European Business News (EBN), 97-08-04

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

Page last updated Mon, August 04 7:00 PM CET

CONTENTS

[01] HSBC first half profit rises 13% to $4.1 billion

[02] British Airways' three month operating profit falls 28% to $224 million

[03] German June industrial output rises 1.4%

[04] Nokia triples its pretax profit for the first six months

[05] UPS unions go on strike after talks fail

[06] US construction spending falls 1.1% in June

[07] Russia to redenominate the rouble

[08] Pearson profits leap 270% to $128 million

[09] Two of Japan's biggest telecom companies to offer joint telecom services in preparation for expected new competition from NTT

[10] Spain's Endesa to acquire controlling stake in Chile's largest electrical utility Enersis

[11] Virgin Direct looks to become a bank

[12] Corporate and Economic Briefs

[13] World Briefs

[01] HSBC first half profit rises 13% to $4.1 billion

Citing strongest income growth in the Asia-Pacific and Americas region, the bank also recommended a 33% increase in the interim dividend to 20.0 pence from 15.0 pence last year.

And despite unquantified adverse affects from sterling's strength, HSBC's Midland Bank said pretax profit rose 27% to £829 million from £651 million a year ago, while operating profit rose 30% to £873 million.

However, HSBC Investment Banking reported a 17% decrease in pretax profit to £144 million from £174 million a year earlier. It also alluded to a large loss-making deal in Hong Kong.

'Trading income was adversely impacted by a significant loss on an underwriting transaction in Hong Kong,' the bank said in a statement.

Chief Executive John Bond said markets went through a tumultuous period near the end of the first half and into the second half but that Hongkong Bank's treasury and unit, HSBC Markets, both under Treasurer Stuart Gulliver, performed steadily and up to expectations.

He said there's nothing in profit figures to indicate that Hongkong Bank was involved in speculation against exotic currencies, such as the Thai baht, the Malaysian ringgit, Indonesian rupiah or Philippine peso.

'We have made markets during this tumultuous time. Our profits on foreign exchange are within the range for our normal business,' Bond said.

[02] British Airways' three month operating profit falls 28% to $224 million

The airline announced a sharp 28% fall in underlying profits with operating profits for the three months to June 30 dropping £55 million ($89.7 million) to £140 million ($224 million), hit by the strength of sterling and industrial disputes.

Pretax profits jumped 46.7% to £220 million thanks to an exceptional gain of £130 million from the sale of its stake in former US partner US Air. But the airline said that the strength of sterling depressed profits by £77 million.

Industrial disputes cost the company some £15 million in lost revenue and contingency moves in the first quarter but BA said it expected the full impact of the three-day strike by cabin crew would wipe a further £110 million pounds off profits in the second quarter.

[03] German June industrial output rises 1.4%

'The production data confirm the moderate growth path of the German economy, ' said Stefan Muetze, economist with Landesbank Hessen-Thueringen in Frankfurt. German industrial output rose a seasonally adjusted 1.4% in June from May, the Economics Ministry said in a preliminary report. That follows a month-on-month revised drop of 1.5% in May. Originally, a decline of 0.2% had been reported for May.

The production data came in largely as expected. Economists had expected a strong month-on-month rise due to higher rates of capacity use, evidence of more over-time hours and to compensate for weaker data earlier in the year.

However, the rise wasn't strong enough to change economists' growth forecasts for the full year. 'The data don't change our forecast of 2% growth of gross domestic product for the full year,' said Muetze, pointing to continuing weakness in the construction and mining sectors. In general, economists are calling for a 1997 rise in German gross domestic product between 2% and 2.5%.

Later in the week, the German government will release June manufacturing orders and July unemployment data. Economists are calling for a strong monthly rise in orders. Economists surveyed by Dow Jones expect on average a price-and seasonally adjusted rise of 1.7% in June from May. July unemployment is seen rising a seasonally adjusted 5,000 people from June in all of Germany.

By Ulrike Dauer and G. Thomas Sims

[04] Nokia triples its pretax profit for the first six months

The massive rise in pretax profit, which came in marginally higher than expected, was due mainly to a doubling of digital mobile phones sales.

'For the first half of the year, especially significant is the growth of Nokia's digital mobile phone sales by 94%,' said Chief Executive Jorma Ollila in a written statement.

'Also noteworthy is the growth in the order inflow of our infrastructure business which clearly surpassed market growth,' he said.

During the first half of 1997 Nokia's total sales grew 44% to 24.39 billion markka. For the full year the company repeated its earlier forecast about strong growth and profitability.

'The results meet our performance targets and give us reason to maintain our previously stated positive outlook for strong growth and good profitability for the whole year,' Ollila said.

[05] UPS unions go on strike after talks fail

'We have exhausted every possible approach to try to resolve the problem,' Teamsters President Ron Carey declared as he left the bargaining table late Sunday night. 'At this point it's just a waste of time.'

