European Business News (EBN), 97-09-23

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Page last updated Tue, September 23 7:10 PM CET

CONTENTS

[01] McKesson and AmeriSource Health agree to merge

[02] LVMH posts 10% earnings gain in the half

[03] Guinness earnings edge up 4%, but holders worry about company's growth

[04] UK economy grew a revised 3.5% in second quarter

[05] Fiat expected to announce joint venture with Russia's GAZ

[06] German media giant Bertelsmann's net profit rises 13% to $669 million

[07] EMI details future central bank's monetary policy

[08] Director general of UK telcoms regulator OFTEL to step down next year

[09] Japan proposal for Asia fund is snagged

[10] EU gives KLM go-ahead to take sole control of Air UK

[11] MEPC to sell US and Australian businesses

[12] German interest-rate forecasts unchanged after inflation data

[13] Rohr to merge with BFGoodrich

[14] Usinor report a 3.8% fall in first-half earnings

[15] British Steel in deal to take 33% stake in Mannesmann, Usinor venture

[16] Munich Re acquires 20% stake in Italy's Reale

[17] BHP faces hostility from shareholders at its AGM

[18] Bank of England Governor says that postponing EMU would not lead to the project's demise

[19] Corporate and Economic Briefs

[20] IMF Round-up

[01] McKesson and AmeriSource Health agree to merge

McKesson said it will issue about 17.4 million new common shares and will assume the long-term debt of AmeriSource, which was $532.3 million on June 30.

AmeriSource shareholders will receive 0.71 McKesson common shares for each AmeriSource common share held.

The merger is structured as a tax-free transaction and will be accounted for as a pooling of interests, with the combined company operating under the McKesson name with headquarters in San Francisco.

The merger is expected to be accretive from the outset before one-time charges. When completed, the merger is expected to add more than $1 a share to McKesson's earnings. The companies expect the merged company's sales to be more than $26 billion on an annualized basis.

[02] LVMH posts 10% earnings gain in the half

First-half net profit, excluding non-recurring items rose to 1.70 billion French francs ($279 million) from 1.54 billion francs the year earlier. Operating profit grew 26% to 3.36 billion francs on the back of a 62% surge in sales to 21.59 billion francs.

The French luxury goods group, which owns Kenzo perfumes, Moet Hennessy champagnes and Guerlain and Christian Dior cosmetics,

But the stock slumped after analysts calculated that DFS' profit was cut in half. LVMH bought control of San Francisco-based DFS for $2.6 billion in January to expand its presence along the lucrative Pacific Rim, but unfavourable currency shifts slashed DFS's half-year earnings. At one point during the trading day the stock was down 5.53%.

'DFS has not turned out to be the great thing it was cracked up to be,' said broker John Fordyce at Oddo. Investment firms Oddo and EIFB urged their clients to sell, lowering their ratings on LVMH's stock to 'underweight' from 'overweight'.

Analysts said weak Japanese spending and a drop in Japanese visitors to Hong Kong during the handover to China also weighed on DFS' results.

LVMH had signalled that DFS' profits would be lower, but its stock was down nearly six percent in late trade as brokers and analysts cut their earnings forecasts and ratings on LVMH shares. LVMH, which opposes Guinness and Grand Met's plans to merge, did not mention the conflict. Guinness, which also reported half-year results on Tuesday, said lines of communication with LVMH were open, but it would be easier to reach an agreement outside the publicity glare.

LVMH said earlier this week it would present a revised proposal to create a three-way drinks group in October.

An EBN Interactive Roundup

[03] Guinness earnings edge up 4%, but holders worry about company's growth

Although Guinness shares saw an initial jump at the open of official trading, a detailed look at the interim statement, which showed the company had increased its expected sterling hit for 1998 and lowered its profit forecast for Thailand in the second half, pushed the shares into negative territory.

The company's tight-lipped approach to its £24 billion ($38.8 billion) merger with Grand Metropolitan, and a turnaround in the general U.K. market sentiment was also deterring investors from buying into the stock, traders said.

