European Business News (EBN), 97-03-27

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

Page last updated March 27 1200 CET

CONTENTS

[01] French business leaders expect production to decline

[02] P&O says it's unlikely to be fined in Florida trade practices suit

[03] Indonesia puts Busang gold field development on hold after content is questioned

[04] U.S. data show strong upward trend in the economy

[05] New Thyssen, Krupp venture expected to make profit in 1997

[06] Redland says it's poised to benefit from its reorganisation

[07] Zeneca to acquire remaining half of Salick

[08] Oftel plans to probe BT's global expansion

[01] French business leaders expect production to decline

The business leaders said, however, that the industrial outlook remains favourable overall. They said manufacturing activity appears to have accelerated in the professional goods sector, but to have slowed in consumer goods.

Business leaders said activity in intermediate goods improved and that the trend should continue over the next three months.

The executives said the automobile sector remained depressed and that production will remain weak in coming months. The auto sector has suffered since the end of a government incentive program at the end of September.

Consumer goods activity slowed over the past three months, but is expected to pick up in the short term, the business leaders said.

INSEE said order books have improved over the past several months and that foreign order books were well filled. Inventory levels, meanwhile, were about average.

INSEE said the general outlook for business conditions worsened slightly, but remained positive overall, as did business leaders' personal outlook for their own businesses.

[02] P&O says it's unlikely to be fined in Florida trade practices suit

The Attorney General's Office of the US state of Florida has alleged that Princess pocketed a portion of fees charged to passengers for port expenses.

The company said it was surprised by the legal action, as it had been negotiating with the attorney general's office in good faith concerning the issue for several months.

P&O said other cruise companies have settled with the Attorney General's office over without admitting liability. Their only penalty was reimbursement of the cost of the investigation to the state.

'Princess could also have settled, and indeed could do so today, but such is the strength of our case that we were not prepared to concede the principle,' the company said.

The suit, which was filed by the Florida Attorney General, alleges that Princess represented port charges as government-imposed fees, even though not all of the collected money was actually used to pay such fees.

The attorney general is seeking penalties of up to $15,000 per violation of the state's Deceptive and Unfair Trade Practices Act.

The Los Angeles-based Princess Cruises has denied the charges, saying its Florida advertising has always included the full price of cruises.

Earlier this year, seven other major cruise lines agreed to stop charging any fees in excess of advertised ticket prices except for those actually passed on to a governmental agency.

Attorney General Bob Butterworth said he sued because Princess refused to abide by that restriction.

Princess officials claimed Butterworth never specifically outlined what he thought the company was doing wrong and failed to consider the merits of each line's particular case.

[03] Indonesia puts Busang gold field development on hold after content is questioned

And analysts say the turnaround in the apparent value of the field could create a crisis of confidence in exploration stocks in the North American market.

The director-general of the mines and energy ministry, M. Kuntoro, said the government will withhold applications to let Calgary-based Bre-X Minerals develop the Busang gold mine project.

'We will hold the process of the contract of works for Bre-X (to develop Busang project) until we have received reports from (Bre-X) and its independent consultant on the gold deposit in Busang,' Kuntoro said.

Bre-X shocked the mining industry with a statement that the site in the rain forests of East Kalimantan province on Borneo might hold far less than the 71 million ounces it had earlier declared. That amount of gold is worth about $25 billion at current market prices.

Freeport McMoRan Copper & Gold, a major US-based mining company that is performing due diligence at the site, said it found 'insignificant' amounts of gold. Kuntoro said that the government also plans to ask Freeport for reports on the field. In addition, Bre-X advised Freeport that consultants had informed Bre-X that there is a strong possibility that the potential gold resources on the Busang project the company reported have been overstated because of invalid samples and assaying of samples.

Bre-X formed a joint venture with Freeport McMoran Copper & Gold and two Indonesian companies, PT Askatindo Karya Mineral and PT Amsya Lina to develop Busang, following nearly a five month battle. Under the agreement, Bre-X will hold 45% of the mine, Freeport McMoran Copper & Gold 15%, the Indonesian companies a total of 30% and Indonesian government 10%.

