If you're out there George, pick up the phone
Radio silence; Kingfisher options; Rates dilemma
16 August 2001
Maintaining radio silence is something Marconi is good at. The chief executive has gone on holiday for a fortnight and his former spokesman has been sent to Coventry. Meanwhile, analysts briefings have been cancelled and the market is working itself into a frenzy waiting for the next profits warning. Or is it the rescue rights issue?
Lord Simpson is too busy playing golf to get to the nineteenth hole and make the telephone call that would kill the speculation. But his new spokesman helpfully suggests that the market should not expect to hear anything from the company for another month. In a fast-moving world like telecoms where customer orders have a habit of melting away like summer snow, that is an age.
Meanwhile, the rumour mill continues to grind to Marconi's disadvantage. The rot in the share price was temporarily halted yesterday. But enough damage looks to have been done already to force Marconi out of the FTSE-100 when the index is recalculated in September.
Marconi only has itself to blame. The handling of the first profits warning was enough to make grown men weep. The old adage, of course, is that they come in threes and investors now fear that Marconi will bear it out in spades.
The company blames the latest slippage in the share price on hedge funds racing to cover short positions. But that does not explain the Goldman Sachs downgrade on Tuesday, nor the gloomy prognosis for the European telecoms market which Cisco came out with last week. The view is that there is more pain to come from Marconi on top of the 50 per cent fall in profits and 15 per cent decline in sales it finally owned up to in July.
So a second profit warning looks a distinct possibility. A rescue rights, however, looks like the product of midsummer madness. Unless orders really have fallen off a cliff, then the business ought to generate operating cash this year and it still has £4bn of its £4.5bn credit facility left to draw on.
The debt rating downgrades are a nuisance but they should not have any impact on the cost of servicing that debt since most of it is at fixed rates. John Mayo, the company's former chief executive-designate, may not have covered himself in glory before he was forced out. But one of the sensible things he did was to ensure that Marconi's loans were free of any covenants so that it cannot easily be put in hock to the banks.
But in the absence of both Mr Mayo and now Lord Simpson, Marconi looks a rudderless in the current storm. Investors have run out of patience and cannot wait until Marconi is ready to announce the results of its operational review in mid-September. If you are reading this George, wherever you are, call the office.
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