European Business News (EBN), 97-02-25

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

Page last updated February 25 2000 CET

CONTENTS

[01] News Corp. sets up $1 billion US satellite venture that will reach 75% of television households

[02] Allianz posts 44% rise in domestic pre-tax profit and expects further gains this year

[03] Kvaerner says earnings plummet 69% and won't improve until second half

[04] German Inflation rises 1.8% on year

[05] Philips to sell its stake in cable-television venture

[06] Natwest pre-tax profit drops 36%, hit by restructuring and asset sales

[07] Guardian Royal hit by restructuring charges

[08] DSM profits plunget 35%

[09] Sanofi net profit rises 11% as beauty products division returns to the black

[10] EMI posts 8% decline in nine-month earnings

[11] Shareholders back STET board

[12] Italian government wins parliamentary support

[13] Boeing declares 2 for 1 stock split

[14] Corporate and Economic Briefs

[01] News Corp. sets up $1 billion US satellite venture that will reach 75% of television households

The Rupert Murdoch media company said it would buy 50% of EchoStar, creating a potent new direct-broadcast satellite competitor out of two fledgling ventures.

News Corp. said it will pay for its stake with about $500 million in cash, and will give EchoStar satellites and other assets of American Sky Broadcasting, the DBS venture that News Corp. owns with MCI Communications Corp.

The resulting alliance will operate under the name Sky and launch in early 1998. Its owners are hoping to shake up the cable and satellite markets by using their combined satellite capacity to offer an unprecedented 500 channels of digital TV, Internet services and local broadcast network TV signals reaching more than 75% of all TV households. Late yesterday, some cable insiders had already dubbed the service 'Deathstar.'

The agreement, which follows months of talks with potential partners in the cable and telephone business, was struck out of necessity on both sides. Without a deal, and without its satellites launched, News Corp. faced waiting until the beginning of 1998 to start rolling out an also-ran DBS service, giving rivals DirecTV and Primestar Partners another year to build on their dominant position. DirecTV, the industry leader with 2.4 million subscribers, is owned by General Motors Corp.'s Hughes Electronics and investor AT&T Corp., while Primestar is owned by a group of large cable operators.

EchoStar Chairman Charles Ergen, the scrappy entrepreneur who forced the industry into a price war last summer when he slashed hardware prices to $200 from $600, has been hungry to find additional money to pay down debt and finance his expansion. EchoStar, a fast-growing year-old public company that reaches about 430,000 subscribers, critically needed several hundred million dollars to launch its third and fourth satellites.

'We needed an alliance of some kind, and we felt it was better to do it sooner than later,' said Mr. Ergen, who had held talks with long-distance carrier Sprint Corp. and cable company Tele-Communications Inc. before striking a deal with News Corp. 'They bring content, they bring a brand and they believe in the local broadcast strategy.'

In recent years, the DBS industry has evolved into a serious cable rival, offering viewers an 18-inch dish with more than 200 channels of digital picture and CD-quality sound. But its total 4.5 million subscribers is still dwarfed by the cable industry's 64 million subscribers. Yesterday, Mr. Ergen, who has long played the role of David to cable's Goliath, made it clear he intends to intensify the fight. 'We're aiming for the big cable markets where there's 64 million homes,' he said.

Big cable operators shrugged off the new competitive threat. 'We welcome the competition,' said Robert Thomson, a spokesman for TCI. 'It's no surprise the two weakest players would combine -- there were too many players for all of them to be viable.'

[02] Allianz posts 44% rise in domestic pre-tax profit and expects further gains this year

But at the same time, Europe's largest insurer saw price pressures weigh on domestic sales, forcing premium income at the domestic non-life division to show a 'slight decline' again this year, falling 1.4% to some 17 billion Deutsche marks ($10 billion).

Rainer Hagemann, chairman of Allianz Versicherungs-AG and head of the domestic non-life insurers, said continued weak growth in the German insurance market, stagnating disposable income, the persistently weak economy and price competition would weigh on revenue this year.

'For 1997 we are expecting continued weak growth in the market, caused by a stagnation, in the best case scenario, in net income, a continued clearly weak economy and ongoing price pressures,' Hagemann said.

'Overall we expect a continued slight fall in premium income in 1997. The measures so far introduced to manage costs and claims will be extended and will hopefully contribute to another good result,' he added.

Hagemann also said that the integration of the non-life business of the Vereinte group, which Allianz took over in full last year, would be an important focus in 1997.

