European Business News (EBN), 97-09-10

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Page last updated Wed, September 10 6:07 PM CET

CONTENTS

[01] Germany says budget deficit for the first half amounts to 3.1% of GDP

[02] Commerzbank goes on the defensive, plans $1.5 billion capital increase

[03] France Telecom first half net profit jumps 41% to $1.46 billion

[04] Boots finally breaks into the German market

[05] Lufthansa reportedly plans to cut 1,000 Jobs by 1999

[06] Societe Generale first half profit surges 37%

[07] Vereinsbank plans buyout of Banque de Credit et gestion Monaco

[08] Daimler-Benz sees record sales in 1997 Click here for more automotive industry news

[09] Groupe Paribas first-half profit climbs 4.5%

[10] The US Justice Department investigates CompuServe/AOL link

[11] Boeing reportedly mulls $1 billion development of a larger 747 jumbo jet

[12] Norwich Union interested in Spanish acquisition

[13] US and Japanese trade relations are worsening, official says

[14] World Bank forecasts 5.4% annual economic growth in developing nations over next decade

[15] Economic and Corporate Briefs

[01] Germany says budget deficit for the first half amounts to 3.1% of GDP

A prominent member of the Bundesbank Klaus-Dieter Kuehbacher has also said that the three percent deficit limit set by the Maastricht Treaty to qualify for a single currency was too low.

The German national calculation for calculating the budget deficit is different from the European Union method used to determine whether countries are meeting Maastricht Treaty criteria.

The Maastricht Treaty requires that in 1997 countries limit their deficits to 3.0% of GDP as one of the conditions to qualify for Europe's planned 1999 currency union.

Based on its calculation under the E.U. method, Germany's 1996 budget deficit amounted to 3.4% of GDP, up from 3.3% in 1995, the statistics office reported Tuesday.

The GDP data was slightly higher than economists' forecast of a 0.9% rise quarter-on-quarter and 2.4% year-on-year. But the data had very little effect on the market, traders said

Meanwhile Bundesbank council member Klaus-Dieter Kuehbacher said that the three percent deficit limit set by the Maastricht Treaty to qualify for a single currency was too low.

'Things are not made easier by the fact that the self-imposed norm for the state deficit at 3.0 percent, and really just 3.0 percent, is simply too narrow,' Kuehbacher said in an interview with Inforadio Berlin-Brandenburg.

[02] Commerzbank goes on the defensive, plans $1.5 billion capital increase

The German bank said it plans to raise about 1.5 billion marks ($825 million) in a rights offering in October. That offering is aimed at bolstering the company's war chest and possibly acquiring an investment banking concern.

Commerzbank said the capital increase will 'open up further possibilities for earnings.' It added that 'this is particularly true as regards the controlled development of the investment banking division.'

The markets apparently didn't much care for the announcement and Commerzbank's shares dropped 3.5% in floor trading in Frankfurt.

Analysts reacted more favourably than the market to the announcement of the capital increase.

'We have had this stock on our 'buy' list for some time and we aren't downgrading it,' said Ralph Lutz, an equity strategist with Bayerische Vereinsbank in Munich. 'The move will only dilute profits by 7%, which isn't too high.'

In July, Commerzbank had reported a 23% rise in operating profit in the first half of 1997 to 1.63 billion marks, compared with 1.32 billion marks a year earlier.

Analysts also noted that the increased capital basis should also help defend the bank against a possible take-over. Although no bank has made a concrete bid for it, and despite frequent denials from the board, Commerzbank has been the target of incessant speculation that it will be acquired by a larger continental European bank.

'The only problem is that the supply of new shares is piling up,' one Frankfurt-based analyst said, asking not to be named. He pointed to the placement of the government's remaining stake in Lufthansa and a 7 billion- mark capital increase by car maker Volkswagen, noting: 'These may damp the overall market a bit, taken together with the Commerzbank move.'

[03] France Telecom first half net profit jumps 41% to $1.46 billion

The telecommunications company also said that about 20% of its capital will be offered to investors starting Sept. 23 for two weeks.

France Telecom Chairman Michel Bon said the state-owned telecoms group's profit for the whole of 1997 would come in higher than a 1996 pro-forma profit of 14.5 billion francs ($2.4 billion).

'The first-half result is in line with what we were expecting,' he told a news conference. 'This allows us to confirm... that we will have an increase in 1997 profit from the result for 1996, which were hard hit by one-off items, and also an increase over our proforma profit of 14.5 billion francs.'

The government, earlier in the week, the partial sale of France Telecom.

