positions at CropScience by 2012, mainly in Germany and the United States. The measures are aimed at making CropScience more efficient in all areas so that freed-up resources can be invested in our BioScience business, the commercialization of new products and the expansion of strategic growth markets while we continue to defend our positions in the well developed markets.
In the Crop Protection segment, CropScience aims to safeguard and expand the market-leading positions of its Herbicides, Fungicides, Insecticides and Seed Treatment business units by maintaining a broad regional presence and offering innovative, highly effective products. To achieve this strategic goal, we are steadily enhancing our product mix by launching new active ingredients and products from our research and development pipeline as well as successfully managing product life cycles while also engaging in complementary research activities in breeding, plant traits and new growth areas. For example, we are currently working on new integrated methods and solutions in the areas of plant health and quality, stress tolerance, nutrient uptake, diagnostics and biological pest control.
Our Environmental Science business unit primarily relies on the development and production capacities of Crop Protection and its innovative active ingredient portfolio and pipelines. Our strategy is to build on our leading market positions by developing and commercializing innovative solutions that are tailored to the specific needs of consumers and professional users and are designed to be easy to use and safe to handle. The Environmental Science business unit has growth potential, particularly in the emerging markets. Our strategic alignment also emphasizes systematic customer orientation, including the expansion of marketing activities, and the continued development of specific market segments such as forestry or industrial vegetation management.
The BioScience business unit researches, develops and commercializes seeds and technology based on modern breeding methods. We aim to continue expanding our activities in seeds and plant traits with the aim of raising BioScience sales to about €1.4 billion by 2018 while increasing the share of our research and development expenditures allocated to BioScience. Our seed business has traditionally focused on four rapidly expanding core crops: cotton, vegetables, canola and rice. We aim to build on our strong market positions in these crops by introducing new varieties and expanding into new regional markets. Since 2009 we have been conducting research into improved cereal varieties, with soybeans defined as an additional area of research focus. The goals of our Bioscience research include increasing yields and making plants more resistant to adverse weather conditions and certain insect pests. We are also conducting research into sugarcane with a higher sugar content. We not only market our technologies in our own seed products, but also increasingly outlicense them for other crops.
CropScience markets its products in more than 120 countries worldwide. In the coming years we intend to continue expanding our business, particularly in fast-growing markets such as Brazil, India, China, Russia and eastern Europe. In these countries there is major potential for the agriculture industry to react to the increasing global demand for high-quality food and feed by deploying innovative, leading-edge technologies. In this environment we aim to steadily expand our business and help farmers raise productivity by providing them with comprehensive solutions from seed to harvest.
The strategy of MaterialScience is directed primarily toward safeguarding existing competitive positions in its traditional markets, adding innovative new businesses to the portfolio and achieving profitable and sustainable growth in the emerging markets. In this way we plan to ensure high profitability and contribute to a long-term increase in enterprise value. Our products are intended to provide long-term solutions for conserving global energy resources and protecting the climate. They are also designed to help in improving the quality of life for as many people as possible. The above-average growth of the Asian markets represents a major challenge in this respect, at the same time offering a business potential that we plan to develop. Our capital expenditure policy, which is aligned to medium- and long-term market trends, remains in keeping with this. We also aim to continuously improve the efficiency of our production processes.
In the Polyurethanes business unit (PUR), we intend to expand our global market leadership in isocyanates, a key precursor particularly for rigid and flexible foams. It remains our goal to achieve cost leadership in these areas in the long term. We also want to expand our distribution channels and global competence networks.
We expect our new large-scale plant for toluene diisocyanate (TDI) in Shanghai, China, with an annual capacity of 250,000 tons, to support sustained growth in Asia. Mechanical completion of the facility will take place in sections in the first quarter of 2011, with commercial production due to start in the second half of 2011. In Europe, MaterialScience plans to erect a new “world-scale” TDI production facility in Dormagen, Germany, with a permitted capacity of 300,000 tons per year and bring it on stream in 2014. The company’s European production activities for TDI will then be concentrated in Dormagen. MaterialScience’s innovative, patented TDI process technology, which will be used in both facilities, sets new global standards for efficient, climate-friendly production. A facility based on the new technology saves substantial amounts of energy and solvents, reduces CO2 emissions by up to 60,000 tons per year compared with a conventional plant of the same size, and costs about 15% less to build.
