20 January 2005 17:47 [Source: ICIS news]
FRANKFURT (CNI)--New Bayer spin-off, Lanxess, is likely to show an operating loss for the fourth quarter of 2004 due in particular to seasonally weaker business in December and unspecified special influences.
However, the chemicals and commodity engineering plastics producer said in its 236-page listing memorandum for the 31 January initial public offering that it believes the current upswing in the chemicals cycle will lead to “positive” earnings in both 2004 and 2005 and to an improvement in earnings before special items in 2005 against 2004.
Lanxess is being listed on the Frankfurt stock exchange as part of a 1:10 share swap to Bayer shareholders.
The company said it is profiting from ongoing strong demand for basic chemicals and commodity polymers, as well as fine and speciality chemicals. It believes this is leading to “positive volume and price movements” for a “large share” of its products.
Starting in the third quarter, Lanxess said it was fairly successful in passing on the higher cost of raw materials to its customers downstream, and that this helped to offset the influence of adverse currency movements.
For October and November, Lanxess pointed to continued encouraging business development for performance rubber, engineering plastics and chemical intermediates. However, performance chemicals, especially textile processing products, suffered from European economic weakness and high oil prices in both Europe and North America.
In the listing memorandum’s obligatory warning of business risks, the company told prospective shareholders that it still faces considerable restructuring costs to shore up under-performing businesses.
Lanxess is in the process of implementing a company-wide Euro25m ($32.7m) savings plan to underpin earnings. Yesterday the company ended a dispute with its more than 10 000-strong German workforce on a plan to reduce above-scale pay (LINK).
The new chemicals and plastics player also must shoulder a number of other financial burdens “inherited” from former parent Bayer. In addition to debt, Lanxess has set aside reserves for environmental liability as well as fines for participation in price fixing cartels and civil lawsuits.
Bayer and Lanxess have agreed to share the risks for cartel fines at a ratio of 70:30. The companies currently face fines in the European Union (EU) as well as in the US related to price fixing for rubber and rubber chemicals.
The company also warned shareholders of the risk that the share price could be negatively affected by institutional investors opting to divest the stock. Holders of American Depositary Receipts (ADRs) will not have to actively divest the shares they receive. If they do nothing before 27 January, this will be interpreted as a desire to sell the stock, the listing memorandum says.
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