European Business News (EBN), 97-01-29

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

Page last updated January 29 1735 CET

CONTENTS

[01] US durable-goods orders drop unexpected 1.7% in December; annual growth slows to slowest rate in three years

[02] Bundesbank president says the mark's 'normalization' against the dollar will soon end

[03] France's Total says net income more than doubled last year

[04] Repsol net profit edges up, but chemicals fail to show expected recovery

[05] German car production is expected to slow this year

[06] Clarke says UK could still be in EMU first wave

[07] France admits it may have to change job-saving law

[08] IBM declares two-for-one stock split

[09] Daimler considers corporate portfolio acquistions

[10] EU to launch probe of BT-MCI merger

[01] US durable-goods orders drop unexpected 1.7% in December; annual growth slows to slowest rate in three years

The December slump slowed the full-year growth rate to 5.5%, the smallest in three years. Analysts had expected a 1.2% December gain in durable goods, products such as cars and computers expected to last more than three years. Falling orders often leads to slower production and fewer jobs. Most analysts said the December figure highlighted the very moderate trend in orders growth and the economy's weak state.

The Commerce Department said durable goods orders totalled a seasonally adjusted $169 billion in December, down from $171.8 billion the previous month and the seventh decline of the year. The drop matched the November decrease, which had been the first since August.

The annual increase was down from 7.2% in 1995 and was the smallest since orders grew 5.4% in 1993.

The December decline contrasted with other recent economic data, which suggested the economy was growing moderately at year's end. In fact, the manufacturing sector itself added 19,000 jobs in December, when the number of hours worked and overtime both increased. At the same time, inflation remained under control, leading many analysts to believe the Federal Reserve, the U.S. central bank, will not feel compelled at its meeting next week to raise interest rates to prevent accelerating inflation.

The December decrease was led by a 12.5% plunge in orders for electronic and other electrical equipment such as circuit boards and communications gear. It followed a 10.2% drop in November.

Transportation orders were unchanged as increases in shipbuilding and tanks and railroad equipment more than offset decreases in motor vehicles and aircraft.

However, bookings for primary metals and industrial machinery and equipment both posted gains. Primary-metals orders rose 2.2% following a 0.6% advance in November.

Tickets for industrial equipment such as computers and household appliances increased 1.5%, the first rise since July. Some economists noted that these increases showed that the decline in orders wasn't uniform, indicating that the economy wasn't as weak as it appeared on the surface.

Nevertheless, unfilled orders were unchanged in December after edging up 0.3% a month earlier, suggesting businesses could find it necessary to increase production facilities and manpower to meet demand. And shipments, a measure of current activity, declined 0.8%, wiping out an 0.8% advance a month earlier.

[02] Bundesbank president says the mark's 'normalization' against the dollar will soon end

Tietmeyer didn't offer any further details, but the Bundesbank has in the past months often referred to the mark's downward correction against the dollar during the past year as a normalization from its early-1995 appreciation against the U.S. currency. Around 1220 GMT, the dollar traded at DM1.6460, down from DM1.6530 shortly before the news, and from an intraday high of DM1.6551 at 0705 GMT.

Earlier in the day, the U.S. dollar temporarily hit 122.75 yen in London following strong upward momentum in Tokyo overnight. The rate was its highest level since February 1993.

By 1100 GMT, the dollar was changing hands at 122.35-45 yen, down from late Wednesday's quote of 122.62-65 yen in Tokyo.

But the dollar fell to 122.00 yen in early London trading due to rumours that monetary authorities had intervened in exchange markets to support the yen, but soon rebounded, traders said.

Japanese Finance Minister Hiroshi Mitsuzuka also said the government will take appropriate counter-measures should the yen either depreciate or appreciate excessively.

[03] France's Total says net income more than doubled last year

Net income soared to 5.6 billion francs ($1 billion) last year, aided by the absence of special charges and positive external factors. The figure was in line with analysts' expectations. Operating income jumped 37% to 10.2 billion francs, boosted by a 63% increase in income from upstream activities to 7.3 billion francs.

Total said it expects further profit gains.

Thierry Desmarest, chief executive officer, wouldn't be specific about earnings potential for the current year, but he said expects operating income to improve by 4 billion francs over the next three years, not including external factors. He expects the growth to come from productivity gains and internal growth. He noted that he had made a similar projection three years ago at which time he expected operating income to grow 3.6 billion francs.

Total said that in 1996, external factors, a rise in the price of Brent, improved European refining margins and a higher dollar had contributed 2.0 billion frasncs to operating income.

Internal growth and productivity efforts added 1.6 billion francs but increased expenses cut 300 billion francs from the total.

Last year, Total took 1.5 billion francs in exceptional charges for the application of new U.S. accounting standards and restructuring charges. In 1996 it took a 500 million franc charge at the operating level for the Lylle-Frigg platform offshore Norway.

Total said it planned to increase capital spending to 18 billion francs in 1997 from 16 billion francs in 1996.

