European Business News (EBN), 97-08-14

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

Page last updated Thu, August 14 5:01 PM CET

CONTENTS

[01] BASF first half profit rises 5.8%

[02] Russia's privatization chief resigns

[03] Germany's tax revenue shortfall could be $5.4 billion larger than May's estimates

[04] US consumer prices rise 0.2% in July

[05] EU Commission warns Telefonica over its plans to buy Antena 3 stake

[06] Kymmene first half pretax profit soars 75%

[07] Hanson first half pretax profits rise 9% to $181 million

[08] Orange plans radical expansion of its domestic network

[09] Beiersdorf first half profit slumps 39%

[10] WPP first half profit rises 15%

[11] Corporate and Economic Briefs

[12] World Briefs

[01] BASF first half profit rises 5.8%

Group sales rose 14.5% to 27.8 billion Deutsche marks ($14.9billion) from 24.3billion marks in 1996. Pretax profit increased by 5.8% to 2.4 billion marks from 2.3 billion marks in 1996,and was at the lower end of market expectations.

The company said it expects earnings in the full year to grow from 1996, and sales to surpass 50 billion marks compared to 48.8 billion marks in 1996.

'We expect sales and earnings to continue at a high level in the coming months,' BASF said. 'At present, we consider our objective of increasing group sales in 1997 to over 50 billion marks and exceeding the previous year's earnings to be within reach.'

Group sales, which reached 27.8 billion marks in the first half, exclude petroleum and natural gas taxes, BASF noted. BASF said its group sales grew in the period, both in Germany and worldwide. In Germany, sales reached 13.1 billion marks, up from 11.8 billion marks in the first half of 1996.

'The improvement in sales was primarily based on the favorable trend in volumes. Selling prices were for the most part at the same low level as in the second half of 1996, although revenues did improve significantly in the oil and gas segment,' BASF said.

'Pressure on selling prices increased in some areas, with the result that the increased costs of raw materials could not be entirely passed on to the market via price rises,' the company added.

[02] Russia's privatization chief resigns

The resignation of Alfred Kokh, an ally of economic policy chief Anatoly Chubais, was widely viewed as the result of a public uproar over two recent privatizations. Mr. Kokh, who stepped down both as chairman of the state property committee and as a deputy prime minister, was succeeded in both posts by Maxim Boiko, who was deputy head of President Boris Yeltsin's administration and an ally of Mr. Chubais.

Mr. Kokh's resignation follows criticism over the sales of major stakes in telephone holding company Svyazinvest and metals producer RAO Norilsk Nickel. He denied that the sales were rigged, but a media brawl among the country's bankers prompted a probe by several government agencies and the central bank into the legality of the Svyazinvest deal.

A consortium led by Oneximbank, one of the country's top financial institutions, and including financier George Soros, won a 25% stake of the company for $1.88 billion.

Under Mr. Kokh, numerous state assets were sold off cheaply to top banks. However, despite the outcry, the Syvazinvest sale fetched a price well above the stake's market value.

[03] Germany's tax revenue shortfall could be $5.4 billion larger than May's estimates

Kuehbacher, who is also president of the regional central bank in Berlin, cautioned the government against overly-optimistic economic growth predictions based on tax estimates, ZDF said in a summary of the interview.

'This is a warning to put an end to that (tax) erosion,' Kuehbacher said. 'This must be compensated for.'

In May, the German government said its tax intake for 1997 would fall short of previous estimates by 18 billion marks, though many economists predict they will revise that estimate in November to show an even wider shortfall.

The tax shortfall is seen likely to hurt Germany's efforts to meet the budget criteria required this year to qualify for Europe's planned 1999 currency union.

Kuehbacher repeated the Bundesbank's sharp criticism of government tax policy in its August monthly report released Wednesday. The report urged a simplification of the German tax system, in particular to prevent tax evasion.

The German government has been struggling to push through sweeping reforms of the country's tax system this year.

After the upper house of parliament rejected an initial tax reform plan earlier this summer, the plan is now being discussed in a mediation committee.

