European Business News (EBN), 97-03-26

European Business News (EBN) Directory - Previous Article - Next Article

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

Page last updated March 26 1700 CET

CONTENTS

[01] Deutsche Bank expects further profit gains in 1997

[02] AXA posts strong `96 gains, UAP shows a loss

[03] Veba profit climbs 25%, but firm warns growth rate will slow this year

[04] Orders for U.S. durable goods rise 1.5% in February

[05] Daimler-Benz swings to a profit in 1996

[06] Schneider net profit soars 61% in 1996

[07] Preussag's 1997 performance, `clearly above' last year's

[08] Federal Reserve will raise interest rates again this year, economists predict

[09] Two bombs explode in English town after coded warning from IRA

[10] Linotype-Hell's losses nearly doubled in 1996

[11] Corporate and Economic Briefs

[01] Deutsche Bank expects further profit gains in 1997

For 1996, Germany's largest financial group reported a rise in net profit of 4.6%, to 2.2 billion marks, following a surge in tax costs. Operating profit jumped 37% in the same period, reaching 5.8 billion marks ($3.4 billion). The bank pointed out that a 1.2 billion mark increase in its extraordinary expenses in 1996 reflected precautions taken in connection with damages at Morgan Grenfell Asset Management, although the expenses were offset by profits from investments of roughly the same amount.

In his last press conference as chairman before retiring, Hilmar Kopper said that for 1997 'we are confident overall,' adding that 'the bank's business development in the first three months reaffirms this expectation.'

Specifically, Kopper said the bank's lending business should continue to profit from the low level of interest rates, while favourable market conditions should support its securities business. He added that the 'high capital investment' in the group's investment banking division in recent years should also bring about a rise in profits from trading activities.

On the negative side, Kopper said he expected competition in the financial sector to intensify this year and predicted 'ongoing pressure on margins, continued high costs and hardly any reduction in the need for risk provisioning.'

In his speech, Kopper also noted that the bank's capital and reserves are set to grow 'substantially' in mid-year when the exercise period for rights in the bank's management stock options scheme expires. The subscription price for the scheme is 61 marks, well below Deutsche's present share price of 93.80 marks. The conditional capital set aside for the scheme totals 148 million marks.

[02] AXA posts strong `96 gains, UAP shows a loss

UAP, which Axa is in the process of acquiring but whose accounts remained separate for 1996, had a net loss of 6.45 billion francs due to one-time charges.

Those charges include 3.84 billion francs billion for the loss of deferred tax credits and the deconsolidation of earnings from its minority stake in Banque Nationale de Paris. They include another 3.74 billion francs for write-downs on property and casualty companies in France and Italy and on Banque Worms.

Axa-UAP said it would boost its dividend to 7.50 francs a share from 6.50 francs.

Axa said its performance was driven by life insurance results, due to a strong improvement in the US, France and the UK.

The performance was also lifted by property and casualty insurance results which increased strongly in France, Belgium and Britain. The exception was Axa Global Risks in Britain which posted losses due to the strengthening of reserves related to claims which occurred prior to 1992.

First time full year consolidation of National Mutual in Australia, consolidated for one month only in 1995, also helped boost profits.

There was a strong increase in net income from U.S. financial services -- DLJ and Alliance Capital Management -- and there was a strong contribution from the holding company thanks to 'very good investment results.'

There were also extraordinary profits due to changes in local accounting methods in life insurance at the level of the Dutch and Canadian subsidiaries.

Factors having a negative impact on profits included losses from Axa Leben life insurance unit in German and losses from French real estate subsidiaries due to real estate valuation allowances.

[03] Veba profit climbs 25%, but firm warns growth rate will slow this year

The company also announced its widely expected plan to list its shares on the New York Stock Exchange, the third German company to do so.

The German utility-based conglomerate said net profit last year gained to 2.63 billion Deutsche marks ($1.56 billion) on a 3% rise in sales to 74.5 billion marks.

