European Business News (EBN), 97-09-16

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

Page last updated Tue, September 16 5:56 PM CET

CONTENTS

[01] Kohl's top adviser drops demand of 3% deficit criterion for EMU

[02] Adidas plans to buy Salomon for $1.3 billion as industry consolidation continues

[03] Airbus lands $1.4 billion deal with America West

[04] Dresdner Bank says its Supervisory Board Chairman has resigned

[05] Royal Dutch/Shell unit to sign $2 billion pipeline deal

[06] US consumer prices show modest gain, easing inflation worries

[07] Vereinsbank unveils $180 million capital increase

[08] KLM face losing 'hundreds of millions of guilders of net profit' if Schiphol airport cuts traffic

[09] Steve Jobs takes on title of interim CEO at Apple

[10] Russia to join Paris Club of creditor nations tomorrow

[11] Clinton expected to outline tobacco pact demands

[12] Microsoft delays Windows 98 release again

[13] UK August budget deficit narrows to $1.8 billion

[14] Virgin merges retail and cinema businesses to form Virgin Entertainment Group

[15] Michelin first half net profit jumps 47%

[16] AGF may join forces to bid for GAN

[17] Kingfisher expects healthy first half profit

[18] Royal Bank of Scotland completes Banco Espanol De Credito sale

[19] Tesco first half profit rises 9%

[20] Corporate and Economic Briefs

[01] Kohl's top adviser drops demand of 3% deficit criterion for EMU

A paper drafted by leaders from the Christian Democrat wing of Chancellor Helmut Kohl's coalition instead stressed sustainable convergence as a launchpad for starting economic and monetary union on time in 1999.

'Based on successes achieved so far... and looking at on-going stability efforts in individual European states, there is no reason to discuss delaying the currency union,' it said.

'Postponing the target date would not only ease the pressure to reach convergence but would also call into question the successes achieved so far with respect to stability. The entire project would run the risk of collapsing.'

The document, whose main author is CDU/CSU parliamentary leader Wolfgang Schaeuble, a close Kohl confidant, marks an about-face from earlier assertions that the EMU timetable can only hold if countries meet the Maastricht criteria exactly.

Bonn had previously argued the Maastricht deficit goal of three percent of gross domestic product should be read as 3%. In a change of tack, the new paper says 'economic theory does not dictate a figure of 3%.

Policy makers must continue to operate in a clearly- defined framework in order to uphold the restored confidence of financial markets in their efforts to meet the criteria, Schaeuble said in the text.

Even if the 3.0% requirement doesn't have an economic basis, it is still an important guideline for markets, Schaeuble said.

'It would be wrong to conclude from previous experience that the precise percentage of the deficit criterion is irrelevant, even though economic theory doesn't dictate a figure of 3.0%,' he said.

Further, Schaeuble praised the progress among the European Union members in the convergence process.

'The fear of a weak euro, which, though widespread, has to some extent been talked into existence, is without foundation,' he said. 'All the indications are that the internal value of the new currency will be stable.'

Schaeuble said the national criteria debate had unsettled Bonn's European partners. 'The debate over 3.0 or 2.9 falls short,' he told a news conference. 'Since we are well on the way to meeting the criteria, they lose some relevance.'

Schaeuble said a delay would require a new treaty to be negotiated. 'You would have to be pretty optimistic to believe that we could get a new treaty as good as Maastricht,' he said.

The CSU, led by Finance Minister Theo Waigel, has taken a harder line on the deficit and at a conference in April adopted a resolution committing the party to the 3% view backed by Bavarian state premier Edmund Stoiber.

The new line on the euro marks a shift which dates back to a TV interview last month where Kohl ranked lasting economic convergence ahead of meeting the EMU criteria in 1997 and 1998.

[02] Adidas plans to buy Salomon for $1.3 billion as industry consolidation continues

Adidas' acquisition of France-based Sport Development was valued at 521.50 French francs ($86.3) per Salomon share, implying a value for the Salomon group of 8 billion francs ($1.3 billion). Sport Development holds 39% of Salomon's capital and 56% of its voting rights, putting the cost of Adidas' purchase at about 3.1 billion francs.

