European Business News (EBN), 97-05-05

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CONTENTS

[01] New British government signs up for EU's Social Chapter

[02] Busang gold bonanza turns into one of biggest ever mining scams

[03] SAP faces probe for insider trading

[04] Russia proposes 20% cut in 1997 budget spending

[05] BSkyB and BT are reportedly planning digital TV venture

[06] Volkswagen first quarter profits rise by 48%

[07] Hoechst first quarter profit depressed by restructuring

[08] Skanska earnings drop 23% in first quarter as Swedish construction market remains weak

[09] France's Juppe concedes that election will be close

[10] Incentive pretax profit plunges 30%

[11] Intel to unveil Pentium II microprocessor

[12] Marzzotto and HPI call off plans for Italian mega-merger

[13] Cockerill Sambre swings to a loss but expects 1997 results to improve

[14] Corporate and Economic Briefs

[01] New British government signs up for EU's Social Chapter

He was in Brussels to begin the process of signing up to the Social Chapter, a package of labour union and employee rights that the previous government refused to endorse.

In direct contrast to the former ruling Conservatives he said the Labour government would end the British opt-out from the EU's Social chapter, agree to move to more qualified majority voting in certain areas and would support an employment chapter in the new EU treaty to be adopted in mid- June in Amsterdam.

The stance of the new UK team will play a large role in the chances for success of the EU's intergovernmental conference which aims to modernize EU institutions and decision-making ahead of enlargement eastward.

However, like the Conservatives, Henderson said Labour still wants to maintain controls over borders and maintain the national veto for key issues such as constitutional change, tax, defense and immigration. Henderson said he was 'confident' that these problems can be sorted out so that the U.K can sign up to the new E.U. Treaty in Amsterdam in June.

Like the other partners we want to see a conclusion in six weeks,' he said. 'But I don't have a crystal ball and I can't say if that will happen.' Meanwhile, new British Foreign Secretary Robin Cook reiterated the governing Labour Party's position that Britain is unlikely to join Europe's planned economic and monetary union at its start on Jan. 1, 1999. 'It is unlikely we would be able to recommend joining in the first wave in 1999, ' Cook said in an interview on Britain's Sky television channel. But Cook was also quick to assert that the subject remains open as far as the British government is concerned.

'We have never ruled out a single currency,' Cook said. 'We have said it will be the subject of a hard-headed assessment of economic reality.' On the subject of the Labour government's intention to sign the European Union social chapter, Cook said that Britain 'is not prepared' to give up its veto power over 'costs, particularly social security costs.'

He said the government supports, however, the E.U. directive prohibiting employees from being required to work more than 48 hours a week - a measure which the former Conservative government had bitterly opposed. 'We are supportive of giving people the right to refuse to work excessive hours,' Cook said, calling this 'an important liberty.'

In general, Cook said, the Labour government believes 'we'll get a better deal for Britain if we work together with the other member states of Europe and not constantly fight them as if they're enemies.'

He said the government would be attending a special summit in Noordwijk, Holland on May 23, which has been called to try to make progress on the E.U.'s intergovernmental conference. The IGC has been stalled for more than a year because of opposition from the previous U.K. government, and little over a month remains ahead of the regular June E.U. summit in Amsterdam to pull it into shape. 'We're going to go (to Noordwijk) in a businesslike mood,' Cook said. 'We want to make a success of Amsterdam.'

[02] Busang gold bonanza turns into one of biggest ever mining scams

Strathcona also asserted that the supposedly promising Busang samples gathered earlier by Bre-X Minerals Ltd. had been tampered with by the addition of gold from other sources. However, its report did not indicate who might have been responsible for the tampering.

Bre-X, a small Calgary exploration company, had hired Strathcona to conduct tests after a prospective partner of Bre-X said in late March that its preliminary tests indicated the claims of a vast gold deposit at Busang were false.

Bre-X had been insisting that further testing would validate its claims that the Busang site contained up to 70 million ounces of gold - which would make it the biggest gold find of this century.

Instead, Strathcona corroborated Freeport-McMoran Copper's negative results.

