European Business News (EBN), 97-03-04

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

Page last updated March 04 1900 CET

CONTENTS

[01] Renault source confirms company will present new plan that calls for cutting nearly 3,000 jobs in France

[02] Daimler refuses to confirm reports its 1996 earnings will be greater than expected

[03] Alcatel reportedly would retain only 50% to 70% stake in Thomson-CSF if it wins bidding

[04] Kymmene's earnings are nearly halved by weak demand and falling prices

[05] De Beers earnings jumped 36% in 1996 on a 7% increase in diamond sales

[06] Halifax shows 6.6% gain in 1996 earnings, but markets want news on its expansion plans

[07] Grand Met projects gains in first half profits as year proceeds `as expected'

[08] ADT spurns Western Resources, rejecting revised bid

[09] Economic and Corporate Briefs

[01] Renault source confirms company will present new plan that calls for cutting nearly 3,000 jobs in France

The Renault source said the plan would also reclassify 1,032 jobs.

New early retirement and part-time work plans will also be put into place in order to limit layoffs to 600 people, the source said.

A spokeswoman for the French car maker wouldn't confirm the job cuts, but did note that Renault's has a policy of reducing its payroll while allowing for the hiring of new, young employees.

The programme includes 'both a labour restructuring with internal transfers and the elimination of posts, as well as measures aimed at youth employment, with new recruitment to make up for early retirements,' the spokeswoman said.

Renault has cut around 1,500 jobs in France in each of the last five years, mainly through early retirement and part-time work plans, and has asked the French government to finance far more. The government last week rejected the request.

Renault employs 72,000 people in France for its car operations, and another 27,000 for truck-building and other activities. World-wide, Renault employs 138,000 workers.

Renault last week announced the closure at the end of June of the Vilvoorde plant in Belgium, where 3,100 people are employed.

Renault officially has declined to comment on the reported French job cuts, but it has said its central staff committee would be meeting on March 13 to discuss an 'employment plan' in France.

Meanwhile, Renault unions have called a one-hour strike on Friday in all plants in France, Belgium and Spain to protest against the shutdown of the Belgian factory.

'We hope this is the beginning of a long period of labour struggle at Renault all over Europe,' Daniel Richter of the pro-Socialist CFDT union said on Europe 1 radio.

Opposition to the closures and rumoured job cuts was quick to form. Renault's unions have called for a one-hour strike at the car maker's factories in France, Belgium and Spain. And a senior French government parliamentarian urged Renault chairman Louis Schweitzer to open negotiations with the workforce and the government on an early retirement plan rejected by the industry ministry last week.

The decision to shed the Belgian plant reflected a blend of economic and political pressures at Renault, which is 46%-owned by the French state. Renault says the plant was closed strictly for industrial reasons, but analysts inside and outside of France say that the company deliberately chose a foreign plant to avoid the accusation that it is adding to France's whopping unemployment burden.

Belgium was the logical choice, analysts say, because wage costs are higher than in Spain, where Renault has two factories. The Spanish operations are also more difficult to shutter because they produce engines and other key components, while the Belgian plant merely assembled parts imported from other factories.

Renault maintains, however, that the plant closing is part of a reorganization that will save it 825 million French francs a year. Additional savings could come from job cuts in France. All that made Vilvoorde an easy target, even though surveys conducted by Heylen show that the plant has long been one of the most productive in Europe. Union leaders at Vilvoorde have also vowed to hold thousands of cars and valuable equipment hostage at the plant in an effort to fight the closing.

[02] Daimler refuses to confirm reports its 1996 earnings will be greater than expected

A surge in German car stocks on the Frankfurt Stock Exchange, was triggered after an executive at Daimler said the group would report 1996 group profit of at least 2 billion Deutsche marks ($1.19 billion).

Dealers said that market expectations for 1996 profit had been in a range of 1.6 billion marks to 1.8 billion marks.

But later in the day, Daimler-Benz declined to confirm the profit indication, which had been given by one of its board members at the Geneva car show.

A Daimler spokesman did confirm that board member Eckhard Cordes gave the earnings indication, which represents a turnaround from Daimler's record 1995 loss of 5.7 billion marks. Late last year, Daimler Chairman Juergen Schrempp had said earnings would be at least 1.6 billion marks.

But Daimler Today said final, audited figures for 1996 aren't available yet and won't be published until April.

Cordes also said Daimler isn't likely to reach in 1997 its goal of a 12% return on capital, which would translate to a pre-tax profit of around 5 billion marks, although net profit will rise 'slightly' this year, German financial news wire VWD reported.