Return on equity was 10.3% in 1996, in line with a plan to raise it to 10% in 1998 and 12% in 2000. Ongoing productivity efforts, it hoped, would allow a further improvement in profitability in the next few years.

[04] Repsol net profit edges up, but chemicals fail to show expected recovery

Operating profit however fell to 197.23 billion pesetas, while losses from extraordinary sources narrowed to 1.11 billion pesetas from 7.04 billion pesetas the year before. 'The favourable performance in the second half has allowed the company to obtain the best results in its history,' the company said. Financial losses narrowed to 8.23 billion pesetas from 16.57 billion pesetas in 1996. Tax payments also improved, falling to 55.55 billion pesetas from 60.56 billion a year earlier.

In the nine months to September, Repsol posted a 5.6% fall in net profit to 86.98 billion pesetas. The firm said the chemical division was the only one which did not improve its operating results.

Some analysts have predicted a recovery in chemicals in the fourth quarter, as well as greater contributions from Repsol's exploration and production divisions.

The operating profit is not directly comparable to the previous year's figures because income will have been boosted by the purchase of a 37.7% controlling stake in Argentine refinery Astra as well as Repsol's inclusion in a consortium which bought 60% of Peru's la Pampilla refinery in the second quarter of 1996.

The Spanish government is due to sell its remaining 10% stake in the firm on the stock market later this year.

[05] German car production is expected to slow this year

The outlook for slower growth is the latest indication of the slump in the German car industry and the weakness of the country's auto market. Bernd Gottschalk, president of the car makers' group, said production this year would slow to between 2% and 3% from 4% last year. Overall sales of German cars rose 8% last year. The VDA said that German domestic car production in 1996 rose to 4.54 million units. Overall vehicle production rose to 4.85 million units.

While the production of light trucks and commercial vehicles boomed, rising 10% on the year, Gottschalk pointed to a 'a dark cloud on the heavy truck horizon.' Production of trucks weighing over 6 tons fell 15% in 1996.

Looking ahead, Gottschalk said `1997 has potential, but it will be anything other than self-sustaining.' He added that 'uncertainty and risk are not to be underestimated and could cloud the good prospects for the auto industry.'

The VDA president said the fundamentals for growth are in place with German carmakers expected to increase investment by 5% five percent this year and producing models well received in the market place.

But slow economic growth at home, high labour costs and tax burdens could yet wear on the nation's car industry.

The key to growth may lie outside Germany's borders where economic growth is expected to be stronger and where German carmakers have made strong inroads.

Last year, German firms boosted their share of the global car market to 14.7% from 14.2% the year before.

'We should not forget that outside the current muted mood in Germany, a majority of our trading partners expect a continuation of economic growth,' Gottschalk said.

The VDA chief, however, warned that foreign demand will be anything but robust and could even fall in some cases.

Gottschalk said top priorities for the German car industry are to reduce costs and taxes.

[06] Clarke says UK could still be in EMU first wave

'The cabinet has not ruled out joining in the first wave,' Clarke told an interview with Wednesday's Financial Times newspaper, downplaying recent speculation that there had been a change of government policy toward the single currency.

Clarke reiterated the UK government's view that it is unlikely European Economic and Monetary Union will start on time. But he said, 'The chances are it will start in the next parliament.'

Prime Minister John Major is scheduled to call a general election by May.

'There can't be anyone who thinks I'm going to fight a Euro-sceptic election campaign,' said Clarke, who is widely seen a pro-European within the cabinet.

On the domestic front, Clarke said there was evidence the economy was strengthening but there was no sign of an 1980s- style boom.

'I think everything shows a strengthening recovery, not out of hand, not showing symptoms of a boom and not building up inflationary pressures,' he said.

Britain could still be in the first group of countries to join a single European currency, the UK's Chancellor of the Exchequer Kenneth Clarke said.

'The cabinet has not ruled out joining in the first wave,' Clarke told an interview with Wednesday's Financial Times newspaper, downplaying recent speculation that there had been a change of government policy toward the single currency.

Clarke reiterated the UK government's view that it is unlikely European Economic and Monetary Union will start on time. But he said, 'The chances are it will start in the next parliament.'

Prime Minister John Major is scheduled to call a general election by May.

'There can't be anyone who thinks I'm going to fight a Euro-sceptic election campaign,' said Clarke, who is widely seen a pro-European within the cabinet.

On the domestic front, Clarke said there was evidence the economy was strengthening but there was no sign of an 1980s- style boom.

'I think everything shows a strengthening recovery, not out of hand, not showing symptoms of a boom and not building up inflationary pressures,' he said.

[07] France admits it may have to change job-saving law

French appliance maker Moulinex announced a plan this week to use the law to drastically scale back a plan which would originally have reduced staff levels by 2,100. But the law has run into controversy following trade union demands that it be used in the public transport sector.

The 'Loi Robien' gives employers relief on payroll charges over seven years when they reduce working time to help stem job losses but does not apply in the public or monopoly sectors and is now subject of a debate in the public transport sector.

