European Business News (EBN), 96-12-03

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

Page last updated December 3 1630 CET

CONTENTS

[01] German industrial output dropped unexpectedly in October

[02] Recal joins rivals ITT and Siemens in bidding for British military job

[03] LucasVarity plans $420 million restructuring

[04] GM says it's not ready to settle suit against Volkwagen

[05] Loctite meets with chairman of a potential white knight

[06] Porsche net soars, but firm sees flat earnings in current year

[07] Wessex Water may still be on acquisition trail

[08] Siebe earnings gain 32% and firm expects continued increases

[09] Russian electric utility says government plans to break it up

[10] Explosion in central Paris kills two

[01] German industrial output dropped unexpectedly in October

On an annual basis, which isn't adjusted for seasonal factors, October output rose 2.9%.

The month-on-month figure is much lower than expected. Economists surveyed by AP-Dow Jones had expected to see a 0.7% gain on the month. Economists did not forecast year-on-year industrial production in unadjusted terms.

The Economics Ministry stressed that the new figures for September, which were revised upward by 1.2 percentage points, should be taken into account when evaluating October's results.

September's industrial output fell 0.6% from August, instead of the 1.8% drop originally reported. It declined 0.4% in September from September 1995, rather than the 1.5% decrease previously reported.

The data for September and October are still designated as preliminary and could be adjusted further.

[02] Recal joins rivals ITT and Siemens in bidding for British military job

The company also reported a 33% drop in first-half pretax profit to £21.1 million ($35.2 million). The drop in earnings had been well advertised by the company on Monday, when it also said profit for the full year are expected to decline.

But Bowman alliance was a surprise. Racal has been focusing on the contract to re-equip the British Armed Forces battlefield communications for several years. The contract is estimated to be worth £2 billion ($£.35 billion), with the export market for the winning consortium expected to be another £2 billion of business.

David Elsbury, group chief executive, said of the alliance in a statement: 'As an Anglo-American industrial partnership, this alliance would employ the best available UK and U.S. technologies.' The Racal team and the ITT/Siemens team will combine technical, manufacturing and production resources.

Racal said the fall in profits over the first six months was largely due a £10.1 million exceptional charge taken to reorganize the company's data products division.

Racal said it expects its pretax profit for the full year to be £50 million, after it takes an exceptional charge of £20 million in connection with the reorganization of data products.

The company said excluding exceptionals, full-year profit should be similar to the previous year, and by the end of the 1997-98 fiscal year, profit should be much improved.

[03] LucasVarity plans $420 million restructuring

The Anglo-American auto and aerospace parts company said a $200 million charge will be taken to cover a programme aimed at boosting productivity, eliminating duplication and reduce overhead costs.

These measure will result in a reduction of 3,000 jobs worldwide over the next two years. The company will post an additional charge of about $220 million primarily for asset write-downs. As a result, the company's worldwide workforce will be reduced by 3,000 in the next two years.

The company will post the two charges, which total $420 million, in the fourth quarter ending Jan. 31, 1997. Since Lucas Industries and Varity of the U.S. merged earlier this year, the company has said it expects to achieve $200 million in savings by Jan. 31, 1999. That will be the merged company's second full fiscal year.

The company also should realise at least $100 million in tax savings in the next two years.

LucasVarity has identified 13 units for disposal that have aggregate annual sales of about $450 million, representing 6% of the consolidated group, and 5,000 employees. The units include several that are part of its electrical and electronic systems division and aftermarket operations.

The company expects the disposal program to be substantially completed by the end of 1997.

The company said the sale of the units will have an 'insignificant' impact on per-share earnings.

[04] GM says it's not ready to settle suit against Volkwagen

U.S. District Judge Nancy Edmunds cleared the way for the suit to proceed toward trial by denying Volkswagen's remaining preliminary motions in the case.

Edmunds allowed GM to pursue claims that Volkswagen and several of its top executives violated copyright, trademark and unfair competition laws in an alleged scheme to steal GM trade secrets.

Last week, Edmunds allowed GM's claims to proceed under the Racketeer Influenced and Corrupt Organisations Act -- which could lead to triple damages against VW reaching into the billions of dollars.

GM spokesman John Mueller said no settlement talks have taken place, despite the resignation of VW's production chief, Jose Ignacio Lopez de Arriortua.

GM and its Adam Opel subsidiary in Germany have accused Lopez and other top VW executives of forming a conspiracy to steal GM trade secrets when Lopez and several others abruptly quit GM to join the German car maker in 1993.

Mueller said VW also must acknowledge wrongdoing and compensate GM for its damages.

'The harm caused to GM and Opel caused by the wrongful conduct of Lopez and his collaborators remains to be remedied,' Mueller said Monday.

GM officials also said they were astounded at news that VW would meet the obligations of Lopez's contract, paying him about $2.6 million through March 1998.

'This is absolutely not sufficient,' said one GM executive who asked not to be identified. 'Letting him resign and then having top executives praise him and say that they can see him as a top consultant in the future does not meet our requirements.'

Today, Edmunds will meet with lawyers from both sides to set a schedule and procedures for discovery, the process of taking sworn statements from witnesses and disclosing other evidence in the case.

