European Business News (EBN), 97-06-16

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

Page last updated Mon, June 16 6:25 PM CET

CONTENTS

[01] European Finance Ministers manage to reach Stability Pact

[02] Rexrodt says Eurofighter could be funded by early DASA repayment

[03] New IRI chairman says the company needs a big shake up before privatisation

[04] Fiat sees good start to 1997 with $293 million profit

[05] Socialist party head says France Telecom and Air France will not be privatised

[06] German government decides to privatise motorway service group Tank und Rast

[07] Norwich Union shares start brightly, then drift

[08] Barclays agrees on co-operation with Hokkaido Takushoku

[09] U.K. reportedly set to abolish tax credit on dividends

[10] Strong Pound halves British Steel profit

[11] Psion issues profit warning, stock price slips

[12] Finland's May CPI rises 0.2%

[13] Corporate and Economic Briefs

[14] World News Briefs

[15] News from the Paris Airshow in brief

[01] European Finance Ministers manage to reach Stability Pact

However leaks of the agreement suggest that Germany has succeeded in ensuring that there is no extra money for a jobs pact. Sources close to the Finanace Ministers told EBN that there will be a special EU jobs summit in October, the European Investment bank will encourage a focus on jobs and the British EU presidency will concentrate on jobs.

But crucially none of these new measures will get any extra money. In addition the EU members have restated that EMU is on track and that all members will respect the Maastricht criteria.

The deal put the EU's drive for a single European currency by 1999 back on track after a week of uncertainty and jitters on financial markets after France's new Socialist government asked for a delay to study the stability pact.

The jobs resolution, drafted at French insistence, called for enhanced coordination of EU employment policies and a new drive by the Union's lending arm, the European Investment Bank, to promote small businesses innovating in high-technology.

It also sought stronger links between European economic and monetary union and employment and a study of the relationship between future EU exchange rate policy and the independent European central bank.

German Finance Minister Theo Waigel said Germans could live happily with the agreement because it required no additional spending, but French spokesmen claimed victory, saying they had begun to turn the tide of European policy away from austerity and towards employment.

[02] Rexrodt says Eurofighter could be funded by early DASA repayment

Rexrodt said that an 'independent auditing firm' is to see whether DASA is in a position to make 'an early repayment of Airbus subsidies' this year. Rexrodt is to present the idea following a meeting of four airbus ministers at the Paris Airshow.

The repayment of government subsidies, due from the year 2001, is based on the number of Airbus planes sold and the amount of DASA profit.

The German economics ministry was unable to say exactly how much money an early repayment would involve, but pointed to an article in Monday's edition of the German business daily, Frankfurter Allgemeine Zeitung, which puts the figure at around 1 billion Deutsche marks ($588 million).

Airbus is 37.9% owned by Aerospatiale, 37.9% owned by Daimler-Benz Aerospace Airbus, 20% owned by British Aerospace and 4.2% owned by Construcciones Aeronauticas of Spain.

So far, DASA has received about 10.5 billion marks in advance payments for the Airbus programme from the German government.

In the FAZ article, DASA chief Manfred Bischoff ruled out the possibility of the German government receiving all of this amount in 1997.

For the 180 Eurofighters the German military wants to acquire, the German government is short around 2 billion marks. The Eurofighters are estimated to cost around 125 million marks each.

The defence ministry has already said it will pay half of the 2 billion mark gap from its own budget, the FAZ article said.

Rexrodt said a decision on financing the Eurofighter project, which he favours, should be reached at the German cabinet meeting July 11, the day the cabinet is also expected to approve the 1998 German budget and any supplementary budget measures for 1997.

[03] New IRI chairman says the company needs a big shake up before privatisation

Gian Maria Gros-Pietro, who was named by the Treasury on Sunday as the new IRI chairman, told La Stampa newspaper parts of the company, like loss- making airline Alitalia, would need serious work before they could be put on the market.

At IRI, 'we need to privatise and in the major part of cases, that means things which can be privatised only after certain operations. There are things which would be difficult to place on the market as they stand,' Gros- Pietro said.

The Italian Treasury is the sole shareholder of IRI (Istituto per la Ricostruzione Industriale) and intends that the lumbering industrial giant, which was born under the fascist dictatorship of Benito Mussolini, should be sold off and wound up.

IRI previously owned state telecoms holding STET but its stake was transferred to the Treasury at the end of last year to deal with some of the group's huge debt, which totalled 23.5 trillion lire ($14 billion) in late 1996.

