Corpus of articles from the English newspaper 'The Financial Times' from the year 1993. MLCC machine readable version 1995 This TEI conformant electronic version edited by the MLCC project, 7 July 1995. This file (ignoring this header) is 2876370 bytes long, its text includes 436179 words.

This electronic version was produced by the Multilingual Corpora for Cooperation (MLCC) project funded by the European Union. It has been converted to use the iso-latin-1 character set (where possible) and to be TEI(P3) conformant SGML.

This file is available for non-commercial purposes only on signature of the MLCC user agreement form.

The original electronic version of this file was produced by the 'The Financial Times' newspaper.

This version produced by the Language Technology Group, Human Communication Research Centre, University of Edinburgh for the MLCC and MULTEXT projects of the European Community.

For a description of the SGML tags used in this corpus and the methods used to convert it to TEI SGML, see the associated file editdecl.txt.

English 7 July 1995 Masja Kempen David Mckelvie processing of original corpus files into tei conformance.
Premier recruits technocrats for economy posts Publication 930223FT Processed by FT 930223 By ROBERT GRAHAM ROME

MR PAOLO BARATTA, as minister in charge of privatisation, joins Mr Piero Barucci, the Treasury minister, as the second professional banker recruited into the eight-month-old Amato government. While Mr Barucci is considered sympathetic to the Christian Democrats, Mr Baratta's sympathies have traditionally leaned towards the Socialist party.

An engineer trained at Milan polytechnic, the 53-year-old Mr Baratta went on to do a masters at the London School of Economics. He became a banker in 1977, joining the public works credit institute before it was absorbed by the larger state credit group, Crediop. He became head of Crediop in 1980 and ran it until the latter was transformed into a publicly quoted company last year. He then moved to manage the prestigious bank San Paolo di Torino.

He has extensive experience of the needs of both the public and private sector, and Mr Giuliano Amato, the prime minister, originally hoped he would assume the industry portfolio with a specific brief to speed up privatisation. When Mr Giuseppe Guarino refused to leave industry, he was given a newly created portfolio to deal with privatisation.

Although he will now have the full support of the prime minister and the three economics ministers, he faces a tough task outmanoeuvring Mr Guarino, who has the backing of many of the old guard in the Christian Democrat and Socialist parties.

After a break of 13 years, Mr Beniamino (Nino) Andreatta has returned to Italy's budget portfolio, enhanced since last June with responsibility for the Mezzogiorno (southern Italy).

This young-looking 65-year-old economics professor is one of the most outspoken and distinguished economists in Italy.

Although he has stayed aloof from political in-fighting, he has become an influential figure in trying to give a new identity to the Christian Democrats under the three-month-old leadership of Mr Mino Martinazzoli.

Born in Trento in northern Italy, he first studied law at Padua, before going to Cambridge to concentrate on economics. An avowed Keynesian, he held the economics chair at Bologna University. He became a senator in 1976. Under the government of Mr Francesco Cossiga in 1979, Mr Andreatta first took on the budget portfolio then the Treasury.

Since 1983 he was first a Christian Democrat MP, then a senator until he lost his seat in last year's elections.

With a reputation as someone who does not suffer fools gladly, he once denounced Mr Bettino Craxi, the former Socialist leader, as a national socialist bent on nationalisation.

IT Italy, EC P91 Executive, Legislative and General Government PEOP Appointments Baratta, P Minister in Charge of Privatisation (Italy) Barucci, P Treasury Minister (Italy) P91 The Financial Times London Page 2 453
French politician Lecanuet dies at 72 Publication 930223FT Processed by FT 930223 By REUTER PARIS

FRENCH politician Jean Lecanuet, who forced General Charles de Gaulle into an embarrassing run-off in France's 1965 presidential elections, died yesterday after a long illness, Reuter reports from Paris. He was 72.

Mr Lecanuet stood against De Gaulle as a centre-right candidate, opposing the president's moves to take France out of the military structure of Nato, and bringing US-style advertising campaign methods to French politics for the first time. He received 15.6 per cent of the vote, forcing De Gaulle into a run-off with Mr Francois Mitterrand. Mr Lecanuet later allied himself to Mr Valery Giscard d'Estaing, who rewarded him with the justice portfolio when he was elected president in 1974.

Mr Lecanuet remained a pro-European voice in the French senate in which he served for more than 30 years and was regarded as a particularly successful mayor of his home city of Rouen.

FR France, EC P91 Executive, Legislative and General Government PEOP Personnel News Lecanuet, J Former Justice Minister (France) P91 The Financial Times London Page 2 184
Birth of a hundred markets: Russian stock exchanges draw on popular trust Publication 930223FT Processed by FT 930223 By LEYLA BOULTON

RUSSIA'S first electronic trading-room opens for business next month in the headquarters of a former communist news agency in Moscow.

As part of the chaotic birth of a securities market, the central bank and Finance Ministry will inaugurate trading here with an unprecedented issue of treasury bills.

Meanwhile, the sale of some 6,500 state-owned enterprises this year as part of large-scale privatisation will generate a secondary share market.

In anticipation of this, the country already has 106 'stock exchanges' or stock-trading departments attached to existing commodity exchanges. But while the commodity exchanges trade everything from cars to sugar, the stock exchanges have had little to trade apart from shares issued by new commercial banks and insurance companies.

So far, just over Rbs8bn worth of shares have been made available in the privatisation process, compared to the total Rbs1,500bn which will be needed to honour all the privatisation vouchers distributed to Russia's 147m inhabitants. The vouchers can be exchanged for money or Rbs10,000 worth of shares at auctions, which started in December.

But the rules for what is going to be a high-risk game are being made up along the way. Long-awaited securities legislation will emerge only at the end of the year, after the government and central bank submit a draft law to a parliament notoriously slow in adopting economic legislation.

In the mean time, overworked officials are already having trouble enforcing makeshift instructions issued last year by the Finance Ministry.

By opting for quantity over quality in offering companies for sale, the government is exposing small investors to considerable risks which are not always underlined in the advertising. Mr Anatoly Chubais, the privatisation minister, argues that people have little to lose, as they received their voucher free of charge in the first place.

'The state is not promising people a happy life where they don't have to work any more. . . What we can guarantee to all is free choice and maximum information in helping them decide how to use their voucher.'

In an attempt to spread the risks for ordinary people already wary of capitalism, the government has licensed some 300 investment funds, which will invest in a selection of enterprises for shareholders.

But despite a ban on the use of vouchers for anything other than privatised enterprises or licensed investment funds, other types of companies are already competing for vouchers with ads that have gone unprosecuted. The first tears were shed in St Petersburg last week, when 350,000 people discovered they had been defrauded of their vouchers by unlicensed investment companies, which have since disappeared without a trace.

Another obstacle to popular trust are debts contracted but not honoured by the country's previous Communist rulers. These include a 1990 cheque scheme promising peasants imported consumer goods in return for agricultural deliveries to the state.

Vowing to make good old debts, the government has promised to issue hard-currency bonds, paying 3 per cent a year, to clients of Vneshekonombank, the state bank, which in 1991 froze billions of dollars belonging to Russian and foreign companies.

There are few incentives for foreign investors to join the fray immediately. The first T-bill issue - described by one central bank official as 'the first step in the marketisation of the state debt' - will be for Russian banks only, with foreigners to be allowed in later.

Despite Mr Chubais' desire to attract foreign investment, the purchase of shares in Russian companies remains virtually impossible for foreigners. He says this is because the central bank is still trying to introduce a special exchange rate to prevent foreigners from buying up assets on the cheap, thanks to a weak rouble. Some westerners complain that while there are legal ways to get round this requirement, the real problem is a lack of information on what companies are for sale.

Although there has been only a trickle of foreign capital, there has been a flood of foreign advice, some of it crucial, some a waste of time and money.

Mr Pyotr Lazarev, the bright 26-year-old who is the Finance Ministry's main expert on securities, says what is needed is 'concrete assistance for specific projects' such as that offered by US banking experts for the treasury bill issue. Training is particularly important, both for officials to supervise markets, and for dealers to operate on them.

'Unfortunately, we still have experts trying to teach us what stocks and bonds are when we already have a securities market,' he says. 'It may not be much by western standards but it is a lot given the cosmic speed at which things are developing in Russia.'

RU Russia, East Europe P6231 Security and Commodity Exchanges TECH Services CMMT Comment & Analysis P6231 The Financial Times London Page 2 809
Van Miert to crack down on state aid Publication 930223FT Processed by FT 930223 By ANDREW HILL BRUSSELS

MR Karel Van Miert, the EC competition commissioner, has warned that he will crack down on selfish state aid schemes aimed at protecting national industries from the recession.

Mr Van Miert told the European Parliament's economic and monetary committee on Friday that 'common action at the Community level' was the best way to deal with member states' economic problems.

His comments, published yesterday, seemed to be aimed at member states preparing for Thursday's meeting of industry ministers, which will discuss the Commission's plans to support the EC steel industry.

Mr Van Miert warned in his speech that 'beggar my neighbour' aid schemes would merely 'export unemployment and push problems on to other member states', which would then retaliate with their own subsidies.

The Commission has made clear that national and Community steel subsidies will have to be accompanied by drastic cuts in capacity. But Commission officials are clearly worried that Spain, which is facing a deep political crisis if it fails to win EC support for subsidies, Germany and Italy may go ahead with unilateral aid if a co-operative plan fails.

Mr Van Miert also said he would not favour aggressive use of special Commission powers to open up national monopolies.

QR European Economic Community (EC) P9611 Administration of General Economic Programs GOVT International affairs P9611 The Financial Times London Page 2 239
Poles sign enterprise pact: Government tries to boost faltering support for reforms Publication 930223FT Processed by FT 930223 By CHRISTOPHER BOBINSKI WARSAW

THE Polish government yesterday signed a tripartite 'enterprise pact' with trade unions and employers in an attempt to bolster faltering shop-floor support for the country's free market reforms.

The government wants to speed privatisation while giving workers a say in management of private companies. The pact signed yesterday for the government by Mr Jacek Kuron, the labour minister, was first mooted last autumn.

It is also designed to ease tax burdens on state-owned enterprises and introduces the principle that macro-economic indicators are to be agreed in a national tripartite council composed of government officials, trade unionists and employers' representatives.

Mr Kuron said after signing the pact with Mr Marian Krzaklewski, head of the Solidarity trade union, and Mr Andrzej Machalski, head of an employers' group, that 'the transformation of the economy without compromises' could end dangerously but that the signing of the pact meant that there would be 'a major acceleration' of reforms.

Mr Kuron later signed the pact with the OPZZ trade unions representing the former pro-communist movement. The radical Solidarity 80 union was conspicuous by its absence.

Under the pact, which will be turned into legislation, workers are to be given six months to decide on the form of privatisation for their factory. If they fail to do so the Privatisation Ministry will be free to take the decision.

Workers are also to be given 10 per cent of the shares in their factories at privatisation, and financial conditions are to be eased in cases where employees take over a factory and lease the machinery and buildings from the state.

Workers are also to be represented on non-executive boards of directors and both private and state-sector plants employing more than 2,500 are to have at least one worker in top management to represent their interests. The pact includes the plan to restructure enterprise and bank debts for some 2,000 companies.

The pact also removes the dividend, an outdated profit tax on the state sector. It is replaced with an arrangement under which one third of company profits can be spent on wages as long as one third is spent on investment, and one third paid in corporate tax.

PL Poland, East Europe P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 2 401
World News in Brief: Turner painting sets record Publication 930223FT Processed by FT 930223

The University of London is to sell a Turner painting for Pounds 11m to California's J Paul Getty Museum provided an export licence is granted. The price would be the highest ever for a work by a British artist.

GB United Kingdom, EC P7389 Business Services, NEC MKTS Sales P7389 The Financial Times London Page 1 69
World News in Brief: Irish nurse killed in Somalia Publication 930223FT Processed by FT 930223

Somali gunmen killed 23-year-old Irish nurse Valerie Place when they attacked a convoy. She was the second foreign aid worker killed this year.

SO Somalia, Africa P9229 Public Order and Safety, NEC PEOP Personnel News P9229 The Financial Times London Page 1 56
World News in Brief: Uproar on Merseyside Publication 930223FT Processed by FT 930223

Six people were arrested outside Bootle magistrates court, Merseyside, as a crowd stormed vans holding two 10-year-old boys accused of murdering James Bulger, aged two. The boys were remanded to local authority care until March 3.

GB United Kingdom, EC P9229 Public Order and Safety, NEC PEOP Personnel News P9229 The Financial Times London Page 1 68
World News in Brief: Japan's pledge on yen Publication 930223FT Processed by FT 930223

Finance Minister Yoshiro Hayashi said early today Japan would act appropriately to help stabilise the yen as currency instability was bad for the global economy. The dollar opened at Y116.40 in Tokyo above the New York close of Y116.26.

Yen hits new highs, Page 4 Lex, Page 20 Currencies, Page 33

JP Japan, Asia P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs MKTS Market data P9311 P9611 The Financial Times London Page 1 90
Top Fiat executives held on corruption charges Publication 930223FT Processed by FT 930223 By ROBERT GRAHAM ROME

ITALY'S business community was shaken yesterday by the arrest of two top Fiat executives on charges of alleged corruption and illegal financing of political parties.

Those arrested were Mr Francesco Paolo Mattioli, chief financial officer of the Fiat group and Mr Antonio Mosconi, chief executive of the Turin automotive group's insurance arm, Toro.

Mr Mattioli, aged 52, is a key figure in the new management structure being devised by Mr Giovanni Agnelli in the run-up to his projected departure from the chairmanship of the group next year.

A Fiat statement said the group had learnt of the arrests with 'amazement'. The company offered them its full support and said the two executives had always carried out their jobs with the utmost rectitude.

Fiat shares, which have been rising strongly in the past two weeks, fell nearly 1 per cent on the news. The lira also slipped to a new historic low against the D-Mark of L964. Earlier the lira had begun to recover from Friday's slide in a favourable response to the Sunday reshuffle of the Amato cabinet.

The two Fiat executives were arrested at their Turin homes. Carabinieri police also searched their offices in Fiat's Turin headquarters.

The arrests relate to alleged illegal payments of L1.8bn (Pounds 821,000) made during the construction of the Milan metro in which Fiat's construction arm, Cogefar-Impresit, was involved.

Last May, Mr Enzo Papi, the chief executive of Cogefar-Impresit, was arrested on a similar charge.

Two other Fiat group executives were subsequently arrested on the same allegations - Mr Giancarlo Cozza, managing director of Fiat-Savigliano and Mr Luigi Capriotti, manager of Fiat-Iveco.

In one of his roles in the Fiat group, Mr Mosconi was president of Cogefar-Impresit.

Mr Mattioli has been with Fiat since 1975 and last November, when the management was split into two broad divisions - industry and industrial development, and financial control and resource management - he was given the newly created position of chief financial officer.

Their arrests followed renewed interrogation of Mr Papi and Mr Mauricio Prada, former head of the Milan Christian Democrat party charged with alleged illicit collection of party funds.

At least 10 prominent industrial and financial figures are now caught up in the ever widening investigation into corruption by Milan magistrates.

Yesterday Mr Mariano del Papa, the managing director of the Anas, the state road building authority, formally resigned following notice that he was under investigation for alleged corruption in handling contracts.

Yesterday, the small Republican party, which has promoted itself as the party of clean government, was recovering from the blow of the arrest on Sunday of Mr Giorgio Medre, a former member of parliament and until recently head of their political department.

Amato shuffles cards to his advantage, Page 2 Currencies, Page 33 World stocks, Page 39

IT Italy, EC P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 1 502
Stock and Currency Markets Publication 930223FT Processed by FT 930223

------------------------------------------------------------ STOCK MARKET INDICES ------------------------------------------------------------ FT-SE 100: 2,838.3 (-1.7) Yield 4.25 FT-SE Eurotrack 100 1,132.76 (-3.84) FT-A All-Share 1,386.90 (-0.0%) FT-A World Index 142.48 (+0.6%) Nikkei 16,820.61 (-189.42) ------------------------------------------------------------ New York ------------------------------------------------------------ Dow Jones Ind Ave 3,342.99 (+20.81) S&P Composite 435.25 (+1.03) ------------------------------------------------------------ US RATES ------------------------------------------------------------ Federal Funds: 2 7/8% (2 13/16%) 3-mo Treas Bills: Yld 2.982% (2.972%) Long Bond 102 11/32 (101 15/32) Yield 6.933% (7.002%) ------------------------------------------------------------ LONDON MONEY ------------------------------------------------------------ 3-mo Interbank 6 1/4% (Same) Liffe long gilt future: Mar 103 15/32 (Mar 103 7/16) ------------------------------------------------------------ NORTH SEA OIL (Argus) Brent 15-day April Dollars 18.59 (18.25) ------------------------------------------------------------ Gold ------------------------------------------------------------ New York Comex (April) Dollars 329.1 (331.0) London Dollars 330.75 (330.25) ------------------------------------------------------------ STERLING ------------------------------------------------------------ New York: Dollars 1.4571 (1.454) ------------------------------------------------------------ London: Dollars 1.45545 (1.453) DM 2.37 (2.3775) FFr 8.04 (8.05) SFr 2.1825 (2.19) Y 169.25 (173.0) Pounds Index 77.2 (77.4) ------------------------------------------------------------ DOLLAR ------------------------------------------------------------ New York: DM 1.62465 (1.638) FFr 5.487 (5.547) SFr 1.487 (1.509) Y 116.35 (118.315) ------------------------------------------------------------ London: ------------------------------------------------------------ DM 1.6285 (1.636) FFr 5.525 (5.54) SFr 1.5 (1.508) Y 116.35 (119.1) Dollars Index 65.9 (66.3) Tokyo open Y116.4 ------------------------------------------------------------

GB United Kingdom, EC US United States of America DE Germany, EC FR France, EC CH Switzerland, West Europe JP Japan, Asia P1311 Crude Petroleum and Natural Gas P3339 Primary Nonferrous Metals, NEC P6231 Security and Commodity Exchanges COSTS Commodity prices COSTS Equity prices P1311 P3339 P6231 The Financial Times London Page 1 242
French railways and ports disrupted Publication 930223FT Processed by FT 930223

Farmers block a railway line with burning tyres at St Sulpice, south-western France, during a national day of protest against the European Community's farm trade agreement with the US.

Yesterday's demonstrations by farmers brought chaos to rail services, disrupting main lines in and out of Paris and routes around Tours, Chartres and Toulouse. Meanwhile, several small ports in Brittany were closed in sympathy with fishermen who have been protesting against a surge of cheap fish imports into France which have pushed down local prices by 30 per cent.

The French government has urged Brussels to invoke a Gatt safeguard clause allowing it to block imports temporarily.

Paris urges import curbs, Page 20 Rail chaos, Page 3

FR France, EC P091 Commercial Fishing P9641 Regulation of Agricultural Marketing P401 Railroads P4491 Marine Cargo Handling GOVT International affairs P091 P9641 P401 P4491 The Financial Times London Page 1 156
Buy-out plan for threatened Daf truck plant Publication 930223FT Processed by FT 930223 By KEVIN DONE and RONALD VAN DE KROL LONDON, EINDHOVEN

A MANAGEMENT team at the Leyland Daf truck plant in Lancashire is preparing a management-led buy-out of the threatened truck assembly operations.

The three-man team is being led by Mr John Gilchrist, managing director, and is being advised by Coopers and Lybrand, the accountancy firm.

The proposal for the management buy-out is still at an early stage, and Mr Gilchrist warned yesterday that its eventual success would depend on the Leyland plant receiving a contract to supply its range of UK-built Daf 45 light trucks to newly-formed Daf Trucks in the Netherlands.

It is understood that separate preliminary talks are also being held by the administrative receivers for Leyland Daf with Paccar, the US truck maker, about a possible takeover or acquisition of a stake in the Leyland plant.

Truck production was re-started yesterday at Leyland for the first time since Leyland Daf went into receivership three weeks ago. The Leyland workforce has already been reduced to 1,346 from 2,114 before the company collapsed.

Final negotiations took place in Paris last night between the UK receivers and Renault over the future of the Birmingham-based Excel van project for the development of a range to be launched in the mid-1990s. Renault is expected to announce today that it will press ahead alone with the project after agreeing a sub-contract arrangement with the UK receivers for the services of about 190 Leyland Daf engineering staff at the Birmingham van plant.

Agreement has been reached for Renault to take over all the industrial property rights for the new van range, which began originally as a joint development project between Daf and the French vehicle maker in 1990.

Renault will continue its urgent search for a new partner to replace Daf to share the burden of the development costs of the new range which is due to replace the Renault Master and part of the Renault Trafic range.

Volkswagen of Germany, which must replace its present LT heavy van range later in the 1990s, is considered a potential partner, while General Motors Europe has also held talks with Renault about a possible collaborative van venture.

In Eindhoven, Daf's Dutch receivers said they had received assurances from the UK receivers that the new Dutch/Belgian Daf Trucks company could continue to count on essential parts and components being delivered from Leyland Daf's British plants.

If Leyland Daf should cease production for any reason, Daf Trucks has secured an agreement in principle that it may purchase the machinery and equipment so that it can make the parts itself.

Leyland Daf currently supplies cab pressings from Birmingham, axle components from Glasgow and crankshafts from Leyland.

The Dutch and Belgian governments have waived their rights to a voting majority in Daf Trucks NV despite their combined majority stake in the proposed new company.

Mr Friso Meeter, one of Daf's two Dutch receivers, denied yesterday that the new Daf could be considered a 'nationalised' company following the weekend deal whereby the Netherlands and Belgium agreed to provide a combined Fl 270m towards fresh equity of up to Fl 500m.

He disclosed that it was the 'express wish' of the two governments that their combined control over the company be limited to a minority influence.

Daf Trucks NV is to be established on Friday as the successor company to Daf, which went into receivership on February 2.

Leyland Daf, Daf's UK subsidiary, is excluded from the deal and its future depends on the success of the UK receivers' plans for saving the constituent parts of the business.

Preliminary talks have also been held with Unipart, the UK parts distribution and engineering group, about the acquisition of the Leyland Daf spare parts operation at Chorley, Lancashire.

Threat to parts makers identified, Page 6

Leyland DAF Regie Nationale des Usines Renault GB United Kingdom, EC P3714 Motor Vehicle Parts and Accessories P3713 Truck and Bus Bodies COMP Buy-out COMP Company News P3714 P3713 The Financial Times London Page 1 679
Bankers' leader warns 'free' service being put at risk Publication 930223FT Processed by FT 930223 By JOHN GAPPER, Banking Correspondent

'FREE' BANKING for personal customers who stay in credit is being put at risk by the efforts of high street banks to end subsidies for loss-making business, the British Bankers' Association warned yesterday.

Sir Nicholas Goodison, association president, said free banking was 'not likely to be sustainable' as banks ended such internal subsidies.

'If somebody is providing a service, why shouldn't they charge for it?' he said.

Although many bankers privately believe 'free' personal banking - introduced in 1984 and 1985 - is unlikely to last, Sir Nicholas's comment is one of the first public statements to this effect by a senior banker.

Mr Brian Pitman, chief executive of Lloyds Bank and association vice-president, added that 'far from being too profitable, you have to question whether we are sufficiently profitable'.

Banks want to end internal subsidies because they fear undercutting by competitors in the more profitable parts of their businesses. One bank estimates that 80 per cent of bank current accounts are now loss-making.

Sir Nicholas, chairman of TSB Group, said at a briefing that individual banks would choose when and if to bring in charges. He said some politicians who saw banks as 'public utilities' criticised them unfairly for making profits.

He also said the association supported in principle a call from foreign banks for a register of corporate loans to prevent lending to companies with excessive debts. But it was unclear whether such a register was practical.

The association is considering how complete such a register could be. It believes there will be difficulties in cataloguing all forms of company borrowing because London is an international financial centre.

The Foreign Banks and Securities Houses Association has sent a proposal to the Bank of England and the association which hints that overseas banks may reduce their commitment to London if a register is not created.

The association also disclosed that complaints made after January 26 this year from small businesses about bank maladministration could be considered by Mr Laurence Shurman, the banking ombudsman.

British Bankers Association GB United Kingdom, EC P6021 National Commercial Banks TECH Services COSTS Costs & Prices P6021 The Financial Times London Page 1 378
World News in Brief: Former security chief dies Publication 930223FT Processed by FT 930223

Sir Dick White, former chief of both MI5 and MI6, died at his Sussex home, aged 87. Sir Dick was the model for 'M' in Ian Fleming's James Bond novels.

GB United Kingdom, EC P9221 Police Protection PEOP Personnel News Sir White, D former security chief (UK) P9221 The Financial Times London Page 1 68
Kohl warns Britain over EC union Publication 930223FT Processed by FT 930223

Helmut Kohl, the German chancellor, speaking at the end of a four-day tour of India, said yesterday that at least 10 EC countries would press ahead with plans for union if either Britain or Denmark did not ratify the Maastricht treaty within six months.

Report, Page 8

DE Germany, EC IN India, Asia P9721 International Affairs PEOP Personnel News P9721 The Financial Times London Page 1 77
Managers are left behind on way to market: Russian management is ill-equipped for the move away from a command economy to capitalism Publication 930222FT Processed by FT 930223 By LEYLA BOULTON

A YEAR after the launch of frenetic economic reform, the Russian government and western aid donors have yet to tackle a desperate need for management skills to help the state-owned economy switch to a market system.

The problem was officially recognised for the first time by Mr Boris Fyodorov, the new deputy prime minister for economics, when he said last month that inefficient managers of state-owned enterprises would have to be 'helped' to change their ways or go.

Until now the government, focusing on price liberalisation and privatisation plans, has simply hectored managers for not adjusting to new conditions and attacked the central bank for pumping credits into inefficient enterprises. Apart from frequently changing the rules of the game on tax and trading, it has also failed to remove some of the old restrictions which prevent the Russian manager from acting like a western chief executive.

Only a minority of managers, long used to receiving orders from above, have tried to learn the ways of their capitalist counterparts. Others, motivated by ignorance or fear, have contented themselves with lobbying the authorities for extra 'working capital' and the write-off of their debts to one another.

'Some officials and industrialists have this idea that indexing working capital can solve the problems of enterprises. But they are fighting with the symptoms rather than the cause of the problem - which is bad management,' says Mr Alexander Rubtsov, head of Ernst & Young's Russian management and accounting joint venture, Vneshconsult.

As a result, few managers are equipped to make a success of large-scale privatisation which is due to affect 6,500 enterprises this year.

Dr Zubaidur Rahman, of Deloitte Touche in Moscow, says the biggest problem is an absence of management accounting - or the process of gathering information needed to take decisions about present and future business.

After seven decades in which there was no need for western-style management because decisions were made by central planners and prices were fixed by the state, he says most managers cannot calculate or monitor their costs properly (notwithstanding the additional complication of very high inflation now raging in Russia).

Most enterprises have only a faint idea of the time-value of money. Hence the loud complaints by managers about annual interest rates of 83 per cent being far too high despite the fact that inflation last year was about 2,000 per cent. A primitive banking system aggravates cash-flow management problems.

Another big problem is the lack of sales teams at enterprises and of a developed distribution system.

But Mr Rubtsov is optimistic that young Russians, 'hungry for work, risk-taking, and free of prejudices from the past' will provide a new generation of enterprise managers.

That generation has already been ushered in by older men, like Mr Viktor Korovin, the 40-year-old manager of heavy engineering giant Uralmash. Other pioneers include Mr Nikolai Bekh, general director of Kamaz, the truck maker transformed into a joint-stock company a few years ago as a government-sponsored experiment in capitalism.

While most of his colleagues asked for more money and fewer changes in government policy, Mr Bekh told the government last year that directors' main problem was a 'lack of management accounting'.

Not surprisingly, management consultants in Moscow have a lot of good ideas around for how foreign technical assistance funds can be deployed.

Dr Rahman, who trained more than 100 Kamaz managers, would like to replicate a similar training scheme for managers in the oil industry, a proposal which he has put to the European Bank for Reconstruction and Development for possible financing.

But the real problem will be getting assistance for managers who may be open to change but cannot afford it.

Mr Rubtsov, as head of the Russian management consultants' association, is trying to enlist European Community funds to 'train the trainers' - educating hundreds of Russian consultants to provide affordable management advice for enterprises. All agree that training in Russia is not only cheaper but more effective. 'If they go abroad, they want to waste time shopping,' says one.

Recognising in the meantime that political pressures will continue for more funds, Mr Rubtsov, who is also a member of the government's advisory industrial council, advocates a carrot-and-stick approach. This would make limited financial support conditional on changes in management practices, fitting in well with the government's determination to tie new funds to an improved performance at enterprises.

------------------------------------------- SKILLS NEEDED BY ENTERPRISES: ------------------------------------------- Cost control Marketing and distribution Cash flow management ------------------------------------------- TASKS FOR GOVERNMENT: ------------------------------------------- Efficient banking system Cut bureaucracy and provide stable tax and legislative environment Allow for faster depreciation of assets -------------------------------------------

RU Russia, East Europe P9611 Administration of General Economic Programs MGMT Management PEOP Labour P9611 The Financial Times International Page 2 816
Survey of Vehicle Fleet Management (20): Fewer headaches - Communications Technology Publication 930222FT Processed by FT 930222 By PAUL TAYLOR

IN LESS than a decade the mobile telephone has established itself as an effective business tool and a worthy addition to the company car. But over the next few years vehicle fleet managers will face the choice between a baffling array of new voice and data telecommunications services and equipment.

In Europe, liberalisation has fuelled the growth of mobile communications. Since the introduction of cellular radio services in Britain in 1985, the number of subscribers to the two national networks, Cellnet and Vodafone, has grown to around 1.4m - or almost a quarter of the total 5.8m users in Europe.

Most of these subscribers are business users, and an increasing proportion of them now use hand-portable telephones, most of which can be used in company cars with the addition of a car adapter kit.

Standard carphones and car adapter kits now come with 'hands-free' operation and top of the range carphones also include voice-activated dialing, allowing totally hands-free use.

After the boom in new subscribers in the UK in the late 1980s, the last few years have seen slower growth. Plans for telepoint services have been curtailed while other services have so far failed to live up to expectations.

Nevertheless, the mobile communications market, in the UK and elsewhere in Europe, is still a fast-moving market with a new services just around the corner. In particular, across Europe digital cellular systems based on the pan-European GSM standard are currently being launched.

These premium-priced services are unlikely to replace the older analogue networks immediately. Indeed, it will be some time before full national networks are in place. However, for the business traveller in particular, they will eventually offer some key advantages.

Digital services will provide clearer, more reliable connections, which will also be much more secure from eavesdropping. In addition by the mid-1990s, because it is a Europe-wide standard, international travellers will be able to use their GSM phones anywhere in Europe.

In the UK both network operators have introduced new low-user tariff structures for their analogue services in the past six months and Hutchison Telecom has unveiled a one-way Telepoint service called Rabbit. In addition, customers will soon be able to opt for Mercury Personal Communications' local digital Personal Communications Network (PCN) service, due to be launched by the middle of this year alongside Vodafone's rival Micro Cell Network (MCN).

Already some vehicle fleet operators are inheriting a haphazard collection of equipment, service contracts and billing systems built up over the years. Indeed, research shows that many corporate users do not know how many mobile phones they have, or how they are being used.

To address this problem, Mercury Communications Mobile Services, an independent service provider, now offers corporate customers a 'free audit of mobile equipment' and then a 'consolidation service.' MCMS has come across some customers with more than 300 vehicles using 20 or more different service providers. 'We can take the headache away,' says Mr Martin Bartholomew of MCMS.

Managing a consolidated fleet of mobile telephones this way can have other benefits, such as providing a single point of contact for the customer, itemised billing and monitored usage.

Aside from the basic cellular mobile services, many corporate customers have also signed up for the value-added services offered by network operators, such as Vodata's Recall voice messaging service or Cellnet's direct access service which provides a link between an office switchboard and the cellular network.

However, some large customers, including local government and utilities, have discovered that public access mobile radio, launched in the UK in 1988, can sometimes offer significant cost advantages over cellular. Customers share a radio infrastructure built and maintained by a network operator. Once they have bought or leased their handsets there is a subscription charge only; they do not pay any call charges.

Mobile data and fax transmission is another area where customer confusion is rife. There are mobile data services offered by the cellular operators, dedicated mobile data network operators, and data over private mobile radio networks.

Transmitting data over an analogue cellular system is far more difficult than over the 'fixed wire' public telephone system.

One way to overcome the problem is to use a special cellular modem like the one available from Vodafone's mobile data service which claims several thousand users and 90 per cent of the UK market. This enables customers to transmit and receive error-free data over the cellular network which provides any standards conversion automatically.

The alternative is to use one of the dedicated mobile data services which were licensed in the UK in 1989. Hutchison Mobile Data and Ram Mobile Data Services both provide these, as does Paknet, another Vodafone subsidiary.

But an obvious disadvantage of dedicated mobile data services, including paging services, is that they can only handle data, and according to research, most corporate customers require both mobile voice and data.

Another problem facing mobile data customers is the lack of a worldwide standard. But this may soon be overcome in Europe with the digital GSM standard. These systems will be able handle mobile data traffic from facsimile machines or portable computers in vehicles at high speed and with comparative ease.

GSM telephones equipped with small LCD screens will also be able to receive messages - like pagers - bringing the long promised digital mobile office one step closer to reality.

Mobile telecommunications can also be used to cut the costs of distribution while improving customer service, vehicle security and monitoring.

Satellites are also likely to play a significant role in the future of corporate mobile communications. mIn the UK, Marconi introduced Star-Track last year to trace the position of vehicles. It can be used to detect and track stolen vehicles, monitor the state of a load or direct drivers to their destination.

QR European Economic Community (EC) P481 Telephone Communications P3711 Motor Vehicles and Car Bodies P5511 New and Used Car Dealers TECH Products RES Product use P481 P3711 P5511 The Financial Times London Page VIII 1011
Survey of Vehicle Fleet Management (19): Risks must fall as costs rise - How customers are reacting to higher insurance rates Publication 930222FT Processed by FT 930222 By RICHARD LAPPER

HIT BY heavy losses after rapid growth in the late 1980s, motor fleet insurers have increased premium rates and reduced the terms of cover available in the past two years.

But the rising cost of insurance is prompting many motor fleet managers to buy less insurance and look to other ways of reducing risks.

The cost of insurance - a Pounds 1m-plus item for many of the biggest fleets - is leading to boardroom interest in risk prevention.

'You were in a situation where premiums were simply chasing claims upwards. It was an expensive funding exercise,' says Mr David Ney, risk management director at Willis Corroon in London, who says buying insurance for its motor fleet is one of the biggest 'insurance spends' for many organisations.

While competition among insurers drove premium rates down in the late 1980s, the increased frequency of accidents and escalating court awards to accident victims pushed up the cost of claims.

Drivers of company cars are - on average - roughly twice as likely to have accidents as other drivers.

Accident frequency rates - which measure the number of accidents as a percentage of insured drivers each year - average between 50 and 70 per cent, compared with a rate of between 20 and 25 per cent for private motorists.

Some motor fleets have accident frequency rates as high as 120 per cent, says Mr Ney, who is critical of many company car drivers.

'It is really about attitude awareness. Everyone thinks it is someone else's problem,' says Mr Ney.

In line with general trends in the motor insurance market, theft rates have also increased sharply in recent years.

Motor fleet premiums are much higher than those for private cars because policyholders do not obtain the benefit of no claims bonus and because cover is more comprehensive.

The recent deterioration in losses pushed up rates by an average of about 25 per cent in 1992, after more modest rises in 1990 and 1991. Fleets with particular poor safety records have found themselves paying much steeper increases.

Standard excesses - the part of any claim paid by the policyholder - have increased. Two years ago insurers would have charged excesses of Pounds 100 for each accidental damage claim. That amount is now typically Pounds 250, and is charged against claims for fire and theft, as well as accidental damage, says Mr Fred Whitworth, commercial motor manager at Eagle Star. Cover for damage to windscreens is frequently excluded.

Insurers are also more likely to introduce restrictions, refusing to pay for the loss of personal effects or stipulating that replacements for stolen stereos must be the manufacturer's model.

In addition, many policyholders are prepared to retain a substantial tranche of risks on their own books in exchange for lower premiums or simply buy less cover - fire, third party and theft, for example - for the same premiums.

Mr Whitworth says that 17 per cent of Eagle Star policyholders renewing in 1992 'traded down' in this way.

At the same time, insurers have become much keener to press policyholders to manage risks in order to reduce claims.

Because premium rates reflect claims experience over a three-year period, action taken by policyholders to reduce accidents will eventually results in lower claims.

According to Mr Chris Palmer, motor underwriting manager with Zurich Insurance, 'the strategy is to move the debate away from price, towards better service standards to persuade policyholders to take a long-term view'.

Increasingly, insurers are pressing motor fleet managers to administer their fleets more tightly, inspecting driving licences more frequently and monitoring the condition of cars more regularly, in order to weed out potential problems.

Most fleets are now restricting the number of family members who can drive a company car, in order to reduce the access of younger drivers, typically teenage sons and daughters, who are more prone to have accidents.

Insurers are also beginning to press policyholders to select particular kinds of vehicles, especially those which are less prone to theft. Several fleets have stopped buying hot hatches, for example replacing GTI Volkswagens and Astra GTEs with Vauxhall Cavaliers.

Insurers are also supplying better quality data to policyholders, making it easier for fleet managers to identify particularly poor or accident prone drivers. 'You've got to supply ammunition to help the statistical departments,' says Mr Palmer.

According to Mr David Voss, managing director of Velo, which provides a insurance management service for motor fleets, good information can allow fleet managers to pinpoint which regions and drivers are contributing most to insurance costs and enable them to vary charging within the organisations accordingly. 'Suddenly the local manager, with one eye on his profit-related bonus, may take a different tone with his errant drivers,' says Mr Voss.

Although no insurer offers reduced premiums in return for the adoption of risk management measures, one company, Perth-based General Accident is prepared to subsidise the cost of driver improvement programmes for policyholders.

GA pays Pounds 40 of the Pounds 75-a-day fee charged by driving instructors for what it calls a 'defensive driving' course. Instructors must be on GA's own approved list.

Opinions about the value of the scheme vary. Mr Ney is convinced of its value. 'The problem is frequently the 40-year-olds who work 16-hour days under great stress. You have to knock away the common perceptions. Driver training is a very good way of targeting the issue.'

GB United Kingdom, EC P6331 Fire, Marine, and Casualty Insurance P3711 Motor Vehicles and Car Bodies P5511 New and Used Car Dealers INS Insurance MGMT Management P6331 P3711 P5511 The Financial Times London Page VIII 961
Survey of Vehicle Fleet Management (21): Curbs on noisy trucks - Impact of environmental legislation Publication 930222FT Processed by FT 930222 By JEFF DANIELS

MOTOR VEHICLES have been the focus for environmental legislation since the early 1970s. But the most significant single event in the process was the coming into force at the start of this year of European Commission exhaust emission regulations which in effect make catalytic converters obligatory on petrol-engined passenger cars (and car-derived light commercial vehicles).

The fitting of a converter implies the use of a fuel injection system rather than a carburettor, and of unleaded fuel. For larger, purpose-designed, petrol-engined commercial vehicles such as the Ford Transit, the situation is still under review, though it is likely that these, too, will be subject to tighter emission controls before long.

These developments appear not to have forced up car prices as much as might have been expected, and there may be some unanticipated benefits from the fleet manager's point of view. Since the car manufacturer has to demonstrate compliance up to 50,000 miles, not only when the vehicle is new, exhaust systems which include catalytic converters are engineered to a higher standard and should last the fleet life of a vehicle without needing any kind of repair or replacement. Fuel injection systems, invariably now electronically controlled, maintain their accuracy of operation much better than carburettors and should need less attention - though when that is required, it may be expensive.

It remains to be seen what will be the effect of EC emission limits now being drawn up on heavy vehicles, which are almost without exception diesel-engined. Indeed, the whole question of limits on diesel-powered vehicles, and even on passenger cars, is less clear than for those with petrol engines.

Diesel engines are inherently clean in most respects but anxiety remains over particulate emissions and the limits which may be imposed on them. Current EC proposals fall well short of the drastic limits imposed in California, but any future European move, such as requiring vehicle exhaust systems to be fitted with particulate traps, could lead to significant increases in cost.

Apart from direct exhaust emission regulations, there looms the prospect of legislation to reduce carbon dioxide emissions by encouraging better fuel economy. In the US the approach has been to impose corporate average fleet economy regulations with penalties (for both manufacturer and buyer) for non-compliance. EC discussions have thus far leaned more towards the 'carbon tax' concept. Either approach would encourage fleet operators, especially of passenger cars, to move downmarket to smaller, lighter and more economical models.

With the advent of the single market, many new checks have been added to the schedule of the annual vehicle inspection - the 'MoT test'. These new checks, especially on exhaust emissions, are likely to cause many more elderly and high-mileage vehicles to fail the test, but they will have little impact on the fleet market because the tests will (as always) only be required when the vehicle is more than three years old.

One effect may be to set an even more decisive limit to the length of time for which fleets are prepared to operate vehicles; the effect on after-sales values of vehicles being sold out of fleets is harder to predict, though a higher test failure rate could increase demand for well-maintained and relatively young cars.

A less widely appreciated aspect of environmental legislation is that concerned with vehicle noise. The setting of limits in this area is complex, since the test conditions as well as the actual maximum noise level have to be carefully specified. The current EC limit for cars is 77dB(A) but significantly stricter limits already exist in some countries - notably Switzerland, which specifies 74dB(A), in other words half the EC level. As a result, there has been a need to redesign exhaust systems.

However, the severest effect of anti-noise legislation in the EC is likely to be on heavy goods vehicles. These have always produced much more noise than cars, but until recently their commercial importance, relatively small numbers and above all, the engineering difficulty and cost of achieving lower noise levels have argued against the imposition of severe limitations.

That situation now seems likely to change, with the authorities requiring far lower truck noise levels, regardless of technical difficulty and cost. Likely techniques include the de-rating of engines to reduce peak combustion pressure levels, and the 'encasement' of power units within noise-insulators. If the limits are severe, noise-reducing measures in transmission and tyre design could also be required. Both first and operating costs may be notably increased in consequence.

There has been far less legislation concerning the more recently fashionable aspects of vehicle design, including the elimination of harmful materials and the need for easier and more complete recycling at the end of economic life. To a large extent, moves by the vehicle manufacturers have outrun the pace of potential legislation. Thus the latest vehicles have already completely or largely eliminated asbestos from brake and clutch linings, cadmium from protective finishes, mercury from certain electrical components, and of course CFCs from air-conditioning systems. These changes have been made at small cost to the consumer and often with the bonus of improved system performance.

Vehicle design for recycling is now being closely studied in engineering departments worldwide. The signs are that as with emission limits, some unlooked-for benefits may emerge for the fleet operator. Damage repair costs may be lower if body design takes ease of ultimate disassembly into account. Component costs themselves could be lower if, as seems likely, this design approach forces a switch to simpler panels and smoother shapes. The main counter-effect of such moves (and one which the vehicle manufacturers are trying very hard to overcome) is that cars may lose some of their visual attraction.

GB United Kingdom, EC QR European Economic Community (EC) P3711 Motor Vehicles and Car Bodies P9511 Air, Water, and Solid Waste Management TECH Products TECH Standards P3711 P9511 The Financial Times London Page VIII 1001
Survey of Vehicle Fleet Management (22): Automating the hassle - Databases Publication 930222FT Processed by FT 930222 By CLAIRE GOODING

IN A company where cars are a mere perk, the time and energy spent on them is hidden in overheads. But when the number of cars rises to 150 or so, managing a fleet becomes a full-time job for somebody.

This rule of thumb comes from an administration manager who currently runs 73 cars, among a staff of 120 or so. His main problem is to have enough detailed information not only to keep track of maintenance, but to avoid ruffling feathers in the dovecot when new cars are assigned out of pecking order. A database of some sort should be the ideal answer, but it is hardly worth it for what is, at present, only part of his job.

The 150 mark may also be the one at which a company considers 'outsourcing' the job and giving it to experts whose accumulated wisdom might prove more cost-effective in the long run. There comes a point where a computerised system is worthwhile, through a contractor, in-house, or even using a combination of both.

Unfortunately, fleet management suffers from the same conundrum as any other application of information technology. One can know what is needed only when a system is installed, up and running. By then, it is often too late to change it or add in the extra 'if only' dimension that would make all the difference.

Learning how to use the system, and having reliable support for it, are themselves hidden overheads. The purchase of any solution is an investment, the beginning of a long-term relationship, so the financial security of the supplier is as important as the functions of the system itself.

Of an estimated 250 different packages on the market, none does exactly the same job. The starting point has to be an analysis of who needs what information. 'Need' is not the same as 'want', but it is often the extras that prove valuable, so flexibility is important. Make a system too complex, and no-one will ever want to use it. Hide nuggets of valuable information in a two-inch thick report, and they will go into the bin with the dross.

In-house promotion of the system - simply telling people what information is, or might be, available is a must.

The database is a good starting point. General-purpose databases such as Informix, Oracle and Ingres have spawned specialist packages through value-added resellers, such as Oracle's Ocella. Generally, because of the database foundation, such packages are easily tailored and customised. So-called 'fourth generation languages', 4GLs, take a similar approach, and products using these software tools should be more tolerant of individual users' quirks. The Progress language, for example, has been used to create NCR's Profleet, developed by Kalamazoo, and Towquest Pro-Lease.

According to Mr Dinos Theophanus, a management consultant specialising in transportation at CMG, the very words 'fleet management' are open to misuse. 'Of the 250 or so packages, few have more than 10 installations.' Even fewer manage the full range of functions. This makes it difficult for people trying to choose a solution, especially as changing financial circumstances might put different requirements to the fore.

'The recession has done two things. Companies have less to invest so they are hiring rather than buying, and it has increased competition, which has resulted in the cost of services coming down. It's a buyer's market, and people are looking for better choice, fancier facilities and value for money.'

Often, those who contract out fleet management get IT services thrown in as part of the deal. 'When you outsource, you get rid of the hassle, and part of that is the IT. Also, with an outsourced service you can police and control the supplier. A transport manager must define the service and know the requirements: some things may be luxuries, others necessities, and the budget will go only so far,' he says.

Mr Theophanus describes a 'pick and pay' approach to the levels of service available. Users can have monthly paper-based reports, or linked terminals at the user-company, a regular download of database information, or even EDI - electronic data interchange. There can be economies of scale. But while a company such as BRS can provide a cradle-to-grave service in terms of repairing a car and keeping it on the road, there are certain sorts of information a contract supplier cannot provide.

Most packages deal with processes relating to a particular vehicle: few, if any, keep track of individual users of the car. But in-house systems might also need to link with personnel, accounting and insurance applications.

The way round this is an in-house 'extra', either a database or a bought-in package, of which only a limited number of modules are actually used. Mr Theophanus says the market for large-scale packages is shrinking, becoming limited to the lease management companies as in-house managers turn to outsourcing. In-house, people are relying on do-it-yourself efforts to provide extra information, usually with a small general-purpose database or other software.

One manager, for example, keeps track of fleet cars due for their MOTs with a screen he built within Lotus 1-2-3, a spreadsheet software tool he knows well. But, he admits, it's a clumsy solution of limited value and demands a lot of manual intervention. He also uses part of a cheap package, the Company Car Administration Kit from Emmerson Hill of Fareham which, at less than Pounds 50, provides form letters for maintenance management.

A proper database would bring up an automatic warning, allowing him to keep track of individual car history. Explanations of how high mileage is incurred would be valuable for decisions on replacements and on resale values.

Another manager's comment sums up why the flexibility of database software is essential. 'Once the information is there, you think of all sorts of other ways it might prove useful.'

GB United Kingdom, EC P4729 Passenger Transportation Arrangement, NEC MGMT Management P4729 The Financial Times London Page VIII 1004
Survey of Vehicle Fleet Management (18): Steep descent - UK gloom as Leyland Daf collapses Publication 930222FT Processed by FT 930222 By KEVIN DONE

THE UK car and commercial vehicle markets have begun to show tentative signs of recovery from the depth of recession, but the recent improvement in registrations remains weak.

UK new car sales rose year-on-year by 7 per cent in January, while registrations of new commercial vehicles rose by 4.4 per cent, in both cases the fourth consecutive month in which registrations had been higher than in the corresponding period a year earlier.

The collapse into receivership this month of Daf, the beleaguered Anglo-Dutch truck maker which is also the clear UK truck market leader, has served as a grim reminder, however, of the strength of the recessionary pressures.

Tens of thousands of jobs have been lost in the motor industry in Britain in the past three years, reflecting the steep drop in demand for new vehicles. From peak sales of 2.3m in 1989 new car sales in the UK have plunged by 31 per cent to only 1.59m in both 1991 and 1992.

During the same period sales of new commercial vehicles dropped by 45.8 per cent from 371,104 in 1989 to only 201,186 in 1992, while sales of trucks, the sector worst affected by recession, have more than halved with a 54.6 per cent decline to only 31,398 in 1992 from 69,234 in 1989.

Established vehicle makers in the UK have been forced to reduce drastically their capacity and implement severe cuts in their workforces.

Last year AWD, the small privately-owned truck maker that had been formed from the rump of the loss-making Bedford truck operations in the second half of the 1980s, went into receivership. Renault Vehicules Industriels, the French commercial vehicle maker, has decided to cease truck assembly at its plant at Dunstable, while UK operations of Leyland Daf, the leading British truck maker, are in the balance.

The Daf parent company filed for protection from its creditors earlier this month, while Leyland Daf, its UK subsidiary, has collapsed into administrative receivership. Already the receivers have made redundant 30 per cent of Leyland Daf's 5,500-strong workforce. More job cuts appear inevitable and it is unclear how much of the Leyland Daf operations can be salvaged.

In the car industry Rover, Jaguar, Rolls-Royce Motor Cars and Ford of Britain have all been operating with substantial losses.

The Jaguar UK workforce has been sharply reduced to only 6,481 at the end of 1992 from 7,520 a year earlier and 11,661 at the end of 1990.

Ford of Europe is currently cutting another 10,000 jobs across Europe, with the UK bearing a significant part of the contraction. Ford's UK workforce had already fallen from a peak of 80,000 in early 1980 to only 33,000 by the end of 1992.

In the motor dealer sector the Retail Motor Industry Federation said last month that a further 7 to 8 per cent of the UK's remaining 7,000 franchised motor dealers would close or be sold off this year. Last year 8 per cent closed or were sold off following 10 per cent in 1991.

As the recession deepened vehicle makers have been forced to undertake increasingly desperate measures to try to stimulate sales with an array of financial incentives and deep discounting, but often the actions have only served to increase losses.

As retail sales continued to fall last year, it was the fleet sector of the UK car market that sustained sales, and meant that the market finally remained unchanged from 1991 at 1.59m. The share of sales to fleets (defined as operators of 25 vehicles and above) accounted for 41.8 per cent of the UK new car market last year compared with 39.2 per cent a year earlier.

Opinions now differ as to how well the recovery in demand in recent months can be maintained.

Mr Ian McAllister, chairman of Ford of Britain, said that the January sales figures suggested that 'a sustained recovery' in the market could well be under way.

The growth in sales in January - in contrast to previous months - was entirely due to a higher level of purchases by private customers rather than by company fleets, he said.

Professor Garel Rhys, professor of motor industry economics at Cardiff Business School, cautions against optimism based on the January sales figures, however.

'Last month's car figures were in fact dreadful', he says. 'The previous January was very poor, being 11.7 per cent down on the 1990 figure. But since then the 10 per cent special car tax has been abolished. That should should have lifted last month's market by 12 per cent on its own.

'The extent to which the market is up shows the recession is still there and that people remain very cautious about buying,' he said.

Sales of Japanese makes in January were 32.9 per cent higher than a year ago, which boosted their share to 11.2 per cent from 9.0 per cent a year earlier.

Sales of Japanese cars will be boosted this year by growing output from the new Toyota and Honda plants in the UK which opened late last year.

The first cars from Toyota's Pounds 700m plant at Burnaston near Derby were registered in January, and the pattern of the supply of Japanese cars to the UK is becoming increasingly complex.

Both Toyota and Honda are now shipping cars to the UK from their plants in the US, while Nissan and Suzuki also supply some vehicles to the UK from plants in Spain. Nissan, Toyota and Honda all have car assembly and engine plants in the UK.

GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies P3713 Truck and Bus Bodies P5511 New and Used Car Dealers MKTS Sales P3711 P3713 P5511 The Financial Times London Page VII 973
Survey of Vehicle Fleet Management (16): Shake-out may be near end - Contract Hire Publication 930222FT Processed by FT 930222 By MARTIN DERRICK

AFTER a spate of acquisitions, contract hire seems to be absolutely the flavour of the month. But the reality is rather different.

Those companies that have been expanding through acquisition are doing so only extremely cautiously and selectively. In the 1980s, when contract hire took off, the rapid growth of the industry persuaded many newcomers to the business that this was a source of easy money. And indeed, while there was constant growth, that regular new business tended to disguise the structural problems that became all too evident once the recession took firm hold.

Several smaller contract hire companies got into difficulties because they underestimated maintenance and other costs and overestimated residual values. Big losses ensued at the end of a three-year contract when vehicles turned out to be worth hundreds and in some cases thousands of pounds less than expected. Contract hire companies such as these - with a poor portfolio of customers - will find it hard to attract a white knight.

Mr Norman Donkin, former managing director of Lease Plan UK who, as director of AT&T Capital, has a specific brief to develop a European leasing division for the American corporation, says: 'We looked at a number of contract hire companies that were for sale. What we wanted were sound management, a good quality portfolio of customers and good systems.

'Many of the companies for sale did not meet all these criteria. Even more did not meet our other requirement, which is that the company should be profitable.

'So what we did is to look at some companies that were not necessarily for sale and decided that instead of buying a large contract hire company we would do better to acquire a medium-sized one with an infrastructure in place that could be built upon.'

It was the combination of a lack of profitability, losses on disposals and problems with gearing that contributed to the decisions by a number of groups to try to dispose of their contract hire and leasing businesses, says Mr Nick Brown, managing director of Trimoco Leasing and chairman of the British Vehicle Rental and Leasing Association's leasing committee.

But he also believes that the recent shake-down in the industry may be coming to an end. 'After a period of consolidation, the companies that remain are mostly trading profitably because at the beginning of the recession they recognised the problems that were coming and so adjusted their rental rates upwards and their residual value projections downwards. Those that have survived the last three years will probably grow as the market expands.'

Most of the current rash of takeovers and acquisitions are due to some smaller companies getting into difficulties over residuals and costs, according to Mr Ron Elder, managing director of Avis Lease and Fleet Management, who says that there will still be room in the marketplace for the niche players.

'Some companies certainly did misread the market and are now looking for someone to bail them out. And while it is true that some of these smaller companies - especially the non-specialist firms which took on contract hire as an add-on to their core business during the boom period - may now want out, there will always be a demand for a smaller company offering a local service and a higher level of personal attention to their customers.

'But I believe we will not see the same number of start-ups and new entrants to the business once residual values improves and leasing looks a good bet again. A lesson has been learnt the hard way that contract hire is a specialist business requiring specialist skills to survive the down periods as well as thrive during the good times.'

Avis Lease and Fleet Management itself has a new parent company since last year when General Electric of the US acquired the business. And the recent period of consolidations and mergers is not wholly over yet, predicts Mr Elder.

'We have a parent with the capacity to grow the business. So when opportunities come along, nothing will stop us going after them - we have plenty of investment funds available for the right acquisitions,' he says.

GB United Kingdom, EC P99 Nonclassifiable Establishments P7515 Passenger Car Leasing P7389 Business Services, NEC TECH Services P99 P7515 P7389 The Financial Times London Page VII 739
Survey of Vehicle Fleet Management (17): Too few desirable models - Used Cars Publication 930222FT Processed by FT 930222 By STEVE CROPLEY

THE growing number of canny business motorists who buy their cars 'nearly new' instead of straight from the showroom - and save thousands on early-months depreciation - are in for a shock this year. The cars they seek are likely to be in far shorter supply than they have been for years, and what stocks there are will be picked over by hard-pressed car dealers before the end-users get a look in.

At the other end of the scale, the used car market is becoming increasingly clogged with high mileage three- and four-year-old business cars, which recession-hit businesses kept for too long in extended leasing deals. These models, often with more than 100,000 miles 'on the clock' are proving unattractive to private buyers who, in better times, would be their natural second owners.

Worst of all, because private buyers of new cars have been in full retreat for three years, the flow of trade-ins to dealers they provide - the best used car stock of all - has dwindled alarmingly.

It all adds up to crisis in the used car business. In a nutshell, the potential buyers can't get enough of the cars they want, and the cars most readily available are largely unwanted. 'This complex combination of factors, plus the fact that everyone is short of money, looks like making things things very tough in used car retailing as the year goes on,' says Mr David Raeside, editor of the trade newspaper, Motor Trader. 'There will be some good cars about very early in the year, but quite soon they're going to be much harder to find.'

The root of the crisis is the rise of a British 'nearly new' car culture in the second half of the 1980s, following a similar US trend. Volume car sellers such as Ford, Vauxhall Rover and Peugeot, desperate to increase market share and keep their factories at capacity, began selling lots of cars to big daily rental companies.

As the recession has grown in severity the selling - at discounts reputed to be as high as 40 per cent - has become more and more of a lifeline for the car companies. For some, discounted sales to fleets and rental outfits have been accounting for as much as a third of total volume. Laughing all the way to the bank, the rental companies have been selling at auction, sometimes at a net profit, and ordering more new models.

At the height of the business, about 18 months ago, some hire companies were keeping their cars for as little as three or four months and 3,000 miles before replacing them. Commonly, a Ford Fiesta, bought for Pounds 8,500, might go through the auctions at six months and with just 5-10,000 miles on the clock, at not much more than Pounds 5,000. Bigger cars showed even larger percentage price falls.

Not surprisingly, dealers have been up in arms at the companies' practice, over the past five or six years, of selling cars to big customers at far less than to their own franchised networks - which have to operate from premises which are often plush and expensive. Dealers have been operating on margins of 18 to 20 per cent and coming under strong customer demand to provide discounts up to 15 per cent.

Last year, when rental companies, notably Hertz, began retailing their own ex-hire cars directly to the public, dealers hit the roof. Typical of their reactions is this from Mr Terry Dignan, chairman of the Wolverton Motor Company, who called the move 'a double whammy on the motor trade' and claimed it showed car companies had lost control of their own franchising system.'

'The recession has hit our business,' says one West Country sales director, 'but a lot of our regular customers, who might have bought anyway, have become reluctant to lose so much money so quickly on their new cars.'

There is little doubt that the car firms would like to curb the practice of selling hugely discounted cars to hire fleets; both Mr Ian McAllister of Ford and Mr Peter Batchelor of Vauxhall have said so. But the company that stops first risks losing market share, and history seems to indicate that gentlemen's agreements do not work in cases like this.

Mr Peter Vardy, chairman of the north-east dealer group Reg Vardy, has been an enthusiastic dealer in nearly new ex-hire cars for the past few years, seeing them as a way of providing economical cars to private buyers for whom showroom cars have become too expensive. He notes a new firmness in the way car makers are resolving to curb the sale of ultra-cheap cars to fleets. 'They all say there will be fewer of these sales this year,' he reports, 'and they sound as if they mean it. But then again, they all said it last year ..'

According to Mr Vardy, the availability of nearly-new cars puts alert dealers at no disadvantage: it presents them with a source of good cars they can sell a lot cheaper than new, while making a healthier profit per unit than the Pounds 200-Pounds 400 they take on, say, a new small Ford after discount. 'As long as the cars go through the auctions, we'll be standing there to buy them,' he says.

He is sure, however, that the market needs an end to the two-tier sales system, which will lead to a firming of residual values, to get completely back into its stride - December showroom sales surge notwithstanding. 'New cars for private people have become too dear because the makers have been selling so cheaply to hire fleets,' he declares. 'When that ends we'll get buyer confidence back, and the world will turn a lot more sweetly.'

------------------------------------------------------------------------ ACQUISITION METHOD (figures in percentages) ------------------------------------------------------------------------ Size of fleet (Totals) 6-9 10-19 20-49 50-99 100+ ------------------------------------------------------------------------ Straightforward purchase 43 46 31 33 43 46 Purchase with trade-in 3 14 11 9 - 1 Hire purchase 3 20 10 5 7 1 Contract hire 45 17 40 43 46 46 'Open-ended' or 'finance leasing' 5 3 3 9 4 4 ------------------------------------------------------------------------ Source: Company Seceretary's Review Survey of Company Car Schemes ------------------------------------------------------------------------

GB United Kingdom, EC P5511 New and Used Car Dealers P7515 Passenger Car Leasing MKTS Market data CMMT Comment & Analysis P5511 P7515 The Financial Times London Page VII 1079
Survey of Vehicle Fleet Management (15): Differentials will be published - Kevin Done explains the next step towards harmonising EC car prices Publication 930222FT Processed by FT 930222 By KEVIN DONE

FROM May, carmakers will have to publish comparative EC price-lists for selected new vehicles twice a year under a plan agreed with the European Commission.

The scheme will mark the next step in the vexed debate over carmakers' pan-European pricing policies.

Publication of the price lists is aimed at helping car buyers to shop for bargains across EC borders. The lists, agreed while Sir Leon Brittan was EC competition commissioner, are aimed at increasing the pressure on manufacturers to bring car prices more into line across the EC and to make it more difficult for car dealers to discriminate against foreign buyers.

The investigation of carmakers' pricing policies across Europe is set to intensify over the next two years. In mid-1995 the present 10-year 'block exemption', which controversially allows car makers to use a selective dealer distribution system in contravention of European Community competition rules, is due to expire.

The motor industry has been warned by the EC competition directorate that a renewal of the block exemption will depend largely on car manufacturers' adherence to EC limits on car price differentials across Europe.

The block exemption granted in 1985 was conditional in part on car prices between member states not differing by more than 12 per cent in the long term or by more than 18 per cent for periods of less than a year.

During 1992 both the UK Monopolies and Mergers Commission and the European Commission published reports on car prices in Europe. Neither report removed the widespread confusion over price differences, but the EC report in particular drew attention to many cases where price differentials had exceeded the block exemption guidelines.

According to a survey late last year by Beuc, the European consumers' organisation, the prices of certain new models can vary by more than 40 per cent between countries. Manufacturers point out that prices are mostly within the 12 per cent band recommended by the Commission.

Certainly UK new car prices, which have previously provided consumer groups with much of their ammunition, appear to have been brought much more into line with the rest of the EC through a combination of recessionary pressures and last September's devaluation of the pound.

Motor retailers in the UK have been disappointed about the lack of action by the Office of Fair Trading in the wake of last year's MMC report, and they are particularly concerned about the price distortions that result from carmakers offering very large discounts on direct sales to some large fleet operators.

Mr Alan Pulham, director of the franchised retailer division of the UK Retail Motor Industry Federation, says that 'the MMC annual review spells out several items which raise the price level in the UK, in particular the deep discounts which large fleet owners obtain from suppliers, which distort the price structure for other buyers'.

Direct sales from manufacturers to large fleets at enormous discounts were not fair to motor retailers or their customers. 'Such discounts have to be paid for by everybody else and they effect both new prices and used car values.'

The pricing debate has recently been widened beyond Europe, however, by a report from Ludvigsen Associates, the UK-based automotive analysts, which claims that whatever the price differences within Europe, European car buyers in general are paying as much as 30 per cent more for new cars as consumers in the US and in Japan.

Ludvigsen Associates, which carried out the basic research for the MMC inquiry in the UK, claims that 'the European car buyer is spending more than he should for personal transportation' both in absolute terms and in relation to household income.

The report was the first co-ordinated attempt to compare car prices between Europe and the other main world markets, the US and Japan.

According to the study, the largest differences are with car prices in Japan. It claims that European car prices (net of tax) are 33 to 43 per cent higher than equivalent prices in Japan, while European prices are 15 to 45 per cent higher than in the US.

On average, it takes 27 weeks of gross family income for a European to buy a car compared with 21 weeks in America and 15 weeks in Japan. The UK is at the European average, while the Germans, French and Belgians need four weeks less.

The Commission's plan for the biannual publication of price lists is not legally binding, but EC officials have indicated that if carmakers do not co-operate they will risk losing their jealously guarded right to operate their sales and distribution through exclusive dealerships.

Every manufacturer that sells cars in the Community will have to select a representative model from each part of its product range and publish the prices in 10 EC countries. The carmakers will also have to supply information about the price of five common options - anti-lock braking systems, air conditioning, right-hand drive, automatic gearbox and power steering - and details of warranty, roadside assistance options and delivery costs.

Prices, published in May and November every year, will be shown both before and after tax, in Ecu and local currency. Comparative figures for Denmark and Greece - where car tax of more than 100 per cent distorts selling prices - will be omitted.

The Commission agreed to drop its original demand that manufacturers should supply information about all possible models and options on the grounds that it would be too time-consuming for manufacturers and confusing for consumers.

Manufacturers are still likely to argue that realistic comparison is difficult because dealers in some countries are prepared to offer large discounts on the list price of certain models.

However, they will also hope that by being more open about comparative prices they will stave off the abolition of selective distribution.

QR European Economic Community (EC) GB United Kingdom, EC P5511 New and Used Car Dealers P3711 Motor Vehicles and Car Bodies COSTS Product prices GOVT Regulations P5511 P3711 The Financial Times London Page VII 1023
Survey of Vehicle Fleet Management (13): The need for longevity - Competiton in the after-market Publication 930222FT Processed by FT 930222 By STEVE CROPLEY

A DECADE ago, the buyer received only one thing when he bought a car: a metal box on four wheels, covered grudgingly by a rudimentary warranty sometimes as short as six months or 6,000 miles.

How the car fared after its first few months in service; whether it rusted or fell apart or broke its owner with huge spare parts costs and service bills was the very last concern of the smiling salesman. He washed his hands of the deal.

Things have changed dramatically. Compared with life in the early 1980s, today's car market competition is cut-throat, and the rise of consumerism - helped by the fact that the car market has been in the buyer's favour since the end of the 1980s - has led business buyers to judge a car on how it is supported in the after-market.

Fleet manager or user-chooser, today's business car operator is attracted by long warranties and free breakdown recovery deals, rust warranties and low service charges, 'own brand' insurance schemes and fast-fit spares operations. And an increasing number want to hear, at the end of their car's life, how it will be recycled.

They are right to be concerned. A recent survey by City-based automotive consultancy Ludvigsen Associates shows that a car's retail price accounts for only 40 per cent of its whole-of-life cost. The remaining proportion consists of fuel costs (33 per cent) and standing costs, servicing and repairs.

Some car companies have reacted quickly to the trend, having learnt in the middle 1980s that the crowded car market was reaching saturation point and that repeat business was going to be crucial in the years ahead.

A salesman might sell the first batch of cars, one dealer group chief famously said, but the service department staff would sell the second, third and fourth.

In a bid to sell more cars to its US clientele, GM has recently been encouraging its existing customers to become Mastercard users, and then to 'turn plastic into steel'. Two million people reportedly became GM cardholders in the scheme's first six months. Vauxhall is believed to have its eye on the idea.

The biggest recent UK improvement in after-market care has been in warranty cover.

Every car has at least 12 months' unlimited mileage mechanical warranty these days, and some much longer. In 1983, Mitsubishi cars began to carry a three-year unlimited mileage warranty, still the most comprehensive mechanical cover available in Britain as part of any new car's purchase price, and this has spurred others to improve their cover.

Most other Japanese makers and some Europeans now have three-year cover though many impose a 60,000 mile expiry limit.

Jaguar, which introduced a three-year warranty last year, claims it caused sales to surge in August. Even the cheap Russian-built Lada cars have a two-year mechanical warranty.

Those companies which cling to only one-year warranties (Ford, Vauxhall, Rover and, perhaps surprisingly, BMW and Mercedes-Benz) offer warranties at extra cost, stretching to five years and occasionally beyond.

Today's cars also carry so-called rust warranties, which are claimed to cover the car against corrosion from the inside or 'perforation'. Until the mid-1980s, that was a common problem in nearly all cars, though several Italian marques unfairly bore the brunt of the criticism.

These rust warranties commonly last for six years but the all-galvanised Audi term is for 10 years.

Though manufacturers make much play about presenting 'plain language' warranties, the truth is that rust warranties are hard to claim against, not least because some require regular, inconvenient inspections to retain their validity. Others still require a car to be regularly treated with rustproofing compound. Their main value, however, is that they have forced car-makers to improve rustproofing at manufacture so that it is simply not an issue in the car's first six or eight years of use.

The market has been demanding lower service costs for years, but manufacturers resisted for quite a while, fearful that the move would harm their dealers' profits. Citroen showed the way in the early 1980s with its 'loves driving, hates garages' slogan for the BX family hatchback.

Since then, most makers have extended their service intervals and cut labour costs. Grease nipples, so beloved of 1950s and 1960s suspension designers, are a thing of the past. Nearly every car now goes 6,000 miles between intermediate 'oil' services and 12,000 between 'full' services. Today's VW Golf needs only about four hours' workshop attention every 20,000 miles, and the bill for this, even in central London, should not be more than Pounds 250. Even a Porsche 911, doing 12,000 miles a year, costs less than Pounds 600 for annual servicing.

Because today's cars require less frequent workshop visits, manufacturers are anxious to keep customers loyal to their own dealer network.

They have watched askance at the rise of chain car-servicing businesses that stress low cost and while-you-wait convenience, such as ATS, Kwik-Fit and Halfords service centres.

Nowadays, they fight on three fronts to keep business: by opening own-brand fast-fit centres (Ford, Vauxhall and even luxury makers such as Saab have recently begun to do it), some (notably BMW) have made a big play of reducing spare parts prices and nearly all car-makers now have a 'menu' of servicing and repair costs for their cars, so that even a Mercedes-Benz or a Rolls-Royce owner can know what a job is going to cost in parts and labour.

Meanwhile, competition to impress after-market customers continues on an ever-widening front. Many companies offer 'own brand' finance, insurance and leasing details which they claim can be tailored to an individual client's needs, whether he buys one car or 500.

For the future, the buy-back scheme looms. Porsche already has one operating for its 968 model: customers who pay Pounds 36,000 for the car now can get 55 per cent of their money back in three years, when the car has done 36,000 miles.

Big companies like Ford (with Options) and Vauxhall (with Choices 1-2-3) are also moving towards buy-back. They already offer a form of personal leasing which allows a customer to take a new car for a fixed term and finance only its depreciation over the term.

Mercedes-Benz has a similar scheme working for both its new and used cars: it looks particularly attractive as Mercedes cars lose value more slowly than most others.

Recycling is an after-market issue which has yet to raise its head in the UK, though few industry-watchers doubt that it will. BMW recently became the first company to open a British car recycling plant, at Bolney in West Sussex.

Eventually, says the company, 16,000 BMWs will be scrapped annually through recyclers. At that stage, the company will truly be looking after the car from the cradle to the grave.

XA World P3711 Motor Vehicles and Car Bodies P5511 New and Used Car Dealers TECH Standards TECH Services P3711 P5511 The Financial Times London Page VI 1174
Survey of Vehicle Fleet Management (14): The price of fresh air - Diesel makers submit to tighter exhaust rules Publication 930222FT Processed by FT 930222 By ALAN BUNTING

BY next October all new diesel-engined commercial vehicles must meet European exhaust emission limits on four different pollutants - three gases and dust.

It is relatively easy to cut emissions, but marketing men and engineers want to do it with minimum cost and loss of fuel economy.

Companies such as Mercedes-Benz and the proprietary engine maker Cummins have grasped the nettle by 'wrapping' the emission-related changes into a broader package of improvements. The cost penalties of meeting new environmental legislation from Brussels are hidden in a list price increase justified by other improvements.

Many manufacturers' engine horsepower ratings have been revised upwards to overcome the loss of hill-climbing and acceleration performance which would otherwise result from the tighter emission limits.

Independent road tests on the latest 'Euro 1' (emission compliant) 38-tonne articulated tractor units from Mercedes, MAN, Scania and ERF show that the latest 400-plus horsepower models can complete their journeys more rapidly with less fuel than their 1980s counterparts. Among heavy trucks introduced in the past 12 months are Iveco's EuroTech and the 75/85-series models from DAF. Both have performed well under road test conditions.

Their cab and chassis designs have a refinement unknown a decade ago, which makes for safer driving over the longest inter-city hauls, at 38 or 40 tonnes all-up weight.

Though their cabs and chassis mark them as undeniably new models, the EuroTech and 75/85 rivals are surprisingly conventional in the engine and driveline.

The truck industry's more profound technical developments of the 1990s have appeared behind the more familiar images of established heavies, notably from Sweden.

Scania is unique in offering a turbocompound engine - a 400 horsepower diesel whose exhaust gases are routed first through the familiar enforced-aspiration turbocharger, but then into a further small turbine (made by Holset in Huddersfield) which drives directly on to the engine flywheel.

Turbocompounding raises the overall efficiency of the diesel engine to a new high of about 46 per cent, though its critics say its full benefits are felt only on continuous high-speed, high-load truck operation, such as American coast-to-coast running. Road test performance and fuel economy on the 11-litre Scania turbocompound have been satisfactory but not spectacular.

Meanwhile, Volvo has concentrated on making heavy trucks easier to drive, with the introduction of its Geartronic gearshift system. It is the world's first electronically-controlled mechanical transmission to be offered to commercial truck buyers which needs no clutch pedal.

It functions as a car-type fully automatic gearbox, but without the formidable cost, weight and fuel consumption penalties associated with the latter's torque converter drive. Geartronic is likely to add some Pounds 3,000 to the price of a right-hand-drive Volvo FL10 chassis when the option becomes available in June.

On all the latest specification truck chassis there is a downside, in the form of additional tare weight.

Engines tend to be heavier, because of their more elaborate fuel systems, which are being called upon to deliver more precisely metered quantities of fuel at much higher pressures.

An intercooler - looking like a second radiator - has become almost unavoidable under the new emission laws, adding inevitable further weight. So too, of course, do 'perceived value' features, such as wind spoilers and cab interior embellishments, which now tend to be standard rather than optional.

At lower truck weights, notably at the HGV driving licence breakpoint of 7.5 tonnes, competition is no less fierce, though buyers are more likely to look first at the selling price and then at the specification. Independent assessments of the three UK main contenders at 7.5 tonnes show the best-selling DAF 45-series, the Iveco EuroCargo and Mercedes' well-established 814 chassis to be all operationally-attractive vehicles.

QR European Economic Community (EC) P3519 Internal Combustion Engines, NEC P3711 Motor Vehicles and Car Bodies TECH Standards TECH Products P3519 P3711 The Financial Times London Page VI 664
Survey of Vehicle Fleet Management (11): Goodbye Sierra, hello Mondeo - A flock of new models and facelifts has broadened the buyer's choice Publication 930222FT Processed by FT 930222 By STUART MARSHALL

NEW MODELS are coming and old favourites have had major mid-life facelifts.

The fleet market this year may prove to be turbulent for the car makers but buyers are going to find themselves spoiled for choice.

First, Ford's new front-wheel driven Mondeo is replacing that fleet buyer's staple, the Sierra. From March onwards it will be locking horns with well-established favourites such as the revamped and significantly improved Vauxhall Cavaliers and Peugeot 405s.

Mondeo, which from the outset will be offered as a 4-door saloon, 5-door hatchback or estate, promises to put new life into Ford's fleet business. Its styling is nothing like so distinctive as the Sierra's 10 years ago but even the entry model comes with a driver's side airbag and power steering.

Multi-valve 1.6, 1.8 and 2-litre, 4-cylinder petrol engines with 5-speed manual gears are standard. Ford's own Dagenham-built 1.8-litre turbocharged and intercooled diesel will be a popular minority choice.

It outperforms the 1.6 litre Mondeo but the figures suggest an average fuel consumption of close to 50 mpg (5.65 1/100km) of diesel compared with 42 mpg (6.73 1/100 km) of unleaded petrol.

There will be posh Ghia versions of the Mondeo with air-conditioning as standard and a host of options such as traction control or four-wheel drive, a new US-designed 4-speed automatic transmission, leather trim and cruise control. These - and the forthcoming 2.5 litre V6 engined Mondeo - could tempt user-choosers out of their Scorpios.

General Motors and PSA made pre-emptive strikes against Mondeo late last year. The Vauxhall Cavalier (Opel Vectra) and Peugeot 405 ranges have been restyled and, more importantly, refined.

Though hardly a fleet car, the Cavalier 4x4 Turbo with a 6-speed close ratio gearbox is either a cut-price Calibra with more room inside or a rival for Audi's upmarket quattro models.

Peugeot, perhaps stung by criticism of patchy build quality, has given the latest 405 the solid feel of a BMW to go with its class-leading ride and handling.

Though its UK market introduction is still several months off, the Swindon-built new Honda Accord (and its Rover counterpart, the 600) will raise the stakes in the 2-litre executive market.

A dark horse that all the fleet car providers will be looking at is Citroen's new Xantia, due in Britain by summer, with petrol engines with diesels following soon after.

Xantia replaces the BX, which did much to establish Citroen in the UK as a car for normal people, not just enthusiasts. But it is bigger than the BX and elegantly styled, with lines reflecting both the large XM's lean and hungry look and the smaller ZX's chubbiness. This sophisticated car, with electronically controlled semi-active suspension, is expected to be priced competitively against Mondeo and Cavalier.

Will 1993 see the products of Japanese transplants in the UK being regarded as proper British cars by fleet managers and their financial masters? It should, because the Sunderland-built Nissan Primera and the Derby-built, Welsh-engined Toyota Carina E have around 80 per cent EC (and about 50 per cent UK) content.

Magazines which persist in regarding motoring as a sporting activity, not personal transport, are scornful of the Primera's and Carina E's alleged blandness. Real world drivers find them quiet, comfortable and economical. In reality, they are Ford, Vauxhall and Rover alternatives. The psychological barrier against buying a 'Japanese' car is the only thing likely to prevent them from making a substantial impact in the fleet market.

In the executive sector, the Mercedes 190 is still widely regarded as the benchmark car. Its replacement, due to make its debut at the Geneva Show next month, is likely to retain the position, with its high capital cost so well offset by slow depreciation that it can cost less to run over, say, four years than an apparently cheaper car.

The 3-litre and 4-litre V8 engines intended for the forthcoming new BMW 7-Series have replaced the in-line sixes in the current ones, making them even silkier. A BMW 730i V8 with 5-speed automatic transmission (or for that matter a two-pedal, 24-valve Mercedes 320E) must approach many executive car drivers' idea of perfection.

Longer wheelbase Jaguar and Daimler Majestic models with 3.2-litre and 4-litre straight-sixes will not be available in the UK until the summer, though the long-awaited V12 engined XJ6 is due to go on sale in April.

Meanwhile, a Daimler 4-litre may feel a bit soft around town but as speed rises, it becomes a real driver's car. It would please a business driver who loves a traditionally English car, wood veneered and trimmed in (and perfumed by) Connolly's hide whose board won't allow him to have a Bentley Brooklands.

A trend in 1993 will be the increased availability of V6 engines in middle price range executive saloons. Among them are the Audi 100 and Volkswagen Vento, Vauxhall Cavalier and, before long, Saab 9000.

A good alternative to a V6 of between 2.5 and 3-litres is a smaller turbocharged 4-cylinder.

No-one has demonstrated this better than Saab. Despite - or perhaps because of - the recession, its turbocharged cars have sold exceptionally well. They, and recently introduced rivals such as the Citroen XM and Rover 800 with 2.0-litre turbocharged 4-cylinder engines, offer good economy when driven gently, with truly rousing performance on tap when required.

XA World P3711 Motor Vehicles and Car Bodies P5511 New and Used Car Dealers TECH Products P3711 P5511 The Financial Times London Page VI 933
Survey of Vehicle Fleet Management (12): Head-on collisions - In spring, Britain's Big Four launch a free-for-all Publication 930222FT Processed by FT 930222 By RICHARD FEAST

THIS YEAR promises to be critical for Britain's vehicle fleets. Three of the four domestic car manufacturers which dominate the sector will launch models in the mid-range categories that are most favoured by operators. The fourth will weigh in with a small hatchback. The outcome of these moves is uncertain, but they seem set to alter the shape of the business.

Ford starts the spring collections in March, when it unveils the eagerly awaited Mondeo. That event will be quickly followed by the launches of the Peugeot 306, Rover 600 and Vauxhall Corsa.

There is a buzz whenever one of these companies puts a new model on the market. When all four do so within three months, there is bound to be a substantial impact on fleets - the business defined by the Society of Motor Manufacturers and Traders as orders of 25 or more. Together, Ford, Vauxhall, Rover and Peugeot account for four out of five fleet car sales, compared with three out of five sales for the market as a whole.

Fleet operators seem to have weathered recent economic setbacks better than retail or private buyers, statistics suggest. As overall car sales went into steep decline in the 1990s, fleets have gained in importance. They grew from around a third of all sales at the end of the 1980s to about 41 per cent last year. While total car demand went down marginally last year, fleet sales rose nearly 6 per cent. Britain's Big Four are hoping their imminent new models will continue that growth.

The introduction which will have most impact is Mondeo, the replacement for the decade-old Sierra. As long-time market leader, Ford does not like the idea of the Vauxhall Cavalier as fleet best-seller. Its answer is to adopt front-wheel-drive for Mondeo (like Cavalier, unlike Sierra) and what it promises is a sophisticated specification.

Mr Ian McAllister, Ford of Britain's chairman and managing director, says of Mondeo: 'It's a very impressive piece of machinery. I think it will do a tremendous lot for Ford's position in the market place.'

He is convinced this year will be a good one for Ford. It will certainly be busy. Mondeo will make up for flagging Sierra sales. It arrives shortly after the company relaunched the Escort - No 2 on fleet buyers' shopping lists - with a fresh look and modern engines. Furthermore, Mr McAllister has two more niche models to lob into the market towards the end of this year: the Maverick off-roader (built by Nissan in Spain) and Probe coupe (built by Mazda in the US).

All that should help arrest Ford's declining lead in the fleet market. It lost around 4 percentage points to finish the year on approximately 29 per cent. By contrast, Vauxhall, the nearest challenger, crept up to nearly 27 per cent.

Fleets are vital to Vauxhall which, more than any other company, achieved its climb in the British market through fleet sales. The General Motors-owned company's business at the retail end is static at best.

This year, however, Vauxhall's main new model is in a category less popular with fleet buyers, small hatchbacks. Nova will be replaced in April by the new Corsa, a name used in the past only for cars sold in the rest of Europe. But the newish Astra continues to sell well, and GM's new, Ellesmere Port-built V6 engine will be offered as an option on the Cavalier this spring. That will put it ahead of Mondeo, which will have V6 engines (imported from America) only from the end of 1994.

Rover's big event will be in May, when it will present a true competitor for Mondeo and Cavalier. It is much-needed, for the Montego, which was supposed to do the job, never gained wide acceptance among fleet or private buyers. The newcomer is the 600, a saloon to be made at Cowley. It will fit between the 400 and 800. Like them, it is based on a design by Honda, which owns 20 per cent of Rover. Indeed, Honda's version, the Accord, is already in production at Swindon and on sale in mainland Europe. It will be sold in Britain from around the same time as its Rover twin.

By that time, Peugeot will have introduced the 306, the replacement for the 309 and a rival for the Escort and Astra. The car, a close cousin of the Citroen ZX, will be made at Ryton alongside the recently updated 405. The development should strengthen Peugeot's standing in the fleet business.

Mr Geoffrey Whalen, Peugeot's managing director, recalls: 'A decade ago we were predominantly a retail company. We had nothing in the Sierra category until we started building the 405 at the start of 1988. That was the key.'

The model allowed the company to create a fleet presence from practically nothing. It now ranks fourth behind Ford, Vauxhall and Rover, and well ahead of fifth place Renault. The 405 is expected to be replaced by an entirely new model in the autumn of next year.

Of course, the Big Four will not be the only companies with new models this year. From the volume producers there will be replacements for the Citroen BX, Fiat Cinquecento and Uno and Renault 21. At the more expensive end there will be new versions of the Mercedes-Benz 190 and Saab 900. The Jaguar saloon will get a V12 version, and the Volvo 850 will be offered as an estate. And last month Chrysler returned to the UK after an absence of 14 years with a couple of Jeeps.

The unknown is to what extent those new British makers - Nissan in Tyne & Wear and Toyota in Derbyshire - will pursue fleet buyers. Their models, the Primera and Carina E, would slot perfectly into any fleet. So would Honda's British-built Accord, though that company regards itself as more of a competitor to BMW than Ford.

GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies P5511 New and Used Car Dealers TECH Products P3711 P5511 The Financial Times London Page VI 1036
Survey of Vehicle Fleet Management (10): Count the cost, not the ozone - Acquisition Policies Publication 930222FT Processed by FT 930222 By KENNETH GOODING

CARS CREATE more than their fair share of pollution, some environmentalists suggest, and they damage the ozone layer. In the UK about half the new cars sold are bought by companies. Yet environmental concerns are having very little impact on company car acquisition policies.

Fleet managers are still primarily interested in finan- cial criteria when choosing cars for their fleets. For example, the 1992-93 survey of company car schemes by Company Secretary's Review magazine, published by Tolley, shows the cost of the car is by far the most important consideration when companies are deciding which cars to buy. The discount available, resale value and fuel consumption also rank highly in acquisition policies.

Most car fleet decision-makers do not think the availability of a catalytic converter on a car makes it particularly desirable. They place it at the bottom of a list of desirable factors that the magazine put forward for consideration.

However, another survey shows that environmental concerns are gradually penetrating the minds of decision-makers, even if reaction to these concerns is limited.

According to Hertz Leasing's report, 'The Company Car in Context,' 51 per cent of those responsible for car acquisition policy agree that running a fleet contributes to the UK's environmental problems.

But what are they doing about it? Hertz Leasing found that 79 per cent had considered using unleaded petrol, 47 per cent had evaluated specifying catalytic converters, 38 per cent had considered diesel engined cars, and 7 per cent had thought about using smaller engined cars in the fleet.

Hertz says the most popular 'green' response - the use of unleaded petrol in fleet cars - was predictable as all new cars delivered in the UK have had to be able to run on unleaded fuel since 1989 and the price differential between leaded and unleaded fuel acts as a financial incentive for a switch to unleaded. The report also points out that this switch does not do too much for the environment because unleaded fuel emits about the same level of carbon dioxide, nitrogen oxides and hydrocarbons as its leaded equivalent.

Hertz also suggests that 'it is likely the high statistic for catalytic converters is related to a tendency for more expensive, manager/director cars to have them fitted as standard equipment'.

There was considerable resistance among fleet managers to the use of diesel, said to be a more efficient, cost-effective and less environmentally damaging fuel.

However, they seemed 'highly predisposed' to using electric cars once these vehicles become a viable proposition and 70 per cent said they would consider adding them to their fleets.

Of the companies surveyed, 23 per cent boldly told Hertz that environmental factors had not the slightest influence on their company car acquisition policies. However, a similar percentage said such factors had had a 'significant' influence.

It was to be expected that UK companies would be more interested in saving money than saving the planet when acquiring cars, after all they have been struggling in the worst recession for 60 years and first things have to come first.

Essentially, corporations have three choices available when buying cars: outright purchase or finance lease with in-house management; purchase or finance lease with outside management; and contract hire (operating lease) with lease company management.

There seems to have been a substantial shift in sentiment at big companies away from outright purchase as the recession began to bite severely in 1990-91. The Monks Partnership remuneration consultancy group reported in its 1992 survey, 'Company Car Policy in the UK,' that, whereas the previous year companies reporting had bought 61 per cent of their cars by outright purchase, the latest statistics showed only 57 per cent were bought by this method.

Monks reported: 'Contract hire and leasing have increased in popularity as a method of acquisition in larger companies, while there has been a return to outright purchase in smaller companies.'

From the fleet manager's point of view, contract hire takes away nearly all the administrative problems associated with running a car fleet and permits clear and accurate budgeting. Of course, monthly rentals have to reflect the cost of providing this range of services, plus some profit for the contract hire company. However, contract hire companies running big national fleets can obtain huge discounts from the car makers and also buy their servicing and repair at only a fraction of the retail rates - benefits they can reflect in charges to clients.

An alternative to contract hire has recently emerged: contract purchase. Here the customer continues to have the advantages of fixed costs associated with contract hire - a useful aid to accurate budgeting - but can also claim writing-down allowances. This method tends to be beneficial for more expensive cars - those costing Pounds 22,000 or more. Monks Partnership reckons that about 3 per cent of companies are now using contract purchase compared with 24 per cent using contract hire.

Company Secretary's Review looks at the market in a slightly different way - at the number of cars covered by different types of acquisition methods. Its latest survey shows that contract hire and outright purchase account for 90 per cent of car acquisitions, shared about equally between the two methods. The magazine says that the main attraction cited for contract hire was that no capital outlay was required, 'with simplification in budgeting and administration also very important.'

The magazine's study shows the vast majority of companies using contract hire have a full maintenance package.

GB United Kingdom, EC P5511 New and Used Car Dealers P99 Nonclassifiable Establishments MGMT Management RES Pollution P5511 P99 The Financial Times London Page V 956
Survey of Vehicle Fleet Management (9): Instead of a miracle, try management / A look at how the cost of running a fleet can be controlled Publication 930222FT Processed by FT 930222 By KENNETH GOODING

STEWART WHYTE holds up a small, brightly-coloured box which he claims is the 'miracle switch' that car companies are incorporating on many vehicles. This simple device, he says, enables a car which can travel only 27 miles to a gallon of fuel when on business to cover 40 miles to the gallon when the car is being driven privately by the same driver.

A careful inspection reveals the miracle switch to be an empty cigarette carton covered in crepe paper.

That is how Mr Whyte, managing director of Fleet Audits, a vehicle fleet consultancy, injects some humour into the serious subject of controlling fleet costs during his training courses.

He points out that, if a company urgently needs to reduce the cost of running its fleet, a memo to all company car drivers saying that their fuel consumption is being carefully monitored and that fiddles will not be tolerated 'will reduce fuel costs that week.'

Petrol and diesel pump prices have not risen at anything like the rate of inflation for some years but that might be change in the next UK budget. The government has hinted that it may recoup the income lost in removing special car tax by lifting vehicle fuel duties. There is also the prospect of a 'carbon tax' being levied on petrol as part of the government's environmental policy.

Mr Whyte says fuel already constitutes an important part of total fleet costs and, from Fleet Audits' experience, too many companies ignore abuses such as blatant fiddling, aggressive driving styles which produce high fuel consumption or a lack of journey planning to minimise the distances covered.

There are some indications that the recession is making an impact in this area. Latest research by the Monks Partnership remuneration consultancy, to be published in its annual 'Company Car Policy in the UK' survey later this year, shows that 62 per cent of the companies questioned now issue drivers with fuel credit cards which can be used only for buying fuel and limited quantities of associated products such as oil or windscreen cleaning liquid. A year ago only 53 per cent of companies were using these cards.

However, the latest estimates also reveal that the number of companies which simply reimburse their car drivers for receipted bills has gone down only slightly, from 49 to 47 per cent, and this is a method which lends itself to fiddling.

Fuel is just one element in the cost of running a company car fleet. With each new car today costing on average between Pounds 10,000 and Pounds 12,000 and annual running costs of between Pounds 4,000 and Pounds 7,500, a relatively modest fleet of 50 cars has a capital replacement cost of at least Pounds 500,000 and an annual operational budget of more than Pounds 250,000.

Yet the harsher economic climate of the past two years does not seem to have encouraged companies to improve the monitoring of their car fleets. Company Secretary's Review magazine's 1992-93 survey of company car schemes, published by Tolley, showed that 28 per cent of the companies questioned do not monitor costs at all. This is precisely the same percentage as reported in the previous survey. Furthermore, 34 per cent of the companies monitored running costs merely by checking petrol consumption figures against expenses claims.

Only 54 per cent said they kept detailed records of the cost of each vehicle.

Fleet Audits' Mr Whyte suggests that many companies never bring all cost elements together - the accountant deals with depreciation in the balance sheet; fuel, insurance and maintenance are lost within 'salesmen's expenses;' funding costs are the finance director's responsibility. 'With no overall picture of how the costs build up, or what the total annual expense is, there is no basis of proper and effective cost control.'

It is essential, he says, to have correct information about business mileage covered by the fleet but it took the recent change to employers' National Insurance contributions to shake some companies out of a lethargy about mileage information. 'Mileage recording is not difficult and is a pre-requisite of almost every cost factor,' says Mr Whyte.

For example, it is needed to make a balanced judgment about moving the fleet from petrol-engined to diesel cars, something which many companies might have to consider if a carbon tax on fuel is introduced.

It was not so long ago, when big price premiums were charged for diesel cars and the cost of maintaining them was perceived to be greater than for petrol vehicles, that it was necessary for a car to cover 17,000 to 20,000 business miles a year to break even. Today, Mr Whyte suggests, the annual business mileage could be as low as 7,000 to 9,000.

Companies are also using out-of-date methods of car allocation, he says. 'Most managers accept the principle that vehicles in the same class can have widely different cost and reliability profiles. Most then fail to follow this through and allow vehicle selection on the most unreliable indicator of all - the list price.'

Most companies still own their car fleets outright, so residual value is a key ingredient in fleet costs. Too many do nothing to maximise residual values - Mr Whyte points out, for example, the cost of a decent valet at Pounds 30 will usually increase residual value by Pounds 100 to Pounds 250 - or to encourage employees to look after their vehicles.

According to the Company Secretary's Review survey, 42 per cent of the companies they polled sold their cars directly to employees, which Mr Whyte suggests is highly cost-inefficient. The survey continues to show that very few companies offer employees an incentive to maintain their company cars in good condition - only 4 per cent.

Too many companies have not changed their car replacement policies for decades even though vehicle technology has improved tremendously while at the same time, given the state of the jobs market, employees have become less demanding, Mr Whyte points out. 'It is important that the responsible director examine all the issues rather than slavishly continue an outdated tradition.'

Once again the recession seems to be having an impact in this area. For example, the Monks Partnership found that in the past year the percentage of companies keeping their cars for between 60,000 and 70,000 miles had risen from 34 in the 1992 survey to 38 this year and those keeping their cars for more than 70,000 miles was up from 27 to 35. Also, those companies keeping their cars for between three and four years had risen from 27 to 29 per cent while those keeping cars for four years was up from 2 to 3.

Mr Whyte says another common theme in company car fleets is a lack of driver discipline. Management fails to set standards or to take sanctions against those who breach the rules. One way this impacts costs is that fleet insurance charges are generally increasing by more than 25 per cent a year.

Mr Whyte says that Fleet Audits regularly identifies savings in annual costs of between Pounds 300 and Pounds 1,200 a vehicle simply by applying the same management disciplines and controls to the company car fleet as are applied elsewhere in the organisation.

The bottom line is that 'businesses simply under-manage their fleets. A competent fleet manager with adequate resources to deal with the fleet operation and manage it pro-actively is undoubtedly an expense. But in most companies that expense is likely to be repaid many times over by the savings generated by effective control.'

------------------------------------------------------------------------ CAR ALLOCATION (figures in percentages) ------------------------------------------------------------------------ Size of fleet (Total) 6-9 10-19 20-49 50-99 100+ ------------------------------------------------------------------------ Representatives 65 47 61 65 71 76 Middle management 63 32 50 63 81 90 Senior management 90 73 91 89 97 98 Directors/partners 89 85 89 88 92 93 Engineers, maintenance/tech 9 2 5 11 14 12 Other office staff 2 2 3 1 3 2 Others 4 2 4 2 4 8 ------------------------------------------------------------------------ Source: Company Secretary's Review Survey of Company Car Schemes ------------------------------------------------------------------------

CRITERIA IN ALLOCATION (figures in percentages) ------------------------------------------------------------------------ Size of fleet (Total) 6-9 10-19 20-49 50-99 100+ ------------------------------------------------------------------------ Seniority 84 83 84 85 86 81 Mobility need 70 65 67 76 59 75 Recruitment need 26 16 13 25 35 44 Work incentive 17 10 19 18 18 16 Minimum annual mileage 9 - 4 6 8 27 Minimum salary 4 1 1 1 3 13 Others 2 - 1 3 6 3 ------------------------------------------------------------------------ Source: Company Secretary's Review of Company Car Schemes ------------------------------------------------------------------------

GB United Kingdom, EC P99 Nonclassifiable Establishments P4729 Passenger Transportation Arrangement, NEC MGMT Management P99 P4729 The Financial Times London Page V 1477
Survey of Vehicle Fleet Management (5): Leasing still faces frontiers - European Trends Publication 930222FT Processed by FT 930222 By MARTIN DERRICK

THE UK's vehicle leasing industry is the EC's most developed and sophisticated by a significant degree, so the advent of the single market in Europe presents unparalleled opportunities.

The removal of trade barriers should lead to a growth in business and leisure travel and an increase in the pan-European movement of labour.

According to Mr Freddie Aldous, president of the European Car and Truck Rental Association, 'for British-based leasing companies, the single market offers a rich prize: wider markets, increased flexibility and a host of new opportunities.'

However, the UK's leasing and contract hire specialists will not be storming Europe overnight; and any forays into Europe are likely to be careful and slow. The reason is that, despite the best efforts of the EC Commissioners, each individual European market retains its own specific characteristics - and, perhaps more importantly, its own fiscal regimes.

British companies cannot go blundering into France or Spain and expect to run a vehicle leasing operation on the same lines as their home-based business; so growth in Europe is most likely to come about as a result of joint ventures with a local business that fully understands the local marketplace.

That is the view of Mr Norman Donkin, chairman of AT&T Norfolk Finance. 'In the fullness of time we plan to expand into Europe, though how has still to be determined. But we also need to be cautious. So I think the route would be either to acquire a well-founded company or to go into partnership with one. The last thing we would do is set up alone and in isolation.'

Though Britain has the lead in contract hire, it is not Europe's largest business car market. Germany is at the top of the tree as far as numbers are concerned with a business car parc (population) of almost 4m units. The more sophisticated European markets - France, Belgium, Holland and Italy - are all experiencing strong growth in contract hire.

In Germany, most company car business used to be undertaken by finance lease. However, companies are now moving away from purchasing vehicles towards contract hire, which is known as 'kilometre leasing'.

France, which calls its contract hire location longue duree, has seen its leasing business dominated by the home-based manufacturers in the past. So far, the big three - Renault, Peugeot and Citroen - have kept the independent contract hire operators at bay.

Italy, too, was once almost wholly dominated by its major domestic manufacturer, Fiat, but other companies such as VAG, Peugeot and Opel are making inroads. Finance leasing is a popular means of acquisition but full contract hire is still relatively small business.

It is even smaller business in Spain, where the current tax regime means it is cheaper for the employee if the car is bought by the company rather than leased; as a result contract hire has only a tiny percentage of the market.

Holland is a relatively mature market as far as contract hire goes but its customers are traditionally geared towards price only.

'Quality of service and customer loyalty are not high on the list of priorities,' comments Mr Neil Pykett, managing director of Cowie Interleasing. He predicts that UK contract hire operators may see Germany and France as likely markets in which to expand in the near future.

However, the single market for vehicle leasing will not achieve its potential until full tax harmonisation becomes a reality rather than a myth, says Mr Ron Elder, managing director of Avis Lease and Fleet Management.

'Each EC member state still operates its own tax jurisdiction regulating VAT, excise duties, benefit-in-kind and ad hoc car taxes. All of these affect the attractiveness and suitability of the range of lease products on the market compared with other means of acquiring vehicles. National governments also retain control of domestic interest rate structures which impact local lease rates.

'Add these to national variations in car delivery costs, maintenance costs and residual values and the estimated time of arrival of true pan-European leasing is somewhere at the end of the decade,' he predicts.

But despite the variables, he does discern one trend: a marked shift in Europe away from purchasing vehicles in favour of leasing or contract hire. 'It will account for around a third of the market by the year 2000, compared with a current market share of 21 per cent,' says Mr Elder though he warns: 'But once again, the lack of true harmonisation within the EC may serve to stifle the development of one of the most advanced leasing products available.'

----------------------------- INCIDENCE OF COMPANY CARS IN EUROPE ----------------------------- DIRECTORS 1989 1992 % % ----------------------------- Germany 80 97 Netherlands 84 94 UK 98 94 Italy 83 93 Belgium 82 93 Spain 85 91 France 83 89 ----------------------------- Source: Monks Partnership -----------------------------

QR European Economic Community (EC) P7515 Passenger Car Leasing GOVT International affairs P7515 The Financial Times London Page IV 839
Survey of Vehicle Fleet Management (6): 'No hassle if you hire' - How operators are financing acquisitions Publication 930222FT Processed by FT 930222 By MARTIN DERRICK

A RECENT survey of asset acquisition trends by Lombard Business Finance reveals that businesses hard-hit by the recession are still retrenching and plan to make fewer asset purchases in 1993. What the 'Sourcing of Finance by British Business' survey also shows is that of those companies that do intend making acquisitions, the current trend on financing methods is towards a cautious approach, with a high proportion of companies favouring self-financing where possible - except in vehicles.

Here, there is a marked decline in the use of instalment credit (hire purchase/lease purchase) and a corresponding increase in the use of leasing and contract hire.

The reasons are not hard to find. Not only does contract hire free capital within a business, but it also reduces a company's administrative burdens and allows it to concentrate on the core business - more important than ever in difficult trading times.

That is why, a year ago, Gulf Oil put its fleet of 160 cars into the hands of PHH Allstar. During a review of internal costs it became apparent that company car administration was taking up too much management time. Mr Paul Henshaw, Gulf Oil's contracts manager, says: 'PHH Allstar put forward a proposal to take over responsibility for managing all aspects of the fleet.

'The arrangement is self-financing and after six months it is already clear that the operation is extremely cost-efficient. The cost of the fleet management fee is covered by the reduction in maintenance costs.'

Mr Roderick Simpson, assistant managing director of Gardner Merchant, the contract catering organisation, which runs a 1,200-strong fleet, tells a similar story.

'Gardner Merchant offers expertise, economies of scale and experience. It was logical to hand over the running of our fleet to a company which provides a specialist fleet management service in order to reap similar benefits.

'Administering the fleet internally was taking up an increasing amount of time and staff could only react to problems that arose with the fleet, rather than plan and ensure that these problems didn't happen. We decided we were better off concentrating on the business we knew best - catering - and handing over the management of the fleet to a specialist. We are making a net saving, even taking into account the service fee.'

Reducing internal administrative burdens is one good reason for switching to contract hire or fleet management, but it is by no means the only one; and during a recession many companies have found it makes sense to release the capital tied up in the fleet through some form of sale and lease-back deal.

That was the main reason prompting retail group Aquascutum recently to change from owning and running its own 100-car fleet to opting for full contract hire with Fleet Management Services. 'They saw the advantages of releasing the considerable capital employed in the cars and they wanted a professional company to run the fleet both to save on management time and to ensure it was being operated in the most efficient possible way,' says Mr Pete McAree, sales director of FMS.

But as more companies switch to contract hire or fleet management, it is not only the national and multinational fleet and leasing specialists which are picking up this extra business. Many individual dealers, supported either by their manufacturer-importer, or by one of the larger companies such as Dial Contracts which has launched a franchise system allowing dealers to take advantage of the economies of scale Dial can offer in terms of funding and vehicle acquisition, are also making local inroads into the contract hire market.

'It is definitely a growing area of the market for us', says Mr Stephen Cliff, business manager at BMW dealers Coombs of Guildford. 'Many businessmen and women are sick to death of owning cars and now simply want them provided with no hassle and funded with someone else's money. Three years ago we had five vehicles on contract hire, last year we added 40 and this year we will add another 60 to the portfolio.'

Those are not big numbers in comparison to the contract hire specialists with up to 60,000 cars on their books but the growth potential for dealers is clear - and the customers seem to like what they get from a local firm.

One of Coombs' contract hire customers is Roskel Contracts, which runs around 50 cars on its fleet. Mr Roger Harris, a director, says they changed from purchasing cars to contract hire for simplicity's sake: 'I'm told there are tax advantages, but that wasn't the reason. Contract hire is so much easier. If we get a rogue car, it's not our problem but the contract hire company's.

'We know exactly what each car will cost so it takes all the hassle out of running a fleet. All the niggles are passed on to the contract hire company.'

QR European Economic Community (EC) P7515 Passenger Car Leasing P5511 New and Used Car Dealers MKTS Market data MGMT Management P7515 P5511 The Financial Times London Page IV 860
Survey of Vehicle Fleet Management (8): Security now a selling point - How crime is distorting the new car market Publication 930222FT Processed by FT 930222 By MARTIN DERRICK

UK motorists are more than twice as likely to suffer from car crime than they were 13 years ago when the Conservatives came to power, according to Mr Tony Blair, Labour's home affairs spokesman. He says that each year one in five drivers will either have their cars stolen or broken into, writes Martin Derrick.

The Home Office response is that its Car Crime Prevention Year has an advertising and promotional budget of Pounds 5m and that during the first three months of the campaign, car thefts were down 7 per cent.

Leaving aside the political point-scoring, the fact remains that car crime is at epidemic levels - so much so that it now distorts the new car market. Insurers are either refusing to cover or demanding massive premiums for the high performance cars that seem to be the major targets. The result has been a significant fall in demand for hot hatchbacks and CT models, both new and used.

The government's response is primarily that it is up to the motor manufacturers to provide better in-car security measures, and the efforts of the British Vehicle Rental and Leasing Association over the past five years to persuade manufacturers to do just that are finally bearing real fruit.

The BVRLA instituted an annual anti-theft award in 1989 and in the first two years it went to Vauxhall, the only volume producer to take the subject at all seriously at that time. No award was made in 1991, but a well-deserved winner last year was Rover for the highly sophisticated measures - including a standard ultrasonic alarm system - on the revised Rover 800 Series cars.

Happily, the BVRLA judges are going to have their work cut out to decide on the 1993 recipient, because virtually all major manufacturers have now b e e n p e r s u a d e d t h at security is an important selling point and that the cost of providing improved protection is outweighed by the commercial benefits.

Rover is likely to be a front- runner again since it has launched the 200 Coupe range, fitted with the same infra-red central door locking and ultrasonic alarm system as the larger 800. Even more pointedly, it has fitted as standard all Metros for the 1993 model year with an immobilising system - the first time any volume manufacturer has done so at the lower end of the market. And although it will not discuss future products, a new 600 Series will be launched in the spring and it is reasonable to speculate that this model will incorporate advanced security measures.

Similarly, what Ford expects to be its biggest-selling fleet car, the Mondeo, which is launched in March to replace the Sierra, features a visible VlN number, high security door locks operated by sleeved cables and shielded from attack by protective steel plates between the two door skins, and an optional deadlocking system combined with an anti-theft alarm which also immobilises the starter motor.

A state-of-the-art protection system is standard on the ultra-high performance Ford Escort RS Cosworth which involves not just deadlocking and alarms but also a Vecta immobilisation system that requires a second electronic key to disarm it.

Vauxhall, like Rover, is now bringing improved anti-theft measures to the lower end of the market with deadlocks available on all models in the new Corsa range which goes on sale in April. A security alarm and engine immobiliser is also standard on 65-versions and optional on all other models.

Porsche has just launched an approved Anti-Theft immobiliser system which, like the Escort Cosworth's, requires a high security microchip key to be fitted into a dashboard housing before the car will start. Porsche claims that with over 35bn key combinations, no two codes will ever be the same and as a result Norwich Union is offering an insurance discount to customers who have the immobiliser fitted to their Porsches.

In many ways it is insurance companies which stand to benefit most from improved vehicle security and this is why Mr Derick Perkins of Fleet Management Services says they should do more to contribute towards research to help manufacturers improve the security of vehicles: 'Total vehicle security is still a long way off and needs considerable research before manufacturers are in a position to know how to deal with the problem effectively,' he says.

Perhaps long-term, research being undertaken by Ford will provide the answer to car theft. Its proposed 'Star Wars' system uses satellite technology to pick up signals sent out by the electronic engine management system of the car in the event of theft. A signal is then sent back from the satellite which stops the engine, applies the brakes and triggers an alarm. Combined with the sort of location system already used by Datatrak to follow high-security trucks and vans, it could also alert police to the exact position of the car.

GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies TECH Safety TECH Standards TECH Services P3711 The Financial Times London Page IV 870
Survey of Vehicle Fleet Management (7): Budget hopes for diesel - Why British drivers are now more interested Publication 930222FT Processed by FT 930222 By STUART MARSHALL

IN 10 years, the diesel car has changed from being a curiosity into the logical choice for the driver who has some regard for fuel economy and environmental protection.

At least, it has in Britain. In many mainland European countries the diesel's ability to cut the cost of motoring has been well-known for a long time.

While diesel's share of annual UK registrations has risen from 1 per cent in 1982 to 12.6 per cent last year (200,835 cars), there is still a long way to go before penetration matches that of France. There, with both horsepower-based annual tax and fuel duty favouring diesel cars, they have routinely been chosen by high mileage drivers and now account for more than 40 per cent of registrations.

Until recently, fuel economy, long engine life and reliability had been the strongest cards in the diesel car's suit.

Typically, a diesel will achieve a year-round fuel consumption between 20 and 30 per cent less than that of a comparable petrol-engined car. Higher economy gains are achieved in heavy traffic rather than motorway driving as the diesel engine performs best when producing less than full power.

Equally, a diesel car shines when used continuously on short journeys involving many cold starts. Because it burns little more fuel when warming up than it does when running at normal working temperature, its consumption may be only half that of a similar petrol car during the first 10km of a winter journey after starting from cold.

This benefit is not fully reflected in the official Department of Transport fuel consumption figures. These are obtained by simulating traffic driving, as well as 90 kmh (56 mph) and 120 kmh (75 mph) constant-speed cruising, with the engine at full working temperature. Life is much harder in the real world where diesels can show more than 30 per cent greater economy when used mainly in stop-start, fairly low speed conditions.

Smoke-belching, ill- maintained and often overloaded lorries do nothing for the diesel engine's image as an environmentally acceptable power unit. Many believe a diesel car is inherently dirtier than a petrol car, especially one with a catalytic converter. That is not so.

A diesel produces only a fraction of the amount of poisonous carbon monoxide created by a petrol engine. Its output of carbon dioxide - the so-called greenhouse gas believed to be the cause of global warming - is lower because it burns less fuel. Less energy is used to produce diesel than petrol at the refinery.

Although its emissions of nitrogen oxides and sulphur dioxide are worse than a petrol engine's, overall a diesel is less damaging to the environment than the average petrol engine with an exhaust catalyser. Now that many car diesels are being fitted with simple oxidation catalysers, the balance of advantage is tilting further in their favour.

But by itself, the environmental argument would cut little ice with business drivers and fleet managers if diesel cars were significantly less pleasant to drive than petrol cars.

They used to be slower, noisier and generally harsher to drive than their petrol engine counterparts but a great deal has happened over the last decade. Turbocharging and intercooling have significantly raised output and, by way of a spin-off, made the car diesel engine smoother and more refined.

Engine design changes have improved the combustion process, reducing particulate emissions (in other words, smoke) at source. Two-stage injectors have reduced the diesel engine's disagreeable knocking immediately after cold-starting and almost eliminated it when idling.

The fleet manager and, for that matter, the executive user-chooser deciding to go diesel are now faced with an embarrassment of choice. The days when only a handful of manufacturers offered viable diesel options have long gone. Almost every make of car from supermini to senior businessman's saloon is now available with a diesel (and often turbo-diesel) engine.

Peugeot-Citroen (PSA) is the acknowledged leader in small automotive diesel design and production. Its engines are used in a wide range of cars of its own and other makes, from the small Citroen AX, Peugeot 106 and Rover Metro to the medium-sized Peugeot 405 and Citroen BX, which is soon to be replaced by the Xantia. At present, the 12-valve, 4-cylinder, 2.1-litre PSA diesel is exclusive to the Citroen XM and Peugeot 605.

Indeed, the best of the modern diesel cars, such as the Citroen ZX turbo-diesel, actually outperform some petrol-engined cars of comparable size and price while returning around 50 mpg (5.65 1/100 km).

Among other diesels that perform exuberantly but quietly enough to be used as police patrol cars are the Vauxhall Nova (Opel Corsa) and Astra, powered by engines supplied by General Motors' Japanese partner, Isuzu.

In Britain, most of the growth in diesel car registrations has been at the lower end of the market with engines of under two litres capacity. Current Inland Revenue rules impose a heavy tax penalty on drivers of over two-litre diesel cars. (The rules ignore the fact that a diesel engine needs more cylinder capacity than a petrol engine to produce a given amount of power).

However, the disincentive of tax banding based on engine size to the use of executive-class diesels will probably be swept away when Mr Norman Lamont, the chancellor, presents his next budget. EC tax harmonisation proposals may also lead to a greater price differential between unleaded petrol and diesel. The threat of a carbon tax can only increase the longer-term appeal of executive-class diesel, especially as it uses less fuel.

Despite the tax disadvantage, UK sales of upmarket diesels went up last year. Mercedes-Benz sold 33 per cent more 190D saloons and 45 per cent more 300D and 300TD diesels in 1992 than the year before.

More startling was VW-Audi's 286 per cent and Vauxhall's 307 per cent year-on-year increase in diesel car sales last October though this was mainly due to their introducing greatly improved models.

Diesel executive car sales will be boosted later this year when BMW belatedly enters the UK market with its super-smooth 6-cylinder engined cars.

These, and Audi's powerful yet frugal direct-injection 80 and 100 turbo-diesels, will give quality and image-conscious business diesel car drivers an alternative to Mercedes-Benz, whose diesels are still unmatched for silence and urbanity. And exceptionally, Mercedes-Benz offers automatic transmission on every one of its diesel models. Few others do, though Citroen (the XM) and Vauxhall (the Carlton) are notable exceptions.

QR European Economic Community (EC) P3711 Motor Vehicles and Car Bodies P3519 Internal Combustion Engines, NEC TECH Standards MKTS Sales P3711 P3519 The Financial Times London Page IV 1119
Survey of Vehicle Fleet Management (3): Market 'will still be distorted' - Industry's reaction to the Inland Revenue's proposals Publication 930222FT Processed by FT 930222 By JOHN GRIFFITHS

THE Inland Revenue's proposed new company car tax regime has met with a chorus of criticism. At least one accountancy group has warned that 'there will be considerably more losers than winners' if it is adopted unchanged.

Critics include the Society of Motor Manufacturers and Traders. In a formal submission, it voices 'profound' opposition to the Revenue's proposed retention of price banding as a means of assessing the tax benefit payable on the personal use of company cars.

The SMMT argues that any new regime should be based solely on a fixed percentage of list prices, with the exception of very expensive makes such as Rolls-Royce and Aston Martin, whose manufacturers could be severely disadvantaged by a wholly pro rata scheme.

At the heart of its opposition is its belief that any form of price banding will lead to market bunching of manufacturers' models at around the price 'break points', thus perpetuating - even if to a reduced degree - market distortions already complained of by the Monopolies and Mergers Commission.

Despite the SMMT's stance, a survey of company car operators undertaken during a series of Association of Car Fleet Operators 'roadshows' late last year revealed users, at least, divided. Some 50 per cent of those surveyed favoured a more sophisticated banding system but almost as many - 42 per cent - backed a straightforward percentage system.

ACFO is a powerful voice in the sector, founded some 20 years ago and now with about 500 member organisations operating some 450,000 cars and light commercial vehicles.

But the diversity of views expressed by its membership makes it all the more likely that changes to the scheme as proposed by the Revenue itself are unlikely to be significant.

There were, however, some broad areas of consensus:

that published list prices, rather than actual cost to buyer or other yardsticks, should be used as the basis for calculating tax;

that most users are believed already to be over-taxed - Mr Lamont's claims to tax neutrality notwithstanding - and that no more than 20 per cent of list price should be used to assess the level of tax liability;

and most significantly, that the Revenue had done the entire sector a disservice by not allowing business mileage thresholds into the consultation process.

thresholds is one of the thorniest in the entire debate. ACFO describes many of its members as being 'incredulous' that it should not be up for review.

Mr Stewart Whyte, ACFO's spokesman and a director of the Fleet Audits consultancy group, declares: 'Without addressing this issue, the review can be at best half-hearted. The current system of mileage adjustments is hopelessly anomalous and is widely accepted as generating a great deal of unnecessary business mileage just to exceed the thresholds.'

The thresholds are under 2,500 business miles; 2,500 -18,000 and over 18,000. At each threshold, the assessed tax payable is halved to reflect a perceived progression from 'perk' to essential car user.

Mr Whyte's argument, endorsed across much of the fleet sector, is that not only does the system waste fuel and company time and resources - through drivers inventing business trips merely to lower their personal tax bills - but it is arbitrary in making no allowances for differences in industry, operating patterns or territorial factors.

Fleet Audits has put in its own submission to the government, advocating a sliding scale charge based on the ratio of private mileage to business mileage as an indicator of whether a car is a 'perk' or essential for business.

Under these proposals, if less than 5 per cent of total mileage was private, no scale charges should be incurred as the vehicle would clearly confer no tangible private use benefit. Between 6 and 35 per cent, 50 per cent of the scale charge is proposed, rising to 130 per cent where more than 85 per cent of a car's mileage is private.

Like other organisations which reacted to the Revenue's request for criticism, the company must wait until next month to find out whether any elements of its proposal have been taken on board.

At least on the broad mileage issue it is in accord with the British Vehicle Rental and Leasing Association, which claims that its industry currently buys 25 per cent of all new vehicles sold in the UK. The BVRLA, too, has expressed considerable concern that there is no apparent intention to change the 2,500 and 18,000-mile thresholds.

It, too, disputes the government's assertion that the current scale charges 'have moved much closer to realistic levels', claiming that they are now well in excess of the amounts required to cover average private use of a typical car.

Like the SMMT, however, the BVRLA advocates a scale charge structure based wholly on the published retail price of cars, and remains opposed to the price banding concept retained in the Revenue proposals. It supports the SMMT that even the new system would 'inevitably lead to distortions and bunching below the price break points and continue to perpetuate some of the anomalies in the present system.

'It is the BVRLA's majority view that a simple percentage of list price would avoid any unfairness at the top and bottom of the band and would avoid the distortions experienced with the current system.'

Among other critics, Mr Brian Friedman, managing director of Stoy Benefit Consulting, echoes the concern felt by many manufacturers that the drivers who will be hardest hit - senior executives driving the most expensive cars - are user-choosers who will simply opt for cheaper vehicles. 'The logical result will be a general downsizing of company cars.'

The Automobile Association insists that the Revenue's proposals are 'unrealistic', unfair, will encourage inefficient, high-mileage driving and do nothing to correct what it sees as distortions in the new car market.

According to Mr Simon Dyer, its director-general, 'work cars should be taxed on one factor alone: the actual value of the private benefit to the employee.

'This should be calculated on the cost to the employer of providing the car, and the number of private miles driven annually.'

GB United Kingdom, EC P5511 New and Used Car Dealers P99 Nonclassifiable Establishments GOVT Taxes CMMT Comment & Analysis P5511 P99 The Financial Times London Page II 1066
Survey of Vehicle Fleet Management (4): Threat to the company car - The Cash Option Publication 930222FT Processed by FT 930222 By JOHN GRIFFITHS

AS recession has deepened, unemployment has climbed and the personal tax burden on company cars has risen further, the survival of the company car as an integral part of the business scene has become more than an academic question, writes John Griffiths.

According to this year's annual Company Secretary's Review of company car policies, which monitors the fleet activities of nearly 600 UK companies, more than half of the companies surveyed are considering offering a financial alternative to the company car, although relatively few expect to act before the fine detail of the Inland Revenue's revised taxation of company cars can be properly digested.

Significantly for vehicle makers in particular - because of the high business car content of their sales - the Review research showed that the 'cash-for-cars' option is being considered by 60 per cent of companies operating larger fleets, of 50 cars or more.

The evidence of a strengthening 'cash-for-cars' trend is not quite so conclusive in another prominent company car policy survey, conducted by the Monks Partnership.

Its research shows that 20 per cent of the 200 companies it surveyed had instituted a cash alternative, but that it appeared to be unpopular with employees. Only around one in 10 had taken it up.

Nevertheless, Monks' finding that another 20 per cent of companies may change their policies this year and are also considering a cash option does indicate that a much closer evaluation of company cars is now on the corporate agenda.

Mr Simon Rodwell, a director of Monks Partnership, is convinced that companies are holding back until the taxation uncertainties are resolved. 'If higher priced cars were to be more heavily taxed under any new rules, this might make a cash alternative more attractive which, in turn, could affect a company's attitude towards the design of its cash allowance scheme.'

Companies which have already made the switch include a number in the financial sector, such as JP Morgan and Bankers Trust.

Others have studied the issue closely but have opted to retain their cars and subject them to much tighter purchase and operating controls.

There is even a very small minority which has simply withdrawn its cars and offered only partial or nil compensation. But these have tended to be companies fighting off receivership.

During the 1980s boom years of jobs chasing scarce skills, such debate as there had been about 'cash-for-cars' tended to focus on whether it might benefit employees whose cars were primarily a 'perk' and part of their remuneration package.

Now, with employers not only ravaged by recession but also having to pay, for the first time last year, National Insurance contributions on their employees' benefit for the private use of their cars, the issue is being examined from the viewpoint of potential cost savings to the company.

Because company cars are embedded in the UK business culture, the cash-v-car assessment cannot be wholly financial. Employees place an obvious non-monetary value on them as tokens of status and esteem within a company;

They also, surveys show, value the 'no-hassle' aspects of their company cars, such as not having to worry about maintenance bills.

Factors such as these help explain the decision of National Westminster Bank, which operates a widely-varied fleet of 11,500 cars, to reject the cash alternative and simply to operate the fleet more cost-effectively.

According to NatWest's Mr Allan Robertson, 'despite rises in taxation, most managers, if offered cash representing the true time cost of a car to a company would be worse off if they had to provide themselves with a car. Yet in most instances companies will not even offer what it costs them to provide a car.'

NatWest's approved list of manufacturers has been cut from 29 to seven and its fleet controllers themselves specify the cars and level of equipment, based on whole-life cost. Replacement takes place only when market conditions are favourable. When a car is disposed of, it still usually goes to auction but NatWest sets the reserve. Employees who have failed to take care of a car can face disciplinary action. Diesels are being introduced without the option.

In the first 18 months of the new regime, Mr Peter Parkinson, head of group vehicle purchasing, claims to have made savings of Pounds 1,750 a vehicle - or Pounds 20m in all and big savings continue to be made.

Contract hire gets short shrift. 'Would you hand over your wallet or purse to a contractor who is trying to make a profit from you?' he asks.

There are other potential pitfalls. For instance, one executive was an essential car user in frequent contact with his company's customers. He took a cash option for his middle management car and bought an elderly Ford Escort for which he claimed over 18,000 miles of company reimbursed mileage - at 40p a mile.

That is why Midland Bank, for example, insists that employees covering 18,000 or more business miles a year must have a company car, while offering lower mileage employees a cash option.

Fleet managers are starting to learn to their cost that the closer they look at the cash-v-car issue, the more complications seem to arise. Another recent one, arising from soaring car thefts and so-called 'joyriding', is the rise into four figures of the typical premium for the GTis of young City executives.

Factors such as these do so much to complicate the efforts of fleet management analysts to come up with a relatively simple formula by which the cash versus car benefit can be calculated.

However, Mr Clive Tulloch, a partner of Coopers and Lybrand, argues: 'If the cash is an alternative which the employee can choose instead of a car, it need not be set at a generous level, especially if the purpose is to provide an alternative to the car for those for whom the car is an expensive option. If cash is an option which employees are free to ignore if they wish it could simple be set at a figure which does not increase the employer's cost.'

If a mandatory cash scheme were introduced for all employees it would theoretically require - because of mileage and other factors - that different amounts should be paid to those who had been provided with the same level of company car.

In practice, however, employers would be likely to offer the same cash sum to all employees who had operated similar cars. And since that would create winners and losers, the overall cost would rise as a result of the company's understandable desire to minimise - for morale and associated reasons - the number of 'losers'.

GB United Kingdom, EC P5511 New and Used Car Dealers P99 Nonclassifiable Establishments MGMT Management GOVT Taxes P5511 P99 The Financial Times London Page II 1151
Survey of Vehicle Fleet Management (2): Wait for the tax changes - Drivers on business face a new regime Publication 930222FT Processed by FT 930222 By JOHN GRIFFITHS

IN his budget speech next month Mr Norman Lamont, the chancellor, is expected to indicate the extent to which the Inland Revenue's proposals for the reform of company car taxation, first outlined last summer, have been amended by criticism invited from the motor industry and other interested parties.

The legislation to implement the revised tax regime will then be introduced in this year's Finance Act. But such are the complexities of change - to PAYE systems, car makers' production and marketing strategies, for example - that there will almost certainly be no attempt to introduce the changes before the start of the 1994-95 tax year. If the switch- over seems likely to cause more complications than expected, it could even be postponed until later.

Despite, or perhaps because of, the wide range of responses to and criticisms of the Revenue's draft, there appear few signs that there will be significant departures from the scheme as originally proposed.

The Revenue has declared four principal aims in restructuring the way personal taxation of the company car benefit is assessed: greater fairness, reduced distortion of the new car market caused by manufacturers producing 'tax break specials' within the current price and engine capacity 'banding' system, to promote fuel efficiency and to simplify the administration of company car taxation.

Central to the Revenue's proposed new regime are a dozen new bands, based wholly on price and stretching up to Pounds 60,000. The current regime, which the Revenue itself has described as outdated and crude, has only two price thresholds, of Pounds 19,250 and Pounds 29,000, above which the assessed tax benefit to the user rises sharply.

These, however, currently are assessed in combination with three engine capacity bands, of under 1.4 litres, 1.4-2 litres and over 2 litres. One of the long-standing criticism of these capacity bands is that they do not differentiate between petrol and much less powerful but more economical diesel engines, which require more cubic capacity for a given level of performance.

The proposals favour using the manufacturer's list price as the basis for the bandings, but leave open actual cost to purchasers after discounts, and estimates of original market value for a particular category of car, as alternatives.

The Revenue has done its own calculations about the expected effect on some 2m company car drivers and asserts that 1.2m drivers would benefit from the revised structure, with their tax bills falling by up to 25 per cent.

However, it also acknowledges that there would be 700,000 losers. About 500,000 of these, with cars currently in the Pounds 13,000-Pounds 15,000 bracket, would be less than 10 per cent worse off. But about 200,000 drivers of high specification cars with prices just under the current two 'break' points face a 40 per cent tax rise.

Launching the proposed scheme, Mr Stephen Dorrell, financial secretary to the Treasury, said that it was designed to end the unfair situation whereby, for example, the presumably low-paid driver of a basic 1.8 litre Ford Fiesta diesel, using mainly for business, paid the same tax as the driver of a Mercedes 190 for equivalent business mileages.

What the new regime apparently does not seek to do is increase the total tax burden by more than the current scheme would impose in the normal course of annual adjustments.

In a foreword to the proposals, Mr Lamont signalled that the swingeing annual increases in scale charges that have quadrupled tax payable by company car users in less than a decade are at an end: 'The government recognises that company cars are an important feature of modern business life and of the UK car industry, and make a significant contribution to the Exchequer.'

While not spelling it out precisely, Mr Lamont indicated that, in the government's view, company cars are now just about tax neutral - neither encouraging nor discouraging their provision. Currently, the Exchequer's receipts from the tax are around Pounds 1.4bn.

The proposed dozen price bands are: under Pounds 5,000, Pounds 5,000-Pounds 6,499, Pounds 6,500-Pounds 7,999, Pounds 8,000-Pounds 9,999, Pounds 10,000-Pounds 12,499, Pounds 12,500-Pounds 15,499, Pounds 15,500-Pounds 19,499, Pounds 19,500-Pounds 24,499, Pounds 24,500-Pounds 30,999, Pounds 31,000-Pounds 38,999, Pounds 39,000-Pounds 49,999, Pounds 50,000-Pounds 62,500, and over Pounds 62,500. The advantage seen in this successively wider banding is that it would be particularly sensitive in the Pounds 10,000-Pounds 19,500 region where company cars are concentrated.

To generate the same revenue yield as the present system, the proposals suggest a scale representing two-ninths of a car's value for drivers covering 2,500-18,000 business miles a year, one third for low-mileage (below 2,500 miles) users and only one-ninth for those covering more than 18,000 business miles a year. The document proposes no changes to the business mileage bands, despite widespread criticism that essential car users are heavily penalised if they do not cover more than 18,000 business miles.

Cars now costing between Pounds 19,250 and Pounds 29,000 would be split into two bands. The 60,000 cars in the lower half of the current band would have the tax charge cut by 15 per cent on average. In the case of cars costing more than Pounds 24,500 - affecting about 20,000 - the drivers would be modest losers.

For the most expensive cars, priced now at more than Pounds 29,000, those at the bottom of the range - up to Pounds 39,000 - would have a tax charge reduced by more than 30 per cent. This would benefit companies such as Jaguar.

Above Pounds 39,000, the tax charge would rise by 35 per cent for cars costing between Pounds 50,000 and Pounds 60,000.

By using the price mechanism more strongly, the scheme also aims to encourage the use of more economical cars. In that context, the regime, if adopted largely unchanged, should give a significant boost to diesel cars.

The administrative argument in favour of the Revenue's proposals is widely seen as a strong one. Whereas, at budget time each year, car makers and fleet users alike have traditionally waited on tenterhooks for the revised scale charges in each Budget, to assess the likely impact on both car users and car sales, the Revenue's proposed new system would be broadly self-correcting. Each year, cars could be expected to drift up through the price bands, depending on prevailing rates of inflation.

------------------------------------------------------------------------ CAR BENEFIT SCALE CHARGES 1992-93 ------------------------------------------------------------------------ Original High business market Engine mileage (18,000 value size (cc) miles or more) ------------------------------------------------------------------------ Cars under four years old ------------------------------------------------------------------------ Up to Pounds 19,250 0-1400 Pounds 1,070 Up to Pounds 19,250 1401-2000 Pounds 1,385 Up to Pounds 19,250 2001+ Pounds 2,220 Pounds 19,251 to Pounds 29,000 2,875 Pounds 5,750 Over Pounds 29,000 All Pounds 4,650 ------------------------------------------------------------------------ Cars over four years old ------------------------------------------------------------------------ Up to Pounds 19,250 0-1400 Pounds 730 Up to Pounds 19,250 1401-2000 Pounds 940 Up to Pounds 19,250 2001+ Pounds 1,490 Pounds 19,251 to Pounds 29,000 All Pounds 1,935 Over Pounds 29,000 All Pounds 3,085 ------------------------------------------------------------------------ Average business Low business mileage (2,501 mileage (2,500 to 17,999 miles) miles or less) ------------------------------------------------------------------------

Up to Pounds 19,250 Pounds 2,140 Pounds 3,210 Up to Pounds 19,250 Pounds 2,770 Pounds 4,155 Up to Pounds 19,250 Pounds 4,440 Pounds 6,660 Pounds 19,251 to Pounds 29,000 Pounds 5,750 Pounds 8,625 Over Pounds 29,000 Pounds 9,300 Pounds 13,950 ------------------------------------------------------------------------ Cars over four years old ------------------------------------------------------------------------ Up to Pounds 19,250 Pounds 1,460 Pounds 2,190 Up to Pounds 19,250 Pounds 1,880 Pounds 2,820 Up to Pounds 19,250 Pounds 2,980 Pounds 4,470 Pounds 19,251 to Pounds 29,000 Pounds 3,870 Pounds 5,805 Over Pounds 29,000 Pounds 6,170 Pounds 9,255 ------------------------------------------------------------------------ Source: Inland Revenue ------------------------------------------------------------------------

GB United Kingdom, EC P5511 New and Used Car Dealers P99 Nonclassifiable Establishments GOVT Taxes P5511 P99 The Financial Times London Page II 1308
Survey of Vehicle Fleet Management (1): Lure of a buyer's market - For UK carmakers, fleet sales are vital. But the new tax regime may lead more companies to offer employees a cash alternative to a car Publication 930222FT Processed by FT 930222 By JOHN GRIFFITHS

IN THEORY at least, the savagery of the current recession has provided an opportunity for vehicle fleet managers to adopt the mantle of heroes - slayers of waste on behalf of a corporate sector in distress.

Reality, in an unnerving number of cases, is somewhat different. According to one influential annual survey of the fleet policies of nearly 600 UK companies, the harsher economic climate has had no noticeable effect in terms of tightening the financial disciplines applied to company fleets, in particular those where cars are provided primarily as 'perks'.

Nearly one in three companies is still not even monitoring the operating costs of its car fleet, according to the current Company Secretary's Review of Company Car schemes*. Only 54 per cent of companies surveyed kept detailed records of the running cost of each vehicle.

As might be expected, there is a considerable difference between the controls exercised by small companies, with their limited resources, and large ones: 69 per cent of companies running a fleet of 100-plus vehicles kept detailed records on each vehicle. But if the survey's findings reflect approximately the UK picture overall - and there is no reason to suppose that they do not - that still means that nearly one in three of these larger companies has no proper idea of its fleet costs.

There is evidence, however, that the sector as a whole has started to become more sensitive to fleet costs, even if in some cases its attempts to control them have proved counter-productive. In that category, for example, comes the retention of vehicles to an age and mileage where maintenance and repair costs become excessive and where their unreliability potentially impairs the effectiveness of employees.

There has been no lack of initiatives from vehicle makers to persuade business car users to sign fresh orders. With most large continental new car markets turning down, Ford, Rover, and General Motors through its Vauxhall subsidiary, as well as other key players such as Peugeot, have been doing their utmost to encourage and capitalise on faint stirrings of recovery in the UK economy.

The UK business car sector is exceptionally important to them. Britain rivals Germany as Europe's leading market in terms of the number of business-funded cars on the road - more than 3m - but it outranks Germany in terms of company car sales as a proportion of the total.

'Fleet' sales - defined as sales made to companies operating 25 cars or more - accounted for nearly 42 per cent of total new car sales in the UK last year. Add on sales to smaller fleets and cars bought for business but registered in the name of individuals, such as architects and lawyers, and most estimates put the total at between 65 and 70 per cent.

For UK market leader Ford, even though it substantially reduced its unprofitable sales to the big car rental companies last year, fleet sales alone accounted for more than half its total. Two out of every three Vauxhalls sold went to the 25-plus fleets.

Even so, after several 'false dawns' of sales recovery last year, the total new car market reached only 1.59m units - 700,000 less than in the record year of 1989. That was after the removal, in two stages, of the 10 per cent Special Car Tax against which manufacturers had lobbied for more than a decade. Against that background - with car plants on short-time working, tens of thousands of jobs lost and the collapse of Leyland DAF and AWD in the commercial vehicle sector - fleet managers may justly consider themselves in a buyer's market.

Indeed, the competitive screw is about to tighten further. At the end of last year, the first cars began emerging from Toyota's new car plant at Burnaston, Derbyshire, and from Honda's at Swindon in Wiltshire. By the mid- to late 1990s, these plants will be adding at least 300,000 units to UK car output, in addition to well over 200,000 a year from Nissan's plant at Sunderland.

All three Japanese manufacturers know that to achieve long-term success in the UK they must establish a firm fleet presence, and have set up marketing divisions specifically to cater to the sector. For Nissan, which last year took over its UK distribution operations following the rupture of its ties with Mr Octav Botnar, the efforts have already begun to bear fruit: nearly 11,000 of its sales last year were to the 25-plus fleet sector, or nearly 15 per cent of its total.

Surveys of companies' fleet policies show that what was once an entrenched hostility by British companies towards putting Japanese-badged cars on their fleets is now rapidly crumbling.

According to this year's Monks Partnership guide to company car policies**, 65 per cent of the 200 companies it surveyed (72 of them with Pounds 500m-plus turnover) now have Japanese cars manufactured in the UK on their 'approved' company car lists. Even cars produced in Japan or elsewhere outside Europe are approved by 47 per cent of such companies. The figures are only slightly less - 50 per cent and 38 per cent respectively - among smaller companies.

Thus when the Mondeo, the medium car range replacing the Sierra, on which Ford claims to have spent Pounds 4bn, hits the marketplace next month as its first 'world' car, even Mr Ian McAllister, the Ford of Britain chairman, acknowledges that the days when a new product from Ford would sweep all before it are now over. Nevertheless, the Mondeo stands a good chance of becoming the market leader in its sector.

However, it will be fighting for a place in the market among many more rivals than when the Sierra was launched more than a decade ago, and rival manufacturers will not meekly give way.

Thus there is little prospect of an end to the deep discounting that is now endemic in the motor trade. The scope of this discounting is also apparent in the Company Secretary's Review. Fleet managers report mean discounts of around 15 per cent on mainstream fleet cars, and even the executive sector 'specialist' companies like BMW and Mercedes are not immune, with the survey finding mean discounts of 5-10 per cent, depending on model.

Despite such discounts, and the seemingly contradictory lack of effective monitoring of operating costs by many companies, all the signs are of continuing caution by fleet managers towards new car purchases. Thus Mr McAllister expects at best a 10 per cent recovery this year, a view shared by most other industry leaders.

Yet there are special reasons why the outlook for the fleet sector is uncertain. Not least, many fleet managers want to know the final form of the revised taxation regime for company cars and their users. Mr Norman Lamont, the chancellor, is expected to shed more light on its detail and the timing for its introduction in his budget speech next month. It is expected closely to follow outline proposals unveiled late last year, and to equate taxation levels solely to new vehicle price.

Once the detail is known, companies will have a much better idea whether the time is appropriate, as a growing number appear to think, to offer their employees a cash alternative to a car, thus allowing them to disengage from the risks and complexities of running a fleet. An obstacle to such a switch was removed last year, when the courts ruled that no VAT should be levied on cash offered in lieu of a car - for uncertainty on that point had acted as a brake on 'cash-for-car schemes'.

Overcoming another brake on such schemes - that surveys show a strong desire by most employees to keep their company cars at almost any price - is another matter altogether.

*The Company Secretary's Review, Survey of Company Car Schemes 1992-93. Tolley Publishing Company, Tolley House, 2 Addiscombe Road, Croydon, Surrey CR9 5AF.

**Company Car Policy UK 1993, from Monks Partnership Ltd., Debden Green, Saffron Walden, Essex,CB11 3LX. Pounds 150.

GB United Kingdom, EC P5511 New and Used Car Dealers P99 Nonclassifiable Establishments COMP Company News MGMT Management MKTS Sales P5511 P99 The Financial Times London Page I 1405
Survey of Conferences and Exhibitions (6): Starting point for success - Gary Mead tries to find the secrets of a good conference Publication 930222FT Processed by FT 930222 By GARY MEAD

THERE IS no ready-reckoner to indicate how best to fix any of the many variables concerning a conference. How much to spend; how long it should last; what the venue should be; how best to publicise it - all are crucial factors in determining whether or not it will be successful, but any conference organiser requires from a client one basic starting point.

Setting carefully defined objectives and aims to be achieved by the conference or exhibition is an absolute prerequisite for a successful event. According to Mr Paul Swan, managing director of event organiser Spectrum Communications, 'there is now almost no capital city that does not have what it terms a convention centre and many secondary capitals such as Birmingham, Edinburgh or Glasgow, all either have or plan to have good conference centres.'

The wide choice of international venues, with at least 10 conference centres with excellent infrastructural support in the former west Germany alone, means that event organisers can be spoilt for choice - and have the opportunity for fine-tuned negotiation over not just price but other services too.

Moreover, the line between conferences and exhibitions is blurring; it is increasingly rare to find a conference without some sort of exhibition, and many exhibitions are now offering associated seminars. That development has resulted partly from the fact that the sector has suffered from the recession.

'Absolutely loads' of companies in the industry have gone under, according to Mr Swan. 'What has happened is that an awful lot of the smaller organisations have gone and there is a move towards the more secure suppliers, and they are all quite busy,' he adds. The more casual spending, especially at the euphemistically titled 'incentive' end of the market, has stopped, as testified by empty hotels everywhere.

'It is also tougher to win clients,' says Mr Swan, 'because there are people who go purely on price, since their own company is in survival mode.'

The event organisers that are surviving have had to learn some essential business lessons These include: building solid relationships with their clients; how to understand their clients' strategic needs; taking a long-term view to maintain quality of service; and being able to compete not just on price but also on giving value in many different ways.

Spectrum and similar companies are investing in efforts to measure the success of what they do, by pre and post-event measurements of retention of the message of events.

Ms Diana Ambrose, managing director of Conference Associates and Services, and vice-president of the International Association of Professional Congress Organisers (Iapco), says that when it comes to selecting a conference or exhibition organiser it is vital to 'see how long they have been in business. Study their track record. Look at the type of events they have organised, speak to some of their previous clients, even look at their office structure, how it operates. There are a lot of companies that appear and disappear. Many conferences are now being planned for two years' time and it is vital to make sure that the organiser has the financial means to survive.'

Choosing a venue requires careful planning. If international, then it must be a location well-served by airlines and with adequate accommodation. If people are paying to attend rather than being required to do so by their company, then a line-up of attractive speakers is important.

Making sure that no-one speaks for 20 minutes is a basic rule of thumb, since, as Ms Ambrose puts it, 'no-one says anything more in 60 minutes than they can adequately do in half that time.' Mr Swan says that it is important to get from the client what the purpose of the event is: 'Is this meant to be fun? Is it meant to have very cerebral overtones, in which case we could go to Oxford or Cambridge?

'Some time ago one of our clients had booked one of our favourite venues, the NEC in Birmingham. Then they told us what the show was meant to achieve and we took them instead to Paris. We are big fans of the NEC but what our clients were trying to do in overall terms of ambience and feel was best served by Paris, even before we found the individual hotel.

'First impressions at an event are crucial; by stepping into a luxury hotel in Paris you create a certain feeling. For other types of events, the NEC might be much better. It's a bit like three-dimensional noughts and crosses; you've have got a lot of variables which need to be considered.'

Ms Vanessa Cotton of the Event Organisation Company, confirms that those event-organising companies which are marketing-led have not only survived the recession but actually done rather well through it. 'Corporate clients are now looking for very visible value for money. A meeting which generates a few hundred leads in the form of real people as part of an overall communications campaign has got value stamped all over it, compared to meetings which are just held because they always have been or those where no-one has really thought about why they are doing it. People now have to examine - and are examining - why they hold an event.'

It is therefore impossible to define a good conference in any single way. For delegates, it must mean a satisfying experience without hassles over poor accommodation, food, transport and service.

For those who have spent their money on holding the conference, it must lead to new custom (if the host is a company) or a certainty that any future conferences will maintain or increase attendance (if the host is a trade or other association).

As with any other marketing tool, the only reason for using it is if the response is positive. Two organisations which are able to give advice on organising conferences are:

The Association of British Professional Conference Organisers (ABPCO); Tony Waters (secretary), c/o 54 Church Street, Tisbury, Salisbury, Wiltshire SP3 6MH.

International Association of Professional Conference Organisers (IAPCO); Ghislaine de Coninck (executive secretary), Rue Washington 40, B-1050, Brussels.

GB United Kingdom, EC P7389 Business Services, NEC P7999 Amusement and Recreation, NEC TECH Standards MGMT Management MKTG Marketing RES Facilities P7389 P7999 The Financial Times London Page 25 1069
Survey of Conferences and Exhibitions (7): A world of locations - Venues, The choice is becoming more varied Publication 930222FT Processed by FT 930222 By BETHAN HUTTON

THERE was a time when conferences were considered an easy source of income by hoteliers and others who found themselves with large halls or bedrooms that would otherwise stand empty. Unwary conference bookers were faced with unreliable service, awkwardly shaped conference rooms and ever-rising charges.

Now, however, conference planners find an industry with high standards and enormous capacity to fill during a recession. Customers can assume venues will be amenable to tough negotiations on price, without withdrawing the extras - high tech audiovisual equipment, notepads and soft drinks at each delegate's place, hairdriers and chocolates in every room - which have come to be expected.

The recession has made many European clients anxious to avoid the appearance of extravagance, according to Ms Sally Greenhill, of conference production specialists Spectrum Communications. Conferences have become shorter, numbers smaller and locations less lavish, though high standards are still expected for meeting rooms, equipment and service, she says.

Maturing markets also mean that demand for large conferences is levelling off or declining in most of Europe and the US, but the small meetings sector of the industry, encompassing training, internal management meetings and small conferences, continues to expand.

On the other side of the world, there is still considerable room for growth in the Asia-Pacific region's conference market. There is already a wide choice of large venues in the region, with another ambitious conference centre due to open in Singapore next year, but there is space for more hotel development in some of the newly industrialised countries.

Cultural differences mean the Asian market is developing in slightly different ways to the more established American and European markets, says Mr Geoffrey Breeze, vice-president for corporate marketing of Hilton International, part of Ladbroke. For example, Japanese companies tend to hold small meetings and training programmes in-house, so clients for Hilton's smaller meeting rooms in Japanese locations are mostly international rather than domestic companies, a reverse of the usual pattern.

The Australian conference industry, with ties to both western and eastern markets, has seen rapid growth recently. In Sydney, 32 four- and five-star hotels have opened since the Sydney Convention and Exhibition Centre on Darling Harbour began operations in 1989. But the fast rate at which new accommodation and meeting space has come on line, combined with an economic slowdown, has left the new hotels competing harder for business, particularly at the international end of the market.

However, Ms Lani Sullivan, sales director of Novotel's Sydney branch, says the Australian meetings industry has benefited from a government initiative which requires companies to spend 1 per cent of profits on training. Demand for small meeting rooms has soared.

The growing sophistication of British conference planners and intense competition among meeting-space providers has led some operators to develop niche markets, while others have reacted by broadening their range.

The De Vere hotel chain, which runs 26 four- and five-star conference hotels, has been forced to keep prices down, but by branching out into golf and other leisure pursuits it has raised the average spend by conference delegates, compensating for slimmer profits on core activities.

Ms Janice Eagleson, group sales and marketing manager at De Vere, says that as another recession-surviving measure, the group decided against taking short cuts on quality, and risking the loss of long-standing customers. Instead, it aimed to increase volume. This has meant pointing out competitive rates for small meetings to clients who might normally use the chain only for their biggest events, and cross-marketing leisure breaks to conference guests, and conferences to single business travellers. Hotels no longer insist on separating different categories of guest.

One company adopting the opposite approach is Hayley Enterprises, a subsidiary of A1 Exports, the car parts group. Hayley already owned one hotel, but saw a gap in the market for a small, business-oriented conference venue, free from the distractions of holidaymakers and children. Sedgbrook Hall, in 13 acres of grounds near Northampton, was the result. It opened a year ago, after Pounds 5m had been invested in converting the Victorian country house into meeting rooms, and building a new wing containing 60 four-star standard bedrooms, and hotel-type catering facilities.

Sedgbrook Hall's client list is drawn from the top 100 companies, according to Mr Norman Bellone, its general manager, and the core business is training and management meetings. In its first year the centre had a turnover of Pounds 1.5m. 'People have got to communicate with each other, regardless of the fact that there is a recession on. In fact, they have to communicate with each other more,' says Mr Bellone.

He attributes Sedgbrook Hall's success to its provision of a businesslike environment which facilitates communication and learning. For example, a common request from companies booking rooms for training purposes is for plentiful natural light. Specialist management centres frequently score better on this point than hotels, which have often been designed with evening social functions in mind.

British universities have been used for conferences for decades, but not by most corporate conference organisers. However, Mrs Carole Formon, general secretary of the British Universities Accommodation Consortium, says that the recession has made companies take another look. 'If you hadn't been to a university for 10 years, and you went back now, you would see a tremendous difference,' she says. The 63 universities and colleges represented by the consortium, ranging from former polytechnics to 500-year-old Oxbridge colleges, have all made investments in upgrading facilities in recent years.

Universities still cannot compete with purpose-built conference centres and luxury hotels when it comes to upmarket conferences for a few hundred people, but they do well at two opposite ends of the market: high attendance, low budget conferences, and smaller training and management seminar type events.

What other kind of venue could provide meeting rooms, accommodation and catering facilities for several thousand people within walking distance, at an all-in 24 hour rate of Pounds 32? Students, as well as conference delegates, are now accustomed to greater creature comforts, and many universities are improving standards of student accommodation.

More universities are moving upmarket by opening year-round management centres for meetings of up to 200 people. Whether purpose-built or converted from country houses, the centres are usually fitted out to at least three-star standard, with sophisticated audiovisual equipment. Unlike most university conference facilities, availability is not limited by the academic timetable. There are at least 30 such centres, with more due to open this year.

Jaded conference planners, to whom all conference hotels are beginning to look alike, might be tempted by a novel meeting package put together by Stena Sealink, the ferry operator. It offers a one-day conference on board a ferry plying the Harwich-Hook of Holland line. Guests go on board in the morning, and by the time the ship sets sail at 11.30am, the conference can be under way in the purpose-built auditorium seating up to 230.

Before disembarking next morning, delegates have the added attraction of stocking up in the ship's duty-free shop. Rates start at Pounds 74 per person for three meals, one night's use of an outside cabin, and conference room hire.

--------------------------------------------------------------------- HOTEL SATISFACTION* --------------------------------------------------------------------- Group Average score Group Average score --------------------------------------------------------------------- Ciga 7.9** Pullman/Sofitel 6.8 Inter-Continental 7.8 Scandic 6.7 Hyatt 7.5 Ramada 6.6 ITT Sheraton 7.4 Holiday Inn 6.6 SAS 7.4 Concorde 6.6** Meridien 7.3 Forte 6.4 Marriott 7.3 Penta 6.4 Hilton International 7.2 Sol/Melia 6.3** Maritim 6.8** Jolly Hotels 5.8** --------------------------------------------------------------------- * Ratings obtained from European meeting planners **Fewer than 45 responses --------------------------------------------------------------------- Source: Official Meeting Facilities Guide (Reed International)

--------------------------------------------------------------------- APPEAL OF DESTINATION --------------------------------------------------------------------- Destination Average score Destination Average score --------------------------------------------------------------------- Paris 8.0 Los Angeles 6.4 Hawaii 7.8 Lisbon 6.4 Hong Kong 7.5 Budapest 6.3 Singapore 7.5 Brussels 6.3 New York 7.5 Edinburgh 6.2 Geneva 7.4 Copenhagen 6.1 London 7.4 Milan 5.9 Cannes 7.3 Stockholm 5.9 Monaco 7.3 Istanbul 5.8 Rome 7.1 Cyprus 5.8 Florence 7.1 Munich 5.8 Nice 7.1 Frankfurt 5.7 Vienna 7.0 Athens 5.6 Amsterdam 6.9 Dublin 5.6 Bangkok 6.8 Luxembourg 5.3 Barcelona 6.7 Marbella 5.3 Berlin 6.7 Helsinki 5.2 Madrid 6.4 Cairo 4.9 Miami 6.4 Dubai 4.3 Zurich 6.4 Glasgow 4.2 --------------------------------------------------------------------- * Ratings obtained from European meeting planners --------------------------------------------------------------------- Source: Official Meeting Facilities Guide (Reed International) ---------------------------------------------------------------------

XA World P7389 Business Services, NEC P7999 Amusement and Recreation, NEC RES Facilities TECH Standards TECH Services P7389 P7999 The Financial Times London Page 25 1415
Survey of Conferences and Exhibitions (5): Marketing in the aisles - A visitor's guide to exhibitions Publication 930222FT Processed by FT 930222 By GARY MEAD

HOW DOES an avid visitor select which exhibition to attend and which to avoid? To make sure of not being disappointed, spend a little time carrying out adequate pre-planning and research to ascertain precisely what an exhibition or conference offers; do not simply spin a globe in the search for exotic locations, and beware of hyperbole.

According to Ms Vanessa Cotton, a partner in the Event Organisation Company, one of the ways of telling whether an exhibition will be worth visiting is good quality advance literature, 'with clear information and some real hard facts, about who is attending and so forth. If the advance brochure is full of pure hype, then I would say: beware. Also, look for support from other organisations. A good exhibition is a bit like a magnet: if it's going to deliver lots of stands, then it will generally attract support from trade associations and journals.'

It is equally important to assess in advance what other events are going on around the exhibition as an indication of what extra benefits can be gained. For instance: is there a seminar programme? Are there any technical clinics? Are there opportunities to pre-book special meetings with exhibitors? The last is a trend which is growing in US-located exhibitions.

Ms Cotton believes that the location of a venue is not the best guide to the quality of the exhibition: 'You can have a good exhibition in an inferior venue and some of the most fantastic venues have in the past hosted terrible shows. Much depends on the quality of the organiser and the organiser's long-term commitment to the exhibition.'

Ms Diana Ambrose, vice- president of the International Association of Professional Congress Organisers (Iapco), agrees that there are no easily fixed rules about the best choice of venue, either for conference and exhibition organisers or visitors: 'People call and ask how best to arrange a venue, to which the best response is in turn to ask them 'how do you choose your holiday?' You look at where you want to go, how much you have to spend and what facilities you want when you get there.'

Exhibitions, perhaps even more than conferences, provide a relatively cheap and easy means of keeping a watchful eye on new developments, as well as a chance informally to bump into competitors and customers. Their importance as a marketing tool is likely to grow, as advertisers become increasingly wary of spending vast sums for no easily measured return from conventional advertising, be it in television or press.

But the industry consensus is that there is no handy guide as to which exhibitions to attend and which to avoid. There are criteria which visitors would be wise to consider before attending any exhibition, which can be summarised as the balance between the intangible gains - such as networking with competitors, customers and suppliers - and the practical costs of spending time away from production.

'It's at least a day out of your life, maybe more, and you may just end up walking up and down aisles looking at inferior exhibits; nobody has really thought building in any more opportunities for you to do business. When a show gives you a catalogue in advance of who is going to be exhibiting, that signals it will probably be a good show,' says Ms Cotton.

Ms Ambrose believes that it is also vital for those considering staging an exhibition or conference to plan the objectives carefully. 'You need to know, as an organiser, where are people coming from, how easy is it for them to get to the venue and how many meeting rooms you want. There isn't really a top ten list of best venues because it depends so much on what the event is.

'People at a top management meeting may want to cloister themselves in a luxury five-star country hotel where no-one can get to them; they have a different set of venue criteria from an international association meeting for 5,000 people.'

Mr Paul Swan, managing director of Spectrum Communications, suggests that an event venue is often a combination of the pragmatic and the appealing: 'International associations tend to choose those venues that have some kind of associated tourist appeal, and those cities which tend to be great tourism cities also tend to be great conference cities.

'A combination of both is essential; it is vital to have the infrastructure to support the show - you need flights from all over the world, a good range of hotel accommodation, adequate transport around the venue itself - but you also need lots of fun things for visitors to do after the event is over for the day.'

Whatever the pros and cons of trudging round an exhibition, there are a number of factors which suggest that the visitor will have an increasingly wide range of choice. Primarily, the changing nature of marketing communications - a continuing explosion of television, radio and other broadcast media - plus a reluctance of companies and associations to return to the pre-recession days of high spending on conventional advertising, means that all forms of narrow-cast marketing (such as exhibitions) have become more attractive.

Traders who put marketing cash into exhibitions can build a database of visitors who, by definition, have already shown an interest in their products and services by simply turning up to see what is on offer.

For advertisers, the media world is becoming ever more complex; in 1978 90 per cent of all US television viewing was on the three major networks; now NBC, CBS and ABC combined have about 60 per cent. What advertising, if any, is the missing 30 per cent now watching?

The same pattern is occurring with magazines. In the UK there were almost 4,000 consumer and business magazines in 1980; a decade later the figure was closer to 7,000.

An exhibition can give both buyers and sellers one vital ingredient which broadcast advertising generally fails to achieve - personal contact. Competition will get fiercer, in all aspects of business. If anything, exhibitions are likely to become even more attractive, with more little extras to tempt the visitor than ever before.

GB United Kingdom, EC P7999 Amusement and Recreation, NEC MKTG Marketing TECH Services P7999 The Financial Times London Page 24 1069
Survey of Conferences and Exhibitions (4): Making the most of a stand / A look at the role of the organiser Publication 930222FT Processed by FT 930222 By KATE BEVAN

MANUFACTURERS always face a challenge in selling their products, and in a recession the challenge becomes even harder. One popular marketing method is to exhibit at trade fairs and public showcases - but exhibiting is only half the battle.

'At a trade fair every single one of those visitors is there for a purpose - because it is his, or her, line of business. The visitor is already demonstrating an interest by being at the exhibition,' says a leading exhibitions organiser.

But there is more to exhibiting than watching visitors collect leaflets and the business of turning visitors into sales contacts is itself big business.

There is a lively market in offering back-up services to exhibitors, from advice on how to present a stand to following up contacts after the show is over and helping them to achieve maximum publicity. The biggest of these service providers is Blenheim which, in spite of the recession, saw pre-tax profits rise 31.8 per cent to Pounds 37.3m in the 12 months to the end of August 1992.

Blenheim organises exhibitions in the UK, US, France, Germany, Sweden, Switzerland, Spain, Italy, the Netherlands and south-east Asia; the sectors it covers range from clothing and textiles to information technology.

Organisers say their business has been resilient - exhibitions accounted for an estimated 9.3 per cent of UK media spend in 1991, up from 4.7 per cent in 1981 according to the Exhibition Marketing Group, and some trade press publications complain that the industry is draining their advertising revenue.

'In a recession, exhibitions are one of the most cost-effective ways of reaching customers', says one organiser.

The challenge for an exhibitor is turning visitors into customers. Organisers say that making the visitor feel special is important - they suggest that exhibitors give important potential customers VIP status. At Confex, the exhibition industry's annual showcase, some visitors are given VIP passes to the exhibition which entitles them to use a special business lounge with refreshments.

'Exhibitions are value for money,' stresses Blenheim. 'It's the only medium where you can have three-dimen- sional advertising - where clients can not only see, but touch and feel the product.'

The appearance of the stand is also important, say organisers. 'It's no good taking a huge stand if you've only got a few samples of a small product to display,' Blenheim adds. It offers exhibitors at its shows the choice of either taking the space only or of making use of its team of contractors and designers to make the best of their stand.

To get the most out of the space, organisers suggest running raffles and competitions on the stand, as well as giving away free samples of the product and demonstrations.

Blenheim produces an exhibitors' guide with advice on everything from where to get plants to how to arrange plumbing and lights. It runs an exhibitors' day for most shows before the event itself, which are mostly workshop-type sessions on the basics of exhibiting. For Confex, this includes sessions on setting objectives for the show, building image, focusing on stand design, choice and construction, and the importance of forward planning.

But not only the design and products are important. The professionalism of the people staffing the stand can have a big impact on visitors. Blenheim's guidance to exhibitors emphasises that eating and drinking on the stand should be avoided, as should smoking and chatting with friends. Instead, it recommends, set a goal of a certain number of sales contacts every hour; keep an eye on the competition and make sure anything that requires attention is dealt with immediately.

Organisers also stress the obvious: one should approach potential customers with a friendly smile. 'To this end, it's often better to have marketing people on a stand rather than sales people as you might expect,' says Blenheim.

As well as potential customers, exhibitors will also be dealing with the press, an important source of extra publicity. Blenheim produces a guide for exhibitors on looking after the press, ranging from tips on how to write a press release - alerting publications to news which may end up as editorial in a publication and thus attract more visitors - to briefing someone on the stand to deal specifically with press inquiries. A press office is also provided at the venue, the first stop for journalists covering the show.

The media is also important before the show, organisers stress. Blenheim says: 'It's important to come to us as soon as possible when you decide to take a stand. Then you can tie in with things like production schedules for magazines so as to get maximum publicity.'

To help exhibitors, Blenheim also holds a series of one-day seminars on getting the most out of exhibitions. Such a day includes sessions on promotion and publicity, aimed at helping exhibitors getting the maximum exposure for their companies; as well as sessions on making the most of the exhibition, including pre-show planning and tips for successful exhibiting. It also may include sessions on capitalising on the event and following up contacts made.

When the show is over, it is not just a case of packing up and going home - organisers can also help with post-show management.

And the next event should always be on the exhibitor's mind. Blenheim runs a database of 6m names worldwide, helping to maintain contacts with clients and following up sales leads. 'At some exhibitions we give each stand a light-pen, and visitors wear bar-coded badges so that when the pen reads the code, the name and details go straight onto the database.'

After the show the organiser can put together an analysis of the event, detailing what attracted visitors to it - for example whether they attended because they saw an advertisement or from free tickets - helping to plan advertising for the next show.

Exhibition Marketing Group Blenheim Exhibitions GB United Kingdom, EC P7389 Business Services, NEC P7999 Amusement and Recreation, NEC TECH Services CMMT Comment & Analysis MGMT Management P7389 P7999 The Financial Times London Page 24 1037
Survey of Conferences and Exhibitions (3): It's time to be more selective - Christopher Price considers whether exhibitors get good value from their shows Publication 930222FT Processed by FT 930222 By CHRISTOPHER PRICE

HOW effective are exhibitions? The latest industry statistics suggest that as the recession has bitten, companies on both sides of the exhibit stand are becoming more selective.

A recent survey by the Incorporated Society of British Advertisers (ISBA) found that the amount spent by British companies on trade, technical and consumer exhibitions declined from Pounds 549m to Pounds 539m in 1992, the first fall in the 20 years the survey has been conducted.

Examples of the contraction include the oil services industry which has seen the number of exhibitions directed at the sector fall from five to three in the same period. The machine tool business has seen around a third less exhibitions, according to one industry executive, while the ISBA survey suggests expenditure on agricultural shows showed a slide of 32 per cent last year.

However, the cutbacks are largely welcomed by exhibition industry watchers. 'In the past, British exhibition organisers have not been particularly forthcoming with detailed information about their event,' says Mr Reg Best, a director of ISBA. 'The result has been disappointment among both exhibitors and delegates and ultimately in sales. Now it is the well- organised and rewarding exhibitions that are surviving and prospering.'

Despite the downturn, companies still rate exhibitions as value for money. The ISBA survey found that 82 per cent of its members considered it as a cost-effective promotional medium. This echoes a similar survey by the Exhibition Marketing Group the previous year. This found exhibitions came second only to the trade press when considering a new product launch, with 24 per cent of those surveyed against 38 per cent preferring it, ahead of direct mail (8 per cent), and newspapers and public relations (7 per cent each).

But as the most effective medium for quality sales leads, trade exhibitions came first - with 24 per cent - followed by the trade press (23 per cent), sales reps (14 per cent) and direct mail (12 per cent). And as the best medium for corporate image and public relations purposes, exhibitions trailed the trade press by 24 per cent to 28 per cent.

Mr Alan Bowers, finance director of Fairline Boats, the listed boat builder, is positive about the value of exhibitions. He says that in an industry where it is difficult to compare homogeneous high-value products, the exhibition situation is a good medium. 'A high proportion of our turnover is geared to our exhibitions, with the London Boat Show still the main draw,' he says. In addition, there are several other shows in the out-of-season period. He estimates that around one-third of the group's marketing budget is invested in exhibitions.

While the audience for industries like boat-building can be fairly easily identified, other sectors are not so easily served. New technology industries are rightly recognised by exhibition organisers as growth areas but unfortunately these industries are prone to fail to target their potential buyers.

Mr Derek Brown, managing director of Target Automation, an electronics services group, says: 'We have literally dozens of potential exhibitions that would possibly be the right ones for our products, as well as several relevant trade magazines - but only a limited promotional budget.' A former regular exhibitor at around a dozen UK events and two overseas, he now uses just five and has opted to use more direct mail. 'I now know the exhibitions I need to use,' he says.

Target's dilemma is echoed by Mr Peter Reed, marketing manager of Forster Engineering, a Yorkshire-based precision tools maker. 'We have grown more selective in our choice of media, and now look very carefully at the exhibitions we go to,' he says. 'The right ones can generate very healthy sales.'

But how do companies recognise 'the right ones'?

The ISBA says there are hopeful signs. Organisers are providing more detailed information, particularly when pushed, although more still needs to be done. Organisers are reluctant to be too specific over the scope of an exhibition which might restrict attendance.

Before attending an exhibition, the association recommends the following procedure:

1. Make sure that the exhibition is independently audited. This will ensure that the information on the previous year's event should be accurate and relevant.

2. Insist on an exhibitor and attendance profile.

3. Make sure the timing and the venue meet requirements.

4. If exhibiting, ensure all staff are properly trained. One of the most common complaints concerns undertrained sales staff.

Another industry development over the past two years is that exhibitions no longer go on for so long. The Exhibition Industry Federation estimates that the average length of events has declined from 3.7 to 3.4 days. Exhibitors are also hiring less stand space, so that they are not spending as much. Average expenditure per exhibitor has fallen 15 per cent in real terms over the past two years.

Perhaps in line with the economic situation, the more selective approach to events is likely to accelerate before it levels off. Up to 1989, the ISBA survey reported that all companies expected to increase their annual exhibition expenditure. However, last year nearly 20 per cent expected to reduce their outlay.

This year a further 10 per cent say they plan cuts. Nearly 80 per cent expect their budgets to remain the same, an increase of 10 per cent on the previous year.

GB United Kingdom, EC P7389 Business Services, NEC P7999 Amusement and Recreation, NEC TECH Standards TECH Services COSTS Costs & Prices P7389 P7999 The Financial Times London Page 24 943
Survey of Conferences and Exhibitions (1): A bigger slice of the cake - The future looks promising for a sector that should grab moreof the marketing budgets than in the past Publication 930222FT Processed by FT 930222 By GARY MEAD

MOST industries have walked through fire and ice in the current recession, and the conferences and exhibitions business is no exception. But unlike others, there are plausible arguments to suggest that, while uncomfortable for those who have gone out of business, the recession has been a useful maturing process for the surviving organisers of conferences and exhibitions. It has thinned out those with limited ability to offer the full-blooded support increasingly demanded by corporate management, trade fairs and international associations.

Those that have survived - and many have - have been tempered by the experience. They have invested in crucial information technology and databases in advance of demand; they have pruned excessive staffing; they have adapted to client demands to organise a conference or exhibition with far less advance notice.

In general, the economic squeeze has sharpened up thinking in a sector which has - with justice sometimes - been criticised for flaccidity and a failure to match promises with achievements. After all, who has not been tempted into attending an event by its glossy pre-launch publicity, only to discover on the day that it was not worth the effort? If the recession has killed that off, it will have provided a service.

It is hard to estimate the current value of the international conference and exhibition business. Too many variables exist for definitive accuracy. The sector covers a broad range of functions - conferences, seminars, conventions, forums, symposiums, meetings - the list of types of function and possible venues is almost endless.

Nevertheless, industry estimates calculate the sector may be worth Dollars 40bn annually, with Britain taking around 10 per cent of that pie. About 8,000 major international conferences are staged annually around the world, of which 5,000 are in Europe.

The choice of venue is huge and growing, ranging from the internationally distinguished, such as the purpose-built Queen Elizabeth II Conference Centre in the political heart of London - where the 300-seat Mountbatten room, secure against electronic eavesdropping, with multi-lingual simultaneous interpretation, a splendid three-course lunch and plenty of refreshments, will set you back Pounds 5,300 (plus value added tax) a day - to any number of secluded country house hotels, ideal for the private small company annual general meeting.

Because the conferences and exhibitions industry crosses so many boundaries - hotels, leisure centres, large publicly quoted groups such as Blenheim to small organisers working from a spare bedroom - it is almost impossible to establish how many involved in the sector have gone under as a result of the recession. Certainly, the length of many conferences is now shorter, attendances are down and advance bookings happen later.

But the blows have largely been taken in the corporate sector; companies have chosen to spend less on customer-oriented conferences, more on internal, staff-aimed sales and training conferences. Conferences involving international associations have been less badly affected, since they are normally required by their own statutes to stage regular conferences.

The recession has not had a blanket, homogeneous effect; in the case of new product launches companies are, if anything, boosting their spending on conferences and exhibitions. Vauxhall, part of General Motors, will have spent well in excess of Pounds 1m on a five-stage event between February and June in the UK, launching a new model, the Corsa, via Spectrum Communications.

The future, nevertheless, looks promising for this sector, not just because the companies involved in it are themselves given to relentlessly self-promoting optimism, but because the nature of marketing communications is shifting, in ways which favour this sector grabbing a larger share of marketing budgets than in the past.

Vauxhall, for example, will achieve the following in its Corsa launch for a relatively small marketing spend: 16 simultaneous exclusive dinners for dealer principals and their partners; four regional launch venues for dealer principals, their staff, guests and local business users; a multitude of hands-on nationwide training sessions for sales managers and their staff; other launch events at points of sale; and a driving evaluation event at which dealers and guests can try out the new product range.

Naturally, Vauxhall will also spend heavily on conventional television and press advertising, but the most cost-effective marketing for its new product may well be the relatively hidden expenditure, closely targeted on salesforces and key business customers.

Perhaps the single most important trend within marketing at the moment is the shift away from broadcast to narrow cast means of reaching out to customers. Exhibitions and conferences, if properly organised and publicised, provide a relatively cheap and certain way of creating a relationship between seller and buyer.

Exhibitions doubled their share of marketing spend between 1981 and 1991, from 4.7 to 9.3 per cent, while television advertising stood still (from 26 to 26.2 per cent) and national newspapers' share shrunk (from 16.9 to 14.8 per cent). The exhibition sector's growth averaged 18.4 per cent a year over that decade.

Venues are doing much to provide not just crude value-for-money, but added extras to entice organisers.

Ms Gill Price, commercial director of the QEII conference centre, says: 'One potential exhibitor was interested in knowing if it would be possible to organise an internal television relay of the forthcoming Wimbledon tennis men's singles' final this coming summer, so that those who would be setting up his exhibition at the centre would be able to watch the match as they worked. Being able to provide such extras is increasingly important if you want to get the business.'

Hotel chains are now actively marketing themselves as conference venues as well as tourist destinations. Inter-Continental Hotels offers a 'European Meetings Portfolio' guaranteeing a daily delegate rate fixed until March 31 1994 and a complimentary room for every 15 booked, across 40 European locations.

Conference centres are looking at how to make their venues more attractive. For instance, the NEC at Birmingham intends to erect an entertainment village the size of Wembley football pitch to go alongside Ipex '93, the September 7-15 trade show for the print and graphics industry. The village, set up by the exhibition company Button Eventures, part of Reed International, is based on an idea which has evolved at Cannes media festivals over the years.

In a commercial world increasingly cluttered by marketing developments and daily more confused by technological developments in broadcast media and database manipulation, there is probably only one certainty: it will become more difficult to get the attention of customers. Given that, the conference and exhibition business has a head start against other sectors of marketing communications.

As the explosion in broadcast media continues, marketing professionals involved in narrow cast, close targeting exercises should be able to take advantage of a situation where finance directors have learnt to ask of marketing departments: 'What am I getting for my expenditure?'

Certainly, for business-to-business marketing, it increasingly makes less sense to lavish fortunes on the high-cost, little obvious return involved in using broadcast media. If you want to speak to your customers, build a database and use that to make the customers whom you already have feel important. And from the profile of existing customers it is possible to identify and target likely others.

That is precisely what conferences and exhibitions can offer. And for organisers of conferences and exhibitions one trend stands out; the sheer number of available venues means that would-be organisers of events should be able, even when the recession lifts, to demand the very best in extra facilities, if not the very lowest in prices.

GB United Kingdom, EC P7389 Business Services, NEC P7999 Amusement and Recreation, NEC IND Industry profile MGMT Management MKTG Marketing P7389 P7999 The Financial Times London Page 23 1312
Survey of Conferences and Exhibitions (2): How a speech poisoned the atmosphere Publication 930222FT Processed by FT 930222 By MICHAEL SKAPINKER

ANYONE who has spoken at a conference remembers the disasters.

The one lodged in my memory is being hustled out of a hotel rear entrance to avoid being attacked by aggrieved supermarket managers.

Having discussed speech-making with Ms Cristina Stuart, managing director of Speakeasy, who teaches people how to address meetings, I think I know now why my mishap occurred. I was in too much of a hurry.

The supermarket managers' conference was an angry occasion even before I got there. It was a time when hardly a week went by without a food poisoning scare. Mrs Edwina Currie had just resigned from the UK government over her remarks about salmonella and eggs. The supermarket managers felt besieged and misunderstood. They had no doubt who was to blame for inflaming the situation: the press.

Asked to speak about the press and food retailers, I arrived just a few minutes before my alloted starting time. Had I known how aggrieved the meeting already was, I might have started off by acknowledging that the supermarkets' job was a difficult one. I might have conceded that public expect- ations were, to some degree, unrealistic, driven by a desire for preservative-free food which lasts forever, before pointing out that press interest in the subject was good and proper in a democratic society.

Instead of which, I launched straight into a defence of newspapers' screaming- headline treatment of salmonella and other issues, pointing out that journalists had families just like everyone else and did not want to see them poisoned.

I looked out at rows of set, sullen faces, but it was too late to change tack. When I finally sat down, the nervous chair- woman asked for any questions, thanked me for coming before anyone had a chance to raise a hand, told the assembled throng that tea was waiting outside the conference hall, offered me none, and showed me the way out.

It is, says, Ms Stuart, a good idea to arrive at the conference venue early, stand up on the stage, look out at the empty seats and imagine them filled. The more you feel at ease, the more naturally you will speak. And she could have added, if you sit and listen to the speeches before your turn comes, you will have a chance to assess the nature and mood of your audience and have a better idea of how to get your message across.

At least the supermarket managers were sufficiently angry to pay attention. The problem with most conference speeches is that hardly anyone listens to them. This is not because the acoustics are poor but because most conference audiences spend their day in a semi-comatose state.

I have never entirely understood why this should be so. Some conference speakers are dull, but even the mildly interesting ones manage to lose their audiences after the first few sentences.

Mr Lee Bowman, chairman of the Kingstree Group, which also teaches people how to speak in public, says the reason conference audiences fall asleep is that nothing is expected of them.

In everyday conversation, the person doing the speaking does not set the pace; it is the person being addressed who determines how quickly the speaker talks, when he or she pauses, speeds up, slows down, goes back to explain and so on. If we are talking to someone, they tell us by nodding that they have understood, by looking puzzled that they have not, by appearing bored that we should get a move on.

The larger the group, the more diffuse these signals. And at most conferences the speaker has no idea at all what the audience thinks because the lights are dimmed. The darkness is a signal to the audience that no-one is going to disturb their peace. They are not going to be asked to participate. If they thought they were, their interest would be unflagging.

Anyone who has been to a live performance by Dame Edna Everage, the cross- dressing Australian raconteur, recalls the fear of having questions directed at them and the schadenfreude when she picks on someone else.

Ms Stuart tries to involve her audiences whenever she can. For the novice speaker, there is the danger of losing one's thread and not being able to find it again. But an audience asked to contribute seldom sleeps.

The other soporific factor at conferences is the slide show. No conference speaker arrives these days without a large selection of slides. The first one might show the speaker's company logo. Subsequent ones might show an entire balance sheet or a statement encapsulating the company's strategy: Target the Ketchup-Flavoured Yoghurt-Eating Sector.

Slides seldom leave any impression. The only mildly entertaining feature of a conference slide show is when one appears upside-down.

The problem with 'visual aids' is that while watching them the audience is not listening to the speaker. You cannot look and listen at the same time. Ms Stuart likens it to trying to read the newspaper while listening to the radio. Neither makes much impression.

The experts advise selective use of visual aids. For most of the speech, the screen should be blank. When something does appear on the screen, the speaker should pause, allowing the audience to take in the image. The slide itself should be memorable; a cartoon makes a bigger impression than a set of figures, or a screen filled with words.

The most important barrier to audience attention is that the speaker's personality does not come through. Most speakers are too nervous. They speak too quickly. Many have written out every word of their speech, which they then proceed to read.

There is a vast difference, however, between the written and spoken word. Most written speeches sound tedious when read aloud.

Mr Bowman says speakers should try to treat their speeches as enlarged conversations. If you have a prepared text, depart from it, adding personal asides and reminiscences. Your audience will appreciate it, even if the note-taking journalists do not.

GB United Kingdom, EC P7389 Business Services, NEC P8299 Schools and Educational Services, NEC CMMT Comment & Analysis P7389 P8299 The Financial Times London Page 23 1043
A flawed drive for fairness Publication 930222FT Processed by FT 930222 By MICHAEL PROWSE

I was among the first to criticise Lord (then Mr Nigel) Lawson's 1988 Budget which sharply cut British top rates of tax. So I should be madly applauding President Bill Clinton's 'soak the rich' economic package. Yet the crude emphasis on fairness - the selling of the plan as virtuous simply because the affluent are bearing most of the burden - leaves me cold. It is a bit of a cheek coming from Mr Clinton's elite economic team, many of whom got very rich during the now-despised 1980s.

Mr Clinton is demanding that the top 2 per cent of families - those with incomes of Dollars 200,000 or more - finance nearly 60 per cent of the total tax increase, which means increases averaging nearly Dollars 15,000 a year. The rest of the top 10 per cent face much lower but still stiff increases. The bottom 90 per cent is barely touched, with increases ranging from nil for families with incomes less than Dollars 30,000 to a few hundred dollars for the near-affluent.

The president is proving a marvellous salesman. Yet his cosy sessions with schoolchildren are beginning to get irritating. He projects the image of the 'philosopher king' who knows everything, yet his depiction of the 'greedy' 1980s is decidedly one-dimensional.

Mr Clinton argues that the sharp drop in top income tax rates - from 70 per cent to 28 per cent - was a boon for the wealthy. What he fails to mention is that the rate paid on the last dollar of income bears little relation to the overall tax burden.

The point about the tax reforms of the 1980s is that they balanced cuts in tax rates (which affect people's incentive to work or save) with restrictions on the loopholes and special concessions that favoured the wealthy.

The upshot was little change in 'effective tax rates' - the ratio of all federal taxes (including social security contributions) to incomes. The poorest 20 per cent of families paid 8.5 per cent of their incomes in tax in 1991 compared with 8.4 per cent in 1980; the richest 20 per cent paid 26.8 per cent rather than 27.3 per cent. The very affluent did gain: the effective rate on the top 1 per cent fell to 28.9 per cent against 31.8 per cent in 1980, but the decline was modest relative to the plunge in the top marginal rate. The stability of effective rates reflected Democratic control of Congress.

The contribution of affluent families to total revenues actually rose substantially during the 1980s because their share of national pre-tax income rose sharply, more than compensating for the minor decline in their effective tax rates. The shift in pre-tax income shares partly reflected underlying trends such as a decline in the relative pay of unskilled workers but a behaviourial response to lower tax rates was also a factor.

As Mr Clinton will shortly discover, the affluent have great discretion over how much income they chose to declare; if rates are high they may, for example, take pay in the form of untaxed fringe benefits. They can also choose how long and hard to work; if rates go up, the golf course becomes relatively more alluring. However distasteful it may seem, the big decline in top tax rates in the 1980s squeezed more, rather than less, tax dollars from the very rich.

Inequality statistics are not straightforward. The average income of the bottom 20 per cent has undeniably fallen in recent years. But the families falling into this category constantly change.

The Urban Institute, a Washington thinktank, tracked families that formed the bottom 20 per cent in 1977. Surprisingly their incomes had risen 77 per cent by 1986, reflecting the fact that nearly half had moved into higher income groups. The incomes of families in the top 20 per cent in 1977 rose only 5 per cent - half had dropped into lower income brackets over the same period. This mobility is not surprising: for example, when students leave college they move into higher income brackets whereas when senior executives retire they move down a few notches.

Taxes should be related to people's ability to pay. But the practicality of trying to raise so much revenue from the top 2 per cent is questionable, especially when the technique employed is a sharp increase in the top marginal rate from 31 per cent to about 45 per cent, allowing for the 'millionaire's surcharge' (which applies to taxable incomes over Dollars 250,000), the lifting of caps on Medicare taxes and other changes. An attempt to broaden the tax base by eliminating perks, such as the deductibility of up to Dollars 1m in mortgage interest, would have made more economic sense.

The affluent have never paid particularly high effective rates of tax, if only because they can afford the best legal advice. Historically, high top rates were mainly a cover for lower, but substantial, tax increases on more numerous middle income families. But Mr Clinton has blown this opportunity; he is demanding so little from middle income groups that he lacks the resources both to increase public investment and decisively reduce the budget deficit, which is expected to be still nearly 3 per cent of national income in 1997. If, as is likely, revenues from the affluent prove disappointing, his 'fairness' drive will have been entirely in vain.

US United States of America P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 34 930
The domestic president Publication 930222FT Processed by FT 930222 By IAN DAVIDSON

The most significant fact about President Clinton's state of the union address is what it did not say. We all know it was mainly devoted to a detailed economic programme for tackling the budget deficit; some people even think the programme looks plausible. What has been less noticed is that this economic programme was almost the only subject in the speech. There was virtually no reference to the international scene, and certainly nothing to suggest that President Clinton has a foreign policy, or even feels the need of one.

This would be consistent with Mr Clinton's campaign rhetoric, but it is a remarkable break with tradition.

It is instructive to glance back at Mr Clinton's predecessors, and at what each of them said in his first state of the union speech. It turns out that almost all of them, going back as far as the second world war, devoted considerable time to foreign policy. As you would expect, George Bush went on at length about the international scene - Panama, Poland, East Germany, and the European allies. Ronald Reagan expatiated on nuclear arms control with the Soviet Union, Star Wars, Nicaragua and Afghanistan, not to mention the European allies.

Jimmy Carter talked about a new international order, human rights, nuclear arms control, Middle East, Poland, and the European allies. Gerald Ford delivered a long section on international relations, including communist countries, nuclear arms control, the developing world, and the European allies. Richard Nixon spoke of the Vietnam War, the Soviet Union, nuclear arms control and the European allies. President Johnson talked about disarmament, east-west relations, and the European allies. John Kennedy spoke of Vietnam, the Congo, the Soviet Union and China, and the European allies. President Eisenhower talked of defence, the Korean War, and the European allies.

President Clinton's was quite different. In two brief paragraphs he makes perfunctory nods in the direction of the generalities of America's traditional aspirations as a great power; but the passage contains not a single specific. The US needs a restructured defence to deal with new threats of the post-cold war world; the US has responsibilities as the world's only superpower; the US must be prepared to lead a world challenged by ethnic conflict, by proliferation of weapons, by the global environment.

But there is no hint of what are the real foreign policy objectives of the new administration. Nor is there any mention of a single foreign country by name. In particular, there is no reference, direct or indirect, to the European allies.

To find a general US policy declaration which is as domestic as this, you have to go back to Harry Truman in 1945. There may be a reason for the similarity. Truman was bringing the boys home from a world war; Clinton has probably grasped, and welcomed, the implications of the end of the cold war. Foreign policy is expensive. In wartime it is an essential ingredient of government. But in peacetime you do not need so much of it.

The optional characteristic of foreign policy in peacetime is particularly applicable to the US, because it is now virtually invulnerable to aggression. During the cold war America was in permanent danger because of the nuclear confrontation in Europe. Today that threat has almost vanished. America's European allies face new and serious risks of conflict, including those in the former Yugoslavia and the disintegrating Russian empire. But these risks need not affect the US, unless the US chooses; and if Mr Clinton has his way, the US will not choose.

Some will object that the actions of the new administration already belie its words. President Clinton may prefer to stay at home; but in practice he has been goaded willy-nilly into taking the leadership of the Euro-UN peace process for Bosnia. The world needs America to lead, so President Clinton is obliged to do his duty.

The world is being taken in by a public relations exercise. True, President Clinton could not categorically turn down the pressing pleas of the Owen-Vance mediators; but he agreed to take part only on terms which virtually guarantee to stalemate the peace process.

When the US says it might, after all, be prepared to use force in Bosnia, the world is impressed and relieved. The small print tells a different story. The US will use force only to back up an agreement, but no such agreement is in sight. The US will support a peace plan, but not the Vance-Owen peace plan. Yet Vance-Owen set the agenda for all other plans. Vance-Owen would require the Serbs to surrender much of the territory they have captured. Any different plan should in justice require them to surrender even more. But Washington's first step has been to submit the Bosnia peace process to the Russians, who are Serbia's most powerful allies.

In short, the Washington shift probably reduces the (already minimal) chance that the peace process could lead to an agreement which might be enforced. What we have instead is US 'leadership', because that is what the rest of the world demands, but it is the kind of leadership which is designed to lead nowhere.

Europe will have cause to reflect that it does not rate a mention in President Clinton's first state of the union speech. Already under Bush it was clear that the US did not intend to take responsibility for Europe's new disorders, let alone for the peaceful reconstruction of the ex-Soviet empire. We may now need to come to terms with the idea that Mr Clinton really does intend to put the US economy first, second and third.

US United States of America P9611 Administration of General Economic Programs P9721 International Affairs GOVT Government News CMMT Comment & Analysis P9611 P9721 The Financial Times London Page 34 974
Monday Interview: Mogul with the most - American entrepreneur David Geffen talks to Alan Friedman Publication 930222FT Processed by FT 930222 By ALAN FRIEDMAN

What is the definition of a renaissance man in 1990s America?

If the criteria were to include an extraordinary business acumen which ranges from founding and selling a company for half a billion dollars to making shrewd investments in commercial property, stocks and bonds - combined with a passion for the worlds of both modern art and national politics, and the ability to produce hit movies, records and Broadway shows - then David Geffen might just fit the bill.

The 50-year-old Mr Geffen made his first Dollars 1m in 1969 in the record business, and went on to reap more than Dollars 700m of cash profits when he sold his shareholding in the November 1990 takeover of the MCA/ Universal entertainment group by Matsushita of Japan.

He has invested much of his money on Wall Street, effectively becoming Hollywood's version of Mr Warren Buffett, the billionaire investor who figured prominently in the rebuilding of Salomon Brothers last year.

Mr Geffen is one of the wealthiest entrepreneurs in the US, a consummate telephone schmoozer who moves almost effortlessly across sectors too disparate for most self-made men with net worths of more than Dollars 1bn.

Mr Geffen, whose preferred dress is a white T-shirt, jeans and tennis shoes, operates from a comfortable third floor office notable for its L-shaped sofa, absence of a desk and westward view along Hollywood's Sunset Boulevard. He spends an hour each day working out at one of the gyms he has installed in his houses on the beach at Malibu and New York's Fifth Avenue and in his Beverly Hills mansion.

'I am being what I want to be every day,' he declares, clearly irritated by Hollywood speculation about what business venture he will next undertake. Amid the back-stabbing politics of Tinsel Town, Mr Geffen is one of the few individuals who garners nearly universal praise from studio heads and stars alike. The word most often used to describe him is 'smart'.

It is an adjective that might also be used to describe the handful of close friends who for years have chatted on the telephone with Mr Geffen almost daily. This inner circle includes Mr Barry Diller, the former chairman of Twentieth Century Fox; Mr Felix Rohatyn of Lazard Freres; Mr Jeffrey Katzenberg, who runs the Disney studio, and Mr Allen Grubman, the leading entertainment lawyer in America.

For Mr Geffen, contacts are everything. 'His Rolodex has few rivals, in this town or anywhere,' observes the chairman of a big Hollywood studio. 'He is very tough in business, very direct. He is like a laser beam,' says an old friend who prefers not to be named.

Mr Geffen was not born to wealth. He grew in Brooklyn, the son of the enterprising Mrs Batya Geffen, who supported the family by designing corsets and brassieres and eventually became a landlord. The academic life was not for the young David Geffen, who dropped out of university and in 1964 went to work in the mailroom of the William Morris talent agency, where he met his friend Barry Diller.

By the late 1960s he discovered Laura Nyro, the folk singer. Acting as her manager and producer, he launched her career and made more than Dollars 1m. It was then a short hop to his successful backing of Linda Ronstadt, The Eagles, Joni Mitchell and many more stars.

In 1972 he sold his record label to Mr Steve Ross, the founder of Warner Communications. Mr Ross named Mr Geffen vice-chairman of Warner Brothers, the group's Hollywood studio, in 1975, but he was not comfortable in a corporate structure and soon left. A year later, when he was diagnosed as having cancer, he dropped out of the business world, only to return in 1980 when the cancer scare proved to have been a false alarm.

It was the founding of Geffen Records in 1980 that created an asset so valuable that it fetched Dollars 545m in stock when Geffen sold it to MCA a decade later. Eight months after that deal, at the end of 1990, MCA itself was sold, netting Mr Geffen Dollars 710m in cash.

Mr Geffen's activities since the MCA deal have been increasingly diversified. The one area he has rarely discussed, however, is his investment portfolio - and Wall Street. The portfolio now totals more than Dollars 750m.

'As an investor I have been averaging a 25 to 30 per cent annualised return since 1990,' he says. 'At first I was doing it with high-yield instruments, but in the past 12 months many of the bonds have been redeemed by the issuers, and I have transferred about Dollars 400m into equities.'

Over the past year Mr Geffen has bought big share stakes in companies such as Wells Fargo, the California bank whose stock has jumped by more than 50 per cent; American Express, of which the share price rose substantially after the resignation of Mr James Robinson, its chairman; and RJR Nabisco, the food and tobacco group.

Mr Geffen considers it 'a good thing' that institutional investors are taking a more active role in shaking up the top managements of US companies such as IBM, General Motors and American Express. He also reckons that 'a great number of companies are trading at very reasonable prices', and says there are now 'tremendous opportunities in the equities market'.

In 1991 Mr Geffen showed Wall Street he was prepared to be a big-time corporate player when he teamed up with Bechtel Investments and Mr Richard Rainwater, the Texas investor, to make a Dollars 3bn bid for Executive Life, the failed insurance group. The bid was not accepted but Mr Geffen went on last year to help out his old friend Mr Calvin Klein, the fashion designer, buying a total of Dollars 61m of Klein's junk bonds for an estimated 50 to 60 cents on the dollar. 'Those bonds will be retired by the end of February and replaced with bank debt that has a much lower interest cost,' Mr Geffen discloses, although he will not reveal the substantial capital gain he is expected to make on them.

Paper profits are also likely for Mr Geffen in the art world. He says that over the past couple of years he has spent more than Dollars 50m buying the works of masters from the abstract expressionist era to early 1960s pop art. 'I don't think of it as an investment, but as a pleasure.' None the less he also reckons the art market will have turned around within the next year or so.

The other new focus of Mr Geffen's life is politics. An ardent supporter of Bill Clinton, Mr Geffen contributed more than Dollars 150,000 to the Democratic party last year. He was also among those at Mr Clinton's economic summit in Little Rock last autumn. 'I found it very valuable. Both Bill and Hillary Clinton are very impressive and there is every reason to expect that a lot will happen in Washington that is valuable for this country.'

Mr Geffen has not merely supported the new US president; he has also expanded his private foundation and has been giving away Dollars 5m to Dollars 8m each year to such causes as abortion rights, homelessness and Aids research. He donates to the foundation all his personal earnings from managing the record business now owned by MCA, the movies he makes and the Broadway shows he backs.

Mr Geffen has also broken new ground in Hollywood by publicly announcing his homosexuality. Last November 18, with 6,000 people packed into a Hollywood amphitheatre for a concert that raised Dollars 4m for Aids research, Mr Geffen was honoured for his contribution. Yes, he says, 'there was a time in my life when I would have been uncomfortable getting up in front of 6,000 people and acknowledging I was gay. But this was intentional.'

The only subject that makes Mr Geffen bristle is the way his Hollywood peers gossip about his next big deal. His response is direct: 'I am running a record company, a big investment portfolio; I am financing Broadway shows and making movies such as the new production of M Butterfly with Jeremy Irons; and I am working with my foundation. Some people might think of that as enough activity.'

PERSONAL FILE

1943 Born in New York.

1964 Began work in the mailroom of the William Morris talent agency.

1969 Sold share of Laura Nyro music business, making his first Dollars 1m.

1970 Launched Asylum Records.

1975 Vice-chairman of Warner Brothers studio.

1980 Launched Geffen Records.

1990 Sold Geffen for Dollars 545m in MCA stock; earned Dollars 710m when MCA was bought by Matsushita.

1991 Switched more than Dollars 400m from bonds to equities; net worth now more than Dollars 1bn

US United States of America P99 Nonclassifiable Establishments PEOP Personnel News CMMT Comment & Analysis Geffen, D Entrepreneur (US) P99 The Financial Times London Page 34 1509
Foreign Exchange and Money Markets: Focus on the Yen Publication 930222FT Processed by FT 930222 By PETER JOHN

CONCERN over the Yen ahead of Saturday's meeting of the Group of Seven finance ministers and central bank governors is expected to be one of the focal points for financial markets this week, writes Peter John.

The conference will be the first of the G7 policymakers since President Clinton took office on January 20. It is expected to examine ways to help the world economy and particularly to rein in Japan's soaring trade surplus.

Press meetings given by the Japanese finance and economic planning ministers on Tuesday and Friday will offer clues to the path the G7 meeting will take.

The fall in German M3 money supply announced on Friday and comments by Mr Alan Greenspan, the chairman of the Fed, are also likely to act as financial market motors.

Most economists have seen Germany's 2.3 per cent contraction in money supply as a technical correction - the result of rebasing the figures on the fourth quarter of last year when there was an unusually heavy level of intervention. However, some still argue that it augurs well for an easing of monetary policy some time after the next Bundesbank meeting on March 4.

On the other hand the comments made in Mr Greenspan's testimony to Congress signalled a tightening of monetary policy. At the very least it removed the possibility of easing rates, a threat which has hit the US currency in the past week.

Mr David Deakin, the economist for Nikko Bank says: 'If German rates are likely to fall and if the American rates are less likely to fall the dollar/D-Mark is likely to rise.'

Meanwhile, the market will continue to watch the performance of the Spanish peseta and the Swedish Krona which have been propped up by intervention from their respective central banks.

In the UK, money is expected to be tighter this week as a result of a large amount of short-term loans expiring and needing to be rolled over.

JP Japan, Asia DE Germany, EC US United States of America ES Spain, EC SE Sweden, West Europe GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 31 380
Risk and Reward: UK equity options trading fails to find its stride Publication 930222FT Processed by FT 930222 By TRACY CORRIGAN

EQUITY options trading in Germany has surged in the last few years, despite the relatively low level of stock investment in Germany. But the UK equity options market has still failed to take off, even though UK fund managers are heavily invested in stocks. Preconceptions that an active stock market is a prerequisite for a healthy options market seem to be wrong.

A year after the merger of London's futures and options exchanges, amid hopes that the union would revive trading in UK stock options, the best that can be said is that volume has stabilised.

Trading in individual stock options had been falling steadily since 1987, when retail investors were scared off by the stock market crash. But UK fund managers have not been willing converts, despite marketing efforts by the London International Financial Futures & Options Exchange (Liffe).

Liffe's difficulties are part of a broader trend: US-based exchanges - from a far stronger base - have suffered declining volume in stock option business, as retail investors deserted their markets.

But Germany's Deutsche Terminborse (DTB), has bucked the trend. In 1992, the DTB traded 14m Dax option contracts and 10m individual stock options, compared with 3m FT-SE options and 4.5m individual equity options on Liffe.

There are a number of factors involved.

First of all, the smaller number of large German companies may actually have proved an advantage, rather than a disadvantage. Liffe lists 66 UK stock options, while the DTB lists only 15, concentrating on the relatively small group of blue-chip German companies.

Mr Roger Barton, head of product development, said that Liffe is considering reducing the number of options, but the problem is that liquidity tends to shift, so that an option on one stock may be very quiet for as much as a year, and then suddenly spring to life.

Many options specialists believe that the DTB's screen-based trading system is better suited to options that Liffe's open-outcry market, since it is easier to trade a variety of similar products - in this case, different series of options - on a screen.

Liffe's APT screen-trading system is being developed to handle options, but the board has yet to decide whether to go ahead with screen-based trading. The systems capability is expected to be ready by the end of the year.

Many options traders also argue that the rules governing the UK stock market are a severe handicap to dealing in stock options. The delay in reporting large equity trades gives the main equity marketmakers an unfair advantage, and forces options marketmakers to make prices on an uneven playing field, they argue.

Another advantage for the DTB is that there are tax benefits involved: foreign investors can avoid paying capital gains tax on German share dividends by using the options market.

But, given the potential revenues available, many analysts are surprised that more UK fund managers do not write call options. Writing, or selling, call options involves agreeing to sell an equity at a pre-set 'strike' price: an extremely dangerous practice for investors who are not covered. But for fund managers, holding huge portfolios of shares, it is a relatively attractive method of earning money and boosting performance.

But even if more fund managers started to write options, there is still a lack of business on the other side of the equation, hence Liffe's desire to promote equity options among retail investors, who often buy options as a means of obtaining exposure to a stock for a limited outlay.

The other hope is that the development of a more active over-the-counter market in equity derivatives, which many banks are actively pursuing, would feed through into the exchange-traded market as banks seek to manage their exposure. But business in that area too, seems to have stalled.

GB United Kingdom, EC P6211 Security Brokers and Dealers MKTS Market data CMMT Comment & Analysis P6211 The Financial Times London Page 21 671
International Bonds: Borrowers turn attention to global offerings Publication 930222FT Processed by FT 930222 By ANTONIA SHARPE and TRACY CORRIGAN

THE CONCEPT of global bond offerings is catching the attention of a growing range of borrowers. Last week, the Kingdom of Sweden, the World Bank and the Canadian Province of Quebec all launched large global bonds.

The process of offering bonds simultaneously in the US, Europe and the Far East allows borrowers to raise larger sums and to place paper at the best possible price. Not surprisingly, borrowers are eyeing the mechanism closely, but it does have some limitations.

The concept was pioneered by the World Bank, which launched a Dollars 1.5bn issue in September 1989. Last week's Y200bn global bond issue was its tenth, and it plans to launch the first D-Mark global offering later this year.

Mr Kenneth Lay, director of financial operations, says that one of the main motives was to achieve a single world price for its bonds.

This has resulted in what the World Bank regards as a more accurate valuation of its bonds, thereby increasing investor confidence in the pricing of the paper.

Prior to the start of its global programme, there was often a yield differential of 10 to 20 basis points between World Bank Eurobonds and bonds placed in the US market. In practice, all triple-A credits are not the same: European investors were willing to pay a higher premium for World Bank paper than US investors. Under the global programme, the knowledge that there would be a strong bid for the paper in Europe helped increase US investors' confidence.

But there are other differences between US and European investors. European investors are heavily influenced by their views on the currency outlook, buying dollar bonds aggressively when the dollar looks set to rise. Japanese investors take a similar approach, but the timing is different, since there are occasions when, for example, the dollar is weak against the yen but firm against European currencies. US investors on the other hand are blind to such considerations.

So far, there have been global offerings in dollars, Canadian dollars, and yen. Global bonds denominated in D-Marks and French francs are expected this year.

That experiment may be less successful. Although both currencies are increasingly widely traded internationally, US fund managers are still far more averse to currency risk than their European counterparts. US bankers are sceptical about how well the structure would function, given that most US fund managers still want to buy only dollar bonds.

So far only two corporate borrowers, Matsushita Electric Industrial of Japan and Ford Motor Credit of the US, have issued global bonds, and the scope for more global corporate bonds appears limited. Few companies need to borrow sums of Dollars 1bn or more in one go.

Further, differences in credit perception between corporates from different countries are more difficult to overcome. For example, Ford's recent global offering was mostly placed in the US, where Ford paper trades far tighter than in Europe.

The greater familiarity of investors with domestic companies is likely to mean that the advantages of global bond offerings for companies are more limited: when a single-A rated UK company launches a long-dated sterling bond, it is likely to be placed with a small base of domestic investors, even if it were to be packaged as a global offering.

The global bond market is less a single market, than the linking of a number of different markets, to the benefit of both investors and borrowers.

Global bonds combine the features of US bonds and Eurobonds. The borrower has to register its intended offering with the US Securities and Exchange Commission (SEC) and get its prospectus approved by the SEC, as for a US domestic bond.

But global bonds have the same fee structure as for Eurobonds, which is cheaper than the US market.

Efficient distribution and settlement between markets in different parts of the world have considerably reduced price spreads because the bonds can flow to areas of greatest demand.

Secondary trading in global bonds is facilitated by the formal bridge between the Depository Trust Company (DTC) in the US and the European clearing houses, Euroclear and Cedel. The Bank of Tokyo operates a book entry register for yen global bonds, and depositary and custodial links are established between Euroclear, Cedel and DTC to enable the transfer of those bonds against payment.

'The bonds can therefore be settled freely in each market,' says Mr Charles Berman, director in the capital markets group at Salomon Brothers in London.

XA World P6211 Security Brokers and Dealers MKTS Market data CMMT Comment & Analysis P6211 The Financial Times London Page 21 779
UK Gilts: Economic indicators point to long-end gains Publication 930222FT Processed by FT 930222 By PETER MARSH

THE long end of the gilt market made further gains last week, due to more settled news on inflation and a slight easing of fears about the public sector borrowing requirement (PSBR).

Gilt investors were cheered by news of yet a further slowing in the year-on-year rate of increase in average earnings. This came down to 4.75 per cent in December, from 5 per cent in November, and represents the smallest rise in 25 years.

There was also some optimism that a higher-than-expected Pounds 3.83bn surplus in government finances in January might indicate a slight easing in the pressures on the PSBR.

While long-dated gilts slipped in yield by about 20 basis points over the week, prices at the short end stayed virtually the same, with little to suggest any immediate cut in bank base rates.

Friday's first report by the Treasury's panel of outside economic advisers provided a tonic for the gilt market in one respect, in its espousal of the abandonment of the full-funding rule for financing the PSBR.

Such a step - which is being examined by the Treasury before the March 16 budget - would mean purchases of gilts by banks and building societies would count towards financing the deficit, expected to be about Pounds 37bn this financial year and nearly Pounds 50bn in 1993-1994.

The move has been advocated for months by many gilt specialists on the grounds that the action would reduce the amount of issues required over the next few years. As a result it might pull down long-dated gilt yields.

The report from the seven-strong panel was generally gloomy about the UK's short-term economic outlook, putting likely growth this year at just over 1 per cent. It said there was uncertainty about whether a significant recovery would take place, while underlying inflation this year is likely to stay within the 1 to 4 per cent target range set by the Treasury.

Further good news on inflation came from labour market data which underlined the firm downward pressure on wage settlements. The year-on-year rise in the index of underlying earnings across the economy has now come down in every month since June when it was 6.25 per cent.

With all the signs being that the government will probably stick to its target of keeping rises in public sector wages at 1.5 per cent or less, the prospect of further falls in wage inflation in the months ahead look reasonably good. Even so, this may not necessarily feed into the headline inflation rate.

According to the Treasury's economic advisory panel, inflation as measured by the year-on-year increase in the retail prices index will rise from 1.7 per cent last month to 2.6 per cent by the end of this year and 3.6 per cent by the end of 1994.

Few analysts, however, are getting too excited about any build-up of cost pressures which may be in the pipeline. Most economic statistics continue to indicate fairly stagnant demand. The latest retail sales data did show a better than expected 1.6 per cent rise in sales volumes in January compared with December.

But much of this was a rebound from a poor Christmas period. In the three months to the end of January, sales volumes were up a modest 0.2 per cent compared with the previous three months, significantly less than the quarterly rises in the middle of last year.

On the PSBR, the large surplus in January - the first for a year - is likely to be countered by big deficits this month and in March as technical changes related to the collection of tax revenues work their way into the figures.

However, the publication of the January number diverted many gilt practitioners from the extremely large forecasts for the PSBR for the 1992-1993 financial year which have been published by some in the City in recent weeks.

On the back of the January number, Mr Chris Anthony, an economist at the normally extremely bearish UBS Phillips & Drew, says he thinks the PSBR for the year will come out at Pounds 35bn, Pounds 2bn less than the prediction made by the Treasury last November.

GB United Kingdom, EC P6211 Security Brokers and Dealers MKTS Market data P6211 The Financial Times London Page 20 726
Canadian Bonds: Passionate embrace fosters flood of issues Publication 930222FT Processed by FT 930222 By BERNARD SIMON

GOVERNMENTS with hefty borrowing requirements and investors looking for decent yields at low risk are embracing each other with a passion in the Canadian bond market.

International and domestic issues by all levels of government in Canada have exploded recently. Borrowings in January exceeded CDollars 10bn.

Last week alone, Quebec raised CDollars 1.4bn through its first global issue and Manitoba tapped the Yankee market for USDollars 300m. At home, the federal government priced a CDollars 1.8bn five-year issue, while Prince Edward Island raised CDollars 60m.

The market has so far absorbed the flood of new issues - not to mention numerous EuroCanadian offerings by non-Canadian borrowers - with remarkably little indigestion.

Spreads between Canadian and US bond yields widened in January when domestic institutions were net sellers, but the gap has narrowed more recently. The benchmark Government of Canada 10-year bond yielded 7.49 per cent towards the end of last week, 135 basis points higher than equivalent US Treasuries. The gap was as wide as 164 points in January.

'There's a slight cost to this, but less than I would have expected it to be,' says a government-finance specialist at one Toronto securities firm.

The surge in borrowing stems from yawning budget deficits at both the federal and provincial levels. The federal deficit is expected to jump to CDollars 34.5bn in the fiscal year to March 31 1993, compared to a projected CDollars 27.5bn in last February's budget.

Royal Bank of Canada estimates that the 10 provinces will have a combined budget deficit of CDollars 23.5bn this year, up from CDollars 22.2bn in 1991-1992 and CDollars 9.8bn the previous year. Public sector borrowings in the domestic market could top CDollars 60bn in 1993 as a whole.

The supply of funds has so far matched, and even outstripped, demand. Some smaller provinces are said to have been offered a year or two's requirements in a single issue.

For investors, the main attraction has been the combination of a stable currency, a more generous yield than US securities with little extra risk, and a liquid market.

Mr David Adamo, director of fixed-income research at ScotiaMcLeod, says: 'If you're a US or European investor looking for an attractive rate in a country with minimal inflation, Canada looks good.'

Prices, especially at the short end, are expected to remain firm for the time being. With the economy still weak, analysts predict further falls in short-term interest rates with inflation at 1 to 2 per cent. Canadian securities will also benefit from any further improvement in the US bond market.

Mr Daniel Kelly, vice-president for fixed-income research at Wood Gundy, adds that the Canadian provinces, almost all of which have single-A credit ratings or better, will continue to have access to the Yankee market 'as long as people are reasonably optimistic on the US dollar and US interest rates'.

But a warning shot was fired over the market last week by the CD Howe Institute, one of Canada's premier economic think-tanks. The institute reported that most of the 19 economists at a recent seminar on the fiscal outlook felt that Canada's public debt burden has grown to the point where 'continued easy access to financing cannot be taken for granted'.

Mr Warren Jestin, chief economist at Bank of Nova Scotia, suggested that uncertainty about the outcome of Canada's general election later this year, further bad news on provincial finances, or evidence that Ottawa will have difficulty cutting its deficit 'could all trigger a less receptive borrowing environment'.

Demand for funds, especially from the provinces, shows few signs of easing, however.

Mr Benoit Durocher, a Royal Bank economist, predicts that provincial deficits will not come down much in 1993-1994. While tax revenues will rise as the economy accelerates, finance ministers can no longer rely on inflation to push taxpayers into higher income-tax brackets, or to boost receipts from sales taxes.

CA Canada P6211 Security Brokers and Dealers MKTS Market data P6211 The Financial Times London Page 20 677
US Money and Credit: President delivers a rosy outlook for Treasuries Publication 930222FT Processed by FT 930222 By PATRICK HARVERSON

IT IS unlikely that any new president in modern history has received so enthusiastic a reaction from the domestic bond markets as has Mr Bill Clinton the past week.

When he won the presidential election on November 3, the yield on the benchmark 30-year government bond was standing at 7.645 per cent and the yield on the two-year note was 4.416 per cent.

On Friday, after a week-long rally in bond prices, the 30-year yield had plunged to 7.000 per cent and two-year yield had dropped to 3.945 per cent.

The 30-year is now recording the lowest yield since the issue was first sold to the public in 1977. Given that Democratic presidents are normally regarded as the enemy of fixed-income investors - because they like to use the power of the government to generate economic growth, a policy approach that can have inflationary consequences - the performance of the bond markets under President Clinton has been remarkable.

The recent strength in bond prices can be put down to a variety of factors, but one has been dominant - a surprise among Treasury investors at the president's willingness to propose tough, politically unpopular measures to cut the huge federal deficit.

Last week's economic plan from President Clinton, a mixture of big tax increases, selected spending cuts, and targeted government 'investments' - a euphemism for more spending - was a braver assault on the deficit than the bond market could ever have imagined in the pre-election days of mid-1992.

The president's economic package - which is geared to short-term economic stimulus this year but which quickly shifts its focus towards deficit-reduction in 1994 and 1995 - has been welcomed by bond investors not just because it tackles the deficit problem.

The plan has also earned applause because the Treasury market believes the net effect of the measures proposed in the State of the Union address last week will be to slow the rate of economic growth in 1994 and possibly beyond.

This is not only good news on the inflation front, but also in terms of the direction of monetary policy. As Mr Neal Soss, chief economist at First Boston, said of the president's economic package last week: 'This is extremely bullish for securities markets, because it postpones the prospects for any Federal Reserve tightening of monetary policy.'

Mr Soss believes that the tax increases will effectively take the place of interest rate rises as the main method of pacing economic growth and stifling inflation.

President Clinton, however, cannot claim all the credit for the bond rally. Prices have been driven higher recently by at least two other factors. One has been the flight to quality by investors frightened by the dramatic downturn in stock prices after the president's tax increases were first announced.

The other has been the continued speculation that the Treasury plans a big cut in the size of future long bond issues as part of a plan to reduce the cost of servicing the federal deficit.

The flight to quality will probably continue to benefit the bond market until equity investors have grown more comfortable with the new economic policy emanating from the White House, and despite hints from the Treasury to the contrary, longer-dated prices will also continue to benefit from expectations of future cuts in long-bond issuance.

Consequently, the market's short-term outlook looks rosy. As Salomon Brothers said on Friday: 'If the key 7 per cent threshold on long Treasury yields is breached - as we expect - long-term yields are likely to head toward 6 1/2 per cent.'

US United States of America P9611 Administration of General Economic Programs MKTS Market data P9611 The Financial Times London Page 20 634
International Company News: Deficit deepens at troubled Elkem as dividend omitted Publication 930222FT Processed by FT 930222 By KAREN FOSSLI OSLO

ELKEM, the troubled Norwegian light metals producer, yesterday revealed sharply increased net losses in 1992, and warned it would omit its dividend payment for the third year running.

Net losses last year rose to NKr616m (Dollars 89m) from NKr443m in 1991 while sales fell by NKr514m to NKr7.3bn. Elkem said its main markets continued to be plagued by weak demand, high levels of exports of metals and alloys from China and eastern Europe, and over-capacity.

'The company considers that there are no reasons to expect significant changes in the market situation in 1993,' Elkem warned further.

Group operating costs were cut by NKr63m to NKr6.99m but the company pledged to continue cost-cutting efforts. The number of employees was cut by 679 045 last year.

Elkem said cost reduction measures announced in the second half of 1992, including a further cut in its workforce and renegotiation of raw materials contracts, would have a positive effect in 1993. The company charged accounts with a NKr125m loss on Elkem Technology and NKr86m for restructuring.

However, the charges were offset by a NKr214m gain on the sales of assets and a NKr50m tax reduction. Elkem's shareholdings in associated companies yielded net losses of NKr76m in 1992 against profits of NKr58m previously.

Net interest expenses rose to NKr431m from NKr416m in 1991. Elkem said it suffered foreign currency losses on debt of NKr33m in the fourth quarter. Finance expenses rose to NKr511m from NKr421m in 1991. 'Financial costs were also affected by the high level of interest rates in domestic money markets in the fourth quarter.'

Elkem said its financial base had been strengthened in the fourth quarter by NKr580m raised from a share issue, gains from assets sales and the establishment of a NKr550m credit facility.

Elkem NO Norway, West Europe P3312 Blast Furnaces and Steel Mills P3353 Aluminum Sheet, Plate and Foil P336 Nonferrous Foundries (Castings) P10 Metal Mining COMP Company News FIN Annual report P3312 P3353 P336 P10 The Financial Times London Page 19 353
International Company News: Earnings of ADollars 36m for Fairfax at halfway Publication 930222FT Processed by FT 930222 By KEVIN BROWN SYDNEY

JOHN Fairfax, the Australian newspaper group controlled by Mr Conrad Black's Daily Telegraph group, has announced interim net profits of ADollars 36m (USDollars 24.4m) for the six months to end-December.

Fairfax, which was floated on the Australian Stock Exchange in May, said the figures were not comparable with the first half of the previous year, when the group was in receivership.

However, the group earned net profits of ADollars 27m in the six months to June, after offsetting an income-tax liability of ADollars 11.5m against tax credits carried over from the receivership. Sales were ADollars 388.5m compared with ADollars 357.4m in the second half of last year.

Fairfax said it benefited from higher advertising revenue and lower net interest costs, reflecting Australia's falling interest rates and gradual recovery from recession.

Sales of the Sydney Morning Herald and The (Melbourne) Age increased, but the group said the difficult business environment was responsible for a 3 per cent fall in the circulation of the Australian Financial Review.

The board said it had decided in principle to build a ADollars 300m printing plant in Sydney, which is intended to match the improved printing facilities installed by News Corporation, Australia's biggest publishing group.

The group said the plant would be operational by 1996, allowing improved presentation of its newspapers and reducing production costs. 'These factors are expected to have a significant positive impact on the long term competitive strength of the company,' the board said.

The directors said there would be no dividend, in line with forecasts in the flotation prospectus.

The Daily Telegraph owns 15 per cent of Fairfax, but has applied to the federal government for permission to lift its stake to 20 per cent.

John Fairfax Group AU Australia P2711 Newspapers COMP Company News FIN Interim results P2711 The Financial Times London Page 19 324
International Company News: Pinault considers Prisunic sale Publication 930222FT Processed by FT 930222 By ALICE RAWSTHORN PARIS

PINAULT, the French retail group, is considering the sale of Prisunic, one of France's largest store chains, as part of its efforts to raise capital to reduce the debt left by its takeover of the Au Printemps stores group.

Galeries Lafayette, one of Printemps' main rivals in the department store sector, is mooted as a prospective purchaser. Galeries Lafayette, already burdened by FFr2.8bn (Dollars 505m) of debt after its acquisition of the Nouvelles Galeries group, has denied French newspaper reports that it was in negotiations with Pinault. However, it left open the possibility of future talks by saying it 'did not envisage bidding for Prisunic at present'.

Prisunic, a chain of 94 mixed merchandise stores with 230 affiliates, is a leading player in French retailing. It came to the fore in the 1970s when it was influential in introducing contemporary design to France, fulfilling a similar role to Habitat in the UK.

The group has come under pressure in recent years, reflecting the sluggish state of French consumer spending and the intensely competitive condition of the retail sector. It made operating profits of just FFr34.3m on sales of FFr4.9bn in 1991.

Pinault has been selling assets for some time. Initially it concentrated on its old industrial interests but in recent months has started selling its recently acquired retail interests. Pinault, which is reported to hope to raise FFr2bn from the Prisunic sale, has also reshuffled its finances in an attempt to alleviate the burden of its FFr19bn net debt.

Pinault Prisunic Galeries Lafayette FR France, EC P5311 Department Stores P5399 Miscellaneous General Merchandise Stores COMP Company News COMP Disposals P5311 P5399 The Financial Times London Page 19 294
International Company News: Metsa-Serla cuts losses by half to FM290m Publication 930222FT Processed by FT 930222 By CHRISTOPHER BROWN-HUMES and HILARY BARNES STOCKHOLM, COPENHAGEN

METSA-SERLA, the Finnish forestry group, cut losses after financial items to FM290m (Dollars 49m) in 1992, less than half the previous year's FM635m deficit.

The improvement came despite FM275m in exchange rate losses and reflected the benefits of cost-cutting, improved efficiency and the fall in the value of the markka. There will again be no dividend.

The group believes it will show a profit after financial items in 1993, with sales increasing to FM8bn. It says its strategy of product specialisation should assist the recovery, although it expects general market conditions to remain difficult.

'Metsa-Serla's main targets are to improve profitability, secure a good cash flow and reduce indebtedness,' it said.

Sales for 1992 rose to FM7.75bn from FM7.74bn, although allowing for divestments, the increase was 9 per cent.

The devaluation of the markka compensated for the sharp fall in market prices, the company said.

The operating margin climbed to FM1.23bn from FM896m while operating profits rose to FM718m from FM391m.

Corrugated board and tissue was the group's best performing sector, increasing operating profits to FM352m from FM242m.

Paper and paperboard produced an operating profit of FM199m, up from FM190m, while sawn paper and pulp managed FM167m of profits after 1991's FM41m losses.

Hafnia, the Danish insurance group which is up for sale, has sold Cambio + Valoren, its Swiss asset management bank, to Union Bancare Privee, the Geneva-based private bank, writes Hilary Barnes in Copenhagen.

The deadline for offers to buy Hafnia, which was placed on the market last autumn, passed last week.

Metsa Serla Hafnia Holding Cabio and Valorenbank DK Denmark, EC CH Switzerland, West Europe FI Finland, West Europe P2421 Sawmills and Planing Mills, General P2621 Paper Mills P2631 Paperboard Mills P6011 Federal Reserve Banks COMP Company News FIN Interim results COMP Disposals P2421 P2621 P2631 P6011 The Financial Times London Page 19 330
International Company News: Shortfall at Air Canada worsens Publication 930222FT Processed by FT 930222 By ROBERT GIBBENS MONTREAL

HEAVY fare discounting to maintain market share and restructuring charges brought Air Canada's 1992 net losses to CDollars 454m (USDollars 361m), or CDollars 6.13 a share, against losses of CDollars 218m or Dollars 2.94 a share, the year before.

Revenues were barely changed at CDollars 3.5bn. Domestic markets continued to be depressed because of the recession and Atlantic routes were highly competitive.

The only favourable sign was an upturn in operating results for the fourth quarter, said Mr Hollis Harris, president. Operating costs were reduced 10 per cent in 1992 and 2,200 jobs were eliminated.

The 1992 final loss was worse than analysts had forecast. On an operating basis before all special charges, Air Canada's operating loss was CDollars 145m, against CDollars 164m.

Air Canada has warned it will lose about CDollars 200m in 1993, with further rationalisation of equipment and manpower, and hopes to return to profitability in 1994.

Mr Harris said having two Canadian airlines operating internationally was counter productive. He called again for a merger with rival Canadian Airlines, now trying to complete a stock and operating alliance with American Airlines.

PWA, Canadian's parent company, forecast it would report a heavy 1992 loss later this month.

Air Canada CA Canada P4512 Air Transportation, Scheduled COMP Company News FIN Annual report P4512 The Financial Times London Page 19 238
International Company News: Cross Border M&A Deals Publication 930222FT Processed by FT 930222

------------------------------------------------------------------------ BIDDER/INVESTOR TARGET SECTOR VALUE COMMENT ------------------------------------------------------------------------ Kingfisher (UK) Darty Retailing Pounds 560m Creating (France) European power ------------------------------------------------------------------------ RTZ (UK) Nerco (US) Mining Pound 331m Move into US coal ------------------------------------------------------------------------ Bowater (UK) Specialty Specialist Pounds 305m Bowater International (US) Coatings coatings transformation continues ------------------------------------------------------------------------ Investor Group Adidas Sports goods Pounds 255m Tapie selling (France) (Germany) control ------------------------------------------------------------------------ Investor Group Westcoast Oil & gas Pounds 135m Taking (Hong Kong) Petroleum substantial (Canada) stake ------------------------------------------------------------------------ Gehe (Germany) Office Pharma- Pound 99m Agreed offer Commercial ceuticals distribution Pharmaceu- tique (France) ------------------------------------------------------------------------ Metallgesellschaft Minnova Mining Pounds 63m Buying out (Germany) (Canada) minority

------------------------------------------------------------------------ Anglian Water (UK) Nordic Process Pounds 36m Water Water engineering diversi- (Sweden) fication continues ------------------------------------------------------------------------ Scapa Group (UK) Oberdorfer Fabrics Pounds 11m Core business Group expansion (Germany) ------------------------------------------------------------------------ Synthelabo (France) Lorex Pharma- n/a Taking full Pharma ceuticals control ceuticals (UK) ------------------------------------------------------------------------

GB United Kingdom, EC P99 Nonclassifiable Establishments COMP Mergers & acquisitions P99 The Financial Times London Page 18 170
International Company News: BZW moves to regroup capital market operations Publication 930222FT Processed by FT 930222 By RICHARD WATERS

BARCLAYS DE Zoete Wedd, the investment banking arm of Barclays, the UK clearing bank, has regrouped its capital market operations in an attempt to boost its activities in the debt and structured finance areas.

Like rival NatWest Markets, which has been through an extensive reorganisation of its own, BZW's move appears to demonstrate a recognition that its debt and derivatives operations lag behind more ambitious US and continental European rivals in London.

The bank's bond activities have been largely restricted to sterling in the past, though last week it won its first big European currency unit mandate as joint lead manager on an Ecu500m bond issue for the European Investment Bank.

The new debt capital markets group comprises bond origination and private placements, structured finance - previously part of the corporate finance unit - and swaps and options.

Debt trading and sales activities will remain in the bank's markets devision, though swap and options trading will be part of the new group.

Mr John Spencer, managing director of Barclays' financial markets group, said the changes did not signal any wider shake-up of BZW's corporate finance operations.

Barclays de Zoete Wedd GB United Kingdom, EC P6211 Security Brokers and Dealers COMP Company News FIN Company Finance P6211 The Financial Times London Page 18 231
International Company News: Sherwood Computer in two deals Publication 930222FT Processed by FT 930222

Sherwood Computer Services has paid Pounds 300,000 in cash to acquire THS (Guernsey), in a move which strengthens its position in the insurance companies market.

THS (Guernsey) comprises the majority of the assets and business of the company which traded as THS Limited, a subsidiary of English & American Group. At the date of acquisition, THS (Guernsey) had net assets of Pounds 1.1m. The deal will give Sherwood the rights to a number of proprietary IBM software products.

In a separate move, Sherwood announced a joint venture with Beta Computers (Europe) to form a new company, Sherwood International. The company is 51 per cent owned by Sherwood, which acquired its equity by way of a subscription for shares for Pounds 255,000 cash. The new company has been formed to acquire the rights to PALACE, an advanced life and pensions administration system with international potential.

Sherwood Computer Services THS (Guernsey) Beta Computers (Europe) Sherwood International GB United Kingdom, EC P7374 Data Processing and Preparation P6411 Insurance Agents, Brokers, and Service COMP Company News COMP Acquisition COMP Joint venture P7374 P6411 The Financial Times London Page 18 199
International Company News: Westminster Health value may top Pounds 100m Publication 930222FT Processed by FT 930222 By MAGGIE URRY

THE flotation of Westminster Health Care, the nursing homes group, will go ahead this spring and is expected to value the group at Pounds 100m or more.

WHC also announced that interim profits before interest and tax had more than doubled to Pounds 4.3m (Pounds 2.1m) on turnover of Pounds 17m (Pounds 9.9m). The prospectus for the float will contain a profit forecast for the year to May 31. In the previous year it made Pounds 5.3m before interest and tax, on sales of Pounds 23.4m.

The prospectus will also refer to law suits filed in the US against National Medical Enterprises, WHC's US parent. NME has been sued by insurance companies claiming overcharging. NME is defending the suits.

The float, which is likely to raise at least Pounds 50m through a placing with a clawback to allow the public to buy shares, will reduce NME's stake in the group to a percentage in the low 40s. However, NME is not taking cash out of the business, rather it will repay WHC's debt and fund further expansion.

The company aims not to ask shareholders for further cash for at least 18 months or two years. A fast rate of expansion is expected. WHC owns 39 nursing homes in the UK with 2,620 beds, mostly in purpose built homes, with a high proportion in single, ground floor rooms with ensuite bathrooms.

WHC has another 9 under construction, adding 737 beds. Mr Pat Carter, chief executive, said that it planned to open 700 to 800 beds a year.

By the financial year end it expects to have 3,230 beds making it one of the larger groups in the industry, although still relatively small in the private sector nursing home market, valued at Pounds 2.2bn a year. New openings are likely to mean that second half profits do not rise as fast as in the first half.

WHC's prospectus will also describe the changes taking place in the industry from April 1 as a result of the government's reforms of community care. These shift the funding responsibility for patients who cannot afford private care from central to local government.

Mr Carter said that local authorities are now preparing for the new system, setting prices and giving patients choice within available funding. WHC takes a higher proportion of private patients than most of the operators in the industry.

The leading quoted operator of residential nursing homes is Takare, whose shares trade on a multiple of over 20 times analysts' earnings forecasts for 1992.

Barclays de Zoete Wedd is sponsor to the issue, and de Zoete & Bevan is broker.

Westminster Health Care GB United Kingdom, EC P8059 Nursing and Personal Care, NEC COMP Company News FIN Annual report FIN Share issues P8059 The Financial Times London Page 18 483
International Company News: Riva settles Hugin claims Publication 930222FT Processed by FT 930222

Riva Group, the USM-quoted supplier of electronic point of sale systems, has concluded settlement of its claims arising from its acquisition in 1989 of Hugin Sweda Group.

Under the settlements, KPMG Peat Marwick, Riva's former adviser, and the underwriters of directors and officers and company reimbursement indemnity policies are to pay sums of about Pounds 1m. Both KPMG Peat Marwick and the underwriters deny liability.

Riva has also settled certain claims made against the group in Sweden following the liquidation of the former Hugin Sweda subsidiary, Hugin Sweda International. As a result, Pounds 264,000 has been released to the 1992 profit and loss account.

Riva Group Hugin Sweda Group GB United Kingdom, EC P7372 Prepackaged Software P357 Computer and Office Equipment COMP Company News COMP Acquisition FIN Company Finance P7372 P357 The Financial Times London Page 18 150
International Company News: Cashing in on conservation - Vardon's purchase of the Gweek Seal Sanctuary Publication 930222FT Processed by FT 930222 By PAUL TAYLOR

THERE are no fruit machines or fairground rides at the Cornish Seal Sanctuary on the banks of the Helford river at Gweek. But there are paying visitors - 200,000 of them a year, spending almost Pounds 1m between them.

Last week, Vardon, the leisure group which owns the London Dungeon, the York Dungeon and the Sea Life Centres and which obtained a Stock Exchange listing in October, paid Pounds 1.8m to acquire the sanctuary.

The deal highlights the increasing interest being shown by leisure companies in conservation which, in turn, reflects growing public concern about the environment and environmental issues.

There is also a greater realism among some conservationists who appreciate that a commercial partnership can help provide a more stable financial framework for their operations. For example, London Zoo's latest survival plan, also unveiled last week, emphasises its research, breeding and conservation work in an attempt to attract visitors rather than the old Victorian-style menagerie concept.

The Cornish Seal Sanctuary was founded by Mr Ken Jones, a former coal miner who in the mid-1950s ran a beach cafe at St Agnes on Cornwall's north coast. One day he found an injured baby seal pup and decided to nurse it back to health. The sanctuary started from there.

Mr Jones continued to build on the work of the sanctuary, caring for injured and abandoned animals, but eventually outgrew his beach cafe site. So in the early 1970s, against considerable local opposition, he obtained permission to build the present sanctuary on a 35-acre site on the banks of the Helford in south-west Cornwall.

The new centre was opened in 1975 and subsequently expanded through a Pounds 750,000 building programme to include a visitors' centre, cinema, aquarium, fully-equipped hospital, five seal pools and an exhibition about the effects of pollution.

Most of the funding for the sanctuary was provided by Mr Jones himself, or from visitors' donations and a 25p entrance fee.

However, in 1990 Mr Jones sold the sanctuary to a group of local and West Country investors and retired, something he now deeply regrets because of his fears that it has become too commercialised.

When he heard a week ago that Vardon had approached the Seal Sanctuary with a view to buying it, he tried to raise the money to buy it back himself, but had insufficient time to do so.

Since he sold his interest, the sanctuary has been run on a commercial basis by Seal Sanctuary Plc, although most visitors might not have realised it had switched from an amateur, charitable organisation to a business footing.

Indeed, the sanctuary's new commercial owners did little to advertise their presence. Visitor literature and notices around the sanctuary thank customers for their 'support' and still invite donations.

The fences surrounding the seal pools are covered with the names of families and children who have financially sponsored or adopted a seal. It is a moot point whether these funds would have been so available had the donors appreciated the changed status of the sanctuary.

Today, the sanctuary charges an entry fee of Pounds 2.50 for adults and Pounds 1.50 for children. On Sundays, more than 1,000 people visit the attraction. Last year it made a pre-tax profit of Pounds 124,000 after paying Pounds 251,000 in interest and non-recurring charges.

Nevertheless, the sanctuary performs a vital conservation function. There are only an estimated 100,000 Atlantic Grey Seals in the world and two thirds of them are found around the coast of Britain. Until they were protected, the population was declining and only about 400 are thought to remain around Cornwall and the Isles of Scilly.

The conservation work undertaken by the Gweek sanctuary will mesh closely with the work of the Sea Life Centres which Vardon acquired in October.

Sea Life operates seven wholly owned and one 50 per cent owned centres around Britain. It is building another in Southend and one in Scheveningen, Holland. Despite the recession, in the year to December 31 the centres posted a profit of Pounds 2.15m, a 19 per cent increase on the previous year.

The Sea Life Centre at Oban, in Scotland, already operates a scaled-down version of Gweek's rescue facilities. Volunteers from both Oban and Gweek worked together on a seal rescue programme in the wake of the Braer oil-spill in the Shetlands.

All the centres have rescue and rehabilitation facilities and operate their own successful environmental programme called 'Sea Watch'.

Mr David Mace, Sea Life's founder and managing director, says Vardon plans to open two new centres a year.

However, as a marine biologist, he is also sensitive to the concerns of those who fear that conservation and commercial interests do not mix. He says: 'We are certainly not going to change the sanctuary's aims and ambitions'. He adds that conservation will continue to be pursued with 'vigour'.

And already, the sanctuary's new owners have moved to reassure other sceptics like Mr Jones. 'They have told me they will run it the right way. I hope they will, but we will keep an eye on them,' he says.

Vardon Seal Sanctuary Sea Life Centres GB United Kingdom, EC P7999 Amusement and Recreation, NEC COMP Acquisition RES Facilities MGMT Management P7999 The Financial Times London Page 18 896
Companies in this issue Publication 930222FT Processed by FT 930222

------------------------------------- COMPANIES IN THIS ISSUE ------------------------------------- UK ------------------------------------- BSM Group 17 BZW 18 MGN 17 RTZ 17 Riva Group 18 Royal Dutch/Shell 1 Sherwood Computer 18 Vardon 18 Westminster Health 18 Overseas ------------------------------------- Air Canada 19 ------------------------------------- CS First Boston 17 Elkem 19 General Motors 19 John Fairfax 19 Metsa-Serla 19 Nerco 17 Pinault 19 Prisunic 19 RWE 19 SMH 19 -------------------------------------

XA World P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 17 86
BSM in talks for October flotation Publication 930222FT Processed by FT 930222 By ANDREW JACK

BSM GROUP, owner of the British School of Motoring, one of the UK's largest franchisers, is in advanced discussions to obtain a listing on the London stock exchange later this year.

Mr John Mackie of Morgan Grenfell, who is a non-executive director of the company, said yesterday that a flotation was planned for early October.

Final details are still being prepared, but it is believed that the value of the share offering may be about Pounds 50m.

The BSM proposal comes at a time when a number of companies are considering going public while the equity market is buoyant, including Westminster Health Care which plans to float in the spring.

Mr Mackie said the share offering would provide an exit from ownership for the team which financed the management buy-out of the company in 1990, as well as reduce the level of borrowing and help fund future growth. BSM has already selected Morgan Grenfell as the sponsoring merchant bank and James Capel as brokers for the float. It is expected to select Coopers & Lybrand, the auditors, as reporting accountants.

The company reported ordinary profits of Pounds 810,000 in the year to December 31, 1991, before a tax credit of Pounds 109,000 mostly caused by advance corporation tax written back.

Morgan Grenfell Capital Partners put up Pounds 11.5m in equity as part of the Pounds 40m buy-out of BSM in April 1990. The 1991 accounts show senior debt of Pounds 11m.

BSM Group British School of Motoring GB United Kingdom, EC P8299 Schools and Educational Services, NEC P5812 Eating Places P6719 Holding Companies, NEC COMP Company News FIN Share issues FIN Annual report P8299 P5812 P6719 The Financial Times London Page 17 297
Economics Notebook: Steady nerves needed in Spain Publication 930222FT Processed by FT 930222 By PETER BRUCE MADRID

There is near panic in Spain's ruling socialist party and government over the dire state of the economy and the government's own polls suggesting it might even be defeated if an election were held this week.

Fortunately for the socialists, an election can wait until the end of November. But Spain went into recession in the last quarter of 1992 and the mood of the country has taken a turn for the worse in the last month. The government is being paralysed by cabinet divisions, with ministers urging prime minister Mr Felipe Gonzalez to ignore finance minister Mr Carlos Solchaga and relax fiscal policy.

Worse, relations between Mr Gonzalez and the left-wing deputy party leader, Mr Alfonso Guerra have become even more strained than usual.

Momentarily at least, Spain is rudderless and drifting. Last Friday's regular cabinet meeting ended without its equally regular press conference. Earlier, after the official statistics institute reported unemployment had risen to an historic 3.04m in 1992, the government added to the air of unreality by driving up interest rates in secondary markets to defend the peseta from some relatively mild speculation.

'Defending' the strongest currency in the EMS may have been consistent with the government's commitment to exchange rate stability and a strong peseta (to attract foreign currency to its debt auctions). But with bankruptcies at record levels and the jobs created in the 1986-1989 boom fast disappearing, posturing for foreign bond dealers did not, perhaps, strike quite the note the country was looking for in the wake of the unemployment figures.

The Spanish business community has deserted the Gonzalez administration en bloc, furious about the party forcing a watered-down strike law through parliament last week. Opposition from Mr Solchaga, who wanted a tougher bill, was simply ignored in yet another demonstration that when push comes to shove on domestic issues, it is Mr Guerra and the party who rule.

This crunch - recession and election - was bound to catch the socialists sometime. Spain's core problem is its Dollars 200bn-plus (Pounds 140bn-plus) public debt and the price it pays - high interest rates - to persuade foreigners to finance it. If it cuts rates faster than the Bundesbank, it cannot sell its debt. But unless it does, the recession will probably deepen. One way out would be a third devaluation in a year but this would signal panic to the markets and cause great anguish in neighbouring Portugal.

A second way out, unspoken even a year ago but broadly canvassed now in business and, more timorously, in cabinet, is to pull the peseta out of the exchange rate mechanism and allow the currency to float. Downwards, inevitably.

But this government would not be able to do that. It has staked everything on being a loyal player in the EC and it has, anyway, no way out of the debt trap. The Spanish public purse pays about 15m people - pensioners, the unemployed and a massive civil service - and any serious threat to any of those sectors would unquestionably cost the socialists the election.

Thus interest rates will have to stay relatively high (13 per cent against headline inflation of around 5 per cent) at least until financing for the year is complete and to keep pressure on employers until the spring wage round is over. There are already worrying signs that settlements are averaging 8 per cent or more.

Faced with all this, Mr Gonzalez has to decide when to hold his election and, then, how to win it.

He first needs to repair the rift with Mr Guerra. Mr Gonzalez is considering running the socialist campaign himself but he has never run an election and Mr Guerra has put him in office three times in a row. This cannot be the end. They have fallen apart over policy before and they are doing so again, but neither is suicidal.

Second, he needs some policies that do not upset the peseta - perhaps the removal of or a cut in a business tax, a public works programme and a possible labour reform that would end obligatory and expensive government arbitrage in large-scale redundancy programmes.

That may or may not be enough but the socialists have time to fine-tune and to steady themselves. Certainly, the victory rolls already being drummed out in the opposition press seem absurdly premature. Their economic platform - outlined earlier this month - is an opportunistic mix of unspecified tax cuts and privatisations and an uncosted promise to create jobs at the expense of cutting inflation.

But Mr Solchaga's orthodoxy may pay off. Inflation is already falling and slowly creating room for interest rate cuts later and the gut feelings of many in business that the recession will be deep and long remain just gut feelings. Who knows? The worst of this could just as easily be over by September.

ES Spain, EC P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9611 P9311 The Financial Times London Page 17 852
EC steel job cuts may top 100,000: Krupp-Hoesch chief warns his company may pull out of steelmaking Publication 930222FT Processed by FT 930222 By QUENTIN PEEL DUSSELDORF

WESTERN EUROPE'S steel industry may be forced to cut more than 100,000 jobs in its latest market crisis, more than double the estimate of the European Commission, according to the German steel federation.

Social spending to ease the burden of redundancies would have to increase substantially, and protection from cheap eastern European imports ensured to enable the industry to restructure, Mr Ruprecht Vondran, president of the federation, said in an interview.

At the same time, the head of Germany's second largest steel producer, Krupp-Hoesch, said he believed it was 'perfectly realistic' to consider quitting the steel industry altogether, if 'radical measures' were not taken to meet the crisis.

Mr Gerhard Cromme, chief executive of Fried. Krupp AG Hoesch-Krupp, which is in the process of merging the steelmaking operations of Krupp Stahl and Hoesch Stahl, told Der Spiegel magazine the country's leading steelmakers must co-operate to survive.

He refused to predict which German steel companies would outlive the latest crisis, but said that even the three strongest - Thyssen, Krupp-Hoesch and Preussag - would enjoy long-term survival prospects only if 'all the opportunities are used for the best possible co-operation'.

The grim forecast for the likely job losses in the entire European industry was made by Mr Vondran in a plea to Brussels to reconsider the funds available for social programmes.

He said the European Commission's plan to spend Ecu240m (Pounds 198m) to ease the mass redundancies would be inadequate, with Germany alone facing job losses of 35,000-40,000 in both halves of the country.

At the same time he urged a stern regime to limit state subsidies to loss-making producers, especially in Italy and Spain, and restrictions on cheap steel imports from eastern Europe.

Mr Vondran rejected the Commission's proposal for agreed minimum prices for east European steel imports, to prevent steel dumping, believing it would be ineffective. He suggested an import ceiling on the most sensitive steel products of 1991 import levels, plus 20 per cent.

EC industry ministers meet in Brussels this week when a rescue package will be presented by the Commission, calling for capacity cuts of up to 30m tonnes, in exchange for social spending, and some form of protection from imports.

Asked in his interview whether the idea of pulling out of steel production altogether was 'thinkable' for Krupp-Hoesch, Mr Cromme said: 'That is a perfectly realistic idea. I do hope, however, that we will be able to avoid any such step by taking a series of radical measures.'

Steel crisis plan, Page 2

QR European Economic Community (EC) P3312 Blast Furnaces and Steel Mills PEOP Labour P3312 The Financial Times London Page 16 464
Fierce bids as Ukraine goes under hammer Publication 930222FT Processed by FT 930222 By CHRYSTIA FREELAND LVOV

IRYNA IASMYSKA is one of Ukraine's new entrepreneurs. Iryna, 30, now owns the general store she used to run, along with six of her co-workers. They bought it at the weekend in the first of Ukraine's privatisation auctions.

In all, 17 small restaurants, shops and businesses were sold at the auction in the western Ukrainian city of Lvov. The sale could presage rapid privatisation of the rest of the economy, 94 per cent of which is still owned by the state.

Another buyer is Oleh Horbatiuk, a bulky, 42-year-old businessman. He bought a grocery shop for 28m coupons, and a textiles factory for 20m coupons. Mr Horbatiuk once served time in a Siberian prison for illegally trading in hard currency. 'I came out of jail and I became a capitalist,' Mr Horbatiuk cheerfully explained.

Nine of the 17 enterprises sold in Lvov went to workers who used their 30 per cent discount off the bid price and the right to make a 30 per cent downpayment and pay the rest over a year.

Opening the auction, Mr Volodymyr Pylypchuk, chairman of the Ukrainian parliamentary commission on economic reform, said: 'With the bang of this hammer, I declare the beginning of mass privatisation in Ukraine.'

Iryna and her colleagues bid 48m coupons (the equivalent of Pounds 13,200) for the store, although they will get their 30 per cent discount. They had hoped to buy the store more cheaply, but bidding was fierce enough to raise 784m coupons in all, more than 100 times the book value of the businesses on sale. 'Because of an auction, we had to pay 48m coupons (up from a book value of 150,000 coupons),' said Iryna. 'Until we pay off this debt, I think I will earn less as an owner than I did as a state manager.'

But Iryna, who won a bottle of champagne as the first successful bidder, believes the store is a going concern. 'I have a very big task before me, but I know I will succeed. There is such a great shortage of everything in our country that I am confident we will be able to sell everything that we offer our customers.'

Lvov municipal officials said they hoped this weekend's auction would become a twice-monthly or even weekly event in their city, which has 4,000 businesses available for privatisation.

The sale, run with the help of the International Finance Corporation, the privatisation arm of the World Bank, is the strongest indicator yet that the government of prime minister Leonid Kuchma is committed to market reform.

Mr Vadym Vasyliev, deputy head of the State Property Fund, responsible for privatisation, said he hoped for similar auctions in all of Ukraine's regional centres by the end of March.

Several large-scale projects are in the pipeline, including the transformation of an association of 10 meat processing plants in Odessa into an open joint stock company under the IFC's auspices, and privatisation of the state river shipping company, Ukrichflot, with advice from the European Bank for Reconstruction and Development.

But there are still obstacles: many businesses are being run under lease between workers and the government. There is also opposition from bureaucrats, who fear erosion of their power, and many workers' collectives are worried about losing jobs under privatisation.

UA Ukraine, East Europe P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 16 581
Prices in British supermarkets 17% below European average Publication 930222FT Processed by FT 930222 By GUY DE JONQUIERES, Consumer Industries Editor

STERLING'S devaluation over the past five months has turned Britain's supermarkets into a bargain basement for shoppers from other European countries, according to an international price survey.

It finds that UK retail prices for a range of branded foods, drinks and consumer products are 17 per cent less than the average for 14 European countries and 43 per cent lower than in Sweden, the dearest country.

The survey, carried out for the Financial Times last month by Nielsen, the market research company, also finds little evidence that leading consumer product manufacturers have raised their UK prices since sterling left the European exchange rate mechanism last September.

Of 31 market-leading branded products surveyed, 17 have fallen in price since August, by as much as 7 per cent. The biggest rise, for canned salmon, was 23 per cent, though the price had moved sharply up and down in the previous six months.

In several cases, price cuts of brand leaders were not matched fully by retailers' own-label products, which are usually cheaper.

The survey covered a basket of 45 'Euro-brands' - products sold in at least four of the larger European countries. Among the products assessed were processed foods, snacks, pet food, alcohol, soft drinks, household cleaners and personal care products.

Britain was cheapest in every product category except alcoholic drinks, for which prices were 6 per cent above the European average. Prices in Austria were 56 per cent higher than the European average and in Ireland and Switzerland 47 per cent higher.

Among the best bargains in Britain are Heinz tomato ketchup, Kellogg's cornflakes, Whiskas cat food and Palmolive washing liquid. All are half or less the average European price.

However, some items still cost more in Britain than elsewhere. The UK price of Ajax household cleaner is 8 per cent higher than the European average and twice the level in Spain, while Nutella chocolate spread and Danone yoghurt are respectively 10 per cent and 18 per cent above the European average.

The cheapest country after Britain is France, where the basket of 'Euro-brands' costs 96 per cent of the average, followed by Greece, Spain and Germany.

Further details available from AC Nielsen, London Road, Headington, Oxford. Tel: 0865 742742.

Food prices stable, Page 7

GB United Kingdom, EC QR European Economic Community (EC) P5411 Grocery Stores COSTS Product prices CMMT Comment & Analysis P5411 The Financial Times London Page 16 420
Scheme to buy empty dwellings likely to beat 20,000 target Publication 930222FT Processed by FT 930222 By ANDREW TAYLOR, Construction Correspondent

A Pounds 750m government programme to buy 20,000 empty properties to provide housing for the needy will almost certainly beat its target, according to figures to be presented to officials this week.

