Bayer forecasts upturn after four lean years

AFTER FOUR years of shrinking earnings, Bayer, the German chemicals group, has forecast an increase of up to 20 per cent in pre-tax profits this year.

Despite a much-improved performance in the final quarter of last year, Bayer was surprised by the strength of the recovery in the first two months of 1994, when group sales rose 6.5 per cent, said Manfred Schneider, chief executive.

'This is not just optimism, we can present facts to show a clear upward trend in the company,' he said. While business in Germany and much of Europe remained weak, the group said it was benefiting strongly from the upturn in North America, its biggest market, as well as more favourable exchange rates and improved competitiveness due to cost-cutting.

Although less ebullient than Bayer, BASF, another German chemicals group said on Thursday that the worst was over, declaring improved orders, sales and earnings in the opening months of 1994.

Despite the stronger performance in the final quarter of 1993 when pre-tax profit rose 18 per cent, Bayer saw a 13 per cent fall at the pre-tax level to DM2.4bn for the year. Group sales were virtually unchanged at DM41bn. While Bayer's domestic sales shrank 11 per cent in 1993, foreign sales expanded, bringing the share of foreign business to more than 80 per cent. The biggest boost came from North America, where sales rose 12 per cent to DM8.7bn, or 21 per cent of the group total. The company also reported a stronger performance in Latin America and the Far East.

Bayer's most profitable sectors were health care and agrochemicals, while polymers, organic products and industrial products performed poorly. While increasing staff levels abroad, Bayer is continuing to shed labour in Germany. After a cut of 2,400 last year, domestic operations will lose a further 2,100 staff this year, bringing the group's worldwide total to 150,000.

About DM900m was saved in costs last year, making a total of DM1.5bn over the last three years which has substantially improved Bayer's competitiveness, allowing the ambitious earnings forecast in spite of the persistent weakness of key markets and product sectors, Mr Schneider said. 'Our goal is technological leadership with a far lower cost base.'