European Business News (EBN), 96-11-21

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

Page last updated November 21 1700 CET

CONTENTS

[01] American Airlines orders 103 aircraft and obtains 'purchase rights' for 527 additional jets.

[02] Russian debt surges as Eurobond offering meets heavy demand

[03] raises forecast for the year after posting 24% earnings jump

[04] Glaxo to buy out its Japanese joint venture partner

[05] Eurotunnel resumes freight service, but passenger trains remain banned

[06] shows 26% gain in fiscal 1996 earnings

[07] Japan orders debt-ridden bank to close

[08] Rheinmetal consortium buys Bremer Vulkan's electronics unit

[09] British Energy narrows losses in the first half

[10] Britain swings to current account surplus Treasury says performance is the best in a decade

[11] Safeway earnings rise 7% in the half despite competitive pressures

[12] Storehouse shows 8.6% gain in pretax profit

[01] American Airlines orders 103 aircraft and obtains 'purchase rights' for 527 additional jets.

In a press release, American Airlines said Boeing will be American Airlines' exclusive supplier of jet aircraft, in sizes ranging from the Boeing 737 to the 777, though the year 2018.

A Boeing spokesman said American's firm order is valued at $6.6 billion, but the value of the full 20-year agreement was not disclosed.

American Airlines said it has a firm order for 12 777s for delivery between 1998 and 2001, with purchase rights for an additional 38 777s through 2018.

The airline has an order for four 767-300ERs for delivery in 1998, with purchase rights for an additional 26 aircraft through 2018. American Airlines has an order for 12 757-200s for delivery in 1998 and 1999, with purchase rights for an additional 38 aircraft through 2018.

[02] Russian debt surges as Eurobond offering meets heavy demand

Stocks held steady, but analysts said a rally in that market is likely if yields in the debt market continue to fall. The Russian Ministry of Finance said it is offering $1 billion of 5-year Eurobonds at an annual yield of around 10%. The bond offering was Russia's first on the international markets since the 1917 revolution.

Traders said the size of the tranche was about twice as large as expected, at a yield well below domestic treasury yields, which now average around 43%. GKOs rallied on the short and long ends after the news. Minfin bonds also rallied.

'The reaction is very positive on all the markets,' said Fatma Can, treasurer at Chase Manhattan Bank in Moscow. 'People are looking for a good decline in yields.'

Traders said Minfin 3 bonds were trading at 83 3/4, compared to 83 1/4 on Wednesday night.

GKOs were also generally higher, traders said, on the expectations that the government is likely to cut back on its sales of the paper, after receiving such a warm reception in international markets.

Martin Diggle, head of trading with Brunswick Brokerage in Moscow, said that stocks have so far shown little reaction to the news, but will certainly react positively if yields in debt markets continue to fall.

'The market will certainly do better in the medium and the long term if GKOs continue this rally,' he said. 'It will help chase some money out of the debt markets.'

Russian stocks are up about 0.5% from their close Wednesday night, he said, but most of the gains came early in the day, before the Eurobond results were announced.

AO Lukoil, the nation's largest oil company, was trading at $10.75, compared to $10.70 Wednesday night.

Traders said Russian debt is also encouraged by news Wednesday that Russia prosecutors, facing heavy pressure from top officials to better protect investors, have lifted freeze orders on $21 million in Minfin bonds, some of which had been stolen. A spokesman for the Prosecutor General said a broad review of existing freeze orders had found many affected good-faith investors, who had no way of knowing when they bought then that the bonds might be involved in criminal cases.

Traders said that many in the market also expect the government to announce soon that it will maintain a restrictive currency policy in the coming year, holding the rouble more or less steady and thus insuring investors against serious currency risk.

'There is a lot of positive news in the market,' said Can, from Chase. 'Its not just the Eurobond.'

[03] raises forecast for the year after posting 24% earnings jump

Net profit rose to 2.34 billion guilders ($1.39 billion), while total income rose 15% to 33.6 billion guilders. ING attributed the gains to strong performances at both its banking and insurance operations.

For the full year, ING raised its forecast, saying it expects 'clearly higher' earnings per share in 1996. When the company released its first half earnings in August, it said its full year earnings per share will be higher than in 1995 but cautioned that 'it is not to be expected that the percentage increase in group profit for the first half of 1996 will be equalled in the second half of 1996.'

The result was higher than expected. Analysts surveyed by AP-Dow Jones had predicted a net profit of between 2.14 billion and 2.33 billion guilders in the first nine months of the year.

In its insurance activities, ING said life insurance premium income increased to 11.5 billion guilders, from 10.39 billion guilders a year earlier. The pretax result from life insurance rose to 845 million guilders, from 736 million guilders.

