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June 30, 1987

REORGANISATION FOR GROWTH IS GEC WATCHWORD AT BRIGHT MEETING ON DULL FIGURES

By CBR Staff Writer

I have let some people go on doing stupid things for too long, but you can’t just kill them off. You must always allow for the possibility that they are right and you are wrong. With those memorable words, GEC Plc managing director Lord Weinstock announced that the company is now about to bite a bullet or two. GEC is reorganising its top management and dividing the company into ‘coherent business groups’ based on specific markets in an effort to make it more internationally competitive. This was the main message at the group’s end of year results meeting yesterday, where it reported pre-tax profits down nearly 5% at UKP668m on sales down O.1% at UKP5,247m. Chairman James Prior sees the company’s performance as highly creditable in an exceptionally difficult year for many of GEC’s business sectors, including a UKP24m write-off for Nimrod, while Lord Weinstock argues that GEC is doing a lot better when it’s not doing well on paper than our competitors. GEC says its planned tightening of management control, which starts now and will carry on for a number of years, has been in plan for some time, delayed until some top management personnel left or retired. The company will announce the reorganisation of at least two business groups within the next two months. In electronic systems and components, where operating profits were down 3.8% at UKP198m on turnover up 3.4% at UKP2,016m, the company will group the entire Marconi company with GEC Avionics in a group to be run by younger managers with more power; GEC Computers, which currently comes under the control of technical deputy managing director Derek Roberts will be handed over to one of the forthcoming business units; a consumer products unit, which increased profits 3% at UKP35m compared with last year’s UKP34m on turnover up 16.9% at UKP387m from UKP331m last time, will be formed, incorporating the company’s new Creda acquisition; its two-month old joint venture with Philips on medical equipment will form another – GEC’s medical business increased profits 18% at UKP26m on turnover down 5.2% at UKP398m; automation and control, which was down 2.1% at UKP46m on turnover up 3% at UKP457m, will come under Rhys Williams in a separate unit. The company’s power generation business saw profits off 21% at UKP50m on turnover down 14% at UKP594m. Profits for electrical equipment were up 18.6% at UKP51m on sales down 6.1% at UKP723m; profits for distribution and trading were down 7.7% at UKP12m on turnover down 3.3% at UKP202m; and profits for other activities remained static at UKP4m on turnover down 18% at UKP105m. Lord Weinstock cited as a good example of the benefits of reorganising its business units its bid for a reactor contract with the Central Electricity Generating Board. We will be doing the systems integration in that project, where formerly the CEGB would have done it.

Great Bureaucracies of Our Time

The company feels optimistic that it is in a strong financial position and that the problems experienced last year, including Nimrod, the Plessey debacle and other unspecified factors, are well behind it as water under the bridge. The worst thing for industry is instability, says Weinstock, The one thing that stops us planning anything with confidence is instability and now that the issues of Nimrod and fighting the Great Bureaucracies of Our Time over Plessey are behind us, we have a more stable future ahead of us than we have had for a long time. The company says it is seeking fixed price contracts instead of cost plus basis contracts. The company says some new activities will arise from collaborative deals, acquisitions and partnerships in the future. Lord Weinstock emphasised that the company is very interested in expanding in the US and will announce a small order with the US Department of Defense very shortly. The company will also announce an initial contract in the order of UKP100m with the US Navy for radio communications equipment in the next few weeks – the US Navy is changing its VHF equipment to HF. But deputy managing director Malcolm Bates that

in the long term this contract could be worth up to $2,000m. In telecommunications, which contributed profits of UKP94m compared with last year’s UKP84m, the company points out that although it sees the life span of System X as about 20 years, it is a product that can be adapted for other markets, for example Centrex, and to Europe as a whole for the planned pan-European digital cellular radio system. Some 17% of the company’s sales go to the Ministry of Defence and around 8% to British Telecom. Important customers, says Malcolm Bates, but we are not wholly dependent on them.The meeting was altogether so uncharacteristically exciting that no-one remembered to bring up the sacred Cash Mountain: for the record, at the end of the year it stood at UKP1,730m, up 13% on 1985-86.

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