European Business News (EBN), 97-08-20

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

Page last updated Wed, August 20 6:03 PM CET

CONTENTS

[01] Rhone-Poulenc to offer $4.35 billion for the remaining stake of US pharmaceutical unit Rhone-Poulenc Rorer

[02] News Corp. earnings drop 31%, damped by lower film earnings and losses at US publishing unit

[03] Tesco breaks Adidas supply blockade

[04] Mannesmann reports 1997 first-half net profit rose 54% to $512 million

[05] UK retail sales rise 0.3% in July; up 6.5% on year

[06] Philip Holzmann expects 1997 operating loss

[07] IFO reports that West German July business confidence higher than last month

[08] Merck first half net profit rises 11%

[09] Skandia first half operating profit doubles

[10] Rentokil profit jumps 54% despite strong pound

[11] US trade deficit narrows sharply in June

[12] UPS strike settlement accord could cost firm $1 billion a year

[13] Canon first half pre-tax profit rises 23%

[14] Corporate and Economic Briefs

[01] Rhone-Poulenc to offer $4.35 billion for the remaining stake of US pharmaceutical unit Rhone-Poulenc Rorer

Rhone-Poulenc's offer price is $5 a share, or 2 billion Francs ($322 million), higher than the price the company had put forward in June when it first said that it might make an offer.

Analysts said that the price falls within the range they had projected of $95 to $97 a share and below some expectations of $105 a share or more.

On June 26, Rhone-Poulenc said it was considering making the offer after a shareholding agreement expired on July 31. When August 1 came and the company hadn't made a move, the shares began suffering as investors speculated that the operation was turning out to be more costly than anticipated.

[02] News Corp. earnings drop 31%, damped by lower film earnings and losses at US publishing unit

Net profit for the year ended June 30 dropped 31% to A$720 million from A$1.02 billion the year earlier. News Corp. said it has surplus cash and intends to buy back up to A$1.3 billion of its preferred limited voting ordinary shares, subject to regulatory clearance.

News Corp.'s profit after tax, but before abnormal items, climbed 2.5% to A$1.30 billion from A$1.26 billion a year earlier.

The company said abnormal costs of A$575 million largely relate to restructuring costs at its HarperCollins book publishing group and losses on the sale of certain assets and investments.

UK Newspapers and Magazines and Inserts operations exceeded expectations, 'achieving substantial increases' over 1995-96, but the company's book publishing unit reported sharply lower earnings 'due to difficult industry conditions,' News Corp. said.

However, operating income from films fell to A$133 million from A$145 million, while book publishing tumbled to A$16 million from A$90 million.

Income from Associated Companies grew 12%, helped by 'solid earnings increases' at British Sky Broadcasting.

Operating income in the UK rose to A$488 million from A$351 million in the previous year, but slipped in the US to A$1.13 billion from A$1.15 billion a year earlier, and fell in Australasia to A$81 million from A$94 million.

[03] Tesco breaks Adidas supply blockade

The move was backed by Consumer Affairs Minister Nigel Griffiths, who said: 'What retailers like Tesco are doing is good news for shoppers. I want to cut artificially high prices for the British customer.' Tesco's move further fuels fears of an all-out price war in the sector after Safeways launched a £20 million ($32 million) price initiative earlier in the week.

Adidas sports and fashion clothing and sports shoes will be available in over 200 Tesco stores from tomorrow.

[04] Mannesmann reports 1997 first-half net profit rose 54% to $512 million

The Duesseldorf-based industrial group added that first-half pretax profit was 603 million Deutsche marks, nearly double the 304 million Deutsche marks pretax profit seen a year earlier.

Mannesmann added that group sales in the period rose 14% and incoming orders 12%. First-half sales were 17.7 billion Deutsche marks, up from 15.5 billion Deutsche marks. Incoming orders rose to 20.6 billion Deutsche marks from 18.4 billion Deutsche marks in the corresponding 1996 period. Mannesmann added it expects 'continued good market development' in the second half of the year, that will, as previously announced, bring a higher operating profit in the full year.

Higher earnings in the telecoms units were a major factor in Mannesmann's improved first-half earnings, it said. The division had operating profit in the first half of 513 million Deutsche marks, up from 339 million Deutsche marks a year earlier.

A swing to profit in the tubes and trading unit also boosted earnings, the company said. The unit had an operating profit of 51 million Deutsche marks in the six-month period, after an operating loss of 49 million Deutsche marks a year earlier.

In its other divisions, Mannesmann said operating profit in the engineering unit was 4 million Deutsche marks, after a 67 million Deutsche marks loss a year earlier.

[05] UK retail sales rise 0.3% in July; up 6.5% on year

When the Bank of England raised its official lending rate 0.25 percentage point to 7.0% earlier this month, it said a pause was in order to assess the impact of the four increases that have taken the rate 1.0 percentage point higher since Labour's May 1 election victory. But Wednesday's data suggest that the upward cycle is not over. The Office for National Statistics said spending of windfall gains from stock-market flotations of mutually owned building societies helped retail sales to expand by 7.4% in the three months to July from the three months to June, the highest growth rate since records began in 1986.

