European Business News (EBN), 97-02-14

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

Page last updated February 14 1800 CET

CONTENTS

[01] US economy appears to be cooling as it enters a new year

[02] Renault warns 1996 losses will be wider than expected as price wars take toll on earnings

[03] Williams Holding makes its second attempt to snare Chubb Security with recommended $2.12 billion bid

[04] Viag posts 14% operating-profit gain for '96 despite telecoms losses

[05] Saab swings to `96 loss and expects results to worsen this year

[06] Lloyds posts 52% jump in 1996 profit, projects more growth

[07] Bank of Spain leaves rates unchanged, despite high jobless data

[08] Volvo sells its half of Pripps-Ringnes to Orkla

[09] Corporate and Economic Briefs

[01] US economy appears to be cooling as it enters a new year

Economic data released Friday combined with recently released reports suggest the US may be returning to near-trend growth after the robust 4.7% gain in gross domestic product registered in the last three months of 1996.

'It would appear (the economy) has cooled off from the fourth quarter pace, ' said Lynn Reaser, chief economist at Barnett Banks.

While it's too early to tell for certain, Reaser said, January reports so far point to a return to trend growth rate of about 2.5%.

That's good news for Federal Reserve officials and market participants who've worried that above-trend growth would boost inflation.

New data indicate that neither growth nor inflation is getting out of hand. January producer prices came in lower than expected, while industrial production, capacity utilisation and December business inventories met expectations.

US producer prices fell 0.3% in January, marking the first monthly decline in the inflation measure since October, 1994, the Bureau of Labor Statistics said. Meanwhile, the core rate of the PPI, which excludes food and energy, was unchanged.

The PPI had been expected to show an increase of 0.2% for January, or a gain of 0.1% excluding food and energy.

Separately, the Federal Reserve Board said US factories, utilities and mines operated at a seasonally adjusted 83.3% of capacity in January, down 0.2 percentage points from December.

'We're getting very good news on inflation,' notes Marilyn Schaja, money market economist at Donaldson, Lufkin & Jenrette Securities.

However, some other data raise questions about whether US growth might pick up again at some point soon.

The Commerce Department said business inventories fell 0.1% in December to a seasonally adjusted $1.009.46 billion.

While the drop points to a minor downward revision to fourth quarter gross domestic product, it also mean businesses will need to rebuild stocks.

Paul Kasriel, chief US economist at Northern Trust says the balance of data suggest 'inventories are lean, especially at the manufacturers and wholesale levels.' He notes that there's likely to be some pick up in voluntary inventory accumulation in the first quarter.

Another omen of potential upward pressure in the economy was a 5.2% surge in crude goods prices in January. Still, declines in other areas of the overall producer price complex - including energy and food - provide enough optimism to temper long-term inflation concerns.

The balance of recent data suggest that the central bank was correct in leaving short-term interest rates unchanged last week, economists say. The fact that growth appears to be moderating and inflation remains tame have given the Fed some breathing room on interest rate policy, they add.

'It's very good news for the Fed,' says Peter Kretzmer, senior economist at NationsBank.

(Jennifer Corbett and William Pesek Jr., AP-Dow Jones)

[02] Renault warns 1996 losses will be wider than expected as price wars take toll on earnings

A Renault executive said the profit warning was due to a larger-than- predicted loss from car operations. The executive, who requested anonymity said 'the problem we had was with the loss from cars.'

Renault's warning crashed some analysts and investors back into reality, and they now warn of 'huge' losses.

Analysts had predicted an operating loss of around 2 billion francs ($352 million) on cars, 650 million francs on trucks, and a profit of 1.3 billion francs from the finance operations.

'This confirms our worse fears,' said Anurag Shah, an analyst at Merrill Lynch in London. 'The loss could be huge, and we see no end in sight, even if they are taking action. We are very, very negative on Renault, but have been negative for five months.'

In early trading in a relatively strong Paris market, Renault's shares dropped 3%.

