European Business News (EBN), 97-05-30

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

Page last updated Fri, May 30 7:14 PM CET

CONTENTS

[01] Intel issues profit warning

[02] German markets rocked by EMU worries

[03] German government says timing is at heart of revaluation dispute

[04] French left poised for surprise victory

[05] Italian government approves 3 Year budget plan

[06] Deutsche Telekom, Enel to launch bid for third Italian mobile licence

[07] Lloyd's profit drops 3.1%

[08] French trade surplus drops 13%

[09] French stock market watchdog warns investors off Eurotunnel

[10] Pharmacia confirms it is in merger discussions with Amersham International

[11] Yorkshire Water full year pretax profit rises 3.1%

[12] Corporate and Economic Briefs

[13] World News Briefs

[01] Intel issues profit warning

Intel, the leading maker of computer chips and a technology bellwether, said that revenues and net income for its fiscal second quarter will fall below expectations due to weaker-than-projected demand, particularly in Europe.

Several traders said they expected a bloodbath in trading because Intel is considered one of the best barometers of the personal-computer market.

The loss has beaten the Nasdaq Composite Index, which is heavily weighted with high-technology stocks, like a rented mule. The index dropped 48 points in the early moments of Friday's trading, sinking to 1355, after reaching records earlier this week. It has since come back up a little.

Revenue for the period is expected to drop 5 to 10% below the first quarter's $6.4 billion, while gross margin, a key measure of profitability, is forecast at under the 64% of the prior period, Intel said. Technology stocks are expected to take a pounding at the opening on the news.

[02] German markets rocked by EMU worries

Shares began edging up as dealers squared their positions ahead of the weekend, traders said. However, shares ended deep in negative territory from a day earlier after erasing some earlier declines despite sharp opening losses on Wall Street.

Investors are also awaiting the outcome of the French elections on Sunday as controversy continues over the revaluation of Germany's gold reserves, which is seen exacerbating financial market worries over the timely start- up and future stability of the euro.

Dealers said the clash between Finance Minister Theo Waigel and Germany's powerful Bundesbank the valuation of gold reserves fed into market sentiment to drag the DAX index lower. Frankfurt shares had tumbled by about 1.5% by mid-morning as German markets reacted to the row over revaluing German gold assets after their holiday on Thursday.

German government bond prices are fractionally higher at midday as German participants returning from a public holiday have opted not to sell aggressively on account of the recent rift between the government and Deutsche Bundesbank.

'We assume the government will try to go ahead with its plan, because to do otherwise would make it lose too much face,' said Frank Laufenburg, a fixed- income analyst with Commerzbank in Frankfurt.

He recommended keeping convergence trades in place despite the flare-up with the Bundesbank, since he sees the government as being to determined to press ahead with economic and monetary union in 1999.

An EBN interactive round-up

[03] German government says timing is at heart of revaluation dispute

''There's no argument that a revaluation of the Bundesbank's reserves is doubtlessly necessary, it's the timing that is a point of contention,'' government spokesman Peter Hausmann said.

The government's plan to revalue reserves at a price around 60% of market value and to transfer 20 billion Deutsche marks ($11.7 billion) of the resulting profit newly valued reserves to an inherited eastern German debt fund in 1997 and 1998 met with sharp criticism by the Deutsche Bundesbank on Wednesday.

The government said it hasn't changed its stance that revaluation is ''necessary'' already this year, despite criticism by central bankers and leading economic analysts.

It declined, however, to say how much of the 20 billion marks in proceeds it would transfer in 1997 towards the eastern German debt fund that was assumed by the government after German unification.

''We have an idea, but are not naming numbers at this time,'' a finance ministry spokeswoman said, when asked by Dow Jones.

The first reading of the law to alter the Bundesbank's constitution, enabling revaluation of gold and currency reserves, will take place in the lower house of parliament on June 5. A second and third reading is scheduled for June 13.

The government also reiterated that the revaluation plan isn't aimed at interfering with the central bank's independence.

