European Business News (EBN), 97-08-13

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

Page last updated Wed, August 13 7:08 PM CET

CONTENTS

[01] Bundesbank maintains tough stance on inflation

[02] UK July jobless rate hits 17-year low, average earnings grow 4.25% in June

[03] US July retail sales rise 0.6% in second straight advance

[04] Royal Bank of Scotland to buy Birmingham Midshires

[05] Gehe first half profit rises 15%, sales climb 18%

[06] Swiss Bank Corp. nearly doubles first half profit

[07] Eurotunnel first half sales are down 8%

[08] Telefonica halves its stake in Canal Satelite Digital

[09] LVMH first half sales soar 61%

[10] Hoechst first half profit plunges 54%

[11] KLM could face European Commision fine

[12] Scandinavian Airlines System first half profit falls 6%

[13] BICC launches cost cuts as interim profit falls

[14] Corporate and Economic Briefs

[15] World News Briefs

[01] Bundesbank maintains tough stance on inflation

In its August monthly report the central bank said: 'The D-mark has been weakening steadily against the dollar since the beginning of the year,' adding that it 'will closely observe further foreign exchange development with an eye on the risks posed to its policy of stability.'

The German central bank noted, however, that 'it cannot be overlooked that there has been a stronger rise in consumer prices in the last few months.'

This language from the Bundesbank was underpinned by German retail sales data for June, which showed sales jumping a real, or inflation-adjusted, 1.6% from a year earlier. This confounded both market expectations of a fall in June, and the recent trend which saw sales in the first half as a whole decline a real 1.0% from a year earlier. Although not of major significance in themselves, the German retail sales numbers are another straw in the wind that could signal a nascent recovery in Germany.

The Federal Statistics Office said that sales in pharmacies and speciality stores offering orthopaedic, medical and cosmetic items, jumped a real 12% in June from a year earlier. Sales for retailers without on-site sales, a segment dominated by catalogue retailers, rose a real 6%, the office said. Sales for retailers of food items, beverages and tobacco products fell a real 5% in June from a year earlier, the office reported.

However, German wholesale prices in July confounded expectations and fell 1.0% from June but were up 2.0% from a year earlier. Analysts had predicted a rise in July of 0.1% from June and a rise of 3.2% on the year.

[02] UK July jobless rate hits 17-year low, average earnings grow 4.25% in June

The jobless total fell by a larger-than-expected 49,800 to 1.55 million in July, its lowest level since September 1980. Economists had forecast a drop of 31,000. Some economists appeared less worried about the jobless fall, pointing instead to the other figures showing steady growth in average earnings of 4.25% in June.

A separate report from the Bank of England said the central bank had held back from raising interest rates by a half rather than a quarter point in July because the sharper increase could have pushed up the pound unnecessarily. Bank of England Chief Economist Mervyn King said the monetary policy committee would pause before raising interest rates again, but said he 'can't anticipate' how long that pause will be.

The jobless report sent prices on financial markets lower, as investors worried about the inflationary impact of strong economic growth. But these concerns were partly tempered by figures showing growth in British wages had held steady in June. The evidence of a stronger economy worried markets because of the possibility of more rises in interest rates, after four rate hikes already in just four months.

The Bank of England said that the inflation outlook in two years' time is around 2.5%, according to its quarterly inflation report.

This is consistent with the government's inflation target and is lower than the forecast in the central bank's previous May inflation report. Lowering inflation expectations, the Bank said, are a combination of interest rate rises this summer and fiscal tightening announced in the July budget.

The report said the inflation outlook next year looks quite favourable, with the annual underlying inflation rate likely to fall below 2.5% over the next year or so before picking up as growth in the economy also takes off. However, the inflation risks in the near-term remain on the upside, because of uncertainty surrounding domestic demand, the Bank warned.

[03] US July retail sales rise 0.6% in second straight advance

The Commerce Department said that sales totalled a seasonally adjusted $212.1 billion, up from a revised $210.7 billion in June. The June figure initially was estimated to be $210.3 billion.

The combination of retail sales that generally conformed to expectations, and another benign price report has led US Treasurys sharply higher. Stocks are expected to follow suit.

