/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/021021.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Monday, October 21, 2002, Vol. 3, No. 208 Headlines * F R A N C E * VIVENDI UNIVERSAL: Not Interested in Bidding War With Vodafone VIVENDI UNIVERSAL: Hints Early Conversion of Bond Pegged to Unit * G E R M A N Y * BABCOCK BORSIG: Mulls Sale of Waste Unit to Business Partner GONTARD & METALLBANK: U.S. Investor Lends Money, Wants 25% Stake KIRCHMEDIA AG: Signs EUR25 Million Licensing Pact With Senator KIRCHMEDIA AG: Asset Sale Delayed for Another 4-6 Weeks PHILIPP HOLZMANN: Administrator Says Debt Repayment to Take Years * I R E L A N D * IRISH FERTILIZER: Gives Up Effort to Save Company, 620 Employees * N E T H E R L A N D S * CETECO HOLDING: Hagemeyer Denies Part in Firm's Demise * S W E D E N * LM ERICSSON: Reports Significantly Reduced Operating Expenses * U N I T E D K I N G D O M * BRITISH ENERGY: Wants Borrowing Limit Raised to GBP1.6 Billion COMPREHENSIVE BUSINESS: EGM Approves Sale, Voluntary Liquidation CONSIGNIA: Outsourcing Program Picks IT Department as Next to Go CONSIGNIA: Pre-Christmas Strike Looms Due to Outsourcing Plans MYTRAVEL: Accounting Irregularity, Slump Shoo Investors Away RAILTRACK PLC: Shareholders Satisfied With Payout, Junk Suit TXU EUROPE: Fitch Further Cuts 'CCC' Rating to 'C,' Expects Worse TXU EUROPE: To Sell Loss-making Assets to Avoid Administration =========== F R A N C E =========== VIVENDI UNIVERSAL: Not Interested in Bidding War With Vodafone -------------------------------------------------------------- Vivendi Universal does not intend to put up a fight against Vodafone over the latter's plan to take control of Cegetel, France's second largest phone company. An unidentified city analyst told the Telegraph late last week that a legal challenge is not in the offing: "We asked Vivendi specifically about this clause. They said that it existed and that they were happy with Vodafone's interpretation of it." "Our impression was that they were very categoric that from a legal point of view they agreed with Vodafone, although they did feel that not all of the procedures had been followed correctly. Of course, everyone reserves the right to change their mind but a challenge appears to be off the cards," the analyst said The clause referred to by the analyst is part of the secret shareholder agreement that currently governs the complex three- tier shareholding structure at Cegetel. This clause allows whoever will get 56% control of the company to collapse the structure. Vivendi could lose its voting control under this scenario. Until Vodafone's bid, most outsiders had thought that under Cegetel's complex structure, Vivendi would keep voting control. The prospect of a legal spat was raised after Vodafone asserted Wednesday last week that it does not need to buy Vivendi's 44% stake to get all-important voting control of Cegetel, in which it already has a 15% stake. Vodafone has offered Vivendi EUR6.77 billion for the holding but says it can win voting control anyway through an agreement to buy the combined 41% interest in Cegetel of BT and SBC for EUR6.3 billion. Vivendi, which could yet scupper Vodafone's offers by exercising its right to buy either or both of BT and SBC's stakes at similar prices, was unavailable for comment. "If Vivendi pre-empts our bid [to BT and SBC], we have no right to counterbid and we would not do it. It is Vivendi's decision whether to go ahead. There is no need for us to improve our offer to Vivendi as we would have control of the business with BT and SBC's stakes," Sir Christopher Gent, the Vodafone chief executive, said during a press conference in Paris. VIVENDI UNIVERSAL: Hints Early Conversion of Bond Pegged to Unit ---------------------------------------------------------------- Following the strengthening of its financing, Vivendi Universal (NYSE: V; Paris Bourse: EX FP) wants to confirm that it will not be modifying the terms of the bonds convertible into Vivendi Environnement shares that it issued on March 8, 2001. In line with the announcements made on September 25, Vivendi Universal's financing needs have taken into account the possibility of an early redemption in cash, if holders so choose, of their convertible bonds for a total maximum amount of EUR1.9 billion on March 8, 2003. ============= G E R M A N Y ============= BABCOCK BORSIG: Mulls Sale of Waste Unit to Business Partner ------------------------------------------------------------ Insolvent engineering group Babcock Borsig AG was rumored last week to be considering the sale of its waste management unit to an Italian recycling company. Citing German weekly WirtschaftsWoche, Bloomberg said Babcock may sell its Steinmueller unit to Italy's Fisia SpA, a unit of Italian builder Impregilo SpA. The paper did not give financial details of the transaction. The sale would result in a loss of "at least" 100 of the 260 workers at Steinmueller, the weekly paper said. Fisia and Steinmueller collaborated on a recycling plant in Napels before Babcock filed for insolvency in July, the paper said. Babcock's creditors will decide on the sale at a meeting on October 28, WirtschaftsWoche said in a faxed sent to Bloomberg late last week. BANKGESELLSCHAFT BERLIN: Seeks Investor, But Claims It Is Solvent ----------------------------------------------------------------- Ailing German bank Bankgesellschaft Berlin is on the lookout for a new investor to help it through its recent financial difficulties. Additionally, it has asked employees to take a slight pay-cut, says Frankfurter Allgemeine Zeitung. The bank denies, though, that it is insolvent, as had been reported. In September, the Berlin government granted two U.S. private equity investors the right to conduct a due diligence investigation on Bankgesellschaft Berlin AG, in preparation for their acquisition of the troubled company. The office of Finance senator Thilo Sarrasin officially granted the right to BGB Capital Partners, a consortium of Texas Pacific Group and former investment banker J. Christopher Flower, and Dallas-based Lone Star to continue evaluating the books of the Berlin state bank. The two were picked out from a group of bidders including buyout specialist WL Ross & Co. and a consortium of the Sparkasse group of municipal savings banks and Norddeutsche Landesbank. According to a government press official, the preference for the American bidders over the publicly owned German