European Business News (EBN), 97-08-05

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

Page last updated Tue, August 05 2:25 PM CET

CONTENTS

[01] UBS profit soars 67% in first half

[02] British Petroleum profits rise 14% to $1.32 billion

[03] Higher personnel and fuel costs cut KLM earnings

[04] Germany's Ifo institute predicts 3.3% for Germany's budget deficit

[05] British manufacturing output falls as sterling strength hurts exports

[06] German industry boosted by rise in June manufacturing orders

[07] Thailand set to borrow $10 billion from the IMF

[08] NatWest reports 17% profit rise to $1.07 billion

[09] BAA pretax profit climbs 4.5% in second quarter

[10] Italy July CPI unchanged from June

[01] UBS profit soars 67% in first half

UBS said group net profit rose to 1.856 billion Swiss francs ($2.8 billion) from 1.109 billion francs in the same period of 1996. The figure matched some analysts' forecasts and beat others.

'The UBS figures are alright, so we look for its stock and the other big banks - Credit Suisse and Swiss Bank Corp. - to rise as well,' said a dealer, looking ahead to more profit announcements later this month.

The company credited robust financial markets, its massive provisioning booked last year for bad loans, and its domestic reorganization.

Its retail sector at home lost 26 million francs, but UBS said it expects a turnaround there. Income from services rose 35% and interest profit gained 6%. UBS blamed stock derivatives for only a 1% rise in total trading profit.

On the cost side, the bank said personnel expenses rose 19%, which included bonuses.

For the full year, the bank looks for a return on equity of more than 12% after a first-half BoE of 16%. But UBS cautioned that the second-half conditions may fall short of the 'optimal' first half.

UBS also said it will adopt International Accounting Standards this year to increase clarity in its figures.

[02] British Petroleum profits rise 14% to $1.32 billion

The UK integrated oil giant's replacement cost net income in the second quarter of the year was £738 million after exceptional items, compared with £588 million a year earlier and expectations of between 610 million and 690 million. Net operating income for the period was £1.126 billion against 1.067 billion a year earlier.

Alongside its results, BP said it is to seek shareholder approval at its next annual meeting in May 1998 to buy back its own shares.

John Browne, chief executive of BP, said the repurchases will be made 'from time to time' when the board feels there is capacity to do so, after allowing for a sustainable dividend of 50% of earnings and prudent debt.

[03] Higher personnel and fuel costs cut KLM earnings

In the latest quarter ending June 30, KLM said its share of Northwest's results amounted to 56 million guilders ($26.7 million). KLM still holds, but plans to sell, a 25% stake in Northwest.

KLM said operating profit in the first quarter, boosted by 11% traffic growth and cost-cutting measures, increased by 205% to 244 million guilders ($116.7 million).

The carrier said it expects operating profit for all of 1997 to approach levels reached 'in the better of recent years.' Higher personnel costs and fuel prices drove operating costs up to 3.02 billion guilders in the first quarter from 2.37 billion guilders a year ago.

KLM said its 'Focus 2000' restructuring operation remains on schedule and that it expects fuel prices to stabilise at current levels.

It said the biggest overall increase in traffic was in Europe, where it rose by 22%. On routes to the Middle East and Southern Asia, traffic declined by 18%.

The results were higher than generally expected, and on Amsterdam's stock exchange, KLM shares rose on the news. At midday, shares were up 1.4% to 77.50 guilders ($38.55) per share.

[04] Germany's Ifo institute predicts 3.3% for Germany's budget deficit

However, Ifo forecast that Germany's deficit will drop to 2.6% of GDP in 1998, and noted that sustainability is seen as an important element in discussions over interpretation of the Maastricht treaty requirements.

The economic research institute predicted that Germany's gross domestic product will grow 2.25% in 1997 and 2.5% to 3.0% in 1998.

And the institute said it could imagine that the Bundesbank would take 'small steps' to send a signal to currency markets if the dollar rose above 1.90 marks.

Asked at what point the Bundesbank was likely to take action to stem the mark's slide, Ifo economist Willi Leibfritz said: 'We're getting close to that point. I could imagine that a dollar above 1.90 marks would set alarm bells ringing in Frankfurt.'

Ifo also said it expects Germany's 1997 inflation to rise to an average of 1.75% and to accelerate further in 1998, to an average of 2%.

That compares with a 1.5% rise in 1996 and is also higher than the government's forecast of 1.5% average inflation in 1997.

[05] British manufacturing output falls as sterling strength hurts exports

But economists say the data is unlikely to stop the Bank of England from raising interest rates again to combat robust consumer spending when its monetary-policy committee begins its monthly two-day meeting Wednesday.

'The manufacturing figures are not quite weak enough to offset worries about the consumer sector,' said Jonathan Loynes, U.K. economist at HSBC James Capel in London.

The Office for National Statistics said manufacturing output fell 0.1% in the second quarter from the first quarter. Higher energy output boosted overall industrial output by 0.4%.