On the sales side, Cordes was quoted as saying Daimler expects revenues to rise 5% this year from the around 107 billion marks posted in 1996.

Daimler won't feel the full impact of the recent rise of the dollar versus the Deutsche mark this year, since the group executes long-term hedging contracts, especially in its Airbus Industries business area. Earnings at the Mercedes-Benz car and truck division will benefit from the dollar sooner, Cordes was quoted as saying.

Daimler closed floor trading on the Frankfurt Stock Exchange up 4.50, or 3.6%, at 128.20 marks, a record.

[03] Alcatel reportedly would retain only 50% to 70% stake in Thomson-CSF if it wins bidding

The rest of Thomson-CSF would be split up among holding company Dassault Industries, aerospace group Aerospatiale (which will merge with Dassault later this year), Thomson-CSF employees and individual shareholders, La Tribune said.

Up to 25% of Thomson-CSF would be held by individual shareholders, with 10% 15% going to Dassault Industries, 7% to 10% to Aerospatiale and 5% to employees. The newspaper report also said that Thomson-CSF's missile activities would be merged into Aerospatiale.

The government owns 58% of Thomson-CSF, which is also traded on the French stock exchange. Thomson-CSF is the defence arm of state-owned Thomson.

Separately, Alcatel SEL - the German unit of France's Alcatel Alsthom - said it plans to sell a plant in Landshut that employs 608 workers, and another in Stuttgart that employs 53.

The Landshut plant manufactures electric motors and ventilation equipment, while the Stuttgart plant makes control equipment. The beleaguered electronics and engineering company said the moves will help it reduce its workforce by 14% to 13,700 by the end of the year, faster than originally planned.

Yesterday, Chairman Roland Mecklinger told journalists that the company sees 1996 sales up 6 - 7% to about 4.8 billion marks ($2.8 billion), and that it expects sales this year to exceed 5 billion marks.

The company still expects to post an operating loss for 1996, but to show a positive operating result this year following several years of losses, Mecklinger said. The 1996 net result will still be burdened by restructuring costs.

[04] Kymmene's earnings are nearly halved by weak demand and falling prices

The Finnish group's pre-tax profit dropped 43% to 3.56 billion markka ($700.1 million) on a 5% slide in turnover to 51.76 billion markka. Net profit plunged 47% to 994 million markka.

'At present UPM-Kymmene expects the financial result for 1997 to be similar to that for last year,' the company said.

Economic growth is expected to increase gradually in Europe, the company's main market, and this is expected to increase paper consumption, UPM said.

The board proposed an unchanged dividend of 4.50 markka a share. Part of the dividend will be paid in shares of Rauma, a listed engineering company in which UMP-Kymmene has a 73.3% stake. The dividend will bring down the holding to 59.9%.

For investors with fewer than 500 shares, the dividend is to be paid in cash.

For those with 500 or more shares, one Rauma share will be given for every 35.91 shares held in UPM-Kymmene. In addition, 1.50 markka in cash will be paid for every UPM-Kymmene share held.

If the payout is approved, this would reduce UPM-Kymmene's stake in Rauma to 59.9 percent, the company said, adding that 'In the future it is intended to reduce this to below 50 percent through other means.'

Rauma, reporting simultaneously with its parent company, said its profit nudged up to 679 million markka from 671 million markka the year before. It too forecast a steady 1996 showing.

[05] De Beers earnings jumped 36% in 1996 on a 7% increase in diamond sales

The latest result includes an exceptional profit of $109 million stemming from De Beers' sale of shares in Johnnies Industrial during the second half of the year.

The group's earnings before accounting for profits from associated companies rose 33% to $828 million last year from $624 million in 1995.

De Beers said in a statement that diamond sales rose 7% to $4.83 billion in 1996 from $4.53 billion a year-earlier, with sales in the second half of the year totalling $2.09 billion.

While second-half sales were at a record high, they fell below the $2.74 billion recorded in the first six months, a slowdown directors attributed to lower prices in the Indian market for diamonds and continuing sales of Russian rough diamonds outside De Beers' Central Selling Organization.

It said conditions in the Indian market, where lower-quality gems are bought by the jewellery industry, were exacerbated by last year's decision by Australia's diamond mine - the world's biggest mine - to sell its gems outside the CSO and directly into the Indian market.

De Beers' Income before tax climbed to $1.06 billion in 1996 from $836 million a year earlier while tax swelled to $224 million from $197 million.