banking consortium, was a decision based on what is best for the bank and the state. The city-state of Berlin, which owns more than 80% of BGB after a EUR1.7 billion(US1.66 billion) capital increase in 2001, will decide on the winning offer by the end of the year. The decision, however, will still be subject to parliamentary and regulatory approval. GONTARD & METALLBANK: U.S. Investor Lends Money, Wants 25% Stake ---------------------------------------------------------------- A 25-percent shareholder in insolvent German bank Gontard & Metallbank has entered into a cooperation agreement with a U.S. investment group, which many believe will ripen into a shareholding. According to Borsen-Zeitung, German investment company Magus and American counterpart Threnody LLC have agreed to cooperate, but the U.S. investment group is reportedly eyeing a 25% stake in the troubled German bank. Threnody is reportedly bringing in EUR100 million to help restructure the bank, earmarking part of the money for creditors as an addition to the settlement quota envisaged by the bank's insolvency administrator. Klaus Pannen, insolvency administrator, recently estimated that creditors will receive a quota of 50. He expects payment to begin early next year. He estimates the bank's debts at between EUR800 million and EUR900 million. The deadline by which creditors must submit their claims is due after August 26, the paper says. The bank's customers are to be compensated through the deposit insurance fund of the German private banking association. The administrator reports that talks are underway with parties interested in divisions of Gontard & Metallbank, but he rules out the sale of the bank in its entirety, TCR-Europe said in August. Gontard & Metallbank started insolvency proceedings in May. It gave notice of over-indebtedness on the same month. Existing investors in Gontard & Metallbank hope for the bank to be transformed into a leading credit institution for medium-sized business customers. KIRCHMEDIA AG: Signs EUR25 Million Licensing Pact With Senator -------------------------------------------------------------- Insolvent KirchMedia AG, which owns Europe's largest film library, has entered into an extensive TV rights package with Senator Entertainment AG. The sales volume from this transaction is approximately EUR25 million, depending on the box office success of some of the films included, AFX News said citing Senator. The report said the transaction had prior permission from KirchMedia's creditors committee, which includes an extensive security mechanism for Senator. Additional "packages are currently under negotiations," Senator said. "With the conclusion of this contract, Senator has been able to sell TV rights to the four German broadcasters within only a short period of time (ARD/DEGETO, ZDF, RTL Group, KirchMedia/Premiere)," the licensee said. The core assets of KirchMedia, including its 52.5% stake in ProSiebenSat1, are currently in the process of being auctioned. KIRCHMEDIA AG: Asset Sale Delayed for Another 4-6 Weeks ------------------------------------------------------- KirchMedia AG chairman Fred Kogel announced late last week that the sale of the insolvent company's core assets has been delayed yet again, with the board of creditors now likely to decide on a preferred investor in four to six weeks. The auction of KirchMedia's assets has been delayed several times after a decision was originally scheduled for August 1, AFX News said. But Mr. Kogel said that despite the delays, the auction process is moving into the final round. Three consortia are still in the running for the assets, which include a 52.5% holding in free-to-air broadcaster ProSiebenSat1. According to industry sources, the front-runner is the Heinrich Bauer/HypoVereinsbank consortium. The other bidders are U.S.billionaire Haim Saban together with French broadcaster TF1, and a consortium of KirchMedia shareholders with Commerzbank AG. A sale price of around EUR2 billion is in the offing, industry sources told AFX News. PHILIPP HOLZMANN: Administrator Says Debt Repayment to Take Years ----------------------------------------------------------------- 8,000 creditors of bankrupt construction group Philipp Holzmann have received bad news. The Financial Times Deutschland said last week it will take up to two to three years before debt payments begin. Citing the company insolvency administrator, the paper said the cost of the group's corporate pensions will be taken over by the general pension security federation (PSV), and the entire German industrial sector will feel the burden. The company's employee pensions amount to EUR220 million, according to the insolvency administrator. Meanwhile, the Holzmann group is now optimistic over the sale of J. A. Jones, its U.S.subsidiary. Six smaller German and Austrian subsidiaries remain to be sold. Creditors of the company include several subcontractors and craftsmen. The group collapsed and sought refuge in a German bankruptcy court in March. It has debts of EUR1.6 billion and plans to cover the cost by selling assets. Court-appointed insolvency administrator Ottmar Hermann is temporarily managing the group. ============= I R E L A N D ============= IRISH FERTILIZER: Gives Up Effort to Save Company, 620 Employees ---------------------------------------------------------------- About 600 individuals lost their jobs late last week after Irish Fertilizer Ltd., the country's largest producer of bulk chemicals and fertilizer, decided to wind up operations after efforts to save the business failed. All of its manufacturing facilities in Cork, Arklow and Belfast will be closed, while the company appoints a liquidator to sell its assets and pay creditors, AFX News said. In a statement, the company said the decision was made "with great regret" and only after "exhaustive consideration of all possibilities." "The board has been left with no alternative to this course of action as a result of the ongoing difficulties the company is facing in maintaining its economic viability in a very difficult market environment for fertilizer producers," it said. Market conditions have been difficult, with fertilizer demand across Europe falling in excess of 10 pct over the last two years, it added. It is hoped that the liquidator could sell significant parts of the business, the company said. Irish Fertiliser produces over 1.3 million tons of fertilizer annually, in addition to a range of specialty