''We very much regret having to express the firm opinion that an economic gold deposit has not been identified in the southeast zone of the Busang property, and is unlikely to be,'' wrote Strathcona's Graham Farquharson of the Indonesian claim.

''The magnitude of the tampering with core samples that we believe has occurred and resulting falsification of assay values at Busang, is of a scale and over a period of time and with a precision that, to our knowledge, is without precedent in the history of mining anywhere in the world,'' the firm said.

Strathcona, a widely respected mining consultant firm, said in its report that only trace amounts of gold were found in the samples it tested and there were no samples with gold values worth mining. The company said gold recovered in samples submitted by Bre-X came from a source other than the area they supposedly were collected from. Strathcona also said many thousands of samples were tampered with.

[03] SAP faces probe for insider trading

'The investigation is looking at the use of insider knowledge in the trading of shares,' prosecutor spokesman Job Tilmann said. Reports say that over a hundred people are under investigation. Alongside board members are numerous other SAP employees, their relatives and various bank employees.

Suspicions of insider trading were aroused after a dramatic plunge in SAP's share price in SAP's share price of over 23% on Oct. 23, 1996, a German newspaper reported.

In October, the company reported lower-than-expected nine-month sales and profit and revised its 1996 pretax profit downwards. It had originally forecast a rise in group pretax profit of 40%, which it then revised to between 30% to 40%.

On Oct. 22, SAP had also lowered its full-year sales prognosis 8% to 3.5 billion Deutsche marks ($2.03 billion), due to a slump in sales in the third quarter, it reported at the time.

In March 1997, SAP reported 1996 group sales rose 38% to 3.72 billion marks. Group net profit was up 40% 568 million marks, while pretax profit was up 43% at 967 million marks.

State prosecutors believe the current investigation will take about a year, the report said, during which time the number of people being investigated could fall.

[04] Russia proposes 20% cut in 1997 budget spending

Mikhail Zadornov, head of the State Duma's budget committee, confirmed on Monday he had received the bill, which a government official said proposed 108 trillion roubles ($18.8 billion) in cuts to the 530-trillion-rouble budget.

Prime Minister Viktor Chernomyrdin is expected to go to the State Duma lower house himself on May 21 to defend the bill which the opposition Communist Party, the largest single group in the chamber, has vowed to resist.

'By all accounts, Viktor Chernomyrdin himself will present the document in the Duma on May 21,' First Deputy Finance Minister Vladimir Petrov, who is in charge of the budget cut plan, told Interfax news agency. The government argues that the cuts are necessary because revenue targets in the original budget were hugely exaggerated. In the first quarter, poor revenue performance forced the government to underfund most programs.

The sequester is expected to make the budget more realistic by estimating likely actual revenues and keeping spending in line.

Legislators in the Communist-dominated parliament, however, have warned that the they won't allow a wholesale revision of the budget.

Tass quoted Mikhail Zadornov, chairman of the State Duma's Budget Committee, as warning that the communist-dominated lower house is likely to resist many of the cuts proposed by the government.

In particular, he noted, the government calls for a 50% cut in spending on the Development Budget, a special program government investment and industrial subsidies backed by the Communist Party.

Zadornov said the government's proposals ranged from full financing for some articles - including disaster assistance and purchases of precious metals and stones for state reserves - to 55% cuts in financing for others.

Among the articles slated for the 55% cut are farm subsidies, state investment, cultural programs, healthcare, social programs and a range of subsidies for regional governments.

Spending on scientific research and education is to be cut in half, according to the proposal.

Military equipment purchases and research, subsidies for shipping goods to remote cities in the far north and spending on closed military cities is to be cut by 30%, according to the proposal.

[05] BSkyB and BT are reportedly planning digital TV venture

According to the Financial Times of London, BSkyB and British Telecom will each hold a 30% stake in the venture, while the other partners will each control 20%. The venture would sell set-top box adapters for digital television broadcasting. According to a Japanese business daily, Matsushita is conducting final negotiations on the specifics of the new venture, which will offer interactive services such as home banking, home shopping and the Internet on the television screen.

The venture will provide heavy subsidies for digital decoders, which will sit on television sets and receive the service, according to the Financial Times report. The decoders will retail at £500 each but the venture is expected to initially promote them at about £200 each.

