European Business News (EBN), 97-04-14

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

Page last updated April 14 1400 CET

CONTENTS

[01] British Telecom and MCI form strategic alliance with Portugal Telecom

[02] GM more than doubles earnings in first quarter

[03] Skanska plans billion dollar Sandvik divestment

[04] UK producer prices show inflation pressures lower than expected

[05] Merck sales rise by 12% in the first quarter of 1997

[06] Sparesbankgruppen plans to take over Fokus Bank

[07] Fried Krupp AG Hoesch-Krupp expects earnings to rise in 1997 from 1996 levels.

[08] Continental in talks to sign exclusive supply agreement with Boeing

[09] SGS-Thomson's first quarter earnings fall

[10] Corporate and Economic Briefs

[01] British Telecom and MCI form strategic alliance with Portugal Telecom

BT will take a 1% equity stake in PT and MCI will take 0.5% during the next stage of privatization, expected later this year, PT said in a statement.

Concert was the favored candidate for the partnership, although the PT said it had also negotiated with Deutsche-Telekom led consortium Global One and U.S. alliance AT&T-Unisource.

Under the agreement, PT becomes the exclusive distributor for Concert communications services' voice products in Portugal.

PT and MCI will also explore opportunities in Latin America's largest telecommunications market, Brazil, where PT has an alliance with Telebras, the country's leading company.

'This strategic alignment meets our objectives of fostering the development of a more competitive company in an increasingly liberal environment, creating increased value to our shareholders,' PT Chairman Murteira Nabo said in the statement.

[02] GM more than doubles earnings in first quarter

The world's largest automaker said it earned $2.30 a share, up from 94 cents in the first quarter of 1996, and its sales grew to $42.26 billion from $39.24 billion.

'It's clear that we are moving in the right direction to further strengthen the corporation's financial performance,' GM Chairman and Chief Executive John Smith said in a statement accompanying the results.

Meanwhile, negotiators for General Motors are still trying to resolve an 11- day-old dispute with 3,5000 workers at a car assembly plant in Oklahoma City.

GM officials and bargainers for the United Auto Workers met several times over the weekend but made little progress, a GM spokesman said. The two sides are at odds over the plant's shrinking work force as well as health and safety issues. GM produces most of its popular new Malibu sedan at Oklahoma City.

[03] Skanska plans billion dollar Sandvik divestment

The Swedish contracting group will sell shares to Swedish investment company Industrivaerden and Deutsche Morgan Grenfell for distribution to Swedish and international investors.

It will also guarantee a share redemption of 4 billion kronor proposed by the Sandvik board of directors at 3% below the average share price during the application period May 7-22.

The divestment will result in a capital gain of at least 9.1 billion kronor for Skanska. In its 1996 results report Skanska said it will transfer between 8 billion and 10 billion kronor in excess capital to its shareholders. This divestment of Sandvik shares is one step in that direction, Skanska said.

The market price for the redemption will be determined by dividing the total market value of all shares traded during the May 7-22 period by the total number of traded shares; or total market value of all traded shares during the last three trading days of the application period divided by the amount of traded shares during the entire period, if that is lower.

High profitability and cash flow in recent years have resulted in some over- capitalisation of Sandvik which led the company to announce a revised dividend policy that implies a significant increase in dividends in connection with its 1996 results, announced in February.

The proposed terms for the share redemption are aimed at creating an improved capital structure and better possibilities for increased shareholder value, Sandvik said.

Shareholders will have the right to participate in the redemption program in proportion to their holdings, but since the redemption price will be 3% below market price they should carefully consider whether it's beneficial to do so, Sandvik said.

[04] UK producer prices show inflation pressures lower than expected

The Office for National Statistics said that producer output prices fell an unadjusted 0.1% in March from February. The fall, which defied market expectations for an increase of 0.1%, took the annual rate of increase to an unadjusted 1.0%, down from a revised 1.2% in February and the lowest since September 1986.

The unexpected falls in raw material and factory gate prices combined with a seasonally adjusted 0.5% fall in output prices, indicates inflationary pressures in that sector of the economy are even lower than thought.

But economists say that while weak producer-price inflation will allow retail-price inflation to fall further this year, interest rates still must rise promptly after the May 1 general election in order to prevent strong domestic spending from pushing inflation higher in 1998.

'Sooner or later, inflation pressures will emerge, and therefore some form of intervention is going to be required,' said Jonathan Loynes, U.K. economist at HSBC James Capel in London.

And Adam Cole, U.K. economist at HSBC James Capel, noted that the data only refers to manufacturing, which makes up just 20% of the economy. The real inflation pressures are coming from earnings growth in the services sector, he said.

