European Business News (EBN), 97-05-29

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

Page last updated Thu, May 29 6:53 PM CET

CONTENTS

[01] Kohl says gold reappraisal will go ahead despite Bundesbank opposition

[02] French right indicates looser stance on EMU

[03] Eurotunnel reveals its final debt plan; creditor approval expected

[04] Czech Republic approves economic reform package

[05] EU adopts a more positive tone toward proposed BA, American Air link

[06] Air France swings to first profit since 1989

[07] Blair and Clinton agree common agenda

[08] U.K.'s non E.U. trade deficit narrows

[09] ING first quarter net profit climbs 21%

[10] Gucci posts a 32% hike in first-quarter earnings

[11] Siebe posts 28.1% jump in pretax profit

[12] Credit Lyonnais divests Asian unit

[13] United Utilities posts 4% rise in full year profit

[14] Corporate and Economic Briefs

[15] World News Briefs

[01] Kohl says gold reappraisal will go ahead despite Bundesbank opposition

'We have a timetable and we stick to that timetable,' Bangemann said.

German Chancellor Helmut Kohl insisted that the government would go ahead with the planned reappraisal of the gold reserves. In recent months, a large public debt and new budget holes have raised doubts about whether Germany will meet single-currency ceilings on debt and deficits.

The Bundesbank said it agreed in principle with revaluing the country's gold reserves, and even applying it to reduce outstanding debt levels incurred paying for German reunification.

But the Bundesbank criticized Bonn's intent to transfer the profits to the government's books in 1997 and 1998, which would lower the government's debt liabilities, and therefore its budget deficit, to help Germany qualify for monetary union. It also expressed worries over Germany's standing with its E.U. partners and its own independence.

The central bank went on to say the German government's plans to revalue assets held by the Bundesbank and appropriate them looks like 'manipulation, ' Bundesbank council member Klaus-Dieter Kuehbacher said.

Kuehbacher, president of the regional central bank in Berlin, said it was 'remarkable' that finance minister Theo Waigel's draft proposal on revaluing gold and currency reserves held by the government left open the date on which the revaluation would take place. He noted that this would leave open the possibility of valuing them at the most favorable level possible out of political considerations.

Kuehbacher also played down market talk of Deutsche Bundesbank president Hans Tietmeyer resigning over the government's plans.

'I do not see the revaluation as an intrusion into the Bundesbank's independence,' Waigel said.

Waigel said he was not concerned about Germany's international standing in the European Union given the size of the nation's economy.

The dollar rose and fell against the Deutsche mark in Europe as market participants bailed out of marks in the morning and moved back in the afternoon.

The failure of the dollar to challenge key resistance levels around DM1.7120, however, started a downward correction in the early afternoon.

[02] French right indicates looser stance on EMU

Sarkozy also said he places more importance on respecting the calendar for implenting the euro than on respecting the Maastricht treaty criteria. 'Any delay in the calendar would have serious consequences' for Europe's move toward economic and monetary union, Sarkozy said.

'I don't think (the Maastricht treaty) would exclude a country that doesn't exactly meet the 3% budget deficit criteria,' said Sarkozy, who was budget minister and government spokesman in the cabinet of former Prime Minister Edouard Balladur between 1993 and 1995.

In France, both the opposition Socialists led by Lionel Jospin and the new champion of the centre-right, social Gaullist Philippe Seguin, support a flexible, less strict interpretation of the Maastricht treaty rules for launching EMU.

Rejecting further austerity to meet the criteria, Jospin says they should be interpreted as a trend, as the Maastricht treaty allows, to allow countries such as Italy and Spain to join from the start.

Jospin also said in a newspaper interview that his party backed Europe's planned single currency and this would be the position of a left-wing government.

'We are for the single currency, since the outset. One can be against the single currency and that's a respectable stance but it would not be the position of a government,' Jospin told afternoon daily newspaper Le Monde.