[04] US consumer prices rise 0.2% in July

Meanwhile, industrial production rose a slim 0.2% last month, as a drop in light truck manufacturing partly offset gains in aircraft and high- technology output. The figure was in line with economists' forecasts, and followed a 0.3% gain in June. Analysts said the report was another sign of steady growth with low inflation.

Falling energy prices helped restrain the overall rate of increase. Within that broad category, gasoline costs fell 0.4%, while fuel oil prices fell 2.9%, and electricity fell 0.2%. Meanwhile, natural gas prices rose 1.1%.

In the money markets, the dollar held steady after the data's release. US stocks were seen opening higher, while US Treasurys looked set to follow suit and continue this morning's rise.

[05] EU Commission warns Telefonica over its plans to buy Antena 3 stake

In a letter sent to Telefonica and other interested parties, the Commission warned Telefonica that it doesn't want to be faced with a 'fait accompli' ahead of its response to complaints filed by other operators about the Antena 3 transaction.

The Commission said if it 'considers it necessary to do so,' it would 'order the companies concerned to reverse any actions,' referring to the Antena 3 investment.

Commission officials said Telefonica's plans would likely be subject to investigation under EU competition rules covering the abuse of dominant market position.

Antena 3 shareholders and the group's executive board are holding a special meeting on Monday to approve the Telefonica transaction.

The board also will consider an offer from Via Digital Platform - a digital TV consortium in which Telefonica is involved - to acquire the pay-per-view rights of Antena 3's parent company.

Canal Satelite - a rival digital TV consortium that objects to Telefonica's ambitions in the sector - lodged a formal complaint to the Commission August 6.

Since Antena 3 is part of Canal Satelite, the consortium argues that Telefonica is hedging its bets by backing both groups bidding to set up digital television in Spain.

The Telefonica-Antena 3 link is the latest twist in a long-running dispute between the Commission and the Spanish government over Spain's digital television policy.

EU competition authorities fear the Antena 3 investment will effectively guarantee Telefonica a central role in digital TV development, to the detriment of competitors.

[06] Kymmene first half pretax profit soars 75%

The profit increase was mainly caused by sales of shares as the group 'continued to focus increasingly on its core businesses within the forest industry,' UPM-Kymmene said in its interim report.

'Despite a significant increase in the volume of sales, profitability, excluding gains from asset sales, was weaker than for the first six months of last year and operating profit was reduced by the fall in prices for magazine paper and newsprint,' the company said.

But profits improved in fine papers, sawn timber and plywood, UPM-Kymmene said.

The group predicted that economic growth in Europe would increase the consumption of paper resulting in higher prices, exceptin the magazine paper and newsprint sectors.

'UPM-Kymmene's financial result for 1997, before gains from assests sales, is still expected to be about the same as last year,' the company said.

UPM-Kymmene was formed in May 1996 from the merger of two leading Finnish forest companies, Kymmene and Repola. It employs 36,500 people in more than 80 countries - down from 47,000 a year earlier.

[07] Hanson first half pretax profits rise 9% to $181 million

The result was adjusted to strip out earnings from businesses sold by the company over the past two years.

Confusing things further, Hanson has tried to focus market attention on the six months to June 30, even though the latest reporting period represents their third quarter.

Hanson also provided profit figures for the third quarter and nine-months to date. But these numbers aren't adjusted to compensate for the loss of earnings from the businesses it sold.

On this unadjusted basis, Hanson said pretax profit fell 96% to £24.6 million in the third quarter, while earnings in the nine-month period plunged 81% to £287.4 million.

In focusing on a six-month result, Hanson is hoping to prepare the market for a change in its year-end reporting date - from Sept. 30 currently to Dec. 31. - starting in 1998.

Analysts, while still absorbing the numbers, said the latest result should ease market uncertainty about Hanson's accounting treatment of asset sales. It also brings the company one step closer to its goal of transforming from a major conglomerate to a building materials company.

