SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Month of January 24 2003
Commission file number: 0-30924
MARCONI PLC
(Exact name of Registrant as specified in its Charter)
4th Floor
Regents Place
338 Euston Road
London
NW1 3BT
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange
Act of 1934.)
Yes No X
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In order to utilize the "Safe Harbor" provisions of the United States Private
Securities Litigation Reform Act of 1995 (the "Reform Act"), Marconi plc ( the
"Company") is providing the following cautionary statement. Except for
historical information contained herein, statements contained in this Report on
Form 6-K may constitute "forward-looking statements" within the meaning of the
Reform Act. The words "believe", "anticipate", "expect", "intend", "estimate",
"plan", "assume", "positioned", "will", "may", "risk" and other similar
expressions which are predictions of or indicate future events and future trends
which do not relate to historical matters identify forward-looking statements.
Reliance should not be placed on such statements because they involve known and
unknown risks, uncertainties and other factors which are in some cases beyond
the control of the Company, together with its subsidiaries (the "Group"), and
may cause the actual results, performance or achievements of the Group to differ
materially from anticipated future results, performance or achievements
expressed or implied by such forward-looking statements (and from past results,
performance or achievement). Certain factors that may cause such differences
include but are not limited to the following: (1) any major disruption in
production at our key facilities; (2) changes in the environmental, tax and
other laws and regulations, which, among other things, could cause us to incur
substantial additional capital expenditures and operation and maintenance costs;
and (3) adverse changes in the markets for our products, including as a result
of increased competition in the highly competitive international markets for
such products. These and other risks, uncertainties and factors are discussed in
the Company's Registration Statement on Form F-1 and other filings with the
Securities and Exchange Commission, including this Form 6-K. Shareholders and
prospective investors are cautioned not to place undue reliance on these
forward-looking statements which speak only as to the Company's judgment as of
the date hereof. Any such forward-looking statements are not intended to give
any assurance as to future results. The Company undertakes no obligation to
publicly update or revise any of these forward-looking statements, whether to
reflect new information or future events or circumstances or otherwise.
Marconi plc
TRADING UPDATE FOR THE THREE MONTHS
ENDED 31 DECEMBER 2002
* Solid performance despite continued tough market conditions
* Core sales GBP456 million; sequential decline of 5%, similar to level
reported in the previous quarter
* Improved operating performance compared to previous quarter
* Continued improvement in gross margin despite lower sales volumes
* Core operating cost annual run-rate reduced to around GBP550 million by 31
December 2002; on track to achieve GBP520 million target run-rate by the end
of the financial year; further actions initiated to reach GBP450 million
target during the financial year ending 31 March 2004
* Significant progress towards sustained operating cash breakeven position;
positive operating cash inflow during the quarter; total cash balance at 31
December 2002 broadly stable compared to 30 September 2002
* Restructuring expected to be implemented on the terms set out in the
announcement on 29 August 2002, as subsequently amended on 16 December 2002
* The Group remains on track to distribute GBP260 million in cash to Scheme
creditors as part of the Restructuring (including GBP95 million interest
accrued at 15 October 2002 and already paid to financial creditors)
* Further progress made on the Scheme documentation and the Prospectus for
listing of Marconi Corporation plc; finalisation of documentation expected
within next few weeks; overall completion of Restructuring now expected in
April.
London - 24 January 2003 - Marconi (MONI) today provided a trading update
relating to the three months ended 31 December 2002. All information in this
trading update is based on preliminary, unaudited data from Marconi's management
accounts. The Group expects to publish a summary of unaudited financial
information for the quarter ended 31 December 2002 in respect of Marconi plc in
late February 2003.
Mike Parton, Chief Executive, said: "Despite slightly lower sales revenues all
our key financial performance measures have continued to improve. Costs have
fallen once again. We have generated operating cash in the quarter, margins are
higher than in the previous quarter and we are well on the way to returning to
operating profitability."
"These achievements, combined with progress towards our financial restructuring,
albeit slower than we would have liked, give us confidence for the future."
