European Business News (EBN), 97-04-22

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

Page last updated April 22 1939 CET

CONTENTS

[01] Juppe kicks off Conservative campaign by vowing further budget cuts

[02] Germany's 6 top institutes say Bonn could meet single currency deadline, but urges quick action

[03] Arthuis delays privatisation of France Telecom

[04] SmithKline earnings growth held to 8% in first quarter profit

[05] Polygram earnings slip 1.6% on poor box office for 2 films

[06] Generale des Eaux reportedly discusses partnership with Nippon Telephone

[07] Mannesmann first quarter sales jump 14%

[08] SAP profit jumps 54% in first quarter

[09] German coalition cabinet approves tax reform plan

[10] Nomura president to resign over trading scandal

[11] Continental posts 17% profit gain for first quarter

[12] Novartis confident of further growth

[13] France will submit rescue package for Credit Lyonnnais

[14] Corporate and Economic Briefs

[01] Juppe kicks off Conservative campaign by vowing further budget cuts

Juppe, however, didn't unveil any new plan to boost the economy, whose slow growth is making it difficult for the government to combat the record unemployment rate of 12.8%.

President Jacques Chirac on Monday dissolved the conservative-controlled parliament and called for two-round legislative elections on May 25 and June 1.

Under the background slogan, 'With Jacques Chirac, a new elan for France,' Juppe defended the policies of his conservative predecessor during 1993-95, Edouard Balladur, and his own policies during the past two years.

Juppe promised to continue efforts to create jobs, lower corporate taxes, reform the social security system, and encourage hiring by small- and medium-sized companies.

Juppe, who last September unveiled income tax cuts of 25 billion French francs ($4.4 billion) for 1997 and 75 billion francs over five years, said the cuts should increase.

'The program of lower taxes will be pursued. It should be accelerated,' Juppe told several hundred conservative deputies and supporters.

The conservatives control 464 out of 577 seats in the National Assembly. Recent polls show that they may lose between 150 and 170 seats but maintain a majority against the leftist opposition.

Should the conservatives maintain control of parliament, Juppe is widely expected to be renamed prime minister by Chirac.

If not, Chirac would be forced to pick Socialist Party leader Lionel Jospin, creating a logjam with the conservative president. The Juppe government has already hinted that income tax cuts could be increased, but it needs to significantly trim its budget deficit in order to do so and qualify France for the European single currency in 1999. Juppe blamed the socialist governments during the 1980s and early 1990s for the large deficits his government is attempting to trim.

'It's the ball-and-chain of debt piled up by the socialist governments which we are dragging,' Juppe said, repeating a familiar theme for the conservatives. 'Their only project, if I understand correctly, is to relapse.'

France's Juppe also repeated his government's push to get France into the first wave of countries joining the European single currency.

'France has nothing to fear and everything to win from the euro (currency), everything to win from the Union, everything to win from Europe,' he said during his 45-minute speech. Jospin said Sunday he opposes state spending cuts so that France meet Maastricht treaty criteria at a time of high unemployment. The socialist leader hasn't said, however, whether there should be a delay in EMU or whether EMU should go ahead with 'softer' criteria, a scenario German leaders and European central bankers reject. Separately, President Jacques Chirac and Juppe slipped in a new poll.

According to the BVA poll taken April 17-19, 35% of people questioned said Chirac had done a 'very good' or 'pretty good' job, down from 39% a month earlier. The survey showed 57% had a negative opinion, up from 55%.

Juppe received a 25% approval rating, down from 29%, while 66% disapproved of his job performance, up from 63%.

[02] Germany's 6 top institutes say Bonn could meet single currency deadline, but urges quick action

The six independent forecasters emphasised the need to quickly reform and consolidate state finances.

But Finance Minister Theo Waigel criticised the reports 'excessive' view that tax receipts would fall short of the government's needs, and the Bundesbank questioned whether Germany will be able to meet the criteria in time to be a founding member of Economic and monetary union.

The independent forecasters estimated overall GDP growth would rise to just 2.25% this year and 2.75% in 1998, a slower rate of recovery than the government is hoping for.

They also forecast unemployment will average 4.28 million this year, slightly higher than the 4.2 million on which Bonn is basing its calculations, and up from last year's 3.9 million.

