European Business News (EBN), 96-10-18

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From: The European Business News Server at <http://www.ebn.co.uk/>

Page last updated October 18 1200 CET

CONTENTS

[01] Japanese trade surplus plunges in the first half

[02] German businessmen show surprisingly strong confidence about the economy

[03] Lagardere has no immediate plans for Thomson spin-offs

[04] Trygg-Hansa posts flat earnings for the nine months

[05] German mobile-phone price war heats up

[06] Mercedes sales rise a sharp 17% in the nine months

[07] Toyota's auto output up, Nissan's down in April-Sept.

[08] Iberia says it's on target to swing to a profit this year

[09] Rothschild tapped to advise Spain on Telefonica sale early next year

[10] AT&T posts lacklustre earnings for the third quarter

[01] Japanese trade surplus plunges in the first half

It was the biggest drop since 1980 and came mainly from increases in imports of oil and office equipment. The politically sensitive trade surplus with the U.S. fell 24.2% to 1.56 trillion yen.

The overall surplus for September alone fell 30.3% while the surplus with the U.S. fell 8.5 percent from the year earlier. The narrowing surplus should be good news for both U.S. President Bill Clinton and Japanese Prime Minister Ryutaro Hashimoto as they both head into elections.

The improving figures show that the trade agreements between the two countries are beginning to take effect. And Clinton would rather boast about the success of those accords than mention new trade spats that are intensifying.

For Hashimoto, who faces a general election on Sunday, he's not likely to have to deal with another yen rally as Japan struggles to build up its economy.

Japan has traditionally been regarded as having an export-oriented economy. A strong yen would make Japanese products less competitive in overseas markets because it makes them more expensive in foreign currency terms. 'The trade surplus is still on a declining trend,' a senior official of the Ministry of Finance told reporters. He added that the volume of imports has shown continual growth for more than three years, at a pace that exceeds growth in the volume of exports.

But economists noted that the pace of the shrinking surplus has slowed. And some warned that the surplus could stop narrowing by the beginning of the year.

Although a rise in global oil prices will put downward pressure on the trade surplus, firmer exports, especially of automobiles, would be a major factor in slowing the pace at which the surplus was shrinking, some economists said.

Others say they don't see any prospects for booming growth in exports as Japanese manufacturers, suffering from high costs at home and the strong yen, have already moved many of their production bases to other countries.

[02] German businessmen show surprisingly strong confidence about the economy

The Munich-based institute said its monthly economic climate index rose to 95.7 in September from 94.4 in August. The index tracks developments in the western German manufacturing, construction and wholesaling sectors. That result outpaced economists' expectations which had hovered at about 95.0.

The rise in the business confidence index was the fourth in the last five months and takes the index to what is comfortably its highest level since September 1995.

The index rose steadily throughout most of the second and third quarters of 1996 as the German economy overcame an exceptionally weak first quarter in which output was depressed by a harsh winter.

Western Germany accounts for some 90% of Germany's entire economic output.

Ifo also published two sub-indices showing companies' assessment of current and expected business conditions. Both of these also rose in September.

The current business conditions index rose to 90.4 from 89.1 in August, while the expected business conditions index rose to a level of 101.1, from 99.8 a month earlier.

Meanwhile, German producer prices rose by 0.2% in September from August, the steepest monthly rise since April. The gain was fuelled by a 4.8% jump in the prices of crude-oil products. For the year, however, prices fell 0.6%. Prices in the past six months have generally been stagnant or have dropped.

In contrast to oil prices, iron and steel prices fell by 0.7% in the month, while tinned fruit and vegetable prices slid 3.5%.

In eastern Germany, which accounts for less than 10% of pan-German gross domestic product, producer prices rose 0.3% in the month and were up 1.6% year-on-year.

[03] Lagardere has no immediate plans for Thomson spin-offs

Lagardere's finance committee director Philippe Camus told financial daily Les Echos that the company 'sees no need to sell assets, given its financial resources.'

Les Echos said the only structural change likely in the medium term was a merger of Filipacchi Medias and Hachette Filipacchi Presse after Daniel Filipacchi's retirement.

Investors have been speculating about a possible split between the group's publishing and defence activities after the French government recommended that Lagardere's bid for Thomson be accepted over a competing bid from Alcatel Alsthom. Filipacchi Medias shares rose nearly 4.4% on Thursday as the market speculated about a buyout.

The French government plans to inject 11 billion francs ($2.2 billion) into Thomson before selling the electronics group to Lagardere for one symbolic franc after a procedural review by the independent privatisation commission.

