European Business News (EBN), 97-09-03

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Page last updated Wed, September 03 6:35 PM CET

CONTENTS

[01] Lufthansa privatisation to be completed on October 13

[02] Air France chief says he may be out of a job next week

[03] Casino posts strong profit gain, acquires control of large discount chain

[04] German output signals economic recovery is on track

[05] UK services sector continues to show strong gains

[06] Total profit jumps 51% in first half on the back of dollar's strength

[07] VW exceeds output limit at Saxony plant, magazine says

[08] Grolsch posts 15% decline in first half net profit

[09] Sulzer net profit surges 65% in the first half

[10] Smurfit shows a 52% decline in first half pretax profit

[11] Corporate and Economic Briefs

[01] Lufthansa privatisation to be completed on October 13

And, as when the government privatised Deutsche Telekom, Bonn will offer special incentives to prod German private investors to take part in the privatisation.

Finance Minister Theo Waigel said the privatisation would bring an extra one billion marks into the government's budget this year.

He said the government had received 2.1 billion marks in 1996 from the state development agency Kreditanstalt fuer Wiederaufbau (KfW) for the last packet of Lufthansa.

'We have allocated 1.5 billion marks in the budget,' he said, adding that the government stood to earn a further one billion marks from the privatisation.

The initial offer price for the government's remaining 37.45% stake in the state carrier will be fixed over the weekend of Oct. 11 to Oct. 12, the transport ministry and finance ministry said.

Waigel said Bonn plans 'to offer private investors attractive conditions for participation. As against institutional investors, special incentives will be provided to encourage private investors to take part' in Lufthansa's full privatisation.'

Waigel also said that early orders from private investors would be given preferential allocations.

'I'm confident that this will be as successful' as the Deutsche Telekom privatisation, Waigel added. Deutsche Telekom was partly privatised in November 1996.

The government's 35.68% stake is currently parked with state financing agency Kreditanstalt fuer Wiederaufbau. In addition, KfW will float its own 1.77% stake in the airline.

The bookbuilding process to establish an initial offer price for Deutsche Lufthansa shares will begin Sept. 29, the government said, and continue until Oct. 10.

[02] Air France chief says he may be out of a job next week

He told journalists that: 'As far as I'm concerned, we're in a situation in which my contract may run out.'

Blanc and the government are at odds over the government's decision not to go through with promises made by the previous conservative government to privatise the airline as part of a broader financial recovery plan.

Blanc said he is unhappy that the disagreement has deteriorated to this extent, but added: 'Shareholders are always right, whether they're private or public,' Blanc said, adding that management must be prepared to put their long-term strategy into effect.

'I don't want to create a crisis, but at the same time I don't want to get involved in something that I can't carry through,' he said.

French Transport Minister Jean-Claude Gayssot said he wants the state to keep a majority stake in Air France but hopes Blanc will not resign in protest, a ministry spokesman said.

The minister 'does not want Christian Blanc to quit. We have not given up hope of a solution in talks between now and September 12 so that he can stay on,' a transport ministry spokeswoman said.

Blanc's mandate as Air France's chief executive comes up for renewal at a board meeting scheduled for Sept. 12 to set the seal on Air France's merger with its sister company Air France Europe. He indicated that he isn't about to resign before then, and instead will wait to get the push from the government.

Officials at Prime Minister Lionel Jospin's office declined to comment on Blanc's eventual departure. And government spokeswoman Catherine Trautmann, briefing reporters after the weekly cabinet meeting, only reiterated the government's policy that it will examine possible sales of shareholdings in state-owned companies on a case-by-case basis.

[03] Casino posts strong profit gain, acquires control of large discount chain

Casino is paying another 700 million francs to assume the company's debt, for an immediate price tag for about 70% of Franprix Leader Price of 3.5 billion francs.

The company said that, including the impact of the Franprix and Leader Price acquisitions, its 1997 full-year net profit is likely to be at least 25% above the figure posted in 1996. Casino Chairman Christian Courveux said the company will double its net profit in 1999 compared with 1996.

The acquisition and the steep rise in first-half earnings, mean that Promodes' bid is much less attractive than it appeared initially. Promodes has offered 27.8 billion francs to buy the outstanding shares of Casino and its holding company, Rallye. Casino's board has rejected the offer, setting the stage for a second take-over battle in France's competitive retail sector.

Nevertheless, Promodes said it was still confident its bid would succeed.

'Promodes remains very calm and confident. We think we're offering shareholders an interesting price,' said a Promodes spokeswoman.

Her comments came after two Casino shareholders, who control a majority of its voting rights, said they were not interested in the take-over offer even if Promodes upped the bid.

