The crisis-torn telecoms equipment manufacturer Marconi yesterday ousted its chairman and chief executive and warned that it was heading for a £5bn loss this year – the largest in UK corporate history.
Lord Simpson of Dunkeld resigned with immediate effect as chief executive and is in line for a pay-off of up to £1m. Sir Roger Hurn also stepped down as chairman.
Their departure came as Marconi issued its second profits warning in the space of two months and axed a further 2,000 jobs, bringing the number of redundancies announced so far this year to 10,000.
The scale of the losses facing Marconi shocked the most pessimistic of City observers. But there was relief that the group had ruled out a rescue rights issue for the foreseeable future. Marconi shares ended the day only 1p lower at 53p.
Lord Simpson, who took the helm of Marconi in 1996 when it was still known as GEC, has been replaced by Mike Parton, previously head of the group's biggest division, Marconi Networks. Meanwhile, Sir Roger has been replaced as chairman on an interim basis by Derek Bonham, Marconi's senior independent non-executive, until a successor can be found.
The removal of Lord Simpson became inevitable after Marconi issued a fresh profits warning only eight weeks after its first earnings alert. On 5 July Marconi warned that profits would halve in the current year and said it expected to achieve break even in the first six months. Yesterday the group issued a trading update saying it expected to lose £227m in the first half and suffer an operating cash outflow of £553m. It also cautioned that it could give no guidance on profits for the year as a whole.
The bulk of the likely £5bn loss is made up of exceptional write downs, one-off charges and provisions. Marconi is taking a goodwill write-down this year of £3bn to £3.5bn to reflect the collapse in the value of recent acquisitions – mainly Reltec and Fore Systems, two US companies that were bought for $7bn (£4.8bn) in 1999.
A further £550m is being set aside for redundancies and factory closures and there is a £500m increase in inventory provisions and a £150m increase in the provision for doubtful debts.
Institutional shareholders broadly welcomed the management changes although one said: "They should have taken [this action] earlier – to get rid of everyone and start with a blank sheet of paper."
Mr Parton, who has been at Marconi for 15 years and before that spent time with other telecoms and computer companies, is unknown in the City and some analysts questioned his promotion, pointing out that he had been in charge of the division where most of Marconi's problems had occurred. He said that his "number one priority" would be to reduce Marconi's debt levels. They currently stand at £4.4bn and the target is to reduce them to between £2.7bn and £3.2bn by the year-end. Mr Parton said this would be achieved by a mixture of asset sales, possibly including Marconi's 50 per cent stake in the Hotpoint washing machine manufacturer General Domestic Appliances, and the generation of operating cash. Marconi also said that it now expected the restructuring programme to generate annual cost savings of £600m compared with the initial estimate of £350m.
The first-half loss was blamed on sales revenues falling at a quicker rate than Marconi is reducing costs. Turnover for the three months to the end of June was down by 12 per cent on the same period last year at £1.134bn, but within Marconi's core network products division it was down by 25 per cent.
Mike Donovan, promoted to chief operating officer as part of the management shake-up, said Marconi now had a cost base which was "sustainable on any sensible view of where the market is heading". Steve Hare, chief financial officer, said there was no need for a rights issue this year: "There is no need in the short to medium term to refinance the company. We have more than adequate finance facilities in place."
SINKING FORTUNES: WHY MARCONI'S CAPTAINS WERE TOLD TO JUMP SHIP
"The board firmly believes that George Simpson, with his solid industrial background and operational experience, is the right man to lead the company through this challenging period." – Sir Roger Hurn, chairman, 18 July 2001
"Lord Simpson has today resigned from the board. I would like to pay a special tribute to George Simpson for his leadership and energy in reshaping Marconi as a leading network communications company."
– Sir Roger Hurn, chairman, 4 September 2001
"Marconi expects to report an approximately break-even position at the operating level in the first half and to record a stronger second half when the benefit of major cost reductions will have a significantly greater impact." – Trading statement, 5 July 2001
"We expect a first-half operating loss of around £227m rather than our previous guidance of break even. In light of continued uncertainty ... the company is not in a position to give further sales and operating profit guidance for the full year." – Trading update, 4 September 2001Reuse content