European Business News (EBN), 97-04-30

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

Page last updated Wed, April 30 6:45 PM CET

CONTENTS

[01] US first quarter GDP grows at highest rate in more than nine years

[02] B.A.T shows flat first quarter earnings, issues profit warning

[03] Bayer pre-tax profit rose 5% in first quarter

[04] French jobless eases for second consecutive month

[05] Gallup polls show UK Labour party well ahead

[06] German first-quarter tax receipts drop 4.3 % on year

[07] French air traffic controllers strike for bonus pay

[08] Boeing, Teledesic to build $9 billion Internet satellite network

[09] Aeroflot signs $400 million Boeing deal

[10] Schering announces 21% rise in first quarter sales

[11] Rhone-Poulenc's earnings hit by recall in the US

[12] Thyssen and Veba reportedly want to take over bankrupt Vulkan

[13] Galileo in liquidation after aborted Co-Op move

[14] Corporate and Economic Briefs

[01] US first quarter GDP grows at highest rate in more than nine years

Personal consumption expenditures and nonresidential, or business, fixed- investment led the 5.6% increase, which was the largest growth rate since GDP rose by 6% in the fourth quarter of 1987. The hike comes despite a slowdown in export growth, growing only 8.1% in the first quarter compared to a jump of 25.0% in the fourth quarter. Imports rose 21.9% in the first quarter compared with a rise of 3.3% in the fourth quarter.

The GDP increase was sharply above expectations, with 25 economists surveyed by Dow Jones Newswires only yesterday forecasting growth of only 4%.

Treasurys and taken municipal bond futures have weakened on the unexpectedly sharp GDP growth rate. The benchmark 30-year bond's price dropped more than a half-point immediately following the 8:30 a.m. EDT (1230 GMT) release but recovered somewhat as traders discounted the surge in inventories that boosted the GDP.

'GDP certainly printed stronger than expected, but it's almost all in the form of extra inventory,' said Patrick Dimick, government bond strategist at UBS Securities LLC. He said final sales growth of 3.9% was only slightly above most economists' expectations.

Meanwhile, stocks fell modestly and the dollar rose at the scent of higher U.S. interest rates.

Personal consumption expenditures rose by 6.4% in the first quarter compared with a 3.4% increase in the fourth quarter of 1996. Purchases of durable goods jumped by 19.9% during the quarter compared to an increase of 5.0% in the fourth quarter.

The jump in personal comsumption expenditures was the largest since a 7.2% rise in the first quarter of 1988, the Commerce Department said.

Business fixed investment increased by 11.9% while investments in producers' durable equipment rose by 12.9% during the quarter. Business fixed investment rose 5.5% during the fourth quarter and producers' durable equipment fell by 0.9%.

The department said the real change in business inventories added $29 billion to the first quarter change in GDP after subtracting $17.0 billion in the fourth quarter. Businesses increased inventories $46.1 billion during the quarter following an increase of $17.1 billion in the fourth quarter.

The inflation measures contained in the GDP report were mixed. The implicit price deflator rose 2.3% after an increase of 1.5% in the fourth quarter. rter.

[02] B.A.T shows flat first quarter earnings, issues profit warning

The international tobacco and financial services company said pre-tax profit in the quarter rose just £1 million to £591 million ($369.4 million). The flat earnings were the result of a £22 million provision to cover the upcoming closure of a factory in Berlin.

B.A.T said in a statement that, excluding the provision, underlying profit rose 6%. B.A.T Chief Executive Martin Broughton said that he believes the pending lawsuits against the company's tobacco business 'will have no material impact' on its financial condition because it will win the cases.

But chairman Lord Cairn added that the company must brace itself for 'occasional reversals along the way, especially at the lower court level'. B.A.T's American subsidiary Brown & Williamson is facing a string of lawsuits, including 24 cases bought by state attorneys general seeking to recover Medicaid funds spent helping patients with tobacco-related illnesses.

B.A.T said total trading profit from its financial services arm rose 3% to £266 million, while total tobacco profit was up just 2% to £363 million because of the provision.'Excluding the closure provision and the impact of exchange, tobacco profits improved by 8%,' said Chairman Lord Cairns.