Pretax profit increased to £372 million from £357 million a year earlier, well above analysts expectations of between £350 million and £365 million .

Guinness said currency movements hurt the reported profit by £14 million , and £6 million on its 34% share of Moet Hennessy profit, although this was partly offset by the reduced interest charges from foreign currency borrowing.

But of more concern to analysts is that sterling's impact is not expected to decline in the near future, with the company raising its estimated hit from the currency for 1998 to £60 million from the previously stated £40 million .

Guinness also warned that underlying profits in Thailand will be lower in the second half than a year ago due to difficult trading conditions. The currency turmoil in Thailand could deal a further 5 million blow to Guinness in the second half of this year, Chairman Tony Greener told a press briefing. The group revealed earlier Tuesday that it has already lost £7 million in the first half due to the 25% devaluation of the Thai baht since March.

However, the company did say that the weakness in Thailand should be broadly offset by improving results in a number of other Asia Pacific markets.

The Asia Pacific region, which reported an 11% rise in its trading profit to £101 million , accounted for around 26% of the company's earnings in the first half. The contribution from Thailand was not immediately available.

Greener said 'developing markets continue to offer major growth opportunities for spirits and the proportion of United Distillers profits' which derive from these markets advanced further.'

Trading profits for the spirits business, United Distillers, rose 5% to 258 million at constant exchange rates, although rose only 1% in real terms.

While at Guinness Brewing Worldwide sales rose by 7% in the first half at constant exchange rates, although sterling's impact left the figure flat at £1.05 billion . Underlying trading profits increased by 10% to £125 million reflecting good price increases as well as continuing product cost benefits.

The group's flagship brand, Guinness stout, showed good underlying growth although sterling's bite was also present here. Draught Guinness increased volumes by 2%, and canned Draught Guinness rose by 15%, with strong growth in North America, European export markets and Ireland.

Greener said Guinness plans double digit growth in marketing spending at both United Distillers and Guinness Brewing Worldwide. Last year United Distillers spent more than £300 million and Guinness Brewing around £200 million .

Turning to its recent merger, Greener was reluctant to comment on the recent problems caused by Moet Hennessy Louis Vuitton, in an attempt to block the marriage, and would only say that he remained optimistic. LVMH which has more than 11.1% in both Guinness and Grand Met is opposed to their merger and instead proposes a three-way tie.

European regulators are due to rule on the merger by Oct. 27, and Greener is 'hopeful that the American authorities will make a decision within that timescale'.

Stephen Jack, Dow Jones Newswires, London

[04] UK economy grew a revised 3.5% in second quarter

GDP at constant factor rose a seasonally adjusted 1.0% in the second quarter from the first quarter, revised upwards from a previous estimate of 0.9%, the Office for National Statistics said.

GDP rose 3.5% in the second quarter from a year earlier, an upwards revision from a previous estimate of 3.4%. A Dow Jones survey of economists had forecast no changes to the previous estimates.

The stronger-than-expected growth was mainly due to upwards revisions to manufacturing, which went up 0.3% in the second quarter, as opposed to falling as previously thought.

Coming in the wake of a whole range of indicators showing no slowdown in the economy, the scene is set for further GDP growth in the third quarter.

'The upward revision to these figures confirm that activity in the second quarter was very strong,' said Dharshini David, U.K. economist at HSBC Markets. 'Bearing in mind the strength of other recent indicators, we still see base rates as not having reached their peak yet,' she added.

Kevin Gardiner, senior economist at Morgan Stanley, predicted rates would hit 7.25% by the end of the year, and 8% by next spring. 'The economy remains very robust and there's plenty of momentum going into the second half of the year,' he added.

The data showed a 4.4% increase in quarterly consumer spending, the highest rise on an annual basis since the second quarter of 1989.

The minutes of the Bank of England's monetary policy committee meeting in August show concern about annualized consumer spending rates of 4%.