The scheme to help the depressed British housing market, announced in the Autumn Statement in November, is due to finish at the end of next month.

Just over half the 16,500 empty properties acquired so far have been bought from recession-hit housebuilders, according to the Housing Corporation, responsible for administering three-quarters of the money.

Another two fifths of the homes have been bought on the open market from members of the public. Less than a tenth have been repossessed homes.

The findings will disappoint building societies and banks, which have been struggling to reduce their estimated 65,000 stock of unsold repossessed properties. A total of 200,000 empty homes is estimated to be on the market.

The corporation says many of the repossessed homes offered to housing associations have been in poor condition. Properties must be suitable for immediate occupation if the programme is to be completed in time.

English housing associations under the scheme are to receive Pounds 577m. The rest of the money is to be spread between right-to-buy schemes, local authorities and housing action groups in Wales and Scotland.

Almost three quarters of the English budget is to be spent on properties in the south-east, which has been targeted by the government as the housing market worst hit by the recession.

English associations so far have agreed to 16,500 purchases involving Pounds 530m of grants. They have already exceeded their target of 16,000 homes by the end of March. The final total is likely to be between 17,000 and 17,500 according to the Corporation.

It says associations have been able to take advantage of falling house prices. Builders offered special deals to reduce the amount of unsold stock on their books.

Public sector grants under the scheme are expected to provide 60 per cent of the sale price. The rest of the money is expected to be provided from private investors. In total associations have spent nearly Pounds 1bn. Almost 5,000 families and individuals have already been housed under the scheme, says the Corporation.

GB United Kingdom, EC P9532 Urban and Community Development GOVT Government News P9532 The Financial Times London Page 16 407
The Lex Column: Nordic insurance Publication 930222FT Processed by FT 930222

The eternal triangle of Nordic insurers - Hafnia, Skandia and Uni Storebrand - may become something of a magnet for overseas capital. Bidding for Denmark's Hafnia closed on Friday, with the likes of AGF of France and Denmark's Codan, controlled by Sun Alliance, still in the hunt. Uni Storebrand's administrators must soon come forward with a plan to recapitalise that business. Most of the funding is likely to come from Norwegian institutions. But any auction of its 28 per cent stake in Skandia should attract an international crowd.

Skandia itself has so far been happy to shrink its business in line with its capital base. So its solvency ratio remains adequate despite the 20 per cent decline in net asset value announced last week. If Swedish property values continue to fall, though, fresh capital may be required. With more than 40 per cent of its shares in the hands of Hafnia and Uni Storebrand's administrators, a rights issue looks difficult. An overseas partnership which might take over these stakes must be an attractive option.

But a flow of foreign capital to the region could slow the return to profitability by raising capacity too quickly. Nordic insurers are no different from any others in that the most reliable source of capital is retained profits.

NO Norway, West Europe P6411 Insurance Agents, Brokers, and Service CMMT Comment & Analysis P6411 The Financial Times London Page 16 244
The Lex Column: Advertising Publication 930222FT Processed by FT 930222

The brace of rights issues sprung upon the market by two advertising agencies last week may have convinced investors that life is returning to that most unfashionable of sectors. A glance at the agencies' share prices only reinforces the conclusion. Abbott Mead Vickers has had a strong run in recent weeks. Even WPP's and Saatchi & Saatchi's shares, which have long lingered in the world of the living dead, have shown signs of resurrection. They have outperformed the market by 39 per cent and 27 per cent respectively over the past three months.

However, the sector's revival is based more on hope than expectation. In theory advertising should be one of the first beneficiaries of an economic upturn. So far at least, its practitioners have seen scant signs of it.

On closer inspection, last week's rights issues confirm this more cautious view. Both companies want the money to position themselves for recovery rather than meet specific expansion needs. Gold Greenlees Trott's Pounds 15m cash call was designed to fund as yet unspecified acquisitions. Lopex's Pounds 3.5m rights issue is being used to bolster its depleted balance sheet. This should eventually help it chase new business, with clients as much concerned with an agency's financial stability as its creative credentials. Advertising's operational gearing will show through in time. Investors, though, are being somewhat premature.

GB United Kingdom, EC P7311 Advertising Agencies CMMT Comment & Analysis P7311 The Financial Times London Page 16 250
The Lex Column: ICI's splitting headache Publication 930222FT Processed by FT 930222

Having christened its pharmaceuticals side and reformed its management structure, ICI is just one small step from the giant leap of demerger. The performance of its shares since the scheme was hatched last summer suggests some scepticism of the practical benefits of separation. Even allowing ICI the benefit of the doubt on that score, there is a danger its enthusiasm will cloud its judgment on timing.

In the absence of a remarkable turn-around in the final quarter, ICI can scarcely afford to pay a maintained dividend for 1992. Cutting the Pounds 400m pay-out would be easier to present as part of a demerger package. But distributing a reduced dividend between the two sides of the business will not be easy. Chemicals barely nosed into profit in the third quarter. A cyclical chemicals business might be forgiven for paying an uncovered dividend at this stage in the cycle, but over-capacity and a looming European recession make it far from clear when this side of the business will be in a position to pay its way. One way of assuaging such fears would be for ICI to endow the chemicals balance sheet with cash, or ask the pharmaceuticals side to bear a greater share of the dividend. That can only be at the expense of Zeneca's rating.

The plan to raise Pounds 1bn cash for the group as a whole on a fancy drugs-company multiple already looks dated. Glaxo now stands on a yield and price-earnings multiple close to the market average. Since Zeneca is suffering from the patent expiry of its biggest-selling drug - and has a less promising research pipeline - it might be expected to trade somewhat lower. By pricing its rights at a heavy discount, Zeneca could doubtless attract underwriters to the issue. But the arithmetic suggests that a cash call from a unified ICI would make more sense. By delaying demerger until the prospects for both sides of its business are clear, ICI would leave itself open to accusations of dithering. But fear of being seen as indecisive is never a good reason for action.

Imperial Chemical Industries GB United Kingdom, EC P2819 Industrial Inorganic Chemicals, NEC P2869 Industrial Organic Chemicals, NEC P2879 Agricultural Chemicals, NEC CMMT Comment & Analysis P2819 P2869 P2879 The Financial Times London Page 16 394
Breaking up is hard to do: Imperial Chemical Industries will this week decide whether it should split itself into two companies. Tony Jackson and Paul Abrahams examine the implications Publication 930222FT Processed by FT 930222 By TONY JACKSON and PAUL ABRAHAMS

On Wednesday, the 14 directors of Imperial Chemical Industries assemble for the most important board meeting in the company's 67-year history. The topic on the agenda is simple but momentous: whether the most distinguished survivor of Britain's industrial past should split itself in two.

As they take their seats in the wood-panelled boardroom overlooking the River Thames, the directors can be in little doubt about the outcome. In the seven months since the plan was made public, the world recession has got steadily deeper and the trading outlook grimmer. But however unlucky the timing, ICI has invested too much effort and credit in the venture to pull out.

The idea is that ICI should be carved into two separate companies: Zeneca, which will comprise pharmaceuticals and other high-tech products, and a new ICI, made up of bulk commodity chemicals.

The plan has the formidable backing of ICI's chairman, Sir Denys Henderson, and the equally redoubtable Mr Ronnie Hampel, chief operating officer. It also involves raising about Pounds 1bn of new money from the stock market. It is, according to one of the non-executive directors, '99 per cent certain' to go through.

Both the new companies face a rough ride; rougher, indeed, than could have been foreseen when the plan was revealed last July. The European bulk chemical market is in worse shape, according to some industry executives, than at any time since the second world war. The plan envisages floating the new ICI with a much reduced burden of debt. Even so, at least one board member has expressed doubts on whether it would make enough profit in its first year of operation to maintain its share of the dividend.

Zeneca's problem is slightly different. Its industry is largely recession-proof. But like all international drug companies, it depends heavily on the US market. The US patent of its biggest product, the heart drug Tenormin, expired last year. US sales have since halved. Zeneca has no big product to take its place, at least for the next two or three years.

It is central to the demerger plan that Zeneca should raise about Pounds 1bn through a rights issue. This raises another problem. The newly-elected Clinton administration has asserted its determination to slash healthcare costs. The share prices of US and UK drug companies have tumbled as a result.

Shares in Glaxo, the biggest UK drug company, have fallen by 17 per cent since the turn of the year. Yet Glaxo has just reported a 16 per cent rise in profits. Zeneca's profits for 1992 are widely expected to fall.

Pharmaceuticals aside, the rest of Zeneca's portfolio - consisting of agrochemicals and speciality chemicals - is not in very good shape either. The threat to European Community and US farmers posed by the Gatt round and the reduction of farm subsidies is also a threat to the agrochemical industry. In the UK, Germany and France the market fell on average by some 8 per cent last year. This year it may well fall further.

As for the speciality chemicals division, it made a mere Pounds 35m of profits in 1991 on sales of Pounds 1.2bn. Profits this year are expected to be lower. As a drug company, Zeneca is not among the industry's most attractive. As a hybrid, it is less attractive again.

Given all the drawbacks, ICI's apparent determination to press ahead might seem perverse. The counter-argument is that all these difficulties are essentially temporary. The plan is designed for the longest possible term. Nothing has changed in its underlying logic.

The chief argument for demerger, as expressed by Sir Denys and Mr Hampel last July, is that it allows both parts of the business to concentrate on what they do best. Some ICI directors argue that the business as it stands is too complex and far-reaching to be understood by any one person. In practical terms, there is no connection between the breeding of pest-resistant crops at one extreme and the operation of giant petrochemical complexes at the other.

In addition, Zeneca's drug business is by general consent not big enough to stand alone in world terms. Freed from entanglement with the rest of ICI, it could start to plan mergers or joint ventures of a kind which have become commonplace in the world drug industry in recent years.

This is one reason for the planned Pounds 1bn rights issue. The other is that Zeneca can then afford to take on most of the debt of the old ICI, leaving new ICI to face the more volatile world of commodity chemicals with a clean balance sheet.

There is another important motive for pressing on. In the months since the plan was announced, the demerger has already gone ahead internally. This has involved considerable upheaval, and is a source of occasional complaint among ICI's middle managers. Indeed, it is suggested by competitors that ICI has sometimes been too preoccupied with internal change to address itself fully to its markets.

Faced with those arguments, the board can scarcely shelve the whole idea. To do so would be to admit that the plan was misconceived at the outset. It would also make it impossible to implement in anything like the same form in future.

On the other hand, as the directors debate the arguments round the boardroom table on Wednesday, they will doubtless reflect that their choice need not be quite so clear cut.

They could postpone the demerger on the grounds of recession. They could press on with the demerger, but postpone the rights issue until the market for drug stocks has recovered. More daringly, City analysts suggest, they could announce a rights issue not for Zeneca but for ICI in its present form. They could then demerge at leisure.

The last option is not as fanciful as it sounds. It would certainly involve a public change of tack: in its statement of July 1, ICI specified that any rights issue would be held by Zeneca, or ICI Bio as it was then known.

But the attraction lies in the fact that while drug stocks are out of fashion on the stock market, shares in supposedly cyclical companies such as ICI are decidedly in vogue. Hence the curious fact that at Friday's closing price of Pounds 11.18 per share, ICI's shares stand at a multiple of some 22 times last year's earnings.

In today's market, Zeneca could only expect an earnings multiple of little more than half that. And the higher the multiple, the more cash can be raised for a given number of shares. The original logic, that money raised through the drug side could be obtained more cheaply, has thus been stood on its head.

It is also becoming apparent that something more novel than an old-fashioned rights issue is on the cards. ICI has made plain to its advisers that the London institutions must be offered first refusal of the new shares in the traditional way, if only because of their support against the predatory manoeuvres of Lord Hanson a couple of years ago.

It is also adamant that the issue must be conventionally underwritten in London, so that receipt of the Pounds 1bn is guaranteed in advance. But it also wants to tap the resources of new shareholders, particularly in the US.

How these conflicting goals are to be reconciled is not yet clear. But to an extent, these minutiae can be left to Warburg and ICI's other financial advisers. The central decision to be weighed by the directors is of quite a different order: whether to call a halt to ICI's remarkable history and culture, and start afresh.

They might perhaps take courage from a historical analogy. The formation of ICI in 1926 was Britain's response to the merger of the German chemical industry into one gigantic conglomerate, IG Farben. At the end of the second world war, IG Farben was broken up by the victorious allies into its original constituents: Hoechst, Bayer and BASF.

All three went on to become world-class chemical companies, at least as big as ICI itself. If ICI could perform the same trick by splitting itself in two, it would be a satisfying act of historical revenge.

------------------------------------------------------ ICI: THE CASE FOR DEMERGER ------------------------------------------------------ Against ------------------------------------------------------ 1. Europe's chemical market worst since WWII 2. Drug profits static 3. Europe's agrochemicals market sliding 4. Worries about the new ICI's dividend 5. Zeneca small in drug industry terms 6. Drug stocks out of favour ------------------------------------------------------ For ------------------------------------------------------ 1. Focuses business 2. Raises Pounds 1bn approx 3. Frees Zeneca for drug deals 4. Has already happened internally 5. Has backing of chairman and CEO 6. Avoids loss of face ------------------------------------------------------

GB United Kingdom, EC P2819 Industrial Inorganic Chemicals, NEC P2869 Industrial Organic Chemicals, NEC P2879 Agricultural Chemicals, NEC COMP Company News P2819 P2869 P2879 The Financial Times London Page 15 1516
Observer: Tonto tune Publication 930222FT Processed by FT 930222

Definition of an intellectual: someone who can listen to Rossini's 'William Tell' overture without thinking of the Lone Ranger.

XA World P7929 Entertainers and Entertainment Groups CMMT Comment & Analysis P7929 The Financial Times London Page 15 45
Observer: Over-monitored Publication 930222FT Processed by FT 930222

Meanwhile, some good news on the EC job-creation front. The Commission has decided to monitor the EC Monitor programme which monitors EC research expenditures. In other words the Community's research boffins are being asked to monitor how well Monitor is monitoring them. It's a true Community-wide initiative. The questionnaire comes from Brussels, replies go to Spain, and the Danish ministry of industry is providing the chairman of the review panel.

QR European Economic Community (EC) P9721 International Affairs PEOP Labour P9721 The Financial Times London Page 15 94
Observer: Undercover Delors Publication 930222FT Processed by FT 930222

England must feel increasingly like enemy territory to the president of the European Commission. On a brief visit to Oxford on Saturday Jacques Delors had to be smuggled in and out of the university to avoid demonstrators from the 'Campaign for an Independent Britain'.

Admittedly there were only a dozen agitators, but that was a dozen more than there were EC star-spangled blue banner wavers. The purpose of Delors's secret mission was to attend a small seminar on 'relations between science, ethics and society' - one of a series of EC-inspired powwows in ancient university towns. Others have included 'law and democracy' in Poznan and 'the EC and the South' in Salamanca. Delors likes to look in on these seminars, and plans to round them off with a grand conference early next year.

GB United Kingdom, EC P9721 International Affairs CMMT Comment & Analysis P9721 The Financial Times London Page 15 159
Observer: Without tears Publication 930222FT Processed by FT 930222

Kingfisher and Darty, which last week agreed terms of their marriage, still have a lot to work out between them. But Darty's finance director Gerard Basini is clear about one thing. If Darty applies UK accounting principles to its figures its profits look higher than under French rules. So while Darty's numbers will be prepared on a UK basis for Kingfisher's benefit, he says, 'we will use French rules for the taxman'.

Kingfisher Financiere Darty GB United Kingdom, EC P5311 Department Stores P5722 Household Appliance Stores P5912 Drug Stores and Proprietary Stores P573 Radio, Television, and Computer Stores COMP Company News P5311 P5722 P5912 P573 The Financial Times London Page 15 120
Observer: Lady in waiting Publication 930222FT Processed by FT 930222

Understandably the Venezuelans are more interested than most foreigners in the plan to rescue Britain's coal industry. After all one idea is to curb imports of Venezuela's cheap but dirty orimulsion for use in Britain's power stations.

But someone ought to have a quiet word with Senor Ignacio Arcaya, Venezuela's new man in London. His plan to invite the powerful commons trade and industry select committee for a cosy little lunch at the crusty old Garrick Club next month, could cause a diplomatic incident. The invitation to the boys-only Garrick coincides with the appointment of the committee's first female member - Ann Coffey, the new Labour MP for Stockport.

GB United Kingdom, EC VE Venezuela, South America P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 15 143
Observer: Port in a storm Publication 930222FT Processed by FT 930222

Presumably, the British government was too occupied with explaining away last week's terrible unemployment figures to notice that one of its oldest lame ducks - the Mersey Docks and Harbour Company - has made a startling recovery and is beginning to behave like a glamour stock.

Its profits and dividend rose by a quarter last year and cargo volumes were up by 12 per cent. With results like these, it's hard to imagine there's a recession on and even harder to imagine that this company spent almost two decades in the government's intensive care unit. Today, its shares are selling on 18 times fully taxed earnings and are trading at a premium to the market. It is even talking of buying a rival port on the east coast.

Mersey Docks and Harbour GB United Kingdom, EC P4491 Marine Cargo Handling COMP Company News FIN Company Finance P4491 The Financial Times London Page 15 164
Observer: Safety first Publication 930222FT Processed by FT 930222

Britain's driving test should be expanded to include a written exam, two hours of motorway driving and two hours of night-time driving. The suggestions in the annual report of soon-to-be-floated BSM, owner of Britain's biggest driving school, might sound a mite more convincing if the company making them didn't stand to gain so much.

BSM Group GB United Kingdom, EC P8299 Schools and Educational Services, NEC COMP Company News P8299 The Financial Times London Page 15 85
Observer: Calling in Bechtel man Publication 930222FT Processed by FT 930222

Life at the top of the construction industry is just as insecure as at the bottom judging from the abrupt departure of ex-French Kier chief Richard Allen as boss of one of the world's biggest civil engineering projects - building Hong Kong's Pounds 16bn airport.

It is not the first time that 50-year-old Allen has been out of work. He parted company with Beazer in 1989, two years after it had taken over French Kier. However, his departure this time was as swift as it was unexpected.

No one doubted his commitment to the airport. In two years he had built up Hong Kong's Provisional Airport Authority from nothing to an organisation employing 200 people. He was a single-minded and determined manager, but one who had more than a touch of the 'one-man band' syndrome for his board's liking.

A sign that all was not well came when more than 20 of the world's leading consulting engineers refused to tender for certain aspects of the new airport's design. In the words of their association they said they found the risks they would have to accept if successful to be 'onerous' and the work 'so ill-defined and uncertain that it was impossible for the jobs to be priced with any degree of realism.

It's up to Allen's replacement, Hank Townsend, a 60-year-old Bechtel man, to make the PAA more user-friendly. He says his door is open to anyone and his management style will be 'team based'. As for Allen, he left his job as he had occupied it: tight-lipped and declining all comment to the media.

Provisional Airport Authority (Hong Kong) HK Hong Kong, Asia P4512 Air Transportation, Scheduled P1629 Heavy Construction, NEC PEOP Personnel News P4512 P1629 The Financial Times London Page 15 304
The UK's half-exposed economy Publication 930222FT Processed by FT 930222 By SAMUEL BRITTAN

How open is the British economy to international competition? What proportion of British production has to keep abreast of foreign competition; and what proportion is more insulated?

These are extremely important questions in relation to the value of an anchor such as the European exchange rate mechanism (ERM) in lowering and then stabilising inflation. They are equally important outside the ERM, if we are to gauge the ultimate inflationary potential of sterling's 16 per cent effective devaluation since Black Wednesday last September and the impact of future exchange rate changes.

It is scarcely credible that during more than a decade of ferocious debate about the pros and cons of ERM membership, hardly anyone on either side bothered to make any estimates of how open the British economy really is - which would have been far more valuable than the actual debates.

To make such estimates, it is not enough to look at exports or imports as a proportion of gross domestic product. For just as important are the products which are made at home but for which imports could easily be substituted. An article by Chris Mellis in the February Bank of England Bulletin* takes the bull by the horns - or nearly so. Nearly so, because the author has for statistical convenience used the weights in the Retail Prices Index as a basis, even though they are based on consumption rather than production.

The author starts out by dividing the RPI into goods and services (omitting, of course, mortgage interest payments), as goods are more exposed to trade than services. For one measure of 'tradeables' he excludes seasonal foodstuffs and taxes on drink and tobacco. For another measure he excludes all food, drink and tobacco. The two variants make quite a lot of difference. In the first case, the proportion of tradeables is 67 per cent; in the second, it is only 40 per cent.

The truth must lie somewhere between the two. Food and drink are obviously subject to international competition, but perhaps less so than other goods after taking into account the very large element of transport and distribution services in their retail price. As a rough approximation, one might say that the openness of the British economy is a little over 50 per cent.

The first finding to emerge from the Bank of England analysis is that the tradeable sections of the RPI increased less rapidly than the rest of the index - in fact, about 2 percentage points less since 1983. This is hardly surprising in view of the lower rate of productivity improvement in the services which make up the bulk of non-tradeables.

The differences are in the same direction in other European countries although they seem a little smaller. Even Germany was not able to secure an annual rate of price increase for tradeables averaging less than 2 per cent in the best period of the 1980s.

Of course, few sectors of a relatively open economy can be insulated for ever from international influence. If wages are held down in the tradeable sector, labour will tend to move to the more sheltered areas, thus holding down labour costs and thus prices there, too. It is reassuring, therefore that sophisticated statistical tests showed some transmission of inflation rates from the traded sector to the rest of the economy. If the UK could achieve something similar to German performance consistently and not just in recession years, the overall rate of inflation would fluctuate at about a rate of 3 per cent or 4 per cent.

Not surprisingly, the gap between UK tradeable and non-tradeable price increases has been at its largest in years when the real exchange rate has been at a peak, thus limiting the ability of producers in the open sector to pass on cost increases.

In 1992, the UK divergence was about 3 percentage to 4 percentage points. The downward pressures were specially noticeable in clothing, footware, leisure and household goods. The Bank author believes these exceptional developments may have been connected with membership of the ERM, as this could have influenced expectations in the tradeable sector. It is also possible, however, that tradeables simply reacted more strongly to recessionary forces.

In any case, I do not see how anyone looking at the charts and tables in the Bulletin can regard the exchange rate as just a price like that of tomatoes instead of the main link between inflation rates in Britain and those overseas.

*Tradeable and non-tradeable prices in the UK and the European Community

------------------------------------------------ UK INFLATION RATE ------------------------------------------------ Non- Tradeables tradeables Total ------------------------------------------------ 1975-83 12.5 15.6 13.4 1984-92 4.5 6.1 5.0 ------------------------------------------------ Source: Bank of England ------------------------------------------------

GB United Kingdom, EC P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 15 811
Leading Article: Financing the deficit Publication 930222FT Processed by FT 930222

THE BRITISH government will borrow some Pounds 38bn (6 1/2 per cent of gross domestic product) in the current financial year and, argues the Institute of Fiscal Studies, another Pounds 54bn in 1993-94. That is just the beginning. Under plausible assumptions, the government will be borrowing Pounds 1,000 for every man, woman and child in the country every year for many years to come. But even such a borrower enjoys some choices.

They are not unlimited. Wherever the government borrows and however it borrows, it faces highly positive real rates of interest. The only escape from the trap would be borrowing in conventional long-term gilts, followed by a burst of inflation. This was what happened after the second world war. It must not happen again.

Even so, the government can - and should - try to minimise the real interest rates it faces. Mr Lamont's target for inflation is 1-4 per cent. Judged by the spread between index-linked and 15-year conventional gilts, now 4.8 percentage points, the non-taxpaying investors who purchase most of these securities are not convinced by Mr Lamont. The government should put its money where its mouth is, by borrowing in index-linked gilts. It could also borrow short term at 6 per cent, rather than long at over 8 per cent.

That is not how things have been in 1992-93. The government's borrowings this year include nothing shorter than a year, Pounds 5bn in conventional gilts of 1-5 years maturity, Pounds 22bn in conventional gilts of over five years maturity, a mere Pounds 3 3/4 bn in index-linked gilts and Pounds 4bn via National Savings. Government funding also includes some Pounds 8 1/2 bn in net foreign exchange intervention.

The Bank of England argues that the funding pattern is determined by what investors want. But is it not rather a question of price? Maybe the government regards index-linked gilts as an expensive way to fund, because it does not believe in its own targets for inflation. Similarly, the government may not believe short rates of interest are a bargain for borrowers - house buyers, please note - because it expects them to shoot up once more. As for turning borrowed D-Marks into sterling, this might be rather profitable now, though it was certainly not before September 17.

The government needs also to reconsider from whom it borrows. The full-fund rule, which requires it to sell securities to the non-bank private sector equal to the public sector borrowing requirement, was designed in the mid-1980s to ensure that government borrowing (or repayment) would have no effect on broad money.

That never made sense when the government had ceased to believe broad money was important. It makes even less sense now that the chancellor has a monitoring range for M4 of 4-8 per cent. Since its growth has been well below the bottom of that range, why not monetise some of the PSBR, ask the monetarists? Others hold out the hope of lower yields on gilts, reduced pressure on institutional cash flow and a supply of higher quality assets for battered banks.

The case seems strong, but the government cannot just end the full-fund rule. It has to replace it with another one: an M4 target, for example, or perhaps a longer period over which full-funding would apply. Otherwise, the beneficial effects of underfunding on gilt prices could be more than offset by the effects of higher expected inflation on interest rates.

Expected inflation, not the mechanics of funding, is the fundamental issue. Provided the government is thought to be committed to low inflation, it should be able to finance the PSBR at manageable cost. The danger is the fear that, as debt mounts, so too will the temptation towards another inflationary default. Funding policy can aid credibility. But a government, like any other borrower, can borrow cheaply and effectively only if it demonstrates that its appetite has limits.

This is the fifth in a series of leaders on the March Budget.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 15 693
Leading Article: After FYROM Publication 930222FT Processed by FT 930222

THE MOST absurd, but not least dangerous, of Balkan squabbles is within reach of solution. Mr Constantine Mitsotakis, the Greek prime minister, has retreated from the untenable position on recognition of the former Yugoslav republic of Macedonia ('FYROM'), which he imposed on the EC.

At last June's Lisbon summit the EC, fearing that Greece would refuse to ratify the Maastricht treaty, agreed to recognise the republic under any name not including the term 'Macedonia'. The Greeks argue that this name belongs exclusively to their own northern province, and that its use by anyone else implies the revival of a scheme, current earlier in the century, to create a larger Macedonian state including that province as well as part of Bulgaria. The leaders of the new state repeatedly abjured any such ambition, and amended their constitution so as explicitly to exclude it, but to no avail.

Greek public opinion has become so inflamed that it must have taken courage for Mr Mitsotakis to announce, earlier this month, that he is now willing to accept a UN-sponsored arbitration process, leading to a name which could include the word Macedonia, with a suitable epithet to distinguish it from the Greek province. His retreat reflects awareness that international support for Greece's position, never wholehearted, is crumbling.

Meanwhile, the UN Security Council is considering the republic's application for UN membership. The three EC members currently serving on it - Britain, France and Spain - have come up with an ingenious formula: the Council would admit the republic while noting that its name is still in dispute, recommend that this dispute be settled by arbitration, and decide that it will be referred to as FYROM in the meantime.

Neither side has yet accepted this. The Greeks know that in practice the state would be called Macedonia (as it already is), while Mr Kiro Gligorev, the Macedonian president, fears excoriation by hardline nationalists in his parliament if he agrees to compromise. He should be encouraged to stand up to them: Macedonia has suffered enough from isolation, and the compromise amounts in fact to a moral victory. His government should now concentrate on a domestic problem which is much more serious: the tense relations between its Slav majority and Albanian minority. Greece should take a leaf out of Bulgaria's book and adopt the minuscule landlocked republic as a little sister.

Even if one or both sides refuse to accept the compromise, the Security Council should still adopt it. Balkan governments which do not feel strong enough to face down nationalist passions may yet find it easier to bow to a decree from the world's top authority.

YU Yugoslavia, East Europe GR Greece, EC P9721 International Affairs CMMT Comment & Analysis P9721 The Financial Times London Page 15 468
Leading Article: Rocard's move Publication 930222FT Processed by FT 930222

MR MICHEL ROCARD has long been one of the leading contenders to succeed President Francois Mitterrand as the standard-bearer of the French Socialist party. At various times he has seemed to have at least an evens chance of defeating the most plausible conservative rivals in that election. So his call last week for the creation of a new broad-based liberal-left political movement, to encompass socialists, ecologists and others, is doubly striking since it comes on the very eve of next month's general elections.

The most immediate explanation, is that the socialist vote appears to be facing a collapse of catastrophic proportions next month. From a peak of more than 35 per cent in the late-1970s and early-1980s, the socialist score looks set to fall to about 20 per cent; whereas the conservatives may take 40 per cent of the vote, with a huge majority in parliament. It is even conceivable that the socialists may be overtaken by the ecologists.

The dilemma for the socialist leaders is that they cannot be sure how much of the likely voting swing is due to temporary factors, and how much is structural. Undoubtedly, there is a large element of popular protest at the corruption in the Socialist party, coupled with indignation at the contaminated blood scandal. No doubt there is also disillusionment that the socialists have offered no remedy for rising unemployment. The unknown question, is how far the fall of the Berlin Wall has stripped the socialist label of political credibility.

But if the projected voting figures should, even in part, represent a structural realignment of political sentiment in France, the socialists might never be able to recover power on their own, and they would obviously have an incentive to seek electoral allies.

Even so, Mr Rocard's move is a high-risk strategy, both in itself and in its timing. The Socialist party leaders and the grass roots federations will not support Mr Rocard's suggestion if they think it means the dissolution of the party. In any case, it is hard to see how such a radical strategy can be implemented in time to affect next month's elections.

Socialist Party (France) FR France, EC P8651 Political Organizations PEOP Personnel News P8651 The Financial Times London Page 15 383
Letter: UK's electricity structure not incompatible with efficiency Publication 930222FT Processed by FT 930222 From Dr SIMON TAYLOR

Sir, Your editorial on the electricity generating duopoly ('Duopoly power', February 15) asserts that 'there is already evidence that the duopoly does not work to customers' advantage'. You also say that, were there to be a reference to the Monopolies and Mergers Commission, the MMC could recommend a break up into smaller units. I suggest the industry structure is quite compatible with efficiency.

Although privatisation was not ideally carried out, the UK will soon have some of the world's most efficient coal power stations, together with environmentally friendly gas power. Economic theory moved away some time ago from a simple association between industry structure and efficiency and any argument based purely on the duopoly claim needs to be justified.

There are two theoretical benefits from break up: lower average production costs and more competitive pricing of the output. On the first point, it is scarcely credible that production costs would be lower with five or six companies - on the contrary there are probably some economies of scale. Both generating companies are now heading for a halved workforce with substantial reductions in other operating costs.

On the second point, the regulator has accepted that pool prices remain below avoidable costs. The pool will be a highly imperfect spot market for some time to come, but there is no evidence that the generating companies are exploiting their power, for the simple reason that they would gain very little from it, but would immediately fall foul of the regulator. Both are now careful to avoid any behaviour that could be construed as anti-competitive. This largely removes any danger to the public interest.

Break up would therefore probably raise the overhead cost of electricity and reduce the generation industry's purchasing economies in fuel and transport, for little or no benefit in the pool. It would also rob the UK of the opportunity to take a large position in the emerging foreign generation market, where the two companies should be able to produce substantial profits and export earnings in future.

Over the next five years, the electricity regulator will be able to point to lower prices for most customers, better service and a choice of supply. This is not a bad outcome for an imperfect privatisation.

Simon Taylor,

fellow in economics,

St Catherine's College,

Cambridge CB2 1RL

GB United Kingdom, EC P4911 Electric Services P9631 Regulation, Administration of Utilities CMMT Comment & Analysis P4911 P9631 The Financial Times London Page 14 424
Letter: Closures part of a pattern Publication 930222FT Processed by FT 930222 From Dr PETER DRAPER

Sir, Your editorial on the proposed changes to the NHS in London ('Health care in London', February 17) presents the controversial hospital plans as 'rationalisation'. This was certainly one feature but severe cuts were also part of the package - 2,500 acute bed closures despite 132,000 Londoners on waiting lists. For similar closures, the King's Fund estimated the annual savings at Pounds 200m.

When it is realised that closure of several thousand other acute hospital beds throughout Britain is currently planned, (for instance, 1,000 in Edinburgh and in Glasgow, 500-1,000 in Liverpool), the London proposals are seen as part of a pattern.

That pattern will delight a far-sighted Treasury, inflate waiting lists and further fuel commercial medicine.

It would be most useful if the FT were to publish a national survey of these planned closures and the estimated financial savings.

Peter Draper,

public health consultant,

12 Eastwood Road,

Muswell Hill, London N10 1NL

GB United Kingdom, EC P9431 Administration of Public Health Programs P806 Hospitals CMMT Comment & Analysis P9431 P806 The Financial Times London Page 14 192
Letter: Salvation Army not so silent Publication 930222FT Processed by FT 930222 From JOHN LARSSON

Sir, The FT ('Bank probed in Britain and US', February 20) gives a misleading impression in saying that the Salvation Army has 'remained silent' over developments in its attempts to recover Dollars 8.8m missing in an alleged fraud.

The Army's intention to be open about the matter was reflected by the fact that it issued a statement on February 16, which was widely reported in the media.

It issued writs against 15 defendants. Extracts from these writs have been widely reported.

The Army now has to balance the public's right to know the facts with the need to recover the missing money. Its lawyers have advised that, to go beyond the statement already made, could jeopardise that recovery.

John Larsson,

commander, UK territory,

The Salvation Army

GB United Kingdom, EC P6732 Educational, Religious, etc Trusts P8399 Social Services, NEC GOVT Legal issues CMMT Comment & Analysis P6732 P8399 The Financial Times London Page 14 168
Letter: Right way out of a fiscal hole Publication 930222FT Processed by FT 930222 From M C KENNEDY

Sir, Fiscal hole or fiscal panic? In your editorial ('Filling the fiscal hole', February 9) you join forces with the OECD and Institute of Fiscal Studies in calling for a tax increase to reduce the public sector borrowing requirement. The reasons you give are, first, that the government's anti-inflationary promise needs a tax increase if it is to be believed, and, second, that a tax increase is required to prevent a spiralling rise in the ratio of national debt to income.

On the first of these arguments you must be right, since almost any fall in demand in the economy is likely to reduce inflation. Inflation, however, is hardly a pressing problem at the moment, whereas mass unemployment and the collapse of companies - which you do not even mention - most certainly are.

On the problem of the spiralling national debt, may I suggest that it should not, and would not, arise if the Treasury knew how to manage its finances. It is absurd, in a recession, that it should be thought necessary to add to the interest-bearing national debt in order to find the funds for public expenditure. There is no reason in principle why the Treasury should not borrow directly, and free of interest payments, from the Bank of England. In practice, the Bank and Treasury have put their own obstacles in the way of such a simple act of credit creation. But this means that it is the authorities' own act of self denial, not the PSBR, which must be held responsible for adding to the interest-bearing debt - and also for the taxes needed to pay the interest. To be blunt, it is Treasury folklore which threatens to raise the tax burden, and taxpayers should object.

Naturally, one would not advocate direct credit creation when the economy is fully stretched - as, for example, in wartime. But in times like the present it is the clearest way out of what you call the 'fiscal hole'. M C Kennedy,

faculty of economic

and social studies,

University of Manchester

GB United Kingdom, EC P9611 Administration of General Economic Programs CMMT Comment & Analysis ECON National income GOVT Taxes P9611 The Financial Times London Page 14 385
Mainland moves the market: Shares in Chinese companies are hot property in Hong Kong Publication 930222FT Processed by FT 930222 By SIMON HOLBERTON

The appearance on the Hong Kong stock market today of Denway Investments, a holding company for state-owned automotive assets in the southern Chinese province of Guangdong, is the clearest example of the transformation that is taking place in Hong Kong's financial markets.

The stock market - which has been dominated by property companies, financial institutions, trading houses and utilities - is broadening to encompass large manufacturing and industrial companies, many of which are based in China and controlled by official interests on the mainland. The result is that four and a half years before its reversion to Chinese sovereignty, Hong Kong is laying claim to the title of 'China's financial centre'.

Local and international demand for Chinese assets has grown sharply over the past 12 months. For investment managers the reason is plain. Says Mr Robert Lloyd George, chairman of Lloyd George Management, one of the fastest-growing fund managers in Hong Kong: 'There is no more exciting economy in the world than China's. It is the emerging industrial power in Asia and Hong Kong has the market to play it; it is like Tokyo 30 years ago.'

The Denway issue set a record for the Hong Kong market in the level of oversubscription for a new issue. Investors found HKDollars 240bn (Pounds 21bn) for 330m shares valued at HKDollars 400m, or 657 times the amount on offer. The best a single investor could have done in the allocation was just eight 'board lots', the tradable parcel of shares on the colony's bourse, or 16,000 shares in total. For that amount he would have had to bid for 10m shares and put up HKDollars 12.2m.

Popular interest in Denway came as little surprise. New issues - especially those involving mainland companies - have become a one-way bet. They are usually underpriced and successful applicants in the primary issue are able to make considerable sums by immediately selling a stock when it is listed. Denway's current 'grey market' price is more than twice its HKDollars 1.22 a share issue price.

But of more significance than the ability to 'stag' an issue has been the influence on Hong Kong of economic reform and liberalisation in China. Last year, the country's Gross Domestic Product grew by more than 12 per cent. Economists' forecasts of continued strong growth this year has strengthened international business interest in China. Not even the current difficulties Hong Kong is having with Beijing about its political development have doused investor interest in what are locally known as 'China plays' or 'red (pace Marx) chip' stocks.

Such stocks will increasingly become available to international investors. In the next 12 months nine large Chinese state enterprises - embracing petrochemicals, brewing, ship building, steel and machine tools - will be brought to the Hong Kong market.

They will differ from Denway, which is a Hong Kong incorporated holding company, and Brilliance China Automotive, a Bermuda registered company, brought to the New York market last September, in that they will be incorporated under Chinese law.

This presents a difficult test for merchant bankers because many Chinese companies comprise much more than businesses; they often include schools, hospitals and housing and are responsible for the provision of welfare for their workers. Consequently, it is difficult to place a value on the companies and estimates of the aggregate amount of capital to be raised for the nine vary widely. Forecasts range from HKDollars 7bn to as much as HKDollars 25bn.

But the long-term significance for the Hong Kong stock market of the flotations exceeds the amount of capital to be raised. The new issues, merchant bankers believe, reflect a decision by the Chinese regulatory authorities to make Hong Kong the main market for raising foreign capital for corporate China.

Underlying merchant bankers' confidence was the barely disguised official anger at the approval given to Brilliance to list in New York. It slipped through a gap in regulation created by the transfer of responsibility for stock exchange matters to the Securities Regulation Commission (SRC) from the People's Bank, China's central bank, late last year. The SRC moved quickly in January to prevent Shanghai Petrochemicals - one of the nine - from seeking a primary listing in New York, as its adviser Merrill Lynch was encouraging it to do. It was told to list in Hong Kong.

The reasoning of Chinese officials in their preference for Hong Kong is is simple and turns on the colony's reversion to Chinese sovereignty on July 1 1997. On that date, China will have a stock market run on western lines and backed up by western regulation and Hong Kong's version of British common law, ensuring property rights. But most important for mainland companies is the Hong Kong dollar's fixed rate against the US dollar. This means that Chinese companies raising funds in Hong Kong will effectively be raising fully convertible, dollar-backed, funds.

Already Hong Kong has become a significant capital market for mainland companies and Hong Kong companies expanding in China. Warburg estimates that of the HKDollars 73.5bn of gross equity (equity before dividends are subtracted) raised in Hong Kong last year, the amount raised for Chinese companies and China-related business ventures was nearly HKDollars 20bn. This year Warburg forecasts that capital raised for China and China-related ventures will be about HKDollars 35bn.

Mr Ewan Cameron Watt, head of Far East research at Warburg Securities, expects that a second wave of Chinese state companies and western-Chinese joint ventures will follow the nine forthcoming listings and will bring structural change to the Hong Kong market. His views are echoed by Mr Andrew Bell, head of corporate finance at South China, a local brokerage, who estimates that up to 50 mainland companies could be lining up to seek a Hong Kong listing once the first nine have been digested.

'If the listing of nine succeeds - and with reputations and careers in China riding on their success, I think they will - then the gates will be open,' he says.

Fund managers agree. Mr Lloyd George believes that, by the end of the decade, China-related listings in the Hong Kong market will account for 45 per cent of its capitalisation which he estimates will have grown to USDollars 900bn from USDollars 175bn in 1992.

Foreign investors have been swayed by such predictions. Since last March, more than USDollars 1.5bn has been put into China investment funds. This compares with the USDollars 920m for the combined market capitalisation of both the Shanghai and Shenzhen 'B' share market - the only way, other than through Hong Kong, that international investors can own tradeable equity in mainland Chinese companies.

But not all fund managers are convinced of the wisdom of investing in mainland companies listing in Hong Kong. Mr Oscar Wong, who manages GT Management's USDollars 30m China fund, for example, is sceptical about the prospects.

'On average I don't think they are very good companies and they will give foreign investors a bad impression of what is happening in China,' he says. 'They are not efficiently managed and it will take a long time to reorganise them.'

But the Beijing government is determined to succeed in its plans to bring state enterprises to the capital markets of the neighbouring colony. For Hong Kong, success in this strategy will underwrite its own future. As Mr Archie Hart, head of research at Crosby Securities, notes: 'If Hong Kong has a future role it is as the financial capital of southern China.'

----------------------------------------------------------------------- NEW LISTING OF CHINA STOCKS ----------------------------------------------------------------------- Listing Issue No of Capital date price shares (m) Raised (HKDollars) (HKDollars m) ----------------------------------------------------------------------- Hai Hong Holdings 7/5/92 1.5 61.25 91.875 China Overseas 20/8/92 1.03 820 844.6 CTS 11/11/92 1 400 400 Guangzhou Investment 15/12/92 1.05 425 446.25 Denway Investment 22/2/93 1.22 330 402.6 ----------------------------------------------------------------------- Times over- Price performance subscribed 16 Feb % change ----------------------------------------------------------------------- Hai Hong Holdings 373 2.78 85.3 China Overseas 99 1.39 35.0 CTS 411 2.631 163.1 Guangzhou Investment 229 1,538 46.5 Denway Investment 657 n/a n/a ----------------------------------------------------------------------- Closing prices as at 16/2/93 adjusted for warrant issue. ----------------------------------------------------------------------- Source: Crosby Securities -----------------------------------------------------------------------

HK Hong Kong, Asia CN China, Asia P6231 Security and Commodity Exchanges STATS Statistics CMMT Comment & Analysis TECH Services P6231 The Financial Times London Page 14 1395
Letter: The servant of parliament Publication 930222FT Processed by FT 930222 From Mr WILLIAM REID

Sir, Your report, 'Watchdog to probe complaints against taxman' (February 19) contains one error which needs to be corrected. You said: 'The Revenue received 15,000 complaints last year, of which 100 were referred to the government's ombudsman. Yesterday it said it expected the adjudicator to handle 20 to 50 complaints a month.'

I am certainly not the government's ombudsman. I serve parliament and the results of my investigations were rightly described by Mr Francis Maude, when financial secretary to the treasury, as not always comfortable to the government.

The new Revenue adjudicator will, I hope, be able to sort out many complaints between taxpayers and the Revenue, but he is to be appointed by the board of Inland Revenue. While this latest initiative is welcome, it will still be open to dissatisfied taxpayers to ask members of parliament to refer their grievances to the parliamentary ombudsman. William Reid,

parliamentary commissioner

for administration,

Church House,

Great Smith Street,

London SW1P 3BW

GB United Kingdom, EC P8621 Professional Organizations CMMT Comment & Analysis P8621 The Financial Times London Page 14 192
Arts: Don Pasquale/Turandot - Opera Publication 930222FT Processed by FT 930222 By ANDREW CLEMENTS

Patrick Mason's version of Donizetti's subtle comedy arrives at the Coliseum with clod-hopping coarseness from Opera North, for whom it was conceived with much of the same cast three years ago. Time has done nothing to mellow it or lend any discrimination to its relentless, elbow-nudging jokiness. Some of the excesses have apparently been trimmed back, but more than enough of the deadly gags remain to ensure that the production remains irredeemably vulgar and unperceptive.

A fair proportion of the audience did laugh heartily at Friday's opening, but to me it seemed as glum an evening at a comic opera as one could have the misfortune to encounter. Early in the preparations for this staging the production team appears to have decided that Don Pasquale is so weak dramatically or musically, perhaps even both, that it needs all possible help to come alive on stage. If even this Donizetti agnostic can hear that the opera is both a fount of delightful music and a subtle and affectionate comedy of manners, one can wonder how that basic perception managed to escape Opera North and now ENO, which is proud to announce this as the company's first new Donizetti production for 25 years.

Mason and his designer Joe Vanek set Don Pasquale in the Rome of the 1990s; Pasquale is a hard-nosed property developer, Ernesto a feckless yuppy, Norina a fashion-follower who runs a pavement kiosk. The updating works smoothly, but brings no fresh insight or perspective. Instead there are just added opportunities for feeble jokes, each one repeated several times, about gawping American tourists, Italian motor scooters, indolent house painters, bimbos from aerobics classes. The level of humour never rises above the obvious; most of it wouldn't be out of place in a Christmas pantomime, so that one half expects a song sheet to descend from the flies in the final scene.

Musically, though, it does pass muster. Andrew Greenwood conducts with breezy efficiency, even if understandably in the circumstances he never seeks out the melodic buoyancy of the score. Within the parameters set for him Andrew Shore was again a model of comic timing and style; no depth is required of course, and his patter with Alan Opie's Malatesta was slick and expert. Adrian Martin was a plausible, full-toned Ernesto until his vocal line took him above the stave, when the sound became constricted. Best of all was Rosemary Joshua's Norina, entering fully into the spirit of the production, catching the double-takes with assurance and getting around her coloratura with aplomb. In a non-vintage season at ENO, Ms Joshua's deserved emergence as a principal is a precious highlight.

English National Opera at the Lon- don Coliseum; performances until April 5. Sponsored by TSB Group plc.

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 13 488
Arts: Puccini's Turandot Publication 930222FT Processed by FT 930222 By DAVID MURRAY

SAFELY RETURNED from Wembley to Covent Garden, Andrei Serban's celebrated production of Puccini's Turandot began a new run of 11 performances on Saturday. By the end, every solo role will have been sung by two or three different artists; but on Saturday Turandot herself was again Dame Gwyneth Jones, steely and indomitable as ever, with Vladimir Popov in reliably lusty voice as her Prince Calaf.

As rehearsed by Vernon Mound, the staging still looks terrific in Sally Jacobs' designs, though memory says that Ping, Pang and Pong's athletic exertions used to be even more strenuous. The new Pong is Ian Thompson, whose true tenor was a touch lightweight for their trios. The opera is now conducted by Mark Ermler, whose customary broad authority was evident once past Act 1 (where there was some first-night disarray). The Romanian soprano Angela Gheorghiu made a striking debut as poor Liu, affectingly pale and pretty. The voice is free, even and secure, with unexpected strength in her last aria. She has a lovely dignity; one was glad that in this production, her tortures are only symbolic.

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 13 213
Arts: Spic-O-Rama - New York Theatre Publication 930222FT Processed by FT 930222 By KAREN FRICKER

John Leguziamo is a prodigiously talented young performer whose recent one-man play Spic-O-Rama reveals that he is on the way to an excellent writing career. In Spic-O-Rama, which played at New York's Westside Theatre, Leguziamo portrays, in turn, six members of the Gigante family of Jackson Heights, Brooklyn, as they prepare for their eldest son's wedding.

Everything about Spic-O-Rama, from its title to its pre-show disclaimer that 'this Latin family is not representative of all Latin families . . . if your family is like this one, please seek professional help,' to Leguziamo's appropriation of stock types for their comic and tragic value, makes clear that he is not going to pander to those who have called his work politically incorrect. The Gigantes are, as their name suggests, larger than life, but what makes this play effective satire is that it springs from Leguziamo's unflinching societal observation.

Spic-O-Rama wants editing - it's too long and becomes heavy-handed - but Leguziamo's performances and energy carry the evening.

Roy Arcenas' set places us in an archetypical urban wasteland of dented chrome, graffiti and chain-link fences. In bounds nine-year-old Miggy Gigante, sporting trendily oversized jeans, and tranquiliser-worthy excesses of energy. Miggy begs us to take him away from his family of 'monsters, freaks and weirdos': 'you don't have to go to a third-world country to adopt me - I'm here]'

Slide shows and musical montages keep the play moving while Leguziamo is offstage changing costumes. He next emerges as teenaged Raffi, a would-be Shakespearian actor, who claims he's the bastard son of Laurence Olivier. Desert Storm veteran Krazy Willy wonders why he's not considered a hero for having shot at 'people who look like us except they have towels on their heads'.

Leguziamo's characterisations are all remarkable, but materfamilias Gladyz, who minds the family launderette, is his greatest feat. Her bitchy prattling about a life trapped in endless cycles of spin dryers and baby-making is the production's most acidly funny segment.

Two unsubtle portraits blunt Spic-O-Rama's effectiveness. Wheelchair-ridden brother Xavier spouting bile about his screwed-up family is an obvious and heavy-handed symbol, and, having met the rest of the family, it is absolutely no surprise that father Felix, who gives an overlong wedding toast at the play's end, is a sexist lout.

Despite sell-out audiences, Spic-O-Rama played only a limited engagement in New York, largely because Leguziamo's talents are in demand. He is appearing in the film Super Mario Brothers with Bob Hoskins, has filmed both Spic-O-Rama and his previous series of monologues, Mambo Mouth, for Home Box Office cable TV, and is working on his first screenplay.

US United States of America P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 13 470
Arts: A bright baton - BBC Symphony Publication 930222FT Processed by FT 930222 By DAVID MURRAY

Friday's BBC Symphony concert was exciting to hear on Radio 3 - even more, no doubt, in the Festival Hall. That was not only because the peerless Hakan Hardenberger played Peter Maxwell Davies' recent trumpet concerto, but because the conductor Eduardo Mata had bright, unexpected ideas about his otherwise hyper-familiar programme.

At the start, his crisp, punchy reading of Mozart's 'Haffner' Symphony gave notice that this was not to be a run-of-the-mill concert. Mata is Mexican, and like most musicians from the Hispanic world he prefers rhythms to be extremely taut: not rigid, for (as we were to hear in his Ravel) he likes bold rubato nuances too, but precise and snappy. It was delightful, for once in a way, to hear Mozart's Andante sped along with such unhesitating energy.

The Davies concerto, a sort of mini-opera with the trumpet in the role of Saint Francis, was an experience in itself. Hardenberger's virtuosity is of the gleaming, well-honed kind, where the dedicatee of the work, John Wallace, cultivates a greater variety of quasi-vocal sounds and shadings; but as the piece proceeded toward its visionary close, Hardenberger's fantastic security (the part is taxing to the nth degree) established its own spell.

Mata drew marvellous colours from the orchestra. The long passage in which a dark brass chorale evolves over a darker bass pedal, while marimbas and glockenspiel twinkle above like sunlight on Orcadian waves and the trumpet soars in high, slow phrases, was memorably beautiful. Easy to understand why only Hardenberger and Wallace, so far, have dared to perform this work; but it must surely have an assured future.

The concert belonged to the BBC's 'French Connection' series, with the excuse of two Ravel pieces in the second half. But that proved to be more than just an excuse; Mata had points to make. La Valse followed directly upon the Valses nobles et sentimentales, with no applause permitted between. Where the Valses are generally treated as delicate parlour-inventions - the original piano-writing is notably spare - Mata aimed to show just how closely akin they are to the grander, wilder La Valse.

The first of the VNS was a full-scale explosion, the seventh an expansively dramatic study in sweeping and swooning. In all the slighter waltzes, Mata reminded us forcefully that though the piano score may be spare, Ravel's orchestral version is sumptuously tricked out. Innumerable details that usually whisper past the ear became vivid and significant. The nightmare of La Valse came as a natural culmination (or inevitable disaster) - just as Mata intended, obviously. Fascinating.

BBC Symphony Orchestra Royal Festival Hall, London

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups CMMT Comment & Analysis P7929 The Financial Times London Page 13 468
Arts: Today's Television Publication 930222FT Processed by FT 930222 By CHRISTOPHER DUNKLEY

An evening strong on factual programmes contains two series devoted to this season's favourite subject: sex. Best by far is A Secret World Of Sex (7.30pm BBC2), a series dealing with the awful guilt, fear and persecution connected with all matters sexual in the early years of this century. Vastly inferior is ITV's Good Sex Guide (10.40pm) which seems more concerned with getting a succession of familiar telly faces on to the screen than with the standard of its journalism. Horizon tries to establish how the Egyptians built the pyramids (8.00pm BBC2). World In Action investigates the grubby activities of the Conservatives during Clinton's presidential campaign (8.30pm ITV). Cutting Edge (9.00pm C4) goes into insurance claims, especially the fraudulent sort. And Panorama weighs in, somewhat late, with a report on the British monarchy (9.30pm BBC1). BBC1's new comedy series Bonjour la Classe (8.30pm) is about a school teacher, which brings to mind 'Whacko' and 'Please Sir]'. Nigel Planer splutters energetically but to little effect.

GB United Kingdom, EC P7812 Motion Picture and Video Production TECH Services P7812 The Financial Times London Page 13 194
Arts: Making London better - Architecture Publication 930222FT Processed by FT 930222 By COLIN AMERY

The facts about the new Chelsea and Westminster Hospital are pretty extraordinary. It is the only brand new urban teaching hospital in Britain. It is described as the largest and most ambitious hospital development in the UK. It has 70 different departments, 665 beds, eight operating theatres and 260 bedrooms for nursing staff. It was planned and built in five years - a record for the NHS. The building cost Pounds 117m to construct. It opens in London as the government announces plans to close several London hospitals because there are too many hospital beds in the capital . . .

The new hospital is situated on the site of the old St Stephen's Hospital in the Fulham Road. The old hospital had grown from the infirmary of the former St George's Union Workhouse and no tears were shed when it was decided to demolish it. But tears were shed by some over the decision to close four hospitals - Westminster Hospital, Westminster Children's Hospital, the West London Hospital and St Mary Abbots Hospital and to bring all the services they offered to the new site at the congested end of the Fulham Road, surrounded mainly by streets of modest houses. This was very much an estate management manoeuvre of the 1980s which depended for its success on the willingness of property developers to buy the old hospital sites to fund the new building.

Architects for the new development were chosen by the Riverside Health Authority through a form of limited competition, which was won by the firm Sheppard Robson (the partner in charge of the scheme was Sinclair Webster). In many ways the new hospital represents the new style NHS. I was fascinated to learn that the architects were chosen not so much because they had designed lots of hospitals (they hadn't) - but because they had plenty of commercial experience and were ready to design for a 'fast track approach'.

Sheppard Robson has a record of competence in the design of research laboratories, universities, shopping centres, offices and housing. At Triton Court, Finsbury Square, it designed the most agreeable and successful large atrium in the City; its work at Royal Mint Court is perhaps less successful. As a well established British firm that has successfully operated in both the public and the private sectors, it was particularly well placed to plan the first of a new generation of hospitals.

The brief called for a very large building on a site that is surrounded by small-scale houses and shops and suffers from a planners' height restriction. The unusual decision was made to incorporate shops (as yet unlet) on the Fulham Road entrance front, and to design the whole hospital around a huge glazed atrium which is like an indoor street. It is naturally lit and ventilated, using the power of the sun and the heat loss from the surrounding building. The atrium is the most remarkable element of the design and is something of a tour de force as a unifying element in the whole hospital.

You enter the hospital beneath a faintly absurd Teflon canopy on the Fulham Road and proceed through the slowly revolving doors, as though you were going into a supermarket. Wheelchairs and zimmer frames can be accommodated by the moving doors. The main reception desk commands the entrance to the atrium and is manned by friendly attendants. (It seemed to me that the success of the whole hospital depends on the patience of the staff on the main desk. Because of the size of the hospital they are going to be asked for directions 24 hours a day.)

The huge white atrium, with lifts and escalators, defines the centre of the building, but the actual circulation, and finding your way, still depends largely on signs and graphics. These are definitely inadequate and, much as the architects may deplore the spread of the handwritten notices, they will soon be everywhere. I was amazed how difficult it was to read the signs and felt initially as confused as I do in an airport. Because the architecture is so uniform and the overall colours so bland, there are few markers to guide the visitor or the patient. Also, people are so preoccupied in hospitals that they get lost much more often than they do in other buildings, and so need more help from the architecture rather than less.

But in the atrium you do not feel as though you are in a hospital at all. It is an enjoyable place to be and the idea of inserting separate small buildings into the space - such as the chapel and the dispensary - adds a little human scale. There is also a great deal of art around the place, some good and some terrible. On the whole the paintings are better than the sculpture, especially the waterfall series by Mel Chantry. Giant trees help to furnish the atrium but at the same time contribute to the sense of unreality; they have to be lit by special lights and will need a lot of care.

When you reach the waiting areas for the out-patients they come as something of an anticlimax after the brilliant height of the atrium. These low spaces, filled with ghastly NHS furniture that must have been a job lot from the 1950s, often have no views of the atrium and not much light. The wards are fairly standard, with groups of six or eight beds separated from the staff areas by low walls. The ward floors work well with a sense of semi open-plan allowing a fair degree of privacy. Again the furniture is disappointing - Parker Knoll of the '50s reigns supreme.

I am sure that patients well enough to totter about will make for the atrium all the time because it brings a light and elegant dimension to the whole hospital. Its lighting is stylish and there is constant activity, and the whole idea of making one big space for all the vertical and horizontal circulation is a brave one. The size of the hospital was not the architects' decision; it could be overwhelming, especially to the elderly finding their way about unescorted.

From the outside the design of the main building is orderly and controlled and fits a great deal on to a small site as unobtrusively as anyone could expect. I would not want the great chimney at the bottom of my expensive Chelsea garden, but I do feel that the architects have done their very best to be good, if large, neighbours.

Is this the first of a series, or the last of a line of NHS hospitals? I would have thought that patients prefer smaller hospitals, less enclosed worlds for medicine, and less evidence of the scale of the vast NHS bureaucracy.

There is one completely marvellous thing in the new hospital. Not so long ago a wise chaplain of the Westminster Hospital acquired a magnificent painting of the resurrection by Paolo Veronese (1528-1588), which has now been moved with its glorious gilt frame to the chapel at the heart of the new hospital. It is of such superb quality that, in every way, it outscales its surroundings.

GB United Kingdom, EC P8712 Architectural Services P806 Hospitals CMMT Comment & Analysis P8712 P806 The Financial Times London Page 13 1234
Construction Contracts: Apartments in Abu Dhabi Publication 930222FT Processed by FT 930222

Following six months of negotiations, JOHN LELLIOTT INTERNATIONAL has been awarded two overseas contracts approaching Pounds 100m. The first is for the construction of a 24-storey luxury development on the Abu Dhabi Cornishe.

The project, valued at Pounds 60m consists of 20 levels of apartments, four levels of retail space and four levels of underground car parking, was negotiated with representatives of His Highness Sheikh Saife bin Mohamed Al Nahyan. Negotiations continue for a second project in Abu Dhabi for a 22-storey block of offices in Hamdan Street valued at Pounds 40m.

Lelliott attribute their success in part to a pioneering approach to the design of the project using fast track techniques based on the use of a steel structure, a method of construction little in evidence in the UAE in recent years.

Work is scheduled to commence on site in May 1993 and is to be completed in 22 months.

The second contract is a resort development in St Lucia, West Indies, where agreement has been concluded with New Century Developments Inc, New York, US, in respect of a hotel, casino, golf course and villa complex valued at USDollars 49m (Pounds 33.8m).

The construction management agreement, which is in joint venture with Balfour Beatty Inc, is set to commence in June. The development is designed on a high quality/low maintenance specification.

John Lelliott International New Century Development Inc XX Abu Dhabi, Middle East LC St Lucia, Caribbean P1542 Nonresidential Construction, NEC P1522 Residential Construction, NEC RES Capital expenditures MKTS Contracts P1542 P1522 The Financial Times London Page 12 271
People: Ayling changes his crew Publication 930222FT Processed by FT 930222

Valerie Scoular, general manager of British Airways' ground operations in London, has been promoted to be director of human resources. She will be responsible for the administration and development of 49,000 staff.

Scoular's promotion is part of the second big reorganisation of BA's marketing and operations team in less than 18 months. The last time the changes were precipitated by the abrupt departure of BA marketing chief Liam Strong to become chief executive at Sears. This time they have been triggered by the promotion of Robert Ayling, Strong's successor at BA, to be group managing director.

Ayling has taken the opportunity to reorganise his old marketing and operations department. In addition to the existing flight operations, human resources and engineering and information management departments, Ayling has set up seven new units: regions and sales; marketing; network management; operations; service delivery; cargo and business units.

Scoular, 37, who joined BA as a graduate trainee in 1977, is taking over the human resources part of the job being done by John Watson, director of human resources and information management. Brian Haydon, the current deputy, has been made director of information management. Meanwhile, Watson has been appointed director of regions and sales and takes charge of the airline's sales activities worldwide as well as regional management.

Among the other new appointments are Mike Street, director of service delivery; Kevin Hatton, director, cargo; and Mike Batt, director of marketing. BA is looking for a head of business units, who will be responsible for airline subsidiaries.

However, Ayling's new empire is not as big as it sounds. BA has confirmed that Sir Colin Marshall, the new chairman, retains direct executive responsibility for finance, corporate strategy, safety, security and environment, health services, company secretariat, legal, communications and public relations. The respective directors and heads of these departments report directly to him.

*****

For the first time since the summer of 1991, Saatchi & Saatchi will have a finance director on the main board. Wendy Smyth, who has been chief financial officer, is promoted with effect from April 1.

Charles Scott, who joined the company at the same time as Robert Louis-Dreyfus in January 1990 and helped steer it through a period of much-needed restructuring, had been finance director until July 1991. He then became chief operating officer but retained board-level responsibilities for finance as well. Now Louis-Dreyfus has departed for Adidas, and Scott has stepped up to become chief executive.

The company says that the title of chief operating officer has been lost; it had been appropriate when Scott was sorting out the individual operating units, 'but now that task is completed and we are paired down to a minimum,' according to a spokeswoman .

Smyth, 39, who trained at Thomson McLintock, joined Saatchis in the US in 1982, before becoming UK regional finance director in 1984. Between 1986 and 1989 she was finance director of Saatchi & Saatchi Advertising International, and then held the same position in the communications division.

Saatchis will in fact be without a finance director for another three months because in late March Smyth goes on maternity leave - timed when it had been expected that Louis-Dreyfus would stay until June. Her responsibilities will be spread around the finance department, although the break comes at a quiet time, after the year's results are announced on March 9.

*****

Sir Christopher Hogg, chairman of Courtaulds, has been appointed to the board of SMITHKLINE BEECHAM on the resignation of Alain Gomez, chairman and chief executive of Thomson SA. Sir Archibald Forster (right), recently retired chairman and chief executive of Esso UK, has been appointed a non-executive director at UNITED NEWSPAPERS.

*****

Frank Amhurst has retired from HARMONY LEISURE.

*****

Big business comes to town. Sir Allen Sheppard, chairman of Grand Metropolitan, chaired the first board meeting last week of London Forum, a group of business leaders who want to help promote London overseas. Seated to the left of Sir Allen are Jan Hall, chief executive of Coley Porter Hall, and Michael Howard, the environment secretary. Back row from left: Brian Pearce, chairman Pearce Signs; Clyde Williams, chief executive WWA; Nigel Fox-Bassett, senior Partner Clifford Chance; Sir Brian Jenkins, partner, Coopers & Lybrand and former Lord Mayor of London; Sir Idris Pearce, chairman English Estates; Sir David Scholey, chairman S G Warburg, and Sir Colin Marshall, chairman British Airways.

The other members of the board are Sir Hugh Bidwell, chairman London Tourist Board, Sir Brian Wolfson, chairman Wembley, Sir Christopher Bland, chairman LWT, Harvey Goldsmith, director Allied Entertainments, David Goldstone, chairman Regalian Properties, Ian Reeves, chairman Highpoint and Maurice Saatchi, chairman Saatchi & Saatchi.

British Airways SmithKline Beecham London Forum (UK) Saatchi and Saatchi United Newspapers Harmony Leisure Group GB United Kingdom, EC P7319 Advertising, NEC P8611 Business Associations P4512 Air Transportation, Scheduled P2711 Newspapers P6719 Holding Companies, NEC P5812 Eating Places P5813 Drinking Places P2833 Medicinals and Botanicals P2834 Pharmaceutical Preparations P7011 Hotels and Motels PEOP Appointments PEOP Personnel News P7319 P8611 P4512 P2711 P6719 P5812 P5813 P2833 P2834 P7011 The Financial Times London Page 12 854
Construction Contracts: Central ordnance depot at Donnington Publication 930222FT Processed by FT 930222

TRAFALGAR HOUSE CONSTRUCTION companies have won Pounds 28m worth of new work in two construction management contracts in the UK and the US.

Trafalgar House Construction Management has won a three-year contract managing an estimated Pounds 15m of works services at the Army's central ordnance depot at Donnington, near Telford.

Work at the base will involve controlling and managing the electricity supply, water supply and disposal, boilers, roadways, landscaping and maintaining the fabric of the buildings.

Trafalgar House Construction's US subsidiary, Federal Construction, has won a Pounds 13.5m management contract for the runway extension project at southwest Florida regional airport in Fort Myers.

The 1,090 metre extension of runway 6-24 will increase its overall length to 3,636 metres.

Trafalgar House Construction Management Federal Construction GB United Kingdom, EC US United States of America P9711 National Security P8741 Management Services RES Capital expenditures MKTS Contracts P9711 P8741 The Financial Times London Page 12 165
Construction Contracts: Building conference centre in India Publication 930222FT Processed by FT 930222

The BOVIS INTERNATIONAL construction company has been awarded its first contract in India, a construction consultancy role on the building of a USDollars 25m (Pounds 17.5m) hotel and conference centre in the city of Agra.

The P&O Group company's client for the two-year project is Jaiprakash Industries Ltd, one of India's largest business conglomerates, with interests in property and construction.

Situated in northern India, and home of the Taj Mahal, Agra is already an established tourist destination and has a thriving business community.

Building work on the 230 bedroom, five star hotel and adjoining conference centre begins in the spring with Bovis International supplying a construction consultancy team who will provide design management and building expertise, particularly in obtaining high quality finishes on all exposed surfaces throughout the project. The company also has work under way in Europe, Asia and South America.

Bovis International IN India, Asia P8711 Engineering Services RES Capital expenditures MKTS Contracts P8711 The Financial Times London Page 12 175
Construction Contracts: Pounds 60m American bridge development Publication 930222FT Processed by FT 930222

BALFOUR BEATTY, based at Thornton Heath, Surrey, has received its largest-ever civil engineering contract in the United States with an USDollars 86m (Pounds 60.1m) award to replace a rail viaduct and drawbridge in Bridgeport, Connecticut with new and partially refurbished structures.

The project for the Metro North Commuter Railroad involves the replacement of Peck drawbridge and the refurbishment of Bridgeport viaduct which together carry passenger trains on the line running from New York to Boston as it passes over the Pecquonock river.

A temporary crossing of the river will be constructed to carry two lanes of rail traffic during the demolition and while the rebuilding work programme is in progress.

Once the temporary crossing is fully operational the drawbridge will be completely demolished while the viaduct will be dismantled in stages.

The new 1.25km structure will be constructed using concrete and structural steel. The contract is scheduled for completion in 1998.

Balfour Beatty US United States of America P1622 Bridge, Tunnel and Elevated Highway P8711 Engineering Services RES Capital expenditures MKTS Contracts P1622 P8711 The Financial Times London Page 12 193
Construction Contracts: Motorway work Publication 930222FT Processed by FT 930222

KIER CONSTRUCTION has acquired the rights to the M74 contract in Strathclyde following the receivership of LLC Realisations (formerly Lilley Construction).

Kier, on behalf of Strathclyde Regional Council, will complete work on the Pounds 17m contract of which about Pounds 9.7m is outstanding. The project is funded by the Scottish Office.

Kier Construction GB United Kingdom, EC P1611 Highway and Street Construction P9121 Legislative Bodies RES Capital expenditures MKTS Contracts P1611 P9121 The Financial Times London Page 12 88
Construction Contracts: Storing public records Publication 930222FT Processed by FT 930222

KYLE STEWART has won a Pounds 34m contract for the new Public Record Office at Ruskin Avenue, Kew.

The contract comprises four works sections; the construction of the new building which will provide 12 self-contained repositories of 15,000 sq metres containing 90 kilometres of mobile shelving, as well as offices, conference and training facilities, conservation laboratories and the refurbishment of the existing building including enlarged public restaurant document search room and the relocation of the reference library.

The new Public Record Office will reinforce and improve Kew's reputation with continued emphasis on the preservation of documents and their availability to the public.

Work has started and the 174 week contract is scheduled for completion in June 1996.

The four-storey building will have a total floor area of 27,000 sq metres and will be constructed of an in situ reinforced concrete frame clad in buff coloured precast stone panels. The pitched roof will be finished in Welsh slate.

The building will be fully air-conditioned and the repositories, which have stringent environmental requirements, will be separated from other areas by atria.

A computer controlled car and track system will also be installed for document transfer between the repository and the search rooms. Extensive landscaping will assist in the integration of the existing building with the extension and provide an appropriate civic setting at the Thamesside location.

Kyle Stewart GB United Kingdom, EC P1542 Nonresidential Construction, NEC P8231 Libraries RES Capital expenditures MKTS Contracts P1542 P8231 The Financial Times London Page 12 260
Construction Contracts: Mixed batch awarded to Lovell companies Publication 930222FT Processed by FT 930222

Companies within the construction division of the LOVELL GROUP have won contracts valued at over Pounds 30m.

Within this total Bullock Construction has gained Pounds 20m worth of new work. The largest portion of this is a three-year term agreement involving building and civil engineering works for Zeneca, the newly-formed ICI subsidiary, in connection with the pharmaceuticals and specialties business. The contract, which covers operations at several locations in the north west, has a total projected value of Pounds 16.5m and increases the period of continued service to ICI to about 23 years.

Walter Lilly has won contracts in excess of Pounds 1m including further work for Nestle at Hayes and additional bomb damage restoration at the Baltic Exchange in the City.

Bullock Construction Zeneca Walter Lilly Nestle GB United Kingdom, EC P8711 Engineering Services P2834 Pharmaceutical Preparations P1541 Industrial Buildings and Warehouses P1542 Nonresidential Construction, NEC RES Capital expenditures MKTS Contracts P8711 P2834 P1541 P1542 The Financial Times London Page 12 176
Economics: Focus on recovery prospects in G7 industrialised nations Publication 930222FT Processed by FT 930222 By GILLIAN TETT

ATTENTION remains focused on the US this week, after the unveiling of President Bill Clinton's programme to tackle the budget deficit and stimulate economic recovery.

Although The US January consumer confidence index due tomorrow is expected to be unchanged, the quarterly GDP figures due on Friday are expected to show a 4.5 per cent annualised growth, underlining the strength of the US economy at the time of President Clinton's election.

With the UK also due to publish fourth quarter GDP figures this week, debate continues about the prospects for economic recovery.

Although the GDP is predicted to be slightly down on last year, it is expected to show some improvement over the previous quarter. The CBI's monthly industrial trends survey on Friday will give a more up to date picture of business mood.

The G7 finance ministers will meet in London on Saturday, amid continuing concern over the state of the world's economy, but no communique or decision is scheduled.

Some of the week's economic highlights follow: the figures in brackets represent median forecasts, supplied by MMS International, a financial information company.

Today: UK, fourth quarter GDP (up 0.2 per cent on quarter, down 0.4 per cent on year). US, January Treasury budget (Dollars 27bn). France, December current account; January official reserves. Canada, seasonally adjusted December retail sales (up 0.6 per cent on month), December department store sales (up 0.5 per cent on month).

Tomorrow: US, Federal Reserve Board chairman Alan Greenspan gives Humphrey Hawkins testimony to House banking subcommittee; January consumer confidence index (77 per cent). UK, quarterly analysis of long term unemployment.

Wednesday: US, President Clinton meets British Prime Minister John Major; January durable orders (down 2.3 per cent), shipments, auto and truck sales February 11 to 20. Canada, December wholesale trade (up 0.4 per cent on month); France, fourth quarter GDP (down 0.2 per cent).

Thursday: Belgium, EC ministers discuss steel industry. Germany, banking sector wage talks third round. UK, January trade balance with non-EC countries (Pounds 1.3bn deficit). US, money supply week ending February 15, initial claims week ending February 13, January existing home sales. Canada, January industrial production price index (up 0.3 per cent on month).

Friday: US, Fourth quarter preliminary GDP (up 4.5 per cent), deflator (1.7 per cent); February Chicago purchasing managers survey; January export prices, import prices. UK, CBI monthly industrial trends survey. Japan, February Tokyo consumer prices (up 1 per cent on year), February national consumer prices (up 1.3 per cent on year); January industrial production (up provisional 0.7 per cent). France, January consumer prices (up 0.3 per cent on month, 2.2 per cent on year).

Saturday: UK, G7 finance ministers meet in London.

During the week: Italy, December wholesales prices (up 2.5 per cent on year), producer prices (up 2.4 per cent); January M2 (5.8 per cent); January trade balance. Germany, import prices (0.2 per cent month on month, down 2 per cent year on year), preliminary cost of living (up 0.3 per cent on month, 4.1 per cent on year.)

XA World P96 Administration of Economic Programs ECON Economic Indicators GOVT Government News P96 The Financial Times London Page 11 538
The Week Ahead: Results due Publication 930222FT Processed by FT 930222

IMPERIAL Chemical Industries, the UK's largest manufacturer, reports its preliminary year-end results on Thursday, and pretty grim reading they will make. Hoare Govett expects the group to report fourth quarter pre-tax profits of only Pounds 27m, making a total of Pounds 550m for the year. That compares with Pounds 843m in 1991 and the peak of Pounds 1.5bn in 1989.

The poor results will be immaterial compared with the announcement of the board's decision whether to sunder the company in two. The aim is to make Zeneca, the pharmaceuticals, agrochemicals and specialities subsidiary, into a separately quoted company.

SmithKline Beecham, the Anglo-American drugs and consumer products company, reports preliminary year-end results tomorrow. Analysts expect pre-tax profits to rise up to 13 per cent to between Pounds 1.11bn and Pounds 1.125bn, against Pounds 1bn a year earlier.

Unilever, the Anglo-Dutch food and consumer products group, is expected tomorrow to report that pre-tax profits for the full year break through the Pounds 2bn barrier, an improvement of 13 per cent on the previous Pounds 1.79bn.

British Aerospace expects to see a revival in its fortunes during 1993 following a year in which its performance was undermined by Pounds 1bn of provisions. Hopes for a return to profit, however, will do nothing to soften the impact of its preliminary results on Wednesday. These are likely to show losses of about Pounds 1.1bn compared with losses of Pounds 81m a year earlier.

Restructuring charges of Pounds 950m in the regional aircraft division have been blamed largely for the hole. The company is due to pay a deferred interim dividend of 3p on Thursday, and a further 3p dividend is expected in the final results.

The mild weather and new regulatory regime imposed by Ofgas is likely to be reflected in the final results for British Gas. The company is expected to announce on Thursday that profits have slipped to around Pounds 900m compared with a Pounds 1.16bn last time. Increased competition and lower prices for domestic gas sales may also reduce the company's scope for a substantial increase in dividend. A pay-out of about 14p is expected, against 13.4p last year.

Royal Dutch Shell will report its preliminary year-end results on Thursday when a small increase in profits is expected of up to Pounds 3bn compared with Pounds 2.89bn for 1991. The company is likely to raise its dividend in line with inflation to about 22p from 20.9p last time.

Royal Insurance is expected to report a sharp fall in its pre-tax losses when it unveils its 1992 results on Thursday. Losses should amount to between Pounds 105m and Pounds 137m, compared with a deficit of Pounds 373m in 1991. A dividend of 5p is forecast.

PARLIAMENTARY DIARY

Commons: Questions to National Heritage ministers, Public Accounts Commission, Commons Commission and Commons Leader. European Communities (Amendment) Bill, committee.

Lords: Food Protection (Emergency Prohibitions) (Oil and Chemical Pollution of Fish) Order. Local Authorities (Recovery of Costs for Public Path Orders) Regulations. Debate on Licensed Betting Offices (Amendment) Regulations. Debate on domestic water metering.

Select committee: public accounts, subject: major projects statement 1991. Witness: Dr Malcolm McIntosh, chief of defence procurement, ministry of defence (4.30, room 16).

TOMORROW

Commons: Health questions. Questions to the prime minister. Debate on international peacekeeping.

Lords: Housing and Urban Development Bill, second reading. Debate on adult education.

Select committee: foreign affairs, subject: role of the united nations. Witness: Ambassador Sahoun,former special representative of the UN in Somalia (4.30, room 15).

WEDNESDAY

Commons: Environment questions. Debate on the Army.

Lords: Debates on the economic and social consequences of government policies, and the transfer of Royal Naval jobs.

Select committees: environment, subject: housing corporation. Witnesses: national federation of housing association officials.(9.15, room 21).

Parliamentary commissioner for administration, subject: reports of the health service commissioners for 1991-92. Witnesses: south west Thames regional health authority, Tayside health board (10, room 19).

Foreign affairs, subject: Europe after Maastricht. Witness: Lord Lawson of Blaby (10.30, room 8).

Agriculture, subject: changes in the hill livestock compensatory allowance. Witnesses: UK agriculture departments. (10.45, room 20).

Home affairs, subject: legal aid, the Lord Chancellor's proposals. Witnesses: Bar Council and Law Society (11.00, room 15).

Education, subject: special educational needs. Witnesses: association of educational psychologists, national association for special educational needs. (4.10, room 18).

Employment, subject: unemployment levels and 'workfare'. Witness: Mrs Gillian Shephard, employment secretary (4.15, room 8).

Health, subject: community care. Witnesses: Institute of health services management; association of directors of social services (4.15, room 21).

Home affairs, subject: legal aid, the Lord Chancellor's proposals. Witness: Lord Mackay of Clashfern, Lord Chancellor (4.30, room 15).

Treasury and civil service, subject: European community monetary and budgetary matters. Witnesses: Bank of England officials (4.30, room 20).

THURSDAY

Commons: Agriculture questions. Questions to the prime minister. European Communities (Amendment) Bill, committee.

Lords: Clean Air Bill, committee. Radioactive Substances Bill, committee. Charities Bill, committee. Welsh Language Bill, third reading. Debate on the problems of carers.

FRIDAY

Commons: Backbench business - Debate on civil rights for the disabled.

Lords: Not sitting.

DIVIDEND & INTEREST PAYMENTS

TODAY

Abbey National Treasury Services 5 5/8 % Gtd. Nts. 1995 S56.25

Amdahl Dollars 0.025

Argyll Group 3.55p

Barclays Bank Und. Fltg. Rate Prim. Cap. Nts. Ser. 2 Dollars 187.29

Bradford & Bingley Bldg. Scty. Sb. Fltg. Rate Nts. 2005 Pounds 201.84

Bulmer (HP) 3.75p

Can. Imperial Bk. of Commerce Fltg. Rate Sb. Cap. Db. 2085 Dollars 187.29

Chugoku Elect. Power 7% Nts. 1997 Dollars 350.0

Druck 3.4p

Electra Inv. Tst. 3.4p

Euro Disney FFr0.68

Exchequer 12 1/2 % 1994 Pounds 6.25

HongKong & Shanghai Banking Prim. Cap. Und. Fltg. Rate Nts. (Ser. 1) Dollars 129.17

Jusco 8% Stlg/USDollars Payable Cv. Bd. 1996 Pounds 80.0

MBE Fin. Gtd. Dual Basis Bd. 2002 Dollars 10333.33

MBL Fin. 8 5/8 % Gtd. Bd. 2001 Dollars 862500.0

New Zealand Fltg. Rate Nts. 1993 Dollars 173.44

NFC 7 3/4 % Cv. Bd. 2007

Pounds 24.76

Nova Scotia (Province of) 11 5/8 % Bd. 1995 CDollars 116.25

Security Pacific Fltg. Rate Sb. Cap. Nts. 1997 Dollars 127.78

Seeboard 5.7p

Shelton (Martin) 0.75p

Trustco Fin. 11 1/2 % Sev. Db. 2016 Pounds 5.75

TSB Offshore Inv. Fd. Ptg. Rd. Pf. Gilt & Fxd. Int. 1.165p

Do. Ptg. Rd. Pf. Stlg. Dep. 2.3p

UK 9 1/8 % Bd. 2001 Ecu91.25

Wagon Indl. 6.325p

Watson & Philip 9.1p

Wells Fargo Fltg. Rate Sb. Nts. Feb. 1997 Dollars 137.08

Westland 3p

Westpac Banking Sb. Fltg. Rate Nts. 1997 Dollars 192.71

TOMORROW

Devenish (JA) 6.35p

Leeds Permanent Bldg. Scty. Fltg. Rate Nts. 1997 Pounds 185.26

Lon. & Clydeside 2.7p

Nationwide Bldg. Scty. 4 1/4 % IL Ln. 2024 Pounds 2.7768

Pilkington 2.93p

Seiyu Europe 5.65% Gtd. Bd. 2000 Y792569.0

Skandinaviska Enskilda Banken 10 3/4 % Cap. Nts. 1993 DKr1075.0

Treasury 2 1/2 % IL 2011 Pounds 2.33

WEDNESDAY FEBRUARY 24

Andrews Sykes 1.4p

Burton 8% Cv. Un. Ln. 1996/2001 Pounds 4.0

Caisse Centrale des Banques Populaires Fltg. Rate Nts. 1993 Dollars 50753.33

Commonwealth Bk. of Aust. Und. Fltg. Rate Nts. (Ex. Fltg. Rate) July 1988 Dollars 181.96

Denmans Elect. 4.3p

Gold Fields Prop. R0.32

London Elect. 5.6p

Multitone Elect. 1.5p

New Wits R0.17

Northern Rock Bldg. Scty. Fltg. Rate Nts. 1994 Pounds 188.84

Royal Bk. of Can. CDollars 0.29

South Wales Elect. 6.6p

Triplex Lloyd 2.5p

Vogels Metal R0.20

THURSDAY FEBRUARY 25

Aluminum Co. of Amer. Dollars 0.40

Bk. of Montreal CDollars 0.56

Banque Natl. de Paris 9 5/8 % Nts. 1993 Dollars 96.25

Bespak 4p

British Land 2.28p

Burtonwood Brew. 0.7p

Eaton Corp. Dollars 0.55

Gartmore Scot Inv Inc 2.4p

Do. Package Units Pounds 6.0

Grosvenor Inns 2p

New Throgmorton Tst Inc 1.5p

RHM 8 1/8 % Un Ln '90/94 Pounds 4.0625

Do. 8 7/8 % Un Ln '91/95 Pounds 4.4375

Treasury 8 3/4 % 2017 Pounds 4.375

FRIDAY FEBRUARY 26

Allied-Lyons 6.95p

Anglian Water 6.8p

Archer (AJ) 2.2p

Avon Rubber 11.5p

Bk. of Nova Scotia Fltg. Rate Sb. Cap. Db. 2085 Dollars 189.58

Bk. of Scot. Und. Var. Rate Nts. Dollars 119.17

Beales Hunter 2.45p

Bertam 2.5p

Bradford & Bingley Bldg. Scty. Fltg. Rate Nts. 1994 Pounds 181.58

Burndene 10p

Burton 1p

Cable & Wireless 4.75p

Cater Allen Equity Growth Fd. Ptg. Pf. 11p

Do. Gilt & Futures Fd. Ptg. Pf. Pounds 40.0

Do. Gilt Inc. Fd. Ptg. Pf. 30p

Chase Manhattan Fltg. Rate Sb. Nts. 1997 Dollars 100.83

Chemical Banking Fltg. Rate Senior Nts. 1999 Dollars 40.83

City of Oxford Inv. Tst. 1.2p

Collateralised Mortgage Sec. (No. 7) Class A1 Mtg. Bckd. Fltg. Rate Nts. 2028 Pounds 119.48

Do. Class A2 Pounds 191.12

Do. Class A3 Pounds 193.53

Do. (No. 9) Class A1 Mtg. Bckd. Fltg. Rate Nts. 2033 Pounds 83.41

Do. Class A2 Pounds 191.12

Do. Class A3 Pounds 193.06

Contra-Cyclical Inv. Tst. 2.25p

Gen. Motors Acceptance Corp. of Can. Fltg. Rate Nts Nov. 1996 CDollars 486.90

Glasgow Inc. Tst. 1.4p

Grand Central Inv. 0.45p

Great Western Fin. Dollars 0.23

Greencore IR5p

Halifax Bldg. Scty. Fltg. Rate Ln. Nts. 1996 (Ser. A) Pounds 25.48

Kenwood Appliances 1.5p

Lee (Arthur) 4.25p

Lloyds Bank Prim. Cap. Und. Fltg. Rate Nts. (Ser. 2) Dollars 99.31

Do. (Ser. 3) Dollars 188.32

Lloyds Eurofin. Gtd. Fltg. Rate Nts. 1996 Pounds 92.95

Manuf. Hanover Tst. Fltg. Rate Sb. Cap. Nts. 1994 Pounds 91.07

Merchants Tst. 2.65p

Midlands Radio 1p

Mining & Allied Supplies 0.5p

Mitsubishi Bank Fltg. Rate Sb. Ln. Ptpcn. Certs. 2000 Dollars 1023.61

Morgan Grenfell Und. Prim. Cap. Fltg. Rate Nts. Dollars 202.22

Murray Int. Tst. 2.6p

M & W 1.5p

NatWest Bank 7% Cm Pf 2.45p

Do. Und. Var. Rate Nts. (Br Dollars 10,000) Dollars 119.17

Do. Prim. Cap. Fltg. Rate Nts. Ser. C Dollars 97.78

Nationwide Bldg. Scty. Fltg. Rate Nts. Feb. 1993 Pounds 179.57

Do. Fltg. Rate Nts. 1996 (Ser. 2) Pounds 25.48

Neste Fltg. Rate Nts. 1994 Dollars 265.42

New Brunswick (Province of) Fltg. Rate Nts. May 1994 CDollars 20.63

New Zealand Fltg. Rate Nts. 1997 Pounds 92.16

North West Water 7.13p

Olim Conv. Tst. 4.6p

Ossory Ests. 12.5% Bd. 1996 Pounds 15880.26

Ragby Gtd. Fltg. Rate Nts. 1998 Dollars 10156.67

Royal Bk. of Can. Fltg. Rate Db. 2005 Dollars 25.28

Royal Bk. of Scot. 6p

Sage 6p

Second Market Inv. 2 1/2 % Cv. Un. Ln. 1994 Pounds 1.25

Southend Prop. 1.52p

Sphere Inv. Tst. 0.85p

Standard Chartd. Sb. Fltg. Rate Nts. 1996 Pounds 92.63

Temple Bar Inv. Tst. 6% Cv. Un. Ln. 2002 Pounds 3.0

3i Int. Gtd. Fltg. Rate Nts. 1994 Pounds 18.23

TMC PIMBS Fifth Fin. Ord. Class Nts. No. 6 Aug. 2028 Pounds 132.19

Do. No. 1 Aug. 2030 Pounds 183.28

Do. Seventh Fin. Class A Nts. No. 8 Aug. 2031 Pounds 179.16

Do. Class B No. 8 Aug. 2031 Pounds 197.02

Toray Inds. Fltg. Rate Nts. 1997 Y101427.0

TR City of Lon. Tst. 1.19p

Do. 20% N/Cm. Pf. 7p

Do. 6% Cm. 1st Pf. Pounds 2.10

Do. 6% N/Cm. 2nd Pf. 2.1p

Treasury 10% 2001 Pounds 4.875

TSB Var. Rate Sb. Nts. 2003 Pounds 191.37

Turkey Tst. 5p

USLIFE Dollars 0.30

Wells fargo Fltg. Rate Sb. Nts. 2000 Dollars 40.83

Woolwich Bldg. Scty. Fltg. Rate Ln. Nts. 1995 Pounds 185.89

Do. Sb. Fltg. Rate Nts. 2001 Pounds 5939.93

Zetters 4p

SATURDAY FEBRUARY 27

Eksportfinans 8 3/4 % Nts. 1996 Ecu87.50

Treasury 9 3/4 % 2002 Pounds 4.875

SUNDAY FEBRUARY 28

Allnatt Lon. Props. 10 1/2 % 1st Mtg. Db. 1994/99 Pounds 5.25

Bankers Inv. Tst. 0.86p

Caspen Oil 11% Cv. Un. Ln. '94/97 8.02p

Cigna O'seas Fin. 13% Un. Ln. 2008 Pounds 6.50

Derby Tst. Inc. 8.4087p

Ecclesiastical Ins. 13% Db. 2018 Pounds 6.50

Electricite de France 12 1/2 % Gtd. Ln. 2008 Pounds 312.50

Excalibur 11 1/2 % Cm. Pf. 5.75p

Gibbon Lyons 7% Cv Pf 3.5p

Global Assets DM Bd. Ecu0.05

Do. DM Liquid Assets Ecu0.075

Do. Yen Bd. Ecu0.035

Do. Yen Liquid Assets Ecu0.025

Do. Pacific Basin Equity Ecu0.007

Do. Stlg. Bd. Ecu0.05

Do. Stlg. Liquid Assets Ecu0.06

Do. UK Equity Ecu0.016

Do. USDollars Bd. Ecu0.05

Do. USDollars Liquid Assets Ecu0.05

Lon. & St. Lawrence Inv. 5% Cm. Pf. 1.75p

Lon. & Strathclyde Tst. 5% Cm. Pf. 1.75p

Parkland Textile 4.2% Cm. Pf. 2.1p

Prowting 14 1/2 % Cm. Pf. 7.25p

RPH 8% Db. 1992/96 Pounds 4.0

Do. 4 1/2 % Un Ln '04/09 Pounds 2.25

Do. 9% Un Ln '99/04 Pounds 4.50

3i 8 7/8 % Un Ln '92/97 Pounds 4.4375

TR Far East Inc Tst. 7% Db. '97/2002 Pounds 3.50

UK COMPANIES

TODAY

COMPANY MEETING:

Devenish (JA), Brewers Hall, Aldermanbury Square, EC, 12.00

BOARD MEETINGS:

Finals:

Baldwin

Capita

Low & Bonar

Interims:

Ashtead

Channel Hldgs.

Essex Furniture

FII Group

TOMORROW

COMPANY MEETINGS:

Archimedes Inv. Trust, Garrard House, 31-45, Gresham Street, EC, 12.30

Grand Metropolitan, Grosvenor House Hotel, W, 11.00

Kershaw (A), 6, Connaught Place, W, 12.00

London & Clydeside Hldgs., 1, Park Quadrant, Glasgow, 12.00

BOARD MEETINGS:

Finals:

Admiral

American Trust

Amstrad

East German Inv. Tst.

M & G Inc. Inv.

M & G Recovery Inv. Tst.

McAlpine (A)

Pacific Assets

Porvair

Scottish Eastern Inv.

Sedgwick

Shires High-Yielding Sm-

aller Co's

SmithKline Beecham

Unilever

Updown Inv.

Interims:

European Smaller Co's

Henderson Eurotrust

Multitrust

Murray Inc. Trust

River & Mercantile Tst.

TR European Growth Tst.

WEDNESDAY

FEBRUARY 24

COMPANY MEETINGS:

Abbey Panels Invs., Sheraton Skyline Hotel, Bath Road, Hayes, Middlesex, 12.00

First Natl. Finance Corp., Plaisterers Hall, 1, London Wall, EC, 12.00

Holmes & Marchant, Brands House, Kingshill Road, High Wycombe, 10.00

Rank Organisation, Gloucester Hotel, Harrington Gardens, SW, 11.30

BOARD MEETINGS:

Finals:

British Aerospace

Dakota

Dunedin Inc. Growth

Hotspur Inv.

Interims:

JF Pacific Warrants

Jos Hldgs.

Pacific Horizon Inv. Tst.

Primadona

THURSDAY

FEBRUARY 25

COMPANY MEETINGS:

Electronic Data Processing, Tapton Masonic Hall, Shore Lane, Sheffield, 12.00

Midlands Radio, Royal Int. Moat House, Wollaton Street, Nottingham, 12.00

Neotronics Technology, Pearse House, Parsonage Lane, Bishops Stortford,

10.30

RCO Hldgs., 20, Old Bailey, EC, 3.00

BOARD MEETINGS:

Finals:

British Gas

Capital & Counties

ICI

London Forfaiting

Merlin Int. Green Inv.

Micro Focus

Murray Int. Tst.

Provident Financial

Royal Insurance

Shell

Smaller Co's Inv. Tst.

Telegraph

Tottenham Hotspur

Transatlantic Hldgs.

Interims:

Macro 4

Roxspur

Usher (Frank)

FRIDAY

FEBRUARY 26

COMPANY MEETING:

Black & Edgington, The Registry, Royal Mint Court, EC, 10.00

BOARD MEETINGS:

Finals:

Alexanders Hldgs.

Greenwich Comms.

INOCO

Interims:

BBB Design

de Morgan

Goodwin

Isotron

SEET

Waterman Partnerships

SUNDAY

FEBRUARY 28

COMPANY MEETING:

NFC, Royal Concert Hall, Nottingham Centre, Nottingham, 11.00

Company meetings are annual general meetings unless otherwise stated.

Please note: Reports and accounts are not normally available until approximately six weeks after the board meeting to approve the preliminary results.

GB United Kingdom, EC P9121 Legislative Bodies P99 Nonclassifiable Establishments GOVT Government News FIN Company Finance COMP Company News P9121 P99 The Financial Times London Page 11 2441
Management: Linking values to success Publication 930222FT Processed by FT 930222 By TIM DICKSON

A link between corporate values and good business performance has been claimed by more than one management guru in recent years. So it is perhaps encouraging that a survey* of executive opinion sponsored by the Digital Equipment Company reveals the widespread use of formal mission statements in the UK.

Corporate values are defined as important beliefs widely held to be crucial to the success of an organisation. According to the Digital survey 80 per cent of 429 top managers interviewed last year say they have formal statements, a similar number believe these contribute directly to profitability, and 75 per cent see implementing them as one of their central responsibilities.

Companies' top five priorities - defined both by the relative importance attached to a value and the scope seen for improvement - are people, competitiveness, customers, quality and productivity. More intriguingly their lowest priorities are social responsibility - mainly because there is perceived to be little room for behaving better - and profitability.

The low emphasis on profits sounds like defeatist talk in the midst of a recession. But the authors believe it may be that companies do not really see it as a value as such, or that profitability is the result of a value-driven strategy.

The real test, of course, is whether mission statements are integrated into a company's day-to-day activities. Only 6 per cent of those interviewed openly admitted that corporate values make little practical difference, but 30 per cent confessed that short-term commercial gain gets priority if there is a conflict between the two.

Interestingly the under 40s turned out to be more single minded in the pursuit of profit than their elders.

*Copies of Corporate Values: The Bottom Line Contribution. Available from Bob Vickers. Tel 0256 371200.

GB United Kingdom, EC P99 Nonclassifiable Establishments MGMT Management CMMT Comment & Analysis P99 The Financial Times London Page 10 324
Management: A rollercoaster out of control - Christina Lamb describes the ups and downs of doing business amid skyrocketing prices in Brazil Publication 930222FT Processed by FT 930222 By CHRISTINA LAMB

So persistently high is Brazilian inflation, that the Central Bank has run out of famous Brazilians to put on its banknotes and resorted to Amazonian fish (there are more than 2,000 varieties).

A good lunch costs more than Cr1m (Pounds 39), shops have to ring up large items in parts to fit on the tills and calculators can only be used by dropping three zeroes, despite two changes of currency in the last five years.

This is irritating enough for the average person who has lost all sense of what something should cost and must spend hours each day calculating how best to protect his or her money, consulting the 13 indexes for monetary correction published daily for everything from tax bills to savings accounts. Imagine running a business in such a climate.

Luis Junqueira, financial director of Alpargatas, Brazil's leading footwear and garment company, describes keeping up with inflation which has been above 20 per cent a month for the last 15 months and in four figures for five of the last six years, as: 'Feeling like the white rabbit in Alice in Wonderland, always late.' He adds: 'I have all the textbooks on financial management but may as well throw them down the drain for all the use they are here.'

With inflation at 1.25 per cent a day and interest rates considerably higher, a company can be made or broken on its cash management and it is crucial to keep a constant track of money and have a strong credit control department.

Milton de Carvalho Cabral, financial director of Souza Cruz, the Brazilian subsidiary of BAT Industries, says: 'Our main challenge is to ensure that money earned from sales all round the country reaches headquarters in Rio as rapidly as possible in order to invest it. An hour lost can be an opportunity gone.'

Terms of payment become an important factor. Cabral attributes the financial health of Souza Cruz to the fact that it gives stockists only three to five days to pay. The aim is to have a long lead time in paying suppliers, but fast collection of receivables. Thus retailers often sell products for less than they pay suppliers. If they can sell within 15 days but have 30 days to pay, the cash can be invested for 15 days in the moneymarkets where the real profit is to be made.

As a result, financial divisions tend to carry far more importance than the production or marketing departments. Most leading manufacturers estimate their financial department is at least 40 per cent larger than would be necessary in a low inflationary climate. Autolatina, the holding company for Ford and Volkswagen, has a larger financial department than Ford Europe.

Inflation is nothing new in Brazil - it has been more than 400 per cent a year since 1987 - and companies have developed many mechanisms to survive and prosper. In many cases the core activity has become simply a means of generating cash for financial operations on which the real profits are made.

Eduardo Giannetti da Fonseca, an economist from Sao Paulo University, explains: 'Inflation breaks the connection between what you sow and what you reap. It's a school of opportunism where what matters is financial wizardry rather than supply and demand.'

Rather than putting money into the company, cash goes into financial operations. This has had negative repercussions on areas such as marketing, quality, productivity and product development, which could be devastating once Brazil opens up wider to foreign trade.

William Cosgrove, the financial director of Autolatina, complains: 'Everyone's working on the constant battle to recover last month's inflation rather than concentrating on competing with Korea.'

The effects permeate throughout the company. Jeffrey Brantly, finance director of the Monteiro Aranha group, says: 'Everyone becomes a financial person. The marketing person cannot simply sell a product - he must obtain the best terms of payment. The production guy cannot just install a new machine to increase efficiency but must study whether it is better to buy now, later or spread over several payments.'

The greatest loser is the consumer. Emerson Kapaz, owner of a toy company, says: 'There's this constant race against time so when costs go up 30 per cent prices are automatically adjusted by at least that, thus feeding inflation. It's like a fever.' A study by consultants KPMG found that 81.6 per cent of companies listed government measures and inflationary expectations as the most important factors in pricing. Production costs were way down the list.

Moreover, periodic government price freezes (five in the last six years) mean companies fear being caught with prices too low. The longest price validity is 30 days, and companies such as ICI and Autolatina have full-scale price negotiations with unions and suppliers at least monthly - an activity that would occur perhaps annually in other countries.

This is a particular nightmare for the retail sector. Carlos Rocca, president of the leading department store group Mappins, points out the store sells 80,000 different items and must negotiate with 6,000 suppliers on a case-by-case basis. High inflation also militates against companies retaining stocks because of rapid depreciation. The retail sector is a constant battle between wanting a rapid turnover and wanting to keep prices up, without losing out to competitors.

Winners of this situation are oligopolies and cartels given the continuing high import tariffs enabling them to price arbitrarily. According to Fipe, one of the inflation monitoring agencies, oligopolies were responsible for 45 per cent of last year's 1,149 per cent inflation.

The instability generated by a highly inflationary economy means information is at a premium, whether on likely government policy, inflationary trends or the best financial instruments of the moment. There are 13 leading agencies monitoring inflation and former economy ministers make fortunes running consultancies.

The hardest situation is for those running subsidiaries of multinationals, having to calculate in trillions and explain to the parent company the confusing Brazilian accounting system where inflation and monetary correction are often divergent and the impossibility of planning more than three months ahead.

But high inflation also presents an opportunity, particularly with real interest rates often topping 5 per cent a month. Though reluctant to admit it, some companies generate 80 per cent of their profits from financial gains. There are many businessmen in Brazil who would be sorry to see high inflation end.

Eugenio Staub, president of electronics company Gradiente, says: 'Brazil offers the best financial profits in the world,' though adding that his company always focuses on the core business.

Most large Brazilian companies have turned into banks with large operating tables where dealers are in electronic contact with the money markets. Autolatina is involved in a network of consortia, providing financing to dealers through capitalisation funds to which both manufacturer and dealer contribute. Particular beneficiaries are those who, through export credits, can raise money overseas at low rates to invest locally. Last year Certificates of Deposit offered a 27 per cent return over international rates.

The financial sector is an obvious winner and makes up 15 per cent of GDP - far more than in most countries. With everything from school fees to gas bills payable through banks, holding the float for a few days can be highly profitable. According to the economy ministry there is Dollars 110bn invested in short-term instruments.

So sophisticated is the Brazilian banking system that account holders can invest the money for a day at a time and cheques are cleared within one day.

While Brazilian bankers cheerfully admit inflation is good for business, manufacturers say financial operations simply preserve the value of profits and mask the hidden costs of inflation, not least the erosion of consumer spending power which over the last three years has dropped 10 per cent.

Cosgrove says: 'So-called financial profits are accounting gains which do not show the long-term costs. No capital-intensive business likes this climate. We need a three- to five-year lead time but here we can't even forecast six months.'

There are compensations. Many directors of multinationals in Brazil have returned to their parent companies in top positions and some such as Citibank are sending their high-fliers to Brazil on the basis: 'If you can survive here you can survive anywhere,' says Kapaz.

BR Brazil, South America P99 Nonclassifiable Establishments P9311 Finance, Taxation, and Monetary Policy MGMT Management ECON Inflation P99 P9311 The Financial Times London Page 10 1429
Management: Inflation lessons over a Big Mac Publication 930222FT Processed by FT 930222 By BILL HINCHBERGER

As the site of boot camp for the shock troops in the battle to cope with Russian inflation, few places could out-class Brazil.

That was the conclusion of the McDonald's Corporation. And that is why it sent a group of high-level trainees there for a crash course in how to brave inflation in a country where prices have risen by at least 400 per cent a year since 1987. Last year, Russia's rate of 1,450 per cent was one of the few to top Brazil's astounding figure of 1,149 per cent.

The contingent consisted of three Canadians, including the head of Russian operations, and a native Russian vice-president. The Canadian subsidiary controls the branch in Moscow, where the outlet on Pushkin Square is the fast-food company's busiest.

'They came in search of the tools needed to manage and operate in a hyper-inflationary environment,' said Gerson Ferrari, finance director for McDonald's in Brazil. Ferrari led them to multinationals well-versed in adapting to rocketing prices - firms such as Cargill, Goodyear and Kodak.

Ferrari's lesson emphasised cash-flow management, control of raw materials, sales and price-setting strategies and how to hedge for potentially substantial distortions in the exchange rate.

The visitors learned that in Brazil McDonald's negotiates a separate inflation rate for each of its suppliers. It then uses those rates for monthly realignments, instead of applying the government's generic inflation figure across the board. The monthly adjustments for suppliers are 'wedded' to periodic price increases for Big Macs, Ferrari said.

Could the McDonald's experience portend a boom in the export of Brazilian 'inflationary intelligence' to the troubled economies of eastern Europe? 'I think there will be a migration of people in the financial area to those countries,' observed Ferrari.

'There are executives in other countries that understand inflation, but the best specialists in this area are the Brazilians.'

McDonalds Corp BR Brazil, South America P5812 Eating Places MGMT Management P5812 The Financial Times London Page 10 340
Small companies report upturn Publication 930222FT Processed by FT 930222 By CHARLES BATCHELOR

A MODEST upturn in business confidence is reported by the Small Business Research Trust in two surveys published today.

In a survey for Lloyds Bank, 63 per cent of companies questioned said they were stronger or unaffected by the recession. More than half said sales had increased last year and almost as many expected sales to be higher this year.

The report is the first of a series on companies in the manufacturing, retail, distribution and business services sectors. It excludes the construction sector.

Only 4 per cent of com-panies said they had been weakened by the recession although it had had a strong impact on their ability to plan ahead.

The second survey, for National Westminster Bank, detected signs of an end to the recession for manufacturers, wholesalers and the business services sector.

It covered all business sectors and showed that sales, employment and investment levels had all recovered from their all-time lows.

A special study for the survey showed that business rates had risen by 28 per cent over the past three years compared with an increase of 20 per cent in the retail prices index.

GB United Kingdom, EC P99 Nonclassifiable Establishments ECON Economic Indicators MKTS Market data P99 The Financial Times London Page 9 220
Can Britain Make It: Charting the mechanics of decline - Britain's manufacturing base is shrinking and its trade gap is growing. In the first of a series Andrew Baxter looks at the mechanical engineering sector Publication 930222FT Processed by FT 930222 By ANDREW BAXTER

THE head of a German machine-tool company was asked recently whether he was worried by the pound's devaluation since Black Wednesday. After all, his British competitors in the export markets are now over 15 per cent more competitive.

Not at all, he said. But 10 years ago it would have been different. Britain had a machine-tool industry then.

The machine-tool sector was a star in the UK balance of payments. Today its story reads like a sad parable of the decline of Britain's mechanical engineering industry.

UK industrialists complain that they are forced to buy foreign equipment for their factories or overseas-made kit for a big contracting job. Process plant contractors, for example, say it is no longer possible to buy big UK-produced compressors, a vital component of chemical plants.

Mr Neil Johnson, head of the Engineering Employers' Federation, says the only thing wrong with mechanical engineering in the UK is its size. 'The only way of attacking that is to build up our manufacturing capacity.'

The problem might seem exaggerated if the bare figures are anything to go by. Last year the UK had an apparently healthy surplus in engineering, with exports 20 per cent larger than imports.

The problem is not just the absolute numbers, it is the trend. At the beginning of the 1970s exports were comfortably twice the level of imports. The balance dipped to virtual equilibrium in 1989. It has edged up since, but that is because recession has dented demand for imports.

Adjusted for inflation, the numbers tell a similar story. In 1993 money, as calculated by Mr Ian Thompson at the federation, total output has fallen from Pounds 45bn in 1979 to Pounds 33bn last year - in line with that of France but a long way short of the German sector, Europe's biggest.

Exports slipped from Pounds 15bn to Pounds 12bn, while imports have risen from Pounds 9bn to Pounds 10bn.

Two severe recessions have depressed UK demand. In a shrinking home market companies have rationalised or gone out of business, and have a smaller base from which to make overseas sales.

Some good news for the heavy engineering sector came last week with the announcement that Davy International had won a Pounds 200m contract to supply a complete stainless steel rolling mill in South Africa. Most of the equipment will be bought in the UK from suppliers including GEC in Rugby and Bronx Engineering in the west Midlands.

The performance of different sectors has varied widely, although none could be called sparkling. Comparing 1990-91 with 1978-79, the worst performer was fabricated and structural steelwork where exports fell 57 per cent and imports surged by 184 per cent.

Among the better performers was power equipment, where exports fell 44 per cent and imports dropped by 71 per cent, mainly because of the lack of UK demand. But real progress was made in ball and roller bearings - exports up 23 per cent, imports up 4 per cent.

The shrinking of the home customer base produces an effect that cannot be gauged by statistics. In machine tools, for example, the main types of equipment, such as lathes and milling machines, are still built in the UK. But the strength - until recently - of markets in Germany, Japan and Switzerland has allowed companies there to offer much fuller product ranges.

UK companies have also been hit by newly industrialised countries. Previously captive export markets in countries that formerly were part of the British empire, especially in Asia, have built up their own industries.

So how can Britain improve its trade performance? One answer is to follow the example set by the motor industry and attract inward investment. The improvement in ball and roller bearings largely results from heavy investment by Japanese companies.

Engineering companies frequently complain that they have not received the support, in terms of trade finance and market intelligence, that has been available to their competitors in other European countries, notably Germany, for winning overseas business.

Mr Johnson insists that it would be wrong to be too gloomy. The UK, he argues, is one of the most attractive countries for companies that want to establish a European presence. In addition, he says, the UK already has world leaders to build on.

In the short term, there is excess production capacity of 20 per cent to 40 per cent that can be soaked up as the world recovers from recession. Going beyond that, however, needs new investment. The history of the past 20 years suggests that will be harder than it sounds.

GB United Kingdom, EC P354 Metalworking Machinery P35 Industrial Machinery and Equipment P3532 Mining Machinery MKTS Foreign trade IND Industry profile P354 P35 P3532 The Financial Times London Page 9 833
Engineering sector pay freezes spread Publication 930222FT Processed by FT 930222 By DAVID GOODHART, Labour Editor

THE NUMBER of pay freezes in British engineering industry almost doubled at the end of last year to cover nearly a third of all settlements in the sector, according to the latest figures from the Engineering Employers Federation.

The sharp rise recorded by the federation appears to confirm a new wave of pay freezes across British industry which was first noted by the Confederation of British Industry pay databank. It found that third of all employers introduced pay freezes during the final quarter of last year.

The rise in the number of freezes suggests that the recent spate of industrial action, for example at the Yarrow shipyard on the Clyde, is unrepresentative of the mood in industry as a whole. Pay analysts also say that the clampdown on pay rises in the public sector, announced in November, could be having a significant impact in the private sector.

The federation found that 100 of the 346 settlements reported between November and January were pay freezes. A further 107 settlements, not included in the figures, were deferred, meaning no pay rise was awarded but that the position will be reviewed again during the course of the year.

The period covered by the federation's figures came soon after Britain's withdrawal from the European exchange rate mechanism but also coincided with a string of large redundancy announcements from big employers.

The increase in the percentage of freezes, which had been running at only about 12 per cent of settlements during last summer, indicates that anxiety about job security was a stronger influence on wage-bargainers than the possibility of higher inflation arising from Britain's withdrawal from the ERM.

The average pay rise in the engineering sector for the three months from November to January, including the freezes but excluding the deferrals, was down to 2.47 per cent.

The trend continues downward with the average settlement in the sector for January at only 2.39 per cent. Although that is still comfortably above the 1.7 per cent inflation figure for January it shows that strong downward pressure will remain on the government's annualised average earnings increase figure, which in December fell to 4.75 per cent the lowest figure for 25 years.

The federation's figures also underline how diverse pay bargaining has become in the recession. For the three-month period, and excluding freezes and deferrals, nearly one fifth of all settlements were more than 4 per cent.

Pay analysts such as Incomes Data Services and Industrial Relations Services emphasise that the majority of settlements are still above inflation. The IRS figure for settlements for the whole economy found an average increase of 3.6 per cent in the last quarter of last year.

GB United Kingdom, EC P35 Industrial Machinery and Equipment P36 Electronic and Other Electric Equipment PEOP Labour P35 P36 The Financial Times London Page 9 484
Agent at Lloyd's warns on reforms Publication 930222FT Processed by FT 930222 By RICHARD LAPPER

A LEADING agent at the Lloyd's insurance market has attacked possible plans to reduce the role of members' agents. Such agents handle the affairs of underwriting members or Names, and allocate them to syndicates.

Mr Julian Crispin, chairman of Sedgwick Lloyd's Underwriting Agents, said any attempt by Lloyd's to handle the administrative functions of members' agents centrally 'would cause a riot' among the agency's more than 1,500 Names - individuals whose wealth backs the market.

Changes in the role of members' agents are being considered by the Lloyd's Market Board as part of a business plan to be unveiled in April.

Last month Mr Peter Middleton, chief executive of Lloyd's, told a group of Names: 'It would be better to centralise everything other than investment advice and recruitment.' Members' agents' responsibilities for administering the reserves and deposits of Names, for distributing profits, collecting losses and assessing the solvency of Names could be carried out centrally.

He said that Lloyd's had given responsibility for administering Names' deposits to agents following criticism from Names about the quality of service offered by the corporation, the body which regulates and administers the market.

A role change would be part of a package of measures designed to increase efficiency at the market following heavy losses in recent years.

Lloyd's may consider placing business from underwriting syndicates that no longer write new insurance into a central pool and reinsuring all outstanding claims, Mr Middleton told a group of leading figures in the insurance market.

It may also create a central run-off agency to deal with claims from previous years.

Lloyds of London GB United Kingdom, EC P6411 Insurance Agents, Brokers, and Service COMP Company News TECH Services P6411 The Financial Times London Page 9 303
Sacked staff get job-search help Publication 930222FT Processed by FT 930222 By DIANE SUMMERS, Labour Staff

THREE quarters of companies help employees they sack to find new jobs, Cranfield School of Management has found.

Independent consultants providing 'outplacement' services were the most popular with organisations, particularly for executives being made redundant, the management school's research, published today, indicates. Outside consultants were seen to help improve morale among remaining employees, as well as providing expertise for those seeking jobs, the study found.

More than half of the companies using consultants said there had been a positive effect on public relations. However, there had been little observable effect on the retention of employees or on customer or supplier relations.

Individual counselling was popular for executives being made redundant, while other employees were more likely to be advised in groups. Irrespective of redundancies, more than 65 per cent of organisations provided some sort of career counselling for their staff.

Over half of companies said they would have handled redundancies differently if they had been doing them again. The need to improve communications was most frequently mentioned.

The study of more than 600 companies was carried out by Cranfield for the Institute of Directors and the consultancy Pauline Hyde and Associates. The IoD said it welcomed the evidence that companies were accepting responsibility for managing redundancies effectively and realising that severance pay was no longer enough.

Organisational Perspectives on Outplacement. Human Resources Research Centre, Cranfield School of Management, Bedford MK43 OAL. Pounds 50.

GB United Kingdom, EC P99 Nonclassifiable Establishments MGMT Management PEOP Labour P99 The Financial Times London Page 9 266
Sacked staff get job-hunt help Publication 930222FT Processed by FT 930222 By DIANE SUMMERS, Labour Staff

THREE quarters of companies help employees they sack to find new jobs, Cranfield School of Management has found.

Independent consultants providing 'outplacement' services were the most popular with organisations, particularly for executives being made redundant, Cranfield's research, published today, indicates. Consultants were seen to help improve morale among remaining employees, as well as providing expertise for those seeking jobs, the study found.

The study of more than 600 companies was carried out for the Institute of Directors and the consultancy Pauline Hyde and Associates.

Unemployment is again increasing much faster among ethnic minority groups. This follows a period in the mid-1980s when the gap between white and ethnic-minority unemployment narrowed, the Commission for Racial Equality says.

GB United Kingdom, EC P99 Nonclassifiable Establishments MGMT Management PEOP Labour P99 The Financial Times London Page 9 149
London trails on economic growth Publication 930222FT Processed by FT 930222 By PETER MARSH, Economics Staff

GREATER London will perform worse than any other UK region this year in terms of economic growth, while Wales will lead the way to recovery, according to National Westminster Bank.

The bank warns in a report that growth will be 'very modest' over the next five years, with unemployment expected to fall only slowly from a peak of 3.25m at the end of this year.

It says demand will be constrained by several negative factors including large fiscal and trade deficits, high consumer debts and worries about job insecurity.

The bank's economists say economic activity in Greater London will increase by only 0.4 per cent this year, compared with the 0.9 per cent growth expected for the UK as a whole. Wales will be the fastest growing region, with its economy expanding by 1.1 per cent.

Growth in the UK as a whole next year will be 2 per cent, the report says, with East Anglia, the east Midlands, the south-west and Wales expanding faster than other regions at between 2.2 per cent and 2.4 per cent.

The weakest region next year in terms of growth is expected to be Northern Ireland, which the bank believes will see output increase by just 1.6 per cent.

Between 1993 and 1997 Yorkshire and Humberside will be among the leaders in regions experiencing relatively fast growth, the report says.

Banks will find little demand from companies for loans during the next few years because of fears about economic prospects, says a report by Lloyds Bank. It adds that many businesses are likely to continue shutting down parts of their operations rather than expanding them.

Economic and Financial Outlook, March 1993. Economics Department, National Westminster Bank, 1 Broadgate, London EC2M 2AD.

Economic Bulletin, February 1993. Lloyds Bank, 71 Lombard Street, London EC3P 3BS.

GB United Kingdom, EC P99 Nonclassifiable Establishments P602 Commercial Banks ECON Economic Indicators MKTS Market data P99 P602 The Financial Times London Page 9 338
Risk rises of employment bias Publication 930222FT Processed by FT 930222 By DAVID GOODHART

UNEMPLOYMENT is again increasing much faster among ethnic minority groups. This follows a period in the mid-1980s when the gap between white and ethnic-minority unemployment narrowed, the Commission for Racial Equality says.

The commission's report says that during the mid-1980s ethnic minority unemployment was double that among whites. In the boom years that followed, the gap narrowed to two thirds. The latest Labour Force Survey found that the gap widened again in 1991 for both qualified and unqualified people. 'More recent figures indicate that it is continuing to grow,' the commission says.

'It is difficult to avoid concluding that a significant degree of discrimination lies behind these appalling figures, and this makes it all the more important that the recession should not be used as an excuse to drop equal opportunity measures.'

Commission for Racial Equality (UK) GB United Kingdom, EC P9441 Administration of Social and Manpower Programs PEOP Labour P9441 The Financial Times London Page 9 171
Sacked staff get job-search help Publication 930222FT Processed by FT 930222 By DIANE SUMMERS, Labour Staff

THREE quarters of companies help employees they sack to find new jobs, Cranfield School of Management has found. .

Independent consultants providing 'outplacement' services were the most popular with organisations, particularly for executives being made redundant, the management school's research, published today, indicates. Outside consultants were seen to help improve morale among remaining employees, as well as providing expertise for those seeking jobs, the study found.

More than half of the companies using consultants said there had been a positive effect on public relations. However, there had been little observable effect on the retention of employees or on customer or supplier relations.

Individual counselling was popular for executives being made redundant, while other employees were more likely to be advised in groups. Irrespective of redundancies, more than 65 per cent of organisations provided some sort of career counselling for their staff.

Over half of companies said they would have handled redundancies differently if they had been doing them again. The need to improve communications was most frequently mentioned.

The study of more than 600 companies was carried out by Cranfield for the Institute of Directors and the consultancy Pauline Hyde and Associates. The IoD said it welcomed the evidence that companies were accepting responsibility for managing redundancies effectively and realising that severance pay was no longer enough.

Organisational Perspectives on Outplacement. Human Resources Research Centre, Cranfield School of Management, Bedford MK43 OAL. Pounds 50.

GB United Kingdom, EC P99 Nonclassifiable Establishments MGMT Management PEOP Labour P99 The Financial Times London Page 9 267
Tests to start on power from sea tides Publication 930222FT Processed by FT 930222 By PHILIP RAWSTORNE

A TEAM of energy experts is attempting to use tidal power as a new way of generating electricity without a barrage or engineering works causing extensive environmental damage.

First tests will be made this spring off the west coast of Scotland of an underwater 10kw turbine with a 4-metre rotor driven by the rise and fall of the tides.

The test machine will be anchored to the seabed, and attached to a buoy - the only obvious indication of its presence - containing radio-monitoring equipment.

As the tide sweeps inshore, the current will turn the rotor, just as the wind turns the sails of a windmill, and drive the underwater generator. As the tide goes out, the apparatus will swing around and be driven by the outgoing current.

The Pounds 200,000 pioneer project is being run by a consortium of Scottish Nuclear; IT Power, a research and consultancy company; and NEL, the research organisation that operates the UK wind turbine centre.

If the experiment satisfies the consortium that the technology is worth pursuing, it could lead to the development of larger, commercial tidal current turbines linked by marine cables to the national grid.

Scottish Nuclear IT Power NEL GB United Kingdom, EC P4911 Electric Services P3511 Turbines and Turbine Generator Sets RES Natural resources TECH Research P4911 P3511 The Financial Times London Page 8 241
Homes plan beats target: Scheme to help homeless buys few repossessed houses Publication 930222FT Processed by FT 930222 By ANDREW TAYLOR, Construction Correspondent

A Pounds 750m government programme to buy 20,000 empty properties to house homeless people will almost certainly beat its target, according to figures to be presented to officials this week.

The scheme to help the depressed British housing market, announced in the Autumn Statement in November, is due to finish at the end of next month. Just over half the 16,500 empty properties acquired so far have been bought from recession-hit housebuilders, according to the Housing Corporation, responsible for administering three-quarters of the money.

Two fifths of the homes have been bought on the open market from members of the public. Less than a tenth have been repossessed homes.

The findings will disappoint building societies and banks, which have been struggling to reduce their estimated 65,000 stock of unsold repossessed properties. A total of 200,000 empty homes is estimated to be on the market.

The corporation says many of the repossessed homes offered to housing associations have been in poor condition. Properties must be suitable for immediate occupation if the programme is to be completed in time.

English housing associations under the scheme are to receive Pounds 577m. The rest of the money is to be spread between right-to-buy schemes, local authorities and housing action groups in Wales and Scotland.

Almost three quarters of the English budget is to be spent on properties in the south-east, which has been targeted by the government as the housing market worst hit by the recession.

English associations have so far agreed to 16,500 purchases involving Pounds 530m of grants. They have already exceeded their target of 16,000 homes by the end of March. The final total is likely to be between 17,000 and 17,500, according to the corporation.

Almost 5,000 families and individuals have been housed under the scheme, says the corporation.

GB United Kingdom, EC P9532 Urban and Community Development GOVT Government News P9532 The Financial Times London Page 8 340
Partners make their mark Publication 930222FT Processed by FT 930222 By ANDREW JACK

PARTNERS at Coopers & Lybrand, the UK's largest accountancy firm, have resisted attempts to restrict their involvement in the choice of a new chairman, in a highly unusual exercise of their power.

The firm's governing board earlier this month discussed more democratic selection procedures for the top job, which becomes vacant in May next year. These must now be approved by the elected council in the next few weeks.

The procedures follow a revolt by Coopers' 715 partners, at the annual meeting in Birmingham in December, against attempts to restrict their involvement in the process.

Mr Brandon Gough, the chairman and senior partner, had proposed that partners merely ratify a candidate selected by a nomination committee, which would have included all members of the 13-strongboard selected by him not standing for the post.

Under the revised proposals, a nomination committee of up to 40 people will be elected by all the partners, with only two places reserved for board members, four for partners aged under 40 and several for those from the regions.

All partners will then vote from a shortlist prepared by the committee, at an election likely to take place before December.

One senior partner said that the new chairman might be drawn from outside the partnership, and might even not be a chartered accountant.

He added: 'The candidates must have the attitudes and characteristics that reflect the needs of the business, and will present a plan on how to delegate any elements of their role.'

Coopers and Lybrand Lloyds of London GB United Kingdom, EC P6411 Insurance Agents, Brokers, and Service COMP Company News TECH Services P6411 The Financial Times London Page 8 289
Retailers under assault: The big increase in violence faced by shops Publication 930222FT Processed by FT 930222 By NEIL BUCKLEY and JIMMY BURNS

THE abduction and murder of the Merseyside toddler James Bulger from a shopping centre in Bootle, Merseyside, has focused attention on what retailers say is an increase in violent crime in shops and shopping centres.

The blurred pictures of two boys leading him from the shopping centre - and the enhanced images from the security cameras that prompted a flood of calls from potential witnesses to police when they were shown on television - are testimony to the efforts retailers have made to protect their staff, their customers and their businesses.

Mr Allan Sayers, chief executive of the British Shops and Stores Association which represents 15,000 department stores and retailers, says that while no statistics are available, there is much anecdotal evidence of a rise in threats to and attacks on shoppers and staff.

'Three or four years ago that kind of problem was almost unheard of,' Mr Sayers says. 'It is now causing great concern among retailers.'

Most of the crime, he says, is committed by groups of young people, often unemployed or playing truant from school.

Mr Frank Pegg, of Volumatic Systems, a manufacturer of security devices with 30 years' experience of advising retailers, says the rise in violent crime is 'frightening'. There has been a big increase in armed robberies, attacks and violent vandalism such as ram-raiding. This is in addition to the petty theft that has always plagued retailers.

Home Office statistics show a 9 per cent increase in theft from shops in the year to June 1992. There was a 9 per cent increase in violent crime overall, and a 7 per cent increase in violence against the person.

Marks and Spencer, which is leading a campaign against crime in association with the British Retail Consortium, says crime costs retailers Pounds 2.5bn a year.

'Violent crime is increasing quickest of all,' it says. 'We have had people threatened with everything from knives and syringes to guns.'

Marks and Spencer loses Pounds 30m a year through theft, and is spending Pounds 21m this year on counter-measures. Tesco, the UK's second-largest food retailer, says it is spending 'a very large amount of money' on securing its stores. Only last weekend a customer was wounded during an armed robbery at its store in Wandsworth, south London.

Although video cameras cannot prevent crime, they can help police trace those responsible.

Mr Harold Couch, president of the British Council of Shopping Centres, which represents 900 centres, says the council will revise the guidance notes on safety already prepared by its security committee. Up to now these have dealt mainly with terrorism and bomb scares. He says many shopping malls are safer than traditional high streets because of the presence of security staff and closed-circuit television. 'A well-managed centre, if it sees any undesirables, can get rid of them,' he says.

Surveillance equipment is installed as standard in most new shopping centres, and many older centres and shops are ordering equipment in spite of the recession.

Mr Robert Haymon-Collins, marketing manager at the British Security Industry Association, says: 'Some companies have decided that security is one area they can cut back on. But many others see the benefits of greater investment not less.'

The security industry has grown during the recession. Mr Haymon-Collins says total turnover of member companies grew from Pounds 1.1bn in 1989 to Pounds 1.4bn in 1992. Spending on closed-circuit television equipment rose from Pounds 37m to Pounds 64m.

Mr Mel Jordan, a sales consultant with Visual Information Systems, says retailers use CCTV systems to monitor shops where health and hygiene are important, and to gather market intelligence.

'The camera can capture a shopper picking up a particular item and then maybe discarding it . . . that is useful information to a manager,' he says.

The security industry expects the Merseyside incident to focus the minds of less committed retailers on improving security.

GB United Kingdom, EC P53 General Merchandise Stores P54 Food Stores P56 Apparel and Accessory Stores P57 Furniture and Homefurnishings Stores P59 Miscellaneous Retail P6512 Nonresidential Buildings Operators TECH Safety GOVT Legal issues P53 P54 P56 P57 P59 P6512 The Financial Times London Page 8 713
Closed-circuit Television system Publication 930222FT Processed by FT 930222 By JIMMY BURNS

FROM a control room, Mr Gordon Allanson, manager of the Eldon Square shopping centre in Newcastle upon Tyne, surveys a row of giant television screens, Jimmy Burns writes.

The centre, one of Europe's biggest, spent Pounds 50,000 in 1990 upgrading its closed-circuit television system.

There are 16 cameras continuously recording and monitoring activity in the 17-acre centre, which can have as many as 18,000 people passing through in an hour. At the push of a button cameras can zoom in on an individual and take a colour photograph.

Technology to enhance the quality of the images and the scope of the coverage is used. The closed-circuit television system is supported by an integrated fire and burglary system.

Mr Allanson said the security is a 'customer service' which has helped rather than hindered business. 'People feel more comfortable when they're shopping if they know we are protecting them properly. They don't see the security as a threat.'

A few months ago film and photographs from this system helped convict a gang of 40 on a variety of conspiracy and theft charges, he said.

A combination of human and technological security has led to arrests and convictions in two other recent incidents at the centre - one of breaking and entering and the other an assault on a staff member.

GB United Kingdom, EC P6512 Nonresidential Buildings Operators P7382 Security Systems Services TECH Services P6512 P7382 The Financial Times London Page 8 251
Row over tendering rules spreads Publication 930222FT Processed by FT 930222 By DAVID GOODHART, Labour Editor

THE government yesterday faced conflicting demands to take action in the legal wrangle over whether public-sector workers' pay, conditions and pensions are protected by European law when their jobs are contracted out.

The Public and Local Service Efficiency Campaign (Pulse), which is a supporter of compulsory competitive tendering of public services, insisted that the government should take action against councils that have suspended tendering because of the legal uncertainty.

The government has said that the legislation protecting workers, known as the Transfer of Undertakings Regulations (Protection of Employment) or Tupe, would 'not normally' apply to contracting out. The Department of the Environment has also warned councils that framing contracts to include Tupe would be regarded as anti-competitive.

Yet Pulse says Mr Michael Howard, the environment secretary, is dragging his feet by not taking action against seven councils that have either suspended tendering or stated that Tupe must apply. They are Oxfordshire County Council, Gillingham Borough Council, Rochdale Metropolitan Borough Council, Leeds City Council, Leicestershire County Council, Lancashire County Council and Beverley Borough Council.

In a separate development the Prison Officers Association insisted that, contrary to the widely held view, occupational pensions were not excluded from the protection offered by Tupe.

Two recent industrial tribunal cases - Warrener v Walden Engineering in Hull and Perry v Intec Colleges in Bristol - both found that pension rights were transferred when Tupe applied.

Mr John McMullen, of solicitors Simpson Curtis, said the Warrener case might be overturned at the Employment Appeals Tribunal.

But he pointed to further evidence of courts giving a much broader interpretation than the government of when Tupe applies to contracting-out. The High Court of Ireland, for example, recently ruled that the subcontracting of security services by a shopping centre amounted to a transfer of an undertaking.

Mr McMullen also said that a possible 'acid test' for how generally Tupe applies will be provided in the spring by a European Court ruling on whether the regulations apply to the contracting out of a one-person cleaning service in Christel Schmidt v Spar und Leihkasse der Fruheren Amter Bordersholm.

GB United Kingdom, EC P9199 General Government, NEC PEOP Labour P9199 The Financial Times London Page 7 379
Sir Robin McAlpine dies Publication 930222FT Processed by FT 930222

SIR Robin McAlpine, the civil engineer and chairman of construction company Sir Robert McAlpine from 1967 to 1977, has died aged 86.

He was president of the Federation of Civil Engineering Contractors from 1966 to 1971.

Sir Robert McAlpine and Sons GB United Kingdom, EC P1522 Residential Construction, NEC P1629 Heavy Construction, NEC P1799 Special Trade Contractors, NEC PEOP Personnel News Sir McAlpine, R Chairman Sir Robert McAlpine and Sons P1522 P1629 P1799 The Financial Times London Page 7 90
Capital keeps top banking status Publication 930222FT Processed by FT 930222

LONDON maintained its status as Europe's main financial centre last year with the number of banks leaving the city equalling those moving in.

A survey by Noel Alexander Associates, a financial statistics consultancy, shows that 22 banks moved out of the capital last year while the same number moved in. The number of foreign banks in London totalled 494.

GB United Kingdom, EC P6021 National Commercial Banks COMP Company News P6021 The Financial Times London Page 7 87
Tenth of London shops empty Publication 930222FT Processed by FT 930222

MORE than one in 10 shops in central London's main shopping streets are empty, a survey by Retail Property Research found. The vacancy rate has risen from 8.4 per cent to 10.5 per cent over the past year.

Knightsbridge has the highest vacancy rate with 16 per cent of shop units standing empty, compared with 12.6 per cent a year ago. The western flank of Oxford Street had the lowest vacancy rate at 2.8 per cent.

Central London Shopping. Retail Property Research, 42 Leppoc Road, London SW4 9LT. Pounds 105.

GB United Kingdom, EC P6512 Nonresidential Buildings Operators RES Facilities MKTS Market data P6512 The Financial Times London Page 7 120
Business property revival expected Publication 930222FT Processed by FT 930222 By VANESSA HOULDER

A MODEST revival of investment in the commercial property market is expected in the second half of this year, a survey of institutional investors and property companies has found, Vanessa Houlder writes.

However, the study by Corporate Intelligence Group of 90 investors, owning a total of Pounds 24.4bn of property, found that no significant increase in commercial property values was expected before 1994. One in five investors do not expect any increase in commercial property values before 1995.

Sentiment towards offices had marginally improved during the past nine months, although most respondents believed that office rents would continue to fall this year. Investors' attitude to industrial property had deteriorated over the past nine months, and a growing number expected further decline in rents.

Warehouses are likely to be the most sought-after buildings this year.

Property Investor Intentions Survey. Corporate Intelligence Group, 51 Doughty Street, London WC1N 2LS. Free.

GB United Kingdom, EC P6512 Nonresidential Buildings Operators MKTS Market data P6512 The Financial Times London Page 7 178
Protest call over off-peak trains Publication 930222FT Processed by FT 930222

LABOUR yesterday demanded a 'mighty uproar' from commuters over new fears that off-peak train services might be at risk after rail privatisation.

Mr Brian Wilson, an opposition transport spokesman, said remarks made by a minister meant private operators would be free to abandon loss-making services outside peak hours.

Mr Wilson will challenge the government to reverse what is seen as a breach of pledges already given.

The row erupted after Mr Roger Freeman, the public transport minister, told the Commons standing committee on the railway privatisation bill: 'The number of trains run in the off-peak, their frequency and their attractiveness must depend in the last instance on the views of the operator.'

He also said: 'The concept of peak and off-peak relates primarily to commuting services, including those in the Passenger Transport Executive areas - certainly in London - where little use is made of off-peak services, so it is not reasonable to stipulate hard and fast services.'

Mr Wilson said yesterday: 'Communities which value evening and weekend rail services must make their voices heard sooner rather than later. There must be a mighty uproar from commuter areas to end this threat to off-peak rail services.'

GB United Kingdom, EC P4111 Local and Suburban Transit P9611 Administration of General Economic Programs TECH Services P4111 P9611 The Financial Times London Page 7 231
Conservative Euro-sceptics vow loyalty at by-election Publication 930222FT Processed by FT 930222 By RALPH ATKINS

TORY Euro-sceptic MPs yesterday pledged not to back any anti-Maastricht candidate who stood against an official Conservative in the forthcoming Newbury by-election.

Sir Teddy Taylor, MP for Southend East and an opponent of the Maastricht treaty, described as 'unthinkable' the prospect of supporting anyone other than the official Tory choice.

The by-election has been caused by the death on Friday of Mrs Judith Chaplin, Newbury's Conservative MP, which has reduced the government's Commons' majority to 20 while it is still struggling to get legislation on Maastricht approved.

The row over the treaty will erupt again today when Liberal Democrats press for the attorney-general to make a statement on the government's legal advice concerning the treaty. Later in the day MPs will return to the bill's committee stage.

Lord Tebbit, a former Tory party chairman, yesterday again urged MPs to vote against the government and block Maastricht, saying it need not end parliamentary careers. He said: 'People who have opposed governments find themselves in government. People who support governments sometimes find themselves in the dog-house.'

Tory MPs know, however, that backing an opponent in a by-election would invite expulsion from the party. Sir Teddy said: 'There is no way that we could be part of an attempt to undermine a Conservative candidate.'

One of the Euro-sceptics' unofficial whips at Westminster added: 'I would be totally against it.'

The by-election will nevertheless be a significant test for the government, with the Liberal Democrats expected to mount a strong challenge. Mrs Chaplin had a majority of 12,357 over the Liberal Democrats in April 1992 - smaller than Tory margins overturned by Liberal Democrats in by-elections before the general election in April last year.

The town is typical of many of the Liberal Democrats' most sensational by-election victories.

GB United Kingdom, EC P8651 Political Organizations PEOP Personnel News P8651 The Financial Times London Page 7 325
Kinnock warns over Labour union plan Publication 930222FT Processed by FT 930222 By RALPH ATKINS

MR NEIL KINNOCK, the former Labour leader, warned his successor Mr John Smith yesterday that proposals being floated for creating 'associate membership' of the party for trade union members were unworkable.

An interim report, setting out options for Labour's union links, will be considered by the party's national executive on Wednesday. 'Associate membership' is a possible compromise between ending union involvement and a 'one member, one vote' system.

Mr Kinnock said on BBC television: 'I don't think that you can have a kind of diluted system in which people can exercise the full rights of being members of the Labour party without accepting, at the appropriate rate of subscription, the responsibilities of being members of the Labour party.'

Mr Kinnock, a supporter of 'one member, one vote' for selecting parliamentary candidates, regretted that a decision on Labour's union links had not been taken at last October's party conference.

Labour Party (UK) GB United Kingdom, EC P8651 Political Organizations MGMT Management P8651 The Financial Times London Page 7 182
Tories divided on public deficit Publication 930222FT Processed by FT 930222 By RALPH ATKINS

DIVISIONS among Conservatives over how to curb Britain's public sector borrowing requirement emerged yesterday as the Treasury confirmed that Whitehall departments are studying the impact of a hypothetical cut in spending of up to 5 per cent.

No clear consensus was found in a survey of 106 Conservative MPs for BBC Television - although there was a slight majority of 55 in favour of tax increases. However, 80 said the government needed to take action this year to cut the deficit.

Mr Michael Portillo, Treasury chief secretary, has written to departments as part of this year's public spending review, asking them to calculate the impact of 2 1/2 per cent or 5 per cent cuts in 1994-95 spending.

His letter was described by Whitehall officials as 'routine' and no different from those sent out at the same stage during previous public spending rounds.

Mrs Virginia Bottomley, health secretary, said on BBC Television: 'All spending departments are making sure that they have looked at the options.' However, she reiterated that the Conservative manifesto promise of real increases in spending on the health service would not be breached.

Mr Gordon Brown, Labour's Treasury spokesman, protested that Mr Portillo's letter 'threatens the most serious breach yet of election promises after a precise commitment from the prime minister that spending plans would not be reduced.'

Mr Norman Lamont, the chancellor, faced conflicting calls from Tory MPs as he canvassed opinion ahead of the Budget. The BBC survey showed that among backbench Tories the most popular form of tax rise would be in VAT, which was supported by 54 MPs. An increase in National Insurance contributions was backed by 24, and a rise in income tax by 22.

However, many Tories warned that an increase in income tax would jeopardise economic recovery and undermine the Conservatives' election credibility.

The total of local authority job losses since the beginning of February is 18,534 in 140 authorities, a report published yesterday by Mr Jack Straw, the shadow environment secretary, shows. Mr Straw said that 2,434 job losses were announced in the past week. The report is part of a Labour-commissioned monitoring exercise by the Centre for Local Economic Strategies.

GB United Kingdom, EC P9611 Administration of General Economic Programs P9199 General Government, NEC ECON National income PEOP Labour P9611 P9199 The Financial Times London Page 7 402
Blunkett urges compulsory community service Publication 930222FT Processed by FT 930222 By RALPH ATKINS

COMPULSORY community service for everyone aged under 21 is proposed by a Labour frontbencher to tackle rising crime and unemployment.

The proposals from Mr David Blunkett, shadow health secretary, would mark a significant change of policy direction for Labour towards a scheme similar to National Service without the military component.

It comes as ministers and the opposition call for tougher measures to tackle juvenile crime - and for the government to take responsibility for reinforcing 'social values'.

Mr Kenneth Clarke, home secretary, said yesterday: 'The government has got to give a lead to society.' He told the BBC that 'a loss of a sense of purpose among our younger people' was one cause of rising crime.

Mr Clarke said he is to restructure the police and prison services, give courts power to send juvenile offenders to secure homes, and increase penalties for offences committed by adults on bail.

Yesterday Mr John Major, the prime minister, said in an interview with the Mail on Sunday that 'society needs to condemn a little more and understand a little less'.

Mr Tony Blair, Labour's home affairs spokesman, will also call for tougher penalties for juvenile offenders when he sets out details of his party's revamped crime policies today.

Yesterday he backed Mr Clarke in saying there was a need to 'condemn what is wrong' but also to recognise that the young have to be given 'some stake in society'.

But Mr Blunkett's proposals, set out in a personal submission to Labour's social justice commission reviewing the party's policies, go a step further. He proposes a nine-month period of full-time community service, linked to adult education, for everyone under 21. Participants would be paid a proper wage which would not replace training or education grants. Making the scheme compulsory would prevent it being seen as only for those who failed academically, he says.

Mr Blunkett adds: 'There were some very unfortunate elements of National Service - people were taught to use guns - but I think that the good parts of National Service could be brought to teach people to help each other.'

Mr Blunkett also calls for an investigation into the future of mortgage interest tax relief and housing benefit and proposes the integration of the tax and benefit systems. He says: 'We must look to the future and the technology of the 21st century, rather than the constraints and outdated thinking of the decades already passed.'

GB United Kingdom, EC P9611 Administration of General Economic Programs PEOP Labour P9611 The Financial Times London Page 7 436
London keeps its banking status Publication 930222FT Processed by FT 930222 By SCHEHERAZADE DANESHKHU

LONDON maintained its status as Europe's main financial centre last year with the number of banks leaving the city equalling those moving in.

The latest survey by Noel Alexander Associates, a consultancy which specialises in financial statistics, shows that 22 banks moved out of the capital last year while the same number moved in. The number of foreign banks in London totalled 494.

According to the survey, however, seven of the apparent departures were the result of mergers or restructuring of foreign banks.

European banks accounted for more than half the departures or mergers and US banks for another five. These included the merger of Security Pacific National Bank with Bank of America and that of Manufacturers Hanover Trust with Chemical Bank.

Pressure on US banks has led to a steady decrease in their presence in London from 77 in 1982 down to 45 last year.

For the first time since 1960, the number of Japanese banks in London fell - to 52 last year from 54 with the departure of Nippon Trust and Hyogo banks.

New Foreign Banks in London. Noel Alexander Associates, 6 Broad Street Place, Blomfield Street, EC2M 7JU.

GB United Kingdom, EC P6021 National Commercial Banks COMP Company News P6021 The Financial Times London Page 7 223
MPs to examine PO privatisation Publication 930222FT Processed by FT 930222 By DAVID OWEN

THE COMMONS trade and industry committee is to use an unexpected gap in next month's schedule to interview senior Post Office executives.

Questions from the cross-party body are expected to concentrate on the Post Office's possible privatisation and on the findings of an EC green paper on European postal services. The intention is to raise any points it is thought necessary to follow up with ministers at a later date.

The move comes amid mounting speculation concerning the government's plans for the future ownership of the Post Office. Privatisation of it as a single unit is thought to be increasingly favoured in Whitehall. The government is so far committed only to selling the parcels division.

Mr Malcolm Bruce, Liberal Democrat trade and industry spokesman, has added his voice to the debate, saying the best solution would be an 'autonomous' Post Office corporation based on the French model, with taxpayers as shareholders.

He added: 'Ideally the Post Office should not be privatised at all.'

The Post Office has been profitable without subsidy for 16 years, making a net profit last year of Pounds 152m on turnover of Pounds 5.1bn. However, a conventional share flotation could raise Pounds 2bn at a time of escalating public sector borrowing.

The gap in the committee's schedule arose with the postponement of a session with Mr Michael Heseltine, trade and industry secretary, because of the crisis over the government's pit closure plans.

Post Office GB United Kingdom, EC P4311 U S Postal Service P4212 Local Trucking, Without Storage P6011 Federal Reserve Banks PEOP Labour COMP Company News GOVT Government News P4311 P4212 P6011 The Financial Times London Page 7 286
Privatising British Rail Publication 930222FT Processed by FT 930222 By DAVID OWEN

FRESH momentum is likely to be injected next month into the government's rail privatisation programme when British Rail expects to issue a memorandum of sale for its Red Star express parcels service, David Owen writes.

The move will come eight months after the government announced its intention to sell the business.

It made the announcement just before parliament rose for the 1992 summer recess. Mr John MacGregor, the transport secretary, told last year's Conservative party conference in Brighton that the government anticipated concluding a deal this year.

The government is free to authorise the sale of Red Star without legislation because the unit is not part of BR's core business.

British Rail Red Star GB United Kingdom, EC P4215 Courier Services, Ex by Air COMP Company News P4215 The Financial Times London Page 7 146
Food prices remain stable Publication 930222FT Processed by FT 930222 By GUY DE JONQUIERES, Consumer Industries Editor

ALTHOUGH sterling's devaluation has increased the cost of many imported products, it has yet to feed through into higher retail prices for many popular products sold in British supermarkets.

A survey carried out for the Financial Times by AC Nielsen, the market research group, shows that the prices of a range of popular consumer goods have remained remarkably stable since the pound left the European exchange rate mechanism.

A comparison made last month of 45 'Euro-brands', sold in at least three other large European countries, found that none had risen in price in the UK by more than 1 per cent since August, while 16 have become slightly cheaper.

Another Nielsen survey, of 31 product categories, found that in 17 of them the price of the brand leader had fallen in the past six months. In the case of shampoo, mineral water, pasta sauces, disposable nappies and toilet tissues, the fall was as much as 7 per cent.

The biggest price increases were for canned salmon, baked beans, sliced cooked meats and mayonnaise, which rose by between 9 per cent and 23 per cent. The prices of most other goods were almost unchanged.

This stability suggests that the recession and weak demand are leading many large manufacturers of consumer goods to put a higher priority on preserving market share than on recouping cost increases caused by devaluation.

For most brand leaders, the keenest competition comes not from other manufacturers' brands but from retailers' own-label products, which usually sell more cheaply.

Sales of some categories of own-label goods have grown strongly during the recession, as consumers have 'traded down' from dearer alternatives.

However, in several cases - notably nappies, tampons, canned fruits, pasta sauces, breakfast cereals and hosiery - the difference in prices has been narrowed significantly since August by falls in the prices of brand leaders and increases for own-label products.

The main exceptions to this pattern are detergents, fruit juices, bleach and tea, where the branded/own-label gap has widened.

In some categories, prices have shown they can also move sharply from month to month in response to competitive conditions.

For instance, the prices of hosiery, carbonated drinks and toilet tissues - none of them seasonal items - were higher in November than now.

------------------------------------------------------------------------ HOW UK PRICES COMPARE ------------------------------------------------------------------------ A B A as UK price Price in dearest percent in ECU European country of B* ------------------------------------------------------------------------ Kelloggs Cornflakes, 500gm 1.15 3.18 (Greece) 64 Pedigree dog food, 400gm can 0.48 1.33 (Finland) 36 Nescafe, 100gm 1.69 3.87 (Denmark) 44 Kit-Kat, 4-finger pack 0.27 0.67 (Spain) 40 Ariel washing powder E3 1.72 4.14 (Netherlands) 42 Pampers Ultra Maxi (pack of 40) 7.95 12.61 (Netherlands) 63 TDK videotape (VHS180 Hi-grade) 3.69 9.39 (Finland) 39 Palmolive handwash liquid, 500ml 0.73 1.86 (Ireland) 39 ------------------------------------------------------------------------ Source: Nielsen ------------------------------------------------------------------------ *UK price as per cent of prices in dearest European country ------------------------------------------------------------------------

GB United Kingdom, EC P20 Food and Kindred Products P2676 Sanitary Paper Products P2844 Toilet Preparations P2841 Soap and Other Detergents P23 Apparel and Other Textile Products MKTS Market data COSTS Costs & Prices P20 P2676 P2844 P2841 P23 The Financial Times London Page 7 537
No shortage in school governors Publication 930222FT Processed by FT 930222

THE government's policy of giving greater power to school governors has been boosted by a survey which shows no shortage of people standing for election as governors.

About half of the 300,000 governors' posts were up for election last year and the education department says that about half those whose terms ended stood for re-election. In spite of fears of a shortage of candidates, most of the 75,000 other vacancies were also filled.

GB United Kingdom, EC P8211 Elementary and Secondary Schools P9411 Administration of Educational Programs PEOP Personnel News P8211 P9411 The Financial Times London Page 7 108
Business property revival expected Publication 930222FT Processed by FT 930222 By VANESSA HOULDER

A MODEST revival of investment in the commercial property market is expected in the second half of this year, a survey of institutional investors and property companies has found, Vanessa Houlder writes.

However the study by Corporate Intelligence Group of 90 investors, owning a total of Pounds 24.4bn of property, found that no significant increase in commercial property values was expected before 1994. One in five investors do not expect any increase in commercial property values before 1995.

Sentiment towards offices had marginally improved over the past nine months, although most respondents believed that office rents would continue to fall this year. Investors' attitude to industrial property had deteriorated over the past nine months, and a growing number expected further decline in rents.

Warehouses are likely to be the most sought-after buildings this year.

Property investment yields are generally expected to stay level or fall over the next year. About half the investors expected retail yields to level or harden over the next year, while the majority expected office, industrial and business space yields to remain at current levels.

Property Investor Intentions Survey, Corporate Intelligence Group, 51 Doughty Street, London WC1N 2LS. Free.

GB United Kingdom, EC P6512 Nonresidential Buildings Operators MKTS Market data P6512 The Financial Times London Page 7 223
ANC sanctions plea until poll date set Publication 930222FT Processed by FT 930222 By PATTI WALDMEIR JOHANNESBURG

THE African National Congress yesterday relaxed its policy on economic sanctions against South Africa, but said sanctions should remain until a date is set for multi-racial elections.

This cannot be done until multi-party negotiations yield agreement on a range of difficult issues, including basic principles for a new constitution, the re-incorporation of nominally independent black homelands and multi-party control of the security forces.

Agreement on an election date is likely to take several months, although swift progress in multi-party talks, due to begin next month, could bring agreement sooner.

The ANC yesterday imposed several linked conditions for the lifting of sanctions, apart from an election date: a multi-party council must be established to oversee the government, with subsidiary councils to supervise elections and the state-run broadcasting corporation, and the existing constitution must be amended.

Once these steps are taken, the ANC would call for trade, investment, financial and diplomatic sanctions to be lifted, but the international arms and oil embargoes would remain in place.

Such a move would boost the business mood in South Africa, but would have little effect on private investment, with domestic and foreign investors more concerned about prospects for political stability and economic discipline under a multi-racial government.

A resumption of lending by multilateral financial institutions such as the World Bank and International Monetary Fund would be the biggest benefit from an end to sanctions.

The IMF might make funds available immediately through its compensating financing facility, designed to reimburse member countries for an unexpected shortfall in export receipts or for a rise in imports.

However, South Africa could not seek balance of payments support until its current account was in deficit. It was around R4.5bn (Pounds 1bn) in surplus last year.

Since the mid-1980s, South Africa has been forced to run a substantial current account surplus to cover foreign debt repayments, since international banks halted new lending to the republic. Capital outflows since 1985 have totalled over R40bn.

ANC officials hope that lifting sanctions would prompt a surge of foreign investment and boost its chances of victory in the first multi-racial elections.

At the weekend, ANC leader Nelson Mandela appealed for R130m for the organisation's election campaign.

Meanwhile, Mr FW de Klerk, the President, tried to tackle his government's racist image in advance of elections, by appointing two coloureds (mixed race) and one Indian to his cabinet in minor positions.

However he also appointed a noted hardliner, Mr Kobie Coetzee, to the sensitive position of Minister of Defence.

African National Congress (South Africa) ZA South Africa, Africa P86 Membership Organizations P9611 Administration of General Economic Programs GOVT Government News P86 P9611 The Financial Times London Page 6 459
Spectre of 1990 poll haunts Hewson: Australia's opposition may yet fail to oust Labor Publication 930222FT Processed by FT 930222 By KEVIN BROWN

TWO weeks into Australia's five-week federal election campaign, the conservative opposition parties are increasingly confident of ending a decade of Labor rule.

Buoyed by an unexpectedly strong performance by Mr John Hewson, the opposition leader, the Liberal/National Party coalition has built up a lead of 6-12 percentage points in the opinion polls.

At face value, the polls suggest a comfortable margin for the coalition, which requires a uniform national swing of only 0.9 per cent on March 13 to win the six seats needed to take power.

But, as polling day draws nearer, detailed local polling suggests that the gap is much smaller in marginal seats that will decide the election.

That raises the uncomfortable prospect for the conservatives of a repeat of the 1990 election, when the coalition won the biggest share of the popular vote, but failed to win enough seats to take power.

The key to victory lies in about 20 marginal constituencies, many of which are being fought on local issues that tend to insulate voters from the national trend.

The government is weakest in Western Australia, where it holds four seats by majorities of less than 2.5 per cent; South Australia, where it would lose four seats on a swing of 3.8 per cent; and the sugar belt of northern New South Wales and Queensland, where it holds six seats by margins of less than 5 per cent.

Mr Paul Keating, the prime minister, can do little to defend the Western Australian seats except hope that the defeat of a Labor state government earlier this month has assuaged voters' anger against the party.

However, Labor is fighting hard in the sugar belt, where it has offered to exempt sugar farmers from its tariff reduction proposals for the duration of the next parliament.

The coalition, which also holds a highly marginal sugar belt seat, has matched the government's offer with a ADollars 145m (Pounds 69m) package designed to compensate for its own proposed tariff cuts.

Mr Keating tried last week to shore up Labor support in South Australia by offering ADollars 600m in federal funds to rescue the state Labor government from the financial consequences of a ADollars 3bn loss by a state-owned bank.

However, the critical battle will be fought in the conservative-controlled states of New South Wales, Tasmania and Victoria, where the conservatives are defending six seats with majorities of less than 3.3 per cent.

Labor's chief hope is in Victoria, where the party lost heavily in 1990, and was defeated in a state election in October. Government strategists believe the conservative vote in the state may have peaked.

An analysis of local opinion polls published in The Age newspaper in Melbourne concluded that Labor would benefit from a swing of between 0.5 per cent and 3 per cent on present voting intentions, which could translate to a gain of three or more seats.

If the coalition does well elsewhere, Victoria will not matter. But in a close election, Labor gains in the state could keep the conservatives out of office, or reduce the size of their majority in the House of Representatives.

That would be a severe blow for the coalition, which is relying on the moral authority of a substantial majority to force controversial legislation through the Senate.

Unlike the House, the Senate is elected by proportional representation, which usually delivers the balance of power to the Australian Democrats, a populist left-wing party which has never won a House seat.

Senator John Coulter, leader of the Democrats, says the party will oppose key conservative proposals to expand private health insurance, deregulate the industrial relations system and introduce a goods and services tax.

Unless Senator Coulter backs down, that would ensure that large parts of the conservative agenda would be blocked, leaving Mr Hewson with little choice other than to seek the dissolution of both houses and a second election.

Many Australians, already grumbling about compulsory voting every three or four years, would regard that as the worst outcome of all.

Labour Party (Australia) Liberal Party (Australia) National Party (Australia) AU Australia P9121 Legislative Bodies CMMT Comment & Analysis P9121 The Financial Times London Page 6 716
The importance of picking the right inflation target Publication 930222FT Processed by FT 930222 By EDWARD BALLS

BRITAIN'S membership of the European exchange rate mechanism may have delivered painfully high interest rates, an uncompetitive exchange rate and a deeper recession than the government needed in order to control inflation. But it did have the advantage of simplicity. Monetary policy-making outside the ERM may be less painful; but, as the Bank of England's extensive inflation report demonstrates, it is much more complicated.

In the ERM, the UK government's monetary policy was largely determined by the need to keep the exchange rate within its target zone, assuming this delivers low and stable inflation. But chastened by its ERM experience, and the failure of domestic money targeting in the early 1980s, the government now appears to have abandoned intermediate monetary targets altogether. Instead it has adopted an explicit inflation target, the annual rate of retail price inflation excluding mortgage interest payments, which the Treasury aims to keep within a 1-4 per cent range.

The Bank of England, like the Treasury, appears in no mood to advocate a return to domestic monetary targeting. 'Inflation is a a monetary phenomenon,' the Bank confirms in language reminiscent of the writings of the monetarist guru and Chicago University economics professor Milton Friedman. But 'the lags between changes in monetary policy and changes in inflation are known only imprecisely, and will vary with the state of the cycle'. The current erratic behaviour of monetary aggregates merits only a little over one page in the Bank's 45-page report.

Nor is the Bank willing to view the government's inflation target as a simple guide to policy. It makes sense, the report suggests, to announce an inflation target in order to guide expectations and to provide a means of assessing past performance. But 'monetary policy is set in relation not to the current rate of inflation but to inflationary trends over the next year or two'. The fact that underlying inflation rate is currently within its target range makes little difference to this judgment.

The Bank also counsels against placing undue emphasis on the government's chosen inflation measure out of the many other inflation indicators that could have been picked. If all prices were to rise at the same rate, the Bank says, then there would be no ambiguity about the measurement of inflation. But relative prices change all the time. So while one price index is needed for assessing performance, and the underlying RPI is 'as good as any, and better than most', it would be 'unwise to rely on any single index as the only guide to inflationary trends in the economy'.

Sterling's recent devaluation does, in fact, make it particularly important that movements in the underlying rate of retail price inflation are not the main guide to monetary policy. The devaluation will inevitably lead not only to higher import prices but also to a higher aggregate price level, and thus temporarily faster inflation, than would otherwise have been the case. What matters is that this rise in aggregate prices occurs through a rise in the prices of traded goods, largely manufactures, relative to non-traded goods in order to increase the profit margins of exporters and help close the trade deficit.

This shift in relative prices is already under way. The left-hand chart tracks the squeeze on manufacturing export profit margins over the past seven years, the combination of sterling's appreciation and the poor state of the world economy. But last autumn's devaluation means that exporters have been able to raise the sterling prices of their goods, as the middle chart shows, which should increase export profit margins and volumes.

Unless, that is, the rise in producer prices leads to higher wage inflation, thereby preventing the change in relative prices by spreading the increase in aggregate prices to non-traded goods as well. Wage settlements are currently depressed, largely because of the persisting recession. A rise in wage inflation, not the underlying RPI, should be the government's first serious inflationary danger signal.

------------------------------------------------------------------------ INTERNATIONAL ECONOMIC INDICATORS: PRICES AND COMPETITIVENESS ------------------------------------------------------------------------ Yearly figures are shown in index form with the common base year of 1985. The real exchange rate is an index throughout; other quarterly and monthly figures show the percentage change over the corresponding period in the previous year and are positive unless otherwise stated. ------------------------------------------------------------------------

UNITED STATES ------------------------------------------------------------------------ Unit Real Consumer Producer labour exchange prices prices Earnings costs rate ------------------------------------------------------------------------ 1985 100.0 100.0 100.0 100.0 100.0 1986 101.9 98.6 102.2 99.4 76.5 1987 105.6 100.7 103.8 96.7 65.4 1988 109.9 103.2 106.9 98.1 61.8 1989 115.2 108.5 110.0 98.9 65.5 1990 121.5 113.8 113.8 100.9 60.9 1991 126.6 116.3 117.3 103.5 1992 130.4 117.7 120.1 103.1 1st qtr. 1992 2.9 0.4 2.6 -0.1 2nd qtr. 1992 3.1 1.3 2.9 -0.5 3rd qtr. 1992 3.1 1.6 2.3 -0.2 4th qtr. 1992 3.0 1.5 2.0 -1.0 February 1992 2.8 0.6 3.5 -0.1 na March 3.2 1.1 2.6 -0.7 na April 3.2 1.1 3.4 -0.6 na May 3.0 1.1 2.6 -0.7 na June 3.1 1.6 2.6 -0.3 na July 3.2 1.7 1.7 -0.2 na August 3.2 1.6 2.6 -0.4 na September 3.0 1.6 2.5 0.0 na October 3.2 1.7 1.7 -0.5 na November 3.0 1.3 1.7 -0.9 na December 2.9 1.6 2.5 -1.2 na January 1993 3.3 1.8 na ------------------------------------------------------------------------

JAPAN ------------------------------------------------------------------------ Unit Real Consumer Producer labour exchange prices prices Earnings costs rate ------------------------------------------------------------------------ 1985 100.0 100.0 100.0 100.0 100.0 1986 100.8 95.3 101.4 103.3 131.0 1987 101.2 92.5 103.1 100.6 131.6 1988 102.2 92.3 107.8 96.2 140.3 1989 104.9 94.2 114.0 96.1 132.2 1990 108.2 95.7 120.1 98.2 114.8 1991 111.8 97.3 124.4 101.6 1992 113.9 1st qtr. 1992 2.1 -0.6 2.5 8.2 2nd qtr. 1992 2.6 -0.7 2.4 8.7 3rd qtr. 1992 2.0 -0.8 1.0 8.7 4th qtr. 1992 0.9 February 1992 2.2 -0.6 1.2 6.9 na March 2.1 -0.7 1.7 9.8 na April 2.8 -0.7 1.3 8.7 na May 2.3 -0.7 1.1 11.8 na June 2.5 -0.7 3.8 5.7 na July 2.0 -0.7 2.3 8.8 na August 1.8 -0.8 -1.5 11.4 na September 2.2 -0.7 1.4 5.8 na October 1.2 -0.8 1.5 8.6 na November 0.6 -0.9 1.5 9.4 na December 0.9 na January 1993 1.0 na ------------------------------------------------------------------------

GERMANY ------------------------------------------------------------------------ Unit Real Consumer Producer labour exchange prices prices Earnings costs rate ------------------------------------------------------------------------ 1985 100.0 100.0 100.0 100.0 100.0 1986 99.9 97.5 103.8 103.8 110.2 1987 100.1 95.1 108.0 107.1 123.9 1988 101.4 96.2 113.0 106.8 125.3 1989 104.2 99.3 117.3 107.9 121.0 1990 107.0 101.0 123.8 110.4 125.0 1991 110.7 103.4 131.8 114.9 1992 115.1 104.8 1st qtr. 1992 4.3 2.0 na 4.5 2nd qtr. 1992 4.5 2.0 na 3.8 3rd qtr. 1992 3.5 1.0 na 6.1 4th qtr. 1992 3.7 0.5 na February 1992 4.3 2.0 3.6 na March 4.8 2.5 5.4 na April 4.6 1.9 5.4 na May 4.6 2.0 1.7 na June 4.2 2.0 4.3 na July 3.3 1.1 8.9 na August 3.5 1.1 5.2 na September 3.6 0.8 4.3 na October 3.7 0.5 7.8 na November 3.7 0.5 9.4 na December 3.7 0.5 na January 1993 4.4 0.8 na ------------------------------------------------------------------------

FRANCE ------------------------------------------------------------------------ Unit Real Consumer Producer labour exchange prices prices Earnings costs rate ------------------------------------------------------------------------ 1985 100.0 100.0 100.0 100.0 100.0 1986 102.5 97.2 104.5 101.5 102.3 1987 105.9 97.8 107.8 103.0 102.6 1988 108.8 102.8 111.1 104.3 96.3 1989 112.6 108.4 115.4 105.5 92.3 1990 116.4 107.1 120.6 110.0 95.7 1991 120.0 105.8 125.8 114.0 1992 123.3 1st qtr. 1992 3.1 -3.0 na 1.8 2nd qtr. 1992 3.1 -1.1 na 2.6 3rd qtr. 1992 2.7 -0.9 na 4th qtr. 1992 2.2 na February 1992 3.0 na - na na March 3.2 na 3.6 na na April 3.1 na - na na May 3.1 na - na na June 3.0 na 3.8 na na July 2.9 na - na na August 2.7 na - na na September 2.6 na 3.5 na na October 2.4 na - na na November 2.1 na - na na December 2.0 na na na January 1993 na na na ------------------------------------------------------------------------

ITALY ------------------------------------------------------------------------ Unit Real Consumer Producer labour exchange prices prices Earnings costs rate ------------------------------------------------------------------------ 1985 100.0 100.0 100.0 100.0 100.0 1986 106.1 100.2 104.8 102.7 101.5 1987 111.0 103.2 111.6 105.5 102.3 1988 116.5 106.8 118.4 109.7 101.6 1989 124.2 113.1 125.6 112.4 107.2 1990 131.8 117.8 134.7 118.9 113.7 1991 140.3 121.7 147.9 131.3 1992 147.7 1st qtr. 1992 5.6 1.4 9.2 3.2 2nd qtr. 1992 5.5 2.0 6.0 5.0 3rd qtr. 1992 5.2 1.9 3.7 4th qtr. 1992 4.8 February 1992 5.3 1.5 9.1 na na March 5.5 1.4 9.1 na na April 5.5 1.8 8.8 na na May 5.7 2.1 4.6 na na June 5.4 2.1 4.7 na na July 5.4 1.9 4.0 na na August 5.2 1.9 3.5 na na September 5.1 1.9 3.7 na na October 4.9 2.0 4.1 na na November 4.8 2.2 2.1 na na December 4.6 na na January 1993 4.2 na na ------------------------------------------------------------------------

UNITED KINGDOM ------------------------------------------------------------------------ Unit Real Consumer Producer labour exchange prices prices Earnings costs rate ------------------------------------------------------------------------ 1985 100.0 100.0 100.0 100.0 100.0 1986 103.4 104.3 107.7 104.5 93.3 1987 107.7 108.3 116.3 105.9 91.3 1988 113.0 113.2 126.2 108.9 97.5 1989 121.8 119.0 137.2 113.6 96.4 1990 133.3 126.0 150.1 123.2 102.3 1991 141.2 133.0 162.4 132.6 1992 146.4 138.0 173.1 135.0 1st qtr. 1992 4.1 4.5 8.6 4.1 2nd qtr. 1992 4.2 3.6 5.9 1.6 3rd qtr. 1992 3.6 3.5 6.2 1.8 4th qtr. 1992 3.0 3.4 5.7 0.0 February 1992 4.1 4.4 7.8 2.3 na March 4.0 4.5 10.3 5.2 na April 4.3 3.8 5.0 0.0 na May 4.3 3.5 7.0 2.7 na June 3.9 3.6 5.9 2.0 na July 3.7 3.6 6.2 3.0 na August 3.6 3.4 6.5 1.7 na September 3.6 3.4 5.7 0.7 na October 3.6 3.3 6.3 0.3 na November 3.0 3.3 5.6 0.2 na December 2.6 3.5 5.4 -0.5 na January 1993 1.7 3.5 na ------------------------------------------------------------------------

Statistics for Germany apply only to western Germany. Data supplied by Datastream and WEFA from national government and IMF sources. Consumer prices: not seasonally adjusted. Producer prices: not seasonally adjusted, US - finished goods, Japan - manufactured goods, Germany - industrial products, France - intermediate goods, Italy - total producer prices, UK - manufactured products. Earnings index: not seasonally adjusted, refers to earnings in manufacturing except France and Italy (wage rates in industry). Hourly except Japan (monthly) and UK (weekly). Unit labour costs: seasonally adjusted, measured in domestic currencies. Germany and manufacturing, other countries - manufacturing industry. Real exchange rate: IMF real effective exchange rate based on relative unit labour costs (non-normalised). A fall in the index indicates improved international competitiveness.

XA World GB United Kingdom, EC P96 Administration of Economic Programs P9611 Administration of General Economic Programs STATS Statistics ECON Economic Indicators P96 P9611 The Financial Times London Page 6 1803
Row over deportees dogs Christopher tour Publication 930222FT Processed by FT 930222 By MARK NICHOLSON CAIRO

MR Warren Christopher, US secretary of state, carried his listening tour of the Middle East from Damascus to Riyadh yesterday, having heard Jordanian and Syrian assurances of their resolve to continue the faltering peace process.

But leaders in both countries stressed that Israel's deportation of Palestinians continued to obstruct a return to the talks, adjourned since mid-December.

Mr Christopher said after meeting President Hafez al-Assad that the Syrian leader had 'emphasised his commitment to the process of direct negotiations' in the peace talks.

King Hussein of Jordan told Mr Christopher on Saturday that he was anxious to return to the talks, but the continued exile of the Palestinians deported by Israel two months ago remained an obstacle. Mr Farouq al-Sharaa, Syrian foreign minister, made a similar statement on Mr Christopher's arrival in Damascus. The peace talks remained the sole option for countries in the region. 'What is the alternative except disaster?' he asked. 'Hopefully the obstacles can be removed from our path.'

Mr Al-Sharaa told reporters he had advanced some new ideas to help resolve the impasse over the deportees, although he refused to give details. 'We shall work together to have the peace talks resume in a convenient and admirable atmosphere.'

US officials have repeatedly stated that the secretary of state has no immediate plans to resolve the stalemate over the deportees. Officials travelling with Mr Christopher said he would, at best, gently encourage Israel to speed up a judicial review of the deportees' cases.

Mr Christopher said over the weekend that he stood by a formula worked out between Israel and the US whereby Israel would take back 101 of the 396 men immediately and the rest within a year. Arab parties to the peace talks have rejected this.

Mr Christopher flew last night to Saudi Arabia for a brief visit before he travels to Kuwait, where talks are more likely to focus on Gulf security issues than on the peace process.

US United States of America XN Middle East P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 5 360
Inter-religious forgiveness is just not cricket: Sectarian intolerance which has swept through India is echoed on Bombay's playing fields Publication 930222FT Processed by FT 930222 By STEFAN WAGSTYL BOMBAY

THE recent inter-religious violence which tore through Bombay seemed to be forgotten at the weekend as Hindu and Moslem cricket fans flocked to the city's Wankhede stadium and united to support India against England.

But even in the brilliant sunshine, dark reminders of the anger simmering in Bombay were never far away. Like the city itself, cricket in Bombay is falling prey to intolerance.

Shiv Sena, the local militant Hindu party whose supporters were among the bloodiest participants in the recent riots, rules the roost at the cricket ground. Mr Manohar Joshi, president of the Bombay Cricket Association and host for the test match, is also a deputy leader of Shiv Sena. Mr Bal Thackeray, the Shiv Sena leader who has often expressed his appreciation for Adolf Hitler's 'patriotism', is a frequent guest in the committee box.

The city bore the brunt of the violence which hit India after Hindu militants, including many from Bombay, destroyed the Ayodhya mosque in early December.

Today, a month after the unrest reached its bloody climax, much of India's commercial capital has returned to normal life. But the fears fanned by Shiv Sena and other Hindu and Moslem extremist organisations persist.

Mr Joshi, a life-long cricket fan, was elected president last year after Shiv Sena supporters broke into the Wankhede stadium and vandalised the wicket to force the cancellation of a match between India and Pakistan. Pakistan drew Shiv Sena's ire both because it is Moslem and because of the support it gives to rebel movements in the north Indian state of Kashmir.

Mr Joshi shows no remorse for the attack on the pitch, nor is he in any mood to let Pakistan play in the future.

Even though India, Pakistan and Sri Lanka have just won the right jointly to stage the next cricket World Cup, Mr Joshi will not promise to let Pakistan play in Bombay. 'It will all depend on the political situation,' he says with a thin smile.

The soft-spoken Mr Joshi has an unsettling way with words. At one moment he praises Mohammed Azharuddin, India's Moslem cricket captain, and says: 'I love my (Indian) Moslem brothers.' At another he says India's Moslems should be shorn of their privileges, such as the right to their own family law.

The widely held belief that Shiv Sena organised anti-Moslem violence is dismissed as 'propaganda'.

There are Moslem extremist groups as virulent as Shiv Sena, such as Jamaat-e-Islami, but outside Kashmir they attract little support and carry virtually no political weight. Shiv Sena matters; together with the Bharatiya Janata party, the national Hindu militant grouping, it controls 100 of 252 seats in the state assembly of Maharashtra, which includes Bombay.

The ruling Congress (I) party is struggling to keep its majority intact.

A few liberal Bombay citizens are prepared to stand up publicly to Mr Joshi and Shiv Sena, among them Mr P. Sainath, a local magazine editor who has organised a support fund for journalists who suffered losses in the violence. 'We must fight Shiv Sena. Look what it has done to our city,' he says.

Many more prefer to express their condemnations of Shiv Sena in private - for fear of reprisals. In public they limit themselves to decrying violence and to contributing to charities aiding the victims.

Bombay's political leaders have failed to orchestrate any campaign against Shiv Sena. Since the riots ended the Congress (I) party has been locked in an internal dispute in which Mr Sudhakarrao Naik, the chief minister, is pitted against Mr Sharad Pawar, the national defence minister, whose power base is in Bombay. Each is trying to push responsibility for the riots on to the other.

The absence of any strong political call for the defence of the city's cosmopolitan traditions has left many Bombay residents confused.

Among the elite there is a reluctant but growing willingness to side with Shiv Sena and the BJP, if only because their views are clear. 'People say: 'At least we know where we stand with them',' says one retired Hindu academic. 'Congress offers no alternative.'

Some liberals are close to despair.

One leading industrialist says: 'I see parallels with Germany in the 1930s. People who say the BJP is not so bad are like the Jews who said they were too rich and powerful for Hitler to hurt them.'

But others see such fears as exaggerated. 'To make comparisons with Germany is complete rubbish,' another industrialist says. But he, like the first, prefers not to have his name appear in print.

'It's difficult. These people (militants such as Shiv Sena) are so unpredictable.'

IN India, Asia P9229 Public Order and Safety, NEC PEOP Personnel News P9229 The Financial Times London Page 5 812
Senegal poll violence claims 26 Publication 930222FT Processed by FT 930222 By REUTER DAKAR

Voting began yesterday in Senegal's presidential election, with separatist violence claiming 26 lives, Reuter reports from Dakar.

Twenty people were killed when a truck carrying voters of the ruling Socialist party hit a landmine in the troubled southern Casamance province. The explosion came just 24 hours after six people were killed when rebels ambushed a taxi in the same area.

Political analysts say President Abdou Diouf is tipped to win, but the race will probably be close. The spread of candidates and new rules will probably mean a run off on March 7.

Socialist Party (Senegal) SN Senegal, Africa P8651 Political Organizations P9229 Public Order and Safety, NEC PEOP Personnel News P8651 P9229 The Financial Times London Page 5 133
Philippine minister offers to quit Publication 930222FT Processed by FT 930222 By JOSE GALANG MANILA

Mr Rafael Alunan, Philippine secretary of the interior and local government whose jurisdiction includes the scandal-tainted Philippine National Police, offered his resignation yesterday, writes Jose Galang from Manila.

Mr Alunan's move came three days after Mr Fidel Ramos, the Philippine president, called for the resignation of police officers who had earlier been relieved of field assignments or accused of corruption or incompetence. However, Mr Alunan's offer is unlikely to be accepted.

PH Philippines, Asia P9111 Executive Offices PEOP Personnel News GOVT Legal issues Alunan, R Secretary of the Interior (Philippines) P9111 The Financial Times London Page 5 112
South Korean premier named Publication 930222FT Processed by FT 930222 By REUTER SEOUL

South Korean President-elect Kim Young-sam yesterday named Mr Hwang In-sung, a top party official, to become prime minister when the new administration takes over on Thursday, Reuter reports from Seoul.

Mr Hwang, 67, a former army general, has been the chief policy maker of the ruling Democratic Liberal party since early last year. He served as minister of transport and agriculture under President Chun Doo Hwanin in the 1980s.

KR South Korea, Asia P91 Executive, Legislative and General Government PEOP Appointments In Sung, H Prime Minister (South Korea) P91 The Financial Times London Page 5 108
Poland cuts key interest rate Publication 930222FT Processed by FT 930222 By CHRISTOPHER BOBINSKI WARSAW

Poland's central bank, the NBP, has cut its basic refinancing interest rate by three points to 35 per cent, writes Christopher Bobinski from Warsaw.

The move reflects optimism about an expected 2 per cent GDP growth in the economy this year and a lower inflation rate, projected at 32 per cent. Mrs Hanna Gronkiewicz Walc, NBP chairman, expects Polish banks to reduce their lending rates, which currently range between 40 per cent and 60 per cent.

The refinancing rate is used by the NBP to lend money to government-funded investment projects and is regarded as the marker for the banking system.

PL Poland, East Europe P601 Central Reserve Depositories P9311 Finance, Taxation, and Monetary Policy ECON Gross domestic product P601 P9311 The Financial Times London Page 5 141
Surprise visit to Iraq by UN weapons team Publication 930222FT Processed by FT 930222 By REUTER BAHRAIN

THE United Nations yesterday announced a surprise weapons inspection visit to Iraq, disclosing that experts would fly in at dawn today, Reuter reports from Bahrain.

'We have a certain operation ahead of us,' Mr Nikita Smidovitch, the team leader, said last night, nine hours before a UN aircraft was due to leave for Baghdad. But he would not elaborate on the objectives of the visit.

Another team of UN inspectors already in Baghdad extended its stay beyond the planned departure date yesterday, after saying it had gathered fresh information on Iraq's ballistic missile programme. UN officials in Bahrain said that team was likely to stay at least until tomorrow. Mr Smidovitch insisted there was no link between the two visits.

IQ Iraq, Middle East P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 5 153
Five die in Senegal poll violence Publication 930222FT Processed by FT 930222 By REUTER DAKAR

Voting began yesterday in Senegal's presidential election, with separatist violence in the south claiming five more lives, Reuter reports from Dakar.

The rebel Movement of Democratic Forces of Casamance (MFDC) has vowed to disrupt all political activity in Casamance province, which is practically cut off from the rest of Senegal by Gambia. At least 140 people have been killed since the MFDC stepped up its decade-old rebellion last September. Elsewhere, campaigning has been peaceful.

Political analysts say President Abdou Diouf is tipped to win, but the race will probably be close. The spread of candidates, and a new stipulation that the winner must be backed by at least a quarter of the 2.5m registered voters, will probably mean a run off on March 7.

SN Senegal, Africa P9229 Public Order and Safety, NEC P9111 Executive Offices GOVT Government News GOVT Legal issues P9229 P9111 The Financial Times London Page 5 164
Philippine minister offers to quit Publication 930222FT Processed by FT 930222 By JOSE GALANG MANILA

Mr Rafael Alunan, Philippine secretary of the interior and local government, whose jurisdiction includes the scandal-tainted Philippine National Police, offered his resignation yesterday, writes Jose Galang from Manila.

Mr Alunan's move came three days after Mr Fidel Ramos, the Philippine president, called for the resignation of police officers who had earlier been relieved of field assignments or accused of corruption or incompetence.

However, Mr Alunan's offer does not appear likely to be accepted. According to observers, the Ramos call was directed at 16 generals and 35 colonels in the PNP who now have no specific assignments. The so-called 'floating' officers include Mr Cesar Nazareno, the PNP director-general who was relieved of his duties last August by Mr Ramos.

PH Philippines, Asia P9111 Executive Offices PEOP Personnel News GOVT Legal issues Alunan, R Secretary of the Interior Philippines P9111 The Financial Times London Page 5 159
Floods hit Ecuador provinces Publication 930222FT Processed by FT 930222 By RAY COLITT QUITO

Dozens of people have been killed and thousands of hectares of crops destroyed by floods in the coastal provinces of Ecuador, writes Ray Colitt from Quito.

More than a week of heavy rain has destroyed an estimated 10,000-30,000 hectares of banana, soya and rice crops in the province of Guayas alone. The province also saw 44 new cases of cholera. In the north-western province of Esmeraldas at least 22 people died in the floods and landslides blocked many roads.

The Ministry of Agriculture confirmed that much of the country's rice crop had been destroyed, while the federal government announced immediate relief funds to the coastal provinces.

EC Ecuador, South America P0139 Field Crops Ex Cash Grains, NEC P0119 Cash Grains, NEC P0179 Fruits and Tree Nuts, NEC RES Natural resources PEOP Personnel News P0139 P0119 P0179 The Financial Times London Page 5 155
Polish interest rate cut reflects new optimism Publication 930222FT Processed by FT 930222 By CHRISTOPHER BOBINSKI WARSAW

POLAND'S central bank, the NBP, has cut its basic refinancing interest rate by three points to 35 per cent, writes Christopher Bobinski from Warsaw.

The move reflects optimism about an expected 2 per cent GDP growth in the economy this year and a lower inflation rate, projected at 32 per cent.

Mrs Hanna Gronkiewicz Walc, NBP chairman, said she expected Polish banks to reduce their lending rates, which currently range between 40 per cent and 60 per cent.

The refinancing rate is used by the NBP to lend money to government-funded investment projects and is regarded as the marker for the banking system.

The central bank's rate cut follows recent falls in Treasury bill yields and inter-bank lending rates, which at the end of last week stood at an annual 40 per cent for three-month deposits.

PL Poland, East Europe P601 Central Reserve Depositories P9311 Finance, Taxation, and Monetary Policy ECON Gross domestic product P601 P9311 The Financial Times London Page 5 178
Dumping study set to provoke row: Report commissioned by Hills likely to embarrass Clinton administration Publication 930222FT Processed by FT 930222 By DAVID DODWELL

A WIDE-RANGING study of the possible cost to the US economy of anti-dumping actions, commissioned as one of the final acts of Mrs Carla Hills, former US trade representative, appears set to provoke a storm of controversy among protected US industries, and embarrassment for the new Clinton administration.

The demand for the study was described by one senior US trade official as 'potentially nuclear' in its implications, pitching powerful domestic industries such as cars, steel and textiles against US exporters and consumers, all of whom have to pay higher prices because of such duties.

It could embarrass President Bill Clinton, who has come under strong pressure from domestic industry lobbies to use dumping laws fully to protect US companies against 'unfair competition'.

Mrs Hills told the International Trade Commission, the administration's main trade protection body, that she had called for the study because of the 'considerable public debate' stirred recently over the economic effects of anti-dumping duties and linked import restraints.

Studies by the World Bank, and in the US by the Heritage Foundation and the Brookings Institution, have concluded that anti-dumping actions - duties and fines against alleged sales of products at below-cost prices - represent a creeping protectionism which is raising costs and hurting US competitiveness rather than helping the US economy.

Adding to possible controversy between advocates and opponents of dumping actions, the letter was sent just five days before Mrs Hills stepped down from office a month ago, and was not received by Mr Don Newquist, chairman of the ITC, until January 25 - five days after she was succeeded by Mr Mickey Kantor, Mr Clinton's appointee.

To avoid being countermanded by Mr Kantor, ITC commissioners have asked him to confirm that he is willing to endorse Mrs Hills' instructions. He is expected to do so, but will be under pressure to ensure the study also takes note of domestic industries' arguments on the supposed advantages of dumping laws.

Users of products subject to dumping duties often complain they result in higher costs, making it harder to remain internationally competitive. Controversy has been heightened in recent months following the US imposition of dumping duties on steel exporters from 19 countries, and threats to impose them on motor vehicle imports.

Mrs Hills called for a study of 'the net economic welfare of the US' arising from dumping and countervailing duty actions. She required an examination of effects on:

Industries which have petitioned for protection;

The income and employment of US workers;

US consumers - from shoppers to companies that use affected products as inputs to other production;

US parts and components producers.

The study must be completed by January 1995, and is among the most ambitious ever demanded of the ITC. Its studies are normally highly specific. For example, one recent study examined imports of durum wheat, while a current study is looking at mackerel imports.

Trade experts in Washington were uncertain last week about Mrs Hills' exact motives for leaving the Clinton administration such an explosive study. Some argued it might be in deference to those ITC commissioners who have become concerned that anti-dumping laws are being used increasingly as a weapon of first resort by recession-pressed US industry.

Trade lawyers were uncertain last week whether the study would escape subversion by the many powerful lobby groups in Washington.

US United States of America P9611 Administration of General Economic Programs P9721 International Affairs GOVT Government News P9611 P9721 The Financial Times London Page 4 601
Single Market Watch: Europe turns inward - and falls behind / The fruits of the single European market are starting to look less healthy Publication 930222FT Processed by FT 930222 By DAVID MARSH and PROF WINTERS

IS Europe starting to seize up again? Fears during the last decade that Europe was suffering a damaging loss of international competitiveness were dissipated during the EC's mini-economic boom of the late 1980s, partly engendered by the run-up to the single market.

With the European Community this year facing a re-run of the 1981-1982 recession, and the Maastricht integration process bedevilled by question-marks, Europessimism seems to be coming back into fashion.

Backing up the new mood, a discussion paper from the London-based Centre for Economic Policy Research (CEPR) concludes that the economic effect of integration has been far less positive than often argued.

Further, it has led to an inward-looking and protectionist trend in the EC's international trade policy. This appears to have contributed to a technological lag between the Community and other parts of the world.

The study's conclusions are borne out by figures from the Organisation for Economic Co-operation and Development showing declines in the export market shares of leading EC economies in recent years - though this is a problem shared by virtually the entire industrialised world.

The study's author, Prof Alan Winters of Birmingham University, denies being a 'Eurosceptic'. He backs the single market programme as a way of pressing forward with internal market liberalisation started with the Treaty of Rome in 1957. But, he says, he produced his report 'to prick the balloon of complacency' about the achievements of European integration.

The existence of the EC has coincided with above-average growth of its members' economies, with the 12-member Community's share of world GDP increasing from 22.5 per cent in 1965 to 23.5 per cent in 1989, Prof Winters writes.

However, he adds that EC unemployment has been persistently high. In addition, the Community has been less able to control inflation and unit labour costs during the past decade than important competitors, and has fallen behind in high technology compared with the US and Japan.

Among the EC's chief drawbacks, Prof Winters points to the EC's common agricultural policy. This has brought protectionism to trade since the early 1960s, making the EC a net agricultural exporter rather than a net importer.

The subsidies flowing to EC producers have caused EC consumers annual income losses of 1.5 per cent of GDP. In terms of overall trade flows, Prof Winters believes EC members' success in increasing trade among each other has detracted attention from falling ratios for trade with the rest of the world.

This has coincided with restrictive EC trade policies to protect sectors such as motor vehicles, consumer electronics and office machinery.

The Community suffers from 'a tendency to look backwards and preserve itself from change, rather than to embrace change', Prof Winters remarks.

This trend is illustrated by the rising proportion of EC GDP devoted to industry subsidies. 'Some subsidies are given to emerging sectors such as the Airbus, but the bulk of them go to resisting change in traditional sectors.

'The use of protection to avoid industrial restructuring has almost certainly contributed to Europe's falling behind the US and Japan in high-tech goods.'

Prof Winters cites figures showing that the fall in the EC's share of world engineering markets since 1970 has been concentrated in more sophisticated products. In less technologically demanding areas of engineering, the EC's share of world trade has increased.

'We're doing OK relative to India, but not so good compared with Korea,' Prof Winters says.

He complains about the protective bias of EC trade arrangements with central and eastern Europe enshrined in the 'Europe agreements' completed last year with Czechoslovakia, Hungary and Poland.

Citing restrictions on 'sensitive' east European exports in areas such as steel and chemicals, Prof Winters says: 'A noble concern for the welfare of our brothers in Europe was subverted by entrenched economic interests.'

Moreover, the accords are geared in the long run to giving the EC preferential access to east European markets rather than the other way around.

'The Europe agreements seem intent on obtaining markets and production facilities in Czechoslovakia, Hungary and Poland, on managing access to EC markets and, above all, on avoiding serious levels of migration.'

Prof Winters says the European Community has reduced protectionist pressures in some areas by giving national manufacturers the opportunity of a larger internal market.

But 'once protectionism is introduced, it is spread around more and more difficult to remove.'

When high interest rates and recession are spreading economic gloom around the Community, removing these sources of Euro-protectionism will be especially difficult.

Prof Winters' study suggests, however, that the EC should be preparing a new trade policy agenda for the time when growth starts to edge up again.

CEPR: 25-28 Old Burlington Street, London W1X 1LB. Tel 071-734 9110

QR European Economic Community (EC) P9611 Administration of General Economic Programs P9721 International Affairs CMMT Comment & Analysis P9611 P9721 The Financial Times London Page 4 842
US wants better deal on procurement bids Publication 930222FT Processed by FT 930222 By DAVID DODWELL

EUROPEAN companies have significantly easier access to procurement contracts in the US, according to a leaked US document that could trigger a US-EC war of numbers in the battle to open up respective government procurement markets.

In a document from the office of the US trade representative, the US claims bidding opportunities worth Dollars 16.8bn (Pounds 11.8bn) were offered to EC contractors under the Government Procurement Code in 1990, compared with Dollars 7.8bn in EC contracts open to US operators.

The document, which highlights a wide difference between the two sides' view of what amounts to fair access, argues that procurement contracts worth a total of more than Dollars 150bn a year are open to bids from EC companies 'without any restriction'.

It says that in telecommunications, foreign companies won 54 per cent of the market last year for central office telephone switches, with the EC accounting for 13 per cent - while US companies sell no switches at all in France, Germany, Belgium, Greece and Denmark and less than 5 per cent of the switches in the UK, and supply Spain, Italy and the Netherlands only through joint ventures.

The document was tabled during EC-US negotiations in Washington last week aimed at settling the clash over public procurement which flared last month. The new US administration threatened to bar European companies from bidding for federal contracts in the US unless European procurement rules favouring local manufacturers were dismantled by March 22.

EC negotiators said in Washington at the end of the talks that a possible solution to the dispute had been found based on 'comparable, effective and lasting access' to each other's markets.

However, the leaked document illustrates that the US and the EC retain significantly different views on comparable or effective access. EC officials admitted last week that there were obstacles in the way of US companies bidding for procurement contracts in the EC. But they insisted that systemic differences made it difficult for US officials to recognise the obstacles foreign companies faced in bidding for US similar US contracts.

The US document challenges EC claims that 'Buy America' laws bar EC bidders from the US market, insisting that Buy America legislation affects 'less than Dollars 15bn of procurement' - compared with 'over Dollars 50bn' of contracts affected by the EC's own 'Buy Local' laws.

In a direct challenge to EC claims that the vertical integration of AT&T, the leading US telecommunications group, in effect bars EC companies from bidding for business, a senior US trade official noted that regional US telecommunications groups bought more equipment from Canada's Northern Telecommunications than they did from AT&T - which accounted for just 8 per cent of total US demand for switching equipment.

'The US market is completely open. All of our firms are private and do not discriminate in favour of national suppliers,' the document claims. It notes that in spite of the extreme competitiveness of US-made steam turbine power generators, the US has never sold a steam turbine in the EC, and no large transformer since 1983.

By contrast, the US market is 'largely open', the document says.

US United States of America QR European Economic Community (EC) P9611 Administration of General Economic Programs GOVT International affairs P9611 The Financial Times London Page 4 560
Airbus 'has cost American jobs' Publication 930222FT Processed by FT 930222 By REUTER SANTA MONICA

PRESIDENT Bill Clinton yesterday said the US had just stood by while Europe invested in the Airbus airliner, but now it was time to rethink US policies on developing new technologies, Reuter reports from Santa Monica.

Speaking in California, where defence cuts have caused job losses in the defence industry, Mr Clinton said Washington needed to put more investment into the private sector.

'For the last several years we have stood by while Europe invested Dollars 26bn in taxpayer money to build the Airbus,' he said.

Development of the airliner served 'to push American people out of work - not because they won any sort of free market competition, but because Europe had a theory about how to get high-wage jobs going into the 21st century in aerospace'.

He said US leaders had refused to undertake similar projects because they felt 'that's industrial policy. We don't do that.' Such views had led to the lengthy recession in the US, he said.

Mr Clinton said the US had to invest more in the new technologies of the future, more in helping people to convert from a defence base to a domestic economy.

The president, campaigning for his economic package, outlined last week, was also planning to visit the high-tech Silicon Valley, as well as to address workers employed by Boeing, which intends to cut thousands of jobs because of declining aircraft sales.

US United States of America P9611 Administration of General Economic Programs RES Capital expenditures GOVT Government News P9611 The Financial Times London Page 4 269
Securities market practitioners 'should have more say in their supervision' Publication 930222FT Processed by FT 930222 By RICHARD WATERS

THE European Commission's plans to oversee EC securities markets should be amended to give practitioners in the markets more say, according to the International Securities Market Association.

The call, in a report on the development of a single European securities market, highlights a growing struggle between officials in Brussels and market practitioners over how the EC's markets should be run.

The Commission plans to set up a Securities Industry Committee to oversee the implemention of its legislation on securities markets and to recommend any legislative changes - a development which has prompted fears in some quarters that it will lead eventually to a centralised and bureaucratic market regulator.

The association, which regulates the Eurobond (or international bond) market, warned that the EC 'is likely to have insufficient staff with high level experience of working in the industry'. The plan for a committee should be 'discussed more openly' before being carried through, and self-regulatory bodies should 'have a role in its day-to-day functioning', it said.

The report also argues:

Europe does not need a single securities exchange to achieve a single securities market, but a common regulatory approach;

To help fight fraud, insider dealing and market manipulation, all transactions should be reported to regulators. All regulators would then be able to combine the details to obtain an overview of all market activities.

Towards a Single European Securities Trading Market, ISMA, London. Free.

QR European Economic Community (EC) P6211 Security Brokers and Dealers TECH Standards GOVT Draft regulations CMMT Comment & Analysis P6211 The Financial Times London Page 4 275
Constitutional struggle goes on in Moscow Publication 930222FT Processed by FT 930222 By LEYLA BOULTON MOSCOW

PRESIDENT Boris Yeltsin and the speaker of the Russian parliament, Mr Ruslan Khasbulatov, will continue this week to search for a constitutional deal in a suicidal power struggle each side is determined to win.

After the two men traded insults directly or through their spokesmen, a first round of negotiating between their emissaries on Saturday produced no progress. A 10-day deadline for an agreement expires at the end of the week.

If none is found through the current mixture of behind-the-scenes negotiating and megaphone diplomacy, Mr Yeltsin has vowed to take the struggle to a referendum which would ask people whether parliament or the president should rule the country.

Mr Yeltsin wants the parliament to stick to examining legislation, leaving the government strong executive powers to conduct economic reform and dispose of state assets.

The alternatives to a deal are grim.

A referendum would further destabilise the political situation at a time of deep economic crisis. Some independent-minded regions could refuse to hold the poll. Furthermore, it could be seen as a flop for failing to ask clear questions (parliament also has a say in setting them) and by producing a turnout too low to provide a clear answer.

RU Russia, East Europe P91 Executive, Legislative and General Government GOVT Government News P91 The Financial Times London Page 4 234
Expansionary budget planned for Romania Publication 930222FT Processed by FT 930222 By VIRGINIA MARSH BUCHAREST

ROMANIA'S minority government this week faces its biggest test to date when it presents an expansionary budget to parliament for 1993-1994.

The left-wing Democratic National Salvation Front, which formed a government in November, plans to increase government investment by raising corporate taxation.

Profit tax would rise to 40-60 per cent, from 30-45 per cent, although companies involved in exporting would be eligible for discounts of up to 50 per cent. The budget deficit would rise to 428bn lei (Pounds 568.6m), or 4 per cent of gross domestic product, up from 2 per cent last year.

Despite a 15 per cent fall in Romania's GDP last year, the budget has been drawn up on the basis that GDP will remain stable this year and that annual inflation will drop from 200 per cent to 80 per cent.

The trade deficit is forecast to reach Dollars 1bn-Dollars 1.3bn, with external debt expected to double to Dollars 7bn this year. However, only Dollars 4bn of foreign credit would be drawn in 1993, according to Mr Misu Negritoiu, deputy prime minister with responsibility for economic reform.

Mr Negritoiu, an independent who is considered the cabinet's key reformer, said government spending would be aimed at privatisation and restructuring, infrastructure projects, agriculture and building up social welfare.

RO Romania, East Europe P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs GOVT Government News P9311 P9611 The Financial Times London Page 4 252
Securities industry at odds with EC Publication 930222FT Processed by FT 930222 By RICHARD WATERS

THE European Commission's plans to oversee EC securities markets should be amended to give practitioners in the markets more say, according to the International Securities Market Association.

The call, in a report on the development of a single European securities market, highlights a growing struggle between officials in Brussels and market practitioners over how the EC's markets should be run.

The Commission plans to set up a Securities Industry Committee to oversee the implemention of its legislation on securities markets and to recommend any legislative changes - a development which has prompted fears in some quarters that it will lead eventually to a centralised and bureaucratic market regulator.

The association, which regulates the Eurobond market, warned that the EC 'is likely to have insufficient staff with high level experience of working in the industry'. The plan for a committee should be 'discussed more openly' before being carried through.

The report also argues that Europe does not need a single securities exchange to achieve a single securities market, but a common regulatory approach;

Towards a Single European Securities Trading Market, ISMA, London. Free.

QR European Economic Community (EC) P6211 Security Brokers and Dealers TECH Standards GOVT Draft regulations CMMT Comment & Analysis P6211 The Financial Times London Page 3 222
Rocard wins support for left alliance Publication 930222FT Processed by FT 930222 By ALICE RAWSTHORN PARIS

AN overwhelming majority of French Socialists and ecologists support the proposals of Mr Michel Rocard, former French prime minister and a future presidential candidate, for a 'political big bang' to create a new centre-left alliance after next month's elections, according to the latest opinion poll.

The BVA poll, published in yesterday's Journal du Dimanche newspaper, suggests that 73 per cent of Socialist sympathisers and 62 per cent of ecologists back Mr Rocard's idea of abandoning the Socialist party in favour of a coalition of socialists, environmentalists and human rights activists.

It also indicates a high level of support among the public, with 45 per cent approving of his plan and 40 per cent against.

Mr Rocard said on French television last night that the political establishment was increasingly out of touch with the daily reality of people's lives. It was necessary to create a political platform in which different interest groups could come together to redefine objectives for France.

The Rocard plan has caused turmoil among the Socialists, who, after a decade in power, are heading for humiliating defeat by the conservatives in next month's parliamentary elections, and may be robbed of second place by ecologists.

President Francois Mitterrand has tried to brush aside the Rocard proposals by stressing that the left's first priority should be to strengthen the existing Socialist party.

The president's own standing is under attack, however. More than half of French viewers (54 per cent) were unimpressed by his television appearances last week, according to an IFOP poll in yesterday's Journal du Dimanche.

Similarly, his approval rating in yesterday's poll stood at a dispiriting 26 per cent, the same as last month.

Editorial Comment, Page 15

FR France, EC P8651 Political Organizations P91 Executive, Legislative and General Government CMMT Comment & Analysis Rocard, M Former Prime Minister (France) P8651 P91 The Financial Times London Page 3 326
France set for more disruption to mail Publication 930222FT Processed by FT 930222 By ALICE RAWSTHORN PARIS

THE French postal service is poised for further disruption this week as post office trade unions try to step up industrial action that created chaos for the mail last week.

Four of the largest postal unions will this morning hold mandatory meetings for members across France to discuss the next stage of their industrial action against the post office's proposals to cut 3,000 jobs this year.

This latest call for action follows the collapse of negotiations on Friday.

The areas worst affected by the dispute have been Rouen, Rennes, Le Havre and Marseilles, where the mail has been prey to intermittent strikes and stoppages for the past month. But last week the dispute spread to Paris, where the post office plans to shed 280 of its 7,000 employees.

An escalation of the postal dispute would be a blow to the Socialist government, which also faces protests from farmers and fishermen in the run-up to next month's parliamentary elections.

FR France, EC P4311 U S Postal Service PEOP Labour TECH Services P4311 The Financial Times London Page 3 192
Milan shows no mercy on kickbacks: There is an overwhelming cry for political change Publication 930222FT Processed by FT 930222 By HAIG SIMONIAN

AS ITALY braces for more arrests and resignations in the corruption scandal rocking the country, the consensus in Milan is that all should be brought into the open.

'It's a scandal when the judges keep silent, not when they start putting politicians away,' says Mr Luigi Cavallini, director of a machine tool importing company. 'The corruption affair may be hurting our image abroad. But it's only in really corrupt countries that the politicians don't go to jail. People should be pleased this is happening.'

The corruption probe, which began in Milan and spread nationwide, triggered last week's ministerial resignations and yesterday's cabinet reshuffle. The decision by a parliamentary committee to lift the immunity of Mr Francesco De Lorenzo, the former health minister, and rumours about the possible involvement of Mr Giovanni Goria, the former finance minister, prompted both to resign on Friday.

Many people in Milan share the view that the investigations into political kickbacks should go on, irrespective of the impact on Italy's standing abroad or the value of the lira, which plummeted to L957 against the D-Mark late on Friday.

At Mr Cesare Sbravati's barber's shop, talk of an amnesty for corrupt politicians is instantly dismissed by Saturday afternoon customers. Mr Sbravati, born in Mantua but busy cutting hair in the same small shop for more than 30 years, is convinced the judges should carry on.

'It's only thanks to them that things have come to the surface. Otherwise, the politicians wouldn't have done anything,' he says. Mr Alberto Pirovano, waiting for his haircut, agrees. 'We're only halfway there. If the judges stop now, the politicians will bury everything.'

There is little sympathy for those who have traipsed into Milan's antiquated San Vittore prison, a first stop for many of the politicians and businessmen arrested so far. 'They should be made to give back what they've stolen, right up to the last penny,' shouts Mr Sbravati's wife from behind the curtain dividing the shop from their sitting room.

The customers are more moderate. They probably appreciate the near-impossibility of tracing the billions of lire which have flowed into private pockets and party coffers though kickbacks on inflated public-works contracts. But they at least want new laws banning all those implicated in corruption from holding elected office again and requiring them to repay what money can be traced.

The vitriol is reserved for Mr Bettino Craxi, the former leader of the discredited Socialist party, whose power base was Milan.

The Socialists 'have no future in Milan', says Mr Ambrogio Invitti, waiting his turn in the barber's chair.

But Mr Cavallini, an avowed right-winger who castigates Italy's governments for pumping money into fruitless ventures, usually in the economically-depressed south, gives prime minister Giuliano Amato some credit.

'Every political system in transition has people of the ancien regime alongside the new. At least this government seems to be made up of serious-minded people, unlike the last two years of the former Andreotti government, which paved the way for the damnation of this country.'

The overwhelming mood in Milan is that the political system has to change, amid some uncertainty and caution as to how that should be done.

With Italy's budget deficit still growing, such steps are likely to involve further unpopular public spending cuts, hitting social security in particular. They are likely to be least popular in southern Italy, where support for established political parties has proved much more resilient than in the north.

'What should I do?' asks Mrs Pierrina Fusco, a pensioner from the southern region of Appulia, who has been working in Milan for the past 30 years. 'Everything's become more expensive. Now I'm going to have to pay for the medicines that used to be free. Tell me what to do. I'll vote for whoever you say.'

IT Italy, EC P9111 Executive Offices PEOP Personnel News GOVT Legal issues P9111 The Financial Times London Page 3 672
EC proposes measures to avert fishing sector crisis Publication 930222FT Processed by FT 930222 By REUTER BRUSSELS

THE European Commission yesterday said it would propose measures in the coming days to avert a crisis in the EC's fishing sector due to cheap imports and recent currency turmoil, Reuter reports from Brussels

The decision to improve the market follows a meeting between French and Commission fisheries officials in Brussels.

Prices had fallen by 15 to 30 per cent across the Community and cheap imports from Russia, Norway and Iceland, as well as currency fluctuations in the EC, had aggravated troubles within the fishing industry, the Commission said.

The measures to 'improve prices' would be drawn up by EC Fisheries Commissioner Yannis Paleokrassas and presented by the Commission imminently - probably by mid-week.

QR European Economic Community (EC) P091 Commercial Fishing MKTS Foreign trade GOVT Government News P091 The Financial Times London Page 3 151
Bad times loom for German carmakers Publication 930222FT Processed by FT 930222 By CHRISTOPHER PARKES SEVILLE

GERMAN CAR makers face at least five bleak and uncertain years ahead, according to Mr David Herman, new chairman of Adam Opel, the local subsidiary of General Motors of the US.

Consumer confidence was in free fall, he said at the weekend. Business confidence was still near post-war lows, but the recent plunge in morale had been the steepest in almost 50 years. It would be more than five years before Opel's output returned to the levels of the recent past.

Mr Herman's grim forecasts followed news that German car production tumbled 27 per cent in January, while output of commercial vehicles was 57 per cent lower than a year earlier.

Meanwhile, Volkswagen, the country's leading volume carmaker, confirmed that it was considering extending short-time working into the second quarter of this year.

Opel, No 2 behind VW, has drastically downgraded its expectations. A fresh analysis of the company's medium-term business plans had resulted in forecasts for annual output being cut by an average 7 or 8 per cent, Mr Herman said.

The current recession was unusual; a 'normal' slump lasted one or two years and was followed by a reasonably sharp upturn. This time he could see no possibility of such a recovery. Apart from recession the industry had to make allowances for the effects of Bonn's plans to increase oil taxes and levy tolls on motorway users.

'Even now drivers pay twice as much on vehicle and fuel taxes as is paid out for road construction and maintenance,' he claimed.

Motor manufacturing was Germany's single most important industry; it was time to consider the effects of higher levies on investment and employment.

Mr Herman, speaking at the launch in Seville, Spain, of the company's new Corsa compact car (sold as the Nova in Britain), said production on the new model would rise from 90,000 this year to 100,000 in 1994. Meanwhile, annual capacity would be increased to 400,000, split between the group's plants in Saragossa, Spain, and its new low-cost showpiece works in Eisenach, eastern Germany.

Compacts now account for 20 per cent of the German market, where General Motors companies sold 658,000 vehicles last year - 8 per cent fewer than in 1991.

Some 40 per cent of all GM's European sales are made in Germany. The nosedive in January output, reported by the VDA industry association, followed the introduction of short-time working in most domestic vehicle plants. Output is being reduced to cope with falls in domestic demand expected to range between 15 and 20 per cent this year.

Meanwhile, car exports dropped by an adjusted 12 per cent and truck shipments abroad fell by half, the VDA said.

New car registrations in west Germany were down 28 per cent during the month. But the figure was distorted by exceptional demand towards the end of last year, when buyers rushed to avoid the January 1 increase in value added tax.

DE Germany, EC P3711 Motor Vehicles and Car Bodies P5511 New and Used Car Dealers COMP Company News MKTS Production MKTS Sales CMMT Comment & Analysis P3711 P5511 The Financial Times London Page 2 533
UN agency for refugees relents on Bosnian aid Publication 930222FT Processed by FT 930222 By LAURA SILBER and REUTER BELGRADE, GENEVA

THE United Nations High Commissioner for Refugees yesterday said full operations would be resumed in Bosnia-Hercegovina following assurances that the three warring factions would no longer block aid convoys or distribution.

A statement from Ms Sadako Ogata's office said she had agreed with Mr Boutros Boutros Ghali, UN secretary-general, that operations would resume 'as soon as possible, perhaps as early as Monday'.

The decision came hours after a 10-truck convoy carrying 72 tonnes of aid reached Zepa, a Moslem stronghold in eastern Bosnia. Bosnian Serb commanders had given way to international pressure for the delivery of emergency aid to Moslem enclaves besieged by Serb forces.

The commanders said the convoy, stranded for five days, could pass at its own risk. It crawled along a winding snow-covered route, reported to have been mined, to reach Zepa yesterday afternoon.

It carried wheat flour and family parcels and was only the second UNHCR convoy to reach the village, whose population has been swollen by refugees fleeing Serb 'ethnic cleansing' in the region, since the war erupted 10 months ago.

The successful mission follows a week of confusion in the international community over how to distribute aid in Bosnia.

In the hope of winning Serb permission for aid to reach government strongholds in eastern Bosnia, Mr Alija Izetbegovic, the Moslem president of Bosnia, announced a ceasefire at the weekend.

The announcement followed reports of an advance by Serb forces, besieging Sarajevo on the western edge of the Bosnian capital.

The convoy reached Zepa after US President Bill Clinton said he was considering making air drops to the 100,000 Moslems trapped by the Serb stranglehold of eastern Bosnia. But UN commanders in Bosnia yesterday were sceptical about the idea. It raised many problems, including securing the co-operation of all parties to the conflict.

Meanwhile, in the poor former Yugoslav republic of Macedonia, 300 policemen fired tear gas and batons to disperse hundreds of Macedonians gathered in Skopje, the capital, to protest against the building of houses to settle Moslem refugees from the Bosnian war.

Several people were injured in the clashes, which began on Saturday.

BA Bosnia-Hercegovina, East Europe YU Yugoslavia, East Europe P97 National Security and International Affairs GOVT International affairs P97 The Financial Times London Page 2 394
Steel chief outlines crisis plan: Rapid decision on rescue package sought from EC ministers Publication 930222FT Processed by FT 930222 By QUENTIN PEEL DUSSELDORF

GERMANY'S steel industry, which prides itself as being the most independent and efficient in the EC, is calling for tough new curbs on state subsidies in other member states, but also for more money from Brussels to ease the pain of mass redundancies.

It wants a 'market solution' to the crisis in the industry, but one protected against unfair competition from eastern Europe by volume restrictions on cheap imports. Minimum prices would not be effective, it says.

It also wants a rapid decision by industry ministers this week on the outline of a rescue package, in order to underpin higher prices in the market.

Precise details of capacity cuts would be worked out by the industry itself by September, and then two years would be needed to put them into effect.

Details of the German industry's preconditions for a Brussels rescue package were spelt out by Mr Ruprecht Vondran, president of the German steel industry federation, in a weekend interview.

He warned that the European steel sector as a whole would have to shed more than 100,000 jobs, of which 35,000-40,000 would be in Germany. He agreed with the European Commission that cuts in capacity were needed of between 25m-30m tonnes.

Mr Vondran suggested that efficient producers should in effect buy out market share from inefficient producers, forcing inefficient plants out of production. Subsidies should only be paid in proportion to their reduction in capacity, and Italy and Spain must be targeted as the least efficient, most heavily subsidised producers.

He set out six 'criteria' for an agreement, presented last week to Mr Gunter Rexrodt, the German economics minister, who will attend the ministerial council in Brussels on Thursday at which the package will be presented.

'We must find a solution which is as close as possible to a market solution,' he said. 'It means the most efficient producers must remain, and the least efficient must close.' The mistake of EC steel policies since the last steel crisis of 1980 was to allow borderline producers to remain in operation.

Mr Vondran singled out Ilva, the Italian steel producer, as 'a totally over-indebted enterprise which is adding new losses month by month. Nobody knows what its debt position is, but we believe it is somewhere between DM11bn and DM14bn (Pounds 4.6bn-Pounds 5.9bn). There is no suggestion of bankruptcy: they simply go on producing.'

The steel federation's six-point plan would require:

A transparent legal framework for production and delivery quotas, decided by the industry within guidelines set by Brussels. 'There must be no cartels fixed up behind closed doors,' Mr Vondran said.

Protection against cheap imports from eastern Europe and the former Soviet Union, focused on the most sensitive areas - long products rather than flat products - and limited by quantity, not price. The federation proposes a limit set at 1991 import levels, plus 20 per cent. 'Minimum prices don't work. You simply get payments made secretly into Swiss bank accounts,' he said.

Clear restriction on subsidies, as set out in Article 4c of the European Coal and Steel Community treaty, with exceptions limited to those enterprises cutting their capacity enough to have a real effect on the market.

More generous social payments to ease the redundancies, estimated at more than 100,000 direct job losses in the entire EC industry, and not 50,000 as calculated by the European Commission. The Brussels offer of Ecu450m (Pounds 371.7m) between 1993 and 1995 is based on the lower job loss figure.

Adequate time to carry out the structural changes, with two to three years estimated from agreement on capacity cuts in September.

Political agreement on the key points in the package on February 25, with the remaining details worked out at official level by the end of March.

DE Germany, EC P3312 Blast Furnaces and Steel Mills GOVT International affairs P3312 The Financial Times London Page 2 666
IG Metall warned over pay demand Publication 930222FT Processed by FT 930222 By JUDY DEMPSEY BERLIN

MR Hans-Joachim Gottschol, president of the Gesamtmetall engineering employers' association, yesterday said IG Metall, Germany's big engineering union, was pricing its members out of the market and would face more unemployment if it insisted on a 26 per cent wage increase this April for the five east German states.

In an interview with the Berliner Morgenpost, Mr Gottschol said Gesamtmetall would stick to its offer of a 9 per cent wage increase for east Germany's 300,000 IG Metall members. The union is demanding a 26 per cent increase, as agreed in a contract with the employers' association in March 1991.

The contract envisaged bringing east German wages up to west German levels by April 1994. But the employers now insist they can revise the contract because of the deteriorating west and east German economies.

East Germany's inflation rate jumped by 6.7 percentage points in January, against a 1.8 point rise in December and an annual inflation rate of about 11.2 per cent in 1992.

Union officials, who will open arbitration talks with Gesamtmetall in the state of Mecklenburg-Western Pomerania today, are expected to argue that a wage increase is even more justified in the light of the inflation figures. Talks aimed at reaching a compromise have already broken down in four of the five east German states.

'IG Metall must finally weigh up the cost (of the wage increase) with the economic reality,' Mr Gottschol said. Gesamtmetall officials have said that a 9 per cent wage increase would cost the employers DM1.4bn (Pounds 590m), while a 26 per cent increase would cost DM3.9bn.

IG Bergbau und Energie, the energy and utilities union, last week accepted a pay increase of 9.3 per cent for its 60,000 east German members.

Gesamtmetall (Germany) IG Metall (Germany) DE Germany, EC P8631 Labor Organizations PEOP Labour P8631 The Financial Times London Page 2 324
Dollar at new low Publication 930222FT Processed by FT 930222

The US dollar opened at a low of Y117.62 in Tokyo today. It was continuing a slide begun after US Treasury secretary Lloyd Bentsen called on Friday for a stronger yen to cut Japan's trade surplus with Washington. The dollar closed at Y118.315 in New York on Friday. Currency dealers also believe that a meeting of the Group of Seven leading industrial nations in London later this month may push for a stronger yen and urge Japan to boost its sluggish economy.

US United States of America P9311 Finance, Taxation, and Monetary Policy MKTS Market data P9311 The Financial Times London Page 1 112
Italian government wins reprieve with reshuffle Publication 930222FT Processed by FT 930222 By HAIG SIMONIAN MILAN

ITALY'S SHAKY eight-month-old gov-ernment yesterday survived its biggest political test with a cabinet reshuffle following the resignations on Friday of two senior ministers over the growing political corruption scandal.

However, the skill and patience of prime minister Mr Giuliano Amato were stretched to the limit. Mr Amato met fellow ministers in his four-party coalition for four hours before agreement was reached on the new cabinet.

The prime minister used the resignations of Mr Giovanni Goria and Mr Francesco De Lorenzo, the finance and health ministers respectively, to reinforce his government's standing by adding some political heavyweights. However, Mr Amato failed to broaden the government's political base because of the opposition of parties, such as the Republicans, to join a government scarred by the corruption investigations.

Mr Amato hopes his swift action will restore calm to financial markets today after the frantic scenes following the resignations. The lira, which had been losing ground against leading currencies throughout last week, slid to L957 against the D-Mark, while government bond prices tumbled.

The reshuffle probably means Mr Amato's government has gained a reprieve until new electoral laws, under discussion by a special parliamentary committee, come into operation. The laws, which should increase the chances of stable parliamentary majorities, are also subject to popular referendums, which could be held as early as April.

Mr Nino Andreatta, a senior Christian Democrat and former minister, takes over as budget minister from Mr Franco Reviglio, the Socialist who is moving to the finance portfolio vacated by Mr Goria. Meanwhile, Mr Raffaele Costa, the former minister for regional policy and European Community affairs, steps up to become health minister, while his previous job goes to Mr Gianfranco Ciaurro.

Negotiations yesterday were protracted partly because of the surprise refusal of Mr Giuseppe Guarino, the industry minister, to step down. Mr Amato had hoped to remove Mr Guarino because of his refusal to go along with ambitious privatisation plans. Instead, Mr Amato appointed Mr Paolo Baratta, his planned successor, to a new ministerial job, with responsibilities for privatisation formerly held by the industry minister.

Separately, Mr Carlo Ripa di Meana, the environment minister and former European commissioner, said he was leaving the Socialist party for the Democratic Alliance being formed by some politicians and intellectuals.

The scandal continued to spread at the weekend. Mr Antonio Cariglia, chairman of the Social Democratic party, which forms part of the ruling coalition, was informed by magistrates that he is under investigation over alleged kickbacks linked to the port of Manfredonia.

Milan shows no mercy, Page 3

IT Italy, EC P91 Executive, Legislative and General Government PEOP Appointments Reviglio, F Finance Minister (Italy) Ciaurro, G Minister for Regional Policy and European Community Affairs (Italy) Andreatta, N budget minister (Italy) Costa, R Health Minister (Italy) P91 The Financial Times London Page 1 483
Shell faces heavy losses on Japanese currency dealings Publication 930222FT Processed by FT 930222 By ANDREW JACK

ROYAL DUTCH/Shell stands to lose up to several hundred million pounds as a result of unauthorised foreign exchange contracts entered into by a Japanese associate company.

Showa Shell Sekiyu, Japan's leading oil refiner and distributor which is 50 per cent owned by Shell Petroleum, has announced charges for the year to December 31 1992 of Dollars 1.05bn (Pounds 730m) on a series of speculative forward contracts entered into since 1989. That will result in a charge of Pounds 131m against profits to Royal Dutch/Shell in its results for the 1992 financial year.

The company estimates that the total potential losses to Showa, which is quoted on the Tokyo stock exchange, could ultimately be as high as Dollars 1.35bn. Although these are material sums compared with Shell's profits last year of Pounds 2.9bn, the group was planning to wait until its results were announced on Thursday before revealing the losses.

The speculative contracts totalled Dollars 6.4bn and were entered into at an exchange rate of Y145 per dollar. The dollar has since fallen and stood at Y119 to the dollar last Friday.

Shell made a statement yesterday after details of the unauthorised contracts became public in Tokyo on Saturday.

It said the contracts were reported to the management of Showa in late December last year and that a full investigation was under way.

It said its internal auditing procedures and controls had been tightened. It added that some disciplinary action was already taking place and further such action could be taken in the future.

The group - in common with most international traders - has substantial hedging contracts to protect it from foreign exchange fluctuations. But an official said its practice - which extends to associate companies - is not to permit speculative dealings.

'The directors view this matter with concern,' he said. 'They support actions of Showa's management to ensure that it will not happen again.'

Shell said that the future charges to be taken had not yet been fully quantified but it had taken steps to limit its exposure.

Separately, it said that there had been a change in accounting policy for 1992, which would provide a one-off credit of Pounds 149m.

Showa had net assets of Pounds 700m in 1991, Pounds 8bn in revenues and Pounds 100m in income. Its workforce was 2,360. Shell has a Pounds 228m share of its net book value.

Mr Takeshi Henmi, Showa Shell president, told a news conference on Saturday that his finance section had ignored company rules and independently speculated with huge dollar futures contracts.

Reports in Japanese newspapers said Mr Henmi pledged that the company would make up the shortfall by selling assets, including stocks and property, once it had confirmed the extent of the loss.

Royal Dutch/Shell will report its preliminary year-end results on Thursday, when a small increase in profits is expected pushing the figure up to Pounds 3bn compared with Pounds 2.89bn for 1991.

The company is likely to raise its dividend in line with inflation to about 22p from 20.9p last time.

Showa Shell Sekiyu Royal Dutch Petroleum Shell Transport and Trading NL Netherlands, EC GB United Kingdom, EC JP Japan, Asia P1311 Crude Petroleum and Natural Gas P2911 Petroleum Refining COMP Company News FIN Company Finance P1311 P2911 The Financial Times London Page 1 566
Heseltine defends 'market solution' for Leyland Daf: Belgian and Dutch package excludes UK Publication 930222FT Processed by FT 930222 By RONALD VAN DE KROL, RICHARD DONKIN and RALPH ATKINS AMSTERDAM, LONDON

MR MICHAEL Heseltine, the trade and industry secretary, defended his decision to put his faith in the receivers of Leyland Daf yesterday after the Belgian and Dutch governments agreed a rescue package for the parent truck company that excluded its three British plants.

The resurrection of the truckmaker as a new slimmed-down company backed by fresh equity and injections of capital from the Belgian and Dutch governments contrasted with Mr Heseltine's refusal to pledge financial support for the company's UK operations. 'I don't believe that intervening with money produces long-term solutions,' he said.

Mr Robin Cook, Labour's trade and industry spokesman, said: 'There could not be a clearer example of how Britain is losing out to countries with an industrial strategy because we have a government with none.'

As union leaders and Labour opponents criticised his stance, Mr Heseltine appeared confident that what he called 'the market solution' led by administrative receivers would secure a future for the remaining British factories. The receivers of Leyland Daf said inclusion of the British plant in the new company would have offered a 'fast track solution' for the UK subsidiary. They would now concentrate on negotiations with potential purchasers.

Talks should be strengthened, however, by potential outlets for the UK plants secured by the receivers with the new company.

The receivers said yesterday they had secured the intellectual property rights necessary for the independent British operations and had potential supply agreements with the new company. These would cover axles and components from the Albion plant in Glasgow, pressings from Washwood Heath in Birmingham and components from Leyland in Lancashire.

The new venture had also given an undertaking to look at ways for Leyland's 45 series light van to be distributed within its continental dealership network.

The company's Dutch receivers reached agreement at the weekend with the Dutch and Belgian governments, banks and institutional investors on raising Fl 467m (Pounds 178m) in fresh equity for a new-style Daf.

The new company, Daf Trucks NV, will concentrate on the market for medium to heavy trucks, and its industrial operations will be divided between the Netherlands and Belgium. The new company will employ 3,500 people, about half the original total in these two countries.

The Dutch government is to put up Fl 195m in risk-bearing capital, while the regional government of Flanders in Belgium is contributing Fl 75m.

Together, the two governments will own about 57 per cent of the new company, which is to be established later this week. Of the rest of the capital, Fl 110m will be provided by banks and insurance companies, Fl 50m by institutional investors and Fl 37m by Daf's suppliers, dealers and importers.

On top of this risk-bearing capital, bank loans of Fl 400m will be made available by Dutch banks ABN Amro, Rabobank, ING Bank and the National Investment Bank as well as by the Dutch subsidiary of Credit Lyonnais.

The original nine-bank consortium - including Barclays, Lloyds and National Westminster - is understood to have been paid Fl 340m for the assets of the old company in the form of cash, some debt for equity and some continuing loans. The consortium had a syndicated loan of Pounds 800m to the collapsed company.

Dutch rescue keeps Daf on the road, Page 14

Leyland DAF GB United Kingdom, EC NL Netherlands, EC BE Belgium, EC P3713 Truck and Bus Bodies RES Capital expenditures GOVT Government News COMP Company News P3713 The Financial Times London Page 1 608
World News in Brief Lamborghini dies Publication 930222FT Processed by FT 930222

Italian industrialist Ferruccio Lamborghini, famed for the luxury sports cars he produced, died, aged 76.

IT Italy, EC P3711 Motor Vehicles and Car Bodies PEOP Personnel News P3711 The Financial Times London Page 1 45
World News in Brief Oil rig evacuation Publication 930222FT Processed by FT 930222

Helicopters lifted 380 men from the Safe Supporter accommodation rig in the North Sea off Aberdeen. It was forced by bad weather to cut free from an Amoco gas platform. High tides and winds caused extensive flooding along the east coast, forcing 400 people to leave their homes at Gorleston, Great Yarmouth.

GB United Kingdom, EC P1311 Crude Petroleum and Natural Gas RES Natural resources TECH Safety P1311 The Financial Times London Page 1 86
World News in Brief UN inspectors fly to Iraq Publication 930222FT Processed by FT 930222

UN inspectors fly to Iraq: The United Nations announced a surprise weapons inspection visit to Iraq. Experts were expected to fly in at dawn today.

IQ Iraq, Middle East P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 1 56
Labour's links with unions of 'immense value', finds report Publication 930220FT Processed by FT 930220 By ROBERT TAYLOR, Labour Correspondent

THE long-awaited interim report on the future of the Labour party's links with the trade unions suggests they are 'a cause for celebration rather than concern'. It argues strongly that Labour's relationship with the unions 'continues to be immensely valuable to the party'.

However, the document proposes an end to the union block vote at party conference and the eventual introduction of one member one vote for the selection of parliamentary candidates and election of the party leader.

But the 15-strong group of senior union officials and Labour MP's was unable to agree on firm recommendations. Instead their report, to be presented to the party's national executive committee, sets out a series of options.

A questionnaire will be sent out to trade unions and constituency parties. They will have until June 10 to respond. The NEC will then decide on precise proposals and present them for approval at the party conference in the autumn. But Mr John Smith, the party leader, is expected to comment on the union-party links at next Wednesday's NEC meeting.

The only member of the review group to oppose the party's present links with the unions was Mr Tony Blair, Labour's home affairs spokesman.

The report is firm in its proposal to end the union block vote at party conference and replace it with a system under which the voting entitlement of each union is divided up among its delegates and cast separately.

It also agrees on the gradual move to a 50-50 voting parity between the unions and constituency parties in the annual conference, although it suggests the introduction in the autumn of a 70-30 split between union-party voting strengths should be retained for the time being.

The group argues strongly for maintaining union links with Labour. It argues the unions are 'a realistic and stabilising force in the party without whom on many occasions in the past few decades the Labour party would have torn itself apart'.

It suggests unions' involvement keeps the party more closely in touch with 'the concerns and preoccupations of people who vote Labour'.

The report also stresses the direct links the unions provide for the party to 8m trade union members and the organisational strength the unions can provide at local level.

The group notes that 'a quiet revolution' has been taking place in 'the public appreciation of the relevance of trade unions.' But it believes changes are needed to bring 'a new dynamism' to the union-party relationship.

Blair urges 'moral' approach on crime, Page 4

Labour Party (UK) GB United Kingdom, EC P8651 Political Organizations P8631 Labor Organizations COMP Company News MGMT Management P8651 P8631 The Financial Times London Page 24 463
International Company News: Citicorp chief paid Dollars 1m bonus for profits rally Publication 930220FT Processed by FT 930220 By REUTER NEW YORK

MR JOHN REED, chairman and chief executive of Citicorp, is being paid a Dollars 1.035m bonus for 1992 due to the US bank's improved performance, according to a filing with the Securities and Exchange Commission, Reuter reports from New York. His salary will stay the same at Dollars 1.15m.

The filing said Mr Reed, who was paid no bonus for 1991 and 1990, was being given the bonus in recognition of the success of his two-year revamping plan to return Citicorp to health.

Citicorp produced full-year 1992 net profits of Dollars 722m, after a loss of Dollars 457m in 1991.

But Mr Reed was only awarded 90 per cent of his targeted bonus, reflecting work still to be done at Citicorp.

Citicorp US United States of America P6021 National Commercial Banks PEOP Labour P6021 The Financial Times London Page 12 162
Nalgo to restrict strike payments Publication 930220FT Processed by FT 930220

NALGO, the local government union, is to restrict strike pay by sticking more strictly to its rules after emergency funds were depleted last year.

Disputes in three London branches - Islington, Newham and Camden - cost Pounds 9.5m last year.

National and Local Government Officers Association (UK) GB United Kingdom, EC P8631 Labor Organizations PEOP Labour P8631 The Financial Times London Page 6 74
Power deal may aid coal rescue Publication 930220FT Processed by FT 930220 By DAVID OWEN and MICHAEL SMITH

A DEAL struck recently between the regional electricity companies and the main power generators in England and Wales may have eased the government's predicament as it struggles towards a coal rescue package.

The deal over thermal efficiency rates written into long-term contracts tentatively agreed last month should result in better margins for National Power and PowerGen than would have applied if assumptions in the existing contracts had remained unchanged.

This may in turn encourage the generators to view with less hostility the government's insistence that they finance the stockpiling of an extra 15m tonnes of domestic coal.

Leaked correspondence dating from February 4 and 5 between Mr John Baker, chief executive of National Power, and Mr Michael Heseltine, trade and industry secretary, indicated that there was a virtual impasse.

The deal on efficiency is understood to have been reached five days later on February 9 or 10. 'No doubt the government is seeing this as useful,' said an individual familiar with the negotiations.

'The concession the recs (regional electricity companies) made was against the backcloth that the generators were being pressed to take additional coal tonnages,' said another.

The agreement is favourable to the generators because they would be deemed to have consumed less raw material per unit of electricity produced.

Efficiency improvements achieved over the past three years by closing inefficient plant means that assumptions written into the present contracts have fallen increasingly out of line with true efficiency levels and have contributed to the generators' excess coal stocks.

Under the new agreements, due to come into force in April, the regional companies would take about 5 per cent more electricity than under the old arrangements.

National Power PowerGen GB United Kingdom, EC P4911 Electric Services P12 Coal Mining P9611 Administration of General Economic Programs COMP Company News P4911 P12 P9611 The Financial Times London Page 6 326
Trafalgar House closes Clyde yard Publication 930220FT Processed by FT 930220

TRAFALGAR House has closed the Scott Lithgow construction yard at Port Glasgow on the lower Clyde because of a lack of orders in the offshore fabrication industry.

The former shipyard, which last April employed 900 people, has had almost no work since November. The yard is for sale as a going concern and employs 24 people.

Trafalgar House GB United Kingdom, EC P3731 Ship Building and Repairing COMP Company News RES Facilities P3731 The Financial Times London Page 6 90
'Illiteracy' of students alarms Patten Publication 930220FT Processed by FT 930220 By JOHN WILLMAN, Public Policy Editor

FOUR out of ten students entering further education colleges from school need help with literacy and numeracy, according to a survey published yesterday by the the Adult Literacy and Basic Skills Unit, an independent body funded by the government.

Mr John Patten, education secretary, said the findings revealed 'worrying levels of illiteracy'. He said they justified the government's policy of compulsory testing of 14-year-olds, which he confirmed would be extended to the subjects English and technology in England and Wales this summer.

In a move designed to divide opposition to the compulsory English tests, Mr Patten announced that the results of the first year's tests would not be published in school league tables. However, national totals will be compiled, allowing parents to compare their children's performance with the national average.

Teachers' unions had claimed that the tests, to be taken for the first time in June, had been inadequately prepared and that material for them had arrived at schools too late.

The two largest unions, the NUT and the NASUWT, said they would continue balloting members over boycotting the tests. Other teachers' unions welcomed the announcement.

Mr Peter Smith of the Association of Teachers and Lecturers described the decision as 'statesmanlike'. He said it was evidence that Mr Patten had heeded fears expressed over the tests in a meeting with teachers' unions earlier this week.

Mr Patten also published consultation documents setting out the government's plans for this year's performance tables for schools and colleges. The league tables will cover 4,000 state secondary schools and 19,000 primary schools. For the first time, they will also cover 2,000 independent schools, and 470 sixth-form and further-education colleges.

The tables will include national curriculum test results; GCSE, A-level and AS-level examination results; and truancy rates.

In a concession to independent schools, schools will be able to include GCSE exam results taken up to three years before the age of 16.

Last year, only results in the previous two years could be included, which meant that some schools which entered pupils very early for GCSEs appeared have fewer pupils with five or more passes at grade C and above.

GB United Kingdom, EC P9411 Administration of Educational Programs P8221 Colleges and Universities GOVT Government News P9411 P8221 The Financial Times London Page 5 395
Contract complaints dismissed Publication 930220FT Processed by FT 930220 By DAMIAN FRASER and STEPHEN FIDLER MEXICO CITY

The Mexican Comptroller General of the Federation has concluded that there is no basis to accusations of irregularities in the awarding of an air traffic control contract of Dollars 21m to Thomson of France and Alenia of Italy, Damian Fraser and Stephen Fidler write from Mexico City. Nor is there evidence to support a claim that government officials had sought bribes, the Comptroller said.

Five multinationals had complained that the first tender offer was unjustifiably cancelled in November last year.

Thomson Alenia MX Mexico P4581 Airports, Flying Fields, and Services MKTS Contracts P4581 The Financial Times London Page 3 116
Newspaper rescue in jeopardy Publication 930220FT Processed by FT 930220 By ALAN FRIEDMAN

The rescue of the New York Post could be in jeopardy in the wake of a legal victory by the Securities and Exchange Commission (SEC) against a company controlled by Mr Steve Hoffenberg, the newspaper's prospective buyer, Alan Friedman reports.

Towers Financial, Mr Hoffenberg's debt collection and factoring business, has consented to the SEC's demand for control over the company. It has also consented to the appointment of a trustee and to limits on expenditures as requested in a lawsuit by the SEC.

The SEC alleged that Mr Hoffenberg's company had fraudulently sold Dollars 215m (Pounds 151.4m) of notes and overstated its assets by more than double. Towers Financial was described by the SEC as insolvent. The newspaper takeover may be jeopardised because the SEC consent agreement limits the funds that Mr Hoffenberg may spend.

New York Post Towers Financial US United States of America P2711 Newspapers COMP Company News FIN Company Finance P2711 The Financial Times London Page 3 173
Bentsen gives yen further impetus Publication 930220FT Processed by FT 930220 By GEORGE GRAHAM and CHARLES LEADBEATER WASHINGTON, TOKYO

THE US dollar fell sharply against the yen yesterday, reaching a record low after US Treasury Secretary Lloyd Bentsen told reporters he wanted to see a stronger yen.

In Tokyo the dollar had already touched Y119.23, its lowest point ever, with the Japanese authorities showing little sign of trying to break its rise against the US currency.

But Mr Bentsen's apparently offhand remark, which he did not elaborate on, weakened the dollar still further to Y118.15. Traders said that if the dollar-yen rate broke through a floor of Y118.0, that could trigger further selling down to a new level of Y115.

The yen has strengthened throughout the week, apparently on rumours that a meeting of Group of Seven finance ministers and central bankers in London on February 27 might try to engineer an appreciation of the yen to choke off the rise in Japan's trade surplus with the US.

Mr Bentsen said the US would be in a much stronger position to 'restore its rightful leadership' of the G7 because President Bill Clinton's programme of increased taxes and cuts in federal spending would set a better example of economic policy.

Worries that the Clinton economic programme might undermine the US recovery have also weakened the dollar in Tokyo this week. However, the surge in the yen is also likely to be due to Japanese companies repatriating funds from abroad to improve their finances before books close on March 31. Most Japanese companies are facing their third year of declining profits.

Mr Mamoru Ozaki, the Finance Ministry's vice minister and most powerful bureaucrat, said there was no need for policy changes to address the strengthening of the yen.

The Japanese government would be happy for the yen to appreciate gradually, in part because this might help to correct the trade surplus. But senior officials at both the Finance Ministry and the Bank of Japan rule out any concerted effort by the G7 to manipulate exchange rates to reduce the surplus.

The long slowdown in Japanese money supply growth may be reaching its end, according to Bank of Japan figures published yesterday.

The broadly defined money supply fell by 0.3 per cent in January from a year earlier, the fifth consecutive month of contraction. However, the rate of contraction has eased considerably in the past few months from a 0.6 per cent fall in October and November and 0.4 per cent in December.

The bank's measure of broad liquidity, meanwhile, grew by 2.5 per cent from a year before, an unchanged rate from December.

Currencies, money markets, Page 13

US United States of America JP Japan, Asia P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs MKTS Market data P9311 P9611 The Financial Times London Page 3 476
Renault-Daf project switches to France Publication 930220FT Processed by FT 930220 By JOHN GRIFFITHS and ALICE RAWSTHORN PARIS

THE planned Pounds 300m-Pounds 400m Excel van project between Renault of France and the collapsed commercial vehicle maker Leyland Daf is to be taken over by Renault.

Production of the vehicles, intended to replace Leyland Daf's 200/400 models and Renault's Trafic range by 1995, will be moved from Birmingham to France before the year's end.

Final negotiations on the transfer are under way between Renault and Leyland Daf administrative receivers. A formal agreement is expected early next week.

The remaining 190 Leyland Daf employees working on the project - 80 were made redundant on Tuesday - have been offered continuing employment until the move to France.

It is unclear whether the French vehicle maker, one of Europe's largest, will seek another partner for the project.

Renault and Daf NV signed an agreement to develop the Excel range in 1989. The plan was for Leyland Daf to build its version at Birmingham's Washwood Heath vans plant, with Renault producing its vehicles at Batilly, eastern France. Each side had spent about Pounds 45m up to the time of Daf's collapse.

Management at the vans plant, led by managing director Allan Amey, are continuing efforts to assemble a management buy-out of the mainstream vans operation, with the advice of accountants Coopers & Lybrand.

Job losses will mount across France in the first half of this year as industry continues to cut costs and prune investment, according to the latest business survey by Insee, the state statistics institute, Alice Rawsthorn writes from Paris.

The rise in unemployment, after last year's 5 per cent increase to 2.98m people, will keep consumer confidence and spending depressed, the survey says. There is also little hope of a recovery in industrial expenditure.

The 2,000 companies questioned expected an overall cut of 4 per cent in industrial investment this year.

Yesterday's announcement confirms the gloomy tone of the Bank of France's business survey published on Monday and follows Thursday's news that the Insee industrial production index fell in December to its lowest level for four years.

Regie Nationale des Usines Renault Leyland DAF FR France, EC GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies COMP Company News TECH Sales agreements MKTS Production P3711 The Financial Times London Page 2 390
The old master of television shows his age: Alice Rawsthorn finds the French president looking increasingly like a man overtaken by history Publication 930220FT Processed by FT 930220 By ALICE RAWSTHORN

PRESIDENT Francois Mitterrand is far too experienced a political player to be tricked into making the same diplomatic gaffe on television two nights in a row.

When he returned last night to the theme of Europe's future in his second successive live question and answer session on French TV, he suggested that the UK government would find itself 'left on its own' for failing to sign the European Community's social chapter, rather than berating it for a 'lack of solidarity' as he did on Thursday.

The 76-year-old president was rather less guarded in his comments on French domestic affairs. 'What's it got to do with me?' he snapped when quizzed about the re-opening of the Pechiney insider trading scandal.

He then declared there had been 'no favouritism' in last Monday's deal whereby three state financial companies bought shares in Adidas, the German sportswear company, from Mr Bernard Tapie, the socialist minister of urban affairs.

The TV appearances marked Mr Mitterrand's debut in the French parliamentary election campaign.

The Socialist party, which he revived in 1971, has done so badly in the campaign that some polls predict it will not only be trounced by the conservatives in next month's elections, but beaten into third place by the ecologists.

Mr Michel Rocard, former socialist prime minister, on Wednesday called for a 'political big bang' in which the left would abandon the Socialist party after the elections in favour of an alliance with ecologists and human rights activists.

Mr Mitterrand has, in the past, been such a master of the television medium that he should have shrugged off such handicaps.

His TV style is typically a brilliant blend of presidential gravitas, usually deployed when he wants to avoid answering tricky questions, peppered with colloquial references, which not only lend him a reassuringly avuncular air to the electorate, but enable him to flirt unashamedly with female interviewers.

What the socialists needed was a repeat of his virtuoso performance in the three-hour TV debate before last autumn's Maastricht referendum. What they got was a president who looked worn, weary and even evaded a few questions. He stumbled over dates on Thursday and almost lost his temper last night.

The tone of the questions was remittingly bleak. One unemployed man worried about his pension. A hospital worker deplored the 'dreadful deterioration' in medical standards. 'What will become of our Lorraine?' wailed one middle-aged woman. Another lamented the decline of the Ardeche. 'Our businesses are closing. Our farms are disappearing,' she said.

'That's demographics,' said President Mitterrand, looking increasingly like a man overtaken by history.

Liberation, the centre-left newspaper, said in an editorial yesterday that he had seemed 'cut off' and that instead of delivering 'a big bang' like Mr Rocard, all the president could come up with was 'a black hole'.

FR France, EC P9111 Executive Offices PEOP Personnel News Mitterrand, F President (France) P9111 The Financial Times London Page 2 516
Private View: Lawyer whose profession is peace - Torkel Opsahl, a Norwegian expert on human rights, has returned to the Irish conflict to head a citizens' inquiry Publication 930220FT Processed by FT 930220 By CHRISTIAN TYLER

IN AN upstairs room in Belfast this week, a Catholic taxi-driver whose son was killed by a Protestant gunman was answering questions from the widow of the last prime minister of northern Ireland.

Listening to him in the front row of the audience was the lanky figure of a well-known Ulster Unionist borough councillor, one of the Province's landed aristocracy.

A woman with a well-educated English accent rose to tell the panel that the front of her house was in a Catholic street, the back in a Protestant one and that nobody would talk to the army or police for fear of being, as she put it, 'bumped off'.

At the back of the room a woman with an Irish accent complained of 'a colonial situation'. A grey-bearded man with a briefcase said both sides should take up meditation. Could he have Pounds 75,000 to buy a vacant hall in the city?

This was a session of the Opsahl Commission, an independent, charity-funded 'citizens' inquiry' which has been taking the views of everyone from prelates to prisoners in the hope of making fresh sense of a conflict which has defied all efforts for 23 years.

The commission's chairman is Torkel Opsahl, a human rights expert who is professor of law at the University of Oslo. His experience of human conflict dates back to the Cold War - he studied in New York and Moscow in the early 1950s - and includes the Middle East and Bosnia today.

But what can a Norwegian professor, however qualified and however well assisted by his panel of six commissioners, hope to extract from the most-analysed political problem of the western world?

Over a late-night glass of lager, I asked him why he had accepted the invitation.

'There is a personal dimension and a professional answer,' he said. Opsahl's lawyer-like discretion seems more acquired than inborn: he is a man who appears to enjoy an excuse to unbutton. Several times he emphasised that he was tonight making an exception of his rule not to talk too much.

He told me that he had heard many Irish cases in the 1970s as a member of the European Commission of Human Rights and had got to know many victims - or alleged victims - of the security forces.

Cases sent up from the Maze Prison? I asked.

'Oh, yes I have been to the Maze prison to interview Bobby Sands (the hunger striker) a week before he died.'

But this is not really a human rights inquiry, is it?

'No, it's not. It's peacemaking . . . no, that's too pretentious. But it's an effort to see if there is after all any light in the end of this tunnel. This commission is a very different thing but it rang a bell with me because I have friends from that time.'

After years working on human rights Opsahl was tempted by the chance to play a new role. Besides, life in Oslo was becoming dull.

What can an outsider bring to the job, apart from a pair of ears?

'But that's the most important thing. I didn't expect to bring anything but they asked me to come. I said I will bring whatever understanding I have. I can listen, I can read.'

Is this really a lawyer's task?

'Lawyers are useful for many things, to find honourable compromises, that's our purpose. 'Trained incapacity', isn't that what lawyers have?'

The professor of constitutional law is a beefy-looking man who took up his profession 'for a strange mixture of reasons'; one of which was that 'you could still become a journalist, playwright or sports star'. He felt no envy for friends who went on to big things: one is Norway's foreign minister, another its chief justice.

Opsahl is a founding member of Amnesty International and in that capacity was an observer at the Daniel and Sinyavsky trial in Moscow. For 15 years he was an adviser for the Nobel Peace Prize committee but resigned, unobtrusively, in protest at the joint award in 1973 to Henry Kissinger and the north Vietnamese Le Duc Tho.

He is also one of the five lawyers who have been collecting information for the UN about war crimes in Bosnia: their report has just gone to the secretary-general.

At one point I said something about northern Ireland's middle class being above the conflict. Opsahl leapt on the word class.

'Are you a Marxist? I thought I was until I met my wife (a teacher of philosophy). She was a Marxist-Leninist and I had to talk her out of it - and at least the Leninist part has gone.

'I was for a time attracted to the class analysis. You say 'middle-class'. I think of the Protestant and Catholic working class here and I don't think Marx has helped them a lot. God hasn't either, as far as I can see. But the class analysis may still be valid here.'

I asked him what prejudices he brought to the job. If he had prejudices, he said, they would arise from having come in contact with people ill-treated by the authorities. But, he assured me, he had not from that concluded that the army and Royal Ulster Constabulary were made up only of oppressive bigots.

'No more did I come here with the idea that this is the last part of the Empire which Britain is fighting to preserve, or anything like that.'

Opsahl was reluctant to advertise his views before the commission, whose hearings end next week, reports this summer.

A few things are clear. One is that he mistrusts the idea of 'self-determination'.

'It is a good slogan wherever you go and it causes a lot of killing and bloodshed. But I don't think it's a very helpful concept, especially not in northern Ireland.'

Another is that he thinks ethnic conflict should be tackled pragmatically, not by brandishing principles. He had learned what he called a deep wisdom:

'It is that conflict is inevitable in all societies, conflicts have no solutions, conflicts must be managed but they can't be solved. Someone in the UN Human Rights Commission said once that if you want solutions you should ask for chemists.

The process was more important than report, he added. One of the 600 submissions had suggested that it might be better to abandon talks at the political level and try to build consensus slowly, undramatically, on the ground.

'I like the sound of this, but I don't know where it leads us. Because it could look rather, what do you call it?'

Defeatist?

'Defeatist, yes - that we can't do anything political, that we only work on social matters, on the environment, commerce and unemployment. Should one come out publicly and say there is no institutional answer?'

Opsahl would not answer his own question directly but he reminded me that there is another argument: unionist fears and nationalist demands mean there can be no peace until the constitutional problem has been dealt with.

