The Guardian from London, Greater London, England • 15

FINANCE AND ECONOMICS 15 Friday September 2 1994 Bundesbank ends Europe's long run of rate cuts Bod if Shop odes out assay Oti odd SnflttegiriHlif on the company's integrity will not have a significant long-term Roger Cowe David Gow in Bonn and Larry Elliott threats against critical journalists. "The Body Shop's most basic myth is that it sells 'natural products'," the article says, although accepting that the definition of "natural" is elusive. The company's founder. Anita Peter Webster, of the ethical research body EIRIS, said the figures on animal tested products could refer to any testing by any company, while Body Shop had decided to stop using one ingredient cited in the article when it discovered its testing history. The company replied that in general it uses.

natural ingredients when that makes sense, and always tries to increase natural content, citing several recent examples of product reformulation. But it does not use naturally-based ingredients if that would involve higher energy use and more packaging. It pointed out that it has led the way in product labelling and includes a Product Information Manual in all its stores worldwide. Most analysts and fund managers had not seen the article by last night, but appear to have concluded that the attack Roddick, is accused of inventing for marketing purposes stories about discovering products during her travels among tribal peoples. The article accepts that Ms Roddick genuinely cares about issues such as the preservation of whales, but argues that such ideals are not adequately translated into rigorous company policies.

It cites the use of artificial colours, fragrances and preservatives, and a number of ingredients which have been tested on animals, despite the stance against animal testing. Specifically, it alleges that an internal memo in 1992 reported an increase in the number of ingredients which had been tested on animals, from 34 per cent to 46 per cent. And it says the company has used products tested on animals for pharmaceutical purposes, because its policy is restricted to cosmetics testing. and issued a dossier at the weekend refuting criticisms he had made in previous articles. Last night it dismissed the article as rubbish and said it was reviewing its legal position.

A spokeswoman said the company would issue a detailed rebuttal today. The magazine acknowledged the difficulty of attacking a company it had long admired, but in an editorial comment said the issues were worth raising and hoped that a constructive dialogue would follow. The article attacks Body Shop on several counts, including its treatment of franchisees, the seriousness of its commitment to ethical trade and against animal testing of ingredients, and the purity of its products. Mr Entine says the company does not live up to its reputation as an innovative natural cosmetics company, and has a history of poor quality control and legal THE Body Shop last night appeared to have weathered the worst of the storm caused by a heavily-trailed critical article in a US magazine which was finally published yesterday. A.

group of environmentalists sprang to the cosmetic chain's defence and City analysts were left unruffled. The company's share price rose by 8p. continuing a bounce which began on Wednesday and has now taken the shares up by almost 10 per cent from their low point. Body Shop has been in the firing line after leaks of the accusations by an American journalist, Jon Entine. ahead of yesterday's publication in the magazine Business Ethics.

The company has attacked Mr En-tine's methods and motives, rates would be seen as an electoral bribe to boost Chancellor Helmut Kohl's re-election prospects. Hans Tietmeyer, president, and his deputy, Johann Wilhelm Gaddum. are members of Dr Kohl's Christian Democratic Union although they have gone out of their way to underpin their political independence since assuming office. Norbert Walter, chief economist at Deutsche Bank, said there was still a remote chance of a further interest rate cut before Christmas but this had become more unlikely since the summer and evidence of a strong business recovery. "Altogether the Bundesbank sees no chance before the election.

Perhaps later this year, if inflation is down to around 2.5 per cent and the mark is strong and the recovery is faltering under weak domestic demand, there could be scope for more fantasy hi the market," he declared. West German industrial output soared by an annualised 7.5 per cent in July, according to figures released by the economics ministry yesterday, and firms are reporting a substantial turnaround in profit expectations and turnover. The latest estimates suggest that pan-German growth, thought likely earlier this year to be 1.5 per cent, will top 2 per cent and coidd be as high as 3 per cent in 1995. But, with tax increases due in January, consumer demand remains weak. Mr Walter and other economists expect further falls in disposable income in the next few months as the "solidarity surcharge" on tax bills and low pay settlements bite into consumers' wallets.

