Marconi 'on course' to revert to profitable operations next year

The telecoms equipment maker Marconi yesterday painted a rosier picture of trading, saying customers were, "for the first time in over two years", looking to raise their spending.

Separately, the company also announced it was selling its UMTS business - a developer of base stations for third generation mobile phone networks - to Finmeccanica.

Two months ago, it said it planned to close that business, which employs 260 people in Italy, having failed to find a buyer. It is thought the Italian government intervened in the process at the 11th hour to save jobs. The company's chief executive, Mike Parton, said: "We said we'd close it because at that time we didn't see a meaningful opportunity to sell it. We would have closed it but Finmeccanica wanted to buy it."

Marconi said it would inject £4.2m into the UMTS business before it was sold in return for Finmeccanica taking it, and its £15m-a-year cost base, off its hands. The disposal came as Marconi sounded its most positive tone on trading for some time. Customers including BT - which makes up 20 per cent of Marconi's sales, Telecom Italia and Vodafone all recently indicated they would increase their capital expenditure, it said.

Marconi noted, however, that it would take time for that positive news to produce firm orders and sales. Mr Parton said he didn't expect to see any uplift for another two quarters from recent contract wins.

"We are saying that we think next quarter will be flat, or slightly up [on this quarter]," he said, adding: "If we do achieve flat sales in quarter two and if we, at that point, then I think quarter three will also be flat then we'll probably look back and say we've seen the worst," he said.

In the three months to 30 June, Marconi recorded sales of £367m - a 14.7 per cent fall from the previous three-month period and a drop of 38 per cent from the same quarter a year ago. The sales figure came as no surprise to City analysts since the company had already warned that revenues in the quarter would dip below the £400m level and that sales for the whole year would be below last year.

"With revenues entirely on track with our earlier forecasts, the balance sheet strengthening and management expressing optimism regarding an upturn in capital expenditure plans, Marconi seems on course to revert to profitable operations within the next 12 months," said analysts at Dresdner Kleinwort Wasserstein.

Marconi, which recently completed its financial restructuring, said its gross debt of £783m was now more than offset by £788m of cash. "This is the third consecutive quarter where we've been operating and total cash positive and we now have net cash not net debt," Mr Parton said.

He said the company might sell down more of its shares in the internet company Easynet in the autumn. Marconi recently raised £40.5m by cutting its stake to 40 per cent from 72 per cent.