European Business News (EBN), 96-10-24

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CONTENTS

[01] News Corp. to raise $1 billion in preferred stock issue

[02] Philips profit drops 77% in third quarter and company warns of $588 million charge

[03] ICI operating profit drops 47% in third quarter and company sees no improvement

[04] Deutsche Bank shows 9% profit rise and says it expects further gains

[05] French household demand drops 1.5% in September

[06] AT&T taps printer as its heir-apparent

[01] News Corp. to raise $1 billion in preferred stock issue

The company said in a statement the securities would not be sold through a public offering in Britain.

The securities, known as exchangeable trust originated preferred securities, would represent interests in subordinated debt securities and warrants to buy ordinary shares or American Depositary Shares of the satellite broadcaster, which is partly owned by News Corp.

News Corp said it may deliver cash in lieu of BSkyB ordinary shares upon exercise of warrants. The offering will be made through News America Holdings. The company will reportedly use the financing for further expansion in the media sector.

[02] Philips profit drops 77% in third quarter and company warns of $588 million charge

Third quarter net profit slid to 123 million guilders from the year before on a 4.6% sales gain to 16 billion guilders.

Analysts had expected third quarter net of between 240 million and 360 million guilders. Some had expected Philips to take a third quarter charge to cover ongoing restructuring within the group. But instead, the group's new president, Cor Boonstra, gave advance warning of the billion-guilder charge.

'Analysis of our business...demonstrates the need to accelerate planned actions for recovery,' he said, explaining the charge. Philips said the third quarter results were 'most disappointing,' and added that the company's ‘anticipated recovery of sales and income has not materialised.'

Philips said its results were pressured by operating losses in its Consumer Products and Professional Products divisions, and that operating profit at its Components and Semiconductors division was hurt by margin erosion.

[03] ICI operating profit drops 47% in third quarter and company sees no improvement

Pretax profit before exceptionals dropped 47% to £131 million in the quarter and to £498 million in the nine months. The nine-month figure was down 34% from the year before.

'The pace of economic activity remains uneven and no significant change is expected before the end of the year,' said chairman Sir Ronald Hampel.

Profits from the industrial chemicals sector came under intense pressure due to sharply lower selling prices, particularly in polyster, titanium dioxide and chlorine. Rising oil prices also affected margins.

'There is, however, growing evidence that the widespread destocking which began in mid-1995 has largely come to an end, and sales volumes increased in almost all businesses in the third quarter,' said Hampel.

Paints profits, at a record £127 million were 61% ahead of 1995 with third quarter profits at £57 million, up 78%. Profits from sales of polyurethane, acrylics and polyester films rose 12% top £161 million.

[04] Deutsche Bank shows 9% profit rise and says it expects further gains

Germany's largest commercial bank said group net profit rose to 1.5 billion marks ($1 billion) through September, while pretax profit came in at 3 billion marks, a 27% gain. Operating profit after provisions rose 26% to 3.49 billion marks.

The figures came in below market expectations which had put net profit at 1.7 billion marks. Analysts had predicted Deutsche Bank's earnings would suffer from provisions to account for a £180 million cash injection into the bank's Morgan Grenfell Asset Management unit. But Deutsche Bank didn't mention the provision.

Chief Executive Officer Hilmar Kopper said 'we expect the positive earnings development to continue in the final quarter of the year.'

The return on equity before tax rose to 14.3% from 12.4% the year before. Loan-loss provisions rose 20% to 1.2 billion marks and net interest income after risk provisions edged down 0.9% to 6.8 billion marks.

Trading profit jumped 50% to 2.1 billion marks, exceeding the profit earned in all of 1995. Net commission income climbed 26% to 4.9 billion marks.

[05] French household demand drops 1.5% in September

Consumer consumption rose a revised 3.4% in August. For the third quarter, household demand increased by 2.6%, compared with a 1.5% decline in the second quarter.

The government said that, excluding automobiles, tires, auto parts and pharmaceutical products, household consumption dropped by 5.6% in September after having risen by 1.2% in August.

