European Business News (EBN), 97-08-29

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Page last updated Fri, August 29 5:53 PM CET

CONTENTS

[01] New York stocks come under more pressure from economic data and weakness in Europe

[02] French joblessness unexpectedly declines to 12.5%

[03] Guinness and Grand Met to discuss competitive concerns with EU

[04] Jospin says France to streamline defence industry to take on US competition

[05] Krupp shows 10% rise in first half profit

[06] Philips settles dispute over Grundig losses

[07] Expansion in US manufacturing sector indicated

[08] Japan shows more signs of a weak economic recovery

[09] KPN earnings rise 9%, aided by postal and telecoms businesses

[10] Telefonica shows 17% earnings gain in the first half

[11] Corporate and Economic Briefs

[01] New York stocks come under more pressure from economic data and weakness in Europe

While blue-chip stocks were stuck in lower gear, bonds also were lower on news that consumer spending rose 0.8% in July -- the strongest monthly increase since a 1.1% jump in January. The strong level of consumer spending was expected to keep the economy on a roll at least through the end of the year. But the report, along with another showing July home sales gained 0.9% and one from Chicago Purchasing Managers that regional prices rose last month, added to concerns the Federal Reserve may raise interest rates to keep inflation in check. Analysts said the shake-out in foreign markets, particularly in Asia, was starting to rattle U.S. investors. 'Look at what is happening around the world,' said Hildegard Zagorski, an analyst at Prudential Securities. 'Nearly every single market around the world is down. This market is still in something of a corrective phase.'

The declines in the European markets came at the end of a week that has seen unsettled markets swinging wildly in intra-day trading, with the general trend always downwards and major indices slipping through successive support points.

Analysts turned their eyes to Asia for explanations of the slumping markets.

The Asian 'tiger' economies of Thailand and Malaysia are in serious disarray, as are 'tiger cubs' like Indonesia and the Philippines, and Japan itself appears ever more vulnerable.

Japanese bond yields hit new lows overnight and the Nikkei dipped below the 18,000 level for the first time since mid-April before recovering by the close.

Thursday's slide in the Dow Jones Industrial Average, which fell 1.2% in volatile trading, wasn't considered to have too much of an impact on European trading, according to some analysts.

Trading in London was generally quiet amid a general lack of general lack of local corporate or economic news, though stocks with exposure to Asia suffered.

[02] French joblessness unexpectedly declines to 12.5%

The labour ministry said the seasonally adjusted number of people out of work dropped by 17,900 to 3.1 million, reducing the jobless rate to 12.5% from 12.6%.

Unemployment had been rising steadily in previous months and economists had not expected a fall in July.

Economists said the drop in unemployment was a welcome surprise and suggested the jobless rate might finally be showing the effects of a small economic recovery.

'It's a good surprise, and more or less consistent with idea that the economy is creating jobs again,' said Eric Chaney, economist with Morgan Stanley.

Economists also said the fall might be partly due to the end of political uncertainty created in the run-up to parliamentary elections in June.

'The government must be popping champagne corks,' said Michala Marcussen, economist at Societe Generale. 'This is just the icing on the cake. This week we had a record high trade surplus, (Prime Minister Lionel) Jospin's popularity is going up and we have had a very important figure (unemployment) coming down.'

'As a trend, unemployment should begin to fall. We are in a better economic situation and so far we have not seen the benefit from that in the labour market. Unemployment lags other economic indicators but that time lag should be played out by now,' said Patrick Mange, economist in Paris with Deutsche Bank.

But economists said the good news was due in part to the creation of seasonal jobs in the tourist industry and matched similar July jobless drops in previous years. They also noted a big increase in temporary jobs.

This seasonality could lead to at least temporary rises in the months ahead, they said.

In other economic news, French industrial production in France fell by 0.1% in June from May, below expectations, after having fallen an upwardly revised 1.3% in May from April.

Last month, Insee reported May industrial production had fallen 1.6%.

Not including energy, the seasonally adjusted index of industrial output fell 0.2% in June from May and 1.2% in May from April.

Economists had expected industrial production would rise about 0.5% in June from May and that not including energy, the index rise would be 0.7%.