All sectors shared in the latest advance, except for furniture and other home furnishings.

The 0.7% gain in June followed three straight declines that interrupted a spending spree that propelled the economy to a 4.9% annual growth rate during the January-March quarter. The economy grew at just a 2.2% rate in the following three months.

Retail sales account for about one-third of the nation's economic activity. 'Consumer spending continues to respond to wealth gains, job increases and advances in real earnings,' said economist Lynn Reaser of Barnett Banks in Jacksonville, Florida, in advance of the report.

Still, there have been few signs of price hikes. In fact, the Labor Department reported that prices at the wholesale level fell 0.1% in July, marking the first seven-month string of decreases in the half century since the government has kept records.

Sales of durable goods - items such as refrigerators and ranges expected to last more than three years - rose 0.7% in July after an even stronger 1.1% jump in June. Automobile dealers saw sales advance 1% on top of a 1.4% gain a month earlier. Excluding the auto component, sales still were up 0.5%. Sales of building materials, hardware and garden supplies rose 0.9% for a second straight month.

[04] Royal Bank of Scotland to buy Birmingham Midshires

The purchase of Britain's fifth-largest building society, is to be financed without a Royal Bank of Scotland rights issue and will be completed by the second half of 1998. The deal will make the enlarged group Britain's tenth- largest mortgage provider, managing residential assets worth £12 billion, the bank said.

'This is a very good deal for the Royal Bank of Scotland,' the Scottish bank's Chief Executive George Mathewson said. 'It will double the size of our residential mortgage book; it will increase our retail savings balances by around 75% and our retail banking customer base by some 40%, giving us access to over 1 million new customers.'

Mathewson also said the deal will increase market share in areas where it is weak. Royal Bank will manage Birmingham Midshires as a separate division within its retail bank.

'The deal creates many new business opportunities, building on the respective skills and product expertise of each organization,' he added. Royal bank gave few details of proposed payments to Birmingham Midshires customers.

And Matthewson said his takeover bid for Birmingham Midshires doesn't end the bank's ambitions to take over other lenders.

'The Birmingham Midshires deal doesn't mean we won't look at slightly bigger deals elsewhere if we can. But we won't pay crazy prices,' Matthewson said. 'It take two to tango, and this is not the end of the Royal Bank's interest in the retail sector,' he added.

[05] Gehe first half profit rises 15%, sales climb 18%

The German drug wholesaler attributed much of the increase to the consolidation of units purchased from the UK's Lloyds Chemists earlier this year. Excluding sales at those units, Gehe's sales rose 4% in the period.

Gehe clinched the deal for Lloyds Chemists in January after a year-long takeover battle with Unichem . The German firm outgunned Unichem with a cash bid of £685 million, securing itself a strong role in British retail pharmacy.

Since then, Gehe said it had made £230 million by selling off non-core operations at Lloyds Chemists, in line with the takeover conditions set by the British government.

Lloyds had already been 'smoothly' integrated with Gehe's own British unit AAH, Gehe said. AAH's 322 pharmacies have linked up with Lloyds' 904 outlets to create a new British retail pharmacy division.

Gehe also said it expects full-year pretax profit to rise between 15% to 20%, from 407 million marks a year earlier. 'For the full year, Gehe expects a continuation of the positive business development,' the company said.

Group sales are seen reaching 24.5 billion marks in 1997, compared with 21.4 billion marks in 1996, Gehe said.

[06] Swiss Bank Corp. nearly doubles first half profit

Gross operating profit rose 27% to 2.62 billion francs from 2.06 billion francs. Ordinary income rose 28% to 6.81 billion francs from 5.31 billion francs, with all four divisions - SBC Private Banking, investment banking arm SBC Warburg, asset-manager SBC Brinson and SBC Switzerland - contributing to this result, SBC said.

Fee and commission income rose 29% to 2.72 billion francs in the first half of the year from 2.11 billion francs January-June 1996, with securities handling commissions and asset-management fees showing particularly strong growth.