Salomon Secretary General Anne-Marie Berrette told Dow Jones that the French company was spurred by talks between domestic rival Skis Rossignol and Nike of the U.S., talks which apparently have failed for now.

The combined German-French group, to be named Adidas-Salomon, will be the second-ranking sports concern worldwide, lagging only Nike. However, it will have 'only about half the annual sales' of the U.S. company, Berrette noted.

Salomon and Skis Rossignol are world-leading makers of winter-sports equipment, and both are diversifying heavily into summer sports. The French companies are much smaller than rivals such as Adidas, Nike, Reebok International and Benetton Group, but until recently they were buying up specialised sporting-goods makers, rather than being viewed as takeover targets themselves.

Under the terms of the purchase, Adidas will acquire all of family-held Sport Development. Once the purchase is approved by Adidas shareholders and German regulators, Adidas will launch a public offer for all traded Salomon shares, which are listed on the Paris bourse, at 521.5 francs each.

Berrette said gaining the necessary approvals would likely take between three and four months.

She added that Sport Development chose to accept Adidas' offer 'because we have a size problem. We want to create global brands, and we were to small to do that.'

Berrette said the acquisition 'responds to an economic logic. There are the huge shoe companies - Nike, Reebok and Adidas - and there are the much smaller equipment makers, like Salomon and Rossignol. Those two worlds are already merging.'

Recent examples of that trend include Benetton Group's purchase in July of Benetton Sportsystem from the group's holding company, Edizione Holding, and Nike's agreement that month with Marker International to collaborate on research, design and development of winter-sports equipment, including snowboards.

'Today is the first day of a new era in the sports sector,' said Lilyane Dufroid-Reynaud, analyst with Societe Generale Equities and Derivatives in London. 'There is no time left - you now have to be one of the top three or four, and Adidas decided to accelerate the process.'

'The choice of the family to sell reflects the increasing competition in the sector,' said Annick Thevenon, Paris-based analyst at EIFB, the brokerage arm of insurer GAN. 'The fit between Adidas and Salomon is quite good, both geographically and in terms of products.'

Alan R. Katz, Dow Jones Newswires, Paris

[03] Airbus lands $1.4 billion deal with America West

The deal was for 22 A319s and 24 A320s, 12 of which were reconfirmable, said the European aircraft consortium without disclosing the terms of the deal.

Delivery of the new aircraft will start in 1998, Airbus said. The aircraft manufacturer also said America West had elected to take purchase options on up to 40 A320 family aircraft for delivery from 2001 to 2005.

A separate statement by America West, which currently operates a fleet of 26 A320s, said the agreement followed 18 months of negotiations between the companies.

America West said the firm confirmation order was for 22 A319s and 24 A320s, 12 of which were subject to reconfirmation. Excluding the 12 still pending, the deal - according to the aircraft list price - was worth $1.4 billion, America West said.

'This order represents a major milestone for America West and replaces agreements made prior to and during the airline's bankruptcy with an order providing significantly improved commercial terms,' said W.A. Franke, America West's chairman.

[04] Dresdner Bank says its Supervisory Board Chairman has resigned

The resignation comes after confirmation yesterday by the Frankfurt prosecutor's office that he is under investigation for tax evasion. The tax evasion allegation is in connection with a legal case that began in 1994 against other bank officials, Dresdner Bank said. It went on to say that Roeller has denied the charges as false, but he is stepping down from his post in the interests of the bank.

'Experience shows that the bank could suffer from prolonged public debate over matters which are Roeller's private concern,' the bank said.

Roeller has been chairman of the supervisory board since 1985, and has been with Dresdner Bank for more than 40 years.

Prosecutors in Duesseldorf said yesterday that they were investigating Roeller as part of a long-standing probe into accusations of tax evasion by customers and staff of the Frankfurt-based bank, the second-largest in Germany.

In addition, a legal complaint had been filed against Roeller by a person who chose to remain anonymous, according to a prosecutor's office spokesman.

Tax authorities since 1994 have been investigating Dresdner and several other banks for allegedly helping customers evade tax by transferring funds to tax havens like Luxembourg.

The banks, which also include DG Bank, Commerzbank among others, have consistently denied the accusations. The probe moved to include top executives at Dresdner earlier this month when management board members at the bank's Frankfurt headquarters had their offices searched.

