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FIRST-HALF WOES HIT GERMAN PRODUCERS
This is a year for retrenching at chemical giants Bayer, BASF
Last week, Bayer and BASF announced first-half results; they proved gloomy reading.
Bayer Chairman Manfred Schneider, in what was essentially the company's third successive profit warning, noted, "We must assume that earnings for the year as a whole will be significantly below our previous expectations.
"The anticipated economic recovery has unfortunately not yet materialized," Schneider said. Moreover, the company has taken two significant hits in its key pharmaceuticals sector: It is still having production troubles with its genetically engineered hemophilia treatment, Kogenate; and it will withdraw its cholesterol-lowering drug, Baycol, from most of the global market because of potentially fatal interaction with other drugs (see page 15).
Bayer announced last week that it is accelerating a cost savings program. The company's goal is to achieve savings of $1.3 billion a year by 2005. Almost half of these savings will come in the polymers business, where the company plans to cut 1,800 jobs and close 15 plants worldwide. Costs in the health care business will be cut by $525 million, including the closure of a plant in Elkhart, Ind.
The company's sales from continuing operations for the first half rose 8% over first-half 2000, to $13.7 billion. However, operating profits before exceptional items were down 23%, to $1.3 billion. Net profits were roughly $876 million, down 3%; the figure includes the $265 million gain from Bayer's sale to BP of its 50% stake in Erdölchemie in May.
Meanwhile, at BASF, Chairman Jürgen F. Strube remained resolutely optimistic for the year as a whole. However, he conceded that given present conditions, achieving the company's goal of an average 10% return on sales each year from 2000 to 2002 is increasingly unlikely.
BASF's sales for the first half were $15.4 billion, up 1% from first-half 2000. Operating profits before exceptional items were $1.5 billion, down 5.1%. The net income of $5.4 billion reflected an extraordinary gain of $5.3 billion, primarily from the sale of the BASF pharmaceuticals business to Abbott Laboratories.
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