[04] French left poised for surprise victory

France bans the publication of polls within a week of an election, though the French stock market has fallen several percentage points this week after three French banks said their private polls indicated the left will win.

The daily Le Parisien today controversially defied the ban, risking a fine of 500,000 francs ($87,000), and ran a new poll predicting a leftist victory. Published by a Swiss newspaper, the poll was available on Internet and France's telephone-TV console, the Minitel.

'It is intolerable that those who have the means, technical or otherwise, can benefit from that information,' said Le Parisien.

At his last major rally, Jospin's confidence was clearly evident as he told supporters, 'Tonight, I tell you, we can win on Sunday.' The strategy of focusing the election campaign on the issue of unemployment, which has risen to a record 12.8% since Jacques Chirac was elected president two years ago, has proved effective.

The left, calling for youth jobs programmes and a shorter work week with no pay cut, led in last Sunday's first round, though nearly all of the National Assembly's 577 seats were still in runoffs.

The right, pushing continued free-market reform and austerity aimed at qualifying for a single European currency, is still hoping it can tap the far-right National Front's 15% support and attract some of the 32% of voters who sat out the first round.

[05] Italian government approves 3 Year budget plan

Details haven't been released yet, but it is expected that it foresees an adjustment of about 25 trillion lire ($14.85 billion) in 1998 to bring the deficit down to 2.8% of gross domestic product. It is reportedly made up of 10 trillion lire in spending cuts and 15 trillion lire in new revenue or taxes.

The Italian government's gross domestic product growth target for 1998 is 2.0% while that for the year 2000 is 2.7%, according to figures in the economic planning document. The government also set out inflation targets for 1998 of 1.8%, and 1.5% both for 1999 and for 2000. In 1997, inflation is expected to average 2.5%.

Prices are generally expected to rise in the second part of the year however as consumer demand picks up, as GDP expands and a change in the Value Added Tax is incorporated.

Finance Minister Vincenzo Visco said that the Value Added Tax rises in the three-year plan will have an affect on CPI, but that it will be 'contained.'

Italy currently is close to or meets three of the five important economic criteria for EMU, and is frantically trying to bring its deficit to or below the 3.0% level specified by the Maastricht Treaty. Italy has no realistic chance of meeting the total debt-to-GDP ratio of 60%. Italy's total debt currently stands at about 122% of GDP.

The three-year economic and financial planning document is published each May and is a running outline of the government's inflation, growth, and spending targets. It is eventually submitted to Parliament for approval. In a separate report, Italian Prime Minister Romano Prodi confirmed that privatisations of telecoms giant Stet motorway manager Autostrade and telephone directory publisher Seat would go ahead.

Prodi told a news conference the government had no immediate plans to privatise electricity utility Enel but said its privatisation certainly was not ruled out.

[06] Deutsche Telekom, Enel to launch bid for third Italian mobile licence

Enel would take a 51% controlling stake in the new venture, to have a start- up capital of 200 billion lire ($120 million), with Deutsche Telekom holding the remaining 49%.

Telecommunications Minister Antonio Maccanico was reported as saying that the government would invite bids for the licence next month.

Meanwhile Deutsche Telekom confirmed earlier reports that it's seeking a strategic partner possibly to purchase a packet of its shares from the German government.

The German government recently proposed further privatizing the telecommunications monopoly this year, earlier than planned. It has been seen as part of a series of moves aimed at easing Germany's budget gaps in the qualification period for Europe's planned 1999 currency union. Deutsche Telekom Chairman Ron Sommers in London Thursday reiterated the group will approve Bonn's plan to sell only if it doesn't float any additional shares on financial markets. Topping the list of potential partners are the company's current international allies France Telecom and Sprint.

Germany's federal government still holds a majority stake of 74% in Deutsche Telekom, following Europe's largest-ever initial public offering in November.

[07] Lloyd's profit drops 3.1%

Results are reported three years in arrears under the insurance market's acounting system.

