European Business News (EBN), 97-02-17

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

Page last updated February 17 1815 CET

CONTENTS

[01] German inflation continues to accelerate

[02] Swedebank and Foereningsbanken are in merger discussions

[03] SAS profit drops 31% and carrier sees another difficult year

[04] VW asks German prosecutors to investigate bribery charges

[05] British Gas spins off operations into two separate companies

[06] Former Sumitomo trader Hamanaka pleads guilty to all charges

[07] WTO telecoms accord underscores moves already underway in Europe

[08] Kloeckner swings to fiscal 1996 net profit

[09] Oce posts 53% jump in fiscal '96 net profit and sees further gains this year

[10] Corporate and Economic Briefs

[01] German inflation continues to accelerate

Pan-German inflation quickened to 1.8% in January, fuelled by winter price increases in fuel and fresh fruit, according to the Federal Statistics Office. The January rate followed a 1.4% pace in December, according to the Federal Statistics Office.

The final January consumer price index in western Germany was up 0.5% on the month and 1.9% on the year. That was higher than the preliminary increase of 0.4% on the month and 1.8% on the year.

In eastern Germany, January final CPI increased by 0.7% from a month earlier and 1.7% from the previous year.

Meanwhile, the Bundesbank revised upward its inflation figures, saying consumer prices rose a seasonally adjusted, annualised 2.1% in the six months through January. Earlier the central bank had said prices rose 1.9% in the six months.

The statistics office said that the rise in prices was mainly due to seasonal and weather-related effects. The cold weather in January led to higher demand for heating oil and a shortfall in the supply of seasonal foods. The office also pointed to an 18.5% rise in television license fees and a 1.5% average rise in public transport fares as responsible for the acceleration of inflation in the month.

'Moreover, one must consider that the abolition of the 'coal penny' is no longer included in the calculation of the year-on-year rate of change,' the office noted.

[02] Swedebank and Foereningsbanken are in merger discussions

Trading in the shares of Swedebank and Foereningsbanken was suspended on the Stockholm bourse just before the companies announced that 'discussions are ongoing ...about the forms of a possible merger.'

Analysts speculated that a Swedebank bid may be hostile. Last June, Foereningsbanken rejected any talk of closer co-operation with Swedebank saying it would not be beneficial.

Foereningsbanken made the statement after Swedebank announced it had bought almost 5% of the rural bank's stock and had said a merger could be beneficial in the long term.

Both Swedebanken and Foereningsbanken have most of their business in the household sector with extensive branch networks throughout Sweden.

They are both strong in rural areas and analysts have pointed at a substantial potential for rationalisations.

Together the two banks are worth around 40 billion kronor on the stock market.

Both banks are also set to present their 1996 earnings report Tuesday.

Meanwhile, Handelsbanken said it has acquired 98% of the shares in Swedish mortgage lender Stadshypotek under its 22.9 billion kronor ($3.1 billion) take-over offer.

Handelsbanken said it would make an announcement regarding the full results of the offer and the maximum amount of preference shares in Handelsbanken Hypotek that will be handed out in return for Stadshypotek shares.

[03] SAS profit drops 31% and carrier sees another difficult year

Much tougher competition from other airlines in its Scandinavian home territory has forced ticket prices down and caused SAS income to stagnate for the first time in three years, the airline said.

No less than eight airlines, including the British Virgin Group and Denmark's Maersk Air, began new challenges to SAS last year.

'Competition in the airline industry is expected...to intensify further in 1997 which could lead to big over-capacity putting pressure on prices and revenue,' SAS said.

SAS expects an overall growth of 5% to 7% during 1997 in the markets it flies to. But it also sees aviation competition increasing even more, and this, said Chief Executive Jan Stenberg, 'may lead to heightened over- capacity and pressure on prices and earnings.'