Trading Update
Overall conditions in the telecommunications market remained tough during the
third quarter. While signs of market stability have been observed in some areas
of the Europe, Middle East & Africa region (EMEA), particularly in Southern
Europe for example, the North American market was characterised by further
tightening of capital expenditure by a number of large telecom operators,
particularly towards the end of their financial years in December. In Central
and Latin America (CALA), the market was relatively stable during the quarter
although capital expenditure amongst major operators in the region remained at a
low level. In Asia-Pacific (APAC), while the market remains buoyant in
Australia, conditions in the Chinese market are more difficult as a result of
delays in capital expenditure due to the re-organisation of key customers,
delays to the roll-out of certain network build projects and increased pricing
pressure on new business.
Orders Received and Order Backlog
Core orders received increased by approximately 8 per cent to GBP411 million
during the third quarter (Q2: GBP379 million). This was driven by an increase in
orders received for Network Services largely as a result of two major order
extensions awarded during the period, both in the UK: an order from London
Underground for the supply of further communications services for the Jubilee
Line and an order from BT relating to services for BT's narrowband network.
Core Book to Bill stood at 0.9 compared to 0.8 in the previous quarter. Book to
Bill in Network Equipment rose from 0.9 to 1.0 but the main driver of the
overall improvement was Network Services, which rose from 0.6 to 0.8, mainly as
a result of the new major orders booked during the period, described above.
Core order backlog stood at GBP761 million at 31 December 2002 (30 September
2002: GBP916 million). This decrease was mainly the result of the Group's exit
from its IT outsourcing services activity in North America (approximately GBP100
million). The balance of the decrease related mainly to the trading of long-term
service and support contracts particularly in the UK and Middle East.
Core Sales by Geography
in GBP million FY03
Q1 Q2 Q3
EMEA 285 285 287
US 153 142 127
APAC 47 45 29
CALA 25 10 13
Core 510 482 456
Third quarter Core sales decreased by GBP26 million or approximately 5 per cent
to GBP456 million compared to the previous quarter. This compared to Core sales
of GBP632 million in the third quarter of the previous year, representing a 28
per cent decline year on year.
On a sequential basis, modest increases in sales in EMEA and CALA were more than
offset by declines in the US and APAC.
In EMEA, sales increased by GBP2 million, or approximately 1 per cent to GBP287
million compared to the second quarter. Sales in the UK were flat compared to
the previous quarter with lower sales of optical networks equipment offset by
increased sales of voice systems and customer support services. In Italy, Core
sales increased as a result of on-going business under existing frame contracts
as operators continue to deploy core optical backbone and access networks. Sales
in Germany fell during the period as a result of further capital expenditure
cuts by the Group's wireline and wireless network customers and further delays
to planned third generation (3G) mobile network rollouts by certain 3G
operators.
In the US, sales fell GBP15 million or approximately 11 per cent to GBP127
million mainly as a result of the continuing tough market conditions in the
region and a decrease in sales of BBRS equipment and services to the US Federal
Government after the seasonally high level of sales recorded in the previous
quarter.
In APAC, sales were down GBP16 million or 36 per cent to GBP29 million. The main
factor contributing to this decline was the lower level of sales recorded in
China as a result of the delays in capital expenditure and delays to certain
network build projects by a number of the Group's Chinese customers. The
reduction in sales also reflects the completion of the disposal of the Group's
wireless software and services activities in the region in September 2002. This
business had accounted for GBP3 million of sales in the second quarter.
Sales in CALA increased by GBP3 million, or 30 per cent to GBP13 million
compared to the previous quarter as a result of two specific new contracts for
Broadband Switching equipment in Mexico and Brazil. While the political
environment in parts of the region showed some signs of stability during the
period, generally conditions in the telecommunications market remain difficult.
Core Sales by Product Area
in GBP million FY03
Q1 Q2 Q3
Optical Networks 134 108 96
Broadband Routing and Switching (BBRS) 38 35 32
European Access 59 69 69
North American Access 25 23 23
Outside Plant & Power (OPP) 46 34 30
Other Network Equipment 14 15 11
Network Equipment 316 284 261
Installation, Commissioning & 97 89 93
Maintenance (IC&M)
Value-Added Services (VAS) 97 109 102
Network Services 194 198 195
Core 510 482 456
Sales of the Group's US-based businesses (defined as the equipment and service
activities of BBRS, OPP and North American Access) amounted to GBP125 million
during the third quarter and are included in the Core sales reported above (Q2:
GBP140 million).
