European Business News (EBN), 97-04-23

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

Page last updated Wed, April 23 6:17 PM CET

CONTENTS

[01] EU says 13 member states will make the launch of single currency

[02] German tax talks fail; Bundesbank issues warning

[03] Philips posts 22% rise in first-quarter operating income

[04] Bausch & Lomb unveils restructuring plan

[05] Pharmacia & Upjohn issues profit warning for first quarter

[06] Beiersdorf shares fall 3.7% after weak earnings result

[07] Prodi rebuts EU finding Italy unlikely to meet EMU criteria

[08] Siemens first-half group sales rise 6%

[09] Volvo nearly trebles profit to $683 million

[10] UK retail sales data for March shows 4% annual rise

[11] UK CBI sees domestic, export demand diverging

[12] Corporate and Economic Briefs

[01] EU says 13 member states will make the launch of single currency

Under the Maastricht Treaty, a country's 1997 deficit must be at 3% of its gross domestic product in order for the country to adopt the euro, which is scheduled to be launched on Jan 1, 1999. Launch participants will be selected by EU leaders in late April or early May next year.

Italian Prime Minister Romano Prodi took the European Union Commission to task following the Commission forecasts that say Italy will likely attain a 3.2% deficit-to-gross domestic product ratio in 1997.

'The government sees as incomprensible that the E.U. Commission has made a decision to forecast at this date that a member state will miss the target - even by a small amount - after the state has already adopted the measures necessary to reduce the deficit to 3% of GDP,' he said.

The footnote to the report did mention, however, that Italy's deficit-GDP ratio could be as low as 3% depending on recent budget measures, and held out for Italy the chance of reaching the Maastricht goal.

Earlier this week, Italian commissioner Emma Bonino said in Rome that the deficit forecasts were 'unbalanced' as regards Italy. She alluded to a 'battle underway' in the commission over the deficit figures.

On the inflation front, Italy also appeared to be within range of respecting the Maastricht requirements.

EU economics commissioner Yves-Thibault de Silguy, presenting the figures to the European Parliament, said 14 member states would pass the inflation test, all except Greece, which is expected to have inflation of 6% this year. Italy is pegged at 2.7%, compared to an EU average of 2.2%.

Regarding the all-important budget deficit category, Germany and France - considered the linchpins of any single currency area - both scraped by with deficit-GDP estimates this year of 3.0% each. In 1998, Germany is seen falling to 2.7%, while that of France holds unchanged.

The commission noted, however, that its forecasts for 1998 are based on no changes in government policies. Thus, their accuracy is questionable.

Spain also managed a 3.0% deficit-GDP ratio, while the U.K. weighed in at 2.9%, falling to 1.4% next year.

While the numbers technically suggest that a number of countries could qualify, de Silguy and his commission colleagues warned that any 'backsliding' on budget efforts this year would be very damaging for the monetary union process.

[02] German tax talks fail; Bundesbank issues warning

Meanwhile, the Deutsche Bundesbank warned that the German government should strive for further savings in case unexpected budget burdens derail its plan to limit the 1997 deficit to 2.9% of gross domestic product, in line with Maastricht Treaty criteria.

Speaking to journalists after a new round of talks between the two sides, coalition leaders emphasized that the normal parliamentary process to pass the reforms is still on track.

The talks 'didn't bring any results, but didn't harm anything either,' Wolfgang Schaeuble head of the parliamentary group of Chancellor Helmut Kohl's Christian Democratic Union party said.

Limiting the government deficit to at least the 3.0% of GDP called for in the Maastricht Treaty is a goal of 'prime importance' for Germany's fiscal policy, the Bundesbank said in its annual report.

'In light of this situation, there is a need for efforts to achieve further savings.' the Bundesbank said in its annual report.

However, 'the reduction of the deficit isn't only necessary in light of the Maastricht Treaty norms,' the Bundesbank said.

'It also has to do with securing the confidence in the government's fiscal policy, which is an important element in the strategy for improving the economic growth and employment in Germany.'

[03] Philips posts 22% rise in first-quarter operating income

The bottom line was helped by a swing to operating profit at Philips' consumer products division. Philips says it is optimistic this turnaround will last. The company also said positive exchange rates contributed 8% of the growth.

Sales were up 3% from those reported in the first quarter of 1995 - despite a 5% erosion in prices.