He called for tax-cuts to boost the economy and demand. Last night. Dr Kohl pledged further public spending cuts in the next legislative period if he is re-elected. THE Bundesbank yesterday signalled an effective end to the long-running series of interest rate cuts in Europe by leaving its two base rates, the discount and Lombard, unchanged and prompting fears that the next move coidd be upwards. But its policy-making central council, at a routine fortnightly meeting in Frankfurt, held out a tiny glimmer of hope for a further cut by holding its key money-market rate mi-changed at 4.85 per cent for a further two weeks.

Share prices in London reflected the view that further easing from the Bundesbank was unlikely, with the FTSE100 index closing 31.8 points lower at 3216.5. The City was also unsettled by the threat of higher inflation over the coming months, even though figures released today by the credit information group Info-link show that consumer demand for credit has weakened over the past few months. In Germany, analysts pointed to soaring industrial production and better-than-expected growth prospects as reasons why the Bundesbank will see no need to cut interest rates further. The bank's own indicators pointed to 2.2 per cent pan-Gerjnan growth this year. Although the Bundesbank is keen to keep alive speculation about a further small cut later this year, the overwhelming view in Frankfurt is that the discount and Lombard rates will remain unchanged at 4.5 and 6 per cent respectively, this side of the October 16 general election.

Witli inflation stuck around the 3 per cent level in comparison with the bank's 2 per cent medium-term target, any cut in EMH miiwj urn mini mi inn Ladbroke bets on return to the gaming tables Ouflookln a move to an area it knows well, the recession-hit leisure group stakes 50m on three casinos. Roger Cowe reports "JC1 i Body Shop Share price p) 250 245 August Source: Dalaslream both the number of bets and the stake money. Relaxation of industry regulation has helped and will help further: evening opening has contributed to the growth of business. Sunday racing will arid to that, and the division has now embarked on a three-year refurbishment programme which will gradually transform the shops from being obscure, secretive places into more normal retail premises. Hotels have almost managed to match the profit oflast year's first half, but failed because of the impact of recession on the Continent.

Profit from continental Europe fell by more than half to just 5 million. The result in the UK, on the other hand, soared to 25 million more than half of the division's contribution. German hotels are beginning to benefit from recovery, hut Ladbroke says no significant improvement is expected in the second half of this year. The real nightmare is in Texas Homecare. Profit slumped from 17 million to just 2 millioiii-and despite there being six more stores, sales fell by 7 percent.

A new management' team is in place, and has begun by trying to claw back margins instead of concentrating on sales at the expense of profits. It has also reversed the previous policy of focusing on the "soft" (furnishing) end of the business, and is inoving back to mainstream DIY. Significant improvements will have to be made if the group is to achieve its suspected ambition of selling the chain. Many more changes have already been made or are under way to bring Ladbroke fully into the post-Stein era. A number of new hoard members will soon be joined by a new finance director, replacing Jerry O'Ma-hony who died in June.

Once the new board is in place and fully into its stride, the group can also return to Mr Stein's habit of regular dividend increases. 240 gya. 235 1, 230 .1 225 220 21.5 I 210 pi 200 Rolls and Vickers rely on efficiency LIFE after Cyril Stein does not seem to have started too smoothly at Ladbroke, if the first set of figures since his departure last year is taken at face value. A rise in the share price suggests differently, however, and the return of the group to the world of casinos with a 50 million deal yesterday is perhaps more indicative of the post-Stein era. Mr Stein, who knew more about betting than most people, took the company to the stock market in 1967 and was chairman and chief executive until last year.

He proudly boasted that he had increased the dividend payment in every year, until the recession caught up with the group last year. Dividend growth may have been smooth, but everything else was not. In 1979 the Gaining Board refused to renew Ladbroke's casino licence becoming concerned about the methods it used to attract customers. Mr Stein had to find something else to replace the hole left in the group by the loss of half its profits. This search finally ended with hotels and the acquisition of the Hilton name (outside the US) in 1988 although in the meantime Mr Stein had also bought the DIY chain.