chemicals for the Irish and European markets, the report said. The orderly wind down process at all three of the company's plants will begin immediately and management will be entering discussions with unions and the workforce. Irish Fertilizer, established in 1987, is jointly owned by the Irish government and Imperial Chemical Industries PLC. ===================== N E T H E R L A N D S ===================== CETECO HOLDING: Hagemeyer Denies Part in Firm's Demise ------------------------------------------------------ Hagemeyer wishes to make the following statement with respect to the press release that the receivers issued today in connection with the depositing of their tenth public report concerning Ceteco. The receivers' report gives almost no consideration to the role of Hagemeyer. Nevertheless, the receivers conclude that Hagemeyer has acted negligently with respect to Ceteco and its creditors, as a consequence of which the receivers have decided to take legal action against Hagemeyer among others. Hagemeyer rejects any liability for Ceteco's bankruptcy and the deficiency in its assets, on good grounds. This rejection is supported by a thorough analysis of the actual position of Hagemeyer as major shareholder of Ceteco. Nothing in either the receivers' report or the counter report drawn up on behalf of parties involved, which was submitted to the receivers, provides grounds for believing that Hagemeyer has any liability in this matter. Hagemeyer suggested that it and the receivers discuss the contents of the reports, which the receivers initially agreed to. However, despite repeated requests and despite the fact that the receivers had previously committed themselves to a consultation structure, the receivers have so far refused to enter into any serious discussion. Neither have they been willing to reveal and discuss what they believe to be the basis of Hagemeyer's liability. Hagemeyer must therefore conclude that the receivers are now trying to stir up a public debate with the intention of forcing parties involved in Ceteco's bankruptcy to make a voluntary contribution to the deficiency in Ceteco's assets. Hagemeyer and its advisers are confident about the outcome of any civil proceedings. In the meantime, Hagemeyer has notified the receivers that it holds them liable for negligent conduct. Hagemeyer is a value added business-to-business (B2B) distribution services group focusing on the markets for electrical materials, safety and other MRO (Maintenance Repair and Operations) products. The Group co-ordinates product and information flows, adding value and providing significant cost savings to both end-users and suppliers while supporting customer initiatives with superior industry knowledge and technical expertise. Ceteco Holding NV, which was floated on the Amsterdam Stock Exchange in May 1994, is a retailer and producer of consumer durables such as household appliances, audio & video equipment and other durables. Apart from electrical goods, Ceteco also retails furniture. Ceteco's operations are completely located in Latin America. Retail of consumer durables accounted for 85% of 1998 revenues; production and wholesale, 14% and other, 1%. CONTACT: Hagemeyer N.V. Ivo H.H.J.M.Manders, ++31.35.6957676 Web site: http://www.hagemeyer.com e-mail: press@hagemeyer.com =========== S W E D E N =========== LM ERICSSON: Reports Significantly Reduced Operating Expenses ------------------------------------------------------------- HIGHLIGHTS -- GSM/WCDMA sales increased 2% sequentially, market position strengthened -- Adjusted income before taxes of SEK -3.9 billion -- Cash flow before financing SEK -2.7 billion -- Financial position strengthened by successful rights offering -- Order intake of SEK25.9 billon, backlog reduced by cancellations PRO FORMA (excl EPS) Third quarter Nine months -------------------------------------------- SEK b. 2002 2001 Change 2002 2001 Change ----------------------------------------------------------------- Orders, net (a)20.5 38.1 -46% (a)97.7 161.8 -40% - Systems 17.9 35.3 -49% 86.8 149.1 -42% - Other operations 5.5 4.8 14% 18.0 20.0 -10% ----------------------------------------------------------------- Sales 33.5 47.0 -29% 109.0 152.3 -28% - Systems 30.6 43.1 -29% 98.7 138.6 -29% - Other operations 5.8 6.0 -4% 17.5 21.5 -19% ----------------------------------------------------------------- Adjusted Operating Income 1) -3.4 -5.8 -10.6 -14.2 - Systems -1.3 0.1 -5.0 2.6 - Phones -0.5 -4.0 -1.0 -13.9 - Other operations -1.2 -1.6 -3.5 -1.9 - Unallocated -0.4 -0.3 -1.1 -1.0 ----------------------------------------------------------------- Adjusted Operating Margin 1) -10% -12% -10% -9% - Systems -4% 0% -5% 2% - Other operations -20% -27% -20% -9% ----------------------------------------------------------------- ----- Adjusted Income Before Taxes 1) -3.9 -6.4 -12.8 -16.3 Net Income -5.6 -4.3 -12.8 -18.0 Earnings per share, diluted (SEK) -0.41 -0.37 -0.93 -1.63 Cash flow before financing -2.7 2.2 -8.7 -13.2 activities Number of employees 71,723 88,672 ----------------------------------------------------------------- 1) Adjusted for: - Capital gain, Juniper - - - 5.5 - Non-operational capital gains 0.1 0.2 0.2 0.2 - Restructuring charges net -4.2 0.0 -5.7 -15.0 ----------------------------------------------------------------- (a) Reported orders net include deductions of cancellations of SEK 5.4 b., mostly related to 3G contracts in Germany CEO COMMENTS "Mobile communications is a long-term growth business. Over half a million new subscribers sign up each day and people are using their phones more and more. With only 17% worldwide penetration and mobile data just beginning, significant need for network expansion lies ahead," says Kurt Hellstrom, President and CEO of Ericsson. In the near-term, the industry outlook continues to be uncertain. Many operators pursue more gradual 3G rollouts or target fewer markets. However, we are also seeing consolidations, restructurings and a more favorable regulatory environment, which we view as positive signs toward market stabilization. The benefit of our restructuring is evident. We are driving efficiency throughout the organization to return to profit at some point next year. The rights offering proceeds have given us the financial security to make these changes. We are one of the strongest in our industry and are uniquely positioned to expand our business with the world's leading operators. We are