'Its statement last month suggested that it expected a deceleration in the second half of the year, but this has been seen rather more in survey data than actual activity,' said Andrew Milligan, economist at General Accident.

Unless there is clear evidence that activity is slowing down in October, Milligan said a further rise in rates could be expected in November with the next Bank of England inflation report.

However, other analysts pointed out that the savings ratio, which is personal savings as a percentage of total personal disposable income, rose to 11.7 in the second quarter from 10.4 in first quarter.

This partly reflects the cash windfalls made by consumers from the demutualization of building societies as well as showing that consumers remain wary about spending too much.

But the ONS said spending from the windfall gains, which were made when the building societies issued new shares to deposit holders as they listed on the stock exchange, is likely to have a greater impact on third-quarter GDP numbers.

This is because two of the three major conversions took place at the end of the second quarter, and were likely to show up as feeding through into the economy in July and August.

The U.K. had a current account surplus of 888 million ($1.43 billion) in the second quarter compared with a revised surplus of £1.36 billion in the first quarter, according to ONS data.

The deficit on trade in goods and services grew to £2.6 billion in the latest quarter from £2.44 billion three months earlier.

Stephen Cunningham, Dow Jones Newswires, London

[05] Fiat expected to announce joint venture with Russia's GAZ

The agreement, which could be signed as early as next week when the Italian Prime Minister visits Russia, would be among the largest foreign joint ventures in the Russian auto industry and highlights foreign car manufacturers' growing interest in Russia and former Soviet republics.

Joint ventures between Russian companies and General Motors, Ford and Daewoo have already started producing in the region.

A spokesman for Fiat in Turin, Italy, said the company hadn't yet signed any definitive agreements, but that it has been in talks with Russian authorities for some time.

'The discussions are proceeding apace, but there haven't been any formal decisions,' said spokesman Alberto Masoero.

The joint venture, to be based in GAZ's base of Nizhni Novgorod, would cost an estimated $850 million, financed jointly by Fiat, GAZ and the European Bank for Reconstruction and Development, according to people familiar with the situation.

A spokeswoman for the EBRD confirmed that discussions have taken place in London and that the bank is interested in participating in the joint venture. The bank would likely provide around $240 million toward the total cost of the venture.

GAZ couldn't immediately be reached for comment, but the Interfax news agency quoted Ivan Sklyarov, regional governor for Nizhny Novgorod, as telling a session of the regional administration Monday that the basic terms of the project were agreed upon last week.

Roberto Testore, head of the Fiat Auto unit, hinted at the company's interest in Russian production in a recent interview. 'Fiat thinks the Russian market will be very important. We know it very well and we're seriously considering it,' he said earlier this month.

[06] German media giant Bertelsmann's net profit rises 13% to $669 million

Consolidated sales revenue rose to 22.4 billion marks for the year, compared with 21.5 billion marks in 1996. The recent rise of the dollar versus the Deutsche mark contributed 513 million to sales, Bertelsmann said.

The appreciation of other major currencies against the mark contributed 803 million marks to sales, while the transfer of film unit UFA to Luxembourg- based CLT had a damping influence, Bertelsmann said.

During the year Bertelsmann strengthened its financial situation, built up positions in innovative markets and geared itself up for further growth, chairman Mark Woessner said.

Strong earnings in core publishing and broadcasting businesses were helping finance record levels of investment without the need for new debt, Woessner said in remarks prepared for delivery at the annual results news conference.

The recent agreement between the Kirch Group, Deutsche Telekom AG and CLT- Ufa, in which Bertelsmann holds 50%, clears the way for the development of digital television in Germany.

Bertelsmann's 50% stake in online service AOL Europe will also serve it well as the takeover of Compuserve's European operations proceeds, Woessner said.

Chief financial officer Siegfried Luther said the company was pleased with developments at CLT-Ufa despite high start-up costs at broadcasters RTL2, Super RTL and Vox as well as newly acquired stations in Poland and Hungary which meant CLT-Ufa made little or no contribution to the bottom line in 1996/97.

