European Business News (EBN), 97-04-16

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

Page last updated April 16 1900 CET

CONTENTS

[01] US industrial production shows continued strength

[02] UK joblessness continues to decline, but data suggests rate rise is inevitable

[03] Daimler-Benz swings to profit, showing it's on track for steady growth

[04] Dutch government says there's no hope of relaunching Fokker

[05] Compuserve official in Germany indicted on pornography charge

[06] Compaq posts 66% surge in 1996 earnings

[07] Olivetti shares suspended after stock tumbles 9%

[08] Ford Motor Co. posts huge jump in first quarter earnings

[09] Reuters warns of little profit growth if sterling stays strong

[10] Philip Morris shows 13% first-quarter profit gain

[11] Eurotunnel says debt restructuring talks are advancing well

[12] UK telecoms watchdog plans to loosen mobile market

[13] Germany's deficit levels widens in first quarter of 1997

[14] Corporate and Economic Briefs

[01] US industrial production shows continued strength

'Right now the evidence is pointing to an economy that is growing at a pace that is too hot to handle,' said Robert Dederick, a consulting economist at Northern Trust.

Industrial production rose 0.9% in March, almost double the 0.5% pace that was expected, while capacity utilisation edged above the 84% barrier that some economists say points to future higher prices. The capacity utilisation rate rose to 84.1% in March from 83.6% in February.

Housing starts posted a 6.4% decline in March, but starts still remained at the historically high level of a 1,425,000 seasonally adjusted annual rate. Building permits, a precursor of future building activity, declined a modest 1.5%.

Peter Kretzmer, senior economist at NationsBanc Capital Markets, said while the gains in industrial production and capacity utilisation were larger- than-expected, it is not that surprising given the high level of consumer demand. March retail sales were up 0.2% and February sales were up by 1.5%.

'It means that manufacturing is keeping up,' he said.

The gains in industrial production and capacity utilisation were broad- based with increases in manufacturing, consumer durables and business equipment.

Analysts said continued gains in industrial production are likely as manufacturers work to keep pace with consumer demand.

The industrial production report, combined with the past couple of week's reports suggest that the Fed will again have to raise interest rates at its May 20 meeting.

'They won't wait until July unless there are some clear signs of a slowdown, ' NationsBanc's Kretzmer said.

Stuart Hoffman, chief economist at PNCBank, said all of the reports point to forward momentum for the economy.

Jennifer Corbett, AP-Dow Jones, New York

[02] UK joblessness continues to decline, but data suggests rate rise is inevitable

Prime Minister John Major seized on the data - the last before the May 1 general election - to underline his message that Britain's economy is booming.

But economists say the statistics provide further evidence that the labour market is tightening sharply, meaning that official interest rates will have to rise after the election regardless of which party wins in order to keep the lid on inflation.

The Office for National Statistics said the number of people registered as unemployed and claiming benefit fell a seasonally adjusted 41,100 in March to 1,707,000, the lowest total since September 1990.

That fall, the 13th consecutive monthly decline, took the unemployment rate to 6.1% - its lowest since October 1990 - from 6.2% in February.

Meanwhile, other data released Wednesday showed that underlying annual growth in average earnings was up 5.00% year-on-year in February, the fastest rate of increase since November 1992. In January, earnings growth rose a revised 4.75%, rather than the 5% originally reported.

Both sets of figures were in line with expectations and had little impact on financial markets.

Economists played down the sharp rise in average-earnings growth in February, pointing out that upward pressure stems mainly from bonuses in the financial sector and from overtime payments, rather than wage settlements, which are steady at around 3.5%. Pay pressures were strongest in the service sector, where growth in average earnings rose to 5.00% from a revised 4.75% in January.

'The earnings figures will be of much more concern if and when the low level of unemployment generates an upturn in settlement, and that's when the red light will really start to flash,' said John Shepperd, chief economist at Yamaichi International in London.

The statistics office said the employment data continue to be distorted by the Jobseeker's Allowance, which was introduced in October.

However, the statistics office added that falls in the number of jobless over the past six months suggest unemployment is now declining more quickly than the monthly rate of 15,000 to 20,000 seen in mid-1996.

Other data released Wednesday showed that manufacturing unit wage costs - the amount spent on wages and salaries to produce each unit of factory output - were up 2.6% year-on-year in the three months through February, compared with 3.1% in the three months through January.

With domestic spending growing strongly, economists agree that an incoming chancellor of the exchequer will have to raise official interest rates soon after the election to curb inflation.