increasing our market share in GSM/WCDMA systems and capturing new business with professional services and technology licensing. MARKET VIEW The number of mobile subscribers continues to grow. We estimate that more than 45 million new subscribers were added worldwide during the third quarter. At this rate, we expect net subscriber additions this year to be toward the lower end of our 175 - 215 million forecast. In line with industry consensus estimates, we believe that the size of the mobile systems market in 2001 was about USD 53 b. We expect the mobile systems market in 2002 to decline about 20%, in line with our previous estimate of more than 15%. We anticipate that the market in 2003 will not decline as much as this year, and will begin to stabilize at a lower level. A moderate increase in 3G sales should partly compensate for the lower demand for mature technologies such as TDMA and PDC. Within the wireline systems market, we now believe the traditional circuit-switching business will shrink by more than 60% in 2002, compared with our previous estimate of more than 40%. Consequently, the overall wireline systems market, which also includes broadband access, optical transmission and multi- service networks, will decline significantly more than the 20% we estimated earlier. We believe that approximately 92 million mobile phones were shipped in the second quarter and approximately 100 million in the third quarter. We had previously estimated 85 million units for the second quarter. Our full-year market estimate is about 390 million units. COST REDUCTIONS AND OPERATIONAL REALIGNMENT In the second quarter report we announced that we are targeting an annualized operating expense run rate of SEK 38 b. as well as a 2 - 4 percentage point improvement in gross margins. Implementation should be completed by end of third quarter 2003. In the third quarter our operating expense annual run rate excluding restructuring costs was reduced by SEK 5 b. to SEK 52 b. At the end of the quarter we were 71,700 employees, a workforce reduction of 4,500 employees during the quarter. We expect to be less than 60,000 by the end of 2003. The total cost for this restructuring plan is estimated to be SEK 17.5 b. During the quarter, restructuring charges were SEK 4.2 b. of which SEK 3.5 b. is related to redundancies. SEK 0.7 b. were related to the write-down of inventory and fixed assets as well as other costs for establishing more flexible operations. RIGHTS OFFERING The rights offering was oversubscribed by 37%. Proceeds net of fees and other costs were SEK 29.0 b. The rights offering increased the number of B shares outstanding by 7,908,754,111. OPERATIONAL AND FINANCIAL REVIEW In addition to the primary format, financial statements are also reported in a pro forma format. The primary format is based on Swedish GAAP (please see section Accounting Principles), and the previous year is restated for consolidation of finance companies previously accounted for according to the equity method. The pro forma format portrays results of operations as if capitalization of development costs was made on a continuous basis, and with results of operations transferred to Sony Ericsson October 1, 2001, reported in "Share in earnings of Associated companies and JVs." Comments below refer to pro forma statements unless otherwise indicated. SYSTEMS Order intake, excluding cancellations of SEK 5.4 b., declined by SEK 12 b. compared to the third quarter last year. The order cancellations are largely related to 3G and include contracts with Mobilcom and Quam in Germany. Adjusted for cancellations, quarterly order bookings 2002 have developed as follows, compared to 2001: Table: Systems order development (SEK b.) Q1 Q2 Q3 9 months -------------------------------------------------- 2001 62.8 51.0 35.3 149.1 2002 39.8 33.7 23.3 96.8 Change % -37% -34% -34% -35% Cancellations 2002 -2.1 -2.5 -5.4 -10.0 2002 Net 37.7 31.2 17.9 86.8 Change % -40% -39% -49% -42% While total Systems sales in the quarter declined year-over-year, sales in our Professional Services business grew almost 10%. Professional Services is the largest part of our Global Services business and now accounts for 14% of total Systems sales. With year-to-date sales of SEK 25 b., our Global Services operation is the largest service business among telecom equipment suppliers. Mobile Systems The lower order bookings were primarily due to weak demand for TDMA and PDC systems, combined with the order cancellations for 3G. Sales in the quarter of our GSM/WCDMA track increased 2% sequentially, strengthening our leading market position. Year-to- date, sales of WCDMA equipment and associated network rollout services represent 8% of Mobile Systems sales. Multi-Service Networks Orders and sales in the quarter both declined by approximately 60% compared to last year, primarily driven by continued weak traditional circuit-switching equipment markets in both Latin America and Western Europe. Our ENGINE solution continues to improve its competitive position with more than 40% of the market. PHONES Our 50% share of income from Sony Ericsson Mobile Communications is included in "Earnings from Joint Ventures and Associated Companies." The retained activities, including technology licensing and phone manufacturing in China, are reported as part of "Other Operations." Sony Ericsson Mobile Communications High-end phones continued to be the joint venture's best selling models, particularly the T68i. The demand for our phones with camera accessories shows that Sony Ericsson is at the forefront of mobile multi-media devices. Several new models targeting the mid and entry-level segments were launched and sales started to gain momentum late in the quarter. However, sales of SEK 8.2 b. on unit volumes of 5.0 million were not sufficient to generate a positive result. Our 50% share of income before taxes was SEK - 0.5 b. OTHER OPERATIONS Orders increased by 14% over third quarter last year as orders for our Mobile Platforms developed favorably. Total sales in the quarter for Other Operations declined by 4%. Strong sales growth in Mobile Platforms partially compensated for lower sales in Network Technology, Enterprise and Defense operations. Adjusted operating income in Other Operations was SEK -1.2 b. with most of the losses attributable to Microelectronics and Network Technology. Although development in our Mobile Platforms and Bluetooth operations is promising they are still in an