European Business News (EBN), 97-02-21

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

Page last updated February 21 1800 CET

CONTENTS

[01] Club Med taps Euro Disney's Bourguignon as new chief executive

[02] UBS swings to a loss, but the gap is narrower than predicted

[03] EU clears wage funds aspect of Italy's planned Eurotax

[04] Salvesen to pay $161 million special dividend, consolidate share capital

[05] French industrial production showed surprising strength in December

[06] Daewoo is preparing to make another bid for Thomson multi-media

[07] Michelin to trim an additional 1,445 jobs in France

[08] Western investor group to test Russia's holder rights

[09] Pepsi considers taking more control over international operation

[10] Corporate and Economic Briefs

[01] Club Med taps Euro Disney's Bourguignon as new chief executive

The leisure company posted a loss for fiscal 1996 of 743 million French francs ($130 million). The loss was due to an 820 million franc restructuring charge for the year.

The company issued a profit warning in October, but had given little warning of the large restructuring charge.

Club Med, whose shares were suspended on the Paris Bourse on Friday morning, issued a statement after the stock market closed, saying the board had approved the accounts and the changes in the group.

The company said current chairman Serge Trigano would be made head of a supervisory board at Club Med.

The company said second half results had shown a break with the improving trend that had followed losses in 1993, reflecting worse market conditions and increased competition and resulting pressure on margins.

'Confronted with this situation, the Club has decided to take a certain number of corrective measures, especially in Europe, aimed at better matching its product offer on two ranges, Club Med and Club Aquarius, to the level and profile of the demand as it exists today,' said the statement.

'This situation had prompted the chairman to propose a drastic restructuring plan...with the aim of restoring group profitability,' it added.

[02] UBS swings to a loss, but the gap is narrower than predicted

The Swiss bank also said it expects to show 'positive' results in the current year.

UBS said it swung to a loss of 348 million Swiss francs, a smaller gap than the 500 million francs the bank had predicted in November. Analysts' estimates called for a loss between 350 million and 500 million francs.

A year earlier UBS reported net profit at 1.68 billion francs. Special provisions for credit risks of 3 billion francs over the next few years and a charge of 120 million francs for restructuring costs resulted in the swing to a loss.

Despite the reported loss, the bank left its dividend unchanged for 1996 at 32 francs a bearer share and 6.40 francs per registered share.

Chairman Mathis Cabiallavetta, said the forecast for the current year is 'positive.' Provided market conditions remain reasonably favourable, 'we anticipate a rapid increase in our return on equity to around 12%.' He added that this is in line with the bank's strategic objective of achieving a return on equity of 6-8% above the risk-free interest rate.

In 1996 return on equity dropped to minus 1.5% from 7.5% the prior year.

Operating income rose to 11.21 billion francs from 9.72 billion francs, whereas operating profit rose 19% to 4.48 billion francs the previous year. 'The good operating results we recorded reflect the very positive trend in business witnessed by all three principal contributors to earnings.' Without the special provision and the charge for restructuring costs, group profit would have been in the region of 1.8 billion francs, up 7% from 1995.

Of the three principal segments, trading business reported the strongest rise with a 26% increase to 2.18 billion francs from 1.73 billion francs. The mainstays in trading income came from equity and equity derivatives as well as trading in bonds and interest rate instruments, Cabiallavetta said.

Although UBS was pleased with the institutional asset management business in Switzerland and of its UBS Asset Management London Ltd., the performance of equity business of the bank's UBS Asset Management company in New York was 'unsatisfactory,' Cabiallavetta said. The division hasn't 'yet found its definitive position in the US market,' he added.

[03] EU clears wage funds aspect of Italy's planned Eurotax

Eurostat, the EU's statistics agency 'the Italian tax on wage funds is a new tax and should be recorded as a receipt reducing the deficit.'

Italy, like other EU states, is trying to bring its deficit, debt and other budget targets into line with criteria set in the EU's Maastricht treaty for qualifying for the EU's single currency.

Eurostat said the tax will raise 3.5 trillion lire ($2 billion), which represents 0.19% of gross domestic product. This is less than the 5.5 trillion lire analysts had originally anticipated would be covered under the ruling.

The agency added that 'the receipts from this tax ... is not a financial advance but a tax which reduced the deficit in 1997.' EU spokesman Patrick Child said the wage fund aspect of Italy's so-called Eurotax was the 'only area that was problematic.'

Regarding the treatment of state guarantees for Italy's railway system, Eurostat ruled that 'public enterprises' debt guaranteed by the state should be directly taken into account in the government debt.'

The reclassification of such debt was expected to reduce the Italian deficit by 0.2 percent of GDP, Eurostat added. The amount involved was seen at 3.7 trillion lire.

[04] Salvesen to pay $161 million special dividend, consolidate share capital

The UK distribution and logistics services group said the 34-pence-a-share payout complements the £50 million enhancement on its interim dividend paid in February.

Chairman Sir Alick Rankin said, 'Today's proposals underline our commitment to delivering value to our shareholders. The payment of the special dividend as a foreign income dividend is a highly tax efficient means of returning cash to shareholders.'

