European Business News (EBN), 97-03-06

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

Page last updated March 6 1830 CET

CONTENTS

[01] German jobless growth slowed in February, but economy shows few signs of job creation

[02] Glaxo Wellcome says it faces 2 years of flat earnings growth

[03] Yeltsin vows government shake-up and broad economic reforms

[04] UK retail sales growth slowed in past 12 months

[05] Hoogovens earnings drop sharply, but outpace expectations

[06] Ahold shows 38% jump in 1996 earnings and expects significant growth in 1997

[07] Royal & Sun posts 37% drop in first earnings since merger

[08] Rolls Royce swings into the red on provisions take for the sale of two businesses

[09] BTR profit rises 13% as restructuring continues on track

[10] Arjo Wiggins profits rise 86% as cost-cutting takes hold and markets improve

[11] CCF shows 11% gain in net profit as banking market improves

[12] GKN earnings rise 13% and company expects further gains this year

[13] Corporate and Economic Briefs

[01] German jobless growth slowed in February, but economy shows few signs of job creation

Labour Office President Bernhard Jagoda said the main problems delaying new job creation were still in the building sector.

'In non-construction related manufacturing areas, the rise in unemployment was noticeably smaller than overall. This could mean that the worst is over in job losses in the manufacturing industry,' Jagoda said at a news conference. But he added that the German economy provided no new stimulus in February that could boost job creation.

Meanwhile, German industrial orders showed stronger than expected growth in January, but analysts say some of the gains could be a reflection of the Deutsche mark's weakness since the start of the year.

Industrial orders rose 2.4% from December and 4.6% from the year earlier, the Economics Ministry said.

The rises follow a 1.9 percent month-on-month decline in December orders, which were only 1.9 percent higher than the year-earlier month.

Some analysts questioned whether growth in foreign orders would be sustained and whether that would trickle down to domestic growth.

The strong orders figures contrast sharply with industrial output data released Wednesday that showed a 1.7% month-on-month decline in January.

German unemployment in February rose to a seasonally adjusted 4.316 million, an increase of 5,000. That was considerably less than the 160,000 reported in January and at the lower end of expectations.

A survey by Dow Jones Newswires had showed consensus expectations of a seasonally-adjusted rise of some 7,700 in unemployment in February.

The unemployment rate, which is based on unadjusted data, was unchanged from January at 12.2%.

In west Germany, the adjusted number of unemployed fell by 4,000 to 3.018 million in February. The unemployment rate was unchanged at 10.6%. In east Germany, the adjusted number of unemployed rose by 9,000 to 1.298 million. The unemployment rate was 18.9%, up from 18.7%.

The figures add to speculation that European currency union may have to be delayed. Finance Minister Theo Waigel said late Wednesday that Germany must achieve a labour market turnaround by summer to meet the Maastricht convergence criteria.

Tony Norfield, currency economist at ABN-Amro Bank in London, says the jobless figures don't bode well for the economy. 'The picture will still be bad' since the fact that unemployment is still rising means politicians can't argue there has been any improvement. 'It remains a political problem, ' he said, noting that the state of the German economy has become key to whether EMU can proceed as planned.

EBN's Jeremy Gray talks to Adolf Rosenstock,Senior Economist at Industrial Bank of Japan, about the rise of unemployment in Germany

James Cornish, European Strategist at Natwest Markets, talks with EBN's Deborah Turner about the recent activity in German markets

[02] Glaxo Wellcome says it faces 2 years of flat earnings growth

Given constant exchange rates, the U.K.-based global drug company said pre- tax profit rose to £2.96 billion ($4.74 billion).

Taking into account the growing strength of sterling toward the end of last year, pre-tax profit rose 17% to £2.03 billion.

Deputy Chairman and Chief Executive Sir Richard Sykes was slightly pessimistic in his outlook for the current year, saying the company believes it will 'achieve sales growth in low single digits in 1997 and 1998.' He added that currency movements, notably the strength of sterling, 'could clearly have a significant effect' on performance.

The company said it hoped to 'at least maintain' the current level of earnings in 1997 and 1998 as U.S. and British patents on its best-selling drug, anti-ulcer drug Zantac, expire in July. Sales of Zantac fell by 14% last year to £1.931 billion, and accounted for 23% of compared with 43% in 1994.

The company said sales of newer products, launched since 1990, were taking up much of the slack left by Zantac. Sales of these products, which include asthma drugs Serevent and Flixotide, jumped by 50% last year to £2 billion.