investment phase and not yet profitable. The divesture of the bulk of our Microelectronics operation was completed during the quarter, with a net capital gain of SEK 0.1 b. Ericsson has agreed to staff a factory in Sweden for Infineon for one to two years. Provisions have been made to cover the estimated closure costs at the end of this period. CONSOLIDATED ACCOUNTS Income Net sales in the third quarter were down 29% year-over-year and 13% sequentially. The gross margin remained stable at the same level as in the second quarter. The positive effects of our cost savings offset lower sales volume. The current operating expense run rate is SEK 52 b. per year. This excludes increased customer financing risk provisions of SEK 1.3 b. and is adjusted for normal seasonality for the third quarter. Restructuring costs in the quarter were SEK 4.2 b., compared to SEK 1.5 b. in the second quarter. Share in earnings of associated companies was SEK -0.6 b. mainly due to the negative result in Sony Ericsson in the quarter. The effect of changes in foreign currency exchange rates in the quarter compared to rates one year ago was SEK 0.6 b. In the first quarter the effect was SEK 0.4 b. and in the second quarter 0.8 b. Financial net improved marginally compared to the previous quarter as a result of the net proceeds from the rights offering concluded in September. Adjusted income before taxes was SEK -3.9 b. (-5.8) in the quarter. Excluding provisions for customer financing of SEK 1.3 b. and SEK 0.5 b. respectively, this is an improvement of SEK 0.4 b. from the previous quarter. Tax is calculated at an average estimated rate of 30%. Diluted earnings per share were SEK -0.93 (-1.63). Prior periods have been adjusted for the stock dividend element of the stock issue. After the stock issue, the number of shares outstanding is now 15,974,258,678. Balance sheet and financing We increased our cash position during the quarter from SEK 47.6 b. to SEK 74.4 b. primarily with the proceeds from the rights offering in early September. Net debt was reduced from SEK 21.2 b. to SEK -5.2 b. and the equity ratio increased from 31.6 % to 38.3 %. On September 12, the rating agency Moody's downgraded Ericsson's long-term credit rating to Ba2. Inventory and receivables declined in line with the lower sales volume. Inventory turnover improved slightly to 4.3 turns, while days sales outstanding (DSO) increased from 101 to 103 days. Accounts payable declined with lower purchases due to lower volumes. Total customer financing risk exposure was reduced by SEK 2.9 b. On-balance sheet credits increased by SEK 2.3 b. largely due to the put-back of a credit that was formerly off-balance sheet. Off-balance sheet risk exposure as well as outstanding financing commitments was reduced considerably, as we cancelled certain commitments. During October, we repurchased the off-balance sheet Mobilcom credits, which we expect to be able to convert into France Telecom bonds as previously announced. The financial arrangements with a syndicate of banks for the refinancing of the portfolio of customer credits will be withdrawn on October 30. This is not expected to significantly affect cash flow or risk exposure. On completion of these transactions, no put options will remain outstanding. Table: Customer financing risk exposure Dec 31 Mar 31 Jun 30 Sep 30 (SEK b.) 2001 2002 2002 2002 ----------------------------------------------------------------- On-balance-sheet credits 18.7 16.8 16.6 18.9 Off-balance-sheet 12.8 12.3 11.5 6.8 Credits ------------------------------------------- Total credits 31.5 29.1 28.1 25.7 Less third party risk coverage -4.7 -1.4 -0.3 -0.8 ------------------------------------------- Ericsson risk exposure 26.8 27.7 27.8 24.9 =========================================== On-balance-sheet credits, net book value 14.8 12.7 12.4 12.7 Off-balance-sheet credits recorded as contingent liabilities 10.6 10.1 9.1 5.1 Financing commitments 31.2 28.1 25.3 14.0 ----------------------------------------------------------------- Other long-term receivables include deferred tax assets of SEK 26.3 b., related to countries with long or indefinite utilization periods. Deferred tax assets have increased by SEK 5.4 b. during 2002. Cash flow Cash flow before financing activities was SEK -2.7 b. in the quarter. This includes SEK 2.3 b. from the sale of our Microelectronics operations, which was offset by the take back of off-balance sheet customer financing of SEK 2.3 b. Swedish pension insurance company FPG was paid a cash collateral of SEK 1.5 b. and given a bank guarantee of SEK 1.2 b. Excluding the cash effect of these items, cash flow before financing was approximately SEK -1.2 b. Short-term borrowings were reduced by SEK 1.0 b. in the quarter and long-term debt was unchanged. Payment readiness at the end of September, after completion of the rights offering, was 47 %, compared to 27 % at the end of June. OUTLOOK In our second quarter report we indicated that our sales would develop in line with an estimated market decline of more than 15% during 2002. We believe that we will continue to maintain our share in each technology segment of the mobile systems market. However, due to product mix, our Mobile Systems sales this year could decline more than our revised estimate of an overall market decline of 20%. A comparatively strong performance in GSM/WCDMA is mainly being offset by our exposure to the sharply declining TDMA and PDC markets. The market remains unpredictable. We continue to adjust to the prevailing market conditions and expect a return to profit at some point in 2003. PARENT COMPANY INFORMATION The Parent Company business consists mainly of corporate management and holding company functions. It also includes activities performed on a commission basis by Ericsson Treasury Services AB and Ericsson Credit AB regarding internal banking and customer credit management. The Parent Company has branch- and representative offices in 16 (15) countries. Net sales for nine months were SEK 1.2 b. (4.1) and income after financial items was SEK 0.6 b. (11.1). Major changes in the company's financial position were: - Increased current and long-term commercial and financial receivables from subsidiaries of SEK 24.0 b. - Increased short-term and long-term customer financing of SEK 3.2 b. - Increased cash and short-term cash investments of SEK 16.7 b. The investments were financed primarily through increased internal borrowing of