European Business News (EBN), 97-10-07

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CONTENTS

[01] German jobless data holds some hope for continued moderation in labour cost gains

[02] UK September retail prices rise 3.6%

[03] SAP sales surge unexpectedly

[04] French unions plan 36-hour transport disruption

[05] Dresdner Bank loses another board member

[06] Vereinsbank to issue 19 million new shares

[07] Denmark holds referendum on Amsterdam treaty

[08] Belgian cabinet approves 1998 budget

[09] Prodi says money from Telecom Italia sale could be used to finance job creation programme

[10] Kohl faces internal pressure to relinquish Christian Democratic Union leadership

[11] Kemira's eight month pretax profit climbs 5%

[12] Valeo sees 1997 profit unaffected by new tax laws

[13] Christian Dior first half profit rises 12.3%

[14] Corporate and Economic Briefs

[01] German jobless data holds some hope for continued moderation in labour cost gains

With 4,308,058 jobless in September and no signs that this number will drop rapidly, there is little reason for the Deutsche Bundesbank to fear German labour unions will make immoderate wage demands any time soon, economists said.

The German Labor Office reported that unemployment rose by a seasonally- adjusted 34,000 in September. Meanwhile, the overall unemployment rate, which isn't adjusted for seasonal factors, dropped to 11.2% from 11.4% in August.

'It's too early to talk about a turnaround in the unemployment market, and the tone of the unions so far has been moderate and very mixed,' said Ulrike Kastens, an economist at Trinkaus & Burkhardt in Frankfurt.

The Bundesbank has repeatedly said recent price rises can't justify a pre- emptive interest rate increase as long as they are offset by falling wage union costs and moderate wage demands.

While the Labour office and the government are proclaiming that unemployment in the west has more or less bottomed out, Germany's eastern region continues to spoil the overall picture.

In the east, the number of seasonally-adjusted jobless rose by 26,000 in September. Economists estimate that a cut-back in job-creation schemes and training programs is responsible for 15,000 of the lost jobs.

There's little doubt that the German recovery is boosting employment in the west, particularly in the export industry. And some say this trend will become even stronger in the future. 'I assume that if the export boom continues, we'll see an effect on jobless figures next year,' Michael Fuchs, president of the German Association For Wholesale And Foreign Trade.

And while the government continues to place high hopes on Germany's cyclical recovery, structural impediments combined with sluggish retail and construction sectors will likely prevent an economic turnaround as they offset additional jobs created in the export sector.

'In the east, the economic motor has stayed comparatively weak because of the lesser importance of the expanding export industry and the greater importance of the shrinking construction industry,' the Labour Office said.

Ralf Kugelstadt, economist at Union Bank of Switzerland in Frankfurt, also points to companies' continued rationalisation efforts ahead of the start- up of Europe's single currency that are hampering major improvements on the labour market.

Taking all these gloomy factors as a whole, Kugelstadt said, there's scant likelihood German unions will make unreasonable wage demands in the near future.

'The high level of base unemployment doesn't provide any background for unfavourable wage contracts,' said UBS's Kugelstadt. 'While the Bundesbank will continue to raise its voice and warn against inflationary wage contracts, this is actually quite unfounded,' he added.

Instead, Kugelstadt calls the demands made so far by German public sector unions 'very constructive.' The public sector workers union, OeTV, and the white collar workers union DAG, have started early negotiations with employers on job preservation.

Though their wage contracts won't run out before the end of the year, OeTV wanted to start talks early to stabilise and boost employment in its sector. Many economists see these negotiations as a sign that the unions are prioritising job preservation over wage increases.

Uta Harnischfeger, Dow Jones Newswires, Frankfurt

[02] UK September retail prices rise 3.6%

UK annual retail prices rose 3.6% in September on the year compared with 3.5% in August, while the underlying RPIX rate rose 2.7%, from 2.8% in the previous month. The RPIX rate excludes mortgage interest payments.

Retail price inflation was in line with median forecasts from a Dow Jones Newswires survey that indicated RPI would rise 0.5% on the month and 3.6% on the year. The RPIX was forecast to rise 2.7% in September from a year earlier.