France Telecom will announce the pricing on its share offer on Oct. 6 which will the following day. The offer will close Oct. 14 and shares will be quoted on stock exchanges in both Paris and New York starting Oct. 20.

[04] Boots finally breaks into the German market

The purchase from Merck gives Boots a presence in the £1.6 billion German skincare market, expanding on the UK retailer's move into France last year, when it purchased skincare company Lutsia.

Hermal is the biggest medical skincare company in Germany with an 8% market share, ahead of major rivals Roche and Schering.

The acquisition, which is initially expected to be earnings neutral, is the latest step in the global expansion of BHI, although Boots has made it clear it has no plans to enter the U.S. market.

Earlier this year, it bought Italian skincare company Farmila Dermical and last year it acquires French skincare group.

BHI is keen to exploit the growing trend towards over the counter medical sales as governments around the world aim to reduce their medical bills.

Around half of Hermal's sales are now made over the counter, and the proportion is growing as doctors cut back on their number of prescriptions. 'We have bought Hermal to develop the OTC business,' said a Boots spokesman.

The spokesman was reluctant to say where BHI's next acquisition would be, but said the business was 'committed to long-term growth.' In addition to skincare, BHI will confine its focus to analgesics (mainly the Nurofen range), and upper body respiratory products such as Strepsils. Boots said the acquisition would further strengthen these core sales, which make up 70% of the total.

Retail analysts will learn more about BHI's strategy at a presentation to be held on Sept. 30. Some observers have complained that the sales growth achieved by the business has been disappointing given the large amount of investment that has taken place in recent years. Comparable sales at BHI grew by 5.9% in the first quarter of this year, below expectations of many analysts.

'The whole division isn't producing the returns it ought to,' said Societe Generale Group analyst Nick Bubb. But he said Wednesday's deal is a step in the right direction and added that Boots 'has not paid through the nose' for the business.

An EBN Interactive Roundup

[05] Lufthansa reportedly plans to cut 1,000 Jobs by 1999

Lufthansa wouldn't confirm or deny the report.

Most of the cuts will be outside Germany, the magazine said in its press release. It didn't give other details on how the job reduction will be handled except to say the number of marketing positions in the company's airline division will be reduced, the article said.

According to the magazine, Stefan Pichler, a manager in Lufthansa's airline division, said the job cuts strategy will reduce operating costs by 20% and increase per capita productivity by 16%.

Ticket sales and ticket marketing 'at the moment eat up almost a quarter of revenues,' according to the magazine. This drain on revenue will be reduced to 21% to 22%, added Pichler.

Every percentage point drop should add 150 million marks to Lufthansa's profit, Pichler said. WirtschaftsWoche wasn't more specific about the profit projection.

[06] Societe Generale first half profit surges 37%

Excluding any exceptional circumstances, 1997 full-year profit should be significantly higher than in 1996, said Societe Generale Chairman Marc Vienot.

Societe Generale's net banking profit rose to 27.1 billion French francs from 21.2 billion francs a year ago, partly reflecting the company's increased size after acquiring Credit du Nord early in the first-half.

Outside of acquisitions, net profit would have risen by 33%, net banking income by 13% and operating profit by 21%. The company also said that it had 500 million francs increase in capital gains from asset sales. Capital gains totalled 1.1 billion francs in the first-half as the company lightened up its real estate portfolio.

[07] Vereinsbank plans buyout of Banque de Credit et gestion Monaco

The German mortgage bank, which already owns 49% of BICGM, said its Ernst & Cie unit would buy the remaining 51% stake in the bank from Banque Populaire of France. Vereinsbank is currently planning to merge with Bavarian neighbour Bayerische Hypotheken- und Wechsel-Bank to create Germany's second largest commercial bank.

The mortgager said the move strengthened its involvement in international private banking.

BICGM, which will change name to Bank von Ernst (Monaco), will have client funds of more than 3 billion French francs ($492 million).

The acquisition will allow Vereinsbank to provide wealth management and investment advisory services for local and German clients. The bank already deals with wealthy clients at its Bankhaus Bethmann unit in Germany, Vereinsbank International in Luxembourg and Schoeller Bank in Vienna.

Similarly, BICGM would be able to avail of the expertise of Swiss-based Bank von Ernst, which offers asset management, in-house funds, research and portfolio management.

[08] Daimler-Benz sees record sales in 1997 Click here for more automotive industry news

Schrempp announced that sales at its passenger car division in the first eight months of 1997 rose 10% to 33.1 billion Deutsche marks ($18.2 billion). And he forecast continued strong demand from its car division, projecting a climb in turnover this year of 10% or more. Last year, revenues climbed to 45.95 billion marks.