I get the impression your inquiry is not taken seriously here, I said.

'But I have never had so much press in my life before. Anyway, it doesn't matter so long as we get all these intelligent submissions.'

If the process is ignored, the result may be ignored too.

'Yes. If it's ignored by politicians and those who have influence, ideas and the will to do something - then we have lost.'

What is your minimum expectation and what is your maximum hope?

'The minimum ambition is to write a good report. You can say that even a good report will just go into the drawer somewhere. But I think it will be read with attention by most of those who can influence developments here. I am not saying they will adopt the proposals, but it may give them some insights.

'My maximum expectation is of course that the process will lead to peace in northern Ireland within the foreseeable future. I say 'peace' because I think the ending of the violence is a precondition for results, but I am not saying there must be formal peace agreement.

'Most of the parties to the conflict have locked in pictures of each other as enemies. But they should be told that really they have no enemies. It's more fear than animosity which is the problem.'

When you are back on your farm in Norway does this commission keep you awake at night?

'I see this as a job, not as my own destiny. But as I said earlier on I've done enough fact-finding and applying laws. This is different. It's . . . again, 'peacemaking' is too ambitious . . . being part of a process for managing conflict. I've always believed that conflicts are there to be managed if they cannot be solved.'

Opsahl Commission GB United Kingdom, EC P8399 Social Services, NEC CMMT Comment & Analysis PEOP Personnel News Opsahl, T Chairman Opsahl Commission P8399 The Financial Times London Page XXVI 1536
Pretoria's environmental test: The battle near South Africa's St Lucia game reserve Publication 930220FT Processed by FT 930220 By PATTI WALDMEIR

AT FIRST thought, it seemed an outrage. In the midday heat, I had stopped for water on the long march up the slopes of the St Lucia sand dunes, through darkly green tangled forest, home to the black rhino. Under the spell of the surrounding bushveld, I could hardly bear to think of the plan to strip-mine adjacent dunes for lucrative heavy minerals.

Surely it was sacrilege to allow Mammon's bulldozers to rip through the dangling lianas and uproot the feathery thorn trees, to chase away insect and mammal, to destroy the magical wilderness which had soothed my urban soul?

South African nature lovers had all reacted similarly on learning that Richards Bay Minerals, a South African company 50 per cent owned by RTZ and one of the world's most profitable mining concerns, planned to mine near Natal's St Lucia game reserve, and its extraordinarily beautiful coastal dunes and coral reefs, saline lakes and marshes.

Some 300,000 people signed petitions to protect the site on the Indian Ocean coast, an area designated under the 1971 Ramsar agreement (drawn up under the auspices of the International Union for the Conservation of Nature and signed by South Africa) as a globally important wetland.

An environmental impact assessment of the project by independent scientists is to be released on March 18. It will be reviewed by a public panel headed by a judge, but the government will have the final say.

Conservationists defend one of South Africa's few remaining wilderness areas with zeal, urging the spiritual benefits of communion with nature against the demonstrable returns of a mining project expected to generate R6bn (Pounds 1.3bn) over 17 years from exports of titania slag, pig iron, rutile and zircon.

Apartheid adds a further twist to the environmental dilemma: in the new South Africa, with its desperate need for jobs and economic development, nature conservation is often seen as a white elitist concern. Conservationists have largely themselves to blame for this: they evicted blacks from their ancestral homes to create game reserves from which blacks were barred.

For the moment, the debate is largely between whites: Richards Bay Minerals on one side and such internationally respected figures as Ian Player, the Natal conservationist who saved the white rhino from extinction, and author Laurens van der Post, on the other.

The company admits it was slow to defend its plans when it announced them three years ago. Since then, it has built an impressive case in favour of mining 1,400 hectares of sand dunes which are outside the nature reserve, but within the area designated as a protected wetland under international convention. (A government commission decided in the 1960s to create a Greater St Lucia Wetland Park, encompassing the entire area, but the project never happened.)

The company's defence relies on its promise to restore the dunes after mining: to reshape them, replant them and return them to their original fecundity.

Nature lovers can be forgiven for scepticism about such a quasi-divine undertaking; but the results of RBM's dune rehabilitation project at nearby Richards Bay are impressive. It is 14 years since the first dunes were mined, the replanted forest can boast 250 plant species compared with 243 in the original forest, and RBM scientists believe half the bird species common in a mature forest are already present. Company scientists believe the dune forests will reach maturity in about 25 years; and though they will not be identical to the original forest, they will be equivalent in biological diversity.

Ideological purists oppose the notion of mechanically rebuilding dunes formed by natural forces; but little of the proposed mining area is pristine forest. Two-thirds is covered in pine plantations, which are being harvested. The Natal Parks Board plans to leave the area to regenerate on its own.

The conservationists' main concern is that mining will disturb the hydrology of the dunes: the underground channels which carry rain water to supplement the fragile ecosystem of nearby Lake St Lucia, the focus of one of South Africa's richest wildlife reserves and the biggest estuarine lake in Africa.

Player argues that, in droughts, fresh water from the dunes alone sustains the lake's hippos and crocodiles (the hippo population is the largest in southern Africa). Environmentalists fear the fragile saline balance of the lake will be disturbed, both by destroying these channels, and by the extra water used in mining. They say RBM should mine a nearby area which is less environmentally sensitive - but which the company says would be far less profitable.

The new South Africa is a harshly pragmatic place where economic development is seen as crucial to a peaceful transition to democracy - and where the prospect of R6bn in foreign exchange earnings could easily outweigh the longer-term benefits of more sustainable jobs but much smaller revenues if eco-tourism were developed in the area.

Indeed, with the impact assessment understood to stop short of predicting definite damage to the area (while failing to promise there will be none), mining will probably go ahead. Only time will tell whether future generations will again enjoy the peace of the dunes - with a little help from man.

Richards Bay Minerals ZA South Africa, Africa P10 Metal Mining P9512 Land, Mineral, Wildlife Conservation RES Natural resources P10 P9512 The Financial Times London Page XXVI 905
Mark of evil on Adam's Apple: Dominic Lawson investigates the apparent rise in violence by Britain's young Publication 930220FT Processed by FT 930220 By DOMINIC LAWSON

THE Black Museum is the name given to a long dank room in the basement of New Scotland Yard. In it are collected exhibits of some of the ghastliest crimes and punishments.

The Black Museum is not open to the general public, but instead provides an afternoon's diversion for groups of people who have professional contact with the police, such as solicitors, and, it must be admitted, journalists.

Just below the ceiling, by the door, is a row of death masks of the heads and necks of rather non-descript looking men. If the police are hunters, these are some of their trophies.

The policeman showing visitors round is inclined to ask the question: 'Can you see any common factor in the appearance of these men?'

The answer, given with relish, is: 'They all have crushed Adam's Apples.'

The trophies are the death masks taken of criminals who had just been hanged.

The original reason for the taking of death masks of criminals in the 19th century was, in fact, to find some common factor of physiognomy, in particular of the skull.

At that time the fashionable idea in criminal pathology was that not only was there such a thing as a criminal mind; there was also a criminal face. Not surprisingly the criminal face was supposed to be somewhat ape-like, with a low brow, and small, narrow set eyes. The idea was that policemen would come into the Black Museum, study the skulls, and look for similar characteristics among suspects.

Nowadays we laugh at such methods of detection. But the inspector plods of the 19th century did not have DNA testing to aid them in their hunt for the guilty men. And perhaps there is a case for returning to the idea of, if not the criminal face, at least that of the criminal cerebellum.

The country has been shocked by an apparent wave of crime among the young. The police have arrested two boys of 10 in connection with the kidnapping and murder last weekend of a two-year-old Liverpool toddler, James Bulger.

On Tuesday the newspapers reported the case of a 13 year old boy who is alleged to have stolen more than 200 cars. He is being held in a Pounds 500-a-day 'secure unit', more than 300 miles from his home. The boy was taken from court in handcuffs.

On the same day the case was also reported of a 15 year old schoolboy, Stuart Smith, who broke into the home of a 23 year old mother, and, at knifepoint, raped and assaulted her over a period of two hours. The schoolboy threatened to kill the woman's one year old child, if she did not submit. At one point the child woke up, and the boy sexually assaulted the mother as she attempted to comfort the infant.

Fortunately, the judge who recently freed another 15 year old rapist with the recommendation that he pay Pounds 500 to give the victim 'a good holiday' was not presiding over this case. Stuart Smith was ordered to be detained for life.

These, and other cases have started a process of national self-examination, to find out why we are breeding a new class of sadistic killers. Probably we are not. It is not so much that crime is increasing among the young, as that the reports of it have become far less heavily censored than in the past.

Forty years ago the newspapers would talk only of 'serious offences' in the reporting of crimes of an unnatural sexual nature. Nowadays even The Daily Telegraph uses the word 'buggery' when covering such matters. And assaults on little children, with or without the social workers' invented category of 'Satanic Ritual' are also traditional English pursuits, like fox-hunting and pigeon-fancying.

As Brian Masters, a specialist in the field of criminal analysis, wrote in my own magazine last week: 'A statute in the reign of Henry II fixed the age of consent at ten, which presupposes that sexual contact with young girls, even perhaps with girls under ten, was then common, if it had to be prohibited by law.'

I suspect that single parent families, now widely - and with some reason - touted as the source of youthful criminal excess, were not so widespread in the days of Henry II. Nor was the sentencing of youthful offenders particularly lax in medieval England.

As the novelist Sally Emerson wrote this week in The Times: 'Even among the very young there are children who are simply bad. Certain children show a savagery, even as babies, which is frightening. Their parents, interestingly, are unable to see the evil others witness.' Primitive stuff.

Perhaps it is time for the police to dust off those death masks in the Black Museum, and bring them up into the light, for the public good.

Dominic Lawson is Editor of The Spectator.

GB United Kingdom, EC P9229 Public Order and Safety, NEC PEOP Personnel News CMMT Comment & Analysis P9229 The Financial Times London Page XXVI 858
Truth of the matter: Caring for the carers - Euthanasia Publication 930220FT Processed by FT 930220 By JULIA RILEY

IN THE current debate on how far doctors may go to relieve the sufferings of the terminally ill, I believe the advances in palliative medicine have often been underestimated, particularly by those who say mercy killing can be justified.

The UK is a world leader in this branch of medicine (the science of treatments to relieve symptoms created by disease, rather than curing the disease itself). It started when Dame Cicely Sanders founded the Modern Hospice Movement in 1959. A new concept at the time, it unfortunately continues to be an alien concept today.

Palliative medicine is now a recognised postgraduate speciality in the National Health Service. It is, however, unique, in that it started in people's homes and in the charitable sector.

The health service recognised the enormous value of charitable hospices and has therefore incorporated and accredited some hospices in which doctors can train in the speciality.

It is well-known that most people wish to die at home. The reality is that most people die in hospitals. This can be changed. The answer is to support patients and their relatives in the home. In 1911, 27-year-old Douglas Macmillan looked on helplessly as his father suffered from, and eventually died from, cancer of the oesophagus. Later that same year he set up Cancer Relief. Today there are nearly 1,000 Macmillan nurses throughout the United Kingdom, most of whom are community-based.

Recently, the role of the Macmillan nurses has extended into helping improve care for patients in hospitals as well. Their main role is support and advice about alleviation of symptoms.

Ask yourself, what is the role of a hospice? Many will answer: it is a refuge for the dying. No, I say, it is a place to control symptoms that cannot be managed at home. The symptoms may be those of the patients or the carer.

The reasons for admission to a hospice are numerous. They include physical symptoms such as pain, vomiting, fatigue, weakness, loss of mobility and many others. There are emotional factors such as fear, anxiety, panic or depression. The list is endless. Then there is the question of a carer, or lack of a carer at home. Respite admissions, offering a period of rest for the patient and the family, is also common.

Pain control is, of course, essential to the running of a good Palliative Medicine Unit. Pain has many components to it. It is influenced by disease, anxiety, previous experiences and fear. It is rare that pain cannot be controlled, although each patient has a different pain threshold.

The greatest fear of dying patients, and indeed, the public at large, is pain. The cry of 'I would rather die than be in pain' is heard all too often. The reality is that the vast majority of patients' pain is well controlled by specialists in this field. In an extremely small minority, if pain control is inadequate, sedation is an alternative. This is effectively increasing the patient's sleep. It is not taking life. It is kind. It is compassionate. It is merciful to both the patient and his or her family and loved ones.

Dealing with dying patients every day, I have yet to come across a patient to whom we were not able to bring comfort in the last phases of life. The most important question is therefore one of education, not euthanasia. If patients and doctors know where to turn for help, cases such as that of Dr Alan Cox, the Winchester doctor who was found guilty of killing a terminally ill patient, will be history.

The health service has recognised the need. The speciality is growing and new posts are being created by the NHS annually. Ultimately, we should have palliative medicine physicians in all hospitals caring for those that are terminally ill.

In a column on this page, Hugh Dickinson, the Dean of Salisbury, said that if we do not 'address it (euthanasia) and find and acceptable legal protection for it, I believe we will find people taking their own lives and the lives of their dear ones into their own hands'. May I contradict him and say that euthanasia is the removal of life and is not acceptable, and if the law changes to make it in any way acceptable, then we most certainly will run the risk of people taking the lives of their dear ones. Taking one's own life is a different matter altogether.

So let us not change the law about euthanasia, but rather change our attitudes to dying.

Dr Julia Riley is senior registrar, The Princess Alice Hospice, Esher.

GB United Kingdom, EC P80 Health Services CMMT Comment & Analysis P80 The Financial Times London Page XXVI 800
Arts: Dead pop lives] Publication 930220FT Processed by FT 930220 By ANTONY THORNCROFT

NOW THAT contemporary pop music is dead, killed off by boredom, raves and a healthy teenage rejection of the established, we can enjoy ourselves indulging in the best of pop's past. After all, other art forms have long feasted off dead poets, dead artists, dead composers.

So a warm welcome for the B-52s, a transitory star which flashed across the pop firmament around 1980. They have been London's rave from the grave this week at the Hammersmith Apollo. The B-52s' specialised in arty trash. Everything about them was designed mildly to titillate the style set.

They were from Athens - Athens, Georgia, wouldn't you know. Their name has nothing to do with bombers (although it enables them to swoop around the stage arms akimbo playing planes) but with the beehive hair style de rigueur in the late 1970s. Their music was new wave disco but secondary to their on-stage antics. These were built around two girl singers with competing bouffants, come-on gestures, and clothes grabbed from a fancy dress chest, prized apart by the decidely camp Fred Schneider.

The B-52s enjoyed their brief flutter of fame but then resurfaced in the late 1980s. They are a cult, but a big one. If anything they have now over-dosed on the kitsch. The ultimate B-52s' movie would be Hairspray out of Twin Peaks. So no surprise that hair styles feature prominently in the new stage show and that they have recruited Julee Cruise, the breathy singer from Twin Peaks, to be one of the bimbos. In a black bunny suit, peroxide hair, she grinds and pouts and postures like a try-out for the Kit Kat Club. In contrast veteran Kate Pierson looks like a sedate Barbie Doll.

Most mesmerising of all is Schneider. Weighed down by silver chains, he is the lawyer who has decided to come out of the closet at the firm's Christmas party. There is a 'I know this is ridiculous but this is the real me' expression on his po-face as he runs through the B-52s repertoire of very silly songs, from 'Hot Pants Explosion' to 'Loveshack'.

The appeal of the B-52s is that they know it is tacky but they are not going to crack up. Pretending to be lobsters with their one smash hit 'Rock Lobster', or Wilson, Keppell and Betty in 'Mesopotamia', is a serious business, and it is their integrity which makes it wholly enjoyable. Above all the B-52s are fun.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups CMMT Comment & Analysis P7929 The Financial Times London Page XXIV 439
Arts: A 'Trelawny' to warm the heart - Alastair Macaulay hails the National's production Publication 930220FT Processed by FT 930220 By ALASTAIR MACAULAY

HERE IS the best revival of a Pinero play I have seen, and the first to do Pinero proud since the National staged The Magistrate some seven years back. The whole production, a triumph of ensemble acting, brings out the best in the play; and the first two acts, in particular, are among the Olivier Theatre's triumphs. Everything shows how adroitly Pinero could interweave three kinds of drama: realistic social comedy, backstage comedy, and sentimental melodrama. And the play shuttles so delicately between laughter and tenderness that tiny details may prompt laughter one moment, tears the next.

The beauty of this Trelawny is not in its fun - more laughs could be milked at several points - but in its human detail. It lies in little lines like Mrs Mossop's 'I hope the affliction of short breath may be spared you, Albert' (panting gently in an armchair) and Imogen Parrott's little remembrance of 'a supper which rather - well, I'd had some strawberries sent me from Hertfordshire' (looking momentarily bilious); and Sir William Gower's quaint old pronunciations: (looking for chairs) 'Have ye no cheers here?'

And it is at its most touching in the Telfers, former theatrical stars, now rather pompous but learning to deflate their stature and become yesterday's people. Pinero really creates a living world onstage - can an artist do more? - so that the Act One lunch party is as real to us in all its overlapping detail as that in Act One of The Three Sisters. Through this tapestry, Pinero threads his central stories so subtly that you never know for long how much it matters that Rose Trelawny should marry, or that Tom Wrench's comedy should be staged.

Helen McCrory catches, with marvellous spontaneity, Rose's blend of outsize theatricality and well-mannered refinement; and in her second-act costume she looks ready to sit for Winterhalter. Robin Bailey makes Sir William's fustian pronunciations one of the comic masterstrokes of the evening; and those of us who have loved, since Black Snow, his genius with extraneous wordless noises are treated to a gorgeous array of disapproving whinnies and nervous mini-neighs, all in character. His finest moment comes as this old grandfather tries to remember how Kean played Richard III. 'A horse] . . . made something summer by . . .'

As the Telfers, Betty Marsden and Michael Bryant give object-lessons in the old saying that there are no such things as small roles. It is perfect that Marsden's first word, 'Violent,' should evoke Edith Evans (the full trisyllabic emphasis deployed in Evans's Millamant). Bryant actually throws away some of the comic potential of Telfer's adorably stuffy toast - throws it away in favour of catching the character's faintly absurd dignity. There is something about Bryant's greatness in supporting roles that makes me tremble in awe.

The cast is large, admirable, and full of detail, and John Napier has provided four different sets, each enlarging our sense of the world within; I should like to describe all of them. There are moments when Pinero's plot starts to seem too conventional (late in Act Three), and bit parts in Act Four that are acted more for staple comedy than for sincerity. But I note that Bernard Shaw found more fault with the 1898 premiere than I do with this; and that he nonetheless found that it showed Pinero at his most wise and affecting.

In repertory at the Olivier Theatre; sponsored by Data General

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page XXIV 618
Arts: Amateurs take centre stage Publication 930220FT Processed by FT 930220 By SIMON TAIT

RICHARD LUCE, they said, was the best arts minister because he came to the job 'without any preconceptions'. In other words, he knew nothing about the arts and did not pretend to.

But he became the longest serving arts minister, and the forays he made into the cultural hinterland brought a missionary gleam to his eye. He found communities where the arts had a central social role, but the only arts available were amateur.

After five years in the job Luce resigned, having ordered the most fundamental reorganisation of arts funding and the Arts Council since Lord Keynes set the ball rolling in 1945.

What is not generally known is that the amateur was at the core of his thinking when he commissioned his former chief civil servant, Richard Wilding, to reassess the arts subsidy structure.

Now Luce has become chairman of the Voluntary Arts Network (VAN), funded with money from the Gulbenkian Foundation, the Baring Foundation and the Arts Council. It will act as a catalyst for amateurs, with an information network and training advice, as well as lobbying for the voluntary arts. Peter Stark, the former head of Northern arts, is the director.

'I realised that it is entirely possible for people of all backgrounds and talents, wherever they may come from, to enjoy music, opera, drama and dance, or to learn to paint, write or become a craftsman' Luce said at the Royal Society of Arts recently. 'But I became increasingly aware that, despite all the advances made in the support of the professional artist, society was paying scant attention to the potential role of the amateur.'

In the national arts strategy published last month the Arts Council has duly broken with Keynes's founding principle that the amateur was not a real artist. Research has found that more than half the population participates in the arts somehow, and the final document, A Creative Future, pledges support through practical help and funding for training.

And when VAN was just a steering group it commissioned a report from the Policy Studies Institute which identified no fewer than seven million voluntary artists, and half a million of them members of 28 umbrella organisations like the National Federation of Music Societies.

The NFMS has 1,350 member societies, and there are probably as many more which are not members. 'There is a remarkable resilience' said Russell Jones, director of the NFMS. 'With the recession, cuts in local authority funding, the difficulty of getting sponsorship, it's amazing they're not going under in droves, but our membership has increased steadily.' Their resilience may be that, unlike some professional bodies, amateur arts organisations have diverse sources of funds, so that the loss of one is not necessarily fatal.

Some sponsors have recognised the voluntary sector's potential, however. Sainsbury saw it a decade ago, and the Choir of the Year competition - which ended its seven-week BBC television run this week - is one of their longest standing sponsorships, costing them about Pounds 250,000 a year.

BT's new marketing head, Rodger Broad, has taken amateurs further with the BT Biennial, in which Little Theatre Guild amateur theatres get to put on a professional play specially commissioned, and now the new 'Making More of Music' programme with the NFMS, announced last month.

And the Business Sponsorship Incentive Scheme started by Luce, whereby first time sponsors' largesse is matched by government money, is being modified to reach amateurs.

GB United Kingdom, EC P7319 Advertising, NEC P8299 Schools and Educational Services, NEC CMMT Comment & Analysis TECH Services P7319 P8299 The Financial Times London Page XXIV 610
Arts: St Jonathan's Passion Publication 930220FT Processed by FT 930220 By ANDREW CLEMENTS

ONCE ubiquitous, Jonathan Miller is now at pains to distance himself from the opera establishment in Britain. He has consistently accused the London critics of malicious attacks on his productions, renewing his complaints in an extraordinary self-pitying interview published in The Independent last week. Now Miller works exclusively in the US and mainland Europe, safely out of reach of the slings and arrows of the London critical mafia.

But he has been tempted back to London to direct a dramatisation of the St Matthew Passion, conducted by Paul Goodwin. The performances in Holy Trinity, Sedding's beautiful church just off Sloane Square, are certainly collector's items; fully staged versions have occasionally appeared in German opera houses, but here the Bach passions have a ritualised concert life, usually shorn of any liturgical significance. The object of this new version, says the programme book, is to make the passion 'accessible to audiences through its humanitarian and powerful messages'.

There is certainly nothing extravagant about Miller's dramatic packaging; it is delivered in the round, with the two choirs (12 voices each) and the period-instrument orchestras grouped around a small acting area. Everyone wears casual clothes, the lighting is functional, props are confined to a loaf of bread, an apple and a glass of wine; there is also a table at which the Evangelist and later Pilate can sit. The chorus rises from its seats at crucial moments, grouping and regrouping about the conductor, while the soloists are more peripatetic; they migrate between the two antiphonal bands, break the circle or move to join forces with the obbligato players in the arias.

The effects are approximate, the dramatic elements generally obvious. Nothing appears to articulate the parallel narrative flows of the action, to make a contrast between the Evangelist's story-telling, which is sometimes illustrated in mime, and the moments when the protagonists take on the burden of the drama themselves, in which operatic conventions might have been expected to apply. One hesitates to resort to the term, but the St Matthew Passion contains its own element of alienation, and any version that attempts to beef up its dramatic potency (begging the question of whether that is needed at all) really ought to have taken that into consideration.

For a project that aims to make the work more accessible to an English-speaking audience it seems extraordinary too that it should be sung in German. In the end everything that Miller has added to the work seem purely cosmetic; none of his glosses draws the listener into the action or expose new layers of meaning, any more than transferring a production of Tosca to fascist Italy or a Rigoletto to New York sheds new light on those genuine operas.

The greatest achievement of this particular passion is probably to convey the impression that everyone is consistently involved in the performance; players and singers watch each other like hawks, and the chorus takes an intense interest in what the soloists are saying and doing. That in itself guarantees closer attention from the audience, and the musical performance is a thoroughly decent one. Goodwin's effusive gestures convey a good deal of brisk common sense; nothing is allowed to sag or drag, the lean instrumental detail is always busy and pertinent. The choruses are young and involved; there is an eloquent, lucid Evangelist from Rufus Muller, a woolly toned but physically intense Christus from Richard Jackson, stylish accounts of the remaining arias from Nancy Argenta, James Bowman, Jamie McDougall and Stephen Varcoe. If the event is worth catching for its uncomplicated musicality, the rest has curiousity value only.

Holy Trinity Church, Sloane Street, London SW1; further performances tonight and tomorrow

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups CMMT Comment & Analysis P7929 The Financial Times London Page XXIV 642
Arts: Suggestion and dream - The work of Zoran Music and Ricardo Cinalli Publication 930220FT Processed by FT 930220 By WILLIAM PACKER

THERE IS a usually a great deal of contemporary foreign art on show in London, but unless it conforms to current critical orthodoxy, we do not always give it the attention it deserves.

Zoran Music is now 81. He was born in Slovenia, studied in Zagreb and then Madrid, returning to Dalmatia at the outbreak of the Spanish Civil War. In 1944 he was arrested by the Gestapo and sent to Dachau. These many years past he has divided his time between Paris and Venice and was indeed accorded an Omaggio, a special showing at the Venice Biennale of 1984. But occasional shows apart, he remains as shadowy and fugitive in his life as in his art, his reputation more the creature of private enthusiasm than of general acclaim - his work held in the Sainsbury Collection, for example, is currently on show at the University of East Anglia at Norwich.

His manner of working is slight and sketchy, the image tentative in its statement, hinted at, teased out of the gentle flurry of a few deceptively rough, loose marks. It is an art not of any precise description, but of suggestion, imaginative association, atmosphere, experience to recognise and share. It may be a landscape, the dark, rich interior of a cathedral, a Venetian alley, a seated figure: always the essential feeling is the same, of the work left off, the sentence unsaid yet understood, the thought left hanging in the air.

The works at Gimpel, drawings and paintings, fall into two groups: the recent figures, the self-portraits and studies of the artist's wife, with examples of earlier subjects such as the cathedral interiors; and works from the Dachau series of the early 1970s which, with prescient pessimism, he entitled 'We are not the last'.

It had taken Music 25 years to address his experiences at Dachau directly in his art. There is a painting here, of about that time, of a fallen bush or tree, a scrubby drawing in paint on the unprimed canvas, with the branches or tendrils falling out untidily towards the viewer. And across the room we find the same understated, formal composition, and the same untidy sprawl of limbs, in the pile of corpses that is the lasting image and memorial of the concentration camp.

Ricardo Cinalli is a young Italian painter with two current shows of distinct groups of work. The series of large pastels on tissue paper, that he calls his 'Premonitions', on which he has been working since 1985, is at the Accademia Italiana; and at Long & Ryle is his recent 'Dreams' series, in tempera on board.

He is a figurative artist of remarkable technical ambition, his pastel drawings worked on a truly architectural scale, despite the natural flimsiness of the tissue as support and the delicacy of the medium. In imagery too, ambition is very much the word, for he takes upon himself the unforgiving test of the figure composition tradition, which in many respects he carries off admirably. There is great energy to these works, remarkable technical control in the drawing, and much fun and wit in the particular content. His nude figures writhe and twist and fall about in their unspecific, sub-classical Arcady, into which at any moment a monstrous foot might fall, to squash them all.

But the technical command is itself a limitation, for to command so extensive a surface with an essentially graphic technique, Cinalli has had to resort to a particular and consistent mark that all too soon obtrudes as a quality in itself - mannered and insistent, imposing its decorative visual texture across the entire work. As decorative architectural pieces, set at a distance, they serve well enough.

With the small tempera 'Dreams', on the other hand, he perversely takes more risks. They are not altogether successful, but they are more interesting, albeit quirky and inconsistent, often awkward and improbable in the drawing, studies for further experiment and development. They too take their start in the Renaissance composition tradition, in this case images and parables of imprisoned saints and sinners, with angels arriving miraculously to set them free - or less miraculously to be tempted in their turn. But they look also to the nearer tradition, to the metaphysical strain in early 20th century Italian painting, to de Chirico, Savinio, Carra and Sironi. There is more going on and, we must hope, even more to come.

Zoran Music: Gimpel Fils, 30 Davies Street W1, until March 27. Ricardo Cinalli: Accademia Italiana, 24 Rutland Gate SW7, until March 14 and at Long & Ryle, 4 John Islip Street SW1, until March 19

GB United Kingdom, EC IT Italy, EC P8412 Museums and Art Galleries CMMT Comment & Analysis P8412 The Financial Times London Page XXIV 812
Arts: Lutoslawski celebration Publication 930220FT Processed by FT 930220 By MAX LOPPERT

WITOLD Lutoslawski turned 80 in January. He is a composer widely and justly admired, since he has achieved a creative synthesis - between unfailing 'progressive' concern for form and content and equally unfailing knack of 'approachability', between experimental boldness of sound-invention and strict probity of craft - matched by very few in this turbulent, stylistically heterogeneous century of ours. He continues to compose (the Fourth Symphony had its premiere in Los Angeles earlier this month); each new work arrives at some fresh reconciliation of new and old, sounding peculiarly fresh, exact and 'personal' the while and lasting not a note longer than necessary.

This last week it has fallen to Manchester to host a Lutoslawski birthday festival: eight days and nights of concerts, educational projects and talks. The Royal Northern College, Manchester University (whose Professor of Music, John Casken, has strong links with Lutoslawski from his student days in Warsaw) and the Halle Orchestra have all joined in - and so has Radio 3, broadcasting three of the events live.

Lutoslawski himself conducted the Halle's Thursday concert (final of the three broadcasts). This brilliant event, crackling with vitality and bursting with exuberant sonorities in sharp-cut outlines, seemed to sum up everything that makes Lutoslawski worth celebrating. There was no new work in it (no doubt there is a good reason why the festival was not permitted to give the British premiere of the Fourth Symphony, but it seems a pity nonetheless). Nevertheless, Chain 3 (1986), the Piano Concerto (1988), and the Third Symphony added up to a uniquely satisfying programme.

The first is a virtuoso orchestral movement whose parts sparkle in separate, then intricately overlapped patterns. The second works up a genuine revival of the grand romantic piano-and-orchestra confrontation without ever sacrificing its 'modernist' orchestral manners. (The piano part, written for Krystian Zimerman, was here superbly taken by Paul Crossley.) The third is an exploration of a set of three- and four-note figures achieved with Haydn-like rigour, energy and wit, a 'concerto for orchestra' symphony exhilarating in its parts and in their sum. As, indeed, was the concert itself - diverse in its individual parts, compact and compelling as a whole.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups CMMT Comment & Analysis P7929 The Financial Times London Page XXIV 392
Arts: Drama at the Marlowe Society - Will the curtain fall on this seedbed of theatrical talent? Publication 930220FT Processed by FT 930220 By MICHAEL ARDITTI

CAMBRIDGE'S Marlowe Society may have a low public profile, but in terms of its philosophy and personnel it is arguably the single most important influence on the British theatre in the past 50 years. Every play at Stratford's Swan, every production by Peter Hall or Trevor Nunn, every performance by Derek Jacobi or Ian McKellen, has the Marlowe and its traditions at its heart.

And yet, like so many arts institutions, the society's future is under threat; hence the current appeal for Pounds 300,000. This will enable it to continue to employ professional directors, designers and other production staff, as well as to provide a room in the Cambridge Arts Theatre, which it can use for meetings, readings and other small-scale entertainments.

The Marlowe was founded in 1907 by Justin Brooke, of the tea dynasty, but the leading light in its early years was his cousin, the poet Rupert. From its origins in a failed exam and the wish to see set texts in performance, the society was, and remains, an undergraduate one, drawing its members from open auditions, but supplemented by professional actors, such as Peggy Ashcroft and Michael Hordern, for its celebrated Shakespeare recordings, and directors for its annual production at the Arts.

From the start, its achievements were profound. Its revivals of Marlowe, Jonson, Webster and Tourneur were directly responsible for introducing their work to the modern repertoire. With pioneering productions of Troilus and Cressida, Timon of Athens and Titus Andronius, it also, in director Steven Unwin's words, 'showed that there were other Shakespearian plays beside Twelfth Night'.

Linked to this has been its focus on verse-speaking, in which, as Unwin says, it opposed the dominant metropolitan culture, where classic plays were produced with grand actors on grander sets. Sir Peter Hall, who was introduced to the Marlowe's productions as a Cambridge schoolboy, sees its verse-speaking tradition as fundamental, particularly today when 'no one else is interested in it; drama schools don't bother with it, because most of their students won't do Shakespeare', and he compares it with the Kings' choral tradition. 'You can argue with it, but the standards are consistently high.'

In its 85-year existence, the Marlowe has, in director John Barton's words, produced 'a long roll call of honour'. Cecil Beaton acted and designed; Michael Redgrave played Prince Hal and James Mason, Brutus; Richard Baker and Noel Annan appeared in a 1947 White Devil. 'Later actors have ranged from Michael Pennington and John Shrapnel to Tilda Swinton and Simon Russell Beale.

But the society's greatest discovery has been its directors: from 1950s figures such as John Barton, Peter Hall, David Jones, Robin Midgley, Toby Robertson and Peter Wood, through Trevor Nunn, to more recent graduates like Sam Mendes, Nicholas Hytner and Steven Unwin.

It is easy to see why the so-called Cambridge mafia is resented; and yet no better seedbed for directors exists. Griff Rhys Jones, who directed Bartholomew Fair and acted in The Jew of Malta dressed in a gold leotard and virtually nothing else, attributes this wealth of talent to a sense of freedom. 'I'm a great believer in the chaos theory of learning to do theatre. When I was up, there was a picture of Peter Hall inscribed 'Thank you for letting me make my mistakes'. That's what we all felt.'

Hall acknowledges that the influence of the Marlowe and particularly that of Dadie Rylands, the Kings College don and Bloomsbury initiate who led the society between 1929 and 1966, was crucial to his whole career. 'My intention in founding the RSC was to adopt a particular way of approaching a text. It wasn't much noticed at the time, but it came directly out of Dadie and the Marlowe.'

His own appearances for the society included Tybalt in Romeo and Juliet, when he fought a duel with John Barton's Mercutio, which he describes as 'the longest stage fight in history . . . John only went to hospital once, with a split thumb due to my inaccuracy'. The production transferred to London's Phoenix Theatre, where they played before Winston Churchill, and for once, as Barton explains, the principles of textual fidelity were abandoned. 'Churchill was sitting in the front row with a large first folio, following it line by line. So we decided to improvise . . .'

John Barton, widely regarded as the most scholarly of our major directors, sees in the society conditions analagous to those of Elizabethan theatre, where actors discovered texts on their feet. 'If you give young actors Shakespearian verse to learn in a fairly short rehearsal time without a lot of psychological probing, they are going to hang on to the verse much more than people who are trained naturalistically in today's drama schools with their emphasis on TV.'

This raises the question of whether the Marlowe is a genuine training ground, and should be encouraged as such, or an undergraduate society, dependent solely on the enthusiasm of its members. Barton believes that 'the proof is in the pudding' - and the pudding certainly contains plenty of plums. For example, the cast of his own 1959 Henry IV included Ian McKellen, Clive Swift, Corin Redgrave, Julian Curry, John Fortune, John Bird, Eleanor Bron, and Derek Jacobi as Hal.

Jacobi attests to the merits of the training. 'For those of us intending to go into the profession, it was the equivalent of a drama school. We learnt things which in our enthusiasm to become actors we'd never considered: vocal technique, wearing costume, attention to text. And unlike drama schools, we always performed in public, which gave an edge to the work.'

And yet for every Marlovian who goes into the profession, there are half a dozen who don't. Among the latter is the novelist Margaret Drabble, who replies to the question 'what does the Marlowe offer people who don't go on to be Ian McKellen?' that 'it's important for people who go to watch Ian McKellen . . . It keeps Shakespeare and his contemporaries alive, in a different way from other institutions by taking young people at the start of their career and firing them with enthusiasm'.

Its appeal is two-fold. Its emphasis on textual rigour and revival of classic texts should please the traditionalists while, in a age of increasing vocational training, it epitomises the virtues of a liberal education. In Hall's words, 'For those who don't go into the theatre, it provides a chance to get inside the head of a genius. There are very few better ways of spending a few weeks than putting on a Shakesperian play.'

And the experience feeds back into academia. Drabble describes how she 'got a first with distinction when I spent every available moment in the theatre. Playing Imogen for the Marlowe made me feel a serious person for the first time.'

Nevertheless the Marlowe tradition is under threat. It is ironic that this comes at a time when the opening of the Bankside Globe, where it is set to perform, is poised to bring its work before a wider public. As Mendes says of the appeal, 'It's like a closed shop; the man on the street won't know what he's contributing to, but he gets the benefit - whether it's Derek Jacobi on stage or Griff Rhys Jones on TV.'

Further information can be obtained from Tim Cribb, Churchill College, Cambridge CB3 ODS

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page XXIII 1273
Arts: Double dose of Holmes - Radio Publication 930220FT Processed by FT 930220 By BA YOUNG

ST VALENTINE had a poor showing on BBC radio. Radio 1 gave Stupid Cupid, an hour of romantic pop presented by Liz Kershaw; but Radio 4 had two hours of Sunday Outing, for gays and lesbians, mostly in Blackpool. This is not the place to discuss homosexuality; but I cannot believe that presenters Matthew Parris and Beatrix Campbell would have been happy among the yelling and screaming at Blackpool's Flamingo Club.

Saturday night's Radio 4 play, You Choose, written and directed by Jonathan Myerson, was hard to credit but fair to hear. Zoe (Amanda Root), living with Greg and about to have a baby and get married, in that order, meets Simon (Nathaniel Parker), an old flame. He involves her in a plot to stop his opulent father exporting toxic waste to poor African states. This is the theme, incidental matters like random murder and spoilt marriage being treated more casually. Simon is unlikeable, whatever his intentions; finally we hear he has killed himself, while his father continues his evil activities. Whose side are we on? Well, the play is called You Choose.

You could choose on Sunday too, between Sherlock Holmes on Radio 4 (Memoirs, next week, Return) or Radio 5 (a new Unopened Casebook). John Taylor, Radio 5's writer, is not yet Conan Doyle; his tale of the doctor who faked his own death was too simple to be exciting, even though some of it passed in a funeral vault. But he has Simon Callow and Nicky Henson as Holmes and Watson - not quite the chaps we know, but just as plausible as Conan Doyle's pair as anyone else.

Clive Merrison and Michael Williams are more familiar figures in the Radio 4 version, though The 'Gloria Scott' this week is an uncharacteristic tale, with Holmes partly as an undergraduate. The Baker Street talk is more as we know it in Vincent McInerney's version; and Watson has some of the keenness that Doyle gave him but actors often omit, even if he got the coded letter wrong. If you like a change, you can get six Unopened Casebook stories in a BBC Publication paperback, besides hearing them on Radio 5.

In the World Service's series on South Asia there was a programme on the Gurkhas that was one of the most exhilarating half-hours of radio I've heard for ages. No battle-scenes, just talk - talk about routine Gurkha life, from a young officer, a senior officer, Gurkha officers and NCOs, compiled by presenter Nick Rankin. The Gurkhas' loyalty to the British, who fought against them in the Gurkha wars, is one of the wonders of our time. They also serve now in the Indian army. Those who sneer at colonialism and racial discrimination could learn much from the story of the Gurkhas. Now we are to reduce their strength to a mere 2500. The way we chuck our treasures away]

South African Snapshots on Radio 3 confirmed the belief aired in Christopher Hope's programme last week that less censorship might give South African writers trouble in choosing themes. Ellen Kuzwayo, writer of Call Me Woman, spoke mainly of personal problems, with a feminist slant. Sipho Sepumla, whose novel Rainbow Jamie deals with commercial success, had little faith in the future; there would be more repression by the new government and no tolerance for blacks. At least poet-biologist Douglas Livingstone was happy; he would go on writing poetry about the multifarious life he leads.

In On the Ropes (Radio 4, Mondays), sympathetic John Humphrys interviews folk with problems that have reached public climax. This week's victim was David Mellor, but he has been well worked over by the press; next week's George Walker, of Brent Walker, sounds more promising. After him - how miscellaneous can you get? - comes Gilbert O'Sullivan.

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page XXIII 667
Arts: Lloyd Webber buys Tissot Publication 930220FT Processed by FT 930220 By ANTONY THORNCROFT

IN RECENT weeks there have been queues around the Adelphi theatre in London as punters rush to buy tickets for the next Lloyd Webber, his musical interpretation of Sunset Boulevard, scheduled for the summer. The show seems certain to open to box office takings well above Pounds 1m.

This is fortunate, because it seems likely that Sir Andrew has already spent the money. At Christie's in New York on Thursday a painting by the French 19th century artist, Tissot, of his mistress Kathleen Newton, sold for Dollars 2.97m (Pounds 2m).

'L'Orpheline', one of Tissot's largest canvases, depicts Newton dressed in widow's black, with a young girl, the orphan of the title. It was a record price for a Tissot, beating the Dollars 1.98m paid at Sotheby's 24 hours earlier for 'The Woman of Fashion'. In 1879 Tissot sold 'L'Orpheline' in London for Pounds 500.

The buyer this week was David Mason, of Macconnal Mason, the London dealer who advises Sir Andrew. It is a typical Lloyd Webber picture. He has extended his collection to take in 19th century ceramics and the odd Old Master (he paid Pounds 10.12m last year for a Canaletto view of Whitehall, now on loan to the Tate), but Victorian art remains his great love and he has the finest private collection in the country.

He is also prepared to out-bid the competition. The estimate on this Tissot was a modest Dollars 600-Dollars 800,000. Mason had also been busy on his behalf on Wednesday, paying a record Dollars 800,000 for a work by Sir Frank Dicksee. 'The Mirror' shows another beautiful woman admiring herself in a hand mirror.

Almost single handedly Sir Andrew has enthused Victorian pictures, which have been out of fashion in recent years. Christie's auction of 19th century art raised Dollars 6.4m and was 91 per cent sold. The most macabre picture on offer also found a buyer, for Dollars 444,000, a record for the artist, Alexandre Cabanel. It shows Cleopatra coolly observing the deaths of her slaves as she tries out various poisons before choosing the asp for her own exit.

The revival in the American economy has enabled New York to lead the art market out of recession. Victorian art, which is attractive to new collectors, is the beneficiary of this regained confidence.

US United States of America GB United Kingdom, EC P7389 Business Services, NEC CMMT Comment & Analysis MKTS Market data P7389 The Financial Times London Page XXIII 422
Arts: A them-versus-us motif in Berlin - Nigel Andrews experiences everything from King Kong to Wittgenstein at the film festival Publication 930220FT Processed by FT 930220 By NIGEL ANDREWS

EVERYTHING perked up with the arrival of King Kong. The natives were getting restless, and so were the visitors, as the 43rd Berlin Film Festival floundered through early days. Then came a 60th birthday screening of Kong, preceded by the raising of a 20-foot effigy atop the festival theatre.

This woke us all up. Cheered by the sight of a chained ape gesticulating from a cinema roof, we forgot the pain of that interminable Japanese film about gay street life; of that hectoring Swedish short about feminist fairy tales; of that fantasy-clotted Competition opener Arizona Dreams, made by ex-Yugoslavian Emir Kusturica with a cast twinning Faye Dunaway with Jerry Lewis. And we tried to forget the worst disappointment of all: the sight of Jack Nicholson with putty-face make-up piloting through David Mamet's putty-brained script for Hoffa.

This at least brought Danny DeVito to town as co-star and director. Small and round, DeVito resembled one of those objects marked 'bomb' in comic-strips. His tongue was the fuse, fizzing away at press conferences to prove you cannot dampen a Hollywood trouper even when the world dislikes his film.

If Hoffa was a dull fresco about the postwar American labour movement and the disappearance of Teamsters boss Jimmy Hoffa in the 1970s - murdered, surmises Mamet, by Washington in concert with the mafia - Spike Lee's Malcolm X and Derek Jarman's Wittgenstein added to the Berlin bio-pic count and the them-versus-us motif.

Lee's film attempts to combine crowd-pleasing storytelling with radical politics and fails. (More when it opens in Britain.) Jarman, less reverently, turns the life of the Viennese-born, Cambridge-naturalised philosopher into a lantern slide lecture with intervals for wacky comedy. These last feature, inter alios, Tilda Swinton whooping it up in feathers as Lady Ottoline Morrell and John Quentin snapping out the Bloomsbury one-liners as, yes, John Maynard Keynes.

Terry Eagleton's episodic script - should we call it Brechtian? - is clever but low on dramatic voltage. It needs Jarman's fluidity of staging, turning a black-backed soundstage into perpetuum mobile of foreground colour and motion, to provide pace and warmth. This and Karl Johnson's performance as Ludwig W: a sweet, despair-prone gibberer, in whom passion and pedantry live like a permanently quarrelling married couple.

But a few bio-pics go a long way. The best two films at Berlin came hot from the imagination's kiln, complete with colourfully glazed images. From China, Xie Fei's The Lake Of Scented Souls is a domestic melodrama heated to tragedy. A village businesswoman, whose sesame-oil factory is eyed by the Japanese, finds career pressures compounded by emotional ones. Her retarded son abuses his newly 'arranged' bride; and the mother's own marriage, which she was sold into at 13, is now crashing on the rocks of a drunken husband and a lover who is an increasingly ill-kept secret.

Soap opera it could have been. Real opera it almost becomes. The director blends Visconti-ish verismo in the images - sunsets glow with pain, lakes sparkle with a sickly, piercing silver - with an overpowering central performance. Siquin Gaowa as the Madame Bovary of the marshlands, running through all known emotions and the hell with Oriental inscrutability, should get a Best Actress nod or there is no justice in juries.

If the Chinese film is verismo, Robert Rodriguez's El Mariachi from Mexico is opera buffa. This gloriously eccentric action thriller cost Dollars 7,000 to make - one day's cigar money on most Hollywood films - and then burned giant holes in the Latin American box office. It was promptly optioned by Tinseltown for an upcoming Dollars 7m English-language remake.

The remake could not possibly equal the original, which resembles a Sergio Leone Western made with mind-influencing narcotics. A zooming, carooming, running, jumping, never-standing-still camera follows the hero and villain around streets and deserts, unwittingly twinned by fate since they carry identical black guitar-cases. (One contains a music instrument, the other an arsenal of guns). A screen aflame with shoot-outs, punch-ups and comical misunderstandings is set further ablaze by the filmmaker's wild ingenuities of style.

Only one other Berlin film seriously warmed the imagination. Atom Egoyan's Calendar will win no prizes (not in competition) and may win no British release (65 minutes of unclassifiable semi-fiction). Yet the Canadian-based director of The Adjuster here re-visits his ancestral roots in Armenia - commissioned to take photos for a tourist calendar - and extemporises a truth-based tale of marital break-up.

Main characters: himself (often a poignantly interrogative voice off camera), his Armenian-born wife and the local guide who becomes her lover. While a foreign sun shines on their bilingual imbroglios, flash-forwards depict Egoyan back in Canada caught in the misery of serial dating. He tries to snare new girlfriends while the now published calendar glows from his wall, keeping alive old wounds. This beautifully cunning film about time, space and emotional paradox is as intricate and many-angled as its own heraldic leitmotif: the Byzantine churches that gaze timelessly, pitilessly, majestically from the skylines.

Two other movies deserve nods in the fair-to-enjoyable category. Love Field, directed by Jonathan Kaplan (The Accused), pushes Oscar-nominated Michelle Pfeiffer into a black-and-white love story in glorious Technicolor. He's black (Dennis Haysbert), she's white and they meet in the emotionally colourful aftermath of JFK's assassination.

Idrissa Ouedraogo's Samba Traore, from Burkino Faso, is a sweetly acidic village comedy from the maker of Yaaba and Tilai. Berliners complained that the movie showed signs of Westernisation - good heavens, a robbery in scene one and more action to come. But storytelling is no crime, and the same critics were last heard complaining that Ouedraogo's previous films had no plot. This one is wry, satiric and subtly humanist; and filmed in a burning Bush that seems at once a godless wilderness and a crucible for godly miracles.

Elsewhere Berlin has been an assault course of the unbelievable and/or unendurable. While the Golden Bear scans the horizon for likely winners, a series of Plastic Bears should be minted for such un-recyclable rubbish as Japan's Heya, with its minimalist tale of a hitman who never hits; or Germany's Lilies Of The Bank, proving like Schtonk] that there is no such thing as German comedy; or Israel's Life According To Agfa. This last is a sort of Iceman Cometh for the age of Palestinian-Israeli tension, its one-bar setting squeezed for maximum melodrama by director Assi Dayan, son of Moshe.

Why does Berlin import these turkeys? Perhaps because Cannes is just around the corner in early May, offering higher kudos for superior products. Or perhaps because Berlin is still seeking an identity, now that the fallen Wall has robbed the event of its political dialectic.

Until 1990 this festival stood by the tennis net of Euro-politics, a cultural umpire to the game of East versus West. Today the balls whizzing by come from all quarters, in all shapes, sizes and colours. Hooray that the Cold War spirit and structure have been swept aside. But Berlin badly needs a new identity if it not to become merely Cannes the Prequel: situated too close in time and too far in place, in a frozen North - and Kong is mantled in snow as I speak - which few will prefer to the sunnier, more movie-bountiful Cote d'Azur.

DE Germany, EC P7812 Motion Picture and Video Production CMMT Comment & Analysis P7812 The Financial Times London Page XXIII 1256
Books: Killer king of the Khmer Rouge - The secretive life of communist despot Pol Pot Publication 930220FT Processed by FT 930220 By VICTOR MALLET

BROTHER NUMBER ONE: A POLITICAL BIOGRAPHY OF POL POT by David Chandler Westview Press Pounds 16.95, 254 pages

AS A schoolboy, he played the violin and was moderately good at basketball and soccer. As a teacher, he was liked by his pupils. He impressed them with his gentle, musical style of speaking French. 'He was clearly drawn to French literature in general and poetry in particular - Rimbaud, Verlaine, de Vigny,' one of them recalled.

Later he seized power in Cambodia and presided over the deaths of more than one million of his fellow citizens in one of the most brutal revolutions in history; one in seven Cambodians died. Such is Pol Pot, the enigmatic Khmer Rouge leader and former teacher, whose real name is Saloth Sar.

David Chandler is the most scholarly writer on present-day Cambodia, but two years ago he ended his previous book (The Tragedy of Cambodian History) with the baffling conclusion that the curtain had fallen on the careers of both Pol Pot and Prince Sihanouk. 'The times transformed these heroes, without their knowing it, into those left behind by the tragedy and therefore, in a sense, into clowns,' he wrote. The wrongness of this earlier assertion makes Chandler's new biography of Pol Pot all the more welcome.

Khmer Rouge guerrillas loyal to Pol Pot are making a mockery of the 1991 Paris peace accords signed by the main Cambodian factions (including the Khmer Rouge). They are flouting the ceasefire, refusing United Nations forces access to their territory and in some cases shooting at UN helicopters. Khieu Samphan is nominally the Khmer Rouge leader, but the 64-year-old Pol Pot is still believed to be running the organisation from his headquarters on the Thai border with a view to taking power again.

Prince Sihanouk, meanwhile, wants control of whatever government emerges after the UN-sponsored elections in May, believing that he is best placed to unite his country and reconcile the rival political factions.

A biography of the loquacious prince would have been much easier to write. Pol Pot, a dedicated communist untouched by glasnost, has made a habit of secrecy. He was identified as Saloth Sar by Cambodia-watchers only when he made a state visit to China in 1977 - two years after the Khmer Rouge takeover - and he casually admitted his real name only after being overthrown by the Vietnamese invasion in 1979.

Yet it is the very scarcity of readily available information that makes it fascinating to follow, with the sleuthing Chandler, the development of this 'sweet-tempered, equable child' into a man demonised the world over as the overseer of Cambodia's killing fields. For the general reader, leafing through Brother Number One is also a more palatable way of absorbing Cambodia's complicated history than digesting Chandler's earlier and longer historical work.

We glimpse - or think we glimpse - Saloth Sar, whose cousin was attached to the royal ballet, hanging around the palace compound as a child in Phnom Penh. We see him taught at French colonial schools and we watch him leave by ship with the privileged few for further education in Paris.

In France he apparently joined the French communist party, and was certainly caught up in the excitement of student politics and the post-war debate about leftism. There was nothing very remarkable about that, or about his poor academic performance. After returning to Cambodia and becoming a teacher in the 1950s, he was apparently never questioned by the police. He never spent a night in jail. Chandler (a former US diplomat) says the US embassy had no biographical information on him, although it had files on hundreds of suspected communists.

What was remarkable was Saloth Sar's will to power. In secret he worked his way up through the ranks of the local, Vietnamese-sponsored communist movement, and went into hiding in the bush in 1963. Twelve years later, helped by the chaotic finale to the Vietnam war and the American withdrawal from Indochina, Khmer Rouge guerrillas captured Phnom Penh and Pol Pot emerged at the head of the Cambodian revolution. There followed the notorious killings, the evacuation of the cities, the abolition of money, the Stalinist purges and the growth of Pol Pot's antagonism towards his former Vietnamese patrons, culminating in the Vietnamese invasion of 1978-79 and the return of the Khmer Rouge to guerrilla warfare.

The problems of constructing a biography out of such flimsy material - an anecdote here, a leaked communist party document there - are obvious, and Chandler, forced to speculate, is often reduced to such phrases as 'It is easy to imagine . . .'

But Chandler is not one to leap lightly to conclusions, and he is the first to confess that the question of what motivates Pol Pot, what drives him on, has yet to be answered. 'Perhaps,' Chandler writes, 'as he sits at night in his clearing in the forest, he has a faint perception (or a bleak, horrifying vision) of the suffering he has inflicted. Perhaps he does not.'

Even a couple of hours of discussion with Pol Pot himself would have helped, but Pol Pot has not been available for interviews. Until he is, this book is likely to be the best and most comprehensive biography of him - and one of the best introductions to Cambodia's tragic history - that we are going to get.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page XXII 938
Books: Poet's desolate life of hell on earth Publication 930220FT Processed by FT 930220 By AC GRAYLING

PLACES OF THE MIND: THE LIFE AND WORK OF JAMES THOMSON ('BV') by Tom Leonard Jonathan Cape Pounds 25, 407 pages

A MUSICAL concert, said the Victorian poet James Thomson, is 'two and a half hours of paradise for a shilling'. It was the only kind of paradise Thomson knew, for his life was singularly 'desolate and Fate-smitten'. It was also the only kind he expected, because he was a militant atheist who wrote for the secularist press. But it was not merely the immanence and transience of paradise that haunted Thomson; his greatest poem, The City of Dreadful Night, is a powerful description of the human condition as paradise's very opposite: a 'termless hell'.

Tom Leonard's biography of Thomson is outstandingly good. It will surely rescue the poet from his undeserved obscurity. It shows that Thomson was not only a fine poet but a great essayist. His life was tragic; in the hands of a lesser biographer it would easily make a romantic, even a Gothic, tale of blighted genius.

But Leonard writes with restraint and exactness, letting the story tell itself by interweaving sympathetic quotation and paraphrase of Thomson's work with a superbly realised account of Victorian Britain in the period between 1830 and 1880.

Thomson's tormented character is allowed to emerge under its own impulsions, coming clearest into view just as its collapse into Faustian self-destruction begins. Thomson was Scottish but lived in London from infancy. Both his parents were religious enthusiasts, his father morbidly so. At the age of eight, following his mother's death, he was admitted to the Royal Caledonian Asylum in Islington. Upon leaving it he trained as an Army teacher, living an itinerant military camp life instructing illiterate soldiers and their offspring. After eight years he was 'discharged with disgrace', having accumulated enough black marks for a minor court martial offence to give the Army an excuse to sack him.

Thereafter Thomson lived chiefly in London. He worked in the City, at one point travelling to Colorado to purchase silver mines for the company he served. In his spare time he wrote for journals like Charles Bradlaugh's atheistic National Reformer, contributing poems, translations from Heine and Leopardi, and essays. Among these latter were brilliant satires on religion and the corrupted literary tastes of Victorian England. His pseudonym was 'BV', standing for 'Bysshe Vanolis' in honour of Percy Bysshe Shelley and - by way of anagram - the German poet Novalis.

Apart from a brief and unsuccessful stint as a war correspondent in Spain, Thomson increasingly relied on literary journalism for a livelihood. It was a precarious resource; journals were short lived, their editors unreliable paymasters. For a time he was obliged to live by researching long propaganda articles for a tobacco magazine.

In early adulthood Thomson had the Dante-like experience of falling in love with an enchanting young girl who soon afterwards died. Her identity remains a point of controversy, and Thomson probably never expressed his true feelings to her. But the wound of the loss appears fresh in many of his poems. His life thereafter, despite friendships and some literary success, was a solitary and immensely painful one.

Such was its agony that Thomson at one point tried, by burning all his manuscripts and letters, to destroy his past in order to salvage a future. The task took him five hours. In the immediately following years he wrote The City of Dreadful Night, an achievement described by Herman Melville as 'massive and mighty.'

The publication of this masterpiece brought Thomson celebrity. It was admired by George Meredith, Rossetti and Swinburne among others. But the publication in rapid succession of two volumes of poetry and a collection of essays came too late. It could not save Thomson from the slide into poverty and alcoholism which, in the obscure years leading up to the success of these works, were the price he had paid for writing them - in particular, for inhabiting the desperate city of which his poetry was the map. Within a couple of years Thomson was dead, after a final scene of drunken insanity and dissolution.

Leonard tells the tale with great skill. He does not indulge hypotheses about Thomson's feelings and motives; he lets the poet speak for himself, setting his words against a meticulously researched description of Victorian Britain's wars of religion and the literary and free-thinking alleys of Grub Street.

This is the kind of biography Francis Steegmuller and others have perfected: the documentary life, the 'Jackdaw' folder which presents the reader with material on which to base his own judgment. Yet it makes a gripping story, and a harrowing one, which shows the cost that the productions of the mind exact, and how much human agony goes into their making.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page XXII 829
Books: Emotionally fraught women - Fiction Publication 930220FT Processed by FT 930220 By STEPHEN AMIDON

NET OF JEWELS by Ellen Gilchrist Faber Pounds 14.99, 360 pages

THE BLINDFOLD by Siri Hustvedt Hodder & Stoughton Pounds 8.99, 221 pages

SUN DIAL STREET by Marti Leimbach Picador Pounds 8.99, 276 pages

RHODA MANNING, the heroine of Ellen Gilchrist's Net of Jewels, is an impossible young woman. Coming of age in a rich Alabama family in the 1950s, she is as highly strung as a poodle on Dexedrine, driving her parents, classmates and lovers to distraction as she seeks to find a place for herself in the make-believe world of the pre-Civil Rights South.

Everything she does - college, sex, marriage, childbirth - becomes a crisis. She causes the death of a suitor in a drunken car accident, abandons her children when they become inconvenient, ingests drugs and alcohol in fruitless attempts to stay thin and happy, and even undergoes an unnecessary abortion after an adulterous love affair. For all the storm and strife she brings to her life, however, her six-year stumble toward womanhood lands her right back where she started - being provided for in her father's antebellum mansion.

Gilchrist's novel is a realistic and urbane evocation of that breed of southern woman often encountered in Tennessee Williams plays. High strung, pretentious, passionate, painfully self-conscious, Rhoda is like a hothouse flower that wilts the moment the lights are taken off it. It is a fascinating character study, delivered with considerable skill and precision. But the problem with the book is the problem with impossible women - their manic charm eventually becomes cloying, forcing you to search out more convivial company.

You sure won't find it in The Blindfold, another story of an emotionally fraught young woman. Siri Hustvedt's heroine, the anagrammatic Iris, arrives in New York City with little more than her fragile psyche as she prepares to study English at Columbia University.

She soon finds herself involved with all manner of weird souls, including a recluse who hires her to recreate the life of a murder victim on audio tape, a photographer who takes a strangely provocative picture of her, as well as the fellow patients in the hospital where Iris is treated for migraines. She also manages to find the time to engage in a few unsatisfactory love affairs and, most distressingly, a bizarre relationship with an art critic named Paris who likes to wear pink suits as he peers into Iris's troubled soul.

Told in a series of episodic, loosely connected chapters, The Blindfold is a prolonged study in angst and enervation that is hard to read for more than few pages at a time. This is not to say that it lacks striking moments, particularly the long, crazed night that ends with Iris grabbing a cop's gun in a strip bar just to see what will happen. But with little humour or plot, mood becomes everything, and the mood here is decidedly bleak. It is the sort of book that should appeal primarily to writing students and people with monochromatically black wardrobes.

The narrator of Marti Leimbach's Sun Dial Street is not a nervous young woman, though you feel the book might have been better if he had been. Sam Haskell is a strangely naive manager of rock bands who travels to LA to visit the mother and sister he has not seen in four years. Mom has changed her name and is still a manic depressive, but his sister Ginny is now a striking young woman. Sam quickly starts playing the protective and slightly obsessive older brother, especially when it comes to Ginny's relationship with a seedy club owner, who also happens to be a former lover of Sam's new girlfriend.

What follows is the stuff of TV movies - a rapid progression of murder, star-crossed love affairs, irate husbands and illegitimate children. By making her narrator a man, Leimbach has robbed the slim story of the emotional power that might have saved it. Sam's voice only rarely rings true, and his musings about the inner lives of the other characters are downright annoying. The result is a book that reads like a hasty and ill-conceived novelisation of a melodramatic film.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page XXII 724
Books: Lear behind the scenes - Anthony Curtis relishes some fascinating insights into the Bard's great play Publication 930220FT Processed by FT 930220 By ANTHONY CURTIS

THE LEAR DIARIES by Brian Cox Methuen Pounds 15.99, 211 pages

SHAKESPEARE'S PROFESSIONAL CAREER by Peter Thomson Cambridge Pounds 24.95, 215 pages

THE TRAGEDY OF KING LEAR edited by Jay L. Halio The New Cambridge Shakespeare Pounds 24.95 (paperback Pounds 4.25), 313 pages

BRIAN COX played Lear in Deborah Warner's production of the tragedy for the Royal National Theatre in 1990. He doubled it with the part of Buckingham in Richard Eyre's production of Richard III, Richard being played by Ian McKellen. There were times on tour when Cox would have to do one role at a matinee and another in the evening. But he had enough voice left at the end of most days to dictate into a tape-recorder his thoughts and feelings about what had been happening to him.

The result - The Lear Diaries - is a spontaneous, highly articulate account of what it is really like to be a leading man in a national company with the responsibility of one of the great roles in the repertory bearing down upon your weary shoulders each evening. We learn not just how the role takes over your emotional life but also the inroads it makes into your private and family lives; there were existing difficulties that were exacerbated by a protracted tour abroad. Throughout a year the National company took both plays to Madrid, Paris, Hamburg, Leipzig, Dresden, Cork, Tokyo, Cairo in addition to touring the UK. Cox does full justice to the pains of one-week stands and official hospitality, thankfully recording a final stop in his native Scotland.

Above all Cox gives us fascinating insights into the mechanics of performance. He discusses the pros and cons of having to speak some of Lear's lines from a wheelchair which was part of the conception, and the effect upon the whole company's morale of the different venues, audiences and auditoria. Relations with other members of the company were crucial, particularly those with his colleagues taking the parts of his daughters and the Fool. Cox's comments reveal a mutual supportiveness that is miles away from the picture of chilling hauteur on the part of the star playing Lear in Ronald Harwood's play The Dresser.

Mind you, there is plenty of griping as well, and a constant complaint at the way the lesser role Cox was playing in Richard III undermined concentration on the major one. It was only when they reached Eastern Europe that he began to see the real point of Eyre's setting of that play in a 1930s fascist mode. The fall of Ceausescu and of Margaret Thatcher provided unexpectedly relevant topical contexts.

What would an historian of the theatre like Peter Thomson, the professor of drama at Exeter University and author of Shakespeare's Professional Career, give to get his hands on a diary of this sort kept by a member of Shakespeare's company? On, say, Burbage's uninhibited Cox-like comments on the rehearsal methods of those in charge in 'this wooden O'? Did Shakespeare and his fellow-actors have anyone comparable to a modern director? The answers to such questions have to be inferred from fragmentary allusions in contemporary documents and surviving play-texts. Just how much has now been reconstructed by a huge army of Shakespeare scholars we gather from Thomson's book. He gives a most interesting, compact account of Shakespeare's conditions of work. Thomson sees Shakespeare as a great accommodator - someone who was always prepared to adapt his genius to whatever or whoever was available.

A striking illustration comes in the use he made of the comic talent in his company. Thomson leans here on David Wiles's study Shakespeare's Clown (1987), and points to the contrast between the parts Shakespeare wrote for his two great funny men - William Kempe and Robert Armin. Kempe, famous in his own right for his celebrated dance from London to Norwich, was the earthy, bawdy, gutsy comedian playing up to the groundlings for laughs in roles like Gobbo and Dogberry, and bringing down the house with his jig. He left the company in 1599 at the time of the move to the Globe, an environment where, it is suggested, his skills might not have been so greatly welcomed.

Kempe was replaced by the more melancholic, musically gifted player, Robert Armin. Thomson thinks Touchstone may have been re-written to accommodate him, and that a role like that of the Fool in Lear was part of Shakespeare's intuitive response to Armin, Clown turning into Fool. It is a tempting theory. As for the play itself and its mad King, Thomson sees it as predicating the transition from the old feudal role of kingship under the Tudors to the more modern one of the newly crowned James I under whose banner Shakespeare and his colleagues were working. They now became known as the King's Men.

Lear was a play about which Shakespeare appears to have had second thoughts after it had been staged. There are many significant differences between the text as printed in the quarto and the folio editions, so much so that the Oxford editors, Stanley Wells and Gary Taylor, in their William Shakespeare: The Complete Works (1986), printed the play twice, giving both texts in full. Jay L. Holio, professor of English at Delaware, in his New Cambridge Shakespeare edition, does not go as far as that. He sticks to the Folio text where the gains are, to my mind, greater than the losses, but he does give the chief variations in the notes, which are a model of clarity throughout. Quotations from Q and F are printed in facsimile so that one may compare the variant texts in the form in which they first appeared.

The New Cambridge Shakespeare, which 10 years ago set about replacing the old Dover Wilson edition, and of which Lear is the latest volume to appear, is now about half way through the canon. It is for my money the best single-volume edition to have to hand for general use. It started off in light blue Cambridge livery, but in the late 1980s apostatised to dark blue Oxford dress with a trendy David Hockney Shakespeare 'portrait' replacing the earlier C. Walter Hodges design. To anyone who has been collecting the volumes over the years in the hope of one day possessing the complete set, this mid-term marketing initiative has given an unfortunate boat-race appearance to the books on the shelves. Nonetheless one is very glad to have them.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page XXII 1118
Motoring: Citroen's Xantia sets standard for its rivals - This BX replacement is a high-class act Publication 930220FT Processed by FT 930220 By STUART MARSHALL

THE MONDEO is more than just the car expected to power Ford's recovery; it is the benchmark against which many of the 1993 models will be judged. This thought kept occurring as I tried three examples of Citroen's new Xantia range in Spain last week.

Just as the Mondeo goes beyond being a mere Sierra replacement, the Xantia steps up half a class in succeeding the BX. It goes on sale in France early next month, will be available in left-hand drive markets soon afterwards and reaches Britain with right-hand steering in June.

To begin with, there will be a choice of three petrol engines - 1.8-litre, 103 horsepower; two-litre, 123 horsepower; and a 16-valve two-litre developing 155 horsepower. Diesels, naturally aspirated and turbo-charged, follow rapidly and will be on sale in Britain well before the L-registrations start in August. So will a 1.6-litre, petrol-engined entry model.

The Xantia is as crucial to Citroen in Britain as the Mondeo is to Ford, although for different reasons. Ford believes the Mondeo will restore its fortunes and rebuild market share.

Citroen, meanwhile, seemingly cannot put a foot wrong in the UK. Last month, it took more than 6 per cent of the new car market, overhauling Nissan, Renault and Volkswagen-Audi. It also grabbed almost 18 per cent of a record 29,540 diesel car registrations.

Ten years ago, the BX was the car that started to change Citroen's image - and build its sales - in Britain. Before the BX, Citroens were bought mainly by enthusiasts loyal to the marque.

They had to be; the only sensible price they could get at trade-in time was from a Citroen dealer - against a new Citroen, naturally.

The BX changed all that. Although idiosyncratic in styling and suspension (a self-levelling system using high-pressure gas instead of steel springs), it was not quirky. People who had never contemplated owning a Citroen bought a BX and liked it. Soon, it became a mainstream motor car.

Its owners are natural buyers of the Xantia, although the new car might appeal also to drivers of Sierras, Cavaliers, Nissan Primeras, Peugeot 405s and Renault 21s looking for a change.

The Xantia is a typical new-generation Citroen. Its wheelbase of 108.3in (271cm) is the longest in its class; its lean though rounded styling is distinctive; and it has the unique gas/hydraulic suspension. Inside, there is plenty of room for four full-sized people to stretch out.

Rear-seat head and leg room is better than the Mondeo's although boot capacity is the same. The seats, yielding and well-shaped, and the interior appointments generally are closer to those of the big XM than the BX.

Most of my driving in the 1.8-litre Xantia was on well-surfaced and almost deserted motorways. It was as comfortable and refined as one expects a car of the Xantia's class to be.

At what most business motorists consider a normal cruising speed of 80-85 mph (128-136 kmh), I was aware of the engine spinning at 4,000 rpm-plus, perhaps because wind and road noise were negligible. In a motorway downpour, the air-flow kept the back window completely clear and dry.

The two-litre Xantia felt a little more urgent. Lower profile tyres sharpened its steering response, but ride comfort and road noise were affected less than they were on the Mondeo equivalent.

Citroen's gas/hydraulic suspension was evolved 40 years ago to give motorists an armchair ride on rough surfaces, and there is still nothing like it for comfort on a neglected D-road.

Spain's highways have been transformed in recent years, but there are plenty of fast, uncrowded and ill-maintained minor roads. On their patched and wavy tarmac and acute bends, the Xantia rode serenely.

Best of all was the 16-valve model. This had XM-style Hydractive II suspension, which adapts automatically to road surface and driving technique. Even at silly cornering speeds, it prevented body roll.

The squat - though not at all noisy or hard-riding - Michelin 55 series tyres, and a small degree of rear wheel steering (like the smaller ZX model's), combined to make it feel exceptional nimble and safe.

Equipment levels for the UK market have not been decided, nor has the price. Experience suggests it will cost no more - and probably slightly less - than its class rivals.

All Xantias have power-assisted steering with a height-adjustable wheel, remote-controlled central locking and crash protection bars in the doors. Anti-lock brakes are extra on the cheaper models.

Airbags (which General Motors announced this week had been made standard on the Vauxhall Cavalier/Opel Vectra, just pipping the Mondeo at the post) will not be available until 1994. By that time, an estate car probably will have been added to the Xantia range.

If the BX is anything to go by, up to 30 per cent of Xantia buyers will chose diesels, especially turbo-diesels, which will have the 1.9-litre engine now used in the ZX. There appears to be enough under-bonnet space for the Xantia to take the 12-valve, 2.1-litre turbo-diesel used in the Citroen XM.

A highly-specified 2.1td Xantia with automatic transmission, ABS brakes and air-conditioning is a thought for Citroen to toy with for the mid-1990s.

Automobiles Citroen FR France, EC P3711 Motor Vehicles and Car Bodies TECH Products P3711 The Financial Times London Page XXI 903
Property: Estate agents - if they didn't laugh, they'd cry / The collapse of the residential market has led to hard times for even the biggest players Publication 930220FT Processed by FT 930220 By JUDI BEVAN

ASK A residential estate agent how business in the UK has been in the last two years and you are likely to hear manic laughter.

'It has been the most bloody awful time,' says Roland Cullum, with sardonic humour. Cullum is a partner of Cluttons, a medium-sized agent with a classy reputation, and admits freely that the going has been gruelling. A healthy estate agency business depends on brisk turnover and a percentage of the sale price - the higher, the better. 'There have been damn-all transactions and static or falling prices,' he says. It has also been much harder work. 'Sometimes, you have to show a house 30 times before you make a sale.'

The story is the same all over the UK, even in Scotland, which has been hit least badly in the property recession. 'None of the major chains are profitable at the moment. We are coping with volumes down by 50 per cent and much lower prices,' says Peter Rowntree, the managing director of the 260-branch Legal & General Property Services.

Reactions to the common problems of low sales and prices, exacerbated by rising office rents, include closing branches, cutting overheads, franchising, and moving into the popular rental market.

Last year, Cluttons decided to pull out of the London market, selling its well-known Chelsea office to Robin Patterson, a former Barnard Marcus executive, and allowing him to use the name Cluttons London Residential Agency. Ann Sturgis, at Kensington-based Malvern's, has been taking on lower-priced properties which some of the larger firms considered too time-consuming. She has also stepped up her letting business to make up for low sales.

Legal & General, having closed 76 offices in the past two years, has experimented with franchising. The group has around 40 franchise branches operating under one of its local trade names. 'Franchising seems to be working because an individual with commitment can turn an unprofitable branch round, whereas a manager won't put in that effort,' says Rowntree.

These are particular solutions to the national problem of over-capacity at a time of tumbling volumes and rising rents. At the peak of the property boom in 1988, the magazine Estate Agency News estimated that there were more than 16,000 estate agency offices owned by about 11,000 firms. There are now thought to be well under 12,000 offices owned by 6,500 firms, with many one-man bands having gone out of business or been taken over.

Almost half of all estate agency branches are now owned by the big institutions - building societies, banks and insurance companies - who waded into the market during the 1980s, often paying what have proved to be exorbitant prices. The idea was to use the retail network of estate agents to market other financial services - mainly mortgages and insurance - to the house-buyer.

By late 1989, it had become clear that the numbers did not stack up. The Prudential was one of the first to get out, sending shock waves through the market by shutting or selling more than 500 branches during 1990 after announcing losses of Pounds 49m. Most of the other large institutions have followed suit including Royal Life, which has dropped 243 branches to 517, and GA Property Services, losing 233 to 390 since 1990. Even assuming the housing market recovers in the next two years, there is still considerable over-capacity - estimates vary from 20 to 30 per cent - and all but a handful of existing offices are running at a loss.

David Perkins, an estate agent turned independent consultant, sees three clear trends emerging. First, he believes that UK insurance companies and middle-ranking building societies have no appetite for estate agencies and may be bracing themselves to get out entirely. Second, the big building societies, even those which have done well such as Hambro Countrywide and the Halifax, are no longer expanding.

But the most interesting development, which could signal the bottom of the market, is that former managers and estate agency entrepreneurs are taking advantage of low prices to re-enter the sector through management buy-outs, buy-ins, or franchising.

Not all of these are getting it right. A salutory example is the firm of Franklin Fox, which bought 51 offices from Northern Rock building society six months ago and which, because of a shortage of financing, has only a handful left.

Others hope to do better. After 30 years in the business Tony Snarey, formerly at William H. Brown - which was taken over by Royal Insurance - has bought the right to use the Humberts name and is to open six branches in the north-east of England this spring. 'I believe that the estate agents which will do well are those with good local knowledge and an individual manager who is known and respected.'

Patterson also claims to be making money. 'We have turned the business round,' he says. 'We have changed the name and culture and, from a loss of Pounds 250,000, we are now well in profit.' Recently, too, a national newspaper featured the tale of married couple Donald and May Storrie, who sold their 32 offices to Nationwide for Pounds 15m in 1988 but became so bored that they have now started again with one branch.

Despite the over-capacity in the market, new businesses have one big advantage: the cost of entry has dropped greatly. To buy a branch from an established chain can now cost only half what it did at the peak, while it is possible to negotiate keen rental rates from scratch.

The recession has taught everyone the importance of good financial housekeeping. Upmarket London agent John D. Wood, which recently revealed losses of Pounds 77,000 in the six months to October 31 compared with Pounds 194,000 for the first half of 1991, still has eight offices in London and six in the country, although staff numbers have been trimmed.

Cost controls have been paramount. 'One alteration is that we now pass on to our clients the high cost of advertising and glossy brochures,' says George Pope, the joint chairman. At Legal & General, Rowntree instigated strict cost controls in all branches, as has Knight Frank & Rutley.

According to Perkins, agents' fees have risen because of the recession but most prefer to talk of it in terms of holding firm or passing on costs. 'When the market was very active, our fees were negotiable. Now they are not,' says Rowntree. Bill Yates, senior partner of Knight Frank & Rutley, agrees. 'It is easier to get good commission rates now. The rate-cutting from the institutional firms has stopped.'

And there are signs that things may be improving. John D. Wood reported a threefold increase in viewings during January compared with November, although this has yet to come through in sales. Patterson believes that the number of transactions have risen by 15 per cent in the past two months, and all agree that there is more interest from potential buyers.

That might be scant consolation in a market which is staggering along on little more than 1m transactions a year compared with 2m in 1988, but it does offer hope.

As if life were not tough enough for the battered agent, there is one other challenge coming along in April when a new law will insist that advertisements and agents' particulars will be actionable if not totally accurate. In future, 'Des. res. only 5 mins from Tube' will have to mean exactly that.

GB United Kingdom, EC P6531 Real Estate Agents and Managers MKTS Market data PEOP Labour COSTS Costs & Prices P6531 The Financial Times London Page XXI 1301
Gardening: Impatient japonicas turn winter into spring - They're at the forefront of a year when Nature has divided itself into slow and fast lanes Publication 930220FT Processed by FT 930220 By ROBIN LANE FOX

ONCE AGAIN, the world is running on fast-forward. Almonds are supposed to flower in March and narcissi ought to wait until spring. You might expect a snowdrop but it is much too early to be encountering primroses. They are out, nonetheless, because the year is anticipating spring in winter. I have just seen a sugar-pink prunus called Okame, smothered with light clouds of pink flower, in Oxford's botanic garden. Magnolias are about to break into bud; and against climb-proof paint on railings in London, you can already see some wisps of yellow Forsythia.

In this accelerated year, there are slow and fast lanes. I think I can see why. Anything which has to emerge from main roots in the soil is slower to join the stampede. The ground is still cold, not least after so much wet. Misleading signals are rather fainter, although there are dark flowers on my forget-me-nots and on pulmonarias which ought to have waited until April.

Higher up, the story is different, as if mild weather reaches the framework of buds on a shrub more directly than the roots below a dormant border plant. Early cherries have leapt from their starting blocks and the winter honeysuckles have been spectacular. It is all quite mad but, within a week of Valentine's day, I have just seen flowering quinces (known popularly as japonicas). They are two months early and well into their show of flowers. Japonicas have all the sensible virtues: they are completely hardy and indestructible, even by non-gardeners in the middle of London, and they are not just plants for difficult walls.

The family falls into two groups, with various colours and a longer season than most of the catalogues describe. One group is tall, gangling and best pinned against the wall. In the wild, it grows in central China, but Japanese gardens have always favoured it and perhaps it once had wild connections there, too. The botanical name in lists is Chaenomeles speciosa, but gardeners have developed named varieties, of which three are characteristic.

Nivalis is the best snow-white for training up a dark wall, even a north wall. Moerloosii is particularly charming because its flowers look like pink and white apple blossom and appear slightly later in the summer. It was bred in Belgium in the 1850s, but it still looks enchanting against a dark background and it grows quite well when facing east or north if it has enough light. I have an even softer spot for Phylis Moore, a rather leggy japonica which flowers in a charming shade of salmon pink. This one is particularly good against a wall where sunlight brings out the charm of its colouring.

These Chinese japonicas are great fun to train and prune. From their early days, they can be fanned out like fingers on a hand and clipped into shape late in May after flowering: if necessary, clip off any long shoots which grow forward throughout the season. The stems develop a fairly straight line if they are fanned in this way, and the flowers are visible on an open arrangement.

Nothing is ever entirely tidy, and I am being over-tidy by leaving out a good, bushy relation. Known as Simonii, it must commemorate somebody's Simon somewhere, but its habit is quite distinctive. It is low-growing and spreads into an arching bush which is excellent on a sunny bank or in a mass as a japonica thicket. Simonii does not grow more than 3ft high but the flowers are a lovely shade of dark red, semi-double and held flat against the spreading branches.

On the other side of the family, we have garden hybrids known as superba. They all arise from crossing a wild Japanese and a wild Chinese variety. Both of their parents grow wild on the slopes of cold mountains; thus, they are well up to life on the Celtic fringe, even without thermal underwear.

Until recently, I used to believe that the reds were best and that Rowallane was the best variety of all, especially on a low bank where it spreads to a width and height of 4ft. I now realise that there is a very fine white called Jet Trail which is good in the same situation and greatly neglected by people who like thickets of white flowers before the roses begin.

This year, there will even be a greenish-yellow variety. In 1989, Notcutts of Woodbridge, Suffolk, developed stocks of a sudden accident which appeared in a customer's garden. It was named Lemon and Lime and, when I saw it last year, I thought it had possibilities.

Like Simonii, these superba varieties are excellent shrubs for a low tangle, a thicket on a bank beside a drive, or as a broad group beside a flight of bold steps. I defy you to kill them and I also believe that they will grow in fairly dry summers: the late Russell Page sometimes used big blocks of them in gardens in southern France which he described to me as very dry. Gardeners who think of this family only on a wall are missing their best use. Japonicas will knit together and make a low plantation which excludes weeds.

Most of the varieties throw off suckers which you can simply cut off with a spade and replant. Otherwise, all of them will root very easily if you take the low branches and fix them down on to bare earth so that they make a root system of their own. Then, you simply cut off these layers and move them to another place.

The next three or four weeks are the right time to begin this simple multiplication: with their exceptional goodwill, japonicas are flowering early in order to remind us to make the most of them.

GB United Kingdom, EC P0181 Ornamental Nursery Products CMMT Comment & Analysis P0181 The Financial Times London Page XXI 1015
Property: A fillip for foreigners - A leasehold loophole Publication 930220FT Processed by FT 930220 By GERALD CADOGAN, Property correspondent

FOREIGN BUYERS stand to profit from the new Housing and Urban Development Bill which, when it receives royal assent in summer, will allow many leaseholders of flats to buy out the freehold.

Many foreign buyers have never fully understood the leasehold concept and, however much they love London, are reluctant to invest in British 'wasting assets.' They are buying properties in the UK with some zest already, while prices are low and the pound devalued. It would not be a surprise to see them looking soon at those properties that are enfranchiseable or have been enfranchised, which could even lead to a small rise in prices.

If that happens, though, it will mean little to them compared with the bonus of added buying power resulting from the collapse of sterling. Prices of long leases with a few years left should go up. The sudden chance of enfranchisement gives them the chance of extra value which some vendors will try to capture for themselves - to the chagrin of the estates - by enfranchising or starting the process before selling on.

It should also be easier to get mortgages to buy them. At present, leaseholds with less than 60 or 65 years do not seem to offer the lender enough security. A freehold is another matter. Yolande Barnes, at Savills, says the result will be that the estates, to protect their interests, will stop granting new and shorter (21- to 65-year) leases. Below 21 years the lessee has no claim; over 65, he might see no reason to enter the enfranchisement battle.

The uncertainty of the picture, while leaseholders decide if it is worth the effort to battle potential opposition from the estates, and the estates re-think their strategy, could be another signal to buyers to start their moves - but, perhaps, only if they have a contrarian view of markets.

From now on, when you do start looking, check the property thoroughly against the new rules. If your aim is to buy a flat to enfranchise it, you must ask early on about the other occupants. How do their leases stand? What sort of people are they? Will there be the necessary two-thirds majorities? Will you all get on running the building? Overlook this sort of information and you could be in trouble.

The agents have well cared-for, attractive properties on the market but you will not spot them when you walk down the street as billboards are forbidden. Among whole houses, a typical selection in Belgravia and Chelsea includes 20 Thurloe Place, SW7 (Knight Frank & Rutley: 63 years to go, Pounds 400 ground rent with reviews, guide price Pounds 785,000); and 68 Chester Square, SW1 (KFR or WA Ellis, 75 years, Pounds 2,000 with reviews, guide price Pounds 1.475m).

Far cheaper at Pounds 485,000 are 24 Montpelier Street, SW7 (KFR, 65 years, Pounds 100 fixed), and 8 Graham Terrace, SW1 (Savills or Friend & Flacke, 52 years, Pounds 750 with reviews). Flats include 26 Cadogan Court, SW3 (Winkworth or Strutt & Parker, 82 years, Pounds 100 fixed, Pounds 650,000); and 53 Cadogan Square, SW1 (Foxtons or Francis Russell, 30 years, Pounds 270, guide price Pounds 2,400).

Next week: how the look of London might change.

GB United Kingdom, EC P65 Real Estate P9531 Housing Programs P6531 Real Estate Agents and Managers MKTS Market data COSTS Costs & Prices P65 P9531 P6531 The Financial Times London Page XXI 588
Records: Whistling a happy tune - Richard Fairman rounds up the musicals Publication 930220FT Processed by FT 930220 By RICHARD FAIRMAN

IT IS ten years since Leonard Bernstein went into the studio to make a modern recording of his 1950s hit, West Side Story. The success of that project started a trend which is still in full swing today. A stream of other revivals has followed, some going for glitz with all-star casts, others archive-worthy recordings using all the tools of musical scholarship. The question is - what makes a musical deserve immortality?

The King and I is one that has never fallen from favour, which is presumably because it has two crucial ingredients. The story still feels up-to-date, as it manages to combine both sexual and racial issues, and the score has a wealth of good songs. Philips's new recording of the show, following on other Rodgers and Hammerstein favourites given the 1980s treatment, offers 75 minutes' worth of music, which makes it a good deal longer than the famous old soundtrack with Deborah Kerr and Yul Brynner (though not the 1977 Broadway revival album).

Completeness, however, is only half the story. Like most of the new recordings of the last decade, this one has never been near a stage. At all those moments when the music should make the listener want to get up and dance, John Mauceri and his orchestra have their noses in the score, making sure textures are nicely balanced, rhythms neat, speeds judicious. There is just not enough showbiz excitement around.

Admittedly, it cannot be easy to remake The King and I without the King. (Yul Brynner, star of the show from day one, played the part more than 2000 times.) Ben Kingsley would seem a good choice for the role, but in practice he is tame, lacking the 'controlled ferocity' that Richard Rodgers so admired when he saw Brynner in audition. The supporting cast includes Lea Salonga and Peabo Bryson, the latter sounding quite adrift, as the young lovers who 'kiss in the shadows'. Marilyn Horne makes a guest appearance for Lady Thiang's big solo. Roger Moore and Martin Sheen, no less, turn up in bit parts.

The outward impression is of a constellation of celebrities. But, in the end, there is only one star in it. Julie Andrews had never appeared in The King and I before this recording, but if ever an actress and a role seemed destined for each other, it is Miss Andrews and the fair-minded, well-educated British Governess, always ready to 'whistle a happy tune'. The voice is still delightful; every word is made to count. For her, at least, the disc rates high as a comeback album.

Brigadoon is mere escapist fantasy. The interplay between the sexes is pure 1940s romance; and if the clash of cultures experienced by two brash young Americans stumbling upon a mythical village in the Scottish highlands was meant to have any political relevance, that has long since faded into the background. What is left is a gentle love-story cloaked in the mist of Scottish legend, set to a sentimental score in the most typical Lerner and Loewe style.

This new EMI recording is also a studio production and by rights should also have turned out untheatrically flat. Instead, it is a delight from start to finish. As Tommy and Jeff approach the spot where the village of Brigadoon is about to materialise for its single day of the century, a choir of voices is heard in the distance. A haze comes over the sound and the Brigadoon magic starts to work. Just enough of the dialogue is spoken to allow the listener to follow the story and the result is a recording which captures both the letter and the spirit of the musical.

Again, there is more of the score than usual. Neither the original Broadway cast excerpts (recorded on six 78s) nor the film soundtrack in its current CD incarnation goes much beyond the half dozen favourite numbers. This recording includes extra dance material and background music, all woven carefully together. It has a lovely Fiona in Rebecca Luker and a dreamily romantic Charlie from John Mark Ainsley, while Brent Barrett's Tommy, fresh-voiced and eager, is the match of any that has gone before, Gene Kelly included. Only the Scottish accents give pause for thought: not many of these would dare to be heard North of Watford.

There is not much social comment to be found in Lady, be good] either. This was the first success of the George and Ira Gershwin partnership, dating from 1924, before the brothers were so ambitious as to take on shows like Let 'em eat cake - topical, satirical musicals, with a message. The term 'musical comedy' might have been invented for Lady, be good], since the book amounts to little more than a peg of a comic sketch, on which a selection of typically stylish Gershwin songs are hung.

The original Broadway cast included Fred and Adele Astaire, Ukelele Ike and a popular piano duo. All needed - and were given - solo opportunities. The clutch of songs includes, as well as the title song, the duets 'So am I' and 'Hang on to me' and, most famously, 'Fascinating rhythm'. As stars joined or left the show, other musical numbers came and went. In trying to put together authentic recordings this Gershwin series has been working overtime. Lady, be good], which never existed as a single score, poses more questions than can be answered; but the present CD includes all the major numbers associated with the show either in the original orchestrations or new ones as close in style as possible. The show may not add up to more than a series of party turns - but those are certainly winners.

Scrooge began life not as a musical, but as a film. Instead, a theatrical version, using the same book and music by Leslie Bricusse but with extra songs, was playing at Birmingham's Alexandra Theatre. A recording of that production has since appeared and it is vividly headed by Anthony Newley as Scrooge, who manages to tread a subtle line between deep-seated misanthropy and just-pretend grouchiness. The music follows in the traditional line of British musicals - homely stuff, given a helping hand to lodge in the memory by the inclusion of a few well-known carols. Jon Pertwee and Stratford Johns also join in the performance, which has plenty of seasonal energy.

Nine is a Broadway hit from 1982 that never reached London on stage. Like so many 1980s musicals, it aspired to break new ground. Ostensibly the plot concerns an Italian film director, who sees himself as 'Christ, Mohammed and Buddha' rolled into one. Early on, however, the show evolves into a montage of past and present, reality and hopes, as the director searches for himself in his latest project (Fellini's 8 1/2 casts long shadows). There is a lot of artistic naval-studying, accompanied by not very memorable music. But this recording was taken immediately after a concert performance at the Royal Festival Hall last year and it catches Jonathan Pryce as the over-sexed Guido, Ann Crumb and Elaine Page, all at white heat. If only the revival recordings could muster half its elan.

The King and I. Hollywood Bowl Orchestra/Mauceri. Philips 438 007-2

Brigadoon. London Sinfonietta/McGlinn. EMI CDC 754481-2

Lady, be good] cond. Stern. Elektra Nonesuch 7559-79308-2

Scrooge. Original cast recording. TER CDTER 1194

Nine. London concert cast/Higgs. TER CDTER2 1193 (two CDs)

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups TECH Products CMMT Comment & Analysis P7929 The Financial Times London Page XIX 1273
Records: Potted jazz portraits Publication 930220FT Processed by FT 930220 By GARRY BOOTH

PIANIST Stan Tracey OBE got his gong in 1986, but a major record deal has been longer in coming. His music, learnt with the top big bands of the 1950s and shaped by a long stint as Ronnie Scott's house pianist in the 1960s, is a ubiquitous part of the UK club scene. In Portraits Plus, a debut for the Blue Note label (0777 7 80696 2 1), Tracey takes his regular Octet on a tour of his favourite influences - Ellington, Monk, Rollins and Gil Evans. 'Clinkscales', which could almost be an onomatopoeic description of his technique, contains all the characteristic components of Tracey (Mrs Clinkscales was apparently Duke Ellington's piano teacher). Brisk chorus swapping between saxophones - Peter King's alto features here - trombone and trumpet is underpinned by Tracey's idiosyncratic accompaniment and son Clark's clattering drum fills. Tracey's exuberant arrangement and original writing fits the Blue Note label perfectly and thanks are due to the Arts Council whose funds helped put him there.

I wonder if Tracey ever accompanied US altoist Jackie McLean during his time at Ronnie's? McLean ran with the likes of wayward young Miles Davis and Charlie Parker in the 1950s and lived to tell the tale. Rhythm of the Earth (Birdology 513916-2), a disc full of original compositions, shows his caustic lines and leadership qualities to be undimmed. After a wobbly start with an overlong title track, McLean's young septet (which features Roy Hargrove on trumpet and Steve Nelson on vibes - the others are students of McLean's) digs into characteristically giddy conversation between horns and rhthym section. The writing, shared by pianist Alan Jay Palmer, is tart and to the point.

New writing and recording is traditionally outnumbered on the jazz shelves by re-issues from that golden period of 40 years ago and the firm establishment of the CD coupled with the onset of DCC and Minidisc will only maintain the trend. Art Blakey, the electrifying drum force behind the seething sound of the Messengers, left a huge recorded legacy perfect for compilation and re-issue. Blue Note's three disc The History of Art Blakey and The Jazz Messengers (CDP 7 97190 2) is a potted but nevertheless vital addition which traces the Messengers' make-up through the 40 years from 1947. No small group could swing like a Blakey band, the drummer's irresistable pulse and cross rhythms drove his distinguished soloists on (trumpeter Lee Morgan replaced Kenny Dorham, then came Freddie Hubbard and later Wynton Marsalis): the man's contagious enthusiasm fired new writers (Horace Silver, Bobby Timmons and Wayne Shorter, most notably).

If it is easy to have a favourite Blakey period, it is less easy to define Lady Day's most appealing years. Verve's 10 disc box lays bare Billie Holiday's last years, 1945-59. It is widely held that the slender but strong voice of the 1930s was the singer's finest and that by the 1950s, only an emotional cripple could derive any pleasure from her ravaged tone. But this collection, first released as a limited edition with encyclopaedic notes and graphics and now available at Pounds 75 in a slightly less luxurious package (The Complete Billie Holiday on Verve; 517658-2), shows Billie in good and bad shape, in conversation and in the company of her favourite musicians. It is a revealing, musically rewarding snapshot of one of jazz music's most enduring characters.

Those of you with a more limited budget, attention span and emotional resource could do worse than to try the late Dinah Washington's For those in love (Emarcy 514073-2), a 'special price' disc from a 1955 session which has the vocalist riding easily alongside a relaxed octet directed by Quincy Jones.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups TECH Products CMMT Comment & Analysis P7929 The Financial Times London Page XIX 645
Records: Lords of two 'Rings' Publication 930220FT Processed by FT 930220 By ANDREW CLEMENTS

THERE MAY no longer be quite the sense of pioneering achievement in completing a recorded Ring there was in the heyday of the LP a quarter century ago, but such events still remain noteworthy. Bernard Haitink's cycle for EMI and James Levine's for Deutsche Grammophon have joined the versions by Furtwangler, Solti, Bohm, Boulez, Karajan, Janowski and Goodall (sung in English) already available on CD and there are more to come: Decca is planning another with Dohnanyi, based upon concert performances in Cleveland, while Barenboim's Bayreuth performances in the current Kupfer production will doubtless appear on disc and video before too long.

Although the choice is already wide, the second halves of the two new Rings undoubtedly offer a number of first-rate performances, even if they hardly ever threaten the long-lost Golden Age of Wagner interpretation. They have serious shortcomings but contain much to admire. That both conductors have explored the cycle in the opera house while engaged on the recordings, Haitink at Covent Garden and Levine at the Met, would have been a matter of course a generation ago; now, with the seemingly unstoppable hegemony of the recording industry, it becomes a definite, promotable asset.

The strength and good musical sense of the conductors are the most stable characteristics of all four sets. To generalise dangerously, Haitink's approach is the more naturally expressive, the fiercer and less compromising in his approach to texture and pacing; Levine is the more affectionate, more inclined to go after the lyricism and to highlight it when found. On average, too, Haitink's pacing seems tighter; the differences may be often small but the overall effect is considerable. There is always a sense of the performance leading somewhere with him, of the drama propelling the musical argument rather than, as sometimes with Levine, being held back by it.

Even in such a relatively straightforward showpiece as Siegfried's Funeral March from Gotterdammerung Haitink's sense of momentum and unfussy sculpting gives the music a sense of power and lowering grandeur that becomes just empty rhetoric with Levine. And at the opposite end of the scale it is Haitink who invests the chamber textures surrounding some of Siegfried's quieter reflections with luminous detail; his orchestra, the Bavarian Radio, is consistently well ahead of Levine's own Metropolitan Opera band in its refinement and idiomatic phrasing.

Were selecting a Ring just a question of the conductor, then, Haitink's versions would edge ahead of those of his rival. But singers complicate matters, and in this case make them anything but clear. In EMI's roster the men outpoint their female colleagues by a fair margin; for DG the balance is reversed. In the second half of the cycle at least the presence of James Morris in both casts is less intrusive; for both conductors his Wanderer in Siegfried is the familiar mixture of suave good manners and serene detachment, putting not a note out of place but never engaging with the material either. He seems one-dimensional alongside Siegfried Jerusalem's attractive Siegfried for Haitink, better matched to Reiner Goldberg's performance for Levine.

Jerusalem's intelligent singing is one of the EMI sets' real vocal strengths; the timbre may not be sufficiently heroic for some, and certainly it is effortful in the top register, but he comes into his own in Gotterdammerung with some beautifully sustained quiet singing and a response to the text that is always far sharper than Goldberg's stolid, four-square declamation. Jerusalem's exchanges with Peter Haage's Mime in Siegfried are much livelier than in the equivalent passages for DG, where Heinz Zednik is unconvincing; when combined with Thomas Hampson's Gunther and John Tomlinson's Hagen in Gotterdammerung the performance attains a very high level indeed. Hampson's flexible and lithe singing is unconventional yet works wonderfully; Tomlinson's baleful performance is terrifying and genuinely disturbing, where Matti Salminen's Hagen for Levine offers woolly power and little more.

After that, though, with Haitink the doubts set in. Among the women Marjana Lipovsek makes an efficient Waltraute, without ever revealing the intensity she manages elsewhere; Eva-Maria Bundschuhe is an unexceptional Gutrune; Anne Sofie von Otter is predictably outstanding as the second Norn. In the equivalent roles for Levine Hanna Schwarz brings much dramatic interest to Waltraute, and Cheryl Studer is vocally much more alluring than Bundschuhe. His Woodbird is Kathleen Battle, Haitink's is Dame Kiri; chacun a son gout.

But when it comes to the Brunnhildes personal taste hardly enters into it. Eva Marton for Haitink hardly utters a phrase in either opera that falls gently or gratefully on the ear; everything is forced and the tone quality consistently harsh, with precious little singing below a generous forte. It turns the final scenes of both operas into tests of endurance. While Hildegard Behrens is not the most naturally powerful of singers and sometimes lapses into an alarming vibrato, she does at least produce some moments of genuine beauty for Levine and never has to resort to high-pressure bawling. There is an emotional breadth to Behrens' performance, genuine light and shade, which quite eludes Marton.

For those for whom any Ring cycle stands or falls by the quality of its Brunnhilde Haitink's will inevitable seem fatally flawed. That is an enormous pity for there is much to admire for anyone willing to withstand the intermittent aural assaults. The rewards of Levine are real but less compulsive; there is nothing to offend or to thrill, just solid workmanship pervading all aspects of the performances.

Wagner: Siegfried. Jerusalem, Marton, Morris, Adam, Haage, Rappe, Rydl, Te Kanawa, Bayerische Rundfunk Orchestra/Haitink. EMI CDS 7 54290 2 (four CDs)

Wagner: Siegfried. Goldberg, Behrens, Morris, Wlaschiha, Zednik, Svenden, Moll, Battle, Metropolitan Opera Orchestra/Levine. Deutsche Grammophon 429 407-2 (four CDs)

Wagner: Gotterdammerung. Jerusalem, Marton, Hampson, Tomlinson, Bundschuhe, Lipovsek, Adam, Van Nes, Von Otter, Eaglen, Kaufmann, Herman, Hagen, Bayerische Rundfunk Orchestra and Chorus/Haitink. EMI CDS 754485 2 (four CDs)

Wagner: Gotterdammerung. Goldberg, Behrens, Weikl, Salminen, Studer, Schwarz, Wlaschiha, Dernesch, Troyanos, Gruber, Hong, Kesling, Parsons, Metropolitan Opera Orchestra and Chorus/Levine. Deutsche Grammophon 429 385-2 (four CDs)

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups TECH Products CMMT Comment & Analysis P7929 The Financial Times London Page XIX 1034
Records: Rock back to the '70s Publication 930220FT Processed by FT 930220 By PHIL HARDY

THE STYLE gurus tell us the 1970s are back in fashion. But what version of the 1970s? As the albums below demonstrate, there were more 1970s than we tend to remember.

Consider Blockbuster] The Sensational 70s (Castle CTVCD 209). This double CD celebrates a (mostly) platform heeled glitter splattered British pop version of the decade from the likes of The Sweet (Blockbuster), Mud (Tiger Feet), David Essex (Gonna Make You A Star) and T Rex (Hot Love). If the very titles makes you salivate and you wish you hadn't thrown away those loon pants, then this is the 1970s for you - but not, whatever the style gurus say, for your children.

Or consider Bill Clinton's 1970s, neatly represented by Fleetwood Mac. The group not only provided the President with his campaign song, Don't Stop, Thinking About Tomorrow, but reformed for his inauguration. Witchy, decidedly bitchy and yet somehow bland, The Chain (Warner Bros 9362-45188-2) is a four-CD boxed set that neatly captures the group's American heyday with a mix of bluesy ballads romantic farragoes. Interestingly, the set oscillates between being a collectors item and a coffee table package. It has a big booklet, but rather than matrix numbers and biography, this one consists of lots of photos and handwritten scrawls. Taken together the pair of albums bookend the decade.

For a cleaner sounding, even more romantic and yet bluesier Fleetwood Mac, try Albatross (Columbia CD 31569), a budget-priced version of the group's final days in Britain, which includes most of the classic tracks of the period.

At the time, Bonnie Raitt's 1975 outing Home Plate (Warner Bros 7599-27292-2) seemed less impassioned than her earlier, commercially unsuccessful, albums. Listening to it with her recent Capitol mega hits in mind it seems a natural progression and a good example of her ability to find virtue in unlikely songs (What Do You Want The Boy To Do?). Equally revelatory is Ace's Mel & Tim collection, Starting All Over Again (CDSXE 078). They only had a pair of hits, but they represent a wonderful laid back version of Southern Soul.

More forward looking is Sequel's imaginative The Old School Rap collection (NXT CD 217), a double CD of Sugar Hill tracks that lays bare the genesis of rap from Grandmaster Flash and Melle Mel onwards. Far More problematic is Pete Townshend's Who Came First (Ryko RCD 10246). A hymn to Townshend's guru, Meher Baba, it remains essentially a private album.

Far more unsettling and powerful is Television's 1977 debut album, Marquee Moon (Elektra 75559-60616) in which youthful passion and angst are combined in equal measure. The title track, which signals an end to the essentially private concerns of the decade almost as forcefully as the Sex Pistols, remains as powerful as ever.

But the album of the moment must be James Booker: Bunco Partner (Hannibal 1359). This was actually recorded in 1976, but it comes from another time. Booker offers a surreal melange of classical (Chopin), folk (Ledbetter) and popular song (On the Sunny Side Of The Street) held together by a firm New Orleans backbeat. The result is simple, unadulterated pleasure: the sound of one man caressing the keyboard in private.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups TECH Products CMMT Comment & Analysis P7929 The Financial Times London Page XIX 565
Records: Poetry in motion Publication 930220FT Processed by FT 930220 By MICHAEL GLOVER

ONCE WE have become accustomed to the sanitised perfection that the CD offers, we often long for something a little more human. Poets who record their own work on cassette often give us just that kind of experience: something raw, rough-edged, and all too painfully human. This often tells us more about them and the impulses that have driven them to shape their poems than any number of purer renderings by a professional actor.

One thing that such a reading immediately tells us is where a poet has come from geographically, and how the way he hears and speaks his own variety of native English has shaped his attitudes towards poetry as an art.

Simon Armitage, one of the most lively young poets writing now, was born near Huddersfield and the sound of his language when spoken - a certain brutish dourness, a raw honesty in the almost aggressive lack of musicality in the voice - match perfectly his often chilling narratives. In Zoom and new poems, he takes a knowing sideways glance at the Northern drugs scene; in 'Snow Job', a punchily idiomatic and amoral tale, some drinkers argue in a pub over who should take the most credit for having recognised the car stuck in the snow, its dead driver slumped against the steering wheel, the word 'Volvo' printed backwards in his frozen brow.

The language of Armitage's poems is as far removed as it is possible to be from 'poetic diction'. Idiomatic, breezily colloquial, they sound like anecdotes overheard in the pub. There are no classical references strewn about; the heroes belong to our own times: Johnny Weissmuller, for example, who, Tarzan apart, once held the world record for holding his breath under water.

Sujata Bhatt was born in India, though she now lives in the West, and the creative tensions that surface in her reading of Selected Poems testify to an inner conflict between the claims her childhood language, Gujerati, and the learned language of her adulthood, English. Bhatt reads her poems slowly; and the poems themselves are often intense meditations upon the loss of one's tongue. Such a loss, which she likens in 'Search for my tongue' to a lizard slipping away, has incalculable consequences: the need to think a different reality. Bhatt reads with a measured desolation, inching her way forward, as if her own tongue might trip her up at any moment.

The University of Keele has recently embarked upon a mammoth project to make available all the extant recordings of the great American modernist poet, William Carlos Williams. The complete set of 15 cassettes costs Pounds 100, but those with a more modest interest in the project could start with a sampler of a single cassette entitled The People and the Stones.

Carlos Williams, one of the great pioneers of modernism, a contemporary of Eliot and Pound, reads 20 of his best-known poems from all the major phases of his career in the hectoring populist tone of the barnstorming preacher. Between the poems we get snatches of interviews, warts and all (car horns honk; a dog barks) in which Williams proselytizes to the enthusiastic chuckles of his audiences. The poet resembles that inconspicuous flower, the saxifrage, he tells us. It may look frail - but, my God, it can break a rock in half]

Another excellent cassette in the Keele series is a sampler from the complete recordings of the Scots poet Hugh Macdiarmid, the centenary of whose birth was celebrated last year. Macdiarmid's greatest poems - the short lyrics of the 1920s and the much longer meditation upon the destiny of Scotland and her language, A Drunk Man Looks at the Thistle - are often maddeningly difficult to get to grips with because of the sheer number of obscure and, to the English, seemingly unpronounceable words. Macdiarmid helpfully complements this reading of his own Scots originals with glosses in English. The verbal music alone is quite extraordinary.

Zoom and new poems by Simon Armitage and Selected Poems by Sujata Bhatt: Pounds 5.95 each, available from The Poetry Business, 51 Byam Arcade, Westgate, Huddersfield HD1 1ND; The People and the Stones (Pounds 6.50) by William Carlos Williams and The Scotland of Hugh Macdiarmid (Pounds 5) are available from Dr Richard Swigg, Department of English, Keele University, Keele, Staffordshire ST5 5BG, England.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups TECH Products CMMT Comment & Analysis P7929 The Financial Times London Page XIX 753
Travel: At Angkor Wat, the heady whiff of danger lingers on - Nicholas Woodsworth accompanies two heads of state on a watchful visit to Cambodia's crowning glory Publication 930220FT Processed by FT 930220 By NICHOLAS WOODSWORTH

LIKE MANY of the people who fly into the little town of Siem Riep on United Nations' military transport planes these days, I was not strictly on business. Perhaps half the UN personnel in the aeroplane hold into which I had climbed at Phnom Penh were in uniform. The others - soldiers, electoral officials, policemen, Foreign Legionnaires, interpreters, journalists, secretaries - were dressed as brightly and indiscriminately as sightseers anywhere. Given half a chance to visit one of the world's great attractions for free, the tourist that hides in us all comes bounding out. We were all taking a little time off to see that architectural wonder, the ruins of Angkor Wat.

Cut-rate tourism in Cambodia does carry its risks. The night I flew into Siem Riep, several small groups of Khmer Rouge guerrillas made their way into town from the thick surrounding forests and began shooting. From the Grand Hotel, tourists were treated to the spectacle of tracer bullets flying through the dark from several directions. During the attack, the Khmer Rouge looted houses and shops and stole a dozen valuable statues from the warehouse of Angkor Conservation, the body responsable for preserving the ruins. Three people were killed and about 20 wounded.

No one believed the action had any strategic object. In the smouldering conflict between Cambodia's four armed political factions, such incidents occur almost daily. Far more likely, however, was a symbolic value attached to the operation. Angkor Wat lies at the very heart of Cambodia's collective consciousness. In an age of social upheaval and chaos, it is material proof of Khmer civilisation, of a sophisticated, cohesive and artistic people who created architectural marvels 1,000 years ago. Far more than a tourist site, it is the one unifying national symbol on which everyone agrees. As Prince Norodom Sihanouk - head of Cambodia's royal family and the country's strongest link with the past - has acknowledged, whoever holds Angkor holds Cambodia.

The Khmer Rouge might not be strong enough to launch a full-scale offensive against government positions around Siem Riep. But, in mounting such a raid three days before the arrival at Angkor Wat of that most distinguished of French tourists, President Francois Mitterrand, they were showing they could strike anywhere and at any time with impunity.

Forty years ago, travel writer Norman Lewis noted that French colonial tourists and dignitaries visiting Angkor Wat - the centre-piece of any trip to French Indochina - felt a certain frisson of pleasure in being accompanied on their sight-seeing jaunts from the Grand Hotel by armed guards. They found that a slight whiff of danger and banditry added immeasurably to the exotic cachet of travel in foreign parts.

The days of luxury travel are over and the Grand Hotel no longer lays on armed guards. None the less that whiff, somewhat sharpened now, continues to add a certain thrill when you visit the ruins.

Cambodia's long string of wars and civil disturbances over the past two decades have had one positive, unintended effect: they have saved Angkor Wat from gross commercialisation. Had the country been at peace, there would now be as many souvenir shops and tourist bus-stands sprawled around Angkor as there are around the pyramids at Giza, the Moghul tombs of Agra, or the Mayan ruins of the Yucatan. The few visitors that do come to Angkor today are swallowed up by these vast ruins spread over many miles; on an ordinary day, you can tramp about for hours without seeing a soul.

Angkor's 100 or so temple sites are in themselves exquisite: complex, finely detailed, geometric expressions of man's need to place himself firmly and eternally at the centre of the universe. What makes them more than simply exquisite, and gives them their ability to inspire mystery and supernatural awe, is their hard juxtaposition to nature in its rawest and most undisciplined form.

The impression made by 11,000 bas-relief figures - as you find on the stone walls of the temple known as the Bayon - is heightened many times over by the fact that they sit lost in the middle of a tangled, tropical jungle. The world inside the temples is one of precision, order and the endless repetition of a limited number of Hindu and Buddhist themes. The world outside is one of abandon and natural disorder where no two objects - leaf or vine or slithering insect - resemble each other exactly. It is this contrast which makes Angkor's magic.

Too much magic can overwhelm the simple soul. After two days of visiting one mausoleum, pyramid, temple, tower, terrace, pool and funerary complex after another, I began to feel a deep angst slipping over me. If the monumental efforts of eastern despots to find immortality - here translated into millions of man-hours of painstaking labour - now lay in ruin with origins forgotten and purpose ignored, what was the point of my own paltry efforts? What was the point of anything at all? I began looking once again at the temporal and impermanent, and found it just as interesting.

On the day of my arrival, I rented a small motorcycle and began puttering about the roads linking one far-flung temple complex to another. Life rolled along in its slow, Cambodian country way. Girls in bright clothing and straw hats rode by on ancient bicycles. Old men sat by stone-carved friezes in the forlorn hope of selling coconuts to visitors. Government soldiers at Angkor's two dozen road-side military posts dozed over their rifles in the noon-time heat.

On the second day, things picked up abruptly. On the three-mile road leading from Siem Riep to Angkor Wat, flags and banners were set out in profusion. The bases of roadside trees were given fresh daubings of white lime. At the newly renovated Terrace of the Elephants in the dead city of Angkor Thom, archeologists of the Ecole Francaise d'Extreme Orient hoisted a shiny new sign proclaiming their work. UN graders smoothed over pot-holed roads. Experts checked the undersides of bridges and spires of temple gates in case of mines. There could only be one reason for such a hubbub. Accompanied by Sihanouk, Mitterrand - the first foreign head of state to visit Cambodia in 23 years - was on his way.

The following morning, four hours before the president was due at the ruins, I went out to see the sun rise at one of the loveliest of Angkor's temples. Ta Prohm sits in an isolated spot deep in the forest. Despite its distance from town, it is one of the most popular of all sites. Left unrestored, purposely, its slow invasion by the jungle exceeds even our most romantic image of what a lost civilisation should look like.

I did not, however, see the sun come up over the misty green jungle and grey stones of Ta Prohm. Two hundred yards from the temple gate, I was stopped by a lengthy exchange of automatic gunfire that was far too close for comfort. A minute later, two Cambodian soldiers popped out of the woods onto the road clutching Kalashnikovs and calling in reinforcements over their walkie-talkies. 'Pol Pot] Pol Pot]' they shouted, pointing into the woods and waving me back down the road. I turned my motor-bike around and buzzed away. Where the Khmer Rouge is concerned, you take little time to heed warnings.

A few hours later, though, no one would have imagined there was a single Khmer Rouge villain within 100 miles of Ta Prohm. The entire area was patrolled by 300 French soldiers. I sat by the temple gate in the company of half a dozen heavily armed Legionnaires with blue berets on their shaven heads and bright, tricolour flashes on their shoulders. Armoured personnel carriers lay concealed in the woods. Military helicopters droned through the sky. Camouflaged sharp-shooters waited calmly beside trees and on the tops of temple walls.

Five minutes before his arrival, Mitterrand's communications team arrived and set up a mobile satellite dish by the roadside. A few seconds later, the president's personal security men roared up in a white UN jeep.

Only the tell-tale wires behind their ears identified them as such; otherwise, they looked like fashion-conscious gangsters. They wore dark glasses, pale lavender or rose shirts, flower-patterned braces, and had snub-nosed .38s shoved into the waistbands of their trousers. They were sweaty, covered in dust, and seemed to be enjoying themselves. A Legion captain blew a whistle. 'Trois minutes, les gars]' he shouted. 'Dans le vert]' (Into the bush). The sharp-shooters melted invisibly into the background.

Preceeded by white-uniformed policemen on white motor-cycles, the president's cavalcade pulled up at the temple gates in a cloud of dust. In the famous floppy hat he wears on all warm-weather pilgrimages, Mitterrand stepped from one side of a vehicle flying the French flag, Sihanouk from the other. He looked happier than the prince as they made their way about the ruins. Mitterrand chatted casually with straw-hatted Roland Dumas, his foreign minister, as they examined friezes and dancing temple girls carved on stone. 'Magnifique] Magnifique]' they murmured to each other.

Sihanouk, looking grim, followed. Not even a return to the source of Khmer greatness could hide his own frailty and ill-health. Dabbing a hankerchief to his mouth occasionally, and supported under both elbows, he was led about by dead-eyed North Korean bodyguards who made the temple carvings look animated. It was all over inside 15 minutes; as a piece of tourism, it was something less than spectacular. But Angkor's strange civilisation had once again served its eternal symbolic purpose. As a security operation and public relations exercise in an area risky enough to have delighted even Frederick Forsyth's Jackal, it was, quite simply, magnifique.

As satisfied as the Legionnaires who emerged from the bush to quaff cold drinks, I hopped on my bike and followed the cavalcade back down the dusty road towards our own strange civilisation.

KH Kampuchea, Asia P4725 Tour Operators P7999 Amusement and Recreation, NEC P7011 Hotels and Motels P8412 Museums and Art Galleries CMMT Comment & Analysis P4725 P7999 P7011 P8412 The Financial Times London Page XVIII 1722
Travel Focus: Tripe soup and Colombus, too - Sebastian Hope treads in the explorer's footsteps as he discovers the Dominican Republic / Cruising Publication 930220FT Processed by FT 930220 By SEBASTIAN HOPE

IT USED to be said that on the day the Colombus lighthouse was finished, President Balaguer would fall - which goes to show that prophesy in the Dominican Republic is as reliable as the electricity.

Colombus Day last year - October 15 - came and went. So did the pope, who turned on the beacon and declared the lighthouse open officially. It was the climax of the celebrations for the 500th anniversary of the discovery of the Americas. Everyone was more surprised that the lighthouse's lasers, visible from space, left the capital's fuses intact than to find the blind Balaguer still in power next day.

The lighthouse is a lump of reinforced concrete in the shape of a cross. It houses the 'remains' of Colombus and a museum of colonial history, since it also commemorates the start of evangelisation of the new world.

Turning my back on the lighthouse, I headed for the 3,175 metres of Pico Duarte, the highest mountain in the Caribbean. It stands in the Armando Bermudez national park, which contains Hispaniola's last extensiive forest. The drive to La Cienega, the northern gateway to the park, showed what happened to the rest.

Every accessible acre was covered with crops and breeds of livestock that thrive in the mountain air. It was a pretty enough rural scene, but the dry gulches opening up in old stream beds showed the underlying fragility of this arrangement with nature. I had fallen in with some young Americans in Manabao, where we engaged a guide and his mules. Juan met us at dawn at the park HQ, and we set off across a rope bridge on the three-day walk to the mountain's top and back. Beyond the river we plunged into forest, palms and hardwoods giving way to open pine woodland as we toiled upwards. It seemed that to climb the highest mountain, we also had to climb the second highest. It took five hours to reach the shoulder, and another hour to the base camp hut.

We woke before dawn, shivering on dustbin bags filled with pine needles. Outside, there was a frost on the ground, and golden light was beginning to spread across the peaks. Lone trees poked through the mist in the valleys.

The summit, not unusually, was a slight disappointment. There is no tree line and so no feeling of having climbed to a higher, clearer plain. There is even a bust of Duarte, father of the republic, at the very top. In his line of vision, a column of smoke rose from the forest. By the following day, it had become a curtain.

The air in the cane cutters' barracks of Magdelena was thick with magic. The moon had not yet risen. I had been brought here to see a holy week festival peculiar to the cane villages. The dancers had red cloths tucked into their waistbands and baseball caps covered in curls of red ribbon. They blew whistles and twirled silver batons. The only sign that this was an Easter occasion was a placard of Jesus, with bleeding heart, on a pole trimmed with more red ribbon.

The noise, and the violence of the dancing, was unnerving. When I produced a camera, hands came from everywhere, open for money: hard, cane-cutters' hands.

We knocked at a door. Presently, the Haitian obeah woman, very black, appeared, asked for money in a cracked voice, and sent out for rum and cigarettes. Her altar was a magpie's nest: a bell, a long dagger, pictures of the Virgin Mary, St George slaying the dragon.

Her actions seemed furious. She slapped some bent playing cards together and banged them one at a time onto the altar. She said she told fortunes and sold lottery numbers for a share of the winnings. We were sent away with potions which looked like shampoo labelled 'luck' and 'life' and 'love'.

Sabana de la Mar comes alive only when a ferry is due. Most tourists pass through en route to the secluded beaches of the Samana peninsula, on the country's northern coast. At other times the jetty is dead, and the bay is left to the pelicans and the fishermen who wade its margins.

It was the nearby Los Haitises national park that had drawn me. Its caves once were inhabited by the Ciguayo Indians and the shell middens in them looked fresh. The walls held carvings of long faces. There were drawings of birds, fish and figures in sharp black lines, the art of an imagination and way of life long extinct.

After this, Santo Domingo's Zona Colonial, the first city of the Americas, came to symbolise only past injustices for me when I returned to it. The first fort, cathedral, university, monastery and courtroom - all built in the early 16th century - appeared to me as the machinery of genocide. It made me more comfortable to know that Drake sacked the place in 1586.

Beyond the walls of the old city, there is a low-rise sprawl: apocalyptic, engaging, even charming - a circus of traders with their goods on their heads, a supermarket on the move, the streets filled with vehicles. I found sanctuary at La Llanera Famosa, a bar two streets away from the nightly gauntlet of prostitutes on Avenida Duarte. It was an oasis of light in the frequent blackouts, a generator purring outside. Here, I was introduced to local tastes in food and music, the former including pigs' trotters, beef shins and conch. I discovered that there is nothing more sustaining at 4 am than tripe soup.

On my last night, Heracelis, the waitress, arranged for a wandering merengue band to come and play for me. Three men appeared with accordion, drum and scraper: instruments of European, African and Indian origin. The plaintive vocals told of luck, life and love. Heracelis grabbed my arm. Dancing to the impossibly up-tempo rhythms, everything started to make a little more sense.

DO Dominican Republic, Caribbean P4725 Tour Operators P7011 Hotels and Motels CMMT Comment & Analysis P4725 P7011 The Financial Times London Page XVII 1043
Travel Focus: For billionaires who do not own a yacht - Catherine Stott cruises round the Baltic on Sea Goddess I, a ship on which even the extremely rich can relax / Cruising Publication 930220FT Processed by FT 930220 By CATHERINE STOTT

IT WAS nice of Cunard to recreate the life style of a billionaire's private yacht party; to package it so beautifully for 100-plus guests; and to make the price so utterly inclusive that money itself is never seen on board.

Cunard has two ocean-going, yacht-style cruisers, Sea Goddess I and II, which rove the world year-round and, with a draft of only 14ft, insinuate their sleek prows into the most secret harbours, exclusive marinas and usually unnavigable rivers.

I joined the Sea Goddess I at high summer in the Baltic and even the foreplay was exquisite: a uniformed chauffeur at the airport, bowing and handing me a long-stemmed rose before speeding through Copenhagen in a limousine to where the Krug of cruise ships, 320ft of pure white, rested seductively at the quayside.

Fleets of Mercedes disgorged well-heeled travellers. Matching six-packs of Vuitton and Hartmann baggage were hoisted aboard. Nancy Reagan lookalikes - size 4 social x-rays - clutched monogrammed jewel cases. Queuing to board, Charles Beckwith, deeply tanned from one of his Caribbean homes, viewed the Scandinavian drizzle with distaste and growled that what he was spending on the cruise could have paid for another Jaguar.

He clutched an alligator briefcase close to his chest. His wise-cracking wife of 40 years said: 'Charlie keeps his most precious things in there. His krugerrands and his hair-dryer.'

Piped aboard, we were pressed to accept a crystal goblet of champagne, and our first scoop of caviar, in a flower-filled lobby where good Oriental rugs floated on a marble floor. This was the time to evaluate the other guests. Sea Goddess I, it appeared, is very much a yacht for couples, of whichever persuasion. There are 58 double cabins. Even the ultra-spoilt professed themselves impressed by the accommodation, which is designed cleverly. Each cabin has a picture window, and a long wall of blonde wooden units concealing enough closet space even for those who like to change five times a day. There is a safe big enough for your gold bars and a refrigerator inside a private bar which is replenished constantly.

Everyone was much friendlier than on other cruise ships. Perhaps the rich are truly relaxed only with other rich people - and with prices starting at Pounds 3,740 apiece for a week's summer cruise in Europe, it is an assumption they can, rightly, make about each other. Everyone said they were 'in' something - 'in' medicine', 'in' movies'. One ancient Pennsylvania billionaire said he was 'in' coffins.

Friendships formed quickly. People would bag you in advance for drinks and dinner. Otherwise, there was an open seating policy where you filled up the tables as you arrived. The restaurant was pretty and you could dine at any time between 8pm and 10pm. Since the officers and crew are Norwegian, the cuisine tends towards the Scandinavian. The majority of guests were American, but with a selection of Europeans. Ages ranged from 14 to 80 but most people were in their 40s and 50s.

The difference between the Sea Goddesses and almost every other cruise ship is the deliberate lack of entertainment; indeed, there is very little structured activity on board. I suppose Cunard thinks that if you are smart enough to have made the kind of money you need for a Sea Goddess cruise, you probably have your own ideas on how to spend an evening. There is dancing, however, a little gaming room, and a decent library of books and movies.

Rather unusually, the ships tend to stay in port until midnight so that guests may dine ashore without hurry. Other, cheaper vessels sail at sundown, knowing that if their passengers have paid for dinner on board, they will not wish to pay for another one.

On the Baltic cruise, the American guests were less than impressed by the first two ports of call. 'No shopping - very frustrating,' said a Floridian fashion plate as we landed by tender at a speck in the Baltic named Christiansoe, nothing but a 100-acre rock where raucous guillemots and razor-billed auks outnumbered the hardy fisher-folk 100 to 1. Nor did they rave over Bornholm, Denmark's permissive holiday isle, where they complained that all there was to do was watch a million herrings drying like socks on a line.

Most did not go ashore in teeming rain in Gdansk and Tallin where we Europeans paddled about cheerfully marvelling at the medieval architecture; the tall, gabled houses with brightly tiled roofs; and the radial, cobbled streets.

The mood lightened on reaching Helsinki, that great white northern city of the sea, with the architectural set-piece of Senate Square at the centre of a perfect, 19th-century town plan. The Americans were looking forward, they said, to buying fur coats and fine china. No one had told them that Helsinki is one of the world's 10 costliest cities. They bought nothing.

Our long and dismal entry into St Petersburg was accompanied by a humorous commentary from the Norwegian captain (if that is not a contradiction). On the first of our two days there, we were driven in the roughest bus most of these people had ever seen to the Catherine Palace at Tsarskoe Selo.

It was rum to be in the company of heavy-duty capitalists who mistook the little dachas round about for garden sheds. Seeing a fat peasant woman cycling with an even fatter pig in her basket just made their day. 'This will be our first vacation when you haven't bought a house,' joked a Texan to his wife.

Back in the big city, we had a drama outside the Winter Palace. A New York dentist, thrilled at his success in haggling over Russian army watches with a black marketeer - 'Ten for Dollars 100: they sell for Dollars 200 each on Fifth Avenue: that's all my Christmas presents taken care of' - discovered his wallet, containing 25 gold and platinum credit cards, had been lifted during his transaction. For some reason, the collective mood was not one of unalloyed sympathy.

After St Petersburg, the Sea Goddess I meandered in limp sunshine around the summer fleshpots of Scandinavia. Both Goddesses have a safe platform for water sports and ocean swimming. It is used in tropical waters, if calm. In the chill waters of Lake Malaren, not far from Stockholm, only the hardy Scandinavian stewardesses took advantage of it.

Catherine Stott was a guest of Cunard. A seven-day Goddess cruise in European waters costs from Pounds 3,740 a person including flight, meals, drinks and tips. Details: Cunard, 30a Pall Mall, London SW1 Y5LS. 071-491 3930.

XG Europe P4481 Deep Sea Passenger Transportation, Ex Ferry CMMT Comment & Analysis P4481 The Financial Times London Page XVI 1156
Travel: Secret joys of the hidden valley - Off Piste / Ian Roger learns with an expert in Andermatt Publication 930220FT Processed by FT 930220 By IAN ROGER

MY ENGLISH companion in the Gemsstock cable car groaned as I introduced myself. 'Oh no] You are not going to write about Andermatt, are you?' he said. Bob, a retired dentist, was depressed by the thought that the ski resort he has regarded as almost his own for 30 years would become more widely known.

Andermatt, in the Urseren valley in the middle of Switzerland's Gotthard pass, has many special qualities. It is one of Europe's historic trade crossroads, and the town and other villages in the valley retain considerable historic charm and the natives an unexpected openness. The weather is frequently wet which makes for unusually good snow cover in winter.

Andermatt's biggest attraction is that it takes no package tours. During the week, the valley's villages remain blissfully quiet. No lager louts, no overly jolly chalet girls, no designer shops. Just a handful of small, friendly hotels and pensions.

At weekends, a nearby motorway exit makes the resort easily accessible for Swiss and Italian day trippers, but there are ways to avoid them. Andermatt is for serious skiers - such as Bob. 'I have tried all the other places, but this is still the best,' he says.

The ski area is deceptively large, although from lift and piste maps it actually looks limited, with only the cable car and a couple of drag lifts on the Gemsstock, a couple more drags on the other side of Andermatt at Natschen and another at Hospental, by the entry to the Gotthard.

Each of these lifts also leads to a vast expanse of off-piste skiing. In addition, the cog-wheel train (included in the weekly lift pass) on the Furka-Oberalp railway runs to the top of the Oberalp pass to the east, and from there a series of pistes and lifts leads down to Disentis in the upper Rhine valley. Off-piste routes lead back to Andermatt.

'We like to get in about 30,000 feet vertical on a good day,' Bob said, as I was panting from trying to keep up with him after only one run. There are few resorts in the Alps where it would be logistically comfortable to ski 30,000 vertical feet in a day. The top of the 9,714 ft Gemsstock can be reached in less than 20 minutes. From there, it is an all black run, the initial portion over a glacier, to the town 5,000ft below. Or, like Bob, skiers can plunge through powder most of the way.

If all this sounds too macho for the average intermediate, do not despair. Andermatt is a good place to learn to be a serious skier. The resort has two specialist off-piste guiding and instructing organisations.

After two outings with Alpine Adventures, run by Canadian John Hogg, I can confidently say that if there is safely skiable powder to be found in the region, John will find it. If it is not within reach from the lifts, he will put climbing skins on pupils' skis and take them up to nearby glaciers to introduce them to the joys of ski touring.

I joined him feeling a little apprehensive: there had been no fresh snow for a week and crowds of day trippers could be expected. The well-known off-piste runs from the Gemsstock had been skied out and most of the rest had deteriorated into crud.

But John led our group of five up a little-known shoulder of the Gemsstock and down a steep, untouched chute into the Unteralp valley. For most of the way, the snow was surprisingly good. Then we went up and down the broad north face of the 8,500ft Winterhorn above Hospental a number of times without meeting another skier. The conditions varied mainly from breakable to unbreakable crust, but every so often we came across some good powder. As John said: 'If you can ski in this stuff, you can ski in anything.'

An intermediate looking for the next leap may find Andermatt is for them. Do not tell anyone. Bob would be upset.

Ian Rodger travelled with Alpine Adventures in Andermatt, Switzerland. Tel: (41-44) 68-353. Fax: (41-44) 68-243.

CH Switzerland, West Europe P7999 Amusement and Recreation, NEC P4725 Tour Operators CMMT Comment & Analysis P7999 P4725 The Financial Times London Page XVI 734
Travel: Odyssey through a winter wilderness - Off-piste / Arnold Wilson takes risks high in the Dauphine Publication 930220FT Processed by FT 930220 By ARNOLD WILSON

AS WE traversed the debris of avalanches beneath the frozen walls of La Meije, blocks of ice the size of a giant fist glistened at our feet.

They had broken off from the myriad seracs (ice pinnacles) above us, falling hundreds of feet down the sheer north face. I picked up one of these diamonds. It was as pure as the wind-blown virgin snow we had skied to reach this desolate, beautiful 'vallon' (narrow valley). I wanted to take it home as a trophy of one of the most astonishing day's skiing of my life.

Our small, exhausted but triumphant party skied the final mile of the rock-strewn path down to the Col du Lautaret. Our skis were trashed but our spirits soared when the sight we had been waiting for finally appeared: way beneath us on a shelf was the medieval-looking village of La Grave, lights twinkling in the twilight, church bells ringing hauntingly, and with the peaks high above the village still bathed in evening light.

La Grave, a heady 6,500 vertical descent on tough, unpisted terrain, is only one of many classic, off-piste, ski-mountaineering adventures (reaching long, off-piste descents by walking, either carrying skis or walking on them with the help of skins) to be savoured in this part of the French alps: the Dauphine area around Alpe d'Huez and Les Deux Alpes.

The best base for exploring them is the quaint Hotel Rissiou where Nigel Purkhardt bases his Ski Peak operation in the picturesque Oisans village of Vaujany (1,250 metres) - a more pleasant back door to Alpe d'Huez than the architecturally uninspiring resort itself.

Although it is almost an hour's drive to reach Les Deux Alpes (a mere five minutes by helicopter), it is not necessary to travel further to find off-piste itineraries of almost equal quality. There are endless permutations starting outside your door in Vaujany itself.

Due to a windfall earned from a huge dam and hydro-electric station lower down the valley, Vaujany has one of the world's biggest cable cars linking it with Alpe d'Huez. At night it is tethered, like a huge spacecraft, in the middle of the village, an incongruous sight in such a rustic setting.

Vaujany is not a village you would necessarily seek out while exploring the local slopes. Visiting it, and some of the other mountain village satellites that often remain unseen while skiers concentrate on 'motorway' cruising, is rather like getting off the real motorways in France and experiencing the joys of the countryside. We skied to two other such villages - St Christophe en Oisans and then Venosc, locked in an almost claustrophobically beautiful valley - via the most spectacular off-piste run I can remember skiing anywhere in Europe: the Vallon de la Selle.

That we did it on the same day as La Grave (the starting point for both is the Col de la Loze, reached after a 20-minute hike from the top of the Les Deux Alpes ski area) made it an epic day. While piste skiers were clocking up endless runs no more than a mile away, our small group, accompanied by Olivier Laborie, our guide, set off on an off-piste odyssey. Olivier's rucksack was weighed down with ice-axe, shovel, rope, titanium ice screws, and karabiner and pulley for possible crevasse rescue.

Throughout the weekend, we were to ski just four descents. But they were descents of such quality that on the rare occasions that we happened to cross a piste in transit, it seemed almost hum-drum. What is so spectacular about such runs is not necessarily the excellence of the snow - which can change from good to bad to ugly and back again within a couple of dozen turns - but the near-mystical experience of being allowed into the literally and spiritually rarified atmosphere of a desolate mountain wilderness.

The Vallon de la Selle is a prime example. From the Col de la Loze, Olivier skied gently over the shoulder to reveal a seemingly endless, steep snowfield. A rocky outcrop dominated our route on the left. The steep, wide chute of the actual run was bathed in sunshine that in an hour or two would make the snow too difficult to enjoy. Our route disappeared into the shadow of the narrow valley below.

Skiing a valley like this without a guide would be foolish. Were there any crevasses lurking beneath the snow? If you fell at the top would the snow hold you, or was there a cliff lurking beneath? And, on a more positive note, where was the best snow likely to be?

Usually, falling on such terrain is harmless, if disconcerting. But during our afternoon descent of La Grave, Olivier had us doing a climbing traverse to keep above what looked like an innocent slope. It turned out that not only was there a rimaye (a long snaky crevasse usually found where rock and glacier meet) lurking below us, but the slope had all the characteristics of being prone to a slab avalanche.

During a thrilling descent of the Col de la Pyramide, of the Pic Blanc, high above the Alpe d'Huez/Vaujany ski area, we were warned not to fall because there were cliffs which were not obvious from above. A skier falling here could risk serious injury. Indeed, a skier in our party had been saved by Olivier on an earlier occasion when he 'caught' her, cow-catcher style, at his third attempt. One must not exaggerate the dangers, but being aware of them is important.

For those interested in pistes rather than off-piste, the Alpe d'Huez skiing domaine offers 107 of them (220 km) almost 90 lifts and 325 snow cannon.

My visit to Vaujany was arranged by Ski Peak, Hangerfield, Witley, Surrey, GU8 5PR. 0428-682272. I stayed at the Rissiou Hotel. Ski Peak also has chalet and apartment accommodation. Prices for a week (half board) range from Pounds 300 in January to Pounds 450 in February, including scheduled Air France flight from Heathrow to Lyon and transfer. Ski weekends (four nights half board), usually only available in January and April, from Pounds 349.

FR France, EC P7999 Amusement and Recreation, NEC P4725 Tour Operators P7011 Hotels and Motels CMMT Comment & Analysis P7999 P4725 P7011 The Financial Times London Page XVI 1070
Travel Focus: A Caribbean floating fantasy - Catherine Stott joins 16 nationalities seeking fun in the sun aboard a floating resort / Cruising Publication 930220FT Processed by FT 930220 By CATHERINE STOTT

BRITONS still tend to regard a Caribbean cruise as the ultimate travel fantasy. While many of the 50-odd islands have become relatively expensive since being developed, a ship makes them accessible financially as well as geographically to a broad range of travellers.

With more than 40 ships to choose from year-round in the Caribbean, standards have risen. I took a one-week cruise which, in spite of the luxury, cost no more than a week's full board in a middle-of-the-road hotel in the Med. The accommodation could not be faulted, food was available round the clock, and the service was good.

The British passengers - mostly young families - had flown to Miami and spent the night in the French-owned Sofitel before being driven to Fort Lauderdale. Most seemed to be first-time cruisers as well as making their first visit to the Caribbean and expectations were high. As 70,000 tons of gleaming ship filled the view from the bus windows, there was a collective gasp. Then silence.

Designed by Renzo Piano to resemble 'a dolphin moving through water', Princess Cruises' Crown Princess was launched three years ago. Although it comes into the 'floating resort' category and holds 1,600 passengers, it feels uncrowded even when booked solid, as it was all last year.

Inside, it is luxurious; I have been in worse hotels at twice the price. Maximum use is made of space, enhanced by full-length mirrors. My bedroom was light and furnished stylishly with nice fabrics and framed prints. The good-sized bathroom had a power-shower, plus a vacuum loo that sounded like cannon-fire, and there was a vanity unit and separate dressing area with 40 hangers and 20 drawers.

Some of the new mega-liners have been described as no more than vulgar floating casinos, but this one was elegant with shops that were glitzy but chic.

There were 16 nationalities on board, all determined to have fun. The mix ranged from a 600-strong teetotal religious group from California to the six exuberant Mexicans my sleepless companion spotted entering the whirlpool bath in the middle of the night with a bottle of champagne and a ghetto-blaster, wearing very little.

Our table for 10 at dinner in the enormous restaurant was fairly jolly. All the diners were wealthy Americans. Willy, once a Swiss farmer's boy, owned a gold mine in Alaska. Gary was a psychotherapist-cum-novelist from Phoenix; his wife was so twitchy, she must have been a patient. Kelvin from Beverly Hills was chairman of a computer corporation; and Sheldon - well, Sheldon was the real prize. He said: 'I have taken a suite on a cruise ship every year since I became affluent.' Sheldon was honeymooning with his brother's ex-wife. He wore big jewellery and she had big hair.

Mario from Ravenna was a heavy-duty Italian tycoon into heavy hand-kissing. His wife spoke no English. Together, we motley 10 ploughed our way nightly through six decent courses of Italian food with an American accent. The wine was rather expensive but the Americans all drank iced tea. Being at sea seemed to have made them amorous. There was more nuzzling than eating.

Waking at sunrise on the second day, I saw a flat coral atoll passing my window. It was Eleuthera in the Bahamas, our first port of call where Princess Cruises has set up its own watersports resort on a private beach. Here, we were to unwind and take part in a programme called Adventures Ashore, including a beach barbecue. At 9am, the first tenders left with the pirate-clad crew to set up the beach party. How would they move 1,600 people without chaos? The answer: in 20 minutes and without chaos.

After two minutes, my skin was screaming for more sun-block. It was unbelievably hot but almost indecently beautiful under the sea-grape trees and royal palms. On the beach, the Chinese played the Japanese at volleyball and the Italians smooched on loungers. The Mexicans zoomed around the bay in rented speedboats while the British fried, sipped pina colada, and read Jeffrey Archer and Jackie Collins.

Aboard, we were spoilt for choice in ways to pass the time. Should we learn bridge or blackjack, or how to fold a napkin into a swan, or scuba diving in the pool? Or join Miss Rhoda Israelove in her seminar on 'How to Protect Your Money?' At night, there was the casino and Broadway-style music shows.

With San Juan, Puerto Rico, as the next port of call, the ship's TV relayed endless lectures on where to find the cheapest liquor, gold and diamonds. As we queued to disembark, I got talking with a woman education officer from Borehamwood, Hertfordshire, who said she and her companions were delighted with the cruise. 'Where else,' she asked, 'could four single women see so much in such comfort and safety?'

Some people had booked 'A hike in the rain forest', hoping to see the creepie-crawlies. I treated myself to a Pounds 30, 30-minute helicopter ride over old San Juan, that 300-year-old Spanish colonial masterpiece. At dinner, the rain forest hikers were glum. 'I'll tell you what happens in the rain forest,' said the psychotherapist. 'It rains. Very hard. And all we saw was one small snail. The best sight was the bus back to the ship.'

Sheldon-the-affluent proudly showed off his new and heavy gold bracelet and admitted to being 'a real male jewellery freak'. His brother's ex-wife sported a diamond 'tennis bracelet'.

The dress code was 'casual' after a day in port. Mercifully, someone was expelled from the restaurant for going barefoot, another for baring his tattoos via a tank top, but these were the only sartorial indiscretions. 'Formal', when most men wore a white tuxedo, was interpreted liberally. There were lounge suits, sports jackets, even an eccentric in tweed jogging pants whose pony-tail had been dipped in silver.

Next came St Thomas in the US Virgin Islands where the red roofs caught the early morning sun prettily. Dolphins escorted us into port, the green and hilly capital of Charlotte Amalie. Time for an adventure, we thought, and booked a Pounds 17 catamaran ride to the island next door - St John, a national state park - just for the joy of watching glorious yachts in full sail and snorkelling on the reef. On our return to St Thomas, we saw a 3ft iguana standing at a bus stop. Our friends who had seen nothing in the rain forest were livid.

Waiting to dock at Nassau gave me the chance to ask passengers what they had thought of the cruise. The consensus was that it had delivered even more than it had promised. No criticisms, then? Only, it seemed, that people found the drinks - at Dollars 3 a cocktail - rather expensive. But they had solved that problem by buying bottles of rum, at the same price, in Puerto Rico.

Catherine Stott travelled with Princess Cruises. Caribbean cruises on the Crown Princess start from Pounds 895 a person for nine nights in an inside cabin with private facilities, including return flight and a night in a Miami hotel. Further details: Princess Cruises, 77 New Oxford St, London WC1A 1PP. Tel: 071-831-1881.

Princess cruises XA World GB United Kingdom, EC P4481 Deep Sea Passenger Transportation, Ex Ferry P4725 Tour Operators CMMT Comment & Analysis P4481 P4725 The Financial Times London Page XV 1256
Travel Focus: How to find your dream boat - Catherine Stott provides a guide to the pick of holidays afloat / Cruising Publication 930220FT Processed by FT 930220 By CATHERINE STOTT

CRUISING IS the one kind of travel that has continued to get better. It has become more glamorous and more affordable. Long gone is its image as the winter pastime of the geriatric rich.

The about-turn came in the 1980s with the launch of a new generation of ships which, helped by strong marketing, were addressed to quite a different audience. Now, first-time cruisers are more likely to be young and fun-loving, often with accompanying children, than rich and old.

Gone (almost) are the gruesome old rust-buckets with shared facilities, shoe-box cabins and no air-conditioning. Here to stay are, at one end of the scale, floating resorts of great luxury and, at the other, elitist 'boutique cruisers' carrying around 200 passengers prepared to pay for the best.

Initially, many people remain cruise-resistant. The most common worries are feeling restricted, sea-sickness, and being trapped in a holiday camp atmosphere. The short answers are that if you tend to feel shut in, you will choose one of the larger ships. Sea-sickness is rarely a problem, since all cruise ships have high-tech stabilisers designed to reduce roll. If you are prone to it, acu-pressure wrist-bands and the little patches worn on the neck prevent most bouts. And all ships' hospitals offer injections to stop it.

As for the on-board atmosphere, that depends on the style of ship you choose - but 80 per cent of people elect to go for another cruise once they have tried it. There is plenty of choice: there were 120 ships world-wide in 1985; next year, there will be 175.

Cruising offers a touch of romance - besides most places look better from the sea. It allows less intrepid travellers to reach parts of the globe they would not otherwise contemplate, in comfort and safety. I sailed around India recently with several hundred truly timid people who had the journey of their lives, mostly using the ship as a hotel in different ports - including Rangoon which is still difficult to visit in any other way.

And you really do get what you pay for, with no hidden charges. All transport, meals and entertainment will have been settled in advance. Only (optional) shore excursions, drinks at duty-free prices and tips are extra. This need not be a worry: all ships set out reasonable guidelines on how much to give, and to whom. On an average cruise, it would work out at about Pounds 3 a person per day.

As a first-time cruiser, how do you begin to choose? Answer: set yourself an honest quiz to find out what you want and what you would hate. The Passenger Shipping Assocation says it receives only 35 complaints a year out of 200,000 cruisers and an equal number of ferry passengers. 'Complaints are invariably from people who have chosen the wrong ship and are expecting more than they have paid for,' says director Ken Page.

Next, decide when and where you want to go. Only the Caribbean and south Pacific are year-round destinations (although the Caribbean is prohibitively expensive from December to April if you stay in a hotel, it is cheaper to cruise there in that period because, curiously, the peak season for Caribbean cruising is July and August when the weather is far more humid).

Alaska, the present 'in' destination, is navigable only between June and early September - prime months, too, for the Baltic. The Mediterranean season runs from late March to early November in the brochures, but seasoned sun-seekers will know that although prices may be seductively low at both ends, the weather can be blustery and the waters turbulent at these times.

In the northern hemisphere winter - their summer - South America, South Africa, Australia and New Zealand have the best cruising weather. And south-east Asia, an increasingly popular area, is best from October to March although there can be small rains (as distinct from full-blown monsoons) in December and January in certain areas.

Closer to Britain, the cheaper traditional winter destinations are the Atlantic islands (Madeira, Tenerife, Gran Canaria and Lanzarote), and south to The Gambia and Senegal. These well-trodden paths may not appeal to more discerning travellers, however.

Sensible first-time cruisers in Britain will acquire a big selection of brochures from a travel agent displaying a window sticker saying 'PSARA'. This indicates it has staff trained to advise on cruising; there are 1,000 such agents.

Now it is time to decide on your holiday prioritiies. Cruising tends to be gregarious. If you are a loner, or a self-sufficient couple, it will not work unless you can afford the most expensive and smallest possible ship where the on-board entertainment is negligible and the personal space huge.

Should you regard yourself as a swinger or raver, choose a big, new vessel. Paradoxically, the largest ships often have the most compact cabins - cleverly-planned modules that are quite adequate for those who regard their accommodation as no more than a place in which to sleep before the next bout of swinging and raving.

If the dimensions of cabins are not given in the brochure, ring the cruise company and ask. Older ships tend to have a wider range of accommodation. Prices for newer liners vary according to whether there is a view, a bath as well as a shower and, increasingly, a veranda.

Next: how many ports do you want to visit? Remember that most shore excursions leave the ship at 8am; if you were late to bed, this might not be convenient. Cunard has two ships, one in the Caribbean, the other in the Mediterranean, which offer a different port each day but most passengers seem to find one every two days about right.

Seventy-five per cent of the world's cruisers are American. Should you prefer to sail mostly with Britons, it is easy to book on ships leaving and returning to UK ports. This market has grown by 1,500 annually for the past five years - an increase that has led P & O, which already has two ships sailing world-wide from Southampton to announce plans for a new, Pounds 200m liner cruising from the UK in 1995.

Cruising for under Pounds 1,200. This category has the most choice. For excellent Italian food and a cheerful European atmosphere, the Costa Classica is new, sparkling and good value. You can choose from two Caribbean routes out of Miami, with a starting price of Pounds 849 for 15 nights (seven in Miami or Orlando) including the return flight from Britain.

The Crown Princess and Regal Princess, mega-cruisers from Princess Cruises (part of P & O), offer nine nights in the Caribbean from Pounds 895. The Song of America, operated by Royal Caribbean Cruise Lines, has an interesting itinerary from Los Angeles south to Mexico, including return flight, from Pounds 1,175. The QE2, with its vast range of accommodation across a large price range, has cruises from two to 100 days - good food in the top classes, 60 things to do each day.

The Norway, once the France, is now Norwegian Cruise Lines' flagship. Taking 2,300 passengers weekly round the Caribbean, it is still very stylish, with glassed-in decks of shops and cafes. Its range of cabins starts at Pounds 995 a person for a nine-night holiday out of Miami.

Cruises over Pounds 1,800. The Crystal Harmony is a new, luxurious ship from Crystal Cruises which offers opulence at half the price of some rivals. There is a choice of restaurants, the biggest pool afloat, marble-lined lifts and spacious cabins. A 13-day cruise from Tilbury costs from Pounds 2,424. Equally good value on the large-and-luxurious circuit is the Royal Princess, which has no inside cabins and an unusually high proportion of full bathrooms and verandas.

Other ships in this category with high reputations are the Royal Viking Sun, voted consistently as the world's No 1 cruise ship; all the ships of the Holland America Line; and Cunard's Sagafjord and Vistafjord, which have an extremely loyal following.

Cruises over Pounds 3,000. The 'boutique cruisers' take around 200 passengers in surroundings of all-inclusive splendour. These luxury ships have such shallow drafts that they can enter bays, harbours and rivers inaccessible to most others. They offer virtually no structured entertainment; the passengers mostly are rich. Vessels include Cunard's Sea Goddess I and II, the Seabourn Pride and Seabourn Spirit, the Royal Viking Queen and the Song of Flower. Work on a budget of around Pounds 500 a person per day and you will not be far out.

Costa Cruises, tel. 071-436-9431; Crystal Cruises, 071-287-9040; Cunard, 071-491-3930; Norwegian Cruise Lines, 071-408-0046 (also for Royal Viking Line); P & O Cruises (Canberra and Sea Princess), 071-831-1234; Princess Cruises, 071-831-1881; Royal Caribbean Cruise Lines, 0932-820230; Seabourn Cruise Line, 071-629-1336.

Cunard Line XA World P4481 Deep Sea Passenger Transportation, Ex Ferry P4725 Tour Operators CMMT Comment & Analysis P4481 P4725 The Financial Times London Page XIV 1514
Travel Focus: A market with the wind in its sales - Michael Skapinker analyses the growth in cruising holidays and finds travel companies forging ahead to their next frontier / Cruising Publication 930220FT Processed by FT 930220 By MICHAEL SKAPINKER

THE FIRST time I saw a group of cruisers, they were disembarking on the Greek island of Hydra. Mostly elderly Americans, they spent an hour or two in the jewellery shops and then went back on board. I thought it was a peculiar way to spend a holiday.

The number of holidaymakers who disagree increases by the year. In North American, 1.4m people took cruises in 1980. Last year, the figure reached an estimated 4.4m. The UK, the world's second biggest cruise market, is far smaller. But the 200,000 UK residents who went on cruises last year were a substantial increase on the 115,000 who did so in 1980.

The large UK travel companies believe they can almost quadruple the number of British cruise takers by the end of the century. After building an industry which every year takes 11m package tourists by air to resorts in the Mediterranean and further afield, British travel companies regard cruising as their next frontier. They believe that a generation jaded by Majorca and Florida is ready to try something new.

By the end of the century, Thomas Cook, the travel agents' chain, predicts that 750,000 Britons will be cruising each year. It thinks the worldwide figure will be 10m.

Lunn Poly, Britain's biggest chain of travel agents, sold about 15,000 cruises in 1992. This is a tiny proportion of the 1.7m holidays Lunn Poly sold overall, but the company's cruise sales for this summer are already 144 per cent up on last year.

About two-thirds of Lunn Poly's cruise customers fly to Florida or another North American hopping-off point and take a boat bound for the Caribbean. The Caribbean is the most popular UK cruise destination and the one which companies like Lunn Poly regard as their natural market.

Cruisers in the Caribbean tend to be younger than those who take a cruise from a UK port. Caribbean cruisers regard their ship as a floating hotel, which has the advantage of allowing them to wake up at a different island every few days, instead of being stuck in the same place for two weeks. They are more interested in having a casino or discotheque on board than a guest lecturer.

Andy Allwood, Lunn Poly's spokesman, puts it this way: 'The last thing fly-cruisers who go to the Caribbean want is to be surrounded by water. They want to be able to see an island wherever they are. The cruiser who leaves from a UK port is a traditional cruiser - Home Counties, crusty colonels set in their ways, people who like hierarchy, officers and ranks and all that. Some of that market is people who like being at sea. They like the idea of being on a ship surrounded by water,' he says, somewhat incredulously.

As I said, Lunn Poly is aiming at the Caribbean market.

There are plenty of people taking cruises from UK ports, and they are not all crusty colonels. The Cunard Line says bookings for cruises from the UK to the Mediterranean are up 20 per cent on last year.

The company says that bookings on the QE2 are particularly healthy. A 110-day world cruise on the QE2 in a cabin with its own lounge and private balcony can cost Pounds 80,000. But it is possible to take a QE2 cruise for less than Pounds 300. That will give you two nights on board and take you from Southampton to Brest, Cork and back to Southampton.

Not everyone in the cruise industry is happy about the level of bookings. Sissie Chan, marketing director of Swan Hellenic, part of the P&O group, says she expects to have a difficult year. Swan Hellenic cruises, on the Mediterranean, the Black Sea and European rivers, last for two weeks and cost an average of Pounds 2,500. Most of the company's customers are retired and wealthy. The company is trying to lower its age profile, by which it means attracting people in their 50s, rather than the under 40s who are going to the Caribbean.

Swan Hellenic never really recovered after the Gulf War. The recession has hurt, particularly as the company's retired customers suffer, rather than benefit, from low interest rates.

What all the cruises offer is security. There is not the worry about changing hotels every few days and moving your luggage. If you go sailing on the Cunard Countess in the Caribbean, for example, all you do is turn up at the airport with your luggage. The next time you see it is on board.

But the variety of cruises on offer makes it essential to choose the right one. Once on board, there is no way off.

Although the large travel agency chains are keen to increase their cruise business, they handle a relatively small proportion of current bookings. This is in sharp contrast to the air charter package market, where the large chains play a more dominant part. Industry officials estimate that about 25 per cent of bookings are made directly with the companies. About 60 per cent of the rest are handled by independent travel agents.

Although the industry has worked hard to improve travel agency employees' knowledge of cruising, it is still a specialised business. When Thomas Cook carried out a survey four years ago, it discovered that most of its cruise business was coming through about 50 of its outlets which had decided to concentrate on cruising.

Because you are stuck with your fellow passengers and the opportunities to wander off on your own are limited, it is vital you book through an agent that specialises in cruises.

Eric Flounders, Cunard's spokesman, says: 'There are some ships, not ours, which are like Butlins afloat. If you didn't want that and you ended up on it, you'd be miserable.'

GB United Kingdom, EC P4481 Deep Sea Passenger Transportation, Ex Ferry P4725 Tour Operators MKTS Market data P4481 P4725 The Financial Times London Page XIV 1026
How To Spend It: Live a simpler life - throw away those festoon blinds / These are the brighter, cleaner '90s / A look at ways to create the uncluttered, personal look of the modern interior Publication 930220FT Processed by FT 930220 By LUCIA VAN DER POST

THOSE WHO got their houses all kitted out in authentic 1980s chic may well find, if they mind about such things, that what once looked so absolutely comme il faut, today looks more than just a little passe. Eighties chic in designer-land, you will not need reminding, centred round a sense of excess, of sumptuousness and opulence. Images in glossy magazines showed us rooms with not a corner left unmolested by urns or cherubs, with scarcely an inch of wall left unadorned, no surface left clean and uncluttered.

Nineties rooms are different. Nineties rooms are lighter, cleaner, brighter. Fashionable walls are often white, or else lime-washed straight onto the plaster with natural dyes. Where festoon blinds once flourished there are Roman blinds or even plainer roller blinds. In the place of rich patterns there are simple muslins, calicos, checks. Furniture is countryfied, stronger. Chintz has gone into retreat, cherubs into hiding and all those glitzy bows and furbelows done a bunk.

If your own house or rooms are still a little over-loaded with '80s props a quick trawl around some of the latest home interior catalogues should offer lots of ideas of how to simplify and up-date without embarking on massive expenditure.

A good way to start would be by taking a look at the latest Habitat catalogue, due out in all Habitat stores from March 5 (price Pounds 2). As always, the catalogue does more than focus on individual products - it captures the mood of the times. And the mood, says the catalogue loud and clear, is natural, sunbleached, weathered. Strength and simplicity are the '90s virtues.

Fabrics are mainly plain or checked with a few errant florals making a token appearance from time to time. Furniture is strong and clean-lined with several pieces that are reincarnations of internationally recognised classics - the rush-seated Monet Chair (Pounds 39), the Van Gogh chair (in solid beech with blue-stained finish and a woven rush seat, Pounds 45), the Chubb Rattan chair (Pounds 75), the Steamer (Pounds 129).

For the kitchen the look is pared-down, practical, sturdy. Look out for the butcher's range - all in solid beech, there is a table, chairs, a useful mobile chopping block and storage unit, the trolley (photographed here top left, Pounds 199) and the console, a side-unit with a hanging rail, knife rack, chopping surface, rattan drawers and a storage shelf.

For the rest of the house there are big handsome pieces - the Sussex large cupboard (made to order, the top is Pounds 349, the base, Pounds 399) ), the capacious Monterey sofa and armchair, (Pounds 1,149), the Bath dining table big enough to seat eight in comfort (solid pine top, hand-forged steel base, Pounds 499).

The bedding, always one of Habitat's strengths, offers even more charm than usual - choose from plain 100 per cent cotton percale Chambray, lots of crisp stripes and checks, an impeccably plain pure white cotton range and some patchwork Indian quilts to soften the look. Just as charming is the handcrafted copper collection of bathroom accessories, sketched right.

This is a simple, classic catalogue with the furniture left to speak for itself. It is based on the assumption that what the modern home needs is a series of timeless, constant designs around which personality can be added. You can add hand-crafted artefacts, loved pictures, quirky lamps, treasured holiday finds and put together your individual look through the years.

Make sure your big purchases are bought properly and well, is the underlying leitmotif, then they should last you a lifetime and you can refresh and revitalise a scheme by ringing the changes in more ephemeral, less expensive ways.

Jane Churchill is another company worth looking at. It started by offering a range of pretty, chintzified country fabrics and papers, all of which co-ordinated in many different ways but since it was taken over by the Colefax & Fowler group it has blossomed. Its Sloane Street shop offers not just some exceedingly pretty papers and fabrics but a wide range of all the smaller accessories that go to make up a 'look'. The photograph, top right, shows perfectly the new Jane Churchill style - all crisp checks, in toning colours and different scales, teamed with strong, simple furniture and simple woven rush matting. Hand-crafted and one-off are some of the watchwords of the nineties and at Jane Churchill there is a supply of the hand-crafted pieces, candelabra or one-off bits of furniture that can add character and individuality to a classic room. Prices seem to me excellent.

The best place to see the whole look is at Jane Churchill, 135 and 151, Sloane Street, London SW1 but there is also a concession in Liberty of Regent Street and another shop at 3, Christopher Place, St. Albans, Herts. Otherwise all the papers and fabrics can be seen and ordered through interior decorators throughout the land. Telephone 081-874- 6484 for the nearest stockist.

Graham & Green also sense the way the decorative wind is blowing and this year for its annual kilim exhibition (starting on Saturday February 27 and running until March 27) they are making a point of showing kilims used in a lighter, fresher way.

Antonia Graham, one of the taste guides behind the shops, has rented a gallery on the corner of Elgin Crescent and Portobello Road (readers wanting to go to the exhibition are advised to turn up at 4, Elgin Crescent, London W11 where they will be directed to the gallery just two minutes away) where there is lots of wall space and big windows. There she plans to show that by mixing kilims with plenty of white and cream - creamy sofas, filmy white curtains, white walls - the look is immediately lightened and updated. As she rightly points out white walls are anyway the best background for any interesting works of art, tribal pieces, wall-hangings.

There will be cushions and fabrics from Chelsea textiles - most of the patterns are taken from 17th-century designs and are so exquisitely done, using natural dyes and colours, that it is almost impossible to date them.

There will be small Afghan rugs at about Pounds 40 a time, Turkish ones starting at about Pounds 95, lots to choose from between Pounds 350 and Pounds 375 and two or three specials costing about Pounds 2,000.

Photographed bottom left are two rugs from the Graham & Green collection - on the wall is one from Yugoslavia featuring some colourful peacocks (sadly, sold already) and on the floor is a Turkish kilim (Pounds 245). The wrought-iron sofa is English, by Stan Pike, and costs Pounds 885 (cushions extra) and the Indian table, one of a big selection, is Pounds 950.

If you want to update your house instantly there is no need to throw everything out but there are a few simple things that most of us could easily do. You could take down the festoon blinds and put a simple white and, need I say it, natural, fabric at the windows.

Habitat, for instance, is selling a ready-made simple loop-headed curtain (66 ins by 90 ins, Pounds 39) in handwoven thick white cotton which would immediately lighten any room. Take down the gilded bows, the bronzed cherubs, simplify the tie-backs, take off any fringing, cover sofas or chairs in loose-covers in plain or check fabric and above all, add masses of white or cream.

GB United Kingdom, EC P2392 Housefurnishings, NEC P2519 Household Furniture, NEC P5712 Furniture Stores P5719 Miscellaneous Homefurnishings Stores P5961 Catalog and Mail-Order Houses CMMT Comment & Analysis P2392 P2519 P5712 P5719 P5961 The Financial Times London Page XIII 1318
Food and Drink: Poor food - it sticks in my throat, but .. / ..when top-class restaurants cannot get the basics right,they deserve to be taken to task, says Nicholas Lander Publication 930220FT Processed by FT 930220 By NICHOLAS LANDER

ALTHOUGH I have written this column for four years, I still find the obvious question the most difficult. Should anybody ask me 'Where is the best place to eat in London?' I mumble and try to change the subject.

It is only when I can move this question on to specifics - area, price, type of cooking - that I feel more confident, particularly as I am convinced that not only is the quality of restaurants improving nationally, but so too is the value they offer.

At least, I thought that until the past fortnight, when two dinners and one lunch for a total of eight people costing a total of Pounds 360 all proved a grave disappointment. Normally, I do not review unsatisfactory restaurants but this sorry sequence, which inadvertently taught me a lot, will be the exception to this rule.

Although a long-time admirer of Nico Ladenis as a cook, I decided just to mention his move to the Grosvenor House en passant rather than devote another article to his restaurant, now known as Nico at Ninety. After all, Ladenis is now plugged into the effective Forte PR machine. It was the need to distract a friend whose wife was away that finally provided a raison d'etre for a visit.

Fortunately, we were all interested in wine because the highlight of the meal was the knowledgeable British sommelier, who steered us in the direction of two interesting, relatively well-priced, bottles. But his enthusiasm was not matched by that of the maitre d', who had to be prompted into divulging the fish specials and who managed to run the descriptions of all four into one long convoluted sentence.

We therefore decided to order meat but had difficulty choosing because, having eaten Ladenis's food before, there seemed to be little new. The dishes that had been stimulating five years ago were repeated, but at higher prices (Pounds 42 for two courses) and our own lack of enthusiasm seemed to be reflected in the kitchen.

Small details annoyed me. The dessert menu, which baldly asked me to pay Pounds 8 for a lemon tart (albeit in French), was worn and needed replacing. Out of the corner of my eye I kept spying a waiter, only half hidden by the kitchen door, swigging from a bottle of Perrier.

Two days later, meeting a fish merchant friend at the new restaurant in Harvey Nichols, in Knightsbridge, I first surveyed the fish counter in the food store. Fresh halibut, turbot and glistening red mullet whetted my appetite.

However, the chef cannot be in touch with the store's fish buyer because the only fish on the restaurant menu were lemon sole with a crab sauce (half way through my meal I saw a blackboard in the kitchen which read NO LEMON SOLE) and an Italian fish chowder which I mistakenly ordered. This was bland and thin and its only connection with Italy, I felt, was the tomato.

The restaurant will have problems until the relatively inexperienced Henry Harris, formerly sous chef at Bibendum, eventually finds his feet as a head chef and their personable general manager, Dominic Ford, stops running around trying to plug too many holes and concentrates on orchestrating the service - which is poor in spite of the 15 per cent service charge.

We had to ask for menus, ask again to order, and then our conversation was interrupted three times by the waiter. But my meal was irrevocably spoilt by having to sit and watch a single lady diner wait 20 minutes for a bowl of fish soup. That is no way to treat a lady.

But the head-scratching service at La Semillante, Mill Street, London W1, made this experience pale into insignificance. Here our meal was barely salvaged by happy recollections of John Cleese in 'Fawlty Towers,' although watching a commis waiter walk out of the kitchen with an empty tray, put it solemnly down on a table, pick the tray up again and walk back into the kitchen will remain a low point in the career of this restaurant correspondent.

We went there because I intended to write an article on pastry chefs and I had been reliably informed that the chef, Patrick Woodside, a graduate of Tante Claire and Claridge's, was one of the best. Certainly his bread is first class and he is possibly an inventive, talented chef. However, as well as being let down by inept front-of-house staff, his talents are hidden by a menu that contains more past participles than anything I have seen since I took Latin A level and a kitchen brigade that on the night could not get the basics right.

A filet of hare came without the crispy rice advertised on the menu; another dish came with a potato 'fondant' and brussel sprouts that had not been thoroughly cooked. We were not asked why we had left a good portion of the meal uneaten.

The overall experience of these three restaurants left me wiser, poorer and even more reluctant to make recommendations. But there was another cause for concern. Quite understandably, none of the restaurants uses the large pretentious silver 'cloches' to cover the plates. But none of the food came to me, on cold winter evenings in air-conditioned rooms, as hot as I would have liked. For any reader able to design a suitable cover there is, I believe, a ready market.

GB United Kingdom, EC P5812 Eating Places P5813 Drinking Places TECH Standards CMMT Comment & Analysis P5812 P5813 The Financial Times London Page XII 965
Food and Drink: Appetisers Publication 930220FT Processed by FT 930220

CHARDONNAY at Pounds 2.99? An oxymoron, surely, unless that Chardonnay is unrecognisable and/or Bulgarian. A white burgundy sort of Chardonnay at Pounds 2.99? A cruel joke, surely, unless it is the Laboure-Roi Bourgogne Grand Ordinaire on offer at Majestic wine warehouses from February 23 until March 21.

The bottle I tasted not only looked worth twice the price, it almost tasted it too. Majestic has 14 burgundies on special offer over this period, with such wines as remain being 'on taste' over the weekend of March 6/7. The red counterpart to this BGO is Pounds 3.99 with the grand Pinot Noir grape fleshed out with some of Beaujolais' Gamay. Best value in red wines is Faiveley's 1989 Bourgogne Rouge at Pounds 5.99 - thoroughly serious for drinking over the next two years.

'In the twenties, we danced,' wrote Dame Barbara Cartland in the foreword to The Complete Hostess by Giovanni Quaglino. She would have interrupted her dancing to eat, from La Grande Carte, Tournedos at 3/6d or half a lobster Delmonico at four shillings, and a bottle of Chateau d'Yquem 1920 at Pounds 2.

The prices will have changed but last week Quaglino's reopened on the same site in London's Bury Street, SW1 (tel: 071-930-6767) a West End outpost of the Terence Conran empire. It will be interesting to see whether, for the first time since Conran appointed Simon Hopkinson as Head Chef at Bibendum, he has found another chef (this time Martin Webb) whose culinary skills can match Conran's undoubted eye for design.

GB United Kingdom, EC P2084 Wines, Brandy and Brandy Spirits P5812 Eating Places P5813 Drinking Places CMMT Comment & Analysis P2084 P5812 P5813 The Financial Times London Page XII 292
Food and Drink: Baffling Belgians in the course of a meal - Jancis Robinson found more than a few food frontiers to cross when she dined with some very particular guests Publication 930220FT Processed by FT 930220 By JANCIS ROBINSON

I HAVE become very interested in Belgians recently. The French may take wine and food seriously, but they are babes in arms compared with the Belgians.

I say this with all the authority of one who spent a weekend in Leuwen - or was it Louvain? - last autumn and who spent far too much of a day recently being interviewed, in London, for a Belgian magazine. It is rare for the interviewee to learn more than the interviewer, but I did on this occasion.

The man from Brussels got little out of our encounter, other than exasperation at my inability to get to grips with his dauntingly all-embracing instruction: 'Tell me about European wine.' But he had brought with him a Belgian photographer, a fascinating young man who had been brought up in a restaurant, his father being a restaurateur. Thus, although the young Belgian was there in clicking mode, he could not help passing on various epicureanisms in the restaurant where we met for lunch.

That was my first mistake. I suggested we meet at Clarke's, Sally Clarke's Kensington restaurant with a California accent on both its food and wine. It therefore proved rather more difficult than it might otherwise have been to field the bottles of European wine required for the photograph.

Nor could my two Belgian friends quite believe that the fresh face at the char grill belonged not just to the chef but to the patronne. While we waited for our first course, the photographer asked politely where she had trained. I would have liked a photograph of his face when I told him California.

Soon after this the wine arrived. Assuming they would be interested to taste something out of the ordinary, I had ordered a bottle of Au Bon Climat Chardonnay. The name may be French but the provenance is an old barn in California's Santa Barbara County. They viewed it rather as one might a dog with three legs.

The photographer was particularly worried about the means used to cool the bottle. 'I was taught,' he said, 'that you should never cool wine in a fridge, only in an ice bucket.'

I can see the logic of this if you are running a restaurant full of fault-finding Belgians. Wines, especially fizzy ones, left for more than a few days in a fridge can lose their fruit, and stock rotation is much more difficult in a restaurant than at home. But my photographer friend clearly thought that wine itself is capable of sensing by which method it is being transformed from temperature A to B, and of reacting accordingly.

'Excuse me,' he then asked politely over the first course, 'but would you normally drink wine with soup? I was taught you never should.'

An interesting point that, and one we discussed at some length. It is true that since soup slakes thirst, there should be no need to drink anything with it, but I could not convince the photographer that there was nothing about the flavour of soup per se that was inherently inimical to wine. However, in Belgium you do not serve wine with soup. I felt bad about making him party to this solecism.

Then we discussed corkscrews. The Belgians were horrified by my enthusiasm for the Screwpull Lever model, which has transformed my life, involving as it sometimes does the extraction of more than 50 corks a day. But, they pointed out in unison, there is the possibility that the point of the screw might emerge below the cork and push a particle of said cork into the wine. So what? I said. The interviewer scribbled madly. 'We've got a right revolutionary here,' said his furtive look to the photographer.

All this instructive observation of assumed national behaviour had been presaged by my Belgian weekend, where a group of us wine tasters had our knees under some table or other almost every waking hour (although we did spend a lot of time snoozing in the back of cars between meals).

Tastings would be punctuated by little platefuls of truffle or foie gras and every glass was religiously rinsed with the relevant wine, even precious Yquem, before being used for tasting - and we must have tasted at least five dozen wines during the weekend.

Wine thermometers were much in evidence. Our host's son had driven 500 miles (800 kilometres) to Epernay to buy the right sort of beef for Sunday lunch. Whenever a course was served it was fallen upon and ravished in a noisy - though wordless - food-dedicated interval before the upright position and conversation could be resumed.

But the most riveting sight, the one that convinced me that a Belgian's vocation is to eat and drink, was of a piece of gastronomic equipment which I have never encountered elsewhere but which raised not an eyebrow in Belgian company. Just before each meal, the really keen members of our party would take from their pockets or handbags a small chain about a foot long with an ornamental clip at each end. They would reverently arrange this chain around the back of the neck before using them to clip their napkins neatly up to the chin.

The ritual unclipping was invariably accompanied by a sigh of sated melancholy.

For a thoroughly Belgian antidote to all this reverence, Londoners should head for the impressively, jokily, spartan Belgo restaurant in Chalk Farm Road, NW1. Great value for moules, and beers to turn the head of the most convinced wine lover.

BE Belgium, EC P5812 Eating Places P5813 Drinking Places CMMT Comment & Analysis P5812 P5813 The Financial Times London Page XII 979
Cookery: Super soups to stir the most jaded palate Publication 930220FT Processed by FT 930220 By PHILIPPA DAVENPORT

WHEN I was a child, my father often told me the tale of a menage a trois remembered from his boyhood. The co-habitants were a domestically-minded trio - une feve, un saucisson et une petite souris grise - whose innocent lives centred on the tasks of cooking, shopping and cleaning their little house.

They all noticed that the soup always tasted best on days when the sausage was cook. The mouse kept asking why. Eventually, the sausage divulged his secret: he jumped in and out of the soup pan when no one was looking.

The mouse was excited by this culinary revelation. When next on kitchen duty, he tried to imitate the sausage, dived into the soup pan and drowned. The bean, heartless old thing, laughed so much that he split his sides - and every bean has a split in its back ever since . . .

I was reminded of this tale when thumbing my way through two new books published this month, both on the same subject. The Soup Book, by Brigid Allen (Papermac, Pounds 9.99) is not helped by its cover. A Celebration of Soup, by Lindsey Bareham (Michael Joseph, Pounds 16.99) has far greater instant appeal. The title is more joyous and the cover photograph is seductive in a restrained sort of way. While Allen is lumbered with a worthy, stuck-in-a-time-warp wholefood image, Bareham's bowl of soup has a zesty, contemporary freshness.

Bareham has made her mark on the comfort food corner of the cook-book market already with an excellent volume on the potato. This new offering is liable to win her even more friends. It is a rich source of inspiration, a whopping compendium of soup recipes for every occasion, and a mass of information on all aspects of making and serving soup. The recipes are her own, her adaptations of other people's, and some offerings direct from such names as Simon Hopkinson, Shaun Hill and Nico Ladenis.

A large section, enough to make a book in its own right, is devoted to garnishes and embellishments. There are breads, of course, and such fun ideas as spooning a cheese souffle mixture on to toast to float on soup to be heated in the oven; plus the latest visual shock tactic in foodie circles: sprinkling gold dust on home-made noodles and floating squares of gold leaf on soups.

Bareham believes stock is 'the body and soul of most soups . . . invariably, the secret ingredient that makes so many soups rich, complex in flavour and full-bodied.' Accordingly, a hefty chunk of the book is devoted to a comprehensive run-down on stock-making and a mind-boggling diversity of stock recipes. Cooks, she says, 'divide into those that do and those that don't make stock.'

Allen acknowledges that good stock can be valuable in soup-making but she is wary of the stock-pot as a potential tyrant. She points out that the dominance of stock in soup-making is rooted in the meat-based diet of earlier generations, and in household economies geared to the extraction of every last drop of goodness from a carcass.

Joints figure relatively rarely on our menus today, They tend to be much smaller and may be boned-out. For earlier generations, maintaining the stock-pot was a sacred duty. Today, it might involve a special trip to the butcher. We are, she argues, more orientated towards vegetable cookery.

I would guess that fewer than half the recipes in Allen's book depend on stock. They are grouped under such unusual chapter headings as soups using avocado pear, soups using roast garlic, curried soups, and so on. Recurring flavourings include ginger and chilli. Many mentions of lovage, sorrel, spinach and chard highlight the appeal of the book to cook-gardeners, and there is a useful section on breads.

SCALLOP AND POTATO CREAM WITH CORAL (Bareham's recipe. Serves 4)

Ingredients: 4 large scallops (cleaned weight about 12 oz); 1 lb potatoes, peeled and diced; 2 small shallots, chopped finely; 2 oz butter; 1 pt hot fish stock; 1/2 pt milk; 2 egg yolks; 3 fl oz double cream; 1 tsp snipped chives.

Method: Soften the shallots in 1 1/2 oz butter. Stir in the diced potato, add 1/2 tsp salt and some pepper. Cover and sweat for 15 minutes, stirring thoroughly after the first five minutes. Pour on the hot fish stock, stir, cover and simmer for 10 minutes or until the potatoes are soft. Puree the contents of the pan and sieve it into a clean pan.

Separate the white scallop meat from the corals. Dice the white meat and put it in a pan with the cold milk and a generous pinch of salt. Bring to a bare simmer and cook for a couple of minutes, then whisk the contents of the pan into the potato puree. Bring back to a simmer, adjust seasoning and remove the pan from the heat.

Beat the egg yolks into the cream, add a ladleful of the soup, then another, then stir the liaison into the pan. Return the pan to the heat and warm through without boiling.

Just before serving, melt the remaining 1/2 oz butter and gently saute the scallop corals, either whole, halved or chopped. Pour the soup into warmed bowls and garnish with the coral and chives.

RED PEPPER SOUP WITH MUSSELS (Allen's recipe. Serves 4)

Ingredients: 2 lb mussels; 4 large red peppers, deseeded; 12 medium-large garlic cloves, peeled; 2 tablespoons olive oil.

Method: Clean the mussels and put them into a cast-iron casserole to stew, covered, in their own juices for 15 minutes. In another pan, soften the chopped peppers and sliced garlic in the olive oil, stirring occasionally to make sure they do not brown.

After 10-15 minutes, pour on the mussel juices and simmer the peppers and garlic in them for about another 15 minutes, adding 1 1/2 pt water and 1 teaspoon sea salt as soon as the peppers and garlic have begun to absorb the mussel juices.

Keep the mussels warm in their shells by leaving the lid firmly on the casserole in which they were cooked. Liquidise the soup either before or after you shell the mussels into it, or eat them separately.

GB United Kingdom, EC P2731 Book Publishing TECH Products CMMT Comment & Analysis P2731 The Financial Times London Page XII 1069
Sport: An Olympian who is playing for more than a pile of gold - Olympics Keith Wheatley meets sports power-broker Craig Reedie Publication 930220FT Processed by FT 930220 By KEITH WHEATLEY

SOMETHING strange is happening around Manchester. Craig Reedie, the new head of the British Olympic Association, has been repeatedly caught in full vocal and physical support of the odd notion that Britain, and this northern city in particular, should host the Olympic Games in 2000. He is well aware that such muscular advocacy is hardly the recent heritage of the BOA.

'I was always more committed to the Manchester bid than my predecessors,' says the chatty Scotsman who became chairman last autumn. His election was a signal to the sporting world that the BOA intended to punch its weight and cease being just a quadrennial umbrella for sporting toffs.

Reedie has ended Britain's carping isolation from the International Olympic Committee's base in Lausanne. Juan Antonio Samaranch, the IOC's autocratic but effective head, no longer has cause to feel that Britain is a sniper's base for those who lament the involvement of the Olympics in big money and big business.

'One might not like everything about it but you're either on the train or off it, and I intend that Britain stays on it,' says Reedie, 58, a partner in a Renfrewshire pensions consultancy.

He is a consummate sports politician, with a lifetime of international contacts garnered in the service of the international badminton federation (he was no mean competitor and as a golfer plays off a one handicap).

Recently, the Princess Royal paid a private visit to Manchester in her capacity as BOA president and an active supporter of the 2000 bid. She is notoriously not the easiest of companions, but she was in chatty good humour as she bantered with Reedie on a coach ride through the various Manchester building sites that may become venues.

The Princess is one of the 92 IOC members who will vote in Monaco on September 23 on the city to hold the millennium Games. Few know this quirky, independent and idiosyncratic electorate as well as the Princess and Reedie. Their joint analysis of what the IOC wants from a candidate city is proving invaluable to Manchester's indefatigable bid chairman Bob Scott. What, for example, is likely to be the extent of any moral opposition to the Beijing bid, currently seen as favourite to win?

'You can gauge the IOC's stance on human rights and moral nuance pretty accurately by the fact that over half of them attended the Asian Games in Beijing, less than a year after Tiananmen Square,' predicts Reedie. 'I just don't think it will be an issue.'

If it isn't, that will notbe the fault of the other front-running candidate, Sydney. Phrases such as 'mopping up the blood of the massacred with the Olympic flag,' have been heard from the Australian bid chairman. 'It's a startling phrase but I wouldn't want you to hear it from my lips,' said Scott.

Worries that the British bid would founder if it were seen as the Bob Scott roadshow - certainly a weakness of the 1996 bid - have been assuaged by the arrival of Reedie. The third member of the new 'Bob 'n' Craig 'n' John' triumvirate is even more powerful if only because he holds the nation's cheque book.

Since mid-1992, John Major, the prime minister, has become a central player in the Manchester bid. Wednesday's Downing Street news conference announced a total of Pounds 75m towards stadia and infrastructure. This represents, according to the Department of the Environment's Jeff Jacobs 'by far the biggest single city urban regeneration package Britain has ever seen'.

Major has done far more than simply order the Treasury to pay up. He visited the Barcelona Olympics, showing an unprecedented interest in sport for a British prime minister. Next month he goes to Lausanne to spend two days with Samaranch at whose court Major's name is spoken with increasing warmth. Samaranch, according to Reedie, has told intimates that a British government-backed bid is a serious play. Margaret Thatcher never more than tolerated Scott and his audacious plans.

An even bigger coup would be to have the 'Bob 'n' Craig 'n' John' show make the final presentation to the IOC election meeting in September. No one is discounting the likelihood of that. After the magic of Barcelona and the oomph it gave to the entire Spanish-speaking world, it would be a brave Prime Minister who did not attempt to break the gloom of the recession by trying to bring the Olympic circus to Britain.

This involvement of Downing Street could have even bigger and more tangible pay-offs for Reedie and British sport in general. The Olympic bid is an interesting long shot that may, or may not, come off.

What is certain is the desperate need for structural reform within the grant-receiving bureaucracy of British sport. Hands up those who comprehend the different roles of the Sports Council (in all its regional and sub-national guises) and the Central Council for Physical Recreation, umbrella of the governing bodies. Their powers overlap and this has caused endless confusion, even among sports officials, and bitter battles. Reedie has long been impatient for change and he has now got his vehicle alongside the politician who could provide it. As a self-professed sports fanatic, Major's eyes will not glaze over when the subject comes up.

'We are the only independently funded body among the ones you're discussing and it can be an advantage when one gets into these sorts of debates about long-term structure,' says Reedie.

In each Olympic cycle the BOA goes out and raises its own funds in a strong, businesslike way. It has bred a sturdy culture distinct from the hand-out dependent operations of the Sports Council and the CCPR.

Of course, budgets of the size wielded by the Sports Council - approaching Pounds 200m a year - are quite different from the Pounds 5m or so the BOA spends in an Olympic year. Nevertheless, with the national lottery about to start disgorging huge sums for sport, Whitehall is known to be looking around for new role models.

British Olympic Association (UK) GB United Kingdom, EC P7999 Amusement and Recreation, NEC P86 Membership Organizations COMP Company News PEOP Personnel News Reedie, C new head British Olympic Association P7999 P86 The Financial Times London Page XI 1068
Rugby Union: Awkward Norster puts his expertise on the line Publication 930220FT Processed by FT 930220 By JOHN HOPKINS

THE LION-HEARTED defence by Wales in their Five Nations rugby union victory over England two weeks ago has overshadowed one important aspect of the game. The Welsh line-out work was superb. A supposed weakness was turned into a strength.

This was a surprise, to put it mildly. Not long ago, Wales won only two line-outs in an entire game against Australia, prompting one journalist to write: ' . . . in the first half Wales won a line-out and in the second-half, just to prove it was no fluke, they won another.'

The improvement is due mainly to Robert Norster, the Welsh team manager who was one of the most effective line-out forwards in Europe during the 1980s. He was awkward and thoughtful, determined and courageous, and these characteristics helped him overcome a lack of inches. He is 6ft 5in and Wade Dooley, England's big lock, is 6ft 8in - yet, in their meetings, it was always Norster who came off better. Now he is passing on to his team what he learned then.

The key to Norster's success as a player, and Wales' line-out performance against England, is attention to detail. 'The line-out is a team performance,' he says. 'It is not just about who jumps highest. You need a bit of skill, accuracy and team-work. You have to work as a team, and we did. I am happy to say that we won more than 80 per cent of our own ball against England.'

There is much preparation before Wales play an international these days. The technical department of the Welsh Rugby Union records each of their team's games and those of future opponents. (A camera will be at Lansdowne Road in Dublin this afternoon filming Ireland against France, to help Wales prepare for their remaining matches in the Five Nations championship). Then, sections of each match are compiled and sent to the players concerned.

Before the England game, the Welsh line-out forwards were sent clips of England's line-out performances against Canada, South Africa and France earlier this season. Then, at practice, Norster urged them constantly to try new techniques and refine old ones.

He stressed variety and surprise. He made them rehearse their line-out calls, routines and support systems. The result was that Gareth Llewellyn, the big Neath lock, had his best game yet in the line-out for Wales and fellow-lock Tony Copsey turned in a good performance, too.

It was typical Norster, who says self-mockingly: 'Even my friends would say I am a bit over-regimented.' Derek Quinnell, the former British Lion who now manages the Wales A team, adds: 'As a second-row forward, Bob was forever organising people around him so that he could give of his best. He would analyse his opponents and work out how best to counter them.

'He would sometimes make his opponents move forward to compete with him for a ball, and sometimes make them go back. His style was to stand out of the line-out and leap into it. He was very agile for a big man, spring-heeled, a genuine leaper.'

Norster grew up in a hard school. Born in Ebbw Vale in 1957, his first rugby experiences were with Abertillery; and he joined the famous Cardiff club in 1978, the year after he became a member of the Welsh national squad. Norster did for his country in the '80s what another Lion, Delme Thomas, had done in the '60s and '70s. Both won priceless line-out ball, often against bigger and stronger men. In theory, neither was quite tall enough; but they made up in technique what they lacked in physique. Both recorded outstanding Sargent jumps, the method used to measure a standing jump.

As he developed, Norster acquired an uncompromising hardness. He needed it in New Zealand when he played in two Tests for the Lions in 1983, and again in one Test against Australia's Wallabies in 1989, as well as in 34 internationals for Wales between 1982 and 1989. He needed it, too, when Wales beat England in the 1987 World Cup and, against the odds, at Twickenham in 1988 - after which England coach Roger Uttley said ruefully: 'A player like Norster will always give you trouble.'

Most of all, Norster needed his hard-nosed attitude against Ireland in Dublin in 1988 when chasing the Triple Crown (victories against all three home countries in the Five Nations championship). Wales were up against it and so was Norster, who had trapped a shoulder nerve after catching a line-out ball and was in constant pain. Yet, he turned in a performance of such courage that Stephen Jones was moved to write in the Sunday Times that, in the second half, 'Norster grabbed hold of Wales and simply flung them at the Triple Crown.' Wales won 12-9, sneaking home in the dying minutes, and went on to win the Crown.

Even in rugby union's new professional atmosphere, it might surprise many to learn that the Welsh players are backed up by their coaching staff, a selection committee and selection adviser, two doctors, two physiotherapists, a fitness adviser, a sports scientist, a match analyst and a dietician. But it all tallies with Norster's philosophy. 'Attention to detail has always been, and always will remain, an essential ingredient in our preparation,' he wrote in the programme notes for the Wales v England game.

At Murrayfield in Edinburgh this afternoon, we will see what ploys Norster has thought up when Wales face the strong line-out threat posed by the Scots. But you can be sure of one thing: like Baden Powell and the Scouts, Norster will be prepared.

GB United Kingdom, EC P7941 Sports Clubs, Managers, and Promoters CMMT Comment & Analysis P7941 The Financial Times London Page XI 973
Soccer: Last amateurs keep faith in empty temple Publication 930220FT Processed by FT 930220 By NIGEL MATHESON

'MAYBE IT'S an old-fashioned ideal,' says Martin Smith, chairman of Glasgow club Queen's Park, 'but I believe that money should not be part of sport. Football should not be about buying your way to success but about bringing up your own players and making the most of their effort and ability.'

Queen's Park, nicknamed the Spiders, are Scotland's oldest and most traditional side. Smith readily admits that they are 'a bit of a strange entity.'

Queen's Park, who own Scotland's huge national stadium Hampden Park, are the only truly amateur team playing in a senior, professional league anywhere.

This season's lavish 125th birthday celebrations have been held as the club bumps along the bottom of the Scottish second division. There is no relegation from the division but the position is galling for a team that started at the top.

The Spiders, founded in 1867, were once kings of Scottish soccer. They supplied the entire home team for the first Scotland v England international in 1872. In 1884 and 1885 they were finalists in the FA Cup in England and once went seven years without conceding a goal.

The more commercial soccer has become, the more Queen's Park have fallen behind. In the last 50 years, they have failed to supply a single senior Scottish international player but former Queen's Parkers include managers Andy Roxburgh, Alex Ferguson, Bobby Brown and Ian McColl.

Hampden Park, which the club built in 1903, is not only an impressive status symbol for a second division team but also a guarantee that Queen's Park will stay afloat.

The club sub-lets the ground to Scottish soccer's ruling bodies for internationals and cup matches and the income, 20 to 25 per cent of net gate receipts, ensures that upkeep costs (Pounds 500,000 but likely to rise) can be met. Last year, work started on a Pounds 12m programme - paid for mainly by the Scottish Football Association, the Scottish Football League and the Football Trust - to turn Hampden into an all-seater, Taylored stadium with a 45,000 capacity. This is due to be finished in April 1994.

International games have been transferred across the city to Ibrox, but the building work does not impinge on second division games, when an average crowd of about 600 finds itself sprinkled round the ageing South Stand. The mood is low-key, except when the Tannoy (designed for 100,000) blares, shaking the fans in their seats. The famous Hampden Roar is down to a whisper.

Behind the scenes, the Queen's Park ethos is equality. The players are not employees, many are club members, technically 'shareholders', entitled to vote at the AGM. The boardroom is no launchpad for the personal power of the moneyed and ambitious. Even the chairman is democratically elected.

The Spiders remain sticklers for tradition. They play in a '60s-style strip with black and white hooped jerseys rather than the computer-generated polyesters favoured by opponents. Queen's Park players must wear shirts outside shorts in spite of a FIFA ruling to the contrary.

The Corinthian spirit was always a privilege of the upper classes and so it used to be at Hampden. Queen's Park were the Gentlemen's Team. Smith, a lawyer, says: '50 years ago, if you were from the professions, as most of them were, it would have been frowned upon to accept money to play football. Just wasn't the done thing.'

Coach and ex-player Eddie Hunter - a man famous for claiming that seeing Queen's Park score is better than making love - has been with the club for 34 years. He used to go to training in his overalls after a day's work as a plumber and step into a dressing room full of men in pinstripes.

'When I came to the club as a youngster in the late '50s, it was very much bowler hat and brolly and I didn't feel part of that.

'But the barriers have come down. We now have players from across the whole spectrum, university people, bankers, lawyers, labourers, the unemployed. It used to be them and us but Martin Smith has brought the club into the '90s.'

It has been more difficult to bring team performance up to date. Smith says the problems of finding good players have grown. 'It used to be football, football, football here in the west of Scotland but now people have other things to do. We run five teams but every year it becomes harder to find players of good enough quality to play.

'Professional clubs now sign players at 13 and 14, so it often follows that if you find a boy of 19 who is still amateur it's because he was never good enough in the first place.'

Queen's Park's rigorous interpretation of amateur status is perhaps their greatest handicap.

Not only must their players be amateur but they must never at any time have accepted money for playing football. Thus the boy, who signs for Aberdeen at 16 and does not make it, and who then becomes a reinstated amateur, no longer qualifies.

There is talk among members that the club should look at the rules again.

Graeme Elder, club captain for six years, says: 'The club has become a staging post for people turning pro. Players have been moving on too quickly, for their good and for ours.'

But he adds: 'Queen's Park's is a happy dressing room. There's not the same bickering and back-stabbing that you get elsewhere. Players I know that have moved on to other clubs become disillusioned. They soon discover that professional football is a dirty, dirty game.

'The way things are here, everyone is in it for the good of the club. If you make a mistake in a professional team, you could be losing your mates a win bonus. Here the slate is wiped clean after a game. Money isn't a pressure.'

GB United Kingdom, EC P7941 Sports Clubs, Managers, and Promoters CMMT Comment & Analysis P7941 The Financial Times London Page XI 1012
Country Notes: Walks with stray dogs and roe deer: Publication 930220FT Processed by FT 930220 By MICHAEL WOODS

WHILE THERE are several good reasons I do not have a dog, from time to time a passing pooch will try to rectify this by adopting me. Pleasant though this can be, there have been times when the consequences have been embarrassing.

On one occasion, a farm dog left his post to accompany me on a walk to the beach, losing interest only when he discovered a family picnicking. He leapt with enthusiasm into the middle of their carefully-laid meal.

As they drove the animal away and I fled, I could hear loud and angry protests to the effect that owners who could not control their charges should not be allowed to keep dogs.

Sometimes, though, the results have been more positive. When a perky little terrier joined me for a walk one June, I welcomed his cheerful presence as he ferreted through the undergrowth and returned to me, grinning, from time to time. We climbed through a local wood and into an area of scrubby gorse, where he disappeared.

A couple of minutes later, there was a commotion accompanied by frantic barks. I was about to creep away when the dog emerged, pursued by a determined female roe deer.

I helped her to drive away the dog but she hung around, peeping out from behind various bushes. After searching for a few moments, I discovered why: a tiny, spotted kid, still too young to forage, lying motionless but unharmed at the base of a gorse clump.

The roe is a surprisingly small deer and, with its glossy chestnut summer coat, can often resemble a red setter at a distance. Certainly, it is an animal skilled at hiding in the sparsest of cover.

Badger-watching one evening, I remember seeing a roe rise suddenly from a tiny patch of stinging nettles between me and the sett. It looked around, sniffed the air and wandered slowly into the woods, nibbling a bit of bramble here and there.

The reference books generally portray roe as solitary deer, meaning that, in Britain, they do not form herds. In the summer months, it is often the case that a female will be accompanied by her kid or kids (for they often have twins), and she could have a buck in attendance, too.

In winter, roe will be seen feeding in groups at a good food source but, if disturbed, they tend to scatter and flee rather than bunch up and stay together, as herd deer will. In areas where they become numerous, their paths are well worn and marked by their slots, or hoof prints.

Roe deer appear to be spreading. At present, they are common throughout most of Scotland and the north of England. Further south they occupy much of the area between London and Cornwall and parts of East Anglia.

According to the Handbook of British Mammals, they are spreading northwards into Gloucestershire and westwards into the Midlands from these strongholds. And although absent previously from Wales, roe deer have been recorded recently around Llandrindod Wells; one wonders how they have popped up in such a central area of the country without previous detection.

Their spread will be greeted with delight by many who enjoy glimpsing these graceful little animals during walks in the country. And if the nesting habits of our local blue and great tits are anything to go by, there will rejoicing in that direction, too.

Roe deer moult just as these birds are building their nests, and every one I find contains numerous roe hairs gleaned by the builders from the tufts shed on the woodland floor while the deer are sleeping.

GB United Kingdom, EC P0279 Animal Specialties, NEC CMMT Comment & Analysis P0279 The Financial Times London Page XI 639
Minding Your Own Business: A classic strategy - The publisher which revived Everyman's Library Publication 930220FT Processed by FT 930220 By NICK GARNETT

ABOVE A pornographic magazine shop in London's Soho, one of the most startling publishing stories of recent years has unfolded, to the surprise of the publishing establishment.

Three men have spent little more than two years resurrecting the nearly defunct Everyman series of hardback classics. In the process they have created a substantial market in the US, introduced the newly-designed tomes into almost every good bookshop in the uk and, from scratch, sold 750,000 volumes in spite of the worst retail conditions for 20 years.

In the first nine months of trading, David Campbell Publishers, new owners of the Everyman's Library with its hard back rights to 1,200 titles, racked up a turnover of Pounds 2.4m. It surprised itself by making a pre-tax profit, one of Pounds 120,000. For the current year to July, the tiny company is on course to make Pounds 500,000 pre-tax on sales of Pounds 3.9m.

'Everyman, I will go with thee and be thy guide' is scrolled into every one of the 60m books published in Everyman's Library since production started in 1906. The problem was that the company lost its guide some time in the 1940s. In spite of owning rights to a vast range of works from translations of Aristotle to Conrad and Dickens, the company fell into decline. During the 1980s it changed hands twice, ending up in the Weidenfeld & Nicolson stable and with a yearly turnover of only a few hundred thousand pounds.

'I had been tracking it for a long time,' says David Campbell, who was then a senior manager at the Hachette publishing company in France. 'I could never understand why there was no hardback series of the world's greatest books in English. There is even one in Norwegian for goodness sake] Everyman was a great brand name and brand names are very rare in publishing. It was also a good business idea.'

That idea was to produce high quality hardbacks, cloth bound rather than glued and with acid free paper that would not brown. 'I thought that if we could produce such books for only a few pounds more than a paper back we'd have a market.' The target was the gift trade and readers who wanted affordable books in 'permanent' form.

Campbell spent three years trying to raise the cash. In 1990, the venture capital arm of merchant bank Robert Fleming provided capital of more than Pounds 1m to cover the (much lower cost) purchase price and working capital. For this the bank obtained a quarter stake in the new company. The bulk of the shareholding is held by Campbell, Mark Bicknell, a 38-year-old former investment banker, and Alewyn Birch, a man with a long career in publishing. Campbell and Bicknell, who run the company, together put in a little over Pounds 100,000.

'That's enough to hurt but not to take the roof away,' says Bicknell.

After the purchase it took a year to get the business running. Some of this time was taken signing up a printer - Bertelsmann of Germany which produces all the new Everyman books (retailing at Pounds 7 to Pounds 16 and averaging Pounds 10) - and Random House, the US publishers, which handles all marketing and distribution.

'You can be well managed, inventive and quick on your feet but no matter how clever you are you need firepower and small companies don't have firepower,' says Campbell.

'We were very fortunate that the US deal provides up front cash flow,' says Bicknell. 'That gave enormous comfort to our printers.' On each print run the little company is paid in advance about one third of what it is eventually due.

David Campbell Publishers operates with small overheads, paying Pounds 18,000 a year for a three storey office in Soho and employing just four full time staff. Currency movements have made a large contribution to profits. The rise of the D-mark against the pound has not been beneficial but the strengthening of the dollar has generated a windfall.

'We bought the company when it was Dollars 1.60 to the Pounds 1,' says Bicknell. 'It then went to Dollars 1.90 and is now down to just over Dollars 1.40. If it had stayed at Dollars 1.90 making a profit would have proved very difficult. We are making a margin of 5 per cent and currency movements could wipe that out. I spend an hour a day talking to foreign exchange dealers.'

The company's success nevertheless reflects its publishing nous. Of the 128 titles so far printed, 40 were not in the Everyman stable.

'Of the 1,200 titles we could plunder a good quarter we would not want to publish,' says Campbell. Not surprising perhaps when they include obscurities such as F W Robertson's Sermons on Christian Doctrine or The Channings by Mrs Henry Wood. Instead Cambell has been buying hardback reprint rights to 20th-century authors outside the Everyman stable, including Orwell and Hemingway.

The company has also launched a series of children's books. 'I thought there was a market for proper reading books with nice illustrations.' Alice in Wonderland in smart, heavy duty binding sells for Pounds 7. Treasure Island comes with drawings by Mervyn Peake.

The company has relaunched and repackaged a publication called Your Birthday, 80 pages of historical events and famous birthdays - now being published by W H Smith. Everyman hopes the little books, retailing at Pounds 3, will prove a cash cow. The company has also acquired the English language rights to a new travel series by a French publishing house, the books containing up to 2,000 illustrations in seven colours.

One trend that has helped is a readership swing towards the classics. 'I think one reason is that there are 125,000 new titles in the English language every year and that is far too many. Booksellers are all clogged up and the man on the Clapham omnibus doesn't know what to take.'

One consequence is what has been termed the classics wars. Other publishers are churning out volumes at a rapid rate of knots though all of these, from Penguin to World Classics and Oxford are in paperback. One publisher, Wordsworth, sells its paperback classics for Pounds 1.

Some in the publishing industry who thought Campbell was mad to buy Everyman think Campbell could catch a cold from these new low-cost books. He dismisses the suggestion. 'We have no competition. Wordsworth will hurt Penguin. The more razzamataz in the market for classics the better.'

Everyman's Library, Random Century House, 20 Vauxhall Bridge Road, London SW1V 2SA. 071 - 973 - 9000

David Campbell Publishers GB United Kingdom, EC P2731 Book Publishing CMMT Comment & Analysis COMP Company profile P2731 The Financial Times London Page X 1140
As They Say in Europe: Power to the people - a heated debate / France's generation gap Publication 930220FT Processed by FT 930220 By JAMES MORGAN

LOOKING out at Germany from an aeroplane as I did on Tuesday I was struck by its size - a mere two-thirds that of France with some 20m more people. It has borders with nine other countries. No wonder things get a bit heated down there.

This reflection was provoked by the memory that it was three years to the day that I had attended a somewhat tense event which confirmed to me that the removal of the Berlin Wall was not going to do much good.

In February 1990, I went to a student meeting that turned rowdy in what was still East Berlin to listen to lectures on the 'social market economy'. The West German government had shipped in lavish pamphlets and politicians whose job it was to demonstrate the delights that awaited the hitherto luckless locals. It would take six months or a year to get things right, people would fall into the new jobs in the service sector and with their high wages and new deutschemarks at one-to-one, the old GDR would boom. The students rightly did not believe it.

A couple of months later my employers arranged a seminar on the new Germany where I said the whole thing would be a complete bust and eastern Germany would be a burden to the west, and everybody else, until about 2010.

I mention this not because it demonstrates any great forecasting gifts, but because it was obvious to anybody who spent a few days in the country asking people how it worked and finding out that it did not. At the Lindenhof restaurant on Leninstrasse in the Calcutta-style industrial centre of Bitterfeld I asked for a menu at one o'clock and the waitress said, 'Not now. We're having our lunch.'

Sitting above Europe at this moment I thought I would have a look at the shape of another ghastly thing to come.

In Britain there has been a huge public debate on energy policy. This has touched on the question of French nuclear power which is cheap and when imported into Britain leads to the closure of coalmines. But one interesting thing that emerged from the privatisation of power generation in Britain was that it was impossible to sell nuclear plants to investors because the discounted costs of owning a nuclear plant were greater than the income to be derived from them. In other words, nuclear power is uneconomic and the plants are worthless because of the decommissioning costs.

So today Britain has to subsidise its nuclear power in order to sell any. Since there is such a subsidy to domestic supplies, it has to be granted to already cheap French power as well - European Community rules permit no discrimination. (The consequent closure of British coalmines is deplored by large numbers of worthy people who only six months before were demanding that the British government take the initiative at the Rio Summit on the environment by demanding the elimination of greenhouse gasses. Such are the penalties of living in a country where public policy debate is ubiquitous, unceasing and uninformed.)

No energy economist has explained to the British public why it is that their nuclear power is too expensive while the French is too cheap. The answer could provide the clue to the next European economic disaster.

France relies on nuclear plants for three-quarters of its power generation. This has happened because France is the one working command economy the world has seen. It is organised by graduates of the so-called grandes ecoles. They are brilliant, they possess technical skills of the highest order, they think the same way and they control almost everything. It may sound like a recipe for disaster but the system has worked wonders. Nemesis may emerge in the nuclear power industry where, I assume, electricity is produced cheaply because decommissioning costs have not been included in the price structure.

The 80-odd nuclear power stations were built by Electricite de France on borrowed money. The debt stands at FFr195bn (More than Pounds 24bn). The worry is not that there will be a Chernobyl, but that there will be a rumour of one, or something will go a little bit wrong. That would cause hysterics in Germany or Switzerland and even make some Frenchmen doubt the perfection of the original choice.

If that happens many will wonder about EdeF debt, which is backed by the state, and think seriously about an investment that cost zillions and might have to be decommissioned and replaced at a cost of tens of zillions. There will be meltdown problem, not nuclear but financial.

Maybe there is a simple answer as to why the economics of the French nuclear power industry are totally different from those of the British but nobody has told me. I tried on several occasions to talk to someone at EdeF about this but nobody answered the phone.

James Morgan is economics correspondent of the BBC World Service.

FR France, EC GB United Kingdom, EC P4911 Electric Services P9611 Administration of General Economic Programs CMMT Comment & Analysis P4911 P9611 The Financial Times London Page X 878
Finance and the Family: All the news fit to hear Publication 930220FT Processed by FT 930220 By HARRY HOPKINS

THE VOICE from my bedside radio informed me: 'Wedding-related stocks seem likely to rise.' It was 5.45 am and the report came from Tokyo, where the engagement of Japan's crown prince had just been announced. I had discovered Dawn Traders, the 5.30-6 am weekday financial news programme on the London radio station LBC.

There followed, in an intriguing variety of accents, the latest market reports direct from Hong Kong, Singapore, Australia - with footnotes on the 'Kiwi dollar' - New York and, in a suitably sepulchral voice, the latest on crude oil stocks and the prospects for the oil price from Chicago.

Not so long ago, business and financial programmes were rare on the air. Now, they stream from our television and radio sets round the clock, offering much of value to the alert private investor.

Hard on the heels of Dawn Traders now comes BBC1's substantial and wide-ranging Business Breakfast. A recent report on America's way offshore island Puerto Rico, the 'pharmaceutical capital of the world,' was a revelation.

An earlier programme illustrated sharply the problems the European common market may bring to at least some branches of British industry by interviewing a veteran Midlands flower-grower, obliged to turn to poinsettias (because they do not travel well) while his Dutch competitors' flower-laden lorries were radiating all over Europe.

The advantage of television is that it offers the big close-up. Investors who prefer the testimony of eyes and lips to faceless statistical 'indicators' will welcome the programme's Tamworth Barometer in which manufacturers, retailers and others from this sample town in Staffordshire are interviewed in situ on how things are going.

No sooner have the last crumbs of the Business Breakfast been swept away than, for Greater Londoners, LBC is back shortly after 8 with the first company results and market indexes of the day, repeated at hourly intervals with the odd 'share on the move' and the prices of what they call 'the top 20' at 9.30 am and 4.30 pm. This leads to a round-up of the day around 6.35 pm.

Listeners to BBC Radio Four, presumably excused Dawn Traders, have to wait for their 15-minute Financial World Tonight until the advanced hour of 9.45.

The most useful feature of these evening round-ups is that, quite often, company chairmen or directors offer themselves for cross-examination when their annual results are announced.

The questions are more pointed than at most AGMs and, in the intimacy of the studio, the voice gives away more than it says. You can pick out the men committed to their jobs. The enthusiasm of Whitbread's chief executive over the brewer's catering innovations was obvious in an LBC interview.

On Financial World Tonight, shareholders in Airtours or Owners Abroad were able to hear both Airtours' chairman, David Crossland, and the retired package holiday champion, Harry Goodman, on the very eve of the bid that made so many headlines. Goodman pronounced the deal 'dangerous' for competition but said he admired Crossland for making it and would have done the same.

Sunday has long been the day for BBC TV's old flagship, the Money Programme: 40 minutes, two or three topical items, and an economist talking head. Investors in locomotive engineers and train-makers no doubt took note recently when, in a report on privatisation plans for British Rail, they learned - from the horse's mouth - that these could well kill train manufacturing in the UK.

ITV's rival Sunday City programme was scuppered by the management. But Channel 4 has produced a worthy Sunday rival in High Interest: 45 minutes devoted to a single subject, which gives great advantages in comprehensiveness and quality. A recent programme on the big three supermarket companies - Sainsbury's, Safeway and Tesco - amounted to a managerial seminar on this massive and central industry.

Chairman David Sainsbury, standing in one of his supermarkets, explained frankly their shadow-boxing techniques. 'We watch each other like hawks, and the speed of response is such that no one is very much out of line.'

But although he told us that market saturation would not come before the end of the century, the plans of the three giants seemed relentless and it was not difficult to agree with the analyst who warned that now was not the time to buy supermarket shares.

The week that opens with Dawn Traders ends at 11.25 on Friday nights with Radio Four's The Financial Week in which Heather Paton, rising high above the market chatter, coolly consults two or three or four economists, analysts, bankers or financial journalists (they are always 'distinguished').

This is a programme that should carry a mental health warning. The private investor who over-indulges in it might never again be able to make any decision on whether to buy or sell.

XA World P4832 Radio Broadcasting Stations P4833 Television Broadcasting Stations TECH Services P4832 P4833 The Financial Times London Page IX 831
Finance and the Family: CGT allowances Publication 930220FT Processed by FT 930220

THE TABLE shows capital gains tax (CGT) allowances for assets sold in January. To use it, multiply the original cost of the asset for the figure shown for the month in which you bought it.

If you subtract the result from the proceeds of your sale, the result will be your taxable gain or loss.

Suppose that you bought some shares for Pounds 7,000 in February 1983 and sold them in January 1993 for Pounds 17,000. Multiplying the original cost by the February 1983 figure of 1.662 gives a total of Pounds 11,634.

Subtracting that from the proceeds of Pounds 17,000 gives a capital gain of Pounds 5,366, which is below the 1992-93 CGT allowance of Pounds 5,800. If you realised no other gains during the year, the profits should be tax-free.

If you sell shares bought before April 6 1982, you should use the March 1982 figure. The RPI in January was 137.9.

----------------------------------------------------------------------- CGT INDEXATION ALLOWANCES: JANUARY ----------------------------------------------------------------------- Month 1982 1983 1984 1985 1986 1987 ----------------------------------------------------------------------- January - 1.669 1.588 1.512 1.433 1.379 February - 1.662 1.581 1.500 1.427 1.374 March 1.736 1.659 1.576 1.486 1.426 1.371 April 1.702 1.636 1.556 1.455 1.412 1.355 May 1.689 1.629 1.550 1.448 1.409 1.353 June 1.685 1.625 1.546 1.445 1.410 1.353 July 1.684 1.617 1.548 1.448 1.414 1.355 August 1.684 1.610 1.533 1.444 1.410 1.351 September 1.685 1.602 1.530 1.445 1.403 1.347 October 1.676 1.597 1.521 1.443 1.401 1.340 November 1.668 1.591 1.516 1.438 1.389 1.334 December 1.671 1.587 1.517 1.436 1.384 1.335

----------------------------------------------------------------------- Month 1988 1989 1990 1991 1992 ----------------------------------------------------------------------- January 1.335 1.242 1.154 1.059 1.017 February 1.330 1.233 1.147 1.053 1.012 March 1.325 1.228 1.136 1.049 1.009 April 1.303 1.206 1.102 1.036 1.000 May 1.298 1.199 1.093 1.033 1.000 June 1.294 1.195 1.088 1.028 1.000 July 1.292 1.194 1.088 1.031 1.000 August 1.278 1.191 1.077 1.028 1.000 September 1.272 1.183 1.067 1.025 1.000 October 1.259 1.174 1.058 1.021 1.000 November 1.254 1.164 1.061 1.017 1.000 December 1.250 1.161 1.062 1.016 1.000 ----------------------------------------------------------------------- Source: Inland Revenue -----------------------------------------------------------------------

GB United Kingdom, EC P99 Nonclassifiable Establishments GOVT Taxes P99 The Financial Times London Page IX 364
Finance and the Family: Beware of the IHT trap when selling your home - You can end up paying tax at 40 per cent Publication 930220FT Processed by FT 930220 By CAROLINE GARNHAM

YOUR HOME might be special to you and your family but that does not make it exempt from inheritance tax. And although the excitement has gone out of the housing market, you might still need to consider what, if anything, can be done to mitigate this swingeing levy.

The first thing is to add up your net worth. If it is below Pounds 150,000 and you have not made substantial gifts within the previous seven years, your estate is likely to escape IHT. But if it is worth more than Pounds 150,000 when you die, IHT at 40 per cent must be paid on the excess.

The next thing to consider is whether you mind paying this. There is an exemption for gifts between husband and wife, so IHT need be paid only when the surviving spouse dies. And there are many who prefer not to leave substantial sums to their children for fear of spoiling them; thus, they accept paying whatever tax is due.

The third thing to appreciate is that in order to mitigate IHT there will, at some time, need to be co-owners. Whereas co-ownership between husband and wife does not usually cause problems, the same is not true where the ownership is split between parent and child.

If, say, a parent wanted to move to a smaller house and sell the property, the child might insist on being paid his share - in which case, the parent could be left with too little money to re-invest in another property. There is also the risk of the child's interest being brought into account if he gets divorced or made bankrupt.

IHT, however, is not payable only when you die. It is also chargeable on substantial gifts made within seven years of your death, and on all assets which you no longer own but continue to enjoy. Suppose you give your house, worth Pounds 300,000, to your two children and continue to live there. When you die, its value will be added to your estate and IHT charged on it.

If your children sell the house after your death, they will have to pay capital gains tax on any increase in the property's value since you gave it to them (assuming the house is not their main or only residence). Your tax planning will, therefore, result in an increase in the total payable rather than a saving.

Just because you can be taxed on gifts you continue to enjoy does not mean you cannot save tax on your home. But the schemes under which you can do so are complicated.

If, for instance, you are fairly certain that you will not live as long as your spouse, you can create a will trust giving them a revocable life interest. When you die, the trustees then exercise their power of revocation over 90 per cent of the value of your house in favour of your children.

In this way, it is possible to save IHT and CGT - so long as your spouse survives you by seven years and continues to use the house as a main or only residence.

The only drawback here is that the spouse cannot be a trustee and might object to having so little control over the family home after your death. You could also find that the trustees want indemnities from the children if the surviving spouse is not to be charged rent for occupying the 90 per cent owned by the trustees on their behalf.

If you have children but do not have a spouse (for whatever reason), solving the problem of IHT on your main and only residence is a little more complicated.

It is possible to carve out a lease for yourself on the property and give away your remaining rights in it to the children as a reversion - subject to the lease. It would be structured so that its value would fall within the IHT nil rate band (up to Pounds 150,000); thus, no tax would be due when you die.

In the meantime, the longer you survived, the more the value of the reversion would increase. Although theoretically straightforward, this scheme has difficulties. One is that the gift of the reversion could be taxed if you died within seven years.

It is not possible to grant a lease to yourself without an elaborate legal structure; but even if you do, beware of falling into the tempting trap of granting yourself such a lease for life - a move that would bring the value of the property back into your estate.

This means you must have a fixed term, which raises the problems of either outliving your lease or dying too soon. All these and other difficulties are not insurmountable, but this scheme is not for the faint-hearted nor the foolish.

There are other ways to mitigate IHT on your main or only residence, but I know of none that is either straightforward or certain because of the complexity of IHT and CGT laws. Thus, many people decline to carry out any IHT mitigation scheme using their own home unless enough tax is at stake to make it worthwhile taking good advice to steer them through the complications.

Caroline Garnham is a tax and trusts specialist at City solicitor Simmons & Simmons. This is the second of three articles on tax and your home.

GB United Kingdom, EC P65 Real Estate GOVT Taxes P65 The Financial Times London Page VII 944
Finance and the Family: Ombudsman faces battle Publication 930220FT Processed by FT 930220 By BARBARA ELLIS

DISCORD between the insurance companies and Dr Julian Farrand, the ombudsman they sponsor - voluntarily - is expected to increase on Tuesday when he releases his latest annual report. For the first time in the 12 years of the scheme, the report has not been submitted for comment, and possible amendment, to the board of insurance company delegates which determines financing of the ombudsman's bureau.

Farrand said this week he had dispensed with this consultation, and had also given the council of consumer representatives less time to mull over the draft, so that publication could be brought forward by about a month.

He declined to discuss the contents but the publication notice from the bureau sets out particular issues examined, with 'Questions over his Jurisdiction' heading the list. Almost certainly, this relates partly to a dispute over Farrand's authority to handle complaints about home income plans.

Last year, bureau spokesman Peter Tyldesley revealed that one insurance company had rejected Farrand's matter-of-form request for permission to review a home income plan case. Tyldesley said at the time that this would not stop the ombudsman dealing with it. Since the new year, however, lawyers engaged on home income plan cases say a company has sought counsel's opinion on whether the ombudsman has the power to deal with these.

The company is now believed to be thinking of sueing him, having apparently received backing from counsel for its view that the ombudsman has no jurisdiction over mortgages and, therefore, none over the mortgage/investment bond package making up a home income plan.

While the ombudsman is on record as conceding that he has no jurisdiction over mortgages, he has always maintained that if the tied agent of an insurance company is selling an investment closely wrapped up with a mortgage, the company should be responsible for all of it.

This is not the first time Farrand has clashed with companies. In an article written last year for the insurance trade publication Post Magazine, he quoted extracts from letters written by sore losers.

One unnamed company accused him repeatedly of unfairness, writing: 'I have received your letter of . . . I will not thank you for this as it merely reinforces my view that you seem determined to treat us unfairly on this case . . .'

Coinciding with this latest probable conflict between Farrand and at least one member company is a change in the chairmanship of the board of insurance company delegates. Tom Roberts, who retired from General Accident at the end of 1992, will continue as chairman until June. But the person originally identified as his successor has withdrawn, according to board secretary Michael Briggs.

Briggs said that the candidate's withdrawal was due to an unexpectedly heavy workload, and stressed there was no question of any potential conflict with the ombudsman.

He added that possible disputes between a company and the ombudsman would not affect considerations on who should become chairman. 'It would be the person who would be nominated, not the company,' he said.

GB United Kingdom, EC P6311 Life Insurance P6411 Insurance Agents, Brokers, and Service P8621 Professional Organizations CMMT Comment & Analysis P6311 P6411 P8621 The Financial Times London Page VII 548
Briefcase, Q&A: IHT and paperwork Publication 930220FT Processed by FT 930220

SOME WEEKS ago, you printed a letter from an elderly widow headlined 'What can I pass on?' in which she asked several questions about inheritance tax.

Could you add a footnote to your answer giving details of the documentation needed when the annual exemptions for IHT are used? Is it in any way similar to the declarations made for CGT?

You asked for the necessary documentation regarding annual gifts to utilise the annual exemptions. It is normally sufficient for you to make the gifts together with a covering letter.

For example, if you propose to make the gift utilising the Pounds 3,000 annual exemption, you should merely keep a record of the gifts you make and the copy of the covering letter, together with the cheques.

If you wish to make use of the gifts out of income, then it is important to show that the gift is of a regular nature and, therefore, any letter accompanying the gift should state the facts of the case.

For example, if you are to pay an amount each year for the next four years under a deed of covenant, then the covenant form would be evidence of the regular nature of the payment. Alternatively, the letter should state the regular nature if this is what is proposed.

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All inquiries will be answered by post as soon as possible.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page VI 274
Briefcase, Q&A: Unhappy returns Publication 930220FT Processed by FT 930220

FOR SEVERAL years, I have submitted my tax return through an accountant. I decided that as my 1992/93 return should be less complicated than previous ones, and accountants' fees had soared, I would submit it myself.

In the past, I have always received notification of my tax code well before the start of the next tax year. This year, though, I got no communication.

I made enquiries by phone and was told the Revenue had received my return, it appeared all right, and my code would be unaltered. They said they could not afford to reply to people in my situation.

Under the circumstances, do I have a right to receive official notification of my code and, equally important, that the details of my return are in order and have been approved?

Regulation 9 of the Income Tax (Employments) Regulations 1973, as amended, says: 'After the inspector has determined the appropriate code for any year, he shall, if the code so determined is different from the code for the preceding year, give notice of his determination to the employee; provided that no such notice need be given when the change in the code is due to an alteration or alterations in the rates of any of the personal reliefs allowable under section 257 or section 259 of the Income and Corporation Taxes Act 1988 or in the tax tables, but the other matters referred-to in regulation 7 are not different from those for the preceding year.'

You have the right to require a formal schedule E assessment to be made for each year, by virtue of section 205(3) of the Taxes Act: ' . . . an assessment shall be made in respect of the income of a person so assessable for any year of assessment if the person assessable requires an assessment to be made by notice given to the inspector within five years from the end of the year of assessment.'

This is not a right which you should exercise without forethought: it could, for example, provoke a demand for a modest amount of underpaid tax which would otherwise have been written off as not justifying the expense of making a formal assessment.

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All inquiries will be answered by post as soon as possible.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Regulations CMMT Comment & Analysis P9311 The Financial Times London Page VI 425
Briefcase, Q&A: Tax on empty home Publication 930220FT Processed by FT 930220

MY BROTHER and I own a property jointly as tenants in common. It was the home of our mother, who lived there rent-free. She became ill and in November 1991 had to go permanently into a nursing home.

Her furniture was sold or otherwise disposed-of, so the property has been unfurnished since November 1991. It has been empty and for sale since that date.

1. Community charge. Is there any liability from November 1991 until when the community charge stops on April 1 1993? I have been informed that the standard charge might be levied. Is this correct?

2. Council tax. Is there any liability from April 1 1993? If there is liability, does the six-months-empty property exemption run from April 1 1993? It can hardly start running before the tax comes into being - can it?

1. Community charge. Your mother will have ceased to be subject to the charge on going into residential care, and an adjustment will fall to be made, either by way of refund or by payment of what was due to the date of her ceasing to be resident at the property. You may be liable for the balance of the year at the standard charge.

2. Council tax. You will be liable, as owners of unoccupied property, from April 1 1993. There is no equivalent of the rating exemption for empty property.

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All inquiries will be answered by post as soon as possible.

GB United Kingdom, EC P9121 Legislative Bodies GOVT Taxes CMMT Comment & Analysis P9121 The Financial Times London Page VI 288
Finance and the Family: Figures that can bemuse - Scheherazade Daneshkhu investigates the mysteries of APR Publication 930220FT Processed by FT 930220 By SCHEHERAZADE DANESHKHU

MORTGAGE-seekers attracted by an Abbey National advertisement on February 10 for its fixed rate of 5.99 per cent - 'our lowest fixed rate ever' - might have wondered what an annual percentage rate (APR) figure of 8.2 per cent was doing alongside it.

Most people tend to ignore the APR figure which banks and building societies are obliged to quote. But it is meant to reflect the true cost of the mortgage so that customers have a fair basis of comparison.

The mathematical calculation itself is based on a formula set out in the Consumer Credit (Total Charge for Credit) Regulations Act 1980. It takes into account all payments made throughout the life of the mortgage, when they are made and includes a number of the lender's costs. For instance, the Halifax building society's assumed charges on a Pounds 50,000 loan, completed on April 16, include:

Valuation fee of Pounds 125.

Conveyancer's fee of Pounds 117.50, which is the legal cost to the lender of arranging the mortgage.

Mortgage indemnity premium of Pounds 500, which is insurance protecting the lender against losses if you were to default. Halifax charges it on loans of more than 75 per cent of the purchase price of the property or valuation, whichever is lower.

Mortgage discharge fee of Pounds 40 and a Pounds 15 charge for despatch of the title deeds on repayment of the loan.

If the mortgage was a fixed or capped rate loan, its fee would also be included.

Because these costs are included, the APR will be higher than the quoted rate. Most lenders with a 7.99 per cent variable rate are quoting an APR of 8.5 per cent on a repayment mortgage and a slightly lower rate, 8.3 or 8.4, on an endowment.

Abbey National has an 0.1 percentage point difference between the two types. Abbey's Richard Bolton says this is because, 'You are paying down the loan throughout the year with a repayment mortgage. But that is not reflected in our calculations until the year-end, so you are implicitly being charged a slightly higher rate of interest.'

Although APRs are meant to make life easier for the consumer, they can be misleading because they are based on a set of assumptions about the size of loan, the time it was taken out, the length of its term and the cost of the charges, all of which are variable. Moreover, assumptions vary from lender to lender. 'Our concern is the lack of clarity regarding the assumptions,' says Michael Coogan, of the Building Societies Association. 'Some members do one thing and some do others. No one understands what the law says.'

One thing lenders have done is to assume a fixed rate will apply throughout a 25-year mortgage term, thereby arriving at a much lower APR. But the trading standards department of Devon county council has been active in prosecuting lenders for an abuse of the standards of fair trading.

Bob Imrie, from the trading standards department, says lenders now have accepted that a fair basis on which to calculate the APR is to assume that today's standard variable rate should apply after the fixed-rate period.

The Abbey National fixed-rate loan at 5.99 per cent lasts only until the end of May 1994, leaving more than 23 years at the variable rate. This means the APR on the fixed-rate mortgage is 8.2 per cent, only slightly lower than the 8.4 per cent APR which applies to an endowment mortgage taken out at Abbey's standard rate of 7.99 per cent.

Coogan would like to see lenders follow the practice in Europe and include the cost of a life policy - such as an endowment - in the APR figure.

When you go to a lender for a mortgage, do not be surprised if the APR figure is not quoted. Earlier this year, branches of the National & Provincial, Barnsley, Nationwide, Alliance & Leicester, Bradford & Bingley, Leeds Permanent and Halifax societies all were fined by Doncaster magistrates for giving misleading quotations, which included either failing to quote an APR figure or quoting an incorrect one.

GB United Kingdom, EC P603 Savings Institutions COSTS Product prices CMMT Comment & Analysis P603 The Financial Times London Page VI 729
Finance and the Family: The dangers of success - Investment Trusts / A look at the rise and rise of Fleming Claverhouse Publication 930220FT Processed by FT 930220 By PHILIP COGGAN

A TRUST that pays quarterly dividends, aims to invest in UK blue chip shares and has a good long-term performance record might sound just what many private investors are looking for. So it has proved for Fleming Claverhouse. Private investors now own more than 60 per cent of the share capital, compared with 27 per cent in 1985.

Its record places it second (out of eight) trusts in the UK general sector over the 10 years to February 1, with a rise of 576.9 per cent (mid-market to mid-market with net income reinvested, according to Micropal). Over five years, growth has been 96.2 per cent, placing the trust third in the sector.

But there are problems associated with success. The shares now stand at a 6 per cent premium to net asset value. This means that those who buy Claverhouse shares are, effectively, paying 106p to get 100p of assets.

There is an element of paradox about this situation. Because private investors have been attracted to the trust, the shares have been pushed to a premium (in short, demand for the shares exceeds supply). But whether all those private investors appreciate the dangers associated with buying shares at a premium is open to question.

If the premium disappears - or, worse, if the shares drop to a substantial discount - then private investors could see the value of their holdings drop sharply, even if the stock market is stable. But if private investors do not realise the danger, the premium could well stay in place.

This is not, of course, a problem unique to Fleming Claverhouse. Like many of the other trusts in the same situation, it has taken power to issue new shares to savings plan-holders. A rights issue could be required at some point.

Claverhouse was founded in 1963 and was named after 'Bonnie Dundee,' later the 1st Viscount Claverhouse, who led a rebellion against William & Mary in 1689 and was killed at the battle of Killiecrankie. The name was chosen because of management group Robert Fleming's links with Dundee, where the firm had its origins in 1873.

The trust aims to invest in blue chip shares, although this definition includes many medium-sized companies - only 50 per cent of the portfolio is in FT-SE 100 stocks. Claverhouse's 10 largest investments at the end of 1992 contained many names that would be familiar to the private investor: Glaxo, British Gas, NFC, Tate & Lyle, Shell, BT, East Midlands Electricity, Severn Trent Water, Allied-Lyons and Unilever.

In terms of sectors, the portfolio includes shares in the consumer group (38.5 per cent); financials (14.7 per cent); capital goods (10.4 per cent); oil and gas (9 per cent); others (26.8 per cent); and investment trusts (0.6 per cent).

Claverhouse has debenture borrowings of around Pounds 15m, equal to gearing of 18 per cent, which it took out in tranches in January 1988 and December 1990. That level of gearing leaves it exposed to downturns in the market, and Claverhouse actually used a put option to hedge its exposure in September 1991.

The trust has been managed for the past two years by 39-year-old Anthony Nutt, who worked previously for TSB Investment Management and broker Foster & Braithwaite. Lewis Aaron of SG Warburg Securities, says that the departure of respected former manager John Redwood does not seem to have dented the trust's performance.

In picking stocks, Nutt is able to call on Fleming's 15-strong team of analysts. He says the trust looks for stocks which can provide dividend growth rather than those with a high initial yield. That means it needs an exposure to convertible stocks (now 15 per cent) to push the yield up to 3.6 per cent.

Even so, given the existence of additional plan charges, such a small yield might not seem the most obvious Pep choice for income-seeking investors. But as the graph shows, the trust has a good record for increasing dividends, which have nearly trebled over the past 10 years. And quarterly payments are undoubtedly an attraction.

The trust's long-term performance has undoubtedly benefited from its limited exposure to small company shares, which have suffered over the past few years but may be due for a revival. The share price return has also been bolstered by the move from discount to premium, a factor which cannot now be repeated.

So, the trust will face some interesting challenges over the next few years, some of which have, ironically, been caused by its popularity.

Key facts.

At the end of 1992, the trust had gross assets of Pounds 92m and net assets of Pounds 77m. On February 18, it had net assets per share of 375.5p and the shares were trading at 399p, a premium of 6.1 per cent. The yield was 3.6 per cent and the market capitalisation was Pounds 80m. Fleming has a two-year management contract, for which the annual fee is 0.5 per cent of assets.

Board. Fleming Claverhouse has only a four-man board, chaired by Lord Mark Fitzalan Howard, a director of Robert Fleming. The other directors are Sir Timothy Raison, MP for Aylesbury and a former minister of overseas development, John Redwood, a former manager of the trust, and Professor George Stout, a director of XCL Sunrise.

Savings plan and Pep details. The minimum monthly investment into the savings scheme is Pounds 40, and Pounds 400 for a lump sum purchase. There is a 1 per cent charge on purchases, with a minimum of Pounds 1 and a maximum of Pounds 50; on sales, the charge is also 1 per cent, with a minimum of Pounds 10 and no maximum.

On Peps, the minimum monthly investment is Pounds 100, or Pounds 1,000 for a lump sum. The initial charge is 1.5 per cent plus VAT, and there is an annual charge of Pounds 25 plus VAT. There is also a dealing charge of 1.75 per cent plus VAT.

Fleming Claverhouse Investment Trust GB United Kingdom, EC P672 Investment Offices COMP Company News TECH Products P672 The Financial Times London Page V 1040
Finance and the Family: Sell-out for BES issue Publication 930220FT Processed by FT 930220 By JOHN AUTHERS

INVESTORS continued to put tax-shelter money into the business expansion scheme this week. Johnson Fry's N&P Multiple Choice Growth scheme, which raised money to rent out properties repossessed by the National & Provincial building society, raised Pounds 50m within 36 hours of opening and is now sold out.

The company intends to follow up with an identical scheme for the Bradford & Bingley building society. This will involve non-recourse loans being offered at the rates of 74p per Pounds 1 invested after six months, 78.31p after one year, 87.71p after two years and 98.24p after three years.

There is no fixed repayment price after five years. Minimum investment is Pounds 3,000 with a maximum of Pounds 25,000.

Close Brothers' BESSA Bristol and West scheme is likely to close on Monday. Its target subscription is Pounds 45m.

Another non-recourse loan scheme, St Annes Residences, sponsored by Neill Clerk, will raise money for St Anne's College, Oxford. The six-month loan, underwritten by Barclays, is 73.5p per Pounds 1.00 invested.

Several advisers, such as Nick Mercer of Hill Martin, are nervous about the non-recourse loan schemes. They point out that these offers are on favourable terms for the banks.

Although the annualised returns on a non-recourse loan look attractive (Johnson Fry quotes 49.93 per cent over six months), over five years a higher return should be available by leaving the money in a BES company.

Neill Clerk has launched three unusual offerings. Airways III will buy accommodation for the British Airways Housing Association. The association has placed money on deposit so that, after five years, it aims to pay Pounds 1.17 for every Pounds 1 paid now.

Uncapped Growth is a hybrid, with an undertaking from a property developer to pay Pounds 1.25 per Pounds 1.00 after five years, although this does not have a full bank guarantee. There is no limit on the upside.

Reversionary Gains IV will buy home reversions from the elderly and aim for a profit.

GB United Kingdom, EC P672 Investment Offices TECH Products P672 The Financial Times London Page V 359
Directors' share transactions Publication 930220FT Processed by FT 930220 By ANGUS MCDONALD, Directus Ltd

THE SALE of shares in financial services group Jupiter Tyndall by chairman John Duffield, deputy chairman John Craig and managing director Michael Heathcoat Amory all took place at 143p. Following these transactions, Duffield and Heathcoat Amory retain sizeable holdings. Craig's sale of 40,000 shares represented almost half his stake.

Shares in Southern Business Group have been performing well over the past year and have risen 20 per cent relative to the market. Following this chairman David McErlain sold more than 700,000 at 134p; he retains almost 3m.

Directors of Lister, the textile group, have been buying since the second half of last year. Most recently, Victor Segal, a non-executive director and Norman Smith, the chairman, bought shares at between 25p and 31.5p. These transactions increased each director's holding substantially.

----------------------------------------------------------------------- DIRECTORS' SHARE TRANSACTIONS IN THEIR OWN COMPANIES (LISTED & USM) ----------------------------------------------------------------------- No of Company Sector Shares Value directors ----------------------------------------------------------------------- SALES ----------------------------------------------------------------------- Bradford Prop Trust Prop 100,000 141 1 Bullough EngG 75,000 87 2 Cantors Stor 85,000 116 1 Daily Mail A NV Med 2,500 196 1 Domino Printing Elns 5,000 30 1 Huntleigh Technolgy Hlth 4,000 34 1 Jupiter Tyndall OthF 790,000 1,130 3 Marks & Spencer Stor 125,481 420 2* MFI Stor 35,000 46 4 ML Laboratories Hlth 50,000 525 1* National Power Elcy 4,900 14 1 Rathbone Bros OthF 15,000 38 2 RCO Holdings BuSe 15,000 61 1 Silentnight Misc 5,000 14 1 Southern Business Misc 723,566 970 1 Travis Perkins BdMa 8,000 15 1 Yorklyde Text 5,000 18 1

----------------------------------------------------------------------- PURCHASES ----------------------------------------------------------------------- French Connection Stor 30,000 11 1 Lister Text 150,000 46 2 Moss Bros Stor 16,000 22 2 New City & Com LV* RecI 31,000 31 3 Osborne & Little Misc 15,000 11 1 RIT Capital Partnrs InTr 65,000 73 1 Scottish Mortgage InTr 5,500 11 1 Shaftesbury Prop 50,000 29 1 ----------------------------------------------------------------------- Value expressed in Pounds 000s. Companies must notify the Stock Exchange within 5 working days of a share transaction by a director. This list contains all transactions, including the exercise of options (*) if 100% subsequently sold, with a value Pounds 10,000. Information released by the Stock Exchange 8-12 February 1993. * Incl Deb & Warrants ----------------------------------------------------------------------- Source: Directus Ltd, Edinburgh -----------------------------------------------------------------------

GB United Kingdom, EC P99 Nonclassifiable Establishments COMP Company News STATS Statistics FIN Share issues P99 The Financial Times London Page V 404
Finance and the Family: Cutting the tax bill on foreign income - Expatriates Publication 930220FT Processed by FT 930220 By DONALD ELKIN

HOW DO you exclude your overseas income from liability to British tax? The answer, in the jargon, is to be classed as not resident and not ordinarily resident in the UK. That is the rule. But as for most rules, particularly tax rules, there are exceptions.

One of these is when some of the duties of your overseas employment are performed in the UK. That could result in having to pay tax on part of your pay - but not necessarily, since UK duties which are 'merely incidental to the performance of the other duties outside the UK' can be ignored for this purpose.

Work done by an overseas representative when he comes to the UK to report and get new instructions will certainly fall into the 'incidental' category. So will visits for training which involve no directly productive work.

In both cases, the UK duties are inherently subordinate to those carried on overseas. The test as to whether duties are to be regarded as incidental is, therefore, concerned primarily with their substance, rather than the time they take.

Nevertheless, UK duties extending beyond three months in a tax year will not normally be accepted by the Inland Revenue as incidental.

Some of the work carried out by expatriates in the UK is, however, too important in itself to be treated as incidental. The duties performed by directors when attending UK board meetings, and by seamen and aircrew when bringing their vessels and aircraft into UK ports, all fall into this category.

In all of these cases, what is done is a fundamental part of the employee's work. Furthermore, to determine what part of their remuneration is taxable, some duties are deemed to be performed in the UK when actually they are not.

As civil servants know to their cost, their salaries are always chargeable to UK tax whatever their residence status might be. Aircrew and seafarers also come in for special treatment since, if they become residents of the UK, they are treated as performing there all of the duties relating to any journey, or leg of a journey, which begins or ends in Britain.

Unfortunately, such liability is the least troublesome of the disadvantages which can arise from performing duties of substance in the UK. Of much greater significance is the fact that doing so can change your residence status and, hence, the whole basis of your liability to UK tax.

Many expatriates retain accommodation for their use in the UK. Visiting the country in such circumstances gives rise to a resident status for the tax year concerned unless (a) there exists at the time a full-time overseas employment (or business); and (b) all of the duties of that employment are carried on outside the UK. This is the rule which often results in working husbands and non-fulltime working wives having a different residence status.

Unfortunately, if you perform duties of substance in the UK, you must necessarily fail test (b). As a result, you will be resident for any year in which you visit and, should you do so regularly, ordinarily resident too. This means that if you remain a UK domiciliary, as the great majority of British expatriates do, you will be subject to UK tax on your worldwide income and gains on the same basis as a permanent resident.

Well, not quite. Your salary at least might be excluded from liability as a result of the foreign earnings deduction. This applies to employment which is carried on wholly or partly outside the UK in the course of a qualifying period which exceeds 365 days.

'Qualifying period' is defined as any days spent outside the UK (whether working or on holiday) and, in addition, intervening days when you are in the UK - provided that no visit exceeds 62 consecutive days.

Nor should the total of them be more than one-sixth of the days in the period. (For seafarers, the limits are 183 consecutive days and one half of the days in the period).

The foreign earnings deduction, and particularly the one-sixth requirement, should be approached with caution. The rules are very complex.

So, if your employment looks likely to involve you in performing duties of substance in the UK, careful consideration of the tax implications is essential. But if, as a result, you become resident and ordinarily resident, there might be compensating advantages.

Foremost among these is the ability to pay personal pension contributions attracting an Inland Revenue subsidy of 25 per cent, whether you pay tax on your salary or not.

Donald Elkin is a director of Wilfred T. Fry Ltd of Worthing, West Sussex.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page IV 813
Finance and the Family: Blow for US expats Publication 930220FT Processed by FT 930220 By ANDREW JACK

AMERICAN expatriates in London will be examining their pay packets with concern this weekend after President Clinton's State of the Union message. Many can expect substantial increases in their taxes and health care contributions because of the new administration's proposal to gather extra income from the middle classes and the rich.

Expatriates tend to be higher-paid staff. Most based in the UK are paid by their companies on the so-called 'tax equalisation' or 'tax-at-home' basis, with tax deducted as though they were still resident in the US.

Any individual earning above Dollars 155,000, or a couple earning above Dollars 140,000, a year after deductions would see their income tax rise to 36 per cent. Those earning above Dollars 250,000 a year would also face a 10 per cent surtax. Equally important, all these groups could expect their FICA contributions - the Federal Insurance Contributions Act, covering medicare and social security payments - to jump following removal of the present Dollars 135,000 ceiling. Employers would also face an increase in FICA contributions on behalf of employees.

Grady Townsend, of Price Waterhouse expatriate tax services in London, has calculated two scenarios. For a married expatriate with two children on a base salary of Dollars 75,000, with housing, cost of living, education and car allowances worth another Dollars 120,000, present tax is Dollars 16,494. That remains unchanged under the Clinton proposals, but their employer's tax bill on their behalf would rise by Dollars 5,640 to Dollars 12,403.

For an expatriate on a base salary of Dollars 300,000, with allowances on the same items totalling Dollars 190,000, the tax charge rises from Dollars 89,136 to Dollars 100,794. Their employer's contribution would increase from Dollars 20,979 to Dollars 33,268.

But Bruce Lassman, head of the US tax desk at accountants Ernst & Young, points out that the expatriates would be paying at a lower rate than the 40 per cent upper tax band imposed on UK citizens.

US United States of America GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page IV 364
Finance and the Family: The Week Ahead Publication 930220FT Processed by FT 930220

IMPERIAL Chemical Industries, the UK's largest manufacturer, reports its preliminary year-end results on Thursday and grim reading they will make. Hoare Govett expects ICI to report fourth-quarter pre-tax profits of only Pounds 27m, making a total of Pounds 550m for the year. That compares with Pounds 843m in 1991 and the peak of Pounds 1.5bn in 1989. But the poor results will be immaterial compared with the announcement of the board's decision whether to split ICI in two. The aim is to make Zeneca, the pharmaceuticals, agrochemicals and specialities subsidiaries, into a separately quoted company.

SmithKline Beecham, the Anglo-American drugs and consumer products company, reports preliminary year-end results on Tuesday. Analysts expect pre-tax profits to increase up to 13 per cent to between Pounds 1.11bn and Pounds 1.125bn, against Pounds 1bn a year earlier.

British Aerospace expects to see a revival in 1993 following a year in which its performance was undermined by Pounds 1bn of provisions. Hopes for a return to profit, however, will do nothing to soften the impact of its preliminary results on Wednesday. These are likely to show losses of about Pounds 1.1bn compared with losses of Pounds 81m a year earlier. Restructuring charges of Pounds 950m in the regional aircraft division have been blamed largely for the hole, although prospects look brighter following last month's Saudi order for Tornadoes.

The mild weather and new regulatory regime imposed by Ofgas is likely to be reflected in the final results for British Gas. The company is expected to announce on Thursday that profits have slipped to around Pounds 900m compared with a Pounds 1.16bn last time.

Increased competition and lower prices for domestic gas sales may also reduce the company's scope for a substantial increase in dividend. A pay-out of about 14p is expected, against 13.4p last year. The company's shares, meanwhile, are likely to remain under pressure while the Monopolies and Mergers Commission carries out a wide-ranging review of its business.

Royal Dutch Shell, the Anglo-Dutch oil company, will report its preliminary year-end results on Thursday when a small increase in profits is expected of up to Pounds 3bn compared with Pounds 2.89bn for 1991. The company is likely to raise its dividend in line with inflation to about 22p from 20.9p last time.

Unilever, the Anglo-Dutch food and consumer products group, is expected to report on Tuesday that pre-tax profits for the full year burst through the Pounds 2bn barrier, an improvement of about 13 per cent on the previous year's Pounds 1.79bn. Although flattered by the impact of sterling's devaluation in the final quarter, the results are likely also to reflect strong progress in south east Asia and parts of Latin America, and a recovery in North America after a poor performance the previous year.

GB United Kingdom, EC P99 Nonclassifiable Establishments FIN Company Finance COMP Company News P99 The Financial Times London Page IV 493
Finance and the Family: Private investors prepare to jump on the bondwagon / A look at the renewed appeal of fixed-interest securities Publication 930220FT Processed by FT 930220 By JOHN AUTHERS

BONDS ARE back in favour. A gradual shift towards fixed-interest securities by British institutions before the UK left the European exchange rate mechanism has now turned into a flood of marketing directed at private investors.

The trend shown in the graph might make this seem strange. The effect of Black Wednesday was to force down yields on gilts - bonds issued by the UK government - across the board. But the 'yield curve,' one of the investment world's more Byzantine constructions, has shifted in ways which allow small investors some opportunities - along with more risks.

Long-term bonds now offer higher yields than short-term cash deposits. This, together with the 'certainty' they offer - most pay a fixed rate of interest and have a set repayment value - explains their appeal to the small investor.

This return does not come without dangers, though - bond prices could fall, leading to a loss of investors' capital in nominal terms - or inflation could rise again, which would mean a capital loss in real terms.

In some cases, holding bonds until they are redeemed guarantees a capital loss.

Private investors can buy bonds directly, but many may find the task of selecting the right issue too daunting. That is where the financial services industry steps in, with a range of funds designed to take the hassle out of bond investing.

GILT UNIT TRUSTS

These were among the fund management industry's star performers of 1992. UK gilt and fixed-interest unit trusts logged net sales of Pounds 128.2m. The industry's own marketing has a lot to do with this, but more important is a pervading sentiment that inflation will be low throughout this decade.

The advantages of buying into a large, professionally-managed portfolio were displayed by the convulsions of Black Wednesday.

As Will Hay, the head of fixed interest at Standard Life, explains, some issues maturing in 2002 are priced at 112p and will be redeemed at 100p - so buying the issue for its attractive yield means buying into a capital loss. Unit trusts can aim to deliver a high yield while selling in time to avoid capital losses.

Bond funds can, however, have different aims. Traditionally, gilts are used for income, and present yields justify this. By buying three unit trusts which pay out quarterly, it is possible to arrange for monthly income, providing each pays its income in different months.

The table shows figures for all the gilt unit trusts with a track record of at least five years which pay out quarterly.

Some funds have exceptionally high yields, which is a sign that they are turning capital into income. This could appeal to some investors, but only if they are sure they can afford to lose some capital.

But some funds may aim for a total return (judged in terms of income and capital gains combined). The figures for growth, which assume that income has been re-invested, show that gilts have not delivered this reliably.