The highlight of the financial services division was its U.S. operations, Farmers Insurance Group, where profit rose 6% to £163 million. While the company reported lower U.S. sales and profits in tobacco, increases were seen in the Asia-Pacific region as well as Latin America.

As for recent speculation that leading U.S. tobacco companies are working to resolve litigation issues following Liggett Group admittance in March that there is a connection between smoking and cancer, Lord Cairns declined to comment.

'I hope that shareholders will understand that I cannot comment, beyond observing that the only kind of comprehensive agreement that is in shareholders' interests would require the enactment of legislation, always a difficult process,' he said

[03] Bayer pre-tax profit rose 5% in first quarter

For the first three months, pre-tax profit rose to 1.22 billion Deutsche marks ($706.3 million) on an 8% sales gain to 13.17 billion marks.

Earlier in the year, The German chemical giant said it expected to show an earnings gain for the full year, but the company has scaled back that expectations. Now, the company says it expects to show 1997 profits at least in line with the 2.7 billion marks it reported for 1996.

Bayer said sales for the year should exceed 50 billion marks, which would be a 2.9 percent increase from 1996 sales of 48.6 billion marks.

First-quarter parent company pre-tax profit slipped 4.4% to 650 million marks, while sales rose 3.4% to 4.852 billion marks.

[04] French jobless eases for second consecutive month

Jobseekers fell by 4,800, or 0.2%, to 3,087,500, a decrease which follows a decline of 7,500 in February.

The number of people under 25 years of age seeking jobs declined the most significantly. The number of young men seeking jobs fell 1.8% from February, or by 4,900, while the number of young women seeking jobs fell 0.8%, or by 2,700.

Jobseekers among those aged 50 or more increased, and was stable for those aged 25 to 49.

Economists said the data would be helpful for the ruling centre-right ruling coalition but that the numbers should be treated with caution at such a sensitive time, before the two-round parliamentary election on May 25 and June 1.

'In an electoral campaign environment these figures have to be taken with a pinch of salt. It looks like unemployment data is not meant to interfere with the campaign,' said JP Morgan economist David Naude. 'Needless to say in the current environment these figures are of little informative value.'

'It's not quite as stark as in the U.K. but . . .it's clear the labour market in France is still pretty soft,' said Sean Shepley, economist at CS First Boston. An EBN Interactive Roundup

[05] Gallup polls show UK Labour party well ahead

A Gallup poll for Independent Television News put Labour support at 49%, down 1 point from a week ago, with the Conservatives at 31%.

Another, separate daily Gallup poll for the Daily Telegraph put Labour at 51% to the Tories' 31%.

Traders in the traditionally Conservative-backing City of London heaped money on the opposition Labour Party in frenzied last-minute gambling on the eve of the election.

Labour's predicted majority hit record highs at the financial bookmakers as City traders placed hefty bets ahead of the May 1 vote, which opinion polls suggest will deliver a resounding victory for the opposition.

Meanwhile, as most of his Tory colleagues continue to insist they can win tomorrow's general election, British Chancellor of the Exchequer Kenneth Clarke was weighing the implications of defeat.

Clarke said the best way to handle a loss to the Labour Party would be to look ahead to the next campaign.

'If we don't win the election, I think for people who turn afterwards into scapegoating and post-mortems will make us look absolutely ridiculous,' he said.

'I have been in parties that have lost elections and the thing to do is pick yourself up and to work out how you're going to win the next one and that isn't by having internecine warfare or recriminations.'

[06] German first-quarter tax receipts drop 4.3 % on year

In the first three months of the year, tax intake was DM170.8 billion versus DM178.5 billion in the 1996 period.

'Neither a comparison to year-earlier data nor an extrapolation for full year expectations is in any way justified, due to a range of special factors,' a finance ministry spokesman said.

One special factor is the elimination of a tax on assets which became effective Jan. 1, 1997. The bulk of property acquisition taxes intended to compensate for the asset tax shortfalls haven't been collected yet. In addition, a change in the way the government awards child benefits distorts the data, as well as the own-home financing tax break which falls primarily in March.