[03] Yeltsin vows government shake-up and broad economic reforms

Yeltsin, addressing both houses of parliament in a nationally televised speech, acknowledged that 'most of the promises given to people, especially on social issues, have not been fulfilled.'

'We are still struggling in a flood of problems,' Yeltsin said. 'We haven't been able to reach the far bank.'

Yeltsin, looking healthy and speaking clearly and strongly, said he would focus on economic problems in a bid to breathe life into Russia's economy, which has contracted for six straight years.

However, Yeltsin has never shown much inclination for the nuts-and-bolts work of running the government and did not provide specific solutions for pressing problems such as the millions of state workers and pensioners who haven't been paid for months.

'People are suffering from delays of wages and pensions and government efforts have produced no noticeable results,' the president said. 'I must say that I'm ashamed that millions of people of the older generation are not receiving pensions.'

Labour groups are planning a nation-wide strike on March 27, and Yeltsin said the protest was 'largely justified,' calling it an 'alarm signal that peoples' patience is at its limits.'

Many economists say the faltering Russian economy has stalled between the old Soviet system and a market economy, with the government failing to provide leadership. Yeltsin acknowledged the government needed to push ahead with additional economic reforms and crackdown on corruption, considered a pervasive problem.

'The government interferes with the economy where it shouldn't, and is motionless where it should be active,' the president said.

Yeltsin, who has been largely sidelined by heart surgery and a bout of pneumonia since winning re-election, did not announce any changes in his administration.

But he promised a shake-up within days, and there was widespread speculation that a reshuffle would be announced as early as today by Prime Minister Viktor Chernomyrdin.

Since returning to the Kremlin in recent weeks, Yeltsin has spoken out harshly on a number of issues and delivered a series of tongue-lashings to top officials. However, he has not yet undertaken any major new initiatives. and his government is widely seen as floundering.

[04] UK retail sales growth slowed in past 12 months

In its quarterly distributive trades survey, the CBI said that 47% of British retailers sold more goods in February than in the same month a year earlier, while 23% sold fewer goods in the period.

The net balance of 24 percentage points was below the 33 percentage points expected by retailers and down from 36 points in January.

The CBI cautioned that annual growth rates continue to be impacted by strong growth seen in 1996. However, retailers expect growth to pick up in March, with 38 percentage points expecting to sell more.

Due to the slowdown in sales growth since December, the three-month trend was rising in February at its slowest rate since May last year.

'Price competition continues to be intense, with retailers reporting the smallest annual increase in prices since August 1995,' said Alastair Eperon, chairman of the CBI Distributive Trades Survey panel.

'With the downward pressure on price rises set to continue, this survey provides good news for inflation,' he said.

Eperon added that the slackening in the underlying trend remained consistent with the 'mixed fortunes' of the British retail sector, with only some sectors experiencing robust growth.

The survey of 249 respondents appeared to vindicate Chancellor of the Exchequer Kenneth Clarke's decision not to raise interest rates following his monthly monetary policy meeting with Bank of England Governor Eddie George Wednesday.

Clarke is expected to point to the subdued inflation outlook and the strength of sterling to rebuff further central bank calls for higher interest rates ahead of general elections due by May 22.

At a news conference following the data's release, Eperon said there was no need for Britain's base lending rate to rise above its current 6% before a general election.

'This survey demonstrates there has been a slowdown in the rate of (sales) growth,' he said. 'On this evidence, there is no need to be concerned about upward pressure on inflation. There are very strong competitive pressures out there which are continuing to hold prices down.'

Eperon added that consumer psychology had changed as a consequence of the recession, and that people are now 'much more careful about how they spend their money and they will continue to shop around rigorously.'

He said he doesn't believe 'there is anyone seriously considering the need for a base rate increase,' but added that the CBI would look again at its interest rate forecasts later in the year.

[05] Hoogovens earnings drop sharply, but outpace expectations

Net profit fell 36% to 326 million guilders on a 2.5% slip in revenue to 7.9 billion guilders. The earnings outpaced expectations that ranged from 260 million guilders to 310 million guilders.

Hoogovens said it expects moderate economic growth in Europe in 1997 which will have a 'positive effect on the demand for steel and aluminium products' and which should also boost prices.

'Also in 1997 we expect high sales and, moreover, an improvement in both our steel and aluminium-product mix,' Hoogovens said in a press release.

Hoogovens said its investments will rise 'substantially' in 1997, with the money spent both on fixed assets and acquisitions. The money will be spent on the joint venture with Belgium's Usines Gustave Boel and on buying the remaining shares in German family-owned concern Hille & Muller. Hoogovens will also decide in 1997 whether to invest in a thin slab caster.

