European Business News (EBN), 97-01-30

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

Page last updated January 30 1900 CET

CONTENTS

[01] Alcatel expects to report a profit for 1996

[02] Rhone-Poulenc fourth quarter net more than tripled

[03] Bank of France surprises markets with rate cut

[04] British consumers are gaining confidence

[05] Glaxo chairman to step down and be succeeded by deputy

[06] Russian airline says TWA responds positively to idea of takeover

[07] Britain, Toyota try to downplay carmaker's threat

[08] BMW sees sales stabilising this year after sharp 1996 gain

[09] U.K. Tate & Lyle issues profit warning

[10] French business sentiment continues to improve

[11] Shareholders urge Dow Jones to give up Telerate plans

[01] Alcatel expects to report a profit for 1996

The company said it expects to report 1996 net profit of 2.5 billion French francs ($467 million) compared with a 1995 loss of 25.6 billion francs.

The figure comes after exceptional items, particularly capital gains resulting from companies programmed of selling non-strategic assets. Alcatel said the predictions for 1996 profits are in line with its recovery plan and confirm the company's goal of returning to a ''satisfactory'' level of profitability in 1998.

Alcatel Chairman Serge Tchuruk said in September that he expected his group to show a profit for all of 1996 of ''a few billion francs.''

The company said sales likely edged up to 162 billion francs from 160.4 billion francs in 1995, while orders rose 8% to 168.2 billion francs.

Alcatel also said the group's income from operations should exceed 2.7 billion francs in 1996 compared with 600 million francs in 1995, primarily due to the start of a recovery in the telecommunications sector.

The company said 1996 was characterised by a significant flow of contracts in the telecommunications sector, maintained during the last months of the year.

Orders in that sector grew by 21% from 1995 levels, whereas the undersea cables division marked several large orders at the end of 1996 and the beginning of 1997 after a slow period in the market.

[02] Rhone-Poulenc fourth quarter net more than tripled

The results were in line with analysts' expectations. The French drug and pharmaceuticals company said it would boost its dividend 16.7%. Looking ahead, chairman Jean-Rene Fourtou said the company would focus on internal growth for earnings enhancement.

'In 1997, we will continue with (our) strategy and confirm our objective of achieving improved performance in earnings per share and reducing the net debt-to-equity ratio to less than 0.5,' he said.

Fourtou ruled out major acquisitions this year, a capital increase or a de- merger and said the company would focus on internal growth for earnings enhancement. 'I can confirm that we do not plan a major acquisition in 1997. We have never had so many opportunities for internal growth,' Fourtou told a news conference.

'I can also confirm that we have no plans for a capital increase, as is being rumoured, nor do we envisage a de-merger.' He also said that despite frequent market talk, Rhone was not interested in a linkup between Rhone- Poulenc Rorer and Elf Aquitaine's Sanofi unit.

Rhone said the rise in net income was essentially due to earnings growth in pharmaceuticals and plant health activities, which represent 87 percent of earnings from operating income.

The company said the recent recall and halt in production of certain Centeon products cut about 81 million francs, or 0.64 francs a share, from its yearly earnings. Centeon is a joint venture of its Rhone-Poulenc Rorer unit and Hoechst. For the year, net profit jumped 30% to 2.74 billion francs. Sales edged up 1.2% to 85.82 billion francs.

'In 1996, we progressed in the implementation of our strategy. Our life science businesses continued to grow and improve their profitability, due to the commercial success of our new products and the integration of Fisons, ' Fourtou said.

'In chemicals and fibres there was a market improvement in the majority of businesses and new restructuring measures have been undertaken,' he said.

[03] Bank of France surprises markets with rate cut

The central bank lowered its intervention rate five basis points to 3.10% from 3.15%, but left its five-to-10-day rate at 4.6% when it carried out a securities repurchase for value Jan. 31. The intervention rate is now at its lowest level since the central bank began using repurchase tenders to stabilise banking sector liquidity.