A further crafty device, pioneered by Mercury, is to hold enough overseas bonds to qualify for the capital gains tax indexation allowance. The fund aims for income, and makes a loss in capital terms after indexation. This loss can be offset for CGT purposes against gains elsewhere in the portfolio.

Rather more tax-planning opportunities are available offshore. Advice from an accountant is needed before attempting to take advantage of them.

'Roll-up' funds do not distribute income; instead, this is allowed to accumulate tax-free within the fund. Tax is payable only after the investment is redeemed. Distributor funds pay out income gross - very attractive at present yields - and tax does not need to be paid until later. Guinness Flight stresses that going offshore only defers tax.

If you are aiming for income, then the present yield is what you will get. What are the chances for total return?

According to Hay, a decision on whether to buy bonds hinges on your prediction for inflation. 'If you believe inflation has been squeezed out of the UK system, we will see a good performance on the gilts market. You may see the total return performance deteriorate over three to five years if inflation picks up.'

He considers gilts a very attractive investment in the short-term, but he is less confident over a medium term of three to five years because of the risk of accelerating inflation. Hay is also anxious about the possibility that gilts will be in over-supply.

Simon Briscoe, UK economist at Midland Montagu, is more confident than most about inflation. He forecasts that roughly 1 percentage point will be shaved off all gilt yields by the end of this year, and adds: 'We would be looking for the longest-dated gilts to yield 7.75 per cent by the end of this year, and they are now on 8.6 per cent. That would give a healthy return.'

Midland Montagu is backing gilts to outperform equities this year, with inflation staying between 2 and 4 per cent for the next three years - making 8.6 per cent look good.

INTERNATIONAL BOND UNIT TRUSTS

The best way to buy international bonds is via a fund. The minimum units in which they are traded, and the costs of transactions in foreign markets, make frequent trading in international bonds impracticable for a small investor.

International bond funds are also in favour, with net sales last year of Pounds 191.9m. Mercury's international bond fund, launched two years ago, now has Pounds 217.3m.

People who bought at the beginning of last year have done well so far. The funds come with an added currency risk, which delivered very strong performance for them last year as sterling devalued - average total return for the sector over the half-year to the beginning of this month was 17.75 per cent, according to Micropal.

European bonds, in which Barclays Unicorn launched a specialist fund last month, are attracting particular interest from analysts because base rates are still high, in line with the German Bundesbank's high interest rate policy. Once they fall, European bond markets should rally, delivering a capital gain.

Peter Oppenheimer of Hambros, which manages the offshore EMMA umbrella fund, says: 'We see European bonds as offering more value than gilts because the potential for base rates to come down is greater. French rates, in particular, are unsustainable.'

Again, the table shows only those funds with a track record of at least five years which pay income quarterly. Yields arelower and managers, particularly in funds specialising in European bonds, tend to aim for a total return - income and capital gain combined - rather than income alone.

CHARGES

Initial and annual charges are more variable than they are for most of the industry. Some funds impose an initial charge of 5 per cent and an annual charge of 1.5 per cent, but annual charges nearer 0.75 per cent, and initial charges of between 3 and 4 per cent are common.

Gilts are cheaper to manage than equities and several companies have cut charges in the past year. They include Abtrust, which has two unit trusts with no front-end charge at all, Fidelity, Guinness Flight and INVESCO MIM. Now that companies are competing on price, look around for the cheapest option.

----------------------------------------------------------------------- INTERNATIONAL FIXED INTEREST TRUSTS ----------------------------------------------------------------------- Income Growth Yield paid 3 year 5 year ----------------------------------------------------------------------- Abbey Worldwide Bond 4.59% March 41.90 60.82 Fidelity International Bond 4.85% February 29.03 46.59 Gartmore Intl FI 5.33% January 40.01 52.34 Waverley Global Bond 7.27% January 27.06 46.24 ----------------------------------------------------------------------- Source: Micropal. Growth figures are offer-to-bid, with income reinvested, to February 1, 1993. The first month of the year in which income is paid is shown. Income is paid quarterly, every third month. -----------------------------------------------------------------------

----------------------------------------------------------------------- GILT & FIXED INTEREST UNIT TRUSTS ----------------------------------------------------------------------- Income Growth Yield paid 3 year 5 year ----------------------------------------------------------------------- Abbey Gilt & FI 6.95% January 40.02 49.51 Abtrust FI 9.23% January 26.87 32.32 Barclays Uni Gilt & FI 8.81% January 41.46 44.60 Clerical Med Gilt & FI Inc 8.42% February 33.32 35.59 CU Pref Share 8.20% February 19.47 51.15 Friends Prov FI 6.73% January 28.78 33.77 ----------------------------------------------------------------------- Gartmore Pref Share 8.84% February 8.39 18.54 Henderson FI 8.35% February 35.44 39.27 Henderson Pref & Gilt 9.05% March 11.25 11.13 Hill Samuel Gilt & FI 8.30% February 28.64 30.46 INVESCO Pref Shares 7.23% January 10.911 21.88 M&G Gilt & FI 9.08% March 33.42 36.34

----------------------------------------------------------------------- Midland Gilt & FI 7.14% January 34.15 39.00 Prosperity Gilt 8.15% March 28.98 32.18 Prudential Premier Inc 7.55% March 34.03 40.52 Target Pref 7.95% February 11.08 29.62 TSB Premier Inc 7.33% March 31.74 34.56 ----------------------------------------------------------------------- Source: Micropal. Growth figures are offer-to-bid, with income reinvested, to February 1, 1993. The first month of the year in which income is paid is shown. Income is paid quarterly, every third month. -----------------------------------------------------------------------

GB United Kingdom, EC P6211 Security Brokers and Dealers P6726 Investment Offices, NEC CMMT Comment & Analysis P6211 P6726 The Financial Times London Page III 1519
Finance and the Family: Court rejects payout Publication 930220FT Processed by FT 930220 By SCHEHERAZADE DANESHKHU

PEOPLE who lost money on investment bond home income plans because they followed bad advice from commissioned sales agents were defeated this week in their attempt to get extra compensation from the Investors Compensation Scheme.

The plans were sold late in the 1980s, mainly to elderly people, as a 'safe' way of releasing income from their homes. In fact, the schemes involved taking out a mortgage and investing in equity-linked bonds. But the value of the bonds fell as interest rates rose and house prices dropped, pushing many people into debt.

Investors bought such things as holidays, believing they were spending interest earned on their home's capital. But they were actually consuming the capital itself.

The case against the ICS was brought in the High Court by solicitors Barnett Sampson, which argued that the ICS had interpreted its rules irrationally in deciding compensation. Barnett Sampson claimed the ICS should include money spent mistakenly by clients because of wrong advice, and that victims should get damages for distress and anxiety.

These arguments were rejected but the claimants did win one significant victory. The court allowed a relative or 'personal representative' to bring or pursue compensation on behalf of a victim who had died. The ICS had refused to consider claims brought by relatives after a victim's death, or to pay compensation if the victim died before an offer had been made. This seemed particularly unfair, since victims are mostly elderly and the compensation process lengthy.

The case illustrates the arbitrary nature of the compensation process. If the home income plan was sold by a direct salesman or tied agent of an insurance company, the victim is arguably in a better position than anyone who dealt with an independent financial adviser. Large insurance companies, mindful of their reputations, have the resources and incentive to settle a claim in full. But independent advisers, authorised by Fimbra, usually are small companies with fewer resources and no national reputation to safeguard. If the adviser collapses under the weight of claims, investors can turn only to the ICS, which has different rules.

Lautro, the self-regulatory body for the insurance industry, requires a company to return people to the position in which they would have been had they not invested. But the court ruling means the same does not hold true for those getting compensation from the ICS. Its maximum payout per claim is Pounds 48,000 and it has awarded Pounds 5.5m to 327 of an estimated 1,650 claimants.

Barnett Sampson is appealing against the ruling.

GB United Kingdom, EC P6211 Security Brokers and Dealers GOVT Legal issues P6211 The Financial Times London Page III 453
Finance and the Family: A-Z of Personal Finance - At a glance Publication 930220FT Processed by FT 930220

THERE IS so much jargon in the field of personal finance that many people give up in despair. The result, too often, is that they make the either the wrong financial decisions or no decisions at all. But ignorance and apathy can prove disastrous. The Financial Times A-Z of Personal Finance, to be published with next Friday's paper, and repeated with Saturday's, is designed to give readers a working guide to their personal finances, and to help them to deal more confidently with advisers and other professionals in the sector.

GB United Kingdom, EC P6282 Investment Advice P2711 Newspapers TECH Products P6282 P2711 The Financial Times London Page II 126
Finance and the Family: Small companies quiet - At a glance Publication 930220FT Processed by FT 930220

Small company share prices had a modest week, after their recent heady gains. The County index rose 0.4 per cent from 1047.71 to 1051.95 over the week to February 18, while the Hoare Govett index (capital gains version) rose 0.3 per cent from 1342.06 to 1346.28 over the same period.

GB United Kingdom, EC P99 Nonclassifiable Establishments COMP Company News MKTS Market data P99 The Financial Times London Page II 86
Finance and the Family: Fixed and portable - At a glance Publication 930220FT Processed by FT 930220

Portman building society has brought out a ten-year fixed-rate mortgage of 9.25 per cent (9.6 APR) on all types of mortgage. Insurance-related products need not be taken out and there is no application fee. The mortgage is portable.

Portman Building Society GB United Kingdom, EC P603 Savings Institutions TECH Products P603 The Financial Times London Page II 74
Finance and the Family: A good wine and a bush - At a glance Publication 930220FT Processed by FT 930220

Witan, an international general investment trust managed by Henderson, has launched a campaign to attract investors. The trust is waiving the 3 per cent initial charge on its personal equity plan and has cut the annual management charge from 1.5 per cent to 1 per cent. Dealing charges are 1.25 per cent. Those who invest Pounds 6,000 in a Witan Pep before April 30 can receive either a year's free membership of the Royal Horticultural Society plus a rose bush; half a case of wines; or a 1993 Royal Mint UK proof coin set.

Witan Investment GB United Kingdom, EC P672 Investment Offices TECH Products P672 The Financial Times London Page II 132
Finance and the Family: Advice for investors - At a glance Publication 930220FT Processed by FT 930220

The Consumers' Association has published a new edition of its its guide to investment strategies and choices. It contains chapters on getting advice, tax, investing for children, and pensions along with explanations of the main investment products. 'Which? Way to Save and Invest,' Consumers' Association and Hodder & Stoughton, Pounds 12.99

Consumers Association (UK) GB United Kingdom, EC P6282 Investment Advice TECH Products P6282 The Financial Times London Page II 87
Finance and the Family: UK unemployment breaks 3m - At a glance Publication 930220FT Processed by FT 930220

UK unemployment broke through the 3m barrier this week, for the first time in six years. It is now 3.06m (2.99m on a seasonally adjusted basis). This increases the social security bill for the government, and was interpreted as making higher taxes in next month's budget more likely.

GB United Kingdom, EC P9611 Administration of General Economic Programs P9441 Administration of Social and Manpower Programs ECON Employment & unemployment P9611 P9441 The Financial Times London Page II 94
Finance and the Family: Building societies' inflow triples - At a glance Publication 930220FT Processed by FT 930220

Building societies enjoyed a net inflow of Pounds 363m last month, the highest monthly figure for 15 months and more than three times December's inflow of Pounds 117m. However, mortgage lending was depressed with net new commitments down to Pounds 1.55bn in January from a revised figure of Pounds 1.89bn the previous month. Adrian Coles, head of external relations of the Building Societies Association, said the retail inflow was particularly welcome given the competition from National Savings.

GB United Kingdom, EC P603 Savings Institutions MKTS Market data P603 The Financial Times London Page II 111
Markets: Wisdom and foolishness - London Publication 930220FT Processed by FT 930220 By PETER MARTIN, Financial Editor

Do the Seven Wise Men, the government's panel of independent economic advisers who reported this week, owe their name to the Three Wise Men in the bible or the Five Wise Virgins?

I plump for the latter. While waiting to greet the bridegroom, the wise virgins armed themselves with reserve supplies of lamp-oil. When the bridegroom arrived, their five foolish sisters had run out of oil, and begged for help.

'But the wise answered, saying, Not so; lest there be not enough for us and you: but go ye rather to them that sell, and buy for yourselves.'

This clear preference for market solutions is strong evidence for the link with today's economists.

The connection is closer still: by the time the foolish virgins had found their fresh supplies of oil, the bridegroom had arrived and barred the door, leaving them out in the cold. Like much economic advice, that of the Five Wise Virgins proved theoretically impeccable but practically useless. It remains to be seen if the Seven Wise Men do any better.

Their first dollop of advice, published yesterday, included a call for a two-point cut in base rates 'in the next few months' from Gavyn Davies of Goldman Sachs.

He is unworried by the threat to sterling that a big cut in interest rates might pose, and adds: 'Incidentally, if the underlying inflation rate moves above the top end of the 1-4 target range this year, it should be ignored . . .'

This was greeted with wry smiles by those who remember that immediately after sterling's exit from the ERM in September he warned against the foolish temptations of just the policy he is now recommending.

Well, times change. Perhaps inflation is yesterday's story, as Tim Congdon, the other City forecaster on the government's panel, argues. He is expecting underlying inflation in 1994 to be only 1 per cent, and can envisage prices actually falling in the mid-1990s.

Since these two economists rarely agree about anything, their lack of concern about inflation is striking. Investors share this view. Gilts continued their rally during the week, with the yield on 10-year gilts dropping to 7.85 per cent, a drop of a quarter-point in a week. Issuers seem to be viewing this as a not-to-be-missed opportunity to lock in cheap long-term money: Argyll issued a Pounds 150m sterling bond on Wednesday, and there are more to come.

Even the first of the Bank of England's quarterly inflation reports, also published this week, failed to dent the bond market's optimism much - though the Bank was noticeably more concerned about inflation than Davies and Congdon.

The report also contained the chart on the right. It shows the slide in export margins, which is probably already starting to reverse as a consequence of sterling's devaluation. As the chart on the right showed, the squeeze on exports coupled with the slowdown in retail sales has had a crippling effect on manufacturing output.

Just as interesting, however, is the fact that import margins have been under pressure even while sterling was over-valued in 1991 and 1992. As the Bank points out, this may mean that importers have little scope for sacrificing profitability to preserve market share.

That is potentially good news for domestic producers - especially as this week's January retail sales figures, a rise of 2.3 per cent compared with a year ago, confirm the steady upwards trend in the volume of goods sold.

Though the stock market had a setback, in sympathy with Wall Street, on Tuesday, the FT-SE 100 index ended the week at 2840.0 down only 3 points. Companies making rights issues or acquisitions were viewed in a remarkably benign light, always a sign of general bullishness.

Bowater asked for Pounds 295m for an acquisition in the US, and its shares ended the week at 517p, up 33p. Bellway, a medium-sized builder, sought Pounds 33.6m; its shares fell only 14p to 382p.

RTZ was also given the benefit of the doubt, even though its Dollars 470m purchase of US coal assets is the sort of foray into an untapped field that in more pessimistic times would have caused ripples of fear. Its shares closed the week at 646p, down only 15p. Kingfisher, announcing the Pounds 560m price of its acquisition of Darty in France, was also greeted warmly: its shares closed the week at 576p, up 49p.

The market seemed in two minds, however, about what was possibly the best corporate news of the week: a 16 per cent rise in interim pre-tax profits at Glaxo, and a strong hint that it was not planning the bid for Warner-Lambert of the US that traders had feared. Glaxo shares, under pressure for much of the week because of worries about what President Clinton's health care review would do to drug prices in the US, bounced sharply on the news in very heavy volume. The downtrend resumed on Friday, however, and the shares closed the week at 666p, down 38p. It was enough to make the wisest virgin feel foolish.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data CMMT Comment & Analysis P6231 The Financial Times London Page II 879
Markets: President hits the big players where it hurts - Wall Street Publication 930220FT Processed by FT 930220 By PATRICK HARVERSON NEW YORK

IF PRESIDENT Clinton is looking to the US bond market for an endorsement of his plan for the nation's economic revival, he is looking in the wrong place. Stung this week by the stock markets' negative reaction to the announcement of widespread tax increases in his first budget, several times the President turned to the treasury market for comfort. He argued that surging bond prices proved that at least some people in the financial world understood the implications of his attempt to alter radically the direction of US economic policy. Unfortunately, the bond market's analysis of how the Clinton fiscal package will affect the economy is poles apart from the president's own thinking on the matter.

Treasury prices have risen sharply this week - sending the yield on the benchmark 30-year bond down to below 7.1 per cent, the lowest level in the issue's 16-year history - because fixed-income investors believe the mixture of big tax increases, spending cuts and selective government 'investments' will do more to hinder, not help, the economic recovery. Such a prospect appeals to the bond market because anything that slows economic growth also slows the rate of inflation, which is good news for investors with assets like government securities that earn a fixed rate of return.

True, bond prices also rose this week because investors were pleasantly surprised by Clinton's tough stance on cutting the deficit, and because of speculation that the government will cut future issues of the long bond in an attempt to reduce the cost of financing the federal deficit. These, however, were side issues. Ultimately, the bond market gave the Clinton package the thumbs up because it felt the impact of its contents would be thumbs down for the economy.

Stock market investors agreed, which is why the Dow has fallen 4 per cent from the all-time high it reached just two weeks ago; why the Standard & Poor's has dropped 3.5 per cent from its record high; and why the Nasdaq composite of secondary stocks has tumbled 6.5 per cent from its recent peak.

Of course, there was a personal element to Wall Street's chagrin. Most of the brokers, market-makers and institutional money managers who make up the big players in today's equity markets will be among those hardest hit by the planned increases in personal income tax. The firms which employ them will also suffer from many of the new measures, including higher corporate taxes, lower deductibles on business entertainment expenses, a possible tax on securities transactions, and the elimination of deductions on 'excessive' (Clinton's word - not Wall Street's) pay packets.

Investors also were unhappy about what the president did not include in his fiscal package: namely, more spending cuts. The stock markets always adopt a conservative approach to economic policy and, like Clinton's Republican critics on Capitol Hill, they believe the best way to cut the deficit is to reduce spending, not raise taxes. While the president did announce a range of spending cuts, they did not go far enough for the markets' liking.

Although everyone's attention this week was focused on economic policy, there were technical factors at work that contributed to the declines in stock prices. Early this month, all the main market indices posted record highs, with the Dow advancing more than 120 points in just three days. At the time, the surge was put down to rising confidence in the economic outlook but, to many observers, the new highs looked unsustainable. The markets, as analysts love to say, were looking 'frothy' - driven too much by speculative buying and bandwagon jumping, and not enough by economic or earnings fundamentals.

Typically, sudden increases in share prices can be difficult to retain. Often, they are followed quickly by equally sharp declines as investors take the opportunity to book some fast profits. Clinton's tax proposals, first outlined on Monday night, provided the perfect excuse for this week's profit-taking.

So where are share prices headed now? In all likelihood, nowhere fast. Alan Greenspan, chairman of the Federal Reserve and keeper of the markets' faith, told Congress yesterday that while the economy was gaining momentum, the outlook for growth was fraught with 'considerable uncertainty' because of the changes in fiscal policy.

So, while the president spends the next weeks, and probably months, haggling with Congress over his budget plan, the stock markets are likely to tread water at least until the next flood of quarterly corporate earnings - which means, not until spring.

Monday Closed Tuesday 3309.49 - 82.94 Wednesday 3312.19 + 02.70 Thursday 3302.19 - 10.00 Friday 3322.18 + 19.99

US United States of America P6231 Security and Commodity Exchanges MKTS Market data CMMT Comment & Analysis P6231 The Financial Times London Page II 809
Markets: Consider the options . . . - Serious Money / Examining a new Pep Publication 930220FT Processed by FT 930220 By PHILIP COGGAN, Personal Finance Editor

A PERSONAL equity plan which invests mainly in blue chip shares and offers a monthly income, after charges, of 10 per cent a year sounds like a wonderful deal.

Indeed, it seems so attractive that investors should reach automatically for their two guiding principles: 'greater reward means greater risk' and 'if an offer sounds too good to be true, it probably is.'

Furthermore, this new unit trust from Hypo Foreign & Colonial, called the Higher Income Plan, is fiendishly complicated. Another rule for savers is 'never invest in anything which you don't understand.'

How does it work? Around 55 per cent of the portfolio is in the form of blue chip shares, which will provide a modest income (equivalent to 2-3 per cent on the total portfolio). The rest of the portfolio is invested in 'debentures' (of which more later), money market instruments and cash. These provide interest income which pushes up the yield.

But the extra income - the portion which pushes the return on the Pep above that on most alternative plans - comes from options. An option gives the buyer the right, but not the obligation, to buy or sell a commodity at a given price over a given period. In return, the buyer pays a premium to the option seller (or 'writer' in the jargon).

There are two kinds of option - a 'call,' which gives the purchaser the right to buy a commodity; and a 'put,' which gives the right to sell.

An example might help. On Friday morning, it was possible to purchase a call option on BT shares, giving you the right to buy them at 420p before May. The BT price then was 402p and the option carried a premium of 11p.

So, if the BT share price rises to 450p before May, the buyer can exercise the option and buy shares at 420p. He will then have a profit of 30p for an initial outlay of 11p. If the BT price stays at 402p, the buyer will let the option lapse and will have lost the 11p premium.

Hypo Foreign & Colonial's new unit trust will write both call and put options against the shares it owns. The premiums it earns by writing the options will boost the yield on the trust up to 10 per cent (after charges) for those who hold the trust in Pep form. (Since the rules do not allow trusts to pay out option profits as income, Hypo F&C has arranged a clever deal whereby the 'debentures' incorporate the options.)

One further twist is that the trust will buy a put option on the FT-SE 100 index, which will give it protection against a sharp fall in the stock market.

The trick underlying all this complex detail is that Hypo F&C has found a way of converting capital into income. By writing call options, the unit trust will not benefit from any sharp rise in the stock market (since the option buyer will exercise his rights). Hypo F&C says that over the past 15 years, stock market return has been 15 per cent a year - in the form of 10 per cent capital gain and 5 per cent income. Its new unit trust will aim for the same return, but in the form of 10 per cent income and 5 per cent capital growth.

The concept is not entirely new; similar funds are available in the US. It will be interesting to see how the fund works in practice in the UK. But I do not think that anyone planning to invest in it should expect any capital growth at all (and they could make a capital loss). The stock market might well not produce the same levels of nominal return that have been achieved over the past 15 years. Indeed, it could take a while for the investor to earn back the 5 per cent initial charge.

Nor will there be the same prospects for income growth as other Peps; option premiums do not grow in the same way as company dividends.

It is tempting to seize on any product which offers such a high yield, relative to the rest of the market. But this is a product which needs a lot of thought, and investors ought to take independent financial advice before parting with their cash.

*****

So, farewell then, best advice. New guidelines from Fimbra, the regulator for financial advisers, are headlined 'giving investment advice' and replace the 'guidelines on best advice' issued in 1988.

One's suspicions are aroused automatically by such a change. Admittedly, best advice is difficult to define - it is easier to say when it does not occur than when it does. Nevertheless, dropping the word 'best' hardly seems a triumph for consumer protection.

There are, however, some encouraging words for consumers in the new guidelines. Under a section headed 'Exercise of judgment,' Fimbra says: 'Members must take care to ensure that their recommendations are made on the basis of the client's best interests and not on the basis of the income generated for the member. For example, the 'best' investment for a client who is particularly risk-averse might be National Savings certificates or gilts which do not generate any commission (although the member may charge a reasonable fee for his advice) . . . The benefits of the investment to the client must in each case be balanced against its costs.'

If Fimbra members can live up to those injunctions, the consumer will be well served.

Hypo Foreign and Colonial Group Financial Intermedianes Managers and Brokers Regulatory Finance Houses Association (UK) GB United Kingdom, EC P672 Investment Offices P6282 Investment Advice TECH Products TECH Services P672 P6282 The Financial Times London Page II 983
Markets: Glaxo fights for global crown - The Bottom Line Publication 930220FT Processed by FT 930220 By PAUL ABRAHAMS

Pity Glaxo. Europe's largest drugs group is vying with Merck of the US to be the world's number one pharmaceuticals group. The company markets Zantac, the world's best-selling drug. Its underlying earnings growth in the six months to the end of December was 13 per cent - a performance that almost all companies during a recession would envy.

Glaxo appears to be doing everything right. Yet its shares have fallen from 814p last September to as low as 662p this week.

For the most part, the problems faced by Glaxo are those shared by the rest of the pharmaceuticals industry. US investors, noting the pick-up in the American economy, have been dumping defensive drugs stocks capable of generating consistent earnings growth during recession. Instead, they have been plunging into cyclical companies hit by the slow-down but capable of impressive growth during a recovery.

The swing against drugs stocks has been exaggerated by fears about the political outlook in the US for pharmaceuticals companies. The Clinton administration has pinpointed healthcare as a key agenda item. Drugs companies, many of which in the past have increased prices well above inflation, are directly in the administration's sights.

Dr Ernest Mario, Glaxo's chief executive, admitted this week that the outlook in the US looked extremely uncertain. Everything, he said, remained up in the air.

Glaxo is in a better position than many to withstand the Clinton administration. Glaxo has recently limited its US price increases to below the rate of inflation. At constant exchange rates, only 1 percentage point of its sales growth came from price increases compared with 12 percentage points from volume. In addition, the group does not manufacture medicines in Puerto Rico, so it would be less exposed to moves curbing the island's tax haven status.

Nevertheless, doubts remain about Glaxo's continued ability to drive double-digit earnings growth. Nearly half of its operating profits growth in the first six months was generated by Zantac, the ulcer treatment. After yesterday's results Goldman Sachs upgraded its 1995 sales forecasts for Zantac to a massive Pounds 2.6bn. However, the better-than-expected growth of Zantac underlines Glaxo's dependence on the drug. Glaxo faces challenges to Zantac's American patents, which protect the drug from generic competition up to 2002. If Glaxo loses, the drug could face such competition by 1996.

Zantac faces an earlier threat, too. Its main rival SmithKline Beecham's Tagamet is coming off patent next year. Cost-anxious US healthcare managers may insist doctors prescribe cheap generic versions of Tagamet rather than the more expensive, patented Zantac.

Glaxo's double-digit earnings growth is also becoming hindered by the company's very size. If its new drugs turn out to be only moderately successful Glaxo could face difficulties maintaining its growth. Goldman Sachs believes earnings per share growth may slow to under 10 per cent beyond 1995.

Glaxo's new drugs, such as its migraine treatment Imigran and its asthma drug Serevent, are still in the balance. They have not yet, or have only just been, launched in the US, Japan, Germany or France. Dr Mario warned, however, that Imigran's growth would not be explosive.

Glaxo's shares could be boosted next Friday if a Food and Drug Administration advisory committee review of Serevent is favourable. Also,

Dr Mario has calmed immediate fears about a rights issue to fund the acquisition of a big company in the US over-the-counter, non-prescription drug market.

The main problem Dr Mario faces is not persuading investors Glaxo is a quality drug stock - it clearly is. Rather, he must convince investors to plunge further into defensive stocks when the US and UK economies appear to be recovering from recession.

Glaxo Holdings GB United Kingdom, EC P2834 Pharmaceutical Preparations P2819 Industrial Inorganic Chemicals, NEC P2869 Industrial Organic Chemicals, NEC P2899 Chemical Preparations, NEC COMP Company News P2834 P2819 P2869 P2899 The Financial Times London Page II 659
Extermination in Eden: Christina Lamb visits uncharted Amazonia where the last Stone Age tribe is threatened by starving gold-seekers Publication 930220FT Processed by FT 930220 By CHRISTINA LAMB

'THOSE WHO have already died will have their revenge. They will cut the sky into pieces so that it falls all over the land.'

- Davi Kopenawa Yanomami

UNDER THE pounding glare of the Amazonian sun, a few wispy clouds throw their shadows onto a carpet of green treetops covering mountains and chasms as far as the eye can see. Stencilled through the heart of this dense jungle is the flashing ribbon of the Macujai river. Along its banks, the occasional clearings for a maloca (a conical woven hut) are the only signs of human presence.

The US aviation map of the north-western reaches of Roraima, Brazil's most northern state, warns intriguingly that the area is 'largely unknown'. The depths of the Amazon basin near the Venezuelan border was the setting for Sir Arthur Conan Doyle's Lost World. Progress has not yet arrived and, almost 500 years after Pedro Cabral discovered Brazil, this stretch of rain forest remains untouched by the highways, hydro-electric projects, wood-cutters and settlements that have devoured much of the Amazon. It is home to an estimated 9,000 members of the world's oldest surviving isolated Indian tribe - the Yanomami.

The Yanomami are believed to have been there for thousands of years. They do not read or write, and use bows and arrows. Female children are often killed at birth and names are never spoken. After a death, the body is left in the trees for a week before burning, and the ashes are then eaten with banana paste. They subsist on hunting and fishing and precarious agriculture. The land is poor so the population is sparse and moves often.

The Yanomami reserve is accessible only by small plane after a laborious process of government authorisation. It has a tranquillity for which I could easily renounce urban living. The nearest road linking Roraima to the rest of Brazil starts 300km away. It was built in 1977 and has yet to be paved. Bulldozers and four-wheel drive vehicles are unknown. The somnolent day is interrupted only by the shrieks of parrots, unidentifiable whoops and calls from the bushes, and the chatter of monkeys in the trees.

Until 1987, the Yanomamis' only contact with whites was the occasional missionary. Five years ago it was discovered that these Stone Age people were sitting on one of the world's richest mineral deposits replete with gold, tin, diamonds and uranium. The result was a flood of 45,000 garimpeiros, or wild-cat gold miners. They brought guns, rum and diseases which, in three years, wiped out 10 per cent of the Yanomami population in what human rights' groups called genocide.

The international outcry prompted three operations to remove the garimpeiros. The first official trip by image-conscious President Fernando Collor in 1990 was for the widely televised destruction of 84 clandestine airstrips. Last year, amid more grand publicity, he created a 9.4m sq km reserve (the size of Portugal) for the Yanomami to win points at the Earth Summit and reverse Brazil's reputation as an eco-villain. Now Collor is in disgrace, the Earth Summit forgotten and the garimpeiros are back - 12,000 since November.

Once more, Yanomami are dying: 200 in the past 12 months. The Homoxi region, under the shadow of the Surucucu mountains, has been mutilated by airstrips slashed out of the jungle. The Macujai river has been choked with silt, polluted with mercury used to extract gold, and diverted in the frantic search for the precious metal.

From above, you can see tiny figures working Heath Robinson-type sluice contraptions, digging craters where fetid water gathers, breeding mosquitoes which carry malaria lethal to the Yanomami. Charlotte Sankey from Survival International, a London-based organisation active in the fight to preserve them, says: 'If we don't do something, we will see another people wiped out - forever.'

Although the 1988 constitution guarantees that all 180 remaining Indian tribes in Brazil will be granted their traditional lands by October - a total of 90m hectares in 510 reserves - powerful interests threaten the extermination of the Yanomami like so many others before them. Since 1500, Brazil's Indian population has fallen from 5m to 220,000. The 'noble savage' has been seen as a barrier to development. Fernando Ramos Pereira, then governor of Roraima, said in 1979: 'We're not going to let half a dozen Indian tribes stop progress.'

The constitution is to be reviewed this year. Bishops, mining companies, politicians, land-owners, the military, environmentalists and garimpeiros are battling over the mining of Yanomami land. This would provide work for thousands of poor Brazilians and revenue for the government - but probably destroy the tribe.

In Homoxi, Funai, the national Indian agency, and Medicins Sans Frontiers, a medical aid organisation, have a post tending to the 48 Indians living nearby. At the sound of the plane, several emerge from their maloca, naked except for small knotted tangas, with red body paint and straws protruding from above their upper lips. Like children they come forward, touch and stare, chatter and giggle to themselves. Bored quickly, they go back to their hammocks where they loll listlessly, their stick-thin limbs and distended stomachs no advertisement for the natural life. Suddenly, they begin jabbering. Zelia, the Peruvian nurse, says they want to know if we have come to remove the garimpeiros.

At the other end of the short runway, makeshift huts covered with blue plastic sheeting show how close the invaders have come. Eight planes a day unload more, along with such diseases as influenza, malaria, tuberculosis and syphilis - against which the Yanomami have no defence. The pollution of the river has killed the fish and the noise of the planes has scared off animals. To appease the Yanomami, the garimpeiros gave them flour and rice - but their plantations have been left to wither and die. In their brutal introduction to western civilisation, they were given rum and the women were seduced. According to Zelia, two-thirds of the Homoxi Yanomami have had malaria. On the morning of my visit, three more sorry sufferers came in.

The garimpeiros do not look like villains. They are well-armed and sport gold watches or nuggets, but most have hollow cheeks, dull eyes and dirty shorts. All I met were from the poverty-stricken north-eastern states of Maranhao and Bahia. They had been forced out by drought, and all asked for food. Many have no alternative but to move from place to place, following the latest fofoca (rumour about a gold discovery). 'I will only leave dead,' said Vajel, who has been a garimpeiro since he was 15. 'On a good day, you can get 20 grammes of gold - that's five months' minimum salary,' said Raimundo. 'If they push us out again, we'll come back. We've got no other option.'

Some 5,000km and several ages away in Brasilia, a bearded man with furrowed brow paces a government office in heavy hiking boots and khaki shirt. Sidney Possuelo is charged with protecting Brazil's indigenous people as the head of Funai. He is angry. He feels powerless and worried that Brazil's new president, Itamar Franco, will succumb to pleas to open up the reserve for mining.

'I'm a malandro (scoundrel), not a politician,' he says as he fires off a letter to the army chief complaining about the arrest of a French nurse in the Yanomami reserve.

At Possuelo's offices the lift is out of order, the 'phones are sometimes cut off and few lights are on. The government cash crisis has left Funai with no money to monitor the 272 existing reserves, or to demarcate the 238 outstanding. Last year, Possuelo received less than 10 per cent of his budget. So far this year, he has received nothing. None of Funai's nine planes is working.

The Collor decree, overriding military protests to create the Yanomami reserve, should have been a victory but, without funds to enforce it, Possuelo now suspects it was a mere marketing stunt.

'It's not enough to create a reserve when, inside, you have riches and, outside, marginalised people,' he says. He accuses his opponents of distorting the picture. 'What we're talking about is not maintaining the Yanomami as they are, like some museum piece for the benefit of anthropologists, but of giving them the option of staying as they are or joining the world around with time to adjust.'

Over in the flying saucer-shaped Congress building, Senator Joao Fagundes says is having none of this. 'We never felt we needed to keep the Vikings preserved in cages. It's no good saying that the Yanomamis' ways are lovely, let's keep them. What was good 200 years ago is not now.'

He favours the solution of the former Sarney goverment, which demarcated 19 islands of 2.4m sq km to the Yanomami but gave garimpeiros or mining companies access to the rest. 'The Yanomami land takes up 40 percent of Roraima. That's 10 sq km per person - no people in the world has that kind of land,' says Fagundes.

Davi Kopenawa Yanomami, the tribe's Portugese-speaking representative, also visited Brasilia that day to present a bow and arrow to President Franco.

'I will tell Great White Chief that Omame (a Yanomami god) put minerals beneath the earth because it is cold. When these are taken out, they spread hot air and venom which causes many illnesses. We have tried to tell the whites but they don't listen.'

To Possuelo's surprise, Franco did listen and agreed to a Dollars 2m (Pounds 1.4m) operation to remove the garimperios.

In the Funai office in Boa Vista, the capital of Roraima, Wilk Celio, the co-ordinator of the removal programme, is sceptical. 'It's useless - the garimpeiros will keep going back. There are 100 garimpeiro planes operating in this area while we don't have one. The only answer is constant monitoring and that means funds. Last year, we didn't get a cent.' His colleague, Manoel Reginaldo Tavares, gestures at a wall map of the state showing the location of its 24,970 Indians of eight different tribes, and laughs. 'Our resources are not even enough to run a creche of 100 children, let alone 25,000 Indians.'

Tension is high in Boa Vista. Roraima state depends on federal handouts but would be rich if allowed access to its minerals. The population has tripled to 230,000 in 10 years because of the influx of garimpeiros, and not just from Brazil. A Londoner has just arrived from Mile End and a Scot, John Boyle, runs the Bay Bar and nightclub after eight years as a garimpeiro.

Prices are in grammes of gold, and everyone seems to have a stake in the garimpeiro-Yanomami struggle. The headlines in the local papers are about murders. People mutter of mafia-like activities and aid workers tell of pet dogs slaughtered in their gardens. Celio gets constant threats and lives between his office and hotel. 'I'm a prisoner,' he says, and talks of going on holiday and not coming back.

The centrepiece of the giant main square is an enormous concrete statue of a garimpeiro. This is overlooked by the state assembly, where all 24 members are against demarcation, and the governor's palace. His spokesman, Francisco Netto, says: 'The federal government can keep on spending more and more but will never succeed in taking out the garimpeiros. The only answer is to create mining reserves and allow in companies so that we can collect taxes.'

Elton Rohmelt, the head of the state energy department, has no doubt that day will come. He is one of the main garimpeiro bosses, with a fleet of four 'planes and a helicopter. Rohmelt says: 'No one knows the Amazon better than me.' He is so fat that his jowls quiver as he speaks and the buttons strain on the patterned shirts he buys in London. Rohmelt decided to lie low when Collor took office. 'I saw he was mad, so I took up the governor's invitation to run the state energy department.'

He is using his position to put in place the infrastructure for his future mining operations. Here a hydro-electric project, there a road to Venezuela and the port. His company, Goldmazon, has more than 60 claims in the Yanomami areas. He says: 'Refusing access to this is a crime for a poor country like us. I'm absolutely sure that, within the next few years, mining in Yanomami areas will be allowed - and I'm ready.'

His great rival, the ebullient Ze Altino, a media-loving representative of the garimpeiros' union, Usagal, is more careful to play down his personal interest. He says: 'What's the point of blowing up airstrips if, six hours later, they are rebuilt.' He points out that there are 1m garimpeiros in Brazil, of which 400,000 are 'professional'. He adds: 'They say garimpeiros are illegal, but there are more garimpeiros in indigenous areas than there are Indians in Brazil. Don't they have rights, too?'

Haroldo Eurico dos Santos, the state planning secretary, is a former professor who used to advise governments to burn down the Amazon. He is busy drawing up mega-plans for Brazil's poorest state.

Above the noise from roaring, clanking pipes, he shouts: 'This state is basically unviable. We generate only 16 percent of our expenditure and our only potential economic base is either demarcated or will be. Ninety-nine per cent of the population are against demarcation. The only ones in favour are the church, communists and some Indians.'

The most vitriolic opposition is on Rua do Ouro (Gold Street). There, many of the gold shops are boarded up, the stores full of mining utensils deserted, and clutches of garimpeiros sit miserably at bars, biding their time, comparing the number of times each has had malaria (one man has had 34 bouts). They recall the days when they could make a good living just from the end-of-day sweepings outside the gold shops.

Most of the gold is smuggled out of the state to avoid taxes, so figures for the amount produced are vague. According to Altino, production reached 12 tonnes in the peak year of 1990, plus 500,000 kilos of diamonds. Even then, few got rich apart from the bosses, the Rohmelts and Altinos, who run airstrips, planes, bars, brothels, and rent machinery at inflated prices.

In Gold Street, the blame for the latest crackdown is laid on everyone from the Americans ('they are scared of Brazil becoming a great power') to the padres for their defence of Indian rights. So unpopular is Dom Aldo, the bishop, that a petition was mounted last year to get him out. One man told me: 'I'd like to have his kidneys on a barbecue fork.'

After 17 years in Boa Vista and overseeing a Yanomami mission, the fire seems to have gone out of Dom Aldo. Wearily, he tells me: 'People say we are working for gold or trying to create another nation, but that's a lie. Nor are we trying to convert them (the Indians). They don't yet have the terminology for catechism, so it's very hard to explain our Christian concepts.

'People get angry because we tell the Indians their rights. It's a war between economic interests and human rights in a country where the powerful always win.'

Among so many voices, the only ones not to be heard are the Yanomami. Experience from other tribes suggests that Indians are keen to have the badges of progress such as televisions, speedboats and ghetto-blasters. Some of the more acculturated Amazonian tribes, such as the Kayapo and Xingu, have organised and demand royalties for prospecting in their areas. But along the river Branco from Boa Vista, at Fazenda Sao Marco, a community of Macuxi Indians lives in pitiful squalor. White contact has robbed them of their old ways without equipping them to find a substitute. For the primitive Yanomami, the future looks bleak.

BR Brazil, South America P99 Nonclassifiable Establishments PEOP Personnel News P99 The Financial Times London Page I 2676
The Long View: Gilts buck the odds Publication 930220FT Processed by FT 930220 By BARRY RILEY

NOT A lot of people know this because, unlike new stock market highs, it does not make headlines - but the yield on long-dated British government securities dropped this week to near 8 1/2 per cent, the lowest level for 21 years. Far from being demoralised by the prospect of massive government funding at the rate of Pounds 1bn a week over the next year, the gilt-edged market is hitting back.

It would be nice to think that the reason was the rising credibility of the British government's economic strategy, but a glance at the rest of the major bond markets around the world reveals a general trend. The US long treasury bond yield, for instance, has declined from 7.5 to 7.0 per cent since early December, and only junk bond markets such as that of Italy - where 10-year government bonds yield over 13 per cent - have really stood out.

It would seem, therefore, that falling bond yields are primarily the consequence of the global recession. There is a check on this in the UK gilt-edged market, in the gap between the nominal yield on fixed coupon issues and the real yield on the index-linkers. This gap, which is a rough-and-ready measure of long run inflation expectations, has stayed steady at around 5 per cent so far. It is the real yield that has fallen.

Now, there are no absolutely simple explanations for global trends and something more has to be said about the US, where there appears to be an economic recovery under way. President Clinton's tax threats this week, and his promises of a 40 per cent cut in the US budget deficit to just over Dollars 200bn by 1997, have had something to do with the bond market's cheeriness. At the same time, the US stock market, which has existed for many months on hope and hype, was jolted by the implied constraint on economic growth.

It is unusual for the bond market and the equity market to move in different directions. In the classic stock market cycle, bond prices rise first but stock prices soon follow - albeit with a time lag of around six to 12 months. Market strategists monitor closely the ratios between fixed interest and equity yields, and they do not expect the relationship to change very much over time.

But we are not dealing with a normal business cycle. This week's bumper batch of British economic statistics included confirmation of the third successive annual fall in manufacturing output, the first time this has been seen since the beginning of the 1930s. What is happening is something outside the experience of post-war economic fluctuations, but fits in with notions of a long-term Kondratieff cycle.

Normally, a rising bond market would be expected to carry the stock market along with it. But the yield ratio has now dipped below 2, a figure which it has exceeded consistently - averaging perhaps 2.3 - during the past 20 years while sterling has been floating (although it also fell below 2 while the UK was in the European exchange rate mechanism). Such a fall in the ratio says something about pessimism over dividend growth, and also something about optimism over low inflation.

On Tuesday, the Bank of England published its fascinating first quarterly Inflation Report, in which it warned that the government could have difficulty in holding underlying inflation below 4 per cent over the next two years. My own feeling is that there is a necessity for a certain amount of inflation in the sterling prices of traded goods so that British manufacturing industry will gain the incentive to reverse the disturbing trend in the balance of payments. But how can this imported inflation be prevented from triggering pay rises?

Real incomes of those in work have continued to rise steadily during the recession, as a red line on a Bank of England chart displays neatly. But unemployment has passed 3m and, even on the official definition, it will soon also be at levels not seen since the 1930s. Will employees at last grit their teeth and submit to a cut in real pay?

In the 1930s, the inflation rate rose by around 6 percentage points after the pound was devalued in 1931, but retail prices still increased by only about 2 per cent a year because they had actually been falling by 4 per cent annually from the late 1920s. Cheap money, cheap labour, cheap property and gently rising prices permitted reasonably vigorous economic growth. Gilt-edged yields subsided from 4.5 per cent in 1931 to about 3 per cent by 1936, and equity dividend yields fluctuated between about 5 and 3.5 per cent; shares, being riskier, had to yield more than government bonds.

Such bond yields seem unbelievable to us today, but remember that they are already reappearing in Japan where 10-year bonds return about 4.1 per cent. In the UK, the most recent period of really low inflation was a six-year spell between 1958 and 1963 when it averaged 1.9 per cent a year (including nil in 1959).

In those conditions, gilt-edged yields held at 5 to 6 per cent and the yield ratio was little over 1; indeed, it was in the 1959 bull market that the phrase 'reverse yield gap' emerged. The reverse gap initially reflected rapid growth in the economy and, therefore, in dividends, but later mainly reflected inflation.

This week, the stuffy bankers of the IMF told the British government to raise taxes and cut spending, the early 1930s' recipe. On the other hand, the government is perceived generally to have an incompatible duty to keep an overpaid and underproductive British work-force in jobs. For its part, the government is enthusing thoughtlessly over the surely dangerous combination of rising retail sales and stagnant industrial output.

To believe in British government bonds yielding 8 1/2 per cent, you have to believe that the hidden hand of Kondratieff is imposing inevitable deflation. It is no longer looking such a silly idea.

GB United Kingdom, EC P9611 Administration of General Economic Programs P6211 Security Brokers and Dealers CMMT Comment & Analysis P9611 P6211 The Financial Times London Page I 1043
Yeltsin calls for sacking of political adversary Publication 930220FT Processed by FT 930220 By LEYLA BOULTON MOSCOW

THE BATTLE for Russian political supremacy intensified yesterday when President Boris Yeltsin called on parliament to sack his chief rival, parliamentary speaker Mr Ruslan Khasbulatov.

Efforts to effect a truce between the two men seemed close to collapse after Mr Khasbulatov, canvassing for support among local council leaders in western Siberia, mocked President Yeltsin for playing games with the fate of Russia.

In a highly personal attack, Mr Vyacheslav Kostikov, Mr Yeltsin's spokesman, urged parliament to consider firing its speaker. Mr Khasbulatov had broken a gentleman's agreement to refrain from public polemics while the two leaders tried to negotiate a constitutional truce, the spokesman said.

'It is becoming clear that Khasbulatov is increasingly discrediting himself as a party in negotiations, as a politician one can do business with in Russia.'

Mr Kostikov also accused Mr Khasbulatov of currying favour with arch-conservatives and said he was responsible for the country's constitutional instability.

The latest exchange confirms the near impossibility of the two former allies resolving what has become an intensely personal struggle with deep significance for the entire country.

Mr Yeltsin is fighting to stop the erosion of his powers by parliament. The two rivals agreed on Tuesday to seek a formula for dividing power between the executive and legislature.

Mr Yeltsin appeared on television proposing a division of powers that would confine parliament to examining and passing legislation and give the executive the freedom to take executive decisions, but Mr Khasbulatov rejected the proposal.

He stressed that under the still-functioning communist constitution, the parliament was 'the highest organ of power' and that any successor body should remain so.

At yesterday's meeting in Novosibirsk, Mr Khasbulatov attacked the president for threatening to press ahead with a constitutional referendum.

'I regret we haven't seen any concrete proposals from the president. . . it's time to end this game. If he wants a referendum, then let's have one. If he doesn't want one, he should say so.' The president's frequently expressed opinion that the full parliament, the Congress of People's Deputies, was incapable of adopting a new constitution was a 'primitive conclusion'. He also said the country did not urgently need a new constitution.

Nobody's a nice guy now, Page 9

RU Russia, East Europe P91 Executive, Legislative and General Government GOVT Government News Yeltsin, B President (Russia) Khasbulatov, R Parliamentary Speaker (Russia) P91 The Financial Times London Page 1 414
Greenspan backs Clinton's plan to deal with US deficit Publication 930220FT Processed by FT 930220 By MICHAEL PROWSE and GEORGE GRAHAM WASHINGTON

PRESIDENT Bill Clinton won important backing for his economic programme yesterday when Mr Alan Greenspan, Federal Reserve Board chairman, praised the plan as a 'serious proposal' to deal with the US budget deficit.

Mr Greenspan, who annoyed some Republicans by sitting next to Mrs Hillary Rodham Clinton during President Clinton's presentation of his programme to Congress on Wednesday night, commended Mr Clinton for proposing specific spending cuts and tax increases in-stead of the vague caps on programmes proposed in the past.

The Fed chairman's support gave Mr Clinton a helping hand as he travelled across the country to drum up popular support for his proposals.

Delivering his Humphrey-Hawkins monetary testimony on Capitol Hill, Mr Greenspan was pressed by Democratic senators to support the Clinton plan with 'complementary' monetary policies.

However, Mr Greenspan refused to commit himself to lowering interest rates to offset an negative impact on growth from cuts in the deficit.

The Fed 'could not specify in advance what actions might be taken in the presence of particular fiscal policy strategies'.

It was crucial to reduce the deficit which would otherwise 'increasingly threaten the stability of the economic system'.

However, he warned against relying too heavily on tax increases.

Since many programmes were growing faster than the tax base, stabilising the deficit by this route would require 'ever increasing tax rates'.

There was thus no alternative to much slower growth of spending.

'I trust the president's endeavour to rein in medical costs will contribute importantly to this goal,' he said.

In Chillicothe, Ohio, Mr Clinton said he was trying to present a balanced programme. 'Congress will decide to vote for it in part based on whether people in towns like Chillicothe all over America think it's a good deal,' he said.

The administration might have to look at the introduction of a national sales or value added tax in the years ahead, Mr Clinton said, but he did not want to confuse the need to reform the US tax system with the more immediate imperative of reducing the deficit.

'I mean, there's only so much change a country can accommodate at one time,' Mr Clinton said.

The Clinton plan would raise Dollars 246bn of new taxes in 1994-97, mostly from higher income taxes on the wealthy and from a new energy tax, with Dollars 247bn of spending cuts.

This would be offset by spending increases and tax breaks totalling Dollars 169bn over the same period, but would still reduce the expected 1997 deficit to Dollars 206bn, Dollars 140bn less than the current projection.

Greenspan upbeat Page 3

Editorial Comment Page 8

Smoother after a few days' growth Page 8

Currencies Page 13

Wall Street Page 21

US United States of America P9611 Administration of General Economic Programs GOVT Government News Greenspan, A Chairman Federal Reserve Board (US) P9611 The Financial Times London Page 24 497
The Lex Column: Germany Publication 930220FT Processed by FT 930220

In its predictably sniffy way, the Bundesbank was quick to stress the distortion in January's 2.3 per cent fall in M3 money supply. It has a case. The base on which the figure rests is the average money supply for the final quarter of last year when it was bloated by currency intervention. In January, some of that excess drained out of the money market. That creates a ready excuse for not bringing forward any official rate cuts. Equally, though, the bank is running out of reasons for holding tight much longer. The year has started off with such a fall that money growth will probably be below target for two or three months at least.

Excessive growth of M3 was a useful justification for tight money when the Bundesbank was also worried about the budget deficit and wage growth. Its anxiety about the former is unlikely to abate much in the foreseeable future, but with the real economy weakening rapidly, pressure for lower rates is increasing. One by one, the arguments against are falling away.

The threat to German import prices of a stronger dollar looks less after yesterday's congressional testimony by Mr Alan Greenspan. He showed no sign of putting up US interest rates again. Next week could see German consumer price inflation drop as February figures become available from the regions. Even so, the Bundesbank may wait to see a trend. To emphasise its caution, it also chose to downplay January's sharp year-on-year deceleration in bank lending to the private sector. Instead, officials point to total bank lending growth of 8.5 per cent in the six months to January. They seem determined to hold out till the last.

Deutsche Bundesbank DE Germany, EC P601 Central Reserve Depositories P9311 Finance, Taxation, and Monetary Policy ECON Balance of payments CMMT Comment & Analysis P601 P9311 The Financial Times London Page 24 322
The Lex Column: Airtours/Owners Abroad Publication 930220FT Processed by FT 930220

The Office of Fair Trading has been taking an uncommonly long time to decide whether to refer Airtours' Pounds 221m bid for Owners Abroad to the Monopolies and Mergers Commission. This is surprising, given there is such a strong prima facie case for examining the competition issues. Consumer groups believe the acquisition would accelerate the trend towards vertical integration, hurting small operators. Even Airtours was arguing this line in its 1991 annual report before the bid. It boasted about the advantages of integration which it claimed was making it difficult for new entrants to distribute their products.

A referral would theoretically leave Owners free to pursue its preferred strategic alliance with Thomas Cook. Shareholders might reject that proposal, however, if they thought there was any chance of Airtours returning to the fray. To date, Airtours has not said whether it will bid again if its offer is cleared. But it might do so, considering its arguments appear to be winning over the City.

Owners has a lacklustre record. This week's annual report, containing some worrying contingent liabilities, have not improved shareholder loyalty. A cash sweetener from Airtours could well seal its eventual success. But those investors who regard tour operators with suspicion have been given further reason to shun the sector. Owners' focus on Airtours' vulnerability to price wars will have only reinforced their prejudice.

Airtours Owners Abroad Group GB United Kingdom, EC P4724 Travel Agencies P4725 Tour Operators P9651 Regulation of Miscellaneous Commercial Sectors COMP Company News CMMT Comment & Analysis P4724 P4725 P9651 The Financial Times London Page 24 272
The Lex Column: Taxing time for shares Publication 930220FT Processed by FT 930220

Wall Street's 83-point fall on Tuesday was a sharp reminder of what can happen to equity markets when governments decide to take decisive action on budget deficits. It remains nervous even though investors quickly remembered that the tax increases would actually have to be passed by Congress and that the measures would, in any case, have little impact on growth this year. London is not trading on quite such a high multiple, but UK share prices could also become sensitive to the threat of fiscal discipline on March 16. All the more so since the government has talked itself into such a corner that hopes of lower interest rates are fading.

Indeed, the equity market is starting to look bereft of supportive background factors. With over Pounds 2bn in rights issues so far this year, institutional cash is getting rather tight. That could explain why unfashionable stocks find it so difficult to attract support. Glaxo, for example, fell a further 3 per cent yesterday, despite Thursday's favourable results.

At least the first report of the seven wise men is some consolation, though its policy impact remains uncertain. By choosing a panel of such widely varying views, the Treasury has left itself a wide degree of latitude. But none of the experts expect tax increases of more than Pounds 4bn in this budget. Six of them think no tax increases at all should take effect in 1993. It would be difficult for Mr Lamont to announce any significant tightening without explaining why he has rejected the panel's advice.

US United States of America P6231 Security and Commodity Exchanges CMMT Comment & Analysis P6231 The Financial Times London Page 24 290
World Stock Markets: Brazil Publication 930220FT Processed by FT 930220

SAO PAULO closed up 9.2 per cent in heavy trading. Brokers reported strong foreign interest in Brazilian blue chips and secondary shares. The Bovespa index climbed to 13,463. Falling interest rates and bullish sentiment ahead of next week's four-day Carnival holiday were other major factors.

BR Brazil, South America P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 21 73
World Stock Markets (America): Late demand surge firms up markets Publication 930220FT Processed by FT 930220 By PATRICK HARVERSON NEW YORK

Wall Street

A DIFFICULT week ended with US markets in a calm, if still slightly nervous, mood, although the leading stock indices finished notably firmer due to a late surge of demand linked to options expirations, writes Patrick Harverson in New York.

At the close, the Dow Jones Industrial Average was up 19.99 at 3,322.18, at its high for the day. The more broadly based Standard&Poor's 500 also ended strongly, finishing up 2.30 at 434.20, while the Amex composite closed up 0.10 at 402.38, and the Nasdaq composite up 1.17 at 663.62. Trading volume on the NYSE was 309m shares, and rises outnumbered declines by 1,260 to 671.

After the tribulations of Tuesday and Thursday, when share prices gyrated wildly and posted big losses following news of President Bill Clinton's first budget plans, share prices spent most of the morning session trading narrowly on either side of opening values.

Underneath the a calm surface , however, there were various undercurrents, most of them created by trading related to the monthly expiration of stock-index options, an event which, despite threatening to create considerable volatility in the afternoon session, passed uneventfully.

Some investors and analysts drew comfort from the market's ability to hold its own late on Thursday (when the Dow bounced back from a 44-point deficit to end just 10 points lower), and again yesterday, in the wake of the heavy selling earlier in the week.

Among individual sectors, bank stocks roared ahead, buoyed by low interest rates, and comments from Mr Alan Greenspan, chairman of the Federal Reserve, who told Congress that, as the economic situation improved, banks and thrift companies were ready to meet increased loan demand.

Citicorp rose Dollars 1 5/8 to Dollars 26 1/4 , BankAmerica added Dollars 2 1/8 at Dollars 52 1/8 , Chemical firmed Dollars 1 1/4 at Dollars 41, Banc One rose Dollars 1 3/8 to Dollars 51 7/8 , Wells Fargo jumped Dollars 2 3/4 to Dollars 92 7/8 , and Chase Manhattan climbed Dollars 1 1/8 to Dollars 30 3/4 .

Drug stocks, however, once again tumbled, still troubled by fears that, as part of healthcare reforms, the president will impose restrictions on pharmaceuticals prices.

Pfizer led the way lower, dropping Dollars 4 5/8 to Dollars 54 1/2 in volume of 3.7m shares, followed by Merck, which fell Dollars 1 to Dollars 36 7/8 in volume of 3.3m shares, Schering-Plough, down Dollars 3 at Dollars 53 3/4 , and Bristol-Myers Squibb, Dollars 1 1/2 weaker at Dollars 54 5/8 .

Canada

TORONTO closed higher in moderate trading, as a modest late-afternoon rally helped the market end the week on a strong note.

The 300 composite index rose 16.89 points, or 0.50 per cent. to close at 3,426.31. On the week, the index fell about 19 points.

All 14 sub-indices closed higher on the day, led by real estate, up 2.0 per cent on news that the last of Bramalea's creditor groups approved the company's restructuring plan. 'A' stock of Trizec, which owns 67 per cent of Bramalea, rose 0.20 to 2.65, while Trizec 'B' climbed 0.30 to 2.80.

US United States of America CA Canada P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 21 561
World Stock Markets: South Africa Publication 930220FT Processed by FT 930220

SHARES lost some early gains but remained encouraged by the firmer bullion price. The overall index rose 6 to 3,487, while industrials improved 11 to 4,541. The gold index gained 18 to 1,027 with Vaal Reefs up R5.50 at R184.

ZA South Africa, Africa P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 21 69
World Stock Markets (Asia Pacific): Utilities gain ground on higher yen Publication 930220FT Processed by FT 930220 By EMIKO TERAZONO TOKYO

SHARE prices moved up marginally in quiet trading ahead of the weekend as most investors remained inactive after another day of volatility on the currency market, writes Emiko Terazono in Tokyo.

The Nikkei 225-issue average gained 27.89 to 17,010.03 on last minute, arbitrage-related buying, leaving it 0.9 per cent higher on the week. After moving within a narrow range in the morning, the index fell to the day's low of 16,887.53 in the afternoon before rising to a high of 17,023.58 just before the close.

Volume fell to 220m shares against 250m. Losers led gainers by 477 to 420 with 228 issues unchanged. The Topix index of all first section stocks gained 0.94 to 1,294.06 and, in London, the ISE/Nikkei 50 index rose 0.18 to 1,035.99.

The Nikkei index has fluctuated within a 343 point range during the week and many traders expect the market to remain around 17,000 with buying by public funds preventing a heavy fall. Mr Alan Livsey at Kleinwort Benson said that the bear market seemed to have ended but that little would happen for the next month or so.

Electric utilities, which depend on debt to fund capital investment, gained ground on the higher yen and lower bond yields. Tokyo Electric Power advanced Y10 to Y2,570 and Tohoku Electric Power added Y50 to Y2,540.

Steel issues were higher on buying by institutional investors, trying to take advantage of the stocks' dividend potential ahead of the March book-closing. Nippon Steel put on Y3 to Y298 and NKK appreciated Y3 to Y259.

Sony lost Y100 to Y4,000 after the company announced a 62 per cent fall in consolidated pre-tax profits for the three months ending in December. Some investors fear that the current strength of the yen will depress Sony's profits further.

In Osaka, the OSE average fell 34.27 to 18,385.54 in volume of 62.6m shares. Selling was centred around high-technology issues, while pharmaceuticals were also weak on profit taking.

Roundup

A GOOD week for the region, particularly for Hong Kong, ended relatively quietly. Bombay was closed for a Hindu holiday and will reopen on Monday.

HONG KONG ended a nine-day rally, but political optimism lingered on as profit-taking pushing the Hang Seng index down by a token 16.85 to 6,170.09, 5.3 per cent higher on the week and 7.4 per cent better on the past ten trading days.

Turnover rose from HKDollars 3.73bn to HKDollars 3.90bn. There were still buyers in some senior blue chips with the most active stock, HSBC, gaining HKDollars 1 to HKDollars 64; but the second in line, Jardine Matheson fell HKDollars 1.25 to HKDollars 49.25.

AUSTRALIA reflected a spate of selling orders in afternoon trade, the All Ordinaries index closing 12.6 down at 1,594.7, 0.5 per cent down on the week in turnover of ADollars 263.5m.

BHP fell 14 cents to ADollars 14.10 in spite of a favourable January production report, but John Fairfax closed three cents higher at ADollars 1.89 after announcing interim net profits.

NEW ZEALAND took its third successive tumble, the NYSE-40 losing 18.4 at 1,572.53 after a heavy gain on Tuesday when Telecom announced heavy reductions in its workforce. TAIWAN's weighted index ended 48.83 at 3,912.67 on profit-taking, still 3.6 per cent up on the week.

MANILA remained positive with blue chips providing support to the market. The composite index gained 14.98 to 1,473.24, a rise of 4.8 per cent on the week. Turnover was strong at 737m pesos from 610m pesos.

SINGAPORE closed off the day's highs as investors took profits and the Straits Times industrial index rose 6.91 to 1,639.04, up 1.6 per cent on the week.

JP Japan, Asia HK Hong Kong, Asia AU Australia NZ New Zealand PH Philippines, Asia TW Taiwan, Asia SG Singapore, Asia P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 21 660
World Stock Markets: Milan ignores politics in Fiat-led euphoria - This week's rally in equities Publication 930220FT Processed by FT 930220 By HAIG SIMONIAN

Sentiment, rather than fundamentals, has been driving Milan forward this week. In spite of growing political uncertainties, reinforced by yesterday's resignation of two cabinet ministers, a gloomy economic outlook and distinctly poor corporate earnings, the buying bandwagon has been enough to push the Comit index up 2.3 per cent on the week.

The motor for this rally has been Fiat, Italy's biggest private-sector company, which on two separate days this week rose by some 10 per cent, closing yesterday at L5,360. The massive buying of its shares has been enough to trigger a general re-appraisal of Italian blue chips.

There are legitimate grounds for greater optimism about Fiat. Ms Dagmar Bottenbruch of CSFB in Milan has recommended the stock as a 'buy' after lengthy scepticism. Among the reasons she identifies as advantageous for the group are the lira's departure from the ERM and last summer's agreement to abolish the 'scala mobile' wage indexation system.

While the cheaper lira and lower wage growth will help the company improve its margins, a wave of new models will refresh its ageing line-up; and expectations of sales of subsidiaries such as Rinascente, Toro or Cogefar-Impresit will also provide big extraordinary gains to help tide the group over its current heavy investment phase.

Such prospects, echoed by some other analysts, have been enough to trigger a general reconsideration of Fiat's shares, especially by foreigners, who have pared Italian holdings to the bone. Early buying turned into a wave this week as rumours of imminent asset sales or a tie-up with another car group swept the market.

The realities are appreciably different: the company has repeatedly denied that it is talking to either Peugeot or Toyota - the two most-tipped names - and, indeed, the French and Japanese companies have issued denials of their own. Fiat has also maintained that negotiations on asset sales are not under way, although admitting that it has had some approaches.

Even the industrial outlook hardly warrants this week's euphoria. Recession in other European car markets has now reached Italy, where demand fell by almost 14 per cent in January. Competition from foreign manufacturers, especially the Japanese, also remains acute with Nissan, in particular, increasing its penetration.

Two other factors have contributed to the buoyant mood. The weak lira makes Italian shares look cheap for foreign investors and domestic institutions have been coming back into the market as a result of interest rate cuts. A statement by Mr Piero Barucci, the treasury minister, that promised incentives to buy shares would be pushed into law more quickly than expected provided an additional tonic.

'The market has decided to interpret all the news positively,' says Mr Marcello Sallusti, an analyst at Gemina. 'And bad news has been largely ignored. So shares have been moved by speculation and the fact that many portfolios have been very underweight in Italian equities.'

The buying, however, has been somewhat unselective. While purchases, especially from abroad, have focused on blue chips, prime companies such as Benetton, Parmalat, Italgas or Edison, seen as among the biggest beneficiaries of the lira's decline, have not risen as strongly as many others.

Many analysts struggle to justify buying big corporates such as Olivetti or Montedison, given the poor outlook for both; and the heavy buying of utilities such as Stet and Sip seems to be based as much on liquidity in the shares - making it easy to sell quickly if necessary - as on more fundamental factors.

For those still interested in fundamentals, there is little to commend the bourse at present. 'The market has gone beyond fundamental values,' says Ms Paola Bergamaschi of Goldman Sachs. 'It's a real trading market in the short term. You either buy and then sell quickly, or hold the stock long-term in expectation of a better political and economic climate.'

The risks are high. Politically, the coalition government of Mr Giuliano Amato is looking increasingly fragile, more so after yesterday's resignations of Mr Giovanni Goria, the finance minister, and Mr Francesco De Lorenzo, the health minister. The resulting uncertainty has had the effect of depressing the lira exchange rate, with the currency falling to around L950 against the D-Mark.

Economically, the recession is deepening, with rising unemployment and slowing output. Meanwhile, the outlook for corporate profits remains gloomy. Very poor 1992 earnings, which will begin to be announced from next month, have already been discounted. Many analysts admit prospects for this year are little better.

Some point to 1994 as the year of recovery. But even if there is light at the end of the tunnel, it is too far ahead to warrant the current euphoria.

IT Italy, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 21 812
World Stock Markets (Europe): Bourses little changed on German M3 drop Publication 930220FT Processed by FT 930220 By Our Markets Staff

THE SURPRISE contraction in German money supply in January did little for bourses yesterday, especially for Frankfurt itself, writes Our Markets Staff.

At 16.30 in London the FT-SE Eurotrack index was only 1.85 higher at 1,134.80. Dealers said that the M3 figures were another step towards the next cut in German interest rates, but they did not think that the next cut was imminent.

FRANKFURT saw the DAX index up 5.13 to 1,677.39 over the official session, up 1 per cent on the week, and an estimated six points more in the domestic post-bourse, but by late afternoon in London the extra gains had virtually disappeared.

Individual equities and sectors extended the themes of the week. Car stocks, already relatively weak, were dragged down by Volkswagen. VW fell DM8.60 on the day, DM18.90 on the week to DM278.80; it had been suffering from a downgrade by DB Research just over a week ago, and yesterday it was more sensitive than its competitors to January registration data which showed a 27.5 per cent fall from last year and a drop of 18.3 per cent from a record December.

Like VW, the other main theme stock, Bayernhypo, might also have been affected by expiration of options contracts on the Deutsche Terminborse, reflected in a surge in German equity market turnover from DM6.5bn to DM9.4bn. It has also been a major play on interest rates, rising DM6.80 on the day, and DM18.80 on the week to DM434.80.

Some stocks moved on a lack of news. Lufthansa, seen as a turnround situation and one of the strongest performers in the DAX this year, rose another DM5.50 to DM124. Schering, in pharmaceuticals, put on DM19 to DM742.50 for a rise on the week of DM34.50.

PARIS took some motivation from the German data but generally activity in the market was concentrated in second-line stocks. The CAC-40 index rose 10.60 to 1,937.17 in turnover of FFr3.7bn, up 1.3 per cent on the week.

With an easing in domestic short-term interest rates this week, some analysts expect France to make a gesture towards further easing in the short-term, particularly as next month's elections approach. This, they argue, will feed through into the market with the CAC able to break through 2,000.

Among blue chips, financials firmed while reports of a bullish broker's research document on insurers helped Axa to a gain of FFr14 to FFr1,158. Societe Generale went against the trend, down FFr1 at FFr634, on reports that it had lost money on options trading.

LVMH eased FFr60 to FFr3,330 as the group denied rumours, active on Thursday, of restructuring plans. Other elements of Mr Bernard Arnault's group rose: Christian Dior up FFr12.10 at FFr256.10 and Bon Marche FFr9 higher at FFr563.

ZURICH declined on profit-taking, especially in the chemicals sector, the SMI index falling 14.6 to 2,117.3, 0.9 per cent lower on the week.

Among chemicals, still shaken by healthcare reforms in the US, Roche certificates fell SFr40 to SFr4,090 and Sandoz SFr90 to SFr3,060. Meanwhile, a slight increase in money market rates discouraged buying in the insurance sector, where Zurich and Winterthur were both unchanged at SFr2,200, and SFr3,210 respectively.

AMSTERDAM was stronger on options expiry, in the absence of corporate news. The CBS Tendency index rose 0.7 to 99.7 fora gain of 0.8 per cent on the week. Ahold was one of the day's main exceptions, Fl 1.60 lower at Fl 91.60 as finance stocks showed broad gains, with Amev up Fl 1.10 at Fl 67.90 and ING Fl 1.20 firmer at Fl 62.60.

STOCKHOLM saw Astra fall SKr7 in the B shares to SKr694 ahead of Monday's results. The Affarsvarlden General index climbed 3.07 to 987.97 in high turnover of SKr1.14bn, up 0.7 per cent on the week.

S-E Banken continued to weaken following its announcement on Thursday of heavy losses and the C shares eased SKr1 to SKr11.

OSLO was encouraged by falling money market rates and the all-share index gained 3.01 to 401.75 in turnover of NKr450m.

Among the actives, Norsk Hydro and Kvaerner both gained NKr1.50, to NKr164 and NKr164.50 respectively.

TEL AVIV fell in a second consecutive day of sharp losses as the market reacted to more comments by politicians, who said that institutional investors are manipulating share prices, dealers said.

The blue chip shares index lost 7.95, or 3.9 per cent to 194.63.

----------------------------------------------------------------------- FT-SE ACTUARIES SHARE INDICES ----------------------------------------------------------------------- February 19 THE EUROPEAN SERIES ----------------------------------------------------------------------- Hourly changes Open 10.30 11.00 12.00 ----------------------------------------------------------------------- FT-SE Eurotrack 100 1131.18 1131.02 1130.42 1130.17 FT-SE Eurotrack 200 1187.86 1186.03 1185.53 1185.64 ----------------------------------------------------------------------- 13.00 14.00 15.00 Close -----------------------------------------------------------------------

FT-SE Eurotrack 100 1131.70 1137.01 1136.60 1136.60 FT-SE Eurotrack 200 1186.20 1191.41 1189.68 1191.09 ----------------------------------------------------------------------- Feb 18 Feb 17 Feb 16 Feb 15 Feb 12 ----------------------------------------------------------------------- FT-SE Eurotrack 100 1132.95 1121.77 1123.14 1132.97 1129.97 FT-SE Eurotrack 200 1191.03 1173.51 1179.54 1184.15 1181.05 ----------------------------------------------------------------------- Base value 1000 (26/10/90) ----------------------------------------------------------------------- High/day: 100 - 1137.32; 200 - 1193.45 Low/day: 100 - 1129.55 200 - 1182.85. -----------------------------------------------------------------------

DE Germany, EC FR France, EC CH Switzerland, West Europe NL Netherlands, EC SE Sweden, West Europe NO Norway, West Europe IL Israel, Middle East P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 21 889
London Stock Exchange: Hotel deal expected Publication 930220FT Processed by FT 930220 By CHRISTOPHER PRICE, JOEL KIBAZO and CATHERINE MILTON

SPECULATION that an agreement will be announced early next week on the hotel tie-up between Queens Moat Houses and Bass sent shares in both group smartly forward yesterday. However, sources close to the negotiations, which have been continuing since the autumn, suggested that only a limited deal would be announced, squashing rumours that Bass was considering taking a stake in Queens Moat in return for the latter taking a leading role in running Bass's European Holiday Inn operations.

The indications are that only a handful of hotels will be involved in the deal, with Queens Moat taking the Holiday Inn franchise for these in return for a small percentage of each unit's turnover. But the hints of an agreement lifted sentiment in both stocks. Queens Moat, Britain's second biggest hotelier, put on 3 1/2 to 54p in turnover of 5.9m. Bass jumped 19 to 604p in 2.7m traded.

Land Secs. active

Further evidence emerged yesterday of the growing liquidity in the moribund commercial property market as Land Securities said it was in negotiations to sell one of its office developments in a deal thought to be worth around Pounds 70m. The news added impetus to the group's shares which have strengthened in recent weeks on the back of falling interest rates and growing investor interest in the sector. After rallying, they later slipped back to close 1 1/2 up at 474p.

In the deal, Land Securities, the UK's biggest property group, would swap an office block in the City of London for the St David's shopping centre in Cardiff owned by Coal Board Investment Nominees. Details of any cash differential are being discussed.

Earlier this week, Hammerson announced a Pounds 21m office disposal, while the receivers of Mountleigh, the property company that failed last May, sold the group's largest UK asset, for Pounds 128m to Chelsfield. Hammerson shares rose a penny to 294p.

Alert at Lasmo

Bid speculation, a more positive outlook on the dividend, and a single large buyer of the shares helped make Lasmo a strong feature. The shares closed 7 up at 179p, as volume rose to a healthy 6.4m, with some of the buying said to have come from the US.

Suggestions that the company is a takeover target returned with British Gas and Enterprise Oil named as likely suitors. Several brokers have recently turned more positive on the dividend outlook ahead of the results due at the end of March and Smith New Court have recommended the stock.

However, analysts at Strauss Turnbull remain cautious and said that'the financial problems at the company are well recognised and the problem is unlikely to be resolved this year unless we see a dramatic rebound in oil prices which we think is unlikely.'

British Gas fell 4 to to 287 1/2 p, on turnover of 4.6m, while Enterprise eased 1 1/2 to 453p.

A badly-handled sale order and nervous trading ahead of Tuesday's figures hurt Sedgwick, the insurance broker, and the shares gave up 9 to 169p. In the life sector, United Friendly put on 20 to 600p after overnight trades were executed at the 600p level.

Among other oil related stocks, a squeeze in Ramco Oil sent the shares climbing 17 to 126p, while profit-taking was said to have been the reason for the fall in Pittencrieff which lost 14 to 360p, after a presentation to analysts on Thursday evening. Shell Transport eased a penny to 581p in nervous trading ahead of figures next Thursday.

Suggestions that Allied Lyons was about to sell its Chateau Latour business to French luxury goods group LVMH were strongly denied by its crossholding partner Guinness, but not before shares in London had been affected by the rumour. Allied gained 10 to 608p, while Guinness slipped 2 1/2 to 468 1/2 p.

Shares in Kwik Save rose strongly, up 19 at 819p, as its largest shareholder Dairy Farms took its stake to past 28 per cent in the discount food group.

United Biscuits admitted it was considering selling Terry's chocolate business and the shares responded by adding 4 to 354p. Unilever lost 7 to 1146p on nerves ahead of figures next week.

Shares in British Aerospace were once again in favour ahead of the figures next week. The shares added 12 to 262p. Many analysts are predicting a big loss for the year and are expected to use Wednesday's results meeting to confirm or adjust forecasts for the current year which range between Pounds 120 and Pounds 150m.

The squeeze along with talk of an improvement in UK car sales figures boosted GKN and the shares added another 4 to 476p.

Fears of cutbacks in orders from US customers continued to weaken Smiths Industries and the shares lost another 5 to 342p.

A large buyer of GEC caused a squeeze and the shares advanced 7 to 297p. UBS Phillips and Drew was said to have upgraded the group. Racal Electronics jumped 10 to 199p. Credit Lyonnais Laing was said to be keen. Vodafone rose 3 to 395p following a big analysts' presentation on Thursday.

Some activity in Mirror Group saw the shares fall 3 to 106p as the group denied reports of a boardroom coup.

Analysts attributed the fall in Bowater's stocks to traders compensating for a previous overheating which had followed the company's earlier successful rights issue.

Blue Circle finished down 1p, in spite of an earlier sharp rise prompted by a combination of continued bid speculation and a yield of 6.5 per cent against a market dividend yield of 4.39 per cent.

BPB's strong performance - the company finished up 5 at 234p - was saidb by analysts to be the result of a successful series of marketing trips and a recent price increase in the company's main product, plaster board.

Spring Ram finished down another 6p at 123p on market rumours that bear raiders have targetted the company.

Hartstone, the hosiery and leather goods distributor, closed at 267p up 16p as volatile trade continued following the announcement that one of the company's executives was taking control of Cupid, the loss-making bridal and formal wear group.

NEW HIGHS AND LOWS FOR 1992/93

NEW HIGHS (132).

BRITISH FUNDS (21) Tr. 10pc '01, Tr. 9 3/4 pc '02, Tr. 10pc '03, Tr. 11 1/2 pc '01-04, Tr. 12 1/2 pc '03-05, Tr. 8pc '02-06, Tr. 8 1/2 pc '07, Do B, Tr. 13 1/2 pc '04-08, Tr. 9pc '08, Tr. 8pc '09, Cv. 9pc '11, Do C, Tr. 9pc '12, Tr. 5 1/2 pc '08-12, Tr. 7 3/4 pc '12-15, Ex. 12pc '13-17, Tr. 8 3/4 pc '17, Consols 4pc, War Loan 3 1/2 pc, Tr. 2pc IL '06, OTHER FIXED INTEREST (3) African Dev. 11 1/8 pc '10, Asian Dev. 10 1/4 pc '09, Hydro Quebec, BANKS (3) Bk. Scot., Do 9 1/4 pc Pf., Do 9 3/4 pc Pf., BUILDING MATERIALS (6) Anglian, BPB, Kalon, Lilleshall, Sheffield Insns., Titon, BUSINESS SERVICES (3) Br. Data Mngemt., Inchcape, Sherwood, CHEMICALS (4) Allied Colloids, Hoechst, Laporte, Yorks., CONTRACTING & CONSTRUCTION (1) Boot (H), ELECTRICALS (3) Critchley, Jones Stroud, Thorpe, ELECTRICITY (2) Natl. Power, PowerGen, ELECTRONICS (7) Ferranti, Hewlett-Packard, Kode, Macro 4, Racal, Sage, Tunstall, ENGINEERING GENERAL (6) Barry Wehmiller, Benson, Bristol Channel, Molins, Protean, TT, FOOD MANUFACTURING (2) Acatos & Hutcheson, Clifford N/V, HOTELS & LEISURE (4) Granada, Do 7 1/2 pc Pf., Stanley, Vardon, INSURANCE LIFE (2) Refuge, Utd. Friendly, INVESTMENT TRUSTS (16) Abtrust New Dawn Wts., Dunedin Worldwide, Flmg. Inc. & Cap. Inc., Foreign & Col. Eurotrust, Jos Cap., Do Inc., Murray Intl., Do B, Murray Smllr. Mkts., River & Merc. Inc., Do Stppd. Pf., Second Market, Temple Bar, Templeton Emrg. Mkts., Do Wts., Tor Cap., MEDIA (3) Johnston Press, Metal Bulletin, Watmoughs, MERCHANT BANKS (6) Barings 8pc Pf., Close Bros., Kleinwort Benson, Schroders, Do N/V, Singer & Friedlander, METAL & METAL FORMING (1) Saville Gordon, MISCELLANEOUS (4) BAT 12 1/4 pc '03-08, Danka, Faber Prest, LGW, MOTORS (4) Bletchley, Davenport Vernon, First Tech., GKN, OIL & GAS (1) Ramco, OTHER FINANCIAL (5) Bancaire, Daiwa, LIT, LOF'S, Smith New Ct. Pf., OTHER INDUSTRIAL MATERIALS (1) Hewitt, PACKAGING, PAPER & PRINTING (3) API, Bowater, Jarvis Porter, PROPERTY (4) Land Sec. 10pc '25, Do 10pc '27, Do '30, Frogmore Ests., STORES (2) Courts, Fine Art Devs., TEXTILES (6) Allied Text., Br. Mohair, Castle Mill, Courtaulds, Haggas, Stirling, TRANSPORT (2) Forth Ports, Mersey Docks, WATER (4) Mid Kent, Severn Trent, Southern, Yorks., MINES (3) Antofagasta, Kidston, Resolute Res.

NEW LOWS (9).

BUILDING MATERIALS (1) Johnston, BUSINESS SERVICES (1) Welpac, HEALTH & HOUSEHOLD (1) Specialeyes, HOTELS & LEISURE (1) Quadrant, INVESTMENT TRUSTS (1) Spanish Smllr Cos., MEDIA (1) Goodhead, MISCELLANEOUS (1) Hornby, PROPERTY (2) High-Point, Micklegate.

Other market statistics, Page 11.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 15 1486
London Stock Exchange: Equities close firmly in calm trading Publication 930220FT Processed by FT 930220 By TERRY BYLAND, UK Stock Market Editor

A NERVOUS week on the UK stock market closed with share prices edging higher as US markets continued to respond to President Clinton's State of the Union message, and an unexpected fall in German M3 money supply rekindled hopes that UK base rates could be reduced again soon. Trading volume in UK equities was steady rather than exciting but dealers said that market confidence had been helped by this week's UK economic data.

Although the 2.3 per cent fall in the German money supply figure was quickly described by the Bundesbank as a 'distortion', the announcement reinforced sterling's firmness and also the view of some City analysts that a slowdown in the German economy will take the pressure off the pound, opening the way for further cuts in UK base rates.

Government bond prices gained more than half a point yesterday, encouraged also by comments from the team of independent UK economic forecasts known as the 'seven wise men'; one of the team called for two more one point cuts in base rates in the next few months.

Index-linked gilts, the prime anti-inflation hedge instrument, lagged well behind the conventional bond sector.

Cautious at first because of Wall Street's easier trend overnight, equities soon climbed by 8 Footsie points, before reversing to show a fall of 5. Traders said there was little significant selling and buyers reappeared as the German money supply news was followed by favourable reports from the Humphrey Hawkins testimony to Congress by Mr Alan Greenspan, head of the Federal Reserve.

At the close, the FT-SE Index was just 2.3 ahead at 2,840. After plunging sharply on Tuesday when Wall Street fell ahead of President Clinton's speech, the UK market has steadied to show a net fall of only 3 points on the FT-SE scale since the previous Friday's close.

Retail, or customer, interest in equities, which has remained high all week, was worth Pounds 1.46bn on Thursday. Seaq volume of 533m shares yesterday, of which about 65 per cent was in non-Footsie stocks, compared with 637.1m in the previous session.

Activity in the second line issues was also reflected in the rise of 8 points in the FT-SE Mid 250 Index which closed last night at 3,048.3, within four points of its peak.

Speculative interest was reawakened in a number of takeover candidates but traders refused to become over-excited. 'Today showed a solid performance by UK equities which have this week held on to the resistance area around the FT-SE 2,800,' said one.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 15 459
London Stock Exchange: Equity futures and options trading Publication 930220FT Processed by FT 930220 By JOEL KIBAZO

THE derivatives sector ended an active week with a volatile session in the futures as the March contract on the FT-SE reacted to profit taking and favourable economic data, writes Joel Kibazo.

March opened at 2,836 but soon moved ahead to 2,847 on sporadic buying. It however fell back as the expiry of the February index options approached at 10.30am.

A call for further cuts in UK base rates from a group of economists again sent the contract moving forward, and buying was boosted by data showing a fall in German money supply.

March maintained its upward momentum with the firm Wall Street opening before following New York lower.

March finished at 2,837, up 2 on its previous close and at a 4 point discount to the underlying cash market. Volume was 9,371 lots.

In the traded options, the expiry of the February index options was the main feature. Total volume was 23,662 lots of which 9,816 was dealt in the FT-SE 100 options.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 15 201
Money Markets: German M3 tumbles Publication 930220FT Processed by FT 930220 By PETER JOHN

A BIG fall in German money supply gave initial hope for a cut in interest rates shortly. However, further consideration suggested the drop merely reflected the new base on which the figures are calculated, writes Peter John.

The Bundesbank announced yesterday that M3 money supply contracted at an annualised rate of 2.3 per cent in January after an 8.7 per cent rise in December.

The news caught the markets by surprise and briefly sent German futures upwards. However, the figure was rebased on the fourth quarter of last year rather than the fourth quarter of 1991. The fourth quarter of last year saw money supply artificially boosted by the heavy intervention to prop up the French franc. Economists said that without the one-off outpouring of money M3 would actually have risen slightly.

Mr Brian Hilliard, an economist with Societe Generale Strauss Turnbull said: 'It is not giving a clear signal of a cut in interest rates. The figures came out the day after a Bundesbank meeting. They must have been known on Thursday and if Germany wanted to cut it would have done so then.'

Nevertheless, not everyone took such a bearish view and the June D-Mark future which opened at 92.90 was bid up to 93.00 before profit takers moved in and it settled at 92.97 with 44,000 contracts traded. One dealer argued that the contract was already discounting a 1 3/8 per cent fall.

In the UK, short sterling was bid up to 94.08 in the March contract with more than 23,000 lots dealt. March is generally viewed as a stable hedge as most analysts believe there will be no interest rate cut before the Budget.

Money market operations were comfortably settled with a reasonably large shortage well taken out. The Bank of England forecast a liquidity shortage of around Pounds 1.55bn. The majority of the shortage was taken out immediately with the central Bank buying Pounds 1,132m of bills. At the late morning round of assistance, the Bank nudged the forecast back to Pounds 1.5bn and bought Pounds 200m in band one bills at 5 7/8 per cent. In the afternoon, the Bank bought a further Pounds 170m of bills at the same rate.

However, concerns continued that the concertina effect of a number of loans expiring next week will mean that money could become very tight.

DE Germany, EC GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 13 425
Foreign Exchanges: Currencies resist pointers Publication 930220FT Processed by FT 930220 By PETER JOHN

A HANDFUL of signals from the world's financial leaders did little more than leave international currencies wallowing yesterday, writes Peter John.

Mr Alan Greenspan, the chairman of the US Federal Reserve, hinted he was unlikely to raise interest rates. The Bundesbank stamped on hopes that it might cut interest rates soon. Japanese ministers worked to slow the rise of the Yen. And in the UK, the 'Seven Wise Men' stood out against higher taxes, a move that might prompt a base rate cut.

However, the respective currencies did little to reflect the comments and it was left to the Swedish Krona to make a decisive shift while ministerial resignations in Italy prompted heavy selling of the Lira.

The dollar spent most of the day around the DM1.63 level and ended little changed in Europe at DM1.6360, up from DM1.6335.

The generally stronger pound rose to Dollars 1.4530 from Dollars 1.4455.

In Japan, the Yen failed to respond to comments by Mr Yoshiro Mori, the minister for International Trade and Industry, that it had risen too fast. After closing at Y119.30 against the dollar in Tokyo overnight it rose to Y119.10 with one one economist forecasting Y115 shortly.

Sterling rallied from recent doldrums as expectations of an early rate cut faded. The pound was almost three pfennigs higher against the D-Mark at one stage but sellers moved in toward the close and it ended the day 1.75 pfennigs better at DM2.3775. There was a feeling that it could breach DM2.40 soon. However, Mr Neil Mackinnon, the senior economist with Citibank commented: 'The bounce in retail spending and the recent recovery in bank lending were one-offs. Given the upward trend in unemployment a further rate cut is on the cards.'

In Sweden, the central bank intervened to support the krona for the third day running after it hit a record low of SKr4.66 against the D-Mark. Nevertheless, some economists predict that with inflation falling and the economy in recession, the currency will fall to SKr4.80 within the next six months. The krona rallied to SK4.6172 against the D-Mark from SKr4.6208.

Meanwhile, the Lira was under pressure after an announcement that two government ministers had resigned, generating worries about the stability of prime minister Giuliano Amato's administration. The Lira closed at L959.2 against the D-Mark, down from L953.4.

In Spain, the central bank intervened to support the peseta which has been falling steadily against the D-mark. The Spanish currency rallied to Pta71.70 from Pta71.78.

IT Italy, EC ES Spain, EC US United States of America JP Japan, Asia DE Germany, EC SE Sweden, West Europe P6231 Security and Commodity Exchanges STATS Statistics MKTS Market data P6231 The Financial Times London Page 13 462
International Company News: Rise in interest payments hits Asahi Breweries Publication 930220FT Processed by FT 930220 By EMIKO TERAZONO TOKYO

ASAHI Breweries, Japan's second largest brewer with a 24 per cent market share, yesterday posted a sharp fall in unconsolidated profits for 1992 partly due to a rise in interest payments on its bonds.

Asahi, which holds a 17 per cent stake in Foster's Brewing of Australia, reported that pre-tax profits plunged 19.6 per cent to Y14bn (Dollars 115.7m) despite a 4.3 per cent rise in sales to Y770.6bn. After-tax profits fell 34.2 per cent to Y4bn.

Operating profits surged 90.7 per cent to Y35.9bn thanks to cost cutting and a sharp increase in bulk sales of non-alcoholic beverages, with a large profit margin.

For the full year to December, Asahi expects pre-tax profits to rise 3.3 per cent to Y14.5bn on a 5.1 per cent increase in sales to Y810bn.

Asahi Breweries JP Japan, Asia P2082 Malt Beverages FIN Annual report P2082 The Financial Times London Page 12 169
International Company News: CIBC to quit Australia and cut back in Europe Publication 930220FT Processed by FT 930220 By BERNARD SIMON TORONTO

CANADIAN Imperial Bank of Commerce, Canada's second biggest financial institution, is closing its operations in Australia and cutting back its presence in Europe.

CIBC has had a presence in Australia since 1966, specialising in resource and infrastructure financing, gold hedging and treasury activities. The operation is understood however, to have been unprofitable for the past few years.

CIBC said yesterday that the Australian subsidiary, which employs 85 people at offices in Sydney, Melbourne and Perth, would be wound down or sold over the next three years. A capital markets division in Sydney was closed last year.

In Europe, the bank will shut or sell operations in Frankfurt, Milan and Paris, which together employ 90 people. European customers will in future be served from CIBC's large office in London. CIBC continues to maintain private banking and trust administration businesses in Switzerland and Guernsey.

All five leading Canadian banks have pulled in their horns overseas since the mid-1980s to concentrate on their North American business.

Mr John Hunkin, president of CIBC's investment and corporate banking division, said the bank's business in Europe will in future focus on trade finance, Canadian dollar products and the energy, utilities, media and communications sectors. The bank also has a presence in securities markets.

Canadian Imperial Bank of Commerce CA Canada AU Australia XG Europe P6021 National Commercial Banks COMP Company News RES Facilities P6021 The Financial Times London Page 12 256
International Company News: Pirelli sees improvement but will remain in the red Publication 930220FT Processed by FT 930220 By HAIG SIMONIAN MILAN

PIRELLI. the Italian tyres and cables group, yesterday warned that its 1992 accounts, to be reported in May, would show an improvement on the L622bn (Dollars 402.3m) lost after minority interests in 1991. But its results would remain in the red owing to high interest charges and increased depreciation costs.

Pirelli expects to report substantial extraordinary gains from sales of subsidiaries in its diversified products division. However, such earnings would be partly lowered by write-offs on the value of some operations still being divested.

Earnings last year also suffered from deteriorating economic conditions, which had required additional restructuring measures to be taken. Some L50bn more had been spent than was allocated at the end of 1991, while a further L140bn had been put aside for restructuring costs expected this year, almost entirely on the cables side.

The group reported a sharp fall in consolidated sales to about L8,300bn last year against L10,024bn in 1991. Adjusted for disposals, turnover rose by about 2 per cent.

Gross operating earnings, before depreciation, interest charges and tax, rose by 30 per cent to about L770bn.

Cash flow returned to the black from being negative in 1991, while Pirelli's debt-equity ratio improved to 0.85 from 1.4 in 1991.

Pirelli IT Italy, EC P3011 Tires and Inner Tubes COMP Company News P3011 The Financial Times London Page 12 244
International Company News: Honda tumbles 16.9% to Y18bn on surge in yen Publication 930220FT Processed by FT 930220 By CHARLES LEADBEATER TOKYO

THE SLIDE in profits at Honda, the Japanese car manufacturer, continued unabated as the company reported a 16.9 per cent drop in consolidated pre-tax profits to Y18.23bn (Dollars 150.7m) for the third quarter to end-December.

However, the results suggest the fall in Honda's profits may be reaching its bottom, especially if planned new models increase sales in the US as demand there recovers. The group is enjoying a dramatic surge in demand for motorcycles from China.

Honda's pre-tax profits fell largely because foreign exchange losses from the surge in the yen against the dollar and higher interest charges offset improvements in operating income.

Operating income was 4.6 per cent higher in the three months between last October and December at Y23bn. Mr Yoshihide Munekuni, executive vice president, said this was a reflection of cost cutting and lower depreciation charges from reduced investment.

Consolidated capital expenditure at Honda rose by 70 per cent between 1989 and 1990 as it established its manufacturing base in the US, which accounts for about 43 per cent of sales. Capital expenditure peaked in the year to March 1990 at Y311.7bn, while the depreciation charge peaked a year later at Y191bn. This year's capital spending is expected to be down to about Y180bn, while depreciation charges are likely to be Y175bn.

Interest charges have risen as the company has borrowed more to fund its Y77.5bn of warrant bond redemptions.

Automobile sales fell by 10 per cent in the quarter, dipping to Y785bn, largely because of sluggish recovery in the US and downturn in Japan. Unit sales were 6.9 per cent down at 435,000 units.

Honda should be well placed to exploit the expected recovery of the US car market, according to Mr Andrew Blair-Smith, an industry analyst at BZW, the UK stockbroker.

Motorcycle sales are surging, largely because of strong demand from south east Asia. Motorcycle revenues rose 15.2 per cent to Y122.8bn.

Honda Motor JP Japan, Asia P3711 Motor Vehicles and Car Bodies FIN Interim results P3711 The Financial Times London Page 12 360
International Company News: Fiat grouping buys stake in German builder Publication 930220FT Processed by FT 930220 By HAIG SIMONIAN

FIAT-IMPRESIT, Italy's biggest construction group, which is controlled by Fiat, has reached agreement with Germany's Treuhand privatisation agency to take a 25.1 per cent stake in Magdeburger Hochbau, a leading building company in the former east Germany.

Fiat is leading a consortium comprising four west German building companies and Nordeutsche-Mitteldeutsche Landesbank. No price for the transaction has been disclosed.

Magdeburger Hochbau has sales of about DM300m, and is believed to be losing about DM3m a month. The buyers have agreed to guarantee 2,900 jobs until the end of 1995.

Magdeburger Hochbau Fiatimpresit IT Italy, EC DE Germany, EC P1522 Residential Construction, NEC P1542 Nonresidential Construction, NEC P1629 Heavy Construction, NEC P1799 Special Trade Contractors, NEC COMP Company News COMP Shareholding P1522 P1542 P1629 P1799 The Financial Times London Page 12 149
International Company News: Pioneer slides 54% as Akai plunges into loss Publication 930220FT Processed by FT 930220 By MICHIYO NAKAMOTO TOKYO

THE severity of the recession in consumer electronics was underlined yesterday by poor results from two Japanese manufacturers.

Pioneer, the specialised audio and video manufacturer known for its karaoke systems, reported a 54 per cent drop in third quarter pre-tax profits as demand for its mainstay products declined sharply in Japan and abroad.

Akai Electric, which makes audio products and VCRs, meanwhile, plunged into loss for the year to November 20 1992. Both companies blamed the reversals on the economic slowdown worldwide, particularly in Japan, and on the appreciation of the yen.

Pioneer reported a 9.6 per cent fall in sales to Y167.48bn (Dollars 1.38bn) for the three months to December. Pre-tax profits fell to Y11.43bn from Y24.67bn a year earlier.

Demand fell for its audio and video products, particularly compact stereo systems, CD players and commercial laser karaoke machines. Sales of car navigation systems, car CD players and software increased, however, while projection TVs sold well in the US. Car navigation systems sales nearly tripled in value.

Pioneer said that in spite of continuing weak demand, it was maintaining research and development expenditure while cutting capital spending by about Y2bn. The company has recently been criticised for telling 35 older managers to retire or face dismissal.

Pioneer is in talks to restructure Carolco, the loss-making US film production company in which it invested Dollars 100m for a stake of just under 20 per cent. Any deal would involve a further Dollars 40m investment.

Akai reported third-quarter pre-tax losses of Y554m, against profits of Y1.73bn last time. Sales fell nearly 10 per cent to Y87.26bn (Y96.83bn), hit particularly hard by the fall in demand for VCRs, one of its main product areas.

The company, which has 90 per cent of its sales overseas, was also adversely affected by currency fluctuations.

Pioneer Electronic Corp Akai Electric JP Japan, Asia P3651 Household Audio and Video Equipment FIN Interim results P3651 The Financial Times London Page 12 345
World Commodities Prices: Spices Publication 930220FT Processed by FT 930220

Mexican pimento's spot price was USDollars 1,775 a tonne, with afloat supplies offered at Dollars 1,750 and shipment at Dollars 1,725 cif, reports Man Producten. Jamaican spot pimento was unchanged at Dollars 2,275 a tonne, with shipment at Dollars 2,140, and Guatemalan spot at Dollars 1,900. Cassia shipments from origin were delayed by bad weather and European stocks were virtually exhausted. Madagascan cinnamon was on offer at FFr5.75 a kilogram cif, with spot at FFr6. Seychelles supplies were fetching Dollars 1,175 a tonne cif, and Dollars 1,450 spot. Grenada nutmeg prices were unchanged.

XA World P01 Agricultural Production-Crops MKTS Market data COSTS Commodity prices P01 The Financial Times London Page 12 120
Economic Diary Publication 930220FT Processed by FT 930220

TODAY: Sinn Fein annual conference in Dundalk.

TOMORROW: Carnival in Rio de Janeiro (until February 23).

MONDAY: Gross domestic product (fourth-quarter provisional estimate). Mr Helmut Kohl, German chancellor, arrives in Singapore for three-day visit. Financial Times holds 'The London Motor Conference' at the Hilton Hotel, Park Lane.

TUESDAY: Long-term unemployment (quarterly analysis of unemployment by age and duration) (January). Mr John Major, prime minister, flies to Washington for talks with Mr Bill Clinton, US president, on Wednesday. Start of two-day Financial Times conference 'Cable & Satellite Broadcasting' at the Hotel InterContinental, London W1. Preliminary results from Unilever Plc/NV, National Westminster Bank, Smithkline Beecham.

WEDNESDAY: Electronics industry in Scotland (1991). New construction orders (December provisional). US durable goods (January). Irish budget statement.

THURSDAY: Energy trends (December). Balance of trade with countries outside the European Community (January). New vehicle registrations (January). US jobless claims. European Community industry ministers meet in Brussels to discuss the impact of the restructuring of the steel industry within the community. Official start of the 1993 EC budget review in Brussels. European Community industry council meets in Brussels. Preliminary results from British Gas, Royal Dutch/Shell and ICI.

FRIDAY: Confederation of British Industry publishes trends inquiry (February). Engineering sales and orders at current and constant prices (December). US gross domestic product (fourth-quarter preliminary). North Atlantic Council holds special ministerial meeting in Brussels. Mr Warren Christopher, US Secretary of State, meets EC officials in Brussels.

XA World P99 Nonclassifiable Establishments GOVT Government News ECON Economic Indicators P99 The Financial Times London Page 11 260
Commodities and Agriculture (Week in the markets): Sugar breaks into higher ground: Publication 930220FT Processed by FT 930220 By RICHARD MOONEY

A SERIES of bullish developments this week enabled the world sugar market to break free of the strait-jacket that had been confining prices for some time.

Having traded mostly between 8 cents and 8.5 cents a lb since last autumn the prompt March futures position at New York's Cocoa, Sugar and Coffee Exchange leapt in mid-week to 9 cents, a level last seen on November 2, and moved on to a five-month high of 9.53 cents before edging back yesterday afternoon.

Market sentiment has hardened in recent weeks as analysts' assessments of the likely sugar supply surplus in the 1992-93 season have been reduced. London trader ED & F. Man now expects supply to exceed demand by some 1.5m tonnes (about 1.3 per cent of annual production), compared with the 3.4m tonnes it was forecasting earlier. And this week C. Czarnikow, another London trade house, which in November was forecasting an 830,000-tonnes surplus, this week adjusted this to a 370,000-tonne deficit (after allowing for 'unrecorded disappearance' of 600,000 tonnes ).

However, the factor that changed firmness into strength this week was talk circulating among traders that Cuba had been forced to buy 100,000 tonnes of sugar from Thailand to enable it to honour supply commitments to China and other Asian countries. Cuban sugar minister Mr Juan Herrera warned earlier this month that lack of basic inputs had 'caused delays in the start-up of a significant number of mills'.

Also supporting the market were: a surprise announcement of a 160,000-tonne Kenyan buying tender for next Monday; a 14,000-tonne Moroccan buying tender; talk of Cuban sales to Mexico and of a 100,000-tonnes sale to Indonesia; and a cut in Thailand's harvest forecast from 49.15m tonnes of cane to 43m tonnes.

'There have been several important changes in the statistical outlook for the 1992-93 crop cycle with adjustments to the supply side of the balance predominating,' said Czarnikow in the February 17 issue of its Sugar Review. 'Production for the season has fallen by some 1.32m tonnes since our world forecasts in November and is now expected to slip below last season's output by some 1.87m tonnes.'

The trade house now estimates world sugar production at 114.57m tonnes, compared with 115.89m in November, and consumption at 114.51m tonnes, compared with 114.46m tonnes.

Cocoa prices put in another steady performance as producers and consumers prepared for next week's International Cocoa Agreement (ICCA) negotiations in Geneva. In late trading yesterday the New York market's May position was quoted at Dollars 932 a tonne, up Dollars 7 on the week. In London, however, that firmness was obscured by the dollar's decline against sterling and the London Futures and Options Exchange's May cocoa contract ended Pounds 3 down on the week at Pounds 734 a tonne.

The Geneva meeting will mark the fourth and final attempt to agree a price-stabilisation pact to replace the moribund one that expires on September 30. Delegates were moving towards agreement at the last session, in November, that efforts to steady the market should be based on the withholding of between 330,000 and 380,000 tonnes of surplus beans from the market. But they remained far apart on how that was to be financed and on what price range was to be defended.

The existing ICCA, agreed in 1986, ceased to operate as a market support pact early in 1988, when its buffer stock reached the 250,000-tonnes ceiling.

All but one of the London Metal Exchange's contracts finished down on the week, the biggest fall being in copper, which closed yesterday at Pounds 1,551.25 a tonne for three months delivery, down Pounds 30.50 on the week. But, as with cocoa's fall, the culprit was the sterling rally, but for which the price would have been modestly higher.

Dealers said the copper market was supported by concern over production stoppages in Mexico and Papua New Guinea and the expectation of Chinese buying on any dip to Dollars 2,220 a tonne, about Dollars 7 below the dollar equivalent of yesterday's close. But the market remained trapped in a narrow range, they added, with overhead resistance expected at Dollars 2,231 a tonne.

After most of an early fall had been recovered in mid-week the aluminium market ended on the downbeat, with the cash position closing yesterday at Dollars 1,204.50 a tonne, down Dollars 4 on the day and Dollars 7.75 on the week.

The market had been steady in the morning, underpinned by talk of further production cuts following Alumax's announcement on Thursday that it was reducing output by about 36,000 tonnes a year at its Mount Holly smelter. Fears that the Bonneville Power Administration restrictions could increase energy costs for some US smelters were also providing support. But prices again ran into overhead resistance and fell away during the afternoon.

Among the precious metals platinum and palladium prices reversed last week's gains as confidence was rocked by nervousness about US economic policy and a report that Japanese car makers were to cut imports of the metals, both of which are used in exhaust catalysts.

Dollar weakness helped gold to mount another assault on the upper end of its recent Dollars 327-Dollars 332 a troy ounce trading range on Tuesday. Once again it was repelled, as was a fresh attempt yesterday.

------------------------------------ LME WAREHOUSE STOCKS (As at Thursday's close) ------------------------------------ tonnes ------------------------------------ Aluminium +2,100 to 1,650,550 Copper unchgd at 319,425 Lead -650 to 234,425 Nickel +1,176 to 82,164 Zinc +7,600 to 546,600 Tin +15 to 17,135 ------------------------------------

XA World P0179 Fruits and Tree Nuts, NEC P1021 Copper Ores P0722 Crop Harvesting P1099 Metal Ores, NEC P33 Primary Metal Industries P5051 Metals Service Centers and Offices MKTS Market data COSTS Commodity prices P0179 P1021 P0722 P1099 P33 P5051 The Financial Times London Page 11 977
UK Company News: Queens Moat near to franchise agreement with Holiday Inn Publication 930220FT Processed by FT 930220 By MICHAEL SKAPINKER, CHRISTOPHER PRICE and PHILIP RAWSTORNE

QUEENS MOAT Houses and Holiday Inn, the Bass subsidiary, are close to concluding a new franchise agreement, but the number of hotels involved is smaller than expected.

The agreement being discussed would result in a handful of Queens Moat hotels in the UK and on the continent adopting the Holiday Inn name. The total number involved is thought to be fewer than 10.

It had been thought that the two companies were considering a more wide-ranging agreement with a larger number of Queens Moat hotels becoming Holiday Inn franchises. Although the deal being discussed could be extended to involve a greater number of hotels, this is unlikely in the immediate future.

Queens Moat already runs one Holiday Inn in Newcastle and 19 on the continent.

The agreement under discussion would only partly compensate Holiday Inn for the loss of 15 of its UK hotels last year to the Marriott chain. The hotels are owned by Scott's Hospitality, a Canadian company. Scott's switched to rival Marriott after its request to become Holiday Inn's master franchisee in the UK was rejected.

Holiday Inn Worldwide plans to double the number of its hotels in France to about 40 by the mid-1990s, mainly by taking over existing hotels, Philip Rawstorne writes.

The Holiday Inn brand will also be extended to seven hotels owned by the French Alliance group in which Holiday Inn has a 54 per cent stake.

The expansion is part of a programme to lift the number of Holiday Inns in Europe, the Middle East and Africa, from 125 to more than 200.

See Markets

Queens Moat Houses Holiday Inn Hotels Holiday Inn Worlwide GB United Kingdom, EC P7011 Hotels and Motels COMP Company News TECH Licences RES Facilities P7011 The Financial Times London Page 10 320
UK Company News: Costain's US coal arm pleads guilty Publication 930220FT Processed by FT 930220 By ANDREW TAYLOR, Construction Correspondent

THE US coal mining arm of Costain, the UK construction group, yesterday pleaded guilty to 29 charges involving safety violations at its William station mine in west Kentucky where 10 people were killed in an explosion in 1989.

An indictment against the company was announced by the US Grand Jury which has been investigating the explosion and which is highly critical of the mine's management before and after the tragedy.

Costain said that it had decided to plead guilty on 29 counts, and would not contest three other charges, rather than face protracted court proceedings which 'would prolong the pain for all, especially the families of those miners whose lives were lost'.

Costain is being fined Dollars 3.75m (Pounds 2.64m).

The company also faces claims for damages from the families of the dead miners. Settlements in two cases have already been agreed by the company's insurers.

Mr Tom Parker, chairman of Costain's US coal mining division, said: 'We deeply regret the tragedy that occurred. Although the exact cause and reasons for the explosion remain unresolved, we believe it is best at this point to settle the matter for our employees, the miners' families and the company.'

The explosion occurred in September 1989, just two months after Costain acquired a 100 per cent stake in Pyro coal company which had previously operated the mine jointly with the British group.

Costain says that since the explosion it has reorganised the mines safety procedures including hiring extra safety officers and increasing training for miners.

The British group now operates 16 underground and open-cast coal mines in five US states producing 17.5m tonnes of coal a year. US coal operations in 1991 are thought to have generated about Pounds 5m operating profits out of total operating profits of Pounds 27.4m.

The Grand Jury findings have been published shortly before a court in St Louis, Missouri, is due to announce its judgment in a separate legal action involving Costain and Peabody, the US coal mining arm of Hanson, the UK-based conglomerate.

Peabody has asked the court for an injunction preventing the sale, for Dollars 245m, of Costain's Australian coal and property operations to Altus, part of the French Credit Lyonnais group.

Peabody, which says it had previously agreed terms with Costain to buy the Australian coal business at a lower price, wants the sale to Altus disallowed.

Costain Group GB United Kingdom, EC US United States of America P12 Coal Mining COMP Company News RES Facilities PEOP Personnel News GOVT Legal issues P12 The Financial Times London Page 10 444
UK Company News: Pegasus declines sharply to Pounds 620,000 Publication 930220FT Processed by FT 930220 By ANDREW ADONIS

PEGASUS Group has reported a sharp fall in profits and turnover, after a period of boardroom turmoil and depressed activity.

In the 17 months to December 31 1992, the USM-quoted designer of accounting software recorded pre-tax profits of Pounds 620,000, down from Pounds 1.51m in the year ended July 1991.

Figures for the previous period were restated to comply with FRS3 accounting standard.

Earnings per share were 7.7p basic (18.1p) and 7.3p fully diluted. The proposed final dividend is 2p (8.6p), payable July 10, for a 9p (12.1p) total.

The latest pre-tax profit of Pounds 620,000 was after Pounds 297,000 of net interest income, a Pounds 1.27m gain on part-sale of a subsidiary, Pounds 369,000 write-off of assets and Pounds 646,000 for redundancies and extensive board changes.

Continuing activities fell from an operating profit of Pounds 1.6m on turnover of Pounds 8.15m to a loss of Pounds 140,000 on Pounds 9m, while acquisitions added Pounds 126,000 of profits on Pounds 1.27m in the latest period.

The results were not as bad as some analysts had feared, and its share price gained 5p, closing at 160p.

Mr Jonathan Hubbard-Ford, chief executive, said the launch later this year of Version 6 of Pegasus Senior, the company's core product, offered 'a solid basis for recovery'. Pegasus was also pioneering a new integrated management information system, Sequel, but was aiming to simplify its overall business and product range.

Pegasus's market share in the modular accounting market remained stable at 36 per cent by volume.

Mr Hubbard-Ford, reinstated as chief executive in a boardroom coup in December promoted by institutional investors, promised 'stability and consolidation'.

All but one of the current directors joined the board in December 1992, when Mr Philip Sellers took over as non-executive chairman in place of Mr Derek Moon.

Pegasus Group GB United Kingdom, EC P7372 Prepackaged Software COMP Company News FIN Interim results P7372 The Financial Times London Page 10 338
UK Company News: Lopex makes Pounds 3.5m cash call to repay debt Publication 930220FT Processed by FT 930220 By ANDREW ADONIS

LOPEX, the communications group, is to raise Pounds 3.5m in a 1-for-1 rights issue to repay debt.

The issue is priced at 17p per share and will allow Lopex to pay off its estimated Pounds 3.5m debt. Its shares closed yesterday at 24p, down 1p.

Lopex, struggling in the beleaguered advertising sector, incurred pre-tax losses of Pounds 125,000 in the first half of 1992, after losses of Pounds 398,000 for the whole of 1991. It is however, projecting profits of Pounds 200,000 for the year ending December 1992, but no final dividend.

Mr Barrie Warman, finance director, said: 'Our clients have been looking at us with a bit of a jaundiced eye. Our main problem is with TV companies, which have very strict balance sheet criteria.'

The issue is underwritten by Kleinwort Benson. It is being accompanied by the establishment of an employee trust, to be endowed with Pounds 1.2m of unpaid performance bonuses, which will subscribe to the new shares and sub-underwrite about a third of the issue.

'We want to see the cash transferred to the trust reinvested in the group, enlarging Lopex's equity base,' said Mr Warman.

Most of the group's revenue comes from the depressed UK market. Its public relations and direct mailing side has fared far better than advertising.

Lopex GB United Kingdom, EC P7311 Advertising Agencies P8742 Management Consulting Services P8743 Public Relations Services COMP Company News FIN Share issues P7311 P8742 P8743 The Financial Times London Page 10 266
UK Company News: Fund-raising campaign to save Fulham ground Publication 930220FT Processed by FT 930220 By JANE FULLER

FULHAM football fans are today launching a fund-raising campaign to try to secure the club's future at its west London ground, which is owned by a company in receivership.

Urgency is lent to the Fulham 2000 campaign by the fact that there are only 100 days to run on the club's lease of the Craven Cottage ground, which has been its home beside the river Thames since 1896.

The ground is owned by a company called Vicenza Development. It was part of Cabra Estates, the quoted property company where provisional liquidators were appointed in November. Cabra owed more than Pounds 60m to banks and other creditors, with Royal Bank of Scotland as the lead bank.

Royal Bank appointed acc-ountants from Coopers & Lybrand as receivers at Vicenza.

The bank has bought Chelsea Football Club's ground, another part of the Cabra estate, and granted Chelsea a 20-year lease with an option to buy. But the future of Fulham FC and the Craven Cottage site remains uncertain.

Apart from the short time left on the lease, the result is still awaited of an inquiry into a planning application to redevelop the ground for flats.

Cabra made the application but Fulham and Hammersmith council rejected it. The inquiry is understood to have been concluded in September, but no word has yet come from the Department of the Environment.

Fulham 2000 says: 'With no planning permission having been granted, and no demand for any residential redevelopment, Fulham should be allowed to buy the ground at today's market value.'

The campaign seems to assume it is owned by the Royal Bank, which it is not. The receivers say that the 'options are open'.

With so much undecided, the campaign has set itself no monetary target, other than collecting as many Pounds 10 membership fees as possible.

It hopes eventually to be able to contribute to a solution that would see the club stay at the ground with a partial redevelopment of the site to help add value for the bank.

Fulham Football Club Vicenza Development Cabra Estates GB United Kingdom, EC P7941 Sports Clubs, Managers, and Promoters RES Facilities FIN Company Finance P7941 The Financial Times London Page 10 382
UK Company News: Kingfisher property Publication 930220FT Processed by FT 930220

Kingfisher group's property company Chartwell Land is to withdraw from non-retail property development, and not from all property development as stated in yesterday's FT.

Kingfisher Chartwell Land Development GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries COMP Company News P6552 The Financial Times London Page 10 59
UK Company News: City group urges delay in USM closure Publication 930220FT Processed by FT 930220 By PEGGY HOLLINGER

A CITY lobby group is to urge the London Stock Exchange to delay closure of the Unlisted Securities Market, pending preparation of proposals for an alternative market with separate governance.

The City Group for Smaller Companies, representing 72 organisations, has drawn up its response to proposals for closing the USM and establishing a smaller companies sector on the Official List. The deadline for such recommendations is March 5.

In its document, Cisco agrees that the differences between the USM and the main market 'hardly justify the continued operation of the two primary market regimes'. However, the group argues that there is a strong case for a junior market with 'markedly different listing arrangements'.

To date, argues Mr Richard Balarkas, chief executive of Cisco, the Stock Exchange has failed to address specifically the needs of smaller companies. 'The Stock Exchange should be forced to recognise that it is operating two markets, or someone else should be allowed to operate a national market,' he said.

'There is a lot of support for the idea, but it would need a significant change in attitudes from both the Stock Exchange and the government,' he added.

Mr Balarkas and Mr Andrew Beeson, Cisco's chairman, cite the example of Nasdaq, which is operated by a self-regulatory body in the US. Established in 1971, Nasdaq was particularly successful in its early days in providing a forum for smaller companies. Today, however, the bulk of trading is concentrated in its biggest companies.

Nevertheless, Mr Beeson said: 'The Nasdaq market is independently operated and governed and totally dedicated to the needs of smaller companies.'

He stressed that the preferable option in the UK would be to set up a junior market within an existing framework. However, the market would require dedicated management.

Cisco argues that the creation of a viable junior market would in the long run be good business for the Stock Exchange, which currently derives some 90 per cent of share turnover from the biggest companies.

Other issues being investigated by Cisco include the definition of inside information as included in the draft criminal justice bill. Working parties have been set up to prepare submissions to the Treasury.

Cisco will be meeting the Treasury next week to discuss its proposals. The group is also holding a series of discussions with the Bank of England.

London Stock Exchange (UK) Unlisted Securities Market (UK) GB United Kingdom, EC P6211 Security Brokers and Dealers TECH Services P6211 The Financial Times London Page 10 432
UK Company News: ICI faces decision on how to raise Pounds 1bn of new equity Publication 930220FT Processed by FT 930220 By MAGGIE URRY

IMPERIAL CHEMICAL Indust-ries, which is expected to announce on Thursday that it will proceed with its demerger plan, must also decide how to raise about Pounds 1bn of new equity regarded as essential to make the split work.

The ICI board, chaired by Sir Denys Henderson, is understood to have set itself a number of goals in the financing, some of which appear to conflict.

First, it is keen to reward loyal shareholders who supported ICI when Hanson took its 2.8 per cent stake in 1991 by preserving their pre-emption rights.

ICI also wants the certainty of an underwritten issue, which many think can only be done in the UK market, so that it can proceed with the demerger with confidence. These two factors would tend to push ICI towards a rights issue, either before the demerger, or by Zeneca, the pharmaceutical side, after the demerger.

However, Zeneca would like to widen its spread of shareholders, building an international, and especially US, investor base. 'That concept is clearly very important in the mind of Zeneca,' said one person involved. Only about 5 per cent of ICI's shares are held in the US.

ICI and SG Warburg, its adviser, are looking closely at the Wellcome share sale last summer, which was designed to increase overseas ownership of the drug company's shares.

The Wellcome sale was done on a 'book-building' basis. Potential buyers put bids in during a sale period and a price was set reflecting supply and demand. The price set was close to the market price, whereas a rights issue is normally made at a significant discount to the market price.

But Wellcome did not face a pre-emption rights problem as the shares being sold were existing rather than new ones.

Investment bankers are being asked to put proposals to ICI which can bring the differing aims into line.

One suggestion is that Zeneca should proceed with a rights issue, but that the company should attempt to generate demand from new investors for the new shares while they are trading in nil-paid form. That could involve an international road show to whip up interest in the shares.

That could prove an expensive option for Zeneca though, as it would mean issuing shares on a rights issue discount and then giving shareholders a profit if new investors are encouraged to buy.

Another approach could be to run a book building sale which would probably set a strike price closer to the market price, but to give existing shareholders the right to buy back a large proportion of the issue at the strike price. That would have the advantage of preserving pre-emptive rights, and obtaining a better price for the shares. But it would be hard to combine that with a firm underwriting commitment.

The hope of broadening the investor base to include US holders also depends on Zeneca being able to attract interest. Pharmaceutical stocks are out of favour at present, especially in the US.

Zeneca itself is seen as weak. American sales of its best-selling drug, the heart drug Tenormin, have halved over the last 12 months following the expiry of its patents. And according to one banker, Zeneca has 'nothing promising in the R&D pipeline for a couple of years. Are US investors prepared for a 2 to 3 year wait?'.

Imperial Chemical Industries GB United Kingdom, EC P2819 Industrial Inorganic Chemicals, NEC P2869 Industrial Organic Chemicals, NEC P2879 Agricultural Chemicals, NEC COMP Company News FIN Share issues P2819 P2869 P2879 The Financial Times London Page 10 612
UK Company News: Rank makes Pounds 20m disposal Publication 930220FT Processed by FT 930220 By PEGGY HOLLINGER

BRIGHTREASONS, the group run by former Mecca boss Mr Michael Guthrie, is buying the Italian restaurant businesses, Pizza Piazza and Prima Pasta, from Rank Organisation for Pounds 20.25m in cash.

The purchases bring two more Mecca businesses back under the control of Mr Guthrie, who set up Prima Pasta as part of the leisure company's restaurant business five years ago. Mr Guthrie left Mecca just before Rank's takeover in 1990.

He paid Rank Pounds 90m for 11 motorway service stations in 1991. These are run as a separate company.

Brightreasons, which is reportedly preparing for a flotation in the next two years, will pay an initial Pounds 19m, with Pounds 1.25m deferred to 1994. The payment will go a small way towards reducing Rank's onerous debt burden, which was Pounds 999.3m at the year-end.

Mr Guthrie said the acquisition would complement the Pizzaland business purchased from Grand Metropolitan in 1991. He estimated that after the latest acquisitions, Brightreasons would have between 20 and 23 per cent of the pizza and pasta market in the UK.

BrightReasons Rank Organisation GB United Kingdom, EC P5812 Eating Places COMP Company News COMP Disposals P5812 The Financial Times London Page 10 214
UK Company News: Wessex Water wins Pounds 9.8m contract Publication 930220FT Processed by FT 930220

Wessex Water subsidiary, Wessex Waste Management, has, with Avon County Council, won a Pounds 9.8m per annum contract to dispose of the county of Avon's domestic waste.

A new joint venture company, Avon Waste Management, has been formed which is 80 per cent owned by Wessex Waste Management. The company won all six contracts that were put out to competitive tender.

Avon Waste Management GB United Kingdom, EC P4953 Refuse Systems MKTS Contracts COMP Company News P4953 The Financial Times London Page 10 97
UK Company News: Fleming High net asset value improves Publication 930220FT Processed by FT 930220

Net asset value per share of the Fleming High IncomeTrust amounted to 94.9p at January 31 compared with 83.3p a year earlier and 88.7p at the trust's year end on April 30 1992.

Net revenue for the nine month period fell from Pounds 1.38m to Pounds 1.29m for earnings per share of 4.12p (4.53p). The third interim dividend is an unchanged 1.45p, payable April 1, making 4.35p (same) so far.

Fleming High Income Investment Trust GB United Kingdom, EC P672 Investment Offices FIN Annual report P672 The Financial Times London Page 10 107
UK Company News: Ingham purchase talks continue Publication 930220FT Processed by FT 930220

Negotiations for its acquisition of Moss Europe were continuing, said Ingham yesterday as it also noted the recent rise in its share price. On Thursday the worsted spinner's shares rose 7p to 109p. Yesterday they lost 1p.

The talks could result in Moss, a private UK company, being bought from Milard, a California-based car parts distributor, for Pounds 4m in shares. Ingham added that, if successful, it might raise extra funds by a share issue to provide additional working capital.

Moss Europe Ingham Milard GB United Kingdom, EC P2281 Yarn Spinning Mills P99 Nonclassifiable Establishments COMP Company News COMP Acquisition P2281 P99 The Financial Times London Page 10 121
UK Company News: Newmarket Venture shows improvement Publication 930220FT Processed by FT 930220

Newmarket Venture Capital had a net asset value per share of 62p at December 31, against 60p a year earlier. At September 30 the value was 57p.

Its portfolio of venture capital investments in the UK and US is being realised and, as already announced, it is proposed that the company will be wound up voluntarily and the assets distributed to shareholders in 1994.

The directors said that significant progress had been made in the asset realisation programme begun in 1990. The proportion of net asset value held in cash, gilts and quoted stocks net of creditors and accruals increased from 25p to 42p per share over the year.

The company does not take realised gains on successful investments into its profit and loss account and does not pay ordinary dividends. Net losses increased from Pounds 776,000 to Pounds 1.32m and losses per share amounted to 3.7p (2.1p).

Newmarket Venture Capital GB United Kingdom, EC P67 Holding and Other Investment Offices P99 Nonclassifiable Establishments FIN Annual report P67 P99 The Financial Times London Page 10 188
UK Company News: Newcastle Building Society 11% ahead Publication 930220FT Processed by FT 930220

Newcastle Building Society raised pre-tax profits by 11 per cent from Pounds 12.2m to Pounds 13.5m in 1992, while assets grew from Pounds 971.5m to Pounds 1.08bn. Mr Bill Midgely, the managing director, said it had been a good, solid year which bode well for 1993.

Profit growth took into account full provisioning in respect of actual and anticipated mortgage losses on repossessed properties and anticipated losses on serious arrears cases.

Mr Midgely said continuing uncertainty in the housing and financial services sector had prompted the society to be especially prudent as regards provisions this year. It had taken on a general reserve of Pounds 250,000 and, in doing so, had depressed profit growth by 2 per cent.

Net advances increased from Pounds 95.3m to Pounds 114.6m in the year.

Newcastle Building Society GB United Kingdom, EC P603 Savings Institutions FIN Annual report P603 The Financial Times London Page 10 164
UK Company News: BCE deeper in the red at midway Publication 930220FT Processed by FT 930220

PRE-TAX losses of BCE Hold-ings, the distributor of snooker, billiards and pool products, grew from Pounds 20,000 to Pounds 168,000 in the six months to September 30, on turnover of Pounds 1.98m, against Pounds 2.53m.

Mr David Fisher, chairman, said that the results, while disappointing, were within budget and reflected the seasonal nature of the business now that BCE had returned to its traditional core activities.

The sale of the cue and snooker tables manufacturing divisions accounted for exceptional losses of Pounds 52,000 this time. Losses per share were 0.6p (0.07p) and there is again no interim dividend.

In recent months, trading and profitability of the distribution division had been in line with budget despite the devaluation of the pound, but the company's amusement centres remained depressed.

BCE Holdings GB United Kingdom, EC P5091 Sporting and Recreational Goods FIN Interim results P5091 The Financial Times London Page 10 164
UK Company News: Trencherwood loss cut to Pounds 21m - Chairman optimistic as house reservations rise significantly Publication 930220FT Processed by FT 930220 By ROLAND RUDD

TRENCHERWOOD, a USM-quoted housebuilder and property company, reduced its loss before tax from Pounds 37.7m to Pounds 21.4m in the year ended October 31.

The loss was struck after exceptional charges of Pounds 13.1m (Pounds 29.9m). Operating losses rose from Pounds 863,000 to Pounds 2.3m.

At the year-end group borrowings stood at Pounds 46.6m (Pounds 45m) with a deficiency on net assets of Pounds 33.3m.

However, following the refinancing, approved by shareholders at a recent extraordinary general meeting, a pro forma balance sheet shows borrowings restated at Pounds 22.2m with a positive net worth of Pounds 3.9m.

Mr John Norgate, chairman, said: 'Since the start of the year we have seen real cause for optimism. Visitor levels to our show houses and house reservations have increased significantly since December, with demand on some developments now outstripping supply.'

Mr David Moss, managing director, said the housing market had changed for the first time since the recession. 'With mortgage rates at their lowest for 37 years, we are experiencing a recovery which we do not believe is about to peter out.'

He said the company's new found confidence was underlined by the support it had received from its banks. 'It is significant that the company's five-year business plan won the support of its lenders.'

The group's loss in the second half was Pounds 5m compared with a deficit of Pounds 16.4m in the first six months. The total loss after taxation fell to Pounds 20.8m, compared with Pounds 34.2m.

In line with its policy of increasing its residential side, the commercial operation disposed of assets worth Pounds 2.9m and commercial sales of Pounds 2.4m were made.

Under the terms of the refinancing, Pounds 35m of bank debts and claims were swapped for ordinary and preference shares, leaving existing shareholders with 30 per cent of the enlarged capital. Their holdings will be diluted to 15.9 per cent if there is full conversion of the preference shares.

The banks also agreed to provide five-year term facilities of Pounds 22.4m, overdraft and engagement facilities of Pounds 7m and a standby facility of Pounds 1m.

With the exception of one project, where the maximum recourse is about Pounds 60,000, the group does not have to repay any of the borrowings of its joint venture projects.

Losses per share were reduced from 137.01p to 83.10p and the final dividend is being passed again.

Trencherwood GB United Kingdom, EC P1522 Residential Construction, NEC P6552 Subdividers and Developers, Ex Cemeteries COMP Company News FIN Annual report P1522 P6552 The Financial Times London Page 10 451
UK Company News: Holmes Protection back in the black with Dollars 4.17m Publication 930220FT Processed by FT 930220 By TIM BURT

THE SUCCESSFUL completion of a three-month debt restructuring programme at Holmes Protection yesterday enabled the US security group to announce a sharp turnround in its year-end results.

Pre-tax profits for 1992 totalled Dollars 4.17m (Pounds 3m) compared with losses of Dollars 35.5m. Turnover declined from Dollars 59m in 1991 to Dollars 56.2m.

The company, quoted in the UK, blamed the downturn in turnover on orders cancelled before a new management team headed by Sir Ian MacGregor, former chairman of British Coal, had implemented a restructuring plan designed to wipe out debt held by seven North American institutions.

The institutions, which were unsecured lenders, agreed to forgive a portion of the debt and accept a part cash and part debt-equity swap for the remainder.

Yesterday's results included an exceptional gain of Dollars 1.88m (Dollars 30.7m) following the reversal of an acquisition reserve made in 1991.

Earnings per share after adjusting for the share consolidation were 23 cents, against losses of Dollars 12.98. However the directors felt a figure of 10 cents, on the basis that the shares issued during the restructuring had been in issue throughout the year, was more meaningful.

Although the company decided not to pay a dividend for the third year running, Sir Ian said it intended 'to resume the payment of a nominal amount of dividends during 1993'.

He also predicted increased turnover in the year ahead following a slowdown in the cancellation rate in its main business of installing and servicing alarm systems.

Holmes Protection Group US United States of America GB United Kingdom, EC P7382 Security Systems Services COMP Company News FIN Annual report P7382 The Financial Times London Page 10 297
Letter: VAT on food a banana skin that government must avoid Publication 930220FT Processed by FT 930220 From Messrs GEOFF RAYNER and TIM LANG

Sir, Michael MacKenzie of the Food and Drink Federation (Letters, February 10) has rightly described the proposed imposition of VAT on food as a tax on the poor. We also think that there are other points to be made against the proposal.

VAT will cause further inflationary pressure on food costs for an industry already suffering the effects of the devaluation of the pound. It would also be a tax on farmers at a time when bankruptcies are commonplace. And it would be ironic if the government extended VAT, with accompanying bureaucracy, in the same month as it has launched a campaign to reduce the burden of regulation on the food industry. As proponents of public health, we are in favour of sensible and flexible regulation, but the imposition of VAT on food would be neither. The government should reconsider.

The FT has consistently covered the international row on the banana trade. We are sure that your readers will join us in judging the idea of VAT on food as a banana skin the government and the food industry would do well to avoid.

Geoff Rayner,

chair,

Tim Lang,

director,

Parents for Safe Food,

The Public Health Alliance,

10-15 Livery Street,

Birmingham B3 2NU

GB United Kingdom, EC P20 Food and Kindred Products P9611 Administration of General Economic Programs GOVT Taxes CMMT Comment & Analysis P20 P9611 The Financial Times London Page 9 256
Nobody's a Nice Guy now: Russia's political battles and ruined economy Publication 930220FT Processed by FT 930220 By JOHN LLOYD

The mood in Russia and its sister states of the former union is hardening. It is now each state, each region, each individual for himself: the forced, and in part real, equalisation of both scarcity and provision under the old communist system gives way to a Darwinian struggle which grows more feral.

This is the atmosphere against which the battle for power in Russia is played out (similar battles go on all about its periphery): it means that the 'constitutional debate' has less of the legislative chamber and the study about it, more of the whiff of rifle oil and the rumble of tank tracks. Everyone - Mr Boris Yeltsin, the president, Mr Ruslan Khasbulatov, the parliamentary speaker, their supporters and ideologues, proclaim that the price of failure to agree is chaos, dictatorship, the end of another Russian experiment with democracy, of which the longest was the period 1905 to 1917. They then continue to ensure that no agreement can be reached.

The battle is over the constitution, but the field is the ruined post-Soviet economies. With no end to the crises in any of the former Soviet states, the richer are doing what the rich usually do with the poor - spurning them. This is most seriously the case with Russia, the richest in energy.

The Russian cabinet met on Thursday, and made a series of decisions which, if followed through, would be momentous. Mr Victor Chernomyrdin, the new prime minister - who often shows himself, at least in rhetoric, to be a much harsher economic realist than his predecessor Mr Yegor Gaidar - told his colleagues that he wanted to switch over (more or less) to world prices in all dealings with former Soviet neighbours. He would no longer tolerate a situation where Ukraine bought Russian oil for a rouble-denominated song and sold 8m tonnes of it (as the Russians believe it did last year) for good US dollars.

Mr Alexander Shokhin, the deputy prime minister in charge of foreign economic affairs, said last week that Ukraine and other states would have to make military and other concessions if it wanted to continue receiving cheap energy: and Mr Vladimir Mashyts, head of the committee for co-operation with the CIS member states, pointed out that where Russia delivered 60-70 per cent of promised supplies, the CIS countries averaged about 16 per cent.

A following through of this hard line means impoverishing already miserable states: countries like Georgia, where more than half the industry has closed and the black economy traders export the agriculture surplus to hard currency countries, and which owes 70 per cent of its current government expenditure to Russia. Other states are less dramatically dependent, but the tendency will be the same. No more Mr Ivan the Nice Guy is the message they are all receiving: now, even the most liberal minister must be a Russia-firster. None can ignore the imperatives of a people demanding an end to economic misery: nor can they fail to see the galloping disintegration within Russia, as regions within the federation, too, play the zero sum game of grasping after 'independence' (from taxes, state obligations, and the need to confirm to minimum national social and other standards).

The politicians turn harder as it becomes clear to them all that 'the west' is not a rich and generous idiot. The International Monetary Fund, which earlier this month anxiously conferred in Washington with Mr Boris Fyodorov, the new economic chief in the cabinet, over the government's programme, believes it can do nothing until at least the basic rules of monetary discipline are in place - a system for controlling the budget deficit, real Central Bank interest rates, a rein on credits. Yet these are as far away as ever. Foreign investors and corporations, their hope for stability fading as the cases of mismanaged and stalled joint ventures multiply, cut back their representative offices and whine. The west, too, is no longer Mr Nice Guy.

As with states, so with individuals. The post-Soviet rich are spectacularly rich, the men wearing Guccis and Rolexes, the women dripping with mink, the Mercedes 500 waiting at the Casino door with an ex-paratrooper behind the wheel. Most are criminal in one way or another, even if 'only' tax dodging: the darker side is a violent crime rate now going up almost vertically to the point where Mr Victor Yerin, the saturnine interior minister, spoke on Thursday of his being a 'ministry at war', and said that the population must be 'taught to respect the militia', of whom they had murdered nearly 400 last year. Again, if Mr Yerin's words become deeds, we will see a harsh regime - and can expect to see it welcomed.

This tightening of the purses, of security, the emphasis on everyone for himself, underpins the political space within which Mr Yeltsin and Mr Khasbulatov slug it out for constitutional primacy. Neither are much respected, though Mr Yeltsin retains recognition for his courage. The history of their most recent conflict is that of contemporary Russian politics - improvised, hectic and treacherous.

It stems immediately from a deal made at the Congress of Peoples Deputies in December, under which Mr Yeltsin was permitted to call a referendum on a new constitution on April 11: since then, Mr Khasbulatov has attempted to sink the deal, and Mr Valery Zorkin, chairman of the Constitutional Court who guaranteed it, has descended into the political arena by saying he now thinks it a bad idea. This defection from his proper role, hardly noticed in the turbulence of the day-by-day posturing, removed the last planks of the legal framework which might have surrounded the manoeuvrings of those on top of the political heap.

We exist in the now-familiar countdown mode: another deadline has been set within which, in this case, a preliminary agreement on the division of power must be drawn up by presidential and parliamentary aides over the next week, then put to a special one-day session of the Congress in early March.

Mr Yeltsin appeared on television this week in a cardigan to say that he didn't trust these tricksters in parliament, that he would give negotiation a shot but that he really thought a referendum on a constitution was the best bet. Meanwhile, parliament should agree to hand over most of its economic powers to the government so it could have a free hand in sorting out the crisis: he too would refrain from interfering with the government he appointed.

Mr Yeltsin's offer has no hope of acceptance. It may simply be a high opening bid, but it may also be the tabling of a set of conditions, without which Mr Yeltsin does not think the country can be governed and the economy pulled out of its dive. As he attempts to tighten control in face of the tearing apart of his economy and his country, he cannot afford to compromise further with a parliament which, under Mr Khasbulatov, wishes to govern the country too.

Mr Khasbulatov, a former economics professor who comes from the Caucasian autonomous republic of Chechnya, has brilliantly used what was in Soviet times a purely ceremonial post to put himself at the head of a parliament whose members are inexperienced, divided and often ignorant: he has played a weak hand to the point where it cannot be ignored and must be either placated or beaten. His self-importance is large, as is his political intelligence. Often down, he has never been out.

As the battle rages between the two men, the economic room for manoeuvre has disappeared, as has the 'democratic surplus' - the space within which choices can be made for compromise and consensus between layers of political authority. The politicians, too, are out for themselves: Russia and its neighbours are sucked into the vortex of their struggle, a largely supine citizenry condemned, yet again, to fear and wait.

RU Russia, East Europe P9611 Administration of General Economic Programs P9111 Executive Offices CMMT Comment & Analysis P9611 P9111 The Financial Times London Page 9 1360
Lead role in a power play: Michael Smith asks who will blink first, government or generators Publication 930220FT Processed by FT 930220 By MICHAEL SMITH

Mr John Baker, chief executive of National Power, the UK electricity generating company, never expected an easy relationship with the government following a difficult privatisation process.

'Have no doubts . . . the government will feel happy if National Power falls flat on its face,' he wrote in the leaked draft of a speech, later amended, to managers of the Central Electricity Generating Board, the predecessor of National Power and its rival generator for England and Wales, PowerGen. The implication was that in the private sector, the generators would have few friends in the government.

Four years later, another leak of Mr Baker's controversial thoughts is exacerbating a degree of current tension with the government.

The disclosure on Thursday of a confidential letter from Mr Baker to Mr Michael Heseltine, industry secretary, reveals an extraordinary behind-the-scenes battle between the government and National Power and PowerGen over who should pay to rescue some of Britain's threatened coal mines.

The government, having rejected most of the more radical options for increasing the market for coal - such as cutting nuclear or gas-fired electricity - is looking to the generators to solve its problems by buying larger tonnages than they want over the next five years. Mr Baker's letter, and an accompanying memorandum in which he talks of a government threat to legislate if the generators do not accede, shows that Mr Heseltine has a fight on his hands. Mr Baker has refused to buy as much coal as the government wants and thrown the ball back into Mr Heseltine's court.

The response is typical for the tenacious Mr Baker. At 55, he has had an unusual career for a senior manager in the electricity industry. Most have joined the sector at an early age, often straight from university, with an engineering or technological background. Mr Baker began his career in electricity in 1979, when he was 42, and his background was far from scientific.

After graduating in English from Oxford, he worked in the transport and environment ministries as a civil servant from 1961 to 1974 before setting up the Housing Corporation, a state body to provide rented housing. Some of the more narrowly focused engineers at the CEGB must have looked askance at a man who delights in the opera and bridge and who, in one week's holiday, says he can read up to 15 novels.

Despite his unorthodox background Mr Baker quickly integrated himself into what one former colleague describes as an engineers' closed shop. He says he found the CEGB insensitive to shifts in public mood and after joining the board in 1980 tried to make it more outward looking. He later took charge of public relations and distinguished himself in the presentation of the board's case for building the Sizewell B nuclear station. He became corporate managing director in 1986.

Within the industry he is highly regarded, even by the chairmen and chief executives of the regional electricity companies who often view former CEGB managers as remote and arrogant. 'He is not really a hands-on manager like Ed Wallis at PowerGen, partly because he doesn't have the background,' says one. 'But he can delegate and his strength is knowing how to operate in the corridors of power; how to deal with the industry regulator and the politicians.'

Given his reputation for toughness, there are some in the industry who believe, probably inaccurately, that Mr Baker leaked the documents to Mr Heseltine himself.

Whoever did so had a sense of style and humour, since the papers were sent anonymously to Mr Arthur Scargill, the president of the National Union of Mineworkers, who is no ally of the generators. The leak prompted a great deal of concern within National Power yesterday that it could have a detrimental effect on negotiations with the government.

The nub of the dispute is that the government wants the generators to take 65.5m tonnes of coal at subsidised prices in the next five years over and above the 160m tonnes they have agreed to buy over the period. The generators say they will take up to 55m tonnes extra, but 15m would have to be stockpiled, with the government paying the costs.

The surprising element of the documents is Mr Baker's revelation that Mr Heseltine 'said that if we (the generators) couldn't take the additional tonnages, he would be forced to legislate'.

Such a threat appears inconsistent with the prospectus for the flotation three years ago of National Power and PowerGen which said that the government 'intends that the relationship between British Coal and each of (the genera-tors) . . . should be commercially determined on an arms' length basis'.

The signs are that the government wants to avoid a solution to British Coal's problems that involves primary legislation. Laws which revised the terms of the privatisation would inevitably hit the shares of the generators at a time when the government is looking to sell off its remaining 40 per cent stakes in each company. The money is needed to reduce the growing public sector borrowing requirement possibly within the next year or two.

But the government's more pressing problem is to find a publicly and politically acceptable alternative to British Coal's programme for closing 31 pits. A white paper originally scheduled for this month has been delayed because of the difficulty of finding a solution.

The likelihood is that a compromise with the generators will be reached, but some analysts believe National Power and PowerGen are putting their lucrative contracts for 160m tonnes of coal at risk by trying to drive a hard bargain. If Mr Heseltine decides to enact legislation to force the generators to take the extra 65m tonnes, the deals already agreed could be affected.

'John Baker has proved an accomplished negotiator and has proved adept at staring in the eye the guy on the other side of the table,' says one. 'Maybe now is the time to blink.'

National Power GB United Kingdom, EC P4911 Electric Services P9631 Regulation, Administration of Utilities PEOP Personnel News CMMT Comment & Analysis Baker, J chief executive National Power P4911 P9631 The Financial Times London Page 9 1049
Letter: Unfounded maternity leave fears Publication 930220FT Processed by FT 930220 From Ms CHRISTINE GOWDRIDGE

Sir, The chance of a woman demanding maternity leave the day after the start of a new job is remote, so it is curious of the Confederation of British Industry's Mr Gilbert to focus on it ('Maternity changes nurture fears', February 15). He is probably expressing the fear, still found among some employers, of the burden that employment rights for working women represents. If so, he should be reassured that similar fears expressed by employers about the introduction of maternity rights in the 1970s turned out to be groundless.

Research demonstrates that maternity leave is only one of the many sources of absence and much less common than most. Increasingly, employers are seeing the benefits of providing adequate maternity leave in terms of retaining valued staff. In any event, much of the cost, in terms of pay, is borne by the state.

While regretting the complexity of the Trade Union Reform and Employment Rights Bill, the Maternity Alliance welcomes the proposed extension of maternity leave to the minority of women not currently entitled to any. It is reassuring to note that the CBI is not abandoning its commitment to equal opportunities policies. Women should not suffer disproportionately the effects of this recession.

Christine Gowdridge,

director,

The Maternity Alliance,

15 Britannia Street,

London WC1X 9JP

GB United Kingdom, EC P9441 Administration of Social and Manpower Programs P9651 Regulation of Miscellaneous Commercial Sectors CMMT Comment & Analysis P9441 P9651 The Financial Times London Page 9 257
Letter: Legislation needed to meet current needs of farmers Publication 930220FT Processed by FT 930220 From Mr V A G TREGEAR

Sir, David Richardson's observations in Farmer's Viewpoint (February 16) highlight how much more has to be done by the farming community. That 100 UK farmers are going out of business each week is merely the continued effect of battle against rising overhead and declining income during the last 10 years.

Considerable effort is being made now in the home counties, if not the shires, to respond to the current conditions by 'extensifying' and entering into new forms of farming agreement. It is in this context that progressive farmers and landowners are hampered by the antiquated legislation enshrined in the agricultural holdings acts. The government should therefore be encouraged to bring forward the legislation that it is now considering based upon 'freedom to contract'. This would enable joint ventures and other trading agreements to be introduced to meet modern conditions without either the fear of creating agricultural tenancies with security of tenure, or the need to use rather incongruous Gladstone v Bower tenancies.

In parallel with this, the government must be prepared to rationalise both the capital and income tax framework to remove the anomalies that occur as a result of new enterprises and agreements.

As it looks as if the government will have to be parsimonious for some time, its best alternative would be to give parliamentary time as soon as possible to improve the legal framework and stimulate the entrepreneurial spirit.

V A G Tregear,

Bentleys, Stokes & Lowless,

solicitors,

International House,

1 St Katharine's Way,

London E1 9YL

GB United Kingdom, EC P10 Metal Mining P9641 Regulation of Agricultural Marketing CMMT Comment & Analysis P10 P9641 The Financial Times London Page 9 294
Letter: Union power over pay levels in doubt Publication 930220FT Processed by FT 930220 From Mr SIMON MILNER

Sir, Samuel Brittan's analysis of the link between average earnings growth and unemployment during three recessions ('The unwelcome pay-jobs link', February 18) highlights the macro failure of Thatcherite labour market reforms to deliver. What is particularly noticeable, and what Mr Brittan fails to point out, is that equilibrium unemployment has remained stubbornly high (around 2.5m) despite the enormous reduction in union density and collective bargaining coverage in the second half of the 1980s.

Ten years ago the high level of equilibrium unemployment would have been principally blamed on unions and their wider influence through pay bargaining. The decline in numbers covered by collective bargaining, combined with decentralisation of bargaining, has not produced the improved macro performance that many predicted it would. In light of this, perhaps we now also need to reassess the impact of 'union power' on average earnings growth in the past.

Simon Milner,

research officer,

Centre for Economic Performance,

London School of Economics,

Houghton Street,

London WC2A 2AE

GB United Kingdom, EC P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 9 199
Letter: No case for exempting forces from a 'classless' society Publication 930220FT Processed by FT 930220 From BRIGADIER J S RYDER

Sir, According to Philip Stephens and David White ('Major's 'classless' honours plan upsets forces chiefs', February 13) service chiefs are arguing that classlessness may be all very well in civilian life but the rigid observance of social status is a vital component of a well-oiled military machine.

Perhaps they have forgotten the Victoria Cross, the only award available to all ranks of the three services according to their deeds. All the rest are remnants of a distasteful system which awards decorations to officers and medals to other ranks for the same level of bravery.

Britain stands alone in maintaining such an outdated, class-ridden system. It is time the prime minister removed this blemish - the people wish him well.

Stuart Ryder,

8 Shenley Hill,

Radlett,

Herts WD7 7BB

GB United Kingdom, EC P9611 Administration of General Economic Programs P9711 National Security CMMT Comment & Analysis P9611 P9711 The Financial Times London Page 9 173
To tax, or not to tax ..: Signs of economic recovery are pushing the UK chancellor into a fiscal dilemma Publication 930220FT Processed by FT 930220 By PETER NORMAN

Oddly enough, the past week has been a relatively good one for Mr Norman Lamont.

Although UK unemployment burst through the 3m mark in January, other economic indicators have mitigated some of the gloom that settled over the country last month.

But it is a measure of the difficulties facing the chancellor that no sooner do the economic skies lift a little than the debate switches to the other huge problem in his in-tray. Britain's growing public deficit casts a long and dark shadow over government economic policy. Every sign that the economy might be improving brings forward the question of whether Mr Lamont's third Budget on March 16 should be the occasion to start increasing taxes to cut the deficit.

The chancellor has had conflicting advice at the highest level over the past week. While the board of the International Monetary Fund has urged Britain to tighten fiscal policy, six of his seven-man panel of independent economic forecasters, the Seven Wise Men, yesterday urged him not to raise taxes in the Budget.

However, all economic commentators agree that the UK's projected public sector borrowing requirement of Pounds 37bn in 1992-93 or 6.25 per cent of gross domestic product is unsustainable in the long term. Although deficits of Pounds 37bn, or the Pounds 50bn widely expected for 1993-94, may be acceptable in a recession, borrowing on this scale will push up the country's debt service burden and eventually force the government to cut public spending or raise taxes.

Mr Lamont has big decisions to take next month. If he tightens policy too soon, he could go down as the man who aborted the long-awaited recovery. If he allows the deficit to grow out of control, history might judge that he condemned Britain to Italian-style fiscal laxity. He has presided over a dramatic easing of policy since September, with sterling devalued by 15 per cent and bank base rates down to 6 per cent from 10 per cent. But Mr Lamont's judgment will hinge crucially on his assessment of present conditions in the UK economy, where the evidence is mixed and confusing.

The best that can be said of the economy is that developments are still consistent with the Treasury's Autumn Statement forecast of a meagre 1 per cent growth this year. At the Bank of England, economists still regard the economy as 'bumping along the bottom' of the business cycle.

Some encouraging news emerged over the past week. Retail sales, helped by heavy discounting, increased in volume by 1.6 per cent in January, reversing a 1 per cent fall in December. But even here, the tale was not one of unalloyed joy. Seasonally adjusted sales in the three months to January 31 were up by only 0.2 per cent in volume compared with the previous three months.

There is little sign of recovery in industry. Manufacturing output inched ahead by less than 0.1 per cent between November and December while output in the three months to December was down a seasonally adjusted 0.2 per cent compared with previous three months.

On the other hand, manufacturing productivity has risen sharply, with December's 6 per cent annual rate of growth marking the highest year-on-year rise since April 1989.

Higher productivity reflects the past bad news of sharply rising unemployment among manufacturers. But by helping to keep costs under control, it holds out hope for the future. Manufacturers' unit labour costs fell by 0.5 per cent in December compared with a year ago and were flat in the three months to the end of December, easing the impact of the higher imported fuel and raw material costs that have followed sterling's devaluation.

Not surprisingly, indicators of business confidence have shown an increase in optimism in recent months. However, measures of consumer confidence and bank and building society lending are far less robust.

In the housing sector, there has been the familiar mix of good and bad news. Estate agents polled by the Royal Institution of Chartered Surveyors have reported that house sales continued to improve after Christmas and new year. However, the Building Societies Association said that net new commitments - mortgages promised by lenders - fell by about 18 per cent between December and January and were sharply down on the level of January last year. Gross mortgage lending fell to Pounds 1.8bn in January from Pounds 2.1bn in December.

Monetarists also have reason to feel confused. M0, the narrow measure of money supply which consists mainly of cash and bank notes and which is targeted by the Treasury, breached its 0 per cent to 4 per cent annual growth range last month when it rose by an annual 4.1 per cent. However, M4, the broad money measure that includes bank and building society deposits and which should reflect the credit

granting of such financial institutions, has been very subdued. Broad money grew by only 3.2 per cent in the year to January, its lowest growth rate since records began.

But the 'M's, in so far as they are telling a story of divisions in society, probably contain the best clue as to what is happening in the economy and how Mr Lamont will approach the Budget.

The Treasury believes that strong growth in M0 parallels the rise in high street spending. Many in work or retired have cash to spend and have been making the most of the bargains in the shops. The unemployed also tend to live in a more cash-based world.

M4's weak performance may be evidence of the continued damage caused by debt deflation, or the erosion of wealth by falling asset prices. According to the Bank of England, more than 1.5m households have negative equity after falling house prices have put the value of their homes below the level of their mortgages.

The Bank thinks that debt deflation is the reason why the recession has lasted so long. Its analysis suggests that it would be wrong to pin recovery hopes on increased spending by the heavily indebted. Instead, recovery in the housing and other markets may have to wait until households without debt problems have the courage to borrow and buy assets at bargain prices.

The problems of debt deflation and the housing market will probably count against any radical reform of the tax treatment of mortgages in the budget. Mortgage interest relief is a natural target for a chancellor such as Mr Lamont, who fancies himself as a tax reformer and favours tax neutrality - the principle that taxation should not distort economic activity or favour any special group. Mortgage interest relief contradicts this principle and is expensive (costing the Treasury an estimated Pounds 5.2bn this financial year). Although there are good arguments for targeting tax relief on the first-time buyer, who is so crucial in setting up 'chains' of house sales, the chancellor would be brave to tamper with existing arrangements before having clear evidence that house prices have stopped falling.

Instead, Mr Lamont may draw inspiration from the recent sharp fall in inflation to find relatively painless ways of raising revenue. The drop in retail price inflation to 1.7 per cent last month is genuinely good news.

Some economists believe that the annual rise in the 'headline' retail prices index could fall to 1.3 per cent this spring, or half December's 2.6 per cent rate of inflation which will be used as the basis for indexing tax allowances and thresholds in the Budget.

Such a drop might justify freezing some or all of the tax allowances which apply before Britain's 20, 25 and 40 per cent income tax rates take effect. If Mr Lamont kept all income tax allowances frozen at 1992-93 levels he would save Pounds 750m in 1993-94.

Low inflation may also give the chancellor some leeway to widen the value-added tax net, although he must take care that the resulting upward pressure on prices does not breach the upper limit of the 1 per cent to 4 per cent target range for underlying inflation.

Britain and Ireland are the only European Community members which zero rate VAT to any extent: in Britain's case zero rating applies to about 24 per cent of consumer spending. It would be both politically inept and socially unjust in a recession to impose VAT on food, where zero rating rather than levying the 17.5 per cent standard VAT rate costs the exchequer Pounds 7bn a year.

But there are other areas where the case for zero rating or VAT exemption is less clear. Exempting private education and finance and insurance from VAT respectively cost the government Pounds 600m and Pounds 2.7bn a year compared with the standard VAT rate. Zero rating international passenger transport leads to a revenue loss of Pounds 800m. The exchequer loses Pounds 1.1bn through zero rating books, newspapers, magazines; Pounds 700m on water and sewerage services and Pounds 500m on ships and aircraft. Domestic passenger transport (cost Pounds 1.1bn) or domestic fuel and power (cost Pounds 2.6bn) are also zero rated.

Nobody is suggesting that Mr Lamont is contemplating swingeing tax increases in the forthcoming Budget. Indeed his Budget judgment will be very finely balanced. But the examples of zero-rated VAT and VAT exemptions give an indication of areas where the government might over time bolster its finances, perhaps by introducing a lower rate VAT in line with continental practice.

As he settles down to weigh the evidence before making his strategic decisions for the Budget, the chancellor may reflect on events across the Atlantic, where President Bill Clinton this week won strong initial support for his package of tax increases and spending cuts to reduce the US budget deficit.

Although Mr Lamont believes in a low taxation economy, he also knows that the continued high deficits in the US and Italy over the past decade have done nothing to improve the economic performance of those countries. Their experience is a strong argument for starting to correct the UK's budget deficit next month.

GB United Kingdom, EC P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis PEOP Personnel News Lamont, N Chancellor (UK) P9611 P9311 The Financial Times London Page 8 1725
Man In The News: Smoother after a few days' growth - The US president has risen in stature since his successful state of the union address / Bill Clinton Publication 930220FT Processed by FT 930220 By JUREK MARTIN

President Bill Clinton was so smooth and eloquent in his state of the union address on Wednesday night that most people must have assumed it was either the result of hours of practice or reliance on the teleprompter or both. Keen students of the Clinton speech-making technique thought they detected some typical extemporisation. But against the press of deadlines and with advance copies of his text unavailable until moments before delivery there was little cross-checking between what he said and the official script.

The local correspondent of the Economist, however, is on sabbatical. Like most journalists in Washington with a moment to spare, he was in a TV studio preparing to comment on the president's address and he had a text in front of him. He calculates that up to 30 per cent of what Mr Clinton actually said was made up as he stood there. Whole sections - including one beautifully calibrated passage on the economic and social imperatives of healthcare reform - were nowhere to be found in the written text, at least not until the White House released the version as delivered afterwards.

Speechmaking is an important ingredient of the politician's art and, when on form, which is normally late in the day, Mr Clinton can be better than most. But lots of fine politicians have the rhetorical ability of newts. What marks Mr Clinton out is an ability to be rhetorically turned on not only by the emotion of the moment but also by subjects, such as rural electrification, community block grants and ad valorem taxes, which normally render most speakers unintelligible and send most audiences to sleep.

This can only be the result of his being what he is - a policy 'wonk'. All the evidence is that he was involved in every minute detail in the 50 hours of meetings that preceded Wednesday night. So consuming was his engagement that up to hours before he spoke amendments were still being made to the plan by the man himself, thus explaining why the government printing office simply could not get out the full supplementary documentation until the following morning.

He is not the sole policy wonk in his new Washington regime. His wife, Hillary Rodham Clinton, is another, as members of Congress and others are rapidly discovering as she pursues her investigation into healthcare reform. She is also not without political tact and charm, as witnessed by the fact that she invited to sit next to her on Wednesday night Alan Greenspan, chairman of the Federal Reserve, and John Sculley, the Apple computer mogul. Neither of them looked the least bit uncomfortable as, it can only be assumed, she discoursed on M2 and MS-Dos.

Another in his element, and also delivering a virtuoso, though off-camera, performance earlier on Wednesday, is Leon Panetta, the director of the budget. He rattled through the whole Clinton programme for the benefit of the media, pretty much without notes and with constant asides to obscure congressional budgetary authorities and federal programmes with acronyms from hell. (Try LIHEAP - low income home energy assistance programme - for size).

This was, of course, his meat and potatoes for many years in Congress, as it was Lloyd Bentsen's. But the new treasury secretary, following Mr Panetta to the podium, made no attempt to compete, confining himself to a couple of folksy and funny anecdotes before driving up to his old milieu on Capitol Hill to do some serious arm twisting, at which he excels.

This week, indeed, saw the true soul of Bill Clinton and his administration. There are still serious doubts about his resolution and his slipperiness - and still more about his ability to get through Congress all or even most of what he has set forth. There may well also have been some sleight of hand, some artful juggling of numbers, in the programme he presented.

But there should be much less doubt about his convictions. The bottom line for Mr Clinton is that he was elected to change the way the country is run. He defines his mandate for change not as the measly 43 per cent of the vote that he won last November, the second lowest winning percentage this century, but as the 62 per cent that he and Ross Perot combined to score in reaction to the status quo.

As he put it on Wednesday, 'unless we have the courage now to start building our future and stop borrowing from it, we're condemning ourselves to years of stagnation, interrupted by occasional recessions, to slow growth in jobs, to no more growth in incomes, to more disappointment.' Apocalyptic it may sound, but oversell is a proven technique.

Second, he came to the office with the firm conclusion that if he was to achieve anything of substance it had to be laid out from the very beginning. This is always any new president's greatest window of opportunity. The chances of Congress agreeing to tax increases and serious spending cuts diminish as mid-term elections approach. If, as happens more often than not, the president's party in Congress loses seats in the mid-terms, then the third year of an administration becomes inauspicious for big initiatives unless early victories have been won.

Third, he can be simultaneously politically ingenious and ingenuous. Until a week ago, the latter characteristic appeared to predominate as he floundered around trying to find an attorney general and to get the military to accept homosexuals. But it was ingenuity of no small order to challenge the Republicans to come up with bigger and better spending cuts than he had proposed and also to say that 'if we do right by this country, I do not care who gets the credit for it'.

Mr Clinton's convictions are also not those of the conventional 'tax and spend' big government Democrat of conservative demonology, though he may be more inclined to tax in what he sees as a necessary cause than cut spending with the same aim in view.

Critics of his package have noted that it constitutes a significant retreat from an early promise by Mr Panetta and Mr Bentsen to try and find Dollars 2 in spending cuts for every Dollars 1 in new taxes. Mr Panetta claims an equal division over four years but the hard numbers look more like a ratio of Dollars 2 in cuts for Dollars 3 in taxes.

Mr Clinton's departure from the Democratic norm is that he believes in both government and the private sector in more equal balance than his predecessors. As he put it on Wednesday: 'tonight I want to talk to you about what government can do because I believe government must do more.' But, having taken away the Reagan legacy in 19 words, he gave some of it back in his very next sentence. 'But let me say first that the real engine of economic growth in this country is the private sector.'

Mr Clinton can, and does, wax eloquently about the virtues of small business, in particular, though not overpaid corporate fat cats, just as he does about the nobility of employment as compared with the dependence of welfare. 'I pledge to you that I will do my best to see that business and labour and government work together - for a change.' In this respect he freely contrasts what the US, in his view, does wrong and what Germany and Japan have done right.

It was significant, therefore, that after the opening rhetorical ruffles and flourishes, the first segment of his address on Wednesday night was devoted to the cause of making business more competitive, with government help by way of investment incentives, a better trained and educated workforce and infrastructural improvements. The bleeding heart stuff, movingly as it was rendered, came later. The tax element, surely the most controversial, came last.

As he has taken his campaign around the country in the past 48 hours, it is interesting to note that he presents his arguments to ordinary people in a very similar and detailed way. He may, for populist purposes, dwell a little more on the evil ways of lobbyists and other 'naysayers' but he sees no reason to shy away from the fact that he probably knows his brief better than anyone in his government, including Mr Panetta. He does not talk down to people and he is a very good listener.

This week, he is basking in the glory of general approbation, with the opinion polls favourable, Ross Perot offering qualified support, the Republicans on the defensive, and the Washington pundits prepared to give him his due. There were even the first kind words from Brussels and Tokyo. This must also please a president who is known to believe that the greatest single contribution he can make to international prosperity is to put the domestic house in order, as America's friends and allies have been urging for years.

Yesterday, a leader in the New York Times, previously as hostile to Mr Clinton as it was to the last two southern presidents, LBJ and Jimmy Carter, praised his 'vision' and wrote: 'Presidents must seem to grow larger in office. By that standard Wednesday evening was a plus for Mr Clinton and the nation.' Cautiously it added, 'it is too early to rejoice'.

But Mr Clinton would agree with the caveat and knows this week's euphoria will not last. He has privately told visitors in the past week that he was confident enough in his programme and in his own performance to expect good initial reviews, but that soon the fight will really begin. This is when he is really going to have to show his leadership and sell his convictions.

US United States of America P9611 Administration of General Economic Programs PEOP Personnel News Clinton, B President (US) P9611 The Financial Times London Page 8 1679
Leading Article: Bill Clinton, the gambler Publication 930220FT Processed by FT 930220

PRESIDENT Bill Clinton, after a fumbling transition, can feel pleased with himself and his first month in office. The international reaction to his bold budget proposals, apart from a few understandable equity market flutters, was positive, and the initial US popular response has been enthusiastic. This is no small feat. It comes as no surprise that America's partners have welcomed what appears, at last, to be a serious attempt to close the US budget deficit. More surprising is the apparent support of middle America for a package that raises taxes on middle-class Americans.

The US deficit is mainly a domestic political issue for Mr Clinton, and a risky one too. So the most significant endorsement of Mr Clinton's budget package came from Mr Ross Perot, erstwhile presidential candidate and number one US deficit-hater. Of course, the four-year package of tax increases and spending cuts did not go far enough for Mr Perot's liking. The president plans to raise taxes by about Dollars 240bn over four years and make net spending cuts (after allowing for a Dollars 160bn boost to public investment) of about Dollars 80bn. It is projected by the White House to halve the budget deficit from Dollars 332bn or 5 per cent of gross domestic product this year to 2 1/2 per cent of GDP (Dollars 206bn) in 1997, which would still be a drain on national savings.

Mr Clinton will have his work cut out if he is to force the package through Congress and ensure that he is still in the White House to celebrate the meeting of these targets at the start of his second term. The Republican opposition was predictable: more tax and spend economics from a Democrat politician. More worrying for nervous Democrat senators, some of whom face congressional elections next year, are the political ramifications from increasing taxes on middle-income voters.

Higher taxes

Some 70 per cent of the increase in taxation will come from people earning over Dollars 100,000 a year, largely through a new top-income tax rate of 36 per cent for couples earning more than Dollars 140,000 in taxable income and a 10 per cent surtax on taxpayers earning more than Dollars 250,000. But the energy tax and other tinkering mean that the great bulk of American households - all families with incomes of more than Dollars 30,000 a year - will pay higher taxes as a result, breaking Mr Clinton's mistaken campaign pledge not to raise middle class taxes.

Yet the fact that the opinion polls show widespread popular support for the package, and the popularity of Ross Perot's kitchen sink economics, may indicate a new realism among middle-class Americans. The need to raise taxes, as well as cut spending, in order to close the budget gap is clear; and Americans are currently asked to pay a relatively low proportion of income in taxes to state and federal government. Mr Clinton's package would raise taxes by over 1 percentage point of US GDP, but from a base of a little over 30 per cent compared to more than 40 per cent in all the main west European countries.

Economic recovery

Mr Clinton also has the luxury of an economic recovery, a fact confirmed by the optimistic testimony to Congress yesterday from Federal Reserve chairman Alan Greenspan. A good economist but also a shrewd politician, Mr Greenspan will not trumpet the fact that the credit for this recovery rests with the cuts in interest rates that the Fed has delivered over the past few years rather than with Mr Clinton. But the president, who is probably a shrewder politician than economist, will happily claim the credit for his medium-term budget consolidation and short-term fiscal stimulus, worth Dollars 30bn over the next two years. The medium-term effect of the budget package may be slightly deflationary as consumers rein in consumption to pay higher taxes. But if, despite its structural problems, the US economy can deliver higher employment and higher real wages over the next three years, then Mr Clinton may get away with his tax increases.

The most significant international effect of the package will be felt on world long-term interest rates. Long-term US interest rates fell by 0.1 percentage points over the course of last week as the scale of the Clinton package became clear. They have fallen by a full 1/2 point since November's election. The rest of the world can only hope that the beneficial effects from lower long-term rates, and a US recovery, are not outweighed by a US shift towards protectionism as Mr Clinton bargains with Congress in order to see his budget proposals enacted.

Yet the main obstacle to European growth is short-term European interest rates. Lower long-term interest rates will be the trophy that the US delegation will bring to next weekend's meeting of finance ministers from the G7 group of leading industrialised countries; and a reciprocal cut in European interest rates will be its aim. Treasury Secretary Lloyd Bentsen will rightly receive the praise of the G7 for starting to bring the US deficit under control. Sadly for the US and growth-starved Europe, he is likely to get little in return.

US United States of America P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis Clinton, B President (US) P9611 P9311 The Financial Times London Page 8 904
Abta attacks bond rules: Collapsed ski companies unable to meet liabilities to customers Publication 930220FT Processed by FT 930220 By MICHAEL SKAPINKER, Leisure Industries Correspondent

QUALITY SKI and Winter World, two ski companies which have collapsed in the past two weeks, had arranged bonds which were insufficient to meet liabilities to customers, the Association of British Travel Agents said yesterday.

Abta said the shortfall of more than Pounds 800,000 would be covered by its reserve insurance fund, which contains more than Pounds 4m. Abta said the inadequacy of the two bonds demonstrated the weakness of new government regulations which allow companies to arrange their own insurance outside the framework of travel organisations.

A third ski company, Euro Express of Burgess Hill, East Sussex, collapsed yesterday, but Abta said it believed the company's bond was adequate.

Quality Ski, based in Chesterfield, Derbyshire, and which went into liquidation last week, said customers could take their holidays with Altours, which is not part of Abta. Mr Arthur Smith, Altours' managing director, confirmed yesterday that he had been a director of Quality Ski until last February.

Mr Smith said Quality Ski customers travelling by air were protected by Altours' Civil Aviation Authority licence. He said, however, that Quality Ski customers travelling by coach with Altours were not protected by a bond.

Mr Ian Pinder, Quality Ski's managing director, said 74 of the 80 groups booked to go to France, Italy and Austria during the half-term holiday had elected to travel with Altours. The rest were advised to approach Abta for refunds.

Quality Ski's bond was for Pounds 500,000, but Abta believes that the company owes customers more than Pounds 1m. Asked whether he was aware that his bond was inadequate, Mr Pinder said: 'I haven't got a clue.' He said that complaints should be addressed to Abta.

Winter World, based in Skipton, North Yorkshire, which collapsed last Thursday, is believed to have a bond of Pounds 700,000. But its liabilities to customers are also thought to exceed Pounds 1m.

Mr John Dunscombe, Abta chief executive, said: 'Bonding is not an exact science. This is why we require the underpinning of an insurance policy.'

Mr Dunscombe said bonding levels and the size of the back-up fund had been increased since ski company collapses two years ago imposed severe strains on Abta finances.

Under new government regulations, companies have until March 31 to ensure customers are adequately protected. Non-Abta members can take out insurance policies.

Mr Dunscombe said, however, that the collapse of the ski companies showed how difficult it would be to ensure travellers were adequately protected.

Quality Ski Winter World Association of British Travel Agents Euro Express GB United Kingdom, EC P4724 Travel Agencies P4725 Tour Operators P9651 Regulation of Miscellaneous Commercial Sectors COMP Company News FIN Company Finance P4724 P4725 P9651 The Financial Times London Page 6 474
Newspaper awards Publication 930220FT Processed by FT 930220

MS Maggie O'Kane of The Guardian was named journalist of the year in this year's What the Papers Say awards, it was announced yesterday. Mr Will Hutton of The Guardian was named political journalist of the year. No newspaper was chosen as newspaper of the year.

GB United Kingdom, EC P2711 Newspapers PEOP Personnel News P2711 The Financial Times London Page 6 69
Stocks decrease Publication 930220FT Processed by FT 930220

MANUFACTURERS decreased their stocks of finished goods, materials and components by a provisional, seasonally adjusted Pounds 361m in the final quarter of last year, the Central Statistical Office said yesterday.

The decrease follows small rises in stocks in the second and third quarters and may indicate better demand from customers.

GB United Kingdom, EC P99 Nonclassifiable Establishments STATS Statistics P99 The Financial Times London Page 6 73
Business publisher rejects unions Publication 930220FT Processed by FT 930220 By DAVID GOODHART

THE WAVE of union de-recognition by magazine publishing companies continued yesterday with the announcement that the NUJ journalists' union and the GPMU print union will no longer be recognised at several business magazines recently acquired by the publishing group Emap, David Goodhart writes.

Both unions said they were considering legal action on the grounds that they had not been consulted about Emap's takeover of 14 Thomson business magazines. They said that was in breach of the European Community Acquired Rights directive. About 200 employees will be affected.

EMAP National Union of Journalists (UK) Graphical Paper and Media Union GB United Kingdom, EC P8631 Labor Organizations P2721 Periodicals COMP Company News P8631 P2721 The Financial Times London Page 6 131
Tests on new cancer drugs show promise Publication 930220FT Processed by FT 930220 By CLIVE COOKSON, Science Editor

THREE new approaches to cancer treatment are giving promising results in early clinical tests, a conference in London on the study of tumours was told yesterday.

All three result from collaborative research involving Scotia Pharmaceuticals, a UK-Canadian drug company, and university medical centres in the UK and overseas.

Potentially the most far-reaching treatment is a tumour-killing drug, EF13, which Scotia described as a 'magic bullet' which could destroy cancer cells without harming normal tissues.

Preliminary clinical trials indicate that the drug may double the survival time of patients with late-stage pancreatic and breast cancers.

If the drugs continue to show promise they could be available commercially within three or four years.

Scotia Pharmaceuticals GB United Kingdom, EC P283 Drugs TECH Research TECH Products P283 The Financial Times London Page 6 148
Oxleas Wood to go Publication 930220FT Processed by FT 930220

Objectors to the planned destruction of part of Oxleas Wood in south-east London - to make way for a motorway link to the East London River Crossing - were defeated in the High Court yesterday. Greenwich borough council and nine London residents claimed that the wood, almost the last ancient woodland in London, was a 'national treasure'. The court rejected their claim that the motorway decision was unlawful and unreasonable. The objectors said they would appeal if they could raise enough money

GB United Kingdom, EC P9512 Land, Mineral, Wildlife Conservation P1611 Highway and Street Construction GOVT Legal issues P9512 P1611 The Financial Times London Page 6 116
Former adviser to Major dies at 53 Publication 930220FT Processed by FT 930220

MRS JUDITH CHAPLIN, Conservative MP for Newbury and a former senior adviser to Mr John Major, died yesterday aged 53.

She worked for Mr Major at the Treasury and at 10 Downing Street. Last year she became parliamentary adviser to the Institute of Chartered Accountants, and this year a consultant to Kleinwort Benson Securities.

Sir Norman Fowler, Conservative Party chairman, said last night: 'Judith was one of the outstanding new MPs and would certainly have become a minister.'

Mrs Chaplin died in hospital from what are understood to be complications arising from a blood clot after surgery on Wednesday.

1992 General Election result:

Judith Chaplin (C) 37,135

David Rendel (LD) 24,778

Richard Hall (Lab) 3,962

Jim Wallis (Green) 539

C maj. 12,357

Swing: 4.90 per cent C to LD.

GB United Kingdom, EC P91 Executive, Legislative and General Government PEOP Personnel News Chaplin, J Conservative MP for Newbury (UK) P91 The Financial Times London Page 6 169
Business magazines derecognise unions Publication 930220FT Processed by FT 930220 By DAVID GOODHART, Labour Editor

THE WAVE of union derecognition by magazine publishing companies continued yesterday with the announcement that the NUJ journalists' union and the GPMU print union will no longer be recognised at several business magazines recently acquired by the publishing group Emap.

Both unions said they were considering legal action on the grounds that they had not been consulted about Emap's takeover of 14 Thomson business magazines, in breach of the European Community Acquired Rights directive. About 200 employees will be affected.

Emap has derecognised unions in most parts of the organisation. Reed Elsevier, the biggest magazine publisher in Britain, and Morgan Grampian have also recently derecognised unions.

EMAP National Union of Journalists (UK) Graphical Paper and Media Union GB United Kingdom, EC P8631 Labor Organizations P2721 Periodicals COMP Company News P8631 P2721 The Financial Times London Page 6 152
Patten concedes on tests Publication 930220FT Processed by FT 930220 By JOHN WILLMAN, Public Policy Editor

MR John Patten, education secretary, yesterday moved to defuse controversy over this year's compulsory English tests for 14-year-olds in England and Wales.

While the tests will go ahead as planned, the results will not be published in school league tables. However, national totals will be compiled, allowing parents to compare their children's performance with the national average.

While the move was welcomed by moderate teachers' unions, the two largest unions, the NUT and the NASUWT, said that they would continue balloting members over boycotting the tests.

Teachers' unions had claimed that the tests, to be taken for the first time in June, had been inadequately prepared and that material for them had arrived at schools too late.

The announcement that the results of the tests would not be included in schools performance tables appeared to have detached the moderate unions from the opposition camp.

Mr Peter Smith of the Association of Teachers and Lecturers described the decision as 'statesmanlike'. He said it was evidence that Mr Patten had heeded fears expressed over the tests in a meeting with teachers' unions earlier this week.

Mr David Hart of the National Association of Head Teachers said the move met his union's main objection. 'It effectively converts this year's tests into an unpublished national trial,' he said.

Mr Patten also published consultation documents setting out the government's plans for this year's performance tables for schools and colleges. The league tables will cover 4,000 state secondary schools and 19,000 primary schools. For the first time they will also cover 2,000 independent schools, and 470 sixth-form and further-education colleges.

The tables will include national curriculum test results; GCSE, A-level and AS-level examination results; vocational examination results and truancy rates.

In a concession to independent schools, schools will be able to include GCSE exam results taken up to three years before the age of 16. This year, only results in the previous two years could be included which meant that some schools that entered pupils very early for GCSEs appeared to have fewer pupils with five or more passes at grade C and above.

GB United Kingdom, EC P9411 Administration of Educational Programs TECH Standards GOVT Government News P9411 The Financial Times London Page 6 384
Nalgo to restrict outlay on strike pay Publication 930220FT Processed by FT 930220 By LISA WOOD, Labour Staff

NALGO, the local government union, is to restrict strike pay by sticking more strictly to its rules after emergency funds were depleted last year.

Disputes in three London branches - Islington, Newham and Camden - cost Pounds 9.5m last year. The national strike fund is estimated to stand at Pounds 17m.

The move is in anticipation of a flurry of industrial action this spring. The union's local government group meeting earlier this month pledged to oppose the government's 1.5 per cent pay ceiling and any compulsory redundancies. Branches are likely to ballot next month on whether to stage a one-day strike.

The national emergency committee has told branches it will stick rigidly to its guidelines under which strikers can be paid the equivalent of their full take-home pay.

National and Local Governments Officers Association (UK) GB United Kingdom, EC P8631 Labor Organizations COMP Company News MGMT Management P8631 The Financial Times London Page 6 172
Airport bids for chess match Publication 930220FT Processed by FT 930220 By IAN HAMILTON FAZEY

MANCHESTER Airport yesterday lodged a bid to sponsor the World Chess Championship in August between Nigel Short, the British challenger, and Gary Kasparov, the champion, Ian Hamilton Fazey writes.

The match would be staged in Manchester's Royal Exchange Theatre, built on the disused trading floor in the city centre.

The sealed bid to the world governing body of chess is believed to be in the region of Pounds 2m.

Manchester Airport GB United Kingdom, EC P7319 Advertising, NEC P7999 Amusement and Recreation, NEC COMP Company News P7319 P7999 The Financial Times London Page 6 109
New cancer drugs show promise Publication 930220FT Processed by FT 930220 By CLIVE COOKSON, Science Editor

THREE new approaches to cancer treatment are giving promising results in early clinical tests, an oncology conference in London was told yesterday.

All three result from collaborative research involving Scotia Pharmaceuticals, a UK-Canadian drug company, and university medical centres in the UK and overseas.

Potentially the most far-reaching treatment is a tumour-killing drug, EF13, which Scotia described as a 'magic bullet' which could destroy cancer cells without harming normal tissues.

Preliminary clinical trials indicate that the drug may double the survival time of patients with late-stage pancreatic and breast cancers.

The doctors involved, however, are wary of making extravagant claims for what is still an experimental drug. 'EF13 seems to have important therapeutic effects without harming the patients,' said Mr Ken Fearon from Edinburgh University's department of surgery. 'It really is different from anything else available.'

Dr David Horrobin, Scotia chief executive, said EF13 was developed not to be a more potent cell killer than other cancer drugs but to be free of the toxic side effects which make conventional chemotherapy so unpleasant. It is similar chemically to Evening Primrose Oil which has until recently been the main source of income for his company.

The second new drug, EF27, reduces the harmful effects of radiotherapy. Trials by the Radiobiology Research Group at Oxford's Churchill Hospital show that the drug can protect normal tissue from radiation damage while enhancing the damage caused to cancer cells.

The third drug, EF9, is a light-activated chemical designed to improve a form of cancer treatment known as photodynamic therapy. EF9 destroys cancer cells when the tumour is illuminated by laser.

If the treatments continue to show promise they could be available commercially within three or four years.

Scotia Pharmaceuticals GB United Kingdom, EC P283 Drugs TECH Research TECH Products P283 The Financial Times London Page 6 317
Illiteracy in school leavers Publication 930220FT Processed by FT 930220

THE UNIT'S survey of 10,000 students entering further education colleges included test questions such as:

If 12 people drink three cans of Coke each, how many cans do they drink altogether?

How many square metres of carpet do you need for a room measuring 4m by 3m?

If there are 200 passengers on a train and three quarters have reduced-fare tickets, how many have full-price tickets?

GB United Kingdom, EC P8211 Elementary and Secondary Schools P8221 Colleges and Universities TECH Standards CMMT Comment & Analysis P8211 P8221 The Financial Times London Page 5 102
Labour's union ties win support Publication 930220FT Processed by FT 930220 By ROBERT TAYLOR, Labour Correspondent

THE long-awaited interim report on the future of the Labour party's links with the unions suggests they are 'a cause for celebration rather than concern'. It argues strongly that Labour's relationship with the unions 'continues to be immensely valuable to the party'.

However, the document proposes an end to the union block vote at party conference and the eventual introduction of one member one vote for the selection of parliamentary candidates and election of the party leader.

But the 15-strong group of senior union officials and Labour MPs was unable to agree on firm recommendations. Instead, their report - which is to be presented to the party's national executive committee - sets out a series of options.

A questionnaire will be sent to unions and constituency parties. They will have until June 10 to respond. The NEC will then decide on precise proposals and present them for approval at the party conference in the autumn. But Mr John Smith, the party leader, is expected to comment on the union-party links at next Wednesday's NEC meeting.

The only member of the review group to oppose the party's present links with the unions was Mr Tony Blair, the shadow home secretary. The report is firm in its proposal to end the union block vote at party conference and replace it with a system under which the voting entitlement of each union is divided up among its delegates and cast separately.

It also agrees on the gradual move to a 50-50 voting parity between the unions and constituency parties in the annual conference, although it suggests the introduction in the autumn of a 70-30 split between union-party voting strengths should be retained for the time being.

The report suggests a possible 'trigger' for a cut in the union proportion at conference with a 1 per cent drop for every 10,000 additional individual members over the present 300,000.

The group argues strongly for maintaining union links with Labour. It argues that the unions are 'a realistic and stabilising force in the party without whom on many occasions in the past few decades the Labour party would have torn itself apart'.

Labour Party (UK) GB United Kingdom, EC P8631 Labor Organizations P8651 Political Organizations COMP Company News MGMT Management P8631 P8651 The Financial Times London Page 5 398
GMTV recruits TV-am saviour Publication 930220FT Processed by FT 930220 By NEIL BUCKLEY and ANGUS FOSTER

GMTV, the breakfast television station, is calling in Mr Greg Dyke, who saved the ailing TV-am in the 1980s and made Roland Rat a household name, to spice up its programmes and woo more viewers.

Mr Dyke, who succeeds Mr Harry Roche as non-executive chairman, insisted there was 'not a crisis' at GMTV, in spite of disappointing ratings.

He said: 'GMTV's performance has been satisfactory although clearly not as strong as had been hoped for. Audiences are 15 per cent less than wanted, but we can improve them.'

He added that when he joined TV-am in 1983, audiences were 200,000 and the channel had 'only two adverts'. GMTV, he said, was attracting nearly 2m viewers.

But the station carries the burden of its hefty Pounds 34.6m franchise bid, which it must pay annually to the Treasury, together with 15 per cent of revenues. It has lost viewers since taking over from TV-am at the start of the year, and faces fierce and unexpected competition for viewers from Channel 4's off-beat Big Breakfast. City analysts are forecasting operating losses for GMTV each year until 1996.

The station last week appointed Mr Eamonn Holmes to replace Mr Michael Wilson as co-presenter with Ms Fiona Armstrong. It has also signed up a cartoon based on characters in a Super Nintendo computer game.

Mr Dyke refused yesterday to talk about personnel changes or specific plans, but said he had 'lots of ideas'. He added: TV is about good ideas'.

He hinted that the much-vaunted 'F-factor' of GMTV's presenters might shift to 'family' rather than 'fanciability'. He said: 'What we want is a family of people who like each other and the audience like them.'

C4's Big Breakfast said yesterday that Mr Dyke was wrong to dismiss it as a programme for 'kids', as young audiences were attractive to advertisers.

Former associates emphasised Mr Dyke's abilities and 'instinctive understanding' of television, but said his non-executive role at GMTV would be different from that at TV-am, where he was editor-in-chief.

He will continue as chief executive of LWT and chairman of the Independent Television Association.

Mr Dyke, 46, who made his name at LWT with programmes such as the London Programme and Weekend World, boosted audiences at TV-am to more than 1m. TV-am later became one of the world's most profitable TV companies.

His tactics included promoting the Roland Rat puppet, and presenters such as Nick Owen and Loyd Grossman.

He would have been a favourite for the job of ITV's central scheduler were it not for 'golden handcuffs' keeping him at LWT - share options which are expected to make him a millionaire when they become exercisable later this year.

Mr Dyke refused to discuss GMTV's financial position yesterday, saying it was too early in the year to draw conclusions. The company still hopes to make an operating profit.

However, stock market and media analysts said GMTV, whose shareholders are Disney, LWT, Carlton, Scottish TV and the Guardian, was unlikely to meet its business plan forecasts for advertising revenues of about Pounds 80m-Pounds 90m this year.

Ms Christine Walker, chief executive of media specialist Zenith, a subsidiary of Saatchi & Saatchi, said GMTV's revenues this year are likely to fall to Pounds 60m. 'The Big Breakfast and satellite are acting as a pincer movement against GMTV,' she said.

According to Zenith's analysis of BARB's adult viewing figures, GMTV's audience share in January fell more than 20 per cent compared with January 1992.

GMTV has been able to cut costs compared with TV-am - for example by reducing staff and contracting out news services. However, several analysts believe the station's high annual franchise fee, which is index linked, will push GMTV into a loss by the year end.

Before yesterday's announcement, stockbrokers James Capel were forecasting 1993 revenues of Pounds 81m and a pre-tax loss of Pounds 3.8m. Capel said GMTV would make operating losses until 1996, and pre-tax losses until 1997.

GMTV GB United Kingdom, EC P4833 Television Broadcasting Stations COMP Company News PEOP Appointments TECH Standards Dyke, G Non Executive Chairman GMTV (UK) P4833 The Financial Times London Page 5 703
Thoughts of the wise men Publication 930220FT Processed by FT 930220

Yesterday the seven-man panel of economic advisers to the Treasury made its first report. The main points were:

Recovery prospects

Greatly improved as a result of sterling's exit from the European exchange rate mechanism. But much uncertainty about output strength this year, with average forecast of 1.1 per cent growth in 1993.

Risks to upturn

None of the panel expects a strong upturn in world economy, with a risk that a big contraction in Europe could depress UK exports. Interest rates

Gavyn Davies and Patrick Minford want further cuts from 6 per cent soon. The other five members would reduce credit rates only if the economy weakens or sterling appreciates, or in response to changes in money supply.

Taxes

Tim Congdon wants Budget announcement of tax rise in 1993-94 to demonstrate commitment to tight finances. The others say tax rises in 1993 would harm a recovery though they might be needed later.

Credit growth

Broad money and credit growth 'may remain depressed' during this year. Panel reckons the 'lending capacity of the monetary system may be inadequate to sustain recovery'.

Unemployment

Likely to rise from 3m to between 3.1m to 3.4m by the end of this year. One panellist, Wynne Godley, thinks the total will climb to 3.6m by the final quarter of 1994.

Current account deficit

The deficit is 'very large for this stage of the cycle and for most of us this is a cause for concern'. The economists think the deficit will reach Pounds 15.5bn in both this year and 1994 after Pounds 12bn last year.

Inflation

Panel thinks underlying inflation (measured by the retail prices index less mortgage payments) will remain inside the Treasury's 1 per cent to 4 per cent target range over next two years.

Gilts

Panel wants the government to abandon full funding, allowing gilt purchases by banks and building societies to count towards financing the PSBR. That would help an upturn by boosting the money supply while also cutting long-term gilt yields.

Medium-term growth

Four of the seven think UK growth in the 1990s could be above its 'sustainable rate' of 2 per cent to 2.5 per cent a year.

The advisers are: Wynne Godley, Patrick Minford, Tim Congdon, Andrew Britton, David Currie, Gavyn Davies and Andrew Sentance.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs CMMT Comment & Analysis P9311 P9611 The Financial Times London Page 5 414
Secrecy of activity in Civil service Publication 930220FT Processed by FT 930220 By IVOR OWEN

FURTHER proposals for removing unnecessary secrecy about the activities of civil servants and ministers are expected to be announced before the end of July, Ivor Owen writes.

This was revealed in the Commons yesterday when MPs gave an unopposed second reading to the Right to Know Bill. The move was against the advice of Mr William Waldegrave, the minister responsible for identifying areas of excessive government secrecy.

The bill is a private member's measure, introduced with cross-party support by Mr Mark Fisher, the Labour MP for Stoke-on-Trent Central.

GB United Kingdom, EC P9199 General Government, NEC PEOP Labour P9199 The Financial Times London Page 4 119
CSO combats leaks of official statistics Publication 930220FT Processed by FT 930220 By GILLIAN TETT and ALISON SMITH

MINISTERS and officials will have their access to economic data restricted ahead of official release, government statisticians said yesterday.

The changes will reduce the number of those who receive figures before publication and the length of time statistics are available to departments in advance of publication.

The move, presented as part of the government's drive for greater openness, reflects a desire to boost the integrity and independence of the statistics, which are felt to have suffered from leaks.

Even where details of market-sensitive information are not made available, its general tenor can emerge. On Tuesday night, for example, Mr John Major hinted that the official figures for retail sales, published on Wednesday, would confirm a sustained upturn in consumer confidence.

Under plans announced by the Central Statistical Office the independent body which issues most government economic statistics, ministers and officials will usually have only 1 1/2 days to view data ahead of publication - instead of up to nine days as at present.

In addition, the number of government employees with advance access will be sharply reduced although ministerial access will be less affected.

The provisional retail prices index is now given to the chancellor and other officials nine days before publication, and export figures six days before publication. Producer prices figures, which are circulated to nine ministers and 22 officials, are released up to three days before publication.

The move marks an attempt to exert tighter control over release of market-sensitive trade and business information. Mr Norman Lamont, the chancellor, agreed the change with Mr Major, and other ministers were informed at cabinet on Thursday.

The main initiative has come from the CSO, which has been stung by allegations of leaks and statistical massaging. 'There is certainly a very bad public perception problem,' Mr Bill McLennan, director of the CSO, said yesterday.

He said he hoped that the changes would lead government departments to tighten their practices but said the CSO was powerless to force the government to curb leaks.

A provisional estimate of GDP will be published 3 1/2 weeks after the end of the quarter - four weeks earlier than at present.

The Treasury said yesterday it broadly supported the proposals although they could cause 'mild inconvenience'.

GB United Kingdom, EC P9611 Administration of General Economic Programs TECH Services GOVT Government News P9611 The Financial Times London Page 4 409
Morning after awaits the drinks market: FT reporters investigate who will bear the brunt of the price effects of devaluation in five sectors that affect the retail prices index. Will it be retailers, consumers, UK manufacturers or suppliers abroad? Publication 930220FT Processed by FT 930220 By PHILIP RAWSTORNE

IT'S not the low pound which has dampened the spirits of drinkers and partygoers. The price effects have hardly filtered through. Thanks to the recession volumes are under pressure and competition is intense. Producers, shippers and retailers have tried to absorb the extra costs rather than raise prices.

Champagne sales recovered slightly last year after a 34 per cent fall in 1991 and champagne houses, facing increased competition from manufacturers of cheaper sparkling wine, are keen to protect themselves in their biggest export market.

Mr Nicholas Strachan, marketing director of Mentzendorff, the wine shippers, says a 15 per cent reduction in the cost of grapes last year has enabled Bollinger to avoid raising prices so far. 'However, prices have been largely unchanged for two years, and I think it is unlikely they can be maintained through the second half of this year.'

Moet & Chandon has raised prices by 6 per cent, and others are expected to follow. 'But I do not expect anyone to try to recoup the entire cost of devaluation,' says one shipper. 'It's difficult enough to sell champagne at the moment.'

Prices of most French and German wines rose by between 5 per cent and and 10 per cent soon after the sterling depreciation last September. Ms Jayne Bridges of the Threshers off-licence chain says: 'When Britain joined the ERM we stopped buying foreign currency forward-payment. As a result, we were caught without cover last September when the pound was devalued while about 100,000 cases were being shipped to us.

'We have absorbed some costs and a few suppliers and agents have done the same. But most of our producers are just too small to do so. The further depreciation of the pound is adding to the strain.'

French and German wines have been losing sales to products from Australia and New Zealand, California and South Africa. But abundant harvests in 1992 had been expected to ensure more competitive prices this year. 'Devaluation has hit the industry hard,' said Ms Tan Harrington, of the German Wine Bureau. 'The pressure is to keep prices down, but something may have to give.'

GB United Kingdom, EC P208 Beverages P9611 Administration of General Economic Programs MKTS Market data COSTS Costs & Prices P208 P9611 The Financial Times London Page 4 428
Cost trimming that is part of the furniture: FT reporters investigate who will bear the brunt of the price effects of devaluation in five sectors that affect the retail prices index. Will it be retailers, consumers, UK manufacturers or suppliers abroad? Publication 930220FT Processed by FT 930220 By JIMMY BURNS

THE general manager of Hartman UK, Mr Alistair Walker, does not mince words when giving his view on the impact of devaluation on the furniture and furnishings industry: 'It's been like a kick in the nuts.'

Hartman UK is a subsidiary of a Dutch-based group which imports and distributes garden furniture from the Netherlands. The 'kick' has been Pounds 100,000 - a net loss directly attributable to the exchange rate - which will leave Mr Walker's company 'breaking even this year rather than making a profit'.

Kicks are also being absorbed in the domestic furniture and furnishings sector. Mr Philip Wain, company accountant in the fabrics division of Parker-Knoll - which supplies fabrics woven in British and French mills to department stores around the country - says: 'So far we have taken the hit - about Pounds 40,000 - ourselves without passing it on.'

Throughout the industry distributors and manufacturers are absorbing the extra costs rather than raising prices. If prices have moved, it has been downwards in the midst of the recession and stiff competition.

At Peter Jones in London, a Hartman table was on offer at Pounds 159 this week compared with Pounds 175 last summer, an example of the discounting that has happened in many department stores recently.

The knock-back effect devaluation is having on foreign companies is illustrated by Business Furniture Holdings, a British company which sells office furniture.

Prior to devaluation the company was importing Pounds 180,000 worth of door hinges and steel shelf supports annually from Austria and Germany. It has switched Pounds 140,000 of this to a UK supplier, and Pounds 10,000 to an Italian supplier. Mr Ivor Bloohn, managing director, estimates he has achieved a 9 per cent reduction in costs.

Silent Night is another company that has achieved small price reductions with its foreign suppliers - between 2 per cent and 3 per cent on bed fabrics from Belgium and beech slats from Germany.

For all the juggling, Silent Night admits it has had to pass on the impact of devaluation to the consumer. According to Mr Barry McKenzie, the company's finance director, the price of some of its bed products have increased since September by between 2 per cent and 3 per cent.

Such increases are the exception rather than the rule in the sector, but manufacturers, distributors and retailers warn that it could become more widespread if sterling remains at its current level and/or there is an upturn in demand.

Mr Walker speaks for his sector when he says: 'No one in the long-term can bear more than a 20 per cent devaluation without passing it on . . . If sterling stays as it is for the foreseeable future, our pricing policy will have to change . . .I think March time could be the crunch.'

GB United Kingdom, EC P9611 Administration of General Economic Programs P252 Office Furniture P2512 Upholstered Household Furniture P2599 Furniture and Fixtures, NEC P5021 Furniture MKTS Market data COSTS Costs & Prices P9611 P252 P2512 P2599 P5021 The Financial Times London Page 4 559
As sure as eggs is steady, grain goes up: FT reporters investigate who will bear the brunt of the price effects of devaluation in five sectors that affect the retail prices index. Will it be retailers, consumers, UK manufacturers or suppliers abroad? Publication 930220FT Processed by FT 930220 By GUY DE JONQUIERES and NEIL BUCKLEY

ASK WHO is bearing the impact of devaluation in the food sector and the industry won't give you a clear answer. But while most supermarket chains are stressing, in public at least, their determination to keep prices down, many food manufacturers are making gloomy noises.

The evidence so far suggests that prices are being kept down. Between September and January, the government's retail food price index rose 1.34 per cent, slightly more than the 1.1 per cent rise in the RPI.

But if leading manufacturers have been taking the impact of higher prices on their margins, they warn that will not do so for much longer. Northern Foods, Marks and Spencer's biggest supplier, plans increases of up to 8 per cent by April to compensate for devaluation, while United Biscuits has announced rises of 5 per cent.

As a net importer of food to the tune of Pounds 6.8bn last year, Britain is highly exposed to international price shifts. Sharply higher raw materials costs have forced many manufacturers to revise their budgets.

But other factors are at work that could keep down the average supermarket bill. Plentiful production is helping to hold down prices of fresh produce including salads, potatoes and other vegetables. The Meat and Livestock Commission says that the retail price of pork, in surplus throughout Europe, has fallen slightly since September.

Manufacturers and retailers are unsure how far they dare pass on higher costs at a time of weak demand. The recession has made many consumers economise by cutting out luxuries and 'trading down' to less expensive products.

The steepest cost increases so far have been for commodities such as beef, sugar and cereals which are subject to Common Agricultural Policy support schemes. Since September these products - both home-produced and imported - have been hit by a 22 per cent devaluation of the green pound, the currency used in EC farm trade.

The speed at which these increases have shown up on supermarket shelves varies widely, depending on the competitive structure of individual market sectors and the strength of the producers in them.

In sugar, Tate & Lyle and British Sugar - which share a UK market monopoly - have had little difficulty pushing through sharp rises. Poultry producers have offset a 13 per cent rise in feed prices from devaluation by raising chicken prices by about 6 per cent.

But the price of eggs, in a production glut, has barely budged, while excess capacity and cut-throat competition have so far prevented the big bakers from recouping higher grain costs by raising the retail price of bread.

But eventually someone will have to bear the higher costs. Although neither retailers nor suppliers will divulge details of price negotiations, both sides say they are exceptionally tough.

Industry sources say dominant suppliers with strong brands are securing trade price increases in line with their higher costs. But retailers sometimes insist they hand back part of the gains in special offers and price promotions.

The leading supermarkets have a double incentive to fight to preserve market share - they've invested heavily in new superstores, and are under growing threat from fast-expanding discount chains such as Kwik Save and Aldi.

Faced with these pressures, many suppliers are seeking to absorb higher costs through increased efficiency. UK food manufacturers' productivity improved about 5 per cent last year, and several plan further restructuring.

They are also benefiting from lower packaging prices, due to weaker demand throughout Europe.

GB United Kingdom, EC P20 Food and Kindred Products P5411 Grocery Stores P9611 Administration of General Economic Programs MKTS Market data COSTS Costs & Prices P20 P5411 P9611 The Financial Times London Page 4 663
A case of cutting the coat to match the cloth: FT reporters investigate who will bear the brunt of the price effects of devaluation in five sectors that affect the retail prices index. Will it be retailers, consumers, UK manufacturers or suppliers abroad? Publication 930220FT Processed by FT 930220 By ANDREW TAYLOR

DON'T expect the devaluation of sterling to produce higher prices for clothing and footwear quickly. That is the message from retailers, in spite of the very high import content of these products.

Customers will not stand for price increases at present, and shopkeepers, manufacturers and importers accept they must absorb some of the extra costs caused by sterling's tumble.

In some cases this means looking for cheaper sources of supply. For example, the import of cut-price shoes from China last year jumped 60 per cent to 27m pairs. Some British clothing manufacturers have been approached by retailers, such as Woolworths and Littlewoods, seeking quotes for goods normally supplied from the Far East. About 45 per cent of clothes sold in British high streets are imported.

Domestic manufacturers also face an increase in costs. They have little option but to import woollen and cotton fibres and fabrics as well as some synthetic materials.

Mr Colin Purvis, secretary-general of the Apparel Knitting and Textiles Alliance, said: 'A rough estimate is that about 55 per cent to 60 per cent by value - and 80 per cent by volume - of textiles sold in Britain come from imported materials.'

Courtaulds Textiles said the experiences of manufacturers and retailers have been patchy since devaluation.

'Purchases of many finished goods for the 1993 spring selling season would have been agreed with overseas suppliers before sterling's collapse,' said the company, which imports small amounts of clothing to supplement its domestically manufactured range.

Marks and Spencer, which buys 80 per cent of its clothing from UK manufacturers, said it would be difficult to pass increases to customers, though some price rises are likely.

The British Footwear Manufacturers' Federation said struggling shoe retailers would not want to pass price increases on to customers. 'Retailers will want to buy the cheapest shoe available,' it said. 'If they cannot get them from traditional manufacturers and importers they will switch to other suppliers from emerging countries such as the Republic of China.'

GB United Kingdom, EC P9611 Administration of General Economic Programs P23 Apparel and Other Textile Products P3149 Footwear, Ex Rubber, NEC P56 Apparel and Accessory Stores P5661 Shoe Stores MKTS Market data COSTS Costs & Prices P9611 P23 P3149 P56 P5661 The Financial Times London Page 4 429
Blair urges 'moral' approach on crime Publication 930220FT Processed by FT 930220 By ALISON SMITH

SPEAKING out about moral values and principles is an important element in turning back the rising tide of crime, Mr Tony Blair, the shadow home secretary, said yesterday.

Mr Blair said the community must rediscover a sense of direction and recognise that individuals had obligations towards others as well as rights.

His speech marks a further step in his long-term approach of changing Labour's crime policy, and of moving away from old stereotypes of putting the emphasis on blaming society rather than the individuals.

'If we do not learn and then teach the value of what is right and what is wrong, then the result is simply moral chaos which engulfs us all,' he told Wellingborough Labour party.

Mr Blair said that the 'historic problem of old socialism was the tendency to subsume the individual rights, duties and all, within the ideas of the 'public good', that at its worst came simply to mean the state'.

The task, he added, was to rescue the idea of community from the narrow view of the state, and establish a new relationship between society and the individual.

His approach will be carried a stage further on Monday when he will detail Labour's plans for dealing with juvenile crime.

These are expected to include tougher powers for the courts and the provision of more secure accommodation, though not along the lines of the 'approved schools' suggested by Mr Kenneth Clarke, the home secre tary.

Labour believes that the Conservatives' record on crime has become so tarnished that the party no longer commands the public confidence on law and order that it used to do.

Labour Party (UK) GB United Kingdom, EC P9229 Public Order and Safety, NEC P8651 Political Organizations CMMT Comment & Analysis P9229 P8651 The Financial Times London Page 4 313
Carmakers: some win . . . some lose - FT reporters investigate who will bear the brunt of the priceeffects of devaluation in five sectors that affect the retail prices index. Will it be retailers, consumers, UK manufacturers pr suppliers abroad? Publication 930220FT Processed by FT 930220 By JOHN GRIFFITHS

SUCH is the global nature of the motor industry of the 1990s that devaluation's impact on UK manufacturers, markets and dealers is one of swings and roundabouts.

For big multinationals such as Ford and Vauxhall, the 15 per cent higher cost of importing cars and components from Germany and Belgium is partly offset by exports of UK-built Fiestas and Escorts, plus engines and other components for which the UK is Ford's only source.

For Rover Group, devaluation has mostly been a boon. Of its total Pounds 2.2bn annual spending on components, 80 per cent is in the UK and only 11 per cent in continental Europe.

Not only is it benefiting from being more competitive abroad - reflected in the planned doubling of Montego and Maestro output - but its UK dealers have more market leeway because of price rises forced on some of their importing rivals.

Ford's loss-making subsidiary Jaguar can afford a pained smile, too. Heavily dependent on US sales, its losses have shrunk as sterling has sunk from Dollars 2 to under Dollars 1.45.

For big component makers, devaluation's net effect is variable - not just because of sterling's widely varying shifts against other currencies.

As part of the globalisation process, GKN, T&N, Lucas and other large components groups have set up a network of overseas plants. In sterling terms GKN is a beneficiary of its German plants serving German carmakers, and of its dollar-based businesses in North Carolina.

Less than a quarter of GKN's output is in the UK, requiring more expensive raw materials. But, as with T&N, much of this output is exported and, with its low-cost UK labour content, more price-competitive.

The real crunch is for importers of German cars because recession-plagued Britons do not want to know about the price increases importers need to offset devaluation. Given the market's plunge of 700,000 units to fewer than 1.6m units in three years, they barely want to know about car purchases at all.

As a result BMW's wholly owned sales subsidiary has struck a novel agreement with its 160 UK dealers.

BMW(GB) has been very profitable, making more than Pounds 22m on its 38,000 car sales in 1991 and further profits last year. But the 1992 figures will not reflect devaluation because BMW bought currency forward at a 1992 average of DM2.84. Having obtained cover for this year's first quarter at DM 2.50, it increased retail prices by only 3 per cent in December.

But the pain will be much worse if its next forward buying has to be around DM2.36. So it is insisting that dealers share it by capping their profit margins.

Volkswagen has raised list prices by 7.5 per cent since September. But having taken over UK distribution from Lonrho it wants a substantially larger market share and so is leaving dealer margins unchanged at about 15 per cent.

Nevertheless, this leaves dealers with the same problem as that causing friction elsewhere - including at market leader Ford.

Ford price rises last month left UK-built Fiesta retail prices only about 2.5 per cent higher than in early 1992, but those of Escorts are about 7.6 per cent higher and German-built Granadas and Sierras 13 per cent higher.

Mr Alan Pulham, a director of the Retail Motor Industry Federation, says consumers will not tolerate such increases. Even though dealers are being charged more, their effective margins - officially unchanged - are being further squeezed.

Mr Pulham said: 'We believe that the time is right for manufacturers to reduce wholesale prices - it is appropriate that questions should now be asked about where and how wholesale prices of new cars are set and achieved.'

Manufacturers, he claims, grab 90 per cent of any price increases at a time when car dealers have the lowest net margins of any retail sector.

Manufacturers reject the charges. Mr Ian McAllister, Ford's chairman, points to Ford's big losses in the UK and says no manufacturer can ignore the devaluation and last year's 4 per cent inflation.

GB United Kingdom, EC P9611 Administration of General Economic Programs P3711 Motor Vehicles and Car Bodies P3714 Motor Vehicle Parts and Accessories P5511 New and Used Car Dealers MKTS Market data COSTS Costs & Prices P9611 P3711 P3714 P5511 The Financial Times London Page 4 762
Ministers fight for EC treaty Publication 930220FT Processed by FT 930220 By ALISON SMITH

A RENEWED government offensive to promote the merits of the Maastricht treaty began yesterday as ministers came under fierce attack from the opposition over this week's backtracking on the legal consequences of Labour's amendment on the social chapter.

Even though Monday's embarrassing U-turn seems to have saved the government from the worst danger of defeat by an alliance of opposition parties and Tory Euro-sceptics, ministers still made opportunities to drive home the consequences for the UK of failing to ratify the treaty.

Mr Tristan Garel-Jones, the Foreign Office minister, said the treaty established inter-government co-operation as a framework for community development, and was critical to economic recovery.

'Nobody should under-estimate the body blow it would be for Britain if we were to take up a semi-detached position as far as Europe is concerned,' he warned.

The message will be taken up today in a speech by Mr Douglas Hurd, the foreign secretary. Looking at the prospects for the community over the coming decade, he will emphasise that Maastricht is part of a longer-term game in which it is vital to ensure that the UK remains an influential player. He will set out a European vision of a wider, de-centralised, outward-looking, free-trade community - a vision ministers believe can unite the Tory party.

Both Labour and the Liberal Democrats returned to the attack over Mr John Major's refusal to publish the advice from Sir Nicholas Lyell, the attorney-general, which says that acceptance of Labour's social chapter amendment would not affect the government's ability to ratify the treaty.

In a letter to the prime minister, Mr John Smith, the Labour leader, insisted that the reasoning behind the opinion was 'a vital piece of information which should not be withheld from parliament'.

Mr Paddy Ashdown, the Liberal Democrat leader, accused ministers of showing 'a disgraceful contempt for parliament'.

Talking of 'the fumbling indecision of the government and growing evidence of the lack of integrity of cabinet ministers,' Mr Ashdown said he could not see why anyone should trust the government on this issue until it produced its evidence.

The government has already conceded that in future the attorney-general or his deputy should be available at Westminster whenever MPs debate the bill, but the opposition says that is not enough. When discussion resumes on Monday, Labour will call for a new debate on its amendment in the light of the revised legal advice.

Sir Leon Brittan, the EC's external trade commissioner, yesterday echoed ministerial warnings about the economic consequences of rejecting the treaty. He also raised the prospect of the UK being in the slow lane of a two-speed Europe, saying that it would lead to a grouping of nations within the EC 'determined to go ahead further and faster without us, but with a huge influence over our economic future and potentially even our security'.

GB United Kingdom, EC P9111 Executive Offices GOVT International affairs P9111 The Financial Times London Page 4 502
Move to reduce secrecy backed Publication 930220FT Processed by FT 930220 By IVOR OWEN, Parliamentary Correspondent

FURTHER proposals for removing unnecessary secrecy about the activities of civil servants and ministers are expected to be announced before the end of July.

This was revealed in the Commons yesterday when MPs gave an unopposed second reading to the Right to Know Bill. The move was against the advice of Mr William Waldegrave, the minister responsible for identifying areas of excessive government secrecy.

The bill is a private member's measure, introduced with cross-party support by Mr Mark Fisher, Labour MP for Stoke-on-Trent central. It seeks to advance the cause of open government by providing the public with a general right of access to most official records.

The bill, which also requires companies to include in annual reports details of convictions for breaching health and safety regulations, has little chance of becoming law.

GB United Kingdom, EC P9199 General Government, NEC PEOP Labour P9199 The Financial Times London Page 4 165
Singapore growth prospects up Publication 930220FT Processed by FT 930220

Singapore's growth projections for this year are likely to be revised upwards following a sharp increase in exports, Mr Goh Chok Tong, the prime minister, said.

In November Singapore's non-oil domestic exports grew by 29 per cent.

SG Singapore, Asia P9611 Administration of General Economic Programs ECON Balance of trade P9611 The Financial Times London Page 3 66
China's HK stance puzzles UK Publication 930220FT Processed by FT 930220 By SIMON HOLBERTON HONG KONG

China's reluctance to commit itself to talks with Britain about Hong Kong's political future has left British diplomats in the colony groping for an explanation, Simon Holberton writes from Hong Kong.

News that Britain and China were talking about talks was leaked to the Chinese press in Hong Kong at the beginning of the week. An announcement that the two had agreed to negotiations was expected by the end of this week.

One British diplomat said: 'The general presumption is that the Chinese have differences of opinion within their own camp. Whether they are fundamental or confined to presentation and tactics we just don't know.'

CN China, Asia HK Hong Kong, Asia GB United Kingdom, EC P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 3 147
Major ready to accept US Ulster envoy Publication 930220FT Processed by FT 930220 By PHILIP STEPHENS, Political Editor and GEORGE GRAHAM WASHINGTON

MR JOHN MAJOR will tell President Bill Clinton next week that he is ready to accept with good grace the despatch by the new US administration of a peace envoy to Northern Ireland.

The prime minister's decision not to make an issue of President Clinton's pledge to adopt a higher profile in the affairs of the province follows assurances from Washington that the role of such a mission would be 'fact-finding'.

Officials on both sides of the Atlantic anticipate that the understanding between the two leaders will avoid the risk of differences over human rights in Ulster souring the atmosphere of their first meeting in Washington next week.

President Clinton's aides have also made it clear in advance of the talks that he has no intention of challenging Britain's permanent place on the United Nations Security Council.

The administration has stressed that recent remarks by Mr Warren Christopher, the US secretary of state, suggesting that the composition of the security council be brought 'up to date' were wrongly interpreted in Britain as a challenge to the UK seat.

The two leaders' talks on Wednesday will focus on the broad range of international issues facing both the US and Europe, with the crisis in the former Yugoslavia and the stalled Gatt trade talks at the top of the agenda.

But irritation among Conservative MPs at the new administration's interest in the position of the Roman Catholic minority in Northern Ireland had threatened to cloud their crucial first meeting.

US diplomats confirmed yesterday that President Clinton intended to explore with Mr Major 'one or two' specific proposals for despatch of an emissary to talk to leaders of the political parties in Ulster.

They stressed that President Clinton would not give such an envoy the 'mediation' role which was suggested during his election campaign against President George Bush.

The emissary's contacts would be confined to the leaders of legitimate political parties and he or she would not make contact with any illegal paramilitary groups in the province.

For his part Mr Major is expected to underline his concern that the Democratic administration should not encourage the enforcement in US states of the so-called MacBride principles.

These principles encourage companies operating in the province to discriminate positively in favour of Catholics but the UK government argues that the measure deters inward investment into Northern Ireland.

George Graham in Washington adds: Reports that Mr Tom Foley, the Speaker of the House of Representatives, might be named a special envoy to Northern Ireland were discounted last night by Mr Foley's office.

'It is not realistic,' his office said. 'Frankly, there just isn't time. We are looking at a big legislative programme and we have to be here.'

US United States of America GB United Kingdom, EC P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 3 494
US Secretary of State Christopher sightsees in Egypt Publication 930220FT Processed by FT 930220 By MARK NICHOLSON CAIRO

Mr Warren Christopher, US secretary of state, leaves the Sphinx and Pyramids after a sightseeing tour in Egypt yesterday. After meeting Mr Christopher, Egyptian President Hosni Mubarak said he had accepted an invitation to meet President Bill Clinton in Washington in early April, writes Mark Nicholson in Cairo.

Opening his Middle East tour, Mr Christopher said he and the Egyptian president had 'agreed to intensify efforts' to persuade all sides to reconvene peace talks, which have stalled since Israel's deportation of 415 Palestinians.

But Mr Mubarak appeared to deny Palestinian suggestions that Egypt was championing a new timetable for the return by June of the 396 Palestinian deportees still stranded in south Lebanon. Israel has said it will take back 101 immediately and the rest in a year - a plan the deportees reject.

Mr Mubarak said Egypt still called for Israel's implementation of United Nations resolution 799 demanding the immediate return of all the deportees. 'We have no new agenda,' he said. 'We are working to implement this resolution fully - it will take some time.'

Mr Christopher flew on to Amman for talks with King Hussein, the Jordanian ruler.

EG Egypt, Africa US United States of America P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 3 229
Greenspan upbeat on US economy: The Fed is trying to 'promote sustainable economic expansion' Publication 930220FT Processed by FT 930220 By MICHAEL PROWSE

The US economy is likely to grow by at least 3 per cent and possibly 4 per cent this year, Mr Alan Greenspan, the Federal Reserve chairman, indicated yesterday in his semi-annual monetary report to Congress.

In a generally upbeat assessment, he also predicted a further decline in consumer price inflation, perhaps to only 2.5 per cent compared with 3.1 per cent last year.

The projections for growth and inflation were both noticeably more optimistic than in the Fed's last statement to Congress in July. Mr Greenspan announced a reduction in the Fed's target range for M2, a broad measure of the money supply, to growth of 2.0-6.0 per cent, against 2.5-6.5 per cent last year. However, he said the reduction reflected changes in the relationship between money and growth, not an attempt to tighten monetary policy.

The Fed was 'endeavouring to conduct monetary policy in a way that promotes sustainable economic expansion.'

In a hearing before the Senate banking committee, Democratic members of Congress pressed Mr Greenspan to support President Bill Clinton's economic plan if necessary by easing monetary policy to offset any negative impact on growth from measures to reduce the budget deficit.

Mr Greenspan signalled strong support for Mr Clinton's plan but said the Fed could not specify in advance how it would respond to fiscal measures. The course of interest rates would depend on a host of forces affecting the economy in coming years.

'Going forward the strategy of monetary policy will be to provide sufficient liquidity to support the economic expansion while containing inflationary pressures. The existing slack implies that the economy can grow more rapidly than potential GDP for a time, permitting further reductions in the unemployment rate even while inflation is contained.'

Democratic senators criticised Mr Greenspan for failing to achieve monetary targets in the past. In the year to the fourth quarter of 1992, M2 grew only 1.9 per cent, below the lower limit of the Fed's target.

Mr Greenspan's response was to express profound scepticism about the reliability of monetary targets as a guide for policy. The monetary aggregates 'do not appear to be giving reliable indications of economic developments and price pressures,' he said, noting that the sluggish growth of M2 had proved consistent with much faster growth of nominal incomes than had been normal in the past. The most important reason was that savers had shifted funds out of assets included in M2 in search of higher returns, for example in bond and stock mutual funds.

Mr Greenspan signalled that the economic outlook had improved noticeably in the past six months. While uncertainties remained, the economy appeared to have entered the year with 'noticeable momentum to spending. In addition inventories are at relatively low levels, and factory orders have been rising. Consumer confidence has recovered, and spending on consumer durables and homes appears to be moving at a brisker pace. Recent surveys suggest an appreciable increase in business investment this year.'

The Fed's 'central tendency' projection is for growth this year of 3.0-3.25 per cent, 0.5 percentage points faster than expected last July. The likely range for inflation has been lowered by 0.5 percentage points to 2.5-2.75.

Mr Greenspan warned that the near-term outlook was 'uncertain'. A continuing worry concerned access to credit. 'While banking institutions have become much more healthy and are well-positioned to meet an increase in loan demand, very few signals of any easing of terms or standards on business loans have been apparent to date. '

'But I believe that in many respects the inevitable painful adjustments have laid the foundation for better performance of our economy over the longer term. Financial positions have been strengthened; inflation is low and should remain subdued; labour productivity is increasing; resources are being shifted from national defence to investment and consumption.'

Mr Greenspan reiterated his view that reductions in long-term interest rates could potentially provide a significant spur to growth and that progress would depend on success in cutting the structural budget deficit. However, in comments on the Clinton plan, he warned Congress against relying too heavily on tax increases. With many programmes growing faster than the tax base, stabilising the deficit as a percentage of GDP, not to mention a reduction, would require 'ever increasing tax rates.' There was thus no alternative but to 'control future spending impulses.'

He said there was no danger that deficit reduction could be overdone and create an unhealthy degree of 'fiscal drag.' In the current political environment excessive cuts in the deficit was 'nothing I would lose sleep over.'

US United States of America P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9611 P9311 The Financial Times London Page 3 808
Singapore growth prospects up Publication 930220FT Processed by FT 930220

Singapore's growth projections for this year are likely to be revised upwards following a sharp increase in exports, Mr Goh Chok Tong, the prime minister said.

In November Singapore's non-oil domestic exports grew by 29 per cent.

In an interview with the Financial Times, Mr Goh said he was confident that recovery in the US would be sustained but expressed concern about the possibility of Washington introducing selective protectionist measures which could lead to a trade war.

SG Singapore, Asia P9611 Administration of General Economic Programs ECON Balance of trade P9611 The Financial Times London Page 3 106
Peruvian conspirators sentenced Publication 930220FT Processed by FT 930220 By SALLY BOWEN LIMA

General Jaime Salinas, the ringleader of a group of Peruvian military officers involved in a November conspiracy to overthrow the government of President Alberto Fujimori, has been sentenced to eight years in prison and ordered to pay the equivalent of Dollars 300,000 (Pounds 206,000) in damages, Sally Bowen reports from Lima.

Four other generals, retired and serving, face prison sentences ranging from four to seven years. Eight other officers were pronounced innocent.

PE Peru, South America P9229 Public Order and Safety, NEC PEOP Personnel News P9229 The Financial Times London Page 3 104
Australian government-union deal Publication 930220FT Processed by FT 930220 By KEVIN BROWN SYDNEY

Australia's Labor government announced a wages deal with the unions yesterday that is designed to create 500,000 jobs over three years, Kevin Brown reports from Sydney.

It was dismissed, however, by Mr John Hewson, leader of the conservative Liberal/National Party coalition, and challenger in next month's federal election. 'They have had six accords so far, and all that has done is create 1m unemployed,' he said.

The accord is intended to speed up the decentralisation of Australia's wage bargaining system by ensuring that most negotiations are based on productivity at plant level.

AU Australia P9441 Administration of Social and Manpower Programs GOVT Government News P9441 The Financial Times London Page 3 123
IMF and Philippines fail to reach accord Publication 930220FT Processed by FT 930220 By JOSE GALANG MANILA

THE PHILIPPINES yesterday concluded negotiations with the International Monetary Fund without reaching agreement on a successor programme to the one that is due to end next month.

An IMF team has expressed doubts over growth targets in the government's new plan which had been presented to the fund for financial support.

It had proposed a three-year, programme designed to push the economy toward double-digit growth rates by the middle of the 1990s. The IMF's extended fund facility would be tapped for the programme's financing.

The IMF over the past decade has extended credit support for a series of 18-month programmes for the Philippines. The tight conditions that accompanied them have been criticised for having constricted growth opportunities for the economy.

Under the proposed medium-term programme, the Philippines is targeting an overall growth of 4.5 per cent this year, rising to about 10 per cent towards the end of the present government in 1998. The IMF team that is due to end its Manila visit today sought a lower growth target of 3 per cent at the most.

The talks, according to the two panels, will be reopened in April. However, the IMF, according to officials close to the negotiations, may not be inclined to resume the talks unless the Philippines government is able to secure congressional approval of new tax measures as a precondition.

Also, the IMF wants final implementation of power rates increases that were announced last year by the government, but ordered temporarily frozen by the Supreme Court after oppositors filed a legal suit was filed against them.

PH Philippines, Asia P9611 Administration of General Economic Programs P9721 International Affairs GOVT Government News P9611 P9721 The Financial Times London Page 3 299
S African multi-party talks to resume Publication 930220FT Processed by FT 930220 By PATTI WALDMEIR JOHANNESBURG

MULTI-PARTY talks on a new South African constitution will resume early next month, the first such meeting since talks broke down last May over the issue of multi-racial power-sharing.

Two crucial meetings which took place this week - bilateral talks between the government and the mainly Zulu Inkatha Freedom Party, and a meeting of the national executive of the African National Congress - cleared the way for the resumption of multi-party talks. The three parties, and others from across the political spectrum, plan to meet on March 5 and 6 to plan the resumption of full democracy talks.

Negotiators from the government and Inkatha, who ended a three-day meeting yesterday in Natal, said they had made progress on constitutional issues. However, the gap between Inkatha and the ANC - bitter rivals in Natal - remains huge over such issues as devolution of power to regional governments and whether the new constitution should be written by an appointed or elected body.

The government and the ANC have already reached outline agreement on many issues, including a plan to rule together in coalition until the end of the century, and they have made clear they will proceed without Inkatha if it resists their proposals.

Yesterday the ANC launched its campaign for the first multi-racial elections, expected sometime next year, calling on international delegates to a 'solidarity conference' near Soweto to contribute funds to the campaign.

ANC officials said they would be discussing their sanctions policy at the conference, and would announce a major shift in policy tomorrow. South African police said they were investigating a complaint that former president PW Botha had assaulted his gardener.

Gardener Jan Louw accused Mr Botha and his bodyguard of hitting him earlier this month during an argument over whether he had been drinking on duty.

Inkatha Freedom Party (South Africa) African National Congress (South Africa) ZA South Africa, Africa P9111 Executive Offices P8651 Political Organizations P9229 Public Order and Safety, NEC GOVT Government News PEOP Personnel News P9111 P8651 P9229 The Financial Times London Page 3 356
Dollar at record low against yen Publication 930220FT Processed by FT 930220 By CHARLES LEADBEATER

THE DOLLAR closed at an all-time low of Y119.23 in Tokyo yesterday, down 0.74 yen from Thursday, with the Japanese authorities showing little sign of attempting to break the yen's rise against the US currency, writes Charles Leadbeater.

The dollar reached Y119.25 in October when the yen surged amid the speculative turmoil in European currency markets.

The yen has strengthened throughout the week, apparently on rumours that a meeting of Group of Seven finance ministers and central bankers later this month might attempt to engineer an appreciation of the yen to choke off the rise in Japan's politically sensitive trade surplus with the US.

The dollar has also weakened in Tokyo on worries that President Bill Clinton's economic programme, which involves increased taxes and cuts in federal spending, might undermine the US recovery.

However, the surge in the yen is also likely to be due to companies repatriating funds from abroad to improve their finances before books close on March 31. Most Japanese companies are facing their third year of declining profits.

Mr Mamoru Ozaki, the finance ministry's vice minister and most powerful bureaucrat, said there was no need for policy changes to address the strengthening of the yen.

The Japanese government would be happy for the yen to appreciate gradually, in part because this might help to correct the trade surplus. However senior officials at both the finance ministry and the Bank of Japan rule out any concerted effort by the G7 to manipulate exchange rates to reduce the surplus.

JP Japan, Asia US United States of America P9611 Administration of General Economic Programs MKTS Market data P9611 The Financial Times London Page 3 289
Babangida calls for backing on economy Publication 930220FT Processed by FT 930220 By A Correspondent ABUJA

NIGERIAN President Ibrahim Babangida yesterday asked the country's private sector leaders to help the government improve the climate for investment and economic growth before the handover to elected civilian rule, scheduled for August.

The appeal comes as rising wage demands in the public sector threaten the government's 1993 targets for spending, further fuelling inflation and money supply growth which are already running at more than 50 per cent annually.

Addressing a two-day economic summit in the federal capital, Abuja, Gen Babangida said: 'It would be a rare feat to make a successful transition of democracy with a declining economy.'

The summit is seen as a chance to breathe new life into a structural adjustment programme begun in 1986.

Gen Babangida has called on Chief Ernest Shonekan, formerly head of Nigeria's largest trading company UAC, to define a mid-term strategy for the economy to open the way to an Enhanced Structural Adjustment Facility from the IMF and for rescheduling of Nigeria's large external debts.

Chief Shonekan invited business executives to advise the government on the reforms, incentives and policies necessary to attract private sector investment which he said was needed to fund economic growth in real terms of over 5 per cent a year.

He said the summit should address ways of improving competition - domestic savings levels, training and technology, a strong financial system, and an adaptable bureaucracy for responsible citizens under the rule of law.

NG Nigeria, Africa P9611 Administration of General Economic Programs P99 Nonclassifiable Establishments GOVT Government News P9611 P99 The Financial Times London Page 3 274
Monetary slowdown easing Publication 930220FT Processed by FT 930220 By CHARLES LEADBEATER TOKYO

THE long slowdown in Japanese money supply growth may be reaching its end, according to Bank of Japan figures, published yesterday, which indicate the rate of contraction is slowing.

The broadly defined money supply fell by 0.3 per cent in January from a year earlier, the fifth consecutive month of contraction. However, the rate of contraction has eased considerably in the past few months from a 0.6 per cent fall in October and November and 0.4 per cent in December.

At the same time, the bank's measure of broad liquidity grew by 2.5 per cent from a year before, an unchanged rate from December. Broad liquidity growth has been reasonably stable at between 2.4 and 2.7 per cent a month for the past five months.

The trend in M2, meanwhile, has gradually shifted from a 5.7 per cent month-on-month contraction last September to 1.5 per cent growth in January compared with the previous month. It is not clear what is causing the slight improvement in the money supply growth rate.

It may reflect increased lending by commercial banks, which may gather pace in the wake of the recent cut in the official discount rate to an historic low of 2.5 per cent.

Much of the growth in lending is coming from public sector financial institutions which provide loans and finance for small businesses.

These agencies have had recent sharp increases in their budgets which are just showing through in higher lending.

Bank of Japan JP Japan, Asia P601 Central Reserve Depositories P9311 Finance, Taxation, and Monetary Policy ECON Balance of payments P601 P9311 The Financial Times London Page 3 282
UN chief orders resumption of aid to Bosnia: Speculation mounts that High Commissioner for Refugees is considering her resignation Publication 930220FT Processed by FT 930220 By ROBERT MAUTHNER, LAURA SILBER and FRANCES WILLIAMS NEW YORK, BELGRADE, GENEVA

MR Boutros Boutros Ghali, the United Nations secretary-general, said yesterday he had written to Mrs Sadako Ogata, the UN High Commissioner for Refugees, asking her to ensure that humanitarian relief deliveries in Bosnia-Hercegovina are immediately resumed.

In reply to a question on whether Mrs Ogata agreed with such a decision, Mr Boutros Ghali said: 'I am supposed to direct this operation.'

The UN secretary-general's instructions to Mrs Ogata to reverse her decision to suspend relief supplies to many parts of Bosnia, which came only 48 hours after the original decision was made, is a clear indication that there has been a serious communications breakdown among senior UN officials.

Diplomats representing members of the Security Council have been expressing surprise and consternation that Mrs Ogata acted without prior consultation with the Council and the secretary-general. Although she is reported to have given advance notice of her decision to Mr Cyrus Vance, one of the co-chairmen of the Bosnian peace conference, Mr Vance is understood to have advised her against taking a decision without consulting Mr Boutros Ghali. The UN chief was on a visit to Japan.

A UN spokesman said he did not know whether Mrs Ogata intended to visit UN headquarters in New York in the near future. But there is speculation she might be considering resigning, in spite of the high regard in which she is held by member governments.

UNHCR operations have been crippled by the refusal of local Bosnian Serb commanders to allow relief supplies into Moslem-held towns in eastern Bosnia. This prompted last week a Bosnian govern-ment boycott of deliveries to Sarajevo, the Bosnian capital.

General Philippe Morillon, head of the UN Protection Force (Unprofor) in Bosnia, said on Thursday that he thought he had won pledges from Bosnian Serb leaders to allow a delayed UN aid convoy escorted by his troops to travel to the Moslem strongholds of Gorazde and Zepa.

But hopes that this could prove a signal for resumed UNHCR operations were dashed yesterday when a reconnaissance mission to Zepa was turned back by Bosnian Serb forces.

The main convoy will try to reach Gorazde again today, after emergency repairs to a hole in the road.

Ms Sylvana Foa, a UNHCR spokeswoman, yesterday defended Mrs Ogata from accusations that the decision to suspend aid was taken without proper consultation. She said Mrs Ogata had spoken the previous day to Mr Vance and had recently warned Mr Boutros Ghali that suspension might be necessary.

The decision had aroused intense controversy. A private meeting on Thursday of about 20 countries involved in the aid effort in the former Yugoslavia had backed Mrs Ogata's stand, Ms Foa said.

Meanwhile, the Security Council yesterday decided to renew the mandate for 23,000 UN peacekeeping troops in the former Yugoslavia for an interim period of six weeks, to give international mediators extra time to broker peace agreements in Croatia and Bosnia.

The decision, which covers the period from February 21 to March 31, is intended to strengthen Unprofor in the Krajina region of Croatia, where it has been unable to ensure the full implementation of a peace plan concluded in January 1992.

The resolution, drafted by France, which has seen 12 of its peacekeeping troops killed in conflict so far, invites Mr Boutros Ghali to take 'appropriate measures' to strengthen the security of Unprofor.

The resolution specifically mentions for the first time that Unprofor will be acting under Chapter 7 of the UN Charter. This chapter governed allied operations in the Gulf war and allowed member states to use military means to ensure the implementation of Security Council resolutions.

Although the resolution was adopted unanimously, China expressed reservations about putting Unprofor's operations in the framework of Chapter 7.

The Chinese representative said the implementation of Chapter 7 should be considered an exceptional case and should not constitute a precedent for future peacekeeping operations.

BA Bosnia-Hercegovina, East Europe YU Yugoslavia, East Europe P9721 International Affairs PEOP Personnel News GOVT Government News Ogata, S UN High Commissioner for Refugees (US) P9721 The Financial Times London Page 2 713
Rocard steps over the Socialist debris to eye presidential prize Publication 930220FT Processed by FT 930220 By ALICE RAWSTHORN

MR Michel Rocard, the former French prime minister, showed a keen eye for history when he chose Tours, the city where the original French Socialist party was dissolved in 1920, as the scene of his assault on the party of today.

His appeal on Wednesday night for a 'political big bang' amounted to a 'funeral oration' for the party, according to Liberation, bible of the French left. In his new universe, the left would jettison old-style socialism and join forces with ecologists, human rights activists and other kindred spirits in an 'open movement' to lead France into the next century.

Such a call could not have come at a worse time for the socialists. Battered by scandal and gloomy economic news, they are braced for a bruising defeat in next month's parliamentary elections. But for Mr Rocard the timing could not have been better.

He is concerned not with the present election campaign - he is struggling even to save his own seat - but with his prospects in the 1995 presidential election. His speech was partly to breathe new life into the floundering left, but partly to distance himself, and his presidential aspirations, from the socialists' problems.

The socialists have been struggling ever since Mr Rocard was replaced as prime minister by Mrs Edith Cresson in 1991.

Regional elections last spring, when the party was hammered by ecologists and the National Front, showed the electorate's disaffection with the political establishment. The left should also have been warned by the election defeats of the British Labour party and the Italian socialists.

Despite these danger signs the socialists have entered the present campaign with the same tired policies.

One explanation is the crisis of confidence in the party, which is weary after a decade of government and a stream of scandals. Not least of these is the Aids blood trial which has haunted Mr Laurent Fabius, appointed first secretary last year with a mandate to modernise French socialism.

Another factor is Mr Fabius' political mentor, President Francois Mitterrand. He resurrected the Socialist party in 1971 and told its adherents on TV last week to strengthen the party rather than abandon it for a Rocard-type new alliance.

The idea of a new alliance has been circulating in the left for some time.

Mr Rocard is an astute politician who took care to warn his peers before dropping his Tours bombshell. So far most senior socialists have responded positively, as has Mr Brice Lalonde, former socialist environment minister and founder of the Generation Ecologie movement.

The Tours speech was only the beginning. It will take more than such a 'funeral oration' to bury a complex institution like the French Socialist party. But Mr Rocard has the advantage of representing, to ambitious French politicians, the future, whereas the septuagenarian President Mitterrand is fading into the past.

Socialist Party (France) FR France, EC P8651 Political Organizations CMMT Comment & Analysis Rocard, M former Prime Minister (France) P8651 The Financial Times London Page 2 518
Paris gives fresh veto warning on oilseeds Publication 930220FT Processed by FT 930220 By LIONEL BARBER BRUSSELS

FRANCE yesterday warned the European Community that it would veto the draft US-EC accord on oilseeds if the deal was put to a vote at next month's farm ministers' council.

The warning followed a European Commission proposal to put the oilseeds deal - an integral part of the US-EC farm accord in the Gatt trade talks - on the agenda of the foreign affairs ministers' meeting in Brussels on March 8.

Mr Jean-Pierre Soisson, French farm minister, said he had authorisation from Mr Pierre Beregovoy, the French prime minister, to veto the deal if it were put to the vote.

The draft accord is also expected to be on the agenda of the EC farm ministers' council on March 16-17. Mr Soisson is to attend the meeting, where there is greater sympathy for France's position than among foreign affairs ministers.

A spokesman for the Danish presidency of the EC said in Brussels yesterday that a vote could technically take place; but he echoed the view of other EC officials involved in the Gatt talks that ministers were unlikely to force the oilseeds issue two weeks before French parliamentary elections.

The one notable exception is Mr Rene Steichen, the new EC farm commissioner from Luxembourg, who said he would like the oilseeds deal put to a Council of Ministers vote to show the US that the EC could 'stick to an agreement'.

Mr Steichen added it was possible the US might start back-tracking on the farm export subsidies deal agreed in Washington last November if there was continuing uncertainty. 'It is a good issue for the EC to have calm on farm exports and oilseeds.'

The European Commission yesterday launched a vigorous defence of its new banana import regime in response to criticism from Latin American producers and Germany, the EC's largest banana consumer.

Mr Rene Steichen, EC farm commissioner, said the agreement would generally mean lower or stable prices in the EC and guaranteed protection for Community banana growers and generous support for the traditional African, Caribbean and Pacific (ACP) producers.

Germany and the Benelux countries opposed last week's deal which set an EC quota for Latin and Central American (dollar-zone) banana-producing countries of 2m tonnes, effective from July 1, at a duty of Ecu100 (Pounds 82.60) per tonne. Bananas above the 2m quota face a duty of Ecu850 per tonne.

Germany plans to lodge a formal complaint at the EC Court of Justice in Luxembourg, claiming the deal approved by qualified majority infringes its banana protocol under the 1957 Treaty of Rome.

QR European Economic Community (EC) FR France, EC US United States of America P9641 Regulation of Agricultural Marketing P0119 Cash Grains, NEC GOVT International affairs P9641 P0119 The Financial Times London Page 2 472
Fillip for German rate cut hopes Publication 930220FT Processed by FT 930220 By DAVID WALLER and Our Foreign Staff FRANKFURT

HOPES for further, sustained cuts in German interest rates were given a fillip yesterday after the Bundesbank released figures showing that broad money supply - traditionally the German central bank's key indicator in the battle against inflation - fell in January on an annualised basis.

Economists had expected the rate of growth in M3 to fall significantly from December. But the annualised, seasonally adjusted 2.3 per cent drop in M3 - following an 8.7 per cent rise in December - took observers by surprise when it was announced yesterday, prompting an increase in German bond prices in expectation of further interest rate cuts.

The Bundesbank said the figure was distorted, taking care to emphasise that the drop reflected a number of special factors, chiefly the reversal of the currency flows which had bloated M3 growth in the autumn of last year. The Bundesbank's currency market interventions helped send annualised M3 growth to a record 10.3 per cent last October.

Another reason was purely statistical - the Bundesbank calculates the growth with reference to the previous three month's figures. As these were exceptionally high, it was inevitable that the January annualised figure would be vastly improved on the December M3 number. Economists were, however, expecting growth of around 4 per cent, not a fall.

Despite the Bundesbank's attempts to play down the significance of the number, economists were encouraged, predicting that the Bundesbank would be able to meet its growth target for M3 this year. Last year M3 grew at 9.4 per cent compared to a target range of 3.5 to 5.5 per cent, the worst performance since targeting was introduced 18 years before. The target was subsequently raised to 4.5 to 6.5 per cent for 1993.

The Bundesbank said that on a straightforward year-on-year basis, M3 - which includes cash, current accounts and short-term deposits - grew by 7.5 per cent. Measured against the previous six months, it grew by 6.5 per cent.

Norway and Ireland both cut short-term interest rates yesterday, Our Foreign Staff adds.

Norway's central bank cut the key overnight lending rate to its lowest level since the rate was introduced in 1986. The cut in the benchmark rate, the third this month, was to 9.25 per cent from 9.50 per cent, from Monday.

The move followed a period of strength in the krone and low money market rates. Norway uncoupled the krone from the European currency unit on December 10, and the currency has since fallen.

The central bank also lowered the rate for overnight deposits, the credit rate, to 8.25 per cent from 8.50 per cent. The key rate reached 25 per cent last November during turbulence in the Scandinavian currency markets.

Meanwhile, in Ireland the central bank cut its short-term lending facility (STF) by three quarters of a point to 13 per cent, its first reduction since it was raised by 3 points last September at the beginning of the ERM crisis.

The STF was restored only two weeks ago at its suspension level of 13.75 per cent, having been withdrawn in November as the currency crisis deepened. It was temporarily replaced by an overnight lending facility which at times soared as high as 100 per cent, as the bank sought to ward off speculation on the punt.

See Lex, Page 24

Deutsche Bundesbank DE Germany, EC P601 Central Reserve Depositories P9311 Finance, Taxation, and Monetary Policy ECON Balance of payments P601 P9311 The Financial Times London Page 2 595
Job losses to mount in French industry Publication 930220FT Processed by FT 930220 By ALICE RAWSTHORN PARIS

JOB losses will mount across France in the first half of this year as industry continues to cut costs and prune investment, according to the latest business survey by Insee, the state statistics institute.

The rise in unemployment, after last year's 5 per cent increase to 2.98m people, will keep consumer confidence and spending depressed, the survey says. There is also little hope of a recovery in industrial expenditure.

The 2,000 companies questioned by Insee expected an overall cut of 4 per cent in industrial investment this year after last year's 6 per cent reduction.

French industry has just emerged from a bruising 1992, when companies struggled against a combination of sluggish consumer spending, high interest rates and a strong currency. Yesterday's announcement confirms the gloomy tone of the Bank of France's business survey published on Monday and follows Thursday's news that the Insee industrial production index fell in December to its lowest level for four years.

The threat of further industrial cuts comes at a sensitive time. France's socialist government, which faces defeat by a conservative coalition in next month's elections, is anxious to paint a positive picture of the economy to avert further attacks on the franc.

However, the Insee survey points to another difficult year for French companies. Most respondents expect the overall level of activity in the first half of 1993 to match the corresponding period last year.

FR France, EC P99 Nonclassifiable Establishments P9611 Administration of General Economic Programs CMMT Comment & Analysis P99 P9611 The Financial Times London Page 2 272
Brussels fends off criticism of banana import regime Publication 930220FT Processed by FT 930220 By LIONEL BARBER

THE European Commission yesterday launched a vigorous defence of its new banana import regime in response to a wave of criticism from Latin American producers and Germany, the EC's largest banana consumer.

Mr Rene Steichen, EC farm commissioner, said the agreement would generally mean lower or stable prices in the EC and guaranteed protection for Community banana growers and generous support for the traditional African, Caribbean and Pacific (ACP) producers.

Germany and the Benelux countries opposed last week's deal which set an EC quota for Latin and Central American (dollar-zone) banana-producing countries of 2m tonnes, effective from July 1, at a duty of Ecu100 (Pounds 82.60) per tonne. Bananas above the 2m quota face a duty of Ecu850 per tonne.

Germany plans to lodge a formal complaint at the EC Court of Justice in Luxembourg, claiming the deal approved by qualified majority infringes its banana protocol under the 1957 Treaty of Rome.

Mr Steichen said the EC had a 'blatant need' to introduce a Community quota for dollar-zone bananas now that the single European market was in force. Otherwise the EC would have to reimpose controls at national borders.

He also dismissed Latin American charges that the agreement amounted to a cocaine cartel licence as it would encourage banana farmers in Ecuador, Colombia, Panama and elsewhere to turn to other products for income. The import restrictions come at a time when many Latin American countries have made considerable investments to increase banana production.

Mr Steichen stressed the quota could be revised upward to take account of EC demand, and said it was intolerable for the EC's good faith on this pledge to be challenged.

He also gave short shrift to arguments that the new quota failed to take into account the upsurge in demand for bananas, particularly in eastern Germany.

He added the Commission was examining the close similarity between prices in quota-free Germany and the Benelux countries, which had a 20 per cent tariff.

A similar dispute involving Germany has erupted over European Commission efforts to impose a Community quota on cheap imports of items such as toys and textiles from China, North Korea and Vietnam.

QR European Economic Community (EC) DE Germany, EC XC Latin America P9641 Regulation of Agricultural Marketing P0179 Fruits and Tree Nuts, NEC GOVT International affairs P9641 P0179 The Financial Times London Page 2 406
Ireland and Norway cut rates Publication 930220FT Processed by FT 930220 By KAREN FOSSLI and TIM COONE OSLO, DUBLIN

NORWAY and Ireland both cut short term interest rates yesterday.

Norway's central bank cut the key overnight lending rate to its lowest level since the rate was introduced in 1986. The cut in the benchmark rate, the third this month, was to 9.25 per cent from 9.50 per cent, from Monday.

The move followed a period of strength in the krone and low money market rates. Norway uncoupled the krone from the European currency unit on December 10, and the currency has since fallen.

The central bank also lowered the rate for overnight deposits, the credit rate, to 8.25 per cent from 8.50 per cent. The key rate reached 25 per cent last November during turbulence in the Scandinavian currency markets.

Meanwhile in Ireland the central bank cut its short term lending facility (STF) by three quarters of a point to 13 per cent, its first reduction since it was raised by 3 points last September at the beginning of the ERM crisis.

The STF was restored only two weeks ago at its suspension level of 13.75 per cent, having been withdrawn in November as the currency crisis deepened. It was temporarily replaced by an overnight lending facility which at times soared as high as 100 per cent, as the bank sought to ward off speculation on the punt.

Commercial lending rates are pegged to the STF. However, financial institutions have been warning that unless interbank money rates fall, they may be obliged to increase their lending rates to businesses and mortgage holders. Since the punt was devalued last month, interbank money rates have remained stubbornly high.

IE Ireland, EC NO Norway, West Europe P601 Central Reserve Depositories P9311 Finance, Taxation, and Monetary Policy ECON Balance of payments P601 P9311 The Financial Times London Page 2 314
Foreign architects look to heavenly image for redesign of Berlin's Reichstag Publication 930220FT Processed by FT 930220

THREE radically different designs all by foreign architects - to convert the war-scarred Reichstag building in Berlin into the new German parliament were chosen yesterday.

One of Britain's foremost architects, Sir Norman Foster, proposed a 50-metre high canopy over the building (left). The cloud-like shape of the structure won the immediate nickname 'Himmel uber Berlin' (Heaven over Berlin), the title of the Wim Wenders film known in English as 'Wings of Desire'.

Sir Norman said the pavilion created a sense of 'grand arrival' but still left a social gathering point at the site of momentous developments in German history. His design reflected 'an image of Germany today. . . We are not in the 19th century, and German democracy is looked up to now'.

Spaniard Santiago Calatrava proposed a glass dome over the building, while Dutch architect Pi de Bruijn suggested a more modest design.

The Reichstag, opened in 1894, was burnt out in an arson attack in 1933. In 1991 the Bundestag decided to transfer parliament to Berlin.

DE Germany, EC P8712 Architectural Services P65 Real Estate RES Facilities CMMT Comment & Analysis P8712 P65 The Financial Times London Page 2 208
Trouble at the Hammer and Sickle engine plant: The problems of collapsing trade among former Soviet republics Publication 930220FT Processed by FT 930220 By LEYLA BOULTON and CHRYSTIA FREELAND

AT UKRAINE'S Hammer and Sickle plant in Kharkov, diesel engines cannot be sold for lack of one missing component from Russia. Meanwhile in the Russian city of Rostov, combine-harvesters sit in the Rostselmash plant waiting for the Ukrainian-made diesel engines.

The mismatch is one of thousands of examples of how trade has sharply declined among former Soviet republics since they gained independence a year ago and have tried to switch from central planning to market economics and separate currencies.