Hoogovens booked an operating result of 427 million guilders for its steel and steel-related activities, down from 720 million guilders in 1995. The company saw higher sales volumes but said this was offset by lower selling prices and 'changed composition of the product mix.' Results were helped by ongoing cost-cutting.

At its aluminium division, Hoogovens reported operating profit fell to 43 million guilders, down from 140 million guilders in 1995. Sales volumes were up slightly but the sharp fall in quoted prices on the London Metal Exchange for much of last year 'had a highly adverse effect on the smelter results.'

'The generally weaker demand for rolled and extruded products and the increased production capacity in the European market meant that most of the processing companies faced lower margins,' Hoogovens said.

It said operating results at its technical services division rose to 20 million guilders from 16 million, due to delivery of a large number of projects.

Hoogovens also said it will give shareholders the option of receiving their dividends in cash or depositary receipts of shares.

[06] Ahold shows 38% jump in 1996 earnings and expects significant growth in 1997

Net profit for the year jumped to 632.4 million guilders ($328.3 million). Sales increased to 36.5 billion guilders.

The Dutch company said the results were helped by its acquisition of U.S. supermarket chain Stop & Shop, and by the higher exchange rate for the dollar.

Without the stronger dollar, net earnings would have risen only 35.2%, and without the acquisition of Stop & Shop, sales would only have been 11% higher than in 1995.

Ahold also said it plans a three-for-one share split.

Regarding the current year, Ahold said both sales and operating results in the Netherlands and other European countries are set to rise, while in the U.S., sales and operating results are seen boosted by the full-year inclusion of results from Stop & Shop.

Ahold concluded it expects earnings per share to show ''significant growth'' in 1997, and it also expects shareholders' equity to rise and solvency to improve.

The company added that it is prepared to issue new shares if it finds an acquisition costing more than 500 million guilders.

'If it's more than 500 million guilders we'd need to turn to the capital markets, an issue or a loan,' said President Cees van der Hoeven, adding that Ahold's policy is only to issue shares if group earnings per share would be boosted by an acquisition.

Van der Hoeven said no issue was imminent but that 'If it's a good, major sized candidate I don't see any reason not to.'

Last summer the Dutch company raised almost $1.8 billion after issuing shares to pay for its acquisition of U.S. supermarket chain Stop & Shop.

Van der Hoeven said he was not planning to make any sudden announcements as to a possible take over but that he is in talks with several possible targets and could well come to a deal sometime this year.

[07] Royal & Sun posts 37% drop in first earnings since merger

The British insurer said pre-tax profit for the year fell 37% to £648 million ($1.03 billion), hurt by the effect asbestos and weather-related claims in the U.S. The company also said it will seek holder approve to buy back as much as 5% of its capital.

'In anticipation of continued strengthening of the capital position, if current conditions remain broadly similar, the group would then have more capital than its current business activities require,' said Executive Deputy Chairman Roger Taylor.

Operating profit fell 23% to £706 million in 1996, largely due to a £167 million charge to increase reserves for U.S. asbestos and environmental liabilities and £32 million for the adverse effect of exchange rate movements.

Operating profits were further dented by 'unprecedented weather losses' of £96 million in the U.S., 'with the increased cost more than offsetting the continued improvement in the core book of business,' said Chief Executive Richard Gamble.

In the U.K. specifically, general insurance operating profit was £326 million, down 28% from £453 million in 1995, as the company saw an increase in personal injury claims and intense competition.

[08] Rolls Royce swings into the red on provisions take for the sale of two businesses

The two businesses, Parsons and International Combustion, remain unsold though the company says it expects they will be shed soon.

Chairman Sir Ralph Robins said. 'We are confident that the actions we have taken and the strategies we are pursuing leave us well-positioned to build a strong future.'

Chief Executive John Rose told Dow Jones that a sale announcement is likely in the next few weeks. 'I'm confident that the businesses will find homes,' he said, adding 'I expect announcements in the next few weeks on at least one of them.'

The aerospace engine group said its underlying performance remained solid, with the order book climbing to £7 billion from £6.2 billion and operating profit up 36% to £242 million from £178 million. 'We've had a very good performance from ongoing businesses,' Rose said.

He declined to give any indication of growth prospects for the current year, but noted that the company has seen benefits from its drive on operating efficiency, which has seen sales per employee rise 20% in the last year. That increase, he said, 'reflects cost cutting and increased turnover.'

