European Business News (EBN), 97-04-24

European Business News (EBN) Directory - Previous Article - Next Article

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

Page last updated Thu, April 24 7:09 PM CET

CONTENTS

[01] ICI earnings plummet 67% in first quarter on price war and strong pound

[02] France's February industrial data kicks-off election campaign on high note

[03] Eurotunnel losses narrowed in 1996

[04] Glaxo strikes deal with Novopharm over generic version of Zantac

[05] German CPI preliminary figures lower-than-expected

[06] Laura Ashley stock price plummets after firm issues warning

[07] Stena Line narrows first-quarter loss slightly

[08] Dow Chemical first quarter income drops 12%

[09] Stora profit more than halves, but exceeds expectations

[10] TAP-Air pilots begin 48-hour strike

[11] Corporate and Economic Briefs

[01] ICI earnings plummet 67% in first quarter on price war and strong pound

The weak earnings were widely expected by the market, but came in at the low end of analyst forecasts of between £65 million and £75 million.

ICI Chairman Sir Ronald Hampel said it is widely expected that chemical production will be higher in 1997, so it is expected that profit in the second half will show improvement.

The company in part blamed the strength of sterling, saying £40 million were lost to the strong pound. It also said it suffered from intense price competition.

Sales at the group's industrial chemical division were significantly lower than the previous year, falling to £946 million from £1.1 billion.

ICI said the decline was largely due to price cuts in polyester intermediates and titanium dioxide during 1996, as sale volumes grew by 19% and 16% respectively.

Chemicals and polymers were adversely affected by higher input prices and the stronger pound. However, the recent reduction in oil prices and the tightening market in Europe is leading to a number of bulk chemical contracts in the second quarter.

Elsewhere, ICI's explosives division was little changed on the previous year as currency effects were absorbed by volume growth in Australia and favourable market conditions in Asia Pacific and Latin America.

The group's paints division increased sales by 8%, with acquisitions providing some support as the strong pound again restricted gains.

ICI's other main division, materials, was also down on 1996, although strong volume growth helped to offset intense price competition.

[02] France's February industrial data kicks-off election campaign on high note

Economists said the data, which included a stunning 3.7% rise in manufacturing output, will support the incumbent conservatives' quest to maintain control of the legislature at the same time as they poke holes in opposition claims that current government policy has failed.

'We are in an election environment, and they're obviously going to be pleased with these numbers,' said Michala Marcussen, international economist for Societe Generale.

Industrial production jumped 1.6% on the month in February, after falling a revised 1.1% in January, while manufacturing production, defined as industrial production excluding food and energy output, rose a sharp 3.7% on the month and 2.2% on the year after falling a revised 1.1% in January from December.

The January industrial and manufacturing output figures had previously been reported as down 1.2% and 1%, respectively.

While the headline production figure was held back by a 9.4% drop in energy production in February, both figures were above most economists' estimates.

Marcussen said the gains were 'mainly due to stronger export demand and auto output,' the latter of which was up 5.1% in February after being down sharply in the five months since government incentives to car buyers ended.

Societe Generale's Marcussen said the data were so strong that they may lead her to upwardly revise her forecast of 0.5% growth in the first quarter from the fourth quarter of 1996, though she would hesitate to do so before seeing more evidence of a recovery in household consumption data for March, which are due April 29.

All of this must sound like music to the ears of Chirac, who called snap elections for May 25 and June 1 on Monday.

Currently, the opposition Socialists have been savaging the administration of Chirac and Prime Minister Alain Juppe with criticism that their prescription for the economy, including fiscal austerity and cuts in social spending, has failed to bring about economic growth.

Socialist leader Lionel Jospin said Sunday on television that the prospect of Chirac calling early elections is itself an admission of failure.

In this context, writes Eric Chaney, senior economist for Morgan Stanley. in Paris, the rise in manufacturing output in particular, is 'good news for markets, for the government, and for our recovery scenario.'

[03] Eurotunnel losses narrowed in 1996

The Anglo-French tunnel operator said its pretax loss in 1996 narrowed to £685 million ($1.09 billion) from £925 million the year before. That was in line with expectations. Sales in the year rose to £483.5 million.

The beleaguered company didn't make any fresh statements about its £8 billion debt, except to confirm that the standstill period in effect since September 1995 will be extended to Dec. 14.

Eurotunnel said the debt restructuring plan agreed to last October hasn't been changed during technical talks with banks that have been going on since then to prepare the formal documentation.

But Eurotunnel said for the first time that the plan will be put to a shareholder vote on July 10 - before the banks vote on it in the autumn. The question of which group would vote first hadn't been answered before.

Eurotunnel added that it's 'not aware of any pressure' being brought to bear by the banks to end the debt standstill agreement - under which payments are suspended - while the plan approval processes progress.

Meanwhile, trading in the first three months of 1997 has been 'encouraging, ' and Eurotunnel expects to record an operating profit this year, co- Chairman Patrick Ponsolle said.

