European Business News (EBN), 97-02-06

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

Page last updated February 6 1500 CET

CONTENTS

[01] Clinton budget forecasts $17 billion surplus in 2002

[02] German jobless rate rises to 12.2% as record number of people find themselves out of work

[03] Preussag profit drops 21% as steel operations falter

[04] ICI earnings are pressured by the pound and weak chemicals prices

[05] Opel warns of 31% drop in `96 profit despite 9.3% revenue gain

[06] BT earnings grow as telephony demand remains strong

[07] News Corp. posts lower earnings for the quarter, but sees 20% gain for the year

[08] Corporate and Economic Briefs

[01] Clinton budget forecasts $17 billion surplus in 2002

But the budget, which proposes $100 billion in tax cuts and relies increasingly on new fees to keep the deficit under control comes amid signs that budget savings are becoming increasingly difficult to attain.

The budget highlights $388 billion in proposed savings over the five-year window (including some $80 billion in proposed revenue increases) and the fact that the administration is a full two years early in cutting back the size of the federal payroll, having projected a cut of 273,900 from federal payrolls by the end of fiscal 1997.

The Federal Workforce Restructuring Act enacted in 1994 had required only that the administration cut 272,900 full time employees by the end of 1999.

However, after spending increase and tax-cut proposals are counted, net savings shrank to about $252 billion.

A large proportion of the savings won't be accomplished until the final two years, leaving the budget plan open to criticism that it is 'backloaded.' Office of Management and Budget spokesman Lawrence Haas rejected the notion that the budget is backloaded, noting the administration has already reduced the deficit by two-thirds since 1993.

In addition, the Administration proposed $98 billion in tax cuts, including a $500 per child tax credit and a $1,500 tax credit for post-secondary education and greater flexibility in the use of Individual Retirement Accounts.

However, the figures show unmistakable signs that deficit-cutting is getting harder to accomplish.

Estimates for government receipts are lower and projections for outlays are higher throughout the five-year timeframe of the budget compared with administration estimates calculated only six months ago.

While still reaching a surplus in fiscal 2002, the budget estimates that the surplus will be only $17 billion, less than a third of the $60 billion the administration expected last July.

The fiscal 1998 budget projects outlays will be boosted in part by an $18 billion measure to restore welfare benefits for legal immigrants and nutrition programs contained in last year's welfare bill. The cutbacks 'had nothing to do with moving people from welfare to work,' the administration said.

Total spending in the bill would rise from $1.69 trillion in 1998 to $1.88 trillion in 2002. That's up substantially from the range of $1.63 trillion to $1.86 trillion estimated in the administration's midsession review in July.

Total revenues, bolstered by an array of proposed user fees, will still be slipping over the timeframe compared with estimates of several months ago. Revenues will rise from $1.57 trillion in fiscal 1998 to $1.90 trillion in 2002. That compares with a range of $1.59 trillion to $1.92 trillion estimated in July.

The deficits are much lower than Congressional Budget Office baseline estimates, which measure what the deficit would be with no policy changes. If Washington were to run on 'automatic pilot' for the next five years, it would run a deficit of $120 billion and the shortfall would quickly mount to $188 billion in 2002.

[02] German jobless rate rises to 12.2% as record number of people find themselves out of work

The number of unemployed workers rose by 160,000 from December, three times larger than independent analysts had expected.

German Federal Labour Office chief Bernhard Jagoda tried to inject some brightness into the country's gloomy jobs picture, saying the unemployment rate would fall in the spring.

'This figure cannot be made to look good, but it should also be recognised that the situation in January contains seasonal unemployment, and it follows that in spring we can reckon with a clear reduction,' Jagoda said.

[03] Preussag profit drops 21% as steel operations falter

Net profit in the year ended September 30 fell to 274 million ($166 million). But the diversified German industrial group said it was able to retain its 12 mark dividend because of strong performances by its energy, logistics, and building technology operations.

