European Business News (EBN), 97-02-24

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

Page last updated February 24 1230 CET

CONTENTS

[01] Yorkshire Electricity board backs $2.4 billion takeover bid

[02] Energy Group shows 38% gain in operating profit

[03] Thorn shows 8% 9-month profit gain

[04] Norsk Hydro shows 13% drop in net profit

[05] Outokumpu profits plummet on weak prices and demand

[06] Club Med shares soar 20%

[07] Corporate and Economic Briefs

[01] Yorkshire Electricity board backs $2.4 billion takeover bid

Yorkshire Holdings, a company jointly owned by American Electric Power of Columbus, Ohio and Denver-based PS Colorado, has offered a cash price of 927 pence ($14.83) a share for Yorkshire Electricity, based in the the North of England.

The successful completion of the deal would leave only one independent REC in Britain out of an original field of 12 created by privatizations in 1990. That Americans made an offer for Yorkshire surprised no one in U.K. power circles, because the electricity market here is viewed on both sides of the Atlantic as a profitable, expansionary sector capable of providing a springboard into other energy and utility markets.

But the timing of the transaction drew mixed reactions, and it quickly became clear that the completion date would be more important to Yorkshire's near-term share price than the price tag, which analysts viewed as a fair premium.

At issue is the U.K. general election, which must be called no later than May 22 but which most pundits forecast will come around May 1. The election is important because the Labour Party - favoured in polls to win control of the government - is seen to be less keen on takeover activity than the current Conservative government.

Executives from Yorkshire Holdings told analysts at a meeting that the takeover could be completed by mid-April. Some analysts agreed to that assessment, arguing that precedent - including the successful acquisition of a handful of RECs by U.S. buyers - and the healthy price tag should lead to a quick wrap-up, with the offer being declared unconditional a couple of weeks or so before the election is called. 'I can't see any reason why politics should get in the way,' said Angela Whelan, analyst at Credit Lyonnais Laing.

But Simon Taylor, electricity analyst at Barclays de Zoete Wedd, said it's not a sure bet that the final paperwork can be completed before election day, and he pointed to the fact that Yorkshire shares at midday Monday were trading well below the offer's per-share price as proof there were skeptics in the market.

Regardless, Yorkshire shares did gain strongly on the news. At 1059 GMT, they were up 62 pence, or 7.57%, to 880.5 pence, with 1.33 million shares traded.

As reported, the deal values each Yorkshire ordinary share at 927 pence in cash, or a premium of 13.3% over the share's closing, middle-market price last Friday. That price is also equivalent to a multiple of 6.6 times Yorkshire's cash flow per share and 11.3 times the company's earnings per share for the year ended March 31, 1996.

Executives of the U.S. companies said they began talks with Yorkshire last week. They acknowledged that they'd also looked into the possibility of bidding for Southern Electric PLC - the last independent REC - but hadn't made any formal contacts with that company.

(Gene Colter, AP-Dow Jones-London)

[02] Energy Group shows 38% gain in operating profit

The Energy Group reported an operating profit of £138 million in the third quarter of its year compared with £100 million the year earlier.

'The group's performance reflects a continuing solid contribution from the coal and networks business and a significant increase in profits from the power operations,' said Derek Bonham, executive chairman of Energy Group.

Former parent Hanson said total pre-tax profit, including Energy Group, fell to £157 million during the same three moths, as the company was hit by interest charges and weak market conditions.

'Difficult conditions persisted in our UK markets, but our main businesses all performed very creditably,' said Chairman Lord Hanson. He said the upturn in the UK housing market boosted demand in its bricks business and he expects this to extend into the company's other building product divisions.

Hanson is currently in the middle of a four-way spin-off of its businesses.

Hanson and Energy Group both saw their shares rise to the top of the Financial Times-Stock Exchange leader board in early London trading, as investors were encouraged by the performances of individual business units.

'When Hanson was a conglomerate, the visibility of a lot of the divisions was very difficult, but now its been broken up, it's easier to see what's going on,' said Leslie Kent, analyst at Mees Pierson Securities Ltd.