In order to prevent a further deterioration of earnings in 1997, SAS said it will embark on 'a series of result-improving activities.' The company didn't specify just what these measures, aimed at increasing revenues as well as cutting costs, will be.

But Stenberg told a news conference that his airline will strive 'to maintain the 1996 result,' although he acknowledged that it will be a tough challenge to implement the improvements program.

Another key issue not fully discussed in the 1996 earnings report is the future of the airline's strategic co-operation with Lufthansa, United Airlines and Thai Airways International.

SAS made but cursory mention of developments there, only noting that the co- operation, which includes integrated traffic and bonus programs, 'is under ongoing development.'

SAS shares soared last week on rumours of an impending mega-alliance in the sector, and the Scandinavian airline tried to quell media speculation by stressing that ongoing talks won't result in any changes in ownership structures among the concerned parties.

[04] VW asks German prosecutors to investigate bribery charges

An internationally active network of purchasing managers allegedly accepted bribes totalling several hundred million Deutsche marks over the course of years, Spiegel said in its weekend edition.

Allegations that a VW employee sought payoffs from ABB in return for a contract to enlarge an automobile painting and finishing facility for VW's Czech Republic-based Skoda subsidiary initially arose in January. Later, Volkswagen suspended a manager.

VW confirmed it has registered a complaint against ''unknown parties'' with its local prosecutors office in Braunschweig. ''This step clears the way for an investigation in Germany as well,'' VW said, adding that no other comment will be made, so as not to interfere with that official inquiry.

ABB officials have also said they won't comment while Swiss authorities continue their investigation. A Skoda spokesman, denied the company suspects any foul play.

The bribery scandal apparently involves purchasing managers at both Wolfsburg-based VW and General Motors of the US. Among those involved are former members of a team led by Jose Ignacio Lopez de Arriortua, Spiegel said.

Lopez and others were most recently the centre of a three-year industrial espionage dispute between VW and GM, after the team jumped to the German- based group in 1993.

Lopez resigned from VW at the end of November. He and three others were charged by German prosecutors in December with alleged betrayal of ''trade and company secrets.'' VW, meanwhile, in January agreed to pay GM $100 million to settle a civil suit out of court.

Spiegel said ABB employees had paid 18.8 million Deutsche marks ($11.2 million) of the 20 million mark payoff sought by VW workers.

Prosecutors in Zurich, meanwhile, have confirmed that two people have been taken into temporary custody on charges filed by ABB. According to the report in Spiegel, VW is also investigating whether there is a possible connection between the alleged bribery network and the November car- accident death of Skoda President Ludvig Kalma.

[05] British Gas spins off operations into two separate companies

Centrica incorporates British Gas' sales, trading, servicing and the Morecambe gas fields, while the TransCo pipeline and transportation business, exploration, production, property and research interests come together under the BG name.

Unofficial trading on the grey market began a week ago, with investors able to shift their holdings in favour of one or other of the companies, although trading in British Gas continued as normal.

But Monday saw the British Gas name erased from the FTSE-100 listing to be replaced by BG, while industrial company Williams Holdings got downshifted to the FTSE-250 index to make way for Centrica.

Analysts are generally pessimistic over the short-term prospects for Centrica, with the company unlikely to pay a dividend for the next two years.

Andrew Wright, analyst at Merrill Lynch, said on a sum of the parts valuation, Centrica is worth £1.78 billion ($2.88 billion), not including take-or-pay considerations.

One leading analyst of the sector, Nigel Hawkins of Japanese bank Yamaichi, is advising investors to sell BG, the energy company, ''unless the price goes below 170 pence.''

Hawkins is negative about the company for a number of reasons including its dispute with Ofgas over the watchdog's pricing formula, currently being decided by the Monopolies and Mergers Commission, and the prospect of a fully competitive market in 1998.

However, he is much more positive about Centrica. ''Centrica is clearly a very different animal. ''We suspect that feelings of security and of apathy will enable Centrica to retain the overwhelming part of its domestic market post 1998.''

