European Business News (EBN), 97-01-28

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

Page last updated January 28 1500 CET

CONTENTS

[01] Commerzbank announces 1996 dividend

[02] Hilton stakes $6.5billion on ITT

[03] Siemens' profits suffer from falling chip prices

[04] AGA announces restructuring

[05] UK's Clyde Petroleum lashes Gulf

[06] Bundesbank member says that Germany will have to strive to meet EMU

[07] Novartis sales rise 8%

[08] UK's EU trade deficit widens unexpectedly

[09] Imperial Tobacco buys Rizla for 185 million

[10] Zeneca says it expects to report record 1996 earnings

[11] Volkswagen takes 10% of the world car market

[12] Bundesbank member says that Germany will have difficulty meeting EMU criteria

[13] U.S. employment costs nudge up 0.8%

[01] Commerzbank announces 1996 dividend

The dividend payment is at present only the recommendation of the board, but its approval by the supervisory board is usually a formality. In early morning electronic trading, Commerzbank shares were down on the news, losing 1.14 marks, or 2.6%, from last night to close at 42.55 marks.

The bank also reported an unspecified rise in operating profit but chose to transfer much of this to retained earnings in order to finance further expansion rather than increase the payout to shareholders.

In a short statement, Commerzbank said it planned to transfer some 650m marks in retained earnings to disclosed reserves, up from a transfer of 400m marks in 1995. It also noted that total assets increased some 12% to 451bn marks in 1996, driven mainly by a 20% rise in lending volume to 312bn marks.

A spokesman for the bank said it hasn't been decided yet whether to release any more details about the 1996 result before a news conference on April 8, at which the full results will be formally presented.

He also noted that the favourable conditions in the capital markets had helped Commerzbank to 'a good start in 1997

[02] Hilton stakes $6.5billion on ITT

The disclosure, made yesterday after the market's close, sets the stage for a bruising takeover battle between two major players in the hotel and gambling industries and marks one of the biggest hostile bids for an independent company in the 1990s. Hilton said a Hilton-ITT combination would create the world's largest gambling and lodging company, with a total of almost 230,000 hotel rooms and 30 casinos around the world.

The announcement sent ITT stock soaring to $58.50, up $14.75, or 34%, in New York Stock Exchange composite trading on Monday. Most of the gain came after the 4 p.m. Eastern Standard Time close of primary trading on the Big Board.

[03] Siemens' profits suffer from falling chip prices

But the company said its forecast of unchanged profit for the 1996/97 business year remained intact, despite the first quarter decline. The company said that group net profits fell in the first quarter, ending December 31, to 478 million marks ($289.5 million) from 503 million marks in the same period a year earlier. In 1995/96, group net profit rose to 3.3 billion marks from 1.9 billion marks.

First quarter group sales rose six percent to 20.9 billion, while incoming orders climbed 22 percent to 27 billion marks. Siemens said that the pickup in new orders was largely due to major projects, with growth led by energy, transport, telecommunications and information operations. But Siemens' industrial businesses saw declining orders, mostly due to weak demand for capital goods in Germany.

. The concern's workforce fell to 377,000 at the end of 1996, down slightly from the end-September figure of 379,000, with some jobs being cut in Germany and added abroad. First-quarter capital spending climbed 36 percent to two billion marks, driven higher by acquisitions. Siemens recently purchased industrial units from Switzerland's Electrowatt AG, and AEG Electrocom GmbH, a maker of postal machinery.

[04] AGA announces restructuring

After the restructuring, the Swedish industrial and medical gas company AGA will have three business areas - manufacturing industry, process industry and health care - each with global responsibility for sales, profitability, growth, research and development, and business development.

The manufacturing area, which will deal with customers in the metal working industry, will be managed by Jan Hammarlund, presently in charge of AGA in Germany. The process industry unit, to deal with customers in metallurgical, chemical and food industries, will be managed by Leif Svensson, currently senior vice president responsible for the Northern Europe region. The health-care unit will be managed by Lars Kaallsaater, currently senior vice president responsible for administration.