Luther said the group would gladly expand its U.S. book publishing business if it found the right property for the right price. It already owns major publishers Dell, Bantam and Doubleday.

U.S.-based music unit BMG Entertainment accounted for 7.3 billion marks in sales, up 10%, while book publishing accounted for 7.1 billion marks in sales, up 3%.

Magazine publishing group Gruner & Jahr's sales were 4.8 billion marks, up 5%. Group operating profit was 1.61 billion marks, up from 1.525 billion marks.

Sales in Germany declined 23 million marks to 7.391 billion marks, or 32.9% of overall sales, while U.S. sales rose 624 million marks to 5.888 billion marks.

[07] EMI details future central bank's monetary policy

The EMI - which will give way to the ECB next year once the countries who will launch the euro in January 1999 have been selected - repeated that the final decision on the new bank's operational framework would be taken by the ECB's own governing council.

However it said the ECB could also adopt the content of the report without further amendments, if so desired. The report, entitled 'The Single Monetary Policy in Stage Three', is designed to provide financial institutions with information needed to prepare for the European economic and monetary union.

The ECB will operate mainly through open market operations, with two further interest rates setting upper and lower limits for short-term interest rates.

The bank will have the technical facility to impose minimum reserves - a much-disputed provision favoured by the Bundesbank which requires banks to deposit a proportion of assets with the central bank - but the EMI repeated that the ECB itself will next year decide whether to use this.

In order to pursue the aim of stabilising interest rates, the minimum reserve system will enable institutions to make use of averaging provisions, the EMI said.

Compliance with the reserve requirement would be determined on the basis of average daily reserve holdings over a one-month period.

The report expands on information released in January this year, when the EMI first issued details for a policy-making toolkit for the ECB which was viewed as being broadly similar to that used by the Bundesbank. The new report also sets out the criteria to be fulfilled by financial institutions to be eligible counterparties to monetary policy operations of the European System of Central Banks.

It presents the features of different types of open market operations that might be used by the ESCB, and specifies risk control measures to be applied to assets underlying the ESCB's liquidity-providing operations.

The report urges a harmonised approach to the termination of national monetary policies at the time of the changeover to the euro, in order to ensure a smooth transition.

Should minimum reserves be used, these would apply as of January 1 1999, so that national minimum reserves would have to terminated by the end of December 1998.

[08] Director general of UK telcoms regulator OFTEL to step down next year

'I decided about a year ago that one term of office as telecoms regulator was right for me. I told ministers of my decision soon after the general election in May, and that I would like to divide my time in the future in a different way between public and private sector activities,' he said in a statement.

'Also relevant, as I made clear in my submission to the government's review of utility regulation, is that I consider that the industry will be best served in the next century by a commission, not an individual regulator,' he added.

Cruickshank said he was making his decision public now so that Britain's Department of Trade and Industry could go about its search for his successor in a public and timely way.

Cruickshank's announcement came after he urged the government last week to update laws in order to ensure fair competition in his industry and to reflect its growing links with broadcasting.

[09] Japan proposal for Asia fund is snagged

While officials from Japan and the Asean downplayed suggestions of serious discord with the US over the idea, with Japanese officials describing the initiative as just an attempt to create some 'regional surveillance' for Asian financial markets, US and European officials have been forthright in opposing any regional financial framework that doesn't directly involve the International Monetary Fund.

Deutsche Bundesbank President Hans Tietmeyer warned an Asian funding facility could 'endanger the discipline on financial markets,' while Bank of France Governor Jean-Claude Trichet said 'nothing could be more dangerous than organizing financial support without backing it up with the discipline provided by the IMF.'

Japan on its part seized every opportunity to alleviate any concerns by emphasizing that such a regional framework must be supplementary to the IMF, and that IMF conditionality is mandatory, even if the regional surveillance would be conducted outside the IMF's domain.