Seguin said this week it was 'masochistic' to insist on a strict 3% limit on public deficits in a time of slow economic growth, adding that he hoped the 'straitjacket' would be loosened once the German public had accepted the euro.

Sarkozy also said that in his view it is better to create the single currency with countries like Italy and Spain than without them. 'We need the greatest possible number of countries.'

'The idea of the single currency is to avoid competitive devaluations. Creating the single currency without the countries that have carried out competitive devaluations is depriving ourselves of an important factor,' he said.

[03] Eurotunnel reveals its final debt plan; creditor approval expected

French shareholders say extending that concession must be done before the July 10 shareholder meeting in order for them to have confidence in the company and the plan - under which the creditor banks could end up with a majority of the company.

Eurotunnel suspended payment on FF69.4 billion of junior debt in September 1995, and has negotiated to cut its servicing costs by about half. The deal includes a debt-for-equity conversion that will give banks at least 45.5% of the company and also caps interest rates below market rates until 2003.

Minority shareholder group leader Christian Cambier said Thursday that the likelihood of accepting the restructuring plan still depends on the extension of the concession sometime between now and the meeting.

''We'll see towards the end of June,'' Cambier said, as to whether or not shareholders will support the plan. Cambier, who represents a small percentage of votes, has been a vocal opponent of the plan.

Also announced today was the re-opening of it's freight Shuttle service, which had been closed since a fire last November. 'Le Shuttle freight service has been running since yesterday,' executive chairman Patrick Ponsolle said.

[04] Czech Republic approves economic reform package

It took currency instability to finally force Czech Prime Minister Vaclav Klaus to acknowledge that restructuring of the Czech economy indeed isn't complete, analysts noted.

'It's a shame these proposals weren't announced in April, but at least they've been announced,' said Boris Gomez, an economic analyst at ING Barings in Prague. 'The government's not out of the woods,' he said.

In the last two weeks, the Czech Republic has survived sharp attacks on the koruna, which prompted the Czech National Bank to alter monetary policy radically and forced Klaus' Civic Democratic Party to jettison several unpopular ministers from the government to appease its coalition partners, not to mention the public.

Unveiling more austerity measures, Klaus told citizens they can look forward to declining growth and higher interest rates, inflation and unemployment.

'The road to transformation will be longer than we expected or wished for,' Klaus said in announcing that the government plans to drastically cut spending, freeze wages in the public sector and do what it can to support the country's new monetary policy, which pegs the koruna to the Deutsche mark alone and allows the currency to float freely on the market.

Analysts reacted by lowering already pessimistic economic forecasts and saying they aren't ready to predict smooth sailing for the koruna or for the government.

While agreeing with other analysts that the measures are 'a step in the right direction,' Salomon Brothers economist Miranda Xafa asked, 'Will they really be implemented and how soon will they be implemented?'

Long touted as a potential economic tiger of Central Europe at a time when neighboring Poland and Hungary were struggling with reform, the Czech Republic's economy has slowed in the last three quarters as a result of the Czech National Bank's use of relatively high interest rates to reduce inflation.

Concurrently, a widening trade deficit - fueled in part by high wage growth in both the private and public sector - helped undermine the stability of the koruna, analysts said.

[05] EU adopts a more positive tone toward proposed BA, American Air link

European Union Competition Commissioner Karel Van Miert said the 'environment' for discussions over the proposed transatlantic alliance was more positive now than during the initial investigation.

The UK government initially had strongly contested the EU's right to hold any sway over the deal, and Van Miert earlier this year said that he thought the planned alliance would restrict competition between Britain and the US.

Last December, Britain's Office of Fair Trading proposed clearing the deal on condition that the two airlines gave up 168 weekly landing and take-off slots at Heathrow. But Van Miert challenged the UK with legal action if the ruling became effective.

But Van Miert now says that EU cooperation with British authorities had 'further developed'.

Once the Commission presents it position, he said, it will be up to the companies to ' come up with ideas (and) suggestions which might meet the competition concerns.'