Like many of its rivals, Dresdner has been accused of helping clients hide funds in hard-to-trace accounts to circumvent tax authorities.

The government's move to slap a 30 percent withholding tax on interest income from 1994 caused an exodus of savings to tax havens.

Two regional Dresdner executives charged with aiding tax evasion last year were ordered to pay heavy fines or face jail. A Dresdner customer was also sentenced to three years and nine months in jail.

[05] Royal Dutch/Shell unit to sign $2 billion pipeline deal

The 400-mile line, which will cross the Andes Mountains as it links the Camisea natural gas field in Peru with the Pacific coast, has been the subject of intense competition between US corporations Bechtel and Fluor.

Royal Dutch/Shell Group's Shell Prospecting & Development Peru unit said the project calls for constructing separate, parallel pipelines carrying natural gas and natural gas liquids. Royal Dutch/Shell Group operates the Camisea field with a 57.5% stake. Mobil's Mobil Exploration & Producing Peru Inc. unit holds the remaining 42.5% interest in the field.

Separately, Fluor, the losing bidder on the project, denied allegations contained in a shareholder lawsuit of securities laws violations in connection with a February disclosure that it expected to post substantial one-time losses on two unnamed power-plant construction projects as well as lower-than-expected profit.

The suit was filed last week in federal court in Anaheim, California. The suit, which seeks class-action status, alleges that Fluor failed to meet securities-law disclosure requirements. Fluor said it intends to 'vigorously defend' itself.

In another area, Fluor said its Fluor Daniel unit signed a contract with Murrin Operations of Australia for the construction of a nickel-cobalt project in the Goldfields region of western Australia. The project's total installed cost will be about $680 million and the value of Fluor Daniel's portion of the project is about $575 million, Fluor said.

[06] US consumer prices show modest gain, easing inflation worries

The Labor Department said its Consumer Price Index, the government's most widely used inflation gauge, rose 0.2% in August after an identical gain in July. Falling costs for apparel and airline fares helped offset surging energy prices.

Meanwhile, business inventories rose 0.2% in July to a seasonally adjusted $1.028 trillion, the Commerce Department said. The July increase followed an unrevised rise of 0.7% in June to an adjusted $1.026 trillion. Business inventories were up 3.2% from a year ago.

Manufacturers' inventories rose 0.5% in July to $446.96 billion while retailers' inventories also rose by 0.5% to $318.70 billion. Wholesalers' inventories fell 0.6% in July to $262.46 billion.

The consumer price report showed a 0.2% increase in consumer prices overall and a 0.1% rise excluding food and energy, compared with a median estimate of economists which predicted the CPI rose 0.3% overall and 0.2% in the core.

The lower-than-expected rise in the consumer price index for August pushed US Treasurys higher, which had already rallied about 11 basis points just before the release.

The August CPI report showed higher fuel prices funnelling into a few sectors of the economy.

The August increase in consumer prices was less than economists expected. A Dow Jones Newswires survey of 18 economists published Friday found a median estimate for a 0.3% rise in August consumer prices.

The rise in consumer prices was small even though energy prices spiked up 1.7%, the biggest gain since a 3% rise in April 1996. Leading the surge was a 5.4% jump in gasoline prices. Food prices climbed 0.4% amid sharp gains in fruit and vegetable prices that were partly offset by a large drop in poultry prices. Airline fares tumbled 4.7%, while tobacco prices increased 0.7%. The cost of medical care rose 0.2%.

While economists expected to see a surge in energy prices, they didn't anticipate any one sector to outperform any other. Hence falling costs for apparel and upkeep and airline fares took the market by surprise.

'There was a fear that the (United Parcel Service) strike would bias apparel prices higher,' observed Marilyn Schaja, money market economist at Donaldson, Lufkin & Jenrette Securities in New York. But 'the decline in airfares was the major surprise,' she added. Some analysts said the favourable CPI results may have been a little exaggerated.

'Without the 4.7% drop in air fares, the CPI would have probably been closer to the consensus estimate,' observed Patrick Dimick, government bond strategist at UBS Securities in New York.

The good news was concentrated in the services sector, noted analysts, which ironically, was the only sector that had triggered some fears in the market prior to the report.

