European Business News (EBN), 97-04-15

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

Page last updated April 15 1600 CET

CONTENTS

[01] Stock markets jump as US data shows tame inflation

[02] Telefonica and Portugal Telecom agree to swap holdings

[03] LucasVarity posts $457 million net profit for 1996

[04] EU tightens fishing quotas to rebuild stocks

[05] EMI says states must work harder to achieve EMU

[06] Roche posts 18% sales gain for first quarter

[07] Gazprom pledges to pay half its debts by June 10

[08] European new car registrations fell 3% in March

[09] Corporate and Economic Briefs

[01] Stock markets jump as US data shows tame inflation

But some Wall Street analysts said they doubted that the latest evidence of tame inflation would do much to keep rates down.

U.S. consumer prices rose a modest 0.1% in March, kept in check by lower energy prices and stable food and housing prices. Excluding the volatile energy and food indexes, the core Consumer Price Index climbed 0.2% for the month.

The advance in consumer prices was lower than many economists expected. Analysts polled Monday by Dow Jones Newswires had predicted a 0.2% increase in the overall CPI in March. The core was seen climbing 0.3% for the month.

Energy prices in the month fell 1.7%, the first decrease since last August.

Stock traders interpreted the data as easing pressure to boost rates and European and US stock markets soared on the news.

'Right now these numbers are great,' said Donald Fine, chief market analyst at Chase Asset Management. 'But it must be stressed that the FOMC is looking beyond the current inflation environment and more toward containing future price increases.'

Patrick Dimick, government bond strategist at UBS Securities LLC, added that the Fed has made clear that it is at least concerned about consumer demand as it is about prices - and that the latest data show consumers have been on a shopping spree so far in 1997.

'In my mind the CPI changes the odds (for an imminent Fed tightening) very little,' Dimick said. 'Demand is the key for the Fed.' The Federal Open Market Committee meets next on May 20.

Still, the market couldn't help but be heartened by the moderate inflation report. U.S. Treasurys immediately rallied, with the 30-year bond's price rising by more than a point.

The biggest elements of the CPI were generally flat or down. The energy index registered its first drop since last August, falling 1.7%. The housing index and the food and beverage index were unchanged - compared with rises of 0.3% each in February.

'The overall message is that it's more or less steady as you go here,' said Patrick Jackman, senior economist at the BLS.

[02] Telefonica and Portugal Telecom agree to swap holdings

Telefonica has been negotiating to form partnerships with both AT&T and BT/MCI, which are planning a $20 billion merger to form a telecoms giant called Concert.

A spokeswoman for Portugal Telecom said the stock swap with Telefonica will be signed tomorrow. And she noted that the deal will go beyond a simple stock swap, though she declined to elaborate.

The spokeswoman also declined to confirm whether Telefonica would be taking a 3% to 3.5% stake in Portugal Telecom, with Telecom taking 1% of the Spanish company. Those figures have been bandied about by Spanish newspapers. Earlier this week, Portugal Telecom said it was forming a strategic alliance with Concert.

Separately, BT's shareholders overwhelmingly backed the company's planned $20 billion merger with MCI.

Although some analysts are warning that a 30% premium that BT is paying for the 80% of MCI it did not already own is a high price to pay for control, the powerful financial institutions, that own about 77% of BT, tend traditionally to back company boards.

The merger will create the world's fourth largest telecoms group in terms of sales after Japan's Nippon Telegraph and Telephone Corp., AT&T and Deutsche Telekom.

MCI shareholders approved the merger two weeks ago.

[03] LucasVarity posts $457 million net profit for 1996

In its first set of annual results since the merger went through last September, the Anglo-American car components group said its merger benefits remained on track. LucasVarity changed its year end to January 31 from July 31 in the wake of the merger of Lucas Industries and Varity Corp. in August.

Victor Rice, chief executive officer of LucasVarity said in an interview with Dow Jones that headline earnings figures are largely 'meaningless' because the accounts are based on estimates of what the company would have made if the companeis had been merged for a year. However, he said the apparent growth rate is more meaningful.

Operating profit was £336 million in the year compared with an estimated £319 million a year earlier.

The dividend of the 'old' company - Lucas Industries - was maintained at 7 pence per share. Shareholders will receive dividends from the merged company from this year.

Following much speculation over whether the group would cut its dividend or launch a share buyback this year, LucasVarity opted for a halfway house.

It said it would pay a dividend of 2.25 pence per share for the period ending January 31 1997, payable on July 1. For the year to January 1998, it will pay a dividend of 4.5 pence per share.

