European Business News (EBN), 97-01-27

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

Page last updated January 27 1900 CET

CONTENTS

[01] Volvo's chief executive quits after five years in the driver's seat

[02] Thyssen says first quarter disappoints, but year should improve

[03] Germany raises raises its estimate for 1997 budget deficit

[04] House of Fraser to lay off 1,000 staff

[05] Rhone-Poulenc Rorer posts 25% rise in income

[06] U.K. GDP figures unlikely to prompt rate boost

[07] GM boosts dividend and clears plan for $2.5 billion buyback

[08] Canal Plus may abandon German Cable companies

[09] Rolls Royce wins $500m Emirates order

[10] Italy faces bitter budget cure

[01] Volvo's chief executive quits after five years in the driver's seat

Johansson will be succeeded by Michael Treschow, president of heavy- machinery manufacturer Atlas Copco.

Gyll had earlier said he would retire soon, after five years directing the Swedish car and truck giant. And he had been forced to deny reports that he was battling with chairman Bert-Olof Svanholm.

Gyll said now is the right time to go because Volvo is about to enter a new phase after focusing on its core automotive operations for the past five years. He added that he isn't prepared to stay on the job for more than another couple of years and said it's important that Volvo's next leader has a long-term perspective.

'Gyll has worked wonders with the balance sheet and has done an excellent job of realising the value of the non-automotive operation that had been built up by (former Chairman P.G.) Gyllenhammar,' said Bob Barber, automotive analyst with HSBC James Capel in London. 'But Gyll isn't an operations man.'

Barber said Volvo needs a different kind of management to take it through its next phase of development and drive the business forward, adding that he was prepared to give Johansson 'the benefit of the doubt.'

Volvo B shares closed at 180 kronor in Stockholm Monday, up 3 kronor, or 1.7%, on the day, while Electrolux B shares rose 12 kronor, or 2.8%, to 438 kronor.

But some market participants were sceptical as to whether Johansson is the best man to take over at Volvo, considering that Electrolux has been struggling with profit margins as well.

Volvo Chairman Bert-Olof Svanholm stressed that Johansson has all the qualities Volvo was looking for, including experience as a chief executive officer, and is active internationally in a highly competitive industry.

Like Gyll, Johansson has no automotive experience. However, the father of five did buy a Volvo 850 last year because he considered it 'the best car on the market' for a big family. The fact that Volvo snagged its new leader from a Wallenberg-controlled company aroused some surprise among observers. Johansson said he wasn't bringing the Wallenberg empire closer to Volvo, but added that he will continue to have 'good contacts' with the family.

One Stockholm analyst noted that Johansson has had a difficult job at Electrolux, which has seen its margins shrink in the highly competitive white-goods field.

Others remarked that Johansson is coming to Volvo at a time when much of its future development already has been charted by its current leadership.

[02] Thyssen says first quarter disappoints, but year should improve

The German steel group didn't provide specific profit figures, but said all three divisions showed earnings on an operating level. The company posted a 6% drop in sales for the quarter to 8.7 billion Deutsche marks ($5.3 billion).

But Vogel forecast an `upward trend will continue, after the traditionally weak first quarter.' The company labelled its attitude one of 'cautious optimism.'

Thyssen's main subsidiaries have announced disappointing news lately. Thyssen's trading and services arm Thyssen Handelsunion announced last week it swung to a net loss in fiscal 1996 of 53 million Deutsche marks. Steel unit Thyssen Stahl showed a 19% drop in first quarter sales to 2.1 billion marks and Thyssen Industrie said its net profit dropped 38% to 65 million marks.

Vogel said he was happy with the progress being made in the company's restructuring plan. Thyssen is aiming to shed some 5 billion marks in assets, and Vogel said steps had already been taken to dispose of non-core operations with annual turnover of some 2.8 billion marks.

He added that the company was considering options ranging from sales, co- operation deals and closures for 15 of its business areas.

Thyssen's reorganisation aims at expanding its core businesses of flat steel, elevator manufacturing, car parts, production systems and materials trading. Five 'potential' core businesses were also identified -- construction technology, real estate, industrial services, logistics and telecommunications.

On the telecommunications front, Vogel said the company is 'very well positioned' with its E-Plus mobile phone service. But he warned that because the company lost a contract to co-operate with Deutsche Bahn in the telecoms industry, Thyssen's prospects in fixed network telecoms 'look different.'