Trading income leapt 43% to 2.23 billion francs from 1.56 billion francs on the back of strong foreign exchange and equities businesses. Net interest income rose 9% to 1.56 billion francs, against 1.44 billion francs. SBC admitted the rate of growth had slowed because of low interest rates in Switzerland.

For the full year, SBC said it remained confident it will 'comfortably exceed' its 1997 net earnings target of 1.7 billion francs. Second half performance would likely not match that of the first six months, it warned.

[07] Eurotunnel first half sales are down 8%

The Anglo-French Channel tunnel operator's second-quarter sales in 1997 came in at 951.8 million francs, down from 987.3 million francs the previous year.

Eurotunnel said its turnover figures included certain operating income but excluded insurance receipts for business interruption following last November's fire.

The company, noting that the fire had suspended its Le Shuttle Freight service until June 15, said its first-half turnover - taking into account the insurance receipts - was in line with upper forecasts in its financial restructuring documents.

The company added that it converted sales on June 30, 1997 at 9.77 francs per pound compared with the June 30, 1996 rate of 8 francs per pound.

[08] Telefonica halves its stake in Canal Satelite Digital

The former telecommunications monopoly recently acquired two 7.5% stakes in Canal Satelite through the purchase of 25% of Antena 3 and 49% of Gestora de Medios Audiovisuales Futbol SL. In response, Canal Satelite complained to the EU that it would be anti-competitive for Telefonica to own 15% of the consortium.

According to Spain's stock-market regulatory commission, Telefonica has agreed to sell the 7.5% stake in Canal Satelite it acquired through its participation in GMAF for 1.286 billion pesetas.

With its remaining 7.5% stake in the consortium, Telefonica said it 'won't be able to influence its management or its political or commercial strategy.'

[09] LVMH first half sales soar 61%

In late 1996, LVMH boosted its stake in US duty-free retailer DFS Groups to 61.25%. The distribution sector brought in sales of 11.06 billion francs in the first six months of 1997, up from 3.91 billion francs in 1996.

Champagne and wine sales in the first half were 2.40 billion francs, up from 2.11 billion francs a year ago.

Cognac and spirits sales fell to 2.34 billion francs from 2.36 billion francs. Luggage sales rose to 5.71 billion francs from 4.76 billion francs.

Sales from other activities fell to 74 billion francs compared with 228 billion francs a year ago.

[10] Hoechst first half profit plunges 54%

If the figures are adjusted to strip out extraordinary earnings resulting from restructuring and spinning off company units in the first half of 1996, pretax profit rose 10%, the German chemicals and pharmaceutical group said.

It added first-half results are 'satisfactory,' with sales, operating profit, and pretax profit all slightly above year-earlier levels on an adjusted basis.

Group sales rose 7% to 28 billion marks in the first half of 1997, compared with the year-earlier period.

[11] KLM could face European Commision fine

'It's a maximum. We do not assume we will get it,' said the Dutch airline's spokeswoman Marjolein Wenting, adding the company has confidence in its arguments against EasyJet's accusations.

EasyJet has filed a complaint with Brussels and KLM's offices were raided by European Union Commission officials in February. The UK airline launched cut-rate, one-way flights from Amsterdam to London for 99 guilders in November 1995, drastically lower than the return flights from KLM with sold for about 256 guilders. KLM responded and is currently offering return flights to the British capital for 198 guilders.

In an interim report, the Commission said KLM should increase its tariffs again to pre-EasyJet prices and said the airline abused its dominant position on the route by selling tickets below cost price. KLM said it was still making a profit on the route, despite the low ticket prices.

EasyJet chairman and owner Stelios Haji-Ioannou told Dow Jones he will take KLM to the High Court in London if the Commission decides in favour of EasyJet. Haji-Ioannou said the company will seek damages for loss of revenue suffered since the start of the price war. How high the claim will be is still unsure, but Haji-Ioannou said it could be 'millions of pounds.' He said he is confident about the decision of the commission.

'KLM is violating article 86 of the Treaty of Rome,' he said. 'This says that big companies with a dominant position on the market aren't allowed to abuse their power to sell below cost. If they could, all markets would end up as monopolies.' Haji-Ioannou said he thought it very unlikely that KLM was still making a profit with the lower tariffs on the Amsterdam-London route. 'I would be surprised if they do.'