Turning to its considerable investment portfolio, De Beers said a major addition to its holdings during the year was a further 6.1% in Britain's Lonrho as part of an acquisition of a larger overall stake by Anglo American of South Africa, De Beers' ultimate parent. De Beers now holds a total stake of 8.6% in Lonrho.

De Beers' earnings in the first half of 1997 are likely to receive another boost in the form of an exceptional profit arising from the Anglo American group's sale of a 35% stake in mining house JCI to a consortium of black investment companies.

De Beers' directors said robust demand for rough diamonds of larger than one carat is continuing into 1997, with the company seeing 'good' prices' at its first two sales through the CSO this year.

They said world-wide retail diamond jewellery sales climbed 2.0% in 1996 while the number of carats sold grew by 4.0%. Local-currency-sales were up 3.0% but sales in dollar-terms were down 2.0% 'primarily as a result of yen depreciation.'

Turning to its long-running dispute with Moscow over diamond supplies, De Beers said negotiations with the Russian government on a new trade agreement are continuing 'with a view to a resumption of a contractual relationship.'

De Beers has been buying Russian rough diamonds at international sales in major gem centres like Antwerp and Amsterdam since the end of 1996, honouring a threat to buy gems outside the auspices of the Russian government if they didn't sign a new trade agreement by the end of December.

Gary Ralfe, managing director of the London-based CSO, told a media briefing that a diamond trade pact with the Russian government is now one- to-three months away from being signed by Prime Minister Viktor Chernomyrdin and President Boris Yeltsin.

'Within a month-to-three months, we hope to have a resolution signed by Prime Minister Chernomyrdin authorising the signature of the agreement,' Ralfe said, 'and a decree signed by President Yeltsin that would render constitutional the memorandum of understanding signed in February 1996.'

He said the February 1996 agreement between the CSO and the Russian government was 'modified' during discussions in Moscow last month but he provided no details as to the extent of any changes.

It has been widely speculated that the sticking point delaying ratification of the agreement has been the allocation of diamonds between the CSO and Russia's own $500-million-a-year diamond cutting industry.

Ralfe added that the CSO negotiating team are currently 'dotting the i's and crossing the t's' of the revised draft agreement.

'We are hoping very much that under a new trade agreement ... we should get better compliance (with) the provisions than we have seen in the past,' Ralfe said.

The flow of Russian rough diamonds into the international market has been restricted by 'production bottlenecks' due to disagreements between producers and the government over gem quotas, he added.

[06] Halifax shows 6.6% gain in 1996 earnings, but markets want news on its expansion plans

The results underscored Halifax's future status as the fourth-ranking U.K. bank following its flotation on the London Stock Exchange, scheduled for June.

Halifax, which still operates predominantly in the savings and mortgage- lending markets, adjusted its results to reflect a 12-month period ended Dec. 31 in line with its move to public listed company, or PLC, status.

The group will cash in its title of the largest mutually owned U.K. building society - similar in structure to a U.S. savings and loan - when it converts to bank status. The move received the overwhelming approval of Halifax members last week.

Tuesday's results showed that conversion costs totalled £153 million, which Halifax Chairman John Foulds said broke down to about £11 per member. The final set of conversion documents will be mailed out in April, but the flotation date has yet to be set.

Halifax also accounted for £298 million of costs in 1996 that resulted from its 1995 merger with Leeds Permanent Building Society, a move which solidified its position as the U.K.'s largest mortgage and savings provider.

While banking analysts were impressed with the results, some wanted to know more about expansion plans.

'They've made it clear they're going to broaden the scope of the organisation,' said Robert Law, analyst at Lehman Brothers Ltd. in London. 'And so it seems there's going to be a lot of acquisitions made, as their cash resources are very substantial.'

With a war chest heavy with surplus cash - liquid assets totalled £18.2 billion at Dec. 31, 1996 - Halifax has clearly stated its intention to expand into the credit-card, consumer-lending, insurance and Treasury markets.

'They are generating, we would think, about £500 million-plus a year even after paying a dividend,' Law said. 'So what they do with that, and what value they generate, is very significant, but they're not being too forthcoming at this stage.'

In an exclusive interview with Dow Jones Newswires less than two weeks ago, Halifax Chief Executive Mike Blackburn said the group will consider share buybacks, among other options, to reduce its cash pile. 'We are very heavily overcapitalised in comparison with other banks,' he said in the interview. 'And that's an historic legacy of having accumulated Tier One capital through not having paid out dividends. Clearly if we can't find appropriate use for our capital, then its repatriation in whatever manner is an option open to the board of Halifax.'