Net profit came in at 887 million guilders, swollen by a 427 net extraordinary gain, mostly from the Feb. 1997 sale of part of Philips shares in partially-held subsidiary ASM Lithography Holding.

In the first quarter of 1996, Philips booked net profit of 692 million guilders, boosted by a gain of 315 million guilders, mostly on the sale of some of it shares in ASML.

The figures were at the high end of expectations. Analysts surveyed by Dow Jones predicted Philips income from normal operations would come in between 288 million and 453 million guilders.

For 1997, Philips said its ongoing restructuring should contribute to ''profit over the next several quarters,'' and repeated earlier statements that the company is committed to 'double digit growth in operating income, a positive cash flow of over 1 billion guilders in 1997, and a 24% return on net assets in the longer term.''

Since taking office in October, Philips' new CEO, Cor Bonostra has cut several thousand jobs from the company's total of about 260,000.

[04] Bausch & Lomb unveils restructuring plan

In a press release, Bausch & Lomb said the program will cost about $80 million, before taxes, to implement in 1997 and 1998.

The company said it expects restructuring charges of about $55 million to $60 million by the end of the year, the majority of which is expected to be recorded in the second quarter.

The company said the restructuring will eliminate about 1,900 jobs worldwide, but will be partially offset by new employment positions created through reinvestment and expected growth in other segments.

Bausch & Lomb said about one-third of the expected savings from the restructuring program will be related to the company's manufacturing processes.

The company said it plans to implement a number of projects to increase the efficiency and responsiveness of its manufacturing plants in its major businesses, and reduce excess manufacturing capacity in its eyewear business.

The remainder of savings will come from restructuring administrative functions. The company said another objective of the plan is to support its strategy of managing core eye care businesses on a global basis.

[05] Pharmacia & Upjohn issues profit warning for first quarter

P&U said sales in the first quarter were 6% lower than a year earlier, and that earnings per share are estimated to be down 16% from the first quarter of 1996. And Lehman Brothers analyst Jerry Brimeyer downgraded the company to neutral from outperform.

P&U President Jan Ekberg said the company will take measures to improve the development and will announce the company's plans in connection with the first quarter earnings report on April 29.

A substantial part of the decrease is due to a continued negative development of the exchange rate, P&U said.

Also, the results are negatively impacted by a change in inventory levels at customer level as a result of high sales in the fourth quarter 1996, and weak European markets, especially in Germany and Sweden.

Another factor was competition from cheaper copies of P&U drugs in the U.S. 'We are content with the continued development of our newly launched product, but are of course disappointed over the results,' Ekberg said.

In the first quarter ended March 31, 1996, P&U reported operating net income of $229 million, or 44 cents a share, on sales of $1.74 billion. After restructuring charges of $179 million, or 35 cents a share, P&U reported net income of $50 million, or 9 cents a share.

[06] Beiersdorf shares fall 3.7% after weak earnings result

Beiersdorf closed at 86.10 Deutsch marks, down 3.30 marks or 3.7%, at the end of the three-hour floor trading session on the Frankfurt Stock Exchange. Around 1445 GMT, in late electronic dealings, the shares were quoted at 87, down 3. The company said it cut its regular annual dividend for 1996 to 1 mark per share, from DM1.70 a year ago, in order to create provision for a one-time 200 million mark ($117.6 million) charge this year, for restructuring measures in its adhesive tape subsidiary.

Beiersdorf said the steps include paring down its product line and laying off around 700 employees in Germany over a three-year period.

The restructuring involves concentrating the company's business on a reduced number of core areas. Beiersdorf will also pare down its product line, which the company said will have a considerable effect on the relationship between production, logistics, distribution and administration. As a result of the restructuring, around 700 employees will be let go in Germany over a three-year period, Beiersdorf said. Due mainly to weak earnings at its tape subsidiary, Beiersdorf said it plans a broad restructuring this year, which will result in a one-time pretax charge of around DM200 million in 1997.

The company also said sales grew by 3.3% in the first quarter of 1997, with international sales up 9.1% and domestic sales down 5.8%. Beiersdorf said it doesn't expect the restructuring cost to affect the dividend this year, saying that its 'healthy structure' will allow it to carry out the measures without any considerable burden to the company.

[07] Prodi rebuts EU finding Italy unlikely to meet EMU criteria

In a press release from the Italian government, Prodi suggested that the Commission ignored data furnished by his government. In late March, the government of Prime Minister Romano Prodi presented a budget adjustment - or minibudget - of 15.5 trillion lire that seeks to bring the deficit ratio to 3% in 1997, from the current estimate of about 3.8%, and from 6.8% in 1996.