'I completely and totally reject the tender offer whatever the price,' said Antoine Guichard, who is heir to Casino's founding family which controls 15.3% of Casino's voting rights. And financier Jean-Charles Naouri, whose Euris group owns 75% of Rallye said he, too, would reject any Promodes offer.

Casino's consolidated net profit climbed to 409 million francs in the first six months of the year from 294 million francs the year before.

The acquisition of Franprix and Leader Price, which own 657 discount food stores, will expand Casino's already vast network, making Casino France's second-biggest distributor after Promodes.

Franprix and Leader Price together had consolidated sales of 9.54 billion francs in 1996 and an aggregate operating profit of 318 million francs.

Courveux said that Casino's future growth would be better realised without a merger with Promodes, detailing the differences in the distribution strategies that the two companies use both in France and internationally.

'Casino and Promodes are in two relatively different situations. Casino has at its disposal a good foundation to develop independently,' Courveux said. 'After the purchase of Franprix Leader Price, Casino becomes a leader on the market.' He added the deal doesn't repay the shareholders for Casino's potential.

'The operation as it was presented in cash means the shareholders won't benefit from the future creation of value,' Courveux said.

[04] German output signals economic recovery is on track

But the data sparked some speculation that the Bundesbank, which is already worried by rising inflation, would move toward tightening its monetay policy and raise rates to keep the recovery from overheating.

Production rose 3.5 percent in July, seasonally adjusted, from June, when it rose by 2.9 percent. But the ministry said the gains may have been overstated because the German holidays came later than usual this year.

'The latest development may be exaggerated because this year's summer holidays have mostly been late, and as a result production in June and July was depressed less than usual,' the ministry said.

Analysts were nevertheless upbeat on the data, which far outpaced estimates.

'These figures beat most, if not all forecasts. The figures outpaced expectations of 0.5% in July from June, and 3.6% on the year, according to a survey of seven economists by Dow Jones Newswires.

'We have now had two months of strong numbers. It means the economic recovery is not only on track. It is alive and well,' said Adolf Rosenstock at the Industrial Bank of Japan in Frankfurt.

But that strength prompted some to speculate that the Bundesbank would raise rates to keep the economy from overheating. 'Everybody's talking about the Bundesbank being back on a tightening course,' said Neil Kimberly, a spot trading manager at BOT/Mitsubishi in London.

Despite the inflationary implications, analysts said the central bank would be in no rush to allow its repo rate, its key instrument for steering the money market.

Earlier, Bundesbank President Hans Tietmeyer told Die Woche newspaper that he was concerned about inflation, but said it was too soon to talk of a general inflationary threat.

Asked whether the Bundesbank was about to start tightening monetary policy, Tietmeyer declined to comment on future rate moves. He did say, however, that 'a timely counteraction in the monetary arena' could help to contain long-term rates.

Traders said Tietmeyer's comments seemed to send a different message from remarks Tuesday by Bundesbank council member Olaf Sievert, who suggested neither inflationary pressures nor currency movements posed an imminent threat of higher German interest rates.

The output gains were led by a stronger-than-expected in the German construction industry.

Output in that industry rose 3.9% in the month. The manufacturing industry showed a strong 3.7% gain.

On an unadjusted annual basis, overall production gained 5.9%.

Preliminary June and May month-on-month data released previously were revised. June production was revised upward to show an increase of 2.9% from May, compared with the 1.4% rise originally reported. May data was revised to show a fall of 1.3% from April, instead of the 1.5% decrease reported last month.

An EBN Interactive Roundup

[05] UK services sector continues to show strong gains

The UK purchasing managers' index for services fell to 58.6 in August from 62.1 in July.

The index is based on a weighted average of individual survey indices, including new and outstanding business, input prices, prices charged and employment. A reading above 50 indicates that the services economy is expanding, while a reading below 50 indicates a general contraction.

But the survey suggested moderation in the growth of consumer demand after interest rate rises and amid sterling strength.

Employment showed the largest rise since March and greater demand for staff again fed through to higher wages as skill shortages continued to develop.

Looking forward, the institute said two-thirds of its survey panel expect business to improve over the next year, while only 5% expect a deterioration. Optimism about the economy has declined slightly in the wake of recent interest rate rises, however.

The institute said the survey demonstrated that the UK service sector is continuing to grow strongly, and that skill shortages are increasing. It said higher consumer spending was the key factor behind the rise in the amount of new business placed in August.

The pace of growth of new business slowed slightly for the third month in succession, after having peaked in May. Panel members blamed the slowdown on higher interest rates and sterling strength.

New business nevertheless continued to grow at a faster rate than capacity, leading to an overall increase in work outstanding. An increase in employment, combined with the slightly slower rate of growth, meant that companies were better able to clear backlogs of work, however, and as a result, the increase in work outstanding recorded in August was the smallest for seven months.

