European Business News (EBN), 96-10-23

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

Page last updated October 23 1030 CET

CONTENTS

[01] German wage talks collapse

[02] Volvo shows 12% rise in pretax profit, but operating earnings plummet 74%

[03] GAN's losses nearly triple in the first half

[04] SAP warns it won't meet profit forecast

[05] GM settles three-week strike in Canada

[06] VW and Piech must stand trial in the U.S.

[07] Olivetti seeks damages from former director

[01] German wage talks collapse

The break-down of talks means engineering workers are likely to embark on another nation-wide walkout Thursday.

The failure by a key industry to agree on a deal including labour cost reductions demanded by employers within the union's 1997 wage claim is also likely top be interpreted as a blow to the German system of collective wage bargaining.

IG Metall chairman Klaus Zwickel told a news briefing that talks had broken down between the union and Gesamtmetall because the employers had 'only fractionally' altered their position on sick pay.

Companies in the engineering sector had earlier this month attempted to implement a new law allowing them to cut sick pay allowances to 80% of full salary from 100%. That would have saved German employers an estimated 12bn D-marks ($7.83bn) a year.

Employment in the sector has fallen 71% since to 3.5 million jobs because of a recession and foreign competition. Employers assert that the situation has been exacerbated by high labour costs.

But the companies were later forced to postpone putting the cuts into effect after a day of protest that involved more than 100,000 workers and cost Daimler alone some 80m D-marks.

Gesamtmetall president Werner Stumpfe said after the collapse of the pay talks that the sick pay issue could now have to be settled by individual companies. 'It is possible that sick payments cannot now be discussed as part of a collective agreement,' Stumpfe told journalists.

Talks on the wider pay demand for 1997 will now be handled on a regional level by worker and employer representatives as is normally the case. But even here, the two sides look far apart.

IG Metall said employers had during the latest talks offered a 1997 wage increase in line with inflation only if compensatory measures to cut labour costs were agreed in return.

The trade union has previously said it could only accept an inflation-based wage rise if linked with measures to secure employment in the industry.

[02] Volvo shows 12% rise in pretax profit, but operating earnings plummet 74%

Pretax profit in the period rose to 12.03 billion kronor ($1.82 billion), below expectations and bolstered by capital gains of 8.21 billion kronor from the sale of stock.

Most of the capital gains came from Volvo's sale of its Pharmacia & Upjohn holdings. The share sale means that Volvo's streamlining process into solely a transport vehicle group is nearly completed, the company said.

Operating profit dropped to 2.32 billion kronor. For the third quarter alone, operating profit plunged to 43 million kronor from 1.11 billion kronor.

Volvo called the operating results 'very weak' and said they were depressed by heavy price competition, an accelerating pace of product renewal and unacceptably high operating costs. Cost-reduction measures are being implemented in all units, Volvo said

. And Chief Executive Officer Soeren Gyll said that ‘extensive efforts are underway in the group within product development and in the production, marketing and distribution channels, measures, which will create sustained profitability in line with Volvo's strategy.'

The company noted that it's North American truck operations showed a significant loss of 1.40 billion kronor and that overall truck sales dropped 14%. That led to a 12% drop in total sales to 113.64 billion kronor.

Volvo said there was no recovery in sight for its truck operations and that order books were 40% lower than the year earlier. Operating profit at the truck division plummeted to 413 million kronor from 4.03 billion kronor the year before.

At the car division, operating profit more than halved to 573 million kronor. Sales fared better, slipping 4% to 59.83 billion kronor.

Volvo described this as 'unsatisfactory' but noted that sales of the division's new S40/V40 series were in line with expectations and the model was contributing to group profits.

[03] GAN's losses nearly triple in the first half

The insurer's losses swelled to 965 million francs ($186 million) because of the company's exposure in the ailing French property marker. And GAN said that exceptional items would have a negative impact on its full-year results, despite a turnaround in insurance activity and at its banking unit CIC. 'I foresee a loss for the year,' Chairman Jean-Jacques Bonnaud said at a news conference.

Bonnaud also said it was likely that GAN's realty provisions for the full year would be double those of the first half, which included a provision of a 621 million francs at property financing unit Union Industrielle de Credit.

He also said that he expected the state to offset any loss that GAN may incur on the sale of banking group CIC. GAN is in the process of selling 67% of its 93% holding in CIC, or the equivalent of about 62% of CIC. That sale is considered a prerequisite for the eventural privatisation of GAN.

GAN values CIC at around 14 billion francs, but only two bidders, Societe Generale and Banque Nationale de Paris, have come forward. Analysts estimate that GAN could have to write down 4 billion francs on the sale. GAN said that its insurance business was fairly steady, though its profits slipped 5% to 464 million francs in the first half. The CIC subsidiary's net profit climbed 22% to 472 million francs.

Behind the expanding deficit was GAN's Union Industrielle de Credit. The property banking arm's losses expanded to 799 million francs from 596 million francs.

The company said it is considering ways to reinforce shareholder funds ahead of its privatisation. Many French banks and insurers invested heavily in property and property lending during a boom in the 1980s but have been hit extremely hard after the bottom fell out of the market in the early 1990s.

[04] SAP warns it won't meet profit forecast

'It is not very likely that that we will reach the earlier target of 40% pretax profit growth,' SAP management board member Henning Kagermann said.