And to ward off speculation that more cuts are in the offing, the central bank made a rare commentary on the decision by the Monetary Policy Council. The central bank said that the council 'considers that our rate for repurchase tenders is presently at the appropriate level in view of the French and international economic environment. The council has no plans at this stage to change this rate at its upcoming meetings.'

The bank observed that the committee's decision to ease policy another notch on was 'a signal of confidence as part of its monetary strategy for the credibility and stability of the French franc among the most credible European currencies.'

In cutting the rate, the central bank said that French medium and long-term market interest rates are currently the lowest in the European Union together with those in Germany and the Netherlands, and are the third- lowest in the world.

The rate cut was seen as one possible outcome for regular bi-weekly Bank of France Monetary Policy Council meeting, with a steady franc seen as principally responsible for the MPC feeling comfortable in using some of the margin it still has left for cutting rates.

Observers noted that a significant political and psychological impediment to further independent easing at the Bank of France was removed with the passing of the central bank's first Council meeting of the year on Jan. 16.

That meeting saw two new members take their place on the nine-member MPC, replacing two very strong supporters of the 'franc fort' policy of striving to maintain the currency's value by linking it closely to the Deutsche mark.

Analysts said that despite favourable market conditions for easing at the last meeting, the newly reconstituted MPC was somewhat prevented from easing because the new Council had to reaffirm for the market the continuity of its rate policy.

Pierre Guillen and Jean-Rene Bernard were named to the MPC. Neither was known at that time to be a particularly strong supporter of the 'franc fort' policy and market concerns centred around the suspicion that they might join with a minority on the Council that favoured lowering short-term rates much further - even at the cost of a strong franc.

[04] British consumers are gaining confidence

The Bank of England said consumer credit grew by £1.022 billion ($1.6 billion) in December from £1.05 billion in November. Lending has grown by over a billion pounds in five out of the last six months.

The government said the data indicate that consumers were gaining economic confidence and it denied suggestions that borrowing was getting out of hand. Annual growth in borrowing is running at more than 16.5%.

'In every region of Britain, consumers are more confident than they were a year ago. This confidence is showing in higher but sensible personal borrowing,' said Michael Jack, financial secretary to the Treasury.

The high rate of borrowing suggests consumers feel confident enough about future earnings to take on more debt.

The credit figures come only a day after minutes from the monetary meeting in December revealed George warned Chancellor of the Exchequer Kenneth Clarke that failure to raise rates immediately by a quarter point would mean a half-point rise in January or February. Clarke overruled George and kept rates on hold at 6% percent, saying the case had not been made for a further rise.

The Bank of England also released figures on Thursday showing mortgage approvals granted by banks and building societies eased to £6.1 billion in December from £6.4 billion in November.

Meanwhile, M4, the broadest measure of U.K. money supply, rose a seasonally adjusted 9.5% in 1996, revised downward slightly from provisional estimates of a 9.6% rise, the central bank said.

That increase was well below the 10.8%-rise in the 12 months through November and takes M4 further back toward the government's 3% to 9% target range. The Bank of England said the fall was due to an end-of-year run down in gilt repo activity.

[05] Glaxo chairman to step down and be succeeded by deputy

The UK drug giant said Chairman Sir Colin Corness will retire May 19, to be succeeded by Sir Richard Sykes, currently deputy chairman and chief executive officer.

Glaxo said its managing director, Sean Lance, will take up the position of chief executive in 1998. In the meantime, Sykes will combine the roles of chairman and chief executive and Lance will assume the role of chief operating officer with responsibility for worldwide operations.

Sykes, 54, said he will strive to maintain Corness' standards of chairmanship.

Indeed, a spokesman for the group told AP-Dow Jones that the change-over will likely be smooth. 'The strategy of the company is very clear and there's no intention to change,' he said.

One pharmaceuticals analyst who asked not to be named said the key point is that Sykes will be an executive chairman. 'Who's going to be in charge?' he asked.