'We do not see how the public sector can take advantage (of this law) when the public sector is already financed by taxes,' Lamoussoure.

Lamassoure said the use of the law would be reviewed by the government to see if it was being applied in the best way.

'If that's not the case, we will perhaps have to reexamine the conditions of its application,' he told France Inter radio.

[08] IBM declares two-for-one stock split

Several stockbrokers from around the U.S. said they didn't really care about the reasons for the split, but were happy about the potential for more commissions. They expect the split to help attract more investors, who might not have been able to afford a stock at $150 a share or who might have been nervous about investing that much in one issue.

IBM had 508 million shares outstanding at year end and will have just over one billion shares outstanding following the 2-for-1 split. The company's board also voted for a regular quarterly cash dividend of 35 cents a common share and said its next annual meeting will be held April 29 in Dallas.

The last time IBM had a stock split was in May 1979, when it recorded a 4- for-1 split, according to company spokesman Rob Wilson. He declined to comment on why the company's board had decided to split the stock.

Several stockbrokers from around the U.S. said they didn't really care about the reasons for the split, but were happy about the potential for more commissions. They expect the split to help attract more investors, who might not have been able to afford a stock at $150 a share or who might have been nervous about investing that much in one issue.

IBM's share price has dropped sharply over the past week after the company released fourth-quarter earnings, which met estimates because of an unexpected boost from a lower tax rate. The shares reached a nine-year high of $170.125 on Jan. 21 before the earnings results were released. IBM's all- time, split-adjusted high of $175.875 was reached on Aug. 21, 1987.

IBM's shares on Tuesday rose primarily on a rating upgrade from Salomon Brothers Inc. to 'strong buy' from 'buy,' market participants said.

At midafternoon Tuesday, IBM's stock price was up $5.625, or 3.9%, at $151, on volume of five million shares on the New York Stock Exchange, compared with average daily volume of 3.6 million shares.

[09] Daimler considers corporate portfolio acquistions

In an interview with Stern, Schrempp said Daimler would consider buying companies that are engaged in the same kind of business that Daimler already is involved in and understands. Stern provided a summary of the interview to the press before the magazine was published.

The Daimler chairman said the company had made mistakes in the past but was now trying to do something about it. `It is much harder to acknowledge mistakes and then correctthem. I am not one for the defensive,' Schrempp said.

Meanwhile, the firm's financial and information services unit, Daimler-Benz InterServices, reported that its 1996 sales rose 15% to 13.6 billion marks ($8.2 billion).

The company, a unit of car maker Daimler-Benz, also said it had 'good' operating results in 1996 and expected 1997 sales of well over 14 billion marks.

[10] EU to launch probe of BT-MCI merger

The move, which European Union sources say will be announced Thursday or Friday, follows a one-month initial investigation. European antitrust authorities now have four months to rule on the $20 billion-plus BT-MCI merger, which also is being scrutinized by U.S. regulators.

As in the U.S., BT and MCI competitors are pressing for the commission to impose conditions in exchange for clearing the merger. These could include better access to the British telecommunications market. The commission's decision to launch a detailed inquiry allows it to coordinate with the U.S. Federal Communications Commission - and ensure that European regulatory concerns aren't overlooked in any eventual U.S. ruling.

According to industry sources, the commission already has received comments on the merger from U.S. and European telephone companies, which focus on the dominant position that BT holds in the U.K. market. A key complaint is that customers on the BT network have to dial extra digits to choose a rival carrier for long-distance or international calls. Another problem is that competitors - at least initially - won't be able to completely bypass BT in receiving and delivering traffic between the U.S. and the U.K.

Competitors are particularly critical of the U.K.'s decision not to opt for a system of equal access - industry jargon for the pre-selection of competing long-distance and international carriers. Instead, callers on the BT network must use cumbersome three- or four-digit codes and in some cases personal identification numbers to select an alternative provider.

Moreover, callers who use service providers with only a small market share, such as cable companies, aren't given a choice of carriers for long- distance and international traffic.

Still, Larry Stone, BT's head of EU affairs, expressed confidence that the merger would eventually be cleared by the commission. `The climate is very good,' he said.

Although the U.K. is one of the most open markets in Europe, rivals say that problems persist. On paper, they are allowed to offer competitive local, long-distance and international services, but in reality they say they are hampered from gaining enough market share to justify building their own facilities and shedding their dependence on BT. The British company controls more than 90% of the U.K. residential phone market and about 68% of international traffic.

Meanwhile, the commission's decision to launch an in-depth merger inquiry is expected to clarify the issue of where a telephone company generates its revenue, with potentially wide-ranging implications for other telephone companies. The Commission, which has been grappling with the issue since 1994, is expected to rule that revenue is generated where a call originates. This means any money U.S. carriers earn from completing calls originating in Europe will count as EU revenue.

In the BT-MCI merger, the distinction on where revenue comes from is important because it determines whether the case falls under the jurisdiction of the U.K. government or the commission. More important, the country-of-origin method for revenue will enlarge the commission's influence over mergers in the sector, according to commission and industry sources.

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

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