Analysts say the difficulty at the field may prompt caution among potential investors.

Eyres Reed's Colleran said the situation at Busang, previously touted as the world's richest gold deposit, may prompt the market to revisit valuations on gold exploration stocks. ''Maybe people are starting to rethink how valid it is to put these huge expectations on preliminary exploration results.''

David Walker, head of mining research at ABN Amro Australia Hoare Govett (Securities), said that apart from a knee-jerk fall in certain local stocks, Busang has the potential to cause ''a crisis of confidence in North American markets about exploration in general and exploration in far-flung places.''

''In some respects, those North American markets have been used by Australian explorers to raise capital ... because they can't get the funds (in Australia). The problem for all of us is going to be that this situation ... could see a decline in available capital for this market.''

[04] U.S. data show strong upward trend in the economy

Sales of existing homes in February jumped by 9.0% in February. Jobless claims dropped 4,000 to 310,000 in the week ended March 22, which is the lowest level in seven years. Economists had expected claims to rise by 3, 000.

Analysts said part of the increase existing home sales was the result of homebuyers accelerating their purchases in anticipation of the Federal Reserve raising short-term interest rates, and the relatively mild winter weather.

While some 'fence-sitters' might have pushed to purchase homes before interest rates were increased, some analysts said the 0.25-percentage-point rise in rates probably isn't enough to have a significant impact on future home purchases.

'The public will blow right by this 25-point increase and not pay it much mind,' said John Tuccillo, chief economist for the National Association of Realtors. He also said he doesn't think the Fed will have reason to raise rates further because 'our view is that the economy is settling down.'

Steven Wood, chief economist at BancAmerica Securities, said the pace of home sales is unsustainable but it continues 'to demonstrate that the positive effects of strong gains in jobs and income are more than offsetting the negative effects of rising mortgage rates.' Economists said the low jobless claims figures suggest continued labor market tightness, but caution that the data provide little information about month-to-month employment growth.

'The low level of jobless claims and declining number of people receiving benefits indicates that the economy has considerable momentum,' said Jim Glassman, chief economist at Chase Securities.

'Clearly the Fed has its eye on this information, as Mr. Greenspan's recent testimony underscored. A continuation of the current level of claims - remaining below the 350,000 to 375,000 level - through the spring will bring us closer to another rate increase at the May FOMC meeting,' Glassman said.

[05] New Thyssen, Krupp venture expected to make profit in 1997

'The company will be profitable right from the start,' Thyssen chief Dieter Vogel said at a news conference. When asked if that meant 1997, he replied, 'Yes.'

And separately, the head of the Krupp Hoesch supervisory board said the merger of the steel operations of Thyssen and Krupp Hoesch will generate annual savings of around 550 mn Deutsche marks ($327m).

In an interview with the Frankfurter Allgemeine Zeitung, Manfred Lennings said savings achieved would first be used to pay for the nearly 8,000 job cuts that would follow the merger. But Ekkehard Schulz, the head of Thyssen's steel company, has said that Krupp must bear the cost of job cuts rather than Thyssen or the new company.

Meanwhile, Deutsche Bank denied it had access to sensitive information on steel and trading concern Thyssen at the same time it was helping Thyssen's main rival Krupp prepare a hostile takeover bid for it. A spokesman for the bank denied reports in magazine 'Der Spiegel' that managers at Deutsche Morgan Grenfell, the bank's investment banking arm, had access to 'confidential internal' information on Thyssen while helping it carry out an international 'roadshow' in the U.K. and U.S. in February.

'The mandate from Krupp only came after the presentations' for Thyssen, the spokesman said, although he acknowledged that the bank had given 'technical and organisational help' to the Duesseldorf-based group for its roadshow.