[03] Kvaerner says earnings plummet 69% and won't improve until second half

Kvaerner said pre-tax profit dropped to 750 million kronor ($112.9 million) from the year earlier, a result the company called 'unsatisfactory.'

Erik Tonseth, Kvaerner's president and chief executive officer, said 'cost reductions and restructuring will continue in 1997, but with continuing pressure on margins and short-term overcapacity in some of our businesses, it is unlikely that profits will improve significantly until the second half of 1997.

[04] German Inflation rises 1.8% on year

That's roughly in line with economists' average expectations that inflation would rise 0.4% on the month and 1.7% on the year. In January, consumer prices for western Germany increased 0.5% from December and were up 1.8% from January 1996.

The statistics office said it will release final February inflation data for the country in mid-March.

The CPI data were less unsettling to analysts, who noted that relatively strong price rises aren't unusual.

Ros Lifton, senior international economist with HSBC Markets in London, pointed out that much of the CPI increase was caused by a sharp rise in package-tour prices. These gained some 13% in the month, according to state statistics offices in Duesseldorf and Wiesbaden. The figure is derived mainly from prices listed in new brochures which are often subsequently slashed in publicity drives.

'I can't imagine that the Bundesbank is going to be overly concerned about package-tour prices,' Lifton observed, tongue-in-cheek.

[05] Philips to sell its stake in cable-television venture

Of the total price, 308 million guilders will be in the form of new securities issued by United and Philips. These securities will be in a form which will permit their sale by Philips in the secondary market after closing the deal, which is expected to be in the third quarter of this year.

Philips said the sale of the UPC stake comes as part of a full review of its core activities, instigated by the company's chairman Cor Boonstra. According to Philips, the cable television activities aren't part of its core business, though it said it's confident about the further successful development of multichannel subscription TV and other cable-based services.

'Nevertheless, Philips believes that the future of UPC is best served by having investors who are dedicated to this type of industry,' said Richard de Lange, president of Philips Media, in a statement.

Philips said UPC is Europe's largest private cable operator, with ownership in projects that serve nearly 2.1 million subscribers.

UIH is a leading provider of multichannel television services and related businesses outside of the US UIH has stakes in and provides services to multichannel television systems in 25 countries throughout the world.

Bert Siebrand, analyst at Suez Nederland Securities in Amsterdam, said the sale of the stake by Philips should be viewed positively, but that it will in itself have 'almost no effect on earnings per share.'

Siebrand said the main reason for Philips to divest from its stake in UPC is that the unit will need to invest heavily in the coming years in order to expand and remain profitable.

'UPC would want to expand in the coming years, which would cost a lot of money,' Siebrand said, 'and Philips isn't really in the mood for that.'

[06] Natwest pre-tax profit drops 36%, hit by restructuring and asset sales

Pre-tax profit fell to £1.12 billion ($1.79 billion), following a loss of £719 million on the sales of some of its assets, including Bancorp of the US. The figure also included costs related to redesigning its UK retail banking operations and a gain on the sale of its stake in venture capital firm 3i.

NatWest chairman Lord Alexander said the company's investment banking arm NatWest Markets had another year of real progress and 'is rapidly establishing itself as a major force in investment banking'.

The bank said it expected the pace of UK economic growth to slow in 1998, however, and as a consequence was adopting a more cautious approach to lending.

Alexander said the year saw the culmination of the reshaping of NatWest, adding there was 'much more to come' from its refocused portfolio of businesses.

Alexander said the bank saw no need for further acquisitions in this business and was focusing on organic growth and integration 'to achieve our aim of becoming a premier investment bank'.

Separately, NatWest chief executive Derek Wanless said the group would not bid in the auction currently under way for mutually-owned life insurer Scottish Amicable.

Lord Alexander of Weedon, the Chairman of NatWest, comments on why he is cautious for 1997 UK lending when other banks appear more optimistic.

[07] Guardian Royal hit by restructuring charges

Guardian chief executive John Robins said the results were achieved in the face of continuing competitive pressure. He also blamed abnormally severe weather conditions in North America and adverse weather and continuing subsidence costs in the UK.

Robins noted that there were still pressures on margins, but there were some bright spots.

'We have seen some hardening of premiums in selected sectors and regions, such as UK motor insurance, and the difficult conditions in the German market have not been as severe as had been forecast by some commentators,' he said.

[08] DSM profits plunget 35%

The Dutch chemical company's fourth quarter net profit fell to 129 million guilders from 144 million, confirming October's profit warning when DSM predicted that earnings for the period would come under pressure from raw material prices, especially for naptha. However, DSM said it would pay a dividend of 9.00 guilders per share, up from 8.00 guilders in 1995.