'In terms of increase in units there will be an increase of 5% to 6%, and in terms of turnover it will be 10% or slightly higher,' Schrempp said.

Daimler, Europe's biggest industrial group, also said unit sales of Mercedes-Benz cars increased more than 4% to just under 442,600 units in the first eight months.

Schrempp also said that the entire commercial division would post an operating profit this year on sales of more than 400,000 vans, trucks, buses and off-road vehicles.

Truck sales in Europe, especially heavy trucks, have suffered in recent years because of the weak economy and some makers have resorted to cutting prices. Despite the rosier outlook for the truck division, Schrmepp stood by a previous company forecast that group operating profit in the second half of the year would at least match the first half and that sales should top 115 billion marks ($63 billion).

Daimler's operating profit in the first half of 1997 more than doubled to 1.849 billion marks.

[09] Groupe Paribas first-half profit climbs 4.5%

The French financial and industrial holding company added that revenue at its Banque Paribas unit rose substantially in the first-half. For the first six months of 1997, Banque Paribas posted net income of 1.21 billion francs, down from 1.27 billion francs.

The drop in Banque Paribas' net profit was due to significantly lower capital gains in the first half of 1997 compared with the year-ago 1996 period.

[10] The US Justice Department investigates CompuServe/AOL link

The antitrust probe initially will focus on the AOL portion of the transaction, officials said. 'We're looking at AOL and CompuServe,' a Justice Department official said. The probe could extend to the WorldCom portion of the transaction, but the department hasn't begun that investigation, the official said.

The proposed sale would strengthen AOL's first-place position in consumer on-line services. It would also bolster WorldCom's commanding lead in high- speed Internet backbone services; the Jackson, Miss., concern would be nearly three times the size of its nearest competitor, according to some estimates.

Under the pact, WorldCom would get CompuServe's 1,200 corporate customers, while AOL would get CompuServe's 2.6 million consumer customers. In addition, WorldCom will pay AOL $175 million for its high-speed Internet division, ANS Communications.

AOL Chairman Steve Case has said he is confident the deal will pass muster with antitrust enforcers.

[11] Boeing reportedly mulls $1 billion development of a larger 747 jumbo jet

Harry Arnold, Boeing's commercial-airplane unit chief engineer, said the company is 'very actively' mulling two new variants of the 747 transport.

The variants would require relatively modest changes, such as a longer fuselage or bigger fuel tanks, the paper said.

Arnold did not say how much the two variants would cost, the paper said.

However, people familiar with Boeing's internal studies said development costs would be about $500 million for the two planes in addition to about $500 million for safety testing and government approval, according to the paper.

Boeing's decision to go ahead with the project would signal the company's determination to protect the 747 as the world's premier long-range commercial transport, the paper said.

[12] Norwich Union interested in Spanish acquisition

In a telephone interview after Norwich Union released its first ever interim results, the company's Chief Executive Allan Bridgewater said 'other countries where we have a presence, such as New Zealand, are already large and mature markets, but Spain may offer us opportunities,' he said.

He added that in the UK there was 'no need for us to make acquisitions.'

He declined to state how much cash might be available for an acquisition, or how it may be financed.

There has been market speculation that Norwich Union might itself be a takeover target.

But Bridgewater swept aside the prospect of the company being taken over and said Norwich Union hadn't received any approaches so far. 'We're confident about continuing as an independent company,' he said.

Earlier Wednesday, Norwich Union said its pretax profit for 24 weeks ended June 15 - the date before it listed on the London Stock Exchange - was £335 million ($502.5 million).

The company didn't give a comparable figure for the same period a year earlier, although finance director Richard Harvey offered a formula which suggests the figure was 306 million, producing a rise of 9.5% in the latest period.

[13] US and Japanese trade relations are worsening, official says

'We are currently experiencing a worsening of our bilateral trade relations with Japan,' said the official, briefing reporters on condition of anonymity.

The official said the US is concerned by Japan's increasing reliance on export-led growth. He said Japan needs to increase domestic demand, and that Japan itself has stated that economic deregulation is one of the primary tools to achieve this.

'Japan's economic growth seems to be increasingly driven by exports. There is a pressing need to increase domestic demand in Japan,' the official said.

The official said the US is 'putting Japan on notice' that it expects concrete results from Japan in the deregulation area, and that the results should be apparent when US and Japanese leaders meet next May.

[14] World Bank forecasts 5.4% annual economic growth in developing nations over next decade

The bank forecast that growth in developing nations would surge to an average of 5.4% a year through 2006, up from 4.5% last year and 2.3% from 1991 through 1995.