The Office for National Statistics said increases in housing costs and food prices were mainly responsible for the rise in the annual rate of inflation. The annual rate of retail price inflation at 3.6% was last higher in September 1995 when it was 3.9%.

Mortgage lending rates rose slightly, as a major lender reacted to the fourth rise in the official lending rate to 7%. This was compounded by the effects of last September's cut in mortgage rates, which fell out of the 12- month comparison. Seasonal food prices also showed a small upwards rise, while price cuts from a major supermarket chain in September last year failed to be repeated. There were also increases in charges for household services, such as moving charges, with estate agencies raising their fees. But the ONS also said that automobile maintenance, fuel and second-hand car prices fell in September.

Within fuel and lighting costs, there was also the reduction in the value- added-tax to 5% from 8% which took effect in September.

The ONS also reported a small downward effect within clothing and footwear. The annual rate for housing at 9% was last higher in March 1991 when it was 14%. Retail price inflation excluding mortgage interest repayment and indirect taxes, or RPIY, was the lowest since March 1995.

[03] SAP sales surge unexpectedly

'The positive business run of the first-half continued into the third quarter,' the company said in a statement. 'After a preliminary analysis, sales as well as costs rose more than had been expected. The rise in costs remained just slightly behind the rise in sales.'

SAP's earnings, in the meantime, continue to be favourably influenced by foreign exchange rates and a high demand for software, the company said. In July, SAP had already retracted an earlier first-half sales projection based on buoyant business. That projection was for a 25% to 30% rise in first-half group sales.

The company later reported sales in that period surged 51% to 2.4 billion Deutsche marks ($1.3 billion). Pretax profit in the first six months rose 56% to 582 million marks. Precise figures for the previous year weren't provided.

But since SAP's statement gave no specific figures, it left analysts looking for a more substantial, long-term outlook to arrive with the earnings report later this month.

'In the beginning of the year, SAP was very cautious,' said Hans Peter Wodniok at Credit Lyonnais. 'What they say October 22 will give an idea of what the full year will be like.'

Wodniok forecast third-quarter sales would rise 50% to 1.1165 billion marks, with pretax profit climbing 54 percent to 208 million marks. SAP's original forecast of sales growth of 25 to 30% was based on a dollar valued at 1.50 marks - well below its current level of 1.77 marks and highs around 1.87 marks in August. In July SAP said that if the dollar remained strong, growth for the full year could be 37% to 42%. A third of SAP sales come from the United States.

Yet the dollar was not the only factor boosting growth. The company, which sells business management software for large organisations, was also gaining new customers in small businesses, the public sector and key sectors such as aerospace, analysts said.

In September co-chief executive Hasso Plattner said that SAP recently won a string of contracts from aerospace and defence companies, although he declined to elaborate. And in August Salomon Brothers analyst Neil Herman lowered his rating on SAP rival Baan, saying that 'in its one-year old effort in the aerospace and defence sector SAP appears to have gained significant ground against Baan.'

[04] French unions plan 36-hour transport disruption

The national rail company SNCF said it could guarantee only a third to one half of trains scheduled between 1800 and 0600 GMT Thursday, though the cross-Channel Eurostar service won't be affected.

Starting tomorrow morning, only half of Paris subway and suburban trains will run, and only 80% of the capital's bus service, the Paris regional transport authority said.

The country's four biggest transport unions called the strike 'to express their determination and will to see open and real negotiations' come out of Friday's job conference, the unions said in a statement.

Prime Minister Lionel Jospin will lead the meeting with representatives from government, unions and industry leaders to discuss a variety of job issues, including cutting France's 12.5% unemployment, reducing the work week, salary disputes and increasing public spending.

[05] Dresdner Bank loses another board member

Adenauer had only last week incensed his colleagues at the scandal-plagued bank, currently Germany's second-largest, by refusing to resign despite admitting that he had concealed income from German tax authorities for years.

The admission came at a particularly embarrassing time for Dresdner, whose long-time management board chairman, Wolfgang Roeller, resigned in September to defend himself against accusations of tax evasion.

German tax authorities have been investigating Dresdner for more than two years on suspicion that the bank has systematically helped its clients to avoid taxes.