Germany's high-flying business software group stunned markets with with an unexpectedly sharp slowdown in growth in the third quarter that forced the company to revise full-year forecasts.

The news has sent SAP's stock plummeting 23% and the shares have single- handedly dragged down the German DAX index of 30. Dietmar Hopp, SAP's chief executive officer, said the market's reaction to the profit warning was exaggerated and he said a cut in the dividend was 'unthinkable'.

SAP, the world's leading maker of client-server software that controls core internal operations for companies, said profit on ordinary activities in the first nine months of 1996 rose 33% to 509 million Deutschemarks ($332.6 million) . Sales also rose 33% to 2.4 billion marks.

But the momentum slowed significantly from the 38% sales growth registered in the first half of the year, causing the company to abandon its prediction that sales would rise to 3.8 billion marks in 1996 from 2.7 billion marks the year earlier.

'The moderate growth in the third quarter means that the previous sales target is no longer achievable,' said SAP chairman Dietmar Hopp. 'We now expect 1996 revenues to be 3.5 billion marks.'

SAP wasn't clear about the reasons for the slowing growth rate, saying only that it was unexpected and could be attributed to activity in just a few countries. The company said it will refocus its energies on sales after putting much of its recent efforts in development.

Revenue from software products in the first nine months rose 30% to 1.63 billion marks. Sales for its flagship R/3 system rose 39 percent, while sales for its mainframe R/2 system slipped 14 percent.

The U.S. is now the company's largest market. Nine-month sales there rose 41% to 841 million marks. Sales in Germany edged up to 658 million marks from 603 million, while turnover in the rest of Europe advanced to 535 million marks from 397 million.

[05] GM settles three-week strike in Canada

The Canadian Auto Workers' 26,300 strikers were expected to ratify the agreement in a vote today and they could be back at work by the end of the week.

CAW President Buzz Hargrove said the agreement largely followed the pattern of a pact signed earlier with Chrysler Canada in which the company agreed on limits to outsourcing. He said GM, during the talks, reversed decisions to outsource 1,800 union jobs in Canada. GM agreed to some limitations after winning the union's acknowledgement that GM's competitive needs differed from Chrysler's.

Hargrove said the union would go along with GM's plans to phase out or sell parts plants in Windsor and Oshawa, Ontario, but it bargained for financial protection for the 3,500 workers at the plants.

The deal also calls for a 10% wage rise over three years, including cost-of- living allowances. Hargrove said that even with a favourable deal in place, union members understand there will be a potential for job loss. 'We're simply making sure that General Motors doesn't sell our jobs to the highest bidder,' he said.

Once the Canadian plants resume production, GM should be able to start bringing back nearly 20,000 US and Mexican workers laid off because of strike-related disruptions.

But it will take time for the Canadian plants to produce and ship the parts that other plants need before they can bring all their workers back - a GM source said two to three weeks. In the meantime, additional layoffs are expected.

To the union, the lengthy negotiations were a ground-breaking and successful challenge to GM's ability to decide on its own whether to sell plants and to 'outsource' - farm out union work on auto parts to cheaper independent suppliers.

Now the car maker confronts similar talks with its workers in the United States. Those talks are expected to intensify now that there is a settlement in Canada.

[06] VW and Piech must stand trial in the U.S.

U.S. District Court Judge Nancy Edmunds alerted both parties of her rulings by telephone this week on VW's motions challenging the involvement of the parties in the lawsuit.

The judge denied motions to exclude Piech, VW board member Jens Neumann and the German company itself from GM's case in the U.S. courts.

The judge had already accepted jurisdiction of the case with regard to VW of North America, VW purchasing and production czar J. Ignacio Lopez de Arriortua and several of his 'followers.'

In the suit GM brought against VW and its top executives in March, GM claims Lopez, its former purchasing chief, along with his followers, stole 'valuable trade secrets' when he left GM in 1993.

Last week, the judge cleared the way for a U.S. trial by rejecting VW's arguments that the case belongs in Germany, where GM's Adam Opel division and VW are based.

This week's ruling extends the case beyond Lopez to the top officials of VW, virtually ensuring the case will pit two of the world's biggest corporations against each other.

Responding to the rulings, GM said they ‘reinforce our confidence that the substantial damages we suffered in connection with Lopez's departure to VW will be remedied.'

But others say the rulings are somewhat expected and that VW hadn't expected any victories in its preliminary rulings from the U.S. judge. Some anticipate that as the case progresses, it could become a major issue in relations between the U.S. and Germany.

A VW spokesman would only confirm the rulings. Next Monday, the U.S. judge is expected to rule on the validity of several GM claims in the suit. Also next week, a Frankfurt court is expected to rule on a defamation proceeding that VW brought against GM in retaliation for statements the U.S. company has made since it filed its U.S. suit in March.

[07] Olivetti seeks damages from former director

Trading in Olivetti shares was suspended last month after prices fell following remarks by Renzo Francesconi that first-half results might be misleading.

Olivetti, which recently announced plans to sell its unprofitable personal- computer division, posted a first-half loss of 440bn lire.

Francesconi, who resigned his post in September, had publicly questioned the company results, touching off an investigation by prosecutors and by the Italian stock markets regulatory agency Consob.

Olivetti reiterated its insistence that Francesconi's suspicions were groundless.

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

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