In 1996 tax intake in the first quarter was down 1.8% from a year earlier. For the whole of 1996, tax intake was down a total of 2.4%, compared to 1995.

Tax assessment data giving a clearer idea of expected German tax revenue in 1997 will be published on May 15.

German tax intake will be especially closely watched this year, as Germany tries to slash its budget deficit to 3.0% of gross domestic product, or lower, to qualify for the European single currency. In 1996, the deficit was 3.9% of GDP.

The government has projected 2.9% budget deficit for 1997, but most analysts and research institutes have higher forecasts of around 3.2%.

[07] French air traffic controllers strike for bonus pay

Beginning this morning at 0400 GMT, traffic controllers at Orly, south of Paris, walked off the job to demand pay bonuses for heavy-traffic days. Their colleagues at the busier Charles de Gaulle Airport north of the capital already receive the bonus.

The 24-hour walkout cut Orly's flights to 350, down from the usual 800, said a spokesman for France's aviation authority DGAC. No negotiations were planned with the controllers, who also struck Monday.

At Air France Europe, the money-losing state-owned domestic airline being merged with Air France, pilots at three out of four unions renewed their strike yesterday for 48 hours longer.

Flights were reduced to 40% of normal at Orly, a company spokesman said, though all flights from Charles de Gaulle were scheduled.

The fourth union that represents 35% of the pilots has ended its strike since Sunday.

The pilots are opposed to job classifications that could hold them back from promotions and pay increases that long-distance pilots at Air France enjoy.

Meanwhile, the airline's flight attendants are on strike Tuesday and Wednesday to protest what they call deteriorating work conditions. The airline said the strike had little effect.

At TAT and Air Liberte, two domestic airlines being merged by their owner British Airways, flights were reduced to 54% overall, the companies said.

Europe-wide airline deregulation this month has prompted carriers to restructure, streamline and boost competitiveness, moves disputed by unions.

[08] Boeing, Teledesic to build $9 billion Internet satellite network

In turn, Boeing agreed to invest as much as $100 million for a 10% stake in Teledesic, giving the fledgling start-up a startling value of as much as $1 billion.

The project calls for Boeing to begin full production of the satellites in 2000, bringing in computer-networking and telecommunications providers and establishing a launch schedule. The satellites are projected to begin launching in 2001, and Teledesic is to begin offering a global-data service akin to a fibre-optic network in the sky by 2002.

The deal, which is contingent on Teledesic gaining additional financing, increases the credibility of the project but also underscores its audacity. Less than $100 million has been invested so far, largely from Craig McCaw, who is Teledesic's chairman, and by his friend Bill Gates, chairman of Microsoft. The company is looking for additional investors and hopes to raise funds through a public offering but so far has no customers for its service.

Teledesic's credibility was also boosted by a new plan, presented by Boeing, to reduce the number of satellites in the network to 288 in a higher orbit than was projected in an original 824-satellite plan. The design also allows for additional satellites to be added to the system in groups of 12.

However, Teledesic is still planning a satellite constellation more than three times the size of any either being built or on the drawing boards. The project is also nearly twice the cost of the next most-expensive satellite venture, Iridium $5 billion, 66-satellite system.

The company plans to differentiate itself from several major satellite ventures that are planning telephone and low-speed data services. It will offer high-speed links capable of transmitting much more data and carrying two-way video conferencing services.

Sceptics say the cost of the Teledesic project and its risk are disproportionate to the size of its potential market. Most of the potential customers for Teledesic, multinational corporations, can obtain high-speed links via terrestrial long-distance fibre links, at lower costs.

'Boeing getting into this game validates Teledesic a little more,' said Phillip Redman, a senior analyst at Yankee Group. 'But this is still a long shot. There's lots of competition, both land-based and space-based.'

Despite the challenges, Mr. McCaw was confident about Teledesic's prospects and said he planned to build 'an international coalition,' that might employ Russian SS-18 missiles, which now carry nuclear warheads, to get the system up.

'There are 10 million more pieces for this to go together,' he said, adding 'time will bear out an idea that seemed crazy in 1990.'