'The spring forecasts approved today by the E.U. commission don't entirely take into account figures furnished by the Italian government,' he said in a note.

'The government believes incomprensible a decision by the E.U. Commission to forecast at this date that a member state will miss the target - even by a small amount - after the state has already adopted the measures necessary to reduce the deficit to 3% of GDP,' he said. Prodi's tough talk contrasts with his foreign minister, Lamberto Dini, who downplayed the figures and evaluated the report in a more positive light.

Speaking in Bonn, Dini said earlier Wednesday that the E.U. forecasts reflect a view that Italy is likely to attain a 3.0% deficit-to-gross domestic product ratio in 1997, Italian news agency AGI reported from Bonn.

'It seems to me that the evaluation made from Brussels is correct,' Dini said. 'A judgement comes forth which fully recognizes what has been done and what we are doing and the good probability that Italy will be at 3% at the end of the year, as forecast by the government,' he said.

Earlier Wednesday, the E.U. Commission said that Italy is forecast to have a 3.2% deficit-to-GDP ratio in 1997. But the commission did note that Italy's 1997 deficit to GDP ratio 'may become 3%...if measures already taken have full effectiveness and, if necessary, additional measures are introduced.'

Financial markets reacted unexpectedly mildly to the reports, with bonds, stocks and the lira rising.

[08] Siemens first-half group sales rise 6%

Siemens also said that group sales rose 6% in the first half and new orders were up 11%. It added that growth was generated exclusively by international business, which more than compensated for slight declines in Germany, where 63% of the group's sales are generated.

'Lower earnings in semiconductors, medical engineering and transportation systems were offset by higher income in most of the other operating groups, ' it said.

Approximately two percentage points of that growth came from currency translation effects, Siemens said, after most foreign currencies strengthened relative to the Deutsche mark in recent months.

[09] Volvo nearly trebles profit to $683 million

The sale of Volvo's stake in brewery Pripps Ringnes also contributed with a capital gain of 3.03 billion kronor.

Volvo Cars' operating profit amounted to 1.07 billion kronor in the first quarter, from a 191 million krona loss in the same period a year earlier. This was the highest profit for the unit for any quarter during the 1990s and 'confirms the stability of the basic improvements that have taken place, ' said resigning President Soeren Gyll in a statement.

Net sales for the group stood at 41.85 billion kronor, up 1.1% from 39.07 billion kronor a year earlier. All operating units, aside from Volvo Trucks, reported higher sales during the quarter.

Profit at Volvo Trucks remained good in Europe, but the unit is still suffering losses in North American operations, noted President Soeren Gyll. He added that vigorous measures are under way to restore the profitability in the U.S. operations as well.

Smaller margins and sales volumes in Europe however also affected operating income negatively, according to the first quarter results.

Volvo Trucks reported an operating profit of 304 million kronor in the first quarter, compared with 731 million kronor a year earlier. Sales fell to 10.94 billion kronor from 11.66 billion kronor.

Operating income for the entire automotive operation increased 95% to 1.89 billion kronor from 970 million kronor.

The weakening of the krona in the first quarter had a positive impact of around 200 million kronor on operating income.

Group assets increased by 20.4 billion kronor in the first quarter to 161.58 billion kronor, with net financial assets having risen to 13.6 billion kronor by March 31, 1997, from 12.0 billion kronor on December 31, 1996.

[10] UK retail sales data for March shows 4% annual rise

Stephen Lewis, economist at London Bond Broking said the data provided few surprises for the market and didn't alter the market perception that interest rates will have to rise by 0.25 percentage point next month.

'It came in-line with the market consensus,' Lewis said.

He pointed to the minutes of the March monetary meeting released at the same time as the data Wednesday showing that Bank of England Governor Eddie George requested a 0.25% rise in interest rates when he met with Chancellor of the Exchequer Kenneth Clarke on March 5.

Economists said the retail sales data were unlikely to have any significant impact upon speculation about a rate boost. Interest rates are currently at 6% and many economists expect them to be raised soon after the May 1 election.

'Still a firm set of numbers. If we look at the first quarter we've got annualised growth in retail sales of around 3-3/4 percent -- that's fairly strong growth,' said Adrian Owens, an analyst with Julius Baer Investments. Analysts said the retail sales figures, coupled with falling inflation and unemployment data, pointed to a strong consumer sector.