Normally in the U.K., the chairman of the board is a non-executive, who delegates the day-to-day running of the company to the chief executive. However, in Glaxo's case, Sykes will remain executive chairman, even after Lance, 54, assumes the role of chief executive.

On the upside, though, the analyst said Lance, Sykes and Hurn, 58, are all 'high-quality' players. 'I don't think the change is going to be that important,' he said.

Glaxo also announced a further change at the board level. It said Sir Roger Hurn, currently a non-executive director, would replace Sykes as deputy chairman.

''I believe the time is now right for me to step down and that Richard Sykes, Roger Hurn and Sean Lance will create a balanced combination within the board, well-qualified to sustain the strong growth and development of the company,'' said Corness.

The outgoing chairman, who is 65 years old, oversaw Glaxo PLC's huge hostile takeover of Wellcome PLC in 1995.

[06] Russian airline says TWA responds positively to idea of takeover

An official of the Russian airline said final terms of the bid will be ready next month.

'We view the initial reaction as positive,' Transaero Vice Chairman Grigory Gurtovoi told AP-Dow Jones in a telephone interview. The investors made the preliminary offer to TWA's board Tuesday.

The initiative for the TWA deal came from the investor group, which approached Transaero, Gurtovoi said. The planned alliance with TWA would offer the struggling U.S. company access to the fast-growing market of Russia and the other former Soviet republics, virtually untapped by Western carriers, he said.

'That's what's missing from all the existing proposals in the market,' Gurtovoi said. 'We proposed creating absolutely new products in absolutely new markets.'

Transaero has the only comprehensive hub and spoke network in the former Soviet Union.

Transaero, in turn, would get a distributor for its traffic going into the lucrative U.S. market.

'If the deal with TWA doesn't work out for any reason, we'll continue to look for partners, first of all among U.S. companies,' he added.

The deal with Transaero also would give TWA an outlet for its ageing aircraft, given strong demand for used planes from carriers in the former Soviet Union. About three-quarters of the Soviet-built planes now flying in Russia and the other republics will be out of commission by the end of the century.

[07] Britain, Toyota try to downplay carmaker's threat

Toyota President Hiroshi Okuda tried to quell the growing furore he caused when he linked Britain's entry into entry EMU with building new factories in Britain.

''Necessary future investments in Europe are now under study and nothing has been decided,'' Okuda said. ''In the same manner, future investment in the Britain is being considered as one of many possible options,'' he added. ''This policy remains the same and has not changed at all.''

During a Tokyo reception with foreign reporters Wednesday, Okuda said he felt it would be ''excessive'' if the company made additional investments in Britain.

The British agency also quoted Okuda as saying Toyota's investments would favour continental Europe if Britain did not join the European Monetary Union, which plans to use a single currency in 1999.

But Okuda said new investment decisions will be determined ''by considering overall basic, business factors such as locations and infrastructure, good labour force, logistics.''

Toyota is currently proceeding to invest 200 million pounds ($325 million) additionally to expand its second factory in Britain to produce 100,000 Corolla-type passenger vehicles a year starting in the autumn of 1998. ''There is no plan to change this investment either,'' Okuda said.

But his comments did little to hose down the controversy he caused in Britain on Wednesday when he told reporters at a reception in Tokyo that Toyota would shift its European investments to continental Europe if Britain did not join EMU.

His remarks threw the ruling Conservatives, who are spilt over EMU, into new turmoil months before an election which must be held by May 22.

Deputy Prime Minister Michael Heseltine dismissed the fuss as a storm in a tea cup and defended the government's policy. 'There are big issues here that need to be clarified,' he told BBC radio.

'Yesterday, it was presented as though it was a major threat to this country. But overnight the Toyota president has clarified his position to reveal that those of us who realised this was a gross overstatement yesterday were actually right.'

[08] BMW sees sales stabilising this year after sharp 1996 gain

The carmaker also said that in coming years it plans to launch at least two completely new products a year.