Commenting on the results, Lloyd's Chairman Sir David Rowland said: ''It is particularly encouraging that, despite the adverse effects of exchange rates of some £100 million this result compares favorably with the profit projection of £1.008 billion made at this time last year. I believe that this improved forecasting record is an indication of the increased professionalism of those who work in today's market.''

Rowland said the figures were a consequence of generally good market conditions and the exercise of much sharpened skills in pricing and the setting of terms by Lloyd's underwriters.

They were also helped by a limited incidence of major catastrophes, he said, though currency effects reduced profits by some £100 million.

The 1995 estimate is ahead of projections made this time last year of £882 million even allowing for the adverse movement in exchange rates.

By 1996, however, the downward trend in rates is expected to reduce profit, said Rowland.

That trend had continued into 1997, with no sign of it being arrested so far this year and many underwriters expect tough conditions to continue for at least another year, he added.

Lloyd's returned to profit 12 months ago following five years of record losses totalling more than £8 billion.

An EBN interactive round-up

[08] French trade surplus drops 13%

France's trade surplus in March totalled 9.82 billion francs, down from 11.35 billion in February, but still on pace for a new annual record, the finance ministry said.

The March surplus was slightly below the consensus forecast of 10.5 billion francs, with economists' forecasts ranging from 8 billion francs to 12 billion.

France's economic growth this year is expected to be fuelled almost entirely by strong exports. France in 1996 had a record surplus of 120 billion francs, and expects a surplus of up to 150 billion this year.

In March, France sold nine Airbus planes worth a total of 4.24 billion francs, compared with the sale of seven planes in February worth 3.73 billion.

[09] French stock market watchdog warns investors off Eurotunnel

In a statement issued a day after Eurotunnel's prospectus on financial restructuring, COB said that while the restructuring did not call for fresh funds from current shareholders, banks could get a majority stake in the company if shareholders did not exercise warrants in 2003.

COB also drew the attention of shareholders to the line in the Eurotunnel prospectus saying that 'an investment in new Eurotunnel units carries an important degree of risk after the financial restructuring has been put in place'.

An EBN interactive round-up

[10] Pharmacia confirms it is in merger discussions with Amersham International

Amersham confirmed Friday that talks are taking place 'which may lead to a merger' of the companies' life-sciences divisions, both of which specialize in providing support services to the research industry.

'There are some sound strategic reasons for looking at the deal,' one London-based analyst said. In particular, he said that Amersham's life- sciences division needs to extend its reach because its expertise has long outstripped its distribution capacity.

That view was backed up by other analysts, although market-watchers based in Sweden were less enthusiastic as to what the news means for P&U's share price. 'A merger between the two makes perfectly good sense and it isn't very surprising that they are talking,' said Goeran Kaellebo, senior analyst at Stockholm-based brokerage firm Matteus.

A P&U link would give Amersham the larger sales force it needs, and the drugs company's areas of expertise complement Amersham's. P&U is the world's largest supplier of separation media, electrophoresis and specialty chemicals to the bioprocessing industry.

Among other things, Amersham's life-sciences unit provides technologies, products and instrumentation to sequence genes. The division also provides compounds for research into molecular biology, biomedicine and biochemistry.

[11] Yorkshire Water full year pretax profit rises 3.1%

The comparison excludes a £47.2 million charge for drought-related operating costs incurred in the year ended March 1996. Yorkshire said it will be recommending a final dividend of 13.3 pence per share, bringing the full-year dividend to 18.5 pence, up from 15.5 pence a year earlier.

'The board's intention is to maintain the growth in the total cash quantum of the ordinary dividends by 6% to 8% annually, in real terms, until the year 2000 subject only to there being no material adverse change in the political or regulatory framework within which the group operates.' the company said.

The board said it expects to maintain this dividend despite the likelihood of its inclusion in the government's windfall tax.

Yorkshire said: 'We take it for granted that it's going to occur, it's an issue on what basis the tax will be levied. If it's on a basis of excess profits then we don't see a dramatic impact. However, we have made a provision for the tax and included this in our calculation of future dividend payouts,' the company added.

