FDE Exclusive: Werner Baumann, group CFO, Bayer

Taking on the CFO role at one of Germany's oldest and most iconic companies takes a certain amount of confidence. But Werner Baumann, having spent more than 20 years at the chemical, pharmaceutical and life-science giant, was as well placed as anyone. Bauman is CFO of Bayer Group, the holding company that oversees the different elements of the group.

It's a big job: Bayer last year reported sales of a little over €35bn, roughly divided between its healthcare business (€16bn), crop science (€6bn) and material science (€10bn). With operations and offices in nearly every country in the world, and employees engaged in everything from researching crop yields to developing new cancer drugs, the sheer size and scale of Bayer is difficult to comprehend.

Bayer's diversified structure throws up a number of challenges for Baumann. "The most important thing for a CFO in a business like this is to keep a close eye on resource allocation, and whether the resources we have available match up against the priorities we have in the company," he says.

"As you can imagine, with resources being scarce, there is always a question on how you balance demand, which is higher than the available resources. At the same time, it's a big opportunity to ensure that each of the businesses does get what it needs, in order to flourish."

Baumann continues: "New investments will be financed out of the cash that we generate. For pharmaceuticals, we are not looking at any major acquisitive activity at this point in time. First, second and third priority is funding the launches of our new products. It means that we will always be challenged to grow our profitability in the short term, but you have to ask yourself, 'is this the right thing to do to create long-term value for the company?'"

So how does the CFO square that circle? "The way we look at our portfolio is that we are perfectly capable of making sure it is adequately resourced. We have various needs in terms of these businesses, ranging from capex (the most critical), in order to sustain or further improve our market position in our material business, to providing enough funding for our organic growth, with the innovation that is just about to come to market in our pharma business."

Strategy and innovation

In order to meet the challenge of financing the disparate units within the group, Bayer has a fully integrated strategic and operational planning process that looks at the overall strategic direction of the businesses. "That takes into account the objectives we have set, and the markets we want to compete in," Baumann explains.

To that end, the treasury function needs to be fit for purpose. Bayer currently has around 250 people in the corporate finance and treasury team at its Leverkusen HQ. That makes for a highly consolidated function, and Baumann explains the company has just undergone an efficiency programme, which reported that despite the superb performance of its finance function, improvement was still possible.

Central to that is equipping the finance function with the necessary skills to ensure Bayer is able to finance its growth in a whole range of markets and products. Working alongside the strategic planners, the finance team supports Bayer's continuous search for - and serious investment in - innovation.

"We spend in excess of €3 billion on R&D every year, which is somewhere in the area of 8-9% of our total top line, and of course that is a significant commitment year after year where you have to have some realistic expectation of generating return," he explains.
Clearly for a group that has long been on the cutting edge of innovation in pharmaceutical and life sciences, maintaining R&D investment is crucial. That's in addition to supporting M&A activity and designing a robust set of risk management tools. In order to achieve that, Baumann has continued the Bayer philosophy of spreading its portfolio across a range of markets and sectors in order to absorb any shocks from the global economy.

"The portfolio composition we have provides us with a somewhat comfortable position in terms of risk balance, and protects us from the different trends that can affect your business positively and negatively," he explains. "If you look at 2008, which was a really dramatic year of crisis, our company still performed very, very well - it was one of the best years we've had. That was because while we have an exposure to chemicals and industrial business, which have a global cycle, at the same time we had an excellent crop year, and benefited from high commodity prices. And we had a very, very good year in pharmaceuticals and consumer health, which is not so cyclical."

Flexible finance

In that context, a business like Bayer challenges the CFO to follow a prudent line on risk while retaining the flexibility to pounce on opportunities as and when they arise. In his view, Baumann sees the role of CFO in such a huge company as critical to empowering divisional FDs and their teams to look for both quick wins and long-term growth. And that means breaking out of the scorekeeper-policeman role into that of an enabler and sponsor of progress.

"Successful investment does need a very fine balance to be kept," Baumann says. "If people see you as the guy who by default asks 20 questions in order to bring a proposal down, it's not good. So I think it is actually important for a CFO to be seen as part of a winning team, and if, as a CFO, you are always saying 'no' and people follow that lead all the time, you will bring the company to its knees. If you deliver a constant 'no', it's not good for your motivation."

All of which means the CFO's communication skills are constantly tested. "It's the constructive dialogue in actually discussing the best way forward where you examine the perspectives," he continues. "By default, the CFO is in danger of being the seen as always the most conservative, and ideally doesn't want to see a proposal put forward. That leads to people saying the finance function is the
sales-prevention part of the company, and that's not a nice label to have."

It's clear that Baumann's enthusiasm will drive Bayer to greater heights. The company has earmarked acquisition targets for the coming year, although deal activity may slow down after several years of significant M&A progress. Baumann will be central to that effort and there's little doubt he'll find the right balance when pushing the company forward.