The parent of Rover Group said it expects 1997 unit sales to stabilise at ''their current high level after a sharp increase'' in 1996. Group car deliveries rose 7.3% in 1996, to 1.15 million units. Of that total, deliveries of the BMW marquee were up 9.2% to 644,107 units. Rover deliveries rose 5% to 507,254 units.

'Since the start of 1997, the favourable sales developments have continued, ' BMW said.

BMW said group sales last year rose 13% to 52.3 billion Deutsche marks. It said the discrepancy between the rise in sales revenue and the rise in unit deliveries was due to a shift in demand to more expensive models, as well as the Deutsche mark's weakening versus the currencies of BMW's most important trading partners.

The company didn't give a forecast for 1996 revenue.

[09] U.K. Tate & Lyle issues profit warning

However, it said the results will likely be higher than those achieved in the second half of 1996. In a written statement ahead of the group's annual shareholder meeting, Tate & Lyle also said sterling strength 'adversely affected' its unaudited pretax profit in the first quarter by 7.1 million GBP.

The food producer said the currency impact arose from the translation of foreign-currency earnings into sterling and the effect of the E.U.'s currency mechanism under the Common Agricultural Policy, which reduced the profits at its sugar business.

The pound's 9.9% rise against the dollar last year, as well as rising against currencies, hurt profits at export-sensitive companies in the U.K. 'If average exchange rates for the quarter ending December 1996 were to prevail throughout the remainder of the financial year, it is expected that the outturn for the year would be marginally below that achieved for 1996,' the company's statement said.

In the statement, the U.K. food producer said its full-year pretax profit will be 'marginally below' the previous year's figure if current exchange rates remain constant.

That's more upbeat that the outlook from most investment analysts, who have been predicting a bearish run for the stock since the end of December.

At 0902 GMT, the stock was 10 pence higher at 436 pence a share on volume of 1.1 million shares.

[10] French business sentiment continues to improve

The index for production outlook in January stood at plus one, the first time in more than a year that that figure turned positive. The outlook compares with minus 14 in December and minus 21 in November, and continues a trend toward improving sentiment since September.

That figure is the difference between the percentage of businesses believing production will improve (a positive value) and the percentage believing it will deteriorate (a negative value).

Business leaders said manufacturing activity appears to have accelerated in the professional goods sector and to a lesser extent in consumer goods. Activity was less dynamic in intermediate goods output while automobile production remained depressed.

The automobile sector has suffered since the end of a government incentive program at the end of September.

Order books were mostly unchanged at around normal levels, INSEE said, and foreign order books were well filled. Inventory levels, meanwhile, were about average.

INSEE said the general outlook for business conditions improved markedly, as have business leaders' personal outlook for their own businesses indicating a stronger level of activity in the coming quarter.

Their outlook for prices showed that prices would remain low, INSEE said, while their personal outlook for pricing changes remained negative.

[11] Shareholders urge Dow Jones to give up Telerate plans

Michael Price a mutual fund manager and one of the two holders, said "We're hoping the board... reconsiders the advisability of investing so much money in what has been a very trying business." A fund run by Mr Price, credited with having nudged Chase Manhattan into a merger with Chemical Banking two years ago, owns more than 3% of the company's stock.

James Cromer, a fund manager with more than 1% of Dow Jones shares, said the company should plough its limited resources instead into the Wall Street Journal.

Wall Street is buzzing with rumours that the two men will force a shift in strategy at the company, including a reconsideration of Telerate's future, and greater attention to shareholder value.

Mr Price and Mr Cromer would have little direct influence over Dow Jones' strategy as about 70% of the voting stock is held by members of the Bankcroft family.

A number of Dow Jones board seats are about to be vacated, raising the prospect of a shift in the balance of power. Mr Price and Mr Cromer said they believed Dow Jones should form a partnership with another company under which Telerate would remain a content provider but give up the job of distributing its services.

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

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