Market participants generally expected the CPI to mirror the market- friendly producer price index released Friday, but they were cautious about the CPI's service sector component since it's not reflected in the PPI.

Schaja noted the rise in retail inventories also deviated from expectations, but she explained the numbers still fit into a general model of a shift toward lower inventories and higher consumption.

[07] Vereinsbank unveils $180 million capital increase

The move is aimed at bringing in about 3 billion marks in fresh funds for the bank's planned merger with Bayerische Hypotheken- und Wechselfbank. Vereinsbank will take the lead in what it called a 'merger of equals' that will create one of Europe's top three banks.

As part of the capital increase, a nominal 95 million marks will be offered to shareholders at a ratio of 1 new share to every 14 already held.

With the increase, Vereinsbank, Bayerische Hypotheken and Wechselbank want to provide a solid financial start to their newly formed institute,' Vereinsbank said. As part of the increase, 95 million marks will be offered to shareholders at a ratio of 1:14.

Vereinsbank Chairman Albrecht Schmidt will take charge of the new bank arising from the merger, which he said should be fully operational by September 1998. He also said that the bank's plans for expansion don't include the acquisition of an investment bank. Schmidt's transfer means that Eberhard Martini, currently Hypobank chairman, will be proposed for a seat on the supervisory board of Vereinsbank at its shareholder meeting next spring.

Meanwhile, German insurer Allianz, which last Thursday announced it was doubling its stake in Vereinsbank to 8.7%, told Dow Jones that it would participate in the capital increase.However, the insurer wouldn't comment on how far it would participate in the capital increase or whether it would take part in the share offer for non-shareholders.

Separately, Deutsche Bank has sold its shares in Bayerische Vereinsbank, and will thus profit from the recent share price gains.The sell-off, which is estimated to be worth 1.22 billion marks ($690 million), will impact Deutsche's results in 1997 and 1998.

Deutsche said in a statement that it had sold the shares partly via the cash market and partly to institutional investors in forward transactions at a fixed price. Deutsche's announcement in July 1996 that it had amassed a stake of 5.21% in Vereinsbank helped to trigger the merger speculation which has gripped the German bank sector ever since.

[08] KLM face losing 'hundreds of millions of guilders of net profit' if Schiphol airport cuts traffic

A KLM spokesman said it was hard to predict what the implications could be and when they would hit KLM's bottom line, but he admitted that 'they will be considerable and almost immediate.'

On Thursday, Schiphol said it plans to halve its peak-hour capacity, operating only one runway each for landings and takeoffs, starting Oct. 1.

Transport Minister Annemarie Jorritsma recently criticized Schiphol for not making enough effort to meet noise-pollution limits and the measure is a last attempt at meeting the noise-pollution limits agreed with the Transport Ministry for 1997.

In a joint news release from KLM and its partners Transavia and Martinair, the airlines said the move would leave about 4,000 of its passengers stranded every day, as well as seriously damage Schiphol's position as a leading European airport.

A conference in Rotterdam, starting tomorrow, will reveal the conclusions of 40 investigations on how the noise-pollution standards will affect the airport.

The research was carried out for the ministries of transport, economic affairs and environmental affairs.

[09] Steve Jobs takes on title of interim CEO at Apple

Now he has the title, even if the word 'interim' is in front of 'chief executive officer.'

Analysts said Apple probably anointed Jobs with the title as a matter of housekeeping.

'I think there might have been a governance issue,' said Louis Mazzucchelli, an analyst at Gerard Klauer Mattison. 'You had Steve making policy decisions without a real title. They had to plug that hole.'

Apple said in a press release Tuesday that it expected to find a full-time chief executive by the end of the year. The search, led by executive recruiting firm Heidrick & Struggles, is widely thought to be a doubly challenging one.

The job would be difficult enough. But Jobs himself is seen by some headhunters and analysts as an executive scarecrow.

'The headhunters may have to scratch a little deeper to find the right person,' Mazzucchelli said. 'The fact they're talking about the end of the year, that's not way out of whack.'

In addition to Jobs, there are other large personalities to deal with at Apple, which some may see as a positive, Mazzucchelli said.

As part of a blood transfusion begun in August, the company added to its board industry heavyweights like International Business Machines former Chief Financial Officer Jerry York and Oracle Chairman and Chief Executive Larry Ellison.

