European Business News (EBN), 97-06-05

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CONTENTS

[01] Hollande says France Telecom should remain a public service

[02] Germany's first quarter GDP growth slows moderately

[03] France's first quarter GDP rises 0.2%

[04] Britain's retail sales growth slows more than expected in May

[05] Boots full year pretax profit climbs 11%

[06] Raitrack operating profits increase 15%

[07] Russian Communists call for Yeltsin's resignation, reversal of privatization drive

[08] Nestle expects volume growth of about 4% in 1997

[09] Swedish central bank says krona is undervalued

[10] Orkla pretax profit swells 35% in first four months

[11] E.U. may extend P&O/Stena merger probe

[12] Corporate and Economic Briefs

[13] World News Briefs

[01] Hollande says France Telecom should remain a public service

A public offer of part of France Telecom's capital was due to open today, but was put on hold after the left took control of Parliament earlier this week.

During the legislative campaign, Prime Minister Lionel Jospin said he would cancel the privatization, but later said he wanted to talk to the employees about what they wanted. Since his appointment, Jospin hasn't made a statement on the future of France Telecom.

'We would like there to be a French telecommunications business that is public, because it is a public service,' Hollande said.

'France Telecom is a business that works well,' he said. 'It responds to its users' needs, secondly it works under the principles of a public service, and thirdly it makes profits. Why should we break it if it works?' Hollande said.

'But we are in a competitive world, we know that, and the company has to be adapted, without breaking its primary strength, that's to say the very principle of a public service,' he added.

Hollande, who was named assistant first secretary of the Socialist Party on Wednesday, said there is no reason to make reforms that would only the weaken the business. However, he did say that France Telecom would need to adapt to the changing competitive environment while retaining its public service mission.

[02] Germany's first quarter GDP growth slows moderately

'This makes it clear: The competitiveness of German industry has improved considerably on the international market,' Rexrodt said.

Economists said seasonal factors depressed GDP growth substantially, making it appear worse than it really was, but still said Germany faces an uphill fight to reach the government's 2.5% growth forecast for the whole year.

Economists went on to say the economy remains sluggish largely because consumers, unnerved by record high unemployment levels, are reluctant to spend.

The statement also noted that if the data was adjusted to account for fewer working days in the first three months of 1997, compared to the year- earlier period, economic growth in the first quarter would be 2.75%. Domestic demand remained modest in the first quarter, the ministry added.

Germany's first-quarter GDP is 'right in line with my expectations,' said Gerhard Grebe, economist at Bank Julius Baer in Frankfurt. 'I agree with the assessment that exports are still the driving factor in the economy and that private consumption remains weak.'

'The data shows that the economy is accelerating moderately, which I expect to continue in the next three quarters,' he said.

'The start of the new year has been good under the circumstances,' Grebe said. 'Considering that January is usually a weak month and the fourth quarter of 1996 was stagnant, this is a very passable result.'

'The growth impulses came from foreign demand,' the statistics office said, noting that private consumption 'stagnated.'

According to the Bundesbank's data also released, first-quarter GDP rose a real, seasonally adjusted 0.4% in unrounded terms from the fourth quarter of 1996.

The Bundesbank uses a different method of seasonal adjustment than the Federal Statistics Office.

The statistics office didn't make any forecast for second-quarter growth.

[03] France's first quarter GDP rises 0.2%

Economists surveyed by Dow Jones had called for a rise of 0.5% in French unadjusted first quarter GDP. The institute said that the effect of the calendar on first quarter GDP exerted a negative effect of about one quarter of a percentage point, because there were three less working days in this year's first quarter.

The institute said first quarter household consumption was up 0.4% after falling 0.5% in the fourth quarter and contributed 0.2 points to the rise.

However, unadjusted fixed capital formation fell 1.3% after stagnating in the fourth quarter and contributed negatively to GDP in the first quarter by 0.3 of a percentage point.

Inventory changes in the first quarter also contributed negatively to first quarter GDP growth by 0.3 of a point. Total domestic demand fell by 0.3%, Insee said.

Exports of goods and services rose 1.1% after rising 1.5% in the fourth quarter, while imports were down 0.6% after rising 1% in the 1996 fourth quarter.

The trade surplus contributed positively to GDP growth, adding 0.5 of a point.

Insee said manufacturing output also was positive, rising 0.4% after falling a revised 0.7% in the fourth quarter.

The first quarter GDP figures were well below most economists' expectations, in contrast to Germany's first quarter GDP figures released earlier.

German GDP was up 0.5% on the quarter and up 1.4% from the year before.