Thus, he added, the figures won't be enough to shift the argument that bank base rates need to be raised if British policy is to remain ahead of the inflation curve.

But, with a general election scheduled for May 1, the chances of any rise being signalled before then is seen as very slim.

[05] Merck sales rise by 12% in the first quarter of 1997

The Darmstadt-based company said the largest gains were posted by its pharmaceuticals division, which recorded a sales rise of 18% to 1.1 billion marks in the first quarter compared with 931 million marks in the first three months of 1996.

Merck said first-quarter sales in its laboratory business were up 3.3% to 436 million marks from 422 million marks a year ago, while the special chemicals division improved its sales during the period by 11.1% to 349 million marks from a year earlier.

The company's domestic sales during the first three months of the year remained at 'about the previous year's level,' Merck said. Merck's foreign subsidiaries, however, reported a 16% jump in first quarter sales, the company added.

[06] Sparesbankgruppen plans to take over Fokus Bank

According to a written statement, Sparebankgruppen's bid is valued at 4.795 billion kroner ($653 million), or 73 kroner ($10) per Fokus Bank share.

Sparebankgruppen said it now controlled, directly or indirectly, 10 percent of Fokus.

Sparebankgruppen is owned by Sparebanken Nord-Norge, Sparebanken Midt-Norge, Sparebanken Vest, Sparebanken Rogaland and 12 other, unlisted savings banks.

It said its bid was conditional of the group acquiring more than 90 percent of Fokus and that regulatory authorities approve of the acquisition.

Fokus, which is the fruit of a series of fusions between several banks in the 1980s, would thus cease to exist.

The statement said a takeover of Fokus, which is 80 percent owned by foreign investors, would pose a significant regional consolidation in Norway's financial community.

[07] Fried Krupp AG Hoesch-Krupp expects earnings to rise in 1997 from 1996 levels.

Krupp said first quarter group sales were broadly unchanged from a year earlier at 5.5 billion marks, while new order inflows rose 5.6% to 6.5 billion mark in the same period.

In 1996, group net profit fell to 208 million marks from 505 million marks in 1995, as a result of losses at its core steel operations.

Cromme, who unleashed a storm of protest with his attempt to take over rival Thyssen, also said in a speech that Krupp's net financial borrowing fell by about 500 million marks to less than 2.9 billion marks in 1996. He noted that this meant net borrowing had been halved since 1993.

Cromme gave no indication of the group's profitability in the first quarter of 1997, although he said every division of the group except the ordinary steel operations had been profitable in 1996.

As a compromise solution to the aborted attempt to take over Thyssen, Krupp's main steel operations are now to be brought into a joint venture with Thyssen's, which are profitable.

[08] Continental in talks to sign exclusive supply agreement with Boeing

If the two companies can reach agreement on terms, Continental would become the third airline after Delta Air Lines and AMR Corp.'s American Airlines to reach similar 'sole-supplier' pacts with Boeing in recent months. The agreements have been harshly criticised by Boeing's chief rival, Airbus Industrie of Europe, which is examining them closely for any violations of antitrust regulations.

Gordon Bethune, Continental's chairman and chief executive officer, said in an interview that he has asked Boeing officials to give him an aircraft- contract proposal that would be based on Continental's agreement to buy its planes only from Boeing in the decades ahead. Boeing has begun preliminary talks with Continental and Mr. Bethune said he expects they will lead to a formal offer from Boeing.

To secure the agreements, Boeing has been providing substantial discounts and novel incentives. In Delta's case, Boeing agreed to reduce prices retroactively on some planes that had been ordered previously, according to people familiar with those terms.

Some Airbus officials have publicly criticised Boeing's sole-supplier agreements as unwise for carriers, since they would no longer obtain the benefits of competitive bids. Airbus hasn't made its own sole-source offers, although in November it tentatively won firm orders from US Airways Group for 120 planes and options for a further 120 or more. US Air has said that agreement won't be final until the airline obtains cost-saving concessions from its major labour unions. Airbus has significant orders in North America from Northwest Airlines, Air Canada, United Airlines and America West Airlines.

Continental is looking to replace 27 ageing McDonnell Douglas Corp. DC-10 jetliners and to expand that medium-capacity segment of its fleet. Both Airbus and Boeing, which has an agreement to acquire McDonnell Douglas, have been bidding to win that order for as many as 40 planes. The order could be valued at as much as $4.1 billion, based on list prices.