For 1997, Veba sees continued growth in earnings, though not at last year's pace. 'We are confident. Veba has further potential,' Chairman Ulrich Hartmann said, though he cautioned that weak economic developments could slow the company's pace of growth.

'Nevertheless, we expect emphatic and constant growth in earnings in the coming years, which however will be somewhat less spectacular than previous growth,' Hartmann added.

The company said it planned to list its shares in the US to further widen its shareholder base. Veba said that the shares would be listed on October 8, but that it doesn't plan to raise any fresh capital in connection with the listing.

[04] Orders for U.S. durable goods rise 1.5% in February

The unexpected pickup in February orders points to a continuing vigour in the economy's industrial sector, which may even be gaining momentum. The February increase followed a revised 4.1% increase in January orders, which previously was reported as a 4% rise. The surge in January orders was the strongest since a 4.5% rise last September. Shipments of finished products also increased in February and order backlogs fattened for a ninth time in the past 10 months.

Durable goods are items like cars and home appliances that are intended to last at least three years. Because of the length of time they take to make, and the cost of producing or buying them, orders for such goods are a significant measure of manufacturing activity.

The biggest gain in February orders was for electronic and electrical equipment, up 7.4% to $30.6 billion after an even stronger 17.9% jump in January, especially for communications equipment and electronic components. Industrial machinery and equipment orders rose for a third consecutive month, up 2.2% to $33.2 billion in February after a 0.9% January increase.

However, transportation orders declined 3.6% to $40.8 billion after a 1.6% January rise. Commerce said there were declines in orders for all types of transportation items except railroad equipment in February.

Excluding transportation, durables orders rose last month by 3.1% to $137.5 billion after a 4.9 percent gain in January. Orders for defence goods, which experience wide monthly swings, rose 0.1% to $6.3 billion following a 21.6% January plunge.

[05] Daimler-Benz swings to a profit in 1996

Daimler, Europe's biggest industrial conglomerate, announced a surprisingly high 2.8 billion mark ($1.66 billion) net profit for 1996, but noted that a direct comparison between the two years' figures was 'difficult,' since the 1996 figures were bolstered by extraordinary items, especially deferred taxes.

Working in the other direction, the 1995 data included about 5 billion marks of one-time charges for wrapping up loss-making activities in Daimler's aerospace and electronics divisions.

The company also said it would resume a dividend payment for 1996 after omitting it last year. It will pay shareholders 1.10 marks (65 cents) per share, unchanged from 1994's level.

Daimler's net profit was considerably higher than that recently predicted by chairman Juergen Schrempp, who had said it would be more than 1.6 billion marks.

[06] Schneider net profit soars 61% in 1996

Net profit jumped to 1.32 billion francs ($231.9 million) in 1996, with earnings per share rising 57% to 9.64 francs. However, 1996 operating income rose just 10% to 4.07 billion francs, implying an operating loss at Spie Batignolles for the year. The company noted that after the deconsolidation of Spie Batignolles, its net debt-to-equity ratio stands at 29%.

Chairman Didier Pineau-Valencinne said he expects 'a significant rise' in Schneider's 1997 net profit. Speaking to journalists, Pineau-Valencienne said the rise in 1997 net profit 'may not match the 60% rise of this year, but it should be significant.'

Looking at the year ahead, the company said the economic environment for the first two months mirrored that of 1996, with stagnation in France, Germany and Northern Europe, decent growth trends in North America and the rest of Europe and strong growth in South America, Africa and Asia.

Pineau-Valencienne added that the company was on an upward trend in its profitability that should allow Schneider to reach its goal of a 15% return on equity in 2000, compared with 10.6% at the end of 1996. Pineau- Velencienne added that Schneider's equity capital in 2000 should reach FF25 billion, which would allow for a net profit of 3.75 billion francs if the return on equity goal is attained. At the end of 1996, Schneider's equity capital was 18.9 billion francs.