U.S. and British approval also hinges on the successful conclusion of an open skies agreement between the two countries.

[06] Air France swings to first profit since 1989

Air France made a pretax consolidated profit for the fiscal year ended March 31, 1997, of 39 million French francs, while net profit totalled 394 million francs, boosted by one-time gains and earnings from minority stakes in other companies.

Operating profit rose to 1.14 billion francs from 420 million francs in the previous fiscal year.

Managing director Patrice Durand said the airline met its goal of getting back above breakeven despite strikes which had cost it 250 million francs - reporting a net consolidated profit of 394 million francs.

The figure includes subsidiaries like Servair, Air Charter and Jet Tour but not the short-haul airline Air Inter, which is due to merge with Air France. Last year Air France reported a loss of 2.264 billion francs.

[07] Blair and Clinton agree common agenda

'We need to reduce long-term and youth unemployment,'' he said. 'We have agreed today to a common agenda and a shared determination to tackle these problems. Britain will host a G-8 meeting in the early months of next year.'

Earlier in his speech, Blair hailed 'a new era which calls for a new generation of politics and a new generation of leadership.'

Blair said: 'This is the generation that prefers reason to doctrine, it is strong on ideals but indifferent to ideology.' He and the President agreed on what he had described before as 'the radical centre of politics.'

'The soil is the same,' Blair said, and the values of justice, progress and a one-nation country could live easily together.

President Clinton said free peoples throughout the word were interested in democratic government working on constructive economic policies and believing social problems could be solved: 'I don't think it is the end of ideology. I think it is the end of yesterday's ideology.'

The President praised the new British government's decision to give the Bank of England operational control over interest rates. 'He (Blair) will be criticized for it the first time interest rates are raised, but it will create the feeling of stability and make investment more attractive.'

Separately, Clinton invited Blair to visit the U.S.; said the recent election of Mohammed Katami, a moderate cleric, as Iran's president was 'a hopeful sign;' and he applauded new attempts for peace in Northern Ireland, and called for an immediate cease fire there.

[08] U.K.'s non E.U. trade deficit narrows

The shortfall, reported by the Office for National Statistics, is narrower than the £600-million gap economists were expecting. The March deficit was previously estimated at £606 million.

By volume, non-E.U. exports excluding oil and other erratics rose 10% in April from March and imports rose 10.9%. Erratic items include ships, aircraft, precious stones and silver.

The prices of core exports to non-E.U. countries fell 0.4% in April from March while import prices fell 1.3%. In the three months ended April, export prices were up 0.6% from the three months ended January and 1.9% lower than the same period a year earlier. Import prices were up 1.1% on the quarter and down 4.9% on the year.

At the same time, the ONS released Britain's harmonized index of consumer prices. Prices rose 0.4%% in April, taking the annual rate of inflation to 1.6% from 1.8% in March. The harmonized data has been formulated to meet European Union inflation data standards ahead of plans for economic and monetary union in 1999. It doesn't replace Britain's retail price index, which the ONS still regards as the best indicator of U.K. consumer price inflation. In April, RPI inflation fell to 2.4% from 2.6% in March.

Sterling was slightly lower against the dollar after the trade data was released, but the rising dollar helped pull it higher against the mark. At 0840 GMT the pound was $1.6345, down from $1.6355 just before the figures came out. It was 2.7890 Deutsche marks, up from 2.7869 marks before the data.

[09] ING first quarter net profit climbs 21%

The results were slightly lower than expected. Market watchers were on average expecting to see a 25% increase in net profit at ING.

ING said net profit in the first quarter amounted to 891 million guilders ($468.9 million), up from 736 million in the year-earlier period. Total revenues increased 20% to 13.86 billion guilders, from 11.52 billion a year earlier, ING said.

