Zeneca shake-up to cost 100m pounds: East Europe seeds and 500 jobs to go in attack on spending

ZENECA is shutting down its seeds business in the former Soviet Union and will reduce capacity at some worldwide agrochemical and specialty chemical sites.

The cuts will cost around pounds 100m and about 500 jobs, about half of them in the UK. The restructuring charge comes on top of a pounds 195m provision taken at the end of 1992.

The stock market took the surprise additional provision in its stride, viewing it as necessary to axe an underperforming business. Zeneca's shares rose 24p to 795p as the City focused instead on a better-than-expected improvement in agrochemical margins in yesterday's first-half figures.

David Barnes, chief executive of ICI's former bio-science arm, said the pull-out from the seeds business in eastern Europe, which accounts for about pounds 34m of the provision, had been taken because of the combination of high credit risk and short shelf life of seeds in that area. Another pounds 17m will go on cutting capacity in the seeds business in general. In addition, the provision includes a pounds 37m charge for the closure of agrochemical production capacity and pounds 12m for restructuring specialty chemicals.

In the first six months trading profits were pounds 473m, up 17 per cent, on sales of pounds 2.4bn, up 3 per cent. Pre-tax profits of pounds 451m before the pounds 100m exceptional charge were slightly ahead of expectations.

Pharmaceuticals generated trading profits of pounds 320m, up 7 per cent on sales of pounds 976m, up 6 per cent while specialty chemicals provided profits of pounds 39m, up 11 per cent on sales of pounds 521m, up 5 per cent. Agrochemicals was the star performer, responsible for profits of pounds 123m, up 45 per cent on sales of pounds 893m, up 8 per cent.

The big rise in agrochemical margins, from 10.2 per cent to 13.8 per cent, was due to strong growth in herbicides and fungicides.

In pharmaceuticals, new products did well but North America was slightly disappointing. US sales of Zestril, the heart drug, were up only 5 per cent, although in total its sales rose 15 per cent. Sales of Zoladex rose 33 per cent and of Diprivan 28 per cent.

Despite the continuing discrepancy between pharmaceutical margins - which were slightly better at 32.8 per cent - and those of the rest of the business, Mr Barnes said Zeneca remained committed to being a 'bio-science' company.

The dollars 8.5bn ( pounds 5.7bn) hostile bid by American Home Products for the US drug group Cyanamid has made shares in Zeneca and its rival Wellcome the centre of attention. Many analysts see Wellcome as a more likely bid target, as any buyer of Zeneca would probably need to dispose of non-drug businesses.

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