In the diphenylmethane diisocyanate (MDI) product group, we aim to achieve sustained growth thanks to the increasing demand for insulating materials from key customer industries. The need for thermal insulation of buildings is expected to boost demand in the construction and other sectors. To meet this growing demand, Bayer plans to increase MDI capacity at the site in Shanghai, China, to 1,000,000 tons per year.
Polyether polyols will mainly support growth in the isocyanates business, complementing our system solutions. Our systems houses facilitate growth in the isocyanates business by providing an important distribution channel to serve specific customer needs.
We are currently experiencing strong demand in the world market for the products of our Polycarbonates (PCS) business unit. Demand for polycarbonates in Asia, especially China, is substantial, and the region currently accounts for more than 60% of the global market. We are responding by enlarging our manufacturing capacities for polycarbonate. In Shanghai we plan to raise annual capacity to 500,000 tons as we continue to exploit the efficiency of our world-scale production facilities. We also plan to relocate the headquarters of this business unit to Shanghai in order to steer the business in close proximity to the markets in light of the region’s growing importance. At the same time, as a leading development and technology partner, we offer customers individual solutions for various polycarbonate applications. Among our objectives is to expand our network of “Color Competence and Design Centers” for customized plastics compounding.
In the field of semi-finished products, substantial market potential lies in the use of polycarbonate diffuser sheets in liquid-crystal displays for large-format flat screens. Growth in demand for polycarbonates is also being driven by the trend in the automotive industry toward lightweight components such as for glazing.
The Coatings, Adhesives, Specialties (CAS) business unit seeks to defend and selectively expand its current market position in basic and modified isocyanates. We will therefore raise our production capacities in Europe and the Asia/Pacific growth region to meet rising demand. It is planned to expand production of hexamethylene diisocyanate (HDI) in Shanghai, including the construction there of an additional facility with a capacity of 50,000 tons per year. We also intend to build a multi-purpose facility in Leverkusen for the production of HDI and isophorone diisocyanate (IPDI). In addition, we aim to improve profitability by sharpening the focus of our portfolio on modern coating and adhesive raw material systems.
We are developing functional films, carbon nanotubes, and products for medical applications with the aim of opening up new business opportunities and positioning ourselves as a focused technology leader in these areas.
We also generate innovative business ideas by looking at our materials more from an application-technology perspective. For example, high-quality components combining polyurethane with polycarbonate can be produced by a one-step injection molding process known as “DirectSkinning.”
MaterialScience also uses novel processes for its own production. The efficiency of chlorine production, for example, can be greatly increased using oxygen depolarized cathode technology. This technology enables energy savings of some 30% compared to a membrane process, along with a corresponding indirect reduction in greenhouse gas emissions.
The financial management of the Bayer Group is conducted by the strategic management holding company Bayer AG. Capital is a global resource, generally procured centrally and distributed within the Group. The foremost objectives of our financial management are to help bring about a sustained increase in corporate value and to ensure the Group’s liquidity and creditworthiness. This involves optimizing the capital structure and effectively managing risks. The management of currency, interest rate, raw material price and default risks helps to reduce the volatility of our earnings.
The contracted rating agencies assess Bayer as follows:
| ||Long-term rating||Outlook||Short-term rating|
|Standard & Poor’s||A-||negative||A-2|
These credit ratings reflect the company’s high solvency and ensure access to a broad investor base for financing purposes. It remains our goal to achieve and maintain financial ratios that support an A rating in order to maintain our financial flexibility. Accordingly, we plan to use part of our operating cash flows to reduce net financial debt.
We pursue a prudent debt management strategy to ensure flexibility, drawing on a balanced financing portfolio. Chief among these resources are a multi-currency Euro Medium Term Notes program, syndicated credit facilities, bilateral loan agreements and a global commercial paper program.
We use financial derivatives to hedge against risks arising from business operations or financial transactions, but do not employ contracts in the absence of an underlying transaction. It is our policy to diminish default risks by selecting trading partners with a high credit standing. We closely monitor the execution of all transactions, which are conducted in accordance with Group directives.
Further details of our risk management objectives and the ways in which we account for all the major types of hedged transactions – along with price, credit and liquidity risks as they relate to the use of financial instruments – are given in Chapter 11.1 “Opportunity and Risk Report.”