Bottom Line: GEC's promise of renewed growth has still to be realised

LORD PRIOR, the chairman of GEC, said yesterday: 'We've got our second wind now.' The implied promise of renewed growth sounds tremendous, but it has yet to be turned into reality.

Recession is partly to blame. It helps to explain a fall in operating profits from pounds 702m to pounds 695m last year. And so the pre-tax result, boosted by pounds 44m more net interest received, was still below the 1990 record of pounds 872m.

The outcome was helped by an pounds 809m increase in the cash pile. More than pounds 100m of this gain reflected an increase in advance payments from customers, a further pounds 32m was explained by a fall in capital spending and there was a pounds 176m reduction in working capital.

The main reason for optimism is the order book, which rose 16 per cent to pounds 12.3bn, helped by power station contracts in the UK and Far East.

Lord Weinstock, the managing director, reckons this figure does not reflect the full benefits of devaluation - most large orders take months or years to negotiate - which suggests that the prospects are also good.

The company signalled as much with an 8 per cent increase in the final dividend after a 5 per cent rise at the half-way stage. The dividend was covered 1.9 times. Costs came under continued attack last year with a pounds 25m rise to pounds 90m in the charge for redundancies and reorganisation as the workforce fell by 9,600. The full benefits will be felt this year, when the company expects fewer job losses.

The shares have already outperformed the rest of the market by 27 per cent in the past 12 months, but have still lagged by 50 per cent over 10 years. Investors may want more concrete signs of orders turning into profits if the shares are to continue outperforming as the recovery picks up.