European Business News (EBN), 97-01-08

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Page last updated January 8 1400 CET

CONTENTS

[01] Philips deconsolidates Grundig

[02] German insolvencies surge in 1996

[03] Lloyds fined by U.K. regulator

[04] Italy CPI rises 0.1% in December

[05] NTT plans global expansion

[06] Dixons posts 1H pretax profits of £57.5m

[07] Branson's balloon flight comes to ground

[08] Ford considers Budget sale

[01] Philips deconsolidates Grundig

The deconsolidation is effective retroactive to January 1, 1997. Philips said the move was due to its decision 'to move towards a one brand' policy for its Sound & Vision products. However, division Chairman Doug Dunn said that although Grundig will cooperate with other Philips activities, its brand name wouldn't be subsumed by Philips. The two concerns have integrated much of their production facilities as part of Philips' efficiency measures.

Last February, Philips said it would no longer be obliged to automatically cover losses incurred by Grundig, which manufactures consumer electronics in Germany. Grundig has been losing money for a number of years, hit by depressed European consumer spending and fierce price competition.

Analysts estimate Grundig lost some 300 million Deutsche marks ($192m dollars) in 1996 after losing some 538 million marks in 1995. Philips hasn't revealed the extent of Grundig's losses for which it has taken numerous charges over the years.

The losses have been a drag on Philips' profit and have particularly hurt results at Philips' consumer electronic activities.

As well as covering Grundig's losses, Philips' agreement with the Max Grundig Foundation meant that Philips, which only has a 30% stake in Grundig, also had to pay million of marks in dividends to the foundation. Philips said Wednesday it has started negotiations with the foundation to 'unwind the contractual relationship between Philips and the Foundation.'

But one analyst said he didn't see how the foundation would agree unless promised a lump sum payment by Philips.

[02] German insolvencies surge in 1996

With the number of failed businesses rising 15.5% to about 25,800, insolvencies are forecast to reach a new record of about 28,000 in 1997. But the annual increase will slow to 10% percent, the business information company said in a statement.

In 1996, western Germany suffered about 18,000 company failures. In eastern Germany, some 7,700 companies collapsed, up 31% from 1995.

The construction sector suffered worst with about 7,100 firms declaring insolvency. The retail and wholesale sectors, struggling with persistently weak consumer spending, came second with 5,900 traders declaring insolvency and a total of 3,700 manufacturing businesses failed, said Dun & Bradstreet.

Outstanding payments are increasingly cited as a reason for company failures, alongside structural problems and management errors. Official statistics for company insolvencies are available up to the end of September 1996.

Dun & Bradstreet said it based its estimate for the full year on its own observations.

[03] Lloyds fined by U.K. regulator

Lloyds, part of the Lloyds TSB Group, admitted the breach of rules set out by the Investment Management Regulatory Organization and has agreed to pay the fine plus IMRO's investigation costs of £63,000.

In a statement, IMRO said Lloyds committed several regulatory breaches relating to its pension-transfer business between April 1988 and June 1993. This business sells private pensions to customers who may be considering leaving a company plan.

Lloyds' violations included failing to have in place the proper systems to obtain relevant personal and financial facts about customers and not providing customers with enough information to make balanced decisions about whether to carry out a pension transfer. And IMRO is still reviewing the pensions business at the bank, so Lloyds is likely to end up paying out more money to more customers.

A Lloyds spokeswoman said the bank has already offered cash compensation to 164 pensions customers, totalling about 1.4 million pounds.

IMRO said its review 'will be substantially' completed by December 31.

[04] Italy CPI rises 0.1% in December

But the state statistical institute Istat said that when tobacco prices are excluded from the index the prices rose 0.1% and 2.6%, respectively, bringing the figures into line with market expectations.

The index excluding tobacco is comparable to consumer price data released by Istat prior to January 1996. That month, Istat changed both the categories and the weightings used to calculate the index. The ex-tobacco consumer price data are also those used for many previous Bank of Italy, government and economist forecasts.

Market expectations were for a rise in inflation of 0.1% on the previous month and 2.6% on the year.

Istat also reported that 1996's average inflation rose 3.9% over 1995 when tobacco prices are excluded. Istat didn't give a figure for 1996 average inflation including tobacco prices.

[05] NTT plans global expansion

Under the terms of an agreement reached in December between the company and Japan's Ministry of Posts and Telecommunications to break up the company, NTT will be allowed to enter the international telecommunications market.

The company said its NTT Europe unit will today formally apply to regulatory authorities in Britain, France and Germany to begin offering the service. NTT said it will also apply to government authorities in the U.S. and Asia in the near future.