The contraction in trade is one of the main reasons for a fall of more than 20 per cent in Russia's industrial output and exports last year - with similar results in other republics.

Echoing the complaints of industrialists on either side of the Russian border, Mr Viktor Chernomyrdin, the Russian prime minister, says trade must be revived among former Soviet republics 'because we cannot compete on any other markets'. At the same time, he and various ministers served notice that cash-strapped Russia would stop subsidising other republics with cheap energy and raw materials.

The problem of inter-republican trade now tops the agenda of many politicians in other republics too. Lithuania's new president, Mr Algirdas Brazauskas, the former communist leader, owes part of his victory this week to promises of improved trading ties with other republics and cheaper energy supplies from Russia.

Ultimately, the republics expect to move to a system of dealing enterprise to enterprise through a normal banking system. But such an option will take time while other republics are weaned off traditional dependence on cheap energy, and fully switch to their own currencies.

The day before Mr Brazauskas was elected, the country's finance minister said Russia had agreed to take roubles to pay a backlog of energy debts, but that the two sides had agreed to use hard currency settlements from March 1. It is unlikely in the meantime that Mr Brazauskas will be able to restore hot water to Lithuanian homes.

A more immediate solution - which is making little progress - is an inter-state bank which commonwealth states agreed to establish at their summit in Minsk last month. This would have acted as clearing system for other republics to continue trading freely in roubles, but would have required Russia to subsidise the trade deficits of other republics, and it would only have covered deliveries under inter-state agreements.

But Mr Vladimir Mashits, chairman of Russia's committee for relations with other republics, confirming suspicions that Russia would drag out the issue, has said it was not even being discussed because most republics, apart from Belarus, were refusing to co-ordinate financial policies with Russia for the privilege of continuing to use the rouble.

While private entrepreneurs have found numerous ways of paying each other and getting around various rules to limit flows of currency and goods between borders, many of the enterprises are still closely connected to the state and indirectly depend on some form of state subsidy. Meanwhile the banking system - already very inefficient within Russia - has made virtually no progress in establishing efficient settlements among republics.

Russia took the first step in cutting off a life-support system of cheap energy to other republics this summer by preventing them from issuing rouble credits to cover trade. Now Mr Mashits says that Russia will insist that they reimburse Rbs1,000bn 'technical credits' advanced to them by the Russian central bank for energy imports. He said also the central bank should start quoting exchange rates for the other currencies issued by republics.

Russia is clearly trying to force other republics to drop the rouble or co-ordinate financial policy with Russia's. .But once that is decided it will have to weigh the benefits of subsidising trade against the disadvantages of breaking it off.

RU Russia, East Europe UA Ukraine, East Europe XV Commonwealth of Independent States P9611 Administration of General Economic Programs GOVT International affairs CMMT Comment & Analysis P9611 The Financial Times London Page 2 684
World News In Brief: Lager league Publication 930220FT Processed by FT 930220

The Football Association Premier League agreed a Pounds 12m sponsorship deal over four years with Bass, brewer of Carling Black Label lager. From next season, the league will be known as the FA Carling Premier League.

Bass GB United Kingdom, EC P7941 Sports Clubs, Managers, and Promoters P7319 Advertising, NEC P2082 Malt Beverages MKTS Contracts P7941 P7319 P2082 The Financial Times London Page 1 76
World News In Brief: Retrial ordered Publication 930220FT Processed by FT 930220

Malcolm Kennedy, 46, convicted of murdering his cellmate in Hammersmith police station on Christmas Eve 1990, was granted a retrial by the Court of Appeal.

GB United Kingdom, EC P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 1 59
World News In Brief: Two boys questioned over toddler's death Publication 930220FT Processed by FT 930220

Two 10-year-old boys were being questioned last night at separate police stations in connection with the abduction and murder of James Bulger, aged 2, who was taken from a shopping mall in Bootle, Merseyside, eight days ago.

GB United Kingdom, EC P9229 Public Order and Safety, NEC PEOP Personnel News GOVT Legal issues P9229 The Financial Times London Page 1 75
'Wise men' warn against tax rises: Treasury team says outlook remains uncertain - Survey finds sharp fall in confidence Publication 930220FT Processed by FT 930220 By PETER MARSH, Economics Staff

THE UK government's new team of private-sector economic advisers warned yesterday that economic recovery is far from assured and could be jeopardised by any tax increases in next month's Budget.

It also warns that Britain's potential to produce goods and services during the rest of the 1990s may have been damaged by increased long-term unemployment and the premature scrapping of capital equipment.

The generally gloomy report from the advisers coincided with news that consumer confidence has fallen sharply in recent weeks, a reminder that lack of strong indications about an upturn in the economy may continue to hold back spending.

According to a monthly survey by Gallup, a market research group, confidence has dropped partly in response to worries about inflation and unemployment. The survey, based on interviews with more than 2,000 people at the start of February, says 60 per cent of UK citizens are either just making ends meet or drawing on their savings.

The report by the Treasury's seven-strong advisory panel was published at the end of a mixed week of economic data which saw the headline jobless total climb above 3m for the first time in six years.

Although the panel believes economic prospects have been helped by lower interest rates and sterling's devaluation, it says there is 'considerable uncertainty' about the strength of any rebound from the recession.

The panel sees more scope for further cuts in bank base rates from 6 per cent, should economic activity weaken in the next few months. It says high debts 'may be a greater brake on consumer spending than we have allowed for'.

Of the seven economists only Professor Tim Congdon, managing director of Lombard Street Research, wants to see Mr Norman Lamont, the chancellor, increase taxes in the March 16 Budget. The others say such a move could hold back a recovery but are keen to see the Treasury 'set out a clear strategy' to reduce the rising deficit by tax increases from 1994-95 or cuts in public spending.

The part-time advisers - recruited by Mr Lamont at the end of last year as part of a move to greater openness in economic policymaking - think that underlying inflation will fail by a small amount to breach the Treasury's 4 per cent target this year and next. However, the target is likely to be exceeded in 1995 and 1996 as extra economic activity prompts rising cost pressures.

All the advisers think unemployment will rise further to between 3.1m and 3.4m by the end of the year.

The average forecast of the advisers is for the UK economy to expand 1.1 per cent this year, with growth picking up to 2.7 per cent in 1994. The advisers warn that another year of flat or declining output, after economic contraction last year and 1991, would be 'extremely damaging'.

The group is concerned about the large current account deficit. It reckons the gap between imports and exports will rise from Pounds 12bn last year to Pounds 15.5bn this year.

Thoughts of the wise men, Page 5

To tax, or not to tax, Page 8

Currencies, Page 13

Lex, Page 24

London stocks, Page 15

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs GOVT Government News ECON Economic Indicators CMMT Comment & Analysis P9311 P9611 The Financial Times London Page 1 587
ICI board poised to press ahead with demerger of group Publication 930220FT Processed by FT 930220 By PAUL ABRAHAMS and MAGGIE URRY

THE BOARD of Imperial Chemical Industries, the UK's largest manufacturer, is believed to be almost certain to vote on Wednesday to split the company into two separately-quoted groups.

However, a debate is raging within ICI and SG Warburg, its adviser, about how to structure the expected Pounds 1bn fund-raising necessary to carry out the demerger.

Sir Denys Henderson, chairman, and Mr Ronnie Hampel, chief operating officer, are determined to complete the move in spite of poor trading conditions, according to non-executive directors.

At least one board member has expressed doubts about whether the new ICI will be able stand on its own during the recession without the cash-flow generated by the pharmaceuticals division.

One option for financing the move is an immediate rights issue by the pre-demerged ICI. The structure of such a deal would probably be complicated.

Another possibility involves an international issue at a later date by Zeneca, ICI's newly created pharmaceuticals, agrochemicals and specialty chemicals group. 'It all comes down to John Mayo and what he can persuade the board to do,' said one investment banker. Mr Mayo, Zeneca's finance director and a former Warburg corporate financier, is thought to favour the second solution.

However, others feel that the ICI rights issue is preferable, given the stock market's current receptiveness to issues, and with ICI craving certainty in the financing. An issue of this size could only be underwritten in the London market.

The rights issue is required to clear some of ICI's debt, estimated by broker BZW at between Pounds 1.7bn and Pounds 2bn. Without the issue, the new ICI, whose cash-flow has suffered from the recession, would find it hard to pay its dividend.

Since the demerger was announced in July, trading conditions for ICI's chemicals business have deteriorated. Earlier this week, Rhone-Poulenc, France's largest chemical group, said the European chemicals industry was in a worse state than during the 1973 oil shock. ICI's industrial chemicals business is expected only to have only broken even last year on turnover of about Pounds 1.4bn.

Zeneca might have some difficulty completing a rights issue given the poor recent stock market performance of drugs stocks.

In addition, when ICI reveals its full-year results on Thursday, the group is expected to show that Zeneca's performance has deteriorated since 1991.

Hoare Govett, the UK broker, estimates that Zeneca's operating profits fell from Pounds 917m in 1991 to Pounds 765m last year. Its pharmaceuticals operations are expected to post static results, while those of its agrochemicals business will decline.

The speciality chemicals division, which was designed to provide counter-cyclical earnings, is forecast to make operating profits of only about Pounds 26m on turnover of more than Pounds 1bn.

On Wednesday, ICI's board, comprising eight executive directors and six non-executive directors, will decide on a straight show of hands whether to split the company.

The decision will be revealed the following day after the 1992 full-year results are announced.

How to raise money, Page 10

Imperial Chemical Industries GB United Kingdom, EC P2834 Pharmaceutical Preparations P2819 Industrial Inorganic Chemicals, NEC P2869 Industrial Organic Chemicals, NEC P2879 Agricultural Chemicals, NEC COMP Demerger COMP Company News FIN Share issues P2834 P2819 P2869 P2879 The Financial Times London Page 1 557
Italy shaken by further cabinet resignations Publication 930220FT Processed by FT 930220 By HAIG SIMONIAN MILAN

THE FUTURE of Italy's shaky seven-month-old government was plunged into doubt yesterday after the resignation of the finance minister, Mr Giovanni Goria, and the health minister, Mr Francesco De Lorenzo.

Opposition politicians called for the immediate resignation of Mr Giuliano Amato as prime minister and his replacement by an apolitical figure to lead an administration until new elections based on a reformed voting system.

Yesterday's resignations follow the decision earlier this month by Mr Claudio Martelli, the former justice minister, to step down. Mr Martelli has been advised by Milan magistrates that he is under investigation in connection with illegal political funding.

Last night, Mr Amato was locked in talks with senior representatives of the political groupings that form his four-party coalition amid considerable uncertainty whether the government would survive or be allowed to collapse.

Tension mounted throughout the day as magistrates in Milan, Rome, Naples and Asti ordered a wave of arrests of politicians and businessmen as part of the crackdown on political corruption. The atmosphere grew increasingly charged at what should have been a routine address by Mr Amato to the Senate, the upper house of parliament. The corridors of the parliament building were already echoing to growing rumours of impending arrests and resignations.

Then first Mr Goria, followed by Mr De Lorenzo, announced their resignation. Mr De Lorenzo's 89-year-old father was yesterday morning placed under house arrest in a separate investigation into illegal political kickbacks.

Mr De Lorenzo was told he was under investigation in connection with a Naples votes-for-jobs scandal. Mr Goria is allegedly involved in unspecified corruption relating to the construction of a hospital in his constituency.

The tense political climate had an immediate effect on the lira, which fell to L957 against the D-Mark. The currency, which has been under growing pressure as political uncertainties mounted this week, has never sunk so low, apart from a brief spell after last year's decision to leave the exchange rate mechanism. While Mr De Lorenzo's resignation did not come as a surprise, that of Mr Goria was less expected. Both moves are linked to the growing anti-corruption wave sweeping Italy, which has led to numerous politicians being investigated and hundreds of arrests.

Tension in the government, which is made up of Mr Amato's Socialist party, the Christian Democrats and the Liberals and Social Democrats, had been rising this week. This followed growing doubts about the chances of a successful reshuffle to broaden its base and allow other parties into the coalition.

The loss of two senior ministers could represent the coup de grace for Mr Amato. However, some observers believe party leaders may let the government survive, pending approval of new electoral laws, which could lead to new elections and a more representative administration.

While Mr Goria, a former prime minister and treasury minister, has not been under recent judicial investigation, he has been embroiled in a long-running investigation into a 1976 affair involving the local savings bank in his Asti constituency. More recently, leading local Christian Democrats have been investigated by magistrates over allegations of political kickbacks, allegedly totalling L7.5bn, on the construction of a local hospital. Yesterday, magistrates made further arrests of politicians in Asti.

In his resignation letter to Mr Amato, Mr Goria said he could 'not tolerate suffering accusations which were unjust, unfounded and unreasoned, without the ability to defend himself'.

Mr De Lorenzo's resignation followed Thursday's vote by the parliamentary committee on immunity to approve a request by Naples magistrates to lift his immunity as an MP.

Currencies, Page 13

World stocks, Page 21

IT Italy, EC P91 Executive, Legislative and General Government PEOP Appointments GOVT Government News Goria, G Finance Minister (Italy) De Lorenzo, F Health Minister (Italy) P91 The Financial Times London Page 1 640
Stock & Currency Markets Publication 930220FT Processed by FT 930220

----------------------------------------------------- STOCK MARKET INDICES ----------------------------------------------------- FT-SE 100: 2,840.0 (+2.3) Yield 4.25 FT-SE Eurotrack 100 1,136.6 (+3.65) FT-A All-Share 1,387.47 (+0.1%) FT-A World Index 141.66 (+0.4%) Nikkei 17,010.03 (+27.89) New York close: Dow Jones Ind Ave 3,322.18 (+19.99) S&P Composite 434.22 (+2.32) ----------------------------------------------------- US CLOSING RATES ----------------------------------------------------- Federal Funds: 2 13/16% (2 7/8%) 3-mo Treas Bills: Yld 2.972% (2.941%) Long Bond 101 15/32 (101 9/32) Yield 7.002% (7.017%) ----------------------------------------------------- LONDON MONEY ----------------------------------------------------- 3-mo Interbank 6 1/4% (same) Liffe long gilt future: Mar 103 7/16 (Mar102 27/32) ----------------------------------------------------- NORTH SEA OIL (Argus) ----------------------------------------------------- Brent 15-day Apr Dollars 18.25 (+0.36) ----------------------------------------------------- Gold -----------------------------------------------------

New York Comex Apr Dollars 331.0 (331.5) London Dollars 330.25 (330.05) ----------------------------------------------------- STERLING ----------------------------------------------------- New York close: Dollars 1.454 (1.4475) London: Dollars 1.453 (1.4455) DM 2.3775 (2.36) FFr 8.05 (7.9975) SFr 2.19 (2.1825) Y 173.0 (172.75) Pounds Index 77.4 (76.7) ----------------------------------------------------- DOLLAR -----------------------------------------------------

New York close: DM 1.638 (1.6315) FFr 5.547 (5.5295) SFr 1.509 (1.50565) Y 118.315 (119.15) London: DM 1.636 (1.6335) FFr 5.54 (5.5325) SFr 1.508 (1.509) Y 119.1 (119.55) Dollars Index 66.3 (66.5) Tokyo close Y 119.23 -----------------------------------------------------

JP Japan, Asia US United States of America GB United Kingdom, EC P1311 Crude Petroleum and Natural Gas P3339 Primary Nonferrous Metals, NEC P6231 Security and Commodity Exchanges COSTS Commodity prices COSTS Equity prices MKTS Market data P1311 P3339 P6231 The Financial Times London Page 1 235
International Company News in Brief Publication 930219FT Processed by FT 930221 By REUTER PARIS

BANQUE Nationale de Paris, Dresdner Bank and the Russian central bank signed an agreement for the establishment of a bank, jointly owned by the French and German partners, Reuter reports from Paris. BNP said the bank would have Dollars 10m in capital, split equally between BNP and Dresdner, and be called BNP-Dresdner Bank (Russia). It will have its headquarters in St Petersburg and a branch office in Moscow.

Banque Nationale de Paris Dresdner Bank BNP-Dresdner Bank (Russia) RU Russia, East Europe FR France, EC DE Germany, EC P6021 National Commercial Banks COMP Company News P6021 The Financial Times International Page 16 115
International Company News in Brief Publication 930219FT Processed by FT 930221 By REUTER ZURICH

ARES-SERONO, the Swiss pharmaceutical company, said that it expected higher group net profits for 1992, and added that 1993 earnings should at least keep pace with 1992 growth, Reuter reports from Zurich. A company spokeswoman said the group expected 1992 group net profits to rise to more than Dollars 100m from 1991's Dollars 71.2m. The expected rise was due to the sale of its non-prescription drugs unit last March to Italy's Home Products Italiana.

Ares Serono CH Switzerland, West Europe P2834 Pharmaceutical Preparations FIN Annual report P2834 The Financial Times International Page 16 107
International Company News in Brief Publication 930219FT Processed by FT 930221 By REUTER ZURICH

STE Microelectronique et d'Horlogerie, the Swiss watchmaker, is likely to record an increase in net profit for 1992 of between 50 per cent and 60 per cent, said Mr Nicolas Hayek, the chief executive, Reuter reports from Zurich. Mr Hayek said provisional accounts showed 1992 sales had risen to SFr2.85bn (Dollars 1.9bn) from SFr2.37bn. In 1991, SMH - maker of Swatch watches - recorded a group net profit of SFr252m.

Societe Microelectronique et d'Horlogerie CH Switzerland, West Europe P3873 Watches, Clocks, Watchcases and Parts COMP Company News FIN Annual report P3873 The Financial Times International Page 16 111
International Company News: Bank may buy Spanish state ferry Publication 930219FT Processed by FT 930221 By PETER BRUCE and REUTER MADRID

BANCO Central Hispano-americano (BCH), one of Spain's biggest commercial banks, is understood to be negotiating to buy the bulk of the Spanish state's 95 per cent stake in the Transmediterranea ferry company.

The government had wanted to include Transmediterranea in a slew of part privatisations this year. The company has returned to profit in the past two years. Talks are said to centre on BCH taking about 60 per cent of the company.

This would cost the bank about Pta85bn (Dollars 726m), based on the price of the 5 per cent of the company that trades in the Spanish markets.

Spain's financial futures exchange, the Barcelona-based MEFF, said it would start trading its first individual share options on February 25, Reuter reports from Madrid.

It will start with Telefonica Espanola and Endesa options, which have been running in simulated trading since February 2, and hopes to add Repsol and Banco Bilbao Vizcaya shortly.

Banco Central Hispano Americano Transmediterranea ES Spain, EC P9611 Administration of General Economic Programs P4482 Ferries P6021 National Commercial Banks COMP Company News COMP Acquisition P9611 P4482 P6021 The Financial Times International Page 16 208
Italian minister urged to resign Publication 930219FT Processed by FT 930221 By HAIG SIMONIAN MILAN

ITALY'S health minister, Mr Franco De Lorenzo, yesterday faced calls to resign after deputies voted to remove his immunity from prosecution.

Mr De Lorenzo, a Liberal from Naples, is under investigation following allegations that he, along with other Naples politicians, exchanged political favours, such as guaranteed jobs, for votes.

The decision on Mr De Lorenzo's immunity still has to be ratified by the full Chamber of Deputies, Italy's lower house.

On Wednesday , the lower house committee also voted in favour of lifting the immunity from prosecution of the two other MPs involved in the case, Mr Giulio Di Donato, a Socialist, and Mr Alfredo Vito, a Christian Democrat (DC).

The latest twists in Italy's corruption scandal could complicate moves by leaders of the four-party coalition to bring other parties into government. Mr Giuliano Amato, the prime minister, yesterday declined to comment on Mr De Lorenzo or a possible cabinet reshuffle, before delivering a statement to the Senate, the upper house, today.

Early next month the committee on immunity is expected to hear testimony from Mr Bettino Craxi, the former Socialist party leader, before opening discussions on whether to lift Mr Craxi's immunity on two of the six requests by Milan magistrates.

Meanwhile in Milan, magistrates yesterday began questioning Mrs Enza Tomaselli, Mr Craxi's long-standing private secretary in his Milan office. Mrs Tomaselli, who was arrested on Wednesday, is reported to have denied allegations of corruption and collusion in illegal party funding.

According to testimony from other witnesses involved in the corruption scandal, leaked by the Milan magistrature, Mr Craxi's office was a focal point for the payment of illegal kickbacks to the party.

IT Italy, EC P9111 Executive Offices PEOP Personnel News GOVT Legal issues P9111 The Financial Times International Page 2 307
World News in Brief: Clinton proposed for Oxford degree Publication 930219FT Processed by FT 930221

England's Oxford University has proposed US president Bill Clinton for the Degree of Doctor of Civil Law by Diploma, a special degree reserved for royalty and heads of state.

GB United Kingdom, EC P8221 Colleges and Universities PEOP Personnel News P8221 The Financial Times International Page 1 61
Survey of Personal and Portable Computers (12): A shadow on Qwerty's keys - Electronic Pen Technology Publication 930219FT Processed by FT 930219 By PAUL TAYLOR

THE QWERTY keyboard has always been an odd choice of interface between man and machine. It is difficult to use, and for many, intimidating.

By the end of this decade, if the prophets of high technology are right, the keyboard may have been consigned to the dustbin, at least as far as portable computing is concerned. In its place could come voice or electronic pen technology, or a combination of the two.

The hottest new products at last November's Comdex computer fair in Las Vegas were those operated by moving an electronic pen across a touch-sensitive screen or pad. Portable Computer manufacturers, including industry heavyweights Toshiba, Apple, and IBM are racing to deliver computers which take their commands from a pen rather than a keyboard.

Some market researchers have predicted that 1m pen computers will be sold by 1995, but the market is in its infancy and the estimates vary wildly. Last year perhaps 100,000 pen-based machines were sold.

Among the first pen-based machines to reach the market were hand-held machines from Poqet, the Fujitsu subsidiary, and the GRiDPad from Victor Technologies. Meanwhile NCR, the AT&T subsidiary, has already launched a successor to its 3125 pen-based machine which was the first system based on Intel's 80386 microprocessor.

The new NCR 3130 is based on the Intel 80386SL microprocessor, comes with two megabytes of RAM expandable to 16, flash memory or a hard disk, and weighs 4.4 pounds. A new screen texture has been used that feels more like paper than glass to write on. If the machine is dropped, it senses gravity changes and shuts the hard disk down.

So far, two basic designs of pen computer have appeared: the clipboard and the palm-top. Clipboards are generally A4 size, weigh about 6lb, and are used just like a conventional pen and paper clipboard for collecting data or completing pre-defined electronic forms. Customised software enables engineers, market researchers, nurses or surveyors, for example, to gather data, with the pen operating like a glorified mouse, pointing to items on the screen to select them.

On both sides of the Atlantic several companies have begun to use clipboard machines so as to achieve cost savings in paper-intensive areas. The UK Department of Trade has also sponsored the Freestyle projects to explore the use of pen computers in industry.

But the biggest market share of the pen-based computer market is expected to go to the hand-held palm-tops. The most eagerly awaited of these is the Newton, Apple's 'personal digital assistant' which is due to be launched later this year. Newton, measuring 7in by 4in, will feature a flip-up lid and a thin electronic pen which clips onto the side of the casing.

Once again, however, the development of the pen computer market, like the desktop PC market before it, could be constrained by competing software operating systems. In addition to Apple's Newton, there are already three competing operating systems, Microsoft's Windows for pen computing, which claims the support of more than 120 software vendors, Penpoint from GO, a Silicon Valley company and Geoworks. IBM is also understood to be working on a version of its OS/2 operating system for pen environments.

Microsoft, in particular, is betting heavily on the success of pen computing. Mr Bill Gates, its chairman and co-founder, has said he expects pen computing to take off very rapidly. Hesees pen-based computer systems as 'the next generation of portable computers.'

The company believes that the relative ease of using a pen-shaped electronic stylus instead of a keyboard will provide computer power to users like as lorry drivers, meter readers, the police and others who, because of their jobs, cannot use a conventional portable computer with a keyboard.

However before pen computers become widely adopted, the character recognition software which they use for turning pen writing into computer text will have to become more sophisticated. At present most systems can just about cope with neatly-written capitals, but are lost when it comes to reading standard cursive writing. What is more, most typists, even the two-fingered variety, can write more quickly with a keyboard.

For these reasons, some critics suggest that the advantages of pen computing are being overstated. One possible intermediate solution to this problem is to build machines which feature both keyboards and electronic pens.

One such machine is the recently launched GRiD Convertible which looks and works like any other clamshell-type notebook computer. However, by using cunning hinges which drop the screen flat on its face, the Convertible can be closed with the screen on the outside. It can then be used like a conventional clipboard pen system.

Meanwhile Sharp, the Japanese electronics group, will launch the latest in its IQ electronic organisers next month which for the first time uses pen technology. The IQ-9000 has a small keyboard and an electronic pen which can be used to activate the usual functions of an organiser on its touch sensitive screen.

However, as in the PC market, any surge in pen-based computer sales will probably not happen until the development of application software will enable the machines to do really useful work - and no-one really knows what form that will take or when it will happen.

XA World P357 Computer and Office Equipment P3674 Semiconductors and Related Devices TECH Products TECH Technology P357 P3674 The Financial Times London Page VI 913
Survey of Personal and Portable Computers (10): Quest for lighter machines poses a bit of a size problem / A look at battery technology and power management Publication 930219FT Processed by FT 930219 By PAUL TAYLOR

WHEN THE transportable computer had the dimensions and weight of a large and full briefcase which was usually plugged into the mains, the size, weight and capacity of the batteries were relatively unimportant.

However, as portable computers have shrunk and com puting-on-the-move has become more of a reality, considerably more attention has been focused on the power supply and particularly on how long batteries will last between charges.

Indeed, battery technology has become one of the main limiting factors in the quest for lighter and smaller machines with desktop functionality that can operate for long periods without an umbilical power cord.

Unfortunately, battery technology has lagged behind developments in almost every other sector of electronics. By some estimates, battery technology for portables has improved a paltry 5 per cent a year and in most portable devices the battery now accounts for a quarter of the weight, compared with a tenth a decade ago. As a result, battery makers are now scrambling to come up with lighter, more powerful and longer-lasting batteries.

With the exception of hand-held computers, most portables have until recently relied on rechargeable nickel-cadmium batteries. Generally, they provide enough power between charges to keep a notebook PC running only for between one and four hours, depending upon the application. More power could be delivered by larger batteries, but this would add weight.

These NiCad batteries have other disadvantages, including the so-called 'memory-effect' which can mean that unless they are fully discharged before recharging they gradually lose capacity - or the ability to be fully recharged.

Improvements in NiCad technology are reaching their limits, while some governments are moving towards banning them because the cadmium they contain is so toxic that they are difficult to dispose of safely. So researchers have switched their attention to new types of rechargeable batteries.

Several alternatives have been tried, but most have either proved unstable or have shown little power-to-weight advantage over NiCad cells. Manufacturers want a cell that is electrically compatible with NiCads but lighter, thinner, longer-lasting, quicker to recharge and friendlier to the environment.

So far, the most popular alternative has been nickel-metal hydride powerpacks. Initially developed in Japan by Sanyo, NiMH batteries can now be found in the latest portables. NiMH cells deliver the same 1.2 volts as NiCad cells but can store nearly twice as much power (watt-hours) and have the added advantage of being more environmentally friendly. Their total life span of about 1,000 charge/discharge cycles compares with 500 to 600 cycles for NiCad batteries.

However, some manufacturers including Sony Energytec, an affiliate of the consumer-electronics giant, have attempted to leapfrog the competition with a new generation of rechargeable batteries based on a lithium ion cell.

Many manufacturers make disposable lithium batteries - mostly in the form of little 'button' cells for electronic devices, but it has been a lot more difficult to build stable rechargeable cells.

Although they are still considerably more expensive than NiCad batteries, current versions of lithium rechargeables pack up to four times the power of the best NiCads but weigh only half as much.

But most manufacturers agree that two or three years are still needed to remove technical hitches and reduce the cost of lithium batteries to make them real rivals to NiCad and NiMH technology.

Meanwhile, some companies are focusing their research on improving existing types of battery by giving them their own microprocessors - turning them into what Dr Ross Green, a senior consultant and researcher at the Hertfordshire-based Technology Partnership, calls 'intelligent battery packs'.

By providing rechargeable batteries with a thumbnail-sized low-cost microprocessor containing a mathematical model of battery behaviour, Dr Green says it is possible to monitor and control the way the battery operates.

Among the advantages he claims for the intelligent battery packs he has been working on are extended service life - because charging and discharge are carefully controlled - the ability to pack up to 15 per cent more charge into a battery and astonishingly fast recharge times - as short as three minutes.

Another byproduct of the research is that intelligent batteries can provide detailed information to the user about their charge state - 'an accurate fuel gauge'.

However, the relatively limited and slow progress in rechargeable battery technology, coupled in particular with the advent of power-hungry colour portables, has encouraged portable computer manufacturers to turn to other solutions to extend operating life of their machines.

This is one factor behind the move by notebook computer manufacturers to replace disk drives and similar components with less power-hungry alternatives such as the PCMCIA (Personal Computer Memory Card International Association) memory cards.

An earlier development, pioneered by Toshiba, was software implemented power management systems which introduced auto-resume and pop-up battery power indicators.

Software-based power management solutions can enhance battery life, but some risk introducing compatibility and reliability problems, and more fundamental solutions are required to achieve the substantial power savings which portable PC users now demand. More complex power management systems therefore depend upon a combination of hardware and software features.

To provide this, chipmakers AMD and Intel have begun to deliver low power versions of their standard micro-processors with special built-in features to improve power management and extend battery life. Intel began by redesigning its 80386 chip set to include System Management Mode (SMM) circuitry producing the power-saving Intel 80386SL chipset, unveiled at the end of 1990.

Last year, Intel followed up by releasing the 486SL, a low- voltage version of its most powerful PC processor. The 486SL's 'flexible voltage' feature means that although it can operate as a 5-volt device, the real savings are made at 3.3 volts with other low voltage components. In these circumstances power consumption is reduced 50 per cent from a 5-volt 386SL system. Intel claimed this should yield one to four hours of additional battery life.

Low-powered chips running at 3.3 volts, instead of the usual 5 volts, have another big advantage - there is less waste heat to contend with. Indeed, some portable computer manufacturers held off from releasing 80486 notebooks because of concern about overheating and Intel has incorporated System Management Mode (SMM) circuitry into its soon-to-be-released Pentium chip.

SMM is thought to account for about 10 per cent of the 3.2m transistors on the Pentium chip, switching idle bits of the computer in and out of 'sleep' mode at great speed and even turning off different parts of the microprocessor between key strokes.

Perhaps by the time the first Pentium-based portables appear, other power management techniques and battery technology itself will have made equally significant leaps forward.

XA World P3691 Storage Batteries TECH Technology TECH Products P3691 The Financial Times London Page VI 1142
Survey of Personal and Portable Computers (11): Display - the next steps / Screen Technology Publication 930219FT Processed by FT 930219 By PAUL TAYLOR

IT IS axiomatic that, without the thin flat liquid crystal display, the notebook computer that dominates the portable market today could never have been built. Display technology will also play a pivotal role in determining the shape, size and function of the next generation of portable computers.

Liquid crystals are odd substances, sharing properties of both liquids and solids. After their discovery in 1888, they remained a laboratory curiosity until 1963 when RCA, the US broadcasting company, found that by applying an electrical charge, the liquid crystal molecules could be made to realign so that they could either pass, or block, polarised light.

Ten years later Sharp, the Japanese consumer electronics group, sold the first calculators with LCD screens. But when the first transportable computers emerged in the early 1980s, they packed tiny cathode-ray tube displays. These were heavy and power-hungry and were quickly replaced by the LCD panel which has since become the standard for portable computing.

Nevertheless, over the past decade there has been growing pressure from portable computer users for clearer, brighter screens and in particular recently for high-resolution and colour screens able to do justice to sophisticated software packages like those running under Microsoft's 'Windows.'

In simple 'passive' LCD devices, known as twisted nematic (TN), liquid crystal molecules are held in a double sandwich of polarising filters and glass plates. Individual cells can then be made to lighten or darken by applying a charge.

This is fine for a small display; unfortunately, however, as the size of the display increases, the contrast between dark and light areas declines. To compensate for this, manufacturers have sought to increase the twisting effect and thereby heighten contrast.

They have developed 'super twisted' nematic displays (STN) which produce the blue screens familiar to portable and laptop computer users, and 'double super twisted' nematic (DSTN) displays in which two STN cells are used. Finally, there are 'triple super twisted' nematic (TSTN) displays which use a refracting polymer film applied to the STN cell, allowing thinner displays with higher contrast.

Today's new slimline notebook machines, like the 3.6lb Dell 320SLi, boast these significantly improved LCD screens which also consume less power than their predecessors, enabling manufacturers to cut battery weight.

Dell's 320SLi features a 9.5 inch LCD that uses 75 per cent less power than the conventional edgelit LCD but is still able to offer a high contrast ratio of 12:1 and 640x480 (VGA) resolution.

However, despite these improvements, 'passive' LCD technology still has some shortcomings. In particular, the contrast is still insufficient to reproduce the entire range of colours available on a CRT, and LCDs have relatively slow response times which mean that moving images in particular tend to blur and leave shadows.

These problems are overcome by using another form of LCD screen. Most notebook manufacturers now sell premium-priced top-end machines with high definition full-colour LCD screens using 'active matrix' thin film transistor (TFT) technology in which contrast and response time are boosted by adding a transistor 'switch' to each display cell or pixel.

However a TFT display is an extremely complex device consisting of 10 to 15 layers of materials, finely etched circuitry, and around 1m transistors that can be shorted out by a microscopic speck of dust.

Predictably, manufacturing defects are high and, despite manufacturing improvements, up to 20 per cent of the displays have to be scrapped. But, as yields improve, prices are beginning to fall.

Aside from passive and active matrix LCDs, there are two other relatively common screen technologies in current use: gas plasma and electroluminescence.

Unlike LCDs, which need back or sidelighting, gas plasma displays generate their own light. A particular advantage of the technology is that response times are fast. The price of gas plasma portables is lower than that of active matrix systems, and colour plasma displays are technically possible.

Electroluminescence (EL) screens are also fast, can support very high resolutions and are cheaper than TFT displays, but they tend to be power-hungry.

Manufacturers have therefore been investigating other newscreen technologies including ferro-electric LCDs and metal-insulator-metal (MIM) screens, both of which have yet to make their way into full commercial production.

In MIM displays, a layer of insulator is sandwiched betweentwo layers of metal. They provide high contrast and may eventually be cheaper than TFT machines. However, mass production techniques for MIM displays have yet to be devised.

Some industry analysts and manufacturers believe that in the longer term ferro-electric LCDs, pioneered by Thorn EMI in the UK and Cannon in Japan, offer the most promise because potentially they have significant advantages over TFT displays.

FLCDs use a different type of liquid crystal which reacts more quickly and, most importantly, is bi-stable. This means that if a pixel is switched on so that light cannot pass, it stays like that; if it is switched off so that light can pass, it stays like that too.

Because only those parts of the screen that have changed need to be updated, battery life can be increased by 20 times or more.

FLCDs are also lighter, brighter, easier to view and cheaper than TFT screens, but have been more difficult to develop as a practical screen because of their sensitivity to shocks although this problem now appears to have been overcome.

Mass production of FLCDs is probably at least three years away, but they should be significantly cheaper than TFT systems because no transistors are required. Their fast response times and high contrast should also make them ideal for pen-based computer systems.

In the meantime Mr David Brooke, Dell Computer's European product marketing manager for portables, believes that most of the exciting developments over the next year will involve conventional (LCD) screen technology. In particular, he argues that advances in LCD technology will enable manufacturers to build smaller and lighter machines with higher resolution displays - closing the quality gap with desktops.

He also expects more notebook computer manufacturers to offer interchangeable modular screens - ranging from low cost mono twisted nematic LCD screens all the way to high definition colour TFT displays.

Adopting a modular screen design will help manufacturers reduce the need to maintain high stock levels while customers will benefit from greater choice and flexibility.

XA World P3679 Electronic Components, NEC TECH Technology TECH Products P3679 The Financial Times London Page VI 1073
Survey of Personal and Portable Computers (8): When to take Pentium - How users will react to a new microchip Publication 930219FT Processed by FT 930219 By BILL ARNOLD

A MUCH more powerful, PC microchip called Pentium is soon to be launched by Intel to follow its popular current-generation 486 microprocessor. For PC users or perspective buyers this raises questions about what they should do now. Should they stay with the PC they may already have, or buy the first Pentium-based PC available?

Pentium (which could be considered a 586) leads a pack of new, higher-performance microprocessors that are emerging, such as the Alpha from Digital Equipment and the PowerPC from the Apple Computer-IBM-Motorola alliance. These process data 64 bits at a time compared to 32 bits with a 486.

As each of these microprocessors is designed to provide big performance improvements, a user or perspective buyer needs to know how and when to best upgrade his existing hardware and software; the availability of new software; and whether his current software will run on Pentium-based PCs. Significantly, how will the new microprocessors affect PC costs?

The best thing may be to stay with what a user already has for a while. 'Buy an economical 486SX which runs Windows right now,' recommends Mr Kim Brown, microsystems vice president at InfoCorp, a market research company in Santa Clara, California.

If a user wants more performance later in the year, incorporate an Intel DX2 Overdrive microchip that doubles processor performance, Mr Brown suggests. DX2 Overdrive prices are too high at the moment but should become reasonable later on, he says.

Then next year, as Pentium-based PC prices begin to fall, look carefully at existing applications and determine whether Pentium provides a viable and needed alternative, he adds.

A buy-486-and-hold strategy makes sense to Ms Nancy Tanana, marketing manager at the PC business unit of Digital Equipment in Acton, Massachusetts.

If the applications in use are fairly static and not highly graphical, such as spreadsheets or word processing, then a 486 will do the job for the next several years, she says. There are still a lot of 386-based systems being shipped to meet those kinds of needs as well, she observes.

However, it obviously depends on which applications are in use. If file or network servers are being implemented, then a more powerful, next-generation processor is probably needed, Ms Tanana adds.

Also holding back, Mr Scott Uhrich, senior analyst, at Municipal Bond Investors Assurance (MBIAC) in Armonk, New York, says he sees nothing on the way that would cause him to replace his 486 in the near future. He will wait for prices to fall.

Availability of new microprocessors from system manufacturers is also a big issue for users. 'The new microprocessors will not have a significant impact this year,' declares Mr Mel Thomsen of Pathfinder Research, a market research company in San Jose, California. Nor, he says, will they compete much with 486s now in the marketplace on cost and performance tradeoffs, since 486-based PCs are so cheap.

Pentium-based machines will probably begin to appear this autumn as servers or other high-end systems aimed at power users, according to Mr Tony Tong, product manager with Elitegroup Computer Systems (ECS), a PC board systems manufacturer in Fremont, California. But it will probably not be until 1994 that systems will appear in any volume, he says. Part of this is due to the time it will take Intel to bring up advanced new fabrication processes to produce Pentiums in volume, he says.

When it is time to upgrade his PC, a user has several choices: buy a whole new PC; swap a new Pentium-based motherboard (printed circuit board on which the chips are mounted) for an existing 486 PC; plug in an add-in board containing a new higher performance processor; or replace a 486 chip with a higher performance microprocessor - assuming that the existing socket on the motherboard will accept the new microchip. Each approach has pros and cons.

For Mr Chuck Davis, information resources director at Eagle Industries in Chicago, Illinois, swapping boards gives a level of complexity he does not need. Using boards would create problems with ordering, record keeping, installation and maintenance, he says. 'My orientation is toward the box, not the CPU or boards. We move boxes, not boards,' he says.

Mr Uhrich of MBIAC would probably swap motherboards or use add-in cards containing new microprocessors to upgrade but that would depend on the cost implications. However, using add-in cards would not overcome the limitations of the other parts of existing PCs.

To provide a system-level upgrade, Dell Computer in Austin, Texas, recently announced 18 new 486-based PCs with sockets that will accept a Pentium-class microprocessor from Intel, according to Mr Charles Sauer, vice-president for software and technology strategy. Dell is evaluating a Pentium add-in card for the new systems that would provide users with an upgrade path, he says.

Chip vendors cloning Intel microprocessors also provide upgrade options. For example, Cyrix in Richardson, Texas, enables users to upgrade their 386DX sockets by plugging in a 486-compatible microchip that doubles the clock speed, according to Mr Glenn Burchers, microprocessor marketing manager. Cyrix also is developing Spike, a processor, due out in the second half of 1993, that is Intel-compatible for which he claims better-than-Pentium performance.

But software can also limit PC performance, Mr Thomsen of Pathfinder points out. Software is the real wild card in the whole mix, he says. To exercise fully the performance of Pentium and Alpha class microprocessors, for example, Microsoft is developing Windows NT (New Technology) which is expected to be unveiled in May.

Windows NT is designed to let a desktop run applications software developed specifically for the new microprocessors as well as existing applications software written for current Intel-based PCs, such as 486DX desktops that have MS-DOS operating systems. Presumably, x86 applications software could run on, say, an Alpha-based machine, as well as a Pentium one.

This 'backwards-compatibility,' a stated goal of Microsoft and chip vendors, is designed to preserve the great investment and installed base of MS-DOS and Windows-based applications ' and might give users more flexibility in choosing new hardware. 'The beauty of the DOS-based PC is the Dollars 100bn software base,' declares Mr Dick Eckhardt, engineering vice president of Cyber Research in Branford, Connecticut. 'No one will buy a system that's not compatible with that software,' he says.

However, Windows NT will only emulate software written for 486 and older PCs, so performance - though quicker than a 486 machine - won't be as fast as software written specifically for Windows NT, according to Mr Scott Thomas, of Toshiba's Semiconductor Group in Irvine, California. To run faster, the software would have to be cleaned up but this should not be too difficult, he adds.

'There's no merit in buying a 586 (Pentium-class) machine and running the software I've got,' Mr Thomsen points out (He uses a 33-MHz 386-based desktop, which works just fine, he says.) 'To optimise the performance of a 586, you need to recompile all the software to take advantage of all of the microprocessor's features.'

What about PC pricing? Mr Peter Zandan, a market analyst at IntelliQuest in Austin, Texas, believes that Intel will pursue an aggressive pricing strategy for Pentium, echoing the 386 to 486 transition. This should be reflected fairly early on in PC pricing, he says. Users not only will expect it but will demand it, he adds.

Intel Corp US United States of America P357 Computer and Office Equipment P7372 Prepackaged Software TECH Products CMMT Comment & Analysis P357 P7372 The Financial Times London Page V 1273
Survey of Personal and Portable Computers (9): A fish among sharks / Profile of AST Research Publication 930219FT Processed by FT 930219 By BILL ARNOLD

SINCE it entered the PC martketplace six years ago, AST Research has quietly become a Dollars 1bn-plus company that is compared favourably with such first-tier high-flyers as Compaq and Dell Computer.

Revenues from the most recent second fiscal quarter soared to Dollars 346.3m, up Dollars 60m from the previous quarter and Dollars 107m from a year earlier, while net income almost doubled to Dollars 14.6m from the previous quarter. Revenues have grown 60 per cent over the past 12 months. In that second quarter AST shipped 200,00 notebook, portable and desktop PCs and expects to ship 1m units in the next 12 months.

But that only makes AST a fish that is eighth in the US and 11th worldwide in a roiling PC marketplace, swimming among much larger sharks such as IBM, Apple, Compaq and Dell. It must navigate carefully to survive in a marketplace ruled by severe price competition, continuing shake-out of PC vendors and unrelenting technological innovation. Furthermore, all competitors have access to the same commodity components and software.

Reflecting on market conditions, analysts with investment house Merrill Lynch Global Securities Research estimates that, although AST's revenues will continue to rise, gross margins continue to slide. Consequently, they lower the earnings per share estimate to Dollars 1.85 from Dollars 2.00 for the third quarter. However, the New York-based firm acknowledges that AST has 'significant' orders, is controlling costs and can expect greater revenues from new products such as notebook PCs.

More bullish analysts at Alex Brown & Sons in Baltimore, Maryland, declare that 'we know of no better, low-cost, design and volume PC manufacturer than AST'. They point to the company's ability to quickly sniff out 'sweet spots' in high-growth channels to jump into first, such as selling through large consumer electronic and appliance chains. They put AST in the 'PC elite' along with Compaq, Dell, IBM and Apple.

To continue to grow, AST president and co-founder Safi U. Qureshey says that the company does not face external market challenges but internal ones. 'The challenge is how to build an organisation that thrives on change,' he says. AST in Irvine, California, for example, must find ways to continually improve production and execution, he says.

Mr Qureshey points out that AST has a young workforce that might become overawed competing against the likes of IBM and Compaq. 'AST has to find its own solutions' and 'build an organisation that doesn't get scared,' he says.

'We must constantly re-engineer the organisation,' Mr Qureshey says. 'If we continue to do what we did a year ago, we will fail,' he says. AST employees must not be afraid to experiment, he adds.

To prepare for growth, Mr Qureshey says that a strong management team has been brought in. The new head of engineering is a 15-year veteran from IBM's PC operation in Boca Raton, Florida. Worldwide service (an AST strong suit) is run by a 25-year Digital Equipment veteran and worldwide manufacturing by a manger with 10 years' experience at Motorola and 15 years at Texas Instruments. (The former engineering head now hunts for new business and technology opportunities.)

But how does bringing in industry veterans from large organisations that might be perceived as slow-moving equate with a young company trying to thrive on change? Acknowledging that this was a concern, Mr Qureshey says that they were chosen carefully and attracted to AST in the first place. The ex-IBMer, for example, was responsible for several successful products there.

AST's goal is to grow faster than the marketplace, Mr Qureshey declares. More moderate price declines in the coming months will help, he predicts. The big players were out of line with their prices and made a correction. Declines now are not likely to be as steep as the last six months of 1992, he maintains.

According to Mr Qureshey, AST's success is based on being totally focused on the PC business, based in the biggest marketplace, able to pick and choose from the best technology, and staying close to customers to respond to their needs.

That may sound like motherhood and apple pie, but Mr Qureshey says it is also based on the 'challenge' of having his 250-person engineering department wring out the best performance from commodity components and software.

Mr Qureshey claims that when AST entered the PC market six years ago with a 286-based machine, it set new standards for price and performance and started the company's growth. Two years ago AST went after the notebook market against the likes of Compaq, NEC, Toshiba and Zenith and is now a solid number three in the notebook business.

Alex Brown analysts call AST's PowerExec notebooks introduced last September 'unparalleled in the industry'. The notebooks have pop-out modules that enable users to upgrade their display screens, microprocessors and hard disk drives without having to buy a whole new system. The Dollars 995 to Dollars 3,395 Bravo line of desktops for small and medium-sized businesses feature graphics and modem capabilities that 'set (them) apart from similarly-priced competitive offerings', the analysts report.

The initial Bravo line was brought out four years ago to offer business-oriented features when people were buying consumer-oriented PCs from Leading Edge and Samsung, Mr Qureshey says. A year ago it introduced the Advantage] line for consumer electronic chain stores, now in more than 900 US locations. 'We created a whole new strategy,' he declares, one that saw revenues for that segment grow to Dollars 50m in the second quarter from Dollars 30m in the first.

Being vertically integrated also enables AST to design and manufacture PCs for other PC vendors. It reportedly builds PCs for Digital Equipment and may also do contract manufacturing for either IBM or Unisys, according to Alex Brown analysts. Mr Qureshey will not comment on specifics but says that because AST competes head to head with the best PC vendors in the marketplace, large system houses confidently come to the company for design and manufacturing.

This represents the third phase of contract manufacturing. First, large system companies dabbled with the PC manufacturing and then turned to Far East manufacturers, who proved unsatisfactory. Alex Brown analysts say that OEM sales is an increasing percentage of North American sales, rising from 10 per cent to the teens, depending on the quarter.

AST also grows by staying out of some markets, Mr Qureshey explains. For example, one is the Risc marketplace (Risc is speedy microprocessor technology that competes with standard PC microchips). 'People looked at Sun (Microsystems) and got seduced,' he says. 'Sun did a good marketing job but it sells a whole workstation whereas Risc clones couldn't and now are out of business.'

Others include pen-based PCs and multimedia machines, which Mr Qureshey says have no primary applications driving them today. They will be niche markets for the next 12 months, he says. Nevertheless, AST will introduce a pen- based system in a few months as part of a measured product strategy in both areas.

AST, now 12 years old, began as a maker of add-in boards that enabled users to add features to IBM PCs. It took its name from the first letters of its co-founders' first names. 'I think that there will be 10 or 12 PC manufacturers left in the world and AST will be one of them,' Mr Qureshey declares.

AST Research US United States of America P357 Computer and Office Equipment COMP Company profile P357 The Financial Times London Page V 1262
Survey of Rhone-Alpes (13): Heavenly spirit - 'Distilling is the ideal work for monks' Publication 930219FT Processed by FT 930219 By WILLIAM DAWKINS

ONE OF the oddest businesses in Rhone Alpes must be Chartreuse Diffusion, which exists not for pure profit but to support a silent, mountain-bound, religious order.

Chartreuse Diffusion's mission is to sell the fragrant green herbal liqueur of that name, and other drinks, bearing the brand of the Chartreux, or Carthusian, monastic order.

With sales more or less stable at FFr33m a year, and 48 employees, Chartreuse Diffusion is based in a motley collection of warehouses and cellars in Voiron, an industrial town in the valley beneath the high mountain stronghold of the 11th century monastery of the Chartreux fathers.

Majority-owned and controlled by the religious order, it employs lay workers and is run on the fathers' behalf by Mr Jean Marc Roget, a local businessman.

Beyond cultivating and preparing the liqueur's 130 ingredient plants in their monastery gardens, the fathers play little part in the daily operations of the business.

Two of them descend to the valley at intervals to operate the distillery, which produces 1m bottles a year. The monks receive a special dispensation to speak for business purposes, explains Mr Philip Boyer, who is in charge of external relations.

'The Chartreux rules oblige them to work for a living, unlike the mendicant monastic orders. Distilling is the ideal job for them because it demands so little labour,' Mr Boyer says. Labour-intensive storage, bottling and sales are left to the lay employees.

The company sells a steady 48 per cent of its output abroad, relying on its natural mystique to attract custom. Spain is the biggest market outside France, taking 25 per cent of exports, followed by the US with 10 per cent.

A recipe for a powerful green health elixir (as with Coca Cola, the recipe is a trade secret) was donated to the Chartreux fathers in 1605 by Marechal d'Estrees, the legendary French field marshal. It took the monks more than 100 years to work out how to make the remedy, 40 per cent volume. Thirty years later, in 1764, the monks produced the milder green liqueur based on the elixir, and this is their main product today.

The elixir itself is still available. There is a increase in demand for it in Japan - not as a drink, but as a hair tonic, says Mr Boyer. 'It might seem odd, but there could be some active herbs in the mixture.'

The fathers nearly lost what is now their main source of income when Napoleon seized the recipe in 1810, during a general round-up of all secret remedies which might prove useful to the state. He returned the document a few months later, stamped 'refused' - to the fathers' lasting relief.

Chartreuse Diffusion's main customers are supermarkets and the hotel catering business. With un-monastic commercial aggressiveness it has to fight its corner against other drinks brands, Mr Boyer says.

It also has a traditional direct marketing programme in local ski-resorts, where holidaymakers on their first night are offered 'Green Chaud,' the latest in Chartreuse Diffusion's menu of Chartreuse-based cocktails. 'Green Chaud' consists of hot chocolate plus a dash of the liqueur. The idea of this made the fathers laugh, says Mr Boyer, but it has gone down well with skiers.

Chartreuse Diffusion FR France, EC P2085 Distilled and Blended Liquors MKTS Sales TECH Products P2085 The Financial Times London Page IV 578
Survey of Rhone-Alpes (11): All eyes on the weather / A look for green shoots in the snow Publication 930219FT Processed by FT 930219 By WILLIAM DAWKINS

THE GREEN shoots of recovery are beginning to show in the ski industry, a mainstay of the Rhone Alpes economy, but they are still fragile.

There are mixed reasons for this in the region which traditionally attracts 60 per cent of all French winter sports bookings. One is fall-out from the 1992 winter Olympics in the Tarentaise resorts around Albertville. Another is two seasons of better snow following three years of dismally bald pistes. Then there is a recovery in consumer spending in the US - an important market for Salomon and Skis Rossignol, the leading ski equipment makers based near Annecy and Grenoble respectively.

The winter Olympics gave the region's ski industry the biggest shot in the arm since the 1968 Olympic games came to Grenoble. Like most shots in the arm, it caused initial pain to the patient - in the form of a decline in winter sports bookings during the games early last year. Holiday skiers were frightened off by the prospect of crowds and traffic jams.

Excellent December snowfalls attracted them back to the slopes in large numbers. Christmas week ski resort bookings were up by 15 per cent, according to the Rhone-Alpes regional council. But much of the snow had melted by late January. The industry fears that mass cancellations for February, usually the peak month, could ruin the season's good start.

'We are finding a new optimism in the market. But our fortunes are more sensitive to changes in the climate than in the economy,' says Mr Jean-Jacques Bompard, secretary general of Skis Rossignol, the world's largest supplier of skis (under its own name and as Dynastar).

New motorways and express rail lines have been built around the Olympic sites. The Olympics also provided some communes with ice rinks and halls surplus to immediate requirements - a financial headache for some, but an improvement in the capacity of the winter tourism industry.

Whether economic recovery proves real or illusory, both the leading ski equipment groups have long come to accept that they live in a mature market. Skis Rossignol, for example, forecasts that world demand for skis from all producers should rise from 5.9m pairs in 1991-1992 to more than 6m pairs this season, of which more than a quarter will be Rossignol brands. Yet that only brings sales back to the same level as four years ago.

To guarantee long term survival, both groups have followed a similar strategy: trimming operating costs and diversifying into other sports equipment.

Salomon, the larger of the two companies with sales of FFr1.5bn last year, was the first to diversify beyond its core business of ski-bindings, in which it is world market leader with a 44 per cent share. In 1984 it bought Taylor Made, a US golf club maker which has since prospered. Then came an innovative ski model, made of a single shell rather than of the conventional sandwich design. Since its launch in 1989, this model has taken at least a fifth of the market for skis priced at FFr2,000 and up.

'We could have bought a ski company, but there would have been no point because we would have had to invest in complete retooling for our new design. I am glad we started from scratch,' says Mr Jean-Francois Gautier, the young chief executive brought in two years ago by Mr Georges Salomon, the retiring company founder.

The group had to suffer 380 French job losses two years ago - a serious blow to the small lakeside town of Annecy. Since then, however, it seems to have turned the corner.

Rossignol, which still devotes 64 per cent of turnover to skis, has followed a slightly different diversification strategy. It began in 1977 with the launch of a line of tennis rackets which has since proved a flop. Rossignol stopped production in France last year and has now turned to Asian subcontractors.

Rossignol's main diversifications outside skis are its two lines of ski boots, its own and Lange, a maker of competition boots it bought in 1989, which now account for nearly a fifth pf its sales and 11.5 per cent of the world downhill boot market.

Rossignol's recovery has been weaker than Salomon's, but Mr Bompard is expecting a profit this year. Everything hinges on the weather.

Skis Rossignol Salomon FR France, EC P3949 Sporting and Athletic Goods, NEC P7999 Amusement and Recreation, NEC MKTS Sales MKTS Shipments P3949 P7999 The Financial Times London Page IV 770
Survey of Rhone-Alpes (12): Wine ...and song - A saint's blessing Publication 930219FT Processed by FT 930219 By WILLIAM DAWKINS

RECESSION has hit the pockets but not the spirits of the 20,000 people who earn their living from making and selling Beaujolais. It is, perhaps, Rhone-Alpes' best known product internationally .

The mood was jovial as the wine growers around Anse, in the south of the area that produces Beaujolais Nouveau, gathered for their annual seven course lunch on St Vincent's day last month, to celebrate the wine industry's patron saint.

As foil-covered numbered bottles were passed round for a blind pre-lunch tasting, the consensus was that the wine to come on to the market next autumn would be of excellent quality. Riotous singing floated up to the rafters of Anse's Maison Rurale as celebrations wore on through the late afternoon.

Like the rest of the French wine industry, Beaujolais has recently been through hard times.

Wholesale prices fell by an average of 27 per cent last year for Beaujolais Nouveau, the refreshing young wine released world wide every year in the third week of November, which accounts for half the region's production of 170m bottles a year.

Prices now stand at their lowest since the 1960s, and well below some growers' production costs, says Mr Gerard Canard, director of the Union Interprofessionelle des Vins du Beaujolais, the local wine industry association.

Price falls have been lower for the higher quality Beaujolais Villages which, unlike the so-called primeur, can be drunk up to two years after bottling and represents another quarter of Beaujolais output. The highest quality Beaujolais wines, the 10 crus such as Morgon and Brouilly, have never been known to sell below cost.

'Prices had risen to unreasonable levels in 1989, so this is no great surprise.' Even so, he says, growers of the cheapest Beaujolais Nouveau have experienced 'some difficult situations.' Fortunately volumes have kept up, with an estimated overall rise in sales of five or 10 per cent last year. Within this, exports rose by 25 per cent in volume - but were static in value - in the first 10 months of 1992.

The Beaujolais industry remains a striking mixture of craft production and international marketing clout. Typically, Beaujolais wine properties are owned by small family businesses, unlike the food and quality goods giants which dominate Bordeaux and Champagne.

Bottling, distribution and marketing is handled by a handful of large wholesale merchants such as Georges Duboeuf or Ferraud - a function of the investment required to deliver 85m bottles across the world in the few weeks during which Beaujolais Nouveau is marketed.

This is why merchants handle a much higher proportion of Beaujolais sales - on average 85 per cent, Mr Canard estimates - than they handle in other wine-making regions of France. However, the proportion of direct sales has gradually risen in recent years, as supermarkets and the catering business seek keener prices by cutting out the merchants.

The Beaujolais tradition of releasing at least half the region's production over a period of just a few weeks is partly historical accident, partly marketing technique. In the early years of the century, the so-called Beaujolais primeur had an even shorter shelf-life than it has now - so Lyon brasserie owners used to order it by the barrel before it had even finished its four to five day fermenting period. When some bar owners started putting up notices proclaiming that the Beaujolais Nouveau had arrived, the wine merchants saw a marketing opportunity.

'The merchants have played a very important role in marketing us,' says Mr Canard.

Their ability to keep export sales rising steeply during a world recession indicates that Beaujolais merchants have not lost the knack.

FR France, EC P2084 Wines, Brandy and Brandy Spirits MKTS Production MKTS Sales COSTS Costs & Prices P2084 The Financial Times London Page IV 644
Survey of Personal and Portable Computers (7): Smaller, ever smaller / A look at tomorrow's world of ultraportables Publication 930219FT Processed by FT 930219 By LOUISE KEHOE

WHAT'S next after personal computers? According to many in the PC industry, the future lies in hand-held devices that combine computer and communications technologies. Apple Computer calls them personal digital assistants, others refer to them as information appliances, but perhaps the best name is personal communicators.

Whatever they are called, they are creating a great deal of interest among potential customers, and excitement within the computer industry where they are viewed as a potential multi- billion dollar market opportunity.

Last May, John Sculley, Apple chairman, described his vision for personal digital assistants as the seeds for a Dollars 3,500bn industry that would be created by the 'collision of content, communications, computing and consumer electronics'.

'This isn't about taking a computer and shrinking it down,' he said. 'It's about starting with an entirely new set of principles built around intelligence, built around communications, built around complete intuitiveness . . . about building something that is as easy to use as an aim-and-shoot camera or a telephone.'

The first version of the much ballyhooed Newton personal digital assistant is now expected to make its debut this summer. It will be an electronic note-pad, a hand-held device that 'intelligently assists the user to capture, organise and communicate information,' Apple says.

At a recent demonstration of a prototype version of Newton, the device could decipher and store handwritten notes, automatically making entries in a personal calendar, send a facsimile message and send or receive electronic messages via the telephone.

Apple says that the first version of Newton will be priced at 'well below Dollars 1,000'. It will be aimed initially at business executives, rather than the masses that Apple eventually hopes to attract with its easy-to-use technology.

Price will be an important factor in the development of the market. It is generally agreed that to reach a broader market personal communicators will have to sell for less than Dollars 500 and preferably closer to Dollars 300.

Bringing the expectations surrounding hand-held personal communicators down to earth is important, says Marc Porat, president and chief executive of General Magic, a three-year-old company that is developing software for personal communicators.

'I am a walking antidote to hyperbole and hysteria,' says Mr Porat. 'The public is tired of promises that the high-tech industry does not live up to.' It may be a decade, or even longer, before intelligent personal communications become a reality, he stresses.

Nonetheless, General Magic has renewed interest in personal communications devices with its announcement of software that is designed to enable personal communicators from different manufacturers to exchange information.

The company has developed Telescript, a programming language for communications software that it aims to make into an industry standard. Magic Cap is General Magic's software foundation for personal communicators. It provides a 'user friendly' face for personal communicators much as Apple's Macintosh did for personal computers.

Companies backing General Magic, and planning to use its technology are Apple Computer, Motorola, Sony , AT&T, Matsushita and Philips.

Motorola, a leader in cellular telephones and paging devices, claims that it will be the first company to bring wireless communications capabilities to personal communicators. 'We believe there will be strong demand for fun and easy-to-use devices that will help people stay in touch with the office or with those at home,' said Pat Richardson, vice-president and director, Motorola Personal Messaging Products. 'Personal communicators will provide business users and ultimately the average consumer with the ability to communicate with anyone, anywhere in the world at any time.'

Motorola's first personal communicator will be launched later this year, the company said.

AT&T has already staked its claim to the personal communications market through an alliance with Eo, a Silicon Valley start-up company that recently announced its first products - hand-held computer tablets with built-in communications capabilities.

'These personal communications devices will become as ubiquitous as the telephone or the television,' said William Warwick, president of AT&T Microelectronics. He predicted that there could be as many as 1bn of the devices in use in 10 years.

The question hanging over personal communicators is not whether they will become the next blockbuster electronics products but when.

'We think there are going to be billions of these devices out there, and at some point sales of these new devices will surpass those of personal computers. We are guessing what is going to happen before the end of the century,' says John Sculley.

US United States of America P7372 Prepackaged Software P357 Computer and Office Equipment TECH Products TECH Technology P7372 P357 The Financial Times London Page IV 782
Survey of Personal and Portable Computers (6): Striking the right Notes for the future / A look at the impact of Groupware Publication 930219FT Processed by FT 930219 By MICHAEL DEMPSEY

THE COMPUTER software industry has been promising to change the way people work for the past decade. Sceptics might suggest the aim has been achieved, but only in terms of expense and frustrated users. Enter Groupware.

Groupware is a term coined to embrace programs for people working in teams. It provides an infrastructure to co-ordinate individuals in the group, while ensuring the concurrence of data relating to their work. Members of the group can be scattered across continents. But when they turn to their software environment, the very latest information from all involved is right there.

Groupware offers a godsend to large organisations tackling the logistics of teamwork. The concept has taken off, with Lotus Notes first on the beach.

Notes sits on one dedicated PC which serves up to 50 users. This central core holds material which users summon up, seeing the latest change to the project across the network. Lotus began selling Notes licences for batches of 200 users upwards. The entry investment, at Pounds 200 per user, was Pounds 40,000.

The appeal was dramatic, with blue chip companies buying licences by the thousand. In the last 12 months the user base has grown exponentially. By March 1992 Lotus had sold 117,000 licences worldwide. Industry sources suggest that this figure now stands at 500,000.

Notes answers many administrative headaches. Use it for conferencing and it boosts productivity by avoiding duplication of effort. A centrally held diary can fix meetings in one shot, rather than the familiar round of phone calls via secretaries requiring a dozen cancelled appointments before one convenient day can be established.

But it does have limitations. The dedicated server must run IBM's OS/2 operating system which is greedy in terms of space on a machine and is primarily established among very large corporate users. Each group hangs off one server, but co-ordinating that server to others to form a constellation of workgroups is not easy. A release for the Unix operating system, offering vastly improved networking capabilities, is imminent.

Management consultants KPMG recently conducted a survey covering 10,000 UK Notes users. The principal problem encountered was actual communication of what Notes does. Within large organisations senior managers still have reservations about whether Notes is worthwhile.

The computer industry can blame itself for this. Groupware arrived in a blaze of jargon. Workflow, a term that has as many definitions as it has adherents, is a typical Groupware spin-off. It refers to monitoring individual effort and directing the user so as to optimise time and effort. But the term is so imprecise that it serves to confuse.

To use Groupware, a company must be comfortable with team structures. There is little point installing Notes if the users work in a fractious environment. Groupware is suited to professional harmony.

But corporations that have embraced Notes have gone for it in a big way. General Motors has bought nearly 30,000 licences for Notes, through its IT arm, Electronic Data Systems. Mr Mike Thompson, an EDS manager attached to GM in the UK, is impressed. 'It's been phenomenal. The user perception is extremely positive.'

A typical GM application is shipping pictures of parts around across Europe to ensure that they are produced exactly to their original specification. And it is evidence of the quality of graphics with Notes.

GM is prepared to entrust Notes with a critical role in maintaining engineering standards. But the GM world already consisted of a massive IT infrastructure and the trained staff to use it. Mr Thompson warns that without this investment Notes will not deliver. 'You must take account of the support aspect. You do need a network in place.'

BP Oil employs Notes as the framework for its emergency response system. If an oil leak occurs in Germany, staff across Europe consult Notes for site plans, technical diagrams and up-to-the-minute strategies.

Notes maintains information on health and safety rules and their implications for the oil sector on a system that can be accessed by BP staff across the continent.

Lotus has certainly gained acceptance for Groupware with Notes. But there are other products that do a similar job. Why has Lotus Notes emerged from the PC world to eclipse steady performers like Verimation's Memo or the new Co-operation program from NCR?

Mr Richard Lavender, a senior consultant at systems house Logica, describes the rise of Notes as 'a confidence trick in the nicest possible way.' The market presence of Lotus as a reputable supplier of PC software was critical. 'People knew who Lotus were and they already had Lotus products under their belt.' And the sales strategy of going straight for large users has produced influential enthusiasts.

Verimation's Memo range grew out of an electronic mail system for Volvo. It tends to thrive in mainframe environments where a lot of users need to pull down and share corporate data. Mr Bruno Giversen, Verimation vice-president, admits that both products have their strengths, and can be complementary. 'Memo is much cheaper, but rightly so because Notes has more database facilities.'

Abbey National's new life insurance wing uses a mainframe based Memo system to co-ordinate its PC environment. NCR's Co-operation ties together elements of an existing IT infrastructure. The idea is to maintain the hardware investment but control staff working locally within the overall wide area network. It is a development environment that can be altered to suit individual businesses, offering a shot at the elusive prize of 'competitive advantage'.

National & Provincial Building Society is implementing Co-operation to keep documents flowing between teams. A typical price for a 100-user installation would be Pounds 77,000.

Mr Kenny MacIver, a software analyst at International Data Corporation, has made an exhaustive study of the mass migration to Notes. He concludes Groupware is here to stay. 'Notwithstanding its obvious limitations, Notes is a glimpse of the future. Where there is a need to share data and co-ordinate group activity, there's going to be a need for such a package.'

XA World P357 Computer and Office Equipment P7373 Computer Integrated Systems Design TECH Products P357 P7373 The Financial Times London Page IV 1042
Survey of Rhone-Alpes (8): Profits under pressure - Lyon is an important banking centre Publication 930219FT Processed by FT 930219 By WILLIAM DAWKINS

PARIS BANKS are feeling the squeeze in Rhone-Alpes as the economic slowdown takes full effect in what is one of France's most competitive regional banking industries.

'Until the end of 1991, we and many of our business customers thought Rhone-Alpes would escape the crisis,' says Mr Philippe Barriere, director of Banque Nationale de Paris' network in Rhone-Alpes, Bourgogne and Auvergne.

'Companies continued to invest and seek external growth and we contributed to this by lending to them. Now they are left with overcapacity. We were hit later than the rest of France, but we were hit hard. The more economic vitality you have the harder you are hit,' he says.

Growth in both lending and deposits has slowed. Loans outstanding by French banks in the region grew by a mere 0.7 per cent to FFr303bn in the year to last September - a small fraction of the 14 per cent growth achieved in 1990, a year before the slowdown hit. The Banque de France says that the total of deposits at the region's banks rose a mere 2 per cent to FFr310bn in the 12 months to September 1992.

Like their Parisian counterparts, Lyon's banks are also burdened by troubled loans on city property. They made made heavy (but unpublished) provisions on these, says Mr Bernard Rivier, deputy director general of the Banque de France's Lyon office. Demand for office property in Lyon fell by 25 per cent last year, while prices have fallen by up to 20 per cent for old buildings, 10 per cent for new ones, according to a recent study by Bourdais, the property consultants. 'All the banks have property investments. They have seen some difficulties, but they have been largely provisioned for,' says Mr Rivier.

So it is no surprise that profit margins across the region's banking industry have been under intense pressure.

Most of the leading players can stand the strain because they are owned by powerful national banks. But at least one independent operator has hit trouble. Only last month the Lyon-based development capital group, Societe de Developpment Regionale du Sud-Est, had to be taken over by Credit Lyonnais - the state-owned bank which owned 19 per cent of its shares - because of heavy operating losses and bad debts.

Historically, Lyon's claim to be the region's banking capital dates from the 15th century, when Italian financiers set up shop there after escaping from the Guelph-Ghibeline civil wars of that time. Some are still there - indeed the Italian banking community is growing fast. Today the city hosts most of the 69 banks present in Rhone-Alpes, of which 23 are foreign, including eight Italians.

While the intensity of competition makes bank managers' lives uncomfortable, it is a boon for both private and business customers. This explains why the region has more bank branches per head than the national average, and why Lyon has six market dealing rooms and the best developed supply of venture capital available outside Paris.

Business loans in Lyon can even be cheaper than would be available in Paris, according to several local bankers. 'Because of the very fierce competition, our spreads can be lower in some cases than in Paris,' says Mr Yves Minssieux, regional director of Lyonnaise de Banque, France's largest regional bank, which is indirectly owned by the GAN state-owned insurance group. Indeed, the sophistication of Lyon's banking industry is one of the reasons why the city feels confident in its bid to be headquarters of the European central bank.

As in Paris, the main banks are the three big national clearers: Credit Lyonnais, Banque Nationale de Paris and Societe Generale. Beneath them come half a dozen regional banks owned by national ones, of which Lyonnaise de Banque is the leading example.

At the next level comes Credit Agricole du Sud-Est (Case), the giant co-operative bank which has taken market share from conventional banks since being given the right to lend to industrial customers (rather than only to farmers) five years ago. Conventional banks complain that Case's huge network - 251 branches in 10 departements - gives it an unfair advantage in access to cheap funds. Case argues that it is competing fairly because its costly structure - a federation of fully fledged banks with their own semi-autonomous administrations - means that its costs are higher than those of conventional banks.

Then comes the recent wave of Italian banks which have not hesitated to undercut their Rhone-Alpine competition, especially in lending to the construction industry, the Italians' traditional expertise. Lyon has eight Italian banks; more than half, attracted by the growing cross-frontier trade between Rhone-Alpes and Italy's industrial north, have come in the past seven years, Recent arrivals include Banco Nazionale del Lavoro and Instituto Bancario Sao Paolo di Torino.

Some of their Rhone-Alpes competitors have responded by co-operating, or taking equity stakes in an Italian partner. Case and Lyonnaise de Banque have done so, though the latter has curbed its international investments in recent years.

Mr Joel Picard, deputy managing director at the Case, believes the competitive threat from Italian banks is containable. 'So long as Italian banks are coming to the region to accompany Italian companies here, they will have no problem, but I don't think they can do as well as we can on our own market. They have arrived here late, and at a difficult time,' he says.

Overall, according to Mr Rivier of the Banque de France, the picture is of a strong banking industry, with high quality management, well able to ride out the economic downturn. 'So long as the crisis does not go on too long, I do not foresee any major problems,' he says.

FR France, EC P6021 National Commercial Banks IND Industry profile CMMT Comment & Analysis P6021 The Financial Times London Page III 988
Survey of Rhone-Alpes (9): Archetypical Lyonnais - A former prime minister of France leads a crusade Publication 930219FT Processed by FT 930219 By WILLIAM DAWKINS

THE PORTLY Mr Raymond Barre, the voluble 68-year-old economics professor who has been an MP for Lyon for the past 15 years and is a former prime minister of France, is on a crusade.

He is leading the campaign for the former capital of Roman Gaul to be chosen as the site for the future European Central Bank.

Mr Barre is a tireless ambassador, arguing the city's cause in London, Brussels and even in front of an audience of sceptical and suspicious German bankers in Frankfurt, seat of the German Bundesbank and the most heavyweight rival for the honour. The final decision is likely to be made by European Community governments, some time after the final ratification of the Maastricht treaty on European political and monetary union, possible in the second half of this year, Mr Barre believes.

Thanks to his efforts, Lyon has waged a much more visible campaign for the honour than other candidates such as Amsterdam, Edinburgh, Strasbourg, Luxembourg - or even Frankfurt itself.

In this, Mr Barre's crusade has the discreet support of the French government, aware that attempts to attract the bank to Strasbourg, the main rival French site, is very unlikely to succeed because of the presence there of the European Parliament.

The egg-headed Mr Barre looks and talks like an archetypical Lyonnais, jovial and fond of the good things of life. Yet like many French politicians his real roots are well outside his local power base; he was born in the Indian Ocean island of Reunion and he is married to a Hungarian.

'To have the bank here will be good for Lyon, for the internal balance of France and for the balance of power in Europe,' he says, taking a brief rest in his Lyon headquarters during his weekly whistle-stop tour of his inner city consituency. 'Whether we succeed or fail, there will be an advantage in it for Lyon because it will be better known internationally.'

Lyon's natural claim, he says, rests on its 500-year history as a banking centre, good road, rail and air links to northern Italy and Spain and western Germany, and its position at the geographical and cultural divide between north and south Europe.

He points to other international bodies which have chosen Lyon for their base for similar reasons - Interpol, the international police organisation, and Euronews, the European television news service which, symbolically, started broadcasting from Lyon at the dawn of the single European market on January 1, 1993.

But why should Lyon have a claim rather than Paris? 'I have long been preoccupied by the concentration of activity in Paris. Other cities now need to become, if not as an important centre of activity as Paris, at least a balance. Lyon is, after all, the capital of the French provinces,' says Mr Barre - quoting Albert Thibaudet, the early 20th century literary critic.

He uses a similar argument to justify Lyon's claim for the bank against other non-French candidates. 'All the centres of EC decision-making tend to be concentrated in northern Europe. Since the enlargement of the EC to include Spain and Portugal - economies with great potential - the south has acquired a new importance. Lyon is exactly between north and south, and belongs to both at the same time,' he says. Its close political and business links with Barcelona, Milan and the powerful German region of Baden Wurttemberg reinforce this claim.

Mr Barre is far too decent a man to knock the competition, but he argues, nevertheless, that Lyon has important advantages over rival sites. Frankfurt, home to the Bundesbank, poses an obvious political problem; there would be a concentration of monetary power in German hands. Apart from that, Mr Barre sees Amsterdam as the nearest competitor, because of its banking industry and agreeable quality of life.

However, the Dutch city suffers from the disadvantage of a northern position, which runs against the claim that the Euro-bank site should be at the centre of gravity of the EC's political map.

Some would say that Lyon's campaign is a long shot, given the uncertainty hanging over monetary union - and, therefore, the need for a European central bank in the wake of the recent upheavals in the European Monetary System. Mr Barre is undismayed. He is among those who believe it quite possible that seven or eight European countries - Germany, Benelux, France Spain and Italy - may switch to a single European currency towards the end of the decade, leaving the rest to join the core of the new system later.

Whether Mr Barre's campaign succeeds or fails, it does underline a change in French attitudes - the slight shift of power from Paris to the provinces over the past 10 years.

'I am a great partisan of decentralisation,' says Mr Barre. 'But it is not enough to create regions with powers when so much of the administration remains concentrated in Paris.'

FR France, EC P601 Central Reserve Depositories P9532 Urban and Community Development CMMT Comment & Analysis Barre, R Former Prime Minister (France) P601 P9532 The Financial Times London Page III 875
Survey of Rhone-Alpes (10): Innovating is a tradition - Grenoble buzzes with technology research Publication 930219FT Processed by FT 930219 By WILLIAM DAWKINS

GRENOBLE'S post-war transformation from obscure little French industrial town to France's biggest technology research centre outside Paris is part accident, part industrial planning by an active local government.

Its high-tech image was ruffled a few weeks ago with the publication of a parliamentary report claiming that Grenoble might be unwitting host to a Mafia network. This has provoked a firm denial from Mr Alain Carignon, the town's RPR mayor and it promises to be a strong local theme in the run-up to next month's parliamentary elections, in which Mr Carignon is planning a return to national politics.

Underneath the pre-election alarms and excitements, Grenoble has reason to be content with its lot.

At the end of the last war, Grenoble was 'a really mediocre, dull little town, even a national joke,' explains Mr Joele de Leiris, deputy mayor and university professor. 'On average, we have had one new big science establishment coming to Grenoble every 10 years. Today, people tell us we have too many. I can't agree,' he adds.

Today, Grenoble and the Isere departement of which it is the capital is host to 250 laboratories and 8,500 researchers. It produces economic growth well above the national average and has lower than average unemployment. It is a fertile ground for a number of high prestige European technology projects and electronic company investments, around which have sprung a vigorous community of small high technology companies.

Isere produced 1,433 new companies in 1990 - the first year of the economic slowdown, when unemployment stood at just at 8 per cent against a national norm now two points higher.

Many of the start-up businesses founded by local executives, or spun off from the research departments of Grenoble's four universities, have quickly died. 'Too many of them have a product, but nothing else,' mourns Mr de Leiris. But others have flourished, such as Cap Gemini Sogeti, founded nearly 20 years ago in Grenoble by Serge Kampf and now Europe's largest computer services company.

On a more modest scale, there are a flock of smaller successful start-ups such as Atral, an alarm systems maker founded nine years ago by two former executives of Merlin Gerin, the local electrical products group. Atral now employs 200 people at Crolles, just outside Grenoble.

This solid base of skilled research workers and innovative companies has acted as a magnet for large technology-based groups such as the US group Hewlett Packard, which moved its world microcomputer heaquarters from California to Grenoble two years ago, at the same time as Sun Microsystems opened its international network computing centre there. The latest arrival is Rank Xerox, the office equipment group.

These newcomers have helped to offset the job losses made over the past few years by Bull and Thomson, the French state-owned computer and electronics groups, which are both active in Grenoble.

The town owes its break with its industrial past in part to the influence of one or two local decision makers - such as Louis Neel, the Nobel prize-winning physicist who was posted there during the war, and the Merlin family, founders of the Merlin Gerin electrical equipment group.

They were influential in persuading central government to set up the CNRS national centre for scientific research in Grenoble just after the second world war. This was followed, 10 years later, by the CENG nuclear research centre, and joined, in the mid 1960s, by the Laue Langevin Franco-German neutron laboratory.

The latest, scheduled to start operating later this year, is the Synchrotron, the FFr2.2bn particle accelerator owned by 12 European countries which is due to open to users next year.

'Here, within a radius of one or two kilometres, you have leading European laboratories in a whole range of disciplines,' says Mr Yves Petroff, director general. One of the things which made Grenoble attractive was the city's willingness to pay for road access to the Synchrotron. 'Until recently, Paris never gave money to technology. Grenoble has been doing it for years,' says Mr Petroff.

This is where the town's tradition of several decades of active industrial and economic planning comes in. The late Mr Hubert Dubedout, the Socialist mayor for 18 years until 1983, and a former nuclear scientist, was another pioneer who used his local government resources to help put Grenoble on the map.

He was instrumental in attracting the 1968 winter Olympics - and the infrastructure investment that came with it - as well as launching an ambitious urban development programme, including one of the most efficient public transport systems outside Paris.

But perhaps his most important policy was that of encouraging links between scientific research and industry well ahead of other French towns.

Grenoble's showcase in this respect is the awkwardly named Zirst, a business park which opened in 1973 on the twin principle that tenants must be vetted by a scientific committee. In return for this, the finance for their buildings is guaranteed by the departmental council.

The idea came not from Mr Dubedout, but from the mayor of Meylan, a commune just outside Grenoble; it received full backing from the city. Zirst tenants now include the Cnet, France Telecom's research centre, Merlin Gerin, and Sema, the leading software group.

Mr Dubedout's successor at the town hall, the young Gaullist Mr Alain Carignon, has continued in the same tradition. Under his tenure, the city has funded university chairs - normally the domain of central government - merged the area's disparate economic development organisations into a single powerful body, Grenoble Isere Developpement.

He also launched the biggest public investment in the city for years: the Europole business centre, next to the railway station (which is now less than three hours from Paris, thanks to the opening of a direct Train a Grande Vitesse (TGV) link last year.

The cost of all this activity has been a sharp increase in the city's debt.

Grenoble's financial problems, however, are mild by comparison with a city like Angouleme, which has had to reschedule its debts.

Mr Carignon's team has trimmed away at Grenoble's borrowings - down to FFr1.45bn last year from FFr1.7bn three years ago - with a programme of privatisations (a growing trend in French local government) and spending controls. Not for the first time, Grenoble is turning to innovative solutions.

FR France, EC P9532 Urban and Community Development P873 Research and Testing Services CMMT Comment & Analysis P9532 P873 The Financial Times London Page III 1089
Survey of Personal and Portable Computers (4): Every variety from Apple on display - The strategy of IBM's arch-rival Publication 930219FT Processed by FT 930219 By DANIEL GREEN

APPLE'S determination to plough its own furrow, away from the fertile fields occupied by IBM PCs and their clones, rarely seemed as justified as it did in 1992.

While IBM, its arch-rival in the world of personal computers, posted a loss for the final quarter of Dollars 5.46bn, the highest ever in US corporate history, Apple finished the year on a high note. Quarterly profits were Dollars 161.3m on record sales of Dollars 2bn, close to the level made by IBM's personal computer division. Sales of the Powerbook range of portable computers alone were worth about Dollars 1bn in their first full year on the market. The company's share price reflected the mood, almost doubling in the second half of 1992.

One of the factors behind this performance has been an explosion in the company's product range. By the end of this year, Apple will have launched more products than ever before in a two-year period. New arrivals include the Powerbook Duos - portable computers sold with adaptors that turn them into desktop computers - colour screen versions of older models and additions to a range of high-powered, high profit margin machines, the Quadras.

This marketing-led proliferation of brands reflects the priorities of Mr John Sculley, Apple's chairman and chief executive, who was recruited from Pepsi-Cola in 1983 to replace the boffins who began the company in the 1970s. In spite of Mr Sculley's marketing credentials, the current brand-led management philosophy is a more recent arrival.

'Two years ago there was a change of strategy,' says Ms Jane Burley, Apple's UK regional group product marketing manager. 'From being a middle-of-the-range desktop computer maker, we moved both upmarket with the Quadras, and downmarket with the Classic and LC models.'

Since then, the upmarket Quadras have consolidated their position as the first choice for design studios and publishers, with the help of some price cuts. The move downmarket was largely a matter of cutting the prices of older models. It culminated at the end of 1992 with the price of the cheapest Apples falling below Pounds 400.

Although the approach boosted short-term finances, there have been problems behind the scenes. The price cuts and wider range of products boosted sales too much. Last quarter saw turnover 7.4 per cent higher than a year earlier, but margins were eroded and profits fell 2.8 per cent. Still worse, the company was unable to keep up with the demand for some of its products. Potential buyers were turned away as demand outstripped the supply especially of Powerbook portables and the budget models selling into the Christmas market.

The price of the bottom-of-the-range Classic has now risen again and the company is busy mollifying frustrated customers.

Apple's financial performance, especially compared with other computer hardware suppliers, has also distracted from the fact that the company faces an ever-growing challenge on the software front from Microsoft's Windows programmes.

Like Apple software, Windows uses striking graphics to appeal to non-technical buyers. This is more than a matter of pretty packaging: when a computer is easy to use, employers have to pay less for technical help. A survey by market research company Gartner Group shows how expensive it can be to assist the users of unfriendly computers. The cost of owning personal computers based on the old IBM personal computer software, DOS, is one quarter higher than using Windows on a similar computer and 50 per cent more expensive than Apple.

Much of the history of Apple has been about the battle between such technical advantages of its software and the marketing of microchip power by IBM and its sales-driven followers such as Dell and Compaq. The arrival of Windows represents a recognition by Apple's rivals that software is as much part of marketing a computer as the model number of its microprocessor.

Apple's response has been twofold. In the first instance it has established a set of alliances with IBM itself. The aim is to share the costs of developing the building blocks of the next generation of personal computers. The ventures include Taligent in software more suited to screen graphics, and a tie-up with electronics company Motorola to build a more efficient kind of microchip using the 'reduced instruction set computing', or Risc, approach.

The second response is to try to take the friendliness of its technology to new heights. It is driving hard into a new area of computing called 'multimedia' in which text, moving pictures and sound all form part of the application.

More dramatic still is its proposed Newton computer, designed to accept handwriting instead of typed-in words and commands. The company has signed alliances with Japanese electronics companies Hitachi and Sharp to develop products associated with the Newton.

These ideas have immediate appeal, but Apple is not alone in its efforts. At least one company, Dauphin Technology of Illinois, has announced a Dollars 2,500 computer that it says will compete with the Newton. And last month IBM itself set up a venture in multimedia on which it promised to invest 'tens of millions of dollars'.

Apple's world is a fertile one and it has in recent months reaped some of its rewards. But the computer industry moves quickly and for Apple to maintain the momentum it gained in 1992, multimedia and the Newton must succeed.

Apple Computer Inc US United States of America P357 Computer and Office Equipment P7372 Prepackaged Software MGMT Management MKTG Marketing CMMT Comment & Analysis P357 P7372 The Financial Times London Page III 942
Survey of Personal and Portable Computers (5): Game of prevention - Michael Dempsey examines security packages Publication 930219FT Processed by FT 930219 By MICHAEL DEMPSEY

COMPUTER games are a serious business. Playing one on a portable computer cost a Birmingham Midshires Building Society salesman his job last year. The society insists that its employees avoid exposing its computers to any risk of a virus. And computer games are a prime source of damaging bugs. Introducing one is regarded as a breach of contract.

Birmingham Midshires uses NCR/AT&T Safari portable computers to sell life insurance and mortgages to potential buyers at home. The portable gives its salesforce the means to calculate and demonstrate mortgages and pension packages. This accelerates the sales process, but leaves the sales staff holding sensitive data on a machine that attracts thieves. And any bug on the software could infect branch computers when sales data is fed down the network.

The building society has spent Pounds 300,000 issuing its 90 salesmen with the machines and associated software, notably a security package from Fifth Generation Systems called Safe. Three portables have been stolen in the last 12 months. The object of Safe, which evolved from a product called Triumph, is to make sure the thieves are left holding an attractive but useless piece of hardware.

'Safe is a package that makes our data totally secure, you put the sensitive data on the hard disk and you can't access it without going through three levels of password,' says Mr John Edkins, who is manager of business improvement at Birmingham Midshires. Provided his staff follow the rules, no thief will benefit from confidential information provided to Birmingham Midshires. A stolen portable can be used again - but only by installing a new hard disk.

Safe also limits how far unapproved software, notably games, can go on the portable. A game can be played, but only if loaded with its own disk-operating system. Only head office has the ability to copy software from the A drive to the C drive of the hard disk. Software is copied from a central computer via a modem at branch offices.

The society's employees are not issued with disks. This reduces the danger of contamination by computer virus. And the copying limitations make it difficult for a member of staff to copy client lists before giving notice.

If these security precautions sound unflattering to Birmingham Midshires staff, there are significant compensations from using a portable PC. The technology dispenses with the need to heave books of life insurance and mortgage rates from door to door. Administrative work at branch office is reduced to downloading software via the modem. This leaves the salesforce free to concentrate on selling.

'The sales people like it and the clients are very positive. We've had some clients take over the PC and enter their own details.' Mr Edkins is convinced the portables have paid their way. 'Perhaps 30 per cent of sales are now attributed to the technology. At around Pounds 3,000 a machine, one extra mortgage sold will pay back the value of the system.'

One company that relies on portables and knows the reality of the virus threat is Reflex Magnetics. Reflex is a media duplication house, supplying disks and tapes across the computer services sector. Mr Andy Campbell, the sales director, works entirely from a portable. With master disks arriving by the dozen to be mass-replicated, he has always been aware of the danger.

Nevertheless, the company eventually did load a virus by accident. It was uncovered and dealt with during testing, but the incident made an impression. Once bitten, Reflex decided to write its own security program. Most virus incidents can be traced back to the floppy disk, Mr Campbell says. 'So we came up with a product that forces us to check any disk before it is loaded.' Disknet costs Pounds 89 and will not allow the user access to the hard disk unless his floppy has been cleared for bugs by virus-scanning software. The correct password must also be entered. The A drive can still employed, but data held on the hard disk is protected.

Mr Campbell is pragmatic about the extent to which Disknet can guarantee security. 'Any security device can be cracked if you have enough knowledge and time. Our technical director does his development work on a portable. If a commercial rival targeted and stole that machine they would get past Disknet.' There is clearly only so much you can expect from a security package. But Disknet is robust enough to be ordered by the RAF and financial services group HFC.

Physical protection through programs like Safe and Disknet needs to be accompanied by security practices. Marlborough Stirling Group writes financial systems for use on portable computers. Mr Jim Deane, MSG's technical director, recommends pulling data back on to a branch computer at every opportunity. This is known as docking, and reduces the client's exposure to staff defecting with valuable files.

The incentive for field sales personnel to co-operate with docking is that it speeds up the processing of a new policy or product.

The pharmaceuticals arm of ICI, recently re-named Zeneca, issues its salesforce with Sanyo 386 portables. The machine comes with a removable hard disk and ICI adds its own security software. But that is not considered enough. ICI issues internal guidelines on the security of information, dividing it into what can be carried off-site and what can be held on a laptop.

'You're in the game of prevention,' says Mr Graham Burton, information systems manager at ICI/Zeneca. 'You should prevent sensitive information beng put on portables in the first place.' He acknowledges that this places a limitation on the use of the system, but that is a price he is willing to pay.

GB United Kingdom, EC P7372 Prepackaged Software TECH Products CMMT Comment & Analysis P7372 The Financial Times London Page III 984
Survey of Rhone-Alpes (4): Key Facts Publication 930219FT Processed by FT 930219

------------------------------------------------------------------------ KEY FACTS ------------------------------------------------------------------------ POPULATION (thousands) ------------------------------------------------------------------------ Lyon 1,262.2 Grenoble 404.7 Saint Etienne 313.3 ------------------------------------------------------------------------ EMPLOYMENT (regional percentage) ------------------------------------------------------------------------ Lyon 27.8 Grenoble 8.9 Saint Etienne 5.8 ------------------------------------------------------------------------ LEADING INDUSTRIES (number of employees) ------------------------------------------------------------------------ Renault V I Venissieux 5,300 SNR roulements 3,000 GIAT industries Roanne (armaments)i 2,500

Sextant avionique 2,200 Rhone-Poulenc 2,000 Renault V I Annonay 1,800 Tefal 1,800 Caterpillar France 1,700 Rhone-Poulenc Roussillon 1,600 Hewlett Packard France 1,500 CIAPEM (domestic equipment) 1,400 GIAT industries Saint Etienne 1,400 COGEMA (nuclear materials) 1,300 ------------------------------------------------------------------------ Source: INSEE. ------------------------------------------------------------------------

FR France, EC P96 Administration of Economic Programs ECON Economic Indicators P96 The Financial Times London Page II 114
Survey of Rhone-Alpes (3): Slow-down takes effect - David Buchan assesses the region's industrial prospects Publication 930219FT Processed by FT 930219 By DAVID BUCHAN

ECONOMIC slowdown generally comes late to the Rhone-Alpes, because the region has so many successful industrial firms, with diversified products and markets.

But come it has, says Mr Etienne Subra, regional director of the Banque de France. Unemployment rose by 10 per cent during 1992. Mr Subra dates the downturn to last May-June, after domestic demand began to fall but before defence of the franc pushed real interest rates still higher. Again, the fall-off in export orders from Germany, Italy, the UK and Spain began before the currencies of the latter three countries depreciated against the franc in September.

The depressing effect on the region's industry has been widespread, though Mr Subra reports that the food, glass-making, pharmacy and some parts of the textile sectors held up well through 1992, and says the improvement in the US economy is leading to more orders for the region's chemicals, capital equipment and aeronautic exports.

The one real black spot, as elsewhere, is the property market. This is 'very bad,' says Mr Subra; Lyon now harbours 18 months' worth of unsold or unlet office space and 2 years' worth of residential real estate.

Part of the rise in the region's unemployed (threatening, for the first time, qualified middle management on permanent payrolls), is attributable to company managers' fast reaction. 'It is not that the bosses are turning to redundancies as a first resort when orders start to fall,' says Mr Subra. 'It is just that they are much quicker to run through the whole gamut of austerity measures - reining in general costs, cutting down on stocks and inventories and, lastly, making redundancies - than they used to be'.

The financial as distinct from the human consequences of this more active management style is the greater soundness of Rhone-Alpes companies; by the end of 1991 they had reduced their total debt to the level of their own funds and equity.

Over the longer term Rhone-Alpes can count on the natural advantages of its central location to attract investment, domestic and foreign. Mr Jean Chemain, director of the Lyon chamber of commerce, believes that Switzerland's obtuse rejection in December of the European Economic Area (EEA) treaty can only benefit Rhone-Alpes, as Swiss companies move investment westward to give themselves a base within the EC single market.

Mr Phillipe Brossette, marketing director of Renault VI, the car group's truck-making arm, lists Lyon's advantages, which include good road and rail (TGV) links and direct flights to most European capitals (four times daily to London).

These are just the sort of geographical merits which have made Mr Michel Coste, head of Lyon's Institute for the Ecu, a persistent champion of the city for the suggested European central bank. Mr Coste notes with delight that, against an EC majority preference for locating it in Bonn, the UK presidency touted Lyon at the EC summit at Edinburgh.

But it is history, rather than geography, which has attracted to the region the two biggest employers: Renault VI and Rhone-Poulenc.

Renault VI was formed out of the 1978 merger between Renault's (smaller) truck subsidiary Saviem and the (larger) independent Berliet company. The merged company made its headquarters round the Berliet operation in Lyon; far more extensive than Saviem's assets, and bringing with it 600 hectares of prime industrial land in the adjacent Lyon suburbs of St Priest and Venissieux. (Renault still grows maize on some of this land - until such time as its factories expand further.)

Lyon is also the home of many of Renault's best clients, such as the trucking firm of Mr Norbert Dentresangle who, since he made his start taking apples to the UK, has built up a fleet of 2,400 vehicles.

Today Renault VI - part-owned by Volvo - is third in Europe and the world. In 1991 it churned out 58,638 trucks in Europe and, through its wholly-owned Mack subsidiary, 13,229 in the US.

For several years Renault VI's European market was better than the US one (the two almost cancelled each other out in the 1991 after-tax profits, which showed a FFrs 23m profit). Now the new world is being asked to redress imbalance in the old world. 'But the problem is that the European market is getting worse - truck output in France falling from 52,000 in 1990 to 35,000 last year - faster than the US market is getting better.'

Renault VI is now demanding of its suppliers something of the same specialisation it has forced on itself. Just as each Renault factory in the Rhone Alpes region focuses on a single activity - truck assembly (above 18 tonnes) at Bourg-en-Bresse, gearboxes in St Etienne Boutheon, motors at St Priest/Venissieux, bus assembly at Annonay - so it is asking its suppliers to concentrate more on its needs.

Its aim is to reduce by two thirds its existing 1,500 subcontractors, which range from Bosh in Germany, to Lucas-Girling disk brakes in the UK to a host of smaller suppliers in the Rhone-Alpes region.

Part of this reduction is to have a closer, Japanese-style partnership with a larger and more capable brand of subcontractor. By contrast, Rhone-Poulenc, the region's top employer, has scattered 16,500 local employees across Rhone-Alpes in 16 factories, 14 technical and commercial centres and six research units.

Chemicals have become something of a Rhone-Alpes speciality, with Elf-Acquitaine, Atocem, Lafarge Coppe, Roussel-Uclaf and ICI all attracted by abundant water, energy and opportunity to trade basic chemicals among each other.

Inevitably, Rhone-Poulenc has come under local pressure to clean up its local act. 'We don't deny the necessity of doing this,' says Mr Xavier Patrouillard, the chemical group's Rhone-Alpes co-ordinator, 'but we do sometimes contest the deadlines by which we are forced to make urgent investments at very high prices, leaving less money for other projects. The Rhone may be cleaner, but there is perhaps more unemployment.'

He concedes that Rhone Poulenc has an image to redress. 'Twenty years ago, if you worked for Rhone Poulenc, people thought that was fantastic. No longer.' But Mr Patrouillard believes the times may be changing. One reason for this is the economic climate, creating greater awareness of the opportunity costs of channelling very large amounts of money into the environment. Another reason is that the Lyonnais now know 'that their city pollutes the Rhone more than we do'.

FR France, EC P9611 Administration of General Economic Programs P9532 Urban and Community Development CMMT Comment & Analysis P9611 P9532 The Financial Times London Page II 1101
Survey of Rhone-Alpes (5): Risky flagship - William Dawkins takes a close look at three important industries in the region Publication 930219FT Processed by FT 930219 By WILLIAM DAWKINS

A FUTURISTIC blue steel and glass building, glittering at the foot of the snow-capped peaks that ring the Gresivaudan valley near Grenoble, is the latest site for the flagship of the French and Italian semiconductor industries.

SGS-Thomson, the microchip maker jointly owned by French and Italian state interests, will start production in the spring. Its Dollars 700m plant is one of the world's most modern semiconductor facilities and one of the most important high technology projects the Rhone-Alpes region has ever hosted. As a consumer of power and services it will have a significant impact on the local economy.

It was Grenoble city hall's fierce lobbying which contributed, first, to the merger of France's and Italy's state-owned computer groups in 1987, and then to the merged company's decision to choose a flagship site near Grenoble - rather than the group's Italian headquarters near Milan.

The plant, near the village of Crolles, costs Dollars 100,000 a day to run. 'With overheads like that, we cannot afford to run idle, so the existence of potential equipment suppliers in the region has been important to us,' explains Mike Thompson, director of the centre.

Some suppliers have set up in Grenoble, or expanded there specifically to sell to SGS-Thomson - such as Lam Research and Applied Materials, two US semiconductor equipment suppliers, and Metron, a UK distributor of semiconductor equipment; examples of how existing high technology projects have acted as a magnet to new investment.

SGS-Thomson itself is not a significant employer: 184 staff are expected to be in post by the end of this year. Fifty more will come from France Telecom, whose research division contributed half the Dollars 200m start-up cost, and a further 30 from Philips, the Dutch electronics group which is a research partner of SGS-Thomson.

However, SGS-Thomson's presence is expected to attract other international technology projects - which is why the local economic development body, Alpes-Gresivaudan Developpement, has kept a neighbouring industrial site empty, says Marie-Claude Dupuy, the organisation's secretary general.

Grenoble has all the more reason to thank its lucky stars that this prestige project has come off: until recently SGS-Thomson's very future was uncertain; Grenoble could have ended up with a white elephant rather than an electronic flagship on its doorstep.

SGS-Thomson was Dollars 102m in the red in 1991, the latest in a string of heavy losses caused by the huge investment demands needed to keep pace with technology at a time of intense price competition from the US and Japan.

The Italian government, in the face of French persuasion, hesitated for many months over pumping badly needed fresh capital into the group. Late last year it changed its mind, paving the way for a Dollars 1bn capital increase from both governments. The first Dollars 500m is expected to be disbursed in the next few months.

The Italian administration was probably encouraged by evidence of recovery in SGS-Thomson's fortunes. The group managed a Dollars 3m profit increase last year (on sales up 12 per cent - well ahead of the 9 per cent growth in its markets) to Dollars 1.6bn, officials say.

It is too early to say whether SGS-Thomson has completely turned the corner in its high-risk industry, but the white suited technicians padding around the Crolles clean rooms assume they are there to stay. Even Mr Thompson, a Scot who used to work at Inmos, the Scottish semiconductor maker taken over by SGS-Thomson, has started to learn French.

SGS Thomson Microelectronics FR France, EC P3674 Semiconductors and Related Devices COMP Company News RES Facilities P3674 The Financial Times London Page II 626
Survey of Rhone-Alpes (7): Snowball rolls on Publication 930219FT Processed by FT 930219

RANK XEROX has just announced that it has chosen Grenoble for its European research centre, to open in the second half of this year.

'It has all the elements we are looking for, with its university, research centres, computer industry and small dynamic companies,' says Mr Herve Gallaire, the group's European research director.

Mr Dominique Strauss-Kahn, the French industry minister, greeted the move as an example of 'the snowball effect' which has been created by the presence of Grenoble's multitude of laboratories and research bodies.

Rank Xerox plans to employ 150 researchers on an annual budget of Ecu15m by the time the centre is up to full steam, towards 1996. Grenoble won the Rank Xerox investment in competition against rival offers from Italy, Spain, and Germany - and southern France, from the Sophia Antipolis high tech business park near Nice.

The French government and local authorities will cover about 10 per cent of the initial investment during the first two years, in line with aid available from the rival sites. However, the deciding factor was Grenoble's pool of skilled research workers - including the fact that it produces 20 per cent of all French PhD students in information technology.

The centre will study automatic translation and assisted translation of computer documents. The aim is to design products to reduce the 8 per cent of total spending that the average company spends on creating and handling documents, says Mr Gallaire.

The group also hopes to pass development contracts to some high technology companies grouped around Grenoble.

Rank Xerox FR France, EC P3861 Photographic Equipment and Supplies COMP Company News RES Facilities P3861 The Financial Times London Page II 290
Survey of Rhone-Alpes (2): Self help shines out - St Etienne expects to ride out hard times Publication 930219FT Processed by FT 930219 By DAVID BUCHAN

FROM THE air St Etienne looks like one big industrial site. The stephanois ('Etienne' is French for 'Stephen') are proud of that: even their vaunted museum of modern art has been deliberately made to look like a factory.

All those shining new pieces you see on St Etienne's industrial checkerboard are not what the first-time visitor expects to see. In the 1960s-1980s St Etienne was synonymous with industrial decline. It is still the object of eye-rolling, cosmopolitan derision from the nearby citizens of Lyon. Yet most stephanois seem much more confident than the Lyonnais about their city's ability to weather today's economic hard times.

Mr Bruno Roux, the city's economic development director, says this relative buoyancy stems from 'the feeling that as we have suffered a good half dozen crises since the 1960s and come through, we will do so again'.

St Etienne lost 30,000 jobs when the mines closed, 25,000 jobs when the steel mills shut down, and 15,000 when its mainstream textile sector declined. Overall, the city lost some 80,000 traditional manufacturing jobs.

But it has replaced all but about 20,000 of these by means of a very active industrial policy which has successfully encouraged a larger number of smaller companies to diversify. At 11 per cent, the city's unemployment rate is over France's 10.4 per cent national average, but the gap is tiny compared to the five point spread that existed in the mid-1980s.

Although nearly one in every three employed stephanois works in industry, the city feels better able to ride out the present austerity. 'We do not even really have a property crisis like other cities do in the office sector, because we don't have offices,' Mr Francois Dubanchet, the bulky Christian Democrat mayor, says with almost blue-collar pride.

But the city's drive to re-industrialise itself has been an expensive gamble.

It has spent FFrs 1.5bn, with only about a third coming in national/EC aid from Paris and Brussels. Because French cities are forbidden (probably rightly) to subsidise companies directly, St Etienne has worked mainly through real estate. Much of its FFrs 2.8bn debt comes from reconverting old industrial properties, and selling or renting them cheaply to new companies wanting to invest or existing ones wanting to expand, sometimes even before having any idea of who might occupy the new buildings. On its 'Technopole' site, it has also made available low-rent offices for up to two years to companies just starting up.

The mayor and his officials are convinced that their gamble has paid off. Mr Dubanchet says St Etienne's financial problems have more to do with some 500 functionaries unnecessarily hired by his communist predecessor. He adds that recipients of municipal aid (which can include temporary exemption from the taxe professionelle payroll tax) are now selected with greater care. But he says that only 2-3 per cent of the 400 companies which have received public aid have, in one way or another, failed.

One windfall has come from the south. Some Italian companies, such as Ratti, which prints on silk, have long been present in the city. But the last two years have seen a small flood of new Italian investment. This includes Siccma, which makes office partitions and cupboards, Molemab, which makes abrasives, and Viero, which manufactures silk weaving machines. These investments account for one third of all Italian industrial investment in France during this period (excluding Mafia investment in the Cote d'Azur).

Most of the reasons given for moving north arise more from frustration at home than the lure of St Etienne itself, says Mr Roux. Such frustrations include higher wage and electricity costs in northern Italy, environmental constraints on building new plants in crowded Lombardy and Piedmont, and complaints about tax money disappearing into the Mezzogiorno maw. But no one in St Etienne is complaining about this new Italian emigration.

St Etienne is also trying to give its annual commercial fair more of an international flavour, says Mr Andre Locquet, its director (who also heads GST Alcatel, an exporter of telecommunications equipment from St Etienne to, for example, Prague). Besides inviting twinned cities such as Coventry in the UK or Hupperthal in Germany to participate, the fair organisers now plan regular exhibitions from neighbouring European countries, to dilute what is otherwise a purely national, not to say, regional event each September.

Most of St Etienne's diversification is home-grown. Some traditional activities have returned; Houles has moved all its ribbon-making and embroidery business back from Paris. And gun-making continues - though on a more artisan scale than bankrupt Manufrance, whose Fauriel site is now being redeveloped into a multi-purpose civic centre.

But luring top class management from Paris to St Etienne is a problem for a company such as Casino, France's second biggest retailer, with a FFrs 60bn turnover. It has outgrown its stephanois origins.

Mr Antoine Guichard, grandson of its founder, the current president, makes no bones about the impossibility of running from St Etienne an international company with holdings in the US and a growing alliance with Argyll in the UK and Ahold in Holland. 'All board meetings take place in Paris, and we have to run two corporate jets, which cost a lot.' What about the TGV train? 'Only taken it once, when there was an air controllers' strike,' Mr Guichard replies dismissively.

Casino's boss is far from being St Etienne's Citizen Kane, but there is a certain imbalance of power between the company and the city. Casino is chief sponsor of St Etienne's art museum, theatre,and football team (whose 'Geoffroy Guichard' stadium will host one of the 1998 World Cup games). But only 2,000 of Casino's 58,000 employees work in St. Etienne. One false move - perhaps one tax increase too many - could prompt the giant retailer to shift its headquarters elsewhere.

FR France, EC P9611 Administration of General Economic Programs P9532 Urban and Community Development CMMT Comment & Analysis P9611 P9532 The Financial Times London Page II 1016
Survey of Rhone-Alpes (6): Sponsorship thinks big Publication 930219FT Processed by FT 930219

EUROPOLE, Grenoble's biggest property development since the town hosted the 1968 winter Olympics, is an example of how it has used decentralisation to seize the initiative in its own affairs.

Mr Alain Carignon, Grenoble's young Gaullist mayor, launched the project four years ago, making use of the new planning permission powers granted to town councils - powers which were previously the domain of central government. At the time, the Europole site was a wasteland of redundant industrial buildings and railway goods yards; a blight at the heart of one of France's fastest growing towns.

Today the site boasts a business school, a hotel and more than 25,000 square metres of prime office space. Next month will see the opening of another hotel, to be followed by a conference and exhibition centre grouped round the Place Robert Schuman - aptly named, after a founding father of the European Community.

Europole is typical of the many hundreds of prestige property development sponsored by town councils across France in the wake of decentralisation. However, unlike some of the others, it has not brought its city sponsor to near-bankruptcy.

Grenoble has carefully limited its part in the project, set up as a city hall majority-controlled joint venture with French banks and construction companies.

City funds have put up FFr340m for the cost of acquiring land from the SNCF railway board and providing the supporting infrastructure. It has been up to the private sector partners to pay for the construction - and find tenants.

Despite the property market crisis, Europole has found tenants for 90 per cent of the space so far completed in the scheme. This is well above the average occupancy rate for office property in Grenoble, says Mr Christian Abel, who is the deputy managing director for the Europole project.

The decline in demand for property, however, has brought one potential cloud to Europole's horizon. No firm tenants have yet been found for a 13,000 square metre office block, part of the project which is due for completion in September of this year. 'For the moment, Europole has escaped the property crisis. But we are worried because our potential clients are worried,' admits Mr Abel.

FR France, EC P9532 Urban and Community Development GOVT Government News RES Facilities P9532 The Financial Times London Page II 395
Survey of Personal and Portable Computers (20): IBM poised to compete - Personal Digital Assistants Publication 930219FT Processed by FT 930219 By JOHN LETTICE

THE POINT about the computer of the future is that it is a phone. For the past 10 years the computer industry has been trying to sell computers to people who do not buy them. The sticking point has always been that people buy applications, not computers. There is no single application that the buyer who does not need a spreadsheet, database, word processor or games-playing machine views as a 'must'. So enter the Personal Digital Assistant (PDA), the phone, the entirely different model.

Apple fired the first shot in the PDA wars about a year ago, announcing its Newton device would be on the way, but it looks as if the industrial muscle of IBM and AT&T will make the running.

Starting from the premise that the basic components of a computer - CPU, memory, screen and credit card expansion - can be boiled down into a cellphone-sized package, those companies can then work out sets of applications for them.

Mr Paul Mugge, head of Entry Systems Technology, IBM's R&D division, at Boca Raton, Florida, thinks of these as 'personality' modules. A credit card-sized wireless modem, for example, could be slotted in and used by a student to download information from the college library. Games modules could be fitted to turn it into a games machine, or it could be a portable TV or personal entertainment system.

All of these could theoretically use a wireless modem - if it's a TV, for example, one might just download films from the local video library.

Mr Mugge goes as far as to paint a picture of a 'virtual mall' where an entire computer-generated model of a shopping mall could be used by any number of people with any number of PDAs.

His problem, however, is that he has to make at least some of these goals achievable by the end of the year, launching and selling what will probably be small quantities of PDAs into a definable market.

AT&T sees the PDA market as eventually being in the billions, 'basically the number of telephone handsets in the world if we're being modest, and the number of people in the world if we're not', and Mr Mugge himself accepts that for his dreams to come true, units have to sell at consumer prices, say Dollars 99 or Pounds 99, depending on which side of the Atlantic you're on.

IBM spokesmen, however, speak of a substantially higher initial price, the Pounds 500-Pounds 1,000 being basically dictated by prices in the cellphone market, which is probably the PDA's first achievable target.

The first IBM demonstration units indicate the type of machine that the company intends to test this summer. They are slightly larger and heavier than the current generation cellphones, but are of similar shape. Rather than a keypad or keyboard, they have a touch-screen and pen combination which allows different key or number layouts to be used, and also gives the computer-phone some note-taking capabilities.

Instead of the new generation operating systems, such as Go's PenPoint, Microsoft's Pen Windows or IBM's own pen extensions to OS/2, they use a custom version of the PC-DOS operating system that has been running on desktop PCs for 10 years.

Mr Lee Reiswig, IBM software president, sees DOS - which was developed to run on low-power computers - as the operating system to be used on machines with limited power, and IBM's PDA is one of the first examples in that kind of setting. Although its basic system is DOS, the machine uses what is described as a 'custom shell' sitting on top, and users need never see the systems that lie underneath.

In this way, IBM should have a chance of establishing itself in the cellphone market, by offering basic phone services plus smart messaging, computer communications, notepad and personal organiser functions. As the cellular market itself grows out of its niche, PDA suppliers should be able to grow with, or even ahead of, it.

Although IBM has historically been known for producing high-value machines, the company now looks well-geared to exploit the market for low-cost, hand-held devices.

Along with Intel, IBM runs the Robert Noyce Center research project in Boca Raton. Its primary goal is to produce a super-integrated PC-on-a-chip based on Intel's x86 processor. This will provide brains for the PDAs, which will be compatible with current industry standards.

IBM is also one of the few substantial memory manufacturers outside south - east Asia, and is investing heavily in the next generation, while it is also one of the few western companies involved in developing flat panel colour displays.

Heavy research in multimedia, together with its alliance with Apple, may not have an effect on the first generation of IBM PDAs, but as the devices move from high-price specialist business tools to low-cost consumer toys, knowledge of how to handle sound and video will also become important.

XA World P357 Computer and Office Equipment TECH Technology TECH Products P357 The Financial Times London Page X 854
Survey of Personal and Portable Computers (21): Tougher times for pirates / A look at networks' hidden benefits Publication 930219FT Processed by FT 930219 By GEOF WHEELWRIGHT

PERSONAL COMPUTER networks look set to change forever the way that software is sold and used. While networks offer computer users many big advantages, there are also some hidden benefits for computer and software manufacturers about which you will probably not hear so much.

To start with, PC networks give computer companies control over what is being done with PC software throughout an office or department - and in particular they restrict software piracy.

For years, it was common practice in many companies to buy a single copy of a popular PC package such as WordPerfect or Lotus 1-2-3 and let a number of users share it.

For as long, the software industry has been telling users that this was illegal. It has tried to educate the business community about software licensing and piracy issues. Now, the advent of widespread PC networking gives it a chance to exert effective control over software use.

The breakthrough has been achieved by the introduction of 'network-aware' versions of stand-alone PC software products. For example, a network-configured version of a spreadsheet can identify the serial numbers of all other versions of that software being used at the same time. If it finds any other machine using a spreadsheet with the same serial number, it will refuse to load.

Piracy prevention is not the major reason for producing network-aware versions of software, but it is a useful by-product of the process. It is also forcing software companies to look at how personal computer software is sold. Traditionally, software companies would tell purchasers that they were buying a single 'site-licence'. That licence would entitle the user to operate the software on only one computer at any one time. It would be all right to have one copy on your desktop computer and another on your portable system - provided both were never in use at the same time.

But with the average 'serious' software application costing Dollars 300 to Dollars 700, many companies found that buying enough software for everyone who might want to use it was too expensive. In small companies many individuals deliberately or inadvertently made single copies of software on more PCs than they should.

The industry is aware that piracy is still widespread and that software companies are missing out on sales. To combat the problem, companies such as Microsoft are considering 'site licensing'. The theory is this: companies which buy a copy of every product for every employee rarely have more than 60 per cent of that software in use at any one time. So they are paying for more software than they need. Also, some may shy away from implementing a given software solution altogether due to the cost.

According to Mr Mike Maples, Microsoft executive vice-president for products, 'site licences' allow all users in a company to install the Microsoft's Word for Windows word-processor on their PCs - but the company would pay only 60 per cent of the cost of buying individual licences.

He says software companies would actually sell more product to corporate customers and that piracy would decline dramatically if this were to become widespread The software companies could also make money on sales of additional documentation for extra users and on the supply of training programmes - which have long been a source of strong profit for those that conduct them .

These 'soft' solutions to the piracy problem are an improvement on heavy-handed efforts such as the use of 'key' disks or hardware 'dongles'. The key disk anti-piracy system required users to have a specially-encoded floppy disk in the disk drive of their PCs when they wanted to use the software. This arrangement was fine until you accidentally damaged or lost the key disk - then you would be unable to use your software.

There have been similar problems with 'dongles' - which are anti-piracy software devices on a chip. They operate by plugging into a PC's printer port and send signals to the PC that the dongle is in place and the copy of the software is legitimate. Dongles have, however, been known to interfere with printing and are also easy to lose. Software reviewers despise them and users have no great enthusiasm for them, either. But with improved network-based control of software registration and an increased use of site-licensing, neither dongles nor software protection look as if they have a future.

Finally, it appears that even the US government wants to help end piracy. Outgoing President George Bush signed an anti-piracy bill late last year that imposed tougher fines and jail sentences on big-time software pirates. Software pirating is now a felony - punishable by up to five years in prison and Dollars 250,000 in fines - rather than a misdemeanour. And US professional software associations hope that the new legislation will help curb the estimated Dollars 1.2bn lost in revenues each year to software piracy.

Although the software industry does not expect the Federal Bureau of Investigation to leap to attention every time an individual PC user makes an illegal back-up copy of software, the publicity being given to these changes in piracy law should make big-time pirates think twice. . Combine that with an ongoing legal assault on pirates and you have a powerful movement against the illegal use of software.

Mr Bill Gates, Microsoft chairman and founder, says that he has teams of people reading computer advertisements from small PC manufacturers all over the country - and checking with the Microsoft contract department to ensure that each one which offers the MS-DOS operating system with PCs actually has a legitimate contract to have it supplied. If not, Mr Gates unleashes the legal wolves.

So the message in all this is to be much more careful about the software you put on your PC. The industry is out to get software pirates - and with huge financial resources, and the backing of the Federal Bureau of Investigation - the pirates don't stand much of a chance.

XA World P7373 Computer Integrated Systems Design TECH Technology TECH Products P7373 The Financial Times London Page X 1040
Survey of Personal and Portable Computers (19): Pile the small boxes high - Distribution Publication 930219FT Processed by FT 930219 By JOHN LETTICE

WHEN IT comes to distrib- ution, the salient feature of the portable computer sector at the moment is that there is no salient feature. The construction of an average portable computer is now virtually as trivial a task as the construction of an average desktop PC; the arrival of the portable computer as a commodity means the departure of its ability to command a greater margin than a desktop computer.

Traditionally the trade's ability to charge higher prices for, and therefore make a greater margin on, portable computers has been dependent on the expense of producing components that are smaller and use less power than those that make up a desktop computer. The standard package that these components have to be placed in has not, however, shrunk significantly in the past 18 months or so, and the portable's place on the cutting edge of technology has started to look shaky.

If the target box weighs around 6lb and takes up the same amount of desk space as an A4 sheet, you don't actually need to make the hard disk smaller than 2.5in, and if you have not yet made the next breakthrough in battery or LCD (Liquid Crystal Display) technology, you cannot charge for it. In effect, you could say that portable computing is between technologies.

The current basic issues in portable computer distribution are therefore similar to those in the desktop market. The direct channel, typified by small start-up companies specialising in off-the-page, low margin selling sets the price for an increasingly experienced user base, while traditional players react by cutting their own costs, perhaps stripping service out of the basic machine price and selling it as an extra, and attempting to segment the market by launching multiple ranges.

It is no accident that the low-cost ranges which Compaq and IBM produce for the commodity market now tend to include portable computers. Essentially, portables are now boxes, and the main difference is that, as they are smaller boxes, you can pile them higher before you sell them cheap.

For other reasons, desktops are likely to become more like portables. The US Environmental Protection Agency (EPA) Energy Star programme, for example, is intended to trigger massive reductions in the power requirements of business computers, and the technologies being used to do this are largely borrowed from portable computing.

IBM's Energy Workstation prototype, for example, which was demonstrated in the US last November, is intended to use a low-voltage processor, 'credit card' storage and a colour LCD. Portable manufacturers can view flat-panel colour displays as a differentiating factor for their machines, but it is likely that environmental and health considerations will make them standard on the desktop at around the same time as they become standard on portables, and at that point one of the few differences between desktops and portables will be the level of power management employed.

Because the battery life of a portable computer needs to be maximised, it probably makes sense to incorporate clever circuitry that switches off parts not being used. But it is the life of a desktop machine that has to be maximised, so it probably does not make sense to have bits switching off in between key-presses, because the machine will break a lot sooner. It is not, however, clear how much users would be willing to pay for such an apparently small piece of differentiation.

But there are areas associated with portable computing where differentiation is still possible, because although the box itself has become trivial, the way in which it links to the rest of the world is becoming more critical. If it is now financially viable for a company to buy 2,000 portable computers for its salesforce, it becomes absolutely vital that the company work out how that salesforce uses those machines in the company network.

So the perceived value of the machine, and hence the margin, will be greater if it uses some form of 'base station' of the sort recently introduced by Apple, where the connections and expansion can be left on the office desk, and the portable plugged in when it needs to be a 'desktop'.

Because most portables do not use standard expansion slots, manufacturers which have spent money on developing internal fax modems and network adaptors for their machines will again tend to be able to command higher prices.

Theoretically, these advantages should erode, and some companies may give one the impression that they had vanished already, but credit card expansion, which will ultimately lead to new capability for both portable and desktop machines, is not quite as finished as one might suppose.

Although there were numerous credit card-sized fax modems at Comdex, the US computer show, last year, Mr Bill Goodwin, chairman of British developer Communicate, claims his was one of the few that actually worked. Credit card Ethernet and Token Ring adaptors are in a similar state of development, and although Communicate finds that an increasing number of manufacturers rely on the imminent arrival of credit cards, rather than pay to have their own internal modems developed, credit card expansion slots are still not so common, and when they are fitted are not necessarily of the type needed.

To be used for anything other than memory expansion, the slot has to be PCMCIA (Personal Computer Memory Card International Association) type 2 or greater, while for larger peripherals such as credit card hard disks, the double thickness PCMCIA type 3 is needed. No machines on the market use this, but then there are no credit card hard disks on the market, either.

But although it is still possible for the channel to make money out of portables by selling high value expansion, and the next generation of 'standard' portable expansion will also initially be able to command higher prices, this new equipment is being designed specifically to sell as a commodity, and should only be able to raise margins for a short period. By switching to smaller format designs, dropping the weight of a notebook computer by a few pounds as companies like Dell have recently done, and by pushing into colour screens, manufacturers will have the ability to restart the technological spiral.

XA World P357 Computer and Office Equipment MKTS Sales TECH Products P357 The Financial Times London Page X 1069
Survey of Personal and Portable Computers (18): Technology shift - Operating Software Publication 930219FT Processed by FT 930219 By PHIL MANCHESTER

THE computer industry is preparing itself for one of its periodic technology shifts. In the past these shifts were solely the result of fundamental advances in hardware - the inventions of both the transistor and the microprocessor are notable examples.

This time, however, the technology shift is the result of a fundamental change in operating system software - the software which controls what goes on 'under the covers' and provides the base for applications.

Improvements in user interface software and in telecommunications, and the novel applications they can deliver, demand much more from operating systems software than before. Nowadays they must not only control the internal workings of the computer they dwell in, they must also take care of the complexities of networks and be able to communicate with other systems.

The stability of the personal computer software industry is, therefore, under threat. Microsoft's MS/DOS - with an estimated 150m users worldwide - has dominated the PC industry for a decade and fought off every challenge.

But at the end of 1992 US networking software company Novell declared its intent to take over the development of Unix, one of the two biggest challengers to MS/DOS. Originally developed by AT&T for minicomputers, Unix has been widely adopted as the universal operating system for mid-range computers - although it has, for some time, been touted as a possible candidate to replace MS/DOS. Through the takeover of Unix Systems Laboratories (USL), which was set up in 1991 to co-ordinate development of Unix for the industry as a whole, Novell hopes to become the 'custodian' of Unix and mount a serious challenge to Microsoft.

Novell hopes to do this by bringing Unix together with PC networks.

Novell is in a good position to achieve this. It has established itself as the dominant supplier of networking software for personal computer local area networks (LANS) with its Netware package. It claims to have about 70 per cent of this growing market and has itself beaten off a challenge from Microsoft - which also has designs on this important market.

Novell's takeover has other implications - especially in the market for corporate computer networks. USL also controls the development of an important software product called Tuxedo - a package that can combine traditional corporate transaction processing with personal computer networking.

Novell's move has occurred at a time when the limitations of personal computer software are becoming increasingly evident. Their lack, both of system security and the robustness associated with operating software on large computers, has led to close examination of operating system software and what it might be required to do in the next decade.

If Novell combines its successful networking software with the virtues offered by Unix and Tuxedo, it could outflank Microsoft.

It will certainly change the fate of Unix.

'We see Novell skewing development towards the integration of Unix with networks,' says Paul McGuckin, a mid-range computing specialist at market researchers Gartner Group.

'It will concentrate on the kernel, low-level operating software - at the expense of the high-level stuff. This could mean that Unix vendors will have to be more self-reliant as far as the high-end development is concerned,' Mr McGuckin adds.

The technological intricacies of computer operating systems are generally beyond most computer users. Unfortunately, the choice of an operating system is as important as the choice of the computer hardware it runs on. Operating systems organise the internal workings of a computer and, as a consequence, they dictate what the computer can do and what applications software can be used.

The MS/DOS PC launched by IBM a decade ago brought stability for the first time and allowed the development of a wide range of applications.

The success of the graphical user interface (GUI) on the Apple Macintosh prompted Microsoft to add the Windows GUI and make significant improvements to the original software, but MS/DOS is still outdated and in need of replacement.

Specifically, MS/DOS has failed to make any impact on the world of networked systems - the area where Novell dominates.

The final result of the conflict is far from clear. Microsoft continues to improve MS/DOS and is in the process of developing Windows/NT - an entirely new contender. IBM continues to promote OS/2 with varying degrees of success. And, the many versions of Unix - including AIX from IBM itself - vie with each other for dominance.

Mr Brian McBride, IBM UK's AIX marketing director, sees Novell's takeover of Unix as 'healthy' because it brings stability to Unix. 'We see it as a different implementation that we can communicate with. None of use can afford to lock each other out in a networked world and we are all being driven to standards-based inter-operability.'

Mr McBride is confident about IBM's ability to integrate Unix, PC networks and corporate computing - in addition to maintaining links with other systems.

Where it could come into conflict with Novell, however, is in the area of transaction processing and USL's Tuxedo - an increasingly important part of the link between personal and corporate computing.

'You can link a DOS/PC into Unix systems with Tuxedo. It is an open transaction processing system,' explains Ms Gillian Mogg Smith a consultant at USL.

'Linking it with Novell is a separate issue. But we have already done much work with Novell with the UnixWare development,' she adds.

Tuxedo dominates the open transaction processing market - but IBM is hot on its heels. IBM's rival to USL's Tuxedo is a Unix-based version of its 25-year-old CICS teleprocessing package. Developed originally for mainframe-based on-line processing, CICS is a well-established and mature piece of software with about 33,000 principal sites across the world.

Last year IBM announced CICS/6000, a version which will run under AIX/Unix and allow personal computers to act as 'client' terminals to an enterprise-wide computer system. IBM has licensed CICS to Hewlett Packard, which will build a 'reference' version to work on other manufacturers' mid-range Unix systems.

According to the Gartner Group, this sector is set to expand rapidly in the next three years. It says that the total market for mid-range transaction processing was worth only Dollars 190m last year. By 1995 it will be worth Dollars 3bn worldwide - with Tuxedo and CICS/6000 taking more than 50 per cent of the market between them.

This is rich ground for a battle between IBM and Novell. It also seems likely that Microsoft - while having no obvious plans to get into this area - will certainly be keeping an eye on it.

XA World P7373 Computer Integrated Systems Design MKTS Market shares CMMT Comment & Analysis P7373 The Financial Times London Page IX 1126
Survey of Personal and Portable Computers (17): The battle to topple Intel - Chip Wars Publication 930219FT Processed by FT 930219 By MARTIN BANKS

INTEL jumped from third to the top of the world league of semiconductor companies last year according to Dataquest, the market research company. Its 26 per cent (Dollars 1bn-plus) growth in revenues cut across the general recessionary trends of the industry.

Interestingly, 1992 saw two other major US manufacturers, Motorola and Texas Instruments, achieve significant growth (22 per cent and 11 per cent respectively) compared to low single-figure growth, or even declines, by the Japanese suppliers.

Across the board, the US suppliers' share of the world market grew by some 3 per cent, whereas the Japanese fell by nearly 4 per cent, giving the two groups roughly equal shares in the marketplace.

The key drivers of this are linked: the growth in demand for high-powered processors such as Intel's 486 device, and the rapid and widespread acceptance of the portable PC as not only a low-powered, note-taking addition to an existing desktop system, but as a computer in its own right.

All the leading portable PC manufacturers now offer high-powered, fully-specified systems, often in a notebook form factor. Their popularity, one of the few sales high spots in a lacklustre year for PC makers, has driven the demand for the high-performance processors offered almost exclusively by US suppliers.

This trend, however, increases the pressure on the dominant processor supplier, Intel. Not only does it face stiff competition for its leading desktop PC devices both in the marketplace and the law courts, but there are also increasingly tough technological challenges as it seeks to service the needs of portable and notebook PC users.

The competition comes from a growing number of sources. There is even speculation that IBM, which lost nearly as much as Intel grossed, might join the fray. It could be the dark horse of the semiconductor marketplace. IBM is often claimed to be, in practice, the largest semiconductor manufacturer in the world, and has significant rights to produce Intel-compatible processors.

The most important area for competition now comes in two areas which can be loosely defined as the 'present' and the 'future'. In the former, it is the popularity of notebook PCs which is the driving force.

Here the rate at which the electronics consumes the power of the batteries is of vital importance, and while much is being done in software to control the utilisation of the circuitry, displays and disk drives, making devices that consume less power in the first place is the high demand.

Intel is most threatened in this area, for others are joining it in producing devices that operate at 3.3 volts, rather than the standard 5 volts. This one-third reduction in power consumption means a reciprocal increase in battery life - a strong sales point for notebook manufacturers.

Even with 5-volt devices, any saving in consumption is vital. For example, Intel introduced a low-power version of its popular 386 processor, the 386SL, some two years ago, but this has been beset with problems and has not proved too popular with systems companies. One leading supplier, Toshiba, recently went on record that it would utilise Advanced Micro Devices 386SX processors because Intel could not match the power consumption specification.

Intel has now switched its emphasis from the low-power 386 processor to the low-power 486 marketplace, where it has a 3.3 volt 486SX processor available and already being used in notebook systems from Toshiba and Texas Instruments. The company is gambling this device will become the effective 'entry-level' specification for such systems.

Packing density is as crucial an element as consumption. Many other suppliers, such as Cyrix and Chips and Technologies, offer notebook PC manufacturers greater advantages by integrating more of the PC architecture 'glue' circuitry - the many components that surround the processor and memory devices - on to a single chip together with the processor itself.

In the near term, Intel's success will hinge on its continued extension of the technology. It has, for example, the next generation of its processor family, the Pentium, (often referred to as the 586) due out shortly. Several PC makers have already demonstrated systems running this device and it is likely soon to appear in a high-end portable system as well.

Further in time comes the 'future' competition, in particular the new generation of hand-held computer-telephone systems, Personal Digital Assistants (PDAs).

The first company to declare a real interest in this market has been Apple Computer, with its Newton product, based on a Reduced Instruction Set Computer (Risc) chip from ARM, the UK company in which has a minority stake. A more recent contender is Sharp, the Japanese consumer electronics and computer giant. As yet, however, it is fair to say that both are dabbling with the market to assess customer demand.

The potential, however, is huge, particularly if AT&T, the US telecommunication leader, is to be believed. The company's microelectronics division recently launched the Hobbit processor chipset specifically to address this market, predicted to account for 1bn units by the turn of the century.

The objective is to create systems which combine personal pen computer, cellular telephone, fax and a wide range of communication services such as electronic mail into a single, hand-held personal unit.

This is an entirely new marketplace which Intel, and others that make compatible chips, will not automatically dominate.

Indeed, the power required to manage these facilities points, as AT&T has found, to the use of Risc devices optimised for the job.

It is an opportunity which has not escaped the notice of IBM which, together with its alliance partners Apple and Motorola, is already well advanced on the design of a chip specifically for PDAs.

This will be a development of the new PowerPC processors from the partners, the first example of which is now entering production. It will have a significant potential advantage for corporate users, for it is planned to be code-compatible with all other versions of the PowerPC family. This will extend from desktop workstations to large enterprise network servers.

It is unlikely that Intel will ignore this new market opportunity, especially as it could also offer similar levels of enterprise-wide compatibility. It is, however, a market offering different technologies and services, so it will be a new, level playing field on which it has to compete.

Intel Corp XA World P3674 Semiconductors and Related Devices P357 Computer and Office Equipment P366 Communications Equipment MKTS Market shares CMMT Comment & Analysis P3674 P357 P366 The Financial Times London Page IX 1097
Survey of Personal and Portable Computers (16): A general purpose tool-box - Applications Software Publication 930219FT Processed by FT 930219 By PHIL MANCHESTER

APPLICATIONS software for personal computers is changing. The increased power, mobility and ease-of-use of modern personal computers has stimulated a new wave of software - in the form of a general-purpose tool-box. This replaces the traditional idea that an application is a set of programs built to suit a specific user.

At the same time, personal computer software is now required - and increasingly able - to span different technology environments in terms of hardware and operating systems software. This means the same software can be used on different types of personal computer and even on powerful workstations. Personal computers can also communicate with each other - and with larger systems - to make use of shared resources such as laser printers and centralised corporate databases.

Increasingly, a personal computer - whether on a desktop or on someone's lap in an aeroplane - is a personal window into a corporate computer network.

This growing role for personal computers has put pressure on software developers to build software which is flexible, adaptable and portable.

'We have to think about the tools we can build which will contribute to what users want - particularly as they are becoming more mobile,' says Mr Paul Bailey, European and international vice-president of leading software developer Lotus Development.

'Mobile computers speak directly about personal productivity. But it goes beyond that. You can dial up and connect to the network and the rest of the company. And through electronic mail and workgroup systems like Lotus Notes, you can work in new ways,' Mr Bailey continues.

It is also possible to build applications in new ways. Lotus Notes applications, for example, grow from electronic mail infrastructure and a set of tools which can be used both by the end user and by the systems professional. The end user applies the tools to individual needs and preferences - the professional developer extends the infrastructure to provide more services and features.

Application software for personal computers has always differed from that used on larger computers. The low costs of personal computer hardware and the way it is used, meant that traditional ways of building applications could never work.

They require lengthy analysis and design, rigorous testing and expensive support. While this is still necessary for large-scale, corporate computing, it is not cost-effective to build applications for personal computing in this way.

Applications software for personal computers evolves organically, rather than being cast in concrete like that used in larger computers. Personal computing must take account of the personal and the best way to provide this is to devise good tools which can be used to do many different things.

This concept began with the emergence of graphical user interfaces (GUIs) like the Apple Macintosh and Microsoft Windows. These environments provided a standard framework which could be used to build many different types of application and, more important, new types of tool.

'Many leading products - Lotus 1-2-3, Excel 4, Wordperfect - are now available across Apple Macintosh and Microsoft Windows on the DOS PC,' says Mr Nigel Turner, product manager at Apple UK.

'This means that users can mix-and-match their software and their computer hardware. They can run the same applications and exchange data between the two machines,' he adds.

The increased popularity of graphical user interfaces (GUIs) is a principal force in the drive towards standardisation.

Not only have GUIs provided a common standard for user access and a better way to exploit the power of personal computers, they have also helped standardisation at increasingly high levels of software. An application program built for the Apple Macintosh can be transported to a Windows environment relatively easily. Although they are different environments, both use a common set of functions to draw screens, control the mouse and access data. These functions can be translated easily from one environment to the other.

'A lot of DOS developers are finding the benefit of Windows - it brings them broader market potential,' says Mr Turner.

It also brings advantages to the end user. There is no need to learn a new set of controls for every new program - the instruction to print a document is the same regardless of what type of document it is.

But GUIs are the tip of the iceberg. Behind the flashy graphics is a set of standards for exchanging data between programs, access to standard 'drivers' for screens, printers, scanners, and even ways to link data dynamically.

This is a powerful mechanism for building new style applications. A spreadsheet table showing monthly sales figures can, for example, be embedded in a word processor document - and updated automatically if there are any changes in the table. An executive information system can extract data from remote databases automatically and display the results as if they had come from the local disk.

The disciplines of developing application software based on GUIs has led to rapid standardisation of many aspects of software. And as personal computers evolve into multimedia communications devices, this process is likely to accelerate. 'Quicktime - the systems software which handles multimedia in the Macintosh - will soon be available for Windows PCs too,' says Mr Turner.

This means that all types of data - video, audio, text and numbers - will become interchangeable - if not identical in form. A video message recorded on a Macintosh will be playable on a Windows-based personal computer.

This new form of computer communications demands different ways to create applications and will stimulate development of new software tools.

'We increasingly view an application as a series of editors - ways to enter, change and access data,' says Mr Bailey of Lotus.

'We need to provide an infrastructure - electronic mail, access to databases - and the tools to let users get at it and use it the way they want to,' he adds.

There is no doubt that a great deal of progress has already been made and it is not too hard to imagine a time, when personal computers will combine a broad set of power tools which can be applied to all aspects of information processing.

XA World P7372 Prepackaged Software P7373 Computer Integrated Systems Design TECH Products P7372 P7373 The Financial Times London Page VIII 1059
Survey of Personal and Portable Computers (13): The global area links may take a little while - Enterprise-Wide Networks Publication 930219FT Processed by FT 930219 By GEORGE BLACK

THE ERA of stand-alone personal computers is over, but that of enterprise-wide networks has not yet begun. How quickly the transition can be achieved depends partly on developments in the software industry and partly on how willing managements are to change their thinking.

Linking personal computers together to form local area networks has become standard practice in the past few years, driven largely by a user rebellion against slow service from central mainframe and minicomputer departments.

The typical LAN now joins together around 20 users and around a tenth of LANs join as many as 250. By 1995 it is expected that half of all the business PCs in the world will belong to such networks.

LANs were set up first to provide relatively simple applications such as word processing, spreadsheets and electronic mail. As users increasingly look for more quickly developed and more cost-effective corporate systems, LANs are gradually being extended to take on more of the traditional data processing functions, based on larger databases from leading suppliers such as Oracle and ARK Ingres.

The era of stand-alone PCs has come and gone in little over a decade. But to connect PC LANs to corporate systems to form wide area networks and enterprise-wide or 'global area' networks, which will allow many thousands of users to communicate, is a vastly more complicated matter.

Many firms have machines on different sites that are connected, but it is one thing to be able to transfer simple files between them and another to get complex applications running across several transport protocols.

Some of the network management problems involved in establishing enterprise-wide systems are still unsolved and look unlikely to be solved for several years. Processes such as the electronic distribution of new versions of programs to thousands of users in remote sites are just only beginning to be widespread. Security features remain weak and viruses continue to pose a threat.

There are also outstanding technical questions about how best to connect portable computers to corporate systems, using fax/modem cards or adaptor devices.

In sum, large companies using systems from a wide range of suppliers may face a 10-20-year migration from the stand-alone environment to the enterprise-wide system. Mr Bruce Murrill, technical director of the Network Management Forum, cautioned last year that the goal of managing enterprise-wide networks was 'still some way off'.

So far, neither of the two leading PC operating system software companies, Novell and Microsoft, has proved that it can fulfil all the necessary functions for the task of controlling very large networks.

Microsoft has achieved a dominant position in single-user operating systems with its DOS and Windows products. Novell has become the principal LAN software supplier, with around 70 per cent of that market.

In the next few months, Novell will seek to consolidate its position with a new version of its Netware product, while Microsoft will challenge it with a new network operating system called Windows NT (New Technology). Many users are delaying investment decisions until more is known about the capabilities of these new products.

Last year, Novell launched a major move to broaden its operations by an agreement to take over Unix System Labs from AT&T. Ownership of USL will give Novell control of the development of the Unix operating system.

Unix is the engine of most of the new range of smaller machines which have been steadily taking over from mainframes and minicomputers in the past few years.

This acquisition will therefore give Novell a central role in the evolution of corporate systems and potentially the ability to integrate those corporate systems with LANs.

Novell's plans for Unix remain a matter of speculation until the takeover process is completed. However, there is a view in the industry that it will seek to consolidate Unix as the vehicle for the next generation of systems built on a client/server structure and to push it down onto personal computers as a shrink-wrapped commodity product.

Mr Ben Smith, Novell's UK managing director, argues that users will benefit by having Unix in the hands of a hardware- independent company. He says that Novell intends to 'purify' Unix by reducing the number of variants in use.

However, Novell may now come into confrontation with Microsoft, which could bring a new and potentially damaging conflict within the industry. Microsoft's UK marketing manager for corporate network systems Ms Jack Fogg says that there will inevitably be more direct competition between the two companies because of their similar business strategies.

The opening shots in the battle have already been fired. Novell and the Unix camp claim that very little is yet known about Windows NT and that users have no reason to wait for it. Meanwhile, Microsoft has begun to argue that Unix has design weaknesses and is seeking to show that many software developers are switching their support from Unix to Windows NT.

Some industry experts consider that the main barriers to building effective enterprise-wide networks are psychological rather than technological. They say that most corporate networks are still badly managed, inefficient and unreliable.

Mr Chris Yates, managing partner of telecommunications consultancy Newburn Consulting and formerly of National Power, is a proponent of this view. In his opinion '95 per cent of networking problems are managerial and only 5 per cent technical. Most business leaders are still not aware of how dependent their business is on communications. They ought by now to be as aware of information technology issues as they are of finance or production.'

Ms Laura Lilyquist, European marketing manager for Sun Connect, Sun Microsystems' networking business, also thinks the problem of building global area networks is one of management education. 'Each vendor only owns one piece of the problem,' she argues.

'Users may need software products from a dozen different sources to be able to get machines to interact properly at the application level. But many of them are still attuned to one-stop shopping for their computing and do not take advantage of the range of choice of products available.'

XA World P7372 Prepackaged Software P357 Computer and Office Equipment TECH Standards CMMT Comment & Analysis P7372 P357 The Financial Times London Page VII 1050
Survey uf Personal and Portable Computers (14): Quality reaches all parts - Peripherals are being updated in line with personal computers Publication 930219FT Processed by FT 930219 By GEOF WHEELWRIGHT

MOST OF the personal computer industry's attention in recent years appears to have focused on making PCs smaller, faster, cheaper and more powerful.

Equally aggressive efforts, however, have gone into doing the same for the devices which users attach to their PCs - including printers, back-up systems, scanners, network systems, external displays, modems, high-capacity external storage systems and just about anything else you can imagine. The most noticeable difference for most users has been in the quality and variety of printers available for their PCs.

While impact technology - such as dot matrix and daisywheel - characterised printer designs in the first half of the 1980s, higher-quality, non-impact systems using laser and inkjet print engines now dominate the market. These have been married with sophisticated 'page description languages' such as Adobe PostScript and Hewlett-Packard's PCL5 to provide unprecedented printing flexibility and quality.

This has given a large number of users the chance to produce almost-typeset quality from their printers - as well as graphs, charts and diagrams that would previously have to be produced by a commercial artist (or not at all).

Two other printer innovations which have had great impact in recent years are the proliferation of colour printers and, more recently, portable printers. The former have made personal computers credible pre-production tools for professional colour publishing work, while portable printers have made life a little easier for the growing army of those who carry their computers around.

While printers have been improving the images that come out of a PC, scanners have increased the range and quality of information that go into them. Scanners allow users to 'photocopy' images onto the computer's hard disk - so that they may be stored, edited and printed at any time. They are vital to anyone involved in PC publishing work and, when combined with optical character recognition software, allow users to have large amounts of text on paper turned into editable word-processor files on the computer's screen.

Colour and portability are also the two major areas of innovation in the scanning world. Lower-cost colour scanners are coming into their own at the moment - as are inexpensive ways of obtaining colour pictures in a form that can be used by PCs.

One of the best examples of this is Kodak's new Photo CD process - which allows standard 35mm films to be 'developed' onto a personal computer's add-on CD-ROM optical disc. The images from that disc can then be treated as any other scanned images - except they are of a far higher quality than most users would be able to get from an affordable hand scanner.

That situation is not likely to exist for long, however, as the quality of hand scanners is improving fast and the price is dropping just as quickly. A number of good colour hand scanners - such as Logitech's ScanMan 256 - offer the ability to scan images into a PC with support for up to 256 colours.

The great limitation to such devices, however, is that they can scan only a certain portion of a standard A4 page at once. This means that you must often do several scans and 'stitch' them together to get a complete page into your computer.

Scanners and printers largely concern themselves with the business of getting images or text in and out of your computer. A new range of computer add-ons stretches the horizon of what you can get a PC to do for you.

These add-ons are called 'multimedia' peripherals - and generally include sound cards, a CD-ROM, a microphone and external speakers. If used in an operating environment that supports them properly, these extras enable you to incorporate speech in on-screen presentations, use educational applications that can play music and animated sequences on the computer - and even standard audio CD music.

The real key to the success of multimedia, however, lies in the CD-ROM. This variation on standard CD audio technology allows specially-encoded compact discs to hold up to 600 Megabytes of data each - giving them six to eight times the capacity of the average personal computer hard disk. That is why increasing numbers of encyclopedia products are being offered on CD-ROM.

CD-ROM versions of encyclopedias can incorporate the voices of famous people, digitised images of places, animated sequences explaining how different technologies work - and lots of text that can easily be searched by the computer and then printed out as needed. And, of course, they do not weigh as much or require the death of many trees in their production process.

Finally, there is the rebirth of the parallel port. For years, the parallel (sometimes called Centronics) connector on the personal computer was used only for hooking up printers - sending information from the computer to the printer.

Recently, however, the parallel port has become the conduit for two-way data traffic - and many developers have designed converters that turn parallel printers into SCSI (Small Computer Systems Interface) connectors. SCSI is a popular connection standard, supported by most manufacturers, allowing users to hook up external hard disks, CD-ROMs, tape back-up systems and other devices.

By using the parallel port as a SCSI connector, even the most humble portable computer users will now have another way to hook up some very powerful add-ons to their machines.

GB United Kingdom, EC P3577 Computer Peripheral Equipment, NEC TECH Products TECH Standards CMMT Comment & Analysis P3577 The Financial Times London Page VII 936
Survey of Personal and Portable Computers (3): The lean, mean survivors - A price war epidemic Publication 930219FT Processed by FT 930219 By PAUL ABRAHAMS

PERSONAL computer price wars have broken out across Europe. During the second half of 1992, the large established groups, such as Compaq, Hewlett-Packard and IBM of the US and ICL of the UK, admitted PCs had become commodity products.

The branded companies decided to take on the clone manufacturers at their own game. Prices were slashed and low-price models launched. In the UK, average prices for PCs using the 386SX chip fell nearly 30 per cent from Pounds 2,074 to Pounds 1,479 between 1991 and 1992, according to Context, the London-based market research company.

The situation is still deteriorating - at least for manufacturers, if not consumers. Mr Bruce Sinclair, vice-president of Northern Europe for Dell Computer, reckons the price of a 386 workstation has fallen by 50 per cent to about Pounds 1,000 over the last 12 months, depending on configuration.

Infocorp Europe, the Paris-based market research group, expects prices to fall 15 to 20 per cent during the first half of 1993.

Compaq led the way with the launch of its ProLinea PC range and its Contura notebook computers. IBM followed with its ValuePoint range, as did Hewlett-Packard.

The initial success of low-priced branded products surprised even the companies involved.

Both Compaq and IBM were left with product shortages. At the end of the year, Compaq still had two months of back orders to fill.

However, Ms Marye Tonnaire, industry analyst at Dataquest in Paris, says once these early problems began to be overcome in the last quarter of last year, the floodgates opened and prices tumbled even faster.

The price has driven volume growth. Dataquest estimates the European market will have increased by 11 per cent last year, a reversal of the previous four years which witnessed slowing growth rates.

Meanwhile, so-called no-name manufacturers such as Vobis in Germany and Elonex in the UK have continued to do well.

In Europe, they increased their share of the market from 8.1 per cent to 9.1 per cent, according to Infocorp.

The switch for most of the groups from high-technology high-price companies to high-technology low-price distribution has created an enormous culture change. The price cuts have squeezed margins for the PC manufacturers.

Put simply, they launched cost-cutting initiatives. Dell Computer, for example, launched a cost-containment drive during the second half of last year called 'Cost-busters'.

'Anything that did not add value was cut,' says Mr Bruce Sinclair at Dell Computer. 'Through the programme we reduced operating expenses from 20 per cent of sales to 16 per cent of sales. Meanwhile we were doubling the number of worldwide employees.'

Measures taken at Dell included changing the car policy so that not all managers automatically had cars. Pay policies were changed so that the salaries of 40 per cent of the workforce were linked to performance.

During the third quarter, salaries were frozen and employees offered 50 share options instead. Distribution costs are also being slashed. Dell Computer has always sought to minimise its distribution costs through direct selling. The company reckons 90 per cent of its European sales are through internal channels.

It has also rationalised its logistics by centralising warehousing at Limerick in Ireland, where its new plant is capable of configuring computers for European local markets. This cuts down inventory in local markets.

'What is so encouraging about the last 12 months is that it shows the established PC manufacturers are capable of change. They have become lean and mean,' says Ms Tonnaire at Dataquest.

Meanwhile, European retailers are also having to adapt to the price wars. The squeeze on margins sent at least 20 per cent of computer dealers out of business last year.

Warehouse-style superstores are being set up in the UK in an effort to emulate US practices. Whether these superstores are successful remains to be seen.

Costs such as real estate and labour in Europe are equivalent to 20 per cent of turnover compared with 8 per cent in the US.

As one PC manufacturer points out, costs in Sweden are rather different than in Austin, Texas.

The full impact of the price wars on the structure of the industry is yet to be determined, according to Dataquest. But some winners have emerged.

Compaq's share of the European market increased from 6.4 per cent to 8.5 per cent between 1991 and 1992, according to Infocorp Europe.

Hewlett-Packard also improved from 1.7 to 2.4 per cent: it shipped as many PCs in the last four months of 1992 as it did during the previous eight. Meanwhile Dell's market share rose from 1.1 to 1.7 per cent. ICL, thanks to its acquisition of Scandinavia's Nokia Data, rose from 1.8 to 2.8 per cent. Vobis of Germany almost doubled its market share from 2.8 to 4.5 per cent.

Olivetti of Italy fell from 6.6 to 6.4 per cent and ZDS of France dropped from 3.2 to 2.7 per cent. Toshiba, the specialist portable computer group, had a tough year, but maintained its market leadership, although Compaq is fast catching it up.

Infocorp Europe predicts the PC market will be polarised between the large groups, capable of pushing down production costs through efficient purchasing and economies of scale, while spreading marketing and distribution costs over very large volumes. Small groups will continue to maintain some competitive advantage, given their proximity to clients and their flexibility and high service levels. It expects that many groups in the middle ground will find it difficult to survive.

The companies that succeed will be those with a wide product mix that allows them to address different vertical markets, says Ms Tonnaire at Dataquest.

Those that survive will also have to get their prices right and sort out their logistics effectively.

'There will undoubtedly be a shake-out during 1993. Some companies will not exist by the end of the year,' she says.

---------------------------------------------------- PERSONAL COMPUTER EUROPEAN MARKET SHARES* ---------------------------------------------------- 1992 1992 % % ---------------------------------------------------- IBM 15.6 13.5 Apple 7.9 8.5 Compaq 6.4 8.5 Olivetti 6.6 6.4 Vobis 2.8 4.5 ICL 1.8 2.8 ZDS 3.2 2.7 Toshiba 3.3 2.6 HP 1.7 2.4 Dell 1.1 1.7 Siemens 1.8 1.6 No name 8.1 9.5 ---------------------------------------------------- * All MS DOS/Windows and Apple models ---------------------------------------------------- Source: InfoCorp Europe, January 1993 ----------------------------------------------------

US United States of America GB United Kingdom, EC JP Japan, Asia XG Europe P357 Computer and Office Equipment TECH Products COSTS Product prices P357 The Financial Times London Page II 1088
Survey of Personal and Portable Computers (2): Second fiddle in the west - The Japanese challenge Publication 930219FT Processed by FT 930219 By MICHIYO NAKAMOTO

IN THE context of global PC markets, Japanese manufacturers have generally had to play second fiddle.

In contrast to their position in their own domestic market, where Japanese manufacturers have been able to keep a tight hold on consumers, their presence overseas has been singularly unimpressive.

'The reason why Japanese manufacturers are not doing so well in the US and Europe is because US manufacturers are so strong,' admits Mr Takashi Kuwabara, general manager of the international personal computer product marketing division at NEC.

In Japan the dominance of NEC's proprietary system and the difficulty of the Japanese language have made it difficult for foreign manufacturers to penetrate the market.

In the same way, the predominance of IBM's operating system in the west has been a big obstacle for Japanese companies trying to break into the US and European markets.

NEC, for example, which makes IBM-compatible machines, says that it is always a step behind IBM in bringing out advanced models because it has to test about 100 important software applications every time it launches a new machine.

Another difficulty Japanese PC manufacturers face abroad is the need to rely on sales of stand-alone machines, rather than systems integrated products, says Dr Shigenori Matsushita, general manager of the planning and co-ordinating office in Toshiba's information processing and control systems group.

This is because computer systems are very closely tied to the culture of each particular country so that it becomes necessary to employ expensive engineers - a risk which most Japanese companies have not been eager to take.

Obstacles, such as the above, to Japanese penetration of overseas markets, leads NEC's Mr Kuwabara to conclude that 'Japanese (PC) manufacturers will not become a threat to western manufacturers'.

Having failed to make much of an impact in terms of market share, the Japanese strategy has been to concentrate on high value-added products.

'We are working to maintain high performance and high quality and not get involved in price wars,' says NEC's Mr Kuwabara.

Mr Kuwabara compares NEC's strategy to that of Mercedes-Benz or Audi in the car market: both are products which have kept to their own independent marketing strategies regardless of overall market trends.

That may sound like little more than trying to put a brave face on an impossible situation but a high value-added strategy may not be such a bad one for the Japanese, particularly when combined with their strength in PC components.

'As PC vendors, the Japanese have about as low a profile as you can get in contrast to what they've managed in other areas,' says Mr Mike Jeremy, electronics analyst at Baring Securities in Tokyo.

But in terms of the components that go into a PC, the Japanese have a very high profile. They are leaders in integrated circuits, particularly DRAMs, in floppy disks and in flat panels.

'If you apply the strategy of the parts to the whole, the Japanese have a very successful PC strategy,' Mr Jeremy says.

The edge that they have in components, particularly in some of the promising new technologies such as flat screens and small batteries, could in future strengthen their overall position in the PC market.

Just as Toshiba was able to capitalise on its early entry into the laptop and notebook PC market, an early entry into new technology areas could give the Japanese just the break they need.

Industry experts expect some of these advanced technologies in which the Japanese excel to become more popular as their prices fall over the next few years and as the price wars that have been raging in western markets become less of a determining factor.

'Japanese manufacturers sell high performance machines at high prices but the market does not want that now,' says Mr Katsushi Shiga, an analyst at Dataquest, the high-technology market consultancy.

When the environment for such new technologies improves, however, they could become strong weapons for the Japanese, Mr Shiga believes.

Among the promising new technologies in which Japanese manufacturers have a leading edge in are thin-film transistor (TFT) colour liquid crystal displays (LCDs).

In fact, the Japanese dominance of the TFT market is such that US attempts in the US to impose an anti-dumping duty on Japanese-made TFT-LCDs caused an uproar among US users which depended on products from Japan.

Unlike passive colour liquid crystal displays, TFT colour LCDs are easy to read even when viewed from a slight angle.

The problem, however, has been the high price of PCs which use TFT displays and it will take some more years until prices come down to more acceptable levels.

This could happen in about five years' time as consumer electronics manufacturers have been working hard to use TFT colour LCDs in their products and once the TFT ball starts rolling in the consumer electronics industry, volumes could rise steeply bringing prices down dramatically.

Japanese manufacturers also have an advantage in their manufacturing technology, says Dr Matsushita.

Surface mount technology used in notebook PCs, for example, which allows printing on both surfaces of a printed circuit board and therefore greater compactness, is a technique perfected by the Japanese.

Meanwhile, as they continue to work on developing these technologies further, Japanese manufacturers will want to speed up a long overdue review of their overall marketing strategies for domestic and overseas markets.

Until quite recently, Japanese manufacturers have been able to maintain high prices in the domestic market. This means that they have not participated in the price wars that have spread through western markets.

However, in the past few months, US manufacturers such as Compaq and IBM have begun to present a previously unseen challenge to the domestic manufacturers' stranglehold on the Japanese PC market.

In a bid to spread the use of its bilingual operating system, DOS-V, IBM set up the Open Architecture Developers Group (OADG) in Japan two years ago. The American giant invited other hardware manufacturers, both foreign and domestic, to back its standard as an alternative to NEC's 9800 PC series.

OADG has so far brought together more than 25 manufacturers, and if it has not helped the fortunes of all of its members, it has certainly raised the profile of IBM in Japan.

Then in October last year, Compaq shocked the Japanese market by announcing a range of desktop PCs priced at about half of what it would cost to buy comparable machines from a domestic manufacturer.

Compaq's move was soon followed by price cuts from IBM, NEC and most recently, Fujitsu.

That the spiral of falling prices is unlikely to end just there was signalled when Compaq announced a further cut in prices this month.

JP Japan, Asia P357 Computer and Office Equipment TECH Products TECH Technology P357 The Financial Times London Page II 1147
Survey of Rhone-Alples (1): Resilient stronghold - Rhone-Alpes has the largest economy and population outside Ile de France. The region now runs its own local affairs - and looks likely to influence the shape of national government after the March elections Publication 930219FT Processed by FT 930219 By WILLIAM DAWKINS

IF FRANCE'S opposition right wing wins next month's parliamentary election, which is likely, Rhone-Alpes will be one of the main victors.

The economically biggest and most populous French region outside Paris is a traditional conservative power base. So it will probably be the most important provincial influence on French national politics during the next government.

Over the past few years it has provided firm ground on which half a dozen ambitious young opposition politicians have built political bases, some hotly tipped to take ministerial jobs in the new government. This can only increase Rhone-Alpes' already weighty influence in the Paris bureaucracy, a valuable asset in a country where much economic power remains concentrated in the capital, despite the decentralisation of the past decade.

Local political heavyweights tipped for a national cabinet seat in the spring include Mr Charles Millon, chairman of the regional council and national parliamentary whip for the centre right UDF party; Mr Bernard Bosson, centrist CDS mayor of Annecy; Mr Michel Barnier, the RPR Gaullist president of the Savoie general council and organiser of last year's winter Olympics, and Mr Alain Carignon, the RPR mayor of Grenoble. Mr Bosson and Mr Carignon had ministerial jobs in the 1986-1988 conservative government.

Rising above the fray is the distinguished head of Mr Raymond Barre, former prime minister of France and a centrist member of parliament for the Rhone, who is spoken of as a possible (though outside) runner for the Matignon again.

The young reformers have become candidates for ministerial jobs because they have used decentralisation (which has mainly increased the power of town mayors by granting them authority to give or withhold planning permission) to shape the region and demonstrate their skills in the art of government.

'At national level, the political class is being devalued in public opinion. But good mayors are still respected, except those who have made mistakes,' explains Mr Jean Regis, one of Mr Bosson's colleagues on Annecy town council.

Of course, local politics in Rhone-Alpes is not an automatic track to stardom. Take Mr Michel Noir, the dynamic mayor of Lyon, the regional capital which is the economic and political lynchpin of Rhone-Alpes. Only a few years ago he looked ready for great things - perhaps as a rival to Mr Jacques Chirac for leadership of the RPR.

Mr Noir remains respected for the amount of investment he has marshalled to update Lyon's crowded roads and to beautify further this ancient city. Yet, his ambitions have taken a knock with his misjudged decision, in 1990, to give up his RPR parliamentary seat in disgust at internal bickering among the leadership, hoping to form a right wing union of young reformist-minded people like himself. In the event, only two other MPs followed his example and the idea has quietly sunk.

Mr Noir's national image took another battering when his son-in-law and former election campaign manager, Mr Pierre Botton, was jailed last November for alleged misuse of public funds. The latest twist to Lyon's city politics came last month when the RPR placed Mr Alain Merieux, one of its rising stars in the region, as parliamentary candidate in the same constituency as Mr Noir - re-elected since as an independent.

The RPR's choice of Mr Merieux was significant. He is a vice president of the regional council, an important businessman (he is head of the Institut Merieux pharmaceuticals group) and a member of the old bourgeoisie which runs Lyon behind the scenes. 'The Parisians have decided against the will of the Lyonnais to organise the division of the national opposition,' complained an angry Mr Noir.

Rhone-Alpes' political importance is also a reflection of the size and vitality of its economy - dimmed by the economic downturn. 'For a while we were sheltered from economic difficulties because of the strength of our economy. But when the crisis did finally hit, it hit us harder than other regions,' says Mr Yves Minssieux, regional director of Lyonnaise de Banque.

Of course, damage from the recession has been as unevenly spread as might be expected from a region as big as Rhone-Alpes. Its 5.3m inhabitants represent just under a tenth of the French population; it covers 8 per cent of the nation's land mass and produces a tenth of France's gross domestic product. It is geographically diverse, from the high snowfields of the French Alps to the fertile wine-producing hills around the Rhone and the arid scrub of the Drome.

Economically Rhone-Alpes presents no less striking contrasts: traditional chemicals, engineering and automotive industries around Lyon, which have been hardest hit in the slowdown; light industries around the old coal steel and textile town of St Etienne, which appear more confident than businesses around the regional capital; and a thriving community of high technology companies around the town of Grenoble.

Some economic commentators liken Rhone-Alpes to a small country such as Switzerland or Belgium. A more exact comparison could be made with other important European regions such as Piedmont in northern Italy, Hesse in Germany or Catalonia in northern Spain. Rhone-Alpes has intimate political and business links with all three - and this highlights another of its important qualities: the pro-European Community consensus among the regional leadership.

It is no accident that, when the rest of France hesitated over the prospect of European political and monetary union, Rhone-Alpes produced nearly 55 per cent in yes-votes in last September's referendum.

The region is a pro-European island on the map of French referendum results, surrounded by no-votes from Provence-Alpes-Cote d'Azur in the south, Auvergne to the west and Burgundy to the north. To complete the picture, Switzerland is on its north-eastern frontier. Some local planners expect last year's Swiss vote against closer European integration to trigger a migration of Swiss-based companies into the Haute Savoie.

Lyon has played on its European credentials, as well as on its high quality of life, to support its campaign (led by the tireless and persuasive Mr Barre) to become the headquarters of the European central bank. The uncertainties facing European monetary union have not diminished the city's determination. 'If we didn't believe in the Euro-bank, we would not make the effort.'

That resilience translates into an ability to continue attracting prestige foreign investments to the region at a time when the international recession has caused overall foreign investment in France to decline. Last year Rhone-Alpes overtook Ile de France for the first time in terms of the number of jobs created by foreign investors - although it still lagged behind heavily subsidised Lorraine, in north-eastern France. It has a slightly higher economic growth than the French average and, according to a recent study by the Economist Intelligence Unit, it will grow 20 per cent faster than France as a whole over the five years to 1995.

Rhone-Alpes' high profile newcomers include Rank Xerox's new European research laboratory in Grenoble, and Euronews, the new satellite news channel. A satisfied Mr Maury claims: 'If they come here, it's not because of aid, because we don't offer very much. It's because we are attractive.'

FR France, EC P9611 Administration of General Economic Programs P9532 Urban and Community Development CMMT Comment & Analysis P9611 P9532 The Financial Times London Page I 1250
Survey of Personal and Portable Computers (1): Challenge of the notebooks - The computer industry today bears little resemblance to its counterpart of a decade ago. Younger, more agile competitors are moving in the direction of more compact, more flexible and more portable personal computers Publication 930219FT Processed by FT 930219 By ALAN CANE

INSURANCE ASSESSORS inspecting the damage caused by Hurricane Andrew in the southern states of the US last year took part in a novel experiment. They used a hand-held computer which was able to accept handwriting and also to determine its geographic location by reference to a satellite signal - an essential capability with roads and streets damaged or vanished. A linked video camera provided a complete photographic image of the devastation.

The experiment points to the future use of portable computing - and to the way the computer industry is going. Today's computer industry bears little resemblance to its counterpart of a decade ago and rapid change is still the order of the day.

Personal computers and their more powerful cousins, workstations, are the key contributors to the shift which has seen yesterday's industry leaders cast down in favour of younger, more agile competitors, and a decisive swing away from traditional mainframe-based data processing.

The leaders of the new industry include Microsoft, the software company which sells, MS/DOS, the most popular operating system, Intel, the semiconductor house which makes the microprocessors used by the majority of PCs, and Novell, which markets the most popular networking software.

It has become a world where the owners of the key technologies have the whip hand. Computer makers are, in a sense, simply distributors of that technology. For the future, therefore, there is a powerful incentive for companies to establish their proprietary technology as an industry standard.

Digital Equipment, for example, a company which missed out on the personal computer revolution the first time round, is trying to establish its Alpha microprocessor, the first commercial 64-bit risc chip, as a standard for power computing. It faces competition from IBM, Hewlett Packard, Sun Microsystems and MIPS.

IBM is still the world leader in personal computer sales, with revenues from its PC business of between Dollars 10bn and Dollars 12bn a year. The European leader is Olivetti of Italy, while NEC has a commanding lead in Japan by virtue of its proprietary design.

Now the personal computer industry is beginning to experience, in its turn, the wind of change as portable computers in a broad range of sizes and designs begin both to make inroads into the desk-top market, and to make personal computing available to a new generation of potential customers. About 20 per cent of all personal computers bought today are portable, and the proportion is increasing. Consultants Frost & Sullivan estimate total shipments of portable computers in the US last year at 2.3m units, 2.14 of which were notebook machines.

There is little disadvantage now for the individual in opting for a portable computer over a traditional desktop. Portable and notebook computers use the same powerful microprocessors, run the same software and have as much memory as desktop machines. Lightweight power supplies seem likely to remain out of reach, for the foreseeable future, however.

There is a wide choice of laptops. Olivetti has introduced the Quaderno, smaller and lighter than conventional laptops with digital audio recording. Handheld computers include devices from Hewlett Packard of the US and Psion of the UK.

The development of portable computing is being driven by advances in miniaturisation which often boggle belief. IBM has developed at its Boca Raton, Florida, laboratories, for example, a 105 megabyte hard disk drive about the size of a credit card destined for a new generation of very small personal computers. A decade ago, a 10 megabyte drive in a 20-pound 'luggable' computer was at the leading edge.

IBM researchers envisage a range of tiny, personal machines which can be modified for different purposes by plugging in adaptor cards - a global positioning device to work with an on-screen map, for example, or a colour video camera. Mr Jack Kuehler, IBM's most senior technologist, describes the strategy as akin to 'razor and razor blades'. The personal computer is the razor. The core business will be providing the 'blades' of on-line services, communications and information.

IBM is not alone in anticipating huge potential demand for products of this kind. Apple Computer has in development a personal digital assistant, called Newton, which is due to be launched this year. Newton will combine computing power with the facility of an electronic organiser. It will accept handwritten input and fit in a suit pocket. EO, a Californian company, has forged an alliance with AT&T, and the Japanese company Matsushita, to develop a personal communicator combining personal telephone and personal computer.

These gadgets, exciting though they are for the future, form the second age of PCs. The personal computer industry is today characterised by more immediate concerns, including pricing, branding and distribution.

Companies across the world are no longer spending money on computing as they did in the past. Total investment in computer systems - mainframes to notebooks - was Dollars 107bn in 1992, Dollars 2.5bn less than in the previous year according to the US consultancy Dataquest. These numbers reflect the effects of the recession, the falling cost of computer hardware and a tougher attitude to IT investment among senior executives.

Nevertheless, according to Dataquest, European PC suppliers experienced a surge in demand in the second half of 1992. According to Mr Chris Fell, director of Dataquest's PC service, the surge represents a blip in spending as the market takes advantage of the price wars. 'Shipments will certainly remain strong into the early part of 1993, as manufacturers struggle to fulfil a backlog of orders. We will have to see if the demand continues through the summer, although we feel a return to more modest growth is inevitable later in the year.'

The price of personal computers has already fallen by up to 40 per cent a year over the past few years - a basic PC which cost more than Pounds 4,500 in 1983 now costs Pounds 500. There are indications that prices could fall a further 20 per cent this year causing problems for manufacturers and distributors alike as slim profit margins are squeezed further.

It seems likely, however, that prices are stabilising and that PCs will become richer in features rather than cheaper. There are now comparatively few PC components on which prices can fall further. An exception is active matrix flat colour screens, manufactured principally in Japan and used for top-of-the-range portable and laptop machines. The percentage of useable screens obtained from the manufacturing process is still disappointingly low. When it improves, prices will fall rapidly.

Many trace the latest phase in the PC price war to June 15 last year when Compaq, a US company which had been a world leader in high performance PCs, announced a plethora of new products along with price cuts of up to 32 per cent. New ranges of low-priced models were announced.

The effect was electric. 1992 was the year of the no-name manufacturer, when companies without much track record gained market share at the expense of the well-known names, selling on price and a realisation among customers that a well-known brand name was no guarantee of extra quality. Examples of no-name clone makers include Elonex in the UK and Vobis in Germany.

The effect of Compaq's announcement was to cut the difference in price between a Compaq computer and a no-name clone to only 15 per cent from 35 per cent. Last month the company reported net income for the three months to December 31 of Dollars 89.5m, or Dollars 1.10 a share, on sales of Dollars 1.42bn, against net earnings of Dollars 66.6m, or 77 cents, on sales of Dollars 873.4m a year earlier. Analysts had expected the company to earn between 80 cents and Dollars 1.01 share in the quarter.

Mr Eckhard Pfeiffer, chief executive, was quoted as saying: 'We have seen record-setting demand for our entire product line since June when we began implementing our new strategy of offering price-leading products that feature Compaq quality and the best service and support in the industry.'

Later in the year, IBM announced its own strategy: four separate product sectors, each serviced separately. A new, wholly-owned subsidiary was established in Europe to compete, apparently successfully, with the lowest cost no-name suppliers without hurting IBM's quality image. It also introduced a budget line world-wide - the PS/Valuepoint systems designed to compete against lower priced offerings from Compaq, Dell and the like. These lower priced machines have been selling well. The turnround at Compaq and IBM suggests that if prices are comparable, customers will opt for the name brand. Prepare for further blood-letting this year. By comparison, Hurricane Andrew was a breeze.

XA World P357 Computer and Office Equipment IND Industry profile CMMT Comment & Analysis P357 The Financial Times London Page I 1499
London Stock Exchange: Heavy trade in Glaxo Publication 930219FT Processed by FT 930219 By CHRISTOPHER PRICE, JOEL KIBAZO, PETER JOHN and CATHERINE MILTON

AN IMPRESSIVE set of half-year figures from pharmaceuticals group Glaxo prompted one of the biggest daily turnovers in the stock recorded over the past decade. By the close of trading yesterday, more than 23m shares had been dealt in London and the share price, which reached a high of 710p at one stage, closed a net 22 ahead at 684p.

When the figures were announced early in the session, the share price shot up sharply, offering an opportunity for UK institutions to sell into strength. But the momentum was checked only briefly and it soon rallied ahead of the start of trading on Wall Street. US investors were equally enthusiastic about Glaxo's figures and it was only towards the close in London that the selling pressure returned.

The market was reassured by a denial that Glaxo was planning a massive rights issue, contrary to speculation that has dogged the stock over the past few weeks. Also, the headline profits figure of Pounds 819m was way above the forecast range of Pounds 780m to Pounds 800m, and analysts were particularly impressed by sales of Glaxo's main earner, the ulcer drug Zantac, which grew by 16 per cent to Pounds 1.03bn.

Most houses raised forecasts. Hoare Govett, around the top of the range, moved to Pounds 1.728bn for the current year and Pounds 2.032bn for 1994, while James Capel moved to Pounds 1.675bn and Pounds 1.82bn. However, even the bulls conceded that US sentiment was likely to drag on the share price for some time.

Reaction to the results helped the rest of the pharmaceuticals sector. Wellcome gained 9 at 907p and SmithKline Beecham rose 4 1/2 to 443 1/2 p in the 'A's and 3 1/2 to 385 1/2 p in the Units.

Stores deal

After weeks of speculation, Kingfisher finally sealed the deal to buy Darty, the French electrical group, and the relief factor sent the stock surging. Sentiment was also helped by Kingfisher's estimate of its profits to January 1993, which at Pounds 233m were several million ahead of most analysts forecasts. The shares jumped 30 to 557p in heavy trade of 8.5m.

The upbeat presentation and details of the deal prompted a welter of upgrades as analysts took account of the effect of France's leading electrical retailer on Kingfisher's profits. Kleinwort Benson increased its current year preliminary estimate from Pounds 255m to Pounds 320m, while others were said to be as high as Pounds 340m. There were also a number of buy recommendations issued.

However, the merger was not without its critics. Questions over the state of the French electrical market, the French economy and Darty's financial situation were all raised by analysts doubtful over the synergies of the takeover. One bearish analyst said 'I cannot see the value for shareholders in this deal', and retained his negative stance.

A more positive Mr Andy Hughes at Nomura commented: 'I am reasonably assured. The deal is earnings enhancing and it takes Kingfisher into a new market without dilution.'

On the domestic front, Kingfisher said Comet was performing well, although the DIY chain B&Q was in the doldrums. This was said to be the main reason for the fall in Ladbroke shares, off 2 at 196p, and the weakness in WH Smith 'A', steady at 425p.

Conglomerate Hanson was steady in reaction to the news of the US tax proposals. Mr Jack L. Kelly of Goldman Sachs in the US argues that Hanson will not be affected by the levy on transfer pricing, which constitutes the most significant part of the proposed taxes on domestic profits from foreign companies.

BAT Industries recovered 6 to 964p, with investors relieved that President Clinton did not include higher US tobacco taxes in his State of the Union address.

Analysts said that UK building shares with transatlantic interests had largely anticipated President Clinton's tax plans, although Wolseley, the sector's most US exposed company, declined 6 to 550p on the back of worries about the US recovery.

Turnover of 1.5m shares masked a 4.27m overnight agency cross trade in Taylor Woodrow, one of the leading UK housebuilders, which closed 2 up at 80p in line with a generally firm market.

George Wimpey appreciated 9 to 139p as the market responded well to its attempt to avoid the mistakes of the 1980s by reorganising the way it buys building plots.

Mining group RTZ slipped 5 to 646p in the registered stock after announcing that it is to enter the coal business through a Dollars 470 (Pounds 330.9m) purchase of Nerco of the US.

The oil majors held up following announcement of the new US energy tax. BP added 1 1/2 at 262 1/2 p and Shell Transport 4 1/2 at 582p.

Mr John Toalster of Strauss Turnbull said that although there was no short-term impact there was 'long-term cause for concern and, in an industry which is suffering very badly, you don't need an extra negative against you'.

Merchant bank Kleinwort Benson rose 17 to 626p after it announced 1992 profits well above market forecasts at Pounds 46.3m, against Pounds 27.9m last time. Analysts of the financial sector had expected a figure of around Pounds 35m but the bank cut its net provisions to Pounds 7m from Pounds 39m in 1991.

Enthusiasm over the improvement spilled over into the rest of the sector. Schroders rose 65 to 1573p, SG Warburg 9 to 626p and Hambros 8 to 300p.

Specialised medical products group Amersham International advanced 21 to 716p following a well-received presentation to about 35 institutions by Hoare Govett.

Presentations to City analysts by Kwik Save were said to be unimpressive and the shares retreated 2 to 800p. J. Sainsbury received a boost from BZW, the shares rising 5 to 516p.

Associated British Foods advanced strongly as Carr Kitcat & Aitken turned buyer. Some in the market believe the group may benefit from any restructuring in the bakery market. The shares climbed 10 to 474p. Carr also liked Great Universal Stores following a visit to the mail order business. Analyst Mr John Chataway said: 'We think our forecast of a 10 per cent rise in profits in mail order will now definitely be met.' The shares put on 23 at 1608p.

Advertising group Gold Greenlees Trott fell 12 to 288p after announcing a one-for-three cash call. The company is issuing 6.49m shares at 235p a share to raise Pounds 14.7m.

Shares in security group Chubb firmed 4 to 277p as the company held presentations for several City institutions. A reported recommendation from UBS Phillips & Drew was said to have boosted BTR, the shares appreciating 3 to 552p with some 3m traded in the equities and the equivalent of 2.7m in traded options. Danka Business shares were wanted and they closed 18 up at 573p.

The rally in the US dollar helped British Airways gain 7 to 287p, while the market continued to appreciate plans by BAA for a fifth terminal that were announced on Wednesday. Shares in the UK airports operator moved ahead 11 to 781p. Mersey Docks continued to bask in the glow of good results adding another 9 at 318p.

Engineering group Wheway moved forward 1 1/2 to 9p after McLeod Russell, an investment holding company, launched a hostile Pounds 14.3m takeover bid. The offer values Wheway stock at 10.2p per share.

A shortage of stock in GKN saw the shares harden 7 to 476p. Motor distributors were in demand and Thomas Cowie gained 5 to 200p, while Pendragon rose 8 to 263p. Aerospace and engineering group Smiths Industries continued to languish on fears that a big customer may cancel or defer aircraft orders. The shares eased another 2 to 347p.

In textiles, Hartstone, the hosiery and leather goods distributor, closed 7 up at 251p as a volatile trade in the company continued. Shares in Dawson International, one of Britain's biggest clothing manufacturers, were held at 226p by reports from analysts touring the company's US operations.

NEW HIGHS AND LOWS FOR 1992/93

NEW HIGHS (155).

BRITISH FUNDS (22) OTHER FIXED INTEREST (3) AMERICANS (1) US West, BANKS (3) Bk. Scotland 9 1/4 pc Pf., Do 9 3/4 pc Pf., Deutsche, BREWERS (1) Wetherspoon, BLDG MATLS (2) BPB, Kalon, BUSINESS SERVS (5) Capita, Chubb, Hutch. Whompoa, Inchcape, Sherwood, CHEMS (9) Akzo, BASF, BTR Nylex, Bayer, Evode, Do 7p Pf., Hoechst, Laporte, Yule Catto, CONTG & CONSTRCN (1) Boot (H), ELECTRICALS (2) ASEA B, Critchley, ELECTRICITY (2) Natl. Power, PowerGen, ELECTRONICS (9) Bowthorpe, Ferranti, Forward, Gresham, Hewlett-Packard, Kode, Peek, Siemens, Unitech, HEALTH & HSEHOLD (2) Amersham, Tepnel Diagnostics, HOTELS & LEIS (5) Baldwin, Granada, Do 7 1/2 pc Pf., Stanley, Vardon, INSCE COMPOSITE (1) Allianz, INSCE LIFE (1) Utd. Friendly, INV TRUSTS (32) Abtrust New Dawn, Do Wts., Baring Chrysalis, China & Eastern, Flmg. Continental, Flmg. Fledgeling, GT Chile Fd. Units, Gartmore Euro. Wts., General Oriental, Genesis Chlie Ptg., Govett Oriental, Hong Kong, Do Wts., JF Philippine, Jakarta Fund, Jos Inc., Jupiter European, Murray Intl., Do B, Murray Smllr. Mkts., Do B, Nth. American Gas, Pacific Assets, Do Wts., Paribas French, Scott. American, Scott. Asian, Scott. Eastern, Singapore Fund, TR European Gwth., Temple Bar, Tor Inv., MEDIA (6) Harrington & Kilbride, LWT 5.90625p Pf., Metal Bulletin, News Corp., Sterling Publs., Watmoughs, MERCHANT BANKS (5) Close Bros., Kleinwort Benson, Schroders, Do N/V, Warburg (SG), MTL & MTL FORMING (1) Triplex Lloyd, MISC (3) Dinkie Heel, LGW, Ricardo, MOTORS (4) Bletchley, Cowie (T), GKN, Pendragon, OIL & GAS (2) Pittencrief, Ramco, OTHER FINCL (4) Bancaire Cie, Daiwa Secs., Natl Home Lns. 7 1/2 pc Pf., Stratagem, OTHER INDLS (3) BH Prop., Hewitt, Pacific Dunlop, PACKG, PAPER & PRINTG (6) API, Bowater, Capital Inds., Carnaud Metalbox, Jarvis Porter, Klearfold, PROP (5) Bilton, Frogmore Ests., Mucklow (A & J), Sinclair Goldsmith, Trafford Park, STORES (3) Courts, Fine Art Devlpts., Tie Rack, TEXTS (3) Albion, Courtaulds, Haggas (J), TRANSPORT (3) Forth Ports, Mersey Docks, Powell Duffryn, WATER (2) Anglian, Southern, MINES (4) Antofagasta, Mount Burgess, Sons Gwalia, Vizcaya.

NEW LOWS (4).

CONTG & CONSTRCN (1) Lon. & Clydeside, HEALTH & HSEHOLD (1) Specialeyes, OIL & GAS (1) Oceonics, MINES (1) OFS.

Other market statistics, Page 23

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 34 1729
London Stock Exchange: Equity futures and options trading Publication 930219FT Processed by FT 930219 By JOEL KIBAZO

BETTER than expected aver-age earnings figures, together with the favourable response by the US markets to the State of the Union speech by President Clinton, brought good trading activity in the derivatives area, writes Joel Kibazo.

The March contract on the FT-SE 100 opened at 2,825, up 10 from its previous close, but suffered a slight dip to 2,823 in the first 10 minutes of business. It later rose on buying from independent traders and securities houses.

The release of favourable average earnings figures boosted the contract further, maintaining momentum into the afternoon, and it reached the day's high of 2,854 just before Wall Street opened.

March subsequently came off the top, but it maintained the high levels due to early firmness on Wall Street. Profit-taking later in the session caused the contract to gently drift back and it ended at 2,835, up 20 from Wednesday's close but at a 7-point discount to the underlying cash market. Turnover was 10,031 lots.

The traded options market was active and turnover expanded to 34,174 contracts. The FT-SE 100 option traded 14,033 lots while the Euro FT-SE option had 1,920 contracts dealt.

Among the stock options, Amstrad was the busiest with 7,300 lots transacted and most of the day's total done in the June 25 calls. It was followed by BTR with 2,726 contracts and Glaxo with 1,489.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 34 262
London Stock Exchange: Strong recovery in higher turnover Publication 930219FT Processed by FT 930219 By TERRY BYLAND, UK Stock Market Editor

THE BURDENS laid on the London stock market earlier this week were lifted significantly yesterday and share prices bounced back confidently in good trading volume. The favourable response from Wall Street and the US dollar to President Clinton's State of the Union Message set the stage for a good performance by UK equities. The market was further encouraged by good interim results from Glaxo, relief that two potential rights issue hurdles were cleared, and an acceptable set of data on the UK economy.

At best, the market was 38.1 up on the Footsie scale, but gains were trimmed in the second half of the session when Wall Street lost part of its early gain to show an advance of 17 points on the Dow Average as London closed. The final reading on the FT-SE 100 Index showed a 23.7 rise at 2,837.7.

Blue chip stocks opened strongly as the US dollar steadied and London noted with relief Wall Street's firmness overnight following President Clinton's speech.

Trading results from Glaxo were significantly better than some market fears and the stock market caught the hint from the boardroom that no rights issue or major acquisition was in the pipeline.

Another of the rights issue threats overhanging equities was soothed when Kingfisher, the UK retail store, confirmed its Pounds 1.1bn merger with Darty, the leading French electrical retailer, but called for only Pounds 313m from shareholders, much less than had been feared when the deal was first mooted three weeks ago.

The disclosure that unemployment in the UK had indeed risen above 3m, to 10.6 per cent of the workforce in January, had been well foreseen in the City of London and had little effect on share prices. More encouraging was the increase of Pounds 2.1bn in UK bank lending last month, although strategists agreed that this should not be regarded as conclusive evidence of increased economic activity.

Heavy turnover in Glaxo made up about 3.6 per cent of the day's Seaq total of 637.2m shares. Stocks in the pharmaceutical group had been depressed ahead of the profits statement.

However, some analysts refused to shed their doubts on Glaxo's longer term outlook, and the shares ended well under the day's best levels.

The focus on the blue chip stocks yesterday was reflected in a slight fall in trading among non-Footsie shares, which made up just under 60 per cent of the day's Seaq total. However, the FT-SE Mid 250 Index climbed by 22.9 to 3,040.3. On Wednesday, Seaq volume of 618.6m shares was worth Pounds 1.2bn in retail worth.

Good results in the merchant banking sector brought gains among the financial stocks. The market's conviction that domestic interest rates will be cut again at Budget time, now only a few weeks away, helped shares in building, construction and property companies.

The stock market has now effectively recovered the ground lost at the beginning of the week when Wall Street fell sharply as it reacted to the first hints of President Clinton's taxation plans. The Footsie 2,800 area appears to have established itself as a support level and traders now hope to see the market move up towards the 2,900 mark again as it awaits the Budget speech from the UK chancellor of the exchequer.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 34 582
World Stock Markets (America): Dow ends lower after a volatile session Publication 930219FT Processed by FT 930219 By PATRICK HARVERSON NEW YORK

Wall Street

US PRICES were in mixed form yesterday following the announcement of President Bill Clinton's economic package, although secondary stocks, which were particularly hard hit earlier in the week, made a comeback, writes Patrick Harverson in New York.

The Dow Jones Industrial Average was finally down 10.00 at 3,302.19, ending a rollercoaster session in which the index had at one point been up 35 points, and then down almost 35 points. The Standard & Poor's 500 lost 1.40 at 431.90, while the Nasdaq composite performed well, rising 3.02 to 662.45 on bargain buying. Trading volume on the New York SE was 311m shares.

After the big sell-off on Tuesday the dominant feeling yesterday was one of relief that the State of the Union speech did not include nasty surprises.

Taken together with further good news on the economy - industrial production up 0.4 per cent in January and weekly jobless claims down sharply - share prices saw strong early gains, lifting the Dow more than 35 points in the first few minutes of trading.

The buying, however, quickly evaporated, at least among blue chip and large to medium-sized stocks. The general reaction to the economic package was that it was much more bullish for bonds than equities, while concern that higher taxes will retard economic growth continued to trouble investors. Consequently, the main indices gave back their morning gains, and by early afternoon the Dow had plunged to a 34-point drop, but blue chip prices eventually recovered most of their losses.

Leading Dow stocks were mixed, with General Motors down Dollars 1 1/8 at Dollars 38 1/2 , Philip Morris up Dollars 1/8 at Dollars 70 5/8 , International Paper off Dollars 1 5/8 at Dollars 63 7/8 and Merck up Dollars 1/4 at Dollars 37 7/8 .

Merck aside, most other big drug shares were lower, still worried about possible government-imposed limits on pharmaceutical prices. Schering-Plough slipped Dollars 2 3/4 to Dollars 56 3/4 and Bristol-Myers Squibb lost Dollars 1 1/4 at Dollars 56 1/8 .

Airlines were hard hit by news of the energy tax and worries that higher personal taxes will stifle demand for air travel. Delta fell Dollars 1 3/4 to Dollars 46 7/8 , AMR Dollars 2 5/8 to Dollars 57 and UAL Dollars 3 1/2 to Dollars 115 3/4 .

On the Nasdaq market, Intel led the way higher, rising Dollars 1 1/2 to Dollars 110, followed by Apple, which put on Dollars 1 1/8 at Dollars 55.

Canada

THE Toronto market showed a mildly negative reaction to US President Clinton's speech on his economic plan. The TSE 300 index shed 8.3 to 3,409.4 and falls led rises by 303 to 289 after volume of 53.5m shares.

US United States of America CA Canada P6231 Security and Commodity Exchanges STATS Statistics MKTS Market data P6231 The Financial Times London Page 31 499
World Stock Markets: Tel Aviv drops on conflict allegations Publication 930219FT Processed by FT 930219 By HUGH CARNEGY JERUSALEM

SHARE prices in Tel Aviv fell heavily yesterday, the latest lurch in a 10-day downtrend as investors reacted to allegations that Israeli banks have been stoking the market to unwarranted levels.

Already depressed by worries that equities were over-valued after riding a surging bull market for most of the past two years, the index of the 100 most traded shares dropped 5 per cent during the morning session, before recouping some of the loss. It ended the day down 3.9 per cent at 194.63.

This compares with a high of 218.17 on February 8 and an end-1992 mark of 195.98, which in turn compared with a level of 100 at the beginning of 1992.

The day's fall followed remarks to a parliamentary committee on Wednesday by Mr Moshe Beijsky, the former High Court judge, which raised the spectre of a disastrous share collapse in 1983.

Mr Beijsky, who chaired a state commission of inquiry into the 1983 crash, said bank-owned mutual and providential funds, which have supplied much of the heavy demand on the TASE, 'do not always have the interests of savers as their first concern.' He added: 'The fact that it is the banks which manage the provident and the mutual funds constitutes an inadmissible conflict of interest.'

Present market conditions are very different from those of 1983, when the principal cause of the crash was the collapse of a system by which the banks ramped up their own shares. But government officials, brokers and analysts have noted that the banks, suffering from low margins in their mainstream business, have benefited by heavy lending to investors for stock purchases made through their own institutions.

Mr David Klein of the Bank of Israel comptroller's committee also told the Knesset: 'People who want to invest are still not getting objective financial advice. Each bank simply sells its own goods.'

Bank of Israel officials said they were considering moves to remove mutual and providential funds completely from bank control, or at least to strengthen the 'Chinese walls' between them through independently appointed investment committees. Judge Beijsky noted that his commission of inquiry had advised separation, but that no action had been taken.

The issue has acquired extra urgency because of the government's plan to sell off 20 per cent of Bank Hapoalim, the country's biggest bank, on the TASE within the next few weeks. Along with its rivals, Bank Leumi, Israel Discount Bank and Bank Mizrahi, Bank Hapoalim has been majority-owned by the state since the government spent Dollars 7bn on buying up bank stock after the 1983 crash.

Mr Klein said it would be impossible to take back control over the mutual and providential funds from the banks after they were re-privatised.

In spite of the heat generated by the row over the role of the banks, analysts said it tended to cloud judgment of the underlying health of the market, which has slipped back significantly in a yo-yo pattern of trading since peaking in early February.

Comments by the Bank of Israel that the market was like a 'financial bubble' and similar cautionary talk from the Finance Ministry helped to induce the slump, which the banks row compounded. Significantly, Israeli high-tech stocks quoted in New York, where they have consistently outperformed local markets over the past year, also declined on Wednesday, a day when the Dow Jones index rose overall.

But most analysts in Tel Aviv say they do not anticipate a 1983-style crash. They point out that the market is now much broader and deeper, but still not soaking up a steady flow of demand. Also, the high inflation, low growth economy of 1983 has been replaced by strong growth and single-digit inflation.

Mr David Rosenberg of Pacific Mediterranean Investments said: 'The market was due for a correction, but we are probably past the worst of it.' He added that average historical price-earnings ratios were down to 20 or less. 'It could go to 185 before recovering, but the underlying fundamentals are still good. We think it is a little overvalued, but not much.'

IL Israel, Middle East P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 31 715
World Stock Markets (Asia Pacific): Hong Kong rises 1.6% as Tokyo shows modest loss Publication 930219FT Processed by FT 930219 By EMIKO TERAZONO TOKYO

TECHNICAL trading dominated activity as most investors remained on the sidelines to observe movements on the currency and bond markets after President Bill Clinton's economic statement in the US, writes Emiko Terazono in Tokyo.

The Nikkei average declined 27.49 to 16,982.14, having moved between 17,156.72 in the morning session and 16,974.62 in late trading.

Volume rose to 250m shares but from Wednesday's meagre 207m, as gainers led losers by 547 to 395, with 182 issues unchanged. The Topix index of all first section stocks lost 0.15 to 1,293.12, and in London the ISE/Nikkei 50 index edged up 0.79 to 1,037.59.

Buying by public funds was countered by selling by investment trusts, while short-term traders and dealers sought large-capital steels and other theme stocks.

Mr Bill Clinton's policy announcement, presented during the lunch hour in Tokyo, had little effect on prices. Mr Yuichi Kohashi, analyst at Daiwa Securities, said: 'The tax hikes had little news value for the market, and we would have to wait for the long-term impact on the foreign exchange and interest rates.'

Nippon Steel, the day's most active issue, firmed Y1 to Y295 after reporting a better than expected dividend yield of some 2 per cent, against estimates of 0.9 per cent. Other large-capital issues attracting interest included Mitsubishi Heavy Industries, Y1 harder at Y507.

Nagase, a trading house specialising in chemical products, forged ahead Y32 to Y906 on the Aids theme - the company's subsidiary is currently developing an anti-Aids drug. Kanematsu, a medium-sized trading house, moved ahead Y4 to Y416 on the same theme.

High-technology shares continued to weaken on worries over the high yen and faltering demand. Hitachi dipped Y2 to Y676 and Fujitsu finished Y4 cheaper at Y525.

TDK, the tape manufacturer, declined Y50 to Y3,340 on reports that it would post a 26 per cent fall in consolidated pre-tax profits to Y9bn, sharply lower than previous estimates of Y36bn.

Housing issues were stronger on hopes of a recovery in demand. Haseko gained Y8 at Y610 and Shokusan Jutaku Sogo closed Y12 to the good at Y515. However, Daikyo, the leading condominium builder, softened Y2 to Y882 on profit-taking.

In Osaka, the OSE average improved 87.17 to 18,419.81 in volume of 79.1m shares.

Roundup

PRESIDENT Bill Clinton's economic statement received mixed reactions from the region's markets yesterday.

HONG KONG, encouraged by reports that China had freed a political dissident and on optimism that UK-Sino tensions were easing, saw the Hang Seng index rise 99.48, or 1.6 per cent, to 6,186.94. Turnover was good at HKDollars 3.7bn following Wednesday's HKDollars 3.2bn.

Jardine Matheson, which has lagged behind the market recently, was one of the day's most active issues, climbing HKDollars 3.50 to HKDollars 50.50.

MANILA advanced some 3.5 per cent on hopes that a new oil field will provide most of the country's needs. The composite index put on 49.15 at 1,458.26 in turnover of some 255m pesos.

Investors were also encouraged by a good overnight performance in the US from Philippine Long Distance Tele-phone, which appreciated 25 pesos to 910 pesos.

KUALA LUMPUR retreated slightly in spite of an easing in interest rates. The composite index slipped 2.70 to 623.11 in turnover of MDollars 591m.

Among the day's losers, Tenaga Nasional, the electric utility, receded 10 cents to MDollars 8.70 with 1.73m shares traded. Telekom Malaysia dipped 20 cents to MDollars 12. Sime Darby weakened 16 cents to MDollars 4.60 in volume of some 1.26m shares.

SEOUL fell for the third straight session as hopes for measures to stimulate the economy receded. The composite index finished 11.21 lower at 653.91 in turnover of Won318.5bn.

SINGAPORE showed a modest improvement although there was little direction to buying. The Straits Times Industrial index ended 15.57 ahead at 1,632.13 in turnover of SDollars 166m.

AUSTRALIA retained early gains and banks continued to be supported by hopes that a change in government after next month's elections would lead to mergers in the sector. The All Ordinaries index closed 6 higher at 1,607.3.

ANZ, favoured as a merger candidate, added 2 cents at ADollars 3.40 in volume of some 3.8m shares. Among other banks, Commonwealth gained 2 cents at ADollars 6.62 but Westpac surrendered 4 cents to ADollars 3.23.

BANGKOK closed sharply lower as nervousness continued regarding First City Investment, which has been forced to defer repaying matured deposits. The SET index lost 11.81 to 961.43 in low turnover of Bt6.75bn.

NEW ZEALAND followed Wednesday's weakness with another setback of 9.78 in the NZSE-40 index to 1,590.93, with Telecom declining 8 cents to NZDollars 2.67.

JP Japan, Asia HK Hong Kong, Asia PH Philippines, Asia MY Malaysia, Asia KR South Korea, Asia SG Singapore, Asia AU Australia TH Thailand, Asia NZ New Zealand P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 31 825
World Stock Markets (Europe): Senior bourses anticipate German M3 data Publication 930219FT Processed by FT 930219 By Our Markets Staff

THE BUNDESBANK did not move on interest rates yesterday but bourses rose, partly on spreading optimism for modest German M3 growth for January, writes Our Markets Staff.

As dealers said that hopes of further interest rate cuts were based on expectations of M3 landing within the Bundesbank's target range, the president of the Munich-based Ifo economic research institute was saying that Buba should make further cuts to encourage more capital investment.

Meanwhile, bond yields were dropping in Frankfurt and Paris, and nudging their equities higher.

FRANKFURT registered a seven-month high as the DAX index rose 19.00 to 1,672.26, its highest close since July 17, just after a Bundesbank rise in the German discount rate took European equities into decline. Turnover improved from DM6.1bn to DM6.5bn.

Even though there had been no decrease in rates yesterday, Mr Edgar Benischeck at Bank Julius Bar in Frankfurt said that investors were aware that the Bundesbank had taken two small steps on the downward path when, on precedent, it could be expected to take seven or eight.

Even after an 8 per cent recovery this year, he added, the DAX was still 4 per cent down from its July 16 level, while the Bundesbank's average bond yield had fallen from 8.48 to 6.71 per cent, or by 177 basis points, in the interim.

Finally, he said, the market was 12 months ahead of the economy, looking not to 1993 when the move to strong cost reductions will hit corporate profits, but to 1994 when some of the benefits will arise.

The interest rate and cost reduction themes were reflected respectively in financials, where Deutsche Bank rose DM11.70 to DM682.70, and in carmakers where Volkswagen recovered DM6.80 to DM287.40 after its fall on last Friday's DB Research downgrade.

PARIS stayed with the interest rate theme as many investors clung to the belief that European rates are due to ease in the short-term. The CAC-40 index, which dipped briefly after the Bundesbank left the Lombard rate unchanged, closed off the day's high of 1,932, but still 21.55 ahead at 1,926.52.

Apart from financial and bank stocks, stronger on rate cut hopes, high turnover was noted in Bon Marche, up FFr45 or 8 per cent at FFr554, with speculation that there might be a restructuring of companies in Mr Bernard Arnault's group.

Chargeurs gained FFr58 to FFr1,378 after confirming reports that it may buy a 20 per cent stake in the satellite division of Canal Plus, FFr17 firmer at FFr1,238.

Rhone-Poulenc continued to advance ahead of its inclusion in the CAC on Monday and its good earnings announcement on Wednesday. The shares rose FFr17 to FFr565.

MILAN stayed firmly in the grip of 'Fiat fever' as shares in the car group advanced another 9 per cent, fixing at L5,400. Most analysts believe that demand for the stock has come about partly because of its relative cheapness prior to its gains at the end of last week, and through foreign institutions, underweight in Italy, looking to enter the market. Speculation that Fiat might be planning a rights issue with warrants has also fuelled demand, according to other analysts.

The Comit index rose 7.96 to 506.49. Olivetti gained L65 to L2,095 while, among the banks, Mediobanca was L555 firmer at L14,705.

ZURICH followed the general trend, helped by easier Swiss interest rates, banks were strong and volume was described as fairly good as the SMI index rose 19.0 to 2,131.9. Union Bank saw heavy volume as it rose SFr9 to SFr936, SBC added SFr7 to SFr342 and CS Holding SFr30 to SFr2,150.

STOCKHOLM saw S-E Banken decline after announcing that it expects to see further loan losses in 1993-94. The C shares lost SKr2 to SKr12 but the rest of the market was generally firmer with the Affarsvarlden General index advancing 10.9 to 984.9 in turnover of SKr1.1bn.

Ericsson and Astra both recovered Wednesday's losses, with respective rises of SKr13 and SKr8 to SKr716 and SKr222.

OSLO was helped to a higher close by Kvaerner which, up SKr2.50 at SKr163, said that it expected stronger earnings in 1993. The all-share index improved 1.58 to 398.74 in turnover of NKr512.2m. Norsk Hydro, which releases 1992 results on Monday, gained NKr2.00 to NKr162.50.

AMSTERDAM firmed with chemical stocks and major blue chips giving good performances. The CBS Tendency index advanced 1.3 to 99.0.

----------------------------------------------------------------------- FT-SE ACTUARIES SHARE INDICES ----------------------------------------------------------------------- February 18 THE EUROPEAN SERIES ----------------------------------------------------------------------- Hourly changes Open 10.30 11.00 12.00 ----------------------------------------------------------------------- FT-SE Eurotrack 100 1128.63 1130.67 1129.69 1130.83 FT-SE Eurotrack 200 1179.74 1180.63 1181.84 1180.49 ----------------------------------------------------------------------- Hourly changes 13.00 14.00 15.00 Close ----------------------------------------------------------------------- FT-SE Eurotrack 100 1132.19 1133.24 1133.42 1132.95 FT-SE Eurotrack 200 1186.13 1185.86 1188.48 1191.03

----------------------------------------------------------------------- Feb 17 Feb 16 Feb 15 Feb 12 Feb 11 ----------------------------------------------------------------------- FT-SE Eurotrack 100 1121.77 1123.14 1132.97 1129.97 1126.71 FT-SE Eurotrack 200 1173.51 1179.54 1184.15 1181.05 1175.45 ----------------------------------------------------------------------- Base value 1000 (26/10/90) ----------------------------------------------------------------------- High/day: 100 - 1135.45; 200 - 1193.30 Low/day: 100 - 1128.51 200 - 1179.61. -----------------------------------------------------------------------

DE Germany, EC FR France, EC IT Italy, EC CH Switzerland, West Europe SE Sweden, West Europe NO Norway, West Europe NL Netherlands, EC P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 31 886
World Stock Markets: South Africa Publication 930219FT Processed by FT 930219

AFTER recent gains, gold shares lost momentum yesterday as investors took profits. The index retreated 41 to 1,009 while industrials put on 3 at 4,531. The overall index closed a point down at 3,482. De Beers advanced R2.75 to R70.25 while Vaal Reefs shed R6.50 to R178.50.

ZA South Africa, Africa P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 31 78
Foreign Exchanges: Dollars rides Clinton switchback Publication 930219FT Processed by FT 930219 By EMMA TUCKER and GILLIAN TETT

THE DOLLAR bounced higher in early European trading but doubts about President Clinton's plans for reducing the US budget deficit left it struggling to break through DM1.6400, write Emma Tucker and Gillian Tett.

The market's initial reaction to the president's economic package was favourable and the US currency rose to DM1.6600, but by the European close it had dropped near to DM1.6300.

Market worries were fed by White House comments that Mr Clinton hoped to work with the Federal Reserve to keep rates low and that Mr Alan Greenspan, the Fed chairman, shared that goal. These appeared to outweigh relatively strong inflation and trade data. The December merchandise trade deficit narrowed to Dollars 6.95bn from Dollars 7.35bn and both the headline and core rates of inflation rose by more than expected.

Mr Stephen Hannah, economist at IBJ International, said the dollar's volatility stemmed from markedly different reactions to the president's message. 'One camp is highly cynical, and says the budget reductions are based on tax increases rather than lower expenditure,' he said. 'It worries that the expenditure figures will rise once the plans reach Congress, so a high deficit will continue to be generated.'

The opposing view, according to Mr Hannah, is that President Clinton is being bold and is dealing with the deficit in the appropriate manner.

Mr Avinash Persaud, currency economist at UBS Phill-ips & Drew, believes the president's growth package will trigger fast economic growth this year.

'The key factor is the timing of the fiscal stimulus with respect to his reduction measures. The fiscal stimulus is front end loaded, whereas reduction measures are back end loaded,' Mr Persaud said, pointing out that since Mr Clinton's tax measures would not be introduced until at least the autumn, they would not damp economic growth this year. The dollar closed just over 1/2 pfennig up at DM1.6335. In New York the US currency finished at DM1.6315.

Trading in European currencies was quiet. The exchange rate mechanism came under no particular pressure, with poor industrial production figures in France making little impact on the franc. The French currency closed fractionally firmer at FFr3.389 against the D-Mark.

The Italian lira continued to fall in spite of the reduction in ERM tensions, suggesting that it is now domestic factors determining the lira's level. Mr Neil MacKinnon, chief economist at Citibank, said: 'The lira has been very much undermined by worries over the strength of the government coalition.' It ended at L953.4 per D-Mark, compared with L951.1 at the previous close.

Sterling stood on the sidelines, largely unmoved by better than expected bank lending and unemployment figures. It gained a pfennig at DM2.3600.

US United States of America IT Italy, EC GB United Kingdom, EC DE Germany, EC P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 25 489
Money Markets: French futures firmer Publication 930219FT Processed by FT 930219

FRENCH PIBOR futures were slightly firmer yesterday, buoyed by a stronger franc and news that the Bank of France was making progress in rebuilding reserves.

Dealers reported that the shorter dated futures contracts had been oversold on fears that the central bank was failing to replenish its foreign currency reserves and would have to keep short dates high for longer, in order to attract funds.

With these fears diminished, the March and June contracts bounced back. The March contract rose more than 12 basis points during the day, and the June contract was 14 basis points up at the close.

The German debt market was generally firmer, but short-dated Euromark futures did not move significantly, trading in a very narrow range. There was some residual disappointment in the market after the Bundesbank left its key interest rates unchanged following its council meeting, even though this was expected.

Although there are hopes for further early interest rate cuts by the German authorities, dealers reported that the market had already priced in the next round of easing. The June contract closed at around 92.90, unaltered on the day.

The UK money markets were extremely quiet. The Bank of England posted a small shortage of Pounds 100m and did not operate in the morning. The forecast was then revised to a flat position and there were no afternoon operations.

Period rates were mostly unchanged. The three-month interbank rate stayed at 6 1/4 per cent on the offered side.

Short sterling contracts were steady for most of the day. A dealer said there was no particular reason for the market to change its view that the UK government would not cut rates at the Budget next month, particularly after yesterday's economic figures. These included higher than forecast bank lending, and a smaller rise in unemployment in January than in the prev-ious month.

Another dealer commented: 'The revival of bank lending and the less than horrific unemployment figures point to the fact that the recovery has started somewhere. We have also had a fairly consistent fall in the pound.'

Otherwise, yesterday's sluggish trading reflected a generally unfocused week. The market is looking ahead to next week when conditions are expected to be much tighter.

FR France, EC DE Germany, EC GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 25 406
Commodities and Agriculture: Karachi palm oil plan opposed Publication 930219FT Processed by FT 930219 By KIERAN COOKE KUALA LUMPUR

MALAYSIAN and Pakistani palm oil processors are opposing a plan to build a USDollars 40m palm oil storage and processing complex near Karachi.

The complex, to be funded by the Westbury consortium of Pakistan and the Malaysian government and private concerns, aims to sell refined oil to the Gulf states and central Asia. Malaysia's processors already have excess refining capacity, while Pakistan's are fearful for the country's small-scale processing industry.

MY Malaysia, Asia PK Pakistan, Asia P2076 Vegetable Oil Mills, NEC P0119 Cash Grains, NEC RES Facilities P2076 P0119 The Financial Times London Page 24 113
Commodities and Agriculture: Rubber dampened by its price - A producer-consumer accord hangs in the balance Publication 930219FT Processed by FT 930219 By WILLIAM KEELING

When trading in natural rubber became computerised on the Singapore commodity exchange last year, producers were hoping prices might lift from a three-year trough. One year on, prices remain low and a bitter argument rages between producing and consuming nations over support for the industry.

At the end of this year, the current five-year agreement of the International Natural Rubber Organisation (INRO), which groups together 26 producing and consuming nations, will expire. Producers have set a deadline for the end of March for consumers to indicate whether or not they are willing to negotiate a new agreement.

INRO's system of intervention prices and buffer stock management now hangs in the balance. Industry officials say the US and tyre companies, including Goodyear and Michelin, support renewing the agreement. But the European Community is proving indecisive they say, and tends towards abandoning it.

Under INRO regulations, if the average market price over a six-month period is below the buffer stock intervention price, the intervention price must be cut by 5 per cent.

When the price was reviewed on January 28, the six-month average was 175.95 Malaysian/Singapore cents a kilo, fractionally below the 176 cents a kilo intervention level.

The market price has risen to 183.71 cents a kilo and producers fear a cut in the intervention price will damage the fragile market recovery. Consumers insist that the cut be implemented. Producers are arguing for intervention levels to be raised under a renegotiated INRO agreement.

Dr AF Budiman, executive director of the Indonesian Rubber Association, says the current 'market price is not remunerative enough to guarantee a long-term re-investment in natural rubber'.

Producers still gripe that the international pricing system for rubber is weighted in favour of the tyre companies, which mostly buy direct from processors at a price related to that prevailing on the commodity exchange in Singapore.

The producers allege the exchange price is depressed by the low volume and quality of rubber traded in Singapore. Tyre companies have responded by saying they will reduce direct sales and improve the market's liquidity.

While producers complain direct sales are having a dampening effect on the market, they feel in a weak position vis-a-vis the tyre companies. 'There are five major buyers against hundreds of sellers,' says Mr Teddy Chua, managing director of Transworld Rubber brokers in Singapore. 'They feel the five can hold up better than them.'

Producers' complaints, however, may be overblown. Traders say rubber is a fickle commodity and while marginal oversupply at present has resulted in low prices, a shift to a small excess in demand could lift prices sharply.

A recent report by Free University of Amsterdam, funded by the Dutch government on behalf of natural rubber producers, estimates world production will rise from 5.24m in 1990 to 6.66m tonnes in the year 2000.

In the same period, world consumption will rise from 5.23m tonnes to 6.69m.

Longer-term forecasts have world production of 8.57m tonnes and consumption at 8.51m tonnes in 2010.

The report concludes that while supply exceeds demand, 'the likelihood of more buffer stock intervention in the next few years is considerable'. Last year the stock rose from 60,000 tonnes to 170,000 tonnes and could reach its ceiling of 550,000 tonnes 'before 1995'.

But a world economic recovery, the report says, could mean a big change. The long period of low prices has led to a fall in the growth of new planting. 'If the (world) economy recovers . . . it may be difficult to produce enough natural rubber in the second half of the current decade and in the first decade of the next century to satisfy demand.'

Increases in production are expected to come from Thailand, rising from 1.27m tonnes in 1990 to 1.76m tonnes by 2000, and Indonesia, from 1.25m tonnes to 1.67m tonnes in the same period. These large increases will be necessary to offset an expected decline in Malaysia's production from 1.32m tonnes to 961,000 tonnes in the current decade.

Donor agencies say farmers replanting now will get a good price when their trees reach maturity. In Indonesia, the World Bank and Asian Development Bank have committed more than Dollars 300m in projects to rehabilitate and expand smallholder plantations.

International Natural Rubber Organisation XA World P0831 Forest Products P5199 Nondurable Goods, NEC MKTS Market data COSTS Product prices MKTS Production P0831 P5199 The Financial Times London Page 24 753
Commodities and Agriculture: LME and Comex in copper wrangle Publication 930219FT Processed by FT 930219 By KENNETH GOODING, Mining Correspondent

THE LONDON Metal Exchange was willing to stock copper in its US warehouses if that is what the American industry wanted, Mr Raj Bagri, the LME chairman, indicated at a conference in New York.

He suggested the industry would benefit if it gave up its present system where US copper producers set prices for their domestic market and instead used LME prices. Mr Bagri pointed out that 55 brands of copper produced in 24 countries were registered for trading on the LME. 'There is international confidence in our base reference prices which are transparently and independently established,' he added.

However, Mr Joseph Robertson Jr, first vice chairman of the New York Commodity Exchange, which also offers a copper contract, said that in his many contacts with US copper producers and consumers 'I have yet to find anyone who is interested in pushing or promoting LME pricing for their domestic sales.'

The first LME warehouses in the US started operating only a year ago and copper, which is traded in sterling in the LME 'ring', was excluded so as not to challenge the Comex copper contract. This is a dollar contract and occasionally presents arbitrage opportunities to LME traders. However, recent turbulence in currency markets caused a change of heart among London-based traders so the LME copper contract will shortly switch from sterling to dollars. This eliminates the main reason for excluding copper from US warehouses.

Mr Bagri said at the conference organised by American Metal Market magazine he did not agree with those who suggested that putting copper into the LME's US warehouses would cause the Comex contract to go into terminal decline. The Comex contract would continue to thrive 'so long as Comex continues to meet the expectations of its users and they want to continue to use it.'

He said there could be no carving up of territory between exchanges nor any 'no-go' areas as far as the LME was concerned. 'The LME has a duty and obligation to its users to provide them with the best possible facilities.'

Comex's Mr Robertson, who stressed he was speaking personally, made it clear that the New York exchange was in no mood to hand over business to the LME without a fight.

London Metal Exchange (UK) New York Commodity Exchange (US) US United States of America GB United Kingdom, EC P3331 Primary Copper P6231 Security and Commodity Exchanges MKTS Market data COSTS Product prices P3331 P6231 The Financial Times London Page 24 432
Commodities and Agriculture: UN cocoa talks enter final round Publication 930219FT Processed by FT 930219 By DAVID BLACKWELL

INTERNATIONAL COCOA Organisation delegates gather in Geneva on Monday for a fourth and final attempt to thrash out a new cocoa agreement under the auspices of the United Nations.

Producers and consumers from 45 countries remain far apart after three previous rounds, but observers are not writing off an agreement yet. 'Never underestimate the powers of the UN negotiators, who spend all their lives pushing this sort of thing through,' said one London analyst yesterday.

Another pointed out that the last cocoa agreement took five rounds to negotiate, and only in the last did things get moving.

The 1986 agreement, which is operating on a purely adminstrative basis, ends on September 30. Unlike the coffee agreement, the cocoa accord has no scope for further extensions.

While producers and consumers were in November moving towards agreement over the amount of cocoa which should be withheld from world markets to support prices (between 330,000 and 380,000 tonnes), they were nowhere near agreeing how to finance such a scheme.

The current agreement's market support system collapsed early in 1988 when the ICCO buffer stock hit the maximum permitted level of 250,000 tonnes. Since then some of the cocoa has been sold to finance storage of the remaining 233,000 tonnes.

The buffer stock is owed Dollars 137m in unpaid levies, with the Ivory Coast, the biggest producer, owing Dollars 75m. The EC, which accounts for 40 per cent of cocoa consumption, is adamant that any new agreement should be financed by sales from the buffer stock and payment of existing levy arrears by some producers. However, producers feel that the financial burden of any new agreement should be shared.

If the financial hurdle is overcome in the next fortnight, the two sides will still have to agree a price range to be defended. Producers in November proposed a range between 1,180 Special Drawing Rights a tonne and SDR 1,770, while consumers urged SDR 840 to SDR 1,260. The ICCO 10-day indicator price was SDR 713.77 on Tuesday.

Adding to the difficulties are the fact that the US, the biggest consumer, is not in the agreement, neither are Malaysia and Indonesia, the fourth and fift biggest producers, who are attending the Geneva talks as observers.

XA World P0179 Fruits and Tree Nuts, NEC P9641 Regulation of Agricultural Marketing GOVT International affairs P0179 P9641 The Financial Times London Page 24 411
Commodities and Agriculture: Mongstad faces tough targets Publication 930219FT Processed by FT 930219 By KAREN FOSSLI

NORWAY'S Mongstad oil refinery may have to be wound down or sold if it fails to improve profitability over the next two years and become as competitive as the best of continental Europe's refineries.

Statoil, the Norwegian state oil company, Mongstad's operator, has implemented a draconian programme to improve the return on its NKr12bn (Dollars 1.73bn)investment made in the mid-1980s to upgrade and expand the facility.

Mongstad has an annual refining capacity of 6.5m tonnes. The upgraded facility came on stream at the end of 1989 at a cost overrun of NKr7bn, creating what is widely considered to be one of Norway's biggest ever industrial scandals. The event forced the resignation of Mr Arve Johnsen, chief executive, followed by a reshuffle of the group's executive management.

Statoil said yesterday that it had postponed an estimated NKr600m investment programme for Mongstad meant to enable it to meet European Community targets for gas/oil desulphurisation set for 1996.

Part of the plan to improve profitability calls for a 20 per cent reduction in Mongstad's estimated 950 full-time and temporary employees by the end of 1994.

Mongstad's refining margins sank to just under Dollars 3 a barrel last year from just more than Dollars 5 a barrel in 1991. The facility's amortisation and finance costs have remained a drain on Statoil's cashflow since it was commissioned.

Last year Mongstad suffered a NKr710m operating loss, including finance costs, versus a NKr797m loss in 1991. Before finance costs, operating losses rose to NKr224m last year from a loss of NKr132m in 1991. Statoil aims to improve Mongstad's 'cash' operating profits 'amenable to in-house action' by between NKr350m and NKr400m annually - before finance costs and depreciation write-offs - during 1992. Of the total improvements, two-thirds will come from operations and the rest from cost reduction measures.

The relentless problems at Mongstad are a combination of irregular operations and high maintenance costs. Statoil refused yesterday to speculate on specific future options for the refinery.

Mrs Berit Oeyen, a Statoil spokeswoman, said the company would be forced to rethink Mongstad's future if big improvements to profitability are not made by the end of next year.

Statoil NO Norway, West Europe P1311 Crude Petroleum and Natural Gas P1382 Oil and Gas Exploration Services P2911 Petroleum Refining COMP Company News RES Facilities P1311 P1382 P2911 The Financial Times London Page 24 407
World Commodities Prices: Fruit & Vegetables Publication 930219FT Processed by FT 930219

Lemons are this week's best buy at 8-20p each (8-20p), along with other citrus fruit - oranges at 10-30p a lb (10-30p) and grapefruit at 12-25p each (12-25p) reports FFVIB. Grapes remain good at Pounds 1.25-1.60 a lb (Pounds 1.50-1.60) for white,seedless varieties. Broccoli from Spania is reasonably priced at 45-55p per 8oz prepack (45-60p), carrots at 18-20p a lb (18-20p), English Savoy cabbage at 25-35p a lb (25-35p) and onions at 15-20p a lb (15-20p). Round lettuce at 20-30p each (25-35p), and tomatoes at 60-75p a lb (50-65p) are excellent salad buys.

GB United Kingdom, EC P0174 Citrus Fruits P0161 Vegetables and Melons MKTS Market data COSTS Product prices P0174 P0161 The Financial Times London Page 24 129
World Commodities Prices: Market Report Publication 930219FT Processed by FT 930219 By REUTER

PLATINUM group metals closed above the day's lows in London after falling in the wake of an overnight report that Japanese car-makers will cut imports in 1993 and may sell metal from their stockpiles. 'Platinum and PALLADIUM really needed a shake-out and I think that's what we've seen on the Japanese news, but the main improvement in platinum demand is likely to be in Europe and the US this year,' one dealer said. Nymex platinum and palladium futures were down at midday. RHODIUM was quoted at Dollars 1,500 on the free market in London, down Dollars 150 on the day; a possible retreat to Dollars 1,400 was predicted. ALUMINIUM and COPPER prices moved up to the higher ends of comparatively narrow ranges on the LME. Dealers said aluminium's gains were fostered by reports of a 36,000 tonne production cutback at a US smelter. Talk also circulated that Bonneville Power Administration restrictions will make power increasingly expensive for the aluminium smelters it services.

Compiled from Reuters

GB United Kingdom, EC US United States of America P3331 Primary Copper P3334 Primary Aluminum P3339 Primary Nonferrous Metals, NEC MKTS Market data COSTS Commodity prices P3331 P3334 P3339 The Financial Times London Page 24 212
Commodities and Agriculture: Guttman declines to step down as Nymex head Publication 930219FT Processed by FT 930219 By LAURIE MORSE CHICAGO

MR Z Lou Guttman, who on Wednesday afternoon received notice from the Commodity Futures Trading Commission that he was subject to serious trade violation charges, became further embattled on Thursday when the leadership of the New York Mercantile Exchange asked him to step down as chairman.

Mr Guttman, who has maintained his innocence in the trading case, refused to relinquish the chair.

'Mr Guttman respectfully declined to resign, stating that this issue should be decided by the membership, rather than the board,' said a statement issued by the exchange on Thursday morning.

Directors of the Nymex, the world's largest energy market, will meet again to consider if they should suspend Mr Guttman under an obscure clause in the rulebook.

A board vote to suspend would have to be ratified by a vote of the entire membership. With many members sympathetic to Mr Guttman's plight, the board could face a membership defeat if it pushed the issue, one exchange official noted.

Mr Guttman was charged with pre-arranged trading and other market violations in connection with trades in options on sugar futures during 1989.

The CFTC civil complaint, which does not entail charges of fraud, says that Mr Harold Magid, Mr Guttman's former partner, executed the allegedly questionable trades for their joint account, but that Mr Guttman still maintained responsibility for the transactions.

New York Mercantile Exchange (US) US United States of America P6231 Security and Commodity Exchanges PEOP Personnel News Guttman, L Chairman New York Mercantile Exchange P6231 The Financial Times London Page 24 275
Commodities and Agriculture: Hemp ban lifted - but for paper not drugs Publication 930219FT Processed by FT 930219 By DAVID BLACKWELL

THE UK Home Office is to allow farmers to start commercial production of hemp for the first time in more than 100 years. The fibres can be used for manufacturing top quality paper.

Growing hemp was banned in the UK under the Misuse of Drugs Act (1971) as it is the source of tetra hydra cannabinol (THC), or cannabis. The Home Office said yesterday that growers would be 'subject to strict licensing controls' to make sure that only varieties with no potential for drugs are grown.

However, varieties containing very low amounts of THC are already covered by a long-standing EC regime and are grown in France and Spain. UK farmers will be able to claim an EC grant of about Pounds 250 an acre.

Hemp used to be grown in the UK before it was undercut by imports in the days of the British Empire, according to Mr Melvyn Askew, head of crops and horticulture at Adas (the Agricultural Development and Advisory Service). He believes it could once again become a useful crop for UK farmers, who are having to set aside some of their land under the CAP reforms. From a seed the size of wheat, it quickly grows to 4m tall.

'It's annual and easy to grow,' he said. 'It has a very long fibre, which can be used for paper as well as linen, lace and ropes.'

He believes the paper market has big potential. Hemp fibre contains only a small amount of lignium, the yellowing agent which needs expensive and environmentally damaging bleaching treatment in wood pulp.

GB United Kingdom, EC P0139 Field Crops Ex Cash Grains, NEC P9641 Regulation of Agricultural Marketing TECH Products P0139 P9641 The Financial Times London Page 24 308
Government Bonds: Treasuries soar at long end amid heavy buying Publication 930219FT Processed by FT 930219 By PATRICK HARVERSON and TRACY CORRIGAN NEW YORK, LONDON

THE US Treasury market responded enthusiastically to President Clinton's economic plan yesterday, with prices soaring at the long end of the maturity range amid heavy buying.

In late trading the benchmark 30-year government bond was up 1 3/16 at 101 3/8 , yielding 7.010 per cent, a record low for the issue. At the short end of the market, the two-year note was up 3/16 at 100 19/32 , to yield 3.913 per cent.

The State of the Union address on Wednesday night was well received by bond investors, who believe that the deficit-cutting part of the president's economic plan stands a reasonable chance of passing through Congress almost intact.

Before the speech some investors had worried that the package would lack credibility, but bond market analysts said that Mr Clinton's forthright account of the economic troubles facing the country, and his outline of the solutions, convinced investors that deficit reduction can work, and that the planned tax increases will be implemented. The latter is doubly positive for the Treasury market because higher taxes could slow the rate of economic growth and subdue inflation.

Bond prices rose strongly despite economic news that was bearish for the market. The day's statistics included a 19,000 drop in weekly jobless claims, a larger-than-expected 0.5 per cent increase in January consumer prices, and a 0.4 per cent rise in January industrial output.

BETTER-than-expected UK jobs data prompted little enthusiasm in the gilts market yesterday, where prices ended virtually unchanged.

The number of unemployed rose by 22,100 in January, keeping the seasonally adjusted total just below the 3m level.

The Bank of England's first inflation report earlier this week has also deflated sentiment by suggesting that an early interest cut is not on the cards, dealers said.

On the London International Financial Futures and Options Exchange, the long gilt future ended at 102-27, down 3/16 from Wednesday's close, and off earlier highs.

However, the two tap stocks announced on Tuesday afternoon were partly sold yesterday, dealers said.

GERMAN government bonds firmed slightly yesterday, on market speculation that money supply data due early next week will be positive for the bond market. This would mean improved prospects for further interest rate cuts.

JAPANESE government bonds continued to rally on strong investor demand, but came off the highs of the day as investors took profits. The recent rally in Japanese government bonds has been helped by the strengthening of the yen against the US dollar.

The June futures contract opened at 109.94 and traded up to a high of 110.15 before ending at 109.96.

ITALIAN bonds ended lower due to further political uncertainty, after the Liberal party threatened to leave the coalition government. On Liffe, the March BTP ended 19 basis points lower at 95.93 and was poised to test the next support level at 95.70, some said.

US United States of America GB United Kingdom, EC DE Germany, EC JP Japan, Asia IT Italy, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 23 528
International Capital Markets: Transaction tax opposed Publication 930219FT Processed by FT 930219 By LAURIE MORSE CHICAGO

US SECURITIES exchanges are responding aggressively to US budget proposals that would impose transaction taxes on securities and derivatives markets, writes Laurie Morse in Chicago. US futures and securities exchanges, as well as the Futures Industry Association and the Securities Industry Association are banding together to fight the proposal.

'We're opposed to industry-specific taxes,' said a spokesman for the Chicago Mercantile Exchange, 'They could put us at a competitive disadvantage internationally, and they could hamper our liquidity.'

Congressman Mr Daniel Rostenkowski said in a letter to the Treasury Secretary, that while such taxes may be perceived as a tax on the wealthy, the burden 'ultimately will fall on the millions of middle-class pension fund beneficiaries and small investors'.

US United States of America P6211 Security Brokers and Dealers P9611 Administration of General Economic Programs GOVT Taxes P6211 P9611 The Financial Times London Page 23 159
International Bonds: Strong demand for Sweden's Dollars 2bn global offering Publication 930219FT Processed by FT 930219 By ANTONIA SHARPE

THE STREAM of large international issues continued yesterday as the Kingdom of Sweden launched its Dollars 2bn, 10-year global offering to strong demand.

Meanwhile, Toyota Motor Corp announced that it planned to raise Dollars 1.5bn through a five-year offering early next week in what would be the largest corporate deal yet seen in the Eurobond market.

Toyota's offering is expected to be priced to yield around 40 basis points above comparable US Treasuries, which syndicate managers said was fair value in view of the car manufacturer's triple A rating and its scarcity value in the market.

The proposed yield is close to that on Toyota's Dollars 1bn five-year Eurobond which was launched last May, the biggest corporate issue currently.

The flood of issues fanned rumours yesterday that a big UK corporate utility or a Scandinavian sovereign was sounding the market for a possible sterling-denominated Eurobond.

Officials at the joint lead underwriters of the Swedish deal, Salomon Brothers and Morgan Stanley, said that demand for the bonds was centred in Europe but that there was also good interest from Tokyo and New York. However, they discounted market talk that the deal would be raised to Dollars 3bn.

There were reports that European investors were willing to pay 40 basis points above the the 6 1/4 per cent US Treasury due 2003, well below the indicated range of 42-45 basis points. This suggested that the deal would be priced at the lower end of the range.

The current fashion of global deals is expected to continue during the next few weeks and the Republic of Italy is said to be considering a dollar global offering.

The World Bank's Y200bn global offering, launched on Wednesday, was priced at 25 basis points over the benchmark Japanese government bond No 145 yesterday. This was at the lower end of the indicated range of 25 to 27 basis points and in line with expectations.

The World Bank also took advantage of investor demand for high-yielding debt instruments by issuing the Eurobond market's first floating rate note based on the yield on 10-year US Treasury bonds. This contrasts with other recent note issues with minimum and maximum coupon levels, which have been tied to short-term interest rates.

An official at Lehman Brothers International, which arranged the Dollars 100m five-year note for the World Bank, said that this type of note was attractive to investors who believed that the US yield curve would remain steep or flatten only gradually.

The note was issued at par to yield 50 per cent of the US Federal Reserve's Constant Maturity Treasury plus 145 basis points. The CMT reflects the average blend of 10-year US Treasuries, currently at 6.29 per cent.

The minimum coupon on the notes is 4.6 per cent, which compares with three-month dollar Libor of 3.25 per cent, and the maximum is 25 per cent. By late yesterday, the bonds had not been freed to trade.

Lehman Brothers also provided the market's other colourful issue, a Dollars 125m five-year offering for the Mexican company, Gruma, the world's largest tortilla manufacturer. Gruma generates Dollars 300m annually in the US.

The bonds were priced to yield 445 basis points above the 5 3/4 per cent US Treasuries due 1998, in the middle of the indicated range of 430-455 basis points.

An official at Lehman said that price was chosen so that both the issuer and the investors could share the impact of the rise in the underlying US bond prices yesterday.

She added that the yield was close to that of other dollar-denominated Mexican corporate paper.

SE Sweden, West Europe US United States of America P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 23 637
International Capital Markets: Kuwaitis concede serious damage from KIO row Publication 930219FT Processed by FT 930219 By PETER BRUCE MADRID

THE KUWAITI authorities have for the first time conceded that the row surrounding investments by the Kuwait Investment Office (KIO) in Spain is seriously damaging the emirate's standing in international credit markets.

Mr Abdullah al-Gabandi, the head of the Kuwait Investment Authority (KIA, the KIO's controlling body), told a group of Spanish journalists in Kuwait that Kuwait had been forced to postpone a borrowing in the international capitals planned for December.

'The loss of image provoked by the KIO case and the way it has been treated makes it difficult to obtain credits and those that are available would be very expensive,' Mr al-Gabandi was quoted as saying.

The KIA negotiated a Dollars 5.5bn loan for Kuwait soon after the war that ended the Iraqi invasion in 1991. But after new managers took over the KIO last May they quickly became involved in a vitriolic and public row over what they allege was Dollars 5bn lost by their predecessors in risky investments in Spain. Bankers in London said yesterday the row had 'inevitably' undermined the emirate's position in debt markets.

There are few signs of the row subsiding although two attempts to bring criminal charges against former managers of the KIO and its Spanish operations have been rebuffed this year by the Spanish courts for lack of evidence.

The new KIO management says it is determined to continue pursuing Sheikh Fahad al-Sabah, the former KIO chairman, Mr Fouad Jaffar, its former general manager, and Mr Javier de la Rosa, the former manager of their Spanish operations, for alleged fraud.

While this effort will keep the affair public, it appears increasingly to have Kuwaiti political rather than legal objectives. Mr al-Gabandi, who said Kuwaitis were 'furious' about what had happened in Spain, pointedly did not accuse the former KIO management of illegalities. Instead, he said the KIA's investment guidelines had been ignored. The KIO should have contracted an institution and not Mr de la Rosa to run its affairs in Spain, he said.

These remarks reflect the marked differences of opinion now emerging from Kuwait on just how the KIO's Spanish debacle should be concluded. The new KIO management currently reports directly to the finance minister and is being encouraged to keep up public pressure on the former KIO management.

In contrast, Mr al-Gabandi appears to favour an internal, less public, settlement which would in effect shift Kuwait's sensitive finances away from public scrutiny.

The desirability of the KIA taking control of all of the KIO's direct investments overseas has been canvassed inside Kuwait in recent weeks.

Kuwait Investment Office KW Kuwait, Middle East ES Spain, EC P672 Investment Offices COMP Company News MKTS Market data P672 The Financial Times London Page 23 472
International Company News: South China Morning Post lags at mid-term Publication 930219FT Processed by FT 930219 By SIMON DAVIES and AP-DJ HONG KONG

SOUTH China Morning Post Holdings, part of Mr Rupert Murdoch's News Corporation which publishes Hong Kong's leading English language newspaper, has reported slower first-half profits but plans to pay an unchanged interim dividend.

Net profit for the six months to ended December fell to Dollars HK253.8m (USDollars 32.8m), a 5 per cent decline from the Dollars HK267.3m recorded in on 1991. The interim dividend is being held at 6 cents a share.

The profits decline was a result of the acquisition of loss-making Chinese language newspaper Wah Kiu Yat Po. An additional factor was a substantially increased tax bill, due to the company having had fully utilised tax losses that had resulted in minimal tax over the previous five years.

Tax increased from Dollars HK37,000 to Dollars HK34.8m, but the company predicted that net profit for the full year would exceed the 1992 level.

After years of inactivity, the publishing group recently signed up a Dollars HK500m deal to sell its premises in Quarry Bay to Swire Pacific, moving its printing and distribution oper-ations to the New Territories.

The company has also purchased a 15 per cent stake in the Bangkok Post in Thailand, while it is currently endeavouring to turn around the ailing Wah Kiu Yat Po.

Kong Wah Holdings, the Hong Kong consumer electronics group, has ventured into China's container port development through a joint venture with a Shenzhen-based concern, AP-DJ reports from Hong Kong. The venture, Shenzhen Harbour City Industrial Development, will have an initial capital of about 160m yuan (USDollars 27.7m). It will develop container terminals and a warehouse complex in the development zone.

The Chinese partner is Nanhai Oil Shenzhen Development and Service.

South China Morning Post Holdings HK Hong Kong, Asia CN China, Asia P2711 Newspapers P3651 Household Audio and Video Equipment P6552 Subdividers and Developers, Ex Cemeteries FIN Interim results COMP Shareholding RES Capital expenditures P2711 P3651 P6552 The Financial Times London Page 22 344
International Company News: Genting invests in Subic Bay Publication 930219FT Processed by FT 930219 By KIERAN COOKE

GENTING, the Malaysian conglomerate with a minority stake in Lonrho of the UK, is one of a group of Malaysian companies planning to invest nearly USDollars 100m in recreation facilities at Subic Bay, the former US naval base in the Philippines.

Genting and Resorts World, a sister company, will be lead investors in developing a 400-room hotel, a golf course, a casino and various other entertainment facilities at Subic.

In the year to December 1991, most of Genting's pre-tax profits of MDollars 581.5m (USDollars 221m) came from Malaysia's only casino, outside Kuala Lumpur.

Genting Resorts World PH Philippines, Asia P7999 Amusement and Recreation, NEC P6552 Subdividers and Developers, Ex Cemeteries COMP Company News RES Capital expenditures P7999 P6552 The Financial Times London Page 22 141
International Company News: Malaysia's UMW falls back 34% Publication 930219FT Processed by FT 930219 By KIERAN COOKE KUALA LUMPUR

UMW HOLDINGS. one of Malaysia's biggest motor vehicle assemblers and heavy equipment distributors, has announced a 34 per cent drop in pre-tax profits to MDollars 137.6m (USDollars 52m) for 1992.

UMW says government measures to curb consumer spending and control inflation, particularly restrictions on hire-purchase agreements, caused a sharp drop in vehicle sales and profits.

UMW says vehicle sales are likely to pick up with the recent lifting of some of these restrictions.

UMW, the listed subsidiary of state-owned Permodalan Nasional, is one of the main partners, along with Daihatsu of Japan, in Malaysia's recently-announced second national car project. The initial cost of the new car project is put at MDollars 400m.

Malaysia already produces the Proton car in co-operation with Mitsubishi.

UMW Holdings MY Malaysia, Asia P3711 Motor Vehicles and Car Bodies P5012 Automobiles and Other Motor Vehicles FIN Annual report P3711 P5012 The Financial Times London Page 22 169
International Company News: Kirin Brewery sees profits fall despite sales rise Publication 930219FT Processed by FT 930219 By EMIKO TERAZONO TOKYO

KIRIN BREWERY, Japan's largest food and beverage company, reported a rise in 1992 sales thanks mainly to its premium beer, Ichiban Shibori, but posted a fall in non-consolidated profits.

Pre-tax profits fell 4.3 per cent to Y82.7bn (Dollars 689m), despite a 3.8 per cent rise in sales to Y1,366.1bn. Kirin said sales of its core businesses, including beer and pharmaceuticals, showed a firm increase. After-tax profits improved by 2.2 per cent to Y37.5bn.

Kirin's balance on financial items fell by Y8.8bn, due to a decline in interest income and a Y900bn loss on its stock holdings. However, a 3.4 per cent rise in beer sales to Y1,328bn and a 84.5 per cent jump in pharmaceutical sales to Y18.6bn contributed to the overall sales rise.

Kirin said it would be introducing a new brand called Nippon Blend. Japan's brewers face increasing pressure to produce a number of new brews each year and are now seeing competition from imported brands.

This year, Kirin expects pre-tax profits to rise 0.3 per cent to Y83bn on a 3.2 per cent rise in sales to Y1,410bn.

The brewer warns that increased losses on financial items would depress profits. Annual capital spending is expected to rise 15.2 per cent to Y98bn.

Kirin Brewery JP Japan, Asia P2082 Malt Beverages FIN Annual report P2082 The Financial Times London Page 22 244
International Company News: Records continue to tumble on Wall Street - Why this week's losses on equities were only a natural correction Publication 930219FT Processed by FT 930219 By PATRICK HARVERSON

SO FAR, 1993 has been good to the US securities industry, which is quietly confident that this year will prove as profitable as 1992, when every record in the book fell before the Wall Street earnings juggernaut.

Since the New Year, two of the main engines of profits growth for securities firms - brokerage commissions and underwriting revenues - have been firing strongly.

Trading volumes on the New York Stock Exchange and the Nasdaq electronic market have been running at extremely high levels, averaging 267m shares and 259m shares a day respectively. That is 32 per cent and 36 per cent more than in 1992, which was itself a record year for volume. When trading is busy, brokerage commissions blossom.

On the investment banking side, Wall Street houses continue to prosper. According to Securities Data in New York, during the first six weeks of this year new issues of straight corporate debt and equity (including initial public offerings of stock) totalled Dollars 66.6bn, compared with Dollars 59.8bn in the same period of 1992.

With underwriting business currently running ahead of 1992 - a year when all previous records for securities issuance were shattered - Wall Street's investment bankers are working in top gear, and earning fees to match.

The third engine of earnings growth is trading profits, and here the picture is less bright in the wake of recent setbacks in the equity markets, triggered by President Clinton's planned tax increases.

The profits firms earn from trading their own positions are driven by the direction of markets. And, while bond prices have remained strong - thanks to low inflation, cuts in the size of government bond issues and confidence in President Clinton's ability to reduce the huge Federal deficit - the main equity indices have stumbled, barely a week after soaring to record highs.

The heavy selling of the past few days could prove a problem for securities firms if it presages a significant correction in equity prices. As Mr John Keefe, of Keefe Worldwide Information Services, explains: 'When the market is down, it hurts trading profits because brokers cannot escape their long positions. And, if prices keep going down, people will leave the market.'

The latter is the scenario that Wall Street fears most. A feature of the industry's boom has been the return of the individual investor to the stock market, which has had a positive knock-on effect on almost every line of business.

It has boosted brokerage commissions; lifted trading profits by keeping prices buoyant; fuelled strong growth in firms' revenues from asset management, because individuals have been entrusting more of their money to professional managers; and provided a huge pool of capital to invest in new corporate stock, thus keeping the underwriters busy.

Few Wall Street economists, however, are predicting the stock market will nosedive this year. The run-up in prices two weeks ago was based on confidence in the economic and business outlook. The subsequent downturn was disappointment at the President's plans for tax increases, which investors fear could retard growth.

Hence, this week's losses were viewed as a natural correction that is unlikely to turn into a rout. Most forecasters expect the Dow Jones Industrial Average and the Standard & Poor's 500 to end 1993 with solid gains for the year.

Wall Street is also confident that the flows of investor capital into equities will not dry up. Interest rates remain at 30-year lows, which means investors will move their money out of poor-yielding short-term assets, like cash and money-market funds, and into more speculative but higher-yielding assets, like stocks.

Unless interest rates rise sharply this year, funds are likely to continue to pour into the equity markets. This will keep commissions buoyant and help sustain growth in the fee-based revenues securities firms earn from managing customers' assets - a relatively new area of business that Wall Street firms have been building up in recent years as a protection against more volatile trading-related revenues.

Low interest rates are also good for securities firms in other ways. First, they keep the underwriters busy. In the past two years, US companies, eager to take advantage of low borrowing rates, have been issuing new debt in record amounts. They have also been issuing record amounts of new equity because of strong stock markets and heavy demand from investors.

Second, low rates keep down the cost of the industry's raw material - capital. The big firms are particularly good at leveraging that capital and using it to make big profits from proprietary trading. Moreover, if the spread between short and long-term rates remains wide this year, as it has for the past 18 months, then Wall Street will continue to reap profits from borrowing short and lending long.

Much, therefore, depends on the interest rate environment remaining favourable. Although rates will probably rise this year as economic growth improves, President Clinton's planned tax increases, coupled with his relatively tough stance on cutting the deficit, plus low inflation, should keep interest rates at levels that are still low by recent historical standards.

While the overall outlook for the securities industry is bright, at least one leading firm faces a rocky road. In the recent batch of fourth-quarter 1992 results, Shearson Lehman Brothers stood out with a large loss, incurred in the wake of write-downs for litigation and soured property investments.

The problems at Shearson, however, go deeper than possible legal action and ill-judged past investments. The firm's costs, especially its employee compensation payments, have been growing faster than revenues.

------------------------------------------------ US DOMESTIC CAPITAL-RAISING ISSUES IN 1992 ------------------------------------------------ Manager Dollars bn ------------------------------------------------ Merrill Lynch 91.0 Goldman Sachs 64.8 Lehman Brothers 52.5 Morgan Stanley 43.0 First Boston 38.8 Salomon Brothers 27.5 JP Morgan 9.2 Kidder, Peabody 8.3 Bear, Stearns 7.8 Donaldson, Lufkin 7.4 ------------------------------------------------ Source: IDD Information Services ------------------------------------------------

US United States of America P6211 Security Brokers and Dealers MKTS Market data P6211 The Financial Times London Page 22 1018
International Company News: Sparebanken reduces its losses to NKr169m Publication 930219FT Processed by FT 930219 By KAREN FOSSLI and REUTER OSLO, MANAMA

SPAREBANKEN NOR, Nor-way's biggest savings bank known internationally as Union Bank of Norway, yesterday announced a significant reduction to NKr169m (Dollars 24.3m) in pre-tax losses for 1992, from NKr1.03bn a year earlier.

The recovery was due to an increase in net interest income to NKr2.6bn, from NKr2.5bn, and a rise in operating income to NKr3.7bn from NKr3.3bn. But losses on loans and guarantees stayed at NKr1.5bn, the same as 1991.

Operating losses, including credit losses, fell to NKr271m last year, from NKr907m. The bank said it had reduced costs by 12 per cent to NKr2.4bn.

'The substantial work which was undertaken to reduce costs and improve the bank's operational income yielded results in a difficult market. The bank's income before losses was significantly improved,' Sparebanken Nor said.

Operating profit, before credit losses and write-offs, more than doubled to NKr1.3bn, from NKr602m in 1991.

Sparebanken Nor said the domestic economic situation last year was weak and that bankruptcies had risen to a record level as property prices continued to fall.

The bank said it would make a loss for 1993 but that this would show another substantial reduction. Last year, Sparebanken Nor improved its capital adequacy to 9.2 per cent of risk-weighted assets, from 6 per cent in 1991.

The bank said that the past year had seen reduced demand and tougher competition.

Alubaf Arab International Bank (AAIB) returned to profit in 1992 after heavy losses in the previous two years caused by the Gulf crisis, Reuter reports from Manama. The Bahrain-based offshore bank said net profit was Dollars 512,000, compared with losses of Dollars 27.3m in 1991 and Dollars 64.5m in 1990.

AAIB, now part of the Libyan Arab Foreign Bank group, has used its entire paid-up capital and reserves to write-off accumulated losses.

Union Bank of Norway NO Norway, West Europe BH Bahrain, Middle East P602 Commercial Banks FIN Annual report P602 The Financial Times London Page 22 341
International Company News: Newspaper publisher gains 49% to NZDollars 23.4m Publication 930219FT Processed by FT 930219 By AGENCIES WELLINGTON

INDEPENDENT Newspapers, the New Zealand publishing company 49 per cent owned by Rupert Murdoch's News Corporation, has lifted its operating profit after tax by 43 per cent in the six months ended December 31, agencies report from Wellington.

Net profit after tax for the period amounted to NZDollars 23.4m (USDollars 12.1m) or 20.6 cents a share, against NZDollars 16.3m or 14.4 cents in the first half of 1991. Sales improved by 4.8 per cent, to NZDollars 494.1m from NZDollars 471.4m.

Pre-tax profit amounted to NZDollars 40.53m against NZDollars 28.54m previously.

The group said that it was poised to meet or exceed its full-year profit targets but it did not specify what those targets were.

INL increased its interim dividend to 8 cents a share from last year's 7 cents.