Andrew Atkinson, AP-Dow Jones, London

[03] Daimler-Benz swings to profit, showing it's on track for steady growth

Daimler, Europe's largest industrial group, said it swung to a group net profit of 2.76 billion marks in 1996. For the first time, all financial data were calculated in accordance with U.S. Generally Accepted Accounting Principles.

Excluding a 712 million mark extraordinary gain from deferred taxes, Daimler swung to an operating profit of 2.42 billion marks from a restated operating loss of 7.20 billion the year earlier.

Daimler Chairman Juergen Schrempp said the results showed that the decisions to jettison loss-making aircraft makers Fokker of the Netherlands and Dornier Luftfahrt and electronics group AEG are 'beginning to pay off, earlier and more markedly than many expected.'

(In a separate development, the Dutch state said it no longer held out any hope that bankrupt Fokker could be revived. See next story.)

Daimler executives said profitability is set to post steady growth, perhaps doubling in the next two to three years, while revenue is set to rise 10% or more this year.

In the first quarter of 1997, group sales rose 12% on an adjusted basis to 25.9 billion marks, boosted by strong orders at the group's Mercedes-Benz automobile division, the Daimler-Benz Aerospace, or Dasa, aerospace division and the Daimler-Benz Interservices, or Debis, financial- and computer-services unit.

Schrempp said Daimler's truck division will swing to an operating profit this year, although European operations will remain 'difficult.'

Dasa, meanwhile, remained in the red with an operating loss of 196 million marks, despite a large improvement after casting off Fokker and Dornier Luftfahrt.

Daimler also announced capital measures that may signal that the group is looking to expand cautiously after a period of shedding operations. The company will issue 1.1 billion marks of five-year mandatory convertible bonds in May which can be converted into Daimler shares anytime during their lifespan and will convert automatically at maturity That will provide the group with the 'financial flexibility to be able to take advantage of growth opportunities,' the company said.

Susan Pukall, AP-Dow Jones, Stuttgart

[04] Dutch government says there's no hope of relaunching Fokker

In a letter to parliament, Economic Affairs Minister Hans Wijers said that following recent developments, there is no longer any 'support base for a responsible restart of Fokker. 'The State has therefore decided to withdraw ...its commitment to take a substantial direct participation in the restart, ' Wijers added.

Earlier this month, industrial company Stork pulled out of a relaunch plan. Fokker's administrators and the Malaysian government, another party concerned in the survival plan, have also recently said that the end of the company was near. that the final end of the Dutch aircraft maker was looming.

Fokker's administrators, the Dutch government, industrial investment firm Deleye Investment Group (DIG) and Malaysian state investment arm Khazanah Nasional Berhad reached a memorandum of understanding on Fokker's relaunch in March.

But Stork, owner of Fokker's profitable maintenance and components units, withdrew from the scheme in early April, saying Khazanah had not guaranteed sufficient financial support.

Wijers said that after Stork's withdrawal, DIG's chairman Andre Deleye had tried to find another relaunch partner.

'But it has to be concluded that these efforts have not resulted in a clear signal from which concrete interest by another industry partner could appear,' the minister said.

He said that Deleye would continue to investigate Fokker's survival prospects until May 1, the date when the memorandum of understanding was intended to have been finally closed.

Wijers said the Dutch government was willing to support further initiatives, for instance in the area of technology development, but without taking direct stakes in a new Fokker.

[05] Compuserve official in Germany indicted on pornography charge

In a move that could be a test case in the power of public authorities to regulate the global computer network, Bavarian prosecutors said the Compuserve manager was being charged with aiding in the distribution of child pornography.

Compuserve press officers in Munich said the company was preparing a statement to be issued later in the day.

The indictment was issued on February 26 but was not made public until Wednesday. The announcement does not name the Compuserve executive who has been indicted. The managing director of Compuserve's German subsidiary is Felix Somm.

The charges follow an investigation that began at the end of 1995, when prosecutors forced Compuserve to shut down access to more than 200 Internet news groups, some of which were suspected of displaying pornographic images of children.

Child pornography is illegal in Germany.

Despite widespread doubts about the liability of online services for content on their network, the Bavarian prosecutors believe such services should be held responsible when writings or images outlawed in Germany but on computers somewhere else in the world are made accessible to Germans via the Internet.

The prosecutors said the charges raised against the Compuserve director include violations of youth protection laws and laws against child pornography.

They cited transmission of images of violent sex, sex with children and sex with animals, which the prosecutors said the Compuserve manager could have prevented from being distributed over the company's network in Germany.

The indictment also includes charges against the Compuserve executive for allowing a computer game to be transmitted over the company's network that includes photographs of Adolf Hitler and Nazi party symbols such as the swastika, which are not allowed to be displayed publicly in Germany.