Assets at the top of the privatisation list include motorway operator Autostrade and Rome airports, both earmarked for this year.

Other units, whose sale timetables are not yet known, include troubled Alitalia, engineering group Finmeccanica and successful shipbuilder Fincantieri. Gros-Pietro, who has been a member of the Treasury's privatisation committee since 1994, told La Stampa: 'I couldn't possibly think of putting Alitalia on the market as it is. For that company, just as for Finmeccanica, it needs a certain amount of preliminary work.'

He said many units would require partners to take them into the private sector and Alitalia would need a foreign alliance.

[04] Fiat sees good start to 1997 with $293 million profit

At its annual shareholders' meeting, Fiat noted sales rose 21% in Italy during this period, boosted by the introduction of incentives to encourage the purchase of new autos.

Company Chairman Romiti told the meeting that the first quarter results were an improvement on the previous quarter.

He also confirmed that the Turin-based group expects to turn in consolidated revenue of about 90.0 trillion lire in 1997, up from 77.9 trillion lire in 1996. He said that 1997 is expected to be a challenging year, in which a high level of caution is expected to characterize the behavior of both business and consumers.

Nevertheless, Romiti said the group's 1997 operating results would clearly top those seen in 1996, while pretax profit is expected to be in line with that shown in 1996, despite the absence of the extraordinary gains seen in 1996.

[05] Socialist party head says France Telecom and Air France will not be privatised

Hollande said Prime Minister Lionel Jospin would keep to his campaign promises of 'no privatization, no nationalizations.'

Hollande is the acting head of the Socialist Party, but isn't a member of Jospin's government. Jospin hasn't said yet whether he would stick to this plan, but is expected to address the privatization issue during his June 19 general policy speech to Parliament.

'France Telecom is a public service; there's no need to privatize Air France, and the defense industries do need reorganization, but all of those must stay under of state control,' Hollande said.

[06] German government decides to privatise motorway service group Tank und Rast

German newspapers had reported that the government coalition parties had agreed at the weekend to float Tank und Rast on the stock exchange in an initial public offering worth some 700 million marks ($403.3 million).

The report quoted officials from the Free Democrats as saying that the flotation could not happen until 1998 and that the government initially would retain a majority stake of 51 %.

The current legislative period ends a maximum of 30 days after the next general election, which is scheduled for September 28, 1998.

The government statement gave no financial details and said only that it would decide on how to privatise the company after conclusion of the study by Sal. Oppenheim to measure the interest of institutional investors in the issue.

[07] Norwich Union shares start brightly, then drift

The rise in the share price capitalised the group at around £6.5 billion ($10.4 billion), making it Britain's third largest quoted insurer behind Prudential and Royal & Sun Alliance, and one of the country's ten largest companies overall.

The flotation of Norwich Union dominated the corporate focus, with some 67.3 million shares having changed hands, swelling total FTSE volume way beyond its normal count for the mid-morning period.

Norwich shares opened at 350 pence, but traders said because the stock doesn't enter the FTSE 100 index until September there's no rush for the tracker funds to balance their portfolios straight away, leaving the shares to drift from their opening highs.

The company said the share offer to members was nearly four times oversubscribed.

Chief executive Allan Bridgewater said he was 'delighted' by the 'tremendous response' from members and institutional investors'.

The latter subscribed for 10 times as many shares as there were available, Bridgewater reported. 'I believe this is an endorsement of the strength of the Norwich Union brand and the prospects for the business going forward,' he said.

Nearly 77% of the company's shares will be owned by its policyholders, who will pay a discounted price of 265 pence each for their shares.

[08] Barclays agrees on co-operation with Hokkaido Takushoku

Details of the agreement, such as areas and scale of co-operation, will be worked out within a few weeks, Hokkaido Takushoku and Barclays said.

The two concerns plan to co-operate in developing and selling financial derivatives in Japan. They will also offer products and services related to stocks, bonds and foreign exchanges in overseas markets.

Hokkaido Takushoku, based in Sapporo on Japan's northernmost main island of Hokkaido, is undertaking drastic operational restructuring, including the withdrawal from overseas operations, in a bid to pull out of its bad-loan mess following the bursting of the so-called 'bubble' economy.

The bank expects Barclays' cooperation in securitization of housing loans and problem loans as well as liquidation of overseas assets.