The institutes still said they expect European monetary union to start on time with a large number of countries, including Germany, but the starting roster would be a political decision that cannot be reduced to simple arithmetic targets.

'We expect a deficit of 3.2% of gross domestic product in 1997, falling to 2.9% in 1998,' said economist Willi Leibfritz of the Ifo institute, speaking for the group.'But 3% is still thoroughly possible' this year.

The forecast is a slight improvement from the institutes' fall prognosis of a 1997 deficit equal to 3.5% of GDP.

Finance Minister Waigel insisted the government would be doing all in its power to meet the Maastricht deficit criterion. Bonn ^Ñwill do everything necessary to achieve this goal...But possible requirements for actions can only be determined after presentation of the May tax estimates,' he said, referring to next month's critical tax assessment report.

The Deutsche Bundesbank appeared to be singing from a different hymn book, however. Bundesbank Deputy Governor Johann Wilhelm Gaddum said that it 'won't be easy' for Germany to achieve the deficit target because of the country's current 'unstable labour market.' And both Bundesbank President Hans Tietmeyer and directorate member Franz-Christoph Zeitler made it clear that the timely start of monetary union remains uncertain, being dependent on the convergence progress of would-be members.

Ernst Schwanhold, economic spokesman for the opposition Social Democrats, said the report was a slap in the face for the government, showing it was unable to decide and act upon solutions to economic challenges including high unemployment.

[03] Arthuis delays privatisation of France Telecom

The finance ministry said investors now will be able to make initial bids to buy shares 'around' June 5. The share price will be announced June 24 and investors will then have until July 1 to make a firm offer to buy shares.

The government plans to raise between 30 billion French francs and 50 billion francs ($5.3-8.9 billion) through the sale of an undisclosed minority stake in the telephone company. Analysts estimate France Telecom to have a total market value of about 200 billion French francs.

The parliamentary elections, however, could allow a socialist government to be formed if leftist parties obtain a majority in the National Assembly.

The Socialist Party has said it opposes the partial sale of France Telecom to the public.

The finance ministry, in a statement, said the delay was due to the need for large publicity campaign which 'isn't easily compatible with an election campaign.'

The ad campaign for the sale of France Telecom shares had begun two weeks ago.

[04] SmithKline earnings growth held to 8% in first quarter profit

In the three months to the end of March, SmithKline made a pretax profit of £418 million ($693 million), up 8% on the year. However, without exchange- rate fluctuations, that figure would have been £459 million, up 19% on the year.

In an interview with Dow Jones, SmithKline's Finance Director Hugh Collum said the £41million negative impact from currency fluctuations was purely translational, rather than transactional.

In other words, the strength of sterling against other European currencies and the dollar doesn't affect the company's underlying profitability.

On the upside, Collum said the company 'certainly can't complain' about the sales growth of antidepressant drug, Seroxat/Paxil, which rose 49% to £197 million in the first quarter.

'Seroxat is the key' to higher sales growth, said Collum, adding that it's currently the highest-growth drug of its kind.

Although SmithKline's total sales declined 1.9% to £1.838 billion the first quarter, Collum said fluctuating exchange rates contributed to that - he said the pound was relatively weak at the end of the first quarter last year.

In a written statement, the company's Chief Executive Jan Leschly said sales in its pharmaceuticals and consumer healthcare businesses 'remain strong,' with help from new products, such as Seroxat/Paxil.

Collum said other key new products include Hycamtin, a treatment for ovarian cancer, ReQuip, for Parkinson's disease, Coreg, for congestive heart failure, and SmithKline's vaccines business.

Sales in the pharmaceuticals division fell 5.2% to £1.096 billion the quarter, including the negative impact of fluctuating exchange rates.

'We are also very pleased with how consumer healthcare's been performing,' the finance director said.

Sales in that division rose 8% to £549 million in SmithKline's first quarter.

'Worldwide, we've seen some good growth,' said Collum, particularly in South East Asia and Latin America.

[05] Polygram earnings slip 1.6% on poor box office for 2 films

Polygram's music division was helped by the success of the multi-million selling album 'Pop' by Irish band U2.

Polygram's net profit edged down to 122 million guilders ($63.9 million). Sales were up 8% at 2.20 billion guilders.

The company said the underperformance of 'Portrait of a Lady,' and 'Gridlock'd,' had a financial impact on the quarter, but stressed that its major releases are scheduled for the second half of 1997.