[04] Britain's retail sales growth slows more than expected in May

In fact, the annual rate of increase, the CBI said, was the lowest recorded since October 1995.

In its distributive trades survey, the CBI said that 46% of retailers reported increased sales volumes in May from a year earlier, while 25% said volumes were down. This positive balance of 21% contrasted with the 42% of retailers who had been expecting an increase in May volumes.

However, the CBI added that 'the survey indicates that underlying sales remain on a firmly upward track and retailers are optimistic about business over the short term.'

Retailers also reported a slight easing in average selling price rises, with the annual rate of increase the lowest recorded since August 1995.

'The slight easing in annual price increases reported in today's survey is expected to be maintained,' said Alastair Eperon, chairman of the CBI's distributive trades survey panel.

'This reflects intense price competition among retailers and provides further good news for the inflation outlook,' he said. In a press conference, CBI associate director for economics Sudhir Junankar said the Bank of England's new monetary policy committee faces a 'difficult decision in its meeting Thursday and Friday.'

He said he thinks 'interest rates can be left on hold' for now - base lending rates stand at 6.25%.

Junankar advised waiting to act on interest rates until after Chancellor of the Exchequer Gordon Brown presents his budget July 2, to get a better idea of how much monetary tightening is needed. He said the CBI thinks the budget could include tax rises between £2 to 3 billion to restrain domestic demand.

Junankar described current British economic growth as 'slightly unbalanced, ' with strong domestic demand helping the retail sector while manufacturing showed signs of weakness, in part due to the strength of sterling.

Increasing rates now, he warned, could prove a danger in that it would propel sterling up from already high levels.

[05] Boots full year pretax profit climbs 11%

The company also reported a full year pretax profit up 11% to £571.1 million after exceptionals, at the top end of analysts' expectations compared with last year's total of 507.7 million.

The company said the one-off payment comes in line with its policy of delivering shareholder value and achieving a more efficient capital structure.

It is the third time in less than three years that Boots has boosted shareholder wealth, with the company having already completed two share repurchase schemes worth a total £811 million.

Boots said following tax changes introduced in last November's budget, a special dividend now represents a far more efficient method of returning value to share holders than a repurchase plan would.

The 44.2 pence payment is on top of the total ordinary dividend for the year of 20.5 pence per share, compared with 18.5 pence for the previous year.

[06] Raitrack operating profits increase 15%

The Rail Regulator has said he was concerned that Railtrack delivered such strong profit growth while failing to deliver fully on its investment commitments.

'Although Railtrack has made some progress toward making up the shortfall of expenditure I warned about earlier this year, the company still has a along way to go before I can be satisfied that the long term health of the network is assured,' Swift said.

He added that Railtrack's results showed it was £87 million ahead of the position assumed at the time certain supplements to cover the cost to Railtrack of operating performance incentives was agreed.

The Office of the Rail Regulator said the performance regime is being brought forward so that the regulator can make an early judgement as to whether the arrangements are appropriate. Both the access charges Railtrack receives from train operators and the performance regime itself are fixed until 2001, however.

Railtrack has countered criticism of its performance by pledging to press ahead with plans to spend £15.9 billion over the next 10 years on maintaining, renovating and developing its network.

[07] Russian Communists call for Yeltsin's resignation, reversal of privatization drive

Lawmakers in the State Duma voted 288-6 with one abstension to give a preliminary approval to the resolution calling the outcome of privatization efforts 'unsatisfactory.'

Both moves were largely symbolic, as the mostly hard-line Russian parliament's lower chamber doesn't have legal power to topple the government or force it to change its course. But they spotlighted high tension between Yeltsin and his foes.

Trying to capitalize on broad popular discontent over the government's huge backlog of wage and pension payments, the Communists have declared a nationwide campaign to gather signatures to demand Yeltsin's ouster.

In a statement faxed to the media, the Communists, who have the largest faction in the State Duma or lower house, said they were prepared to raise the issue of no-confidence in Yeltsin's government in the parliament.

Under Russian law, the Duma must pass two no-confidence votes within three months to force Yeltsin to act. The president has the choice of either removing the prime minister and his Cabinet or calling new parliamentary elections.

The Interfax news agency quoted an unidentified lawmaker as saying the Communists may hold the first vote later this month but postpone the second one until the fall.

Communists and their allies have previously been reluctant to launch the no- confidence motion, as Yeltsin's likely response would be to dissolve parliament. Recent polls have shown the Communists' support base to be shrinking, but the continuous wage delays apparently give them hope the trend may reverse.