Sales of Network Equipment dropped 8 per cent to GBP261 million (Q2: GBP284
million) mainly as a result of lower sales in Optical Networks and Other Network
Equipment. Sales of BBRS and OPP equipment fell compared to the previous quarter
while sales of Access systems in both Europe and North America remained stable.
Network Services activities were more resilient, particularly where those
services are not directly related to the provision of Network Equipment. Network
Services sales overall remained relatively stable at GBP195 million (Q2: GBP198
million).
In Optical Networks, the 11 per cent decline to GBP96 million (Q2: GBP108
million) was predominantly due to lower sales in APAC as a result of the
difficult market conditions, particularly in China described above. Optical
Networks sales in EMEA as a whole were stable compared to the previous quarter
with weaker demand for core transmission equipment from network operators in the
UK offset by higher sales in Italy and the Middle East. During the third
quarter, SDH accounted for 89 per cent of Optical Networks sales (Q2: 87 per
cent) and DWDM for 7 per cent (Q2: 11 per cent); the balance related to sales of
network management systems. In January 2003, Marconi announced the award of a
new, 2-year frame contract with Telecom Italia, worth approximately Euro 15
million (approximately GBP10 million) for the supply of an optical backbone
network architecture based on the Group's recently launched next generation
digital cross connect, the MSH2K.
Sales of BBRS equipment fell by 9 per cent to GBP32 million (Q2: GBP35 million).
Sales of BBRS services, which for financial reporting purposes are consolidated
within Network Services, fell by 25 per cent to GBP18 million (Q2: GBP24
million). These declines were mainly due to lower volumes of products and
services delivered to the US Federal Government following the seasonally high
level of sales in the previous quarter, at the end of this major customer's
financial year. Sales to other customers in North America and EMEA remained
stable compared to the previous quarter. Sales in APAC were lower as a result of
the difficult market conditions in the region while sales in CALA saw a modest
increase due to two specific contracts with Telefonica (Brazil) and the Mexican
Supreme Court. In December 2002, Marconi announced the first European sale of
its recently launched multi-service core switch-router, the BXR 48000, to a
major financial institution.
European Access sales remained stable at GBP69 million (Q2: GBP69 million).
Sales of the Group's fixed wireless access systems in Germany were down compared
to the previous quarter as a result of reduced capital expenditure by a number
of the major German wireless operators. This decrease was offset by increased
sales of voice systems in the UK largely due to a software upgrade and of high
density DSLAMs (Access Hub) in Italy and CALA. During the third quarter, Marconi
announced the first sale of its recently launched Softswitch system to Jersey
Telecom. On 8 January 2003, Marconi announced a new order for its Access Hub
platform from French competitive network operator, LDCOM.
North American Access sales were stable at GBP23 million (Q2: GBP23 million).
Bell South remains the largest customer of access equipment in North America as
it continues to roll out the Group's copper access and fiber-to-the-curb
solutions.
Sales of OPP equipment fell 12 per cent to GBP30 million (Q2: GBP34 million).
Sales of OPP services, which for financial reporting purposes are consolidated
within Network Services, fell 8 per cent to GBP22 million (Q2: GBP24 million).
These declines were in line with the overall trend in the market for outside
plant and power equipment and services in the Americas and the Group believes
that it continues to maintain its strong market positions in this business.
Other Network Equipment sales fell by GBP4 million, or approximately 27 per cent
to GBP11 million (Q2: GBP15 million). This decline occurred in APAC and was
mainly due to the completion of a one-off contract in the region during the
previous quarter.
IC&M sales increased by GBP4 million, or approximately 4 per cent to GBP93
million (Q2: GBP89 million). Sales increased in the UK partly as a result of the
Group's focus on reducing the time between equipment provision and its
installation and commissioning. These were partially offset by the decrease in
OPP service sales in the US described above.
VAS sales dropped by GBP7 million, or approximately 6 per cent to GBP102 million
(Q2: GBP109 million). This was mainly due to lower sales of BBRS-related
services to the US Federal Government, in particular, in relation to a major
airport services contract which is near to completion and also as a result of
lower sales of IT outsourcing services prior to the Group's exit from this
activity, which was completed during December 2002. Sales of Integrated Systems
and Wireless Services were relatively stable compared to the previous quarter.