Retail sales rose 0.3% on the month in July after seasonal adjustment. The annual rate of increase stood at 6.5%, up from a revised 5.6% in June and above expectations of 5.9% growth.

The figures were affected by a downward revision of 0.4% to the sales index in July 1996, without which the headline figure would have been 6.1% - still above forecasts.

The ONS said the monthly rise in retail sales would have been even weaker but for a weather-related rebound in food sales.

Economists said the data show that consumer spending remains robust.

'These figures are consistent with the view that while interest rates are on hold for a month or two, they have probably not yet reached a peak,' said Jonathan Loynes, U.K. economist at HSBC Markets.

By Stephen Cunningham

[06] Philip Holzmann expects 1997 operating loss

The Frankfurt-based company also said its first-half construction revenues rose to 6.5 billion Deutsche marks ($3.6 billion) from 5.9 billion marks a year earlier, while new orders fell to 5.6 billion marks from 7.6 billion marks.

Holzmann said its full-year construction revenues will be around the same level as in 1996 at 14.2 billion marks. The company added that its order backlog was slightly lower in the first half at 15.3 billion marks versus 15.6 billion marks a year earlier. 'The earnings situation at Holzmann will be determined by the continuing difficult economic environment and through losses at some subsidiaries,' the company said.

[07] IFO reports that West German July business confidence higher than last month

The Munich-based institute said its business climate index that tracks sentiment and prospects in the manufacturing, construction and wholesaling sectors rose to 98.1 in July from an upwardly revised 96.1 in June. It marks the fifth consecutive month of rises and is well above economists' expectations.

Economists surveyed by Dow Jones on average expected the July index to be around 96.5.

Western Germany accounts for roughly 90% of the country's economic output. The institute changed the basis year for calculating the index in January, making 1991 equal to 100, instead of 1985, which was used before.

Ifo's other two sub-indicators, which evaluate companies' assessments of current conditions and future prospects, were also significantly higher on the month. All three indicators were stronger than a year earlier.

'The rise is mostly due to the strong rise of the dollar in July and was helped by an increase in retail sales in June,' said Marco Kramer, economist with Banque Paribas in Frankfurt. Meanwhile, the eastern German business indicators were mixed on the month and two of the three were up from a year earlier. In eastern Germany, business sentiment was flat from June. Companies' assessment of current business conditions was higher, and the index of business prospects slipped slightly on the month.

[08] Merck first half net profit rises 11%

'The company expects a double-digit rise in worldwide sales and favourable earnings in the second half of the year in current economic conditions,' Merck said in a press statement.

[09] Skandia first half operating profit doubles

The company's net asset value rose 23% to 21.12 billion kronor, corresponding to 206 kronor per share, compared with 168 kronor per share at the end of June 1996.

The non-life insurance and reinsurance business reported a 97% rise in operating profit to 3.05 billion kronor from 1.55 billion kronor. Of this, the technical result from insurance operations amounted to 240 million kronor, while investment income contributed 2.81 billion kronor. The latter was up 92% from year-earlier levels.

The life and unit-linked assurance business, meanwhile, saw a 49% rise in premiums written to 24.51 billion kronor from 16.44 billion kronor a year earlier. That brought the operating profit for the sector to 1.17 billion kronor from 811 million kronor, an increase of 44%.

Premiums written for the group as a whole amounted to 37.34 billion kronor, up from 29.08 billion kronor a year earlier.

'The strong investment result for the period can be attributed to our active investment management within the framework of our investment strategy and the favorable trend in the stock markets,' said Lars-Eric Petersson, president and chief executive officer of Skandia, in a statement.

[10] Rentokil profit jumps 54% despite strong pound

Despite sterling, the company - which earns around 54% of its operating profits overseas - saw pre-tax profits increase 44% to £193.9 million from £134.5 million the year before.

The half-year figure, in-line with analysts' high expectations, was boosted by the first full six months trading of BET, acquired last year for £2 billion.

As well as reporting a strong increase in profits, the company declared a 20% increase in the interim dividend to 0.89 pence a share from 0.74 pence last year.

In March, the company warned that at rates then prevailing, the pound's strength could reduce full-year profits by around 5%.

After that warning, the pound rose by a further four percent against the mark between mid-March and the end of the second quarter and by five percent against the dollar.

Rentokil said in a statement accompanying results that it expected continued good growth for the full-year.

[11] US trade deficit narrows sharply in June

May's deficit originally was reported as $10.23 billion.

On a seasonally adjusted basis, the department said exports in June rose 0.9% to $78.42 billion. Imports in June showed their first decline in seven months, falling 0.7% to $86.58 billion.

The Dow Jones Newswires' survey of 18 economists published Monday had forecast a $10.25 billion June trade deficit.

For the first six months of 1997, the adjusted trade deficit totaled $55.56 billion, compared with $52.32 billion in the same period a year ago.