ING said the increase in life insurance results was particularly helped by growth in the Netherlands, Hungary and Australia. Results in North America decreased due to a non-recurring lower result from Canadian operations.

In its banking operations, ING said its interest result in the first nine months of the year grew to 5.2 billion guilders, from 4.6 billion guilders in the year-earlier period. The company said this was due to the substantial growth in total assets and a slight narrowing of the interest margin.

Commission income increased 35% to 1.98 billion guilders. Apart from the influence of Barings, which ING acquired last year, the company noted higher commission income from other banking operations.

ING said its result from financial transactions increased by as much as 53% to 936 million guilders from 613 million guilders a year earlier. The company said favourable market conditions contributed to the enormous increase in the result from its securities trading portfolio, which leapt 171% to 725 million guilders.

[04] Glaxo to buy out its Japanese joint venture partner

Glaxo, which said it expected the move to enhance its earnings, said taking full control of Nippon Glaxo

would give it a platform to make the most of Glaxo Wellcome's business in Japan, the world's second largest pharmaceutical market.

Hiroshi Konishi, president of Nippon Glaxo, and Akira Konishi, vice- president and general manager, would give up these positions but remain members of Nippon Glaxo's board, Glaxo said.

Nippon Glaxo, which develops, makes and markets prescription drugs in Japan, had net assets at June 30 of £180 million.

[05] Eurotunnel resumes freight service, but passenger trains remain banned

There was no immediate comment from Eurotunnel on exactly when passenger service would resume, though the company has said it hoped for a successive reopening in the coming days of the Eurostar and its Le Shuttle services. Patrick Ponsolle, the French co-chairman of Eurotunnel said earlier Wednesday it could be four weeks before the tunnel is at full capacity.

The Safety Commission, representing the French and U.K. governments, began investigating Wednesday at the French tunnel entrance near the coastal city of Calais, the company said. It was not clear how long the commission would take to announce its conclusions, said Eurotunnel spokeswoman Dominique Maire. Eurotunnel said it will issue a report on the accident and on its plans for reopening the tunnel to the commission today.

Eurotunnel has continued to defend its security procedures and rescue operation. But officials had yet to fully explain why the train continued 17 kms (10 miles) into the tunnel after two security agents saw the truck in flames before entering on the French side.

Some of the 31 passengers who were on board complained it took fire crews 15 minutes to get to them. British safety groups criticized French firefighters for waiting an hour before alerting their counterparts on the other side.

Maire defended the safety checks at each end of the tunnel, including a bomb-detector called Euroscan. 'We've moved 500,000 trucks this year. There are many checks, and a lot of drugs are seized.'

But she admitted that not all trucks are examined. 'Do you know how a bridge would run if every truck is searched?' she asked. 'It's the first accident in the tunnel,' she said. 'Security functioned correctly. The train engineer had the right reflexes,' she insisted.

Pons, the French transport minister, insisted at the National Assembly on Tuesday night that emergency procedures 'worked very well.' But he acknowledged that the fire had caused a power failure in one of the locomotives, paralyzing the train.

It remained to be seen how great a financial blow the already struggling Eurotunnel had suffered. Its stock fell 3.2% in Paris Wednesday after dropping more than 3% on Tuesday.

Ferry operators were doing booming business. The British-based Stena Line was 'pretty busy at Dover,' said spokeswoman Sue Kirk, estimating that passengers and truckers were up about 30%.

[06] shows 26% gain in fiscal 1996 earnings

Net profit climbed to to 29 million Deutsche marks ($19.5 million) in the year ended September 30, the company's second profitable year in a row. Sales growth, however, fell short of the company's 10% target, rising 6.3% to 13.6 billion marks. The computer division of Germany's Siemens said it expected 'a further increase in sales, particularly in its business solutions and services.'

For the current fiscal year, Nixdorf chairman Gerhard Schulmeyer said the company is targeting a 'double-digit' sales increase. But he warned that the company isn't confident enough yet to predict it will achieve that goal. Analysts said SNI could double profits next year.

Schulmeyer noted that the 1996 net profit rose despite the write-off of the company's 12.5% stake in Escom, the cut-price German personal computer maker, which filed for bankruptcy in July. The write-down hit SNI's pretax profit to the tune of 51 million marks.

The company made net profit of 62 million marks in fiscal 1995 after years of huge losses following the unit's formation after Siemens' 1990 take-over of Nixdorf.

[07] Japan orders debt-ridden bank to close

It was the first time in five decades that the government has closed a bank.

Ministry officials said they are taking all steps necessary to protect the stability of the Japanese financial system in the wake of the troubles at Hanwa. The bank has about 113 billion yen ($1.01 billion) in problem loans, or about a quarter of the bank's outstanding loans, or 438 billion yen, the ministry said. The bank's capital, measured in short-term securities and retailed earnings, totals only 20 billion yen.

