Cash payments by Marconi pave way for debt reduction

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The Independent Online

The telecoms equipment maker Marconi yesterday paved the way for a bond buyback programme by signalling it was on course to meet its second interest payment of £19.5m.

Under the terms of the company's recent rescue financial restructuring, it cannot buy back any debt until it has made two quarterly interest payments in cash.

While Marconi said yesterday that "no definitive" plans were in place to buy back some of its £780m debt, the company is thought likely to initiate such a programme.

One of the key criteria in the incentive plan for Marconi's management team, headed by chief executive Mike Parton, is debt reduction.

The move was flagged as the company announced that its core business had made an operating loss of £38m in the first quarter to 30 June, before accounting for goodwill amortisation and exceptional items.

The figure is higher than the £17m loss it recorded in the previous quarter but substantially lower than the £115m loss it made in the first quarter of last year.

Nevertheless, Mr Parton insisted the company was firmly in recovery mode. "We remain on track to meet our year end operational targets," he said. "We had net cash at the end of June and have made a start to redeem our new notes.

"These, we believe, are the measures of a business that has successfully completed its financial reconstruction and of an organisation that can be optimistic for the medium term".

As outlined in last month's trading update, Marconi recorded sales of £367m in the three-month period - a drop of about 14.5 per cent from the previous quarter.

While the company reiterated that market conditions remained tough, it said again that it expected the current quarter to be flat to "slightly up" on the first quarter.

Analysts at Dresdner Kleinwort Wasserstein said: "Marconi continues to suffer from lacklustre demand ... even so, the company should be within break-even on quarterly sales of £400m by mid-2004."