'Traffic for the first three months has been encouraging for Le Shuttle Tourist, Eurostar and rail freight,' Ponsolle said. 'Growth of retail revenues has also been strong. In 1997, Eurotunnel aims to achieve an operating profit for the first time.'

Traffic at Le Shuttle Tourist is now 80% of what it was before the fire last November. 'Traffic should regain the market share achieved prior to the fire by the end of 1997,' Ponsolle said.

[04] Glaxo strikes deal with Novopharm over generic version of Zantac

The news that Glaxo has dropped the fight to prevent rivals manufacturing Zantac-like substances has knocked the company's stock price in London trading.

Last month, Glaxo said its earnings would grow in only single-digit figures until 1999 if generic drugs similar to Zantac are marketed in the U.S., a scenario it's been trying to prevent in recent court cases against Novopharm.

Glaxo had been arguing in court that the Canadian company shouldn't be able to produce generic versions of ranitidine hydrochloride form 1 since that would compromise the patent on its form 2 version, which is valid until 2002.

As well as court cases, Glaxo has used various means to manage the patent expiry - it was even a factor behind Glaxo PLC's hostile takeover of Wellcome PLC. The 1995 merger between the two drugs giants meant Zantac sales fell to 23% of total sales in 1996 from 49% in 1990.

In 1996, sales of new drugs for the first time topped those of Zantac. Sales of the anti-ulcerant dropped 14% to £1.93 ($3.08 billion) in that year.

Zantac, an anti-ulcerant, was the best-selling prescription pharmaceutical in the world last year. The settlement will mean Glaxo drops legal action to prevent Novopharm developing its own version of Zantac, in return for an undisclosed licensing fee.

[05] German CPI preliminary figures lower-than-expected

The month-on-month decline defies analysts' expectations of a 0.1% rise and the year-on-year rise is below the 1.6% rise forecast in a consensus survey of economists by Dow Jones Newswires.

In March, consumer prices for western Germany were down a preliminary 0.1% from a month earlier and up 1.6% from March 1996. In all of Germany, the consumer price index fell 0.2% on the month in March and rose 1.5% on a year-on-year basis.

The Federal Statistics Office in Wiesbaden compiles preliminary data on the basis of results from western Germany's four most populous states of North Rhine- Westphalia, Bavaria, Baden-Wuerttemberg and Hesse.

In May, the office will publish final inflation data for Germany as a whole, as well as the western and eastern regions of the country.

[06] Laura Ashley stock price plummets after firm issues warning

Pretax profit for the 12 months to Jan. 25 rose 57% to £16.2 million ($25.9 million), paving the way for a doubled dividend payment to 1 pence a share.

The company added that 'although the current year will be difficult, we continue to remain a results driven group to ensure that we maximise the full potential of this powerful brand,' said Ann Iverson, chief executive.

The company's share price slid after Ashley warned that first-half sales will suffer amid indications that the public may not be embracing the retailer's newly updated range of clothing as anticipated. Consequently, the company said, earnings for the year will likely fall below market expectations.

A consensus estimate of brokerages estimated profit of £24.0 million for the year ending next Jan. 25.

Laura Ashley said it will need to mark-down merchandise due to delays in first-half 1997 store openings and over-blown sales targets.

'This will affect first-half trading and, as a result, the outcome for the full year, although ahead of last year, will be below current market expectations,' the company said in a press release.

The company is implementing an aggressive store opening program in the U.K. and U.S., closing or adding on to smaller locations in favour of large- scale stores able to display its full range of home decor merchandise.

Since early April the shares had staged a series of rallies as speculators confident about Laura Ashley Chief Executive Ann Iverson's long-term strategy were willing to pay a stiff premium for the shares, sending the stock 10% higher during a couple of sessions.

[07] Stena Line narrows first-quarter loss slightly

Pretax losses narrowed slightly in the first three months to 493 million kronor ($64.5 million) from a 504-million-kronor loss in the same period last year. For the whole of 1997, Stena estimates a slight improvement in results, from a pretax loss of 448 million kronor in 1996.

'It wasn't the first quarter that was the problem last year - it was the second and third,' said Stena Line's chief executive officer Bo Lerenius. Stena Line won't publish a full interim report for the first quarter 1997, the company added.

In the first quarter, net financial items deteriorated to a cost of 105 million kronor from a cost of 93 million kronor in 1996.

The number of passengers on the group's ferries rose 18% in the quarter to almost 3 million from 2.5 million.

The number of freight units also rose 18% and Stena Line's market shares on the Dover-Calais route have increased to 18% for passengers and 27% for freight units.

On the English Channel routes, ticket prices dropped due to the pricing policy implemented by Eurotunnel in June 1996.

Meanwhile, prices rose slightly on the Irish Sea routes and were stable on the Scandinavian routes.

[08] Dow Chemical first quarter income drops 12%

Operating income for the first quarter ended March 31 was $765 million compared with last year's $868 million. The company said its sales volume grew 2% while selling prices declined by 2% as a result of a negative currency impact of about $100 million.