Investors are to receive one Centrica share for each British Gas share, although they may not receive their share certificates until the end of the month.

Trading on the unofficial ''grey'' market began last week with Centrica trading at about 74 pence and BG at 168 pence.

[06] Former Sumitomo trader Hamanaka pleads guilty to all charges

As widely expected, the former star copper trader pleaded guilty to all charges brought against him by the Tokyo Prosecutors Office in the scandal that shook the world's copper market last year. Asked whether he admitted the charges of forging signatures and fraud, Hamanaka said, 'Yes, that's true.'

Clad in a navy suit and a white shirt with no necktie, grey-hired Hamanaka was led into a small courtroom of the Tokyo District Court with his hands handcuffed in front of him. Although he kept his back straight and looked ahead, he appeared tense throughout the first session of the trial, which lasted less than two hours.

'The defendant had generated huge losses through off-the-book dealings over a period of some 10 years,' said the prosecutor in his opening statement. He noted that Hamanaka 'skilfully concealed' these dealings by leaving records of his transactions off the company's computer system and by destroying the ones sent to Sumitomo from its trading partners.

'These dealings were extremely dangerous deals with huge risks,' said the prosecutor.

The prosecutor also said that Hamanaka received roughly 15 million yen from a commodity broker he relied upon to conduct his deals. 'He used (the money) to purchase a golf club membership and indulge in the pleasure of frequenting expensive clubs with dealers and other business associates and travelling overseas,' the prosecutor said.

Yuka Hayashi, AP-Dow Jones

[07] WTO telecoms accord underscores moves already underway in Europe

'On the whole, there's no impact,' said Steve Scruton, a telecommunications analyst at Credit Lyonnais Laing in London. 'Western Europe had already committed to its liberalisation program ... that's pretty much the story around most of the world.'

That means the erosion in calling prices foreshadowed by the agreement was in some sense already a fait accompli, Scruton and other observers explained. On the plus side, telephone companies should be able to increase call volumes sufficiently to offset some of the competitive pressure, analysts argued.

Thus the weekend agreement, signed at the World Trade Organization, may not be the landmark deal that some WTO players are suggesting.

Fifty-four countries committed to a complete set of so-called reference rules, while eight others agreed to a substantial part of those rules, according to a senior US official.

Another handful or so of countries said they may later adopt the reference rules, which require each signatory to open its market to foreign investment and competition. In addition, each country must have an independent telecommunications regulator and agree to WTO oversight.

But Scruton said that most of those requirements would have happened anyway and have already been agreed to by major markets during ongoing negotiations.

In Germany, for example, a Deutsche Telekom spokesman said that calling prices were on their way down in any case. Germany was already scheduled to open its conventional voice-telephony market to competition from Jan. 1, 1998, in keeping with European Union norms.

It remains to be seen whether the liberalisation plan will put increased pressure on the German giant's earnings, the spokesman said.

But he added, 'We welcome the WTO agreement. It means competition will be opened up world-wide as well as in Germany.'

That pronouncement hints at Deutsche Telekom's belief that it can grow by bidding on business for its multinational clients.

'France Telecom is already getting ready for full competition,' a company spokeswoman said. 'The competition will be good for consumers because prices will be coming down, and it will be good for France Telecom because it will help us develop our leading position in the market.'

France Telecom was transformed into a limited company from a state agency as of Jan. 1, paving the way for its partial sell-off in the spring.

And in Britain, BT is facing competition from Mercury Communications, a subsidiary of Cable & Wireless.

The Office of Telecommunications, an independent watchdog, has imposed regular price cuts and efficiency targets on BT, and Oftel Director General Don Cruickshank also has announced plans for effective anti-competitive rules on BT.

Still, some observers said the WTO deal will be detrimental to the bottom line because telephone companies will find it impossible to earn more on calls.