These include 'The Game,' starring Michael Douglas and Sean Penn, 'The Borrowers,' starring John Goodman, and 'Bean,' starring Rowan Atkinson. At the film division, the operating loss more than doubled to 55 million guilders from 19 million guilders the year before.

Polygram said its first-quarter results 'reflect an improved contribution from music where the operating margin benefited from both international and local hits.'

Music sales were up 9% to 1.91 billion guilders.

[06] Generale des Eaux reportedly discusses partnership with Nippon Telephone

CGE is majority holder of Cegetal, France's second telecoms operator, which is taking a 40% stake in Telecom Development, a venture with Societe Nationale des Chemins de Fer. British Telecom is buying a 25% stake in Cegetel. SNCF owns 50% of Telecom Development.

'Generale des Eaux is in talks with NTT,' a CGE source was quoted as saying to Reuters new service.

CGE has been chosen by the French state-owned railway as its partner to deliver telecoms services over the railway's fibre-optic network. That will give Cegetel an advantage in the race to provide telecommunications services to the French market as it becomes open to competition next year.

The CGE source said Cegetel may bring in another partner to take its stake up to 49.9%. Talks with other potential minority partners are also taking place, the source said, adding: 'It is quite possible that nothing happens for a year.' He declined to divulge how much the stakes in Telecom Development were worth.

[07] Mannesmann first quarter sales jump 14%

Mannesmann's group sales widened 14% to 8.2 billion Deutscche marks ($4.83 billion) in the first quarter, while new orders rose 13% to 10.2 billion marks. The company didn't provide comparison figures for the year-earlier period. Although the company didn't provide an operating profit figure in a statement ahead of its press conference, it said earnings were boosted by its automotive technology and telecommunications divisions.

The company said its tubes and trading operations swung back to operating profit, but the engineering division made a loss due to 'normal seasonal low billing volumes.'

By division, Mannesmann said its automotive technology, telecommunications and tubes and trading divisions saw significant growth in new orders in the first quarter.

However, orders to the engineering division were at about the prior-year level in the first three months of 1997, it said.

[08] SAP profit jumps 54% in first quarter

Group sales jumped 49% in the period to 1.03 billion marks, on new client business and the positive effect of currency movements, the company said. A spokesman said that the strength of the dollar and European currencies relative to the mark contributed 7% of the first quarter sales rise.

SAP didn't provide comparison figures for the year-earlier period.

For the full year, SAP said it expected sales growth to flatten, and stuck by its prognosis for growth between 25% and 30%. But it added that if the dollar retained its new-found strength, the full-year sales increase could be 'clearly higher' than that outlook.

SAP said the 'extraordinarily positive' business development in the first quarter of the year was due to several large new contracts in the U.S., South Africa, India and France.

Meanwhile, SAP's operating costs were up 48% to 886 million marks, the company said.

SAP also said that by region, first quarter sales were up 91% in the U.S., to 445 million marks. In Europe, sales rose 18% to 450 million marks and in Asia they jumped 68% to 107 million marks.

The company noted that first quarter group sales consisted of software sales, up 45% to 677 million marks; consulting fees, up 55% to 242 million marks, and revenues from training, up 63% to 103 million marks.

[09] German coalition cabinet approves tax reform plan

The lower house of the German parliament, the Bundestag, will discuss the plan Friday. The package, which calls for large cuts in corporate and personal taxes in 1998 and 1999, is expected to be approved by the Bundestag on June 27.

Finance Minister Theo Waigel said it was now up to the opposition Social Democrats, who dominate the Bundesrat, the upper house of the German parliament, to ensure that the tax reforms take effect on time.

The plan must be approved by both the Bundesrat and the Bundestag before becoming law.

Waigel said the government plan will provide taxpayers with net tax relief of 'up to' 30 billion Deutsche marks. Previously, Waigel had said the plan would reduce the taxpayers' burden by a net 30 billion marks.

The governing coalition and the opposition Social Democrats will resume talks Wednesday to work out a compromise on the tax plan. The SPD has called for numerous changes in the plan, saying it gives tax breaks to the rich at the expense of middle and lower income groups.

[10] Nomura president to resign over trading scandal

'With these actions, Nomura will try to recover the trust of the public and of the markets as fast as we possibly can,' Suzuki said.