'You have an interesting board to work with, which is an interesting opportunity for the right person,' Mazzucchelli said. 'You want to find someone who can work with Ellison and Jobs, both of whom are highly visible people. That puts an interesting colour on this issue.'

Christopher Grimes, Dow Jones Newswires, New York

[10] Russia to join Paris Club of creditor nations tomorrow

Russian First Deputy Prime Minister Anatoly Chubais will sign the accord during a visit to Paris.

The Paris Club is an informal group of representatives from creditor countries who meet regularly in the French capital to examine requests for debt relief from cash-strapped countries.

Russia is seeking repayment of about $37 billion in debt inherited from the Soviet Union owed by nations which have agreements with the Paris Club. Officials believe it will be easier to recoup the debt from inside the Paris Club.

Repayments of this debt could rise to $500-600 million a year once Russia is a member of the club from $100-200 million a year currently, they said.

Russia itself owes $40 billion to Paris Club members. It restructured this debt, also inherited from the former Soviet Union, two years ago.

[11] Clinton expected to outline tobacco pact demands

Instead, the president, who is expected to make an official statement tomorrow, plans to broadly outline his demands for legislation and tell Congress the time will be ripe for action next year, aides said.

Mississippi Attorney General Michael Moore, who helped negotiated the $368 billion package, wants the president to endorse the settlement.

After meeting with Clinton aide Bruce Lindsey, Moore told reporters, 'I expect the president to help us out here very soon.'

Clinton is though expected to praise the accord as a historic starting point - but then call it flawed. Aides said he will demand that any pact approved by Congress must: give the Food and Drug Administration full power to regulate tobacco; reduce teen smoking by restricting advertising, sales and placement; and punish tobacco companies if goals for reducing teen smoking are not met.

While the proposed settlement touches these same themes, Clinton and his aides have said it does not go far enough.

The president doesn't plan to say specifically what changes need to be made - nor is he likely to put a price tag on an acceptable package, aides said.

He probably will tell Congress to repeal a measure slipped into law by tobacco lobbyists this summer. The measure would allow cigarette makers to reduce the settlement by $50 billion. The Senate has already voted to repeal the measure.

[12] Microsoft delays Windows 98 release again

Microsoft said the problem was unrelated to any bugs with the Windows 98 release, but that it wanted more time to combine two versions of the software into a single product, for computers running Windows 95 and those running the older Windows 3.1.

Still, Wall Street investors blanched on word that Microsoft wouldn't have the software out until sometime between April and June instead of by the end of March, as originally planned.

Microsoft stock, which was off about $2 ahead of the announcement after an analyst spoke of a delay, fell $7.25 to $130.69 on the Nasdaq Stock Market.

By releasing upgrades for both Windows 95 and 3.1 at the same time, Microsoft says retailers won't have to stock two separate products.

Windows 98, like Windows 95, is being designed to run programs written for earlier versions of the operating software, which runs the basic functions of a computer.

Phil Holden, Windows product manager, said software testers and customers were confused by the prospect of buying two products.

'The net result is it will take longer to do testing,' Holden said.

[13] UK August budget deficit narrows to $1.8 billion

The PSBR was less than the median forecast from a Dow Jones survey of £2.7 billion.

The cumulative PSBR for the first five months of the 1997-98 financial year was £5.6 billion, down from £12.3 billion a year earlier.

The ONS said there were no privatisation proceeds from the sale of state- owned industries during August.

Between April and August, net spending by government departments rose 0.9% from the same period a year earlier, while government receipts rose 7.8%.

The Treasury forecasts that net departmental spending will rise 1.8% in 1997-98 from a year earlier to £268 billion, which in real terms indicates a cut in spending.

Government revenues are predicted to rise 6.1% to £274.3 billion, buoyed by strong economic growth.

As revenue growth is expected to outstrip that of spending, the PSBR is forecast by the Treasury to fall to £13.3 billion in 1997-98, excluding proceeds of the one-off 'windfall tax' on the profits of utilities companies.

[14] Virgin merges retail and cinema businesses to form Virgin Entertainment Group

Virgin founder Richard Branson said in a statement, 'Both Megastores and Cinemas are extremely important carriers of the Virgin brand world-wide.'