SEK 17 b. and increased stockholders' equity, due to the new rights issue in September 2002, of SEK 29 b. At end of quarter, cash and short-term cash investments amounted to SEK 66 (49) b. In accordance with the conditions of the Stock Purchase Plan for Ericsson employees, 205,072 shares from treasury stock were distributed during the third quarter to employees who left Ericsson. An additional 25,800 shares were sold in order to cover social security costs related to the Stock Purchase Plan. The holding of treasury stock at September 30, 2002, was 156,545,108 Class B shares. ACCOUNTING PRINCIPLES This interim report has been prepared in accordance with the Swedish Financial Accounting Standards Council's recommendation RR 20, Interim reports. We have changed accounting principles since our latest annual report. The following Swedish GAAP recommendations are now implemented: RR 1:00, Consolidated financial statements RR 15, Intangible assets RR 16, Provisions, contingent liabilities and contingent assets RR 17, Impairment of assets RR 19, Discontinuing operations RR 21, Borrowing costs RR 23, Related party disclosures The only material effects of these new standards relate to RR1:00, regarding consolidation of controlled companies, and RR 15, regarding capitalization of development costs. According to RR1:00 we have consolidated as subsidiaries certain finance companies previously accounted for under the equity method. We have restated previous year in our primary statements. According to RR 15, starting from January 1, 2002 we have capitalized certain development costs. In accordance with this rule, we have not restated our primary accounts. We also present pro forma statements, where we have assumed that the principle of capitalization of such development costs had been applied in all periods. For this purpose, we have used the amounts for capitalized development costs we already calculated and used in previous periods' reconciliation to U.S.GAAP. Our pro forma statement is also adjusted to portray our operations as if the mobile phones operations transferred to the Sony Ericsson joint venture on October 1, 2001, were accounted for under the equity method for the whole year 2001. Stockholm, October 18, 2002 Kurt Hellstrom President and CEO Date for next report: February 3, 2003 Auditors' Report We have reviewed the Interim Report as of September 30, 2002, for Telefonaktiebolaget LM Ericsson (publ). We conducted our review in accordance with the recommendation issued by FAR. A review is limited primarily to enquires of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Interim Report does not comply with the requirements in the Annual Account Act. Stockholm, October 18, 2002 Carl-Eric Bohlin Olof Herolf Authorized Public Accountant Authorized Public Accountant PricewaterhouseCoopers AB PricewaterhouseCoopers AB Thomas Thiel Authorized Public Accountant CONTACT: Ericsson Inc. Investor Relations: Glenn Sapadin, Phone: 212/685-4030 e-mail: investor.relations@ericsson.com Media: Kathy Egan Phone: 212/685-4030 e-mail: pressrelations@ericsson.com =========================== U N I T E D K I N G D O M =========================== BRITISH ENERGY: Wants Borrowing Limit Raised to GBP1.6 Billion -------------------------------------------------------------- Struggling British Energy Plc will hold an Extraordinary General Meeting on November 4, 2002 to ask shareholders to increase the company's borrowing limit to GBP1.6 billion. According to AFX News, the company has also deferred the publication of its results for first half to end-September. The accounts, originally scheduled for publication on November 6, have been deferred to enable the company to focus on its negotiations with the U.K. government. The government has granted the nuclear power generator a GBP650 million emergency loan facility to allow it more time to negotiate a long-term financial restructuring. Early this month, Moodys downgraded the company's unsecured bond ratings from B2 to Caa1 following an extension on the company's emergency loan deadline and an increase of the government loan from GBP410 million to GBP650 million. With the extension, the nuclear power generator granted the government security, which Moody's warned could "increase the level of losses incurred by par bondholders." After the U.K. privatized its nuclear power industry in the mid- 1990s, British Energy emerged as one of the nation's largest electricity generators. It is the holding company for British Energy Generation, which produces about 20% of the U.K.'s power through its eight nukes in Scotland and England (total capacity is 9,600 MW). CONTACT: BRITISH ENERGY PLC 3 Redwood Crescent, Peel Park East Kilbride, Strathclyde G74 5PR, United Kingdom Phone: +44-135-526-2000 Fax: +44-135-556-5656F Home Page: http://www.british-energy.com COMPREHENSIVE BUSINESS: EGM Approves Sale, Voluntary Liquidation ---------------------------------------------------------------- Comprehensive Business Services PLC said shareholders at last week's EGM approved the disposal of Brulines Ltd as well as the proposal to place the company into a members' voluntary liquidation. CBS shareholders, according to AFX News, will receive the equivalent cash return of 20 pence per share following the sale of Brulines, the company's sole trading subsidiary, to chief executive Derrick Collin's company Uniplexor Ltd. Shareholders also approved the appointment of CWA Escott and M Dunham of RSM Robson Rhodes as joint liquidators of the company. Trading in CSB shares was suspended Wednesday last week. The company manufactures, designs, retails and rents proprietary device that monitors the flow of draught beer in licensed premises and operates as a holding company. CONSIGNIA: Outsourcing Program Picks IT Department as Next to Go ---------------------------------------------------------------- As part of its continuing program to rid itself of non-core activities, Consignia announced last week that it had reached agreement with U.S.