Japan also downplayed its leadership role, noting that the idea came up 'spontaneously' at last week's meetings in Bangkok with Asean finance ministers. Officials described the idea as an attempt to build on the 'solidarity' and 'self-help' principles of Asean.

Today, US Treasury Secretary Robert Rubin and Federal Reserve Chairman Alan Greenspan met with officials from Thailand, Malaysia, Indonesia the Philippines, Singapore, Vietnam and Brunei to discuss the recent meltdown in Asian markets.

The two sides agreed to meet again before the end of October to discuss ways to avoid future financial crises and hold Asia on the path toward financial liberalization. Analysts said until that dialogue plays out there's unlikely to be much progress on the 'Asia facility' idea - indeed the US plan appeared to be an explicit attempt to head off the Japanese initiative. Now that the US is directly involved, it will be difficult for Japan to take new initiatives, they said.

The stepped-up US involvement capped a series of disappointments for senior Japanese financial officials, who had high hopes for launching the proposal at this annual World Bank/International Monetary Fund meeting. The idea would be to create a new regional fund which could provide money, but also a forum for countries from within Asia to put peer pressure on wayward economies to implement reforms.

Chikako Mogi Dow Jones Newswires, Hong Kong

[10] EU gives KLM go-ahead to take sole control of Air UK

KLM announced July 7 it was increasing its stake in Air UK from 45% to 100% for an undisclosed sum.

The deal was subject to approval from the European Commission which can block or force changes to big mergers and take-overs judged to distort markets within the 15-nation EU.

In a statement, the Commission said the deal 'will not have a significant impact on any of the routes served by the two companies.'

Air UK Holdings fully owns Air UK and Air UK Engineering. It will continue to operate as an independent airline under the same management board, KLM has said.

Air UK owns 37 aircraft, providing domestic flights in Great Britain as well as connections to Belgium, Denmark, Germany, France, Italy, the Netherlands, Norway and Switzerland.

[11] MEPC to sell US and Australian businesses

MEPC said the businesses accounted for 30% or £568 million of its net assets and almost half of its pre-exceptional earnings in 1996.

The company said in a release its overseas businesses, while long- established, 'are unlikely to match the asset performance which MEPC expects to achieve by concentrating on its UK businesses,' adding their retention would detract from the group's UK strategy.

The group hired Goldman Sachs to handle the sale of the US operations and BZW Australia to handle the Australian sell-offs.

MEPC said it's already done preliminary work on the disposals and expects them to take place 'as quickly as practicable,' though it didn't say who the prospective buyers are and added that proceeds aren't likely before 1998.

[12] German interest-rate forecasts unchanged after inflation data

'Despite the drop in consumer prices in both states, underlying macroeconomics factors suggest the Bundesbank will still move on rates in the fourth quarter,' said Stefan Bergheim, economist at Dresdner Bank in Frankfurt.

Bavaria reported that its preliminary September CPI fell 0.3% from August and rose 1.7% over September last year. North-Rhine Westphalia also reported a 0.3% month-on-month decrease but a slightly higher year-on-year increase of 2.0%. These figures have caused some economists to revise down their initial estimates for overall preliminary western German inflation, which is calculated based on data from the four largest western German states. Last week, economists surveyed had expected September western German inflation to decline 0.1% on the month and rise 2.0% on the year. Now, many are forecasting a month-on-month decline of 0.2% and a year-on- year increase of 1.9%.

The states of Hesse and Baden-Wuerttemburg will release their September CPI early Wednesday. Western German preliminary figures will likely be reported Wednesday afternoon, according to the Federal Statistics Office.

Consumer prices are 'only one of several factors' that influence the Deutsche Bundesbank's rate decisions, Bergheim added.

He noted that German import and producer prices also point to 'moderate but steady' pressure on prices.

'With such growth and price acceleration, the German economy can't afford such low interest rates much longer,' he said.

[13] Rohr to merge with BFGoodrich

BFGoodrich, based in Richfield, Ohio, provides aircraft systems and services and manufactures specialty chemicals.