'This deal will allow us to extend their scope of operation dramatically over the next couple of years as an integrated business,' he said in a statement.

The deal includes a financing package for expansion, including a credit facility of £150 million provided by Bankers Trust.

The new group excludes Virgin's 25% stake in WH Smith's 75%-owned Virgin Our Price retail operation in the UK.

Virgin Entertainment will operate 58 music-based Megastores in 11 countries and 27 cinemas in the UK and Ireland, with expected total turnover of some £350 million in the year to January 1988.

Virgin will own 70% of Virgin Entertainment, US investment groups Texas Pacific Group and Colony Capital will have 14.3% and 10% respectively, while Singapore's Hotel Properties will have 5.7%.

[15] Michelin first half net profit jumps 47%

Operating profit, however, was nearly flat at 3.63 billion francs despite a 10% rise in revenue to 38.4 billion francs.

Michelin, the world's largest tire maker, said operating profit was unchanged because of increased spending on marketing in emerging markets and Asia. Michelin said its growth in those markets was 15% during the first half.

Michelin's first-half net profit in 1996 had been reduced by a 651 million francs charge for restructuring, notably its operations in Spain. During the first-half of this year, one-time provisions totaled only 14 million francs.

Michelin said sales in Europe were only 2% higher despite an improvement in the second quarter but they were stronger in other regions. Deliveries in North American markets rose 7% while deliveries in Asia rose 15%.

Average selling prices declined 0.7% in the first half from year-earlier levels, tracking a drop in raw materials prices.

The results were roughly in line with analysts' expectations and the company said conditions for the full year looked favourable.

'Market demand is well oriented overall -- improving in Europe, sustained in North America and always strong on emerging markets,' it said.

'In such a context, we can expect for the full year a confirmation of the favourable evolution of the principal factors which contribute to the group's good performance,' it said.

[16] AGF may join forces to bid for GAN

'We haven't ruled out forming a partnership at all. There have been quite a few people who have approached the company,' the source said, adding that if AGF accepted one of the offers to help finance a bid and its tender for GAN were successful, the commercial partner would receive 10% to 15% of the shareholding of the combined group.

The comments followed a report in the Financial Times which said AGF was considering linking up with another financial firm to take control of GAN. According to the UK journal, among the partners AGF could tie up with are its largest shareholders, Societe Generale, German group AMB , Suisse de Reassurance et Paribas.

At the end of June, Societe Generale held 6.49% of AGF, AMB held 5%, Suisse de Re held 4.42% and Paribas 2.67%.

The French government has not yet decided whether it should sell GAN as a separate entity or include its regional banking network CIC in the sale. In the event that the government wished to maintain a tie between GAN and CIC to retain bancassurance links between the two, AGF would be ready to take 25% of CIC, press reports have said.

[17] Kingfisher expects healthy first half profit

Analysts are forecasting first half earnings to rise to between £135 million ($213.3 million) and £141 million from £111 million in the period a year earlier.

The interim dividend is forecast to grow to between 5.5 pence and 5.6 pence per share from 5.0 pence the previous year.

B&Q and Comet are both expected to be major beneficiaries of increased consumer spending as a result of building society windfall hand-outs. B&Q is also likely to benefit from an early start to the gardening season.

In May, the group reported like-for-like sales growth of 14.4% at B&Q and 10.4% at Comet in the first quarter of the year. NatWest Securities analyst John Richards predicts that sales growth at B&Q will have moderated to around 12%.

Richards is anticipating a 28% increase in B&Q's first-half profit to £60 million and expects Comet to post a profit of around £3 million against a £3 million loss in the previous year.

[18] Royal Bank of Scotland completes Banco Espanol De Credito sale

The Scottish Bank also forecast it will realize a pretax gain on the sale of around £30 million which will be shown as an exceptional gain in its full-year accounts.

Dr. George Mathewson, group chief executive of Royal Bank Group, said the company acquired its shares in Banco Espanol in 1994 when it became a subsidiary of Banco Santander.

'Since that date we have progressively built up our holding in Banco Santander, from 1.4% to 4.9%. We therefore no longer have a requirement for a direct holding in Banco Espanol but we retain an indirect interest through our holding in Banco Santander,' he said.