Shortly before resigning, Roeller had blocked the extension of current management board chairman Juergen Sarrazin's contract, a move attributed by some to dissatisfaction with Sarrazin's performance over the past few years. Sarrazin will be succeeded by board member Bernhard Walter in 1998.

Adenauer, who is a great nephew of former German Chancellor Konrad Adenauer, had been with Dresdner for some 30 years, and in its management board for the past 11. His departure will likely be confirmed at Dresdner's supervisory board meeting on Nov. 25.

In a terse statement, Dresdner gave no reason for Adenauer's departure, saying only that the bank 'owes him particular thanks' for his services.

[06] Vereinsbank to issue 19 million new shares

The German bank said it will issue 19 million new shares at a price of 85 Deutsche marks each under its 1-for-14 rights issue.

'We are providing the new joint bank with a capital base that will make it able to compete internationally and that will give us leeway to realise our ambitious goals,' Vereinsbank chairman Albrecht Schmidt said in a statement.

Schmidt will take over as chief of the new bank when it starts operations around September next year, aiming for success as a 'supra-regional' institution.

The bank, one of Germany's largest mortgage lenders, will also issue a further tranche of 17 million new shares on the open market exclusive of shareholder rights. The open market placement will carry a greenshoe option totalling a further three million shares. Exclusive of the greenshoe, Vereinsbank will thus issue a total of 36 million new shares, raising its nominal base capital by 180 million marks ($100 million).

At market value, the rights issue will raise 1.615 billion marks in fresh capital, while Vereinsbank said it estimated the total value of the capital increase at 'over 3 billion' marks. The capital increase forms part of a move to merge with Bayerische Hypotheken- und Wechsel-Bank.

In July, Vereinsbank and Bayerische Hypotheken- und Wechsel-Bank announced they will merge to form Germany's second largest banking institution, called Bayerische Hypo- und Vereinsbank. Also in July, Deutsche Bank, Germany's largest bank, said it had amassed a 5.2% stake in Vereinsbank, but said it didn't plan to raise its stake.

In December, Munich-based utility Viag raised its stake in Vereinsbank to 10.24% from just over 7% previously. And in the same month, Vereinsbank said it sees a 'good result' for 1997, after operating profit rose 15% in the first half to 766 million Deutsche marks.

In June, Vereinsbank acquired Noris Verbraucher Bank for an undisclosed sum, and will merge it with its Franken WKV Bank unit. The two will form the core of Vereinsbank's consumer lending operations.

[07] Denmark holds referendum on Amsterdam treaty

The vote - the fifth on the EU since Denmark joined in 1973 - will come after the country's highest court in March determines whether the previous treaty is constitutional.

Danes are known for their lukewarm attitude about EU membership, especially after the 1992 Maastricht treaty in which member countries agreed to greatly expand EU consolidation.

Recent opinion polls show a majority in favour of the newest treaty negotiated in Amsterdam in June. Nyrup Rasmussen said Danes should vote for the treaty because it opens up EU membership for Eastern European nations, meaning 'we now can start building a new and undivided Europe.'

The treaty also defends 'key Danish issues' such as democracy, human rights and better cooperation in the fields of environment and employment, he said in his address to the opening session of Parliament.

Nyrup Rasmussen said the new accord also respects the four opt-out clauses that Denmark negotiated after voters initially turned down the Maastricht treaty.

The waivers allow Danes to remain outside a single currency and banking system and refrain from joining a European defence structure or conform to EU citizenship laws and common law enforcement.

Only Denmark, Portugal and Ireland are to hold plebiscites on the Amsterdam treaty. EU opponents have filed a court case claiming that signing the Maastricht treaty went against Denmark's constitution because the treaty requires Denmark to cede some of its sovereignty. The Supreme Court ruling is expected in March.

[08] Belgian cabinet approves 1998 budget

In the budget the government will set a target for national health and disability insurance, one of the main spending items, announce measures to stimulate employment and to reform the law and order system, the cabinet said in a statement.