[06] Compaq posts 66% surge in 1996 earnings

The world's largest supplier of personal computers said net rose to $387 million in the first three months of the year, on a 14.3% rise gain in sales to $4.8 billion. The revenue was slightly less than some analysts had expected.

Compaq Chief Executive Eckhard Pfeiffer said 'We're very pleased with the consistency of our financial progress, especially with the improvements in earnings and the growth of gross margins to 24.5%.'

Compaq said its ongoing focus on asset management reduced inventory by $666 million in the first quarter from a year earlier, increased inventory turns to 12.0 from 6.5, and decreased Days Sales Outstanding to 51 from 65. The company said these operational improvements lifted its cash balance more than tripled to $4.7 billion.

[07] Olivetti shares suspended after stock tumbles 9%

Olivetti said it will call for an extraordinary shareholders meeting to propose a capital reduction after the group reported its net loss narrowed to 915 billion lire ($538 million) in 1996. The latest loss came on revenue of 8.304 trillion lire, 15% lower than the previous year.

Yesterday, the market cautiously awaited the announcement that came after the market closed. Olivetti's shares slightly recovered after tumbling about 15% in the past week, closing up 4.3% from Monday's closing price.

Analysts explained that investors battered the shares in the past week fearing worse than anticipated results, the decision to call for a capital increase or a capital reduction and a poor performance in the first quarter. Some analysts expected the company to reduce its capital ahead of a capital increase, since under Italian law a company cannot issue shares at a price lower than its nominal value.

Olivetti said that in the first three months of this year it accumulated a loss of 180 billion lire. The company underlined that the first quarter of the year is usually the slowest revenue period of the year. The first- quarter loss didn't include the Personal Computer units, which was already included in the company's 1996 result.

The company said the capital reduction operation is necessary to comply with existing Italian law. In fact, according to the civil code, if a holding company has losses greater than one third of its total capital, then it must call an extraordinary shareholders meeting to discuss a reduction of the company's capital.

[08] Ford Motor Co. posts huge jump in first quarter earnings

The company said U.S. automotive operations, which contribute about two- thirds of Ford's automotive revenue, earned $836 million, up from $48 million a year ago. The improvement reflects new products with high demand and lower total costs.

Outside the U.S., automotive operations earned $168 million, up from $94 million a year ago. In Europe, Ford said it earned $105 million, up from $73 million a year ago.

In South America, Ford said it lost $47 million, compared with a loss of $60 million a year ago. These improvements stem from cost reductions, the launch of new products, and a resurgence of Ford's business in South America.

The company said it is 'off to a solid start in 1997' and is 'on track to meet the tough business objectives' it has set, assuming the economies of Ford's major markets continue to perform as expected.

[09] Reuters warns of little profit growth if sterling stays strong

The company said first quarter revenue slipped to £699 million ($1.14 billion). Underlying sales, which ignore currency changes, rose by 8%, the company said.

Chief Executive Peter Job said that if the UK currency stayed at its current levels, earning for the full year would be flat or show very little growth.

Job said sterling's trade-weighted index is up 4% since the company last reported figures for the end of 1996.

Overall, he added, the business is performing as expected. Exchange rates aren't affecting unit sales because most are billed in local currencies.

Job made no mention of reported technical problems with Reuters' 3000- series products, saying 'we are making steady progress towards our year-end target for total sales and installations' of that line.

He said the company's other product lines, including its Instinet share dealing unit and foreign exchange transaction products, are performing well.

In U.S. figures, Reuters Holdings reported first quarter sales of $1.139 billion compared with $1.163 billion a year earlier. All U.S. dollar equivalents are converted at $1.63, a rate prevailing at March 31.

[10] Philip Morris shows 13% first-quarter profit gain

The parent company's net rose to $1.8 billion on a 4% decline in revenue to $18.2 billion. Operating income rose 11.3% to $3.5 billion.

The company said its Kraft Foods unit showed a 3.8% gain in operating income, due primarily to volume gains in Europe and continued cost reductions, partially offset by lower earnings in Latin America.

Kraft's coffee business gained market share in virtually all key markets including Germany, France, Austria and Sweden. Confectionery operations showed strong volume gains in Germany.

The company's international tobacco operations showed a 15% gain in operating income on an 11% revenue gain.

Philip Morris said the business benefited from higher volume and pricing, partially offset by unfavourable currency reflecting the strengthening of the U.S. dollar, principally against the Japanese yen and European currencies.

The company's US tobacco operations showed a 10% gain in net income. That increase was driven by margin improvements and a continued shift in sales to more profitable premium brands.

