Edited by Mardi Balgochian Scalise, Lightwave Web Editor
Marconi (London and NASDAQ: MONI) announced operating losses, plans for cost reductions, restructuring and refocus, new leadership and more job losses. Only time will tell if the changes will make a difference.
The company provided a trading update and announced actions to sharpen its focus on its core network communications business, to restore operational efficiency and reduce debt, and to develop a sustainable business model for future performance improvement.
Trading Update
In the first quarter ended 30 June 2001, Group sales were down 12 percent to £1,134 million. Within the core business, sales of Networks products and services in the first quarter declined more than 25 percent, compared with the same period in the prior year. The speed of sales reduction exceeded the rate at which the Company was able to reduce costs. This, combined with adverse mix, has led to a first quarter Group operating loss of £227 million and an operating cash outflow of £553 million.
Net debt stabilized during August at £4.4 billion, compared with £3.2 billion at March 31 2001.
Board Changes and Management Appointments
Sir Roger Hurn and Lord Simpson have today resigned from the Board and the Company. Derek Bonham, senior non-executive Director, will become interim Chairman until a new Chairman is appointed. Effective immediately, Mike Parton, CEO Networks, has been appointed Chief Executive of Marconi. Mike Donovan, Executive Director-Operations, has been appointed Chief Operating Officer. Steve Hare and Rob Meakin continue as Chief Financial Officer and Human Resources Director, respectively. In addition, Neil Sutcliffe is appointed CEO Marconi Capital, and Geoff Doy to CEO Sales & Marketing. Damian Reid and Jeff Gordon continue as Chief Strategy Officer and General Counsel, respectively.
Operational Review
The Operational Review resulted in an action plan centered on four principal areas:
Sharper focus on core network communications businesses
The company will focus on optical networks (SDH/DWDM), high capacity packet switches, broadband access platforms which interface with the core of the networks, and software and support services associated with these products.
As a result of the decision to refocus on the network core, a number of strategic actions will be taken. In the enterprise market, the company will concentrate on selected major customers and distribution channels that require carrier-class networks. In addition, it will streamline its portfolio of access platforms and seek partners to assist in development activities such as optical components and third generation mobile base stations.
The majority of the R&D investment in the core business will be directed to the development of reconfigurable, highly resilient optical networks consisting of ring-based and ultra long-haul optical systems and optical cross-connects, along with very high capacity switch routing platforms, a multi-service switching platform and a high-density DSLAM. This concentration enables Marconi to invest competitive levels to maintain its networking products.
Non-core activities to be managed for value
Marconi will transfer its non-core activities to Marconi Capital to be managed for value in order to enhance the Group's earnings and cash flow and to reduce debt. The businesses currently in Capital include Medical Systems (pending completion of its sale to Philips), as well as the Group's shareholdings in Easynet and its 50/50 domestic appliances joint venture, GDA. To these will be added Commerce Systems, Data Systems, Interactive Systems (formerly Payphones), MTech (formerly Marconi Applied Technologies), Marconi Optical Components and other smaller businesses.
Further cost reductions
To significantly reduce costs within its core business, Marconi will cut another 2,000 jobs, in addition to the 8,000 already announced this year. By August 31 2001, 5,977 employees had left the Company as a direct result of restructuring plans and a further 1,625 employees had been transferred to Jabil Circuit Inc. as part of the on-going manufacturing outsourcing program.
The Company will integrate its current headquarters and three-divisional structure into a single organization. At the same time, it will pursue outsourcing initiatives beyond the previously announced agreement with Jabil Circuit Inc. In particular, the Company intends to outsource parts of its back office infrastructure. The Company also plans to eliminate surplus property assets.
Planned cost-reduction measures are expected to save the company approximately £600 million, of which £400 million relates to operating overheads and £200 million relates to direct cost of sales. After these savings, the Company expects to enter the next financial year with an operating cost base of £1 billion in its core business.
Debt reduction actions
Marconi is targeting a level of net debt of £2.7 billion to £3.2 billion by March 2002. The Company expects to generate more than £500 million from operating income and reductions in working capital. Marconi will halt investments in cash-consuming business development activities and intends to generate proceeds from disposals and other asset realizations in excess of £500 million in addition to those already announced.
Financial Communications Policy
Marconi will provide trading updates within 10 working days of each quarter-end in addition to reporting its statutory interim and full-year financial statements.