(Reuters)

[03] Guinness and Grand Met to discuss competitive concerns with EU

The Commission also said it has sent a list of objections to the drinks giants outlining its concerns. The UK's Independent newspaper cited officials as saying the Commission was concerned the newly formed company would be able to manipulate prices in some of the biggest national markets with its vastly increased bargaining power.

The EU regulatory body opened a detailed four-month inquiry into the merger plan in June and officially has until Oct. 27 to rule. During such an investigation, the Commission routinely organises oral hearings with the companies, which give them the opportunity to argue their case before EU competition officials.

Commission officials couldn't confirm whether competitors would attend the hearings, but this is also standard procedure. However, a source close to the discussions said that these regulatory hearings are an ongoing process and don't mean the Commission is opposed to the merger.

As well as coming under pressure from Moet Hennessy Louis Vuitton's Chairman Bernard Arnault, who is still trying to block the merger in favour of a three-way spirits tie-up, leading competitor Canada's Seagram has been energetically lobbying the Federal Trade Commission in the US to block the link-up or impose a series of conditions on it. Seagram executives have also visited EU antitrust chief Karel Van Miert.

[04] Jospin says France to streamline defence industry to take on US competition

'To help the development of European co-operation France must, like its British and German partners, rationalise its industry to give Europe a strong and effective industrial and technological base,' Jospin said in a speech to French ambassadors.

Jospin said that the government would soon make important decisions, notably in the aeronautics and electronics sector, to help speed the consolidation of the European defence industry. He added that his choices would be resolutely European in order to 'face the very strong U.S. competition'.

An article in Wednesday afternoon's daily Le Monde said the government was considering transferring its 45.9 percent stake in Dassault to Aerospatiale to pressure Dassault into accepting the merger.

The prime minister's office refused to comment on the article, which also said Jospin was planning to tell Aerospatiale Chairman Yves Michot to end his opposition to the restructuring of Airbus.

Aerospatiale said talks are advancing on turning Airbus Industrie consortium into a corporation, but wouldn't comment further on word the French government will speed up the process.

Plans to change the consortium into a corporation have been held up as Aerospatiale has been unwilling to hand over its assets linked to the aircraft-making consortium.

Aerospatiale has said it is worried about losing French funding because those research and production centres would no longer be serving the government. An Aerospatiale spokeswoman said Friday that talks on the merger are continuing.

Pressure has increased to speed up the process because of Boeing merger with McDonnell Douglas.

Airbus consortium partners include Daimler-Benz Aerospace of Germany, British Aerospace and Spain's Construcciones Aeronauticas. They have agreed to form a corporation by 1999.

A French official wouldn't comment on the specifics of the government's plan to ease the way towards the Airbus merger, also pointing towards talks being underway.

A source in Jospin's office said he discussed European industrial issues with German Chancellor Helmut Kohl at a meeting in Bonn. The source gave no details when asked about the Airbus restructuring, saying only: 'The objective is very clear. From the moment there's the will, we will find the solution.'

Jospin's three-month-old leftist government irked European allies in July when it cancelled the planned privatisation of Thomson-CSF, Europe's largest defence electronics group.

Finance minister Dominique Strauss-Kahn quickly had to smooth ruffled feathers by saying France would indeed reduce its 58% stake to below 50%.

[05] Krupp shows 10% rise in first half profit

The German steelmaker's pre-tax profit rose to 204 million Deutsche Deutsche marks ($113.7 million) from 185 million marks a year ago. Sales were up 11% to 11.82 billion marks.

The company also said it expects favourable exchange-rate conditions to help exports in the second half.

Krupp, which said it had in the past few days signed the agreement to merge its flat-steel operations with those of rival Thyssen, said it would pay Thyssen over 257 million marks as a settlement in the merger of their flat- steel operations.

Thyssen, who has said it expected to see a clear improvement in profit in 1996/97, will hold 60% of the venture and Krupp 40%. The payment is aimed at correcting the difference between these ratios and the capital assets the two will contribute to the venture.

Krupp will also pay an interest rate of 6% on the 400 million marks in debt it will transfer to the new venture, Thyssen Krupp Stahl. Both companies agreed that the restructuring costs of the venture will be covered by synergy effects.

[06] Philips settles dispute over Grundig losses

Philips said under terms of the deal it would pay final compensation of around 400 million marks ($223 million), of which 225 million marks had already been paid, and would not pursue its claim to nullify the present 1996 accounts of Grundig.

