Vitamins unit proves costly for Roche 2002

Reporting its results for 2002, Swiss pharmaceuticals group Roche said today the sale of its vitamins division and legal settlements with US customers in the vitamin case will result in significant one-time charges and a net loss of SF4 billion (€2.7bn).

Sales by core businesses were, however, up 9 per cent in local currencies and 3 per cent in Swiss francs, with both pharma and diagnostics growing faster than the market in local currencies, according to the company.

Roche signed a contract with Netherlands-based DSM for the sale of its vitamin unit earlier this month and the deal is expected to close in the first half of 2003, after approval by the antitrust authorities. The business recorded sales of approximately SF3.4 billion in 2002, according to the group, a mere 1 per cent increase on the previous year in local currencies and a decline of 4 per cent in Swiss francs. While last year's promised market upturn has yet to occur, sales growth in local currencies increased in the second half of 2002, the company added.

Operating profit at the vitamins and fine chemicals unit - before charges for the vitamin case and before impairment of the division's net assets - was down SF123 million and EBITDA decreased by SF115 million, impacted by the unfavourable exchange rate of the US dollar to the Swiss franc, restructuring and other one-time costs, said Roche. However the volume of products sold by the division did rise by 7 per cent, with especially strong gains recorded for new products.

Excluding special items, operating profit over the year for the whole group increased 22 per cent in local currencies (by 12 per cent in Swiss francs) to SF5 billion. The company said it expects double-digit sales growth in local currencies and stable operating profit margin in 2003.

Commenting on results, Roche chairman and CEO Franz B. Humer said: "While our core pharmaceuticals and diagnostics divisions performed strongly, posting above-market growth rates and further increases in profitability, vigorous action to address significant unresolved issues from the past resulted in the group's reporting a substantial net loss. It is all the more unfortunate that we are having to report substantial charges at this time, as 2002 was a year in which we achieved some strategic and operating milestones with our successful realignment around two core businesses."​

Provisions announced last autumn for settling litigation, primarily with US customers, in the vitamin case were increased by SF570 million to SF1,770 million, which is expected to cover all outstanding claims by direct and indirect customers in the United States.

The combined charges related to the sale of the vitamins unit and the merger of Nippon Roche with Chugai in Japan came to SF1,064 million.

Yet despite heavy losses, Roche says it remains solidly financed, with a ratio of equity to total assets of 40 per cent and the strong gross cash flow of pharma and diagnostics, which last year reached a record SF7.7 billion.