'One must differentiate between mobile and fixed-network services in the telephone market,' Vogel said. 'The mobile phone market is developing very dynamically,' he said.

'For us, there's no doubt that mobile phones will increasingly develop uses that are similar to those of fixed networks,' he said.

[03] Germany raises raises its estimate for 1997 budget deficit

The government is scheduled to release its annual economic report tomorrow and most economists expect the document to show this year's budget deficit will total about 2.9% of gross domestic product. That would be just within the 3% limit specified in the Maastricht Treaty. The original forecast was 2.5%.

The report also details an expected rise in economic growth to 2.5%. But this won't have much impact on unemployment which is expected to rise about 11% in 1997 against 10.3% last year.

The higher deficit forecast leaves Finance Minister Theo Waigel with little flexibility as the country aims for the Maastricht deficit goal.

Nevertheless, Juergen Stark, Waigel's number two in the Finance Ministry, said he was convinced Germany would not have to exploit the leeway written into the treaty to qualify for monetary union. The EMU starting group `must guarantee that the common European currency will be stable,' he added.

Adding to Germany's economic difficulties, western German consumer prices are adding to inflationary pressures. CPI rose a preliminary 0.4% in January from the month before, making an annual inflation rate of 1.8%. The Federal Statistics Office said the month-on-month was due to seasonal and weather factors, while the annual jump resulted from the end of coal industry subsidies in western Germany. The month-on-month rate was in line with economists expectations, but the year-on-year increase was higher than the 1.4% forecast in a consensus survey of economists. And the building inflationary pressures mean that the Bundesbank isn't likely to lower rates anytime soon to help spark growth in the weakening economy.

Also today the Bundesbank said that consumer prices in western Germany rose a seasonally adjusted, annualized 1.9% in the six months through January.

That is an acceleration from the 1.6% seasonally adjusted, annualized increase in the six months through December.

Separately the deputy head of Germany's DGB Trade Union Federation said on she expected the jobless total to rise to substantially above 4.4 million in January compared to December's 4.15 million.

'I expect it well over 4.4 million in January and then in February it can be over 4.5 million,' Ursula Engelen-Kefer said in a telephone interview. Engelen-Kefer also sits on the board of the German Labour Office, which publishes the monthly unemployment data.

[04] House of Fraser to lay off 1,000 staff

Also, the company said it will take an additional £19 to £24 million charge for the full year related to its restructuring and store disposal programs, bringing total charges to between £41 and £49 million.

The group said its restructuring plan is focused on simplifying management functions and will involve around 1,000 staff layoffs.

John Coleman, chief executive of the British retailer, went on to say 'You have to say when you're trying to improve efficiency and you're looking for ways to save money...there's always the likelihood or possibility of maybe further job losses,' in an interview with Reuters.

The first phase of the restructuring will result in an annualized savings of around £10 million, the company said.

In addition, House of Fraser said it is looking to sell three of its department stores, but does not anticipate further store disposals.

The group also released sales data for the holiday period. It said same- store sales in the 26 weeks to Jan. 25 were 6.1% higher than in the year- earlier period, including a 'strong performance both in the period immediately prior to Christmas and during the January sales.' Following these announcements, the company's shares have gained 1 penny to 143 pence a share.

[05] Rhone-Poulenc Rorer posts 25% rise in income

Sales jumped to $5.420 billion from $5.316 billion with sales of the Lovenox/Clexane anti-thrombosis drug posting a 36% rise to over $400 million.

Chairman Michel de Rosen said, 'We have surpassed our objective of 750m dollars in asset sales to reach an amount of more than 850m dollars at the end of 1996.' He added that this had allowed the company to cut debt to 2.38bn dollars at the end of the year against more than 3bn dollars at the end of 1995.

The company said that the revenue would have been even higher without the costs of an albumin product recall at the Centeon LCC joint venture with Germany's Hoechst.

Centeon resumed production on January 24 after an October 10 product recall in the light of a potential risk of bacterial infection. Rhone- Poulenc Rorer said the 1996 costs of the recall were $0.44 per share.

`Despite this problem, which will also have an impact in 1997, I believe that the growth potential of Rhone-Poulenc Rorer has significantly improved in 1996,' de Rosen said.