'Barclays has all the expertise and know-how necessary for the Big Bang,' said Shinichi Aikawa, a managing director of Hokkaido Takushoku. 'The tie- up is specifically for our bank and Barclays, but it will be strategically advantageous for the merged bank.' Simmonds said Barclays had applied to Japan's Finance Ministry for permission to conduct investment trust management business.

Barclays, for its part, will gain a wide-ranging banking network in Japan, which is aiming to carry out a bold deregulation of its financial system. Hokkaido Takushoku is the smallest of Japan's 10 major commercial banks operating nationwide.

The latest agreement does not include cross-shareholding between the two concerns.

Hokkaido Takushoku is due to merge next April with Hokkaido Bank, a regional bank also based in Sapporo. As the agreement with Barclays will remain effective after the merger, it is expected to contribute to the competitiveness of a new bank to be created through the amalgamation.

However, a spokesman for Hokkaido Bank reacted coolly to the announcement, saying that the bank is not in a position to comment on the agreement as it was concluded by separate banks.

The 'Big Bang' reform of Japan's financial system is expected to prompt major Japanese banks to seek tie-ups with big U.S. and European banks as competition in the domestic market is likely to intensify.

Nippon Credit Bank has already announced a team-up agreement with Bankers Trust of the United States.

[09] U.K. reportedly set to abolish tax credit on dividends

The plan could raise up £5 billion ($8 billion) from pension funds and other tax-exempt institutions, the FT said.

Citing senior ministers and officials, the newspaper reports that Chancellor of the Exchequer Gordon Brown has been advised that the tax advantage for pension funds allowed under the current system is partly responsible for British companies' relatively high dividend payments and low investment rates.

The paper also quoted an unidentified senior government member as saying that ''The centrepiece of the Budget will be the windfall tax (on privatized utilities) and getting rid of that tax break for pension funds.''

The FT also cites ministers and officials who said that Prime Minister Tony Blair has ruled out any increase in personal income tax rates. During the election campaign, Labour pledged not to raise the basic or top rates of income tax.

[10] Strong Pound halves British Steel profit

After reporting year pretax profits halving to £451 million ($737 million) from 1.1 billion the previous year, Sir Brian Moffat, chairman, said: 'The steel trading outlook for 1997/98 is one of cautious optimism, although concerns remain about the current strength of sterling and its serious impact on our future profits.'

British Steel unveiled new cost cutting initiatives including a job cutting programme.

[11] Psion issues profit warning, stock price slips

The Series 5, launched today, is a 32-bit handheld computer compatible with Microsoft Office products and Corel/Wordperfect. It can also send and receive faxes and will shortly be available with e-mail and Internet browser capabilities.

Psion warned that performance will be affected until Series 5 becomes established in its markets after sales of the previous Series 3 model slowed in May and June. Sales of Siena also have been 'disappointing', and the rise of sterling on foreign exchange markets has continued to hurt margins.

However, Psion said orders for the new Series 5 are 'encouraging'. It plans to distribute the Series 5 to over 50 years in 8 languages over the next six months. The Series 5 will be priced at £499.95 ($800) for the 8 megabyte model and £439.95 for the 4 megabyte model.

Chairman David Potter forecast that Series 5 could account for 40% to 50% of Psion's turnover as early as 1998. In 1996, Psion earned pretax profit of £16.04 million on sales of £124.2 million.

Over the expected 8 year life of the product, Potter sees 'many, many hundreds of millions of pounds in sales.' He also sees production rising to 40,000 units a month in the second half from initial monthly production of 10,000 units.

Potter told reporters that unit sales of Series 3 remain strong, but said shipments had shrunk as distributors destocked in anticipation of the launch of Series 5.

[12] Finland's May CPI rises 0.2%

The May figures held the year-on-year inflation rate at 1.0%, the same as in April, but up from 0.7% in May a year earlier.The main reason for the rise in inflation in May was an increase in the prices of food, which rose 1%. The price of a package of coffee rose 8.1% in May compared to April and has increased by 18% during this year.

Cheaper package holidays curbed the rise in consumer prices in May.

In a 12-month period, the highest price rise was in housing, up 2.9%, mostly due to an increase in the prices of dwellings. Hiked maintenance fees in owner-occupied dwellings, higher rents and electricity charges, and more expensive light fuel oil aided inflation by 0.9 percentage points.

Over the year, lower interest rates curbed inflation the most, by almost 0.5 percentage points, the government statistics agency said.

It noted that Finland and Belgium, at 0.9%, had the lowest inflation in April among the EU countries, as calculated by the harmonized consumer price index. The average inflation rate in the EU was 1.5% in April.