Texas Homecare. But now Ladbroke has returned to the casino table. It has acquired three London casinos: Maxims. Chesters and the Golden Horsehoe, which together made a profit of 5 million on takings of 110 million. The group said yesterday that this move "is the first significant step in the group's long term strategy of building a broadly-based international business in regulated The group chief executive.

Peter George, who took over from Mr Stein last year, said impact on its sales. Peter Silvester, investment director of Friends Provident, the UK's leadiiiK ethical inves tor, said: "I don't see anything that will give us concerns, and 1 don see it Having any dent in Body bhop activities. One analyst of the stores sec tor was less sanguine about the etlect on the company stand' ing in the City, despite agreeing about consumer reaction. "A company which raises ethical standards is always vulnerable to somebody saying something nasty about it, she said. While the worst of the assault appears to be over.

Body Shop taces turtlier scrutiny from eth ical investors over the next few weeks. The US organisation whose share sale began the cur rent furore. Franklin Research will produce its conclusions later this month. Company briefs THE motor components group formerly Turner Newall turned in pre-tax profits way ahead of City expectations yesterday. The 61 million earned in thesix months to June 30 compared with 39.1 million during the same period last year and was boosted by a strong recovery in the German car market and by improved car sales generally in the US and Europe.

said it anticipated satisfactory trading in the second half, although demand could slow towards Ihe end of the year, and pronounced the outlook encouraging: "In the medium term we believe there will be further recovery in the UK and mainland Europe." WATERFORD Wedgwood, the fine-china and tableware group, achieved a sharp increase in interim profit rrom to Ir15.1 million (14.9 million) and said progress had been maintained in Ihe second half of the year. Wnterford said it saw clear signs of economic recovery in the LTS and Ireland, and prospects loiked good for a resumption of dividend payments. Sales of Waterford Crystal grew 16 per cent to million while Wedgwood Group revenue rose 8 per cent to Ir104.4 million. INDEPENDENT Newspapers, Tony O'Reilly's Dublin-based newspaper, advertising and media group, raised its profit by 4 per cent to lr15.15 million in the first half of the year and expects to report a further advance in the full year. It said margins in the Irish publishing operations improved, trading conditions in overseas markets were better, and recent acquisitions in the UK and South Africa added a first-time Simon Beavis Industrial Editor ERBWO of Britain's leading manufacturing companies yesterday reported increased profits on the back of falling sales.

Both Rolls-Royce and Vickers traded on the benefits of heavy rationalisation and increased efficiency while enduring the long haul out of recession. Rolls-Royce, the aero-engine and industrial power giant which is in the process of axing 6,500 jobs, saw its half-year profits climb by 9 million to 40 million, despite a 14 per cent slump in sales to 1.5 billion. It said that all its markets remained difficult. Vickers, maker of Rolls- Royce and Bentley luxury cars, which has cut its workforce by nearly a quarter to 9,400 since 1990. said that pre-tax protits nearly doubled to 15.9 million despite sales down 1 million to 329.5 million.

The group, which also makes Challenger tanks, complained that many markets were The aero-engine maker warned that it faced a downturn in deliveries in 1995 and said that there was scant hope of an upturn in civil aviation or military markets before 1996. The order book fell slightly but remained strong at 5.9 billion, excluding 1 billion of orders yet to be officially booked. Sir Ralph Robins, the chair man, said that all of the group's markets, including power generation, were difficult. "We Money spinner Ladbroke's chief executive Peter George, seen in the newly acquired Maxims casino yesterday, says gaining offers a worldwide opportunity photog raph Hamilton west there was a huge worldwide opportunity in the gaming business. "Worldwide there is a tremendous increase in the popularity of regulated gaming and we believe that there are significant opportunities for the group." he said yesterday.