Each company will earn profits from a slice of the revenues generated by interactive services broadcast via satellite. The deal is the first in which such large companies have combined to provide large subsidies to jump start the digital market, the paper reported.

The venture was delayed by about six months while awaiting regulatory approval, as the deal involves such big players in the U.K. market and such heavy subsidies.

Other television programmers will have access to the new system. It will also be possible to link digital satellite, digital terrestrial and digital cable systems.

BSkyB said it expects the full service to be launched by spring 1998 rather than the original target date of this December because of the delay in gaining approval.

[06] Volkswagen first quarter profits rise by 48%

The strong start to 1997 prompted the usually conservative firm to reaffirm it would post higher results for the year.

Net profit for the first three months rose 48% to 172 million Deutsche marks ($99.6 million); sales rose to 24.47 billion marks.

The company said first quarter net profit would have been better if not for the effect of a Spanish truckers' strike in February. The strike, which prevented delivery of some key parts and components, cost the company 64 million marks.

Citing favourable economic conditions, VW said it expects profit in 1997 to improve from 1996. That echoes a forecast by VW Chairman Ferdinand Piech in April that VW's 1997 earnings will rise at a faster rate than sales. He said he sees full-year sales rising at least at the tempo seen in the first quarter of the year.

The profit gain senT VW's shares up 41 marks, or 3.5%, in Frankfurt floor trading to 1,198.00 marks. 'Provided that economic conditions and also the demand for automobiles remain steady, we expect better results in 1997 at both the parent and group levels,' VW said.

VW's German deliveries fell five percent to 235,954 vehicles, outpacing the German vehicle industry's 4% drop in domestic production to 1.24 million vehicles.

'German car makers in general experienced dampened demand at the start of 1997,' VW said.

VW's luxury car maker, Audi, reported a 19% rise in customer deliveries to 137,129 vehicles while Volkswagen's deliveries were up 7.4% to 734,731, making up the vast of the group's deliveries of 1.033 million vehicles, which was up 9.6% over the 1996 quarter.

Audi's sales were particularly strong in the US, showing a 34% jump in a continued recovery from the early 1990s collapse due to allegations of malfunctioning cars.

VW also said west European sales outside Germany rose 7.7%.

[07] Hoechst first quarter profit depressed by restructuring

In 1996, the group's figures were also boosted by a total of around 385 million marks from the sale of its printing plate business and dividend payments from its former subsidiary, SGL Carbon.

Hoechst said group operating profit rose 20% in the first quarter of 1997 from a year earlier, adjusted for disposals made in the last 12 months.

Pretax profit rose an adjusted 9%, while even on an unadjusted basis, group sales edged up to 13.2 billion marks from 13.0 billion marks a year earlier. For the full year, Hoechst said it expects profit to fall on an unadjusted basis due to a drop in extraordinary revenues such as disposals.

However, on an adjusted basis, it expects profit to rise. 'In operating business, Hoechst expects a rise in comparable earnings in 1997 amid lively demand, rising prices in the industrial sector and favourable currency effects,' the company said.

The company repeated its forecast for group sales to reach between 42-47 billion marks this year, saying that the final figure would depend on how long it takes to complete various restructuring measures.

The company said its operating earnings dropped 22% to 1.03 billion marks in the first quarter, but that this represented a rise of 20% after adjustment to take into account special factors.

The group said most of its divisions had started 1997 well. It noted a 'successful' performance at its agrochemicals business, AgrEvo, and said that its industrial chemicals business had registered 'good demand overall'.

Hoechst also said its pharmaceuticals operations had started well 'in most regions'. The integration of Hoechst Marion Roussel, into which the group has bundled its pharmaceutical businesses, is proceeding 'according to plan', Hoechst added.

[08] Skanska earnings drop 23% in first quarter as Swedish construction market remains weak

The group's pre-tax profit fell to 412 million kronor ($52.8 million) from 537 million kronor a year earlier.

International construction operations saw a strong increase in orders however, mainly due to relatively strong growth in the U.S. Another part order for a larger road project in Boston was obtained during the quarter.