[13] Corporate and Economic Briefs

Swedish telecommunications company Ericsson has announced that it has been chosen as the partner to supply switching equipment to _Ireland's Telecom Eireann_ between 1998 and 2002. The order is worth a total of 780 million kronor ($100 million). Ericsson will deliver total solutions, including AXE switching equipment, integrated services digital network and the latest signalling system standards, as well as a wide range of servicing solutions. The equipment will be used to develop the Irish telecommunications network with regard to expansion and modernization. 'A fundamental principal for this agreement is the establishment of a partnership,' said Christy Maher, director of network and group technology at Telecom Eireann. 'It's of major importance that our suppliers really understand our needs and share our vision of building networks which emphasize our business imperatives,' Maher said.

Swedish fashion retail chain Hennes & Mauritz said its six-month pretax profit soared 64% to 1.01 billion kronor ($130 million) from year-earlier levels, as sales rose 31% to 10.18 billion kronor. Sales rose despite generally weak demand in Europe, and H&M has increased market share in all markets, the company said, thanks mainly to the contribution from new outlets. During the six months from December 1996 to May 1997, the Swedish fashion retailer opened 21 new stores, compared with 27 outlets opened in the corresponding year-earlier period. 'Around 35 new outlets will be opened during the rest of this fiscal year (ending Nov. 30),' H&M said.

Aero engine manufacturer Rolls-Royce said it had won orders worth up to $200 million from Icelandair relating to four more Boeing 757 airliners and options on a further eight aircraft. Banca di Roma chairman Cesare Geronzi said he was optimistic that a deal could be reached soon on layoffs. The Banca di Roma group, which includes Banca Nazionale dell'Agricoltura and Banca Mediterranea, is planning more than 4,000 layoffs in a group restructuring programme. Several hundred staff staged a strike earlier this month in protest at the plans.

[14] World News Briefs

Notorious Khmer Rouge leader Pol Pot could be captured or killed within two days according to one of Cambodia's two premiers today. Speculation has mounted over the fate of Pol Pot, who led the ruthless Khmer Rouge regime between 1975 and 1979. As many as two million Cambodians died under Pol Pot's regime. It's been claimed that 69 year-old Pol Pot has been forced to flee with just 250 die-hard fighters to protect him.

Violence continued in Hebron today as Palestinians, angered by U.S. Congress' recognition of Jerusalem as Israel's capital, threw stones and firebombs at Israeli troops in Hebron for a third day and staged a protest outside the U.S. Consulate in Jerusalem. The Palestinians have also been frustrated by a prolonged deadlock in Israeli-Palestinian peace talks. In the Hebron clashes, Israeli troops fired rubber bullets at some 70 Palestinian stone throwers. Nine people were injured, including eight protesters and Heidi Levine, a photographer on assignment for The Associated Press. Palestinian police stayed away from the clashes, as they did Saturday and Sunday.

Fire expert teams from Singapore and the U.S. are flying into Bangladesh to fight a growing gas field fire raging for a second day, said an official at Bangladesh Oil, Gas & Mineral, the Xinhua news agency reported. A massive explosion in a gas well in Moulvibazar in northeastern Sylhet early Sunday sent flames leaping up to 160 metres into the air. Witnesses said that an area of about one and a half square kilometres was engulfed by the fire in the Magurachhara natural gas field, which is operated by Occidental Of Bangladesh, a unit of Occidental Petroleum. There has so far been no reports of casualties.

[15] News from the Paris Airshow in brief

Airplane engine maker BMW-Rolls Royce said it has signed a cooperation agreement with Russian aircraft builder Tupolev. BMW-Rolls Royce is a German-based joint venture between Germany's Bayerische Moteren Werke AG and Rolls Royce of the U.K. The cooperation, announced at the Paris Air Show, will last from July to October. Guidelines for further cooperation will be established within that time, BMW-Rolls Royce said.

The head of Germany's Daimler-Benz Aerospace said his company could help finance the Eurofighter combat jet by repaying state pre-financing for its Airbus civilian jet operations early.

The aircraft engine unit of Daimler-Benz Aerospace said it was partnering French and Italian firms in a bid to produce military aricraft engines. Dasa's Motoren- und Turbinen-Union, French engine maker Snecma and Italy's FiatAvio would work together to bid to supply engines for a future European transport plane, MTU said at a news conference at the Paris airshow.

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

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