There is. of course, the little matter of the Gaming Board's approval, which must be gained on a change of control of any casino. But Ladbroke woidd not have gone this far without a reasonable expectation that there would be no repeat of the nasty surprise in 1979. Betting certainly seems to be the group's strong suit, as the profit analysis shows. The combination of racing and the much smaller Vernons Pools produced 44 per cent of operating profit in the first half of the year, with small increases in 71 Ladbroke Stock market value: 2bn Workforce: 55,000 Interest cover: 2 Half yor change Sales (Cm): 2.294 Pre-tax profit (Cm): 57 Earningsshare (p): 3.22 Dividendshare (p): 2.4 Operating profit (m) aiso 4 -19; -51 1993 1994 40 j3o jipj 0 IS) i li 1J M'l Hotels Betting Texas Homecare parent company, the industrial conglomerate General Electric, on a deal worth S2.5 billion in shares and cash.

The acquisition of NBC would give Time Warner a kickstart in its television network ambitions. It has already committed itself to starting a network with the Tribune Company, which owns stations in New York, Chicago and Los Angeles the US's three largest markets. Luring stations lo carry Time Warner programming has been a hard slog 22 have now signed on and the fledgling network would face not only Rupert Murdoch's increasingly-aggres competitors produced by Lloyd's and its member companies and agencies. It estimates premium income in the first quarter or 1994 at 2.416 billion and a regional breakdown shows that the UK accounted for 851 million followed by the US at 760 million. Other information published for the first time includes a breakdown of people employed within the various sectors of the Lloyd's market and an index of managing agents' confidence based on four key indicators.

This shows that a majority of managing agents remain confident that profitability will improve. Lloyd's is planning to improve its financial reporting by moving to a two-year from a three-year accounting basis. US entertainment giants stalk TV networks don't see a lot of movement in the civil aero-engine market for a while Airlines are not making enough money and until they do they won't order new equipment." In the defence market, he said that sales of Tornado fight-, ers with RB199 engines provided hope after 1996. but that the company was concentrating on cutting its capacity to meet shrinking demand. Rolls set out in 1992 to cut 5.0DO jobs and close four plants in two years, but now expects redundancies to total 6.500 by next spring with a total of six plant closures.

Meanwhile, Vickers said that it hoped to find a joint-venture partner to develop the next generation of Rolls-Royce car. The group is in negotiations with BMW, Mercedes and Ford. Sales of the cars have powered ahead in the UK and are up in the Middle and Far East. They were flat in Europe. However sales fell a further 23 per cent in the US, where Vickers has joined with BMW and Mercedes to lodge a complaint to Gatt against the US luxury goods tax, on the grounds that it hits imported luxury cars.

The bright spot for Vickers was the British Army's recent order for 259 Challenger 2 tanks, worth 800 million. The chairman. Sir Richard Lloyd, said that the boost in pre tax profits from 8.3 million to 15.9 million was more the result of "plant rationalisation and efficiency measures" than from sales improvements. in profits larly difficult in mature markets in Europe and North America, although the company made progress in emerging markets in Latin America, the Far East and the Indian subcontinent. Operating margins had picked up.

and the company had used productivity gains to pay for product development and marketing. The company said that in its UK food business, tough price competition in the soft drinks industry had hurt sales, as had the disposal of the small baby foods range. The US retail food business, led by the French's mustard brand, grew and the launch of Cattlemen's Gold sauce helped commercial business. In the pharmaceuticals division, the Dettol disinfectant brand grew in Asian markets and cold treatment Lemsip was launched into South Africa. Other product ranges were expanded, including the Gavis-con indigestion remedy in the UK.

There was similar expansion in household and toiletry product ranges to strengthen leading brands, including Har-pic toilet cleaner. Woolite fabric detergent and Easy Off oven cleaner. Reckitt Colman shares fall owning networks, the studios would guarantee outlets for their products. "Owning a network and controlling an average of 12 million viewers every night gives them an enormous amount of clout," said David Londoner, an analyst with Wertheim Schroeder, an investment firm. GE acquired NBC in 1986 as part of its $6.26 billion acquisition of RCA.