Workers at UPS offices and distributions centers around the country walked off the job at 0400 GMT. A union spokesman said all 206 locals that represent UPS workers were on strike.

The strike by 185,000 Teamsters at UPS threatened to interrupt package deliveries for hundreds of thousands of businesses across the country. UPS handles 12 million parcels and documents a day, and analysts say rival carriers won't be able to absorb the overflow.

The talks fell apart after about two hours of discussions Sunday. Pickets were immediately reported after midnight in such cities as Atlanta, New York, Louisville, Kentucky, Pittsburgh and Dallas.

'UPS is a great company, and they make so much money because we work so hard,' said Ralph Vernon, 47, a driver at UPS' New York hub with 27 years in company. 'It's only fair that we get a share of it.'

Dave Murray, UPS' chief negotiator called the Teamsters' action 'highly irresponsible' and called on union leaders to submit the company's last offer - which had remained unchanged since Wednesday - for a vote.

[06] US construction spending falls 1.1% in June

In a report from the Commerce Department, the latest month's decrease followed a revised 0.3% rise in May to an adjusted $597.9 billion annual rate. The May estimate previously had been reported as a drop of 1.8%. The June decline was the largest since December 1996, when construction spending fell 1.2%. The latest month's level was 4.1% above the year- earlier pace.

Measured in 1992 dollars, to eliminate the effects of inflation, construction spending in June fell 1.4% to a $499.3 billion rate and was up 0.9% from a year earlier. Before inflation adjustment, private construction spending fell 1.6% to a seasonally adjusted $454.8 billion annual rate after rising 1.1% in the preceding month to an adjusted $462.0 billion rate.

Outlays for residential buildings fell 1.2% to an adjusted $256.4 billion rate after falling 0.2% the previous month to an adjusted $259.5 billion rate. Nonresidential construction spending fell 2.8% in the latest month to $158.9 billion after rising 4.4% the previous month to $163.4 billion.

Counterbalancing somewhat the negative effects of the other categories, public construction spending increased 0.7% to an adjusted $136.7 billion rate after falling 2.5% the previous month to an adjusted $135.8 billion rate.

The Commerce Department also reported expenditures for improvements and repairs of residential properties in 1996 were an estimated $114.3 billion, up 2.4% from $111.7 billion in 1995. Improvements accounted for 68% of the 1996 estimate, with the remaining 32% spent on maintenance and repairs, it said.

[07] Russia to redenominate the rouble

Yeltsin's announcement shows the Russian government is confident it finally has inflation in check after years of surging prices.

Inflation was 22% last year and is running at about 12% this year. In the wake of the Soviet collapse, Russia has struggled with free-market reforms and inflation has dealt a crippling blow to millions of Russians who have seen the salaries and savings evaporate.

Inflation peaked at 2,600% in 1993 and was consistently over 100 percent annually until last year. 'Today we reliably control money circulation and control inflation,' Yeltsin said. 'The prices of basic goods are practically stable. That is why we made the decision to conduct the money reform.'

Beginning Jan. 1, 1998, new ruble notes will be introduced, the president said. Old ruble notes will still be valid until the year 2002, but three zeros will be knocked off their value.

That means an old, 1,000-ruble note will be worth the same as a new one- ruble note beginning in January.

At present, 5,801 rubles equals a dollar, and Russians must carry large wads of cash to make even routine purchases.

'We will gradually replace the old money with new,' Yeltsin said. 'The standard coin will be not a thousand (rubles) but one ruble. It will be easier, more familiar, without all the extra zeros.

'New zeros will never again appear on our banknotes,' the president pledged.

[08] Pearson profits leap 270% to $128 million

Marjorie Scardino, chief executive of Pearson, said: 'Our goal will be double digit earnings per share every year and a doubling of the value of the company during the next five years.'

The pledge coincided with a rise in 6 months to June 30 earnings to £81 million ($128 million) from £30 million a year earlier. The figures include a £24 million profit from the sale of half its stake in Flextech and a £12 million profit from the disposal of children's book club, Troll, to Torstar Corp.

The company also announced that it is in negotiations to sell Churchill Livingstone, its medical publishing business.

Analysts expect the unit to fetch £60-80 million depending on its profit margins.

Finance Director John Makinson told Dow Jones that the medical publisher, with titles including 'Gray's Anatomy', is to be sold as the company refocuses on businesses in which it has a stronger market position.

[09] Two of Japan's biggest telecom companies to offer joint telecom services in preparation for expected new competition from NTT

KDD, Japan's largest provider of international telecommunications, and DDI, the biggest competitor to NTT in domestic long-distance and cellular service, plan to offer a unified international and domestic telecom service under a new brand starting in October, a DDI spokesperson said.

The two companies do not plan a capital tie-up, but will offer unified billing for the service, the spokesperson said. A Japanese newspaper report said the two companies would also offer a 20% discount on the joint service, but DDI said the two sides haven't yet agreed on that.