'(The consumer sector) is only likely to get stronger through the year as we see building society pay-outs, house prices still strong and inflation coming down, boosting real incomes. These numbers are pretty much in line with expectations,' said Adrian Schmit of Chase.

[11] UK CBI sees domestic, export demand diverging

Chairman of the CBI's Economic Affairs Committee, Andrew Buxton, blamed the strength of sterling for the fall in export optimism.

He said the survey highlighted the 'divergent trend' in demand, with domestic orders growing strongly and overseas demand remaining stagnant.

'Though a strong upswing is now expected in both demand and output, the pace of this growth could well be overstated, given the present state of export orders, and manufacturers' persistent overoptimism over the past two years,' he said.

'More positively, it seems very likely to be growth associated with weak price pressures.'

Buxton said that some tightening in economic policy is needed to curb strong growth in domestic demand. But he favours tightening fiscal policy over monetary policy so as not to over-strenghthen sterling.

CBI Chief Economist Kate Barker said that annual growth in underlying earnings of 5% was incompatible with achieving underlying inflation of 2.5%, the target to which both the ruling Conservative Party and opposition Labour Party are committed if they win the next general election May 1.

Underlying inflation excludes mortgage interest payments.

Barker said that strong earnings growth, taken together with annual growth in retail sales of 4%, would lead to higher inflation if sustained.

'There's absolutely no doubt about that,' she said, adding that any further pickup in earnings growth would be a concern.

[12] Corporate and Economic Briefs

Italian telecommunications group _Societa Finanziaria Telefonica per Azioni_ bid 8.4 billion schillings for a 25% stake in Austria's state- operated mobile telephone system, Post & Telkom Austria AG said Wednesday. The bid, well above the 3 billion to 4 billion schillings expected, was far higher than three rivals for the stake in Mobilkom Austria AG, the Post's mobile telephone operator, Post officials said. Along with the high price, Post representatives said Stet offered a significant package of synergies with its partnership bid.

Consumer spending in the Netherlands rose 3.0% in January and February compared to the same two-month period in 1996, the government's Central Bureau for Statistics (CBS) reported Wednesday. The CBS said household spending in February, 1997, rose 1.4% compared to the same month a year earlier. The CBS said in February household spending in food and beverages dropped 2.0%, compared to a year earlier, but said this was due to the number of shopping days. However, the CBS added, in the first two months of this year the overall volume of consumer spending rose 3.5%. Durable goods sales rose sharply, according to the CBS, with volumes rising 4.8% in February, compared to a year earlier. The CBS said the rise is notable because there are fewer shopping days in February.

Norway's retail sales index fell 0.7% in March from a year earlier, Statistics Norway, the state statistics agency, said Wednesday. According to the agency, lower sales of pharmacy products, cosmetics and toiletries contributed to the decline in the index, with sales of these goods down a sharp 6.4% compared to the same month last year. Also, sales of clothes, shoes, electrical goods and furniture, were lower in March than in the same month in 1996, the agency said. March retail sales were 7.9% higher than the month before, but this was largely because February had fewer trading days. Meanwhile, the agency said, retail prices rose 2.5% in March from that month in 1996.

U.K. financial group Bank of Scotland reported record results Wednesday, increasing full year pretax profit by 22% to 664.1 million GBP, from 545.0 million GBP the previous year. The increase in profit was helped by Bank of Western Australia's (BankWest) first full year contribution following its acquisition in September 1995. BankWest reported a full year pretax profit of 71.6 million GBP compared with its 3 month contribution of 19.7 million GBP in the year to February 1996. Commenting on the results, Bank of Scotland Governor Sir Bruce Pattullo, said the record results reinforce the group's commitment to deliver long term, real growth in profit and earnings per share.

Zeneca Agrochemical said Wednesday it has gained approval from the Pesticides Safety Directorate for its new azoxystrobin-based fungicide, Amistar, to be used on cereal crops in the U.K. Zeneca Agrochemical is a unit of international bioscience company Zeneca Group. The company said it is aiming to win a significant share of the 3 billion GBP world fungicide market with its azoxystrobin-based products. Zeneca announced Monday it is investing 17 million GBP in a packaging facility for a U.K. plant which produces a key ingredient for Amistar. This investment comes in addition to the 22 million GBP spent on its Amistar manufacturing site, in Grangemouth, Scotland, which was opened last November.

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

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