Analysts can feel safe in ruling out any overseas acquisitions in the immediate future. Halifax's Spanish unit, Banco Halifax Hispania, has two branches, and a third is to open later in 1997.

'Diversification is dangerous, and overseas diversification is doubly dangerous,' Blackburn said in his interview. He added that Halifax was more concerned with gaining experience as a PLC in the U.K. than with venturing abroad.

Alison Turner, AP-Dow Jones-London

[07] Grand Met projects gains in first half profits as year proceeds `as expected'

Chairman George Bull said the company's three main brands, International Distillers & Vintners, Burger King and Pillsbury have all made advances in the period.

He said sterling's strength has affected the value of the company's overseas profits.

''We believe that the strong pound has been the main reason for the weakness of our share price in recent months,'' said Bull.

He added that a strengthening of the pound against the dollar by one cent hits group profits on translation by £4 million ($6.4 billion).

''In spite of this, we still expect profits for the first half to be ahead of last year,'' said Bull.

Bull said the company's Pillsbury brand continues to enjoy strong organic profit growth, with enhanced sales mix and improving profit margins. He said the company's Burger King unit in the U.S. has continued to outperform its major competitors with comparable store sales growth.

''We believe that the reported pricing proposals concerning McDonald's are a response to Burger King's success in the market place,'' said Bull.

He said the U.S. fast food industry has been priced competitively throughout the 1990's and does not anticipate that the impact of McDonald's aggressive pricing strategy will be as dramatic as first thought.

He said the unit's results in Europe show an improvement on last year's second half, with better performances in the U.K. and Spain.

Bull said the company's International Distillers and Vintners unit has made good progress, with spirits volumes in the first four months of the year ahead of the same period a year earlier.

''Growth has been driven by higher levels of marketing investment and follows price increases in most of IDV's major markets,'' said Bull.

Bull said Grand Met's strategic approach for the year centres on strengthening its core brands through investment.

''We have successfully demonstrated the strategy of heavy investment behind our brands to build brand equity in order to improve volumes and margins,'' said Bull.

[08] ADT spurns Western Resources, rejecting revised bid

Western, an electric utility, yesterday increased the cash portion of its offer for ADT to $10 a share from $7.50. At the same time, Western reduced the amount of stock ADT holders would receive for each of their shares: $12.50 in Western common instead of $15.

That left the total value of the proposal at $22.50 a share - the same bid Western first made in mid-December. ADT, an electronic-security concern, in January rejected the original offer. Western said it was able to increase the cash component of the bid as a result of ADT's $86.1 million settlement last month of a lawsuit against London-based accounting firm BDO Binder Hamlyn.

The settlement, combined with a plan announced yesterday by Western to sell ADT's auto-auction business, would generate about $575 million - enough to pay for the increase, Western said.

But ADT's chairman and chief executive officer, Michael Ashcroft, branded Western's new offer as 'woefully inadequate,' saying it doesn't 'reflect the inherent value of ADT.' In an interview, Mr. Ashcroft said Western's limited service area is a poor match for ADT, which has a national presence.

A special ADT shareholders meeting to consider Western's proposal has been set for July.

[09] Economic and Corporate Briefs

Banque Paribas will invest about $1 billion in Asia in the next three years in an aggressive push to raise its profile in the region. The bank will also add 500 new staff members, through recruitment and the purchase of new businesses, to its current 700-strong workforce in Asia, based in Hong Kong, Singapore and Tokyo.

Littlewoods, the retailer and football pools group, said it was reviewing its stores division and is looking into the possibility selling it. 'While we remain committed to generating higher returns from the stores business, we are also examining other strategic options. In particular, we have now determined to examine whether a disposal might realise greater shareholder value,' chairman James Ross said in a statement.

Most Japanese automakers were boosted by a second consecutive month of strong US sales in February, but at least two of the US Big Three automakers posted declines. General Motors and Chrysler reported declines - 7.5% and 3%, respectively - compared with February 1996. Ford Motors planned to release its February results today. Honda said it set a second consecutive monthly sales record last month as US sales climbed 9% while Nissan Motor Corp. had its second-best February, with US sales up 15% over a year ago.

British Telecommunications plans to form more strategic alliances or joint ventures with Asia-based telecommunications companies to extend its reach in the Asia-Pacific region, a British Telecom official said. In an interview with Dow Jones, Steve Burdon, managing director of BT's Asia unit, said the company's regional expansion strategy is to join with local partners in various countries. The strategy will depend in large part on the pace of deregulation in individual countries around the region.

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

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