The greater demand for staff fed through into higher wages, as skill shortages continued to develop. The shortage was most acute in the computer sector, where a lack of suitable staff was reported to have led to a sharp increase in pay.

Despite wage pressures, average cost/input prices grew at the slowest rate since October 1996, as cheaper supplies offset higher wages. The institute said the fall in supply costs was partly a consequence of the strong pound, which has cut the cost of imported goods.

Prices charged by service companies also rose, but the rate of increase in charges for services fell to its lowest level this year.

[06] Total profit jumps 51% in first half on the back of dollar's strength

The French oil company said net profit rose to 3.98 billion francs ($663 million) from 2.63 billion francs the year earlier.

Looking ahead, Total said, 'Thus far in the 1997 second half, the environment is characterised by continued strength in the dollar, Brent crude prices holding at about $18 per barrel and volatile European refining margins.' 'For the medium term, the group forecasts a rapid increase in production and further productivity gains in all sectors,' it said.

But Chairman Thierry Desmarest said that full-year earnings 'won't be double those of the first half,' suggesting that full-year net profit will be below 7.96 billion francs. In particular, Desmarest noted that while July and August 'weren't bad months, they weren't as good as the average for the first half.'

In July and August, the dollar-franc exchange rate continued to rise, but both the average Brent crude oil price per barrel and average refining margins were below first-half levels.

Desmarest added he expected to sign the contract to develop part of Iran's South Pars oil field shortly. 'Discussions are very advanced, so I think we should have the full agreement very soon, he said.

Desmarest declined to comment on which partners Total would bring in on the South Pars deal, though he did reconfirm that any project of that size requires consortium operation in order to spread risk.

In May, Iran's Foreign Minister Ali Akbar Velayati was reported as saying Iran had signed a $3.5 billion contract with Total to develop much of the South Pars field in conjunction with the National Iranian Oil Co. Total denied that a deal had been concluded.

Desmarest also reconfirmed talks are at an advanced stage on an oil development deal with Iraq, 'but we will follow UN sanctions, which currently prevent any work in Iraq.'

[07] VW exceeds output limit at Saxony plant, magazine says

The magazine reported that commission chief Karel Van Miert has complained to German economics minister Guenter Rexrodt about the excess production.

The article says Rexrodt reported the violation in a letter to the Commission Aug. 12, but said the excess was balanced by a capacity reduction at Volkswagen's Wolfsburg plant. It was thus assumed that a violation hadn't taken place.

The tussle comes at a bad time, the magazine said, since the EU. has made other subsidies to Volkswagen for a facility in the state of Hesse, contingent upon Volkswagen's repayment of about 90 million Deutsche marks ($50 million) in state aid to the Saxony government.

[08] Grolsch posts 15% decline in first half net profit

The Dutch brewer said first half net profit fell to 17.8 million guilders ($8.6 million) from 21 million guilders the year earlier. Analysts' forecasts had ranged from 20 million guilders to 23 million guilders.

Operating profit was pressured by an 'inadequate' contribution from Poland, where sales increases were offset by cost increases, and by the effect of poor weather in the spring. 'Even in the fast-growing Polish market, you have to sink money in before you get profits back,' Grolsch said.

The brewer company also noted that interest rate charges increased to 6.7 million guilders in the latest reporting period, from 1.3 million guilders a year earlier. This was the result of the large investments involved in its operations in Poland.

For the full year, Grolsch said it expects its net result to be 'clearly lower' than the 59.9 million guilders net profit it booked in 1996.

Grolsch said sales are expected to increase for the year, but it noted that this will be offset by higher costs and higher interest rate payments, which it isn't yet able to pass on to customers.

The company said that sales growth came from its increased stake in Poland's Elbrewery, as well as from autonomous sales growth in the Netherlands, increased exports to the US and positive currency effects. While sales in the first half increased 9.4% to 349.9 million guilders, operating profit in the same period slipped by 5.7% to 33.5 million guilders.

[09] Sulzer net profit surges 65% in the first half

The diversified Swiss industrial manufacturer said net profit rose 28 million Swiss francs in the first half to 71 million francs ($47.3 million), from the year earlier figure of 43 million francs.

Operating profit, meanwhile, gained 14% to 124 million francs from 109 million in the previous year. The strong gains were credited to operating improvement, currency rates and acquisitions for the advance.

Sulzer's President and chief executive Fritz Fahrni, said the full-year group improvement will stem partly from the lack of non-recurring charges booked last year. He also cited 'more favourable currency relations' and 'cost-reduction measures.' Fahrni said the outlook for the 1997 business year is very good and confirmed earlier statements that Sulzer's net profit would more than double this year from 82 million francs in 1996. 'Our business is always stronger in the second half of the year,' Fahrni said.