Hanwa was widely rumoured to be facing problems over the past year and a half, and as a result its troubles had little effect on either the markets.

'Just like past failures, all deposits will be protected,' said Finance Minister Hiroshi Mitsuzuka. 'We strongly hope that depositors will not worry and act sensibly,' he added.

Hanwa is the seventh Japanese financial institution to go effectively bankrupt in Japan over the past year and a half, marking the end to government's post-war policy of guaranteeing the solvency of Japan's banks. Ministry officials said they couldn't rule out the possibility of more bank failures in the near future.

Officials at the bank were unavailable for comment.

Kosei Yamaguchi, the director general of the ministry's banking bureau, said the decision to shut down Hanwa's operations came after an extensive review of its operations between August and October. The ministry is shuttering the bank only a day before it was scheduled to announce earnings for the half year ended Sept. 30.

'With problem loans outstripping capital by so much, we determined that it would be extremely difficult for this bank to rebuilding itself on its own, ' Mr. Yamaguchi said. The government will take over the bank's assets and liabilities, and shift them to Japan's recently established bank bailout agency.

Normal depositors will be able to withdraw their money upon demand, and the Bank of Japan will stand by with emergency cash if needed, ministry officials said. Hanwa has about 507 billion yen in outstanding deposits.

[08] Rheinmetal consortium buys Bremer Vulkan's electronics unit

The price for the unit was 550 million Deutsche marks, Duesseldorf-based Rheinmetall said. The transaction will be effective Jan. 1, 1997, it said.

Atlas is a holding for the operating subsidiary STN Atlas Elektronik GmbH, which is in turn the electronics unit of Bremen-based ship builder Bremer Vulkan Verbund Vulkan declared bankruptcy May 1. The electronics unit was seen as a 'pearl' of the financially wracked group.

The consortium includes the U.K. engineering group British Aerospace and Badenwerk.

[09] British Energy narrows losses in the first half

British Energy, a U.K. nuclear energy producer that was privatised in July, said its loss after taxes shrank to £32 million ($54 million) from £169 million on a pro forma basis the year before.

Operating profit, reflecting strong cash flow, increased to £81 million from £3.0 million.

British Energy also said it has agreed to form an alliance with Southern Electric, a British regional electricity supplier, to develop a long term joint venture for electricity supply. In April, the government blocked attempts by rival generators to take over distributors.

[10] Britain swings to current account surplus Treasury says performance is the best in a decade

The British Treasury's economic secretary, Angela Knight, said it was the country's best trade performance in a decade. 'This is the best trading performance in 10 years. It confirms the UK as a strong international trading country,' she said.

The statistics agency also said third quarter gross domestic product was up an unrevised 0.8 percent. The figure was in line with analysts' expectations.

GDP was up 2.4% from the year earlier quarter, a slight revision from the previous 2.3% estimate.

Services output growth was unrevised at 0.9% in the third quarter from the second. The year-on-year rate of growth was revised up to 3.6% from a previous estimate of 3.3%. Within the services sector, finance and business services have continued to show the strongest growth This sector was up 1.5% on the quarter.

Industrial production rose 0.3% in the third quarter from the second quarter and 0.5% from the year before. Manufacturing rose 0.7% in the third quarter and was unchanged on the year.

[11] Safeway earnings rise 7% in the half despite competitive pressures

The second half has 'started well', the company said, although competition has left gross margins 'slightly lower' than they were the year earlier. Safeway, which targets the family shopper, said market share rose to 7.8% in the first half from 7.5% a year ago.

Finance Director Simon Laffin downplayed the stalled gross margins saying that the group has instead focused on curbing costs. This, he said, has enabled profit to grow amid stiff competition.

Laffin told AP-Dow Jones, that margins are not expected to see relief in the near term. 'We're planning on the assumption that there will be continued pressure on gross margins in the future. We're continuing to seek efficiency savings to offset that.' Safeway said it remains 'confident that our distinctive strategy positions our business well in this environment to deliver satisfactory growth and enhanced value to shareholders.'

[12] Storehouse shows 8.6% gain in pretax profit

Pretax profit before exceptional charges rose to £37.5 million. Including a charge of £20.5 million, which was related to the acquisition of Childrens World from Boots and the sale of its Blazer retail chain, profit totaled £17 million. Storehouse raised its interim dividend by 10% to 3.3 pence a share.

It said it planned a bigger increase in the final dividend 'in the absence of unforeseen circumstances.'

Chief executive Keith Edelman said: 'Storehouse continues to make good progress. Although the main Christmas trading period has yet to begin the first five weeks of the second half have been encouraging.'

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

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