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SHARE PRICE DIPS ON YEAR-END FIGURES, BUT PLESSEY SEES 1987 AS YEAR OF SYSTEM X

Plessey’s share price fell 12 pence to 204 pence yesterday on announcement by Plessey chairman and chief executive Sir John Clark of operating profits for the year to March 31 1987 up only 2.3% at UKP166.2m; the pre-tax out-turn was boosted by increased investment income, and rose a rather healthier 8.2% at UKP184.2m. But Sir John Clark pointed to the outlook for the current year showing a rosier glow with the imminent prospect of a UKP60m tactical radio contract with the Australian army, the final negotiations for which are currently underway, as well as the strong possibility of a signed agreement with GEC on division of marketing and development costs of System X before the year is out. We’re slap bang in the middle of that negotiation, said Sir James Blyth. The company will also be unveiling, with GEC, the miniaturised model of System X at Telecom ’87 in Geneva in October (CI No 679), which it hopes will take the pair into export markets such as China, where the need for smaller exchanges is greater than the need for large exchanges. The requirement in the UK is not typical of the rest of the world, said Sir John Clark, and System X as it stands has not proved to be cost-effective. Rumour has it that a firm technology transfer order for System X with Bulgaria is imminent, and is thought to be worth about UKP100m. The company’s Stromberg Carlson unit in the US is not showing much sign of growth from its just-profitable position on the switching side at the end of 1985-86, but Plessey says it expects to expand manufacturing capacity for the DCO exchange, pointing to an anticipated increase in business there. And having secured a UKP100m order for 600,000 lines of the DCO exchange over the next two to three years from BellSouth’s North Central Bell unit in April, the company hopes to gain a firm order from Pacific Telesis before the year is out. Plessey says it is also looking at another Bell operating company and has some small switches on trial with Western Bell.

Orders will bunch in second half

The first two quarters of the current year are not expected to be good, but Plessey says this year’s distribution of orders will fall largely into the second half. That’s the way the cookie crumbles, was Sir John’s comment but he was not prepared to comment further on where those orders might come from or for which parts of the company’s business. The Australian Raven system army contract, which Plessey is hoping to announce any day, began four years ago and is the largest tactical radio contract ever let. The equipment developed for the project will be manufactured both in Australia and in the UK. Profits in Plessey’s core areas – telecommunications, electronic systems, areospace and engineering break down as follows: telecommunications operating profit rose 18.4% to UKP83.7m on sales down 0.2% at UKP681.0m, which Plessey claims is a reflection of improved results in public switching operations both in the UK and the US as well as good performances from private switching and payphone businesses; electronic systems profits increased 12.9% at UKP45.5m despite a UKP16.3m reduction in turnover to UKP501.7m; aerospace and engineering operations showed profits of UKP13.3m on sales of UKP111.9m and the company claims this business was adversely affected by the removal and start-up costs of transferring the US Dynamics business to new premises and by lower civil spares sales compared with 1985-86; the microelectronics and components business show profits down 9.4% at UKP13.4m on sales down 3% at UKP156m. Computer peripherals remain dismal, plunging back into a loss of UKP900,000 after a UKP600,000 profit last time, on sales down 6.7% at UKP32.0m – why does Plessey persist with this business? Private venture funding for development of System X, now that British Telecom no longer pours any money into it, will cost Plessey and GEC around UKP40m per year, which will be devoted mainly now to enhancement of existing software modules.

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CBR Staff Writer

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