But Scruton pointed out that some carriers continue to see growth in call volumes, implying that revenues can still climb even if prices are cut.

'If BT didn't have volume growth, it wouldn't have to do price cuts,' the analyst said, explaining that Oftel's mission dictates prices cuts only when profits are zooming.

In the UK, Scruton concluded, 'it's difficult to see how (the government) could liberalise further.'

(Gene Colter, Susannah Patton and Susan Pukall, AP-Dow Jones)

[08] Kloeckner swings to fiscal 1996 net profit

The German engineering company said it had net profit of 700,000 Deutsche marks ($416,000) in fiscal 1996, compared with a 210 million mark loss the year before. In October the company had said it expected to show break-even fiscal 1996 results.

In the first four months of the current fiscal year, Kloeckner said it had break-even results, compared with a loss of 16 million marks the year earlier.

For all of fiscal 1997, the company said it expects operating profit to at least remain unchanged from the 49.3 million. marks it earned last year.

The current fiscal year will be a year of 'stabilisation,' in which the company must prove it can maintain and improve on its performance, Chairman Heinz-Ludwig Schmitz said.

He added that 'The results of ordinary activities should reach at least the same level as last year.'

The sale of Kloeckner's Kautex-Gruppe, a maker of plastic fuel tanks, and the consolidation of its Kalle plastic films business into a joint venture had changed the structure of group revenue, Schmitz said.

Its automobile supply unit now generated 40% of sales, down from 55%, while its plastics unit provided 20% of revenue, up from 13%. Bottling and packaging technology continued to supply 30%, he said.

Scmitz said sales in the current fiscal year to ease to about 4 billion marks from 4.5 billion marks the previous year, Schmitz said.

[09] Oce posts 53% jump in fiscal '96 net profit and sees further gains this year

'Barring unforeseen circumstances, we expect our results to improve further in 1997,' OCE said.

The company said its new machines had made a major contribution, enabling the company to expand in all its markets.

'The acquisition of SNI Printing has added a further important dimension to that expansion. This has established a solid basis for continued growth in sales and profitability,' Oce said. It added that launches of new models in 1997 were expected to further bolster growth.

Sales in 1996 increased 42% to 4.17 billion guilders, Oce said, with Siemens Nixdorf boosting that figure by about 24%. In a press release the company said sales were also lifted by favourable exchange rates, which had a positive effect on sales of 3% over the year.

Oce said that in the full year, sales in the engineering systems division increased by 15% to 1.37 billion guilders, and that sales in the office systems division rose by 19% to 2.08 billion guilders.

The company also announced it intends to change its name to Oce NV.

[10] Corporate and Economic Briefs

Poland's consumer prices rose a preliminary 2.9% in January over December, the Main Statistical Office said. Consumer prices in January were 18.1% higher than in the same month of 1996, the agency said. January's monthly inflation rate was up from a monthly rate of 1.3% in December. The year-on- year rate In January was lower than in December, when the rate was recorded at 18.5%.

Portugal's number of jobless people registered with the national employment institute rose 2.3% to 470,783 people in January 1997 from 460,244 people in December. The jobless figure fell 0.2% in January compared to the same month a year earlier, with 926 less registered jobless, the government said. Long-term unemployment, measured as jobless for more than one year, fell 0.3% to 235,588 people in January from 236,239 people in December. The year-on-year rate of growth in long-term joblessness fell to 3.1% from 2.6% in December. General Motors' Opel unit has become the third major automobile maker forced to halt production in Spain for lack of parts as a 12-day-old strike by thousands of truck drivers showed no sign of ending. Opel has requested court authorisation to temporarily lay off nearly all of its 9,000 employees if the strike continues. Car manufacturers Nissan and Ford and the electrical company Balay also have had to halt production because of lack of deliveries. Volkswagen and Opel factories in Germany reported they were running short of parts from Spain and that some production shifts have been temporarily eliminated.

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

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