According to ING, pretax profit from its insurance activities increased 15% from a year earlier to 651 million guilders, while pretax profit from banking rose 27% to 620 million. Calculated per share, first-quarter earnings amount to 1.19 guilders, up from 1.04 per share in the first quarter of last year.

On the Amsterdam stock exchange, shares of ING dropped slightly after the news was released.

Regarding the current year, ING declined to give a forecast of earnings. 'In view of the announced share placement...on the New York Stock Exchange, the management board at this moment refrains from making a concrete forecast for all of 1997,' ING said.

As previously reported, ING plans to list its shares in New York on June 13th.

[10] Gucci posts a 32% hike in first-quarter earnings

In an interview with Dow Jones, Gucci Chairman Domenico De Sole said he is 'comfortable' with Wall Street analysts' forecasts of earnings per share of $3.35 for the fiscal year ending Jan. 31, 1998. That would be a 21% rise from EPS of $2.76 in fiscal 1997.

De Sole declined to comment on revenue estimates, but Wall Street analysts expect Gucci to top $1 billion for the first time in fiscal 1998, with projections averaging about $1.1 billion. In fiscal 1997, sales were about $881 billion. Gucci's revenue-growth target remains 25%, De Sole said. Meanwhile, Wall Street is looking for operating margins of roughly 25%.

Gucci, which earlier reported net revenue of $254.3 million for the fiscal first quarter ended April 30, saw sales of its two most important products - leather goods and shoes - rise 42% and 30%, respectively. But the quarter wasn't without one dark cloud as the weak yen affected sales to Japanese tourists, an important revenue stream. The fall in purchases by Japanese travellers 'had nothing to do with Gucci, but simply the weakness of the yen,' De Sole noted. He wouldn't give comparative data, but added that the effect was particularly apparent during the traditional 'Golden Week' holiday in the last week of April, when many Japanese vacation.

In the four months to April 30, the yen fell about 12% against the dollar as the U.S. currency rose to around Y127 from about Y113. It has since fallen back to about Y116. Such volatile exchange-rate movements restrain Japanese travel and tourism, and Gucci relies to an important extent on international tourism.

In particular, there are Gucci outlets in Hawaii that are very dependent on Japanese travel, De Sole noted. Unsurprisingly, the yen's weakness meant that fewer Japanese travelled during 'Golden Week' and that general Japanese consumption was down in April.

[11] Siebe posts 28.1% jump in pretax profit

The British engineering group said in a statement it sees no signs of recession in any of its main markets and is 'very confident of continuing the underlying growth in Siebe's business operations'.

'Although currencies remain a concern, the group is able to manage the situation by flexing production volumes between countries,' chairman Barrie Stephens said in the results statement.

The jump in pre-tax profits was achieved on the back of a 15.6 percent surge in sales to 3.01 billion pounds. The group announced a total dividend of 14.70 pence a share, up 10.4 percent.

The order backlog at the end of the year stood at 883.3 million pounds, up 23.4% on the year before. 'This has given Siebe a very good start to the new year,' Stephens said.

International sales amounted to £2.77 billion, or 92.1% of total sales, of which 41.8% were in North America, 27.7% in continental Europe, 15.3% in the Pacific region and 7.3% the rest of the world. UK sales accounted for 7.9% of the total, or £237.7 million.

'Overall, currency exchange had an unfavourable translational effect of £138.4 million on sales and 16.8 million on profit before tax, which arose mainly in the second half,' the company said.

[12] Credit Lyonnais divests Asian unit

The French bank, whose near collapse and subsequent successive bailouts by French taxpayers in the past two years have forced it to cut back its once sprawling global empire, didn't reveal the price of the transaction.

However, acquisitions in the fund industry are usually priced at somewhere between 1% and 3% of total assets under management. Credit Lyonnais International Asset Management-Asia manages about $700 million, which could mean a price between $7 million and $21 million.