And Finance director Patrick Langlois noted that the firm had `generated synergies from the integration of Fisons. These synergies will be more significant in 1997 - they will be more than $200 million'.

[06] U.K. GDP figures unlikely to prompt rate boost

But after a raft of weak economic data on manufacturing and retail sales last week, many economists believe that Chancellor of the Exchequer Kenneth Clarke can still fend off the central bank and keep interest rates on hold until a general election due by May 22.

The Office for National Statistics reported Monday that gross domestic product rose a preliminary 0.8% in the fourth quarter from the third quarter, up from 0.7% growth in the previous three months.

The increase, which was in line with market expectations, was the fastest growth rate since the fourth quarter of 1994 and took year-on-year growth to 2.6% from 2.4% in the third quarter.

Excluding volatile oil and gas production, GDP rose 0.7% in the fourth quarter, unchanged from the third quarter, and 2.5% from a year earlier, up from 2.3% in the previous quarter.

Some economists argued that on an annualized basis, core GDP growth is only slightly stronger than the 2% to 2.5% growth the economy has sustained in the past without pushing up inflation.

''Growth is only marginally above trend, and whether it is sufficiently so to enable the Bank of England governor to twist the chancellor's arm into raising rates is touch and go,'' said John Shepperd, chief economist at Yamaichi International in London.

[07] GM boosts dividend and clears plan for $2.5 billion buyback

The car maker said it will buy back the stock on the open market within the next 12 months. The repurchased shares would represent about 5% of the company's shares outstanding.

The buyback is in addition to GM's continuing share repurchases to satisfy ongoing needs of employee benefit plans and executive stock option plans. The auto maker said it will ''consider additional repurchase programs in the future.''

Standard & Poor's said it affirmed its ratings on GM, as well as its ratings on GM's subsidiaries, General Motors Acceptance Corp. and Hughes Electronics Corp.

The rating outlook for GM and GMAC is stable. The rating outlook for Hughes is ''developing.'' S&P said: ''GM's consolidated debt outstanding totalled $81.3 billion at Sept. 30, 1996.

''The affirmations follow the announcement by GM of a $2.5 billion share repurchase program and a 25% increase in its common stock dividend. These actions, along with planned transactions involving its subsidiary, Hughes, point up a shift by management to a more aggressive financial policy. This is consistent with Standard & Poor's expectations, which have been cited in the rationale for the current ratings in recent months,'' S&P said.

[08] Canal Plus may abandon German Cable companies

According to a report in Monday's edition of Germany's Focus magazine, Canal Plus wants to sell its stakes in Vox and Premiere, in which it owns 24.9% and 37.5% respectively.

A Vox spokeswoman, however, declined to comment on the report.

Canal Plus also confirmed that talks were under way with the Kirch group over a possible reallocation of television interests in Germany and Italy.

[09] Rolls Royce wins $500m Emirates order

The order involves Trent 700 engines for Emirates' new fleet of Airbus 330- 200 airlines, and means Emirates will be the only airline in the world to have a fleet wholly powered by Rolls-Royce.

'This is another highly significant deal for Rolls-Royce in the Middle East region, where Emirates is a leading, influential operator,' said Rolls- Royce Chairman Sir Ralph Robins in the statement. 'Though still relatively young in airline terms, its trend-setting services are regularly being recognized by prestigious airline industry awards.'

[10] Italy faces bitter budget cure

But Prodi said no decision will be taken until he has seen key state accounts, expected to be released towards the end of March.

Prodi repeated that any additional savings will come from cutting spending, while Treasury Minister Carlo Azeglio Ciampi pledged that Italy had the resolve to meet EU eligibility conditions for a single currency, saying the government this year would be ready to further cut the budget deficit.

Premier Romano Prodi was quick, however, to tell reporters that any reduction in the deficit would not be achieved by increasing Italians' already heavy tax burden. 'If we need a budget adjustment, this will be done by cutting back on spending and not through new taxes,' Prodi replied when asked to comment on Ciampi's speech to a group of foreign exchange traders.

For his part, Ciampi stopped short of saying that Prodi's center-left coalition would definitely make further budget cuts this year, saying he wanted to first examine all of 1996's economic data and see how the first part of this year was going.

But even with Italy's strong determination to heal its economy, it will be be an 'arduous task,' Ciampi said, for Italy this year to reach the European Union objective of a budget deficit that doesn't exceed 3% of gross domestic product.

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

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