Boeing won a hotly contested competition for the contract that included aerospace companies such as Lockheed Martin Corp. and telecommunications companies such as Motorola Inc. Boeing had the edge, according to Mr. McCaw, because of its success in managing large complex projects like the 777 aircraft.

Boeing also offered the 288-satellite design some months earlier and convinced Teledesic it would be a fast way to get into business. 'The urgency on project cost and efficiency is inexorable,' said Mr. McCaw. 'We're taking a risk on each other.'

[09] Aeroflot signs $400 million Boeing deal

Valery Okulov, President Boris Yeltsin's son-in-law, who was appointed Aeroflot's acting director last month, said the first of the 737-400 aircraft would enter service in April 1998. The company will receive all the planes by mid-1999.

Okulov said the new aircraft will be used primarily on Aeroflot's European routes to make the airline more competitive with Western carriers on international routes.

The deal, first announced last fall, drew an angry reaction from Russian aircraft makers. They accused Aeroflot of driving them to the edge of ruin with its decision to buy foreign planes. Aeroflot responded by saying that the Boeings are more reliable and cost-effective than comparable Russian aircraft.

Yeltsin has been urging Russians to buy products made at home in a bid to boost Russia's sagging industries. But the president's son-in-law took no action to back away from the purchase of the American-made planes.

However, Okulov said Aeroflot also plans to buy Russian-made Il-96M jetliners and Il-96T cargo planes. Okulov said 85% of the financing for the Boeing planes comes from America's Chase Manhattan Bank, with Aeroflot providing the remainder.

[10] Schering announces 21% rise in first quarter sales

According to data published earlier, Schering posted sales of 5.3 billion marks in fiscal 1996.

Schering's share price soared as market participants reacted positively to the news.

While analysts said the company's outlook was generally good, they noted that the positive market reaction to the first quarter data was somewhat surprising, as the data were slightly below expectations.

Thomas Schiessle, analyst at Delbrueck & Co. in Frankfurt had expected first quarter sales to have risen 25% on the first quarter of 1996. He noted the share price rise came as German pharmaceutical shares have recently lagged their counterparts in other markets, such as the U.S. Therefore, investors took the opportunity to catch up, he said.

Andreas Schmidt, analyst at Barclays de Zoete Wedd in Frankfurt also said the share price rise came on the back of recent slippage, noting market relief that the data was relatively good, even though slightly lower than expected. Meanwhile, the increase in full-year sales can be expected to mainly stem from products for fertility control and hormone therapy as well as therapeutics, the company said.

In 1997 Schering said it planned to continue expanding its network of cooperation agreements and holdings in the Biotechnology field.

[11] Rhone-Poulenc's earnings hit by recall in the US

Rhone-Poulenc said earnings would have risen nearly 30% had it not been for the recall by its Centeon joint-venture in the U.S. with Germany's Hoechst. Chairman and chief executive Jean-Rene Fourtou said that new products were fuelling earnings and made him confident of the company's profit aim despite Centeon.

Rhone-Poulenc reiterated that it hoped to increase its earnings per share for the full year by 20%.

'The new products launched in the life sciences businesses are contributing more and more significantly to the Group's results,' Fourtou said. 'This is why we are maintaining our objective of increasing earnings per shares in 1997 by 20 percent, excluding exceptional items, and objective which is becoming more difficult because of the effect of Centeon,' he added.

Such new products are the Taxotere anti-cancer drug, the Nasacort asthma drug, the Rilutek for the treatment of moto-neuron diseases and the Tripedia vaccine.

Operating income rose 18.8% on a comparable basis to two billion francs. This reflected a big rise in pharmaceuticals and a small improvement and Fibers and Polymers as well as in animal health while the chemicals division showed a decline.

A company spokeswoman said that manufacturing at Centeon had still not resumed but was expected to do so soon with sales and distribution resuming in the second quarter of 1997.

'Generally, the impact has been worse than we thought at the end of last year,' she said.

[12] Thyssen and Veba reportedly want to take over bankrupt Vulkan

Handelsblatt, a German business daily, reported that Veba and steel group Thyssen were interested in taking over Bremer Vulkan to pick up loss carryovers worth between 3 and 4 billion Deutsche marks ($5.2 billion - $6.92 million). Such a move would reduce their own tax exposure.

