European Business News (EBN), 97-04-17

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

Page last updated April 17 1630 CET

CONTENTS

[01] Bundesbank plans to maintain 'steady hand' monetary policy

[02] Peugeot profit plunged in 1996 as price war continued unabated

[03] Russia plans sharp spending cuts to ease budget crisis

[04] U.S. trade gap narrows as exports reach record high

[05] Novartis shows strong first quarter sales gain

[06] U.K. retail prices continue downward trend

[07] House of Fraser posts loss after restructuring charges

[08] Prudential posts healthy first quarter growth sales

[09] McDonnell Douglas's profit growth slowed by charges and Delta II rocket failure

[10] Norilsk subsidiary approves share issue

[11] McDonald's earnings rise 13%

[12] Microsoft Network suspends e-mail service until Sunday

[13] Sears Roebuck with strong sales growth in first quarter

[14] Corporate and Economic Briefs

[01] Bundesbank plans to maintain 'steady hand' monetary policy

Speaking about economic growth, Tietmeyer said, 'We expect the economic motors to continue driving the economy upward this year, but (economic growth) remains hampered from a structural point of view.'

Tietmeyer spoke at the Bundesbank's annual news conference at which the Bundesbank said its 1996 profit fell 14% to 9.43 billion Deutsche marks from the year earlier.

Earlier in the day, the central bank's policy-making council left its benchmark 2.5% discount and 4.5% Lombard rates unchanged at its regular meeting.

Recent German manufacturing and industrial production data has pointed to a modest pickup in Germany's economic growth. But economists are warning that these first signs of a recovery are largely confined to the export sector. Meanwhile, investment and public consumption, the next 'natural' steps in an export-led economic recovery, are lagging behind.

In fact, the German Ifo Index on business sentiment showed confidence waning on the German economy; the outlook for the economy in March was more pessimistic than in February.

Tietmeyer conceded that the level of investment is still weak, and that exports were helped by foreign exchange corrections.

In that regard, Tietmeyer said 'the forex correction has been completed,' referring to the correction of the dollar's weakness versus the mark since 1995.

'The current situation with the mark relatively reasonably reflects (economic) fundamentals, but a further weakening of the mark wouldn't be in our interest,' Tietmeyer clarified.

But Tietmeyer added that the mark's recent weakness isn't related to the upcoming currency union scheduled for start-up in Jan. 1, 1999.

In fact, Tietmeyer said the current debate over the European monetary and economic union isn't yet affecting the external value of the mark, but has the potential to weaken if signs of softening the convergence criteria become stronger.

Tietmeyer seized the opportunity of its news conference to reiterate that it isn't opposed to the currency union. 'There are people who say that the Bundesbank doesn't want monetary union, but they are wrong,' he said. He added that the Bundesbank merely wants EMU to go ahead with a proper foundation.

Tietmeyer went on to note that 'it is most important' that the Maastricht Treaty's criteria are sustainable and that they mustn't be softened.

[02] Peugeot profit plunged in 1996 as price war continued unabated

The car maker posted net profit of 734 million francs ($126 million) from 1.7 billion francs the year before. The company cut its dividend to 3 francs a share from 5 francs, just one year after having cut the dividend 17% to 5 francs.

PSA Peugeot said overall 1997 sales should increase thanks notably to improved small truck sales, and noted that ''cost reductions, improved organization and quality'' should allow it to ''maintain the financial build-up of the past 15 years.''

The earnings fell short of even the most pessimistic predictions which ranged between 800 million francs to flat profit at 1.7 billion.

The group said in a statement that a price war had hit its results and that the fierce competition in the French car market since last autumn showed no sign of abating. Overall French car market sales could fall by 11% to 12%.

'The fierce competition raging in Europe does not look like going away,' it said. 'The Western European car market should see overall growth of close to two percent in 1997 but the depression of the French market since autumn 1996 has continued unabated and sales could recede by 11-12 percent over the year.'

But the company added that 'bolstered by the success of its car range . . .sales should meet the target gains which the group has set itself.'