Much of the increase, it said, would come from a turnaround in the economies of Eastern Europe and the former Soviet Union, where output declined in the years immediately after the fall of communism. Those economies are starting to grow again, the bank said.

The bank said that growth in the thriving economies of East Asia would begin slowing somewhat in coming years, but that growth would pick up in sub-Saharan Africa, which has seen some of the world's worst poverty.

The positive outlook for developing nations, the bank said, is driven by stable economic conditions worldwide, including low inflation and interest rates, and by surging flows of foreign capital and expertise into emerging markets.

By 2020, emerging nations will become a far bigger factor in world trade, the bank said, creating huge economic opportunities for both industrial and developing nations but also unleashing political pressure to insulate workers and consumers from the turbulence certain to accompany the changes.

'The potential rewards of this expansion will be very large, both in terms of the growth of important export markets and as a source of exports,' said Joseph E. Stiglitz, the bank's chief economist.

'Although there will be transition costs, there is little evidence to justify two of the most common fears, namely downward pressure on unskilled wages in industrial and other developing countries and higher prices for food and energy,' Stiglitz said.

In its report, titled 'Global Economic Prospects and Developing Countries,' the bank foresaw growth rates in the five biggest such economies running only slightly higher than those for developing nations over all. But the sheer size of China, India, Indonesia, Brazil and Russia and their rapid integration into the global economy will have far-reaching consequences, the report predicted.

The rapid emergence of those five nations is likely to 'redraw the economic map of the world over the next quarter-century,' it said.

The five nations will see their share of world output more than double by 2020, to 16.1% from 7.8% in 1992, the report forecast, adding that during the same period the share of output from the richest industrial countries would fall to 66.7% from 81.5%.

The five big emerging economies will also see their share of worldwide exports and imports more than double in the same period, the report said.

'Compared to long-run historical trends in the world economy over, say, the last 200 years, this change would be unprecedented in both its size and speed,' said Milan Brahmbhatt, a World Bank economist who is the report's principal author.

[15] Economic and Corporate Briefs

Associated British Ports announced a near 10 percent rise in half-year profits and vowed to improve its much criticised rates of return after a recent heavy investment programme. Britain's biggest ports operator increased pre-tax profits to 51.5 million pounds ($81.8 million) for the six months to June 30, from 46.9 million pounds a year ago, on turnover up 5.3 percent at 128.9 million pounds.

An Abu Dhabi-based company said it had awarded the U.S.'s Hughes a $1 billion deal for a satellite system to extend mobile telecommunications across the Arab world. Yousuf al-Sayed, project manager for the Abu Dhabi- based Thuraya Satellite Telecommunications Co, said the contract with Hughes will be signed on Thursday in Abu Dhabi.

The Polish government has set up special economic zones in nine areas to spur investment in regions hit by high unemployment or facing industrial restructuring, the economy minister said. Wieslaw Kaczmarek said the zones, which would offer tax breaks to investors, would be created in the regions of Starachowice, Kamienna Gora, Tarnobrzeg, Czestochowa, Olsztyn, Slupsk, Kostrzyn, Zarnowiec and Tczew.

Rolo Banca 1473 said that consolidated net profit in the first six months of 1997 rose to 268 billion lire from 185 billion lire ($152 million) in the comparable period of 1996. Rolo Banca 1473, which is controlled by Credito Italiano, noted that the volumes administered by the bank rose strongly in the period. On the consolidated level, client loans climbed to 35.6 trillion lire from 31.1 trillion lire. Interest incomed edged down 2.1% to 836.2 billion lire from 853.9 billion while income from brokerage activities was little changed, inching down to 1.262 trillion lire from 1.265 trillion.

LG Chemical signed a strategic cooperation agreement with Merck to market LG's biopharmaceuticals including alpha and beta interferon, and human growth hormones overseas. In the initial stage, Merck will market LG items, but the two companies will also cooperate to jointly develop other biopharmaceutical items, LG said. LG Chemical is a unit of South Korea's LG Group, which has other units in the electronics, telecommunications and finance sectors.

United News & Mediasaid that a sharp increase in earnings at its business services unit boosted overall pretax profit to £174 million ($263 million) in the first half from £152 million a year ago.

The UK media and publishing company said the improved result has allowed it to lift interim dividend to 11 pence from 8 pence.

Lord Stevens, chairman, of United News & Media described the result as 'very satisfactory,' and noted current trading conditions remain strong.

'With commanding positions in a number of business and consumer markets, United has a wealth of development opportunities with significant profit potential,' Stevens said.

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

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