Veba dismissed the report saying,'The press reports in question lie clearly in the area of speculation.' Thyssen has also denied the report. Ulrich Noelle, finance senator for Bremen has confirmed that he was talking to two potential buyers. Handelsblatt said, however, that Noelle had distanced himself from such plans.

The report said Thyssen, which is pursuing a strategy to refocus on its core steel and engineering, was planning to sell its E-Plus mobile telephone unit - a move which would lead to sizeable extraordinary earnings.

Following the newspaper report, Veba and Thyssen's shares have come under pressure in Frankfurt trading. Around 0925 GMT, Thyssen shares are down DM1.40 at DM377.50, while Veba shares are down DM0.25 at DM89.75. The bellwether DAX index, meanwhile, is up 1.7%.

[13] Galileo in liquidation after aborted Co-Op move

The London office of accountant Ernst & Young said it had been appointed liquidator of the company, which has been placed in solvent liquidation.

'There are sufficient assets to repay the creditors in full and to enable a return to be made to the shareholders,' said Jason Elles, an Ernst & Young partner.

The decision followed a meeting of the Galileo board to close the company with the agreement of the shareholders.

Regan, 31, last week dropped plans to launch a £1.2 billion bid for the grocery-to-funerals empire after his financial backers lost faith in him. They were worried about allegations surrounding a £2.4 million payment to a Virgin Islands company and allegations Regan had received leaked confidential Co-op documents.

On Tuesday the Serious Fraud Office launched a probe into a deal in January 1995 between the Co-op and Hobson Group, a company then controlled by Regan.

The Co-op is also pursuing a private prosecution against Regan and his adviser, David Lyons, for allegedly aiding, abetting, counseling or procuring theft and handling stolen property, namely the documents.

[14] Corporate and Economic Briefs

Retailer Pinault-Printemps-Redoute said that first quarter sales rose 5.9% to 20.25 billion French francs ($3.47 billion) from the same period a year ago, due largely to acquisitions. Acquisitions boosted sales 3.9%, the company said, mostly in the professional equipment sector. Retail revenues rose 3% to 11.2 billion francs, while professional distribution sales rose 12% to 7.43 billion francs. International commerce revenues were flat at 1.60 billion francs. Pinault-Printemps last month said 1996 net profit rose to 2.1 billion francs from 1.5 billion francs.

Adecco, Europe's largest job recruitment group created through the merger of Swiss Adia and France's Ecco, said it was very pleased with its first quarter result, which proves that it was correct to quickly integrate the two firms.

Marcus Wallenberg has been appointed deputy chief executive and chief financial officer of Swedish investment company Investor, the company said in a statement. Investor is the main investment vehicle of Sweden's powerful Wallenberg family. Marcus's cousin Jakob has been named as the next managing director of major high street bank S-E-Banken as the family prepares for the retirement of Peter Wallenburg, the head of the family, who is easing his hold on the family business.

Norway's April unemployment rate fell to 3.4% of the work force from 4.2% the same month a year earlier the Labour Directorate said. The jobless rate was also down on a March level of 3.6%, despite a reduction in the the number of persons in state-supported labour market training schemes which takes people out of the unemployment queue. Indeed, the number of persons in state-supported training schemes fell in April to 27,400 from 29,800 in March.

GKN, the U.K. military vehicle manufacturer, said that will offer $570 million to acquire Sinter Metals of Cleveland, Ohio. Shareholders representing 43% of the outstanding stock have agreed to accept the offer, which is expected to close in late May, GKN said. The offer includes $386 million cash and the assumption of net debt totalling $184 million, GKN said. GKN plans to pay for the acquisition with cash from its own resources.

Consumer-price inflation in Russia fell to 1.0% a month in April from 1.4% in March, the State Statistics Committee reported. The April figure was slightly below a forecast the Committee made last week, in which it saw inflation at 1.3%. The latest figure is the lowest monthly rate reported since October. Inflation in February was 1.5% and in January 2.3%. The government is targetting an average rate for this year of 0.8%, for an annual figure of 12%. In 1996, inflation for the year was 22%.

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