European Business News (EBN), 96-12-10

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Page last updated December 10 1650 CET

CONTENTS

[01] Hoechst to buy major stake in Switzerland's Clariant

[02] VW says `96 earnings will rise and hints at dividend boost

[03] NAPM's economic growth outlook optimistic for 1997

[04] China makes little progress in bid for WTO entry

[05] Northern Electric steps up defence against CalEnergy takeover

[06] Kymmene to sell two units to Metsa-Serla

[07] Remy-Cointeau shows 81% plunge in first-half earnings

[08] Kugelfischer says it expects full year earnings to be flat

[09] French police arrest dozen in connection with metro bombing

[10] France to announce new terms for Thomson sale this week

[11] German consumer price growth slows in November

[01] Hoechst to buy major stake in Switzerland's Clariant

The combined unit will have annual sales of about 9 billion marks ($5.8 billion), Hoechst said.

Hoechst, Europe's largest chemical company, has planned for some time to find a partner for its under performing specialty chemicals businesses.

A Hoechst spokesman said the step 'reflects the difficult situation in these business areas, especially in Europe. The broad product portfolio and the larger geographical presence will open up new growth opportunities.'

The agreement with Clariant fits into Hoechst's strategy to turn itself into a management holding company. Under the plan, Hoechst will restructure its specialty chemicals division into a new company and transfer it to Clariant in return for new

A Hoechst spokesman declined to say how much in fresh Clariant equity would be issued, or how high Hoechst's final stake in the new company would be.

The merger will involve Hoechst units that have aggregate annual sales of 6.5 billion Deutsche marks. Clariant's yearly sales totalled around 2.15 billion Swiss francs in 1995.

The companies expect to save several hundreds of millions of Swiss francs a year.

The markets cheered Hoechst's decision, sending up 2.3 % to 70.50 marks in official floor trading. Analysts welcomed the deal and said Hoechst had taken a bold step in revamping a sector believed to be mismanaged for some time. The rise in Hoechst shares sent other chemical company shares higher. Bayer shares rose 1.50 marks, or 2.4%, to 64.55 marks, while shares of BASF climbed 1.48 marks, or 2.4% to 62.18 marks. Pharmaceuticals group Schering shares rose to 130.50 marks, 1.40 marks or 1.1% .

[02] VW says `96 earnings will rise and hints at dividend boost

Europe's largest car maker also said it expected more 'positive business developments' in 1997 despite overall difficult industry conditions with little sign of an improvement in demand for automobiles in Germany as well as Europe.

Group sales this year are expected to climb 14% to about $100 billion marks ($64.3 billion).

The company didn't provide a specific earnings projection for the year but said profit would `clearly above' the 336 million Deutsche marks ($215.6 million) posted for 1995. The company also said the final dividend would reflect that earnings trend.

''Together with cost reductions via restructuring of operations, sales growth in 1996 has led to an improved earnings situation,'' Europe's largest car maker said.

Volkswagen has been reporting strong earnings growth throughout the year. In the first nine months, the company boosted group net profit 151% to 465 million marks from the 185 million marks the year before.

In its statement today, the company noted it was able to improve its results significantly despite weak global automobile markets. It said its Volkswagen-branded cars showed strong growth, as did the luxury Audi division and the financial services business.

Overall, the company's world-wide group consolidated sales have jumped 14% from a year earlier to around 100 billion marks, with deliveries to customers of all its car brands up around 400,000 units, or 10%, from 1995 to about 4 million cars.

All the various brands contributed to that growth, VW noted. Volkswagen produces the VW, Audi, Skoda and SEAT brands of cars and vans.

Sales and earnings at the SEAT Spanish car unit improved as did those at Volkswagen's North American operations. VW also said its Czech car manufacturing unit Skoda will swing back into profit by year-end. The company didn't say whether Skoda will post a profit for the full year.

[03] NAPM's economic growth outlook optimistic for 1997

In the National Association of Purchasing Management's semi-annual economic forecast, purchasers reported production capacity in manufacturing increased 5.3% during 1996 and is expected to increase an additional 5.8% in 1997.

Purchasers said that their companies are currently operating at 86.8% of normal capacity, the highest rate since May 1995's 88.1%.

Thirty-nine percent of purchasers expect prices they pay to increase in the first part of 1997, but only by 2.3%. Another 28% anticipate decreases averaging 4.8% and another 33% expect no change.

NAPM members had predicted a 0.6% rise in prices in their April 1996 report but prices actually decreased 1.6% for all of 1996. This is the lowest yearly change since NAPM began reporting specific price changes in December 1987. The 44% who say their prices are higher now than at the end of 1995 report an average increase of 3.3%, while the 45% who report lower prices averaged a 6.8% decrease. And 11% indicated no change.