Analysts say that it sits oddly in GE's product mix. The conglomerate has interests in more than a dozen businesses ranging from aircraft engines and nuclear plants to Kidder, Peabody. its struggling linancial subsidiary. In Mark Tran in New York THE United States" two leading entertainment groups are seeking to take over national television networks with Time Warner in talks about buying NBC from General Electric and Walt Disney casting eyes over CBS. Both multi-billion dollar deals would change the face of a US entertainment industry already in turmoil as companies jockey for position in the multi-media age.

Time Warner, the world's largest media and entertainment group, has held prelim-inary talks with NBC's buyers' optimistic recent years, NBC has lagged behind CBS and ABC in the ratings. NBC would be an expensive prospect for Time Warner, already saddled with $15 billion of debt. There might also be anti-trust problems as cable operators like Time Warner are barred from owning more than 5 per cent of any network. Since the collapse of QVC chairman Barry Diller's attempt to buy CBS, Disney has been mentioned as a possible suitor for America's leading network. Jeffrey Katzenberg.

until recently Disney's head of filmed entertainment, favoured bidding for CBS, valued at over $4 billion. the second half of the year, but Mr Can- said that the group was not relying on higher sales to produce profits growth. The company is still digesting the Corbin Russwin purchase and others including the wood protection operations of the chemicals company Solvay, which have boosted Williams' huilding products business on the Continent. The integration of these businesses is likely to lead to lower costs, as the chairman, Nigel Rudd, promised in his statement accompanying the results: "We remain resolute in our commitment to firm cost management and new product development in order to strengthen the competitive position of our core business interests throughout the world." sive Fox television, but also another start-up network from Paramount Communications. Changes in government regulations also provide considerable incentives for companies like Time Warner and Disney to acquire networks.

The two entertainment giants have enjoyed big profits from selling programmes they make to the networks and later from the sale of rerun rights to television stations across the US. These profits arc likely to shrink next year, when the government changes the rules that have prevented networks from producing their own programmes. By 'Natural Roger Cowe WILLIAMS Holdings, the conglomerate encompassing products such as Rawlplugs and fire extinguishers, said it was satisfied and optimistic yesterday after reporting a 10 million rise in pre-tax profits to 116 million and continuing improvements in most of Its markets. The results were helped by the group's stream of acquisitions, but Roger Carr, the chief executive, said organic profit growth, excluding the impact of the new additions, was 14 per cent. Total sales moved up by 10 per cent to almost 650 million.

Only last year, observers were worrying that the group Lloyd's new report predicts marginal premium income rise after 1 4pc dip Tony May SHARES in Reckitt Colman slid 3 per cent yesterday after the food and toiletries group reported a dip in profits of 14 per cent to 123.3 million and warned that harsh condi tions met in the first half of the year were unlikely to ease in the second halt. The interim profit which compared with 143.6 million ast time was worse man tne Citv expected because it in cluded a charge of 56 million to cover the cost of restructuring European operations. This more than onset a 30 million gain on the sale of its European pigments business. Chairman Sir Michael Col man said future growth would spring from continued exploita tion of its brands, along with opportunities brought by its international spread. One analyst said: "The fig ures don't look very clever.

The trading statement was fairly gloomy. It was not what the market wanted to hear." The shares closed down 25p at 627p. Sales from Reckitt con tinuing businesses were down 3.1 per cent at 1.04 billion. It said growth had been particu was unable to find more acquisition opportunities. But Mr Carr said the opportunities had never been better.

"As we have become better understood, people have started to register the main business we are in, and people in those businesses increasingly understand that we are natural buyers," he added. Williams focuses on three areas: fire protection, building products and security the last having been substantially expanded with the purchase of Corbin Russwin last December, Profit margins in all areas had been maintained or improved, despite difficult eco-nomic conditions on the Continent. The German recovery promises a better environment in Reuter LLOYD'S of London expects gross premium income to rise to 8.72 billion in 1994 from 8.61 billion last year, according to information in its first quarterly business report. Lloyd's said it had published the report as part of its strategy to improve and increase the amount of centrally held data about the 300-year-old insurance market. "It's one of the sea changes introduced by the new management This is only the start, there will be much more information in the future," a spokesman said.

The 59-page report draws together a range of information on the market's rates, premiums, capacity, members and.