[12] Scandinavian Airlines System first half profit falls 6%

Revenue for the first six months climbed 8.9% to 18.989 billion kronor, while passenger traffic growth in the second quarter came in 7% higher compared with the same period last year.

However, SAS also noted its traffic growth in the first six months of 1997 was 2% lower than the average for other airlines in the Association of European Airlines.

SAS second quarter figures show a strong rebound from the the first quarter's poor performance. The airline's pretax profit in the second quarter soared 59% from the same period last year to 1.375 billion kroner, while operating profit jumped 32% to 1.757 billion kroner.

The airline said the recovery was largely due to good passenger traffic growth and a restrained growth in costs. SAS also pointed out its intra- Scandinavian and European routes did well in spite of keen competition.

'Overall, SAS has been able to defend its market share with the help of new price structures, new products and offers,' the airline said.

[13] BICC launches cost cuts as interim profit falls

Reporting a 13% drop in pretax profit to £55 million ($89.1 million) in the six months to June, BICC said a 'welcome improvement' at contracting division Balfour Beatty had not been enough to counteract continuing losses in its power-cables business in Europe.

BICC warned in April that German and Italian markets had worsened since its year-end. The news came amid reports that German cable prices had fallen 15% below U.S. levels and orders from a key Italian customer had dropped 40% on the previous year. Such a backdrop was behind BICC's announcement of moves to rationalize both operations.

Chief Executive Alan Jones wouldn't comment on the costs involved, but said that some analysts' views that full-year restructuring charges might be due were 'a good suggestion.'

In Germany, BICC has already cut its operation to what by its own admission is the 'minimum unit that could operate effectively.' But it is now implementing plans to cut its exposure again.

Jones said he was unable to comment further, leading some observers to think BICC is in talks with German authorities on impending rationalization moves.

[14] Corporate and Economic Briefs

Energy Group, whose hopes of being taken over by US company PacifiCorp may be dashed by President of the UK Board of Trade Margaret Beckett, revealed that it has made a windfall tax provision of £112 million ($179.2 million) in the first quarter. Sales were up 19% to £1.033 billion, on a pro forma basis. The former Hanson unit said that its businesses have performed above or in line with expectations with useful profit contributions from US and Czech acquisitions. However, operating profit of £96 million was 2% down after absorbing around £20 million of seasonal losses on the UK coal-fired power stations. Pretax profit was £56 million compared with £260 million last year.

Finland's Merita increased its first half operating profit one and a half times in 1997 due to aggressive cost-cutting and a faster-than-expected decline in loan losses. Operating profit for the period was 1.81 billion markkaa ($324 million), up from 681 million in 1996 and revenue rose 13% to 5.29 billion markkaa from 4.70 billion 'The brisk and balanced growth in the economy has improved the financial situation of our customers and led to a faster-then-expected decline in loan losses,' said Merita's CEO. executive officer.

[15] World News Briefs

An armed group surrounded a village in northern Algeria, slit the throats of 24 people and then shot and wounded 10 others who tried to flee, hospital officials said today. The massacre happened early yesterday in Hraouate, a village about 75 miles south of the capital Algiers, raising the number of people killed in the region to 110 in the past 10 days, said hospital officials, who refused to be identified.

A taxi driver who earned the nickname 'Tehran Vampire' for raping and killing nine female passengers was publicly hanged from a mobile crane today, watched by victims' families and thousands of other spectators. Several of the victims' male relatives took turns whipping Ali Reza Khoshruy Kuran Kordiyeh before he was tied to a yellow crane and lifted, legs kicking, high into the air. Many in the crowd of some 10,000 cursed the convicted killer, whose body was left hanging for more than an hour at the construction storage site in western Tehran where the hanging took place. Photos were not allowed.

A Turkish air force jet crashed near the central Anatolian city of Konya, killing both of its pilots, the Anatolia news agency reported. The F-4 jet, which took off from this city, went down some 80 kilometers (50 miles) south of the capital, Ankara. The cause of the crash was not immediately known.

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

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