German drugs and chemicals groups Bayer has managed to avoid posting a third quarter operating loss, but may incur significant charges in the fourth quarter relating to its decision to float its chemicals business on the stock exchange.
Analysts said that the charges came a little earlier than expected, but reflected the speed with which Bayer wants to re-organise its business.
Bayer yesterday posted an operating profit of €21 million, down 98 per cent compared to third-quarter 2002 , when earnings were boosted by gains from the disposal of flavours unit Haarmann & Reimer. Meanwhile, group sales fell 8.4 per cent to €6.83 billion. The company reiterated its forecast that, excluding exceptional items, it would post a full-year increase in operating profit in the double-digit percentage range.
Bayer slipped into the red in terms of its net profit, however, with a loss of €123 million. The group reported a profit €656 million in the same period of 2002.
The weakness in the group mainly occurred in the businesses which are to be spun out. Chemical sales fell 24 per cent to €839 million with operating profit of €13 million, a 98.6 per cent slump on the same quarter of 2002. Sales of polymers (some of which will be retained by Bayer while some will be spun out into the chemicals business) fell 5.4 per cent to €2.46 billion. This division posted an operating loss of €11 million, compared to a profit f €101 million a year earlier.
Meanwhile, pharmaceuticals and biological products put in an 8.4 per cent sales rise to €1.21 billion in the quarter, buoyed by solid performances from Kogenate (recombinant Factor VIII) for haemophilia and Levitra (vardenafil), a new erectile dysfunction drug partnered with GlaxoSmithKline. However, the division will be hit hard by the upcoming patent expiry in the USA for the antibiotic Cipro (ciprofloxacin).
The cropscience business trimmed its operating loss to €134 million from €219 million a year ago, although sales slid 14 per cent to €1.125 billion for seasonal reasons, said the group.
Bayer reiterated its full-year forecast that operating profit before special items would increase by a double-digit percentage.
By the end of September, Bayer had reduced its net debt level to €6.9 billion in line with its targets. It has also cut 5,300 jobs during the first nine months, out of a total of 10,000 planned by the end of 2003.
300 of those job cuts were in the chemicals division and 1,500 were in the polymers division, while 1,200 layoffs have been implemented at its crop science business and 2,100 in healthcare.