[19] Tesco first half profit rises 9%

Adjusted earnings per share grew to 11 pence from 10.1 pence, while the interim dividend came at the top end of analyst expectations at 3.55 pence from 3.25 pence a year ago.

In Ireland, the former Associated British Foods supermarkets contributed sales of £368 million and operating profit of £14 million in the 14 weeks since its acquisition. Provisions for the £641 million acquisition's integration and asset write-offs will be charged against second half profits, the company said.

In the opening four weeks of the second half, sales in the UK continued to move strongly ahead boosted, in particular, by its latest Clubcard mailing scheme, the company said. Sales in existing stores rose 8% on last year, comprising volume growth of 6% and inflation of 2%. Total UK sales have grown by 12.1%. However, Tesco warned it expects tougher comparatives in the coming weeks.

In France, total retail sales at Catteau grew by 1.1% with flat like-for- like sales. The company said this sales performance, together with a lower gross margin, the closure of much of Catteau's wholesale operations and the adverse impact of sterling's strength, has resulted in profit falling to £1 million in the first half from £5 million a year earlier.

In Central Europe, total sales were up by around 60% including like-for- like sales growth of 25%. Total losses amounted to £3 million from £1 million profit in 1996. Excluding infrastructure and start-up costs of £8 million underlying profit increased by 25% to £5 million from £4 million in the previous year.

[20] Corporate and Economic Briefs

Italy's industrial producer price index was unchanged in July from June, and climbed 1.7% over July 1996, the state statistical institute ISTAT reported. The month-on-month figure was lower than in previous months because prices in the energy, water and gas sector fell 2.4% on the month. ISTAT also reported the wholesale price index for the same periods. The statistical agency noted that wholesale prices had fallen eight months out of the previous year.

Swiss GDP is expected to expand by 0.7% instead of 0.5% as previously predicted, according to the government's economic agency. In 1998, GDP is expected to grow by around 2% rather than 1.5% as forecast before. The agency conditioned the revisions on the assumption that 'nothing grave happens on the currency front.' The government had earlier revised its GDP figure for 1996 to a contraction of 0.2% from minus 0.7% before.

Taylor Woodrow said first half pretax profit rose 43% to £36.2 million ($57.2 million) from £25.4 million a year ago, reporting improved performance at all four of its operating divisions. The firm's earnings from its housing unit jumped 71% to £16.4 million. Turnover was £625.8 million, from £556.4 million, and earnings per share was 6.2 pence, up from 4.4 pence a share last year. The interim dividend rose to 1.25 pence a share from one pence a year earlier.

Hays said its pretax profit for the year to June 30 rose 12% to £147.8million ($233.5 million) from £132 million a year earlier, in line with market expectations. The latest figure includes a £7.5 million charge for the estimated cost of integrating recently acquired businesses and for the cost of the unsuccessful merger approach to Christian Salvesen. The appreciation of sterling during the year adversely impacted the group's pretax profit on translation by £2.0 million.

German July manufacturing orders rose 0.9% from June, less than the 1% originally reported by the German Economics Ministry. That's based on an index revision released by the Deutsche Bundesbank showing an index level of 104.8 as opposed to the 104.9 index the Economics Ministry reported previously. June's index was 103.9, the Bundesbank said.

Austria's adjusted industrial production index rose 1.3% to 109.6 points in 1996 from 1995 based on harmonized European Union standards, the Central Statistics Office said. The data was delayed as Austrian changed to EU standards. The index is adjusted based on the number of work days, the agency said. Stripped of the energy sector, industrial production was up 1.2% in 1996 from 1995, the agency said, adding that consumer goods production climbed 1.7%, investment goods rose 1.2% and semi-finished goods rose 1%.

UK paper manufacturer Rexam said its pretax profit rose 11% to £92 million ($147 million) - in line with market expectations - for the first half despite the negative impact of sterling strength. Rexam said profit was up 15% at constant exchange rates. It expected sterling to wipe about £7 million off its full year operating profit. Rexam's packaging sectors - food and beverage, healthcare, industrial, beauty - and its coated film and papers and building and engineering sectors all performed well. Only its printing sector was a disappointment, the company said

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