President Junichiro Miyazu said the company hopes to begin offering full- scale global telecommunications service 'as soon as possible.' A company official said an initial service could begin as soon as this year. In addition to constructing the required infrastructure on its own, NTT will also rent capacity from other telecommunications carriers and enter into tie-ups with overseas and Japanese companies. Miyazu said the service will eventually be offered to individual users.

However, to comply with current Japanese regulation governing the ex- monopoly, NTT initially won't handle international communications originating in or destined for Japan.

Company officials declined to say how much revenue they expect from the new service, or how many customers the company expects to sign up. However, one official said that several Japanese multinationals 'have expressed considerable interest' in the service.

[06] Dixons posts 1H pretax profits of £57.5m

Dixons said pre-tax profits in the first half were 57.5 million pounds ($97.39 million), up 53% from a year ago and just ahead of expectations. The group reported 8% growth in sales of brown and white goods - or electronic entertainment-type goods and appliances.

Dixons, the first of a string of U.K. retailers to give indications of the strength of trading during the all-important holiday season, called activity for that period 'highly satisfactory.'

The group said retail sales for the first eight weeks of its second half increased 20% overall from the year ago period. Same-store sales increased by 8% while gross margins were comparable to the previous year's period.

In addition, business in personal computers grew sharply with sales at the group's PC World stores increasing by 96% overall and 21% on a same-store basis. It opened six new PC World superstores during the period and continues with expansion plans and a focus on accelerating the development of PC World's business to business sales.

[07] Branson's balloon flight comes to ground

Officials said the problems that caused the expedition's abandonment seemed to stem from the balloon's ballast-to-helium ratio. And Branson, who financed and piloted the Global Challenger balloon, credited fellow crewman Alex Ritchie with halting a dangerously rapid descent by climbing outside the capsule to jettison water tanks.

'We owe a debt of gratitude to Alex. He saved our lives,' said Branson. Ritchie, 52, had joined the crew just before yesterday's launch, replacing a sick balloonist.

Branson told his support crew in London that the craft began dropping at a rate of 2,000 feet (600 metres) a minute during the night.

'At one stage I was standing by the door chucking out everything moveable - oil canisters, food, anything - to halt the descent,' Branson told his support team in London. Asked what was going through his mind, Branson said: 'I thought what am I doing up here? It's terrifying.'

He said that he and co-pilot Per Lindstrom could not have done what Ritchie did. 'Having Alex on board was very lucky. Alex very much helped build the capsule,' he said. Ritchie said there was a problem with the tank-release mechanism. He wore a parachute and was strapped to the capsule as he worked, but seemed reluctant to elaborate on his efforts to free the tanks.

An Algerian helicopter was on its way to pick up British tycoon Richard Branson and his co-pilots after the men landed near Bechard in Algeria. Said Branson, 'It feels like we have landed on the moon ... everyone is tired.'

[08] Ford considers Budget sale

The Wall Street Journal reported that the sale, to Team Rental Group of Daytonan in Florida could be announced as early as Thursday following a Ford board meeting. Team Rental is valued at about $350 million. Budget is the fifth-largest rental company in terms of fleet size and has $1.5 billion in annual revenue. But analysts are expected to welcome its sale because it has been a drag on Ford's earnings.

Budget, whose profitability has suffered badly over the last several years, has been on the block since December, when Ford ran into Federal Trade Commission snags after it said it wanted to merge the company with Hertz, which it also owns. Its buyer, Team Rental, runs about a dozen Budget franchises. 'It's kind of like the mouse swallowing the elephant,' according to a person close to the industry.

Even so, the company is considered a savvy, entrepreneurial outfit, whose chairman, Sanford Miller, has spent his whole career in the car-rental industry, having started out running a Budget franchise in Florida. Of all the recent buyers of car-rental companies, Miller is the only one with any car-rental experience.

Ford is also expected to more actively explore the future of its Hertz unit, the nation's No. 1 car-rental company, including the possibility of an initial public offering or a sale that could fetch between $2.5 billion and $3 billion.

Ford's ties to Budget are different from its relationship with Hertz. Ford has an arms-length link to Budget stemming from an investment made in 1989 during which the auto maker was involved in a leveraged buyout of Budget.

Any Hertz spinoff would increase the rental-car company's value to Ford. The auto maker won't release Hertz's 1996 results, but a spokesman says 'they've done very well. The first nine months of 1996 was record. The last three years prior to '96 were records. When you have good results, you have options.'

For the car-rental industry in general, the future is far less certain as it experiences an unprecedented shakeout that includes the sale of three of the top five daily rental-car concerns in four months - Avis, Alamo Rent a Car and National Car Rental System.

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

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