[12] UPS strike settlement accord could cost firm $1 billion a year

The new contract, which provides for substantial pay increases for full- time and part-time workers and the creation of thousands of new full-time jobs, was unanimously approved by union officials. Under the labour accord, UPS abandoned its proposal to withdraw from 21 multi-employer pension plans operated by the union.

The Teamsters, in turn, agreed to a five-year contract instead of a three- year pact. Workers began returning to their jobs, and UPS hopes to restart the engines of its sprawling shipping network over the next few days.

It appeared that it was UPS that blinked in the face of revenue losses totalling more than $600 million since the start of the strike Aug. 4. As a result, the company has estimated that as many as 15,000 of the 185,000 Teamsters employed at UPS might be laid off at least temporarily if business lost to the strike isn't regained.

A blistering media campaign by the union that marshalled public opinion behind the striking workers also put pressure on the package-delivery concern. And Teamsters President Ron Carey wasted no time after the agreement was reached late Monday to declare victory for the union and begin expanding his theme that 'part-time America doesn't work.' Mr. Carey said the final terms of the agreement proved that he was right last week when he refused to let union members vote on what the company was then calling it: 'last, best and final offer.'

UPS officials spent much of yesterday denying that the company had surrendered to Teamster demands, saying that the total cost of the deal it struck was little different from what the company offered days before the strike began.

'There are nothing but losers,' said UPS Chairman and Chief Executive Officer James P. Kelly. 'We lost. Our people lost, and our customers lost.'

UPS said it hasn't yet calculated what effect the increased labour costs will have on its pricing, although analysts say the company will almost certainly be forced to raise prices in the face of the additional costs. The company traditionally raises prices at the beginning of each calendar year.

UPS says its labour costs for all employees total approximately 60% of annual revenue, or about $13.4 billion.

The company wouldn't disclose a total value for the agreement reached with the Teamsters. However, Mr. Kelly said the new pact will add 'hundreds of millions of dollars' a year in costs during the first year of the contract.

That will rise to more than $500 million annually in the second year, he said, and in the final three years of the contract, the additional annual costs will exceed 'perhaps a billion' dollars.

Last year, the company's net income totalled $1.15 billion on revenue of $22.4 billion.

[13] Canon first half pre-tax profit rises 23%

Due to the buoyant results, the company decided to pay half-year dividend of 7.50 yen per share, up 1 yen from the 1996 midterm dividend, officials said.

Canon expects its business will show brisk results for the full year which closes Dec. 31, with both sales and profits showing year-on-year rises for the fourth consecutive year. Projections indicate a pre-tax profit of 145 billion yen and a net profit of 86 billion yen on sales of 1,515 billion yen. If the projection for pre-tax profit materialises, it will be a new record for the company and top the previous high of 125.23 billion yen recorded in the 1996 business year.

[14] Corporate and Economic Briefs

German Producer prices rose 0.1% in July from June and were 1.4% higher than a year earlier, the Federal Statistics Office in Wiesbaden said. Higher prices were particularly notable for fine zinc, up 15% from June, photochemical products, up 4.9% from June, aluminum for iron and steel production, up 4.3% from June, and fruit and vegetable preserves, up 4.0%. In W. Germany alone, producer prices rose by 0.1% in July from June and 1.3% from the year-earlier month, the statistics office reported. In eastern Germany, producer prices remained at their June level, but increased 1.8% from the year-earlier month, the office said.

UK M4 broad money supply rose 0.8% in July from June after seasonal adjustment, and rose 11.8% from a year earlier, according to provisional Bank of England figures. Bank lending to the M4 private sector was a provisional £4.3 billion ($6.88 biliion) in July, the figures, released today, show. The median forecasts from a Dow Jones Newswires survey were that M4 grew 0.8% on the month and 12.0% on the year. M4 bank lending was below the median forecast of £6 billion. In June, M4 grew 0.8% on the month and by 11.6% on the year. M4 includes bank and building society sterling deposits as well as private holdings of notes and coins.

Sweden's current account showed a surplus of 5.5 billion kronor ($696 million) in June, up from a surplus of 4.5 billion kronor in June 1996, according to figures released by Sveriges Riksbank, the central bank of Sweden. The June surplus brought the annualized current account surplus for the past 12 months to 38.8 billion kronor, down from a 41.5-billion krona surplus in the year-earlier period, the Riksbank said. Figures for the latest month in the chart below are preliminary, while the year- earlier figures have been revised.

Italy's preliminary August consumer price index data, due from its major cities after the market's close Thursday and Friday, are expected to be largely in line with the figures for July, analysts agree. They also say they don't believe the figures will prompt the Bank of Italy to ease rates. In fact, expectations are that the central bank will wait until the end of 1997 before making a further move on interest rates. Market participants expect the average figure from these CPI data to show a rise of 0.1% to 0.2% on the previous month's final CPI report and a 1.6% to 1.7% increase from a year earlier.

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

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