A month ago, rival Renault announced a loss of 5.25 billion francs, its first loss in 10 years.

[03] Russia plans sharp spending cuts to ease budget crisis

The 1997 government budget faced heavy going to win approval in the Communist-dominated parliament, where legislators sought more money for government programs.

Chubais conceded that the government's emergency cuts will face criticism when they are proposed to parliament in the next few weeks.

Millions of Russian workers haven't received their salaries for months, and Chubais' remarks indicate the crisis is worsening despite President Boris Yeltsin's recent government shakeup.

Chubais, who is also the Finance Minister, said revenue collection in the first quarter of this year amounted to only 57% of the government's target. Spending was only 63% of what was planned, and the budget deficit has swelled, he added.

Russia is in the midst of 'a monstrous budget crisis, the scale of which calls into question the ability of the state to perform its functions,' Chubais told the upper house of parliament, the Federation Council.

[04] U.S. trade gap narrows as exports reach record high

The Commerce Department said the February imbalance was 8.5% lower than January's deficit of $12.7 billion. That figure had been the highest on record since the government switched to a new system of tracking the monthly flows of both goods and services.

Imports of U.S. goods were a record, climbing 2.1 % to $85.1 billion. However, U.S. exports and services were up 4% to an all-time high of $73.5 billion.

But even with the slight improvement, the deficit for the year was running at an annual rate of $145.6 billion, a sharp deterioration from an imbalance of $114.3 billion for all of 1996.

The 1996 deficit was the worst in eight years and economists are predicting it will widen this year with growing demand for imports and as the strong dollar dampens sales of increasingly expensive exports.

Already, U.S. automakers are appealing to the Clinton administration to do something to hold down the dollar's rise as Japanese and other imports are taking an increasing share of the U.S. market. Critics see the rising trade deficit as a sign the administration's campaign to promote freer trade has been a failure.

Faced with growing protectionist sentiment in Congress, U.S. President Bill Clinton is facing tough fights to win congressional approval for the authority he needs to negotiate new trade pacts and to gain the annual approval for China's most-favored-nation trade

status.

For February, the deficit with Japan narrowed by 0.9% to $4.3 billion, but for the first two months of the year the deficit is running 11% above the same period a year ago.

The deficit with China dropped 9.6% to $3.4 billion in February but for the first two months of the year is up a dramatic 37% from the same period a year ago.

[05] Novartis shows strong first quarter sales gain

Roche reported an 18% gain in sales during the first three months of the year, Novartis said. Roche has said that generic competition held back its own first-quarter performance in the U.S.

Novartis chief financial officer Raymund Breu said first-quarter sales figures confirm the company's statement last month that it expects a 'marked improvement' in both operating income and net profit for the full year.

'We have three very powerful factors working for us at the moment,' he said in an interview with Dow Jones Newswires.

First, he pointed to an 8% sales growth in local currencies in the first quarter. 'This is an important number,' he said, noting that the average pace in the pharmaceutical industry is between 6% and 7%. He said Novartis' strong internal growth comes from its product ranges, especially in healthcare.

Secondly, Breu said the company remains on track in exploiting synergies from the merger of Ciba-Geigy and Sandoz, which formed Novartis last year. He said that by the end of this year, the company expects to realise 60% of the previously estimated 2 billion francs in cost savings over three years.

Finally, he cited the 'windfall gain' from favourable currency rates, noting this impact amounted to 14 percentage points on first-quarter sales. 'Certainly,' he said, 'you can assume a positive impact at the operating and net income levels of at least as high as the sales growth impact.'

Breu said the company estimated if currency rates stay at current levels throughout 1997, the impact from that front alone will be 12 percentage points for the full year on sales growth and at least that much on operating and net profit.

[06] U.K. retail prices continue downward trend

The Office for National Statistics (ONS) said the annual rate of inflation fell to 2.6% in March from 2.7% in February. Economists had expected the rate to remain unchanged.

Underlying inflation fell to 2.7% from 2.9%, more than the fall to 2.8% expected. On both measures, prices rose by 0.3% between February and March.

