European Business News (EBN), 97-01-22

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

Page last updated January 22 1630 CET

CONTENTS

[01] Bid to oust Yeltsin postponed

[02] German tax negotiators strike compromise on major reforms

[03] SGS-Thomson issues warning on first quarter

[04] British retail sales drop unexpectedly in December

[05] U.S. housing data falls sharply

[06] E.U. gets tough on state subsidies

[07] Russia alters plans for the sale of telecoms holding company

[08] German producer prices remain flat in December

[09] EU clears Coca-Cola Enterprises' plan to take control of UK bottler

[01] Bid to oust Yeltsin postponed

The chamber voted by 102 to 87 to reject a move to vote immediately on the resolution.

Viktor Ilyukhin, who sponsored the measure, vowed to continue his battle to get rid of Yeltsin and claimed that procedural errors marred Wednesday's vote in the lower house, or Duma.

Yeltsin's trip to his office to meet with Prime Minister Viktor Chernomyrdin came just two days after his release from the hospital with pneumonia and hours before parliament took up a motion on his resignation.

[02] German tax negotiators strike compromise on major reforms

Speaking as he entered a marathon final meeting of a tax working group, Waigel said the new rates would create 'a real incentive for new jobs' for Germany's unemployment-hit economy. He didn't give details.

Hermann Otto Solms, the chief tax negotiator for the Free Democrats party, said that the goal of the reforms was to offer tax relief to low wage- earners.

The tax reform, at the centre of damaging coalition wrangling over recent months, is likely to become the centrepiece of Kohl's bid next year for a record fifth general election victory.

Government leaders want the lower income tax rates to boost job creation after unemployment hit a post-war record of over 4.1 million, seasonally adjusted, in December.

High unemployment, which results in a drag on tax revenues and extra welfare costs, is seen as a threat to efforts to cut borrowing and qualify this year for European monetary union.

The tax policy group was due to finalise its work by tonight. Chancellor Helmut Kohl will chair a meeting of chiefs from his three-party coalition on Thursday to set the seal on the tax package.

In addition to the income tax cuts, corporation taxes would fall to 35% from 47%. The corporate tax changes will take effect from the start of 1998.

Meanwhile, a slew of tax breaks would be abolished to make the German tax system more simple and effective.

Waigel said the question of raising the 15% rate of value-added tax to help offset the cuts in direct taxation was still open. The issue of value-added tax has also prompted tensions in the coalition.

[03] SGS-Thomson issues warning on first quarter

The Franco-Italian group said price pressures and slower production led to a 15.5% drop in fourth quarter net profit to $142 million. For all of 1996, net profit rose 19% to $625.5 million. But while the company warned that first-quarter 1997 revenue will slip about 7% to $990 million from $1.06 billion in the last quarter of `96, it expects subsequent quarters to show 'progressive improvement.' Even so, 'overall pricing pressures' will continue.

Jean-Philippe Dauvin, head of strategic planning, said, however, that the expected market recovery in the second half of 1997 could be delayed and 'a solid recovery will not come until 1998.' Dauvin added that the company continues to predict a $300 billion worldwide market by the year 2000, compared with $133 billion in 1996.

SGS-Thomson's president and chief executive Pasquale Pistorio said he was pleased over-all with the 1996 performance, and despite the caution about the first quarter, he said recent contracts in high growth areas `give us confidence that SGS-Thomson will continue to outperform the industry average in 1997.' He added that the 1996 results were achieved in difficult market conditions.

In his statement, Pistorio denied that he had recently discussed changes in the shareholding structure of his company with French Industry Minister Franck Borotra. SGS-Thomson is 70% held by a variety of state-owned French and Italian companies. He also dismissed allegations that SGS-Thomson was interested in acquiring Cyrix Corp. any time soon. The two have a strategic alliance for several products.

Pistorio added that investment in the first half of 1997 would be similar to 1996's first-half total, but wasn't more precise. He added that the company would continue to favor internal growth over acquisitions, but said he would look at opportunities.

[04] British retail sales drop unexpectedly in December

Seasonally adjusted retail sales volumes fell 0.8% in December from November as sales of footwear and clothing slumped 4.6% in the month.

Volume rose 2.9% from the year earlier.

The figures from the Office for National Statistics were much weaker than market forecasts for rises of 0.2% on the month and 3.7% on the year.

Retail sales volume rose 0.9% in the fourth quarter of the year from the third quarter and was up 3.6% from the same period a year earlier. The index for the fourth quarter 112.1 compared with 111.1 in the third quarter.

In 1996 as a whole total sales volumes were 2.9% higher than in 1995 compared with a rise of 1.2% between 1994 and 1995.

The ONS said the latest figures continue the upward trend in retail sales, with food sales rising 1.0% in the fourth quarter from the third and non- food sales rising 1.2%.

Within the non-food sector, sales of textiles, clothing and footwear slumped 4.6% on the month and stood 3.6% higher than the year before. Sales of household goods rose 0.3% on the month and were up 6.1% on the year. Sales at non-specialised stores rose 0.8% on the month, and 'other stores' saw sales decline by 1.7%.

[05] U.S. housing data falls sharply

But the Commerce Department's figures showed that despite December's drop, housing starts had the strongest yearly performance since 1988's level of 1, 488,000 units. In 1996, US housing starts rose to 1,473,700 units, maintaining the market into its sixth year of economic expansion.