'A bit scruffy,' Het Laatste Nieuws said. 'Is this all?' it said in its editorial comment. It noted that the Belgian employers' federation had said 150 billion francs ($4.1 billion) were needed and that a plan by the CVP party of Prime Minister Jean-Luc Dehaene still advised a cut in charges of 80 billion.

'This does not suffice as a signal to the population that the tide is turning,' Het Nieuwsblad said. Newspapers also criticised the government's decision to maintain two separate police forces - the communal police and gendarmerie - on a local level, although they will be required to work more closely together.

Calls for reform of the police erupted after a wave of paedophile murders last year.

'The framework of the new police does not solve all the operational problems and will not prevent in the future the incoherencies and hierarchical rivalries,' La Libre Belgique said.

The budget, due to be presented to parliament by Prime Minister Jean-Luc Dehaene later on, aims to cut the budget deficit to 2.3% of gross domestic product - well below the 3% target set by the Maastricht treaty. It also meant that Belgium was outperforming most other countries hoping to join the launch of European economic and monetary union in January 1999.

[09] Prodi says money from Telecom Italia sale could be used to finance job creation programme

Prodi, however, appeared to concede to his far-left allies on - among other points - their demand that the state-run Istituto per la Ricostruzione Industriale could be used to oversee a large job-creation program in southern Italy, where unemployment is twice as high as the national average.

He said cash raised from the privatisation later this month of Telecom Italia could be used to finance the IRI-led jobs program. The state is expected to raise around 18 trillion ITL ($10 billion) from that sale.

Prodi warned, however, that Italy 'couldn't turn backward' by having parliament reject his 1998 budget.

The country, he said, wouldn't understand renewed political instability just as it is about to join the European economic and monetary union.

The far-left Rifondazione Comunista has repeatedly threatened to reject the budget, a move which could force the centre-left government to collapse.

Prodi told parliamentarians his government remains willing to discuss parts of the 1998 budget with allies and all political parties.

The leader of the RC, Fausto Bertinotti, will address parliament around 1530 GMT, a which point he could indicate whether the RC will change its mind and back the 1998 budget.

After Prodi's speech, Bertinotti said: 'There is an enrichment, an opening, but the fundamental situation is the same.'

RC chief economist said Prodi's speech was strong and will force his party to reflect before deciding which way to go on the budget.

Another RC deputy, Giovanni Meloni, also said Prodi's speech was 'crafty' and needed to be studied.

[10] Kohl faces internal pressure to relinquish Christian Democratic Union leadership

Senior members of the Christian Democratic Union, which opens its annual conference Sunday in Leipzig, called on Kohl to step aside to improve the party's chances with the voters.

'There's increasing pressure for a change at the top' among party members, Peter Mueller, CDU chairman for the German state of Saarland, said in this week's edition of Stern magazine, released today.

Mueller said the CDU leadership has subjugated itself too much to Kohl, who has held the party chairmanship since 1973 and the chancellor's job since 1982. But that is beginning to change, he said. 'Many are saying we finally need a fresh face.'

In the same report, German technology minister Juergen Ruettgers warned his party against basing its 1998 election campaign around Kohl.

The party must 'answer the question: Why do we want to him to govern again for another four years,' he said.

Klaus Escher, chairman of the CDU's youth wing, also called on Kohl to step aside as party chairman, saying it was time for a 'generational change.'

Away from the rumblings of party discontent, Kohl, speaking at a factory opening, said that Europe's planned monetary union would create a strong currency that equalled the dollar and was stronger than the yen.

In the eastern German town Wolfen, Kohl told reporters the euro would be ranked 'next to the dollar and ahead of the yen'. He said the currency, planned to be launched in 1999, would resolve a number of problems in Europe and would be consistently stable.

[11] Kemira's eight month pretax profit climbs 5%

Total net sales increased by 7.8% to 9.73 billion markkaa in the first eight months of the year, while sales in the core businesses (chemicals, pigments, agro and the colorants production within in the Tikkurila unit) were up 11%, Kemira said.

During the rest of the year the outlook remains positive for both Kemira Chemicals and Tikkurila. The former is seen to maintain its current profitability level with the full-year operating profit being close in that in 1996, while Tikkurila should top its 1996 operating income thanks to continued growth in its Baltic and Russian operations, Kemira said.

