Restructuring brings Elf back to core

Dec 20, 1996 01:00 AM

Philippe Jaffre, chairman of Elf Aquitaine is entering the last lap of an ambitious restructuring drive to cut the formerly state-owned conglomerate back to its core oil and chemicals activities. After a three-year programme to sell assets from a treasure trove amassed by state-appointed predecessors, Jaffre this week said he was ready to give up control of the health and beauty products unit Sanofi. Sanofi, in which Elf holds 53 %, has a promising product pipeline but needs money to get them to market quickly. Its chief executive Jean-Francois Dehecq also has ambitions to play a part in the global pharmaceutical industry's restructuring and needs more financial support. At a board meeting recently at Elf's office tower in Paris's La Defense business district, Jaffre told Dehecq Elf would not commit money to a Sanofi expansion but freed the unit to engage in talks toward an alliance.
Elf is among the weakest performers in the oil industry. In 1995, its return on equity was 6.5 %, compared with 12.1 % at Shell and 16.7 %. Elf's consolidated income for 1996 was up 40 % at FF 7.3 bn (French Franc)($ 1.4 bn). Jaffre was appointed chairman and chief executive of Elf in 1993 when it was still under state control and he oversaw the privatisation of the group in 1994. The sale of a 64 % stake in Elf for FF 385 per share generated FF 14.9 bn, representing the biggest privatisation to date. But Elf reported its first ever loss that year, of FF 5.4 bn, after Jaffre took an FF 8.7 bn charge to clean up the balance sheet and write off overvalued oil reserves and the Texas Gulf phosphate business. He said he aimed to sell 15 bn francs of industrial assets and FF 6 bn of financial assets to cut the debt which stood at 46 % of equity. Most of this programme has been carried out.
Jaffre cut investment in the ambitious Leuna refinery project in former East Germany, sold stakes in Entreprise Oil in Britain and Petrofina in Belgium and most recently a stake in Compagnie de Suez. Elf returned to profit in 1995,reporting income of FF 5.04 bn francs, and Jaffre stated his goal to place the company in the Top 10 oil firms world-wide in all its activities by 2005. While it ranks eighth overall, its chemicals are in 13th place, pharmaceuticals in 20th, and the refining and marketing activities are also lagging. Chemical unit Elf Atochem rode an industry upswing to boost 1995 operating income to FF 5.0 bn from FF 1.8 bn. The core refining and marketing business remains weak. In November 1996, Elf merged its British refining and retail operations with Chevron Corp unit Gulf Oil and Murco Petroleum of Murco Oil Corp. ($1=5.26 French Franc)

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