The KDD-DDI partnership is the latest of several tie-ups in the Japanese telecom market, following the government's decision earlier this year to allow NTT to offer international service in addition to its domestic long- distance and cellular service and its traditional near-monopoly on local calling.

Analysts said the cooperation between KDD, now Japan's main international phone company, and DDI, a domestic long-distance and mobile service provider, illustrates how smaller Japanese carriers would need to combine their expertise and resources to survive.

[10] Spain's Endesa to acquire controlling stake in Chile's largest electrical utility Enersis

The acquisition, coming months before a public share offer by Endesa, as the 67%-state-owned company is known, is valued at about $1.5 billion, the company said.

Pleasing analysts and boding well for the company's future role in Latin America, the operation gives Endesa effective control of Enersis, the largest private electrical utility in South America, through the Spanish company's purchase of various Enersis units that together own 29% of the parent group.

Also, Endesa and Enersis will form a joint operation, of which Endesa will control 55%, to manage the two group's activities and target their investments in South America. 'It's a good deal, a good fit,' says Chris Rowland, utilities analyst with Merrill Lynch in London. 'It propels Endesa's formation in South America rather than (the company owning) a series of dots in equity interests.'

Indeed, while Spanish utilities have for some time owned minor stakes in disparate utility operators throughout Latin America -- a region whose electricity sector has far more room for growth than that of Spain -- no Spanish utility has yet solidified its presence in any one major company.

In addition to its dominant role in Chile, Enersis has operations in Peru, Argentina, Brazil and Colombia.

[11] Virgin Direct looks to become a bank

Virgin Direct marketing director Tony Wood denied that the company was looking to realize its banking ambitions through the acquisition of a mutual mortgage lender such as Nationwide Building Society or Birmingham Midshires Building Society.

'I would be disappointed if we weren't to announce something by the year end,' Wood said.

The likely route would be a telephone banking service rather than High Street branches. Virgin Direct would also need to apply for a banking licence, which it doesn't have as yet because it sells only retail investments, life assurance and pension products.

Virgin Direct, 50% owned by Richard Branson's Virgin Group and 50% by Australian insurance group Australian Mutual Provident, has already agreed in principle to set up a bank, 'with everyone from Richard Branson downwards convinced of the idea,' Wood said.

'I would think it most unlikely that we would be looking for a building society to set up a banking business. But we are talking to several organizations about what the best way of entering this industry is,' he added.

[12] Corporate and Economic Briefs

Germany's flag carrier Deutsche Lufthansa is ditching telephone giant Deutsche Telekom as its global telephone service provider, the airline said. Lufthansa said cost and service were among its reasons for switching to the private Viag Interkom, a telecommunications unit of Viag. A spokesman said the airline has been putting the new system into place domestically since June, and all of Lufthansa's international locations will follow, so that the measure will be completed by 1998. Lufthansa spends tens of millions of marks annually for telephone calls, the spokesman added.

Finnish national carrier Finnair said in a statement its co-operation agreement with German Lufthansa would end on October 25 based on a mutual agreement between the companies. Finnair said its flights to destinations in Germany - 55 flights in all per week - would remain unchanged while some timetables would change.

Time Warner, the second-largest cable operator in the U.S., has put up for sale cable systems valued at $350 million as part of a plan to unload nonstrategic operations and pare down some of its $18 billion debt, according to people familiar with the situation, the Wall Street Journal reports. The cable systems in Louisiana, Mississippi, Tennessee and Michigan serve about 150,000 of Time Warner's 12.4 million subscribers nation-wide. Time Warner declined to comment.

[13] World Briefs

Soldiers reinforcing dikes along the swollen Oder River in eastern Germany are called to a new duty: removing unexploded World War II-era bombs.

Two Russian cosmonauts get a clean bill of health and the final go-ahead Monday to blast off on a mission to repair the troubled Mir space station.

The alleged mastermind of New York City's most notorious terrorist act - the 1993 World Trade Center bombing - is to go on trial today. The court session begins at 1330 GMT, time of opening statements uncertain.

Rescue workers dig quickly through the debris of two ski lodges buried by a landslide, fearing rain and flash floods forecast for the Snowy Mountains will trigger more slides before they find 10 missing people.

A Saudi man convicted of murder was beheaded in the capital Riyadh, raising to 74 the number of people executed in the kingdom this year. Mohammed bin Rafan Al-Enizi was found guilty of fatally shooting Mohammed bin Samir Al-Enizi after an argument and executed, an Interior Ministry statement said.

Israel arrests 29 Palestinians early today in another overnight sweep in the West Bank aimed at weakening Islamic militants after a twin suicide bombing took 15 lives in Jerusalem last week. Meanwhile, Israeli commandos set off bombs in southern Lebanon early that killed five Hezbollah guerrillas, including two commanders, Israeli army and Lebanese security official say.

Iran's new president focuses on international relations in a speech after he was sworn in Monday, promising to have relations with all countries except those that 'want to lord it over us.'

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

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