-based Computer Sciences Corporation over the outsourcing of its IT services. The proposed outsourcing deal is expected to involve the transfer of 2,000 Consignia IT professionals to the CSC payroll, The Guardian said Friday last week. CSC, which already employs around 8,500 people in the U.K., is understood to have beaten off competition from IBM and EDS in the prolonged tussle to secure the 10-year Consignia contract, the report said. It will now hold exclusive talks with the state owned group to provide a full range of IT services such as desktop computer maintenance in a three-way alliance with BT and the outsourcing specialists Xansa, the report added. This outsourcing arrangement was actually announced last year when the company embarked on a restructuring program to slash costs and return to profitability. Recently, Consignia successfully secured union backing to hive off its Romec building maintenance operation into a joint venture with Balfour Beatty. But a plan to hand over its cash handling and distribution business to Securicor met strong resistance from the union. The previous outsourcing arrangement would have affected 3,000 workers. CONSIGNIA: Pre-Christmas Strike Looms Due to Outsourcing Plans -------------------------------------------------------------- Members of the Communication Workers Union are threatening to launch a pre-Christmas strike after Consignia announced recently its plans to outsource its IT department to a private firm at a cost of GBP1.5 billion. The outsourcing of another department comes amid an ongoing dispute with the union over an earlier outsourcing scheme for cash handling and distribution, The Times said in a report late last week. According to the paper, about 2,000 staff will be transferred to Computer Science Corporation, which will operate the department along with BT and Xansa. CWU members deplored the move, which they characterized as a "partial privatization." Amicus, which represents many of the IT workers, was a little more circumspect. The union said it will seek assurances on transfer terms for staff. Specifically, it will ask CSC and its partners to maintain 42,000 desktop computers and run the entire network for 10 years. Malcolm Kitchener, managing director of business services for Consignia, said the arrangement would result in a higher level of IT expertise and "provides fresh opportunities for our IT staff to gain experience and build their careers within a specialist IT operation." For his part, Guy Hains, chief executive of CSC in Britain, said the transfer of Consignia staff was covered by legislation, which protects the pay of staff when they are moved from one employer to another. He said there would be no changes to pensions allowances, which are not covered by the legislation, and no staff would be forcibly moved from their existing workplaces. "It is well known that government contracts and pensions are generous, and we will seek to reassure the company, its employees and their union that current benefits will be retained through the life of their careers at CSC," Mr. Hains told The Times in an interview. In July, Consignia Chairman Allan Leighton announced a radical management shakeup aimed at saving more than GBP50 million a year. This plan includes simplifying the structure in the troubled mail service this year by reducing the current 18 operating units to just two, said Troubled Company Reporter- Europe in its July 23 issue. The group, which plans to revert back to Royal Mail, is currently losing more than GBP1 million a day. In June, the company reported a GBP1.1 billion, pre-tax loss for the year ending March 2002. Most of the GBP1.1 billion comprises exceptional costs from restructuring. However, the company lost GBP318 million on its day-to-day operations, equivalent to GBP1.2 million every trading day with all core businesses losing money. Overall turnover grew by 3.6% but the growth was outstripped by a 4.8% rise in costs. MYTRAVEL: Accounting Irregularity, Slump Shoo Investors Away ------------------------------------------------------------ Britain's biggest tour operator MyTravel lost more than 60% of its market capitalization last week after it issued a third profit warning in a span of only five months, the Independent reports. Some GBP232 million were wiped out when the company's share price collapsed by 47p to 28.5p. The company said the warning, its second in as many weeks, was caused by a combination of accounting errors and dismal trading in September. This admission prompted analysts to cut their forecast for the year just ended by nearly two-thirds to about GBP35 million from GBP90 million. Citing company sources, the Independent said GBP12 million of the profits shortfall was caused by management overestimating holiday sales in September. This in turn was compounded by the introduction of a new computer system last year. In addition, MyTravel said a further downgrade of GBP8 million related to "a problem with reconciling the U.K. accounts." The group also said it had "identified amounts representing potential revisions to accounting estimates which are initially estimated in the range GBP15 million to GBP30 million." These additional amounts, which are expected to be non-recurring, non- cash items may lead to a further downgrade, the company said last week. "After the last profits warning, the company wanted to draw a line in the sand regarding its accounts so it decided to move to more conservative procedures. The board now felt it could be more prudent to the tune of GBP50 million," a spokesperson told the Independent last week. While the company insisted that it was not in danger of breaching banking covenants, analysts interviewed by the Independent were less sure, pointing to interest cover of just over one times. Net debt, which was GBP20 million last September, is estimated to have risen to GBP152 million. Compounding the company's problem is an ongoing crucial negotiation to refinance its debt. Banking sources said the group had postponed its GBP250 million syndicated loan. It matures next March, by which time the banks will have a better idea of where MyTravel stands. The group is also paying off a GBP250 million convertible bond due for repayment by January 2004. David Crossland, the group's founder and chairman, told the Independent that the group is now looking into "a number of enquiries" about the possible disposal of non-core assets, which could fetch up to GBP80 million. The group could also realize up to GBP100 million through sale-and-leaseback deals on some of its hotels. RAILTRACK PLC: Shareholders Satisfied With Payout, Junk Suit ------------------------------------------------------------ Noting that a prolonged legal tussle would only result in a maximum payout of 280p per share, Railtrack Group Plc shareholders ditched last week plans to take the U.K. government to court, says Ananova. The