It had been disputing 671 million mark 1996 losses announced by Grundig, which it said were inflated by extensive provisions for new policies adopted after the year end.

Philips had said that from the start of 1997 it would no longer cover Grundig's losses and in July cut its 31.6% stake to 5% to further distance itself from the struggling audio equipment and television maker. The settlement alters Grundig's share ownership.

Private London investment bank Botts and Company Ltd, to which Philips sold 26.6% of its Grundig stake in July, will divest its total 43% holding of Grundig's capital to a group of Bavarian investors, Philips said.

(Reuters)

[07] Expansion in US manufacturing sector indicated

In July, the index fell to 60.6% from 61.5% in June.

A reading above 50% indicates expansion in the manufacturing sector and a reading below 50% indicates a contraction.

The Chicago survey is watched closely for clues to the index of the National Association of Purchasing Management.

The purchasers said the four point increase in the August production index to 68.5% from 64.5% in July put the index at its highest level since September 1994.

The Chicago index is based on a survey of purchasing managers in northern Illinois and northwestern Indiana, one of the largest industrial areas in the US

Meanwhile US consumers boosted their spending sharply in July, while their incomes advanced at the slowest pace in nine months, the Commerce Department said.

Personal consumption expenditures rose 0.8% in July to $5.486 trillion at a seasonally-adjusted annual rate. Income inched up 0.1% to a $6.872 trillion annual rate.

The big jump in July personal spending came on the heels of a revised 0.2% gain in June. The June increase previously was reported as 0.3%. The July increase was the largest since a 1.1% rise in January.

The scant rise in personal income followed an unrevised 0.6% gain in June. The July increase in income was the smallest since October 1996 when it fell 0.1%.

The income and spending numbers were generally in line with analysts expectations.

A Dow Jones Newswires survey of 23 economists published Tuesday found an average estimate that personal income in July rose 0.2%. The average estimate for personal consumption expenditures was an increase of 0.7%.

Personal income data are not adjusted for inflation.

Wages and salaries last month were unchanged after increasing 0.8% in June.

Factory payrolls last month increased 0.1%, matching the increase in June.

[08] Japan shows more signs of a weak economic recovery

Economists said the slower growth has pushed back to next summer prospects for an increase in the official discount rate, or ODR, and is likely to encourage Tokyo bureaucrats to accept a stronger dollar in the hopes that exports can support an otherwise faltering economy.

Japanese stocks also will likely remain sluggish, while bond prices are expected to soar to new heights, they said.

'We're still very much in a post-tax increase trough, and it will probably be the fourth quarter of 1997 before we get out of it,' said Cameron Umetsu, senior economist at UBS Securities Ltd. in Tokyo.

'It's still a green light for the bond market,' Umetsu said, adding that his timeline for an ODR increase now targets the second half of 1998.

'For the time being, we're likely to see Japanese government bonds massively outperform stocks,' noted Michael Hartnett, senior economist at Merrill Lynch Japan.

The Ministry of International Trade and Industry reported that July industrial output grew by 1.1% from June, mostly in line with market expectations. But MITI also downgraded its assessment of output, ditching 'moderate rising trend' for 'moving in sideways trend amid rising inventories.'

Economists said auto inventories are looking particularly fat right now. July adjusted passenger car inventories rose 10.3% compared with June, while unadjusted auto inventories soared by 38% from levels a year earlier. Adjusted inventories of mini-cars jumped by 36% from the previous month and unadjusted stocks of mini-cars surged by nearly 64% from a year ago.

'The sharp rise in auto inventories will probably help keep industrial output flat for the rest of the year,' said Peter Morgan, economist at HSBC James Capel Japan Ltd.

On the employment front, Japan's jobless rate edged slightly lower in July to 3.4% after hovering at a record high of 3.5% for the previous two months, the statistics bureau of the Management and Coordination Agency said. However, the Labor Ministry reported that the ratio of job offers to job seekers, an indicator of demand for Labor, was unchanged at 0.74 in July and the ratio of new job offers to seekers worsened in July, falling to 1.15 from 1.22 in June.

