Kevin O'Toole/LONDON

GEC-MARCONI HAS been forced to put aside "substantial provisions" to cover cost overruns on some of its major contracts. The surprise announcement is potentially embarrassing for a group which prides itself on tight financial management.

Revealing results for its 1994/5 financial year, GEC says that the provisions, which are being put at around £40 million, are to cover "...important contracts which are coming towards completion".

The group does not specify which contracts are affected, although it does admit that the Eurofighter 2000 radar development has hit delays because of "interface problems".

Another likely candidate is the technically troubled and long-delayed Phoenix unmanned-air-vehicle programme, on which GEC is still having to fund development work. Analysts also point to the cost of completing the in-flight entertainment system for the Boeing 777.

GEC management is understood to be bearing down heavily on the cost problems at its GEC-Marconi electronics division. "Steps have been taken to strengthen management in the relevant areas, and to effect economies where required by trading conditions," says group chairman Lord Prior.

He promises that the business will show "...substantial progress in restoring the results to acceptable levels" over the coming year, pointing out that the division has a healthy order book of £4.9 billion.

The contract provisions helped depress profits at GEC-Marconi, which were down by nearly $50 million to £205 million. Despite recession, the division had been holding earnings at a steady £250-260 million. Sales also edged down to below £2.7 billion.

Profits were further depressed by disappointing results from Canadian Marconi, which was hit by cancellation of Canadian Government orders, including work it would have carried out for the abandoned EH Industries EH101 helicopter contract. Profits were also down at GEC-Marconi's telecommunications ventures in Italy.

Despite the problems of its electronics division, the GEC group as a whole turned in a record year as pre-tax profits reached £900 million and sales broke through £10 billion. The group still has a substantial cash pile of £1.3 billion, even after the cost of fighting its ultimately successful tussle with British Aerospace to take control of UK submarine-builder VSEL.

GEC managing director and founding father Lord Weinstock again confirmed ambitions to join forces with BAe on defence, but stresses that it would have to be through a friendly merger. Weinstock is running short of time, however, with his retirement scheduled for September 1996.

Source: Flight International