First-half group sales rose 6%, a pace Sulzer called low on seasonal grounds. Sales totalled 2.637 billion francs against 2.485 billion francs in the first-half of 1996.

The company's 75%-owned medical products unit, Sulzer Medica, posted an 8% rise in net profit to 64 million francs from 59 million francs in the first- half of 1996. The unit's operating income rose 14% to 124 million francs from 109 million francs in the same 1996 period. Sales rose 22% to 704 million francs from 578 million francs.

Sulzer Medica should see similar rates of growth in operating income and sales in the second half, the company said. The proceeds from the unit's initial public offering earlier this year should 'lead to a substantial increase' in net income, the company added. Fahrni has set a return on investment (RoI) target of at least 17% for Sulzer Medica, which is around 2% above average market growth.

The industrial part of the group, meanwhile, aims at a return on investment of at least 14%, which is 1% to 2% above the average market growth. The company said it has made progress in turning around its Sulzer Rueti and Sulzer Infra units.

Rueti, which saw a slight recovery in demand for weaving machinery, should narrow significantly its loss this year, Sulzer said. Infra, involved in industrial installations, is expected to break even. However, Sulzer noted that the markets for textile machinery and construction remain sluggish.

[10] Smurfit shows a 52% decline in first half pretax profit

The Irish-based international paper and packaging company, showed a 52% drop in pretax profits to 61.2 million punts ($89.3 million) from 126. million punts from the year earlier.

The profit performance, which was slightly ahead of market expectations, reflected the depressed climate for the worldwide paper and packaging industry during the period.

Smurfit said sales at the half-year stage fell to 1.26 billion punts from the 1.35 billion punts generated a year earlier, due to lower prices for its packaging products.

However, the company said there were signs that the industry had already turned the corner.

Chairman and Chief Executive Michael Smurfit said the industry's 'immediate prospects' were cautiously optimistic. 'If discipline can be maintained through a pricing up cycle, then the recovery that is underway could become a sustainable recovery,' he said.

The company said it lifted its interim dividend to 1.65 pence from the year- earlier 1.5 pence dividend to reflect its 'confidence in the future of the business.'

Chairman Smurfit said that oversupply problems in the industry must be minimised, 'I am pleased to confirm that a better demand/supply scenario is evolving and this is giving rise to a more favourable pricing environment,' he said. Smurfit forecast prices will improve in the final quarter of 1997. However, he warned that corrugated container prices still need to increase in the 'years ahead as they're at unsustainably low price levels,' and said it would continue its strategy of expanding through acquisitions.

[11] Corporate and Economic Briefs

Publicis said it has acquired a 60% controlling interest in Mojopartners, one of the leading advertising agencies in Australia and New Zealand. Terms of the acquisition weren't disclosed. Publicis' Secretary-General, Jean- Paul Morin, told AP-Dow Jones that his group had acquired its interest in Mojopartners from True North Communications, a Chicago-based former partner of Publicis. Publicis said the remaining 40% of Mojopartners' capital will be acquired by Mojopartners' managers. Mojopartners, which had revenue of around 1 billion francs ($164m) in 1996, is expected to show a profit this year after several years of losses, Morin said.

Germany will miss the 3.0% Maastricht reference target for budget deficits as a proportion of growth by a long way, despite concentrated efforts to cut spending, the DIW economic institute said. 'Deep-seated crises in growth and employment could ruin those efforts,' the institute said in a special report

France Telecom, and ElTele, a Norwegian electricity provider, plan to create a joint venture which will become the second biggest operator in the Norwegian telecommunications market, the two companies said in a joint statement. Using ElTele's infrastructure, the new operator will offer a range of services to business and residential customers including local and long-distance telephony, as well as integrated fixed and mobile telephone services. ElTele's regional branches, which are owned by regional electricity companies, cover 80% of the Norwegian population.

Norway's seasonally adjusted industrial production index rose 2.5% in July from June bringing the year-on-year increase to 3.0% Statistics Norway, the Norwegian national statistics agency said.

Great Universal Stores the mail order and business information group, said it has sold its Canadian finance company, Superior Acceptance, to Associates of North America, a unit of Ford Motor for £80.2 million ($128.3m). GUS finance director David Tyler explained that the company had 'accepted a good offer for Superior, a subsidiary which isn't a strategically important part of the group's finance division.' GUS will book a net profit of £9 million on the disposal, which will be included in the group accounts for the year to March 1998. In the year to March 1997, Superior achieved operating profit of £8.4 million.

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