He said the earnings figures are of limited consequence with the group having been split into four parts and the reporting date having changed from a September year end to December.

'Previously the companies on the inside were masked by the bigger picture, but now they can be seen as individuals with the strength of their performances much more visible,' said Kent.

He said Hanson is now one of the largest aggregate and brick companies in the UK.

'You don't get to that kind of size without heavy investment. Now that we can see what's going on, we can take another look at the shares,' said Kent.

'I think Hanson shares are about 15% to cheap, but suspicion over the change in its year end could be holding them back,' said Kent.

He said using a September year end there was too large a difference between the first and second halves. The first was over the winter when sales were low, and the second over the summer when business is good. 'Almost all companies in this business have year ends in either December of June so the split between first and second halves is smoother,' said Kent.

He said prospects for the Energy Group are also strong, with the company able to build, operate and fuel its own power stations. 'The main problem these companies have is improving the credibility of the management. There were problems in this area before,' he said.

[03] Thorn shows 8% 9-month profit gain

Pre-tax profit rose to £123.0 million ($196.8 million) in the nine months, compared with £113.9 million a year ago.

Factoring out the exceptional items pre-tax profit fell 33% to £76.1 million. Thorn said that for the full year it expects to show flat earnings before exceptionals of about £170 million.

The company, which split from Thorn EMI in August to become a separate rental and electronics concern, said it will close 90 Radio Rentals stores in the UK.

'Those identified for closure are typically smaller stores and less efficient in terms of new business generation,' said Thorn in a statement. 'They represent 15% of all Radio Rentals outlets, but generate only 7% of total new business.'

In conjunction with the closures, Thorn said it will revamp its central support functions in the UK which will result in the loss of about 360 jobs. The associated one-off costs will be charged against existing restructuring provisions, said the company.

Thorn said new business levels over the third quarter were 'mixed' across its three major markets, the US, the UK and the Nordic region. 'Whilst the trading environment for Thorn obviously remains challenging,' said the company. 'Tactical and strategic development actions are in place or underway to optimise both short-term and long-term opportunities.'

[04] Norsk Hydro shows 13% drop in net profit

Net profit fell to 6.204 billion kroner ($916 million) from the year earlier. Operating revenue rose 6.4% to 84.8 billion kroner.

In 1995, the metals division was Norsk Hydro's biggest money earner, but the 66% drop in operating profit to 1.253 billion kroner has relegated it to number three among the company's four divisions.

Norsk Hydro blamed the division's sluggish earnings on a 15% drop in aluminium prices in 1996. Further, a lack of rain last year, which reduced the company's hydro-electric power production, forced it buy power for its production needs at high prices in the open market. According to Norsk Hydro, the power problems reduced its operating income by 600 million kroner.

Similarly, the company's petrochemicals operations had a bad year, with a operating profit plunging 75% to 287 million kroner from a 1995. Lower prices for the plastic materials polyvinyl chloride, vinyl chloride monomer and caustic soda coupled with higher maintenance costs hurt the division's result, Norsk Hydro said.

The industrial giant said its oil and gas division showed a marked improvement in operating income for the year, while results for agriculture were slightly below the year-earlier period.

Norsk Hydro posted operating profits of 9.65 billion kronor for 1996 compared with 10.70 billion kroner a year ago.

[05] Outokumpu profits plummet on weak prices and demand

The Finnish metals and mining company's pre-tax profit plunged 84% to 229 million markkaa ($45.49 million) from 1.48 billion markaa the year before. Net sales were down a modest 2% at 16.55 billion markaa.

Outokumpu said it sees improving market conditions in 1997. A stronger dollar and expanded capacity in copper and nickel production will also support profits in 1997, but the company remains cautious.

'Earnings in the early part of the year are likely to remain modest,' Outokumpu said. In 1996 the market prices of Outokumpu's most important metals declined with stainless steel, down 34%, ferrochrome, down 20%, and copper, down 22%, as some examples.

But Outokumpu does believe that the base metals' profitability will improve in 1997 as the business area reaches its targeted cost-efficiency level in the expanded copper and nickel production.