Key Customers
Marconi continued to benefit from the support of its strong customer base of
predominantly incumbent operators and government agencies during the third
quarter. The majority of Core sales in the period were derived from existing
frame contracts.
The ten largest customers during the third quarter were BellSouth, BT, Ericsson,
Metro City Carriers, Telecom Italia, Telkom South Africa, UK Government, US
Federal Government, Verizon and Vodafone Group. In aggregate, these customers
accounted for 46 per cent of third quarter Core sales (Q2: ten largest customers
48 per cent). BT remains the Group's largest customer and accounted for 19 per
cent of Core sales in the third quarter (Q2: 19 per cent).
Operating Performance
Despite the lower sales volumes, Core gross margin showed a small improvement
compared to the underlying margin before stock provisions recorded in the
previous quarter (Q2: 21.6 per cent of sales). This improvement was mainly
achieved through further cost savings in the supply chain and within the Group's
service activities. While the accounting processes for the third quarter are not
yet complete, the Group does not currently expect to raise additional stock
provisions for the reporting period.
Further progress was made towards achieving the Group's target to reduce Core
operating costs to an annualised run-rate of GBP520 million by the end of the
current financial year. At the end of the third quarter, the operating cost
run-rate had fallen to approximately GBP550 million compared to an exit run-rate
of GBP635 million at the end of the previous quarter. Savings were achieved
across all main categories of expenditure - research and development, sales and
marketing and general and administrative. The majority of these savings resulted
from headcount reductions. Also during the quarter, further cost reduction
actions were initiated and the Group remains on track to achieve its targeted
GBP450 million annualised operating cost run-rate during the financial year
ending 31 March 2004.
Core headcount has been reduced by approximately 3,000 since the end of
September 2002 and, at the end of December 2002 was just over 16,000. Of the
total number of leavers during the period, approximately 500 employees left the
Group as a result of the disposal of the Group's South African legacy
operations, ATC, completed during December 2002.
A further 1,400 leavers have been identified and announced and are due to leave
the business in the next few months, giving a known headcount target of around
14,600. Once the reduced operating cost target has been achieved, the Group
expects to employ around 14,000 people in its Core business. As previously
disclosed, the Group will continue to incur exceptional cash costs in order to
complete its planned headcount reductions.
The overall operating performance in the Core business improved substantially
compared to the previous quarters of the financial year as a result of the
increase in Core gross margin and the further operating cost savings achieved
during the period.
Cash / Net Debt
Further significant progress was made towards the Group's goal to reach a
sustainable operating cash breakeven position. The Group recorded a positive
operating cash flow during the quarter, largely as a result of the improved
operating performance and reductions in working capital compared to the previous
quarter. Non-operating cash outflows relating to the Group's ongoing headcount
reduction programme and interest paid were partially offset by a tax refund
received during the period. In total, the Group's cash balance remained broadly
stable compared to the position at the end of September 2002.
At 31 December 2002, net debt amounted to GBP2.8 billion and comprised GBP3.9
billion of gross financial debt made up of GBP1.7 billion of Euro and US dollar
bond debt, GBP2.1 billion of Syndicate Bank debt (including GBP30 million
relating to the conversion of interest swap and equity derivative arrangements
to new loan agreements during the quarter and GBP54 million relating to
conversion of interest swap arrangements during the first half) and GBP0.1
billion of bilateral and other bank debt offset by GBP1.1 billion of cash. No
account has been taken of the impact of the proposed Restructuring.
Financial Restructuring
On 16 December 2002, Marconi announced modifications to the non-binding
indicative Heads of Terms for the financial restructuring of Marconi plc and its
wholly-owned subsidiary Marconi Corporation plc (the "Restructuring") and
amendments to the Interim Security provided to the Group's Syndicate Banks and
bondholders (including the bond trustees) and certain ESOP derivative providers.
Since that announcement, Marconi has made substantial progress in finalising
both the Scheme documentation which will be despatched to Scheme Creditors and
the Prospectus in connection with the listing of Marconi Corporation on the
London Stock Exchange.