AGA will also establish four support functions with global responsibilty for operations and development dealing with supply, commercial services and information technology, plants, and human resources. In addition, the company will set up three central staff functions for control, finance and legal matters. The managers of the business areas, support functions and central staff will report directly to AGA's President and Chief Executive Officer Lennart Selander and will be members of Group Management.

[05] UK's Clyde Petroleum lashes Gulf

Clyde, which also announced a 21.7% increase in full-year earnings to £32 million, said independent independent cash flow studies implied that Clyde shares should be trading at at least 144 pence.

'Now it is crystal clear quite how seriously Gulf Canada has undervalued Clyde's potential under its existing management team,' said chairman Malcolm Gourlay in a statement.

UK Clyde Petroleum, the subject of Gulf Canada's hostile take-over bid, has also announced final results showing a rise in pretax profit to 57m pounds, up from 37.1m pounds last year.

Record daily production of 41,117 barrels of oil equivalent per day, and a 29.4% improvement in operational cash flow bolstered the company ahead of its announcement that the Gulf Canada bid is 100m pounds short of an acceptable valuation.

Managing director Roy Franklin said: 'Whether you use cash flow multiples or net asset values, Gulf Canada's offer comes nowhere near the value of Clyde's existing business let alone its future potential.'

[06] Bundesbank member says that Germany will have to strive to meet EMU

'Without the cooperation of the Laender (federal states) we will not succeed in keeping on course for consolidation,' he said. 'The fact that the Laender and municipalities are not formally committed to fulfilling the three percent limit does not change this.'

He also added that one-off efforts to cut deficits were not enough to ensure lasting fiscal restraint and that budgetary consolidation was by far the most important challenge facing the European Union 'Without doubt it must be acknowledged that by now all states are making a big effort to reduce their deficits,' Meister said according to the text of a speech.

'But this process must not end with the one-off fulfilment of convergence criteria.' Meister quoted the convergence report issued by the European Monetary Institute which said reducing deficits through measures with a one- off effect did not guarantee lasting consolidation.

He also said that all German public authorities -- not just the federal government -- had to strive to meet the Maastricht criteria.

[07] Novartis sales rise 8%

The Swiss pharmaceuticals group, formed in December through the merger of Ciba-Geigy and Sandoz, said that it expects its 1997 net profit to 'increase significantly.' 'What is very clear is that profit will increase significantly in 1997,' Raymund Breu, Novartis chief financial officer, told AP-Dow Jones.

Novartis expects its 1996 net income to approximate the SF4.2 billion made the year before, excluding one-off items related to the merger of Sandoz AG and Ciba-Geigy AG to form Novartis.

Breu explained that this year the impact of the merger's synergies will start to be realized in 1997. He noted the company has stated that it expects these synergies to improve pretax profit by SF2 billion over three years. He said it would be 'in the ball park' to assume that around one- third of that would be achieved this year.

[08] UK's EU trade deficit widens unexpectedly

The deficit fell to 844 million pounds in December from a revised 699 million pounds in November as exports fell 2.9% and imports fell 0.4%. The shortfall is larger than the 675 million pounds economists were expecting. The November deficit was previously estimated at 639 million pounds. The UK Treasury, however, was pleased with the fall in import prices. 'The further fall in import prices is good news for inflation prospects,' a Treasury spokeswoman said.

[09] Imperial Tobacco buys Rizla for 185 million

In an interview, Gareth Davis, chief executive of Imperial Tobacco, said the Rizla acquisition provides a unique opportunity to exploit synergies between the two companies in sales and distribution. He also said Imperial expects to boost Rizla's earnings. In 1996, Rizla made a trading profit of 23 million pounds on sales of 74 million pounds.

