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PLESSEY MEETS UNDEMANDING CITY FORECASTS, BLAMES DOLLAR FOR INSIPID PERFORMANCE

Plessey Co Plc’s UKP105.3m pre-tax figure for the nine months to January 1 falls within the range that most in the City had come to expect in its post-crash calculations. If anything UKP37.1m for the third quarter falls on the high side of most estimates and despite the lag behind the equivalent period last year, Plessey looks in good form to recover from the ravages of the dollar, the crimp on Systems X orders throughout the second and third quarters and the slowdown in revenues from the Ptarmigan secure military communications system – and with a strong fourth quarter, meet predictions of UKP165m pre-tax or more, for the full year. Even that will be a 10% drop from the UKP184m last year. The biggest feature of the company’s performance, and the one to which chairman Sir John Clark turned time and time again, was the drop in the value of the dollar. This hit the contribution from Stromberg-Carlson, despite it surging ahead by 41% over the same quarter last year; aerospace and engineering revenues had sales down $6m due to the dollar; and Plessey claimed that if you factored it back into dollars and did dollar on dollar comparison, business was up in all areas. Forward orders stand at UKP1,550m, and Plessey did its usual trick of comparing this to inappropriate previous quarters, but it is up on the figure for March last year, which was UKP1,500m. It would have been UKP1,600m this time had the dollar stayed static for the period. This order book excludes the FAS telecommunications contract, and recent orders for enhancements to Ptarmigan and the ACEWS military order, all of which should expand it significantly. Book-to-bill Plessey says that it is on a book-to-bill ratio of 1.22. System X deliveries were held up between the Tranche 9 and 10 orders when British Telecom insisted on unbundling of the specification for software. This is so that Telecom can retrofit installed System X switches with new facilities. The effect for Plessey was a compression of System X business into the final quarter, right up to Tranche 13. There was a belief that the planned combined GEC-Plessey Telecommunications company would be able to negotiate from a stronger position on price, as well as making internal savings. All this would be felt after April 1, which is the new deadline that the two firms are working towards for completion. Plessey confirmed that, as expected, (CI No 870), as of now its half of the 50:50 Orbitel Ltd joint venture with Racal into equipment for the pan-European cellular market, is not going into the new merged company, but that discussions are continuing. The contribution in Plessey’s figures throughout next year will be apportioned on a proportional basis from this venture. Much the same compression into the fourth quarter always occurs in the defence side of the business as the UK militia operate a year-to March payment policy, and profit milestones, as Plessey calls them, bias income, especially from the Royal Navy, towards the fourth quarter. Contributions from the chip business acquired from Ferranti business will not be incorporated until next year, while the Sippican takeover in the US will begin to show in the current, final, quarter. The development of an integrated circuit as a line server for PABX lines took far longer than expected and Plessey says that its lateness sliced UKP6m off its order book, although the product is now in production. The company highlighted its figures seen as a return on equity and claimed that at 33% for 1987, it led the other UK telecoms suppliers, citing GEC at 24% and Racal at 23%. Sir John said that there was a possibility of discussions with GEC over semiconductor businesses, although there were no active discussions at present. GEC has made it known that it would consider the sale of its Marconi semiconductor operations. Plessey confirmed the view that it believes that half yearly reporting is sufficient, and that it will be returning to only two financial reports a year from the beginning of its new fiscal year.

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