31 March 2000

Aventis to trim agchem list

By Philip Clarke

AVENTIS, the life sciences company formed by the merger of Rhone-Poulenc and Hoechst, is to cut its agchem ingredient portfolio by 20% as it tries to boost profits for its under-performing Agriculture sector.

Failure to do so could prompt a further shake-up, with Agriculture an obvious target, say analysts.

Chairman, Jurgen Dormann, hinted as much when he presented the firms first pro-forma results for 1999 in Strasbourg last week. "Against a background of substantial changes in agriculture, we are prepared to quickly adjust our strategy if this proves necessary and value-enhancing," he said.

Agriculture, which is made up of CropScience, Animal Nutrition and Animal Health (Merial), certainly had a tough year, says chief financial officer, Patrick Langlois.

The division suffered a 3% fall in sales to k4.6bn, while income from operations (before exceptional items) decreased 13% to k661m. That was in stark contrast to the dominant pharmaceuticals operation, Aventis Pharma, which posted a 7% rise in sales to k13.9bn and a 19% lift in profit to k2.45bn.

The poor performance in Agriculture was blamed on tough market conditions in animal nutrition and new competition for animal health products. "CropScience has also been difficult, though it has not lost sales, and profit is about the same as in 1998, which is better than the rest of the industry has achieved," said Mr Langlois.

But the outlook for all three sectors is tough for the next year, though some recovery in CropSciences is expected in 2001, he added.

Clearly, Agriculture will struggle to meet the companys overall target of 15% earnings growth on average over the next three years.

But Agriculture chairman, Horst Waesche, insisted there were no plans for a sell-off, though he was open-minded about the future. "We operate as a stand-alone company, which allows us the flexibility if the environment changes in the next few years," he said.

Meanwhile, the division had many strengths, including an excellent chemical portfolio and a low exposure to genetically modified crops (less than 10% of turnover).

Aventis also had several promising new agrochemicals coming to market. "We only release products with a peak sales forecast of over k100m a year," he said. Under-performing chemicals will be abandoned or divested.

There are also more savings to come in the form of synergies from the Rhone-Poulenc/Hoechst merger.

Total potential saving is put at k1.2bn over the next three years, of which k350m is earmarked for Agriculture. This year, k130m is targeted, by eliminating duplication in the crop protection business and selling off some formulation plants.

Aventis also plans to boost its presence in the US market from its present 16% of global sales. Currently it has 4m acres of GM maize and 2.5m acres of GM canola in North America, mostly under its LibertyLink package.

lBrussels has launched a four-month investigation into the merger of the crop protection businesses of Novartis and AstraZeneca, citing concerns about the dominant market position it will have in certain products. Meanwhile, Monsanto and Pharmacia/Upjohn have agreed to merge, creating a $16bn life-sciences outfit. &#42

Patrick Langlois blames poor performances by animal nutrition and health for lack-lustre results in Agriculture.

Horst Waesche says there are no plans to reshape the company, though Agriculture must improve its performance.