'There have been demonstrable signs of a recovery in confidence in New Zealand with a pronounced improvement in advertising demand across all areas,' INL said. But it added that the same confidence in recovery could not be found in Australia or parts of the US.

Operating profits had risen but had come from a very low base. Gains had come from cost efficiencies through technology rather than from significant growth in revenue.

Independent Newspapers Group NZ New Zealand P2711 Newspapers FIN Interim results P2711 The Financial Times London Page 21 238
International Company News: McCaw turns in Dollars 82m deficit Publication 930219FT Processed by FT 930219 By PATRICK HARVERSON NEW YORK

MCCAW Cellular Communications, the wireless telecommunications group, yesterday announced fourth quarter operating income of Dollars 178.8m, up from Dollars 125.3m a year earlier.

The company recorded a Dollars 82.5m net loss for the quarter, however, because McCaw's rapid growth over the past few years has left it with a heavy debt burden, consistently putting the company in the red.

For the year, operating income was Dollars 644.5m, up from Dollars 460.6m in 1991. But after debt payments, there was a net loss of Dollars 364.7m in 1992.

Net revenues in the fourth quarter attributable to McCaw's cellular interests jumped 37 per cent to Dollars 363.4m.

Lin Broadcasting, a cellular company in which McCaw has a 52 per cent stake, had a net fourth-quarter loss of Dollars 15.4m, or 30 cents a share, down from 1991's Dollars 27.4m deficit.

McCaw Cellular Communications US United States of America P481 Telephone Communications FIN Interim results P481 The Financial Times London Page 21 179
International Company News: George Weston income drops Publication 930219FT Processed by FT 930219 By ROBERT GIBBENS

SHARPLY lower profits are reported by George Weston, holding company for the Weston family's North American interests.

Net income for 1992 fell to CDollars 48m (USDollars 38m) or 85 cents a share from 1991's CDollars 92m or CDollars 1.81 a share. In contrast, sales increased to CDollars 11.6m from CDollars 10.77m.

However, the latest figures allow for special provisions of CDollars 25m for plant closings, consolidation in the fresh bread business and financial restructurings. There was a CDollars 10m provision to cover problems with a US subsidiary sold in 1988. The 1991 profit includes a CDollars 30m gain on the issue of shares by a subsidiary.

Earlier in the day, Loblaw, Canada's biggest food distributor which is controlled by the George Weston group, reported fourth-quarter net profits of CDollars 28.8m, down from CDollars 29.5m, on revenues 19 per cent ahead at CDollars 2.4bn. Earnings per share came to 33 cents in both periods. For the year, net profits fell 24 per cent to CDollars 79.8m or 88 cents a share, from CDollars 104.7m or CDollars 1.17. Revenues rose 8 per cent to CDollars 9.6bn.

Loblaw said it continued to improve market share and expected reasonable growth this year.

Confederation Life, one of Canada's biggest insurers, has been hit by property woes. Net profits for 1992 fell to CDollars 1.9m, after CDollars 161m of special charges, from CDollars 17.3m a year earlier. Revenues slipped by nearly 10 per cent to CDollars 3.9bn.

Torstar, publisher of the Toronto Star, Canada's biggest daily newspaper, earned net profits of CDollars 48.8m or CDollars 1.21 a share in 1992, including a CDollars 54m special gain, against losses of CDollars 3.4m or 9 cents a share in 1991.

Revenues rose 3 per cent to 921m. Newspaper publishing was hit by lower advertising, but books improved, the group said.

George Weston Loblaw Confederation Life Insurance Torstar Corp CA Canada P5411 Grocery Stores P20 Food and Kindred Products P5141 Groceries, General Line P6311 Life Insurance P2711 Newspapers COMP Company News FIN Annual report P5411 P20 P5141 P6311 P2711 The Financial Times London Page 21 362
International Company News: Schroders venture arm dilutes holding in Mitel Publication 930219FT Processed by FT 930219 By BERNARD SIMON TORONTO

SCHRODER Ventures, the venture-capital arm of Schroders, the UK merchant bank, is to dilute its 51 per cent shareholding in Mitel through a public equity offering by the Canadian telephone equipment maker.

Mitel said yesterday that it was in the process of filing a prospectus for a common share issue underwritten by Scotia-McLeod, Midland Walwyn and Wood Gundy.

The size and price of the offering will be determined in early March.

Mitel begins presentations to institutional investors and analysts in London today.

Schroder, representing several international investment partnerships, bought its stake in Mitel from British Telecom last year.

It has indicated that it will buy up to CDollars 10m (USDollars 7.9m) of the newly-issued shares.

As a result, Schroder's shareholding is expected to be reduced, but it is likely to remain the largest single shareholder.

Schroder paid CDollars 1 per share for the BT stake last June. Mitel shares closed at CDollars 2.15 down CDollars 0.10 on the Toronto stock exchange yesterday.

Schroder Ventures Mitel Corp CA Canada P6799 Investors, NEC P3661 Telephone and Telegraph Apparatus P481 Telephone Communications COMP Company News COMP Shareholding P6799 P3661 P481 The Financial Times London Page 21 213
International Company News: Desjardins has third best year Publication 930219FT Processed by FT 930219 By ROBERT GIBBENS MONTREAL

CANADA'S biggest co-op-erative financial institution, the Quebec-based Mouvement des Caisses Desjardins, says 1992 proved its third best year in spite of the recession, higher loan loss provisions and commercial property problems at its affiliated trust company, writes Robert Gibbens in Montreal.

Desjardins operates nearly 1,500 retail banking branches, life and general insurance units and a wholesale banking operation. Net profits rose 18 per cent to CDollars 286m (USDollars 228m) from the year before. Assets rose 9 per cent to CDollars 56bn, well ahead of its Quebec rival, National Bank of Canada.

Mouvement des Caisses Desjardins CA Canada P6111 Federal and Federally-Sponsored Credit Agencies COMP Company News FIN Interim results P6111 The Financial Times London Page 21 134
International Company News: Turner TV empire drops 30% in final term Publication 930219FT Processed by FT 930219 By ALAN FRIEDMAN NEW YORK

TURNER Broadcasting System (TBS), the Atlanta-based cable television empire controlled by Mr Ted Turner, yesterday reported a 30 per cent decline in net profits for the last three months of 1992, to Dollars 30m.

Revenues in the 1992 fourth quarter rose to Dollars 538m from Dollars 402m a year before.

The company's full-year net income fell to Dollars 78m from Dollars 86m in 1991.

Consolidated revenues for the whole of 1992 were 20 per cent higher at Dollars 1.77bn, while operating profits for the year declined slightly, to Dollars 289m from Dollars 297m in 1991.

TBS attributed the fall to special charges associated with the termination of operations for the Checkout Channel, a cable service used in supermarkets.

Without this charge TBS said operating profit for the whole of last year would have risen by 3 per cent to Dollars 305m, while net profits for 1992 would have been Dollars 94m.

The operating profit of CNN, Headline News and CNN International, the news channels, rose by 8 per cent in 1992, but the news division suffered an overall fall of 8 per cent to Dollars 155m because of the Checkout Channel charges.

Revenues in the news division were 12 per cent higher at Dollars 536m.

Operating profit for 1992 in the entertainment division was Dollars 176m, an 11 per cent rise over the previous year. Revenues in the division were 19 per cent better at Dollars 847m for the 12-month period.

Syndication and licensing revenues were 35 per cent improved in 1992 at Dollars 259m, thanks largely to home video and theatrical revenues. However, the division suffered a Dollars 15.7m loss, more than double the 1991 loss of Dollars 5.5m.

The sports division produced Dollars 11.2m of operating profits, up from Dollars 2.3m in 1991.

Sports revenues were Dollars 83.3m last year, compared to Dollars 53.2m in 1991.

Turner Broadcasting System US United States of America P4841 Cable and Other Pay Television Services COMP Company News FIN Annual report P4841 The Financial Times London Page 21 358
International Company News: Bramalea creditors approve proposals Publication 930219FT Processed by FT 930219 By ROBERT GIBBENS

TWO leading groups of creditors of Bramalea, one of three property companies controlled by Edper-Hees of Toronto, have approved its planned financial restructuring.

The company expects other creditor groups to come into line, enabling it to emerge from bankruptcy protection and return to profitability in 1994.

The two creditor groups comprise mortgage holders owed CDollars 800m (USDollars 634.9m) and others with CDollars 1.5bn of claims against Bramalea secured income properties. The banks, owed CDollars 1.4bn, have approved the plan. The remaining creditor groups are to vote on the restructuring by this evening.

Bramalea, a North American property and land developer, plans to sell CDollars 2.2bn of assets in the next five years and exchange debt for equity. The assets include nine US shopping centres, as well as office buildings and shopping malls in Canada. This would reduce debt by half.

Trizec, a larger publicly-traded property company also controlled by Edper-Hees will see its interest in Bramalea fall from 70 per cent to 20 per cent, with the creditors taking effective control.

Elan Energy, the former Lasmo Canada and fully independent from Lasmo, the UK energy group, is buying OMV Canada from OMV Gruppe of Austria for CDollars 180m.

OMV Canada has reserves of 28.5m barrels of oil and 73bn cu ft of natural gas, and has strong cashflow from production. Elan has developed its directional drilling techniques in western Canada, and has become a medium-size exploration, development and production group. It recently bought producing properties from Chevron, Imperial Oil and Petro-Canada. Oil production is running at about 20,000 b/d.

Lasmo sold its 55 per cent interest in Lasmo Canada last year in a public offer. Then Lasmo Canada changed its name to Elan Energy.

Bramalea Elan Energy CA Canada P6552 Subdividers and Developers, Ex Cemeteries P1311 Crude Petroleum and Natural Gas P2911 Petroleum Refining P1382 Oil and Gas Exploration Services COMP Company News FIN Company Finance COMP Acquisition P6552 P1311 P2911 P1382 The Financial Times London Page 21 344
International Company News: Restructure scheme is unveiled by TWA Publication 930219FT Processed by FT 930219 By ALAN FRIEDMAN

TRANS World Airlines (TWA), the bankrupt and debt-laden US carrier, has presented its long-awaited reorganisation plan, in which it told a Delaware court it hoped to emerge from bankruptcy this spring.

The plan - presented by the airline and its official unsecured creditors' committee - provides for the elimination of about Dollars 4bn in total claims against TWA. It calls for the distribution of new TWA common and preferred stock to the airline's creditors and employees and the issue of new debt securities.

Under the plan TWA's creditors would receive cash and new debt and equity securities. TWA employees would own 45 per cent of the common stock of the reorganised airline; the employees have agreed about Dollars 660m of wage and benefit cuts over a three-year period.

The remaining 55 per cent of common stock, as well as 100 per cent of preferred stock and new debt securities, would be distributed to various unsecured creditors.

Mr Glenn Zander and Mr Robin Wilson, TWA's co-chief executives, said the plan set the stage for the airline to emerge from bankruptcy ahead of the peak summer travel season.

They claimed it established the framework of a sound debt and capital structure under which TWA could return to profitability.

Mr Charles MacDonald, chairman of the creditors' committee, called the plan 'a watershed event' and said that while negotiations would continue, the filing of the plan meant the main elements had won general acceptance.

The next step is expected to be a court hearing on TWA's statement, to be held soon. The plan cannot become effective without further bankruptcy court proceedings and acceptance by TWA creditors.

The plan's strategy includes shrinking TWA operations to eliminate unprofitable routes and reconfiguring the aircraft fleet.

Trans World Airlines US United States of America P4512 Air Transportation, Scheduled COMP Company News P4512 The Financial Times London Page 21 328
International Company News: Whirlpool plans Asian expansion based in Singapore Publication 930219FT Processed by FT 930219 By ANDREW BAXTER COLOGNE

WHIRLPOOL, the world's largest white goods manufacturer, said yesterday it was setting up an Asian headquarters in Singapore to expand its presence in the sector's fastest growing region.

The move is important for Michigan-based Whirlpool's strategy to become the first global player in the white goods industry.

'With our position in the US, Europe and Latin America, two-thirds of our strategy is in place. Asia is the one missing ingredient,' said Mr David Whitwam, chairman and chief executive, at the Domotechnica appliances fair in Cologne.

Whirlpool has subsidiaries in several Asian countries: an office in Hong Kong that is developing its Chinese strategy and a manufacturing joint venture in India.

It is the largest western player in an Asian white goods market dominated by Japanese and Korean suppliers, but still has a market share of only 1 per cent, said Mr Whitwam.

He predicted that within two years the Asian market for white goods would be bigger than either western Europe or the US - where units sales were 42m and 40m respectively last year for the seven main types of large appliance.

Unit sales in Asia would grow by an average 6 per cent to 8 per cent a year over the next few years, compared with an average 2 per cent to 3 per cent in Europe and the US, he said.

The Singapore office would pave the way for a change in Whirlpool's procurement strategy for Asia.

It imports white goods from Europe and the US, or purchases them from local suppliers.

The new office will include product development staff who will design white goods for Asia's many different markets, and manufacturing experts.

Mr Whitwam said Whirlpool would evolve towards expanding its manufacturing in Asia through wholly-owned subsidiaries, alliances and joint ventures.

Whirlpool sells both upmarket Bauknecht machines and value-for-money Roper products in Asia, which offered 'a broad array of opportunities', said Mr Whitwam.

Whirlpool's brand strategy may not yet be as clearly defined in Asia as in Europe or the US, he said, but the Whirlpool mid-market brand would be the cornerstone.

Whirlpool Corp US United States of America SG Singapore, Asia P3632 Household Refrigerators and Freezers P3633 Household Laundry Equipment COMP Company News RES Facilities P3632 P3633 The Financial Times London Page 21 398
International Company News: TransAmerica pushed to record Publication 930219FT Processed by FT 930219 By PATRICK HARVERSON NEW YORK

TRANSAMERICA, the San Francisco-based financial services group, yesterday reported record fourth-quarter profits from continuing operations of Dollars 86.5m, thanks to strong performances from its consumer lending, leasing, property services and life insurance operations.

The group's net income for the quarter, however, was only Dollars 11.9m, after a Dollars 75m provision for estimated losses from the disposal of a majority interest in its property casualty insurance operations, which will be sold in the second quarter through an initial public offering of stock.

In the fourth quarter last year, TransAmerica incurred a loss of Dollars 94.5m in the wake of a Dollars 130m after-tax charge at its commercial lending unit.

For the full year 1992, TransAmerica reported net income of Dollars 243m, up from Dollars 50.1m in 1991. Excluding the provision for discontinued operations and investment gains, the group's earnings last year totalled a record Dollars 337.8m.

Among TransAmerica's various businesses, earnings from the consumer lending operations set records for both the final quarter and year, while the commercial finance operation bounced back into profit after four quarters of losses in 1991.

The group's leasing operation reported a small increase in quarterly earnings, and profits at its property tax services business were at record levels.

On the insurance side, operating income from life insurance rose 25 per cent in the final quarter.

Transamerica Corp US United States of America P6111 Federal and Federally-Sponsored Credit Agencies P6211 Security Brokers and Dealers COMP Company News FIN Annual report P6111 P6211 The Financial Times London Page 21 270
International Company News: Navistar reduces loss to Dollars 5m on improved sales Publication 930219FT Processed by FT 930219 By LAURIE MORSE CHICAGO

AN increase in deliveries of medium and heavy trucks and diesel engines helped Chicago-based Navistar International to trim its first-quarter loss to Dollars 5m, or 5 cents per share, from last year's first-quarter deficit of Dollars 32m, or 16 cents.

Mr James Cotting, chairman, attributed the improvement to higher sales and reduced operating costs.

Sales revenue at the company, which is north America's largest truck manufacturer formerly known as International Harvester, rose by 15 per cent to Dollars 1.03bn in the quarter, up from Dollars 902m a year earlier.

Much of Navistar's sales gains reflected a 13 per cent increase in retail deliveries, to 16,800 units in the quarter. Shipments of mid-range diesel engines to other truck manufactures rose 18 per cent, and sales of replacement parts rose 6 per cent over the first quarter of 1992.

Navistar said orders for its trucks continued to be strong in the second quarter. As a result, the company revised upwards its projections for north American medium and heavy truck sales. For 1993, it projects industry demand for medium trucks and school buses will reach 129,700 units, about 10 per cent higher than 1992. It is projecting heavy truck demand at 147,800 units this year, an 18 per cent increase.

Navistar is in the middle of talks with its unions to restructure healthcare and retirement costs. In January, Navistar employees represented by the United Auto Workers Union ratified a new labour agreement.

The company's long-term debt in its manufacturing operations, as a percentage of equity, rose to 33 per cent in the first quarter, up from 21 per cent in the same period of 1992.

Navistar International Corp US United States of America P3713 Truck and Bus Bodies COMP Company News FIN Interim results P3713 The Financial Times London Page 21 320
International Company News: Framatome in stake talks Publication 930219FT Processed by FT 930219 By ALICE RAWSTHORN PARIS

FRAMATOME, the French state-controlled nuclear reactor group, is negotiating with CEA-Industrie, another public sector nuclear concern, to buy a 20 per cent stake in Technicatome, which specialises in nuclear motors for the marine field.

The planned investment in Technicatome, which was a profitable business with sales of about FFr1bn (Dollars 183m) last year, forms part of its ongoing strategy of reducing its reliance on its declining traditional nuclear activities.

Framatome on Tuesday disclosed a fall in net profits to FFr900m last year from FFr980m in 1991 on sales down from FFr14.2bn to FFr12.5bn over the same period.

Framatome CEA Industrie Technicatome FR France, EC P4911 Electric Services COMP Company News COMP Shareholding P4911 The Financial Times London Page 21 136
International Company News: Loblaw slows fall in earnings Publication 930219FT Processed by FT 930219 By ROBERT GIBBENS MONTREAL

LOBLAW, Canada's biggest food distributor and controlled by the George Weston group, slowed a long slide in profits in the final quarter of the fiscal year ended January 2 1993.

However, food price wars in eastern Canada and the US continued and Loblaw took a special CDollars 10m (USDollars 7.90) charge to cover problems with a US subsidiary recently sold.

Fourth-quarter net profits fell to CDollars 28.8m from CDollars 29.5m, on revenues 19 per cent ahead at CDollars 2.4bn. Per-share earnings came to 33 cents in both periods. For the year, net profits fell 24 per cent to CDollars 79.8m or 88 cents a share, from CDollars 104.7m or CDollars 1.17. Revenues rose 8 per cent to CDollars 9.6bn.

Loblaw said it continued to improve market share and expected reasonable growth this year.

Confederation Life, one of Canada's biggest insurers, has been hit by property woes. Net profits for 1992 fell to CDollars 1.9m, after CDollars 161m of special charges, from CDollars 17.3m a year earlier. Revenues slipped by nearly 10 per cent to CDollars 3.9bn. Commercial property investments totalled CDollars 7.5bn or 40 per cent of assets.

Torstar, publisher of the Toronto Star, Canada's biggest daily newspaper, earned net profits of CDollars 48.8m or CDollars 1.21 a share in 1992, including a CDollars 54m special gain, against losses of CDollars 3.4m or 9 cents a share in 1991. Revenues rose 3 per cent to 921m. Newspaper publishing was hit by lower advertising, but books improved, the group said.

Molson, the Canadian brewing and retailing group, plans to buy back up to 4.48m non-voting A shares and may propose a bye law to ensure that A stockholders would participate equally with the voting stock in case of a takeover. The buy-back will be financed with CDollars 180m received in a brewing deal with Miller of the US.

Loblaw Confederation Life Insurance Torstar Corp Molson Companies Miller Brewing CA Canada P6311 Life Insurance P2711 Newspapers P2082 Malt Beverages P5211 Lumber and Other Building Materials P5411 Grocery Stores COMP Company News FIN Annual report COMP Shareholding P6311 P2711 P2082 P5211 P5411 The Financial Times London Page 21 373
International Company News: Kvaerner hit by losses in shipping arm Publication 930219FT Processed by FT 930219 By KAREN FOSSLI

KVAERNER, the diversified Norwegian group with main interests in engineering, shipping and shipbuilding, registered a fall in 1992 pre-tax profit to NKr932m (Dollars 136.7m) from NKr1.12bn a year earlier.

The group will lift its dividend payment to NK5 a share from NKr3.

The weaker result was due to substantial losses by the group's mechanical engineering and shipping divisions. Shipping operations plunged into a NKr115m pre-tax loss last year from a NKr4m profit in 1991 while mechanical engineering widened pre-tax losses to NKr232m from NKr51m.

Shipbuilding, which accounted for nearly 80 per cent of group profits, increased pre-tax profit by NKr204m to NKr735m last year.

Group net revenue rose to NKr20bn from NKr18.7bn in 1991, but operating costs increased to NKr18.4bn from NKr16.9bn.

Kvaerner forecast 1993 pretax profit to be on a par with last year's, despite an expected weaker shipbuilding market.

Kvaerner NO Norway, West Europe P3731 Ship Building and Repairing P4412 Deep Sea Foreign Transportation of Freight P36 Electronic and Other Electric Equipment P35 Industrial Machinery and Equipment COMP Company News FIN Annual report P3731 P4412 P36 P35 The Financial Times London Page 20 204
International Company News: Gehe in move to create Europe's biggest pharmaceutical wholesaler Publication 930219FT Processed by FT 930219 By CHRISTOPHER PARKES FRANKFURT

GEHE, a leading German drugs wholesaler, yesterday announced a FFr800 (Dollars 144) per share agreed takeover offer for France's leading wholesaler, Office Commercial Pharmaceutique.

The merger would create the largest European pharmaceuticals distribution business, with sales of around DM14bn (Dollars 8.5bn) a year. The two companies already have an alliance with AAH, the UK wholesaler. The deal would ease access to other markets in the European Community and eastern Europe, Gehe said yesterday.

The Stuttgart-based German group said it would go ahead with the takeover if it received more than 50 per cent acceptances. It reserved the right to press on with the bid if this level were not reached.

After Schering, Gehe is Germany's second-biggest quoted drugs wholesaler, with annual sales of around DM5bn. In 1991, the last full year for which results are available, it made pre-tax profits of DM175m.

While wholesaling accounts for around half of group earnings, drugs manufacture provides a further 25 per cent, with the balance coming from various mail order activities.

Gehe developed its mail order businesses, specialising in office and warehousing equipment and operating as far afield as the US, during the 1980s.

Manufacture, mainly of generic pharmaceutical products has expanded recently. It was boosted after German unification by the acquisition of Jenapharm and a 60 per cent stake in Azupharma.

The group faces a squeeze from government plans to reduce health spending. These include price cuts for pharmaceuticals and prescription limits.

GEHE Office Commercial Pharmaceutique DE Germany, EC FR France, EC P5122 Drugs, Proprietaries, and Sundries COMP Merger P5122 The Financial Times London Page 20 286
International Company News: The slide from difficulty to disaster - The crisis that has engulfed SE Banken Publication 930219FT Processed by FT 930219 By CHRISTOPHER BROWN-HUMES

IT HAD been known for some time that Skandinaviska Enskilda Banken was in acute financial difficulty, but only yesterday did the full extent of the crisis become clear. The SKr5.3bn (Dollars 711.6m) loss for 1992 dwarfed anything that analysts had expected.

The forecast of huge credit losses this year and next made the picture even bleaker. There was no surprise, therefore, that the government finally confirmed that the bank needed state support.

The revelations do much to bear out the accuracy of a current Swedish joke, which suggests that the difference between a good bank and a bad bank in the country is about six months.

For the speed at which the crisis has overtaken Sweden's most prestigious bank is stunning. A year ago, it made a SKr2.3bn profit. For the first four months of 1992 it recorded a SKr600m operating loss - its first deficit. After eight months, the loss had reached SKr2.6bn. But even this doubled in the final four months to reach yesterday's extraordinary total.

That things deteriorated so quickly owes as much to the boom of the late 1980s as to the recession that followed. The collapse in property values has been the single most important factor in the weakening of the Swedish banking system, and SE Banken is paying a heavy price for its exposure to a small number of big clients in the real estate sector - just 15 customers account for almost half of last year's SKr10.9bn lending losses.

SE Banken's plight means that of the larger commercial banks, only Svenska Handelsbanken looks as if it has a realistic chance of surviving without state aid. The government has already put up SKr67.5bn to support three banks - Nordbanken, Gota Bank and Forsta Sparbanken - of which both Nordbanken and Gota Bank are under state control.

Some analysts believe that only strong political objections will prevent SE Banken falling into state hands.

'The problems at SE Banken are similar to those at banks the government already owns. But the government doesn't want to own any more banks and there is value in having more than one privately-owned bank,' says one observer.

How much money the state puts up, and how much capital SE Banken can attract through its own efforts, are the key questions. Conservative estimates suggest at least SKr10bn will be needed to recapitalise the bank, although some say the eventual figure will be much higher.

The state expects SE Banken to do as much as possible to resolve its problems by raising new capital from private sources. But the bank is equally keen to know the extent of government aid before it goes ahead with any new share issue. A complex game is likely, in which each player tries to force the other to show his cards first.

One possible outcome would be for the state to guarantee the assets in SE Banken's 'bad bank' - the special division set up last month to house non-performing loans - with additional share capital being raised from private sources to strengthen the bank's healthy activities. Some of the bank's shareholders, as the most notable casualties of the current crisis, may prove reluctant to provide more funds.

Mr Bjorn Svedberg, SE Banken's chief executive, can play on the state's reluctance to take over the bank - but he can also count on the state driving a hard bargain as part of its determination to get a good deal for the taxpayer and to ensure competitive neutrality. That could entail the disposal of some of the bank's profitable activities.

Many are waiting to see what role the Wallenberg family, Sweden's biggest corporate dynasty, might play in the outcome. The Wallenbergs' interests currently hold only 8 per cent of SE Banken's shares, but there has been speculation that this stake will increase as part of any reconstruction.

However, this would almost certainly force the group to dispose of other shareholdings. There has also been speculation that the Wallenbergs might sell their voting rights to a 39.6 per cent holding in SKF, the world's biggest roller-bearing manufacturer.

Last month SE Banken carried out a sweeping reorganisation, and it is likely that further moves will be made to cut costs further and to bolster the capital base. Such actions are likely to include staff cuts and disposals.

But these efforts alone are unlikely to solve the bank's difficulties without a broader upturn in the Swedish economy. There have been some positive developments - including a recent fall in interest rates and the devaluation of the krona - but the economy is still heading for another difficult year.

The finance department and the bank agree that Sweden's banking crisis will continue for at least another two years, with losses this year likely to equal those of last year.

'Most of the problems in the sector should have been dealt with by the end of next year,' Mr Bo Lundgren, the taxation minister, said yesterday. For the moment, that is as optimistic an assessment as can be found of the prospects for an end to Sweden's banking crisis.

Skandinaviska Enskilda Banken SE Sweden, West Europe P6011 Federal Reserve Banks COMP Company News FIN Company Finance P6011 The Financial Times London Page 20 897
International Company News: Statoil tumbles by 40% to NKr2.5bn for 1992 Publication 930219FT Processed by FT 930219 By KAREN FOSSLI OSLO

STATOIL, the Norwegian state oil company, yesterday reported a 40 per cent slide in 1992 net profits to NKr2.5bn (Dollars 361.3m) from NKr4.1bn, caused mainly by a big operating loss in petrochemicals operations. Low oil prices and weak refinery margins also contributed to the downturn.

The company has proposed to cut its dividend payment to the state - Statoil's owners - to NKr1.25bn from NKr1.4bn in 1991, but even at this level the payout would rise to 50 per cent of net profits, from 34 per cent in 1991.

Group operating income rose last year to NKr79.4bn from NKr78.3bn, but operating profits fell to NKr12.5bn from NKr13.6bn in 1991. Petrochemicals saw a NKr500m decline in operating income to NKr5.5bn as operating losses widened to NKr438m from NKr30m.

Statoil also suffered financial charges of NKr1.6bn, up from NKr1bn in 1991, which it blamed partially on a NKr489m loss on a swap arrangement in shares in Saga Petroleum, Norway's biggest independent oil company.

The company issued a pessimistic outlook for its main markets in 1993 and warned it would be unable to generate sufficient cashflow from operations to finance immediate investment commitments.

'This imposes additional demands on the group's earnings and financial strength,' the company said.

Ms Brit Rugland, vice-president of finance, said Statoil would seek to borrow between NKr4bn and NKr6bn in 1993, including refinancing of existing loans, and that investments would rise to NKr12bn from NKr7bn last year.

The company plans a major international expansion in exploration and production operations in an effort to find fresh oil reserves to replenish a sharp decline in production expected by 1995-96. 'Access to new commercially recoverable reserves will strengthen Statoil's earnings in the long term,' it said.

The group's estimated tax bill for 1992, at NKr8.5bn, is at last year's level, but Statoil said its effective tax rate had increased to 77 per cent in 1992, from 68 per cent in 1991.

Mangstad refinery in doubt, Page 24

Statoil NO Norway, West Europe P1311 Crude Petroleum and Natural Gas P2911 Petroleum Refining COMP Company News FIN Annual report P1311 P2911 The Financial Times London Page 20 374
International Company News: Italian engineer plans share issue Publication 930219FT Processed by FT 930219 By HAIG SIMONIAN MILAN

FINMECCANICA, the Italian state-owned engineering group which is merging with some listed subsidiaries, has revealed moderate gains in 1992 sales and earnings and plans for a fundraising share issue.

The announcement came as shareholders of Finmeccanica's Alenia aerospace, Elsag-Bailey automation and Ansal-do engineering subsidiaries approved the merger proposals put forward last December.

Mr Fabiano Fabiani, Finmeccanica's managing director, said group net profits rose by 7.7 per cent to L182bn (Dollars 121m) last year, while sales climbed 2.1 per cent to L11,200bn. Net debt climbed by 9.4 per cent to L5,320bn, while interest costs jumped to L450bn from L297bn in 1991, largely due to the sharp rise in interest rates in the second half of last year.

Finmeccanica unveiled plans to raise up to L891bn through a multi-tranche capital issue over the next year. The proceeds would come from issuing 307m new shares, with a nominal value of L1,000 each. The shares would carry a L1,500 premium, which could be altered up or down by L400 a share, depending on market conditions.

The Italian government has indicated it is ready to reduce its stake in Finmeccanica, owned through the IRI state holding company, to below 50 per cent, although no timetable has been set. Should all minority shareholders in Finmeccanica's subsidiaries accept the share swap linked to the merger, IRI's stake will fall to 86.6 per cent from 96.4 per cent.

The planned capital increase could dilute that further. IRI has said it will spend L493bn underwriting new Finmeccanica shares. Rights to any remaining stock will be ceded to a banking consortium, on terms yet to be revealed.

Mr Fabiani blamed the rise in Finmeccanica's net debts on the delays in payment from public-sector clients in Italy.

Finmeccanica IT Italy, EC P9611 Administration of General Economic Programs P6719 Holding Companies, NEC COMP Company News FIN Annual report P9611 P6719 The Financial Times London Page 20 332
UK Company News: VW to control importing of Skodas Publication 930219FT Processed by FT 930219 By JOHN GRIFFITHS

VOLKSWAGEN yesterday took full control of the import and distribution of Czech-built Skoda cars in the UK, following an agreement which ends months of friction with the previous Czech-owned importer.

The agreement between Volkswagen-controlled Skoda Automobile UK and Skoda (GB), which had imported the cars for more than 20 years, releases the 222-strong dealer network from contractual obligations to Skoda (GB), allowing them to enter contracts with Skoda Automobile UK.

The deal opens the way for Volkswagen, which now controls Skoda and is overseeing a Pounds 3.3bn investment programme in models and plant, to pursue its plans to quadruple Skoda's UK sales to 40,000 a year. The agreement means that Skoda (GB), owned by the privatised Motokov International Czech foreign trade agency, will have no role in the business.

Skoda (GB) had been refusing to release dealers from their contracts while it sought a role as sub-contractor to Skoda Automobile UK, which appointed itself as the official importer/distributor in January. In particular, it was anxious to operate, on the VW company's behalf, the import and preparation centre at Kings Lynn, which had employed more than 100 people.

Skoda Automobile UK has opted instead to import the vehicles through Southampton, which handles imports of cars built by SEAT of Spain - also controlled by Volkswagen.

Preparation of both makes at the port has been subcontracted to Southampton Vehicle Terminals with Richard Lawson Car Delivery Group, which is based in Dundee and distributes SEATs from Southampton, taking on Skoda deliveries as well.

Volkswagen Skoda Automobile UK Skoda (Great Britain) GB United Kingdom, EC P5511 New and Used Car Dealers P5012 Automobiles and Other Motor Vehicles TECH Sales agreements P5511 P5012 The Financial Times London Page 19 302
UK Company News: New man and cash call plan at Cupid Publication 930219FT Processed by FT 930219 By JANE FULLER

THE FORTUNES of Cupid, the loss-making bridal wear company, are being revived by a new man at the top and by Pounds 1.9m of new money.

The USM-quoted group yesterday announced Mr Richard Shaw's appointment as chairman and chief executive alongside a rights issue and share subscription.

His aims include expanding Cupid into lingerie and possibly changing its name to help slough off a chequered reputation in the City.

About Pounds 1.25m will be raised in the 4-for-9 issue, at 28p a share. Other new shares have been subscribed for by groups of individual investors, including the Shaw family with 4.2 per cent of the enlarged equity and a Guernsey couple called Cairns with 8.5 per cent.

It was also reported that losses for the year to March 31 could total Pounds 1.5m, compared with a Pounds 867,000 pre-tax profit last year. Early last summer, before the last rights issue, pre-tax profit forecasts were in the Pounds 1.5m to Pounds 1.7m range.

Cupid's share price, which fell to 35p last week when losses were predicted, had already started to recover on hopes of new investment and new management direction. It gained another 7p to 53p yesterday.

Mr Shaw said post-interest losses were about Pounds 800,000.

In the nursery division, two factories had been closed. The head office was also being sold and the operation transferred to the Blackburn factory.

The exceptional costs of these moves, plus pay-offs to former and departing directors, accounted for the remaining Pounds 700,000 of expected losses. Mr Michael Murray, the founder, and his wife Sue, also a director, received Pounds 100,000 when they departed in December - alongside a profits warning.

Mr Richard Lee, who has been chairman and chief executive in the interim, is also leaving.

Cupid GB United Kingdom, EC P2335 Women's, Juniors', and Misses' Dresses P2396 Automotive and Apparel Trimmings COMP Company News FIN Share issues PEOP Appointments Shaw, R Chairman and Chief Executive Cupid (UK) P2335 P2396 The Financial Times London Page 19 353
UK Company News: SWP edges ahead to Pounds 42,000 Publication 930219FT Processed by FT 930219

SWP Group recovered slightly in the six months to December with pre-tax profits of Pounds 42,000, against a previous Pounds 31,000.

In the second half of the year to June 30 1992 the USM-quoted supplier of components to the construction industry fell into losses.

Mr Robert Stickings, chairman, said trading conditions were extremely depressed and the fall in the value of the pound had increased costs.

He added that there had been a modest increase in activity in recent weeks, but prospects for the second half were still difficult to assess.

Turnover improved to Pounds 3.71m (Pounds 3.65m) for operating profits of Pounds 126,000 (Pounds 98,000). Interest paid rose to Pounds 84,000 (Pounds 67,000).

Earnings per share were unchanged at 0.1p.

SWP Group GB United Kingdom, EC P2452 Prefabricated Wood Buildings P871 Engineering and Architectural Services FIN Interim results P2452 P871 The Financial Times London Page 19 162
UK Company News: Shield reaches new agreement on banking Publication 930219FT Processed by FT 930219

Shield Group, the estate agency and property company, has reached agreement with one of its bankers.

The bank has agreed to assign to Shield liabilities comprising loans, overdrafts and accrued interest totalling Pounds 448,000, owed by certain dormant subsidiaries, in return for Pounds 50,000.

The effect is that group pre-tax profits for the year ended March 31 1993 and net assets at that date will be increased by Pounds 398,000.

Mr Nicholas Warriner Brown has acquired 300,000 ordinary shares (3.11 per cent) in the company.

Shield Group GB United Kingdom, EC P6531 Real Estate Agents and Managers COMP Company News FIN Company Finance P6531 The Financial Times London Page 19 125
UK Company News: Sinclair Goldsmith in merger talks Publication 930219FT Processed by FT 930219

The board of Sinclair Gold-smith Holdings, the surveyor, estate agent and ratings consultant, yesterday confirmed that it was in talks regarding a possible merger with Conrad Ritblat, another estate agency.

The shares were suspended at 35p yesterday. This followed a sharp rise over the past week - early last week the shares stood at 20p.

Sinclair Goldsmith reported reduced pre-tax losses of Pounds 525,000 (Pounds 997,000) in the year to May 31 1992, on turnover down 11 per cent at Pounds 2.77m.

The final dividend was omitted leaving a total of 0.5p (2p).

Sinclair Goldsmith Holdings Conrad Ritblat GB United Kingdom, EC P8713 Surveying Services P6531 Real Estate Agents and Managers COMP Company News P8713 P6531 The Financial Times London Page 19 136
UK Company News: Leslie Wise falls to Pounds 2.5m as increased costs hit margins Publication 930219FT Processed by FT 930219 By JANE FULLER

INCREASED COSTS, following sterling's devaluation, cut margins at Leslie Wise Group.

Pre-tax profits at the textiles concern fell 12 per cent, from Pounds 2.86m to Pounds 2.52m, in the year to November 30 in spite of a 20 per cent increase in turnover to Pounds 48.7m.

Mr Neil Wise, who took over as chairman at the turn of the year following the death of his father Leslie, said sales had risen from start-up operations and from exports. Overseas sales were ahead 30 per cent at Pounds 6.9m.

Mr Wise said the cost of materials bought in dollars or D-Marks had risen by up to 25 per cent. Negotiations with suppliers and switching the country of supply would ameliorate the situation. The price increases passed on to customers might amount to 10 per cent.

Bad debts, including one arising from Berkertex's insolvency, totalled nearly Pounds 150,000 and the closure of two out of seven start-up design companies cost a similar amount.

He said bankers to smaller private companies, 'who have normally been supportive, are acting mercilessly'.

If such a string of short-term problems could be avoided this year, margins could be rebuilt.

Operating profit was just over 2 per cent down at Pounds 2.84m. Interest costs rose to Pounds 321,000 (Pounds 51,000). Debt was increased by Pounds 470,000 of final deferred payments on acquisitions dating back to 1988-89. Year-end gearing stood at 40 per cent on shareholders' funds of about Pounds 7m.

Leslie Wise supplies retail groups such as Burton and Etam. Mr Wise said there were glimmers of hope of high street recovery but what was needed was a sustained period of buoyant trading.

The final dividend is held at 2.25p to give an unchanged total of 4p. Earnings per share slipped to 4.96p (5.8p).

Leslie Wise Group GB United Kingdom, EC P2269 Finishing Plants, NEC P5131 Piece Goods and Notions P2339 Women's and Misses' Outerwear, NEC FIN Annual report P2269 P5131 P2339 The Financial Times London Page 19 352
UK Company News: McLeod Russel launches hostile bid for Wheway Publication 930219FT Processed by FT 930219 By ROLAND RUDD

MCLEOD RUSSEL Holdings, the paints producer and distributor, yesterday launched a Pounds 14m hostile bid for Wheway, the struggling environmental engineering group.

Wheway shareholders are being offered one McLeod share for every 10.

McLeod's shares yesterday fell 2p to 100p; Wheway's rose 1 1/2 p to 9p. The offer values each Wheway share at 10p.

The two companies have been in talks since last September. However, McLeod decided to go hostile after failing to reach agreement on price.

Mr Nigel Openshaw, McLeod chairman, said: 'Wheway has had a for sale sign up for months. We have tried not to rub their noises in it, but this is a generous offer and we cannot wait any longer.'

Wheway responded by urging its shareholders to take no action. Mr Brian Long, who was recently appointed chief executive, said: 'We need more time to reflect on possible alternatives.'

He made it clear that the company wanted to merge with a 'robust partner', but first wanted to see if it could get a better deal for shareholders.

The company is already talking to other interested parties about a possible merger.

Wheway, in need of refinancing after its costly move out of heavy engineering, last year turned in a Pounds 3.5m loss after making a Pounds 2.8m pre-tax profit the previous year.

Its share price has fallen from more than 140p in 1989 to its current level of 9p.

At the year-end its net borrowings were Pounds 16.3m, giving gearing of more than 105 per cent.

McLeod, which has a 2.99 per cent stake in Wheway, increased its pre-tax profit from Pounds 4.42m to Pounds 5.18m for the year to September 30.

It said an enlarged group would benefit from a rationalisation of costs and the development of Wheway's clean air and environmental engineering businesses.

The enlarged group, on a pro forma basis, would have had a combined annual turnover of more than Pounds 123m.

Pro forma combined net assets and borrowings would have amounted to Pounds 57.4m and Pounds 6.2m respectively.

Wheway McLeod Russel Holdings GB United Kingdom, EC P2851 Paints and Allied Products P5198 Paints, Varnishes and Supplies P6719 Holding Companies, NEC P34 Fabricated Metal Products P35 Industrial Machinery and Equipment COMP Company News P2851 P5198 P6719 P34 P35 The Financial Times London Page 19 401
UK Company News: Forward makes Pounds 1.7m purchase Publication 930219FT Processed by FT 930219

Forward Group has bought the business and training assets of Central Circuits Group, a specialist maker and designer of printed circuit boards, from the administrative receivers. Consideration was Pounds 1.71m.

A new company, Forward Circuits (Telford), will operated from Central's existing premises in Telford.

Forward Group Central Circuits Group Forward Circuits (Telford) GB United Kingdom, EC P3672 Printed Circuit Boards COMP Acquisition P3672 The Financial Times London Page 19 83
UK Company News: Alumasc restricted to Pounds 3.8m by reliance on organic growth Publication 930219FT Processed by FT 930219 By PAUL CHEESERIGHT, Midlands Correspondent

GROWTH AT Alumasc, the Kettering-based beer kegs, building products and precision components group, slowed in the first half as pre-tax profits rose by just 3.2 per cent from Pounds 3.65m to Pounds 3.77m.

In the last full year profits advanced 23 per cent.

Without contributions from the new acquisitions that characterised 1991-92, Alumasc was dependent during the six months to December 31 on organic growth and hence was more susceptible to the weakness of the economy.

Turnover improved to Pounds 24.3m against Pounds 23.6m. Earnings per share rose to 16.5p (15.8p) and the interim dividend is increased from 3.55p to 3.7p.

Demand for building products, the largest of the group's three operating divisions, slipped as general building activity continued to decline. However, demand for beer kegs stabilised after a fall during the previous year.

Volume fell slightly in the precision components business, although customers have been placing dies with the company, a prelude to future orders.

The group's financial position remains stable and Mr John McCall, chairman, said it continued to seek acquisitions. Net cash balances rose by Pounds 1.5m to Pounds 4.9m, producing interest of Pounds 148,000.

Alumasc Group GB United Kingdom, EC P3429 Hardware, NEC P3446 Architectural Metal Work P3412 Metal Barrels, Drums and Pails P336 Nonferrous Foundries (Castings) FIN Interim results P3429 P3446 P3412 P336 The Financial Times London Page 19 248
UK Company News: Gold Greenlees calls for Pounds 15m - Proceeds of rights issue will be used to fund acquisitions Publication 930219FT Processed by FT 930219 By ANDREW ADONIS

GOLD GREENLEES Trott, the marketing services group, is raising about Pounds 14.7m net in a rights issue to fund acquisitions.

The 1-for-3 issue of up to 6.49m shares is priced at 235p. The shares shed 12p yesterday to close at 288p.

Proceeds of the rights, a rarity in the depressed advertising sector, are to be used for acquisitions planned in the next six to nine months.

Before allowing for the issue, net debt was forecast to be about Pounds 14m by the April year-end. GGT has negative net assets.

Analysts believe the company is looking to acquire small agencies with a European focus, either as subsidiaries or partners, in a move to balance its growing activities in the US.

At Pounds 4.5m, GGT's pre-tax profits forecast for this year would be Pounds 900,000 up on last year (excluding exceptional prof-its), but well below 1990's Pounds 7.68m.

Last year's total dividend was 8.3p, with earnings per share of 17.28p. The company's dividend forecast for this year is also 8.3p.

The rights issue is GGT's first for five years. It used its 1988 call to buy Martin-Williams, a Minneapolis agency, as part of an expansion strategy in the US Midwest and south-west.

US earnings last year accounted for half of GGT's gross profits. Among its clients are Coca-Cola, Red Rock cider, Holsten Pils and Cadbury Schweppes.

Mr Michael Greenlees, chairman, said: 'Unlike Saatchi's and WPP, we have not gone in for five-year earn-outs, but have paid for purchases over 18 months or less. I want to continue on that basis.'

Mr Vignesh Padiachy, media analyst at BZW, said the issue was likely to be well supported by shareholders. 'GGT is performing strongly in the US - with margins of 20 per cent against a sector average of 8 per cent - and there is plenty of recovery potential in the UK.'

Mr Greenlees said he saw 'considerable room for growth' in existing businesses, not least GGT's non-advertising (mainly marketing) activities in the UK, which last year accounted for nearly half of total UK earnings.

The rights issue has been fully underwritten by Kleinwort Benson.

Gold Greenlees Trott GB United Kingdom, EC P7311 Advertising Agencies COMP Company News FIN Share issues P7311 The Financial Times London Page 19 404
UK Company News: Chelsea Building Society tumbles 49% Publication 930219FT Processed by FT 930219 By JOHN GAPPER, Banking Correspondent

THE IMPACT of the slump in the south of England housing market on southern-based building societies was shown yesterday when Chelsea Building Society disclosed a 49 per cent fall to Pounds 4.1m in pre-tax profits for 1992.

The society's results are expected to be among the worst reported for last year, although large falls are also expected to be disclosed by the Bristol & West and Cheltenham & Gloucester societies over the next month.

Chelsea's fall in profits, from Pounds 8.1m in 1991, was caused by a 60 per cent increase to Pounds 37m (Pounds 23.1m) in provisions for bad and doubtful debts. Its gross provisions are now set at 2.9 per cent of gross commercial assets.

Operating profits rose 29 per cent to Pounds 41.1m (Pounds 31.2m), partly because of the widening of margins between savings and lending products in the last quarter of the year. The ratio of costs to income fell to 38.7 per cent (44.2 per cent).

Chelsea - the 17th biggest society with assets of Pounds 2.29bn - emphasised that efforts to reduce arrears had led to a 20 per cent cut in borrowers over six months in arrears. It predicted that provisions would be 'substantially reduced' in 1993.

Mr Peter Walsh, director and general manager, said Chelsea's provisioning policy had been 'very prudent'.

Chelsea Building Society GB United Kingdom, EC P603 Savings Institutions FIN Annual report P603 The Financial Times London Page 19 258
UK Company News: English & Overseas Properties reduces loss Publication 930219FT Processed by FT 930219

ENGLISH & Overseas Properties cut pre-tax losses from Pounds 2.32m to Pounds 707,000 in 1992, after charging exceptional items of Pounds 982,000, against Pounds 2.48m, a sizeable part of which was provided at the half year.

As indicated at the interim stage, there is no dividend (1p). Losses per share came out at 2.98p (14.24p).

Mr Jim Clark, chairman, said the company had taken steps to reorganise its capital and reserves. Progress had been encouraging with one outstanding matter to be resolved before the company could apply for court and shareholder approval.

He said legal advice received indicated that such a reorganisation should be successful, particularly as E&OP's trade creditors were minimal and the cash position was still strong at Pounds 4.7m.

Entering 1993 with the majority of its properties let and substantial cash balances available for new investment, Mr Clark said medium term growth prospects were encouraging.

Mr Clark said opportunities to acquire companies and properties where E&OP could add value were increasing and he believed 1993 could be the 'window of opportunity' for such acquisitions.

English and Overseas Properties GB United Kingdom, EC P65 Real Estate FIN Annual report P65 The Financial Times London Page 19 213
UK Company News: Takeover Panel poised to freeze Airtours bid timetable Publication 930219FT Processed by FT 930219 By RICHARD GOURLAY

THE TAKEOVER Panel is likely either today or on Monday to freeze the timetable of Airtours' hostile Pounds 215m bid for Owners Abroad, its rival tour group.

Owners Abroad would have had to produce its final Day 39 defence document on Monday, but the Office of Fair Trading has yet to forward its recommendation to the trade and industry secretary as to whether the bid should be referred to the Monopolies and Mergers Commission.

In the event that the bid is referred, the offer will lapse; if the bid were not referred, Owners Abroad would normally have two days to produce its defence after the trade secretary delivered his ruling.

Removal of the threat of an MMC referral would refocus shareholder attention on the value of Airtours share offer and partial cash alternative.

It would also throw a spot-light back to the intentions of Thomas Cook, which is controlled by WestDeutsche Landesbank, the German state bank which has large interests in the travel industry.

Thomas Cook's proposed tie-up with Owners Abroad, in which it would have made a net Pounds 2m injection of cash in return for a 10 per cent stake in Owners Abroad, had been put on hold until after shareholders have decided whether to reject the Airtours' bid.

However, some City observers have begun to question whether Thomas Cook would not tear up the existing strategic alliance agreement after Airtours' final offer, in favour of buying a blocking - though not controlling - stake in Owners Abroad.

Schroders has been advising Thomas Cook on its banking side and Thomas Cook said it appointed James Capel as broking advisers early in the new year.

James Capel advised Thomas Cook when Midland Bank sold the travel group to the Germans in 1991.

Airtours Owners Abroad Group GB United Kingdom, EC P4724 Travel Agencies P4725 Tour Operators COMP Company News GOVT Legal issues P4724 P4725 The Financial Times London Page 18 341
UK Company News: Wills acceptances Publication 930219FT Processed by FT 930219

Wills Group has now received an irrevocable undertaking to accept its offer for Platon International in respect of a further 461,502 ordinary shares, increasing the total number of acceptances to 1.67m (15.6 per cent).

Wills Group Platon International GB United Kingdom, EC P3823 Process Control Instruments P3825 Instruments To Measure Electricity P3694 Engine Electrical Equipment P8742 Management Consulting Services COMP Company News COMP Shareholding P3823 P3825 P3694 P8742 The Financial Times London Page 18 85
UK Company News: Ward loses Pounds 5m as purchaser confidence sags Publication 930219FT Processed by FT 930219

Ward Holdings, the housebuilder and property group, blamed the severe recession for a pre-tax loss of Pounds 5.29m after exceptional charges of Pounds 2.07m for the year to October 31.

This compares with a deficit of Pounds 14m after exceptional charges of Pounds 12.2m, relating to the write-down in the value of the land bank.

Turnover remained static at Pounds 29.7m.

The final dividend is passed again - there was no interim. Losses per share were 8.8p (19.1p).

Although Ward sold 10 per cent more houses than in the previous year, it said there had been a further loss of house purchaser confidence. This was due to falling house prices, increases in unemployment and business failures, and exceptionally high levels of house repossessions and mortgage repayment arrears.

The company was unable to dispose of certain investment property to reduce its gearing.

It blamed the 'disappointing delay' on prospective purchasers failing to complete after agreeing terms.

Agreement has been reached with its banks to extend its syndicate loans through to May 31 1994.

Ward Holdings GB United Kingdom, EC P1522 Residential Construction, NEC P6512 Nonresidential Buildings Operators FIN Annual report P1522 P6512 The Financial Times London Page 18 214
UK Company News: DTI considers disqualifying Edencorp Leisure directors Publication 930219FT Processed by FT 930219 By PEGGY HOLLINGER

THE Department of Trade and Industry is considering action to disqualify directors of Edencorp Leisure, which went into receivership in 1991, from acting in such a capacity for any other company.

The DTI made the statement following the publication of a report on events surrounding the collapse of the group run by Mr Michael Wallace, a former show business promoter.

The report investigated possible manipulation of the 1989 results, the payment of fees without board approval and Mr Wallace's indebtedness to the company.

Edencorp was brought to the Third Market in 1989. A series of acquisitions followed in Portugal and the UK.

After reassuring shareholders on the company's gearing position, Mr Wallace sold a large block of stock in 1990. He was forced to resign when it was discovered he had received substantial unauthorised loans, totalling Pounds 600,000, from the company, the financial position of which was far from stable.

In December 1990 Edencorp's shares were suspended at 12p. Mr Wallace resumed control of the company in May 1991, but it was put into receivership in July that year.

The report strongly criticised Mr Wallace, chief executive, and Mr Godfrey Cook, finance director and company secretary, for their conduct.

The investigation found that Mr Wallace had withdrawn large sums without the board's knowledge or approval, and without regard to the interests of shareholders. Mr Cook had been negligent.

Ernst & Young, Edencorp's auditors, and Mr Wallace also come in for criticism in respect of the 1989 accounts, which were unqualified.

Advance sales of vouchers worth some Pounds 200,000 were included in the 1989 year, when the group reported net profit of Pounds 783,000, instead of being deferred to future years. 'This leads to the conclusion that sales, and consequently profits, were over-stated by at least Pounds 200,000.'

'It follows that the auditors' report that the group accounts gave a true and fair view of the group's profit for the period is called into question,' the investigators say.

They criticised Mr Wallace's role in the decision to include the advance sales in the 1989 accounts. 'In our view Wallace improperly exerted pressure to achieve the Pounds 900,000 profit target.'

The investigators also question the payment of a finder's fee of Pounds 140,000 paid to an acquaintance of Mr Wallace, related to an acquisition. 'The circumstances of the payment cast doubt on its propriety. Even if genuine, it was, in our view, excessive.'

Although it is unlikely that any criminal actions will result from the investigation, the report has been passed to two regulatory bodies: the Institute of Chartered Accountants in England and Wales, and the Securities and Futures Association.

The receivers, Touche Ross, are believed to have sold all the assets of Edencorp and unsecured creditors are not expected to receive anything.

Edencorp Leisure GB United Kingdom, EC P7999 Amusement and Recreation, NEC P7032 Sporting and Recreational Camps COMP Company News PEOP Personnel News GOVT Legal issues P7999 P7032 The Financial Times London Page 18 512
UK Company News: Zantac continues to lift Glaxo Publication 930219FT Processed by FT 930219 By PAUL ABRAHAMS

ZANTAC, an ulcer treatment and the world's best-selling drug, was the main reason for Glaxo's surprisingly good interim results, announced yesterday.

The drug's sales increased by Pounds 145m to Pounds 1.03bn, providing 45 per cent of Glaxo's turnover growth.

Dr Ernest Mario, chief executive, said: 'People have been talking about the demise of Zantac for the last six years. It's still doing well and it's continued improvement is not a flash in the pan.'

Zantac's growth had been assisted by strong expansion in the US (up 14 per cent) and Europe (up 18 per cent).

Although the drug was losing some world market share - 39 per cent in 1992, compared with 40 per cent in 1991 - the market was still grow-ing at 14 per cent, said Dr Mario.

Sales of respiratory products increased by 9 per cent to Pounds 512m, representing 22 per cent of group turnover. The overall respiratory market is growing at 13 per cent.

Dr Mario said there had been a 15 per cent fall in sales in the US due to wholesale stocking in anticipation of price increases. European respiratory sales increased by 16 per cent.

Sales of Ventolin, Glaxo's old asthma treatment, fell 1 per cent (4 per cent at constant exchange rates) to Pounds 239m. Beconase, the newer asthma medicine, increased 9 per cent to Pounds 223m.

Serevent, Glaxo's latest asthma treatment, added Pounds 9m sales to total Pounds 32m. Mr Mario said this would be a big product - it had yet to be launched in the US, Japan or Germany, the world's three largest markets.

Antibiotic sales increased by 21 per cent per cent. Zinnat, an oral antibiotic, increased sales by 49 per cent to Pounds 160m.

Sales of Zofran, the anti-nausea treatment, rose 36 per cent, from Pounds 120m to Pounds 163m. US sales increased by 42 per cent.

Imigran, a migraine drug also known as Imitrex, generated sales of Pounds 35m. The full-year figures will include the first contributions from Germany and the US.

The migraine treatment has been predicted by analysts to achieve outstanding sales. However, Dr Mario warned the drug's use would not grow explosively. The speed of registration had been disappointing, particularly in the US.

Research and development expenditure grew to Pounds 335m (Pounds 277m) and was expected to reach about Pounds 735m (Pounds 595m) by the year end. The group spends more than any other pharmaceuticals company on R&D.

Operating margins for the first six months were 33 per cent, but were likely to fall to 31 per cent because of additional marketing costs associated with new drug launches, particularly in the US.

Investment income from Glaxo's Pounds 1.5bn cash-pile was Pounds 79m (Pounds 77m).

Dr Mario said if the group could find a reasonable investment for its cash it would make it. There was little point in distributing funds to shareholders because of the advanced corporation tax implications.

Earnings per share increased by 16 per cent from 16.7p to 19.4p, while earnings per ADR rose 17 per cent to 68 cents (58 cents). The dividend is an improved 7p (6p).

Glaxo Holdings GB United Kingdom, EC P2834 Pharmaceutical Preparations COMP Company News FIN Annual report RES R&D spending MKTS Sales P2834 The Financial Times London Page 18 561
UK Company News: Control Securities' shareholders funds deficit Publication 930219FT Processed by FT 930219 By MAGGIE URRY

CONTROL SECURITIES, the property and leisure group, said yesterday that a further write-down of property values and other exceptional costs totalling Pounds 68.4m, had left the company with a deficit on shareholders' funds of Pounds 31.8m.

It called an extraordinary meeting for March 17 to ask shareholders to support the board's continued discussions with banks, bondholders and creditors. The shares have been suspended since October 1991.

Mr Sydney Robin, chairman, said that the group's 'complex and delicate' restructuring was taking 'considerably longer than had been anticipated'. He said there were still some significant issues to be resolved.

However, he said that holders of the group's SFr200m (Pounds 92m) of bonds would be offered equity in place of a quarter of the principal amount and a new repayment date on the rest of 2000. The two issues, each of SFr100m, have maturities in 1994 and 1997.

Banks which lent to Control Securities have security over the group's assets and are not expected to swap any debt for equity. Control Securities is also negotiating with Bass, the leisure group, from which it bought some Spanish hotels in 1989. Bass was due to receive a final instalment of Pounds 11m last September, but has not yet been paid.

The group announced interim results, for the period to September 30, showing trading profits slightly lower at Pounds 17.2m (Pounds 17.7m) on sales 11 per cent higher at Pounds 56.2m.

However, interest charges of Pounds 17.2m (Pounds 12.8m) and the exceptional costs left losses of Pounds 68.5m before tax (profit Pounds 4.4m). The net loss was Pounds 62.1m or 16.73p a share (profit Pounds 2.1m and earnings per share of 0.56p).

The exceptional costs included a Pounds 52.8m write down of property values. This largely related to a valuation done at December 31 on a 'Red Book' basis - complying with the Royal Institution of Chartered Surveyors guidance on property valuation - necessary before the company's shares could be relisted.

The valuation basis assumes sales of properties within a short time period, while Control Securities' business plan envisages a controlled sale of assets over a longer period. Mr Robin said 'this valuation basis has been the prime cause of the requirement for additional write-downs against UK property values.' He said the directors believed they could realise better values.

The exceptional items also included a debit of Pounds 14.4m covering the effect on the principal value of the Swiss franc bonds caused by sterling's devaluation. The group had covered its exposure to the Swiss franc until mid-August, but could not continue to do so after that.

At the trading level, the property division contributed Pounds 6.6m (Pounds 7.5m), mainly because of a fall in rental income as some properties were vacated when tenants failed. The leisure division made an unchanged Pounds 10.6m.

See Observer

Control Securities GB United Kingdom, EC P7011 Hotels and Motels P6552 Subdividers and Developers, Ex Cemeteries P6512 Nonresidential Buildings Operators COMP Company News FIN Annual report P7011 P6552 P6512 The Financial Times London Page 18 520
UK Company News: Bellwether backs down from approach Publication 930219FT Processed by FT 930219

Bellwether Exploration, the Nasdaq-quoted resources company, yesterday announced it had backed down from its hostile approach to Aberdeen Petroleum, the USM-quoted oil and gas group.

Bellwether first approached Aberdeen with merger proposals last month on the basis of 3.75 Aberdeen shares for each of its own.

Aberdeen's shares - which were 11p at the time of the approach - rose 1/2 p to close last night at 15p.

Bellwether Exploration Aberdeen Petroleum GB United Kingdom, EC P1311 Crude Petroleum and Natural Gas P1382 Oil and Gas Exploration Services COMP Company News COMP Merger P1311 P1382 The Financial Times London Page 18 115
Takeover creates Europe-wide retailer: The deal between Kingfisher and Darty Publication 930219FT Processed by FT 930219 By NEIL BUCKLEY and ALICE RAWSTHORN

KINGFISHER'S takeover of Darty not only creates Europe's largest electricals retailer, it could be a stepping stone on the way to its becoming the first Europe-wide retailing group.

The deal was warmly welcomed yesterday by the City, and contained no unpleasant surprises.

It values Darty's equity at FFr4.45bn (Pounds 560m). Kingfisher has agreed to acquire the whole of the issued share capital of Financiere Darty, which owns 95.3 per cent of the Darty retail group, for a cash payment of FFr1.65bn and 68m Kingfisher shares. This will give Darty shareholders a significant stake of between 10 and 12 per cent in Kingfisher.

Kingfisher will also take on borrowings valued at Pounds 477m on January 30. It will make a cash offer for the 4.7 per cent of Darty which is held publicly after consultation with the French authorities.

The UK group will strengthen its balance sheet with a Pounds 313m, one-for-seven rights issue, at a price of 450p each.

The issue will be in two stages, with a first instalment of 225p payable by March 15 irrespective of whether the takeover is completed. The second will only become payable if the takeover is approved.

That would take Kingfisher's gearing to 66 per cent, but Mr James Kerr-Muir, finance director, said he expected the group's strong cashflow to enable this to be reduced by a 'significant amount' in a 'fairly short time'. He said interest cover of six times provided further reassurance.

Analysts were enthusiastic about the deal. Mr John Richards of NatWest Securities said in the long term it offered the prospect of creating the first 'major European power-retailer'.

The two managements will work together closely, with Sir Geoff Mulcahy, Kingfisher's chairman, joining Darty's board, and Mr Philippe Frances, chairman of Darty, joining the executive committee of Kingfisher.

A first priority will be to examine areas of 'synergistic benefit' between the two chains in areas such as information technology and logistics, distribution and marketing. Mr Frances said the companies would be considering strengthening their buying operations, but they were unlikely to pool sourcing activities other than for their largest common suppliers.

The deal should also enable Darty to accelerate its expansion programme. Mr Frances said the group planned to open 30 or 40 stores in France over the next five years, and 40 new units thereafter, taking the total to about 200. Darty also intends to extend its operations outside France, at present restricted to a joint venture in Belgium with retailer New Vandenborre. Mr Frances said it would not be moving into the UK but 'there are lots of other European countries where we'd like to be'. Germany, Spain and Italy are all seen as areas of potential growth.

Lex, Page 16; Market, Page 34

Kingfisher Financiere Darty GB United Kingdom, EC FR France, EC P5722 Household Appliance Stores P5731 Radio, Television, and Electronic Stores P5734 Computer and Software Stores COMP Acquisition P5722 P5731 P5734 The Financial Times London Page 17 514
SE Banken wins rescue pledge on 'substantial' losses warning Publication 930219FT Processed by FT 930219 By CHRISTOPHER BROWN-HUMES STOCKHOLM

THE SWEDISH government yesterday promised state support to rescue Skandinaviska Enskilda Banken, the country's leading commercial bank, after it announced a SKr5.3bn (Pounds 489.4m) preliminary operating loss for 1992 and said it was facing two more years of heavy credit losses.

The bank warned that the value of its shares 'must be regarded as uncertain' in the light of its prospects and the current depressed state of the Swedish economy. Its shares fell SKr3 to SKr10.50.

The bank also warned of 'substantial' losses on loans for the next two years. Doubtful loans tripled to SKr28.8bn, or 8 per cent of total outstanding loans, from SKr9.6bn. The bank will not pay a dividend.

Soaring lending losses and erosion of its capital base have forced SE Banken to seek state support. Its 1992 year-end 8.4 per cent capital adequacy ratio was almost certain to fall below the 8 per cent legal minimum during 1993, it stated.

The government pledged assistance 'if capital cannot be attracted to the bank in any other way'.

Mr Bo Lundgren, taxation minister, said: 'The commitments of SE Banken will be fulfilled on a timely basis. Thus the activities of the bank can continue in the same way as today in relation to households, companies and other creditors.'

SE Banken first revealed last December that it had approached the state about possible financial support and last month it announced a sweeping overhaul of its operations.

It is widely believed that the state will end up carrying a heavy portion of SE Banken's bad debts while efforts are made to attract private capital. In the last resort, the state could take over the bank as it did with Nordbanken and Gota Bank.

Mr Bjorn Svedberg, SE Banken chief executive, said: 'I sincerely hope that it will be possible to get government support in combination with new private capital in forms which permit SE Banken to remain a privately owned bank.'

The 1992 result is a sharp turnround from the previous year's SKr2.3bn profit and follows a big jump in lending losses to SKr10.9bn from SKr4.8bn.

Slide to disaster, Page 20

Skandinaviska Enskilda Banken SE Sweden, West Europe P6011 Federal Reserve Banks COMP Company News GOVT Government News P6011 The Financial Times London Page 17 394
Ulcer drug helps Glaxo advance 16% to Pounds 819m Publication 930219FT Processed by FT 930219 By PAUL ABRAHAMS

GLAXO, Europe's biggest pharmaceuticals group, yesterday reported pre-tax profits up 16 per cent from Pounds 709m to Pounds 819m for the six months to December 31. The result was achieved on turnover up 16 per cent from Pounds 1.97bn to Pounds 2.29bn.

The main driving force behind the higher than expected profits increase was the strong growth of the ulcer treatment Zantac, the world's best-selling drug.

Glaxo attempted to clarify its ambitions in the over-the-counter (OTC) non-prescription drug market. Dr Ernest Mario, chief executive, said he apologised if the market had been confused about the company's strategy.

There have been rumours, following the appointment of Mr Arthur Pappas last month, that Glaxo might be preparing a rights issue to acquire Warner-Lambert in the US which has a large OTC business.

Dr Mario said the company had a number of products, such as Zantac, that might be switched to the OTC market. Mr Pappas had been appointed to help develop the group's capacity to conduct such switches. However, that did not mean Glaxo would buy OTC products or other companies just to increase turnover in OTC. This statement calmed the City's fears and Glaxo's shares lifted 22p to 684p.

Glaxo had limited price increases to below the rate of inflation, Dr Mario said. Group sales, excluding exchange rates, rose 13 per cent. Only 1 per cent came from price increases, with 12 per cent from volume growth. Because the group does not manufacture drugs in Puerto Rico, Dr Mario said it was less exposed than other drug companies to any moves by the Clinton administration to curb the island's tax haven status. He said Glaxo had new products capable of driving volume growth. Sales of new products, including Imigran, the migraine treatment, and Serevent, an asthma drug, rose Pounds 92m, while established drugs improved by Pounds 83m.

Details, Page 18; Lex, Page 16; Market, Page 34

Glaxo Holdings GB United Kingdom, EC P2834 Pharmaceutical Preparations FIN Interim results P2834 The Financial Times London Page 17 352
Companies in this issue Publication 930219FT Processed by FT 930219

--------------------------------------------- COMPANIES IN THIS ISSUE --------------------------------------------- UK --------------------------------------------- Aberdeen Petroleum 18 Airtours 18 Alumasc 19 Central Circuits 19 Chelsea Bld Society 19 Control Securities 18 Cupid 19 Edencorp Leisure 18 English & Overseas 19 Forward Group 19 Glaxo 34,18,17 Gold Greenlees Trott 19 Inchcape 11 Kingfisher 34,17,1 Kleinwort Benson 18 Leslie Wise 19 McLeod Russel 19 Mirror Group News 18 Owners Abroad 18 Platon Intl 18 RTZ 17 SWP 19 Shield 19 Sinclair Goldsmith 19 Terry's 17 United Biscuits 17 Ward Holdings 18 Wheway 19 Wills Group 18 --------------------------------------------- Overseas --------------------------------------------- Bellwether Expln 18

Bramalea 21 Darty 17,1 Dyno Industrier 20 Finmeccanica 20 Framatome 21 GEHE 20 Genting 22 George Western 21 Independent Newspapers 21 Jacobs Suchard 17 Kirin Brewery 22 Kvaerner 20 Leif Hoegh 20 Lin Broadcasting 21 Loblaw 21 McCaw Cellular 21 Mitel 21 Navistar 21 Nerco 17 Philip Morris 17 SE Banken 20,17 Skoda 19 Sony 17 South China Post 22 Sparebanken 22 Statoil 20 Timex 16 TransAmerica 21 Turner Broadcasting 21 UMW 22 Uniwa 21 Vitro 21 Volkswagen 19 Whirlpool 21 ---------------------------------------------

XA World P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 17 200
Sony profits fall 62% to Y50bn Publication 930219FT Processed by FT 930219 By MICHIYO NAKAMOTO TOKYO

THE continuing weakness of Japanese consumer spending and adverse currency movements contributed to a decline in third-quarter consolidated sales and profits at Sony, the Japanese electronics group.

Sales in the three months ended December fell nearly 4 per cent to Y1,082bn (Pounds 6.3bn) from Y1,125bn previously. Pre-tax profits dropped more dramatically by 62 per cent to Y50.6bn, although this was largely due to an extraordinary gain following the issue of shares by Sony Music Entertainment in the previous year. Discounting the effect of the 1991 extraordinary gain, pre-tax profits fell by 27 per cent.

Europe showed the steepest decline of all Sony's important markets, with sales falling by 10 per cent to Y310.8bn, although Japan followed closely with an 8.6 per cent fall in sales to Y257.3bn.

In contrast, sales in the US were up 1.2 per cent to Y330.6bn, although this was affected by the weakness of the dollar against the yen. In dollar terms sales were up by 12 per cent.

Among products, video recorders and camcorders suffered the largest reduction in sales of nearly 12 per cent. Audio sales also fell 6 per cent, while TV sales increased by 10 per cent on the strength of worldwide demand for computer displays from the computer industry and the popularity of Sony's flatter screen TV in the US.

While music sales were down by 4 per cent, in dollar terms music entertainment rose 16 per cent. Film entertainment, however, saw a decline of 8 per cent even in dollar terms, although this was also due to an extraordinary gain in the previous third quarter, Sony said.

Sony has not changed its projections for the next fiscal year since it reduced its forecast in November to sales of Y3,950bn, or a 3 per cent increase.

The company reports that sales of MiniDiscs, its new digital compact disc format which is competing for the portable digital audio market with Philips's Digital Compact Cassette, are strong. Sony is increasing its initial monthly production of 30,000 MiniDisc units to between 40,000 and 50,000. The number of software titles is expected to rise to between 1,250 and 1,500 by the end of the year.

Sony Corp JP Japan, Asia P3651 Household Audio and Video Equipment P5064 Electrical Appliances, Television and Radios FIN Interim results P3651 P5064 The Financial Times London Page 17 404
United Biscuits seeks to sell Terry's Publication 930219FT Processed by FT 930219 By GUY DE JONQUIERES, Consumer Industries Editor

UNITED Biscuits, Britain's largest biscuit and snacks manufacturer, is seeking to sell Terry's, its chocolate division, in a move intended to cut debt and pave the way for further acquisitions.

Talks have been underway for several weeks with a number of prospective buyers. They are understood to be most advanced with Philip Morris, the US tobacco and food group, which owns Jacobs Suchard, the Swiss chocolate and coffee company. Neither UB nor Philip Morris would comment.

Analysts estimate that Terry's, which earned operating profits of Pounds 3.2m on sales of Pounds 69m in the first half of last year, could fetch more than Pounds 200m. The company has about 3 per cent of the UK chocolate market as well as subsidiaries in France and Italy.

UB has made acquisitions in continental Europe, Australia and the US in the past two years in an effort to strengthen its international presence in biscuits and savoury snacks, which it views as its core businesses.

The company is considering bidding for the biscuits interests of Royal Brands, a leading Spanish food company, which has been put up for sale by Tabacalera, its state-owned parent. UB is also believed to have been in talks with Derwent Valley Foods, a privately-owned UK snacks maker best known for its Phileas Fogg brand.

However, UB's scope for further acquisitions is limited by its high gearing, which rose to 88 per cent after last month's Pounds 47m purchase of Bake-Line, a US biscuit maker. The company's total debt is currently about Pounds 540m.

The sale of Terry's would take the recent consolidation of Europe's chocolate industry a step further. Suchard, which was purchased by Philip Morris for Dollars 3.8bn (Pounds 2.7bn) in 1990, successfully bid Dollars 1.5bn last autumn to acquire Freia Marabou, a Norwegian confectionery manufacturer.

Though Suchard is one of Europe's leading chocolate producers, it has only a small share of the UK market, which is dominated by Cadbury Schweppes, Nestle and Mars.

Another possible bidder for Terry's is Hershey, the largest US chocolate company, which has been seeking to expand in Europe. It had also sought to take over Freia Marabou.

United Biscuits (Holdings) Terry's of Yorks GB United Kingdom, EC P2052 Cookies and Crackers P2066 Chocolate and Cocoa Products COMP Disposals COMP Company News P2052 P2066 The Financial Times London Page 17 406
Paternoster Square proposal nears final clearance Publication 930219FT Processed by FT 930219 By JOHN GAPPER

ONE OF the longest-running planning controversies in London neared an end yesterday when Mr Michael Howard, the environment secretary, cleared the way for the Pounds 800m redevelopment of Paternoster Square next to St Paul's Cathedral.

Mr Howard has decided not to exercise his right to judge on the planning applications to redevelop Paternoster Square, and the adjacent Sudbury House. His decision will allow the Corporation of London to proceed with granting planning permission as it intends.

The developer, Paternoster Associates, said construction at the seven-acre site, of which Paternoster Square forms 4.2 acres, might start next year.

There have been growing doubts about whether Paternoster Square will be redeveloped because of the depressed state of the commercial property market, but the company said it wanted to start work 'as soon as practically possible'.

Mr Howard said there was 'a pressing need for this largely vacant site to be redeveloped in a way that enhances the setting of St Paul's Cathedral'. He was satisfied that the current proposals for the two sites met this need.

The corporation referred the planning applications to Mr Howard in October after resolving to approve them both. The scheme, which was revised in July, includes 72,000 square metres of office space and 13,700 square metres of shops.

The site has been controversial for more than five years, since the Prince of Wales condemned the original modernist design for the redevelopment as 'deeply depressing'. Paternoster Associates' plan was unveiled by the prince in May 1991.

Paternoster Associates is a partnership between Greycoat, the UK developer, Park Tower Group of New York, and an affiliate of Mitsubishi Estate Company of Japan. The group paid Pounds 160m for the site when it was acquired in 1989.

The group said construction would start at the earliest next year and be completed by 1998. The redevelopment would replace buildings laid out in the late 1950s following bombing near St Paul's in the second world war. Mr Howard also approved proposals to convert the Harrods Depository in London into a 141-bedroom hotel. The decision follows the recommendation of a planning inquiry.

GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries P9512 Land, Mineral, Wildlife Conservation P7011 Hotels and Motels RES Facilities GOVT Government News P6552 P9512 P7011 The Financial Times London Page 16 396
Former analyst hopes to keep power stations switched on Publication 930219FT Processed by FT 930219 By CHRISTOPHER PRICE and MICHAEL SMITH

MR CHRIS Rowland, as an analyst with Barclays de Zoete Wedd, acquired a reputation in the City for a bearish outlook on some of the electricity companies he followed. But there is nothing pessimistic about his view of his own prospects.

To the surprise of his fellow electricity-watchers, he has quit his lucrative job at the company where has worked for 10 years so that he can attempt to run parts of five power stations that National Power, the electricity generator, considers have had their day.

Mr Rowland, 37, and married with one child, insists the project is viable. 'I think I can make a go out of the five units which National Power wants to close. I would always have regretted not making a try of it.'

National Power said yesterday that, although Mr Rowland had approached it through his company, Cabah Energy, his initial offer was not commercially attractive. However, National Power said it would consider future bids on their merit.

Mr Rowland said talks were continuing and praised the company for considering his approach. 'Many others in its position would not.'

As well as approaching National Power, Mr Rowland has applied to Offer, the electricity industry regulator, for a licence to run the units.

Offer has already begun an investigation into whether National Power is justified economically in closing the units.

Although most of Mr Rowland's former analyst colleagues expect Offer to back National Power's decision, some believe it will say the units should be offered for sale.

Mr Rowland said negotiations were at an early stage and various alternatives were being discussed. He refused to comment on financing for the new venture, or on the identity of any other partners.

'It is always going to be difficult to make money out of old power stations,' said one colleague at another investment bank.

'National Power want to close these stations because they think they are no longer economic to run. He is taking a big risk.'

National Power GB United Kingdom, EC P4911 Electric Services RES Facilities PEOP Personnel News P4911 The Financial Times London Page 16 371
US markets give mixed signal on economy plan: Bonds rise sharply but share prices decline Publication 930219FT Processed by FT 930219 By PATRICK HARVERSON NEW YORK

THE US markets gave President Clinton's package a mixed reaction yesterday. Government bonds rose sharply but share prices ended a chaotic day mostly lower.

In late trading the benchmark 30-year government bond, the key indicator of bond market performance, was up about a point at 101 9/32 .

Investors in fixed-income government bonds bid prices higher because they believed that the tax-raising package would slow economic growth and therefore stifle inflation. Low inflation helps maintain the value of their investments.

But the prospect of slower economic growth troubled the stock markets. Mr Will Brown, chief economist at JP Morgan in New York, said: 'The package will act as a modest restraint on demand, but not of a magnitude likely to derail a recovery.'

After fluctuating wildly for most of the day, the Dow Jones Industrial Average finished down 10.0 at 3,3302.19. In early trading the Dow jumped 35 points, primarily a technical reaction from investors who felt that stocks had been oversold during the market's big plunge on Tuesday.

Within hours, however, the Dow was showing a net decline of 35 points as pessimism about the tax increases swept the markets, although it eventually recovered most of the lost ground before the close.

The overall market view of President Clinton's economic proposals was negative. Investors are concerned that the tax increases will hurt the economy, and were disappointed that the president's deficit reduction package was not tilted more towards spending cuts.

The hardest hit sector in the stock markets was airline shares, which fell sharply on news of the energy tax and worries about the effect of higher income taxes on demand for air travel. UAL fell Dollars 3 1/2 to 115 3/4 , Delta fell 1 3/4 to Dollars 46 7/8 and the parent company of American Airlines dropped Dollars 2 5/8 to Dollars 57.

The rise in the price of the 30-year bond pushed the yield, or investment return, down to 7.017 per cent, the lowest level it has been since the government began issuing 30-year bonds in the late 1970s.

This makes it likely that US mortgage and corporate borrowing rates - many of which are pegged to the yield on the 30-year bond and other longer-maturing government securities - will come down over the next few days.

The immediate reaction of the foreign exchange markets to the president's speech was positive, with the dollar rising almost 3 pfennigs to DM1.6515 on overseas markets late Wednesday night. In New York, however, trading was more subdued amid confusion over what the Clinton package will mean for the economy over the long term. At the close in New York the US currency had slipped back to stand at DM1.6315, up about a pfennig.

Although most economists on Wall Street believe that higher personal and corporate taxes will slow economic growth, and with it corporate earnings, a few welcomed the president's economic proposals.

Inflation rises as output advances Page 5

Debt maturities shift Page 5

Seismic shock to economic landscape Page 15

Government bonds Page 23

Currencies Page 25

US stocks Page 31

London stocks Page 34

US United States of America P9611 Administration of General Economic Programs P6231 Security and Commodity Exchanges CMMT Comment & Analysis P9611 P6231 The Financial Times London Page 16 570
Europe will follow US lead over high-definition TV Publication 930219FT Processed by FT 930219 By ANDREW HILL BRUSSELS

EUROPE will have to fall in line with the US on a transmission standard for digital high-definition television, the EC industry commissioner has said.

Mr Martin Bangemann said there was no point starting a global battle over advanced television standards by trying to set an exclusive EC standard.

His comments mark the end of the EC's costly standards-based HDTV strategy and could mean that the US technology, which should be selected later this year, will be adopted worldwide.

Mr Bangemann, who took over responsibility for HDTV last month, says the EC should concentrate on salvaging the best elements of its ill-fated eight-year programme to develop advanced, cinema-quality television. 'A digital standard doesn't need to be set (by the EC),' he said. 'Global standards are always the best solution.'

EC taxpayers have invested at least Ecu625m (Pounds 516m) in research and development of analogue HDTV since 1986. Companies such as Philips of the Netherlands and Thomson of France have also ploughed funds into developing the EC standards, and are ready to mass-produce televisions to those norms.

The aim of exclusive technical standards for European HDTV was to gain a head start against Japan and the US. But technological advances and political opposition have meant that EC satellite transmission technology has been almost overtaken by US digital standards.

Mr Bangemann believes digital technology could be developed by 1997. Unlike EC analogue technology, digital standards can be used for broadcasts by terrestrial television stations.

Britain is blocking further EC funding of Ecu500m over the next five years, on the grounds that digital technology may arrive on the market earlier than predicted. As a result, Philips announced last month it would not start making HDTV televisions to European standards.

However, if the EC does adopt the US standard, the two principal EC manufacturers will not necessarily lose because they are both involved in one of the consortia bidding to produce the US technology. Philips and Thomson also argue that the HDTV programme has had useful spin-offs.

Japan, which has concentrated on analogue HDTV technology, may also be forced to adopt the US digital norms. Analysts estimate digital HDTV in Japan and Europe will lag about five years behind the US.

Mr Bangemann is now seeking to amend the commission's plans to concentrate on developing lighter, cheaper wide-screen televisions, and the conversion and production of programmes for the wide-screen format.

The commission has asked the Danish presidency of the EC for a special meeting of telecommunications ministers to debate the future of HDTV policy, ahead of the scheduled council on May 10.

Telecoms win priority, Page 2

Letters, Page 14

Observer, Page 15

QR European Economic Community (EC) US United States of America P3651 Household Audio and Video Equipment P3663 Radio and TV Communications Equipment TECH Standards GOVT Government News RES R&D spending P3651 P3663 The Financial Times London Page 16 493
The Lex Column: UK economy Publication 930219FT Processed by FT 930219

The government's unseemly haste in cutting base rates after the release of December's appalling unemployment figures now looks misplaced. Traditional seasonal adjustments may have been rendered invalid by the length of the recession. As a result, December's figures may not have been as bad as they looked, while only cold comfort can be drawn from the better January data. The trend rise in unemployment is still running at over 40,000 a month, far higher than at a similar stage of previous recessions. The implications for consumer confidence are clear.

There is, however, a silver lining. Productivity is now climbing rapidly and may show double-digit growth once cyclical recovery starts. In manufacturing industry, at least, that has all but offset wage inflation, which should help counter the impact of devaluation. Yet if the near-term inflation outlook is good, that is purely a function of the depressed economy. The real inflation test comes later.

GB United Kingdom, EC P9611 Administration of General Economic Programs ECON Economic Indicators P9611 The Financial Times London Page 16 182
The Lex Column: Kingfisher/Darty Publication 930219FT Processed by FT 930219

There are two starkly different interpretations of Kingfisher's takeover of Darty. The first suggests it is taking a wild punt in paying Pounds 560m for a French service sector company currently toying with recession. The dangers are heightened by Kingfisher assuming a further Pounds 477m of debt, writing off Pounds 900m of goodwill, and increasing gearing to 66 per cent even after a Pounds 313m rights issue.

The alternative view is that Kingfisher is acquiring a well-managed business with market leadership and considerable scope for expansion. Darty's strong income stream will quickly enhance Kingfisher's earnings. The price is attractive at just 16 times Darty's forward earnings.

Which version is right depends on one largely unpredictable factor: how well the two managements co-operate. The history of recent Anglo-French mergers is poor. In this case, there are genuine grounds for optimism. First, Darty's management has a firm financial interest in success, having been paid mainly with Kingfisher paper. Second, Kingfisher is a flexible parent more akin to a holding company than a traditional retailer, though this approach also implies less immediate synergy benefit for Comet than the market originally assumed. Third, the deal's architect is Sir Geoffrey Mulcahy who has proved the near-personification of caution. His record should win him the benefit of the doubt.

Kingfisher Financiere Darty GB United Kingdom, EC FR France, EC P5999 Miscellaneous Retail Stores, NEC P5311 Department Stores P5231 Paint, Glass, and Wallpaper Stores P5722 Household Appliance Stores COMP Company News COMP Acquisition P5999 P5311 P5231 P5722 The Financial Times London Page 16 266
The Lex Column: Glaxo's trusty tonic Publication 930219FT Processed by FT 930219

Yesterday's interim figures were just what the doctor ordered for Glaxo's sickly share price. Sales grew faster than the market expected, albeit thanks to the old stager Zantac rather than the new generation products. An overdue explanation of the company's sensible but modest ambitions in over-the-counter medicines should snuff out speculation of a big acquisition and rights issue. But that will do nothing to calm the market's fears of tighter government regulation.

Despite ploughing ever more into research and development, Glaxo is accumulating cash at the rate of Pounds 200m a year. In the context of total profits of perhaps Pounds 1.7bn this year, the drag of a Pounds 1.5bn cash pile is bearable. But sales are expected to grow faster than costs from here on. Operating margins which are already over 30 per cent will, if anything, increase. Glaxo will soon have to decide whether to pay higher dividends or make an acquisition. Embarrassment of riches may leave it open to pressure.

With a stream of innovative new products on the way, Glaxo should be better placed than most to withstand government brow-beating. Only a fraction of sales growth in the first half came from price increases. Yet that does not make Glaxo immune. Drug prices are actually falling in Japan. On a yield close to the market average, Glaxo looks a relatively safe place to ride out the uncertainty. But the sector will remain under a cloud until the scope of President Clinton's crusade against healthcare costs is clear.

Glaxo Holdings GB United Kingdom, EC P2834 Pharmaceutical Preparations COMP Company News P2834 The Financial Times London Page 16 282
Leading Article: Mr Kohl faces the squeeze Publication 930219FT Processed by FT 930219

THE ECONOMIC reconstruction of east Germany remains a severe problem for Germany, its neighbours and the world. The German government is still far from bringing about a self-sustaining recovery in the east. Reunification-induced inflationary pressures have caused the Bundesbank to keep short-term interest rates high since 1991, depressing economies across Europe. The terms on which east German liabilities were converted in 1990, coupled with east Germans' desire for west German incomes, have much increased public financing needs.

East Germany has become the hole in the heart of the European economy. Unless repaired, the damage will spread. A long European recession would deliver the coup de grace to the Maastricht process. Additionally, it could fatally undermine the Community's single market. Already it seems unlikely that Germany will fulfil the fiscal conditions set at Maastricht for economic and monetary union later in the decade.

Germany's slowdown has made corrective policies more difficult, yet more necessary. The Bonn government expects zero growth for Germany as a whole this year. The country has been living beyond its means. It now ranks seventh in the EC in terms of GDP per head.

The 3 per cent wage rise agreed earlier this month for public sector employees shows some willingness to tighten belts. Many large west German manufacturing companies have been made uncompetitive by excessive wage rises and the D-Mark's EMS revaluation. It would be realistic for workers in the west to prepare for several years of real wage stagnation.

Labour costs

East German unit labour costs are 80 per cent above the west German level. This has accelerated the industrial collapse east of the Elbe - a significant factor behind the demand for large transfers from Bonn. Solving the wage problem is an essential way of reducing the drain from east Germany on public finances.

Now that east German wage tariffs are 73 per cent of those in the west, any further catch-up can take place only over a long period. The preferable approach would be to offer east German employers a wage subsidy to maintain employment at relatively low wages. If east German workers insist on maintaining the drive to equalise wages by 1994-95, Bonn must make clear its response will be to cut subsidies for depressed eastern industries. Unless wage costs are cut, the Treuhand's difficulties with privatisation will grow.

Budgetary cuts

Next, Bonn must extend its medium-term budgetary cuts. Expenditure reductions agreed so far do not match the need for radically overhauling spending priorities. Overall federal expenditure totals for 1995-96 are now 5 per cent higher than the finance ministry proposed last summer. And the government's budgetary arithmetic is based on highly optimistic assumptions about GDP growth after 1994.

The government must also tap additional revenue sources. Chancellor Helmut Kohl wants to delay further income tax increases until 1995. Holding back from a tax increase this year makes sense. Ruling one out for 1994 does not. The government should also take a far more imaginative line over privatisation.

None of these suggestions is easy to enact. Reunification strains have eroded traditional German policy consensus. So far, the Bundesbank's international credibility has allowed Germany to finance very large borrowing at relatively low long-term interest rates. But, unless Germany takes adequate measures, the financial markets will demand corrective steps. Debt of the size now being acquired by the public sector represents a heavy mortgage.

Action will require an accord with the opposition Social Democrats, who, because of their majority in the Bundesrat, have an effective veto over tax legislation. Mr Kohl has been making heavy weather of trying to spread the burdens of unity through negotiations on his 'solidarity pact'. He must now recognise that room for manoeuvre, already small, could soon disappear. If Germany's economic imbalances persist, the clouds over Mr Kohl's own future will grow. But they will be small compared with the risk of storms over Europe.

DE Germany, EC P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 15 678
Leading Article: Budget for the supply side Publication 930219FT Processed by FT 930219

BRITAIN ISN'T working. Despite the rise in seasonally adjusted unemployment to just below 3m by mid-January, the Bank of England concluded in its Inflation Report out this week that the government's target range for inflation of 1 to 4 per cent is not secure. In any case, the question has never been whether a recession lasting nine quarters would lower inflation. The question is whether the UK can sustain non-inflationary growth. It is against this test that the Budget offered by the chancellor on March 16 needs to be judged.

What is needed is neither a Budget for business nor a Budget for jobs, but a Budget for the supply side as a whole. Such a Budget should not be designed to alleviate each and every business complaint. Nor can it be a Budget crammed with special incentives for supposedly worthy activities.

Macroeconomic stability should be at the heart of such a Budget. Instability leads to waste. The excessive investment in property development of the late 1980s was, for example, one fruit of the UK's long inflationary history. The government must offer a fiscal prospect that makes resort to inflation seem highly unlikely. Tax increases seem necessary. The sole alternative would be a dynamic recovery, combined with a credible programme of tight control of public spending. Either way the chancellor has no room for 'giving' anything away. The only question is how much he will have to take.

No chance for reform

In view of this dismal background, comprehensive fiscal reform would create too many losers. But the fiscal predicament of the government also means that most of the many and varied pet schemes of business lobbyists - relief of surplus advance corporation tax, higher first-year capital allowances, faster depreciation, higher thresholds for corporation tax, exemption from taxes on long-term capital gains, tax relief for export promotion, higher VAT thresholds, lower uniform business rates and abolition of inheritance tax - are also unlikely to be adopted.

The lack of opportunity for reform is a pity, mostly because of the absence of any chance for coherent reform after the first year of a new parliament. The British tax system remains riddled with fundamental anomalies.

Notwithstanding the adverse background, a few changes may be helpful. Personal equity plans could be extended to include interest-bearing assets and Tessas might be made more flexible. For business, depreciation might be indexed for inflation, VAT thresholds might be raised and the high rate of tax of capital gains might be lowered or, better still, roll-over relief might be offered. Nonetheless, the room for manoeuvre is small. The Confederation of British Industry argues its proposals would cost only Pounds 500m to Pounds 1bn and would be self-financing in the long term. A Treasury faced with a need to borrow more than Pounds 50bn might regard this as petty cash, but even petty cash mounts swiftly up.

Fiscal buttresses

On one point the Treasury should be firm. It is true that there is double taxation of corporate income earned abroad because ACT cannot be set against foreign corporation tax. But ACT is really just an income tax. It is far from clear that UK residents should not pay income tax on profits earned abroad by the companies they own. If the result is to lower the incentive for corporations to invest abroad, so be it.

In the last resort, however, tinkering with taxation is secondary. The government has taken the actions most needed by business, which were to lower interest rates and let the exchange rate depreciate. The principal function of this budget is, therefore, to provide the fiscal buttresses for these changes in monetary policy.

The fate of business depends not on further fiscal hand-outs, but on its will to control its own costs, the most important of which is for labour. With the underlying increase in average earnings down to 4 3/4 per cent, things are beginning to look encouraging at last. But control over pay must continue well into the recovery. The fate of businesses lies in its own hands and - given the long-term link between pay and jobs - so too does that of the 3m unemployed.

This is the fourth of a series of leaders on the March Budget.

GB United Kingdom, EC P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9611 P9311 The Financial Times London Page 15 747
Seismic shock to the economic landscape: Public investment and a heavier tax burden are the keynotes of the package Publication 930219FT Processed by FT 930219 By MICHAEL PROWSE

As an impassioned plea for a fundamental change in the nation's economic philosophy, President Bill Clinton's address to Congress may prove to be of historic significance. He argued, in effect, that Republican strategies emphasising increased incentives for individuals had failed and that the nation needed to follow a social democratic path, involving a greater emphasis on public investment and a fairer distribution of the tax burden.

Mr Clinton bucked recent fiscal trends by becoming the first leader of an advanced democracy to propose a big increase in the top rate of income tax - from 31 per cent to nearly 40 per cent for the richest families. Adding in state and local taxes, top earners will face an effective top rate of about 50 per cent. Most industrial countries have been striving to reduce top marginal rates in a bid to improve economic efficiency.

Although Mr Clinton deliberately targeted the rich, he raised taxes on the great bulk of American households - all families with incomes of more than Dollars 30,000 a year - thus breaking one of his main campaign pledges. However, because a significant proportion of the taxes will be used to increase public investment in infrastructure, education and training, Mr Clinton was not able to signal a wholly convincing reduction in the federal deficit.

By fiscal 1997, some five years into a business cycle upswing, Mr Clinton hopes to have reduced the deficit to slightly more than Dollars 200bn, compared with nearly Dollars 300bn today. However, that still represents 2.7 per cent of gross domestic product, a significant drain on national savings at a point in the cycle when the budget ought to be close to balance, if not in surplus. Moreover, in all probability Congress will not accept all the proposed spending cuts and tax increases.

And, as Mr Clinton rightly stressed, any hope of controlling the deficit in the longer term requires the enactment of effective controls on healthcare spending - a controversial issue on which a national consensus is as yet far from assured.

The economic plan reflects two of Mr Clinton's deepest convictions:

A public sector-led switch from consumption to investment is essential to revive long-term productivity growth and restore faith in the 'American dream'. Social solidarity is important for its own sake. Mr Clinton is telling affluent Americans that it is their duty to pay more taxes. He probably would have raised taxes on the rich even if he had not needed more revenue.

Yet recent economic figures are throwing doubt on the assumptions underlying the Clinton plan, which was conceived largely as a response to the perceived economic problems of the 1980s. Hearing his 'call to economic arms', you might think the economy was still floundering in recession. In reality, the downturn ended nearly two years ago and the underlying annual rate of growth has accelerated to about 3 per cent. Business investment and profits are rebounding strongly.

Jobs are admittedly not being created as fast as in previous recoveries. But the labour force is growing far less rapidly, reflecting the absorption of the 'baby-boomer' bulge in the workforce. The unemployment rate has already fallen to 7.1 per cent from a peak of 7.7 per cent last year.

Productivity growth - the number one problem according to Mr Clinton - seems to be staging a spontaneous revival. Productivity increased by 2.7 per cent last year and at an annual rate of 4.0 per cent in the fourth quarter. These were the best figures for two decades. Efficiency gains are occurring throughout the economy, even in the sprawling services sector.

Against this economic backdrop, the Clinton plan looks flawed. With the economic numbers improving, it is hard to understand why Mr Clinton is determined to press ahead with a short-term fiscal stimulus worth Dollars 30bn, or about 0.5 per cent of GDP. Such a Keynesian boost to an already debt-laden economy was no part of his campaign strategy.

When the aim is supposedly the creation of 500,000 jobs over two years, the emphasis on investment incentives - a temporary credit for large companies and a permanent credit for small companies - may prove unwise. There is a danger that additional subsidies for capital, at time when rapidly rising healthcare premiums are raising the cost of labour, will accelerate the shift under way towards more capital-intensive forms of production.

It is also curious, and perhaps unprecedented, for an administration to call simultaneously for stimulus and restraint. The attack on the deficit is long overdue but it means that Mr Clinton will be taking purchasing power out of the economy as his presidency progresses: he plans to raise taxes by about Dollars 240bn over four years and make net spending cuts (after allowing for the boost to public investment) of about Dollars 80bn. It seems naive to expect consumers and companies to react joyously to the immediate stimulus without taking account, today, of the 'austerity package' planned for later.

The net effect of the package could thus be mildly deflationary, even allowing for some further decline in long bond yields. The risk of a negative impact on growth has been heightened by Mr Clinton's disregard for economic incentives. He had to cut the deficit but he did not have to rely so heavily on increases in taxes. And having targeted taxes, he could have tried to broaden the tax base rather than raise tax rates.

The energy tax was a modest step in the right direction but it will raise only Dollars 22bn a year when fully phased in. It is no substitute for a European-style value-added tax which could efficiently have raised a far larger sum. This would have corrected the biggest anomaly in the US tax system (the near complete absence of levies on consumption), while inflicting no damage on incentives to save or invest. Mr Clinton instead emphasised higher rates of income and corporate taxes, only partially balanced by special concessions such as investment tax credits. In effect this is a repeal of the admired 1986 Tax Reform Act, which sought to create a 'level fiscal playing field' by eliminating loopholes and lowering tax rates.

Mr Clinton may argue that considerations of fairness obliged him to raise top rates of income and corporation taxes. This was certainly the easiest course. But he could have preserved economic incentives by attacking the tax concessions that favour the wealthy: for example, the tax deductibility of pensions, health premiums and mortgage interest costs about Dollars 150bn annually in lost revenue, which is nearly twice as much as Mr Clinton hopes to raise when his rate increases are fully phased in.

Mr Clinton has been preaching the need for higher public investment, a lower deficit and a fairer tax system from the day he announced his bid for the presidency. All three goals are a legitimate reaction to the 'excesses' of the 1980s and, if achieved, will bring US policies more into line with those of other industrial democracies. Whether his package will boost growth or transform the employment outlook is altogether more questionable.

Nobody can claim that Mr Clinton lacks courage, however. He is attempting the most sweeping reshaping of the economic landscape since Ronald Reagan's famous tax-cutting budget of 1981. The difference is that he sees government as part of the solution rather than as part of the problem.

US United States of America P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy GOVT Government News CMMT Comment & Analysis P9611 P9311 The Financial Times London Page 15 1284
Observer: Forbidden fruit Publication 930219FT Processed by FT 930219

A prison governor in Hungary bit off more than he could chew when he helped himself to a sample from a bunch of bananas sent to an inmate by relatives. The one he chose had a file hidden inside it.

HU Hungary, East Europe P9223 Correctional Institutions PEOP Personnel News P9223 The Financial Times London Page 15 65
Observer: Pay off Publication 930219FT Processed by FT 930219

Every penny's now under scrutiny at Control Securities, what with newly revealed negative net assets of Pounds 31.8m as well as debts exceeding Pounds 250m. So the property company may well be regretting a certain Pounds 5,000 outlay in its last financial year.

The money was donated to the election fund of Labour MP Keith Vaz who has championed the cause of depositors of collapsed bank BCCI. And who can forget that on the last day of Control's 1992 financial year its then chairman Nazmu Virani was arrested in connection with the BCCI affair?

But at least Control was fairly even-handed. It gave Pounds 1,750 to the Liberal Democrat party too.

Control Securities GB United Kingdom, EC P7011 Hotels and Motels P6552 Subdividers and Developers, Ex Cemeteries P6512 Nonresidential Buildings Operators COMP Company News P7011 P6552 P6512 The Financial Times London Page 15 152
Observer: Cheers Publication 930219FT Processed by FT 930219

Are you fat, addicted to rich food, averse to exercise, and perhaps even a smoker? If so, the medical journal Lancet has some useful advice for you . . . unless you happen to be French as wel1, and so probably know it already.

First, never let your low-density lipoprotein become oxidised because, in that case, it will get busy helping to build up layers of fat that could block your arteries.

Second, according to US and Israeli researchers, the perilous oxidisation can be forestalled by taking in phenolic flavonoids, which act as anti-oxidants.

Third - which the researchers suspect the French, at least, somehow know instinctively - a pleasant way of absorbing phenolic flavonoids is to drink a modicum of red wine. The goodness is not in the alcohol, however, but in its other ingredients.

GB United Kingdom, EC P80 Health Services CMMT Comment & Analysis P80 The Financial Times London Page 15 161
Observer: Same again Publication 930219FT Processed by FT 930219

It's hard to quibble about the calibre of the Bank of England's latest clutch of non-executive directors. Sir Jeremy Morse, recently retired chairman of Lloyds Bank, is one of Britain's best bankers. Hambros' Sir Chips Keswick is regarded as very sound.

How refreshing, too, to find a woman at last on the Court of the Bank of England, although Frances Heaton's appointment suggests that life at the Takeover Panel can't be all that busy at the moment.

Even so, the appointments do look a trifle incestuous. Morse and Keswick both learnt their trade at the same place - Glyn Mills & Co. Sir David Walker, one of the outgoing Bank directors, has joined the board of Morse's old firm Lloyds, and is expected to take his old job after a decent interval. Moreover, Walker is an old Treasury hand and so is Frances Heaton.

Perhaps the government could have cast the net a bit wider. The Bank would benefit from a greater variety of opinions. The problem with the latest bunch is that there's probably nothing whatsoever they disagree about.

Bank of England GB United Kingdom, EC P601 Central Reserve Depositories COMP Company News PEOP Personnel News P601 The Financial Times London Page 15 213
Observer: Bangemann bangs on Publication 930219FT Processed by FT 930219

'The truth is rarely pure, and never simple.' Few things are more aptly depicted by Oscar Wilde's dictum than the attitudes to Britain of Germany's Martin Bangemann, the European Community commissioner for industry.

For one example, take the charge that he is a would-be banner of British bangers, not to mention prawn-flavoured crisps. It is false. Take for another the complaint about his insensitive delivery of strongly worded federalist speeches during the UK parliamentary seethings over Maastricht. That is true.

But whatever the complications, he is evidently not going to change his bruising bluntness where British sensibilities are concerned.

Witness the fluent English-speaker's response when politely asked during a press conference to favour UK television viewers with an English version of his comments on the impact of the EC's rescue package for the steel industry. No, he replied, he had already dealt with the topic in German.

There seems no hope of stinging him with criticism, such as the sort that emerged from a survey of 2,000 European industrialists, half of them from Britain. A majority named him, along with Jacques Delors, as the EC commissioners most biased in favour of their own narrow national interests.

How did Bangemann respond? He thumbed through his favourite Oscar Wilde quotations, and took solace in: 'To disagree with three-fourths of the British public on all points is one of the first elements of sanity - one of the deepest consolations in all moments of spiritual doubt.'

DE Germany, EC P9721 International Affairs PEOP Personnel News Bangemann, M European Community Commissioner (EC) P9721 The Financial Times London Page 15 275
President's search for the perfect wave: Jurek Martin examines Clinton's big political gamble Publication 930219FT Processed by FT 930219 By JUREK MARTIN

The most successful peacetime politicians catch the wave before it crests. Franklin Roosevelt and Ronald Reagan managed it at the beginning of their administrations, with very different policies at very different times. But it was an instinct not possessed by Jimmy Carter, whose declaration in 1977 of the 'moral equivalent of war' on profligate energy use caught his nation in a pacifist mode, and George Bush, who, lacking 'the vision thing', never saw what swamped him.

Bill Clinton, just one month in office, thinks he has seen the wave forming. Contrary to all the political evidence of the past 12 years, he is convinced that Americans are ready to reverse the self-indulgence of the 1980s by paying higher taxes in the greater cause of reducing the federal budget deficit and the national debt. He is also offering short-term stimulus, longer-term investment and bigger, if phased, cuts in spending than ever proposed by Mr Bush. But the headlines yesterday are all about where the average American's wallet is going to be hit.

It is a big gamble and a larger political presumption. Mr Bush lost last November in good measure because he promised never to raise taxes and two years later changed his mind. Across the country those politicians who have trodden the same path have generally suffered.

In New Jersey, a good national microcosm, the Democrats lost control of the legislature because of opposition to the tax increases advanced by Governor Jim Florio. Even Senator Bill Bradley, the most popular politician in the state, nearly lost to a nobody in 1990 because of his association with Mr Florio. Out in California, where the tax revolt was born in the 1970s, Mr Pete Wilson, the Republican governor and reasonable presidential aspirant, has seen his stock plummet as a result of his determination to put the state's fiscal house in order.

And yet last November, 62 per cent of the American public explicitly rejected the policies advanced by President Bush, which were that there was nothing chronically wrong with the nation that a naturally recovering economy, still lower taxes and a few gimmicks such as a balanced budget amendment could not cure.

In last year's campaign, Ross Perot, free of standard political constraints, had no compunction in demanding sacrifices by all, including higher taxes and more expensive energy. Mr Clinton, in pursuit of victory, may have fudged on the tax front but he talked tough on the budget. Both put forward cases for change on a serious scale.

Conventional political wisdom is that politicians rarely practise in office what they preach in campaigns. Thus the dictum of Russell Long, the former senator from Louisiana - 'don't tax you, don't tax me, tax that fellow, behind the tree' - was for Washington a safe recourse. The reflex political criticism is that Mr Clinton, in taking it out of 'you and me', has bought himself big trouble.

But political reflexes, even from Republicans, may be questioned in this strange era where public opinion is so influential but so subject to persuasion and manipulation. Knowing this, and sensibly trying to co-opt Mr Perot in advance, the Clinton team is giving his programme the hard sell in every corner of the country.

Like any good populist pitch, this campaign will have its villains. Borrowing again from Mr Reagan, who blamed his predecessor at every turn, Mr Clinton will constantly disparage Mr Bush's 'failed' policies. He will copy Mr Perot and portray a Washington stuffed with high-paid lobbyists, all conspiring to preserve the status quo known as gridlock. He will conveniently forget that some of the most effective of them represent America's least affluent.

Just as 10 years ago Mr Reagan seduced the 'boll weevil' southern Democrats, so Mr Clinton will target key Republicans, because, if he cannot hold all his own party in line, he may need them. There are a fistful of senior moderate senators - John Chafee, William Cohen, James Jeffords, John Danforth, Nancy Kassebaum, Richard Lugar, even Robert Dole - who do not necessarily dance to the music of Newt Gingrich, Jesse Helms and the rest of the conservative band. These moderates prefer to influence policy rather than denounce it and they just might cut some deals, especially on deficit reduction.

But it will be hard. Neither Washington nor the country at large has yet measured Mr Clinton's resolution. Some suspect he talks a better game - and on Wednesday he was very fine - than he plays and can fold under pressure. There are so many parts to his programme that he could well lose a couple of battles early and suddenly lose control of the war. The reverse may also be true. He is not only making waves, he may just have caught the big one.

US United States of America P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 15 838
After the accident: Jean-Luc Lagardere, chairman of Matra Hachette, talks to David Buchan and David White Publication 930219FT Processed by FT 930219 By DAVID BUCHAN and DAVID WHITE

On the face of it, Jean-Luc Lagardere has shown amazing powers of recovery.

In the 1980s he managed to steer a bumpy path as chairman of two French groups with illustrious names but very little else in common: Matra, thrusting missile, electronics and transport equipment manufacturer, and Hachette, venerable and far-flung publishing empire. Mr Lagardere stayed in the driving seat as Matra was part nationalised and then denationalised. His enthusiasm for adventurous new business always raised eyebrows.

Some of his initiatives, such as a foray into watchmaking, misfired. But those flops were nothing compared with what was in store in the early 1990s, 'the big accident', as Mr Lagardere calls it - Hachette's investment in the La Cinq television station, which folded last year, leaving the publishing group with an exposure of FFr3.5bn (Pounds 440m).

He has since succeeded in recapitalising Hachette, merging the two groups, still under his chairmanship, into Matra Hachette, and recasting the holding company, which is the combined group's main shareholder, in a way that makes his own position virtually unassailable.

Mr Lagardere is still the dashing entrepreneur with the permanent tan, starry-eyed about new technology. He is an outsider to France's mainstream political and business establishment, drawn from more elitist grandes ecoles than the Ecole Superieure d'Electricite where he graduated as an engineer. Matra, a postwar creation, has always been a parvenu on the French industrial scene.

But Mr Lagardere is now 64. It is 30 years since he joined Matra as managing director. He talks of younger generations of managers, of the 'apres moi'.

Above all, he is chastened by the past year's experience. He has promised no more long-shot ventures. 'I am not going to make 20-year investments. You have to have your return sooner.' He confesses that for the first time in his life he is giving top priority to profit. Flanked by a high-powered 'group executive and strategic committee', he is trying to rebuild his credibility in a financial world of which he is deeply suspicious.

He confidently predicts a tripling of Matra Hachette's net profit by 1996, from last year's FFr350m to FFr1bn - although that would still be less than 2 per cent of sales. By then, he says, if it makes no more big acquisitions, it will wipe out its debts of FFr3bn. The merger will bring 'big reductions' in administrative staff in the group, which employs around 50,000. But, Mr Lagardere adds: 'That is not something one boasts about.'

To argue the logic of an industrial grouping ranging from airborne missiles to Elle magazine is something of an intellectual challenge. Defensively, Mr Lagardere cites the example of General Electric of the US, with its NBC television network. The activities of Matra and Hachette converge in the field of electronic media, a target for future investment. Both sides of the group serve a wide range of overseas markets. And people will take a company more seriously when it can show, as Matra Hachette does, annual sales of Dollars 10bn.

For Mr Lagardere's critics this is sophistry, an attempt to portray the merger as something other than a rescue, a way of drawing on Matra's cashflow to ease Hachette's debt burden.

The merger prevented the need for a fire sale; it enabled Mr Lagardere, as the French say, to save the furniture.

Despite the television fiasco, he says he would have been in a position last year to sell control of Hachette for seven or eight times the price he paid when he took it over in 1980. But Mr Lagardere is far too attached to his role as media mogul for that.

What the two sides of the group have in common are famous names. Its media interests range from Woman's Day magazine in the US to the Europe 1 radio station. Matra has always had prestige products, ranging from the Mistral, France's answer to the US Stinger portable missile, to automated metro systems.

For a time Matra also had a football club, Matra Racing de Paris, and in the 1960s and 1970s played a prominent part in Formula 1 racing, which Mr Lagardere says brought it 'a fantastic image'.

It was in television that Mr Lagardere finally overreached himself. In 1987 he lost to the Bouygues group in bidding to take over the TF1 station. The new channel, auctioned in 1990, was his last chance.

'La Cinq was an absolute booby-trap for us. The snare closed on me completely,' Mr Lagardere says. He has no plans to return to television. 'In my life I have made every kind of mistake. I never made the same mistake twice.'

He wants to build on current activities where the group already holds a leadership position - including the Espace family vehicle which Matra makes for Renault. It has pooled its space activities with GEC-Marconi's and is looking for a European partnership in missiles. Arms, Matra's original business, may in a couple of years be overtaken in importance by urban rail systems, Mr Lagardere says.

His attachment to the idea of Matra Hachette's 'nine professions' - missiles, space, cars, urban transport, telecommunications, books, newspapers, distribution and broadcasting - typifies what Anglo-Saxons often find a mystifyingly Latin approach. He bridles at the word conglomerate. He speaks of 'the culture of the enterprise', of 'development' rather than 'growth'.

The man who 'more or less created' Matra has stamped his name on the holding company, now called Lagardere Groupe. His own shareholding in this company is only about 15 per cent. About another 30 per cent belongs to personal and business associates. But under the unusual structure of a limited equity partnership - societe en commandite par actions - other shareholders delegate powers to him as general partner, appointed for six years. In return, Mr Lagardere assumes unlimited liability if things go wrong. He has put his money where his mouth is.

Mr Lagardere talks of making the business 'unsinkable'. He does not want it to die with him. 'I would like my group to stay around for a long time.'

Something he shares with his friend Lord Weinstock, managing director of GEC, apart from their joint space venture and their personal interest in racehorses, is having a son in his senior management team. What function the 31-year-old Mr Arnaud Lagardere will assume is still open, the chairman says, but 'his role will be to guarantee the continuity of control of the group'. Mr Lagardere pere envisages stepping down. But not, he says, quite yet.

Matra Hachette FR France, EC P3761 Guided Missiles and Space Vehicles P2721 Periodicals P2711 Newspapers COMP Company News PEOP Personnel News Lagardere, J Chairman Matra Hachette P3761 P2721 P2711 The Financial Times London Page 14 1145
Letter: Arms sales - a sign of wider failure Publication 930219FT Processed by FT 930219 From Prof ALEXANDER KENNAWAY

Sir, The request by Mr Kozyrev, Russia's foreign minister, to share western markets for arms sales ('Russia offers US arms sales deal', February 16) is a desperate attempt to earn foreign currency. The reason is the failure of the commercial and technical competence within the former USSR to identify what potential customers at home and abroad want, and how to design, make and service such goods.

The remark that such income will be used to covert Russia's military industries is also not new and is also pointless. I have worked in many defence factories in the former USSR over the past few years and can testify that, whatever is needed to convert them, it is not large sums of money to buy new equipment. They have a lot of adequate machine tools and up-to-date western and Japanese production equipment - much of it under-used, misused and some still in its original packing cases outside in the yards.

Soviets, from Lenin onward, have had the illusion that salvation lies in new 'technology'. They treat it like a toy, whereas the heart of the matter lies in the urgent need to change the mind set and improve radically their business and technical competence in order to perform competitively and, indeed, to supply their own hungry markets.

Conversion of the defence industries depends on that first; without it investment will be wasted as it always has been in the communist command economy.

Alexander Kennaway,

12 Fairholme Crescent,

Ashtead,

Surrey KT21 2HN

RU Russia, East Europe P348 Ordnance and Accessories CMMT Comment & Analysis P348 The Financial Times London Page 14 285
Letter: Top managers should show the way in radical rethink on pay Publication 930219FT Processed by FT 930219 From Mr WILLIAM WALLACE

Sir, Shares can go down as well as up, circulars from my bank and insurance company have warned me since the collapse of the 1987 financial 'bubble'. Can executive salaries do the same?

I have followed the debate in your columns on the troubles of the financial sector; the mistaken judgments which led to over-lending to property speculators and players of stock markets; the attempts to rebuild balances by increasing charges to customers; and the laying-off of junior staff. Entirely missing has been the question of whether the disproportionate increases in top salaries of the early 1980s, justified on grounds of the quality of judgment of senior executives, should be reversed.

I appreciate that a cut in remuneration for board members and general managers would contribute only a little to redressing the balance of bank reserves and profits. But such a signal that top management recognises its share of the responsibility for the evident errors of the last decade, and is prepared to share in the cuts and added burdens of the 1990s as fully as it shared in the added profits of the 1980s, would do much to rebuild the battered confidence of staff and customers. No such signal has yet been given.

There is a wider point at issue. If the British economy is to hold to low inflation - as bank economists exhort - attitudes to salaries throughout the economy have got to change radically.

No stronger signal could be given of the acceptance of radical change than a reversal of the continuing trend for top salaries to increase.

The Quaker families who laid the foundations for more than one of England's clearing banks understood the importance of gestures and symbols, and of demonstrating by the way they behaved the responsibilities they shouldered towards their fellow men. I fear that their descendants have lost sight of that sense of shared responsibility to the wider community. The impact on bank profits of a 10 to 20 per cent cut in board remuneration would be minimal. But think of the potential impact on the economy and on British society]

William Wallace,

49 St James's Drive,

Wandsworth Common,

London SW17 7RN

GB United Kingdom, EC P99 Nonclassifiable Establishments CMMT Comment & Analysis P99 The Financial Times London Page 14 400
Letter: Missing an HDTV trick Publication 930219FT Processed by FT 930219 From Dr BRIAN T EVANS

Sir, Your article 'Searching for a clearer picture of the future' (February 11) did not mention that Britain's high definition television ideas are probably the best in the world, though their implementation lags the US. Americans who read my evidence on digital television - presented to the UK home affairs committee in 1988 - saw an opportunity, invested in it and are now looking for the pay-off. UK broadcasters took less notice; the EC supported HD-MAC.

US digital television has taken a lead from the Japanese, who encourage fast-track development by a mix of inter-company competition and co-operation. In a few days we will find out which of the four remaining teams of US engineers have designed the best new HDTV system.

We should spare a thought for the original front-runner in this race, the Japanese, who have paid royalties to the US for their own use of the existing 40-year-old American colour TV system. Ten years ago they set aside public funds to develop a home-grown HDTV system to redress this balance. The Europeans did the same.

It would appear neither strategy has paid off because both camps have ignored newer ideas. Is public funding the common element that induces selective deafness in those whose creativity was once beyond reproach? Brian T Evans,

Tantara Tek,

19 Cassiobury Park Avenue,

Watford WD1 7LA

GB United Kingdom, EC P3651 Household Audio and Video Equipment P3663 Radio and TV Communications Equipment CMMT Comment & Analysis P3651 P3663 The Financial Times London Page 14 266
Hooked on glory drug Publication 930219FT Processed by FT 930219 By JOE ROGALY

The British government is cutting defence expenditure, expanding British military commitments, and doggedly refusing to ask the basic question behind this impossible equation. That question is: what is the proper role for a medium-sized nation shorn of its empire and much of its former economic strength?

You could argue that our contribution to the world's security should be enhanced. If so, the government should halt the present run-down in our military forces. Equally, you could say that a significant proportion of Britain's military spending is devoted to the massaging of national self-esteem, or, worse, to nostalgia. If that is the case, we spend too much now, and plan to cut too little in the future.

The conundrum seemed easier to think through when the Soviet threat existed. I remember a lunchtime meeting with the then Mrs Margaret Thatcher in her room at the House of Commons. It was, I think, 1976. Sir, now Lord, Keith Joseph was the other guest. As our hostess set about carving slices of ham the two of them set about public spending. Their knives swished through the air. Millions were chopped off this, that and the other departmental budget, until, quite quickly, the two founders of Thatcherism had saved a billion. In those days that was serious money. 'What would you do with the billion?' I asked the then recently elected leader of the opposition. 'Spend it on defence,' she replied at once.

She did. She became prime minister three years later. In 1978-79 the armed forces' budget totalled Pounds 7.6 bn. By the time Lady Thatcher left office in 1990 that cash outlay had very nearly trebled. In real terms the figure rose by 28 per cent between Labour's last year and 1984-85. The inflation-adjusted amount has since been declining steadily from the peak achieved in the mid-1980s. By 1995-96 British spending on defence will be back to the equivalent in today's money of what was being laid out just before the Thatcher decade began.

This time, however, there is no overriding Soviet threat. Perhaps that explains why others are cutting their defence budgets faster than we are. In 1992 average military spending in Nato was 2.9 per cent of gross domestic product. The equivalent figure for the UK is expected to work out at 4.1 per cent. Even France, at 3.6 per cent in 1990, is less ambitious than that. Germany is planning to cut its defence force by about 40 per cent. Belgium and the Netherlands, also Nato allies, are contemplating halving theirs. Britain plans a cut of one-fifth. Against that our wholly professional army, like that of the US, is more expensive than many of the Continental forces, which depend on conscripts.

Under President George Bush the US planned to reduce its outlay on national defence - down to 5.6 per cent of GDP in 1990 - by nearly 14 per cent between 1992 and 1996. The equivalent British reduction is 11 per cent. The additional cuts proposed by President Bill Clinton in his state of the union message on Wednesday will further increase the rate of shrinkage of spending by the Pentagon.

This is not to say that Britain is necessarily the profligate one. It depends upon what the money is for. The government's master plan is Options for Change, the name given to a review initiated in 1990. Lord Chalfont said in the Lords last week that when the results of this review were announced, 'we were told that it was based upon fulfilling commitments to Allied Command Europe, the dependent territories, Northern Ireland, and the defence of the United Kingdom'. Yet within months Britain was undertaking commitments in Yugoslavia and the Middle East 'which were nothing to do with any of those four basic interests'.

It is not clear to me why we maintain 46,000 troops in Germany, and will still have 23,000 when the current reduction process is completed in two years. Do we really need to keep 3,300 troops in Cyprus, let alone little support services around the portions of the world formerly coloured pink on the maps? While the government thinks we do, there may be something in the argument by the select committee on defence, in its report published 10 days ago, that given what is asked of it Britain's army is more than fully stretched.

The trouble is that the committee does not question those tasks. Nobody does. The defence secretary, Mr Malcolm Rifkind, did not do so in last year's statement on the defence estimates. The foreign secretary, Mr Douglas Hurd, failed to do so in his otherwise thoughtful speech at Chatham House a few weeks ago - the one that began, 'British foreign policy exists to protect and promote British interests'. Yes, but what is Britain's proper place in the world? Most of us can agree on the case for maintaining troops in Northern Ireland, the need to insure against direct attack upon ourselves, and the desirability of contributing to European defence forces, particularly through Nato.

The rest sometimes seems to be determined by what gets first place on the TV news. One minister has said, only half in jest, that 'we are all human; we see an atrocity on the small screen and come into cabinet next day spouting that something must be done about it'. Britain's role appears to be that of joint second policeman to Uncle Sam, with France in an equal position. This awkward squad is ever-poised to chase into every trouble-spot that manages to catch the popular eye. As Mr Hurd said, the UN knows of about 25 substantial conflicts going on now. 'I suppose that world cameras cover 2 or 3 at a time,' he added. This made it all very difficult. The foreign secretary has yet to state the government's criteria for choosing where, if anywhere, to send British troops.

The answer is, of course, gut feel, the product of a lethal mix. Start with ministers' sense of British history. Add a dollop of popular pressure. Pour in our pride in our nuclear power, our permanent membership of the United Nations Security Council and our prominence in most global organisations. Add a dash of undying allegiance to the US. Wash over with deep tribal memories of the days of empire, enhanced by dreams of a long string of past victories. It is such desires that Britain's Conservatives need to assuage, by means that Labour dares not thwart. Glory is an expensive drug. Britain is still hooked.

GB United Kingdom, EC P9711 National Security CMMT Comment & Analysis P9711 The Financial Times London Page 14 1112
Letter: A better beer Publication 930219FT Processed by FT 930219 From Mr CHRISTOPH ULL

Sir, With regard to your promotion 'Enjoy Club Europe: two for the price of one - Vienna', I make this comment. The saying Gut, Besser, Goesser is not a typical saying of the Viennese. Goesser is a Styrian beer and Gut, Besser, Goesser is a slogan of the Steirerbraeu AG, a Styrian company, which produces and promotes Goesser Bier. As a Styrian I would like to invite you to Austria and taste the difference between the Styrian beer and the beer produced near Vienna - you will stay in Styria forever.

Christoph Ull,

Emannuel College,

Cambridge CB2 3AP

GB United Kingdom, EC P2711 Newspapers TECH Services CMMT Comment & Analysis P2711 The Financial Times London Page 14 130
Letter: Tax cap at 75% would help those in benefits trap Publication 930219FT Processed by FT 930219 From Mr R A LEDINGHAM

Sir, It is reported that the UK government is prepared to 'think the unthinkable' to narrow the fiscal deficit. Might I suggest that it considers taxing the incomes of the poor at 75 per cent? This would in fact be a reduction on the present maximum effective marginal rate of tax of 97 per cent on the earnings of those people receiving benefits.

It would require no more than a new class of income, taxed at 75 per cent and ignored for all other fiscal purposes, including entitlement to means-tested benefits. Such a cap on the effective marginal tax rate is one of the few ways of guaranteeing a means of escape from the benefit trap.

If the rate at which we effectively tax the income of those aspiring to leave the benefit trap were reduced from the present maximum level of 97 per cent there would be some incentive for the acceptance of part-time, low wage or occasional employment. It would at least give benefit recipients greater control over their own lives in a way that cannot be achieved by workfare.

The reported direction of the present review of social spending appears to pose a severe danger of further expansion of the benefit trap. Enlarging it without improving the means of escape can be described as, at best, unthinking.

R A Ledingham,

Rose View,

Hethe,

Oxfordshire OX6 9HD

GB United Kingdom, EC P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 14 271
Letter: Time for a ferry regulator Publication 930219FT Processed by FT 930219 From K D SHILLETO

Sir, Last year I wrote to the Office of Fair Trading regarding the huge and unwarranted increase in Dover-Calais tariffs in 1992. For passenger vehicles it was more than 30 per cent when inflation was below 10 per cent. Stena and P&O fares were almost identical. I suggested that this joint increase could only be explained by the ferry companies' intention to raise passage costs progressively so that they would roughly match eventual Channel tunnel fees.

The OFT rejected my argument, positing that the ferries could only compete with the tunnel if they offered a substantial discount. This is naive. Nobody knows what the tunnel charge will be but ever-increasing construction costs must be reflected in the opening tariff. If Stena and P&O find they have misjudged tunnel tariffs, they can lower their own without pain and claim virtue. In the meantime, they seek further operational integration to buttress profits.

Who is to say that a duopoly does not already exist and that the tunnel authorities do not welcome progressively higher ferry charges to justify and underpin their own? Is it not time for a regulator - Ofship - and to gear up for an Oftun?

K D Shilleto,

2 Mulberry Close,

Beaufort Street, London SW3

GB United Kingdom, EC P4482 Ferries COSTS Costs & Prices CMMT Comment & Analysis P4482 The Financial Times London Page 14 242
Arts: John Osborne's 'Luther' Publication 930219FT Processed by FT 930219 By MALCOLM RUTHERFORD

In a week of early 1960s London revivals, the one that stands out is John Osborne's Luther at the Hen and Chickens Theatre in Islington. Here is a very well-written, serious, intelligent piece that should not have been neglected for so long.

The play was first performed at the Theatre Royal in Nottingham, then at the Royal Court in London, in 1961 when Osborne's reputation after Look Back in Anger and The Entertainer was at its height. Albert Finney played Luther. There was much discussion at the time of the apparent thesis that the dissident priest was influenced by trouble with his bowels: he was said to be an anal neurotic. Finney dominated the production.

Today Luther looks a gentler, wiser, more thoughtful play, more about society as a whole than about one man's anger. Two thoroughly tenable propositions emerge. One is that by challenging the Catholic Church so savagely about its selling of indulgences, Luther set faction against faction in a way that benefited no-one. The other is that he was the founder of German power.

As Staupitz, the Vicar General of the Augustinian Order, remarks of Luther's resistance to the ways of Rome: 'The world's changed. For one thing, you've made a thing called Germany; you've unlaced a language and taught it to the Germans, and the rest of the world will just have to get used to the sound of it . . . You've made the body of Europe . . . All I beg of you is not to be too violent.'

There is no hostility in that comment, just an acceptance by Staupitz, played here as a genially wise old man by Patrick Godfrey, that Germany is on the way up and Italy is on the way down. Note, too, the use of the word 'unlaced'; not 'unleashed' or anything savage like that, just a gradual process of evolution from Latin to German. This is Osborne writing with precise language and a remarkable grasp of history.

Ben Walden's Luther is on the whole a sympathetic figure: not because he is a rebel whom everyone outside the Catholic hierarchy knows is right, but because he evidently suffers from self-doubt. At the end he admits to Staupitz that he really was not sure whether his denunciations of the Church were fully justified. True, he suffers from constipation, but this is not central to the interpretation of the character. Walden's performance gains by not trying to take over the play.

Some of the speeches are very long: there is very little of the customary Osborne knockabout. Yet here again is a tribute to his writing: he has mastered his material and there are fine distinctions of character both within the laity and the clergy. The one set-piece that might just remind you of The Entertainer is Tetzel, the Dominican Inquisitor cheerfully selling indulgences in the market square. The part is wonderfully played by David King.

The production comes from the Operating Theatre Company directed by John Link. It is now managing the Hen and Chickens Theatre. The next stage in a pub theatre like this must be to improve the physical conditions. Stifling enough for the audience, they must be almost unbearable for the actors - particularly those in Luther wearing heavy clerical robes.

Hen and Chickens, London N1 until March 13. (071) 704 2001

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 13 590
Arts: The Firebird - Ballet Publication 930219FT Processed by FT 930219 By CLEMENT CRISP

The Firebird was the first masterpiece created for Diaghilev's enterprise. Based on a conflation of folk tales, it typified for the dazzled Paris audiences of 1910 an essential and irresistible 'Russian' quality. The artful combination of magic, terror, an enchanted garden and a Tsar crowned before his people; the innovations of music and design; the splendour of Fokine's danced spectacle made for rare theatrical excitement. And whatever the changes in taste over the years since then, The Firebird has retained its appeal: it speaks of a Holy Russia that has a powerful hold over our imaginations as a land of fantastic and mysterious legend.

The Royal Ballet's staging of The Firebird was made in 1954 by Diaghilev's regisseur, Serge Grigoriev, and his wife Lubov Tchernicheva. The production was scrupulous, and it was enhanced by the fact that Tamara Karsavina, the original Firebird, coached Fonteyn in her role. With Michael Somes as Ivan - judging exactly the character's naivete and nobility - and with Svetlana Beriosova an exquisitely beautiful (and Russian) Tsarevna, we saw how our national company might restore some of the lost splendour of the Ballets Russes. (Subsequent revivals of Les Noces, Les Biches were further proof of this.)

The return of Firebird to the repertory last week was disappointing, a routine and unthinking revival. After four decades, the spirit of the piece seemed lost. There was no magic in Kastchey's garden at curtain rise: both lighting and set looked dingy. Company performances, with the exception of Fiona Chadwick's Firebird, were lifeless. Kastchey's horde had been rehearsed in 'menace by numbers', and the group of Enchanted Princesses smirked relentlessly beneath their tangled locks.

That the ballet is not beyond redemption was proved on Wednesday night when Nina Ananiashvili made her debut as the Firebird. Despite an uninvolved production, Ananiashvili found in the choreography a central image which is the key to a role. Bolshoy training gave her reading a spaciousness of theatrical and dynamic effect, so that steps, phrases were burnished, glowed, and commanded the air. The bird's emotions - pride, fear, pleading, her power over evil - were found in the movement, and grandly presented to us. An essential nationalism in Fokine's choreography was clear as never before with the Royal Ballet, and a central truth about Firebird as an example of Russian art was re-affirmed. And, in poses of Ananiashvili's head, we can see a passing resemblance to photographs of Karsavina's dark-eyed beauty in this role. This was a true ballerina interpretation, of a kind the Royal Ballet no longer chooses to show us.

It is good to report that Stuart Cassidy was a finely promising Ivan. He has the simplicity of manners that are right for this peasant-prince, and the proper aristocracy for the marriage-scene, culminating in the final raising of his hand - one of the most potent and most beautiful gestures in all ballet. Mr Cassidy did not cheat it of its force. Derek Rencher's Kastchey is a study in reptilian malevolence and devilish humour, and is perfect.

As a modish note, I record that the Opera House programme includes two full-page and unfathomable photographs of Viviana Durante, and, though the subject's head and face are obscured, gives credit for 'hair' and 'make-up'. How fascinating. How rewarding as news. But what about her toothpaste?

Nina Ananiashvili will be seen again at Covent Garden as The Firebird on March 16

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 13 598
Arts: Blown out of proportion / A look at contemporary British glass Publication 930219FT Processed by FT 930219 By SUSAN MOORE

Like Pallas Athene, studio glass was born fully armed. It did not emerge out of a groundswell of independent glass-making activity but out of a workshop held at the University of Wisconsin in 1962. The aim was to see whether techniques could be developed that would enable an artist to work in glass in the intimacy of a studio. Within a decade, over 100 glass programmes had sprung up in the art schools of the US, and the implications for glass-making were being felt across Europe and Japan.

In 1965, Sam Herman arrived in Britain from Wisconsin and his teaching, first at Edinburgh and then at the Royal College of Art, inspired a new generation to take up the blow-pipe. Given that Britain had no real tradition of artists or designers working with glass manufacturers, as in Sweden, France, Italy and Czechoslavakia, the vigour of the studio glass movement in this country is all the more remarkable.

Contemporary British Glass at the Crafts Council surveys the achievements of the last 25 years. It is an eye-opening, but also a perplexing and disappointing show. Appropriately enough, it opens with Herman's 'Green and Gold Bottle', a free-blown, organic-looking form that both illustrates the appeal of manipulating bubbles of molten glass and reveals why the majority of glass-makers here turned to more controlled 'warm' or 'cold' glass techniques.

There is a beguiling purity about the glass made in the 1970s. The American-born Steven Newell delights in contrasting transparency and opacity in his clean-cut translation of a Mannerist Wunderkammer object, a 'horn' cup and cover; and formal and technical purity combine in Pauline Solven's sculptural 'Three Reed Stems'. This was an exciting period of technical innovation and experimentation in hand-blowing, engraving, enamelling, sand-blasting, cutting and casting. Virtuoso effects predominate, ranging from Peter Layton's exquisite mottling to Diana Hobson's paper-thin mosaics of textured pate-de-verre.

After such refinement, the strident colour, heavy curves and triumphant scale of the 1980s comes as a rude shock. Vast, wobbly goldfish bowls of streaky colour and self-conscious conversation pieces such as Steven Proctor's pretentious 'Momentum' now seem as dated as fluorescent globular lamps and squidgy PVC chairs.

One might have expected some sense of direction to emerge in the recent work, which accounts for half of the show. Interesting technical experiments continue, particularly in the combining of techniques and media. Pauline Solven, for instance, builds colourful patterned structures out of mould-blown units that are sawn, reassembled, sand-blasted and etched - and are not so unlike some Elizabeth Fritsch ceramics. Keith Cummings and Anna Dickinson often combine glass with metal, Tatiana Best-Devereux glass with ceramic.

The problem here is that too few makers know what to do with their skill and ingenious effects. At one extreme are the intricate pieces that degenerate into over-fussiness, at the other are forms that simply do not know when, or why, they should end.

The quest for significant form has not, however, escaped the contemporary glass-maker. The modest group of black, African-inspired vessels on show by Anna Dickinson have a rare presence and quiet power. There is a similar assurance of handling in Steven Newell's boldly chased chargers.

What is striking about a lot of recent work is a new emphasis on content and allusion: glass can no longer look like glass but has to be manipulated and camouflaged to the point where it might be any other material. I cannot see the point of, say, David Reekie's lost-wax cast figures of men poking their heads out of windows; and what does one do with whimsies such as Diana Hobson's feather-tipped mixed-media 'Rainbow Jester' other than invent some kind of Post Modernist whatnot on which to display them?

What the last 25 years have shown is that it has not been practicable for a glass artist to work in splendid isolation in his studio. Studio glass still has an extremely small market and, apart from Pauline Solven who has had her own studio since 1975, the most successful enterprises seem to be small co-operatives like Covent Garden's The Glasshouse, where commercial ranges offer an alternative to one-off pieces.

But this show has concentrated solely on one-off, domestic-scale pieces. Part II, which surveys the emergence of large-scale, sculptural and architectural glass, is scheduled for 1995.

Contemporary British Glass continues at the Crafts Council, 44a Pentonville Road, Islington, London N1, until March 7

GB United Kingdom, EC P8412 Museums and Art Galleries CMMT Comment & Analysis P8412 The Financial Times London Page 13 766
Arts: Out of the Ordinary - Fringe theatre in London Publication 930219FT Processed by FT 930219 By ALASTAIR MACAULAY

This new play, for only two people, is a comedy about a common paradox: a woman's need to be (a) dependent on (b) independent from a man. Less obviously, it also concerns a man's need to be (a) independent from (b) dependent on a woman. The breakdown of a relationship, and of both people's nervous systems, is just around the corner throughout. Meanwhile, the woman's nerves are in the foreground. She is irritable without him, is irritable with him; she can't work with him there, can't work without him; she can't go outside without him, can't go outside with him.

Not all of this is funny, or meant to be. And the play's skill lies in its ambiguity of viewpoint. Much of the time, the woman, Betty, is enough to drive anyone crazy, whereas her man, Brian, is a model of new-man patience.

Occasionally, though, you feel that her neurosis is a lot more interesting than his endless courtesy. You also start to feel that he is actually the more passive of the two; and that he needs her more than she him; even that his very reasonableness is a safe facade he dare not drop.

Certainly his petty lies and conventional euphemisms enrage her. He comes back from having an over-long drink with a friend who 'sends his love,' he pretends he hasn't been smoking, and then he asks about her evening. 'The Chippendales popped round,' she snaps. 'They fucked me senseless . . . They send their love as well.'

Her rudeness is out of all proportion - yet you sympathise. Or do you? She is terribly lifelike, and yet wholly absurd. She forever makes impossible demands of him: even 'You don't pull down the barriers I put up for you.'

An incidentally remarkable feature is that the same woman, Debbie Isitt, is the writer, director and actress. She plays Betty as a rapidly mumbling or whining Brummie who seldom gets out of pyjamas; Brian (Mark Kilmurry) is a more lucid speaker, a more natural communicator - altogether more wretchedly normal. He gets things done; she cannot even post a letter for him. She insists, however, that, for all her panicky incompetencies, she is capable: 'I could handle anything if it actually happened. It's just the thought of it that I can't stand.'

The scenario at first seems so thin, and so nearly maddening, that you think 'This isn't enough for a play.' Soon, however, the absurd claustrophobia of the relationship becomes so all-important that any sub-plot or extra characters would only weaken its fabric. Eventually, we see that there is a plot; that somehow the relationship has to change.

Betty isn't a little housewife; she is a modern woman with a career of her own as a critical writer. The play interleaves her relationship with Brian with her feminist scrutiny of the male/female relationships in Hitchcock films. Here is one element that is too thinly fleshed out; Brian's work life is another. Out of the Ordinary is only 90 minutes long, and one of the best things about it is the way it ends - not with a feminist bang but a male whimper.

At the Theatre Upstairs, Royal Court

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 13 571
Arts: Today's Television Publication 930219FT Processed by FT 930219 By ANTONY THORNCROFT

Sergei Krikalev was the Soviet cosmonaut who watched the revolutionary events in his country from space as he revolved around the earth. After almost a year circling the planet he returned to a new country, called Russia. He is interviewed in Arena (BBC2 at 9pm) which examines the history of the Soviet space programme.

What the Papers Say is one of TV's longest running programmes, and since 1956 its annual awards to top press people have been among the most respected. Lord McGregor, chairman of the Press Complaints Commission, announces the 1992 winners at 11.15pm on BBC 2.

John Cole, the former political editor of the BBC, begins a new career as a roving reporter as he travels the country talking to the unemployed in Public Eye, on BBC 2 at 7.40pm. As well as analysis on the changing face of unemployment he tries to offer some remedies.

On good nights The Word (Channel 4 at 11.5pm) is the most anarchic programme on TV. It makes an art form of bad taste, but shows a welcome lack of respect for big names.

GB United Kingdom, EC P7812 Motion Picture and Video Production TECH Services P7812 The Financial Times London Page 13 212
Arts: Nagano's triumphant Mahler - Concert Publication 930219FT Processed by FT 930219 By DAVID MURRAY

Even 25 years ago, Mahler's Symphony no. 3 was heard only slightly more often than his Seventh - which is to say, hardly at all. Together they counted as his symphonies maudites, too 'problematic' to earn regular performances. Then the Third began to enjoy the attention of a few mature Mahler conductors, with some memorable results - and therewith too of ambitious but less practised maestros, in whose hands the gigantic first movement could seem arbitrary and brutal, and the final Adagio sentimentally, intolerably drawn out.

Kent Nagano, who took the London Symphony through the work at the Barbican on Wednesday, cannot be all that practised. Many another youngish conductor with a reputation in contemporary music has reached back to Mahler by way of expanding his range, and thus his career, and has come a cropper. When Nagano offered a Mahler Ninth with the LSO a few years ago, however, it was a precocious triumph of musicianship, and plainly of respectful, assiduous attention to what the likes of Horenstein and Bruno Walter made of the score. This time he did no less with the Third.

And even more: for there is really no 'definitive' reading of the Third, what with its patchy public history (and its exacting budget - large orchestra, women's and boys' choirs for just one movement and a strong alto soloist for two, unskimpably costly rehearsal-time). At the end of the day, a conductor of this work must sink or swim on the precision of his own musical instincts. Nagano's were faultless.

Later, no doubt, he will define a larger-scale impulse in the opening 'Kraftig', and develop a finer chiaroscuro for the wry grandfathers'-dance 'Tempo di menuetto'. For now, he gave us far more than enough to be going on with. That cataclysmic initial movement had a barely leashed, tooth-and-claw power and an ironical feel for municipal-band sound, where many an international name (I forbear to name them) engineers a mere sequence of noisy assaults.

Nagano wound up the Knaben Wunderhorn scherzo to a wry height, and gave impeccably sensitive support to his alto - Birgit Remmert, a towering 27-year-old who may well be the leading Erda in Wagner's Ring for the next generation - in her Nietzsche soliloquy. The 'Angels' movement found the LSO women's chorus brisk and clear, and the Southend Boys' Choir as boyishly apt as they always are in this work (a bit eerie, that, since in the nature of things their personnel must always be short-term members).

The Adagio reached a glorious apotheosis. Nagano paced it unerringly, from the first bated-breath melodies to their grand final dress. Each subito pianissimo in the flowing line clutched at one's heart; every new plateau was attained by cogent steps. For the first time in my concert experience, the grandiose, repetitive last pages were a mighty culmination instead of an over-insistent redundancy.

Ingeniously, Ute Lemper had been recruited to preface the lengthy symphony with a half-dozen Weill songs. She is a class act, supremely schlank and importunately appealing in her little black dress, very high heels and husky mezzo. Some of my colleagues object to the voice; I thought it served her material very well, and well in tune.

What Lemper lacks, simply, is music-theatre experience without the aid of a microphone - vocally character-building to an irreplaceable degree; and yet, so far as one could judge in the Barbican (where she may have had an unfamiliar mike), less sophistication in her address to it than many a straight pop-vocalist can boast. Her lively intelligence struck through nevertheless, and her performances struck home. It was a pity that her German texts in the programme-book were so badly proof-read and garbled.

GB United Kingdom, EC P7812 Motion Picture and Video Production CMMT Comment & Analysis P7812 The Financial Times London Page 13 649
Management: An affair which refuses to become a marriage Publication 930219FT Processed by FT 930219 By CHRISTOPHER LORENZ

IN THE characteristically blunt words of Sir Alastair Morton, Eurotunnel's chief executive: 'The British and the French have fought each other for a thousand years'.

Their business and financial cultures are also virtual opposites. So it is not surprising that they find it hard to handle cross-Channel corporate marriages and joint ventures. All too often the two 'partners' war constantly with each other until one side - usually the French - emerges victorious.

That may seem a caricature of a set of very complex relationships, but it is uncomfortably close to the truth. Witness two events this week: the long-awaited decision of Britain's MB-Caradon, successor to the old Metal Box company, to seek shareholders' authority to sell out of its packaging joint venture with Carnaud; and a frank speech by Sir Alastair, whose organisation is one of the few shining exceptions to the general rule.

Take Eurotunnel first. It has had to overcome a legion of differences between the French and British ways of doing business, Sir Alastair told a conference in London. These ranged from contrasting approaches to the control of capital expenditure, to an entirely different attitude to meetings. Whereas British managers attended them to thrash out decisions, he said, 'the French go to find out what the boss has decided to do'.

That Eurotunnel has bridged such gaps is due, above all, to the openness and trust which Sir Alastair and his opposite number established early in the venture. But his remarks were based on more than just personal experience. A long line of business school research studies, at both Limburg in the Netherlands and Insead near Paris, has put the UK and France at opposite poles on a whole range of cultural measurements.

In common with the Dutch, Swedes, Canadians and Americans, Britons feel relatively independent of their bosses, for instance. But the French do not. Likewise, the Anglo Saxons and North Europeans are much better than the French at tolerating uncertainty - including over their own position in a hierarchy.

Virtually the only similarity is in the degree of individualism, where the French score almost as highly as the British. But for the French this is associated closely with an individual's official, or 'positional' power, points out Philippe Haspeslagh, an Insead professor who specialises in mergers and acquisitions. 'In the UK an organisation is more a set of relationships in which you earn the right to manage.'

That is only the start of this generally sorry saga.

Consider, next, the chequered history of takeovers and mergers, regardless of nationality. A spate of consultancy and academic studies suggests that the average success rate of all types of takeover is only around 40 per cent - and that includes the many straight acquisitions where one side is clearly in charge from the start.

Even where the partners to a merger or joint venture are in closely related activities and markets, problems frequently occur because they have very different corporate cultures and styles of operating. It was this discrepancy, at least as much as national differences, which caused many of CarnaudMetalbox's early internal problems.

The neutral German-American who was brought in to run the group in late 1991 said the Carnaud managers were used to a 'naively decentralised' style, while Metal Box had leaned too far in the other direction.

Such problems can also be exacerbated when, from the very start, one partner sees its exit as a possible or even probable outcome. As Haspeslagh says, this is often the attitude of the UK side in a Franco-British venture.

Whereas the UK partner is frequently a public company, with a price at which its shareholders will ultimately sell almost any part of their business, the French side tends to be a holding company controlled by a family - and its supporting banks - for whom the enterprise is not an Anglo-Saxon dividend machine, but a method for leveraging industrial power.

The most notorious recent example of the Franco-British gulf in attitudes to investment and profitability was last year's fracas at the Arjo-Wiggins Appleton paper combine.

This involved a tangled web of issues, including the sacking of the British chief executive and the apparent ability of the French shareholder, with only a 39 per cent holding, to dominate the board.

With an attitude to the share price which was cavalier in Anglo Saxon terms, but prudent to the French, the result was a completely unexpected dividend cut which sent UK stockbrokers into apoplexy.

In stark contrast is the relatively sunny short history of GEC-Alsthom, a nominally equal partnership in power engineering. Here, the French now occupy the two top jobs and three of the top five. It would be facile to say that the French are completely dominant, but it must be doubtful whether the partnership will develop the ideal culture: one entirely of its own.

Some people claim this has occurred at the company's great Swedish-Swiss rival, ABB, although it actually feels far more Swedish than Swiss.

If a truly equal partnership is impossible even between such partners, what hope is there for the French and the British, whose forms of capitalism and culture are so very different? The lesson may be that, with occasional exceptions, the two cultures are better at having affairs than at staying married.

GB United Kingdom, EC FR France, EC P99 Nonclassifiable Establishments PEOP Personnel News CMMT Comment & Analysis P99 The Financial Times London Page 12 921
Management: Office work-out - Staff fitness is to be encouraged Publication 930219FT Processed by FT 930219 By TIM DICKSON

The offer - a generous rent reduction in return for surrendering a small amount of office space - was too tempting to refuse. But as the head of the London-based services company who negotiated it explains, the deal with his landlord involved sacrificing an in-house gym.

'I can't remember any other issue on which our employees felt so strongly,' he now admits. 'It was only when we secured corporate membership of a nearby health club that the rebellion was finally quelled]'

The story is perhaps a salutary one for companies tempted to cut the size of their financial contributions to staff sporting, recreation and health facilities. Such perks are often justified on the grounds of improved employee motivation - but by the same token managements which take the benefits away risk a disgruntled workforce.

There is little evidence that head office accountants are seeking to prune their employee sports and health budgets (as distinct from sports sponsorship budgets). A poll of 10 randomly selected large British companies this week revealed that boardrooms are certainly seeking to get better value-for-money and better usage of corporate facilities - especially those lavish sports grounds for traditional team games owned by the big banks and oil companies. If anything, though, the trend towards encouraging staff fitness and providing 'lifestyle consultation' packages seems to be growing.

Fitness for Industry, a London-based specialist consultancy 51 per cent owned by the Forte hotel group, says demand for its corporate fitness centres has seldom been greater. In the last six months FFI has opened five new in-house fitness centre projects, including one for the international oil group Conoco at Warwick and one for Vauxhall Motors at Luton.

Many companies are either reluctant, or unable, to disclose the overall cost of their employee sporting and fitness amenities. Exceptions include BT, whose annual sport and recreation budget is about Pounds 1.25m, and Prudential Assurance, which reckons it spends around Pounds 200,000-Pounds 300,000 in the London area. BT says its spending on employee sport and recreation has fallen in the wake of job cuts and general cost reductions; the Pru has stopped using a west London sports ground because of low attendances (due to staff concentrations elsewhere); while National Westminster Bank, which owns two vast sports grounds in south London, wants to make one of them more cost effective through non-staff membership and more extensive outside use.

Underlying different corporate strategies is the realisation that employee needs are changing. The leisure revolution has opened up numerous opportunities in the last few years for individuals to pursue their own interests, with the result that company regattas and sports days - with prizes presented by the chairman's wife - now seem anachronistic. Boardroom thinking increasingly reflects the view that a fit workforce is potentially more productive.

Such a philosophy is much more widely accepted in North America, where groups such as Du Pont and the Canadian Life Assurance company have reported reduced absenteeism and lower staff turnover in the wake of corporate fitness programmes.

Pacific Railroad found that 90 per cent of its workforce believed their exercise programme made them more productive.

FFI's marketing-manager David Parks believes that companies are moving from the position where they know the health and well-being of their workforce is important to doing something about it.

In part he attributes recent demand to industrial relocation projects planned in happier times which are being implemented as part of a corporate cost cutting exercise.

'A health centre is often an integral part of a relocation package', he says. Most of FFI's programmes incorporate a strong medical dimension; in Vauxhall's case Parks says the company found a latent demand for more health-related activity, as opposed to traditional social pursuits like darts and snooker. Team building and better internal communications are useful spin-offs from corporate fitness programmes, adds Parks. 'There is nothing better for breaking down barriers than a director and a secretary working side by side on different pieces of equipment,' he suggests.

GB United Kingdom, EC P7941 Sports Clubs, Managers, and Promoters P99 Nonclassifiable Establishments MGMT Management COMP Company News P7941 P99 The Financial Times London Page 12 706
Management: Linking sport with productivity Publication 930219FT Processed by FT 930219 By ANTHONY MORETON

This month's emotional rugby victory by Wales over England seemed a good moment to test the thesis that national sporting triumphs give business a boost. The evidence from the principality is inconclusive.

The most authoritative word comes from Ken Jones, who played in the centre for Wales 14 times. Now he is managing director of Takiron at Caerphilly, the first Japanese company to arrive in Wales in 1972.

'Yes, a result such as the one with England gives a great boost, especially to morale. And a happy worker is usually a better worker than a disgruntled one. But industry is highly automated now and the ability of the worker to increase his own productivity independently is restricted. In a highly labour-intensive industry it is just possible there could be a surge of output. The reality, though, is that everyone feels better, it's a little easier to go to work, and to give more undivided attention to work while there.'

Meirion Lewis, Welsh director of the Institute of Directors, said a good result gives an industrial lift. 'In Wales, rugger permeates all levels of society. A win imparts confidence and if we can get the rugger right it provides a more optimistic outlook to the other things in life.'

Byron Samuel, operations director for South Wales Electricity, is sceptical that the Cardiff Arms Park euphoria could translate into higher output. It was impossible to quantify what happened the following Monday and attribute it to the match, he said.

In Wales rugby has contributed to economic growth through its links with Japan, from where investment has poured into the country. Welsh rugby teams nurtured the game in Japan and made the name 'Wales' known there.

GB United Kingdom, EC P7941 Sports Clubs, Managers, and Promoters P99 Nonclassifiable Establishments MGMT Management COMP Company News P7941 P99 The Financial Times London Page 12 322
The Property Market: French capital losses - The Paris slump is hitting banks hard Publication 930219FT Processed by FT 930219 By VANESSA HOULDER

Paris is facing up to one of its worst property collapses. Climbing vacancy rates and sharply falling values have created alarming difficulties for French banks and developers.

Large financial restructurings are under way. In January, Mr Christian Pellerin, a developer of large tracts of La Defense, the office complex just outside central Paris, was replaced as chairman of Lucia, a property company undergoing a FFr1.1bn (Pounds 130m) capital reconstruction. Also last month, Pierre Premier, a developer, was forced to cede four-fifths of its property portfolio to the banks after incurring heavy losses.

At the same time, the current round of results from banks are scarred by large bad loans to the property industry. Banks' total exposure to the industry is widely believed to exceed FFr400. Banque Paribas, which has just increased provisions to 15 per cent on its own FFr27.4bn property lending book, is not alone in facing up to heavy provisions. 'Statistics show that provisions of 15 per cent may be necessary but this varies greatly from bank to bank depending on the particular nature of the underlying credits,' says Mr Arnaud de Menibus, executive vice-president of Banque Paribas.

Mr Robert Waterland, head of the Paris office of Jones Lang Wootton, chartered surveyors, believes the problem is far worse. He says the banks' write-downs will eventually exceed FFr100bn.

The banks' predicament stems from the speculative frenzy that gripped the property market in 1988-89 when banks encouraged the upward spiral of prices by lending large sums to speculators promoting ambitious schemes.

Many of the banks' heaviest losses have been on loans made to small traders, the so-called 'marchands de biens'. 'The quality of the small traders' real estate is abysmal,' says Mr Waterland.

Banks are also facing large losses on speculative ventures, notably in a handful of large developments in central Paris. These new schemes were conceived at a time when Paris had little vacant office space. The completion of a large quantity of new offices this year could push the office vacancy rate in the French capital close to 10 per cent. Banque Paribas believes that the stock of empty offices in Paris could reach 4m sq m by December; this volume would take four years to absorb on normal take-up rates.

The rising vacancy rate, together with the slowing economy, have pushed rents down by between 20 per cent and 30 per cent since mid-1991. At the same time, interest from buyers has evaporated, pushing estimates of prime yields up from less than 5 per cent to more than 6 per cent. As a result capital values have fallen by some 40 per cent.

The Paris financial establishment is doing all it can to prevent a mood of crisis from developing. 'French banks are not going to get into the situation of Anglo-Saxon countries . . . There will be no Olympia & York here,' said a spokesman for the Association of French Bankers last year.

In an effort to prevent bankruptcies and forced sales of property, the banks are refinancing ailing companies and, in some cases, taking possession of property themselves.

In the case of the stronger banks, such as Banque Paribas, the intention is to retain the property portfolios for several years before selling them, perhaps through a stock market flotation. In other instances, the banks are attempting to offload their repossessed property by selling it to companies which they have financed with low-interest loans.

Another form of support is from the cross-holdings between banks, insurance groups and property companies, which allow stronger parents to bail out overstretched lenders and developers.

None the less, mounting concern has prompted banks and insurance companies to appeal for government help. In December, Mr Michel Sapin, the French finance minister, responded by announcing the following:

the relaxation of the agrement system, whereby tenants must obtain official authorisation for large office moves. This system, designed to encourage companies to relocate to the regions, curbed the take-up of space in Paris;

the reinstatement of favourable tax treatment of finance leases, which may encourage owner-occupation;

an extension to the four-year holiday on the 20 per cent transfer tax which is payable on property deals. This will ease the pressure on traders and banks needing to sell property in the short term.

'Too little, too late,' was the market's general reaction to these measures. 'Positive and useful, but insufficient,' said the AFB. The industry is continuing to pressure the government to do more.

Last week, Mr Camille Cabana, the deputy mayor of Paris, proposed a public fund to lend money cheaply to developers in return for mothballing their projects and preventing yet more new offices flooding onto the market.

But while the government may be prepared to help the construction industry and residential property market, it will be loathe to bail out speculators. The prospect of using public money to save the industry seems unlikely except in the event of a further sharp deterioration of conditions.

But for the moment that eventuality is remote. Despite the banks' bad loans, the problems are still far from jeopardising the financial system. Indeed, there is a body of opinion which insists that the gloom is exaggerated.

'The economy is the strongest in Europe, the market is undersupplied with decent products, tenants can move freely,' says Mr David Robinson of Richard Ellis. 'When there is an upturn in the economy, the market will move quickly.'

Mr de Menibus of Banque Paribas emphasises the underlying strengths of the market. 'Even if we take a pessimistic view of the market, it is not like the US or UK. It is a quite different crisis,' he says.

'Vacancy rates are much lower, prices have fallen to a sensible level, it is a well-organised market, the institutions have the muscle to keep the market at a reasonable level. The market can cope.'

FR France, EC P6021 National Commercial Banks P15 General Building Contractors P651 Real Estate Operators and Lessors COMP Company News CMMT Comment & Analysis P6021 P15 P651 The Financial Times London Page 11 1025
People: Whittaker retires from Inchcape Publication 930219FT Processed by FT 930219

At 63, battle-scarred UK motor industry veteran Derek Whittaker has decided to step back from the front line at Inchcape, the international services and marketing group which has a range of motor distribution businesses worldwide.

Whittaker is retiring from the board, to which he was appointed in 1986 to oversee all Inchcape's motor business except its Toyota activities. But he will continue to advise Inchcape on motor trade matters, as befits an industry figure who has seen it all - including service with Ford and the former British Leyland in the thick of the UK industry's trench warfare of the 1960s and 1970s.

Whittaker who, as managing director of Leyland Cars, helped face down the toolmakers whose strike came close to polishing off British Leyland for good in the 1970s, is succeeded by another great industry survivor.

Reg Heath, who steered vehicle distribution group TKM back to health throughout the 1980s, both before and during its acquisition by New Zealand entrepreneur Sir Ron Brierley, is now poised to assume all of Whittaker's responsibilities.

The ever-cheerful and widely-liked Heath has, however, been on the board since last March, following Inchcape's own takeover of TKM, which continues to sell around 50,000 cars a year through nearly 100 retail outlets.

For Heath, it's a long way from the dealer forecourts where he first saw service with TKM's dealer subsidiary, Wadham Kenning, back in 1958.

For Inchcape, it's another significant break with the past. Whittaker is leaving less than two years after the departure as Inchcape's chairman of his old British Leyland managing director associate, the late Sir George Turnbull.

Inchcape GB United Kingdom, EC P6719 Holding Companies, NEC P508 Machinery, Equipment, and Supplies P5511 New and Used Car Dealers P6411 Insurance Agents, Brokers, and Service P4731 Freight Transportation Arrangement PEOP Appointments P6719 P508 P5511 P6411 P4731 The Financial Times London Page 11 320
People: Sandy Russell promoted Publication 930219FT Processed by FT 930219

Sandy Russell has been appointed a deputy chairman of Customs and Excise. The post, one of two deputies, is currently filled by Valerie Strachan who succeeds Sir Brian Unwin as chairman in March.

Russell, 54, joined customs eight years ago as director, organisation, before taking over as director, customs in 1990.

The directorship came at a time when customs was undergoing some of the most radical changes in its 322-year history to pave the way for the single European market. Russell was responsible for reforming the customs controls at ports and airports.

The work involved moving revenue-collecting posts inland and changing the role of investigation and detection from a barrier-like approach to that of an intelligence-led service. 'It ought to be fairly evident that our whole concentration has been on major prohibitions rather than the odd bottle of hooch. Our effort isn't directed towards finding minor revenue evasion,' he said of his task.

Before joining customs, Russell was responsible for pioneering the government's financial management initiative at the Management and Personnel Office and earlier had held senior posts in the Scottish Office. He will retain control of the customs group in addition to becoming director general internal taxation in his new position.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy PEOP Appointments Russell, S Deputy Chairman Customs and Excise (UK) P9311 The Financial Times London Page 11 239
Technology: New propellant flies high - Worth Watching Publication 930219FT Processed by FT 930219 By DELLA BRADSHAW

Gunpowder, the essential ingredient in today's fireworks, could soon be replaced by a safer alternative.

Gunpowder is used as the lifting charge to propel the firework into the sky. Now researchers at the Cranfield Institute of Technology, working for Standard Fireworks, have developed an equally effective propellant which is bound with a polymer which makes it less sensitive - and therefore safer - and less expensive.

Cranfield's Alan Bailey has also developed an economical method of making the coloured 'stars' that shoot out of roman candles based on memories of jelly babies being made in a sweet factory.

There the jelly was poured into a mould of cornflour, which formed the outer coating of the sweet. In the pyrotechnic version the cornflour is replaced by 'igniter' material, which coats the metal pellets. Cranfield Institute of Technology: UK, 0793 7853220.

Standard Fireworks GB United Kingdom, EC P8731 Commercial Physical Research P2899 Chemical Preparations, NEC TECH Technology TECH Products P8731 P2899 The Financial Times London Page 10 182
Technology: Algae play a powerful role - Worth Watching Publication 930219FT Processed by FT 930219 By DELLA BRADSHAW

Algae burnt in power stations could provide cheaper energy than traditional fossil fuels.

Engineers at the University of the West of England, in Bristol, have cracked the problem of how to grow the chlorella algae cheaply enough to make power generation feasible - filtering them from ponds is uneconomical.

They have used a 'Biocoil', a five-metre high vertical tube in which the algae circulates, harnessing sunlight for photosynthesis. Sewage has proven a particularly effective nutrient for the algae. The carbon dioxide produced when the algae are burnt is redirected to help new algae grow, preventing the emission of greenhouse gases.

The first power station could be in use within 18 months. University of the West of England: 0272 656 261.

A novel fuel, which could reduce carbon dioxide emissions by 15 per cent, is now propelling buses in Canberra, Australia. Diesohol is a blend of diesel (84.5 per cent), hydrated ethanol (15 per cent) and emulsifier (0.5 per cent). The breakthrough, according to developers Apace Research, is the emulsifier, which helps the diesel and ethanol mix. Apace Research: Australia, 49 92 3033.

GB United Kingdom, EC AU Australia P8731 Commercial Physical Research P2869 Industrial Organic Chemicals, NEC TECH Technology TECH Products P8731 P2869 The Financial Times London Page 10 226
Technology: Keeping up by satellite - Worth Watching Publication 930219FT Processed by FT 930219 By DELLA BRADSHAW and ANDREW FISHER

For journalists tired of press conferences, or too busy or far away to attend them, Interactive Information Networks has come up with an answer, writes Andrew Fisher.

The US company offers a 'front row seat' at news conferences of high- technology companies without anyone having to leave the office. Conferences can be broadcast live to newsrooms through IIN's packaged installation of a satellite-linked television, video recorder, and laser printer.

Those receiving the news - journalists can ask questions via the system - pay nothing. The broadcasting companies - including IBM, Apple and Lotus - pay Dollars 25,000 an hour, or Dollars 100,000 for five hours. Florida-based IIN is now introducing its service to Europe. IIN: US, 407 234 1111; France, 1 4887 7044.

Interactive Information Networks US United States of America P7373 Computer Integrated Systems Design P3663 Radio and TV Communications Equipment TECH Products P7373 P3663 The Financial Times London Page 10 172
Technology: In conversation with your video - Worth Watching Publication 930219FT Processed by FT 930219 By DELLA BRADSHAW

Perhaps the most irritating thing about watching feature films which have been recorded on home video is the adverts which pop up at the most exciting part of the action. Now US viewers can skip the commercials by shouting 'zap it'.

The VCR voice programmer, developed by Voice Powered Technology, of Canoga Park, California, also enables viewers to switch their video on and off and program it simply by speaking commands.

The device, the size of an ordinary television remote control unit, can also be used instead of the conventional remote control to operate the television and cable box.

The company is planning to develop the gadget, which costs Dollars 169 (Pounds 119), for sale in Europe and the Far East. Voice Powered Technology: US, 818 407 5800.

Voice Powered Technology US United States of America P3651 Household Audio and Video Equipment TECH Products P3651 The Financial Times London Page 10 169
Parliament and Politics: Government wrestles with problem at 'top of agenda' / A look at how Conservatives view the issue Publication 930219FT Processed by FT 930219 By RALPH ATKINS

UNEMPLOYMENT as an issue in the Conservative party is a pervasive force, long-standing and rarely forgotten - but frequently overshadowed as Westminster's goldfish-bowl mentality flips excitedly between one political furore and the next.

Yesterday was an exception. The jobless figures were raised by all but one of the MPs called at a particularly fractious prime minister's questions. Others briefed themselves on the plethora of government schemes as they prepared to leave for the weekend.

'It is an issue which is of top concern for my constituents,' said Mr David Lidington, the new Conservative for generally prosperous Aylesbury, Buckinghamshire, as he left the chamber. He had just asked Mr John Major to ensure British industry created jobs through greater competitiveness, not meddling bureaucracy.

Mrs Gillian Shephard, employment secretary, spent much of yesterday in broadcast studios. She had rehearsed her lines, telling the BBC: 'Unemployment is right on the top of the political agenda.'

More usually, unemployment rests lower in Conservative MPs conscience - beneath, say, Europe or the future of the coal industry as immediate concerns. The relentless rises make each month's figures unsurprising. 'Whats up? Apart from 3m unemployed, I mean,' said one, without thinking, as he stepped from his car at the Commons' entrance, only for a guilty expression to fall over his face.

Unemployment does not feature heavily in mail bags. 'If the TV shows a tortured hedgehog I get 50 letters, they are pouring in on Sunday trading, but, curiously, I get very few on unemployment,' said one Tory from a south-east seat.

Tory messages about government's impotence, drummed in by a decade of ministers since Mr Norman (now Lord) Tebbit, was employment secretary, have taken root.

'People have got a realistic view of how much the government can do in the short term - very little,' says Mr John Watts, Conservative chairman of the Commons' Treasury select committee. 'They have seen all the quick fixes under previous governments and they don't work.'

Tories have won the last three general elections with high unemployment. Many Conservative MPs are confident that it will not be a huge electoral liability next time, so long as the trend by then is downwards.

A Galbraith-like interpretation, based on the 'contented majority' in well-paid work who, if constantly wooed, can keep the Tories in power, would not be volunteered by many Tories. But, after winning last year against the odds, the Tory vote is seen as robust. 'People do worry about the unemployable sub-classes - but not enough to make them vote Labour,' said one senior Conservative.

But the average Tory MP knows the debate is not that straight forward. In the minds of an increasing number of the party's MPs, fears about rising unemployment have become entangled with concern over escalating crime figures.

Unemployment is also hitting harder than in the early 1980s in Conservative heartlands - and among white-collar, home-owning workers.

Since the election, Mr John Major has put the importance of community and society back onto the Tory agenda, stressing the importance of training and creating opportunities for those entering the workforce. 'One-nation' Conservatism is back in fashion.

Whereas Mrs Margaret (now Lady) Thatcher could blame past Labour governments, the benchmark by which the current prime minister will be judged against the criteria he himself has set.

Much as the right-wing of the Tory party may try to dominate the agenda with ideas for privatisation and choice, Mr Major is also listening to ideas from the party's wetter wings.

Mr Nigel Forman, the widely respected former education minister and MP for Carshalton and Wallington, wants changes to benefit eligibility for the unemployed who start education or training courses. The prime minister agrees. An announcement is expected near the time of the Budget.

Only a brave Tory would be complacent. One political ally of the prime minister was gloomy yesterday afternoon after the shouting in the Commons chamber had abated: 'You can get get away with governing over high unemployment once or twice, but three times . . ?'

Conservative Party (UK) GB United Kingdom, EC P9611 Administration of General Economic Programs P8651 Political Organizations ECON Employment & unemployment P9611 P8651 The Financial Times London Page 9 726
Parliament and Politics: Council house sales campaign planned Publication 930219FT Processed by FT 930219 By ALISON SMITH

THE FIRST publicity drive for more than six years to encourage council tenants to take advantage of their right to buy their homes is being planned by ministers.

Mr Michael Howard, the environment secretary, wants to launch the drive in the spring, perhaps as early as next month. Television advertising and leafletting all council tenants to ensure they are aware of the schemes on offer are among the moves being discussed.

No new incentives are intended, but ministers believe that the fall in mortgage rates and the rises in council rents have tilted the balance of advantage for council tenants more towards buying instead of renting than it has been for some time.

The move will be greeted with incredulity by the opposition, given that the current number of housing repossessions is at a near record level, and is also likely to re-ignite the controversy over government and political advertising.

The timing of the initiative is broadly related to the new government rules giving local councils a greater incentive to sell their property. Mr Norman Lamont announced in the Autumn Statement that there would be a relaxation of the rules, enabling councils to keep all the proceeds of any sales - instead of just one quarter - for a limited period until the end of this year.

While the environment department insists the Cabinet Office rules on advertising will be obeyed, the fact that the campaign may well get under way not long before the sensitive six weeks before the local elections in May, will intensify opposition attacks on it.

About 1.2m council homes have been sold in England since 1979. Out of 4m or so council tenants, about 1.25m are not on housing benefit, and are thought most likely to be interested in purchases.

The publicity will focus on the discounts, of up to 70 per cent off the market value, available to council tenants, and the 'shared ownership' route through which a tenant can buy part of his home.

The cash incentive scheme, by which a council tenant can receive a one-off grant of up to Pounds 35,000 to move out of council accommodation into buying a property in the private sector, will also be highlighted.

Mr Jack Straw, the shadow environment secretary, told a local government conference yesterday: 'Whatever the rhetoric, the truth is that Tory housing policy is motivated by dogma not democracy.'

He said that over 1.5m people lived in homes worth less than they paid for them because they were encouraged to buy during the 1980s. The market alone could not meet housing need, he added, and councils must continue to ensure the direct provision of low-cost quality housing.

GB United Kingdom, EC P9531 Housing Programs GOVT Government News MKTS Sales P9531 The Financial Times London Page 9 480
Parliament and Politics: Council tax bills put at about Pounds 500 Publication 930219FT Processed by FT 930219 By JOHN WILLMAN, Public Policy Editor

THE AVERAGE council tax bill in England is likely to be around Pounds 500, according to a survey published today by Local Government Chronicle.

The average household bill from the 169 English councils which had set or recommended their council tax by Wednesday will be Pounds 494.58.

The survey, carried out with BBC-TV News, covers the council tax for all but one of the 39 county councils, 118 of the 296 districts, seven of the 36 metropolitan councils and six of the 32 London boroughs.

With most London and metropolitan councils still to declare their figures, the final average is likely to be marginally higher than Pounds 495.

However, the final figure for the average council tax bill is likely to be less in real terms than under the poll tax. It will also be less in cash terms than the average household paid in the last year of domestic rates.

The highest figure so far is that for Newcastle City council: their council tax figure will be Pounds 791.81 for a Band D property worth between Pounds 68,000 and Pounds 88,000. The figure is high because of the relatively low property values in the area and the high proportion of single-person households (43 per cent) entitled to a 25 per cent discount.

GB United Kingdom, EC P9121 Legislative Bodies P65 Real Estate GOVT Taxes P9121 P65 The Financial Times London Page 9 255
Parliament and Politics: Minister seeks slimmer agencies Publication 930219FT Processed by FT 930219 By JOHN WILLMAN

GOVERNMENT agencies should do more to reduce staff numbers and slim down management, Mr William Waldegrave, the public service minister, said yesterday, John Willman writes.

Mr Waldegrave, addressing a conference of agency chief executives in York to mark the fifth anniversary of the creation of agencies, acknowledged that the Civil Service was growing again.

Figures recently published by the Financial Times showed that 21 of the first 28 agencies had increased staff numbers since inception - by 12 per cent overall.

Public expenditure pressures meant that agencies should be at the forefront of increasing productivity, Mr Waldegrave said. He urged the chief executives to use the managerial freedoms given to agencies to remove 'old hierarchies in management' and tailor structures and pay to the needs of their activities.

The minister also acknowledged concern among chief executives over legal confusion on whether European legislation on employee rights in mergers and takeovers applies to contracting-out of public services.

If it does, the contractor must take over the staff currently doing the work at their existing pay and conditions.

GB United Kingdom, EC P9199 General Government, NEC PEOP Labour GOVT Government News P9199 The Financial Times London Page 9 211
Parliament and Politics: Regions share burden of increase in unemployment - PM under attack over rise in jobless / No slow-down in rate of increase expected Publication 930219FT Processed by FT 930219 By PETER MARSH, Economics Staff

HEADLINE unemployment rose last month to 3,062,065, the first time for nearly six years that the total has breached 3m.

Adjusted for seasonal variations, the total is 2,995,100, having risen 22,100 in January.

And last month all regions of the UK, apart from northern England, registered a rise in unemployment.

Although this 33rd consecutive monthly rise in the adjusted total is the smallest since last June, employment department officials said there was no sign the increase in unemployment was slowing.

January's headline or unadjusted total increased from December's by 78,726 in January. Much of the rise was due to seasonal factors. The total is the highest since April 1987, while the seasonally adjusted figure was last exceeded in January 1987.

A glimmer of good news for the government was that the underlying increase in average earnings across the economy in December was a year-on-year 4.75 per cent, the smallest annual rise for 25 years.

The annual change in underlying earnings was 5 per cent in November, while last April it was 7 per cent. The slower growth in wages may help the Treasury to hit its target of keeping underlying inflation below 4 per cent.

There were 523,000 working days lost last year through labour disputes, the lowest annual total since government records began in 1891.

Since the low point for seasonally adjusted unemployment in April 1990, the number of people without jobs and claiming benefit has risen by 1.4m or 88 per cent.

The total in the south-east, including Greater London, rose by 11,800 in January, accounting for more than half the monthly rise for the UK as a whole. South-east unemployment has increased by 616,300, or 183 per cent, since early 1990.

The total January increase was lower than expected and follows a large 60,300 rise in December. The average monthly increase during the three months to January was 42,400, compared with the equivalent figure of 35,900 in the three months to October last year. In January, 10.6 per cent of the workforce was without a job, up from 10.5 per cent in December.

Employment decreased by 32,000 to 4.32m in manufacturing in December. This comes after falls of 25,000 in November and 10,000 in October. In the year to December, average earnings in the sector rose by an underlying 5.5 per cent, after 5.75 per cent in the year to November. In services the comparable figure came down to 4.5 per cent from 4.75 per cent.

Output per person in manufacturing was up 6 per cent in December compared with a year previously, the highest year-on-year figure since April 1989. This reflects the relatively small fall in the sector's output while unemployment has risen steeply.

Unit costs in the sector did not rise in the final quarter of last year compared with the corresponding period in 1991, the first time this has happened in six years.

Vacancies at government job centres fell by 4,400 last month to 104,000.

GB United Kingdom, EC P9611 Administration of General Economic Programs ECON Employment & unemployment P9611 The Financial Times London Page 9 548
Parliament and Politics: Departments preparing extensive temporary work scheme Publication 930219FT Processed by FT 930219 By LISA WOOD and RALPH ATKINS

PLANS to create thousands more temporary work places are being considered by the government in response to rising unemployment.

The proposal, one of several made by the special committee on unemployment chaired by Lord Wakeham, leader of the Lords, is being fleshed out by the Department of Employment in consultation with the Treasury. Other proposals are being costed and worked out in detail by several government departments - including education, trade and industry, and social security.

Mrs Gillian Shephard, the employment secretary, has been given the responsibility of taking a strategic lead in the reviews.

Separately, regional assistance is to be better targeted. The Department of Trade and Industry is redrawing the map of 160 'assisted areas' - which benefit from regional grants - to reflect changes in employment trends over the past decade. The results are expected in April after consultations at European Community level.

The DTI is also looking at how the government can further encourage small-business start-ups.

At present some 29,000 temporary work places are offered on the Employment Action scheme. From April its funding will be merged with Employment Training, the main training scheme for the long-term unemployed. Offering 150,000 places at any one time, the Pounds 936m programme will be run by Training and Enterprise Councils, which can select individuals for temporary work, foundation training and occupational-skills training.

Participation on schemes will remain voluntary. It is understood that Mrs Shephard has argued within cabinet that sanctions, such as the withdrawal of benefit, can only be introduced if the unemployed have a wide menu from which to choose.

The government is, for example, likely to lift the 21-hour limit on study. Investigations are also under way as to whether the unemployed can be offered more financial help in pursuing education.

In the longer term, sanctions may be introduced for targeted groups such as the 18-to-24-year-old long-term unemployed, a group the government wants to lead back into the workforce before too many become unemployable.

The Confederation of British Industry is considering whether it should recommend to the government that this age group should accept compulsory training for benefit. However, previous studies have suggested that once training is compulsory 'timewasters' bring inertia to programmes.

GB United Kingdom, EC P9611 Administration of General Economic Programs ECON Employment & unemployment P9611 The Financial Times London Page 9 407
Parliament and Politics: Curious facts behind the figures Publication 930219FT Processed by FT 930219

The unemployment total is now higher, in absolute terms, than it was at the pre-war peak in January 1933 of 2.97m.

Unemployment is higher in London than in Scotland and Wales combined.

A government survey found 55 per cent of the unemployed in London and the south-east ready to accept a job paying less than Pounds 175 a week.

2m new jobs will be needed between now and the end of the decade if unemployment is to fall back to the 1990 level of 1.6m.

GB United Kingdom, EC P9611 Administration of General Economic Programs ECON Employment & unemployment P9611 The Financial Times London Page 9 119
Parliament and Politics: Fresh legal doubt over Maastricht Publication 930219FT Processed by FT 930219 By DAVID OWEN

RENEWED DOUBT was last night cast over the government's legal verdict on Labour's amendment to include the social chapter in the Maastricht bill when Mr Paddy Ashdown released a legal opinion 'totally at variance' with the advice given by the government's law officers.

In an open letter to prime minister John Major, the Liberal Democrat leader said the opinion by Mr Anthony Lester QC reached a 'wholly different' conclusion from that given by the law officers.

This raised questions related 'not just to the Maastricht bill, but to the quality of advice offered by the attorney-general,' he said.

Mr Major last night turned down a request by Mr John Smith, the Labour leader, for the publication of the apparently conflicting advice on the amendment given by the law officers and the Foreign Office.

The request, echoed by Mr Ashdown, followed the government's U-turn in the Commons last Monday when it admitted that its original advice - that the amendment would wreck the treaty - had been mistaken.

Mr Douglas Hurd, the foreign secretary, had set out the government's view on Monday, Mr Major said. Government law officers would be on hand in future when Maastricht was debated.

Separately, ministers have accepted if Labour's amendment is passed they may have a problem in meeting the administrative costs of the social chapter, for which Britain could be liable despite its opt-out. The government might not have the parliamentary authority to make the payment.

The issue has been raised by Sir Teddy Taylor, a leading Tory Euro-sceptic, in a letter to Mr Hurd. Ministers do not believe it can prevent ratification of the Maastricht treaty, however.

Mr Ashdown says the new opinion highlights Section 6 of the European Assembly Elections Act 1978, emphasising that parliamentary approval is required for any treaty which extends the power of the European Parliament.

This is 'clearly applicable to the Maastricht treaty and its protocols', Mr Ashdown said. He described Mr Hurd's Commons statement as 'curious and perplexing'.

GB United Kingdom, EC P9121 Legislative Bodies GOVT Government News P9121 The Financial Times London Page 9 363
Parliament and Politics: Smith and Ashdown round on Major Publication 930219FT Processed by FT 930219 By IVOR OWEN

LABOUR and Liberal Democrat MPs mounted a sustained onslaught against Mr John Major, the prime minister, in the Commons yesterday, accusing him of personal responsibility for allowing unemployment in Britain to exceed 3m again, Ivor Owen writes.

During furious exchanges Mr John Smith, the Labour leader, charged the prime minister with standing 'idly by' as the numbers out of work increased during each month of his tenancy of 10 Downing Street.

Renewed assurances that the government was determined to bring down unemployment were brushed aside by Mr Smith, who called in vain for Mr Major to repudiate the 'heartless' comment by Mr Norman Lamont, the chancellor, that unemployment was a price 'well worth paying' for bringing inflation down.

To government cheers, Mr Major insisted that there was no purpose in Labour MPs expressing concern about unemployment when they were committed to policies that would put more people out of work.

Before lecturing the government, he said, they should drop their support for the social chapter of the Maastricht treaty, the introduction of a minimum wage and a 'windfall tax' on the profits of the privatised utilities.

But Mr Smith said it was 'economic madness as well as a social tragedy' that unemployment had again exceeded 3m. He attacked the prime minister for seeking to evade his responsibility.

Mr Paddy Ashdown, leader of the Liberal Democrats, joined in the assault on the prime minister and demanded: 'Why is it that you always use your time telling us what the opposition say instead of what you are going to do?'

GB United Kingdom, EC P9611 Administration of General Economic Programs ECON Employment & unemployment CMMT Comment & Analysis P9611 The Financial Times London Page 9 300
Parliament and Politics: Tory MPs warn Clinton on Ulster Publication 930219FT Processed by FT 930219 By IVOR OWEN, Parliamentary Correspondent

US PRESIDENT Bill Clinton was warned not to 'meddle' in the affairs of Northern Ireland by Tory backbenchers in the Commons yesterday.

With varying degrees of irony Mr John Bowis (C Battersea) and Mr Nick Budgen (C Wolverhampton South West) suggested that the principle of reciprocity should apply in the event of any American interference in the province.

Mr Bowis said an envoy as a 'fact finder' and a supporter of the British government's policy on Ulster would be welcome. 'But if he (Clinton) sends somebody to meddle, then it would be as offensive as this country sending somebody to look into the problems on the Mexican border.'

But Sir Patrick Mayhew, the Northern Ireland secretary, who hopes to meet new US officials in the next few months, played down their fears.

He said it was his experience that people who visited Northern Ireland seeking to find out the facts of the situation went back 'wiser and happier'.

He recalled that the members of one American delegation had publicly announced that it would be their purpose to correct in the media the 'wholly false impression of Northern Ireland' current in the US.

US United States of America GB United Kingdom, EC P9111 Executive Offices GOVT International affairs P9111 The Financial Times London Page 9 233
Parliament and Politics: Second reading for Iraqi bill Publication 930219FT Processed by FT 930219

A BILL to speed up compensation claims by the British victims of President Saddam Hussein of Iraq received its Commons second reading last night without a vote.

GB United Kingdom, EC P9229 Public Order and Safety, NEC GOVT Regulations GOVT Legal issues P9229 The Financial Times London Page 9 62
Parliament and Politics: Welsh language proposal fails Publication 930219FT Processed by FT 930219

THE government last night defeated a cross-party attempt to proclaim both Welsh and English as official languages in Wales.

A clause moved by Liberal Democrat Lord Hooson was defeated by 124 to 85 during the Welsh Language Bill's Lords report stage.

GB United Kingdom, EC P9111 Executive Offices GOVT Government News P9111 The Financial Times London Page 9 70
Parliament and Politics: Higher ceiling for questions Publication 930219FT Processed by FT 930219 By DAVID OWEN

THE GOVERNMENT yest-erday raised the advisory cost limit for answering parliamentary questions from Pounds 400 to Pounds 450 - an increase of 12.5 per cent, David Owen writes.

In a written answer, Mr Stephen Dorrell, financial secretary to the Treasury, also advised that the average cost of preparing parliamentary answers had risen to Pounds 94 for a written question and Pounds 218 for an oral question.

He said the advisory cost limit, which was last increased in 1992, was 'intended to act as a threshold for disproportionate cost.'

GB United Kingdom, EC P9111 Executive Offices COSTS Costs & Prices P9111 The Financial Times London Page 9 121
Parliament and Politics: Date for first unified Budget brought forward Publication 930219FT Processed by FT 930219 By ALISON SMITH

THE DATE for the first unified budget has been brought forward from early December to late November to give government departments and councils more time to plan for the following financial year.

From summer 1994, ministers are also likely to begin making a summer economic forecast, to make up for the compression of the existing two forecasts - at the Budget and at the Autumn Statement - into one occasion.

The form of the summer forecast has not been finalised, but using one of the periodic Treasury bulletins is one option. Ministers are expecting to concede a request from Labour that this should be accompanied by a commitment to providing time for Commons debate.

Until now, the Autumn Statement has been in the first half of November. Local authorities had warned that if announcement of spending plans slipped into December, their budget process would be hard pressed.

Mr Norman Lamont, the chancellor, also gave details yesterday of two related changes to legislation.

The September retail prices index, rather than the December RPI, is to be used for indexing income tax personal allowances and uprating other tax limits and thresholds. Published in mid October, it is already used for indexing social security benefits.

The deadline for parliament's discussion of the finance bill will be moved forward from August 5 to May 5.

Other changes as a result of the move to a unified Budget are likely to include a shorter, and perhaps more relaxed, period of pre-Budget purdah, which will not start until after the party conference.

The government may also try to compress the week-long general debate at the start of the parliamentary session in November, since it will be followed almost immediately by the week-long economic debate after the Budget.

GB United Kingdom, EC P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9611 P9311 The Financial Times London Page 9 336
Railway privatisation Publication 930219FT Processed by FT 930219

RAILWAY privatisation will lead to the publication of dozens of different Passenger's Charters as each train operator draws up its own version of the existing British Rail charter, it emerged yesterday.

The government said that franchisees operating state-subsidised services would continue to compensate passengers for punctuality and reliability in much the same way as BR does now. Operators of unsubsidised services will be under no such obligation.

GB United Kingdom, EC P4011 Railroads, Line-Haul Operating TECH Standards TECH Services P4011 The Financial Times London Page 8 93
Future of Digital's Irish and Scottish plants in the balance Publication 930219FT Processed by FT 930219 By JAMES BUXTON, TIM COONE and LOUISE KEHOE EDINBURGH, DUBLIN, SAN FRANCISCO

DIGITAL, the US computer maker, is thought likely to decide in the next few days whether a plant in Ireland or one in Scotland is to be the victim of retrenchment in its European computer manufacturing operations. The Massachusetts-based company is poised to decide between concentrating production of its new Alpha computers at its plant at Ayr in south-west Scotland or at Galway in western Ireland.

It is likely that the plant which loses will be closed, and the winning plant might gain several hundred new jobs as work was transferred from one facility to the other. The company plans to reduce its worldwide payroll to about 90,000 from 108,500 at the end of last September.

Both plants make mini-computers and personal computers. The Ayr facility employs 980 people and that in Galway some 1,200.

Officials from Locate in Scotland, the inward-investment division of Scottish Enterprise, and from the Industrial Development Authority in Ireland have been in constant touch with Digital in the hope of swinging the decision in their favour.

But there was no indication last night from Locate in Scotland that a decision in favour of Ayr was expected.

The Irish authority said it would be 'a disaster' if Digital decided to pull out of Ireland.

Digital is refusing to comment beyond repeating a statement issued in December that a review of European manufacturing which would involve redundancies was under way. The company said no decision would be announced this week. Other sources say that a decision will be made today and announced next Tuesday.

Digital's plant at Ayr is regarded as one of the most successful and productive electronics factories operated by multinational companies in Scotland. Last year Digital opened a plant at South Queensferry near Edinburgh to make semiconductors. Both these factors make some industry observers believe that the decision between Galway and Ayr will go in Ayr's favour.

The company was one of the first electronics companies to be established in Ireland. In the past two years, however, it has closed one plant and shed 300 jobs, and it is thought that its older VAX computer production line at Galway is the most likely to be axed.

Digital Equipment Corp GB United Kingdom, EC IE Ireland, EC US United States of America P357 Computer and Office Equipment P7372 Prepackaged Software COMP Company News RES Facilities P357 P7372 The Financial Times London Page 8 426
Salvation Army row gathers pace Publication 930219FT Processed by FT 930219 By NORMA COHEN, Investments Correspondent

TILEN Securities, the firm at the heart of an alleged Pounds 6m fraud, is neither registered in Britain nor authorised to conduct investment business here, regulators said yesterday.

Two individuals named in a writ filed by the Salvation Army, Mr Stuart Christopher Ford of Birmingham and Mr Gamil Naguib, are also not authorised to conduct investment business, the Securities and Investments Board stated. The firm is also named in the writ.

According to the Charities Commission, trustees of charities are required to conduct investment business only through firms authorised under the Financial Services Act. The Salvation Army confirmed through its public relations advisers Lowe Bell yesterday that one of its officers had been suspended with pay pending the outcome of an internal investigation. The charity declined to name the officer.

The Salvation Army has retained the accountancy firm Coopers & Lybrand and City solicitors Slaughter and May to investigate the disappearance of the funds. It is believed a worldwide injunction freezing individual and corporate assets is being sought in connection with the writ.

Last month the Salvation Army succeeded in obtaining an order to freeze assets held in Luxembourg. Assets of about Dollars 520,000 (Pounds 366,200) were frozen.

The Salvation Army has notified the Metropolitan Police and is preparing documents, which are expected to be delivered to the police early next week. Meanwhile, neither the Salvation Army nor its advisers know the whereabouts of the individuals named in the writ, and private investigators have been retained to assist in the search.

The Salvation Army has declined to give any details of the timing or nature of the alleged fraud.

The charity, which is the largest provider of social services after the government, last year had an income of almost Pounds 80m of which Pounds 12m came from public donations. It is the sixth-largest UK charity - only the National Trust, Royal National Lifeboat Institution, Oxfam, Imperial Cancer Research Fund and Cancer Research Campaign are larger.

Tilen Securities GB United Kingdom, EC P6732 Educational, Religious, etc Trusts P8399 Social Services, NEC GOVT Legal issues P6732 P8399 The Financial Times London Page 8 367
Campaign to save Bart's facilities Publication 930219FT Processed by FT 930219

THE Corporation of London, the local authority for the City, yesterday decided to campaign to retain St Bartholomew's hospital's 24-hour accident and emergency facilities.

A meeting of the Court of Common Council, the equivalent of a meeting of the full council in a London borough, expressed the 'gravest misgivings' at Tuesday's announcement on London healthcare by Mrs Virginia Bottomley, health secretary, which has put the future of Bart's in doubt. Mrs Joyce Nash, chair of the corporation's health and social services committee, said the City would risk damage if the proposals made it seem less attractive as a financial centre.

Bart's managers have decided to enter discussions on a merger with the Royal London hospital. That was opposed yesterday by the Bart's Patients' Campaign which has been fighting to save the hospital.

GB United Kingdom, EC P9121 Legislative Bodies P806 Hospitals RES Facilities GOVT Government News P9121 P806 The Financial Times London Page 8 164
OECD criticises health reforms Publication 930219FT Processed by FT 930219

THE introduction of an internal market in the health service is unlikely to reduce waiting times for hospital operations significantly, says a report from the Organisation for Economic Co-operation and Development.

The Paris-based OECD has examined reforms in the UK and three other European countries which use market-type mechanisms to control the cost of hospital treatment.

The authors found that the reforms have contributed to greater efficiency and helped healthcare systems become more innovative. Health service managers also welcomed the greater freedom.

However, the report concludes that there is only limited scope for reducing waiting times for operations in the UK unless the 'chronic scarcity of resources' is addressed. The OECD says the internal market will highlight the shortage of funds which creates long waiting lists for hospital admission.

Market Emulation in Hospitals. OECD. Free.

GB United Kingdom, EC P806 Hospitals P9431 Administration of Public Health Programs TECH Standards TECH Services P806 P9431 The Financial Times London Page 8 168
Ski tour company ceases trading Publication 930219FT Processed by FT 930219

WINTER World, a ski company with 65 groups of customers abroad, has ceased trading, the Association of British Travel Agents said last night.

The company is an Abta member and clients' money is protected. Abta said it did not yet know how many skiers were abroad or how many forward bookings the company had. The company, based in Skipton, North Yorkshire, refused to comment.

The tour operator Riva Travel was placed in liquidation last night. The company, which employed failed travel entrepreneur Mr Harry Goodman, as a consultant, ceased trading last Wednesday. The liquidators are Mr Peter Souster and Mr Fred Satow of Baker Tilly.

Winter World Riva Travel GB United Kingdom, EC P4725 Tour Operators COMP Company News P4725 The Financial Times London Page 8 137
Kodak to build Pounds 16m factory Publication 930219FT Processed by FT 930219 By ALAN CANE

KODAK, the US-based photo-graphic and office equipment supplier, is investing Pounds 16m in a new factory on Merseyside after deciding against alternative sites in France and Germany, Alan Cane writes.

The factory is expected to create 40 jobs in the area and will make toner, the fine black powder used to produce photocopied images, for customers throughout Europe. At present, Kodak manufactures toner in the US and ships it to Europe.

The new plant will be located on Kodak's existing 37-acre site at Knowsley Industrial Park, where it has been manufacturing photographic chemicals since 1949. Construction will begin in the spring.

The Department of Trade and Industry helped to secure a regional development grant of Pounds 700,000 towards the cost of the project.

Kodak GB United Kingdom, EC P3861 Photographic Equipment and Supplies COMP Company News RES Capital expenditures RES Facilities P3861 The Financial Times London Page 8 163
Environmental groups torn by divisions on pits battle: The 'green' organisations in a quandary over the issue of closures Publication 930219FT Processed by FT 930219 By BRONWEN MADDOX

IN the conflict over the future of Britain's coal industry, the environmental movement has not had a good war. The leading pressure groups have been unable to present a united policy and have appeared ambivalent about whether coal mines should close.

They have not been short of targets - the Commons environment committee last week accused Mr Michael Heseltine, trade and industry secretary, of ignoring environmental issues in his October announcement that he planned to close 31 pits.

It is surprising that the environmental case has not been put more forcefully in a country where 'green' pressure groups command wide support. Moreover, the issue of energy use had a high profile last year, with the risk of global warming from burning fossil fuels at the top of the Rio Earth Summit's agenda.

Policy differences prevented the environmentalists making a joint response to the pit closure announcement. The debate over the closures put them on the spot because it forced them to choose between competing goals.

The environmentalists' instincts have been anti-coal because of the carbon dioxide produced by burning it. The government committed itself last year to stabilising levels of carbon dioxide at 1990 levels by the year 2000, and the pit closures appeared to make those targets easier to reach.

The two leading environmental groups, Greenpeace and Friends of the Earth, want the use of fossil fuels such as coal, gas and oil cut sharply 'in the long term'. But they also want the government's white paper on coal, expected in the next few weeks, to preserve some of the 31 pits for a few years.

Greenpeace, which has 400,000-plus supporters, argues that 'the immediate priority must be the closure of nuclear power, not the coal mines'. It wants a larger share for coal in the electricity generation market to be created at the expense of nuclear power. It maintains this opposition to nuclear power - one of its most passionately held policies - even though nuclear power does not emit carbon dioxide, and a nuclear accident would affect many fewer people than global warming.

Mr Clive Bates, Greenpeace's energy campaigner, defends its priorities. 'The probability may be low, but there just isn't a socially acceptable nuclear accident,' he says.

Friends of the Earth, with about 250,000 supporters, also opposes nuclear power. But its desire to see pits spared is prompted largely by concern for the mining communities.

Greenpeace says pointedly: 'We don't have a view on mining jobs - we stick to environmental questions.' But Mr Simon Roberts, FoE energy campaigner, argues that 'the impact of changes to improve the environment should be spread more evenly across society - yes, that is a political point we're making'.

The long-term solution favoured by both groups is investment in energy efficiency and 'renewables' - wind, solar and wave power. Here there is some common ground with the government, which is running a campaign to persuade households to save electricity. The Department of Trade and Industry has also suggested a growing though small role for renewables.

FoE says the energy-efficiency schemes it favours could save nearly half the UK's use of energy, apart from in transport, by 2005.

The groups are optimistic about renewables in spite of the trade and industry department's estimate that the cost of power is generally two to three times that generated by present sources. Both groups hope costs might fall with more research, but suggest that even if renewables are not competitive the extra cost should simply be paid.

Other parts of the 'green' movement are less certain about renewables. The Campaign for the Protection of Rural England has expressed unease about wind-turbine towers on hillsides or tidal barrages changing the shape of estuaries.

Friends of the Earth (UK) Greenpeace (UK) GB United Kingdom, EC P86 Membership Organizations P12 Coal Mining RES Natural resources RES Pollution COMP Company News P86 P12 The Financial Times London Page 8 679
Government delays release of coal survival plan Publication 930219FT Processed by FT 930219 By DAVID OWEN, JOHN MASON and MICHAEL SMITH

THE GOVERNMENT has been forced to delay publication of its plan for the coal industry until next month, suggesting MPs may not have the chance to debate it until after the Budget on March 16.

Mr Michael Heseltine, trade and industry secretary, is still struggling to secure the consent of the two main electricity generators in England and Wales to take an extra 65.5m tonnes of British deep-mined coal over five years.

This is the amount the government believes is necessary to win backbench approval for its rescue plan. The generators have offered to take 40m tonnes at subsidised world prices, and an extra 15m providing the government pays for the cost of stocking it. It also emerged yesterday that British Coal has decided not to appeal against a High Court ruling that its decision in October to close the 10 most threatened pits was unlawful.

It decided against the appeal after mining unions yesterday failed in a separate High Court attempt to challenge consultation procedures to be used by British Coal over the 10 pits.

The National Union of Mineworkers and Nacods, the pit deputies' union, had accused British Coal of having no intention of entering into genuine consultations and challenged its use of mining engineers John T. Boyd to review the threatened mines.

Lord Justice Glidewell - who last December ruled the original closure decisions unlawful - dismissed the unions' request for new court orders to ensure independent scrutiny of the closure programme.

The High Court had no jurisdiction over the matter and British Coal had yet to decide finally on the form of consultation to be used, Lord Justice Glidewell said.

British Coal, explaining why it had decided against an appeal against the December decision, said it did not want to be distracted from the consultation process.

The government's inability to publish a white paper on coal before next month demonstrates the difficulties it faces in deciding on the future of the industry.

Last month Mr Heseltine said he wanted to publish the white paper as early as possible in February.

British Coal Corp GB United Kingdom, EC P12 Coal Mining P9611 Administration of General Economic Programs GOVT Government News COMP Company News P12 P9611 The Financial Times London Page 8 395
Heseltine still has aces up his sleeve Publication 930219FT Processed by FT 930219 By PHILIP STEPHENS

ANY remaining expectations that Mr Michael Heseltine would emerge as a knight in re-polished armour from the coal industry debacle have been dispelled by his latest rows with the power generators.

The struggle between the trade and industry secretary and the generating companies National Power and PowerGen has underlined again how the political crisis created by last autumn's pit closure programme left the government in a no-win position. As one of Mr Heseltine's cabinet colleagues commented recently: 'It was never a game which we could win. We are in the business of cutting losses.'

But ministers believe it is still too early to say whether the generators' refusal to bear any of the costs of salvaging about a dozen of the 31 pits earmarked for closure threatens even that damage-limitation exercise. Mr Heseltine still has a powerful card to play.

Mr John Baker, chief executive of National Power, is warning Mr Heseltine that his own duties to shareholders come before the government's concerns to placate its backbenchers. The generators will buy and stock extra coal only if Mr Heseltine picks up every penny of the bill.

There is recognition in Whitehall that the generators' position appears impregnable. Mr Heseltine has no legal powers to enforce any contract between British Coal and the generators.

He can threaten new legislation, but the companies are as aware as anyone at Westminster that the government is keen to avoid months of protracted Commons debates.

But National Power and PowerGen also know that Mr Heseltine can be pushed only so far. He could retaliate if negotiations on an expanded coal contract broke down.

The unspoken threat to the generators is that he might respond by seeking to break up the duopoly established when the industry was privatised two years ago.

It is not a threat that can be made explicitly: even hinting at the possibility of retaliation through a Monopolies and Mergers Commission investigation would leave him vulnerable to a challenge in the courts.

But the threat is there nonetheless, confirmed by senior ministers with nods and winks.

There is little doubt at Westminster that if National Power and PowerGen did not strike a deal acceptable to the government, Tory backbenchers would soon clamour for an MMC inquiry.

Mr Heseltine's position has been strengthened by the fact that most of the cabinet disputes over coal have ended.

Leaks about disputes with the generators may actually have helped the government. The message that there are no easy options has percolated down to potential Tory rebels at Westminster.

Mr Heseltine will not survive this trauma untarnished. But he looks set to survive, nevertheless.

National Power PowerGen British Coal Corp GB United Kingdom, EC P12 Coal Mining P4911 Electric Services P9611 Administration of General Economic Programs GOVT Government News P12 P4911 P9611 The Financial Times London Page 8 486
Carmakers optimistic despite signals Publication 930219FT Processed by FT 930219 By JOHN GRIFFITHS

CAR and commercial vehicle production has made an 'encouraging' start to the year, the Society of Motor Manufacturers and Traders said yesterday.

But statistics for January released by the SMMT and Central Statistical Office showed no firm signs of the output growth in cars that the SMMT has forecast for this year. It has predicted that the UK-based industry will make 1.4m cars this year, 110,000 more than in 1992.

Car output rose by 14.57 per cent on a year-on-year basis last month to 109,124 from 95,245, the SMMT said.

Direct comparisons are difficult, however, mainly because January this year covered five weeks' production compared with four last year.

Seasonally adjusted figures compiled by the CSO show last month's car output to be marginally lower than in the same month last year - 99,400 against 100,700.

But production in the current and coming months is expected to increasingly to feel the benefit of the introduction of Toyota's car plant at Burnaston, Derbyshire, and Honda's plan at Swindon, Wiltshire, and also of Nissan's planned output growth.

Rover Group stated this week that it is doubling Maestro and Montego output, and will soon start production of the 600, its own version of the Accord that Honda has begun building at Swindon.

Rover's contention that it is increasing output mainly to cope with higher export demand appears to be supported by yesterday's statistics. They show production for export, at 50,292, up 21.21 per cent from the previous January's 41,492.

Commercial vehicle output in the month rose 14.81 per cent to 16,400, but with production for export down 3.09 per cent to 9,734. The CSO's seasonally adjusted total commercial vehicle figures showed that output was down 2.2 per cent.

This month's commercial vehicle figures are almost certain to be badly affected by the halting of production at UK truck market leader Leyland Daf, following its collapse into receivership.

GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies MKTS Production STATS Statistics P3711 The Financial Times London Page 8 347
Lloyd's faces big rise in pollution claims Publication 930219FT Processed by FT 930219 By RICHARD LAPPER

LLOYD'S of London faces a substantial increase in possible claims from US pollution, damaging further the prospects of the insurance market.

Lloyd's syndicates have already put aside more than Pounds 1bn to pay claims from US pollution cases and are likely to need to increase their reserves again following an estimated 30 per cent surge in claims notifications during 1992.

'It is a young problem in terms of insurance but it is still growing,' said Mr Alan Pollard, chief executive of Syndicate Underwriting Management. SUM handles claims on behalf of more than 80 syndicates which are no longer in business and about 17 per cent of all pollution claims at Lloyd's. The run-off company, which is owned by the Lloyd's corporation, received notification of 13,000 claims last year compared with 10,000 in 1991. The corporation regulates and services the Lloyd's market.

Mr Pollard predicts that many more syndicates will be forced to keep their accounts open for 1990 when they report results for that year this June. This is because of uncertainty about pollution, asbestosis and other so-called 'long-tail' liabilities, which sometimes arise on policies underwritten more than 30 years ago.

These long-tail claims have added to Lloyd's losses in recent years, which are set to exceed Pounds 4bn for the three years 1988 to 1990.

One leading underwriter said last week: 'Half the professionals on the market think that (claims from US) pollution is the end of the world as we know it.'

In a separate development Mr Peter Middleton, chief executive of Lloyd's, has announced the loss of a further 300 jobs at the corporation.

Mr Middleton aims to reduce staff numbers by a further 300 to 1,600 before the end of the year. Since taking over last September, he has cut 300 jobs as part of a Pounds 29.5m cut in the budget to Pounds 115m.

'There is a vital need for us to help to restore the competitive edge of the Lloyd's market,' he said.

Other changes which were reported yesterday include a reduction in management layers from 15 to six, and introducing performance pay and a staff appraisal system. The government is seriously considering scrapping proposals for a register of contaminated land, one of the most bitterly contested part of the government's environment policy, after criticism that it could blight property values.

Lloyds of London GB United Kingdom, EC US United States of America P6411 Insurance Agents, Brokers, and Service P9512 Land, Mineral, Wildlife Conservation INS Insurance COMP Company News GOVT Government News P6411 P9512 The Financial Times London Page 8 442
Rail workers union warned on racial bias Publication 930219FT Processed by FT 930219 By DIANE SUMMERS, Labour Staff

THE COMMISSION for Racial Equality has told the RMT transport union that it must take action before September to prevent race discrimination or face a full investigation.

Allegations of discrimination were made during a dispute over selection procedures two years ago between British Rail and Asian guards at Paddington station in London.

Eight guards complained to the commission that they experienced discrimination in their attempts to become train drivers. It was also claimed that the union failed to take adequate action to support them in spite of repeated requests.

BR has since been working on selection procedures with the commission, which has also been examining evidence of discriminatory practices by the union.

The union said it would monitor the ethnic origin of its officials and members, take action to deal with under-represented racial groups and train officials in how to tackle discrimination in the workplace.

The commission has agreed to suspend its investigation but said that if the union did not make satisfactory progress by the end of September, it might be issued with a legally enforceable non-discrimination notice.

Ms Mary Coussey, the commission's employment division director, said the complaints by the Asian guards were 'a reminder that both sides in employment - management and the unions - have an equal responsibility' to work to eliminate discrimination.

Mr Vernon Hince, RMT senior assistant general secretary, said the union welcomed the opportunity to work with the commission.

British Rail GB United Kingdom, EC P4011 Railroads, Line-Haul Operating P8631 Labor Organizations PEOP Personnel News GOVT Legal issues P4011 P8631 The Financial Times London Page 8 281
Pounds 21m project at London Zoo Publication 930219FT Processed by FT 930219

LONDON Zoo yesterday announced a Pounds 21m investment programme designed to turn the 36-acre Regent's Park site into a world-class animal conservation and breeding centre.

Dr Jo Gipps, zoo director, said Pounds 2.5m had already been raised. Two Londoners have pledged Pounds 250,000 cash towards development and Pounds 1m towards a children's zoo and education centre.

London Zoo GB United Kingdom, EC P8422 Botanical and Zoological Gardens RES Capital expenditures P8422 The Financial Times London Page 8 89
Council tax bill to be around Pounds 500 Publication 930219FT Processed by FT 930219

THE average council tax bill in England is likely to be around Pounds 500, according to a survey published today by Local Government Chronicle magazine.

The average household bill from the 169 English councils which had set or recommended their council tax by Wednesday will be Pounds 494.58.

GB United Kingdom, EC P9121 Legislative Bodies GOVT Taxes P9121 The Financial Times London Page 8 77
Dozens of railway charters expected Publication 930219FT Processed by FT 930219

RAILWAY privatisation will lead to the publication of dozens of Passenger's Charters as each train operator draws up its own version of the existing British Rail charter, it emerged yesterday.

The government said franchisees operating state-subsidised services would continue to compensate passengers for punctuality and reliability in much the same way as BR does now.

GB United Kingdom, EC P4011 Railroads, Line-Haul Operating TECH Standards TECH Services P4011 The Financial Times London Page 8 84
Rail union may be probed over discrimination claim Publication 930219FT Processed by FT 930219 By DIANE SUMMERS, Labour Staff

THE COMMISSION for Racial Equality has told the RMT transport union that it must take action before September to prevent race discrimination or face a full investigation.

Allegations of discrimination were made during a dispute two years ago between British Rail and Asian guards at Paddington station in London.

Eight guards complained to the commission that they experienced discrimination in their attempts to become train drivers. It was also claimed that the union failed to take adequate action to support them in spite of repeated requests.

BR has since been working on selection procedures with the commission, which has also been examining evidence of discriminatory practices by the union.

The union said it would monitor the ethnic origin of its officials and members, take action to deal with under-represented racial groups and train officials to tackle discrimination in the workplace.

The commission has agreed to suspend its investigation but said that if the union did not make satisfactory progress by the end of September, it might be issued with a legally enforceable non-discrimination notice.

Ms Mary Coussey, the commission's employment division director, said the complaints by the Asian guards were 'a reminder that both sides in employment - management and the unions - have an equal responsibility' to work to eliminate discrimination.

Mr Vernon Hince, RMT senior assistant general secretary, said the union welcomed the opportunity to work with the commission.

British Rail GB United Kingdom, EC P4011 Railroads, Line-Haul Operating P8631 Labor Organizations PEOP Personnel News GOVT Legal issues P4011 P8631 The Financial Times London Page 8 277
Polluted land register in doubt Publication 930219FT Processed by FT 930219 By BRONWEN MADDOX, Environment Correspondent

THE government is seriously considering scrapping proposals for a register of contaminated land after criticism that it could blight property values across industrialised parts of England and Wales.

The proposals have been one of the most bitterly contested parts of the government's environment policy. There have been claims that the register would depress property values, trigger a flood of legal claims and set back efforts to regenerate derelict land.

There have been protests about the inclusion of all land which had been used by specified types of industry, regardless of whether the land had actually been polluted.

Earlier this month an advisory committee of prominent business people warned the government that banks were increasingly worried about taking land as security for loans in case they became liable for the cleaning-up costs.

An announcement on revised proposals is expected in two weeks. Ministers are understood to favour a register based on planning applications.

GB United Kingdom, EC P9512 Land, Mineral, Wildlife Conservation P65 Real Estate GOVT Government News P9512 P65 The Financial Times London Page 8 190
Microchip breakthrough in Cambridge Publication 930219FT Processed by FT 930219 By ALAN CANE

A UK-Japanese research team in Cambridge has made a breakthrough in semi-conductor technology which promises computer memories of vastly greater capacity than the microchips now available.

The development is expected to open new frontiers for portable computers including the storage of sound and moving video images.

Researchers from the Japanese company Hitachi Europe and Cambridge University's Cavendish Laboratory yesterday published their preliminary findings. A 'bit' of information - equivalent to a '1' or '0' in computer binary code - can now be stored by a single electron in a microchip. Today's memory chips take about 500,000 electrons to store one bit.

A single-electron memory would consume much less power than conventional memory chips. The implications for personal computers, especially portable machines, are immense. One prospect is the first terabit (thousand billion bit) memory chip.

This has not been possible until now because even the most advanced semiconductor memories consume about a tenth of a watt in power; a single thousand-billion-bit memory chip using this technology would run as hot as five two-bar electric fires.

Using the new Cambridge technology, power consumption would be less than a tenth of a watt, making possible notebook computers with virtually unlimited storage capacity.

Dr Kazuo Nakazato, Hitachi's senior researcher, explained that storing data which requires a tennis court's worth of microchips today, could be achieved in a single electron memory the size of a 50p piece. Professor Haroon Ahmed of the Cambridge microelectronics research centre said there were many problems to be solved before commercial single-electron memories would be feasible.

The Cambridge experiments work only at temperatures close to absolute zero (minus 273 deg C) and the scientists are now attempting to develop chips which will operate at room temperature.

GB United Kingdom, EC P3674 Semiconductors and Related Devices P873 Research and Testing Services TECH Products P3674 P873 The Financial Times London Page 7 322
Strike threat to Peugeot suspended Publication 930219FT Processed by FT 930219

A STRIKE planned for next week by thousands of Peugeot Talbot workers in the UK was deferred last night when union leaders decided to hold a fresh ballot after claiming that they had won improvements on job security.

Unions said Peugeot Talbot had agreed not to make enforced redundancies and officials decided the improvement should be put to the workforce in ballots next Monday and Tuesday.

The company refused to improve a two-year offer of 3.5 per cent on pay now and 3.5 per cent or the rate of inflation next year.

Shop stewards will hold meetings with workers tomorrow before the balloting goes ahead.

Carmakers optimistic, Page 8

Peugeot Talbot Motor GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies COMP Company News PEOP Labour P3711 The Financial Times London Page 7 145
Industry's unstoppable slide: FT study shows that Britain cannot count on manufacturing for an export-led recovery Publication 930219FT Processed by FT 930219 By TONY JACKSON

IF Mr John Major is looking to industry for an export-led recovery he may be disappointed, a Financial Times study has found. The trade gap in manufactured goods is likely to continue in spite of recent efforts to promote exports.

A survey of industrial sectors over the past 20 years by FT reporters shows that some sectors now in deficit, such as motors and electricals, are reviving as a result of foreign investment. However, the decline of other sectors could offset any such gains.

Britain went into deficit in manufacturing trade 10 years ago, and the deficit widened last year in spite of the recession. There is now a long list of products in deficit that were in surplus 20 years ago. Besides motors and electronics, sectors which have moved into deficit include textiles and furniture. Individual items in deficit range from nuts and bolts to bicycles, cigarette lighters and pianos.

It is not an easy problem to grapple with. Guinness recently announced rationalisation and job losses in the Scotch whisky industry. It is to spend Pounds 25m on new automatic bottling equipment, all from abroad. 'It is virtually impossible to buy high-speed, sophisticated bottling equipment in the UK,' Guinness said this week. 'The technology is in the hands of the Germans.'

The FT's findings, which will be published in a two-part series starting on Monday, show that even in sectors still in surplus the pattern is one of decline. The most commonly cited example of British industrial success in world markets is pharmaceuticals, which last year contributed a trade surplus of about Pounds 1.3bn. In 1970 exports of pharmaceuticals exceeded imports by a factor of four. By 1980 it was a factor of three, and last year exports were less than double imports.

There is a similar pattern in chemicals, which are also in surplus overall. In the 1980s the industry cut production of petrochemicals sharply following heavy losses in the previous recession. As a result it was unable to supply demand in the boom conditions at the end of the decade. Import tonnage of PVC, a basic plastic used in the construction industry, trebled between 1980 and 1991 while export tonnage halved.

It is unlikely that the devaluation of sterling since last September will help. In 1970, when manufactured imports were only two thirds the size of exports, sterling stood at an average DM8.74 and Dollars 2.40. Since then, devaluation and a declining trade balance have gone hand in hand.

The brightest spots in the picture are motors, where massive Japanese investment is expected to plug the deficit by the mid-1990s, and in electronics, where Britain is benefiting from foreign investment in consumer electronics, semiconductors and personal computers. However, business location experts do not think the UK will continue to enjoy the lion's share of inward investment into Europe.

Mr David Rees, location specialist with Ernst & Young, the accountancy firm, said: 'In the next five years, I think Britain will continue to earn a high share of manufacturing projects relative to the size of its economy. But I do not believe it will retain its lead.'

The reason he says is low-cost competition from eastern Europe and greater efforts by other western European countries to attract investment.

GB United Kingdom, EC P9611 Administration of General Economic Programs ECON Economic Indicators P9611 The Financial Times London Page 7 584
Take-up of mortgages falls sharply Publication 930219FT Processed by FT 930219 By JOHN GAPPER, Banking Correspondent

REPORTS from estate agents of increasing activity in the housing market were undermined yesterday by figures from building societies showing a fall in the number of people committing themselves to new mortgages last month.

The value of net new commitments to society mortgages last month fell to Pounds 1.55bn from Pounds 1.89bn in December. The December figure was revised downwards from an earlier estimate of Pounds 1.99bn which had been taken as a sign of modest recovery.

The value of net new commitments last month was lower than in any month last year, when the lowest monthly figure was Pounds 1.8bn in September. The value last month was also heavily down on the Pounds 2.27bn of net new commitments made in January last year.

The Building Societies Association said increased interest among housebuyers had not yet emerged. 'There is no evidence of recovery in the housing market on these figures,' said Mr Adrian Coles, the association's head of external relations.

Mr Coles said the fall in new commitments was 'not un-expected' because buying was traditionally subdued in January. The activity reported by housebuilders and estate agents would probably be reflected in future figures.

He said the fall might also reflect a decline in the share of mortgage lending done by societies. The cut in base rates has enabled lenders such as banks taking funds from wholesale markets to undercut retail-funded mortgages.

Gross mortgage lending for January fell to Pounds 1.8bn from Pounds 2.14bn in December. But net advances - gross advances minus the repayment of mortgage principal - increased slightly to Pounds 528m from a revised figure of Pounds 474m in December. Societies' deposits were more encouraging. They achieved a net inflow of retail funds of Pounds 363m in January after an inflow of Pounds 117m in December. The January figure alone was above the total annual inflow of Pounds 295m last year.

The retail inflow was the highest in a single month since October 1991. Mr Coles said the inflow was 'particularly welcome' given renewed competition from National Savings because of government efforts to attract retail funds.

GB United Kingdom, EC P603 Savings Institutions P8811 Private Households MKTS Market data P603 P8811 The Financial Times London Page 7 384
Heritage at risk put on show Publication 930219FT Processed by FT 930219 By MICHAEL SKAPINKER, Leisure Industries Correspondent

ON THE DAY the government announced a further fall in manufacturing employment, the English Tourist Board launched a Pounds 230,000 campaign to attract visitors to sites associated with Britain's industrial heritage.

The 'Experience the Making of Britain' programme boasts 250 attractions, featuring existing industries, those that have disappeared and some that are under threat. The latter are exhibited in the British Commercial Vehicle Museum in Leyland, Lancashire, and the Yorkshire Mining Museum in Wakefield, West Yorkshire.

The campaign includes 500 special events, from a Friends of Thomas the Tank Engine weekend to a demonstration by leading glassmakers. Financial support has come from Grand Metropolitan, Hanson, the Electricity Association, British Nuclear Fuels and Marks and Spencer.

Mr William Davis, the board's outgoing chairman, said: 'The campaign is much more than just a backward look at our industrial achievements and the way we once lived. Tourism and industrial heritage are an important force for the regeneration of some of today's communities.'

English Tourist Board (UK) GB United Kingdom, EC P7999 Amusement and Recreation, NEC P8412 Museums and Art Galleries TECH Services P7999 P8412 The Financial Times London Page 7 205
Take-up of mortgages falls sharply Publication 930219FT Processed by FT 930219 By JOHN GAPPER, Banking Correspondent

REPORTS from estate agents of increasing activity in the housing market were undermined yesterday by figures from building societies showing a fall in the number of people committing themselves to new mortgages last month.

The value of net new commitments to society mortgages last month fell to Pounds 1.55bn from Pounds 1.89bn in December. The December figure was revised downwards from an earlier estimate of Pounds 1.99bn which had been taken as a sign of modest recovery.

The value of net new commitments last month was lower than in any month last year, when the lowest monthly figure was Pounds 1.8bn in September. The value last month was also heavily down on the Pounds 2.27bn of net new commitments made in January last year.

The Building Societies Association said increased interest among housebuyers had not yet emerged. 'There is no evidence of recovery in the housing market on these figures,' said Mr Adrian Coles, the association's head of external relations.

Mr Coles said the fall in new commitments was 'not un-expected' because buying was traditionally subdued in January. The activity reported by housebuilders and estate agents would probably be reflected in future figures.

He said the fall might also reflect a decline in the share of mortgage lending done by societies. The cut in base rates has enabled lenders such as banks taking funds from wholesale markets to undercut retail-funded mortgages.

Gross mortgage lending for January fell to Pounds 1.8bn from Pounds 2.14bn in December. But net advances - gross advances minus the repayment of mortgage principal - increased slightly to Pounds 528m from a revised figure of Pounds 474m in December. Societies' deposits were more encouraging. They achieved a net inflow of retail funds of Pounds 363m in January after an inflow of Pounds 117m in December. The January figure alone was above the total annual inflow of Pounds 295m last year.

The retail inflow was the highest in a single month since October 1991. Mr Coles said the inflow was 'particularly welcome' given renewed competition from National Savings because of government efforts to attract retail funds.

Societies did not pass on the whole of the 1 percentage point cut in base rates to savers last month in order to protect themselves against customers transferring money to National Savings and equity-based investments.

Mr Coles said this would probably have a stronger effect in future months. National Savings funds were also increasing, indicating a broader willingness to save.

GB United Kingdom, EC P603 Savings Institutions P8811 Private Households MKTS Market data P603 P8811 The Financial Times London Page 7 444
Caution greets lending increase Publication 930219FT Processed by FT 930219 By PETER NORMAN, Economics Editor

BANK and building society lending rose unexpectedly last month, but certain factors cast doubt over whether the rise was a sign of economic recovery.

The Bank of England reported that bank and building society lending to the private sector increased by a seasonally adjusted Pounds 4.1bn in January after a Pounds 74m drop in December. The increase was double City expectations and substantially higher than the Pounds 1.5bn average of the previous six months.

But hopes that this might signal a robust recovery in demand were tempered by doubts about the methods of seasonally adjusting the figures.

In addition M4, the UK's broad money measure that includes bank and building society deposits, increased by only 3.2 per cent in the 12 months to January. This was the lowest increase in the measure since records began and well below the government's 'monitoring range' of 4 per cent to 8 per cent growth.

The British Bankers' Association, representing the UK's nine largest banking groups, said the groups' lending to the private sector increased by a seasonally adjusted Pounds 2.13bn in January after a fall of Pounds 1.71bn in December.

Lord Inchyra, director-general of the association, said the January increase in bank lending was the biggest since October. 'It would probably be unwise to interpret this welcome rise in lending as providing evidence of an upturn in the economy,' he added.

City analysts said lending figures over the past year have established a pattern of weak growth or falling lending at the end of each quarter followed by sharp growth in each subsequent month. This indicates that the seasonal adjustment procedures are not working satisfactorily, they said.

GB United Kingdom, EC P6021 National Commercial Banks P603 Savings Institutions ECON National income P6021 P603 The Financial Times London Page 7 310
World Trade News: Mood lifts in EC-US public procurement row Publication 930219FT Processed by FT 930219 By DAVID DODWELL, World Trade Editor WASHINGTON

A POSSIBLE solution to the dispute between the US and the European Community over telecommunications and other government procurement contracts was raised by negotiators yesterday based on 'comparable, effective and lasting access' to each other's markets, and equal treatment to each other's exporters.

Negotiators agreed after two days of discussions in Washington that the EC could exempt US companies from rules which discriminate in favour of EC bidders for procurement contracts 'if we have comparable access to the US market'. They plan to meet again in Brussels on March 11.

The clash over public procurement flared last month after the new US administration threatened to bar European companies from bidding for federal contracts in the US unless European procurement regulations favouring local manufacturers were dismantled. It set March 22 as a deadline for EC action.

EC officials conceded in Washington after this week's discussions that there were 'obstacles in the way' of US companies competing for EC procurement contracts, but insisted that the market was opening up, and 'serious trade is being done'.

But they also insisted that systemic differences made it difficult for US officials to recognise the obstacles that existed for foreign companies to compete for US procurement contracts. Among these are 'Buy America' laws used in some federal contracts, and by 37 state governments in the US; special monopoly privileges under which companies such as AT&T operate; and the arbitrary use of design standards to keep foreign companies at bay.

'We are trying to find out whether two systems which are completely different in design - ours based on rules and regulation, and the US system based on private sector competition - can produce comparable results in terms of market access for foreign companies,' said Mr Jorn Keck, who headed the EC negotiating team in Washington.

In response to US arguments that large US private sector telecommunications operators such as AT&T, MCI-Sprint, GTE or the 'baby Bells', should not be subject to procurement rules because they are not government run, Mr Keck said: 'We don't care whether a company is private or not. What really counts is not ownership, but government regulation, and whether a company has special or exclusive rights.

'When you look at AT&T, you see they are operating under special privileges, under monopoly conditions. We need to look at their procurement behaviour because it is not what you would expect in a free market.'

Officials say they have agreed a text from which to continue negotiations on telecommunications contracts.

QR European Economic Community (EC) US United States of America P481 Telephone Communications P9631 Regulation, Administration of Utilities GOVT International affairs P481 P9631 The Financial Times London Page 6 466
World Trade News: Brittan appeals to Clinton administration not to complicate Uruguay Round Publication 930219FT Processed by FT 930219 By ANDREW HILL BRUSSELS

SIR LEON BRITTAN, the EC external trade commissioner, yesterday warned the US against cluttering the Uruguay Round of world trade talks with new issues and fresh conditions, writes Andrew Hill in Brussels. But the European Commission welcomed President Bill Clinton's call, in his State of the Union address on Wednesday night, for an expansion of world trade and a successful conclusion of the talks.

Speaking in Cheshire in Britain last night, Sir Leon said Mr Clinton had given 'a clear lead' to the final stage of talks, when he announced last week he would ask Congress to extend the administration's 'fast-track' negotiating authority.

Sir Leon met Mr Mickey Kantor, US trade representative, for the first time in Washington last week, and described him yesterday as 'an open, agreeable, but tough negotiator'.

He said any extension of the Clinton administration's negotiating mandate should be short and free of fresh conditions. 'If new issues are now being suggested, they should not be the pretext for delaying or complicating the present Round,' he said.

'The newly identified issues of today can readily be put on the agenda for discussion in the immediate aftermath of the present Round.'

Sir Leon repeated that he was confident of a Gatt agreement, but warned that there was 'a difficult end-game ahead', and said negotiators should expect 'a period of turbulence' before any deal was struck. 'But getting there will require persistence, resolution and determination.'

The commissioner said the US should resist the temptation 'to seek protectionist short cuts to economic recovery', and he said bilateral difficulties in trade between the US and the EC - for example, on steel and public procurement - should not be tackled unilaterally.

QR European Economic Community (EC) US United States of America P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 6 326
World Trade News: Germany looks for business in India Publication 930219FT Processed by FT 930219 By SHIRAZ SIDHVA NEW DELHI

CHANCELLOR Helmut Kohl arrived in New Delhi yesterday on a four-day visit, primarily to strengthen economic ties between Germany and India, and to explore the business opportunities afforded by India's new economic reforms programme.

While in India, he and the 20 German businessmen accompanying him will visit the Indian Engineering Trade Fair. Germany was one of the first countries to send a business delegation to India when India opened up its economy to foreign investors last year.

Germany is India's largest EC trading partner, accounting for about 8 per cent of its total trade. Germany's exports to India totalled Dollars 1.5bn (Pounds 1.04bn) and imports Dollars 1.7bn in 1991. In the first half of 1992, trade was virtually in balance at about Dollars 900m each way.

Finished goods, like leather products, chemicals and pharmaceuticals, cotton and silk garments comprise some 85 per cent of India's exports to Germany; imports are mainly industrial machinery and fertiliser components.

India has received more than DM10bn in financial and technical assistance from (West) Germany since bilateral development co-operation began more than 30 years ago.

Mr Mr Hans-Georg Wieck, German ambassador, said his country was looking towards Indian companies as potential partners in the machine tools, equipment and manufacturing sectors.

The fair, a biennial event, organised by the Confederation of Indian Industry, an autonomous association representing some 2,600 Indian companies in the public and private sectors, has generated business inquiries worth Rs17.16bn (Pounds 405m) in the first three days, a record for the fair. The fair's success, especially in industrial engineering goods and machine tools, reflects India's changed business environment, say the organisers.

IN India, Asia DE Germany, EC P9721 International Affairs PEOP Personnel News P9721 The Financial Times London Page 6 306
World Trade News: New China order for Ericsson Publication 930219FT Processed by FT 930219 By CHRISTOPHER BROWN-HUMES STOCKHOLM

ERICSSON, the Swedish telecommunications group, said yesterday it had won a Dollars 150m (Pounds 104m) contract to expand a mobile telephone system in Guangdong province - the largest Chinese order for a cellular system, it claimed.

The order will more than double the capacity of the network operated by Guangdong Mobile Communications, enabling it to serve 240,000 extra subscribers. The contract calls for the delivery of radio channels, mobile switching centres, data bases and radio link equipment by the third quarter of this year.

Ericsson, the world's leading supplier of cellular telephone systems, already has a strong presence in China. Apart from being the sole supplier to Guangdong, it has recently won contracts to supply Beijing, Tianjin, Guangxi and Hebei. The new order means mobile phone systems have a capacity to serve around 500,000 Chinese subscribers.

LM Ericsson Guangdong Mobile Communications CN China, Asia P4812 Radiotelephone Communications P4813 Telephone Communications, Ex Radio MKTS Contracts P4812 P4813 The Financial Times London Page 6 180
World Trade News: Keating plays the grand trade policy card / A look at Labor's pre-election vision of an Australian role in a new integrated Asian Pacific market grouping Publication 930219FT Processed by FT 930219 By KEVIN BROWN SYDNEY

WHEN it comes to electioneering, few political leaders have a greater sense of the value of a dramatic gesture than Mr Paul Keating, the Labor prime minister of Australia.

Launching his party's trade policy for Australia's forthcoming federal election, Mr Keating unexpectedly proposed the creation of an integrated Asia Pacific market of 2bn people.

Such a market would account for half of global economic output and 40 per cent of world exports, making it by far the largest of the world's trade groupings.

In addition to Australia and New Zealand, it would include the six countries of the Association of South-East Asian Nations (Asean), the three members of the North American Free Trade Agreement (Nafta), Japan, South Korea, China, Hong Kong and Taiwan.

From Canberra's point of view, the Keating plan is a natural development of Apec, the Asia Pacific Economic Co-operation forum initiated by Australia and the US in 1989.

Apec, which includes all of Mr Keating's target countries except Mexico, has become the main focus of Australian trade promotion efforts, mainly because it accounts for 70 per cent of Australian exports.

But Australian officials have become increasingly worried about the potential impact of a breakdown of the Uruguay Round talks in the General Agreement on Tariffs and Trade on intra-Apec trade.

There is particular concern that the US might seek a series of bilateral trade deals offering preferential access to Nafta, which could be used to discriminate against Japan, Australia's biggest trading partner. Mr Keating, who has assured Tokyo of Australian support in such a dispute, warned the Clinton administration that it risked 'accumulating resentment and resistance' if the benefits of such deals flowed mainly to the US.

The alternative, he said, was 'an open economic association in the Asia Pacific region, in which its economies were by degrees integrated to create the world's most dynamic zone of production.'

Mr Keating's proposal was intended to contrast Labor's enthusiasm for integration with the Asia Pacific region with the more conservative approach of the Liberal/National Party opposition, which puts more emphasis on traditional links with Europe and North America.

However, as Mr Keating acknowledged, there are obstacles to the development of a cohesive trading bloc based on the loosely knit Apec grouping. Professor Richard Snape, head of the economics department at Monash University, concluded in a report on Australia's trading options that the size and diversity of Apec meant that negotiations on a comprehensive trade agreement would face the same problems as the Uruguay Round.

For example, the US, Canada, Japan and South Korea are unlikely to make further concessions on agricultural trade than they have already made within the Gatt framework.

In addition, Apec already includes three incompatible trading blocs - the Asean free trade area, Nafta and the Closer Economic Relations (CER) agreement between Australia and New Zealand.

Professor Snape's report also concluded that successful regional trading blocs usually exhibit a high degree of geographical proximity, similar levels of per capita gross national product and cultural affinity.

Recognising these problems and differences, Mr Keating suggested that Apec should initially seek harmonisation of trading and technical standards, competition regulations and corporate law, business practice, investment rules, and professional qualifications.

Even this would be a substantial achievement in a region containing economies as divergent as communist China, the US and Japan. The Asean countries, for example, have found reducing protection difficult, and Australia and New Zealand have so far failed to harmonise company and taxation law.

Senator Gareth Evans, the Australian foreign affairs and trade Minister, said yesterday that Apec was 'a very significant counter weight to the ever present pressures at work to break the world into three warring trade blocs, built respectively around the yen, the US dollar and the D-Mark.'

However, he played down the prospects of economic integration, conceding that it would be 'some time' before the concept of an Asia Pacific free trade area becomes 'even remotely' a reality.

'Our position is that in the meantime we should do nothing to inhibit the development of genuinely regional arrangements, and nothing which cuts across Australia's basic self-interest in achieving further trade policy integration with the economies of East Asia,' he said.

This approach is less ambitious than the Prime Minister's grand vision of a pan-Pacific common market. But it seems more achievable. It is also supported by the opposition parties, which have backed away from suggestions that a coalition government might seek membership of Nafta in preference to developing Apec.

Whichever side wins the election on March 13, Apec will remain important to Australia as the only mechanism which offers Canberra a seat at the regional table.

AU Australia P9611 Administration of General Economic Programs GOVT Government News Keating, P Labour Prime Minister Australia P9611 The Financial Times London Page 6 834
The Clinton Economic Plan: Energy industry warns of heavy cost - Levy on fuel Publication 930219FT Processed by FT 930219 By ALAN FRIEDMAN, LAURIE MORSE and BERNARD GRAY NEW YORK, CHICAGO, LONDON

THE US energy industry yesterday responded to the economic package with a blast of harsh rhetoric, warning that the proposed levy on petrol, heating oil, gas and coal could damage the economic recovery and cause a loss of jobs.

President Clinton's newly announced energy tax, based on the heat content of fuels, is aimed at avoiding a politically controversial tax on petrol and spreading the higher energy costs between industry and family homes. Instead, the tax would be levied on the thermal content of fuels and, according to US Treasury officials, is expected to raise net revenues estimated at Dollars 22bn a year once it is fully in force.

The tax would be imposed at a rate of 25.7 cents per million British thermal units on coal, nuclear energy and gas, and at a much steeper rate of 59.9 cents per million BTUs on oil. The administration plans to phase in the tax in three stages, charging one third of the full rate from July 1, 1994, two thirds a year later, and the full rate from July 1, 1996.

When fully phased in, the tax is expected to add 7.5 cents to the price of a gallon of petrol, 26.25 cents to a thousand cubic feet of natural gas, and Dollars 2.25 to the monthly electricity bill of an average household.

Mr Charles DiBona, president of the American Petroleum Institute (API), claimed, however, that it 'really amounts to a thinly disguised gasoline (petrol) tax, one that would seriously harm economic recovery and be a job-killer on a mammoth scale'.

Mr Di Bona, in effect the energy sector's top Washington lobbyist, argued that the tax could reduce gross domestic product by Dollars 170bn over five years and cost 600,000 jobs.

The API said it did not accept administration estimates of the cost of the new tax 'because we do not believe the additional costs can uniformly be passed through on all petroleum products'.

The tax was also attacked as burdensome to middle class families. Jobs that might be endangered were in the Midwest, South, Southwest and Rocky Mountain states because of the energy-intensive industrial and agricultural operations there.

In Oklahoma, part of the energy sector's heartland, Mr Larry Nichols, chairman of independent oil and gas producer Devon Energy, reflected the API's views. He thought the proposal was biased against companies like his because a number of the costs could not necessarily be passed on to consumers.

The US coal industry reacted cooly. But Mr Steve Anderson of Westmorland Coal said 'a carbon tax would have been much worse for us', a view echoed by Mr John Grasser of the National Coal Association, who said: 'Coal prices will rise by about 25 per cent at the mine. Under a carbon tax it might have doubled.'

He was also sceptical that coal use would fall as a result of the tax. 'Eighty per cent of our coal goes to the electrical utilities, and the only competitor is gas which will be hit with exactly the same tax.'

US United States of America P2911 Petroleum Refining P2999 Petroleum and Coal Products, NEC P4923 Gas Transmission and Distribution P12 Coal Mining GOVT Taxes P2911 P2999 P4923 P12 The Financial Times London Page 5 570
The Clinton Economic Plan: Mixed reactions to foreign tax plans - Company Tax Publication 930219FT Processed by FT 930219 By ANDREW JACK and CHARLES LEADBEATER LONDON, TOKYO

FOREIGN COMPANIES with US operations reacted with a mixture of concern and relief to President Clinton's proposed corporate tax changes.

Foreign companies have been particularly relieved to see a retreat from Mr Clinton's strong campaign rhetoric to recoup up to an extra Dollars 45bn over four years from overseas companies operating in the US. That figure has now been revised down to just Dollars 3.8bn over six years.

But they have expressed worries about the Dollars 38m additional expenditure to be made on hiring new investigators in the US Internal Revenue Service and increasing their audits on foreign companies to ensure compliance.

That will mean extra expenditure by companies in ensuring adequate documentation to prove that they have been filing accurate, fair tax returns.

'Generally British companies are still very concerned and nervous,' said Mr Peter Dickinson, head of international tax at accountants Coop-ers & Lybrand. 'It is going to be much more expensive to operate in the US now and the economic case for investing there has clearly been reduced.'

'One company I have spoken to said this would be a frightful additional burden,' said Mr Dickinson. 'The feeling is the IRS has had enough ammunition in the past. Any more pressure will be intolerable.'

Companies would also take a direct hit to their earnings from the 2 per cent basic increase in corporation tax to 36 per cent.

Mr Mike Wort, of Wellcome, the pharmaceutical company with US manufacturing operations, said: 'In the short-term there is little we can do. We plan no significant changes and we have no intention to pull out. The US is still a profitable market for us.'

However, Japanese groups with US operations were more sanguine. In Tokyo, Honda, with two US factories employing 15,000 workers, said of the possibility of more auditing of their figures: 'This is nothing for us to worry about. We have been following US law.'

Toyota, the leading Japanese car maker, which has four factories in the US employing more than 10,000 employees said: 'We have contributed a lot to the US economy, we are not worried about it at all.'

Sony, Sanyo and Matushita, the electronics groups, which together operate 20 factories in the US all said they were not concerned about the plans. All the companies said the proposals would not affect plans for further investment in the US.

Mr Edward Streator, president of the American Chamber of Commerce in London, said: 'I think people are obviously concerned about how much of a ripple effect these proposals will have. But my hunch is the effects will be slight.'

US United States of America P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 5 479
The Clinton Economic Plan: Shift in debt maturities - Bonds Publication 930219FT Processed by FT 930219 By LAURIE MORSE and TRACY CORRIGAN

PRESIDENT Clinton's deficit-cutting plan may include a reduction in the maturities of debt issues by the US Treasury, in an attempt to reduce heavy interest costs.

Mr Leon Panetta, budget director, has projected Dollars 11.5bn in savings over four years by shifting debt maturities.

Savings are possible because short-term interest rates in the US are substantially lower than long-term rates. The benchmark 30-year long bond yields 7.04 per cent, compared to the bond-equivalent yield of 2.94 per cent on three-month Treasury bill. The wide margin reflects last year's short-term interest rate cuts and fears about the future impact of the budget deficit and inflation.

Mr Panetta tried to reassure the markets on Wednesday night by saying any change in the debt mix would be made gradually.

Analysts, however, say a shift in debt to the short end of the yield curve could be short-sighted, and would expose the huge US debt to increased reinvestment risk. 'The Dollars 11.5bn savings would come only if all things remain constant, and nothing does,' said Mr Frank Sannella, credit market analyst at Stone and McCarthy Research Services.

The Treasury runs the risk of missing out on relatively cheap long-term rates while driving up the cost of short-term debt.

'With interest rates as low as they are, its time to lock in on the long end, which is what many corporations are doing right now,' said Mr Daniel Smith, president-elect of the American Bankers Association.

US United States of America P9611 Administration of General Economic Programs P6211 Security Brokers and Dealers GOVT Government News P9611 P6211 The Financial Times London Page 5 288
The Clinton Economic Plan: Inflation rises as output advances - January Indicators Publication 930219FT Processed by FT 930219 By JUREK MARTIN WASHINGTON

US CONSUMER prices jumped by 0.5 per cent last month, well above the revised 0.2 per cent advance of December and the steepest monthly increase in the last two years.

Other statistics released yesterday showed continuing strength in industrial production, up 0.4 per cent in January, another decline in the weekly claims for unemployment benefits and a small reduction in the December trade deficit.

Principal factors behind the rise in retail prices were more expensive vegetables, petrol, tobacco and clothing. But even excluding food and energy, whose prices tend to be more volatile, the so-called core consumer inflation rate also rose by 0.5 per cent.

Although the increase exceeded the expectations of analysts, January itself is often a statistically unreliable month and there was no immediate inclination to see in these figures a resurgence of general inflation. Last year consumer prices rose by a modest 2.9 per cent and President Bill Clinton's new economic proposals assume no additional inflationary pressures.

The 0.4 per cent increase in industrial production, following revised gains of 0.2 per cent and 0.5 per cent in December and November respectively, is more consistent with the general picture of an economy modestly on the mend.

Increased output of cars and car parts accounted for about a half of the advance in the index, but production of consumer goods, business equipment and construction supplies also recorded advances. Total industrial capacity usage in January rose by 0.2 percentage points to 79.5 per cent, the highest since October, 1991.

The US trade deficit in December fell to Dollars 6.95bn (Pounds 4.81bn) from the revised Dollars 7.35bn of the previous month. This brings the cumulative deficit for the full year to Dollars 84.34bn, up from Dollars 65.40bn in 1991. The weakened economies of the main US trading partners and the domestic recovery presage a wider deficit in 1993.

In the year, the sensitive US trade deficit with Japan rose to Dollars 49.4bn from Dollars 43.4bn in 1991. It thus accounted for nearly 60 per cent of the worldwide deficit.

The US surplus with the European Community also dropped sharply last year to Dollars 6.19bn from the Dollars 16.42bn of 1991. In December the US ran a deficit with the EC of Dollars 308m, half that of November.

US United States of America P9611 Administration of General Economic Programs ECON Industrial production ECON Inflation ECON National income P9611 The Financial Times London Page 5 423
The Clinton Economic Plan: Officials feel load off their shoulders - US Treasury buoyed Publication 930219FT Processed by FT 930219 By MICHAEL PROWSE WASHINGTON

THE Clinton economic package would enable the US to hold its head up high in international negotiations and promote its agenda of global growth more effectively, a Treasury official claimed with evident satisfaction.

He said the package, which included a planned halving of the budget deficit as a percentage of gross domestic product over the next four years, was a 'real response' to calls for tough US fiscal action from trading partners. It would set the tone for better international economic relations.

Foreign governments should note that the Clinton strategy was 'consciously internationalist'. The goal was to improve US economic performance not by erecting protective walls to foreign products or capital, but by domestic reforms that raised US productivity.

The plan offered a real hope of lower long-term US bond yields and faster growth of output.

In recent years, US economic diplomacy has been hampered by its failure to take the tough budgetary medicine advocated by its trading partners and by international bodies such as the OECD and the IMF.

Since being nominated as Treasury secretary, Mr Lloyd Bentsen has repeatedly said he would try to revitalise economic co-operation between the Group of Seven industrial countries. He is attending a G7 meeting of finance ministers and central bankers in London on February 27.

He seems likely to press European governments to lower interest rates towards the low levels prevailing in the US and Japan as part of a co-ordinated strategy to promote global growth.

US United States of America P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9611 P9311 The Financial Times London Page 5 295
The Clinton Economic Plan: Pain of new taxes mixed with deficit pleasures - US Business Publication 930219FT Processed by FT 930219 By ALAN FRIEDMAN, LAURIE MORSE and LOUISE KEHOE NEW YORK, CHICAGO, SAN FRANCISCO

US BUSINESS leaders appeared divided yesterday in their initial assessment of the Clinton economic package. Many expressed concern that it could damp the fragile recovery but others voiced support for its goals of creating jobs and reducing the country's budget deficit.

Among the new financial burdens for business are an increase in the top corporate tax from 34 to 36 per cent, a slashing from 80 to 50 per cent of the deductions that may be taken for meals and entertainment, and a cancelling of deductions for executive pay of more than Dollars 1m, for club dues and for lobbying expenses. Tax credits for the purchase of new equipment were also part of the proposal.

The three main carmakers in Detroit offered conditional support for Mr Clinton's proposals. Mr Robert Eaton, chairman of Chrysler, called it 'a tough package' but said this was needed in view of the size of the deficit.

Mr Harold Poling, chairman of Ford, noted that no one liked tax increases because they could have a serious effect on economic recovery. But he thought Americans might be willing to make the sacrifice for a period of time.

General Motors stressed that the package should be analysed in its entirety rather than in terms of how it affected individuals.

The computer and electronics sector was also divided. The most prominent support from any US business leader came from Mr John Sculley, chairman of Apple Computer and a self-professed Republican voter who sat next to Ms Hillary Clinton during the president's speech and applauded before the television cameras.

Mr George Fisher, chairman of Motorola, said that while he was 'quite willing to pay more taxes' on a personal level, the increases in corporate taxation were 'very shortsighted'.

Mr Craig Barrett, chief operating officer at Intel, hoped the higher corporate taxes would not wipe out the benefits of investment tax credits.

Mr Bryan Little, director of government relations for the US Business and Industrial Council, said 'the tax increases Clinton proposes will stifle this economy and serve only to shut down small businesses and put people out of work'.

The American Farm Bureau applauded the president for tackling the deficit, but said US farmers and ranchers were disappointed that the package relied so heavily on tax increases rather than spending cuts.

In Chicago, Mr Patrick Arbor, chairman of the Board of Trade, endorsed the energy tax rises, but said he was concerned at new charges on futures transactions and would lobby against it.

The view of small business was summed up by Mr Jackson Farris, chief executive of the National Federation of Independent Business. He said the package would do more harm than good to small businessmen because of taxes, paperwork and regulatory burdens that could stifle the economic recovery.

As Clinton administration officials fanned out across the US to help sell the package, Mr Robert Rubin, the former co-chairman of Goldman Sachs who is chairman of the National Economic Council, went to Wall Street yesterday for a lunch meeting with chief executives from 20 top banking groups.