The Tikkurila unit is also seeing strong growth of its colouring processing systems.

Both Kemira Agro and Kemira Pigments, meanwhile, are expected to report a full-year profit below last year's. The pigments division should however show operating earnings figures in the black for the final four months of the year for the first time since January-April 1996.

'The whole titanium dioxide industry is going through a shakeout process, which should result in a major change in the industry structure and contribute to a better outlook for the industry,' Kemira said.

For the group as a whole operating earnings are expected to be close to the record level in 1996, the company said.

[12] Valeo sees 1997 profit unaffected by new tax laws

The French car parts maker attributed the increase to faster growth during the third quarter.

Valeo's outlook comes despite an expected 30 million francs increase in taxes due to a 15% increase in corporate taxes announced in summer by the French government. Sales should come in at 33 billion francs in 1997, up from the 28.9 billion francs it posted in 1996. Valeo said international sales accounted for about 70% of sales in the first nine- months, with sales outside France increasing at a faster pace than domestic sales. The company said it's currently rationalizing its industrial base in France and Germany to reduce costs, but didn't provide any specific details.

[13] Christian Dior first half profit rises 12.3%

LVMH has not announced its earnings yet. Sales increased to 22.2 billion francs from 13.9 billion francs a year earlier because of the integration of sales from its US-based DFS Groups unit. LVMH bought a 61% stake in the duty-free shop company in late 1996.

On a constant basis, sales would have risen 9% during the comparable first- half periods, Christian Dior said. The company said its amortization of goodwill rose to 77 million francs in the first half of 1997 from 19 million francs a year earlier.

[14] Corporate and Economic Briefs

Denmark's retail sales index for the two-month period July to August 1997 fell 0.5% compared with the previous two months, according to seasonally- adjusted data from Danmarks Statistik, the national statistics agency. The average index for July and August rose 0.2% from the same period in 1996, the agency said.

Italy's total trade surplus narrowed to 10.791trillion lire ($6.27 billion) in July, from 12.122 trillion lire in July, 1996, according to figures released by the state statistical office Istat.

BASF said that sales in its plant protection unit rose to 2.7 billion Deutsche marks ($1.5 billion) in the nine months ended Sept. 30, up 42% from 1.9 billion marks in the same period a year earlier. For the full year, BASF said its plant protection unit expects sales of around 3.2 billion marks and earnings 'significantly above plan and above the year-earlier result.' A BASF spokeswoman declined to reveal l996's earnings figure. Split by product group, BASF's herbicide sales posted the strongest rise in the first nine months of 1997. Herbicide sales rose to 1.7 billion marks, up 55% from 1.1 billion marks in the first nine months of 1996, the company said.

European Union annual inflation rose to 1.8% in August, from 1.7% in July, the Luxembourg-based EU statistics body, Eurostat said. Inflation increases were detected in all but four member states: Ireland, the UK, Italy and Belgium. Irish inflation, the lowest rate by far in the EU, fell because of the elimination of local authority charges, and because of a drop in clothing prices, Eurostat said. The EU-wide rate remains lower than the inflation rates of Japan and the US, Eurostat said. US inflation remained at 2.2% in August, while the Japanese figure rose to 2.1%. Swiss inflation remained at just 0.5%, Eurostat said, but it added that the figures from Switzerland, the US and Japan aren't strictly comparable with Eurostat's method of calculating a weighted average of all the harmonized indexes of consumer prices from EU member states. Meanwhile, the August rate for the European Economic Area, made up of the fifteen E.U. member states plus Norway, Iceland and Lichtenstein, was also 1.8%, Eurostat said.

European Union chemical production during the first half of 1997 rose 4% in volume from a year ago, the industry says. But the European Chemical Industry Council says it is sticking to a June forecast of year-on-year volume growth in 1997 of 2.5% because EU chemicals production in the first half of 1996 was 'relatively weak.' The information is included in a CEFIC report received by Dow Jones Newswires. CEFIC says chemicals production in early 1997 was sharply higher in Belgium and the Netherlands, appreciably higher in Italy and lower in the UK.

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