Hanson began an extensive asset sale program in early 1996. Late last year, the company sold its UK-based Imperial Tobacco Group and US unit Millennium Chemicals Inc. Then in early 1997, Hanson spun off its electricity assets into a new UK-listed company called the Energy Group.

[08] Orange plans radical expansion of its domestic network

The proposal followed the release of interim results, which showed that pretax loss for the period to June 30 narrowed to £73.5 million from £125.2 million a year ago as sales jumped by two-thirds to £427 million. Orange market share rose to 13.3% from 11.5% at December 31 as it grabbed 35% of net total UK market growth.

In an interview, Snook said plans for the network investment followed an extensive probe into Scandinavia where mobile phone usage - penetration is more than 30% - is the highest in the world.

The investigation showed that mobile network signal strength is some 15 decibels stronger in the Nordic countries than in Britain. This meant fewer broken calls and less network congestion. To deliver the same kind of coverage, particularly inside buildings, Snook said Orange will spent about £800 million to add 10,000 cell sites by 2001.

He predicted this will reduce customer disconnections, or churn, below Orange's current churn rate of 19.9%, and will also boost average revenue per customer. Ten years out, Snook sees 35% of UK adults owning a mobile phone with Orange having 6 million customers and 30% market share.

[09] Beiersdorf first half profit slumps 39%

Beiersdorf said 1997 first-half net profit excluding an extraordinary restructuring cost in its tesa adhesive division was 146 million marks.

The company said there will likely be a 100 million marks charge on full- year net profit due to the restructuring costs in the Tesa unit, but operating profit will be at the level of 1996.

Beiersdorf said it expects a group sales increase of between 5% and 7% in the full year. The company had 5.78 billion marks in sales in 1996.

[10] WPP first half profit rises 15%

But WPP did warn that sterling's continued strength doesn't help the group achieve its objectives in reportable terms.

Reportable revenue fell 0.3% to £830.6 million from £833.2 million a year ago before taking in the movements in sterling over the period. On a constant currency basis, revenue was up 8%, the group said.

WPP has set itself a target of improving margins by 1% both this year and the following.

There was significant growth in the Asia-Pacific, Latin America and the US, and the UK and Europe improved margins and profits on slower revenue growth.

WPP has raised the dividend 26% to 0.7 pence and has decided to pay it as a Foreign Income Dividend. The declared dividend is above analysts' consensus forecasts of a rise to 0.6 pence.

[11] Corporate and Economic Briefs

Initial claims for US state unemployment insurance rose 12,000 in the week ending Aug. 9 to a seasonally-adjusted level of 316,000. Claims in the week ended Aug. 2 rose a revised 30,000 from an initially reported rise of 25,000. The four-week moving average for claims - a closely-watched barometer of labor market conditions - fell 6,250 to 298,250, the lowest level since Feb. 11, 1989.

Global Financial Markets, part of the UK's National Westminster Bank, named Glen Stevens as managing director and head of foreign exchange sales and trading, North America. Stevens has been employed at Merrill Lynch International since 1990, and recently held the position of managing director and chief trader, foreign exchange, New York. Stevens will report to Howard Kurz, managing director, global head of foreign exchange.

[12] World Briefs

Warning that 'patience has limits,' Yasser Arafat rejected Israel's partial lifting of a travel ban on Palestinians and said Prime Minister Benjamin Netanyahu's harsh policies were leading to disaster. Arafat's defiant speech, coming in the wake of a four-day mission here by U.S. Mideast envoy Dennis Ross, gave no sign that the Palestinian leader intended to meet U.S. and Israeli expectations for a crackdown on Islamic militants.

Hong Kong's new leader will set out next month on his first foreign tour since taking office in July, to brief leaders of six nations on the territory's transition to Chinese rule. Over two months, Tung Chee-hwa will visit Malaysia, Singapore, the United States, Japan, Belgium and Britain, a government statement said. He is expected to meet with President Clinton and Prime Minister Tony Blair of Britain, Hong Kong's colonial ruler before the July 1 change of sovereignty.

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

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