[06] Redland says it's poised to benefit from its reorganisation

The prediction came as the building materials group reported a largely expected 5.2% decline in 1996 pretax profit to £259.1 million ($414.6 million). The headline pretax profit was knocked below analyst expectations to £200.9 million by an exceptional charge of £58.2 million on a write-back from reserves. 'This write-back does not affect the balance sheet or cash flow,' Redland said.

Last year, Redland created a unified European roofing business, called RBB, and sold its brick business. It focused on roofing and aggregates, which are combination building materials, such as cement and concrete.

The company said both RBB and its aggregates division are now in a good position to capitalise on its new focus. In particular, it said the roofing business will continue to produce operating benefits.

But Chief Executive Robert Napier, warned that 'in general European roofing markets are expected to remain weak with overall volumes similar to those in 1996.' French aggregate demand is seen remaining depressed and British demand up modestly.

The weather - which is often of critical importance to the building trade - was better in the first quarter of 1997 than in the previous year, Redland said.

'In 1997, further progress will be made in North American aggregates and we are applying a similar approach to managing U.K. aggregates,' Napier said.

Napier also said the future of Redland Granulats, the company's French aggregates business, 'will be resolved.' In an interview with Dow Jones, Redland's Finance Director Paul Hewitt said Granulats made a loss last year, largely due to French government cutbacks in road building. He said Redland is in 'active negotiations' to sell the business, which has annual sales of around £300 million.

Hewitt said the French aggregates market is more vertically integrated than the markets in the U.S. and the U.K., where Redland's aggregates businesses perform well. 'We are at a competitive disadvantage' in France, he said.

According to Napier, the company will also continue to invest in developing markets.

[07] Zeneca to acquire remaining half of Salick

Zeneca said it will pay $234 million for the company, which would put the total cost of Salick at $438 million. It added that it will require Salick to exercise stock options obtained in 1994 when Zeneca bought its current holding in the company, which treats patients with illnesses that require long-term care. Zeneca expects the acquisition to be completed April 10.

It wasn't immediately clear what impact the transaction will have on Zeneca. Alyson Coates, pharmaceuticals analyst at Societe Generale Strauss Turnbull, said that 'it might be a tiny bit dilutive' of Zeneca's full-year earnings, perhaps shaving a couple of million pounds off the bottom line.

For 1996, Salick posted operating profit of $10 million on revenue of $186 million.

Coates noted that Salick's margins aren't rising, largely because of the company's reinvestments. Salick has set up new cancer centres, including a major complex soon to open in New York.

Zeneca isn't worried about the squeeze on Salick profits, Zeneca's Brown said. 'In Zeneca group terms, the numbers aren't that great,' he said.

The drug giant had a pretax profit of £975 million ($1.56 billion) in 1996 on sales of nearly £5.4 billion.

Zeneca hinted at its 1996 results presentation that it would probably complete the acquisition, which was originally billed as a merger.

The complicated transaction required Salick to turn its common stock into 'puttable' common stock that shareholders can sell to Salick, with Zeneca having to pay for the purchase.

Under the original terms, the latest the redemption of these puttable shares could take place is October, but Zeneca spokesman Steve Brown told Dow Jones that one of Salick's major shareholders is eager to see the buyout completed as soon as possible.

[08] Oftel plans to probe BT's global expansion

Don Cruickshank, director general of Oftel said that although global liberalisation encourages competition it is possible it could affect BT's ability or willingness to meet U.K. license requirements.

'There may be areas in the future where BT's own interests no longer coincide fully with those of U.K. consumers,' said Cruickshank. He said he welcomes comments from relevant parties about how BT should be regulated as liberalisation in the U.K. telecoms industry continues.

Oftel set out four options for future U.K. regulation.

The first is to continue as now, monitoring BT and taking action when necessary. The second is to modify BT's license to prohibit it from taking action which could compromise its U.K. customers.

The third option adds a requirement to annually review BT's business and ensure its U.K. obligations are being met. The fourth is for BT to secure its U.K. business, by detailing its management and financial resources.

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

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