During the quarter, the company said it 'experienced a mixed pricing scenario.' Prices in some key products, notably polyethylene and vinyl chloride monomer, were up substantially from a year ago. Other products, such as caustic soda and polystyrene faced price declines.

Dow Chemcial said 'the strong U.S. dollar played a significant role in the price decline' it experienced in the first quarter. However, when adjusted for this currency impact, the company said it 'sees positive pricing trends in many of its key products' compared with the year-ago period.

Productivity, value growth initiatives, business portfolio restructuring and lower costs combined to offset about $200 million of the more than $300 million impact of higher feedstock costs and the unfavourable currency impact on sales, the company said.

Operating expenses for the latest first quarter were down 16% to $627 million compared with $743 million for same period a year ago. Dow Chemical said the 'reduction was achieved primarily through a combination of on- going productivity gains, lower costs and the overall impact of currency on costs.'

[09] Stora profit more than halves, but exceeds expectations

Pretax profit plunged 55% to 560m kronor (73.1m dollars) in the first quarter. Declining prices had a negative impact of 1.7bn kronor on the result, Stora said. Sales fell 14% in the first quarter 1996. Some 826m kronor of the decrease was due to the loss of sales from Stora Building Products, which was sold during 1996, and the rest was explained by a smaller net from lower sales prices and increased delivery volumes.

Meanwhile, income was improved by 450m kronor from increased delivery volumes, by 100m kronor from currency changes and by 400m kronor from lower volume costs.

Sales fell to 10.68 billion kronor from 12.43 billion kronor in the first quarter 1996. Some 826 million kronor of the decrease was due to the loss of sales from Stora Building Products, which was sold during 1996, and the rest was explained by a smaller net from lower sales prices and increased delivery volumes.

However, the result was still above expectations of a pretax profit of 427 million kronor and the market reacted positively.

[10] TAP-Air pilots begin 48-hour strike

The airline, which the Socialist government wants to privatise next year, is seeking greater flexibility in working hours in an attempt to boost efficiency and cut costs. Pilots say that they already work more than colleagues with rival European airlines and that increasing their workload threatened the safety of planes.

A last ditch bid to break a deadlock over working hours failed last night and the Union of Civil Aviation Pilots, representing the company's 430 pilots, went ahead with the threatened stoppage which mainly hit international flights.

'TAP is not competitive. A company that is not competitive in Europe where state subsidies are no longer allowed is condemned to disappear,' company chairman Manuel Ferreira Lima told journalists after the failure of last night's talks. 'I am sorry to put it so starkly but the time has come for things to be understood clearly,' he said.

A company spokesman said that by early morning, 11 international connections had been cancelled leaving anxious passengers with the difficult task of finding a seat on another airline. TAP, which says the strike is illegal, was offering no refunds for grounded flights.

Private carrier Portugalia handles most domestic flights, while the law obliges TAP pilots to maintain a limited service between the mainland and Portugal's Atlantic Azores and Madeira islands.

[11] Corporate and Economic Briefs

The Netherlands' gross domestic product rose 3.0% in fourth quarter 1996 from a year earlier, compared with an increase of 1.7% in the fourth quarter of 1995, the government's Central Bureau for Statistics said Thursday. Adjusted for seasonal influences, fourth-quarter GDP rose 0.5% from the previous quarter, the bureau said. In the third quarter of 1996, seasonally adjusted GDP rose 0.7% from the second quarter. In 1996, the Dutch economy grew by 2.7%, from 1995's 2.1%. The government's Central Planning Bureau calculated full-year 1996 GDP at 2.8%.

Swedish telecommunications company Telefon AB LM Ericsson said it has signed contracts worth around $71 million with China's Hebei Post & Telecommunications Administration. The agreement includes expansion of the GSM and TACS mobile telecommunications networks in the Hebei province in northern China, Ericsson said. The first contract, valued at $21 million, is the third expansion of the Hebei GSM network. With the new expansion the Ericsson network will reach 160,000 subscribers, the company said. The TACS contract, valued at $50 million, will increase the Ericsson TACS network capacity to 370,000 subscribers. Ericsson said the expansion will be completed during 1997

Britain's merchandise trade deficit widened to £758 million in February from a downwardly revised £535 million in January as exports fell 1.3% and imports rose 0.2%. The provisional, seasonally adjusted deficit, published by the Office for National Statistics Thursday, was narrower than the 900- million-pound shortfall economists were expecting. The January trade deficit was initially estimated at 641 million pounds. The ONS said the latest estimate of trend suggests the deficit is narrowing.

Britain's harmonised index of consumer prices rose 0.2% in March from February to stand 1.8% higher than the same month in 1996, down from an annual rate of 2.0% in February. The harmonised prices data, reported by the Office for National Statistics Thursday, has been formulated to meet European Union inflation data standards ahead of plans for economic and monetary union in 1999. It doesn't replace Britain's retail price index, which the ONS still regards as the best indicator of U.K. consumer price inflation. In March, RPI inflation was unchanged from February at 2.7%. The HICP, introduced in January, allows for inflation comparisons across the European Union.

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

European Business News (EBN) Directory - Previous Article - Next Article