The government, in turn, is pushing for the Duma to adopt the new tax code and other steps needed to implement its urgent economic revival plan, and officials are making veiled threats about possible dissolution of the chamber if it stalls.

'If everything would go normally and the Duma would adopt legislation needed to implement the programme, everything will be all right with the Duma too. ... But if there would be resistance, the people themselves will not allow such resistance,' Security Council Secretary Ivan Rybkin told the Interfax news agency.

[08] Nestle expects volume growth of about 4% in 1997

Maucher, in a speech prepared for the company's annual meeting, said that while sales growth in 1996 was ''satisfactory,'' volume growth at 2.7% was ''relatively weak.'' But this, he added, was ''a temporary problem and won't occur again.''

The company recently disclosed that first quarter 1997 volume growth amounted to only 2.2%, even though consolidated sales rose 19%. At that time, however, Maucher noted that volume growth in March alone was 4.7% and that he expected growth for 1997 to be above 4%.

Maucher said Nestle should ''attain a real internal growth of about 4% and, unless the situation very unexpectedly becomes unfavourable, we should reach that target in 1997.''

Maucher also said he was ''confident that we will close the current year with an increase in sales and profit perfectly in line with our targets, as long as no major unforeseen events occur.''

The Nestle chief previously said he expects sales and net profit to show double-digit growth and that the company is strong enough to double its sales every 10 years.

[09] Swedish central bank says krona is undervalued

The Riksbank ended its regular board meeting without announcing any changes in key interest rates. The central bank left its lending rate at 5.25% and its deposit rate at 3.75%. The deposit and lending rates form the floor and ceiling of the Riksbank's interest-rate corridor.

The market reaction to the inflation report was muted, as its conclusions were in line with market expectations.

A continuation in the shift toward a more balanced economy should cause the exchange rate to appreciate to a more appropriate level, the central bank said.

'To a certain extent, the weakening of the krona is thus regarded as a temporary phenomenon,' it added.

The difficulty of predicting the krona's path and trends in private consumption are still considered the factors that may cause inflation to deviate from the assessment in the report

The Swedish Riksbank's outlook for domestic inflation is roughly unchanged from March, the central bank said Thursday in its latest quarterly inflation report.

The Riksbank forecast the annual rate of inflation, measured as the consumer price index, at about 1% in 1997 and 2% in 1998. The underlying rate of inflation in 1997 and 1998 was estimated at between 1.5% and 2%.

'The assessments start from unchanged instrumental rates and some appreciation of the TCW (trade and currency weighted) exchange rate from the level of 122,' the Riksbank said.

The central bank also said that monetary policy is well balanced at the moment, given the current inflation outlook.

The Riksbank board's next regular meeting is scheduled for June 19.

[10] Orkla pretax profit swells 35% in first four months

The company, which dominates the Nordic branded goods market, said earnings per share increased to 13.50 kroner from 10.10 kroner and that the net profit grew to 648 million kroner from 483 million.

Orkla said its balance sheet was boosted by one-off income of 158 million kroner, which is compensation to Orkla after the termination of the company's beverage sales and distribution deal with the Coca Cola Company in Norway and Sweden.

Orkla stopped distributing Coca Cola products in Sweden on April 1 this year, and distribution will end October 1 this year in Norway.

In addition, a strong performance from its core branded goods business and gains on its securities investment portfolio helped lift Orkla's four-month earnings.

[11] E.U. may extend P&O/Stena merger probe

E.U. sources said such a letter must be sent by June 11 to allow the E.U. Commission to extend its probe of the planned merger. Otherwise, P&O and Stena would get an automatic clearance to merge their cross-English Channel operations for six years before the Commission could take new action.

The sources also took issue with some press reports claiming that U.K. monopoly authorities were poised to clear the merger soon, and that the E.U. investigation was the last remaining hurdle.

A P & O spokesman said U.K. trade and industry secretary Margaret Beckett is expected to publish the Monopolies and Mergers Commission report on the deal 'later next week or early the following week'. On Monday, the French authorities gave their approval to the deal - one of the three authorities which have to sanction the proposed joint venture.

The E.U. sources countered that their concerns about the merger were roughly in line with similar concerns held by the U.K. authorities.

The E.U. sources said they didn't have the impression that the ferry merger would be approved soon in Britain. In any event, they noted, final approval is up to the E.U.

P&O and Stena plan to operate a combined cross-channel ferry service, running every 45 minutes with six multi-purpose vessels that can handle both freight and passengers.

Meanwhile, the companies will continue the existing P&O service between Dover and Zeebrugge for freight only, as well as a two-boat Stena operation between Newhaven and Dieppe.