[09] BTR profit rises 13% as restructuring continues on track

With its restructuring on track, BTR said expected its underlying performance to improve steadily in 1997.

But the company said the pound's strength toward the end of the year had a 'restraining effect' on the translation of its foreign earnings, and could have a negative impact on its 1997 profit figures.

'If sterling had been at its current level for the whole of 1996, the adverse impact on profit before tax arising from translation would have been approximately £50 million for the year,' BTR said.

BTR's Chief Executive Ian Strachan also noted BTR's that disposal program is on track, although i

t is unlikely to be concluded ahead of schedule.

Last September, Strachan announced plans to refocus the group on engineering and industrial manufacturing, with four major global groups - power drives, automotive, process control, and packaging and materials.

[10] Arjo Wiggins profits rise 86% as cost-cutting takes hold and markets improve

The Anglo-French paper and packaging group, which had been hit by declining pulp prices during the past two years, said pre-tax £133.9 million ($212 million). The figure included a charge of £120.6 million from the restructuring of the company's European operations.

Chairman Cob Stenham said '1996 was a year of contrast...The second half was markedly better than the first. Favourable conditions are expected to continue throughout the first part of 1997.' Revenue for the year was little changed, and would have fallen if the company had removed the impact of merchanting acquisitions made in 1996.

'Against a background of structural overcapacity in the market, our European carbonless and thermal papers business, like all European manufacturers, recorded a significant loss in 1996,' said Stenham.

As part of the European restructuring program announced in 1995, headcount was reduced by 10% in 1996, with benefits expected to be realised during 1997.

Looking ahead, Arjo warned that rising levels of pulp stocks entail the risk of a further drop in pulp prices, 'This could result in a new shortfall of paper deliveries as customers destock in anticipation of lower prices,' Stenham said. 'In these circumstances, prices and margins would come under increasing pressure.'

[11] CCF shows 11% gain in net profit as banking market improves

The French banking company also said that it intends to raise its dividend to 5.9 francs from 5 francs.

Though CCF Chairman Charles de Croisset declined to give an estimate for 1997 earnings, he said CCF's objective is to show a profit rise each year.

'So far there has been nothing to make us change that objective...there have been no negative surprises as of yet.'

He declined, however, to comment on whether he agreed with analyst estimates of earnings per share in 1997 of 21 francs.

De Croisset noted that although CCF is consistently one of the most profitable French banks, its profitability level, 'is disappointing compared to international profitability levels...but our principal market is only marginally profitable, though it is getting better.'

De Croisset reiterated CCF's strategy of first favouring internal growth, but remaining open to acquisition opportunities.

When asked about the upcoming privatisation of GAN's banking unit, CIC, and the expected privatisation of Banque Hervet, de Croisset repeated that CCF could be interested.

Both CIC and Banque Hervet are regional banking groups. 'CCF has a strong national brand that could marry well with a regional brand,' de Croisset noted. However, he added that the terms for the privatisation of the banks have not yet been set.

'We are very open to external growth, but only if it meets our criteria' of increasing shareholder value and profitability, de Croisset said.

Commenting on whether the bank's moderate size and profitability makes it a target for a takeover attempt, de Croisset said, 'Any publicly traded company could be a takeover target...but I think our independence is justified by our continued profitability.'

He added that as far as he knew, there was no one currently looking to take over CCF.

'If you look at our share price, then it also seems that we don't interest anybody,' de Croisset said.

'We don't need to be a takeover target to have our share price rise,' de Croisset said. 'CCF is a good company...and the rise in our share price since the beginning of the year is justified by our earnings.'

Turning to technical changed needed in the run-up to the euro and ahead of the computer millennium problem, de Croisset said CCF had provisioned 112 million francs for information technology charges needed to deal with the two items. 'And I'm certain it won't stop there,' de Croisset said.

[12] GKN earnings rise 13% and company expects further gains this year

Pre-tax profit last year rose to 362.8 million pounds, but that figure didn't include any provisions for litigation against its Meineke Discount Mufflers operation in the U.S. 'The directors consider that it is not possible to estimate the outcome with sufficient reliability to enable a provision to be made,' said GKN.

The company added that, if a U.S. judgement is reached before 1996's accounts are approved, then it will make an appropriate exceptional charge.

'In any event, the directors are of the opinion that, in the light of a possible appeal, any ultimate liability will not have material adverse consequences for the group,' said GKN.

Meineke faces a class action law suit of up to $554 million for alleged breach of fiduciary duty, alleged breach of contract and other claims relating to the group's advertising.

