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Bayer Sees No Sign of Recovery

After posting second-quarter results that were well below analysts’ expectations, the pharmaceuticals and chemicals giant said it saw no reason to expect a turnaround before the end of 2002.


No amount of medicine can help -stricken German pharmaceutical giant Bayer AG

“We do not have any indication of a tangible upturn in the current year”, chief executive of Bayer Werner Wenning said on Thursday.

But he still upheld his target of raising net profit in 2002, which Bayer expects to do purely through the proceeds from divestments.

Analysts said that almost all aspects of Bayer’s second-quarter results had disappointed. Group revenue fell 7 percent to 7.2 billion euro while operating profit before one-off items slumped 41 percent to 318 million euro. Net profit, despite extraordinary income from the sale of Bayer’s remaining shares in photographics group Agfa-Gevaert, totaled just 293 million euro, a drop of 48 percent from the year-ago period.

The group’s poor showing was not only a result of the weak economy and price decreases but also of the sharp downturn in Bayer’s healthcare division.

The unit continues to grapple with the loss of the anti-cholesterol drug Lipobay, which it took off the market around a year go after it was linked to several deaths. The economic crises in Argentina and Brazil also weighed heavily on Bayer’s results.

“The figures are disappointing almost throughout,” said Ulrich Huwald, analyst at M.M. Warburg. The markets responded accordingly. Shares in Bayer tumbled 5 percent on the news, and even deteriorated a little more as the session progressed. They closed down 5.75 percent at 23.75 euro.

Wenning said that Bayer is undergoing “a transitional year, during which it will lay the foundation for future growth”. But for this growth to materialize, the economy will have to pick up and the problems at Bayer’s healthcare division will have to be resolved.

Healthcare revenue alone was down 11 percent to 4.8 billion euro in the first half, while operating profit fell 16 percent to 440 million euro. “The return is highly unsatisfactory,” Wenning conceded. It currently stands at a 9.2 percent, considerably weaker than the rates obtained by its rivals.

Among the factors weighing on the division is growing competition from copycat drugs for its bloodpressure treatment Adalat, while the business with prescription-free drugs like Aspirin is feeling the impact from the Latin America crisis. Generic drug revenue declined 10 percent.

The currency crises in Argentina and Brazil shaved off some 60 million euro from the first-half profit of Bayer’s Cropscience unit. Bayer’s recent acquisition of Aventis Cropscience has increased its exposure to the region still further.

“The weak results of the acgrochemicals business are the biggest surprise among Bayer’s figures,” said Ludger Mues, analyst at Bank Sal. Oppenheim. The division’s return on sales, which once stood proud at 22 percent, was just 8.4 percent in the first six months, with high integration costs and write-downs contributing to the decline.

Bayer’s cyclical chemicals and polymer division also sees no signs of recovery. Instead, the battle for market share has resulted in clear price-reductions, which in turn led to a sharp drop in revenue and profit.

The only positive element in Bayer’s results, as WestLB analyst Andreas Theisen pointed out, was the group’s low debt level. In the course of the first half, Wenning was able to reduce debts from 15 billion euro to 12.1 billion euro.

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