Rohr, headquartered in Chula Vista, Calif., primarily designs, develops and integrates nacelle and pylon systems and provides support services. Nacelles are the aerodynamic structures that surround an aircraft's engines.

BFGoodrich said 'the combined company will have a significant presence throughout the world as a leading provider of aircraft systems and services and specialty chemicals.'

While the merger is expected to result in some cost savings, Burner said the transaction will result in enhanced profitability primarily because of the ability the company will have to take advantage of opportunities for growth.

Under terms of the agreement, Rohr shareholders will receive 0.7 of a share of BFGoodrich common stock for each share of Rohr common stock.

Based on the closing price of BFGoodrich common stock ($44.56 a share) on Monday, Sept. 22, the value of the merger is estimated at approximately $1.3 billion, including the assumption of Rohr debt by BFGoodrich, the company said in a news release.

The merger, subject to shareholder approval of both companies and review by certain regulatory agencies, is expected to be completed in late 1997 or early 1998. Following the completion of the merger, three current members of the Rohr Board of Directors will join the BFGoodrich Board.

Rohr, headquartered in Chula Vista, Calif., primarily designs, develops and integrates nacelle and pylon systems and provides support services. Nacelles are the aerodynamic structures that surround an aircraft's engines. The company employs about 4,500 and had sales for its fiscal year ending July 31, 1997, of $944.4 million.

BFGoodrich, based in Richfield, Ohio, and employing about 14,000, provides aircraft systems and services and manufactures specialty chemicals. Total company sales in 1996 were $2.2 billion, of which $1.2 billion was from its aerospace businesses.

[14] Usinor report a 3.8% fall in first-half earnings

The company, privatised in 1995, repeated earlier forecasts that full-year net profit would top the 1.49 billion francs ($246 million) earned in 1996. That profit, however, was down from 4.43 billion francs in 1995.

Operating profit rose to 1.31 billion francs from 1.21 billion francs, while sales rose to 38.55 billion francs from 37.37 billion francs . The operating profit figure for the latest period includes a 177 million francs charge for the closure of production line at Usinor's Longwy plant.

Sales in volume terms rose around 9%, the company said, while lower prices cut revenues from a year ago by some 6%.

Net debt at mid-year was trimmed slightly to 6.25 billion francs from 6.54 billion francs, bringing the debt-to-equity ratio down to 0.21 from 0.22 at the end of 1996.

[15] British Steel in deal to take 33% stake in Mannesmann, Usinor venture

A British Steel spokesman said that 'discussions with all parties are at an advanced stage.' 'If the talks are brought to a conclusion then an official announcement will be made,' he added.

Mannesmann and Usinor each hold 50% in the German-based pipe manufacturer. British Steel's reported purchase would give the three European companies each an equal third.

Earlier, German business daily Handelsblatt said British Steel would buy enough shares in Europipe to leave each company with 33% stakes. Mannesmannand Usinor each now own 50% of Europipe.

British Steel would close the deal on October 1, and would contribute its Hartlepool and Stockton plants to Europipe, Handelsblatt said.

Formed in 1991, Europipe has about one billion marks in sales, about 1,000 employees and two plants in Germany and two in France.

British Steel has talked about joining Europipe since 1994.

[16] Munich Re acquires 20% stake in Italy's Reale

Munich Re also plans to increase this stake beyond 20% 'in the coming years'.

Reale Ri, the second-largest re-insurance company in Italy, is currently controlled by Societa Reale Mutua di Assicurazioni.

The price of the transaction wasn't disclosed. Reale Ri expects 1997 premium income of about 565 million marks ($315 million), more than 80% of which will be derived from domestic sales.

Munich Re said it aims to increase its position in the Italian re-insurance market through the new shareholding. Muenchener Rueck Italia, Munich Re's Italian re-insurance subsidiary formed in 1991, projects premium income of about 545 million marks for 1997.