Railtrack Action Group, which had previously threatened, among others, to sue for damages, conceded it could not afford a "costly and lengthy legal challenge." The group said a suit, likely to take five years to conclude, will cost at least GBP2 million. The group, which represents more than 70,000 shareholders, said they're now satisfied with the final payout, which has been raised to around 260p per share, only 20p per share below Railtrack's suspended price on October 7 last year. TXU EUROPE: Fitch Further Cuts 'CCC' Rating to 'C,' Expects Worse ----------------------------------------------------------------- Just a few days after releasing its latest rating on TXU Europe, Ltd., Fitch Ratings once more downgraded the company, this time lowering the firm's senior unsecured rating to 'C' from 'CCC'. Its Short-term rating is unchanged at 'C'. "The ratings, which also apply to certain obligations guaranteed by TXU Europe Ltd., remain on Rating Watch Negative. This rating action follows confirmation that the European group has failed to make a coupon payment due October 15 on the US$200 million Energy Group Overseas B.V. 7.425% bonds, which are guaranteed by TXU Europe Ltd.," Fitch said in a press statement explaining the latest rating action. "This downgrade reflects Fitch's anticipation of imminent default should the non-payment remain unresolved before the end of the 30-day cure period," Fitch said. "It also considers the possibility of an earlier default arising from the failure to fulfill other debt-related demands such as put-related requirements or other coupon payments." On October 4, 2002, Fitch downgraded the ratings of TXU Europe to 'BB'/'B' from 'BBB-' (BBB minus)/'F3'. The company has confirmed that this has triggered a potential put event upon the occurrence of which, an Independent Financial Advisor (IFA) is required to be appointed by the issuer or the trustee within 21 days. "In Fitch's view, 13 days of the 21-day period have elapsed. Upon appointment the IFA has to opine on whether the potential put event is materially prejudicial to the noteholders. While there is no clear timing as to the length of the IFA process upon any determination that the potential put event is materially prejudicial to the noteholders, this determination, in the absence of error, is binding on all parties and noteholders may exercise their option to put the notes to the issuer. Given the current timing, Fitch considers that it is conceivable that these notes could be put within the 30-day cure period for the bonds," Fitch said. Fitch notes that during this 30-day cure period, coupon payments fall due in respect of the GBP275 million 2030 7.25%, the US$650 million 2005 6.45% and the US$500 million 2009 6.75% bonds. "TXU Europe's non-payment is at odds with the agency's previous expectations of short-term liquidity available to the firm, but is reflective of the company's need to husband its existing sources of liquidity as much as possible in anticipation of possible creditor negotiations. This liquidity protection may be at the expense of servicing existing debt obligations and, where it does not conflict with the directorial duties in terms of solvent trading, trade creditors," Fitch notes. The rating agency said, "the non-payment of material obligations across the group will cause cross-default to the majority of TXU Europe's other debt and may well result in formal insolvency procedures. There remains the possibility of TXU Europe implementing a standstill agreement or a series of agreements within a short timeframe and thus avoiding a default." "Fitch understands that a standstill arrangement is currently being discussed with certain of the European group's creditors, though details on this remain unclear. Should this occur, then the likelihood of 'imminent default' - the definition of the 'C' rating - may recede. At that stage, ratings may be revised upward, though remaining within the 'CCC' or 'CC' categories. Given the complexity of the creditor base of the TXU Europe group, however, a standstill may prove hard to implement and maintain over the period required for TXU Europe to regain a single-B level of financial flexibility," Fitch said. The rating agency expects the inevitable squeeze on working capital at both TXU Europe and its major suppliers becoming a considerable additional drain on liquidity. "From the most recent debt figures provided by TXU Europe, Fitch estimated an operational 'cash burn' equivalent to c. GBP7 million per week during Q3 2002, relative to the significant cash inflow anticipated. TXU Europe's significantly weaker trading position is likely to be offset to only a modest degree by the recent rebound in U.K.wholesale prices," Fitch said. For more information, contact: Gracie Ebadan-Bola, London +44 20 7417 4308 Isaac Xenitides, London +44 20 7417 4300 Richard Hunter, New York +1 212 908 0294 TXU EUROPE: To Sell Loss-making Assets to Avoid Administration -------------------------------------------------------------- TXU Europe is confident it can skirt administration by selling some or all of its assets. Unidentified sources told AFX News recently that some of the sales could be firmed up as early as next week. On the chopping block are the company's loss-making assets, which include TXU Energi, the firm that owns Eastern Electricity and Norweb. It employs 1,600 workers across the U.K., AFX News said. TXU Europe declined to officially confirm the information. Analysts interviewed by AFX News reckon that Germany's E.ON AG, which owns Powergen, Scottish Power PLC and Scottish & Southern Energy PLC are likely bidders for some or all of TXU Europe. Like other U.K. power firms, TXU Europe has been hit by a sharp fall in wholesale energy prices. The more than 40% fall in prices forced the company into selling electricity at a loss. Its parent's refusal to provide it with a US$700 million cash injection exacerbated its rapid decline, leading many to believe that it will soon wind-up business. ************ S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter -- Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Trenton, NJ USA, and Beard Group, Inc., Washington, DC USA. Kimberly MacAdam, Larri-Nil Veloso, Ma. Cristina Canson and Jean Claire Dy, Editors. Copyright 2002. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$575 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Christopher Beard at 240/629-3300. * * * End of Transmission * * *