Continental's Mr. Bethune said he's sought a separate sole-supplier bid from Boeing because 'I want to see the difference, as far as what we get for it.' He declined to discuss details. But Mr. Bethune said he is intrigued by the guaranteed low jet prices and other terms apparently won by rivals American and Delta in what he jokingly called their 'most favoured nation' contracts with Boeing.

A Boeing spokeswoman had no immediate comment. Officials of Airbus, based in Toulouse, France, couldn't be reached for comment.

[09] SGS-Thomson's first quarter earnings fall

SGS-Thomson, listed in Paris and New York, reported a drop in net income to $90.5 million from $175 million on lower sales of $944.9 million against $1, 027.7 million in the first quarter of 1996. The company pays no dividend.

'As expected, first quarter revenues were negatively impacted by market pricing conditions,' president and chief executive officer Pasquale Pistorio said in a statement.

'Also, the combination of a stronger dollar and lower demand for products destined for digital consumer applications reduced first quarter demand,' he said.

'We are certainly encouraged by our ability to maintain gross margin levels, which were bolstered by better operating conditions in the last months of the quarter,' he added.

Pistorio was in Catania, Sicily, for the official opening of an eight-inch wafer plant (fab), scheduled to be performed by Italian Prime Minister Romano Prodi.

'The decline in other income reflected our decision to move ahead with the qualification of our eight inch fab in Catania. As a result, start-up expenses reached their highest level in a period when other income is historically low,' he said.

'Market conditions remained as we had anticipated at the time of our year- end 1996 earnings release,' Pistorio said.

'As the quarter came to a close, we saw signs that prices of several standard products were stabilizing and in some cases increasing from recent low levels. Additionally, order rates accelerated last month, although overall visibility, while better than in the fourth quarter of 1996, remains modest.'

Pistorio said that sales in the second quarter were expected to be around one billion dollars.

'Somewhat firmer pricing and continued manufacturing efficiencies should result in a gross margin for the second quarter above that of the first quarter,' he said.

'Being a year of progressive recovery, the traditional seasonal effect should be offset by strengthening market conditions and we expect sequential growth both in sales and gross margin in the third and fourth quarters of 1997,' he said.

[10] Corporate and Economic Briefs

Associated British Foods said that pretax profit for the six months ended March 1 was 2% higher then a year ago at 201 million pounds, but it failed to deliver much anticipated news on how it would spend its hefty cash pile. The strength of sterling trimmed an estimated 11 million pounds off profit and is expected to remain a negative factor in the short-term, said the company. Nevertheless, executive chairman Gary H. Weston said he expects sales to remain 'satisfactory' throughout the group.

GEC Alsthom said it won a contract worth 140 million European Currency Units to supply eight sets of eight-car trains to Gatwick Express, the new U.K. train company. The trains, to be operational in May 1999, will run between London Victoria station and Gatwick airport. GEC Alsthom is the 50- 50 joint venture between General Electric Co. and Alcatel Alsthom of France.

March retail sales in large stores in France fell 1.1%, in volume terms, from February, and fell 2.1% from a year ago, according to the Paris chamber of commerce. The decrease is the second straight large monthly decline, and confirms economists' predictions that France's economy will grow thanks to strong exports and despite weak consumer spending.

French beauty and pharmaceutical group L'Oreal said first quarter 1997 sales rose 11% to FF16.5 billion from FF14.8 billion a year ago, in part due to favorable exchange rates. Foreign exchange rates, particularly the stronger dollar which increased U.S. sales figures, added 3.3% to L'Oreal's sales, the company said. Structural changes added 1.6% to sales as L'Oreal consolidated the sales of its new activities.

Unemployment in the European Union in February was 10.8%, slightly lower than 10.9% the previous year but exactly the same as in the preceding two months, according to latest figures from the E.U. statistical office. Declines in the number of people out of work continued in the U.K., Ireland, Finland and the Netherlands, but Sweden, Portugal and Spain saw unemployment levels rise during the month, according to a Eurostat statement. Eurostat estimated that 18.2 million people were out of work in February throughout the E.U., with Spain (21.7% unemployed), Finland (15%) and France (12.5%) contributing most to the E.U.-wide figure.

Control of costs and increases in net income led to a 17% increase in first quarter consolidated net profit for Banco Espanol de Credito. The bank is relaunching its commercial activity, according to its president, Alfredo Saenz. Banesto shares gained 5 pesetas to 1,080 pesetas a share on volume of 435,168 shares on the IBEX-35 index after the release of the news. Banesto said in a release that its first-quarter consolidated net profit rose to 8.56 billion pesetas from 7.32 billion pesetas in the same three- month period in 1996.

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

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