NewCo will be called Lanxess, says Bayer
its chemicals spin-off Lanxess, and says it is on schedule for a
stock market flotation early next year.
The company made the announcement on the same day as it reported its financial results for 2003, headlined by group sales sliding 3.2 per cent to €28.57 billion and earnings before interest and taxes in the red to tune of €1.20 billion. In 2002, the company posted a €1.61 billion profit.
Bayer unveiled its plans to combine its chemicals and some elements of its polymers business into a new entity, provisionally called NewCo, last year.
The move will leave Bayer with the pharmaceuticals unit, which includes its nutrition activities, as well as its materials science and agrochemical operations, and is designed to improve competitiveness by simplifying what had been regarded in some quarters as an unwieldy corporate structure.
At the results meeting, Bayer chairman Werner Wenning said that 2004 would see the group including Lanxess boost its operating earnings by 10 per cent in 2004. However, he believes that sales will decline in Bayer HealthCare, MaterialScience and CropScience, while those of Lanxess will be flat.
Bayer's operations, like those of other chemical companies in Europe, have been hit by the strong euro, weak demand and high energy and raw material prices.
But Wenning said that there are signs of an economic recovery which should help its businesses over the rest of 2004, echoing the opinion of Jurgen Hambrecht, the chairman of fellow German chemicals giant BASF, which reported increases in both sales and profits for 2003 yesterday.
In chemicals - which includes Bayer's ingredients used in the pharmaceutical industry - the weak economy, competitive pressures, rising raw material and energy costs and the unfavourable exchange rate situation created extremely difficult market conditions.
Chemical sales fell 21.3 per cent to €3.4 billion, with EBIT €499 million in negative territory as charges relating to the formation of Lanxess kicked in. Before special items, EBIT declined by 79 per cent compared to 2002 to €42 million.
Meanwhile, efficiency-improvement programs, with which Bayer expects to realise savings of more than €2.5 billion between 2002 and 2005, enabled the company to cut costs by around €730 million in 2003 and should save €900 million in 2004.
"Within just two years we have fundamentally changed Bayer's alignment through a tremendous effort," he said. "The separation from Lanxess will complete this process, which has freed up all our energy for innovation and growth."
Wenning said in the text of a speech due to be delivered to shareholders today that he expected Lanxess to post a strong increase in EBIT and a net profit this year on a standalone basis.
Bayer should have a 'virtual' organisation for Lanxess in place by 1 July, allowing the company to operate largely as an independent unit.
Bayer's pharmaceuticals division continued to suffer in 2003, with turnover down by 5.3 percent to €8.9 billion and EBIT slumping 43 per cent to €334 million.
The division is still feeling the effects of the withdrawal of the cholesterol-lowering drug Lipobay/Baycol (cerivastatin), on safety grounds in 2001. Aside from the loss of revenues associated with the product, Bayer has already paid around €680 million in settlements, including €300 million in 2003.
However, Wenning said that Bayer's erectile dysfunction drug Levitra (vardenafil), partnered with GlaxoSmithKline, had got off to a 'good start' while cost-savings of €650 million by 2006 would help improve profitability at the division.