Lagardere plans to merge its Matra missiles unit with Thomson's Thomson-CSF defence electronics subsidiary after buying out minority shareholders.

[04] Trygg-Hansa posts flat earnings for the nine months

Pretax profit edged up to Posting a slight rise in its nine-month profit to 2.1 billion kroner ($318 million) from 2.08 billion the year before. The insurer said its profits were bolstered by its restructuring and cost- cutting, despite intensifying competition in the industry.

But that competition is requiring the company to find further cost cuts, Trygg-Hansa president Lars H. Thunell said. He said trimming costs will enable the company to ‘increase our competitive strength through a continued movement toward lower rates and simpler products.'

The balance of the technical account for non-life operations rose 22% to 583 million kronor in the first nine months, on the back of lower claims experience and a decrease in operating expenses, Trygg-Hansa said.

Net premiums earned on non-life insurance, however, fell to 3.76 billion kronor from 4.06 billion kronor, mainly following lower earned premiums for accepted reinsurance, the termination of cooperation with Sampo and the sale of Hansa Industrial Insurance, Trygg-Hansa said.

Operating costs at the non-life business decreased to 872 million kronor, from 994 million kronor, with the net expense ratio falling to 23.2%, from 24.5%, despite the decrease in premium volume.

The non-life business' net combined ratio was 107.4%, down from 109.3%, the company said, adding that its long-term target is a net combined ratio of not more than 103% for Swedish direct insurance business. Moreover, the goal is that this ratio will be four percentage points better than the average for Trygg-Hansa's main competitors, the company said.

[05] German mobile-phone price war heats up

E-Plus said it will offer a new 'Partner Plus' tariff with a monthly basic charge of 19.95 marks ($12.93) and one-off connection charges of 99 marks.

A second new tariff package aimed at professional customers called 'Profi Plus' will carry a monthly charge of 59.95 marks and a one-off connection fee of 99 marks.

New subscribers to either service must sign a two-year contract to take advantage of the new rates. Herbert Brehnke, managing director of E-Plus, said the new tariffs were the cheapest available in Germany.

'The new development in prices on the mobile communications market will lead consumers to think things over again. Using mobile phones has become affordable,' he said.

The change in E-Plus tariffs is the latest round in a mobile phone price war sparked by Deutsche Telekom last week. Telekom stunned its main competitors by slashing the monthly charge for its D1 network.

Mannesmann Mobilfunk followed suit earlier this week, saying it would cut charges on a peak call on its D2-Classic package.

E-Plus is owned by energy group Veba, steel and engineering firm Thyssen, BellSouth of the U.S. and British mobile phone group Vodafone.

[06] Mercedes sales rise a sharp 17% in the nine months

Unit worldwide car sales rose 13% from January to September to more than 481,000. In Germany alone, unit car sales during the same period rose 17% to nearly 202,000.

Juergen Fahr, Mercedes car sales director, said the company was confident of meeting its sales target for 1996.

[07] Toyota's auto output up, Nissan's down in April-Sept.

Domestic sales in the period dropped at both companies, with Toyota reporting a drop of 0.3% and Nissan a fall of 0.9%.

For the month of September alone, Toyota said its production shot up 18.6% from the same month last year to 302,621, while domestic sales showed a moderate growth of 3.3% to 183,784.

Nissan said its September output fell 7.5% from a year earlier to 146,423, and sales rose 1.3% to 110,500. Exports in September came to 115,614 at Toyota, up 29.1%, and 54,992 at Nissan, up 3.0%.

[08] Iberia says it's on target to swing to a profit this year

Xabier Irala, a Spanish businessman who was appointed chairman of the state airline in July said he expects Iberia to swinhg to a consolidated net profit of more than 1.5 billion pesetas ($11.2 million) this year, compared with a loss of 45 billion pesetas last year.

The earnings improvement, he said, will pave the way for Iberia to forge an alliance with one or more of the handful of international carriers with which it is currently engaged in talks.

Until now, many foreign carriers have been wary of linking up with the unprofitable Iberia, which required a cash subsidy of 87 billion pesetas in state funding this year.

Irala said that the European Commission has ruled that the state carrier will be eligible for an additional 20 billion pesetas in aid this year because it has cut costs and improved profitability.

'It would be very difficult for Iberia to continue on its own, particularly when the competition is moving quickly in what is clearly a process of concentration,' said Irala. 'British Airways and American Airways are candidates. They are the winning horse, but they are only one alternative. There are others we are talking with as well.'