[11] Eurotunnel says debt restructuring talks are advancing well

'Our conversations with the banks are continuing and advancing very well,' a Eurotunnel spokeswoman said.

'But we cannot confirm at the moment that we have reached an agreement,' the spokeswoman added. 'There still are remaining banks which must agree.'

A newspaper report had said that Eurotunnel's steering committee of leading bankers had agreed to final terms on restructuring the company's debt burden.

The Eurotunnel spokeswoman said the tunnel operator could not speak for the banks but that in any case, final terms would still have to be approved by other banks in the consortium as well as Eurotunnel's own board.

A source close to the talks, asked to confirm that the steering committee had approved final terms, responded, 'It's heading towards that way.'

[12] UK telecoms watchdog plans to loosen mobile market

Analysts say consumer and businesses would benefit from the planned move.

U.K. mobile phone operators will soon no longer face ''unnecessary'' restrictions on how they can market airtime and distribute their products, said Don Cruickshank, director general of Oftel.

Cruickshank said licence modifications will come into effect in about six months for the U.K.'s two smallest operators Orange and One2One, a unit of Cable & Wireless.

Larger operators, Vodafone Group and Cellnet, which is majority-owned by British Telecom, will benefit from looser restrictions as soon as Oftel is satisfied that competition is fully effective.

Cruickshank said he is unlikely to re-evaluate the market's competitive nature with the idea of lessening restrictions on Vodafone and Cellnet before 1998.

[13] Germany's deficit levels widens in first quarter of 1997

In its April monthly report the Deutsche Bundesbank also said that during the period revenue grew just 3.1%. However, the Bundesbank was quick to caution that there can be broad fluctuations in the data, especially in the early months of the year, and that the data aren't a reliable indication of developments for the full year.

Meanwhile, in a preliminary summary of the April monthly report, the German Economics Ministry said the country's gross domestic product in the first quarter of 1997 grew 'slightly' after a stagnant fourth quarter last year, putting back on track an overall growth trend that began last year. But the ministry didn't name any precise figures, with first quarter 1997 GDP data not expected until June.

'After GDP temporarily didn't rise further in the fourth quarter of 1996 given the influence of special factors - as expected - it was likely to have risen slightly again at the beginning of the new year on a real seasonally-adjusted basis,' the ministry said. 'In Germany, the economic expansion, which has been observed since the spring of last year, is (now) continuing after the start of the year,' it added.

But the Ministry was much less happy with investment levels. While pointing out that foreign demand is still the economy's main support, the ministry said investment is still sorely lacking, with uncertainty about planned reforms of the German tax and social security systems holding back investment needed to jump-start the domestic economy. The report suggested that domestic investments were being kept on hold until the details of government reforms that could affect the viability of these projects were made known.

'This is particularly true for the final definition of reforms of the tax and social security systems,' the report said. 'That is why it is urgent that we have clarity quickly so that investment plans can begin with a sound basis.'

The Ministry noted that unlike comparable phases in earlier economic cycles, investment by businesses so far still doesn't have adequate momentum, despite the apparent revival. But, it took heart from a marked improvement in 'numerous' conditions that should spur investment.

[14] Corporate and Economic Briefs

Anglo-Dutch publisher Reed Elsevier said its 1997 profits, particularly in the first half, could take a sizeable hit if sterling's strength is sustained. However, the company said this does not affect its underlying operating performance, which is little changed since it reported 1996 results in March. ''Overall, the businesses continue to perform well,'' the company said at its annual general shareholders meeting. Continued development of electronic and hard copy information products could, however, collar Reed Elsevier's historical rate-of margin improvement. But the company said it is ''confident that this investment should be rewarded by strong revenue growth in the future.'

Norwegian power consumption for the first quarter of 1997 dropped 7% from the corresponding period a year earlier to 33.4 terawatt hours, Norway's national power-transmission company Statnett said. Milder temperatures and greater precipitation contributed to the decline in consumption, Statnett said. However, imports remained higher than normal. Norway saw net imports for this year's first three months of 4.5 TWH, compared with net exports of 1.2 TWH during the same period last year.

The chairman and chief executive of Boeing said he expects the company's 1997 airplane orders to be virtually unchanged from last year. ''It will be relatively flat,'' Philip Condit told reporters. He said that there is potential for selling more planes to China this year, but that depends on whether the U.S. renews most-favoured nation status for China this year. He said that the impact of no MFN status for China would be severe for Boeing. ''China would perceive the U.S. as an unreliable trading partner, and they would move to buy products elsewhere,'' he said.

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

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