One time items in its 1996 accounts include 1 billion in profits from asset sales, while risk provisions were upped to above 1.4 billion francs, resulting in a net one-time charge of 465 million francs on the company's 1996 statement. The company said cash flow in 1996 rose 9% to 4.2 billion francs from 3.8 billion in 1995. Operating profit rose 8.8% to 4 billion francs from 3.68 billion francs in 1995. Schneider raised its dividend 25% to 5 francs a share.

[07] Preussag's 1997 performance, `clearly above' last year's

The German industrial and steel group said sales amounted to 11 billion marks ($6.5 billion), 'clearly above' corresponding 1996 levels. Hanover- based Preussag also expects earnings for fiscal 1997 to come in above the 274 million marks posted last year, said Preussag Chairman Michael Frenzel at a shareholders meeting.

Earnings at Preussag Stahl, the company's steel division, were improving as demand for rolled-steel products continued to rise. Orders in the first five months were up 30% from the year before. Rising metals and oil prices and the stronger dollar had also boosted Preussag earnings. The company has seen 'a good start in the new year,' Frenzel noted.

Without providing comparative figures, the company said order inflow and backlog were also clearly higher during the first five months of the current fiscal year at 11 billion marks and 14 billion, respectively, compared to year-earlier levels.

'The positive profit trend of the first quarter has continued,' Frenzel said, also without providing figures. 'As already seen in the first quarter, orders in the dynamic growth fields of energy, logistics and building technology showed above-average increases,' said Frenzel.

If Germany's economic recovery held, Frenzel said he expected the company's earnings to be higher than the previous year.

[08] Federal Reserve will raise interest rates again this year, economists predict

But the same questions that have gripped the markets for months remain: By how much more? And when?

Tuesday, the FOMC announced a tightening in the Federal Funds target rate - the first in more than two years - to 5.50% from 5.25%. Most analysts think another tightening, or two, will come by late summer.

The when and how-much questions, analysts say, will hinge on what data reveal about consumer spending habits between now and the next FOMC meeting.

'The ball will be squarely in the court of the upcoming economic reports,' says Anthony Karydakis, senior financial economist at First Chicago Capital Markets. Those include a pair of employment reports, a pair of retail sales reports, a pair of inflation reports and one employment cost index.

'Strong growth was in fact the basis for hiking rates,' says JP Morgan economist Marc Wanshel. 'If that's true, there probably will be one, maybe two additional hikes.'

Along with consumer strength and labour-market pressures, Fed Chairman Alan Greenspan may continue to fret about imbalances in the financial sector, adds David Jones, chief economist at Aubrey G. Lanston. Those concerns include not only the speculative stock market but narrowing credit spreads and more generous lending by banks.

'At least throughout the first half, he'll continue to see those imbalances, ' Jones says, adding that Greenspan 'literally gave us a forecast saying core inflation would be under pressure.'

And that will keep the Fed under pressure.

'As long as you continue to see the type of demand we're seeing now, they will remain biased' toward tightening, says Mary Dennis, senior economist at Merrill Lynch Inc., who forecasts at least one more tightening. 'It's not something that leaves us feeling like it's a one-time event. If it were, you'd have some language like 'insurance taken out against stronger growth'' in the FOMC announcement, she said.

What the Fed stated, instead, is that the tightening is 'a prudent step' that could prolong the economic expansion while 'sustaining the existing low inflation environment.'

One design of the Fed's tightening is to slow consumer spending. Late Tuesday, several of the nation's biggest banks began co-operating by raising their prime lending rates by 1/4 percentage point to 8.5%.

But the effect will be minimal, economists say, causing most monthly interest charges, on everything from credit cards to house mortgages, to rise by only a few pennies or dollars. 'Even if you put together three of these, it's not of the magnitude to bring the economy to its knees,' says Jones of Aubrey Lanston.

And any effect at all is not likely reverberate through the economy for months. 'It will take quite a while for this to work through,' perhaps until the second half of the year, says Morgan's Wanshel.