Orders received in the first three months of the year amounted to 14.81 billion kronor, up 47% from the same period a year earlier.

Sales rose by a more modest 8.2% to 10.64 billion kronor.

The number of Swedish house-building projects begun during the quarter was significantly lower than in the same period for the previous two years. The slowdown in the road and construction markets, which was noticeable in the second half of 1996, also continued.

The Swedish property market continues to develop positively, Skanska said. Operating profit for the day-to-day construction and real estate business was largely unchanged from the first quarter 1996, while industrial operations were adversely affected by low residential construction.

Skanska said the order situation has improved so far in the second quarter, however, and for 1997 as a whole earnings for industrial operations are expected to surpass 1996 earnings.

Skanska also announced a share redemption program worth a total of 5 billion kronor. The money for the redemption will come from the sale in April of Skanska's entire stake in Swedish speciality steel company Sandvik, which gave an estimated capital gain of at least 9 billion kronor.

[09] France's Juppe concedes that election will be close

'I have always thought that the vote would be close,' Juppe told France Inter radio three weeks ahead of the May 25-June 1 two-round poll.

Two polls released over the weekend showed French left-wing parties catching up on the ruling centre-right majority.

A Sofres poll published in the conservative daily Le Figaro showed the left winning 262 of the 555 seats in mainland France and the centre-right 291. The poll did not take into account 22 seats in overseas territories.

A similar poll conducted a week earlier gave the left 225 seats and the centre-right 329.

Juppe said it was unclear what impact the landslide victory of Labour's Tony Blair in Britain would have on the French election, but said he agreed with Blair's decision to govern from the centre.

'I heard Mr Blair say that he would govern from the centre. That's his decision to make. But I think the Socialist and Communist parties would govern from the left,' he said.

Juppe said the campaign debate should focus on the issues and said a Socialist proposal to create 700,000 jobs in France, where unemployment is a record 12.8 percent, would require extra state spending and thus drive up public deficits, preventing France from meeting the criteria for European monetary union.

'And that is why the Socialists have decided to turn their backs on Europe, and to move away from a single currency, because they know that they will not be able to qualify with this additional spending,' he said.

'And if we do not do it in 1998-99, with all that this would bring to the French people in terms of economic development and improvement of their lives, then we will do it in perhaps 10 or 15 years, but that will be quite late,' he said.

One requirement for monetary union from 1999 is that public deficits be three percent or less of France's gross domestic product during 1997 -- a goal the current government projects will just barely be met.

Juppe, who is highly unpopular in opinion polls, has been leading the charge for the current centre-right majority in the parliamentary campaign but has refused to say whether he wanted to be reappointed prime minister should the centre-right again win power.

[10] Incentive pretax profit plunges 30%

Sales amounted to 4.78 billion kronor, down from 5.29 billion kronor a year earlier. Sales for comparable items, however, rose slightly more than 7% compared with the first three months of 1996, Incentive said.

During the first quarter, Incentive sold shares in industrial group Electrolux for 1.2 billion kronor, realizing a capital gain of around 360 million kronor.

It also sold its entire stake in U.S. engineering company Wabco for 810 million kronor with a capital gain of 65 million kronor.

In total, first quarter earnings included non-recurrent income of 435 million kronor compared with 570 million kronor a year earlier.

[11] Intel to unveil Pentium II microprocessor

The world's largest maker of computer chips is about to introduce its latest microprocessor, the Pentium II. The processor, running at speeds of up to 300 megahertz and sporting a unique cartridge design, is Intel's latest attempt to extend its most advanced technology into the mainstream.

The sixth-generation Pentium II, to be unveiled in New York Wednesday, is based on Intel's Pentium Pro, a powerful chip used in personal computers for business. But it also incorporates the multimedia-enhancing MMX technology Intel recently added to its fifth-generation Pentium chips, used primarily in consumer PCs.

The processor at first is intended for business users. It will greatly improve programs rich in sound, video and three-dimensional images, such as videoconferencing and development for the Internet's World Wide Web.

But the Pentium II eventually will wind up in home PCs. It won't make word processing or balancing chequebooks a thrilling experience, but its higher performance will make entertainment programs and Internet adventuring more fun.