In the first half of 1996, DSM had booked profit of 413 million guilders on sales of 5.2 billion guilders, a sharp drop from the 693 million guilder profit booked on sales of 5.3 billion in the first half of 1995.

Looking to the year ahead, the company said it expected results over the first half of 1997 to be comparable to those in the same period of 1996.

'In the markets that are important to DSM demand continues to develop favourably. As far as can be judged at present, margins, in particular those for polymers, will gradually improve.'

The company further projected that, 'Based on this, DSM expects that the results for the first half of 1997 will reach a level comparable to that of the first half of 1996.'

But it added it was too early to make a forecast for full-year 1997 results as it was not yet clear how economic growth, oil prices and currency exchange rates would develop.

[09] Sanofi net profit rises 11% as beauty products division returns to the black

The French health and beauty products company, in which Elf-Aquitaine has a 38% stake, said the year was marked by relative stability of the French franc in comparison with other major world currencies, with the exception of the Japanese yen.

Sanofi sales were up 3% to 23.645 billion francs ($4.18 billion), and earnings per share rose 8% to 16.80 francs.

In the health products business, operating profit rose 5.5% to 3.696 billion francs after taking in account higher research and development spending. Beauty product sales were hit by sluggish consumption in Europe, but the business managed to show a profit for the year of 236 million francs, a drop of 29%.

[10] EMI posts 8% decline in nine-month earnings

The music publisher, distributor and retailer said profit before tax and exceptional items fell to £305.9 million ($489 million) from the year before as sales declined 4.6% to £2.57 billion. The company attributed the earnings decline to a slower record-release schedule and currency movements.

However, in an interview with AP-Dow Jones, Group Finance Director Simon Duffy said a rebound in fourth-quarter earnings would enable pre-tax profit for the year ending March 31, 1997 to surpass the £376 million recorded in 1996. 'We do expect that the fourth quarter will be sufficiently strong to do that,' Duffy said.

He added that the full-year figure would rise year-on-year despite a negative £25 million impact on operating profit arising from sterling's gains on foreign exchange markets.

EMI said world music markets, particularly the US market, were weaker-than- expected, although growth remains robust in developing regions such as South America, south-east Asia and eastern Europe.

The company benefited strongly from the runaway success of the Spice Girls, whose debut album, 'Spice' has sold over 7.0 million units world-wide to date. Meanwhile, the Beatles 'Anthology, Volume 3' has sold over 2.5 billion units, taking total sales for the Anthology series to over 13 million double albums.

EMI Music sales grew 4.7% on a constant exchange rate basis to £1.88 billion, while operating profit rose 3% to £285 million for the nine months.

At the group's retailing arm, HMV and Dillons, sales grew 14% to £671 million, while operating profit rose 1.9% to £21.9 million, impacted by the start-up costs at HMV Direct and HMV Germany.

Excluding 37 new store openings during the period, like-for-like sales grew 5.2%, EMI said.

[11] Shareholders back STET board

STET, 61%-owned by state holding company Istituto per la Ricostruzione Industriale, is Italy's telecommunications holding company and is scheduled for an Autumn sale. Chairman Guido Rossi said the new board, which comprises 14 members with a three year term, 'is born with a specific mandate, that of carrying forward the privatisation of the company, that according to the government's program requires first a merger with Telecom.' The new board of directors is composed of 14 members and will remain in place for three years.

Rossi's own nomination to the post of chairman, as well as that of Tomaso Tommasi Di Vignano to the post of managing director, were approved by shareholders. The management shakeup which brought the duo to the head of Stet was announced by the Treasury Ministry on Jan. 24.

Meanwhile, Vito Gamberale, the managing director of cellular phone company Telecom Italia Mobile was also elected to Stet's board. Other members of Stet's board elected Tuesday include Maurizio Prato, Pietro Rastelli, Alessandro Ovi, Sergio Pivato, Ruggero Boscu, Umberto Tracanella, Maurizio Decina, Augusto Zodda, Lucio Izzo, Nicola D' Angelo and Franco Corlaita.

[12] Italian government wins parliamentary support

The vote was called on a legislative decree that puts the finishing touches on the 1997 budget, a budget which seeks to bring the 1997 deficit to 3% of gross domestic product, one of the Maastricht Treaty requirements for monetary union.

The lira had weakened considerably in the face of uncertainty over the vote, in particular by investors outside Italy.