The company said the special dividend, which will be combined with a share capital consolidation, will be paid as a foreign income dividend.

By paying it this way rather than as a normal dividend, Christian Salvesen will avoid writing off any advanced corporation tax.

The company said after the special dividend and capital consolidation, there will about 11% fewer shares in issue, increasing its earnings per share.

Newspapers have reported recently that concerns over tax liabilities are thought to be troubling many of the 400 Salvesen family members who control 37 percent of the company's shares.

Salvesen moved to silence critics in November with its plans for the special payouts and proposals to demerge its Aggreko equipment hire business after the company rejected a £1.1 billion hostile bid from Hays .

The demerger of Aggreko is expected to take place in the second half of this year.

[05] French industrial production showed surprising strength in December

December industrial production in France rose 0.6% from November and increased 2.0% from a year earlier, the national statistics bureau said.

Estimates had been for a smaller rise in the headline output figure for the month, but those estimates excluded the November figure's downward revision to unchanged from up 0.2% on the month.

Excluding energy, December production rose 0.8% from November and rose 1.1% from a year ago, but the month-on-month figure was also revised to down 0.5% from a previous estimated decline of 0.3%.

''The data sits well with the view that the great weakness in the third and fourth quarter is at an end,'' said David Naude, an economist with J.P. Morgan & Cie. in Paris.

''But it's not enough,'' he added. ''We need to see more to believe that the fourth quarter drop can be reversed and the economy is on an uptrend.''

A particularly positive trend within the data, Naude said, was the rise in consumer goods output. On the month, consumer goods output was up 4.1% after falling 0.7% in November, and was particularly strong in household appliance output, which rose 8.5% on the month.

Naude said that together with a ''marked improvement in business confidence'' as displayed in recent government and Bank of France surveys, the data point to an improving outlook for the French economy in 1997.

Steven Englander, international economist for Smith Barney International in Paris, said he agrees the French economy 'does show some signs of a rebound.'

But he's more interested to see how the apparent turnaround in output along with a perceptible rise in household confidence earlier this month play out on the demand side in next week's household consumption report for January.

Household consumption fell for the sixth straight month in December, falling 0.8% from the prior month amid a reported lack of discount sales during the holidays.

However, a survey by INSEE showed a continued improvement in household confidence in January and indicated many were in a better position to make major purchases.

Moreover, the Bank of France said in its January survey of business that it expects industrial activity to show a clear rise in coming months in all sectors, even though inventories remained high for consumer goods, food and intermediate goods sectors.

But Patrick Mange, chief economist for Deutsche Bank Paris, said 'the consumer confidence indicator... has a low correlation with consumption.'

And for all the optimism about business sentiment, he said industrial investment 'remains quite hesitant' even though 'there are many reasons to expect investment to pick up,' including among other things the dollar's rise and very low costs of borrowing.

Henry E. Teitelbaum, AP-Dow Jones-Paris)

[06] Daewoo is preparing to make another bid for Thomson multi-media

'Who knows, maybe they will specify that the company needs to be French to qualify,' Daewoo Electronics Chairman Soon-Hoon Bae was quoted as saying. 'The last time, the procedure was suspended because we are a foreign company.'

After a botched attempt at privatising Thomson SA last year, the French government now plans to sell Thomson Multimedia separately from defence electronics arm Thomson-CSF.

The government said it will first sell Thomson-CSF in a direct sale to a French or European defence company by the end of 1997.

Defence and media group Lagardere was the winner in the last bidding round for Thomson, but the deal fell through after France's privatisation commission objected to Lagardere's plan to sell Thomson Multimedia to Daewoo.

The ongoing Thomson saga has moved the French government to urge rivals Alcatel Alsthom and Lagardere to bury the hatchet and bid jointly for Thomson-CSF and create a French defence giant with global aspirations.

It also made clear that it was looking for future partners in Europe, but bids that would leave defence electronics specialist Thomson-CSF in foreign hands would not be welcome.

[07] Michelin to trim an additional 1,445 jobs in France

[08] Western investor group to test Russia's holder rights

The investors, who hold more than 40% of the Novolipetsk Metallurgy Kombinat, are pushing for their share of seats on the company's nine-member board. They also want to revamp plant management and perform an audit that would increase financial transparency.

The group said it presented an ultimatum to management this week, demanding the company consider its candidates. If management refuses, the investors will likely bring suit within 'a couple of days,' said Jim Dannis, head of the Moscow office of Salomon Brothers, financial adviser to the investors.

'We have said that we expect an immediate answer,' Mr. Dannis said. 'This is a shareholders' rights issue, in black and white.'

The investor group in Novolipetsk has repeatedly sought to assert some control over the company's operations since amassing its stakes in 1994 and 1995. But the funds, though backed by names such as billionaire George Soros and Harvard University's endowment fund, have been stymied by management's strong political connections.

Meanwhile, Russia's lower house of parliament passed amendments to the country's foreign investment law that call for a ban on foreign investment in many sectors of the economy including telecommunications and electrical power distribution.