Mr James Harmon, chairman of Wertheim Schroder and one of Mr Rubin's guests, termed the package 'bold and courageous' and predicted that it would eventually be approved by Congress.

Mr Harmon called the increase in corporate tax rates 'not so serious' and added he did not think the overall package would dampen the US recovery.

Support for Mr Clinton's proposals also came from several trade union leaders. Mr John Sweeney, president of the AFL-CIO union that represents one million workers in the service sector, praised Mr Clinton for coming forward 'with an economic plan that puts working people and their futures first and sets the priorities of this nation straight again'.

US United States of America P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9611 P9311 The Financial Times London Page 5 682
The Clinton Economic Plan: Europeans still agonising over carbon taxes - EC Energy Policy Publication 930219FT Processed by FT 930219 By BRONWEN MADDOX, Environment Correspondent

THE US energy tax measure removes one obstacle to the introduction of European energy and carbon taxes, but many impediments remain.

Unlike the US proposals, the European initiatives have so far been driven more by environmental pressure than a need to raise money.

The European Commission has proposed a tax on energy and on its carbon content to encourage efficiency and to discourage the use of fossil fuels which emit carbon dioxide and could contribute to global warming. EC countries are committed under the convention signed at last July's Earth Summit in Rio de Janeiro to find ways of stabilising emissions of carbon dioxide at 1990 levels by the year 2000.

However, the EC proposals are conditional on most industrialised countries adopting similar ones, to avoid handicapping European industries. In addition, there have been disagreements between EC countries about the best form of these taxes.

Poorer countries want them directed only at the heaviest polluting countries - the industrialised ones - while a UK Treasury minister said in parliament on January 15 that Britain was 'not yet convinced that a Europe-wide tax was a necessary or appropriate response to global warming'.

Mr Ioannis Paleokrassas, the new EC environment commissioner, said in a recent interview that the difficulty of getting internal agreement within the EC, as well as with other industrialised countries, meant that proposals for the taxes were unlikely to make much progress this year.

In the form originally proposed, the EC energy and carbon taxes had most impact on the energy sector. However, intervention by governments in their power generation markets, such as the present UK coal review, could impede the working of the tax.

The UK parliamentary select committee on the environment last week argued that a carbon tax would be of little use in persuading electricity generators to switch to cleaner fuels if the UK government was proposing to subsidise coal.

The US decision has removed the European fear of competitive disadvantage. However, any hopes that this will speed up European negotiations may be premature.

US United States of America P9611 Administration of General Economic Programs GOVT Taxes P9611 The Financial Times London Page 5 382
The Clinton Economic Plan: Other measures Publication 930219FT Processed by FT 930219

Personal tax deductions would no longer be available for executives paid more than Dollars 1m a year. Club dues would cease to be tax-deductible.

Only half the cost of business meals and entertainment would be tax-deductible, down from 80 per cent.

Lobbying expenses would no longer be allowable against tax, hitting one of Washington's most active industries. Extra tax yield by 1998: Dollars 978m.

A package of measures to encourage investment in real estate would cost Dollars 5.5bn in the next six years. Most of this would come from a permanent extension of tax relief on mortgage revenue bonds, though there are also proposals to modify tax rules governing real estate investment by pension funds, among others.

A temporary investment tax credit would be available to large companies for 1993 and 1994, while companies with a turnover of less than Dollars 5m a year would get a permanent tax credit. The package is expected to cost Dollars 9bn next year.

Further measures to encourage businesses to invest would include a permanent extension of the tax credit for research and experimentation (tax cost this year: nearly Dollars 1bn) and a modest extension of depreciation allowances (at a total cost of Dollars 1.6bn over five years).

Investments in small businesses (those worth Dollars 25m or less) would qualify fir a 50 per cent capital gains tax exemption, provided they were held for at least five years.

A tax credit available to companies operating in US possessions would be cut back, affecting mainly pharmaceuticals companies and other manufacturers operating in Puerto Rico and the Virgin Islands. These companies would between them pay Dollars 7bn more in taxes by the end of 1998.

Securities dealers would have to adjust their inventories of securities to market prices for tax purposes, forcing them to recognise book profits. This tax on Wall Street would bring in more than Dollars 1bm a year once it is fully phased in, from 1995.

---------------------------------------------------------- THE 'FAIR BURDEN' ON TAXPAYERS (Some examples) ---------------------------------------------------------- The tycoon earning Dollars 2,5m per annum. He has three failed marriages behind him. He pays alimony totalling Dollars 850,000 per annum. He pays mortgage interest of Dollars 50,000 per annum. ---------------------------------------------------------- Existing tax law: Salary etc 2,500,000 Less alimony 850,000 Mortgage interest 10,000 (after tax relief) Personal exemption 0 Taxable income 1,640,000 Tax 503,922 FICA 5,529 Total taxes 509,451 ---------------------------------------------------------- Proposed law: Taxable income 1,640,000 Tax (single) 630,212 FICA 39,621 Total taxes 670,033 ---------------------------------------------------------- The middle class man with a wife and two children and a mortgage. ---------------------------------------------------------- He earns Dollars 200,000 per annum and pays Dollars 20,000 mortgage interest. ----------------------------------------------------------

Existing tax law: Salary etc 200,000 Mortgage interest 17,253 (after tax relief) Personal exemption 6,580 Taxable income 176,167 Tax 47,140 FICA 5,529 Total taxes 52,669 ---------------------------------------------------------- Proposed law: Taxable income 176,167 Tax 48,948 FICA 6,471 Total taxes 55,419 ---------------------------------------------------------- The family with three children on an income of Dollars 25,000. ---------------------------------------------------------- There is no mortgage. Existing tax law: Salary 25,000 Standard deduction 6,200 Personal exemptions 11,750 Taxable income 7,050 Tax 1,058 FICA 1,913 Total taxes 2,971 ---------------------------------------------------------- Proposed tax law: No change ---------------------------------------------------------- Source: Price Waterhouse preliminary estimates ----------------------------------------------------------

US United States of America P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9611 P9311 The Financial Times London Page 5 562
The Clinton Economic Plan: Benefits seen for revival of global economy - Praise from Japan and Europe Publication 930219FT Processed by FT 930219 By CHARLES LEADBEATER and LIONEL BARBER TOKYO, BRUSSELS

JAPANESE and European business and political leaders yesterday gave a warm welcome to President Bill Clinton's plans to cut the US federal budget deficit.

Mr Yohei Kono, Japanese cabinet secretary and acting foreign minister, said: 'I sincerely hope the US will renew itself. This is the first US president to ask the American people to share the pain.'

Mr Henning Christophersen, EC economics commissioner, called the package 'encouraging and full of promise' - the most serious effort in years to tackle the federal deficit.

Mr Martin Wassel, economics director of the International Chamber of Commerce in Paris, said: 'Clearly America had to tackle these deficits. There may be a weakening in growth prospects in the short-term but in the longer term it will be healthy for the US and the world economy.'

The European Commission yesterday also set aside worries that the package could postpone a US-led world economic recovery.

Mr Christophersen singled out for praise Mr Clinton's short-term stimulus aimed at creating 500,000 jobs by 1994, through a temporary investment tax credit and accelerated public spending on housing, infrastructure and education. These measures were similar to the EC's growth package combining incentives for public and private investment, he said.

Despite the initial welcome, some EC officials expressed disappointment that Mr Clinton had failed to use his State of the Union address to endorse the Commission's call for an early summit of the Group of Seven industrialised nations to promote world growth.

Sir Leon Brittan, EC external economic relations commissioner, welcomed Mr Clinton's commitment to successful completion of the Uruguay Round, which he said he had expected after his talks with US officials in Washington last week. But in a speech to a local Conservative party meeting in England, copies of which were issued to the press, Sir Leon said a period of turbulence lay ahead before a Gatt deal was clinched.

In spite of the plan's welcome in Japan, it is bound to add to pressure on the country to open up its markets more and cut its ballooning trade surplus with the US.

Tokyo has been pressing the US to cut the federal deficit for the past four years through the long-running Structural Impediments Initiative talks, insisting this was essential to cut the Japanese trade surplus with the US.

Mr Clinton's promise to cut the deficit will also add pressure on Japan to bring forward a special package of measures to stimulate its depressed economy and increase demand for imports.

A senior official at the Ministry of International Trade and Industry said the combination of deficit reduction and subsidies for industrial research and development would help boost the competitiveness of US industry.

Business leaders acknowledged Japan would soon face increasing pressure to respond to the Clinton plan. Mr Gaishi Hiraiwa, head of the Keidanren, the largest employers' association, said Japan should contribute to the stable growth of the world economy through expanding domestic demand and opening its markets.

US United States of America JP Japan, Asia QR European Economic Community (EC) P9611 Administration of General Economic Programs GOVT International affairs P9611 The Financial Times London Page 4 549
The Clinton Economic Plan: Administration presses for a minimum of amendments - Congress Publication 930219FT Processed by FT 930219 By GEORGE GRAHAM WASHINGTON

PRESIDENT Bill Clinton has called on Congress to deal with his economic programme as a complete package, instead of picking apart each component.

'I ask you all to begin by resisting the temptation to focus only on a particular spending cut you don't like or some particular investment that wasn't made,' Mr Clinton implored in his speech to both houses of Congress on Wednesday night. But the legislative realities could mean that this will be difficult to achieve.

The current strategy is to pass a package of immediate spending measures, intended to boost the economy in the short term, in the form of a supplemental appropriations bill. Congressional leaders hope they will be able to get this through House and Senate committees in four to five weeks.

All of the tax measures proposed by Mr Clinton would then be rolled together into a budget proposal, to be laid before Congress by the administration on March 23, and pushed through in the form of a budget reconciliation bill.

Some members of congress had favoured attaching at least some of the proposals to a bill to raise the legal limit on the federal debt - which must pass sometime before the end of March, when the current Dollars 4,145bn (Pounds 2,871bn) ceiling will be breached.

But this bill, as well as legislation to extend benefits for those who have been unemployed for a long time, is expected to be passed 'clean', without extraneous amendments.

President Clinton also called in his speech on Wednesday for a number of other legislative items, including gun control, tougher measures against crime, campaign finance reform, curbs on lobbyists and easier voting registration.

Democratic leaders hope they can begin hearings on the reconciliation bill at the end of March and start to mark it up in detail at the end of April. The goal is to have it passed and sent to President Clinton for signature before Congress goes on holiday in August - though many congressional staffers believe they will be lucky to complete the bill before the autumn.

Congressman Richard Gephardt, the leader of the House Democratic majority, is understood to want to add in to this bill the comprehensive reform of the healthcare system that Mr Clinton has promised to produce by May. Many others in Congress believe a healthcare reform package will, realistically, not be completed until next year.

One fear for the package is that members of Congress could amend it to death, adding their favourite tax provisions and exemptions.

The House ways and means committee, which has primary jurisdiction over tax legislation, is expected to remain relatively disciplined. Members who want to propose amendments that will cost money must simultaneously propose offsetting spending cuts to pay for them.

Once it gets to the Senate, the legislation could become more difficult, even though budget rules, which are tighter than usual senate rules, allow only germane amendments.

'There are a zillion tax proposals sitting over there, many of which are plain mischievous,' a House staffer said.

US United States of America P9121 Legislative Bodies GOVT Government News P9121 The Financial Times London Page 4 542
The Clinton Economic Plan: A speech to have them rocking in the aisles - Presidential rhetoric and flair attract wide support and leave the Republicans floundering Publication 930219FT Processed by FT 930219 By JUREK MARTIN WASHINGTON

RONALD REAGAN did not like it, Ross Perot thought is was 'excellent' but a little short on detail, Jack Kemp, sitting in the middle, loved its 'rhetoric and goals' but was sure it would not work and Paul Tsongas happily confessed that 'the person giving it is not the man I campaigned against'. Some of Washington's most conspicuous pundits, ever grudging in their praise, conceded it served a purpose.

According to two overnight polls, three quarters of those surveyed approved its proposals, six out of ten 'enthusiastically'. One local TV station, camped in an old people's home, reported universal admiration and a willingness to contribute. A Washington Post editorial judged it 'well balanced and sturdy'.

The joint session of Congress and assorted dignitaries - with Mr Alan Greenspan, chairman of the Federal Reserve, accorded the singular seat of honour between Mrs Hillary Rodham Clinton and Mrs Tipper Gore - interrupted it with applause no fewer than 75 times, probably a modern record. The fact that it featured the first Democrat to give a State of the Union address in 13 years is only partial explanation.

It is hard to recall Mr Bill Clinton writing or delivering a better speech. He looked presidential, spoke well and pulled off the formidable trick of simultaneously engaging his audiences in Congress and watching on television.

There were several high spots, starting with the rhetorical call to arms. 'If we do not act now,' he proclaimed, 'you will not recognise this country ten years from now.' And again: 'The test of our programme cannot simply be; what's in it for me? The question must be: what's in it for us?' This probably explained why Mr Reagan, writing in the New York Times in advance of the speech, dismissed it as a repeat of 'the failed liberal policies of the past'.

Mr Clinton also cleverly engaged the Republican party, first by declining to blame it for anything and second by challenging it to improve his proposals. 'I did not seek this office to place blame. I come here to accept responsibility. and I want you to accept responsibility with me. If we do right by this country, I do not care who gets the credit for it.'

Anticipating the predictable 'tax and spend' Republican riposte delivered later by Congressman Bob Michel, the House minority leader, the president had them rocking in the aisles when he declared 'all those who say we should cut more should be as specific as I have been'.

When Republicans guffawed at his assertion that the Congressional Budget Office figures were 'independent', Mr Clinton was ready: 'Well, you can laugh, my fellow Republicans, but I'll point out that the CBO was normally more conservative in what was going to happen and closer to right than previous presi-dents have been.' The aisles rocked again.

The Republicans, therefore, have been served notice to come up with some alternatives; no easy process for a party deeply riven by its own ideological battles. Pretty much all Mr Michel could say, apart from defending the economic policies of Mr Reagan and Mr George Bush, was that his party would be listening to the voices of the people.

But Mr Perot, who can reasonably lay claim to have his finger on the nation's pulse and who was personally briefed in advance by Mr Clinton, said: 'I expect the American people will react very favourably' and would not object to paying higher taxes if they were fair. The president could have expected no more for the moment.

Mr Perot's only aphoristic admonition was to Congress, which also suits the president well. Noting that 'the president does not pass laws,' Mr Perot said that 'giving Congress money is like giving your friend who is trying to stop drinking a liquor store'.

A lot of the drinking in Washington is, of course, done by lobbyists, whom Mr Clinton duly threatened by calling for a bill ending lobbying tax deductions and enforcing stricter registration.

Undeterred, however, some were quick to throw down their own gauntlets, with their congressional allies voicing support. Thus both Mr John Sturdivant, represent-ing government workers, and Congress-man Steny Hoyer, the Democrat from Maryland who heads the subcommittee handling the federal workforce, said Mr Clinton's proposal to freeze federal pay was 'unacceptable' and would be dropped.

But such storm clouds could not take much away from Mr Clinton on a night when he was firing on all cylinders. Last night, far removed from the grandeur of the chamber of the House, he was bedding down in the extreme modesty of the Comfort Inn in Chillicothe, Ohio, which will not have a presidential suite and where rooms normally go for around Dollars 30 (Pounds 21) a night. This symbolism is just as important.

US United States of America P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 4 849
The Clinton Economic Plan: Soaring costs that have to be tamed - Healthcare Publication 930219FT Processed by FT 930219 By MICHAEL PROWSE WASHINGTON

PRESIDENT Bill Clinton's economic plan was like a book with a missing chapter.

All efforts to revive the economy would fail, Mr Clinton warned in the most moving passage of his address to Congress, if the country failed to take bold steps to reform the healthcare system.

He said the nation already spent 30 per cent more of national income on healthcare than any other industrial country, yet was unique in failing to provide a basic package of benefits to all citizens. On present trends, healthcare would absorb 20 per cent of the economy by the year 2000.

The figures released this week showed that the planned halving of the budget deficit as a percentage of gross domestic product by fiscal 1997 would represent only a temporary fiscal victory if healthcare is not reformed. Double-digit increases in spending on federal health programmes would result in steep rises in the deficit by the end of the decade.

But while identifying the nation's most pressing economic problem, Mr Clinton is not yet in a position to give a clear indication of the type of solution the administration will recommend. Wednesday's plan imposed some relatively minor new curbs on payments to doctors and hospitals under the Medicare and Medicaid programmes for the elderly and poor and increased funding for a variety of preventive health programmes such as children's immunisations.

But a full-scale restructuring of healthcare awaits the findings of the presidential task force headed by Mrs Hillary Rodham Clinton. It is expected to make recommendations by May.

The centrepiece of the reform is expected to be some version of a system known as 'managed competition'. Mr Clinton has indicated that he wants people to be grouped into large healthcare purchasing co-operatives that could negotiate good quality and cost-effective care from competing providers in the private sector.

At issue is the degree to which such institutions would be subject to direct regulations. The administration is examining the feasibility of various more direct controls on the price and volume of services that hospitals and doctors can provide.

One option would be to extend regulations now applying to federal schemes to the private sector.

But any changes are likely to provoke strong opposition, if only because cost controls in effect mean controls on the incomes of physicians, hospitals, insurance companies and drug companies, all of which are well represented by Washington lobbyists.

In the short run, there is no prospect of cost controls saving money. Indeed, fears are growing that the planned extension of health care benefits to the 37m Americans without insurance cannot be financed without a new wave of tax increases of between Dollars 30bn and Dollars 90bn (Pounds 21bn and Pounds 63bn).

Companies fear that directly or indirectly they will be asked to pick up a large chunk of the costs of extending insurance.

But until Mr Clinton writes the healthcare chapter of his reform, his economic package remains an unfinished work, lacking full credibility.

US United States of America P9431 Administration of Public Health Programs GOVT Government News P9431 The Financial Times London Page 4 535
The Clinton Economic Plan: Deficit reduction package puzzles analysts - Defence Spending Publication 930219FT Processed by FT 930219 By GEORGE GRAHAM

PRESIDENT Bill Clinton's deficit reduction package includes substantial savings on defence spending over the next five years, but military analysts are puzzled by the details of the defence budget plan.

Mr Clinton proposes a steady decline in defence budget authority from Dollars 274.3bn (Pounds 193.1bn) in the current fiscal year to Dollars 263.7bn in 1994 and Dollars 248.4bn in 1997, rising again to Dollars 254.2bn in 1998.

Over the five years from 1994 to 1998, this plan would cut a cumulative total of Dollars 127bn from the defence budget projections of former President George Bush.

But the Bush spending plan, according to a report by the General Accounting Office, does not recognise additional expenses of over Dollars 35bn in potential weapons systems overruns, Dollars 12bn resulting from Congress delaying programme cancellations, Dollars 5.4bn for industrial conversion and Dollars 24.5bn for cleaning up hazardous waste on defence property. It also assumes Dollars 53bn in management savings, most of which the GAO says may not be achieved.

With little time to produce a complete budget proposal, Mr Les Aspin, the new secretary of defence, appears to have done exactly what he used to complain about when he was chairman of the House of Representatives armed services committee. Instead of building a US defence plan from the bottom up, he has simply cut from the existing pattern, in effect asking each service to come up with a specified amount of savings, rather than radically reviewing each branch's size and roles.

This approach, which remains to be fleshed out with details of the specific weapons programmes that are to be cut, seems likely to reduce the US armed forces to around 1.4m people, 200,000 less than projected under the Bush plan.

Some outside groups that have proposed a more fundamental reassessment of the structure of the US armed forces believe this year's budget is a timid first step.

'This is the first chance of a new administration coming in after the end of the Cold War to make real changes, and they are not even attempting it; they are tinkering around the edges,' said Mr Marcus Corbin, a budget analyst at the Centre for Defence Information, a defence policy group founded by retired military officers.

With more time, Mr Aspin may prepare a more root and branch review for next year's budget, but some wonder whether the administration will by then have lost momentum and missed the chance for substantial defence revisions.

US United States of America P9711 National Security GOVT Government spending P9711 The Financial Times London Page 4 446
The Clinton Economic Plan: Department gets enhanced role and a bigger budget - Commerce Publication 930219FT Processed by FT 930219 By NANCY DUNNE WASHINGTON

MR Ron Brown, commerce secretary, yesterday set off to promote the president's plan in speeches in New York and Chicago with 'a big smile on my face'.

The Commerce Department is a winner from the spending and cuts package proposed by President Bill Clinton to spur US technology and manufacturing competitiveness.

Mr Brown told Chase Manhattan's technical centre in Brooklyn, New York, that the reaction to Mr Clinton's night speech unveiling the plan 'makes me know that we are on the right track'.

He said creating more jobs was a primary goal of the Clinton administration.

Tax benefits for corporations in high technology investment would help achieve that, especially among small businesses, he added. He noted that small businesses accounted for most American jobs, but did not say how the package would help big corporations, which have been cutting their payrolls.

He described the speech as 'a call to arms. . . ,' saying it was 'a bold approach, an honest approach.' Mr Brown said that while there were some battles ahead, he thought the package would be enacted.

In the short-term, his department will get Dollars 358m (Pounds 252m), including Dollars 117m for advanced technology and computer programmes, Dollars 81m for modernisation of the weather service, and Dollars 94m for economic development.

Another Dollars 64m will go to the development of telecommunications 'superhighways' - a pet project of Vice-President Al Gore - which would establish computer networks between libraries, foundations, businesses and individuals.

For the first time, the department will get sufficient funding to support the concept private-public sector partnerships. It will increase the number of 'manufacturing technology centres' from seven to more than 100. These will spread the benefits from the department's advanced technology programme, a scheme of matching grants to promote research and development.

The department will get Dollars 80m for its role in defence conversion - in addition to Dollars 50m already planned - from the Pentagon.

It will lose Dollars 6m from the export control programme which helps to curb nuclear and chemical weapon proliferation. Another Dollars 65m will be cut from the National Oceanic and Atmospheric Administration.

US United States of America P9199 General Government, NEC GOVT Government News P9199 The Financial Times London Page 4 395
The Clinton Economic Plan: Quotes of the day Publication 930219FT Processed by FT 930219

The latest joke from New York is that the new definition of the wealthy is anyone who isn't homeless.

- Mr Mike Cowan, chief administrative officer at Merrill Lynch in London

I'm a Republican, but this represents an honest attempt to deal with the underlying problems of the US. I'm going to be a loser and so are most of the other people I know, but I live pretty well.

- Mr Edward Streator, president of the American Chamber of Commerce in London

I'm not all that upset about the increase. Living in the UK for a year and a half I realise that we Americans have had a very low rate of tax in the past. - Mr Bruce Lassman, head of the US tax desk at accountants Ernst & Young in London

I'm a supporter of Clinton and I always felt tax increases were necessary. For 12 years we've been getting away from the social problems, the homelessness. . . state health care has to be improved, the deficit has to be attacked and I think Americans will accept that.

- Mr Jeff Burke, who works for a US investment bank in London

I'm concerned about tax, but you have to strike a balance between taxes and spending. In the past 12 years the administration has done nothing to help the distribution of wealth. These are bold steps.

- Mr Joseph V. Missett, who moved to London to trade crude oil

It will affect me deeply. I'm shattered. We're already paying high taxes - I'm paying at least 31 per cent.

- Marianne, a currency trader in New York

US United States of America P99 Nonclassifiable Establishments CMMT Comment & Analysis P99 The Financial Times London Page 4 303
Japan closer to an enhanced UN role Publication 930219FT Processed by FT 930219 By CHARLES LEADBEATER TOKYO

JAPAN may become a permanent member of the United Nations Security Council after a wide-ranging review of the Council's structure, Mr Boutros Boutros Ghali, UN secretary-general, said yesterday.

'There is a lot of possibility of Japan having a permanent seat, but it is a decision of the member states,' Mr Boutros Ghali said at the end of a four-day visit to Japan.

The country's case for a permanent seat was also backed by Chancellor Helmut Kohl of Germany, who begins a visit to Tokyo in a week's time.

Mr Kohl told a Japanese television interviewer that it was natural that Japan should become a permanent member, following changes to the make-up of the Council, to reflect the rise of Asian economic power.

Germany itself is seeking a permanent seat on the Council.

Mr Boutros Ghali's comments may well rekindle debate over reform of the Security Council, which has 15 members and five permanent members. The UN is canvassing its 180 members their views on the subject.

Any reform must be backed by the five permanent members, at least nine of the overall membership, and two-thirds of the General Assembly.

It could, however, be subject to a veto, perhaps from Britain or France, neither of which is enthusiastic about Japanese permanent membership. It might also open up a flood of applicants from other states claiming such status.

Mr Warren Christopher, US secretary of state, recently supported reform of the Council through agreement among its members, which would allow Japan a permanent seat.

His remarks provoked a sharp response from the British government, a permanent member, which is concerned it may lose its seat under a restructuring.

Mr Boutros Ghali seemed intent on wooing Japan, partly because a greater Japanese involvement in the UN might ease some of the organisation's financial pressures.

The secretary-general said he would welcome Japanese peacekeepers as part of the UN operations in Mozambique, as a step towards Japan deepening its involvement with the organisation.

Japan's involvement in peacekeeping activities was not, however, a precondition for it gaining a permanent Security Council seat. Japan's first peace-keeping unit took up its post in Cambodia last September, after years of agonising over whether such a role was appropriate under a pacifist constitution.

United Nations Security Council JP Japan, Asia P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 3 409
'Woman of Fashion' sells for Dollars 1.98m: Saleroom Publication 930219FT Processed by FT 930219 By ANTONY THORNCROFT

'LA MONDAINE', or 'The Woman of Fashion', by James Jacques Joseph Tissot, depicting a girl at a smart party being helped out of her fur coat by her elderly lover, sold for Dollars 1,982,650 (Pounds 1.38m) at Sotheby's in New York on Wednesday, an auction record for the 19th-century French artist.

It was one of the 15 'Women of Paris' paintings Tissot completed in the 1870s, portraying the self-confident 'New Woman' of the Third Republic: the young girl at the centre of the painting boldly holds the gaze of the viewer.

The picture came from the collection of the Toronto industrialists Joey and Toby Tanenbaum, selling near the top of its estimate.

Two other paintings from the series were also sold by the Tanenbaums. 'Sans Dot' ('Without Dowry') shows a young widow in black offering herself for inspection in a park, and went well below its Dollars 1.2m-Dollars 1.8m estimate, at Dollars 882,500. 'The Sphinx', an inscrutable young woman on a couch, fetched the same sum, also selling below target.

Obviously, Sotheby's was expecting too much from a still convalescent art market.

Even so, with a sale totalling Dollars 10.2m and only 15 per cent unsold, it will be pleased with one of the first big art auctions of 1993, and one in which successful bidders now have to pay a 15 per cent premium, instead of 10 per cent, on top of the hammer price.

A record price of Dollars 800,000 (way above the top estimate of Dollars 360,000) was paid for 'The Mirror' by the British artist Sir Frank Dicksee.

It was bought by the London dealer Macconall-Mason who advises Sir Andrew Lloyd Webber, the leading buyer of Victorian art. It shows a young girl staring at herself in a hand mirror.

Belle-Epoque and orientalist pictures did best in a sale of pictures likely to appeal to first-time buyers enjoying a revival in the US economy.

US United States of America P7389 Business Services, NEC MKTS Market data P7389 The Financial Times London Page 3 353
Kuwaiti MPs open a magic cave: National assembly flexes its muscles over foreign investments Publication 930219FT Processed by FT 930219 By MARK NICHOLSON

FOR the first time in Kuwait's history, a small group of elected representatives will examine the state's books.

Under a law formally promulgated in Kuwait last week, all state-owned companies and investment organisations, must now pass their accounts to the auditor general. He must then pass them to a committee of Kuwaiti MPs.

The law, which will also toughen penalties for misuse of public funds, is likened by its drafter, Mr Hamad al-Jouan, chairman of the National Assembly's legislative committee, to the secret word with which Ali Baba opened the magic cave. 'With this law we have invented our secret word for that cave to open.'

The cave, of course, contains Kuwait's rich - if these days diminished and scandal-tarnished - trove of overseas investments, most of which are managed by the London-based Kuwait Investment Office. 'Since the earliest days of democracy in Kuwait, people have been asking what KIO was doing,' says Mr al-Jouan. 'But parliament has never had the strength to make such a law a reality'.

That changed last October, when Kuwait's 84,000 eligible voters returned what many of the 50 elected MPs consider to be the Gulf state's most powerful National Assembly ever - and certainly the most powerful assembly in the Gulf. In three-and-a-half months, the assembly has mandated parliamentary scrutiny of the state's accounts, and embarked on an unsparing examination of what went wrong in the days leading up to the Iraqi invasion in August 1990. Next it wants a decisive say in determining economic policies.

In a country which has seen almost as many suspended parliaments as sitting assemblies since the 1962 constitution came into force, MPs finally appear to have won a measure of real governing power.

This is not a development which will bring hails of joy in neighbouring capitals, where vaunted steps towards wider political participation more closely resemble a reluctant shuffle.

Nor is it entirely to the liking of the ruling al-Sabah family. However, since their return to liberated Kuwait in 1991, they have had little choice but to accommodate a profoundly changed public mood.

In part, this reflects anger at the way the al-Sabah handled the crisis before the invasion, and its indecision afterwards. However, increasingly, it reflects growing suspicion that al-Sabah hands have not been the safest for guaranteeing the security of Kuwait's endowment to its future generations: being its foreign investment bounty.

The emergence since the end of the Gulf war of a stream of embarrassing revelations about Kuwait's overseas investments, which topped Dollars 100bn (Pounds 69bn) before the Gulf war, not only helped sweep an opposition majority into the National Assembly, but gave the new MPs a considerable lever over the ruling family.

It already appears that some members of the al-Sabah family may face prosecution for their part in the Dollars 4bn losses of Grupo Torras, KIO's Spanish holding company.

Meanwhile, Kuwait's public prosecutor is helping to prepare a criminal law suit against former KIO executives in London.

'This affair runs very deep,' says one western diplomat.

The government has said it will do its utmost to uncover and punish all wrongdoing at KIO - whatever the family names of anyone found guilty. It has also agreed to allow the assembly freedom to conduct its own investigations.

But if the al-Sabah have agreed to cede some of their governing power to the National Assembly, the parliament in its turn appears to have come to an understanding with the 'political leadership' in the family.

In the words of one eminent MP: 'We're saying give us more power to supervise our wealth and our future, and in return, the government can look after the investigation and punishment of its own.'

This, in essence, appears to be the deal being cut between Kuwait's assertive new parliament and its ruling family.

'The National Assembly understands our ruling family very well,' says Mr al-Shatte. 'It also remembers the suspensions of previous parliaments, and we have decided not to push affairs to a confrontation'. But he adds something of a warning. 'We will also not accept mistakes by important people which could be considered crimes.'

Kuwait lives in too unstable a region to wish to damage entirely the credibility of its rulers.

As a local diplomat says: 'Whatever internal conflicts there may be here, there is unity towards the outside world. And there has to be.'

Kuwaitis concede damage from row, Page 23

KW Kuwait, Middle East P6792 Oil Royalty Traders P9121 Legislative Bodies GOVT Regulations P6792 P9121 The Financial Times London Page 3 776
Government buys time until snow melts: Tajikistan's old guard is trying to confront economic ills Publication 930219FT Processed by FT 930219 By STEVE LEVINE

HAVING quieted its civil war, the ex-Soviet Tajikistan government is trying to arrest the republic's devastating economic decline, and exploit its oil, gold and cotton.

But success is far from assured, hinging on whether Islamic-dominated opposition forces, now trapped behind deep winter snows, will regroup in the spring.

In a promising region with largely untapped natural gas and oil reserves, the ramifications of new fighting go far - Russian President Boris Yeltsin and Tajikistan's neighbours are more worried than ever that instability will spill over their borders.

The chief source of their anxiety is the presence of thousands of Tajik fighters in rebel training camps in Afghanistan, who are expected to try to return home in the spring. Already, hundreds of fighters and thousands of arms have come over the border.

Against this backdrop, Mr Imamali Rakhmanov, the Tajik leader, is leading a Commonwealth of Independent States' effort to hold the line against upheaval in otherwise quiet, conservative Central Asia. His Commonwealth allies are providing prodigious military assistance.

'If we manage to seal the border and stop the weapons coming from Afghanistan for one or two months,' Mr Rakhmanov said, 'we'll be able to manage our other problems.'

Two years ago, rigid communism in Tajikistan began to give way to a democratic and Islamic state. But a year ago the Soviet Union collapsed, and in its poorest republic a series of coups, counter-coups and civil war ensued. The trouble shattered the nation of 5m people, tucked between China, Afghanistan and Uzbekistan. About 7 per cent of the population, or 350,000 people, were displaced, with about a quarter of them fleeing to Afghanistan.

In November, the tide turned. The old-guard Soviet leadership reasserted itself, crushed its Islamic-dominated enemies, and by December retook power in the capital of Dushanbe. Today, the civil war is calmed, and the government is conducting operations to try to finish off its opponents.

Assistance has been provided by those who, like Tajikistan's old communists, have the most to gain. Both Uzbekistan and Russia deny any combat role in Tajikistan. But military officials, diplomats and independent foreign observers, say both republics have been on the front line with Tajik forces.

Mr Rakhmanov considers the Tajik opposition forces the greatest threat to his government's efforts to reverse an economic decline that, next to Armenia's, is the ex-Soviet Union's worst.

The year of fighting prevented the harvest of 70 per cent of the 1992-93 cotton crop, or 600,000 tonnes, costing a potential Dollars 200m (Pounds 138m) in foreign exchange, according to the government. The instability, plus a shortage of material and spare parts, reduced aluminium production in the last year by one-third, to 340,000 tonnes from the expected output of 500,000 tonnes; which cost Tajikistan Dollars 170m in potential foreign exchange. Wheat was not planted at all in the autumn, and light industry closed down entirely eight months ago in southern Tajikistan. Mr Rakhmanov, however, talks of building up a prosperous republic.

The first foreign deal has been with the American company Kerry Energy. Kerry has won a Dollars 32m contract to refurbish oil wells and build a refinery in Tajikistan's industrial north, between Kenibadan and Isfaran. The deal is meant to restore Tajikistan's Soviet-era oil production of 400m tonnes a year, from its current output of 40m tonnes, and then to develop new reserves.

Much of the rest still must be proven. Satellite photographs indicate other oil and natural gas deposits in southern Tajikistan, Mr Rakhmanov said, and silver deposits are also being explored. Iron ore has been found in Leninabad - one field contains 60m tonnes - and gold deposits are being examined at Penjikent. Tajikistan also plans to plant an additional 1.6m hectares to cotton.

However, few people believe that anyone can seal the porous border with Afghanistan. and most observers expect the war to rage again in the spring. Still, Mr Rakhmanov - and his Commonwealth allies - plan to try.

'This is the anointed government. Every one wants this government to work,' said a diplomat in Dushanbe. 'If they can bring these fighters under control, they will have the thing wrapped up.'

TJ Tajikistan, East Europe P9611 Administration of General Economic Programs P9711 National Security GOVT Government News P9611 P9711 The Financial Times London Page 3 734
Envoy affirms US support Publication 930219FT Processed by FT 930219 By ROBERT MAUTHNER and MICHAEL LITTLEJOHNS NEW YORK

THE new US envoy to the Bosnian peace talks, Mr Reginald Bartholomew, said yesterday the US did not want to replace the Vance-Owen efforts to broker a settlement, but to contribute to a solution.

He gave this assurance after his first meeting with Mr Cyrus Vance and Lord Owen, the international mediators on the former Yugoslavia. He spent two hours in intensive discussions on the Vance-Owen plan for dividing Bosnia into 10 largely autonomous provinces.

'We are not here to supplant the process,' Mr Bartholomew said afterwards.

His remarks confirmed the impression given by Mr Warren Christopher, the US secretary of state, when he announced Washington's new policy on Bosnia last week, that the US did not have a ready-made alternative to the Vance-Owen plan, in spite of its reservations about certain of its provisions.

Mr Bartholomew had talks last week in Moscow, during which Mr Andrei Kozyrev, the Russian foreign minister, underlined his support for the Vance-Owen plan.

The US envoy is not expected to propose any major modifications in their plan. But it is probable he will join them in proposing some modest changes to their proposed map, so as to make the provincial boundaries more acceptable to the Bosnian Moslems.

Mr Vitaly Churkin, the new Russian envoy to the Bosnian peace talks, was due to meet the international mediators, including Mr Bartholomew, later in the day. But there was no sign that representatives of the warring parties, except Mr Mate Boban, the Bosnian Croat leader, were ready to resume the talks, which were in abeyance pending last week's US policy announcement.

Bosnia's Moslem President Alija Izetbegovic is due to visit Washington at the weekend but has not announced firm plans to go to New York. It is understood that US officials will try to persuade him to resume his participation in the peace talks as soon as possible. Mr Radovan Karadzic, leader of the Bosnian Serbs, has declined to rejoin the talks in the absence of Mr Izetbegovic.

US United States of America BA Bosnia-Hercegovina, East Europe YU Yugoslavia, East Europe P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 3 374
Mitsubishi Heavy in job cuts Publication 930219FT Processed by FT 930219 By MICHIYO NAKAMOTO TOKYO

MITSUBISHI Heavy Industries yesterday became the latest Japanese company to announce a big cut in its workforce in response to the worsening Japanese economy.

The company, Japan's largest heavy machinery manufacturer, said it would reduce the number of employees at its Mihama plant in Hiroshima by about 10 per cent, or close to 400 workers, to meet an equivalent fall in demand for products made at the plant.

Last autumn, the company sent a number of employees working at its machine-tool plants temporarily to Mitsubishi Motors, a fellow member of the group.

Mitsubishi Heavy said it aims to curtail its Mihama workforce over two years through natural wastage, reduction in graduate intake, and by transferring staff to affiliated companies.

The move highlights the spreading impact of the slowdown in Japan's economy on the nation's workforce.

The downturn has not yet led to huge redundancies, but Japanese companies have been encouraging older employees to retire early, transferring staff to affiliated companies and restricting the intake of graduates.

Mitsubishi Heavy Industries JP Japan, Asia P3731 Ship Building and Repairing P3732 Boat Building and Repairing COMP Company News PEOP Labour P3731 P3732 The Financial Times London Page 3 210
UN general orders Bosnia aid delivery Publication 930219FT Processed by FT 930219 By LAURA SILBER BELGRADE

GENERAL Philippe Morillon, French head of the United Nations protection force for aid convoys in Bosnia, yesterday ordered his troops to go ahead and deliver emergency supplies to a besieged Moslem enclave in eastern Bosnia - regardless of suspension of relief operations by the UN High Commissioner for Refugees.

The UNHCR in Belgrade welcomed the efforts of Gen Morillon. 'If he gets through it will be good news for the people of Gorazde,' said Ms Judith Kumin, head of the Belgrade UNHCR office.

Diplomats said the independent initiative of Gen Morillon reflected possible splits between the UNHCR and some of the national contingents of the UN peacekeeping forces. One diplomat described Gen Morillon as a 'loose cannon'.

UN forces on the ground in Sarajevo were reportedly stunned by the decision on Wednesday of Mrs Sadako Ogata, the UN High Commissioner for Refugees, to halt relief operations in all Serb-held parts of Bosnia and air and land convoys to Sarajevo.

Serb commanders yesterday pledged to allow a convoy to travel to Gorazde today after Gen Morillon met Bosnian Serb commanders in Rogatica, about 30 miles north of Gorazde.

Gen Morillon promised Serbs that the road to Gorazde would be repaired, according to the UNHCR Belgrade office.

Eight UNHCR convoys over the past four months have reached the mainly Moslem Gorazde, in a Serb stranglehold since war erupted in April.

UNHCR officials yesterday said warehouses in Sarajevo, which are at capacity, would be unlocked in an attempt to provide food for some 380,000 people trapped in the Bosnian capital. The Bosnian government last week said Sarajevo would refuse further aid shipments until the UNHCR succeeded in reaching some 100,000 Moslems besieged in eastern Bosnia, some without outside relief since the war began.

Bosnian Serb commanders have repeatedly refused to allow the passage of UN humanitarian relief for Moslem enclaves.

Serb commanders for four days this week stopped another convoy bound for Cerska, eastern Bosnia, because of fighting in the region.

BA Bosnia-Hercegovina, East Europe YU Yugoslavia, East Europe P97 National Security and International Affairs GOVT Government News P97 The Financial Times London Page 3 367
Egypt and IMF delay reform Publication 930219FT Processed by FT 930219 By REUTER CAIRO

Egypt and the International Monetary Fund have agreed to push back the start of a new economic reform programme by three months to May because of 'technical difficulties', an Egyptian minister said yesterday, Reuter reports from Cairo. Cairo has now agreed on a budget deficit target set by the IMF but has still lagged on privatisation of the vast, inefficient public sector.

EG Egypt, Africa P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 3 94
Christopher on Mideast tour Publication 930219FT Processed by FT 930219 By REUTER

Mr Warren Christopher, US secretary of state, on his first foreign mission, flew to Cairo yesterday at the start of a tour aimed at reviving the stalled Arab-Israeli peace talks, Reuter reports.

Earlier, Israeli soldiers shot dead a 17-year-old Palestinian in a raid on a village, the fourth killed in 24 hours.

US United States of America IL Israel, Middle East EG Egypt, Africa P9721 International Affairs GOVT Government News Christopher, W Secretary of State (US) P9721 The Financial Times London Page 3 95
Crowded ferry sinks off Haiti Publication 930219FT Processed by FT 930219 By REUTER PORT-AU-PRINCE

A ferry packed with Haitians bringing food and animals to sell in the markets of the capital sank in a storm and hundreds of people were feared dead, officials and witnesses said yesterday, Reuter reports from Port-au-Prince.

One survivor said there were about 820 people on the boat, but other reports put the total as high as 2,000. The freighter Neptune is one of two ferries serving the route that links Port-au-Prince, the capital, and Jeremie, a major agricultural production centre in southwestern Haiti.

HT Haiti, Caribbean P4482 Ferries TECH Standards PEOP Personnel News RES Natural resources P4482 The Financial Times London Page 3 117
HK airport project chief replaced Publication 930219FT Processed by FT 930219 By SIMON HOLBERTON HONG KONG

HONG KONG'S business community was last night taken by surprise when Mr Richard Allen, the man who has overseen the construction of Hong Kong's new airport for the past two years, was replaced as chief executive of the Provisional Airport Authority (PAA), Simon Holberton writes from Hong Kong.

The PAA said that Mr Allen would be succeeded as chief executive today by Mr Hank Townsend, a senior executive of Bechtel Corporation. Mr Townsend was until recently an adviser to the Hong Kong government on its HKDollars 175bn (Pounds 16bn) airport and related infrastructure projects.

After a meeting of the board of the PAA, the authority released a statement saying Mr Allen was leaving by mutual agreement. In two years Mr Allen built up the PAA from nothing to an organisation employing 200 people. He was seen as less successful in building harmonious relationships with the PAA's contractors.

The airport project, expected to cost in excess of HKDollars 60bn, has been dogged by the long-running dispute between Britain and China about the colony's political development. This row has cast doubt over the PAA's ability to complete the project before Hong Kong reverts to Chinese sovereignty in 1997.

HK Hong Kong, Asia P4581 Airports, Flying Fields, and Services PEOP Appointments Townsend, H Chief Executive Provisional Airport Authority P4581 The Financial Times London Page 3 238
Economists take control until the snow melts: Old guard confronts Tajikistan's economic ills during a lull in fighting Publication 930219FT Processed by FT 930219 By STEVE LEVINE

HAVING quieted its civil war, the ex-Soviet Tajikistan government has embarked on an ambitious economic programme, including oil, gold and cotton projects. But success is far from assured, hinging on whether Islamic-dominated opposition forces, now trapped behind deep winter snows, will regroup in spring.

In a promising region with largely untapped natural gas and oil reserves, the ramifications of new fighting go far - Russian President Boris Yeltsin and Tajikistan's neighbours are more worried than ever that instability will spill over their borders.

The chief source of their anxiety is the presence of thousands of Tajik fighters in rebel training camps in Afghanistan, who are expected to try to return home in spring. Already, hundreds of fighters and thousands of arms have come over the border.

Against this backdrop, Tajikistan leader Imamali Rakhmanov is leading a Commonwealth of Independent States' effort to hold the line against upheaval in otherwise quiet, conservative Central Asia. But he is not doing it alone. His Commonwealth allies are providing prodigious military assistance.

'If we manage to seal the border and stop the weapons coming from Afghanistan for one or two months,' Mr Rakhmanov said in an interview, 'we'll be able to manage our other problems.'

Two years ago, rigid communism in Tajikistan began to give way to a democratic and Islamic state. But a year ago the Soviet Union collapsed, and in its poorest republic a series of coups, counter-coups and civil war ensued. The trouble shattered the nation of 5m people, tucked between China, Afghanistan and Uzbekistan. About 7 per cent of the population, or 350,000 people, were displaced, with about a quarter of them fleeing to Afghanistan.

In November, the tide turned. The old-guard Soviet leadership reasserted itself, crushed its Islamic-dominated enemies, and by December retook power in the capital of Dushanbe. Today, the civil war is calmed, and the government is conducting small operations to try to finish off its opponents.

Assistance has been provided by those who, like Tajikistan's old communists, have the most to gain. Both Uzbekistan and Russia deny any combat role in Tajikistan. But military and diplomatic sources, and independent foreign observers, say both republics have been on the front line with Tajik forces.

According to these sources, since October, Uzbekistan has sent MiG and Sukoy fighters and attack helicopters on numerous bombing runs on behalf of Tajikistan's old guard. In some cases, Uzbekistan has also sent troops to battle the Islamic-dominated forces, the sources say. Russian tank forces, the sources say, participated in combat operations in January and this month in opposition strongholds east of Dushanbe, at Obigarm, Rogun and Ramit Canyon.

Russia has also agreed to send an additional 2,000 troops to seal the border with Afghanistan. Afghan rebels have armed, trained and even led some of the Islamic-dominated forces into battle. Right now, the opposition is concentrated in the snowbound town of Komsomolabad and across the border in Afghanistan, where about 5,000 Tajik opposition fighters are believed to be awaiting the spring thaw.

Mr Rakhmanov considers these forces the greatest threat to his government's efforts to reverse an economic decline that, next to Armenia's, is the ex-Soviet Union's worst.

The year of fighting prevented the harvest of 70 per cent of the 1992-93 cotton crop, or 600,000 tonnes, costing a potential Dollars 200m (Pounds 138m) in foreign exchange, according to the government. The instability, plus a shortage of material and spare parts, reduced aluminium production in the last year by one-third, to 340,000 tonnes from the expected output of 500,000 tonnes; which cost Tajikistan Dollars 170m in potential foreign exchange. Wheat was not planted at all in the autumn, and light industry closed down entirely eight months ago in southern Tajikistan.

Mr Rakhmanov, however, talks of building up a prosperous republic.

The first foreign deal has been with the American company Kerry Energy. Kerry has won a Dollars 32m contract to refurbish oil wells and build a refinery in Tajikistan's industrial north, between Kenibadan and Isfaran. The deal is meant to restore Tajikistan's Soviet-era oil production of 400m tonnes a year, from its current output of 40m tonnes, and then to develop new reserves.

Much of the rest still must be proven. Satellite photographs indicate other oil and natural gas deposits in southern Tajikistan, Mr Rakhmanov said, and silver deposits are also being explored. Iron ore has been found in Leninabad - one field contains 60m tonnes - and gold deposits are being examined at Penjikent. Tajikistan also plans to plant an additional 1.6m hectares to cotton.

However, few people believe that anyone can seal the porous border with Afghanistan, which runs along the Amudarya river, and most observers expect the war to rage again in spring. Still, Mr Rakhmanov - and his Commonwealth allies - plan to try.

'This is the anointed government. Every one wants this government to work,' said a diplomat in Dushanbe. 'If they can bring these fighters under control, they will have the thing wrapped up.'

TJ Tajikistan, East Europe P9611 Administration of General Economic Programs P9711 National Security GOVT Government News P9611 P9711 The Financial Times London Page 3 877
Mitsubishi Heavy in job cuts Publication 930219FT Processed by FT 930219 By MICHIYO NAKAMOTO TOKYO

MITSUBISHI Heavy Industries yesterday became the latest Japanese company to announce a big cut in its workforce in response to the worsening Japanese economy.

The company, Japan's largest heavy machinery manufacturer, said it would reduce the number of employees at its Mihama plant in Hiroshima by about 10 per cent, or close to 400 workers, to meet an equivalent fall in demand for products made at the plant.

Last autumn, the company sent a number of employees working at its machine-tool plants temporarily to Mitsubishi Motors, a fellow-member of the group.

Mitsubishi Heavy said it aims to curtail its Mihama workforce over two years through natural wastage, reduction in graduate intake, and by transferring staff to affiliated companies.

The move highlights the spreading impact of the slowdown in Japan's economy on the nation's workforce.

The prolonged downturn has not yet led to huge redundancies, but Japanese companies have been restructuring their workforces by encouraging older employees to retire early, transferring staff to affiliated companies and restricting graduate intake.

A phone hotline for employees sponsored by a group of lawyers specialising in labour relations has received nearly 500 calls, many of them from white-collar workers.

Japanese newspapers report that a majority of the calls to the hotline were from manager-level employees facing pressure to take early retirement or redundancy.

The social stigma still attached to corporations which resort to drastic redundancies has led most companies to stress that the decision to leave is entirely up to the individual.

IBM Japan, for example, which launched a second career programme for people aged 50 or older, said it had no target for staff reductions, although 3,000 employees would be eligible for the financial support offered under the programme.

Mitsubishi Heavy Industries JP Japan, Asia P3731 Ship Building and Repairing P3732 Boat Building and Repairing COMP Company News PEOP Labour P3731 P3732 The Financial Times London Page 3 329
UN general orders Bosnia aid delivery Publication 930219FT Processed by FT 930219 By LAURA SILBER and REUTER BELGRADE, BRUSSELS

GENERAL Philippe Morillon, French head of the United Nations protection force for aid convoys in Bosnia, yesterday ordered his troops to go ahead and deliver emergency supplies to a besieged Moslem enclave in eastern Bosnia - regardless of suspension of relief operations by the UN High Commissioner for Refugees.

The UNHCR in Belgrade welcomed the efforts of Gen Morillon. 'If he gets through it will be good news for the people of Gorazde,' said Ms Judith Kumin, head of the Belgrade UNHCR office.

Diplomats said the independent initiative of Gen Morillon reflected possible splits between the UNHCR and some of the national contingents of the UN peacekeeping forces. One diplomat described Gen Morillon as a 'loose cannon'.

UN forces on the ground in Sarajevo were reportedly stunned by the decision on Wednesday of Mrs Sadako Ogata, the UN High Commissioner for Refugees, to halt relief operations in all Serb-held parts of Bosnia and air and land convoys to Sarajevo.

Serb commanders yesterday pledged to allow a convoy to travel to Gorazde today after Gen Morillon met Bosnian Serb commanders in Rogatica, about 30 miles north of Gorazde.

Gen Morillon promised Serbs that the road to Gorazde would be repaired, according to the UNHCR Belgrade office.

Eight UNHCR convoys over the past four months have reached the mainly Moslem Gorazde, in a Serb stranglehold since war erupted in April.

UNHCR officials yesterday said warehouses in Sarajevo, which are at capacity, would be unlocked in an attempt to provide food for some 380,000 people trapped in the Bosnian capital. The Bosnian government last week said Sarajevo would refuse further aid shipments until the UNHCR succeeded in reaching some 100,000 Moslems besieged in eastern Bosnia, some without outside relief since the war began.

Bosnian Serb commanders have repeatedly refused to allow the passage of UN humanitarian relief for Moslem enclaves.

Serb commanders for four days this week stopped another convoy bound for Cerska, eastern Bosnia, because of fighting in the region. The convoy yesterday returned to Belgrade following the suspension of UN relief operations.

Bosnian Serb leader Radovan Karadzic said the UNHCR decision to suspend aid was regrettable and blamed Moslems for blocking the convoys.

Russia has agreed that Nato could enforce any new peace agreement in Bosnia in what could be an unprecedented joint operation between former Cold War enemies, Reuter reports from Brussels.

BA Bosnia-Hercegovina, East Europe YU Yugoslavia, East Europe P97 National Security and International Affairs GOVT Government News P97 The Financial Times London Page 3 434
Nigeria reforms challenged Publication 930219FT Processed by FT 930219 By A Correspondent ABUJA

NIGERIA'S relaunched reform programme faced its first big challenge yesterday, as the naira fell sharply against the dollar and state governments began conceding demands for 45 per cent pay rises.

The government promised in January to trim spending and cut the budget deficit, reduce inflation and curb money supply in an effort to put the economy on a stable footing before the planned handover to civilian rule in August.

At yesterday's Central Bank of Nigeria (CBN) foreign exchange auction, the dollar sold for 24.99 naira, compared with 20.56 naira at the CBN's last sale on January 19. Bankers blamed the decline on high inflation and a continuing shortage of foreign exchange. Fewer than 18 of the 80 banks that bid at the Dutch auction were successful. The central bank was reverting to the system scrapped two years ago of competitive tendering by the banks. It has cancelled all but two of its scheduled weekly foreign exchange sales in the past two months.

Fears the counter-inflationary policies set out in the January budget will be undermined were raised yesterday when Lagos state administration joined Yobe and Katsina States and gave way to 45 per cent wage claims. Other states are expected to bow to pressure from striking employees.

Last June, the federal government announced a 45 per cent pay increase for its staff. Union leaders have warned that further wage demands should be expected, saying the awards should be treated as an interim measure. Inflation at present exceeds 45 per cent.

The naira, which exchanged for more than a dollar in the early 1980s, was devalued by 41 per cent last March to close a gap with the parallel market. It is worth less than five cents today. In March the CBN reformed its foreign exchange system to make itself an active participant in the market, buying and selling foreign exchange at market rates.

Mr Ernest Shonekan, chairman of the country's transitional council, is expected to stress the importance of keeping to budget targets when he addresses a conference on the economy beginning in Abuja today.

NG Nigeria, Africa P9611 Administration of General Economic Programs ECON Balance of payments PEOP Labour P9611 The Financial Times London Page 3 379
ANC backs away from conflict over plan Publication 930219FT Processed by FT 930219 By PATTI WALDMEIR JOHANNESBURG

THE African National Congress yesterday backed away from confrontation with the South African government over a proposed plan for multi-racial power sharing.

The organisation's policy-making national exeuctive committee yesterday decided to endorse the plan, which calls for a multi-party interim government to rule until the end of the century, reversing an earlier decision to refer the deal back to its membership for approval.

Mr Cyril Ramaphosa, the ANC Secretary General, said the decision had been unanimous. However as he spoke in Johannesburg, Mr Chris Hani, a prominent ANC leader and general secretary of the South African Communist Party, contradicted him in a speech in Cape Town, saying the ANC would share power with the National Party in a 'government of national unity' only for about nine months - the time it would take to write a new constitution - and not for the five years announced by Mr Ramaphosa.

Mr Ramaphosa's success at pushing the deal through the national executive could give a boost to multi-party negotiations on a new constitution, with the first round of talks due to take place next week. However, there are many crucial issues which remain unresolved in the outline agreement due to be debated in the talks, including whether power-sharing in the interim government should be voluntary or compulsory.

Another area of dispute will be the cabinet mechanism for decision-taking: Mr Ramaphosa insists that the majority party will dominate cabinet except in certain limited cases where a two-thirds majority will be required.

African National Congress (South Africa) ZA South Africa, Africa P86 Membership Organizations COMP Company News GOVT Government News P86 The Financial Times London Page 3 290
Japan may be permanent Security Council member Publication 930219FT Processed by FT 930219 By CHARLES LEADBEATER TOKYO

JAPAN may become a permanent member of the United Nations Security Council after a wide-ranging review of the council's structure, Mr Boutros Boutros Ghali, UN secretary-general, said yesterday.

'There is a lot of possibility of Japan having a permanent seat, but it is a decision of the member states,' Mr Boutros Ghali said at the end of a four-day visit to Japan.

The country's case for a permanent seat was also backed by Chancellor Helmut Kohl of Germany, who begins a visit to Tokyo in a week's time.

Mr Kohl told a Japanese television interviewer that it was natural that Japan should become a permanent member, following changes to the make-up of the Council, to reflect the rise of Asian economic power.

Germany itself is seeking a permanent seat on the Council.

Mr Boutros Ghali's comments are likely to rekindle the debate over reform of the Security Council, which has 15 members and five permanent members.

The UN is in the midst of asking its 180 members their views on the subject.

Any reform would have to be supported by all five permanent members, at least nine of the overall membership, and a two-thirds vote of the UN General Assembly.

It could, however, be subject to a veto, perhaps from Britain or France, neither of which is enthusiastic about Japanese permanent membership.

It might also open up a flood of applicants from other states claiming similar status.

Mr Warren Christopher, US secretary of state, recently supported reform of the Council through agreement among its members, which would allow Japan a permanent seat.

His remarks provoked a sharp response from the British government, a permanent member, which is concerned it may lose its seat under a restructuring.

Mr Boutros Ghali seemed intent on wooing Japan, partly because a greater Japanese involvement in the UN might ease some of the organisation's financial pressures.

The secretary-general said he would welcome Japanese peackeepers as part of the UN's operations in Mozambique, as a step towards Japan deepening its involvement with the organisation.

Japan's involvement in peacekeeping activities was not, however, a precondition for it gaining a permanent Security Council seat.

Japan's first peace-keeping unit took up its post in Cambodia last September, after years of agonising over whether such a role was appropriate under the pacifist constitution. It is barred from combat zones.

'Those with more economic and political power have more responsibility than others,' the secretary-general added. 'Important countries have important responsibilities. We need more participation from major countries. Japan is a great power and we need its participation.'

The UN's credibility would be damaged if it was seen to be too much influenced by a single power such as the US. Japan should become more involved in the UN's activities to reinforce its international credibility.

'If the United Nations is under the influence of one power, this is because that country is very powerful and because other countries are not paying enough attention to the UN.'

United Nations Security Council JP Japan, Asia P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 3 531
Palestinians shot dead Publication 930219FT Processed by FT 930219 By REUTER JERUSALEM

Israeli troops shot dead four Palestinians in 24 hours in renewed clashes, providing a bloody backdrop for the first Middle East tour by Mr Warren Christopher, the US secretary of state, Reuter reports from Jerusalem.

IL Israel, Middle East P9229 Public Order and Safety, NEC GOVT Legal issues P9229 The Financial Times London Page 3 66
Output plunges amid call for national postal strike Publication 930219FT Processed by FT 930219 By ALICE RAWSTHORN

THE continuing deterioration in the French economy was highlighted yesterday by news of an unexpectedly steep 1 per cent fall in industrial output in December compared with November.

The drop in December pushed the production index to its lowest level since October 1988, according to INSEE, the state statistics institute.

The news came as the government yesterday stepped up efforts to try to end the strikes and stoppages by postal workers which are creating chaos in France's mail service.

Mr Pierre Beregovoy, prime minister, said he had told Mr Emile Zuccarelli, the post office minister, to 'do his best' to ensure that talks got under way 'as quickly as possible.'

However, a few hours after the prime minister's remarks, union negotiators broke off talks with the Paris post office and called for an all out postal stoppage in the city today.

The strikes, against plans to lay off 3,000 workers, come at a sensitive time for France's socialist government which is braced for a crushing defeat by the conservative opposition in next month's parliamentary elections.

The socialists, battered by gloomy economic news, are anxious to prevent further damage to the economy. A prolonged mail strike would seriously disrupt French business, which accounts for 85 per cent of the country's post and is already suffering in the economic slowdown.

Industrial output in December was 3.7 per cent lower than in December 1991. Worst affected was manufacturing, with output 2.8 per cent down on November, mainly due to a steep fall in car production.

The INSEE figures, which come little more than a month before the first round of voting in France's parliamentary elections, have fuelled fears that the combination of high interest rates, a strong franc and the gloomy economic environment in Europe is intensifying pressure on French industry.

Earlier this week the Bank of France's monthly business survey suggested that the trading climate had been even tougher in the opening weeks of this year. The consensus in the survey was that output had fallen even further in January than in December and that stocks had risen sharply across most areas of French business.

Mr Jean-Rene Fourtou, chairman of Rhone-Poulenc, France's flagship chemicals company, has warned that the European economy was unlikely to recover until 1994.

FR France, EC P9611 Administration of General Economic Programs ECON Industrial production P9611 The Financial Times London Page 2 410
Mitterrand cagey on new left alliance Publication 930219FT Processed by FT 930219 By ALICE RAWSTHORN PARIS

PRESIDENT Francois Mitterrand last night responded cautiously to the call by Mr Michel Rocard, former prime minister and potential presidential candidate, for a new centre-left alliance of Socialists, ecologists and Communists after next month's parliamentary elections.

Mr Rocard, who had previously adopted a low profile in the electoral campaign, called this week for replacement of the Socialist party by 'an open, extrovert movement. . . gathering all those who share the values of solidarity and the goal of progress'.

The president said on French television that 'anyone has the right to create a new coalition' but that the first priority should be to 'reunify and strength the existing party'.

Other senior Socialists, now steeling themselves for a humiliating election defeat by the conservatives, welcomed Mr Rocard's initiative.

Mr Pierre Beregovoy, prime minister, said he agreed with him but suggested the momentum of the new movement should be used to help the left in the electoral campaign.

Mr Brice Lalonde, former Socialist environment minister and now head of the Generation Ecologie movement that has eroded Socialist support, praised the speech as the precursor to forming a new democratic movement in France.

Mr Bernard Kouchner, the popular but non-partisan health minister, said Mr Rocard's ideas were 'really exciting'. Liberation, the centre-left newspaper, applauded him for his 'calculated risk' and for recognising the changes in the French political landscape.

The response of the traditional left was more muted. Mr Laurent Fabius, first secretary of the Socialist party, whose presidential prospects have been clouded by his involvement in the Aids-contaminated blood scandal, said the party's membership should decide the future of French socialism.

Mr Antoine Waechter, head of the Greens, the old-style ecologists, said his party had 'no intention of participating in the renewal of the Socialist party or of the left.'

The French Socialists, flagging in the opinion polls and battered by scandals, have fallen prey to the same sort of identity crisis that beset the Britain's Labour party in the 1980s and is now preying upon the Italian left.

Mr Rocard's call follows months of internal debate about the French left's prospects after the elections, with prominent figures, notably Mr Kouchner, having already alluded to the possibility of an alliance with the ecologists.

President Mitterrand yesterday accused Britain of disloyalty for failing to accept the European Community's social charter, saying this was leading to cynical exploitation of workers in member states.

Citing the case of Hoover, which is sacking 600 French workers and moving production to Scotland where labour is cheaper, he said Britain was encouraging a kind of competition that went against the spirit of the EC.

FR France, EC P91 Executive, Legislative and General Government P8651 Political Organizations GOVT Government News P91 P8651 The Financial Times London Page 2 474
Kuchma accuses Russia of trying to paralyse his country Publication 930219FT Processed by FT 930219 By CHRYSTIA FREELAND KIEV

Ukrainian prime minister Mr Leonid Kuchma yesterday accused Russia of trying to paralyse his country, writes Chrystia Freeland in Kiev. He said Russia was demanding world prices for oil, a 25-fold increase, and had halted supplies last month. The two countries are also in dispute over gas supplies, Soviet debts and nuclear weapons. Mr Kuchma said he had asked to meet Russian prime minister Viktor Chernomyrdin.

UA Ukraine, East Europe RU Russia, East Europe P9721 International Affairs GOVT Government News P9721 The Financial Times London Page 2 105
Tough task for Hungarian minister Publication 930219FT Processed by FT 930219 By NICHOLAS DENTON BUDAPEST

THERE may never be an auspicious moment to become Hungarian finance minister but Mr Ivan Szabo is taking over at a particularly critical time.

His appointment followed the surprise resignation of Mr Mihaly Kupa, a maverick technocrat who often clashed with other ministers.

Mr Szabo, a 59-year-old former engineer and industry minister, inherits an economy bumping along the bottom after a long and deep recession. The collapse of domestic demand and trade with east European neighbours has caused gross domestic product to fall 18 per cent over the three years to 1992.

The influx of Dollars 4.8bn in foreign investment since reforms began and the double-digit growth in exports to the European Community have not been enough to power the economy. Faint signs of a recovery in industrial output in the autumn, which had revived hope, have lost momentum.

On the day Mr Szabo was named, unemployment figures climbed to a record 13.3 per cent. Also came the embarrassing announcement that inflation rose to an annual 25.9 per cent after a batch of Vat and price rises in January.

Political pressure on the new finance minister will mount as elections in 1994 approach. The Hungarian Democratic Forum, the governing conservative party of prime minister Jozsef Antall, languishes around the 10 per cent mark in the opinion polls, blamed for falling living standards.

Economic woes, and the public perception that former communists are making fortunes as entrepreneurs, have also boosted the populist far-right.

The prime minister hopes that the moderate Mr Szabo will boost his wing of the party and position the Forum to take credit for the economic recovery forecast for later this year.

There is however another awkward legacy facing the new finance minister. The International Monetary Fund is maintaining the freeze on a SDR1.14bn (Pounds 1.1bn) credit package until Hungary agrees to cut spending and reduce a budget deficit of Ft197bn (Pounds 1.6bn) in 1992, nearly triple the target level.

The finance ministry changed hands the week after an IMF delegation left Budapest unconvinced of the government's commitment to curtail benefits such as family allowances, free health care and education.

Mr Szabo moved quickly on his nomination to re-assure observers that fiscal policy would not fundamentally change under his stewardship - indeed that the government had to persist with unpopular measures - and that Hungary would continue to seek agreement with the IMF.

HU Hungary, East Europe P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy GOVT Government News PEOP Appointments Szabo, I Finance Minister (Hungary) P9611 P9311 The Financial Times London Page 2 444
Yeltsin plea to nation for support Publication 930219FT Processed by FT 930219 By JOHN LLOYD MOSCOW

RUSSIA'S President Boris Yeltsin yesterday appealed to the nation to support his version of a constitution if a referendum on who rules the country becomes necessary.

Speaking on television, he outlined the constitutional agreement he is seeking in tough negotiations with parliament on shaping the balance of power.

However, parliament seems certain to reject his proposals because of his demands that the government take sole charge of economic reform and control of the central bank. They amount to a neutering of parliament, with the added insult of taking from it the decision about a new constitution and giving it to a constituent assembly.

Mr Yeltsin said there were forces, 'inherited from the old system and. . . responsible for nothing', who were benefiting from the crisis' - a clear reference to parliament, elected during the Soviet period.

He endorsed a referendum 'in which the people can have their say' as the only way out of a power crisis if negotiations fail with the team selected by Mr Ruslan Khasbulatov, the parliamentary speaker.

Mr Yeltsin reminded his audience that he had tried many times to get agreement with the Supreme Soviet on a respite from the constant power struggle. Only when the threat of a referendum was held above their heads did they agree to negotiate, he said.

He supported early elections, he said, once an election law had been adopted - with elections for parliament in the spring of next year, and for president in the spring of 1995. 'To hold the two elections at the same time would risk destabilisation,' he said.

The president knows, however, that he is launching an appeal for support at a time when indifference, even disgust, with politics is running high and when his own popularity ratings are at their lowest.

RU Russia, East Europe P9111 Executive Offices PEOP Personnel News Yeltsin, B President Russia P9111 The Financial Times London Page 2 334
Europe's other steel industry reels: Output has halved as markets collapse to east and west Publication 930219FT Processed by FT 930219 By ANTHONY ROBINSON, CHRISTOPHER BOBINSKI, NICHOLAS DENTON and PATRICK BLUM WARSAW, BUDAPEST, PRAGUE

THROUGHOUT central and eastern Europe a bloated steel industry is in the throes of a painful contraction proportionately far greater than that facing the industry in western Europe.

Steel output in the region has virtually halved, and employment fallen by a third, over the last three years, as a result of the collapse of military spending and the impact of macro-economic 'shock therapy'.

Furthermore, hopes of increased sales to the west, to compensate for the loss of the Soviet market, have been dashed by US and EC anti-dumping measures. East European imports last year accounted for less than 3 per cent of the EC market, despite rapid growth in the export of flat steel, pipes and other products.

The position is likely to be exacerbated further by the latest EC proposals to ask eastern European countries to impose minimum prices on steel exports - or face anti-dumping duties.

Deprived both of former artificially low Soviet energy and raw material supplies and the demand for armaments, the steel industries of Poland, Hungary, the Czech and Slovak republics, Romania and Bulgaria are all involved in down-sizing and plant closures on a large scale.

Poland's steel-consuming shipbuilding industry now has full order books until 1995 and steady economic growth is expected to resume this year, after three traumatic years of decline, but it still plans to cut steel capacity from the present 16m tonnes to 11m tonnes of raw steel before the turn of the century. By then, employment will be down to 43,000 from the present 110,000, itself 50,000 down on mid-1980 levels.

The Ostrowiec and Szczecin mills are to be closed. Parts of the Batory, Bobrek, Buczek and Bankowa plants in Silesia will also be shut down. Meanwhile, two of the largest integrated steel plants, at Katowice and Krakow, are to be merged into one smaller company with the installation of modern continuous casting lines.

At present, the bulk of Polish steel comes from outdated and polluted open-cast equipment, with only 7 per cent produced by continuous casting. The old plant is to be replaced by electric arc furnaces and scrap-consuming mini-mills under a Dollars 4.5bn modernisation plan.

The plan predicts that by the end of the century Polish steel exports, at 2m tonnes, will be below the 2.5m tonnes of 1990, while imports will have risen from 300,000 to 1.1m tonnes. Last year, Poland earned around Dollars 460m from its steel exports, mainly to Germany and other EC markets. But the main development was the sale of Huta Warszawa to Lucchini of Italy, which is investing Dollars 200m in a modern strip mill to produce steel sheet for the new Fiat car plants in Poland.

With plenty of indigenous coal supplies, but little iron ore, the east and central european steel industries are all heavily dependent on ore supplies from Russia and the Ukraine. Both Huta Katowice in Poland and the East Slovakian steel plant at Kosice in Slovakia are directly linked by rail to Krivoi Rog in south eastern Ukraine. But future supplies to the plants hinge on completion of a new pelletisation plant whose construction has been abandoned by Germany and others.

Until now the Czech and Slovak steel industries have resisted contraction better than their competitors elsewhere in central Europe, with output declining from 15m tonnes in 1989 to around 11m tonnes in 1992. The main steel plants in Bohemia and Moravia are particularly well-placed to supply cheap steel for the construction boom taking place in eastern Germany.

In comparison, output by the Romanian industry, which is the third largest in eastern Europe, has fallen by 60 per cent from 14.5m in 1989 to an estimated 5.3m in 1992. Romania has become the main partner in the Krivoi Rog project because of its dependence on Ukrainian supplies. Meanwhile, the industry is battling to keep up production and find markets for its steel in the Middle East rather than the EC.

It is a similar story of sharply falling output among the smaller producers such as Bulgaria and Hungary.

Plagued with energy and raw material shortages the Bulgarian industry has seen output halve to under 1.5m tonnes in 1992 with mills reduced to seeking hire-rolling contracts to provide minimum employment.

In Hungary, capacity and output have both fallen by over 50 per cent over the last three years as part of a broader strategic shift out of energy and raw material intensive sectors into lighter industry and processing. Output has fallen from 3.7m tonnes in the mid-1980's to 1.6m tonnes last year when employment was down to 23,000 from 61,000.

Only two steel-making centres survive, at Dunaujvaros on the Danube and Dimag at Diosgyor in eastern Hungary. A third steel centre at Ozd has closed down but might re-open as a much smaller scrap-based mini mill of around 400,000 tonne capacity.

Heavy investment by General Motors and Suzuki have created new demand for high quality sheet steel for the new car industry. But the future of heavy steel making plants such as Dimag is problematical. Heavy investment is required to reduce capacity from the current 1m tonnes to around 600,000 tonnes using modern convertor technology.

However, finding the resources for this type of modernisation is going to be hard. For while the EC's rescue package may have offered new hope to western European steelmakers, it has served to push their eastern counterparts even further out into the cold.

The type of integration and cross-investment beginning to emerge among eastern and western producers in other industrial sectors is not going to come easily to steel.

Additional reporting by Christopher Bobinski in Warsaw, Nicholas Denton in Budapest and Patrick Blum in Prague.

------------------------------------------------- EASTERN EUROPEAN STEEL ------------------------------------------------- Million tonnes 1990 1995 2000 ------------------------------------------------- Former Soviet Union and East Europe 148.5 100 100 ------------------------------------------------- EC 115.5 115 117 ------------------------------------------------- North America 96.5 99 99 ------------------------------------------------- Japan 92.6 88 85 ------------------------------------------------- Developing Asia 67.5 88 105 ------------------------------------------------- Latin America 22.3 28 35 ------------------------------------------------- Source: International Iron and Steel Institute -------------------------------------------------

XL East Europe QR European Economic Community (EC) JP Japan, Asia XC Latin America XO Asia P3312 Blast Furnaces and Steel Mills IND Industry profile P3312 The Financial Times London Page 2 1063
Bangemann gives priority to telecoms Publication 930219FT Processed by FT 930219 By ANDREW HILL BRUSSELS

MR Martin Bangemann, the EC industry commissioner, yesterday signalled that an active telecommunications policy would spearhead Commission attempts to boost industrial growth in the Community.

The commissioner said priority during the Commission's two-year term should be given to strengthening the competitiveness of EC industry. Outlining his work programme for 1993, Mr Bangemann said telecoms was one sector in which 'we can move very quickly to create new demand immediately'.

Mr Bangemann added responsibility for telecommunications to his industry portfolio in the Commission reshuffle last December. The change has given him control over Commission policy on information technology, high-definition television (HDTV) and telecoms liberalisation, as well as more than 40 per cent of the funds available to business through the EC's research and development programmes.

Mr Bangemann intends to concentrate on improving cross-border telecoms networks linking national administrations, and developing a compatible Community-wide integrated services digital network (ISDN), which should lead to clearer, faster, cheaper and more reliable telecommunications.

The Commission is also close to finishing consultations with industry and consumers on how to improve the efficiency and reduce the cost of ordinary telephone calls in the Community. Mr Bangemann said yesterday he was opposed to national telecoms monopolies if they hampered the introduction of modern technology, but favoured the maintenance of an efficient public service.

However, the commissioner said it would be imprudent to use special Commission powers to challenge those national monopolies.

QR European Economic Community (EC) P48 Communications P9631 Regulation, Administration of Utilities GOVT Government News P48 P9631 The Financial Times London Page 2 270
Job agencies attack curbs in EC Publication 930219FT Processed by FT 930219 By DAVID GOODHART, Labour Editor

RESTRICTIONS on temporary work agencies are hindering job creation in the European Community, according to the International Confederation of Temporary Work Businesses.

The employers' group has filed a formal complaint to the European Commission about restrictions in Italy, Spain, and Germany and it has written to Mr Jacques Delors this week asking for a 'quick response.'

Mr Wim Ruggenberg, federation president, told Mr Delors that in view of concern about EC unemployment he should immediately lift all restrictions, saying 'our industry provides a mechanism for keeping in touch with the job market and in work, even if temporary.' He quoted a French survey which said 25 per cent of temporary workers get permanent jobs as a result of work found through the agencies.

In the Netherlands and the UK temporary work agencies, such as Manpower, are encouraged. In Germany they are legal but severely restricted, but are illegal in Greece, Italy and Spain.

The complaint has, so far, made little progress in the Commission despite support from the single market and competition directorates. The social affairs directorate is more hostile although its view may change if the International Labour Organisation revises its long-standing reservations on temporary work agencies.

The three countries being targeted have all promised some reform but it is unlikely to be enough to satisfy the employers' federation. Greece has not been targeted because the potential market is too small.

QR European Economic Community (EC) P7361 Employment Agencies PEOP Labour GOVT Government News P7361 The Financial Times London Page 2 268
German engineering employers revoke eastern pay deal Publication 930219FT Processed by FT 930219 By JUDY DEMPSEY BERLIN

GERMANY'S engineering employers are abandoning an agreement to bring east German wages up to the level of their west German counterparts by 1994.

The decision is likely to provoke a major confrontation between IG Metall, Germany's giant engineering union, and Gesamtmetall, the employers' federation.

It could lead to a wave of strikes among IG Metall's 300,000 workers in eastern Germany. More than 10,000 workers in Chemnitz, Saxony demonstrated on Wednesday against any attempts to revoke the contract.

Mr Klaus Zwickel, the deputy chairman of IG Metall, yesterday described the employers' decision as a 'spectacular breach of the law'. It would not be accepted without a struggle.

Mr Hans Peter Munter, head of Saxony's Metal and Electrical Industry Association, said the contract was no longer valid because the economic circumstances in both west and east Germany had deteriorated considerably since it was signed in March 1991.

Mr Munter repeated yesterday that the employers were prepared to award the engineering and electrical workers in the five east German states a 9 per cent rise for 12 months from April 1.

IG Metall has insisted, on the basis of the 1991 contract, on a 26 per cent pay increase for its members starting from April 1.

East German rates in the sector are currently 71 per cent of western rates. A 26 per cent pay rise would take this to 82 per cent of western rates. Productivity levels in the east are about 70 per cent below west German levels, and unit labour costs are 140 per cent higher.

Union officials in Berlin said arbitration talks would begin today, despite the breakdown of talks earlier this week in Saxony and Thuringia.

But Mr Michael Bohm, IG Metall's spokesman in Berlin, said Gesamtmetall would try to use yesterday's announcement to break off talks in the capital.

'It's not only the breach of contract, and the 26 per cent pay rise we are fighting for,' he explained. 'It is for the whole future of collective wage bargaining, which has existed since the war. That is the real issue for us,' he said.

Union officials are now considering what action to take. They could go court and try to prove that Gesamtmetall had broken the contract, or ask workers to go the courts if they do not receive the 26 per cent increase, or call a strike.

Failure to reach a compromise could mean the breakdown of central wage bargaining between employers and unions as employers seek local deals.

IG Metall (Germany) Gesamtmetall (Germany) DE Germany, EC P35 Industrial Machinery and Equipment P36 Electronic and Other Electric Equipment P8651 Political Organizations PEOP Labour P35 P36 P8651 The Financial Times London Page 2 463
Russia 'trying to paralyse Ukraine' Publication 930219FT Processed by FT 930219 By CHRYSTIA FREELAND and JOHN LLOYD KIEV, MOSCOW

RUSSIA is trying to bring about 'a full paralysis' of the Ukrainian economy, Ukrainian prime minister Leonid Kuchma said yesterday.

Mr Kuchma said such action could present the west with a 'distorted' view of the republic's economic position,

The remarks by Mr Kuchma, who has consistently sought an economic and political rapprochement with Russia, indicate a sharp deterioration in relations between the two former Soviet republics.

'Unfortunately, there is already a conflict,' Mr Kuchma said. 'Worse still, this is a conflict in which there can be no victors.'

The weapons in the current struggle are oil and gas, for which Russia is demanding world prices or threatening to decrease supply, and the unresolved issue of the foreign debts and assets of the former Soviet Union.

But recent comments by Russian officials suggest that disagreements over these economic issues are underpinned by political and military disputes between Russia, which is seeking to retain some of the former Soviet Union's old sphere of influence, and Ukraine, which is adamantly charting a separate course.

In an effort to save the situation, Mr Kuchma said that yesterday he telephoned his Russian counterpart, Mr Viktor Chernomyrdin, to arrange a face to face meeting next Friday.

'I cannot understand the Russian position,' Mr Kuchma said. 'It is not motivated by economics. It can only be seen as some sort of pressure on Ukraine. But Russia must realize that to return to the former Soviet Union is neither technically nor politically possible.'

Earlier this week Mr Viktor Shokhin, Russian deputy prime minister, said Ukraine would get subsidised energy only if it made concessions to Russia over the Black Sea Fleet, allowed Russian military bases to be established in Ukraine and permitted Russia to export oil and gas through Ukrainian pipelines.

Mr Shokhin's statements came on top of Russia's unilateral increase in the prices it charges Ukraine for natural gas to world levels ' a jump of 2500 per cent ' and the announcement by the Russian prime minister that Ukraine would receive only 15m tonnes of oil this year, 5 million less than Russia promised in January and one third of Ukraine's energy requirement.

'They understand perfectly that to move to world prices in one day means a complete paralysis of the Ukrainian economy,' said Mr Kuchma. He said Ukraine did not receive any oil from Russia in January.

Nuclear missiles in Ukraine are being drawn into the struggle. Ukrainian and Russian sources say the missiles are not being properly maintained by the Russian factories which produced them. Western diplomats in Kiev say that in a worst case scenario the missiles would not be mistakenly launched but could explode, spreading nuclear material throughout the region.

UA Ukraine, East Europe RU Russia, East Europe P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 2 490
Tax rises likely as jobless total rises above 3m Publication 930219FT Processed by FT 930219 By PETER MARSH, PHILIP STEPHENS and PETER NORMAN

THE PROSPECT of tax increases in next month's Budget appeared to harden yesterday after an hour-long cabinet discussion of the economic outlook was accompanied by news that headline unemployment last month pushed above 3m for the first time in six years.

With little hope in Whitehall of any falls in unemployment until the mid-1990s, Mr Norman Lamont, the chancellor, left ministerial colleagues in no doubt that tax increases to cut the government's deficit were a real possibility in the March 16 Budget.

The suggestion that the government should 'bite the bullet' on raising taxes sooner rather than later also appeared to be winning support among Tory MPs. The extension of value added tax to domestic fuel and heating as part of a number of 'green' taxes is considered a front-runner.

Hopes of economic recovery received only a modest boost from news that seasonally adjusted bank and building society lending increased by an unexpectedly strong Pounds 4.1bn in January after falling by Pounds 74m in December. The Bank of England and the British Bankers' Association suggested that January's lending figure could have been inflated by companies borrowing to pay corporation tax bills.

The headline figure of people unemployed and claiming benefit in January rose to 3.06m, while on a seasonally adjusted basis the figure was lower at 2.99m.

The seasonally adjusted rise in unemployment between December and January was a lower-than-expected 22,100, the smallest monthly increase since June. But Downing Street officials acknowledged there was little prospect that the figure would turn down for two or three years.

Mrs Gillian Shephard, the employment secretary, indicated that a new package of measures to take tens of thousands off the unemployment register would be ready by Budget day.

The jobless figures brought fierce clashes in a rowdy House of Commons. With Mr John Major appearing distinctly unsettled at the despatch box, Mr John Smith, Labour leader, accused the prime minister of creating a 'social tragedy' and 'economic madness'. He was joined by Mr Paddy Ashdown, Liberal Democrat leader, who accused Mr Major of having 'nothing to say' about unemployment.

A welcome development for the government was that average earnings across the economy rose in the 12 months to December by 4.75 per cent, the smallest annual rise for 25 years. The depressed level of wage rises may help the Treasury attain its target of keeping underlying inflation at 4 per cent or less.

Since the low point for seasonally-adjusted unemployment in April 1990, the number of people without jobs and claiming benefit has risen by 1.4m from 1.6m.

Unemployment over 3m, Page 9

Lex, Page 16

Editorial Comment, Page 15

GB United Kingdom, EC P9611 Administration of General Economic Programs ECON Employment & unemployment GOVT Taxes P9611 The Financial Times London Page 1 482
Stock & Currency Markets Publication 930219FT Processed by FT 930219

---------------------------------------------------- STOCK MARKET INDICES ---------------------------------------------------- FT-SE 100: 2,837.7 (+23.7) Yield 4.25 FT-SE Eurotrack 100 1,132.95 (+11.18) FT-A All-Share 1,385.59 (+0.8%) FT-A World Index 141.06 (same) Nikkei 16,982.14 (-27.49) New York: Dow Jones Ind Ave 3,302.19 (-10.0) S&P Composite 431.9 (-1.4) ---------------------------------------------------- US RATES ---------------------------------------------------- Federal Funds: 2 7/8% (3%) 3-mo Treas Bills: Yld 2.941% (2.962%) Long Bond 101 9/32 (100 5/16) Yield 7.017% (7.095%) ---------------------------------------------------- LONDON MONEY ---------------------------------------------------- 3-mo Interbank 6 1/4% (Same) Liffe long gilt future: Mar 102 27/32 (Mar 103 1/32) ---------------------------------------------------- NORTH SEA OIL (Argus) ---------------------------------------------------- Brent 15-day Apr Dollars 17.89 (+0.17) ---------------------------------------------------- Gold ----------------------------------------------------

New York Comex Apr Dollars 331.5 (331.0) London Dollars 330.05 (330.15) ---------------------------------------------------- STERLING ---------------------------------------------------- New York: Dollars 1.4475 (1.4455) London: Dollars 1.4455 (1.444) DM 2.36 (2.35) FFr 7.9975 (7.9675) SFr 2.1825 (2.1725) Y 172.75 (172.5) Pounds Index 76.7 (76.5) ---------------------------------------------------- DOLLAR ----------------------------------------------------

New York: DM 1.6315 (1.62355) FFr 5.5295 (5.509) SFr 1.50565 (1.499) Y 119.15 (119.65) London: DM 1.6335 (1.628) FFr 5.5325 (5.5175) SFr 1.509 (1.505) Y 119.55 (119.4) Dollars Index 66.5 (66.4) Tokyo open Y 118.94 ----------------------------------------------------

JP Japan, Asia US United States of America GB United Kingdom, EC P1311 Crude Petroleum and Natural Gas P3339 Primary Nonferrous Metals, NEC P6231 Security and Commodity Exchanges COSTS Commodity prices COSTS Equity prices MKTS Market data P1311 P3339 P6231 The Financial Times London Page 1 231
World News in Brief: 'Sweet-tooth' tax urged Publication 930219FT Processed by FT 930219

Sweets should be taxed as heavily as tobacco and alcohol to raise money for the treatment of tooth decay, according to the Dental Practitioners Association, which says the scheme could raise Pounds 1bn.

GB United Kingdom, EC P2064 Candy and Other Confectionery Products P8072 Dental Laboratories GOVT Taxes P2064 P8072 The Financial Times London Page 1 68
World News in Brief: Hijack in Haiti Publication 930219FT Processed by FT 930219

A DC-3 aircraft with 13 people on board landed in Miami after being hijacked in Haiti by an armed Haitian soldier. The hijacker gave himself up to police before passengers, mainly US missionaries, emerged unharmed.

HT Haiti, Caribbean P9229 Public Order and Safety, NEC GOVT Legal issues P9229 The Financial Times London Page 1 66
Kingfisher Pounds 560m purchase of Darty boosts shares 30p Publication 930219FT Processed by FT 930219 By NEIL BUCKLEY and ALICE RAWSTHORN LONDON, PARIS

KINGFISHER, the UK retail group, yesterday agreed its Pounds 560m takeover of Darty, France's biggest electricals retailer, to create one of the largest non-food retailing groups in Europe.

The deal was welcomed in the City of London, Kingfisher's shares closing up 30p at 557p. Kingfisher announced it would partly fund the deal with a Pounds 313m, one-for-seven rights issue.

'What Kingfisher has done is to buy a great business, very profitable, very cash generative, with no earnings dilution, which potentially gives it access to new European markets,' said Mr Paul Deacon, retailing analyst at Goldman Sachs. 'It's difficult to fault.'

For Kingfisher, which includes the Comet, B&Q, Woolworth and Superdrug chains, the deal is the group's most significant move since its creation in 1982. It also realises its ambition of developing a significant presence in continental Europe.

Sir Geoffrey Mulcahy, Kingfisher's chairman, said it would create a business 'with the muscle to compete on a European basis as well as enhancing growth opportunities in our domestic markets'.

Mr Philippe Frances, Darty's chairman, said the deal marked the start of a 'strategic European alliance' between the two groups which would enable his company to fulfil its potential.

Darty has been a force in French retailing since 1957 when the three Darty brothers, Bernard, Claude and Nathan, opened their first store. It now dominates the white and brown goods sector with 130 stores which command 12 per cent of the French market.

The group is still one of France's most profitable retailers but has come under pressure in recent years because of the burden of the FFr4bn (Pounds 502m) net debt left by its 1988 management buy-out from the Darty family and the increasingly competitive state of the French retail sector. Sales slipped from FFr8.75bn to FFr8.56bn in its last financial year to August 31.

The deal values Darty at FFr4.45bn. Kingfisher will pay for it with Pounds 207m cash, plus 68m Kingfisher shares, giving Darty shareholders a significant stake of between 10 and 12 per cent in Kingfisher. It will also take on debts of about Pounds 477m.

News of the deal was accompanied by a better than expected profits forecast for Kingfisher of Pounds 233m, before exceptional items, for the year to January, up from Pounds 221.8m the year before.

The increase reflected strong performances by the Comet and Woolworth chains. However, a write-down of Pounds 26m to cover the cost of Kingfisher's withdrawal from property development will reduce the pre-tax profit after exceptional items to Pounds 210m, from Pounds 227.7m last year.

Lex, Page 16

Details, Page 17

London stocks, Page 34

Kingfisher Financiere Darty GB United Kingdom, EC FR France, EC P5722 Household Appliance Stores P5731 Radio, Television, and Electronic Stores P5734 Computer and Software Stores COMP Acquisition P5722 P5731 P5734 The Financial Times London Page 1 492
Markets mixed Publication 930219FT Processed by FT 930219

SHARE prices in the US ended a chaotic day mostly lower after an initial jump as the Clinton package received a mixed reaction from the markets. The prospect of slower economic growth undermined shares and the Dow Jones Industrial Average closed down 10 at 3,302.19 but government bonds rose sharply.

Page 16

US United States of America P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 1 81
Clinton package wins favourable public reaction Publication 930219FT Processed by FT 930219 By GEORGE GRAHAM WASHINGTON

PRESIDENT Bill Clinton and his cabinet yesterday embarked on the task of turning his four-year, Dollars 500bn (Pounds 350bn) package of tax increases and spending cuts into reality lifted by favourable public reaction, but facing hostility from Republicans.

Overnight opinion polls, although narrowly based, suggested that three-quarters of those who heard the speech approved of its proposals, 60 per cent of them enthusiastically.

At a meeting in St Louis, President Clinton challenged his Republican opponents, who attacked the package for raising taxes too much and cutting spending too little, to be specific about their proposals for spending cuts.

'No hot air; show me where,' he said.

But Republicans questioned whether the efforts to reduce the budget deficit, which are concentrated in the later years of the four-year plan, would ever see the light of day.

'You hang your hat on what's going to happen three years from now. I'm sorry, but people don't believe that in America and on Wall Street,' said Mr John Kasich, the senior Republican on the House of Representatives budget committee.

They also challenged Mr Clinton's presentation of his plan as a Dollars 500bn deficit reduction package. Although the plan includes Dollars 247bn of spending cuts and Dollars 246bn of tax increases in 1994-97, these are offset by Dollars 109bn of spending increases and Dollars 60bn of tax breaks. The resulting net reduction in the deficit will be only Dollars 325bn.

This could spell difficulty for efforts to push the economic plan through Congress in an important budget bill, which congressional leaders hope to complete before the August recess.

But Mr Dan Rostenkowski, who as chairman of the House of Representatives Ways and Means Committee is one of those with the most control over the package's legislative fate, said that voters might be well ahead of their representatives in recognising the need for sacrifice to deal with the federal budget deficit.

'I honestly believe that the people, generally, are more willing than the Congress to move in this area,' he said.

Mr Clinton is hoping to capitalise on this sentiment with a series of public meetings across the country.

While Republicans are lining up en bloc against the bill, some Democrats, anxious not to be associated too closely with higher taxes before the 1994 elections, could also desert their president.

Senator David Boren, a conservative Democrat from Oklahoma, urged Mr Clinton not to press the short-term stimulus component of his plan before he had won agreement on his broader deficit reduction proposals.

If US voters react more favourably to the package, members of Congress might be emboldened.

After extending an olive branch to the Republicans in his speech to Congress on Wednesday night, Mr Clinton yesterday sharpened his criticism of their economic policies in a book: 'A vision of change for America.'

'The election of 1992 was a mandate for change - and no wonder . . . such is the sorry legacy of 12 years of short-sightedness, mismanagement and protection of the privileged,' he wrote.

Economic plan, Pages 4 and 5

Seismic shock, Page 15

Currencies, Page 25

World stocks, Page 31

US United States of America P9611 Administration of General Economic Programs GOVT Government spending GOVT Taxes P9611 The Financial Times London Page 1 555
Public welcomes Clinton plan: Republicans say tax rises too high and spending cuts not enough Publication 930219FT Processed by FT 930219 By GEORGE GRAHAM WASHINGTON

PRESIDENT Bill Clinton and his cabinet yesterday embarked on the task of turning his four-year, Dollars 500bn (Pounds 352bn) package of tax increases and spending cuts into reality lifted by favourable public reaction, but facing hostility from Republicans.

Overnight opinion polls, although narrowly based, suggested that three quarters of those who heard the speech approved of its proposals, 60 per cent of them enthusiastically.

But Republicans attacked the package for raising taxes too much and cutting spending too little. They also questioned whether the efforts to reduce the budget deficit, which are concentrated in the later years of the four-year plan, would ever see the light of day.

'You hang your hat on what's going to happen three years from now. I'm sorry but people don't believe that in America and on Wall Street,' said Mr John Kasich, the senior Republican on the House of Representatives budget committee.

This could spell difficulty for President Clinton's efforts to push his economic plan through Congress in a budget bill, which congressional leaders hope to complete before the August recess.

Mr Dan Rostenkowski, however, who as chairman of the House of Representatives Ways and Means Committee is one of those with the most control over the package's legislative fate, said that voters might be well ahead of their representatives in recognising the need for sacrifice to deal with the federal budget deficit.

'I honestly believe that the people, generally, are more willing than the Congress to move in this area,' he said.

Mr Clinton is hoping to capitalise on this sentiment with a series of public meetings across the country, appealing directly to voters to back his proposals.

While Republicans are lining up en bloc against the bill, some Democrats, anxious not to be associated too closely with higher taxes before the 1994 elections, could also desert their president.

Senator David Boren, a conservative Democrat from Oklahoma, yesterday urged Mr Clinton not to press the short-term stimulus component of his plan before he has won agreement on his broader deficit reduction proposals. 'That's getting the cart before the horse,' he said.

If US voters react more favourably to the package, members of congress might be emboldened.

After extending an olive branch to the Republicans in his speech to Congress on Wednesday night, Mr Clinton yesterday sharpened his criticism of their economic policies in a book: 'A vision of change for America.'

In Congress, Mr Leon Panetta, the budget director, took the battle to his opponents in a sharp exchange with Mr Kasich.

'The problem is that we have had gridlock in the Congress because Republicans have always taken the position that you can't increase taxes on the wealthy and Democrats have always said you can't cut any programmes, and that produces gridlock. And you are now the perfect example through your arguments of the kind of gridlock that I think people are tired of,' Mr Panetta said.

While the Clinton package is projected by the White House to reduce the budget deficit from Dollars 332bn this year to Dollars 206bn in 1997, administration officials yesterday warned that the deficit would start to climb again from 1998 unless healthcare costs are brought under control.

Economic plan, Pages 4 and 5

Seismic shock, Page 15

Currencies, Page 25

World stocks, Page 31

US United States of America P9611 Administration of General Economic Programs GOVT Government spending GOVT Taxes P9611 The Financial Times London Page 1 594
Bond prices rise but shares ease after early gains Publication 930219FT Processed by FT 930219

PRESIDENT Clinton's package was given a mixed reaction by the US markets. Government bonds rose sharply but share prices fell after an initial jump.

In early afternoon trading the benchmark 30-year government bond, the key indicator of bond market performance, was up almost 3/4 of a point at 101 1/16 . But the prospect of slower economic growth undermined shares. By mid-session the Dow Jones Industrial Average was down 14.59 at 3,297.60.

The foreign exchange markets responded positively at first. In New York, however, trading was more subdued, and by early afternoon the US currency had slipped back to stand at DM1.6285, up about half a pfennig.

Report, Page 16

US United States of America P9611 Administration of General Economic Programs P6211 Security Brokers and Dealers MKTS Market data P9611 P6211 The Financial Times London Page 1 151
Yeltsin steps up battle with Speaker Publication 930219FT Processed by FT 930714 By JOHN LLOYD MOSCOW

IN A dramatic raising of the stakes in his power struggle with parliament, President Boris Yeltsin has demanded that all state authority be centralised under the executive branch of the Russian government.

A draft 'agreement between the executive and legislative powers of the Russian federation', sent yesterday to Mr Ruslan Khasbulatov, the parliamentary Speaker, demands that parliament refrain from any actions which would restrict the government's handling of the economic crisis. It also calls for the 'subordination' to the government of the central bank, the Bank of Foreign Economic Affairs and the Foreign Trade Bank, as well as the Committee of State Property, a parliament-controlled body which oversees state enterprises, all of which have operated policies independent of and usually hostile to the government.

The plan, outlined on Wednesday by Mr Sergei Shakhrai, a deputy prime minister, would effectively neutralise parliament, which has consistently blocked the government's and the president's reform programmes.

Preliminary reactions from deputies were that it stood no chance of being approved - a view which signals a deepening of the already bitter and dangerous struggle between Mr Yeltsin and Mr Khasbulatov.

The draft says the government must immediately bring forward the most urgent economic measures, and lays down that 'all draft decrees and draft laws concerning budget expenditures will be subject to the government's agreement.' Ministers complain that parliament has fuelled inflation by passing expenditure bills, especially for social benefits.

Under an agreement between Mr Yeltsin and Mr Khasbulatov this week, a joint presidential-parliamentary commission must find a formula for a division of powers by the end of the month.

However, the uncompromising tone of Mr Yeltsin's first draft makes the prospect of any agreement doubtful - while both sides fear the country is heading towards authoritarian rule.

RU Russia, East Europe P9199 General Government, NEC NEWS General News P9199 The Financial Times London Page 2 325
UN team 'finds new Iraqi plant' Publication 930218FT Processed by FT 930219 By REUTER BAGHDAD

A UN inspection team yesterday made a surprise visit to an undeclared military factory south of Baghdad and said it had gathered fresh information on Iraq's ballistic missile programme, Reuter reports from Baghdad.

'We had a very busy day. We collected a very good deal of information,' Mr Patrice Palanque, the team leader, said.

He did not say exactly where the factory was but he added: 'This is a new site. To my knowledge it was not visited before (by previous UN inspection teams).'

It was Mr Palanque's fifth day in the field checking if materials produced by Iraq military factories breached the terms of the Gulf war ceasefire.

Mr Mark Silver, Mr Palanque's deputy, said that while they were inspecting the factory on the ground, UN helicopters watched the site closely from above.

Neither gave details of the new information but said it might fill gaps in their knowledge of Iraqi missiles.

Under Gulf war ceasefire terms, Iraq is allowed to keep only missiles with a range shorter than 150km. The rest will have to be scrapped along with the means to produce them.

Mr Palanque and his 13-member team arrived in Baghdad on Friday to check that Iraq is not storing or secretly producing missiles which are prohibited under the ceasefire terms.

Iran said 1,000 Iraqi military men who fled to its territory during the 1991 Gulf war would return home today.

Iran's official IRNA news agency said the Middle East representative of the International Committee of the Red Cross had been informed of the planned repatriation.

IRNA, monitored in Nicosia, said 400 Iraqi military men returned home from Iran in November.

It did not say if either group included pilots of scores of Iraqi aircraft, including advanced fighters and bombers, which flew to Iran for safety when US-led allies launched air and missile attacks on Iraq to force it to pull out of Kuwait.

Iran, which fought Iraq from 1980 to 1988, remained neutral in the Gulf war.

IQ Iraq, Middle East P9721 International Affairs GOVT Government News P9721 The Financial Times International Page 4 362
Vietnam: a rocky road for investors: A gaping lack of infrastructure contributes to problems Publication 930218FT Processed by FT 930219 By VICTOR MALLET

ONE of Vietnam's attractions for foreign investors is the size of its population: a plentiful supply of workers and a domestic market of 67m consumers is an enticing prospect for manufacturers.

Perhaps it is fitting that the Taiwanese, the largest source of foreign capital for Vietnam, should be among the first to suffer the consequences of overcrowding.

Completion of a huge Taiwanese industrial estate in a loop of the Saigon river in southern Vietnam is being delayed because the land is already occupied by scores of villagers who do not want to move without generous compensation.

'I am Vietnamese,' says Mr Don Van Hien, a 56-year-old sawmill worker, when asked whether the industrial estate does not represent progress. 'I'm looking forward to developing the country, but the government doesn't pay enough for us to move to another place.'

The bare, flattened sand of the 40 hectares cleared so far - dotted with the occasional Taoist shrine which the developers have not dared to molest - comes right up to his doorstep. Behind him are the paddy fields and creeks where he and the other villagers supplement their income by farming rice or catching fish.

'I don't want to move,' says Mr Hien. 'The government wants to get more money to enrich the nation, but how can the poor people survive?'

The ambitious plans of the Taiwanese - and their trials and tribulations in seeking to implement those plans - demonstrate both the opportunities and the pitfalls confronting investors in Vietnam.

The Tan Thuan export processing zone, at 300ha the largest such zone planned for the country's industrial heartland around Ho Chi Minh City, is an Dollars 89m joint venture between the Central Trading and Development Corporation of Taiwan (which is owned by the ruling Kuomintang party) and Ho Chi Minh City's Communist people's committee. As in most such ventures the foreign partner provides the money and the skills and the Vietnamese provide the land.

'We have a lot of problems right now,' says Mr Chow Hong-Lin, one of the Taiwanese managers at Tan Thuan.

First, there was a contingent of air defence troops who had to be moved out of their barracks in the future export processing zone; at one point they locked the gates and refused to go, and they were difficult to dislodge because they had guns. Then the villagers had to be compensated for moving. Some of them took the money and stayed in their houses, others built new shacks in other parts of the land earmarked for development. Now the company has to trace the descendants of the Chinese ancestors worshipped at the shrines to negotiate their removal.

Clearing the land is only the start. The ground is boggy and tonnes of sand were trucked in to level it. The underground water is dirty and Tan Thuan must pay Dollars 4m to have fresh water piped in from outside the zone.

Electricity is in short supply in southern Vietnam, so Tan Thuan, together with Hong Kong's New World Group, is planning to build a Dollars 250m thermal power station at a village 20km away. In the meantime the 15 brave companies which have already paid their deposits to set up factories in the zone are being encouraged to bring their own generators.

Transport in Vietnam is also notoriously difficult, so Tan Thuan proposes to spend Dollars 55m on building a 17km road to link the industrial estate to a main road; and it intends to build a new port on the Saigon river.

There are compensations of course. In exchange for building the road, Tan Thuan is to receive 600ha of land along the route, which represents an opportunity for lucrative property development in a prime area not far from the city centre.

But for the time being the project is like an obstacle course for investors. 'When we built our zone at Kaohsiung in Taiwan, it didn't have anything, it was only a sandy beach,' sighs Mr Chow. 'We didn't have any problems.'

VN Vietnam, Asia P9532 Urban and Community Development P9611 Administration of General Economic Programs CMMT Comment & Analysis P9532 P9611 The Financial Times International Page 4 716
World Trade News: Brazil clinches pipeline accord Publication 930218FT Processed by FT 930219 By CHRISTINA LAMB RIO DE JANEIRO

BRAZIL and Bolivia yesterday finalised an accord - first mooted in 1938 - for a Dollars 3bn project to build one of the world's largest gas pipelines amid considerable uncertainty over the financing.

Brazil's President Itamar Franco flew to the Bolivian town of Cochabamba to sign the protocol to begin work on the 3,400km pipeline to supply Bolivian gas to the main industrial centres of Brazil.

The first large project of Mr Franco's government, it aims to reduce the country's almost total dependence on oil from the Middle East. It was hailed by Mr Fernando Henrique Cardoso, Brazil's foreign minister, as a solid achievement for the government.

But it is unclear how funds will be raised for such an ambitious project. Bolivia is one of the continent's poorest countries and Brazil continues to wallow in economic crisis; its access to multilateral financing has been inhibited by the collapse of its last accord with the International Monetary Fund.

Negotiations are under way with the World Bank and private sector but a Foreign Ministry spokesman said yesterday: 'We have not yet decided such technical points as finance.'

The pipeline will transport daily 8m cubic metres, rising to 16m cu metres, of natural gas from Santa Cruz de la Sierra in southern Bolivia to the six principal cities of southern Brazil.

While diversifying Brazil's energy grid it will also reduce pollution and save money; the price agreed is equivalent to Dollars 6 per barrel.

The pipeline will provide an important source of new income for Bolivia, which is trying to reduce its dependence on tin and coca leaf. Previously all its gas was sold to Argentina.

The signing of the accord is an important victory for the Sao Paulo business community which has long been lobbying for it against heavy opposition from Petrobras, the state oil company which fears its monopoly will be threatened.

On the eve of Mr Franco's departure for Bolivia, Petrobras officials were still trying to turn him against the idea, arguing it would be better to buy from Paraguay.

BR Brazil, South America BO Bolivia, South America P4922 Natural Gas Transmission P1623 Water, Sewer and Utility Lines RES Capital expenditures GOVT Government News P4922 P1623 The Financial Times International Page 3 390
World Trade News: Manila pressed to extend trade, investment reform Publication 930218FT Processed by FT 930219 By FRANCES WILLIAMS GENEVA

MEMBERS of the General Agreement on Tariffs and Trade yesterday urged the Philippines government to go further in liberalising trade and investment policies which continue to hamper growth.

A report by Gatt economists, discussed yesterday by the body's governing council, says economic reforms over the past decade have opened up the Philippines economy and gone some way towards correcting its anti-export, import substitution bias. But import-competing sectors, especially in manufacturing, continue to be protected by trade barriers.

Average tariffs have fallen from more than 40 per cent to 25.6 per cent, with a further reduction to 20 per cent planned by 1995. Import restrictions have been removed, export taxes phased out and monopolies in commodity trade abolished. However, tariffs are higher for manufactured goods than for raw materials, while some key products are excluded from import liberalisation.

The report is particularly critical of the government's Car Development Programme which promotes the domestic industry. This is backed by restraints on imports of vehicles and components.

Gatt notes that, while restrictions on foreign investment have been eased, those that remain continue to deter would-be investors.

PH Philippines, Asia P9611 Administration of General Economic Programs GOVT International affairs CMMT Comment & Analysis P9611 The Financial Times International Page 3 225
World Trade News: Mexico reacts defensively to US charges Publication 930218FT Processed by FT 930219 By DAMIAN FRASER

THE Mexican government has reacted defensively to charges by Mr Richard Gephardt, majority leader in the US House of Representatives, that it is financing US companies to move to Mexico, writes Damian Fraser.

Mr Gephardt had complained in a letter to President Salinas that the Mexican government development bank, Nafinsa, has taken a 25 per cent stake in a company, Amerimex Maquiladora Fund, that is buying up US companies to move them to Mexico. So far, Amerimex has bought one textile company, and moved 40 per cent of its production to Merida, Mexico.

Critics of the proposed Nafta argue that American jobs will be lost, as companies move from the US to Mexico in search of cheap labour.

MX Mexico US United States of America P9611 Administration of General Economic Programs GOVT International affairs P9611 The Financial Times International Page 3 158
UN members 'put own interests first' Publication 930218FT Processed by FT 930219 By SHEILA JONES

THE leading members of the UN are putting their own interests before the organisation's commitment to collective security in deciding how to act in Bosnia-Hercegovina, a UK foreign affairs select committee was told yesterday.

Professor Rosalyn Higgins, UK representative on the International Human Rights Committee, said in written evidence it was not the intention of the UN Charter that member states should help countries under attack only if they felt they had a direct national interest to do so. Neither did such assistance depend on guarantees that no harm would come to their soldiers nor that the outcome of any action was clear at the outset.

'But all of these reasons have been offered over the last weeks as to why there should be no enforcement action by the UN in response to illegal action in Bosnia,' Prof Higgins told the select committee on the role of the UN.

Unlawfulness and aggression were encouraged by 'the debates about national interest, the hesitations about military overstretching, and disputes between allies as to what should and should not be done' by the UN.

Key members of the Security Council were insisting they could not do everything alone, while at the same time refusing to ensure a role for other member states.

The US and the UK were understandably concerned about the limits to the burden each took in enforcing peace around the globe. But the burden could only be shared properly if the resources of all member states were available to the Security Council on call.

United Nations XA World P9721 International Affairs GOVT Government News P9721 The Financial Times International Page 2 286
London Stock Exchange: Telecom sector active Publication 930218FT Processed by FT 930218 By CHRISTOPHER PRICE, JOEL KIBAZO and PETER JOHN

HINTS that the appointment of a new head of Oftel, the government's regulatory body, was imminent sparked fears of a tougher pricing regime and depressed telecoms stocks. BT fully-paid fell 5 to 398p, while the partly-paid retreated 4 1/2 to 293p. Vodafone fell, but rallied ahead of a big institutional meeting today and closed a penny ahead at 385p.

The effects of currency movements continued to be felt in the market as Cable and Wireless was the latest stock to be seen as a major beneficiary of last week's dollar strength.

Broker Hoare Govett lifted its current-year forecast by Pounds 125m to Pounds 1.05bn. Analyst Mr Jim Ross said: 'With the US economy picking up ahead of Europe, further dollar strengthening over the medium term is likely.' Hoare also increased its new customer connection rate estimates for Mercury, the C and W subsidiary, from 22,000 a month to 29,000. The shares rose 10 to 740p.

Utilities bought

The water and electricity sectors performed strongly as investors sought out defensive stocks in the wake of the US economic worries. Among waters, Anglian put on 6 at 509p, so did Thames, at 510p, and Southern added 4 at 498p.

Ms Angela Whelan at BZW said: 'The sector is attractive for short-term dividend growth together with the growing realisation that the regulatory environment is increasingly stable.' Ms Whelan believes the sector's defensive qualities will override the attractions of the recovery plays, mainly because any economic revival will be slow. She added that selected stocks, such as Severn Trent, 3 ahead at 490p, also had recovery potential. Among electricity issues, London rose 7 to 451p, National Power 9 1/2 to 312p, PowerGen 10 1/2 to 314 1/2 p and Yorkshire 8 to 497p.

SmithKline weak

Pharmaceuticals group SmithKline Beecham suffered a sharp fall in an already depressed sector. General pressure was exacerbated by worries that tax benefits for companies who manufacture in Puerto Rico will be removed as part of US financial reforms. Puerto Rico is a significant production centre for the company's US operations.

In addition, the possibility that President Clinton might crack down on the health sector in his State of the Union address late last night added to the worries. SmithKline shed 10 to 439p in the 'A's and 9 to 382p in the Units. Meanwhile, Fisons lost 5 to 238p, Glaxo 5 to 662p ahead of figures today, and Wellcome 2 to 898p.

Tobacco stocks BAT Industries and Rothmans International declined on fears of a possible rise in US taxes on overseas companies. BAT fell 11 to 958p, and Rothmans 6 1/2 to 611p. Conglomerate Hanson slipped 5 1/2 to 244 1/2 p on heavy turnover of 10m shares for the same reason.

Lasmo favoured

Oil group Lasmo rose 6 to 172p after securities house Smith New Court published a buy recommendation. The house said it expected Lasmo to maintain its dividend, based on the current level of sterling oil prices.

However, other oil shares were unmoved by the announcement of Opec production cuts, with many in the market sceptical that they would be adhered to. Opec set an output ceiling of 23.582m barrels per day (bpd) from March 1, against January output of around 25m bpd. BP lost a penny to 261p and Shell Transport gained 1 1/2 at 577 1/2 .

RTZ down

The world's biggest mining group, RTZ, saw its shares fall sharply in early dealings after the group announced provisions for cutbacks within a US subsidiary.

The registered shares were down 20p just before the official start of trading on the surprise news that RTZ's Kennecott subsidiary was stopping operations at its 54 per cent owned Creek mine in Alaska. The move will entail provisions of Dollars 48m (Pounds 33.8m).

Although the news was unexpected, one analyst summed up the general view when he said: 'It is a one-off provision and does not affect the underlying trading position.' The market is looking for profits of around Pounds 300m, against Pounds 308m last year, when RTZ reveals figures on March 11. The share price recovered throughout the day, partly helped by a buy note from US house Lehman Brothers, to end a net 5 off at 651p.

Abbey National up

High street bank Abbey National climbed 14 to 365p with the help of an improved recommendation from UK merchant bank Kleinwort Benson.

House analyst Mr Peter Dutton moved to a buy from a hold. He said the shares had underperformed the FT-Actuaries All-Share Index by 6 per cent over the past month and 'the yield has got to a level where we are happy to be buying again'. There was also talk of a badly handled buy order by one house.

Elsewhere in the sector, Barclays mopvked down 4 to 431p and National Westminster receded 5 to 435p.

Pittencrieff jumped a further 27 to 378p on consideration of the company's plan to split its telecommunications division from its oil and gas activities.

A squeeze in P & O saw the shares improve 11 to 557p. UK airports operator BAA firmed 3 to 770p after announcing that it had applied for planning permission to build a fifth terminal at Heathrow airport.

British Airways recovered 3 to 278p after Tuesday's fall that followed the release of third-quarter results.

Publisher Emap moved forward 4 to 434p following a Pounds 20.65m acquisition of business magazines, directories and related exhibition interests from Thomson Information Services. Analysts said the market liked the fit and the fact that the money came from Emap's existing cash pile.

Carlton Communications recovered 13 to 768p from its oversold position as concern about rival products, particularly pay-for-view, proved hard to pin down.

Worries that a large customer may cancel or defer aircraft orders depressed defence and aerospace components group Smiths Industries. The shares gave up 15 to 349p, with funding worries at the European Fighter Aircraft, to which Smiths is also a supplier, also dampening enthusiasm for the stock.

Several brokers have now turned cautious, including NatWest Securities and Strauss Turnbull, which said: 'The company is vulnerable to defence cuts, health issues in both the UK and US, and the deep late cycle recession in civil aerospace.'

The sentiment in Smiths hurt Rolls-Royce shares, which relinquished 5 to 127p, and FR Group, down 9 at 253p.

It was, however, profit-taking along with worries about US taxation that led Siebe 6 lower to 463p. Bargain hunters in TI Group helped the shares bounce 10 to 293p.

Motor stocks were in demand and GKN added 4 at 469p, ahead of figures next month, while Thomas Cowie apprecated 6 to 195p.

A large stock overhang in J. Sainsbury weakened the shares, which closed 11 adrift at 511p. Marketmakers said a leading securities house had been unable to place a line of 1.25m shares, but had eventually parcelled them off at around 507p. Turnover was a bulky 4m.

Relief greeted the bond issue by Argyll Group and the shares moved ahead 5 1/2 to 368p. Food specialists said a conversion bond had been feared. Shaved profits forecasts in Albert Fisher weakened the shares, down 1 1/2 at 66p.

The latest government retail figures boosted sentiment in the stores sector. Boots, helped additionally by news on its Manoplax heart drug, advanced 6 to 491p, Dixons 9 to 218p, GUS 15 to 1585p and WH Smith 6 to 425p.

NatWest Securities raked up concern over the Forte dividend and turned seller of the stock. The shares closed a penny better at 193p.

Selected brewing stocks recovered from their weakness earlier in the week that was prompted by disappointing figures from Courage. Bass added 9 at 576p, with James Capel also said to be keen, while Scottish & Newcastle improved 10 to 424p.

A badly handled order upset Whitbread and the 'A' shares closed a net 2 off at 455p.

MARKET REPORTERS:

Christopher Price,

Joel Kibazo,

Peter John.

Other market statistics,

Page 29

NEW HIGHS AND LOWS FOR 1992/93

NEW HIGHS (57).

BRITISH FUNDS (5) Treas. 8pc '02-06, Treas. 7 3/4 pc '12-15, Consols 4pc, War Loan 3 1/2 pc, Treas. 2 1/2 pc, OTHER FIXED INTEREST (2) African Dev. 11 1/8 pc '10, Hydro Quebec 15pc '11, BUILDING MATERIALS (2) BPB, Kalon, BUSINESS SERVICES (2) Capita, Chubb, CHEMICALS (4) Evode, Do 7p Pf., Laporte, Yule Catto, ELECTRICITY (3) Eastern, Natl. Power, PowerGen, ELECTRONICS (2) Gresham, Kode, ENGINEERING GENERAL (5) Clyde Blowers, Hadleigh, Molins, Rotork, VSEL, FOOD MANUFACTURING (1) Nichols (Vimto), HEALTH & HOUSEHOLD (2) Bespak, Tepnel Diagnostics, HOTELS & LEISURE (1) Stanley Leis., INSURANCE BROKERS (1) Lloyd Thompson, INSURANCE COMPOSITE (1) Aegon, INVESTMENT TRUSTS (10) Abtrust New Dawn, CST Emrg. Asia, China & Eastern, Group Dev. Cap., Hong Kong, Do Wts., Indonesia Equity, Nth. Amer. Gas, TR Euro. Growth, TR Tech. Stppd. Pf., MEDIA (1) LWT 5.90625p Pf., OIL & GAS (1) Pittencrieff, OTHER FINANCIAL (1) St James's Place Cap., PACKAGING, PAPER & PRINTING (1) Capital Inds., PROPERTY (1) Sinclair Goldsmith, STORES (4) Courts, Fine Art Devs., GUS, Menzies (J), TELEPHONE NETWORKS (1) Cable & Wireless, TEXTILES (2) Albion, Haggas (J), WATER (1) Anglian, PLANTATIONS (1) Bertam, MINES (2) Antofagasta, Navan.

NEW LOWS (8).

BUILDING MATERIALS (3) Darby, Russell (A), Tudor, ELECTRONICS (1) Prestwick, HEALTH & HOUSEHOLD (1) Specialeyes, INVESTMENT TRUSTS (1) Aberforth Split Level Inc., PROPERTY (1) YRM, MINES (1) OFS Invs.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 44 1587
London Stock Exchange: Retail sales help offset US worries Publication 930218FT Processed by FT 930218 By TERRY BYLAND, UK Stock Market Editor

AFTER A few uncomfortable moments in early trading, when market support levels were tested, the UK stock market stood up well yesterday to the US reaction to President Clinton's revised tax plans. A largely unexpected increase of 1.6 per cent in domestic retail sales in January helped the investment mood, but the London market was mixed at the close with dealers keeping a wary eye on Wall Street, which was moving uncertainly at the opening of its new trading session.

On the home front, stock market attention is now focused on today's UK unemployment figures. But at last night's close, London was also keenly awaiting President Clinton's State of the Union Address.

At the end of the session, weakness in sterling was also restraining the UK equity market, although most strategists do not expect any further move in domestic interest rates until the Budget in March. However, the chances of a full-point rate cut then came under question as the pound gave further ground in the foreign exchange markets yesterday.

Shares fell sharply at the opening in reaction to the 82-point loss in the Dow Industrial Average overnight. The FT-SE 100 Index dropped through 2,800 without waiting for the March index future to open, but the early reading of 2,794.2 on the index proved to be the day's low.

The market quickly rallied, supported by a good level of interest by the institutions, which appeared to regard the Footsie 2,800 area as buying territory. Early losses were replaced by gains and the Footsie touched 2,820.8 before rises were trimmed ahead of the opening of the new Wall Street session. With nothing further to go for, the market closed off the top for a final reading on the FT-SE 100 of 2,814.0, a net 1.8 up on the day.

The institutions were active, if very selective, and continued to buy stocks in the utilities sectors, which are traditionally seen as defensive in times of economic uncertainty. Stock Exchange data disclosed that retail, or customer, business in equities bounced to Pounds 1.23bn on Tuesday, a recovery from the brief reduction in retail activity at the beginning of the week.

Seaq volume of 618.6m shares compared with 634.3m in the previous session, with non-Footsie business making up a healthy 61 per cent of yesterday's figure. Increased activity in the second line issues was confirmed by a gain of 7.9 to 3,017.4 yesterday in the FT-SE Mid 250 Index.

The oil sector made a cautious response to the agreement hammered out by the Organisation of Petroleum Exporting Countries, with initial enthusiasm checked following less favourable comments from Kuwait.

Store shares responded firmly to the January retail figures, which showed the best performance for four years and were received eagerly as the latest pointer to the progress of the domestic economy.

But the industrial conglomerates remained depressed beneath the new uncertainty over the US dollar, with pharmaceuticals still unsettled by fears of tighter federal control on US medical spending. The drugs sector was also overshadowed by prospects for today's trading statement from Glaxo, which has underperformed the stock market over the past four months.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 44 559
London Stock Exchange: Equity futures and options trading Publication 930218FT Processed by FT 930218 By JOEL KIBAZO

BARGAIN hunting, together with the release of favourable UK retail sales figures, boosted trading in stock index futures, writes Joel Kibazo.

The poor opening of trading in the March contract on the FT-SE at 2,794 followed the continued overnight falls on Wall Street, and initially led dealers to believe a dull and quiet session lay ahead. By 9am the contract had declined to 2,788, which proved to be the day's low.

However, a feeling that Tuesday's falls had been overdone soon took hold and caused a turnround in the fortunes of March as independent traders, followed by some of the bigger securities houses, went bargain hunting.

The renewed buying gathered momentum with the release of buoyant retail sales figures and continued into the afternoon, with the quiet opening on Wall Street a relief to many traders.

The day's high of 2,827 was reached at around 3pm but was quickly followed by a bout of profit-taking. The March contract closed at 2,815, up 17 from Tuesday's poor finish and at a small discount to the underlying cash market. Turnover was 11,253 lots.

In traded options, volume totalled 32,790 contracts, of which 14,586 were in the FT-SE 100 option and 1,416 in the Euro FT-SE option. BP was the busiest stock option with 1,761 lots transacted, followed by BT with 1,563. Glaxo and BTR were also active.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 44 260
World Stock Markets (America): Dow trades narrowly after Tuesday's drama Publication 930218FT Processed by FT 930218 By PATRICK HARVERSON NEW YORK

Wall Street

AFTER the dramas of Tuesday, US stock markets were calmer yesterday, with share prices spending most of the day in a narrow range either side of opening values. Secondary stocks, however, continued to be plagued by heavy selling, writes Patrick Harverson in New York.

The Dow Jones Industrial Average closed 2.70 better at 3,312.19. The Standard & Poor's 500 ended 0.61 off at 433.30, while the American SE composite finished 4.45 lower at 401.36 and the Nasdaq composite 5.96 weaker at 659.43. Trading volume on the New York SE came to 302.2m shares.

The markets opened in a solemn mood, with dealers and investors digesting the implications of Tuesday's 83-point fall in the Dow, which had been triggered by President Bill Clinton's announcement that he will raise taxes levied on both middle-class and higher paid Americans.

Although few observers believe that the sell-off presages a sizeable correction in the market, some investment strategists yesterday recommended that aggressive investors should shift some of their assets from stocks to cash for the immediate term.

As expected, there was some sporadic buying early on as bargain hunters went in search of stocks which might have been oversold during Tuesday's frenzy. Otherwise, there was little demand in the market, with most investors choosing to sit out the day until the president's State of the Union address to Congress in the evening.

Among individual sectors, selected cyclicals staged a modest rally: Alcoa firmed Dollars 1 to Dollars 72 3/4 , International Paper added Dollars 3/4 at Dollars 65 1/2 and Goodyear Tire rose Dollars 1 1/8 to Dollars 67 5/8 .

Many leading drug stocks, which were hardest hit on Tuesday, remained under pressure. Bristol-Myers Squibb fell Dollars 3/4 to Dollars 57 3/8 , Merck slipped Dollars 1/2 to Dollars 37 3/8 in volume of 4.6m shares, Johnson & Johnson gave up Dollars 1/2 at Dollars 42 and Pfizer shed Dollars 7/8 to Dollars 59 1/4 .

One of the day's biggest gains was posted by Hewlett-Packard, which jumped Dollars 4 5/8 to Dollars 72 1/4 in volume of 2m shares after announcing better than expected first-quarter profits of Dollars 1.03 a share. Analysts said they were pleased with the company's control of expenses and its order growth.

Hewlett's strong showing gave a modest lift to other computer stocks, Digital Equipment improving Dollars 1 1/4 to Dollars 42 3/4 , IBM Dollars 1/2 to Dollars 50 1/2 and Motorola Dollars 1 3/4 to Dollars 54 3/8 .

On the Nasdaq market, healthcare and medical stocks continued to suffer, with US Healthcare weakening Dollars 1 to Dollars 44 3/4 and Amgen Dollars 1 5/8 to Dollars 48 1/4 .

Canada

TORONTO closed mixed yesterday as North American markets anxiously awaited US President Clinton's address that night on his economic plan. The TSE 300 index gained 7.2 at 3,417.7, but declining issues led rises by 328 to 284 after volume of 35.7m shares.

The real estate group gained 1.8 per cent, buoyed by acceptance of Bramalea's restructuring plan by two of the company's creditor groups. Bramalea put on 7 cents at 59 cents. The 'A' shares of Trizec, which owns 67 per cent of Bramalea, rose 19 cents to CDollars 2.40.

US United States of America CA Canada P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 41 578
World Stock Markets (Asia Pacific): Nikkei recovers as region responds to slide in Dow Publication 930218FT Processed by FT 930218 By EMIKO TERAZONO TOKYO

LATE buying by public pension funds came to the aid of share prices, and the Nikkei average recouped an earlier decline prompted by the overnight fall on Wall Street, writes Emiko Terazono in Tokyo.

The Nikkei finished a net 93.31 higher at 17,009.63, after falling to the day's low of 16,760.81 in the morning session as investors were discouraged by Tuesday's tumble in the Dow. Index-linked buying and support from public funds prompted the rally in equity prices just before the close.

Volume contracted to 200m shares from 229m. Declines still outscored gains by 521 to 413 at the close, with 188 issues unchanged. The Topix index of all first section stocks was finally up 0.94 at 1,293.27, and in London the ISE/Nikkei 50 index lost 2.35 at 1,038.54.

Investors were inhibited by another rise in the yen, which moved above the Y1.20 level against the dollar for the first time since October. Mr Yasushi Mieno, governor of the Bank of Japan, expressed concern over the sharp fluctuations.

Mr Masao Suzaki, an economist at the Bank of Tokyo, said Japan would probably have to endorse a higher yen in the face of a surging trade surplus, which rose by 39.4 per cent last month amid increasing pressure by the US on the Japanese government to lift domestic demand.

Some export-oriented, high-technology issues were sold on the stronger yen. Hitachi receded Y7 to Y678, falling below its 1992 low of Y685. Electric power companies, in contrast, gained on the same score. Tokyo Electric Power moved forward Y10 to Y2,590, Tohoku Electric Power Y40 to Y2,370 and Shikoku Electric Power Y20 to Y2,500.

Retail issues encountered bargain hunting by foreign investors. Mitsukoshi advanced Y18 to Y740 and Tokyu Y13 to Y569.

Dealers dabbled in Aids-related stocks. Nagase, a chemical trading company, was the most active issue of the day, climbing Y21 to Y874. Kanematsu, a medium-sized trading company, rose Y26 to Y412.

Housing-related shares were also bought by dealers. Daikyo, the leading condominium builder, moved ahead Y29 to Y884. Sekisui House, which had been sold ahead of its equity-linked bond issue, recovered Y24 to Y979. Nichias, a construction materials maker, put on Y18 at Y487.

In Osaka, the OSE average dipped 73.64 to 18,332.64 in volume of 71m shares.

Roundup

THE REGION offered a moderate and by no means unanimous response to events in New York.

AUSTRALIA partially recovered to end with the All Ordinaries index only 10.8 down at 1,601.3 after an early 1,593.3. Turnover came to a heavy 146.52m shares worth ADollars 370m.

The index was dragged down by the US-linked News Corp, down 50 cents at ADollars 29.94 in turnover of ADollars 50.24m. Banks, particularly ANZ, saved the market from worse damage. ANZ topped industrial turnover for the second day amid continuing takeover speculation, and closed 9 cents stronger at ADollars 3.40.

NEW ZEALAND was less fortunate, the NZSE-40 index falling 20.94 to 1,600.71. Volume was heavy at NZDollars 65m, some NZDollars 41m of that due to Telecom, down 8 cents at NZDollars 2.75 after a sharp rise on staffing cuts on Tuesday. Fletcher Challenge slipped 6 cents to NZDollars 2.55 after posting interim profits at the top end of expectations.

SINGAPORE's Straits Times Industrial index declined 12.80 to 1,616.56 in volume of 120m shares, against 118.3m on Wednesday.

KUALA LUMPUR added further profit-taking to the Wall Street influence and the KLSE composite index finished 9.20 lower at 625.81.

BANGKOK was unable to recover from a wave of early panic selling over the announcement that First City Investment was forced to defer repaying matured deposits. The SET index closed at 973.24, down 13.41, with the banking, finance and property sectors suffering the most.

TAIWAN, seemingly untouched by the Dow, climbed 3.3 per cent in hectic trade. The weighted index ended 126.43 higher at 4,001.16 on a wave of late buying, turnover expanding from TDollars 31.8bn to a very heavy TDollars 43.25bn.

Financials, which had been rallying on signs of improving profits and links to the premier-designate, Lien Chan, remained particularly strong.

HONG KONG finished moderately higher after a day of wide swings on rumours that Sino-British talks on Hong Kong's political future could resume. The Hang Seng index closed 21.84 ahead at 6,087.46 after opening 36 points down. Turnover shrank from HKDollars 4.29bn to HKDollars 3.27bn.

Sun Hung Kai Properties topped the actives list and advanced HKDollars 1 to HKDollars 31.75.

MY Malaysia, Asia TH Thailand, Asia TW Taiwan, Asia HK Hong Kong, Asia JP Japan, Asia AU Australia NZ New Zealand SG Singapore, Asia P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 41 794
World Stock Markets: South Africa Publication 930218FT Processed by FT 930218

GOLD shares again led the way on overseas interest, the index improving another 42 to 1,050 with Vaal Reefs R4 ahead at R185. The rise was not reflected elsewhere as industrials lost 54 to 4,528 and the overall index 24 to 3,483.

ZA South Africa, Africa P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 41 71
World Stock Markets: Leaders and laggards from Latin America - January offered a mixed outturn from the world's emerging markets Publication 930218FT Processed by FT 930218 By JOHN PITT

The new year opened with strong performances in a number of the world's emerging markets.

In Latin America, Chile led the way, far outperforming the region in dollar terms, according to data supplied by the IFC, part of the World Bank. Thailand also had a promising start to 1993 and, until a setback this week, had been building on those gains in February; Turkey and Greece also feature among the leaders.

Chile received a boost in January following a long-awaited announcement of capital market reforms designed to broaden the range of investment options available to private pension funds (AFPs). This measure allows them to extend their investment opportunites beyond the 40 most liquid stocks. Later in the month activity was stimulated further when the central bank said that pension funds could invest up to 1 per cent of their assets in approved companies.

The effect of these measures was to boost the IPSA index by about 12 per cent on the month - average daily turnover more than doubled to some Dollars 28m.

First Boston, in a Latin American strategy document, comments that the outlook for Chilean equities remains positive, helped by the rosier economic outlook. 'Chile is expected to register a real GDP growth rate of 9.7 per cent in 1992, which would be the best performance in some 30 years,' the report says. 'Despite strong growth the year-to-year inflation fell to 12.7 per cent in 1992, down from 1991's 18.3 per cent and 1990's 27.3 per cent.'

However, this must be set against high interest rates and the strength of the peso, which has had a negative effect on exports - these account for some 30 per cent of GDP.

Conversely, Latin America also saw the worst performer on the month as Venezuela dropped by more than 13 per cent in dollar terms. According to Latin American Securities in London, public demonstrations against alleged elec-toral fraud in December's local elections and rumours of another coup attempt led to the market's sharp decline.

Some confidence returned as January drew to a close with the stock exchange proposing a number of measures to improve the market's transparency and efficiency. With presidential elections scheduled for December, most analysts expect the market's volatility to continue throughout 1993.

Thailand, benefiting from good economic data, briefly saw the SET index testing the 1,000 level, while declining interest rates also encouraged a switch into equities.

Mr David Bates of Asia Equity says the rally was focused on the bank and finance sectors following better than expected results from the former. However, there was not enough momentum for the SET index to consolidate around the 1,000 mark. He expects a short term technical correction to bring the market back to around 930 to 940.

XA World P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 41 503
World Stock Markets (Europe): Paris strengthens on hopes of rate cuts Publication 930218FT Processed by FT 930218 By Our Markets Staff

MANY continental markets reflected nervousness ahead of last night's State of the Union address in the US, writes Our Markets Staff.

PARIS built up momentum towards the close with strong performances from the financial sector on renewed hopes of an easing in European interest rates. The CAC-40 index, which had been as low as 1,867 earlier, finished 26.80 higher at 1,904.97, a gain of 1.4 per cent on the day. Turnover was also strong at FFr3.1bn after Tuesday's FFr2.4bn.

A slight easing in the Bundesbank's variable money market rate also helped to encourage the belief that interest rates will come down in the short term. UAP gained FFr15 to FFr544, Suez rose FFr7.00 to FFr287.20 and Societe Generale put on FFr2 to FFr626.

Rhone-Poulenc, whose 1992 results were well received, saw its investment certificates improve FFr8 to FFr550 while the shares eased FFr1 to FFr548 ahead of entering the CAC on Monday.

FRANKFURT recovered from Tuesday's post-bourse fall of about 20 points in the DAX index, following that day's tumble in the Dow. The DAX closed only 10.96 lower at 1,653.26 as selling pressure failed to materialise.

Turnover fell from DM7.3bn to DM6.1bn. Dealers said that foreign investors, who had taken their profits on Wall Street, were putting some of their money into the D-Mark via German equities. Siemens, they said, was a case in point as it closed only DM1.70 lower at DM650.

Elsewhere there were falls virtually across the board in financials, carmakers and chemicals. In the latter sector, Degussa emerged with less damage than most, slipping DM1.50 to DM358.50 after a 14 per cent gain in December quarter profits was offset by a forecast of nil profits growth for the full year.

ZURICH saw selling in chemicals on fears over the President Bill Clinton's planned reduction in US health care costs. The SMI index fell 17.5 to 2,112.9 as Roche certificates slipped SFr70 to SFr4,100 and Ciba-Geigy fell SFr11 to SFr665.

In industrials, Brown Boveri and the cement producer Holderbank, fell by SFr50 to SFr3,880 and SFr7 to SFr584 respectively.

MILAN, beset by rumours regarding Fiat and Olivetti, came back from a weak opening, the Comit index closing 1.74 lower at 498.53. Turnover was estimated to be in line with Tuesday's L242bn.

Fiat has been influencing the market throughout the week as investors continue to ignore the group's denial that it plans either to sell some of its assets, is about to announce a joint venture or that Deutsche Bank is to lift its shareholding. The shares fixed down L150 at L4,949 before rising to L5,270 on the kerb.

Olivetti became the latest subject of speculation as some investors took the view that Stet might be interested in the group but, as with Fiat, there was no substance to the reports. Olivetti fixed L99 higher at L2,020.

STOCKHOLM saw a decline in Astra following the decline in US pharmaceutical stocks overnight. The pharmaceutical stock had been strong ahead of next week's 1992 results but the B lost SKr13 to SKr689 yesterday, as the Affarsvarlden general index fell 10.6 to 974.0 in high turnover of some SKr1.1bn after Tuesday's SKr724m. Volvo was another big loser with a SKr14 decline in the B shares to SKr380.

MADRID reacted to pressure on the peseta, which came under heavy pressure against the D-Mark in foreign exchange markets. The general index closed 0.95 lower at 232.50.

AMSTERDAM marked time, Royal Dutch picking up 80 cents to Fl 153.10, following the completion of Opec talks in Vienna, while the CBS tendency index slipped 0.6 to 97.7.

ISTANBUL soared 8.6 per cent to an all-time-high of 5,756.49, compared with the previous high of 5,749.69 on August 2, 1990, the day Iraq invaded Kuwait. Turnover also hit an all-time high, of TL800bn.

Brokers said that reports of major deposit rate cuts planned by three leading banks, sharp rate falls in the bond markets and cash flooding the lira market due to bulky bond maturities all helped boost demand.

------------------------------------------------------------------------ FT-SE Actuaries Share Indices ------------------------------------------------------------------------ February 17 THE EUROPEAN SERIES Hourly changes Open 10.30 11.00 12.00 ------------------------------------------------------------------------ FT-SE Eurotrack 100 1115.62 1116.92 1118.17 1118.44 FT-SE Eurotrack 200 1172.10 1173.03 1173.10 1174.86 ------------------------------------------------------------------------ Feb 16 Feb 15 Feb 12 ------------------------------------------------------------------------ FT-SE Eurotrack 100 1123.14 1132.97 1129.97 FT-SE Eurotrack 200 1179.54 1184.15 1181.05 ------------------------------------------------------------------------ Hourly changes 13.00 14.00 15.00 Close ------------------------------------------------------------------------ FT-SE Eurotrack 100 1118.18 1118.38 1119.86 1121.77 FT-SE Eurotrack 200 1171.80 1172.21 1172.97 1173.51 ------------------------------------------------------------------------ Feb 11 Feb 10 ------------------------------------------------------------------------ FT-SE Eurotrack 100 1126.71 1121.50 FT-SE Eurotrack 200 1175.45 1171.08 ------------------------------------------------------------------------ Base value 1000 (26/10/90) High/day: 100 - 1122.32 ; 200 - 1175.86 Low/day: 100 - 1115.62 200 - 1170.25 . ------------------------------------------------------------------------

FR France, EC DE Germany, EC CH Switzerland, West Europe IT Italy, EC SE Sweden, West Europe ES Spain, EC NL Netherlands, EC TR Turkey, Middle East P6231 Security and Commodity Exchanges MKTS Market data STATS Statistics P6231 The Financial Times London Page 41 839
Money Markets: Sterling futures rally Publication 930218FT Processed by FT 930218

SHORT sterling futures staged a rally in late trading after Scandinavia Bank - rumoured to deal on behalf of George Soros, the international investor - bought actively.

In earlier trading the March and June contracts had drifted lower on the back of the Bank of England's quarterly inflation report and better than expected retail sales figures.

The Bank's report warned that a further reduction in interest rates could jeopardise the government's aim of defeating inflation. The retail sales figures, although widely leaked over the weekend, nevertheless heartened the market. Sales rose by 1.6 per cent in January, month-on-month, against expectations of a 0.5 per cent monthly increase.

In the last 15 minutes of trading, the June contract rallied to 94.50, although this was still below the previous close of 94.57. The March contract ended at around 93.98, a net 6 basis points below the previous night's close.

Traders said that two weeks ago the market was pricing in a rate cut at around the time of the Budget next month, but that it had now become sceptical about early monetary easing. This conflicted with the prevailing view on the foreign exchanges that the govern-ment would put its desire to see economic recovery ahead of its low-inflation goal.

A money market dealer commented: 'Today, people are talking about the government waiting until the summer for another rate cut, if we are to get one at all.'

Interbank rates were once again fairly static, although easy liquidity meant that rates at the shorter end eased. The Bank's forecast liquidity shortage was Pounds 200m. This was relieved in the afternoon when the Bank purchased Pounds 208m of band-1 bank bills at 5 7/8 per cent. The overnight rate stayed at around 5 per cent for most of the day.

Trading in French Pibor futures was described by one dealer as weird. The March contract fell about 10 basis points from the previous close to 88.39, but the June contract added the same amount to finish at 90.85.

Dealers said there was still talk of a base rate rise in France, with investors still worrying about the ability of a new centre-right government to hold the franc in the European monetary system.

In Germany, sentiment about rates remained positive, boosted by hopes of continued moderate wage agreements.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 35 412
Foreign Exchanges: Pound closes at record low Publication 930218FT Processed by FT 930218 By EMMA TUCKER

STERLING dropped to its lowest ever close against the D-Mark yesterday, after better than expected retail sales figures failed to convince foreign exchange markets that the government would not cut interest rates again in the near future, writes Emma Tucker.

Mr Rob Loewy, a foreign exchange dealer at Hong Kong and Shanghai Banking, said: 'The scenario is that in spite of the reasonably optimistic numbers we saw today, stimulation of the economy will still be put ahead of the exchange rate.'

Mr Paul Chertkow, chief currency economist at UBS Phill-ips & Drew, commented: 'The economic situation here still warrants lower interest rates. The markets have reassessed the economy and believe that, although the retail sales figures are better, the industrial sector is still very depressed.'

A substantial amount of institutional selling of the pound for the French franc was reported in late trading and the strength of the D-Mark added to pressure on sterling. It closed in London at DM2.3500, down 1 1/4 pfennigs on the day. Against the dollar the pound was mildly lower at Dollars 1.4440, but later in New York it finished at Dollars 1.4455.

The US currency continued to drift downwards, with the market still uncertain about President Clinton's State of the Union speech. Dealers were concerned that zealous reduction of the budget deficit through higher taxes would impede economic recovery. The dollar ended at DM1.6280, compared with the previous night's close of DM1.6315. It slipped further in New York to close at DM1.6235.

The morning saw strong buying of the D-Mark, mainly at the expense of the Italian lira and the Danish krone. Enthusiasm for the German currency stemmed from a perception in the market that German monetary policy remained on course and that there would be no easing of rates at today's Bundesbank council meeting.

The lira continued to be plagued by rumours of political corruption and economic weakness. Analysts said it was likely to remain under considerable pressure until it became clear whether or not the Italian prime minister intended to reshuffle his cabinet. The lira finished in London at L951.1 per D-Mark, against a previous close of L943.3.

The French franc was slightly weaker against the D-Mark, with the market unable to make up its mind about the currency's direction. Some believe further pressure on the franc, in the wake of a right-wing parliamentary election victory, would lead to a fixed-rate link between the franc and the D-Mark. Yesterday Mr Theo Waigel, the German finance minister, and Mr Michel Sapin, his French counterpart, ruled out such a mini-monetary union.

Others believe that monetary easing in Germany will come early enough to rescue the French franc from devaluation. Mr Chertkow said he did not think investors were building up short franc positions.

GB United Kingdom, EC DE Germany, EC US United States of America P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 35 501
Survey of World Taxation (8): Overlapping umbrellas - Andrew Bolger inspects the anatomy of an Anglo-Dutch deal Publication 930218FT Processed by FT 930218 By ANDREW BOLGER

THE TAX benefits of a large international deal are seldom quantified directly, so the merger between Reed International of the UK and Reed Elsevier of the Netherlands was an interesting exception.

The merged group, which with a market value of about Pounds 6bn is one of the world's biggest publishers, said the merger would cut its effective tax rate by up to one percentage point a year. Given that the combined companies made estimated pre-tax profits of Pounds 424m last year, that is not an insignificant saving.

Two of the people most involved in structuring tax aspects of the deal were William Harrison-Cripps and Nicholas Hughes, both partners in Price Waterhouse, although both emphasised that the commercial aims were set by the clients.

Harrison-Cripps, head of European M&A tax services, said: 'I think what we ended up with - which is pretty well what we put to them on the back of a fag-packet - is a long way different from what they had in mind at the very early stages, but that is fairly normal.'

He added: 'What we were talking about was what would be the ideal commercial structure, if we could achieve it fiscally. Tax must never drive it.'

The merger, which took effect on January 1, was on a 50-50 basis, without any premium or cash payment to either set of shareholders, and both Reed and Elsevier kept separate stock market listings. Reed was granted a 5.8 per cent cross-holding in Elsevier, to reflect the UK group's larger capitalisation.

Although Anglo-Dutch mergers are inevitably compared with early link-ups such as Unilever and Royal Dutch/Shell, Harrison-Cripps said: 'I specifically told them that they did not have to live only with a Shell-type structure. If we had been putting together Shell today, we would have done it differently.'

Harrison-Cripps strongly opposed the parallel company structure with two parallel operational streams, and complex mirror boards. He said: 'Over time - and this is nothing to do with tax - you are looking at how quickly you can bring together and harmonise the two structures. The perception of working for the umbrella organisation is quite a powerful thing, and not to be passed over lightly.'

Hughes said: 'You can look at the Reed/Elsevier structure and show it is not totally dissimilar from the Royal Dutch/Shell and the Unilever structures, but better because there is more flexibility on how you can set the dividends and you've got a company in the middle that gives strong operational control, and you can still get the money tax-efficiently to shareholders.'

Close examination of the combined group's structure illustrates two of the deal's most important features: operating subsidiaries will be grouped under a UK holding company, Reed Elsevier, while finance subsidiaries come under Elsevier Reed Finance, a Dutch company which enjoys the continental European freedom to put money into a tax haven and earn tax-free interest on it.

Harrison-Cripps said: 'It is not some underhand trick to deprive the UK Exchequer - actually, quite the contrary: we could have had the choice of bringing nothing to the UK Exchequer, because the whole lot was destined to go to an overseas country.

'Our task had to be to set something up and convince people that it was right and still proper for us to have a UK holding company and still allow the group as a whole to have these benefits which we would have had anyway if we had set it up as a Dutch holding company. In other words, to put us as a country on an equal footing.'

Other notable features are that the values of the two groups were equalised without the use of cash, without any capital gains tax being due, and money can be remitted to Dutch shareholders without incurring any Advanced Corporation Tax. Hughes said: 'If we couldn't have solved these problems, then the deal would not have happened.'

Price Waterhouse worked on the tax problems with Freshfields and Linklaters, legal advisers to Reed and Elsevier respectively, and their merchant bankers, SG Warburg and Swiss Bank.

Harrison-Cripps said: 'The most interesting thing for us was our early involvement in the transaction. What all of us had been trying to defeat, which had been fairly traditional in the accountancy profession, was that you learned about something in the press - and then you might be lucky to get a crumb or two from the table.'

Even having achieved that, Hughes said the question of who was in control was always an issue when a team was involved. 'We can work effectively in a corporate team with other players, such as Freshfields. The competitive element is that the lawyers might say that they can do all of the work, including the tax, but they don't have same international representation.'

The merger cost between Pounds 30m and Pounds 35m in advisers' and listings fees, reflecting the fact that the enlarged group operates in 43 countries.

Harrison-Cripps is in no doubt that his team's tax work was worth 'an infinite amount' to Reed and Elsevier, relative to Price Waterhouse's fee of less than Pounds 2m. 'They will have had a payback within a month or so, in terms of the tax saving and the fact that the merged group works.'

Reed International Reed Elsevier GB United Kingdom, EC NL Netherlands, EC P27 Printing and Publishing GOVT Taxes CMMT Comment & Analysis P27 The Financial Times London Page 34 931
Survey of World Taxation (7): Knowledge is all - Computer data bases open new horizons Publication 930218FT Processed by FT 930218 By JONATHAN S. SCHWARZ

THE ability of computers to store and permit the rapid retrieval of extensive amounts of information makes them ideal for gathering tax information.

Even companies and their advisers who are engaged in purely domestic activities have a never-ending struggle to keep up with new developments.

In the UK, for example, tax experts have to cope with an annual Finance Act of more than 100 pages, High Court decisions running to hundreds of pages, and more than 100 press releases and assorted statements each year.

The amount of information to be dealt with multiplies by the number of countries concerned. In addition, the interaction between tax systems requires careful analysis.

The vast majority of computer systems used by tax advisers are essentially databases. A number of companies such as Lexis operate substantial legal databases on line. Although their focus is domestic, they do give tax researchers access to material from a number of countries.

In addition, countries' specific tax databases are available to aid in research. Most on-line databases need skilled researchers to extract the information efficiently.

The charges for access to the databases ensure that their use is frequently limited to cataloguing materials such as judicial decisions on a particular point.

The cost of retrieving a full text is often prohibitive. As a result, tax advisers still need to rely on hard copy.

In reaction to this, a number of publishers, particularly in North America, such as CCH, Prentice Hall and others now offer tax databases on compact disks with read-only memories (CD-ROM).

These are usually electronic versions of hard copy publications. On-line databases are often, therefore, used as support to provide for the most up-to-date information only. Such systems offer speed of access, ease of updating and mobility when combined with portable computers.

In the international arena, choices are more limited. The only source entirely devoted to international issues is the International Bureau of Fiscal Documentation, the non-profit publishing affiliate of the International Fiscal Association. It maintains CD-ROM databases on European and Latin American taxation, as well as one providing the full text in English of double tax treaties. These are supplemented by an on-line data service.

Once the tax adviser has extracted the relevant information, its evaluation, interrelation and application is largely left in the hands of the adviser. The development of tax programs that actually use the data to assist in planning decisions has been slow.

For several years, domestic tax programs have been available to assist planners manipulate data with what are effectively spreadsheet applications. Typically, tax computations are made and planning may be done through 'what if' analysis.

Two forays into computerised international tax planning have been by major accounting firms KPMG and Price Waterhouse in the field of expatriate taxation. The KPMG Peat Marwick 'EXPATRIATE' program calculates tax and social security for proposed employee assignments overseas. It covers 40 countries, 26 Swiss cantons, the Canadian provinces and territories, five American states plus a generic American state for locations not on the system.

The Price Waterhouse 'IAMF' program also calculates the cost of sending employees to particular locations. Its system covers 51 countries, plus American states and Canadian provinces, as well as some Swiss cantons. Both systems are available under licence.

The only corporate international tax planning program that is available by licence is 'COMTAX' produced by Comtax AB. Again, the combination of database and spreadsheet evaluates the effect of transferring earnings from one country to another within a multinational group on the total after tax profits of the group.

These planning programs help to generate possibilities that tax advisers or managers might not immediately think of, or eliminate possibilities that are simply unworkable. They also help to calculate the impact of taxes on existing corporate structures and suggest possibilities for reorganisation. They may make it easier to decide which company in a multinational group should be the vehicle for making an acquisition or for post-acquisition restructuring.

None of these systems can make judgments as to whether particular tax rules are applicable or not. They merely calculate the result.

Even though they are becoming indispensable in dealing with international tax problems, the human touch is still required and traditional legal skills are necessary.

XA World P357 Computer and Office Equipment P7372 Prepackaged Software P7291 Tax Return Preparation Services RES Product use CMMT Comment & Analysis P357 P7372 P7291 The Financial Times London Page 34 753
Survey of World Taxation (6): In search of benefits - Jonathan S. Schwarz on the tax status of expatriate executives Publication 930218FT Processed by FT 930218 By JONATHAN S. SCHWARZ

THE HIGHLY mobile executive is one of the key features of the increasing internationalisation of business.

Citizens of EC states can work anywhere in the Community and this privilege is likely to be extended shortly to citizens of Efta countries.

While immigration and work permit barriers may be falling, the tax impediments and cost of transferring senior employees from home may be significant. Executives expect at least to be no worse off financially if they work in other countries than if they stay at home. In many cases, they expect financial rewards for the disruption to their personal lives.

Virtually all industrialised countries tax residents on their worldwide income. Ceasing to be resident in a country usually involves remaining physically outside the country and severing all ties for a significant period of time. It is therefore only feasible for medium and long term postings.

In the case of executives required to spend parts of a year in a particular country, most double tax treaties following the OECD Model will absolve the executive from tax outside his home base if he or she spends less than 183 days a year in a country performing services and if the cost of employing the executive is not borne by a local company or permanent establishment.

Separate rules are, however, provided for company directors which cause them to be taxed on directors' fees paid by local companies even if they are not resident where the company is situated. Special rules are also provided for those in the shipping and airline industries.

Even such relatively straightforward situations give rise to problems as a result of anomalies between countries. For example, the UK excludes the day of arrival and departure in determining whether visitors are physically present in the UK. The US, on the other hand, includes the days of arrival and departure.

Other issues which affect executives are differences in tax year ends as well as administrative costs in filing tax returns or claiming refunds where tax is withheld at source. Those may be expensive and time-consuming.

Longer term moves by executives are accompanied by salary adjustments to take into account not only tax differentials but also other cost of living adjustments. The tax adjustments are most commonly effected by either tax equalisation or tax protection arrangements.

Under tax equalisation, the employee pays no more income tax than if he or she had stayed home. The company meets any additional tax cost if the individual is posted to a higher tax country and the company may make savings if the posting is to a lower tax country.

Tax protection involves the company agreeing to meet any additional costs of income tax if higher than the home country level. Any savings because of posting to a lower tax country are retained by the executive.

A number of countries seek to attract international and regional headquarters operations with tax incentive packages designed to attract foreign executives on a temporary basis. The UK and Ireland, for example, tax resident but not domiciled individuals on local source income and gains. Foreign income and gains are taxed only when remitted.

Belgium and the Netherlands also have attractive regimes for temporary foreign residents which exempt them from tax on foreign investment income and capital gains. In the Netherlands, such executives are also entitled to a 35 per cent tax deduction from salary subject to Dutch tax.

Executive incentive packages also give rise to challenges in an international context. Most packages are designed with the tax rules of the executives' home base in mind, and are often difficult to duplicate with precision. An area of increasing importance in this regard is in relation to pension benefits and employee share plans.

The tax treatment of pension provisions varies from country to country. The tax deductibility of pension contributions by the employee and the taxation of investment income by the pension fund itself depend in part on whether the fund and the executive are both resident in the same country.

Where mobile executives retire outside their country of employment, additional issues arise as to the taxation of pension payments. These problems are graphically illustrated in the Bachmann case that was recently brought before the European Court of Justice.

Mr Bachmann, a German national, had commenced payments on insurance policies agains sickness and disability as well as life insurance while resident in Germany. Having moved to Belgium to work, the Belgian tax authorities refused deductions of these premiums.

The Belgian income tax code permits deduction of insurance premiums agains professional income in computing taxable income. However, they are only deductible if paid to mutual companies recognised in Belgium and no foreign companies have ever been recognised. In the case of retirement and death related insurance, premiums had to be paid in Belgium.

The European Court recognised that the Belgian tax legislation contravened the Treaty of Rome rules dealing with freedom of movement of workers and freedom to provide services.

Contrary to the opinion of the Advocate General, however, the Court concluded that the non-deductibility of the premium was necessary to compensate the state for nontaxability of the pension.

In other cases, the foreign pension fund may not be recognised as a tax exempt savings vehicle and the employee may be taxed on income cumulated in the fund on amounts related to his or her contributions.

Social security contributions constitute a significant cost and the mobile executive may suffer mismatches of contributions and benefits. The problems are eased by international agreement.

For example, the UK/US social security agreement permits US employees to remain liable to US social security contributions only for assignments of up to five years and vice versa for UK executives in the US.

Within the EC, the rules are complex. In general, social security contributions are applicable in the country where the person is employed, even if he lives in a different member state. Temporary transfers for periods up to one year normally enable employees to remain under the social security rules of the home state. However, the EC regulation on social security schemes recognises the application of bilateral agreements in several cases between member states, as well as recognising circumstances where individuals may be subject to social security payments in two members states simultaneously.

The complexities and costs often lead companies to contrive base locations for some or all of their expatriate executives.

Although the taxation of businesses has been identified as an area for harmonisation within the EC, the taxation commissioner, Mrs Christiane Scrivener, has made it clear that personal tax harmonisation is not on the Commission's agenda. Detailed planning of multinational remuneration packages will continue to be a requirement for many years to come.

XA World P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs PEOP Personnel News CMMT Comment & Analysis P9311 P9611 The Financial Times London Page 34 1172
Survey of World Taxation (5): The network expands - Bilateral treaties girdle the globe Publication 930218FT Processed by FT 930218 By JONATHAN S. SCHWARZ

INTERNATIONAL double taxation has long been identified as an inhibition to international trade and investment. It arises when two countries each assert their taxing authority over the same source of income or capital gains.

Although international tax treaties have been around for over 100 years, it is only since the Second World War that they have grown in numbers and significance. There are now more than 1,200 treaties dealing with taxation.

Tax treaty networks have developed around patterns of trade and investment. Not surprisingly, therefore, the most dense network of treaties is among OECD members. Treaties between former colonial powers such as the UK and France and their former colonies are also notable networks.

Within the European Community, the treaty network is almost complete. Only Greece, Portugal and Spain do not have income tax treaties with all other member states. The European Commission, however, has encouraged the completion of the intra-EC network to assist in eliminating fiscal barriers to cross-border trade and Investment.

The vast majority of treaties deal with income tax and capital gains and are patterned on the models prepared by the OECD fiscal committee. There are a number of more limited treaties dealing with shipping and air transport income. These are usually found between countries where double taxation is not an important issue generally because of the limited way in which each country levies its taxes on local source income only.

Since, with two exceptions, all tax treaties are bilateral, there are variations and anomalies between tax treaties of which multi-national businesses and investors have sought to take advantage.

This treaty shopping has been exacerbated in relation to countries such as the US which, in spite of its size and importance in the world economy, has a relatively limited treaty network. It currently only has about 40 income tax treaties compared with, for example, the UK's 80 or so treaties. The OECD recently released a revised model treaty to replace its earlier versions released in 1963 and 1977. The new OECD Model Convention - and tax authorities generally - have sought to impose limitations on what is regarded as permissible use of tax treaties, particularly by persons who the authorities believe were not intended to benefit from them.

The US has led the way in seeking to impose so-called limitation of benefits provisions in order to exclude residents of third countries from benefiting from particular treaties.

This has given rise to enormous technical difficulties in drafting the rules and particularly in taking into account the recommendations of the OECD that limitations of benefits clauses should be restricted so as to exclude bona fide economic activities that may unintentionally be covered by them.

Limitation of benefits clauses have also caused considerable difficulty for countries such as the Netherlands who have sought to encourage multi-nationals to use it as a base location for international operations and financing in particular.

It has therefore facilitated the use of its tax treaty network by companies based outside the Netherlands.

In the EC, this issue is further complicated by the interaction between Community law prohibiting discrimination on the grounds of nationality under the Treaty of Rome and such limitation of benefits clauses.

Many experts hold that member states are not entitled to enter into treaties that discriminate against EC nationals, whether they are individuals or companies. This area of EC law is in its earliest stages of development and the outcome is uncertain.

A new income tax treaty just signed between the Netherlands and the US contains an extensive limitation of benefits article along with a memorandum of understanding requiring claimants under the treaty to demonstrate their entitlement to its benefits.

Apart from Dutch individual residents and non-profit organisations, Dutch resident companies may qualify if they fall within one of seven different tests.

While the clause may deter the most aggressive treaty shopper, it will also add significantly to the compliance costs of bona fide taxpayers seeking to benefit from the treaty.

The OECD Model Treaties and those following it have approached the avoidance of double taxation largely by seeking to eliminate tax in the country of source of income. The country of residence of the taxpayer has retained the right to levy taxes on foreign income earned by their residents. This largely favours capital exporting countries and as a result many developing countries have questioned the value of tax treaties.

Treaty networks between developing countries are the thinnest. In addition, the UN Model Convention has attempted to shift the balance in favour of countries where income is generated.

Some developing countries have recently succeeded in concluding treaties which permIt them to tax the activities of foreign investors more extensively. They leave the country of residence to rely on foreign tax credits to eliminate double taxation.

These successes have typically been in the area of more expansive definitions of permanent establishment and entitlement of developing countries to impose withholding taxes on payments for technical assistance and related services. Under the OECD Model such services would not be taxed in the country of source of the income.

Although the avoidance of double taxation was the original purpose of tax treaties, the prevention of tax evasion has become an increasingly important issue. The internationalisation of economic relations has caused growing interest in the reciprocal supply of information between countries on the basis of which domestic tax laws are administered This is the case even if the application of a treaty is not in question. Exchange of information falls into three categories:

routine exchanges such as the details of interest dividend or royalty payment;

spontaneous exchanges where tax authorities of one state believe that the authorities in another state may be interested in a particular piece of information;

exchanges on request.

Tax administrations keep their cards close to their chests in relation to this issue and little is made public about the amounts and nature of such collaboration.

In most countries, taxpayers do not know when information is being exchanged and typically no opportunity is provided to correct information erroneously given.

In some countries, such as Germany, taxpayers must be advised when information is exchanged, however. Other programmes are well publicised such as the US-Canadian joint audit programme where simultaneous investigations are conducted by both the Internal Revenue Service and Revenue Canada.

Some treaties provide for mutual assistance in the field of tax collection. These are unusual, however, and are limited in their scope.

Within the EC, a Directive on exchange of information sets out extensively the rules for this process covering all fields of taxation.

The only other multilateral attempt at such collaboration is to be found in the OECD/Counc1 of Europe Convention for Mutual Administrative Assistance.

This provides for extensive cooperation between tax authorities in not only exchanging information but in pursuing tax claims on behalf of treaty partners.

Although it has been ratified by the US, other major industrial countries such as the UK and Germany have indicated they will not ratify the Convention and it has thus far not entered into force.

As the international tax treaty network matures, it is likely that more and more attention will be focused on refining the rules governing double taxation of income and capital gains. One by-product of the process is clearly that scope for abuse of tax treaties will become more limited. Companies involved in international business will need to pay more attention to ensuring that they can fall within tax treaty rules, even if they do not engage in aggressive tax planning.

Jonathan S Schwarz is a partner of Paisner & Co., city solicitors, and Editor of the FT World Tax Report.

XA World P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9611 P9311 The Financial Times London Page 33 1317
Survey of World Taxation (2): First months are critical - Andrew Hill measures the progress of the EC's new VAT system Publication 930218FT Processed by FT 930218 By ANDREW HILL

THE EUROPEAN Community has a new barrier-free internal market, a new system for monitoring value added tax on cross-border transactions, and new minium rates of excise and VAT. So far, the EC does not have a whole new set of problems - but Brussels officials are ready for complaints and difficulties should they arise.

The new VAT system, which came into force at midnight on New Year's Eve, allowed member states to lift internal border controls on goods and sweep away some 60m administrative documents filled in by companies every year under the old system. But proof that the new system works will not come until the spring, when data on cross-border transactions start to flow into national tax authorities via the EC's specially established computer system.

The European Commission has accepted that there will be confusion in the early months of the new barrier-free internal market. Indeed, senior Brussels officials have urged national authorities to be lenient with companies which accidentally break the rules in the first half of 1993.

But Mrs Christiane Scrivener, who retained her responsibility for fiscal matters in the December reshuffle of European commissioners, has already made it clear that there will be no quarter for governments which are sluggish about adopting the relevant legislation.

Inevitably the new system has come in for criticism. Companies, some of which admit they left preparations for the single market to the last moment, have been irritated by what they consider an unnecessary new bureaucracy for handling VAT transactions. Some member states have been slow to issue VAT codes to businesses, and others have not moved quickly enough to bring rates into line with legally-binding guidelines agreed last year.

In the specific area of excise duties, there are worries that a failure to reduce the gap between high-excise countries like Denmark and low-taxers like Spain will lead to 'bootlegging' of cheap cigarettes across the Community.

Over the next two years - the limit of the current Commission's term in office if the Maastricht treaty is approved - Mrs Scrivener will be preoccupied by making these new systems work. Late last year she rushed through directives aimed at simplifying the new approach so it would not unduly penalise companies involved in 'triangular trade', and she is eager to maintain pressure on member states to bring their excise duties more into line.

But Mrs Scrivener must also bear in mind the EC's broad commitment to introduce a 'definitive' VAT system by January 1, 1997.

At the moment, only individuals benefit from the most logical indirect tax system - paying VAT on goods where they are bought, at the local rate. The introduction of this 'origin' system and the abolition of travellers' allowances for tax-paid items has encouraged a mini-boom in cross-border shopping.

The revenue at stake in such small-scale cross-border business was very small, although consumer groups hope a small increase in intra-EC bargain-hunting will have a disproportionate effect on prices in domestic markets. Such is the sensitivity of national treasuries, however, that even for individuals there are exceptions to the 'origin' VAT rule for some items, such as cars and mail-order goods.

More importantly, member states are not yet prepared to make the sacrifices needed to introduce the same system for cross-border commercial transactions. That is the aim for 1997, but it will involve a great deal of preparatory work.

For example, some sort of central 'clearing house' would have to be set up for all EC cross-border transactions, to ensure that national treasuries do not lose out. Senior Commission tax officials reckon work will have to start on such a system before the end of 1993.

For the time being, however, Mrs Scrivener's advisers are reluctant to add to companies' worries about the existing situation by beginning to talk about a 'definitive' system. They even reject the tag 'provisional' for the system which came into force on January 1. 'We will start our reflections (on a definitive system) next year, but we don't want to mix the two things,' says one.

Advocates of a definitive system worry that even if companies decide they want to move on to the simpler system, governments will try to hang on to the transitional VAT regime, unless they are put under intense political pressure by Brussels. 'Certain governments will say that it isn't in their own interests (to move to a definitive system),' says one Commission official.

In the meantime, Brussels officials are likely to work on the technical aspects of a definitive system so that when the time comes to make a political commitment, the groundwork will already have been laid.

Mrs Scrivener's other priorities are in the even more sensitive area of direct taxation. Advisers suggest she will press for member states to approve outstanding directives aimed at eliminating double taxation for companies with subsidiaries in other member states, held up in the council at the end of last year. 'It's indispensable that these texts are adopted,' says one official.

The Commission may also take another look at the vexed question of harmonising savings taxes, without putting EC savers at a disadvantage compared with those depositing their savings from outside the Community. A harmonisation proposal tabled in 1989 was resisted by member states.

Finally, the Commission is keeping a sharp eye on member states' double taxation pacts with non-EC countries.

Mrs Scrivener warned last year, when outlining the Commission's position on the Ruding report on corporate taxation, that Brussels was studying the effect of recent tax treaties - in particular between certain member states and the US. She warned that such treaties could discriminate against EC companies setting up in other EC states.

Advisers confirm that they are now working out how to end such discrimination - either by introducing new EC-wide legislation, or possibly by taking a test case to the European Court of Justice.

---------------------------------------------------- PERSONAL INCOME TAX RATES IN THE EC (%) ---------------------------------------------------- Country Threshold Maximum ---------------------------------------------------- Belgium 25 55 Denmark 52.8 68 France 19 57 Germany 19.7 53 Greece 18 40 Ireland 29 48 Italy 10 50 Luxembourg 10 52 Netherlands 13 60 Portugal 15 40 Spain 25 56 United Kingdom 20 40 ----------------------------------------------------

QR European Economic Community (EC) P9311 Finance, Taxation, and Monetary Policy GOVT Government News STATS Statistics P9311 The Financial Times London Page 32 1079
Survey of World Taxation (4): Revenue showdown - Deficit challenge to Clinton and Congress Publication 930218FT Processed by FT 930218 By GEORGE GRAHAM

US POLITICIANS and economists have for years been wringing their hands over the ever-growing federal budget deficit. But with the outlook now worse than ever, the time may be approaching when the administration and Congress unite to tackle it.

During his election campaign, Mr Bill Clinton shied away from the catastrophist approach of Mr Ross Perot, the self-financed candidate who argued that the deficit was a 'mad aunt in the basement' which must be dealt with before anything else.

Just before Mr Clinton took office last month, however, his predecessor, Mr George Bush, presented a farewell pro forma budget projecting that the deficit would, on current policies, grow from Dollars 290bn in 1992 to Dollars 320bn in 1998 - substantially gloomier than the Office of Management and Budget's earlier predictions, and its most honest forecast for years.

Mr Clinton seized this opportunity to explain that things were much worse than he had been told, and that he would therefore be unable to fulfil his campaign plan to halve the deficit in four years.

Preparation for the presentation of an economic plan, due yesterday, has, therefore, included much fervent discussion of what combination of spending cuts and tax increases will best provide the short term stimulus that Mr Clinton seeks to ensure that the economic recovery does not, once again, bog down, while at the same time offering a prospect of deficit reduction over the longer term.

The economic plan laid out by Mr Clinton during his campaign included a curious mix of the broad brush (unspecified administrative savings) and the bizarrely detailed (an end to the Dollars 18.6m a year subsidy to honey producers) but contains two main revenue raisers:

the top income tax rate would climb for the richest 2 per cent of taxpayers from 31 per cent to 36 per cent. This, coupled with a surtax on millionaires, would bring in an extra Dollars 17.8bn in 1993, rising to Dollars 23.0bn in 1996.

the prevention of tax avoidance by foreign companies is estimated to yield an extra Dollars 9.0bn this year, rising to Dollars 13.5bn in 1996.

Mr Clinton now intends to raise corporate income tax rates, probably to 36 per cent, in order to stop the wealthy from shifting their income into corporate shelters to escape the higher personal income tax rates. He has also promised limits on the deductibility of excessive salaries.

The money from foreign companies may, however, be hard to find. Although foreign companies on average report lower profits as a percentage of assets, capital or sales than their domestic counterparts, it is far from clear that all of this gap is accounted for by any effort to avoid US taxes.

Clinton campaign officials remained reluctant to the last to disclose the basis of their estimate. But it is widely assumed that they split the difference between an estimate by the Internal Revenue Service that the tax shortfall could amount to as much as Dollars 3bn, (if the gap between foreign and domestic profitability were entirely accounted for by abuses), and an estimate of Dollars 30bn a year, popular in Congress but based on the somewhat academic assumption of Professor James Wheeler, of Michigan University, that foreign companies must be earning as great a return on assets as they would get on a Treasury bond, or they would not trouble to do business.

Congress's Joint Committee on Taxation, probably the most authoritative source for revenue estimates, calculates that if foreign companies were taxed in proportion to their assets, rather than their reported profits, they would pay only Dollars 166m more a year, or Dollars 680m more if taxed in proportion to their receipts.

Politically, however, the target is so appealing that tax lawyers and congressional staffers are convinced that some effort will be made to wring more tax out of foreign companies. This could involve an attempt to rewrite the Section 482 rules on transfer pricing put out by the Bush administration in its final days, but many observers feel that Congress is so eager to get its finger into the pie that new legislation is likely.

Foreign governments, as well as the Organisation for Economic Co-operation and Development, fear that the Congress may try to ignore international tax codes and bilateral tax treaties.

Fiscal realities, however, are driving the new administration in search of other sources of revenue beyond the tax increases Mr Clinton outlined in his campaign. This is taking him into hostile territory.

Many of Mr Clinton's advisers, backed by an unlikely coalition of environmentalists and carmakers, have argued in favour of a substantial increase in taxes on petrol, an option favoured by Mr Perot during his campaign. The federal petrol tax stands at a relatively modest 14.1 cents per gallon, although all states and some cities also tax petrol.

But although many economists believe an increase in the petrol tax would have the desirable effect of reducing US fuel consumption, and hence pollution, politicians view it as suicidal, because it is perceived as unfairly burdening the middle class, as well as the car-dependent states.

A broader energy tax, possibly levied per British thermal unit, is now favoured, although some senators from oil-producing states are clamouring for an oil import fee.

It is a token of the greater seriousness with which the budget deficit is now treated in Washington that discussion of tax increases has not stopped there: even Social Security, the US state pension system, is under scrutiny.

Senator Daniel Patrick Moynihan, the unpredictable New Yorker who took over the chairmanship of the Senate finance committee when Mr Lloyd Bentsen became Treasury Secretary, has made it clear that he will fight to the last any attempt to freeze inflation adjustments in Social Security payments.

But Mr Dan Rostenkowski, who as chairman of the Ways and Means committee is his counterpart in the House of Representatives, has warned that there can be no sacred cows, and several leading senators have indicated that they would be prepared at least to consider making a greater portion of these Social Security payments liable to income tax.

Mr Nicholas Brady, President Bush's Treasury Secretary, argued in a valedictory speech that the US tax system needed root and branch reform, including radical measures such as lifting the income tax threshold dramatically and replacing the lost revenue with a form of VAT.

But Mr Brady never undertook such an initiative while he was in office, and even though Moynihan believes a VAT will come to the US one day, it seems unlikely that the Clinton administration will be any bolder.

US United States of America P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy GOVT Government News P9611 P9311 The Financial Times London Page 32 1143
Survey of World Taxation (3): Lawyers muscle in - Tax advisers are thriving Publication 930218FT Processed by FT 930218 By ANDREW JACK

ACCOUNTANTS DO it, lawyers do it, even property surveyors now claim to do it. A growing number and diversity of professionals are becoming involved in the lucrative world of tax advice.

More than many other grey areas which cross the divide between the professions, tax consulting has become a battleground. And in a recession, the gloves are coming off.

In the UK, tax advice has historically been dominated by the accountants. But the last few years have seen considerable growth in involvement from lawyers - reflecting their influence in other regions such as North America.

Some accountants and lawyers are beginning to move beyond their own firms, while others are setting up their own specialist niche practices with even fewer confines.

'Traditionally accountants were involved in tax compliance and planning while lawyers were involved on transactional work,' says Mr Simon Stubbings, the head of tax at the London law firm Theodore Goddard.

During the 1980s, the growth in transaction work exposed lawyers to tax work more frequently, he argues. That tempted lawyers and also allowed their clients to see and appreciate the greater scope for their expertise to be used.

But lawyers held back until recently for cultural and professional reasons. They were generally less aggressive and more restricted in how they could market than the accountants.

In international work, the accountants were able to make great play of their international networks and affiliations. More generally, they had the advantage of a recurring base of audit clients from which to identify and obtain additional tax work.

That is changing. In the last four years, Theodore Goddard has hired two accountants to help it compete. 'They help make our advice more comprehensible to a finance director by putting numbers to the words,' says Stubbings.

The change-over is not always easy. There is a considerable cultural clash between the two types of firms, according to Mr Daniel Feingold, of Strategic Tax Planning, which he created after stints with accountants and law firms.

Theodore Goddard - in common with most other lawyers - still sees compliance work as a matter for the accountants, and transactions as their own exclusive territory. But the distinctions are becoming increasingly blurred. 'Tax planning has become the battleground,' says Stubbings.

The picture is rather different outside London. 'Provincial solicitors throw up their hands in horror when they sense a whiff of tax being mentioned and they call in an accountant,' says Jill Hallpike, secretary of the Law Society's revenue law committee. 'But the City firms hold up their own against the accountants.'

The tension between accountants and lawyers is being played out between the different professional bodies. There is already rivalry between the independent Institute of Taxation, and the Tax Faculty of the Institute of Chartered Accountants in England and Wales. Now the Law Society is considering introducing a specialist further tax qualification.

The lawyers are not the only professionals encroaching on the accountants' turf in the UK. A large number of specialist agencies also chip away at particular niches such as entertainment tax or, in the case of firms like Crosher & James, property work such as advice on capital allowances.

VAT Clearing House offers an even more highly-focused service: the recovery of VAT on business expenses in the EC. That raises an important structural point about the changing nature of the tax profession. Increased competition is having an effect on both the size and the structure of fees.

The firm only charges if it achieves recoveries, and takes 12.5 per cent of the tax received.

Geographically, there is also a considerable challenge from overseas. London remains important as a centre for international tax work, but other areas are taking on growing importance.

The Netherlands has always been an important rival. Mr Barry Larking, a lawyer with Smith & Partners, a tax firm based in Rotterdam, who has worked for both law and accountancy practices, argues that many London firms adopt an 'ostrich-like approach' to issues of law beyond their own national boundaries.

'The big firms take a shotgun approach to international work, sending a book of information from each of the relevant national offices,' he says. 'We are not tied into a particular network, and can take a different perspective from the outside.'

The accountants are still hitting back with greater emphasis on marketing, and the creation of new activities such as out-sourcing, by which they directly take over the running of tax compliance work in client companies.

But Mr Feingold is among many commentators suggesting that accountants will become increasingly hard-pressed to compete unless they are in partnership with lawyers, since so much international tax work is essentially legal work.

GB United Kingdom, EC P8721 Accounting, Auditing, and Bookkeeping Services P7291 Tax Return Preparation Services TECH Services P8721 P7291 The Financial Times London Page 32 821
Survey of World Taxation (1): The pressure is starting to hurt - President Bill Clinton's intention to raise taxes and squeeze more from foreign companies in the US is symptomatic of a new fiscal aggressiveness in many other countries Publication 930218FT Processed by FT 930218 By ANDREW JACK

PRESIDENT Bill Clinton's calls for higher taxes this week are warning shots which have been heard in terror by tax practitioners around the world.

He may have toned down his aggressive campaign rhetoric about capturing an extra Dollars 45bn from foreign corporations operating in the US. But many will see his pledges as symptomatic of a new, aggressive attitude in the world's largest economy which will help set the agenda of many other governments over the next few years.

The prominence given to Mr Clinton's remarks since his election also serves as a reminder of the huge importance now being given to international tax issues, as multinational companies and international transactions grow in significance. 'Business has undoubtedly become more international,' says Mr Roger White, head of tax at KPMG Peat Marwick in London.

That has brought a corresponding change in the attitude of fiscal authorities. 'In their own plodding way the revenue services are catching up,' says White. 'They are desperately trying to bring themselves into the 1970s as business moves into the next century.'

He argues that there has been a 'globalisation of tax policy setting', with fiscal authorities from different countries meeting more regularly across borders, exchanging information and sharing ideas through forums such as the Organisation for Economic Cooperation and Development.

This dialogue is reflected in the recent resurgence of international tax treaties, which grew after the second world war but then declined in importance during the 1960s and 1970s. There are now many hundreds in place around the world, including a near-complete network between EC member states.

Geographically, the US is an important focus of attention. When the Internal Revenue Service takes action, other countries often have to follow to ensure they maintain their share of tax levied. Aside from President Clinton's general sabre-rattling, it has been aggressively pushing for new rules on transfer pricing. 'We have the potential for the start of a tax war,' says Mr Peter Dickinson, head of international tax with Coopers & Lybrand.

This attitude is shown in the recent re-negotiations of its tax treaty with the Netherlands.

The US forced discussions for a new treaty, and the result includes some tough conditions on removal of remaining privileges - on pain of the treaty being nullified. 'It was a reflection of what the US wanted,' says Dickinson.

The new climate is posing particular problems for multinational companies when trying to structure acquisitions and plan operations, he argues. 'It is difficult to plan in the long-term, so you have to arrange things in a way that can be changed without adverse consequences in two years' time.'

One trend in which the US remains the exception is the introduction of value added tax. Around the world there has been a clear shift away from direct taxation towards indirect tax. Mr Ian McDade of Price Waterhouse says this reflects both the simplicity and lower costs of collection, and the fact that, once introduced, indirect taxes are less politically damaging since people are not so likely to see their impact.

He adds that this growing application reflects a shift away from considering tax as an instrument of social policy or wider public policy objectives, towards one more tightly focused around income generation. At a time when many countries are in recession, it comes as no surprise that their fiscal authorities are pushing hard to boost collection.

The use of indirect taxes is now also being echoed in the countries of Eastern Europe, the former Commonwealth of Independent States and Asia. McDade says this is explained by competition for inward investment: companies will be discouraged by seeing high headline tax rates.

Most geographical attention for international taxation at the moment lies in Western Europe. The EC has achieved a harmonised system for VAT, which began operating at the start of this year. Market forces, officials argue, will begin to force the varying member states' tax rates to converge.

The next challenge will be the debate on whether to shift from an origin-based system - in which VAT is charged in the country where goods or services are bought - to a destination-based one. That change is designed to take place in 1997 but may be strongly contested.

On direct tax, EC trends are more ambiguous. Progress towards harmonisation on corporation tax seems to have been stalled in spite of an ambitious report by Dr Ono Ruding early last year. But a number of practitioners point to draft EC legislation clearly pushing in that direction.

Methods of collection have changed considerably in the last few years. There has been a movement towards self-assessment of tax, by which taxpayers calculate how much they should pay and send this amount directly to the authorities rather than wait for an assessment.

This has long been the method applied in the US. It is also in place in countries such as Canada, Spain, Italy, Denmark, France and Germany. Ireland and Australia recently moved in the same direction.

Now the UK is doing the same, with an Inland Revenue consultative document issued last year on self-assessment for personal income taxpayers, and a new system of 'pay and file' for corporations due to begin this autumn.

The approach reduces the prolonged annual debates over tax calculations, and permits revenue authorities to make considerable staff savings. But it introduces new pressures by placing greater burdens on taxpayers - one reason, it is said, why alcohol sales peak in the US at the time of filing the annual return.

It also brings the risk of far greater investigations or 'audit' work by tax officials to ensure that the correct amount has been paid. The onus is being shifted on to taxpayers to prove they have paid the right amount - backed up by detailed documentary proof.

Investigations and compliance issues are taking on a wider significance. Most international tax treaties include clauses calling for exchanges of information between different national fiscal authorities. These have led to a growth in multinational examinations of a company's tax affairs.

In the EC, formal computer systems to share information between member states and to detect fraud are now in place. This raises questions about the security of confidential and commercially-sensitive information.

It also worries many practitioners, since data may be exchanged and used as the basis for inquiries without any opportunity for the company involved to be able to verify the information under scrutiny.

Technology is becoming more important in other ways too. For companies and their advisers, new software is making it possible to compute and experiment with the presentation of financial information more easily. For revenue authorities, electronic filing of tax returns will increase markedly during the 1990s.

As international tax issues continue to flourish, one more question remains: the role of the tax professional. In the UK, advice has traditionally been led by accountants.

Elsewhere, lawyers or others with specialist qualifications have dominated. Small companies offering niche services are also developing.

Accountants have good abilities to crunch numbers; lawyers play a vital role in interpreting legal texts and precedents. In the future, there will probably be greater demand for a combination of these skills, at a competitive price.

XA World P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs GOVT Government News P9311 P9611 The Financial Times London Page 31 1264
Commodities and Agriculture: Talk of Cuban buying helps to keep sugar price surge going Publication 930218FT Processed by FT 930218 By DAVID BLACKWELL

WORLD SUGAR prices continued to surge yesterday as a spate of bullish news this week pushed the market out of the narrow trading range of recent months.

New York's May raw sugar contract, which rose by 0.5 cents on Tuesday, was a further 0.18 ahead in early trading yesterday at 9.69 cents a lb before easing towards the close. At the beginning of the month it was trading at 8.5 cents.

Cuba has been reported buying 100,000 tonnes of sugar from Thailand to meet its commitments in China and elsewhere in Asia. Cuba's harvest is being delayed once again by problems with the country's infrastructure. Mr Juan Herrera, the Cuban sugar minister, said earlier this month that a lack of basic inputs had 'caused delays in the start-up of a significant number of mills'.

Thailand, which in November forecast a record 1992-93 harvest of 49.15m tonnes, now expects only 43m tonnes of cane, compared with 47.43m tonnes last year.

Kenya surprised the market with the announcement that it would hold a tender next Monday for 160,000 tonnes of white sugar. Morocco is tendering for 14,000 tonnes of raws, and there is talk of Cuban sales to Mexico and of a 100,000-tonne sale to Indonesia.

'There is a buoyant physical sector, and that has brought the funds back into New York,' said one US analyst yesterday. 'Fund buying spurred the market through stubborn resistance at 8.65 to 8.70, and then took it through 9 cents.'

'Basically the market is looking a lot better,' said a London trader. 'Good news has arrived when the market was at its weakest.' He pointed out that estimates for the world sugar surplus in 1992-93 were coming down. ED &. F. Man, the London trade house, has reduced its forecast surplus from 3.4m tonnes to 1.5m tonnes.

XA World P0722 Crop Harvesting P2062 Cane Sugar Refining COSTS Commodity prices MKTS Market data P0722 P2062 The Financial Times London Page 30 346
Commodities and Agriculture: Aluminium in cars 'to double' Publication 930218FT Processed by FT 930218 By KENNETH GOODING, Mining Correspondent

ALUMINIUM USAGE by the car industry can be expected to more than double, from 2.4m tonnes in 1990 to 5.7m tonnes by 2006, according to the Commodities Research Unit consultancy organisation.

Shipments of new or primary aluminium will rise at an even faster rate, from 770,000 tonnes to 2.8m tonnes, because of the development of 'all-aluminium' or 'aluminium-intensive' vehicles, it suggests in a new study.

Some of the necessary aluminium smelting capacity is already in place but this market alone will call for five or six new smelters by 2006, the CRU points out.

The trend will also increase demand for secondary (scrap) aluminium, put upward pressure on the price and increase the importance of the London Metal Exchange's new aluminium alloy contract, which can be used by manufacturers for hedging against price fluctuations.

The CRU made a detailed, component by component analysis, and says that the increased use of aluminium will be mainly at the expense of steel and cast iron because the switch 'will be driven by the need to reduce the weight of cars and improve their fuel economy'.

By 2006 the aluminium content of an average European car will have risen from 55 kg in 1990 to 98 kg. Usage in Japan and the US will almost double, says the CRU.

Aluminium's relatively high price compared with that for steel will mean that it will be used most intensively in luxury cars, where buyers can afford to pay for it, and, later in this decade, in electric cars where weight savings will be essential.

The study forecasts a growing use of aluminium 'space frames,' (skeleton-like car bodies) and aluminium hang-on and structural panels. But it sounds a note of caution about investment in aluminium rolling mills specifically for the car market. The CRU expects that improvements in plastics recyclability and recycling systems within the 15-year period, will enable plastic body panels to become highly competitive in non-load bearing applications and 'the window of growth for aluminium body panels will probably then be closed'.

The study assumes a 1.8 per cent annual growth rate in car production and no further oil price shocks. 'Any sharp rise in the oil price, or much more stringent legislation on fuel economy in the US and elsewhere, would considerably increase future demand for aluminium from the car industry,' it concludes.

'Aluminium in Automobiles - A 1990s Bonanza?' From the CRU, 31 Mount Pleasant, London WC1 0AD.

XA World P3711 Motor Vehicles and Car Bodies P33 Primary Metal Industries RES Product use CMMT Comment & Analysis P3711 P33 The Financial Times London Page 30 450
Commodities and Agriculture: Surinam bauxite strike ends Publication 930218FT Processed by FT 930218 By CANUTE JAMES KINGSTON

BAUXITE MINERS in Surinam have returned to work after a two-week strike. About 2,000 miners were demanding 100 per cent wage increases to keep pace with inflation, but settled for a rise of 40 per cent.

There is still a threat of industrial action as the workers are seeking payment for the days they were on strike.

The industry, based on a 1.6m tonnes-a-year refinery and a 30,000 t/y smelter, accounts for about 70 per cent of the South American republic's foreign earnings. It is owned by the Aluminum Company of America and Billiton, a subsidiary of Royal Dutch/Shell.

XE South America P1099 Metal Ores, NEC PEOP Labour COMP Company News P1099 The Financial Times London Page 30 134
Commodities and Agriculture: Exxon expects Indonesian gas deal to be signed soon Publication 930218FT Processed by FT 930218 By WILLIAM KEELING JAKARTA

AN AGREEMENT to develop the giant Natuna gas field in the South China Sea between Exxon Corporation of the US and the Indonesian government could be signed by the end of March, according to an Exxon official in Jakarta.

In a recent report the World Bank estimated that the field contained 40 trillion (million million) cubic feet of proven and probable natural gas reserves mixed with about 70 trillion cu f of carbon dioxide. Industry officials say the field will cost Dollars 16bn-Dollars 19bn to develop due to the technical difficulties of separating the natural gas from the carbon dioxide.

Gas from the field would be processed into liquefied natural gas. Indonesia is at present the world's largest producer of LNG, exporting over 22m tonnes last year to Japan, Taiwan and South Korea.

The Indonesian government and Exxon have agreed financial terms for Natuna's development, the Exxon official said. But he declined to give further details. Industry officials say fiscal terms would include cost recovery and taxation terms.

Further discussions are likely to cover technical and environmental matters, including methods for disposing of the carbon dioxide. One proposal is to reinject the carbon dioxide into limestone reefs, but this may necessitate an expansion of the project's acreage.

Exxon has a 50 per cent stake in the field with Pertamina, Indonesia's state-owned oil and gas company, holding the remainder. Industry officials say Pertamina may be unable to fund its share of development costs and be forced to reduce its stake or offer incentives for Exxon to increase its own financing burden.

The World Bank report attaches 'critical importance' to the development of the Natuna field for the future of Indonesia's LNG industry. About 12m tonnes of LNG a year is being produced from Pertamina's Arun plant in North Sumatra but half its contracts expire in 1999 and reserves are running low.

The Natuna field could supply about 14m tonnes of LNG a year, more than compensating for the reduction from the Arun plant.

Any agreement signed next month, however, would not guarantee the project's go-ahead, officials stress. Before the field could be developed, between 20 and 30 agreements need to be reached with suppliers, banks, shippers and LNG purchasers.

Industry officials say the field would take about eight years to develop before first production and would entail more than 700,000 tonnes of offshore platforms and facilities and nearly 1,000 km (620 miles) of pipelines.

Exxon Corp ID Indonesia, Asia US United States of America P1311 Crude Petroleum and Natural Gas P9611 Administration of General Economic Programs MKTS Contracts RES Natural resources GOVT Government News P1311 P9611 The Financial Times London Page 30 463
World Commodities Prices: Market Report Publication 930218FT Processed by FT 930218 By REUTER

Nymex PLATINUM group metals were down at midday amid nervousness over President Clinton's state-of-the-union speech, which also kept trading in Comex GOLD thin. Gold futures were down in early trading on disappointment at the failure to attract safe-haven buying during the US stock market's drop. NICKEL prices closed at six-week highs on the LME. Three-month metal came within a whisker of Dollars 6,300 a tonne. Technical factors continued to aid the market, as prices built on overnight US merchant buying. London robusta COFFEE futures finished with trimmed gains. Light origin selling helped to halt an earlier advance. Dealers said a close above Dollars 945 a tonne on May would have been technically constructive and might have triggered some fund buying today, but after peaking at Dollars 954 the rally stalled. In Chicago WHEAT prices were sharply higher at midday in reaction to trade talk that Turkey would tender for up to 400,000 tonnes of optional wheat.

Compiled from Reuters

GB United Kingdom, EC P0179 Fruits and Tree Nuts, NEC P6231 Security and Commodity Exchanges P3339 Primary Nonferrous Metals, NEC COSTS Commodity prices MKTS Market data P0179 P6231 P3339 The Financial Times London Page 30 206
Commodities and Agriculture: Fragile Opec deal leaves credibility gap - Sticking to quotas will be even harder than agreeing them Publication 930218FT Processed by FT 930218 By MARK NICHOLSON

ALTHOUGH IT proved harder for the Organisation of Petroleum Exporting Countries to reach its agreement on second quarter output than most member countries had expected, the hardest part is still to come: sticking to it.

By the time ministers gathered in Vienna last Saturday, the oil market had already discounted the main elements of the deal reached late on Tuesday. Strong signals from Saudi Arabia and Iran during a pre-meeting tour by Mr Alirio Parra, the Opec president, that they wanted to remove at least 1m b/d from the cartel's first quarter ceiling of 24.58m b/d had added more than Dollars 1.5 to the price of a barrel.

Opec will largely succeed in its aim of shoring up prices, therefore, if it can hold that premium. But this will rely entirely upon member countries holding hard to their respective allocations and actually delivering a ceiling of 23.58m b/d from March 1 - thus taking 1.4m b/d off the market, given Opec's leakage earlier in the year.

Saudi Arabia, the architect of the deal, and Iran both said in Vienna that they would immediately begin notifying customers of their allocated cuts under the agreement - statements the cartel's two biggest producers hoped might add some credibility to the Vienna deal. The kingdom has said it will cut by 400,000 b/d to 8m b/d, while Iran is to trim to 3.34m b/d from 3.49m b/d.

Industry analysts attending the meeting were unanimous that the agreement would offer real support to prices only once it became clear in mid-March if Opec members were keeping their word. Several suggested that even with some leakage, perhaps to a real output figure of 23.7m b/d or even 23.8m b/d, prices might still find support. European traders did not seem impressed yesterday, however, and nearby prices for Brent crude slipped back below Dollars 18 a barrel.

The agreement's fragility was signalled clearly by Mr Ali al-Baghli, the Kuwait oil minister. After having bowed with enormous reluctance and only after four days of stern pressure from Saudi Arabia and Iran to cut Kuwaiti production to 1.6m b/d for the second quarter, he said: 'I'm going to watch this market; and any additional barrel or two and I am at liberty'. If there was any cheating elsewhere, he said, Kuwait would immediately pump to what it claims will be a 2.1m b/d capacity in the second quarter.

The tough wrangling that finally brought Kuwait back within a regime of Opec allocations for the first time since the Gulf war revealed a more serious flaw in the latest agreement, however.

Kuwait agreed to its cut only on condition that at the next Opec meeting in June it will be accorded a third quarter ceiling 'in parity with the production allocation to other countries with similar production capacity, historical market share and quota'. It took eight hours of negotiation for Opec members to agree this wording on Tuesday and thus enable a deal-finalising communique. But it became apparent soon after the communique's release that there was no real agreement on what it meant.

Mr al-Baghli said immediately after the meeting that this represented an 'explicit agreement' that Kuwait would be awarded parity with the United Arab Emirates when allocations for the third quarter are decided at Opec's next meeting in June. Kuwait and the UAE were both awarded quotas of 1.5m b/d under Opec's last formal quota system, agreed in July 1990, just before the Gulf war. Before the war both countries had roughly similar production capacity of around 2.5m b/d. Under the present deal the UAE will pump 2.1m b/d.

Kuwait was determined above all at the latest meeting that it should re-establish its claim to its pre-Gulf war share of Opec output, even though its oil industry had not yet physically reached the point where it could sustain pre-war capacity. Mr al-Baghli said on Tuesday that he considered that battle won.

Minutes after Mr al-Baghli spoke, however, his Iranian counterpart, Mr Gholamreza Aghazadeh said that the communique gave absolutely no guarantee that Kuwait would be given any sort of parity when ministers met again in June, with the UAE or anyone else. 'Maybe that's Kuwait's perception,' he said curtly.

Iran opposed any mention of parity or any overt reference to Kuwait's special post-war circumstances largely because it already had its eyes on Iraq's eventual return to the oil market. Before the Gulf war, and under a hard-bargained Opec compromise between the two big Gulf neighbours reached during the Iran-Iraq war, both countries were awarded exact parity at a quota of 3.14m b/d. Above all things, Iran now wants there to be no precedent set that might tie them back into parity with Iraq.

Iran says it has already spent Dollars 3.5bn on raising output capacity towards a target of 4.5m b/d by March and hopes to go on to achieve an eventual sustainable capacity of 6m b/d. Whenever Iraq returns to the market, once the UN agrees that it has met all the terms of the Gulf war ceasefire and sanctions are lifted, it will do so with considerably lower output capacity than Iran - even given that most industry estimates say Tehran's claims for present capacity are inflated.

Iraq is certain to latch firmly on to any precedent Opec has set for Kuwait during its post-war reconstruction and Iran fears this means it will seek to achieve agreement that it should once again be tied into an equivalent quota to its neighbour. Indeed, Iraq said firmly after the latest deal that it regarded the July 1990 quota system, with its entrenched parity between Iran and Iraq, as the sole benchmark for Opec allocations.

However successful Opec is, therefore, in achieving its target for the second quarter, its members have already drawn the battle lines for a far tougher fight in June over market share. Iraq's return to the market is still somewhat distant - indeed Saudi Arabia is confident that the country will never re-enter the market fully while Saddam Hussein remains in power. But the arguments to accommodate Iraq have begun and are likely to detain Opec delegates for much longer than four days when they next meet in June.

QN Organisation of Petroleum Exporting Countries P1311 Crude Petroleum and Natural Gas P9611 Administration of General Economic Programs COSTS Commodity prices MKTS Production CMMT Comment & Analysis GOVT International affairs P1311 P9611 The Financial Times London Page 30 1099
World Commodities Prices: Wool Publication 930218FT Processed by FT 930218

Although Australian wool prices have become a little dearer this week, with the Wool Corporation's market indicator reaching 470 cents a kg. yesterday compared with 457 a week earlier, there are still very heavy withdrawals by farmers to take into account. Withdrawals at reserves during the sale amounted to about 15%, but in addition 10% to 25% was withdrawn at the three selling centres prior to the start of the sale. Thus anything from 25% to 40% of the originally scheduled offering was not sold. China is listed as the main buyer.

XA World P0214 Sheep and Goats MKTS Market data COSTS Commodity prices P0214 The Financial Times London Page 30 120
Commodities and Agriculture: China invites explorers to prime oil areas Publication 930218FT Processed by FT 930218 By TONY WALKER BEIJING

AFTER YEARS of procrastination China yesterday invited foreign oil companies to explore in promising onshore areas, including the vast Tarim basin in the country's remote north-west.

Mr Wang Tao, president of the China National Petroleum Corporation, said yesterday that exploration bids for five blocs covering 72,730 square km (28,000 square miles) in the south-eastern sector of the Tarim basin would be called in March. There would be a second round of bidding for additional acreage by early next year, he said.

Worries about flagging domestic production - China may become a net importer by 1995 - and the need to speed exploration in remote areas apparently dispelled lingering reservations about opening up territory to foreign explorers. The booming economy - GNP growth reached 12 per cent last year - is putting added strain on dwindling oil reserves.

Oil company representatives welcomed China's decision to open its 'wild west' to exploration - Shell and BP in particular expressed strong interest - but they indicated caution about commiting resources to such a remote region. Transporting oil to the coast would require a 2,000 km pipeline across some of the world's roughest terrain. Many offshore explorers had their fingers badly burnt in China in the 1980s. A representative of Australia's BHP Petroleum noted ruefully yesterday that the company had drilled 23 dry wells in the Yellow Sea and the Pearl River Delta.

China had previously allowed foreign participation in onshore exploration, but restricted this to relatively unpromising areas in 11 southern provinces. The extension of foreign exploration leases to northern and western regions is certain to excite considerable explorers'interest.

Based on fairly sketchy seismic data, China claims that the Tarim basin contains massive reserves of perhaps more than 100bn barrels. Even if only a fraction of such deposits are recoverable at reasonable cost the region would become one of the world biggest oilfields.

Mr Wang Tao also announced the opening of existing oilfields to foreign participation. China's 'mature' fields face increasing difficulties maintaining production without sophisticated enhancement techniques. China at present produces about 2.8m barrels a day and its exports are hovering around 400,000 b/d. The country ranks sixth in the world in oil production.

CN China, Asia P1311 Crude Petroleum and Natural Gas P9611 Administration of General Economic Programs RES Natural resources GOVT Government News P1311 P9611 The Financial Times London Page 30 410
Government Bonds: Short-dated gilts fall as retail data wipe out rate cut hopes Publication 930218FT Processed by FT 930218 By SARA WEBB and PATRICK HARVERSON LONDON, NEW YORK

SHORT-DATED UK govern-ment bonds fell as news of better-than-expected retail sales figures wiped out hopes of a cut in the base rate before the March 16 budget.

Meanwhile, longer-dated issues edged higher on domestic buying interest, resulting in a further flattening of the yield curve.

Retail sales climbed 1.6 per cent in January from December, showing the strongest increase in more than 18 months and a sharp turnround after the revised 1 per cent fall in sales during December.

Mr Norman Lamont, the Chancellor, warned that there were no plans to adjust interest rates.

The 10 per cent gilt due 1994 fell from 105 15/32 to 105 3/8 by late afternoon to yield 5.75 per cent.

GERMAN government bonds closed higher, with investors encouraged to buy bunds because of the strength of the D-Mark against the dollar.

The Liffe bund futures contract opened at 93.70 and traded up to a high of 93.88 before ending the day at around 93.85. Dealers said hopes of a relatively good M3 figure and yesterday's repo gave the market a firm tone.

The Bundesbank accepted bids amounting to DM70.7bn in 14-day securities repurchase agreements, representing a net injection of DM2.4bn in liquidity. The repos were allocated at 8.49 per cent and above, compared with 8.50 per cent and above at the previous repo.

Elsewhere in Europe, French government bond prices closed firmer, taking their cue from the bund market. The yield on the 8 1/2 per cent bond due 2003 moved from 7.84 per cent to 7.76 per cent.

Among short-dated issues, the rally was less pronounced as the market expects the Treasury to sell FFr17bn-FFr19bn of two and five-year bonds today.

JAPANESE government bonds continued to rally, helped by the combination of a strong yen, initial stock market weakness, and good investor demand for nine-year and 10-year paper.

The June futures contract, which opened at 109.88, rose to a new high of 110.02 before ending at 109.90. The yield on the benchmark No 145 JGB moved from 4.17 per cent to 4.14 per cent, corresponding to the high price of the day, but ended at 4.165 per cent.

US Treasury prices firmed across the maturity range yesterday as investors bet that President Clinton would announce a credible package of deficit-cutting measures in his State of the Union address to Congress, which was scheduled for last night.

In late trading the benchmark 30-year government bond was up 15/32 at 100 9/32 , yielding 7.097 per cent, a new historical low. At the short end of the market, the two-year note was up 1/8 at 100 13/32 , to yield 4.014 per cent.

Prices initially firmed in the expectation that further losses in equities would drive investors into government securities. The absence of another big sell-off in the stock markets, however, kept those gains to a minimum. Sentiment was also buoyed by the day's main economic news - a 7.2 per cent decline in January housing starts.

In the afternoon, Treasuries rose further on hopes that the president would announce he will stick to his plans to raise taxes and cut spending as a way of reducing the deficit. In particular, bond investors were looking for him to unveil measures that would have a serious chance of passing through the House and Senate.

GB United Kingdom, EC DE Germany, EC JP Japan, Asia US United States of America P6211 Security Brokers and Dealers MKTS Market data STATS Statistics P6211 The Financial Times London Page 29 607
International Capital Markets: Argyll turns to sterling bonds to raise Pounds 150m Publication 930218FT Processed by FT 930218 By RICHARD WATERS

ARGYLL, the supermarket group, yesterday became the latest UK company to raise fixed-rate finance through a sterling bond issue, a further sign that UK finance directors believe long-term sterling interest rates are unlikely to fall much further from their current levels.

The group raised Pounds 150m through an issue of seven-year Eurobonds to meet part of the Pounds 600m cost of its store development programme this year.

The bonds, with an 8 1/8 per cent coupon, were priced to yield 8.1 per cent, or 80 basis points more than the 9 per cent gilt due in 2000.

Falling UK interest rates, and a move by many companies to shift their borrowing to shorter-dated instruments, has left the Eurosterling market starved of longer-dated paper, with demand reported in particular for bonds of seven years or longer. As a result, yield spreads between corporate and government debt have narrowed steadily in recent months.

Other issues recently have been concentrated in the long-dated domestic debenture market, with Forte, the hotels group, last week raising Pounds 200m, the largest issue of secured bonds for 18 months.

Mr Colin Smith, finance director of Argyll, said the money raised yesterday has not been swapped into a floating-rate liability, since the company is matching the coupon payments to the expected cashflows from store developments.

Although unrated, Argyll was said by bankers involved in the transaction to be seen by investors as a similar credit to rival supermarket group Tesco, which carries a AA3 rating. A Tesco Eurobond issue maturing in 2002 was yesterday yielding around 70 basis points over gilts. Argyll's bonds firmed in later trading yesterday, with the spread over gilts narrowing to 76 basis points.

Argyll Group GB United Kingdom, EC P6211 Security Brokers and Dealers FIN Company Finance COMP Company News MKTS Market data P6211 The Financial Times London Page 29 328
International Bonds: Quebec and World Bank join high-quality issuers Publication 930218FT Processed by FT 930218 By ANTONIA SHARPE

THE international bond market had an active day as several high-quality borrowers launched deals in a variety of currencies.

Among the previously-announced global deals, the Canadian Province of Quebec's CDollars 1.4bn offering due 2023 was priced yesterday to yield 90 basis points over comparable Canadian government bonds, and kept to that spread when they were freed to trade in the afternoon.

Syndicate managers said that a significant proportion of Quebec's bonds were placed in the US and Canada but that there had also been demand from Switzerland, Germany and Japan.

The day's other global issue, the World Bank's Y200bn due 2003, is due to be priced early today to yield 25-27 basis points above the benchmark Japanese government bond No 145 due 2002, the same as the yield of the World Bank's first global yen deal which also matures in 2002.

An official at IBJ International, the joint lead manager and book-runner of the deal along with Morgan Stanley and Nikko Europe, said he expected the issue to be priced towards the tighter end of the indicated range, in view of the level of demand so far.

The official added that between 40 to 50 per cent of the issue was likely to be placed in the Far East, about 30 per cent in Europe and the remainder in the US.

The good reception to these two global deals raised hopes that the Kingdom of Sweden's first global offering in dollars would proceed smoothly. The terms of the deal are expected in the next few days.

Elsewhere, the European Investment Bank fulfilled market expectations by launching a Ecu500m seven-year bond. The bonds were priced at 98.41 to yield 8.056 per cent, the same yield as the French government's 9 1/2 per cent Ecu-denominated OATs due 2000.

The pricing represents a yield spread of 18 basis points above the theoretical Ecu yield curve, which is based on the value of bonds denominated in component currencies. The differential between theoretical and real yields is widest at seven years. For example, the yield spread in the three-year area is virtually flat, in five years it is 10 basis points, and in the 10-year area, three basis points.

Syndicate managers said the fact that the EIB's bonds were pitched at the cheapest part of the curve from the investors' viewpoint indicated that there was political pressure on the supranational agency to continue to restore investor confidence in the Ecu-denominated sector of the Eurobond market.

'It is in the EIB's interest that the deal goes well,' said one syndicate manager.

When the bonds were freed to trade, they quickly rose to 98.65 bid, giving a yield of three basis points below that of the OATs.

In the D-Mark sector, the Spanish region of Andalucia reaped the benefits of a successful presentation to investors in Frankfurt last week, which enabled it to raise the amount of its previously-announced five-year offering from DM300m to DM400m, its maximum requirement.

'The deal was well pre-placed,' said an official at the lead manager Dresdner Bank. He added that the bonds had been evenly distributed in Germany and Switzerland. When the syndicate broke, the bonds rose as high as 101 from a re-offer price of par, but eased back to 100.70 bid in the late afternoon.

Compared with other sectors of the market, the D-Mark sector has been relatively neglected in recent weeks, but syndicate managers expect some sovereign and supranational issuers to tap this area in the near future. Belgium is reported to be considering a DM600m offering, while the European Community may raise more than DM1bn.

Meanwhile, continued good conditions in the swaps market prompted the European Bank for Reconstruction and Development (EBRD) and the Kingdom of Denmark to raise Canadian dollars for the second time in less than a month.

Yesterday, both borrowers raised CDollars 250m each via five-year offerings. When the syndicate broke on the EBRD deal, the bonds traded at their launch spread of 26 basis points above comparable Canadian government bonds. Denmark's deal was launched later in the day, at a yield spread of 44 basis points above comparable Canadian government bonds, and the bonds were not freed to trade by late yesterday.

XA World P6211 Security Brokers and Dealers MKTS Market data STATS Statistics P6211 The Financial Times London Page 29 734
International Company News: Peripherals help Canon improve Publication 930218FT Processed by FT 930218 By MICHIYO NAKAMOTO TOKYO

CANON, the office equipment and camera manufacturer, last year suffered a small decline in sales but posted a marginal increase in profits due mainly to the strength of its computer peripherals business.

Pre-tax profits moved up 1.3 per cent to Y77.13bn (Dollars 637m) as turnover dipped by 0.9 per cent to Y1,063bn.

Canon expects a modest improvement in both sales and profits this year on the back of a second-half recovery. It forecasts anincrease in sales to Y1,100bn and a rise in pre-tax profits to Y77.5bn.

The company, chaired by Mr Ryuzaburo Kaku, which is considering buying the computer hardware operations of Next Computer, the US company, saw sales in its computer peripherals business rise 25 per cent to Y405.45bn in 1992.

In the computer peripherals division, the company's laser printers sold particularly well in the second half after it introduced a new model, while its bubble jet printers increased sales last year as awareness of their advantages spread.

Copiers also performed well. Sales increased by 4 per cent to Y332.9bn, largely on the strength of colour copiers, application equipment such as feeders and chemicals such as toners.

But cameras suffered a 24 per cent fall in sales to Y167.29bn, as the economic slump dampened consumer spending. Cameras, which were Canon's mainstay in its early years, accounted last year for only 16 per cent of sales, against 21 per cent in 1991. Sales of communication equipment also fell back 12 per cent, to Y114.42bn, but this was largely a result of a transfer of the company's personal communications equipment business to a new company it set up last year in Hong Kong.

Canon JP Japan, Asia P3861 Photographic Equipment and Supplies P357 Computer and Office Equipment FIN Annual report P3861 P357 The Financial Times London Page 28 314
International Company News: HK Daily News in rights issue Publication 930218FT Processed by FT 930218 By AP-DJ and REUTER HONG KONG, TOKYO, SINGAPORE, SYDNEY

HONG KONG Daily News and Trading, which publishes the Chinese-language Hong Kong Daily News, is to reincorporate in Bermuda and raise HKDollars 149.3m (USDollars 19.3m) through a rights issue, AP-DJ reports from Hong Kong.

The company plans a 10-for-1 share swap, to be followed by a one-for-one rights issue at HK1.28 a share.

It will also give holders one warrant for each five new shares, convertible into one new share at HKDollars 1 on or before December, 1995.

Hong Kong Daily News has earmarked HKDollars 75m of the rights proceeds for a new headquarters building.

It will also spend HKDollars 35m on new production equipment.

With an additional HKDollars 10m, Hong Kong Daily News will further develop product lines and extend its retail furniture operations.

The company will put aside the remaining HKDollars 23.6m as working capital.

The company's shareholding structure will be reorganised into a new Bermuda-based holding company called Hong Kong Daily News Holdings.

*****

Pioneer Electronic has bought Trimble Navigation's 49 per cent stake in the two companies' navigation systems joint venture, Pioneer Trimble, which is based in California, Reuter reports from Tokyo. The venture will be renamed Pioneer Navicom and will be wholly owned by Pioneer.

Trimble, a world leader in global positioning system technology, intends to focus on strengthening its the marketing in Japan of its local subsidiary.

*****

OCBC Asset Management, part of the Oversea-Chinese Banking group, plans to launch an open-ended unit trust aimed at investment in the Asia-Pacific region, Reuter reports from Singapore.

OCBC Asset expects the fund, Savers AsPac Recovery Fund, to attract SDollars 20m (USDollars 12.2m) during the offer period.

*****

Rothmans Holdings, the Australian arm of the tobacco group, expects operating profit for the year ending March to fall more than 15 per cent below the 1991-92 result, Reuter reports from Sydney.

'We have reason to believe there will be a decrease in the operating profit before abnormal items and tax for the current year, which will vary by more than 15 per cent from the previous corresponding year,' the company said.

For 1991-92, Rothmans Holdings earned ADollars 129.3m (USDollars 87.9m), before abnormal items and tax.

*****

Leighton Holdings, the Australian construction group, has written off ADollars 31.8m (USDollars 21.6m) on its development properties after pressure from Australian regulators and further deterioration in the property market, Reuter reports from Sydney.

The write-off reduced net profits for the six months ended December to ADollars 3.51m, from ADollars 10.51m, off-setting more than doubled operating earnings of ADollars 36.1m.

Pioneer Electronic Corp Hong Kong Daily News and Trading Trimble Navigation Pioneer Trimble Pioneer Navicom OCBC Asset Management Savers AsPac Recovery Fund Rothmans Holdings Leighton Holdings HK Hong Kong, Asia BM Bermuda, Caribbean XO Asia XR Pacific Islands, Oceania AT Austria, West Europe P2711 Newspapers P3812 Search and Navigation Equipment P6722 Management Investment, Open-End P15 General Building Contractors P21 Tobacco Products COMP Company News FIN Share issues FIN Interim results P2711 P3812 P6722 P15 P21 The Financial Times London Page 28 522
International Company News: Drought slows down SA chemical group Publication 930218FT Processed by FT 930218 By PHILIP GAWITH JOHANNESBURG

AECI. the South African chemicals group in which ICI of the UK and Anglo-American Industrial have large share stakes, reports lower profits for 1992 but plans to maintain its dividend.

Earnings per share fell to 106 cents from 121 cents and compare with the 203 cents achieved in 1989. The dividend is being held at 58 cents.

Mr Mike Sander, managing director, said 1992 had been a worse year than originally predicted for two reasons: the lack of growth in world economies and the very severe drought in South Africa.

Exports make up a significant portion of AECI's business. About 20 per cent of its turnover goes directly to the agriculture sector.

Turnover for the year rose by 1 per cent to R5.36bn (Dollars 1.7bn) and net trading income was unchanged at R403m. Cost controls saw margins maintained in most sectors, though at low levels. A slightly higher tax bill and a decline to R16m from R28m in investment income saw attributable income drop to R164m from R187m.

Exports rose by 28 per cent to R643m (R502m), accounting for 12 per cent of turnover.

AECI ZA South Africa, Africa P28 Chemicals and Allied Products FIN Annual report P28 The Financial Times London Page 28 223
International Company News: Burns Philp up 32% at half-term Publication 930218FT Processed by FT 930218 By KEVIN BROWN SYDNEY

BURNS Philp, the Australian food and hardware group, yesterday announced a 32 per cent increase in net profit to ADollars 54.5m (USDollars 37m) for the six months ended December, on sales up 17 per cent to ADollars 1.35bn.

The group said its North American consumer foods and European yeast operations performed 'particularly strongly'. The recently-acquired Durkee-French spice business in the US also made a 'significant' contribution.

Mr Andrew Turnbull, managing director, said the group was 'pretty happy' with the result. He forecast an improvement on last year's full-year net earnings of ADollars 101m.

The board raised the dividend from 8 cents to 8.5 cents, helping to maintain the shares at a peak ADollars 4.08 on the Australian Stock Exchange, despite a weak market.

Burns Philp said that two thirds of pre-tax profits were contributed by the food operations in North and South America, which reported a 66 per cent improvement in operating earnings to ADollars 65.9m.

Most of the improvement was contributed by Durkee-French, purchased last year for ADollars 113m, which recorded pre-tax profits of ADollars 18.4m. The group said the division also gained from improved productivity and higher returns from its Argentine operations.

The food ingredients businesses in the Asia/Pacific region, which includes Australia, raised operating earnings by 25 per cent to ADollars 20.9m, largely as a result of the benefits of rationalisation.

However, Burns Philp said pre-tax returns from its BBC Hardware division fell by 11 per cent to ADollars 17.9m, mainly because of high unemployment and low consumer confidence in Australia.

Burns Philp and Co AU Australia P20 Food and Kindred Products P5072 Hardware P514 Groceries and Related Products FIN Interim results P20 P5072 P514 The Financial Times London Page 28 303
International Company News: Fletcher Challenge sees return to full-year profit Publication 930218FT Processed by FT 930218 By TERRY HALL WELLINGTON

FLETCHER Challenge, the New Zealand forest products and energy group, expects to return to profit this year following strong first-half gains.

The company forecasts profits of NZDollars 200m (USDollars 103m) for the year ending June, 1993 on the back of positive factors in most of its operations. For 1991-1992 the group made a loss of NZDollars 158m after writing down its Australian property portfolio.

As reported in late editions yesterday, the six months ended December achieved earnings of NZDollars 153.5m excluding abnormal items, up from NZDollars 121m a year ago.

Mr Hugh Fletcher, chief executive, said the result reflected good performance in energy, both in New Zealand and Canada, a strong recovery in its New Zealand operations, an improving trend in Canada, and continued growth in sales to Asia, which reached NZDollars 1bn for the first time.

The group had also achieved a significant reduction in its interest expenses and improved the cash flows from existing businesses.

Mr Fletcher pledged that the company, which was widely criticised in 1991 and 1992 for continuing to expand rather than repay debt, would not make any further acquisitions until it had improved its international investment grade ratings. He said a number of further assets were to be sold, including nearly all its investment properties in New Zealand.

Discussing the future, Mr Fletcher said the company saw 'reasonable ' growth prospects in New Zealand, North America and Asia, excluding Japan. 'We expect conditions in Britain and Australia to be difficult, but to show continuing improvement,' he said.

Mr Fletcher said an aggressive restructuring programme was under way with the company concentrating on expanding output, reducing employees and developing new products to increase profitability. He said that despite these improvements a recovery in prices is necessary to restore profitability.

He said the immediate outlook was that with the exception of methanol and wood pulp, most of the company's products and services appeared to have reached the bottom of their cyclical trough, and had begun an upward movement.

Fletcher Challenge NZ New Zealand P6719 Holding Companies, NEC COMP Company News P6719 The Financial Times London Page 28 371
International Company News: Thai Stock Exchange seeks improved disclosure Publication 930218FT Processed by FT 930218 By VICTOR MALLET

THE Stock Exchange of Thailand yesterday announced plans to improve financial disclosure by listed companies after the shutdown of First City Investment, a small listed finance and securities company.

FCI suspended payment of mature promissory notes this week and the Bank of Thailand, the central bank, said the company was 'temporarily closed' because of liquidity problems pending further efforts to arrange a rescue.

FCI is thought to have several billion baht of bad and doubtful debts on its books. The BoT said an investigation last year showed that FCI had extended loans to affiliated companies without collateral.

Bangkok Bank, the country's largest commercial bank, has been asked by the BoT to rescue FCI in exchange for broking licences and other incentives, but a deal has yet to be completed.

Mr Seri Chintanaseri, SET president, said after an SET board meeting yesterday that companies suspected of providing misleading financial information would be reported to the newly-formed Securities and Exchange Commission.

Stock Exchange of Thailand First City Investment TH Thailand, Asia P6231 Security and Commodity Exchanges P672 Investment Offices P6211 Security Brokers and Dealers COMP Company News TECH Standards MKTS Market data P6231 P672 P6211 The Financial Times London Page 28 217
International Company News: Campbell Soup in the red after Dollars 300m write-off Publication 930218FT Processed by FT 930218 By ALAN FRIEDMAN

CAMPBELL SOUP, the US foods group, yesterday disclosed a second-quarter net loss of Dollars 115.9m, or 46 cents a share. The deficit was caused by an anticipated Dollars 300m write-off taken in connection with a restructuring and divestiture programme that included plant closures. Last year Campbell achieved second-quarter net profits of Dollars 160.6m or 64 cents.

The New Jersey-based company said sales reached record levels in the quarter, having risen by 2 per cent year-on-year to Dollars 1.79bn. Six-month sales rose 6 per cent to Dollars 3.48bn, while first-half net earnings were Dollars 40.7m, or 16 cents a share, down from Dollars 289.8m, or Dollars 1.15 last time.

Mr David Johnson, president and chief executive of Campbell, said that before restructuring charges the company's net earnings were actually 18 per cent higher in the first six months.

'In the teeth of a tough competitive environment worldwide, we have delivered strong results for the second quarter,' Mr Johnson said.

Campbell's North and South American division, the single largest business, reported a 7 per cent rise in second-quarter operating earnings before restructuring charges. Sales for the division were 4 per cent better at Dollars 1.29bn.

The biscuit and bakery division had a 2 per cent decrease in operating earnings before charges with sales 1 per cent lower at Dollars 214.2m in the quarter.

Operating earnings in the second quarter for Campbell Europe/Asia increased by 10 per cent before restructuring charges. Sales were 1 per cent lower at Dollars 290.2m.

Campbell Soup US United States of America P2032 Canned Specialties COMP Company News FIN Interim results P2032 The Financial Times London Page 27 291
International Company News: Higher volume lifts Teleglobe earnings 50% Publication 930218FT Processed by FT 930218 By ROBERT GIBBENS MONTREAL

TELEGLOBE, Canada's fast-expanding international telecommunications group, earned CDollars 18m (USDollars 14m) or 34 cents a share in the final quarter of 1992, up 50 per cent from CDollars 12m or 26 cents a share a year earlier, on a revenue gain of 11 per cent to CDollars 143m.

The gains came from rising telecommunications volume and lower financial charges.

Operating profits for 1992 came to CDollars 30.6m or 72 cents a share up from CDollars 25.7m or 54 cents a share the year before, on revenues of CDollars 489m, up 12 per cent.

But net restructuring charges of CDollars 81m brought attributable losses for the year of CDollars 50.6m or CDollars 1.19 a share.

Newbridge Networks, a Canadian-based international telecommunications equipment producer, earned CDollars 34.5m or 96 cents a share in the nine months ended January 31, up from CDollars 5.1m or 15 cents a share a year earlier. Revenues were CDollars 207m, up from CDollars 129m, because of major contract deliveries.

SHL Systemhouse, a big Canadian systems integrator, plans expansion in Mexico and other Latin American countries, besides the US and Europe.

Norcen, an international energy group controlled by Edper-Hees, reports net profits of CDollars 38.9m for 1992 against CDollars 44.1m for 1991, on revenues of CDollars 1bn against CDollars 976m.

Teleglobe Canada Newbridge Networks SHL Systemhouse Norcen International CA Canada P481 Telephone Communications P366 Communications Equipment P7372 Prepackaged Software P1381 Drilling Oil and Gas Wells COMP Company News FIN Annual report FIN Interim results P481 P366 P7372 P1381 The Financial Times London Page 27 275
International Company News: FT500 Publication 930218FT Processed by FT 930218

The following are amendments to figures in tables published in the FT500 on February 10, 1993:

Top 500 European companies: Allied-Lyons (ranked 46): profit this year Dollars 1,008.1m not Dollars 100.8m; profit percentage change 27.3 per cent not -87.3 per cent; ROCE (return on capital employed) 17.3 per cent not 5.9 per cent; Dresdner Bank (49): profit this year Dollars 867.1m not Dollars 1,295.4; profit percentage change -14.3 per cent not 28.1 per cent; ROCE 12.5 per cent not 18.7. Bankinter (418): ROCE 26.4 per cent not 263.6 per cent.

Top 500 UK companies: Allied-Lyons (24): profit this year Pounds 610.0m not Pounds 61m; profit percentage change 27.3 per cent not -87.3 per cent; ROCE 17.3 per cent not 5.9 per cent. Calor Group (215): turnover this year Pounds 362.2m not Pounds 168.1m: turnover percentage change 10.3 per cent not -48.8 per cent; Hartstone Group (272) profit last year Pounds 7.4m not Pounds 2.3m; profit percentage change 199.6 per cent not 874.1 per cent.

XG Europe GB United Kingdom, EC P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 27 192
International Company News: Increased sales help push EdF to FFr2.5bn Publication 930218FT Processed by FT 930218 By ALICE RAWSTHORN PARIS

ELECTRICITE de France (EdF), the state-controlled utility group, achieved a 32 per cent increase in net profits to FFr2.5bn (Dollars 452.3m) in 1992, from FFr1.9bn in 1991.

Mr Gilles Menage, chairman, said the rise was due to increased sales of electricity (both in France and other countries), to lower primary prices and to debt reduction.

EdF, which has made significant productivity improvements in recent years, promised earlier this month to start cutting its prices in France by 1.25 per cent a year.

Sales rose to FFr177.5bn last year from FFr171.4bn in 1991 while gross operating profits climbed to FFr77. from FFr71.5bn.

In France, which accounts for 86 per cent of turnover, sales grew by 3.6 per cent to FFr159.7bn last year, in spite of despite the unusually mild climate.

International sales rose by 3 per cent to FFr12bn.

Although EdF suffered a reduction in demand in some markets, such as Germany, it managed to compensated through price increases.

The group plans to continue its international expansion outside France but has opted to do so through joint ventures, notably in Spain and eastern Germany rather than by selling electricity directly as it does in its UK operation.

Mr Menage said that EdF, which will have to invest heavily at the start of the next century to renew its nuclear power plants, had held investment expenditure at FFr32.4bn in 1992, compared with FFr32.3bn in 1991.

This helped it to reduce debt to FFr194.8bn last year from FFr214bn in 1991.

Electricite de France FR France, EC P4911 Electric Services COMP Company News FIN Annual report P4911 The Financial Times London Page 27 289
International Company News: Sweden considers government aid for SE Banken Publication 930218FT Processed by FT 930218 By CHRISTOPHER BROWN-HUMES STOCKHOLM

THE SWEDISH government will decide in the next few days whether to support Skandanaviska Enskilda Banken, the country's leading commercial bank, Mr Bo Lundgren, taxation minister, said yesterday, writes Christopher Brown-Humes in Stockholm.

His announcement came after Sweden's Finance Supervisory Authority said SE Banken and Foreningsbanken needed support to meet capital adequacy requirements.

Mr Lundgren said the state had already provided SKr67.5bn (Dollars 9bn) to troubled banks, including just over SKr50bn to Nordbanken, SKr10bn to Gota Bank and SKr7.3bn to Forsta Sparbanken.

Skandanaviska Enskilda Banken SE Sweden, West Europe P602 Commercial Banks GOVT Government News P602 The Financial Times London Page 27 122
International Company News: Third-best results for Desjardins Publication 930218FT Processed by FT 930218 By ROBERT GIBBENS

CANADA'S biggest co-operative financial institution, the Quebec-based Mouvement des Caisses Desjardins, says 1992 proved its third best year despite the recession, higher loan loss provisions and commercial property problems at its affiliated trust company.

Desjardins operates nearly 1,500 retail banking branches in Quebec, Ontario, Manitoba and New Brunswick, life and general insurance units and a wholesale banking operation.

Overall, 1992 profit was CDollars 286m (USDollars 228m), up 18 per cent from 1991. Assets rose 9 per cent to CDollars 56bn, well ahead of its Quebec rival, National Bank of Canada.

The core Quebec retail banking business generated most of the profit, with good gains in personal and mortgage lending and in deposits.

The trust company's loss was CDollars 22.2m, up from CDollars 16.6m in 1991, because of larger provisions to cover third property loans for the second year running. It has dropped its dividend and wants to convert CDollars 25m of debentures into shares.

Desjardins trimmed its workforce by 1,400 to 36,000 last year. It warned of further rationalisation by shutting down a loss-making Montreal branch hit by an eight-month strike in 1992.

Mouvement des Caisses Desjardins CA Canada P602 Commercial Banks P63 Insurance Carriers FIN Annual report P602 P63 The Financial Times London Page 27 222
International Company News: TWA presents plan to emerge from bankruptcy Publication 930218FT Processed by FT 930218 By ALAN FRIEDMAN NEW YORK

TRANS World Airlines (TWA), the bankrupt and debt-laden US carrier, yesterday presented its long-awaited reorganisation plan, in which it informed a Delaware court it hoped to emerge from bankruptcy this spring.

The plan - presented jointly by the airline and the official unsecured creditors' committee - provides for the elimination of about Dollars 4bn in total claims against TWA. It also calls for the distribution of new TWA common and preferred stock to the airline's creditors and employees and the issuance of new debt securities.

Under the plan TWA's creditors would receive cash and new debt and equity securities. TWA employees would end up owning 45 per cent of the common stock of the reorganised airline; the employees have agreed about Dollars 660m of wage and benefit cuts over a three-year period.

The remaining 55 per cent of common stock, as well as 100 per cent of preferred stock and new debt securities, would be distributed to various unsecured creditors.

Mr Glenn Zander and Mr Robin Wilson, TWA's co-chief executives, said the new plan set the stage for the airline to emerge from bankruptcy ahead of the peak summer travel season. They claimed it established the framework of a sound debt and capital structure under which TWA could return to profitability.

Mr Charles MacDonald, chairman of the creditors' committee, called the plan 'a watershed event' and said that while negotiations would continue the filing of the plan meant the major elements had now won general acceptance.

The next step is expected to be a court hearing on TWA's statement, to be held soon. The plan cannot become effective without further bankruptcy court proceedings and acceptance by TWA creditors.

The plan's strategy includes shrinking TWA operations to eliminate unprofitable routes and reconfiguring the aircraft fleet; using a lower cost structure based on renegotiated aircraft leases and cutting wages and benefits by 15 per cent.

Trans World Airlines US United States of America P45 Transportation by Air COMP Company News FIN Company Finance P45 The Financial Times London Page 27 359
International Company News: HK investors buy into Westcoast Petroleum Publication 930218FT Processed by FT 930218 By BERNARD SIMON TORONTO

FIVE wealthy Hong Kong investors are taking a substantial stake in western Canada's oil and gas industry by buying Westcoast Petroleum, a subsidiary of Westcoast Energy of Vancouver.

The Hong Kong consortium will pay CDollars 247.5m (USDollars 196.4m) for Westcoast, which has been seeking extra capital for some time to finance exploration programmes in western Canada, as well as Libya and Indonesia.

The buying group is led by Mr Cheng Yu-Tung, chairman of New World Development, Mr Stanley Ho who heads Shun Tak Holdings, and Mr Lee Shau Kee, chairman of Henderson Land Development.

Canada has been one of the main beneficiaries of the flight of capital from Hong Kong ahead of the colony's 1997 handover to China.

The Westcoast purchasers are following in the footsteps of Mr Li Ka-shing, who controls Husky Oil, one of Canada's biggest independent oil and gas producers.

Husky has incurred sizeable losses in recent years however, and has been a heavy burden on Mr Li's Hong Kong companies.

Mr Stephen Letwin, Westcoast's chief financial officer, noted yesterday that his company was smaller than Husky and more focused on upstream exploration and production. 'We think these investors are going to be more than pleased with what they get,' Mr Letwin said.

Westcoast, which is based in Calgary and classified as a mid-sized producer, suffered a CDollars 5.7m loss in the first nine months of 1992 on operating revenues of CDollars 82m.

The setback was due largely to lower natural gas prices, which have staged a recovery in recent months. Westcoast Energy was due to release its annual financial results late yesterday.

Westcoast Petroleum produced an average of 14,400 barrels of oil and 76m cu ft of gas a day last year.

Westcoast Energy is selling the oil and gas division to concentrate on natural gas distribution following its CDollars 600m purchase last year of Union Energy, an Ontario gas company.

Proceeds from the disposal will be used to reduce borrowings used to finance the Union acquisition. Westcoast is also planning an equity issue.

Westcoast Petroleum Westcoast Energy CA Canada HK Hong Kong, Asia P1311 Crude Petroleum and Natural Gas P2911 Petroleum Refining COMP Company News COMP Shareholding FIN Company Finance P1311 P2911 The Financial Times London Page 27 392
International Company News: Aker foresees job cuts in face of steep North Sea output fall Publication 930218FT Processed by FT 930218 By KAREN FOSSLI OSLO

AKER, the Norwegian cement, oil and gas technology group, is gearing up for a large-scale restructuring of its oil and gas division, because it is faced with a steep fall in North Sea oil and gas activity, expected by 1995.

Mr Tore Bergersen, president of the division, said that to adapt to future market conditions, a significant down-sizing operation might be necessary, with the possibility of up to 3,000 to 4,000 engineering and fabrication jobs being shed within the division, which currently has 11,000 employees.

In 1991 the division achieved turnover of NKr7.9bn (Dollars 1.1bn), but by the first eight months of last year turnover had already reached NKr7.5bn. Aker is due to report 1992 results on March 4.

The group's oil and gas technology division supplies engineering, equipment and fabrication work to the oil and gas industry. It comprises nine sub-divisions and has a current order book valued at NKr26bn.

Norwegian Contractors, a core sub-division, will see turnover of NKr3.3bn in 1993, Mr Bergersen forecast. The figure is slightly lower than what is expected for 1992, but up from NKr2.3bn in 1991.

The division will also have to adapt to more compact development projects, by building much smaller scale oil and gas platforms, so that existing North Sea oil and gas infrastructure can be utilised after production from these massive installations winds down, Mr Bergersen said.

Another way the division will adapt to leaner times is by entering 'partnering' projects, an industry term describing projects which extend over several years to provide oil companies with a wide-range of maintenance, engineering and fabrication projects, mostly for existing platforms.

Mr Bergersen said the division recently entered a partnering relationship with British Petroleum Norway which will endure for an unlimited time or as stipulated by BP.

Another way in which Aker's oil and gas technology division will adapt is by taking on international projects.

The first step was taken two years ago through the acquisition of Gulf Fabricators in Corpus Christi, Texas, and Houston-based Omega Marine.

Aker believes it will benefit greatly in future from earlier relationships established with major international oil companies for which it has already engineered and built numerous platforms in the North Sea. As the majors expand oil and gas production worldwide, they will need the services which Aker can provide, particularly for high-technology deep water oil and gas projects.

Aker also believes Norwegian oil companies Statoil, Saga Petroleum and Norsk Hydro will demand its services as they develop oil and gas reserves which they are hoping to discover in offshore regions such as south-east Asia and West Africa.

Aker NO Norway, West Europe P1541 Industrial Buildings and Warehouses P1542 Nonresidential Construction, NEC P1629 Heavy Construction, NEC P3241 Cement, Hydraulic P3299 Nonmetallic Mineral Products, NEC COMP Company News FIN Company Finance PEOP Labour P1541 P1542 P1629 P3241 P3299 The Financial Times London Page 27 501
International Company News: Aeromexico in share swap deal with its larger rival Publication 930218FT Processed by FT 930218 By DAMIAN FRASER and REUTER MEXICO CITY, CHICAGO

AEROMEXICO and Mexicana, Mexico's two main airlines, have agreed to a share swap deal giving Aeromexico control over its larger rival. The move will allow them to restrict competition on some routes and share reservation systems.

Under the alliance the companies' shareholders will swap shares in each other's businesses. The more efficient Aeromexico will gain the controlling interest in a new holding company which will run both airlines. However, Mexicana and Aeromexico will survive as separate entities, in name at least.

Despite rapid growth in Mexican air travel, both Mexicana and Aeromexico have been losing money. Mexicana, whose principal shareholders include Sir James Goldsmith, incurred net losses of 223,892m pesos in the first nine months of last year. The company owns 11 airbuses, 20 Boeing 727-200, and six DC-10's. The agreement marks a triumph for Aeromexico, which has just bought a controling interest in AeroPeru, and is looking to expand internationally.

THe agreement appears to have received the green light from the Mexican government, and raises questions about official commitment to competition policy. Many sectors of the Mexican economy are dominated by quasi-monopolies, including television, telecommunications, and now airlines.

United Airlines, the US airline controlled by UAL, is offering for sale its 17 flight kitchens located throughout the US and has engaged First Boston to serve as its financial adviser for the transaction, Reuter reports from Chicago.

The flight kitchens employ about 5,000 people, who prepare more than 125,000 meals daily in 14 cities for United and for other airlines on a contract basis.

Aeromexico Mexicana United Airlines MX Mexico P4512 Air Transportation, Scheduled P4581 Airports, Flying Fields, and Services COMP Company News COMP Shareholding COMP Disposals RES Facilities P4512 P4581 The Financial Times London Page 27 313
International Company News: Profits drop for Nykredit Publication 930218FT Processed by FT 930218 By HILARY BARNES COPENHAGEN

NYKREDIT, the large Danish bond-issuing mortgage credit institution with total assets of about DKr351bn (Dollars 55.7bn), reported a fall in pre-tax profits last year to DKr263m from DKr1.10bn in 1991.

Write-offs and provisions for loans increased from DKr1.43bn to DKr1.78bn, while a gain in 1991 of DKr625m on the value of the securities portfolio became a loss in 1992 of DKr308m. Operating profits increased by 23 per cent from DKr1.91bn to DKr2.35bn.

The result was described by the group as acceptable in view on the long economic recession, which is also expected to affect the 1993 results. Equity capital and reserves showed little change at DKr17.93bn, which gave a capital adequacy ratio of 9.3 per cent compared with the 8 per cent legal minimum, said the group.

Nykredit DK Denmark, EC P6719 Holding Companies, NEC P6162 Mortgage Bankers and Correspondents FIN Interim results P6719 P6162 The Financial Times London Page 27 168
International Company News: BF Goodrich to spin off Geon Vinyl arm Publication 930218FT Processed by FT 930218 By LAURIE MORSE and REUTER CHICAGO

BF GOODRICH, the Ohio-based specialty chemical and aerospace products group, yesterday announced that it is going to spin off its Geon Vinyl division.

Goodrich expects to gain as much as Dollars 310m from an initial public offering Geon's stock, as well as Dollars 200m in special distributions before the completion of the offering.

In a filing with the Securities and Exchange Commission, the Geon Company said BF Goodrich intended to offer about 50 per cent of Geon Vinyl stock to the public, if market conditions were favourable. Geon is expected to assume about Dollars 30m of BF Goodrich's existing debt.

Geon Vinyl produces vinyl resins and compounds which are used in a variety of applications, including construction products, business machine components and appliance parts.

The division is based in Independence, Ohio, and operates 14 manufacturing plants in the US, Canada, and Australia. Geon Vinyl has 2,500 employees, while BF Goodrich has about 13,200.

BF Goodrich said Geon Vinyl had revenues of Dollars 950m in 1992, down slightly from Dollars 981m in 1991. Geon Vinyl logged a net loss of about Dollars 3.3m last year, and a loss of Dollars 26.5m in 1991.

BF Goodrich itself had revenues of Dollars 2.5bn in 1992, with net income of Dollars 2.5m and a per share loss of 23 cents.

Mr John Ong, BF Goodrich chairman, said his company intended to use the proceeds of the Geon Vinyl spin-off to expand Goodrich's specialty chemicals and aerospace businesses.

Whirlpool, the leading US producer of home appliances, expects its American sales to increase between 3 per cent and 4 per cent in 1993 from the previous year, Reuter reports.

Mr William Marohn, chief operating officer said that recovery in the US would boost sales in the industry by between 3 and 4 per cent this year.

'Based on what we have seen so far in the first quarter, my sense is that we are still living with that projection,' he said.

Its North American sales were around Dollars 2bn with group sales of Dollars 7.3bn last year.

BF Goodrich Geon Vinyl US United States of America P2821 Plastics Materials and Resins P28 Chemicals and Allied Products P372 Aircraft and Parts COMP Company News COMP Disposals FIN Company Finance P2821 P28 P372 The Financial Times London Page 27 404
International Company News: Norgeskreditt plans move into banking Publication 930218FT Processed by FT 930218 By KAREN FOSSLI OSLO

NORGESKREDITT, the Norwegian private sector mortgage company, yesterday announced plans to become a commercial bank, following recent approval for the move by the finance ministry.

The company said it would seek backing for the proposal at its annual general meeting scheduled for April 1. Norgeskreditt said bank status would give it access to the domestic retail market which would constitute an important supplement to financing from the bond market, and thereby contribute to stability in its funding situation.

'Access to the deposit market, the ability to borrow from the central bank and membership of the banks' traditional safety net are also anticipated to have a positive effect for (the group's) bondholders,' Norgeskreditt said.

Norgeskreditt's assets dipped to NKr19.7bn (Dollars 2.8bn) at the end of December from NKr21.3bn a year earlier. The company strengthened significantly its capital base through a NKr750m share issue in 1992, when it converted to a limited company.

In addition, NKr384m of repayable contributions by foundation members was converted into share capital to boost total capital to NKr1.53bn.

Norgeskreditt's preference shares have been trading on the Olso bourse since last July.

It said approximately 30 per cent of the preference share capital had changed hands since the listing, and that about 11.6 per cent of its total share capital is held by foreign investors.

Separately, the company announced it had returned to the black with net profits of NKr679.7m in 1992 from losses of NKr16.9m in the previous year.

The turnround was helped by extraordinary income of NKr575.5m, gained from a change in rules for loan loss provisions allowing these provisions to be booked on profit and loss accounts. Profits before extraordinary items rose to NKr131.3m from NKr100.5m, helped by a rise to NKr267.6m in net interest income from NKr242.3m and a reduction in securities losses to NKr33.8m from NKr57.9m.

Credit losses, however, rose to NKr66.4m from NKr51.3m in 1991. The company said that last year it repossessed commercial property with a book value of NKr34.3m, and that these assets provide a net yield of 8.9 annually.

Norgeskreditt had a capital adequacy of 14.2 per cent of risk-weighted assets according to Bank for International Settlements rules.

Norgeskreditt NO Norway, West Europe P616 Mortgage Bankers and Brokers P602 Commercial Banks COMP Company News TECH Services FIN Annual report P616 P602 The Financial Times London Page 27 406
International Company News: Campbell Soup in the red after Dollars 300m write-off Publication 930218FT Processed by FT 930218 By ALAN FRIEDMAN NEW YORK

CAMPBELL SOUP, the US foods group, yesterday disclosed a net loss of Dollars 115.9m, or 46 cents per share, in its second quarter ended January 31.

The quarterly deficit was caused by a previously anticipated Dollars 300m write-off taken in connection with an international restructuring and divestiture programme that included plant closures. Campbell achieved Dollars 160.6m net profits, or 64 cents per share, in the same quarter a year ago.

The New Jersey-based company said its sales reached record levels during the quarter, having risen by 2 per cent year-on-year to Dollars 1.79bn.

Sales for the first six months of the fiscal year were 6 per cent improved at Dollars 3.48bn, while net earnings for the six months were Dollars 40.7m, or 16 cents per share, down from Dollars 289.8m, or Dollars 1.15 a share, in the first half of the 1992 fiscal year.

Mr David Johnson, president and chief executive of Campbell, said that before restructuring charges the company's net earnings were actually 18 per cent higher in the first six months.

'In the teeth of a tough competitive environment worldwide, we have delivered strong results for the second quarter,' Mr Johnson said. He noted that Campbell Soup had launched more than 70 new products and said the group's new strategy would further focus on strong brand names.

Campbell's North and South American division, the single largest business, reported a 7 per cent rise in second-quarter operating earnings before restructuring charges. Sales for the division were 4 per cent better at Dollars 1.29bn.

The biscuit and bakery division had a 2 per cent decrease in operating earnings before charges with sales 1 per cent lower at Dollars 214.2m in the quarter.

Operating earnings in the second quarter for Campbell Europe/Asia increased by 10 per cent before restructuring charges. Sales were 1 per cent lower at Dollars 290.2m.

On Wall Street, the Campbell Soup share price was Dollars 1 lower at Dollars 40 1/2 .

Campbell Soup US United States of America P2032 Canned Specialties COMP Company News FIN Interim results P2032 The Financial Times London Page 27 371
International Company News: Flanders offers Fl 55m to Daf Publication 930218FT Processed by FT 930218 By RONALD VAN DE KROL and JOHN GRIFFITHS AMSTERDAM, LONDON

BELGIUM'S Flemish regional government is prepared to provide Fl 55m (Dollars 29.5m) in capital for a new, slimmed-down Daf, the UK-Dutch truckmaker which went into receivership two weeks ago.

Mr Luc van den Brande, head of the Flanders government, disclosed this yesterday after meeting on Tuesday with Daf's receivers and Mr Koos Andriessen, the Dutch economic affairs minister, in The Hague.

Meanwhile, Daf NV's banks, led by ABN Amro, were expected to have more meetings with its receivers today to hear details of a proposed restructuring plan and consider whether to co-operate in any further refinancing. Current short-term financing of Daf runs out on February 26.

The government of Flanders said the majority of its Fl 55m capital injection would involve a direct equity stake in both the Dutch and Belgian arms of the proposed new Daf company. A smaller portion would take probably take the form of a subordinated loan.

It said the Fl 55m figure would represent 12 per cent of a total of Fl 450m in shareholders' equity needed to revive Daf. Its equity stake would give it input into policy at Daf in the Netherlands, while its stake in the Flemish arm would give it a blocking minority in Flanders.

The Dutch government indicated earlier it would be willing to put up around Fl 200m to relaunch Daf.

The Belgian financing is conditional on guarantees that the new-style Daf would employ around 753 people in Flanders, compared with the more than 1,400 people who currently work at the company's cab and axle factory in Westerlo. It also wants job guarantees for 410 Belgians working at Daf's headquarters in Eindhoven.

Production of Leyland DAF vans resumed in Birmingham yesterday after components suppliers, including GKN, resumed deliveries. But lines at the truck plant in Leyland, Lancashire, were quiet, with suppliers reluctant to restore delivery. At Birmingham's Washwood Heath plant ''about a dozen'' suppliers are in negotiation with the receivers.

DAF BE Belgium, EC NL Netherlands, EC GB United Kingdom, EC P3713 Truck and Bus Bodies P3714 Motor Vehicle Parts and Accessories GOVT International affairs RES Capital expenditures COMP Company News P3713 P3714 The Financial Times London Page 26 385
International Company News: Degussa posts 14% rise in first quarter Publication 930218FT Processed by FT 930218 By CHRISTOPHER PARKES

RIGOROUS cost-cutting and heavy demand for dental work ahead of reforms to the German health system helped Degussa, the German metals, chemicals and drugs group, to increase profits by 14 per cent in its first quarter.

Pre-tax earnings jumped to DM49m (Dollars 30m) in the three months to the end of December, compared with the 'weak' DM43m last time, the company said in a letter to shareholders yesterday.

Group sales, up 9 per cent at DM3.3bn, were bolstered by a 37 per cent increase from the pharmaceuticals division, which increased turnover from DM384m to DM527m.