[17] BHP faces hostility from shareholders at its AGM

Jerry Ellis, chairman of the Australian steel, energy and mining company, told investors that the board is demanding 'a significant improvement' in return on equity, and will tie a greater proportion of executive remuneration to performance.

Although he didn't promise a higher profit (before abnormal items) for 1997- 98, Ellis said he doesn't anticipate further asset writedowns in the next couple of years.

In the fiscal year to May 31, 1997, asset writedowns close to A$1.0 billion were largely to blame for a 61% slide in net profit to A$410 million. Before abnormals, the result was up 7.2% to A$1.39 billion.

Last Friday, BHP unveiled a weaker-than-expected net profit of A$284 million (before abnormal items) for the fiscal first quarter to Aug. 31. This result, plus an enormous increase in the estimated cost of a hot briquetted iron plant in Western Australia state, sent BHP's share price into a tailspin that day.

The stock has recovered some ground this week, closing 11 Australian cents stronger at A$15.89. The broader market gained around 0.4%.

Analysts said that while Ellis didn't really announce new measures, shareholders can take comfort that the company has acknowledged its problems and is doing something about them.

Ellis's comments to shareholders broadly matched the company's message to analysts at a briefing last week, said David Walker, an analyst with ABN Amro Australia Hoare Govett (Securities) Ltd.

'There is an acknowledgement (Tuesday) that the problems exist, but they have a series of measures in place to fix them.'

Nevertheless, this fiscal year will be a tough one for the company, given its flat profit outlook, he said.

Walker said ABN Amro is about to lower its profit forecast for BHP for 1997- 98 to A$1.3 billion from around A$1.4 billion.

'Now that is not a good result for BHP. That is not a good return on assets, but they know that,' he said.

Ellis admitted to shareholders that escalating costs at the HBI plant - up to a potential maximum of A$2.45 billion from an initially anticipated A$1.1 billion, is a 'very poor' outcome and an embarrassment for the company. He blamed the overrun on poor internal communication, but reiterated previous comments that stricter controls have now been placed on the project.

Helen Ubels Dow Jones Newswires, Brisbane Australia

[18] Bank of England Governor says that postponing EMU would not lead to the project's demise

'The sky won't fall on our heads if EMU is delayed,' said George in an aside to a speech held on the fringes the World Bank and IMF annual general meeting.

George said he was referring to a statement made by Deutsche Bundesbank president Hans Tietmeyer, who was recently quoted in a German weekly newspaper as saying it wouldn't be a 'catastrophe' if EMU is delayed.

George said both his and Tietmeyer's statements were meant to be taken theoretically and not propounding a delay - a point Tietmeyer has stressed as well.

In his speech, George said that sustainable economic convergence is imperative for those countries joining the euro, adding that this will be the key factor for the U.K.'s decision to participate in the currency.

Without convergence, 'it is difficult to see why the country in question should want to adopt the euro or indeed why it should be permitted to join putting others at risk,' George said. 'I don't really understand the hurry.'

[19] Corporate and Economic Briefs

Tarmac swung back into the black in the six months to June 30 as benefits of the group's two-year restructuring program started to reach the bottom line. The building-materials and construction group said its cost-reduction program was already delivering £40 million ($64 million) annual savings. This was the major factor behind a more-than-doubled first-half operating profits of £59 million ($95 million). At the pretax level, Tarmac showed a profit of £38.6 million against last year's loss at the half of £58.3 million. The pretax figure was above forecasts of 22 million to 30 million.

France's housing starts in the first eight months fell 2.0% from the same period of 1996 to 180,400, the country's infrastructure ministry said. In the latest 12-month period, housing starts were down 2.2%, and over the past three months, the number of housing starts fell 2.4%. Permits to construct declined 2.8% over the latest eight months to 195,500, but rose 0.1% compared with the previous 12-month period and 3.1% in the latest three-month period compared with a year ago.

