(Updates with unit earnings in fifth paragraph.)
Sept. 17 (Bloomberg) -- Bayer AG has begun talks on cost cuts with workers at its material science unit in a bid to improve the plastics division’s profitability, Chief Executive Officer Marijn Dekkers said.
Bayer is considering saving measures that will come into effect over the next three to four years, Dekkers said at a dinner with journalists yesterday at the company’s headquarters in Leverkusen, Germany. He declined to comment on whether job cuts are being discussed.
“We must continue to lower costs,” Dekkers, 55, said. He characterized the measures as “small adjustments” to improve margins in the unit, which makes materials for products from car parts to cosmetics, as Bayer waits for demand to increase in the next two to three years.
Material science has been the laggard among Bayer’s three units, facing sinking prices, high raw-material costs and slowing market growth, especially in China. Analysts, including those at Macquarie and Andrew Baum, at Citigroup Inc., have speculated the company will sell or spin off the division. Dekkers has said he sees no pressing need for such a deal.
Bayer cut its forecast for the unit in July, saying this year’s profit won’t quite reach last year’s level. The unit’s second-quarter earnings before interest, taxes, depreciation, amortization and special items dropped 29 percent, while sales fell 2.7 percent. It was the second consecutive quarter that the unit’s sales and earnings on that basis had fallen.
By contrast, Bayer’s pharmaceutical unit has had a successful run of new drugs, including blood thinner Xarelto and eye treatment Eylea, and new products introduced from 2011 to 2016 by the crop science agriculture unit may add at least 4 billion euros ($5.3 billion) in revenue, Dekkers said.
The German company is “on the right path” as it pursues organic growth, research collaborations and small- and mid-sized acquisitions, the executive said.
Bayer sat out the bidding this summer for Onyx Pharmaceuticals Inc., its partner on the liver and kidney cancer drug Nexavar and stomach-cancer treatment Stivarga. Amgen Inc. agreed to buy the smaller U.S. biotechnology company for $10.4 billion in August.
Asked about what it was like to watch the Onyx deal unfold, Dekkers repeated that while Bayer looks at acquisition opportunities as they emerge, it doesn’t need to spend a lot on new medicines to strengthen its pipeline.
“We are in a very good position now, where we’ve had very good products come out of our own research for organic growth,” Dekkers said.
Later, he mused that “you can hardly make money with acquisitions when you pay as much as,” letting the end of the comment trail off. A reporter interjected, “as much as Amgen?”
Dekkers declined to confirm he was referring to that acquisition.
Bayer has returned 21 percent including reinvested dividends this year, compared with a 13 percent return for Germany’s DAX Index.
--Editors: Kim McLaughlin, Tim Farrand