Underlying inflation, which excludes mortgage interest payments, is set to fall below 2.5%, the target to which both the ruling Conservative party and the main opposition Labour party are committed, later this year, economists said. Chancellor of the Exchequer Kenneth Clarke had set a target of reducing the underlying rate to 2.5% by the end of the parliament, which has now been dissolved for the May 1 election.

However, some economists said the fall in food prices last month disguised signs of rising price pressures in the core retail sectors. Prices of clothing and footwear and household goods both rose faster in March than they did a year earlier, prompting some to conclude that retailers are using strong consumer spending to boost margins.

'The upward pressure on core components of the retail price index in the March figure is a worry. It looks as if the stronger high street demand has prompted retailers to raise prices,' said Simon Briscoe, U.K. economist Nikko Europe in London.

[07] House of Fraser posts loss after restructuring charges

The U.K. department store group said pretax profit for the year ended January 25 reached £14.8 million ($23.7 million), before £53.2 million in well-flagged charges related to restructuring and business disposal. Last year's pretax profit totalled £14.3 million.

As part of House of Fraser's ongoing restructuring, it said it plans to dispose of three additional stores in the current financial year, taking a provision of £8.5 million related to this.

It will also open four new stores, with a total of 375,000-square-feet of selling space during the year.

[08] Prudential posts healthy first quarter growth sales

British life insurance group said its worldwide regular premium sales rose 17% in the first quarter, from the year-ago period. And with sales of single premium policies rising 22% in the first quarter, Prudential reported that the value of single premium business was £1.76 billion in the first three months of the year and regular premium business was worth £130 million.

Pru chief executive Sir Peter Davis described the sales figures as 'very encouraging. We are particularly pleased that the sales momentum we built up in 1996 has continued into 1997.'

In Britain, regular premiums rose 18% to £84 million and single premium sales rose to £885 million from £866 million a year earlier. Sales at the Pru's American subsidiary Jackson National Life, increased by 79% to $1.1 billion, boosted by the success of its recently expanded product range.

Single premium sales in Asia more than doubled to £49 million while regular premium sales rose 28% to £23 million.

[09] McDonnell Douglas's profit growth slowed by charges and Delta II rocket failure

The aerospace giant also cited increased costs on its MD-95 commercial aircraft and Delta III development programmes, as well as costs related to its pending merger with Boeing.

McDonnell's first quarter net rose to $181 million, or 86 cents a share, on revenue of $3.23 billion. A year earlier the company earned $198 million, or 89 cents a share, on revenue of $3.17 billion.

Military aircraft earnings edged up 3.6% to $259 million as profits from the F/A-18E/F jet rose but results from the F-15 and F/A-18C/D programmes declined.

McDonnell said the US Defense Department has approved production of the first 12 aircraft in the F/A-18E/F programme. The phase-in of work after a 99-day strike at its St. Louis operations, which ended in September 1996, along with increased retirements of experienced personnel late in the year, affected productivity, McDonnell added. Military segment revenues in the first quarter were $1.9 billion, down from $2.0 billion in the 1996 quarter.

Expenditures for the Delta III launch vehicle under development and lower earnings on the Delta II programme caused a decrease in results for this segment, McDonnell said. Revenues for commercial aircraft were $624 million, up from $428 million a year ago.

Earnings from the sale of spare parts and related services contributed to earnings in the commercial aircraft segment. Increased losses on the MD-95 programme, currently in development, were partly offset by some reduction in cost estimates on prior deliveries of trijet and twin-jet aircraft.

[10] Norilsk subsidiary approves share issue

The stock - equivalent to 50% plus one share - will be transferred in trust to the government as security to ensure that Norilsk Nickel fulfills a rescheduling deal for its 509 billion-ruble tax debt, Norilsk press secretary Anatoly Komrakov said.

The company will get the shares back after five years if it fulfills its obligation, and keeps current on other tax payments. Otherwise, the government has the right to sell the shares on the open market.

