Wednesday, April 29, 2009

Recession takes toll on non-financial sectors

Recession takes toll on non-financial sectors
By Richard Milne in London

Published: April 29 2009 19:42 | Last updated: April 29 2009 20:21

A string of European companies reported poor earnings on Wednesday as the global recession took a heavier toll on groups from the real economy than on banks.

Companies ranging from France Telecom to car parts maker Continental and pharmaceuticals group Bayer, which are both German, reported weaker earnings in the first quarter.

Meanwhile, Spain’s Santander, the largest bank in the eurozone, said its operating profit had risen.

Other industrial weak spots included steelmaker Arcelor-Mittal plunging to a $1.1bn loss and Siemens, Europe’s largest engineering group, issuing a profits warning in spite of a rise in earnings.

“Financials have done better, while real economy companies – outside consumer cyclicals – have been less impressive,” said Nick Nelson, equity strategist at UBS.

Banks such as Deutsche Bank, Credit Suisse and Santander’s Spanish rival BBVA have reported strong first-quarter profits, while companies from Euro Disney to Philips have reported weaker results.

European managers are generally refusing to say they see the “glimmers of hope” in the economy that several US companies such as General Electric have reported.

The chief executives of Siemens and BASF, the world’s largest chemicals group, even said they had seen further deterioration in recent weeks.

But both Conti and Bayer yesterday said they were seeing the first tentative signs of a bottoming out in the collapse of activity.

Mr Nelson said first-quarter earnings showed that “the rate of deterioration” was slowing in Europe, but that there would be more profit warnings and downgrades in coming months.

The pain in the real economy extended yesterday to diverse companies such as SAP, the German IT group, which said sales of new software had dropped by a third and France Telecom, where profits fell slightly.

German engineering companies – which make up the heart of Europe’s largest economy – reported a 35 per cent fall in orders in March and forecast further woe for this month.

Industrial companies have been hit hard not only by the collapse in demand for exports and cutbacks in investment, but also by the continued relative strength of the euro.

At the same time, some banks have seen improved conditions after a miserable 2008.

But other financial companies are struggling.

Allianz, the German insurer, saw operating profit fall 41 per cent in the first quarter.

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