'The new jobs ratio fell to its lowest level since spring of 1996,' Morgan said. In addition, manufacturing sector employment dropped by 200,000 jobs, or 1.4%, from a year ago, after falling 1.8% last month, Morgan noted.

By Brian Fowler, Dow Jones News Services

[09] KPN earnings rise 9%, aided by postal and telecoms businesses

The Dutch postal and telecommunications group said net profit in the period rose to 1.31 billion guilders ($632.8 million), at the low end of analysts' expectations. The company said the results were pushed up mainly by PTT Post and PTT Telecom.

Sales in the half more than tripled to 14.84 billion guilders from 4.56 billion guilders.

KPN characterised the results as 'good,' and said that for the full year pre-tax profit should rise between 7% and 8%. Sales are expected to jump between 30% and 45%.

The group noted Australian transport and logistics group TNT Ltd. and GD Express Worldwide, acquired late 1996, are already, though modestly, contributing to the group's consolidated results. TNT and GDEW were also main factors in the increase of sales.

Turning to its main money makers, KPN said that PTT Post had a 'very good year,' with sales more than doubling and profit jumping 51%.

The Telecom division posted a 7.4% rise in sales, while operating profit edged up 1.7%.

Profit from companies KPN has a stake in swung into positive territory because of positive developments at the European telecommunications consortium Unisource, of which KPN holds 33%.

[10] Telefonica shows 17% earnings gain in the first half

The former Spanish telecommunications monopoly said 'This growth is based on a strong performance by basic telecommunications, as well as our international businesses and mobile-phone operations, which are beginning to benefit from the Christmas sales campaign,' Telefonica said.

In the six months to June 30, Telefonica's net profit grew to 84.42 billion pesetas ($555 million)from 71.89 billion pesetas the year before. Telefonica's profit figure came in at the top end of analysts' expectations, which ranged from 81.5 billion pesetas to 85.5 billion pesetas.

Telefonica said its domestic mobile-phone business experienced 'spectacular growth, both in the number of clients and revenue' in the first half.

At the end of the June, the Spanish phone company had 2.712 million customers, a 78% rise on the year. 'This client base reinforces Telefonica's leadership position in the Spanish market,' the company said.

Revenue from mobile phones grew 55% to 170.68 million pesetas, Telefonica said. It added that the positive effects of a Christmas advertising campaign will be even larger in the third quarter because the costs of the promotion will have been fully absorbed.

On the international front, Telefonica said its recent strong growth continued in the first six months of the year, especially at its subsidiaries Cia. de Telefonos de Chile and Telefonica del Peru. Its revenues from international operations grew 37% to 223.05 billion pesetas in the first half.

[11] Corporate and Economic Briefs

Czech industrial sales rose 5.3% in constant 1994 prices in July compared with July 1996. Sales rose 3.1% in constant 1994 prices year-on-year in the period from January through July, the Czech Statistical Office (CSU) reported, citing preliminary data. Industrial sales increased in July despite the negative effects from heavy floods in the first two weeks of the month, the CSU said.

Czech Republic average monthly gross wages rose to 11,026 koruna in the second quarter, up 13% or 1,267 koruna from the same period of 1996, the Czech Statistical Office (CSU) reported, citing data for both the business and public sectors. In the second quarter, the average nominal monthly gross wage in the business sector rose 13.6% year-on-year or 1,307 koruna to 10,097 koruna. In the public sector the average nominal monthly gross wage amounted to 11,434 koruna in the second quarter, up 11.1% or 1,138 koruna from the same period of 1996, the CSU said.

Nokia unveiled a new GSM car phone, Nokia 6081, for heavy users of mobile communications. In a press release, the company said the 6081 model has full mobile data communication capabilities, like sending and receiving short messages, and connection to a notebook PC for sending and receiving faxes, files, and email. Nokia 6081 was designed for easy installation in the DIN slot of the car. The SIM card can be easily inserted, Nokia said, which allows for a flexible user swap.

Finland's total output of goods and services increased by 6.6% in June 1997 from the same month a year earlier, Statistics Finland said. fter adjustment for seasonal variation, output in June was 0.5% higher than in May. Commercial fellings contributed to the 11.5% growth in agriculture and forestry, while continued demand in the construction industry led to 15% growth in output in the year to June, Statistics Finland said.