'The market outlook for metals and metal products has improved with the predictions of a favourable development of the world economy,' said the company. 'Growth in metals consumption is estimated to resume during 1997 but prevailing overcapacity will hold back prices in many metals.'

Outokumpu pointed specifically at copper and stainless steel as two areas where over capacity is particularly severe.

[06] Club Med shares soar 20%

Last Friday, Club Med posted a net loss for the 1995-96 year of 743 million francs ($131.3 million) but moved to bolster confidence with the announcement it was replacing chairman Serge Trigano with Philippe Bourguignon, head of the Disneyland Paris theme park.

'Bourguignon knows the business well. He has credibility...he is probably one of the best guys to choose,' analyst Thibaut Simonnet at broker Ferri said.

Bouguignon is credited with turning around the fortunes of Disneyland Paris, which suffered initial heavy losses after opening in 1992 to hostile French media reports and an indifferent public.

Club Med traded up 20% to 427 francs, on volume of 956,611 shares at 1152 GMT, and finished the day at 431francs or up 21.1%.

[07] Corporate and Economic Briefs

German producer prices rose 0.7% in January from the year earlier and 0.3% from December, Germany's Federal Statistics Office said. That data was exactly in line with a survey of economists conducted last week by AP-Dow Jones. Meanwhile, incoming orders to German manufacturers in December were revised down to 96.3, from a level of 96.7 originally reported by the federal economics ministry at the start of February. That means orders fell 1.8% from November, instead of the 1.4% decline calculated from the preliminary data.

Societe Nationale des Chemins de Fer, France's state-run railway system, will show that it narrowed its losses last year to FF15.2 billion ($2.67 billion) from FF16.6 billion the year before, the French financial daily La Tribune reported. That would still be a larger loss than the company predicted last year. According to the newspaper, which cited several unnamed sources, the bigger-than-expected loss is due largely to provisions and charges against doubtful or overvalued assets. Last autumn, the SNCF had predicted a full-year loss of FF12.5 billion. According to La Tribune, SNCF now estimates a 1997 loss of FF2 billion. The newspaper report added that the SNCF in its 'industrial plan' calls for a break-even year for the group in 1999 and break-even for each of its main operations by the year 2000.

Former Sumitomo Corp. trader Yasuo Hamanaka will be released on bail of 50 million yen ($409,000), Hamanaka's lawyer said. Hidesato Sekine, chief attorney of Hamanaka who is in the centre of Sumitomo's $2.6-billion copper trading scandal, said the decision was made because Hamanaka pleaded guilty last week to all charges of forgery and fraud brought against him by Tokyo prosecutors. 'The court has decided that there is no danger of his destroying evidence or fleeing now,' Sekine told Dow Jones Newswires in a telephone interview.

An opinion poll published at the weekend shows a clear majority of Germans want the start of Europe's planned currency union to be postponed. The opinion poll, conducted by the market research company Emnid for the weekly magazine Der Spiegel, shows 77% of Germans favour of a delay to economic and monetary union, while only 18% want it to proceed as scheduled at the start of 1999. The poll's question on EMU was one of several gauging the overall political mood in Germany. Another showed the personal popularity of German chancellor Helmut Kohl lagging that of the most Euroskeptical of Germany's leading politicians, Gerhard Schroeder. Schroeder is the Social Democratic governor of the state of Lower Saxony.

Switzerland's current account surplus widened in the fourth quarter of last year by 600 million Swiss francs ($408 million) to SF7.2 billion from a year earlier. The fourth-quarter rise stemmed largely from wider surpluses in trade of goods and services and in income from labour and investment. The Swiss National Bank also reported that the country's 1996 full-year current account surplus widened by only SF100 million to total SF25.1 billion. This reflected little change in the main components.

Alliance & Leicester Building Society, the UK mutual mortgage lender, has posted 1996 pre-tax profits up 6% to £306 million ($489.6 million). Gross mortgage advances fell to £2.2 billion from £2.9 billion. Total assets increased to £24.1 billion from £22.8 billion.

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

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