The company said its car division was hurt by widespread price wars that required increased spending on marketing. 'In a year marked by replacements of major importance for the product line, operating conditions for the Renault Automobile Division were negatively impacted by the spread throughout Europe, and more particularly in France, of relentless and aggressive price wars,' the company said.

The French car and truck major said consolidated revenue last year remained flat at 184.08 billion francs ($32.4 billion), with revenue from its car division rising 2.3% but its commercial vehicles operations hit by a 9.5% decline. Revenue from finance operations slipped 5% to 8.1 billion francs.

The commercial vehicles division ` had to cope with a flat market in Europe and severe deterioration in the commercial vehicles market in the United States.,' Renault said.

The company added that its cost-cutting efforts weren't `sufficient to offset the negative effects of a difficult price environment in Europe and the interruptions relating to the introduction of replacements in the company's product line.'

The company had previously issued warnings for 1996, saying both its car and truck operations would lose money.

[03] Williams Holding makes its second attempt to snare Chubb Security with recommended $2.12 billion bid

But Williams shares have come under pressure as the markets speculate on a bidding war.

Williams has offered two of its ordinary shares plus 704.12 pence for every three shares of the UK security and fire protection group. Williams said its offer values Chubb's shares at 450 pence apiece, a 37% premium over the closing price of 329.5p for Chubb shares on February 11. Take-over speculation earlier this week sparked a surge in Chubb shares, which is being investigated by the London Stock Exchange.

It is Williams second attempt to capture Chubb, after it was thwarted in a bid for its former parent Racal Electronics. It was that development that sparked the demerger and floatation of Chubb.

'Chubb represents an unparalleled opportunity for achieving our ambition to establish Williams as a world leader in fire protection and security,' said Williams chairman Nigel Rudd .

'The complementary nature of both groups' products and markets provides an ideal blend for the profitable development of the Yale, Kidd and Chubb brands throughout the world.'

Despite the prospects of a good fit between the two companies, Williams stock has come under pressure as analysts speculate a bidding war might break out.

Talk has centred on Ingersoll-Rand as a potential opponent. The US industrial equipment group is understood to have expressed an interest in acquiring Chubb before the it was floated by Racal Electronics in a restructuring move in 1990. And Ingersoll-Rand recently signalled its intention to expand further in Europe when it launched a £230 million agreed bid for Newman Tonks Group last month.

Whether or not Chubb is worth as much as 450 pence a share depends largely on who's buying, analysts say. 'If the buyer is in a similar business and can expect to cut costs, then they can look at a higher price than someone coming in cold,' said Robert Morton, analyst at Charterhouse Tilney.

Williams forecast that by the end of December 1998, it would realise annual cost savings of £40 million although it would cost some £30 million to achieve these.

Williams also issued an earnings outlook, saying it expects to show an 11% rise in 1996 pre-tax profit to £243 million .

[04] Viag posts 14% operating-profit gain for '96 despite telecoms losses

The German utility said its continuing cost-cutting programme and portfolio changes should result in strong earnings gains for the current year.

Viag said its energy, packaging, and North American metallurgic businesses all contributed to the increased profits in pre-tax profits.

In 1996, pre-tax operating profit rose to a provisional 2.4 billion Deutsche marks ($1.42 billion) from 2.1 billion marks the year before.

Sales edged up 1.4% to about 42.5 billion marks from 41.9 billion marks.

Despite losses due to the start of its telecommunications operations, earnings will remain 'at a high level' in 1997, the company said, forecasting that 1997 will see the implementation of projects to improve its portfolio and even expand in telecommunications.

All divisions will continue with cost-cutting measures and efforts to improve their market position.

[05] Saab swings to `96 loss and expects results to worsen this year

The 1996 loss was mainly due to significantly higher marketing costs to improve the awareness of Saab as an exclusive brand, the negative effects from the stronger Swedish krona and higher product-development costs, the company said.

Managing Director said that the losses would worsen as the company continued its development and marketing costs. 'But what we do will represent a stable base for future progress,' he added.

Saab Automobile is owned by Swedish investment company Investor and General Motors of the US.