L'Oreal said it will buy the 51% of Spain's Procasa that it doesn't already own and the outstanding stakes in several small companies that market its products. Terms were not disclosed. L'Oreal said Procasa manufactures and markets L'Oreal products and in 1996 had sales of about 1.2 billion French francs ($194 million). The other companies Cosesa, Cosmetic Active Iberica and Albesa - together account for sales of about 800 million francs. L'Oreal said that it now holds the outstanding capital of all companies marketing its brands in Spain.

Eiffage, a construction and public works company controlled by Cie. Generale des Eaux said first-half sales fell to 15.86 billion French francs ($2.56 billion) from 16.18 billion francs a year earlier. Second-quarter sales edged up to 8.89 billion francs from 8.87 billion francs.

German July wholesale sales rose a real, or inflation-adjusted, 2.1% from the year-ago period, the Federal Statistics Office said. In the first seven months of the year, wholesale sales rose a real 1% from a year ago, the statistics office said.

German food prices in July fell by 0.5% in western Germany and 0.6% in eastern Germany compared with the previous month, the German Ministry of Food, Agriculture and Forestry said in a press release. Potato prices in the west were 13.2% cheaper and 9.5% cheaper in the east, the press release said. In the former East Germany, vegetables were 7.3% cheaper, the Ministry said.

German plant and machinery manufacturers registered a 7% rise in orders on a real, or price-adjusted, basis in July compared with a year earlier, the nationwide industry association said. The Verband Deutscher Maschinen- und Anlagenbau reported domestic orders in July rose 1% while foreign orders rose 13% from the comparable period a year ago. In a three-month comparison from May to July 1997, plant and machinery orders rose 5% from the year-earlier period.

KNP BTsaid it agreed to acquire the Holfelder Group, a leading German producer of corrugated boxes. The transaction will be retroactive as of July 1, 1997, and is subject to approval from the German Bundeskartellamt. KNP BT said it won't disclose the acquisition price. Holfelder, which is currently a losing operation, is part of Australia's Amcor Group, and has annual sales of about 200 million Deutsche marks ($111.11 million).

Italy will miss the Maastricht deficit criteria in 1997, with a deficit- to-gross domestic product ratio between 3.1% and 3.2% in 1997, according to preliminary estimates in the International Monetary Fund's World Economic Outlook reported by Italian newspapers. The Italian Treasury however remains convinced that the 3.0% target is within reach. In the first eight months of the year, 'the accounts are perfectly in line with a 3% deficit to GDP ratio.' And, the August deficit, expected to come in at 2.5 trillion lire ($1.39 billion), will also post a drastic reduction from August 1996, when the deficit was at 9.0 trillion lire.

Italy's gross domestic product rose a real, or inflation-adjusted, preliminary 1.5% in the second quarter of 1997 over the first quarter 1997 and also rose 1.7% from the year-earlier period, the national statistics agency Istat said. Italian GDP data for the second quarter of 1997 show an increase in economic growth last seen in the third quarter of 1996.

Otra reported six-month net profit surged 551% to 24.1 million Dutch guilders ($11.66 million) from 3.7 million guilders a year earlier. Net profit in the first half of 1996 was pushed down by a one-off restructuring charge of 27.1 million guilders. Without the charge, net profit in the first half of 1996 would have been 30.8 million guilders. Otra said the six- month results were pressured down by restructuring measures in southern Germany which are developing slower-than-expected.

DSM NV said it is closing its Swiss La Plaine plant and moving the activities to its Spanish unit, DSM Deretil in Almeria.In a news release, DSM said the Swiss site offers 'insufficient potential in terms of both capacity and cost level to support DSM Fine Chemicals' strategy.' The facility's 62 employees will be laid off in May, 1998. The company said it intends to strengthen its leading position in the semi-synthetic antibiotic ingredients market by concentrating activities at the Almeria site and also by expanding Asian operations.

Philips Electronics said it will enter the entertainment market for televisions and personal computers. The company said it will enter the market with two digital convergence home entertainment devices, the DVX8000 and the Ponte, which combine television and PC capabilities. The company said that the DVX8000, a convergence device designed to serve at the heart of the advanced home entertainment system, will be targeted at home cinema customers in the U.S., while the Ponte, an all-in-one unit, will be marketed first in Asia and Germany.

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