Before the amendments become law the Duma must pass them in a total of three readings. They would also require approval by the Federation Council upper house and President Boris Yeltsin before taking effect.

The amendments include two appendices listing areas in which foreign investment should be banned altogether or limited.

The law says foreign investors should be treated in the same way as Russian entrepreneurs except in areas affecting national security.

The law includes a clause on stability for investors in the event of changes in legislation, but it was not immediately clear how existing investment in the sectors concerned would be affected.

[09] Pepsi considers taking more control over international operation

People familiar with the talks caution that the discussions are preliminary and no decisions have been made.

That said, this appears to be the most significant example yet of Pepsi's attempts to transfer operational and management skills from its strong domestic operations to its weak international beverage business.

Such a move would ease some of the financial burden from PepsiCo, since building an effective distribution system requires major capital expenditure. For instance, last year Pepsi and its bottlers announced they will be investing $550 million in manufacturing and distribution facilities in Russia over five years.

Pepsi bottlers say this could be a first step toward creating five or six large regional bottlers around the world, a strategy Coca-Cola has followed with tremendous success.

Indeed, in a Jan. 30 letter to Pepsi's international employees, Peter Thompson, head of the international beverage business, indicated exactly that, saying that the key to Pepsi's success overseas 'will be a network of well-capitalised franchise bottlers.'

So far, Pepsi has mostly relied on its company-owned bottling operations and several smaller local partners to manage overseas territories. However, the fragmented local bottlers often don't have the operational skills or money to build efficient distribution networks.

Currently, the only domestic Pepsi bottler to have a major overseas presence is Whitman Corp.'s Pepsi-Cola General Bottlers unit, which has franchises in part of Poland, some Baltic states and a portion of Russia.

As such, it is considered a likely candidate for acquiring more international territories.

[10] Corporate and Economic Briefs

Britain's gross domestic productrose a seasonally adjusted 0.8% in the fourth quarter of 1996 from the third quarter, unrevised from previous estimates, the Office for National Statistics said. Fourth quarter GDP was up 2.7% from a year earlier, revised upward from a preliminary estimate of 2.6%. The ONS also reported that GDP excluding oil and gas extraction was up 0.7% from the third quarter and up 2.5% from a year before, unrevised from previous estimates. GDP for all of 1996 was up 2.3% from 1995, while GDP excluding energy was also up 2.3%. Although these figures were unchanged from previous indications, an ONS official noted that data for the first three quarters of 1996 haven't yet been revised.

The consumer price index for the Basel area of Switzerland rose 0.9% in February year to year, after a January pace of 1.0%, the local statistics office announced Friday.

The month-to-month rise was 0.2% in February, against an increase of 0.3% in January.

The Basel index is the first of the three major regional indicators to be reported for this month.

Britain's gross domestic product rose a seasonally adjusted 0.8% in the fourth quarter of 1996 from the third quarter, unrevised from previous estimates.

The Office for National Statistics said fourth quarter GDP was up 2.7% from a year earlier, revised upward from a preliminary estimate of 2.6%. The ONS also reported that GDP for all of 1996 was up 2.3% from 1995, while GDP excluding energy was also up 2.3%.

An ONS official noted that data for the first three quarters of 1996 hasn't yet been revised.

German economic output declined 0.2% in the fourth quarter of 1996 from the previous quarter, data released by the Bundesbank showed.

The Bundesbank initially produced a rounded figure showing zero growth for the quarter-on-quarter rate. But the slight contraction in the economy could be calculated from the raw data provided by the central bank.

Alan Greenspan, Chairman of the Federal Reserve Board, said the government should not try to regulate off-exchange derivative transactions between institutional investors, although some regulation may be needed to protect retail customers. Any regulation at the retail level would be best conducted by banking regulators or the Securities and Exchange Commission, not the Commodity Futures Trading Commission, Greenspan said in remarks prepared for delivery at a conference in Coral Gables, Florida., sponsored by the Federal Reserve Bank of Atlanta. Copies of the speech were released in Washington. Institutional participants in bilateral derivatives transactions over the years have demonstrated their ability to manage risks, and dealer defaults have been negligible, Greenspan said. 'Thus, there appears to be no need for government regulation of off-exchange derivative transactions between institutional counterparties,' he said. 'Because many retail investors may lack the ability to evaluate their counterparties effectively, some government regulation of off-exchange transactions with such counterparties may be appropriate to protect them against unrecoverable losses from fraud or dealer insolvencies,' Greenspan added.

Hoechst is launching a public buyout offer for the remaining 0.73% stake in French chemicals company Roussel Uclaf it doesn't already own, Roussel Uclaf said. Starting Monday, Hoechst will offer to buy Roussel Uclaf's 180, 468 outstanding common shares and 18,989 preferred non-voting shares at prices of FF1,530 and FF1,330, respectively, Roussel Uclaf said. Because Hoechst already owns 99.8% of Roussel's preferred, non-voting shares and 99.3% of Roussel's common shares as of Feb. 11, the public buyout is compulsory.

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