LucasVarity said its future aim was 'a policy which maximises long-term value for our shareholders...It has been concluded that a combination of cash dividend and a share repurchase programme would be most consistent with this objective.'

On its business outlook, the group said: 'Overall, modest revenue growth is expected this year with strong margin growth...'

[04] EU tightens fishing quotas to rebuild stocks

After two days of talks, EU fishery ministers voted by 13-2 to further cut fishing in the waters of the 15-nation Union.

France and Britain were the only countries to vote against the plan, which leaves it up to member states to decide how to achieve fishing reductions of 30% for endangered species like cod and herring.

Reductions of 20% will be imposed for other varieties that are over-fished but not yet facing extinction.

The agreement affects only boats which are longer than twelve meters. Targets must be reached within five years, either by taking ships out of use, or by reducing the number of days a ship spends at sea.

Britain, which had strenously fought the deal, has no intention of implementing the deal until the EU solves the problem of so-called 'quota hoppers', Prime Minister John Major said.

'I have not a shred of intention of cutting the British catch until or unless we get a satisfactory agreement on quota hopping,' Major told reporters.

'Quota hopping' is the practice by which foreign boats can buy up British fish licenses.

In recent years, foreign ships have claimed an increasing share of British catches, according to British Fisheries Minister Tony Baldry.

EU officials said the deal, which was reached after Swedish concern over a Baltic cod fishing cutback was resolved, would free up hundreds of millions of dollars of aid to restructure Europe's fishing industry.

The cuts of up to 30% cover a five-year period to the end of 2001.

The EU's executive Commission originally proposed a 40% reduction over six years but this was fiercely rejected by EU member states, fearful of the political backlash if poor fishing communities were thrown out of work.

[05] EMI says states must work harder to achieve EMU

The EMI didn't explicitly endorse measures taken by a number of E.U. members this year to cut their budget deficits to less than 3% of gross domestic product, the maximum allowed by the Maastricht Treaty's chapter on economic and monetary union (EMU).

'It is too early to judge the effect these measures will have in the outturns in 1997 and beyond,' the EMI noted.

In its Convergence Report in 1996, the EMI was openly critical of many E.U. member states' failure to reduce their budget deficits, citing that as one of the largest obstacles to a successful and timely launch of the currency union in 1999.

In the annual report, the EMI acknowledges that some progress has been achieved, especially against the background of an improving economic situation.

'If present assumptions about the economic outlook turn out to be well- founded, the necessary continuation and strengthening of structural adjustments should be facilitated,' the EMI says. But it warned strongly against easing up on the consolidation of public finances as the European economy improves.

'The temptation to relax adjustments in the light of seemingly diminishing constraints must be avoided at all costs,' it argued.

The EMI painted a brighter picture regarding the fulfillment of the Maastricht Treaty's other requirements for participation in the single currency launch. Specifically, it noted that the outlook for sustained low inflation is 'rather favorable,' citing spare capacity and wage moderation in much of the E.U. It also noted that raw materials prices don't pose a threat, although it warned that other 'external developments' could.

The Deutsche mark and other 'core' European currencies have lost ground against the dollar in recent months, leading to an uptick in import price inflation.

Equally, the EMI noted that despite recent successes in reducing inflation expectations and their role in wage developments, it said that 'further measures to increase labor market flexibility are urgently warranted.'

[06] Roche posts 18% sales gain for first quarter

'The positive growth seen in 1996 has continued through the first months of 1997. Barring extraordinary events, we expect to post another good result for 1997,' Roche chairman Fritz Gerber said in the company's 1996 annual report, published Tuesday.

Gerber said he was optimistic about 1997 results despite high levels of investment slated for the current year.

In particular, a substantial rise in marketing expenditure was budgeted for the launch of three 'promising new drugs,' he said. These are the cardiovascular agent Posicor, the anti-obesity product Xenical and Tasmar, used in the treatment of Parkinson's disease.

Roche's four divisions are all bullish for 1997, according to the annual report.

The pharmaceutical division's introduction of the drugs Xenical, Posicor and Tasmar will 'significantly strengthen' its position in the general- practioner market. A balance of established new products and compounds in development mean 'Roche is well placed to consolidate and expand' its market position, the annual report said. In 1996, the division's sales rose 13% to 10.46 billion Swiss francs ($14.64 billion).

Sales for the same period in the vitamins and fine chemicals division rose 9% to 3.33 billion Swiss francs. Despite increasing competition in the sector, Roche said it was confident it would 'continue to strengthen its market position' during the current year.