Following the vote, at 1415 GMT, the mark traded 994.55 ITL, down from 995.35 ITL shortly before the vote. The Bank of Italy has intervened to support the lira by selling DM at about the 995 ITL level, traders said.

The decree was presented by the government on Dec. 31 and contains the final budget measures for this year. The rest of the 1997 budget was passed by both houses at the end of last year.

A legislative decree takes effect immediately but must be approved by Parliament within 60 days. The lower house's final vote on the budget decree has repeatedly been put off over the last couple weeks, bringing the bill to within days of lapsing.

[13] Boeing declares 2 for 1 stock split

In a press release Tuesday, the company said shareholders will vote on increasing the number of shares of authorized stock to 1.2 billion from 610 million at Boeing's annual meeting April 28 in Seattle.

Currently, there are about 360 million shares issued and outstanding, Boeing said. Boeing Co. manuafactures passenger and cargo jetliners.

[14] Corporate and Economic Briefs

France's consumer price index in January was up a definitive 0.3% on the month and up 1.8% on the year, the national statistics institute said. That compares with an 0.2% rise in December and a December year-on-year rate of 1.7%. In the past three months, prices have risen 0.3%. Food prices rose 1.6% in January from December, while manufactured goods prices fell 1.1%, reversing a slight rise in December. Energy prices were up 0.8% on the month and 6.1% on the year, largely due to petroleum priduct prices, which were up 1.3% on the month and 10% from a year ago.

France's December trade surplus rose to FF11.33 billion from FF8.87 billion in November, giving it a record annual surplus of FF122.34 billion. France's 1995 trade surplus of FF97.8 billion had been the previous surplus record. Exports in December totalled FF129.4 billion, up 6.1% from FF122 billion in November, while imports rose 4.4% to FF118 billion from FF113.1 billion. The surplus in 1997 is expected to be automatically reduced by some FF20 billion francs as a result of a change in accounting, notably the decision not to take into account exports from France to its administered territories.

Norway's current account in December showed a surplus of 4.158 billion Norwegian kroner, up from 2.156 million kroner the same month a year earlier, Statistics Norway said. Since the start of 1996 a massive increase in oil and gas production along with buoyant oil prices have boosted Norway's current account surplus. However, the surplus fell 45% from a 9.3 billion kroner surplus in November 1996. 'The main reason for the decline is because of lower exports of non-oil related goods,' Bjoernar Alsnes, an agency spokesman, told Dow Jones Newswires. In 1996, Norway's current account surplus swelled 150% to 72.320 billion kroner from 28.936 billion kroner a year earlier, Statistics Norway said.

Denmark's wholesale price index for January rose 0.1% on the month bringing the year-on-year rate to 1.0%, said Danmarks Statistik. The January data came in below market expectations, with analysts having anticipated a 0.3% monthly and a 1.2% yearly increase in the index. Of the various categories, the ones that showed the most significant rise in prices from the month before were; raw materials for agricultural use which rose 2.8% and prices for foods of vegetable origin which increased 1.3%.

Spain's accumulated merchandise trade deficit on a customs basis narrowed to a rounded 2.505 trillion pesetas in December 1996 from a rounded 2.895 trillion pesetas in the same month in 1995, the Finance Ministry said. The deficit widened on the month to 162 billion from a rounded 140 billion pesetas in November.

Sweden's balance of trade showed a preliminary 10.8-billion-krona surplus in January, 1997, up from a surplus of 11.2 billion kronor in January a year earlier, according to figures released by national statistics agency SCB. The January surplus was somewhat larger than average market expectations of a 10.5-billion-krona surplus, SCB said. Exports rose 3% to 47.7 billion kronor in January from the same month 1996, while imports increased 5% to 36.9 billion kronor. The December trade balance has been revised down by 1.3 billion kronor to 8.3 billion kronor, while the November balance has been revised down by 1.5 billion kronor to 10.7 billion kronor, SCB said.

George Wimpey, the U.K.'s largest house builder said pre-tax profit more than doubled in the 12 months to December 31 1996 following its asset swap with Tarmac early last year. In March 1996 Wimpey acquired Mclean Homes from Tarmac, in exchange for its construction and minerals division. Wimpey said in a statement world-wide house completions fell 5.3% to 14,190 in the year, including a full 12-month contribution from McLean homes.

The consumer price index for the region of Zurich in Switzerland rose 0.1% month to month in February and rose 0.8% from a year ago, the local statistics office reported Tuesday. It noted that the figures were lower than monthly and yearly increases of respectively 0.2% and 0.9% recorded in January. As reported previously, the Basel area index for February rose 0.9% from the same period in 1996.

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