'A drastic management reorganization of Nomura is necessary,' Suzuki said. He offered his 'utmost apologies' for the scandal, although he stressed that he was not assuming direct responsibility for it.

Suzuki will resign as president on May 1 and be replaced by Junichi Ujiie, although he will retain his post as chairman. The executives being demoted include vice-presidents and managing directors. Former president Hideo Sakamaki has already stepped down over the scandal.

[11] Continental posts 17% profit gain for first quarter

The company said the higher rise in earnings relative to sales meant its group pretax profit rose 17% in the first three months of 1997 to 88 million Deutsche marks ($51.8 million) from 75 million.

Pretax return on sales was 3.5% in the period, with group sales edging up 1.4% to DM2.52 billion. Continental didn't give a sales figure for the corresponding year-earlier period.

Looking ahead, Continental Chief Executive Hubertus von Gruenberg said, 'We hope for a significantly pleasing increase in profits in 1997. As in 1996, the sources of earnings growth can be found in our many new high-tech products as well as internal productivity-enhancing and cost-curbing efforts.'

Von Gruenberg said Continental expected in particular for 'clear earnings growth' from its Continental General Tyre as well as its ContiTech, its technical products division, and its passenger tyre business in 1997.

[12] Novartis confident of further growth

However, Chairman Alex Krauer cautioned against making projections for the year on the basis of first-quarter figures and currency forecasts, saying Novartis based its 1997 budget on a dollar-Swiss franc exchange rate of 1.2 francs.

Talking to shareholders at the annual meeting, Vasella said, 'All divisions are going to increase their sales markedly in 1997.' He credited several factors, such as cost synergies, higher sales volumes in all divisions, a positive currency effect and higher net liquidity.

The chief executive also said operating results in 1997 will be 'very good.'

In 1996, the company reported sales of 36.23 billion Swiss francs ($25.16 billion) compared with 35.94 billion francs the previous year.

In local currencies, the health-care division increased sales 7%, agricultural business rose 6%, while sales in the nutrition division lagged somewhat with a 3% increase. Last week, Chief Financial Officer Raymond Breu said he estimated the sales growth impact created by the current currency levels alone to be about 12% for all of 1997.

Novartis remains on track in all aspects in the current year, according to management.

[13] France will submit rescue package for Credit Lyonnnais

But the bank, whose lending excesses nearly caused its collapse in the early 1990s, issued a statement later in the day saying the plan, which was due to be presented in February, had not been finalised.

And a source close to negotiations between the bank and the government on the plan cast doubt on prospects that it would be ready soon, saying key issues still had to be resolved.

Finance Minister Jean Arthuis, who said the proposal would be given to the Commission 'within the next few days,' reiterated at a news conference that the government would not recapitalise the bank ahead of its sale, expected in late 1998. The government has already bailed out the bank twice.

Arthuis said the centre-right government had 'done its duty by measures taken in 1996' to soften terms of a 1995 state rescue package that threatened to tip the bank back into loss.

But a source close to the negotiations said Credit Lyonnais was still unclear about how the government could sell the bank without recapitalising it. 'How are they going to do it?' he asked.

Bank chairman Jean Peyrelevade, who has suggested he could resign if Credit Lyonnais' viability is threatened, has long argued the bank needs to be recapitalised to boost its solvency ratios to attract a buyer.

The bank denied in the statement a report in the business daily Les Echos the bank would sell its units in Switzerland, Belgium and Luxembourg. These, it said, were 'strategic assets Credit Lyonnais wished to keep in its portfolio.' The newspaper said capital gains from sale of some of the bank's units would offset capital losses from sale of others.

Credit Lyonnais' 50 percent stake in German bank BfG would receive 'special treatment,' the newspaper said. Bank officials have warned in the past that sale of the stake could trigger a five billion franc ($870.6 million) loss and have said it is not for sale now.

The newspaper said the solution could involve money from the state to compensate the bank for the capital loss or delaying the sale until it would no longer generate a loss.

The government had originally been expected to recapitalise the bank to pave the way for its privatisation. But earlier this month, Arthuis ruled out the state injecting fresh funds into the bank which has staged an unexpectedly strong recovery.

The bank lost 21 billion francs between 1992 and 1994.

It reported a modest 1996 net profit of 202 million francs, up from 13 million francs a year earlier, and a vastly improved underlying performance.