The share issue means that Norilsk is the first company to make use of a government plan to issue new shares and reschedule massive tax debts. In the plan, announced by the government last month, the government will hold stakes - which will amount to 50% plus one vote - in trust to ensure that the companies meet the terms of the five- and ten-year rescheduling deals.

Several major Russian companies besides Norilsk are expected to submit to the plan during the next several months. On Thursday in Parliament, First Deputy Prime Minister Anatoly Chubais said companies that don't reschedule their tax debts will be forced into bankruptcy.

Komrakov said the share issue in the Norilsk Mining and Metallurgical Complex is part of a much larger plan to pay off all its debts, estimated about $2.4 billion.

He said the company has also moved to settle disputes with local and regional governments, and is on schedule with tax repayment plans with the city of Norilsk and the Krasnoyarsk region.

[11] McDonald's earnings rise 13%

More than 70% of 1997 openings will be outside the U.S., the company said. McDonald's said the year-ago quarter had an extra day, because of leap year, which hurt the latest-quarter earnings comparison by 1 cent a share.

The company said that excluding the $16 million charge for the adoption of SFAS 121 in the year-ago quarter and the negative effect of weaker foreign currencies, earnings per share rose 13% and earnings rose 12%.

McDonald's Corp. said it expects 1997 'to be another record-breaking year.'

The company said it is 'poised to have a strong year outside the U.S.,' despite a slow start attributable to weak economies in many international markets, severe weather in Europe, weaker foreign currencies and difficult comparisons because of the strong performance of many markets in the year- ago quarter.

[12] Microsoft Network suspends e-mail service until Sunday

The network, with approximately 2.2 million subscribers, took the servers offline for unexpected maintenance work. No prior announcement was made of the interruption in service, which could inconvenience many of the network's customers who rely on e-mail for business communications.

Microsoft explained that its Microsoft Network was doubling the number of its e-mail servers, accelerating plans for server upgrades. The installation would take about 24 to 36 hours starting 0100 GMT on April 16, the company said. During this time, Microsoft Network members worldwide would not be able to access or receive e-mail, it said.

The server installation would not affect the service as a whole, the company said. Members would still be able to access the Internet and all MSN programming apart from e-mail during the upgrade, it said.

[13] Sears Roebuck with strong sales growth in first quarter

The increase was mainly driven by a 9.4% increase in domestic merchandise sales and services revenues - which benefited from a comparable-store sale increase of 2.5% and the addition of new stores - and a 12.3% increase in credit revenues. The company said solid increases across all its apparel lines boosted first-quarter results.

A voluntary restitution plan regarding reaffirmation agreements made with bankrupt Sears credit-card holders may be material to 1997 operating results.

The US retailer said it is not yet able to estimate the cost of the matter, and made no provision for it in the first quarter. Sears said it will identify all debtors with unfiled reaffirmation agreements from 1992 through April 1, 1997, and it will reimburse them the amounts they paid under those agreements, plus interest, and send each a $100 gift certificate. The company confirmed that certain bankrupt card-holders had filed class action suits against Sears relating to the matter.

As reported April 10, Sears said it exercised 'flawed legal judgement' in the execution and handling of certain consumer debt reaffirmations. Sears provides apparel, home and automotive products.

[14] Corporate and Economic Briefs

The European Union Commission authorized the creation of Newtelco, a joint venture that will operate the second national telephone network in Switzerland. The venture groups are British Telecom, Tele Danmark, Swiss national railway company Schweizerische Bankgesellschaft, Migros- Genossenschafts-Bund, and Schweizerische Bankgesellschaft. The commission noted that the venture will combine the 'expertise of British Telecom and Tele Danmark, with assets contributed by the Swiss participants.' It said the operation wouldn't affect competition within E.U. markets.

France's 1997 budget deficit could reach 3.8% of gross domestic product if no measures are taken by the government to correct the drift, according to the daily newspaper Le Monde. Citing a confidential document prepared by the Budget Ministry, the newspaper said that even if the government does act to reduce the budget gap, the deficit could still reach 3.5% of GDP. If that happens, France would effectively be prevented from being a founder member of the group of countries participating in Europe's single currency.