The Labour government is currently undecided on the scope of the windfall tax, with estimates ranging from £3 billion to £10 billion.

Yorkshire said it doesn't foresee the need for any water restrictions this summer, despite what is already proving to be a dry start to the year.

At the end of March 1997, reservoir stocks stood at around 95% of their full capacity and have now fallen to around 94%, compared with around 60% a year earlier, the company said.

[12] Corporate and Economic Briefs

Finland's total output of goods and services increased by 5.9% in March 1997 from the same month a year earlier according to Statistics Finland. All branches of industry saw output growth in March and the seasonally adjusted total output grew 0.4% from February.

The arrest of a former Nomura Securities Co. president has caused a great deal of concern in business circles. Shoichiro Toyoda, chairman of the Federation of Economic Organizations (Keidanren), said the arrest may help bureaucrats justify their position that the private sector must be controlled because it otherwise would commit wrong doings.'I truly feel a sense of crisis,' Toyoda said.

Denmarks Nationalbank, the Danish central bank, has confirmed that a European Union monetary committee meeting is being held in Copenhagen. 'It's a completely regular meeting which was planned a year ago,' Kirsten Mordhorst, spokeswoman and a director at the Danish central bank. The E.U. monetary committee meets at a location outside Brussels once a year. In 1996, the meeting was held in the Swedish capital, Stockholm. Mordhorst added, in line with previous practice, the monetary committee members won't be available for comment and won't be holding a press conference.

Companies listed on the Tokyo Stock Exchange posted an 11.4% rise in their combined unconsolidated pretax profit in fiscal 1996 for the third consecutive year of double-digit growth, according to financial statements added up by Kyodo News. The statistics covered 1,498 listed companies which closed their books March 31, excluding financial institutions. Companies which changed their fiscal year-end or did not announce their forecast for the current fiscal year were also excluded.

Credit Suisse expects its new group structure to ''have a substantial influence on operations this year, reflected in positive business results and figures,'' the bank's chairman said. Rainer E. Gut, addressing the annual shareholders meeting, said the corporate revamp into four business units will enable the bank to ''gear our services more effectively'' to individual customer and market segments. He said ''all business units started very well in the first quarter of 1997.''

Norwegian state-controlled conglomerate _Norsk Hydro said it has given a 170 million kroner ($23.9 million) contract to ABB Offshore Technology, a Norwegian-based subsidiary of Swiss-Swedish engineering giant, Asea Brown Boveri_. The contract is for the delivery of a sub-sea unit for the separation and injection of water into sub-sea wells in the North Sea Troll oil and gas province, according to Norsk Hydro. The underwater unit will be installed in the summer of 1999 at a depth of 340 metres, Norsk Hydro said. The contract was awarded on behalf of the licensees of the Troll Olje development, where Norsk Hydro is the operator.

[13] World News Briefs

NATO caps a week of new ties with old enemies by joining 27 mostly former Soviet-bloc nations in a council to enhance cooperation and prepare a lucky few for membership. Switzerland who has been prevented from joining NATO by her status of neutrality, is moving ever closer to breaking its mould by participating in the Partnership for Peace. Meanwhile Russian President Boris Yeltsin praises NATO agreement and clarifies his decision not to aim missiles at NATO countries.

U.S. Marines have landed in Freetown, Sierra Leone, to evacuate Americans caught up in the coup in this West African state. This is despite a move by coup leaders to close the country's airspace.

On the eve of U.S. Secretary of State Madeleine Albright's visit to the Balkans, aimed at pushing leaders to round up war criminals reports suggest that Serbian officials won't allow suspects to be extradited. Ivica Dacic, spokesman for the ruling Socialist Party of President Slobodan Milosevic, said extradition is against the constitution of Serb-led Yugoslavia and war crimes suspects will be tried in the country, the newspaper Nasa Borba reported.

Authorities in Beijing have executed eight people convicted of bus bombings and other crimes in the northwestern Chinese region of Xinjiang, where Muslim ethnic groups have been resisting Chinese rule.

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

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