The bank has redefined its strategy over the last year to focus retail operations on its domestic French market, limiting its foreign operations mostly to capital markets and wholesale banking. Asset management is one of the activities that the bank will continue to pursue globally, but people with knowledge of the transaction said that Credit Lyonnais had decided to sell because of the attractive offer by Nicholas Applegate.

CLIAM-Asia employs about 50 people in Hong Kong, Singapore and London and is one division of the bank's asset management division, which has a total of about $75 billion under management.

Separately, one of the former chairmen of the bank, Jean-Maxime Leveque, was held for questioning by a magistrate in Paris. Credit Lyonnais and its subsidiaries, notably International Bankers, which was set up by Mr. Leveque after he left the bank in 1988, are the focus of a number of investigations into alleged fraud amounting to at least five billion francs ($868 million).

[13] United Utilities posts 4% rise in full year profit

The water and electricity supplier was reporting results for the full-year to March 31, which were complicated by several exceptional items. After all exceptional charges, the company's full-year pretax profit rose 4.1% to £283.9 million.

The company's shares were down on the news. The figures came in around £40 million below expectations.

United Utilities was formed on Jan. 1, 1996, when North West Water paid £1.83 billion for neighbouring electricity supplier, Norweb.

'The Norweb acquisition has proved to be excellent value and we have delivered the financial benefits we promised a year ago,' United Utilities Chairman Sir Desmond Pitcher said.

'More importantly, the acquisition has enabled the group to create the strategic platform needed in our efforts to grow value beyond the year 2000, ' he added.

[14] Corporate and Economic Briefs

Finland's unemployment rate in April jumped to 16.6%, from 15.9% the previous month, mainly because of an increase in the number of jobless youth. In April last year 16.5% of the work force was out of a job, the government statistics agency said Thursday. Last month's figure is not directly comparable to the jobless rate in April 1996, because of a new method of counting used by Statistics Finland.

Swedish telecommunications giant Ericsson CEO Lars Ramqvist said on Thursday Ericsson was the world's biggest supplier of digital mobile phones. Ericsson's Finnish rival Nokia three weeks ago said it was the world leader in digital handsets, but Ramqvist told a news conference here that Ericsson was 'as big as any other' with '25% or so' of the market. 'We are the biggest in digital mobile phones,' he added.

Trading in the shares of Ireland's 'low-fares no frills' airline Ryanair is likely begin on the Dublin stock exchange at 195 pence, after an initial offering of 33.3 million shares on the Nasdaq and Dublin stock exchanges was oversubscribed 18 times, the company said. Ryanair, in which David Bonderman of Continental Airlines of the U.S. has a 17% stake, is worth 308 million punts ($462 million) on the basis of the share price. Trading in Ryanair shares is expected to start on the Dublin stock exchange Tuesday.

[15] World News Briefs

Neutral Switzerland, accused of hoarding the wealth of Jews murdered by the Nazis during World War II, sold the bulk of its wartime arms exports to Nazi Germany, according to Swiss diplomatic archives published for the first time.

Indonesia's legislative elections have ended after six hours of polling. The only reported disruptive incidents were in the troubled territory of East Timor where at least 14 people died in violent clashs on the eve of the election, including a soldier killed by rebels while guarding a polling booth as millions of Indonesians voted.

As Nigeria builds up a military force to challenge coup leaders in the West African nation of Sierra Leone, the exodus of foreigners gathers pace as future violence and instability now seem inevitable.

Papua New Guinea has moved to revive the stalled Bougainville peace process, two months after a military solution using mercernaries fell apart. Papua New Guinea's acting Prime Minister John Giheno released a statement saying the national executive council had approved a peace strategy developed under the direction of stood-down prime minister Sir Julius Chan.

Hundreds of Iraqis have demonstrated outside the Turkish Embassy to protest at Turkey's incursion into northern Iraq to clear the area of Kurdish rebels.The demonstrators, said by witnesses to number about 600, shouted anti-Turkish slogans outside the three-story embassy building in the northern Baghdad district of al-Wazeriyah.

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

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