Since 16 December 2002, the commercial terms outlined in the announcement have
been reflected in the restructuring documentation, which is now substantially
complete. In addition, the mechanics for enabling the Senior Notes to be
denominated in Euros with a possible US dollar option within certain limitations
have now been clarified and will enable creditors, at their option, to elect for
Senior Notes denominated in Euros or US$ within certain limitations.
Furthermore, negotiations to finalise the terms of the GBP50 million super
priority performance bonding facility and Marconi's working capital facilities
in the USA are also progressing well.
While significant progress has been made in preparing the documentation
necessary for the Restructuring, the expectation stated in December that the
formal Scheme documentation would be posted to Scheme Creditors in January 2003
with an effective date on or before 15 March, 2003 has now proved to be
unachievable. Given the complexity of the arrangements being documented, Marconi
now believes that finalisation of the documentation should be achieved within
the next few weeks with Scheme documentation being posted to creditors towards
the end of February following the initial court hearing. It is now expected that
implementation of the Restructuring will take place in April.
Marconi still expects to complete the Restructuring in line with the terms
announced on 29 August, 2002 as amended by the announcement on 16 December 2002.
The Group remains on track to distribute GBP260 million in cash to Scheme
creditors, of which GBP95 million has already been paid to financial creditors.
Marconi's Board continues to believe the proposed Restructuring is in the best
interests of Marconi and its stakeholders as a whole. The Board believes that it
will continue to receive the support of the joint lead co-ordinators of the
Syndicate Banks and the informal ad hoc committee of bondholders in finalising
the documentation to effect the Restructuring. The Board will be communicating
with the Syndicate Banks and the informal ad hoc committee of bondholders to
obtain the support of the creditor groups for an extension to the timetable.
Definitions
1) Operating cash flow is defined as cash flow from continuing
operations before net capital expenditure and exceptional items
2) Operating costs are defined as research and development costs,
general and administrative costs, selling and distribution costs
and other costs but excluding goodwill amortisation and
exceptional items
ENDS/...
Notes to Editors
About Marconi plc
Marconi plc is a global telecommunications equipment and solutions company
headquartered in London. The company's core business is the provision of
innovative and reliable optical networks, broadband routing and switching and
broadband access technologies and services. The company's customer base includes
many of the world's largest telecommunications operators.
The company is listed on the London Stock Exchange under the symbol MONI.
Additional information about Marconi can be found at www.marconi.com.
Copyright (c) 2002 Marconi plc. All rights reserved. All brands or product names
are trademarks of their respective holders.
Contacts
Name: David Beck / Joe Kelly Heather Green
Title: Public Relations Investor Relations
Phone: +44 (0) 207 306 1771 +44 (0) 207 306 1735
+44 (0) 207 603 1490
joe.kelly@marconi.com heather.green@marconi.com
Cautionary statement regarding forward-looking statements
In order to utilize the "Safe Harbor" provision of the U.S. Private Securities
Litigation Reform Act of 1995, Marconi plc ("the Company") is providing the
following cautionary statement. Except for reported financial results or other
historical information, certain statements in this press release are
forward-looking statements, including, but not limited to, statements that are
predictions of or indicate future events, trends, plans or objectives. Reliance
should not be placed on such statements because, by their nature, they are
subject to known and unknown risks and uncertainties and can be affected by
other factors which are beyond the control of the Company and its subsidiaries,
and may cause actual results, performance and achievements to differ materially
from anticipated future results, performance and achievements expressed or
implied in the forward-looking statements (and from the past results,
performance or achievement). Although not exhaustive, the following factors
could cause such differences: any major disruption in production at our key
facilities; changes in the environmental, tax and other laws and regulations,
which, among other things, could cause us to incur substantial additional
capital expenditures and operation and maintenance costs; and adverse changes in
the markets for our products, including as a result of increased competition in
the highly competitive international markets for such products. These factors
and other factors that could effect these forward-looking statements are
described in the Company's Form 20-F report and Form 6-K reports filed with the
U.S. Securities and Exchange Commission. The Company disclaims any obligation to
publicly update or revise these forward-looking statements, whether to reflect
new information or future events or circumstances or otherwise.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARCONI PLC
By: ____M Skelly____
Name: M Skelly
Title: Secretary
Date: 24 January 2003