Offering hope for the current year, Chairman Michael Frenzel said prices, orders and output at its Preussag Stahl unit were rebounding strongly and prices were beginning to follow. He said he sees a good outlook for the current year.

'If current trends solidify, Preussag profit will be clearly higher,' Frenzel said. The 1995/96 result was better than most analysts' expectations, and better than the first-half trend. 'Prices followed these trends only hesitantly, but we were able to raise our prices in the first quarter,' Frenzel said.

'We are sure that we are passed the low point in prices, but we cannot say how quickly the train will gather momentum,' he said.

Frenzel said it was too early to give a solid earnings outlook for the steel sector. 'The crucial factor will be whether we can implement the planned price increases.'

While the upturn in steel prices is still tentative, the company is already benefiting from higher prices for non-ferrous metals, higher oil prices and the stronger dollar, which boosts its mark-denominated revenues from energy products.

The weak domestic economy, particularly in steel, added to the challenges Preussag faced in building up its international business in 1995/96. The company is counting on cost management to increase profitability, Frenzel said.

[04] ICI earnings are pressured by the pound and weak chemicals prices

Fourth quarter pretax profit dropped 46% to £105 million ($643 million), while for the full year, earnings fell 37% to £603 million. Analysts had been expecting full year profit of about £620 million.

'The full-year currency effect on profits was minimal, but the strength of sterling in quarter four reduced profits by about £15 million,' compared with the year before, Chairman Sir Ronald Hampel said.

Chairman Sir Ronald Hampel also said the results again reflected the dominance of the cyclical industrial chemicals market.

Last year 'was a difficult year for the global chemical industry, with significant downward pressure on prices and margins, he said. He also said that the company is considering separating out its Tioxide unit with a view to floating the operation as part of its plan to shift its portfolio toward less cyclical businesses.

The industrial chemicals division continued to suffer from pressure on prices and margins and turnover fell 5% in the fourth quarter and full- year.

The paints division provided the best set of results, posting a 57% increase in fourth quarter earnings, and a 60% jump in the year.

Despite the mixed bag of results, Chairman Hampel believes 1997 will be a turning point. 'The economic outlook for 1997 is better,' he said in a statement. 'It is believed the major destocking that took place during 1996 has come to an end, and we expect the second half of 1997 to show improvement.'

ICI managed to keep analysts somewhat happy by increasing the year-end dividend nearly 7% to 32 pence a share. 'ICI's dividend growth has been a good way to value the company in the past,' said an analyst at HSBC James Capel.

There were no exceptional items in the fourth quarter, however, in the full- year, ICI recorded charges of £105 million.

[05] Opel warns of 31% drop in `96 profit despite 9.3% revenue gain

The German unit of General Motors of the US said 1996 sales rose to 28.3 billion marks ($17 billion), the second best level in the company's history. But the carmaker added that it expects to show a drop in 1996 profit to between 250 million and 350 million marks marks.

Opel also predicted tough industry conditions for 1997.

'We are satisfied with the results when viewed against the background of stiff competition and difficult conditions in 1996,' Opel chief executive David Herman said.

But Herman warned that in the current year the company expected a lower rate of market growth and pressure on sales, profit and vehicle deliveries.

He said the carmaker would intensify its efforts to cut costs and improve productivity, but he didn't say whether the carmaker planned any job cuts.

Opel said its 1996 sales were helped by strong sales gains for its Vectra saloon and the weaker mark, making exports more favourable.

The company said it has teamed up with French carmaker Renault to build light trucks that will be introduced into the market at the turn of the century.

Opel also said it was reviewing a possible joint venture with Japan's Suzuki Motor to produce small models.

[06] BT earnings grow as telephony demand remains strong

Third quarter pretax profit climbed 10% to £909 million ($1.46 billion), after a £39 million charge for layoffs. The results fell at the high end of analysts expectations.

'We look forward with confidence to a satisfactory outcome for the full year,' BT chairman Sir Iain Vallance said.