Aubrey Lanston's predicts two more rounds of tightening, while First Chicago's Karydakis, Merrill Lynch's Dennis, JP Morgan's Wanshel and a host of others more conservatively predict one or two rounds.

'If there is a serious enough inflation problem to require a shift in monetary policy from ease to restrain, is a 25-basis-point hike going to solve that problem? No, I don't think so,' said Keycorp chief economist Kenneth Mayland, predicting at least one more round of tightening.

PNC Corp. chief economist Stuart Hoffman said he wasn't convinced the Fed needed to tighten Tuesday - 'It's a judgement call' - but now that they have, he doesn't see another rise until the summer. 'I don't think they'll be back in May,' he said. 'I don't see this as a series of back-to-back hikes...This is a far cry from 1994.'

Fleet Financial Group chief economist Nicholas Perna said the Fed may raise rates again in May, but that that could be the end of this tightening phase.

'This could be the start of something small,' Perna quipped about Tuesday's action. '

Samantha Ross and Jeffrey L. Hiday, AP-Dow Jones, New York

[09] Two bombs explode in English town after coded warning from IRA

'We've moved no casualties,' said John Henderson of the local ambulance service. 'I believe nobody else would move any casualties.'

Fire officials said the devices had damaged the track and signalling equipment. Wilmslow, about 160 miles (260 kilometres) northwest of London, is a major signalling centre for trains on the main west coast line from Manchester to London.

A second warning was received about a possible device in the northern England town of Doncaster and the station area has been evacuated, said Kevin Groves of Railtrack, which operates the line.

Police were waiting to sweep the area, he said. Doncaster is 155 miles (250 kilometres) north of London and about 60 miles (95 kilometres) east of Wilmslow.

Greater Manchester Police said a man using a recognised Irish Republican Army code word called at 5 a.m. (0500 GMT) to say that bombs had been planted in Wilmslow.

The IRA ended a 17-month cease-fire in February 1996 with a massive bombing in London's Docklands district that killed two men and injured scores of people.

The outlawed group claimed that efforts to bring peace to British-ruled Northern Ireland were not making enough progress.

[10] Linotype-Hell's losses nearly doubled in 1996

At the parent company level, the German printing machinery group showed a loss of about 280 million marks. Linotype said that figure took into account all costs resulting from restructuring measures and writedowns on foreign shareholdings.

Linotype released the figures, based on preliminary data, as German printing machinery maker Heidelberger Druckmaschinen works to complete its takeover of the financially troubled company. Heidelberger Druck has already pumped 125 million marks into the company, Linotype said.

The takeover by Heidelberger Druck, more than 50% owned by Rheinelektra, should be completed by autumn, Linotype said.

[11] Corporate and Economic Briefs

France's BANQUE INDOSUEZ announced its 1996 profits rose to FF 362 million from FF 107 million and will change its name to Credit Agricole Indosuez.

NESTLE, the world's biggest food company reported 1996 group net profit rose 16.6 percent to 3.40 billion Swiss francs and proposed raising its dividend to 30 francs per share.

Britain's TRADE DEFICIT with the rest of the world narrowed in January, suggesting fears that the pound's strength has hurt exporters are premature. The global trade deficit appeared to be narrowing with exports rising slightly and imports flat. January's trade gap was £641 million ($1 billion), down from £825 million the previous month.

GERMAN industrial output in January fell by less than originally reported, the Deutsche Bundesbank. According to seasonally-adjusted data, output declined only 1.5% from December, the central bank said, instead of the 1.7% drop originally reported in preliminary data by the federal economics ministry earlier in the month. The output index fell to 98.1 from 99.6 in December, the Bundesbank said. The economics ministry originally reported an index level of 97.9.

ITALY's balance of payments deficit widened to 1.957 trillion lire in February from a deficit of 917 billion lire in the same month of 1996, the Italian Foreign Exchange Office said.

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

European Business News (EBN) Directory - Previous Article - Next Article