Registered unemployment in the Netherlands dropped to 6.2%% of the total work force in the three months ended March 31, compared to 7.0% in the same period a year earlier, the government's Central Bureau for Statistics reported. Non-seasonally adjusted figures indicate that the number of registered unemployed dropped to 415,000, from the same three-month period in 1996 when there were 469,000 jobless claims, the CBS reported. After adjustment for seasonal influences, the CBS said unemployment dropped to 6.0%, from 6.8% in 1996. This means a decline of an equal 54,000 jobless claims.

Spain's 1997 first-quarter gross domestic product will be very near 3%, said the secretary of state for economy, Cristobal Montoro. The Spanish news agency EFE reported that Montoro is with the Spanish Finance Ministry, which said it was unable to confirm the EFE report. The government's macroeconomic projections indicate that the economy is expected to grow 3% in 1997. Spain's GDP grew 2.6% in fourth quarter 1996 from the same period a year earlier and grew 2.2% for the year, from 2.8% growth in 1995.

Switzerland's March trade balance swung to a surplus of 3.1 million francs ($ 2.1 million) after a revised deficit of 328 million francs in February, the government customs office announced on Wednesday. Through March, the first-quarter trade deficit widened to 984.4 million francs from a gap of 138.8 million francs in the same period of 1996.

Sulzer Technology Corp. said that its 1997 first-quarter orders grew 10% to 1.64 billion Swiss francs ($ 1.11 billion), up from 1.5 billion francs in the first quarter of 1996. Implant producer and group star performer Sulzer Medica increased orders by 21% and contributed 346 million francs, or 21%, to the group's total. Pumps and compressor maker Sulzer Roteq's first-quarter orders went up 17% to 418 million francs, contributing 25% to Sulzer's total orders. The company said it experienced an orders stagnation in Europe in the first quarter, but increased orders in North America by 20%, in Latin America by 74%, in Australasia by 12%, and in Africa by 44%.

B.S.G. International is in preliminary talks for the possible acquisition of Buderus AG's Buderus Sell GmbH unit for an undisclosed amount of cash. The Herborn, Germany-based unit makes commercial aircraft cabin interior products. Buderus Sell also produces lavatory modules for Airbus aircraft through a joint venture with Daimler-Benz's Daimler-Benz Aerospace Airbus. Buderus Sell's sales for the year ended Sept. 30 were about 106 million marks ($ 62 million). B.S.G. is a vehicle component assembler.

Incoming orders to German manufacturers declined slightly in February, according to revised, seasonally adjusted data published by the Deutsche Bundesbank. The Bundesbank said the index of manufacturing orders fell to 98.6 in February from 98.8 in January. Preliminary data released at the start of the month had put the index originally at 99.0. The new data suggest a drop of 0.2% in orders in the month, from a rise originally reported of 0.2%.

Union Bank of Switzerland enjoyed a 'very good' start to the current financial year and expects a 'very pleasing' full-year result, according to it's CEO Mathis Cabiallavetta. Addressing shareholders at the company's annual general meeting, Cabiallavetta said, while full details for the first-quarter 1997 had yet to be compiled, 'we can already say that the beginning of 1997 was very good.' However, he conceded, while January and February results were 'very pleasing,' figures for March were 'weaker.'

The Deutsche Bundesbank said its 1996 net profit fell to DM9.43 billion in 1996 from DM10.93 billion in 1995. The German federal government, which by law receives most of the Bundesbank's profit each year, will get DM8.83 billion from the 1996 earnings compared with the DM10.32 billion Bonn received from the 1995 profit. The 1996 profit figure is in line with economists' expectations for a profit of around DM9 billion. They had expected a decrease from 1995 due to lower interest rates over the course of last year.

McDonnell Douglas said its earnings in the latest first quarter were hurt by accident-related costs and fewer launches resulting from the Delta II failure in January 1997. The quarter was also hurt by increased costs on the MD-95 aircraft and Delta III development programs, and by merger- related costs. The first quarter also suffers from a comparison to the year- ago period which was helped by an environmental insurance recovery, McDonnell Douglas said.

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