Terry Bond: I'm drowning in a sea of honeyed language

Marconi's annual report seems too good to be true. It is actually in dire trouble. Will Lord Weinstock restore the company's fortunes?
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Should you spy a hand forlornly flapping from atop that pile of newspapers and magazines in the corner, it belongs to me. And, for the avoidance of doubt, I am drowning not waving.

Like every private investor I am suffocating from the deluge of information that pours daily through the letterbox, along the telephone lines and through the ether. The incre- asing ease of accessing financial facts and opinions is a boon – it helps to level the playing field when we compete against larger investors such as the funds and trusts – but it has presented a problem of coping with the sheer volume.

On heavy days it is inevitable we will miss important items. Big envelopes containing obvious bumph such as annual reports or brochures are invariably put unopened on the read-it-later pile. And that's how it came to pass on Wednesday, after it had lain around for three weeks, that I finally opened the annual report of Marconi. Mea culpa.

It comes to me because I am a shareholder in Marconi. I have the shares in a PEP, where they started life as GEC before transmogrifying themselves into their present form at the end of 1999. Until a year ago, the company was one of the stars of my "Don't Touch" portfolio, rock solid investments that I believed safer than money in the bank. This blue-chip collection is built on the premise that over time the stock market inexorably rises, so I do not apply my normal stop-loss rule to it. Bad decision.

Lack of such a safety policy and an inattention to news- flow has, in the case of Marconi, cost me dear. In 12 months, the share has haemorrhaged about 90 per cent of its value, down from a high of £12.50 to a few pence over £1. Therefore it is with feelings of guilt and annoyance that I open the report, because if I had done so on the day it arrived, I would surely have been able to spot the signs that have sent the shares plunging.

Never mind. I read and absorb the bad news in time for the Marconi annual meeting scheduled for this Wednesday, 18 July.

The initial statement comes from the chairman, Sir Roger Hurn. He says: "I am pleased to report a solid financial performance for our company during the year to March 2001," adding: "I am confident that our continuing efforts to focus more of our resources on communications have placed us in a stronger market position".

Next comes the statement of Lord Simpson, chief executive. The words picked out by the report's headline writers are: "Despite the more difficult trading environment we encountered during the year, Marconi continued to grow its business successfully. Communications continued to be the key driver of our growth, supporting our strategy to focus more resources on this sector." He goes on: "We expect to see renewed growth by the end of this calendar year."

There is a similarly comforting statement from deputy chief executive John Mayo. All very reassuring. It is an annual report that implies that, despite having to operate in the volatile sector of telecommunications, Marconi is on course for the good times again.

But because I am reading with the advantage of hindsight, and I know that such complacent statements are entirely misplaced, I do not bother to read on. This report, which reached the company's shareholders in May, paints a picture which clearly says: "We recognise that we are operating in a difficult market position but don't worry – we, the captains of this ship who are paid a combined £2m a year to sail it for you, are confident that by the end of this year things will be much better."

So how can it be that this month, only a few weeks after circulating thereport, the directors drop their profits warning bombshell? The shock statement of 4 July, only three weeks after the annual report had forecast renewed growth by the end of this year, is peppered with dire warnings. Sales are going to be down 15 per cent, profits down 50 per cent. Another 4,000 employees are going to go, as well as the 4,000 earmarked in April this year. Marconi shares are suspended by the London Stock Exchange for a whole day ahead of this grim bulletin. Marconi is now an unmitigated disaster.

Call me naive, but I cannot understand how shareholders are expected to accept two such contradictory pieces of information just two weeks apart. Things just do not happen that fast. In a huge company like Marconi, paying top salaries to a highly-qualified management team, it beggars belief that they did not realise something was wrong well before that report went out to shareholders. This week Sir Roger wrote to the shareholders about the problems, but did not go anywhere near explaining the massive volte- face since the honeyed words of the annual report.

Certainly Marconi shareholders in America are not happy. This week they commenced an action to sue the company. They complain Marconi and company officials George Simpson, John Mayo and Steve Hare misrepresented shareholders by saying the telecoms equipment firm would meet expectations for 2001.

Whether UK shareholders follow suit remains to be seen. The AGM should prove interesting. Meanwhile, John Mayo has resigned and Lord Simpson has changed his mind about stepping up from CEO to chairman. However, there is a spark on the horizon.

Arnold Weinstock, the man who relinquished the reins of GEC in 1996 after a lifetime building one of the finest organisations in the country, is popping his head above the parapet. Now 77, Lord Weinstock was in a private meeting last weekend with Lord Simpson and emerged to pledge his support for the company – having, reportedly, insisted on Mr Mayo's career change. The peer, who remains the biggest personal stakeholder in Marconi and has an office at the Mayfair headquarters and the title chairman emeritus, clearly still has influence even though he is not on the board.

History is littered with examples of autocrats like Weinstock, who ruled with such power that when they retired they could not be cloned and their companies struggled.

Arnold Weinstock is up there with the best of them, a business baron with the Midas touch. Let's hope he can help to revive his baby.

terry.bond@hemscott.net

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