[05] Loctite meets with chairman of a potential white knight

According the Federal Filings Business News, the chairman of a special Loctite committee has met with the chairman of a third, unidentified, company. Representatives of the two companies are discussing terms of a potential merger, but Loctite stressed that there was no guarantee a final agreement would be reached or approved by its board.

Loctite has rejected and unsolicited bid of $1.2 billion for the 65% of Loctite it does not already own. Loctite has urged it shareholders not to tender their holdings. The Henkel bid expires January 6.

[06] Porsche net soars, but firm sees flat earnings in current year

Net profit skyrocketed to 48.1 million Deutsche marks ($30.9 million) in the year ended July 31. And the German company said earnings for the current fiscal year will about match those of fiscal 1996.

Porsche said it will pay a dividend of 2.50 marks a preferred share. The company also will pay 2.50 marks a preferred share for each of the three previous years, when the dividend was omitted.

It noted that holders of preferred shares placed in 1994 via a capital increase will receive a payment of 1.25 marks a share for fiscal 1994 as well as the full payment of 2.50 marks for fiscal 1995.

Holders of the company's common stock will receive a dividend of 1.50 marks a share for fiscal 1996. Payment of the deferred dividends from previous years will cost the company 5.9 million marks, Porsche said, while the dividend payment for fiscal 1996 totals 3.5 million marks.

Sales in fiscal 1996 jumped 40%, primarily because of the introduction of the new, lower-margin Boxster card. Porsche also said it expects to sell 'no fewer' than 30,000 cars in fiscal year 1997, up from 19,219 units in 1996. The company said that the increase in unit sales would be at least around 50%.

[07] Wessex Water may still be on acquisition trail

The water utility said pretax profit in the period rose to £75.5 million ($126.8 million). The dividend was raised to 5.7 pence a share.

Wessex Water took pains in its earnings statement to repeat its disappointment with the Board of Trade's decision to block its bid for neighbouring South West Water. That bid was derailed in late October.

'We remain committed to a strategy of leading the water industry in quality of service to customers, developing a significant stream of earnings not subject to price regulation and delivering higher returns to shareholders,' Chairman Nicholas Hood said.

Still, a special payout isn't out of the question, and though the earnings statement doesn't say it, Wessex is indeed still considering gearing up to make another bid, Chief Executive Colin Skellet told AP-Dow Jones in an interview. Skellet said 'We're looking at all the options, including share buybacks, including special dividends, including investments (and) combinations of those,' Skellet said. 'The one thing we've made clear for some time now is that we don't expect to sit with an ungeared balance sheet.'

Wessex has net cash of £75 million. Whatever it decides to do with its coffers, the decision won't be long in coming, the chief executive said.

'We're not going to take a long time on this,' Skellet said. Wessex also said it would look to boost earnings by improving the quality of its water services as well as developing revenue streams that aren't subject to the kind of price regulation that the main water distribution business is.

The non-regulated business is waste management, which Wessex is involved in through a a 50-50 joint venture with U.K. Waste Management International. Wessex's share of the pretax profit for that business in the six months was £6.2 million.

Elsewhere, the balance sheet was further improved in the half year by a 4% reduction in costs related to Wessex Water Services, the main business, and the company said the cost-saving momentum 'will be maintained for the full year.'

[08] Siebe earnings gain 32% and firm expects continued increases

Barrie Stephens, chairman, said recent quotations and bookings remain strong, confirming that the company is increasing its market share. He said while the recent strength of sterling is not expected to have impact on the underlying operating results of the company, it could affect the translation of results and net assets.

The diversified British engineering company said exchange movements had little effect, with sales adversely affected by £1.6 million and net profit adversely hit by £1.2 million.

Siebe said its recent acquisition Unitech has been successfully integrated into the company, with the unit contributing £21.3 million to operating profit in its first five months.

Siebe said the state of the economies in which it trades was mixed during the first six months of its financial year. 'Order activity in the U.S. generally increased in consumer sectors, such as household appliances, air conditioning and automotive markets,' the company said.

Siebe said growth was solid in South America, while conditions in the Middle East were strong.

'However, market conditions in continental Europe continued to be very soft particularly in Germany, France and, to some extent, Italy,' said Siebe.

[09] Russian electric utility says government plans to break it up

Oleg Britvin, vice president of RAO Unified Energy System, told a committee at the State Duma that a special government working group is developing several proposals aimed at breaking up the company and opening up the electric-utility sector. He asked the committee to prevent the government from carrying out its plans.

Over the weekend, a Russian newspaper reported that the government is considering replacing management at the country's third largest energy company. There has been no official confirmation of any such plans.

The government had been planning to sell 7.5% of the company's stock in the form of convertible bonds aimed at foreign investors, but UES management scuttled the deal by refusing to cooperate with the underwriter the government hired. The state current holds about 60% of UES shares, from which it now is auctioning 8.5%.

The remaining 51% stake is legally required to remain in government hands until the end of 1998.

Britvin noted that UES has won a special dispensation from the government, under which 30% out of the state's shares are voted not by federal authorities but by much more numerous and less coordinated regional governments. He added that UES has asked the government to raise the regional voting share to 50%, which would all but eliminate Moscow's direct control.

[10] Explosion in central Paris kills two

Officials said the explosion occurred just before 1700 GMT at the Port- Royal station, on the RER regional line shuttling thousands of commuters in and out of the French capital.

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

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