''People who are using their PCs for really nifty games are going to run out and get one because they'll be faster than anything they can get,'' said Nathan Brookwood, an analyst with Dataquest Inc. in San Jose, Calif. ''People who surf the ''Net and download lots of ... images will notice a difference as well.''

In time, Pentium II will replace both Pentium and Pentium Pro on the desktop, just as Intel's 486 chip supplanted the 386 and the Pentium replaced the 486. Intel wouldn't project when that might occur, but analysts said it could happen next year.

[12] Marzzotto and HPI call off plans for Italian mega-merger

Merger plans had been announced just two months earlier.

HPI controls the clothing and editorial holdings split off from Gemina, a Fiat-controlled financial and investment company. The Agnelli family in turn controls Fiat.

The complicated transaction would have created Gruppo Industriale Marzotto, a conglomerate with more than 21,000 workers and revenues of more than 8 trillion lire (nearly $5 billion).

In a joint news release reported by the ANSA and AGI news agencies, the companies said Marzotto felt irresolvable differences between the two sides caused the merger to break down. The disputes centred on how the new company would be organised, how responsibilities would be shared and the direction and control of the company.

The Fiat auto giant would have held a 17 percent stake in the controlling syndicate, with the Marzotto family holding 12.4 percent. Mediobanca, the merchant bank which engineered the operation, would have had a stake of 10.5 percent.

The breakdown of the merger was a blow to Mediobanca, the most powerful player in Italian finance and the subject of critics on the left who say it has to much control over Italian business.

The merger, dubbed 'Big GIM' in the Italian press, would have grouped together clothing lines such as Fila and Hugo Boss, Italy's largest daily newspaper Corriere della Sera and sports daily Gazzetta dello Sport, several magazines and significant stakes in major banks Banca Commerciale and Credito Italiano.

[13] Cockerill Sambre swings to a loss but expects 1997 results to improve

Cockerill's said it swung to a loss of 3.7 Belgian francs ($0.29) a share last year from net recurring earnings of 3 francs a share the year before.

'We have every reason to think the situation will improve in 1997,' Cockerill's managing director Philippe Delaunois told shareholders at an extraordinary general meeting.

'Orders are coming in, the factories are working satisfactorily and there are higher prices,' he said.

He attributed the brighter outlook to the higher dollar and higher demand.

Although Cockerill doesn't export much to dollar-zone countries, it does benefit from a higher dollar because its bigger European rivals tend to focus on selling in the US, freeing up the European market, explained Christophe Weerts, Cockerill's spokesman.

Delaunois said it is too early to say whether the company will pay a dividend on 1997 earnings. He added that the the company's performance will depend to a strong degree on the value of the dollar.

Delaunois said he is confident that the economic growth expected in 1997 will continue into 1998.

Analyst Philippe Masset at a Brussels-based brokerage said the comments confirm his view of the outlook for the year and called Cockerill's share a buy. 'Volumes are good, prices are up,' he said. 'For anyone looking for a cyclical play, we see value in the steel sector.'

[14] Corporate and Economic Briefs

Austrian energy group OMV said group sales in the first quarter reached 21.41 billion schillings, a 20% increase from the first three months of 1996. The group also said earnings before interest and taxes for the first three months of this year rose 8.5% from the same period a year earlier to 1.02 billion schillings. The group, which is holding its general shareholders meeting later today, didn't give further figures or comments in its brief statement.

German industrial output rose a seasonally-adjusted 0.5% in March from February, the Economics Ministry said in a preliminary report. On a year- on-year basis, not adjusted for seasonal influences, March output was down 2.3%. In the manufacturing sector, March 'production could be maintained at the considerably higher level of the previous month,' the ministry said. Construction volume was up 3% on the month, after rising 16.5% in February, the report noted. Preliminary January and February month-on- month data released previously was revised. February data was revised upward to show an increase of 2.0% from January, compared to the 1.9% rise originally reported.

Spain's producer price index rose 0.8% in March from the same month in 1996, the national statistics institute said. The PPI was up 0.1% in March from February, the institute said.

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