Davis noted that Rizla has a distribution network in 66 countries, over two- thirds of which are markets in which Imperial doesn't have a presence. This will allow the Imperial brand to be leveraged into new territories, he said. 'The demand for Rizla products is extremely buoyant at the moment,' he said, adding that one of the main drivers of the hand-rolling paper market is the price of factory-made cigarettes, which keep rising due to increasing government taxation.

[10] Zeneca says it expects to report record 1996 earnings

Bumper pharmaceutical sales will help to drive profits forward, with 1996 sales volumes expected to jump 14% from the year before. Sales of the group's biggest-selling product, cardiovascular drug Zestril, are expected to be flat at about 12%. Established prostate cancer treatment Zoladex also 'continued to grow strongly,' Zeneca said, while a decline in sales of its ageing breast cancer product Nolvadex slowed.

In a quarterly trading statement, Zeneca highlighted the performance of new drugs, with sales of prostate treatment Casodex and Nolvadex back-up Arimidex beating expectations. The recent launch of a novel tablet asthma drug Accolate in the U.S. has 'gone well,' the group said. Operating profits at the slimmed-down specialities business were likely to be above 1995 levels after 'a particularly strong second-half performance,' Zeneca said.

Full-year results will be affected by a £35 million reorganisation charge on speciality disposals, signalled at the half-year stage, while reorganisation of the seeds joint venture should cost Zeneca around £20 million. Zeneca noted that the strengthening of sterling in the fourth quarter of 1996 had little effect on the results due to its hedging policy. However, the company said it's too early to assess the impact of currency movements on 1997 results.

'As a guide, if the group did not hedge its transaction exposures, a 5% movement in sterling would cause approximately £80 million movement in pre- tax profit,' Zeneca added.

[11] Volkswagen takes 10% of the world car market

The German auto company said deliveries to customers surged 11.4% in 1996 to nearly 4 million units. VW said sales growth was strong in most geographical regions, with Western European sales gaining 9.7%. But the company is still struggling in its home market. Sales in Germany rose a mere 2.6% last year.

[12] Bundesbank member says that Germany will have difficulty meeting EMU criteria

'Without the cooperation of the Laender (federal states) we will not succeed in keeping on course for consolidation,' he said. 'The fact that the Laender and municipalities are not formally committed to fulfilling the three percent limit does not change this.'

He also added that one-off efforts to cut deficits were not enough to ensure lasting fiscal restraint and that budgetary consolidation was by far the most important challenge facing the European Union 'Without doubt it must be acknowledged that by now all states are making a big effort to reduce their deficits,' Meister said according to the text of a speech. 'But this process must not end with the one-off fulfilment of convergence criteria.' Meister quoted the convergence report issued by the European Monetary Institute which said reducing deficits through measures with a one- off effect did not guarantee lasting consolidation. He also said that all German public authorities -- not just the federal government -- had to strive to meet the Maastricht criteria.

[13] U.S. employment costs nudge up 0.8%

The fourth-quarter gain in the closely-watched employment cost index nudged the overall increase for 1996 to 2.9%. That was the largest rate of increase for a 12-month period since 1994 when employment costs rose 3.0%. Wages and salaries in 1996 posted their largest increase in five years, rising 3.3%.

Meanwhile, benefits posted the smallest 12-month gain on record, rising 2.0%. The benefits component hasn't risen at such a slow rate since the BLS began tabulating employment cost data in 1982. The employment cost data are being watched closely by the financial markets and Federal Reserve policy makers.

Earl Johnson, foreign exchange economist at Bank of Montreal in Chicago, said that while the ECI number was in line with the consensus forecast, it actually was a little better than many traders had expected. Market participants and Fed officials had been concerned that healthy economic growth and tight labour conditions would boost wages, placing upward pressure on consumer prices.

The employment cost index, which measures changes in employee compensation costs, including wages, salaries and employer costs for employee benefits, is seen as one of most reliable barometers of wage costs. The figure is important because labour costs account for about 60% of total costs in the economy.

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

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