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  1. Technology
March 3, 1987


By CBR Staff Writer

STC Plc’s results bear solid testimony to the company’s attempts since last year to control costs with sales slightly down, and pre-tax profits of UKP134.2m after a loss last year of UKP11.4m (see Company Results). Nevertheless, those looking for tangible evidence of the convergence of ICL’s computer business with STC’s telecommunications expertise – which a year ago was hallowed as the way ahead – will be disappointed. STC still has much to do before it proves to the City that it is making optimum utility of ICL. Since the acquisition of the largest UK computer manufacturer in 1984, STC has been pushing the notion of the converged technologies of computery with telecoms but has yet to do much with it. Chief executive Arthur Walsh suggested that the amount of business done in the last 12 months that had drawn on both aspects of STC’s technological capabilities had amounted to no more than UKP100m – only 5% of total sales. However, investors will be pleased to see that with sales down 3.2% at UKP1,993.4m, the company has still managed to take last year’s loss of UKP11.4m and turn it into a profit of UKP134.2m. Finance director Roy Gardner said that the average headcount was down 20% which had taken UKP9m off central costs, and that centrally-funded research and development had ceased in favour of development attributed solely to the divisions concerned. This is as much an accounting manoeuvre as anything else but highlights the group’s concern for greater accountability of costs and with the reduced head-count, amounted to a UKP16m saving. The rationalisation process had been completed, said chairman Lord Keith of Castleacre, and no further divestitures were anticipated. The way ahead lies now, the directors acknowledge, in increasing international marketing, with special emphasis on the telecommunications market and then on the transmission aspect, and not on switching. Walsh reported that the switching market was now in decline and emphasised STC’s desire to move quickly in the transmission market. The Telecommunications division in the 12 months to December had traded evenly on last year despite the drop-off in the reed relay public switching business, TXE4, apparently bouyed by a sharp growth in sales of alternative product lines. TXE4 accounted for UKP97m in 1985, but only UKP47m in 1986.

ICL another strong year

ICL had another strong year with turnover up 10% at UKP1,189m, and operating profits rising 46% to UKP90.2m: this was strengthened by the fast take-up of the DRS 300 networked office system launched last year as well as by strong sales of the new Series 39 mainframe. The second half saw ICL make a further UKP85m contribution to gross profits making a total for the year of UKP134m. ICL would continue, said ICL chief Peter Bonfield, to address specialist markets as well as concentrating on the Unix standard. Progress would be made this year in the US initially through the computer company’s assault on the pharmaceutical point-of-sale market in that country. There is room for worry in the defence side where business has slackened mostly through the dropping off of the Ptarmigan contract. Sales are down 11% and margins are coming under pressure and the company has not been able to come up with anything to replace the Ptarmigan work. The group order book is up 18% on last year and now stands at UKP1,250m, 40% of which is overseas work. This will come as some consolation for STC’s management which has had to report that, in 1986, overseas sales had weakened considerably over the previous year. Foreign business was down to UKP570m in 1986 after UKP720m in 1985 – even ICL’s slice shrank 8.5% to UKP431m. The company has ended 1986 in a far stronger financial position than it ended 1985. Gearing is down to 7% after a year of positive cash flow but Lord Keith warned that tax and dividend liabilities, as well as outlay on larger contracts such as PTAT – the first privately owned trans-Atlantic telecomms cable – will see 1987 as a year of net cash outflow. STC has resumed the dividend payment and on earnings per sh

are of 15.9p for the year – after a loss of 2.25p last year – is paying out 4.5p to shareholders. Shares priced at 243p at the close of business Monday are traded on a multiple of 15.3 times per share earnings and at a 12.5% discount to the sector average. Prices, then, are likely to rise as STC managed to exceed City expectations – the consensus forecast lay tightly around the UKP125m mark, and the shares duly added 22.5p to 265.5p.

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