BT, which hopes to seal a $20 billion merger with America's MCI Communications this autumn, said sales rose 4.3% in the nine months ended December 31, bolstered by the company's expanding overseas operations, telephone exchange line rentals and mobile communications.

Mobile phone turnover grew by 11.7% in the nine months, reflecting the 16.7% growth in BT's majority-owned Cellnet unit's customer base in the year.

Cellnet had 2.7 million customer connections at the period end of which over 880,000 were digital.

[07] News Corp. posts lower earnings for the quarter, but sees 20% gain for the year

The media company's stock price dropped 1.5% on the results, to A6.76 a share in Sydney trading.

News Corp. blamed a higher Australian currency and A$41 million (US$31 million) in charges as key reasons for a slip in after-tax profit to A$690 million (US$527 million). But media analysts focused on the company's Fox Broadcasting as the biggest disappointment - and the company's best hope.

Analysts had expected a first half after-tax profit of A$715 million for the six months ended December 31.

Lanny Baker, who tracks News Corp. for Salomon Brothers Inc., said the company faces challenges ahead.

Baker said in a telephone interview that television ratings at Fox Broadcasting are lagging last year's level and aren't likely to improve.

Baker said a pleasing aspect of News Corp.'s results was the performance of its U.K. newspaper operations, which posted an 18% rise in operating profit. Each of the company's four titles reported growth in advertising revenue.

News Corp.'s Fox Filmed Entertainment division posted a 154% gain in operating profit on the back of continued strong earnings from the movie 'Independence Day.'

News Corp. said the one-time charge of A$41 million was due to the prepayment of public debt and costs related to the sale of its HarperCollins educational book division.

[08] Corporate and Economic Briefs

Total industrial production was stronger than forecasts for a rise 0.5% on the month and 1.3% on the year. Manufacturing output was 1.4% higher than the same month a year earlier while industrial production was up 1.9%.

In 1996 as a whole, manufacturing output rose 0.5% compared with 1995 with total industrial production rising 1.2%. Credit Foncier workers voted to end their occupation of the company's Paris headquarters after a 21-day protest at government plans to dismember the property lender.

'We have decided to suspend the occupation as of this morning,' a union spokesman said. The action to end their protest followed the bank's decision on Wednesday to allow it to continue operations despite the hole in its books since reporting 1995 losses of 10.8 billion francs ($1.96 billion). Several hundred staff occupied the downtown headquarters of the French bank nearly three weeks ago, and held the company's chairman hostage for six days, in a battle to halt government plans for a partial takeover of the bank and a wind-down of the rest.

Fokus increased 1996 pre-tax operating profits by 7.7% to 462m kronor ($71.5 million) from a year earlier, thanks to successful regional banking which emphasised local expertise and decentralised authorities.

Norway's third largest commercial bank said 'the result confirms the fact that our regional strategy is paying off in terms of increased market shares and low loan losses.' Fokus said its results included a provision of 119 million kronor for restructuring activities related to real estate and personnel. 'The restructuring will contribute to a positive cost development,' it said.

Sotheby's has suspended some employees after allegations that Italian art treasures had been smuggled to London. The managing director of Sotheby's Europe, George Bailey, said he could not condone actions against the law or the firm's strict rules.

But he was strongly critical of the way the allegations had been made in an investigative television programme which used a hidden camera.

Bailey said he would make no final decision until he had seen the programme and made further investigations.

Viag and British Telecom said they had added a new partner to their joint activities, Norway's Telenor, and were seeking a further partner.

The two companies said at a joint news conference that Telnor was taking a 10% stake in their joint operations. Viag management board chairman Georg Obermeier described Telenor as a 'technical partner' and said the companies were seeking a partner with expertise in direct sales to take a 10% stake in the new VIAG Interkom.

Obermeier also said that VIAG and BT expected sales in their joint telecoms activities to reach up to 11 billion marks ($6.7 billion) in 1997. The activities would break even in 2002, the two companies predicted.

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

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