Manufacturing output rose 0.4% on the month in June, bouncing back after a sharp 1.0% decline in May. The rise was in line with market forecasts. Total industrial output surged 1.4% on the month as bad weather in the second half of June boosted demand for energy.

Recent business surveys show that manufacturers supplying the home market are doing well because of strong domestic demand, but exporters have been hit by the strong pound, which has made British goods more expensive and hence less competitive on world markets. Over the past 12 months, the pound has risen 26% against the currencies of Britain's major trading partners.

By Andrew Atkinson

[06] German industry boosted by rise in June manufacturing orders

Orders surged 10.5% in June from June 1996, the ministry said. Year-on-year orders data are price adjusted but not seasonally adjusted.

The figures are just under analysts' expectations. Economists had forecast orders would rise 1.7% in June from May, according to a survey by Dow Jones.

The rise was accentuated by a range of large orders, predominately in the domestic sector, the economics ministry said. It follows a decline of around the 'same magnitude' in May, the ministry noted. Breaking down the seasonally adjusted figures, western German orders rose 1.7% in June from May, while manufacturing orders in eastern Germany fell 3.2%, the ministry said.

[07] Thailand set to borrow $10 billion from the IMF

The package, negotiated between the IMF and the Thai government over the past week, consists of tough austerity measures, including the closing of 42 troubled finance companies.

Thailand's economy has been spiraling toward recession following a severe slump in exports, excessive lending by financial institutions to an overbuilt property sector, and heavy borrowing in foreign currencies by companies.

Finance Minister Thanong Bidaya and Bank of Thailand governor Chaiyawat Wibulswasdi announced the details of the IMF package at a news conference.

By far the toughest part of the deal was the closure of 42 more troubled finance companies, including such heavyweights as Nithipat Finance and Sitca Finance.

The closures bring the total number of finance companies shut down by the central bank since June to 58. There were 91 finance companies operating in Thailand before the shutdowns.

In addition, the central bank said it would set up a bank deposit insurance program.

Chaiyawat said the central bank already had lent 500 billion baht ($15.6 billion) to finance companies in an effort to keep them afloat.

[08] NatWest reports 17% profit rise to $1.07 billion

On a headline basis, the profit was up from last year's 302 million pounds but from continuing operations, the bank said it made £775 million pounds, a rise of 17% over last year. NatWest said it raised its interim dividend 10.4 percent to 10.6p per share.

Commenting on the results, Chairman Lord Alexander said, 'Our results in the first half were seriously affected by the previously reported losses in interest rate options at NatWest Markets and the subsequent under performance of this business.'

Last Friday, NatWest announced a restructuring of NatWest Markets which included the appointment of Konrad Kruger as chief executive, and separating the global financial markets business into a new group sector.

Returning to its first half results, NatWest Markets reported pretax profit of £58 million, down 74% from £219 million a year ago.

And in an interview NatWest Group Chief Executive Derek Wanless said Tuesday he doesn't see the value in buying an insurance company at the present time due to escalating acquisition prices.

'I can't see the shareholder value,' he said in an interview with Dow Jones Newswires. 'Not looking at the prices people are paying recently in this area.'

[09] BAA pretax profit climbs 4.5% in second quarter

But at the post-tax level, the U.K. airport operator's profit slumped to £3 million from £98 million as the company took a £102 million provision to pay a tax on the windfall profits of privatized utilities.

Passenger numbers rose 7.8% in the quarter to 26.5 million from 24.7 million, with group revenues up 5.7% to £367 million from £347 million.

The company said its underlying pretax profit rose 13% to £147 million when adjusted for rephased traffic charges and interest capitalization.

A program to phase out the differential between peak and off-peak passenger charges reduced first quarter profits by £8 million. BAA said the rephasing results in relatively less revenue being collected in the first half of the year when peak charges predominate.

Profit was reduced by £3 million as a result of BAA's decision earlier this year not to capitalize interest on projects prior to receipt of planning permission. The major project affected is Terminal 5 at Heathrow.

[10] Italy July CPI unchanged from June

Bond traders largely ignored the consumer price data since they were in line with expectations. The state statistical institute Istat also said that when tobacco prices are included in the index, prices were also unchanged on the month and up 1.6% from July 1996.

The index excluding tobacco is comparable to consumer price data released by Istat prior to January, 1996. That month, Istat changed both the categories and the weightings used to calculate the index. The ex-tobacco consumer price data is also that used for many previous Bank of Italy, government and economist forecasts and targets.

In addition to their traditional figures, E.U. members also provide a second set of CPI data each month, using standardized methods to calculate the figures. The E.U. data, however, is one month late.

Italy's June CPI harmonized to E.U. standards was up 0.1% on May and 1.6% on June 1996, Istat said. These standardized CPI figures will be used as the basis of comparison when E.U. leaders meet in 1998 to decide which member states meet the various Maastricht Treaty criteria.

Under the Treaty, countries wishing to participate in the single currency must have had an average inflation rate over 12 months of not more than 1.5% above the average of the three best performers.

Market expectations were for a rise in inflation of 1.6% to 1.7% on the year-earlier period.

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

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