Sales fell by 1.4% during 1996 to 19.68 billion kronor from 19.97 billion kronor in 1995. The company showed an operating loss of 658 million kronor in 1996, contrasted with an operating profit of 737 million kronor a year earlier.

This 1996 result reflected a loss of 749 million crowns before tax and extraordinary items for the second half.

Saab's owners agreed in June to each invest 1.74 billion crowns in Saab Auto in 1996-97 in a bid to boost sales by 50% over five years and reverse the poor performance of recent years.

Sales fell 0.7% to 98,000 cars in 1996, the company said. 'Decreases in Sweden, Italy and the Asia-Pacific region were counterbalanced by sales increases on several important markets such as the US, Britain and France.'

[06] Lloyds posts 52% jump in 1996 profit, projects more growth

Newly Chairman Sir Brian Pitman attributed the sharp rise to strong improvement in all areas, particularly retail financial services and emerging markets.

Ellwood also said the high quality of the bank's earnings should enable it to produce consistently higher returns than the industry average.

Analysts had forecast that Lloyds earnings would rise about 30% from the £1.65 billion it earned the year before. The 1995 earnings were the first full-year results since the merger between Lloyds Bank and TSB Group.

Lloyds raised its dividend 20% to 13.2 pence a share.

Lloyds made a restructuring provision of £75 million ($122.4 million) following its purchase of the minority interest in Lloyds Abbey Life and expects to make cost savings of £50 million per year from the acquisition.

It also said it was raising its provision against possible redress from the mis-selling of pensions by 29 million pounds to 200 million.

Revenue rose 7% to £6.75 billion.

[07] Bank of Spain leaves rates unchanged, despite high jobless data

But the central bank decided to leave its key money market rate unchanged at 6%. Economists suggested that in view of the central bank's concern over the peseta's shakiness this year and its recent support of the currency, it was likely to keep rates steady in a bid to bolster the currency. And even the persistently high unemployment data apparently didn't sway the bank's decision.

'Despite some opinions that the Bank of Spain will repeat its rate until the peseta has recovered terrain, nothing is clear,' said a dealer at a large foreign bank in Madrid.

Dealers have no specific level where they think the Bank of Spain would like to see the mark against the peseta, but many believe the central bank is concerned with the mark's current strength against the Spanish currency.

Some dealers suspect the Bank of Spain may be lurking beyond 84.75 pesetas to the mark, ready to prevent the mark from gaining more ground.

The central bank last altered its key rate Jan. 16, cutting it to 6% from 6.25%. The Bank of Spain, in keeping with custom, won't comment on intervention rumours, nor on its monetary policy moves.

After months of firmness, the peseta's calm was shattered this year as leading European politicians and businessmen began to debate in earnest Spain's inclusion in Europe's common currency - a cornerstone of the Madrid government's policy.

The peseta began to fluctuate wildly, forcing the Bank of Spain into the market to buy it - after months of selling it against the mark to brake its advance.

Some dealers say the central bank has plenty of room to cut rates as far as inflation goes.

Others had suspected the central bank would cut its repo rate Friday at least a quarter-point after January's consumer price index, released Thursday, showed consumer prices in Spain at 2.9% on the year - the lowest since October 1969.

[08] Volvo sells its half of Pripps-Ringnes to Orkla

The Swedish vehicle maker gets 4.7bn Swedish kronor (635m dollars) for its 49% of the capital and a convertible loan which could have brought Volvo's stake up to 55%.

Volvo has long since declared that it intended to sell its half of the brewer whereas Orlka, a branded goods group, has always said it will remain a long-term owner.

Volvo's first-hand alternative has been to list its half of Pripps Ringnes, but Gyll said, 'We believe that the agreement with Orkla is the best solution.'

Of the 4.7 billion kronor, Volvo received 560 million kronor when the agreement was signed and will get the balance in December 1 this year.

'Our goal has been to reduce our holdings in Pripps Ringnes, by (the most) financially advantageous means possible, and to create the conditions the company requires to develop within an industrially competitive structure,' said Soeren Gyll, president of Volvo.

[09] Corporate and Economic Briefs

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

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