UK building materials firm Redland said it's in talks that could lead to the sale of its ready made concrete business to France's Lafarge. The two groups are also discussing the establishment of a 50-50 joint venture of their French businesses. If realised, the deals should be concluded by year- end, Redland said in a release. Lafarge is a leading building-materials company in France. It had sales of 35.3 billion francs ($5.9 billion) in 1996.

British Biotech said that its first quarter loss widened to £9 million ($14.5 million), in line with expectations, from £8 million in the year- earlier quarter. In a press release, the company said an international clinical development program for its anti-cancer drug Marimastat is continuing on track, noting a phase three trial has begun on the drug's effectiveness in treating ovarian cancer.

The Swiss National Bank's seasonally-adjusted money supply, also known as M0, expanded in August at slower rates than in July, according to figures released. M0 rose 3.2% in August from the base fourth quarter of 1996, and increased an annualized 4.2%, the central bank announced. In July, M0 had expanded 3.5% from the fourth quarter of 1996, and increased 5.3% on an annualized basis.

Jean-Cyril Spinetta was officially appointed president of Air France, after his appointment was approved by a special company board meeting earlier in the day. The French government last Thursday said that it had selected Spinetta, former chairman of domestic airline Air Inter, to replace Christian Blanc at the helm of state-owned airline Air France. Spinetta headed Air Inter between 1990 and 1993.

[20] IMF Round-up

The United States plans to meet officials from Southeast Asia, Japan and the IMF soon to discuss economic strategies for the region and how to avoid the problems that may occur along the way.

The world has a favourable economic outlook, with steady growth and low inflation, and exchange rates appearing to be broadly in line with fundamentals, IMF Managing Director Michel Camdessus said. He predicted light at the end of southeast Asia's economic tunnel but admitted markets would take time to regain their confidence in troubled Thailand.

Malaysia is committed to working with the international community to stabilise its troubled financial markets and put its economy back on track, US Treasury Secretary Robert Rubin said.

The countries of Asia should keep a closer eye on each others' economies to encourage sound policies geared towards economic stability, IMF Managing Director Michel Camdessus said.

Developing countries are poised for 10 years of strong economic growth, and long-term growth prospects for Southeast Asia remain good, World Bank President James Wolfensohn said.

Chinese Premier Li Peng hailed the rise of developing countries and predicted rapid economic growth would vault China into the ranks of modernised nations by the middle of the next century.

The future European currency can be a great boon for Europe if it is created on a stable basis, but it will not cure all the region's problems overnight, Bundesbank President Hans Tietmeyer said.

US Deputy Treasury Secretary Lawrence Summers said that Japan's rising current account surplus was still worrying and that markets remained concerned about Japan's ability to boost domestic demand.

Southeast Asian countries tried to keep alive proposals to set up an emergency fund in case financial turmoil sweeps through the region again.

Russian finance officials met world bankers and sought to raise confidence in the country's fledgling capital markets.

Bank of England Governor Eddie George said he did not understand the rush towards European Economic and Monetary Union (EMU) as there were real economic risks as well as potential benefits.

Emerging Asian economies must cooperate closely to fend off future crises, as economic turmoil in one country can easily spread throughout the region, Japan's Finance Minister Hiroshi Mitsuzuka said.

Russia has managed to halt a decline in output and expects economic growth to start next year, First Deputy Prime Minister Anatoly Chubais told the World Bank/IMF annual meetings.

British Chancellor of the Exchequer Gordon Brown said he was more optimistic Britain's economy would be back on track in 1998 after tough action to cut the deficit and reform of the Bank of England.

Japan will host a meeting between Asian nations and international organisations in December as part of Tokyo's initiative to strengthen regional ties, a senior Finance Ministry official said.

Russia is considering some kind of exchange rate liberalisation, First Deputy Prime Minister Anatoly Chubais said.

Malaysia's voice of reason, deputy Prime Minister Anwar Ibrahim, stepped forward to soothe financial markets unnerved by Prime Minister Mahathir Mohamad's apparent pledge to ban non-trade related foreign exchange trading.

An EBN Interactive round-up

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

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