The core metals sector saw sales rise 9 per cent to DM1.66bn, including a 20 per cent increase to DM913m in turnover from precious metals, but 'as in the previous year, there was a substantial loss', the letter said. Precious metals, meanwhile, showed improved earnings.

Sales from the chemicals division stagnated at DM1bn, although earnings improved.

The payroll was cut by 2,000 in the last full financial year and a further 530 jobs went in the quarter under review. As a result, group labour costs rose just 3 per cent in the three months to January.

Degussa DE Germany, EC P28 Chemicals and Allied Products P283 Drugs P33 Primary Metal Industries FIN Interim results P28 P283 P33 The Financial Times London Page 26 237
International Company News: France to provide extra capital to two state-controlled groups Publication 930218FT Processed by FT 930218 By ALICE RAWSTHORN

THE FRENCH government is providing extra capital to two state-controlled companies by offering FFr1.5bn (Dollars 271m) in equity-linked debt to Air France and a short-term FFr2.5bn loan to Groupe Bull, the computer company.

The injections come little more than a month before the parliamentary elections. The ruling socialists are expected to be defeated by the centre-right coalition, which has made privatisation a central theme in its campaign.

Air France is to receive its FFr1.5bn of equity-linked debt from Caisse des Depots et Consignations (CDC), the state-controlled financial institution that already owns 0.5 per cent of the carrier.

CDC is providing a FFr750m subordinated perpetual loan with share warrants attached and FFr750m of bonds repayable in shares.

The loss-making airline needs the money for the purchase of 17 aircraft.

Bull, which is struggling back to profit after three years of losses, is to receive a three-month loan of FFr2.5bn. The government is directly providing 72 per cent with France Telecom, the state-controlled telecommunications company, contributing the rest.

The two companies are receiving state support at a time when the government's relationship with public sector companies is under the spotlight.

Air France Groupe Bull FR France, EC P45 Transportation by Air P357 Computer and Office Equipment COMP Company News RES Capital expenditures GOVT Government News P45 P357 The Financial Times London Page 26 242
International Company News: Degussa up 14% to DM49m on strong demand in first quarter Publication 930218FT Processed by FT 930218 By CHRISTOPHER PARKES

RIGOROUS cost-cutting and heavy demand for dental work ahead of reforms to the German health system helped Degussa, the German metals, chemicals and drugs group, to increase profits by 14 per cent in its first quarter.

Pre-tax earnings jumped to DM49m (Dollars 30m) in the three months to the end of December, compared with the 'weak' DM43m last time, the company said in a letter to shareholders yesterday.

Group sales, up 9 per cent at DM3.3bn, were bolstered by a 37 per cent increase from the fast-growing pharmaceuticals division, which increased turnover from DM384m to DM527m.

Even excluding sales from the newly-consolidated Arzneimittelwerk Dresden and the recently-purchased Sankin Industry, a leading Japanese dental supplier, turnover in this division rose 10 per cent.

The domestic dental business profited from extra demand created by impending health service reforms which will oblige patients to pay more for treatment. However, the reforms will have a negative effect on sales and profits from the pharmaceuticals business, which has grown rapidly to account around a fifth of total group turnover.

The core metals sector saw sales rise 9 per cent to DM1.66bn, including a 20 per cent increase to DM913m in turnover from precious metals, but 'as in the previous year, there was a substantial loss', the letter said. Precious metals, meanwhile, showed improved earnings.

Sales from the chemicals division stagnated at DM1bn, although earnings improved.

The management has split the group into three clear divisions, decentralised decision-making, and thinned down the bureaucracy.

After adjustments for acquisitions, the payroll was cut by 2,000 in the last full financial year and a further 530 jobs went in the quarter under review. As a result, group labour costs rose just 3 per cent in the three months to January.

Degussa DE Germany, EC P28 Chemicals and Allied Products P283 Drugs P33 Primary Metal Industries FIN Interim results P28 P283 P33 The Financial Times London Page 26 341
International Company News: CDC profits fall due to provisions Publication 930218FT Processed by FT 930218 By ALICE RAWSTHORN

CAISSE des Depots et Consignations (CDC), one of France's largest state-controlled financial institutions, saw net profits fall by almost 40 per cent to FFr2.1bn (Dollars 380m) last year from FFr3.5bn in 1991 after making sizeable provisions on its property and equity investments.

Mr Philippe Lagayette, the former deputy director of the Bank of France who last year replaced Mr Robert Lion as CDC's chairman, said he hoped to see a return to profits growth this year.

CDC said it was extending its investments by providing FFr1.5bn in equity-linked debt to Air France, the state-controlled airline. CDC already has a small stake in the carrier through CDC Participations, one of its subsidiaries.

Mr Lagayette said CDC's banking activities and other financial operations had fared well during 1992, with gross profits (before provisions) rising 18 per cent to FFr6.4bn.

However, CDC, like other French financial groups, was affected by the impact of the economic slowdown on its industrial investments and property holdings. It also suffered from the poor performance of its cable television interests, which lost FFr540m during the year.

These problems fuelled a steep increase in overall provisions, which reduced gross profits to FFr3.3bn, against FFr4.85bn in 1991.

Caisse des Depots et Consignations FR France, EC P6011 Federal Reserve Banks FIN Annual report P6011 The Financial Times London Page 26 237
International Company News: Skopbank narrows losses to FM3.61bn Publication 930218FT Processed by FT 930218 By CHRISTOPHER BROWN-HUMES STOCKHOLM

LOSSES at Finland's Skopbank narrowed to FM3.61bn (Dollars 609m) in 1992 from FM4.90bn the previous year, despite higher credit losses and non-performing loans.

The bank, majority owned by the government guarantee fund, said it expected another big loss this year and it warned it would probably need a further FM1.5bn in capital support this year, in addition to the FM5.5bn already received.

Its announcement came as two other Finnish banks, Postipankki and Okobank, saw their 1992 performance deteriorate, although the latter still managed to outperform most in the sector by making a profit. Losses deepened at Postipankki to FM700m from FM135m, while profits shrank at Okobank from FM274.8m to FM83.8m.

All three banks were hit by the deep Finnish recession, high bankruptcy levels and rising unemployment. They also suffered from heavy write-offs on loans to the former Soviet Union.

Skopbank achieved a better result, thanks only to a sharp drop in extraordinary losses, with its 1992 operating loss at FM3.46bn, actually 14 per cent higher than in 1991.

Credit losses rose 10 per cent to FM2.78bn from FM2.55bn, with 58.5 per cent of the write-offs stemming from operations in Finland. Income from financial operations amounted to just FM219m, reflecting the burden of non-performing loans which at the year-end totalled FM5bn.

Mr Kaarlo Jannari, Skopbank's chief general manager, said its restructuring programme, which cut operating expenses by 24 per cent to FM1.1bn, could not make up for the impact of the high level of write-offs and erosion of net interest income. At December 31 1992, the bank's capital adequacy ratio stood at 8.2 per cent, just above the international minimum of 8 per cent.

Skopbank FI Finland, West Europe P602 Commercial Banks FIN Annual report P602 The Financial Times London Page 26 309
International Company News: Audi presses ahead with new models Publication 930218FT Processed by FT 930218 By CHRISTOPHER PARKES FRANKFURT

AUDI, the luxury car division of Volkswagen, is pressing ahead with its ambitious development plans in spite a sharp reversal of fortunes this year.

According to Mr Franz-Josef Kortum, 42, the company's new chairman, production will fall in 1993 by between 10 and 15 per cent because of falling domestic demand and the effects of the rise of the D-Mark on sales in important export markets such as Italy.

The slump follows the sudden end of the boom last year, when Audi made 492,000 cars - 9.3 per cent more than in 1991 - and 'a good, positive operating profit,' Mr Kortum said yesterday. Full details would be announced in April, he added, although he admitted profits-to-sales ratios had suffered.

Even so, projects for new models to extend the brand's appeal at both the top and lower ends of the market remain on schedule. A flagship V8-powered car with aluminium bodywork will be launched next spring, to be followed later in the decade by a new version of the old Audi 50 at the bottom of the range.

The next key decision, which will be made this year, is whether to start manufacturing in the US. Possible sites are believed to have been narrowed down to two in Indiana and Kentucky. However, it is still possible that the hard-pressed parent company may choose the cheaper alternative of extending its existing VW works in Mexico.

Mr Kortum - the successor to Mr Ferdinand Piech, who last month took charge at the parent group - is keen to rebuild Audi's reputation and position in the US market after years of decline. He can probably count on support from Mr Piech, who has publicly acknowledged that the dangers of failure in the US market include loss of ground elsewhere.

In Mr Kortum's view, a north American plant is important to guarantee a place in the North American Free Trade Area (Nafta) and to ensure competitiveness with other Nafta-based manufacturers, be they Japanese or US-owned.

Audi sales in the US have started to recover after falling from 75,000 in 1985 to around 12,000 in 1991. Following last year's increase to 14,800, the more recent past had seen a renewed 'decisive upwards trend' of 30 per cent monthly growth, Mr Kortum said.

Sales promotions, including discounts and special service deals have also helped, but Audi models have been made more expensive by the recent depreciation of the dollar against the D-Mark.

Audi DE Germany, EC P3711 Motor Vehicles and Car Bodies COMP Company News TECH Products P3711 The Financial Times London Page 26 447
International Company News: WestLB takes stake in Kiel bank Publication 930218FT Processed by FT 930218 By DAVID WALLER FRANKFURT

WESTDEUTSCHE Landesbank, the state bank for North-Rhein-Westphalia, with the Sudwestdeutsche Landesbank, its Baden-Wurtemmberg associate, will take a 49.9 per cent stake in the Landesbank Schleswig-Holstein in Kiel, it was announced yesterday.

The move is the latest in a protracted bout of rationalisation within the German public banking sector which has been lent added complexity by a scramble to take over the state banking functions for the new Lander, or states, in the eastern part of Germany.

No price was given for the deal, which has been expected in one form or another for some months. The shape of the final agreement was surprising, however, in that it excluded any participation from the Norddeutsche Landesbank, the Hanover-based state bank which was to have joined forces with the WestLB to buy a minority stake in the Schleswig-Holstein bank.

Mr Bjorn Engholm, prime minister of Schleswig-Holstein, said yesterday he regretted that Norddeutsche's participation remained 'out of reach' despite intensive negotiations which concluded on Sunday. Negotiations had failed because it had proved impossible to arrange an equitable distribution of the holding. Under the final agreement, SudwestLB is to take a 9.9 per cent stake and WestLB a 40 per cent holding in the Kiel-based bank.

Sudwestdeutsche Landesbank Landesbank Schleswig Holstein Westdeutsche Landesbank Girozentrale DE Germany, EC P602 Commercial Banks COMP Shareholding P602 The Financial Times London Page 26 243
International Company News: 'Mediocre' Pechiney sees earnings slide to FFr200m Publication 930218FT Processed by FT 930218 By ALICE RAWSTHORN PARIS

PECHINEY, the state-controlled French aluminium group that this week emerged as a potential investor in CarnaudMetalBox, the packaging company, saw net profits fall to around FFr200m (Dollars 36.2m) last year from FFr820m in 1991.

Mr Jean Gandois, chairman, who earlier this week said Pechiney might be interested in buying the 25.3 per cent stake in CarnaudMetalBox owned by MB-Caradon, the UK building products group, described his group's performance as 'mediocre' in an interview with Les Echos, the French financial newspaper.

However, he said that Pechiney International, the packaging company in which Pechiney has a 67 per cent stake, achieved healthy net profits growth from FFr842m in 1991 to around FFr2bn in 1992 due to net exceptional gains of FFr1bn.

News of the forecast fall in Pechiney's profits comes at a time when it, like other French state-controlled companies, is positioning itself as a candidate for privatisation after next month's parliamentary elections.

France's conservative coalition, now with a clear lead over the socialists in the opinion polls, last week announced sweeping privatisation plans.

Mr Gandois said that Pechiney 'should be privatised', but not until its performance had improved and 'the price of aluminium is a bit higher'.

Pechiney saw sales fall to FFr35.38bn in 1992 from FFr37.37bn for 1991 (this figure has been restated to allow for the sale of the group's nuclear interests in July).

It broke even at the operating level in both the first and second half of 1992 and made restructuring provisions of FFr782m.

Pechiney International was forced to set aside FFr600m in restructuring provisions, but still managed to achieve overall exceptional gains of FFr1bn because of the proceeds from asset sales.

Mr Gandois said that Pechiney might consider increasing Pechiney International's capital to expand the business.

He added that the parent company would be willing to reduce its holding, but only to 50.5 per cent as it intended to retain control.

Pechiney FR France, EC P33 Primary Metal Industries FIN Annual report P33 The Financial Times London Page 26 353
UK Company News: Wimpey to reorganiseland bank structure Publication 930218FT Processed by FT 930218 By ANDREW TAYLOR, Construction Correspondent

GEORGE WIMPEY is to reorganise the way in which it buys building plots in an attempt to avoid the mistakes of the late 1980s when housebuilders were left with large amounts of overpriced land.

The group, Britain's second largest housebuilder, announced yesterday that it was to establish a new subsidiary which would be responsible for making long term land acquisitions.

The company will take over Wimpey's existing long term land portfolio of more than 2,000 acres and sell the sites on to the group's 10 regional housebuilding subsidiaries as required.

It will also be expected to generate profits from selling sites to other housebuilders and earn fees from managing greenfield sites by taking land owned by outsiders through the planning process to the point of development.

Mr Joe Dwyer, Wimpey's chief executive, said the group's housing division would be expected to monitor its success by measuring return on capital.

Traditionally, UK housebuilders have evaluated their performance simply by taking the cost of land and building and deducting this from the sale price of a home to arrive at a gross margin. Little heed was paid to the cost of holding land.

This approach worked while high inflation ensured that house and land prices enjoyed unbroken increases throughout the 1970s and for most of the 1980s. As a result shares of housebuilders with large tracts of land, acquired many years earlier at low prices, were often more highly valued than those working on short duration land banks.

Housebuilders, however, were caught badly at the end of the 1980s when house and land prices fell steeply, forcing Wimpey and others to make substantial provisions against land bought at the top of the market.

Wimpey's housebuilding subsidiaries will, in future, be expected to base land purchases on foreseeable production and house prices. The new subsidiary, which Mr Dwyer says will work under tight financial disciplines, will provide a reservoir of longer term land for the group, which expects to build more than 6,000 homes in the UK this year.

The plan is the work of Mr Richard Andrew, a former executive director of Scandinavian Bank in the UK, who last year was appointed chairman and chief executive of Wimpey's housebuilding division.

Mr Dwyer said yesterday that it was an unusual appointment but that it was felt that a banker would bring the appropriate financial experience to an area where asset management, increasingly, was the key to profitability.

George Wimpey GB United Kingdom, EC P1522 Residential Construction, NEC P16 Heavy Construction, Ex Building P17 Special Trade Contractors COMP Company News RES Facilities P1522 P16 P17 The Financial Times London Page 25 456
UK Company News: Vardon beats forecast and buys seal sanctuary for Pounds 2m Publication 930218FT Processed by FT 930218 By PAUL TAYLOR

VARDON, THE leisure attractions group which runs the London Dungeon, the York Dungeon and the Sea Life Centres, is acquiring Seal Sanctuary in Cornwall for Pounds 1.8m in cash and paper.

Separately the group, which obtained its Stock Exchange listing in October, reported full year pre-tax profits ahead of flotation forecasts.

The seal sanctuary at Gweek, on the banks of the Helford river, was set up in 1973 and is a profitable visitor attraction based on the rescue, care and release of injured seals.

It attracts more than 200,000 visitors a year and, after charging interest and non-recurring items of Pounds 251,000, reported pre-tax profits of Pounds 124,000 in the year to end February 1992.

Together with two new Sea Life centres being built in Southend-on-Sea, Essex, and Scheveningen in the Netherlands, which are due to open later this year, the acquisition of the Gweek sanctuary will increase Vardon's operating attractions from 11 to 14.

Vardon's pre-tax profits in the year to December 31 reached Pounds 2.43m, compared with a flotation forecast of Pounds 2.29m, and Pounds 797,000 in the previous year.

Turnover increased by 28 per cent to Pounds 9.73m (Pounds 7.62m). The acquisition of Sea Life has been accounted for as a merger, while the results of the Dungeons are included from their acquisition at the end of March last year.

Vardon acquired the Dungeons for Pounds 5.6m from Kunick after Mr David Hudd, chairman, and Mr Nickolas Irens, chief executive and former finance director of First Leisure, joined the board of Winchmore, restructured the company and changed its name.

The latest results include Pounds 171,000 (Pounds 24,000) of investment income and a Pounds 273,000 extraordinary charge related to the cost and losses of the sale of Headley Agencies.

Earnings per share of 4.2p were 5 per cent ahead of forecast and the company is paying a final dividend of 0.5p, making a taotal of 0.75p for the year.

Mr Hudd said the results were 'very pleasing' given the state of the economy.

Visitor attendances during the year totalled 2.9m, a 6 per cent increase on a like-for-like basis.

Vardon GB United Kingdom, EC P7996 Amusement Parks COMP Company News COMP Acquisition FIN Interim results P7996 The Financial Times London Page 25 396
UK Company News: North American Gas assets up 37% Publication 930218FT Processed by FT 930218

North American Gas Investment Trust reported a net asset value of 80.5p as at January 31 - a rise of 37 per cent on the comparable 58.6p.

Net revenue for the six months to end-January improved from Pounds 330,000 to Pounds 365,000, equivalent to earnings of 1.04p (0.94p) per share.

Nevertheless, and as foreshadowed in the trust's annual report, the interim dividend is omitted (1.125p). Directors have stated that 'emphasis this year must be on capital growth'.

North American Gas Investment Trust GB United Kingdom, EC P672 Investment Offices FIN Interim results P672 The Financial Times London Page 25 114
UK Company News: Reduced deficit at Aminex Publication 930218FT Processed by FT 930218

Aminex, the Irish oil exploration and production company, reduced its loss after exceptional items from IPounds 4.28m to IPounds 66,307 (Pounds 68,690) for the year ended December 31 1992.

Revenue fell from IPounds 781,031 to IPounds 286,415. Losses per share tumbled from 63p to 0.01p.

The results were brought forward to include the latest information on the company's bid for Tuskar Resources.

Aminex IE Ireland, EC P1382 Oil and Gas Exploration Services FIN Annual report P1382 The Financial Times London Page 25 95
UK Company News: Fleming Emerging may increase size Publication 930218FT Processed by FT 930218

The Fleming Emerging Markets Investment Trust is considering, with its advisers, a placing and offer of additional shares to increase its size.

Any raising of additional capital will be structured so as to ensure there is no dilution of the net asset value of the existing shares.

Fleming Emerging Markets Investment Trust GB United Kingdom, EC P672 Investment Offices COMP Company News P672 The Financial Times London Page 25 83
UK Company News: Low & Bonar sells African interests Publication 930218FT Processed by FT 930218

Low & Bonar, the packaging and materials group, has concluded the sale of its remaining African businesses in South Africa, Zimbabwe and Zambia.

The sale proceeds amounted to Pounds 1.5m, of which Pounds 1.1m was paid on completion with the balance payable over the next three years.

The disposal will result in a Pounds 1.2m write-down which will be fully provided for as an exceptional item in the results for the year to November 30 1992.

Low and Bonar GB United Kingdom, EC ZA South Africa, Africa P6719 Holding Companies, NEC P30 Rubber and Miscellaneous Plastics Products P2449 Wood Containers, NEC P265 Paperboard Containers and Boxes COMP Company News COMP Disposals P6719 P30 P2449 P265 The Financial Times London Page 25 136
UK Company News: Baring Tribune net assets rise Publication 930218FT Processed by FT 930218

Net asset value per share of Baring Tribune Investment Trust stood at 318.7p at December 31, an improvement of 44.8p over the figure 12 months earlier.

Available revenue totalled Pounds 3.21m (Pounds 3.23m), equal to earnings of 6.27p (6.29p) per share.

A final dividend of 4.75p makes a 6.45p (6.2p) total.

Baring Tribune Investment Trust GB United Kingdom, EC P672 Investment Offices FIN Annual report P672 The Financial Times London Page 25 86
UK Company News: New Zealand Trust net assets jump Publication 930218FT Processed by FT 930218

The New Zealand Investment Trust, managed by Colonial Mutual Life Assurance, saw net assets per share leap to 149.7p at January 31.

The figure represented a substantial increase on the net asset value of 89.3p 12 months earlier. The value at the trust's year-end in October was 130.73p per share.

Net revenue for the three months to end-January amounted to Pounds 69,424, up from Pounds 62,141 at the same stage last time. Earnings per share emerged at 0.69p (0.62p); an unchanged first interim dividend of 0.5p is declared.

New Zealand Investment Trust GB United Kingdom, EC P672 Investment Offices FIN Annual report P672 The Financial Times London Page 25 124
UK Company News: Booker makes Pounds 4m health food disposal Publication 930218FT Processed by FT 930218

Booker, the food group, has sold Brewhurst Health Food Supplies to a subsidiary of Distriborg, a health food wholesaler based in Lyon, for about Pounds 4.1m.

In 1991 Brewhurst made pre-tax profits of Pounds 600,000 on turnover of Pounds 26.9m. Net assets at December 31 were Pounds 2.9m, excluding intra-group liabilities.

The sale completes Brooker's withdrawal from health foods.

The group also announced that the functions of Booker Cash and Carry and Booker Wholesale Foods were to be brought together under a single board.

Booker Brewhurst Health Supplies Distriborg FR France, EC GB United Kingdom, EC P5149 Groceries and Related Products, NEC COMP Disposals FIN Annual report P5149 The Financial Times London Page 25 130
UK Company News: Dispute over Etonbrook stake Publication 930218FT Processed by FT 930218

Etonbrook Properties, the development and dealing group, said yesterday that there had been a dispute as to the beneficial entitlement to 373,000 shares, some 9.74 per cent of its ordinary equity, currently registered in the name of Palmerston Investment Trust.

Etonbrook had received a notice from Mr Andrew Perloff, which seeks to prevent the registration of the transfer of these shares to any other parties.

The company understood that the reason for the notice was that a group of existing shareholders, including Mr Keith Moss, managing director, believed that they were entitled to these shares.

Etonbrook Properties Palmerston Investment Trust GB United Kingdom, EC P65 Real Estate COMP Company News FIN Share issues P65 The Financial Times London Page 25 133
UK Company News: Throgmorton Trust net assets decline Publication 930218FT Processed by FT 930218

The fully diluted net asset value per share of Throgmorton Trust was 57.8p at November 30 1992, against 70.2p a year earlier.

Net revenue for the 12 months fell from Pounds 7.44m to Pounds 6.68m for earnings per share of 2.35p (2.63p). The recommended final dividend of 1.4p maintains the total for the year at 2.3p.

Lord Stewartby, chairman, said that although there had been a significant improvement in the past two months - net assets per share had risen to 71.4p by January 31 - the figures for the past year related to a period of almost unprecedented turbulence and difficulty for the financial markets.

During the summer there had been a serious loss of confidence, with a consequent weakening of UK investment values, the chairman said.

However, since September, the combination of lower interest rates and more competitive exchange rates had improved the outlook for the economy.

There were now clear signs of positive interest in smaller companies, and the reduction in the value of the trust's portfolio last year had, by the end of January, been more than recovered.

Throgmorton Trust GB United Kingdom, EC P672 Investment Offices FIN Annual report P672 The Financial Times London Page 25 215
UK Company News: URS Intl shares suspended at 1/2 p Publication 930218FT Processed by FT 930218

URS International, the US professional services group which is quoted on the Unlisted Securities Market, yesterday called a halt to dealings in its shares at 1/2 p.

The company said that this decision was taken pending an announcement of an acquisition and fund raising.

A further statement, including the preliminary announcement of the company's results for the year 1992, will be made in due course.

URS International GB United Kingdom, EC US United States of America P874 Management and Public Relations COMP Company News FIN Company Finance P874 The Financial Times London Page 25 110
UK Company News: Hammerson property disposal Publication 930218FT Processed by FT 930218

HAMMERSON Property Investment & Development has sold Lonsdale Chambers, Chancery Lane, London, to overseas investors for Pounds 21m.

The property was refurbished in 1984 and provides about 60,000 sq ft of office accommodation and 10,000 sq ft of retail space. Top rents in the building, which is let to 15 tenants, are Pounds 40 per sq ft.

Hammerson Property Investment and Development Corp GB United Kingdom, EC P6531 Real Estate Agents and Managers COMP Disposals RES Facilities P6531 The Financial Times London Page 25 96
UK Company News: Rapid development for a bright idea - Andrew Bolger looks at Menvier-Swain's growth Publication 930218FT Processed by FT 930218 By ANDREW BOLGER

SAFETY LIGHTS are poised to go on all over Europe, thanks to rapid expansion by Menvier-Swain Group, a USM-quoted company based in Banbury, north Oxfordshire.

Menvier, which also makes fire and security alarms, is the leading UK supplier of emergency lighting for commercial and industrial premises, with 30 per cent of the British market. Its latest French acquisition, Nugelec, was funded this month by a Pounds 9m rights issue, and expands the group's European network, which stretches from Denmark to Portugal.

Since being floated in 1986, Menvier's market capitalisation has grown from Pounds 13.3m to Pounds 82.8m. Pre-tax profits were Pounds 1.64m on sales of Pounds 12m post-flotation, and analysts now expect the group to make pre-tax profits of about Pounds 7.3m on sales of Pounds 51m in the current year to April.

The success represents the fulfilment of a youthful dream by Mr Roger Fletcher, 44, the group's chief executive. While studying electronics at Southampton University in the late 1960s he became friends with an electrical engineering student, Mr Christopher Swain, whose father Charles had built up an electrical contracting business in Banbury.

Mr Fletcher said: 'Like all students, Christopher and I used to sit up late at night drinking coffee and making plans. I always wanted to branch out on my own.'

Instead, Mr Fletcher joined Marconi and worked for five years on defence-related electronics. His opportunity came in 1975, when the Swains approached him and said they could not obtain a decent emergency light.

The Swains invested Pounds 2,000 and Mr Fletcher started working, assisted by two women, in the attic of one of the stores. Together they developed a converter enabling a florescent light to switch to battery back-up after an electricity failure - a product which gave the group eventual leadership of the UK market.

In 1988, Menvier bought Blessing Electronics, a Netherlands emergency lighting group, and has since made acquisitions in France, Portugal, Denmark, Greece and Italy. Most of the deals have been relatively small, although the group's first French acquisition, Luminox, was funded by a Pounds 6.6m rights issue in 1989.

Menvier turned to Europe, both because it saw limited scope to increase market share in the UK, and because the unified European market seemed to offer exceptional opportunities. EC directives require all new buildings to be fitted with adequate emergency lighting from this year, and all existing buildings in northern Europe will need to be upgraded before the end of 1995, with Greece and Portugal being allowed a further two years to upgrade.

Not all Menvier's overseas ventures have been successful. In 1987 it bought a Boston-based emergency lighting company, but sold it in 1991, having lost about Pounds 700,000 in what Mr Fletcher now characterises as a useful - if expensive - learning process.

'We thought we knew better than all the other British companies who have had their fingers burnt in the States. Over there, all people seemed to be interested in was the price of our product, whereas in Europe people are more interested in whether it will do the job.'

The Boston company was a loss-maker, and Menvier has since then avoided turnrounds. Instead, it has concentrated on buying profitable European companies with good market positions, offering the vendors earn-out agreements and shares in the UK group.

Mr Fletcher said Menvier tried to impose very light controls on its subsidiaries at the operating level, although all must file weekly reports of sales, cash and stocks. Each country's regulations differ, requiring particular product adaptions, and Menvier allows individual subsidiaries to keep their own names and choose whether to identify with the group.

Although the bulk of Menvier's business still comes from emergency lighting, the group is expanding its fire alarm activity and has identified security alarms as the 'third layer' which it has started to move into.

Menvier's share price has tripled since early 1991, as institutions have supported the group's overseas strategy and welcomed the increasing liquidity of the stock. Mr Christopher Swain, who emigrated to Australia two years ago, sold his near-20 per cent stake.

His father, who last year stepped down from being executive chairman to become life president, placed a 16.7 per cent stake this month, but still holds 3 per cent.

Analysts like the company, which now employs about 1,000 people, but are concerned that the spread ot its activities might stretch management resources. Menvier has recognised the concern, and said the group would concentrate for the next year on consolidation, rather than further acquisitions.

Mr Fletcher, who has been national champion of the UK's most powerful class of powerboats for three of the last four years, believes that Menvier can continue to make headway against the tides of recession. More than half the group's business comes from continental Europe, and he is even growing more optimistic about the UK: 'We are at last seeing clear signs of recovery.'

Menvier Swain Group GB United Kingdom, EC P6719 Holding Companies, NEC P3643 Current-Carry Wiring Devices P3679 Electronic Components, NEC COMP Company profile FIN Company Finance P6719 P3643 P3679 The Financial Times London Page 25 874
UK Company News: Control Securities talks continue Publication 930218FT Processed by FT 930218 By MAGGIE URRY

CONTROL Securities, the property, brewing and hotels group which is currently negotiating a refinancing deal with its banks, will today announce interim results up to the end of last September.

It will also call an extraordinary meeting of shareholders to ask authority for the board to continue negotiations with banks and credit-ors.

The group had hoped to be able to agree terms of the refinancing by the end of this month and put them to shareholders.

However, negotiations appear to be taking longer than expected, although people involv-ed stressed this was not necessarily a bad sign.

The shares have been suspended since October 1991, when the group's offices were raided by the Serious Fraud Office in connection with the investigation into the Bank of Credit and Commerce International.

Control was not under investigation, but Mr Nazmu Virani, its former chairman and chief executive, was arrested in March last year in connection with BCCI.

Control also said yesterday that the liquidators of BCCI now controlled, and would be able to vote, 14.9 per cent of Control shares.

BCCI had had a 5.2 per cent stake in Control and other holdings totalling 9.7 per cent had been pledged to the bank. Some of these other shares are understood to have been owned by the Virani family.

Control Securities GB United Kingdom, EC P65 Real Estate P2082 Malt Beverages P7011 Hotels and Motels COMP Company News P65 P2082 P7011 The Financial Times London Page 24 258
UK Company News: Boots sets date for US launch of heart drug Publication 930218FT Processed by FT 930218 By MAGGIE URRY

BOOTS, the retail and pharmaceutical group, said yesterday that it would launch Manoplax, its new drug for congestive heart failure, in the US on March 29.

The company's shares rose 6p to 491p.

The drug, which is expected to be a significant profit earner for Boots' pharmaceutical business through the 1990s, won approval from the US Food and Drug Administration on December 31.

It was launched in the UK last September, after gaining a product licence in August. In November Boots said that marketing costs relating to Manoplax had reached Pounds 8m in the first half of the financial year to September 30, and would continue at or above that level in the second half.

Boots agreed a co-marketing deal with Parke-Davis, part of Warner-Lambert, the US drug company, in July 1991 which will cover Manoplax in the US. About 3m Americans suffer from congestive heart failure and 400,000 new cases are diagnosed each year.

Under the FDA approval, Manoplax is indicated in patients not responding to or unable to tolerate other treatments. It is hoped that later Manoplax will be used more widely.

The drug is manufactured in the UK but packaged in the US. Boots is already building up supplies to the US market. It has a fairly limited use at present

The price of the drug in the US will be in line with the UK price, at Dollars 60 (Pounds 42) for 30 50mg or 75mg tablets and Dollars 120 for 60 100mg tablets.

Boots US United States of America P2834 Pharmaceutical Preparations COMP Company News TECH Products P2834 The Financial Times London Page 24 290
UK Company News: Shoprite placing result Publication 930218FT Processed by FT 930218

Shoprite Group announced that of 1.56m new shares offered through placing and open offer, 949,646 were placed firm with institutional investors. Of the balance of 613,966 shares, shareholders applied for 535,325 shares. The remainder have been taken up by institutional clients of Credit Lyonnais Lang.

Shoprite Group GB United Kingdom, EC P6111 Federal and Federally-Sponsored Credit Agencies FIN Share issues P6111 The Financial Times London Page 24 79
UK Company News: Out of favour with US institutions - Peter John looks at the depressed state of the share prices of UK drug makers Publication 930218FT Processed by FT 930218 By PETER JOHN

UK pharmaceuticals stocks are more than out of favour with the big US institutions.

From late last year, when the US began to scent economic recovery and jitters developed over President Clinton's administration plans for health reform, the whole sector has been shunned.

With the added pressure on sterling-based stocks of a 30-cent fall in the pound against the dollar since last autumn, UK stocks have become increasingly less popular.

The three UK drug companies with significant exposure to the US - Glaxo, Wellcome and SmithKline Beecham - have regularly seen their share prices pick up in the morning in London only to fall back when trading begins on Wall Street.

Since the close of trading on November 3, the date of the US presidential election, Glaxo's share price has dropped more than 170p to 662p, Wellcome has fallen almost 100p to 898p and SmithKline A shares have fallen by the same amount to 439p.

In contrast, the FT-SE 100 has risen more than 100 points.

Although currency shifts cloud the issue the falls in the UK drug stocks have been broadly in line with those of their US counterparts.

Over the past three months Glaxo has dropped 26.6 per cent against the S&P Composite index, SmithKline 23.8 per cent and Wellcome 15.4 per cent. Meanwhile, Merck has lost 19.3 per cent, Pfizer 23.8 per cent and Lilly 17.8 per cent.

Of the three UK groups, Wellcome generates the highest amount of business in North America but has the lowest exposure to the US stock market. Some 43 per cent of turnover and 49 per cent of profits come from the region although only 6.05 per cent of the company's shares, about 52m, were held in the form of American Depositary Receipts at the last official announcement in December.

Subsequently, the stake has fallen by about 2m shares but the company argues that it is not exposed to the threats faced by the industry, particularly the call for price cuts. 'Historically we haven't particularly been reliant on price increases but volume growth,' says Wellcome's Mr Mike Wort.

SmithKline has the biggest exposure to the US in share terms, about 27 per cent, and believes that the ADR holding has fallen by about 0.5 per cent, or some 56m shares, over the past three months. The company generates about 40 per cent of sales in the US and is heavily exposed to the managed health care sector which is one of the principal targets for the Clinton reform.

It is also the only one among the three companies to manufacture in Puerto Rico. There is a belief that President Clinton will cut back existing tax breaks for companies operating there. Finally SmithKline's main drug, Tagamet, comes off patent next year.

The greatest sufferer in share price terms has been Glaxo. The company generates about 38 per cent of sales in the US where, at the last official count in November, 23.8 per cent of its shares were held as ADRs in New York.

The company was hesitant of commenting on the falls ahead of today's announcement of full year profits and is avoiding the temptation to jump the gun on the Clinton price reforms.

Nevertheless, the political changes in the US only add to worries in some quarters that Glaxo is too much of a one-drug company and until some new products are flushed through the research and development pipeline the shares could remain under presure.

However, Mr Jonathan Gelles, of Wertheim Schroder in New York, argues that concerns over Zantac and, indeed, over the group as a whole, are overdone. 'We believe that, at these levels, the sector is basing out very firmly indeed and investors should be taking major positions. The wise man should be buying Glaxo and Wellcome,' he said.

An interesting point is that the ADR listings of the three companies do not appear to have changed as greatly as the widespread US selling would indicate.

One reason for this is the trickle-down effect of small retail investors picking up stock offloaded by the big institutions.

Also, in the UK where the attitude to the sector is more positive, some institutions have been buying via the ADRs.

Wellcome SmithKline Beecham Glaxo Holdings GB United Kingdom, EC US United States of America P283 Drugs IND Industry profile P283 The Financial Times London Page 24 760
UK Company News: Owners Abroad renews its attack on Airtours' bid Publication 930218FT Processed by FT 930218 By RICHARD GOURLAY

OWNERS ABROAD yesterday launched its most robust defence against the hostile Pounds 215m bid from rival Airtours, claiming the smaller group was exaggerating the quality of its management.

Owners Abroad said that not only did the Airtours shares included in the offer undervalue the group, they would also leave Owners Abroad shareholders with an interest in a group that was facing fundamental problems with its own business.

The latest defence, delivered in a letter to shareholders, comes days before the Office of Fair Trading is to recommend to the trade and industry secretary whether the Airtours bid should be referred to the Monopolies and Mergers Commission.

Owners focuses particularly on Airtours' relatively new Airtours International aircraft operation. It accuses Airtours of choosing a September end for its financial year in order to inflate profits.

It asked whether Airtours chose its year end just before 'empty legs' are flown - the flights at the end of the holiday season when aircraft pick up passengers from resorts but carry none out. In this way Airtours was able to take the profit from the holidays sold but defer the cost of the empty legs as long as it was adding passengers year on year.

Owners Abroad also said that part of the huge increase in Airtours' profits resulted from additions to the aircraft fleet.

As long as Airtours was adding aircraft to its fleet just before the summer - as it has been doing - it would each year take the benefit of a greater number of profitable summer aircraft than loss-making winter aircraft.

Owners asked what would happen once Airtours' fleet size had stabilised. The document asked whether Airtours was trying to buy its way out of trouble. It questioned whether recent Airtours' approaches to other tour operators such as Cosmos, Aspro, Iberotravel, and Unijet, represented a clearly defined strategy for growth 'or just a desperate need to buy almost anything with a meaningful market share in an attempt to bolster volume'.

Owners Abroad also released its annual report and accounts, which revealed that net asset value had risen only Pounds 700,000 in the year to October, in spite of pre-tax profits of Pounds 25.5m.

The difference was the result of a more conservative treatment of goodwill in connection with the 1991 acquisition of Olympic Holidays.

The accounts also revealed that the highest paid Owners Abroad executive earned Pounds 418,000 and the chairman earned Pounds 364,000 during the year, some of it in respect of the two previous financial years.

Owners Abroad Group GB United Kingdom, EC P4724 Travel Agencies P4725 Tour Operators COMP Company News P4724 P4725 The Financial Times London Page 24 462
UK Company News: GPG buys Brown Shipley stake Publication 930218FT Processed by FT 930218 By JANE FULLER

THE SMOOTH passage of Brown Shipley Holdings, the investment and broking business, into the arms of its largest shareholder was called into question yesterday when it was disclosed that Guinness Peat Group had bought shares at above the offer price.

GPG, the UK investment vehicle for Sir Ron Brierley, the New Zealand entrepreneur, has bought a 7.5 per cent stake in BSH. The last purchase of shares was at 33p, which is 3p above Kredietbank Luxembourgeoise's offer. KBL already owns 29.8 per cent of the equity.

The move by GPG was welcomed by one shareholder who said it was proving difficult to decide whether KBL's offer was adequate.

BSH's share price gained 2p to close at 35p.

GPG would only say it had taken the stake for investment purposes. In last November's document accompanying the lifting of a near-two-year suspension of its shares, it said it planned to identify opportunities for acquisition and investment particularly in the UK 'to achieve a more even balance between the level of investment in Europe and Australasia.'

Two weeks ago BSH's board reluctantly recommended KBL's offer, which values the group at Pounds 4.8m against net assets of Pounds 8.1m.

The sale appeared a forced one because KBL was about to pass on claims of up to Pounds 2.4m arising from its purchase of Brown Shipley & Co, the merchant bank, last year.

When news of the claims and KBL's potential offer broke, BSH's share price fell from 51p to 35p.

Brown Shipley Holdings Guinness Peat Group GB United Kingdom, EC P6211 Security Brokers and Dealers P672 Investment Offices COMP Shareholding P6211 P672 The Financial Times London Page 24 291
UK Company News: Mersey Docks 24% higher at Pounds 16.4m Publication 930218FT Processed by FT 930218 By IAN HAMILTON FAZEY, Northern Correspondent

MERSEY DOCKS and Harbour reported a third successive record year for 1992, with pre-tax profits up 24 per cent from Pounds 13.2m to Pounds 16.4m.

Turnover showed a similar increase to Pounds 86.4m, against Pounds 69.5m.

Tonnage through the port was up 12 per cent at 27.8m tonnes (24.74m tonnes), partly a result of the company taking over Coastal, an Irish Sea container line, in 1991.

Improved margins reflected tight cost control, plus benefits from joint ventures or subsidiaries in shipping services, stevedoring, security, management consultancy and warehousing.

Earnings per share were 18.01p (16.98p). A proposed final dividend of 5p brings the total to 7.5p (6p).

Although 1992 was the first year in which the company faced a full tax charge, Mr Bill Slater, chairman, said earnings compared well with the last tax-free year of 1990, when the figure was 17.92p.

There was no contribution from property development, although sales of land and shares in subsidiaries amounted to Pounds 1.59m. This was offset by severance costs and exceptional maintenance on the Port of Liverpool Building totalling Pounds 1.58m.

The results, together with the return to a full tax charge, marked the end of 22 years of reconstruction following the government's rescue of the old Mersey Docks and Harbour Board which came close to defaulting on its bonds in 1970.

The rescue forbade dividends while the company owed the government money, but the government wrote off Pounds 111.5m of repayable grants and loans - used for modernisation - in 1989.

The company now employs 1,640 people - fewer than half of them dockers, compared with 7,000 dockers in the mid-1970s.

Mr Slater said the government, the biggest shareholder, had told the company it had no immediate plans to sell its 20.67 per cent stake.

Mr Trevor Furlong, managing director, said Mersey Docks was still looking to buy an east coast port that would provide synergy at the European end of a UK land bridge. Liverpool is now a principal hub for transatlantic, Irish, Mediterranean and West African cargoes.

Development within Mersey Docks includes PowerGen's Pounds 40m coal terminal, which starts working this year, and a new timber products warehouse. A euro rail terminal for the Channel Tunnel is complete, as is a business park in Birkenhead.

Mersey Docks and Harbour GB United Kingdom, EC P4491 Marine Cargo Handling FIN Annual report P4491 The Financial Times London Page 24 419
Companies in this issue Publication 930218FT Processed by FT 930218

----------------------------- UK ----------------------------- Abbey National 44 Airtours 24 Aminex 25 Anglian Water 44 BT 44,11 Baring Tribune 25 Bellway 23,22 Booker 25 Boots 24 British Airways 2 Brown Shipley 24 Cable and Wireless 44 Control Securities 24 Emap 23 Etonbrook Properties 25 Fleming Emerging 25 Glaxo 24 Guinness Peat 24 Hammerson 25 Lasmo 44 Low & Bonar 25 Menvier-Swain 25 Mersey Docks 24 New Zealand Inv Tst 25 North American Gas 25 Owners Abroad 24 PowerGen 44 RTZ 44,24 Rover 10 Seal Sanctuary 25 Shoprite 24 SmithKline Beecham 44,24 Throgmorton Tst 25 Timex 10 URS Intl 25 Vardon 25 Vodafone 44 Wellcome 24 Wimpey (George) 25 ----------------------------- Overseas ----------------------------- Aeromexico 27 Aker 27 Audi 26 BF Goodrich 27 CDC 26 Campbell Soup 27 Daf 26,7 Degussa 26 Desjardins 27 Distriborg 25 EDF 27 Hewlett-Packard 27 Krupp 2 Metallgesellschaft 23 Mexicana 27 Norgeskreditt 27 Nykredit 27 Okobank 26 Pechiney 26 Petersburg Long Dist 23 Postipankki 26 Rhone-Poulenc 23 SE Banken 27 Saarstahl 2 Skopbank 26 Sudwestdeutsche Land 26 Teleglobe 27 Thomson 23 Thyssen 2 TWA 27 Westcoast Energy 27 Westdeutsche Land 26 -----------------------------

XA World P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 23 206
Emap buys 14 Thomson titles for Pounds 20m Publication 930218FT Processed by FT 930218 By RICHARD GOURLAY

THOMSON Corporation, the Can-adian-controlled travel and publishing group, has sold 14 business magazines, three directories and some related exhibition interests for Pounds 20.65m to Emap, the rapidly growing UK publishing group.

The sale includes such titles as Drapers Record and CTN, which is read by newsagents. It comes a day after Thomson in Canada said it would be substantially slimming down its 70-strong free newspaper business in the UK through sale or merger.

Mr Robert Kiernan, managing director of Thomson Information Services Ltd, said Emap had made an offer which had 'prompted a strategic review'. 'While still recognising that these were a strong portfolio of major brands, we acknowledged that the business had moved away from TISL's core development area,' Mr Kiernan said.

On the business side, the sale leaves Thomson with a handful of titles, including Construction News and International Financing Review, as well as a large number of professional tax and legal publications.

For Emap, the acquisition represents a further consolidation of its position as one of the UK's most substantial business publishers. With 65 titles, after acquisition, Emap's business publication sales will rise to about Pounds 70m, about Pounds 30m short of the market leader, Reed International. This represents a doubling of Emap's business publications business in the past 18 months.

Emap said the titles it has acquired complemented its existing magazines, it was not interested in the pursuit of size for the sake of it. Emap bought 26 of its titles from Maxwell Business Communications last March for Pounds 21.5m. Four of the magazines - TV World, Screen International, Communications International and International Broadcasting, with combined sales of Pounds 4.75m - have continental European circulation and advertising revenue.

The titles acquired had sales of Pounds 18.9m in the year to December 1992 and were loss making. Emap will be funding the acquisitions from the Pounds 78m proceeds of its rights issue last June.

Mr Colin Morrison, chairman of Emap Business Publishing, said that the deal with Thomson had been done 'very quickly in the last couple of weeks - most of the work was done in the last three days'.

Thomson Corp EMAP CA Canada GB United Kingdom, EC P2731 Book Publishing P4724 Travel Agencies COMP Company News COMP Disposals P2731 P4724 The Financial Times London Page 23 399
Clean break from acquisition strategy: Metallgesellschaft is selling assets and providing environmental services Publication 930218FT Processed by FT 930218 By DAVID WALLER

Mr Heinz Schimmelbusch, chief executive of the Metallgesellschaft mining and industrial group, has pursued one of the most aggressive acquisition trails of any German company in the four years he has been chief executive. But now, in a turnround of this strategy, the company is about to embark on a large-scale programme of asset sales.

As Mr Schimmelbusch an-nounced last week, the plan is to sell non-core businesses to raise nearly DM1bn (Pounds 400m) by the end of the next financial year. He is not saying which companies are for sale but he has been through the group's 258 subsidiaries and a list of potential targets has been prepared.

This strategic reorientation - combined with a 40 per cent cut in capital spending this year - follows two difficult years for the company. In the year to end-September 1992 pre-tax profits fell 23 per cent to DM245m, in spite of a 20 per cent rise in turnover to DM25.6bn reflecting acquisitions. In the previous year, profits had dropped 35 per cent from DM483m in 1990.

The combination of the poor figures and the switch in strategy raise fundamental questions about what Mr Schimmelbusch - a 48-year old Austrian who worked for a Wall Street investment bank before he joined Metallgesellschaft more than 20 years ago - has achieved during his time as chief executive.

'We diversified because we were about to lose our shirt, our last shirt,' says Mr Schimmelbusch. 'We had to get out] Five years ago, we decided that it was essential to reduce our dependency on low-value added cyclical commodities like zinc and copper and base our future on the commercialisation of the technology we had developed to clean up our own metals business.'

Over the five years, the group has spent at least DM1bn on smaller acquisitions. In addition, Metallgesellschaft completed one of Germany's largest corporate transactions at the beginning of last year with the DM1.45bn acquisition of the non-paper divisions of Feldmuhle Nobel from Stora of Sweden. These include Buderus (heating equipment, building materials and stainless steel goods) and the Dynamit Nobel explosives and plastics company.

The net result of the strategy is that via 88 subsidiaries in the sector, Metallgesellschaft has annual turnover of DM4bn in environmental services such as recycling, pollution control and decontamination. This, Mr Schimmelbusch boasts, makes Metallgesellschaft the biggest environmental services group in Europe.

'There is an endless market in eastern Europe,' he says, confident that the move into environmental services was correct. He points to 12 de-sulphurisation plants commissioned last year - one in Ukraine, two in Russia, three in Czechoslovakia and six in Poland - which brought DM500m of revenue.

Environmental services may indeed be the market of the future, but for now profits from this area are not large. In fact, if the purpose of the diversification was to reduce the group's dependence on the cyclical base metals markets, it has not succeeded. Along came the next slump, and the group's profits tumbled as if there had been no diversification programme.

'We would have sailed through the downturn quite happily', says Mr Schimmelbusch, 'had the former Soviet Union not broken apart. When we were at the very height of our diversification programme we were hit by a massive flood of imported metals from the former Soviet Union.'

He says that average non-ferrous metal prices have dropped by Dollars 200 a tonne over the past two years. 'When you're producing 1.2m tonnes a year, this leads to a substantial amount of lost earnings,' he says.

Even without the influx of cheap metals from the east, there would have been problems. 'The corporate hospital is always full,' Mr Schimmelbusch says. The sickest patient in this hospital is Kolbenschmidt, Metallgesellschaft's car components subsidiary. Exposed to the full brunt of the downturn in the world car industry, Kolbenschmidt lost DM88.6m last year before tax. 'We would have been able to compensate for this, for everything, if it had not been for the imports from the east,' Mr Schimmelbusch argues. But he concedes that one big problem is of the company's own making.

Mr Schimmelbusch says he and his board were aware of the irony of a base metal producer - one of the world's dirtiest industries - setting itself up as a provider of environmental services. It was important to bring the group's smelters up to the highest possible standards of cleanliness. Now, the smelters look like 'pharmaceutical factories, with people walking around in white coats'.

This cost in excess of DM1bn over the past five years, money which Mr Schimmelbusch now admits was spent too hastily and in too large quantities. Customers have not appreciated the fact that their zinc or lead was produced in a more environmentally friendly way than a cheaper, dirtier version. Earlier this month, Metallgesellschaft said it would be closing its Ruhr-Zinc smelter for two months from the middle of April.

The time will come when all producers in Europe will have to meet the high standards set by Metallgesellschaft, Mr Schimmelbusch believes. But in the meantime the group has to concentrate on making itself more profitable and winnowing down its portfolio of businesses.

In the UK or the US, such a consolidation phase would often be seized upon as an opportunity to launch a hostile bid - especially as the stock market value of Metallgesellschaft's holding in other quoted companies exceeds its own market value of DM2.9bn. 'Some cold capitalist with no heart for the environment would make a bid and sell off the holdings,' jokes Mr Schimmelbusch.

He is free from such pressures as 70-75 per cent of the company's shares are in the hands of safe, long-term shareholders such as Deutsche Bank, Allianz and Dresdner Bank. They, Mr Schimmelbusch says, are prepared to be patient. Anything but patient, Mr Schimmelbusch jumps up and brings the interview to a close with a half-joke: 'I have to go now and sell some companies to improve the group's profitability.'

Metallgesellschaft DE Germany, EC P333 Primary Nonferrous Metals P10 Metal Mining P6719 Holding Companies, NEC COMP Company profile FIN Company Finance P333 P10 P6719 The Financial Times London Page 23 1045
Bellway issues Pounds 33.6m cash call Publication 930218FT Processed by FT 930218 By ANDREW TAYLOR, Construction Correspondent

BELLWAY yesterday became the first UK housebuilder to take advantage of the recent revival in house sales to announce a rights issue. It is seeking to raise Pounds 33.6m from a two-for-seven issue at 320p. Bellway's share price fell 2p to 394p on the news.

The last round of cash calls by housebuilders was in 1991, when many companies took advantage of a short-lived improvement in house sales to strengthen their balance sheets.

Mr Amarjit Chhina, construction analyst with Barclays de Zoete Wedd, said yesterday that further rights issues for builders were likely. 'Some companies still need desperately to reduce debt and bolster balance sheets. Others, like Bellway, will seek opportunistically to exploit the recent rise in construction share prices on the back of a perceived revival in the housing market,' he said.

Bellway, which raised Pounds 25m in a five-for-eleven issue at 220p in March 1991, said yesterday that it needed the money to expand output from an expected 2,200 homes during the 12 months to the end of July, to 4,000 homes a year by the mid-1990s, which would make it one of the six largest housebuilders in the country.

Bellway said that the number of house sales agreed by the company had risen by 50 per cent since the beginning of this year, compared with the corresponding period in 1992. It forecast that pre-tax profit in the year to the end of July would be not less than Pounds 16m, compared with Pounds 13.02m in 1991-92.

Mr Alan Robson, finance director, said total dividends should be at least maintained, on the increased share capital, at last year's level of 11.5p. He said the group had net cash of about Pounds 15m on shareholders' funds of approaching Pounds 100m. He expected gearing to reach 10 per cent by 1994 as the group expanded.

Cash raised in the 1991 rights issue had been used to expand the group's regional operations and increase its land holdings from 5,500 plots with planning permission to 7,000, said Mr Robson. The number of homes built by the group has risen from 1,500 in 1990-91 to 1,841 last year and 2,200 in the current year.

Bellway said that its latest issue has been fully underwritten by Charterhouse Bank.

Lex, Page 22

Bellway GB United Kingdom, EC P1522 Residential Construction, NEC COMP Company News FIN Share issues P1522 The Financial Times London Page 23 416
Seaq to list Russian venture Publication 930218FT Processed by FT 930218 By RICHARD WATERS

ONE OF the few eastern European ventures listed on a western stock market will make its debut today on Nasdaq, the US over-the-counter market, and will shortly also be traded on London's Seaq International share market.

Petersburg Long Distance, which owns part of an international telephone system in St Petersburg, is thought to be the only publicly traded stock which gives equity investors a straight exposure to the Russian economy.

The listings on Nasdaq and Seaq International follow a move by one of the original investors to place its 29 per cent stake in the venture through Smith New Court, the London-based securities house, for Dollars 24m (Pounds 16.6m).

The company's main asset is a 50 per cent holding in PeterStar, a joint venture company partly owned by the St Petersburg city authorities. PeterStar, formed last year, is setting up an international telephone service aimed mainly at other western joint ventures and tourists in the area. It will charge customers in US dollars.

The company's system is already connected to St Petersburg's Grand Hotel Europe, and is expected to be linked to two other hotels in the next two months. It is only the second international telephone ex-change in the former Soviet Union, after Moscow's 10,000-line exchange.

PeterStar chairman Mr Gordon Owen, a former group managing director of Cable and Wireless, said the project involved few technical or financial risks, and that the main risks for investors were likely to be political ones.

Shares in Petersburg Long Distance, which are already quoted on the Toronto stock market, have proved volatile in recent months. Since the venture was set up a year ago they have risen from a low of CDollars 5 each to a high of CDollars 12. Earlier this week, they were trading at CDollars 9 3/8 , valuing the company - which expects to come into profit this year - at nearly CDollars 75m (Pounds 41m). The shares are held mainly by specialist funds.

The venture joins a small group of Hungarian companies listed in Vienna, and just three listed funds investing in the region, as the only vehicles available to western stock market investors looking to put money into eastern Europe.

Petersburg Long Distance Telephone Corp US United States of America P481 Telephone Communications P6231 Security and Commodity Exchanges COMP Company News P481 P6231 The Financial Times London Page 23 407
Rhone-Poulenc foresees full privatisation after election Publication 930218FT Processed by FT 930218 By PAUL ABRAHAMS PARIS

RHONE-POULENC, the chemical group in which the French government holds a 43 per cent stake, yesterday raised the possibility that it would be fully privatised soon after the elections in March when the Socialist government is expected to be defeated.

Mr Jean-Pierre Tirouflet, finance director, said that if, as he expected, the new government sold its entire stake, the privatisation would be worth between FFr12bn and FFr15bn (Pounds 1.9bn). He also raised the possibility of a simultaneous rights issue to reduce the group's debts, currently FFr33.7bn.

Announcing Rhone-Poulenc's full-year results, Mr Jean Rene Fourtou, group chairman, warned that the state of the European economy was worse than during the 1973 oil shock and would show no signs of improvement until next year at the earliest.

Operating income rose 8.1 per cent to FFr6.7bn but sales dropped 2.5 per cent to FFr81.7bn, with all divisions apart from health registering falls. Mr Fourtou predicted the group's profitability would increase over the next three years.

Net debt to equity, which Rhone-Poulenc had predicted last year would fall to 70 per cent, rose to about 80 per cent, or FFr33.7bn. The group benefited from a fall in net interest payments from FFr3.4bn to FFr3.2bn.

Operating profits from health activities increased 16 per cent to FFr5bn. Turnover rose only 4.2 per cent to FFr30.5bn, because of disposals and adverse exchange rates. The agrochemicals division saw operating profits fall from FFr1.2bn to FFr900m. In volume terms, sales fell 8 per cent following farmers' concerns about reforms of the EC's common agricultural policy. Mr Fourtou said the reforms could cut the size of the European agrochemical market by up to 30 per cent.

The speciality chemicals division reported operating profits up from FFr100m to FFr600m on turnover of FFr14.4bn (FFr14.8bn). The organic and inorganic intermediates division saw a 5 per cent fall in prices and operating profits fell from FFr800m to FFr500m. Operating profits at the fibres and polymers division fell from FFr700m to FFr500m.

Net earnings per ordinary share rose 24.7 per cent to FFr25.6. The group is paying a dividend of FFr18 (FFr15.75).

Rhone Poulenc FR France, EC P2879 Agricultural Chemicals, NEC P2819 Industrial Inorganic Chemicals, NEC P2869 Industrial Organic Chemicals, NEC COMP Company News FIN Company Finance P2879 P2819 P2869 The Financial Times London Page 23 398
Frustrated or furious? Charterline will answer all queries Publication 930218FT Processed by FT 930218 By JOHN WILLMAN, Public Policy Editor

FURIOUS with the local council? Wild about your water bill? Hopping mad with a hospital? Livid with the taxman?

Help could soon be only a telephone call away according to the government, which yesterday put a face - or a voice - behind Mr John Major's cherished Citizen's Charter.

Mr William Waldegrave, the public services minister, announced details of Charterline, a new telephone helpline 'designed to help people who find it daunting or frustrating to get information from large bureaucracies'.

The announcement came at the end of the third six-monthly Downing Street seminar on the charter, intended to ensure that the impetus behind the initiative is not lost.

Once Charterline goes nationwide from the end of the year, the full resources of the Citizen's Charter will be at the disposal of the ordinary citizen - and all for the price of a local telephone call.

A call to Charterline will give access to details of the complaints procedures of more than 1,400 public organisations, from British Rail to Basildon district council, from the Inland Revenue to the Apple and Pear Development Council.

The well-groomed operators - to be known as Customer Service Representatives - will tell you what standards of service you are entitled to and how to get re-dress when these are not met.

CSRs will be under instructions to answer the phone in four rings. They should be sympathetic but never give an opinion on a public service. And they must never lose their tempers.

And if you cannot find satisfaction through the usual channels, Charterline will tell you which ombudsman to approach. If there is no ombudsman, there will be someone else who can take up your case, such as the independent adjudicator announced yesterday to deal with complaints about the Inland Revenue.

Apart from providing useful information for complaints, Charterline will allow Mr Waldegrave to see those public services which do not make the grade. They will be 'helped' to upgrade their customer handling procedures and perhaps even install their own helplines.

A pilot study, which will be contracted out to a private telephone services operator, is to be launched in May. It will cover Leicestershire, Derbyshire and Nottinghamshire, three counties which research indicates are a microcosm of the UK.

Tax watchdog, Page 10

GB United Kingdom, EC P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 22 417
Generators told to pay part cost of pit rescue: Government ultimatum on five-year coal plan Publication 930218FT Processed by FT 930218 By MICHAEL SMITH

THE GOVERNMENT has warned the two main electricity generators in England and Wales that they or their customers must agree to carry part of the cost of taking more coal to keep pits open or it will force them to do so through legislation.

The threat - revealed in a leaked memorandum and letter by Mr John Baker, the chief executive of National Power - was made earlier this month in heated talks between Mr Michael Heseltine, trade and industry secretary, and National Power and PowerGen.

It demonstrates the difficulties that the government is having in persuading the two companies to take the 65.5m tonnes of extra coal over five years that it believes is necessary to win backbench approval for a pits rescue plan.

If it is unable to secure a deal it would have to completely revise its strategy for saving about a dozen of 31 threatened pits.

The documents, sent anonymously to Mr Arthur Scargill, president of the National Union of Mineworkers, show that the generators have agreed that they could use an additional 40m million tonnes over the five years.

They are also prepared to stockpile a further 15m tonnes against future usage provided British Coal - or the government - is prepared to meet the cost. That is not on offer.

However, the generators say there is no market for the 65.5m tonnes.

The government plan, revealed in the documents, involves British Coal supplying 15.5m tonnes next year and 15, 14, 11 and 10 in the subsequent years.

Although the memorandum and letter were written in the first week of February, the generators have not changed their position substantially since then. Unless the government is prepared to lower its targets - and thereby risk backbench opposition to any plan it produces - the likelihood is that a white paper is unlikely this month as the government had hoped.

In his memorandum, intended for use within the company, Mr Baker quotes himself as having told Mr Heseltine that 'matters had come to an extraordinary point if the government saw itself at risk of losing office, of sacrificing the whole of its energy policy and of intending to restructure several of the energy industries all because of the sake of 10.5m tonnes of coal'.

The minute says that Mr Heseltine 'said that if we couldn't take the additional tonnage he would be forced to legislate . . . in so far as there were further costs, they should simply be passed to the customer'.

In his letter to Mr Heseltine, Mr Baker says of the tonnages above 40m: 'Yesterday . . . you indicated for the first time that you expected the shareholders (of National Power and PowerGen) to carry the burden. It is now clear to us that in responding so positively to your requests to find more space for British coal, we were unwittingly invited to dig our own grave somewhat deeper.'

National Power PowerGen British Coal Corp GB United Kingdom, EC P12 Coal Mining P4911 Electric Services P9611 Administration of General Economic Programs GOVT Government News TECH Sales agreements P12 P4911 P9611 The Financial Times London Page 22 548
UN tells Bosnian factions to allow full-scale relief Publication 930218FT Processed by FT 930218 By FRANCES WILLIAMS, ROBERT MAUTHNER and LAURA SILBER GENEVA, NEW YORK, BELGRADE

THE United Nations Security Council last night called on the warring factions in Bosnia-Hercegovina to allow full-scale humanitarian relief operations to resume.

It was stung into issuing the demand after a surprise decision by Mrs Sadako Ogata, UN High Commissioner for Refugees, to suspend almost all aid deliveries because of political interference.

While the council backed Mrs Ogata's decision, some diplomats privately criticised her for bringing the issue to a head without consulting them.

Mrs Ogata said that political leaders on all sides had 'made a mockery' of UN efforts to get food and medical aid through to people caught up in the ethnic conflict in the former Yugoslav republics. 'I have done everything I can to persuade leaders to distinguish humanitarian aid from the conflict,' Mrs Ogata told a news conference in the Kenyan capital, Nairobi.

Deliveries to the besieged city of Sarajevo are being blocked by the Bosnian government to draw attention to the plight of Moslems stranded in towns in eastern Bosnia. Serb forces meanwhile are preventing aid getting through to the Moslems in those towns.

UNHCR officials said a 10-lorry convoy bound for the Moslem enclave of Cerska, eastern Bosnia, would be ordered to return to Belgrade. Serb forces blocked the convoy again yesterday for the fourth day, as well as holding up a convoy heading for besieged Moslems in Gorazde, south of Cerska.

Mrs Ogata said blocked convoys would be moved back to their bases and all relief activities in Serbian-controlled Bosnia suspended immediately.

All UNHCR activities in Sarajevo would be suspended and all staff withdrawn, leaving only a skeleton UNHCR presence. Land convoys and the airlift to Sarajevo would also be suspended.

Relief operations in areas of Bosnia where UNHCR could still operate would be maintained at a reduced level.

Mrs Ogata said Serb and Bosnian leaders would have to signal a clear commitment to giving the UN access before aid could be resumed.

Backing her up, the Security Council condemned the blocking of relief supplies. It said this was endangering the lives of aid workers and putting the civilian population at risk.

It demanded that all parties in the Bosnia conflict give Mrs Ogata the guarantees she is seeking to allow a full-scale aid programme to resume immediately.

Mr Yuli Vorontsov, the Russian ambassador to the UN, described Mrs Ogata's move as 'a rather unexpected decision'.

Lord Owen, the EC peace mediator on the former Yugoslavia, said he understood the 'frustration and anger' that led to Mrs Ogata's move, but said aid must be restored as soon as possible.

Lord Owen and his co-mediator, Mr Cyrus Vance, will today meet the newly appointed US and Russian envoys to the peace talks, with the optimistic aim of reaching agreement with the warring factions by the end of the month.

British troops in Bosnia returned fire twice last night after coming under attack in a disputed village. Army headquarters at the Croatian port of Split said there were no casualties among the British forces.

BA Bosnia-Hercegovina, East Europe YU Yugoslavia, East Europe P97 National Security and International Affairs GOVT Government News P97 The Financial Times London Page 22 548
Mines plan will go to Brussels Publication 930218FT Processed by FT 930218

MR Michael Heseltine is likely to visit Brussels next week to present draft plans to the European Commission for keeping open some of the UK's threatened coal mines.

Mr Karel Van Miert, the EC competition commissioner, will insist that subsidies to pits should be scaled down after 1995.

Report, Page 10

GB United Kingdom, EC BE Belgium, EC P12 Coal Mining GOVT Government News RES Capital expenditures RES Facilities P12 The Financial Times London Page 22 87
The Lex Column: Bellway Publication 930218FT Processed by FT 930218

The recent flurry of evidence hinting at a housing market recovery is rapidly developing into a storm. Yesterday, Bellway echoed the experience of other housebuilders by revealing a 50 per cent increase in reservations since the start of the year. Low interest rates and cheap and steady house prices finally appear to have stimulated the market, particularly for first-time buyers.

Doubts must remain about whether the upturn in activity can be sustained. Unemployment is still growing and negative equity constrains demand. While Bellway was happy enough to call the turn, its cautious management was only prepared to back its hunch with other people's money. Its Pounds 33.6m cash call certainly looks cheeky. With cash of around Pounds 15m in the bank from its last rights issue, Bellway could easily have geared up with bank borrowings.

Nevertheless, such opportunism highlights the relative strength of nimble second tier housebuilders. Bigger competitors, such as Tarmac, are too financially constrained to fund much expansion. Investors, who have bid up the construction sector by 20 per cent in the past three months, may worry about increasing their exposure by backing the string of rights issues which will doubtless follow. Or they may see plenty more room for recovery. The 80-odd construction stocks still have a combined market value of less than Pounds 4bn. That is about the same as Argyll or National Power.

Bellway GB United Kingdom, EC P1522 Residential Construction, NEC COMP Company News CMMT Comment & Analysis P1522 The Financial Times London Page 22 261
The Lex Column: Oil prices Publication 930218FT Processed by FT 930218

It seems that Opec's feet were not sufficiently close to the fire when the cartel met in Vienna last weekend. The rebound in the oil price since Christmas reduced pressure on producers to announce convincing cuts. Four days of discussion to patch up an agreement will hardly persuade the market that the cartel really intends to make cuts. Indeed, with Saudi Arabia's production 45 per cent higher than before the Gulf War, its apparent reluctance to trim gives a poor lead.

Perhaps most Opec members are maintaining their market share against the day that Iraq is re-admitted to the world market. But unless attitudes change and quotas are more strictly enforced, crude prices are likely to languish. That gives little support to the big oil companies who have also seen their refining and marketing operations squeezed by the world recession.

With revenues under pressure, US companies have switched to cost cutting as a way of boosting earnings, and the habit is spreading. It will be interesting to see how much of these savings the oil majors can hang on to, and how much leaks away in competitive market pressures. Given the overcapacity in refining and chemicals, the omens are not good. Highly geared companies are thus exposed. They may have better recovery prospects once growth resumes, but with Europe and Japan in recession and the US recovery hesitant, the likes of BP face an endless climb without fresh equity.

QN Organisation of Petroleum Exporting Countries P2911 Petroleum Refining COSTS Costs & Prices P2911 The Financial Times London Page 22 269
The Lex Column: UK accounting Publication 930218FT Processed by FT 930218

If the Accounting Standards Board gets its way, that large portion of UK companies currently floating off-balance sheet will soon come back into view. Its latest proposals are admirably clear: companies should show assets and liabilities on the face of the balance sheet if they enjoy economic benefits or face risks. In theory, the market should then be able to assess the real rate of return on assets and the true extent of gearing. Whether the ASB has done enough to frustrate the financial engineers remains an open question.

The tighter definition of a subsidiary introduced by the 1989 Companies Act has already put a stop to the more obvious abuses of off-balance sheet finance. Yet complex sale and repurchase agreements using options are all too common, notably in the leisure and property sectors. The ASB insists such assets should be shown in the main accounts if the option to repurchase is likely to be exercised. That will be open to interpretation. One can only hope the combination of plain language and explicit examples will be enough to hold the line.

The ASB deserves credit, though, for backing away from rules which would have stopped banks taking assets off-balance sheet by securitising through the capital markets. That would have placed the UK financial sector at a competitive disadvantage. Yesterday's draft marks a common-sense compromise: banks will have to show all assets on the face of the balance sheet, but can include a figure net of securitisation alongside. Purists might complain at this proliferation of categories. But a treatment which accurately reflects the transfer of risk and the retention of reward is the kind of innovation the market should welcome.

Accounting Standards Board (UK) GB United Kingdom, EC P8611 Business Associations P8721 Accounting, Auditing, and Bookkeeping Services TECH Standards TECH Services P8611 P8721 The Financial Times London Page 22 319
The Lex Column: Budget shopping Publication 930218FT Processed by FT 930218

Mr Norman Lamont continues to give every impression of succumbing to short-termism. When the last set of retail sales and unemployment figures turned out disappointing, his knee-jerk response was a full point cut in interest rates. Yesterday's improved retail sales figures for January prompted a quick assertion that there is now no room for more. Perhaps today's employment data will support that stance. But it will be awkward if next month sees another run of poor figures. Mr Lamont cannot easily change his mind again.

It is not as if business on the high street is booming. January's 1.6 per cent rise in retail sales after December's 1 per cent fall points to faulty seasonal adjustment. The underlying trend shows only modest growth. Sales in the three months to January rose only 0.2 per cent over the previous three months. The main advance came from department stores able to offer large discounts and from food stores. If last Friday's inflation figures are anything to go by, demand was not strong enough to allow the latter to raise their prices much despite the devaluation. The basic message remains the same: consumers are prepared to spend, but not on credit and only if there is a price incentive.

That should not tie the chancellor's hand. The real constraint is self-imposed. After a succession of warnings from the Bank of England, Mr Lamont has felt obliged to play along. But he may have deprived himself of the opportunity to announce a rate cut in the budget - unless he is also planning some painful fiscal tightening.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 22 294
Leading Article: An overmighty president Publication 930218FT Processed by FT 930218

THE CONSULTATIVE committee set up by President Francois Mitterrand last November, to consider reform of the French constitution, has produced a useful clutch of detailed proposals for up-dating and reforming the French constitution. None of them is dramatic; most of them are rather constructive; cumulatively, they should strengthen the position of the government, enhance the role of the parliament, and in general improve the democratic process.

On the most central issue, however, the report is a disappointment; for the committee has balked at two key questions: should the president's policy-making power be more clearly defined (and circumscribed), and should his time in office be more restricted?

On paper, the functions granted to the president are those of an ultimate arbiter above the political fray; in practice, every president since General de Gaulle has exercised dominant authority in foreign policy and defence; and as a result of creeping presidentialism, there is now virtually no aspect of public business which is not subject to President Mitterrand's influence. If the constitution has a serious defect, it is that the president's power is not merely untrammelled (because undefined), but also irresponsible (in the literal sense of the term) because it is uncontrolled. The committee walks gingerly round the issue, but leaves it in a fudge.

Shorter term

The power of the presidency is manifestly due partly to the length of the mandate, which is seven years renewable, and which allows the president to outlast any government. Many political leaders, including President Mitterrand, have argued for various forms of shorter term; but the committee was unable to agree on any alternative.

These two shortcomings are regrettable. By most criteria, France has been (and continues to be) well-governed, and there is no serious justification for minority demands for a wholesale change of republic. But creeping presidentialism has contributed to the growing wave of popular discredit, which has affected both the image of the president and the reputation of the political class.

If President Mitterrand's popularity is at a low ebb, it is both because he is held responsible for the policy failures of the Socialist government, and because he stands aloof with all the trappings of an absolute republican monarch. If the Socialist party is unpopular, it is partly because of the combined effect of high unemployment and low financial scandals, but partly because parliament's reputation is necessarily depreciated by the tentacular power of the president.

Useful reforms

Despite having avoided the central issue, the committee has proposed some useful reforms. The legitimacy of new governments will be enhanced if they have to secure a parliamentary vote of confidence. The National Assembly should become more influential, if members are forbidden to double up as mayors of large towns or as regional presidents, and if ex-ministers automatically recover their seats in parliament. The political class may regain some popular respect, if it cannot twist the electoral system except by a two-thirds majority. Governments may pay more attention to public opinion, if MPs or even ordinary voters can mobilise popular referenda.

At the end of the day, however, the committee seems content that France should continue to live under a presidential system, with all its advantages and all its disadvantages. So far the system has proved remarkably resilient; but it may be severely tested if the March general elections produce a serious political conflict between an ageing president at the tail-end of his second term of office, and a combative conservative government with a 200-seat majority in parliament.

The issue of the presidential mandate is not closed, however. A draft law for reforming the constitution will be laid before the Senate some time next month, and it will obviously follow the recommendations of the committee. But the new conservative majority in the parliament which will be elected in March could well impose an amendment to shorten the presidential term.

FR France, EC P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 21 671
Leading Article: Clinton's state of the Union Publication 930218FT Processed by FT 930218

MR CLINTON is not the first and will not be the last - elected politician to abandon what he promised during an election campaign. Nor is he the first to give as his excuse the unexpectedly dire state of the public-sector finances. The Republicans hope that voters will blame him for abandoning his 'middle-class tax cut'. Having bought votes on the basis of promises he knows he ought not to keep, Mr Clinton is certainly taking a gamble in the tax increases he now proposes. But what matters most is not whether the president's lips were worth reading during the campaign. It is whether they are worth reading now.

Mr Clinton is a Democrat. Unsurprisingly, therefore. his economic plan represents a decisive shift from 12 years of Republican rule. Higher taxes are certain, with the planned increase amounting to well over 1 per cent of US gross domestic product. Meanwhile, the spending cuts are supposed to be greater than the planned increases in spending. This is not so much a case of 'tax and spend' as of 'tax and reallocate spending'.

The fact of higher taxation - Dollars 240bn more over four years - is not the decisive indicator of the change. It is the nature of those taxes. Some 70 per cent of the increase in taxation is to be contributed by people earning over Dollars 100,000 a year (Pounds 69,000). But tax increases are not restricted to the 'rich' individuals and corporations. Higher taxes on energy, for example, will fall on virtually all Americans.

Deficit reduction

Meanwhile, spending is to be cut by Dollars 250bn over four years, with some Dollars 80bn from defence, Dollars 50bn from non-defence discretionary spending and no less than Dollars 90bn from entitlements. But - mark the weasel words - spending reductions are to be phased in over time, while there is to be a Dollars 160bn increase in 'investment'.

The bottom line is a reduction in the federal budget deficit from Dollars 332bn (5 per cent of GDP) in the current fiscal year to Dollars 207bn (2 1/2 per cent of GDP) in 1997. Total deficit reduction is to be some Dollars 500bn over four years, with the deficit in 1997 to be at least Dollars 140bn below the Congressional Budget Office's forecast for that year. What makes this reduction in the deficit rather less plausible, however, is the unnecessary stimulus of Dollars 30bn in the first year. Joy comes first; pain later.

This plan is plausible only if the president can obtain the tax increases and the control over spending he wants. Plans for higher taxes will confront outraged interest groups, perhaps an outraged public. His voters may feel happy about taxing 'the rich'. They will be less happy about taxes on themselves. As for spending control, the president may propose, but Congress disposes.

Right direction

Politically, the plan seems brave. Economically, it still falls short of what is needed. At present, the US has the lowest national savings rate of any industrial economy, bar Greece, and a federal deficit that absorbs 30 per cent of private gross savings. A faster rise in the US standard of living demands a marked increase in its rate of capital formation. For that the US needs a balanced budget, perhaps even a surplus. Without one, Mr Clinton will fail to deliver on his promise of a transformed US. The need for a smaller structural deficit must be still greater when higher taxes fall heavily on those who save most.

Mr Clinton is in a dilemma. He believes in higher public spending, but he has also decided, rightly, that the structural budget deficit must be cut. So he offers less deficit reduction than required, higher taxes than expected and less additional spending than his supporters desire. Not only is he bound to make more people unhappy than happy, but much political capital will be spent on selling a programme that falls short.

The temptation for a Democratic administration that cannot deliver substantial spending increases through the budget is to deliver them off-budget, instead. Costs can be loaded on businesses via higher minimum wages, for example. Costs can also be loaded on consumers, via protection against imports. Such regulatory changes could have dire long term effects on US employment and growth.

Though Mr Clinton's budget plan may not be frugal enough. it is broadly in the right direction. But many and dangerous are the temptations that remain.

US United States of America P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 21 775
Observer: Cell out Publication 930218FT Processed by FT 930218

New Zealand's officialdom has apparently written an unintended escape clause into new building safety rules. Police are seeking government advice after discovering that any prisoner they lock up must now be handed the cell key in case of fire.

NZ New Zealand P9223 Correctional Institutions TECH Safety P9223 The Financial Times London Page 21 62
Observer: Home to roost Publication 930218FT Processed by FT 930218

A fresh challenge to animal trainers has just been thrown down by the Church of England's general synod - how to house-train bats.

Protected by the Wildlife and Countryside Act, they are also favoured by vicars who mostly like to have them in their rafters, if not belfries. Alas the welcome they've been given is now coming home to roost, with worshippers complaining of the fall-out.

The 'unpleasant excretory consequences' are a growing problem, the synod was informed by Canon Michael Saward of St Paul's Cathedral.

GB United Kingdom, EC P0279 Animal Specialties, NEC CMMT Comment & Analysis P0279 The Financial Times London Page 21 114
Observer: Kilduff was here Publication 930218FT Processed by FT 930218

Anyone puzzling over the true significance of the juggler that forms part of Transport Development Group's corporate livery might be forgiven for concluding it had something to do with chief executive Alan Cole's profligacy with finance directors. He will soon be on his fourth in just over two years.

First an early retirement, then a promotion, and now a 'mutually agreed' departure of Paul Kilduff who set foot in TDG only last August . . . Shareholders can be forgiven for wondering why Cole's finance directors are coming and going more frequently than the company's annual report and accounts.

Could it have anything to do with Cole's fancy Harvard Business School upbringing? 'He does have a tendency to work everything down to a Venn diagram,' was the assessment of one less than generous City analyst.

Transport Development Group GB United Kingdom, EC P4212 Local Trucking, Without Storage P4225 General Warehousing and Storage P44 Water Transportation P4783 Packing and Crating PEOP Personnel News P4212 P4225 P44 P4783 The Financial Times London Page 21 182
Observer: Rankers ranked Publication 930218FT Processed by FT 930218

As a riposte to newspapers' enthusiasm for publishing performance rankings of educational establishments, the UK's most pukkah public schools have turned the tables by producing a ranking of journalists who cover educational matters.

The counterblast, appearing in the schools' trade magazine Conference and Common Room, rates the press pundits on five criteria: accuracy, balance, educational attitudes, delivery and enlightened reporting.

Oddly enough, not all of those named appreciate the results. One, for example, rebutted the criteria as being too narrow, which, ironically, is a criticism schools often make of newspaper tables in which they fare poorly.

The Financial Times - which pioneered such rankings in 1970 with its annual table of university graduates' job-market performance - came in fifth.

GB United Kingdom, EC P2711 Newspapers TECH Standards PEOP Personnel News P2711 The Financial Times London Page 21 145
Observer: Stage floor Publication 930218FT Processed by FT 930218

The dealing room at Smith New Court has always prided itself on being the slickest - and the most cut-throat - in the City, rarely giving an inch, let alone a pound of flesh.

So RSC director David Thacker, toying with the idea of setting the Barbican Theatre's planned production of The Merchant of Venice in modern dress in the City, deputed designer Sheelagh Keegan to check it out. Her task was to see if the Square Mile really is a good substitute for the Rialto.

Even though obviously enthralled as she photographed away with shouting dealers seething around her, she envisages difficulties in translating the characters to fit the present-day City.

One problem is how to treat Shylock's Jewishness, although she stresses that he is by no means an unsympathetic character. 'This is a play about racism, not antisemitism.' A further misgiving is that she sees him as 'more of a banker than a dealer'.

On the credit side, the shipowner Antonio could surely be converted into the man from Lloyd's. What's more, a lot of the ladies who cater for executive diners nowadays seem to be called Portia (even if they don't necessarily drive one - Ed.).

Smith New Court GB United Kingdom, EC P7922 Theatrical Producers and Services P6211 Security Brokers and Dealers CMMT Comment & Analysis P7922 P6211 The Financial Times London Page 21 237
Observer: Stony road for gumshoe Publication 930218FT Processed by FT 930218

Nyet a rouble. The Russian government has still had nothing back from its relationship with America's ace sleuth Jules Kroll, despite 12 months' work and a Dollars 1m down-payment.

But whose fault is it?

Kroll, hired by Moscow a year ago to hunt millions of dollars spirited out of the country by the Communist party and tax-shy trading outfits, has found the tracking task far stonier than his previous forays in recovering the ill-gotten gains of third world dictators.

He says he hasn't given up hope, blaming the lack of progress on his being denied any clear line of communication with the Russian authorities.

Moreover, public prosecutor Valentin Stepankov has said that, apart from his own office, his country has failed to provide the hitherto golden gumshoe with the feedback he required to continue his searches in the west.

On the other hand, complaints about the usefulness of Kroll's work so far have been voiced by Mikhail Gurtovoi, who lost his job as head of the anti-corruption commission with its disbanding last week by President Yeltsin.

The task has now been handed to the vice-president, Alexander Rutskoi, backed by continued probing by the president's own government inspectorate. Even so, Stepankov has been calling for the setting-up of a replacement commission.

The tangled web surely testifies that, here again, Russia's new authorities lack the political will and efficient management needed to crack a serious problem. Nor is solving it made any easier by lousy civil service pay and enduring state control over most assets.

RU Russia, East Europe P9111 Executive Offices CMMT Comment & Analysis P9111 The Financial Times London Page 21 281
Personal View: Europe's 'nervous system' out of kilter Publication 930218FT Processed by FT 930218 By IAIN VALLANCE

Telecommunications has become the nervous system of modern society; business and industry today are increasingly dependent on the instantaneous transmission of information in all forms. Social life and family life also rely heavily on the telephone; new technical developments will make these services even more important for Britain's industrial competitiveness and quality of life.

Many advanced economies of the world have recognised the need for efficient technical and service innovation in telecommunications. They see the need for an environment in which new ideas can be brought to market without interference from state bureaucracy, public financing policies or defensive monopoly thinking. But in most of Europe, similar progress has not been made.

The European Commission has made valiant efforts, culminating in its Telecommunications Services Directive in 1990, which set out to open up the market for all services, except public voice telephony. But competition, in practice, is still rare. No member state, except the UK and, to some degree, France, has effectively implemented the directive.

This is in stark contrast to the countries which have opted to expose telecommunications operators to competition and open up their markets to private sector investment. Britain, the US and Japan have led the way, followed by Australia, New Zealand and Sweden. The results have been startlingly successful. Services have proliferated; new market entrants have multiplied; customers have learned to provide services for themselves and sell them to others; prices have fallen while the market has grown. Quality has improved out of all recognition.

In Europe, meanwhile, current Community policy is still that public voice services (overwhelmingly the most important) and the ownership and running of network infrastructure are 'reserved' for state-controlled national monopolies.

Ordinary customers, many ill-served by the local monopolies, have yet to grasp fully what they are missing. Member states have recognised the needs of Europe by calling, in the Maastricht treaty, for trans-European networks, transcending national boundaries and providing Europe with the needed seamless networks and services. But they are reluctant to face up to the implications - that private capital and private enterprise, competing right across the Community, are needed to achieve this end.

Last autumn the European Commission issued a consultative document suggesting four possible ways forward: to do nothing; to regulate monopolies far more intensively at the European level, to force them to improve their performance; opening up of all markets; or, more modestly, opening up just cross-frontier networks and services.

Many still pray fervently for the first option. No one seriously advocates the second. The fourth is better than nothing, but it would have widely differing effects on the markets in member states according to their size and location and it presents formidable problems of definition and enforcement.

In fact, the Treaty of Rome has recognised, since 1958, the presumption that commercial activities should be carried on in a free and open market and the third course is the obvious way forward.

There is one possible objection: existing operators are required to provide universal service and incur substantial losses in doing so. Competitors would exploit the higher prices inevitably required in the unsubsidised part of the market. But experience in the UK and elsewhere shows that it is quite possible to deal with this by financial means. The subsidy should be reduced as far as possible by progressively aligning tariffs to costs. For any residual subsidy either government should foot the bill or, perhaps more realistically, new competitors should bear their fair share of the burden. This is clearly possible; indeed, it has been done (imperfectly, but quite successfully) both in the UK and in the other liberalised countries of the world.

In BT's view, the commission should legislate, now, to open up the markets across the board. The world is moving quickly and action to build on the new laws will be difficult and take time. Europe is falling behind in its 'nervous system'. Indeed, it may well already be too late.

The author is chairman of BT

QR European Economic Community (EC) P481 Telephone Communications IND Industry profile P481 The Financial Times London Page 21 695
A battle on the Italian front: Haig Simonian on the wide-ranging problems facing the new Japanese boss of a European state steel group Publication 930218FT Processed by FT 930218 By HAIG SIMONIAN

For Napoleon Bonaparte, the island of Elba represented a brief period of exile before he moved on to greater glories. For Mr Hayao Nakamura, the Japanese manager who today takes over as managing director of Italy's Ilva state steel group, the company could be the stepping stone to a bigger corporate crown, or the unenviable termination of an impressive career.

Ilva - the Latin name for the iron ore-bearing Mediterranean island - was supposed to mark a fresh start for the state steel industry after the collapse of Finsider, the former public-sector steel giant, out of which Ilva was born in 1988.

Instead of rising from Finsider's ashes, Ilva has staged a remarkable replay of its demise. It has been trapped in a downward spiral of rising losses and soaring borrowing, estimated to have reached L8,300bn (Pounds 3.78bn) last year.

Many of the problems at Ilva, Europe's fourth-biggest steel maker after Usinor-Sacilor of France, British Steel and Thyssen of Germany, are common to the industry. Prices in Europe have dropped by about 30 per cent since 1989 as a result of recession and oversupply, notably because of cheap steel imports from eastern Europe. Last month, the outlook worsened with the threat of US duties on European steel.

Yesterday, the European Commission proposed a restructuring plan for the EC's ailing steel makers in return for financial aid of at least Ecu480m (Pounds 394m) to help cover social costs.

An Ilva spokesman welcomed the Commission's suggestions for action against what he called 'suspected dumping' of eastern European steel in the EC. However, he warned that 'capacity cuts by EC producers must be accompanied by measures to alleviate the social impact of the job losses involved'.

Ilva is likely to remain one of Europe's weakest producers, however. 'It is in an appalling mess,' says Mr Jonathan Aylen, a lecturer in economics and steel industry specialist at Britain's Salford University. 'If you take indicators such as labour productivity, product quality or innovation, Ilva is very much in the second rank in Europe.'

In 1991, Ilva lost L504bn after minority interests and setting aside L411bn in extraordinary gains in a special restructuring fund. Recently its financial decline has become alarming with losses of L1,750bn in the first 11 months of 1992.

Last month, IRI, the Italian state holding company which controls Ilva, decided to draw the line. Shocked by the deterioration in Ilva's earnings - IRI had been forecasting a much lower Ilva loss of between L1,000bn and L1,300bn as recently as early January - it demanded the resignation of the steel maker's board of directors. The following day, it appointed Mr Nakamura, a former Nippon Steel executive, to the top job at Ilva.

While the group's problems are symbolic of those facing most European steel makers, they are also a legacy of Italian state intervention in industry, where investments and strategic business decisions have been made as much on political as on commercial grounds.

Under the government of Mr Guiliano Amato, which came to power last summer, the Italian authorities have demanded that public sector companies improve their financial performance. The government's sweeping privatisation plan is vital to lowering Italy's budget deficit, which at L163,150bn last year equals almost 11 per cent of gross domestic product. Where possible, profitable state enterprises such as the SME foods group have already been put up for sale. In the case of acute loss-makers such as Ilva, financial restructuring and management changes represent the first steps toward improving earnings and encouraging private investment.

Last month's decision to seek the resignation of Ilva's former board of directors and choose a foreigner as managing director was an indication of Mr Amato's determination to minimise the influence of political considerations in industrial decision-making. Top management changes at Iritecna, the loss-making state-owned civil engineering and contracting group, suggests a similar strategy is under way there.

The choice of a foreigner at Ilva was nevertheless unusual; the selection of a Japanese executive is unprecedented in one of Europe's most protected markets. But the appointment of Mr Nakamura indicates IRI, struggling to reduce group debts of nearly L70,000bn, is determined to sort out its wayward steel subsidiary.

Mr Nakamura has impressive credentials. At 56, he has a solid background in the steel industry, most recently as Nippon Steel's Italian representative. Having lived in Italy for almost 30 years, he knows the country and language well.

He is also one of a handful of Japanese businessmen who understand Italy's state sector. Mr Nakamura, who takes over today spent time in the 1960s as the Rome representative of Japan's Ministry of International Trade and Industry. In the 1970s, he worked closely with Finsider on the expansion of its vast Taranto integrated steel works, still Italy's biggest but now a big drain on Ilva's resources. Later, he advised on the development of the Novi Ligure facility.

In spite of his qualifications, observers are asking how Mr Nakamura will better the performance of his predecessor, Mr Giovanni Gambardella, in addressing Ilva's problems when most of Europe's steel makers are losing money.

Mr Gambardella is blamed for many of Ilva's woes. He initiated its L1,500bn acquisition drive, which expanded its activities from basic steel making into more value-added and specialised products, such as coated steels for consumer durables. The strategy, however, drove up debts. Group borrowings surged from L3,500bn in 1989 to L6,300bn at the end of 1991.

He is also accused of failing to control costs, although such attacks are harder to sustain in view of his success in closing 15 ex-Finsider plants, transferred to Ilva after 1988, and selling as many again. In the same period, the workforce was reduced by 30,000. The cut was 'quite an achievement', in view of Italy's tough labour laws, admits one IRI executive.

But with earnings steadily deteriorating, the pace of cost-cutting was not quick enough, say Mr Gambardella's critics. Last November, IRI gave Ilva's former management a mid-1993 deadline to prepare a new restructuring plan. It is up to Mr Nakamura to finish the task.

Speaking in Tokyo this month, Mr Nakamura indicated he would follow two paths to return Ilva to profit within three years. First, he hinted at further job cuts, notably at Taranto, and implied he would not seek consensus with the group's unionised workers at any price.

Second, he hinted he wanted to change attitudes at the steel group. Ilva had some of the world's most modern plant - much of it built in collaboration with Nippon Steel - but suffered from weaknesses such as poor quality, bad marketing and unreliable delivery times. The three had fostered excessive wastage, inadequate attention to customers and lax financial controls. Improving such faults would require a greater sense of commitment from the workforce, he suggested.

Joining the group as a rank outsider may help Mr Nakamura take painful decisions on further redundancies and closures. 'He has to do for Italian steel what Ian MacGregor (then chairman) did for British Steel about 10 years ago,' says Mr Aylen, of Salford University. But failing a surprise upturn in demand, it is hard to see how much extra room for cost-cutting Mr Nakamura will have.

Mr Nakamura dismissed suggestions that his appointment marked a bridgehead for Nippon Steel to purchase a stake in Ilva or mount an outright takeover, although he left the door open for closer technological co-operation.

Above all, he echoed Mr Gambardella in stressing Ilva's need for fresh capital to reduce borrowings. Last year, Ilva's former bosses openly discussed gaining a stock market quotation - and access to fresh money - by buying out minority shareholders in its Dalmine tubes subsidiary and merging the two companies.

That may still be on the cards, although the move will depend on first transferring the bulk of Ilva's debts to a separate company to make it more attractive to investors. A similar manoeuvre took place on Ilva's birth, when Finsider was retained as an empty shell containing about two-thirds of the group's L9,000bn debts.

Just possibly, Mr Nakamura's arrival at Ilva could persuade outside investors that the company has the potential to be an interesting recovery stock. Contacts with foreign bankers had already taken place under the previous management. But before outsiders offer to help, the group will first have to show it is willing to tackle its problems fast and effectively.

------------------------------------------ ILVA at a glance ------------------------------------------ Group sales 1989 L10,556bn 1990 L10,611bn 1991 L10,608bn ------------------------------------------ Group net profits and (loss)* 1989 L208bn 1990 L115bn 1991 (L504bn)** ------------------------------------------ * After minority interests ** After setting aside L411bn in special restructuring fund ------------------------------------------ Source: company reports ------------------------------------------

Ilva IT Italy, EC P331 Blast Furnace and Basic Steel Products PEOP Personnel News COMP Company profile Nakamura, H Managing Director Ilva P331 The Financial Times London Page 21 1497
Letter: Road tolls - financial penalty and social costs understated (2) Publication 930218FT Processed by FT 930218 From Dr IAN SMITH and Dr FELIX FITZROY

Sir, Richard Tomkins correctly argues for the inclusion of accident and environmental costs of road transport in a cost-benefit analysis of motoring. However, his case is weakened by the use of estimates for the social costs which are far too low, namely Pounds 6.1bn for accidents and Pounds 1.7bn for the environment. The Umwelt und Prognose Institute in Heidelberg has published careful estimates for external costs in West Germany in 1989 which are roughly comparable to the current UK situation. They calculate total accident costs at about DM70bn and all external costs of road traffic at DM250bn, equivalent to 12 per cent of German national income. Even allowing for higher traffic density and accident rates in former West Germany, the corresponding UK figure should be at least six times that quoted by Tomkins.

Urban congestion can be most effectively reduced by improving public transport with priority lanes and restricting car access, as in Zurich and other Continental cities. The general problem is most effectively dealt with by higher fuel taxes rather than cumbersome new road taxes.

Ian Smith,

Felix FitzRoy,

Department of Economics,

University of St Andrews,

St Salvator's College,

St Andrews, Fife KY16 9AL

GB United Kingdom, EC P4785 Inspection and Fixed Facilities CMMT Comment & Analysis P4785 The Financial Times London Page 20 239
Letter: Road tolls - financial penalty and social costs understated (1) Publication 930218FT Processed by FT 930218 From Mr KENNETH FAIRCLOTH

Sir, Richard Tomkins makes an excellent try at balancing the pros and cons of motorway tolls, ('For whom the road tolls', February 13).

However, suggesting that motorists might be paying Pounds 3.9bn less than motoring's true price, thanks to the 'cost of capital' element of Pounds 7.2bn, ignores the financial penalty that we would face if no motorway network had been built. The Confederation of British Industry puts the cost of congestion at Pounds 15bn (at 1988 prices). Without motorways, delays would be taking an economically crippling toll. Therefore the capital element has no legitimate place in the balance sheet, leaving UK motorists more than Pounds 3bn in credit.

The key question is, will the Treasury allow us to have a motorway network to meet our economic and social needs? The answer is that it will not, and direct charging for the use of motorways appears likely.

The AA opposes motorway charging unless (a) all income raised from motorway charging is used for improvement, maintenance and management of the motorway network; and (b) motorway charges must be matched by a corresponding reduction in motoring taxation.

For Britain's road-based economy the government's total spend on roads is Pounds 5.5bn against a tax take from motorists of Pounds 14.7bn (excluding VAT). British motorists won't give the government a blank cheque, but they will demand that their money is used to provide a quality road system.

Kenneth Faircloth,

deputy director general,

Fanum House,

Basingstoke,

Hampshire RG21 2EA

GB United Kingdom, EC P4785 Inspection and Fixed Facilities CMMT Comment & Analysis P4785 The Financial Times London Page 20 284
Letter: Not a sterling response Publication 930218FT Processed by FT 930218 From Mr DAVID HUGHES

Sir, Why is it that every person I speak to overseas asks me why the British are not taking advantage of cheaper sterling to boost exports? My answer is that they are using cheaper sterling to widen their margins rather than increase sales. Meanwhile, the Japanese and the Germans are gaining market share. 'Not very clever', as someone said recently in Johannesburg.

David Hughes,

5 Dunsay Road,

London W14 0JJP

GB United Kingdom, EC P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 20 105
Letter: Wrong angle on short-term disturbance Publication 930218FT Processed by FT 930218 From Mr GERALD PARK

Sir, Your odd-angled, close-up photograph of machinery (February 15, page 7) is about as fair and sensible an illustration of 'unsightly opencast mining' as a below-the-rim photograph of an unflushed lavatory would demonstrate the poor quality of bathroom decor and design.

The serious environmental problems of deep mining should not be ignored. These include the disposal of colliery spoil, subsidence, and the need for high-level equipment. By contrast, the comparatively short-term disturbance arising from opencasting is followed by restoration which often recreates landscapes that have disappeared as a result of long-term agriculture.

Gerald Park,

The Stone House,

Turvey, Bedford MK43 8DB

GB United Kingdom, EC P10 Metal Mining CMMT Comment & Analysis P10 The Financial Times London Page 20 134
Worst of friends: Foreign critics of Clinton have been unfair, argues Jurek Martin Publication 930218FT Processed by FT 930218 By JUREK MARTIN

There is a jumpiness about America's friends and allies in the early days of the Clinton administration that has been widely noted. It needs to be held in check.

The European Community, Britain and Japan have all been guilty of excess nervousness above and beyond that which is normal when the US acquires a new government. That the US is now the world's only superpower is not an excuse.

Narrowing the general to the particular, those accused include Sir Leon Brittan, the EC commissioner, Mr Douglas Hurd, the British foreign secretary, and unnamed Japanese 'officials'. Excluded from the charge sheet, however, is Lord David Owen, the EC's Balkan negotiator, for reasons that will be explained later.

The evidence is as follows: last week, at his 'town meeting' in Detroit, President Bill Clinton was asked by a questioner from Seattle, where Boeing is the number one employer, what needed to be done about lay-offs in the US aerospace industry.

He replied, probably for the 73rd time, that one of the competitive problems facing the US industry was subsidised foreign competition, viz Airbus Industrie. In the opinion of the EC and Sir Leon, he thus overlooked the fact that the US and the Community had temporarily buried the hatchet on Airbus subsidies last year.

That agreement may well be the equivalent of the Magna Carta in European bureaucratic and industrial eyes, but it is doubtful that it has entered Mr Clinton's consciousness yet. It is, therefore, ridiculous to assume that he was making policy on the hoof, which seems to have been the reflex reaction in European capitals last Friday.

This was not Sir Leon's first offence. He had leapt all over the Clinton administration, accusing it of 'unilateral bullying', when the steel dumping rulings were announced in the first week of the new US government. He may have done so for tactical reasons, but he also did so in the certain knowledge that this was a process, unfair as it may be, set in train under President Bush and, regardless of the occupant of the White House, unalterable under US procedures.

Mr Hurd, by reputation so cool, calm and collected, also has charges to answer. He knew perfectly well, because the British embassy in Washington had told him so, that there was nothing sinister in Mr Warren Christopher's comments a while back about the composition of the UN Security Council. The secretary of state had been asked, at his own 'town meeting' with his new staff, if it was not the case that the Security Council's composition should reflect the global power structure of today and not that of 1945 when it was established. He replied that of course it should reflect contemporary realities, but, in hedging his answer with many qualifications, he did not leave the impression that he wanted Britain kicked off it.

Mr Hurd, however, needlessly rose to the British tabloid bait, huffing and puffing about the importance of British membership, after a perhaps gratuitous reference to US financial arrears to the UN.

It is hard to keep track of the Japanese egregiousness in a fistful of mostly anonymous Tokyo briefings questioning US trade policy. This is a legitimate concern though mostly derived from reading what once liberated academics such as Laura Tyson have written over the years and which conveniently forgets that few heads of the Council of Economic Advisers, which she now is, have exercised real policy clout in living memory.

More than that, these same sources have been questioning the moral fibre of American society. There are reasons for such questions, especially when Japanese visitors to the US have suffered violent physical attacks. But the extrapolation of specific incidents into a general decay takes a little stomaching on this side of the Pacific, where people are aware not only of Japan's trade practices but also of its unwillingness to sully itself by taking more than the bare minimum of the 18m refugees now littered around the world.

Lord Owen, whose excoriation of the presumed US policies towards Bosnia were, until last week, conspicuous, at least had both legitimate grievances (lack of consultation by the new administration and the blackening of the reputation of his negotiating partner, Cyrus Vance) and an immediate purpose. This was to try and dissuade Washington from rearming the Bosnian Moslems, which, he was convinced, would have scuppered the Vance-Owen peace process.

He played his thin deck of cards for all it was worth, not only with the administration, with success, but also, exquisitely if with mixed results, with the pundits of The New York Times.

But the combination of all the above, excepting Lord Owen, guilty only of typically bad manners, has not exactly been to make friends and influence people in Washington. America's friends and allies have seemed petulant and self-serving rather than recognising reality - which is that they need the new US administration as much as, if not more than, at any time since the reconstruction after the last world war.

What should be borne in mind is that, for the first time in 12 years, the US has a government from a different party. Its instincts, its priorities and its value judgments may well be some miles removed from its immediate predecessors, especially from President Bush, schooled almost exclusively in the clubby and cold war-dominated world of international affairs still inhabited by so many western leaders.

Europe, the UK and Japan have to learn that this administration may take its time to make up its mind on policy issues and that, to paraphrase LBJ on J Edgar Hoover, it is better to be on the inside of the tent urinating out than vice versa. Given the fractured state of Europe and Japan's uncertainty, the only nation currently capable of putting up the tent is the US. And if Mr Clinton is too polite or too canny to say so, then there are a lot of Americans with influence who are not. Just for starters, most consider Bosnia to be 'a European war'.

US United States of America P9611 Administration of General Economic Programs GOVT International affairs P9611 The Financial Times London Page 20 1047
Letter: French compounding exchange rate problem Publication 930218FT Processed by FT 930218 From Mr NICK PARSONS

Sir, Samuel Brittan sets out concisely the balance of opposing forces on the French Franc/D-Mark exchange rate ('Modest repairs to ERM 'fault lines'', February 15). Rather than a European Monetary Institute, or council of so-called 'wise men' though, a mechanism already exists for spotting currency misalignments and making necessary adjustments. It is the Dollars 300bn a day foreign exchange market.

No EC country can be immune from the dramatic economic slowdown in Germany but France's rigid adherence to the ERM and the interest rates necessary to prevent speculation in the foreign exchange market are making a bad situation worse in the short term. The interest rates set by the Bundesbank may or may not be appropriate for Germany but it is hard to imagine they are appropriate for France at the moment.

What have the authorities to fear from a floating franc? If they believe their own rhetoric about fundamentals, the currency may even appreciate on interest rate cuts designed to stimulate economic growth. The way to find out is to float openly or to set such wide fluctuation bands that the exchange rate is not a policy constraint.

Mr Brittan suggests that the searching for correct exchange rates 'is like looking in a dark room for a black cat which is not there'. The French view of European monetary union compounds this problem by keeping the cat to guard against a German mouse which is not there either.

Nick Parsons,

head of treasury advisory group,

Canadian Imperial Bank of Commerce,

Cottons Centre,

Cottons Lane,

London SE1 2QL

QR European Economic Community (EC) P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 20 295
Letter: A flawed capital rules strategy Publication 930218FT Processed by FT 930218 From Prof STEPHEN M SCHAEFER

Sir, News that the International Organisation of Securities Commissions (Iosco) has decided to abandon its attempts to devise a set of rules governing minimum capital requirements ('Iosco drops common capital rules plan', February 11) should be welcomed by all those who regard the prudential regulation of securities companies as an important matter.

The Iosco proposals were flawed in at least two important respects. First, under the banner of 'level playing fields' they sought to impose rules which completely failed to take into account the substantial differences in structure which exist between different securities markets.

Second, the rules would have forced companies to look at risk in ways which were 40 years out of date and inconsistent with best practice in leading financial institutions.

It is inevitable that at some stage the question of harmonisation will re-emerge on the agenda of international regulation. When it does, let us hope that political problems in reaching consensus do not, as on this occasion, lead to second-rate solutions to an important regulatory problem.

Stephen M Schaefer,

Esmee Fairbairn professor of finance and research dean,

London Business School,

Sussex Place,

Regents Park,

London NW1 4SA

XA World P6211 Security Brokers and Dealers CMMT Comment & Analysis P6211 The Financial Times London Page 20 224
Economic Viewpoint: The unwelcome pay-jobs link Publication 930218FT Processed by FT 930218 By SAMUEL BRITTAN

The most useful thing I can do as British unemployment once more rises to 3m is to summarise the main features of the problem as I see them.

The immediate reason for the jobless explosion is the severity of the recession and the slow recovery from it.

That in turn reflects the severe collapse of property prices, which has made both individuals and companies more anxious to repay debt than to take on new commitments. It has also made the banks, whose own balance sheets have been hit, ultra-cautious about new lending.

There may also be a further feedback from unemployment itself. A Barclays Bank survey suggests that 40 per cent of the adult population and 50 per cent of those at work are more hesitant about borrowing because of the fear of job loss. Businessmen who say that the recession is not the only factor are correct. But they often mistake what the fundamentals really are.

For instance, Mr Percy Barnvik, the president of the ABB, the world's largest power engineering group, told the Financial Times (Jan 4) that inexorable advances in productivity were leading to large-scale permanent unemployment.

This is the most frequently recurring scare in world economic history and is sometimes dignified by the name 'lump of labour fallacy'. It is based on the idea that total output is fixed, so that if fewer workers are needed in one line of activity they must end up on the scrap-heap.

This fallacious diagnosis leads to fallacious remedies, mainly designed to reduce the labour supply, such as emigration, compulsory reduction of working hours, early retirement, and so on. It was embraced in the 17th century by James I of England, otherwise known as the 'wisest fool in Christendom', who wanted to carry off the unemployed to Virginia and Newfoundland.

What such practical men fail to see is that unemployment is a market relationship, but one of some complexity.

The most widely understood aspect is that between unemployment and inflation. There is indeed no long-term trade-off between the two. Employment is not higher in Latin America countries prone to double-digit inflation or in the former Soviet Union than it is in sound money countries. But it is true, that the move from a high rate of inflation to a lower one involves a temporary rise in unemployment, as the UK saw in the early 1980s and again in the early 1990s. Similarly an inflationary upturn is often accompanied by a temporary reduction of unemployment to abnormally low levels, as in the late 1980s.

The approach via inflation does not however explain why the number of people out of work should now be so high over the average of the business cycle. UK unemployment exceeded 3m in the aftermath of the last recession. But the drop to below 1.7m in 1990 proved an unsustainable after-effect of the previous boom. It looks as if the equilibrium rate of unemployment cannot be very far from 2.5m.

We need to move back a step. Just as there is a relationship that goes from unemployment to nominal pay (that is pay in money terms) there is another relationship that goes from real pay to unemployment. The higher the level of real pay per head, the smaller the number of workers likely to be offered jobs.

At a common-sense level the relation is simple enough. The more that anything costs, the less of it will be bought. But it is difficult to demonstrate statistically in the national labour market, with so much else going on in the economy at the same time.

There is the statistical problem of which measure of real pay best represents employers' costs. The more basic problem is that the true cost of employing labour depends on the margin above labour and other costs that a business can get away with imposing, which is difficult to explain without a good model of how the whole economy works. Such models are not easy to come by.

The Treasury did have a shot at the subject in 1985 under a chancellor, Nigel Lawson, who was not afraid to talk about the link between pay and jobs. Its paper, The Relationship between Pay and Jobs, estimated that a change of 1 per cent in real wages would ultimately be associated with a change the other way of 110,000 to 220,000 jobs, an estimate still often cited.

Emphasis on the word 'real' may help to explain why pay can still be a problem, even when earnings increases are, at 5 per cent a year, the lowest for several decades. But so too is inflation, down to 1 1/2 to 3 per cent, according to the measure used. Real pay per head is thus rising by 2 to 3 per cent. By contrast, Professor James Meade remarks in a fascinating memorandum to Labour's Borrie Commission (contactable via IPPR at 071 379 7400) that 'to absorb 2m extra workers into employment would require a considerable reduction in real wage costs, involving an absolute fall in the real wage rates, in order to induce employers in a free enterprise economy to expand their output sufficiently'.

The level of benefits clearly affects the wage which workers are willing to accept. But of course real pay is not the only non-cyclical influence on the jobs market. Levels of education and training, international and technological developments and real interest rates all play a role.

But in most markets price - in this case pay - is the final equilibrating mechanism between supply and demand after all other influences have been taken into account; and in the labour market it reacts sluggishly and incompletely.

One reason for the difficulties economists have in tracing the pay-jobs relation is that they look too much at national averages and not enough at pay for specific skills and categories of workers, where market-clearing differentials have widened out in recent years. In an Economic Viewpoint of January 14, I summarised how the US has had a better jobs record than Europe, but at the expense of driving down real pay for the less skilled.

There are also cultural and moral influences which economists do not much like discussing. Indeed, it is often the most enlightened businessmen who are most resistant to any talk of a link between pay and jobs and who boast of their small but well-paid labour forces.

They have indeed good reason to be worried, even if their own actions are not as helpful as they think. For driving down real wages to market-clearing levels could have morally unacceptable effects on the distribution of income, unless low rates of pay are supplemented by some other means.

Prof Meade's main interest is in moving from a conventional welfare state to a modest citizen's income available to all. But similar reasoning applies to workfare, special employment measures and all the other palliatives. They are all basically ways of employing people without making employers pay the full going rate. One of the best analyses I have seen is that of RS Musgrave (Workfare, 24 Garden Avenue, Samwellgate Moor, Durham, DH1 5EQ). As he says, in a totally free market the unemployed have the choice of doing nothing, or doing a job other than their usual one for a while. Governments have usually subsidised only the choice of doing nothing.

Nevertheless there is no reason why job subsidies should be confined to the public sector or to special projects of any kind. Whatever is valuable in the workfare idea can be achieved by marginal employment subsidies to normal employers on a temporary and a limited basis.

Of course these measures are putting sticking plaster on the problem and it will be quite a while, if ever, before the labour market can be fundamentally reformed. It was a political mistake for the Thatcher and Major governments to wind down their special employment programmes on the back of a temporary economic upturn which could not be expected to resolve the underlying jobs problem.

GB United Kingdom, EC P9611 Administration of General Economic Programs CMMT Comment & Analysis ECON Economic Indicators P9611 The Financial Times London Page 20 1370
Arts: Today's Television Publication 930218FT Processed by FT 930218 By ANTONY THORNCROFT

Wandsworth is regarded as one of the toughest prisons in the UK but it has opened its doors to director Roger Graef and his camera team to record Turning the Screws, which begins a three part series on Channel 4 at 9pm.

Graef's earlier investigation on the workings of the police force 10 years ago made such an impact that the approach to interviewing rape victims was changed. This time he examines life in prison from the point of view of the staff rather than the convicts, and arrives at Wandsworth just as a dispute is brewing about operating practices between a liberal governor and the Prison Officers Association.

After successfully going their separate ways in TV comedy sitcoms, French and Saunders combine their talents again after a three-year break on BBC 2 at 9pm. The first show seems to be based around that easy formula, the lampooning of popular movies, including Silence of the Lambs and In Bed with Madonna.

That is preceded by yet another series about skiing, with Muriel Gray as the presenter and the return of Top Gear, which concerns the launch of Ford's replacement for the Sierra, the Mondeo.

GB United Kingdom, EC P7812 Motion Picture and Video Production TECH Services P7812 The Financial Times London Page 19 224
Arts: The Invisible Man - Vaudeville, The Strand Publication 930218FT Processed by FT 930218

'The Invisible Man', much praised by my colleague Andrew St George when it opened at the Theatre Royal, Stratford East, last October has transferred to the Vaudeville in the Strand where it should give pleasure for many months. Based on the HG Wells novel, the piece is written and directed by Ken Hill who did the non-musical version of 'The Phantom of the Opera'. Here the wonderful illusions - things that go bump in the light - are provided by Paul Kieve. The unmistakeable Theatre Royal style is at its irrepressible best. The photograph shows Michael N. Harbour in a moment of visibility. You can't miss him. MR

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 19 141
Arts: All hokum and holiness - Cinema Publication 930218FT Processed by FT 930218 By NIGEL ANDREWS

THE BAD LIEUTENANT (18) Abel Ferrara

A RIVER RUNS THROUGH IT (PG) Robert Redford

THE LAST DAYS OF CHEZ NOUS (15) Gillian Armstrong

MEAN STREETS (18) Martin Scorsese

'No one can kill me. I'm blessed. I'm a Catholic,' says detective Harvey Keitel in Abel Ferrara's Bad Lieutenant. In Sleeper Woody Allen, masquerading as a surgeon in the year two-thousand-and-something, was called on to reconstruct a human being from a single disembodied nose. Many of us could imaginatively reconstruct the rest of Ferrara's film from that single line of dialogue.

This is the one about the bad, possibly mad, certainly dangerous cop. Harvey Keitel's lieutenant, a corruption-prone veteran of the New York Police, is so bent that you could use him to arrest people around corners. His specialities are violent crime, drugs and sexual offences. In order to stop himself enjoying all three, he must keep invoking his Catholic beliefs. Assailed by bleeding visions of Christ, he knows that redemption is possible if he can only get his moral act together.

Violence is 'in' today. See Reservoir Dogs, Man Bites Dog and other films with or without canine titles. So the small handful of once-panned movies in writer-director Ferrara's filmography, from Driller Killer to King Of New York, have lately been undergoing revision as masterworks of gutter realism. Result: the flattered Ferrara catches the biggest dose of pretension since De Palma made The Bonfire Of The Vanities. After the cynical, crackling promise of early scenes - Keitel snaffling drugs from crime-scene cars, Keitel pocketing a convenience-store robber's loot, Keitel forcing a 'freebie' from two ladies of the night - God gets his call to the set.

The violent rape of a nun on a church altar by two hoodlums - no sensationalist possibility omitted there, I think - first gets our hero thinking about redemption. Putting his knitted brows and musclebound stoop into action, Keitel keeps shambling back to the church where the crime was committed. Here he first sees a vision of Jesus complete with bleeding head and nimbus of light. Then he re-encounters the abused nun, Sister Plot Device, who counsels him to forgive rather than to avenge.

If you imagine Mickey Spillane adapting Graham Greene's The Power And The Glory for Michael Winner, you might have an idea of the battle raging here between holiness and hokum. All stops are out visually and viscerally. But one finally concludes that the reason Ferrara rubs our noses in depravity - real needles entering real arms, realistic blood showering real walls or windows - is that if he allowed us once to stand back and see the panoramic for the particular we might rumble the movie's idiot self-importance.

Idea for thesis: artist's trichological condition as trigger to his creative style. In A River Runs Through It America is seen by director Robert Redford as if through the golden cascades of his own hair. We are ushered into the story by RR's voice-over, purring gilded sentences from the homonymous boyhood memoir by Norman MacLean. Then, in the feature-length flashback that is the film, young Redford lookalike Brad Pitt takes over as one of the tale's two brothers, sparring for self-fulfilment with each other and with pastor father Tom Skerritt.

Actually - just for confusion - the un-Redfordish Craig Sheffer, who resembles John Malkovich with hair, plays the putative young Redford, based on the young MacLean. Pitt is his handsome sibling Paul, hellraising in early-century Montana and making Pa Skerritt so goshdarn angry. (Watch that milk jug as you thump the table, Pop.) For while Norman is college-bound and chastely enamoured of Britain's Emily Lloyd (plus American accent), Paul is deep in whores, whisky and poker debts.

We have seen this story before, have we not? About - I take a guess - 100 times. But here there is a novel metaphor. The scenes of fly-fishing in the sparkling, russet-banked rivers are given a real lyricism by Redford and his cameraman Philippe Rousselot (The Emerald Forest). Long fishing-lines arc and curl in sun-caught silver; Coplandish music by Mark Isham warbles on the soundtrack; and even the hardest heart melts a little at this shrewdly gorgeous image of an American Dream woven from man-made discipline and close-to-nature freedom.

For while the scenery fills the brothers' spiritual lungs, Dad sharpens their mental mettle by teaching them the 'Presbyterian way' to cast a line. This involves metronomes and much mind-over-matter. Brief filial revolts are inevitable - like Paul taking Norm off on a rapids-shooting trip - but soon the the boys will surely thank and respect Dad and even grow up to write about him.

The lectures never quite crush the life out of the lyricism. Even when wondering 'Is Norman MacLean an outdoor version of Norman Rockwell?', we glow as the images glide past in this river trip through a never-never America. And when the sun goes down each day and we traipse indoors for the movie's lecture sessions - yes, the heart and mind, animus and anima must rule equally - we know it is only until morning that director-producer Redford has pushed his hair back under his mortar-board.

Idea for another thesis: The Euro-actor as today's equivalent of the Wandering Jew. Germany's Bruno Ganz seems no clearer about what he is doing in Australia in Gillian Armstrong's The Last Days Of Chez Nous than he was about being in England in David Hare's Strapless or in America in The Boys From Brazil.

Let me supply the answer. He is the soul of Western art and civilisation. In Armstrong's tale of Bohemian lives among a group of Aussie fortysomethings, Ganz alternates meal-table tantrums ('For two years I have been looking for zese cheeses]' when someone takes a bite from his precious Brie) with burgeoning romantic disenchantment ('Do you think we'll ever make love again?' mourns girlfriend Lisa Harrow).

He is adrift, as is the audience, in a world where the affirmative hedonism of the 1960s has turned to live-and-make-do. Gillian Armstrong made the famous, overrated My Brilliant Career. Here she goes for another pin-down-the-zeitgeist tale; but a film about formlessness is harder to do than one about formativeness. As the characters yatter around the sempiternal kitchens and Late Flower-Power sitting rooms - also present are Harrow's pubescent daughter (Miranda Otto) and pregnant half-sister (Kerry Fox) - we feel as if we are at the wrong party, pressed to the wall by yesterday's people shrilly insisting they are today's.

Mean Streets, which 20 years ago marked Martin Scorsese's breakthrough as a feature film director, is yesterday's movie but still of today. Vivid, visionary, sardonic: everything that Bad Lieutenant tries to be but fails. It even has the same star, Harvey Keitel, here fresher in his mannerisms as the Mafia 'collector' who moves through the bars of Little Italy as if through the ante-chambers of Hell. Also present: Robert De Niro in his starmaking role as Keitel's victim pal, a human jack-in-the-box who jumps out through the screen the more the plot pushes him down.

GB United Kingdom, EC P7812 Motion Picture and Video Production CMMT Comment & Analysis P7812 The Financial Times London Page 19 1205
Arts: Maxwell Davies's double bass concerto - London concerts on the South Bank Publication 930218FT Processed by FT 930218 By MAX LOPPERT

Peter Maxwell Davies's set of Strathclyde Concertos for the Scottish Chamber Orchestra, planned to be ten in number, is moving toward completion. (The series-name does honour to the enlightened action of the Strathclyde Regional Council in commissioning them.) Each one features a different instrumental soloist or concertante combination. Number seven - given its first London outing on Tuesday, at the Queen Elizabeth Hall - is for the double bass, and is perhaps the most fascinating yet.

In these works a Maxwell Davies has been revealed quite different from the adventurer of youth, the confronter of angular, sometimes violently dramatic music-theatre conceptions. His musical mode here is a subtly woven web of discourse in which purely musical ideas - about the characterisation of solo instrumental voices, the relationship of individual and group strands, the movement forward of sonata-style argument - are examined and developed. Maxwell Davies has set out in each case to fulfil his proposition as fluently, and as 'continuously', as Bach or Haydn might have done. (It is probably for this reason that the concertos have already received some rather testy dismissals from former Maxwell Davies admirers.)

The proposition, in this seventh concerto, is that the double bass should be treated not as a vehicle for rhythm, or weird animal-imitation effects, or lumbering comedy, but as a lyrical voice in its own right. The gently meditative opening, in which the that voice is musingly tested, with bare support from other low strings, is masterly. The particularly Klang of the concerto, at once warm, rather lean and full of internal variety, is achieved with a sobriety that can nevertheless run to quietly astonishing virtuoso effects of textural contrast.

On a first hearing I also admired the self-effacingly expert way the work is moved forward, via gradually unfolding melodic devices and disgorging of consonant-sounding harmonies. The sheer functional intelligence of the music is disguised, as it should be, by all its many civilised surface qualities.

The performance, by Duncan McTier and the Scottish Chamber Orchestra under the composer's baton, was excellently run-in. Not surprising: the concert - which also billed works by Edward Harper and Judith Weir and the (rather garish) first concert suite from Maxwell Davies's ballet score Caroline Mathilde - had been given in five British cities previously, as part of the latest Contemporary Music Network Tour.

Final SCO performances this weekend, in Sheffield, Bath and Northampton

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 19 439
Arts: 'Fantastic' without fantasy - London concerts on the South Bank Publication 930218FT Processed by FT 930218 By DAVID MURRAY

At the end of a piece, the conductor Zubin Mehta likes to swing straight round to the audience even while the last chord resounds, with uplifted arms that mean something like 'Hey, WOW]] - yeah?' (We have to remember his 13 years with the New York Philharmonic.) He did it after his Berlioz Symphonie fantastique with the London Philharmonic at the Royal Festival Hall on Tuesday, and drew an instant 'Bravo]' from a voice in the usual place: rear right in the Terrace.

Though there was some modest justification for that, there had been none earlier, at the close of the same composer's Beatrice and Benedict overture. The 'caprice written with the point of a needle', as Berlioz put it himself, was remarkable chiefly for the cautious tempo Mehta chose for the main material (almost unaccented, certainly without any glint of embattled wit) and the leaden glumness of the 'romantic' episodes. If one wanted to have Berlioz condemned to programme-filler status, a performance like this would reinforce the cause.

The 'Fantastic' was better, but only by a few public degrees. Mehta engineered a thoroughly professional reading. There were stage-explosions in the right places, and they were properly led up to by purposeful developments - extrovert, candid, muscular. At the subcutaneous level, nothing happened at all. Berlioz's most original strengths can be detected only beyond the literal notes; here, hardly anything of his tremulous confessional vein, his sudden catches of breath or his abrupt violence made itself felt - just bold colours and professional energy. Not at all bad, but not very good: the visionary aspect of the score was reduced to newsprint photos.

In Bartok's 2nd Piano Concerto there were more penetrating flashes, thanks entirely to Andras Schiff's account of the solo part. They were mostly confined to the lyrical piano intermezzi, however, on which he lavished quirkily elegant insights. In the rougher music Schiff's lack of percussive conviction, of forceful rhetoric, left him an easy prey to the devouring orchestra.

In fact the LPO sounded raw, much less well rehearsed than for the 'Fantastic'. For the central Adagio the hazy, muted strings and timpani were evocative enough, but in the bright outer movements the whole band never achieved the leanness and tautness that the music demands. I had to put on the Philips recording, by Zoltan Kocsis and Ivan Fischer with the Budapest Festival Orchestra, to remind myself how much more is invested in Bartok's score.

Sponsored by Mrs Jackie Rosenfeld

GB United Kingdom, EC P7922 Theatrical Producers and Services CMMT Comment & Analysis P7922 The Financial Times London Page 19 451
Arts: Luisa Miller - Opera in Geneva Publication 930218FT Processed by FT 930218 By ANDREW CLARK

When a tenor is on form, it is the tenor's opera - even when it is named after the soprano. This was the case with Neil Shicoff's performance in Luisa Miller at the Grand Theatre, Geneva (broadcast live by Radio 3 on Saturday evening).

Verdi could have written the part of Rodolfo for Shicoff. He may not fit the conventional picture of a romantic suitor: the neurotic expression, bookish spectacles and delicate build conjure visions of an operatic Woody Allen rather than the squire's son who falls hopelessly in love with a village girl. But he still looks youthful enough for the part. The key, of course, is the voice: Shicoff remains the focus of attention simply through the emotive power of his singing.

The American tenor's trademark is his tragic, tearful vocal timbre. He does not overwork it, and despite the Italianate ardour of his delivery, he never resorts to the sobs, scoops and other mannerisms that all too many Italian tenors equate with feeling. Nor does he force the tone. On a good night like this, he hits the notes accurately, fearlessly, musically. He also gives you the impression that he is totally committed to the part, rather than sailing through it en route to the next celebrity concert.

Where Shicoff appealed to the heart, the German film director Werner Schroeter succeeded in making Verdi's first bourgeois drama appeal to the head. Schroeter's staging, designed by Alberte Barsacq and first seen last season in Amsterdam, uses period costumes, but otherwise dispenses with the customary anecdotal trappings. In their place is a permanent multi-level construction of platforms and staircases, a metaphor of the complexity and claustrophobia of Tyrolean village life. The chorus watches from side-galleries as the emotions of the principals are systematically laid bare. The result may strike some as clinical, and until the final scene the characters remain stereotypes; but the story is intelligently told, the music never crowded out.

That meant ample opportunity to appreciate the style and sparkle of the accompaniments under Carlo Rizzi, who lifted the responses of the Geneva orchestra and chorus a good notch or two above normal. Kallen Esperian's rapturous Luisa was more successful in the lyrical outpourings of the second part of the evening than the coloratura of the first. Paul Plishka, in fine voice, captured the domineering selfishness of Count Walter. Even more impressive was the crisp, penetrating delivery of the Polish bass Romuald Tesarowicz, whose Wurm recalled Obadiah Slope in the Barchester Chronicles: beneath the oily hauteur lies a scorpion. Antonio Salvadori, replacing Thomas Allen, was a workmanlike Miller.

Grand Theatre, Geneva. Final performance on Sunday

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups CMMT Comment & Analysis P7929 The Financial Times London Page 19 473
Technology: Dress sense in Antarctica Publication 930218FT Processed by FT 930218 By DELLA BRADSHAW

Trudging to work in February may present as much of a challenge as many of us ever want in finding suitably warm clothing. But for Sir Ranulph Fiennes and Michael Stroud, who have just completed a record-breaking crossing of the Antarctic, suitable clothing required more than just comfort.

'When you're walking across the Antarctic comfort becomes less important than performance,' points out Les Jacques, textile centre manager for ICI Fibres. 'It's a question of life or death.'

The performance requirements of polar explorers are peculiar. 'They don't carry a single waterproof item,' explains Oliver Shephard, who accompanied Sir Ranulph on many of his explorations. In the South Pole it simply does not rain.

Nor, for the most part of the day, do the explorers require very warm clothing. 'Pulling a 450lb sledge you get mighty warm,' Shephard points out.

Instead the main requirement on a continent where winds can reach speeds of up to 200mph are for clothes that are windproof, and 'breathable' - so that perspiration is not held against the skin. If that does happen the moisture can freeze when the garment is removed. That can be life-threatening, as the human body loses heat six to eight times more quickly when the skin is moist, burning up calories.

All the fabrics worn by the explorers were man-made. They included specialist 'breathable' underwear, topped by thick, wind-proof trousers and a shirt. Thick jackets, resembling duvets, would be put on each morning. Once the men became warmer the thick jackets would be swapped for lighter, windproof outer clothing.

Socks and gloves are made of specially treated fibres to ensure no sweat is retained next to the skin.

The technology to produce fabrics incorporating 'moisture management', as it is known, has been pioneered in the sports and ski-wear industry. Aerobic outfits, for example, can be lined with a coating, such as ICI's Tactel, to take the moisture away from the skin and prevent post-exercise chill.

Gore-Tex has proven particularly popular as a fabric coating to protect from wind and rain, for mountaineering equipment or ski-wear. Other coatings are being developed: these days some garments are even coated with Teflon, more popularly used on non-stick saucepans.

'It is very easy to make things which are waterproof, windproof or breathable,' says Andrew Geere, marketing manager of Berghaus, which makes mountaineering and other outdoor equipment. 'It's getting all three into a fibre which is very difficult.'

Given the effectiveness of the latest high-technology fabrics it is perhaps surprising that recent expeditions have still favoured the duck-down sleeping bed as the favoured form of night-time insulation. And Shephard is rueful that pressure from animal rights groups means explorers can no longer wear animal skins. Wolf-skins, he points out, are far more effective than their synthetic imitators. 'If it keeps the wolf warm just think what it does for you.'

AQ Antarctica P2824 Organic Fibers, Noncellulosic TECH Processes TECH Products TECH Standards P2824 The Financial Times London Page 18
Technology: A clear view for contacts Publication 930218FT Processed by FT 930218

Contact lenses, which float in the eye's tear fluid, are for those who want improved vision and prefer the inconvenience of taking them in and out - and the risk of losing them - to the inconvenience of wearing glasses. Their use became possible this century with the development of modern plastics, whereas spectacles have been around since the Middle Ages.

But the idea of a lens fitting straight over the eye has been around for a long time. Leonardo da Vinci drew a design for such a device in the 15th century. Four hundred years later, the first contact lens appeared. It was made of glass and covered most of the eye.

Today's lenses parallel some of the developments in spectacles - such as the availability of tints and application to presbyopes as well as to people with congenital sight defects - but they also have to overcome difficulties of their own.

The first contacts were hard and not always easy to wear. But the rapid development of soft and disposable lenses, with a high water content, has decreased the hard products' market share. Because they sit on the eye, contact lenses are prone to deterioration and protein build-up.

Today's hard lenses are gas permeable, allowing eyes to breathe. In the view of Gary Mulloy, chief executive of California-based Pilkington Barnes-Hind, part of Pilkington of the UK, manufacturers need to be more innovative, especially in catering for presbyopes.

Companies do have products for these users. Essilor's Lunelle division has brought out Variations, which it says is the first progressive soft lens for presbyopes; it contains 78 per cent water. But Mulloy sees prospects for further design and materials innovations in this area, as well as to bring back customers who found contacts awkward to use. 'Drop-outs have been a major problem.'

GB United Kingdom, EC P3851 Ophthalmic Goods TECH Products TECH Standards P3851 The Financial Times London Page 18 331
Technology: Sights set on wider horizons - Wearers of spectacles and contact lenses want to look good as well as see better Publication 930218FT Processed by FT 930218 By ANDREW FISHER

One day, the chances are that if you are not a myope or a hyperope, you will become a presbyope. You may have done so already.

There is nothing to worry about; the terms do not denote weird changes of appearance or behaviour. They define the main types of eyesight problem which require people to wear spectacles or contact lenses, either from childhood or, somewhat disconcertingly for those born with perfect vision, from the onset of their 40s.

Almost everybody needs lenses at some stage of their life - spectacles have a bigger slice of the market than contacts - and companies are striving to bring out new products that combine improved optical quality with greater elegance. These include new thinner and lighter plastics, special coatings and tints, and the blending of varying optical strengths on the same lens to eliminate the bifocal effect.

Essilor, the French company which leads the world spectacle lens market, reckons that (excluding the statistically opaque eastern European region and China) one in five people wears a corrective lens. This means 700m pairs of lens-covered eyes.

In the western industrialised countries, the proportion is much higher: some 60 per cent of people in North America have lenses, as do 40 per cent in western Europe, and 41 per cent in Japan. Half the lenses are sold to presbyopes - the greying over-40s who find that a hardening of the eye's crystalline lens makes it harder to focus sharply.

With a higher proportion of older people in the populations of developed countries as the post-war 'baby boom' generation ages, the demand for lenses to correct presbyopia will obviously rise sharply. More than 90 per cent of those aged 45 and over in the US wear lenses, and over 70 per cent in other industrialised countries.

'The presbyopic is the fastest growing market,' says Jacky Fremont, head of Essilor's UK operation. The other common types of lens wearer for which companies cater are myopes, who can see well at short distances but poorly from afar, and hyperopes, with the opposite problem. In western Europe, there are nearly 60m myopes (including 5m in the UK alone) and more than 35m hyperopes (4m in the UK).

Whatever their vision problem and however serious it may be, most people do not just want to see better through their lenses. They also want to look better while wearing them. Much of the fashion effort goes into producing more elegant, colourful and stylish frames. But the appearance of the lens is also important, especially for those whose sight is bad enough to warrant a thick prescription lens.

By far the biggest share of the spectacle lens market is accounted for by plastic, which is much lighter than glass. The original CR39 polymer resin, developed in the US and first used by Essilor in the 1950s, is about half the weight of glass. It is shockproof and accepts artificial tints better than glass.

But it is also about 30 per cent thicker than glass and less scratch-resistant. Much of the optical companies' recent work, therefore, has been on thinner and lighter lenses from more advanced resins. This development began in Japan, where there is a high level of myopia and thus a greater degree of sensitivity to the wearing of very thick lenses.

The California-based Sola Group expects the thin, light end of the market to grow at about 20 per cent annually in the next few years. Its new Spectralite lenses are made of tough, versatile plastic material and have aspheric designs which make them flatter than spherical lenses. These compete with Essilor's Ormex lenses, which are up to 55 per cent lighter than glass and 30 per cent lighter than its Orma material introduced in the 1960s. Both companies' products use material with a high refraction index which requires less curvature.

Essilor and Sola (owned by Pilkington of the UK which has put it up for sale) are the main players in the world spectacles market, but there are a host of smaller competitors such as Rodenstock and Zeiss in Germany, Hoya, Seiko and Nikon in Japan, and American Optical, Signet Armorlite and Vision Ease in the US.

'The market is highly competitive,' says John Heine, Sola's chief executive. In the expanding presbyope market, so-called progressive lenses have gained in popularity as they do away with the segment lines on bifocal or trifocal lenses and the need to switch between glasses for reading and other uses.

With a progressive lens, the wearer - there are 130m presbyopes in Europe - can move through a family of lenses whose outer curve changes gradually as eyesight worsens. Essilor's Varilux Multi Design, in plastic or glass, has 12 lenses, while Sola has its rival Graduate and XL products; as with all corrective lenses, it is the carving out of the inner curve which gives the lens its individual character.

'It's quite a complex operation to shape the surface and get the power without a segment line showing,' says Colin Perrott, Sola's head of technology. 'In future, there will be a multiple choice of different lens designs according to people's lifestyles and different materials according to taste.'

Apart from frame and lens shapes and the materials used, spectacle wearers can also satisfy their varying tastes by having coatings applied. These are used to make plastic lenses scratch resistant, eliminate reflection, repel water, and either tint lenses or enable them to darken in sunlight.

At Essilor's UK plant near Bristol, the quartz anti-reflection coating is put on in a special vacuum chamber using sophisticated computer-controlled machines. The coating works by turning the light reflection back on itself. Fremont says Essilor's anti-reflection coating increases sight transmission from 92.5 to 99.6 per cent. Most coatings absorb damaging ultra-violet rays.

For work on screens - now covered in the EC by a special directive - companies have developed tints that soothe the eyes. Essilor, in partnership with PPG Industries of the US, has also come up with a way of giving plastic lenses something approaching the photochromic quality of glass, enabling them to darken fashionably in sunlight. Vanity may not rule the world of optics, but it has a strong influence.

XA World P3851 Ophthalmic Goods TECH Products TECH Processes TECH Standards P3851 The Financial Times London Page 18 1080
Management (Marketing and Advertising): Brushing off the welcome mat - Michael Skapinker looks at Holiday Inn's efforts to improve standards and woo back customers Publication 930218FT Processed by FT 930218 By MICHAEL SKAPINKER

Raymond Lewis, Holiday Inn's head of marketing, tells the story of an apprehensive American woman who arrives in Beijing, sees a building with a Holiday Inn sign on it and weeps with relief.

There are other stories, such as the couple, travelling through the US some years ago, who entered a Holiday Inn and left minutes later, appalled by the squalor.

Lewis does not deny such things have happened. Holiday Inn accepts that by the end of the 1980s standards at some of its US hotels had deteriorated, damaging the company's reputation.

When Holiday Inn began in 1952 its aim was to spare travellers unpleasant surprises. Kemmons Wilson, its founder, built the first Holiday Inn in Memphis, Tennessee, after despairing of the poor quality of US hotels.

When Bass, the UK brewing and leisure group, bought Holiday Inn in 1990, its priority was to restore the company's good name, probably the world's best-known hotel brand. The company owns an advanced computerised booking system, which it values at Dollars 250m (Pounds 177m). But unlike some hotel companies, Holiday Inn has not been a big investor in property assets. The company owns only 104 of the more than 1,700 Holiday Inns worldwide. It manages some others, but most are run by franchisees. The Holiday Inn brand is the company's most important asset.

'A brand describes a set of expectations,' Lewis says. 'How you deliver against those expectations is the strength of your brand. Anyone can get a customer in the door the first time. But the way you build a business is by getting them back.'

The first challenge was to raise the standards of its hotels, about 90 per cent of which are in the US, to ensure customer expectations of a reliable service were met.

Bryan Langton, Holiday Inn chairman since the Bass takeover, says the company needed a sense of urgency. He found 2,450 staff at the company's headquarters in Memphis, many under-employed. 'You could have had a heart attack and died at your desk and you wouldn't have been discovered for a couple of weeks,' he says. He moved the headquarters to Atlanta, reducing staff to just over 1,000.

Michael Leven, the executive charged with raising the franchised hotels' standards, is ideally suited to the task, having once been thrown out of the Holiday Inn system after a disagreement over spending on upgrading. Holiday Inn later hired him as president of its franchise division. He believes the brand pulls in customers. Nevertheless, when he came to Holiday Inn the first thing that struck him was the lethargy. 'The franchise division was living on past glories,' he says.

Inspection of franchised Holiday Inns has been increased from once to twice a year. In his first year, Leven deprived 75 Holiday Inns of their franchises. Last year, 30 were thrown out. Leven expects this year's number to be 75.

He closed down the Holiday Inn training 'university' in Mississippi, replacing it with smaller courses at the Atlanta headquarters. By the end of 1994, all the US hotels will have facilities to do their training on their own premises. A group of 32 trainers, dubbed 'Roads Scholars', travel to the hotels. However, they will soon be replaced by 42 trainers, known as Area Service Delivery Consultants.

The second challenge facing Holiday Inn is to protect and expand its position in the crowded, medium-priced market. In the 1950s, there were two medium-priced hotel chains, Holiday Inn and Howard Johnson. By the 1980s, they had been joined by chains such as Renaissance, Clarion, Ramada, Quality and Courtyard.

Holiday Inn's previous managers had created two new brands, Embassy Suites and the budget Hampton Inn chain. Under Bass, the company has decided to keep the Holiday Inn name, using sub-brands to expand its share of the medium-priced market.

In the US, in addition to its standard hotels, the company has set up Holiday Inn Express hotels which are pitched at the cheaper end of the middle market. In Europe and South Africa, Holiday Inn Garden Court hotels aim to draw in a more budget-conscious market.

Above its standard hotels, the company has the more up-market Holiday Inn Crowne Plaza hotels, a name created by the previous management. Langton sees the Crowne Plazas as the solution to another problem: the difference in quality between Holiday Inn's hotels in the US and in Europe, where they are considerably smarter.

The absence of a uniform standard is a weakness at a time of increasing international travel. All the large hotel groups try to persuade their US customers to use their hotels when they travel. Langton argues Crowne Plazas offer a worldwide standard.

Managers in competing companies say the rehabilitation of the Holiday Inn name has some way to go. The Crowne Plaza hotels are seen as particularly vulnerable to competition from more expensive brands.

Holiday Inns US United States of America P7011 Hotels and Motels COMP Company profile MGMT Management P7011 The Financial Times London Page 17 862
Management (Marketing and Advertising): The high cost of creativity Publication 930218FT Processed by FT 930218 By GARY MEAD

Companies are paying through the nose for the consultancy, creative and production skills involved in UK newspaper and magazine advertisements.

That has long been suspected; now there is supporting evidence, according to collaborative research conducted by the Incorporated Society of British Advertisers, in conjunction with Advertising Research Marketing, a marketing communications company applying fixed-cost methods.*

The results make grim reading. Why, for example, should one advertiser have paid production costs of Pounds 4,115 and a different advertiser Pounds 80,000, both for a four-colour double-page spread advertisement? Even allowing for variation in specifications, such as photography, there is no strong reason for the anomaly.

The report reveals many instances of agencies seeking to augment profits by loading inadequately invoiced costs on to the production stage of the press advertising process.

Such costs are not those incurred in buying media space; they are the simple and easily accountable costs involved in producing the creative concept, the artwork, photography and so forth.

A recently privatised national public utility received a bill for Pounds 17,000 for the production work on a newspaper advertisement; another advertisement for the same utility, which reproduced the same images as its earlier ad with slight changes to the copy, was billed at Pounds 41,000.

Such findings are bound to generate considerable controversy among advertising agencies, which are continuing to feel the pinch in the current recession. The Institute of Practitioners in Advertising revealed at the end of January that in 1992 another 1,000 jobs had been lost among IPA members based in London.

Moreover, a new book to be published in March - Industrial Marketing Communications** - indicates the proportion of industrial and business-to -business advertisers dispensing with the services of an advertising agency has increased from 9 per cent in 1977 to 20 per cent today. Advertising agencies are increasingly losing out to direct mail and public relations activities.

The ISBA/ARM research suggests that press advertising in the UK is subject to 'generally poor costing standards' and that there are 'very widespread and fundamental inadequacies in the standard of management controls and procedures throughout the estimating and invoicing path'.

John Orsmond, chairman of ARM, says: 'Until agencies abandon variable-cost practices, they will never achieve the transparency and costing stability their clients are now demanding.'

One area of complete opacity in the production of press advertising is that of consultancy charges. One advertiser was charged Pounds 52,000 for 'the thinking that lay behind' the pan-European concept of the advertisement in question.

When it came to invoicing for the creative aspect of the production process, 91 per cent of those surveyed had no idea how the figure they were charged was arrived at by their agency.

In the recession the finance director has regained status viz-a-viz the marketing boss; advertisers are demanding explanations of large bills without clear, item-by-item invoicing.

Following the lead set by the ISBA, which published its own guide to best practice in dealing with advertising agencies in 1992, the IPA has just issued its own guidance note on best practice in the selection of an advertising agency.

Among the advice aimed at advertisers considering how best to select from the many excellent advertising agencies on the IPA roster, though, there is nothing about how to tell from invoices if the agency work is above or below what might be considered a reasonable market rate.

*Available from ARM, 1 McCrone Mews, Hampstead, London NW3 5BG. Free; handling charge of Pounds 25.

**Industrial Marketing Communications, by Norman Hart, The Yard, Culverden Park Road, Tunbridge Wells, Kent TN4 9QX. Price Pounds 16.95.

GB United Kingdom, EC P731 Advertising TECH Standards TECH Services COSTS Costs & Prices P731 The Financial Times London Page 17 631
Management (Marketing and Advertising): Anyone for pizza? Publication 930218FT Processed by FT 930218 By PAUL TAYLOR

When Peter Boizot brought authentic Italian pizza to Britain in the mid-1960s some early customers suggested he put chips on the Pizza Express menu. Others mistook the oregano for grass.

But Boizot stood firm and ultimately his recipe for high-quality pizzerias proved a classic marketing success. From a single Soho restaurant in 1965 the Pizza Express chain has grown to include 68 company-owned and franchised restaurants which generated Pounds 1.5m in operating profits on turnover of Pounds 16.3m last year and sold 6.5m pizzas.

Today its shares will begin trading on the stock exchange for the first time following a complex reverse takeover by the publicly quoted Star Computer group worth almost Pounds 15m.

Mintel, the independent market researchers, said in a report last autumn that since 1987 the size of the pizza/pasta market in the UK has more than doubled to an estimated Pounds 694m last year.

Pizza Express has become Britain's most popular pizza chain despite spending little on advertising. Instead it has relied on its predominantly upmarket, loyal customers to spread the word.

Along the way Pizza Express has succeeded in trouncing a handful of look-alike rivals including Pizza Hut, the market leader in terms of outlets, PizzaLand and Deep Pan Pizza. So what is the secret?

David Page, who ran the largest group of franchised Pizza Express restaurants and is managing director of the new publicly quoted group, believes the success is due to Boizot's refusal to compromise on quality or authenticity.

For example, Boizot insisted on using real Italian pizza ovens which provide a very hot, dry heat. The Pizza Express interiors have all been designed by Enzo Apicella to exploit the character of each individual building.

Similarly the menu has changed little in the last 28 years - even the introduction of cappucino coffee machines has been resisted - and only genuine mozzarella cheese and Italian tomatoes are used.

Robert Bird has been in charge of food quality control for 14 years and the group runs a 'secret eater programme' designed to check everything from quality of food and service to the tiling in the toilets.

Aside from pizza, Boizot's other passions include Venice, hockey and jazz, all of which have become associated with the group. More than Pounds 300,000 has been donated to the Venice in Peril appeal fund from a 25p surcharge on Pizza Veneziana.

It might be tempting for Pizza Express's new management to try to squeeze a few more margin points out of the business by scaling down some of these activities, or tinkering with the formula.

But Page, Luke Johnson and Hugh Osmond, who put the Star Computer deal together, insist there are no plans for change. 'It has been successful because it is authentic,' says Page.

Pizza Express GB United Kingdom, EC P5812 Eating Places COMP Company profile MGMT Management P5812 The Financial Times London Page 17 495
People: Nomura hires Ruland to head German team Publication 930218FT Processed by FT 930218

Nomura, which last October closed its European equity market-making operations and sacked 50 people, has hired Heino Ruland as head of its German equity research and marketing, a new post.

Japan's largest securities house denies any inconsistency in its strategy for the Continent, pointing out that Germany is its most important market in Europe after the UK and says that it will continue to provide and expand in areas which it thinks are profitable.

Ruland, who will be based in London, lives in Frankfurt and spends a good proportion of his time in Germany, will be responsible for pulling together Nomura's German resources - currently two country analysts in Frankfurt together with the London-based sector analysts. Since the events of last October, the latter look at industries very much on a pan-European basis.

Unusually for a German financier, Ruland, who is just 36, has moved about in his 15 years in the securities business. He joined Dresdner Bank straight from school - later doing an economics degree at night school - but has also been at Bank in Liechtenstein, Morgan Stanley and Bank Julius Baer. Then, he had only been at Barings Securities as the co-head of its Frankfurt operations for ten months when the UK merchant bank decided to reorganise its activities in order to concentrate on southern Europe.

Nomura says that his depth of experience, his youth, and his 'bicultural' approach, singled him out as the strongest candidate. His penchant for collecting classic Mercedes convertibles as well as for riding Harley Davidson Soft Tails presumably also distinguished him somewhat from the herd.

Nomura Securities DE Germany, EC P6211 Security Brokers and Dealers PEOP Appointments P6211 The Financial Times London Page 16 297
People: Why Paul Kilduff has left TDG Publication 930218FT Processed by FT 930218

Alan Cole, chief executive of Transport Development Group, is on the lookout for what will be the fourth finance director he has worked with since he stepped into the boss's seat just over two years ago.

Paul Kilduff, who joined from National Westminster last August, has just resigned 'by mutual agreement'. While Cole will not admit that there was a personality clash, he says 'it didn't work out. We both agreed we had made the wrong choice.' Asked what Kilduff had done since he arrived, he added 'he has not had time to do a lot'.

Kilduff, 39, had been headhunted from NatWest where he had spent just 10 months as head of group strategy. The same firm of headhunters is now looking for his replacement. Previously, Kilduff had been finance director of Sealink for three years, before it was taken over by Stena; the Swedes brought in their own team, though sources close to Kilduff indicate he parted on very generous terms. Before Sealink the Peat Marwick-trained chartered accountant had been at Lonrho as finance director of Metropole Group between 1985 and 1987. Earlier in his career he had spent a year as chief financial executive of Micro Focus at the time of its stock market flotation.

Five months after Cole became chief executive, David Horner, who had been finance director since 1973, took early retirement at age 57. Stephen Bodger, from ML Holdings, was his successor, but last August Bodger was put in charge of TDG's troubled French operations. Bodger, who remains on the board, had wanted a 'managerial role', according to Cole, who emphasises that the move constituted 'career enhancement'.

Transport Development Group GB United Kingdom, EC P6719 Holding Companies, NEC P4212 Local Trucking, Without Storage P4225 General Warehousing and Storage P44 Water Transportation P4783 Packing and Crating PEOP Personnel News P6719 P4212 P4225 P44 P4783 The Financial Times London Page 16 328
People: Departures Publication 930218FT Processed by FT 930218

Bill Morrison, deputy senior partner of accountants KPMG Peat Marwick has announced that he is to leave the firm at the end of September this year.

Morrison, 55, insisted yesterday that his departure was 'completely amicable' and that he was leaving 'to pursue an alternative career'. He would not say what that would be, but he will remain a consultant to the firm.

His departure raises a question over his continuing in the role of chairman of the Auditing Practices Board, the UK's new standards-setting body for auditors, when the current term comes up for renewal, but he says he would be happy to continue.

Morrison has been deputy senior partner since KPMG Peat Marwick McLintock was formed in 1987 after the merger between KMG Thomson McLintock, of which he was managing partner, and Peat Marwick Mitchell.

He was also president of the Institute of Chartered Accountants of Scotland in 1984-85, and has been visiting professor in accountancy at the University of Strathclyde since 1983.

*****

Barry Prichard has retired from SIDLAW GROUP because he is moving to the Channel Islands.

*****

Alex Gibson has left BETT BROTHERS.

*****

John O'Donnell has left the APPLEYARD car dealership group.

*****

William Thomson has resigned from JESSUPS to pursue alternative business interests.

KPMG Peat Marwick Sidlaw Group Bett Brothers Appleyard Group Jessups GB United Kingdom, EC P8721 Accounting, Auditing, and Bookkeeping Services P2281 Yarn Spinning Mills P3355 Aluminum Rolling and Drawing, NEC P4214 Local Trucking With Storage P1541 Industrial Buildings and Warehouses P1611 Highway and Street Construction P5511 New and Used Car Dealers P7361 Employment Agencies P751 Automotive Rentals, No Drivers PEOP Personnel News P8721 P2281 P3355 P4214 P1541 P1611 P5511 P7361 P751 The Financial Times London Page 16 295
Accountancy Column: Time for auditors to come out of their shells - Michael Fowle clarifies the profession's role in business and its future direction and development Publication 930218FT Processed by FT 930218 By MICHAEL FOWLE

IT IS time that auditors 'came out'. We should demonstrate that our profession is a fundamental part of risk management in the economy, that we are proud of our contribution and want to do our job even better in the future than we have in the past.

I am an auditor and I am proud of it. My predecessors built my firm on a reputation for providing a service to those who used the accounts of their audit clients - and not by kowtowing to the wishes of company directors. That is the past of auditing and so must it be its future. I am passionate about auditing and its contribution to business society.

The UK Auditing Practices Board (APB) paper on the future development of auditing issued last November gives us plenty to think about. Its authors make clear that it is intended to promote public debate, and is certainly not a worked-through proposal, let alone a legal framework. But reflecting the diversity of public concern, its scope is so wide-ranging that it runs the risk of prompting a series of unending debates.

I want to return to basics. The public role of auditors is to audit accounts. They may - and indeed do - fulfil other functions which contribute materially to the benefit of the economy, but the essential issue is that of competence in their primary function.

An audit report is a matter of opinion - an opinion in support of facts, and on their presentation. Failures in audit evidence do occur, but they are surprisingly rare and we have to remember that no process of inquiry can be absolutely conclusive.

Opinion on presentation is an opinion on the way in which the directors have set out the facts and arrived at judgments where these are required. Neither opinion is of any worth unless it is objectively arrived at.

The APB paper notes that the small number of audit reports which are qualified is seen by some as indicating a lack of objectivity. But this confuses a qualified audit report with an auditor's badge of virility. Auditors do their duty to the stakeholders by assisting, advising - and, on occasions, persuading - their clients' directors to publish accounts which, in the auditors' opinion, show a true and fair view.

A qualified audit report is not only an expression of the auditors' opinion that the directors have failed to comply with the law. It is also an admission by the auditors that they have failed effectively to influence the directors. Qualified audit reports are indeed rare, but this is a sign of success, not failure.

On every single public interest audit engagement, auditors in my firm work for at least four separate client constituencies, whose interests may well conflict. There are shareholders; other stakeholders and regulators who may represent their interests; the board; and executive management. If auditors cannot build a working relationship with the executive directors and management of their client company, they can never undertake a truly efficient and effective audit.

There is no point in being frightened of conflicts of interest. The world is built on them. My favourite working definition of a professional is somebody who can identify conflicts and make judgments amongst them. Good auditors understand that not only can they serve all four client constituencies, but that they must serve all four. If the audit fails to do so, it fails as an audit.

That is why the Cadbury Report on corporate governance is entirely right to concentrate not on auditor independence but on achieving auditor objectivity. Good auditors have always known that because they serve four constituencies, their first duty is not to the directors of their client company but to the company itself. It is the company and only the company which can be the proxy for the stakeholders - in particular the shareholders, who are the prime stakeholders.

On this issue auditors are in the same position as the directors. But this legal relationship in no way detracts from the essential fact that both directors and auditors owe their duty to the shareholders and stakeholders. Auditors know this very well.

Auditors also know the importance of understanding the framework within which they operate. Their critics sometimes find this less essential. One example is accounting standards, which are not the province of the Auditing Practices Board but of the Accounting Standards Board. The roles of these related but necessarily distinct bodies are often confused in the public mind.

Another instance is the failure to grasp that it is management that manages companies, and directors who set and monitor a direction. It is directors - not auditors - who are responsible for reporting to shareholders on the company's business, its financial results and future prospects.

The heart of the question is not the narrow one of professional liability nor the details of what an audit report is meant to say. It is the fundamental issue of the function of auditors and where they stand in relation to management. We do not wish to take cover behind a defensive barricade. We welcome the opportunity to contribute more effectively to the economic process, and in so doing to respond to the needs of the market.

But the APB suggests that the purpose of an audit should be re-defined beyond the auditors' current role to encompass reporting both on the proper conduct of the company's affairs and/or future risks attaching to the company. Surely these suggestions address not the role and scope of audit, but the role and scope of annual reports by directors to shareholders?

It is for the directors to report to the shareholders and other stakeholders and only then for the auditor to express an opinion on this report. If you move to a position where reporting is in the first place the duty of auditors not directors, this denies the auditors' essential role as objective commentators and effectively makes them another tier of management.

There are strong arguments for suggesting that directors should be given an enhanced responsibility to stakeholders other than shareholders. There are strong arguments that directors should report each year to shareholders on the way the company's affairs have been conducted and on how they have satisfied themselves on the propriety and perhaps the efficiency of that conduct.

There are also strong arguments for suggesting that the directors should report to shareholders about the risks inherent in the group's business and the way in which they ensure that those risks are appreciated and appropriately limited. This last proposal is covered in the Operating and Financial Review proposal from the Accounting Standards Board circulated last April.

Auditors are neither guarantors, nor guardian angels, nor soothsayers. But if the reporting standards for directors encompass the issues of proper conduct and future risks, and if the benchmarks are there, we auditors will be able to obtain information, verify it, make judgments and arrive at opinions on those matters of conduct and risk on which an objective opinion is both practicable and relevant. It is then for the business world to judge whether the cost will match the benefit.

Michael Fowle is senior UK audit partner at KPMG Peat Marwick.

GB United Kingdom, EC P8721 Accounting, Auditing, and Bookkeeping Services P9651 Regulation of Miscellaneous Commercial Sectors TECH Standards TECH Services P8721 P9651 The Financial Times London Page 12 1261
Familiar ground is scoured again: Alan Pike predicts what Virginia Bottomley is likely to tell Michael Portillo when his search for savings moves to the NHS Publication 930218FT Processed by FT 930218 By ALAN PIKE

MR MICHAEL Portillo, chief secretary to the Treasury, will tread hallowed ground when he takes the government's review of public expenditure into the Department of Health.

It is less than five years since a small ministerial committee, including Baroness Thatcher, then prime minister, and Mr John Major, her successor, undertook a similar task as part of the review leading to the 1991 National Health Service reforms.

They discovered that the NHS stands up to international comparison as a broadly efficient means of delivering healthcare - one reason why Britain's GDP expenditure on health is relatively low. But they also discovered that healthcare costs rise faster than general inflation, and that public expectations - fuelled by factors such as the growing number of elderly people in the population - rise faster still.

Mr Portillo will make the same discoveries. Health has benefited from more generous financial settlements than most Whitehall departments in recent years. Yet his spending review will start its quest for savings when doctors and other NHS staff are again saying the service is underfunded - and when there is little appetite among ministers for radical reform. The unthinkable about the NHS was examined five years ago during the Thatcher review, when the main alternative way of funding health care - through individual insurance - was examined.

The No Turning Back group of Conservative MPs - of which Mr Portillo is a member - and free-market think tanks put forward ideas such as offering tax concessions for taking out private insurance and opting out of NHS provision.

The government decided to retain the taxation-based system, and given the political problems encountered in introducing its health reforms there is no enthusiasm among ministers - and little among backbenchers - for reopening these arguments.

Re-examination would, in any case, almost certainly lead to retention of the status quo. Tax incentives were rejected because they would encourage working-age people, who use the NHS least, to opt out. Their tax revenue would be lost, while NHS costs would be little changed.

Mrs Virginia Bottomley, health secretary, will tell Mr Portillo she is trying to attract more private-sector investment. Health authorities and hospitals are being urged to seek joint ventures with the private sector in providing expensive equipment and services such as waste incineration and energy conservation.

The Independent Healthcare Association would like the government to go further and involve the private sector in overall national health planning, and increase opportunities for private hospitals to treat NHS patients. This is starting to happen through the activities of GP fund-holders, but is unlikely to offer great savings to the NHS.

Mrs Bottomley will tell Mr Portillo the NHS is becoming more efficient as a result of the 1991 reforms. She will point to an increase in the number of patients treated through cost-effective advances like day-case surgery. She will cite her plans to reform London healthcare as a further example of her determination to get maximum value from her Pounds 29bn budget. But these developments will, at best, help reduce the NHS's appetite for extra funds rather than provide opportunities for savings.

Attempts by politicians to curb health spending, either by raising prescription and other charges or reducing activity, are almost as old as the NHS itself. They invariably cause political agony.

Lord Lawson, the former chancellor recalls in his book The View from Number 11 that when in 1982 the Thatcher government was presented with a think tank programme of cuts, including replacing parts of the NHS with compulsory health insurance, it caused 'the nearest thing to a cabinet riot in the history of the Thatcher administration.'

After a decade of accusations that its good faith towards the NHS was in doubt, the government would find such decisions even more difficult now - even if it did not have a manifesto commitment to annual increases in real NHS resources.

Next month Mrs Bottomley will speak at a British Medical Association conference on health rationing. This marks the beginning of a brave attempt by politicians and doctors to tell the public that no healthcare system can deliver every possible good thing. Priorities must be agreed.

Such an approach, which implies putting gradual limits on the scope of NHS activities, offers the best long-term hope of containing health expenditure. But it is a difficult and sensitive debate, and one that has hardly started in Britain.

Mr Portillo will be looking for speedy savings, not philosophical shifts in attitudes. The NHS has few to offer.

------------------------------------------------------------------------ NHS spending: where the money goes ------------------------------------------------------------------------ Total 1987-8 1988-9 1989-90 1990-1 1991-2 outturn outturn outturn outturn outturn ------------------------------------------------------------------------ Gross 17,653 19,599 21,112 23,632 26,731 Charges and receipts -985 -1,190 -1,259 -1,306 -1,375 Net 16,668 18,409 19,853 22,326 25,356 ------------------------------------------------------------------------ 1992-3 1993-4 1994-5 1995-6 estimated plans plans plans outturn ------------------------------------------------------------------------ Gross 29,280 30,471 31,780 33,023 Charges and receipts -1,358 -1,438 -1,504 -1,567 Net 27,992 29,034 30,277 31,456 ------------------------------------------------------------------------ Source: Department of Health figures for England ------------------------------------------------------------------------

GB United Kingdom, EC P80 Health Services P9431 Administration of Public Health Programs GOVT Government News STATS Statistics P80 P9431 The Financial Times London Page 11 885
Inflation 'may breach government target' Publication 930218FT Processed by FT 930218 By GILLIAN TETT

INFLATION may rise above the government's target of between 1 per cent and 4 per cent by the end of this year, an independent think tank said yesterday.

The forecast, in the latest quarterly report from the National Institute of Economic and Social Research, comes a day after the Bank of England warned that interest rate cuts could threaten the government's inflationary goals.

According to the report the retail prices index, excluding mortgage interest payments - the measurement taken by the government for underlying inflation - will be 4.6 per cent higher in the last quarter of this year than in the same period last year. The figure for the final quarter of 1994 is 4.7 per cent. That is considerably higher than the government's goal for underlying inflation of less than 2 per cent by the end of this parliament.

The index including mortgage interest payments will be 5.1 per cent higher in the last quarter of 1994 than in the same period this year.

The report's economic growth projections are more optimistic than the government's most recent forecast of 1 per cent for this year. The institute says the economy will grow by 2 per cent this year.

The report predicts that unemployment will continue to rise and peak at 3.2m in the first quarter of next year.

The institute, which is headed by Mr Andrew Britton, one of the 'seven wise men' on the Treasury's recently formed advisory panel, recommends that the chancellor should present a 'neutral' Budget in March. Although tax increases might be necessary in December, the report says, they should be avoided next month.

It adds: 'If the economy develops as our central forecasts predict, then we must expect to be recommending increases in interest rates by this time next year.'

As a result of devaluation, the report predicts that average import prices will be 12 per cent higher this year than in 1992, representing a key inflationary pressure. Sterling is expected to sink further against the dollar in the short term, although the report also predicts a slight rise against European currencies next year.

The report's forecasts for the public sector borrowing requirement are similar to the those of the government: borrowing is expected to reach Pounds 37.8bn in 1992-93, rising to Pounds 43.4bn in 1993-94.

Concern is also expressed about the way responsibility for combating inflation is divided between the government and the Bank of England.

National Institute Economic Review, 2 Dean Trench St, Smith Sq, London SW1P 3HE.

GB United Kingdom, EC P9611 Administration of General Economic Programs ECON Inflation P9611 The Financial Times London Page 11 449
Rate-cut boost for house sales Publication 930218FT Processed by FT 930218 By ANDREW TAYLOR, Construction Correspondent

THE revival in house sales is continuing with the help of low interest rates and low house prices, estate agents and builders said yesterday.

A survey of more than 100 English and Welsh estate agents published by the Royal Institution of Chartered Surveyors reported that the improvement in sales seen over Christmas and the new year had been sustained.

It said that the revival had spread to even previously worst affected markets such as the east Midlands, East Anglia and south-east England.

The survey warned, however, that it was too early to talk of a long-lasting recovery while potential house buyers continued to worry about the possibility of losing their jobs.

Some 65 per cent of estate agents said that prices had remained static during the three months to the end of January, while one third said that prices were still falling.

Wimpey, Britain's second largest housebuilder, said yesterday that last weekend was the best for sales for several years.

Agreed sales were running at more than a fifth higher than during the corresponding period last year.

Housebuilder Bellway said that agreed sales had risen by 50 per cent since the new year compared with 12 months earlier.

More consumers are repaying credit, indicating that they may have more disposable income, according to a report by Infolink, a consultancy which supplies information about consumer loans.

It says that in the final quarter of last year 91.2 per cent of consumers with credit accounts were up to date with their repayment installments. That compared with 89.6 per cent in the equivalent period in 1991.

Bellway Pounds 33m cash call, Page 23; Lex, Page 22. Wimpey building plots' switch, Page 25

GB United Kingdom, EC P1522 Residential Construction, NEC P6531 Real Estate Agents and Managers MKTS Sales P1522 P6531 The Financial Times London Page 11 318
Packaging sector rise signals upturn Publication 930218FT Processed by FT 930218 By PETER MARSH

EXPECTATIONS of an economic upturn have been strengthened by indications of sharp growth in recent months in the production of cardboard packaging, Peter Marsh writes.

The material is used in a wide range of consumer and manufacturing sectors, and the amount produced is considered a good advance indicator of economic trends.

According to Maurice Palmer Associates, a consultancy specialising in packaging, cardboard production increased 3.1 per cent in the final quarter of last year compared with the same period in 1991.

For last year as a whole, production grew by 2.1 per cent compared with the previous year. The consultancy believes consumer goods production will show a 2 per cent year-on-year rise in the first quarter of this year.

About 3.4bn sq m of cardboard packaging were produced in Britain last year, with virtually all of this sold to UK-based companies in industries including food, drinks, household goods, medicines and factory equipment.

GB United Kingdom, EC P2675 Die-Cut Paper and Board P8811 Private Households MKTS Market data P2675 P8811 The Financial Times London Page 11 188
London's vacant office space falls Publication 930218FT Processed by FT 930218 By VANESSA HOULDER, Property Correspondent

CENTRAL London's empty office space fell by 7 per cent in the second half of last year, reversing a six-year trend that pushed vacancy rates up to record levels.

Available office space in London, including developments due for completion within six months, peaked at 34.3m sq ft last June, according to DTZ Debenham Thorpe, property advisers.

By the end of the year, it had fallen to 32m sq ft, equivalent to 17 per cent of the total office space in London.

The main factor in reducing available space was the sharp drop in completion of new offices. The amount of new offices coming on to the market in the fourth quarter of last year fell to 2.9m sq ft, its lowest quarterly figure since 1987.

In addition, the take-up of offices rose to 10.6m sq ft, an increase of 15 per cent on the previous year, but only about two-thirds of the peak annual level reached in 1989-90.

DTZ Debenham Thorpe said the balance of supply and demand was likely to remain fundamentally different from that before 1987.

It said total office stock in central London had increased by over a fifth since 1986 while employment levels in the financial and business services sector had dropped below 1986 levels.

The oversupply of London office space has resulted in a fall in rent of about 30 per cent in the year to November 1992.

In the same period, capital values have dropped by 24 per cent in the City and by 17 per cent in the West End.

Central Offices Research - London, DTZ Debenham Thorpe, 44 Brook Street, London W1A 4AG. Pounds 25.

GB United Kingdom, EC P65 Real Estate CMMT Comment & Analysis P65 The Financial Times London Page 11 306
Bart's will hold talks on merger Publication 930218FT Processed by FT 930218 By ALAN PIKE, Social Affairs Correspondent

MANAGERS at St Bartholomew's hospital in the City of London yesterday agreed to take part in talks on a merger with the Royal London hospital.

The move came only 24-hours after an announcement on the future of healthcare in London by Mrs Virginia Bottomley, the health secretary, had left Bart's in a seriously exposed position.

Professor Michael Besser, Bart's chief executive, met officials of the North East Thames Regional Health Authority yesterday and told them the hospital was prepared to discuss arrangements for a new National Health Service trust merging the management of Bart's and the Royal London. Bart's will explain its decision in a statement today.

Sir Bernard Tomlinson's report on London healthcare concluded that the health needs of the City and east London would be best served by a merged Bart's-Royal London hospital on the latter's site in the East End.

Bart's fought to retain its independence in the most high-profile of all the campaigns against the Tomlinson recommendations.

Although Mrs Bottomley's announcement on Tuesday presented three options for Bart's - closure, merger with the Royal London or continuation as a much smaller, specialist hospital - it was immediately clear that its chances of independent survival in the NHS market were slim.

Prof Besser said last night that Bart's would enter discussions on merged management with the Royal London on equal terms. Bart's had rejected the option of continuing as a scaled-down specialist hospital because the proposed unit would have been so small the market could have been manipulated to deprive it of funds.

Mr Michael Fairey, chief executive of the Royal London trust, said last night: 'I shall be delighted if Bart's managers wish to enter discussions with us.' A merged hospital could only benefit from the high level of medical excellence Bart's possessed.

It would be for the new trust management to rationalise services, and some Bart's managers and doctors will hope to retain a range of activities on their City site. But the full cost benefits of the Tomlinson recommendations will be achieved only if locations are vacated, and there will be strong pressures to transfer services to the Royal London's 26-acre site.

Doctors and managers at the Charing Cross Hospital in west London vowed yesterday to fight on to save their institution, which faces an uncertain future.

Their hopes are pinned on a government review of specialist services. Charing Cross has, among its specialist departments, the second-largest cancer treatment centre in Britain and managers believe they can make a convincing case for the hospital's retention.

GB United Kingdom, EC P80 Health Services P9431 Administration of Public Health Programs COMP Company News P80 P9431 The Financial Times London Page 11 462
BT and Oftel in price agreement Publication 930218FT Processed by FT 930218

BUSINESSES which make extensive use of private telecommunications networks will be able to predict their costs with greater confidence following an agreement between British Telecommunications and the industry regulator Oftel.

The organisations have agreed to a formula controlling the prices BT will charge for private circuits for the period 1993 to 1997. It sets a cap on the rate of inflation on three families or 'baskets' of private circuits - national analogue circuits, national digital circuits and international circuits.

British Telecommunications GB United Kingdom, EC P481 Telephone Communications P9631 Regulation, Administration of Utilities COSTS Service prices P481 P9631 The Financial Times London Page 11 116
Trust manager is suspended Publication 930218FT Processed by FT 930218

WESSEX Asset Management, a Winchester-based unit trust manager with roughly 200 unitholders, has been suspended from carrying on further investment business by Imro, the self-regulatory body for the fund management industry.

The unitholders have invested in a single unit trust called the Wessex UK Growth Fund. The suspension followed a review of the company's administrative procedures in December.

Wessex Asset Management Wessex UK Asset Growth Fund GB United Kingdom, EC P672 Investment Offices P9651 Regulation of Miscellaneous Commercial Sectors COMP Company News P672 P9651 The Financial Times London Page 11 100
Demand from funds on costs Publication 930218FT Processed by FT 930218 By NORMA COHEN

THE NATIONAL Association of Pension Funds is urging regulators to make fund managers disclose full costs to their clients, Norma Cohen writes.

According to Mr Angus Matheson, chairman of the association's investment committee, the association will soon ask Imro, the self- regulatory body for the fund management industry, whether Imro considers the extent to which full disclosure of fees and charges is made when deciding whether a fund manager is 'fit and proper' to carry out investment business.

Yesterday the association, the trade body for the pensions industry, unveiled the results of a year-long study on fees and indirect charges which concludes that practices in the industry allow managers to profit without their clients' knowledge.

While fund managers typically charge their clients a 'headline' fee equal to between 0.15 and 0.25 per cent of assets under management, there are other charges which are not easily evident, the association says. These include additional management fees for investments in unit trusts and custody charges.

'We found that trustees and clients did not know what their manager was up to and their consultant could not help them,' said Mr John McLaughlan, investment director at United Friendly Insurance and chairman of the NAPF group that wrote the report.

National Association of Pension Funds (UK) GB United Kingdom, EC P6371 Pension, Health, and Welfare Funds P9651 Regulation of Miscellaneous Commercial Sectors TECH Services TECH Standards P6371 P9651 The Financial Times London Page 11 252
UK Economic Indicators Publication 930218FT Processed by FT 930218

----------------------------------------------------------------------- ECONOMIC ACTIVITY- Indices of industrial production, manufacturing output (1985=100); engineering orders (pounds billion); retail sales volume and retail sales value (1985=100); registered unemployment (excluding school leavers) and unfilled vacancies (000s). ----------------------------------------------------------------------- Indl. Mfg. Eng. Retail Retail Unem- prod. output order* vol. value* ployed Vacs. ----------------------------------------------------------------------- 1991 1st qtr. 106.6 113.4 31.8 120.0 139.8 1,989 138.6 2nd qtr. 105.2 112.4 31.4 118.6 147.7 2,231 111.2 3rd qtr. 106.3 112.3 30.8 119.7 149.8 2,414 107.9 4th qtr. 106.2 110.8 29.9 119.6 177.6 2,515 114.1 November 106.2 110.9 30.9 120.4 169.0 2,518 111.8 December 105.8 110.8 29.9 119.3 203.8 2,551 123.3 1992 1st qtr. 105.4 111.1 30.8 119.4 146.0 2,635 119.8 2nd qtr. 105.0 111.6 31.0 120.0 153.5 2,712 115.2 3rd qtr. 105.9 111.5 30.5 120.7 154.3 2,805 107.0 4th qtr. 106.8 111.2 121.1 181.2 2,918 102.7 January 104.8 110.1 31.1 119.6 144.9 2,607 119.1 February 106.2 111.6 31.4 120.1 145.2 2,645 120.0 March 105.2 111.6 30.8 118.8 147.5 2,653 120.2 April 105.7 111.7 31.1 119.7 154.8 2,695 117.8 May 104.6 111.2 31.0 120.0 152.9 2,716 115.2 June 104.6 111.7 31.0 120.2 153.1 2,724 112.5 July 105.7 111.7 31.5 119.8 155.0 2,760 112.6 August 105.7 111.5 31.2 120.9 154.0 2,811 108.4 September 106.1 111.2 30.5 121.2 153.9 2,843 100.1 October 107.3 111.5 121.5 160.1 2,868 98.2 November 106.5 111.0 121.6 172.7 2,913 100.8 December 106.4 111.1 120.4 210.0 2,974 109.1 1993 January 122.3 152.0 ----------------------------------------------------------------------- OUTPUT- By market sector; consumer goods, investment goods, intermediate goods (materials and fuels), engineering output, metal manufacture, textiles, clothing and footwear (1985=100); housing starts (000s, monthly average). ----------------------------------------------------------------------- Cnsmer. Invest. Intmd. Eng. Metal Textiles Housg. goods goods goods output mnfg. etc. starts* ----------------------------------------------------------------------- 1991 1st qtr. 110.4 117.2 101.4 113.9 108.0 89.3 12.3 2nd qtr. 110.0 114.5 99.9 111.3 111.0 87.9 14.3 3rd qtr. 109.4 114.1 102.2 110.5 111.2 87.5 14.3 4th qtr. 108.5 111.8 103.2 108.2 109.4 86.4 11.8 November 107.9 112.9 103.1 109.0 110.0 87.0 12.0 December 109.1 111.6 102.4 108.0 109.0 86.0 9.2 1992 1st qtr. 110.3 110.5 101.5 107.9 107.4 86.6 14.0 2nd qtr. 111.4 111.0 100.1 108.3 107.9 87.7 14.5 3rd qtr. 111.0 111.9 101.5 108.4 105.5 88.4 13.1 4th qtr. 111.1 112.5 102.9 108.5 98.1 88.7 10.8 January 109.0 109.8 101.2 107.0 106.0 86.0 14.0 February 110.9 110.7 102.6 108.0 108.0 87.0 13.1 March 111.0 110.9 100.8 109.0 107.0 87.0 14.8 April 111.0 111.5 101.3 109.0 108.0 87.0 14.0 May 111.2 110.4 99.7 108.0 110.0 88.0 14.1 June 111.9 111.2 99.2 108.0 105.0 88.0 15.5 July 111.3 111.8 101.3 109.0 107.0 87.0 14.2 August 110.6 112.1 101.4 108.0 108.0 88.0 12.5 September 111.2 111.8 102.0 108.0 101.0 89.0 12.6 October 111.0 113.1 103.7 109.0 102.0 89.0 11.8

November 110.2 111.9 103.1 108.0 101.0 89.0 11.3 December 112.2 112.4 101.9 108.0 91.0 88.0 9.4 ----------------------------------------------------------------------- EXTERNAL TRADE- Indices of export and import volume (1985=100); visible balance (poundsm); current balance (poundsm); oil balance (poundsm); terms of trade (1985=100); official reserves. ----------------------------------------------------------------------- Export Import Visible Current Oil Terms of Reserves volume volume balance balance balance trade* US dollarsbn ----------------------------------------------------------------------- 1991 1st qtr. 122.6 135.8 -3,040 -2,814 +217 98.9 42.33 2nd qtr. 126.0 137.6 -2,234 -424 +213 98.2 44.26 3rd qtr. 127.8 139.8 -2,385 -1,301 +319 98.0 44.59 4th qtr. 128.8 139.2 -2,631 -1,784 +453 97.5 44.13 November 128.3 139.3 -985 -702 +167 97.8 43.91 December 132.1 141.0 -727 -445 +189 96.9 44.13 1992 1st qtr. 127.1 143.1 -3,046 -2,860 +422 99.4 44.31 2nd qtr. 129.4 147.9 -3,181 -3,081 +355 100.9 45.70 3rd qtr. 130.5 148.2 -3,238 -2,172 +367 101.7 42.68 4th qtr. 132.2 146.2 -4,306 -3,706 +340 96.6 41.65 January 121.4 137.0 -1,153 -1,091 +149 99.0 44.59 February 130.3 147.3 -1,008 -946 +113 99.9 44.75 March 130.0 145.1 -889 -827 +170 99.4 44.31 April 128.0 150.8 -1,381 -1,348 +117 100.2 45.77 May 133.2 146.9 -854 -820 +167 101.1 45.80 June 127.1 146.0 -946 -913 +71 101.5 45.70 July 129.2 149.1 -1,113 -758 +43 101.6 45.75 August 132.4 149.8 -1,140 -784 +246 102.5 44.45 September 129.9 145.7 -985 -630 +78 101.1 42.68 October 134.3 144.9 -1,152 -952 +168 97.2 42.14 November 133.3 145.7 -1,413 -1,213 +87 96.4 42.09 December 129.0 147.9 -1,741 -1,541 +85 96.2 41.65 1993 January 42.56 ----------------------------------------------------------------------- FINANCIAL-Money supply M0, M2 and M4 (annual percentage change);bank sterling lending to private sector; building societies' net inflow; consumer credit??; Clearing Bank base rate (end period). ----------------------------------------------------------------------- Bank BS Cnsmer. Base MO M2 M4 lending inflow* credit?? rate % % % poundsm poundsm poundsm % ----------------------------------------------------------------------- 1991 1st qtr. 2.9 10.5 10.6 +12,189 2,085 +485 12.50 2nd qtr. 1.7 11.5 8.9 +7,786 2,555 +477 11.50 3rd qtr. 2.0 11.0 7.1 +8,608 739 +202 10.50 4th qtr. 2.9 9.8 6.1 +7,866 426 -104 10.50 November 3.0 9.9 5.7 +4,079 -49 +32 10.50 December 3.1 9.2 6.3 +1,937 -54 -138 10.50 1992 1st qtr. 2.2 7.2 6.0 +5,485 266 +120 10.50 2nd qtr. 2.0 4.8 5.3 +9,917 77 +5 10.00 3rd qtr. 2.3 4.2 5.3 +4,604 -262 -11 9.00 4th qtr. 2.8 4.5 +4,860 214 +136 7.00 January 2.1 7.6 6.2 +3,344 293 +82 10.50 February 2.2 7.4 5.9 +1,164 145 +87 10.50 March 2.3 6.7 5.8 +977 -172 -27 10.50 April 2.3 5.2 5.6 +4,306 212 +16 10.50 May 2.5 4.9 5.1 +2,724 179 +45 10.00 June 1.3 4.2 5.3 +2,886 -314 -56 10.00 July 2.5 4.5 5.7 +2,943 -325 +83 10.00 August 2.4 4.5 5.5 +2,342 327 -69 10.00 September 2.1 3.5 4.8 -681 -264 -25 9.00

October 2.4 3.7 5.4 +5,020 281 +67 8.00 November 3.0 2.9 4.5 -86 -184 +13 7.00 December 3.0 3.7 -74 117 +56 7.00 1993 January 4.1 6.00 ----------------------------------------------------------------------- INFLATION-Indices of earnings (1988=100); basic materials and fuels; wholesale prices of manufactured products (1985=100); retail prices and food prices (Jan 1987=100); Reuters commodity index (Sept 18th 1931 =100); trade weighted value of sterling (1985=100) ----------------------------------------------------------------------- Earn- Basic Whsale. Reuters ings matls.* mnfg.* RPI* Foods* cmdty.* Sterling* ----------------------------------------------------------------------- 1991 1st qtr. 126.0 103.0 130.6 130.8 123.9 1,689 93.8 2nd qtr. 128.1 103.4 133.1 133.6 126.1 1,737 91.4 3rd qtr. 130.8 101.5 133.9 134.2 125.7 1,680 90.7 4th qtr. 132.4 102.5 134.6 135.5 126.5 1,625 90.9 November 133.0 102.6 134.7 135.6 126.8 1,631 91.0 December 132.3 103.4 134.8 135.7 127.2 1,609 91.2 1992 1st qtr. 135.8 102.9 136.5 136.2 129.0 1,599 90.6 2nd qtr. 136.1 102.2 137.9 139.1 129.1 1,598 92.3 3rd qtr. 137.5 100.7 138.5 139.0 127.3 1,542 90.9 4th qtr. 106.6 139.1 139.6 127.7 1,648 79.8 January 134.0 103.2 135.8 135.6 128.4 1,596 90.8 February 135.7 103.2 136.3 136.3 129.1 1,586 90.9 March 137.6 102.2 137.3 136.7 129.4 1,615 90.1 April 135.5 102.7 137.8 138.8 128.9 1,614 91.4 May 136.6 102.2 137.9 139.3 129.5 1,593 92.8 June 136.3 101.6 138.1 139.3 129.0 1,586 92.9 July 136.4 101.0 138.4 138.8 127.2 1,555 92.5 August 138.0 100.0 138.5 138.9 127.5 1,530 92.0 September 138.2 101.0 138.6 139.4 127.1 1,540 88.2 October 140.1 103.7 138.7 139.9 127.4 1,610 80.8 November 139.1 107.0 139.2 139.7 127.3 1,656 78.3 December 109.0 139.5 139.2 128.4 1,675 80.0 1993 January 110.6 140.6 137.9 128.8 1,703 80.6 ----------------------------------------------------------------------- *Not seasonally adjusted ??Net changes in amounts outstanding, excluding bank loans. -----------------------------------------------------------------------

GB United Kingdom, EC P99 Nonclassifiable Establishments ECON Industrial production ECON Inflation ECON Balance of payments ECON Balance of trade P99 The Financial Times London Page 11 1217
BT deal on private circuit charges Publication 930218FT Processed by FT 930218 By ALAN CANE

BUSINESSES that make extensive use of private telecommunications networks will be able to predict their costs with greater confidence following an agreement between British Telecommunications and the industry regulator Oftel.

The organisations have agreed to a formula controlling the prices BT will charge for private circuits for the period 1993 to 1997. It sets a cap on the rate of inflation on three families or 'baskets' of private circuit - national analogue circuits, national digital circuits and international circuits.

The agreement brings to an end a period of controversy over the control of private circuit prices. Businesses, many of which have extensive and long-established private analogue circuits, had been concerned about prices which changed from year to year and made budgeting difficult.

British Telecommunications GB United Kingdom, EC P481 Telephone Communications P9631 Regulation, Administration of Utilities COSTS Service prices P481 P9631 The Financial Times London Page 11 162
Package sector rise signals upturn Publication 930218FT Processed by FT 930218 By PETER MARSH, Economics Staff

EXPECTATIONS of an economic upturn have been strengthened with indications of sharp growth in recent months in the production of cardboard packaging.

The material is used in a wide range of consumer and manufacturing sectors, and the amount produced is considered a good advance indicator of economic trends.

According to Maurice Palmer Associates, a consultancy specialising in packaging, cardboard production increased 3.1 per cent in the final quarter of last year compared with the same period in the previous year.

For last year as a whole, production grew by 2.1 per cent compared with the previous year, after a 1.5 per cent annual fall in 1991. The consultancy believes consumer goods production will show a 2 per cent year-on-year rise in the first quarter of this year.

About 3.4bn sq m of cardboard packaging were produced in Britain last year, with virtually all of this sold to UK-based companies in industries including food, beverages, household goods, medicines and factory equipment.

More consumers are repaying credit, indicating that they may have more disposable income, according to a report by Infolink, a consultancy which supplies information about consumer loans. It says that in the final quarter of last year 91.2 per cent of consumers with credit accounts were up to date with their repayment installments. This compared with 89.6 per cent in the equivalent period in 1991.

GB United Kingdom, EC P2675 Die-Cut Paper and Board P8811 Private Households MKTS Market data P2675 P8811 The Financial Times London Page 11 263
Fund managers 'fail to disclose full fees' Publication 930218FT Processed by FT 930218 By NORMA COHEN, Investments Correspondent

THE NATIONAL Association of Pension Funds is urging regulators to make fund managers disclose full costs to their clients.

According to Mr Angus Matheson, chairman of the association's investment committee, the association will soon write to Imro, the self-regulatory body for the fund management industry. The letter will ask whether Imro considers the extent to which full disclosure of fees and charges is made when deciding whether a fund manager is 'fit and proper' to carry out investment business.

Yesterday the association, the trade body for the pensions industry, unveiled the results of a year-long study on fees and indirect charges which concludes that practices in the industry allow managers to profit without their clients' knowledge.

While fund managers typically charge their clients a 'headline' fee equal to between 0.15 and 0.25 per cent of assets under management, there are other charges which are not easily evident, the association says. These include additional management fees for investments in unit trusts, custody charges and failure to pay competitive interest rates on cash balances or on balances arising from settlement failures.

The association says it has been unable to determine the extent of fund managers' revenues earned from hidden fees.

However, Mr Nick Fitzpatrick, partner at consulting actuaries Bacon and Woodrow, said his firm had conducted its own study and concluded that, on average, fund managers earn nearly twice as much from clients as the 'headline' charge to the client indicates.

Mr Fitzpatrick said the Bacon and Woodrow study probably underestimated the actual remuneration because it could not accurately quantify the additional fees earned by fund managers who arranged foreign exchange and securities transactions through their own affiliates.

'We found that trustees and clients did not know what their manager was up to and their consultant could not help them,' said Mr John McLaughlan, investment director at United Friendly Insurance and chairman of the NAPF group that wrote the report.

In particular, the group singled out property investment, saying clients are in the dark about how much they are paying. Because fee structures are unclear and because they are largely transaction-driven, they could encourage property fund managers to buy and sell portfolios for no other reason than to generate income, the group added.

National Association of Pension Funds (UK) GB United Kingdom, EC P6371 Pension, Health, and Welfare Funds P9651 Regulation of Miscellaneous Commercial Sectors TECH Services TECH Standards P6371 P9651 The Financial Times London Page 11 423
Manchester Olympics 'would bring in Pounds 4bn' Publication 930218FT Processed by FT 930218 By IAN HAMILTON FAZEY, Northern Correspondent

NORTH-WEST England would benefit to the tune of at least Pounds 4bn and gain the equivalent of 11,000 full-time jobs if Manchester were to succeed in its attempt to stage the Olympic Games in the year 2000, according to KPMG Peat Marwick, the management consultants.

About Pounds 2.5bn would be generated by capital investment in new facilities, environmental improvements and regeneration projects. Running the games would be worth a further Pounds 1.5bn in sponsorship, media activity, merchandising, tourism and additional income.

Manchester's final bid document was yesterday given the official blessing of Mr John Major, the prime minister, to underline the government's commitment. Manchester is bidding against Brasilia, Berlin, Milan, Istanbul, Beijing and Sydney.

Mr Major said legislation was expected soon to give the organising committee the necessary powers to plan and implement the event. He plans to visit Lausanne in April to see Mr Juan Samaranch, president of the International Olympic Committee.

Mr Tim Johnston, who led KPMG Peat Marwick's study team, said the figures were conservative. Other benefits might include extra tax revenues to the government of about Pounds 400m and a contribution to the UK balance of payments, which a 1990 study by two academic economists put at Pounds 500m.

'We have only attached figures to what we can be reasonably be sure of,' said Mr Johnston. 'We have not even tried to assess the inward investment that might flow because of increased worldwide interest in Manchester, although it would be very easy to say this might be worth 30,000 jobs.'

The games would generate 110,000 person-years of work, the study says.

Economic regeneration will be one of the criteria used by the International Olympic Committee when it awards the games in September.

The compactness of the Olympic site will also be a criterion. The bid document says 21 of the 25 Olympic sports would be within a 20-minute drive of the Olympic village in Manchester.

The soccer tournament would use stadiums in Liverpool, Leeds, Sheffield, Birmingham, Nottingham, Sunderland and Newcastle, as well as Manchester, while baseball would be staged at Old Trafford cricket ground.

Sailing would be in Cardigan Bay, based on Pwllheli, north Wales, with shooting and modern pentathlon at Chester. Liverpool would stage the boxing and volleyball in an arena at King's Dock - next to the Albert Dock - which is to be developed to a Richard Rodgers architectural design.

The government has already given Pounds 70m towards the bid, and work is under way on a velodrome for cycling and an arena for gymnastics.

Greater Manchester Passenger Transport Authority yesterday announced an extension of its tram system to the main Olympic stadium site, which is already being cleared.

GB United Kingdom, EC P7999 Amusement and Recreation, NEC P9532 Urban and Community Development GOVT Government News P7999 P9532 The Financial Times London Page 11 489
Holiday company ceases trading Publication 930218FT Processed by FT 930218 By MICHAEL SKAPINKER, Leisure Industries Correspondent

TOUR OPERATOR Riva Travel yesterday said it had ceased trading because it could not meet its financial obligations. It has 300 customers abroad and 60,000 bookings.

The company has links with Mr Harry Goodman, former chairman of the International Leisure Group, which collapsed in 1991. Riva said last night that Mr Goodman had worked as a consultant to the company. Ms Jackie Kernaghan, Riva's managing director, formerly worked for ILG.

Riva was fully bonded, and the company said that customers' money was protected and holidaymakers abroad would be repatriated. Repatriation and administration of bookings will be handled by the Civil Aviation Authority.

The company had 52 employees including 40 in the UK. Staff were told late yesterday afternoon that they no longer had jobs. Riva operated tours to the Mediterranean, Florida and the Caribbean.

'The difficulties of the economic climate, the dramatic fall of sterling and the resultant downturn in business for all tour operators made it impossible for the company to obtain the additional funding it required,' Riva said last night.

The company said that until noon yesterday it was negotiating with several unnamed organisations 'to arrange a possible restructuring of its trading operations. These negotiations having failed, the board had no alternative but to cease trading'.

Riva Travel GB United Kingdom, EC P4725 Tour Operators COMP Company News P4725 The Financial Times London Page 10 243
Watchdog to probe complaints against taxman Publication 930218FT Processed by FT 930218 By ALISON SMITH and ANDREW JACK

AN INDEPENDENT adjudicator is to be appointed to consider complaints about tax officials who are rude, slow or make mistakes.

The move is part of a new package of Citizen's Charter proposals unveiled after a Downing Street seminar chaired by Mr John Major yesterday morning.

Mr Stephen Dorrell, the Treasury financial secretary, said an adjudicator, to be appointed by May, will have a remit to scrutinise complaints about how the Revenue handles individuals' tax affairs, but will not trespass on areas covered by existing rights of appeal.

The Revenue received 15,000 complaints last year, of which 100 were referred to the government's ombudsman. Yesterday it said it expected the adjudicator to handle 20 to 50 complaints a month.

Mr Dorrell said the adjudicator would be 'a person of standing' from outside the Revenue, and described the new procedure as a readily available 'safety valve'.

Sir Anthony Battishill, chairman of the Inland Revenue board, said the appointment of the adjudicator would give taxpayers the assurance of an impartial review and give tax officials greater protection against unfair complaints.

The Revenue expects that most complaints will still be dealt with locally but says that the new arrangements, which will apply to tax matters arising after the beginning of April, will help to improve its standards of service.

The adjudicator's work will also cover the Valuation Office, and he or she will publish a report annually to the Inland Revenue board, which will be intended to draw general lessons for the service as well as redressing individual grievances.

At the same time, the Revenue published three codes of conduct based on existing practice, covering investigations, inspection of employers' PAYE records, and dealing with its own mistakes.

The third six-monthly Downing Street seminar, intended to ensure that the impetus behind the Citizen's Charter is not lost, also yielded a trickle of other moves forward.

Mr William Waldegrave, the public service minister, said publication of comparative information would be extended into areas such as hospitals and further-education institutions.

Other initiatives for the seminar include a promise of a charter for the new Child Support Agency; the introduction of a lay element into the police inspectorate; and a commitment that charter standards would be included in the contracts for holders of rail franchises under privatisation plans.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy TECH Technology GOVT Government News P9311 The Financial Times London Page 10 419
EC coal meeting likely next week Publication 930218FT Processed by FT 930218 By ANDREW HILL, MICHAEL SMITH and DAVID OWEN BRUSSELS, LONDON

MR MICHAEL Heseltine, trade and industry secretary, is likely to visit Brussels next week to present draft plans to the European Commission for keeping open some of the UK's threatened coal mines.

The trip will add to speculation, already growing in the coal and electricity industries, that the government will not now publish its white paper on coal before the end of the month. The government has previously said that it wanted to bring out the white paper as early as possible in February.

Documents leaked last night demonstrated that the government is some way off securing a deal with generators to take on extra coal, the main plank in its draft white paper. Even if it can secure an agreement, it will then have to clear its proposals with Brussels.

Although the rescue plans involving the generators should receive broad approval from Commission energy officials, Mr Karel van Miert, the EC competition commissioner, will insist that subsidies to UK pits should be scaled down after 1995. According to draft plans circulating in London, coal subsidies would be eliminated by 1998.

If Britain decided to subsidise coal beyond 1995, Mr van Miert has said he will press for a reduction in the level of indirect aid granted to the British nuclear industry. That could present problems for the government, which wants to change present plans for the nuclear industry as little as possible.

British and Commission officials in Brussels said yesterday that a firm date had not been fixed for Mr Heseltine's visit. Much will depend on the generator talks and whether he wants to consult the Commission before or after presenting his draft plan to the UK cabinet.

Mr van Miert and Mr Abel Matutes, EC energy commissioner, are jointly responsible for approving the British plan. Mr Matutes is anxious to avoid penalising the EC's most efficient pits by hampering rescue efforts.

The Commission competition authorities are also believed to have considered reviving anti-trust probes into medium-term contracts in the UK electricity industry as a means of putting pressure on the British government over subsidies.

British officials dismissed such threats this week, saying that the liberal thrust of UK energy policy was in line with Commission thinking.

'Everything (the Commission) has said to us suggests there will be no problem (with the Heseltine plan),' said one.

Commission energy officials argue that Brussels could not formally block a five-year state aid plan for the British coal industry, because UK pits would qualify for subsidies under current EC rules. The new coal subsidy regime - which is supposed to take effect from next year - has not yet been approved by member states.

The government yesterday played down the prospect that it might decide to transfer a portion of the nuclear levy to coal as part of a pits rescue package, David Owen writes.

Mr Tim Eggar, energy minister, said such a step only 'makes sense' if it was assumed Nuclear Electric's liabilities were not 'genuine liabilities.' This, he said, had not yet been established.

A High Court judge is expected to rule today on union claims that British Coal is failing to comply with a previous ruling on consultation over 10 pits earmarked for early closure.

British Coal Corp GB United Kingdom, EC QR European Economic Community (EC) P12 Coal Mining P9611 Administration of General Economic Programs GOVT Government News GOVT Legal issues P12 P9611 The Financial Times London Page 10 593
Carey outlines his path for the EC: The archbishop of Canterbury tells David Marsh of his reservations about Maastricht Publication 930218FT Processed by FT 930218 By DAVID MARSH

FOR Dr George Carey, ecumenism a la Maastricht has its limits. Although the archbishop of Canterbury gives a general blessing to European integration, he draws the line at the idea of monetary union leading to the head of his Church disappearing from English pound notes.

'I want the Queen's head on the banknotes,' Dr Carey says. 'The point about national identity is a very important one. For me being British is deeply important. I don't want to become French or German.'

Speaking squashed into a window seat overlooking Westminster Abbey during the Church of England synod this week, the archbishop spelled out his vision of how Britishness and Europeanness could come together.

'To be British is not in competition with being European,' says Dr Carey, who developed the theme during a visit last week to Strasbourg and Brussels to see leaders of the European parliament, the Council of Europe and Nato. His talks showed him: 'There is a great anxiety and desire for Britain to belong to Europe and be committed to it.

'We as a nation come across to mainland Europe as reluctant Europeans. We are brought into it squealing rather than rejoicing . . . Our future is in Europe. Away from Europe we would decline into a little offshore island because America is not going to do very much for us and the rest of the world isn't (either).'

Dr Carey displays studied benignity towards Maastricht's arch-opponents. 'I think the Maastricht treaty is rather like Stephen Hawking's A Brief History Of Time and the Satanic Verses. People have got very fixed opinions about it without having read it. I think we need to help people understand the general shape of it.'

Asked about Lord Tebbit's distinctly Biblical description of the treaty as a 'foul abomination', Dr Carey rejoins: 'I respect Norman Tebbit as a clear thinker. We need to pay close attention to his views. We mustn't rubbish people. We need a real debate. We need to educate people. We need to help one another to realise that where there are fears which are bogus, they need to be laid.'

The archbishop takes a similarly understanding view of the FT's disclosure last year that nearly Pounds 500m has been wiped off the value of Church of England property investments as a result of heavy borrowing to finance speculative property developments.

Dr Carey set up an inquiry, due to report after Easter. 'I'm grateful for the Financial Times. I want an open church in an open society. Largely as a result of that (the FT report) I've set up this inquiry of very able people who will report. I can promise we're not going to whitewash it. The church people who have given the money need to know where the money is going to.'

Dr Carey added, a touch archly: 'I hope the FT will not only look at the Church of England but also at other big businesses which probably have greater portfolios than ourselves, where more people are likely to go to the wall than the dear old Church of England.'

Dr Carey says his Church, along with churches elsewhere in Europe, has a central role in steering Europe down the path of righteous integration.

'When you are European in the Community you are member of a trading community. But one of the points I've been putting out there is that you have to move from selfishness to altruism. Most of us are in the Community for selfish reasons, for economic reasons, for materialistic reasons. That's not a good enough reason to belong. There have got to be cultural and spiritual reasons . . . If we end up with a fortress Europe, that's not a Christian Europe.'

The archbishop voices support for EC emphasis on subsidiarity - allowing government decision-making to be carried out at the lowest level. 'This is deeply important . . . It comes from a Christian philosophy. You only do together what you have to do together. It respects some degree of sovereignty for the state.'

GB United Kingdom, EC P8661 Religious Organizations P9721 International Affairs CMMT Comment & Analysis Dr Carey, G Archbishop of Canterbury (UK) P8661 P9721 The Financial Times London Page 10 732
Olympic Games spin-off put at Pounds 4bn Publication 930218FT Processed by FT 930218 By IAN HAMILTON FAZEY, Northern Correspondent

NORTH-WEST England would benefit to the tune of at least Pounds 4bn and gain the equivalent of 11,000 full-time jobs if Manchester were to succeed in its attempt to stage the Olympic Games in the year 2000, according to KPMG Peat Marwick, the management consultants.

About Pounds 2.5bn would be generated by capital investment in new facilities, environmental improvements and regeneration projects. Running the games would be worth a further Pounds 1.5bn in sponsorship, media activity, merchandising, tourism and additional income.

Manchester's final bid document was yesterday given the official blessing of Mr John Major, the prime minister, to underline the government's commitment. Manchester is bidding against Brasilia, Berlin, Milan, Istanbul, Beijing and Sydney.

Mr Major said legislation was expected soon to give the organising committee the necessary powers to plan and implement the event.

Mr Tim Johnston, who led KPMG Peat Marwick's study team, said the figures were conservative. Other benefits might include extra tax revenues to the government of about Pounds 400m and a contribution to the UK balance of payments, which a 1990 study by two academic economists put at Pounds 500m.

'We have only attached figures to what we can be reasonably be sure of,' said Mr Johnston. 'We have not even tried to assess the inward investment that might flow because of increased worldwide interest in Manchester, although it would be very easy to say this might be worth 30,000 jobs.'

GB United Kingdom, EC P7999 Amusement and Recreation, NEC P9532 Urban and Community Development GOVT Government News P7999 P9532 The Financial Times London Page 10 279
Rover to create 300 jobs at Cowley Publication 930218FT Processed by FT 930218 By JOHN GRIFFITHS

ROVER GROUP is to create 300 to 350 jobs at its recently modernised Cowley plant near Oxford to double production of Maestro and Montego models to 600 a week.

The jobs are being offered initially on a six-month temporary basis and will allow the introduction of two-shift working.

This temporary employment approach has been made possible because of Rover's deal with unions last year to sweep away restrictive working practices.

Rover Group, the vehicles subsidiary of British Aerospace, said last night that it needed the extra shift to meet what it described as a sharp upturn in demand for the cars in the UK and continental Europe.

Recently the Cowley plant, which employs 4,700 people, introduced a night shift for the 800 range, which has become the UK executive car sector leader. The shift was also to prepare for the new Rover 600 model, developed with Honda, which is to be launched in April.

Mr Paul Kirk, managing director of Rover's large cars division, said that sharply increased UK demand for diesel versions of the Maestro and Montego and a sales surge in Spain were mainly responsible for the expanded output.

The new jobs represent the first significant recruitment drive at Cowley - where Rover has invested nearly Pounds 200m in recent years - for more than five years.

Throughout much of the 1980s both unions and local authorities expressed fears that Rover's long-term intentions were to close the complex.

GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies COMP Company News PEOP Labour MKTS Production P3711 The Financial Times London Page 10 279
Brain project Publication 930218FT Processed by FT 930218

A BRAIN research centre is to be set up in London with Pounds 20m charitable funding. The Wellcome Trust and Leopold Muller Trust are financing the laboratory at the Institute of Neurology in Bloomsbury.

Leopold Muller Trust Wellcome Trust GB United Kingdom, EC P8731 Commercial Physical Research COMP Company News RES Capital expenditures P8731 The Financial Times London Page 10 68
Central Circuits sold by receivers Publication 930218FT Processed by FT 930218

FORWARD Group, the circuit board maker based in Tamworth, Staffs, yesterday secured the future of 200 jobs in Telford, Shropshire, when it paid Pounds 1.7m for the business and assets of Central Circuits from the receivers, Mr Ken Jones and Mr Andrew Menzies of Robson Rhodes, accountants.

Forward Group Central Circuits GB United Kingdom, EC P3672 Printed Circuit Boards COMP Acquisition P3672 The Financial Times London Page 10 79
MPs' motion on BCCI Publication 930218FT Processed by FT 930218

OPPOSITION MPs yesterday accused Touche Ross, liquidators of the collapsed Bank of Credit and Commerce International, of showing 'no regard' for the future of corporate customers of the bank.

In the latest in a series of parliamentary early day motions, 44 MPs focused on the case of Mone Bros, a small Leeds-based company, and charged Touche with 'dishonouring agreements and putting jobs at risk'.

Having paid 'the full Pounds 250,000 agreed price for essential equipment,' the motion stated, Mone was told that this was to be 'confiscated by Touche Ross'.

Touche Ross and Co Mone Bros GB United Kingdom, EC P8721 Accounting, Auditing, and Bookkeeping Services COMP Company News GOVT Government News P8721 The Financial Times London Page 10 129
Peugeot warns against strike Publication 930218FT Processed by FT 930218

PEUGEOT TALBOT warned its 3,500 manual workers not to go on all-out strike from the end of tomorrow for higher pay. It said they would threaten their own future job security.

In a letter to all employees Mr Mike Judge, the company's personnel director, said Peugeot Talbot would not improve its two-year pay offer of 3.5 per cent this year and the greater of a further 3.5 per cent in 1994 or the rate of in-flation.

The threat of disruption at the company comes after a prolonged period of industrial relations peace there.

Peugeot Talbot Motor GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies COMP Company News PEOP Labour P3711 The Financial Times London Page 10 128
Jobs for school leavers urged Publication 930218FT Processed by FT 930218

EMPLOYERS in the electronics industry should recruit more school leavers and train them to technician levels rather than employing graduates to perform similar tasks, according to a study from the Policy Studies Institute.

Many of the companies in the study slashed their apprenticeship training programmes in the early 1980s, believing that the future need was for graduates skilled in both hardware and software systems.

This belief persisted in the face of experience. Graduates were harder to recruit and tended to have higher rates of turnover than other levels of staff.

Developing Technical Skills, in Electronics, PSI. Pounds 14.95.

GB United Kingdom, EC P36 Electronic and Other Electric Equipment CMMT Comment & Analysis MGMT Management P36 The Financial Times London Page 10 131
Secretaries beat inflation Publication 930218FT Processed by FT 930218

SECRETARIES of chief executives received pay rises of 5.7 per cent last year compared with of 3.2 per cent for departmental secretaries and 2.8 per cent for clerk/typists.

Average basic pay for a chief executive's secretary is Pounds 13,800 - ranging between Pounds 19,000 in central London and Pounds 12,455 in East Anglia. Average basic pay is Pounds 12,400 for a director's secretary and Pounds 8,100 for a clerk/typist.

Clerical and Operative Rewards January 1993, Reward, Diamond Way, Stone Business Park, Stone, Staffordshire ST15 OSD. Pounds 150.

GB United Kingdom, EC P99 Nonclassifiable Establishments PEOP Labour CMMT Comment & Analysis P99 The Financial Times London Page 10 115
Timex sacks 300 in Dundee Publication 930218FT Processed by FT 930218 By ROBERT TAYLOR

TIMEX Electronic announced yesterday it was dismissing all 300 striking assembly workers at its Dundee plant and replacing them with new staff as soon as possible, Robert Taylor writes.

The US-owned company said it was going ahead with the sackings because the strikers refused to accept a settlement of a 20-day dispute over a pay and conditions package.

Last Sunday and again yesterday the workers agreed to return to work under protest and accepted a company offer of arbitration. But they refused to accept a wage freeze for the rest of the year, a cut in fringe benefits and a profit-sharing scheme which the company was demanding.

Timex Electronic GB United Kingdom, EC P3873 Watches, Clocks, Watchcases and Parts PEOP Labour COMP Company News P3873 The Financial Times London Page 10 145
Radical plan for balance sheets announced Publication 930218FT Processed by FT 930218 By ANDREW JACK and TRACY CORRIGAN

THE AMOUNT of debt declared in companies' accounts will increase substantially and profits will fall under radical proposals unveiled yesterday by the UK's accounting standards body.

Under the proposals companies, particularly banks, will be forced to include on their balance sheets information which they have previously been able to conceal in obscure notes to their accounts.

The draft rules introduce tough requirements on the treatment of many complex accounting devices used by a growing number of companies to conceal liabilities or inflate profits. They could become mandatory by the end of this year.

Fred 4, the financial reporting exposure draft on off-balance-sheet financing, is likely to lead to the biggest row yet between companies and the Accounting Standards Board since its creation more than two years ago.

Mr David Tweedie, chairman of the board, said: 'The whole subject has had an unsavoury air in the past. These proposals break new ground and will cast much-needed light into a murky corner.'

The draft says that companies must show on their balance sheets as assets any transactions from which they receive benefits, and as liabilities any by which they are exposed to risk.

Such transactions - previously off balance sheet - will include sale and repurchase agreements, by which a company appears to have transferred an asset to a third party but in fact has the right or requirement to buy it back after a certain period.

Companies with certain securitised assets - those placed in a separate company and sold on to other parties - will have to provide a 'linked presentation' on the balance sheet showing the true state of underlying assets and liabilities.

Businesses with a range of currency exposures will also have to show the full extent of these risks separately rather than offsetting them against one another.

The draft standard includes a series of illustrative examples of transactions in an effort to ensure that companies obey the spirit, and not simply the letter of the regulations.

Mr Tweedie warned that the board would act quickly to stamp out any attempts by companies to introduce any new devices intended to skirt the rules.

Bankers complained that the plan would make it difficult for them to securitise credit card business, which they are now considering.

Mr Malcolm Veale, head of NatWest securitisation, said the process required by the rules was 'totally impractical'.

A growing number of companies have been using an expanding range of obscure, rule-bending devices to conceal their full liabilities from readers of their accounts.

'It's impossible to generalise,' said Mr Tweedie. 'Every scheme I have looked at is different.'

It has taken a long time for standard-setters to take the subject seriously. This partly reflects a rearguard action by companies. Banks were concerned that they would breach the European Community's capital adequacy requirements if forced to include securitised assets such as mortgages on their balance sheets.

Accountancy column, Page 12

GB United Kingdom, EC P9721 International Affairs P99 Nonclassifiable Establishments TECH Standards COMP Company News P9721 P99 The Financial Times London Page 10 524
Freehold proposals are issued Publication 930218FT Processed by FT 930218 By VANESSA HOULDER

THE LORD Chancellor's Department yesterday published proposals on commonhold, a scheme designed to establish a more flexible form of ownership for multiple-occupied buildings in England and Wales.

It would allow owners in multi-occupier developments to own the freehold interest in their units and to establish a management system for their development. The proposals seek to address the problems of flat leaseholders, some of whom find leases increasingly difficult to sell as their expiry date nears.

Commonhold, the way ahead. Lord Chancellor's Department, 105 Victoria Street, London SW1E 6QT.

GB United Kingdom, EC P651 Real Estate Operators and Lessors GOVT Draft regulations P651 The Financial Times London Page 10 120
Academic warns of inconsistencies in Accounting Standards Board Publication 930218FT Processed by FT 930218

INCONSISTENCIES are creeping into the Accounting Standards Board's new requirements and their implementation, an academic warned yesterday.

Speaking at the launch of the latest annual survey of company accounts from the Institute of Chartered Accountants in England and Wales, Mr Len Skerratt of the University of Manchester said 'cracks' were appearing in the new regime. 'The Accounting Standards Board has done a really good job,' he said. 'But it's a bit like a game of Scrabble. The first words are easy to fit in. The real problem is getting the last ones to be compatible.' From a sample of 300 companies, the survey shows wide variations in those allocating items such as foreign currency differences and revaluations between extraordinary items, exceptional items and reserve movements.

Financial Reporting 1992-93, Accountancy Books, PO Box 620, Central Milton Keynes, MK9 2JX. Pounds 49.

GB United Kingdom, EC P8721 Accounting, Auditing, and Bookkeeping Services P99 Nonclassifiable Establishments TECH Standards CMMT Comment & Analysis P8721 P99 The Financial Times London Page 10 180
Report says two-speed Europe could deprive south-east England of pounds 10bn income Publication 930218FT Processed by FT 930218

A TWO-SPEED Europe could deprive south-east England of annual income of up to Pounds 10bn, according to a report published today backing a full UK role in European integration.

The study, by the European Policy Forum, was commissioned by the Corporation of London to underline the potential losses to the City if Britain failed to ratify the Maastricht treaty.

The report says that Britain should maintain the policy of 'attachment' to Europe, practised particularly after the single market programme was drawn up in 1985.

Britain, Europe and the Square Mile, 20 Queen Anne's Gate, London SW1H 9AA.

GB United Kingdom, EC QR European Economic Community (EC) P9721 International Affairs CMMT Comment & Analysis P9721 The Financial Times London Page 10 137
'Cracks' are identified in accounting standards rules Publication 930218FT Processed by FT 930218 By ANDREW JACK

INCONSISTENCIES are creeping into the Accounting Standards Board's new requirements and their implementation, an academic warned yesterday.

Speaking at the launch of the latest annual survey of company accounts from the Institute of Chartered Accountants in England and Wales, Mr Len Skerratt of the University of Manchester said 'cracks' were appearing in the new regime.

'The Accounting Standards Board has done a really good job,' he said. 'But it's a bit like a game of Scrabble. The first words are easy to fit in. The real problem is getting the last ones to be compatible.'

From a sample of 300 companies, the survey shows wide variations in those choosing to allocate items such as foreign currency differences, goodwill and revaluations between extraordinary items, exceptional items and reserve movements.

Mr Skerratt highlighted an inconsistency in the way the ASB requires companies to pass goodwill through the profit and loss account, while passing the effect of revaluations through reserves.

He said its decision to require companies to classify all convertible capital instruments as debt rather than shareholders' funds until they were converted was inconsistent with its statement of principles, which says the substance of a transaction should take precedence over its legal form.

He also pointed to variations in the way companies and their auditors had interpreted the ASB's urgent issues task force ruling on the treatment of goodwill on disposal of acquisitions.

The survey highlighted the growing use of 'pro-forma accounts', which do not need to be audited but are included in the accounts because of significant events after the balance sheet was approved.

It also showed that just 4 per cent of the companies had qualified reports from their auditors, down from 6 per cent last year.

The proportion of companies showing intangible assets, such as brands and patents, on their balance sheets jumped considerably from 59 per cent to 67 per cent. That comes in advance of an ASB discussion document on intangibles.

Financial Reporting 1992-93. Accountancy Books, PO Box 620, Central Milton Keynes, MK9 2JX. Pounds 49

GB United Kingdom, EC P8721 Accounting, Auditing, and Bookkeeping Services P99 Nonclassifiable Establishments TECH Standards CMMT Comment & Analysis P8721 P99 The Financial Times London Page 10 381
Unemployment in the UK: Training schemes are no panacea Publication 930218FT Processed by FT 930218 By LISA WOOD and DAVID GOODHART

IS there any point in training the longer-term unemployed? As the number of people out of work for more than one year creeps up towards 1m again the employment establishment is sticking as firmly as ever to the training creed.

The government appears to accept the argument that training is of limited use, especially to the well-qualified, white-collar unemployed. It is now allowing Training and Enterprise Councils to choose who they train more than ever before.

Money saved on training could go towards make-work schemes such as the popular Community Programme, scrapped in 1988, which at its height employed 250,000. Or it could go to improving counselling by the Employment Service. Experts say the service is amateurish at assessing people and needs to establish a proper audit of the skills and aptitudes of each person as they become unemployed.

But when the economy is simply not generating jobs, better assessment and placement cannot do much. The apparent success of the compulsory Restart interview for the long-term unemployed was partly based on diverting people to the kinds of benefit support that takes them off the unemployment register, such as disability.

The main training scheme for adults, Employment Training, was launched in 1988 at a time of skill shortages and worries about a shortage of youngsters. This year it will cost Pounds 920m and train 200,000 people.

Critics say it is training too many electricians to become bricklayers and bricklayers to become electricians. They also point out that a person who has been on ET, who must have been unemployed for more than six months, has only a 25 per cent chance of getting a job. Someone who has merely gone through the Employment Service counselling service does better than that. Counselling costs Pounds 275 for each successful job placement - ET costs Pounds 10,000.

Supporters of training and make-work schemes see a lack of real conviction by the establishment.

'Schemes for the unemployed have always been regarded as temporary things, which is very damaging, and has meant that we have never really had a worthwhile scheme,' says a senior civil servant.

The training lobby takes issue with the official figures for training versus counselling. They say that ET has to deal with a more difficult client group while the Employment Service creams off the best. Further, they say, ES figures are not properly audited.

It is still the case that the unemployed are less well qualified than the population as a whole, and unlike the early 1980s more than 50 per cent of the long-term unemployed are under the age of 35. Skills they acquire could have a lasting value.

Ms Karen Blackwood, 24, is one who has benefited. She left school in 1984 with 7 CSEs, but was made redundant after working as an audio-typist and remained unemployed for eight months with employers saying her skills were out of date.

Eventually she saw an advertisement in a paper for an ET course offering 'upskilling' as the way to get a job. 'I thought, that's what I need, it's because I haven't got the right skills that I'm having such a hard time', she said. Soon after that she found a job. Ms Blackwood illustrates the fact that, while training can be part of the solution, it is no panacea.

GB United Kingdom, EC P8331 Job Training and Related Services PEOP Labour P8331 The Financial Times London Page 9 588
Unemployment in the UK: Sharing out the available work may top the political agenda Publication 930218FT Processed by FT 930218 By DAVID GOODHART, Labour Editor

IF THE past 20 years have proved anything, it is that there are no simple, cheap solutions to high unemployment.

Yet there are some relatively low-cost options which could soon be on the agenda. One idea is to spread the available work more evenly across the whole population. Another is to overhaul the benefit system to make it more employment-friendly. A third involves limited subsidies to induce employers to take on the long-term jobless.

The 'redistribution' school - which ranges from the women's lobby to those who believe automation wipes out jobs - argues that unemployment of more than 2.5m is here to stay, and that the only way of getting more people into work is to repackage existing working time to include them.

They welcome many of the 1990s trends towards more flexible part-time work, and want to encourage more job-sharing while discouraging systematic overtime. More radically, some of them talk of a cultural revolution with 'more men accepting a role as half breadwinner and half house-husband', according to Ms Anna Coote, a prominent campaigner.

The UK has a higher female participation rate than most other EC countries, with women taking most of the new, mainly part-time, jobs. Men, says Ms Coote, may have to be readier to accept 'female' jobs if male unemployment is to be substantially reduced.

The 1990s could be the decade the redistributionists have been waiting for. The double-earner household is now the norm, so it is easier for men to work shorter hours and take a greater role in child-rearing, something they now seem readier to do. Job sharing and part-time or two-third jobs may also suit well-paid managerial and professional workers whose jobs are now threatened for the first time, and who can better afford the trade-off between work and leisure or family duties.

There is mainstream political support for such ideas. Mr John Smith, the Labour leader, says he wants a definition of full employment which 'recognises the rights of part-time workers and forges a new balance between the demands of family life and paid work for both men and women'.

There are plenty of ways to encourage the jobs market to share out work even more and make sure the unemployed get some of it. The French government tops up the pay of older workers who give up half their job and covers administrative costs. Grants to employers for job-splitting and job-sharing, abandoned in the late 1980s, should also be restored.

Making the benefit system more employment friendly could help. It is difficult for the Employment Service to help people to help themselves back into paid employment because of social security rules which assume that most of the jobless are work-shy.

Income support, the most important benefit for the unemployed, has an 'actively seeking work' rule which precludes more than 16 hours paid work per week or 21 hours of formal education, and can prevent people working for nothing in the voluntary sector. The government seems ready to relax some of these rules.

Just as important would be raising the threshold of what the unemployed can legitimately earn, and removing the 'mortgage trap'. For the first two years on income support people are allowed to earn only Pounds 5 before having every pound earned clawed back through reduced benefit. That is raised to Pounds 15 after two years. but is still not much of an inducement to small-scale self-help.

If an unemployed person, or someone in their household, takes part-time work over the hours threshold it can lead to the withdrawal of mortgage interest payment, which takes 16 weeks to reinstate if you then lose the job. The main in-work benefit for the low-paid - family credit - pays rent but not mortgages.

The best way to get a new job is to have one already, but Ms Ruth Wharton, a single parent from Cumbria, complains: 'You can't risk coming off income support in the hope that a part-time job might turn into a full-time one.'

To make it easier for people such as Ruth reformers propose raising the working hours threshold to 20 hours and the weekly earnings threshold to about Pounds 40 (plus more flexibility for allowances to be 'rolled up' to promote seasonal work).

Would that simply mean part-time workers on benefit taking jobs from part-time workers not on benefit? It might, but Dr Eithne McLaughlin of Queen's University, Belfast, is convinced from her work with the unemployed that many would go out and create new work, mainly in the household service sector.

Subsidising the employment of the long-term jobless is the most traditional idea. Job subsidies have been rejected in the recent past because they are too indiscriminate - too many of the 7m who will take new jobs this year would attract unnecessary subsidy - or too expensive. But if employers could waive national insurance payments for new recruits who had been jobless for 18 months it would be easy to implement and cost-effective.

GB United Kingdom, EC P9441 Administration of Social and Manpower Programs PEOP Labour CMMT Comment & Analysis P9441 The Financial Times London Page 9 876
Unemployment in the UK: What to do if it happens to you Publication 930218FT Processed by FT 930218

How long will it take to get another job and how will I find it?

Two thirds of all unemployed people get a new job within six months. Of more immediate use - although scarcely more reassuring - is the fact that new jobs are not to be found in the most obvious places.

For executives, typically earning more than Pounds 30,000 a year, answering job advertisements is likely to net a job in just 20 per cent of cases. Approaches to headhunters score 10 per cent, while mail shots to companies will do more for the Post Office's revenue - just 5 per cent of jobs are landed by this method.

The most effective method is to network: half of executives who get back into work do it through networking, according to outplacement consultants Drake Beam Morin (DBM).

What is networking?

The first rule is not to blow your best contacts while you're feeling shattered - wait until you have regained your equilibrium. You are not asking those you network for a job but, as Mrs Michele Cozzi from DBM explains, co-opting them to help with your research.

For example: 'I understand from our mutual friend Fred Bloggs that you're very knowledgeable about the current state of the widget market. Would you be able to spare me a few minutes over a coffee . . . ?' The objective of the phone call is to set up a face-to-face meeting; the purpose of the meeting is to come away with the names of two or three other people you can network - plus permission to use your latest contact's name.

It's so long since I've had to write a CV. What's the style?

It needs to be professionally presented, just two pages if possible, and clear and factual. Do not include salary details unless requested because you could close off options.

Reverse chronological order, focusing on the past 10 years, is preferable. You can organise a CV by function, for example sales experience or management skills, but doing it this way could arouse suspicions. An employer may think you are concealing your age or that you have been job-hopping.

Where do I start?

With practicalities. Go to the Jobcentre to sign on. Unemployment benefit is Pounds 43.10 for a single person, Pounds 26 extra for an adult dependant. Even if you are not eligible for benefit (most people are - it is not means-tested) you will get National Insurance credits. You may also be eligible for other benefits and help with mortgage interest payments.

Towry Law, financial advisers, recommends alerting your bank, mortgage lender, and education authority if you have children at college and also compiling a budget.

Useful reading and contacts:

Parting Company - How to Survive the Loss of a Job. Drake Beam Morin, 5 Arlington St, London SW1A 1RA. Pounds 10.

The Advisory, Conciliation and Arbitration Service advises on unfair dismissal, back pay and disputes. See local phone book. The Department of Employment runs a free helpline on statutory redundancy payments: 0800 848489.

The Institute of Personnel Management will suggest three approved consultants who will help you find a job. Tel: 081 946 9100.

Back-to-work guide compiled by Diane Summers.

GB United Kingdom, EC P99 Nonclassifiable Establishments CMMT Comment & Analysis P99 The Financial Times London Page 9 569
Unemployment in the UK: The town condemned to two decades of decline Publication 930218FT Processed by FT 930218 By PAUL CHEESERIGHT,

Wolverhampton: long-term unemployment - short-term thinking Lewes: painful attrition in the south-eastMidlands Correspondent

WOLVERHAMPTON is a symbol of the nation's industrial decline. It ran into trouble in the 1970s and the recession of the 80s dealt its economy a blow from which it has not recovered. The recession of the 90s is akin to stopping a baby's feed when the milk bottle is half full: the baby survives, but miserably.

The unemployment rate in the town is nearly 16 per cent. As many as a third of males in some inner city areas are out of a job. 'In under 20 years we have gone from full employment to the worst area of the west Midlands in terms of unemployment,' says Mr Dennis Turner, Labour MP for Wolverhampton South East.

Twenty years ago, civic leaders complained that 'national policy on the location of industry continues to leave this important industrial area without its second-generation metal using and forming industries, and appears to deny it growth of almost any sort.'

That chicken came home to roost in the late 1970s. In the eight years to 1986, manufacturing industry shed 20,000 jobs. In autumn 1986, when the national economy was experiencing high growth, unemployment in Wolverhampton was above 20 per cent. In 1978 there were 20 companies with more than 500 employees. By 1989 there were only nine.

Mrs Gillian Shepherd, the employment secretary, said last weekend that two out of every three people now losing their jobs were back at work within six months. In Wolverhampton, the proportion out of work for longer than a year was more than 40 per cent.

The Rev Michael Godfrey, an Anglican industrial chaplain, is one of those trying to pick up the pieces. He is attempting to keep open the Cannon Industries' fires and cookers plant. The company, part of the GEC group, wants to close its local plant and consolidate production at Stoke-on-Trent.

'Every young person you speak to has had a period of unemployment, and they just take it,' he says. 'Unemployment shifts the attitude of loyalty and community because they don't have any to a particular employer. People just think short-term.'

There is, he suggests, a 'great survival mentality' which comes out in 'the sheer determination to hold on if you do have a job, and this is what I detect at Cannon'.

Expectations are narrowing, leading to what Mr Andy Flockhart, deputy chief executive of Wolverhampton borough council, calls the key structural problem - 'a low skills level, low aspirations and the loss of semi-skilled jobs'.

A third of the town's employment is in manufacturing, still higher than the national average. 'While this has contracted from 40 per cent, our services sector has not been growing to take up the slack,' Mr Flockhart says.

The civic vision is of Wolverhampton as 'the biggest and most prosperous centre between Birmingham and Manchester,' according to Mr Bill Clarke, the Conservative council leader.

Its service sector would be enhanced by redevelopment of the Molineux football ground and the Dunstall Park racecourse. Its manufacturing base would be strengthened by the creation of a science park linking the local university to engineering leaders such as GKN Technology, Goodyear, IMI and Lucas Aerospace.

Such plans, in the face of two decades of decline, have been slow in emerging. Mr Turner put that down partly to 'the general reluctance of government to see local authorities playing any real part in the regeneration of industrial communities.' Mr Clarke believes that 'the view has taken root across political parties in Wolverhampton that, unless there is a joint approach, development will not take place'.

Either way development will be slow. 'People don't use the word 'hope',' says Mr Godfrey. Yet many feel that Wolverhampton could do more to help itself. Services for the unemployed such as training are 'fragmented', says the local Training and Enterprise Council.

'We have commissioned research to see what is being done by the myriad of services to co-ordinate things better,' says a Tec official. 'Our resources are not as well used as they could be,' comments Mr Turner. 'There is a crying need for greater co-ordination.'

Yet, while the biggest fillip would be industrial growth in an expanding economy, civic leaders believe that, to nurture green shoots in brown fields, they need the extra watering which could come from more government funding and more European Community cash.

GB United Kingdom, EC P9532 Urban and Community Development PEOP Labour CMMT Comment & Analysis P9532 The Financial Times London Page 9 774
Unemployment in the UK: The man fighting to survive in Sussex Publication 930218FT Processed by FT 930218 By EMMA TUCKER, Economics Staff

'I'M 48, married, I have three children at school, a mortgage and a profession I cannot use. At my age I sometimes wonder whether I will ever work again.'

Sitting in the back room of his home, the old toll cottage on the Lewes to Uckfield Road, Mr Christopher Coomber reflects.

Three years ago he was senior architect at McCarthy and Stone in Eastbourne; one day between jobs in the 1960s was the extent of his experience of unemployment.

He is not alone. Lewes, the county town of East Sussex, has bustled its way through previous economic slowdowns, cushioned by jobs in local government, Sussex University, and the affluence that naturally gravitates towards the pretty market town. But this time it has suffered along with the rest of the country.

'I suppose it's a better-quality unemployment you get here,' shrugs Mr John Crawford, chief executive of Lewes District Council, peering over an aerial view of the South Downs which shows the town clumped in the middle.

'When I came to Lewes I thought nothing would ever touch its economy. I thought it was so strong with the law courts, County Hall, and the fact that the retailers enjoyed a very established market. But I would revise that opinion now.'

The town has not been the victim of headline-grabbing redundancies. Instead it has suffered from the gradual attrition of a once stable employment base, resulting in one in 10 people out of work. 'It has been a few here and a few there,' says Ms Madeleine Mayhew, a reporter on the Sussex Express.

Unemployment hit Christopher Coomber hard; first the dog and then the family felt the brunt of his quickening temper. Money, he says, was one reason. 'The subs for the my children's scouts are Pounds 10 a term - and when I look at the Scoutmaster smiling and asking if I can pay next week, it really hurts.'

At times even now the pressure gets too much. Then Christopher is to be found walking out across the fields behind his house, smoking cigarettes he can't afford. 'I think back to what I was earning, and how I thought that wasn't enough. And now I have nothing.'

Meanwhile he has lost touch with his profession. 'I have lost interest in what is happening, and the gossip. I used to be in contact with what other people were doing, but I have dropped out and don't really care any more.'

East Sussex County Council's figures show that unemployment in the Lewes district - which includes Newhaven and Seaford - rose by 37.6 per cent last year, while Ms Mayhew reports that Stena, the ferry operators in Newhaven, received more than 400 applications for one recently advertised clerical post.

Wealthy commuters living in Lewes's surrounding villages have lost jobs, and virtually all have seen the value of their homes tumble. This has put pressure on local retailers.

'The high street is all charity shops, banks and building societies - the kiss of death,' says Mr Rudi Simmonds, president of the Lewes Chamber of Commerce. 'Lewes is fed by its hinterland, by the people who make their money in London. But they are drawing in their horns.'

The quiet crisis has compelled the district council to produce an economic development strategy. But the council knows its limitations and is aware that it cannot compete against other areas in East Sussex for increasingly tight government funds.

'We are trying to break through the perception that everything must be all right because it is the south-east, says Mr Robin Beechey, chief executive of the county council.

Already the county has the lowest average wages in the south-east. The fact that more than 75 per cent of companies in East Sussex employ 10 people or fewer has made the region particularly vulnerable to this recession.

Mr Brian Renville at the Lewes Jobcentre says he has seen everyone from accountants, systems analysts and engineers, as well as unskilled workers join

the ranks of people like Mr Coomber, who at the age of 48 is considering retraining even though the prospect is daunting. 'I am thinking of doing anything at all, because in another 10 years I am going to go nowhere,' he says.

Ms Sarah Jay, 36, did decide to retrain. She enrolled on a degree course in urban planning at Sussex University before redundancy hit her post as a financial supervisor at Clothkits Lewes headquarters. But seven months since graduation and 15 job applications later she has had no luck.

'The probability of finding a job in local government did not seem unrealistic when I started the degree,' she says.

Even when the national economy picks up some fear that Lewes will lag behind the rest of the country. An export-led recovery would make little impact on a county where only 14 per cent of the workforce is in manufacturing - the lowest percentage for any county in England.

For Lewes's unemployed there can be poignant moments. Mr Coomber's father-in-law was so concerned that the family was cold that he bought them a hundredweight of coal for Christmas. 'You say 'Thank you, God', because you know you just can't afford it.'

GB United Kingdom, EC P9532 Urban and Community Development PEOP Labour CMMT Comment & Analysis P9532 The Financial Times London Page 9 908
Unemployment in the UK: A scar that will persist for years to come - Britain faces the certainty of 3m unemployed. If the figure is not reached today, it soon will be. More chilling is the fact that the total will remain high after economic recovery Publication 930218FT Processed by FT 930218 By EDWARD BALLS

IF unemployment does not pass 3m in today's headline figures it will next month. The prospect of another year of sluggish growth means the jobless total will grow well into next year.

Yet the attention-grabbing fall and rise in the level of unemployment over the last few years obscures the more chilling feature of Britain's record: the rising level of unemployment that persists whether the economy is in recession or growing fast.

While the pace and timing of the recovery is hotly disputed, no City economists expects unemployment to return to pre-1970s days when fewer than 1m were out of work:

Optimists such as Mr Kevin Gardiner at SG Warburg Securities expect unemployment to peak at 3.2m in the fourth quarter of this year and to fall below 3m in early 1995.

Pessimists such as Mr Gerard Lyons of DKB International expect a sickly recovery to push unemployment to a peak of 3.6m in 1995 and keep it above 3m throughout the next decade. Either way painfully high unemployment levels are here to stay for years.

Why is the underlying level of unemployment so much higher today than 20 years ago? Britain's repeated rollercoaster rides between boom and recession make it tempting to blame government mismanagement for persistently high unemployment, especially after three wrenching recessions in fewer than two decades.

But while the UK has had much deeper recessions than its European counterparts, it is not alone in being dogged by persistently high and rising unemployment, even though the rise in continental European unemployment may have occurred less spasmodically.

Britain's unemployment rate has risen by more than that in any other member of the Group of Seven leading industrialised countries over the past two years.

However,a the rate started rising from a lower level than in most of the country's European counterparts, and is even now barely above that in recession-bound France.

The standard explanations for persistently high unemployment - powerful trade unions, generous unemployment benefits or an immobile workforce - do not fit well with Britain's 1980s experience.

The Thatcher government deregulated the labour market, making it easier to hire and fire workers, and encouraged a large rise in female employment; it saw trade union membership fall and the number of strikes decline; it cut the level of unemployment benefits relative to average wages; and more workers than ever before bought their houses and moved between regions.

Yet at the peak of the late 1980s boom, when skilled and unskilled vacancies across the country had recovered to their levels of the late 1970s, unemployment remained higher than in any other post-war decade.

The explanation lies in the attributes and the aspirations of the unemployed themselves. Technological change and competition from low-cost producers in developing countries has reduced the demand for unskilled labour other than in low wage, often part-time employment. These jobs, often in the service sector, have been mainly taken by female entrants into the labour market.

Meanwhile, the demand for the services of unskilled men has collapsed, at least at wages they are willing to accept. Most of the long-term unemployed in the 1980s were male, lived and worked in the industrial heartlands of the north of England and had no educational qualifications.

Many of these men have slipped off the unemployment count and are now officially counted as economically inactive.

The mythology of the current recession suggests that this time round it is architects, lawyers and other middle-class professionals in the south-east who are suffering. But this a misleading caricature.

Like all myths, there is some element of truth behind it. Unemployment has risen much faster in the south than in the north and has hit mortgage-holders harder than people who live in rented accommodation. Unemployment rates for professional workers have risen, while they barely changed in the 1980-81 recession; and unemployment rates have risen for all groups, regardless of educational qualifications. The fear of unemployment among professional and indebted home-owners is also partly to blame for the lack of recovery.

Yet the professions and service sectors have not taken the brunt of this recession. Employment in service industries has fallen by a little under 500,000 since the recession began, but manufacturing employment has fallen by over 700,000. The unemployment rate for people who worked in manufacturing has risen by 5.8 percentage points since 1989 compared with 2.4 percentage points in banking and finance. Unemployment rates have risen much faster for men and young people than women, and for people in unskilled blue or white-collar occupations than professionals.

The recession is spreading the effect of falling demand for low skill labour to the south and to the service sector. Even when recovery comes, many of these lost jobs will only return at increasingly low wages. It is the poorly educated, not the frightened middle classes, who will still be bearing the brunt when this recession is just a painful memory.

------------------------------------------------------------------------ ..but the unskilled still fare worst ------------------------------------------------------------------------ Unemployment rates by industry* 1984 1986 1989 1992 ------------------------------------------------------------------------ Agriculture 5.6 5.9 4.5 6.1 Manufacturing 9.1 7.5 4.8 10.4 Construction 11.9 12.2 6.8 17.6 Distribution, Hotels, catering 9.4 8.2 5.4 9.0 Transport, communications 5.6 4.9 3.5 8.1 Banking, finance 4.0 4.2 2.7 5.1 Other services 5.0 5.2 3.9 5.0 ------------------------------------------------------------------------ Unemployment rates by occupation* 1979 1984 1989 1992 ------------------------------------------------------------------------ Professional 3.1 2.2 1.4 3.1 Intermediate 3.1 3.8 2.5 4.3 Skilled non-manual 3.1 6.4 3.8 6.4 Skilled manual 1.9 8.7 5.1 11.4 Semi-skilled 10.4 11.2 7.3 13.5 Unskilled 10.4 13.6 9.7 14.6 ------------------------------------------------------------------------ * Excludes people unemployed for more than 3 years ------------------------------------------------------------------------

------------------------------------------------------------------------ Britain's changing workforce ------------------------------------------------------------------------ As % of total workforce 1979 1989 1992 ------------------------------------------------------------------------ Employees in employment 91.3% 85.3% 85.6% Self employed 7.4% 11.7% 11.9% ------------------------------------------------------------------------ As % of employees in employment 1979 1989 1992 ------------------------------------------------------------------------ Manufacturing 31.4% 23.1% 21.1% Services 58.5% 69.0% 71.8% ------------------------------------------------------------------------ As % of employees in employment 1979 1989 1992 ------------------------------------------------------------------------ Male 58.3% 53.5% 51.7% Female 41.7% 46.5% 48.3% ------------------------------------------------------------------------ As % of female employees in employment 1979 1989 1992 ------------------------------------------------------------------------ Female full time 63.5% 57.8% 54.3% Female part time 36.5% 42.2% 45.7% ------------------------------------------------------------------------

------------------------------------------------------------------------ Of people made unemployed in '91-'92 ------------------------------------------------------------------------ - 50% are still unemployed after 3 months - 34% are still unemployed after 6 months - 19% are still unemployed after 1 year - 9% are still unemployed after 2 years ------------------------------------------------------------------------

------------------------------------------------------------------------ Labour force survey data supplied by, and available in disk or tabular form, from: Quantime Limited, Maygrove House, 67 Maygrove Road, London NW6 2EG Tel: 071 625 7111 Fax: 071 624 5297 ------------------------------------------------------------------------

GB United Kingdom, EC P9611 Administration of General Economic Programs ECON Employment & unemployment CMMT Comment & Analysis STATS Statistics P9611 The Financial Times London Page 8 1168
Parliament and Politics: Brown signals shift in economic strategy Publication 930218FT Processed by FT 930218 By PHILIP STEPHENS, Political Editor

MR GORDON BROWN yesterday shifted decisively the ground on which Labour will formulate its economic strategy by stressing that the advancement of individual opportunity would lie at the heart of its plans for economic regeneration.

Confirming his party's determination to drop the tax and spending policies judged to have cost it the last election, Mr Brown argued that economic and industrial modernisation could only be achieved by advancing individual opportunity.

In an attempt to sideline past Conservative attacks on Labour's tax plans and to defuse internal party debates about the respective roles of the public and private sector, the shadow chancellor unveiled what he termed 'the new economics of individual potential'.

Mr Brown, whose strategy was endorsed earlier this week by the shadow cabinet, said Britain's relative economic decline could not be attributed to governments choosing the wrong exchange or interest rates or spending and borrowing too much or too little. 'The real problem is our limited capacity for sustainable economic growth which in turn arises from a failure to invest in the future of Britain and in individual potential,' he said.

He said Labour's approach would from now on be guided by the principle that the main enemy of growth is 'simply the failure to employ the skills energies and talents of the people'.

Against that background, Labour should approach tax and spending without 'a prior disposition in favour of either,' he argued.

'We are not against wealth. We are against poverty and the unfair waste of individual potential'.

Labour Party (UK) GB United Kingdom, EC P8651 Political Organizations MGMT Management P8651 The Financial Times London Page 7 289
Parliament and Politics: Smith rallies party over Europe Publication 930218FT Processed by FT 930218 By RALPH ATKINS and ALISON SMITH

MR JOHN SMITH, the Labour leader, succeeded yesterday in rallying most Labour MPs around a strategy of not backing 'wrecking' amendments to Maastricht.

The move will help the government ratify the treaty. But Mr Smith reiterated to Labour MPs his determination to continue pushing for implementation of the social chapter. He said he was not convinced by the government's legal verdict that Labour's amendment 27 on the chapter could be ignored if passed.

Meanwhile, the government has decided that either the attorney-general or solicitor-general will be 'on call' whenever the Maastricht bill is debated by MPs.

The decision follows the embarrassing U-turn on Monday when Mr Douglas Hurd, foreign secretary, told MPs that earlier Foreign Office legal advice had been wrong.

Last night, Mr Hurd warned Tory backbenchers that if Britain did not ratify Maastricht, it risked losing influence at the United Nations and in the US, as well as in Europe. But he met some anxiety among Tories that the latest legal advice might not stand up to its likely probing.

Mr Smith's test came when Euro-sceptic Labour MPs tried to get a pledge that a Labour amendment opposing the European Central Bank would be pushed to a Commons vote. If passed, the amendment would wreck the bill.

Mr Smith said the issue was a 'straight political question' - whether Labour wanted to reject Maastricht or build on the treaty. He backed greater accountability of the proposed bank but said there would have to be compromises.

He cited the conference decision last year that Maastricht was 'the best agreement that can currently be achieved.' A leadership amendment backing the official line was passed by 112 votes to 46. The central bank amendment will be withdrawn after debate.

The leadership will not say how it will instruct its MPs to vote when the bill reaches its third reading - the final Commons stage. Several shadow cabinet members say Labour should abstain if the social chapter is not incorporated.

Severe criticism of the government's handling of Maastricht was voiced on both sides of the Lords as peers debated Europe yesterday. The Tory attack was led by Lord Ridley, a former cabinet minister.

Carey reservations, Page 10

Labour Party (UK) GB United Kingdom, EC P8651 Political Organizations MGMT Management P8651 The Financial Times London Page 7 404
Parliament and Politics: Harsh realities for Labour - Political Notebook Publication 930218FT Processed by FT 930218 By PHILIP STEPHENS

THE RANK and file of the Conservative party were described by Mr John Smith this week as unsettled, uncertain and potentially rebellious. Fresh from his latest man-oeuvring over Maastricht, it is a judgment with which Mr John Major would find it hard to disagree.

Mr Smith's problem is that the prime minister could apply the same description to MPs on the Labour benches. The Tories have emerged battered and bewildered from the horrors of the past few months. Their opponents appear equally unsettled by their failure to reap the political rewards.

For what they are worth, the opinion polls confirm that popular disenchantment with the government has yet to translate into solid enthusiasm for the official opposition. Ten months in to the new parliament many Labour MPs - particularly among the newcomers - are beginning to learn that the fun of political point-scoring provides a strictly temporary diversion from the harsher realities of opposition.

The party's so-called modernisers and their traditionalist enemies have abandoned for now the synthetic dispute over what should be learnt from Mr Bill Clinton's election victory. Mr Clinton's decision to renege on his pre-election tax pledges should dim the adolescent enthusiasm of those who imagined the Democrats had rediscovered the holy grail of centre-left politics.

The group reviewing Labour's links with the unions has come up with a classic fudge worthy of the infamous smoke-filled rooms in which policy was made in the 1960s. Its list of options should pave the way for one-member-one-vote elections for party leader and for parliamentary candidates. But the unions will retain a powerful and visible presence at annual conference.

Neither development has lifted the party's MPs. Between the advocates of radical change and the defenders of a romanticised past is a broad swathe who have lost past certainties but found nothing to replace them. Mr Smith has yet to fill the vacuum. The party lacks any sense of excitement.

The inevitable tensions between opportunism and the more arduous task of framing credible alternative policies re-emerged during yesterday's debate in the PLP on Maastricht. Mr Smith was decisive. Yet the episode reinforced the demands of those who want his leadership to be consistently stronger.

The modernisers - represented notably by Mr Tony Blair and Mr Gordon Brown but joined recently by Mr Jack Straw - believe that Mr Smith took a step in that direction in his Bournemouth speech earlier this month.

The speech, dismissing the theological disputes over ownership which have dogged Labour since Mr Hugh Gaitskell's abortive attempt more than 30 years ago to abolish Clause 4 of the constitution, was over-hyped.

But its importance was that, after months of wavering, Mr Smith put himself on the side of those who believe that Labour must change before it can win.

On one level he provided a framework for the party to replace reflex interventionism with the concept of a state which supports rather than frustrates personal ambition. Mr Blair has been adamant that Labour can move nowhere until it projects with clarity an ideology in which the community is seen as a buttress to individual aspiration.

More practically, commitments on taxation, public spending, nationalisation can now be rewritten or dropped. Mr Brown moved further along that road yesterday with his disavowal of tax increases for the middle classes.

Mr Smith though is more cautious than his lieutenants; and his caution is obscuring the process of change. He is resiting calls for the decisive break with the unions sought by Mr Blair. His aides say they cannot risk offending the paymasters. Nor will he seek to abolish Clause 4, arguing that its importance is symbolic.

But symbolism may be more powerful than Mr Smith is prepared to admit. The changes being wrought by Messrs Blair and Brown are important. But a sceptical electorate is unlikely to be convinced by statements of philosophical intent. It may continue to judge Labour on the television images of trades unions casting millions of votes at party conference.

Labour Party (UK) GB United Kingdom, EC P8651 Political Organizations CMMT Comment & Analysis P8651 The Financial Times London Page 7 703
Parliament and Politics: Employment bill heads for Lords Publication 930218FT Processed by FT 930218

MORE about-turns by the Labour party over the legal changes introduced by the government to strengthen the position of individual trade unionists were forecast by Mrs Gillian Shephard, employment secretary, last night.

The Trade Union Reform and Employment Rights Bill was given a third reading by a majority of 37 (312-275), and now goes to the Lords.

GB United Kingdom, EC P9611 Administration of General Economic Programs CMMT Comment & Analysis P9611 The Financial Times London Page 7 91