[14] Corporate and Economic Briefs

Austrian construction materials group Wienerberger Baustoff Industrie said that 1996 net profit dropped to 801.2 million schillings ($66.7 million), down from 1.12 billion schillings in 1995. Wienerberger, the world's largest brick maker, said it was holding its dividend unchanged at 42 schillings a share, pending shareholder approval. Final 1996 sales figures given Tuesday were revised upward from preliminary results released in January. Turnover rose 17% to 15.06 billion schillings, it said. Pretax profit in 1996 dropped 8.4% to 1.37 billion schillings, it added. Pretax profit was also revised upward from preliminary figures.

Luxembourg-German broadcaster CLT-UFA, in cooperation with U.K. media group Pearson PLC, Hungarian telecommunications operator MATAV and Hungarian bank Raiffeisen Unicbank have submitted a bid to operate Hungary's second national television license, a CLT-UFA spokesman said Tuesday. The consortium is led by CLT-UFA, which has a 49% stake, MATAV 25%, Pearson 20% and Raiffeisen Unicbank the remaining 6%. 'The partners in the consortium are united in their commitment to providing a high-quality commercial television channel, which is distinctive, entertaining, informative and educational for the whole family,' CLT-UFA said in a statement.

Finnish telecommunications company Oy Nokia said it has signed an agreement to expand the GSM and NMT cellular networks for Advanced Info Service of Thailand. The frame agreement includes supplies over a 3-year period and the value of the first year deliveries is estimated to be at least $110 million. Deliveries will start immediately. AIS's GSM (global system for mobile communications) and NMT (Nordic mobile telephone system) systems both have nationwide coverage and have been in operation for 3 and 5 years respectively. Together the two networks have over 900,000 subscribers.

Italian Treasury and Budget Minister Carlo Azeglio Ciampi once again defended Wednesday the deficit cutting and taxes being imposed by the government as necessary whether or not Italy makes it into the first round of European Union economic and monetary union. In an interview with Italian daily, 'Corriere della Sera', Ciampi said that 'Europe and restructuring public accounts are two different objectives based on a single treatment. As we move towards Europe, restructuring will be more complete and interest rates will fall and thus the Treasury's debt burden is lighter.'

Dutch food and drink company Koninklijke BolsWessanen said its U.S. Tree of Life subsidiary has taken over U.S. Specialty Foods Distributors Inc. for an undisclosed sum. BolsWessanen has said for some time that it wanted to expand in U.S. food distribution as this would give the company more clout with retailers. At its annual shareholders meeting earlier this month, the company said it was close to a deal with a company that had annual turnover of around $100 million. Specialty Foods Distributors is based in Plant City near Orlando, Florida. It has annual sales of some $100 million and 480 employees.

Swedish office equipment supplier Esselte said its U.S. subsidiary within Esselte's Meto-division has bought the Florida-based company, Economy Label. Economy Label has sales of around 40 million kronor ($5.2 million) and manufactures specialised labels for the horticultural industry. Esselte said Economy Label has a strong market position and provides Meto with 'an opportunity to expand, nationally and internationally, in a profitable and growing segment of the label business.' No financial details were provided on the purchase.

Swiss-based ABB Asea Brown Boveri announced that its first-quarter 1997 group net profit rose 7.8% from the same period in 1996. The electrical engineering group said first quarter net totalled $236 million against $219 million in the same 1996 quarter. When expressed in the local currencies of its various markets, ABB's net income rose 14%. ABB said the higher level of the dollar held back growth rates expressed in dollars after translation from European currencies.

Alliance & Leicester, the newly listed bank, sold 52.36 million shares at auction late Monday at an average price of 551.007 pence a share, with bids ranging from 534 pence to 575 pence, the bank said Tuesday. The auction was the second of three held to dispose of 27% of the company's stock. The third is due Tuesday. The deals were well-spread along the price range. Twelve bids, totalling 2.3 million were filled at 535 pence. One deal for 8.6 million shares sold at 568 pence a share. A&L shares soared 8.5% to 566.5 pence on the first day of listed trading Monday, after opening at 522 pence, the average price at the first auction held Friday. The price rose as high as 576 pence in intraday trading Monday. Strong retail demand was the main factor driving the share price, but it was supported by firm underlying demand from institutions, who are the ones bidding in the auctions.

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