The larger-than-expected December drop more than reversed November's slightly revised gain of 9.3%. November's annual rate of 1,514,000 units was unrevised, however. The November performance was previously reported as up 9.2%. A Dow Jones News Services survey published last week predicted a drop of 3.0% to a 1,469,000 annual rate.

Housing starts declined in all areas, with the West bearing the brunt. Building permits, a precursor of future construction activity, fell 0.6% in December to an adjusted 1,410,000 unit pace after rising 4.1% in November. Housing starts did fall in all other areas of the country besides the West. They fell by 7.9% in the South, 7.2% in the Midwest and 2.3% in the Northeast.

But Jim Glassman, chief economist at Chase Securities said, 'It's easier to file a permit than dig a hole when things are wet,' indicating that the slight drop in building permits doesn't signal that the housing market is about to begin a major decline.

In fact, the housing market has been resilient the past several months. Analysts have been expecting things to cool off for the past several months, but it largely hasn't happened.

'It's incredible to have such a high level of housing in the sixth year of an economic expansion,' an analyst said. While the housing and construction sectors have been a boost to economic growth, analysts expect that to change in 1997. 'This year housing will probably go through a soft landing, but not a crash,' he added.

[06] E.U. gets tough on state subsidies

'We're going in the wrong direction,' EU Competition commissioner Karel Van Miert told a news conference. Van Miert released figures showing government aid to companies totalled 116bn dollars over 1993-4 in the 12 nations that were then members of the EU. Since then Sweden, Austria and Finland have joined.

The figures are the latest available, Van Miert said. He declined to say exactly how much subsidies had risen, from the previous two years, pending publication of the report. But he claimed the increase was 'a development that worries us a lot,' despite the fact that many of the payments were exceptional German government aid to help the former East Germany.

Asked what the EU executive agency would do to counter the increase, Van Miert said the European Commission would 'try to be even tougher than we have been' in blocking state aids.

Under EU rules, the Commission can veto aid from national or regional authorities if it judges they give companies an unfair advantage over competitors.

Van Miert said the Commission was already cracking down on subsides. He said the agency rejected 23 state aids last year, compared to nine in 1995.

[07] Russia alters plans for the sale of telecoms holding company

Communications Minister Vladimir Bulgak said the government is now planning to offer 25% of the company to foreign investors later this year and to sell another 24% to domestic investors.

'We expect the presidential decree to come out in February,' Bulgak said at a news conference. He noted that the sale will target portfolio investors, in contrast to previous efforts to sell a large block of Svyazinvest to a major international telephone company.

'We think that a strategic investor taking 25% plus one share would threaten the security of the telecommunications system,' he said.

The Svyazinvest privatization was to be one of the key elements in last year's government selloff of state assets. Now it is expected to raise the lion's share of government revenues for the 1997 budget.

Meanwhile, foreign investment in Russia is expected to surge to around $4.5 billion in 1997, up from $3 billion the year before. Analysts have widely predicted a jump in foreign investment in 1997, as the country's political uncertainties lessen and its disastrous post-Soviet decline is reversed. Economics Minister Yevgeny Yasin expects Russia grow by 5% annually in the year 2000. By the year 2005, he said, annual growth should be 8% to 9%.

[08] German producer prices remain flat in December

The data was below expectations of a rise of 0.1% in the month and a decline of 0.2% from the year earlier.

The latest data show that producer prices remained tame throughout the full year, down an average 0.5% from 1995.

Meanwhile, the Bundesbank also said producer prices rose 1.4% higher in swix months through December, compared with a 0.6% rise in the six months through November. The central bank also reiterated that consumer prices rose at an annual rate of 1.6% in that same period.

According to the statistics office, producer prices in western Germany remained unchanged on the month, while they fell 0.5% on the year.

Prices of liquefied gas rose 5.9% and heavy heating oil rose 5.8%, while prices of bituminous mix materials fell 4.1%, wire rod dropped 2.6% and concrete steel declined 1.5%.

In eastern Germany, producer prices were unchanged in December on the month, while they rose 1.4% on the year, the statistics office said.

[09] EU clears Coca-Cola Enterprises' plan to take control of UK bottler

Coca-Cola Enterprises, the world's largest Coke bottler, is 45%-owned by Coca Cola. It is acquiring control of CCSB from Cadbury Schweppes through its purchase of Amalgamated Beverages Great Britain.

E.U. Competition Commissioner Karel Van Miert said the £622.5 million ($1.03 billion) takeover was cleared without conditions. There had been some initial concerns that the acquisition would allow the U.S. giant to abuse its position as the dominant player in the sector.

But the Commission said that it had determined that Coca Cola's role in CCSB was already so large that the deal would not strengthen its position.

The commission had determined that CCSB was dominant in the British market and that the deal would transfer that dominance to Coca-Cola Enterprises and its part-parent, Coca Cola.

CCSB bottles a variety of soft drinks in Britain, including Coca Cola, Schweppes mixers, Fanta, Sprite and Canada Dry.

Last September, the Commission opened a detailed probe of the planned takeover because of worries that Coca-Cola Enterprises' control of a major British bottler would make it even harder for smaller brands to squeeze their way into U.K. shops.

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