The trend was partially offset by and 18.8% jump in car sales in September as consumers rushed to take advantage of government incentives before they ended on Sept. 30.

Although most private economists were caught wrong-footed by the September consumption figure, some pointed out that consumption remains on a more positive trend than they had anticipated earlier in the year.

'Although the September figure is quite disappointing,' commented Florence Pisani, an economist with Cie Parisienne de Reescompte, 'we still expect consumption for the full year to be up by more than 2%, compared to the 1% to 1.5% that people were forecasting at the beginning of the year.

Underpinning household spending is a two-point drop in the savings ratio that hadn't been factored into earlier projections, she noted.

Pisani said the September data has prompted CPR to scale back its projection for gross domestic product growth in the third quarter of 1996 to 1.5% from 1.7%, but CPR's projection of a 1.3% rise in economic activity for the full year - in line with the government's own forecast - remains unchanged. She noted that the savings ratio has fallen by two points in France.

[06] AT&T taps printer as its heir-apparent

The choice wasn't the star technologist or crackshot consumer marketer that Wall Street was hoping for, sending the company's stock down 4.5% in New York trading. Walter will become president and chief operating officer of the beleaguered telecommunications titan, serving in the No 2 slot until AT&T Chairman Robert Allen retires in January 1998 - a full two years earlier than planned.

In his apprenticeship, Walter will have to study the vastly changing telecom business while trying to prop up AT&T's flagging fortunes.

Once the 61-year-old Allen steps aside, Walter, 49, will take full command of a company that still labors under too much bureaucracy, internal management strife, uninspired and fragmented marketing and sagging morale.

AT&T already has lost several key executives this year, Walter succeeds Alex Mandl, who quit two months ago to join a startup - and more turnover at the top is likely.

Industry executives say several senior AT&T staffers will soon leave, including perhaps AT&T's hard-charging consumer chief, Joseph Nacchio.

The hiring marks a change that many AT&T watchers say was overdue. Allen's decade of multibillion-dollar restructurings and massive downsizings has been a failure when measured against the revenue, profit and global-market expansion of AT&T's primary rivals, MCI Communications and Sprint.

Investors are fleeing AT&T's stock. A three-way split of AT&T was supposed to ignite growth, but its computer and equipment spinoffs are in high gear while AT&T seems stuck in neutral.

'There is a crisis at the top of AT&T and a lot of inertia throughout the company,' says David Shell, senior vice president at Liberty Investment Management, which sold the last of its 700,000 AT&T shares last month.

'They've been sailing around rudderless,' he adds. 'Bob Allen needs to get the hell out.' If Walter fails, AT&T may never regain the ability to lead the market it created more than a century ago. Other titans, such as Western Union and International Business Machines, lost their power to orchestrate the worldwide industries they pioneered, once technology changed and management faltered.

AT&T has the most to lose, and it relies on consumer service more heavily than MCI or Sprint do. More than half of AT&T's long-distance revenue and two-thirds of its profit comes from the consumer, as opposed to the corporate, market.

Moreover, customers will have ever more choices as they surf for discounts. Some 900 providers and resellers in long-distance are plying a mostly commodity service.

They range from fly-by-nights and 'dial-around' services, which let customers keep AT&T but sidestep it with six-digit access codes, to middle- tier outfits such as LCI International, which offers a lower flat-rate discount. Competitive pressures have shrunk AT&T's market to about 57%, and on Wednesday, Standard & Poor's downgraded about $9 billion of AT&T debt, citing those growing pressures. If AT&T's new president has a plan on how to reverse this trend, he wasn't saying Wednesday.

He did note that AT&T needs to do a better job of coordinating its service offerings. That would require better working relationships among its massive service operations.

'I clearly don't underestimate the walls and cultures that exist at AT&T,' Walter says. 'We have to make sure we integrate better...Not all our decisions will be right, but hopefully we'll know that before it's too late and move on to something better.' (John Keller, The Wall Street Journal)

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