Purchasing executives believe that the dollar will strengthen slightly against other major currencies. The average diffusion index for this forecast is 65.2%, down from 66.1% in April. NAPM members predict that the dollar will strengthen most against the Deutsche mark, the Japanese yen, the Mexican peso, and the Italian lira. The Canadian dollar and the British pound are seen staying the same versus the dollar in 1997.

As such, exports are expected to continue rising for the next half-year. Of the 83% of members who export, 54% predict an increase in the next six months and only 9% see a decrease in exports while 37% anticipate no change. Also, 36% predict an increase in imports in the next six months while 52% expect no change.

Meanwhile, NAPM members are more optimistic for Christmas season retail sales in 1996 than they were in 1995. About 44% of members predict sales will be 'good,' while only 1% expect them to be 'poor.' A relatively high 55% expect them to be 'average.'

[04] China makes little progress in bid for WTO entry

EU Trade Commissioner Sir Leon Brittan said the four ministers from the so- called Quad countries all agreed they want China join the trade organization.

'I think we all want to have them on the right terms,' he told reporters. 'On the issue, we exchanged notes, but didn't come to a conclusion.'

Speaking for the EU, Brittan said: 'We remain of the view that China's entry be based on an initial package (of measures to liberalize its markets), with others phased in.'

Acting U.S. Trade Representative Charlene Barshefsky, meanwhile, said the U.S. hasn't altered the position it has held for a year - namely, that China should enter the WTO 'only on a commercially viable basis.'

'Our views we have held consistently,' she said.

For its part, China said political considerations and an excessive entry price are blocking its entry into the trade group. 'As far as the Chinese government is concerned, we are fully qualified to enter the WTO,' Foreign Ministry spokesman Shen Guofang said at his biweekly briefing.

'At present the biggest obstructions continue to stem from political considerations, while China has also been asked to meet excessive demands,' Shen said.

On other matters, Brittan and Barshefsky reiterated that progress is being made toward reaching an agreement on trade in information technology products, but didn't elaborate.

[05] Northern Electric steps up defence against CalEnergy takeover

The company said in a statement that it is planning to merge its electricity and gas supply businesses with those of another REC. 'If implemented, the joint venture is expected to achieve cost savings rising over £28 million ($46 million) each year,' Northern said.

The company didn't say which other company was involved in the merger plans.

The company said it plans to raise its dividend for the year ending March 31, 1998, by 17% to 50 pence an ordinary share and then boost the payment a further 7% a year from 1998 to 2000.

'Our new enhanced dividend policy reflects the underlying financial strength and prospects of Northern Electric. CE Electric's offer does not,' chairman David Morris said.

'Directors of Northern Electric believe that there is scope for real growth in ordinary dividends from March 2000 following the next distribution price review,' the company added.

The company said it has plans to develop a 50-megawatt gas-fired power station in a joint venture with Roll-Royce, and is also pursuing an opportunity to enhance the value of its gas-supply operations through its Sovereign unit.

Northern spent £560 million pounds on benefits to shareholders when it fought off a hostile bid from Trafalgar House, now part of Kvaerner .

CalEnergy has raised its unwanted takeover bid to 650 pence a share from 630 pence a share last week. The U.S. utility has set a deadline of December 20, four days after a decision on the bid is expected from the British government.

[06] Kymmene to sell two units to Metsa-Serla

'Kymmene will sell the Simpele paperboard, paper and carton mills to Metsa- Serla and the Joutseno chemical pulp mill to Metsa-Botnia,' it said.

'For us, this solution is a straightforward streamlining of a big company,' Kymmene Chief Executive Juha Niemela said. He said the arrangements would strengthen Metsa-Botnia -- owned jointly by the two with Metsa-Serla holding the majority -- and ensure the supply of pulp for Kymmene, Europe's largest forestry company.

'The value of the deal for Kymmene is about two billion markka, of which Metsa-Serla will pay nearly half in cash,' UP said in its statement.

Metsa-Serla said the acquisitions -- due to be completed in the first quarter of 1997 -- would increase its annual group sales of 13.12 billion markka by about two billion markka.

Metsa-Serla will buy paperboard, paper and carton mills in Simpele from Kymmene and pulp mill Metsa-Botnia will buy UPM's pulp mill in Joutseno, which it will rebuild in a 650 million markka investment.

Metsa-Serla will also sell its pulp mill in Aanekoski to Metsa-Botnia, the companies said.

[07] Remy-Cointeau shows 81% plunge in first-half earnings

Pretax profit for the half dropped 81% to 41 million francs ($7.8 million). The year-earlier earnings had been boosted by an exceptional gain of 257 million francs, largely due to the sale of Remy's Picon brand. That compares with a 44-million-franc exceptional gain this year.

Sales for the period rose 4.4% to 3.07 billion francs.

Operating profit edged down 2.8% to 210 million, hurt by 60 million francs in extra advertising spending for the period. In the second-half, Remy Cointreau expects to show an improvement in its level of income from continuing operations. During the first half, Remy's losses from continuing operations shrank to 1 million francs from 39 million francs the year before.