[12] Corporate and Economic Briefs

71% of Germans surveyed in a new poll backed a delay in the start of Europe's monetary union and 45 percent doubted Bonn could meet the Maastricht criteria, Die Woche weekly reported. The survey by the Forsa polling group showed only 21% of the 1,002 people queried backed Chancellor Helmut Kohl's firm stand that European Union countries should stick to the the 1999 deadline for EMU to start. The poll was taken between May 30 and June 2.

Anglo-French concern Eurotunnel said that tourist traffic on its Le Shuttle service rose 1.1% in May to 162,346 vehicles from 160,638 vehicles a year earlier. The English Channel tunnel operator said Le Shuttle freight service remained suspended last month, although trail services were run during the month and regular commercial service is expected to resume in mid June. In May 1996, Eurotunnel carried 42,457 freight trucks. Traffic on the Eurostar train service, which isn't owned by Eurotunnel but also operates through the tunnel, rose 15% to 491,457 passengers from 425,618 a year ago. Unaccompanied rail freight increased by 28% to 267,060 metric tons from 208,602 tons.

The European Union Commission cleared plans by France's _Worms & Cie_ to acquire sole control of Saint-Louis. Saint-Louis is active in paper and sugar while Worms is an investment group with interests in insurance, banking and maritime transport. The Commission said that control of Saint- Louis by Worms posed no competitive problems in their sectors of activity. Prior to this operation, Saint-Louis was jointly controlled by Worms and Italy's IFIL.

The merchandise trade surplus in the Netherlands narrowed slightly to 2.5 billion guilders ($1.3 billion) in February from 2.6 billion guilders in the year-earlier period, the Dutch Central Bureau for Statistics said. In January, the trade surplus stood at 3.6 billion guilders. The CBS said imports to the Netherlands in February increased by 9%, while exports rose by 8%.

Tokyo prosecutors arrested three Dai-Ichi Kangyo Bank executives and a former managing director on suspicion of making illegal payoffs to a corporate racketeers in violation of the commercial code. Arrested were executives Tatsuo Shibuya, Takushi Manabe and Michio Kusajima. Hiroshi Inotsume, the former managing director of the administrative affairs department who resigned in June, was also arrested, the Tokyo District Prosecutor's Office said.

U.K. glass manufacturer Pilkington reported a decline in its full year pretax profit to £132 million ($211 million) in the year to March 31, 1997, from 212m pounds the previous year. Pilkington, which has issued three profit warnings in the past year, failed to comment on the group's prospects at its full year results earlier in the session. However, Pilkington's Finance Director Andrew Robb said: 'The short-term outlook is cautious, particularly in the next six months.'

U.K. venture-capital investment trust 3i Group reported pretax profits up 19% at £105.6 million ($169 million) in the year ended March 31. The closed- end investment vehicle listed on the London stock exchange which invests in small, pre-listed businesses, also said it was exploring opportunities in south east Asia. In February, 3i opened a Singapore office, as well as developing its regional network of offices in Germany, opening a center in the city of Dusseldorf. But 3i's finance director, Brian Larcombe, who becomes chief executive of the group after its July annual general meeting, told Dow Jones that while it was diversifying from its traditional U.K. investment base, 90% of investments are still tied up in the domestic market.

The Italian Bankers' Association and unions representing bank employees reached a framework agreement on labor costs, redundancies and other issues related to the restructuring of the Italian banking system. A spokesman for ABI said that unions, bankers and the government have all agreed on the necessity of making Italy's banking system at least as competitive as it is on the European level. The government has mediated the negotiations between bankers and unions. In particular, the framework agreement reached specifies that personnel costs will be lowered to the average of what it is in European countries within a period of four years.

[13] World News Briefs

India's Chief Election Commissioner announced that a presidential election will be held July 14. Candidates will have to file their nominations by June 23, said Commissioner Manohar Singh Gill. The coming election has drawn an unusual cast of contenders. Current President Shanker Dayal Sharma's five-year term expires July 24, and he has not said if he will seek another. Normally, the presidency is a powerless ceremonial post. But with a recent trend of unstable coalitions, the president can make or break governments.

As NATO prepares to launch its eastward expansion next month, Spain and Portugal are pushing the alliance to forge closer ties with its southern flank. To that end, the NATO has started a 'Mediterranean dialogue' with Egypt, Israel, Jordan, Mauritania, Morocco and Tunisia. Meanwhile in Washington the House Republicans are backing hastily written bills to reorganize the U.S. State Department and support NATO expansionin to all of Eastern Europe.

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

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