Roche's diagnostics division said research and development should render 'a stream of new and improved products.' The division was expected 'to continue to grow ahead of the market despite intense competitive pressure.' Sales last year rose 18% to 757 million Swiss francs.

[07] Gazprom pledges to pay half its debts by June 10

'We definitely perceived this as a positive for Gazprom,' said one Moscow broker. 'People are happy the situation is settled.' The deal followed a week of fierce and unusually public sniping between Vyakhirev and top government officials. Last week, Vyakhirev told parliament that the government's plans for restructuring the company were being dictated by the International Monetary Fund at the behest of competitors in the U.S. who sought to weaken Gazprom. Nemtsov and other officials attacked Gazprom management and called for radical restructuring of the giant company, the successor to the Soviet Ministry of Natural Gas. Prime Minister Chernomyrdin added to the intrigue by going on an unexpected vacation as tensions rose. The government repeatedly has sought to shake up Gazprom, the country's largest company and long one of the worst tax deadbeats. The IMF also has targeted Gazprom for liberalisation, requiring the government to loosen its monopoly control as a condition for releasing loan funds.

[08] European new car registrations fell 3% in March

Registrations in Western Europe fell to 1,241,000 from 1,279,000, the European carmakers association said.

The decrease was led by the 21.1% drop in France, whose car market continues to suffer from the end of government-funded buying incentives last September.

Other major European markets, however, showed some resilience. Italian new car registrations jumped 25.1%, while U.K. registrations fell only a marginal 0.2%.

Among carmakers, Volkswagen group sales in Europe were flat at 213,400 vehicles from 213,309, for a 17.2% market share, largest in Europe. A year ago, its share was 16.7%.

Fiat group sales rose 7.5%, while market share rose to 12.8% from 11.5%.

General Motors/Opel group sales fell 10.3%; Ford group sales fell 9.3%;

PSA Peugeot Citroen group sales fell 7.4%; Renault group sales fell 8.9%; BMW group sales fell 2.4%; and Mercedes-Benz sales fell 4.3%. Volvo sales rose 40.5%.

Japanese carmakers' sales rose 8.5% from a year ago, while Korean carmakers' sales fell 9.2%

[09] Corporate and Economic Briefs

Associated British Foods said that pretax profit for the six months ended March 1 was 2% higher then a year ago at 201 million pounds, but it failed to deliver much anticipated news on how it would spend its hefty cash pile. The strength of sterling trimmed an estimated 11 million pounds off profit and is expected to remain a negative factor in the short-term, said the company. Nevertheless, executive chairman Gary H. Weston said he expects sales to remain 'satisfactory' throughout the group.

GEC Alsthom said it won a contract worth 140 million European Currency Units to supply eight sets of eight-car trains to Gatwick Express, the new U.K. train company. The trains, to be operational in May 1999, will run between London Victoria station and Gatwick airport. GEC Alsthom is the 50- 50 joint venture between General Electric Co. and Alcatel Alsthom of France.

March retail sales in large stores in France fell 1.1%, in volume terms, from February, and fell 2.1% from a year ago, according to the Paris chamber of commerce. The decrease is the second straight large monthly decline, and confirms economists' predictions that France's economy will grow thanks to strong exports and despite weak consumer spending.

French beauty and pharmaceutical group L'Oreal said first quarter 1997 sales rose 11% to FF16.5 billion from FF14.8 billion a year ago, in part due to favorable exchange rates. Foreign exchange rates, particularly the stronger dollar which increased U.S. sales figures, added 3.3% to L'Oreal's sales, the company said. Structural changes added 1.6% to sales as L'Oreal consolidated the sales of its new activities.

Unemployment in the European Union in February was 10.8%, slightly lower than 10.9% the previous year but exactly the same as in the preceding two months, according to latest figures from the E.U. statistical office. Declines in the number of people out of work continued in the U.K., Ireland, Finland and the Netherlands, but Sweden, Portugal and Spain saw unemployment levels rise during the month, according to a Eurostat statement. Eurostat estimated that 18.2 million people were out of work in February throughout the E.U., with Spain (21.7% unemployed), Finland (15%) and France (12.5%) contributing most to the E.U.-wide figure.

Control of costs and increases in net income led to a 17% increase in first quarter consolidated net profit for Banco Espanol de Credito. The bank is relaunching its commercial activity, according to its president, Alfredo Saenz. Banesto shares gained 5 pesetas to 1,080 pesetas a share on volume of 435,168 shares on the IBEX-35 index after the release of the news. Banesto said in a release that its first-quarter consolidated net profit rose to 8.56 billion pesetas from 7.32 billion pesetas in the same three- month period in 1996.

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

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