Chief Executive CK Chow said the recent strength of sterling which has hurt British exporters would have some impact on his company's overseas earnings.

'Although the recent strength of sterling will not have a significant translation impact, it will affect the translation of overseas profits. Nevertheless, we expect 1997 to be another year of progress for GKN,' he said.

He said the current year will be driven by productivity gains in the auto division and emerging market growth. Aerospace and special vehicles are seen moving ahead, despite the expected completion of major contracts later this year.

[13] Corporate and Economic Briefs

Austrian insurer EA Generali said 1996 net profit reached 600 million schillings ($50 million), up 25% from a year earlier. The group said premium income over the year reached a record 42.7 billion schillings, up 16%.

Denmark's second largest insurance group, A/S Forsikringsselskabet Codan, posted its best ever result in 1996, with a 91% jump in net profit to 1.071 billion kroner. The record profit was reached even with the group making 152 million kroner of provisions to cover future insurance claims. Codan is controlled by the Royal & Sun Alliance Group in the U.K. The Danish insurance group's premium income rose 5% to 6.768 billion kroner, while financial income soared to 6.225 billion kroner compared with 3.990 billion kroner the year before. Codan put its success down to a sharp improvement in its non-life insurance division, which is the company's biggest business area.

Denmark's January seasonally-adjusted unemployment rate came in at 8.3% of the work force, slightly up from 8.2% the month before, Danmarks Statistik, the Danish national statistics agency, said Thursday. This brought the number of unemployed Danes to 231,900, or 3,500 more than the previous month. 'There has been a slight rise in unemployment,' said the agency. In January of last year, unemployment was up at 9.2% of the work force. This latest jobless data was unexpected, where analysts had been looking out for a decline in January unemployment to 8.0% of the work force.

French supermarket chain Casino Guichard Perrachon said net profit in 1996 rose to 838 million francs ($144.9 million) from 633 million francs a year ago. The company said its distribution activities, which make up 95% of its sales, had improved both in sales and operating income. France sales increased 5.7% and operating income was up 22.7%, while in the U.S. its Smart & Final unit's sales rose 11% with operating income up 29.8%.

French food, paper and sugar company Groupe Saint Louis said net profit in 1996 had risen to 710 million francs ($122.8 million) from 573 million francs in the year-ago period. It attributed the rise to constant productivity improvements and the positive effects of external growth in France and internationally. The purchase of a sugar factory and the consolidation of its 22.39% stake in Spanish sugar producer Sociedad General Azucarera de Espana also contributed to a significant rise in 1996's results. The group's net profit includes a gain from the sale of its minority stake in its Panzalim prepared foods unit, and one-time costs for a write-down on certain 1992 convertible bonds and the depreciation of certain assets.

Italy's industrial wholesale sales index rose a real, or inflation- adjusted, 0.6% in December from a year earlier, the state statistical institute Istat said. The most recent sales figure compares with an 8.4% drop in November, Istat said. For the year as a whole, wholesales sales were down 0.4%, Istat said. Wholesales sales figures are generally seen as a gauge of business confidence. Istat said that the December wholesale sales rise derived from a 1.4% fall in domestic sales, and a 5.7% rise to foreign destinations. The month's fall in wholesale orders represents a decline of 8.9% in domestic orders and a fall of 1.0% in foreign orders.

Olivetti Personal Computers plans to cut prices as much as 23% in Europe for its entire range of Echos and Echos Pro notebook computers. Olivetti Personal Computers, part of Olivetti Group, said the move will keep it at the top of the European PC price/performance tables. The actual price cuts will vary by country and by model. The company said industry analyst Dataquest Corp. placed Olivetti's share of the European notebook computer market in the fourth quarter at 5.3%, fourth in Europe. A deal to sell the personal computer unit was finalised Saturday. Olivetti Personal Computers was sold to a company controlled by U.S. lawyer Edward Gottesman.

Eurotunnel said February tourist traffic on its Le Shuttle service rose 5.5% to 123,915 vehicles from 117.458 vehicles a year earlier. Le Shuttle freight service hasn't resumed since a fire in one of the tunnels disrupted traffic last November. In February 1996, 46,454 trucks used the service. Traffic on the Eurostar train service, which isn't owned by Eurotunnel but also operates through the tunnel, rose 31% to 391,797 passengers from 299, 317 a year earlier. Although Le Shuttle tourist service is still running at reduced capacity in the wake of last year's fire, Eurotunnel said it has recovered 80% of its former market share for cars on the Dover-Calais route, on which it competes with several ferry operators.

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