While acknowledging that Iberia has gone far toward improving its finances, Irala said the airline still had a lot of restructuring to do - including a radical overhaul of corporate culture - in order to ensure future profitability and the success of an international alliance.

'Right now, we're in a situation of unstable equilibrium. We have to consolidate our current profitability,' he said. That means 'not only reducing costs but also increasing income.'

To meet that goal, Irala said Iberia will adopt a far more aggressive commercial strategy. In fact, private airlines in Spain have already cried foul over recent moves by Iberia to slash some domestic air fares.

[09] Rothschild tapped to advise Spain on Telefonica sale early next year

The share offering in the telephone operator is tentatively scheduled for the first two months of 1997 and is expected to raise more than 450 billion pesetas ($3.48 billion), the same amount envisaged in the draft budget from privatizations for the whole year.

Fernando Diaz, Spain's economics undersecretary, told parliament this week that the offer is likely to be launched in January or early February in order to avoid conflicts with other privatizations from Germany in October, Italy in March and France in April.

Nonetheless, the Spanish cabinet still hasn't formally approved the sale, nor is it still certain that the state will sell its entire 20% holding. Analysts say demand for Telefonica shares is likely to be strong, particularly among domestic investors. The sale of 12% of Telefonica in September 1995 was oversubscribed, particularly in the domestic tranche.

Although demand among foreign institutional investors was considerably weaker, Telefonica has proved to be a hot stock. In fact, its price rose to 2,505 pesetas a share Thursday from 2,490 pesetas Wednesday; that's a jump of 53% over the initial offering price of 1,637 pesetas just over a year ago.

The total privatization of Telefonica is expected to be followed later in 1997 by the sale of the government's remaining 25% shareholding in banking group Argentaria Corp. Bancaria de Espana and its 10% share of oil group Repsol SA.

A stake in Empresa Nacional de Electricidad, or Endesa, the electricity utility that is 66%-owned by the state, is also likely to be sold next year, although the size and speed of the offer will depend on how fast the government liberalizes Spain's highly regulated energy market, government officials said.

While the government says the pace of privatizations is likely to depend on market conditions, Spain is expected to raise between 600 billion pesetas and 800 billion pesetas by the end of 1997 from the sale of its holdings in public companies.

As the first big share offer under the new center-right government, Telefonica will set the tone for Spain's ambitious privatization program.

Although the former Socialist government sold shares in Spain's profitable state-owned companies during its 13 years in office, the new center-right administration is faced with the politically thorny task of freeing these companies from state intervention.

[10] AT&T posts lacklustre earnings for the third quarter

They were right. AT&T reported profits from continuing operations of $1.36 billion, or 84 cents a share, on revenue of $13.23 billion. Revenue from continuing operations increased just 2.4% over the comparable period last year, a number about the same as the lacklustre 2.1% growth the company reported in this year's second quarter.

Profits in the year-ago period were $1.53 billion, or 96 cents a share. Those numbers don't include earnings from three former AT&T businesses, two of which have been spun off, and one that should be independent by the end of the year.

While the third-quarter earnings figure actually beat the 83-cents-a- share expected by most analysts, that estimate had been radically lowered from the 92 cents Wall Street was predicting before AT&T's surprise September 24 announcement.

Then, officials said third- and fourth-quarter profits could be as much as 10% lower than industry mean estimates. The company blamed increased competition in its core phone business and costly investments in new ventures such as local phone service and Internet access.

AT&T's meek results therefore didn't catch analysts off-guard. In fact, some analysts were actually somewhat relieved by AT&T's report, considering the dire warning about potential profit loss they received three weeks ago.

Although core business revenue growth was small, the rate of growth hasn't shifted considerably from the last quarter, analysts said. Instead, most of the company's profit loss seemed to stem from a 32% drop in revenue associated with AT&T's credit-card business and a marked increase in phone service marketing costs.

In a morning conference call with reporters and analysts, AT&T Chief Financial Officer Richard Miller said the company has made a conscious decision to spend money on marketing to win back customers. The company could have 'cut costs to meet short-term earnings forecasts. But that would not have been in the best interests of our shareowners,' Miller said.

'These investments are necessary to build this business into a strong competitor for the future,' he added. 'We are convinced that despite the uncertainty in our industry, the result will be even greater opportunities.'

(Rebecca Buckman AP-Dow Jones)

From the European Business News (EBN) Server at http://www.ebn.co.uk/

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