The company noted that it has seen 'satisfactory business activity' in the first months of the second half. The company also said that its second half earnings are always more significant in terms of its annual earnings.

Remy said its debt level rose to more than 7 billion francs during the first half from 6 billion francs at the end of the preceding six months.

Company officials declined to give a projection for the company's debt level at the end of fiscal 1997, but said that Remy Cointreau will reduce its debt through asset sales.

The officials said the debt increase was due in part to Remy Cointreau's purchase of the champagne maker De Venoge for 35 million francs during the first half of the year.

Managing director Francois Heriard Dubreuil said the company is now considering various asset sales, but declined to give a timeframe or an amount expected from the sales.

'I won't say what we will be selling, but the assets will be non-strategic and will not affect our distribution network,' Heriard Dubreuil said at a press conference on first-half earnings.

Remy Cointreau officials declined to predict full-year profits, saying sales during the upcoming two weeks, as well as during the Chinese new year in early February, will be key.

'We are optimistic that everything is going well,' but the outlook is not yet clear, Heriard Dubreuil said.

[08] Kugelfischer says it expects full year earnings to be flat

German ballbearing maker also said it expects operating profit to climb 17.6% to 160 million marks.

Sales are on track to rise 3% this year, Kugelfischer told analysts in Frankfurt. The company also expected earnings per share of 1.70 marks following a capital increase and a change in the method of evaluating assets.

The Schweinfurt-based concern said new customers and expansion in Asia should support further growth next year.

Productivity gains should boost profits at the same time. First half net profit rose 4.7% to 45.3 million marks, while first-half operating profits were up 6.2% to 65 million marks.

[09] French police arrest dozen in connection with metro bombing

A police source, speaking on customary anonymity, said an anti-terrorism unit led the operation and that it was in connection with the Dec. 3 bombing that killed four people and wounded dozens more.

RTL radio said the dozen or so people arrested were suspected of having ties to Algerian Islamic extremist groups, including some based in Belgium.

Details of the operation were not available.

No one has claimed responsibility for the latest attack on a crowded rush- hour train at the Port-Royal station in the heart of Paris. Investigators are said to be focusing on Algerian Islamic militants as prime suspects.

Europe 1 radio reported that the Paris anti-terrorist judge leading the bombing investigation was heading to Italy on Italy. It did not say what leads he might be following up there.

The Armed Islamic Group, a violent armed faction fighting to overthrow the government of Algeria - a former French colony - claimed responsibility for most of the wave of bombings in 1995. Investigators have said the bomb used in the latest bombing - a 13-kilogram gas canister packed with nails - was nearly identical to those used in last year's bombings.

The Paris Bourse was evacuated later in the day after police received a bomb threat. Societe des Bourses Francaises said stocks continued to trade electronially.

[10] France to announce new terms for Thomson sale this week

'The aim of the government is to announce new terms between now and the end of the week,' the source said.

Some individuals close to the situation said a statement could be made as soon as Wednesday or Thursday, when President Jacques Chirac is scheduled to give a televised interview in the evening.

The French government last Wednesday suspended a planned sale of Thomson to Daewoo Electronics of South Korea.

Prime Minister Alain Juppe said it was possible that the state would sell separately the company's 58% stake in defence electronics group Thomson-CSF and its 100% holding of consumer electronics unit Thomson Multimedia.

In February Chirac said company need to be sold as a single entity. The government announced in October that it preferred an offer by Lagardere over a rival bid by Alcatel-Alsthom.

France would have sold indebted Thomson for one franc to Lagardere after an 10.8 billion franc ($2.05 billion) capital increase.

Lagardere would then have sold Thomson Multimedia, also for one franc, to Daewoo.

But the independent seven-member Privatisation Commission said it had objections to terms of the sale to Daewoo, effectively blocking the privatisation.

[11] German consumer price growth slows in November

The data also confirmed earlier preliminary figures showing a similar drop in west German inflation to 1.4% from 1.5% , while prices rose in the east by 1.6% after 1.5% in October.

November prices fell 0.1% against the previous month in Germany as a whole, after remaining unchanged in October.

A breakdown of the components of the consumer price basket showed that the among the strongest declines was energy prices, excluding fuels, which fell by 0.9% after a rise of 1.3% in October.

Most other categories showed modest rises, the statistics office said.

In eastern Germany, consumer prices were up 0.1% in November from a month earlier and up 1.6% from a year ago. Price rises in eastern Germany were led by a 3.1% rise in the cost of fresh vegetables from a month earlier, and a 0.8% increase for fresh and frozen fish, while tobacco products were 3.8% more expensive.

Consumer prices for seasonal food items declined 1.1% in eastern Germany in November.

Fuel prices in eastern Germany jumped 2.0% in November from October, while they showed a 0.1% decline in western Germany, the statistics office said.

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